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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to __________.
Commission file number 1-5686.
THE CONTINENTAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2610607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, New York 10038
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 212-440-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1.00 per share New York, Midwest and Pacific
Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
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 .......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of March 27, 1995 was $1,044,020,289.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 27, 1995.
55,498,057 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement, filed with the Securities
and Exchange Commission and mailed to shareholders on March 29, 1995, in
connection with a May 9, 1995 Special Meeting of Shareholders, including
registrant's Management's Discussion and Analysis of Financial Condition and
Results of Operations, Consolidated Financial Statements and Notes to the
Consolidated Financial Statements, are incorporated by reference into Parts
I, II and III of this Report.
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<PAGE>
PART I
Item 1. Business
General Information
The Continental Corporation ("Continental"), a New York corporation
incorporated in 1968, is an insurance holding company. Its best known
subsidiary, The Continental Insurance Company, was organized in 1853. The
principal business of Continental is the ownership of a group of property and
casualty insurance companies. Continental's other principal subsidiaries and
affiliates provide investment management, claims adjusting and risk management
services. In 1993, Continental sold its premium financing operations; in 1992,
Continental instituted a plan to withdraw from the traditional assumed
reinsurance and marine reinsurance businesses and the indigenous international
and international marine insurance businesses. The results of these operations
are reported as discontinued and previously reported information has been
restated accordingly.
On December 6, 1994, Continental entered into an Agreement and Plan of Merger
(the "Merger Agreement") under which CNA Financial Corporation ("CNA") will
acquire Continental through a merger of a wholly-owned CNA subsidiary with and
into Continental (the "CNA Merger"). Under the Merger Agreement, each share of
Continental common stock outstanding prior to the Merger (other than certain
shares held by Continental and its subsidiaries), will be converted into the
right to receive $20.00 in cash, without interest, upon consummation of the
Merger. The proposed CNA Merger is subject to satisfaction of certain
conditions, including approval by Continental's shareholders and various
regulatory authorities, and is required to be consummated prior to December 31,
1995. Consummation of the proposed CNA Merger is expected in the first half of
1995.
Re-engineering Strategy
Continental's results over the past several years have been adversely
affected by a variety of factors, including a downturn in the insurance
industry, a number of severe catastrophic losses and a high expense structure.
In the first quarter of 1994, Continental experienced a substantial increase in
weather-related losses not officially designated as catastrophic and a
substantial increase in large losses. The cumulative effect of these factors
resulted in a significant reduction in statutory surplus of Continental's
insurance company subsidiaries, and Continental's shareholders' equity. In
1994, Continental also experienced a reduction in the value of its investment
portfolio resulting from increased interest rates, which also affected
shareholders' equity.
In early 1994, Continental began reviewing all aspects of its operations in
order to develop a plan to address these concerns. Following its review,
Continental began to implement a restructuring plan designed to increase the
profitability of its underwriting businesses, shift the focus of its business to
more profitable lines, reduce its expense structure, reduce its exposure in
catastrophe-prone areas, reduce its premium to surplus ratio, strengthen its
balance sheet and improve its capital position.
As part of its re-engineering efforts, Continental has taken several steps
that it believes will enhance the profitability of its insurance underwriting
operations. In June 1994, Continental began to curtail its property writings of
commercial and personal package business, especially in catastrophe-prone areas,
and to alter the scope and breadth of its property coverages and exposures.
Continental has also increased rates in catastrophe-prone areas. Continental
also began shifting the mix of its business towards those areas in which
management believes Continental can achieve an underwriting profit without a
pre-determined target for business mix. As part of those efforts, Continental
restructured its Agency & Brokerage Group and formed in its place two new, more
focused operating groups -- Commercial Lines and Personal Lines. These two
groups compete in separate arenas and require different sets of resources. They
are now structured on a product management basis, which Continental believes
will provide enhanced customer service and operating efficiencies. Continen-
tal's Special Operations Group will remain focused on specialty commercial
lines. This will allow Continental to focus more clearly on underwriting profit
by product and industry.
<PAGE>
Continental is also focusing on increasing its profitability through changes
in its distribution system by raising the standards for its agents. Continental
is taking steps to increase the level of business that is distributed through
agents that maintain the lowest loss ratios, decrease the level of business
distributed through non-key agents and terminate unprofitable agents.
To reduce its operating expenses, in March 1994, Continental's senior
management approved a definitive plan (the "First Quarter Plan") to re-engineer,
as noted above, the operations of Continental's Agency & Brokerage division
(including home office, field claims and underwriting), selected operations of
Continental's Special Operations Group, particularly its multinational unit and
several corporate staff divisions, including Human Resources, Corporate Claims,
Actuarial, Finance and Legal. The locations identified for re-engineering were
Cranbury, New Jersey; New York, New York; Duluth, Georgia; Chicago, Illinois;
Dallas, Texas; Glens Falls, New York; Overland Park, Kansas; Rancho Cordova,
California; Columbus, Ohio; York, Pennsylvania and certain overseas locations.
The First Quarter Plan provided for the elimination of 680 positions (net of new
hires and transfers and resulting from approximately 1,200 terminations), from a
total workforce of 12,255 at year end 1993, within one year from approval of the
plan, as well as the achievement of business-related expense savings by the
first quarter of 1995. During 1994, substantially all of the employees
identified for termination in the First Quarter Plan were notified that their
positions had been eliminated. The First Quarter Plan included severance
packages for all affected employees, as well as extended benefits and
outplacement counseling for many of them.
The First Quarter Plan re-engineering efforts also included vacating leased
space at 27 locations. As of December 31, 1994, all of these locations had been
effectively vacated. Continental's underwriting results for 1994 included a $45
million restructuring charge (the "Restructuring Charge") relating to the First
Quarter Plan, which included $29 million for expected severance and related
benefit costs and $16 million in expected lease vacation and other associated
costs.
Also, to further reduce its operating expenses, Continental reconsidered its
staffing needs in the second quarter and developed a plan in the third quarter
(the "Third Quarter Plan") that would result in a further net reduction of
approximately 1,100 positions (in addition to the terminations of approximately
1,200 under the First Quarter Plan). Continental's 1994 underwriting results
include a $14 million additional staff reduction charge (the "Additional Staff
Reduction Charge"), which included expected severance and related benefit costs.
During 1994, substantially all employees identified for termination in the Third
Quarter Plan were notified that their positions had been eliminated. Management
believes that the re-engineering actions taken under the First Quarter Plan and
the Third Quarter Plan will create annual pre-tax savings of about $120 million,
compared with Continental's reported 1993 expenses.
Continental has also taken steps to strengthen its balance sheet by
eliminating dividends on its common stock and raising additional equity capital.
In addition, in order to strengthen the capital base of its domestic insurance
subsidiaries, during 1994, Continental deployed $510 million of capital to its
domestic insurance subsidiaries from non-domestic insurance subsidiaries,
investments held at the holding company level and capital raised by Continental.
In August 1994, Continental's Board of Directors, citing the need to further
strengthen the Corporation's capital base, eliminated the quarterly cash
dividend of $.25 per share on the Corporation's common stock. Continental will
be prohibited under certain provisions of its preferred stock instruments from
paying common stock dividends for three years and will be restricted from paying
common stock dividends thereafter under certain circumstances.
Pursuant to a separate agreement (the "CNA Securities Purchase Agreement")
executed at the time of entering into the Merger Agreement, CNA and its
affiliate Continental Casualty Company ("CCC") acquired for $275 million in cash
(i) $200 million in aggregate liquidation value of two
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<PAGE>
series of 9.75% non-convertible preferred stock, redeemable under certain
circumstances at the liquidation value plus an additional amount reflecting any
increase in the per share price of Continental's common stock over $15.75 based
on an average market price during a period relating to the notice of redemption;
(ii) an option, which is exercisable only after termination of the Merger
Agreement, to acquire $125 million in liquidation value of another series of
9.75% non-convertible preferred stock; and (iii) $75 million in liquidation
value of a series of 12% non-convertible preferred stock, maturing in ten years
and redeemable under certain circumstances. The option and its underlying
preferred stock will be redeemable under certain circumstances at an additional
amount reflecting any increase in the per share price of the common stock over
$17.75 based on an average market price during a period relating to the notice
of redemption and, in the case of the underlying preferred stock, the
liquidation value. The 9.75% preferred stock will mature in forty years, with a
right of the holders to require redemption in 15 years, and may be redeemed by
Continental under certain circumstances. If the CNA Merger is not completed,
CNA may, subject to regulatory approvals, exchange approximately $166 million of
the $200 million liquidation value 9.75% preferred stock for another series of
preferred stock that would be convertible into approximately 19% of
Continental's currently outstanding common shares (approximately 16% on a fully
diluted basis) at an initial conversion price, subject to adjustment, of $15.75.
Following such exchange, CNA would be entitled to nominate up to four members of
Continental's Board of Directors. CNA would also be subject to certain
standstill agreements and restrictions on transfer. (For a more detailed
description of the securities purchased by CNA see Continental's Proxy
Statement, filed with the Securities and Exchange Commission and mailed to
shareholders on March 29, 1995, in connection with a May 9, 1995 Special Meeting
of Shareholders (the "Proxy Statement") at pages 36 - 43.)
The capital investment by CNA, which was completed on December 9, 1994, took
the place of a proposed $200 million investment in Continental by Insurance
Partners L.P. ("IP"). In connection with the execution of the Merger Agreement
and the CNA Securities Purchase Agreement, Continental terminated a securities
purchase agreement with IP (the "IP Securities Purchase Agreement") and an
agreement under which an affiliate of IP was to purchase Continental Asset
Management Corp., Continental's asset management subsidiary. (See the Proxy
Statement at pages 13 - 14.)
Of the $275 million CNA capital investment, $235 million was contributed by
Continental to its domestic insurance companies, as part of the $510 million
deployment of capital. $25 million was used to fund termination fees (including
$7 million of expenses) payable to IP upon termination of the IP Securities
Purchase Agreement, and $10 million was used to pay severance benefits to
Richard M. Haverland, former director and Vice Chairman of Continental, pursuant
to his employment agreement with Continental, upon his resignation upon
termination of the IP Securities Purchase Agreement. The remainder of such
proceeds was used to pay certain expenses in connection with Continental's
capital infusion efforts and the CNA Merger.
Continental has also sold non-strategic businesses. In 1994, Continental
sold The Continental Insurance Company of Canada ("CI") and its wholly-owned
subsidiaries ("CI Canada"), a major property and casualty insurer in Canada,
which wrote $320 million of premiums in 1994. (See pages 6 - 7 herein.) In
1995, Continental sold Casualty Insurance Company and its wholly-owned subsid-
iary ("Casualty"), the leading writer of workers' compensation insurance in
Illinois, which wrote $385 million of premiums in 1994. (See page 9 herein.)
In mid-1994, Continental also entered into a quota-share agreement (the
"Quota Share Cession") to reinsure a portion of its domestic personal lines with
a major U.S. reinsurer. From July 1, 1994 through December 31, 1995, the
quota share participation is 50% of the covered lines. Continental ceded
written premiums of $325 million in 1994, and expects to cede premiums related
to this agreement of approximately $300 million in 1995. The Quota Share
Cession will help Continental lower its premium-to-surplus ratio and further
reduce its exposure to catastrophes subject to the agreement's catastrophe
coverage limits.
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<PAGE>
These actions have already had the following results: Continental's work
force has been reduced by 2,898 employees (including 2,300 from planned
reductions in force), from 12,255 employees at December 31, 1993 to 9,357 at
December 31, 1994; more selective underwriting has reduced net premiums written
by approximately $435 million as at December 31, 1994 from 1993 levels; the
Quota Share Cession has reduced net premiums written by $325 million as at
December 31, 1994 from 1993 levels; sales of businesses are expected to reduce
net premiums written by an additional approximately $705 million from 1994
levels; the capital position of Continental's domestic insurance subsidiaries
has been strengthened by the deployment of $510 million of capital to such
insurance subsidiaries from non-domestic insurance subsidiaries, investments
held at the holding company level and capital raised by Continental; and
Continental's capital position has been improved by the elimination of dividends
on Common Stock. Continental expects that these and similar actions, if
continued, would, barring unexpected adverse events such as have occurred in
the past, result in a significant improvement in its financial condition and
profitability. Continental's restructuring efforts have not, however, been
fully implemented, and there can be no assurance that implementation of such
efforts would result in future profitability or a significant improvement in
Continental's financial condition.
Under the Merger Agreement, Continental is required to conduct its business
in the ordinary course and use all reasonable efforts to preserve intact its
business organizations and relationships with third parties and to keep
available the services of the present officers and key employees. (See Proxy
Statement at pages 25 - 26.) As a result, Continental will not implement
further premium reduction or other restructuring efforts pending the CNA merger.
If the CNA Merger is not approved by Continental's shareholders, the Board of
Directors of Continental would consider what action should be taken in the
interests of Continental's shareholders, including implementing further
restructuring efforts, as well as continuing as an independent company, or
exploring the sale of Continental or of an additional minority interest in
Continental. If restructuring efforts were resumed, there can be no assurance
that the financial condition and profitability of Continental would improve to
the same extent as anticipated when the Merger Agreement was executed. If the
CNA Merger is not approved by Continental's shareholders, CCC will continue to
own Continental's preferred stock and will be entitled to seek the necessary
regulatory approvals to convert certain of those shares into shares that would
give it voting and other rights. CNA will retain its option to purchase certain
other preferred stock of Continental. Continental would seek to raise an
additional $100 million in capital through the sale of either non-convertible
preferred stock or senior notes. (See "Miscellaneous" commencing on page 35
herein.) Even with further restructuring efforts and the additional
investments, Continental would likely continue to have little surplus cushion
available for adverse events, such as additional high catastrophe losses,
adverse loss development or further reductions in the value of its investment
portfolio, and a high debt to capital ratio. Continental would also be subject
to any adverse market consequences resulting from a failure of the CNA Merger to
be consummated.
4
<PAGE>
Financial Information Relating to Business Segments
Continental's revenues from insurance operations accounted for approximately
98% of Continental's consolidated revenues for the year ended December 31, 1994,
and approximately 97% and 98% of consolidated revenues for each of the years
ended December 31, 1993 and 1992, respectively. The following table sets forth
certain information with respect to Continental's business segments for each of
the last three years:
<TABLE>
<CAPTION>
Year Ended December 31, (2)
-----------------------------------------
1994 1993 1992
---------- ----------- -----------
(millions)
<S> <C> <C> <C>
Revenues:
Agency & Brokerage Commercial . . $ 2,164.5 $ 2,121.3 $ 1,919.5
Agency & Brokerage Personal . . . 704.0 861.6 777.4
Specialized Commercial . . . . . . 1,560.6 1,433.2 1,201.1
---------- ----------- -----------
Total Premiums Earned . . . . . . . 4,429.1 4,416.1 3,898.0
Net Investment Income (1) . . . . . 490.8 514.3 559.5
Realized Capital Gains (1). . . . . 76.7 110.3 222.3
---------- ----------- -----------
Insurance Operations . . . . . . . 4,996.6 5,040.7 4,679.8
Corporate & Other Operations . . . 104.8 133.0 117.2
---------- ----------- -----------
Total . . . . . . . . . . . . . . $ 5,101.4 $ 5,173.7 $ 4,797.0
========== =========== ==========
Income (Loss) from Continuing Operations before Income
Taxes:
Agency & Brokerage Commercial . . . $ (853.6) $ (234.8) $ (281.0)
Agency & Brokerage Personal . . . . . (96.1) (78.1) (127.0)
Specialized Commercial . . . . . . . (475.1) (92.5) (173.6)
---------- ----------- -----------
GAAP Underwriting Loss . . . . . . . (1,424.8) (405.4) (581.6)
Net Investment Income (1) . . . . . . 490.8 514.3 559.5
Realized Capital Gains (1). . . . . . 76.7 110.1 222.3
---------- ----------- -----------
Insurance Operations . . . . . . . . (857.3) 219.0 200.2
Corporate & Other Operations . . . . (150.2) (41.1) (69.5)
---------- ----------- -----------
Total . . . . . . . . . . . . . . . $ (1,007.5) $ 177.9 $ 130.7
========== =========== ==========
Identifiable Assets:
Insurance Operations . . . . . . . . $ 14,186.7 $ 15,471.9 $ 15,113.5
Corporate & Other Operations . . . . 1,694.7 583.9 149.9
---------- ----------- -----------
Total Assets from Continuing
Operations . . . . . . . . . . . 15,881.4 16,055.8 15,263.4
Net Assets of Discontinued
Operations . . . . . . . . . . . . 88.2 84.6 310.5
---------- ----------- -----------
Total Assets . . . . . . . . . . . $ 15,969.6 $ 16,140.4 $ 15,573.9
========== =========== ==========
</TABLE>
____________________
(1) Distinct investment portfolios are not maintained for each insurance
segment, and, accordingly, allocation of assets, net investment income and
realized capital gains to each insurance segment is not performed.
(2) Certain reclassifications have been made to the prior years' financial
information to conform to the 1994 presentation.
5
<PAGE>
General Information Relating to Business Segments
Continental's insurance operations (the "Insurance Operations") are comprised
of three segments: Agency & Brokerage Commercial, Agency & Brokerage Personal
and Specialized Commercial. These operations are conducted by Continental's
property and casualty insurance subsidiaries. One or more of these companies is
licensed or admitted to conduct business in each state or territory of the
United States and in each province or territory of Canada. The Insurance
Operations generated 98% of consolidated revenues for 1994, including 87% from
premiums earned and 11% from investment activities (net investment income and
realized capital gains). Continental's other segment is Corporate & Other
Operations, which principally includes investment management, claims adjusting
and risk management services.
Agency & Brokerage Commercial
Continental's Agency & Brokerage Commercial segment focuses on the production
of property and casualty insurance coverage in the United States and Canada
through independent insurance agents and brokers, almost all of whom also
represent other companies. In 1994, the Agency & Brokerage Commercial segment
included: (1) the new Commercial Lines group; (2) Continental Risk Management
Services operations; (3) Continental Canada's commercial lines operations; and
(4) commercial lines operations of First Insurance Company of Hawaii, Ltd., a
60%-owned Continental subsidiary ("First of Hawaii"). For the fiscal year ended
December 31, 1994, the Agency & Brokerage Commercial segment produced 49.8% of
Continental's consolidated written premiums. In 1994, premiums on its com-
mercial multi-peril policies represented 57.8% of the segment's written premi-
ums. Other principal lines written by the Agency & Brokerage Commercial segment
include workers' compensation, commercial automobile, general liability, boiler
and machinery, and fire & allied lines.
Continental's Agency & Brokerage Commercial segment is structured on a
product management basis. Agency & Brokerage Commercial operations consist of
five regional offices containing underwriters and support personnel and a
network of approximately 30 territorial offices responsible for sales and
underwriting.
Continental Risk Management Services operations market custom-tailored
casualty coverages to Continental's large commercial accounts, including primary
and excess coverage for workers' compensation, general liability and commercial
automobile risks. Such operations also provide claims management, loss control
and actuarial services for its clients.
Continental's Canadian operations, which are considered part of North
American operations and which write commercial and personal property and
casualty coverages in Canada, included the following during 1994: (1) CI
Canada, which was sold as of December 31, 1994; and (2) branch offices of two of
Continental's U.S. property and casualty companies. In October 1994,
Continental entered into an agreement to sell CI Canada to Fairfax Financial
Holdings Limited, a Canadian financial services company ("Fairfax"), for 130
million Canadian dollars, debt securities of Fairfax with a face value of 25
million Canadian dollars and a contingent payment of up to 10 million Canadian
dollars based on the performance of CI Canada through December 31, 1999. The
approximate U.S. dollar equivalents at the exchange rate on December 31, 1994,
are $95 million, $18 million and $7 million, respectively. Due to the
uncertainty of future performance, no provision has been made in Continental's
Consolidated Financial Statements for any potential gain from the contingent
payment from Fairfax to Continental. Continental provided a guarantee of up to
40 million Canadian dollars for adverse loss development on accident years 1993
and prior, which, based on current actuarial reviews, is not expected to be
utilized. The entities sold accounted for 10.3% of Agency &
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Brokerage Commercial's written premiums in 1994. The sale was closed as of
December 31, 1994, and Continental recognized a $10 million loss on the
transaction. Subsequent to that sale, Continental's Canadian operations
consist of its two remaining branch offices in Canada.
First of Hawaii is a property and casualty insurer in the Hawaiian Islands.
As of December 31, 1994, The Tokio Marine and Fire Insurance Company, Ltd., a
Japanese insurance company, owns the remaining 40% of the outstanding shares of
First of Hawaii.
The Agency & Brokerage Commercial segment's 1994 underwriting results
decreased $619 million from 1993, primarily due to the segment's $269 million
share of a $480 million charge to establish, for the first time, loss and loss
expense reserves and a reinsurance recoverable charge related to incurred but
not reported asbestos-related, other toxic tort and environmental pollution
claims (the "Environmental IBNR Charge"); its $70 million share of a $200
million charge to strengthen Continental's commercial multi-peril and workers'
compensation reserves (the "Reserve Strengthening Charge") (see "Reserves for
Unpaid Losses and Loss Expenses" commencing on page 22 herein); a $31 million
charge for an additional provision for uncollectible premiums receivable (the
"Premiums Receivables Charge"); increases in non-catastrophe weather-related
losses and large losses; its $29 million share ($17 million in loss expenses and
$12 million in insurance operating expenses) of the Restructuring Charge; its
$21 million share of a $73 million provision for other assets; its $9 million
share ($1 million in loss expenses and $8 million in insurance operating
expenses) of the Additional Staff Reduction Charge; and a $35 million increase
in net reported environmental losses and loss expenses. The segment's premiums
earned increased $43 million from 1993, primarily due to increases in premiums
from growth in certain non-package standard commercial lines, partially offset
by the Premiums Receivable Charge. The segment's losses and loss expenses in-
creased $619 million, primarily due to the Environmental IBNR Charge; the
Reserve Strengthening Charge; increases in non-catastrophe weather-related
losses and large losses; the Restructuring Charge; the increase in net reported
environmental losses and loss expenses; and inflation in loss costs. Insurance
operating expenses increased $43 million, primarily due to the Restructuring
Charge, Additional Staff Reduction Charge, the provision for other assets and a
$21 million decrease in servicing carrier income, partially offset by expense
savings realized as a result of Continental's 1994 re-engineering.
Agency & Brokerage Personal
Continental's Agency & Brokerage Personal segment also focuses on the
production of property and casualty insurance coverage in the United States and
Canada through independent insurance agents and brokers, almost all of whom also
represent other companies. The Agency & Brokerage Personal segment includes:
(1) the new Personal Lines group, including employee accounts; (2) Continental's
Canadian personal lines operations; and (3) personal lines operations of First
of Hawaii, each of which is discussed above. For the fiscal year ended Decem-
ber 31, 1994, the Agency & Brokerage Personal segment produced 12.8% of
Continental's consolidated written premiums. Premiums on its personal package
policies represented 48.5% of the segment's written premiums. Other principal
lines written by the Agency & Brokerage Personal segment include automobile,
homeowners, and fire & allied lines.
Agency & Brokerage Personal operations consist of five regional offices,
four of which are shared with Agency & Brokerage Commercial, and an automated
business center that handles underwriting and processing of its personal lines.
CI Canada, which was sold as of December 31, 1994, accounted for 20% of
Agency & Brokerage Personal's written premiums in 1994.
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<PAGE>
The Agency & Brokerage Personal segment's 1994 underwriting results decreased
$18 million from 1993, primarily due to a $25 million increase in catastrophe-
related charges, the segment's $13 million share ($9 million in loss expenses
and $4 million in insurance operating expenses) of the Restructuring Charge, its
$10 million share of the provision for other assets and its $5 million share
($1 million in loss expenses and $4 million in insurance operating expenses) of
the Additional Staff Reduction Charge, partially offset by better loss
experience (excluding catastrophe losses) and a decrease in relative
underwriting expenses. The segment's premiums earned decreased $158 million
from 1993, primarily due to the cession of $170 million of domestic personal
lines business under a quota share agreement with General Reinsurance
Corporation (the "Quota Share Cession") and a decrease in the amount of risk
accepted, partially offset by price increases. The segment's losses and loss
expenses decreased $89 million, primarily due to the Quota Share Cession and the
decrease in the amount of risk accepted, partially offset by the increase in
catastrophe losses, the Restructuring Charge and inflation in loss costs. The
segment's insurance operating expenses improved $51 million, primarily due to a
$61 million decrease in commission expenses resulting from the Quota Share
Cession and expense savings realized as a result of the re-engineering,
partially offset by the Restructuring Charge, the Additional Staff Reduction
Charge and the provision for other assets.
Specialized Commercial
Continental's Specialized Commercial segment provides specialized commercial
coverages, principally in marine and aviation, workers' compensation, fidelity &
surety, excess and specialty, accident and health, medical malpractice,
customized financial coverage and multinational lines. This segment accounted
for 37.4% of Continental's consolidated written premiums for the 1994 fiscal
year. The Specialized Commercial segment included during 1994: (1) Marine
Office of America Corporation, a Continental subsidiary ("MOAC"); (2) a 37%
participation in the operations of Associated Aviation Underwriters ("AAU"),
which was reduced to a 25% participation by March 1995; (3) Continental Excess &
Select and other specialty operations; (4) Casualty Insurance Company, a
Continental subsidiary sold in February 1995 ("Casualty"); (5) Continental
Financial Institutions operations; (6) Continental Guaranty operations;
(7) Continental Credit operations; (8) Continental Insurance HealthCare opera-
tions; (9) The Continental Insurance Company of Puerto Rico ("Continental Puerto
Rico"); (10) The Continental Insurance Company (Europe) Limited, a Continental
subsidiary ("Continental Insurance (Europe)") and (11) Lombard Insurance Company
Limited and its subsidiary Lombard General Insurance Limited (together, the
"Lombard Entities"), which were sold in January 1995.
MOAC underwrites and manages ocean and inland marine insurance coverages,
automobile warranty coverages and service repair warranty coverages for
technical equipment through branch offices located throughout the United States.
It also concentrates on developing package policies for the transportation,
distribution and manufacturing industries. MOAC supports all of these coverages
with specialized claims handling, surveying, loss control and recovery services.
AAU writes insurance for many segments of the aviation industry through
branch offices located throughout the United States. Associated Aviation
Underwriters, Inc., in which Continental has a 50% interest, manages AAU.
Continental Excess & Select and other specialty operations are active in the
excess and specialty lines markets. Their principal types of coverage are stop-
loss protection on group health insurance programs, professional liability
insurance for lawyers, accountants and other classes of professionals, excess
liability insurance, directors' and officers' liability insurance and industry
targeted programs of liability insurance for the railroad, mining, skiing,
biotechnology and pharmaceutical industries.
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Continental Excess & Select operations also provide support services to
Continental's other excess liability and specialty lines operations.
Casualty and its subsidiary, Workers' Compensation and Indemnity Company of
California, were Continental subsidiaries engaged in writing certain preselected
classes of workers' compensation exposures in Illinois, Wisconsin, Indiana,
Michigan and southern California. In February 1995, Continental sold the stock
of Casualty to Fremont General Corporation for $225 million in cash and a
$25 million note. In 1995, Continental will recognize a pre-tax gain of
approximately $50 million from the sale of Casualty. The entities sold
accounted for 24.7% of the Specialized Commercial segment's written premiums in
1994.
Continental Financial Institutions operations provide highly specialized
coverages for financial institutions, from fidelity bonds to directors' and
officers' liability and professional liability insurance, as well as a range of
fidelity products for commercial businesses. Continental Guaranty operations
are a major provider of surety coverages. Continental Credit operations provide
credit insurance. The financial institutions, guaranty and credit operations
were previously divisions of a Continental subsidiary, Continental Guaranty &
Credit Corporation, which is no longer doing business as a separate corporate
entity.
Continental Insurance HealthCare operations primarily provide medical
malpractice insurance. Such operations also provide claims and risk management
services to insureds and other clients.
Continental Puerto Rico assumes business in Puerto Rico, primarily by way of
a quota-share reinsurance agreement with an unaffiliated entity, Puerto-Rican
American Insurance Company ("PRAICO"). In 1994, the quota-share participation
of Continental Puerto Rico was 8.1% of the net premiums written by PRAICO.
Continental Insurance (Europe) services some U.S. multinational companies.
In January 1995, pursuant to an agreement with Carlingford Gibbs Holdings
Limited, Continental sold the Lombard Entities, which were primarily engaged
in the business of writing business in Hong Kong. Proceeds from the sale
approximated $48 million, comprised of a $17 million dividend from Lombard
to Continental, and $31 million in cash at the closing. Continental does not
expect that this sale will have a significant impact on its results of
operations, financial condition or liquidity.
The Specialized Commercial segment's 1994 underwriting results decreased
$383 million from 1993, primarily due to the segment's $211 million share of the
Environmental IBNR Charge and its $130 million share of the Reserve
Strengthening Charge, partially offset by a $13 million decrease in catastrophe
losses. The segment's 1994 premiums earned increased $128 million from 1993 due
to price increases and acceptance of new risks in certain lines. Premiums
earned increased $69 million in domestic marine, $60 million in specialty
casualty, $41 million in workers' compensation in selected markets and
$11 million in aviation. These increases were partially offset by a $68 million
decrease in customized financial coverages and a $29 million decrease in
multinational business. The segment's losses and loss expenses increased
$457 million, despite the $13 million decrease in net catastrophe losses,
primarily due to the Environmental IBNR Charge; the Reserve Strengthening
Charge; inflation in loss costs and the increase in the amount of risk accepted.
Insurance operating expenses increased $54 million, primarily due to growth in
business written.
9
<PAGE>
Corporate & Other Operations
The Corporate & Other Operations segment includes Continental's corporate
operating expenses and the operations of Continental's non-insurance
subsidiaries. Continental's non-insurance subsidiaries primarily include: (1)
Continental Asset Management Corp. ("CAM"); (2) Continental Loss Adjusting
Services, Inc. ("CLAS"); (3) Continental Rehabilitation Resources, Inc. ("CRR");
(4) Ctek, Inc. ("Ctek"); (5) California Central Trust Bank Corporation
("CalTrust"); and (6) Settlement Options, Inc. ("Settlement Options").
CAM, a Continental subsidiary registered under the Investment Advisers Act of
1940, as amended, provides investment advisory services to Continental, its
subsidiaries, its employee benefit plans, certain affiliates and unrelated
parties under investment advisory agreements. Continental has had preliminary
discussions relating to a possible sale of CAM. Continental does not expect the
sale of CAM to have a significant impact on its financial position, results of
operations or liquidity.
CLAS provides claims services for Continental's subsidiaries and other
customers. Its wholly-owned subsidiary, CRR, provides case management and
vocational rehabilitation for injured employees of insureds and other clients.
Ctek engages in risk evaluation and improvement activities designed to help
insureds and other clients reduce or control losses to property, equipment,
materials and human resources.
CalTrust is a limited service bank whose activities are restricted to the
acceptance of deposits, investment of depository funds and acting as trustee
and/or third party administrator for employee benefit plans. Continental and
CNA have determined, in order that CNA not become subject to regulation under
the Bank Holding Company Act, as amended (the "BHC Act"), to dispose of CalTrust
and, if a sale is not completed prior to the Merger, to transfer ownership of
CalTrust to an independent trustee (the "Trustee") subject to an irrevocable
voting trust agreement. A change in control of CalTrust requires prior notice
to and approval of the Board of Governors of the Federal Reserve System (the
"Board") and of the California Superintendent of Banks (the "Superintendent").
Continental has requested and received confirmation from the Board Staff that,
if Continental proceeds in the manner described above, the Staff would not
recommend that the Board require the prior approval of the Board to effect the
Merger nor that the Board take any action against CNA under the BHC Act as a
result of the Merger. Continental has submitted to the Superintendent an
application for exemption of the transfer of CalTrust to the voting trust from
the notice and approval requirements. Continental intends to sell CalTrust
whether or not the Merger is consummated. Continental does not expect the sale
of CalTrust to have a significant impact on its financial position, results of
operations or liquidity.
The following table sets forth certain information with respect to CalTrust's
deposit liabilities for each of the last three years ended December 31:
10
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
---------- ----------- -----------
% % %
Average Average Average
Average Interest Average Interest Average Interest
Balance Rate Balance Rate Balance Rate
(millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Savings Deposits
(representing Total
Interest-Bearing
Time and Savings
Deposits) . . . . . . . . $ 120.7 2.7% $ 123.1 2.8% $ 121.9 3.4%
======= ====== ======= ====== ======= ======
</TABLE>
Settlement Options is a general insurance agency which consults with property
and casualty claim organizations on personal injury losses to reduce settlement
costs by arranging structured claim settlements, and purchases annuities to fund
these future periodic payment obligations.
Corporate and Other Operations generated a loss, before income tax benefits,
of $150 million for 1994, an increase in loss of $109 million from 1993. This
increase in losses was primarily due to a $43 million charge for fees and
expenses paid in connection with Continental's capital infusion efforts and the
Merger Agreement (see "Re-engineering Strategy" commencing on page 1 herein);
Corporate and Other Operations' $36 million share of the provision for other
assets; a $30 million decrease in investment results (a $15 million decrease in
net investment income and a $15 million decrease in realized capital gains); and
higher corporate operating expenses, partially offset by an $8 million decrease
in corporate interest expense.
Discontinued Operations
In 1993, Continental completed the sale of its premium financing
subsidiaries, AFCO Credit Corporation, AFCO Acceptance Corporation and CAFO Inc.
(collectively, "AFCO"), to Mellon Bank Corporation ("Mellon"). Proceeds from
the sale approximated $220 million, comprised of a $120 million dividend from
AFCO to Continental and $100 million in cash from Mellon Bank. In addition, the
sale agreement provides for a contingent payment to Continental based on AFCO's
premium finance growth through December 31, 1998, for a potential maximum
payment to Continental of up to $78 million. No provision has been made in
Continental's Consolidated Financial Statements for any potential gain from this
contingent payment from Mellon Bank. Continental realized a 1993 gain from the
sale of approximately $36 million, net of income taxes. Also in 1993,
Continental had an additional $15 million of income, net of income taxes, from
its discontinued premium financing operations and a loss of $2 million, net of
income tax benefits, from its discontinued insurance operations.
In 1993, results and net assets of the premium financing operations, which
were previously reported in the Corporate & Other Operations segment, were
classified in Continental's Consolidated Financial Statements as discontinued.
Previously reported information has been restated accordingly.
In 1994, Continental recognized an additional after-tax gain of $3.5 million,
relating to the sale of its premium financing operations, as a result of final
tax elections made for 1993. In addition, in 1994, Continental reduced various
tax liabilities related to previously discontinued insurance operations and
realized $36 million in additional income. The reduction in the various tax
liabilities
11
<PAGE>
is a direct result of a recent review of Continental's tax position and the
development of the discontinued operations over the last two years.
The following table sets forth certain information with respect to operating
results of the discontinued premium financing operations for each of the last
three years:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
--------- --------- ---------
(millions)
<S> <C> <C> <C>
Total Revenues . . . . . . . . . . . $ -- $ 92.4 $ 103.0
Total Expenses . . . . . . . . . . . -- 75.4 79.5
--------- --------- ---------
Income before Income Taxes . . . . . -- 17.0 23.5
Income Taxes . . . . . . . . . . . . -- 1.7 4.7
Gain on Disposal of Discontinued
Premium Financing Operations,
Net of Income Taxes . . . . . 3.5 36.0 --
--------- --------- ---------
Net Income from Discontinued Premium
Financing Operations . . . . . $ 3.5 $ 51.3 $ 18.8
========= ========= =========
</TABLE>
During 1992, Continental instituted a program to withdraw from the
traditional assumed reinsurance and marine reinsurance businesses, as well as
the indigenous international and international marine insurance businesses.
Continental has been accomplishing this withdrawal by running off the insurance
reserves of certain of these discontinued operations and selling the remaining
operations (all of which were sold by September 30, 1993). The results and net
assets of the aforementioned operations have been classified in Continental's
Consolidated Financial Statements as discontinued.
Continental's subsidiaries, Continental Reinsurance Corporation
International Limited ("CRC-I") and East River Insurance Company (Bermuda) Ltd.
("ERIC"), both of which are continuing entities, manage a substantial portion of
the assets and reserves of the discontinued operations, except reserves which
were recorded in foreign operations as a requirement of law. In 1992,
substantially all of the business of Continental's reinsurance subsidiary,
Continental Reinsurance Corporation, was discontinued, and substantially all of
its insurance reserves, along with an equivalent amount of assets, were
transferred to CRC-I and ERIC.
The traditional assumed reinsurance and marine reinsurance businesses were
autonomous from Continental's primary Insurance Operations. The product,
customer base and distribution system also varied significantly from
Continental's primary Insurance Operations. Before discontinuance, these
businesses generally included proportional and non-proportional, facultative and
treaty, and property and casualty insurance and reinsurance. The primary method
of reinsurance distribution was through the broker market and the customer base
consisted of other insurance and reinsurance companies. With the exception of a
portion of the indigenous international insurance business, the discontinued
insurance operations were comprised of separate legal entities. The discon-
tinued insurance operations maintained distinct investment portfolios since the
companies were domiciled in jurisdictions outside the United States and were
required by local law to have separately maintained and managed portfolios.
Indigenous international insurance was comprised of risks that are located
in countries outside the
12
<PAGE>
United States and Canada, underwritten by companies domiciled or branches
licensed outside the United States or Canada, where the insured is a person or
company located outside the United States or Canada. This business was
generally written and reported on a monoline basis. In contrast, Continental's
United States and Canadian operations generally had focused on package business,
and Continental's multinational operations (now included in the Specialized
Commercial segment) wrote monoline coverage. Continental's United States and
Canadian operations and multinational operations (other than Casualty) write
monoline coverages, such as workers' compensation insurance, generally as an
accommodation to obtain package business or as specialized coverages like excess
liability and surety.
Monoline personal lines coverages, such as secure home policies, were
usually distributed and marketed by savings institutions as part of a mortgage
package. Thus, it was only through prearranged participation, or brokered after
mortgage sales, that such a product was sold.
For commercial risks, the distribution and marketing of indigenous
international insurance was primarily on a co-insurance basis taking a
participation percentage from a lead underwriter. Due to this standard overseas
distribution system, the nature of selling this product was vastly different
from the domestic practice of more direct links to insureds. Therefore,
Continental's focus was on developing relationships with the various
underwriters and brokers, rather than directly marketing to the insureds'
agents. The servicing of the business was also substantially different, as the
claims adjusting services were not administered directly by Continental.
The international marine business was underwritten by companies domiciled or
branches licensed outside the United States and Canada. The international
marine business had a different class of customer and marketing structure, which
relied upon the syndication procedures used by the Institute for London
Underwriting ("ILU"). The distribution and servicing of such business was also
unique. The international marine operations consisted of a small group of
underwriters and a collection group using third-party claims services. The ILU
is an underwriting center as well as a funds clearing house for claims
processing and settlement. Continental acted as a participant in part of a
layer of each policy, rather than as a direct underwriter and claims servicer.
Thus, systems needs and direct expenses associated with the production of
business are different from Continental's domestic marine business. This
difference in the method of marketing and distribution for international marine
insurance substantially reduces Continental's records keeping requirements. In
contrast, domestic marine insurance is underwritten in a similar manner to other
domestic lines of business and has similar reporting requirements.
The following table sets forth certain information with respect to operating
results of the discontinued insurance operations for each of the last three
years:
13
<PAGE>
Year Ended December 31,
1994 1993 1992
---- ---- ----
(millions)
Total Revenues . . . . . . . . $ 62.7 $282.2 $549.8
Total Expenses . . . . . . . . 62.7 285.5 740.0
------ ------ ------
Loss before Income Tax Benefits -- (3.3) (190.2)
Income Tax Benefits . . . . . . (36.0) (0.7) (9.7)
Loss on Disposal of Discontinued
Insurance Operations, Net of
Income Tax Benefits . . . . . -- -- (13.0)
------ ------ ------
Net Income (Loss) from
Discontinued Insurance
Operations . . . . . . . . . $ 36.0 $ (2.6) $(193.5)
====== ====== ======
The following table sets forth certain information with respect to net
assets of the discontinued insurance operations for each of the last two years:
December 31,
1994 1993
---- ----
(millions)
Assets:
Cash and Investments . . . $ 733.5 $1,166.5
Other Assets . . . . . . . 806.7 528.4
------- -------
1,540.2 1,694.9
------- -------
Liabilities:
Outstanding Losses and Loss
Expenses . . . . . . . . . 1,154.6 1,346.0
Unearned Premiums . . . . . 1.4 3.0
Other Liabilities . . . . . 296.0 261.3
------- -------
1,452.0 1,610.3
------- -------
Net Assets: . . . . . . . . . $ 88.2 $ 84.6
======= =======
14
<PAGE>
Of the $1,155 million in Gross Outstanding Losses and Loss Expenses at
December 31, 1994, Continental currently plans the following: (1) $973 million
of Gross Outstanding Losses and Loss Expenses are recorded by ERIC and CRC-I
(Continental intends to run off these insurance reserves, and to support the
reserves, which are carried at economic value in accordance with Bermuda law
(the jurisdiction in which such reserves are reinsured), with an equal amount of
reinsurance assets and earning assets held in trust by ERIC and CRC-I); and
(2) $182 million of Gross Outstanding Losses and Loss Expenses, which
Continental intends to run off, are recorded in foreign operations as a
requirement of local regulations (these reserves are carried at their nominal
amounts, in accordance with the regulations of the countries where such reserves
are recorded).
Additional Business Information
Each of Continental's insurance segments principally provides its own claims
service through internal loss-adjusting operations. Designated employees of
these operations have authority to settle claims, subject to limits on authority
and, in large cases, to review by senior officers.
Continental's Insurance Operations purchase reinsurance on certain risks
which they insure, principally to (1) reduce liability on individual risks; (2)
protect against catastrophe losses; (3) enable them to write additional
insurance in order to diversify risks; and (4) reduce their total liability in
relation to statutory surplus. The costs of reinsurance, including catastrophe
coverages, are generally increased by adverse loss experience in prior periods.
(For additional information concerning Continental's reinsurance arrangements,
see "Reinsurance" commencing on page 30 herein.)
The industry as a whole has experienced underwriting losses for the past
several years. These losses are generally attributable to price competition,
which has prevented premium rate increases from keeping pace with losses and
loss expenses, and an unusually high level of catastrophe losses. According to
A.M. Best Company's ("A.M. Best") Review and Preview, which follows and reports
on the industry's financial results, the industry's aggregate underwriting loss
for 1993 was $23 billion.
The underwriting profitability of property and casualty insurers is affected
by many factors, including price competition; the cost and availability of
reinsurance; administrative and other expenses; the incidence of natural
disasters; and insurance regulators' willingness to grant increases in those
rates which they control. Loss frequency and severity trends are influenced by
economic factors, such as a company's business mix; inflation rates; medical
cost inflation; employment levels; crime rates; general business conditions;
regulatory measures; and court decisions that define and expand the risks and
damages covered by insurance. The incidence of natural disasters has adversely
affected the underwriting profitability primarily of multi-peril, homeowners,
and fire & allied lines of business. The underwriting profitability of workers'
compensation and commercial and personal automobile business is adversely
affected by (1) lower price levels and higher assumed risks due to mandated
participation in state involuntary programs by companies writing such business;
and (2) the medical cost inflation rate, which, though decreasing, is still
higher than the overall inflation rate.
A key component of underwriting profitability is controlling costs. The
Insurance Operations have attempted to control their discretionary and loss
costs by (1) implementing technological advances; (2) changing their
distribution systems and marketing methods; (3) instituting policies designed to
increase employees' productivity; (4) changing the mix of agency and brokerage
relationships; (5) reducing writings of certain less profitable classes of
risks; and (6) becoming more selective in the acceptance of risks.
15
<PAGE>
An indicator of underwriting profitability of property and casualty insurers
is a company's "combined ratio". The combined ratio is the sum, expressed as a
percentage, of (i) the ratio of incurred losses and loss expenses to premiums
earned (the "loss ratio"); and (ii) the ratio of sales commissions, premium
taxes, and administrative and other underwriting expenses to premiums written
(the "expense ratio"). When the combined ratio is below 100%, underwriting
results are generally considered profitable; when the ratio is over 100%,
underwriting results are generally considered unprofitable. Because the
combined ratio does not reflect net investment income, which is a significant
component of an insurance company's operating results, an insurance company's
operating results for a line of business may be profitable even though the
combined ratio for that line of business exceeds 100%. (For information
concerning net investment income, see "Investment and Finance" commencing on
page 32 herein.)
The following table sets forth certain information (presented in accordance
with statutory accounting practices) with respect to the underwriting results of
the Insurance Operations for the commercial and personal lines of insurance
written by them for each of the last three years. Information as to premiums
written includes premiums on insurance policies directly written and on policies
assumed from other insurers, pools and associations, in each case net of
premiums ceded to others in connection with reinsurance purchased.
16
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
Line of Business
----------------
COMMERCIAL (millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Multi-Peril
Premiums Written (% of total) $1,198.1 (28.8%) $1,277.5 (28.3%) $1,042.5 (25.8%)
Premiums Earned . . . . . . $1,309.3 $1,232.5 $1,023.6
Loss Ratio . . . . . . . . 85.1% 74.3% 72.3%
Expense Ratio . . . . . . . 35.2% 35.3% 37.4%
Combined Ratio . . . . . . 120.3% 109.6% 109.7%
Workers' Compensation
Premiums Written (% of total) $ 874.0 (21.0%) $ 915.1 (20.2%) $ 879.0 (21.7%)
Premiums Earned . . . . . . $ 910.0 $ 941.1 $ 847.9
Loss Ratio . . . . . . . . 96.4% 94.7% 103.5%
Expense Ratio . . . . . . . 22.8% 19.2% 14.7%
Combined Ratio . . . . . . 119.2% 113.9% 118.2%
General Liability
Premiums Written (% of total) $ 528.8 (12.7%) $ 496.1 (11.0%) $ 361.6 (8.9%)
Premiums Earned . . . . . . $ 515.2 $ 459.0 $ 331.3
Loss Ratio . . . . . . . . 167.9% 66.3% 69.6%
Expense Ratio . . . . . . . 28.6% 27.0% 29.5%
Combined Ratio . . . . . . 196.5% 93.3% 99.1%
Inland/Ocean Marine
Premiums Written (% of total) $ 396.6 (9.5%) $ 323.1 (7.1%) $ 262.5 (6.5%)
Premiums Earned . . . . . . $ 378.2 $ 298.3 $ 263.3
Loss Ratio . . . . . . . . 81.8% 75.2% 68.3%
Expense Ratio . . . . . . . 32.2% 35.6% 46.4%
Combined Ratio . . . . . . 114.0% 110.8% 114.7%
Automobile
Premiums Written (% of total) $ 235.1 (5.6%) $ 273.7 (6.1%) $ 297.1 (7.4%)
Premiums Earned . . . . . . $ 260.6 $ 270.0 $ 299.9
Loss Ratio . . . . . . . . 84.2% 71.1% 75.9%
Expense Ratio . . . . . . . 27.3% 32.4% 36.9%
Combined Ratio . . . . . . 111.5% 103.5% 112.8%
Fidelity/Surety
Premiums Written (% of total) $ 134.4 (3.2%) $ 140.9 (3.1%) $ 120.3 (3.0%)
Premiums Earned . . . . . . $ 136.6 $ 138.7 $ 112.1
Loss Ratio . . . . . . . . 66.3% 42.8% 44.9%
Expense Ratio . . . . . . . 50.1% 49.9% 58.2%
Combined Ratio . . . . . . 116.4% 92.7% 103.1%
Fire & Allied Lines
Premiums Written (% of total) $ 128.0 (3.1%) $ 77.0 (1.7%) $ 99.3 (2.5%)
Premiums Earned . . . . . . $ 127.6 $ 75.9 $ 101.8
Loss Ratio . . . . . . . . 77.2% 90.0% 100.0%
Expense Ratio . . . . . . . 31.8% 33.4% 32.6%
Combined Ratio . . . . . . 109.0% 123.4% 132.6%
Other
Premiums Written (% of total) $ 139.7 (3.3%) $ 132.2 (2.9%) $ 165.8 (4.1%)
Premiums Earned . . . . . . $ 140.6 $ 124.6 $ 153.7
Loss Ratio . . . . . . . . 67.4% 73.0% 71.6%
Expense Ratio . . . . . . . 51.6% 46.3% 48.6%
Combined Ratio . . . . . . 119.0% 119.3% 120.2%
Total Commercial
Premiums Written (% of total) $3,634.7 (87.2%) $3,635.6 (80.4%) $3,228.1 (79.9%)
Premiums Earned . . . . . . $3,778.1 $3,540.1 $3,133.6
Loss Ratio . . . . . . . . 97.1% 77.6% 80.4%
Expense Ratio . . . . . . . 31.5% 30.8% 32.2%
Combined Ratio . . . . . . 128.6% 108.4% 112.6%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
Line of Business
----------------
PERSONAL (millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Automobile
Premiums Written (% of total) $ 367.8 (8.8%) $ 605.8 (13.4%) $ 556.3 (13.8%)
Premiums Earned . . . . . . . $ 476.3 $ 586.2 $ 535.3
Loss Ratio . . . . . . . . . 81.5% 75.3% 75.2%
Expense Ratio . . . . . . . . 35.4% 33.5% 36.6%
Combined Ratio . . . . . . . 116.9% 108.8% 111.8%
Homeowners
Premiums Written (% of total) $ 145.8 (3.5%) $ 246.1 (5.5%) $ 226.6 (5.6%)
Premiums Earned . . . . . . . $ 204.8 $ 239.9 $ 217.7
Loss Ratio . . . . . . . . . 85.3% 87.9% 89.6%
Expense Ratio . . . . . . . . 20.8% 25.8% 29.6%
Combined Ratio . . . . . . . 106.1% 113.7% 119.2%
Other
Premiums Written (% of total) $ 18.8 (0.5%) $ 32.9 (0.7%) $ 30.4 (0.7%)
Premiums Earned . . . . . . . $ 25.9 $ 32.8 $ 29.4
Loss Ratio . . . . . . . . . 60.0% 45.7% 89.5%
Expense Ratio . . . . . . . . 23.8% 26.4% 32.2%
Combined Ratio . . . . . . . 83.8% 72.1% 121.7%
Total Personal
Premiums Written (% of total) $ 532.4 (12.8%) $ 884.8 (19.6%) $ 813.3 (20.1%)
Premiums Earned . . . . . . . $ 707.0 $ 858.9 $ 782.4
Loss Ratio . . . . . . . . . 81.8% 77.7% 79.7%
Expense Ratio . . . . . . . . 31.0% 31.1% 34.5%
Combined Ratio . . . . . . . 112.8% 108.8% 114.2%
TOTAL INSURANCE OPERATIONS
Premiums Written (% of total) $ 4,167.1 (100.0%) $4,520.4 (100.0%) $4,041.4 (100.0%)
Premiums Earned . . . . . . . $ 4,485.1 $4,399.0 $3,916.0
Loss Ratio (1) . . . . . . . 94.7% 77.6% 80.2%
Expense Ratio (1) . . . . . . 31.4% 30.9% 32.7%
Combined Ratio (1) . . . . . 126.1% 108.5% 112.9%
</TABLE>
(1) The comparable GAAP loss, expense and combined ratios for
the years ended December 31, 1994, 1993 and 1992 were
99.4%, 32.8% and 132.2%; 77.3%, 31.9% and 109.2%; and
81.1%, 33.8% and 114.9%, respectively. The difference between
the GAAP loss ratio for Continental's Insurance
Operations and the statutory loss ratio at December 31, 1994
largely resulted from establishing an $80 million asset
relating to Environmental Claims for GAAP purposes and fully
reserving that amount as not recoverable.
Approximately 61.3% of direct premiums written by the
Insurance Operations during 1994 were written in nine states and
Canada. Canada accounted for 10.2% of direct written premiums;
New York, 10.3%; California, 8.1%; Illinois, 8.8%; New Jersey,
5.6%; Texas, 5.1%; Pennsylvania, 4.1%; Ohio, 3.9%; Michigan,
2.7%; and Hawaii, 2.5%. No other state, country or political
subdivision accounted for more than 2.5% of such premiums. The
percentages do not reflect premiums received or paid in
connection with reinsurance transactions.
18
<PAGE>
Continental is taking steps to shift its business mix towards those areas in
which management believes Continental can achieve an underwriting profit without
a predetermined target for business mix in order to increase profitability.
Continental is significantly reducing the level of new business in its personal
lines and standard commercial lines groups, which are focusing instead on their
renewal business. Continental is also taking steps to curtail renewal business
in unprofitable lines and industries. In 1994, the loss and expense ratios for
the Insurance Operations increased 17.1 and 0.5 percentage points, respectively,
from the prior year, primarily as a result of the Environmental IBNR Charge, the
Reserve Strengthening Charge and the Restructuring Charge. Underwriting results
for the Insurance Operations produced statutory combined ratios for their
personal and commercial lines of 112.8% and 128.6%, respectively, in 1994,
compared with 108.8% and 108.4%, respectively, in 1993.
Many states require property and casualty insurers to participate in "plans",
"pools" or "facilities" which provide coverages for defined risks at rates
required by regulators which insurers otherwise would be unwilling to underwrite
in view of the nature of the risks and the claims experience of the insureds or
the insurance classes of which they are members. Continental provides for its
share from its participation in these pools and associations, as well as its
participation in voluntary pools and associations, based upon results reported
to it by these organizations. In 1994, these involuntary writings totaled
approximately $236 million, or approximately 5.7% of the Insurance Operations'
total written premiums. The statutory underwriting loss on this business was
$30 million during 1994, accounting for approximately 2.8% of Insurance
Operations' statutory underwriting loss. In 1994, 35.5%, and 62.0% of these
writings were attributable to automobile and workers' compensation businesses,
respectively. (For additional information concerning such pools and
associations, see "Regulation" commencing on page 20 herein.)
Competition
The property and casualty insurance industry is highly competitive.
Continental's Insurance Operations compete with other stock companies, specialty
insurance organizations, mutual insurance companies, and other underwriting
organizations. As reported by the Insurance Information Institute in 1994, an
educational, fact-finding and communications organization, the property and
casualty industry in the United States is comprised of approximately 900 leading
insurance organizations, none of which has a market share larger than 12% and
the top ten of which account in the aggregate for less than 45% of the market.
Companies in the United States also face competition from foreign insurance
companies and from "captive" insurance companies and "risk retention" groups
(i.e., entities established by insureds to provide insurance for themselves).
In the future, the industry, including Continental's Insurance Operations, may
face increasing insurance underwriting competition from banks and other
financial institutions.
Based upon the 1994 edition of Best's Aggregates and Averages for the
calendar year 1993, Continental's domestic property and casualty companies
collectively ranked eleventh in overall premium volume among United States
property and casualty insurers. In addition, such companies are among the
leading twenty in such categories as commercial multi-peril, aircraft,
farmowners, homeowners, fire & allied lines, ocean marine and inland marine
lines, and among the leading twenty-five in commercial automobile lines.
Because of the relatively large size and underwriting capacity of Continental's
property and casualty companies, many opportunities are available to them that
are not available to smaller companies.
The competitive focus of Continental's Insurance Operations is to (1) offer
combinations of superior products, services and premium rates; (2) distribute
their products efficiently; and (3) market
19
<PAGE>
them effectively. Reliance upon these factors varies from line to line of
insurance and from product to product within lines of insurance. Rates are not
uniform for all insurers and vary according to the respective types of insurers
and methods of operation. Continental's Insurance Operations have traditionally
marketed their products principally through independent agents and brokers.
This system of marketing is facing increased competition from financial
institutions and other companies that market their insurance products directly
to the consumer. In response to this competition, Continental has implemented
several programs designed to develop a more concentrated and productive agency
and brokerage force by eliminating duplication of functions, shifting its mix of
business towards those areas in which management believes it can achieve
underwriting profit without a pre-determined target for business mix, terminat-
ing producers of unprofitable business, reducing its exposure to catastrophes
and providing added incentives and improved support to its more productive
producers. Such incentives include assurances of continuing representation;
expanded promotional and marketing assistance; specialized account handling;
training; and, in certain cases, financial assistance in connection with agency
and brokerage expansion. Consequently, Continental's Insurance Operations have,
over the past several years, placed computer terminals with many of their most
productive producers, which permit producers to transmit information directly to
Continental's computer centers and to receive policies, endorsements and other
personal lines services overnight. In response to market conditions,
Continental has also developed package personal and commercial policies for
customers having standard risk exposures, customized products for certain
classes of business and industries, and a strong distribution network comprised
largely of selected producers with professional sales skills and product
knowledge in Continental's targeted markets.
Regulation
Continental's property and casualty companies are subject to regulation by
government agencies in the states and foreign jurisdictions in which they do
business. The nature and extent of such regulation vary from jurisdiction to
jurisdiction, but typically involve the establishment of premium rates for many
lines of insurance; standards of solvency and minimum amounts of capital and
surplus which must be maintained; limitations on types of investments;
restrictions on the size of risks which may be insured by a single company;
licensing of insurers and their agents; deposits of securities for the benefit
of policyholders; approval of policy forms; methods of accounting; mandating
reserves for losses and loss expenses; and filing of annual and other reports
with respect to financial condition and other matters. In addition, state
regulatory examiners perform periodic examinations of insurance companies. Such
regulation is generally intended for the protection of policyholders rather than
security holders.
Most states also require property and casualty insurers to become members of
insolvency associations or guaranty funds, which generally protect policyholders
against the insolvency of an insurer writing insurance in the state. Members of
the associations must contribute to the payment of certain claims made against
insolvent insurers. Maximum contributions required by law in any one year vary
generally between 1% and 2% of annual premiums written by a member in that
state.
Continental's domestic insurance subsidiaries are subject to various state
statutory and regulatory restrictions, applicable generally to each insurance
company in its state of incorporation, that limit the amount of dividends and
other distributions that those subsidiaries may pay to Continental. Each of the
states in which one or more of these subsidiaries is domiciled has enacted a
formula that governs the maximum amount of dividends that such subsidiaries may
pay without prior regulatory approval. These formulas, which are substantially
similar, limit such dividends on such factors as policyholders' surplus, net
income, net investment income and/or unassigned surplus. These restrictions
will, under certain circumstances, significantly reduce the maximum amount of
dividends and other distributions
20
<PAGE>
payable to Continental by its domestic insurance subsidiaries without approval
by state regulatory authorities. Some restrictions require that dividends,
loans, and advances in excess of stated levels be approved by state regulatory
authorities. During 1994, Continental's domestic insurance subsidiaries paid it
$70 million in dividends. To the extent that its insurance subsidiaries do not
generate amounts available for distribution sufficient to meet Continental's
cash requirements without regulatory approval, Continental would seek approval
for additional distributions. As of December 31, 1994, under the restrictions
currently in effect, the maximum amount available for payment of dividends to
Continental by its domestic insurance subsidiaries during the year ending
December 31, 1995 without regulatory approval is estimated to be $71 million.
(See Note 18 to Consolidated Financial Statements included in the Proxy
Statement at page F-44.) Continental anticipates that dividends from its domes-
tic insurance subsidiaries, together with cash from other sources, will enable
it to meet its obligations for interest and principal payments on debt,
corporate expenses, declared shareholder dividends and taxes in 1995.
Although the federal government does not directly regulate the business of
insurance, federal initiatives often affect the insurance business in a variety
of ways. For example, pollution liability for insurers could be affected by
federal initiatives relating to environmental pollution liability issues. In
addition, the significant costs of natural catastrophes may prompt responsive
legislation to expand the federal role in the funding of amelioration of future
catastrophes. Other current proposals that may affect insurers are tort reform
initiatives, where legislation aimed at tightening standards for suit, limiting
punitive damages and reducing the liability of product sellers could have a
positive impact in reducing costs associated with litigation in the claims
handling process; legislation related to the availability and affordability of
insurance products in certain areas; initiatives relating to the ability of
banks to provide insurance products; and proposals relating to health care
reform or change.
The National Association of Insurance Commissioners ("NAIC") has developed
several model initiatives to strengthen the existing state regulatory system,
including uniform accreditation of state insurance regulatory systems;
limitations on the payment of dividends by property and casualty insurance
companies; adoption of risk-based capital standards; actuarial certification of
reserves; and independent audits of insurer financial statements. Adoption of
such initiatives will be on a state-by-state basis. Continental favors stronger
solvency standards, but recognizes that more regulation, at either the state or
federal level, will increase the cost of providing insurance coverage. In the
fourth quarter of 1993, the NAIC adopted a risk based capital ("RBC") standard
for use by state insurance regulators. RBC is intended to be a "tool" for
regulators to assess the capital adequacy of property and casualty insurers and
to take action when capital under the standard is judged to be inadequate. The
NAIC developed a model law which has been adopted by various states, including
several of Continental's domiciliary states. Each state that adopts the model
law will provide certain additional enforcement powers to its insurance
regulators. As of December 31, 1994 and the date of this report, Continental
believes that its domestic insurance subsidiaries have sufficient levels of
capital for their respective operations based upon the RBC standards in effect
and as applied by relevant state authorities and as applied to Continental's
1994 statutory financial statements.
Insurance companies, including Continental's property and casualty companies,
are also affected by a variety of state and federal legislative and regulatory
measures and judicial decisions that define and extend the risks and benefits
for which insurance is sought and provided. These include redefinitions of risk
exposure in areas such as product liability; environmental damage; and employee
benefits, including pensions, workers' compensation and disability benefits. In
addition, individual state insurance departments may prevent premium rates for
some classes of insureds from reflecting the level of risk assumed by the
insurer for those classes. Such developments may result in short-term adverse
effects on the profitability of various lines of insurance. Longer-term adverse
effects on
21
<PAGE>
profitability can be minimized, when possible, only through repricing of
coverages or limitation or cessation of the affected business.
Reinsurers and international insurance companies are subject to licensing
requirements and other regulation in the jurisdictions in which they do
business. United States regulation of licensed reinsurers is similar to the
regulation of domestic property and casualty insurers, except that regulation of
reinsurers does not extend to rates, policy forms, or, generally, participation
in insolvency funds. Countries outside of the United States have varying levels
of regulation of insurance and reinsurance companies.
Reserves for Unpaid Losses and Loss Expenses
Continental's insurance subsidiaries establish reserves to cover their
estimated liability for losses and loss expenses with respect to reported and
unreported claims incurred (including for the first time, in 1994, unreported
"Environmental Claims," as defined below) as of the end of each accounting
period, after taking into effect salvage and subrogation claims. In
establishing such reserves with respect to the period then ended, loss reserves
recorded in prior periods are updated to reflect improved estimates of losses
and loss expenses as actual experience develops and payments are made.
The losses and loss expense reserves of Continental's insurance subsidiaries
are estimates of the liability determined by using individual case-basis
estimates on reported claims and statistical projections and industry
measurement techniques for unreported claims. The statistical projection models
used to estimate non-environmental unreported claims reflect changes in the
volume of business written, as well as claim frequency and severity.
Adjustments to these models are also made for changes in the mix of business,
claims processing and other items which affect the development patterns over
time. Such statistical projections of ultimate net costs are used to adjust the
amount estimated for individually established non-environmental case reserves,
as well as to establish estimates for the amount needed for non-environmental
unreported claims. (For a discussion of the techniques used for unreported
Environmental Claims, see discussion at page 24 herein.)
For more mature accident years, inflation is implicitly considered in such
projections based on actual patterns of reported claims, loss payments and
case-basis reserves. For relatively immature accident years, in addition to
actual loss patterns, explicit assumptions are made for changes in claim
severity and frequency based on the type of claims, nature of the related risks,
industry trends and related cost indices.
Continental conducts an annual fourth quarter in-depth review of its core
(non-environmental) reserves using loss and loss adjustment expense information.
Its 1994 fourth quarter review was completed in December 1994 on loss and loss
adjustment information updated as of September 30, 1994. Upon completion of the
annual fourth quarter review and a special review of workers' compensation
reserves conducted in connection with the sale of Casualty, Continental
strengthened its reserves by $200 million. Of the $200 million in additional
loss and loss adjustment reserves, $100 million of the reserves was primarily
due to a higher than anticipated number of claims and adverse loss development
in case reserves in multi-peril and various smaller programs (primarily auto)
and an increase in the number of large cases and adverse loss development in
case reserves in the surety program. The other $100 million of additional loss
and loss adjustment expense reserves were established in workers' compensation
as a result of the annual fourth quarter review, the review conducted in
connection with the sale of Casualty and negotiations with respect to such sale.
22
<PAGE>
Continental's reserves for losses and loss adjustment expenses include
reserves for "Environmental Claims." Continental employs what it believes to be
a broad definition of "Environmental Claims." "Environmental Claims" include
reported and unreported claims or lawsuits, for which coverage is or may be
alleged, arising from exposure to hazardous substances or materials originating
from a site that is the subject of an investigation or cleanup pursuant to
state or federal environmental legislation; claims or lawsuits involving
allegations of bodily injury or property damage arising out of the discharge or
escape of a pollutant or contaminant; and claims or lawsuits alleging bodily
injury or property damage as a result of exposure over a period of time to
products or substances alleged to be harmful or toxic. Based upon reviews of
claim frequency, exposure trends and relevant legal issues relating to types of
claims, Continental periodically revises the definition of Environmental Claims.
In 1994, Continental broadened the definition of Environmental Claims to include
claims arising from certain railroad exposures involving asbestos-related claims
and other toxic tort claims, including repetitive stress and noise-induced
hearing loss claims. Railroad exposure claims involving environmental pollution
claims had previously been classified as Environmental Claims. The
classification of asbestos-related and other toxic tort railroad exposure claims
as Environmental Claims resulted in the reclassification of reserves relating to
such claims to the gross reserves for Environmental Claims and gave rise to the
increase in reserves for asbestos-related and other toxic tort claims from
December 31, 1993 to January 1, 1994. (See the table entitled "Asbestos-
Related, Other Toxic Tort and Environmental Pollution Claims" on page 26.)
Claims falling under the above categories are classified into two general claim
types: (1) asbestos-related and other toxic torts; and (2) environmental
pollution. The table on page 26 sets forth information regarding the amounts of
the reserves for Environmental Claims at December 31, 1994, 1993 and 1992 and
payments of losses and loss expenses on such claims in each of those years.
These reserves represent Continental's current best estimates of the probable
cost to resolve such reported and unreported claims, either through settlement,
litigation or alternative dispute resolution. The amounts in the table reflect
the gross and net undiscounted estimated liability. (For information concerning
reinsurance relating to Environmental Claims, see "Reinsurance" commencing on
page 30 herein.) Such reserves incorporate factors specifically relevant to
Environmental Claims, including the nature and scope of policy coverage; the
number of claimants, defendants and co-insurers; the timing and severity of
injuries or damage; and the relevant jurisdiction and case law. Continental has
managed its reported Environmental Claims from its centralized Environmental
Claims Department since 1981. Continental believes that its centralized
approach to handling reported Environmental Claims gives Continental the best
practicable ability to determine its liability.
Prior to the third quarter of 1994, Continental did not establish reserves
for incurred but not reported Environmental Claims ("Environmental IBNR
Claims") because the existence of significant uncertainties (including
difficulties in determining the frequency and severity of potential claims and
in predicting the outcome of judicial decisions as case law evolves regarding
liability exposure, insurance coverage and interpretation of policy language)
and the absence of standard techniques to measure exposure did not allow
ultimate liabilities to be reasonably estimated in accordance with accepted
actuarial standards.
While Continental continues to believe that it is not possible to reasonably
estimate ultimate liabilities for Environmental IBNR Claims, it has concluded
that different measurement techniques, based on industry averages, for
estimating a reserve for Environmental IBNR Claims have been sufficiently
developed, and accepted in the insurance industry, to permit Continental to
determine a reasonable gross estimate for Environmental IBNR Claims. However,
due to the continuing level of uncertainty involved with environmental
exposures, Continental may incur future charges for Environmental IBNR Claims,
which may be material to Continental's financial position, results of operations
or liquidity.
23
<PAGE>
Included in Continental's liability for outstanding losses and loss expenses
are gross undiscounted reserves of $834 million for Environmental Claims. At
December 31, 1994, the gross undiscounted reserves for losses and loss expenses
were $354 million ($264 million at December 31, 1993) for reported Environmental
Claims, and a gross undiscounted reserve of $480 million was established for
losses and loss expenses for Environmental IBNR Claims ($0 million at December
31, 1993). The $354 million represents Continental's current best estimate for
reported Environmental Claims. The $480 million represents Continental's best
estimate for its Environmental IBNR Claims, using a measurement technique
believed to be reasonable, based upon information currently available. However,
it is not possible at this time to estimate the amount of additional liability
related to Environmental IBNR Claims that is at least reasonably possible to
exist.
Included in Continental's reinsurance assets are amounts due for reported
Environmental Claims of $175 million at December 31, 1994 ($105 million at
December 31, 1993). A reinsurance asset of $80 million was recorded in
conjunction with the establishment of the reserves for Environmental IBNR
Claims, but was fully reserved for as not recoverable due to the degree of
uncertainty in the collectibility of such amounts.
The technique utilized by Continental involves measuring total net reserves
for reported Environmental Claims and Environmental IBNR Claims in terms of the
number of years such reserves could fund the net annual payments for these
claims. Such technique is consistent with that utilized by an insurance rating
agency and by the actuarial profession in some of its discussion papers for its
preliminary work with respect to such liabilities. At the end of 1992, the
industry was at a net environmental reserve to net environmental paid ratio
("Survival Ratio") of six times such paid losses, which had been increasing and
was expected to increase further. At December 31, 1994, Continental's net
Environmental Claims reserves would comprise approximately nine times its
historical average net paid losses and loss expenses for these claims.
Net losses and loss expenses incurred include charges for reported
Environmental Claims and Environmental IBNR Claims of $573 million, $56 million
and $81 million for 1994, 1993 and 1992, respectively. The 1994 increase is
primarily related to the establishment of the reserves for the Environmental
IBNR Claims.
Continental has not marketed nor been in the business of providing
environmental pollution coverages, with the exception of a program which was in
effect from 1981 to 1985, which provided such coverage on a claims-made basis.
There are currently two claims pending under policies written under this program
for which Continental has established case reserves which reflect Continental's
estimate of the probable ultimate cost of these claims. The allowable reporting
period under all policies written under this program has expired.
The 1980 enactment of the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended by the Superfund Amendments and Reauthorization
Act of 1986, as well as similar state statutes, resulted in environmental
pollution claims brought thereafter under standard form general liability
policies. While most environmental pollution claims have arisen out of
policyholders' obligations under federal and state regulatory statutes, claims
have also been brought against policyholders by private third-parties alleging
pollution-related property damage and/or bodily injury. Consistent with the
broad range of entities which may become subject to designation as "Potentially
Responsible Parties" under state and federal environmental statutes, insureds
presenting such claims for coverage under general liability policies span a
broad spectrum of commercial policyholders. Most of Continental's environmental
pollution claims result from general liability policies written prior to 1986.
Certain provisions of Continental's, and the industry's, standard form general
liability policies written prior to 1986 have been subject to wide-ranging
challenges by policyholders and/or differing interpretations by courts in
various jurisdictions, with inconsistent conclusions as to the applicability
of coverage for environmental pollution claims. Policies written after 1986
have not been subject to such wide-ranging challenges by policyholders and/or
differing
24
<PAGE>
interpretations by the courts. Continental has consistently maintained during
coverage litigation that its general liability policies did not provide coverage
for environmental pollution liability.
Asbestos-related claims have generally arisen out of product liability and
railroad exposure coverage provided by Continental under general liability
policies written prior to 1986. Thereafter, asbestos-product exclusions were
included in general liability policies. Asbestos-related bodily injury
litigation developed during the late 1970's. Initially, the majority of
defendant-insureds making claims under general liability policies were involved
in the mining, processing, distribution and sale of raw asbestos. By 1985, the
category of defendants grew to include companies which produced a variety of
products containing asbestos, including roofing materials, tile, refractory
products, asbestos-containing clothing, and brake and clutch friction products.
Continental had written primary general liability coverage for only two major
asbestos manufacturers, and had settled all liabilities under those policies by
1989. Continental had written excess insurance coverage for several other
asbestos manufacturers. In addition, Continental had written primary general
liability coverage for companies which produce products containing asbestos.
Claims which fall in the other toxic tort category have generally arisen out
of product liability and railroad exposure coverage under general liability
policies. These claims involve a variety of allegations of bodily injury as a
result of exposure over a period of time to products alleged to be harmful or
toxic, such as silica, lead-based paint, pesticides, dust, acids, gases, noise,
chemicals, silicone breast implants and pharmaceutical products, as well as
repetitive stress and noise-induced hearing loss claims.
Typically, the coverage provided by Continental for all of the above claim-
types represents a portion of the total insurance coverage available to a
policyholder for such claims. Whenever appropriate, Continental actively seeks
out opportunities to participate in cost-sharing agreements with other insurance
carriers, stipulating an equitable allocation of expenses and indemnity pay-
ments. Cost-sharing agreements are presently in effect with respect to
litigation concerning a large majority of Continental's asbestos-related and
other toxic tort litigation.
As of December 31, 1994, there were approximately 2,311 pending environmental
pollution claims involving approximately 892 policyholders, and environmental
pollution-related coverage disputes involving approximately 329 policyholders in
421 actions. Approximately 1,465 environmental pollution claims closed or
settled during 1994. Continental defines a "claim" as the potential financial
exposure to a policy year based on an analysis of relevant factors, and which
arises out of a policyholder's potential liability at a single site or multiple
sites.
A three-year asbestos-related, other toxic tort and environmental pollution
loss reserve activity analysis is set forth below:
25
<PAGE>
<TABLE>
<CAPTION>
Asbestos-Related, Other Toxic Tort
and Environmental Pollution Claims
----------------------------------
Year Ended December 31,
1994 1993 1992
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
Asbestos-related and Other Toxic Tort
Claims:
Gross Reserves as of January 1 (1) $ 165.6 $ 85.6 $ 76.8
Gross Incurred Losses and Loss
Adjustment Expenses . . . . . . 287.6 46.0 45.0
Gross Payments for Losses and Loss
Adjustment Expenses . . . . . . (52.7) (40.3) (36.2)
----------- ----------- -----------
Gross Reserves as of December 31 $ 400.5 $ 91.3 $ 85.6
=========== =========== ===========
Environmental Pollution Claims:
Gross Reserves as of January 1 . $ 172.2 $ 161.5 $ 144.9
Gross Incurred Losses and Loss
Adjustment Expenses . . . . . . 319.9 68.7 64.2
Gross Payments for Losses and Loss
Adjustment Expenses . . . . . . (58.6) (58.0) (47.6)
----------- ----------- -----------
Gross Reserves as of December 31 $ 433.5 172.2 161.5
=========== =========== ===========
Gross Claims Reserves as of December 31:
Asbestos-related and Other Toxic
Tort . . . . . . . . . . . . . $ 400.5 $ 91.3 $ 85.6
Environmental Pollution . . . . . 433.5 172.2 161.5
Less Reinsurance . . . . . . . . (174.9) (105.3) (79.5)
----------- ----------- -----------
Net Claims Reserves as of December 31 . . . . . . . $ 659.1 158.2 167.6
=========== =========== ===========
</TABLE>
___________________________
(1) The increase in gross reserves from December 31, 1993 to January 1, 1994,
resulted from a reclassification of reserves to this category as a result of
Continental's broadening, in 1994, of the definition of Environmental Claims
to include claims arising from certain railroad exposures involving
asbestos-related and other toxic tort claims.
As of December 31, 1994, Continental's $834 million gross loss and loss
adjustment expense reserve for reported and unreported Environmental Claims
included gross loss adjustment expense reserves of $318 million, or 38% of such
total reserves (as of December 31, 1993, $54 million, or 21% of such total
reserves). The amount of Continental's gross loss adjustment expense reserves
for reported Environmental Claims and Environmental IBNR Claims as of December
31, 1994, constituted 26% of Continental's total gross loss adjustment expense
reserves.
In accordance with individual state insurance laws, certain of Continental's
property and casualty subsidiaries discount certain workers' compensation
pension reserves. The rate of discount varies by
26
<PAGE>
jurisdiction and ranges from 3.0% to 5.0%. The statutory discount on workers'
compensation reserves at December 31, 1994, 1993 and 1992 is $509 million, or
7.1% of statutory reserves; $525 million, or 7.9% of statutory reserves; and
$522 million, or 8.0% of statutory reserves, respectively. The discount
includes an additional discount on the reserves at December 31, 1994, 1993 and
1992 for incurred but not reported claims of $143 million, $127 million and $187
million, respectively, for losses reported to Continental through its
participation in joint reinsurance pools. In 1994, individual state insurance
laws changed to restrict the discount on certain workers' compensation pension
reserves. In addition, for the purpose of reporting on a generally accepted
accounting principles ("GAAP") basis, these subsidiaries have discounted
workers' compensation pension reserves since 1984 at a rate of 7% to reflect as-
sumed market yields. Discounting at a rate of 7% in 1994, 1993 and 1992 reduced
total reserves for losses at the end of such years by $680 million, or 9.3%;
$696 million, or 10.5%; and $693 million, or 10.6%, respectively.
As a result of the discounting of workers' compensation reserves, the
ultimate net cost of the losses would, without taking other factors into
account, be projected to exceed the amount of the carried reserves by the amount
of the discount. The total amount of this excess will emerge as current year
incurred losses develop over many years. If such excess had been reflected in
the table on page 28 as development of prior year reserves, it would have added
$34 million, or 0.6%; $39 million, or 0.7%; and $52 million, or 0.9%,
respectively, to the 1993, 1992 and 1991 cumulative deficiencies as of December
31, 1994. However, the yields on these subsidiaries' investment portfolios have
historically been greater than the discount rate, and any deficiency due to the
discounting of such reserves should be more than offset by investment income.
The table on page 28 shows the annual adjustment to historical reserves for
each year since 1984. The reserves for unpaid losses and loss expenses are set
forth on a cumulative basis for the year specified and all prior years.
Although amounts paid for any year are reflected in the re-estimated ultimate
net loss at the end of such year, there is no direct correlation in the
development patterns between the two portions of the table because the re-
estimated ultimate net loss includes adjustments for unpaid losses and loss
expenses as well. Finally, an adjustment to an unpaid claim for a prior year
will also be reflected in the adjustments for all subsequent years. For
example, an adjustment made in 1990 for 1984 loss reserves will be reflected in
the re-estimated ultimate net loss as a subsequent development for each of the
years 1984 through 1989.
27
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Loss Development Presented Net of Reinsurance
With Supplemental Gross Data (1)(2)
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET LIABILITY AS OF
END OF YEAR . . . . $2,946.6 $3,464.4 $4,038.9 $4,686.3 $5,339.5 $6,045.0 $5,963.1 $5,901.9 $5,806.5 $5,915.8 $6,608.2
PAID AS OF:
One Year Later . 1,114.9 1,386.6 1,407.5 1,558.0 1,754.0 2,030.1 2,073.1 2,225.1 2,013.7 2,299.9
Two Years Later . 1,813.8 2,152.1 2,295.6 2,591.6 2,876.0 3,388.2 3,381.7 3,411.3 3,368.2
Three Years Later 2,284.5 2,727.4 2,940.3 3,292.2 3,688.5 4,331.9 4,240.8 4,390.0
Four Years Later 2,648.9 3,157.6 3,399.2 3,810.8 4,270.7 4,942.3 4,970.8
Five Years Later 2,929.6 3,461.1 3,756.0 4,191.0 4,659.6 5,448.0
Six Years Later . 3,117.9 3,709.0 4,022.3 4,429.9 4,995.0
Seven Years Later 3,299.6 3,907.8 4,185.4 4,679.4
Eight Years Later 3,449.8 4,031.4 4,397.5
Nine Years Later 3,552.7 4,208.7
Ten Years Later . 3,699.3
NET LIABILITY
RE-ESTIMATED AS OF:
End of Year . . . 2,946.6 3,464.4 4,038.9 4,686.3 5,339.5 6,045.0 5,963.1 5,901.9 5,806.5 5,915.8 6,608.2
One Year Later . 3,149.9 3,512.2 4,080.8 4,810.5 5,444.7 6,066.6 6,059.6 6,027.2 5,807.6 6,768.9
Two Years Later . 3,229.7 3,704.0 4,293.8 4,972.3 5,466.4 6,167.3 6,111.2 6,073.1 6,591.0
Three Years Later 3,395.3 3,958.1 4,499.1 5,021.4 5,584.3 6,284.8 6,171.5 6,898.7
Four Years Later 3,551.4 4,170.9 4,558.7 5,145.4 5,649.4 6,404.6 6,944.5
Five Years Later 3,687.4 4,263.6 4,688.2 5,182.1 5,720.2 7,104.7
Six Years Later . 3,760.3 4,392.0 4,772.8 5,220.4 6,373.8
Seven Years Later 3,861.5 4,510.3 4,814.9 5,873.3
Eight Years Later 3,948.5 4,550.9 5,481.9
Nine Years Later 3,975.2 5,196.7
Ten Years Later . 4,589.3
NET CUMULATIVE
DEFICIENCY . . . . 1,642.7 1,732.3 1,443.0 1,187.0 1,034.3 1,059.7 981.4 996.8 784.5 853.1
GROSS LIABILITY AS OF
END OF YEAR . . . . 9,066.2 9,068.7 10,278.4
REINSURANCE
RECEIVABLES . . . . 3,259.7 3,152.9 3,670.2
NET LIABILITY AS OF
END OF YEAR . . . . 5,806.5 5,915.8 6,608.2
GROSS RE-ESTIMATED
LIABILITY - LATEST 9,703.2 10,040.3
RE-ESTIMATED RECOV-
ERABLE - LATEST . . 3,112.2 3,271.4
NET RE-ESTIMATED
LIABILITY - LATEST 6,591.0 6,768.9
GROSS CUMULATIVE
DEFICIENCY (3) . . 637.0 971.6
</TABLE>
---------------
(1) Information for each year from 1984 - 1991 has been restated to
reflect accounting for Continental's traditional assumed
reinsurance and marine reinsurance businesses and indigenous
international and international marine insurance businesses as
discontinued operations. See "Discontinued Operations" commencing
on page 11 herein.
(2) The reserves of foreign subsidiaries are translated into United
States dollars at the exchange rates as of each year-end. Foreign
exchange factors tend to improve or adversely affect the reserve
development (ultimate loss as compared to initial estimated
liability) of foreign subsidiaries depending upon the relative
movement of the exchange rates.
(3) The gross reserves include direct written business and assumed
business. In 1993, Continental commuted a reinsurance agreement,
which had the effect of decreasing assumed business and
reinsurance receivables by $208 million, but did not affect net
reserves. This commutation pertains to certain business arising
in 1992 and prior years.
28
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Net Reserves for Losses and Loss Expenses
from a Statutory Accounting Principles Basis to a Generally Accepted
Accounting Principles Basis for the Last Two Years
With Supplemental Gross Data
1994 1993
------------ -----------
(millions)
<S> <C> <C>
Total Net Statutory Reserves . . . . . . . . . . . . . . . . . . . . . . $ 7,462.5 $ 7,029.0
Less: Net Reserves of Discontinued Operations . . . . . . . . . . . . . 783.7 936.6
------------ -----------
Net Statutory Reserves of Continuing Operations . . . . . . . . . . . . . 6,678.8 6,092.4
Adjustments to a Generally Accepted Accounting Principles Basis:
Primarily Discounting of Workers' Compensation Pension Reserves . . (150.6) (176.6)
Environmental Reserves . . . . . . . . . . . . . . . . . . . . . . . 80.0 --
------------ ---------
Net Reserves on a Generally Accepted Accounting Principles Basis . . . . 6,608.2 5,915.8
Reinsurance Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 3,670.2 3,152.9
------------ -----------
Gross Reserves on a Generally Accepted Accounting Principles Basis . . . $ 10,278.4 $ 9,068.7
============ ===========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Net Reserves for Losses and Loss
Expenses for the Last Three Years
With Supplemental Gross Data
1994 1993 1992
------ ------ ------
(millions)
<S> <C> <C> <C>
Net Reserves as of January 1 . . . . . . . . $ 5,915.8 $ 5,806.5 $ 5,901.9
---------------- ------------ -------------
Incurred Related to:
Current Year . . . . . . . . . . . . . . 3,547.8 3,413.0 3,036.3
Prior Years . . . . . . . . . . . . . . 853.1 1.1 125.3
---------------- ------------ -------------
Total Incurred . . . . . . . . . . . . . . . 4,400.9 3,414.1 3,161.6
---------------- ------------ -------------
Paid Related to:
Current Year . . . . . . . . . . . . . . 1,183.3 1,291.1 1,031.9
Prior Years . . . . . . . . . . . . . . 2,299.9 2,013.7 2,225.1
---------------- ------------ -------------
Total Paid . . . . . . . . . . . . . . . . . 3,483.2 3,304.8 3,257.0
---------------- ------------ -------------
Less Sale of Canadian Subsidiaries . . . . . (225.3) -- --
---------------- ------------ -------------
Net Reserves as of December 31 . . . . . . . 6,608.2 5,915.8 5,806.5
Plus Reinsurance Receivables . . . . . . . . 3,670.2 3,152.9 3,259.7
---------------- ------------ -------------
Gross Reserves . . . . . . . . . . . . . . . $ 10,278.4 $ 9,068.7 $ 9,066.2
================ ============ =============
</TABLE>
The following table shows the changes in the last three years in
Continental's estimates of its liability for insured events of prior
years, including the extent to which such changes relate to asbestos-
related, other toxic tort and environmental pollution claims:
29
<PAGE>
<TABLE>
<CAPTION>
Components of Reserve Development
For the Last Three Years
Reserve Increase (Decrease)
at December 31,
1994 1993 1992
-------- -------- --------
(net basis, millions)
<S> <C> <C> <C>
Asbestos-related and Other Toxic Tort . . . . $ 271.0 $ 22.4 $ 33.3
Environmental Pollution . . . . . . . . . . . 301.5 33.5 47.6
---------------- ------------ -------------
Subtotal . . . . . . . . . . . . . . . . . . 572.5 55.9 80.9
All Other . . . . . . . . . . . . . . . . . . 280.6 (54.8) 44.4
---------------- ------------ -------------
Total . . . . . . . . . . . . . . . . . . . . $ 853.1 $ 1.1 $ 125.3
================ ============ =============
</TABLE>
The increase in Continental's estimate of its liabilities for
insured events of prior years for total Environmental Claims
during each of the years 1994, 1993 and 1992 was 13.0%, 1.6% and
2.6%, respectively, of Continental's net incurred losses and loss
expenses for such years.
As a result of insured events in prior years, the provision
for claims and claim adjustment expenses (net of reinsurance
recoveries of $3,670 million and $3,153 million in 1994 and 1993,
respectively) increased by $853 million in 1994, primarily due to
a $573 million increase in asbestos-related, other toxic tort and
environmental pollution claims (including $480 million for
establishment of reserves for Environmental IBNR Claims in the
third quarter of 1994); an $80 million increase resulting from
higher than anticipated number of claims and adverse loss
development in case reserves in multi-peril and various smaller
programs (primarily auto) and an increase in the number of large
cases and adverse loss development in case reserves in the surety
program; and $100 million of additional loss and loss adjustment
expense reserves established in workers' compensation, primarily
as a result of Continental's annual fourth quarter review of
reserves and reviews conducted in connection with the sale of
Casualty and negotiations with respect to such sale.
The $55 million reduction for the provision for claims and
claim adjustment expenses other than asbestos-related and other
toxic tort and environmental pollution claims in 1993 was
primarily due to a decrease in the medical cost inflation rate
trends in comparison to prior years, which was anticipated to
primarily benefit the provision for claims and claim adjustment
expenses relating to Continental's workers' compensation
business, which is most affected by medical costs.
Reinsurance
In the ordinary course of business, Continental cedes
business, on both a pro rata and excess of loss basis, to other
insurers and reinsurers. Purchasing reinsurance enables
Continental to limit its exposure to catastrophic events and
other concentrations of risk. However, purchasing reinsurance
does not relieve Continental of its obligations to its insureds.
Continental assumes business from other reinsurance
organizations, primarily through its participation in voluntary
and involuntary risk-sharing pools.
30
<PAGE>
For a table showing premiums written, premiums earned and
losses and loss expenses information (direct, assumed and ceded)
for the years ended December 31, 1994, December 31, 1993 and
December 31, 1992 see the Proxy Statement at page F-31.
Continental reviews the creditworthiness of its reinsurers on
an ongoing basis. To minimize potential problems, Continental's
policy is to purchase reinsurance only from carriers who meet its
credit quality standards. It has also taken and is continuing to
take steps to settle existing reinsurance arrangements with
reinsurers which do not meet its credit quality standards.
Continental does not believe that there is a significant solvency
risk concerning its reinsurers. In addition, Continental
regularly evaluates the adequacy of its reserves for
uncollectible reinsurance. Continental believes that it makes
adequate provisions for the ultimate collectibility of its
reinsurance claims and therefore believes these net recoveries to
be probable. During 1994, Continental charged $135 million to
earnings for uncollectible reinsurance (which includes an $80
million charge for the reinsurance asset recorded in conjunction
with the establishment of the reserve for Environmental IBNR
Claims that was fully reserved for as not recoverable), compared
with $15 million in 1993 and $41 million in 1992. Continental
has not incurred any significant reinsurance write-offs
associated with its corporate catastrophe reinsurance program.
Continental has in place various reinsurance arrangements
with respect to its current operations. These arrangements are
subject to retention, coverage limits and other policy terms.
Some of the principal treaty arrangements which are presently in
effect are: (1) an excess-of-loss treaty reducing Continental's
liability on individual property losses; (2) a blanket casualty
program reducing Continental's liability on third party liability
losses; (3) a clash casualty program reducing Continental's
liability on multiple insured/single event losses; and (4) a
property catastrophe program, with a net retention of $50 million
in both 1994 and 1993, reducing its liability from catastrophic
events. Continental also uses individual risk facultative and
other facultative agreements to further reduce its liabilities.
Continental also has in place an aggregate excess-of-loss
reinsurance contract with a limit of $400 million. This
agreement was purchased in 1992 from National Indemnity Insurance
Company. It covers losses and allocated loss expenses for 1991
and prior policy years. The business covered includes all lines
of business written by Continental's domestic property and
casualty insurance subsidiaries, with specific exclusions for
nuclear exposure, war risks, business written through the
Workers' Compensation Reinsurance Bureau and involuntary market
pools, insolvency and guarantee fund assessments, taxes,
unallocated loss adjustment expenses, and extra-contractual
obligations.
Effective July 1, 1994, Continental entered into a quota
share agreement (previously referred to as the Quota Share
Cession) to reinsure a portion of its domestic personal lines
business with General Reinsurance Corporation. From July 1, 1994
through December 31, 1995, the quota share participation is 50%
of covered lines. Continental ceded premiums related to the
Quota Share Cession of $325 million in 1994 and expects to cede
written premiums of approximately $300 million in 1995. This
arrangement will help Continental lower its premium-to-surplus
ratio and further reduce its exposure to catastrophes subject to
the agreement's catastrophe coverage limits.
Continental does not maintain any reinsurance arrangements
whose coverage is limited solely to reported and unreported
Environmental Claims, as defined above. The amounts of
reinsurance receivables and recoverables that are reflected in
Continental's Consolidated Financial Statements arose under a
variety of reinsurance arrangements put in place generally from
1963 through 1986, which generally are the years in which
Continental's general liability policies were alleged to provide
coverage for those types of claims. As most of Continental's
reserves for asbestos-related, other toxic
31
<PAGE>
tort and environmental pollution claims have arisen out of
general liability policies written prior to 1986 (after which
such policies have not generally been subject to wide-ranging
challenges by policyholders and/or differing interpretations by
courts in various jurisdictions), a majority of reinsurance
receivables and recoverables arising out of such claims in 1992,
1993 and 1994 related to reinsurance arrangements put into place
prior to 1986. These reinsurance arrangements include primary
casualty treaty arrangements, excess of loss and umbrella
casualty treaty arrangements, property treaty arrangements and
various facultative agreements.
Investment and Finance
Reserves and surplus balances constitute a pool of funds
which are invested by insurance companies. Investment results
combined with underwriting results produce operating income or
losses. Continental's overall operating results in the insurance
business are significantly affected by the performance of its
investment portfolio.
The following table sets forth the investment results of
Continental and its subsidiaries for each of the past three
years:
<TABLE>
<CAPTION>
Average Net Investment Current Realized
Year Investments (1) Income (2) Yield Capital Gains
(millions, except percentages)
<S> <C> <C> <C> <C> <C>
1994 . . . . $ 8,695.4 $504.2 5.8% $ 76.0
1993 . . . . $ 8,817.0 $542.3 6.2% $ 124.5
1992 . . . . $ 8,314.4 $589.9 7.1% $ 215.6
</TABLE>
(1) Average of investments at beginning and end of
calendar year, excluding operating cash, but
including cash equivalents. Bonds and redeemable
preferred stocks are reported at fair value, except
for those investments intended to be held to
maturity, which are reported at cost.
(2) Net investment income after deduction of investment
expenses, but before realized capital gains and
applicable income taxes.
The following table sets forth the amortized cost and
estimated fair value of Continental's investment portfolio as at
December 31 of the years indicated:
32
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
Net
Net Net Unrealized
Amortized Unrealized Amortized Unrealized Amortized Gain
Cost Fair Value Gain (Loss) Cost Fair Value Gain (Loss) Cost Fair Value (Loss)
(millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Maturities
U.S. Treasury
Securities $ 1,515.0 $ 1,442.4 $ (72.6) $ 1,647.9 $ 1,706.5 $ 58.6 $1,432.6 $ 1,453.3 $ 20.7
U.S. Agency Securities 70.3 67.2 (3.1) 25.3 27.1 1.8 46.0 46.7 0.7
Tax-Exempt Securities 666.2 626.7 (39.5) 1,325.2 1,418.6 93.4 724.8 763.6 38.8
Canadian Government,
Provincial
and Municipal
Securities 482.4 455.1 (27.3) 518.0 559.0 41.0 476.7 487.2 10.5
Other International
Securities 623.3 612.3 (11.0) 646.8 689.9 43.1 743.5 767.5 24.0
Corporate Securities 1,170.2 1,115.1 (55.1) 1,148.7 1,193.1 44.4 1,313.0 1,326.7 13.7
Mortgage-Backed
Securities 1,516.3 1,431.8 (84.5) 1,255.1 1,270.3 15.2 1,299.7 1,337.5 37.8
Redeemable Preferred
Stocks 45.5 44.4 (1.1) 48.9 51.9 3.0 55.6 57.6 2.0
---------- --------- --------- --------- --------- --------- -------- --------- --------
$ 6,089.2 $ 5,795.0 $ (294.2) $ 6,615.9 $ 6,916.4 $ 300.5 $6,091.9 $ 6,240.1 $ 148.2
========== ========= ========= ========= ========= ========= ======== ========= ========
Equity Securities
Common Stocks 92.3 117.2 24.9 500.8 653.7 152.9 583.6 737.9 154.3
Nonredeemable Preferred
Stocks 4.6 3.7 (0.9) 99.2 105.4 6.2 176.1 170.9 (5.2)
---------- --------- --------- --------- --------- --------- -------- --------- --------
$ 96.9 $ 120.9 $ 24.0 $ 600.0 $ 759.1 $ 159.1 $ 759.7 $ 908.8 $ 149.1
========== ========= ========= ========= ========= ========= ======== ========= ========
Other Long-Term
Investments 530.4 537.7 7.3 387.9 395.9 8.0 340.2 340.2 --
---------- --------- --------- --------- --------- --------- -------- --------- --------
Other Short-Term
Investments 1,794.8 1,794.8 -- 1,071.0 1,071.0 -- 647.9 647.9 --
---------- --------- --------- --------- --------- --------- -------- --------- --------
Fixed Maturities Held to
Maturity -- -- -- -- -- -- 354.5 383.7 29.2
---------- --------- --------- --------- --------- --------- -------- --------- --------
Total Investments $ 8,511.3 $ 8,248.4 $ (262.9) $ 8,674.8 $ 9,142.4 $ 467.6 $8,194.2 $ 8,520.7 $ 326.5
========== ========= ========= ========= ========= ========= ======== ========= ========
</TABLE>
The value of Continental's investment portfolio has been
negatively impacted by recent increases in interest rates, which
resulted in a reduction in the fair value of Continental's fixed
income securities.
Continental is shifting its investment focus from an objective
of total return to an objective to maximize pre-tax investment
income and minimize volatility of shareholders' equity.
Accordingly, Continental is continuing to reduce the equity and
non-investment grade bond components of its portfolio and reduce
the average maturity of the taxable fixed income investments.
Presently, Continental also intends to enter into derivative
investments primarily as economic hedges against the fixed income
portfolio.
All investments are made in accordance with applicable state
investment laws; further, Continental employs strict internal
guidelines limiting its investments in any particular issue and
in any particular industry. Continental also maintains short-
term investments and cash equivalents for the current and
anticipated near-term liquidity needs of its operations.
Fixed maturities available-for-sale consist of certain bonds
and redeemable preferred stocks that management may not hold
until maturity and which have an average Moody's rating of Aa1,
Moody's second highest of ten investment grade ratings (or its
Standard & Poor's equivalent). Continental's fixed maturities
available-for-sale had a balance sheet fair value of $5,795
million at December 31, 1994 (compared with a fair value of
$6,916 million at December 31, 1993) and included mortgage-backed
securities with a fair value of $1,432 million and an amortized
cost of $1,516 million at December 31, 1994 (compared with a fair
value of $1,270 million and an amortized cost of $1,255 million
at December 31, 1993). Continental's mortgage-backed securities
have an average Moody's rating of Aaa, Moody's highest rating (or
its Standard & Poor's equivalent), and an average life of
7 years. Continental has an insignificant investment in col-
lateralized mortgage obligations which put the return of
principal at risk if interest rates or prepayment patterns
fluctuate.
33
<PAGE>
At December 31, Continental's fixed maturities available-for-
sale portfolio classified by Moody's rating was as follows:
<TABLE>
<CAPTION>
Percentage of Fixed Maturities
Available-for-Sale Portfolio
----------------------------------------------
Moody's Rating 1994 1993
-------------- ------- -------
<S> <C> <C> <C>
Aaa........................ 62.1% 62.0%
Aa......................... 15.0 15.7
A.......................... 15.2 11.2
Baa........................ 7.2 9.6
Below Baa.................. 0.5 1.5
------- -------
100.0% 100.0%
======= =======
</TABLE>
At December 31, 1994, the fixed maturities portfolio included
an immaterial amount of securities, the fair value of which is
expected to be lower than its carrying value for more than a
temporary period; such investments have been recorded in Conti-
nental's Consolidated Balance Sheets (see the Proxy Statement at
p. F-18) at their net realizable value.
At December 31, 1994, Continental's equity securities had a
fair value of $121 million, which represented a $608 million
decrease from the fair value at September 30, 1994, primarily due
to sales, in the fourth quarter, of $615 million of Continental's
appreciated equity securities. As a result of those fourth
quarter sales, Continental recognized $102 million of realized
capital gains.
In 1994, Continental held derivative financial investments for
the purposes of enhancing income and total return and/or hedging
long-term investments. Presently, it is Continental's intent to
enter into derivative financial investments primarily as economic
hedges against the fixed income portfolio. At December 31, 1994,
the total notional value of Continental's derivative financial
investments amounted to $184 million, and included futures
contracts, interest rate swap agreements, options and foreign
currency forward contracts. The notional amounts of such
instruments as of December 31, 1994 and 1993, respectively, were
as follows: foreign currency forward contracts of $3 million and
$0 million; interest rate swaps of $33 million and $208 million;
options of $25 million and $0 million; and futures contracts of
$123 million and $123 million. Continental does not participate
in these types of financial instruments as an intermediary, and
believes it limits its credit risk of non-performance by any
counterparty to an insignificant amount.
Continental has forward contracts in place to hedge the cash
proceeds from the sale of CI Canada. These forward contracts
expire in 1995 and at December 31, 1994 had an unrealized gain
of $1 million with respect to them.
At December 31, 1994, Continental also had a $109 million
investment in privately-placed direct mortgages, which are
included in "Other Long-Term Investments at Fair Value" in
Continental's Consolidated Balance Sheets (see the Proxy
Statement at page F-18).
The NAIC is currently developing an Investments of Insurers
Model Act, which, if adopted by state regulatory authorities,
would establish uniform limitations upon the type and amounts of
investments insurers may hold. Based upon the current proposals
of this Model Act, which are subject to review and change,
Continental does not believe a uniform standard would
significantly affect the current investment mix or operations of
its insurance subsidiaries.
Unrealized appreciation on investments available-for-sale
decreased $731 million, before income taxes, from December 31,
1993 primarily as a result of a loss in value due to increased
interest rates
34
<PAGE>
and sales of equity securities. Unrealized appreciation on fixed
maturities decreased $595 million. Unrealized appreciation on
common stocks decreased $128 million, while unrealized
appreciation on nonredeemable preferred stocks decreased $7
million. Unrealized appreciation on other long-term assets
decreased $1 million. In addition, unrealized appreciation on
investments held by discontinued operations decreased $44
million, before income taxes, from December 31, 1993.
In recent years, a small portion of Continental's investment
funds has been committed to alternative areas of investment
(i.e., other than Continental's traditional areas). Continental
currently invests in alternative areas including limited
partnerships, venture capital partnerships and international
diversification investments. As of December 31, 1994, the total
investment in these areas represented approximately 5% of
Continental's investment portfolio.
Continental, through its former participation in the Municipal
Bond Insurance Association, issued guarantees of financial
obligations. During 1986, this association was reorganized as a
corporation named MBIA, Inc. Continental's net par value
exposure at December 31, 1994 on guarantees issued before the
reorganization was $1.1 billion (1993 - $1.4 billion), all of
which has been reinsured by MBIA, Inc. In addition, Continental
has issued financial guarantees of limited partners' obligations,
municipal lease obligations, industrial development bonds and
other obligations. Continental's net par value exposure on these
guarantees at December 31, 1994 was $133 million (1993 - $151
million). The maturity dates of these obligations range between
one and twelve years. Continental continually monitors its
exposure relating to financial guarantees. Continental does not
believe that its exposures relating to financial guarantees are
material.
Miscellaneous
During 1994, Continental extended the maturity on its
revolving credit facility from December 30, 1994 to December 31,
1995. In addition, the revolving credit facility was increased
by $60 million and provides for borrowings of up to $210 million
from a syndicate of banks. Funds borrowed through the facility
may be used for general corporate purposes, but Continental has
used and intends to use the facility primarily as an alternative
to traditional sources of short-term borrowings. At December 31,
1994, Continental had a $205 million balance outstanding under
the facility. Under the revolving credit agreement, Continental
is required, among other things, not to exceed a modified debt to
capital ratio (debt plus shareholders' equity, excluding net
unrealized appreciation/(depreciation) of investments, plus
redeemable preferred stocks) of 45%, for the period through June
29, 1995, and 40%, thereafter, and to maintain a minimum level of
statutory surplus for its domestic insurance subsidiaries of
$1,400 million, for the period through June 29, 1995, and $1,465
million, thereafter. At December 31, 1994 (the most recent date
of compliance calculations), Continental's modified debt to
capital ratio was approximately 40.1% and statutory surplus for
its domestic insurance subsidiaries was $1,468 million.
In March 1993, Continental sold a total of $150 million of a
total of $350 million of Notes (which provided $148 million of a
total of $346 million in cash, net of offering and underwriting
costs) outstanding under its shelf registration of up to $400
million of debt securities with the Securities and Exchange
Commission. During 1993, Continental used $282 million of net
proceeds from these sales to retire its outstanding 9 3/8% Notes
due July 1, 1993 and $50 million of net proceeds from these sales
to reduce corporate short-term borrowings. As described above
(see "Re-engineering Strategy" commencing on page 1), during
1994, Continental sold preferred stock and an option for $275
million in cash. Pursuant to its obligations under the CNA
Securities Purchase Agreement, Continental will endeavor to raise
additional capital of approximately $100 million, through the
issuance of either preferred stock or notes, if the CNA Merger is
not consummated. If such addition-
35
<PAGE>
al funds are not raised within 360 days after termination of the
Merger Agreement or if the annual dividend rate or interest rate
on such securities exceeds 13%, then the annual rate of
cumulative cash dividends on Continental's 9.75% preferred stock
will be increased to a rate of 10.75%. Continental does not
currently contemplate incurring additional borrowings other than
for the purpose of reducing amounts outstanding under its
revolving credit facility.
During the first quarter of 1995, Continental redeemed its
Series A and Series B Preferred Stock. Continental will pay a total
of $2.1 million in connection with that redemption.
As of December 31, 1994, Continental and its subsidiaries had
approximately 9,357 employees, compared with 12,255 at December
31, 1993. Continental and its subsidiaries consider their em-
ployee relations to be satisfactory.
Item 2. Properties
Continental's subsidiaries lease office space in various
cities throughout the United States and in other countries. The
following table sets forth certain information with respect to
the principal office buildings owned or leased by Continental's
subsidiaries:
36
<PAGE>
<TABLE>
<CAPTION>
Amount of
Building Owned
and Occupied or
Leased by
Continental or its
Subsidiaries (net
of third-party
Size (in square subleases) (in
Location feet) (1) square feet) Principal Usage Operations
<S> <C> <C> <C> <C>
180 Maiden Lane, 1,066,740 605,777 Principal Executive Corporate/Insurance
New York, New York(2) Offices of Operations/Asset
Continental Management
1 Continental Drive 490,993 490,993 Property, Casualty Insurance Operations
Cranbury, New Jersey Insurance Offices
200 S. Wacker Drive, 331,904 290,104 Property, Casualty Insurance Operations
Chicago, Illinois Insurance Offices
1111 E. Broad St., 197,537 197,537 Property, Casualty Insurance Operations
Columbus, Ohio Insurance Offices
1100 Ward Avenue, 186,492 95,450 First Insurance Com- Insurance Operations
Honolulu, Hawaii(2) pany of Hawaii, Ltd.
Headquarters
333 Glen Street, 158,700 158,700 Property, Casualty Insurance Operations
Glens Falls, New York Insurance Offices;
Residual Market
Center
3501 State Highway 129,965 129,965 Data Processing Systems
No. 66, Neptune, New Facilities
Jersey
</TABLE>
(1) Represents the amount of space owned, occupied by or
leased to Continental or its subsidiaries. To the extent not
occupied by Continental or its subsidiaries, such space is or
is intended to be subleased to third parties.
(2) Represents property owned in fee by Continental's
subsidiaries and held subject to mortgages. (See Note 12
to Consolidated Financial Statements included at pages
F-33-F-34 of the Proxy Statement.)
Item 3. Legal Proceedings
Continental's subsidiaries are routinely party to litigation
incidental to their business, as well as other litigation of a
nonmaterial nature. Management regularly evaluates the liability
of Continental and its subsidiaries associated with such litiga-
tion. The status of such litigation is reviewed in consultation
with Continental's in-house legal staff, Corporate Claims Depart-
ment and Environmental Claims Department, and their respective
outside counsel, all of whom have extensive experience in
handling such matters. Based upon the foregoing evaluative
process, Continental makes a determination as to the effect that
such litigation may have upon its financial condition on a
consolidated basis. In the opinion of Continental, no individual
item of litigation, or group of related items of litigation
(including asbestos-related, other toxic tort and environmental
pollution matters), taken net of claims reserves established
therefore and giving effect to reinsurance, is likely to result
in judgments for amounts material to the financial condition of
Continental and its subsidiaries on a consolidated basis. In
light of Continental's recent operating results, it is possible
that litigation judgments or settlements may have a material
impact on results of operations and liquidity.
37
<PAGE>
A Continental subsidiary and other workers' compensation
carriers are involved in the Maine Workers' Compensation
---------------------------
Assessment Litigation, which is currently pending in Maine State
---------------------
Superior Court. This litigation is a collection of various
appeals and proceedings from the Maine Bureau of Insurance, and
involves the statutory reconciliation of the residual market pool
for workers' compensation. The impacted policy years are 1988
through 1992 which are to be re-examined annually through 1999.
For each of those years, the Bureau of Insurance is to conduct a
"Fresh Start" proceeding, in which a determination is to be made
as to whether the residual market was operating at a deficit for
the policy year in question and if so, which portion of the
deficit is to be paid by surcharges to the employers/insureds and
which portion of the deficit is to be assessed to the servicing
and other insurance carriers. The statute requires the Maine
Superintendent of Insurance to determine whether the carriers
used "good faith best efforts" to depopulate the residual market
in order to allocate a percentage (up to 50%) of the deficit
against the carriers. 90% of the portion allocated to the
carriers will be assessed to the approximately twelve (12)
servicing carriers (which includes Continental subsidiary) on a
roughly per capita basis subject to possible exceptions and
adjustments for which new rules are being promulgated by the
Superintendent in another proceeding.
In several decisions beginning in October 1994, a Maine court
(the state Superior Court) in the first judicial appellate review
ruling on the validity of any of the underlying administrative
proceedings, upheld a significant portion of the Superintendent's
methodology and dollar deficit determinations, while invalidating
certain other findings challenged by the carriers. Thus far the
Commissioner has found deficits for the policy years 1989, 1990,
and 1991. No deficit for policy year 1992 has been found, and
policy year 1993 will not be considered until the 1995 "Fresh
Start" proceedings. For the years 1989 through 1991, the
Superintendent ruled that based upon insufficient depopulation
efforts, the maximum permitted 50% of the deficit was to be
allocated to carriers, with the other 50% being surcharged to
employers/insureds. Each of the separate "Fresh Start"
decisions, which form the basis of the Superintendent's
allocations, have been appealed. In addition, the
Superintendent's allocation of $40 million of the combined 1988
through 1991 deficit, servicing carrier performance and
investment yield issues has been challenged.
Those decisions all are currently pending on appeal to the
Maine Law Court. The amount of the deficit for prior years
1989-1992 is still being litigated, and remains to be determined.
The Continental subsidiary will be liable for a certain percentage
of any such deficit, which percentage will be determined in a
separate proceeding and is dependent on a combination of residual
and voluntary workers' compensation market shares. In light of
Continental's recent operating results, an adverse decision in
this action may have a material impact on results of operations
and liquidity.
In May 1994 and subsequently, a purported class action
entitled Weatherford Roofing et al. v. Employers National
------------------------------------------------
Insurance Company, et al. and related actions, were instituted in
-------------------------
state court in Dallas, Texas. They involve alleged assigned risk
overburden ("ARO") and other over-charges levied by insurance
carriers writing workers compensation business in the State of
Texas from May 15, 1987 through April 1, 1992. During that
period, the residual market pool for workers' compensation
generated deficits which were assessed to carriers in relation to
their voluntary written workers' compensation premium.
Continental subsidiaries had a total Texas workers' compensation
premium volume of approximately $530 million during that period.
The action seeks to certify a class of all commercial
insureds who were allegedly overcharged on workers' compensation
policies and in some cases, other casualty insurance policies,
purchased during said period. The fourteenth amended complaint
currently names some 260 insurance carrier defendants who wrote
such coverage in the State of Texas during that same time. Two
defendant groups, Hartford and St. Paul, have entered into
settlements totalling about $25 million. Nine (9) Continental
companies are named as defendants. Plaintiff's claim breach of
contract and fraud as well as violations of the Texas Deceptive
Trade Practices Act ("DTPA"), the
38
<PAGE>
deceptive practices and other provisions of the Texas Insurance
Code, and the state antitrust act. Plaintiffs' seek actual
damages, enhanced and/or treble damages and attorneys fees, as
well as injunctive relief. At the present time the complaints
have been served and answers and other defenses interposed. The
plaintiff's motion for class certification is being opposed.
Although, Continental intends to defend this action
vigorously, in light of Continental's recent operating
results, an adverse result in this action may have a material
impact on results of operations and liquidity.
Beginning on December 7, 1994, five purported class actions
were filed in New York State Supreme Court, New York County,
against Continental and directors of Continental by persons
claiming to be stockholders of Continental. The plaintiffs in
these actions allege that directors of Continental breached their
fiduciary duties when they approved the Merger Agreement with CNA
and its affiliate, Chicago Acquisition Corp., by, among other
things, agreeing to the Merger at an unfair and inadequate price,
failing to adequately "shop" Continental and failing to maximize
value for Continental's shareholders. The plaintiffs in two of
these actions have also named CNA as a defendant, and allege that
CNA aided and abetted the breaches of fiduciary duty. The
plaintiff in another of these actions alleges that directors of
Continental also violated Sections 715 and 717 of the NYBCL
(which relate to the duties of officers and directors). The
plaintiffs in one or more of these purported class actions seek,
among other relief, an injunction prohibiting the Merger, other
injunctive relief and unspecified monetary damages. Counsel for
the plaintiffs in these actions have advised counsel for
Continental that they intend to serve a single, consolidated
amended complaint.
Continental does not believe that this litigation is likely to
have a material adverse effect on the financial condition or
results of operations of Continental because, based on its review
of the complaints that have been filed, the underlying facts and
the applicable law, Continental believes that the claims against
it and its directors have no merit and that it is highly unlikely
that an injunction will be issued or that damages will be awarded
against Continental or its directors in an amount that would have
a material adverse effect on the financial conditions or results
of operations of Continental.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1994, no matter was submitted to
a vote of Continental's shareholders.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
Continental's Common Stock has traded on the New York Stock
Exchange since May 27, 1968 (symbol: CIC). The Common Stock also
trades on the Midwest Stock Exchange and the Pacific Stock
Exchange.
The following table sets forth, for the calendar periods
indicated, the high and low sale prices per share of
Continental's Common Stock as reported by the NYSE.
39
<PAGE>
Common Stock
------------
High Low
---- ---
Calendar 1993
First Quarter 29-1/2 24-3/4
Second Quarter 31-1/4 24-3/8
Third Quarter 34-5/8 30-3/8
Fourth Quarter 33 27-1/2
Calendar 1994
First Quarter 28-1/2 22-1/8
Second Quarter 23-5/8 14-1/8
Third Quarter 19-7/8 13-3/8
Fourth Quarter 19-1/8 12
On October 12, the day prior to the announcement of the IP
Securities Agreement, the closing sales price of the Common Stock
on the New York Stock Exchange was $13.50 per share. On
December 5, 1994, the day prior to the announcement of the
proposed CNA Merger, the high, low and closing sales prices of
the Common Stock on the New York Stock Exchange were $14.375,
$14.125 and $14.375 per share, respectively.
As of March 27, 1995, there were approximately 11,750
registered holders of Continental's Common Stock.
Continental paid $0.50, $1.00 and $2.20 per share in dividends
in the first nine months of 1994 and in 1993 and 1992,
respectively. In August 1994, the Board of Directors, citing the
need to further strengthen Continental's capital base, eliminated
the quarterly cash dividend on the Common Stock. Continental is
prohibited under certain provisions of its preferred stock from
paying Common Stock dividends until December 9, 1997, and will be
restricted from paying Common Stock dividends thereafter under
certain circumstances.
Material appearing under the captions "Summarized Consolidated
Quarterly Financial Data (Unaudited)", "Selected Consolidated
Financial Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financial
Resources and Liquidity", and Notes 16 and 18 to Consolidated
Financial Statements included in Continental's Proxy Statement is
incorporated herein by reference.
Item 6. Selected Financial Data
Material appearing under the caption "Selected Consolidated
Financial Information" included in the Proxy Statement is
incorporated herein by reference.
40
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material appearing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
included in the Proxy Statement is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and related Notes, and
material appearing under the captions "Independent Auditors' Re-
port", "Report on Financial Statements" and "Summarized
Consolidated Quarterly Financial Data (Unaudited)" included in
the Proxy Statement are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Within the 24 months prior to the date of its most recent
financial statements, Continental did not file a report on Form
8-K reporting a change of accountants.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors of the Registrant
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C> <C>
Ivan A. Burns Director 60
Alec Flamm Director 68
Irvine O. Hockaday, Jr. Director 58
John E. Jacob Director 60
John P. Mascotte Director, Chairman of the Board and 55
Chief Executive Officer
John F. McGillicuddy Director 64
Richard de J. Osborne Director 60
John W. Rowe, M.D. Director 50
Patricia Carry Stewart Director 66
Adrian M. Tocklin Director, President and
Chief Operating Officer 43
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C>
Francis T. Vincent, Jr. Director 56
Michael Weintraub Director 56
Anne Wexler Director 65
</TABLE>
All Directors of Continental are elected to serve for terms to
expire at the meeting of the Board of Directors following the
next Annual Meeting of Shareholders and until their successors
shall have been elected.
Ivan Burns is a former Executive Vice President-Administration
and Director (1989-90) of CPC International Inc., and was
President of its Corn Wet Milling Division (1985-87). From 1983
to 1985 he had been Chairman of the Board and Chief Executive
Officer of ACF Industries, Inc. He has been a Continental
Director since 1983. Committees: Compensation and Nominating.
Alec Flamm is a former Vice Chairman (1985-86), President and
Chief Operating Officer (1982-85) and Director (1981-86) of Union
Carbide Corporation. Mr. Flamm has been a Continental Director
since 1983. He is also a director of Imcera Group, formerly the
International Minerals and Chemicals Corporation. Committees:
Compensation (Chair), Executive and Public Affairs.
Irvine O. Hockaday, Jr. has been President and Chief Executive
Officer of Hallmark Cards, Inc. since 1986, and a Director since
1978. Prior to joining Hallmark Cards, Inc., he was President and
Chief Executive Officer of Kansas City Southern Industries, Inc.
Mr. Hockaday has been a Continental Director since 1989. He also
is a Director of The Ford Motor Company and Dow Jones Inc.
Committees: Audit and Investment.
John E. Jacob has been Executive Vice President and Chief
Communications Officer of Anheuser Busch Companies, Inc. since
1994. From 1982 to 1994, he was President and Chief Executive
Officer of the National Urban League. He has been a Continental
Director since 1985. Mr. Jacob also is a Director of Coca Cola
Enterprises, Inc., Anheuser-Busch Companies, Inc. and LTV
Corporation. Committees: Audit (Chair), Executive and Public
Affairs.
John P. Mascotte has been Chairman and Chief Executive Officer
of Continental since 1982. From 1992 through 1994, he also acted
as President, a position he held during the period 1981-1984.
Mr. Mascotte is also the chief executive officer and director of
several subsidiaries of the Corporation. Mr. Mascotte has been a
Continental Director since 1981. He also is a Director of
Hallmark Cards, Inc., Chemical Banking Corporation, Chemical
Bank, Business Men's Assurance Company of America and American
Home Products Corporation. Committee: Executive (Chair).
John F. McGillicuddy is the retired Chairman of the Board and
Chief Executive Officer of Chemical Banking Corporation and
Chemical Bank. Prior to the merger on January 1, 1992 of
Manufacturers Hanover Corporation and Chemical Banking
Corporation, Mr. McGillicuddy had been Chairman and Chief
Executive Officer of Manufacturers Hanover Corporation and
Manufacturers Hanover Trust Company, positions he had held since
1979. Mr. McGillicuddy is a Director of Chemical Banking
Corporation and Chemical Bank. He has been a Continental
Director since 1975. Mr. McGillicuddy also is a Director of UAL
Corporation, USX Corporation, Empire Blue Cross and Blue Shield
and Kelso & Company. Committees: Audit, Executive, Investment
and Nominating (Chair).
42
<PAGE>
Richard de J. Osborne has been Chairman, Chief Executive
Officer and President of ASARCO Incorporated since 1985. He has
been a Continental Director since 1992. Mr. Osborne is a
Director of ASARCO and Schering-Plough Corporation, Chairman and
a Director of American Mining Congress, a Director and former
Chairman of International Copper Association, Chairman and a
Director of Copper Development Association, and a Director of the
United States Chamber of Commerce, the Americas Society and the
Council of the Americas. He also is President and a Director of
the American-Australian Association and a member of the Council
on Foreign Relations, the Economic Club of New York and The
Conference Board. Committees: Audit, Executive and Investment.
John W. Rowe, M.D., has been President of Mount Sinai Medical
Center and Mount Sinai School of Medicine since 1988. He was
formerly a Professor of Medicine at Harvard Medical School (1974-
1988). He has been a Continental Director since 1993. Dr. Rowe
is a member of the Board of Directors of the American Board of
Internal Medicine and the New York Academy of Medicine. He is a
past President of the Gerontological Society of America and the
American Federation for Aging Research, and a member of the
Institute of Medicine of the National Academy of Sciences.
Committees: Compensation and Public Affairs.
Patricia Carry Stewart is a former Vice President of The Edna
McConnell Clark Foundation (1974-1992). She has been a
Continental Director since 1976. Ms. Stewart is also a Director
of Bankers Trust Company, Bankers Trust N.Y. Corporation, and
Melville Corporation. She serves as a Trustee and Vice Chairman
of the Board of Cornell University, a member of the Council on
Foreign Relations and a director and Vice Chairman of the Board
of the Community Foundation for Palm Beach and Martin Counties.
Committees: Investment (Chair) and Nominating.
Adrian M. Tocklin has been a Director, President and Chief
Operating Officer of Continental since July 1994. Prior to that
time, she served as Executive Vice President of Continental and
President, Continental Risk Management Services, since November
1992, and as Senior Vice President, Corporate Claims, of
Continental (July 1988-November 1992).
Francis T. Vincent, Jr. is a former Commissioner of Major
League Baseball (1989-1992). From 1979 to 1989, he served as
Executive Vice President of The Coca-Cola Company and Chief
Executive Officer, Chairman of the Board and President of
Columbia Pictures Industries, Inc., formerly a subsidiary of The
Coca-Cola Company. Mr. Vincent has been a Continental Director
since 1992. He also is a Director of Time-Warner Corp., Culbro
Corp. and Oakwood Homes Corp. Committees: Compensation and
Nominating.
Michael Weintraub is a private investor. He has been a
Continental Director since 1976. Mr. Weintraub also is a
Director of NationsBank Corporation and IVAX Corporation and a
trustee of the Miami Heart Research Institute. Committees:
Audit and Investment.
Anne Wexler has been Chairman of The Wexler Group, a
Washington, D.C., government relations consulting firm, 1981.
She has been a Continental Director since 1990. Ms. Wexler is
also a Director of American Cyanamid Corporation, Comcast
Corporation, Dreyfus Index Funds and the New England Electric
System. She is a member of the I.B.M. Public Responsibility
Committee, the Board of Visitors of the University of Maryland
School of Public Affairs, the Carter Center of Emory University,
the Council on Foreign Relations and the Visiting Committee of
the JFK School of Government at Harvard University. Committees:
Compensation and Public Affairs (Chair).
The Continental Board of Directors has established six
Committees, described below. With the exception of the Executive
Committee, all Board Committees are comprised entirely of
independent Directors of Continental.
43
<PAGE>
The Executive Committee is authorized, to the extent permitted
by New York law, to exercise powers of the Board during intervals
between Board meetings. The Executive Committee has five
members: Messrs. Mascotte (Chair), Flamm, Jacob, McGillicuddy
and Osborne. The Committee met three times in 1994.
The Audit Committee consists of five members: Messrs. Jacob
(Chair), Hockaday, McGillicuddy, Osborne and Weintraub. The
Audit Committee reviews the annual financial statements of
Continental, reviews the adequacy of its system of internal
accounting controls and procedures, reviews the plan and scope of
the annual audit of Continental, and considers other matters in
relation to the internal and external auditing of Continental.
The Audit Committee meets with Continental's independent
certified public accountants, internal auditors and financial and
legal personnel in connection with the Committee's reviews. It
recommends to the Board of Directors the appointment of the
independent certified public accountants. The Audit Committee
met five times in 1994.
The primary function of the Investment Committee is to review
and evaluate Continental's investment policies and to recommend
to the Board of Directors such changes as may be appropriate.
The Investment Committee has five members: Ms. Stewart (Chair)
and Messrs. Hockaday, McGillicuddy, Osborne and Weintraub. It
met four times in 1994.
The Compensation Committee is responsible for remuneration
arrangements for Directors and senior management, for awards and
other matters under Continental's Annual Management Incentive
Plan and Long Term Incentive Plan and for compensation and
benefit plans for Continental employees generally. The
Compensation Committee has five members: Messrs. Flamm (Chair),
Burns and Vincent, Dr. Rowe and Ms. Wexler. It met eleven times
in 1994.
The Nominating Committee recommends as nominees for election
as Directors of Continental at the Annual Meeting of
Shareholders. The Nominating Committee consists of four members:
Messrs. McGillicuddy (Chair), Burns and Vincent and Ms. Stewart.
It met one time in 1994.
The Public Affairs Committee has four members: Ms. Wexler
(Chair) and Messrs. Flamm, Jacob and Dr. Rowe. Its function is
to review Continental's policies on public issues relating to its
business, and to report to the Board of Directors on the
Committee's findings. The Public Affairs Committee met three
times in 1994.
Each Director who is not an executive officer of the
Corporation receives an annual retainer of $25,000 and 100 shares
of Continental common stock, and a meeting fee of $1,000 for each
Board and Committee meeting which he or she attends (except that
in 1995, each such director received cash in lieu of shares).
Chairpersons of Committees receive additional annual retainers as
follows: Audit Committee -- $6,000; Compensation, Investment,
Nominating and Public Affairs Committees -- $5,000. Directors who
are also Continental executive officers receive no fees for
serving as Directors of the Corporation. Each Director (who is
not an executive officer) who retires from the Board after
attaining the age of 70, or by reason of disability, with a
minimum of five years' service as director receives thereafter,
annually for the same number of years as the Director served on
the Board, subject to a maximum of ten years, the annual retainer
at the time such Director retires or is disabled.
44
<PAGE>
Item 10(b). Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
John P. Mascotte Director, Chairman of the Board and Chief Executive 55
Officer
Adrian M. Tocklin Director, President and Chief Operating Officer 43
Wayne H. Fisher Senior Executive Vice President and President, 50
Special Operations Group
Steven J. Smith Executive Vice President, Office of the Chairman 50
Bruce B. Brodie Senior Vice President and Chief Information Officer 40
J. Heath Fitzsimmons Senior Vice President and Chief Financial Officer 52
James P. Flood Senior Vice President, Corporate Claims 44
William F. Gleason, Jr. Senior Vice President, General Counsel and Secretary 58
John F. Kirby Senior Vice President 48
Arthur J. O'Connor Senior Vice President, Corporate Communications and 42
Investor Relations
Sheldon Rosenberg Senior Vice President and Chief Actuary 45
Kenneth B. Zeigler Senior Vice President, Human Resources 46
Francis M. Colalucci Vice President and Treasurer 50
William A. Robbie Vice President and Chief Accounting Officer 43
Timothy P. Mitchell Senior Vice President 45
Salvadore Ricciardone Senior Vice President 46
</TABLE>
All Executive Officers of Continental are elected to serve for
terms to expire at the meeting of the Board of Directors follow-
ing the next Annual Meeting of Shareholders and until their
successors shall have been elected.
John P. Mascotte has been a Director since February 1981 and
Chairman of the Board and Chief Executive Officer of Continental
since December 1982. From 1992 through 1994, he also acted as
President, a position he held during 1981 - 1984.
Adrian M. Tocklin has been a Director, President and Chief
Operating Officer of Continental since July 1994. Prior to that
time, she served as Executive Vice President of Continental and
President, Continental Risk Management Services, since November
1992, and as Senior Vice President, Corporate Claims, of
Continental (July 1988 - November 1992).
Wayne H. Fisher has been a Senior Executive Vice President of
Continental since July 1994 and has been President, Special
Operations Group, since January 1988. Before that time, he was
an
45
<PAGE>
Executive Vice President (December 1990 - July 1994) and a Senior
Vice President of Continental (December 1988 - December 1990).
Steven J. Smith has been an Executive Vice President, Office
of the Chairman, of Continental since February 1985.
Bruce B. Brodie has been Senior Vice President and Chief
Information Officer of Continental since October 1993. Before
that time, he served as Chief Financial Officer for the Special
Operations Group (April 1990 - October 1993) and Vice President,
Office of the Chairman, of Continental (January 1989 - April
1990).
J. Heath Fitzsimmons has been Senior Vice President and Chief
Financial Officer of Continental since January 1990. Before that
time, he was Vice President, Finance, of Continental (February
1989 - December 1989).
James P. Flood has been Senior Vice President, Corporate
Claims, of Continental since November 1992. Before that time, he
served as Vice President, Environmental Claims, of Continental
(March 1988 - October 1992).
William F. Gleason, Jr. has been Senior Vice President,
General Counsel and Secretary of Continental since January 1983.
John F. Kirby has been a Senior Vice President of Continental
since January 1990 and a Senior Vice President of The Continental
Insurance Company since March 1987.
Arthur J. O'Connor has been Senior Vice President, Corporate
Communications and Investor Relations, of Continental since
November 1992 and served as Vice President, Corporate Communica-
tions and Investors Relations, of Continental (January 1988 -
November 1992).
Sheldon Rosenberg has been Senior Vice President and Chief
Actuary of Continental since February 1994. Before that time, he
served as Vice President and Chief Actuary of The Continental
Insurance Company (April 1992 - February 1994), Vice President
and Actuary of The Continental Insurance Company (April 1990 -
March 1992) and Vice President and Chief Financial Officer of the
Special Operations Group (April 1988 - March 1990).
Kenneth B. Zeigler has been Senior Vice President, Human
Resources, of Continental since December 1991. Before that time,
he served as Senior Vice President and President of the Marine
and International Group (January 1990 - November 1991).
Previously, he had been President of Continental International
(July 1988 - December 1990).
Francis M. Colalucci has been Vice President and Treasurer of
Continental since May 1991. Before that time, he was Vice Presi-
dent and Controller of The Continental Insurance Company
(November 1980 - May 1991).
William A. Robbie has been Vice President and Chief Accounting
Officer since June 1992 and served as Vice President, Financial
Reporting (June 1990 - June 1992). Before that time, he served
as Vice President and Treasurer of Monarch Life Insurance Co. and
Vice President and Corporate Controller of Monarch Capital Corp.
(August 1988 - June 1990).
Timothy P. Mitchell has been Senior Vice President and Chief
Underwriting Officer of Continental since August 1994. Prior to
that time, he was Executive Vice President of Underwriting and
46
<PAGE>
Production, Continental Risk Management Services (November 1992 -
August 1994), Chief Underwriter, Special Operations Group
(February 1991 - November 1992) and President, Continental Health
Care (June 1986 - February 1991).
Salvadore J. Ricciardone has been a Senior Vice President of
Continental since September 1994 and the President of
Continental's Commercial Lines Group since August 1994. Prior to
that time, he was Senior Vice President for the Product
Management Division of Continental's Agency & Brokerage Group
(May 1994-August 1994), Vice President and Manager of the Midwest
Region (1992-1994) Vice President and Regional Manager of
Continental's North Atlantic Region (N.J., N.Y.C. and Long
Island) (1991 - 1992) and Regional Vice President of Garden State
Region (N.J.) (1989-1991).
47
<PAGE>
Item 11. Executive Compensation
The Summary Compensation Table, which appears below, provides
information concerning all forms of compensation for the three-
year period 1992-1994 for the CEO and the four other most highly
compensated Continental executive officers for services to
Continental and its subsidiaries in all capacities. The three
tables following the Summary Compensation Table provide further
detail regarding compensation earned by these executive officers
in 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Awards Payouts
Annual Compensation Number of
Other Securities
Annual Underlying All Other
Name and Principal Compen- Options/ LTIP Compen-
Position Year Salary Bonus sation(a) SARs(#) Payouts sation(b)
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Mascotte . . . 1994 $735,192 $ 0 $21,166 0 $ 0 $33,727
Chairman and CEO 1993 $696,538 $332,500 $15,791 16,300 $ 0 $41,792
1992 $675,000 $ 0 $11,425 20,000 $ 0 $40,500
Charles A. Parker . . . 1994 $461,538 $ 0 $24,786 0 $ 0 $961,185(c)
Executive Vice 1993 $440,769 $136,000 $21,311 7,500 $ 0 $26,446
President 1992 $430,000 $ 0 $13,319 15,000 $ 0 $25,800
Adrian M. Tocklin . . . 1994 $368,077 $ 0 $16,795 0 $ 0 $14,705
President and 1993 $288,462 $120,000 $ 7,526 6,000 $ 0 $17,464
Chief Operating 1992 $230,577 $ 0 $ 4,906 18,000 $ 0 $13,883
Officer
Wayne H. Fisher . . . . 1994 $362,115 $ 0 $28,568 0 $ 0 $15,758
Senior Executive Vice 1993 $333,077 $128,000 $ 9,078 7,000 $ 0 $19,985
President 1992 $304,808 $ 0 $ 6,790 24,000 $ 0 $17,191
Steven J. Smith . . . . 1994 $326,923 $ 0 $12,527 0 $ 0 $15,018
Executive Vice 1993 $310,769 $128,000 $11,052 9,000 $ 0 $18,646
President 1992 $300,000 $ 0 $ 7,821 9,000 $ 0 $18,000
</TABLE>
(a) Includes tax gross-ups for the taxable value of
unreimbursed personal use of company cars and
chauffeur services on behalf of named executives,
which, in 1994, were as follows: Mr. Mascotte:
$15,130; Mr. Parker: $18,750; Ms. Tocklin:
$16,022; Mr. Fisher: $22,532; and Mr. Smith:
$6,491.
(b) Represents Continental's contributions to
Incentive Savings Plan and Supplemental Savings
Plan, respectively, on behalf of named executives
which, in 1994, were as follows: Mr. Mascotte:
$6,923 and $26,804; Mr. Parker: $6,923 and
$14,262; Ms. Tocklin: $6,923 and $7,782; Mr.
Fisher: $6,923 and $8,835; and Mr. Smith: $6,923
and $8,095.
(c) Includes $940,000 separation pay paid in February
1995. See page 51 herein.
48
<PAGE>
Continental did not grant any Incentive or Non-Qualified stock options
after February 18, 1994. The grants made on February 18, 1994 were
reported in Continental's Annual Report to Shareholders for the Year 1993.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at F.Y.-End(#) at F.Y.-End(a)
Shares Acquired on Exercisable/Un- Exercisable/Un-
Name Exercise(#) Value Realized($) exercisable exercisable
<S> <C> <C> <C> <C>
J. Mascotte . . . . . 0 $0 148,250/8,150 $0/$0
C. Parker . . . . . . 0 $0 85,050/3,750 $0/$0
A. Tocklin . . . . . 0 $0 49,300/3,000 $0/$0
W. Fisher . . . . . . 0 $0 70,650/3,500 $0/$0
S. Smith . . . . . . 0 $0 62,700/4,500 $0/$0
</TABLE>
(a) Calculated at $19.00 closing price for 12/30/94.
49
<PAGE>
The table below shows estimated annual retirement benefits payable under
Continental's Retirement and Supplemental Retirement Plans as a straight
life annuity at age 65 to persons in specified compensation and years-of-
service classifications.
<TABLE>
<CAPTION>
Pension Plan Table
Final Five-
Year Average
Covered
Compensation Years of Credited Service at Retirement
15 20 25 30 35 40
-- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 1,300,000 $ 306,500 $ 408,700 $ 510,900 $ 613,100 $ 715,200 $ 715,200
1,200,000 282,800 377,100 471,400 565,700 659,900 659,900
1,100,000 259,100 345,500 431,900 518,300 604,600 604,600
1,000,000 235,400 313,900 392,400 470,900 549,300 549,300
900,000 211,700 282,300 352,900 423,500 494,000 494,000
800,000 188,000 250,700 313,400 376,100 438,700 438,700
750,000 176,200 234,900 293,600 352,400 411,100 411,100
700,000 164,300 219,100 273,900 328,700 383,400 383,400
650,000 152,500 203,300 254,100 305,000 355,800 355,800
600,000 140,600 187,500 234,400 281,300 328,100 328,100
550,000 128,800 171,700 214,600 257,600 300,500 300,500
500,000 116,900 155,900 194,900 233,900 272,800 272,800
450,000 105,100 140,100 175,100 210,200 245,200 245,200
400,000 93,200 124,300 155,400 186,500 217,500 217,500
</TABLE>
Please note that the final five-year average covered
compensation includes incentive compensation as well as base
salary. The compensation included in calculating pension
benefits takes into account the compensation listed in the
Summary Compensation Table, but is generally less than such
amounts due to the use of a five year average. The benefits
listed in the preceding table are not subject to deduction for
Social Security or other offset amount.
For the executive officers named in the preceding compensation
tables, the respective years of service at the end of 1994 are as
follows: Mr. Mascotte: 23.9 years; Mr. Parker: 24.75 years;
Ms. Tocklin: 20 years; Mr. Fisher: 12.3 years; and Mr. Smith:
18.6 years. The years of credited service stated for such
executive officers include eleven years, nine years, zero years,
zero years and seven years, respectively, credited by employment
arrangements; supplemental benefits with respect to those years
are to be paid from Continental's general funds.
The Executive Severance Plan was established by the Board in
1988 to help assure a continuing dedication by certain senior
executives of Continental to their duties notwithstanding any
occurrence of a tender offer or other takeover bid. The
Compensation Committee of the Board determines the senior
executives who participate in the Plan. Presently, 15 executive
officers are participants in the Plan.
If a change in control of Continental occurs and a
participant's employment terminates within two years after such
change of control for any reason other than retirement,
disability, death or
50
<PAGE>
certain criminal convictions, under The Executive Severance Plan
the participant shall receive a payment equal to 299.9% of the
average of his or her annual compensation paid during the five
preceding years minus the amount of benefits to which such
participant is entitled under The Long Term Incentive Plan, the
Annual Management Incentive Plan, the Executive Termination
Program or any other plan or agreement of Continental, which are
accelerated by, or contingent on, a change of control. The
amount of such accelerated or contingent benefits for any
participant could be determined only after any change of control.
The average annual compensation paid during the five preceding
years to the named executive officers is as follows: Mr.
Mascotte: $885,405; Mr. Parker: $517,255; Ms. Tocklin:
$286,095; Mr. Fisher: $355,890; and Mr. Smith: $377,816. The
Board may not amend or terminate the Plan to relieve the
Corporation of its obligation to pay any amounts to which a
participant has become entitled. No amendment or termination may
become effective, without the consent of all the participants,
within two years after a change of control of Continental or at
any time after the Board has reason to believe a change of
control may occur.
The Executive Termination Program (the "Program"), adopted by
the Board of Directors effective September 22, 1994, codified
Continental's severance policies and its policies relating to
reductions in work force and other involuntary terminations as
they applied to senior executives. The Program provides
severance benefits to participants in the event of the
involuntary termination of their employment other than for cause
or upon retirement before a change in control such as the CNA
Merger. Under the Program, a participant will receive a payment
equal to twice the annualized base pay the executive is receiving
on the date he or she began participation in the Program or on
the date of termination of employment, if greater, if the
participant's employment is terminated by Continental other than
by reason of willful misconduct, normal retirement or disability
or by the participant following a reduction in grade level
responsibilities or base salary by more than 15%. The Program
may not be amended or terminated until January 1, 1997.
Under Continental's Annual Management Incentive Plan, each
participant who is involuntarily terminated in the year in which
a change of control occurs (but following the change of control)
will receive a prorated bonus in respect of his services for that
year based on a percentage of the midpoint of his salary grade
established by the compensation committee of the Board of
Directors under that plan.
In connection with the voluntary early retirement of Mr.
Charles A. Parker, Mr. Parker and Continental entered into a
Separation Agreement, effective as of December 30, 1994 (the
"Separation Agreement"). Pursuant to the Separation Agreement,
Mr. Parker and Continental agreed among other things that Mr.
Parker would receive the amount he would have been entitled to in
accordance with the Program ($940,000 or twice his annualized
base pay) as if he continued to be a participant in the Program
and, upon a change in control prior to September 30, 1995, the
difference between (x) the amount he would have been entitled to
receive pursuant to the Plan, if he had remained a participant in
the Plan on and after such change of control, and (y) $940,000.
No executive officers of Continental served on the
Compensation Committee in 1994.
51
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Directors and Executive Officers
The following table sets forth information regarding
beneficial ownership, as of March 27, 1995, of Common Stock of
Continental by directors of Continental, Continental's five most
highly compensated executive officers and Continental's directors
and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Outstanding
Ownership Common Stock
--------------------- ------------
<S> <C> <C>
Ivan A. Burns 3,600 *
Alec Flamm 600 *
Irvine O. Hockaday, Jr. 1,100 *
John E. Jacob 612 *
John P. Mascotte 173,213 (a) *
John F. McGillicuddy 5,100 *
Richard de J. Osborne 1,100 *
John W. Rowe, M.D. 400 *
Patricia Carry Stewart 600 *
Adrian M. Tocklin 53,358 (a) *
Francis T. Vincent, Jr. 1,100 *
Michael Weintraub 7,100 *
Anne Wexler 600 *
Wayne H. Fisher 77,632 (a) *
Steven J. Smith 68,242 (a) *
Charles A. Parker 85,050 (a)(b) *
All Directors and Executive
Officers as a group (28) 2,708,205 (a)(c) 4.8%
</TABLE>
(a) The numbers of Continental's shares shown as beneficially
owned by Messrs. Mascotte, Parker, Fisher and Smith and Ms.
Tocklin and all directors and executive officers as a group
include 156,400, 85,050, 74,150, 67,200, 52,300 and 749,650
stock options, respectively, granted under Continental's
Long Term Incentive Plan to such executive officers and all
executive officers as a group, which are exercisable or
become exercisable prior to May 26, 1995.
(b) Mr. Parker retired effective February 1, 1995.
(c) The number of the Common Shares shown includes 1,915,344
shares held by the Continental Incentive Savings and
Retirement Plans, for which a subsidiary of Continental
shares investment power.
* Less than 1% of Continental's outstanding shares of Common
Stock.
52
<PAGE>
Other Ownership of Continental Common Stock
The following table sets forth information, as of December 31,
1994, concerning persons known to Continental to be the
beneficial owners of more than 5% of the outstanding shares of
Continental's voting stock.
<TABLE>
<CAPTION>
Amount and Percent
Nature of Beneficial of
Name/Address Ownership Class
<S> <C> <C>
CNA Financial Corporation 10,616,566(a) 16.1%
CNA Insurance Company
CNA Plaza
Chicago, Illinois
The Prudential Insurance 6,469,512(b) 11.6%
Company of America
Prudential Plaza
Newark, New Jersey
Norwest Corporation 4,675,936(c) 8.4%
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota
</TABLE>
_______________
(a) CNA reports that 100,000 of such shares are held by CCC, a
subsidiary of CNA, and that 10,516,566 of such shares are
issuable upon the exchange of the Series T preferred shares
held by CCC into shares of Series E Preferred Stock and the
conversion thereof. CNA also reports that CCC has acquired
shares of Series F Preferred Stock and an option to acquire
Series G Preferred Stock. Shares of such New Preferred are
redeemable at prices that reflect any increase in the per
share market price of the Common Stock over $15.75 and
$17.75, respectively. CNA reports that Loews Corporation
("Loews"), 667 Madison Avenue, New York, New York, owns
approximately 84% of CNA and is a "controlling" person of
CNA under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). CNA reports that CNA, CCC and Loews
share voting authority and investment authority with
respect to all such Common Shares. CNA reports that
Laurence A. Tisch and Preston B. Tisch, Co-Chairmen of the
Board and Co-Chief Executive Officers of Loews, together
own approximately 31.5% of Loews and may be deemed to be
"controlling" persons of Loews under the Exchange Act. At
the Effective Time, each Preferred Share that is issued and
outstanding immediately prior to the Effective Time shall
be converted, at CNA's option, into either (a) the right to
receive a cash payment equal to the liquidation preference
of such share, plus any accrued and unpaid dividends on
such share, at the Effective Time or (b) one share of
preferred stock of CNA or its affiliate, having the same
terms, designations, preferences, limitations, privileges
and relative rights as the Preferred Shares, except that in
the case of convertible Preferred Shares, if any, the
shares shall be convertible into such consideration as
would have been received by the holder of such stock had
such stock been converted into Common Stock immediately
prior to the Effective Time. At CNA's option and sole dis-
cretion, effective immediately prior to the Effective Time,
any or all Preferred Shares owned by or held in treasury of
Continental or CNA or any subsidiary thereof may be
cancelled and extinguished in lieu of the conversion
referred to above.
53
<PAGE>
(b) The Prudential Insurance Company of America reports that it
has sole voting authority with respect to 28,812 shares,
shared voting authority with respect to 6,441,300 shares,
sole investment authority with respect to 28,812 shares and
shared investment authority with respect to 6,442,700
shares.
(c) Norwest Corporation reports that it has sole voting
authority with respect to 4,390,680 shares, shared voting
authority with respect to 21,256 shares, sole investment
authority with respect to 4,661,590 shares and shared
investment authority with respect to 6,026 shares.
Continental's management knows of no other beneficial owner of
more than 5% of any class of voting security of Continental.
Item 13. Certain Relationships and Related Transactions
Mr. Osborne, a director of Continental, is Chairman, Chief
Executive Officer and President of ASARCO Incorporated. ASARCO
rents office space from Continental under a lease expiring April
30, 2002, with an annual rent of $3,063,117.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this Report.
(1) The following items, all of which have been
incorporated herein by reference to the material in the Proxy
Statement as described under Item 8 of this Report.
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Independent Auditors' Report
Selected Consolidated Financial Information
Summarized Consolidated Quarterly Financial Data
(Unaudited)
54
<PAGE>
(2) The following items are filed with this Report:
Independent Auditors' Report
Consolidated:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Schedule I -- Summary of Investments Other Than Investments in Related
Parties at December 31, 1994 . . . . . . . . . . . . . 65
II -- Condensed Parent Financial Statements: . . . . . . . . . . . . . . 66
-- Statements of Income for the years ended December 31, 1994, 1993 and
1992
-- Balance Sheets at December 31, 1994 and 1993
-- Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992
III -- Supplementary Insurance Information for the years
ended December 31, 1994, 1993 and 1992 . . . . . . . . 69
IV -- Reinsurance Information for the years ended December
31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . 70
V -- Valuation and Qualifying Accounts for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . 71
VI -- Supplemental Information for Property-Casualty
Insurance Underwriters for the years ended December
31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . 72
</TABLE>
(3) The following is a list of exhibits hereto
required to be filed by Item 601 of Regulation S-K of the
Securities and Exchange Commission (the "SEC"), each of which
is attached as an Exhibit or incorporated by reference from
the document or documents indicated.
<TABLE>
<S> <C> <C>
2(a) -- Agreement and Plan of Merger, dated as of December 6,
1994, among Continental, CNA Financial Corporation ("CNA")
and CNA Acquisition Corp. (the "Merger Agreement"), filed
under Exhibit 2(a) to the Continental's Form 8-K, dated
December 9, 1994 (the "December 9, 1994 8-K").
3(a) -- Certificate of Incorporation of Continental, as
amended, as filed with the Secretary of the State of
New York on April 6, 1989, filed under Exhibit 3(a)
to Continental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form
10-K"), and Certificate of Amendment to Certificate
of Incorporation, as filed with the Secretary of
State of the State of New York on December 7, 1994,
filed under Exhibit 3 to Continental's Form 8-K,
dated December 16, 1994 (the "December 16, 1994 8-
K").
(b) -- By-Laws of Continental, as amended through December 17,
1992 as filed under Exhibit 3(b) to the 1993 Form 10-K.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
4(a) -- Supplemental Indenture No. 3 dated as of March 1, 1993
from Continental to The Bank of New York, as Trustee, with
respect to the issuance of $150 million of 7.25% Notes due
March 1, 2003 filed on March 3, 1993 as Exhibit 1 to
Report on Form 8-K.
(10)(a) -- The Long Term Incentive Plan of Continental (amended and
restated as of December 1, 1993) as filed under Exhibit
10(a) to the 1993 Form 10-K.
(b) -- The Annual Management Incentive Plan of Continental
(amended and restated as of January 1, 1993) as filed
under Exhibit 10(b) to the 1993 Form 10-K.
(c) -- The Incentive Savings Plan of Continental (amended and re-
stated as of January 1, 1994) as filed under Exhibit 10(c)
to the 1993 Form 10-K.
(d) -- The Retirement Plan of Continental (amended and restated
as of January 1, 1994) as filed under Exhibit 10(d) to the
1993 Form 10-K.
(e) -- Receivables Purchase and Sale Agreement dated as of Decem-
ber 15, 1994, among The Continental Insurance Company
("Continental Insurance"), Boston Old Colony Insurance
Company ("Boston"), The Buckeye Union Insurance Company
("Buckeye"), Casualty Insurance Company ("Casualty"), Com-
mercial Insurance Company of Newark, N.J. ("Commercial"),
The Continental Insurance Company of New Jersey
("Continental - NJ"), Continental Lloyd's Insurance
Company ("Lloyd's"), The Fidelity and Casualty Company of
New York ("Fidelity"), Continental Reinsurance Corporation
("Continental Re"), Firemen's Insurance Company of Newark,
New Jersey ("Firemen's"), The Glens Falls Insurance Com-
pany ("Glens Falls"), Kansas City Fire and Marine
Insurance Company ("Kansas City"), The Mayflower Insurance
Company, Ltd. ("Mayflower"), National-Ben Franklin
Insurance Company of Illinois ("N-BF"), Niagara Fire
Insurance Company ("Niagara"), Pacific Insurance Company
("Pacific") and Workers' Compensation and Indemnity
Company of California ("Workers'"), collectively as
Sellers, and Corporate Receivables Corporation, Falcon
Asset Securitization Corporation ("Falcon"), Sheffield
Receivables Corporation ("Sheffield") and Atlantic Asset
Securitization Corp. ("Atlantic"), collectively as Pur-
chasers, and Citicorp North America, Inc. ("Citicorp"), as
Agent.
(f) Trade Receivables Purchase and Sale Agreement dated as of
December 28, 1984, As Amended, and As Amended and Restated
as of December 30, 1994, among continental Insurance,
Boston, Buckeye, Casualty, Commercial, Continental-NJ,
Lloyd's, Continental Re, Fidelity, Firemen's, Glens Falls,
Kansas City, Mayflower, N-BF, Niagara, Pacific, Workers',
collectively as Seller, and CIESCO, as Investor, and
Citibank, N.A. ("Citibank") and Citicorp, Individually and
as Agent.
(g) Executive Termination Program, adopted September 22, 1994,
as filed under Exhibit 10(e) to Continental's Form 8-K,
dated October 18, 1994 (the "October 18, 1994 8-K").
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
(h) Credit Agreement dated as of December 30, 1993 (the
"Credit Agreement"), among Continental, the Several
Lenders from Time to Time Parties Hereto, Chemical Bank
("Chemical") and Citibank, as Co-Agents and Chemical, as
Administrative Agent.
(i) Amendment dated March 30, 1994, to the Credit Agreement
among Continental, the Several Lenders from Time to Time
Parties Hereto, Chemical and Citibank, as Co-Agents and
Chemical, as Administrative Agent.
(j) Second Amendment to the Credit Agreement, dated as of June
30, 1994, among Continental, the Several Lenders from Time
to Time Parties Hereto, Chemical and Citibank, as Co-
Agents and Chemical, as Administrative Agent.
(k) Third Amendment to the Credit Agreement, dated as of
September 29, 1994, among Continental, the Several Lenders
from Time to Time Parties Hereto, Chemical and Citibank,
as Co-Agents and Chemical, as Administrative Agent.
(l) Fourth Amendment to the Credit Agreement, dated as of
November 23, 1994, among Continental, the Several Lenders
from Time to Time Parties Hereto, Chemical and Citibank,
as Co-Agent and Chemical, as Administrative Agent.
(m) Fifth Amendment to Credit Agreement, dated as of December
22, 1994, among Continental, the Several Lenders from Time
to Time Parties Hereto, Chemical and Citibank, as Co-Agent
and Chemical as Administrative Agent.
(n) Agreement, dated as of July 1, 1994,
between Fidelity and General Reinsurance Corporation.
(o) Stock Purchase Agreement, dated December 16, 1994,
among FCIC, FGC, Buckeye and Continental.
(p) Stock Purchase Agreement dated as of June 30, 1993, among Continental,
Continental Insurance, Continental Re and Mellon as filed under Exhibit 10(f)
to the 1993 Form 10-K.
(q) Share Purchase Agreement dated as of June 30, 1993 (the "Unionamerica Stock Purchase
Agreement"), among Unionamerica Acquisition Company Ltd. ("Unionamerica"), Unionamerica
Holdings Ltd. ("Unionamerica Holdings") and Continental as filed under Exhibit 10(g) to
the 1993 Form 10-K.
(r) Amendment dated September 1, 1993 to the Unionamerica Share Purchase
Agreement, among Unionamerica, Unionamerica Holdings and Continental as filed
under Exhibit 10(h) to the 1993 Form 10-K.
(s) Stock Purchase Agreement dated as of July 28, 1993 (the "Alleghany Stock
Purchase Agreement"), among Alleghany Corporation ("Alleghany"), Continental,
Goldman, Sachs & Co. ("Goldman") and certain funds which Goldman either
controls or of which it is a general partner (together, the "GS Investors";
Continental and the GS Investors together referred to as the "URHC
Stockholders"), Underwriters Re Holdings Corp. ("Underwrit-
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
ers Holdings") and Underwriters Re Corporation ("Underwriters") as filed under Exhibit
10(i) to the 1993 Form 10-K.
(t) Amendment dated October 7, 1993, to the Alleghany Stock Purchase Agreement,
among Alleghany, Continental, the GS Investors, Underwriters Holdings and Un-
derwriters as filed under Exhibit 10(j) to the 1993 Form 10-K.
(u) Stock Purchase Agreement dated as of July 28, 1993 (the "GS Investors Stock
Purchase Agreement"), among Continental and the GS Investors as filed under
Exhibit 10(k) to the 1993 Form 10-K.
(v) Management Stock Purchase Agreement dated as of July 28, 1993 (the
"Management Agreement"), among Continental, Underwriters Holdings,
Underwriters and certain Management Stockholders, as supplemented as filed
under as Exhibit 10(m) to the 1993 Form 10-K.
(w) Amendment dated as of October 7, 1993, to the Management Agreement, among
Continental, Underwriters Holdings, Underwriters and certain Management
Stockholders as filed under as Exhibit 10(n) to the 1993 Form 10-K.
(x) Securities Purchase Agreement, dated as of December 6, 1994, between
Continental and CNA as filed under Exhibit 10(b) to the December 9, 1994 8-K.
(y) Stock Option, dated December 9, 1994, granted to CNA, as filed under Exhibit
10(c) to the December 16, 1994 8-K.
(z) Amendment to Stock Option, dated January 5, 1995.
(aa) Letter Agreement dated October 6, 1993, among Continental and the GS
Investors, relating to the GS Investors Stock Purchase Agreement as filed
under Exhibit 10(l) to the 1993 Form 10-K.
(bb) Purchase Agreement dated October 12, 1994, between The Continental Insurance
Company of Canada, The Dominion Insurance Corporation and Firemen's Insurance
Company of Newark, New Jersey and Continental Reinsurance Corporation and
Continental Reinsurance Corporation International Limited and The Continental
Corporation and Fairfax Financial Holdings Limited, as filed under Exhibit
10(f) to the October 18, 1994 8-K.
(cc) Receivables Purchase and Sale Agreement dated as of December 14, 1993, among
Continental Insurance, Boston, Buckeye, Casualty, Commercial, Continental-NJ,
Lloyd's, Fidelity, Continental Re, Firemen's, Glens Falls, Kansas City,
Mayflower, N-BF, Niagara, Pacific and Workers', collectively as Sellers,
and Corporate Asset Funding Company, Inc., CIESCO, L.P., Falcon, Sheffield,
Atlantic and Credit Lyonnais, collectively, as Purchas-
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
ers, and Citicorp, as Agent, filed under Exhibit 10(e) to Continental's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(dd) -- Participation Agreement, dated as of December 29, 1994 among Buckeye, First
Fidelity Bank, N.A. ("First Fidelity") and The CIT Group/Equipment Financing, Inc.,
with the following exhibits and schedules:
-- Master Lease, dated December 29, 1994 between First Fidelity and Buckeye.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between Buckeye and First Fidelity.
-- Prime Master Lease, dated as of December 29, 1994 between Buckeye and First
Fidelity.
-- Schedule of Leased Equipment No. 1 (to Prime Master Lease), dated December
29, 1994, between Buckeye and First Fidelity.
(ee) -- Participation Agreement, dated as of December 29, 1994 among The Continental
Insurance Company, First Fidelity and The CIT Group/Equipment Financing, Inc.
-- Master Lease, dated as of December 29, 1994 between First Fidelity Bank, N.A.
and The Continental Insurance Company.
-- Prime Master Lease, dated as of December 29, 1994 between The Continental
Insurance Company and First Fidelity.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between First Fidelity and The Continental Insurance Company.
-- Schedule of Leased Equipment No. 1, dated December 29, 1994 (to Prime Master
Lease) between The Continental Insurance Company and First Fidelity.
(ff) -- Participation Agreement, dated as of December 29, 1994 among Firemen's, First
Fidelity Bank, N.A. and The CIT Group/Equipment Financing, Inc., with the
following exhibits and schedules:
-- Master Lease, dated December 29, 1994 between First Fidelity and Firemen's.
-- Prime Master Lease, dated as of December 29, 1994 between Firemen's and First
Fidelity.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between Firemen's and First Fidelity.
-- Schedule of Leased Equipment No. 1 (to Prime Master Lease), dated December 29,
1994 between First Fidelity and Firemen's.
</TABLE>
59
<PAGE>
<TABLE>
<S> <C>
(gg) -- Lease Guaranty to First Fidelity Bank, N.A.
(hh) -- Merger Agreement. See Exhibit 2(a).
(11) -- Continental's Statement re Computation of Per Share Earnings.
(21) -- Subsidiaries of Continental.
(23) -- Consent of KPMG Peat Marwick LLP.
(28) -- Statutory Loss Development of Property and Casualty Insurance and Reinsurance
Subsidiaries, filed in paper form only pursuant to Regulation 311 of
Regulation S-T.
</TABLE>
(b) Continental filed three Reports on Form 8-K during the
last quarter of the period covered by this Report. The Report on
Form 8-K dated October 18, 1994 (the "October Report"), reported
that, on October 13, 1994, Continental had entered into a
definitive agreement to sell $200 million in preferred stock,
convertible into about 19.9% of its then currently outstanding
common stock, to Insurance Partners, L.P. ("IP"); in connection
with that proposed transaction, Continental's board of directors
had elected Richard M. Haverland vice chairman and a director of
Continental Corporation; upon completion of the proposed
transaction, Mr. Haverland would be named chairman and chief
executive officer, succeeding John P. Mascotte, who would resign;
and Continental had entered into a separate agreement to sell IP
the operations of Continental Asset Management Corp.,
Continental's investment management subsidiary. The October
Report reported that Continental had announced that it would
strengthen its reserves by $400 million pre-tax by establishing,
for the first time, loss reserves for incurred but not reported
asbestos-related, environmental pollution and other toxic-tort
claims; and that Continental would take an additional pre-tax
charge of $164 million for reinsurance recoverables and other
assets.
The October Report also reported that on October 11, 1994,
Continental entered into an agreement in principle with Fremont
General Corporation ("FGC") to sell Casualty to Fremont for
$250 million; and on October 12, 1994, Continental entered into
an agreement with Fairfax Financial Holdings Limited relating to
the sale of certain Continental subsidiaries in Canada. Finally,
the October Report reported that, on September 22, 1994,
Continental adopted an Executive Termination Program.
The Report on Form 8-K, dated December 9, 1994, reported
that, on December 6, 1994, Continental entered into a merger
agreement under which CNA Financial Corporation ("CNA Financial")
will acquire Continental through a merger with a wholly-owned CNA
subsidiary and that, under a separate agreement, CNA has agreed
to invest $275 million in Continental.
The Report on Form 8-K, dated December 16, 1994 (the
"December 16 Report"), reported that, on December 9, 1994,
Continental consummated the sale of certain Continental
securities to Continental Casualty Company ("CCC"), a subsidiary
of CNA, for a cash purchase price of $275 million, pursuant to a
previously announced securities purchase agreement, dated as of
December 6, 1994, with CNA. The December 16 Report reported that
CCC acquired approximately $165 million in liquidation value of
Continental's 9.75% Cumulative Preferred Stock, Series T (the
"Series T Stock"), and approximately $34 million in liquidation
value of Continental's 9.75% Cumulative Preferred Stock, Series
F. Each of the Series F Stock and the Series T Stock is
redeemable under certain circumstances at a price reflecting any
increase in the per share price of Continental's common
60
<PAGE>
stock over $15.75. CCC also received an option to acquire $125
million in liquidation preference of another series of
Continental's 9.75% Cumulative Preferred Stock, Series G. The
option and its underlying preferred stock will be redeemable
under certain circumstances at a price reflecting any increase in
the per share price of the common stock over $17.75. The 9.75%
preferred stock will mature in 40 years, with a right of the
holders to require redemption in 15 years, and may be redeemed by
Continental under certain circumstances. In addition, CCC
acquired $75 million in liquidation value of Continental's 12%
Cumulative Preferred Stock, Series H, maturing in 10 years and
redeemable under certain circumstances.
61
<PAGE>
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) 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.
Date: March 30, 1995
THE CONTINENTAL CORPORATION
By /s/ John P. Mascotte
----------------------
(John P. Mascotte)
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Senior Vice President
J. Heath Fitzsimmons and Chief Financial Officer March 30, 1995
-----------------------------------------
(J. Heath Fitzsimmons)
Vice President
William A. Robbie and Chief Accounting Officer March 30, 1995
-----------------------------------------
(William A. Robbie)
Ivan A. Burns Director March 30, 1995
-----------------------------------------
(Ivan A. Burns)
Alec Flamm Director March 30, 1995
-----------------------------------------
(Alec Flamm)
Irvine O. Hockaday, Jr. Director March 30, 1995
-----------------------------------------
(Irvine O. Hockaday, Jr.)
John E. Jacob Director March 30, 1995
-----------------------------------------
(John E. Jacob)
Director, Chairman of
John P. Mascotte the Board and Chief Executive Officer March 30, 1995
-----------------------------------------
(John P. Mascotte)
John F. McGillicuddy Director March 30, 1995
-----------------------------------------
(John F. McGillicuddy)
</TABLE>
62
<PAGE>
<TABLE>
<S> <C> <C>
Richard de J. Osborne Director March 30, 1995
-----------------------------------------
(Richard de J. Osborne)
John W. Rowe, M.D. Director March 30, 1995
-----------------------------------------
(John W. Rowe, M.D.)
Patricia Carry Stewart Director March 30, 1995
-----------------------------------------
(Patricia Carry Stewart)
Director, President
Adrian M. Tocklin and Chief Operating Officer March 30, 1995
-----------------------------------------
(Adrian M. Tocklin)
Francis T. Vincent, Jr. Director March 30, 1995
-----------------------------------------
(Francis T. Vincent, Jr.)
Director
-----------------------------------------
(Michael Weintraub)
Anne Wexler Director March 30, 1995
-----------------------------------------
(Anne Wexler)
</TABLE>
63
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
THE CONTINENTAL CORPORATION:
Under date of February 16, 1995, we reported on the consolidated
balance sheets of The Continental Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1994 as contained in the
Proxy Statement. These consolidated financial statements and our
report thereon are incorporated by reference in the 1994 annual
report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedules as listed in Item 14(a)(2).
These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
As discussed in Note 2 to the consolidated financial statements, The
Continental Corporation and subsidiaries changed their methods of
accounting for multiple-year retrospectively rated reinsurance con-
tracts and for the adoption of the provisions of the Financial
Accounting Standards Board's Statements of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits," No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," and No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," in 1993.
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," and No. 109, "Accounting for Income Taxes"
were adopted in 1992.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
New York, New York
February 16, 1995
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
THE CONTINENTAL CORPORATION
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES (1)
December 31, 1994
(millions)
Column A Column B Column C Column D
Balance
Type of Investment Cost Fair Value Sheet
<S> <C> <C> <C>
FIXED MATURITIES:
BONDS:
United States Government and
Government Agencies . . . . . . . . . . . . . . . . . . . . $2,943.9 $2,789.6 $2,789.6
States Municipalities and
Political Subdivisions . . . . . . . . . . . . . . . . . . . 666.2 626.7 626.7
Foreign Governments . . . . . . . . . . . . . . . . . . . . . 797.8 763.7 763.7
Public Utilities . . . . . . . . . . . . . . . . . . . . . . . 110.2 106.9 106.9
All Other Corporate . . . . . . . . . . . . . . . . . . . . . 1,525.6 1,463.7 1,463.7
-------- -------- --------
Total Bonds . . . . . . . . . . . . . . . . . . . . . . . . 6,043.7 5,750.6 5,750.6
-------- -------- --------
REDEEMABLE PREFERRED STOCKS . . . . . . . . . . . . . . . . . . . 45.5 44.4 44.4
-------- -------- --------
Total Fixed Maturities . . . . . . . . . . . . . . . . . . . . 6,089.2 $5,795.0 5,795.0
-------- -------- --------
EQUITY SECURITIES:
COMMON STOCKS:
Public Utilities . . . . . . . . . . . . . . . . . . . . . . . 4.0 5.2 5.2
Banks Trusts and Insurance Companies . . . . . . . . . . . . . 32.3 43.3 43.3
All Other Corporate . . . . . . . . . . . . . . . . . . . . . 56.0 68.7 68.7
-------- -------- --------
Total Common Stocks . . . . . . . . . . . . . . . . . . . . 92.3 117.2 117.2
-------- -------- --------
OTHER PREFERRED STOCKS . . . . . . . . . . . . . . . . . . . . . . 4.6 3.7 3.7
-------- -------- --------
Total Equity Securities . . . . . . . . . . . . . . . . . . . 96.9 120.9 120.9
-------- -------- --------
OTHER LONG-TERM INVESTMENTS:
Mortgages Receivable . . . . . . . . . . . . . . . . . . . . . . . 109.0 109.0
Certificates of Deposit . . . . . . . . . . . . . . . . . . . . . 29.7 29.7
Venture Capital Investments . . . . . . . . . . . . . . . . . . . 45.9 45.9
Investment in Minority Affiliates . . . . . . . . . . . . . . . . 2.6 2.6
Other Notes and Participations . . . . . . . . . . . . . . . . . . 25.2 25.2
Investments in Limited Partnerships . . . . . . . . . . . . . . . 318.0 325.3 325.3
-------- -------- --------
Total Other Long-Term Investments . . . . . . . . . . . . . . 530.4 537.7
-------- --------
OTHER SHORT-TERM INVESTMENTS:
Money Market Instruments . . . . . . . . . . . . . . . . . . . . . 1,794.8 1,794.8
-------- -------- --------
Total: . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,511.3 $8,248.4
---------
======== ========== ========
</TABLE>
_____________________
(1) All fixed maturities are carried at fair value.
65
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
THE CONTINENTAL CORPORATION - PARENT
STATEMENTS OF INCOME (1)
Year Ended December 31,
(millions)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net Investment Income . . . . . . . . . . . . . . . . . . . $ 1.4 $ 15.2 $ 17.7
Realized Capital Losses . . . . . . . . . . . . . . . . . . (0.6) (3.0) (6.0)
Equity in Earnings (Loss) of Subsidiaries . . . . . . . . . (898.5) 177.8 221.1
Equity in Earnings (Loss) of Discontinued Operations,
Net of Income Taxes (Benefits) . . . . . . . . . . . . . . 39.5 48.7 (174.7)
Other Revenues . . . . . . . . . . . . . . . . . . . . . . . -- 61.4 6.4
--------- --------- -------
Total Revenues . . . . . . . . . . . . . . . . . . . . . . (858.2) 300.1 64.5
--------- --------- -------
EXPENSES:
Interest Expense . . . . . . . . . . . . . . . . . . . . . . 40.9 48.6 49.5
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . 68.9 24.9 59.0
--------- --------- -------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . 109.8 73.5 108.5
--------- --------- -------
Income (Loss) before Income Taxes
and Net Cumulative Effect of
Changes in Accounting Principles . . . . . . . . . . . . . (968.0) 226.6 (44.0)
--------- --------- -------
Total Income Taxes (Benefits) (2) . . . . . . . . . . . . . (365.1) 18.2 28.7
--------- --------- -------
Income (Loss) Before Net Cumulative
Effect of Changes in
Accounting Principles . . . . . . . . . . . . . . . . . . (602.9) 208.4 (72.7)
--------- --------- -------
Net Cumulative Effect of Changes
in Accounting Principles . . . . . . . . . . . . . . . . . -- 1.6 (11.0)
--------- --------- -------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . $(602.9) $ 210.0 $(83.7)
========= ========= =======
</TABLE>
_______________________
(1) See Notes to Consolidated Financial Statements included in
Continental's Proxy Statement, first filed with the Securities and
Exchange Commission and mailed to shareholders on March 29, 1995, in
connection with a May 9, 1995 Special Meeting of Shareholders (the
"Proxy Statement").
(2) Represents Income Taxes (Benefits) for continuing operations.
66
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
THE CONTINENTAL CORPORATION - PARENT
BALANCE SHEETS (1)
DECEMBER 31,
(millions, except par values and share amounts)
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Fixed Maturities Available-for-Sale at Fair Value (Amortized Cost -$0.0; 1993 - $40.2) $ -- $ 39.8
Equity Securities Available-for-Sale at Fair Value (Cost - $1.6; 1993 - $15.2) . . . . 1.6 15.3
Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 9.0
Other Long-Term Investments at Fair Value . . . . . . . . . . . . . . . . . . . . . . -- 6.1
Investment in Stocks of Subsidiaries:
Insurance Subsidiaries - Equity Basis . . . . . . . . . . . . . . . . . . . . . . 1,855.6 2,697.7
Discontinued Operations - Equity Basis . . . . . . . . . . . . . . . . . . . . . . 88.2 84.6
Other Subsidiaries - Equity Basis . . . . . . . . . . . . . . . . . . . . . . . . 143.0 146.6
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 0.1
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.3 19.1
-------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,120.0 $3,018.3
======== ========
LIABILITIES:
Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 205.3 $ 223.5
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347.5 346.8
Intercompany Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4 94.9
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273.1 170.0
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929.3 835.2
-------- --------
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
-------- --------
REDEEMABLE PREFERRED STOCKS:
Series T, at fair value (828,100 shares authorized and issued) $200 per share
liquidation value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.9 --
Series F, at fair value (171,900 shares authorized and issued) $200 per share
liquidation value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.1 --
Series H, at fair value (375,000 shares authorized and issued) $200 per share
liquidation value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.6 --
Series G Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 --
-------- --------
Total Redeemable Preferred Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . 275.0 --
-------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock, $4 Par Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.3
Common Stock, $1 Par Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.7 65.7
Authorized Shares: 100,000,000
Issued Shares: 65,724,192; 1993 - 65,720,419
Outstanding Shares: 55,484,187; 1993 - 55,331,060
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612.9 613.2
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981.3 1,612.5
Net Unrealized Appreciation (Depreciation) on Investment . . . . . . . . . . . . . . (283.9) 322.1
Cumulative Foreign Currency Translation Adjustment . . . . . . . . . . . . . . . . . (95.7) (61.1)
Common Stock in Treasury, at Cost
(10,240,005 Shares; 1993 - 10,389,359 Shares) . . . . . . . . . . . . . . . . . . . (364.9) (369.6)
-------- --------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915.7 2,183.1
-------- --------
Total Liabilities, Commitments and Contingencies
Redeemable Preferred Stocks, and Shareholders' Equity . . . . . . . . . . . . . $2,120.0 $3,018.3
======== ========
</TABLE>
__________________
(1) See Notes to Consolidated Financial Statements included in the
Proxy Statement.
67
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
THE CONTINENTAL CORPORATION - PARENT
STATEMENTS OF CASH FLOWS (1)(2)
Year Ended December 31,
(millions)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . $(602.9) $ 210.0 $ (83.7)
Adjustments to Reconcile Net Income (Loss)
to Net Cash (Used in) Provided
from Operating Activities:
Realized Capital Losses . . . . . . . . . . . . . . . . . . 0.6 3.0 6.0
Equity in (Earnings) Loss of
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 862.5 (177.8) (221.1)
Equity in (Earnings) Loss of
Discontinued Operations . . . . . . . . . . . . . . . . (39.5) (48.7) 174.7
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . (352.8) (2.4) (21.9)
Other-Net . . . . . . . . . . . . . . . . . . . . . . . . . 21.6 76.5 100.7
-------- -------- -------
Net Cash Provided from (Used in) Operating
Activities . . . . . . . . . . . . . . . . . . . . . . . (110.5) 60.6 (45.3)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of Investments Purchased . . . . . . . . . . . . . . . (90.8) (72.0) (197.8)
Proceeds from Investments Sold . . . . . . . . . . . . . . . 143.8 111.9 94.8
Proceeds from Investments Matured . . . . . . . . . . . . . -- 0.2 3.0
Proceeds from Sales of Subsidiaries . . . . . . . . . . . . 50.4 330.0 --
Investment in Subsidiaries . . . . . . . . . . . . . . . . . (452.0) (399.3) --
Net Decrease in Long-Term Investments . . . . . . . . . . . 6.1 0.4 2.8
Net (Increase) Decrease in Short-Term Investments . . . . . (4.3) 98.3 (103.8)
Dividends Paid by Subsidiaries . . . . . . . . . . . . . . . 69.5 120.0 168.0
-------- -------- -------
Net Cash Provided from (Used in) Investing
Activities . . . . . . . . . . . . . . . . . . . . . . . . (277.3) 189.5 (33.0)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Borrowings from (Repayments to)
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 154.1 (1.4) 22.3
Increase (Decrease) in Long-Term Debt . . . . . . . . . . . 0.7 (1.8) (301.4)
Increase (Decrease) in Short-Term Debt . . . . . . . . . . . (18.2) (48.8) 275.2
Issuance of Long-Term Debt . . . . . . . . . . . . . . . . . -- 150.0 200.0
Retirement of Debt . . . . . . . . . . . . . . . . . . . . . -- (281.7) --
Sale of Treasury Shares . . . . . . . . . . . . . . . . . . 4.4 10.5 8.0
Dividends to Shareholders . . . . . . . . . . . . . . . . . (28.3) (59.4) (123.1)
Proceeds from Sales (Redemption) of Redeemable Preferred Stock 275.0 (20.5) --
-------- -------- -------
Net Cash Provided from (Used in) Financing
Activities . . . . . . . . . . . . . . . . . . . . . . . 387.7 (253.1) 81.0
-------- -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents. . . . . . (0.1) (3.0) 2.7
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . 0.1 3.1 0.4
-------- -------- -------
Cash and Cash Equivalents at End of Year. . . . . . . . . . . . $ -- $ 0.1 $ 3.1
========= ======== =======
Supplemental Cash Flow Information:
Federal, Foreign and State Taxes Paid . . . . . . . . . . . $ -- $ 4.5 $ 11.0
========= ======== =======
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . $ 33.4 $ 56.9 $ 45.6
========= ======== =======
Non-Cash Transactions:
Preferred Stock paid as dividends by subsidiary . . . . . . $ 18.0 $ -- $ --
========= ======== =======
Preferred stock contributed as additional investment in
subsidiary $ 18.0 $ -- $ --
========= ======== =======
</TABLE>
______________________
(1) See Notes to Consolidated Financial Statements included in
Continental's Proxy Statement.
(2) Certain reclassifications have been made to the prior year's financial
information to conform to the 1994 presentation.
68
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
THE CONTINENTAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
(millions)
Column A Column B Column C Column D Column E Column F Column G Column H
Outstanding
Deferred Losses Other Policy Losses
Policy and Claims and Net and
Acquisition Loss Unearned Benefits Premiums Investment Loss
Segment Costs Expenses Premiums Payable Earned Income (1) Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December
31, 1994:
Agency & Brokerage
Commercial . . . . $ 171.8 $ 5,922.5 $ 919.1 -- $ 2,164.4 -- $ 2,282.6
Agency & Brokerage
Personal . . . . . 66.3 663.2 354.1 -- 704.1 -- 578.4
Specialized Commercial 145.8 3,692.7 798.4 -- 1,560.6 -- 1,539.9
-------- --------- --------- --------- --------- ---------- ---------
Insurance Operations 383.9 10,278.4 2,071.6 4,429.1 $ 490.8 4,400.9
Corporate & Other . . -- -- -- -- -- 13.4 --
-------- --------- --------- --------- --------- ---------- ---------
Total $ 383.9 $10,278.4 $ 2,071.6 -- $ 4,429.1 $ 504.2 $ 4,400.9
======== ========= ========= ========= ========= ========== =========
Year Ended December
31, 1993:
Agency & Brokerage
Commercial . . . . $ 237.0 $ 5,366.7 $ 1,152.6 -- $ 2,121.3 -- $ 1,663.9
Agency & Brokerage
Personal . . . . . 119.1 837.6 578.3 -- 861.6 -- 667.5
Specialized Commercial 137.9 2,864.4 678.8 -- 1,433.2 -- 1,082.7
-------- --------- --------- --------- --------- ---------- ---------
Insurance Operations 494.0 9,068.7 2,409.7 -- 4,416.1 $ 514.3 3,414.1
Corporate & Other . . -- -- -- -- -- 28.0 --
-------- --------- --------- --------- --------- ---------- ---------
Total $ 494.0 $ 9,068.7 $ 2,409.7 -- $ 4,416.1 $ 542.3 $ 3,414.1
======== ========= ========= ========= ========= ========== =========
Year Ended December
31, 1992:
Agency & Brokerage
Commercial . . . . $ 226.9 $ 5,544.1 $ 1,120.5 -- $ 1,919.5 -- $ 1,562.2
Agency & Brokerage
Personal . . . . . 112.8 982.6 556.7 -- 777.4 -- 623.8
Specialized Commercial 127.8 2,539.5 629.0 -- 1,201.1 -- 975.6
-------- --------- --------- --------- --------- ---------- ---------
Insurance Operations 467.5 9,066.2 2,306.2 -- 3,898.0 $ 559.5 3,161.6
Corporate & Other . . -- -- -- -- -- 30.4 --
-------- --------- --------- --------- --------- ---------- ---------
Total $ 467.5 $ 9,066.2 $ 2,306.2 -- $ 3,898.0 $ 589.9 $ 3,161.6
======== ========= ========= ========= ========= ========== =========
<CAPTION>
Column A Column I Column J Column K
Amortization
of Deferred Other
Policy Insurance
Acquisition Operating Premiums
Segment Costs Expenses Written
<S> <C> <C> <C>
Year Ended December
31, 1994:
Agency & Brokerage
Commercial . . . . $ 716.3 $ 19.1 $ 1,883.9
Agency & Brokerage
Personal . . . . . 206.7 15.1 480.8
Specialized Commercial 460.4 35.4 1,595.3
--------- --------- ---------
Insurance Operations 1,383.4 69.6 3,960.0
Corporate & Other . . -- -- --
--------- --------- ---------
Total $1,383.4 $ 69.6 $ 3,960.0
========= ========= =========
Year Ended December
31, 1993:
Agency & Brokerage
Commercial . . . . $ 669.5 $ 22.7 $ 2,168.2
Agency & Brokerage
Personal . . . . . 269.1 3.2 887.5
Specialized Commercial 431.9 11.0 1,482.1
--------- --------- ---------
Insurance Operations 1,370.5 36.9 4,537.8
Corporate & Other . . -- -- --
--------- --------- ---------
Total $1,370.5 $ 36.9 $ 4,537.8
========= ========= =========
Year Ended December
31, 1992:
Agency & Brokerage
Commercial . . . . $ 607.9 $ 30.4 $ 1,895.5
Agency & Brokerage
Personal . . . . . 280.7 (0.1) 808.3
Specialized Commercial 394.1 5.0 1,315.2
--------- --------- ---------
Insurance Operations 1,282.7 35.3 4,019.0
Corporate & Other . . -- -- --
--------- --------- ---------
Total $1,282.7 $ 35.3 $ 4,019.0
========= ========= =========
</TABLE>
______________________
(1) Distinct investment portfolios are not maintained for individual
insurance segments; accordingly, insurance segments results are
shown in the aggregate.
69
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV
THE CONTINENTAL CORPORATION
REINSURANCE INFORMATION
(millions, except percentages)
Column A Column B Column C Column D Column E Column F
Earned Premiums
-------------------------------------------------------------------------------
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Premiums:
Property and casualty
insurance $ 5,169.6 $ 1,297.2 $ 556.7 $ 4,429.1 12.6%
--------- --------- --------- --------- ---------
Total premiums . . . . . $ 5,169.6 $ 1,297.2 $ 556.7 $ 4,429.1 12.6%
========= ========= ========= ========= =========
Year Ended December 31, 1993:
Premiums:
Property and casualty
insurance $ 5,125.8 $ 1,213.9 $ 504.2 $ 4,416.1 11.4%
--------- --------- --------- --------- ---------
Total premiums . . . . $ 5,125.8 $ 1,213.9 $ 504.2 $ 4,416.1 11.4%
========= ========= ========= ========= =========
Year Ended December 31, 1992:
Premiums:
Property and casualty
insurance $ 4,764.3 $ 1,334.0 $ 467.7 $ 3,898.0 12.0%
--------- --------- --------- --------- ---------
Total premiums . . . . $ 4,764.3 $ 1,334.0 $ 467.7 $ 3,898.0 12.0%
========= ========= ========= ========= =========
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
THE CONTINENTAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS (1)
(millions)
Column A Column B Column C Column D Column E
Additions
------------------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions (1) Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Investment Reserve . . . . . . . . . . $27.0 $ 9.0 -- $ 10.0 $ 26.0
Allowance for doubtful accounts-loans
and accounts receivable . . . . . . . $43.3 $ 15.5 -- $ 24.9 $ 33.9
Allowance against reinsurance
assets . . . . . . . . . . . . . . . $26.4 $135.1(2) -- $ 56.7 $104.8(2)
Year Ended December 31, 1993:
Investment Reserve . . . . . . . . . . $35.0 $ 20.3 -- $ 28.3 $ 27.0
Allowance for doubtful accounts-loans
and accounts receivable . . . . . . . $31.3 $ 30.9 -- $ 18.9 $ 43.3
Allowance against reinsurance
assets . . . . . . . . . . . . . . . $41.8 $ 15.0 -- $ 30.4 $ 26.4
Year Ended December 31, 1992:
Investment Reserve . . . . . . . . . . $35.0 $ 10.0 -- $ 10.0 $ 35.0
Allowance for doubtful accounts-loans
and accounts receivable . . . . . . . $26.8 $ 22.7 -- $ 18.2 $ 31.3
Allowance against reinsurance
assets . . . . . . . . . . . . . . . $27.8 $ 41.0 -- $ 27.0 $ 41.8
</TABLE>
____________________________
(1) Represents write-offs of amounts determined to be uncollectible, net of
recoveries.
(2) Includes the establishment of an $80 million reinsurance GAAP asset for
environmental claims fully reserved for as not recoverable.
71
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI
THE CONTINENTAL CORPORATION
SUPPLEMENTAL INFORMATION
(For Property-Casualty Insurance Underwriters)
(millions)
Column A Column B Column C Column D Column E Column F Column G
Deferred Outstanding Discount
Affiliation Policy Losses if any, Net
with Acquisition and Loss Deducted in Unearned Premiums Investment
Registrant Costs Expenses Column C Premiums Earned Income (1)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
(a) Consolidated
property-casualty
entities . . . . . . . . $383.9 $10,278.4 $680.4 $2,071.6 $4,429.1 $490.8
Year Ended December 31, 1993:
(a) Consolidated
property-casualty
entities . . . . . . . . $494.0 $ 9,068.7 $696.0 $2,409.7 $4,416.1 $514.3
Year Ended December 31, 1992:
(a) Consolidated
property-casualty
entities . . . . . . . . $467.5 $ 9,066.2 $692.8 $2,306.2 $3,898.0 $559.5
<CAPTION>
Column A Column H Column I Column J Column K
Loss and
Loss Expenses Amortization
Incurred Related to of Deferred
Affiliation (i) (ii) Policy Paid Loss
with Current Prior Acquisition and Loss Premiums
Registrant Year Year Costs Expenses Written
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
(a) Consolidated
property-casualty
entities . . . . . . . . $3,547.8 $853.1 $1,383.4 $3,483.2 $3,960.0
Year Ended December 31, 1993:
(a) Consolidated
property-casualty
entities . . . . . . . . $3,413.0 $ 1.1 $1,370.5 $3,304.8 $4,537.8
Year Ended December 31, 1992:
(a) Consolidated
property-casualty
entities . . . . . . . . $3,036.3 $125.3 $1,282.7 $3,257.0 $4,019.0
</TABLE>
______________________________
(1) Distinct investment portfolios are not maintained for individual
segments; accordingly, insurance segments results are shown in the
aggregate.
72
<PAGE>
EXHIBIT INDEX
<TABLE>
PAGE
<S> <C> <C>
2(a) -- Agreement and Plan of Merger, dated as of December 6,
1994, among Continental, CNA Financial Corporation ("CNA")
and CNA Acquisition Corp. (the "Merger Agreement"), filed
under Exhibit 2(a) to the Continental's Form 8-K, dated
December 9, 1994 (the "December 9, 1994 8-K").
3(a) -- Certificate of Incorporation of Continental, as
amended, as filed with the Secretary of the State of
New York on April 6, 1989, filed under Exhibit 3(a)
to Continental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form
10-K"), and Certificate of Amendment to Certificate
of Incorporation, as filed with the Secretary of
State of the State of New York on December 7, 1994,
filed under Exhibit 3 to Continental's Form 8-K,
dated December 16, 1994 (the "December 16, 1994 8-
K").
(b) -- By-Laws of Continental, as amended through December 17,
1992 as filed under Exhibit 3(b) to the 1993 Form 10-K.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4(a) -- Supplemental Indenture No. 3 dated as of March 1, 1993
from Continental to The Bank of New York, as Trustee, with
respect to the issuance of $150 million of 7.25% Notes due
March 1, 2003 filed on March 3, 1993 as Exhibit 1 to
Report on Form 8-K.
(10)(a) -- The Long Term Incentive Plan of Continental (amended and
restated as of December 1, 1993) as filed under Exhibit
10(a) to the 1993 Form 10-K.
(b) -- The Annual Management Incentive Plan of Continental
(amended and restated as of January 1, 1993) as filed
under Exhibit 10(b) to the 1993 Form 10-K.
(c) -- The Incentive Savings Plan of Continental (amended and re-
stated as of January 1, 1994) as filed under Exhibit 10(c)
to the 1993 Form 10-K.
(d) -- The Retirement Plan of Continental (amended and restated
as of January 1, 1994) as filed under Exhibit 10(d) to the
1993 Form 10-K.
(e) -- Receivables Purchase and Sale Agreement dated as of Decem-
ber 15, 1994, among The Continental Insurance Company
("Continental Insurance"), Boston Old Colony Insurance
Company ("Boston"), The Buckeye Union Insurance Company
("Buckeye"), Casualty Insurance Company ("Casualty"), Com-
mercial Insurance Company of Newark, N.J. ("Commercial"),
The Continental Insurance Company of New Jersey
("Continental - NJ"), Continental Lloyd's Insurance
Company ("Lloyd's"), The Fidelity and Casualty Company of
New York ("Fidelity"), Continental Reinsurance Corporation
("Continental Re"), Firemen's Insurance Company of Newark,
New Jersey ("Firemen's"), The Glens Falls Insurance Com-
pany ("Glens Falls"), Kansas City Fire and Marine
Insurance Company ("Kansas City"), The Mayflower Insurance
Company, Ltd. ("Mayflower"), National-Ben Franklin
Insurance Company of Illinois ("N-BF"), Niagara Fire
Insurance Company ("Niagara"), Pacific Insurance Company
("Pacific") and Workers' Compensation and Indemnity
Company of California ("Workers'"), collectively as
Sellers, and Corporate Receivables Corporation, Falcon
Asset Securitization Corporation ("Falcon"), Sheffield
Receivables Corporation ("Sheffield") and Atlantic Asset
Securitization Corp. ("Atlantic"), collectively as Pur-
chasers, and Citicorp North America, Inc. ("Citicorp"), as
Agent.
(f) Trade Receivables Purchase and Sale Agreement dated as of
December 28, 1984, As Amended, and As Amended and Restated
as of December 30, 1994, among continental Insurance,
Boston, Buckeye, Casualty, Commercial, Continental-NJ,
Lloyd's, Continental Re, Fidelity, Firemen's, Glens Falls,
Kansas City, Mayflower, N-BF, Niagara, Pacific, Workers',
collectively as Seller, and CIESCO, as Investor, and
Citibank, N.A. ("Citibank") and Citicorp, Individually and
as Agent.
(g) Executive Termination Program, adopted September 22, 1994,
as filed under Exhibit 10(e) to Continental's Form 8-K,
dated October 18, 1994 (the "October 18, 1994 8-K").
</TABLE>
<PAGE>
(h) Credit Agreement dated as of December 30, 1993 (the
"Credit Agreement"), among Continental, the Several
Lenders from Time to Time Parties Hereto, Chemical Bank
("Chemical") and Citibank, as Co-Agents and Chemical, as
Administrative Agent.
(i) Amendment dated March 30, 1994, to the Credit Agreement
among Continental, the Several Lenders from Time to Time
Parties Hereto, Chemical and Citibank, as Co-Agents and
Chemical, as Administrative Agent.
(j) Second Amendment to the Credit Agreement, dated as of June
30, 1994, among Continental, the Several Lenders from Time
to Time Parties Hereto, Chemical and Citibank, as Co-
Agents and Chemical, as Administrative Agent.
(k) Third Amendment to the Credit Agreement, dated as of
September 29, 1994, among Continental, the Several Lenders
from Time to Time Parties Hereto, Chemical and Citibank,
as Co-Agents and Chemical, as Administrative Agent.
(l) Fourth Amendment to the Credit Agreement, dated as of
November 23, 1994, among Continental, the Several Lenders
from Time to Time Parties Hereto, Chemical and Citibank,
as Administrative Agent.
(m) Fifth Amendment to Credit Agreement, dated as of December
22, 1994 among Continental, certain lenders and Chemical
and Citibank as Administrative Agent.
(n) Agreement, dated as of July 1, 1994, between Fidelity
and General Reinsurance Corporation.
(o) Stock Purchase Agreement, dated December 16, 1994, among
FCIC, FGC, Buckeye and Continental.
(p) Stock Purchase Agreement dated as of June 30, 1993, among
Continental, Continental Insurance, Continental Re and
Mellon as filed under Exhibit 10(f) to the 1993 Form 10-K.
(q) Share Purchase Agreement dated as of June 30, 1993 (the
"Unionamerica Stock Purchase Agreement"), among
Unionamerica Acquisition Company Ltd. ("Unionamerica"),
Unionamerica Holdings Ltd. ("Unionamerica Holdings") and
Continental as filed under Exhibit 10(g) to the 1993 Form
10-K.
(r) Amendment dated September 1, 1993 to the Unionamerica
Share Purchase Agreement, among Unionamerica, Unionamerica
Holdings and Continental as filed under Exhibit 10(h) to
the 1993 Form 10-K.
(s) Stock Purchase Agreement dated as of July 28, 1993 (the
"Alleghany Stock Purchase Agreement"), among Alleghany
Corporation ("Alleghany"), Continental, Goldman, Sachs &
Co. ("Goldman") and certain funds which Goldman either
controls or of which it is a general partner (together,
the "GS Investors"; Continental and the GS Investors
together referred to as the "URHC Stockholders"),
Underwriters Re Holdings Corp. ("Underwrit-
<PAGE>
<TABLE>
<S> <C>
ers Holdings") and Underwriters Re Corporation ("Underwriters") as filed under
Exhibit 10(i) to the 1993 Form 10-K.
(t) Amendment dated October 7, 1993, to the Alleghany Stock Purchase Agreement,
among Alleghany, Continental, the GS Investors, Underwriters Holdings and Un-
derwriters as filed under Exhibit 10(j) to the 1993 Form 10-K.
(u) Stock Purchase Agreement dated as of July 28, 1993 (the "GS Investors Stock
Purchase Agreement"), among Continental and the GS Investors as filed under
Exhibit 10(k) to the 1993 Form 10-K.
(v) Management Stock Purchase Agreement dated as of July 28, 1993 (the
"Management Agreement"), among Continental, Underwriters Holdings,
Underwriters and certain Management Stockholders, as supplemented as filed
under as Exhibit 10(m) to the 1993 Form 10-K.
(w) Amendment dated as of October 7, 1993, to the Management Agreement, among
Continental, Underwriters Holdings, Underwriters and certain Management
Stockholders as filed under as Exhibit 10(n) to the 1993 Form 10-K.
(x) Securities Purchase Agreement, dated as of December 6, 1994, between
Continental and CNA as filed under Exhibit 10(b) to the December 9, 1994 8-K.
(y) Stock Option, dated December 9, 1994, granted to CNA, as filed under Exhibit
10(c) to the December 16, 1994 8-K.
(z) Amendment to Stock Option, dated January 5, 1995.
(aa) Letter Agreement dated October 6, 1993, among Continental and the GS
Investors, relating to the GS Investors Stock Purchase Agreement as filed
under Exhibit 10(l) to the 1993 Form 10-K.
(bb) Purchase Agreement dated October 12, 1994, between The Continental Insurance
Company of Canada, The Dominion Insurance Corporation and Firemen's Insurance
Company of Newark, New Jersey and Continental Reinsurance Corporation and
Continental Reinsurance Corporation International Limited and The Continental
Corporation and Fairfax Financial Holdings Limited, as filed under Exhibit
10(f) to the October 18, 1994 8-K.
(cc) Receivables Purchase and Sale Agreement dated as of December 14, 1993, among
Continental Insurance, Boston, Buckeye, Casualty, Commercial, Continental-NJ,
Lloyd's, Fidelity, Continental Re, Firemen's, Glens Falls, Kansas City, Mayflower,
N-BF, Niagara, Pacific and Workers', collectively as Sellers, and Corporate Asset
Funding Company, Inc., CIESCO, L.P., Falcon, Sheffield, Atlantic and Credit
Lyonnais, collectively, as Purchas-
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ers, and Citicorp, as Agent, filed under Exhibit 10(e) to Continental's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(dd) -- Participation Agreement, dated as of December 29, 1994 among Buckeye, First
Fidelity Bank, N.A. ("First Fidelity") and The CIT Group/Equipment Financing, Inc.,
with the following exhibits and schedules:
-- Master Lease, dated December 29, 1994 between First Fidelity and Buckeye.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between Buckeye and First Fidelity.
-- Prime Master Lease, dated as of December 29, 1994 between Buckeye and First
Fidelity.
-- Schedule of Leased Equipment No. 1 (to Prime Master Lease), dated December
29, 1994, between Buckeye and First Fidelity.
(ee) -- Participation Agreement, dated as of December 29, 1994 among The Continental
Insurance Company, First Fidelity and The CIT Group/Equipment Financing, Inc.
-- Master Lease, dated as of December 29, 1994 between First Fidelity Bank, N.A.
and The Continental Insurance Company
-- Prime Master Lease, dated as of December 29, 1994 between The Continental
Insurance Company and First Fidelity.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between First Fidelity and The Continental Insurance Company
-- Schedule of Leased Equipment No. 1, dated December 29, 1994 (to Prime Master
Lease) between The Continental Insurance Company and First Fidelity.
(ff) -- Participation Agreement, dated as of December 29, 1994 among Firemen's, First
Fidelity Bank, N.A. and The CIT Group/Equipment Financing, Inc., with the
following exhibits and schedules:
-- Master Lease, dated December 29, 1994 between First Fidelity and Firemen's.
-- Prime Master Lease, dated as of December 29, 1994 between Firemen's and First
Fidelity.
-- Schedule of Leased Equipment No. 1 (to Master Lease), dated December 29, 1994
between Firemen's and First Fidelity.
-- Schedule of Leased Equipment No. 1 (to Prime Master Lease), dated December 29,
1994 between First Fidelity and Firemen's.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(gg) -- Lease Guaranty to First Fidelity Bank, N.A.
(hh) -- Merger Agreement. See Exhibit 2(a).
(11) -- Continental's Statement re Computation of Per Share Earnings.
(21) -- Subsidiaries of Continental.
(23) -- Consent of KPMG Peat Marwick LLP.
(28) -- Statutory Loss Development of Property and Casualty Insurance and Reinsurance
Subsidiaries, filed in paper form only pursuant to Regulation 311 of
Regulation S-T.
</TABLE>
EXECUTION COPY
RECEIVABLES
PURCHASE AND SALE AGREEMENT
Dated as of December 15, 1994
Among
THE CONTINENTAL INSURANCE COMPANY
BOSTON OLD COLONY INSURANCE COMPANY
THE BUCKEYE UNION INSURANCE COMPANY
CASUALTY INSURANCE COMPANY
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J.
THE CONTINENTAL INSURANCE COMPANY OF NEW JERSEY
CONTINENTAL LLOYD'S INSURANCE COMPANY
CONTINENTAL REINSURANCE CORPORATION
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
THE GLENS FALLS INSURANCE COMPANY
KANSAS CITY FIRE AND MARINE INSURANCE COMPANY
THE MAYFLOWER INSURANCE COMPANY, LTD.
NATIONAL-BEN FRANKLIN INSURANCE COMPANY OF ILLINOIS
NIAGARA FIRE INSURANCE COMPANY
PACIFIC INSURANCE COMPANY
WORKERS' COMPENSATION AND INDEMNITY COMPANY OF CALIFORNIA
Collectively as Seller
----------------------
and
THE PURCHASERS NAMED HEREIN
as Purchasers
-------------
and
CITICORP NORTH AMERICA, INC.
as Agent
--------
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . 2
SECTION 1.02. Other Terms . . . . . . . . . . . . . . . . . 9
SECTION 1.03. Computation of Time Periods . . . . . . . . . 10
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASE
SECTION 2.01. The Purchase . . . . . . . . . . . . . . . . . 10
SECTION 2.02. Making the Purchase from the Seller . . . . . 10
SECTION 2.03. Fees . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.04. Settlement Procedures . . . . . . . . . . . . 11
SECTION 2.05. Commissions . . . . . . . . . . . . . . . . . 14
SECTION 2.06. Payments and Computations, Etc. . . . . . . . 14
SECTION 2.07. Sharing of Payments, Etc. . . . . . . . . . . 15
ARTICLE III
CONDITIONS OF PURCHASE
SECTION 3.01. Conditions Precedent to Purchase . . . . . . . 16
SECTION 3.02. Conditions Subsequent to Purchase . . . . . . 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of
Each Originator . . . . . . . . . . . . . . . 18
<PAGE>
ii
Section Page
------- ----
ARTICLE V
GENERAL COVENANTS OF EACH ORIGINATOR
SECTION 5.01. Affirmative Covenants of Each
Originator . . . . . . . . . . . . . . . . . . 22
SECTION 5.02. Negative Covenants of Each
Originator . . . . . . . . . . . . . . . . . . 24
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent . . . . . . . 25
SECTION 6.02. Duties of Collection Agent . . . . . . . . . . 26
SECTION 6.03. Rights of the Agent . . . . . . . . . . . . . 27
SECTION 6.04. Responsibilities of the Seller . . . . . . . . 28
SECTION 6.05. Further Action Evidencing the
Purchase . . . . . . . . . . . . . . . . . . . 29
SECTION 6.06. Application of Collections . . . . . . . . . . 30
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action . . . . . . . . . . . 30
SECTION 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . 31
SECTION 7.03. CNA and Affiliates . . . . . . . . . . . . . . 31
SECTION 7.04. Purchaser's Purchase Decision . . . . . . . . 31
ARTICLE VIII
ASSIGNMENT OF SHARE PERCENTAGE
SECTION 8.01. Assignment . . . . . . . . . . . . . . . . . . 32
<PAGE>
iii
Section Page
------- ----
SECTION 8.02. Authorization of Agent . . . . . . . . . . . . 32
SECTION 8.03. Payments to Agent . . . . . . . . . . . . . . 33
SECTION 8.04. Assignment to Seller . . . . . . . . . . . . . 33
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnities by the Seller and the
Originators . . . . . . . . . . . . . . . . . . 33
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. . . . . . . . . . . . . . . 35
SECTION 10.02. Notices, Etc. . . . . . . . . . . . . . . . . 36
SECTION 10.03. No Waiver; Remedies . . . . . . . . . . . . . 36
SECTION 10.04. Binding Effect; Assignability . . . . . . . . 36
SECTION 10.05. Governing Law . . . . . . . . . . . . . . . . 37
SECTION 10.06. Costs, Expenses and Taxes . . . . . . . . . . 37
SECTION 10.07. No Proceedings . . . . . . . . . . . . . . . 37
SECTION 10.08. Confidentiality . . . . . . . . . . . . . . . 38
SECTION 10.09. Trigger Events . . . . . . . . . . . . . . . 39
SECTION 10.10. Independent Decision . . . . . . . . . . . . 42
SECTION 10.11. Execution in Counterparts . . . . . . . . . . 42
<PAGE>
iv
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE I List of Purchased Receivables
SCHEDULE II Purchaser Allocations
SCHEDULE III Forecasted Collections and Agents' Commissions
EXHIBIT A Form of Ownership Document
EXHIBIT B Form of Assignment of Purchased Receivable
EXHIBIT C Form of Contracts
EXHIBIT D Form of Purchaser Report
EXHIBIT E Form of Opinion(s) of Counsel for Seller and Each
Originator
EXHIBIT E-1 Form of Opinion of Counsel for The Continental
Corporation
EXHIBIT E-2 Form of Opinion of Counsel for Seller and Each
Originator
EXHIBIT F List of Offices of Each Originator Where Records Are
Kept
EXHIBIT G Form of Company Agreement
<PAGE>
RECEIVABLES
PURCHASE AND SALE AGREEMENT
Dated as of December 15, 1994
THE CONTINENTAL INSURANCE COMPANY, a New Hampshire
corporation, BOSTON OLD COLONY INSURANCE COMPANY, a Massachusetts
corporation, THE BUCKEYE UNION INSURANCE COMPANY, an Ohio
corporation, CASUALTY INSURANCE COMPANY, an Illinois corporation,
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J., a New Jersey
corporation, THE CONTINENTAL INSURANCE COMPANY OF NEW JERSEY, a
New Jersey corporation, CONTINENTAL LLOYD'S INSURANCE COMPANY, a
Lloyd's organization formed under the Texas Insurance Code,
CONTINENTAL REINSURANCE CORPORATION, a California corporation,
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK, a New Hampshire
corporation, FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, a
New Jersey corporation, THE GLENS FALLS INSURANCE COMPANY, a
Delaware corporation, KANSAS CITY FIRE AND MARINE INSURANCE
COMPANY, a Missouri corporation, THE MAYFLOWER INSURANCE COMPANY,
LTD., an Indiana corporation, NATIONAL-BEN FRANKLIN INSURANCE
COMPANY OF ILLINOIS, an Illinois corporation, NIAGARA FIRE
INSURANCE COMPANY, a Delaware corporation, PACIFIC INSURANCE
COMPANY, a California corporation, and WORKERS' COMPENSATION AND
INDEMNITY COMPANY OF CALIFORNIA, a California corporation (each
such corporation, individually, being herein referred to as an
"Originator" and, collectively, as the "Originators" or the
---------- -----------
"Seller"), the purchasers listed on the signature pages hereof
------
(collectively with any Person that has become an Assignee
hereunder pursuant to Section 8.01, being the "Purchasers" and,
----------
individually, a "Purchaser"), and CITICORP NORTH AMERICA, INC., a
---------
Delaware corporation, individually ("CNA") and as agent for the
---
Purchasers (the "Agent"), agree as follows:
-----
PRELIMINARY STATEMENTS. (1) Certain terms which are
capitalized and used throughout this Agreement (in addition to
those defined above) are defined in Article I of this Agreement.
(2) As of the date hereof, the Originators constitute
all of the parties to that certain Intercompany Pooling Agreement
effective January 1, 1984 as heretofore amended by certain
addenda thereto (as so amended and as further, from time to time,
amended, modified or supplemented pursuant to one or more addenda
or otherwise, the "Intercompany Pooling Agreement"), pursuant to
------------------------------
which each Originator (other than Continental, Pacific Insurance
Company, Casualty Insurance Company and Workers' Compensation and
Indemnity Company of California) sold, transferred and assigned,
and continues to sell, transfer and assign, to Continental
certain accounts receivable, including the Receivables, to the
extent of such Originator's right, title and interest therein,
and simultaneously therewith Continental
<PAGE>
2
sold, transferred and assigned, and continues to sell, transfer and
assign, to each Originator (other than Continental) a percentage
interest and participation in such accounts receivable and in certain
of its accounts receivable, including the Receivables, to the extent
of its right, title and interest therein.
(3) The Seller wishes to sell and the Purchasers are
prepared to purchase certain Receivables and to assume the
liabilities for commission expenses related thereto.
(4) CNA has been requested and is prepared to act as
Agent.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
---------------------
Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Adverse Claim" means a lien, security interest, charge
-------------
or encumbrance, or other right or claim of any Person other than
a right or claim (i) created by this Agreement in favor of the
Purchasers, (ii) as against any Contract (but not the related
Purchased Receivables) for payment of a loss, asserted by a
Person who is a loss payee under such Contract, (iii) as against
any Contract (but not the related Purchased Receivables) for
contribution for payment of a loss, asserted by any Originator by
reason of reinsurance provided for in the Intercompany Pooling
Agreement or (iv) asserted by any insurance agent with respect to
commissions, including any lien, security interest, charge or
encumbrance relating to such agent's claim, but only to the
extent the rights and claims referred to in this clause (iv) do
not in the aggregate exceed the amount referred to in Section
4.01(p).
"Affiliate" means (i) as to any Person, any other
---------
Person that (x) directly or indirectly is in control of, is
controlled by or is under common control with such Person or (y)
is a director or officer of such Person or of any other Person
that directly or indirectly is in control of, is controlled by or
is under common control with such Person, (ii) as to CNA, shall
also include Corporate Receivables Corporation, (iii) as to
Atlantic Asset Securitization Corp., shall also include Credit
Lyonnais, (iv) as to Falcon Asset Securitization Corporation,
shall also include The First National Bank of Chicago and (v) as
to Sheffield Receivables Corporation, shall also include Barclays
Bank PLC.
<PAGE>
3
"Agent" has the meaning specified assigned to such term
-----
in the paragraph preceding the Preliminary Statements.
"Assignee" means any Person to which a Share Percentage
--------
of Purchased Receivables has been, or shall be, assigned by a
Purchaser pursuant to Section 8.01; provided, however, that
-------- -------
"Assignee" shall not include any Person that is engaged
primarily, or is a member of a group (consisting of such Person
and all of its Affiliates) which is engaged primarily, in the
business of underwriting or selling insurance.
"Assignment" means an assignment, in substantially the
----------
form of Exhibit B, by which any Share Percentage shall be
assigned.
"Business Day" means any day other than a Saturday,
------------
Sunday or public holiday or the equivalent for banks in New York
City or Chicago.
"Cash Purchase Price" for a Purchaser means the amount
-------------------
shown as the "Cash Purchase Price" for such Purchaser on Schedule
II.
"Citibank" means Citibank, N.A., a national banking
--------
association.
"CNA" has the meaning specified in the recital of
---
parties to this Agreement.
"Collection Agent" means at any time the Person then
----------------
authorized pursuant to Article VI to service, administer and
collect on behalf of the Purchasers the Receivables.
"Collection Agent Fee" has the meaning assigned to that
--------------------
term in Section 2.03.
"Collections" means, with respect to any Purchased
-----------
Receivable, all cash collections and other cash proceeds of such
Purchased Receivable, including, without limitation, all cash
proceeds of Related Security with respect to such Purchased
Receivable, and any Collection of such Purchased Receivable
deemed to have been received pursuant to clauses (i), (ii) and
(iii) of Section 2.04(c).
"Company" means The Continental Corporation, a New York
-------
corporation.
"Company Agreement" means an agreement of the Company,
-----------------
in favor of the Agent on behalf of the Purchasers, in
substantially the form of Exhibit G.
"Continental" means The Continental Insurance Company,
-----------
a New Hampshire corporation, and any corporation which may
succeed to the business and assets of such corporation by merger
or consolidation or acquisition of assets.
<PAGE>
4
"Contract" means a policy of insurance issued by an
--------
Originator in favor of another Person, and billed by an invoice
in substantially the form set forth in Exhibit C, pursuant to or
under which such Originator shall provide insurance to such other
Person.
"Credit and Collection Policy" means those credit and
----------------------------
collection policies and practices existing on the date hereof
which are being followed by the Seller with respect to Contracts
and Receivables related thereto, including those policies and
practices maintained by the Seller's computer system, as modified
in compliance with Section 5.02(c).
"Debt" means (i) indebtedness for borrowed money, (ii)
----
obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred
purchase price of property or services, (iv) obligations as
lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations under direct or
indirect guaranties (other than obligations arising under
insurance policies and bonds issued by any Originator in the
ordinary course of its business) in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (i) through (iv) above (other than obligations arising
under insurance policies and bonds issued by any Originator in
the ordinary course of its business), and (vi) liabilities in
respect of unfunded benefits under plans covered by Title IV of
ERISA.
"Deemed Cancelled Contract" means, as of any date, a
-------------------------
Contract that has not been cancelled and with respect to which
the related Purchased Receivable (a) has become Past Due or (b)
if earlier, the date such Contract would be considered by the
Seller as "past due" pursuant to its Credit and Collection
Policy.
"Default Rate" means a fluctuating interest rate per
------------
annum as shall be in effect from time to time, which rate per
annum shall at all times be equal to 2% per annum plus the higher
of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time as
Citibank's base rate; or
(b) 1/2 of one percent above the latest three-week
moving average of secondary market morning offering rates in
the United States for three-month certificates of deposit of
major United States money market banks, such three-week
moving average being determined weekly on each Monday (or if
such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published
by the Federal Reserve Bank of New York or, if
<PAGE>
5
such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from
three New York certificate of deposit dealers of recognized
standing, in either case adjusted to the nearest 1/4 of one
percent or, if there is no nearest 1/4 of one percent, to
the next higher 1/4 of one percent.
"Defaulted Receivable" means a Receivable:
--------------------
(i) as to which any payment, or part thereof, is Past
Due;
(ii) as to which the Insured thereof or any other
Person obligated thereon or owning any Related Security in
respect thereof, has taken any action, or suffered any event
to occur, of the type described in Section 10.09(h);
(iii) which, consistent with the Credit and
Collection Policy, would be written off the Seller's books
as uncollectible;
(iv) as to which the Insured thereof or the Seller has
breached the Contract relating thereto; or
(v) which the insurance agent responsible for the
collection thereof has been unable to collect and an
Originator has undertaken to collect directly from the
Insured.
"Eligible Receivable" means a Receivable:
-------------------
(i) the Insured of which is a United States resident
and is not a government or a governmental subdivision or
agency; provided that the Insured may be a government or a
--------
governmental subdivision or agency so long as the aggregate
Outstanding Balance of Receivables of such Insureds
purchased hereunder does not exceed 10% of the aggregate
Cash Purchase Price for all Purchasers;
(ii) the Insured of which is listed on Schedule I
hereto;
(iii) the Insured of which is not the Insured on
any Contract with respect to which there is a Defaulted
Receivable;
(iv) which arises under a Contract currently in effect
or the effective date of which will be within 30 days after
the date of Purchase;
(v) which, on the date of Purchase, is not a Defaulted
Receivable;
<PAGE>
6
(vi) which, according to the Contract related thereto,
is required to be paid in full by the earlier of (a) one
year after the effective date of the Contract giving rise
thereto or (b) one year after the date of Purchase
hereunder;
(vii) which arises under a Contract which has been
duly authorized and which, together with such Receivable, is
in full force and effect (or which will be in full force and
effect within 30 days after the date of Purchase) and which
is not on the date of Purchase the subject of any dispute;
(viii) which does not arise under a Contract
underwritten by the Marine Office of America Corporation or
Associated Aviation Underwriters providing for commercial
marine or commercial aviation insurance;
(ix) which, together with the Contract related thereto,
does not contravene in any material respect any laws, rules
or regulations applicable thereto (including, without
limitation, laws, rules and regulations relating to truth in
lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and
privacy) and with respect to which Receivable the Originator
is not in violation of any such law, rule or regulation in
any material respect;
(x) which satisfies all applicable requirements of the
Credit and Collection Policy;
(xi) which is an "account receivable representing all
or part of the sales price of merchandise, insurance or
services" within the meaning of Section 3(c)(5) of the
Investment Company Act of 1940, as amended;
(xii) which arose under a transaction which is a
"current transaction" within the meaning of Section 3(a)(3)
of the Securities Act of 1933, as amended;
(xiii) which is an "account" or "general intangible"
within the meaning of Section 9-106 of the UCC of all
applicable jurisdictions;
(xiv) which is denominated and payable only in
United States dollars in the United States of America;
(xv) as to which, at or prior to the time of Purchase
hereunder, the Agent has not notified the Seller that the
Agent has determined, in its sole discretion, that such
Receivable (or class of Receivables) is not acceptable for
purchase by a Purchaser hereunder; and
<PAGE>
7
(xvi) the Outstanding Balance of which, together
with the Outstanding Balance of each other Purchased
Receivable of the same Insured, does not exceed more than
33% of the aggregate Holdback Amount for all Purchasers.
"ERISA" means the U.S. Employee Retirement Income
-----
Security Act of 1974, as amended from time to time.
"Holdback Amount" for a Purchaser means the amount
---------------
shown as the "Holdback Amount" for such Purchaser on Schedule II.
"Holdback Termination Date" has the meaning specified
-------------------------
in Section 2.04(d).
"Initial Purchasers" means the Purchasers as of the
------------------
date of the Purchase.
"Insured" means a Person party to a Contract in favor
-------
of whom the policy of insurance evidenced by such Contract has
been issued.
"Intercompany Pooling Agreement" has the meaning
------------------------------
specified in the Preliminary Statements.
"Investor" means CNA Financial Corporation, a Delaware
--------
corporation.
"Majority Purchasers" means at any time at least two
-------------------
Purchasers owning in aggregate a Share Percentage of the
Purchased Receivables of more than 50.00%.
"Originator" has the meaning assigned to such term in
----------
the paragraph preceding the Preliminary Statements.
"Outstanding Balance" means, with respect to any
-------------------
Receivable at any time, the then outstanding principal balance
thereof without giving effect to any deductions for the payment
of commissions to insurance agents of the Originators in
accordance with Section 2.05, and "Outstanding Balance" means,
-------------------
with respect to all Purchased Receivables at any time, the then
outstanding aggregate principal balance of all Purchased
Receivables without giving effect to any deductions for the
payment of commissions to insurance agents of the Originators in
accordance with Section 2.05.
"Ownership Document" means a document delivered by the
------------------
Seller to a Purchaser, in substantially the form of Exhibit A,
evidencing such Purchaser's undivided ownership interest in the
Purchased Receivables.
<PAGE>
8
"Past Due" means, with respect to a Receivable billed
--------
directly by the Seller, 30 days past the date on which such
Receivable is originally due from the Insured to the Seller under
the terms of the Contract, and with respect to a Receivable
billed by an insurance agent of the Seller, 45 days after the
last day of the calendar month in which such Receivable was
originally due to such agent by the Insured under the terms of
the Contract (but in no event more than 75 days past the date
such Receivable was originally due from the Insured to such agent
under the terms of the Contract); for administrative convenience,
February shall be deemed to have 30 days.
"Person" means an individual, partnership, corporation
------
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"Purchase" means the purchase of the Purchased
--------
Receivables that are listed on Schedule I.
"Purchased Receivables" means Receivables purchased
---------------------
from the Seller, in accordance with Section 2.02(a) and listed on
Schedule I hereto.
"Purchaser" shall have the meaning specified in the
---------
introductory paragraph hereof.
"Purchaser Report" means a report, in substantially the
----------------
form of Exhibit D and including such other information as any of
the Initial Purchasers or the Agent, as applicable, may
reasonably request, furnished by the Collection Agent to the
Initial Purchasers or the Agent pursuant to Section 2.04(e).
"Receivable" means all amounts (including premiums and
----------
advance billings for premiums but excluding service charges
imposed on installment payments) from time to time payable by an
Insured to an Originator under (or, in the case of advance
billings, relating to) a Contract arising out of the sale of
insurance. For purposes of Sections 2.04(c)(i) and (ii), each
invoice for payment pursuant to such Contract shall be deemed,
for administrative convenience, to represent a separate
Receivable for purposes of this Agreement. In the case of
Receivables arising from a Contract in respect of worker's
compensation or other coverages subject to retrospective
adjustment, the Receivable shall mean the deposit premium without
adjustment for subsequent audit.
"Related Security" means with respect to any Receivable:
----------------
<PAGE>
9
(i) all security interests or liens and property
subject thereto from time to time purporting to secure
payment of such Receivable, whether pursuant to the Contract
related to such Receivable or otherwise; and
(ii) all guarantees and other agreements or
arrangements of whatever character from time to time
supporting or securing payment of such Receivable, whether
pursuant to the Contract related to such Receivable or
otherwise.
"Seller" has the meaning assigned to such term in the
------
paragraph preceding the Preliminary Statements. The parties
hereto agree that at any time and from time to time the
Originators may designate a single Originator to act for and on
behalf of the Seller for all purposes under this Agreement;
Continental is hereby so designated (any redesignation shall be
effective for purposes hereof by notice from each of the
Originators to the Agent designating another Originator to act
for and on behalf of the Seller hereunder).
"Settlement Date" means each date set forth on Schedule
---------------
III as a "Settlement Date", and in the case of any month
---------------
subsequent to such dates, the 15th Business Day after the last
day of each such calendar month.
"Share Percentage" means (a) for each Initial
----------------
Purchaser, the undivided percentage interest set forth for such
Purchaser on Schedule II to this Agreement; and (b) immediately
following each assignment pursuant to Article VIII by any
assignor to any Assignee(s), an undivided percentage interest
equal (i) in the case of the Share Percentage of such Assignee,
to the product of (A) the Share Percentage of such assignor
immediately prior to such assignment multiplied by (B) 100% (in
the case of an assignment in full) or the fraction indicated in
the related Assignment (in the case of a partial Assignment) and
(ii) in the case of the Share Percentage of such assignor, to the
difference between the Share Percentage of such assignor
immediately prior to giving effect to such assignment and the
related Share Percentage of such Assignee(s) calculated pursuant
to clause (i) above.
"Target Amount" for a Purchaser means the amount shown
-------------
as "Target Amount" for such Purchaser on Schedule II.
"UCC" means the Uniform Commercial Code as from time to
---
time in effect in the specified jurisdiction.
SECTION 1.02. Other Terms. All accounting terms not
-----------
specifically defined herein shall be construed in accordance with
generally accepted accounting principles. All terms used in
Article 9 of the UCC in effect in the State of New York and not
specifically defined herein are used herein as defined in such
Article 9.
<PAGE>
10
SECTION 1.03. Computation of Time Periods. Unless
---------------------------
otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASE
SECTION 2.01. The Purchase. On the terms and
------------
conditions hereinafter set forth, each Purchaser may, in its sole
discretion, purchase from the Seller, without recourse except for
such limited recourse as is expressly provided for herein, such
Purchaser's Share Percentage of the Receivables to be listed on
Schedule I hereto for a purchase price set forth in Section 2.02.
SECTION 2.02. Making the Purchase from the Seller.
-----------------------------------
(a) The Purchase shall be made on at least two Business Days'
notice (or such lesser notice as the Purchasers may accept) from
the Seller to the Agent, which notice shall specify the date of
the Purchase. The Agent shall promptly thereafter notify each
Purchaser of the date of the Purchase, and each Purchaser shall
promptly notify the Agent, which shall promptly notify the
Seller, whether such Purchaser has determined to make the
Purchase. If any Purchaser elects to make the Purchase, such
Purchaser shall, upon satisfaction of the conditions precedent
set forth in Article III, pay such Purchaser's Cash Purchase
Price as provided in subsection (b) below and such Purchaser's
Holdback Amount as and when provided in Section 2.04 and assume
the liability for commissions as set forth in Section 2.05. If
any Purchaser does not elect to purchase its Share Percentage of
the Receivables on the date specified in this Section 2.02(a),
the Seller may in its sole discretion elect to sell to one or
more other Purchasers a modified Share Percentage of such
Receivables as may be agreed between the Seller and such
Purchaser or Purchasers.
(b) If any Purchaser elects to make the Purchase, on
the date of the Purchase such Purchaser shall, upon satisfaction
of the conditions precedent set forth in Article III, make
available to the Agent at its address referred to in Section
10.02 such Purchaser's Cash Purchase Price payable to the Seller,
as set forth in Section 2.02(a) above, at an account maintained
by the Agent with Citibank as set forth on the signature pages
hereof in immediately available funds. After receipt by the
Agent of such funds, the Agent will pay the same by wire transfer
in same day funds to the Seller, at Chemical Bank, 270 Park
Avenue, New York, New York 10017, Attention: Tony Forgione, for
credit to The Continental Insurance Company (Account Number
140-0-50093).
<PAGE>
11
SECTION 2.03. Fees. Each Purchaser shall pay to the
----
Collection Agent until the Holdback Termination Date for each
calendar month such Purchaser's Share Percentage of a collection
fee (the "Collection Agent Fee") in an amount equal to 1/4 of 1%
--------------------
of the amount of Collections collected during such calendar
month. The Collection Agent Fee for any calendar month shall be
deducted by the Collection Agent from the amount due each
Purchaser on account of such Purchased Receivables for such
calendar month unless the Purchasers and the Collection Agent
otherwise agree that such Collection Agent Fee shall be paid
monthly in arrears by each Purchaser, in an amount equal to such
Purchaser's Share Percentage of the Collection Agent Fee, on the
Settlement Date immediately succeeding such calendar month.
SECTION 2.04. Settlement Procedures. (a) The
---------------------
Collection Agent shall, on each day on which Collections of
Purchased Receivables are received by it with respect to any
Purchased Receivable (after removing and remitting to the
Originator any service charges excluded from the definition of
"Receivables"), hold such amount in trust for the Purchasers to
be applied as provided in Section 2.04(b) below.
(b) The Collection Agent shall deposit, to the account
of each Initial Purchaser, or, in the case of all other
Purchasers, to the account of the Agent, such Purchaser's Share
Percentage of Collections of Purchased Receivables into such
account maintained with such financial institution as shall be
notified from time to time in writing by the Agent to the
Collection Agent (it being understood that in the case of each
Initial Purchaser such account shall initially be the account set
forth on the signature pages hereof and in the case of all other
Purchasers such account shall initially be the Agent's account,
number 4056-3772, maintained with Citibank) as follows:
(i) Except as provided in (ii) below, all Collections
received in accordance with Section 2.04 on or before the
last day of each calendar month and not previously deposited
in such accounts by the Collection Agent on a prior
Settlement Date shall be so deposited on the Settlement Date
occurring in the immediately succeeding month; and
(ii) At any time that the Majority Purchasers are
reasonably insecure as to the ability of the Collection
Agent or an Originator to perform under this Agreement or
are reasonably dissatisfied with the collection performance
of the Purchased Receivables, and the Agent has been so
advised, or if any event of a type listed in Section 10.09
(without giving effect to any grace period or required
notice) shall occur and be continuing, and in each case upon
three Business Days' notice from the Agent (such notice to
be delivered at the request of the Majority Purchasers), the
Collection Agent shall (a) segregate, as soon as possible
given the practices in effect on the date hereof, and (b)
deposit as soon as possible, but no less frequently than
<PAGE>
12
weekly, in such accounts all amounts held in trust for the
Purchasers in accordance with Section 2.04 and not
previously deposited in such accounts by the Collection
Agent;
provided, however, that if the Purchasers and the Collection
-------- -------
Agent so agree in accordance with Section 2.03, the Collection
Agent Fee shall be deducted from deposits made by the Collection
Agent pursuant to this Section 2.04(b). Promptly after its
receipt of any such Collections, the Agent shall make
distribution thereof to each Purchaser other than an Initial
Purchaser in an amount equal to such Purchaser's Share Percentage
of such Collections.
(c) For the purposes of this Section 2.04:
(i) if with respect to any Purchased Receivable (A)
any amount of any premium is returned, (B) an insurance
agent fails to pay over any amount of any premium due to the
Seller or to the Collection Agent, or (C) the Seller of such
Purchased Receivable makes any adjustment that reduces any
premium payable to the Seller or the Collection Agent with
respect thereto, then
(x) for purposes of calculations to be made
under this Agreement, the Outstanding Balance of such
Purchased Receivable shall be deemed to have been
reduced by such amount or reduction, as the case may
be; and
(y) the Seller shall be deemed to have received
on such day a Collection in respect of such Purchased
Receivable equal to such amount or reduction;
(ii) if any Contract with respect to a Purchased
Receivable is cancelled or becomes a Deemed Cancelled
Contract, then
(A) for purposes of calculations to be made under
this Agreement, the entire Outstanding Balance of such
Purchased Receivable shall be deemed to have been
reduced to zero; and
(B) the Seller shall be deemed to have received
on the date of such cancellation or on the date on
which such Contract first becomes a Deemed Cancelled
Contract, as the case may be, Collections in respect of
such Purchased Receivables equal to the entire
Outstanding Balance of such Purchased Receivable
(including but not limited to all amounts not then
due), except that in the case of a Deemed Cancelled
------
Contract the Seller shall not be deemed to have
received Collections of that portion of the Outstanding
Balance of such Purchased Receivable that is Past Due
on the date the Contract
<PAGE>
13
becomes a Deemed Cancelled Contract, provided, that
--------
Collections of such excluded portion of such Outstanding
Balance from time to time actually received shall be paid
to the Purchasers in accordance with Section 2.04;
(iii) if on any day any of the representations or
warranties in Section 4.01(h) is no longer true with respect
to any Purchased Receivable, the Seller shall be deemed to
have received on such day a Collection of such Purchased
Receivable in full; and each Purchaser shall, in accordance
with Section 8.04, assign to the Seller all of such
Purchaser's Share Percentage of Purchased Receivables in
respect of which the Seller has been deemed under paragraph
(i), (ii) or (iii) of this Section 2.04(c) to have collected
in full; for purposes of determining under clause (ii) of
said Section 4.01(h) whether a Receivable was an "Eligible
Receivable", reference shall only be made to whether it was
an "Eligible Receivable" at the time of the Purchase;
(iv) except as provided in paragraph (i), (ii) or (iii)
of this Section 2.04(c), or as otherwise required by law or
the relevant Contract, all collections (whether or not
Collections) received from an Insured of any Receivable
shall be applied to the Receivables of such Insured in the
order of the age of such Receivables, starting with the
oldest such Receivable, unless such Insured designates its
payment for application to specific Receivables; and
(v) if and to the extent any Purchaser shall be
required for any reason to pay over to an Insured any amount
received on its behalf hereunder, such amount shall be
deemed not to have been so received but rather to have been
retained by the Originator of such Insured's Receivable and,
accordingly, such Purchaser shall have a claim for such
amount, payable when and to the extent that any distribution
from or on behalf of such Insured is made in respect
thereof.
(d) On and after the date (the "Holdback Termination
--------------------
Date") on which each Purchaser shall have received Collections in
----
an aggregate amount (net of Collection Agent Fees payable
pursuant to Section 2.03 and commissions payable to insurance
agents pursuant to Section 2.05) equal to the sum of (x) the Cash
Purchase Price of such Purchaser and (y) the Target Amount of
such Purchaser, each Purchaser shall (A) pay such portion, if
any, of such Purchaser's Holdback Amount that the Seller may be
entitled to by remitting to the Seller an amount equal to any
additional Collections received by such Purchaser and may, at its
option, by notice to the Collection Agent, direct the Collection
Agent to deposit with the Seller all Collections received after
the date specified in such notice (in which case and
notwithstanding anything to the contrary the Seller shall
undertake to pay the fees of the Collection Agent and all
commissions payable to the insurance agents of the Originators
out of Collections on the Purchased Receivables from such
Collections), and (B) not earlier than
<PAGE>
14
180 days after the invoice date of the Purchased Receivable
having the latest maturity date, assign each Defaulted Receivable
to the Originator thereof without recourse.
(e) The Collection Agent shall prepare and forward to
each Initial Purchaser, not later than two Business Days prior to
each Settlement Date, a Purchaser Report based upon such
Purchaser's Share Percentage of Purchased Receivables, in
substantially the form of Exhibit D hereto. If there are
Purchasers other than the Initial Purchasers, the Collection
Agent shall prepare and forward to the Agent, for such
Purchasers, not later than two Business Days prior to each
Settlement Date, a Purchaser Report relating to the Purchased
Receivables.
SECTION 2.05. Commissions. Each Purchaser undertakes
-----------
to pay its Share Percentage of all commissions payable to the
insurance agents of the Originators out of and to the extent of
its Share Percentage of Collections on the Purchased Receivables
hereunder, but such Purchaser shall have no liability for any
such commission (i) to the extent it is in excess of the amount
represented in Section 4.01(p) hereof or in any schedule or other
writing delivered prior to the purchase date by the Seller or the
Originators hereunder or (ii) for which there has been any
failure, neglect, breach of duty or other fault of an Originator
serving as Collection Agent, or a failure by any Originator to
make payments to the Collection Agent of sums required to be paid
hereunder. Each Purchaser authorizes the Collection Agent, out
of Collections, to pay such commissions promptly when due, and
directs the Collection Agent to include a report of such payments
in the Purchaser Reports delivered hereunder. Each Purchaser
consents (i) to the withholding by the insurance agents of the
Originators of sums due to them as commissions in respect of the
Purchased Receivables, pursuant to their agency contracts or
practices, and (ii) to the withholding by the Originators of
amounts equal to commissions on Receivables deemed collected
hereunder, in each case not in excess of the amount referred to
in the first sentence of this Section 2.05. Each Purchaser shall
have a credit against its undertaking to pay commissions
hereunder for all commissions paid out of Collections by the
Collection Agent or withheld by insurance agents or Originators
pursuant to the two preceding sentences.
SECTION 2.06. Payments and Computations, Etc.
------------------------------
(a) All amounts to be paid or deposited by the Seller or the
Collection Agent hereunder shall be paid or deposited in
accordance with the terms hereof into the accounts referred to in
Section 2.04(b) no later than 11:00 A.M. (New York City time) on
the day when due in lawful money of the United States of America
by wire transfer in same day funds at the office of the financial
institution designated by each Initial Purchaser on the signature
pages hereof or, as to each other Purchaser, as designated by
such Purchaser to the Agent.
(b) If the Collection Agent is not an Originator, the
Collection Agent shall pay all amounts due to the Seller within
five Business Days after the due date, plus, on any
<PAGE>
15
amount not so paid by the Collection Agent, interest at the Default
Rate commencing after such fifth Business Day, provided, however, that
-------- -------
such interest rate shall not at any time exceed the maximum rate
permitted by applicable law.
(c) The Seller shall, to the extent permitted by
applicable law, pay interest to the Agent on any amount not paid
by the Seller when required to be paid by it hereunder, at an
interest rate per annum equal to the Default Rate, payable on
demand, provided, however, that such interest rate shall not at
-------- -------
any time exceed the maximum rate permitted by applicable law.
Such interest shall be for the account of, and shall be
distributed to, each Purchaser in an amount equal to such
Purchaser's Share Percentage of such interest and shall be paid
by the Seller free and clear of, and without deduction for, any
taxes of any kind whatsoever.
(d) All computations of interest under subsection (c)
above shall be made on the basis of a year of 360 days for the
actual number of days (including the first but excluding the
last day) elapsed. Whenever any payment or deposit to be made
hereunder shall be stated to be due on a day other than a
Business Day, such payment or deposit shall be made on the next
succeeding Business Day and such extension of time shall in such
case be included in the computation of such payment or deposit.
SECTION 2.07. Sharing of Payments, Etc. If any
------------------------
Purchaser shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of setoff, or
otherwise) on account of its Share Percentage of Purchased
Receivables in excess of its ratable share of payments on account
of the Purchased Receivables, such Purchaser shall forthwith
purchase from the other Purchasers such participations in the
Share Percentages of Purchased Receivables owned by them as shall
be necessary to cause such purchasing Purchaser to share the
excess payment ratably according to the amounts due to each
Purchaser with each of them; provided, however, that if all or
-------- -------
any portion of such excess payment is thereafter recovered from
such purchasing Purchaser, such purchase from each other
Purchaser shall be rescinded and each other Purchaser shall repay
to the purchasing Purchaser the purchase price to the extent of
such recovery, together with an amount equal to such Purchaser's
ratable share (according to the proportion of (i) the amount of
such Purchaser's required payment to (ii) the total amount so
recovered from the purchasing Purchaser) of any interest or other
amount paid or payable by the purchasing Purchaser in respect of
the total amount so recovered. For purposes of this Section
2.07, each reference to any Purchaser or Purchasers shall be
deemed to refer to each such Purchaser and each of its Affiliates
that is a Purchaser hereunder.
<PAGE>
16
ARTICLE III
CONDITIONS OF PURCHASE
SECTION 3.01. Conditions Precedent to Purchase. The
--------------------------------
Purchase hereunder is subject to the conditions precedent that
(i) each of the representations and warranties contained in
Section 4.01 and in the Company Agreement is correct on and as of
the date of the Purchase, before and after giving effect to the
Purchase and to the application of the proceeds therefrom, as
though made on and as of such date and (ii) the Agent shall have
received on or before the date of Purchase the following, each
(unless otherwise indicated) dated such date, in form and
substance satisfactory to the Agent:
(a) Duly executed Ownership Documents for each
Purchaser;
(b) Schedules I, II and III;
(c) A copy of the resolutions of the Executive
Committee of the Board of Directors or the Board of
Directors of each Originator (other than Continental Lloyd's
Insurance Company) and a Certificate of Attorney-in-Fact
from Continental Lloyd's Insurance Company authorizing this
Agreement, the Ownership Documents and the other documents
to be delivered by it hereunder and the transactions
contemplated hereby, certified as of such date by its
Secretary or Assistant Secretary or, in the case of
Continental Lloyd's Insurance Company, its Attorney-in-Fact;
(d) A certificate of the Secretary or Assistant
Secretary of each Originator or, in the case of Continental
Lloyd's Insurance Company, its Attorney-in-Fact, certifying
the names and true signatures of the officers authorized on
its behalf to sign this Agreement, the Ownership Documents
and the other documents to be delivered by it hereunder (on
which certificate the Agent and the Purchasers may
conclusively rely unless and until such time as the Agent shall
receive from such Originator a replacement certificate meeting
the requirements of this subsection (d));
(e) From each Originator, oral confirmation from an
appropriate person that proper Financing Statements (Form
UCC-1) have been filed or, if available, time stamped copies
of proper Financing Statements (Form UCC-1), dated a date
reasonably near to the date of the Purchase, naming such
Originator as the assignor of Purchased Receivables and
Related Security and CNA, as Agent, as assignee, or other
similar instruments or documents, as may be necessary or, in
the opinion of the Agent, desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect
the Purchasers' ownership interests in all Purchased
Receivables and Related Security;
<PAGE>
17
(f) From each Originator, time stamped copies of
proper Financing Statements (Form UCC-3), if any, necessary
to release all security interests and other rights of any
person in the Purchased Receivables and Related Security
previously granted by such Originator;
(g) Certified copies of Requests for Information (or a
similar search report certified by a party acceptable to the
Agent), dated a date reasonably near to the date of the
Purchase, listing all effective financing statements which
name each Originator (under its present name and any
previous name) as debtor and which are filed in the
jurisdictions in which filings were made pursuant to
subsection (e) above, together with copies of such financing
statements (none of which, except for the Financing
Statements referred to in Section 3.01(e) or financing
statements released by the Financing Statements (Form UCC-3)
referred to in Section 3.01(f), shall cover any Receivables,
Related Security or Contracts);
(h) A favorable opinion of counsel for each Originator
and the opinion of counsel for the Company, in substantially
the form of Exhibit E and Exhibit E-1, respectively, and as
to such other matters as the Agent may reasonably request;
(i) A favorable opinion of Shearman & Sterling,
counsel for the Agent, as the Agent may reasonably request;
(j) From each Originator, a certificate of its chief
financial officer, controller or vice president or, in the
case of Continental Lloyd's Insurance Company, its
Attorney-in-Fact, that the representations and warranties of
such Originator contained in Section 4.01 are correct on and
as of such date as though made on and as of such date;
(k) From Continental, a certificate of its chief
financial officer, controller or vice president that the
information set forth in each document delivered by or on
behalf of the Seller relating to the actual writeoffs and
reserves for losses of the Seller's Receivables is true and
correct, which documents shall be attached to such
certificate; provided, however, that this subsection (k)
-------- -------
shall not limit the representation and warranty set forth in
Section 4.01(i);
(l) the Company Agreement;
(m) A copy of the resolutions of the Board of
Directors of the Company authorizing the agreement referred
to in clause (l) above;
<PAGE>
18
(n) A certificate of the Secretary or Assistant
Secretary of the Company certifying the names and true
signatures of the officers authorized on its behalf to sign
the agreement referred to in clause (l) above;
(o) A certificate of the Secretary or Assistant
Secretary of the Company certifying the truth and accuracy
of an excerpt from the disclosure letter referred to in
Section 4.1 of the Agreement and Plan of Merger by and among
the Investor, Chicago Acquisition Corp., and the Company
dated as of December 6, 1994 that provides the required
consent of the Investor to the execution, delivery and
performance of, and the transactions contemplated by, this
Agreement and the Company Agreement.
(p) Such other approvals, opinions or documents as the
Agent or any Purchaser may reasonably request.
SECTION 3.02. Conditions Subsequent to Purchase. When
---------------------------------
available, and in any event within 45 days after the Purchase
hereunder, the Seller shall deliver to the Agent (i) certified
copies of Requests for Information or Copies (Form UCC-11) (or a
similar search report certified by a party acceptable to the
Agent), dated subsequent to the date of the filings made pursuant
to Section 3.01(e), listing all effective financing statements
which name each Originator (under its present name or any
previous name) as debtor and which are filed in the jurisdictions
in which filings were made pursuant to Section 3.01(e), together
with copies of such financing statements (none of which, except
for the Financing Statements referred to in Section 3.01(e),
shall cover any Purchased Receivables, Related Security or
Contracts) and (ii) an opinion of counsel to each Originator, who
may be in-house counsel, in the form appended hereto as Exhibit
E-2, confirming that the Agent, on behalf of the Purchasers, has
acquired legal and equitable title to, and ownership of, the
Purchased Receivables hereunder and the Related Security and
Collections with respect thereto, free and clear of any Adverse
Claim.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Each
--------------------------------------
Originator. Each Originator (including the Collection Agent, if
----------
an Originator) represents and warrants as follows:
(a) Such Originator is a corporation duly
incorporated, or, in the case of Continental Lloyd's
Insurance Company, duly formed, validly existing and in good
<PAGE>
19
standing under the laws of the jurisdiction of its
organization and is duly qualified to do business, and is in
good standing, in every jurisdiction where the failure to so
qualify would materially adversely affect such Originator's
condition, financial or otherwise, operations or prospects.
(b) The execution, delivery and performance by such
Originator of this Agreement, the Ownership Documents and
the other instruments and documents to be delivered by it
hereunder, and the transactions contemplated hereby and
thereby, are within such Originator's corporate powers, have
been duly authorized by all necessary corporate action, do
not contravene (i) such Originator's charter, by-laws or
articles of agreement, (ii) any law, rule or regulation
applicable to such Originator, (iii) any contractual
restriction contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note,
or other agreement or instrument binding on or affecting
such Originator or its property or (iv) any order, writ,
judgment, award, injunction or decree binding on or
affecting such Originator or its property, and do not result
in or require the creation of any lien, security interest or
other charge or encumbrance upon or with respect to any of
its properties other than as contemplated herein; and no
transaction contemplated hereby requires compliance with any
bulk sales act or similar law. This Agreement has been duly
executed and delivered by such Originator.
(c) No authorization or approval or other action by,
and no notice to or filing with, any governmental authority
or regulatory body or any other third party (including,
without limitation, the Investor or any of its Affiliates)
is required for the due execution, delivery and performance
by such Originator of this Agreement, the Ownership
Documents or any other document or instrument to be
delivered hereunder except for the filing of the UCC
------
Financing Statements and the consent of the Investor
referred to in Article III, all of which, at the time
required in Article III, shall have been duly made and shall
be in full force and effect.
(d) This Agreement constitutes, and the Ownership
Documents when executed and delivered hereunder shall
constitute, the legal, valid and binding obligation and act
of such Originator.
(e) The Ownership Documents, when executed and
delivered hereunder, will effect the transfer to each
Initial Purchaser of legal and equitable title to, and an
undivided percentage ownership, to the extent of such
Purchaser's Share Percentage, of Receivables purchased or
purported to be purchased pursuant to this Agreement, free
and clear of any Adverse Claim.
<PAGE>
20
(f) The statutory balance sheet of such Originator
(including the initial Collection Agent) as at December 31,
1993, and the related statutory statements of income and
surplus of such Originator for the fiscal year then ended,
and the statutory balance sheet for such Originator as at
September 30, 1994, and the related statutory statements of
income and surplus of such Originator for the nine-month
period then ended, in each case certified by the controller
or other appropriate officer of such Originator, copies of
which have been furnished to the Agent, fairly present the
financial condition of such Originator for the periods ended
on such dates, all in accordance with accounting principles
prescribed or permitted and authorized by the department of
insurance of the state of incorporation of such Originator
and consistently applied to such financial statements, and
since September 30, 1994, there has been no material adverse
change in such condition or operations.
(g) There are no actions, suits or proceedings
pending, or to the knowledge of such Originator threatened,
against or affecting such Originator or any subsidiary, or
the property of such Originator or of any subsidiary, in any
court, or before any arbitrator of any kind, or before or by
any governmental body, which may materially adversely affect
either the financial condition or operations of such
Originator or such Originator and its subsidiaries taken as
a whole or the ability of such Originator to perform its
obligations under this Agreement or the Ownership Documents
delivered pursuant hereto. Neither such Originator nor any
subsidiary is in default with respect to any order of any
court, arbitrator or governmental body, except for defaults,
if any, with respect to orders of governmental agencies
which defaults do not have a material adverse effect on the
business or operations of such Originator or any subsidiary.
(h) Each Receivable that is purchased pursuant to this
Agreement is assignable in accordance with this Agreement
and shall (i) on the date of the Purchase, immediately prior
to such Purchase, be owned by the Originators free and clear
of any Adverse Claim, (ii) at the time of the Purchase, be
an Eligible Receivable, and (iii) together with the Contract
related thereto, at all times after such time be free and
clear of any Adverse Claim. Upon the Purchase, each
Purchaser shall acquire legal and equitable title to, and an
undivided percentage ownership, to the extent of such
Purchaser's Share Percentage, of each Receivable listed on
Schedule I hereto and the Related Security, related Contract
and Collections with respect thereto free and clear of any
Adverse Claim; and no effective financing statement or other
instrument similar in effect covering any such Receivable or
the Related Security, related Contract or Collections with
respect thereto shall at any time be on file in any
recording office, or otherwise be effective, except such as
may be filed in favor of the Agent in accordance with this
Agreement.
<PAGE>
21
(i) No Purchaser Report (if prepared by Continental on
behalf of such Originator, or any Person with which the
Seller has subcontracted pursuant to Section 6.01, or to the
extent that information contained therein is supplied by the
Seller on behalf of such Originator or such other Person),
information, exhibit, financial statement, document, book,
record or report furnished or to be furnished by the Seller
to the Agent or any Purchaser in connection with this
Agreement is or shall be inaccurate in any material respect
or omits or shall omit to state a material fact or any fact
necessary to make the statements contained therein not
materially misleading.
(j) The chief executive office of such Originator,
other than Continental Lloyd's Insurance Company and
Casualty Insurance Company, is located at 180 Maiden Lane,
New York, New York 10038. The chief executive office of
Continental Lloyd's Insurance Company is located at 600
North Pearl Street, Dallas, Texas 75201 and the chief
executive office of Casualty Insurance Company is located at
321 South Clark Street, Chicago, Illinois 60610. The
offices where such Originator keeps all its books, records
and documents evidencing Purchased Receivables or the
related Contracts are located at the addresses specified in
Exhibit F (or at such other locations, notified to the Agent
in accordance with Section 5.01(f), in jurisdictions where
all action required by Section 6.05 has been taken and
completed).
(k) The transactions in which the Receivables
constituting the Purchased Receivables were created and
acquired by the Originators constituted "current
transactions" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended. The Receivables
constituting the Purchased Receivables are "notes, drafts,
acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise,
insurance or services" within the meaning of Section 3(c)(5)
of the Investment Company Act of 1940, as amended.
(l) All of the capital stock of such Originator, other
than Continental Lloyd's Insurance Company, is directly or
indirectly owned beneficially and of record by the Company.
All of the interests in Continental Lloyd's Insurance
Company are directly or indirectly beneficially owned by the
Company.
(m) Each Purchased Receivable is assignable under
applicable law, and is not subject to any restriction or
limitation upon assignment under the Contract relating
thereto.
(n) The Intercompany Pooling Agreement constitutes the
legal, valid and binding obligation of such Originator
enforceable against such Originator in accordance with its
terms. Pursuant to the Intercompany Pooling Agreement, each
<PAGE>
22
Originator (i) has purchased and, immediately prior to the
Purchase, owns, free and clear of any Adverse Claim, a
discrete participation and percentage interest in each
Purchased Receivable, (ii) receives, in connection with the
Purchase, an amount equal to such percentage of the
aggregate Cash Purchase Price therefor, and (iii) together
with each other Originator, is, immediately prior to the
Purchase, the owner of such Purchased Receivable in its
entirety.
(o) The invoices in respect of each Purchased
Receivable will be sent to the pertinent Insured in
accordance with Schedule I. According to the Contracts
related to the Purchased Receivables, the Outstanding
Balance will be due no later than the dates shown on
Schedule I.
(p) Not more than 20% of the Collections of any
Purchased Receivable is required to be paid to insurance
agents as commissions, and the aggregate amount required to
be paid to insurance agents as commissions is not more than
the amount set forth in Schedule III.
(q) Pursuant to the Credit and Collection Policy, such
Originator is entitled to cancel any Contract on the date
any Purchased Receivable under such Contract becomes Past
Due.
(r) Commissions with respect to each Contract are
payable to any insurance agent solely from, and in all
material respects proportionately to the extent of, premiums
actually received from the Insured under such Contract
produced by such insurance agent.
ARTICLE V
GENERAL COVENANTS OF EACH ORIGINATOR
SECTION 5.01. Affirmative Covenants of Each
-----------------------------
Originator. Until the Holdback Termination Date, each Originator
----------
will, unless the Agent upon the direction of the Majority
Purchasers shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material
-------------------------
respects with all applicable laws, rules, regulations and
orders with respect to it, its business and properties and
all Purchased Receivables, Related Security and related
Contracts, the non-compliance with which (a) would
materially adversely affect it, its business and properties
or (b) would materially adversely affect, in the aggregate,
any Purchaser's interest in the Purchased Receivables,
Related Security or related Contracts.
<PAGE>
23
(b) Preservation of Corporate Existence. Preserve and
-----------------------------------
maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and
qualify and remain qualified in good standing as a foreign
corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises,
privileges and qualification would materially adversely
affect the interests of any Purchaser or the Agent hereunder
or in the Purchased Receivables, or the ability of such
Originator or the Collection Agent to perform their
respective obligations under this Agreement and the
Ownership Documents.
(c) Audits. At any time and from time to time during
------
regular business hours upon two Business Days' prior
notification to such Originator, permit (or, if such
Originator, being the Collection Agent, has subcontracted
with any Person pursuant to Section 6.01, cause such Person
to permit) the Agent, any Initial Purchaser, or any
Purchaser holding a Share Percentage of at least 25%, or its
agents or representatives, (i) to examine and make copies of
and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in
the possession or under the control of such Originator (or
any Person with which such Originator, being the Collection
Agent, has subcontracted pursuant to Section 6.01) relating
to Purchased Receivables, including, without limitation, the
related Contracts and Related Security, and (ii) to visit
the offices and properties of such Originator (or any Person
with which such Originator, being the Collection Agent, has
subcontracted pursuant to Section 6.01) for the purpose of
examining such materials described in clause (i) above, and
to discuss matters relating to Purchased Receivables sold by
it or such Originator's performance hereunder with any of
the responsible officers or employees of such Originator (or
any Person with which such Originator, being the Collection
Agent, has subcontracted pursuant to Section 6.01) having
knowledge of such matters; provided, however, that no
-------- -------
Initial Purchaser that is also an insurance company, or is a
member of a group (consisting of such Purchaser and all of
its Affiliates) that is engaged primarily in the business of
underwriting or selling insurance, shall be permitted to so
examine the materials described in this Section 5.01(c);
provided, further, that no Purchaser (other than an Initial
-------- -------
Purchaser) that is also an insurance company or an Affiliate
of an insurance company shall be permitted to so examine the
materials described in this Section 5.01(c).
(d) Keeping of Records and Books of Account. Maintain
---------------------------------------
and implement, or cause to be maintained and implemented,
administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing
Purchased Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and
maintain, or cause to be kept and maintained, all documents,
books, records and other information reasonably necessary or
advisable for the collection of all Purchased Receivables
(including, without limitation, records
<PAGE>
24
adequate to permit the identification of each Purchased
Receivable and all Collections of and adjustments to each
Purchased Receivable sold by it).
(e) Performance and Compliance with Receivables and
-----------------------------------------------
Contracts. At its expense, timely and fully perform and
---------
comply with all material provisions, covenants and other
promises required to be observed by it under the Contracts
related to the Purchased Receivables.
(f) Location of Records. Keep its chief executive
-------------------
office, and the offices where it keeps its records
concerning the Purchased Receivables and all Contracts
related thereto (and all original documents relating
thereto), at the address(es) of such Originator (or any
Person with which such Originator, if the Collection Agent,
has subcontracted pursuant to Section 6.01) referred to in
Section 4.01(j) or, upon 30 days' prior written notice to
the Agent, at such other locations in a jurisdiction where
all action required by Section 6.05 shall have been taken
and completed.
(g) Credit and Collection Policies. Comply in all
------------------------------
material respects with the Credit and Collection Policy in
regard to each Purchased Receivable sold by it and the
related Contract.
(h) Reporting. Furnish to the Agent, each Initial
---------
Purchaser, and each Purchaser holding a Share Percentage of
at least 25%:
(i) as soon as available and in any event within
60 days after the end of each of the first three
quarters of each fiscal year of such Originator, a
statutory balance sheet of such Originator as of the
end of such quarter, and statutory statements of income
and surplus of such Originator each for the period
commencing at the end of the previous fiscal year and
ending with the end of such quarter, certified by the
controller or other appropriate officer of such
Originator; and
(ii) as soon as available and in any event within
120 days after the end of each fiscal year of such
Originator, a copy of the statutory balance sheet of
such Originator as of the end of such year and the
related statutory statements of income and surplus of
such Originator for such year each reported on by the
controller or other appropriate officer of such
Originator.
SECTION 5.02. Negative Covenants of Each Originator.
-------------------------------------
Until the Holdback Termination Date, no Originator shall without
the written consent of the Agent upon the direction of the
Majority Purchasers:
<PAGE>
25
(a) Sales, Liens, Etc. Sell, assign (by operation of
-----------------
law or otherwise) or otherwise dispose of, or create or
suffer to exist any Adverse Claim upon or with respect to,
any Purchased Receivable, Related Security, related Contract
or Collections, or assign any right to receive income in
respect thereof.
(b) Extension or Amendment of Receivables. Extend,
-------------------------------------
amend or otherwise modify the terms of any Purchased
Receivable, or amend, modify or waive any term or condition
of any Contract related thereto if the effect of such
amendment, modification or waiver of Contract would
materially adversely affect the timeliness of payment or
collectibility of the Purchased Receivables.
(c) Change in Business or Credit and Collection
-------------------------------------------
Policy. Make any change in the character of its business or
------
in the Credit and Collection Policy, which change would, in
either case, materially impair the timeliness of payment or
collectibility of any Purchased Receivable.
(d) Change in Payment Instructions to Insureds. Make
------------------------------------------
any change in its instructions to Insureds regarding
payments to be made to such Originator if the effect of such
change would materially adversely affect the timeliness of
payment or collectibility of the Purchased Receivables,
unless the Agent and the Initial Purchasers shall have
received prior written notice of such change.
(e) No Actions Against Insureds. Commence or settle
---------------------------
any legal action to enforce collection of any Purchased
Receivable.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. The
-------------------------------
administration and collection of the Purchased Receivables shall
be conducted by such Person (the "Collection Agent") so
----------------
designated from time to time in accordance with this Section
6.01. Until the Agent gives notice to the Seller of a
designation of a new Collection Agent, Continental is hereby
designated as, and hereby agrees to perform the duties and
obligations of, the Collection Agent pursuant to the terms
hereof. The Agent shall, at any time that it has been so advised
by the Majority Purchasers that such Majority Purchasers are
reasonably insecure as to the ability of the Collection Agent to
perform hereunder or are reasonably dissatisfied with the
collection performance of the Purchased Receivables or if any
event of a type listed in Section 10.09 (without giving effect to
any grace period or required notice) shall occur and be
continuing, upon three Business Days' notice to the Seller,
designate as the Collection
<PAGE>
26
Agent any Person (including itself), other than a Person in the
business of issuing or selling insurance or any Affiliate of such
Person, to succeed Continental or any successor Collection Agent, on
the condition in each case that any such Person so designated agrees
in writing for the benefit of the parties hereto (a) to perform the
duties and obligations of the Collection Agent pursuant to the terms
hereof and (b) to adhere to the provisions of Section 10.07, which
agreement shall survive the termination of this Agreement or such
writing. For purposes of satisfying the condition contained in
the preceding sentence, the Agent hereby agrees that if and when
it shall designate itself as the Collection Agent, it shall
perform the duties and obligations of the Collection Agent
pursuant to the terms hereof. The Collection Agent may, with the
prior consent of the Agent acting at the direction of the
Majority Purchasers, subcontract with any other Person for the
administration and collection of such Purchased Receivables,
provided that the Collection Agent shall remain liable for the
--------
performance of the duties and obligations of the Collection Agent
pursuant to the terms hereof.
SECTION 6.02. Duties of Collection Agent. (a) The
--------------------------
Collection Agent shall (unless the Agent at the direction of the
Majority Purchasers directs otherwise) take or cause to be taken
only such actions as shall be necessary or customary to collect
each Purchased Receivable, all in accordance with applicable
laws, rules and regulations, with reasonable care and diligence,
and solely in accordance with the Credit and Collection Policy.
Each of the Seller, each Purchaser and the Agent hereby appoints
as its agent the Collection Agent, from time to time designated
pursuant to Section 6.01, to enforce its respective rights and
interests in and under the Purchased Receivables, the Related
Security and the related Contracts. The Collection Agent shall
not incur any expense that would result in a material increase in
the Collection Agent Fee without first obtaining the consent of
the Agent at the direction of all of the Purchasers.
(b) The Collection Agent shall set aside for the
Purchasers the Collections of Purchased Receivables in accordance
with Section 2.04, but shall not be required (except to the
extent set forth in Section 2.04 or requested by the Agent at the
direction of the Majority Purchasers) to segregate the funds
constituting such portion of such Collections prior to the
remittance thereof in accordance with said Section.
(c) The Collection Agent (if not an Originator) may
not extend, amend or otherwise modify the terms of any Purchased
Receivable, or amend, modify or waive any term or condition of
any Contract related thereto, or extend, amend or otherwise
modify the rights of any Originator, in each case, without such
Originator's written consent. The Collection Agent may not
commence or settle any legal action to enforce collection of any
Purchased Receivable, unless the Agent at the direction of the
Majority Purchasers shall have otherwise consented in writing.
<PAGE>
27
(d) Each Originator shall deliver to the Collection
Agent, and the Collection Agent shall hold in trust and legend
appropriately for the Seller and the Agent, acting on behalf of
the Purchasers, all computer tapes or disks which evidence or
relate to Purchased Receivables. Upon the Agent's request at the
direction of the Majority Purchasers, the Seller shall deliver to
the Collection Agent, and the Collection Agent shall hold in
trust and legend appropriately for the Seller and the Agent,
acting on behalf of the Purchasers, all documents, instruments
and other records which evidence or relate to Purchased
Receivables.
(e) The Collection Agent shall, as soon as practicable
following receipt, turn over to the Seller the Collections of any
Receivable which is not a Purchased Receivable.
(f) The Collection Agent, if other than an Originator,
shall as soon as practicable upon demand deliver to the Seller
all documents, instruments and other records (including, without
limitation, computer tapes or disks) in its possession which
evidence or relate solely to Receivables other than Purchased
Receivables, and copies of documents, instruments and other
records in its possession which evidence or relate to Purchased
Receivables.
(g) The Collection Agent shall, at any time and from
time to time at the request of the Agent at the direction of the
Majority Purchasers, furnish to the Agent (within five Business
Days after any such request) a calculation of the amounts set
aside for the Purchasers pursuant to Section 2.04(b)(ii).
(h) The Collection Agent shall, to the extent
permitted by applicable law, pay interest to the Agent on any
amount not paid by the Collection Agent when required to be paid
by it hereunder, at an interest rate per annum equal to the
Default Rate, payable on demand, provided, however, that such
-------- -------
interest rate shall not at any time exceed the maximum rate
permitted by applicable law. Such interest shall be for the
account of, and shall be distributed to, the Purchasers and shall
be paid by the Collection Agent free and clear of and without
deduction for any taxes of any kind whatsoever.
(i) Except as set forth in Section 2.04(d), the
Collection Agent's authorization under this Agreement shall
terminate on the Holdback Termination Date.
SECTION 6.03. Rights of the Agent. At any time
-------------------
following the designation of a Collection Agent other than any
Originator pursuant to Section 6.01:
<PAGE>
28
(a) The Agent at the direction of the Majority
Purchasers may direct any or all of the Insureds of
Purchased Receivables to make payment of all amounts payable
under any Purchased Receivable directly to the Agent or its
designee.
(b) The Seller shall, at the Agent's request at the
direction of the Majority Purchasers and at the Seller's
expense, give notice of the ownership of the Purchased
Receivables by the Purchasers to each said Insured and
direct that payments be made directly to the Agent or its
designee.
(c) The Seller shall, at the Agent's request at the
direction of the Majority Purchasers and at the Seller's
expense, (i) assemble all of the documents, instruments and
other records (including, without limitation, computer tapes
and disks), or true and correct copies thereof, which
evidence or relate to the Purchased Receivables, and the
related Contracts and Related Security, or which are
otherwise necessary or desirable to collect such Purchased
Receivables, and shall make the same available to the Agent
at a place selected by the Agent or its designee, and (ii)
without limiting any other rights under this Agreement,
segregate all cash, checks and other instruments received by
it from time to time constituting Collections of Purchased
Receivables in a manner acceptable to the Agent and shall,
promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments
of transfer, to the Agent or its designee.
(d) The Seller and each Purchaser each hereby
authorizes the Agent to take any and all steps in the
Seller's name and on behalf of the Seller and the Purchasers
necessary or desirable, in the determination of the Agent,
to collect all amounts due under any and all Purchased
Receivables sold by it, including, without limitation,
endorsing any Originator's name on checks and other
instruments representing Collections of Purchased
Receivables and enforcing such Purchased Receivables and
taking action or causing action to be taken with respect to
any Related Security, including with respect to transferring
possession of the same to the Agent or its designee.
SECTION 6.04. Responsibilities of the Seller. (a)
------------------------------
The Seller shall remain responsible and liable to perform all of
its duties and obligations under the Contracts related to the
Purchased Receivables, to the extent set forth therein; provided
--------
that the Seller shall have no obligation under such Contracts or
otherwise with respect to commissions payable to its insurance
agents until the Holdback Termination Date.
(b) The exercise by the Agent or any Purchaser of any
of its rights hereunder shall not release the Seller from any of
its duties or obligations with respect to any Purchased
Receivables or under the Contracts related to such Purchased
Receivables.
<PAGE>
29
(c) Neither the Agent nor any Purchaser shall have any
obligation or liability (other than expressly provided in Section
2.05 herein) with respect to any Purchased Receivables or related
Contracts, nor shall any of them be obligated to perform any of
the obligations of the Seller or any Originator thereunder.
(d) The Seller shall promptly notify the Agent and the
Initial Purchasers of any claim or threatened claim probable, in
the opinion of the management of the Seller, to result in any
liability referred to in Article IX.
(e) The Seller shall, within ten Business Days of such
time as the Agent at the direction of the Majority Purchasers may
request, furnish to the Agent such Purchaser Reports, and other
report, information, document, book or record as the Agent at the
direction of the Majority Purchasers may reasonably request
relating to the Purchased Receivables.
(f) The Seller shall, within ten Business Days after
the end of each calendar month, or at such other times as the
Collection Agent shall reasonably request, provide to the
Collection Agent such information and records as are necessary
for the determination of commissions required to be paid to
insurance agents out of Collections.
SECTION 6.05. Further Action Evidencing the Purchase.
--------------------------------------
(a) The Seller agrees that from time to time, at its expense, it
will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or
that the Agent at the direction of the Majority Purchasers may
reasonably request in order to perfect, protect or more fully
evidence the Purchased Receivables, or to enable the Purchasers
or the Agent to exercise or enforce any of their respective
rights hereunder or under the Ownership Documents. Without
limiting the generality of the foregoing, each Originator will
create separate data processing records evidencing such Purchased
Receivables and related Contracts with a legend, acceptable to
the Agent, evidencing that the Purchased Receivables have been
sold in accordance with this Agreement and will, upon the request
of the Agent at the direction of the Majority Purchasers: (i)
execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate; and
(ii) mark conspicuously each invoice sent by it and use its best
efforts to cause its agents to mark conspicuously each invoice
sent by them evidencing each Purchased Receivable and the related
Contract with a legend, acceptable to the Agent, evidencing that
the Purchased Receivable has been sold in accordance with this
Agreement.
(b) The Seller hereby authorizes the Agent to file or
cause to be filed one or more financing or continuation
statements, and amendments thereto and assignments thereof,
relative to all or any of the Purchased Receivables and the
Related Security now
<PAGE>
30
existing or hereafter arising without the signature of the Seller
or any Originator where permitted by law.
(c) If the Seller fails to perform any of its
agreements or obligations under this Agreement, the Agent may
(but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of
the Agent incurred in connection therewith shall be payable by
the Seller as provided in Section 10.06.
SECTION 6.06. Application of Collections. Any payment
--------------------------
made by an Insured to any Originator shall, except as otherwise
specified by such Insured or otherwise required by contract or
law and unless otherwise instructed by the Agent at the direction
of the Majority Purchasers, be applied as a collection of any
Purchased Receivable or any other Receivables of such Insured to
the extent of any amounts then due and payable thereunder before
being applied to any other indebtedness of such Insured.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. (a) Each
------------------------
Purchaser hereby appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto.
In furtherance, and without limiting the generality of the
foregoing, each Purchaser hereby appoints the Agent as its agent
to execute and deliver all further instruments and documents, and
take all further action that the Agent may deem necessary or
appropriate in order to protect or more fully evidence the Share
Percentage of Purchased Receivables purchased by the Purchasers
hereunder, or to enable any of the Purchasers to exercise or
enforce any of their respective rights hereunder or under the
Ownership Documents, including, without limitation, the execution
by the Agent as assignee of such financing, release or
termination statements, or amendments thereto or assignments
thereof, relative to all or any of the Purchased Receivables and
the Related Security now existing or hereafter arising, and such
other instruments or notices, as may be necessary or appropriate
for the purposes stated hereinabove.
(b) Each Purchaser and the Seller expressly recognize
and agree that the Agent may be listed as the assignee of record
on the various UCC filings required to be made hereunder in order
to protect or evidence the transfer of the Purchased Receivables
from the Seller to the Purchasers, that the Agent shall sign UCC
financing, release or termination statements and shall otherwise
act as agent for the Purchasers as undivided percentage owners of
all of the Purchased Receivables. In addition, such listing
shall impose
<PAGE>
31
no duties on the Agent other than those expressly and specifically
undertaken in accordance with the provisions of this Article VII.
(c) The Seller shall be entitled to rely without
investigation upon any notice or request received from the Agent
or other action by the Agent that recites that it is
appropriately authorized pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the
---------------------
Agent nor any of its directors, officers, agents or employees
shall be liable to any Purchaser or Assignee for any action taken
or omitted to be taken by it or them as Agent under or in
connection with this Agreement (including, without limitation,
any action taken or omitted to be taken by it or them if
designated as the Collection Agent pursuant to Section 6.01),
except for its or their own gross negligence or willful
misconduct. Without limiting the foregoing, the Agent: (i) may
consult with legal counsel (including counsel for the Seller),
independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or
representation to any Purchaser and shall not be responsible to
any Purchaser for any statements, warranties or representations
made in or in connection with this Agreement; (iii) shall not
have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this
Agreement on the part of the Seller, any Originator or the
Collection Agent or to inspect the property (including the books
and records) of any Originator or the Collection Agent; (iv)
shall not be responsible to any Purchaser for the due execution,
legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, the Ownership Documents or any other
instrument or document furnished pursuant hereto; and (v) shall
incur no liability under or in respect of this Agreement by
acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by
telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. CNA and Affiliates. With respect to any
------------------
Share Percentage which may be held by CNA, CNA shall have the
same rights and powers under this Agreement as would any other
Purchaser and may exercise the same as though it were not the
Agent. CNA and its Affiliates may generally engage in any kind
of business with the Seller or any Insured, any of their
respective Affiliates and any Person who may do business with or
own securities of the Seller or any Insured or any of their
respective Affiliates, all as if CNA were not the Agent and
without any duty to account therefor to any Purchaser.
SECTION 7.04. Purchaser's Purchase Decision. Each
-----------------------------
Purchaser acknowledges that it has, independently and without
reliance upon the Agent or any of its Affiliates and based on
such documents and information as it has deemed appropriate, made
its own evaluation and decision to enter into this Agreement and,
if it so determines, to
<PAGE>
32
purchase Eligible Receivables hereunder. Each Purchaser also
acknowledges that it will, independently and without reliance upon
the Agent or any of its Affiliates and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own decisions in taking or not taking action under this
Agreement.
ARTICLE VIII
ASSIGNMENT OF SHARE PERCENTAGE
SECTION 8.01. Assignment. Each Purchaser may assign
----------
to any Assignee, and any such Assignee may assign to any other
Assignee, such Purchaser's Share Percentage of any Purchased
Receivable owned by it, in whole or in part, and, upon any such
assignment, the Assignee shall become the Purchaser of such Share
Percentage of Purchased Receivables. Such assignments shall be
upon such terms and conditions as the assignor and the Assignee
of such Share Percentage of Purchased Receivables may mutually
agree. The assignor of any Share Percentage of Purchased
Receivables shall deliver to the Assignee an Assignment, duly
executed by such assignor, assigning such Share Percentage of
Purchased Receivables, in whole or in part, to the Assignee
(indicating, in each case whether such assignment is in whole or
in part and the fraction of Share Percentage being assigned), and
such assignor shall promptly execute and deliver all further
instruments and documents, and take all further action, that the
Assignee may reasonably request, in order to perfect, protect or
more fully evidence the Assignee's right, title and interest in
and to such Share Percentage of Purchased Receivables, and to
enable the Assignee to exercise or enforce any rights hereunder
or under the Ownership Documents relating to such Share
Percentage of Purchased Receivables. The Assignee shall promptly
execute and deliver a written undertaking agreeing to the terms
of Section 10.07, which agreement shall survive the termination
of this Agreement or such undertaking. Upon the assignment of
any Share Percentage of Purchased Receivables as described above,
the Assignee thereof shall have all of the rights and obligations
of a Purchaser hereunder with respect to such Share Percentage of
Purchased Receivables. An assignor of a Share Percentage of
Purchased Receivables shall provide notice to the Agent and the
Seller of any assignment of a Share Percentage of Purchased
Receivables by such assignor hereunder, which notice shall state
the Share Percentage of the Assignee's interest and the remaining
Share Percentage, if any, of the assignor's interest. The Agent
and the Seller are entitled to rely conclusively upon such notice
or the absence thereof and shall not be required to treat an
Assignee as a Purchaser in the absence of such notice.
SECTION 8.02. Authorization of Agent. Each of the
----------------------
Purchasers authorizes the Agent to, and the Agent agrees that it
shall, endorse the applicable Ownership Document to reflect any
assignments made pursuant to Section 8.01 or otherwise.
<PAGE>
33
SECTION 8.03. Payments to Agent. Notwithstanding any
-----------------
assignment pursuant to Section 8.01, the Collection Agent may pay
the Agent for the account of each Purchaser, other than the
Initial Purchasers, all amounts owing to such Purchaser, and
neither the Collection Agent nor the Seller shall have any duty
or obligation with respect to the Agent's application of such
amount.
SECTION 8.04. Assignment to Seller. The Purchasers
--------------------
shall assign to the Seller by execution of an Assignment, in
addition to any assignments required pursuant to Section 2.04(d),
such Purchaser's Share Percentage of all Purchased Receivables
that have been deemed to have been collected in full under
Section 2.04(c), or which are the subject of indemnification
under Section 9.01, and such indemnification has been made.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnities by the Seller and the
---------------------------------
Originators. Without limiting any other rights that the Agent,
-----------
the Purchasers or their Affiliates may have hereunder or under
applicable law, the Seller and each Originator hereby agree to
indemnify such Persons and their Affiliates from and against any
and all damages, losses, claims, liabilities and related costs
and expenses, including reasonable attorneys' fees and
disbursements, awarded against or incurred by any of them arising
out of or as a result of:
(i) any Receivable, at the time of the Purchase, not
being an Eligible Receivable;
(ii) its reliance on any representation or warranty
made or deemed made by any Originator or the Seller (or any
of its officers) under or in connection with this Agreement,
any Purchaser Report or any other information or report
delivered by such Originator or the Seller pursuant hereto,
which shall have been false or incorrect in any material
respect when made or deemed made;
(iii) the failure by any Originator or the Seller
to comply with any applicable law, rule or regulation with
respect to any Purchased Receivable, Related Security or the
related Contract, or the nonconformity of any Purchased
Receivable, Related Security or the related Contract with
any such applicable law, rule or regulation;
(iv) the failure to vest in any Purchaser, or to
transfer to any Purchaser, legal and equitable title to, and
ownership of, to the extent of such Purchaser's Share
<PAGE>
34
Percentage, each Purchased Receivable, free and clear of any
and all Adverse Claims and keep the same vested free and
clear of any and all Adverse Claims;
(v) the failure to file, or any delay in filing,
financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any Purchased
Receivable, any Contract or Related Security whether at the
time of any Purchase or at any subsequent time;
(vi) any dispute or claim resulting from the sale of
the insurance related to such Purchased Receivable or the
furnishing or failure to furnish such insurance;
(vii) any failure of any Originator, as Collection
Agent or otherwise, to perform its duties or obligations
including, without limitation, sending invoices to the
pertinent Insured in accordance with Schedule I and the
turnover of amounts pursuant to Section 2.04, in accordance
with the provisions of Article VI;
(viii) the commingling of Collections of Purchased
Receivables at any time with other funds;
(ix) any dispute or offset or Adverse Claim against or
with respect to Purchased Receivables, or any sale, pledge,
or assignment (by operation of law or otherwise) or other
disposition of Collections of Purchased Receivables by the
Seller or any Originator, as Collection Agent or otherwise;
(x) any action or omission by any Originator or any
Affiliate of such Originator, whether as Collection Agent or
otherwise, reducing or impairing the rights of any Purchaser
with respect to any Purchased Receivable or the value of any
Purchased Receivable, including, but not limited to, the
cancellation, extension, amendment, modification, compromise
or settlement of any Purchased Receivable or any term
thereof, the extension, amendment, modification or waiver of
any term or condition of any Contract related thereto, the
sale, pledge or assignment of, or grant of security interest
in, any Purchased Receivable, any change in the character of
its business or in the Credit and Collection Policy, the
commencement or settlement of any legal action to enforce
collection of any Purchased Receivable, the failure to send
the invoice in respect of a Purchased Receivable to the
pertinent Insured in accordance with Schedule I, the failure
to comply with any material provision, covenant or other
promise required to be observed by such Originator under any
Contract related to any Purchased Receivable, the failure to
comply with the Credit and Collection Policy, or the
withdrawal, cancellation or other termination for any reason
of any insurance policy related to any Purchased Receivable
or the failure of
<PAGE>
35
any insurance policy or Contract related to any Purchased
Receivable to be issued or to become effective;
(xi) any failure by an insurance agent to pay to any
Originator, the Seller or the Collection Agent the amount of
any insurance premium or other Collections received from any
Insured;
(xii) any investigation, litigation, or proceeding
related to any use of the proceeds of the Purchase or
related to any acquisition or proposed acquisition by any
Originator, or by any subsidiary of such Originator, of all
or any portion of the stock or substantially all the assets
of any person whether or not the Agent, any Purchaser or any
of their Affiliates is a party thereto; or
(xiii) failure of a Contract to become effective
within 30 days after Purchase.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or
---------------
waiver of any provision of this Agreement nor consent to any
departure by any Originator or the Seller therefrom shall in any
event be effective unless the same shall be in writing and signed
by the Seller, the Agent and the Majority Purchasers, and then
such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent shall,
-------- -------
unless in writing and signed by the Seller, the Agent and all the
Purchasers, do any of the following: (a) waive any of the
conditions specified in Section 3.01 or 3.02, (b) change the
Share Percentage of any Purchaser or subject the Purchasers to
any additional obligations, (c) change the definition of
"Eligible Receivable", "Defaulted Receivable", "Share Percentage"
or "Majority Purchasers", (d) postpone any Settlement Date, (e)
change the Purchasers' Share Percentage of Receivables which
shall be required for the Purchasers or any of them to take any
action hereunder, (f) amend Section 2.04(c), (g) amend this
Section 10.01, (h) amend or release any provision of the
Agreement of the Company in favor of the Agent on behalf of the
Purchasers provided pursuant to Section 3.01(l) herein, or (i)
increase the Collection Agent Fee; and provided, further, that no
-------- -------
amendment, waiver or consent shall, unless in writing and signed
by the Agent in addition to the Seller and the Purchasers
required above to take such action, affect the rights or duties
of the Agent under this Agreement. This Agreement contains a
final and complete integration of all prior expressions by the
parties hereto with respect to the subject matter hereof and
shall constitute the entire agreement among the
<PAGE>
36
parties hereto with respect to the subject matter hereof,
superseding all prior oral or written understandings.
SECTION 10.02. Notices, Etc. All notices and other
------------
communications provided for hereunder shall, unless otherwise
stated herein, be in writing (including telex communication) and
mailed or telexed or delivered, as to each party hereto, at its
address set forth under its name on the signature pages hereof or
at such other address as shall be designated by such party in a
written notice to the other parties hereto; provided, however,
-------- -------
that any such notice or communication to the Seller or any
Originator shall be mailed or delivered to Continental. All such
notices and communications shall be effective, in the case of
written notice, when deposited in the mails, and, in the case of
notice by telex, when telexed against receipt of answer back, in
each case addressed as aforesaid, except that notices and
communications pursuant to Article II shall not be effective
until received. All amounts deposited by the Collection Agent
into such accounts referred to in Section 2.04 shall be deposited
at the offices of such financial institutions designated by each
Initial Purchaser on the signature pages hereof or as notified to
the Agent, or as to each other Purchaser, as designated by such
Purchaser to the Agent.
SECTION 10.03. No Waiver; Remedies. No failure on the
-------------------
part of the Agent or any Purchaser to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 10.04. Binding Effect; Assignability. (a)
-----------------------------
This Agreement shall be binding upon and inure to the benefit of
the Seller, each Originator, the Agent, each Purchaser and their
respective successors and assigns; provided, however, that
-------- -------
neither the Seller nor any Originator shall assign its rights or
obligations hereunder or any interest herein (other than pursuant
to the Intercompany Pooling Agreement, as may be amended) without
the prior written consent of the Agent and all the Purchasers and
provided further that the Agent shall not assign its rights and
-------- -------
obligations hereunder and no other Person shall be appointed in
substitution of the Agent named herein, except in each case such
Person that is (i) an Affiliate (other than an Affiliate that is
a natural person) of an Initial Purchaser or (ii) a commercial
bank organized or licensed in the United States with a combined
capital and surplus of at least $500,000,000 and is approved by
the Seller, which approval shall not be unreasonably withheld.
(b) The following shall be continuing and shall
survive any termination of this Agreement: (i) the rights of any
Purchaser to collect the Outstanding Balance of all Purchased
Receivables, (ii) the rights and remedies of any Purchaser with
respect to any breach of any representation and warranty made by
any Originator pursuant to Article IV or
<PAGE>
37
Section 3.01, (iii) the indemnification provisions of Article IX and
Section 10.06, (iv) the rights of the Agent and the Collection Agent
to be paid the fees, costs and expenses provided for hereunder,
(v) the agreement set forth in Section 10.07, (vi) the right of the
Seller to collect the Holdback Amount from any Purchaser (or such
portion thereof, if any, that the Seller may be entitled to),
(vii) the obligations of the Agent under Section 2.05 and (viii)
the obligations under Section 10.08.
SECTION 10.05. Governing Law. This Agreement shall be
-------------
governed by, and construed in accordance with, the laws of the
State of New York, except to the extent that the perfection of
the interests of any Purchaser in the Receivables, the Related
Security and the Collections, or remedies hereunder in respect
thereof, are governed by the laws of a jurisdiction other than
the State of New York.
SECTION 10.06. Costs, Expenses and Taxes. (a) In
-------------------------
addition to the rights of indemnification granted under Article
IX hereof, the Seller hereby agrees to pay on demand (i) all
costs and expenses in connection with the preparation, execution,
delivery and administration (including periodic auditing) of this
Agreement, the Ownership Documents and other documents in
connection herewith, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent
and the Purchasers as to their respective rights and remedies
under this Agreement, and (ii) all costs and expenses, if any
(including reasonable counsel fees and expenses), incurred by any
Purchaser in connection with the enforcement of this Agreement,
the Ownership Documents and other documents in connection
herewith; provided that nothing in this Section 10.06(a) shall
--------
obligate the Seller or any Originator to pay any Collection Agent
Fees, other costs of collecting the Purchased Receivables or
commissions of the insurance agents of any Originator or costs
with respect to any assignment of the Purchased Receivables by
any Purchaser.
(b) In addition, the Seller hereby agrees to pay any
and all stamp and other taxes and fees payable or determined to
be payable in connection with the execution, delivery, filing,
recording or enforcement of this Agreement, the Ownership
Documents or the other documents to be delivered hereunder
(except with respect to any assignment of Purchased Receivables
delivered hereunder), and agrees to save each Purchaser and the
Agent harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to
pay such taxes and fees; provided that each Purchaser will pay
--------
(or reimburse the Seller or such Originator for) all property,
excise, sales or similar taxes imposed on Purchased Receivables
(except to the extent such taxes are imposed because of the
initial assignment by the Seller of Purchased Receivables).
SECTION 10.07. No Proceedings. The Seller, each
--------------
Originator, each Purchaser and the Agent each hereby agrees that
it will not institute against any Purchaser
<PAGE>
38
that is a Purchaser which primarily engages in the business of
purchasing or accepting assignments or transfers of, or making
secured loans in respect of, accounts receivable, chattel paper or
general intangibles or interests therein or, in the case of each
Purchaser, any other such Purchaser, any proceeding of the type
referred to in clause (i) of Section 10.09(h) so long as any
commercial paper issued by such Purchaser shall be outstanding or
there shall not have elapsed one year plus one day since the last
day on which any such commercial paper shall have been
outstanding. Any provision in this Agreement notwithstanding, no
Purchaser shall have any obligation to make any payments under
this Agreement otherwise than by deducting such amounts from
Collections.
SECTION 10.08. Confidentiality. (a) Unless otherwise
---------------
required by applicable law, the Seller and each Originator agrees
to maintain the confidentiality of this Agreement (and all drafts
thereof) in communications with third parties and otherwise;
provided, however, that this Agreement may be disclosed to third
-------- -------
parties to the extent such disclosure is (i) required in
connection with a sale of securities of such Originator, (ii)
made solely to persons who are legal counsel for the purchaser or
underwriter of such securities, (iii) limited in scope to the
provisions of Articles V and VI, and, to the extent defined terms
are used in Articles V and VI, such terms defined in Article I of
this Agreement and (iv) made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to
the Agent; provided further, however, that the Agreement may be
-------- ------- -------
disclosed to the Seller's accountants and legal counsel retained
in connection with the negotiation, execution and delivery of
this Agreement; and provided further, however, that the Seller
-------- ------- -------
shall have no obligation of confidentiality in respect of any
information which may be generally available to the public or
become available to the public through no fault of the Seller.
(b) Each Purchaser, the Agent and the Collection
Agent, if other than an Originator, each hereby acknowledges that
in connection with this Agreement each Originator will be
required (i) to disclose to the Agent, the Collection Agent, if
other than the Originator, and their respective agents and
representatives certain confidential and proprietary information
relating to such Originator's business activities, including,
without limitation, certain books, lists, records and documents
(including computer tapes and disks) in the possession or under
the control of such Originator relating to the Purchased
Receivables, including, without limitation, the related Contracts
and Related Security, (ii) to allow the Agent or its agents and
representatives to visit the offices of such Originator for the
purpose of examining the materials described in clause (i) above,
and (iii) to allow the Agent or its agents or representatives to
discuss matters relating to Purchased Receivables sold by such
Originator or such Originator's performance hereunder with any of
the responsible officers or employees of such Originator having
knowledge of such matters. Each Purchaser, the Agent and the
Collection Agent, if other than an Originator, each hereby agrees
that (i) it will not disclose and will not permit any of such
agents or representatives to
<PAGE>
39
disclose (other than to its employees, auditors or counsel) any
information with respect to any Originator which is furnished or
delivered pursuant to Section 5.01(c), (ii) it will refrain from
using and will not permit any of such agents or representatives to
use any such information except as permitted by the terms of this
Agreement, and (iii) it will maintain the confidentiality of this
Agreement (and all drafts thereof); provided, however, that each
-------- -------
Purchaser, the Agent or the Collection Agent, if other than an
Originator, and such agents or representatives, may make such
disclosure (A) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal
regulatory body having or claiming to have jurisdiction over it, (B)
as may be required or appropriate in response to any summons or
subpoena or in connection with any litigation, (C) as may be required
by or in order to comply with any law, order, regulation or ruling
(D) as may be required or appropriate to any Assignee or to any
prospective Assignee, (E) as may be required or appropriate to
any rating agency that rates or may rate the securities of any
Purchaser or (F) as may be required or appropriate to any Person
providing credit or liquidity support to a Purchaser, provided
--------
that such a Person providing liquidity support is not also an
insurance company or a member of a group (consisting of such
agency or Person and all of its Affiliates) that is engaged
primarily in the business of underwriting or selling insurance
other than financial guarantors and provided, further, in the
-------- -------
case of any disclosure permitted by clause (D), (E) or (F)
hereof, that any such Assignee, prospective Assignee, rating
agency or Person providing credit or liquidity support agrees to
treat such disclosure confidentially; provided further, however,
-------- ------- -------
that there shall be no obligation of confidentiality in respect
of any information which may be generally available to the public
or become available to the public through no fault of such
Purchaser, the Agent or the Collection Agent, if other than an
Originator, as the case may be.
SECTION 10.09. Trigger Events. If any of the
--------------
following events shall occur and be continuing:
(a) The Collection Agent (if other than the Agent or
its designee) (i) shall fail to perform or observe any term,
covenant or agreement hereunder (other than as referred to
in clause (ii) of this subsection (a)) and such failure
shall remain unremedied for three Business Days or (ii)
shall fail to make any payment or deposit to be made by it
hereunder when due; or
(b) Any Originator shall fail (i) to transfer to the
Agent when requested by the Agent any rights pursuant to
this Agreement which it has as Collection Agent, (ii) to
make any payment required under Section 9.01 or (iii) to
turn over to the Collection Agent the amounts referred to in
Sections 2.04(c)(i), (ii) and (iii); or
(c) Any representation or warranty made or deemed made
by any Originator or the Seller (or any of its officers)
under or in connection with this
<PAGE>
40
Agreement, any Purchaser Report or any other information or
report delivered pursuant hereto shall prove to have been
incorrect in any material respect when made or deemed made;
or
(d) The Seller or any Originator shall fail to perform
or observe any other term, covenant or agreement contained
in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for 10 days
after written notice thereof shall have been given to the
Seller by the Agent at the direction of the Majority
Purchasers; or
(e) Any Originator or any of its subsidiaries shall
fail to pay any principal of or premium or interest on any
Debt which is outstanding in a principal amount of at least
$5,000,000 in the aggregate of such Originator or such
subsidiary (as the case may be), when the same becomes due
and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such
Debt and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the
effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or
any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;
or
(f) An event of default as defined in any agreement,
mortgage, indenture or instrument under which there may be
issued, or by which there may be secured or evidenced any
Debt of the Company whether such Debt now exists or shall
hereafter be created, in a principal amount then outstanding
of $25,000,000 or more, shall occur and shall result in such
Debt of the Company becoming or being declared due and
payable prior to the date on which it would otherwise become
due and payable, and such acceleration shall not be
rescinded or annulled; or
(g) The Purchase of Purchased Receivables pursuant
hereto shall for any reason, except to the extent permitted
by the terms hereof, cease to create legal and equitable
title to, and ownership of, each Purchased Receivable and
the Related Security and Collections with respect thereto;
or any Ownership Document delivered hereunder shall for any
reason cease to evidence the transfer to the owner thereof
of legal and equitable title to, and ownership of, Purchased
Receivables and Related Security to the extent of the
Receivable purchased (or purported to be purchased)
thereunder; or
<PAGE>
41
(h) (i) Any Originator, any of its subsidiaries or
the Company shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be
instituted by or against any Originator or any of its
subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief,
or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property
and, if instituted against any Originator or any of its
subsidiaries, either such proceeding shall not be stayed or
dismissed for 45 days or any of the actions sought in such
proceeding (including, without limitation, the entry of an
order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for
it or for any substantial part of its property) shall occur;
or any person or entity having authority over such
Originator shall commence any delinquency proceeding or
initiate any action or enter any order asserting or seeking
to assert powers of supervision, rehabilitation or
liquidation with respect to such Originator pursuant to
applicable laws; or (ii) any Originator or any of its
subsidiaries shall take any corporate action to authorize
any of the actions set forth in clause (i) above in this
subsection (h); or
(i) There shall have been any material adverse change
in the financial condition or operations of any Originator
or the Company since September 30, 1994; or there shall have
occurred any event which may materially adversely affect the
ability of the Seller to perform its obligations under this
Agreement and the Ownership Documents; or
(j) The agreement referred to in Section 3.01(l) shall
no longer be in full force and effect; or
(k) The Company shall not maintain a long-term senior
debt rating of at least BBB- by Standard & Poor's
Corporation and at least Baa3 by Moody's Investors Service,
Inc;
then, and in any such event, (i) the Agent and each Purchaser
shall have, in addition to the rights and remedies which they may
have under this Agreement or at law, including, without
limitation, the right to require the Collection Agent to
segregate and deposit in each Purchaser's account all amounts
held in trust and the right to replace the Collection Agent, all
other rights and remedies provided under the UCC of the
applicable jurisdiction or jurisdictions and other applicable
laws, which rights shall be cumulative, and (ii) the Seller
<PAGE>
42
shall pay each Purchaser an amount equal to .25% of the then
Outstanding Balance of each Purchaser's Share Percentage of
Purchased Receivables.
SECTION 10.10. Independent Decision. The Seller and
--------------------
each Originator acknowledges that it has, independently and
without reliance upon any Purchaser, the Agent, CNA, any
financial institution designated by any Initial Purchaser on the
signature page hereof or any Affiliate thereof and based upon
such documents and information as it has deemed appropriate, made
its own analysis and decision to enter into this Agreement.
SECTION 10.11. Execution in Counterparts. This
-------------------------
Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature
page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
SELLER: THE CONTINENTAL INSURANCE COMPANY
By Frank Colalucci
---------------------------------
Vice President
180 Maiden Lane, 12th Floor
New York, New York 10038
Attention: Martin D. Haber, Esq.
General Counsel
Telecopy No.: (212) 440-7982
with a copy to:
The Continental Insurance Companies
One Continental Drive
Cranbury, New Jersey 08570
Attention: Mr. Francis M. Colalucci
Vice President
Telecopy No.: (609) 395-5957
<PAGE>
43
BOSTON OLD COLONY INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
THE BUCKEYE UNION INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
CASUALTY INSURANCE COMPANY
By Francis Colalucci
---------------------------------
Vice President
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J.
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
THE CONTINENTAL INSURANCE COMPANY OF
NEW JERSEY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
<PAGE>
44
CONTINENTAL LLOYD'S INSURANCE COMPANY
By Francis Colalucci
---------------------------------
Attorney-in-Fact
CONTINENTAL REINSURANCE CORPORATION
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
FIREMEN'S INSURANCE COMPANY OF NEWARK,
NEW JERSEY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
THE GLENS FALLS INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
<PAGE>
45
KANSAS CITY FIRE AND MARINE INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
THE MAYFLOWER INSURANCE COMPANY, LTD.
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
NATIONAL-BEN FRANKLIN INSURANCE COMPANY
OF ILLINOIS
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
NIAGARA FIRE INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
PACIFIC INSURANCE COMPANY
By J. Heath Fitzsimmons
---------------------------------
Senior Vice President
<PAGE>
46
WORKERS' COMPENSATION AND INDEMNITY COMPANY
OF CALIFORNIA
By Francis Colalucci
---------------------------------
Vice President
<PAGE>
47
AGENT: CITICORP NORTH AMERICA, INC.,
Individually and as Agent
By Bruce B. Clark
---------------------------------
Vice President
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telex No.: TWX 510 600 5528
Answerback: CIC CAF UD
Telecopy No.: (914) 899-7890
<PAGE>
48
PURCHASERS: CORPORATE RECEIVABLES CORPORATION
By CITICORP NORTH AMERICA, INC.,
its Managing Agent
By Bruce B. Clark
---------------------------------
Vice President
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: U.S. Securitization
Telex No.: TWX 510 600 5528
Answerback: CIC CAF UD
Telecopy No.: (914) 899-7890
Account for Deposits:
Bank: Citibank, N.A.
399 Park Avenue
New York, New York 10043
Account Name: Citicorp North America, Inc.,
as managing agent for
Corporate Receivables
Corporation
Account Number: 4056-3414
<PAGE>
49
FALCON ASSET SECURITIZATION CORPORATION
By /s/ Authorized Signor
---------------------------------
Authorized Signor
One First National Plaza
Suite 0596, 21st Floor
Chicago, Illinois 60670
Attention: The Asset-Backed Markets Division
Telecopy No.: (312) 732-4487
Account for Deposits:
Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Account Name: Falcon Asset Securitization
Corporation
Account Number: 51-14810
<PAGE>
50
ATLANTIC ASSET SECURITIZATION CORP.
Credit Lyonnais New York Branch
as Attorney-in-fact for Atlantic Asset
Securitization Corp.
By Barbara Kellc
---------------------------------
Authorized Signor
1301 Avenue of the Americas
20th Floor
New York, NY 10019
Facsimile No.: (212) 459-3258
Attention: Merchant Banking
Barbara Kellc
Account for Deposits:
Bank: Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Account Name: Atlantic Asset Securitization Corp.
Account Number: 01-25680-001-00-001
ABA Number: 0260-0807-3
<PAGE>
51
SHEFFIELD RECEIVABLES CORPORATION
By /s/ James Moore
---------------------------------
Authorized Signor
222 Broadway
New York, New York 10038
Account for Deposits:
Bank: Barclays Bank PLC
75 Wall Street
New York, New York 10065
Account Name: Sheffield Receivables Corporation
Account No.: 050-786393
ABA Number: 026002574
<PAGE>
Schedule I
List of Purchased Receivables*
-----------------------------
Outstanding
Insured Invoice Date Due Date Balance**
------- ------------ -------- -----------
------------
TOTAL
--------------------
* Microfiche records delivered to the Agent and shall be deemed
to be incorporated herein.
** Amounts expressed prior to deduction of commissions payable
to agents of Originators.
<PAGE>
Schedule II
Purchaser Allocations
---------------------
<TABLE><CAPTION>
Amount Amount
Applicable to Applicable to
Amount Amount Atlantic Asset Sheffield
Applicable to Applicable to Securitization Receivables
CRC FALCON Corp. Corporation Total
------------- -------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1. Share Percentage 32.50% 22.50% 22.50% 22.50% 100.00%
2. Outstanding Balance* 153,370,869 106,179,832 106,179,832 106,179,832 471,910,365
3. Agents' commissions 20,882,422 14,457,061 14,457,061 14,457,061 64,253,606
4. Outstanding Balance 132,488,447 91,722,771 91,722,771 91,722,771 407,656,759
net of agents'
commissions
5. Holdback Amount 4,062,500 2,812,500 2,812,500 2,812,500 12,500,000
6. Target Amount 2,902,053 2,009,940 2,005,125 1,972,383 8,889,501
7. Collection Agent 321,065 222,276 222,276 222,276 987,892
Fee Holdback
Amount
8. Cash Purchase Price 125,202,829 86,678,055 86,682,870 86,715,612 385,279,366
</TABLE>
--------------------------------
* Amounts expressed prior to deduction of commissions payable to
agents of Originators.
<PAGE>
Schedule III
------------
Forecasted Collections and
Agents' Commissions
--------------------------
Collections
Net of
Settlement Agents' Agents'
Date Collections Commissions Commissions
---------- ----------- ----------- -----------
01/23/95 35,384,678 5,147,481 30,327,196
02/22/95 94,805,185 12,943,631 81,861,554
03/21/95 78,121,628 10,537,947 67,583,681
04/21/95 68,988,109 9,283,317 59,704,792
05/19/95 55,630,759 7,498,395 48,132,364
06/21/95 43,755,418 5,902,707 37,852,711
07/24/95 32,386,738 4,386,009 28,000,729
08/21/95 33,169,106 4,536,303 28,632,803
09/22/95 15,913,666 2,167,509 13,746,158
10/23/95 9,354,199 1,273,017 8,081,182
11/21/95 3,549,676 469,295 3,080,381
12/21/95 851,203 107,995 743,208
---------- --------- ----------
TOTALS 471,910,365 64,253,606 407,656,758
----------- ---------- -----------
<PAGE>
EXHIBIT D
FORM OF
PURCHASER REPORT*
The Continental Insurance Company
Purchaser Report (including Deemed Collections)
For Purchaser
-------------
For Settlement Date
-------------
Date Prepared
-------------
1. Collections
<TABLE><CAPTION>
Deemed Net
Gross Net Collections** Net Cumulative
Actual Actual Actual (Net of Amount Amount
Settlement Premium Agents' Premium Agents' Collection Remitted to Remitted to
Date Collections Commissions Collections Commissions) Agent Fees Purchaser*** Purchaser***
--------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Forecasted
Cumulative
Collections
per Schedule
III (Net of
Agents' Cumulative
Commissions Variance
and Coll. (Actual vs.
Agent Fees) Forecast)
------------ ------------
</TABLE>
* See Section 2.04(e) of the Agreement for additional instructions.
** Per Clauses (i) and (ii) of Section 2.04(c).
*** Per Section 2.04(b) (actual amounts deposited).
<PAGE>
2. Agings of Purchased Receivables As of Settlement Date
3. Losses of Writeoffs of Purchased Receivables
For the Current
Settlement Period Cumulative
----------------- -----------
4. Purchased Receivables for Which a Loss Provision Exists
The Continental Insurance Company
By
---------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT A
FORM OF
OWNERSHIP DOCUMENT
Dated: December __, 1994
Face Amount: $
Reference is made to the Receivables Purchase and
Sale Agreement dated as of December 15, 1994 (the
"Agreement") among The Continental Insurance Company, Boston
---------
Old Colony Insurance Company, The Buckeye Union Insurance
Company, Casualty Insurance Company, Commercial Insurance
Company of Newark, N.J., The Continental Insurance Company
of New Jersey, Continental Lloyd's Insurance Company,
Continental Reinsurance Corporation, The Fidelity and
Casualty Company of New York, Firemen's Insurance Company of
Newark, New Jersey, The Glens Falls Insurance Company,
Kansas City Fire and Marine Insurance Company, The Mayflower
Insurance Company, Ltd., National-Ben Franklin Insurance
Company of Illinois, Niagara Fire Insurance Company, Pacific
Insurance Company and Workers' Compensation and Indemnity
Company of California (collectively, the "Seller"), the
------
purchasers parties thereto and Citicorp North America, Inc.,
individually and as agent for the purchasers. Terms defined
in the Agreement are used herein as therein defined.
The Seller hereby sells and assigns to [Name of
Purchaser] (the "Purchaser") all right, title and interest,
---------
to the extent of such Purchaser's Share Percentage, in and
to the Eligible Receivables set forth on Schedule I to the
Agreement pursuant to the Agreement.
The Purchaser's Share Percentage of Collections of
Purchased Receivables set forth on Schedule I of the
Agreement shall be recorded in the books and records of the
Purchaser and, prior to any transfer hereof, shall be
endorsed by the Purchaser on the schedule attached hereto
which is a part of this Ownership Document.
This Ownership Document is made without recourse
except as otherwise provided in the Agreement.
This Ownership Document shall be governed by and
construed in accordance with the laws of the State of New
York.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused the
Ownership Document to be duly executed and delivered by its
duly authorized officer as of the date first written above.
THE CONTINENTAL INSURANCE
COMPANY, acting on behalf
of the Seller
By_________________________
Title:
<PAGE>
SCHEDULE
--------
Date of
Purchase Amount of
of Original Reduction Aggregate
Reduction Amount of of Amount of
or Outstanding Outstanding Amount of Outstanding
Assignment Balance Balance Assignment Balance
---------- ----------- ----------- ---------- -----------
<PAGE>
EXHIBIT B
FORM OF
ASSIGNMENT
Assignment dated __________, 19__, made by the
undersigned to __________________ pursuant to the Receivables
Purchase and Sale Agreement dated as of December 15, 1994 (the
"Agreement"; terms defined therein being used herein as therein
---------
defined) among The Continental Insurance Company, Boston Old
Colony Insurance Company, The Buckeye Union Insurance Company,
Casualty Insurance Company, Commercial Insurance Company of
Newark, N.J., The Continental Insurance Company of New Jersey,
Continental Lloyd's Insurance Company, Continental Reinsurance
Corporation, The Fidelity and Casualty Company of New York,
Firemen's Insurance Company of Newark, New Jersey, The Glens
Falls Insurance Company, Kansas City Fire and Marine Insurance
Company, The Mayflower Insurance Company, Ltd., National-Ben
Franklin Insurance Company of Illinois, Niagara Fire Insurance
Company, Pacific Insurance Company and Workers' Compensation and
Indemnity Company of California (collectively, the "Seller"), the
------
purchasers parties thereto and Citicorp North America, Inc.,
individually and as agent for the purchasers.
In consideration of the payment of $_________, receipt
of which payment is hereby acknowledged, the undersigned hereby
assigns to __________________ [all][__%] of its right, title and
interest in and to its Share Percentage of Purchased Receivables
purchased by the undersigned in the Purchase on December __,
1994, under the Agreement.
This Agreement is made without recourse except that the
undersigned hereby represents and warrants that it is the owner
of the Share Percentage referred to above and that it has not
created any Adverse Claim upon or with respect to such Share
Percentage.
This Assignment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has caused this
Assignment to be duly executed and delivered by its duly
authorized officer or agent as of the date first written above.
[NAME OF ASSIGNOR]
By_____________________
Title:
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT E
[FORM OF OPINION OF COUNSEL FOR SELLER AND
EACH ORIGINATOR]
[Date of Initial Purchase]
To each of the Initial Purchasers parties to
the Receivables Purchase and Sale Agreement
dated as of December 15, 1994 among
The Continental Insurance Company and
certain of its affiliates, said Purchasers
and Citicorp North America, Inc., as Agent,
and to Citicorp North America, Inc., as Agent
Gentlemen:
This opinion is furnished to you pursuant to
Section 3.01(h) of the Receivables Purchase and Sale
Agreement dated as of December 15, 1994 (the "Agreement")
---------
among The Continental Insurance Company, Boston Old Colony
Insurance Company, The Buckeye Union Insurance Company,
Casualty Insurance Company, Commercial Insurance Company of
Newark, N.J., The Continental Insurance Company of New
Jersey, Continental Lloyd's Insurance Company, Continental
Reinsurance Corporation, The Fidelity and Casualty Company
of New York, Firemen's Insurance Company of Newark, New
Jersey, The Glens Falls Insurance Company, Kansas City Fire
and Marine Insurance Company, The Mayflower Insurance
Company, Ltd., National-Ben Franklin Insurance Company of
Illinois, Niagara Fire Insurance Company, Pacific Insurance
Company and Workers' Compensation and Indemnity Company of
California (each an "Originator" and collectively the
----------
"Originators"), Corporate Receivables Corporation, Falcon
-----------
Asset Securitization Corporation, Atlantic Asset
Securitization Corp. and Sheffield Receivables Corporation
(each an "Initial Purchaser" and collectively the "Initial
----------------- -------
Purchasers"), and Citicorp North America, Inc. ("CNA"), as
---------- ---
Agent (the "Agent"). Terms defined in the Agreement are
-----
used herein as therein defined.
I have acted as counsel for the Originators in
connection with the preparation, execution and delivery of,
and the Purchase made under, the Agreement.
In that connection, I have examined:
<PAGE>
-2-
(1) The Agreement.
(2) The documents furnished by each Originator
pursuant to Section 3.01 of the Agreement.
(3) The Articles of Incorporation or Certificates
of Incorporation, and all amendments thereto (the
"Charter"), of each Originator (other than Continental
-------
Lloyd's Insurance Company) and the Articles of Agreement
(the "Articles") of Continental Lloyd's Insurance Company.
--------
(4) The by-laws, and all amendments thereto (the
"By-laws"), of each Originator (other than Continental
-------
Lloyd's Insurance Company).
(5) With respect to the opinion in paragraph 7
relating to the filing of Financing Statements, I have
relied on the acknowledgement copies of the Financing
Statements and, in the case of Financing Statements filed
wit the Secretary of State of the State of New York, time
stamped copies of the Financing Statements, under the
Uniform Commercial Code (the "UCC") as in effect in the
---
States of New York, Texas an Illinois, naming the respective
Originators as assignor and CNA, as Agent, as assignee,
which Financing Statements have been filed in the filing
offices listed in Exhibit A hereto located in the respective
states listed in Exhibit A hereto.
In addition, I have examined the originals, or
copies certified to my satisfaction, of such other corporate
records of the Originators, certificates of public officials
and of officers of the Originators and agreements,
instruments and documents, as I have deemed necessary as a
basis for the opinion hereinafter expressed. As to
questions of fact material to such opinions, I have, when
relevant facts were not independently established by me,
relied upon certificates of the Originators or their
respective officers or of public officials.
To the extent that the obligations of the
Originators may be dependent upon such matters, I have
assumed for purposes of this opinion that each of the
Purchasers and the Agent have been duly organized, have the
general power and authority to execute and perform the
Agreement and have duly authorized the Agreement, and that
the Agreement has been duly executed and delivered by them.
Based upon the foregoing and my examination of
such questions of law as I have deemed necessary or
appropriate for purposes of this opinion, I am of the
following opinion:
1. Each Originator has been duly organized or,
in the case of Continental Lloyd's Insurance Company, duly
formed, and is validly existing and in good standing
<PAGE>
-3-
under the laws of the state of its incorporation or, in the
case of Continental Lloyd's Insurance Company, the state of
its formation, and is duly qualified to do business, and is
in good standing, in every jurisdiction where the failure to
so qualify would materially adversely affect such
Originator's condition, financial or otherwise, operations
and prospects.
2. The execution, delivery and performance by
each Originator of the Agreement and the Ownership Documents
and all other instruments and documents to be delivered by
the Originators under the Agreement, and the transactions
contemplated thereby, are within such Originator's corporate
powers, have been duly authorized by all necessary corporate
action, and (a) do not contravene (i) the Charter, By-laws
or Articles of Agreement of such Originator, (ii) any law,
rule or regulation applicable to such Originator, (iii) any
contractual restriction contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond,
note or other agreement or instrument binding on such
Originator or (iv) any order, writ, judgment, award,
injunction or decree binding on such Originator or affecting
its property, (b) do not result in or require the creation
of any lien, security interest or other charge or
encumbrance upon or with respect to any of such Originator's
properties (except as may be specifically contemplated in
the Agreement), and (c) do not require compliance with any
bulk sales act or similar law. The Agreement and the
Ownership Documents have been duly executed and delivered on
behalf of each Originator.
3. No authorization, approval, consent or other
action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by any Originator of the
Agreement and the Ownership Documents or any other document
or instrument to be delivered by it thereunder or for the
perfection of or the exercise by the Agent or any of the
Initial Purchasers of their respective rights and remedies
under the Agreement and the Ownership Documents, except for
------
the Financing Statements referred to in Section 3.01(e) of
the Agreement and the consent of the Investor referred to in
Section 3.01(o) of the Agreement.
4. The Agreement is the legal, valid and binding
obligation and act of each Originator, enforceable in
accordance with its terms. Each of the Ownership Documents,
when executed and delivered under the Agreement, will be the
legal, valid and binding obligation and act of such
Originator, enforceable in accordance with its terms, and
will evidence the transfer to the applicable Initial
Purchaser thereof of legal and equitable title to, and
ownership of, to the extent of such Purchaser's Share
Percentage, the Purchased Receivables.
5. To the best of my knowledge, there is no
pending or threatened action, suit or proceeding, or order,
writ, judgment, award, injunction or decree, against or
<PAGE>
-4-
affecting any Originator or any of its subsidiaries before
any court, governmental agency or arbitrator which may
materially adversely affect either the financial condition
or operations of such Originator or such Originator and its
subsidiaries taken as a whole or the ability of such
Originator to perform its obligations under the Agreement or
the Ownership Documents. No Originator nor any of its
subsidiaries is in default with respect to any order of any
court, arbitrator or governmental body except for defaults
with respect to orders of governmental agencies which
defaults are not material to such Originator or to the
business or operations of such Originator and its
subsidiaries, taken as a whole.
6. Upon the Purchase, the Initial Purchasers
shall acquire legal and equitable title to, and ownership
of, to the extent of their respective Share Percentages,
each Receivable listed on Schedule I to the Agreement and
the Related Security and Collections with respect thereto
free and clear of any Adverse Claims. I have assumed for
purposes of this paragraph that no effective financing
statement or other instrument similar in effect covering any
Purchased Receivable or the Related Security or Collections
with respect thereto is on file in any recording office
except for the Financing Statements referred to in Section
3.01(e) of the Agreement.
7. The Financing Statements are in appropriate
form and have been duly filed pursuant to the UCC of the
States of New York, Texas and Illinois evidencing the legal
and equitable title to, and ownership of, the Purchased
Receivables, subject to the following:
(a) in the case of non-identifiable cash
proceeds, continuation of perfection of the interest in
the Purchased Receivables is limited to the extent set
forth in section 9-306 of the UCC; and
(b) Article 9 of the UCC requires the filing of
continuation statements within the period of six months
prior to the expiration of five years from the date of
the original filings, in order to maintain the
effectiveness of the filings referred to in this
paragraph.
8. Each Purchased Receivable is assignable under
applicable law, and is not subject to any restriction or
limitation upon assignment under the Contract relating
thereto.
9. The Intercompany Pooling Agreement
constitutes the legal, valid and binding obligation of each
Originator enforceable against such Originator in accordance
with its terms. Pursuant to the Intercompany Pooling
Agreement, each Originator (i) has purchased and,
immediately prior to the Purchase, owns a discrete
participation and percentage interest in each Purchased
Receivable and (ii) together with each other
<PAGE>
-5-
Originator, is, immediately prior to the Purchase, the owner
of such Purchased Receivables in their entirety.
The opinions set forth above are subject to the
following qualifications:
(a) The enforceability of each Originator's
obligations under the Agreement and the Ownership Documents
is subject (i) to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium, and other similar
laws relating to or affecting creditors', policy holders' or
claimants' rights generally and (ii) to general principles
of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(b) I express no opinion as to priority as
against any claim or lien in favor of the United States or
any agency or instrumentality thereof (including, without
limitation, federal tax liens and liens under Title IV of
the Employee Retirement Income Security Act of 1974, as
amended).
(c) I have not consulted with local counsel in
any jurisdiction, and, as a member of the Bar of the State
of New York, I do not purport to be an expert in the law of
any other jurisdiction which might be involved. However, I
have reviewed the Uniform Commercial Code of all
jurisdictions which might be involved as presented in
standard compilations of such laws.
Very truly yours,
<PAGE>
EXHIBIT E-1
[FORM OF OPINION OF COUNSEL FOR THE COMPANY]
[Date of Initial Purchase]
To each of the Initial Purchasers parties to
the Receivables Purchase and Sale Agreement
dated as of December 15, 1994 among
The Continental Insurance Company and
certain of its affiliates, said Purchasers
and Citicorp North America, Inc., as Agent,
and to Citicorp North America, Inc., as Agent
Gentlemen:
This opinion is furnished to you pursuant to
Section 3.01(h) of the Receivables Purchase and Sale
Agreement dated as of December 15, 1994 (the "Agreement")
---------
among The Continental Insurance Company, Boston Old Colony
Insurance Company, The Buckeye Union Insurance Company,
Casualty Insurance Company, Commercial Insurance Company of
Newark, N.J., The Continental Insurance Company of New
Jersey, Continental Lloyd's Insurance Company, Continental
Reinsurance Corporation, The Fidelity and Casualty Company
of New York, Firemen's Insurance Company of Newark, New
Jersey, The Glens Falls Insurance Company, Kansas City Fire
and Marine Insurance Company, The Mayflower Insurance
Company, Ltd., National-Ben Franklin Insurance Company of
Illinois, Niagara Fire Insurance Company, Pacific Insurance
Company and Workers' Compensation and Indemnity Company of
California (each an "Originator" and collectively the
----------
"Originators"), Corporate Receivables Corporation, Falcon
-----------
Asset Securitization Corporation, Atlantic Asset
Securitization Corp. and Sheffield Receivables Corporation
(each an "Initial Purchaser" and collectively the "Initial
----------------- -------
Purchasers"), and Citicorp North America, Inc., as Agent
----------
(the "Agent"). Terms defined in the Agreement are used
-----
herein as therein defined.
I have acted as counsel for The Continental
Corporation (the "Company") in connection with the prepara-
-------
tion, execution and delivery of the agreement of the Company
dated the date hereof in favor of the Agent for the
Purchasers (the "Company Agreement").
-----------------
In that connection, I have examined:
(1) The Agreement and the Company Agreement.
<PAGE>
2
(2) The Certificate of Incorporation, and all
amendments thereto (the "Charter"), of the Company.
-------
(3) The by-laws, and all amendments thereto (the
"By-laws"), of the Company.
-------
In addition, I have examined the originals, or
copies certified to my satisfaction, of such other corporate
records of the Company, certificates of public officials and
of officers of the Company, and agreements, instruments and
documents, as I have deemed necessary as a basis for the
opinions hereinafter expressed. As to questions of fact
material to such opinions, I have, when relevant facts were
not independently established by me, relied upon certifi-
cates of the Company or their respective officers or of
public officials.
To the extent that the obligations of the Company
may be dependent upon such matters, I have assumed for
purposes of this opinion that each of the Purchasers and the
Agent have been duly organized, have the general power and
authority to execute and perform the Agreement and have duly
authorized the Agreement, and that the Agreement has been
duly executed and delivered by them.
Based upon the foregoing and my examination of
such questions of law as I have deemed necessary or appro-
priate for purposes of this opinion, I am of the following
opinion:
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of New York and is duly qualified to do business, and
in good standing, in every jurisdiction where the failure to
so qualify would materially adversely affect the Company's
condition, financial or otherwise, operations or prospects.
2. The execution, delivery and performance by
the Company of the Company Agreement and all other
instruments and documents to be delivered by the Company
thereunder, and the transactions contemplated thereby, are
within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and (a) do not
contravene (i) the Charter or By-laws of the Company,
(ii) any law, rule or regulation applicable to the Company,
(iii) any contractual restriction contained in any
indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note, or other agreement or
<PAGE>
3
instrument binding on the Company or (iv) any order, writ,
judgment, award, injunction or decree binding on the Company
or affecting its property, and (b) do not result in or
require the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of the
Company's properties. The Company Agreement has been duly
executed and delivered by the Company.
3. No authorization, approval, consent or other
action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execu-
tion, delivery and performance by the Company of the Company
Agreement or any other document or instrument to be
delivered by it thereunder except for the consent of the
------
Investor referred to in Section 3.01(o) of the Agreement.
4. The Company Agreement is the legal, valid and
binding agreement of the Company enforceable against the
Company in accordance with its terms.
5. The Company or a wholly owned subsidiary of
the Company is the registered and beneficial direct or
indirect owner of all of each class of the issued and
outstanding shares of the capital stock of each Originator,
other than Continental Lloyd's Insurance Company. The
Company or a wholly owned subsidiary of the Company is the
beneficial direct or indirect owner of all of the interests
in Continental Lloyd's Insurance Company.
6. To the best of my knowledge after due
inquiry, there is no pending or threatened action, suit or
proceeding, or order, writ, judgment, award, injunction or
decree, against or affecting the Company or any of its sub-
sidiaries before any court, governmental agency or arbi-
trator which may materially adversely affect either the
financial condition or operations of the Company or the
Company and its subsidiaries taken as a whole or the ability
of the Company to perform its obligations under the Company
Agreement. Neither the Company nor any of its subsidiaries
is in default with respect to any order of any court, arbi-
trator or governmental body except for defaults with respect
to orders of governmental agencies which defaults are not
material to the Company or to the business or operations of
the Company and its subsidiaries, taken as a whole.
In addition, I have acted as counsel for the
Originators with respect to certain matters involving the
Securities Act of 1933 and the Investment Company Act of
<PAGE>
4
1940. In that connection, I have examined the Agreement and
such legal authorities as I deemed necessary or appropriate
for the purposes of this opinion. Based on the foregoing, I
am of the opinion that:
The transactions in which the Receivables
constituting the Purchased Receivables were created and
acquired by the Originators constituted "current trans-
actions" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended. The Receivables
constituting the Purchased Receivables are "notes,
drafts, acceptances, open accounts receivable or other
obligations representing part or all of the sales price
of merchandise, insurance or services" within the
meaning of Section 3(c)(5) of the Investment Company
Act of 1940, as amended.
The opinion set forth in paragraph 4 above as to
the enforceability of the Company's obligations under the
Company Agreement is subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, mora-
torium or other similar law relating to or affecting
creditors', policy holders' or claimants' rights generally
and (ii) general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity
or at law.
Very truly yours,
<PAGE>
EXHIBIT E-2
[FORM OF OPINION OF COUNSEL FOR SELLER AND
EACH ORIGINATOR]
[Date]
To each of the Initial Purchasers parties to
the Receivables Purchase and Sale Agreement
dated as of December 15, 1994 among
The Continental Insurance Company and
certain of its affiliates, said Purchasers,
and Citicorp North America, Inc., as Agent,
and to Citicorp North America, Inc., as Agent
Gentlemen:
This opinion is furnished to you pursuant to
Section 3.02 of the Receivables Purchase and Sale Agreement
dated as of December 15, 1994 (the "Agreement") among The
---------
Continental Insurance Company, Boston Old Colony Insurance
Company, The Buckeye Union Insurance Company, Casualty
Insurance Company, Commercial Insurance Company of Newark,
N.J., The Continental Insurance Company of New Jersey,
Continental Lloyd's Insurance Company, Continental
Reinsurance Corporation, The Fidelity and Casualty Company
of New York, Firemen's Insurance Company of Newark, New
Jersey, The Glens Falls Insurance Company, Kansas City Fire
and Marine Insurance Company, The Mayflower Insurance
Company, Ltd., National-Ben Franklin Insurance Company of
Illinois, Niagara Fire Insurance Company, Pacific Insurance
Company and Workers' Compensation and Indemnity Company of
California (each an "Originator" and collectively the
----------
"Originators"), Corporate Receivables Corporation, Falcon
-----------
Asset Securitization Corporation, Atlantic Asset
Securitization Corp. and Sheffield Receivables Corporation
(each an "Initial Purchaser" and collectively the "Initial
----------------- -------
Purchasers"), and Citicorp North America, Inc. ("CNA"), as
---------- ---
Agent (the "Agent"). Terms defined in the Agreement are
-----
used herein as therein defined.
I have acted as counsel for the Originators in
connection with the preparation, execution and delivery of,
and the Purchase made under, the Agreement.
In that connection, I have examined:
(1) The Agreement.
<PAGE>
2
(2) The documents furnished by each Originator
pursuant to Section 3.01 of the Agreement.
(3) Acknowledgement copies of financing
statements (the "Financing Statements") under the Uniform
--------------------
Commercial Code (the "UCC") as in effect in the States of
---
New York, Texas and Illinois, naming the respective
Originators as assignor and CNA, as Agent, as assignee,
which Financing Statements have been filed in the filing
offices listed in Schedule I hereto located in the
respective states listed in Schedule I hereto.
(4) Certificates from Intercounty Clearance
Corporation as to copies of the Financing Statements on file
in the filing offices listed in Schedule I hereto located in
the respective states listed in Schedule I hereto.
In addition, I have examined the originals, or
copies certified to my satisfaction, of such other corporate
records of the Originators, certificates of public officials
and of officers of the Originators, and agreements, instru-
ments and documents, as I have deemed necessary as a basis
for the opinions hereinafter expressed. As to questions of
fact material to such opinions, I have, when relevant facts
were not independently established by me, relied upon
certificates of the Originators or their respective officers
or of public officials.
To the extent that the obligations of the
Originators may be dependent upon such matters, I have
assumed for purposes of this opinion that each of the
Initial Purchasers and the Agent have been duly organized,
have the general power and authority to execute and perform
the Agreement and have duly authorized the Agreement, and
that the Agreement has been duly executed and delivered by
them.
Based upon the foregoing and my examination of
such questions of law as I have deemed necessary or
appropriate for purposes of this opinion, I am of the
following opinion:
1. At the Purchase, the Initial Purchasers
acquired legal and equitable title to, and ownership of, to
the extent of their respective Share Percentages, each
Receivable listed on Schedule I to the Agreement and the
Related Security and Collections with respect thereto free
and clear of any Adverse Claim. Based upon an examination
of the search reports referred to in Section 3.02(i) of the
Agreement, no effective financing statement or other instru-
ment similar in effect covering any Purchased Receivable or
the Related Security or Collections with respect thereto is
on file in any recording office except for the filings
referred to in paragraph 2 below.
<PAGE>
3
2. The Financing Statements are in appropriate
form and have been duly filed pursuant to the UCC of the
States of New York, Texas and Illinois, evidencing the
exclusive legal and equitable title to, and ownership of,
the Purchased Receivables, except as follows:
(a) in the case of non-identifiable cash
proceeds, continuation of perfection of the interest in
the Purchased Receivables is limited to the extent set
forth in Section 9-306 of the UCC; and
(b) Article 9 of the UCC requires the filing
of continuation statements within the period of six
months prior to the expiration of five years from the
date of the original filings, in order to maintain the
effectiveness of the filings referred to in this
paragraph.
The opinions set forth above are subject to the
following qualifications:
(a) The enforceability of each Originator's
obligations under the Agreement and the Ownership Documents
is subject to (i) the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally
and (ii) general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity
or at law.
(b) I express no opinion as to priority as
against any claim or lien in favor of the United States or
any agency or instrumentality thereof (including, without
limitation, federal tax liens and liens under the Title IV
of the Employee Retirement Income Security Act of 1974, as
amended).
(c) I have not consulted with local counsel in
any jurisdiction, and, as a member of the Bar of the State
<PAGE>
4
of New York, I do not purport to be an expert in the law of
any other jurisdiction which might be involved. However, I
have reviewed the Uniform Commercial Code of all jurisdic-
tions which might be involved as presented in standard
compilations of such laws.
Very truly yours,
<PAGE>
Exhibit F
LIST OF OFFICES OF EACH ORIGINATOR
WHERE RECORDS ARE KEPT
<PAGE>
Exhibit F
Northeast Region Great Lakes Region/MOAC
---------------- -----------------------
Continental Insurance Continental Insurance
333 Glen Street 200 South Wacker Dr.
Glens Falls, N.Y. 12801 Chicago, Illinois 60606
New York Kansas
Vermont Missouri
New Hampshire Nebraska
Maine North Dakota
Massachusetts Oklahoma
Rhode Island Montana
Connecticut Idaho
Wyoming
Mid-Atlantic Region Utah
------------------- New Mexico
Arizona
Continental Insurance Colorado
2401 Pleasent Valley Road Illinois
York, PA 17402 Wisconsin
New Jersey Minnesota
Pennsylvania South Dakota
West Virginia Iowa
Maryland
Virginia
District of Columbia Gulf Coast Region
-----------------
Midwest Region Continental Insurance
--------------
600 N. Pearl Street
Continental Insurance Dallas, TX 75201
1111 E. Broad Street Texas
Columbus, OH 43205-1303 Louisana
Georgia Mississippi
Ohio Arkansas
Indiana California
Michigan Washington
Kentucky Oregon
Tennessee Nevada
South Carolina Alaska
North Carolina Hawaii
Alabama
Florida
2
<PAGE>
Special Operations
Special Risk/CE&S/CHC
---------------------
Continental Insurance
180 Maiden Lane
New York, NY 10038
Special Operations/MOAC
-----------------------
Continental Insurance
1 Continental Drive
Cranbury, NJ 08570
3
<PAGE>
EXHIBIT G
AGREEMENT, dated as of December 15, 1994, made by
THE CONTINENTAL CORPORATION, a New York corporation (the
"Company"), in favor of CITICORP NORTH AMERICA, INC., a
-------
Delaware corporation, as Agent (the "Agent") for the
-----
Purchasers (as defined in the Preliminary Statements below).
PRELIMINARY STATEMENTS
(1) The Continental Insurance Company, Boston Old
Colony Insurance Company, The Buckeye Union Insurance Com-
pany, Casualty Insurance Company, Commercial Insurance Com-
pany of Newark, N.J., The Continental Insurance Company of
New Jersey, Continental Lloyd's Insurance Company, Conti-
nental Reinsurance Corporation, The Fidelity and Casualty
Company of New York, Firemen's Insurance Company of Newark,
New Jersey, The Glens Falls Insurance Company, Kansas City
Fire and Marine Insurance Company, The Mayflower Insurance
Company, Ltd., National-Ben Franklin Insurance Company of
Illinois, Niagara Fire Insurance Company, Pacific Insurance
Company and Workers' Compensation and Indemnity Company of
California (each an "Originator" and collectively the "Ori-
---------- ----
ginators" or the "Seller"), each a direct or indirect sub-
-------- ------
sidiary of the Company, has entered into a Receivables Pur-
chase and Sale Agreement dated as of December 15, 1994 (the
"Agreement"; the terms defined therein and not otherwise
---------
defined herein being used herein as therein defined), pur-
suant to which the Seller will sell Eligible Receivables to
Corporate Receivables Corporation ("CRC"), Falcon Asset
---
Securitization Corporation ("FALCON"), Atlantic Asset Secu-
------
ritization Corp. ("ATLANTIC") and Sheffield Receivables
--------
Corporation ("Sheffield"), collectively with CRC, FALCON,
---------
ATLANTIC and any Person that may become an Assignee under
the Agreement pursuant to Section 8.01 of the Agreement,
being the "Purchasers" and, individually, a "Purchaser").
---------- ---------
The Agent is acting as agent under the Agreement for the
Purchasers.
(2) It is a condition precedent to the Purchase
of the Purchased Receivables under the Agreement that the
Company, as the beneficial owner of all of the outstanding
shares of stock of each Originator other than Continental
Lloyd's Insurance Company, and as the beneficial owner of
all of the interests in Continental Lloyd's Insurance Com-
pany, shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises
and in order to induce the Initial Purchasers to make Pur-
<PAGE>
chases under the Agreement, the Company hereby agrees as
follows:
SECTION 1. Unconditional Undertaking; Enforce-
-----------------------------------
ment. (a) The Company hereby unconditionally and irrevo-
----
cably undertakes and agrees with and for the benefit of the
Purchasers and the Agent to cause the due and punctual per-
formance and observance by the Seller and its successors and
assigns of all of the terms, covenants, conditions, agree-
ments and undertakings on the part of the Seller (whether as
Seller, Collection Agent or otherwise) to be performed or
observed under the Agreement or any document delivered in
connection with the Agreement in accordance with the terms
thereof, including, without limitation, any agreement of the
Seller to pay any money under the Agreement or any such
other document (all such terms, covenants, conditions,
agreements and undertakings on the part of the Seller to be
performed or observed being collectively called the "Seller
------
Obligations"). In the event that the Seller shall fail in
-----------
any manner whatsoever to perform or observe any of the Sel-
ler Obligations when the same shall be required to be per-
formed or observed under the Agreement or any such other
document, then the Company will itself duly and punctually
perform or observe, or cause to be duly and punctually per-
formed or observed, such Seller Obligation, and it shall not
be a condition to the accrual of the obligation of the Com-
pany hereunder to perform or observe any Seller Obligation
(or to cause the same to be performed or observed) that the
Purchasers or the Agent shall have first made any request of
or demand upon or given any notice to the Company or to the
Seller or their respective successors or assigns, or have
instituted any action or proceeding against the Company or
the Seller or their respective successors or assigns in
respect thereof.
(b) The Purchasers and the Agent may proceed to
enforce the obligations of the Company under this Section 1
without first pursuing or exhausting any right or remedy
which the Purchasers or the Agent may have against the Sel-
ler, any other Person or with respect to the Purchased Re-
ceivables.
SECTION 2. Obligation Absolute. The Company will
-------------------
perform its obligations under this Agreement regardless of
any law, rule, regulation or order now or hereafter in ef-
fect in any jurisdiction affecting any of the terms of the
Agreement or any document delivered in connection with the
Agreement or the rights of the Purchasers or the Agent with
2
<PAGE>
respect thereto. The obligations of the Company under this
Agreement shall be absolute and unconditional irrespective
of:
(i) any lack of validity or enforceability
of the Agreement, any Ownership Document or any docu-
ment or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place
of performance of, or in any other term or, all or any
of the Seller Obligations, or any other amendment or
waiver of or any consent to departure from the Agree-
ment, any Ownership Document or any document or any
other agreement or instrument relating thereto;
(iii) any exchange, release or failure to
transfer title to the Purchased Receivables, or any
release or amendment or waiver of or consent to depar-
ture from any other guaranty, for all or any of the
Seller's Obligations;
(iv) any failure to obtain any authorization
or approval from or other action by, or to notify or
file with, any governmental authority or regulatory
body required in connection with the performance of
such obligations by the Company;
(v) any impossibility or impracticality of
performance, illegality, force majeure, any act of any
government, or any other circumstance which might con-
stitute a defense available to, or a discharge of, the
Seller or the Company, or any other circumstance, event
or happening whatsoever, whether foreseen or unforeseen
and whether similar or dissimilar to anything referred
to above in this Section; or
(vi) any disposition of the stock of any
Originator.
This Agreement shall continue to be effective or be rein-
stated, as the case may be, if at any time any payment by
the Seller under the Agreement or any document delivered in
connection with the Agreement is rescinded or must otherwise
be returned by any Purchaser or the Agent upon the insol-
vency, bankruptcy or reorganization of any Originator or
otherwise, all as though such payment had not been made.
The obligations of the Company under this Agreement shall
3
<PAGE>
not be subject to reduction, termination or other impairment
by reason of any set-off, recoupment, counterclaim or de-
fense or for any other reason. The obligations of the Com-
pany under this Agreement shall not be discharged except by
performance as herein provided.
SECTION 3. Waiver. The Company hereby waives
------
promptness, diligence, notice of acceptance and any other
notice with respect to any of the Seller Obligations and
this Agreement, the Agreement, the Ownership Documents and
any other document related thereto and any requirement that
any Purchaser or the Agent exhaust any right or take any
action against the Seller, any other Person or with respect
to any Purchased Receivable.
SECTION 4. Subrogation. The Company will not
-----------
exercise or assert any rights which it may acquire by way of
subrogation under this Agreement unless and until all of the
Seller Obligations shall have been paid and performed in
full. If any payment shall be made to the Company on ac-
count of any subrogation rights at any time when all of the
Seller Obligations shall not have been paid and performed in
full, each and every amount so paid will be held in trust
for the benefit of the Purchasers and forthwith be paid to
the Agent to be credited and applied to the Seller Obliga-
tions to the extent then unsatisfied, in accordance with the
terms of the Agreement or any document delivered in connec-
tion with the Agreement, as the case may be. In the event
that (i) the Company shall have satisfied any of the Seller
Obligations and (ii) all of the Seller Obligations shall
have been paid and performed in full, the Agent will, at the
Company's request and expense, execute and deliver to the
Company appropriate documents, without recourse and without
representation or warranty of any kind, necessary to evi-
dence or confirm the transfer by way of subrogation to the
Company of the rights of the Purchasers or the Agent, as the
case may be, with respect to the Seller Obligations to which
the Company shall have become entitled by way of subroga-
tion, and thereafter the Purchasers and the Agent shall have
no responsibility to the Company or any other Person with
respect thereto.
SECTION 5. Representations and Warranties of the
-------------------------------------
Company. The Company hereby represents and warrants as
-------
follows:
(a) The Company is a corporation duly orga-
nized, validly existing and in good standing under the
4
<PAGE>
laws of the jurisdiction named at the beginning of this
Agreement and is duly qualified to do business, and in
good standing, in every jurisdiction where the failure
to so qualify would materially adversely affect the
Company's condition, financial or otherwise, operations
or prospects.
(b) The execution, delivery and performance
by the Company of this Agreement and the other instru-
ments and documents to be delivered by it in connection
herewith, and the transactions contemplated hereby, are
within the Company's corporate powers, have been duly
authorized by all necessary corporate action, do not
contravene (i) the Company's charter or by-laws, (ii)
any law, rule or regulation applicable to the Company,
(iii) any contractual restriction contained in any
indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note, or other agreement or
instrument binding on the Company or affecting its
property or (iv) any order, writ, judgment, award,
injunction or decree binding on the Company or affect-
ing its property, and do not result in or require the
creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its pro-
perties; and no transaction contemplated hereby re-
quires compliance with any bulk sales act or similar
law. This Agreement has been duly executed and deli-
vered by the Company.
(c) No authorization or approval or other
action by, and no notice to or filing with, any govern-
mental authority or regulatory body or any other third
party (including, without limitation, the Investor or
any of its Affiliates) is required for the due execu-
tion, delivery and performance by the Company of this
Agreement or any other document or instrument to be
delivered in connection herewith except for the consent
------
of the Investor referred to in Article III of the
Agreement, which, at the time required in Article III,
shall have been duly made and shall be in full force
and effect.
(d) This Agreement is the legal, valid and
binding agreement of the Company enforceable against
the Company in accordance with its terms.
(e) The Company is the registered and bene-
ficial direct or indirect owner of all of each class of
5
<PAGE>
the issued and outstanding shares of the capital stock
of each Originator, other than Continental Lloyd's
Insurance Company. All of the interests in Continental
Lloyd's Insurance Company are directly or indirectly
beneficially owned by the Company.
(f) There are no actions, suits or proceed-
ings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any
subsidiary, or the property of the Company or of any
subsidiary, in any court, or before any arbitrator of
any kind, or before or by any governmental body, which
may materially adversely affect either the financial
condition or operations of the Company or the Company
and its subsidiaries taken as a whole or the ability of
the Company to perform its obligations hereunder.
Neither the Company nor any subsidiary is in default
with respect to any order of any court, arbitrator or
governmental body except for defaults, if any, with
respect to orders of governmental agencies which de-
faults are not material to the business or operations
of the Company or any subsidiary.
(g) The consolidated balance sheet of the
Company and its consolidated subsidiaries as at
December 31, 1993, and the related consolidated state-
ments of income and retained earnings of the Company
and its consolidated subsidiaries for the fiscal year
then ended, in each case certified by KPMG Peat
Marwick, independent public accountants, and the con-
solidated balance sheet of the Company and its consoli-
dated subsidiaries as at September 30, 1994, and the
related consolidated statements of income and retained
earnings of the Company and its consolidated subsidi-
aries for the nine-month period then ended, in each
case certified by the controller or other appropriate
officer of the Company, copies of which have been fur-
nished to the Agent, fairly present the consolidated
financial condition of the Company and its consolidated
subsidiaries as at such date and the consolidated re-
sults of the operations of the Company and its consoli-
dated subsidiaries for the period ended on such date,
all in accordance with generally accepted accounting
principles consistently applied, and since December 31,
1993, there has been no material adverse change in such
condition or operations.
6
<PAGE>
(h) The Company has received $275 million in
cash from the Investor (or a wholly owned subsidiary
thereof) as payment for the issuance by the Company of
shares of its Series F Preferred Stock, Series H Pre-
ferred Stock and Series T Preferred Stock (such Series
F Preferred Stock, Series H Preferred Stock and Series
T Preferred Stock being, collectively, the "Preferred
---------
Stock") pursuant to the Securities Purchase Agreement
-----
(the "Securities Purchase Agreement") dated as of De-
-----------------------------
cember 6, 1994 between the Company and the Investor
attached as an exhibit to the Current Report (the "Cur-
----
rent Report") on Form 8-K dated December 9, 1994 of the
-----------
Company filed with the Securities and Exchange Commis-
sion. The Current Report, including all exhibits
thereto, and the other information furnished by or on
behalf of the Company with respect to the transactions
described in the Current Report do not contain any
untrue statement of a material fact or fail to state a
material fact necessary to make the statements made
therein not misleading.
(i) No authorization or approval or other
action by any governmental authority or regulatory body
was required for the valid issuance by the Company of
the Preferred Stock.
(j) No "specified corporate action" (as
defined on the date hereof in the Certificate of Amend-
ment of the Certificate of Incorporation of the Company
attached as Exhibit A to the Securities Purchase Agree-
ment) has occurred on or prior to the date hereof.
SECTION 6. Covenants. Until the date on which
---------
all of the Seller Obligations shall have been fully satis-
fied, the Company will, unless the Agent at the direction of
the Majority Purchasers shall have otherwise consented in
writing:
(a) Compliance with Laws, Etc. Comply in
-------------------------
all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business
and properties, the non-compliance with which would
materially adversely affect it, its business and pro-
perties.
(b) Preservation of Corporate Existence.
-----------------------------------
Preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its
7
<PAGE>
incorporation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction
where the failure to preserve and maintain such exis-
tence, rights, franchises, privileges and qualification
would materially adversely affect the interests of any
Purchaser or the Agent under the Agreement or the abi-
lity of the Company to perform its obligations under
this Agreement.
(c) Reporting. Furnish to the Agent, each
---------
Initial Purchaser and each Purchaser holding a Share
Percentage of at least 25%:
(i) as soon as available and in any
event within 60 days after the end of each of
the first three quarters of each fiscal year
of the Company, consolidated balance sheets
of the Company and its consolidated subsidi-
aries as of the end of such quarter, and
consolidated statements of income and re-
tained earnings of the Company and its con-
solidated subsidiaries each for the period
commencing at the end of the previous fiscal
year and ending with the end of such quarter,
certified, respectively, by the chief finan-
cial officer or chief accounting officer of
the Company; provided, however, that delivery
-------- -------
of the Form 10-Q of the Company filed pursu-
ant to the Securities Exchange Act of 1934,
as amended, will satisfy the reporting re-
quirement under this subsection as to any
fiscal quarter so long as such Form 10-Q (A)
is delivered within 60 days after the end of
such quarter, and (B) includes those finan-
cial statements referred to in this subsec-
tion (i); and
(ii) as soon as available and in any
event within 120 days after the end of each
fiscal year of the Company, a copy of the
consolidated balance sheets of the Company
and its consolidated subsidiaries as of the
end of such year and the related consolidated
statements of income and retained earnings of
the Company and its consolidated subsidiaries
for such year reported on by KPMG Peat
Marwick or other nationally recognized inde-
pendent public accountants acceptable to the
8
<PAGE>
Agent; provided, however, that delivery of
-------- -------
the Form 10-K of the Company filed pursuant
to the Securities Exchange Act of 1934, as
amended, will satisfy the reporting require-
ment under this subsection as to any fiscal
year so long as such Form 10-K (A) is deliv-
ered within 120 days after the end of such
fiscal year, and (B) includes those financial
statements referred to in this subsection
(ii).
SECTION 7. Amendments, Etc. (a) No amendment or
---------------
waiver of any provision of this Agreement nor consent to any
departure by the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by
the Company, the Agent and all of the Purchasers, and then
such waiver or consent shall be effective only in the speci-
fic instance and for the specific purpose for which given.
(b) The Company shall be entitled to rely without
investigation upon any notice or request received from the
Agent or other action by the Agent that recites that it is
appropriately authorized pursuant to the terms of the Agree-
ment.
(c) The Company shall be entitled to rely conclu-
sively upon any notice with respect to an assignment of a
Share Percentage of Purchased Receivables provided to the
Seller pursuant to Section 8.01 of the Agreement and shall
not be required to treat an Assignee as a Purchaser in the
absence of such notice.
SECTION 8. Expenses. The Company will upon de-
--------
mand pay to the Agent and each Purchaser the amount of any
and all reasonable expenses, including attorneys' fees and
expenses, which they may incur in connection with the exer-
cise or enforcement of any of their respective rights or
interests hereunder.
SECTION 9. Addresses for Notices. All demands,
---------------------
notices and other communications provided for hereunder
shall be in writing (including telex communication) and, if
to the Company, mailed or telexed or delivered to it,
addressed to it at 180 Maiden Lane, New York, New York
10038, Attention of William F. Gleason, Jr., Senior Vice
President, General Counsel and Secretary (Telex No. 426785);
if to the Agent or any Purchaser, mailed, telexed, or tele-
copied or delivered to the Agent or any such Person at the
9
<PAGE>
address designated by each Initial Purchaser and the Agent
on the signature pages of the Agreement or, as to each other
Purchaser, as designated by each such Purchaser to the
Agent; or, as to any such Person, at such other address as
shall be designated by such Person in a written notice to
each other such Person complying as to delivery with the
terms of this Section 9. All such demands, notices and
other communications shall be effective when presented at
the address of the addressee thereof or, in the case of
notice by telex or telecopy, when telexed against receipt of
an answer back or transmitted by telecopier, respectively,
in each case addressed as aforesaid.
SECTION 10. No Waiver, Remedies. No failure on
-------------------
the part of the Agent or any Purchaser to exercise, and no
delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 11. Continuing Agreement. This Agreement
--------------------
is a continuing agreement and shall (i) remain in full force
and effect until the Agreement shall have been terminated
and all of the Seller Obligations shall have been fully
satisfied, (ii) be binding upon the Company, its successors
and assigns and (iii) inure to the benefit of and be en-
forceable by the Agent, each Purchaser, and their respective
successors, transferees and assigns.
SECTION 12. Governing Law. This Agreement shall
-------------
be governed by, and construed in accordance with, the laws
of the State of New York.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above writ-
ten.
THE CONTINENTAL CORPORATION
By
-------------------------
-10-
COPIED AS EXECUTED
U.S. $40,000,000
TRADE RECEIVABLES
PURCHASE AND SALE AGREEMENT
Dated as of December 28, 1984, As Amended, and
As Amended and Restated as of December 30, 1994
Among
THE CONTINENTAL INSURANCE COMPANY
BOSTON OLD COLONY INSURANCE COMPANY
THE BUCKEYE UNION INSURANCE COMPANY
CASUALTY INSURANCE COMPANY
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J.
THE CONTINENTAL INSURANCE COMPANY OF NEW JERSEY
CONTINENTAL LLOYD'S INSURANCE COMPANY
CONTINENTAL REINSURANCE CORPORATION
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
THE GLENS FALLS INSURANCE COMPANY
KANSAS CITY FIRE AND MARINE INSURANCE COMPANY
THE MAYFLOWER INSURANCE COMPANY, LTD.
NATIONAL-BEN FRANKLIN INSURANCE COMPANY OF ILLINOIS
NIAGARA FIRE INSURANCE COMPANY
PACIFIC INSURANCE COMPANY
WORKERS' COMPENSATION AND INDEMNITY COMPANY OF CALIFORNIA
Collectively as Seller
----------------------
and
CIESCO L.P.
as Investor
-----------
and
CITIBANK, N.A.
and
CITICORP NORTH AMERICA, INC.
Individually and as Agent
-------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . 3
SECTION 1.02. Other Terms. . . . . . . . . . . . . . . . . . 20
SECTION 1.03. Computation of Time Periods . . . . . . . . . 20
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Designated Obligors . . . . . . . . . . . . . 20
SECTION 2.02. Commitment . . . . . . . . . . . . . . . . . . 20
SECTION 2.03. Making Purchases . . . . . . . . . . . . . . . 21
SECTION 2.04. Termination or Reduction of the
Commitment . . . . . . . . . . . . . . . . . . 21
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.06. Share . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.07. Settlement Procedures . . . . . . . . . . . . 23
SECTION 2.08. Payments and Computations, Etc . . . . . . . . 26
SECTION 2.09. Dividing or Combining of Shares . . . . . . . 27
SECTION 2.10. Recourse for Yield . . . . . . . . . . . . . . 27
SECTION 2.11. Increased Costs, Etc. . . . . . . . . . . . . 28
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial
Purchase . . . . . . . . . . . . . . . . . . . 29
SECTION 3.02. Conditions Precedent to All
Purchases . . . . . . . . . . . . . . . . . . . 30
SECTION 3.03. Conditions Precedent to Designation
of Designated Obligors and to
Reinvestments of Collections . . . . . . . . . 31
SECTION 3.04. Conditions Precedent to
Effectiveness of Amendment and
Restatement . . . . . . . . . . . . . . . . . . 32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of
each Owner . . . . . . . . . . . . . . . . . . 35
ARTICLE V
<PAGE>
ii
GENERAL COVENANTS OF EACH OWNER
SECTION 5.01. Affirmative Covenants of each Owner . . . . . 38
SECTION 5.02. Reporting Requirements of each Owner . . . . . 40
SECTION 5.03. Negative Covenants of each Owner . . . . . . . 41
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent . . . . . . . 42
SECTION 6.02. Duties of Collection Agent. . . . . . . . . . 42
SECTION 6.03. Rights and Duties of the Agent . . . . . . . . 44
SECTION 6.04. Responsibilities of the Seller . . . . . . . . 44
SECTION 6.05. Further Action Evidencing Purchases . . . . . 45
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination . . . . . . . . . . . . 46
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action . . . . . . . . . . . 48
SECTION 8.02. Agent's Reliance, Etc . . . . . . . . . . . . 48
SECTION 8.03. CNA and Affiliates . . . . . . . . . . . . . . 49
SECTION 8.04. Investor's Purchase Decision . . . . . . . . . 49
ARTICLE IX
ASSIGNMENT OF SHARES
SECTION 9.01. Assignment. . . . . . . . . . . . . . . . . . 49
SECTION 9.02. Annotation of Certificate . . . . . . . . . . 50
SECTION 9.03. Payments to Agent . . . . . . . . . . . . . . 50
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller and the
Owners . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.02. Seller to Advise Agent . . . . . . . . . . . 51
SECTION 10.03. Cooperation in Litigation . . . . . . . . . . 52
<PAGE>
iii
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc . . . . . . . . . . . . . . . 52
SECTION 11.02. Notices, Etc . . . . . . . . . . . . . . . . 52
SECTION 11.03. No Waiver; Remedies . . . . . . . . . . . . . 52
SECTION 11.04. Binding Effect; Assignability. . . . . . . 53
SECTION 11.05. Governing Law . . . . . . . . . . . . . . . . 53
SECTION 11.06. Costs, Expenses and Taxes . . . . . . . . . . 53
SECTION 11.07. No Proceedings. . . . . . . . . . . . . . . 54
SECTION 11.08. Security Interest . . . . . . . . . . . . . . 54
SECTION 11.09. Non-Assignment of Contracts . . . . . . . . . 55
SECTION 11.10. Additional Owners . . . . . . . . . . . . . . 55
SECTION 11.11. Execution in Counterparts . . . . . . . . . . 55
SECTION 11.12. Reference to the Documents . . . . . . . . . 56
EXHIBIT A - Form of Assignment
EXHIBIT B-1 - Form of Certificate of Assignment to CNA as
Agent for the Investor
EXHIBIT B-2 - Form of Certificate of Assignment to CNA as
Agent for Citibank
EXHIBIT B-3 - Form of Certificate of Assignment to CNA as
Agent for CNA
EXHIBIT C - Company Agreement
EXHIBIT D - Form of Contract
EXHIBIT E - Form of Investor Report
EXHIBIT F - Form of Designation of Obligors
EXHIBIT G - Form of Cancellation of Designation of
Obligors
EXHIBIT H - Form of Opinion of Martin Haber, Esq.
EXHIBIT I - List of Offices of Each Owner where Records
are Kept
EXHIBIT J - Form of Assumption Agreement
<PAGE>
TRADE RECEIVABLES
PURCHASE AND SALE AGREEMENT
Dated as of December 28, 1984, as amended, and
as amended and restated as of December 30, 1994
THE CONTINENTAL INSURANCE COMPANY, a New Hampshire
corporation, BOSTON OLD COLONY INSURANCE COMPANY, a Massachusetts
corporation, THE BUCKEYE UNION INSURANCE COMPANY, an Ohio
corporation, CASUALTY INSURANCE COMPANY, an Illinois corporation,
COMMERCIAL INSURANCE COMPANY OF NEWARK, N.J., a New Jersey
corporation, THE CONTINENTAL INSURANCE COMPANY OF NEW JERSEY, a
New Jersey corporation, CONTINENTAL LLOYD'S INSURANCE COMPANY, a
Lloyd's organization formed under the Texas Insurance Code
("Continental Lloyd's"), CONTINENTAL REINSURANCE CORPORATION, a
-------------------
California corporation, THE FIDELITY AND CASUALTY COMPANY OF NEW
YORK, a New Hampshire corporation, FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY, a New Jersey corporation, THE GLENS FALLS
INSURANCE COMPANY, a Delaware corporation, KANSAS CITY FIRE AND
MARINE INSURANCE COMPANY, a Missouri corporation, THE MAYFLOWER
INSURANCE COMPANY, LTD., an Indiana corporation, NATIONAL-BEN
FRANKLIN INSURANCE COMPANY OF ILLINOIS, an Illinois corporation,
NIAGARA FIRE INSURANCE COMPANY, a Delaware corporation, PACIFIC
INSURANCE COMPANY, a California corporation and WORKERS'
COMPENSATION AND INDEMNITY COMPANY OF CALIFORNIA, a California
corporation (each such corporation and any other corporation
which has become a party hereto pursuant to Section 11.10,
individually, being hereinafter referred to an "Owner" and,
-----
collectively, as the "Owners" or the "Seller", CIESCO L.P.
------ ------
(formerly known as Commercial Industrial Trade-receivables
Investment Company), a New York limited partnership (the
"Investor"), CITIBANK, N.A. ("Citibank") and CITICORP NORTH
-------- --------
AMERICA, INC. (formerly known as Citicorp Industrial Credit,
Inc.), a Delaware corporation, individually ("CNA") and as agent
---
for the Investor, Citibank and CNA (the "Agent"), agree as
-----
follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are
capitalized and used throughout this Agreement are defined in
Article I of this Agreement.
(2) Each Owner has entered into that certain
Intercompany Pooling Agreement effective January 1, 1982 as
amended by certain addenda thereto (as the same may, from time to
time, be amended, modified or supplemented pursuant to one or
more addenda or otherwise, the "Intercompany Pooling Agreement")
------------------------------
with each other Owner pursuant to which each Owner (other than
Continental) sold, transferred and assigned, and
<PAGE>
2
continues to sell, transfer and assign, to Continental certain
accounts receivable, including the Receivables to the extent of
such Owner's right, title and interest therein, and simultaneously
therewith Continental sold, transferred and assigned, and
continues to sell, transfer and assign, to each such Owner a
percentage interest and participation in such accounts receivable
and in certain of its accounts receivable, including Receivables,
to the extent of its right, title and interest therein.
(3) The Seller has, and expects to have, Receivables
arising from sales from time to time of insurance products or
services. The Seller intends to segregate certain Receivables in
a Receivables Pool on an ongoing basis and desires to sell
fractional undivided interests, herein called Shares, in
Receivables in the Receivables Pool herein called Pool
Receivables.
(4) The Investor and Citibank desire to purchase such
Shares from the Seller. CNA may elect to purchase Shares from
the Seller. Subject to certain conditions, the Investor,
Citibank and CNA may assign this Agreement and their rights and
obligations therein or their Shares and related rights and
obligations under this Agreement to an Assignee, and such
Assignee may assign this Agreement and its rights and obligations
therein or its Shares and related rights and obligations under
this Agreement to any other Assignee.
(5) In consideration of the reinvestment in Pool
Receivables by a Shareowner of daily Collections of its Shares
(other than with regard to accrued Collection Agent Fee) and so
long as such reinvestment continues, the Seller will sell to such
Shareowner additional interests in the Pool Receivables as part
of such Shares. It is intended that such daily reinvestment of
Collections be effected, until such reinvestment shall be
terminated pursuant to the provisions of this Agreement, by an
automatic daily adjustment to each Shareowner's Shares, which
adjustment shall reflect the daily transfer to such Shareowner of
interests in new Pool Receivables and the daily adjustment of its
Shares. Such daily reinvestment is intended, so long as it
continues, to permit each Shareowner to maintain its funds,
called herein Capital, fully invested in uncollected Pool
Receivables.
(6) CNA has been requested, and CNA is willing, to act
as Agent.
(7) The Seller, the Investor, Citibank and CNA,
individually and as Agent, entered into a Trade Receivables
Purchase and Sale Agreement dated as of December 28, 1984 (said
Agreement as amended to date being the "Receivables Agreement").
---------------------
The parties hereto have agreed to amend and restate the
Receivables Agreement as set forth herein.
NOW, THEREFORE, the parties agree to amend and restate
the Receivables Agreement in its entirety to read as follows:
<PAGE>
3
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
---------------------
Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Adverse Claim" means a lien, security interest,
-------------
charge, or encumbrance, or other right or claim of any
Person, other than a right or claim (i) as against any
insurance policy (but not the related Pool Receivables) for
payment of a loss, asserted by a Person who is a loss payee
under such insurance policy or (ii) as against any insurance
policy (but not the related Pool Receivables) for
contribution for payment of a loss asserted by any Owner by
reason of reinsurance provided for in the Intercompany
Pooling Agreement.
"Affiliate" when used with respect to a Person means
---------
any other Person controlling, controlled by or under common
control with such Person.
"Affiliated Obligor" means any Obligor which is an
------------------
Affiliate of another Obligor.
"Agent's Account" has the meaning assigned to that term
---------------
in Section 2.07(c)(i).
"Alternate Base Rate" means a fluctuating interest rate
-------------------
per annum as shall be in effect from time to time, which
rate per annum shall at all times be equal to the higher of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time as
Citibank's base rate; or
(b) 1/2 of one percent above the latest
three-week moving average of secondary market morning
offering rates in the United States for three-month
certificates of deposit of major United States money
market banks, such three-week moving average being
determined weekly by Citibank on the basis of such
rates reported by certificate of deposit dealers to and
published by the Federal Reserve Bank of New York or,
if such publication shall be suspended or terminated,
on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit
dealers of recognized standing, in either case adjusted
to the nearest 1/4 of one percent or, if there is no
nearest 1/4 of one percent, to the next higher 1/4 of
one percent; provided,
--------
<PAGE>
4
however, that such fluctuating interest rate shall in
-------
no event be higher than the maximum rate permitted by
applicable law.
"Assignee" means Citibank, CNA, the Investor or any of
--------
their respective Affiliates, or Persons managed by Citibank,
CNA or any of their respective Affiliates, or any other
Person (other than a Person which is engaged primarily, or
is a member of a group (consisting of such Person and all of
its Affiliates) which is engaged primarily, in the business
of underwriting or selling insurance) as the assignee of a
Share pursuant to or as contemplated by Article IX.
"Assignment" means an assignment, in substantially the
----------
form of Exhibit A, by which a Share or Shares may be
assigned.
"Assumption Agreement" means an Assumption Agreement in
--------------------
substantially the form of Exhibit J hereto.
"Average Commission Balance" means an amount owing to
--------------------------
or by an insurance agent relating to the difference between
the then outstanding amount of commissions due and payable
by such insurance agent to an Owner or to such insurance
agent by an Owner in respect of any insurance products or
services provided by each Owner.
"Average Maturity" means, on any day, that period
----------------
(expressed in days) equal to the average maturity of the
Pool Receivables as shall be calculated by the Collection
Agent as set forth in the most recent Investor Report
delivered to the Agent in accordance with the provisions
thereof; provided, however, if the Agent shall disagree with
-------- -------
any such calculation, the Agent may in good faith
re-calculate the Average Maturity for such day.
"Business Day" means any day of the year on which banks
------------
are not required or authorized to close in New York City
and, if the applicable Business Day relates to any Share for
which the Investor Rate is determined by reference to the
Eurodollar Rate, on which dealings are carried on in the
London interbank market.
"Capital" of any Share means the original amount of the
-------
Purchase of such Share by the Investor, Citibank or CNA, as
the case may be, pursuant to Sections 2.02 and 2.03 reduced
from time to time by the portion of Collections distributed
pursuant to Section 2.07(d)(A)(y), or otherwise received and
distributed, on account of such Capital; provided that such
--------
Capital of such Share shall not be reduced by any
distribution of any portion of Collections if at any time
such distribution is rescinded or must otherwise be returned
for any reason.
<PAGE>
5
"Certificate" means a certificate of the Seller: in
-----------
substantially the form of Exhibit B-1 as to an assignment by
the Seller to the Agent for the account of the Investor; in
substantially the form of Exhibit B-2 as to an assignment by
the Seller to the Agent for the account of Citibank; and in
substantially the form of Exhibit B-3 as to an assignment by
the Seller to the Agent for the account of CNA in its
individual capacity; in each case, evidencing each Share
owned by the Investor, Citibank or CNA, respectively.
"Citibank Rate" for any Fixed Period for any Share
-------------
means an interest rate per annum equal to 1.375% per annum
above the Eurodollar Rate; provided, however, that in the
-------- -------
case of any Fixed Period of one to (and including) 13 days
or if required pursuant to Section 2.11(c) or (d), the
"Citibank Rate" for such Fixed Period for such Share shall
-------------
be an interest rate per annum equal to the Alternate Base
Rate in effect on the first day of such Fixed Period;
provided further, however, that the Agent and the Seller may
-------- ------- -------
agree in writing from time to time upon a different
"Citibank Rate".
-------------
"Collection Agent" means at any time the Person then
----------------
authorized pursuant to Article VI to service, administer and
collect on behalf of the Agent Pool Receivables.
"Collection Agent Fee" has the meaning assigned to that
--------------------
term in Section 2.05(c).
"Collection Agent Fee Reserve" for any Share at any
----------------------------
time means the sum of (i) the Liquidation Collection Agent
Fee for such Share at such time plus (ii) the unpaid
Collection Agent Fee relating to such Share accrued to such
time.
"Collection Delay Period" for any Share means 10 days,
-----------------------
or such other number of days as the Agent may reasonably
select upon three Business Days' notice to the Seller.
"Collections" means, with respect to any Receivable,
-----------
all cash collections and other cash proceeds of such
Receivable, including, without limitation, all cash proceeds
of Related Security with respect to such Receivable, and any
Collection of such Receivable deemed to have been received
pursuant to Section 2.07(b); provided, however, that except
-------- -------
as otherwise provided in Section 2.07(b), the Collection
Agent and the Seller shall not be deemed to have received
any Collection of such Receivable previously received by an
insurance agent until such insurance agent shall have paid
such amounts over to the Collection Agent or the Seller.
"Commitment" means, as the context requires, either (i)
----------
$40,000,000, as such amount may be reduced pursuant to
Section 2.04, or as such amount may be
<PAGE>
6
increased or decreased upon the agreement in writing of the
parties to
this Agreement, or (ii) the obligation of Citibank to make
Purchases from time to time aggregating, together with
Purchases by the Investor and CNA, up to $40,000,000 or such
reduced amount pursuant to Section 2.04 or such increased or
decreased amount as agreed to by each of the parties hereto.
"Commitment Termination Date" means the earlier of (i)
---------------------------
one of the following dates (as applicable): (A) with
respect to any Purchase by Citibank or any Share owned by
Citibank, December 29, 1995, provided that during the 10-day
--------
period immediately preceding such date (or any extension of
such date in accordance with this proviso), the Seller and
the Agent may agree in writing to extend (effective on the
day immediately preceding such date) the Commitment
Termination Date by up to an additional 360 days, and (B)
with respect to Purchases by the Investor or CNA (any of
which, as provided in this Agreement, are at the sole
discretion of the Investor or CNA, as the case may be), any
Share owned by the Investor or CNA or any other case not
governed by subclause (A) above, December 30, 1997 and (ii)
the date of termination of the Commitment pursuant to
Section 2.04 or 7.01.
"Company" means The Continental Corporation, a New York
-------
corporation and the beneficial owner of all of the
outstanding shares of stock of each Owner.
"Company Agreement" means that certain Agreement, dated
-----------------
as of the date hereof, of the Company, attached as Exhibit C
hereto, as such Agreement may, from time to time, be
amended, modified, or supplemented.
"Concentration Limit" for any Obligor means at any time
-------------------
3% (or such other percentage agreed to by the Agent) of the
aggregate Capital of all Shares at such time; provided,
--------
however, that the Concentration Limit (and the Receivables
-------
or Outstanding Balance of Receivables with reference thereto
or in connection therewith) shall be calculated as if such
Obligor and each of its Affiliated Obligors are, as to all
of their respective Pool Receivables, one Obligor.
"Continental" means The Continental Insurance Company,
-----------
a New Hampshire corporation, and any corporation which may
succeed to the business and assets of such corporation by
merger or consolidation or acquisition of assets.
"Contract" means an invoice or other statement of
--------
account, an example of which is set forth in Exhibit D
hereto.
"Credit and Collection Policy" means those credit and
----------------------------
collection policies and practices existing on December 30,
1994 which are being followed by the Seller with
<PAGE>
7
respect to Contracts and Receivables related thereto, including
those policies and practices maintained by the Seller's computer
system, with such changes to such credit and collection
policies and practices as are not prohibited by Section
5.03(c).
"Debt" means (i) indebtedness for borrowed money or for
----
the deferred purchase price of property or services, (ii)
obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases, (iii) obligations
under direct or indirect guaranties (other than obligations
arising under insurance policies and bonds issued by any
Owner in the ordinary course of its business) in respect of,
and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of others of
the kinds referred to in clause (i) or (ii) above (other
than obligations arising under insurance policies and bonds
issued by any Owner in the ordinary course of its business),
and (iv) liabilities in respect of unfunded benefit
liabilities, within the meaning of Section 4001(a)(18) of
ERISA, under plans covered by Title IV of ERISA.
"Default Ratio" on any day means the percentage
-------------
obtained by dividing the Outstanding Balance of Pool
Receivables which shall have become Defaulted Receivables
during the period of 30 consecutive days ending on the day
immediately prior to such day by the Net Receivables Pool
Balance on such day.
"Defaulted Receivable" means a Receivable:
--------------------
(i) as to which any payment, or part thereof,
remains unpaid for 241 days or more from the original
due date for such payment; or
(ii) which, consistent with the Credit and
Collection Policy, is deemed to be uncollectible
through normal collection procedures and has been or
will be referred to an independent collection agent or
an attorney for further collection proceedings; or
(iii) as to which the Obligor thereof has
taken any action, or suffered any event to occur, of
the type described in Section 7.01(f); or
(iv) which, consistent with the Credit and
Collection Policy, would be written off the Seller's
books as uncollectible.
"Delinquency Ratio" on any day means the percentage
-----------------
obtained by dividing the Outstanding Balance of Pool
Receivables which are on such day Delinquent Receivables by
the Net Receivables Pool Balance on such day.
<PAGE>
8
"Delinquent Receivable" means a Receivable that is not
---------------------
a Defaulted Receivable and:
(i) as to which any payment, or part thereof,
remains unpaid for 181 days or more from the original
due date for such payment; or
(ii) which the insurance agent responsible for the
collection thereof has been unable to collect and an
Owner has undertaken to collect directly from the
Obligor; or
(iii) which, consistent with the Credit and
Collection Policy, would be classified as delinquent by
the Seller.
"Designated Obligor" means, at any time, an Obligor (i)
------------------
which is a United States resident and not an Affiliate of
any of the parties hereto and (ii) which shall at such time
have been so designated by the Seller and approved by the
Agent in accordance with Section 2.01 and whose designation
as a Designated Obligor shall not at such time have been
cancelled by either the Seller or the Agent pursuant to
Section 2.01.
"Dilution Ratio" means, for any calendar month, the
--------------
ratio (expressed as a percentage) computed as of the last
day of such calendar month by dividing (i) the aggregate
amount of policy cancellations, policy endorsements, deemed
collections and other reductions of the Receivables Pool the
effect of which is to reduce the Outstanding Balance of any
Pool Receivable (other than any dilution resulting solely
from any write off of any Pool Receivable by the Collection
Agent and not from any of the factors specified above)
provided to Obligors during such calendar month in respect
of the principal balance of Pool Receivables by (ii) the
aggregate Outstanding Balance of all Pool Receivables
acquired by the Seller during the prior calendar month.
"Eligible Receivable" means a Receivable:
-------------------
(i) the Obligor of which, at the later of the
time of creation of such Receivable or the time such
Obligor became a Designated Obligor, (A) is not an
affiliate or a division of any Owner and (B) is not a
government agency, department, instrumentality or
political subdivision of any kind whatsoever;
<PAGE>
9
(ii) which, according to the Contract related
thereto, is required to be paid in full within 45 days
of the end of the effective month of the insurance
coverage provided by the insurance policy related
thereto;
(iii) which is an account receivable
representing all or part of the sales price of the
insurance products and services sold to an Obligor;
(iv) which is an "account" within the meaning of
Section 9-106 of the UCC of the State of New York;
(v) which is denominated and payable only in
United States dollars in the United States;
(vi) which arises as a result of the issuance of a
legal, valid and binding insurance policy to an Obligor
and which is enforceable against such Obligor in
accordance with its terms and is not subject to any
dispute, offset, counterclaim or defense whatsoever
(except the discharge in bankruptcy of such Obligor);
(vii) which, together with the Contract
related thereto, does not contravene in any material
respect any laws, rules or regulations applicable
thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit
billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and
privacy) and with respect to which the issuer of such
Contract is not in violation of any such law, rule or
regulation in any material respect;
(viii) which, at the later of the time of
creation of such Receivable or the time the Obligor
thereof became a Designated Obligor, (A) satisfies all
applicable requirements of the Credit and Collection
Policy, (B) complies with such other criteria and
requirements (other than those relating to the
collectibility of such Receivable) as the Agent may
from time to time reasonably specify to the Seller
prior to the time the Obligor thereof became a
Designated Obligor and (C) complies, on and after the
30th day following notice by the Agent to the Seller of
any other criteria or requirements, with such other
criteria or requirements (other than those relating to
the collectibility of such Receivable) as the Agent
shall have reasonably specified in such notice; and
(ix) the assignment of which pursuant hereto is
not prohibited by, and is effective under, applicable law.
<PAGE>
10
"Equity Investor" means CNA Financial Corporation, a
---------------
Delaware corporation.
"ERISA" means the U.S. Employee Retirement Income
-----
Security Act of 1974, as amended from time to time.
"Eurodollar Rate" for any Fixed Period for any Share
---------------
means an interest rate per annum equal to the rate per annum
obtained by dividing (a) the rate per annum at which
deposits in U.S. dollars are offered by the principal office
of Citibank in London, England to prime banks in the London
interbank market at 11:00 a.m. (London time) two Business
Days before the first day of such Fixed Period in an amount
substantially equal to the Capital of such Share for a
period equal to such Fixed Period by (b) a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for
such Fixed Period.
"Eurodollar Rate Reserve Percentage" for any Fixed
----------------------------------
Period means the reserve percentage applicable two Business
Days before the first day of such Fixed Period under
regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor)
for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including
Eurocurrency Liabilities (as defined in Regulation D of the
Board of Governors of the Federal Reserve System, as in
effect from time to time) (or with respect to any other
category of liabilities that includes deposits by reference
to which the Eurodollar Rate is determined) having a term
equal to such Fixed Period.
"Event of Termination" has the meaning assigned to that
--------------------
term in Section 7.01.
"Fixed Period" means with respect to any Share:
------------
(a) initially the period commencing on the date
of the Purchase of such Share and ending such number of
days, as the Seller shall select and the Agent shall
approve pursuant to Section 2.02, up to 270 days from
such date; and
(b) thereafter each period commencing on the last
day of the immediately preceding Fixed Period for such
Share and ending such number of days (not to exceed 270
days) as the Seller shall select and the Agent shall
approve on notice by the Seller received by the Agent
(including notice by telephone, confirmed in writing)
not later than 11:00 A.M. (New York City
<PAGE>
11
time) on such last day, except that if the Agent shall not
------
have received such notice or the Agent and the Seller shall
not have so mutually agreed before 11:00 A.M. (New York
City time) on such last day, such period shall be one
day;
provided, however, that: (i) any Fixed Period in respect of
-------- -------
which Yield is computed by reference to the Citibank Rate
shall be a period of from one to and including 13 days, or a
period of 1, 2, 3 or 6 months, as the Seller may select as
provided above; (ii) any such Fixed Period (other than of
one day) which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding
Business Day; provided, in the case of any Fixed Period
--------
referencing the Eurodollar Rate, that, if such extension
would cause the last day of such Fixed Period to occur in
the next following calendar month, the last day of such
Fixed Period shall on the next preceding Business Day; (iii)
in the case of any Fixed Period of one day for any Share,
(a) if such Fixed Period is such Share's initial Fixed
Period, such Fixed Period shall be the day of the related
Purchase; (b) any subsequently occurring Fixed Period which
is one day shall, if the immediately preceding Fixed Period
is more than one day, be the last day of such immediately
preceding Fixed Period, and, if the immediately preceding
Fixed Period is one day, be the day next following such
immediately preceding Fixed Period; and (c) if such Fixed
Period occurs on a day immediately preceding a day which is
not a Business Day, such Fixed Period shall be extended to
the next succeeding Business Day; and (iv) in the case of
any Fixed Period for any Share which commences before the
Termination Date for such Share and would otherwise end on a
date occurring after such Termination Date, such Fixed
Period shall end on such Termination Date and the duration
of each Fixed Period which commences on or after the
Termination Date for such Share shall be of such duration as
shall be selected by the Agent.
"Indemnified Party" has the meaning assigned to that
-----------------
term in Section 2.11(a).
"Installment Receivable" has the meaning assigned to it
----------------------
in the definition of "Receivable".
"Intercompany Pooling Agreement" has the meaning
------------------------------
assigned to that term in Preliminary Statement (2).
"Investor Investment Fee" has the meaning assigned to
-----------------------
that term in Section 2.05(a).
"Investor Rate" for any Fixed Period for any Share
-------------
means:
<PAGE>
12
(a) the rate equivalent to the rate (or if more
than one rate, the weighted average of the rates) at
which commercial paper notes of the Investor or any
Assignee having a term equal to such Fixed Period and
to be issued to fund the Purchase or maintenance of
such Share by the Investor or such Assignee may be sold
by any placement agent or commercial paper dealer
selected by the Investor or such Assignee, as agreed
between each such agent or dealer and the Investor or
such Assignee and notified by the Investor or such
Assignee to the Agent and the Collection Agent;
provided, however, if the rate (or rates) as agreed
-------- -------
between any such agent or dealer and the Investor or
such Assignee with regard to any Fixed Period for any
Share is a discount rate (or rates), the "Investor
--------
Rate" for such Fixed Period shall be the rate (or if
----
more than one rate, the weighted average of the rates)
resulting from converting such discount rate (or rates)
to an interest-bearing equivalent rate per annum, or
(b) if the Investor or such Assignee funds its
purchase or maintenance of such Share for such Fixed
Period other than by issuing commercial paper, a rate
equal to the Citibank Rate for such Fixed Period or
such other rate as the Agent and the Seller shall agree
to in writing;
provided, however, that, if the Investor or such Assignee so
-------- -------
requests and the Seller consents thereto, the "Investor
--------
Rate" for any Fixed Period of one day shall be the Citibank
----
Rate for such Fixed Period.
"Investor Report" means a report, in substantially the
---------------
form of Exhibit E or in such other form reasonably requested
by the Agent, furnished on behalf of the Seller by the
Collection Agent to the Agent for each holder of a
Certificate pursuant to Section 2.07(e).
"Liquidation Collection Agent Fee" means for any Share
--------------------------------
at any time an amount equal to the product of
(i) the Capital of such Share at such time, times
(ii) the percentage per annum at such time of the
Collection Agent Fee payable to the Collection Agent,
times
(iii) a fraction having the number of days in
the period equal to the sum of the Average Maturity
plus the Collection Delay Period (each as in effect as
of such time), as numerator, and 360 as denominator.
<PAGE>
13
"Liquidation Day" for any Share means either (i) each
---------------
day during any Settlement Period for such Share on which the
conditions set forth in Section 3.03 are not satisfied (or
waived by the Agent), provided that such conditions are also
--------
not satisfied (or waived by the Agent) on each succeeding
day during such Settlement Period, or (ii) each day which
occurs on or after the Termination Date for such Share.
"Liquidation Fee" means, for each Share for any Fixed
---------------
Period which commences before the Termination Date (computed
without regard to the last proviso of the definition of
-------
"Fixed Period") during which any Liquidation Day or
Termination Date for such Share occurs, the amount, if any,
by which (i) the additional Yield (calculated without taking
into account any Liquidation Fee) which would have accrued
on the reductions of Capital of such Share during such Fixed
Period (as so computed) if such reductions had remained as
Capital, exceeds (ii) the income, if any, received by the
owner of such Share from such owner's investing the proceeds
of such reductions of Capital.
"Liquidation Yield" means, for any Share at any date,
-----------------
an amount equal to the product of (i) the Capital of such
Share as at such date and (ii) the product of (a) the
Citibank Rate for such Share for a Fixed Period deemed to
commence at such time for a period of 30 days and (b) a
fraction having as its numerator the number of days in the
period equal to the sum of the Average Maturity plus the
Collection Delay Period (each as in effect at such date) and
360 as its denominator.
"Loss Percentage" for any Share means on any day during
---------------
any Fixed Period for such Share the greater of (i) the sum
of five times the current month's Loss-to-Liquidation Ratio
plus the Dilution Ratio or (ii) 17.5% (to be lowered to a
level to the satisfaction of the Agent subject to actual
loss and dilution statistics).
<PAGE>
14
"Loss Reserve" means, for any Share at any date, an
------------
amount equal to
LP x C
where:
LP = the Loss Percentage for such Share at the
close of business of the Collection Agent on
such date.
C = the Capital of such Share at the close of
business of the Collection Agent on such
date.
"Loss-to-Liquidation Ratio" means the ratio (expressed
-------------------------
as a percentage) computed as of the last day of each
calendar month by dividing (i) an amount equal to the
aggregate Outstanding Balance of all Pool Receivables
written off by the Seller, or that should have been written
off by Seller, during such month by (ii) the aggregate
amount of Collections (other than any deemed Collections)
received during such month with respect to Pool Receivables.
"Moody's" means Moody's Investors Services, Inc.
-------
"Net Receivables Pool Balance" means at any time the
----------------------------
Outstanding Balance of the Eligible Receivables in the
Receivables Pool at such time reduced by the sum of (i) the
aggregate Outstanding Balance of the Defaulted Receivables
in the Receivables Pool at such time and (ii) the aggregate
amount by which the then Outstanding Balance of all Pool
Receivables (other than Defaulted Receivables) of each
Obligor exceeds the product of (A) the Concentration Limit
for such Obligor at such time multiplied by (B) the
Outstanding Balance of the Eligible Receivables in the
Receivables Pool at such time.
"Obligor" means a Person obligated to make payments for
-------
purchase of insurance products or services.
"Outstanding Balance" of any Receivable at any time
-------------------
means the then outstanding balance thereof, provided that
--------
the "Outstanding Balance" of an Installment Receivable shall
-------------------
include for purposes of Section 2.07(b) all future
installments that would have been due under the Contract
relating thereto if it were not cancelled or otherwise
terminated, and "Outstanding Balance" of the Receivables
Pool at any time means the then outstanding aggregate
balance of all Pool Receivables.
<PAGE>
15
"Owner" has the meaning assigned to such term in the
-----
paragraph preceding the Preliminary Statements.
"Person" means an individual, partnership, corporation
------
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity.
"Plan Termination Event" means (i) the occurrence of a
----------------------
reportable event described in Section 4043 of ERISA and the
regulations issued thereunder with respect to a Plan (other
than a reportable event not subject to the provision for a
30-day notice to the Pension Benefit Guaranty Corporation
under such regulations) or an event described in Section
4068(f) of ERISA, or (ii) the withdrawal of an Owner or any
of its ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the incurrence of liability by an
Owner or any of its ERISA Affiliates under Section 4064 of
ERISA upon the termination of a Plan, or (iii) the filing of
a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA,
or (iv) the institution of proceedings to terminate a Plan
by the Pension Benefit Guaranty Corporation, or (v) the
occurrence of any other event or condition which might
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Plan; provided, however, that any such event
-------- -------
described above in clauses (i) through (v) could reasonably
be expected to result in a material liability to the Pension
Benefit Guaranty Corporation or to a Plan. "ERISA
-----
Affiliate" means any trade or business (whether or not
---------
incorporated) which is a member of a group of which an Owner
is a member and which is under common control within the
meaning of the regulations under Section 414 of the Internal
Revenue Code of 1986, as amended. "Plan" means an employee
----
benefit plan (other than a Multiemployer Plan) maintained
for employees of an Owner or any ERISA Affiliate and covered
by Title IV of ERISA. "Multiemployer Plan" means a
------------------
"multiemployer plan" as defined in Section 4001(a)(3) of
ERISA.
"Pool Receivable" means a Receivable in the Receivables
---------------
Pool.
"Program Fee" has the meaning assigned to that term in
-----------
Section 2.05(a).
"Provisional Liquidation Day" means any day which could
---------------------------
be a Liquidation Day but for the proviso in clause (i) of
the definition of "Liquidation Day".
"Purchase" means a purchase by the Investor, Citibank
--------
or CNA of a Share from the Seller pursuant to or as
contemplated by Article II.
<PAGE>
16
"Receivable" means the indebtedness (less commissions
----------
payable thereon) of any Obligor to an Owner under a Contract
arising out of a sale of insurance products or services
which is (or was at any time on or after December 28, 1984)
a Statutory Overdue, which indebtedness includes (i) the
right to payment of any interest or finance charges and
other obligations of such Obligor with respect thereto and
(ii) in respect of such indebtedness which, according to the
Contract relating thereto, is payable in several
installments (an "Installment Receivable"), all installments
----------------------
under the Contract relating thereto (other than installments
released from the Receivables Pool pursuant to Section
2.07(g)) whether or not such Installment Receivable remains
a Statutory Overdue after it becomes a Pool Receivable.
Average Commission Balances and Returned Premiums shall not
be included in this definition.
"Receivables Pool" means at any time the aggregation of
----------------
each then outstanding Receivable existing at any time the
Obligor thereof is a Designated Obligor or arising at any
time when the Obligor thereof was a Designated Obligor,
excluding, however, (i) all Residual Risk Receivables and
(ii) Installment Receivables released from the Receivables
Pool pursuant to Section 2.07(g).
"Reinvestment Termination Date" for all Shares means
-----------------------------
that Business Day which the Seller designates, or that
Business Day on which the conditions precedent in Section
3.03 are not satisfied which the Agent designates, as the
Reinvestment Termination Date for such Shares by notice to
the Agent (if the Seller so designates) or to the Seller (if
the Agent so designates) at least one Business Day prior to
such Business Day.
"Related Security" means with respect to any
----------------
Receivable:
(i) all security interests or liens and property
subject thereto from time to time purporting to secure
payment of such Receivable, whether pursuant to the
Contract related to such Receivable or otherwise; and
(ii) all guarantees, insurance and other
agreements or arrangements of whatever character from
time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to
such Receivable or otherwise.
"Residual Risk Receivable" means a Receivable in
------------------------
respect of which the Obligor is in an assigned or residual
(or similar) risk category, including, without limitation,
(i) a Receivable arising under a specific Contract with an
Obligor which an Owner is required to insure under or in
connection with an assigned risk plan established by the
Department of Insurance or other governmental agency of a
state
<PAGE>
17
pursuant to such state's insurance law, (ii) a Receivable
arising out of or in connection with an Owner's membership in
an insurance pool (other than pursuant to the Intercompany Pool
Agreement), whether or not the Owner, with respect to such
Receivable, acts as servicing carrier or issues a separate
insurance policy or (iii) a Receivable arising in connection with
an Owner's obligation to assume a share of property insurance
liability under a Fair Access to Insurance Requirements plan or
similar plan established by the Department of Insurance of a
state under the federal Urban Property Protection and
Reinsurance Act (12 USC Secs. 1749bbb et seq.) pursuant to such
state's insurance law.
"Returned Premium" means the amount of any premium or
----------------
portion thereof taken by an insurance agent which has not
yet been recorded on the books of an Owner.
"S&P" means Standard & Poor's, a division of McGraw-
---
Hill, Inc.
"Seller" has the meaning assigned to such term in the
------
paragraph preceding the Preliminary Statements; the parties
hereto agree that at any time and from time to time the
Owners may designate a single Owner to act for and on behalf
of the Seller for all purposes under this Agreement;
Continental is hereby so designated (any redesignation shall
be effective for purposes hereof by notice from each of the
Owners to the Agent designating another Owner to act for and
on behalf of the Seller hereunder).
"Settlement Period" for any Share means each period
-----------------
commencing on the first day of each Fixed Period for such
Share and ending on the last day of such Fixed Period, and,
on and after the Termination Date for such Share, such
period (including, without limitation, a daily period) as
shall be selected from time to time by the Agent or, in
absence of any such selection, each period of thirty days
from the last day of the immediately preceding Settlement
Period; provided, however, that the Agent may, by notice to
-------- -------
the Collection Agent, from time to time prior to the
Termination Date for such Share, select such period (which
may be a daily period) as is specified in such notice, which
period shall become effective on the fourth Business Day
subsequent to the giving of such notice.
"Share" means, at any time, a fractional undivided
-----
ownership interest at such time in (i) all then outstanding
Pool Receivables arising prior to the time of the most
recent computation or recomputation of such fractional
undivided interest pursuant to Section 2.06, (ii) all
Related Security with respect to such Pool Receivables, and
(iii) all Collections with respect to, and other proceeds
of, such Pool Receivables. With
<PAGE>
18
respect to each computation made pursuant to Section 2.06, such
fractional undivided interest for such Share shall be computed
as
C + YR + CAFR + LR
------------------
NRPB
where:
C = the Capital of such Share at the time of such
computation.
YR = the Yield Reserve of such Share at the time
of such computation.
CAFR = the Collection Agent Fee Reserve of such
Share at the time of such computation.
LR = the Loss Reserve of such Share at the time of
such computation.
NRPB = the Net Receivables Pool Balance at the time
of such computation.
Each Share shall be determined from time to time pursuant to
the provisions of Section 2.06.
"Shareowner" means, for each Share, upon its Purchase,
----------
Citibank, the Investor or CNA as the purchaser thereof;
provided, however, that upon any assignment thereof pursuant
-------- -------
to Article IX, the Assignee thereof shall be the Shareowner
thereof.
"Standby Commitment Fee" has the meaning assigned to
----------------------
that term in Section 2.05(a).
"Statutory Overdue" means indebtedness of an Obligor
-----------------
(i) as to which any obligation to pay premium on the related
policy or contract of insurance or surety bond has been due
and unpaid to an Owner for more than 90 days after (x) in
the case of any such obligation to make the first premium
payment under the related policy, contract or bond (or the
down payment of the first premium payment if the first
premium payment is to be made in installments), the
effective date of the related policy, contract or bond and
(y) in the case of any other such obligation, the date on
which such obligation is due and (ii) which, under the
Credit and Collection Policy, is a "statutory overdue
receivable".
"Structuring Fee" has the meaning assigned to that term
---------------
in Section 2.05(b).
<PAGE>
19
"Termination Date" for any Share means the earlier of
----------------
the Reinvestment Termination Date for such Share or the
Commitment Termination Date.
"UCC" means the Uniform Commercial Code as from time to
---
time in effect in the specified jurisdiction.
"Yield" means:
-----
(i) for each Share for any Fixed Period on the
first day of which the owner thereof is the Investor or
is an Assignee which will be funding such Share for
such Fixed Period through the issuance of commercial
paper, the product of
IR x C x ED + LF
---
360
(ii) for each Share for any Fixed Period on the
first day of which the owner thereof is an Assignee
which will not be funding such Share for such Fixed
Period through the issuance of commercial paper, the
product of
CR x C x ED + LF
---
360
where:
CR = the Citibank Rate for such Share for such
Fixed Period.
C = the Capital of such Share during such Fixed
Period.
IR = the Investor Rate for such Share for such
Fixed Period.
ED = the actual number of days elapsed during such
Fixed Period.
LF = the Liquidation Fee, if any, for such Share
for such Fixed Period;
provided, however, that no provision of this Agreement
-------- -------
or the Certificates shall require the payment or permit
the collection of Yield in excess of the maximum
permitted by applicable law; and provided, further,
-------- -------
that Yield for any Share shall not be considered paid
by any distribution if at any time such distribution is
rescinded or must otherwise be returned for any reason.
<PAGE>
20
"Yield Reserve" for any Share at any time means the sum
-------------
of (i) the Liquidation Yield at such time for such Share,
and (ii) the accrued and unpaid Yield for such Share.
SECTION 1.02. Other Terms. All accounting terms not
------------
specifically defined herein shall be construed in accordance with
generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such
Article 9.
SECTION 1.03. Computation of Time Periods. Unless
----------------------------
otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Designated Obligors. At least three
-------------------
Business Days prior to the initial Purchase, by notice in
substantially the form of Exhibit F delivered to and approved by
the Agent, the Seller initially designated Obligors as Designated
Obligors and indicated whether, to the best of its knowledge, any
of such Obligors are Affiliated Obligors. After that initial
designation, the Seller may at any time and from time to time,
subject to satisfaction at such time of the conditions precedent
set forth in Section 3.03, designate, by notice in substantially
the form of Exhibit F delivered to and approved by the Agent,
additional Obligors as Designated Obligors, and the Seller shall
promptly notify the Agent when the Seller obtains knowledge that
any Designated Obligor is an Affiliated Obligor. The Seller or
the Agent may, at any time, cancel any designation of an Obligor
as a Designated Obligor by written notice in substantially the
form of Exhibit G delivered to the other three days prior to the
date such cancellation becomes effective.
SECTION 2.02. Commitment. (a) Citibank shall, on the
----------
terms and conditions hereinafter set forth, purchase from the
Seller, and the Investor and CNA each severally agrees on the
terms and conditions hereinafter set forth to purchase from the
Seller if and only if CNA or the Investor, as the case may be,
determines in its sole discretion to purchase from the Seller,
undivided interests in Pool Receivables by making Purchases of
Shares from time to time during the period from December 28, 1984
to the Commitment Termination Date; provided, however, that
-------- -------
Citibank shall not be obligated to make any Purchase of any Share
if, after giving effect to such Purchase, the aggregate Capital
of Shares owned by all Shareowners would exceed the Commitment.
<PAGE>
21
(b) Each Shareowner shall, on the terms and conditions
hereinafter set forth, with the proceeds of its allocable share
of Collections with respect to each Share owned by it, purchase,
pursuant to Section 2.07(a)(i), additional undivided interests in
the then existing and, if any, new Pool Receivables of such Share
by making an appropriate readjustment of such Share.
SECTION 2.03. Making Purchases. (a) Each Purchase
----------------
shall be made on at least three Business Days' notice from the
Seller to the Agent. Each such notice of a Purchase shall
specify (i) the amount of such Purchase, (ii) the date of such
Purchase, (iii) Citibank or the Investor or CNA as making such
Purchase, and (iv) if Citibank or CNA is to make such Purchase
and the Agent approves the duration of the initial Fixed Period
for such Purchase, the duration of such initial Fixed Period. If
such notice specifies either the Investor or CNA as making such
Purchase, the Investor or CNA specified in such notice shall
promptly notify the Agent, which shall promptly notify the
Seller, whether the Investor or CNA specified in such notice has
determined to make such Purchase. If such notice specifies the
Investor as making such Purchase, the Agent shall, if the
Investor has determined to make such Purchase, promptly notify
the Investor of the amount and date of such Purchase and the
Seller shall, prior to 10:00 A.M. (New York City time) on the
date of such Purchase, if the Investor has determined to make
such Purchase and the Agent approves the duration of the initial
Fixed Period for such Purchase, notify the Investor of the
duration of such initial Fixed Period. On the date of each
Purchase, Citibank or the Investor or CNA, as the case may be,
shall, upon satisfaction of the applicable conditions set forth
in Article III, make available to the Agent at its address
referred to in Section 11.02 the amount of its Purchase in same
day funds, and after receipt by the Agent of such funds, the
Agent will make such funds immediately available to the Seller at
Citibank's address referred to in Section 11.02.
(b) The Investor shall, on the date of each Purchase
of each Share by the Investor and on the first day of each
successive Fixed Period for such Share so long as it is owned by
the Investor, and each other Shareowner of each Share shall, on
the first day of each Fixed Period (other than the initial Fixed
Period) for such Share, notify the Agent of the Investor Rate for
such Fixed Period and the Agent shall promptly notify the Seller
thereof.
SECTION 2.04. Termination or Reduction of the
-------------------------------
Commitment. The Seller may, upon at least five Business Days'
----------
notice to the Agent, terminate in whole or reduce in part the
unused portion of the Commitment; provided, however, that each
-------- -------
partial reduction shall be in an amount equal to $1,000,000 or an
integral multiple thereof.
SECTION 2.05. Fees. (a) The Seller shall pay (i) to
----
the Agent a program fee (the "Program Fee") on the amount of the
-----------
average daily used portion of the
<PAGE>
22
Commitment, from December 28, 1984 until the later of the Commitment
Termination Date or the date on which all Capital of all Shares is
reduced to zero, at the rate of 3/4 of 1% per annum, (ii) to Citibank
a fee (the "Standby Commitment Fee") on the amount of the average
----------------------
daily unused portion of the Commitment, from December 28, 1984 until
the later of the Commitment Termination Date or the date on which
all Capital of all Shares is reduced to zero, at the rate of 1/4
of 1% per annum, and (iii) to the Investor a fee (the "Investor
--------
Investment Fee") on the amount of the entire Commitment (whether
--------------
used or unused), from December 28, 1984 until the later of the
Commitment Termination Date or the date on which all Capital of
all Shares is reduced to zero, at the rate of 1/100 of 1% per
annum. Each of the Program Fee and the Standby Commitment Fee is
payable in arrears monthly on the last day of each month during
the terms of this Agreement and on the later of the Commitment
Termination Date or the date on which all Capital of all Shares
is reduced to zero. The Investor Investment Fee is payable in
arrears annually on the last day of each year and on the later of
the Commitment Termination Date or the date on which all Capital
of all Shares is reduced to zero.
(b) The Seller shall also pay to the Agent a
structuring fee (the "Structuring Fee") equal to 1/4 of 1% of the
---------------
amount of the entire Commitment (whether used or unused) payable
on the date of execution of this Agreement.
(c) Each Shareowner shall pay to the Collection Agent
a collection fee (the "Collection Agent Fee") of 1/4 of 1% per
--------------------
annum on the average daily amount of Capital of such Share, from
the date thereof until the later of the Commitment Termination
Date or the date on which such Capital is reduced to zero,
payable on the last day of each Settlement Period for such Share;
provided, however, that upon three Business Days' notice to the
-------- -------
Agent, the Collection Agent may elect to be paid, as such fee,
another percentage per annum on the average daily amount of
Capital of each such Share, but in no event in excess of 110% of
the costs and expenses referred to in Section 6.02(e); provided,
--------
further, that the fee paid to any Collection Agent other than an
-------
Owner shall not exceed 110% of the costs and expenses referred to
in Section 6.02(e); and provided, further, that such fee shall
-------- -------
be payable only from Collections pursuant to, and subject to the
priority of payment set forth in, Section 2.07(c) and (d).
SECTION 2.06. Share. (a) Each Share shall be
-----
initially computed as of the opening of business of the
Collection Agent on the date of Purchase of such Share from the
Seller hereunder. Thereafter until the Termination Date for such
Share, such Share shall be automatically recomputed as of the
close of business of the Collection Agent on each day (other than
a Liquidation Day). Such Share shall become zero at such time as
the Shareowner of such Share shall have recovered the Capital of
such Share and the Collection Agent shall have received the
accrued Collection Agent Fee for such Share. Such Share shall
remain constant from the time as of which any such computation or
recomputation is
<PAGE>
23
made until the time as of which the next such recomputation, if any,
shall be made. Any Share, as computed as of the day immediately
preceding the Termination Date for such Share, shall remain constant
at all times on and after such Termination Date.
(b) If any Share would otherwise be reduced on any day
on account of Receivables arising as or becoming Pool
Receivables, the Shareowner of such Share may prevent such
reduction by giving notice to the Collection Agent, before the
close of business of the Collection Agent on such day, that such
Share's interest in such Receivables is to be limited so as to
prevent such reduction. If such notice is given for any day for
any Share, the Receivables Pool for such Share, and the Net
Receivables Pool Balance for such Share, will include, with
respect to Receivables arising as or becoming Pool Receivables on
such day, only such number of such Receivables or such portion of
such Receivables as shall cause such Share to remain constant,
such Receivables or portion thereof being included in the
Receivables Pool for such Share and in the Net Receivables Pool
Balance for such Share in the order of the Seller's account
numbers for such Receivables up to an aggregate amount so as to
cause such Share to remain constant, and the remainder of such
Receivables or portion thereof shall be treated as Receivables
arising on the next succeeding Business Day.
SECTION 2.07. Settlement Procedures. (a) During each
---------------------
Settlement Period for each Share, the Collection Agent shall on
each day Collections of Pool Receivables are received by it:
(i) if such day is not a Liquidation Day or a
Provisional Liquidation Day, (A) out of such Share of such
Collections hold in trust and, upon the request of the
Agent, set aside and hold in trust for the Shareowner of
such Share in accordance with Article VI an amount equal to
the Yield and Collection Agent Fee accrued through such day
for such Share and not so previously held in trust and (B),
to the extent such Share of such Collections exceeds the
aforementioned amount, apply the entire amount of the excess
to the purchase, for the account of the Shareowner of such
Share, of additional undivided interests in the then
existing and new Pool Receivables by recomputation of such
Share pursuant to Section 2.06 as of the end of such day and
by paying to the Seller on the same day the amount of such
excess (and the amount of such Collections theretofore so
set aside and any Collections allocated pursuant to Section
2.07(b)(iv)); provided, however, that to the extent any
-------- -------
Shareowner shall be required for any reason to pay over to
an Obligor any amount of Collections which shall have been
previously applied to the purchase, for the account of such
Shareowner, of additional undivided interests in Pool
Receivables pursuant hereto, such amount shall be deemed not
to have been so applied to such purchase but rather to have
been retained by the Seller and paid over for the account of
such Shareowner and, notwithstanding anything herein to the
contrary, such Shareowner
<PAGE>
24
shall have a claim for such amount, payable when and to the
extent any distribution from or on behalf of such Obligor is
made in respect thereof; and
(ii) if such day is a Liquidation Day or a Provisional
Liquidation Day, out of such Collections hold in trust and,
upon the request of the Agent, set aside and hold in trust
for the Shareowner of such Share in accordance with Article
VI, the Share of Collections received on such day; provided,
--------
that if amounts are set aside pursuant to this paragraph
(ii) on any Provisional Liquidation Day that is subsequently
determined not to be a Liquidation Day, such amounts shall
be applied pursuant to paragraph (i) above on the day of
such subsequent determination.
(b) For the purposes of this Section 2.07:
(i) if on any day the Outstanding Balance of any Pool
Receivable is reduced as a result of any cancellation of a
Contract or an insurance policy, return of any premium, the
failure of any insurance agent of an Owner to pay over any
premium to such Owner or to the Seller, or any adjustment by
the Seller thereof, the Seller shall be deemed to have
received on such day a Collection of such Pool Receivable in
the amount of such reduction;
(ii) if on any day any of the representations or
warranties in Section 4.01(h), except for clause (iii)
thereof, by an Owner is no longer true with respect to any
Pool Receivable, or on any day any statement in clause (i)
of the definition of "Eligible Receivable" is no longer true
with respect to any Pool Receivable, the Seller shall be
deemed to have received on such day a Collection of such
Pool Receivable in full;
(iii) except as stated in paragraph (i) or (ii) of
this subsection 2.07(b) or as otherwise required by law or
the underlying Contract, all Collections received from an
Obligor of any Receivable shall be applied to Receivables
then outstanding of such Obligor in the order of the age of
such Receivables, starting with the oldest such Receivable,
except if payment is designated by such Obligor for
application for specific Receivables; and
(iv) if, on any day when the Collection Agent receives
a Collection of a Pool Receivable, the recomputation of a
Share in accordance with Section 2.06 would (for any reason,
including the application of Section 2.07(a)(i)) result in
the numerator of such Share exceeding its denominator, the
excess referred to in Section 2.07(a)(i) shall be applied to
the purchase of additional undivided interests in the then
existing and new Pool Receivables only to the extent, if
any, that the numerator of such Share shall not exceed its
denominator, and the remainder not so applied shall be
allocated
<PAGE>
25
and held in trust and, upon request by the Agent, set aside
by the Collection Agent for the Shareowner of such Share;
provided, however, that on any subsequent day that is
-------- -------
not a Liquidation Day when all or any portion of such amount
so allocated on any previous day may be applied pursuant to
Section 2.07(a)(i) without allowing the numerator of such
Share to exceed its denominator, such application shall be
made. For purposes of computations under this paragraph
(iv), all of the Shares outstanding at the time of
computation shall be deemed to be combined as one Share.
(c) On the last Business Day of each Settlement Period
for each Share, if no Liquidation Day for such Share occurs
during such Settlement Period, the Collection Agent shall, for
the account of the Shareowner of such Share, deposit the amounts
referred to in paragraph (i)(A) of subsection (a) above with
respect to such Share received during such Settlement Period, in
the special account of the Agent (account no. 3885-8758)
maintained with Citibank at its office at 399 Park Avenue, New
York, New York 10043 (the "Agent's Account"). Upon receipt of
---------------
such funds by the Agent, the Agent shall distribute them to the
Shareowner of such Share in payment of the accrued Yield for such
Share and to the Collection Agent in payment of the accrued
Collection Agent Fee payable with respect to such Share. If
there shall be insufficient funds on deposit for the Agent to
distribute funds in payment in full of the aforementioned
amounts, the Agent shall distribute funds, first, in payment of
-----
the accrued Yield for such Share, and second, in payment of the
------
accrued Collection Agent Fee payable with respect to such Share.
(d) On the last Business Day of each Settlement Period
for each Share, if one or more Liquidation Days for such Share
occurs during such Settlement Period, the Collection Agent shall,
for the account of the Shareowner of such Share, deposit in the
Agent's Account the amounts referred to in paragraph (ii) of
subsection (a) above with respect to such Share received during
such Settlement Period. Upon receipt of funds by the Agent, the
Agent shall distribute them (A) to the Shareowner of such Share
(x) in payment of the accrued Yield for such Share, (y) in
reduction (to zero) of the Capital of such Share and (z) in
payment of any other amounts owed by the Seller hereunder to such
Shareowner and (B) to the Collection Agent in payment of the
accrued Collection Agent Fee payable with respect to such Share.
If there shall be insufficient funds on deposit for the Agent to
distribute funds in payment in full of the aforementioned
amounts, the Agent shall distribute funds, first, in payment of
-----
the accrued Yield for such Share, second, in reduction of Capital
------
of such Share, third, in payment of other amounts payable to such
-----
Shareowner, and fourth, in payment of the accrued Collection
------
Agent Fee payable with respect to such Share. If any amounts set
aside pursuant to paragraph (ii) of subsection (a) above are not
required to be deposited to the Agent's Account pursuant to this
subsection (d), such amounts shall be paid to the Seller by the
Collection Agent.
<PAGE>
26
(e) If requested by the Agent, prior to the twelfth
Business Day following each Settlement Period, and in any event
prior to the twelfth Business Day of each month, the Collection
Agent shall prepare and forward to the Agent for each Shareowner
an Investor Report, relating to each Share owned by such
Shareowner, as of the close of business of the Collection Agent
on the last day of such Settlement Period, or of the immediately
preceding month, as the case may be.
(f) At or prior to the day the Collection Agent is
required to make a deposit with respect to a Settlement Period
pursuant to subsection (c) or (d) of this Section 2.07, the
Seller will advise the Agent of each Liquidation Day occurring
during such Settlement Period and of the allocation of the amount
of such deposit to each outstanding Share; provided, however,
-------- -------
that if the Seller is not the Collection Agent, the Seller shall
advise the Collection Agent of the occurrence of each such
Liquidation Day and Provisional Liquidation Day at or prior to
such day.
(g) On each day that is not a Liquidation Day or
Provisional Liquidation Day (or would become such a day as a
result of such release), installments under Contracts relating to
Installment Receivables in the Receivables Pool in respect of
which no installment remains a Statutory Overdue shall be deemed
to have been released automatically from the Receivables Pool.
SECTION 2.08. Payments and Computations, Etc. (a)
------------------------------
All amounts to be paid or deposited by the Seller or the
Collection Agent hereunder shall be paid or deposited in
accordance with the terms hereof no later than 11:00 A.M. (New
York City time) on the day when due in lawful money of the United
States of America in same day funds at the office of Citibank
referred to in Section 11.02.
(b) The Seller shall, to the extent permitted by law,
pay to the Agent interest on all amounts not paid or deposited
when due hereunder at the Alternate Base Rate, payable on demand,
provided, however, that such interest rate shall not at any time
-------- -------
exceed the maximum rate permitted by applicable law. Such
interest shall be for the account of, and be retained by, the
Agent except to the extent that such failure by the Seller to
make timely payment or deposit of any amount has continued beyond
the date for distribution by the Agent of any such overdue amount
to each Shareowner, in which case such interest accruing after
such date shall be for the account of, and distributed by the
Agent to, the Shareowners ratably in accordance with their
respective interests in such overdue amount.
(c) All computations of interest under subsection
(b) above and all computations of Yield and fees hereunder shall
be made on the basis of a year of 360 days for the actual number
of days (including the first but excluding the last day) elapsed.
<PAGE>
27
SECTION 2.09. Dividing or Combining of Shares. (a)
-------------------------------
The Seller may, on notice received by the Agent not later than
11:00 A.M. (New York City time) three Business Days before the
last day of any Fixed Period for any then existing Share (an
"Existing Share"), divide such Existing Share on such last day
--------------
into two or more new Shares, each such new Share having Capital
as designated in such notice and all such new Shares collectively
having aggregate Capital equal to the Capital of such Existing
Share.
(b) The Seller may, on notice received by the Agent
(i) not later than 11:00 A.M. (New York City time)
three Business Days before the last day of any Fixed Period
for two or more Existing Shares owned by the same
Shareowner, or
(ii) not later than 11:00 A.M. (New York City time)
three Business Days before the last day of any Fixed Period
for one or more Existing Shares owned by Citibank, the
Investor or CNA and the date (if such date is the same day
on such last day) of any proposed Purchase of a Share to be
made by Citibank, the Investor or CNA, respectively,
pursuant to Sections 2.02 and 2.03,
either (A) combine such Existing Shares of such Shareowner or (B)
combine such Existing Share or Shares of Citibank, the Investor
or CNA, as the case may be, and such proposed Share to be
purchased by Citibank, the Investor or CNA, as the case may be,
on such last day into one new Share of Citibank, the Investor or
CNA, as the case may be, such new Share having Capital equal to
the aggregate Capital of such Existing Shares, or such Existing
Share or Shares and such proposed Share, as the case may be.
(c) On and after any dividing of an Existing Share
pursuant to subsection (a) above or any combining of Existing
Shares or of an Existing Share or Shares and a proposed Share
pursuant to subsection (b) above, each of the new Shares
resulting from such dividing, or the new Share resulting from
such combining, as the case may be, shall be a separate Share
having Capital as set forth above, and shall take the place of
such Existing Share or Shares or proposed Share, as the case may
be, in each case under and for all purposes of this Agreement.
SECTION 2.10. Recourse for Yield. The Seller shall be
------------------
obligated to pay to the Agent, on the last day of each Settlement
Period for each Share, for the account of the Shareowner of such
Share, until the later of the Commitment Termination Date or the
date on which all Capital of all Shares is reduced to zero, an
amount equal to the accrued and unpaid Yield for such Share, by
deposit of such amount to the Agent's Account. Upon receipt of
such funds in the Agent's Account, the Agent shall distribute
such funds to the Shareowner of such Share in payment of such
accrued Yield.
<PAGE>
28
SECTION 2.11. Increased Costs, Etc. (a) If, due to
--------------------
either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance
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 either Citibank or any
of its Affiliates or any Assignee hereunder (each, an
"Indemnified Party") of agreeing to make or of making Purchases,
-----------------
or any Indemnified Party of purchasing or maintaining Shares,
then the Seller shall from time to time, upon demand by such
Indemnified Party (with a copy of such demand to the Agent), pay
to the Agent for the account of such Indemnified Party additional
amounts sufficient to compensate such Indemnified Party for such
increased cost as provided herein.
(b) If any Indemnified Party determines that
compliance with any law or regulation or any guideline or request
from any central bank or other governmental authority (whether or
not having the force of law) affects or would affect the amount
of capital required or expected to be maintained by any
Indemnified Party and that the amount of such capital is
increased by or based upon the existence of any commitment to
make purchases of or otherwise to maintain the investment in Pool
Receivables or interest therein hereunder or to the funding
thereof, then, upon demand by the Agent, the Seller shall
immediately pay to the Agent, for the account of such Indemnified
Party (as third party beneficiaries), from time to time as
specified by the Agent, additional amounts sufficient to
compensate such Indemnified Party in the light of such
circumstances, to the extent that such Indemnified Party
reasonably determines such increase in capital to be allocable to
the existence of any such commitments, provided that the Seller's
liability for amounts under this Section 2.11 shall be limited to
those amounts which (i) were payable in respect of the one month
immediately preceding written notice from the Agent and (ii)
become payable at any time after such notice. A certificate as
to such amounts, giving a reasonable explanation thereof,
submitted to the Seller by such Indemnified Party shall be
conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Shares for which the
Investor Rate is determined by reference to the Eurodollar Rate,
the Owner of such Share notifies the Agent that the Eurodollar
Rate for any Fixed Period for such Share will not adequately
reflect the cost to such Owner of making, funding or maintaining
such Shares for such Interest Period, the Agent shall forthwith
so notify the Seller and the Owners, whereupon each such Share
will automatically, on and after the last day of the then
existing Fixed Period therefor, have its Investor Rate equal to
the Alternate Base Rate.
(d) Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful,
or any central bank or other governmental authority shall assert
that it is unlawful, for any Owner to fund or maintain any Share
for which the Investor Rate is
<PAGE>
29
determined by reference to the Eurodollar Rate, then, on notice
thereof and demand therefor by such Owner to the Seller through the
Agent, each such Share will automatically, on and after the last day
of the then existing Fixed Period thereof, have its Investor Rate
equal to the Alternate Base Rate.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial
-------------------------------
Purchase. The initial Purchase under the Receivables Agreement
--------
was subject to the condition precedent that the Agent shall have
received on or before the date of such Purchase the following,
each (unless otherwise indicated) dated such date, in form and
substance satisfactory to the Agent:
(a) The Certificates for Citibank, the Investor and
CNA;
(b) A copy of the resolutions of the Board of
Directors of each Owner approving this Agreement, the
Certificates and the other documents to be delivered by it
hereunder and the transactions contemplated hereby,
certified by its Secretary or Assistant Secretary;
(c) A certificate of the Secretary or Assistant
Secretary of each Owner certifying the names and true
signatures of the officers authorized on its behalf to sign
this Agreement, the Certificates and the other documents to
be delivered by it hereunder (on which certificate the
Agent, Citibank, the Investor and CNA may conclusively rely
unless and until such time as the Agent shall receive from
such Owner a revised certificate meeting the requirements of
this subsection (c));
(d) Except to the extent waived by the Agent, from
each Owner, acknowledgment copies of proper Financing
Statements (Form UCC-1), dated a date reasonably near to the
date of the initial Purchase, naming such Owner as the
assignor of Receivables and CNA, as Agent, as assignee, or
other similar instruments or documents, as may be necessary
or, in the opinion of the Agent, desirable under the UCC of
all appropriate jurisdictions or any comparable law to
perfect Citibank's, the Investor's and CNA's ownership
interests in all Receivables in which an interest may be
assigned to them hereunder;
(e) Except to the extent waived by the Agent,
certified copies of Requests for Information or Copies (Form
UCC-11) (or a similar search report certified by a party
acceptable to the Agent), dated a date reasonably near to
the date of the initial
<PAGE>
30
Purchase, listing all effective financing statements which name
each Owner (under its present name and any previous name) as
debtor and which are filed in the jurisdictions in which filings
were made pursuant to subsection (d) above, together with copies
of such financing statements (none of which shall cover any
Receivables or Contracts);
(f) The notice of initial Designated Obligors required
by Section 2.01;
(g) A favorable opinion of Martin D. Haber, Esq.,
counsel for each Owner, in substantially the form of Exhibit
H and as to such other matters as the Agent may reasonably
request;
(h) Acknowledgment copies of proper Financing
Statements (Form UCC-1), dated a date reasonably near to the
date of the initial Purchase, naming the Investor as the
assignor of Receivables and CNA, as Agent for Citibank and
CNA, as assignee, or other similar instruments or documents,
as may be necessary or, in the opinion of the Agent,
desirable under the UCC of all appropriate jurisdictions or
any comparable law to perfect Citibank's and CNA's ownership
interests in all Receivables in which an interest may be
assigned to them hereunder;
(i) Certified copies of Requests for Information or
Copies (Form UCC-11) (or a similar search report certified
by a party acceptable to the Agent), dated a date reasonably
near to the date of the initial Purchase, listing all
effective financing statements which name the Investor
(under its present name and any previous name) as debtor and
which are filed in the jurisdictions in which filings were
made pursuant to subsection (h) above, together with copies
of such financing statements (none of which shall cover any
Receivables or Contracts); and
(j) A favorable opinion of Messrs. Shearman &
Sterling, counsel for Citibank and CNA, individually and as
Agent, as to such matters as Citibank and CNA may reasonably
request.
SECTION 3.02. Conditions Precedent to All Purchases.
-------------------------------------
Each Purchase (including the initial Purchase) hereunder shall be
subject to the further conditions precedent that (a) on or prior
to the date of such Purchase, the Collection Agent shall have
delivered to the Agent, in form and substance satisfactory to the
Agent, a completed Investor Report dated within 35 days of the
date of such Purchase and containing such additional information
as may be reasonably requested by the Agent, (b) on the date of
such Purchase the following statements shall be true (and each
Owner, by accepting through the Seller the amount of such
Purchase, shall be deemed to have certified, as to the
representations and warranties of such Owner and events relating
to such Owner, that):
<PAGE>
31
(i) The representations and warranties of each Owner
contained in Section 4.01 hereof and of the Company
contained in Section 6 of the Company Agreement are correct
on and as of the date of such Purchase as though made on and
as of such date;
(ii) No event has occurred and is continuing, or would
result from such Purchase, which constitutes an Event of
Termination or would constitute an Event of Termination but
for the requirement that notice be given or time elapse or
both;
(iii) The Agent shall not have delivered to the
Seller a notice that the Investor shall not make any further
Purchases hereunder or that the Collection Agent shall not
reinvest in any Pool Receivables on behalf of the Investor;
and
(iv) On such date, all of Continental's or the
Company's long-term public senior debt securities are rated
at least BBB- by S&P or Baa3 by Moody's, or if unrated,
deemed to be the equivalent thereof by the Agent.
and (c) the Agent shall have received such other approvals,
opinions or documents as the Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Designation of
--------------------------------------
Designated Obligors and to Reinvestments of Collections. The
-------------------------------------------------------
designation of additional Obligors as Designated Obligors
pursuant to Section 2.01 and the right of the Collection Agent to
reinvest in Pool Receivables on behalf of each Shareowner of a
Share those Collections allocable to such Share pursuant to
Section 2.07(a)(i) shall be subject to the condition precedent
that the following statements shall be true on the day of such
designation or reinvestment, as the case may be (and the Seller,
by making such designation, or receiving the proceeds of such
reinvestment, shall be deemed to have certified on behalf of each
Owner, as to the representations and warranties of such Owner and
the events relating to such Owner, that):
(i) The representations and warranties of each Owner
contained in Section 4.01 hereof and of the Company
contained in Section 6 of the Company Agreement are correct
on and as of the date of such Purchase as though made on and
as of such date;
(ii) No event has occurred and is continuing, or would
result from such adjustment or designation, which
constitutes an Event of Termination or would constitute an
Event of Termination but for the requirement that notice be
given or time elapse or both;
<PAGE>
32
(iii) The Agent shall not have delivered to the
Seller a notice that the Investor shall not make any further
Purchases hereunder or that the Collection Agent shall not
reinvest in any Pool Receivables on behalf of the Investor;
and
(iv) On such date, all of Continental's or the
Company's long-term public senior debt securities are rated
at least BBB- by S&P or Baa3 by Moody's, or if unrated,
deemed to be the equivalent thereof by the Agent.
SECTION 3.04. Conditions Precedent to Effectiveness of
----------------------------------------
Amendment and Restatement. This Agreement shall amend and
-------------------------
restate the Receivables Agreement, and the terms of the
Receivables Agreement shall be superseded by the terms hereof.
This Agreement shall become effective on and as of the date on or
before which the Agent shall have received the following, each
(unless otherwise indicated) dated such date, in form and
substance satisfactory to the Agent:
(a) The Company Agreement, duly executed as of the
date hereof;
(b) Copies, certified as of such date, of (i) the
resolutions of the Board of Directors of each Owner
approving this Agreement and the matters contemplated
hereby, (ii) the resolutions of the Board of Directors of
the Company approving the execution and delivery of this
Agreement by the Owners and the matters contemplated hereby
and thereby and (iii) all documents evidencing other
necessary corporate action and governmental approvals, if
any, with respect to this Agreement and the matters
contemplated hereby and thereby;
(c) A certificate of the Secretary or an Assistant
Secretary of each Owner (other than Continental Lloyd's)
certifying the names and true signatures of the officers of
each Owner authorized to sign this Agreement and the other
documents to be delivered by it hereunder and a certificate
of the attorney-in-fact of Continental Lloyd's certifying
that he is the duly appointed attorney-in-fact of
Continental Lloyd's;
(d) 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 sign
the documents to be delivered by it hereunder;
(e) A certificate of each Owner signed by a duly
authorized officer (or, in the case of Continental Lloyd's,
the attorney-in-fact) of each Owner stating that:
<PAGE>
33
(i) The representations and warranties contained
in Section 4.01 are correct on and as of the date of
such certificate as though made on and as of such date,
and
(ii) No event has occurred and is continuing, or
would result from this Agreement, which constitutes an
Event of Termination or would constitute an Event of
Termination but for the requirement that notice be
given or time elapse or both;
(f) A certificate of the Company signed by a duly
authorized officer of the Company stating that:
(i) The representations and warranties contained
in Section 6 of the Company Agreement (except that,
with respect to Continental Lloyd's Insurance Company,
Section 6(e) shall be deemed to read: The Company is
the beneficial direct or indirect owner of all of the
interests in Continental Lloyd's Insurance Company) are
correct on and as of the date of such certificate as
though made on and as of such date,
(ii) No event has occurred and is continuing, or
would result from this Agreement, which constitutes an
Event of Termination or would constitute an Event of
Termination but for the requirement that notice be
given or time elapse or both,
(iii) The Company has received $275 million in
cash from the Equity Investor (or a wholly owned
subsidiary thereof) as payment for the issuance by the
Company of shares of its Series F Preferred Stock,
Series H Preferred Stock and Series T Preferred Stock
(such Series F Preferred Stock, Series H Preferred
Stock and Series T Preferred Stock being, collectively,
the "Preferred Stock") pursuant to the Securities
---------------
Purchase Agreement dated as of December 6, 1994 between
the Company and the Equity Investor as set forth in the
Current Report (the "Current Report") on Form 8-K dated
--------------
December 9, 1994 of the Company filed with the
Securities and Exchange Commission. The Current
Report, including all exhibits thereto, and the other
information furnished by or on behalf of the Company
with respect to the transactions described in the
Current Report do not contain any untrue statement of a
material fact or fail to state a material fact
necessary to make the statements made therein not
misleading,
<PAGE>
34
(iv) No authorization or approval or other action
by any governmental authority or regulatory body was
required for the valid issuance by the Company of the
Preferred Stock, and
(v) An excerpt attached thereto from the
disclosure letter referred to in Section 4.1 of the
Agreement and Plan of Merger by and among the Equity
Investor, Chicago Acquisition Corp., and the Company
dated as of December 6, 1994 is true and correct and
provides the required consent of the Equity Investor to
the execution, delivery and performance of, and the
transactions contemplated by, this Agreement and the
Company Agreement;
(g) Acknowledgment copies or stamped receipt copies of
proper financing statements, dated on or before the date
hereof, naming Continental Reinsurance Corporation and any
other Owner as the assignor of Receivables and CNA, as
Agent, as the assignee, or other similar instruments or
documents, as may be necessary or, as the opinion of the
Agent, desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the ownership
interests in all Receivables in which an interest may be
assigned hereunder;
(h) Completed requests for information, dated on or
before the date hereof, listing the financing statements
referred to in subsection (g) above and all other effective
financing statements filed in the jurisdictions referred to
in subsection (g) above that name Continental Reinsurance
Corporation and such other Owner as debtor, together with
copies of such financing statements (none of which shall
cover any Receivables or Contracts);
(i) An Assumption Agreement signed by Continental
Reinsurance Corporation and any other new Owner in form and
substance satisfactory to the Agent;
(j) A favorable opinion of counsel for each Owner as
to the due execution and delivery pursuant to due
authorization by each Owner of this Agreement and confirming
and restating, giving effect to this Agreement, the
substance of the opinion of Martin D. Haber, Esq. delivered
pursuant to Section 3.01; and
(k) A favorable opinion of counsel for the Company, in
form and substance satisfactory to the Agent.
<PAGE>
35
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of each
--------------------------------------
Owner. Each Owner represents and warrants as follows:
-----
(a) Such Owner (other than Continental Lloyd's) is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction named at the
beginning hereof. Continental Lloyd's has been duly formed
as a Lloyd's organization under the Texas Insurance Code and
is validly existing and in good standing under the laws of
the State of Texas.
(b) The execution, delivery and performance by such
Owner of this Agreement, the Certificates and all other
instruments and documents to be delivered hereunder, and the
transactions contemplated hereby and thereby, are within
such Owner's corporate powers, have been duly authorized by
all necessary corporate action, do not contravene (i) the
charter or by-laws of such Owner (other than Continental
Lloyd's) or the Articles of Agreement among Underwriters of
Continental Lloyd's or (ii) any law or any contractual
restriction binding on or affecting such Owner, and do not
result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect
to any of its properties; and no transaction contemplated
hereby requires compliance with any bulk sales act or
similar law.
(c) No authorization or approval or other action by,
and no notice to or filing with, any governmental authority
or regulatory body or any other Person (including, without
limitation, the Equity Investor or any of its Affiliates) is
required for the due execution, delivery and performance by
such Owner of this Agreement, the Certificates or any other
document or instrument to be delivered hereunder except for
------
(i) the filing of the UCC Financing Statements and the
consent of the Equity Investor referred to in Article III,
all of which, at the time required in Article III, shall
have been duly made and shall be in full force and effect
and (ii) the execution by the Company of the Company
Agreement.
(d) This Agreement and the Company Agreement
constitute, and each Certificate when delivered hereunder
shall constitute, the legal, valid and binding obligation of
such Owner or the Company, as the case may be, enforceable
against such Owner or the Company, as the case may be, in
accordance with their respective terms.
<PAGE>
36
(e) The statutory balance sheet of such Owner as at
December 31, 1993, and the related statutory statements of
income and surplus of such Owner for the fiscal year then
ended, and the statutory balance sheet of such Owner as at
September 30, 1994, and the related statutory statements of
income and surplus of such Owner for the nine-month period
then ended, certified by the controller or other appropriate
officer of such Owner, copies of which have been furnished
to the Agent, fairly present the financial condition of such
Owner for the periods ended on such dates, all in accordance
with the accounting principles prescribed or permitted and
authorized by the department of insurance of the state of
incorporation of such Owner and consistently applied to such
financial statements, and since September 30, 1994, there
has been no material adverse change in any such condition or
operations.
(f) There are no actions, suits or proceedings
pending, or to the knowledge of such Owner threatened,
against or affecting such Owner or any subsidiary, or the
property of such Owner or of any subsidiary, in any court,
or before any arbitrator of any kind, or before or by any
governmental body, which may materially adversely affect the
ability of such Owner to perform its obligations under this
Agreement or the Certificates delivered pursuant hereto.
Neither such Owner nor any subsidiary is in default with
respect to any order of any court, arbitrator or
governmental body except for defaults which will not
materially adversely affect the ability of such Owner to
perform its obligations under this Agreement or the
Certificates delivered pursuant hereto.
(g) No proceeds of any Purchase will be used by such
Owner to acquire any security in any transaction which is
subject to Sections 13 and 14 of the Securities Exchange Act
of 1934.
(h) Each Pool Receivable shall (i) at the time that
Citibank, the Investor or CNA initially purchases a Share in
such Pool Receivable, be owned 100% (except as to interests
sold to and purchased by Citibank, the Investor or CNA
hereunder) by the Seller free and clear of any Adverse
Claim, (ii) at all times comply with the criteria of clauses
(ii) through or (x) of the definition of "Eligible
Receivable", (iii) to the best of such Owner's knowledge, at
all times comply with the criteria of clause (i) of the
definition of "Eligible Receivable" and (iv) together with
the Contract related thereto, at all times be free and clear
of any Adverse Claim except as provided hereunder. Upon
each Purchase, Citibank, the Investor or CNA making such
Purchase shall acquire a valid and perfected first priority
undivided ownership interest to the extent of the Share
purchased by such Purchase in each Pool Receivable then
existing or thereafter arising and in the Related Security
and Collections with respect thereto free and clear of any
Adverse Claim except as provided hereunder; and no effective
financing statement or other instrument similar in effect
covering any Pool
<PAGE>
37
Receivable or the Related Security or Collections with respect
thereto shall at any time be on file in any recording office
except such as may be filed in favor of the Agent in accordance
with this Agreement. At the time of the initial Purchase on or
after the date hereof, the aggregate Outstanding Balance of Pool
Receivables which are Defaulted Receivables will not exceed
$15,000,000.
(i) No Investor Report (if prepared by the Seller on
behalf of such Owner, or to the extent that information
contained therein is supplied by the Seller on behalf of
such Owner), information, exhibit, financial statement,
document, book, record or report furnished or to be
furnished by the Seller to the Agent or any Shareowner in
connection with this Agreement is or shall be inaccurate in
any material respect as of the date it is or shall be dated
or (except as otherwise disclosed to the Agent or such
Shareowner, as the case may be, at such time) as of the date
so furnished, or contains or shall contain any material
misstatement of fact or omits or shall omit to state a
material fact or any fact necessary to make the statements
contained therein not materially misleading.
(j) The chief executive office of such Owner, if other
than Casualty Insurance Company and Continental Lloyd's
Insurance Company, is located at 180 Maiden Lane, New York,
New York 10038; the chief executive office of such Owner, if
Casualty Insurance Company, is 321 Clark Street, Chicago,
Illinois 60610; and the chief executive office of such
Owner, if Continental Lloyd's Insurance Company, is 600
North Pearl Street, Dallas, Texas 75201; and the offices
where such Owner keeps all of its books, records and
documents evidencing the Pool Receivables or the related
Contracts are located at the addresses specified in Exhibit
I (or at such other locations, permitted by Section 5.01(e),
in jurisdictions where all action required by Section 6.05
has been taken and completed).
(k) All of the capital stock of such Owner (other than
Continental Lloyd's Insurance Company) is directly or
indirectly owned beneficially and of record by the Company.
All of the interests of Continental Lloyd's Insurance
Company are directly or indirectly owned beneficially by the
Company.
(l) Each Pool Receivable is assignable under
applicable law and is not subject to any restriction or
limitation upon assignment under the related Contract,
insurance policy or any other agreements or arrangements
with or relating to such Pool Receivable.
(m) No Plan Termination Event has occurred or is
reasonably expected to occur with respect to any Plan.
<PAGE>
38
(n) The Intercompany Pooling Agreement constitutes the
legal, valid and binding obligation of each Owner
enforceable against such Owner in accordance with its terms.
Pursuant to the Intercompany Pooling Agreement, each Owner
(i) has purchased and, immediately prior to each Purchase
and each reinvestment of Collections, owns, free and clear
of any Adverse Claim except as provided under this
Agreement, a discrete participation and percentage interest
in each Pool Receivable which is the subject of such
Purchase or reinvestment, (ii) receives, in connection with
such Purchase, an amount equal to such percentage of the
aggregate Capital of the Share purchased and (iii) together
with each other Owner, is, immediately prior to such
Purchase or reinvestment, the owner of such Pool Receivable
in its entirety.
ARTICLE V
GENERAL COVENANTS OF EACH OWNER
SECTION 5.01. Affirmative Covenants of each Owner. So
-----------------------------------
long as any Capital for any Share shall be existing, or Citibank
shall have any Commitment, each Owner will, unless the Agent
shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material
-------------------------
respects with all applicable laws, rules, regulations, and
orders with respect to it, its business and properties and
all Pool Receivables and related Contracts; provided,
--------
however, that with respect to such business and properties
-------
this Section 5.01(a) is applicable to the extent that the
failure to so comply might materially adversely affect such
Owner.
(b) Preservation of Corporate Existence. Preserve and
-----------------------------------
maintain its corporate (or, in the case of Continental
Lloyd's, its Lloyd's organizational) existence, rights,
franchises and privileges in the jurisdiction of its
incorporation or, in the case of Continental Lloyd's, its
organization, and remain licensed as a foreign insurer in
each other jurisdiction in which it conducts an insurance
business and is required to be so licensed where the failure
to preserve and maintain such existence, rights, franchises,
privileges and license would materially adversely affect the
interests of a Shareowner hereunder or in the Pool
Receivables or the ability of such Owner or the Collection
Agent to perform its obligations hereunder.
(c) Audits. At any time and from time to time during
------
regular business hours upon two Business Days' prior
notification to such Owner, permit the Agent, or its agents
or representatives, (i) to examine and make copies of and
abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the
possession or under the control of such Owner relating to
the Pool
<PAGE>
39
Receivables, including, without limitation, the related
Contracts, and (ii) to visit the offices and properties
of such Owner located at the addresses specified in Exhibit
H (or at such other locations as are notified to the Agent
from time to time in accordance with Section 5.01(e)) for
the purpose of examining such materials described in
subsection (i) above, and to discuss matters relating
to the Pool Receivables or such Owner's performance
hereunder with any of the officers or employees of such
Owner having knowledge of such matters. The Agent agrees
that it will not disclose and will not permit any of its
agents or representatives to disclose (other than to its
employees, auditors or counsel) any information with respect
to any Owner which is furnished or obtained pursuant to this
Section 5.01(c) or Section 5.02; provided, however, that the
-------- -------
Agent may disclose any such information (a) as may be
required or appropriate in any report, statement or
testimony submitted to any municipal, state or federal
regulatory body having jurisdiction over it, (b) as may be
required or appropriate in response to any summons or
subpoena or in connection with any litigation and (c) to the
extent that it believes it appropriate, to protect the
investment of a Shareowner hereunder in the Pool Receivables
or in order to comply with any law, order, regulation or
ruling applicable to the Agent.
(d) Keeping of Records and Books of Account. Maintain
---------------------------------------
and implement, or cause to be maintained or implemented,
administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing the
Pool Receivables in the event of the destruction of the
originals thereof), and keep and maintain, or cause to be
kept and maintained, all documents, books, records and other
information reasonably necessary or advisable for the
collection of all Pool Receivables (including, without
limitation, records adequate to permit the daily
identification of each new Pool Receivable and all
Collections of and adjustments to each existing Pool
Receivable).
(e) Location of Records. Keep its chief place of
-------------------
business and chief executive office, and the offices where
it keeps its records concerning the Pool Receivables and all
Contracts related thereto (and all original documents
relating thereto), at the addresses of such Owner referred
to in Section 4.01(j) or at any other address where no
additional action is required by Section 6.05 to be taken or
completed on account of such office being located at such
address, or, upon 30 days' prior written notice to the
Agent, at such other address or addresses where all action
required by Section 6.05 shall have been taken and
completed. Within three Business Days after having been
requested to do so by the Agent, the Seller will deliver to
the Agent a list setting forth, as of the date on which such
list is delivered, the chief place of business and chief
executive office of each Owner, and the offices where each
Owner keeps its records concerning the Pool Receivables and
all Contracts related thereto (and all original documents
relating thereto).
<PAGE>
40
(f) Credit and Collection Policies. Comply in all
------------------------------
material respects with its Credit and Collection Policy in
regard to each Pool Receivable and the related Contract.
(g) Renegotiation of Agreement. Negotiate in good
--------------------------
faith any structural modifications to, or changes to the
terms and conditions of, this Agreement as may be proposed
by the Agent in its sole discretion based on the information
provided to it pursuant to Section 5.02(e) or, to the extent
that any Owner fails to provide such information, based on
such other information as is available to the Agent.
SECTION 5.02. Reporting Requirements of each Owner.
------------------------------------
So long as any Capital for any Share shall be existing, or
Citibank shall have any Commitment, each Owner will, unless the
Agent shall otherwise consent in writing, furnish to the Agent:
(a) as soon as available and in any event within 60
days after the end of each of the first three quarters of
each fiscal year of such Owner, a statutory balance sheet of
such Owner as of the end of such quarter, and statutory
statements of income and surplus of such Owner each for the
period commencing at the end of the previous fiscal year and
ending with the end of such quarter, certified by the
controller or other appropriate officer of such Owner;
(b) as soon as available and in any event within 120
days after the end of each fiscal year of such Owner, a copy
of the statutory balance sheet of such Owner as of the end
of such year and the related statutory statements of income
and surplus of such Owner for such year each reported on by
the controller or other appropriate officer of such Owner;
(c) promptly after the filing or receiving thereof,
copies of all reports and notices with respect to any
reportable event, as defined in Article IV of ERISA, which
such Owner or any subsidiary files under ERISA (other than
any reportable event for which the 30 day reporting
requirement has been waived by regulation) with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation
or the U.S. Department of Labor or which such Owner or any
subsidiary receives from such Corporation;
(d) as soon as possible and in any event within five
days after the occurrence of each Event of Termination or
each event which, with the giving of notice or lapse of time
or both, would constitute an Event of Termination, the
statement of the chief financial officer or chief accounting
officer of such Owner setting forth details of such Event of
Termination or event and the action which such Owner
proposes to take with respect thereto;
<PAGE>
41
(e) (i) on or before January 31, 1996, such
information, documents, records or reports respecting the
Receivables as the Agent may request, it being understood
that such information may be based on such sampling
techniques as are satisfactory to, and, at its discretion,
tested by, the Agent and (ii) on or before December 15,
1995, actual information, documents, records or reports
respecting the Receivables as are satisfactory to the Agent;
and
(f) promptly, from time to time, such other
information, documents, records or reports respecting the
Receivables or the conditions or operations, financial or
otherwise, of such Owner, or any subsidiary as the Agent may
from time to time reasonably request in order to protect the
interests of the Shareowners under or contemplated by this
Agreement or the related Certificates.
SECTION 5.03. Negative Covenants of each Owner. So
--------------------------------
long as any Capital for any Share shall be existing, or Citibank
shall have any Commitment, each Owner will not, without the
written consent of the Agent:
(a) Sales, Liens, Etc. Except as otherwise provided
-----------------
herein, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist, any
Adverse Claim upon or with respect to, the Seller's
undivided interest in any Pool Receivable or related
Contract, or assign any right to receive income in respect
thereof.
(b) Extension or Amendment of Receivables. Except as
-------------------------------------
otherwise permitted in Section 6.02(c), extend, amend or
otherwise modify the terms of any Pool Receivables.
(c) Change in Business or Credit and Collection
-------------------------------------------
Policy. Make any change in the character of its business or
------
in the Credit and Collection Policy which change would, in
either case, materially impair the collectibility of any
Pool Receivable.
(d) Amendments, Etc. to Intercompany Pooling
----------------------------------------
Agreement. Amend, modify or waive by one or more addenda or
---------
otherwise any provision of the Intercompany Pooling
Agreement or consent to any departure therefrom which would
(giving effect to one or more additional Owners becoming
parties hereto pursuant to Section 11.10) have the effect of
diluting, transferring, selling or otherwise disposing of
the ownership interest of any Owner in any Pool Receivable.
<PAGE>
42
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. (a)
-------------------------------
The servicing, administering and collection of the Pool
Receivables shall be conducted by such Person (the "Collection
----------
Agent") so designated from time to time in accordance with this
-----
Section 6.01. Until the Agent gives notice to the Seller of a
designation of a new Collection Agent, Continental is hereby
designated as, and hereby agrees to perform the duties and
obligations of, the Collection Agent pursuant to the terms
hereof.
(b) The Agent, at any time it reasonably deems itself
insecure, upon three Business Days' notice to the Seller, may
designate as Collection Agent any Person (including itself) to
succeed Continental as Collection Agent, and designate any Person
(including itself) to succeed any successor Collection Agent, on
the condition in each case that any such Person so designated
shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. Provided no
Events of Termination specified in subsections (f) and (h)(ii) of
Section 7.01 shall have occurred and be continuing, any Person
designated by the Agent to succeed any Owner as Collection Agent
shall subcontract with the Seller or any Owner designated by the
Seller for the performance of certain limited duties in the
collection of Pool Receivables, including the giving of any
notice to Obligors of Pool Receivables; provided, however, that
-------- -------
any such subcontract shall be terminable by the Agent, upon three
Business Days' notice by the Agent to the Seller, if the Agent
shall determine, in its sole discretion, that such Owner is not
satisfactorily performing its duties and obligations. For
performing such limited duties such Owner shall receive a fee to
be agreed upon by the Agent and the Seller.
(c) For purposes of satisfying the condition contained
in subsection (b) above, the Agent hereby agrees that if and when
it shall designate itself as the Collection Agent it shall
perform the duties and obligations of the Collection Agent
pursuant to the terms hereof. Subject to the provisions of
subsection (b) above, the Collection Agent may, with the prior
consent of the Agent, subcontract with any other Person for
servicing, administering or collecting the Pool Receivables,
provided that the Collection Agent shall remain liable for the
--------
performance of the duties and obligations of the Collection Agent
pursuant to the terms hereof.
SECTION 6.02. Duties of Collection Agent. (a) The
--------------------------
Collection Agent shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Pool Receivable
from time to time, all in accordance with applicable laws, rules
and regulations, with reasonable care and diligence, and in
accordance with the Credit and Collection Policy. The Seller,
Citibank, the Investor and CNA each hereby appoints as their
<PAGE>
43
respective agent the Collection Agent, from time to time
designated pursuant to Section 6.01 to enforce their respective
rights and interests in and under the Pool Receivables, the
Related Security and the Contracts.
(b) The Collection Agent shall hold in trust for the
account of the Seller and for the Agent on behalf of the
respective accounts of each holder of a Certificate their
respective allocable shares of the Collections of Pool
Receivables in accordance with Section 2.07, but shall not be
required (unless otherwise requested by the Agent) to segregate
the funds constituting such portion of such Collections (other
than as provided in Section 2.07) prior to the remittance thereof
in accordance with said Section.
(c) Provided no Event of Termination shall have
occurred and be continuing, any Owner, while it is Collection
Agent, may, in accordance with the Credit and Collection Policy,
extend the maturity or adjust the Outstanding Balance of any Pool
Receivable as such Owner may determine to be appropriate to
maximize collections thereof.
(d) In the event that any Owner is replaced as
Collection Agent by another Person designated by the Agent, such
Owner shall, except to the extent necessary to perform any
responsibilities under a subcontract or to comply with applicable
law, deliver to the Collection Agent, and the Collection Agent
shall hold in trust for the Seller and the Agent on behalf of
each Shareowner in accordance with their respective interests,
all documents, instruments and records (including, without
limitation, computer tapes or disks) which evidence or relate to
Pool Receivables.
(e) The Collection Agent shall as soon as practicable
following receipt turn over to the Seller (i) that portion of
Collections of Pool Receivables representing its undivided
interest therein, less, in the event an Owner is not the
Collection Agent, all reasonable and appropriate out-of-pocket
costs and expenses of such Collection Agent of servicing,
collecting and administering the Pool Receivables to the extent
not covered by the Collection Agent Fee received by it and (ii)
the Collections of any Receivable which is not a Pool Receivable.
(f) The Collection Agent, if other than an Owner,
shall as soon as practicable upon demand deliver to the Seller
all documents, instruments and records in its possession which
evidence or relate to Receivables other than Pool Receivables,
and copies of documents, instruments and records in its
possession which evidence or relate to Pool Receivables.
(g) The Collection Agent shall, at any time and from
time to time at the request of the Agent, furnish to the Agent
(within four Business Days after such request) the calculation of
each Share.
<PAGE>
44
(h) The Collection Agent's authorization under this
Agreement shall terminate, after the Commitment Termination Date,
upon receipt by each Shareowner of an amount equal to the Capital
for Shares owned by it, plus all other amounts owed to the Agent,
each Shareowner and the Seller and (unless otherwise agreed by
the Agent and the Collection Agent) the Collection Agent under
this Agreement.
SECTION 6.03. Rights and Duties of the Agent. At any
------------------------------
time following any designation by the Agent of a Collection Agent
other than any Owner pursuant to Section 6.01:
(i) The Agent may notify the Obligors of Pool
Receivables of the ownership of Shares by any Shareowner or
all of them, and may direct that payment of all amounts due
or to become due under any or all Pool Receivables be made
directly to the Agent or its designee.
(ii) The Seller shall, at the Agent's request and at
the Seller's expense, give notice of such ownership to each
said Obligor and direct that payments be made directly to
the Agent or its designee.
(iii) The Seller shall, at the Agent's request, (A)
assemble all of the documents, instruments and other records
(including, without limitation, computer tapes and disks)
which evidence the Pool Receivables and the related
Contracts and Related Security or which are otherwise
necessary or desirable to collect such Pool Receivables and
shall make the same available to the Agent at a place
selected by the Agent or its designee and (B) segregate all
cash, checks and other instruments received by it from time
to time constituting Collections of Pool Receivables in a
manner acceptable to the Agent and shall, promptly upon
receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to
the Agent or its designee.
(iv) The Seller, Citibank, the Investor and CNA hereby
authorize the Agent to take any and all steps in the
Seller's name and on behalf of each Owner, Citibank, the
Investor and CNA, respectively, necessary or desirable, in
the reasonable determination of the Agent, to collect all
amounts due under any and all Pool Receivables, including,
without limitation, endorsing any Owner's name on checks and
other instruments representing Collections and enforcing
such Pool Receivables and the related Contracts.
SECTION 6.04. Responsibilities of the Seller.
------------------------------
Anything herein to the contrary notwithstanding:
<PAGE>
45
(a) The exercise by the Agent of any of its rights
hereunder shall not release the Seller from any of its
duties or obligations with respect to the Pool Receivables
or related Contracts and owed to any party to any of such
Contracts;
(b) So long as any Owner or any other Person
subcontracting with such Owner shall act as Collection Agent
hereunder, neither the Agent nor any Shareowner shall have
any obligation or liability with respect to any Pool
Receivables or related Contracts, nor shall any of them be
obligated to perform any of the duties or obligations of the
Seller or any Owner thereunder. In the event that any other
Person shall act as Collection Agent, the liabilities of the
Agent or any Shareowner referred to above in respect of any
Pool Receivable or related Contract shall be limited
to any losses, damages, or liabilities, arising from or as a
result of their gross negligence or wilful misconduct,
subject to the provisions of Section 6.01(c) in the case of
the Agent;
(c) The Seller shall promptly notify the Agent of any
claim or threatened claim, other than by Citibank, the
Investor or CNA, probable, in the opinion of the management
of the Seller, to result in any material liability arising
under or incurred in connection with the provisions of
Article X; and
(d) The Seller shall, within ten Business Days of the
end of each fiscal month, or within ten Business Days of
such time as the Agent may request, furnish Investor Reports
and lists of changes in Designated Obligors, if any.
SECTION 6.05. Further Action Evidencing Purchases.
-----------------------------------
(a) The Seller agrees that from time to time, at its expense, it
will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or
desirable or that the Agent may reasonably request, in order to
perfect, protect or more fully evidence the Shares purchased
hereunder, or to enable any Shareowner or the Agent to exercise
or enforce any of their respective rights hereunder or under the
Certificates. Without limiting the generality of the foregoing,
each Owner will upon the request of the Agent: (i) execute and
file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or appropriate; and (ii) mark its master data
processing records evidencing such Pool Receivables and related
Contracts with a legend, acceptable to the Agent, evidencing that
such Shares have been sold in accordance with this Agreement.
(b) The Seller hereby authorizes the Agent to file one
or more financing or continuation statements, and amendments
thereto, relative to all or any of the Pool Receivables now
existing or hereafter arising without the signature of the Seller
or any Owner where permitted by law.
<PAGE>
46
(c) If the Seller fails to perform any of its
agreements or obligations under this Agreement, the Agent may,
upon three Business Days' prior written notification to the
Seller (but shall not be required to), itself perform, or cause
performance of, such agreement or obligation, and the expenses of
the Agent reasonably incurred in connection therewith shall be
payable by the Seller as provided in Section 10.01.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the
---------------------
following events ("Events of Termination") shall occur and be
---------------------
continuing:
(a) If any Owner is acting as a Collection Agent, the
Collection Agent (i) shall fail to perform or observe any
term, covenant or agreement hereunder (other than as
referred to in clause (ii) below) and such failure shall
remain unremedied for three Business Days or (ii) shall fail
to make any payment or deposit to be made by it hereunder
when due; or
(b) Any representation or warranty made or deemed to
be made by any Owner or the Seller (or any of its officers)
under or in connection with this Agreement or by the Company
(or any of its officers) under or in connection with the
Company Agreement or any Investor Report or other
information or report delivered pursuant hereto, shall prove
to have been false or incorrect in any material respect when
made; or
(c) The Seller or any Owner or the Company shall fail
to perform or observe any other term, covenant or agreement
contained in this Agreement or in the Company Agreement,
respectively, on its part to be performed or observed and
any such failure shall remain unremedied for three Business
Days after written notice thereof shall have been given by
the Agent to the Seller or the Company, respectively; or
(d) Any Owner or the Company shall fail to pay any
Debt (in an aggregate principal amount in excess of
$5,000,000), or any installment thereof or any interest or
premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument
relating to such Debt; or any other default under any
agreement or instrument relating to any such Debt, or any
other event, shall occur and shall continue after the
applicable grace period, if
<PAGE>
47
any, specified in such agreement or instrument, if the effect of
such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof; or
(e) Any Purchase shall for any reason, except to the
extent permitted by the terms hereof, cease to create a
valid and perfected first priority undivided ownership
interest to the extent of the Share purchased or purported
to be purchased by such Purchase in each Pool Receivable and
the Related Security and Collections with respect thereto;
or
(f) (i) Any Owner or the Company shall generally not
pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against any Owner
or the Company seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief,
or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property
and, if instituted against any Owner or the Company, either
such proceeding shall not be stayed or dismissed for 45 days
or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against
it or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of
its property) shall occur; or (ii) any Owner or the Company
shall take any corporate action to authorize any of the
actions set forth in clause (i) above in this subsection
(f); or
(g) The Delinquency Ratio on any day shall exceed
7.5%, the Default Ratio on any day shall exceed 4% or any
Share on any day shall exceed 100%;
(h) (i) There shall have been any material adverse
change in the financial condition or operations of the
Seller or of the Company since September 30, 1994 or (ii)
there shall have occurred any event which materially
adversely affects the ability of the Seller to collect Pool
Receivables or the ability of the Seller to perform
hereunder or the ability of the Company to perform under the
Company Agreement or (iii) there shall be any action, suit
or proceeding pending, or threatened against or affecting
any Owner or any subsidiary or the Company, or the property
of such Owner or any subsidiary or the Company, in any
court, or before any arbitrator of any kind, or before or by
any governmental body, which materially adversely affects
<PAGE>
48
the condition of such Owner or such Owner and its
subsidiaries taken as a whole or the Company;
(i) Continental's claims paying rating shall be rated
lower than A- by S&P or Baa1 by Moody's; or
(j) A "specified corporate action" (as defined on the
date hereof in the Certificate of Amendment of the
Certificate of Incorporation of the Company included as
Exhibit A to the Securities Purchase Agreement dated as of
December 6, 1994 between the Company and the Equity
Investor, both as set forth in the Current Report on Form 8-
K dated December 9, 1994 of the Company filed with the
Securities and Exchange Commission) shall have occurred;
then, and in any such event, the Agent shall, at the request, or
may, with the consent, of either Citibank or the Investor, by
notice to the Seller declare the Commitment to be terminated,
whereupon the Commitment shall terminate, except that, in the
------
case of any event described in clause (i) of subsection (f) above
or described in subsection (g) above, the Commitment shall
terminate automatically upon the occurrence of such event. Upon
any such termination of the Commitment, the Agent and each
Shareowner shall have, in addition to all other rights and
remedies under this Agreement or otherwise, all other rights and
remedies provided under the UCC of the applicable jurisdiction
and other applicable laws, which rights shall be cumulative.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Citibank, the
------------------------
Investor and CNA each hereby appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably
incidental thereto.
SECTION 8.02. Agent's Reliance, Etc. Neither the
---------------------
Agent nor any of its directors, officers, agents or employees
shall be liable to any Shareowner for any action taken or omitted
to be taken by it or them as Agent under or in connection with
this Agreement (including, without limitation, the Agent's
servicing, administering or collecting Pool Receivables as
Collection Agent pursuant to Section 6.01), except for its or
their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i)
may consult with legal counsel (including counsel for the
Seller), independent public accountants and other experts
selected by it and shall not be liable to any Shareowner
<PAGE>
49
for any action taken or omitted to be taken in good faith by it
in accordance with the advice of such counsel, accountants or
experts; (ii) makes no warranty or representation to any
Shareowner and shall not be responsible to any of them for any
statements, warranties or representations made in or in
connection with this Agreement; (iii) shall not have any duty to
ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement on
the part of the Seller or any Owner or to inspect the property
(including the books and records) of any Owner; (iv) shall not be
responsible to any Shareowner for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of
this Agreement, the Certificates or any other instrument or
document furnished pursuant hereto; and (v) shall incur no
liability to any Shareowner under or in respect of this Agreement
by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be
by telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 8.03. CNA and Affiliates. With respect to any
------------------
Share owned by it, CNA shall have the same rights and powers
under this Agreement as any other Shareowner and may exercise the
same as though it were not the Agent. CNA and its affiliates may
generally engage in any kind of business with the Seller or any
Obligor, any of their respective subsidiaries and any person or
entity who may do business with or own securities of the Seller
or any Owner or any Obligor or any of their respective
subsidiaries, all as if CNA were not the Agent and without any
duty to account therefor to any Shareowners.
SECTION 8.04. Investor's Purchase Decision. The
----------------------------
Investor acknowledges that it has, independently and without
reliance upon the Agent or Citibank and based on the financial
statements referred to in Section 4.01(e) and such other
documents and information as it has deemed appropriate, made its
own evaluation and decision to enter into this Agreement and, if
it so determines, to purchase an undivided ownership interest in
Pool Receivables hereunder. The Investor also acknowledges that
it will, independently and without reliance upon the Agent or
Citibank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own decisions
in taking or not taking action under this Agreement.
ARTICLE IX
ASSIGNMENT OF SHARES
SECTION 9.01. Assignment. The Investor, Citibank and
----------
CNA may assign to any Assignee, and any such Assignee may assign
to any other Assignee (in each case in which such Assignee is not
an Affiliate of the Investor, Citibank or CNA, only upon at least
15 Business Days' prior notice to the Seller), any Share and,
upon any such assignment, (i)
<PAGE>
50
the applicable Assignee shall become the owner of such Share for all
purposes of this Agreement and (ii) the assignor thereof shall
relinquish its rights with respect to such Share for all purposes of
this Agreement. Such assignments shall be upon such terms and
conditions as the assignor and the Assignee of such Share may mutually
agree. The assignor of any Share shall deliver to the Assignee an
Assignment, duly executed by such assignor, assigning such Share
to the Assignee, and such assignor shall promptly execute and
deliver all further instruments and documents, and take all
further action, that the Assignee may reasonably request, in
order to perfect, protect or more fully evidence the Assignee's
right, title and interest in and to such Share, and to enable the
Assignee to exercise or enforce any rights hereunder or under the
Certificate. Upon the assignment of any Share as described
above, the Assignee thereof shall have all of the rights and
obligations of the assignor hereunder with respect to such Share.
An assignor of a Share shall provide notice to the Agent and the
Seller of any assignment of a Share by such assignor hereunder.
SECTION 9.02. Annotation of Certificate. The Agent
-------------------------
shall annotate the Certificate to reflect any assignments made
pursuant to Section 9.01 or otherwise.
SECTION 9.03. Payments to Agent. Notwithstanding any
-----------------
assignment pursuant to Section 9.01, the Collection Agent may pay
the Agent for the account of the Investor, Citibank, CNA or any
Assignee all amounts owing to the Investor, Citibank, CNA or any
Assignee, respectively, and neither the Collection Agent nor the
Seller shall have any duty or obligation with respect to the
Agent's application of such amount.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller and the
---------------------------------
Owners. (a) Without prejudice to any other rights which the
------
Agent, or any Shareowner may have hereunder or under applicable
law, the Seller and each Owner hereby agrees to indemnify upon
demand and save harmless the Agent and each Shareowner from and
against any and all damages, losses, claims, liabilities, costs
and expenses (including reasonable attorneys' fees and
disbursements) awarded against or incurred by it arising out of
or as a result of:
(i) the transfer to any Shareowner of any Share in any
Receivable or other indebtedness other than an Eligible
Receivable which is in the Receivables Pool;
(ii) its reliance on any representation or warranty
made by any Owner or the Seller (or any of its officers)
under or in connection with this Agreement, any Investor
Report or any other information or report delivered by such
Owner or by the
<PAGE>
51
Seller pursuant hereto, which shall have been false
or incorrect in any material respect when made or deemed
made (the veracity of such representation or warranty
to be determined without regard to any qualification or
exception as to any Owner's knowledge contained in such
representation or warranty);
(iii) the failure by any Owner or the Seller to
comply with any applicable law, rule or regulation with
respect to any Pool Receivables or the related Contract, or
the nonconformity of any Pool Receivables or the related
Contract with any such applicable law, rule or regulation;
(iv) the failure to vest in any Shareowner a valid and
perfected first-priority undivided fractional ownership
interest, to the extent of each Share owned by it hereunder,
in the Receivables in, or purporting to be in, the
Receivables Pool, free and clear of any Adverse Claim;
(v) the failure to file, or any delay in filing,
financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any Receivables in, or
purporting to be in, the Receivables Pool, whether at the
time of any Purchase or at any subsequent time;
(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor) of the Obligor to
the payment of any Receivable in, or purporting to be in,
the Receivables Pool (including, without limitation, a
defense based on such Receivable or the related Contract not
being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or any
other claim resulting from the sale of the insurance
products or services related to such Receivable or the
furnishing or failure to furnish such insurance products or
services;
(vii) any failure of any Owner, as Collection Agent
or otherwise, to perform its duties or obligations in
accordance with the provisions of Article VI;
(viii) any failure by an insurance agent to pay to
any Owner or to the Seller the amount of any insurance
premium received from any Obligor; or
(ix) any failure by the Seller or any Owner to
terminate coverage under any insurance policy pursuant to
the terms of such policy.
SECTION 10.02. Seller to Advise Agent. The Seller
----------------------
will use its best efforts to identify situations involving
possible liability or obligations under this Article X and to
<PAGE>
52
determine the amount of any such liability or obligations, and,
upon having notice of such situations, it will promptly advise
the Agent thereof.
SECTION 10.03. Cooperation in Litigation. The Seller,
-------------------------
at its expense, agrees to assist, at the request of the Agent or
any Shareowner in any action, suit or proceeding brought by or
against the Agent or such Shareowner relating to any of the
transactions contemplated by this Agreement or to any of the
Receivables in, or purporting to be in, the Receivables Pool or
the related Contracts. If (i) the Seller or any Owner shall have
acknowledged that Section 10.01 will cover any judgment or
expenses in any action, suit or proceeding and (ii) in the sole
determination of the Agent or such Shareowner, as the case may
be, the Seller or such Owner has the financial ability to satisfy
such judgment or expenses, then the Seller or such Owner shall
have the right, on behalf of the Agent or such Shareowner, as the
case may be, but at the Seller's or such Owner's expense, to
defend such action, suit or proceeding with counsel selected by
it and shall have sole discretion as to whether to litigate,
appeal or settle.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc. No amendment or
---------------
waiver of any provision of this Agreement nor consent to any
departure by any Seller therefrom, shall in any event be
effective unless the same shall be in writing and signed by the
Agent and each Shareowner, and then such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given.
SECTION 11.02. Notices, Etc. All notices and other
------------
communications provided for hereunder shall, unless otherwise
stated herein, be in writing and mailed or delivered, as to each
party hereto, at its address set forth under its name on the
signature pages hereof or at such other address as shall be
designated by such party in a written notice to the other parties
hereto provided, however, that any such notice or communication
-------- -------
to the Seller or any Owner shall be mailed or delivered to
Continental. All such notices and communications shall be
effective, in the case of written notice, when deposited in the
mails, in each case addressed as aforesaid, except that notices
and communications pursuant to Article II shall not be effective
until received.
SECTION 11.03. No Waiver; Remedies. No failure on the
-------------------
part of the Agent or any Shareowner to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right
hereunder preclude
<PAGE>
53
any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 11.04. Binding Effect; Assignability. (a)
-----------------------------
This Agreement shall be binding upon and inure to the benefit of
the Seller, each Owner, the Agent, each Shareowner and their
respective successors and assigns. This Agreement and the rights
and obligations of each Shareowner or the Agent therein shall be
assignable by such Shareowner or the Agent, respectively, and
their respective successors or assignees, provided, however, that
-------- -------
this Assignment and the rights and obligations of each Shareowner
or the Agent and any of their respective successors or assigns
therein may be assigned (i) only to an Assignee and (ii) to a
Person which is not an Affiliate of the Investor, Citibank or CNA
only upon at least 15 Business Days' prior notice to the Seller.
Any Share and the related rights and obligations shall not be
assignable except as provided in Article IX. None of the
Company, the Seller or any Owner shall assign its rights or
obligations hereunder or any interest herein, or under or in the
Company Agreement, without the prior written consent of the
Agent.
(b) This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such
time, after the Commitment Termination Date, as no Share shall be
outstanding; provided, however, that rights and remedies with
-------- -------
respect to any breach of any representation and warranty made by
any Owner pursuant to Article IV and the indemnification
provisions of Article X and Section 11.06 shall be continuing and
shall survive any termination of this Agreement.
SECTION 11.05. Governing Law. This Agreement shall be
-------------
governed by, and construed in accordance with, the laws of the
State of New York, except to the extent that the validity or
perfection of the interests of the Shareowners in the Pool
Receivables, or remedies hereunder, in respect thereof, are
governed by the laws of a jurisdiction other than the State of
New York.
SECTION 11.06. Costs, Expenses and Taxes. In addition
-------------------------
to the rights of indemnification granted to the Agent and each
Shareowner under Article X hereof, the Seller and each Owner
agrees to pay on demand all costs and expenses in connection with
the preparation, execution, delivery and administration
(including periodic auditing) of this Agreement, the Certificates
and the other documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket
expenses of counsel for Citibank and the Agent with respect
thereto and with respect to advising the Agent as to its rights
and remedies under this Agreement, and all costs and expenses, if
any (including reasonable counsel fees and expenses), in
connection with the enforcement of this Agreement, the
Certificates and the other documents to be delivered hereunder.
In addition, the Seller and each Owner shall pay any and all
stamp and other taxes and fees payable or determined to be
<PAGE>
54
payable in connection with the execution, delivery, filing and
recording of this Agreement, the Certificates or the other
documents to be delivered hereunder, and agrees to save the Agent
and each Shareowner harmless from and against any and all
liabilities with respect to or resulting from any delay in paying
or omission to pay such taxes and fees. In addition, the Seller
and each Owner shall pay on demand all other costs, expenses and
taxes incurred by the Investor or any general or limited partner
of the Investor ("Other Costs"), including, without limitation,
-----------
the cost of auditing the Investor's books by certified public
accountants, the cost of rating the Investor's commercial paper
by independent financial rating agencies, the taxes (including
income taxes) resulting from the Investor's operations, and the
reasonable fees and out-of-pocket expenses of counsel for the
Investor or any counsel for any general or limited partner of the
Investor with respect to (i) the formation of the Investor, (ii)
advising the Investor or such general or limited partner as to
its rights and remedies under this Agreement, (iii) the
enforcement of this Agreement, the Certificate of the Investor
and the other documents to be delivered hereunder, or (iv)
advising the Investor or such general or limited partner as to
matters relating to the Investor's operations; provided,
--------
however, that if the Investor enters into agreements for the
-------
purchase of interests in receivables from one or more other
Persons ("Other Sellers"), the Seller shall not be liable for
-------------
such Other Costs in an amount which would exceed its
proportionate share thereof allocated ratably among the Seller
and the Other Sellers in accordance with the respective
commitments or options (whether used or unused) of the Investor
to purchase receivables or interests therein from the Seller and
each Other Seller; and provided further that if such Other Costs
-------- -------
are attributable to the Seller and not attributable to any Other
Seller, the Seller shall be solely liable for such Other Costs;
and provided further that no Other Seller shall be benefited by
-------- -------
this sentence and neither any general or limited partner of the
Investor nor any Other Seller nor any other Person other than the
Investor (which may present claims on behalf of such general or
limited partners) shall be entitled to enforce the obligations of
the Seller or any Owner under this sentence, and such obligations
may be waived or limited by the Investor (or the Agent acting on
its behalf) without the consent of any other Person.
SECTION 11.07. No Proceedings. The Seller, each
--------------
Owner, the Agent, Citibank and CNA each hereby agrees that it
will not institute against the Investor any proceeding of the
type referred to in clause (i) of Section 7.01(f) so long as any
commercial paper issued by the Investor shall be outstanding or
there shall not have elapsed one year plus one day since the last
day on which any such commercial paper shall have been
outstanding.
SECTION 11.08. Security Interest. The parties hereto
-----------------
intend that each Purchase hereunder shall constitute a sale and
purchase, and not a loan. However, in the event that for any
reason any Purchase hereunder shall not be deemed to be a sale
and purchase, then Purchases hereunder and such reinvestments and
the interests created thereby
<PAGE>
55
shall be deemed to create a security interest therein securing the
obligations of the respective Owners hereunder.
SECTION 11.09. Non-Assignment of Contracts.
---------------------------
Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall constitute or be deemed to
constitute an assignment by the Seller to any Shareowner of any
Contract.
SECTION 11.10. Additional Owners. Section 5.03(d)
-----------------
hereof, in effect, prohibits amendments or modifications to the
Intercompany Pooling Agreement which would dilute the interest of
the Seller in Pool Receivables. In the event that it is at any
time proposed to add another party to the Intercompany Pooling
Agreement and the consequence thereof would be to cause such
dilution, Continental may give notice thereof to the Agent and
request in such notice that such party be added as a party to
this Agreement as an Owner hereunder, effective as of the date
specified in such notice (which shall be a date prior to such
party becoming a party to the Intercompany Pooling Agreement and
at least ten Business Days subsequent to the date of the Agent's
receipt of such notice; the "Effective Date"). In any such
event, such party shall, as of the Effective Date, become a party
hereto and an Owner hereunder, subject to the obligations and
entitled to the benefits hereof as if an original party hereto;
provided, however, that:
-------- -------
(a) The Agent shall not have, on or prior to the fifth
Business Day preceding the Effective Date, given notice to
the Seller to the effect that in the good faith judgment of
the Agent such party is not acceptable;
(b) As of the Effective Date and giving effect to the
addition of such party as a party hereto and as Owner
hereunder, the representations and warranties in Section
4.01 are true and correct as to such party and no event or
circumstance shall have occurred which constitutes an Event
of Termination or would constitute an Event of Termination
with the giving of notice or the lapse of time, or both; and
(c) The Agent shall have received, on or prior to the
Effective Date, an Assumption Agreement signed by such party
and an opinion of counsel to such party in substantially the
form of Exhibit J hereto, in each case in form and substance
satisfactory to the Agent.
SECTION 11.11. Execution in Counterparts. This
-------------------------
Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this
Agreement.
<PAGE>
56
SECTION 11.12. Reference to the Documents. As of the
--------------------------
date referred to in Section 3.04, upon the satisfaction or waiver
by the Agent of the conditions contained in Section 3.04, each
reference in any Certificate, any Assignment, the Company
Agreement or any instrument or document entered into pursuant
hereto or thereto or to any term, condition or provision
contained in the Receivables Agreement in connection herewith or
therewith to the Receivables Agreement or, in each case,
"thereunder", "thereof", "therein", or words of
<PAGE>
57
like import, shall mean and be a reference to this Agreement or
such term, condition or provision, as applicable as amended and
restated herein.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
THE CONTINENTAL INSURANCE COMPANY
Individually and on behalf of the
Seller
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P./Treasurer
180 Maiden Lane, 40th Floor
New York, New York 10038
Attention: Mr. William F. Gleason, Jr.
Senior Vice President,
General Counsel and
Secretary
(with a copy to:
The Continental Insurance Companies
2 Corporate Place South
Piscataway, New Jersey 08854
Attention: Mr. Francis M. Colalucci
Vice President and
Controller)
BOSTON OLD COLONY INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P./Treasurer
<PAGE>
58
THE BUCKEYE UNION INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. Treasurer
CASUALTY INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. Ass't Treasurer
COMMERCIAL INSURANCE COMPANY OF NEWARK,
N.J.
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. Treasurer
THE CONTINENTAL INSURANCE COMPANY OF
NEW JERSEY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. Treasurer
<PAGE>
59
CONTINENTAL LLOYD'S INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: Attorney-in-Fact
CONTINENTAL REINSURANCE CORPORATION
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
THE FIDELITY AND CASUALTY COMPANY
OF NEW YORK
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
<PAGE>
60
THE GLENS FALLS INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
KANSAS CITY FIRE AND MARINE
INSURANCE COMPANY
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
THE MAYFLOWER INSURANCE COMPANY, LTD.
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
NATIONAL-BEN FRANKLIN INSURANCE
COMPANY OF ILLINOIS
By Francis M. Colalucci
--------------------------------------
Name: Francis M. Colalucci
Title: V.P. and Treasurer
<PAGE>
EXHIBIT C
AGREEMENT, dated as of December 30, 1994, made by THE CONTINENTAL
CORPORATION, a New York corporation (the "Company"), in favor of CIESCO, L.P.
-------
(formerly known as Commercial Industrial Trade-Receivables Investment Company),
a New York limited partnership (the "Investor"), CITIBANK, N.A. ("Citibank") and
-------- --------
CITICORP NORTH AMERICA, INC., a Delaware corporation (and successor in interest
to Citicorp Industrial Credit, Inc., a former Delaware corporation),
individually ("CNA") and as agent for the Investor, Citibank and CNA (the
---
"Agent") (the Investor, Citibank and CNA being each a "Purchaser" and,
-----
collectively, the "Purchasers").
PRELIMINARY STATEMENTS.
(1) The Continental Insurance Company, Boston Old Colony Insurance
Company, The Buckeye Union Insurance Company, Casualty Insurance Company,
Commercial Insurance Company of Newark, N.J., The Continental Insurance Company
of New Jersey, Continental Lloyd's Insurance Company, Continental Reinsurance
Corporation, The Fidelity and Casualty Company of New York, Firemen's Insurance
Company of Newark, New Jersey, The Glens Falls Insurance Company, Kansas City
Fire and Marine Insurance Company, The Mayflower Insurance Company, Ltd.,
National-Ben Franklin Insurance Company of Illinois, Niagara Fire Insurance
Company, Pacific Insurance Company and Workers' Compensation and Indemnity
Company of California (each such company, individually, being herein referred to
as an "Owner" and, collectively, as the "Owners" or the "Seller"), each a direct
----- ------ ------
or indirect subsidiary of the Company, have entered into a Trade Receivables
Purchase and Sale Agreement dated as of December 28, 1984, as amended to date,
and intend to enter into an amendment thereto to be dated as of December 30,
1994 (the "Amendment") (said Agreement as so amended being the "Receivables
--------- -----------
Agreement"; the terms defined therein and not otherwise defined herein being
---------
used herein as therein defined). Pursuant to the terms and conditions of the
Receivables Agreement, the Seller will sell Shares to the Purchasers.
(2) It is a condition precedent to the Amendment that the Company, as
the beneficial owner of all of the outstanding shares of stock of each Owner,
shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Purchasers to enter into the Amendment and to make Purchases under the
Receivables Agreement as so amended, the Company hereby agrees as follows:
SECTION 1. Unconditional Undertaking; Enforcement. (a)
--------------------------------------
The Company hereby unconditionally and irrevocably undertakes and
agrees with and for the benefit of each Purchaser and the Agent
to cause the due and punctual performance and observance by
<PAGE>
2
the Seller and its successors and assigns of all the terms, covenants, cond-
itions, agreements and undertakings on the part of the Seller to be performed or
observed under Sections 2.10 and 2.11 of the Receivables Agreement in accordance
with the terms thereof, including, without limitation, any agreement of the
Seller therein to pay money (all such terms, covenants, conditions, agreements
and undertakings on the part of the Seller being, collectively, the "Seller
------
Obligations"). In the event that the Seller shall fail in any manner whatsoever
-----------
to perform or observe any of the Seller Obligations when the same shall be
required to be performed or observed under the Receivables Agreement, then the
Company will itself duly and punctually perform or observe, or cause to be duly
and punctually performed or observed, such Seller Obligation, and it shall not
be a condition to the accrual of the obligation of the Company hereunder to
perform or observe any Seller Obligation (or to cause the same to be performed
or observed) that any Purchaser or the Agent shall have first made any request
of or demand upon or given any notice to the Company or to the Seller or their
respective successors or assigns, or have instituted any action or proceeding
against the Company or the Seller or their respective successors or assigns in
respect thereof.
(b) Any Purchaser and the Agent may proceed to enforce the obligations
of the Company under this Section 1 without first pursuing or exhausting any
right or remedy which any Purchaser or the Agent may have against the Seller,
any other Person or with respect to the Shares.
SECTION 2. Obligation Absolute. The Company will perform its
-------------------
obligations under this Agreement regardless of any law, rule, regulation or
order now or hereafter in effect in any jurisdiction affecting any of the terms
of the Receivables Agreement or any document delivered in connection with the
Receivables Agreement or the rights of any Purchaser or the Agent with respect
thereto. The obligations of the Company under this Agreement shall be absolute
and unconditional irrespective of:
(i) any lack of validity or enforceability of the
Receivables Agreement or the Certificate or any document or any
other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of performance of, or in
any other term of, all or any of the Seller Obligations, or any other
amendment or waiver of or any consent to departure from the Receivables
Agreement or the Certificate or any document or any other agreement or
instrument relating thereto;
(iii) any exchange, release or failure to transfer title to the Shares,
or any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Seller's Obligations;
<PAGE>
3
(iv) any failure to obtain any authorization or approval from or other
action by, or to notify or file with, any governmental authority or
regulatory body required in connection with the performance of such
obligations by the Company;
(v) any impossibility or impracticality of performance, illegality,
force majeure, any act of any government, or any other circumstance which
might constitute a defense available to, or a discharge of, the Seller or
the Company, or any other circumstance, event or happening whatsoever,
whether foreseen or unforeseen and whether similar or dissimilar to
anything referred to above in this Section; or
(vi) any disposition of the stock of any Owner.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment by the Seller under Section 2.10 or 2.11 of the
Receivables Agreement is rescinded or must otherwise be returned by any
Purchaser or the Agent upon the insolvency, bankruptcy or reorganization of any
Owner or otherwise, all as though such payment had not been made. The
obligations of the Company under this Agreement shall not be subject to
reduction, termination or other impairment by reason of any set-off, recoupment,
counterclaim or defense or for any other reason. The obligations of the Company
under this Agreement shall not be discharged except by performance as herein
provided.
SECTION 3. Waiver. The Company hereby waives promptness, diligence,
------
notice of acceptance and any other notice with respect to any of the Seller
Obligations and this Agreement, the Receivables Agreement, the Certificates and
any other document related thereto and any requirement that any Purchaser or the
Agent exhaust any right or take any action against the Seller, any other Person
or with respect to any Share.
SECTION 4. Subrogation. The Company will not exercise or assert any
-----------
rights which it may acquire by way of subrogation under this Agreement unless
and until all of the Seller Obligations shall have been paid and performed in
full. If any payment shall be made to the Company on account of any subrogation
rights at any time when all of the Seller Obligations shall not have been paid
and performed in full, each and every amount so paid will be held in trust for
the benefit of the Purchasers and forthwith be paid to the Agent to be credited
and applied to the Seller Obligations to the extent then unsatisfied, in
accordance with the terms of the Receivables Agreement or any document delivered
in connection with the Receivables Agreement, as the case may be. In the event
that (i) the Company shall have satisfied any of the Seller Obligations and (ii)
all of the Seller Obligations shall have been paid and performed in full, the
Agent will, at the Company's request and expense, execute and deliver to the
Company appropriate documents, without recourse and without representation or
warranty of any kind, necessary to evidence or confirm the transfer by way of
subrogation to the Company of the rights of any Purchaser or the Agent, as the
case may
<PAGE>
4
be, with respect to the Seller Obligations to which the Company shall have
become entitled by way of subrogation, thereafter any Purchaser and the Agent
shall have no responsibility to the Company or any other Person with respect
thereto.
SECTION 5. Representations and Warranties of the
-------------------------------------
Company. The Company hereby represents and warrants as follows:
-------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction named at the beginning
of this Agreement and is duly qualified to do business, and in good
standing, in every jurisdiction where the nature of its business requires
it to be so qualified.
(b) The execution, delivery and performance by the Company of this
Agreement and the other instruments and documents to be delivered by it in
connection herewith, and the transactions contemplated hereby, are within
the Company's corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) the Company's charter or by-laws,
(ii) any law, rule or regulation applicable to the Company, (iii) any
contractual restriction contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other
agreement or instrument binding on the Company or affecting its property
or (iv) any order, writ, judgement, award, injunction or decree binding
on the Company or affecting its property, and do not result in or require
the creation of any lien, security interest or other charge or encumbrance
upon or with respect to any of its properties; and no transaction
contemplated hereby requires compliance with any bulk sales act or similar
law. This Agreement has been duly executed and delivered by the Company.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
Person (including, without limitation, the Equity Investor or any of its
Affiliates) is required for the due execution, delivery and performance by
the Company of this Agreement or any other document or instrument to be
delivered in connection therewith except for the consent of the Equity
Investor referred to in Article III of the Receivables Agreement, which,
at the time required in Article III, shall have been duly made and in
full force and effect.
(d) This Agreement is the legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms.
(e) The Company is the registered and beneficial direct or indirect
owner of all of each class of the issued and outstanding shares of the
capital stock of each
<PAGE>
5
Owner other than Continental Lloyd's Insurance Company. All of the
interests in Continental Lloyd's Insurance Company are directly or
indirectly beneficially owned by the Company.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or
any subsidiary, or the property of the Company or of any subsidiary, in
any court, or before any arbitrator of any kind, or before or by any
governmental body, which may materially adversely affect either the
financial condition or operations of the Company or the Company and its
subsidiaries taken as a whole or the ability of the Company to perform
its obligations hereunder. Neither the Company nor any subsidiary is in
default with respect to any order of any court, arbitrator or
governmental body except for defaults, if any, with respect to orders of
governmental agencies which defaults are not material to the business
or operations of the Company or any subsidiary.
(g) The consolidated balance sheet of the Company and its consolidated
subsidiaries as at December 31, 1993, and the related consolidated
statements of income and retained earnings of the Company and its
consolidated subsidiaries for the fiscal year then ended, in each case
certified by KPMG Peat Marwick, independent public accountants, copies of
which have been furnished to the Agent, fairly present the consolidated
financial condition of the Company and its consolidated subsidiaries as
at such date and the consolidated results of the operations of the
Company and its consolidated subsidiaries for the period ended on such
date, all in accordance with generally accepted accounting principals
consistently applied, and since December 31, 1993, there has been no
material adverse change in such condition or operations.
(h) The Company has received $275 million in cash from the Equity
Investor (or a wholly owned subsidiary thereof) as payment for the
issuance by the Company of shares if its Series F Preferred Stock, Series
H Preferred Stock and Series T Preferred Stock (such Series F Preferred
Stock, Series H Preferred Stock and Series T Preferred Stock being,
collectively, the "Preferred Stock") pursuant to the Securities Purchase
---------------
Agreement (the "Securities Purchase Agreement") dated as of December 6,
-----------------------------
1994 between the Company and the Equity Investor attached as an exhibit
to the Current Report (the "Current Report") on Form 8-K dated December
--------------
9, 1994 of the Company filed by the Securities and Exchange Commission.
The Current Report, including all exhibits thereto, and the other
information furnished by or on behalf of the Company with respect to the
transactions described in the Current Report do not contain any untrue
statement of a material fact or fail to state a material fact necessary
to make the statements made therein not misleading.
<PAGE>
6
(i) No authorization or approval or other action by any governmental
authority or regulatory body was required for the valid issuance by the
Company of the Preferred Stock.
(j) No "specified corporate action" (as defined on the date hereof in
the Certificate of Amendment of the Certificate of Incorporation of the
Company attached as Exhibit A to the Securities Purchase Agreement) has
occurred on or prior to the date hereof.
SECTION 6. Covenants. Until the date on which all of the Seller
---------
Obligations shall have been fully satisfied, the Company will, unless the Agent
shall have otherwise consented in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
-------------------------
applicable laws, rules, regulations and orders with respect to it, its
business and properties, the non-compliance with which would materially
adversely affect it, its business and properties.
(b) Preservation of Corporate Existence. Preserve and maintain its
-----------------------------------
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing
as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect the interests of any
Purchaser or the Agent under the Receivables Agreement or the ability of
the Company to perform its obligations under this Agreement.
SECTION 7. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement nor consent to any departure by the Company therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Agent, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8. Expenses. The Company will upon demand pay to the Agent and
--------
any Purchaser, respectively, the amount of any and all reasonable expenses,
including attorney's fees and expenses, which they may incur in connection with
the exercise or enforcement of any of their respective rights or interests
hereunder.
SECTION 9. Addresses for Notices. All demands, notices
---------------------
and other communications provided for hereunder shall be in
writing (including telex communication) and, if to the Company,
mailed or telexed or delivered to it, addressed to it at 180
Maiden Lane, New York, New York 10038, Attention of William F.
Gleason (Telex No. 426785); if
<PAGE>
7
to the Agent or any Purchaser, mailed or telexed to the Agent at its address
referred to in Section 11.02 of the Agreement; or, as to any such Person
(excluding any Purchaser), at such other address as shall be designated by such
Person in a written notice to each other such Person complying as to delivery
with the terms of this Section 10. All such demands, notices and other
communications shall be effective when presented at the address of the addressee
thereof or, in the case of notice by telex, when telexed against receipt of an
answerback, in each case addressed as aforesaid.
SECTION 10. No Waiver; Remedies. No failure on the part of the Agent or
-------------------
any Purchaser to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 11. Continuing Agreement. This Agreement is a continuing
--------------------
agreement and shall (i) remain in full force and effect until the Receivables
Agreement shall have been terminated and all of the Seller Obligations shall
have been fully satisfied, (ii) be binding upon the Company, its successors and
assigns and (iii) inure to the benefit of and be enforceable by the Agent, each
Purchaser, and their respective successors, transferees and assigns.
SECTION 12. Governing Law. This Agreement shall be
-------------
governed by, and construed in accordance with, the laws of the
State of New York.
<PAGE>
8
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
THE CONTINENTAL CORPORATION
By
-------------------------------------
Title:
--------------------------------------------------------------------------------
CREDIT AGREEMENT
among
THE CONTINENTAL CORPORATION,
The Several Lenders
from Time to Time Parties Hereto,
CHEMICAL BANK
and
CITIBANK, N.A.,
as Co-Agents
and
CHEMICAL BANK,
as Administrative Agent
Dated as of December 30, 1993
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS ........................................ 1
1.1 Defined Terms ............................. 1
1.2 Other Definitional Provisions .......... 12
SECTI0N 2. AMOUNT AND TERMS OF COMMITMENTS ................... 12
2.1 Revolving Credit Commitments ........... 12
2.2 Revolving Credit Notes .............. 13
2.3 Procedure for Revolving Credit Borrowing .. 13
2.4 Extension of Termination Date ......... 14
2.5 Termination or Reduction of Commitments ..... 16
2.6 The CAF Advances ................. 16
2.7 Procedure for CAF Advance Borrowing ....... 16
2.8 CAF Advance Payments ............... 19
2.9 CAF Advance Notes ................ 20
2.10 Optional Prepayments .............. 20
2.11 Conversion and Continuation Options ....... 21
2.12 Interest Rates and Payment Dates ......... 22
2.13 Facility Fee, Other Fees ............. 22
2.14 Computation of Interest and Fees ......... 22
2.15 Inability to Determine Interest Rate .... 23
2.16 Pro Rata Treatment and Payments ......... 24
2.17 Illegality .................... 25
2.18 Requirements of Law ............... 25
2.19 Taxes 26
2.20 Indemnity 29
2.21 Replacement of Lender .............. 29
SECTI0N 3. REPRESENTATIONS AND WARRANTIES ......... 30
3.1 Financial Condition .............. 30
3.2 Corporate Existence; Compliance with Law .. 31
3.3 Corporate Power; Authorization; Enforceable
Obligations ................... 31
3.4 No Legal Bar ................... 32
3.5 No Material Litigation .............. 32
3.6 No Default .................... 32
3.7 Ownership of Property; Liens ........... 32
3.8 Intellectual Property .............. 32
3.9 Taxes ............... 33
3.10 Federal Regulations ........ 33
3.11 ERISA ...................... 33
3.12 Investment Company Act; Other Regulations .. 34
3.13 Subsidiaries ................... 34
3.14 Purpose of Loans ................. 34
3.15 Accuracy and Completeness of Information .... 34
3.16 Regulatory Intervention .......... 34
i
<PAGE>
Page
----
SECTION 4. CONDITIONS PRECEDENT ....................... 35
4.1 Conditions to Closing Date ............ 35
4.2 Conditions to Each Loan ............. 36
SECTION 5. AFFIRMATIVE COVENANTS .............. 37
5.1 GAAP Financial Statements ............ 37
5.2 SAP Financial Statements ............. 38
5.3 Certificates; Other Information ........ 38
5.4 Payment of Obligations .............. 39
5.5 Conduct of Business and Maintenance of Existence 39
5.6 Maintenance of Property; Insurance ........ 39
5.7 Inspection of Property; Books and Records;
Discussions ................... 39
5.8 Notices ..................... 40
SECTION 6. NEGATIVE COVENANTS ............... 41
6.1 Financial Condition Covenants ........ 41
6.2 Limitation on Liens ............ 41
6.3 Limitation on Fundamental Changes ........ 41
6.4 Limitation on Sale of Assets .......... 42
SECTION 7. EVENTS OF DEFAULT .................. 43
SECTION 8. THE ADMINISTRATIVE AGENT ..................... 46
8.1 Appointment ...................................... 46
8.2 Delegation of Duties ............... 46
46
8.3 Exculpatory Provisions .............. 46
8.4 Reliance by Administrative Agent ......... 47
8.5 Notice of Default .............. 47
8.6 Non-Reliance on Administrative Agent and Other
Lenders ..................... 48
8.7 Indemnification ................ 48
8.8 Administrative Agent in Its Individual Capacity 49
8.9 Successor Administrative Agent .......... 49
SECTION 9. MISCELLANEOUS ................... 50
9.1 Amendments and Waivers .............. 50
9.2 Notices ..................... 50
9.3 No Waiver; Cumulative Remedies .......... 51
9.4 Survival of Representations and Warranties .... 51
9.5 Payment of Expenses and Taxes ......... 51
9.6 Successors and Assigns; Participations and
Assignments ........... 52
9.7 Adjustments; Set-off .............. 55
9.8 Counterparts ................... 56
9.9 Severability ................... 56
9.10 Integration ................... 57
9.11 GOVERNING LAW ................. 57
- ii -
<PAGE>
Page
----
9.12 Submission To Jurisdiction: Waivers ..... 57
9.13 Acknowledgements 58
9.14 WAIVERS OF JURY TRIAL ..... 58
9.15 Confidentiality ................. 58
SCHEDULES
Schedule I Commitment Amounts and Lending Offices
Schedule II Significant Subsidiaries
Schedule 3.13 Subsidiaries
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of CAF Advance Note
Exhibit C Form of CAF Advance Confirmation
Exhibit D Form of CAF Advance Offer
Exhibit E Form of CAF Advance Request
Exhibit F Form of Borrowing Certificate
Exhibit G Form of Opinion of General Counsel
Exhibit H Form of Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT, dated as of December 30, 1993, among
THE CONTINENTAL CORPORATION, a New York corporation (the
"Borrower"), the several banks and other financial institutions
from time to time parties to this Agreement (the "Lenders"),
CHEMICAL BANK, a New York banking corporation ("Chemical") and
CITIBANK, N.A., a national banking association, as co-agents for
the Lenders hereunder (in such capacity, the "Co-Agents" and each
a "Co-Agent") and Chemical as administrative agent for the
Lenders hereunder (in such capacity, the "Administrative Agent").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by
Chemical as its prime rate in effect at its principal office
in New York City (the Prime Rate not being intended to be
the lowest rate of interest charged by Chemical in
connection with extensions of credit to debtors); "Base CD
Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is
one minus the C/D Reserve Percentage and (b) the C/D
Assessment Rate; "Three-Month Secondary CD Rate" shall mean,
for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board of Governors of the
Federal Reserve System (the "Board") through the public
information telephone line of the Federal Reserve Bank of
New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or,
if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of
major money center banks in New York City received at
approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit
dealers of recognized standing selected by it; and 'Federal
Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by
<PAGE>
2
federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is A
Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected
by it. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate, or both,
for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in
accordance with the terms thereof, the ABR shall be
determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until
the circumstances giving rise to such inability no longer
exist. Any change in the ABR due to a change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"ABR Loans": Revolving Credit Loans the rate of
interest applicable to which is based upon the ABR.
"Absolute Rate CAF Advance Request": any CAF Advance
Request requesting the Lenders to offer to make CAF Advances
at an absolute rate (as opposed to a rate composed of the
Eurodollar Rate plus or minus a margin).
"AFCQ": collectively, Afco Credit Corporation, a New
York corporation, and CAFO Inc., a Canadian corporation.
"Affiliate": as to any Person, any other Person (other
than a Subsidiary) which, directly or indirectly, is in
control of, is controlled by, or is under common control
with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or
indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract
or otherwise.
"Agreement": this Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
Assignee: as defined in subsection 9.6(c).
"Borrowinq Date": any Business Day specified in a
notice pursuant to subsection 2.3 or 2.7 as a date on which
the Borrower requests the Lenders to make Loans hereunder.
<PAGE>
3
"Business Day": a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are
authorized or required by law to close.
"CAF Advance": each loan made pursuant to subsection
2.6.
"CAF Advance Commitment Period": the period from and
including the Closing Date until the date which is 7 days
prior to the Termination Date.
"CAF Advance Confirmation": each confirmation by the
Borrower of its acceptance of CAF Advance Offers, which CAF
Advance Confirmation shall be substantially in the form of
Exhibit C and shall be delivered to the Administrative Agent
in writing or by facsimile transmission.
"CAF Advance Interest Payment Date": as to each CAF
Advance, the CAF Advance Maturity Date thereof and each
other interest payment date specified by the Borrower for
such CAF Advance in the related CAF Advance Request.
"CAF Advance Maturity Date": as to any CAF Advance,
the date specified by the Borrower pursuant to subsection
2.7(d)(2) in its acceptance of the related CAF Advance
Offer.
"CAF Advance Note": as defined in subsection 2.9;
collectively, the "CAF Advance Notes."
"CAF Advance Offer": each offer by a Lender to make
one or more CAF Advances pursuant to a CAF Advance Request,
which CAF Advance Offer shall contain the information
specified in Exhibit D and shall be delivered to the
Administrative Agent by telephone, immediately confirmed by
facsimile transmission.
"CAF Advance Request": each request by the Borrower
for Lenders to submit bids to make CAF Advances, which
request shall contain the information in respect of such
requested CAF Advances specified in Exhibit E and shall be
delivered to the Administrative Agent in writing or by
facsimile transmission, or by telephone, immediately
confirmed by facsimile transmission.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the
foregoing.
"C/D Assessment Rate": for any day as applied to any
ABR Loan, the annual assessment rate in effect on such day
<PAGE>
4
which is payable by a member of the Bank Insurance Fund
classified as well-capitalized and within supervisory
subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. S 327.3(d)
(or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such
Corporation's (or such successor's) insuring time deposits
at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to
any ABR Loan, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor)
(the "_Board"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal
time deposits in Dollars having a maturity of 30 days or
more.
"Chemical": Chemical Bank.
"CIC": The Continental Insurance Company, a New
Hampshire corporation.
"Citibank": Citibank, N.A., a national banking
association.
"Closing Date": the date on which the conditions
precedent set forth in subsection 4.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment": as to any Lender, the obligation of such
Lender to make Revolving Credit Loans to the Borrower
hereunder in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule I, as such amount may be reduced
or increased from time to time in accordance with the
provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time,
the percentage which such Lender's Commitment then
constitutes of the aggregate Commitments (or, at any time
after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate
principal amount of the Loans then outstanding).
"Commitment Period": the period from and including the
date hereof to but not including the Termination Date or
such earlier date on which the Commitments shall terminate
as provided herein.
<PAGE>
5
"Commonly Controlled Entity": an entity, whether or
not incorporated, which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Consolidated Capital": as to any Person as of a
particular date, all amounts which would in conformity with
GAAP be included under shareholders' equity on a
consolidated balance sheet of such Person and its
Subsidiaries at such date.
"Consolidated Total Indebtedness": as to any Person as
of a particular date, the aggregate of all Indebtedness of
such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is
bound.
"Default": any of the events specified in Section 7,
whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been
satisfied.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Environnmental Laws": any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time
hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency
<PAGE>
6
Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
the rate per annum equal to the average (rounded upward to
the nearest 1/16th of 1%) of the respective rates notified
to the Administrative Agent by each of the Reference Lenders
as the rate at which such Reference Lender is offered Dollar
deposits at or about 10:00 A.M., New York City time, two
Business Days prior to the beginning of such Interest Period
in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its
Eurodollar Loans are then being conducted for delivery on
the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount
of its Eurodollar Loan to be outstanding during such
Interest Period.
"Eurodollar Loans": Revolving Credit Loans the rate of
interest applicable to which is based upon the Eurodollar
Rate.
"Eurodollar Rate": with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
-----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Rate CAF Advance Request": any CAF Advance
Request requesting the Lenders to offer to make CAF Advances
at an interest rate equal to the Eurodollar Rate plus (or
minus) a margin.
"Event of Default": any of the events specified in
Section 7, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which
are required in accordance with GAAP to be capitalized on a
balance sheet of the lessee.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority": any nation or government,
any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial,
<PAGE>
7
requlatory or administrative functions of or pertaining to
government.
"Guarantee Obligation": as to any Person (the
"guaranteeing person"), any obligation of (a) the
quaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect
quaranteeing any Indebtedness, leases, dividends or other
obligations (the "primary obligations") of any other third
Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency
of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee
Obligation shall not include (x) endorsements of instruments
for deposit or collection in the ordinary course of business
or (y) guarantee obligations of the Borrower or its
Subsidiaries which are insurance products and are incurred
by such Person in the ordinary course of the insurance
business of such Person. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be
the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum
amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated
liability in respect thereof as determined by the Borrower
in good faith.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which
<PAGE>
8
is evidenced by a note, bond, debenture or similar
instrument, (c) all financial obligations of such Person
under Financing Leases, (d) all obligations of such Person
in respect of acceptances issued or created for the account
of such Person and (e) all liabilities secured by any Lien
on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment
thereof.
"Insolvency": with respect to any Multiemployer Plan,
the condition that such Plan is insolvent within the meaning
of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Insurance Subsidiary": any Subsidiary of the Borrower
which is principally engaged in the business of writing or
selling insurance.
"Interest Payment Date": (a) as to any ABR Loan, the
last day of each March, June, September and December to
occur while such Loan is outstanding, (b) as to any
Eurodollar Loan having an Interest Period of three months or
less, the last day of such Interest Period, and (c) as to
any Eurodollar Loan having an Interest Period longer than
three months, each day which is thr'ee months, or a whole
multiple thereof, after the first day of such Interest
Period and the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan
or Eurodollar CAF Advance:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan or Eurodollar CAF
Advance and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice
of borrowing or notice of conversion, as the case may
be, given with respect thereto (in the case of
Eurodollar Loans) or in its acceptance of a related CAF
Advance Offer (in the case of Eurodollar CAF Advances);
and
(ii) thereafter, with respect to Eurodollar
Loans only, each period commencing on the last day of
the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the
then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
<PAGE>
9
(1) if any Interest Period pertaining to a
Eurodollar Loan or Eurodollar CAF Advance would
otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next
succeeding 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 immediately preceding Business
Day;
(2) any Interest Period that would otherwise
extend beyond the Termination Date shall end on the
Termination Date;
(3) any Interest Period pertaining to a Eurodollar
Loan or Eurodollar CAF Advance 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 a calendar month;
and
(4) the Borrower shall select Interest Periods so
as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such
Loan.
"Lendinq Qffice": as to each Lender, its office as set
forth opposite its name on the signature page hereto or
Schedule I hereto or such other office as such Lender my
hereafter designate as its Lending Office by notice to the
Administrative Agent, Co-Agent and Borrower.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge or other security interest or
any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or
other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the
foregoing).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement and the Notes.
"Majority Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect
on (a) the business, operations, property or condition
(financial or otherwise) of the Borrower and its
<PAGE>
10
Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement, any of the Notes or any of
the other Loan Documents.
"Multiemployer Plan": a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes": as defined in subsection 2.19.
"Notes": the collective reference to the Revolving
Credit Notes and the CAF Advance Notes.
"Participant": as defined in subsection 9.6(b) .
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or
any successor thereto.
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan": at a particular time, any employee benefit
plan which is covered by ERISA and in respect of which the
Borrower or a Commonly Controlled Entity is (or, if such
plan were terminated at such time, would under Section 4069
of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Reference Lenders": Chemical and Citibank.
"Register": as defined in subsection 9.6(d).
"Regulation U": Regulation U of the Board of Governors
of the Federal Reserve System as in effect from time to
time.
"Reorganization": with respect to any Multiemployer
Plan, the condition that such plan is in reorganization
within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in
Section 4043(b) of ERISA, other than those events as to
which the thirty day notice period is waived under
subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Sec. 2615.
"Reporting Insurance Subsidiary": each of the
following Insurance Subsidiaries: CIC, The Buckeye Union
Insurance Company, an Ohio corporation, The Fidelity and
Casualty Company of New York, a New Hampshire corporation,
Firemen's Insurance Company of Newark, New Jersey, a New
<PAGE>
11
Jersey corporation, and National-Ben Franklin Insurance
Company of Illinois, an Illinois corporation.
"Required Lenders": at any time, Lenders the
Commitment Percentages of which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any
of its property or to which such Person or any of its
property is subject.
"Responsible Officer": the chief executive officer and
the president of the Borrower or, with respect to financial
matters, the chief financial officer or Treasurer of the
Borrower.
"Revolving Credit Loans": as defined in subsection
2.1.
"Revolving Credit Note": as defined in subsection 2.2.
"SAP": as to any insurance company incorporated in any
jurisdiction of the United States, the statutory accounting
principles prescribed or permitted by the insurance
commissioner (or other similar authority) in the
jurisdiction of domicile of such insurance company for the
preparation of annual statements and other financial reports
by insurance companies of the same type as such insurance
company.
"Significant Subsidiaries": collectively, the
Subsidiaries listed in Schedule II.
"Single Employer Plan": any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Statutory Statement": for any Subsidiary of the
Borrower which is an insurance company, for each fiscal year
of such Subsidiary, the most recent annual statement,
prepared in accordance with SAP, as required to be filed
with the appropriate regulatory authority and, for each
fiscal quarter of such Subsidiary, the quarterly statement,
as required to be filed with the appropriate regulatory
authority, which quarterly statement shall be prepared in
accordance with SAP.
"Subsidiary": as to any Person, a corporation,
partnership or other entity of which shares of stock or
other ownership interests having ordinary voting power
(other than stock or such other ownership interests having
<PAGE>
12
such power only by reason of the happening of a contingency)
to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity
are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or
more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Surplus": as to CIC and its affiliated fire and
casualty insurers on a consolidated basis under SAP, the
amount remaining after all liabilities, including loss
reserves, are subtracted from all admitted assets, where
admitted assets are assets of an insurer permitted by the
relevant state of domicile to be taken into account under
SAP.
"Termination Date": the day which is 364 days after
the Closing Date, as extended as provided herein.
"Transferee": as defined in subsection 9.6(f).
"Type": as to any Revolving Credit Loan, its nature as
an ABR Loan or a Eurodollar Loan.
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in the Notes or any
certificate or other document made or delivered pursuant hereto.
(b) As used herein and in the Notes, and any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Borrower and its Subsidiaries
not defined in subsection 1.1 and accounting terms partly defined
in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, subsection, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the
terms and conditions hereof, each Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower
<PAGE>
13
from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the
amount of such Lender's Commitment, provided that no Lender shall
make any Revolving Credit Loan if, after giving effect to such
Revolving Credit Loan, the aggregate outstanding principal amount
of all Revolving Credit Loans plus the aggregate outstanding
principal amount of all CAF Advances would exceed the aggregate
Commitments of all the Lenders. During the Commitment Period the
Borrower may use the Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time
be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a combination
thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with subsections 2.3 and 2.11,
provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the
Termination Date.
2.2 Revolving Credit Notes. The Revolving Credit
Loans made by each Lender shall be evidenced by a promissory note
of the Borrower, substantially in the form of Exhibit A, with
appropriate insertions as to payee, date and principal amount (a
"Revolving Credit Note"), payable to the order of such Lender and
in a principal amount equal to the lesser of (a) the amount of
the initial Commitment of such Lender and (b) the aggregate
unpaid principal amount of all Revolving Credit Loans made by
such Lender. Each Lender is hereby authorized to record the
date, Type and amount of each Revolving Credit Loan made by such
Lender, each continuation thereof, each conversion of all or a
portion thereof to another Type, the date and amount of each
payment or prepayment of principal thereof and, in the case of
Eurodollar Loans, the length of each Interest Period with respect
thereto, on the schedule annexed to and constituting a part of
its Revolving Credit Note; provided, however, that the failure to
make any such recordation shall not affect the obligations of the
Borrower hereunder or under any Revolving Credit Note. Each
Revolving Credit Note shall (x) be dated the Closing Date, (y) be
stated to mature on the Termination Date and (z) provide for the
payment of interest in accordance with subsection 2.12.
2.3 Procedure for Revolving Credit Borrowing. The
Borrower may borrow Revolving Credit Loans under the Commitments
during the Commitment Period on any Business Day, provided that
the Borrower shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent
prior to 10:00 A.M., New York City time, (a) three Business Days
prior to the requested Borrowing Date, if all or any part of the
requested Revolving Credit Loans are to be initially Eurodollar
Loans, or (b) on the requested Borrowing Date, otherwise),
specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, ABR Loans or a combination thereof and (iv) if
<PAGE>
14
the borrowing is to be entirely or partly of Eurodollar Loans,
the amounts of such Type of Revolving Credit Loan and the lengths
of the initial Interest Periods therefor. Each such borrowing
under the Commitments shall be in an amount equal to $10,000,000
or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Lender thereof. Each Lender
will make the amount of its pro rata share of each borrowing
available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in
subsection 9.2 prior to 11:00 A.M., New York City time, on the
Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then
be made available to the Borrower by the Administrative Agent
crediting the account of the Borrower on the books of such office
with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received
by the Administrative Agent, and to the extent such funds are
received by the Administrative Agent from the Lenders prior to
11:00 A.M., New York City time, on such Borrowing Date, the
Administrative Agent will credit such account of the Borrower at
or before 1:00 P.M., New York City time, on such Borrowing Date.
2.4 Extension of Termination Date. (a) The Borrower
may request, in a notice given as herein provided to the
Administrative Agent and each of the Lenders not less than 90
days and not more than 120 days prior to the Termination Date
then in effect ("Existing Termination Date"), that the
Termination Date be extended, which notice shall specify a date
(which shall be the Existing Termination Date) as of which the
requested extension is to be effective (the "Effective Date"),
and the new Termination Date to be in effect following such
extension (the "Requested Termination Date"), which date shall be
no more than 364 days after the effectiveness of such extension
(with the Effective Date being counted as the first day). Each
Lender shall, not later than a date 60 days prior to the
Effective Date, notify the Borrower and the Administrative Agent
of its election to extend or not to extend the Termination Date
with respect to its Commitment. Upon receipt of such notices
from each Lender, the Administrative Agent shall promptly notify
each Lender of the election so made by each other Lender.
Notwithstanding any provision of this Agreement to the contrary,
any notice by any Lender of its willingness to extend the
Termination Date with respect to its Commitment shall be
revocable by such Lender in its sole and absolute discretion at
any time prior to the Effective Date. Any Lender which shall not
timely notify the Borrower and the Administrative Agent of its
election to extend the Termination Date shall be deemed to have
elected not to extend the Termination Date with respect to its
Commitment. If Lenders constituting Required Lenders shall not
have notified the Administrative Agent of their election to
extend the Termination Date with respect to their Commitments on
or prior to a date 30 days prior to the Existing Termination
<PAGE>
15
Date, then all of the Lenders shall be deemed to have elected not
to extend the Termination Date with respect to their Commitments.
(b) If any one or more Lenders shall timely notify the
Borrower and the Administrative Agent pursuant to paragraph (a)
of this subsection 2.4 of their election not to extend their
Commitments or their revocation of any extension, or shall be
deemed to have elected not to extend their Commitments (such
Lenders being called "Terminating Lenders"), then the Borrower
may (i) designate from the Lenders other than Terminating
Lenders, if any (the "Continuing Lenders"), one or more such
Continuing Lenders to increase their Commitments, which
Continuing Lenders shall have given notice to the Borrower and
the Administrative Agent of their willingness to so increase
their Commitments, (ii) with notice to the Administrative Agent,
designate one or more other banking institutions willing to
extend Commitments until the Requested Termination Date (any such
banking institution, an "Additional Lender"), or (iii) any
combination thereof, the aggregate amount of the increases of
such Continuing Lenders' Commitments and the amount of such
Additional Lenders' Commitments not to exceed the aggregate of
the Commitments of the Terminating Lenders. Any such increase in
the Commitment of a Continuing Lender shall be evidenced by a
written instrument executed by such Continuing Lender, the
Borrower and the Administrative Agent, and shall take effect on
the Existing Termination Date. Any Additional Lender shall, on
the Existing Termination Date, execute and deliver to the
Borrower and the Administrative Agent an "Assignment and
Acceptance", satisfactory to the Borrower and the Administrative
Agent, setting forth the amount of such Additional Lender's
Commitment and containing its agreement to become, and to perform
all the obligations of, a Lender hereunder, and the Commitment of
such Additional Lender shall become effective on the Existing
Termination Date. Notwithstanding any provision of this
Agreement to the contrary, any notice by any Continuing Lender of
its willingness to increase its Commitment as provided herein, or
by any Additional Lender of its willingness to become a Lender
hereunder, shall be revocable by such Continuing Lender or such
Additional Lender, as the case may be, in its sole and absolute
discretion at any time prior to the Effective Date.
(c) On the Existing Termination Date, the Borrower
shall deliver to each Continuing Lender the Commitment of which
is to be increased a new Revolving Credit Note in exchange for
the Revolving Credit Note held by such Lender, and the Borrower
shall deliver to each Additional Lender a new Revolving Credit
Note and new CAF Advance Note. Each of such Notes shall be
stated to mature on the Termination Date and each of such
Revolving Credit Notes shall be in the principal amount of such
Lender's Commitment after giving effect to the adjustments made
pursuant to this subsection 2.4.
(d) If some of or all the Lenders shall have elected
to extend their Commitments as provided in this subsection 2.4,
<PAGE>
16
then (i) the Commitments of the Continuing Lenders and any
Additional Lenders shall continue until the Requested Termination
Date specified in the notice from the Borrower, and as to such
Lenders the term "Termination Date", as used herein shall on and
after the Effective Date shall mean such Requested Termination
Date; (ii) the Commitments of the Terminating Lenders shall
continue until the Termination Date in effect prior to such
extension, and shall then terminate, and as to the Terminating
Lenders, the term "Termination Date", as used herein, shall
continue to mean such Existing Termination Date; and (iii) from
and after the Termination Date in effect prior to such extension,
the term "Lenders" shall be deemed to include the Additional
Lenders.
2.5 Termination or Reduction of Commitments. The
Borrower shall have the right, upon not less than five Business
Days' notice to the Administrative Agent, to terminate the
Commitments or, from time to time, to reduce the amount of the
unused portion of the Commitments, provided that the amount of
the Commitments may not be reduced to an amount less than
$25,000,000 except in connection with a termination of the
Commitments. Upon receipt of any such notice from the Borrower,
the Administrative Agent shall notify each Lender thereof. Any
such reduction shall be in an amount equal to $10,000,000 or a
whole multiple thereof and shall reduce permanently the
Commitments then in effect.
2.6 The CAF Advances. Subject to the terms and
conditions of this Agreement, the Borrower may borrow CAF
Advances from time to time during the CAF Advance Commitment
period on any Business Day. CAF Advances shall be borrowed in
amounts such that the aggregate amount of Loans outstanding at
any time shall not exceed the aggregate amount of the Commitments
at such time. Within the limits and on the conditions
hereinafter set forth with respect to CAF Advances, the Borrower
from time to time may borrow, repay and reborrow CAF Advances.
2.7 Procedure for CAF Advance Borrowing. (a) The
Borrower shall request CAF Advances by delivering a CAF Advance
Request to the Administrative Agent, not later than 12:00 Noon
(New York City time) four Business Days prior to the proposed
Borrowing Date (in the case of a Eurodollar Rate CAF Advance
Request), and not later than 10:00 A.M. (New York City time) one
Business Day prior to the proposed Borrowing Date (in the case of
an Absolute Rate CAF Advance Request). Each CAF Advance Request
may solicit bids for CAF Advances in an aggregate principal
amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof and having not more than three alternative maturity
dates. The maturity date for each CAP Advance shall be not less
than 7 days nor more than 180 days after the Borrowing Date
therefor, in the case of Absolute Rate CAF Advances, and shall be
1, 2, 3 or 6 months after the Borrowing Date therefor, in the
case of Eurodollar Rate CAF Advances (and in any event shall be
not later than the Termination Date). The Administrative Agent
<PAGE>
17
shall notify each Lender promptly by telex or facsimile
transmission of the contents of each CAF Advance Request received
by the Administrative Agent.
(b) In the case of a Eurodollar Rate CAF Advance
Request, upon receipt of notice from the Administrative Agent of
the contents of such CAF Advance Request, each Lender may elect,
in its sole discretion, to offer irrevocably to make one or more
CAF Advances at the Eurodollar Rate plus or minus a margin
determined by such Lender in its sole discretion for each such
CAF Advance. Any such irrevocable offer shall be made by
delivering a CAF Advance Offer to the Administrative Agent,
before 10:30 A.M. (New York City time) on the day that is three
Business Days before the proposed Borrowing Date, setting forth:
(1) the maximum amount of CAF Advances for each
maturity date and the aggregate maximum amount of CAF
Advances for all maturity dates which such Lender would be
willing to make (which amounts may, subject to subsection
2.6, exceed such Lender's Commitment); and
(2) the margin above or below the Eurodollar Rate at
which such Lender is willing to make each such CAF Advance.
The Administrative Agent shall advise the Borrower before 11:15
A.M. (New York City time) on the date which is three Business
Days before the proposed Borrowing Date of the contents of each
such CAF Advance Offer received by it. If the Administrative
Agent, in its capacity as a Lender, shall elect, in its sole
discretion, to make any such CAF Advance Offer, it shall advise
the Borrower of the contents of its CAF Advance Offer before
10:15 A.M. (New York City time) on the date which is three
Business Days before the proposed Borrowing Date.
(c) In the case of an Absolute Rate CAF Advance
Request, upon receipt of notice from the Administrative Agent of
the contents of such CAF Advance Request, each Lender may elect,
in its sole discretion, to offer irrevocably to make one or more
CAF Advances at a rate of interest determined by such Lender in
its sole discretion for each such CAF Advance. Any such
irrevocable offer shall be made by delivering a CAF Advance Offer
to the Administrative Agent before 9:30 A.M. (New York City time)
on the proposed Borrowing Date, setting forth:
(1) the maximum amount of CAF Advances for each
maturity date, and the aggregate maximum amount for all
maturity dates, which such Lender would be willing to make
(which amounts may, subject to subsection 2.6, exceed such
Lender's Commitment); and
(2) the rate of interest at which such Lender is
willing to make each such CAF Advance.
<PAGE>
18
The Administrative Agent shall advise the Borrower before 10:15
A.M. (New York City time) on the proposed Borrowing Date of the
contents of each such CAF Advance Offer received by it. If the
Administrative Agent, in its capacity as a Lender, shall elect,
in its sole discretion, to make any such CAF Advance Offer, it
shall advise the Borrower of the contents of its CAF Advance
Offer before 9:15 A.M. (New York City time) on the proposed
Borrowing Date.
(d) Before 11:30 A.M. (New York City time) three
Business Days before the proposed Borrowing Date (in the case of
CAF Advances requested by a Eurodollar Rate CAF Advance Request)
and before 10:30 A.M. (New York City time) on the proposed
Borrowing Date (in the case of CAF Advances requested by an
Absolute Rate CAF Advance Request), the Borrower, in its absolute
discretion, shall:
(1) cancel such CAF Advance Request by giving the
Administrative Agent telephone notice to that effect,
or
(2) by giving telephone notice to the
Administrative Agent (immediately confirmed by delivery
to the Administrative Agent of a CAF Advance
Confirmation in writing or by fax transmission) (A)
subject to the provisions of subsection 2.7(e), accept
one or more of the offers made by any Lender or Lenders
pursuant tO subsection 2.7(b) or subsection 2.7(c), as
the case may be, of the amount of CAF Advances for each
relevant maturity date and (B) reject any remaining
offers made by Lenders pursuant to subsection 2.7(b) or
subsection 2.7(c), as the case may be.
(e) The Borrower': acceptance of CAF Advances in
response to any CAF Advance Request shall be subject to the
following limitations:
(1) The amount of CAF Advances accepted for each
maturity date specified by any Lender in its CAF Advance
Offer shall not exceed the maximum amount for such maturity
date specified in such CAF Advance Offer;
(2) the aggregate amount of CAF Advances accepted for
all maturity dates specified by any Lender in its CAF
Advance Offer shall not exceed the aggregate maximum amount
specified in such CAF Advance Offer for all such maturity
dates;
(3) the Borrower may not accept offers for CAF
Advances for any maturity date in an aggregate principal
amount in excess of the maximum principal amount requested
in the related CAF Advance Request; and
<PAGE>
19
(4) if the Borrower accepts any of such offers, it
must accept offers based solely upon pricing for such
relevant maturity date and upon no other criteria whatsoever
and if two or more Lenders submit offers for any maturity
date at identical pricing and the Borrower accepts any of
such offers but does not wish to (or by reason of the
limitations set forth in subsection 2.6 or in clause (3) of
this subsection 2.7(e), cannot) borrow the total amount
offered by such Lenders with such identical pricing, the
Borrower shall accept offers from all of such Lenders in
amounts allocated among them pro rata according to the
amounts offered by such Lenders (or as nearly pro rata as
shall be practicable after giving effect to the requirement
that CAF Advances made by a Lender on a Borrowing Date for
each relevant maturity date shall be in a principal amount
of $5,000,000 or an integral multiple of $1,000,000 in
excess thereof).
(f) If the Borrower notifies the Administrative Agent
that a CAF Advance Request is cancelled pursuant to subsection
2.7(d)(1), the Administrative Agent shall give prompt telephone
notice thereof to the Lenders.
(g) If the Borrower accepts pursuant to subsection
2.7(d) (2) one or more of the offers made by any Lender or
Lenders, the Administrative Agent promptly shall notify each
Lender which has made such a CAF Advance Offer of (1) the
aggregate amount of such CAF Advances to be made on such
Borrowing Date for each maturity date and (2) the acceptance or
rejection of any offers to make such CAF Advances made by such
Lender. Before 12:00 Noon (New York City time) on the Borrowing
Date specified in the applicable CAF Advance Request, each Lender
whose CAF Advance Offer has been accepted shall make available to
the Administrative Agent at its office set forth in subsection
9.2 the amount of CAF Advances to be made by such Lender, in
immediately available funds. The Administrative Agent will make
such funds available to the Borrower as soon as practicable on
such date at the Administrative Agent's aforesaid address, and to
the extent that such funds are received by the Administrative
Agent from the Lenders prior to 12:00 Noon, New York City time,
on such Borrowing Date, the Administrative Agent will make such
funds available to the Borrower at or before 1:00 P.M., New York
City time, on such Borrowing Date. As soon as practicable after
each Borrowing Date, the Administrative Agent shall notify each
Lender of the aggregate amount of CAF Advances advanced on such
Borrowing Date and the respective maturity dates thereof.
2.8 CAF Advance Payments. (a) The Borrower shall
repay to the Administrative Agent for the account of each Lender
which has made a CAF Advance on the applicable CAF Advance
Maturity Date the then unpaid principal amount of such CAF
Advance. The Borrower shall not have the right to prepay any
principal amount of any CAF Advance, except that the Borrower may
prepay the principal amount of all outstanding CAF Advances if
<PAGE>
20
any event or condition described in Section 7(j)(i) shall have
occurred and be continuing and in the event of any such
prepayment the Borrower shall indemnify each Lender and hold each
Lender harmless from any loss or reasonable expense which such
Lender may sustain or incur as a consequence of such prepayment
(which covenant shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable
hereunder).
(b) The Borrower shall pay interest on the unpaid
principal amount of each CAF Advance from the Borrowing Date
thereof to the applicable CAF Advance Maturity Date at the rate
of interest specified in the CAF Advance Offer accepted by the
Borrower in connection with such CAF Advance (calculated on the
basis of a 360-day year for actual days elapsed), payable on each
applicable CAF Advance Interest Payment Date.
(c) If all or a portion of the principal amount of any
CAF Advance shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue principal
amount shall, without limiting any rights of any Lender under
this Agreement, bear interest from the date on which such payment
was due at a rate per annum which is 2% above the rate which
would otherwise be applicable pursuant to the CAF Advance Note
evidencing such CAF Advance until the stated maturity date of
such CAF Advance, and for each day thereafter at a rate per annum
which is 2% above the ABR, in each case until paid in full (as
well after as before judgment).
2.9 CAF Advance Notes. The CAF Advances made by each
Lender shall be evidenced by a promissory note of the Borrower,
substantially in the form of Exhibit B with appropriate
insertions (a "CAF Advance Note"), payable to the order of such
Lender and representing the obligation of the Borrower to pay the
unpaid principal amount of all CAF Advances made by such Lender,
with interest on the unpaid principal amount from time to time
outstanding of each CAF Advance evidenced thereby as prescribed
in subsection 2.8(b). Each Lender is hereby authorized to record
the date and amount of each CAF Advance made by such Lender, the
maturity date thereof, the date and amount of each payment of
principal thereof and the interest rate with respect thereto on
the schedule annexed to and constituting part of its CAF Advance
Note; provided, however, that the failure to make any such
recordation shall not affect the obligations of the Borrower
hereunder or under any CAF Advance Note. Each CAF Advance Note
shall be dated the Closing Date and each CAF Advance evidenced
thereby shall bear interest for the period from and including the
Borrowing Date of such CAF Advance on the unpaid principal amount
thereof from time to time outstanding at the applicable rate per
annum determined as provided in, and such interest shall be
payable as specified in, subsection 2.8(b).
2.10 Optional Prepayments. The Borrower may at any
time and from time to time prepay the Revolving Credit Loans, in
<PAGE>
21
whole or in part, without premium or penalty, upon at least four
Business Days' irrevocable notice to the Administrative Agent,
specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, ABR Loans or a combination
thereof, and, if of a combination thereof, the amount allocable
to each. Upon receipt of any such notice the Administrative
Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any
amounts payable pursuant to subsection 2.20 and accrued interest
to such date on the amount prepaid. Partial prepayments shall be
in an aggregate principal amount of $10,000,000 or a whole
multiple of $1,000,000 in excess thereof.
2.11 Conversion and Continuation Options. (a) The
Borrower may elect from time to time to convert Eurodollar Loans
to ABR Loans by giving the Administrative Agent prior irrevocable
notice of such election no later than 10:00 A.M., New York City
time, on the date of such conversion, provided that any such
--------
conversion of Eurodollar Loans may only be made on the last day
of an Interest Period with respect thereto. The Borrower may
elect from time to time to convert ABR Loans tO Eurodollar Loans
by giving the Administrative Agent at least three Business Days'
prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. Upon
receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof. All or any part of
outstanding Eurodollar Loans and ABR Loans may be converted as
provided herein, provided that (i) no Loan may be converted into
a Eurodollar Loan when any Event of Default has occurred and is
continuing and the Administrative Agent has or the Required
Lenders have determined that such a conversion is not appropriate
and (ii) no Loan may be converted into a Eurodollar Loan after
the date that is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect
thereto by the Borrower giving notice to the Administrative
Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in subsection 1.1, of the length of
the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any
Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined
that such a continuation is not appropriate or (ii) after the
date that is one month prior to the Termination Date and
provided, further, that if the Borrower shall fail to give any
required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso
such Revolving Credit Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
Upon receipt of any such notice from the Borrower, the
Administrative Agent shall notify each Lender thereof.
<PAGE>
22
2.12 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to
the Eurodollar Rate determined for such day plus 0.4375%.
(b) Each ABR Loan shall bear interest at a rate per
annum equal to the ABR.
(c) If all or a portion of (i) the principal amount of
any Revolving Credit Loan, (ii) any interest payable thereon or
(iii) any commitment fee or other amount payable hereunder shall
not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum which is (x) in the case of overdue
principal, the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this subsection plus 2%
or (y) in the case of overdue interest, facility fee or other
amount, the rate described in paragraph (b) of this subsection
plus 2%, in each case from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant
to paragraph (c) of this subsection shall be payable from time to
time on demand.
2.13 Facility Fee, Other Fees. (a) The Borrower
agrees to pay to the Administrative Agent for the account of each
Lender a facility fee for the period from and including the first
day of the Commitment Period to the Termination Date, computed at
the rate of 0.1875% per annum on the average daily amount of the
Commitment of such Lender during the period for which payment is
made, payable quarterly in arrears on the last day of each March,
June, September and December and on the Termination Date or such
earlier date on which the Commitments shall terminate as provided
herein, commencing on the first of such dates to occur after the
date hereof.
(b) The Borrower agrees to pay an administrative
agency fee in the amounts, and on the dates, as from time to time
agreed in writing with the Administrative Agent.
2.14 Computation of Interest and Fees. (a) Facility
fees and, whenever it is calculated on the basis of the Prime
Rate, interest shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed;
and, otherwise, interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the
ABR, the Eurocurrency Reserve Requirements, the C/D Assessment
Rate or the C/D Reserve Percentage shall become effective as of
the opening of business on the day on which such change becomes
<PAGE>
23
effective. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement
shall be conclusive and binding on the Borrower and the Lenders
in the absence of manifest error. The Administrative Agent
shall, at the request of the Borrower, deliver to the Borrower a
statement showing the quotations used by the Administrative Agent
in determining any interest rate pursuant to subsection 2.12(a).
(c) If any Reference Lender shall for any reason no
longer have a Commitment or any Revolving Credit Loans, such
Reference Lender shall thereupon cease to be a Reference Lender,
and if, as a result, there shall only be one Reference Lender
remaining, the Administrative Agent (after consultation with the
Borrower and the Lenders) shall, by notice to the Borrower and
the Lenders, designate another Lender as a Reference Lender so
that there shall at all times be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts
to furnish quotations of rates to the Administrative Agent as
contemplated hereby. If any of the Reference Lenders shall be
unable or shall otherwise fail to supply such rates to the
Administrative Agent upon its request, the rate of interest
shall, subject to the provisions of subsection 2.15, be
determined on the basis of the quotations of the remaining
Reference Lenders or Reference Lender.
2.15 Inability to Determine Interest Rate.
If prior to the first day of any Interest Period:
(a) the Administrative Agent shall have determined
(which determination shall be conclusive and binding upon
the Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest
Period, or
(b) the Administrative Agent shall have received
notice from the Majority Lenders that the Eurodollar Rate
determined or to be determined for such Interest Period will
not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest
Period,
the Administrative Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable
thereafter. If such notice is given (x) any Eurodollar Loans
requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar
<PAGE>
24
Loans shall be continued as ABR Loans and (z) any outstanding
Eurodollar Loans shall be converted, on the first day of such
Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower
have the right to convert ABR Loans to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each
borrowing of Revolving Credit Loans by the Borrower from the
Lenders hereunder, each payment by the Borrower on account of any
facility fee hereunder and any reduction of the Commitments of
the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including
each prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the
respective amounts of principal and interest then due and owing
to the Lenders. All payments (including prepayments) to be made
by the Borrower hereunder and under the Notes, whether on account
of principal, interest, fees or otherwise, shall be made without
set off or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Administrative
Agent's office specified in subsection 9.2, in Dollars and in
immediately available funds, and if any payment hereunder or
under the Notes is made after 12:00 Noon on such date, such
payment shall be deemed to have been made on the next succeeding
Business Day. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the
Eurodollar Loans and Eurodollar CAF Advances) becomes due and
payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect
to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension. If any payment
on a Eurodollar Loan or Eurodollar CAF Advance becomes due and
payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day unless the
result of such extension would be to extend such payment into
another calendar month, in which event such payment shall be made
on the immediately preceding Business Day.
(b) Unless the Administrative Agent shall have been
notified in writing by any Lender prior to a borrowing that such
Lender will not make the amount that would constitute its
Commitment Percentage of such borrowing (or, in the case of a CAF
Advance, the amount of the CAF Advance to be made by it)
available to the Administrative Agent, the Administrative Agent
may assume that such Lender is making such amount available to
the Administrative Agent, and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to
the Administrative Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Administrative Agent,
on demand, such amount with interest thereon at a rate equal to
<PAGE>
25
the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the
Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under
this subsection shall be conclusive in the absence of manifest
error. If such Lender's Commitment Percentage of such borrowing
(or, in the case of a CAF Advance, the amount of the CAF Advance
to be made by it) is not made available to the Administrative
Agent by such Lender within three Business Days of such Borrowing
Date, the Administrative Agent shall also be entitled to recover
such amount with interest thereon at the rate per annum
applicable to ABR Loans hereunder, on demand, from the Borrower.
2.17 Illegality. Notwithstanding any other provision
herein, if the adoption of or any change in any Requirement of
Law or in the interpretation or application thereof shall make it
unlawful for any Lender to make or maintain Eurodollar Loans or
Eurodollar CAF Advances as contemplated by this Agreement, (a)
the commitment of such Lender hereunder to make Eurodollar Loans,
continue Eurodollar Loans as such and convert ABR Loans to
Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Loans then outstanding as Eurodollar Loans or Eurodollar
CAF Advances, if any, shall be converted automatically to ABR
Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period
as required by law. If any such conversion of a Eurodollar Loan
or Eurodollar CAF Advance occurs on a day which is not the last
day of the then current Interest Period with respect thereto, the
Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.20.
2.18 Requirements of Law. (a) If the adoption of or
any change in any Requirement of Law or in the interpretation or
application thereof by any Governmental Authority charged with
the interpretation or administration thereof or compliance by any
Lender with any request or directive (whether or not having the
force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any
Eurodollar Loan made by it, or change the basis of taxation
of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by subsection 2.19 and changes in
the rate of tax on tile overall net income of such Lender or
Lending Office);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not otherwise
<PAGE>
26
included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to
such Lender, by an amount which such Lender deems to be material,
of making, converting into, continuing or maintaining Eurodollar
Loans or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay
such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly
notify the Borrower, through the Administrative Agent, of the
event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender, through the Administrative
Agent, to the Borrower shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of
this Agreement and the payment of the Notes and all other amounts
payable hereunder.
(b) If any Lender shall have determined that the
adoption of or any change in any Requirement of Law regarding
capital adequacy or in the interpretation or application thereof
or compliance by such Lender or any corporation controlling such
Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have
the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of its obligations
hereunder to a level below that which such Lender or such
corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the
Agent) of a written request therefor, the Borrower shall pay to
such Lender such additional amount or amounts as will compensate
such Lender for such reduction. This covenant shall survive the
termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder for a period of 30 days.
2.19 Taxes. (a) All payments made by the Borrower
under this Agreement and the Notes shall be made free and clear
of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by
any Governmental Authority, excluding such taxes, levies,
imposts, duties, charges, fees, deductions or withholdings on or
measured by overall net income, and all franchise taxes, taxes on
doing business or taxes measured by capital or net worth that are
<PAGE>
27
imposed in lieu of net income taxes, imposed on the
Administrative Agent, any Co-Agent or any Lender as a result of a
present or former connection between the Administrative Agent,
any Co-Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent,
any Co-Agent or such Lender having executed. delivered or
performed its obligations or received a payment under, or
enforced, this Agreement or the Notes). If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to the Administrative Agent, any Co-
Agent or any Lender hereunder or under the Notes, the amounts so
payable to the Administrative Agent, such Co-Agent or such Lender
shall be increased to the extent necessary to yield to the
Administrative Agent, such Co-Agent or such Lender (after payment
of all Non-Excluded Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in
this Agreement and the Notes, provided, however, that the
Borrower shall not be required to increase any such amounts
payable to any Lender that is not organized under the laws of the
United States of America or a state thereof if such Lender fails
to comply with the requirements of paragraph (b) of this
subsection. Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall
send to the Administrative Agent for its own account or for the
account of such Co-Agent or Lender, as the case may be, an
original official receipt (or a copy thereof certified by the
appropriate taxing authority) received by the Borrower showing
payment thereof. If the Borrower (i) fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or
(ii) fails to remit to the Administrative Agent the required
receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent, the Co-Agents and the
Lenders for any incremental taxes, interest or penalties that may
become payable by the Administrative Agent, any Co-Agent or any
Lender as a result of any such failure, provided, that in the
case of a failure pursuant to clause (ii) of this sentence the
amount of incremental taxes payable by the Borrower shall be
limited to the taxes imposed on a Lender as a result of its being
required to include in income any Non-Excluded Taxes. The
agreements in this subsection shall survive the termination of
this Agreement and the payment of the Notes and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the
laws of the United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative
Agent (A) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, and (B) an Internal
<PAGE>
28
Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(ii) deliver to the Borrower and the Administrative
Agent two further copies of any such form or certification
on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously
delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Administrative Agent;
unless in any such case a change in treaty, law or regulation)
has occurred after the Closing Date (or, if later, the date on
which any Lender first became a Lender) and prior to the date on
which any such delivery would otherwise be required which renders
all such forms inapplicable or which would prevent such Lender
from duly completing and delivering any such form with respect to
it and such Lender so advises the Borrower and the Administrative
Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9,
that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 9.6 shall, upon the
effectiveness of the related transfer, be required to provide all
of the forms and statements required pursuant to this subsection,
provided that in the case of a Participant such Participant shall
furnish all such required forms and statements to the Lender from
which the related participation shall have been purchased.
(c) If a Lender shall become aware that it is eligible
for a refund in respect of Non-Excluded Taxes paid by the
Borrower pursuant to this subsection 2.19, it shall promptly
notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request from the Borrower,
apply at the Borrower's expense for such refund or furnish to the
Borrower such duly completed forms as will enable the Borrower to
claim such refund on its own behalf. If such Lender receives all
or part of such refund, it shall repay the net after tax amount
of such refund to the Borrower without interest (other than
interest received from the relevant Governmental Authority with
respect to such refund) within 30 days of its receipt of such
refund. In addition, the Administrative Agent, each Co-Agent and
each Lender shall reasonably cooperate with the Borrower, at the
Borrower's expense, in contesting any Non-Excluded Taxes that the
Borrower is required to bear under this subsection 2.19 and shall
pay to the Borrower the net after-tax amount of refunds obtained
as a result of such contest, together with any interest thereon,
within 30 days after receipt.
<PAGE>
29
2.20 Indemnity. The Borrower agrees to indemnify each
Lender and to hold each Lender harmless from any loss or expense
which such Lender may sustain or incur as a consequence of
(a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in
making any prepayment after the Borrower has given a notice
thereof in accordance with the provisions of this Agreement or
(c) the making of a prepayment or conversion of Eurodollar Loans
on a day which is not the last day of an Interest Period with
respect thereto. Such indemnification may include an amount
equal to the excess, if any, of (i) the amount of interest which
would have accrued on the amount so prepaid or converted, or not
so borrowed, converted or continued, for the period from the date
of such prepayment or conversion or of such failure to borrow,
convert or continue to the last day of such Interest Period (or,
in the case of a failure to borrow, convert or continue, the
Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such
Loans provided for herein (excluding, however, the margin above
the Eurodollar Rate provided for by subsection 2.14(a) included
therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Bank
on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and
the payment of the Notes and all other amounts payable hereunder.
2.21 Replacement of Lender. (a) If (i) the Borrower
becomes obligated to pay any additional amounts described in
subsections 2.18 or 2.19 as a result of any condition described
in such subsections and (ii) payment of such amount is demanded
by any Lender or the Borrower pays such amount, then the Borrower
may, on ten Business Days' prior written notice to the
Administrative Agent and such Lender, cause such Lender to (and
such Lender shall) assign pursuant to subsection 9.6 all of its
rights and obligations under this Agreement and the other Loan
Documents, for a purchase price not less than the aggregate
outstanding principal amount of its Loans, to a Lender or other
entity selected by the Borrower, provided that in no event shall
the assigning Lender be required to pay or surrender to such
purchasing Lender or other entity any of the fees theretofore
received by such assigning Lender pursuant to this Agreement or
the registration and processing fee referred to on subsection
9.6(e), and provided, further, that such assignment shall not
affect such assigning Lender's right to receive interest, fees
referred to under subsection 2.13 or any compensation under such
subsections 2.18 and 2.19 in respect of periods prior to such
assignment.
(b) If the Borrower becomes obligated to pay any
additional amounts described in subsections 2.18 or 2.19 as a
result of any condition described in such subsections and payment
<PAGE>
30
of such amounts is demanded by any Lender, such Lender shall
exercise reasonable efforts to assign its rights and delegate and
transfer its obligations hereunder to another of its offices,
branches or affiliates, if such assignment would reduce such
additional amounts required to be paid by the Borrower and would
not cause the imposition on such Lender of additional costs or
expenses (unless such expenses are fully reimbursed by the
Borrower on an after-tax basis) or of other requirements or
conditions deemed by such Lender to be burdensome or to be
inconsistent with its corporate policies.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent, the Co-Agents and
the Lenders to enter into this Agreement and to make the Loans,
the Borrower hereby represents and warrants to the Administrative
Agent, the Co-Agents and each Lender that:
3.1 Financial Condition. (a) The consolidated
balance sheet of the Borrower and its consolidated Subsidiaries
as at December 31, 1992 and the related consolidated statements
of income and of cash flows for the fiscal year ended on such
date, reported on by KPMG Peat Marwick, copies of which have
heretofore been furnished to each Lender, present fairly the
consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for
the fiscal year then ended. The unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at
September 30, 1993 and the related unaudited consolidated
statements of income and of cash flows for the nine-month period
ended on such date, certified by a Responsible Officer, copies of
which have heretofore been furnished to each Lender, present
fairly the consolidated financial condition of the Borrower and
its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated
cash flows for the nine-month period then ended (subject to
normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as
disclosed therein). Since December 31, 1992 there has been no
development or event which has had or would reasonably be
expected to have a Material Adverse Effect.
(b) The consolidated Statutory Statement of CIC and
its affiliated fire and casualty insurers, as filed with the
appropriate Governmental Authority of the jurisdiction of CIC's
domicile, as of and for the fiscal year ended December 31, 1992,
and the Statutory Statements of each of the Reporting Insurance
Subsidiaries, as filed with the appropriate Governmental
Authority of the jurisdiction of such Reporting Insurance
<PAGE>
31
Subsidiary's domicile, as of and for the fiscal year ended
December 31, 1992, copies of which have been heretofore delivered
to each Lender, have been prepared in accordance with SAP applied
on a consistent basis. The Statutory Statement of each of the
Reporting Insurance Subsidiaries, as filed with the appropriate
Governmental Authority of the jurisdiction of such Reporting
Insurance Subsidiary's domicile, as of and for the fiscal
quarters ended March 31, 1993, June 30, 1993 and September 30,
1993, copies of which have been heretofore delivered to each
Lender, have been prepared in accordance with SAP applied on a
consistent basis. Such Statutory Statements fairly present the
financial condition, results of operations, changes in surplus
and cash flow of CIC and its affiliated fire and casualty
insurers or such Reporting Insurance Subsidiaries, as the case
may be, as of and for the respective dates and periods indicated
therein in accordance with SAP applied on a consistent basis.
Since December 31, 1992 there has been no development or event
which has had or would reasonably be expected to have a Material
Adverse Effect.
3.2 Corporate Existence; Compliance with Law. (a) The
Borrower is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization; and (b)
each of the Borrower and its Subsidiaries (i) is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has the corporate power
and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (iii) is
duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires
such qualification and (iv) is in compliance with all
Requirements of Law, except, in each of clauses (i) through (iv)
of this subsection 3.2 (b) , to the extent that the failure to
comply therewith would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
3.3 Corporate Power: Authorization; Enforceable
Obligations. The Borrower has the corporate power and authority,
and the legal right, to make, deliver and perform the Loan
Documents to which it is a party and to borrow hereunder and has
taken all necessary corporate action to authorize the borrowings
on the terms and conditions of this Agreement and the Notes and
to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization
of, filing with, notice to or other act by or in respect of any
Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan
Documents to which the Borrower is a party. This Agreement has
been, and each other Loan Document to which it is a party will
be, duly executed and delivered on behalf of the Borrower. This
Agreement constitutes, and each other Loan Document to which it
<PAGE>
32
is a party when executed and delivered will constitute, a legal,
valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by
proceedings in equity or at law).
3.4 No Legal Bar. The execution, delivery and
performance of the Loan Documents to which the Borrower is a
party, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien
on any of its or their respective properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation which
would reasonably be expected to have a Material Adverse Effect.
3.5 No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the
Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties
or revenues (a) with respect to any of the Loan Documents or any
of the transactions contemplated hereby or thereby, or (b) which
would reasonably be expected to have a Material Adverse Effect.
3.6 No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which would reasonably be
expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
3.7 Ownership of Property; Liens. Each of the
Borrower and its Subsidiaries has title to, or a leasehold
interest in, all its property, and none of such property is
subject to any Lien except as permitted by subsection 6.2 and
except for such deficiencies in title or leasehold interests or
for Liens which, in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
3.8 Intellectual Property. The Borrower and each of
its Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently conducted
except for those the failure to own or license which would not
reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No claim has been asserted and is
pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of
any such Intellectual Property, nor does the Borrower know of any
valid basis for any such claim, except for such claims which
would not reasonably be expected to have a Material Adverse
<PAGE>
33
Effect. The use of such Intellectual Property by the Borrower
and its Subsidiaries does not infringe on the rights of any
Person, except for such claims and infringements that, in the
aggregate, would not reasonably be expected to have a Material
Adverse Effect.
3.9 Taxes. Each of the Borrower and its Subsidiaries
has filed or caused to be filed all material tax returns which,
to the knowledge of the Borrower, are required to be filed and
has paid all taxes shown to be due and payable on said returns or
on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount
or validity of which are currently being contested in good faith
by appropriate proceedings and with respect to which reserves in
conformity with GAAP (and SAP, if applicable) have been provided
on the books of the Borrower or its Subsidiaries, as the case may
be); no material tax Lien has been filed, and, to the knowledge
of the Borrower, no material claim is being asserted, with
respect to any such tax, fee or other charge.
3.10 Federal Regulations. No part of the proceeds of
any Loans will be used for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms
under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect
or for any purpose which violates the provisions of the
Regulations of such Board of Governors. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to
the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form
U-1 referred to in Regulation U.
3.11 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred
during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan,
and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. No termination of a
Single Employer Plan has occurred, and no Lien in favor of the
PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date on
which this representation is made or deemed made, exceed the
value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any liability under
ERISA if the Borrower or any such Commonly Controlled Entity were
to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this
<PAGE>
34
representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent.
3.12 Investment Company Act; Other Regulations. The
Borrower is not an "investment company", or a company
"controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended, or a "holding
company" as defined in, or otherwise subject to regulation under,
the Public Utility Holding Company Act of 1935, as amended.
3.13 Subsidiaries. The Persons listed on Schedule
3.13 constitute all the Subsidiaries of the Borrower at the date
hereof.
3.14 Purpose of Loans. The proceeds of the Loans
shall be used by the Borrower for general corporate purposes.
3.15 Accuracy and Completeness of Information. All
information, reports and other papers and data (including,
without limitation, copies of all filings made with any
Governmental Authority) with respect to the Borrower or any of
its Subsidiaries furnished to the Lenders by the Borrower, or on
behalf of the Borrower, were, at the time the same were so
furnished, correct as to the subject matter covered therein in
all material respects, or have been subsequently supplemented by
other information, reports or other papers or data. No fact is
known to the Borrower which has or in the future may (so far as
the Borrower can reasonably foresee) reasonably be expected to
have a Material Adverse Effect. No statement made in writing to
the Lenders by the Borrower and, to the best of the Borrower's
knowledge, no document furnished by the Borrower to the
Administrative Agent, any Co-Agent or the Lenders in connection
with the negotiation, preparation or execution of or pursuant to
this Agreement contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make
the statements contained therein not materially misleading in
light of the circumstances under which, and as of the date, such
statements were made, in either case which has not been
corrected, supplemented or remedied by subsequent documents or
statements made to the Lenders in writing.
3.16 Regulatory Intervention. No Governmental
Authority having jurisdiction over the business of any Insurance
Subsidiary domiciled in the United States or Canada has taken any
action or commenced any proceeding to exercise control over the
business or operations of such Insurance Subsidiary, or to cause
such Insurance Subsidiary to take any action which would
reasonably be expected to have a Material Adverse Effect, and to
the best knowledge of the Borrower no such action or proceeding
has been threatened by any Governmental Authority.
<PAGE>
35
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Closing Date. The Closing Date
shall occur on the date of satisfaction of the following
conditions precedent:
(a) Loan Documents. The Administrative Agent shall
have received (i) this Agreement, executed and delivered by
a duly authorized officer of the Borrower, with a
counterpart for each Lender, (ii) for the account of each
Lender, a Revolving Credit Note conforming to the
requirements hereof and executed by a duly authorized
officer of the Borrower, and (iii) for the account of each
Lender, a CAF Advance Note conforming to the requirements
hereof and executed by a duly authorized officer of the
Borrower.
(b) Schedule of Guarantee Obligations. The
Administrative Agent shall have received, with a copy for
each Lender, a schedule (i) listing all outstanding
Guarantee Obligations of the Borrower in respect of
Indebtedness and similar obligations of others in the amount
of $10,000,000 or more and (ii) disclosing, to the best of
the Borrower's knowledge, the aggregate amount of all such
Guarantee Obligations of the Borrower which individually are
in an amount of less than $10,000,000, which schedule shall
be in form and substance satisfactory to the Lenders.
(c) Borrowing Certificate. The Administrative Agent
shall have received with a counterpart for each Lender, a
certificate of the Borrower, dated the Closing Date,
substantially in the form of Exhibit F, with appropriate
insertions and attachments, satisfactory in form and
substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower.
(d) Corporate Proceedings of the Borrower. The
Administrative Agent shall have received, with a counterpart
for each Lender, a copy of the resolutions of the Board of
Directors of the Borrower authorizing the borrowings
contemplated hereunder, certified by the Secretary or an
Assistant Secretary of the Borrower as of the Closing Date,
which certificate shall be in form and substance
satisfactory to the Administrative Agent and shall state
that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(e) Borrower Incumbency Certificate. The
Administrative Agent shall have received, with a counterpart
for each Lender, a certificate of the Borrower, dated the
Closing Date, as to the incumbency and signature of the
officers of the Borrower executing any Loan Document
satisfactory in form and substance to the Administrative
<PAGE>
36
Agent, executed by the President or any Vice President and
the Secretary or any Assistant Secretary of the Borrower.
(f) Corporate Documents. The Administrative Agent
shall have received, with a counterpart for each Lender,
true and complete copies of the certificate of incorporation
and by-laws of the Borrower, certified as of the Closing
Date as complete and correct copies thereof by the Secretary
or an Assistant Secretary of the Borrower.
(g) Fees, Expenses. The Co-Agents shall have received
the fees and other consideration to be received on the
Closing Date as agreed in writing between the Borrower and
the Co-Agents, and the Borrower shall have paid all
reasonable out-of-pocket expenses (including, without
limitation, reasonable fees and disbursement charges of a
single legal counsel for all of the Administrative Agent,
the Co-Agents, and the Lenders) of the Administrative Agent,
the Co-Agents and the Lenders required to be paid by the
Borrower pursuant to the Loan Documents which shall have
been invoiced on or prior to the Closing Date.
(h) Legal Opinions. The Administrative Agent shall
have received, with a counterpart for each Lender, the
executed legal opinion of William F. Gleason, Jr., general
counsel of the Borrower, substantially in the form of
Exhibit G.
(i) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be
satisfactory in form and substance to the Administrative
Agent, and the Administrative Agent shall have received such
other documents in respect of any aspect or consequence of
the transactions contemplated hereby or thereby as it shall
reasonably request.
4.2 Conditions to Each Loan. The agreement of each
Lender to make any Loan requested to be made by it on any date
(including, without limitation, its initial Loan) is subject to
the satisfaction of the following conditions precedent:
(a) Closing Date. The Closing Date shall have occurred.
(b) Representations and warranties. Each of the
representations and warranties made by the Borrower in or
pursuant to the Loan Documents shall be true and correct in
all material respects on and as of such date as if made on
and as of such date.
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37
(c) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to the Loans requested to be made on such date.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date of
such Loan that the conditions contained in this subsection 4.2
have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect, any Note reins outstanding and
unpaid or any other amount is owing to any Lender, the
Administrative Agent or any Co-Agent hereunder, the Borrower
shall and (except in the case of delivery of financial
information, reports and notices) shall cause each of its
Subsidiaries to:
5.1 GAAP Financial Statements. Furnish to the
Administrative Agent, with a copy for each Lender:
(a) as soon as available, but in any event within
120 days after the end of each fiscal year of the Borrower,
a copy of the consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at the end of such year and
the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in
each case in comparative form the figures as of the end of
and for the previous year, reported on by KPMG Peat Marwick
or other independent certified public accountants of
nationally recognized standing; and
(b) as soon as available, but in any event not later
than 60 days after the end of each of the first three
quarterly periods of each fiscal year of the Borrower, the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and
the related unaudited consolidated statements of income and
retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion
of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the
corresponding date or period in the previous year, certified
by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit
adjustments);
all such financial statements to be prepared in reasonable detail
and in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and
disclosed therein).
<PAGE>
38
5.2 SAP Financial Statements. Furnish to the
Administrative Agent, with a copy for each Lender:
(a) as soon as possible, but in any event within 120
days after the end of each fiscal year of CIC and each other
Reporting Insurance Subsidiary, a copy of (i) the
consolidated Statutory Statement of CIC and its affiliated
fire and casualty insurers for such fiscal year, and (ii)
the Statutory Statement of each such Reporting Insurance
Subsidiary for such fiscal year, in each case subscribed and
sworn to and certified by officers of CIC or such other
Reporting Insurance Subsidiary as required by applicable
law; and
(b) as soon as possible, but in any event within 60
days after the end of each of the first three fiscal
quarters of each fiscal year of each Reporting Insurance
Subsidiary, a copy of the Statutory Statement of each such
Reporting Insurance Subsidiary for such fiscal quarter,
certified by a Responsible Officer of such Subsidiary as
required by applicable law;
all such financial statements to be prepared in accordance with
SAP applied consistently throughout the periods reflected therein
(except as approved by such officers or Responsible Officer, as
the case may be, and disclosed therein).
5.3 Certificates; Other Information. Furnish to the
Administrative Agent, with a copy for each Lender:
(a) concurrently with the delivery of the financial
statements referred to in subsection 5.1(a), a certificate
of the independent certified public accountants reporting on
such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 5.1(a) and 5.1(b), a
certificate of a Responsible Officer stating that, to the
best of such Officer's knowledge, the Borrower during such
period has observed, performed or satisfied all covenants,
agreements and conditions contained in this Agreement and in
the Notes to be observed, performed or satisfied by it and
that such Officer has obtained no knowledge of any Default
or Event of Default except as specified in such certificate,
and showing in detail the calculations supporting such
statement in respect of subsection 6.1(a) and (b);
(c) within twenty days after the same are sent, copies
of all financial statements and reports which the Borrower
sends to its stockholders, and within twenty days after the
same are filed, copies of all financial statements and
<PAGE>
39
reports which the Borrower or any Subsidiary may make to, or
file with, the Securities and Exchange Commission or any
successor or with any analogous Governmental Authority; and
(d) promptly, such additional financial and other
information as any Lender may from time to time reasonably
request.
5.4 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its obligations of whatever
nature, except (a) where the amount or validity thereof is
currently being contested in good faith by appropriate
proceedings or (b) where the failure to do so would not
reasonably be expected to have a Material Adverse Effect.
5.5 Conduct of Business and Maintenance of Existence.
Continue to engage primarily in the property and casualty
insurance business and related insurance or financial service
activities, and preserve, renew and keep in full force and effect
its corporate existence and take all reasonable action to
maintain all rights, privileges, licenses and franchises
necessary or desirable in the normal conduct of its business
except as otherwise permitted pursuant to subsection 6.3; comply
with all Contractual Obligations and Requirements of Law except
to the extent that failure to comply therewith would not, in the
aggregate, be reasonably expected to have a Material Adverse
Effect.
5.6 Maintenance Of Property Insurance. Keep all
property useful and necessary in its business in good working
order and condition except to the extent that the failure to do
so would not reasonably be expected to have a Material Adverse
Effect; and furnish to the Administrative Agent, with a copy for
each Lender, upon written request, insurance certificates as to
the insurance carried.
5.7 Inspection of Property; Books and Records;
Discussions. Keep proper books of records and account in which
true and correct entries in conformity with GAAP or SAP, as the
case may be, and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and
activities except to the extent that the failure to do so would
not reasonably be expected to have a Material Adverse Effect; and
permit representatives of any Lender, upon reasonable notice and
during normal business hours, to visit and inspect any of its
properties and examine any of its books and records and to
discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with
officers and employees of the Borrower and its Subsidiaries and
with its independent certified public accountants, all as may be
reasonably requested by such Lender, provided that the
Administrative Agent and each Lender agree to use reasonable
efforts to coordinate such visits and inspections to minimize the
<PAGE>
40
inconvenience to or burden upon the Borrower, its Subsidiaries
and such accountants.
5.8 Notices. Promptly give notice to the
Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its
Subsidiaries or (ii) litigation, investigation or proceeding
which my exist at any time between the Borrower or any of
its Subsidiaries and any Governmental Authority including,
without limitation, the issuance of any order, the taking of
any action or any request for an extraordinary audit for
cause by any Governmental Authority, which in case of either
clause (i) or (ii) of this subsection 5.8(b), if not cured
or if adversely determined, as the case may be, would
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the
Borrower or any of its Subsidiaries which would be
disclosable by the Borrower pursuant to Item 103 of
Regulation S-K promulgated under the Securities Exchange Act
of 1934, as amended; ,
(d) the following events, as soon as possible and in
any event within 30 days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan,
a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action
by the PBGC or the Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan, in the case of either of clauses
(i) or (ii) to the extent that such event would reasonably
be expected to have a Material Adverse Effect; and
(e) any development or event which has had or would
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a
statement of a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action the
Borrower proposes to take with respect thereto.
<PAGE>
41
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect, any Note remains outstanding and
unpaid or any other amount is owing to any Lender, the
Administrative Agent or any Co-Agent hereunder, the Borrower
shall not, shall not permit CIC to, and (except with respect to
subsection 6.1) shall not permit any of its Subsidiaries (other
than CIC) to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Maintenance of Surplus. Permit Surplus at any
time to be less than $1,465,000,000.
(b) Debt to Capital Ratio. Permit the ratio
(expressed as a percentage) of (i) Consolidated Total
Indebtedness of the Borrower to (ii) the sum of Consolidated
Capital of the Borrower and Consolidated Total Indebtedness
of the Borrower, to exceed, at any time (A) prior to the
sale or other disposition of all of the Capital Stock of
AFCO or all or substantially all of the assets of AFCO by
the Borrower and its Subsidiaries, 52%, and (B) from and
after the sale or other disposition of all of the Capital
Stock of AFCO or all or substantially all of the assets of
AFCO by the Borrower and its Subsidiaries, 37%.
6.2 Limitation on Liens. Create, incur, assume or
suffer to exist any Lien upon any shares of Capital Stock of any
Subsidiary of the Borrower, whether now owned or hereafter
acquired, except for pledges of shares of Capital Stock of a
Subsidiary of the Borrower to a wholly-owned Subsidiary of the
Borrower (the "Pledgee") to secure Indebtedness owing from the
Borrower or another Subsidiary of the Borrower to the Pledgee.
6.3 Limitation on Fundamental Changes. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of all
or substantially all of its property, business or assets, except:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the
Borrower shall be the continuing or surviving corporation)
or with or into any one or more wholly owned Subsidiaries of
the Borrower (provided that the wholly owned Subsidiary or
Subsidiaries shall be the continuing or surviving
corporation);
(b) any wholly owned Subsidiary may sell, lease,
transfer or otherwise dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Borrower or
any other wholly owned Subsidiary of the Borrower; and
<PAGE>
42
(c) the Borrower may merge with any other Person so
long as (i) the Borrower is the surviving corporation of
such merger and (ii) immediately after giving effect to such
merger, no Default or Event of Default shall have occurred
and be continuing; and
(d) as may be permitted pursuant to subsection 6.4.
6.4 Limitation on Sale of Assets. Convey, sell.
lease, assign, transfer or otherwise dispose of any of its
property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or
hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person
other than the Borrower or any wholly owned Subsidiary, except:
(a) the sale or other disposition of all of the
Capital Stock of, or all or substantially all of the assets
of, AFCO and Insurnet, Incorporated, and other discontinued
operations publicly disclosed prior to the date hereof;
(b) sales or dispositions Permitted pursuant to
subsection 6.3;
(c) the sale or other disposition of any property
provided that either (i) the aggregate book value of all
assets so sold or disposed of shall not constitute more than
10% in book value of the consolidated total assets of the
Borrower and its Subsidiaries as at December 31, 1992 or, if
later, the end of the most recent fiscal year of the
Borrower for which financial statements have been (or we
required to be) delivered pursuant to subsection 5.1(a), or
(ii) such assets so sold or disposed of shall not have
contributed, in the aggregate, 10% or more of the average
consolidated income from continuing operations of the
Borrower and its Subsidiaries for the fiscal years ended
December 31, 1988, 1989, 1990, 1991 and 1992; and
(d) sales or other dispositions of premium
receivables, statutory overdues, agent and circle agent
loans, leasebacks or similar transactions.
Notwithstanding the foregoing, the Provisions of this subsection
6.4 shall not prevent the Borrower and its Subsidiaries from
engaging in transactions in the ordinary course of business or
for the Purpose of managing their investment portfolios,
including the sale of assets in such investment portfolios, the
retaining of the proceeds of such sales in cash or the
reinvestment of such proceeds in other assets to be held in such
investment portfolios.
<PAGE>
43
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of
any Note when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on
any Note, or any other amount payable hereunder, within five
Business Days after any such interest or other amount
becomes due in accordance with the terms thereof or hereof;
or
(b) Any representation or warranty made or deemed made
by the Borrower herein or which is contained in any
certificate, document or financial or other statement
furnished by it at any time under or in connection with this
Agreement shall prove to have been incorrect in any material
respect on or as of the date made or deemed made or
furnished; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Section 6 and such
default shall not have been waived in accordance with
subsection 9.1; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this
Agreement (other than as provided in paragraphs (a) through
(c) of this Section), and such default shall continue
unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall
(i) default in any payment of principal of or interest on
any Indebtedness (other than the Notes) or in the payment of
any Guarantee Obligation, beyond the period of grace, if
any, provided in the instrument or agreement under which
such Indebtedness or Guarantee Obligation was created, if
the amount of such Indebtedness or Guarantee Obligation,
together with all other such defaulted Indebtedness and
Guarantee Obligations, is at least $25,000,000 in the
aggregate; or (ii) default in the observance or performance
of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist,
if (A) the effect of such default or other event or
condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such
Guarantee Obligation (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries) to
cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or
such Guarantee Obligation to become payable, and (B) the
<PAGE>
44
amount of such Indebtedness or Guarantee Obligation,
together with all other such defaulted Indebtedness and
Guarantee Obligations, is at least $25,000,000 in the
aggregate; or
(f) (i) The Borrower or any of its Significant
Subsidiaries shall commence any case, proceeding or other
action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its
assets, or the Borrower or any of its Significant
Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against
the Borrower or any of its Significant Subsidiaries any
case, Proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against the
Borrower or any of its Significant Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not
have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Significant Subsidiaries shall take
any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) the Borrower or
any of its Significant Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due, provided that none of
the events set forth in clauses (i) through (v) of this
Section 7(f) shall constitute an Event of Default so long as
the Significant Subsidiaries affected did not contribute in
the aggregate more than 2% in Surplus as of December 31,
1992; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or
Section 4975" of the Code) involving any Plan, (ii) any
"accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect
to any Plan or any Lien in favor of the PBGC or a Plan shall
arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with
<PAGE>
45
respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or
to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, (iv) any Single Employer
Plan shall terminate for purposes of Title IV of ERISA,
(v) the Borrower or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Lenders is likely
to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition
shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or
condition, together with all other such events or
conditions, if any, could reasonably be expected to have a
Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in
the aggregate a liability (not paid or fully covered by
insurance or reinsurance) of $25,000,000 or more, and all
such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or
(i) Any of the Loan Documents shall cease, for any
reason, to be in full force and effect, or the Borrower
shall so assert; or
(j) (i) Any Person or "group" (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) (A) shall have acquired beneficial
ownership of 20% or more of any outstanding class of Capital
Stock having ordinary voting power in the election of
directors of the Borrower or (B) shall obtain the power
(whether or not exercised) to elect a majority of the
Borrower's directors, and in the case of any such condition
described in subclauses (A) or (B) of this Section 7(j)(i),
such condition shall have continued for a period of ten
Business Days and no other Default or Event of Default shall
have occurred and be continuing during such period, or (ii)
the Board of Directors of the Borrower shall not consist of
a majority of Continuing Directors; as used in this
paragraph "Continuing Directors" shall mean the directors of
the Borrower on the Closing Date and each other director, if
such other director's nomination for election to the Board
of Directors of the Borrower is recommended by a majority of
the then Continuing Directors;
then, and in any such event, (A) if such event is an Event of
Default specified in clause (i) or (ii) of paragraph (f) above
with respect to the Borrower, automatically the Commitments shall
<PAGE>
46
immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or
both of the following actions may be taken: (i) with the consent
of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be
terminated forthwith, whereupon the Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required
Lenders, the Administrative Agent shall, by notice to the
Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the
Notes to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably
designates and appoints Chemical as the Administrative Agent of
such Lender under this Agreement and the other Loan Documents,
and each such Lender irrevocably authorizes Chemical, as the
Administrative Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms
of this Agreement and the other Loan Documents, together with
such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation Of Duties. The Administrative Agent
may execute any of its duties under this Agreement and the other
Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross
<PAGE>
47
negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred
to or provided for in, or received by the Administrative Agent
under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or
any other Loan Document or for any failure of the Borrower to
perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower.
8.4 Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely and shall be
fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex
or teletype message, statement, order or other document or
conversation reasonably believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and
the Notes and the other Loan Documents in accordance with a
request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
8.5 Notice of Default. The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of
any Default or Event of Default unless the Administrative Agent
has received notice from a Lender or the Borrower referring to
this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the
Administrative Agent shall give notice thereof to the Lenders.
The Administrative Agent shall take such action with respect to
<PAGE>
48
such Default or Event of Default as shall be reasonably directed
by the Required Lenders; provided that unless and until the
Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other
Lenders. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that
it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations,
property, financial and other condition and credit worthiness of
the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and
decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations,
property, financial and other condition and credit worthiness of
the Borrower. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, or provided to the Administrative
Agent for the account of, or with sufficient copies for each
Lender hereunder, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property,
condition (financial or otherwise), prospects or credit worthiness
of the Borrower which may come into the possession of the
Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify
the Administrative Agent in its capacity as such (to the extent
not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought under this subsection (or, if
indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been
paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date), from and against any
<PAGE>
49
and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be
imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of this Agreement,
any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated
hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Administrative Agent's
gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other
amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity.
The Administrative Agent and its Affiliates may make loans to,
accept deposits from and generally engage in any kind of business
with the Borrower as though the Administrative Agent were not the
Administrative Agent hereunder and under the other Loan
Documents. With respect to its Loans made or renewed by it and
any Note issued to it, the Administrative Agent shall have the
same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it
were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its
individual capacity.
8.9 Successor Administrative Agent. The
Administrative Agent may resign as Administrative Agent upon 10
days' notice to the Lenders. If the Administrative Agent shall
resign as Administrative Agent under this Agreement and the other
Loan Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower, whereupon such
successor agent shall succeed to the rights, powers and duties of
the Administrative Agent, and the term "Administrative Agent"
shall mean such successor agent effective upon such appointment
and approval, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this
Agreement or any holders of the Notes. After any retiring
Administrative Agent's resignation as Administrative Agent, the
provisions of this subsection shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan
Documents.
<PAGE>
50
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement,
any Note or any other Loan Document, nor any terms hereof or
thereof may be amended, supplemented or modified except in
accordance with the provisions of this subsection. The Required
Lenders may, or, with the written consent of the Required
Lenders, the Administrative Agent may, from time to time, (a)
enter into with the Borrower written amendments, supplements or
modifications hereto and to the Notes and the other Loan
Documents for the purpose of adding any provisions to this
Agreement, the Notes or the other Loan Documents or changing in
any manner the rights of the Lenders or of the Borrower hereunder
or thereunder or (b) waive, on such terms and conditions as the
Required Lenders or the Administrative Agent, as the case may be,
may specify in such instrument, any of the requirements of this
Agreement, the Notes or the other Loan Documents or any Default
or Event of Default and its consequences; provided, however, that
no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of
maturity of any Note or of any installment thereof, or reduce the
stated rate of any interest or fee payable hereunder or extend
the scheduled date of any payment thereof or increase the amount
or extend the expiration date of any Lender's Commitment, in each
case without the consent of each Lender affected thereby, or
(ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Required
Lenders or Majority Lenders, or consent to the assignment or
transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, in each case
without the written consent of all the Lenders, or (iii) amend,
modify or waive any provision of Section 8 without the written
consent of the then Administrative Agent. Any such waiver and
any such amendment, supplement: or modification shall apply
equally to each of the Lenders and shall be binding upon the
Borrower, the Lenders, the Administrative Agent, the Co-Agents
and all future holders of the Notes. In the case of any waiver,
the Borrower, the Lenders, the Co-Agents and the Administrative
Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes and any other Loan
Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made
when delivered by hand, or five days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and
the Administrative Agent, and as set forth in Schedule I in the
case of the other parties hereto, or to such other address as may
<PAGE>
51
be hereafter notified by the respective parties hereto and any
future holders of the Notes:
The Borrower: The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: Treasurer
with a copy to: William F. Gleason, Jr.
Senior Vice President,
General Counsel &
Secretary
Telecopy: (212) 440-3323
The Administrative Chemical Bank
Agent: 270 Park Avenue
New York, New York 10017
Attention: M. Luisa Hunnewell
Telecopy: (212) 370-0429
provided that any notice, request or demand to or upon the
Administrative Agent or the Lenders pursuant to subsection 2.3,
2.4, 2.5, 2.7, 2.10, 2.11 or 2 16 shall not be effective until
received. '
9.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the
Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents 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. The rights,
remedies, powers and privileges herein provided are cumulative
and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan
Documents and in any document, certificate or statement delivered
pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery of this Agreement and
the Notes and the making of the Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse each of the Administrative Agent
and each Co-Agent for all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation
and execution of, and any amendment, supplement or modification
to, this Agreement, the Notes and the other Loan Documents and
any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation,
the fees and disbursements of a single legal counsel for all of
<PAGE>
52
the Administrative Agent. the Co-Agents and the Lenders, (b) to
pay or reimburse each Lender, the Administrative Agent and each
Co-Agent for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this
Agreement, the Notes, the other Loan Documents and any such other
documents, including, without limitation, the fees and
disbursements of counsel to the Administrative Agent, to each Co-
Agent and to the several Lenders, and (c) to pay, and indemnify
and hold harmless each Lender, the Administrative Agent and each
Co-Agent from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be
payable or determined to be Payable in connection with the
execution and delivery of, or consummation or administration of
any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the Notes, the other Loan
Documents and any such other documents, and (d) to pay, and
indemnify and hold harmless each Lender, the Administrative Agent
and each Co-Agent from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, reasonable costs, expenses or disbursements of
any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this
Agreement, the Notes, the other Loan Documents and any such other
documents, including, without limitation, any of the foregoing
relating to the violation of, noncompliance with or liability
under any Environmental Law applicable to the operations of the
Borrower, any of its Subsidiaries or any of their respective
properties (all the foregoing in this clause (d), collectively,
the "indemnified liabilities"), provided, that the Borrower shall
have no obligation hereunder to the Administrative Agent, any Co-
Agent or any Lender with respect to indemnified liabilities
arising from (i) the gross negligence or willful misconduct of
the Administrative Agent, such Co-Agent or such Lender or (ii)
legal proceedings commenced against the Administrative Agent, any
Co-Agent or such Lender by any security holder or creditor
thereof arising out of and based upon rights afforded any such
security holder or creditor solely in its capacity as such. The
agreements in this subsection shall survive repayment of the
Notes and all other amounts payable hereunder for a period of 18
months.
9.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Lenders, the Administrative
Agent, the Co-Agents, all future holders of the Notes and their
respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time sell to one or more banks or other entities
<PAGE>
53
("Participants") participating interests in any Loan owing to
such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under
the other Loan Documents. In the event of any such sale by a
Lender of a participating interest to a participant, such
Lender's obligations under this Agreement to the other Parties to
this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the Performance thereof, such Lender shall
remain the holder of any such Note for all purposes under this
Agreement and the other Loan Documents, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents. The Borrower agrees
that if amounts outstanding under this Agreement and the Notes
are due or 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
setoff in respect of its participating interest in amounts owing
under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as
a Lender under this Agreement or any Note, provided that, in
purchasing such participating interest, such Participant shall be
deemed to have agreed to share with the Lenders the proceeds
thereof as provided in subsection 9.7(a) as fully as if it were a
Lender hereunder. Each Participant shall be entitled to the
benefits, and subject to the obligations, of subsections 2.18,
2.19, 2.20 and 2.21 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if it
were a Lender; provided that, in the case of subsection 2.19,
such Participant shall have complied with the requirements of
said subsection and provided, further that no Participant shall
be entitled to receive any greater amount Pursuant to any such
subsection than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred
by such transferor Lender to such Participant had no such
transfer occurred. Each Lender agrees that the participation
agreement pursuant to which any Participant acquires its
participating interest (or any other document) may afford voting
rights to such Participant, or any right to instruct such Lender
with respect to voting hereunder, only with respect to reductions
or extensions of payments of principal, interest or facility fees
payable pursuant to the Loan Documents.
(c) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time and from time to time assign to any Lender or
any affiliate thereof or, with the prior written consent of the
Borrower and the Administrative Agent (which in each case shall
not be unreasonably withheld, it being understood that increased
costs imposed with respect to an Assignee will be deemed to be
reasonable cause for withholding consent), to an additional bank
or financial institutions (an "Assignee") all or any part of its
rights and obligations under this Agreement and the Notes
provided that, in the event of a sale by any Lender of less than
<PAGE>
54
all of such rights and obligations, such Lender shall retain a
Commitment of not less than $5,000,000 after giving effect to
such sale, each of which assignments shall be in an amount not
less than $5,000,000 unless the assigning Lender is assigning
thereby all or the remaining portion of its rights and
obligations under the Loan Documents, pursuant to an Assignment
and Acceptance, substantially in the form of Exhibit H, executed
by such Assignee, such assigning Lender (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof, by
the Borrower and the Administrative Agent) and delivered to the
Administrative Agent for its acceptance and recording in the
Register. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder
shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a
Lender hereunder with a Commitment as set forth therein, and (y)
the assigning Lender thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining Portion of an assigning
Lender's rights and obligations under this Agreement, such
assigning Lender shall cease to be a party hereto).
(d) The Administrative Agent shall maintain at its
address referred to in subsection 9.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Lenders and
the Commitment of, and Principal amount of the Loans owing to,
each Lender from time to time. The entries in the Register shall
be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register as the owner of the
Loans recorded therein for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Assignee (and, in the case
of an Assignee that is not then a Lender or an affiliate thereof,
by the Borrower and the Administrative Agent) together with
payment to the Agent of a registration and Processing fee of
$2,000, the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and
recordation to the Lenders and the Borrower. On or prior to such
effective date, the Borrower at its own expense, shall execute
and deliver to the Administrltive Agent (in exchange for the
Revolving Credit Note and if applicable, the CAF Advance Note of
the assigning lender) a new Revolving Credit Note and CAF Advance
Note, as the case may be, to the order of such Assignee in an
amount equal to the Commitment assumed by it pursuant to such
<PAGE>
55
Assignment and Acceptance (or, in the case of a CAF Advance Note,
the aggregate Commitments) and, if the assigning Lender has
retained a Commitment hereunder, a new Revolving Credit Note to
the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new Notes shall be
dated the Closing Date and shall otherwise be in the form of the
Note replaced thereby.
(f) The Borrower authorizes each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates
which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) Nothing herein shall prohibit any Lender from
pledging or assigning any Note to any Federal Reserve Bank in
accordance with applicable law.
9.7 Adjustments; Set-off. (a) (i) If any Lender
(a "benefitted Lender") shall, at any time prior to an acceleration
of the maturity of the Loans Pursuant to Section 7, receive any
Payment of all or part of its Revolving Credit Loans, or interest
thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or
Proceedings of the nature referred to in Section 7(f), or
otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of
such other Lender's Revolving Credit Loans, or interest thereon,
such benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of each such
other Lender's Revolving Credit Loans, or shall provide such
other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted
Lender to share the excess payment or benefits of such collateral
or proceeds ratably with each of the Lenders; provided, however,
that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned.
to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of
another Lender's Loans may exercise all rights of Payment
(including, without limitation, rights of set-off) with respect
to such portion as if such Lender were the direct holder of such
portion.
(ii) If any Lender (a "benefitted Lender") shall, at
any time on or following an acceleration of the maturity of the
Loans pursuant to Section 7, receive any Payment of all or part
of its Loans, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by
<PAGE>
56
set-off, pursuant to events or Proceedings of the nature referred
to in Section 7(f). or otherwise}, in a greater proportion than
any such payment to or collateral received by any other Lender.
if any, in respect of such other Lender's Loans, or interest
thereon, such benefitted Lender shall purchase for cash from the
other Lenders a participating interest in such portion of each
such other Lender's Loans, or shall Provide such other Lenders
with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefitted Lender to
share the excess Payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however,
that if all or any Portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of
another Lender's Loans may exercise all rights of payment
(including, without limitation, rights of set-off) with respect
to such portion as if such Lender were the direct holder of such
portion.
(b) In addition to any rights and remedies of the Lenders
Provided by law, each Lender shall have the right, without prior
notice to the Borrower, any such notice being expressly waived by
the Borrower to the extent permitted by, applicable law, upon any
amount becoming due and payable by the Borrower hereunder or
under the Notes (whether at the stated maturity, by acceleration
or otherwise) to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured,
at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower.
Each Lender agrees promptly to notify the Borrower and the
administrative Agent after any such set-off and application made
by such Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by
one or more of the Parties to this Agreement on any number of
separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement
signed by all the Parties shall be lodged with the Borrower and
the Administrative Agent.
9.9 Severability. Any Provision of this Agreement
which is Prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such Provision in any other jurisdiction.
<PAGE>
57
9.10 Integration. This Agreement, the other Loan Documents and the
writings referred to in subsection 2.13(b) represent the entire agreement of
the Borrower, the Administrative Agent, the Co-Agents and the Lenders with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent, any
Co-Agent or any Lender relative to the subject matter hereof or thereof not
expressly set forth or referred to herein or in the other Loan Documents and
the writings referred to in subsection 2.13(b).
9.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS
-------------
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 9.2 or
at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
<PAGE>
58
9.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the Notes and the other Loan
Documents;
(b) neither the Administrative Agent, any Co-Agent nor any Lender
has any fiduciary relationship with or duty to the Borrower arising
out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Administrative Agent, the
Co-Agents and the Lenders, on the one hand, and the Borrower, on the
other hand, in connection herewith or therewith is solely that of
debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
---------------------
AGENT, THE CO-AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR THE NOTES OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
9.15 Confidentiality. Each Lender agrees to keep confidential any
---------------
information, including without limitation the Confidential Information
Memorandum dated November 1993, provided to it by or on behalf of the
--------
Borrower or any of its Subsidiaries pursuant to or in connection with this
Agreement and the transactions contemplated hereby; provided that nothing
--------
herein shall prevent any Lender from disclosing any such information (i) to
the Administrative Agent, any Co-Agent or any other Lender, (ii) to any
Transferee which agrees to comply with the provisions of this subsection,
(iii) to its employees, directors, agents, attorneys, accountants and other
professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over such Lender, provided, that such Lender
--------
shall resist disclosing such information to any such Governmental
Authority to the extent that (A) such Lender determines that such
Governmental Authority has no legal right to request or demand such
information and (B) such Lender determines, in its sole discretion, that
resisting such request or demand would not be contrary to such Lender's
policy and would not result in any legal, economic or regulatory
disadvantage to such Lender, (v) in response to any order of any court or
other Governmental Authority or as may otherwise be required pursuant to
any Requirement of Law, provided that, prior to making such response, to
--------
the extent possible and to the extent permitted by the terms of such order
or Requirement of Law, such Lender agrees to use best efforts (which shall
not however require such Lender to make any material expenditure of money)
to notify the Borrower of the
<PAGE>
59
fact that such order or other Requirement of Law requires response within
the contemplation of this subsection 9.15 in sufficient time to allow the
Borrower to seek relief from such order or Requirement of Law, (vi) which
has been publicly disclosed other than in breach of this Agreement or (vii)
pursuant to the exercise of any remedy hereunder.
<PAGE>
60
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
THE CONTINENTAL CORPORATION
By: /s/ J. Heath Fitzsimmons
--------------------------------
Title: Senior Vice President and
CF0
CHEMICAL BANK,
as Administrative Agent,
as a Co-Agent and as a Lender
By: /s/ Thomas D. Prangley
--------------------------------
Title: Vice President
CITIBANK, N.A.,
as a Co-Agent and as a Lender
By: /s/ Ann Miles
--------------------------------
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ Thomas Heaton
--------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Stephen Lockhart
--------------------------------
Title: Vice President
<PAGE>
61
FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/-Marqot Anderson
--------------------------------
Title: Vice President
By: /s/ Garrett Bell
--------------------------------
Title: Vice President
MELLON BANK, N. A.
By: /s/ Timothy J. Somers
--------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Joyce Sharaf
--------------------------------
Title: Vice President
<PAGE>
Commitments; SCHEDULE I
Lending Offices and Addresses ----------
A.Commitment Amounts and Percentages
Lender Commitment Commitment Percentage
--------------------------------------------------------------------------------
Chemical Bank $25,000,000.00 16.666666666666667%
--------------------------------------------------------------------------------
Citibank, N.A. $25,000,000.00 16.666666666666667%
--------------------------------------------------------------------------------
Shawmut Bank Connecticut, N.A. $25,000,000.00 16.666666666666667%
--------------------------------------------------------------------------------
The Bank of Nova Scotia $20,000,000.00 13.333333333333333%
--------------------------------------------------------------------------------
First Interstate Bank of California $20,000,000.00 13.333333333333333%
--------------------------------------------------------------------------------
Mellon Bank, N.A. $20,000,000.00 13.333333333333333%
--------------------------------------------------------------------------------
The Bank of New York $15,000,000.00 10.000000000000000%
--------------------------------------------------------------------------------
Total $150,000,000.00 100.000000000000000%
--------------------------------------------------------------------------------
<PAGE>
B. Lending Office: Addresses for Notice
CHEMICAL BANK
-------------
Domestic Lending Office: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: M. Luisa Hunnewell
Telecopy: (212) 370-0429
Eurodollar Lending Office Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: M. Luisa Hunnewell
Telecopy: (212) 370-0429
Address for Notices: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: M. Luisa Hunnewell
Telecopy: (212) 370-0429
CITIBANK, N.A
-------------
Domestic Lending Office: Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Ann Miles
Telecopy: (212) 935-4285
Eurodollar Lending Office: Citibank, N,A.
399 Park Avenue
New York, New York 10043
Attention: Ann Miles
Telecopy: (212) 935-4285
Address for Notices: Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Ann Miles
Telecopy: (212) 935-4285
SHAWMUT BANK CONNECTICUT, N.A.
-------------------------------
Domestic Lending Office:
Eurodollar Lending Office:
<PAGE>
SCHEDULE II
SIGNIFICANT SUBSIDIARIES
------------------------
Boston Old Colony Insurance Company
The Buckeye.Union Insurance Company
Casualty Insurance Company
Commercial Insurance Company of Newark, New Jersey
Continental Lloyd's Insurance Company
The Continental Insurance Company of New Jersey
The Continental Insurance Company of Puerto Rico
The Fidelity and Casualty Company of New York
Firemen's Insurance Company of Newark, New Jersey
First Insurance Company of Hawaii Ltd.
The Glens Falls Insurance Company
Kansas City Fire and Marine Insurance Company
The Mayflower Insurance Company, Ltd.
National-Ben Franklin Insurance Company of Illinois
Niagara Fire Insurance Company
Pacific Insurance Company
The Continental Insurance Company of Canada
<PAGE>
EXHIBIT A
---------
REVOLVING CREDIT NOTE
$____________
New York, New York
_______________ ____, 199__
FOR VALUE RECEIVED, the undersigned, THE CONTINENTAL CORPORATION, a New
York corporation (the "Borrower"), hereby unconditionally promises to pay
--------
to the order of__________________ (the "Lender") at the office of Chemical
------
Bank, located at 270 Park Avenue, New York, New York 10017, in lawful money
of the United States of America and in immediately available funds, on the
Termination Date the principal amount of (a) DOLLARS
($ ), or, if less, (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Lender to the Borrower pursuant
to subsection 2.1 of the Credit Agreement, as hereinafter defined. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in subsections 2.11 and 2.12 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which
shall be attached hereto and made a part hereof the date, Type and amount
of each Revolving Credit Loan made pursuant to the Credit Agreement and the
date and amount of each payment or prepayment of principal thereof, each
continuation thereof, each conversion of all or a portion thereof to
another Type and, in the case of Eurodollar Loans, the length of each
Interest Period with respect thereto. The failure to make any such
endorsement shall not affect the obligations of the Borrower in respect of
such Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred to in the
Credit Agreement dated as of December 30, 1993 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
----------------
Borrower, the Lender, the other banks and financial institutions from time
to time parties thereto, Chemical Bank and Citibank, N.A., as co-agents and
Chemical Bank, as administrative agent, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit Agreement.
<PAGE>
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared
to be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE CONTINENTAL CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
Address for Notices:
THE BANK OF NOVA SCOTIA
-----------------------
Domestic Lending Office The Bank of Nova Scotia
One Liberty Plaza, 26th Floor
New York, New York 10006
Attention: Alan Reiter,
Corporate Banking
Telecopy: (212) 225-5090/5091
Eurodollar Lending Office: The Bank of Nova Scotia
One Liberty Plaza, 26th Floor
New York, New York 10006
Attention: Alan Reiter,
Corporate Banking
Telecopy: (212) 225-5090/5091
Address for Notices: The Bank of Nova Scotia
One Liberty Plaza, 26th Roor
New York, New York 10006
Attention: Alan Reiter,
Corporate Banking
Telecopy: (212) 225-5090/5091
FIRST INTERSTATE BANK OF CALIFORNIA
-----------------------------------
Domestic Lending Office: First Interstate Bank of California
707 Wilshire Blvd., W16-14
Los Angeles, California 90017
Attention: Charles W.Reed
Telecopy: (213) 614-2569
Eurodollar Lending Office: First Interstate Bank of California
707 Wilshire Blvd., W16-14
Los Angeles, California 90017
Attention: Charles W.Reed
Telecopy: (213) 614-2569
Address for Notices: First Interstate Bank of California
707 Wilshire Blvd., W16-14
Los Angeles, California 90017
Attention: Charles W.Reed
Telecopy: (213) 614-2569
<PAGE>
MELLON BANK N.A.
----------------
Domestic Lending Office: Mellon Bank, N.A.
One Mellon Center
Pittsburgh, Pennsylvania 15258-0001
Attention: Timothy J. Somers
Telecopy: (412) 234-8687
Eurodollar Lending Office: Mellon Bank, N.A.
One Mellon Center
Pittsburgh, Pennsylvania 15258-0001
Attention: Timothy J. Somers
Telecopy: (412) 234-8687
Address for Notices: Mellon Bank, N.A.
One Mellon Center
Pittsburgh, Pennsylvania 15258-0001
Attention: Timothy J. Somers
Telecopy: (412) 234-8687
THE BANK OF NEW YORK
--------------------
Domestic Lending Office: The Bank of New York
One Wall Street
New York, New York 10286
Attention:Joyce Sharaf
Telecopy: (212) 809-9520
Eurodollar Lending Office: The Bank of New York
One Wall Street
New York, New York 10286
Attention:Joyce Sharaf
Telecopy: (212) 809-9520
Address for Notices: The Bank of New York
One Wall Street
New York, New York 10286
Attention:Joyce Sharaf
Telecopy: (212) 809-9520
<PAGE>
[FORM OF CAF ADVANCE NOTE] EXHIBIT B
PROMISSORY NOTE
---------------
$150,000,000
New York, New York
____________, 199__
FOR VALUE RECEIVED, the undersigned, THE CONTINENTAL CORPORATION,
a New York corporation (the "Borrower"), hereby unconditionally promises to
pay to the order of_________________ ______________________ (the "Lender")
at the office of Chemical Bank located at 270 Park Avenue, New York, New
York 10017, in lawful money of the United States of America and in
immediately available funds, the principal amount of (a) ONE HUNDRED FIFTY
MILLION DOLLARS ($150,000,000), or, if less, (b) the aggregate unpaid
principal amount of all CAF Advances made by the Lender to the Borrower
pursuant to subsection 2.6 of the Credit Agreement, as hereinafter defined.
The principal amount of each CAF Advance evidenced hereby shall be payable
on the maturity date therefor set forth on the schedule annexed hereto and
made a part hereof or on a continuation of such schedule which shall be
attached hereto and made a part hereof (the "Grid"). The Borrower further
agrees to pay interest in like money at such office on the unpaid principal
amount of each CAF Advance evidenced hereby, at the rate per annum set
forth in respect of such CAF Advance on the Grid, calculated on the basis
of a year of 360 days and actual days elapsed from the date of such CAF
Advance until the due date thereof (whether at the stated maturity, by
acceleration or otherwise) and thereafter at the rates determined in
accordance with subsection 2.8(c) of the Credit Agreement. Interest on each
CAF Advance evidenced hereby shall be payable on the date or dates set
forth in respect of such CAF Advance on the Grid. CAF Advances evidenced by
this Note may not be prepaid.
The holder of this Note is authorized to endorse on the Grid the
date, amount, interest rate, interest payment dates and maturity date in
respect of each CAF Advance made pursuant to subsection 2.6 of the Credit
Agreement and each payment of principal with respect thereto. The failure
to make any such endorsement shall not affect the obligations of the
Borrower in respect of such CAF Advance.
This Note is one of the CAF Advance Notes referred to in the
Credit Agreement dated as of December 30, 1993 (as amended, supplemented or
otherwise modified from time to time, the "Credit Aqreement"), among the
Borrower, the Lender, the other banks and financial institutions from time
to time parties thereto, Chemical Bank and Citibank, N.A., as co-agents and
Chemical Bank, as administrative agent, and is subject to the provisions of
the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default,
all amounts then remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided in the Credit
Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE CONTINENTAL CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
EXHIBIT C
---------
[FORM OF CAF ADVANCE CONFIRMATION]
_____________, 19__
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
Reference is made to the Credit Agreement, dated as of December
30, 1993, among the undersigned, the Lenders named therein, Chemical Bank
and Citibank, N.A., as Co-Agents, and Chemical Bank, as Administrative
Agent (as the same may be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
In accordance with subsection 2.7(d) of the Credit Agreement, the
undersigned accepts and confirms the offers by Lender(s) to make CAF
Advances to the undersigned on 19__ [CAF Advance Date] under
subsection [2.7 (b) ] [2.7 (c) ] in the (respective) amount(s) set
forth on the attached list of CAF Advances offered.
Very truly yours,
THE CONTINENTAL CORPORATION
By___________________________
Title:_______________________
[Company must attach CAF Advance offer list prepared by Administrative
Agent with accepted amount entered by the Borrower to right of each CAF
Advance offer].
<PAGE>
EXHIBIT D
---------
[FORM OF CAF ADVANCE OFFER]
___________________, 199__
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
Reference is made to the Credit Agreement, dated as of December
30, 1993, among the undersigned, the Lenders named therein, Chemical Bank
and Citibank, N.A., as Co-Agents, and Chemical Bank, as Administrative
Agent (as the same may be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
In accordance with subsection 2.7(a) of the Credit Agreement, the
undersigned Lender offers to make CAF Advances thereunder in the following
amounts with the following maturity dates:
CAF Advance Date: Aggregate Maximum Amount:
____________, 199_ $__________
Maturity Date 1: Maximum Amount: $__________
____________, 199_ $________ offered at ________*
$________ offered at ________*
Maturity Date 2: Maximum Amount: $__________
____________, 199_ $________ offered at ________*
$________ offered at ________*
Maturity Date 3: Maximum Amount: $__________
____________, 199_ $________ offered at ________*
$________ offered at ________*
Very truly Yours,
[NAME OF BIDDING LENDER]
By ___________________________
Name _________________________
Title ________________________
Telephone No. ________________
Fax No. ______________________
___________________
* Insert the interest rate offered for the specified loan
amount. In the case of Eurodollar Rate CAF Advances, insert a margin
bid. In the case of Absolute Rate Advances, insert a fixed rate
bid.
<PAGE>
EXHIBIT E
---------
[FORM OF CAF ADVANCE REQUEST]
_____________, 199__
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
Reference is made to the Credit Agreement, dated as of December
30, 1993, among the undersigned, the Lenders named therein, Chemical Bank
and Citibank, N.A., as Co-Agents, and Chemical Bank, as Administrative
Agent (as the same may be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Terms defined in the Credit
----------------
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
This is a [Eurodollar Rate] [Absolute Rate] CAF Advance Request
pursuant to subsection 2.7 of the Credit Agreement requesting quotes for
the following CAF Advances:
Loan 1 Loan 2 Loan 3
----------------------------------------------------------------------------
Aggregate Principal $___________ $____________ $___________
Amount
----------------------------------------------------------------------------
CAF Advance Date
----------------------------------------------------------------------------
Interest Period1
----------------------------------------------------------------------------
Maturity Date2
----------------------------------------------------------------------------
Interest Payment Dates
----------------------------------------------------------------------------
Very truly yours,
THE CONTINENTAL CORPORATION
By: ______________________________
Title: ___________________________
____________________
1. Insert only in a Eurodollar Rate Bid Request.
2. In a Eurodollar Rate Bid Request, insert last day of
Interest Period.
<PAGE>
EXHIBIT F
---------
FORM OF BORROWING CERTIFICATE
Pursuant to subsection 4.1 of the Credit Agreement dated as of December
30, 1993 among The Continental Corporation, a New York corporation (the
"Borrower"), the several banks and other financial institutions from time
--------
to time parties thereto, Chemical Bank, a New York banking corporation
("Chemical") and Citibank, N.A., a national banking association, as
--------
co-agents, and Chemical, as administrative agent (the "Credit Agreement";
----------------
terms defined therein being used herein as therein defined), the
undersigned ___________ of the Borrower hereby certifies as follows:
1. The representations and warranties of the Borrower (i)
set forth in the Credit Agreement or (ii) which are contained in
any other Loan Document to which the Borrower is a party, are
true and correct in all material respects on and as of the date
hereof with the same effect as if made on the date hereof;
2. No Default or Event of Default has occurred and is
continuing as of the date hereof;
3. ____________________ is and at all times since
____________ ___, _____, has been, the duly elected and qualified
[Assistant] Secretary of the Borrower and the signature set forth
on the signature line for such officer below is such officer's
true and genuine signature;
and the undersigned [Assistant] Secretary of the Borrower hereby
certifies as follows:
4. Attached hereto as Exhibit I is a true and complete copy
of resolutions duly adopted by the Board of Directors of the
Borrower on ____________ __, ____; such resolutions have not in
any way been amended, supplemented, modified, revoked or
rescinded and have been in full force and effect since their
adoption to and including the date hereof and are now in full
force and effect; and such resolutions are the only corporate
proceedings of the Borrower now in force relating to or affecting
the matters referred to therein; attached hereto as Exhibit II is
a true and complete copy of the By-Laws of the Borrower as in
effect at all times since ___________ __, ____ to and including
the date hereof; and attached hereto as Exhibit III is a true and
complete copy of the Certificate of Incorporation of the Borrower
as in effect at all times since ____________ to and including the
date hereof;
5. _______________ is now a duly elected and qualified
officer of the Borrower holding the office
<PAGE>
indicated next to his name below, and he has held such office
with the Borrower at all times since ________ __, ___, to and
including the date hereof, and the signature appearing opposite
his name below is his true and genuine signature, and he is duly
authorized to execute and deliver on behalf of the Borrower the
Loan Documents to which the Borrower is a party and any
certificate or other document to be delivered by the Borrower
pursuant to the Loan Documents:
Name Office Signature
---- ------ ---------
------------ ------------ ------------
IN WITNESS WHEREOF, the undersigned have hereunto set
their names.
----------------------------- -----------------------------
Name: Name:
Title: Title: [Assistant] Secretary
Date:_______________, 199_
<PAGE>
EXHIBIT G
FORM OF OPINION OF COUNSEL TO BORROWER
______________, 199_
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
And each of the Lenders
parties to the Credit Agreement
referred to below
I am Senior Vice President, General Counsel and Secretary of The
Continental Corporation, a New York corporation (the "Borrower"), and have
acted as counsel to the Borrower in connection with (a) the Credit
Agreement, dated as of December 30, 1993 (the "Credit Agreement"), among
----------------
the Borrower, the lenders parties thereto (the "Lenders"), Chemical Bank and
Citibank, N.A., as co-agents, and Chemical Bank, as administrative agent
for the Lenders (in such capacity, the "Administrative Agent"), and (b) the
--------------------
Notes and the other Loan Documents referred to in the Credit Agreement.
The opinions expressed below are furnished to you pursuant to
subsection 4.1(i)(h) of the Credit Agreement. Unless otherwise defined
herein, terms defined in the Credit Agreement and used herein shall have
the meanings given to them in the Credit Agreement.
In arriving at the opinions expressed below,
(a) I have examined and relied on the originals, or copies certified
or otherwise identified to my satisfaction, of each of (1) the Credit
Agreement, (2) the Revolving Credit Notes dated the date hereof and (3)
the CAF Advance Notes dated the date hereof (the Credit Agreement, the
Revolving Credit Notes and the CAF Advance Notes being hereinafter
referred to collectively as the "Transaction Documents"); and
---------------------
(b) I have examined such corporate documents and records of the
Borrower and such other instruments and certificates of public officials,
officers and representatives of the Borrower and other Persons as I have
deemed reasonably necessary or appropriate for the purposes of this
opinion.
<PAGE>
Chemical Bank, as
Administrative Agent -2- ___________ ___, 199__
In arriving at the opinions expressed below, I have made such
investigations of law, in each case as I have deemed reasonably appropriate
as a basis for such opinions.
In rendering the opinions expressed below, I have assumed, with your
permission, without independent investigation or inquiry, (a) the
authenticity of all documents submitted to me as originals, (b) the
genuineness of all signatures on all documents that I examined (other than
those of the Borrower and officers of the Borrower) and (c) the conformity
to authentic originals of documents submitted to me as certified, conformed
or photostatic copies.
When my opinions expressed below are stated "to the best of my
knowledge," I have made reasonable investigation of the subject matters of
such opinions and have no reason to believe that there exist any facts or
other information that would render such opinions incorrect.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Borrower (a) is duly organized, validly existing and in good
standing under the laws of the State of New York, (b) has the corporate
power and authority and the legal right to own and operate its property, to
lease the property it operates as lessee and to conduct the business in
which it is currently engaged and (c) is duly qualified as a foreign
corporation 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, except, in the case of clauses (b)
and (c) of this paragraph, to the extent that the failure to have such
power, authority and legal right or to be so qualified would not, in the
aggregate, be reasonably expected to have a Material
Adverse Effect.
2. The Borrower has the corporate power and authority, and the legal
right, to make, deliver and perform its obligations under the Credit
Agreement and each of the other Transaction Documents to which it is a
party and to borrow under the Credit Agreement. The Borrower has taken all
necessary corporate action to authorize the borrowings on the terms and
conditions of the Credit Agreement and the other Transaction Documents and
to authorize the execution, delivery and performance of the Credit
Agreement and the other Transaction Documents to which it is a party. No
consent or authorization of, approval by, notice to, filing with or other
act by or in respect of any Governmental Authority or any other Person is
required in connection with the borrowings under the Credit Agreement or
with the execution,
<PAGE>
Chemical Bank, as
Administrative Agent -3- ___________ ___, 199__
delivery, Performance, validity or enforceability of the Credit Agreement and
the other Transaction Documents.
3. Each of the Credit Agreement and the other Transaction Documents to
which the Borrower is a party has been duly executed and delivered on
behalf of the Borrower and constitutes a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance
with its terms.
4. The execution and delivery of the Credit Agreement and the other
Transaction Documents to which the Borrower is a party, the performance by
the Borrower of its obligations thereunder, the consummation of the
transactions contemplated thereby, the compliance by the Borrower with any
of the provisions thereof, the borrowings under the Credit Agreement and
the use of proceeds thereof, all as provided therein, (a) will not violate,
or constitute a default under, any Requirement of Law or, to the best of my
knowledge, any Contractual Obligations of the Borrower or of any of its
Subsidiaries and (b) will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or
revenues which, in the case of clauses (a) and (b) of this paragraph, would
reasonably be expected to have a Material Adverse Effect.
5. To the best of my knowledge, no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending
or threatened by or against the Borrower or any of its Subsidiaries or
against any of its or their respective properties or revenues (a) with
respect to the Credit Agreement or any of the other Transaction Documents,
or
(b) which could have a Material Adverse Effect. To the best of my
knowledge, no Governmental Authority having jurisdiction over the business
of any Insurance Subsidiary has taken any action or commenced any
proceeding to exercise control over the business or operations of such
Insurance Subsidiary, or to cause such Insurance Subsidiary to take any
action which would reasonably be expected to have a Material Adverse
Effect, and to the best of my knowledge no such action or proceeding has
been threatened by any Governmental Authority.
6. To the best of my knowledge, neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any Requirements of Law
or Contractual Obligations in any respect which would be reasonably
expected to have a Material Adverse Effect.
7. The Borrower is not (1) an "investment company," or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or
<PAGE>
Chemical Bank, as
Administrative Agent -4- ___________ ___, 199__
(2) a "holding company" as defined in, or otherwise subject to regulation
under, the Public Utility Holding Company Act of 1935.
My opinion set forth in paragraph 3 above is subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
I am a member of the bar of the State of New York and I express no
opinion as to the laws of any jurisdiction other than the Federal laws of
the United States of America.
Very truly yours,
William F. Gleason, Jr.
Senior Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT H
---------
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of December 30,
1993, (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among The Continental Corporation (the "Borrower"),
---------------- --------
the Lenders named therein, Chemical Bank and Citibank, N.A., as co-agents and
Chemical Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"). Unless otherwise defined herein, terms defined in
--------------------
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement. ______________________ (the "Assignor") and
--------
______________________ (the "Assignee") agree as follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor,
as of the Effective Date (as defined below), a % interest (the
"Assigned Interest") in and to the Assignor's rights and obligations
-----------------
under the Credit Agreement with respect to those credit facilities
contained in the Credit Agreement as are set forth on SCHEDULE 1
(individually, an "Assigned Facility"; collectively, the "Assigned
----------------- --------
Facilities"), in a principal amount for each Assigned Facility as set forth
----------
on SCHEDULE 1.
2. The Assignor (a) 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 any
other Loan Document or any other document or instrument furnished pursuant
thereto or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Loan Document or
any other instrument or document furnished pursuant thereto, other than
that it has not created any adverse claim upon the interest being assigned
by it hereunder and that such interest is free and clear of any such
adverse claim; (b) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower, any
of its Subsidiaries or any other obligor or the performance or observance
by the Borrower, any of its Subsidiaries or any other obligor of any of
their respective obligations under the Credit Agreement or any other Loan
Document or any other instrument or document furnished pursuant thereto;
and (c) attaches the Revolving Credit Note and, if such Assignor is
assigning all of its interest in the Loans and the Loan Documents, the CAF
Advance Note, held by it
<PAGE>
evidencing the Assigned Facilities and requests that the Administrative
Agent exchange such Note(s) for a new Revolving Credit Note and CAF Advance
Note payable to the Assignee and (if the Assignor has retained any interest
in any Assigned Facility) a new Revolving Credit Note payable to the
Assignor in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that
it has received a copy of the Credit Agreement, together with copies of the
financial statements referred to in subsection 3.1 thereof and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance;
(c) agrees that it will, independently and without reliance upon the
Assignor, the Administrative Agent, the Co-Agents or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement, the other Loan Documents or any other
instrument or document furnished pursuant thereto; (d) appoints and
authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers and discretion under the Credit
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant thereto as are delegated to the Administrative Agent by
the terms thereof, together with such powers as are incidental thereto; and
(e) agrees that it will be bound by the provisions of the Credit Agreement
and will perform in accordance with its terms all the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender including, if it is organized under the laws of a jurisdiction
outside the United States, its obligation pursuant to subsection 2.19 (b)
of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be
________ ___, 19__ (the "Effective Date"). Following the execution of this
--------------
Assignment and Acceptance, it will be delivered to the Administrative Agent
for acceptance by it and recording by the Administrative Agent pursuant to
subsection 9.6 of the Credit Agreement, effective as of the Effective Date
(which shall not, unless otherwise agreed to by the Administrative Agent,
be earlier than five Business Days after the date of such acceptance and
recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and
other amounts) to the Assignee whether such amounts have accrued prior to
the Effective Date or accrue subsequent to the Effective Date. The Assignor
and the
<PAGE>
3
Assignee shall make all appropriate adjustments in payments by the
Administrative Agent for periods prior to the Effective Date or with
respect to the making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the other Loan Documents and shall be bound by the
provisions thereof and (b) the Assignor shall, to the extent provided in
this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their
respective duly authorized officers on Schedule 1 hereto.
<PAGE>
SCHEDULE 1
TO ASSIGNMENT AND ACCEPTANCE
RELATING TO THE CREDIT AGREEMENT, DATED AS OF DECEMBER 30, 1993,
AMONG
THE CONTINENTAL CORPORATION,
THE LENDERS NAMED THEREIN,
CHEMICAL BANK AND CITIBANK, N.A., AS CO-AGENTS
AND
CHEMICAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS (IN SUCH
CAPACITY, THE
"ADMINISTRATIVE AGENT" )
,
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Credit Principal Commitment Percentage
Facility Assigned Amount Assigned Assigned1
----------------- ---------------- ---------------------
$______________ ___.____________%
[Name of Assignee] [Name of Assignor]
By___________________________________ By_____________________________
Name: Name:
Title: Title:
Accepted: Consented To:
CHEMICAL BANK, as THE CONTINENTAL CORPORATION
Administrative Agent
By_____________________________
By___________________________________ Name:
Name: Title:
Title:
___________________
1 Calculate the Commitment Percentage that is assigned to at least 15
decimal places and show as a percentage of the aggregate commitments
of all Lenders.
EXHIBIT 10(i)
AMENDMENT
AMENDMENT, dated as of March 30, 1994 (this "Amendment"), to the
---------
Credit Agreement, dated as of December 30, 1993 (as amended, supplemented
or otherwise modified prior to the date hereof, the "Credit Agreement"),
----------------
among THE CONTINENTAL CORPORATION, a New York corporation (the "Borrower"),
--------
the banks and other financial institutions (the "Lenders") parties thereto,
-------
CHEMICAL BANK, a New York banking corporation, and CITIBANK, N.A., as
co-agents (each, in such capacity, a "Co-Agent") for the Lenders and
--------
CHEMICAL BANK, a New York banking corporation, as administrative agent (in
such capacity, the "Administrative Agent" ) for the Lenders.
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower, the Administrative Agent and the Lenders
consenting hereto desire to amend the Credit Agreement as set forth in this
Amendment, but only on the terms and subject to the conditions set forth in
this Amendment;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Borrower and the Administrative Agent hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, terms defined
-----------
in the Credit Agreement are used herein as therein defined.
2. Amendments. (a) Subsection 1.1 is hereby amended by
----------
inserting, at the end of the definition of "Indebtedness" therein, the
following new proviso:
"provided, that up to $500,000,000 of obligations of the Borrower and
--------
its Subsidiaries under reverse repurchase agreements and dollar
reverse repurchase transactions entered into in the ordinary course of
business for the purpose of managing their investment portfolios shall
not be deemed Indebtedness hereunder".
(b) Subsection 6.4 of the Credit Agreement is hereby amended by
deleting clause (c) thereof and substituting in lieu thereof a new clause
(c) to read in its entirety as follows:
"(c) the sale or other disposition of any property, provided that
--------
both (i) the aggregate book value of all assets so sold or disposed of
shall not constitute more than 10% in book value of the consolidated
total assets of the Borrower and its Subsidiaries as at December 31,
1992 or, if later, the end of the most recent fiscal year of the
<PAGE>
2
Borrower for which financial statements have been (or were required to
be) delivered pursuant to subsection 5.1(a), and(ii) the portion,
contributed by such assets so sold or disposed of, of the consolidated
income from continuing operations of the Borrower and its Subsidiaries
for the most recent fiscal year of the Borrower for which financial
statements have been (or were required to be) delivered pursuant to
subsection 5.1(a) shall not, in the aggregate, be 10% or more of the
average consolidated income from continuing operations of the Borrower
and its Subsidiaries for the fiscal years ended December 31, 1988,
1989, 1990, 1991 and 1992; and".
3. Effectiveness. This Amendment shall become effective upon
-------------
receipt by the Administrative Agent of evidence satisfactory to the
Administrative Agent that this Amendment has been executed and delivered by
the Borrower and consented to in writing by the Required Lenders.
4. Representations and Warranties. To induce the
------------------------------
Administrative Agent to enter into and the Lenders to consent to this
Amendment, the Borrower hereby represents and warrants to the Agent and the
Lenders that, after giving effect to the amendments provided for herein,
the representations and warranties contained in the Credit Agreement and
the other Loan Documents will be true and correct in all material respects
as if made on and as of the date hereof and that no Default or Event of
Default will have occurred and be continuing.
5. No Other Amendments. Except as expressly amended hereby, the
-------------------
Credit Agreement, the Notes and the other Loan Documents shall remain in
full force and effect in accordance with their respective terms, without
any waiver, amendment or modification of any provision thereof.
6. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered as of the day and year first above
written.
THE CONTINENTAL CORPORATION
By: /s/ Francis Colalucci
-----------------------------
Title: Vice President, Treasurer
<PAGE>
CHEMICAL BANK, as Administrative
Agent
By:/s/ M. Luisa Hunnewell
------------------------------
Title: Vice President
The undersigned Lenders hereby consent and agree to the foregoing
Amendment:
CHEMICAL BANK
By:/s/ M. Luisa Hunnewell
------------------------------
Title: Vice President
CITIBANK, N.A.
By: Ann Miles
------------------------------
Title: Vice President
SHAWMUT BANK OF CONNECTICUT, N.A.
By: Joseph J. Wadlinger, Jr.
------------------------------
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA
By: Stephen Lockhart
------------------------------
Title: Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By: Tim Helotes
------------------------------
Title: Vice President
MELLON BANK, N.A.
By: Timothy J. Somers
------------------------------
Title: Vice President
SECOND AMENDMENT
SECOND AMENDMENT, dated as of June 30, 1994 (this
"Amendment"), to the Credit Agreement, dated as of December 30,
1993 (as amended, supplemented or otherwise modified prior to the
date hereof, the "Credit Agreement"), among THE CONTINENTAL
CORPORATION, a New York corporation (the "Borrower"), the banks
and other financial institutions (the "Lenders") parties thereto,
CHEMICAL BANK, a New York banking corporation, and CITIBANK,
N.A., as co-agents (each, in such capacity, a "Co-Agent") for the
Lenders and CHEMICAL BANK, a New York banking corporation, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders.
WITNESSETH:
WHEREAS, Borrower, the Administrative Agent and the
Lenders consenting hereto desire to amend the Credit Agreement as
set forth in this Amendment, but only on the terms and subject to
the conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the Borrower and the Administrative
Agent hereby agree as follows:
1. Definitions. Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein
defined.
2. Amendments. (a) Subsection 1.1 is hereby amended
by inserting, at the end of the definition of "Consolidated
Capital" therein, the following:
", excluding all amounts which would be set forth opposite
the heading "Net Unrealized Appreciation (Depreciation) of
Investments" (or similar heading) on such balance sheet".
(b) Subsection 6.1(b) is hereby amended to read in its entirety
as follows:
"(b) Debt to Capital Ratio. Permit the ratio (expressed as
a percentage) of (i) Consolidated Total Indebtedness of the
Borrower to (ii) the sum of Consolidated Capital of the
Borrower and Consolidated Total Indebtedness of the
Borrower, to exceed, at any time 40%."
3. Effectiveness. This Amendment shall become
effective upon receipt by the Administrative Agent of evidence
satisfactory to the Administrative Agent that this Amendment has
been executed and delivered by the Borrower and consented to in
writing by the Required Lenders.
<PAGE>
4. Representations and Warranties. To induce the
Administrative Agent to enter into and the Lenders to consent to
this Amendment, the Borrower hereby represents and warrants to
the Agent and the Lenders that, after giving effect to the
amendments provided for herein, the representations and
warranties contained in the Credit Agreement and the other Loan
Documents will be true and correct in all material respects as if
made on and as of the date hereof and that no Default or Event of
Default will have occurred and be continuing.
5. No Other Amendments. Except as expressly amended
hereby, the Credit Agreement, the Notes and the other Loan
Documents shall remain in full force and effect in accordance
with their respective terms, without any waiver, amendment or
modification of any provision thereof.
6. Counterparts. This Amendment may be executed by
one or more of the parties hereto on any number of separate
counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and
year first above written.
THE CONTINENTAL CORPORATION
By: Francis M. Colalucci
-----------------------------
Title: V.P., Treasurer
CHEMICAL BANK, as Administrative
Agent
By: M. Luisa Hunnewell
-----------------------------
Title: Vice President
The undersigned Lenders hereby consent and agree to the
foregoing Amendment:
CHEMICAL BANK
By: M. Luisa Hunnewell
-----------------------------
Title: Vice President
<PAGE>
CITIBANK, N.A.
By: Ann Miles
------------------------------------
Title: Vice President
SHAWMUT BANK OF CONNECTICUT, N.A.
By: Joseph J. Wadlinger, Jr.
------------------------------------
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA
By: Stephen Lockhart
------------------------------------
Title: Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By: Tim Helotes
------------------------------------
Title: Vice President
MELLON BANK, N.A.
By:
------------------------------------
Title:
THE BANK OF NEW YORK
By:
------------------------------------
Title:
EXHIBIT 10(k)
THIRD AMENDMENT
THIRD AMENDMENT, dated as of September 29, 1994 (this
"Amendment"), among:
(i) THE CONTINENTAL CORPORATION, a New York
corporation ( the "Borrower" );
--------
(ii) the banks and other financial institutions listed
as Lenders on the signature pages hereof (the "Lenders");
-------
(iii) CHEMICAL BANK, and CITIBANK, N.A., as co-agents
(each, in such capacity, a "Co-Agent") for the Lenders; and
--------
(iv) CHEMICAL BANK, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders,
--------------------
amending the Credit Agreement, dated as of December 30, 1993 (as
amended, supplemented or otherwise modified prior to the date
hereof, the "Credit Agreement") among the Borrower, the banks and
----------------
financial institutions parties thereto as Lenders on the date
hereof (the "Existing Lenders"), the Co-Agents and the
----------------
Administrative Agent.
WITNESSETH:
WHEREAS, the Borrower has requested the Existing
Lenders to agree to amend the Credit Agreement to, among other
things, increase the Commitments thereunder and extend the
Termination Date to December 31, 1995 (as each of such terms is
defined in the Credit Agreement) and change certain pricing
provisions thereof as set forth in this Third Amendment;
WHEREAS, certain of the Existing Lenders are willing to
agree to the amendments requested by the Company, and the other
Existing Lenders, each of which is listed as an "Exiting Lender"
--------------
on Annex A to this Third Amendment (individually, an "Exiting
Lender", and collectively, the "Exiting Lenders"), will cease to
be Lenders under the Credit Agreement on the Effective Date (as
defined in Section 7 of this Third Amendment); and
WHEREAS, certain financial institutions that are not
now Lenders parties to the Credit Agreement, each of which is
listed as a "New Lender" on Annex A to this Third Amendment
----------
(individually, a "New Lender" and collectively, the "New
---------- ---
Lenders"), will become Lenders on the Effective Date, and the
-------
amounts of the Commitments (as defined in the Credit Agreement)
of certain of the Existing Lenders under the Credit Agreement
will change on the Effective Date;
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the sufficiency of
<PAGE>
2
which is hereby acknowledged, the Borrower, the Lenders, the Co-
Agents and the Administrative Agent hereby agree as follows:
1. Definitions. Unless otherwise defined herein,
-----------
terms defined in the Credit Agreement are used herein as therein
defined.
2. Amendments to Subsection 1.1. (a) Subsection 1.1
----------------------------
is hereby amended by deleting the definition of "Termination
Date" and inserting the following definitions in the correct
alphabetical order:
"Applicable Margin": with respect to each day during
-----------------
each Interest Period relating to Eurodollar Loans, a rate
per annum based on the Ratings in effect on such day, in
each case as set forth below:
Ratings BBB+/Baa1 BBB/Baa2
S&P/Moody's or Hiqher or Lower
Applicable Margin .50% .625%
(Prior to 4/1/95)
Applicable Margin .75% .875%
(From and After
4/1/95)
In the event that the Ratings for the two Rating Agencies do
not coincide on any day, or there shall be no Rating in
effect by a Rating Agency on any day, the Applicable Margin
set forth above opposite the lower Rating shall be
applicable on such day.
"Applicable Facility Fee Rate": for each day during
----------------------------
each quarterly calculation period, a rate per annum based on
the Ratings in effect on such day, as set forth below:
Ratings BBB+/Baa1 BBB/Baa2
S&P/Moody's or Hiqher or Lower
Facility Fee .25% .375%
In the event that the Ratings for the two Rating Agencies do
not coincide on any day, or there shall be no Rating in
effect by a Rating Agency on any day, the Applicable
Facility Fee Rate set forth above opposite the lower Rating
shall be applicable on such day.
"Rating": with respect to each Rating Agency, the
------
publicly-available rating by such Rating Agency of the
<PAGE>
3
Borrower's senior, long-term, unsecured, non credit-enhanced
debt.
"Rating Agencies": the collective reference to
---------------
Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's") .
"Termination Date": December 31, 1995.
----------------
"Third Amendment Effective Date": the date which is
------------------------------
the "Effective Date" under (and as defined in) the Third
Amendment, dated as of September 29, 1994, to this
Agreement.
3. Other Amendments.
----------------
(a) Subsection 2.12 is hereby amended by deleting clause (a)
thereof and substituting in lieu thereof a new clause (a) to read
in its entirety as follows:
"(a) Each Eurodollar Loan shall bear interest for each
day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for
such day plus (i) until the Third Amendment Effective Date,
0.4375% and (ii) from and after the Third Amendment
Effective Date, the Applicable Margin."
(b) Subsection 2.13 is hereby amended by deleting clause (a)
thereof and substituting in lieu thereof a new clause (a) to read
in its entirety as follows:
"(a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a facility fee for the period
from and including the first day of the Commitment Period to
the Termination Date, computed (i) until the Third
Amendment Effective Date, at the rate of 0.1875% per annum
and (ii) from and after the Third Amendment Effective Date,
at the Applicable Facility Fee Rate, in each case on the
average daily amount of the Commitment of such Lender during
the period for which payment is made. Facility fees shall
be payable quarterly in arrears on the last day of each
March, June, September and December and on the Termination
Date or such earlier date on which the Commitments shall
terminate as provided herein, commencing on the first of
such dates to occur after the date hereof."
(c) Subsection 2.4 is hereby deleted in its entirety and the
following is hereby inserted in lieu thereof:
"2.4 [Reserved]"
(d) Subsection 3.1 is hereby amended to read in its entirety
as follows:
<PAGE>
4
"3.1 Financial Condition. (a) The consolidated
-------------------
balance sheet of the Borrower and its consolidated
Subsidiaries as at December 31, 1992 and December 31, 1993
and the related consolidated statements of income and of
cash flows for the fiscal years ended on such dates,
reported on by KPMG Peat Marwick, copies of which have
heretofore been furnished to each Lender, present fairly the
consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such dates, and the
consolidated results of their operations and their
consolidated cash flows for the fiscal years then ended.
The unaudited consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at June 30, 1994 and the
related unaudited consolidated statements of income and of
cash flows for the six-month period ended on such date,
certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, present fairly the
consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their
consolidated cash flows for the six-month period then ended
(subject to normal year-end audit adjustments). All such
financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except
as approved by such accountants or Responsible Officer, as
the case may be, and as disclosed therein). Since December
31, 1993 there has been no development or event which has
had or would reasonably be expected to have a Material
Adverse Effect.
(b) The consolidated Statutory Statement of CIC and its
affiliated fire and casualty insurers, as filed with the
appropriate Governmental Authority of the jurisdiction of
CIC's domicile, as of and for the fiscal years ended
December 31, 1992 and December 31, 1993, and the Statutory
Statements of each of the Reporting Insurance Subsidiaries,
as filed with the appropriate Governmental Authority of the
jurisdiction of such Reporting Insurance Subsidiary's
domicile, as of and for the fiscal years ended December 31,
1992 and December 31, 1993, copies of which have been
heretofore delivered to each Lender, have been prepared in
accordance with SAP applied on a consistent basis. The
Statutory Statement of each of the Reporting Insurance
Subsidiaries, as filed with the appropriate Governmental
Authority of the jurisdiction of such Reporting Insurance
Subsidiary's domicile, as of and for the fiscal quarters
ended March 31, 1993 and June 30, 1993, copies of which have
been heretofore delivered to each Lender, have been prepared
in accordance with SAP applied on a consistent basis. Such
Statutory Statements fairly present the financial condition,
results of operations, changes in surplus and cash flow of
CIC and its affiliated fire and casualty insurers or such
Reporting Insurance Subsidiaries, as the case may be, as of
<PAGE>
5
and for the respective dates and periods indicated therein
in accordance with SAP applied on a consistent basis. Since
December 31, 1993 there has been no development or event
which has had or would reasonably be expected to have a
Material Adverse Effect."
(e) Subsection 6.4 of the Credit Agreement is hereby amended
by deleting clauses (a) and (c) thereof and substituting in lieu
thereof new clauses (a) and (c) to read in their entirety as
follows:
"(a) the sale or other disposition of all of the
Capital Stock of, or all or substantially all of the assets
of, Continental Canada and Casualty Insurance, and other
discontinued operations publicly disclosed prior to the
December 30, 1993;"
"(c) the sale or other disposition of any property,
provided that both (i) the aggregate book value of all
assets so sold or disposed of since December 31, 1993 shall
not constitute more than 10% in book value of the
consolidated total assets of the Borrower and its
Subsidiaries as at December 31, 1992 or, if later, the end
of the most recent fiscal year of the Borrower for which
financial statements have been (or were required to be)
delivered pursuant to subsection 5.1(a) of the Credit
Agreement, and (ii) the portion, contributed by such assets
so sold or disposed of since December 31, 1993, of the
consolidated income from continuing operations of the
Borrower and its Subsidiaries for the most recent fiscal
year of the Borrower for which financial statements have
been (or were required to be) delivered pursuant to
subsection 5.1(a) of the Credit Agreement shall not, in the
aggregate, be 10% or more of the average consolidated income
from continuing operations of the Borrower and its
Subsidiaries for the fiscal years ended December 31, 1988,
1989, 1990, 1991 and 1992."
(f) Paragraph (j) of Section 7 of the Credit Agreement is
hereby amended by deleting clause (i)(A) thereof and substituting
in lieu thereof the following new clause (i)(A) :
"(A) shall have acquired beneficial ownership of shares of
any class or classes of Capital Stock having ordinary voting
power in the election of directors of the Borrower voting
together with any other outstanding class or classes of
Capital Stock, which shares represent 25% or more of the
voting power of such combined classes,"
(g) Part A of Schedule I to the Credit Agreement is hereby
amended to read in its entirety as set forth in Schedule I to
this Amendment. Part B of Schedule I to the Credit Agreement
will be revised by the Administrative Agent based upon
information provided to it by the Lenders on or after the
<PAGE>
6
Effective Date. Part B, as so revised, will be included in the
conformed copy to this Amendment to be distributed to the Lenders
after the Effective Date.
4. New Lenders; Exiting Lenders]. (a) As of the
----------------------------
Effective Date, the New Lenders shall become Lenders parties to
the Credit Agreement, and the terms "Lender" and "Lenders" as
used in the Credit Agreement shall be deemed to include each New
Lender. Each New Lender (i) hereby appoints and authorizes the
Administrative Agent to take such action as agent on its behalf
and to exercise such powers under the Credit Agreement and the
other Credit Documents as provided by the terms thereof and in
accordance with Section 11 of the Credit Agreement and (ii)
agrees that as of the Effective Date it will perform in
accordance with their terms all of the obligations which by the
terms of the Credit Agreement and the other Credit Documents are
required to be performed by it as a Lender. As of the Effective
Date, each New Lender shall have all the rights of a Lender under
the Credit Agreement.
(b) As of the Effective Date, the Commitments of each of
the Exiting Lenders shall be terminated, and the Exiting Lenders
shall no longer be parties to the Credit Agreement, provided that
--------
any indemnities or other agreements under the Credit Agreement or
any other Credit Document which by their terms survive repayment
of amounts payable thereunder shall survive repayment pursuant
hereto with respect to the Exiting Lenders.
5. Loan Refunding. (a) Each Loan, if any,
--------------
outstanding on the Effective Date prior to the effectiveness of
this Third Amendment shall be repaid on the Effective Date to the
Administrative Agent for the account of the Existing Lender to
which such Loan is owed, in each case in accordance with the
Credit Agreement as in effect prior to the effectiveness of this
Third Amendment. Loans in the aggregate amount requested by the
Borrower in accordance with the Credit Agreement, if any, shall
be made by the Lenders (as defined after giving effect to this
Third Amendment) on the Effective Date in accordance with the
Credit Agreement as amended by this Third Amendment.
(b) Each repayment pursuant to clause (a) above shall be
accompanied by payment in full to each Existing Lender by the
Borrower of (i) all accrued interest owed to such Existing Lender
by the Borrower under the Credit Agreement and (ii) all unpaid
amounts, if any, required to be paid to such Existing Lender by
the Borrower pursuant to the Credit Agreement (which, for
purposes hereof, shall include payment of all fees, including
facility fees, accrued for the account of such Existing Lender
pursuant to subsection 2.13 of the Credit Agreement before giving
effect to this Third Amendment).
6. Certain Fees. On the Effective Date, the Borrower
------------
shall pay to the Administrative Agent, for the account of the Co-
Agents and the Lenders, as the case may be, such fees as shall
<PAGE>
7
have been agreed upon by the Borrower, the Co-Agents and the
Lenders. The Administrative Agent shall distribute such fees to
the Lenders and Co-Agents entitled thereto.
7. Effectiveness. This Amendment shall become
-------------
effective on the date (the "Effective Date") of satisfaction of
--------------
the following conditions precedent:
(a) the Administrative Agent shall have received
counterparts of this Third Amendment, duly executed and
delivered by all the parties listed on the signature pages
hereto;
(b) each Existing Lender the Commitment of which will
have changed upon the effectiveness of this Third Amendment
shall have received replacement Notes, in the forms
specified by the Credit Agreement, duly executed and
delivered by the Borrower;
(c) each New Lender shall have received Notes, in the
forms specified by the Credit Agreement, duly executed and
delivered by the Borrower;
(d) the Administrative Agent shall have received an
opinion of the Borrower's General Counsel, substantially in
the form of Annex B to this Amendment;
(e) the interest, fees and other amounts required by
Sections 5 and 6 hereof to be paid to the Administrative
Agent shall have been paid; and
(f) all corporate and other proceedings and all other
documents and legal matters in connection with the
transactions contemplated by this Third Amendment shall be
satisfactory in form and substance to the Administrative
Agent and its counsel.
8. Representations and Warranties. To induce the
------------------------------
Administrative Agent to enter into and the Lenders to consent to
this Amendment, the Borrower hereby represents and warrants to
the Agent and the Lenders that, after giving effect to the
amendments provided for herein, the representations and
warranties contained in the Credit Agreement and the other Loan
Documents will be true and correct in all material respects as if
made on and as of the date hereof and that no Default or Event of
Default will have occurred and be continuing.
9. No Other Amendments. Except as expressly amended
-------------------
hereby, the Credit Agreement, the Notes and the other Loan
Documents shall remain in full force and effect in accordance
with their respective terms, without any waiver, amendment or
modification of any provision thereof.
<PAGE>
8
10. Counterparts. This Amendment may be executed by
------------
one or more of the parties hereto on any number of separate
counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
11. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
--------------
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and
year first above written.
THE CONTINENTAL CORPORATION
By:/s/Francis Colalucci
-----------------------------
Title: V.P., Treasurer
CHEMICAL BANK, as Administrative
Agent and a Co-Agent
By:/s/M. Luisa Hunnewell
-----------------------------
Title: Vice President
CITIBANK, N.A., as a Co-Agent
By:/s/Ann Miles
-----------------------------
Title: Vice President
THE LENDERS:
CHEMICAL BANK
By:/s/M. Luisa Hunnewell
-----------------------------
Title: Vice President
CITIBANK, N.A.
By:/s/Ann Miles
-----------------------------
Title: Vice President
<PAGE>
9
SHAWMUT BANK CONNECTICUT, N.A.
By:/s/Joseph J. Wadlinger, Jr.
----------------------------------
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA
By:/s/Stephen Lockhart
----------------------------------
Title: Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By:/s/Tim Helotes
----------------------------------
Title: Vice President
MELLON BANK N.A.
By:/s/Timothy J. Somers
----------------------------------
Title: Vice President
THE BANK OF NEW YORK
By:/s/Timothy Stambaugh
----------------------------------
Title: Vice President
BARCLAYS BANK PLC, NEW YORK BRANCH
By:/s/Francis C. Constantinople
----------------------------------
Title: Vice President
DEUTSCHE BANK, AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:/s/Susan A. Maros
----------------------------------
Title: Vice President
By:/s/Johnston de F. Whitman
----------------------------------
Title: Director
<PAGE>
10
CREDIT LYONNAIS NEW YORK BRANCH
By:/s/Jeffrey Kravis
----------------------------------
Title: First Vice President
THE FUJI BANK, LIMITED NEW YORK
BRANCH
By:/s/Gina M. Kearns
----------------------------------
Title: Vice President and Manager
THE FIRST NATIONAL BANK OF CHICAGO
By:/s/Thomas J. Collimore
----------------------------------
Title: Vice President
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
Commitments;
Lending Offices and Addresses
-----------------------------
A. Commitment Amounts and Percentages
<S> <C> <C>
Lender Commitment Commitment Percentage
Chemical Bank $37,500,000 17.86%
Citibank, N.A. $30,000,000 14.29%
Shawmut Bank Connecticut, N.A. $27,500,000 13.10%
First Interstate Bank of California $25,000,000 11.91%
Credit Lyonnais New York Branch $20,000,000 9.52%
Mellon Bank N.A. $20,000,000 9.52%
The Bank of New York $10,000,000 4.76%
Barclays Bank PLC, New York Branch $10,000,000 4.76%
Deutsche Bank, AG, New York Branch and/or $10,000,000 4.76%
Cayman Islands Branch
The First National Bank of Chicago $10,000,000 4.76%
The Fuji Bank, Limited New York Branch $10,000,000 4.76%
TOTAL $210,000,000 100.000000000000000%
</TABLE>
<PAGE>
EXITING LENDERS AND NEW LENDERS
ANNEX A
Exiting Lenders
The Bank of Nova Scotia
New Lenders
Credit Lyonnais New York Branch
Barclays Bank PLC, New York Branch
Deutsche Bank, AG, New York Branch and/or Cayman Islands Branch
The First National Bank of Chicago
The Fuji Bank, Limited New York Branch
<PAGE>
ANNEX B
FORM OF OPINION OF COUNSEL TO BORROWER
_____________________, 1994______
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
And each of the Lenders
parties to the Credit Agreement
referred to below
I am Senior Vice President, General Counsel and Secretary of
The Continental Corporation, a New York corporation (the
"Borrower"), and have acted as counsel to the Borrower in
--------
connection with [(a)] the Third Amendment, dated as of September
29, 1994 (the "Third Amendment") to the Credit Agreement, dated
---------------
as of December 30, 1993 (as amended, including pursuant to the
Third Amendment, the "Credit Agreement"), among the Borrower, the
----------------
lenders parties thereto (the "Lenders"), Chemical Bank and
-------
Citibank, N.A., as co-agents, and Chemical Bank, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"),[ and (b) the Notes delivered pursuant to
--------------------
the Credit Agreement on the date hereof].
The opinions expressed below are furnished to you pursuant
to Section 7 of the Third Amendment. Unless otherwise defined
herein, terms defined in, or by reference in, the Third Amendment
and used herein shall have the meanings given to them in the
Third Amendment.
In arriving at the opinions expressed below,
(a) I have examined and relied on the originals, or copies
certified or otherwise identified to my satisfaction, of each of
(1) the Credit Agreement and all amendments thereto, including
the Third Amendment, (2) the Revolving Credit Notes delivered the
date hereof and (3) the CAF Advance Notes delivered the date
hereof (the Credit Agreement, the Third Amendment, such Revolving
Credit Notes and such CAF Advance Notes being hereinafter
referred to collectively as the "Transaction Documents"); and
---------------------
(b) I have examined such corporate documents and records of
the Borrower and such other instruments and certificates of
public officials, officers and representatives of the Borrower
and other Persons as I have deemed reasonably necessary or
appropriate for the purposes of this opinion.
<PAGE>
In arriving at the opinions expressed below, I have made
such investigations of law, in each case as I have deemed
reasonably appropriate as a basis for such opinions.
In rendering the opinions expressed below, I have assumed,
with your permission, without independent investigation or
inquiry, (a) the authenticity of all documents submitted to me as
originals, (b) the genuineness of all signatures on all documents
that I examined (other than those of the Borrower and officers of
the Borrower) and (c) the conformity to authentic originals of
documents submitted to me as certified, conformed or photostatic
copies.
When my opinions expressed below are stated "to the best of
my knowledge," I have made reasonable investigation of the
subject matters of such opinions and have no reason to believe
that there exist any facts or other information that would render
such opinions incorrect.
Based upon and subject to the foregoing, I am of the opinion
that:
1. The Borrower (a) is duly organized, validly existing and
in good standing under the laws of the State of New York, (b) has
the corporate power and authority and the legal right to own and
operate its property, to lease the property it operates as lessee
and to conduct the business in which it is currently engaged and
(c) is duly qualified as a foreign corporation 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, except, in the case of clauses (b)
and (c) of this paragraph, to the extent that the failure to have
such power, authority and legal right or to be so qualified would
not, in the aggregate, be reasonably expected to have a Material
Adverse Effect.
2. The Borrower has the corporate power and authority, and
the legal right, to make, deliver and perform its obligations
under the Credit Agreement and each of the other Transaction
Documents to which it is a party and to borrow under the Credit
Agreement. The Borrower has taken all necessary corporate action
to authorize the borrowings on the terms and conditions of the
Credit Agreement and the other Transaction Documents and to
authorize the execution, delivery and performance of the Credit
Agreement and the other Transaction Documents to which it is a
party. No consent or authorization of, approval by, notice to,
filing with or other act by or in respect of any Governmental
Authority or any other Person is required in connection with the
borrowings under the Credit Agreement or with the execution,
delivery, performance, validity or enforceability of the Credit
Agreement and the other Transaction Documents.
3. Each of the Credit Agreement and the other Transaction
Documents to which the Borrower is a party has been duly executed
<PAGE>
and delivered on behalf of the Borrower and constitutes a legal,
valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms.
4. The execution and delivery of the Credit Agreement and
the other Transaction Documents to which the Borrower is a party,
the performance by the Borrower of its obligations thereunder,
the consummation of the transactions contemplated thereby, the
compliance by the Borrower with any of the provisions thereof,
the borrowings under the Credit Agreement and the use of proceeds
thereof, all as provided therein, (a) will not violate, or
constitute a default under, any Requirement of Law or, to the
best of my knowledge, any Contractual Obligations of the Borrower
or of any of its Subsidiaries and (b) will not result in, or
require, the creation or imposition of any Lien on any of its or
their respective properties or revenues which, in the case of
clauses (a) and (b) of this paragraph, would reasonably be
expected to have a Material Adverse Effect.
5. To the best of my knowledge, no litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or threatened by or against the
Borrower or any of its Subsidiaries or against any of its or
their respective properties or revenues (a) with respect to the
Credit Agreement or any of the other Transaction Documents, or
(b) which could have a Material Adverse Effect. To the best of
my knowledge, no Governmental Authority having jurisdiction over
the business of any Insurance Subsidiary has taken any action or
commenced any proceeding to exercise control over the business or
operations of such Insurance Subsidiary, or to cause such
Insurance Subsidiary to take any action which would reasonably be
expected to have a Material Adverse Effect, and to the best of my
knowledge no such action or proceeding has been threatened by any
Governmental Authority.
6. To the best of my knowledge, neither the Borrower nor
any of its Subsidiaries is in default under or with respect to
any Requirements of Law or Contractual Obligations in any respect
which would be reasonably expected to have a Material Adverse
Effect.
7. The Borrower is not (a) an "investment company," or a
company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended, or
(b) a "holding company,' as defined in, or otherwise subject to
regulation under, the Public Utility Holding Company Act of 1935.
My opinion set forth in paragraph 3 above is subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
<PAGE>
I am a member of the bar of the State of New York and I
express no opinion as to the laws of any jurisdiction other than
the Federal laws of the United States of America.
Very truly yours,
William F. Gleason, Jr.
Senior Vice President, General
Counsel and Secretary
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of November 23, 1994 (this
"Amendment") , among:
----------
( i ) THE CONTINENTAL CORPORATION, a New York
corporation (the "Borrower");
--------
(ii) the banks and other financial institutions listed
as Lenders on the signature pages hereof (the "Lenders");
-------
(iii) CHEMICAL BANK, and CITIBANK, N.A., as co-agents
(each, in such capacity, a "Co-Agent") for the Lenders; and
(iv) CHEMICAL BANK, as administrative agent (in such
capacity, the "administrative agent") for the Lenders,
amending the Credit Agreement, dated as of December 30, 1993 (as
amended, supplemented or otherwise modified prior to the date
hereof, the "Credit Agreement") among the Borrower, the banks and
----------------
financial institutions parties thereto as Lenders on the date
hereof (the "Existing Lenders"), the Co-Agents and the
----------------
Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Credit
Agreement be amended as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, it is hereby agreed as follows:
1. Definitions. Unless otherwise defined herein,
-----------
terms defined in the Credit Agreement are used herein as therein
defined.
2. Amendments to Subsection 1.1. (a) Subsection 1.1
------------------------
of the Credit Agreement is hereby amended by deleting the
definition of "Applicable Margin" and inserting the following
definitions in the correct alphabetical order:
"Applicable Margin": with respect to each day during
each Interest Period relating to Eurodollar Loans, a rate
per annum based on the Ratings in effect on such day, in
each case as set forth below:
<PAGE>
Ratings BBB+/Baal BBB/Baa2 BB+/Bal
S&P/Moody's or Hiqher or BBB-/Baa3 or Lower
--------- ------------ --------
Applicable Margin .50% .625% .875%
(Prior to 4/1/95)
Applicable Margin .75% .875% 1.125%
(From and After
4/1/95)
;provided, that if either of the following events shall
--------
occur: (i) the Borrower issues senior debt and does not
simultaneously therewith reduce the Commitments by an amount
nct less than the lesser of (A) Lhe amount of the net
proceeds of such senior debt and (B) the amount by which the
Commitments exceed $100,000,000 prior to such reduction, or
(ii) the Stock Issuance does not occur before May 1, 1995,
then from and after the date of such event until the date on
which the Stock Issuance occurs, the Applicable Margin shall
be determined as set forth below:
Ratings BBB+/Baal BBB/Baa2 BB+/Bal
S&P/Moody's or Higher or BBB-/Baa3 orLower
--------- ------------ -------
Applicable Margin 1.00% 1. 125% 1.625%
; and provided, further, that in the event that the Ratings
for the two Rting Agencies do not coincide on any day, or
there shall be no Rating in effect by a Rating Agency on any
day, the Applicable Margin set forth above opposite the
lower Rating shall be applicable on such day.
"Cumulative Preferred Stock": collectively, (i) the
--------------------------
Borrower's Series E Cumulative Convertible Preferred Stock
and (ii) the Borrower's Series F Cumulative Preferred Stock.
"Stock Issuance": the issuance and sale by the
--------------
Borrower of its preferred stock, subsequent to its issuance
and sale of the Cumulative Preferred Stock anticipated to
occur in 1994, for gross proceeds that total not less than
$100,000,000.
(b) The definition of "Consolidated Capital. contained in
subsection 1.1 of the Credit Agreement is hereby amended by
adding the following proviso at the end thereof:
; provided, however, that in any event the
Cumulative Preferred Stock and any other preferred
stock issued by the Borrower (including in
connection with the Stock Issuance) shall be
deemed to be shareholders, equity and included in
Consolidated Capital.
<PAGE>
3. Other Amendments.
----------------
(a) Subsection 2.5 of the Credit Agreement is hereby
amended by (i) inserting a paragraph designation "(a)" at the
beginning of the existing text of such subsection and (ii) adding
the following paragraph (b) to such subsection:
"(b) To the extent that the Borrower issues senior
debt, the net proceeds of which, when taken with the gross
proceeds of the Stock Issuance and any issuance subsequent
to the Effective Date hereof of subordinated debt of the
Borrower, exceeds $100,000,000, then the Commitments shall
be permanently reduced by an amount equal to the lesser of
(i) the amount of such proceeds and (ii) the amount by which
the Commitments exceed $100,000,000 prior to such reduction.
Such reduction of Commitments shall take effect on the date
of issuance of such senior debt or, if later, the date of
issuance of the subordinated debt or the Stock Issuance
resulting in gross proceeds exceeding $100,000,000.
(b) Subsection 6.1 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"Financial Condition Covenants"
-----------------------------
(a) Maintenance.If Surplus. Permit Surplus at any
time to be less than (i) from September 30, 1994 to but
excluding June 30, 1995, $1,400,000,000 or (ii) from and
after June 30, 1995, $1,465,000,000.
(b) Debt to Capital Ratio. Permit the ratio
(expressed as a percentage) of (i) Consolidated Total
Indebtedness of the Borrower to (ii) the sum of Consolidated
Capital of the Borrower and Consolidated Total Indebtedness
of the Borrower, not to exceed, at any time (a) from
September 30, 1994 to but excluding June 30, 1995, 45% or
(b) from and after June 30, 1995, 40%.
(c) Paragraph (j) of Section 7 of the Credit Agreement is
hereby amended by deleting clause (i)(A) thereof and substituting
in lieu thereof the following new clause (i)(A):
"(A) shall have acquired beneficial ownership of shares
of any class or classes of Capital Stock having ordinary
voting power in the election of directors of the Borrower,
which shares represent 25% or more of the ordinary voting
power in the election of directors of all classes of Capital
Stock having ordinary voting power in the election of
directors, taken together as a single class."
(d) Section 7 of the Credit Agreement is hereby amended by
(i) inserting "or" at the end of paragraph (j) of such Section
and (ii) inserting after such paragraph (j) the following
paragraph (k):
<PAGE>
"The Borrower shall not have received gross proceeds of
at least $200,000,000 on or before December 31, 1994 from
the issuance of sale or the Cumulative Preferred Stock":
4. Amendment Fee. On the Effective Date (as defined
-------------
below), the Borrower shall pay to the Administrative Agent, for
the account of the Lenders, an amendment fee of .05% of the
aggregate Commitments to Lenders who approve this Amendment
within the specified time frame. The Administrative Agent shall
distribute such fees to the Lenders pro rata in accordance with
their respective percentages of the aggregate Commitments.
5. Effectiveness. This Amendment shall become
-------------
effective on November 23, 1994, upon execution and delivery of a
counterpart hereof by the Borrower, the Administrative Agent, and
the Required Lenders.
6. Representations and warranties. To induce the
------------------------------
Administrative Agent to enter into and the Lenders to consent to
this amendment, the Borrower hereby represents and warrants to
the Administrative Agent and the Lenders that, after giving
effect to the amendments provided for herein, the representations
and warranties contained in the Credit Agreement and the other
Loan Documents will be true and correct in all material respects
as if made on and as of the date hereof and that no Default or
Event of Default will have occurred and be continuing.
7. No Other Amendments. Except as expressly amended
-------------------
hereby, the Credit Agreement, the Notes and the other Loan
Documents shall remain in full force and effect in accordance
with their respective terms, without any waiver, amendment or
modification of any provision thereof.
8. Counterparts. This Amendment may be executed by
------------
one or more of the parties hereto on any number of separate
counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
9. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
--------------
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK,
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and
year first above written.
THE CONTINENTAL CORPORATION
By: J. Heath Fitzsimmons
---------------------------
Title: Senior Vice President
<PAGE>
CHEMICAL BANK, as Administrative
Agent and a Co-Agent
By: M. Luisa Hunnewell
---------------------------------
Title: Vice President
CITIBANK, N.A., as a
Co-Agent
By: Ann Miles
---------------------------------
Title: Vice President
THE LENDERS:
CHEMICAL BANK
By: M. Luisa Hunnewell
---------------------------------
Title: Vice President
CITIBANK, N.A.
By: Ann Miles
---------------------------------
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: James J. Wadlinger, Jr.
---------------------------------
Title: Assistant Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By: Tim Helotes
---------------------------------
Title: Vice President
MELLON BANK N.A.
By: Timothy J. Somers
---------------------------------
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By:/s/Lizanne Eberle
---------------------------------
Title: Vice President
BARCLAYS BANK PLC, NEW YORK BRANCH
By:/s/Francis C. Constantinople
---------------------------------
Title: Vice President
DEUTSCHE BANK, AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:/s/Susan A. Maros
---------------------------------
Title: Vice President
By:/s/Johnston deF. Whitman
---------------------------------
Title: Director
CREDIT LYONNAIS NEW YORK BRANCH
By:/s/Jeffrey Kravis
---------------------------------
Title: First Vice President
THE FUJI BANK, LIMITED, NEW YORK
BRANCH
By:/s/Gina M. Kearns
---------------------------------
Title: Vice President & Manager
THE FIRST NATIONAL BANK OF CHICAGO
By:/s/Thomas J. Collimore
---------------------------------
Title: Vice President
Exhibit 10(m)
FIFTH AMENDMENT
FIFTH AMENDMENT, dated as of December 22, 1994
--
(this "Amendment"), among:
---------
(i) THE CONTINENTAL CORPORATION, a New York
corporation (the "Borrower");
--------
(ii) the banks and other financial
institutions listed as Lenders on the signature
pages hereof (the "Lenders");
-------
(iii) CHEMICAL BANK and CITIBANK, N.A.,
as co-agents (each, in such capacity, a "Co-
---
Agent") for the Lenders; and
-----
(iv) CHEMICAL BANK, as administrative agent
(in such capacity, the "Administrative Agent") for
--------------------
the Lenders,
amending the Credit Agreement, dated as of December 30, 1993
(as amended, supplemented or otherwise modified prior to the
date hereof, the "Credit Agreement") among the Borrower, the
----------------
banks and financial institutions parties thereto as Lenders
on the date hereof (the "Existing Lenders"), the Co-Agents
----------------
and the Administrative Agent.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested that the
Credit Agreement be amended as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises
and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, it is hereby
agreed as follows:
1. Definitions. Unless otherwise defined herein,
-----------
terms defined in the Credit Agreement are used herein as
therein defined.
<PAGE>
2. Amendments to Subsection 1.1. (a) Subsection
----------------------------
1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Cumulative Preferred Stock" and inserting
the following definition in lieu thereof:
"Cumulative Preferred Stock": collectively, (i)
--------------------------
the Borrower's Series F Cumulative Preferred Stock,
(ii) the Borrower's Series H Cumulative Preferred Stock
and (iii) the Borrower's Series T Cumulative Preferred
Stock.
3. Effectiveness. This Amendment shall become
-------------
effective on December 30, 1994, upon execution and delivery
of a counterpart hereof by the Borrower, the Administrative
Agent, and the Required Lenders.
4. Representations and Warranties. To induce the
------------------------------
Administrative Agent to enter into and the Lenders to
consent to this Amendment, the Borrower hereby represents
and warrants to the Administrative Agent and the Lenders
that, after giving effect to the amendments provided for
herein, the representations and warranties contained in the
Credit Agreement and the other Loan Documents will be true
and correct in all material respects as if made on and as of
the date hereof and that no Default or Event of Default will
have occurred and be continuing.
5. No Other Amendments. Except as expressly
-------------------
amended hereby, the Credit Agreement, the Notes and the
other Loan Documents shall remain in full force and effect
in accordance with their respective terms, without any
waiver, amendment or modification of any provision thereof.
6. Counterparts. This Amendment may be executed
------------
by one or more of the parties hereto on any number of
separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
7. Applicable Law. THIS AMENDMENT SHALL BE
--------------
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered as of the
day and year first above written.
THE CONTINENTAL CORPORATION
By: /s/ Francis M. Colalucci
-------------------------
Title: Vice President and
Treasurer
CHEMICAL BANK, as Administrative
Agent and a Co-Agent
By: /s/ M. Luisa Hunnewell
--------------------------
Title: Vice President
CITIBANK, N.A., as a Co-Agent
By: /s/ Ann Miles
-------------------------
Title: Vice President
THE LENDERS:
3
<PAGE>
CHEMICAL BANK
By: /s/ M. Luisa Hunnewell
-------------------------
Title: Vice President
CITIBANK, N.A.
By: /s/ Ann Miles
--------------------------
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ Joseph J. Wadlinger, Jr.
-----------------------------
Title: Assistant Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By:
-------------------------
Title:
MELLON BANK, N.A.
By: /s/ Timothy J. Somers
--------------------------
Title: Assistant Vice President
4
<PAGE>
THE BANK OF NEW YORK
By: /s/ Lizanne Eberle
-------------------------
Title: Vice President
BARCLAYS BANK PLC,
NEW YORK BRANCH
By: /s/ Francis C. Constantinople
------------------------------
Title: Vice President
DEUTSCHE BANK, AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /s/ David E. Moyer
--------------------------
Title: Vice President
By: /s/ Johnathan B. Meades
-------------------------
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Jeffrey Kravis
-------------------------
Title: Vice President
THE FUJI BANK, LIMITED,
NEW YORK BRANCH
By: /s/ Gina M. Kearns
-------------------------
Title: Vice President and
Manager
5
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Thomas J. Collimore
--------------------------
Title: Vice President
6
Exhibit 10(n)
THE FIDELITY AND CASUALTY COMPANY
OF NEW YORK
Agreement No. 7978
GENERAL REINSURANCE CORPORATION
<PAGE>
AGREEMENT OF REINSURANCE
NO. 7978
between
GENERAL REINSURANCE CORPORATION
a Delaware corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Reinsurer")
and
THE FIDELITY AND CASUALTY COMPANY OF NEW YORK
180 Maiden Lane
New York, New York 10038
(herein referred to as the "Company")
-----------------------------------------------------------------
In consideration of the promises set forth in this Agreement, the
parties agree as follows:
Article I - SCOPE OF AGREEMENT
As a condition precedent to the Reinsurer's obligation under
this Agreement, the Company shall cede to the Reinsurer the
personal property and liability business described in this
Agreement and assumed by the Company under Agreement No. 5055
from The Continental Insurance Company, as attached, and the
Reinsurer shall accept such business as reinsurance from the
Company. The terms of this Agreement shall determine the rights
and obligations of the parties.
Article II - PARTIES TO THE AGREEMENT
This Agreement is solely between the Company and the
Reinsurer. When more than one Company is named as a party to
this Agreement, the first Company named shall be the agent of the
other companies as to all matters pertaining to this Agreement.
Performance of the obligations of each party under this Agreement
shall be rendered to the other party. However, if the Company
becomes insolvent, the liability of the Reinsurer shall be
modified to the extent set forth in the article entitled
INSOLVENCY OF THE COMPANY. In no instance shall any insured of
the Company or any claimant against an insured of the Company
have any rights under this Agreement.
Article III - LIABILITY OF THE REINSURER
The Reinsurer shall pay to the Company the Reinsurer's Quota
Share Percentage of the net loss, as defined in the article
<PAGE>
entitled DEFINITIONS, of the Company as set forth in the Schedule
of Reinsurance.
SCHEDULE OF REINSURANCE
-----------------------------------------------------------------------
Company's Reinsurer's
Quota Share Percentage Quota Share Percentage
-----------------------------------------------------------------------
As respects covered policies
in force on July 1, 1994, and
new and renewal covered
policies becoming effective
on and after July 1, 1994,
and prior to January 1, 1996: 0% 100%
As respects new and renewal
covered policies becoming
effective on and after
January 1, 1996, and prior
to January 1, 1997: 0% 100%
As respects new and renewal
covered policies becoming
effective on and after
January 1, 1997, and prior
to January 1, 1998: 0% 100%
As respects new and renewal
covered policies becoming
effective on and after
January 1, 1998, and prior
to January 1, 1999: 0% 100%
As respects new and renewal
covered policies becoming
effective on and after
January 1, 1999, and prior
to January 1, 2000: 0% 100%
As respects new and renewal
covered policies becoming
effective on and after
January 1, 2000: 100% 0%
-----------------------------------------------------------------
Notwithstanding the above, as respects each occurrence
involving personal property business the Limited of Liability of
the Reinsurer shall not exceed:
(a) As respects each such occurrence commencing on and
after July 1, 1994, and prior to January 1, 1996, 50%
of $100,000,000;
(b) As respects each such occurrence commencing on and
after January 1, 1996, and prior to January 1, 1997,
40% of $100,000,000;
(c) As respects each such occurrence commencing on and
after January 1, 1997, and prior to January 1, 1998,
30% of $100,000,000;
<PAGE>
(d) As respects each such occurrence commencing on and
after January 1, 1998, and prior to January 1, 1999,
20% of $1000,000,000;
(e) As respects each such occurrence commencing on and
after January 1, 1999, 10% of $100,000,000;
Article IV - DEFINITIONS
(a) Personal Property Business
This term shall mean insurance which is classified by
the Company as fire (dwelling fire only), allied lines
(personal only), inland marine (personal only),
homeowners multiple peril (property coverages) and
private passenger automobile physical damage, except
those lines specifically excluded in the article
entitled EXCLUSIONS, with respect to insurers domiciled
in the Continental United States (other than in the
State of New Jersey) written by the U.S. domiciled
operation of the Company known as the Agency Brokerage
Group or any successor group.
(b) Personal Liability Business
This term shall mean insurance which is classified by
the Company as private passenger automobile liability,
private passenger automobile no-fault, umbrella
(personal only) and homeowners multiple peril
(liability coverages), with respect to insureds
domiciled in the Continental United States (other than
in the State of New Jersey) written by the U.S.
domiciled operation of the Company known as the Agency
Brokerage Group or any successor group.
(c) Net Loss
This term shall mean all payments by the Company in
settlement of claims or losses, payment of benefits, or
satisfaction of judgments or awards, including
adjustment expense, loss in excess of original policy
limits, extra contractual obligations, and declaratory
judgment expense, after deduction of subrogation and
other recoveries, as per the article entitled
RECOVERIES, and after deduction of amounts due from
inuring reinsurance, as defined in paragraph (j) below,
whether collectible or not. If the Company becomes
insolvent, this definition shall be modified to the
extent set forth in the article entitled INSOLVENCY OF
THE COMPANY.
<PAGE>
(d) Adjustment Expense
This term shall mean expenditures by the Company in the
direct defense of claims and as allocated to an
individual claim or loss, other than for office
expenses and for the salaries and expenses of employees
of the Company or of any subsidiary or related or
wholly owned company of the Company, except Continental
Loss Adjustment Services or its successor, made in
connection with the disposition of a claim, loss, or
legal proceeding including investigation, negotiation,
and legal expenses, court costs; statutory penalties;
prejudgment interestor delayed damages; and interest on
any judgment or award.
(e) Prejudgment Interest or Delayed Damages
This term shall mean interest or damages added to a
settlement, verdict, award, or judgement based on the
amount of time prior to the settlement, verdict, award,
or judgement whether or not made part of the
settlement, verdict, award, or judgement.
(f) Excess of Original Policy Limits
Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall mean
awards of losses in excess of the Company's original
policy limits, any such loss in excess of the limit
having been incurred because of failure by the Company
to settle within the policy limit or by reason of
alleged negligence, fraud or bad faith or actual
negligence or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in
the trial of any action against its Insured or in the
preparation or prosecution of an appeal consequent upon
such action.
However, coverage hereunder shall not apply where the
loss has been incurred due to the fraud of a member of
the Board of Directors or a corporate officer of the
Company or any other employee of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or
party involved in the presentation, defense or
settlement of any claim covered hereunder.
For purposes of this definition, the word "loss" shall
mean any amounts for which the Company would have been
contractually liable to pay had it not been for the
limit of the original policy.
Any insurance or inuring reinsurance, as defined in
paragraph (j) below, whether collectible or not, which
<PAGE>
indemnifies or protects the Company against claims
which are the subject matter of this definition and any
contribution, subrogation or recovery, as per the
article entitled RECOVERIES, shall inure to the benefit
of the Reinsurer and shall be deducted to arrive at the
amount of the Company's loss.
(g) Extra-Contractual Obligations
Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall mean
those liabilities not covered under any other provision
of this Agreement and which arise from the handling of
any claim or business covered hereunder, such
liabilities arising because of, but not limited to, the
following: failure by the Company to settle within the
policy limit, or in the investigation of a claim, or to
provide a defense, or to timely pay a claim, or by
reason of alleged negligence, fraud or bad faith or
actual negligence or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in
the trial of any action against its Insured or in the
preparation or prosecution of an appeal consequent upon
such action.
The date on which an extra contractual obligation is
incurred by the Company shall be deemed, in all
circumstances, to be the date of the original
occurrence.
However, coverage hereunder shall not apply where the
loss has been incurred due to the fraud of a member of
the Board of Directors or a corporate officer of the
Company or any other employee of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or
party involved in the presentation, defense or
settlement of any claim covered hereunder.
Any insurance or inuring reinsurance, as defined in
paragraph (j) below, whether collectible or not, which
indemnifies or protects the Company against claims
which are the subject matter of this definition and any
contribution, subrogation or recovery, as per the
article entitled RECOVERIES, shall inure to the benefit
of the Reinsurer and shall be deducted to arrive at the
amount of the Company's loss.
(h) Declaratory Judgment Expense
This term shall mean expense arising from litigation
over policy coverage.
<PAGE>
The date on which a declaratory judgment expense is
incurred by the Company shall be deemed, in all
circumstances, to be the date of the original
occurrence.
(i) Occurrence
As respects the personal property business reinsured
hereunder, this term shall mean the sum of all
individual losses directly occasioned by any one
disaster, accident, or loss or series of disasters,
accidents, or losses arising out of one event which
occurs within the area of the United States.
Notwithstanding the above, the duration and extent of
any one occurrence will be limited to all individual
losses sustained by the Company occurring during any
period of 168 consecutive hours arising out of and
directly occasioned by the same event except that the
term occurrence will be further defined as follows:
(1) As regards windstorm, hail, tornado, hurricane,
and cyclone, including ensuing collapse and water
damage, all individual losses sustained by the
Company occurring during any period of 72
consecutive hours arising out of and directly
occasioned by the same event.
(2) As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company
occurring during any period of 72 consecutive
hours within the area of one municipality or
county and the municipalities or counties
contiguous thereto arising out of and directly
occasioned by the same event. The maximum
duration of 72 consecutive hours may be extended
in respect of individual losses that occur beyond
such 72 consecutive hours during the continued
occupation of an insured's premises by strikers,
provided such occupation commenced during the
aforesaid period.
(3) As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to in the opening paragraph of this
definition) and fire following directly occasioned
by the earthquake, only those individual fire
losses that commence during the period of 168
consecutive hours may be included in the Company's
occurrence.
(4) As regards "freeze," only individual losses
directly occasioned by collapse, breakage of
glass, and water and/or liquid damage due to burst
<PAGE>
pipes, tanks or pressure vessels; damage to
machinery or equipment, stock and/or work in
progress due to freeze; and/or individual losses
arising directly out of this lack of supply of
power, current, coolant and/or fuel due to frozen
pipes and/or frozen feed lines may be included in
the Company's occurrence.
However, as respects those occurrences referred to in
sub-paragraphs (1) and (2) above, if the disaster,
accident or loss occasioned by the event is of greater
duration than 72 consecutive hours, then the Company
may divide that disaster, accident or loss into two or
more occurrences provided no two periods overlap and no
individual loss is included in more than one such
period and provided that no period commences earlier
than the date and time of the occurrence of the first
recorded individual loss sustained by the Company
arising out of that disaster, accident or loss.
No individual losses occasioned by an event that would
be covered by 72 hours clauses may be included in any
occurrence claimed under the 168 hours provision.
As respects the personal liability business reinsured
hereunder, this term shall mean each accident or
occurrence or series of accidents or occurrences
arising out of one event, whether involving one or
several of the Company's policies. All bodily injury
or property damage arising out of continuous or
repeated exposure to substantially the same general
conditions shall be considered as arising out of one
occurrence, whether involving one or several of the
Company's policies.
(j) Inuring Reinsurance
This term shall mean:
(1) All personal lines facultative reinsurance;
(2) Personal lines umbrella excess of loss treaty,
treaty no. 5477, with a limit of $5,000,000 excess
$5,000,000 effective January 1, 1994, through
December 31, 1994.
Throughout the term of this Agreement, such inuring
reinsurance may be subject to change as agreed upon by
the Company and the Reinsurer.
<PAGE>
Article V - EXCLUSIONS
This Agreement shall not apply to:
(a) Reinsurance accepted by the Company other than:
(1) From its affiliates;
(2) Property facultative reinsurance on a share basis
of risks accepted individually and not forming
part of any agreement;
(3) Local agency property reinsurance on a share basis
accepted in the normal course of business;
(b) Nuclear incident per the following clauses attached
hereto:
(1) Nuclear Incident Exclusion Clause - Physical
Damage - Reinsurance U.S.A.;
(2) Nuclear Incident Exclusion Clause - Liability -
Reinsurance U.S.A.;
(c) Any loss or liability accruing to the Company directly
or indirectly from any property or liability insurance
written by or through any pool or association including
pools or associations in which membership by the
Company is required under any statutes or regulations;
however, this exclusion shall not apply to the pools
and associations listed in Appendix A attached hereto,
but, this Agreement shall not cover any increase in
such liability resulting from the inability of any
other participant in any such pool or plan to meet its
liability;
(d) Any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil
war, rebellion, insurrection, military or usurped
power, or martial law, or confiscation by order of any
government or public authority, but not excluding loss
or damage which would be covered under a standard form
of policy containing a standard war exclusion clause;
(e) Any liability of the Company arising by contract,
operation of law, or otherwise, from its participation
or membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool,
association, fund, or other arrangement, howsoever
denominated, established, or governed, which provides
for any assessment of, payment, or assumption by the
Company of part or all of any claim, debt, charge, fee,
or other obligation of an insurer, or its successors or
<PAGE>
assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other
obligation in whole or in part;
(f) Insurance against earthquake, except when written in
conjunction with fire and otherwise eligible perils;
(g) Insurance against flood, surface water, waves, tidal
waves, overflow of any body of water, or their spray,
all whether driven by wind or not, except when written
in conjunction with fire and otherwise eligible perils;
(h) Liability business written on a co-indemnity basis not
controlled by the Company.
Article VI - MANAGEMENT OF CLAIMS AND LOSSES
The Company shall investigate and settle or defend all
claims and losses. When requested by the Reinsurer, the Company
shall permit the Reinsurer, at the expense of the Reinsurer, to
be associated with the Company in the defense or control of any
claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. The Reinsurer agrees to abide by the loss
settlements of the Company subject to the terms and conditions of
this Agreement.
Article VII - RECOVERIES
The Company shall pay to or credit the Reinsurer with the
Reinsurer's portion of any recovery obtained from salvage,
subrogation, or other insurance. Adjustment expenses for
recoveries shall be deducted from the amount recovered.
However, if the Company notifies the Reinsurer prior to
pursuing recoveries from salvage, subrogation, or other insurance
and receives the Reinsurer's approval of such pursuit, the
Reinsurer agrees to pay a share of the adjustment expenses
incurred therefor which are in excess of the amount recovered, if
any, proportionate to the Reinsurer's share of net loss.
The Reinsurer shall be subrogated to the rights of the
Company to the extent of its loss payments to the Company. The
Company agrees to enforce its rights of salvage, subrogation, and
its rights against insurers or to assign these rights to the
Reinsurer. Recoveries shall be apportioned between the parties
in the same ratio as the amounts of their liabilities bear to the
loss.
<PAGE>
Article VIII - REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurer:
(a) With respect to business in force at the effective time
and date of this Agreement, 100% of the Company's
unearned premium, for the business reinsured hereunder,
after deducting that portion paid for inuring
reinsurance, as defined in the article entitled
DEFINITIONS, calculated on the monthly pro rata basis
as of the effective time and date of this Agreement;
and
(b) With respect to business becoming effective at and
after the effective time and date of this Agreement,
the Reinsurer's Quota Share Percentage, as set forth in
the Schedule of Reinsurance, of the Company's written
premium for the business reinsured hereunder, after
deducting that portion paid for inuring reinsurance, as
defined in the article entitled DEFINITIONS.
The reinsurance premiums in (a) and (b) above shall be
subject to a fixed commission allowance of 30%.
Article IX - REPORTS AND REMITTANCES
(a) In Force Premium
Within 30 days after the commencement of this
Agreement, the Company shall render to the Reinsurer a
report of the reinsurance premium with respect to the
business of the Company in force at the effective time
and date of this Agreement, summarizing the reinsurance
premium by line of insurance; and the amount due the
Reinsurer shall be remitted within 60 days after the
commencement of this Agreement.
(b) Monthly Reports
The Company shall report to the Reinsurer, within 45
days after the close of each month:
(1) The reinsurance premium written for the month by
line of insurance, and
(2) The commission allowed on the reinsurance premium
for the month, and
(3) The Reinsurer's portion of net loss paid during
the month by line of insurance and year of claim
or loss, and
<PAGE>
(4) The Reinsurer's portion of salvage recovered
during the month by line of insurance and year of
claim or loss.
The amount due either party shall be remitted within 60
days after the close of the month.
The Company shall also report to the Reinsurer, within
45 days after the close of each month, the Reinsurer's
portion of reserves for claims, losses, and adjustment
expense at the end of the month by line of insurance
and year of claim or loss.
In the event of any loss or damage in excess of
$4,000,000, the Company may request immediate payment
of the Reinsurer's portion of such loss, and the
Reinsurer shall be obligated to pay such amount.
(c) Quarterly Reports
The Company shall report to the Reinsurer, within 45
days after the close of each calendar quarter, the
reinsurance premium unearned by line of insurance and
the contribution for the quarter to the reinsurance
premium in force by line of insurance, by term and by
month and year of expiration.
(d) P.C.S. Catastrophe Bulletins
The Company shall furnish to the Reinsurer, upon
request, the following information with respect to each
catastrophe set forth in the Catastrophe Bulletins
published by the Property Claim Services:
(1) The preliminary estimates of the amount
recoverable from the Reinsurer;
(2) The Reinsurer's portion of net loss paid less
salvage recovered during each calendar quarter;
(3) The Reinsurer's portion of reserves for claims,
losses, and adjustment expenses at the end of each
calendar quarter.
(e) General
In addition to the reports required by (a), (b), (c),
and (d) above, the Company shall furnish such other
information as may be required by the Reinsurer for the
completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered on forms or in format
acceptable to the Company and the Reinsurer.
<PAGE>
Article X - TERM AND TERMINATION
This Agreement shall apply to new and renewal policies of
the Company becoming effective at and after 12:01 A.M., July 1,
1994, and prior to 12:01 A.M., January 1, 2000, and to policies
of the Company in force at 12:01 A.M., July 1, 1994, with respect
to losses resulting from occurrences taking place at and after
12:01 A.M., July 1, 1994.
Upon expiration of this Agreement, the Reinsurer shall
continue to be liable, with respect to and including policies in
force at the time and date of expiration, for losses resulting
from occurrences taking place until the expiration, cancellation,
or next anniversary date, not to exceed one year, of each such
policy of the Company, whichever occurs first.
When all reinsurance is expired or terminated, the Reinsurer
shall return to the Company the reinsurance premium unearned, if
any, calculated on the monthly pro rata basis, less the
commission previously allowed thereon.
This Agreement may be terminated within the term stipulated
above by mutual agreement between the Company and the Reinsurer.
However, the Reinsurer may also terminate this Agreement in
the manner described under the circumstances set forth in the
following paragraph.
If the Company is merged or purchased, or if controlling
interest (for purposes of this Agreement, deemed to be more than
51%) is sold or changed outside of the Company's holding company
systems, the Company shall immediately notify the Reinsurer, by
registered mail to its principal office, giving details (to the
extent of its knowledge thereof) of the particulars of such
merger, purchase, sale or change. Within 35 days after the date
of mailing of such notice by the Company, the Reinsurer may
terminate this Agreement by sending to the Company, by registered
mail to its principal office, notice stating the time and date
when, not less than 5 days after the date of mailing of such
notice, termination shall be effective. If the Company fails to
notify the Reinsurer of such merger, purchase, sale, or change,
the Reinsurer, within 35 days after the Reinsurer has acquired
knowledge of the merger, purchase, sale, or change, may terminate
this Agreement by sending to the Company, by registered mail to
its principal office, notice stating the time and date when, not
less than 5 days after the date of mailing of such notice,
termination shall be effective.
In any instance that the Reinsurer terminates this Agreement
in accordance with the circumstances described in the immediately
preceding paragraph, the Reinsurer shall not be liable for losses
resulting from occurrences taking place after the effective time
and date of termination. In such event, the Reinsurer shall
return to the Company the reinsurance premium unearned,
<PAGE>
calculated on a monthly pro rata basis as of the effective time
and date of termination, less than the commission previously
allowed thereon and less any other amounts due from the Company
to the Reinsurer.
Article XI - CURRENCY
Whenever the sign "$" appears in this Agreement it shall be
construed to mean United States Dollars.
Article XII - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of
an error or accidental omission of the Company in reporting any
claim or loss or any business reinsured under this Agreement,
provided that the error or omission is rectified promptly after
discovery. The Reinsurer shall be obligated only for the return
of the premium paid for business reported but not reinsured under
this Agreement.
Article XIII - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be
submitted to the Reinsurer for special acceptance and, if
accepted by the Reinsurer, shall be subject to all of the terms
of this Agreement except as modified by the special acceptance.
Article XIV - RESERVES AND TAXES
The Reinsurer shall maintain the required reserves as to the
Reinsurer's portion of unearned premium, claims, losses, and
adjustment expense.
The Company shall be liable for all premium taxes on premium
ceded to the Reinsurer under this Agreement. If the Reinsurer is
obligated to pay any premium taxes on this premium, the Company
shall reimburse the Reinsurer; however, the Company shall not be
required to pay taxes twice on the same premium.
Article XV - OFFSET
The Company or the Reinsurer may offset any balance, whether
on account of premium, commission, claims or losses, adjustment,
expense, salvage, or otherwise, due from one party to the other
under this Agreement or under any other agreement heretofore or
hereafter entered into between the Company and the Reinsurer,
subject to state regulation.
<PAGE>
Article XVI - INSPECTION OF RECORDS
The Company shall allow the Reinsurer to inspect, at
reasonable times, the records of the Company relevant to the
business reinsured under this Agreement, including Company files
concerning claims, losses, or legal proceedings which involve or
are likely to involve the Reinsurer.
Article XVII - CONFIDENTIALITY OF INFORMATION
The Reinsurer agrees not to divulge information obtained as
a result of any inspection of the records and reports of the
Company to third parties, except the Reinsurer may divulge such
information to its auditors, retrocessionaires, related companies
and agents ("the excepted third parties"), if any, and may also
use the information so obtained for any legal proceedings related
to or arising out of this Agreement. Before the Reinsurer
divulges such information to any of the excepted third parties,
it will first cause such excepted third parties to agree that they
will not divulge such information further.
Article XVIII - ARBITRATION
Any unresolved difference of opinion between the Reinsurer
and the Company shall be submitted to arbitration by three
arbitrators. One arbitrator shall be chosen by the Reinsurer,
and one shall be chosen by the Company. The third arbitrator
shall be chosen by the other two arbitrators within ten (10) days
after they have been appointed. I f the two arbitrators cannot
agree upon a third arbitrator, each arbitrator shall nominate
three persons of whom the other shall reject two. The third
arbitrator shall than be chosen by drawing lots. If either party
fails to choose an arbitrator within thirty (30) days after
receiving the written request of the other party to do so, the
latter shall choose both arbitrators, who shall choose the third
arbitrator. The arbitrators shall be impartial and shall be
present or former officials of property or casualty insurance or
reinsurance companies.
The party requesting arbitration (the "Petitioner") shall
submit its brief to the arbitrators within thirty (30) days after
notice of the selection of the third arbitrator. Upon receipt of
the Petitioner's brief, the other party (the "Respondent") shall
have thirty (30) days to file a reply brief. On receipt of the
Respondent's brief, the Petitioner shall have twenty (20) days to
file a rebuttal brief. Respondent shall have twenty (20) days
from the receipt of Petitioner's rebuttal brief to file its
rebuttal brief. The arbitrators may extend the time for filing
of briefs at the request of either party.
The arbitrators are relieved from judicial formalities and,
in addition to considering the rules of law and the customs and
<PAGE>
practices of the insurance and reinsurance business, shall make
their award with a view to effecting the intent of this
Agreement. The decision of the majority shall be final and
binding upon the parties. The costs of arbitration, including
the fees of the arbitrators, shall be shared equally unless the
arbitrators decide to otherwise. The arbitration shall be held
at the times and places agreed upon by the arbitrators.
Article XIX - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the
reinsurance proceeds will be paid to the Company or the
liquidator immediately upon demand, with reasonable provision for
verification, on the basis of the amount of the claim allowed in
the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurer shall be given written notice of the pendency
of each claim against the Company on the policy(ies) reinsured
hereunder within a reasonable time after such claim is filed in
the insolvency proceedings. The Reinsurer shall have the right
to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated,
any defenses which it may deem available to the Company or its
liquidator. The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the
Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate
this 23rd day of September, 1994,
---- --------- -
GENERAL REINSURANCE CORPORATION
Senior Vice President
Attest,
and this 4th day of October, 1994,
--- ------- -
THE FIDELITY AND CASUALTY COMPANY
OF NEW YORK
Senior Vice President
---------------------
Attest:
<PAGE>
APPENDIX A
Attached to and made a part of
AGREEMENT NO. 7978
POOLS AND ASSOCIATIONS
State Plan
Alabama Alabama Insurance Underwriting Association
Auto Insurance Plan
Arizona Auto Insurance Plan
Arkansas Auto Insurance Plan
California California Fair Plan
Auto Insurance Plan
Colorado Auto Insurance Plan
Connecticut Connecticut Fair Plan
Delaware Insurance Placement Facility of Delaware
(Fair Plan)
District of Columbia DC Property Insurance Facility (Fair Plan)
Auto Insurance Plan
Florida Joint Underwriting Association
Florida Windstorm Underwriting Association
Georgia Auto Insurance Plan
Georgia Underwriting Association
Idaho Auto Insurance Plan
Illinois Mine Subsidence
Illinois Fair Plan
Indiana Indiana Basic Property Insurance
Underwriting Association
Mine Subsidence
Auto Insurance Plan
Iowa Iowa Fair Plan
Kansas Kansas All Industry Placement Facility
(Fair Plan)
Kentucky Kentucky Property Insurance Placement Facility
Mine Subsidence
<PAGE>
State Plan
Louisiana Auto Insurance Plan
Louisiana Insurance Underwriting Plan
Louisiana Joint Reinsurance Plan
Maryland Maryland Joint Insurance Association
Massachusetts Massachusetts Property Insurance
Underwriting Association (Fair Plan)
Reinsurance Facility (Auto Pool)
Minnesota Auto Insurance Plan
Mississippi Auto Insurance Plan
Missouri Missouri Property Insurance Placement
Facility (Fair Plan)
Joint Underwriting Association
Montana Auto Insurance Plan
Nebraska Auto Insurance Plan
Nevada Auto Insurance Plan
New Hampshire Reinsurance Facility (Auto Pool)
New Mexico Auto Insurance Plan
New York New York Property Insurance Underwriting
Association
Auto Insurance Plan
North Carolina North Carolina Insurance Underwriting
Association (Beach Plan)
Reinsurance Facility (Auto Pool)
North Carolina Joint Underwriting
Association (Fair Plan)
North Dakota Auto Insurance Plan
Ohio Mine Subsidence
Ohio Fair Plan Underwriting Association
Auto Insurance Plan
Oklahoma Auto Insurance Plan
Oregon Auto Insurance Plan
Pennsylvania Insurance Placement Facility of
Pennsylvania (Fair Plan)
Auto Insurance Plan
<PAGE>
State Plan
Rhode Island Rhode Island Joint Reinsurance Association
(Fair Plan)
South Carolina South Carolina Wind & Hail Underwriting
Association
Reinsurance Facility
South Dakota Auto Insurance Plan
Tennessee Auto Insurance Plan
Texas Texas Catastrophe Property Insurance
Association
Utah Auto Insurance Plan
Virginia Virginia Property Insurance Association
(Fair Plan)
Washington Washington Fair Plan
Auto Insurance Plan
West Virginia Mine Subsidence
Auto Insurance Plan
West Virginia Essential Property Insurance
Association (Fair Plan)
Wisconsin Auto Insurance Plan
Wisconsin Insurance Plan
Wyoming Auto Insurance Plan
<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE - REINSURANCE - USA
(1) This Agreement does not cover any loss or liability
accruing to the Company directly or indirectly and whether as
Insurer or Reinsurer, from any Pool of Insurers or Reinsurers
formed for the purpose of covering Atomic or Nuclear Energy
risks.
(2) Without in any way restricting the operation of
paragraph (1) of this Clause, this Agreement does not cover any
loss or liability accruing to the Company, directly or indirectly
and whether as Insurer or Reinsurer, from any insurance against
Physical Damage (including business interruption or consequential
loss arising out of such Physical Damage) to:
(i) Nuclear reactor power plants including all auxiliary
property on the site, or
(ii) Any other nuclear reactor installation, including
laboratories handling radioactive materials in
connection with reactor installations, and "critical
facilities" as such, or
(iii) Installations for fabricating complete fuel elements
or for processing substantial quantities of "special
nuclear material", and for reprocessing, salvaging,
chemically separating, storing or disposing of
"spent" nuclear fuel or waste materials, or
(iv) Installations other than those listed in paragraph
(2)(iii) above using substantial quantities of
radioactive isotopes or other products of nuclear
fission.
(3) Without in any way restricting the operations of
paragraphs (1) and (2) hereof, this Agreement does not cover any
loss or liability by radioactive contamination accruing to the
Company, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance on property which is on the same
site as a nuclear reactor power plant or other nuclear
installation and which normally would be insured therewith except
that this paragraph (3) shall not operate:
(a) where the Company does not have knowledge of such
nuclear reactor power plant or nuclear installation, or
(b) where said insurance contains a provision excluding
coverage for damage to property caused by or resulting
from radioactive contamination, however caused.
However on and after 1st January 1960 this subparagraph
(b) shall only apply provided the said radioactive
<PAGE>
contamination exclusion provision has been approved by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operations of
paragraphs (1), (2) and (3) hereof, this Agreement does not cover
any loss or liability by radioactive contamination accruing to
the Company, directly or indirectly, and whether as Insurer or
Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
(5) It is understood and agreed that this Clause shall not
extend to risks using radioactive isotopes in any form where the
nuclear exposure is not considered by the Company to be the
primary hazard.
(6) The term "special nuclear material" shall have the
meaning given it in the Atomic Energy Act of 1954 or by any law
amendatory thereof.
(7) The Company to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note: Without in any way restricting the operation of
paragraph (1) hereof, it is understood and agreed that:
(a) all policies issued by the Company on or before 31st
December 1957 shall be free from the application of the
other provisions of this Clause until expiry date or
31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
(b) with respect to any risk located in Canada policies issued
by the Company on or before 31st December 1958 shall be
free from the application of the other provisions of this
Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all provisions of this Clause shall
apply.
<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE -
LIABILITY - REINSURANCE - USA
(1) This Agreement does not cover any loss or liability
accruing to the Company as a member of, or subscriber to, any
association of insurers or reinsurers formed for the purpose of
covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of
paragraph (1) of this Clause it is understood and agreed that for
all purposes of this Agreement all the original policies of the
Company (new, renewal and replacement) of the clauses specified
in Clause (ii) of this paragraph (2) from the time specified in
Clause (iii) in this paragraph (2) shall be deemed to included
the following provision (specified as the Limited Exclusion
Provision):
Limited Exclusion Provision*
(i) It is agreed that the policy does not apply under
any liability coverage, to injury, sickness,
-----------------
disease, death or destruction bodily injury or
-----------------------------
property damage with respect to which an insured
under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under
any such policy but for its termination upon
exhaustion of its limit of liability.
(ii) Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles,
liability only) Farmers Comprehensive Personal
Liability Policies (liability only), Comprehensive
Personal Liability Policies (liability only) or
policies of a similar nature; and the liability
portion of combination forms related to the four
classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable
types of Homeowners Policies.
(iii) The inception dates and thereafter of all original
policies as described in (ii) above, whether new,
renewal or replacement, being policies which either
(a) become effective on or after 1st May, 1960,
or
(b) become effective before that date and contain
the Limited Exclusion Provision set out
above: provided this paragraph (2) shall not
be applicable to Family Automobile Policies,
Page 1 of 2
<PAGE>
Special Automobile Policies, or policies or
combination policies of a similar nature,
issued by the Company on New York risks,
until 90 days following approval of the
Limited Exclusion Provision by the
Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in
Clause (ii) of paragraph (2) and without in any way restricting
the operation of paragraph (1) of this Clause, it is understood
and agreed that for all purposes of this Agreement the original
liability policies of the Company (new, renewal and replacement)
affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual
Liability, Elevator Liability, Owners or Contractors
(including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or
Garage Liability)
shall be deemed to include, with respect to such coverages, from
the time specified in Clause (v) of this paragraph (3), the
following provision (specified as the Broad Exclusion Provision):
Broad Exclusion Provision*
It is agreed that the policy does not apply:
(i) Under any Liability Coverage, to injury, sickness,
-----------------
disease, death or destruction bodily injury or
-----------------------------
property damage:
(a) with respect to which an insured under the
policy is also an insured under a nuclear
energy liability policy issued by Nuclear
Energy Liability Insurance Association,
Mutual Atomic Energy Liability Underwriters
or Nuclear Insurance Association of Canada,
or would be an insured under any such policy
but for its termination upon exhaustion of
its limit of liability; or
(b) resulting from the hazardous properties of
nuclear material and with respect to which
(1) any person or organization is required to
maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law
amendatory thereof, or (2) the insured is, or
had this policy not been issued would be,
entitled to indemnity from the United States
<PAGE>
of America, or any agency thereof, under any
agreement entered into by the United States
of America, or any agency thereof, with any
person or organization.
(ii) Under any Medical Payments Coverage, or under any
Supplementary Payments Provision relating to
immediate medical or surgical relief first aid to
------------------------------------
expenses incurred with respect to bodily injury,
--------------
sickness, disease or death bodily injury and arising
--------------------------
out of the operation of a nuclear facility by any
person or organization.
(iii) Under any Liability Coverage, to injury, sickness,
-----------------
disease, death or destruction bodily injury or
-----------------------------
property damage resulting from the hazardous
properties of nuclear material if
(a) the nuclear material (1) is at any nuclear
facility owned by, or operated by or on
behalf of, an insured or (2) has been
discharged or dispensed therefrom.
NUCLEAR INCIDENT EXCLUSION CLAUSE -
LIABILITY - REINSURANCE - USA
(b) the nuclear material is contained in spent
fuel or waste at any time possessed,
handled, used, processed, stored, transported
or disposed of by or on behalf of an insured; or
(c) the injury, sickness, disease, death or
-----------------------------------
destruction bodily injury or property damage
-----------
arises out of the furnishing by an insured of
services, materials, parts or equipment in
connection with the planning, construction,
maintenance, operation or use of any nuclear
facility, but if such facility is located
within the United States of America, its
territories, or possessions or Canada, this
exclusion (c) applies only to injury to or
------------
destruction of property at such nuclear
---------------------------------------
facility property damage to such nuclear
--------
facility and any property thereat.
(iv) As used in this endorsement:
"hazardous properties" include radioactive, toxic or
explosive properties, "nuclear material" means
<PAGE>
source material, special nuclear material or
byproduct material; "source material", "special
nuclear material", and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954
or in any law amendatory thereof; "spent fuel" means
any fuel element or fuel component, solid or liquid,
which has been used or exposed to radiation in a
nuclear reactor, "waste" means any waste material
(1) containing byproduct material other than the
tailings or wastes produced by the extraction or
concentration of uranium or thorium from any ore
processed primarily for its source material content
and (2) resulting from the operation by any person
or organization of any nuclear facility included
within the definition of nuclear facility under
paragraph (a) or (b) thereof; "nuclear facility"
means
(a) any nuclear reactor,
(b) any equipment or device designed or used for
(1) separating the isotopes of uranium or
plutonium, (2) processing or utilizing spent
fuel, or (3) handling, processing or
packaging waste,
(c) any equipment or device used for the
processing, fabricating or alloying of
special nuclear material is at any time the
total amount of such material in the custody
of the insured at the premises where such
equipment or device is located consists of or
contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or
more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises of
place prepared or used for the storage or
disposal of waste
and includes the site on which any of the foregoing
is located, all operations conducted on such site
and all premises used for such operations; "nuclear
reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain
reactions or to contain a critical mass of
fissionable material;
With respect to injury or destruction of property
-------------------------------------------------
the word "injury" or "destruction" includes all
----------------------------------
forms of radioactive contamination of property.
"Property damage" includes all forms of radioactive
contamination of property.
<PAGE>
(v) The inception date and thereafter of all original
policies affording coverages specified in this
paragraph (3), whether new, renewal or replacement,
being policies which become effective on or after
1st May, 1960, provided this paragraph (3) shall not
be applicable to
1. Garage and Automobile Policies issued by the
Company on New York risks, or
2. statutory liability insurance required under
Chapter 90, General Laws of Massachusetts.
until 90 days following approval of the Broad
Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that
paragraphs (2) and (3) above are not applicable to original
liability policies of the Company in Canada and that with respect
to such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the
Canadian Underwriters Association or the Independent Insurance
Conference of Canada.
N.M.A. 1590
*Note. The words underlined in the Limited Exclusion
Provision and in the Broad Exclusion Provision shall apply only
in relation to original liability policies which include a
Limited Exclusion Provision or a Broad Exclusion Provision
containing those words.
Page 2 of 2
Exhibit 10(o)
STOCK PURCHASE AGREEMENT
among
FREMONT COMPENSATION INSURANCE COMPANY
FREMONT GENERAL CORPORATION
THE BUCKEYE UNION INSURANCE COMPANY
THE CONTINENTAL CORPORATION
and
CASUALTY INSURANCE COMPANY
Dated as of December 16, 1994
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS
ARTICLE II - SALE AND PURCHASE OF THE SHARES AND THE SENIOR NOTE .......... 7
2.1 Sale and Purchase of the Shares and the Senior Note.
2.2 Closing ......................................................... 7
2.3 Preparation of Balance Sheets and Adjustment of Purchase Price .. 8
ARTICLE III - REPRESENTATIONS AND WARRANTIES .............................
3.1 Representations and Warranties of the Seller and the Company .... 9
3.1.1 Organization of the Seller, Authority, etc..............
3.1.2 Organization of the Company and the Subsidiary ......... 9
3.1.3 Title to the Shares, Capitalization, etc................ 10
3.1.4 Conflicts. Consents, etc................................ 0
3.1.5 Financial Information................................... 11
3.1.6 Insurance............................................... 2
3.1.7 Litigation ............................................. 12
3.1.8 Compliance with Laws and Governmental Permits .......... 12
3.1.9 Tax Matters............................................. 2
3.1.10 Absence of Certain Changes.............................. 13
3.1.11 Assets and Properties .................................. 15
3.1.12 Contracts............................................... 17
3.1.13 Employee Benefit Plans and Related Matters; ERISA ...... 17
3.1.14 Affiliate Transactions.................................. 18
3.1.15 Brokers, Finders........................................ 18
3.1.16 No Improper Payments ................................... 19
3.1.17 Disclosure.............................................. 19
3.1.18 Insurance Regulatory Matters ........................... 19
3.1.19 Employment Matters...................................... 19
3.1.20 Powers of Attorney...................................... 20
3.1.21 Forms of Policy......................................... 20
3.1.22 Supplied Information.................................... 20
3.1.23 No Representation as to Certain Matters ................ 20
3.2 Representations and Warranties of Continental ................... 20
3.2.1 Organization of Continental, Authority, etc ............ 20
3.2.2 Conflicts, Consents, etc................................ 21
3.2.3 Organization of the Seller Ancillary Parties ........... 21
3.2.4 Reinsurance Receivables and Payables ................... 21
3.3 Representations and Warranties of the Buyer ..................... 22
3.3.1 Organization of the Buyer, Authority, etc .............. 22
3.3.2 Conflicts, Consents, etc ............................... 22
3.3.3 Brokers, Finders........................................ 22
3.3.4 Purchase for Investment ................................ 23
3.4 Representations and Warranties of Fremont General ............... 23
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
3.4.1 Organization of Fremont General. Authority etc.......... 23
3.4.2 Conflicts. Consents, etc................................ 23
3.4.3 Organization of the Buyer Ancillary Parties............. 24
ARTICLE IV - CERTAIN COVENANTS
4.1 Access to Information; Confidentiality .......................... 24
4.2 Conduct of Business of the Company and the Subsidiary, .......... 24
4.3 Excluded Business Arrangements .................................. 25
4.4 Profit Center Business Arrangements.............................. 26
4.5 Aggregate Excess Treaties ....................................... 27
4.6 Efforts to Consummate Transaction, etc .......................... 27
4.7 Preclosing E&Y Procedures........................................ 28
4.8 Capitalization................................................... 28
4.9 Hart-Scott-Rodino Filing......................................... 28
4.10 Hart-Scott-Rodino Filing ........................................ 28
4.11 Leases and Subleases ............................................ 28
4.12 Legal Staff...................................................... 28
4.13 Withdrawal from the Continental Pooling Agreement ............... 28
4.14 Outstanding Indebtedness ........................................ 29
4.15 Automobile Leases................................................ 29
ARTICLE V - CONDITIONS PRECEDENT .......................................... 29
5.1 Conditions to Obligations of Each Party ......................... 29
5.1.1 No Injunction, etc ....................................... 29
5.1.2 Consents and Governmental Approvals ...................... 29
5.2 Conditions to Obligations of the Buyer and Fremont General ......... 30
5.2.1 Representations, Performance, etc ...................... 30
5.2.2 No Material Adverse Change ............................. 30
5.2.3 Delivery of Shares ..................................... 30
5.2.4 Resignation of Directors ............................... 31
5.2.5 Ancillary Agreements ................................... 31
5.2.6 FIRPTA Certificate ..................................... 31
5.2.7 Opinions of Counsel .................................... 31
5.2.8 Approval of Board of Directors ......................... 31
5.2.9 Commissioner of Insurance Approvals and Other Consents . 31
5.2.10 Closing Portfolio Assets; Shareholders' Equity ......... 31
5.3 Conditions to Obligations of the Seller and Continental ......... 31
5.3.1 Representations, Performance, etc ...................... 31
5.3.2 Approval of Board of Directors ......................... 32
5.3.3 Opinions of Counsel .................................... 32
5.3.4 Delivery of Senior Note ................................ 32
5.3.5 Ancillary Agreements ................................... 32
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
ARTICLE VI - OTHER COVENANTS AND AGREEMENTS
6.1 Administrative Services ........................................ 32
6.2 Compliance with Agreements ..................................... 32
6.3 Expenses ....................................................... 33
6.4 Public Announcements............................................ 33
6.5 Post-Closing Access ............ ............................... 33
6.6 Post-Closing Notifications ..................................... 33
6.7 Tax Payments and Tax Returns ................................... 33
6.8 Employee Matters and Plans ..................................... 34
6.8.1 Retirement Plan........................................ 36
6.8.2 Savings Plan........................................... 36
6.8.3 Welfare Plans.......................................... 36
6.8.4 Nonqualified Arrangements ............................. 37
6.9 Transfer Taxes.................................................. 37
6.10 WCRB Arrangements............................................... 37
6.11 Exclusivity; Acquisition Proposals ............................. 37
6.12 Paid Reinsurance Recoverables................................... 38
6.13 Use of Continental's Names and Logos............................ 38
6.14 Reinsurance Treaties........................................... 38
6.15 NCCI Pool....................................................... 39
6.16 Financial Statements............................................ 39
6.17 Reinsurance Security............................................ 40
6.18 Cash and Suspense Items. ....................................... 40
6.19 Information Systems Access...................................... 40
6.20 Compliance with Insurance Approval.............................. 40
ARTICLE VII - SURVIVAL AND INDEMNIFICATION ............................... 40
7.1 Survival of Representations and Warranties......................... 40
7.2 Indemnification.................................................. 41
7.2.1 By the Seller and Continental ......................... 41
7.2.2 By Continental......................................... 41
7.2.3 By the Buyer and Fremont General....................... 41
7.2.4 Limitations............................................ 41
7.2.5 Indemnification Procedures............................. 42
7.2.7 Exclusive Remedy....................................... 43
ARTICLE VIII - TERMINATION................................................. 44
8.1 Termination........................................................ 44
8.2 Effect of Termination.............................................. 44
ARTICLE IX - MISCELLANEOUS................................................. 44
9.1 Notices...........................................................
9.2 Exclusivity of Representations and Warranties: Relationship between
the Parties ...................................................... 46
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
9.3 Further Assurances ......................................... 46
9.4 Governing Law; Submission to Jurisdiction .. ............... 46
9.5 Waiver of Punitive Damages ................................. 46
9.6 Assignment..................................................
9.7 No Third Party Beneficiaries ............................... 47
9.8 Modification; Waiver........................................
9.9 Entire Agreement ........................................... 47
9.10 Schedules...................................................
9.11 Severability ............................................... 47
9.12 Headings ................................................... 48
9.13 Counterparts ............................................... 48
EXHIBITS
Exhibit A -- Aggregate Excess of Loss Reinsurance Agreement
Exhibit B -- Assumption Reinsurance and Administration Agreement
Exhibit C -- Casualty Indemnity Reinsurance and Service Agreement
Exhibit D -- Casualty Quota Share Reinsurance and Service Agreement
Exhibit E -- Continental Indemnity Reinsurance and Service Agreement
Exhibit F -- Continental Quota Share Reinsurance and Service Agreement
Exhibit G -- Non-Competition Agreement
Exhibit H -- Power of Attorney
Exhibit I -- Senior Note
Exhibit J -- Stop Loss Reinsurance Agreement
Exhibit K -- September 30, 1994 Pro Forma Balance Sheet
Exhibit L -- September 30 Methodology
Exhibit M-1 -- Opinion of Debevoise & Plimpton (Los Angeles Office)
Exhibit M-2 -- Opinion of Debevoise & Plimpton (New York Office)
Exhibit M-3 -- Opinion of William F. Gleason, Jr.
Exhibit M-4 -- Opinion of Shefsky & Froelich
Exhibit N-1 -- Opinion of Wilson Sonsini Goodrich & Rosati
Exhibit N-2 -- Opinion of Chadbourne & Parke
Exhibit N-3 -- Opinion of Katten Muchin & Zavis
Exhibit O -- Administrative Services
Exhibit P -- Financial Statements
SCHEDULES
Schedule 1. 1(a) -- Knowledge (Seller)
Schedule 1.1 (b) -- Knowledge (Company and Subsidiary)
Schedule 3.1.2 -- Incorporation and Qualification Matters
-iv-
<PAGE>
TABLE OF CONTENTS
(continued)
Schedule 3.1.3 -- Title and Capitalization Matters
Schedule 3.1.4 -- Conflicts, Governmental Approvals and Consents
Schedule 3.1.5 -- Financing Condition; Undisclosed Liabilities
Schedule 3.1.6 -- Insurance
Schedule 3.1.7 -- Litigation
Schedule 3.1.8 -- Laws and Governmental Permits
Schedule 3.1.9(a) -- Tax Returns
Schedule 3.1.9(b) -- Payment of Taxes
Schedule 3.1.9(c) -- Tax Claims
Schedule 3.1.9(d) -- Audit of Tax Returns
Schedule 3.1.9(e) -- Tax Waivers or Extensions
Schedule 3.1.9(f) -- Tax Adjustments and Elections
Schedule 3.1.9(g) -- Tax Agreements
Schedule 3.1.9(h) -- Deferred Tax Asset
Schedule 3.1.10 -- Certain Changes
Schedule 3.1.11 (a) -- Assets and Properties
Schedule 3.1.11(b) -- Assets and Real Property
Schedule 3.1.12 -- Contracts
Schedule 3.1.12(c) -- Contracts--Defaults
Schedule 3.1.13(a) -- Employee Benefit Plans
Schedule 3.1.13(c) -- Benefit Arrangements
Schedule 3.1.14 -- Affiliate Transactions
Schedule 3.1.18 -- Insurance Regulatory Matters
Schedule 3.1.19 -- Employment Matters
Schedule 3.2.2 -- Conflicts, Governmental Approvals and Consents
(Continental)
Schedule 3.3.2 -- Conflicts, Governmental Approvals and Consents
(Buyer)
Schedule 3.4.2 -- Conflicts, Governmental Approvals and Consents
(Fremont General)
Schedule 4.2 -- Conduct of Business
Schedule 4.11 -- Leases and Subleases
schedule 4.12 -- Legal Staff
schedule 5.2.2 -- Personnel Losses
schedule 6.12 -- Paid Reinsurance Recoverables
schedule 6.14 -- Reinsurers
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 16, 1994, among Fremont
Compensation Insurance Company, a California insurance company (the "Buyer"),
Fremont General Corporation, a Nevada corporation ("Fremont General"), Casualty
Insurance Company, an Illinois insurance company (the "Company"), The Buckeye
Union Insurance Company, an Ohio insurance company (the "Seller"), and The
Continental Corporation, a New York corporation ("Continental").
WITNESSETH:
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock (the "Shares") of the Company; and
WHEREAS, the Seller wishes to sell the Shares to the Buyer, and the
Buyer wishes to purchase the Shares from the Seller, on the terms and conditions
and for the consideration described herein;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, agreements, representations and warranties made herein and the
mutual benefits to be derived herefrom,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following terms have the
respective meanings indicated. Terms defined in the singular or plural, as the
case may be, have the same respective meaning mutatis mutandis when used in the
plural or singular, as the case may be.
Actual Shareholders' Equity: the amount of shareholders' equity at the
time of the Closing.
Affiliate: the meaning specified in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended.
Aggregate Excess of Loss Reinsurance Agreement: the Aggregate Excess of
Loss Reinsurance Agreement, dated the Closing Date, among CIC, the Company and
the Subsidiary, substantially in the form attached hereto as Exhibit A.
Agreement: this Stock Purchase Agreement, including the Disclosure
Statement and Exhibits hereto.
Ancillary Agreements: the Aggregate Excess of Loss Reinsurance
Agreement, the Assumption Reinsurance and Administration Agreement, the Casualty
Quota Share Reinsurance and Service Agreement, the Casualty Indemnity
Reinsurance and Service Agreement, the Continental Indemnity Reinsurance and
Service Agreement, the Continental Quota Share Reinsurance and Service
Agreement, the Non-Competition Agreement, the Non-Solicitation Agreement, the
Powers of Attorney, the Senior Note and the Stop Loss Reinsurance Agreement.
<PAGE>
Assumption Reinsurance and Administration Agreement: the Assumption
Reinsurance and Administration Agreement substantially in the form attached
hereto as Exhibit B.
Balance Sheet: the September 30 Balance Sheet, the Estimated Closing
Balance Sheet or the Closing Balance Sheet, as the case may be.
Benefit Arrangements: the meaning specified in Section 3.1.13(c).
Business Day: a day of the year on which banks are not required or
authorized to close in New York City.
Buyer: the meaning specified in the introductory paragraph.
Buyer Ancillary Parties: the parties to the Ancillary Agreements which
are Affiliates of Fremont General excluding the Buyer, the Company and the
Subsidiary.
Buyer Indemnitees: the Buyer, any Affiliate of the Buyer (including
after the Closing, the Company and the Subsidiary), any of their respective
directors, officers and employees, and each agent, advisor or representative of
any of the foregoing.
Buyer's Disclosure Statement: the Disclosure Statement, dated as of the
date hereof, delivered by Fremont General and the Buyer to Continental and the
Seller.
Casualty Indemnity Reinsurance and Service Agreement: the Indemnity
Reinsurance and Service Agreement, dated the Closing Date, among CIC, Boston Old
Colony Insurance Company, National Ben Franklin Insurance Company and the
Company, substantially in the form attached hereto as as Exhibit C.
Casualty Quota Share Reinsurance and Service Agreement: the Quota Share
Reinsurance and Service Agreement, dated as of the Closing Date, among CIC, the
Profit Center Affiliates and the Company, substantially in the form attached
hereto as Exhibit D.
CIC: Continental Insurance Company, a New Hampshire insurance company.
Closing: the meaning specified in Section 2.2.
Closing Balance Sheet: the meaning specified in Section 2.3(d).
Closing Date: the meaning specified in Section 2.2.
Closing Purchase Price: the meaning specified in Section 2.1.
Closing Tax Reserves: reserves and accruals for taxes required to be
reflected on the Closing Balance Sheet in accordance with the relevant
accounting standards set forth in this Agreement.
Code: the Internal Revenue Code of 1986, as amended.
Company: the meaning specified in the introductory paragraph.
-2-
<PAGE>
Company Proprietary Information: any proprietary product or marketing
information, trade secret, customer list, experience rating program or system or
other similar property or materials owned by the Company or the Subsidiary.
Confidential Information Memorandum: the Confidential Information
Memorandum, dated June 1994, prepared by Goldman, Sachs & Co. for use in
connection with the sale of the Company.
Confidentiality Agreement: the Confidentiality Agreement, dated July 5,
1994, between Continental and Fremont General.
Consent: any consent, approval or authorization of any third party other
than any court or governmental or regulatory authority.
Continental: the meaning specified in the introductory paragraph.
Continental Indemnity Reinsurance and Service Agreement: the Indemnity
Reinsurance and Service Agreement, dated the Closing Date, among CIC, an
administrator and the Company, substantially in the form attached hereto as
Exhibit E.
Continental Pool: the affiliated group of U.S. property and casualty
insurance companies that are direct and indirect subsidiaries of Continental and
parties to the Continental Pooling Agreement.
Continental Pooling Agreement: the Amended and Restated
Intercompany-Pooling Agreement, effective January 1, 1991, as subsequently
amended, among the members of the Continental Pool.
Continental Quota Share Reinsurance and Service Agreement: the Quota
Share Reinsurance and Service Agreement, dated as of the Closing Date, among
CIC, an administrator, the Company and the Subsidiary, substantially in the form
attached hereto as Exhibit F.
Continuing Employee: an employee of the Company or the Subsidiary on the
Closing Date.
Contract: any mortgage, indenture, loan agreement, note, bond, deed of
trust, other agreement or obligation for the borrowing of money or the obtaining
of credit, lease or other agreement, contract, license, franchise or instrument.
Damages: any losses, liabilities, damages, fines, sanctions, costs
(including court costs) and expenses (including, without limitation, interest,
penalties and reasonable attorneys', accountants', consultants' and expert
witnesses' fees and expenses), provided, however, that "Damages" shall not
include lost profits, consequential damages or, unless incurred by an Indemnitee
as a result of a third-party claim for punitive damages, punitive damages.
E&Y: Ernst & Young, LLP, independent public accountants for the Buyer
and Fremont General.
Employees: any employee or former employee of the Company or the
Subsidiary.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
-3-
<PAGE>
Estimated Closing Balance Sheet: the meaning specified in Section
2.3(b).
Excluded Business: After giving effect to the transactions described in
Section 4.13, all insurance policies written by the Company or the Subsidiary,
and all reinsurance and assignment and assumption agreements entered into by the
Company or the Subsidiary, and the liabilities associated therewith, whether
known or unknown, excluding insurance policies, reinsurance agreements and
contracts relating to (a) workers' compensation directly written by the Company
or the Subsidiary in the States of Illinois, Wisconsin, Indiana and California,
(b) the Profit Center Business, (c) workers' compensation assigned risk service
business in Illinois and (d) the involuntary assigned risk business resulting
from (a) and (b) above.
Fremont General: the meaning specified in the introductory paragraph.
Fremont's Savings Plan: Fremont General Corporation and Affiliated
Companies Investment Incentive Plan.
Fremont's Welfare Plan: the meaning specified in Section 6.8.3(b).
GAAP: United States generally accepted accounting principles.
Governmental Approval: any consent, waiver, approval, authorization,
license, permit, order, filing, registration or qualification of or with any
court or governmental or regulatory authority.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
Indemnitee: a Buyer Indemnitee or a Seller Indemnitee, as the case may
be, entitled to indemnification under this Agreement.
Indemnitor: a party obligated to indemnify an Indemnitee under this
Agreement.
Independent Accountants: Arthur Andersen or such other independent
public accountants or actuaries mutually agreed upon by the Buyer and
Continental.
Insurance Arrangements: insurance contracts (including runoff contracts,
reinsurance and retrocessions) entered into by the Company or the Subsidiary in
the ordinary course of business.
IRS: the Internal Revenue Service.
Knowledge: as to any Person, the actual knowledge of such Person
including (a) in the case of the Seller, the actual knowledge of (i) all
officers of the Seller who are vice president or senior and (ii) the Persons
listed on Schedule 1.1 (a) of the Seller's Disclosure Statement, and (b) in the
case of the Company and the Subsidiary, the employees listed on Schedule 1.1 (b)
of the Seller's Disclosure Statement.
Law: any decree, law, statute, rule or regulation.
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Lien: any lien, pledge, charge, security interest, encumbrance, option
or other right or claim.
Material Adverse Effect: a material adverse effect on the assets,
business, financial condition or results of operations of the Company and the
Subsidiary, taken as a whole.
Milliman & Robertson Report: the report dated June 27, 1994 prepared for
Continental by Milliman & Robertson, Inc. Notwithstanding any provision in this
Agreement to the contrary, no party other than Continental shall accrue,
because of the execution of the Transaction Documents or the transactions
contemplated hereby and thereby, any rights against Milliman & Robertson, Inc.
for causes of action arising out of or related to the Milliman & Robertson
Report.
Non-Competition Agreement: the Non-Competition Agreement, dated as of
the Closing Date, between Continental and Fremont General, substantially in the
form attached hereto as Exhibit G.
Non-Solicitation Agreement: the Non-Solicitation Agreement, dated the
date of this Agreement, between Fremont General and Continental.
Organizational Documents: as to any Person, its certificate or articles
of incorporation, by-laws and other organizational documents.
Person: any natural person, firm, partnership, association, corporation,
company, trust, business trust, governmental authority or other entity.
Plans: the meaning specified in Section 3.1.13(a).
Portfolio Assets: the cash and investments (which shall consist
exclusively of cash, U.S. Treasury securities and accrued interest receivable
thereon, be reasonably acceptable to the Buyer and have a carrying value at
least equal to their fair market value as of the date of the Estimated Closing
Balance Sheet or the Closing Balance Sheet, as the case may be) to be held by
the Company on the Closing Date and to be included on the Closing Balance Sheet.
Positive Adjustment: the meaning specified in Section 2.3(f).
Power of Attorney: the Power of Attorney substantially in the form
attached hereto as Exhibit H.
Pre-Closing E&Y Procedures: the meaning specified in Section 4.7.
Profit Center Affiliates: Boston Old Colony Insurance Company, a
Massachusetts insurance company, National Ben Franklin Insurance Company of
Illinois, an Illinois insurance company and Kansas City Fire and Marine
Insurance Company, a Missouri insurance company.
Profit Center Business: (i) the runoff and in-force retrospective, flat
dividend and guaranteed cost or sliding scale workers' compensation insurance
policies as of the Closing Date written for the benefit of the Company by a
subsidiary or subsidiaries of Continental in the State of Wisconsin, (ii) the
runoff and in-force guaranteed cost workers' compensation insurance policies as
of the Closing Date written for the benefit of the Company by a subsidiary or
subsidiaries of Continental in the State of Michigan and (iii) the new and
renewal retrospective, flat dividend and guaranteed cost workers' compensation
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insurance policies written for the benefit of the Company by a subsidiary or
subsidiaries of Continental in the states respectively referred to in clauses
(i) and (ii).
Related Persons: the meaning specified in Section 3.1.13(a).
Restructuring Transactions: the transactions contemplated by Sections
4.3, 4.4, 4.5 and 4.13.
Security: the meaning specified in Section 6.17.
Seller: the meaning specified in the introductory paragraph.
Seller Ancillary Parties: the parties to the Ancillary Agreements which
are Affiliates of Continental, excluding the Seller, the Company and the
Subsidiary.
Seller Indemnitees: the Seller, any Affiliate of the Seller, any of
their respective directors, officers and employees, and each agent, advisor or
representative of any of the foregoing.
Seller's Accountants: the Seller's independent public accountants.
Seller's Disclosure Statement: The Disclosure Statement, dated as of the
date hereof, delivered by Continental, the Seller and the Company to Fremont
General and the Buyer.
Seller's Retirement Plan: The Retirement Plan of The Continental
Corporation.
Seller's Savings Plan: The Incentive Savings Plan of The Continental
Corporation.
Senior Note: the floating rate Senior Note due the third anniversary of
the Closing Date of Fremont General in the aggregate principal amount of
$25,000,000 substantially in the form attached hereto as Exhibit I.
September 30 Balance Sheet: the meaning specified in Section 2.3(a).
September 30 Methodology: the meaning specified in Section 2.3(a).
Shares: the meaning specified in the first WHEREAS clause of this
Agreement.
Stop Loss Reinsurance Agreement: the Stop Loss Reinsurance Agreement,
dated the Closing Date, among CIC, the Company and the Subsidiary substantially
in the form attached hereto as Exhibit J.
Subsidiary: The Workers' Compensation and Indemnity Company of
California, a California insurance company, all of the capital stock of which is
owned by the Company.
Tax: any federal, state, local or foreign income, alternative, minimum,
accumulated earnings, personal holding company, franchise, capital stock,
profits, windfall profits, gross receipts, sales, use, value added, transfer,
registration, stamp, premium, excise, customs duties, severance, environmental
(including taxes under section 59A of the Code), real property, personal
property, ad valorem, occupancy, license, occupation, employment, payroll,
social security, disability, unemployment, workers'
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compensation, withholding, estimated or other similar tax, duty, fee,
assessment or other governmental charge or deficiencies thereof (including all
interest and penalties thereon and additions thereto).
Tax Return: any return, report, declaration, form, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Transaction Documents: this Agreement and the Ancillary Agreements.
Treasury Regulations: the regulations prescribed under the Code.
U.S. Dollars and the sign "$": lawful money of the United States of
America, Welfare Plans: any welfare benefit plan within the meaning of Section
3(1) of ERISA.
WCRB: the Workers' Compensation Reinsurance Bureau.
ARTICLE II
SALE AND PURCHASE OF THE SHARES AND THE SENIOR NOTE
2.1 Sale and Purchase of the Shares and the Senior Note. Subject to the
terms and conditions of this Agreement, at the Closing provided for in Section
2.2, (a) the Seller will sell the Shares to the Buyer and the Buyer will
purchase the Shares from the Seller for a purchase price of $250,000,000 (the
"Closing Purchase Price"), subject to adjustment as provided in Section 2.3, and
(b) Fremont General will deliver the Senior Note to the Seller and the Seller
will purchase the Senior Note from Fremont General for a purchase price of
$25,000,000.
2.2 Closing. The closing (the "Closing") of the sale and purchase of
the Shares shall take place at the offices of Debevoise & Plimpton in New York,
New York at 10:00 a.m., New York City time, on the fifth Business Day after the
conditions set forth in Article V shall have been duly satisfied or waived, or
at such other place or time or on such other date as the parties hereto may
agree in writing. The time and date upon which the Closing occurs is herein
called the "Closing Date." Simultaneously at the Closing:
(i) the Seller will deliver to the Buyer, free and clear of any
Liens (except for those created by any action of, including any agreement
entered into by, the Buyer or its Affiliates), one or more certificates
representing the Shares, duly endorsed in blank or accompanied by stock
powers or other instruments of transfer duly executed in blank, and bearing
or accompanied by all requisite stock transfer stamps;
(ii) the Buyer will deliver to the Seller the Closing Purchase
Price by wire transfer of immediately available funds to such account as
shall have been designated by the Seller;
(iii) Fremont General will deliver to the Seller the Senior Note,
dated the Closing Date and duly registered in the name of the Seller; and
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(iv) the Seller will deliver to Fremont General $25,000.000 by wire
transfer of immediately available funds to such account as shall have been
designated by Fremont General.
2.3 Preparation of Balance Sheets and Adjustment of Purchase Price.
(a) Attached as Exhibit A is a pro forma consolidated balance
sheet of the Company and the Subsidiary as of September 30, 1994 (the "September
30 Balance Sheet"), which gives effect to the Restructuring Transactions as if
such transactions had occurred on or prior to September 30, 1994. The September
30 Balance Sheet has been prepared in accordance with GAAP and the accounting
principles and methodology used in the preparation thereof (the "September 30
Methodology") have been reviewed and approved by the Buyer. The September 30
Methodology is described on the attached Exhibit L.
(b) No later than 14 days prior to the Closing Date, Continental
shall deliver to the Buyer a draft of the Closing Balance Sheet as of the
projected Closing Date (the "Estimated Closing Balance Sheet") and a list of the
Portfolio Assets assuming the occurrence of the Restructuring Transactions prior
to the Closing Date. The Estimated Closing Balance Sheet shall be prepared in
accordance with GAAP and in a manner consistent with the September 30
Methodology.
(c) If the Buyer believes that the Estimated Closing Balance
Sheet (including the valuation of the Portfolio Assets) has not been prepared in
accordance with GAAP and in a manner consistent with the September 30
Methodology, the parties shall confer in good faith to attempt to agree on such
matters.
(d) On the Business Day immediately preceding the Closing Date,
Continental shall deliver to the Buyer an updated draft of the Estimated Closing
Balance Sheet (the "Closing Balance Sheet"), including the fair market value of
the Portfolio Assets marked to market as of such date. The Closing Balance Sheet
shall be prepared in accordance with GAAP and in a manner consistent with the
September 30 Methodology. If the Buyer believes that the Closing Balance Sheet
has not been prepared in accordance with GAAP and in a manner consistent with
the September 30 Methodology, the parties shall confer in good faith to attempt
to agree on such matters. Prior to the Closing Date, the Portfolio Assets of the
Company will be adjusted by Continental as necessary so that the Closing Balance
Sheet reflects shareholders' equity of $201,780,000.
(e) Following the Closing, E&Y will perform an audit (the
"Acquisition Audit") of the Closing Balance Sheet consistent with GAAP and the
September 30 Methodology at the expense of the Buyer. Immediately following the
Closing Date, Continental shall make available to the Buyer and E&Y all work
papers prepared or used in connection with the preparation of the Closing
Balance Sheet. After the Buyer's review of the Acquisition Audit of the Closing
Balance Sheet if, within 60 days of the Closing Date, the Buyer provides notice
to Continental that it disagrees with the Closing Balance Sheet, the parties
shall confer in good faith to attempt to agree as to such matters. If the
parties fail to agree on such matters within 30 days following the receipt by
Continental of the Buyer's notice of disagreement, then, at the request of
Continental or the Buyer, the Independent Accountants shall make the
determination of what, if any, changes are required in connection with the
finalization of the Closing Balance Sheet. The fees and expenses of the
Independent Accountants shall be borne 50% by Continental and 50% by the Buyer.
The revision of the Closing Balance Sheet as agreed to by the parties or made by
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the Independent Accountants in accordance with this Section 2.3(e) shall be
final and binding upon all parties for purposes of this Agreement.
(f) If the Acquisition Audit, as finally determined pursuant
to paragraph (e) above. shows that the Actual Shareholders' Equity was more
than $250,000 greater or less than S201,780,000, then a post-Closing adjustment
to the Closing Purchase Price will be made by either the Buyer or the Seller
pursuant to paragraph (g) below. In such event, the Buyer shall pay in cash to
the Seller the amount by which the Actual Shareholders' Equity exceeded
$201,780,000 (the "Positive Adjustment") or the Seller shall pay in cash to the
Buyer the amount by which $201,780.000 exceeded the Actual Shareholders'
Equity; provided, however, that if the Positive Adjustment is more than
$5,000,000, then the Buyer will pay $5,000,000 in cash and will return
Portfolio Assets with a value (calculated in accordance with the September 30
Methodology as if the date of transfer were a balance sheet date) equal to the
difference between the Positive Adjustment and $5,000,000.
(g) Any adjustment to the Closing Purchase Price made pursuant
to Sections 2.3(e) and (f) shall be paid by the Seller to the Buyer or by the
Buyer to the Seller, as the case may be, within two Business Days after the
final agreement of the parties or the final determination of the Independent
Accountants. Any such payment will be made by wire transfer of immediately
available funds to such account as shall have been designated by the Seller or
the Buyer, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Seller and the Company. Each
of the Seller and the Company represents and warrants to the Buyer and Fremont
General as of the date of this Agreement and as of the Closing Date as follows:
3.1.1 Organization of the Seller, Authority, etc. The Seller
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Ohio, and has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it will be a party, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by the Seller of this Agreement and the Ancillary
Agreements to which it will be a party, the performance of the Seller's
obligations hereunder and thereunder and the consummation by the Seller of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action of the Seller. The Seller has duly executed and
delivered this Agreement and on the Closing Date will have duly executed and
delivered the Ancillary Agreements to which it is a party. This Agreement
constitutes, and each such Ancillary Agreement when so executed and delivered
will constitute, the legal, valid and binding obligations of the Seller
enforceable against the Seller in accordance with their respective terms.
3.1.2 Organization of the Company and the Subsidiary. Each of
the Company and the Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation as set forth in Schedule 3. 1.2 of the Seller's Disclosure
Statement, and has all requisite corporate power and authority to conduct its
present business as now being conducted, and to own or lease and to operate its
properties, as and in the places where such business is conducted and such
properties are owned, leased or operated. The Seller has caused each of
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the Company and the Subsidiary to deliver to the Buyer complete and correct
copies of its Organizational Documents as in effect on the date hereof. The
Seller has made available to the Buyer all corporate minute and stock ledger
books of the Company and the Subsidiary.
3.1.3 Title to the Shares, Capitalization, etc.
(a) Title. The Seller has good and valid title to the
Shares, free and clear of any Lien, except for this Agreement. As of the Closing
Date, the Seller shall have the full legal right, power and authority to sell,
assign, transfer and deliver the Shares to the Buyer free and clear of any Lien,
except for those created by any action of, including any agreement entered into
by, the Buyer or its Affiliates. Upon the delivery of and payment for the Shares
at the Closing as provided for in this Agreement, the Buyer will acquire good
and valid title to the Shares, free and clear of any Lien, except for those
created by any action of, including any agreement entered into by, the Buyer or
its Affiliates.
(b) Authorized Capital Stock. The number of authorized
shares of capital stock, including the classes and par values thereof, of the
Company and the Subsidiary, the number of such shares which are issued and the
number of such shares owned by the Seller or the Company are as set forth in
Schedule 3.1.3 of the Disclosure Statement. The Shares constitute all of the
issued and outstanding capital stock of the Company, have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
preemptive or similar rights on the part of any holder of any class of
securities of the Company except as provided by law. No subscriptions, options,
warrants, conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating the Company or the Subsidiary,
contingently or otherwise, to issue or sell any shares of capital stock of any
class or any securities convertible into or exchangeable for any such shares,
are outstanding, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of the Company or
the Subsidiary to repurchase, redeem or otherwise acquire any outstanding shares
or other equity interests of the Company or the Subsidiary.
(c) Interest in Subsidiaries. As of the Closing Date,
the Company shall have no equity interest in any entity other than the
Subsidiary. The Company owns free and clear of any Lien all of the issued shares
of capital stock of the Subsidiary and such shares have been duly authorized and
validly issued, and are fully paid and nonassessable.
3.1.4 Conflicts, Consents, etc.
(a) The execution, delivery and performance by the
Seller of this Agreement and each of the Ancillary Agreements to which it will
be a party and the consummation of the transactions contemplated hereby and
thereby, do not and will not conflict with, result in a violation or breach of
or default under (with or without the giving of notice or the lapse of time or
both), create in any other Person a right or claim of termination or amendment,
or require modification, acceleration or cancellation of, or result in the
creation of any Lien (or any obligation to create any Lien) upon any of the
properties or assets of the Company and the Subsidiary under, (i) any Law
applicable to the Seller, the Company or the Subsidiary, (ii) any provision of
any of the Organizational Documents of the Seller, the Company or the
Subsidiary, (iii) any Contract set forth in Schedule 3.1.12, or (iv) violate or
result in the revocation or suspension of any Governmental Approval except in
each case under the foregoing clauses (i), (iii) and (iv) as set forth in
Schedule 3.1.4 of the Disclosure Statement and except in the foregoing clauses
(i) and (iv) for such conflicts, violations, defaults and other actions that
would not.
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individually or in the aggregate, have a Material Adverse Effect or a material
adverse effect on the ability of the Seller, the Company or the Subsidiary to
consummate the transactions contemplated hereby.
(b) No Governmental Approval or Consent is required to
be obtained or made by any of the Seller, the Company or the Subsidiary in
connection with the execution and delivery of this Agreement and each of the
Ancillary Agreements to which it will be a party, or the consummation of the
transactions contemplated hereby or thereby, except (i) as set forth in Schedule
3.1.4 of the Seller's Disclosure Statement and (ii) for any Governmental
Approval or other Consent the failure of which to be obtained would not,
individually or in the aggregate, have a Material Adverse Effect or a material
adverse effect on the ability of the Seller, the Company or the Subsidiary to
consummate the transactions contemplated hereby.
3.1.5 Financial Information.
(a) The Seller has delivered to the Buyer the September
30 Balance Sheet and, as of the Closing Date, will have delivered to the Buyer
the Estimated Closing Balance Sheet and the Closing Balance Sheet on the dates
specified in Sections 2.3(b) and 2.3(d), respectively.
(b) Subject to Section 3.1.23, as of the date of
delivery, the September 30 Balance Sheet is complete and correct and presents
fairly in all material respects the consolidated financial condition of the
Company as of the date thereof in accordance with GAAP and the September 30
Methodology after giving effect to the Restructuring Transactions as if such
transactions shall have occurred on or prior to September 30, 1994, except as
provided in Schedule 3.1.5 of the Seller's Disclosure Statement.
(c) Subject to Section 3.1.23 and except (i) as and to
the extent reflected or reserved against in the September 30 Balance Sheet, or
(ii) as disclosed in Schedule 3.1.5 of the Seller's Disclosure Statement, the
Company and the Subsidiary did not have, as of September 30, 1994, any
liabilities or obligations that are material to the business or financial
condition of the Company and the Subsidiary taken as a whole, which were
required to be reflected or reserved against in the September 30 Balance Sheet
in accordance with GAAP or the September 30 Methodology and which were not so
reflected or reserved against.
(d) At such time as the Closing Balance Sheet is
delivered to the Buyer, subject to Section 3.1.23 and except (i) as and to the
extent reflected or reserved against in the Closing Balance Sheet, (ii) as
disclosed in Schedule 3.1.5 of the Seller's Disclosure Statement or (iii) as and
to the extent taken into account by the Acquisition Audit and agreed to by the
Seller and Continental and provided for in an adjustment to the Closing Purchase
Price, if any, the Company and the Subsidiary did not have, as of the date of
such balance sheet, any liabilities or obligations that are material to the
business or financial condition of the Company and the Subsidiary taken as a
whole, which were required to be reflected or reserved against in the Closing
Balance Sheet in accordance with GAAP and the September 30 Methodology and which
were not so reflected or reserved against.
(e) The historical policy year financial information
contained in the Confidential Information Memorandum has been prepared in
accordance with Continental's actuarial and accounting policies applied on a
consistent basis.
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3.1.6 Insurance. Schedule 3.1.6 of the Seller's Disclosure
Statement contains a list of all of the in-force primary, excess and umbrella
policies of general liability, property, auto, workers' compensation, directors'
and officers' liability and other forms of insurance providing insurance
coverage for the properties, operations and affairs of the Company and the
Subsidiary as of the date hereof, including declaration pages thereto. As of the
date hereof, each of such policies is in full force and effect and no notice of
termination of any such policy has been received by the Company or the
Subsidiary.
3.1.7 Litigation. Except as set forth in Schedule 3.1.7 of the
Seller's Disclosure Statement, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against or involving the Company or the Subsidiary. There are no
actions, suits or proceedings pending or, to the Knowledge of the Seller or the
Company, threatened against the Company or the Subsidiary, except as set forth
in Schedule 3.1.7 of the Seller's Disclosure Statement. There is no action, suit
or proceeding pending or, to the Knowledge of the Seller or the Company,
threatened against the Seller or the Company that questions the validity of the
Transaction Documents or of any action taken or to be taken by the Seller and
the Company in connection therewith or the consummation by the Seller and the
Company of the transactions contemplated thereby.
3.1.8 Compliance with Laws and Governmental Permits.
(a) Laws. Except as set forth in Schedule 3.1.8 of the
Seller's Disclosure Statement, neither the Company nor the Subsidiary is in
violation of, or default under, any Law, order or judgment nor has the Seller,
the Company or the Subsidiary received any notice or has Knowledge that the
Company or the Subsidiary is in violation of, or default under, any Law, order
or judgment which violations and defaults would, individually or in the
aggregate, have a Material Adverse Effect.
(b) Governmental Approvals.
(i) Except with respect to the Profit Center
Business, each of the Company and the Subsidiary has all Governmental Approvals
required to conduct its present business as now being conducted, other than,
with respect to Governmental Approvals other than insurance licenses, those the
failure of which to be held would not, individually or in the aggregate, have a
Material Adverse Effect, and all such Governmental Approvals are in full force
and effect;
(ii) Each of the Company and the Subsidiary is in
material compliance with all such Governmental Approvals held by it. Except as
set forth in Schedule 3.1.8 of the Seller's Disclosure Statement, no action,
claim, suit or proceeding is pending or, to the Seller's or the Company's
Knowledge, threatened to revoke or terminate any of such Governmental Approvals
or declare any of them invalid, which action, claim, suit or proceeding would,
individually or in the aggregate, have a Material Adverse Effect; and
(iii) Schedule 3.1.8 of the Seller's Disclosure
Statement sets forth the jurisdictions in which the Company and the Subsidiary
are licensed to do business.
3.1.9 Tax Matters.
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(a) Except as set forth in Schedule 3.1.9(a) of the
Seller's Disclosure Statement, (i) all material Tax Returns relating to the
Company and the Subsidiary or the business or assets thereof that were required
to be filed on or before the Closing Date have been or as of the Closing Date
will have been duly and timely filed and (ii) neither the Company nor the
Subsidiary is currently the beneficiary of any extension of time within which to
file any Tax Return.
(b) Except as set forth on Schedule 3.1.9(b) of the
Seller's Disclosure Statement, (i) all Taxes that are or may become payable by
either of the Company or the Subsidiary or chargeable as a Lien upon its assets
(whether or not required to be shown on any Tax Return) as of the Closing Date
have been or shall have been duly and timely paid or have been properly
reflected in the Closing Tax Reserves and (ii) the Company has duly and timely
withheld all Taxes required to be withheld in connection with the business or
assets of the Company, and such withheld Taxes have been either duly and timely
paid to the proper governmental authorities or properly set aside in accounts
for such purpose.
(c) Except as set forth on Schedule 3.1.9(c) of the
Seller's Disclosure Statement, with respect to all taxable periods as to which
the statute of limitations for assessment of Taxes has not expired, there has
been no material claim or issue (other than a claim or issue that has been
finally settled) concerning any liability for Taxes of the Company or the
Subsidiary asserted, raised or threatened by any governmental authority in
writing.
(d) Schedule 3.1.9(d) of the Seller's Disclosure
Statement lists all Tax Returns that have been filed with respect to the Company
and the Subsidiary for all taxable periods with respect to which the statute of
limitations for assessment of Taxes has not expired and that have not yet been
audited or are currently the subject of audit.
(e) Except as set forth on Schedule 3.1.9(e) of the
Seller's Disclosure Statement, neither the Company nor the Subsidiary has (i)
waived any statute of limitations or (ii) agreed to any extension of the period
for assessment or collection, which waiver or agreement is currently in force.
(f) Except as set forth on Schedule 3.1.9(f) of the
Seller's Disclosure Statement, (i) there are no outstanding adjustments for
income Tax purposes applicable to the Company or the Subsidiary required as a
result of changes in methods of accounting effected on or before the Closing
Date and (ii) there are no material elections for income Tax purposes made by
the Company or the Subsidiary that are currently in force or by which the
Company or the Subsidiary will be bound following the Closing Date.
(g) Except as set forth in Schedule 3.1.9(g) of the
Seller's Disclosure Statement, neither the Company nor the Subsidiary (i) is a
party to or bound by or has any obligation under any Tax allocation, sharing,
indemnity or similar agreement or arrangement, and (ii) is not or has not been a
member of any group of companies filing a consolidated, combined or unitary
income Tax Return.
3.1.10 Absence of Certain Changes. Except as contemplated by
this Agreement, as set forth in Schedule 3.1.10 of the Seller's Disclosure
Statement or as permitted after the date hereof pursuant to Section 4.2, since
September 30, 1994, neither the Company nor the Subsidiary has:
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(a) declared, set aside, made or paid any dividend or
other distribution in respect of its capital stock or otherwise purchased or
redeemed, directly or indirectly, any shares of its capital stock;
(b) issued or agreed to issue any shares of any class of
its capital stock, or any securities convertible into or exchangeable for any
such shares, or any options, warrants or rights to acquire any such shares;
(c) subject to Section 4.14, incurred any indebtedness
for borrowed money, issued any debt securities or prepaid any debt, except for
repurchase agreements, reverse repurchase agreements or dollar reverse
repurchase transactions, in each case entered into in the ordinary course of
business consistent with prior practice or in connection with the management of
investment portfolios;
(d) mortgaged, pledged or otherwise subjected to any
Lien, any of its properties or assets, tangible or intangible, except in the
ordinary course of business consistent with prior practice, and not, in any
individual case, for an amount greater than $50.000 or, in the aggregate, for an
amount greater than $100.000;
(e) forgiven, canceled, compromised, waived or released
any debts, claims (excluding claims under insurance policies written by the
Company and the Subsidiary) or rights, except for debts, claims and rights
against Persons forgiven, canceled, compromised, waived or released in the
ordinary course of business consistent with prior practice, and not, in any
individual case, for an amount greater than $50.000 or, in the aggregate, for an
amount greater than $100,000.
(f) (i) increased in any manner the compensation of any
officer, director, employee, sales representative, agent or consultant (other
than insurance agents or producers) with annual total cash compensation in
excess of $75.000 except normal increases in accordance with established prior
practice; (ii) paid or agreed to pay to any such Person any pension or
retirement allowance not required by any existing plan or agreement; or (iii)
amended (except as required by law) any employee agreement or any incentive
compensation, profit sharing, stock purchase, stock option, stock appreciation
rights, savings, consulting, deferred compensation, retirement, pension or other
"fringe benefit" plan or arrangement with or for the benefit of any such Person;
(g) suffered any damage, destruction or loss (whether or
not covered by insurance), or any strike or other employment-related problem, or
any change in relations with or any loss of a supplier, customer or employee,
that, individually or in the aggregate, would have or result in a Material
Adverse Effect;
(h) acquired or disposed of any material assets or
properties, or entered into any agreement or other arrangements for any such
acquisition or disposition, except for acquisitions or dispositions of
securities for investment and adjustments to Portfolio Assets in connection with
the preparation of the Closing Balance Sheet and except in the ordinary course
of business consistent with prior practice and not, in any individual case, for
an amount greater than $50,000 or, in the aggregate, for an amount greater than
$100,000;
(i) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body other
than in the ordinary course of business consistent with prior
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practice and not, in any individual case, for an amount greater than $50,000 or,
in the aggregate, for an amount greater than $100,000;
(j) entered into any transaction, contract or commitment
other than in the ordinary course of business and not, in any individual case,
for an amount greater than $100,000, or paid or agreed to pay any legal,
accounting, brokerage or finder's fees, Taxes or other expenses in connection
with, or incurred any severance pay obligations by reason of, this Agreement or
the transactions contemplated hereby for which the Buyer would have any
liability;
(k) suffered any Material Adverse Effect; or
(1) received any notice of termination of (i) any
contract, policy, lease or other agreement, in each case with respect to which
the aggregate amount that would have been prior to such termination reasonably
expected to be received or paid thereunder in the future exceeds $100,000 or
(ii) any insurance agency agreements.
3.1.11 Assets and Properties.
(a) Title. Each of the Company and the Subsidiary has
good and valid title to all the respective material assets and properties owned
by it and valid and subsisting leasehold interests in all material assets and
properties leased or subleased by it. All of such assets and properties owned by
the Company or the Subsidiary and such leasehold interests held by the Company
or the Subsidiary are free and clear of all Liens, easements, covenants, rights
of way or title imperfections, other than (i) those set forth in Schedule
3.1.11(a) of the Seller's Disclosure Statement or disclosed in any document
provided to the Buyer as set forth in paragraph (b) of this Section 3.1.11 or
(ii) those that do not materially affect the use or value thereof to the Company
or the Subsidiary. Each of the Company and the Subsidiary has quiet enjoyment of
the leasehold interests in real property leased or subleased by it.
(b) Schedule of Assets and Real Property. Schedule 3.1.1
1(b) of the Seller's Disclosure Statement sets forth a list of (i) all real
property owned by the Company or the Subsidiary, (ii) all leases and subleases
pursuant to which the Company or the Subsidiary lease or sublease real property,
(iii) all leases and subleases between third parties with respect to property
occupied by the Company or the Subsidiary and (iv) all fixed assets owned by the
Company or the Subsidiary with an individual value in excess of $5,000 and, with
respect to similar fixed assets, with an aggregate value in excess of $100,000.
The Seller has caused the Company and the Subsidiary to make available to the
Buyer copies of the documents listed in such Schedule.
3.1.12 Contracts.
(a) Schedule 3.1.12 of the Seller's Disclosure Statement
sets forth a list of all of the following Contracts to which the Company or the
Subsidiary is party or by which it is bound:
(i) all contracts and agreements (other than (A)
Insurance Arrangements, (B) open trade accounts with respect to the purchase or
sale by the Company or the Subsidiary of its supplies or products, respectively,
in the ordinary course of business, or (C) leases of real property listed in
Schedule 3.1.11(b) of the Seller's Disclosure Statement or not required to be
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listed thereon) with respect to which the aggregate amount reasonably expected
to be paid or received thereunder in the future exceeds $50,000 per annum,
(ii) all contracts and agreements with officers,
full-time employees or directors;
(iii) investment management agreements, investment
custody agreements and similar contracts and agreements (including agreements
pursuant to which the Company or the Subsidiary has (A) deposited funds in order
to qualify as an approved or eligible insurer or (B) pledged funds to secure
obligations under reinsurance contracts);
(iv) all mortgages, indentures, security agreements,
notes, loan agreements, other debt obligations for borrowed money, guarantees of
debt obligations for borrowed money (including guarantees by way of acting as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise, but
excluding guarantees in respect of Insurance Arrangements entered into by the
Company or the Subsidiary in the ordinary course of business) or agreements to
acquire any debt obligations for borrowed money of others (other than debt
securities acquired for investment);
(v) all contracts and agreements (other than
Insurance Arrangements) prohibiting or materially limiting the ability of the
Company or the Subsidiary to engage in any business or compete with any person;
(vi) any contract (other than Insurance
Arrangements) with respect to a joint venture or partnership arrangement;
(vii) any contract (other than contracts with agents
entered into in the ordinary course of business) granting a power of attorney;
(viii) all of the Company's and the Subsidiary's
software and registered service marks, patents, trademarks, trade names,
material copyrights and all pending applications for any of the foregoing, if
any, and all licenses granted by or to the Company or the Subsidiary which
relate in whole or in part to any of the foregoing or to any know-how or trade
secrets, except in each case for those solely applicable to the Excluded
Business;
(ix) the name of each bank or other financial
institution from which credit commitments (other than repurchase agreements,
reverse repurchase agreements or dollar reverse repurchase transactions) to the
Company and the Subsidiary are outstanding, and a brief description of such
commitments;
(x) any other contracts, agreements or commitments
(other than Insurance Arrangements) that are material to the business of the
Company and the Subsidiary taken as a whole; and
(xi) all insurance contracts (including runoff
contracts and retrocessions) entered into by the Company and the Subsidiary not
in the ordinary course of business and all reinsurance contracts (including
runoff contracts and retrocessions) and agreements and related
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letters of credit, trust arrangements, managed care utilization or similar
agreements and structured settlements entered into by the Company and the
Subsidiary in the ordinary course of business or otherwise.
(b) The Seller has caused the Company to make available
to the Buyer true and complete copies of all Contracts set forth in Schedule
3.1.12 of the Seller's Disclosure Statement and a list setting forth all
employees of the Company and the Subsidiary with total 1994 annual cash
compensation in excess of $75,000 (including bonuses, commissions and other
forms of cash compensation), indicating salary and bonus for each such employee.
(c) All Contracts set forth in Schedule 3.1.12 of the
Seller's Disclosure Statement are in full force and effect and enforceable
against each party thereto. There does not exist under any such Contract any
event of default or event or condition that, after notice or lapse of time or
both, would constitute a violation, breach or event of default thereunder on the
part of the Company or the Subsidiary or, to the Knowledge of the Company, the
Subsidiary or the Seller, any other party thereto except as set forth in
Schedule 3.1.12(c) of the Seller's Disclosure Statement and except for such
events or conditions that, individually and in the aggregate have not had or
resulted in, and would not reasonably be expected to have or result in, a
Material Adverse Effect.
3.1.13 Employee Benefit Plans and Related Matters; ERISA.
(a) Employee Benefit Plans. Schedule 3.1.13(a) of the
Seller's Disclosure Statement sets forth a complete and correct list of each
"employee benefit plan," as such term is defined in section 3(3) of ERISA, and
each bonus, incentive or deferred compensation, severance, termination,
retention, stock option or other equity-based, performance or other employee or
retiree benefit or compensation plan, program or arrangement that provides
benefits or compensation in respect of any Employee or under which any Employee
is eligible to participate or derive a benefit and that is or has been
maintained, established or contributed to by the Company, the Subsidiary or any
other trade or business, whether or not incorporated, which, together with the
Company, is treated as a single employer under section 414 of the Code (such
other trades and businesses hereinafter referred to as the "Related Persons"),
or with respect to which the Company has or may have any material liability
(collectively, the "Plans"). With respect to each such Plan, the Seller has
caused the Company to provide the Buyer copies of (i) each written Plan, (ii)
descriptions of all unwritten Plans and (iii) to the extent applicable to any
Plan, all trust agreements, insurance contracts or other funding arrangements,
the most recent actuarial and trust reports, the most recent Forms 5500 required
to have been filed with the IRS and all schedules thereto, the most recent IRS
determination letter, all current summary plan descriptions, all material
communications received from or sent to the IRS, the Pension Benefit Guaranty
Corporation or the Department of Labor, and all amendments and modifications to
any such document.
(b) Qualification. Each Plan intended to be qualified
under section 401(a) of the Code, and the trust (if any) forming a part thereof,
has received a favorable determination letter from the IRS as to its
qualification under the Code and to the effect that each such trust is exempt
from taxation under section 501(a) of the Code, and to the Company's and the
Seller's Knowledge nothing has occurred since the date of such determination
letter that could adversely affect such qualification or tax-exempt status. The
Seller has furnished to the Buyer copies of the most recent Internal Revenue
Service determination letters with respect to any such Plans.
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(c) Benefit Arrangements. Schedule 3.1.13(c) of the
Seller's Disclosure Statement sets forth a complete and correct list of each
plan or arrangement (written or oral) or policy providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, severance benefits, termination
benefits, vacation benefits or other forms of compensation or benefits which (i)
is not a Plan, (ii) is maintained, established or contributed to by the Company
or any Related Person, and (iii) covers any employee or former employee of the
Company or any Related Person, including without limitation any employee or
former employee of a Related Person that does business outside of the United
States. Such plans and arrangements as are described above are hereinafter
referred to collectively as the "Benefit Arrangements." Each Benefit Arrangement
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all orders and Laws which are applicable to
such Benefit Arrangement. All contributions and premiums required to have been
paid by the Company or any Related Person on or before the date hereof to any
Benefit Arrangement have been paid.
(d) Compliance; Liability.
(i) Each of the Plans has been operated and
administered in all respects in compliance with its terms, all applicable orders
and Laws and all applicable collective bargaining agreements, except for any
failure so to comply that, individually and in the aggregate, would not have or
result in a Material Adverse Effect. There are no material pending or, to the
Seller's or the Company's Knowledge, threatened claims by or on behalf of any of
the Plans, by any Employee or otherwise involving any such Plan or the assets of
any Plan (other than routine claims for benefits, all of which have been fully
reserved for).
(ii) Neither the Company nor any Related Person has
been involved in any transaction that could cause the Company, any such Related
Person or, following the Closing, the Buyer, to be subject to liability under
section 502, 4069 or 4212 of ERISA or under sections 4972 or 4975 through 4980B
of the Code. Neither the Company nor any Related Person has incurred any
material liability under or pursuant to Title I or IV of ERISA or the penalty,
excise Tax or joint and several liability provisions of the Code relating to
employee benefit plans. All contributions and premiums required to have been
paid by the Company or any Related Person on or before the date hereof to any
Plan have been paid.
3.1.14 Affiliate Transactions. Schedule 3.1.14 of the Seller's
Disclosure Statement contains a list of all agreements and contracts (other than
Insurance Arrangements, the Continental Pooling Agreement and any contract or
agreement relating thereto), whether or not entered into in the ordinary course
of business, to or by which the Company or the Subsidiary, on the one hand, and
the Seller or any Affiliate of the Seller, on the other hand, are parties, and
that involve continuing liabilities and obligations that, individually or in the
aggregate, are material to the business of the Company and the Subsidiary taken
as a whole.
3.1.15 Brokers, Finders. None of Continental, the Seller and the
Company has retained any broker or finder in connection with the transactions
contemplated herein so as to give rise to any claim against the Buyer or its
Affiliates or the Company for any brokerage or finder's commission, fee or
similar compensation, other than Goldman, Sachs & Co., whose fees in respect of
this Agreement shall be paid by Continental, and Continental shall indemnify and
hold the Buyer Indemnitees harmless against any such fees and expenses.
<PAGE>
3.1.16 No Improper Payments. During the Seller's Ownership of the
Company, to the best of the Seller's and the Company's Knowledge, none of the
Company, the Subsidiary and any of their respective officers and directors have
at any time: (i) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, which is prohibited by applicable Law; (ii) made any payment outside the
ordinary course of business to any purchasing or selling agent, or person
charged with similar duties, of any entity to which the Company, the Subsidiary
or Continental sells or has sold, or from which the Company, the Subsidiary or
Continental buys or has bought, products or services, which is prohibited by
applicable Law; or (iii) engaged in any transaction or maintained any account
for, or used any funds of, the Company or the Subsidiary, in each case which is
prohibited by applicable Law.
3.1.17 Disclosure. No representation or warranty by the Seller
or the Company contained in this Agreement contains any untrue statement of a
material fact or, to the Seller's and the Company's Knowledge, omits to state a
material fact necessary to make the statements made, in the light of the
circumstances under which they are or were made, not misleading.
3.1.18 Insurance Regulatory Matters. Except as disclosed on
Schedule 3. 1. 18 of the Seller's Disclosure Statement and except for routine
complaints made by policyholders that relate solely to their individual
insurance contracts and routine correspondence with state insurance regulators
with respect to financial statements, there is not now pending any proceeding
with respect to the Company or the Subsidiary that involves the insurance
regulatory body of any state.
3.1.19 Employment Matters.
(a) Neither the Company nor the Subsidiary is a party to
any collective bargaining agreement and there is no certified or recognized
collective bargaining agent for any employees of the Company or the Subsidiary.
To the Knowledge of the Seller and the Company, no claim of representation (as
such term is defined in the National Labor Relations Act) is being made, no
representation proceeding is pending or threatened, and no organizing campaign
is in progress or threatened, involving employees of the Company or the
Subsidiary.
(b) Except as set forth on Schedule 3.1.19 of the
Seller's Disclosure Statement, the Company and the Subsidiary have not:
(i) made any commitments in writing to any current
or former officer, director or Employee regarding lifetime employment or
employment for any specified time period or retention as a consultant;
(ii) been advised in writing or in print to the date
hereof by any current or former officer, director or employee that such person
is asserting or will be asserting a claim for breach of contract, breach of
implied covenant of good faith and fair dealing, wrongful termination, violation
of public policy, negligent termination or other claim based in tort or contract
and relating to such person's employment or termination from employment;
(iii) been advised in writing or in print to the
date hereof that it has been charged with any federal, state or local law that
prohibits discrimination on the basis of sex, race,
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color, religion, national origin, status as a handicapped individual,
disability, marital status, status as a Vietnam era veteran or a disabled
veteran, or sexual preference: and
(iv) taken any action to increase the amount of
compensation benefits or accelerate the vesting or timing of payment of any
benefits or compensation payable to or in respect of the Company's or the
Subsidiary's Employees by reason of a change of control or change of ownership
of the Company or the Subsidiary.
3.1.20 Powers of Attorney. Except as disclosed in Schedule
3.1.20 of the Seller's Disclosure Statement and except for any powers of
attorney to be delivered at the Closing, including without limitation, the
Powers of Attorney, neither the Company nor the Subsidiary has any power of
attorney outstanding, except for powers of attorney granted to agents in the
ordinary course of business and the power of attorney given by the Company and
the Subsidiary to CIC under the Continental Pooling Agreement and the power of
attorney given to Continental Asset Management Corp., each of which shall be
unconditionally revoked on or prior to the Closing Date.
3.1.21 Forms of Policy. Each form of insurance policy, policy
endorsement or amendment, reinsurance treaty and contract, certificate of
insurance, application form, and sales material used by the Company or the
Subsidiary in any jurisdiction has, where required, been approved by the
appropriate insurance or other regulatory authorities of such jurisdiction in
each case where the absence of such approval would be reasonably likely to have
a Material Adverse Effect.
3.1.22 Supplied Information. The books, records and other data
used to prepare the September 30 Balance Sheet and the Closing Balance Sheet
are, and the data provided to Milliman & Robertson, Inc. to prepare the Milliman
& Robertson Report, were, as of the date prepared, complete and correct in all
material respects, subject in any event to Section 3.1.23.
3.1.23 No Representation as to Certain Matters.
Notwithstanding anything contained in any of the Transaction Documents,
including, without limitation, any of the representations and warranties
contained in this Article III, the Seller and the Company make no representation
or warranty, and are not indemnifying the Buyer pursuant to Article VII, with
respect to (a) the adequacy of the Company's and the Subsidiary's insurance
reserves (including without limitation reserves for unearned premiums, losses,
incurred but not reported losses and loss adjustment expenses), or the tax
deductibility of such reserves or (b) the collectibility of brokers' balances
or, except as provided in Sections 3.2.4 and 6.14, reinsurance recoverables
(other than reinsurance provided by Continental or its subsidiaries) reflected
in the September 30 Balance Sheet and the Closing Balance Sheet.
3.2 Representations and Warranties of Continental. Continental
represents and warrants to the Buyer and Fremont General as of the date of this
Agreement and as of the Closing Date as follows:
3.2.1 Organization of Continental, Authority, etc. Continental
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of New York, and has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it will be a party, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Continental of this Agreement and the Ancillary
Agreements to which it will be a party, the performance of Continental's
obligations hereunder and thereunder and the consummation by Continental of the
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transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action of Continental. Continental has duly executed and
delivered this Agreement and on the Closing Date will have duly executed and
delivered the Ancillary Agreements to which it will be a party. This Agreement
constitutes, and each such Ancillary Agreement when so executed and delivered
will constitute, the legal, valid and binding obligation of Continental
enforceable against Continental in accordance with its terms.
3.2.2 Conflicts, Consents, etc.
(a) The execution, delivery and performance by
Continental of this Agreement and each of the Ancillary Agreements to which it
will be a party, and the consummation of the transactions contemplated hereby
and thereby, do not and will not conflict with, result in a violation or breach
of or default under (with or without the giving of notice or the lapse of time
or both), create in any other Person a right or claim of termination, amendment,
or require modification, acceleration or cancellation of, or result in the
creation of any Lien (or any obligation to create any Lien) upon any of the
properties or assets of Continental under, (i) any Law applicable to
Continental, (ii) any provision of any of the Organizational Documents of
Continental, or (iii) any Contract to which Continental is a party or by which
any of its properties or assets may be bound, except in each case under the
foregoing clauses (i) and (iii) (x) as set forth in Schedule 3.2.2 of the
Disclosure Statement and (y) for such conflicts, violations, defaults and other
actions that would not, individually or in the aggregate, have a material
adverse effect on the ability of Continental to consummate the transactions
contemplated hereby and thereby.
(b) No Governmental Approval or other Consent is
required to be obtained or made by Continental in connection with the execution
and delivery of this Agreement and each of the Ancillary Agreements to which it
will be a party, or the consummation of the transactions contemplated hereby and
thereby, except (i) as set forth in Schedule 3.2.2 of the Seller's Disclosure
Statement and (ii) for any Governmental Approval or other Consent the failure of
which to be obtained or made would not, individually or in the aggregate, have a
material adverse effect on the ability of Continental to consummate the
transactions contemplated hereby and thereby.
3.2.3 Organization of the Seller Ancillary Parties. The Seller
Ancillary Parties are duly incorporated, validly existing and in good standing
under the laws of their respective jurisdictions, and each has all requisite
corporate power and authority to execute and deliver the Ancillary Agreements to
which it will be a party, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. On or prior to the Closing
Date, the execution and delivery by each Seller Ancillary Party of the Ancillary
Agreements to which it will be a party, the performance of its obligations
thereunder and the consummation by it of the transactions contemplated thereby,
will have been duly authorized by all requisite corporate action of such Seller
Ancillary Party. Each Seller Ancillary Party on the Closing Date will have duly
executed and delivered the Ancillary Agreements to which it is a party. Each
such Ancillary Agreement when so executed and delivered will constitute the
legal, valid and binding obligation of the Seller Ancillary Party thereto
enforceable against such Seller Ancillary Party in accordance with its terms.
3.2.4 Reinsurance Receivables and Payables. Continental has
accurately reflected in the September 30 Balance Sheet and, as of the Closing
Date, will have accurately reflected in the Closing Balance Sheet, in all
material respects the proper receivables and payables with respect to the
Company's reinsurance programs referred to in Section 6.14.
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3.3 Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller and Continental as of the date of this Agreement and as
of the Closing Date as follows:
3.3.1 Organization of the Buyer, Authority etc. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it will be a party, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by the Buyer of this Agreement and the Ancillary
Agreements to which it will be a party, the performance of the Buyer's
obligations hereunder and thereunder and the consummation by the Buyer of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action of the Buyer. The Buyer has duly executed and
delivered this Agreement and on the Closing Date will have duly executed and
delivered the Ancillary Agreements to which it will be a party. This Agreement
constitutes, and each such Ancillary Agreement when so executed and delivered
will constitute, the legal, valid and binding obligations of the Buyer
enforceable against the Buyer in accordance with their respective terms.
3.3.2 Conflicts, Consents, etc.
(a) The execution, delivery and performance by the Buyer
of this Agreement and each of the Ancillary Agreements to which it will be a
party, and the consummation of the transactions contemplated hereby and thereby,
do not and will not conflict with, result in a violation or breach of or default
under (with or without the giving of notice or the lapse of time or both),
create in any other Person a right or claim of termination, amendment, or
require modification, acceleration or cancellation of, or result in the creation
of any Lien (or any obligation to create any Lien) upon any of the properties or
assets of the Buyer under, (i) any Law applicable to the Buyer, (ii) any
provision of any of the Organizational Documents of the Buyer, or (iii) any
Contract to which the Buyer is a party or by which any of its properties or
assets may be bound, except in each case under the foregoing clauses (i) and
(iii) (x) as set forth in Schedule 3.3.2 of the Buyer's Disclosure Statement and
(y) for such conflicts, violations, defaults and other actions that would not,
individually or in the aggregate, have a material adverse effect on the ability
of the Buyer to consummate the transaction contemplated hereby and thereby.
(b) No Governmental Approval or other Consent is
required to be obtained or made by the Buyer in connection with the execution
and delivery of this Agreement and each of the Ancillary Agreements to which it
will be a party, or the consummation of the transactions contemplated hereby and
thereby, except (i) as set forth in Schedule 3.3.2 of the Buyer's Disclosure
Statement and (ii) for any Governmental Approval or other Consent the failure of
which to be obtained or made would not, individually or in the aggregate, have a
material adverse effect on the ability of the Buyer to consummate the
transactions contemplated hereby and thereby.
3.3.3 Brokers, Finders. The Buyer has not retained any broker or
finder in connection with the transactions contemplated herein so as to give
rise to any claim against the Seller or Continental for any brokerage or
finder's commission, fee or similar compensation, other than the Chase Manhattan
Bank, N.A. and Chase Securities, Inc., whose fees in respect of this Agreement
shall be paid by the Buyer, and the Buyer shall indemnify and hold the Seller
Indemnitees harmless against any such fees and expenses.
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3.3.4 Purchase for Investment. The Buyer is purchasing the
Shares for its own account solely for investment and not with a view to any
distribution thereof in violation of any applicable Law, provided that the
disposition of its property shall at all times be within its control. The Buyer
hereby acknowledges that the Shares have not been registered under any federal
or state securities Law, and may not be transferred in the absence of such
registration or an exemption therefrom under such Law.
3.4 Representations and Warranties of Fremont General. Fremont
General represents and warrants to the Seller and Continental as of the
date of this Agreement and as of the Closing Date as follows:
3.4.1 Organization of Fremont General, Authority etc. Fremont
General is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has all requisite corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which it will be a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Fremont General of this Agreement and the
Ancillary Agreements to which it will be a party, the performance of Fremont
General's obligations hereunder and thereunder and the consummation by Fremont
General of the transactions contemplated hereby and thereby, have been duly
authorized by all requisite corporate action of Fremont General. Fremont General
has duly executed and delivered this Agreement and on the Closing Date will have
duly executed and delivered the Ancillary Agreements to which it will be a
party. This Agreement constitutes, and each such Ancillary Agreement when so
executed and delivered will constitute, the legal, valid and binding obligation
of Fremont General enforceable against Fremont General in accordance with its
terms.
3.4.2 Conflicts, Consents, etc.
(a) The execution, delivery and performance by Fremont
General of this Agreement and each of the Ancillary Agreements to which it will
be a party, and the consummation of the transactions contemplated hereby and
thereby, do not and will not conflict with, result in a violation or breach of
or default under (with or without the giving of notice or the lapse of time or
both), create in any other Person a right or claim of termination, amendment, or
require modification, acceleration or cancellation of, or result in the creation
of any Lien (or any obligation to create any Lien) upon any of the properties or
assets of Fremont General under, (i) any Law applicable to Fremont General, (ii)
any provision of any of the Organizational Documents of Fremont General, or
(iii) any Contract to which Fremont General is a party or by which any of its
properties or assets may be bound, except in each case under the foregoing
clauses (i) and (iii) (x) as set forth in Schedule 3.4.2 of the Buyer's
Disclosure Statement and (y) for such conflicts, violations, defaults and other
actions that would not, individually or in the aggregate, have a material
adverse effect on the ability of Fremont General to consummate the transactions
contemplated hereby and thereby.
(b) No Governmental Approval or other Consent is
required to be obtained or made by Fremont General in connection with the
execution and delivery of this Agreement and each of the Ancillary Agreements to
which it will be a party, or the consummation of the transactions contemplated
hereby and thereby, except (i) as set forth in Schedule 3.4.2 of the Buyer's
Disclosure Statement and (ii) for any Governmental Approval or other Consent the
failure of which to be obtained or
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made would not, individually or in the aggregate, have a material adverse
effect on the ability of Fremont General to consummate the transactions
contemplated hereby and thereby.
3.4.3 Organization of the Buyer Ancillary Parties. The Buyer
Ancillary Parties are duly incorporated, validly existing and in good standing
under the laws of their respective jurisdictions, and each has all requisite
corporate power and authority to execute and deliver the Ancillary Agreements to
which it will be a party, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery by
each Buyer Ancillary Party of the Ancillary Agreements to which it will be a
party, the performance of its obligations thereunder and the consummation by it
of the transactions contemplated thereby, have been duly authorized by all
requisite corporate action of such Buyer Ancillary Party. Each Buyer Ancillary
Party on the Closing Date will have duly executed and delivered the Ancillary
Agreements to which it is a party. Each such Ancillary Agreement when so
executed and delivered will constitute, the legal, valid and binding obligation
of the Buyer Ancillary Party thereto enforceable against such Buyer Ancillary
Party in accordance with its terms.
ARTICLE IV
CERTAIN COVENANTS
4.1 Access to Information; Confidentiality.
(a) Prior to the Closing, upon reasonable notice, each of the
Seller and Continental agrees that it will, and will cause each of the Company,
the Subsidiary and the Seller Ancillary Parties to, give the Buyer and its
agents access during business hours and upon reasonable notice to the
properties, books and records, employees, agents, accountants and actuaries of
each of such companies and furnish to the Buyer and its agents such documents,
financial and operating data and other information (including, without
limitation, information concerning loss reserves) with respect to the business
and properties of each of such companies as the Buyer or its agents shall from
time to time reasonably request which are reasonably necessary to permit the
Buyer to investigate the accuracy of the representations and warranties made to
the Buyer and Fremont General herein; provided that the foregoing investigation
will be done in a manner so as not to interfere unreasonably with the conduct of
the businesses of such companies.
(b) Any information provided or obtained pursuant to clause
(a) above shall be held by the Buyer in accordance with and shall be subject to
the terms of the Confidentiality Agreement.
4.2 Conduct of Business of the Company and the Subsidiary. Except as set
forth in Schedule 4.2 of the Seller's Disclosure Statement, as provided,
permitted or contemplated elsewhere in this Agreement or as otherwise consented
to by the Buyer in writing, whether or not the Subsidiary has lost any personnel
listed in Schedule 5.2.2 of the Seller's Disclosure Schedule, from the date
hereof to the Closing, the Seller agrees to cause the Company and the Subsidiary
(a) to conduct its business only in the ordinary course consistent with prior
practice, (b) to maintain and keep its properties and equipment in such repair,
working order and condition as is sufficient for the operation of its business
in the ordinary course consistent with prior practice, except for ordinary wear
and tear, (c) to keep in full force and effect insurance coverage with respect
to its properties, operations and affairs comparable in amount and scope of
coverage to that now maintained by it, (to the extent available on commercially
reasonable terms in the case of any renewal or replacement policies) (d) to
perform in all material respects all of its
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obligations under all Contracts applicable to its business or properties, (e) to
use best efforts to maintain and preserve its business organization intact, (f)
not to (i) merge or consolidate with, or agree to merge or consolidate with, any
Person, (ii) purchase all or substantially all of the assets of, or otherwise
acquire, any Person, business or any division thereof, or (iii) directly or
indirectly, sell all or substantially all of, or otherwise dispose of, its
assets to any Person, (g) to comply in all material respects with all Laws
applicable to it and to the conduct of its business, (h) to maintain its books
of account and records in the usual and regular manner, (i) not to amend its
Organizational Documents, (j) promptly to advise the Buyer in writing of the
occurrence of any Material Adverse Effect, (k) not to assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations or liabilities (other than Insurance
Arrangements) of any other Person,(except in the ordinary course of business
consistent with prior practice), (l) promptly to advise the Buyer in writing of
any fact, condition, event or occurrence that will or is reasonably likely to
result in the failure of any of the conditions in Sections 5.1 and 5.2 to be
satisfied or the representations and warranties in Sections 3.1 and 3.2 to be
true and correct, (m) not to make any change in any method of accounting or
accounting practice except as may be required by Law, (n) not to adopt or enter
into any new Plan or make an amendment to any existing Plan that materially
increases the current or future cost associated with any such Plan and (o) not
to take any action described in paragraphs (a) through (f), (h) through (1) of
Section 3.1.10 except as permitted hereby or thereby.
4.3 Excluded Business Arrangements.
(a) On or prior to the Closing Date and effective as of the Closing
Date, Continental and the Buyer shall, or shall cause one or more of their
respective Affiliates to, enter into the following agreements, as applicable:
(i) Continental or any of its Affiliates that is duly licensed
to write, or accredited to reinsure, the kinds of insurance that constitute
Excluded Business and has an A.M. Best rating of A- or better shall enter into
the Continental Quota Share Reinsurance and Service Agreement (pursuant to which
agreement the pre-Closing Excluded Business shall be reinsured by Contintental
or such Affiliate on an indemnity reinsurance basis); and
(ii) With respect to the Excluded Business constituting the
business written in New York on a non-admitted excess lines basis, the Buyer
shall, or shall cause one of its Affiliates that is eligible to write such
excess lines business in the State of New York to, enter into the Continental
Indemnity Reinsurance and Service Agreement with Continental (pursuant to which
agreement the Buyer or such Affiliate shall agree to write such post-Closing
excess lines business); and
(iii) Each of the agreements referred to in Sections 4.3(a)(i)
and (ii) above shall be accompanied by a Power of Attorney, executed by each of
the ceding companies in favor of the reinsurer or administrator under such
agreement, as the case may be.
(b) Continental and the Buyer agree to use their best efforts to, and
to cause their respective Affiliates to, effect the assignment and assumption of
each and every policy that comprises the Excluded Business as soon as
practicable following the Closing Date pursuant to the Assumption Reinsurance
and Administration Agreement with any of Continental's Affiliates that is a duly
licensed insurer authorized to write the kinds of insurance that constitute the
Excluded Business in the states where
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the risks are located and which, as legally necessary, has been approved to
assume such business by the Commissioners of Insurance in such states (pursuant
to which agreement such Affiliate shall assume direct writing rights,
obligations and liabilities from the issuing insurer of such Excluded Business).
(c) The Buyer and its Affiliates shall cease to write new or renewal
post-Closing excess lines business on the earliest of (i) the date which is six
months from the Closing Date, (ii) the date as of which the aggregate amount
written pursuant to Section 4.3(a)(ii) above exceeds $20,000,000, and (iii) the
date that any of Continental's Affiliates becomes licensed and has any necessary
rate and form filings approved or deemed approved to write the kinds of
insurance that constitute such excess lines business in the State of New York.
Continental shall promptly notify the Buyer of any such licensure and approval
or deemed approval.
4.4 Profit Center Business Arrangements.
(a) On or prior to the Closing Date and effective as of the Closing
Date, Continental and the Buyer shall, or shall cause one or more of their
respective Affiliates to, enter into the following agreements, as applicable:
(i) the Buyer shall cause the Company or any of the Company's
Affiliates that is reasonably acceptable to Continental and duly licensed to
write, or accredited to reinsure, the kinds of insurance that constitute Profit
Center Business to enter into the Casualty Quota Share Reinsurance and Service
Agreement with Continental or the Profit Center Affiliates (pursuant to which
agreement the pre-Closing Profit Center Business shall be ceded by Continental
or the Profit Center Affiliates and reinsured by the Company or any of its
Affiliates on an indemnity reinsurance basis); and
(ii) Continental shall, or shall cause CIC and the Profit
Center Affiliates to enter into the Casualty Indemnity Reinsurance and Service
Agreement with the Company (pursuant to which agreement the Profit Center
Affiliates shall agree to write the kinds of insurance that constitute the
post-Closing Profit Center Business in the States of Wisconsin and Michigan,
100% reinsured to CIC, which will in turn 100% reinsure such reinsurance to the
Company); and
(iii) Each of the agreements referred to in Sections 4.4(a)(i)
and (ii) above shall be accompanied by a Power of Attorney, executed by each of
the ceding companies in favor of the reinsurer or administrator under such
agreement, as the case may be.
(b) Continental and the Buyer agree to use, and to cause their
respective Affiliates to use, their respective best efforts to effect assumption
and assignment of each and every policy that comprises the Profit Center
Business (i) with respect to the in-force Profit Center Business and prior
policies of in-force Profit Center Business, (x) if the Company or one of its
Affiliates becomes licensed as provided in this paragraph within one year of the
Closing Date, commencing with the first renewal of each and every policy after
becoming so licensed (or the expiration date of the in-force policy if the
policy is not renewed) and (y) if the Company or one of its Affiliates has not
become licensed as provided in this paragraph within one year of the Closing
Date, then within 30 days following such licensure, and (ii) with respect to the
remainder of the Profit Center Business, as soon as reasonably practicable after
the Closing Date, in each case (i) and (ii) pursuant to the Assumption
Reinsurance and Administration
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Agreement with the Company or any of its Affiliates that is a duly licensed
insurer authorized to write the kinds of insurance that constitute the Profit
Center Business in the states where the risks are located, has an A.M. Best
rating of A- or better and which, as legally necessary, has been approved to
assume such business by the Commissioners of Insurance in such states (pursuant
to which agreement the Company or such Affiliate shall assume direct writing
rights, obligations and liabilities from the issuing insurer of such Profit
Center Business).
(c) The Profit Center Affiliates shall cease to write new or
renewal Profit Center Business on the earlier of (i) the first anniversary of
the Closing Date and (ii) the date that the Buyer or any of its Affiliates
becomes licensed and has any necessary rate and form filings approved or deemed
approved to write the kinds of insurance that constitute the Profit Center
Business in that state. The Buyer shall promptly notify Continental of any such
licensure and approval or deemed approval.
4.5 Aggregate Excess Treaties.
(a) As of the Closing Date, CIC shall enter into the Aggregate Excess
of Loss Reinsurance Agreement with the Company and the Subsidiary for the 1989
and prior Accident Years (as defined in the Aggregate Excess of Loss Reinsurance
Agreement) indemnifying the Company and the Subsidiary on a paid basis up to a
limit equal to the lesser of (i) the gross loss reserves of the Company and the
Subsidiary, other than the Excluded Business as of the Closing Date, net of
specific excess reserves recorded as of the Closing Date and (ii) $56,000,000.
The Company and the Subsidiary may together, at their sole option, elect to
commute this Aggregate Excess of Loss Reinsurance Agreement during the
twelve-month period commencing March 31, 2002. This Aggregate Excess of Loss
Reinsurance Agreement shall not be subject to profit commission.
(b) As of the Closing Date, CIC shall enter into the Stop Loss
Reinsurance Agreement with the Company and the Subsidiary, indemnifying the
Company and the Subsidiary on a paid basis up to a limit of $8,000,000 in excess
of the limits of the Aggregate Excess of Loss Reinsurance Agreement. This Stop
Loss Reinsurance Agreement shall not be subject to profit commission nor
commutation and shall cover the subject business of the Aggregate Excess of Loss
Reinsurance Agreement. From the date that the commutation election is made on
the Aggregate Excess of Loss Reinsurance Agreement or March 31, 2003, whichever
is later, no additional case incurred losses may be ceded to CIC, but CIC will
be required to indemnify the Company and the Subsidiary on a paid basis for all
case reserves outstanding as of such date.
4.6 Efforts to Consummate Transaction, etc. Each of the parties hereto
agrees (a) to use its best efforts to take or cause to be taken all reasonable
actions as may be necessary or advisable to consummate the transactions
contemplated by the Transaction Documents as soon as reasonably practicable, (b)
to promptly file or supply, or cause to be filed or supplied, all material
applications, notifications and information required to be filed or supplied by
it pursuant to applicable Law in connection with the transactions contemplated
by the Transaction Documents, including any filings and reports pursuant to the
HSR Act or that may be required by the insurance departments of each of the
States of California and Illinois and any other applicable jurisdiction, and to
cooperate in good faith with each other party in the preparation thereof and the
exchange of information with respect thereto, (c) to use its reasonable efforts
to obtain all Consents and Governmental Approvals required to be obtained by it
for the consummation by it of the transactions contemplated by the Transaction
Documents and (d) to cooperate in good faith with each other party and use its
reasonable efforts to assist in the obtaining of
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Consents and Governmental Approvals required to be obtained by each such other
party for the consummation of the transactions contemplated by the Transaction
Documents.
4.7 Preclosing E&Y Procedures. Prior to the Closing Date, the Buyer
will, at its expense, cause E&Y to perform an audit of the Company and the
Subsidiary on a pro forma basis consistent with GAAP and the September 30
Methodology and after taking into account the Restructuring Transactions (the
"Preclosing E&Y Procedures"); provided that the Seller or Continental shall have
no liability or obligation resulting from the result of such Preclosing E&Y
Procedures so long as the Seller and Continental comply with the provisions of
Section 2.3. The Seller, Continental, the Company and the Subsidiary will
cooperate in good faith with E&Y in its performance of the Preclosing E&Y
Procedures.
4.8 Capitalization. No change shall be made in the authorized, issued or
outstanding capital stock or other securities of the Company or the Subsidiary,
nor shall any option, warrant, proxy, right to purchase, commitment, pledge or
arrangement be granted or made relating to any of such authorized issued or
outstanding capital stock or other securities of the Company or the Subsidiary.
4.9 Hart-Scott-Rodino Filing. Continental or the Seller shall file with
the Federal Trade Commission and Antitrust Division of the Department of Justice
any notification and report required by the HSR Act to be filed by it and, in
the event that any additional filings are required, shall promptly file any
supplemental information which may be requested in connection therewith.
4.10 Hart-Scott-Rodino Filing. The Buyer shall file with the Federal
Trade Commission and Antitrust Division of the Department of Justice any
notification and report required by the HSR Act to be filed by it and, in the
event that any additional filings are required, shall promptly file any
supplemental information which may be requested in connection therewith.
4.11 Leases and Subleases. Prior to, and effective as of, the Closing
Date, Continental or its Affiliates shall, subject to any required landlord
consents, which consents Continental shall use its reasonable efforts to obtain,
(a) enter into with the Company and the Subsidiary leases or subleases (with
respect to premises not currently subject to a lease or sublease) the terms of
which shall be negotiated by the parties thereto in good faith and (ii) assign
to the Company or the Subsidiary existing leases or subleases, in each case with
respect to the premises set forth in Schedule 4.11 of the Seller's Disclosure
Statement, which Schedule shall include the space occupied by the legal staff
referred to in Section 4.12, if any.
4.12 Legal Staff. (a) Effective prior to the Closing, Continental shall
transfer the attorneys listed on Schedule 4.12 of the Seller's Disclosure
Statement to the payroll of the Company, and (b) Continental and the Seller
shall use their reasonable efforts to cause such attorneys to accept employment
positions with the Company effective as of or prior to the Closing Date.
4.13 Withdrawal from the Continental Pooling Agreement. On or prior to
the Closing Date and in no event later than December 31, 1994, Continental
shall, or shall cause one or more of its Affiliates to, take such actions as are
necessary to accomplish the following:
(a) the Company and the Subsidiary shall have been withdrawn from
the Continental Pooling Agreement, with the effect that all right, title and
interest in all insurance policies written by the Company or the Subsidiary, and
the investment assets related to such insurance policies, shall have been
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transferred, assigned and conveyed to each of the Company or the Subsidiary, as
the case may be, without any obligation, restriction or encumbrance of any
nature whatsoever relating to or arising out of participation in the
Continental Pooling Agreement;
(b) the Profit Center Business shall have been retroceded to
Continental, with the effect that all right, title and interest in all insurance
policies which constitute the Profit Center Business, and the Portfolio Assets
related to such insurance policies, shall have been transferred, assigned and
conveyed to Continental without any obligation, restriction or encumbrance of
any nature whatsoever relating to or arising out of participation in the
Continental Pooling Agreement;
(c) each of the Company and the Subsidiary shall commute with a
subsidiary or subsidiaries of Continental any reinsurance contract entered into
not in the ordinary course of business; and
(d) any power of attorney given to CIC by the Company or the
Subsidiary under the Continental Pooling Agreement shall be unconditionally
revoked.
4.14 Outstanding Indebtedness. As of the Closing Date, the Company and
the Subsidiary shall have no indebtedness for borrowed money or debt securities
or indebtedness in respect of repurchase agreements, reverse repurchase
agreements, or dollar reverse repurchase transactions on their respective
balance sheets.
4.15 Automobile Leases. Prior to, and effective as of, the Closing
Date, Continental or its Affiliates shall, subject to any required lessor
consents, which consents Continental shall use its reasonable efforts to obtain,
assign to the Company or the Subsidiary existing automobile leases with respect
to the automobiles used by Continuing Employees as of the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement to consummate the transactions contemplated
hereby are subject to the fulfillment, on or prior to the Closing Date, of the
following conditions, any one or more of which may be waived by any party hereto
in respect of any condition to any other party's obligations, at its sole
discretion:
5.1.1 No Injunction, etc. Consummation of the transactions
contemplated hereby or by the Ancillary Agreements shall not have been
restrained, enjoined or otherwise prohibited or made illegal by any applicable
Law, including any order, injunction, decree or judgment of any court or other
governmental authority; and no such Law that would have such an effect shall
have been promulgated, entered, issued or determined by any court or other
governmental authority to be applicable to this Agreement or the Ancillary
Agreements.
5.1.2 Consents and Governmental Approvals. All Governmental
Approvals and Consents required to be made or obtained by any party hereto in
connection with the execution and delivery of this Agreement and the Ancillary
Agreements or the consummation of the transactions contemplated hereby or
thereby shall have been made or obtained and be in full force and effect.
Complete and correct copies of all such Governmental Approvals and Consents
shall have been delivered
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by each party to each other party. Without limiting the generality of the
foregoing, (a) the notifications of the parties pursuant to the HSR Act, if any,
shall have been made and the applicable waiting period and any extensions
thereof shall have expired or early termination of the waiting period shall have
been approved by the appropriate regulatory authority and (b) the Buyer shall
have received the approvals of the consummation of the sale and purchase of the
Shares and the transactions contemplated by the Transaction Documents, if any
are required, from the insurance departments of the States of Illinois and
California, and such approvals shall be in full force and effect.
5.2 Conditions to Obligations of the Buyer and Fremont General. The
respective obligations of the Buyer and Fremont General under this Agreement to
consummate the transactions contemplated hereby is subject to the fulfillment,
on or prior to the Closing Date, of the following conditions, any one or more of
which may be waived by the Buyer or Fremont General, as the case may be, in
respect of its own obligations, at its sole discretion:
5.2.1 Representations, Performance, etc. The representations
and warranties of the Seller, the Company and Continental contained in Sections
3.1 and 3.2, respectively, shall be true and correct in all respects (in the
case of any representation or warranty containing a materiality qualification)
or in all material respects (in the case of any representation or warranty
without any materiality qualification), in each case as of the date made and as
of the Closing Date as though made as of the Closing Date, or as of the date
specified therein as though made as of such date, except in each case as
modified by the transactions contemplated by the Transaction Documents. Each of
the Company, the Subsidiary, the Seller and Continental shall have duly
performed and complied in all material respects with all agreements, covenants
and conditions required by the Transaction Documents to be performed or complied
with by it prior to or on the Closing Date. Each of the Seller, the Company and
Continental shall have delivered to the Buyer a certificate signed by an officer
of the Seller, the Company or Continental, as the case may be, dated the Closing
Date, to the effect set forth above in this Section 5.2.1.
5.2.2 No Material Adverse Change. Since September 30, 1994,
except as set forth in Schedule 3.1.10 of the Seller's Disclosure Statement, as
permitted after the date hereof pursuant to Section 4.2 or as otherwise
provided, permitted or contemplated elsewhere in this Agreement, there shall
have been no material adverse change in the business, financial condition,
prospects, assets or results of operations of the Company and the Subsidiary
taken as a whole; provided that a material adverse change shall not be deemed to
have occurred on the basis of either (i) personnel losses in the Subsidiary as
set forth in Schedule 5.2.2 of the Seller's Disclosure Statement due to the
pendency of the transactions contemplated by this Agreement or (ii) any
downgrading in the claims paying rating of the Company provided by Moody's
Investor Services, Inc. or Standard & Poor's Corporation or in the rating of the
Company provided by A.M. Best Company, if such ratings change has resulted from
the pendency of the transactions contemplated by this Agreement and not from
changes in the ratings of Continental.
5.2.3 Delivery of Shares. The Seller shall have delivered to
the Buyer a certificate or certificates representing the Shares, any other
documents of transfer required by Section 2.2 and all other documents,
certificates and agreements necessary to convey good and valid title to the
Shares, free and clear of any Liens, except for those created by any action of,
including any agreement entered into by, the Buyer or its Affiliates.
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5.2.4 Resignation of Directors. All directors of the Company
and the Subsidiary whose resignations shall have been requested by the Buyer
shall have submitted their resignations effective as of the Closing Date.
5.2.5 Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto which is an Affiliate of
Continental.
5.2.6 FIRPTA Certificate. The Seller shall have delivered to
the Buyer a certificate, as contemplated under and meeting the requirements of
section 1.1445-2(b)(2)(i) of the Treasury Regulations, to the effect that the
Company is not a foreign person within the meaning of the Code and applicable
Treasury Regulations.
5.2.7 Opinions of Counsel. The Buyer shall have received an
opinion, addressed to it and dated the Closing Date, from Debevoise & Plimpton,
counsel to the Seller and Continental, William F. Gleason, Jr., General Counsel
of Continental, and Shefsky & Froelich, Illinois regulatory counsel to the
Seller and Continental, substantially in the forms of Exhibit M-1, M-2, M-3 and
M-4.
5.2.8 Approval of Board of Directors. The respective Boards of
Directors of the Company, the Seller and Continental, to the extent required,
shall have reviewed and approved the execution and delivery of the Transaction
Documents by the Company, the Seller and Continental, as the case may be, and
the consummation of the transactions contemplated hereby.
5.2.9 Commissioner of Insurance Approvals and Other Consents.
The Buyer shall have obtained all necessary legal and regulatory approvals for
the purchase of the Shares, including, without limitation, approval or
assurances thereof from the California and Illinois Departments of Insurance.
5.2.10 Closing Portfolio Assets; Shareholders' Equity. The
Closing Balance Sheet shall reflect shareholders' equity of $201,780,000.
5.3 Conditions to Obligations of the Seller and Continental. The
respective obligations of the Seller and Continental under this Agreement to
consummate the transactions contemplated hereby are subject to the fulfillment,
on or prior to the Closing Date, of the following conditions, any one or more of
which may be waived by the Seller or Continental, as the case may be, in respect
of its own obligations, at its sole discretion:
5.3.1 Representations, Performance, etc. The representations
and warranties of the Buyer and Fremont General contained in Sections 3.3 and
3.4, respectively, shall be true and correct in all respects (in the case of any
representation or warranty containing a materiality qualification) or in all
material respects (in the case of any representation or warranty without any
materiality qualification), in each case as of the date made and as of the
Closing Date as though made as of the Closing Date, except in each case as
modified by transactions contemplated by the Transaction Documents. Each of
Fremont General and the Buyer shall have duly performed and complied in all
material respects with all agreements, covenants and conditions required by the
Transaction Documents to be performed or complied with by it prior to or on the
Closing Date. Each of Fremont General and the Buyer shall have delivered to each
of the Seller and Continental a certificate signed by an officer of the Buyer or
Fremont General, as the case may be, dated the Closing Date, to the effect set
forth above in this Section 5.3.1.
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5.3.2 Approval of Board of Directors. The respective Boards of
Directors of Fremont General and the Buyer, to the extent required, shall have
reviewed and approved the execution and delivery, of the Transaction Documents
by the Buyer and Fremont General, as the case may be, and the consummation of
the transactions contemplated thereby.
5.3.3 Opinions of Counsel. Each of the Seller and Continental
shall have received an opinion, addressed to it and dated the Closing Date, from
Wilson Sonsini Goodrich & Rosati, counsel to Fremont General and the Buyer,
Chadbourne & Parke, California regulatory counsel to the Buyer, and Katten
Muchin & Zavis, Illinois regulatory counsel to the Buyer, substantially in the
form of Exhibits N-l, N-2 and N-3.
5.3.4 Delivery of Senior Note. Fremont General shall have
delivered to the Seller the Senior Note dated the Closing Date registered in the
Seller's name.
5.3.5 Ancillary Agreements. The Ancillary Agreements shall have
been executed and delivered by each party thereto which is an Affiliate of the
Buyer.
ARTICLE VI
OTHER COVENANTS AND AGREEMENTS
6.1 Administrative Services. Continental and its Affiliates have
provided the Company and the Subsidiary with certain administrative services
identified and described in Exhibit O. In order to provide an orderly transition
prior to the Company and the Subsidiary obtaining such services elsewhere,
Continental shall cause the continuation of such services identified in Exhibit
O as are requested by the Buyer not less than five days prior to the Closing
Date until, with respect to each category of services, except as otherwise
provided in Exhibit O, the earlier of (i) the first anniversary of the Closing
Date and (ii) five days after the Buyer shall have notified Continental that the
Company and the Subsidiary no longer need such services. The Buyer will cause
the Company and the Subsidiary to pay, forthwith upon receipt of invoices
therefor, to the provider of such services a fee for such services at a rate
equal to 115 % of all such provider's direct costs and expenses incurred in
connection with the provision of such services. Continental will use its best
efforts to cause such services to be provided in a manner consistent with prior
practice. The Buyer hereby absolutely releases Continental and its Affiliates
(and will cause the Company and the Subsidiary to so release Continental and its
Affiliates) from any and all claims, losses, damages or liabilities arising out
of or in connection with the provision of such services other than those caused
by willful misconduct or gross negligence of an employee of such provider.
Continental and the Buyer agree that they will make all reasonable efforts to
transition to the Buyer as soon as practicable the services performed pursuant
to this Section 6.1.
6.2 Compliance with Agreements. Following the Closing Date, each of
Continental and the Buyer agree to comply, and to cause their Affiliates to
comply, in all respects with the terms of the agreements described in Sections
4.3, 4.4 and 4.5.
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6.3 Expenses.
(a) Except as otherwise specifically provided for in this
Agreement, each of Continental, the Seller, Fremont General and the Buyer will
assume and bear its own expenses, costs and fees (including attorneys',
auditors' and brokers' fees) incurred in connection with the transactions
contemplated by the Transaction Documents, including the preparation, execution
and delivery thereof and compliance therewith, in each case, whether or not the
transactions contemplated hereby or thereby are consummated.
(b) All transfer taxes (if any) arising out of the transactions
contemplated by the Transaction Documents shall be paid by the Buyer.
6.4 Public Announcements. Except as required by applicable Law or stock
exchange requirement, prior to the Closing, none of the parties hereto nor any
of their respective Affiliates, officers, directors, employees, agents, advisors
or representatives will, directly or indirectly, make or cause to be made any
public announcement or issue any public notice in any form with respect to this
Agreement, the Ancillary. Agreements or the transactions contemplated hereby or
thereby without the prior written consent of the other parties hereto, such
consent not to be unreasonably withheld. It is understood that neither internal
announcements to and discussions with employees of the Company and the
Subsidiary nor disclosures by the Seller or the Buyer to their respective
Affiliates, officers, directors, employees, agents, advisors or representatives
relating to this Agreement or the Ancillary Agreements or such transactions will
be prohibited by this Section 6.4. The parties hereto will issue a mutually
acceptable press release as soon as practicable after the execution of this
Agreement and after the Closing.
6.5 Post-Closing Access. Subsequent to the Closing Date, in connection
with any matter relating to any period of time ending on or prior to the
Closing Date,
(a) the Buyer will, upon the request and at the expense of the
Seller, permit the Seller and its representatives full access at reasonable
times and on reasonable notice and during normal business hours to the books and
records of the Company and the Subsidiary, to the extent that such access is
reasonably required by the Seller in connection with (i) the preparation of any
required Tax Returns or financial reports or (ii) any claim, litigation, audit
or investigation or any other proper purpose arising out of the Seller's
ownership of the Shares prior to the Closing, provided that the foregoing will
be done in a manner so as not to interfere unreasonably with the conduct of the
business of the Company and the Subsidiary. The Buyer will or will cause the
Company and the Subsidiary to retain such books and records in accordance with
the Company's record retention policies as presently in effect. During the
seven-year period beginning on the Closing Date, the Buyer will not dispose of
or permit the disposal of any such books and records not required to be retained
under such policies without first giving 60 days' prior written notice to the
Seller offering to surrender the same to the Seller at the Seller's expense; and
(b) Continental and its Affiliates will, upon the request and
at the expense of the Buyer, permit the Buyer and its representatives full
access at reasonable times and on reasonable notice and during normal business
hours to the books and records of Continental and its Affiliates related to the
business of the Company and the Subsidiary, to the extent that such access is
reasonably required by the Buyer in connection with (i) the preparation of any
required Tax Returns or financial reports or (ii) any claim, litigation, audit
or investigation or any other proper purpose arising out of the Seller's
ownership of the Company and the Subsidiary prior to the Closing, provided that
the foregoing will be done in a
<PAGE>
manner so as not to interfere unreasonably with the conduct of the business of
Continental and its Affiliates. Continental will, and will cause its Affiliates
to, retain such books and records in accordance with such companies' record
retention policies as presently in effect. During the seven-year period
beginning on the Closing Date, Continental and its Affiliates will not dispose
of or permit the disposal of any such books and records not required to be
retained under such policies without first giving 60 days' prior written notice
to the Buyer offering to surrender the same to the Buyer at the Buyer's
expense.
6.6 Post-Closing Notifications. Each of the Seller and the Buyer agrees
that it will, and each will cause its respective Affiliates to, comply with any
post Closing notification or other requirements, to the extent then applicable
to such party, of any antitrust, trade competition, investment, control or other
law of any governmental entity having jurisdiction over the Company and the
Subsidiary.
6.7 Tax Payments and Tax Returns.
(a) Tax Payments. The Seller and the Buyer will cause the
Company and the Subsidiary, to the extent permitted by law, to join, for all
periods ending on or prior to the Closing Date, in the consolidated federal
income Tax Returns of the consolidated group of which Continental is the common
parent or a member and in the Illinois income tax combined report that includes
the Seller, the Company and the Subsidiary. The Seller will pay, or cause to be
paid, all income Taxes reported as payable on such Tax Returns. The Seller will
also reimburse or indemnify the Buyer for, all other Taxes that are or may
become payable by the Company or the Subsidiary or chargeable as a Lien upon the
assets thereof and that (i) are attributable to any period or a portion thereof
ending or event occurring on or prior to the Closing Date, (ii) have not been
paid as of the Closing Date and (iii) have not been properly reflected in the
Closing Tax Reserves. The Buyer will pay or cause to be paid all Taxes that are
or may become payable by the Company or any Subsidiary or chargeable as a Lien
upon the assets thereof that are not described as being the responsibility of
the Seller in the preceding sentences.
(b) Tax Returns. The Seller will prepare and timely file, or
cause to be prepared and timely filed, with the relevant governmental
authorities all Tax Returns relating to the Company and the Subsidiary that are
required to be filed by Law on or prior to the Closing Date and (i) the
consolidated federal income Tax Returns of the consolidated group of which
Continental is the common parent or a member and in which the Company and the
Subsidiary are included, and (ii) the Illinois income tax combined report that
includes the Seller, the Company and the Subsidiary, in each case for all
periods ending on or prior to the Closing Date. The Buyer will prepare and
timely file, or cause to be prepared and timely filed, with the relevant
governmental authorities all Tax Returns relating to the Company and the
Subsidiary that are not described as being the responsibility of the Seller in
the preceding sentence.
(c) The Buyer and the Seller will cooperate with respect to the
preparation and filing of any Tax Return for which the other is responsible
pursuant to this Section 6.7.
(d) Conduct of Business. Notwithstanding any other provision of
this Agreement, the Buyer will be responsible for and neither Continental nor
the Seller will bear, any Taxes that arise due to the failure, following the
Closing, of the Buyer to cause the Company and the Subsidiary to carry on their
business on the Closing Date only in the ordinary course and in substantially
the same manner as heretofore conducted.
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(e) Audits and Other Proceedings. Following the Closing Date,
(i) Continental will control the conduct of all stages of any audit or other
administrative or judicial proceeding with respect to the federal income tax
liability of the consolidated group of which Continental is the common parent or
a member and with respect to the Illinois income tax liability of the combined
report group in which the Seller. the Company and the Subsidiary are included,
and (ii) the Buyer will control the conduct of all other audits or
administrative or judicial proceedings with respect to the Tax liability of the
Company and the Subsidiary for any tax period or portion thereof.
(A) With respect to any audit or other proceeding that it
controls, Continental (x) will give prompt notice to the Buyer of any Tax
adjustment proposed in writing pursuant to any audit or other proceeding
controlled by Continental with respect to the assets or activities of either of
the Company or the Subsidiary; upon the Buyer's reasonable request will discuss
with the Buyer and its counsel the position that Continental intends to take
regarding any issue concerning such assets or activities; and (y) will not, and
will not permit any of its Affiliates to, enter into any settlement or agreement
in compromise of any proposed adjustment which purports to bind the Buyer, the
Company or the Subsidiary with respect to any tax period ending after the
Closing Date without the express written consent of the Buyer, which consent
will not be unreasonably withheld; and
(B) the Buyer will give prompt notice to Continental of the
commencement of any audit or other proceeding which could give rise to a claim
for payment against Continental under this Agreement; (x) with respect to any
audit or proceeding controlled by the Buyer, afford Continental and its counsel
a reasonable opportunity to participate in the conduct of any administrative or
judicial proceeding regarding a proposed adjustment described in clause (i)
above including, without limitation, the right to participate in conferences
with tax authorities and submit pertinent material in support of Continental's
position; and (y) will not, and will not permit any of its Affiliates to, accept
any proposed adjustment or enter into any settlement or agreement in compromise
which would result in a claim for indemnification against Continental pursuant
to this Agreement without Continental's express written consent, which consent
will not be unreasonably withheld.
(f) Termination of Tax-Sharing Agreements. On or before the
Closing Date, all tax sharing, allocation, indemnity or other agreement or
arrangement relating to Taxes as to which Continental or any of its Affiliates
on the one hand, and the Company and/or the Subsidiary, on the other hand, are
parties or are otherwise bound (other than this Agreement) shall be terminated
and no party hereto shall have any further rights or obligations under any such
agreements or arrangement.
(g) Tax Election. The Buyer agrees that the common parent of
the federal income tax consolidated return group of which Continental, the
Company and the Subsidiary are members as of the Closing Date shall be entitled
to make the election provided for in Treasury Regulations, Section 1.1502-20(g)
in respect of the net operating losses, if any, of the Company and/or the
Subsidiary as of the Closing Date.
<PAGE>
6.8 Employee Matters and Plans.
6.8.1 Retirement Plan. Each Continuing Employee shall continue
to accrue benefits under the Seller's Retirement Plan through the Closing Date.
Prior to the Closing Date, the Seller shall take such action as may be necessary
so that, effective as of the Closing Date, (i) the Company and the Subsidiary
shall cease to participate in the Seller's Retirement Plan, (ii) the accrued
benefit of each Continuing Employee under the Seller's Retirement Plan shall be
fully vested and nonforfeitable, and (iii) no additional benefits shall accrue
for any Continuing Employee under the Seller's Retirement Plan on or after the
Closing Date. Buyer shall assume no liability or obligations in connection with
the Seller's Retirement Plan. After the Closing Date, Continuing Employees,
their beneficiaries and spouses, shall receive their benefits with respect to
the Seller's Retirement Plan in accordance with the terms of that Plan.
6.8.2 Savings Plan. Effective on the Closing Date, each
participant in the Seller's Savings Plan who is a Continuing Employee shall
cease to be an active participant under such plan and shall commence
participation in the Buyer's Savings Plan. As soon as practicable after the
Closing Date, the Seller shall transfer, or cause to be transferred, an amount
in cash equal to the account balances of the Continuing Employees under the
Seller's Savings Plan as of the Closing Date, increased by the actual amount of
any earnings on such account balances from the Closing Date to the date of
transfer, to the Buyer's Savings Plan. The Buyer's Savings Plan shall recognize
the service of Continuing Employees with the Seller, the Company and the
Subsidiary prior to the Closing Date, to the extent credited under the terms of
the Seller's Savings Plan, for all purposes under the Buyer's Savings Plan. Such
transfer of assets from the Seller's Savings Plan shall be effected as soon as
practicable after the later of (i) the expiration of a 30-day period following
the date of filing of the required notices with the IRS and (ii) the receipt of
an opinion of the Buyer's counsel that the terms of the Buyer's Savings Plan
meet the requirements of section 401(a) of the Code. The Buyer's Savings Plan
shall provide that Continuing Employees who do not have account balances in the
Seller's Savings Plan as of the Closing Date will receive credit, for purposes
of eligibility and vesting, for service with the Seller, the Company and the
Subsidiary.
6.8.3 Welfare Plans.
(a) Subsequent to the Closing Date, Continuing
Employees shall be governed by such employment policies of the Buyer as are from
time to time in effect and specifically designated for such employees.
(b) From and after the Closing Date, Continuing
Employees shall be eligible to participate in Fremont's Welfare Plans on the
same basis and terms as Fremont employees, provided that the Buyer agrees that
with respect to each Fremont Welfare Plan, each Continuing Employee shall be
credited with service for all applicable purposes under each such plan equal to
the service credited to such Continuing Employee as of the Closing Date under
the plan of the Seller, the Company or the Subsidiary most closely corresponding
to such Fremont General plan. The Buyer agrees that (i) all preexisting
illnesses, injuries and pregnancies that would have been covered under any
Welfare Plan of the Seller will be covered under the comparable welfare plans
maintained by the Buyer, the Company or the Subsidiary from and after the
Closing Date ("Fremont's Welfare Plans"), (ii) Fremont's Welfare Plans will
waive any and all waiting periods for eligibility to participants and (iii) it
will cause the comparable Fremont's Welfare Plans to recognize all welfare
expenses incurred by Continuing Employees and their eligible
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dependents prior to the Closing Date under any Welfare Plans of the Seller in a
fashion which shall provide that such Continuing Employees and their dependents
will not be required to incur expenses with respect to deductible amounts
greater than those that such individuals would have incurred had such Continuing
Employees participated in Fremont's Welfare Plans since the beginning of the
plan year of the relevant Fremont's Welfare Plans.
(c) Continental shall indemnify and hold harmless
the Buyer from and against any and all liabilities or obligations that were not
reflected and adequately reserved against in the Closing Balance Sheet in
respect of any Continuing Employees, their beneficiaries and spouses, arising
under or in connection with the Seller's Plans and Benefit Arrangements where
such liability or obligation relates to events, transactions or occurrences
occurring prior to or on the Closing Date.
6.8.4 Nonqualified Arrangements. Effective on the Closing Date,
the Buyer shall, or shall cause the Company or the Subsidiary to, assume and be
responsible for, and shall indemnify and hold harmless the Seller from and
against, any and all Liabilities or obligations arising from or relating in any
way to The Deferred Compensation Plan of The Continental Corporation, The Annual
Management Incentive Plan of The Continental Corporation, any other bonus or
incentive compensation arrangement (other than the Long-Term Incentive Plan of
The Continental Corporation), any excess benefit plan as defined in section
3(36) of ERISA, any supplemental executive retirement plan or similar
arrangement with respect to any Continuing Employee who, as of the Closing Date,
participates in or is eligible to participate in any such plan or arrangement,
but only to the extent such Liabilities or obligations are reflected and
adequately reserved against in the Closing Balance Sheet.
6.9 Transfer Taxes. The Buyer shall file, independently or jointly with
one or more of the Seller, the Company and the Subsidiary, as applicable law may
require, all real property and other transfer Tax filings required to be filed
by or with the cooperation of the Buyer in connection with the sale and delivery
by the Seller to the Buyer of the Shares.
6.10 WCRB Arrangements. From and after the Closing, the Seller and
Continental agree, jointly and severally, to indemnify and hold harmless the
Buyer from and against any assessments by the WCRB relating to accident years
prior to the Closing. Effective as of the Closing Date, the Company shall
assign, transfer and convey to the Seller all of its right, title and interest
in any and all recoverables to which the Company has or may become entitled to
recover from the WCRB relating to the accident years prior to the Closing.
6.11 Exclusivity; Acquisition Proposals.
Unless and until this Agreement shall have been terminated by
either party pursuant to Section 8.1 hereof,
(a) Continental and its Affiliates shall not, directly or
indirectly, through any officer, director, agent or otherwise, (i) solicit,
initiate or encourage submission of proposals or offers from any person relating
to (x) any acquisition or purchase of all or substantially all of the assets of,
or any equity interest in, the Company or the Subsidiary, or any merger,
consolidation, business combination or similar transaction with the Company or
the Subsidiary, or (y) any other material transaction incompatible with the
transactions contemplated by this Agreement (including, without limitation a
joint venture or other similar transaction), or (ii) participate in any
discussions or negotiations
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regarding, furnish to any other person any confidential information with respect
to, or otherwise cooperate in any way with, or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing, provided that, subject to Section 6.11(b)), the provisions of this
Section 6.11(a) shall in no way limit Continental's communications with CNA
Financial Corporation and its Affiliates. In the event that Continental or any
of its Affiliates receives from any third party any offer or indication of
interest regarding any of the transactions referred to in the foregoing
sentence, or any request for information about the Company or the Subsidiary
with respect to any of the foregoing, then the material terms of each such
offer, indication of interest, or request, including the identity of the third
party, shall be communicated promptly to the Buyer.
(b) Neither Continental nor any of its Affiliates shall,
directly or indirectly, disclose or reveal any Company Proprietary Information
to any other Person, including without limitation CNA Financial Corporation and
its Affiliates.
6.12 Paid Reinsurance Recoverables. The Buyer agrees that, subsequent to
the Closing Date, it will cause the Company or one of its Affiliates to use its
best efforts to collect the paid reinsurance recoverables as of the Closing Date
which have been assigned to the Seller as of the Closing and which will be set
forth on a schedule delivered by Continental to the Buyer on the Closing Date,
and to promptly remit to the Seller all amounts so collected. Such paid
reinsurance recoverables as of October 31, 1994 are set forth on Schedule 6.12
of the Seller's Disclosure Statement.
6.13 Use of Continental's Names and Logos. It is expressly agreed that
the Buyer is not purchasing or acquiring from the Seller or Continental any
right, title or interest in any names, trade names, trademarks, identifying
logos or service marks employing the words "The Continental Corporation" or the
Continental soldier or any confusingly similar name, trade name, trademark or
logo (collectively, the "Seller's Trademarks and Logos"). Except as specifically
provided in the following sentence and except as provided in the Casualty
Indemnity Reinsurance and Service Agreement, the Buyer agrees that neither it
nor any of its Affiliates shall make any use of the Seller's Trademarks and
Logos from and after the Closing Date. In addition, as promptly as practicable,
but in no event later than 180 days following the Closing Date, the Buyer shall,
and shall cause its Affiliates to, remove, strike over or otherwise obliterate
all of the Seller's Trademarks and Logos from all materials constituting their
properties and assets, including, without limitation, any business cards,
schedules, stationery, displays, signs, promotional materials, manuals, forms,
computer software and other materials, if such materials are distributed or made
available or proposed to be distributed or made available to third parties
(collectively, the "Materials"), provided that the foregoing shall not apply to
Materials used pursuant to the Casualty Indemnity Reinsurance and Service
Agreement. It is understood and agreed that during such 180-day period, and
thereafter with respect to the Profit Center Business to the extent provided in
the Casualty Indemnity Reinsurance and Service Agreement, the Buyer and its
Affiliates shall be entitled to use the Materials containing the Seller's
Trademarks and Logos without any obligation to pay royalties or similar fees to
the Seller.
6.14 Reinsurance Treaties.
(a) Without limiting any other indemnification provided by
Continental pursuant to this Agreement, Continental agrees to defend, indemnify
and hold harmless the Buyer Indemnitees from
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and against any Damages arising out of or related to reinsurance treaties in
force covering the Company and the Subsidiary as follows:
(i) all amounts in excess of any limitation to the
amount recoverable for any one person or any one
occurrence under such treaties;
(ii) all amounts in excess of any limitation on the
aggregate amount of total dollars recoverable from
such treaties, without regard to whether the
limitation is in the form of a limit on
reinstatements under such treaties or an aggregate
limit under such treaties;
(iii) all uncollectible balances from the reinsurers set
forth on Schedule 6.14 of the Seller's Disclosure
Statement;
(iv) all deductibles on the reinsurance agreements which
the Company or the Subsidiary would have to retain
before the reinsurers would begin to pay losses;
(v) all amounts payable in respect of additional
premiums or commissions;
(vi) all amounts payable on claims which reinsurers
refuse to pay by reason of late reporting of losses
by, or invoking of "Sunset" clauses as a result of
acts of, Continental or its subsidiaries; and
(vii) all amounts payable or unable to be recovered as a
result of (x) the Company's or the Subsidiary's
balance sheets showing as uncollected case reserves
which have in fact been collected from a reinsurer
and (y) amounts having been collected from a
reinsurer that were not properly due and payable to
the Company or the Subsidiary;
provided that, the Buyer Indemnitees shall be entitled to indemnification under
this Section 6.14 only up to an aggregate amount equal to the amount included as
reinsurance recoverables on the Closing Balance Sheet less. if the aggregate
amount included in such reinsurance recoverables in respect of ceded case
reserves as of the Closing Date exceeds the aggregate amount actually paid by
the Company in respect of such ceded cases, the amount of such excess.
(b) Notwithstanding any provision to the contrary contained in
the Transaction Documents, amounts recoverable pursuant to this Section 6.14
shall not be subject to, nor considered in computing amounts recoverable under,
Section 7.2.4.
6.15 NCCI Pool. The statement(s) for the National Council on
Compensation Insurance involuntary pools for the states of Illinois, Indiana and
Michigan for quarters ending up through the Closing Date, which have not been
received as of the Closing Date, shall be settled by the Buyer paying to the
Seller the amount of net income, or the Seller paying to the Buyer the amount of
net expense per such statement(s), within 30 days of receipt of the statement by
the Buyer or the Seller.
6.16 Financial Statements. Within 45 days following the Closing Date,
Continental will deliver to Fremont General the financial statements referred
to in Exhibit P.
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6.17 Reinsurance Security. Continental agrees that, if at any time after
the Closing Date, any Continental entity which is a party to the agreements set
forth in Sections 4.3(a) or 4.5 is downgraded to an A.M. Best rating below A-,
Continental shall provide Security in an amount equal to 100% of the applicable
reinsurance recoverable. Continental further agrees that, notwithstanding any
provision of this Agreement to the contrary, it will provide Security for total
unsecured reinsurance recoverables from all Continental's Affiliates in excess
of $15,000,000. The term "Security" as used in this Section 6.17 shall mean
security in the form of a clean, irrevocable, evergreen letter of credit
acceptable to the Company or funds withheld.
6.18 Cash and Suspense Items. The Buyer, the Seller and Continental
agree that subsequent settlement of cash charges or credits pertaining to the
Company and the Subsidiary that are not reflected on the Closing Balance Sheet
due to the current intercompany cash accounts maintained by Continental will
remain with the Company and the Subsidiary only to the extent that such items
(including escheatable amounts pertaining to checks issued prior to the Closing
Date) are reflected on the Closing Balance Sheet.
6.19 Information Systems Access. From the Closing Date until the earlier
of (i) the date which is 12 months after the Closing Date and (ii) the date the
Company ceases to use the existing relevant application software, the Buyer
will, upon the request and at the expense of the Seller, permit the Seller and
its representatives access at reasonable times and on reasonable notice and
during normal business hours to such systems to the extent reasonably necessary
in connection with the administration of the runoff workers' compensation
insurance policies written by the Company in the State of Texas. The Seller and
Continental agree, jointly and severally, to indemnify and hold harmless the
Buyer Indemnitees from and against any liability resulting from such access and
to reimburse the Buyer, the Company and the Subsidiary for any Damages resulting
from such access.
6.20 Compliance with Insurance Approval. Subsequent to the Closing Date,
the Buyer will use commercially reasonable efforts to comply with the terms and
conditions, if any, imposed by the letter delivered by the California Department
of Insurance approving the consummation of the transactions contemplated by this
Agreement to the extent that such terms and conditions are not waived, modified
or superceded subsequent to the date they are delivered.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1 Survival of Representations and Warranties. The representations and
warranties contained in Article III of this Agreement shall expire at 12:01
a.m., New York City time, on the first business day after the second anniversary
of the Closing Date, except for Sections 3.1.1, 3.1.2, 3.1.3, 3.2.1 and 3.4.1,
which shall terminate and expire concurrently with any statute of limitations
applicable thereto, and Section 3.1.9 (Tax Matters), which shall survive until
the expiration of the statute of limitations applicable to the particular Tax at
issue. All claims for indemnification under this Article VII with respect to the
indicated representations and warranties must be asserted on or prior to the
termination date of the respective survival periods set forth above.
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7.2 Indemnification.
7.2.1 By the Seller and Continental.
(a) From and after the Closing but subject to
Sections 7.1 and 7.2.4, the Seller and Continental agree, jointly and severally,
to defend, indemnify and hold harmless the Buyer Indemnitees, from and against
any Damages incurred or sustained by any Buyer Indemnitee arising out of or
resulting from the breach of, or any inaccuracy in, any of the representations,
warranties, covenants and agreements of the Seller or its Affiliates or the
Company contained in this Agreement, in any certificate or schedule delivered
pursuant hereto, or any agreement executed and delivered in connection with the
transactions contemplated under this Agreement.
7.2.2 By Continental. Without limiting Sections 6.8.3(c), 6.10,
6.14, 6.19 and 7.2.1,
(a) from and after the Closing but subject to
Sections 7.1 and 7.2.4, Continental agrees to defend, indemnify and hold
harmless the Buyer Indemnitees from and against any Damages incurred or
sustained by any Buyer Indemnitee arising out of or resulting from the breach
of, or any inaccuracy in, (i) any of the representations, warranties, covenants
and agreements of Continental contained in this Agreement or, in any certificate
or schedule delivered pursuant hereto, or (ii) any agreement of Continental or
the Seller Ancillary Parties executed and delivered in connection with the
transactions contemplated under this Agreement; and
(b) from and after the Closing, Continental agrees to
defend, indemnify and hold harmless the Buyer Indemnitees from and against any
(i) Damages incurred or sustained by any Buyer Indemnitee arising out of or
resulting from (x) the Excluded Business, including without limitation Damages
arising out of or related to Weatherford Roofing et al. v. Employers National
Insurance Company et al., or (y) the participation of the Company and the
Subsidiary in the Continental Pooling Agreement, and (ii) costs and expenses
directly incurred in connection with the defense of any claim brought against
any Buyer Indemnitee that is related to an action or proceeding brought by a
shareholder of Continental or its subsidiaries in connection with the proposed
purchase of Continental by CNA Financial Corporation and its Affiliates.
7.2.3 By the Buyer and Fremont General.
(a) From and after the Closing but subject to
Sections 7.1 and 7.2.4, the Buyer and Fremont General agree, jointly and
severally, to defend, indemnify and hold harmless the Seller Indemnitees, from
and against any Damages incurred or sustained by any Seller Indemnitee arising
out of or resulting from the breach of, or any inaccuracy in, any of the
representations, warranties, covenants and agreements of the Buyer or Fremont
General contained in this Agreement, in any certificate delivered pursuant
hereto, or any agreement executed and delivered in connection with the
transactions contemplated under this Agreement.
7.2.4 Limitations
(a) The Buyer Indemnitees will be entitled to
indemnification under Article VII only (i) to the extent that the aggregate
amount of Damages exceeds $2,500,000, which threshold amount shall thereafter be
recoverable by the Buyer Indemnitees, and (ii) up to an aggregate amount of
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$100,000,000. Notwithstanding the foregoing, the Buyer Indemnitees will be
entitled to full indemnification pursuant to Section 7.2.2(b)(i) and (ii),
Section 6.10 and Section 6.14 without regard to the limitations set forth in the
preceding sentence; provided, however, the Buyer Indemnitees will not be
entitled to indemnification if the amount claimed would not have arisen but for
a change in law made after the Closing Date.
(b) The Seller Indemnitees will be entitled to
indemnification under Article VII only (i) to the extent that the aggregate
amount of Damages exceeds $2,500,000, which threshold amount shall thereafter be
recoverable by the Seller Indemnitees, and (ii) up to an aggregate amount of
$100,000,000.
(c) For purposes of determining the amount of any
Damages incurred by the Seller Indemnitees or Buyer Indemnitees subject to
indemnification under this Article VII, the amount of any Damages shall be
reduced to take account of any net tax benefit actually realized by the
Indemnitee arising from the incurrence or payment by the Indemnitee of the
indemnifiable loss to which such Damages relate and after giving full effect to
the actual tax effect of receipt of the indemnification payments to the
Indemnitee, if any.
7.2.5 Indemnification Procedures.
(a) Promptly after receipt by an Indemnitee of notice
of any claim or the commencement of any action, or upon discovery of any facts
which an Indemnitee reasonably believes may give rise to a claim for
indemnification from an Indemnitor hereunder, such Indemnitee will, if a claim
in respect of such facts is to be made against an Indemnitor under Article VII,
notify such Indemnitor in writing in reasonable detail of the claim or the
commencement of such action, or of such facts. If any such claim is asserted or
brought against such Indemnitee, it will notify such Indemnitor of such claim,
and the Indemnitor will be entitled to participate in such claim, to assume (at
the Indemnitor's expense) the defense of such claim with counsel reasonably
satisfactory to the Indemnitee, and to settle or compromise such claim or
action, provided that such settlement or compromise may be effected (i) only
with the prior written consent of the Indemnitee, which consent will not be
unreasonably withheld, or (ii) if such settlement or compromise includes as an
unconditional term thereof the giving by each claimant or plaintiff to such
Indemnitee of a release from all liability with respect to such claim or
litigation. After notice to the Indemnitee of the Indemnitor's election to
assume the defense of such claim or action, the Indemnitor will not be liable to
the Indemnitee under Article VII for any legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense of such claim,
provided that the Indemnitee will have the right to employ counsel to represent
it if, in the Indemnitee's reasonable judgment, it is advisable for the
Indemnitee to be represented by separate counsel, and in that event the fees and
expenses of such separate counsel will be paid by the Indemnitee. If the
Indemnitor does not elect to assume the defense of such claim or action, the
Indemnitee will act reasonably and in accordance with its good faith business
judgment with respect thereto, and will not settle or compromise any such claim
or action without the consent of the Indemnitor, which consent will not be
unreasonably withheld. The parties agree to render to each other such assistance
as may reasonably be requested in order to insure the proper and adequate
defense of any such claim or proceeding.
(b) A failure to give timely notice or to include any
specified information in any notice as provided in this Section 7.2.5 will not
affect the rights or obligations of any party hereunder except, and only to the
extent that, as a result of such failure, any party which was entitled to
receive
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such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(c) Each Indemnitee will use reasonable efforts to
effect any recovery that may be available to it of amounts incurred or paid by
it in respect of Damages. If the amount of any Damages, at any time subsequent
to the making of a payment hereunder in respect thereof, is reduced (i) by
recovery, settlement or otherwise under or pursuant to any insurance coverage or
(ii) pursuant to any claim, recovery, settlement or otherwise against or with
any Person that is not an Affiliate of the Indemnitee, the amount of such
reduction, in each case less any costs or expenses of recovery (including
attorneys' fees and expenses), will promptly be repaid by the Indemnitee to the
Indemnitor. Upon making any payment hereunder in respect of any Damages, the
Indemnitor will, to the extent of such payment, be subrogated to all rights of
the Indemnitee against any Person that is not an Affiliate of the Indemnitee in
respect of the indemnifiable loss to which the Damages relates, provided that
(i) the Indemnitor is then in compliance with its obligations under this
Agreement in respect of such indemnifiable loss and (ii) until the Indemnitee
recovers full payment of its indemnifiable loss, any and all claims of the
Indemnitor against any such Person on account of said Damages will be subrogated
and subordinated in right of payment to the Indemnitee's rights against such
Person. Without limiting the generality or effect of any other provision hereof,
each such Indemnitee and Indemnitor will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
(d) Amounts payable in respect of Damages hereunder
will be treated for Tax purposes as adjustments to the Closing Purchase Price as
adjusted pursuant to Section 2.3, to the extent provided by law.
7.2.6 The provisions of Sections 7.2.1, 7.2.2, 7.2.3 and 7.2.4
in no way limit, supersede or otherwise affect the rights of any party under (a)
Sections 2.3, 6.10 or 6.14 and (b) the Ancillary Agreements. Notwithstanding the
previous sentence, or any other provision of this Agreement, no party will be
entitled to be compensated more than once for the same Damages or to
indemnification under Article VII to the extent that there is an adjustment to
the Closing Purchase Price pursuant to Section 2.3.
7.2.7 Exclusive Remedy. The indemnity provided for in this
Article VII will be the sole and exclusive remedy of any party to this Agreement
after the Closing for any inaccuracy of any representation or warranty of any
other party or any breach of any covenant or agreement contained in this
Agreement by any other party, provided that (i) the procedures in Section 6.7(e)
shall govern the conduct of any audit or other government proceeding with
respect to Taxes described therein and (ii) nothing contained in this Section
7.2.7 shall limit or prejudice any rights that the parties to the Ancillary
Agreements have with respect to such agreements in equity, law or otherwise.
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ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(i) by the written agreement of the parties;
(ii) by any party by written notice to the other party if the
Closing shall not have occurred by 5:00 p.m. New York City time on the day that
is six months after the date hereof, unless such date is extended by the mutual
written consent of the parties; or
(iii) by either the Seller, on the one hand, or the Buyer, on
the other hand, by written notice to the other parties if any condition
precedent (as specified in this Agreement) to the terminating party's
obligations shall not have been, or if it becomes apparent that any of such
conditions cannot reasonably be, fulfilled, and such condition precedent has not
been waived by the terminating party.
8.2 Effect of Termination. In the event this Agreement is terminated
pursuant to the provisions of Section 8.1, this Agreement will become void and
have no effect, without any liability to any Person in respect hereof or of the
transactions contemplated hereby on the part of any party hereto, except as
specified in Sections 6.3 and 6.4, provided that nothing herein shall relieve a
party from any liability resulting from its willful breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests, demands, waivers and other
communications under or in relation to this Agreement will be in writing and
will be deemed to have been duly given if (a) delivered personally, (b) mailed,
via certified or registered mail with first-class postage prepaid, return
receipt requested, (c) sent by next-day or overnight mail or delivery, (d) sent
by messenger, courier or other service providing proof of delivery, or (e)
transmitted by telecopy or telegram, as follows:
(a) If to the Seller or Continental:
The Continental Corporation
180 Maiden Lane
New York, NY 10038
Attention: William F. Gleason, Jr., Esq.
Senior Vice President,
General Counsel and Secretary
Telecopy: (212) 440-7982
Telephone: (212) 440-7380
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in each case, with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attention: Deborah F. Stiles, Esq.
Telecopy: (212) 909-6836
Telephone: (212) 909-6000
(b) if to the Buyer or Fremont General:
Fremont Compensation Insurance Company
500 North Brand Boulevard
Glendale, CA 91203
Attention: James E. Little
President and Chief Executive
Officer
Telecopy: (818) 549-4628
Telephone: (818) 549-4646
and
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, CA 90404
Attention: Louis J. Rampino
Executive Vice President
and Chief Operating Officer
Telecopy: (310) 315-5594
(310) 315-5505
in each case, with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Alan K. Austin, Esq.
Telecopy: (415) 493-6811
Telephone: (415) 493-9300
or to such other address or to such other Person as any party has previously
designated by notice pursuant to this Section to the other parties.
All such notices, requests, demands, waivers and other communications
will be deemed to have been received (i) if by personal delivery, on the day
delivered, (ii) if by certified or registered mail, on the fifth Business Day
after the mailing thereof, (iii) if by next-day or overnight mail or delivery or
by messenger, courier or other service, on the day delivered, (iv) if by
telecopy transmitted before the close
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<PAGE>
of business on any Business Day at the recipient's location, on the day
'transmitted if confirmation of receipt is acknowledged (either by voice or
automated acknowledgment), or (v) if by telecopy transmitted after the close of
business at the recipient's location or if no confirmation of receipt is
acknowledged or available, or if by telegram, on the Business Day following the
day on which such telecopy or telegram was transmitted, provided that a copy is
mailed as indicated in paragraph (b) above concurrently with such transmission.
9.2 Exclusivity of Representations and Warranties; Relationship between
the Parties. Notwithstanding anything contained in this Agreement, it is the
explicit intent and understanding of each of the parties that no party is making
any representation or warranty whatsoever, oral or written, express or implied,
other than those set forth in Article III (including the Schedules thereto) and
no party is relying on any statement, representation or warranty, oral or
implied, made by the others, except for the representations and warranties set
forth in such Article. The parties agree that this is an arm's length
transaction in which the parties' undertakings and obligations are limited to
the performance of their obligations under this Agreement. The Buyer
acknowledges that it is a sophisticated investor, that it has undertaken a full
investigation of the business of the Company and the Subsidiary (and has had
full and complete access to the books and records of the Company and full
opportunity to discuss such business with the Company's officers), and that it
has only a contractual relationship with the other parties, based solely on the
terms of this Agreement, and that there is no special relationship of trust or
reliance between the Buyer and any of the other parties.
9.3 Further Assurances. From and after the Closing Date, each party
will, from time to time, execute and deliver such additional certificates,
instruments, documents, conveyances or assurances and take such other actions as
may reasonably be requested by any other party to confirm and assure the rights
and obligations provided for in the Transaction Documents and to render
effective the consummation or implementation of the transactions contemplated
thereby, or otherwise to carry out the intent and purposes of this Agreement.
9.4 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
California applicable to agreements made and to be performed entirely within
such state, without regard to the conflicts of law principles of such state.
Each of the parties hereto submits to the nonexclusive jurisdiction of the
United States District Court for the Central District of California and any
California state court sitting in Los Angeles for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each of the parties hereto irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have
to the laying of the venue of any such proceeding brought in such a court, any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum and any right to which it may be entitled on account of its
place of residence or domicile.
9.5 Waiver of Punitive Damages. The parties to this Agreement expressly
waive and forego any right to recover punitive, exemplary, or similar damages in
any arbitration, lawsuit, litigation or proceeding arising out of or resulting
from any controversy or claim arising out of or relating to this Agreement, or
the breach, termination or validity of this Agreement, or the transactions
contemplated by this Agreement. Each party certifies and acknowledges that (a)
no representative, agent or attorney of any other party has represented
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver, (b) it understands and has
considered the implications of
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this waiver, (c) it makes this waiver voluntarily and (d) it has been induced to
enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 9.5.
9.6 Assignment. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns,
but shall not be assignable or otherwise transferable, by operation of law or
otherwise, by any party without the prior written consent of the other parties.
Any purported assignment or other transfer in violation of this Section 9.6
shall be void and unenforceable.
9.7 No Third Party Beneficiaries. Except as provided in Article VII with
respect to indemnification of Indemnitees hereunder, nothing in this Agreement
shall confer any rights upon any Person other than the parties hereto and their
respective heirs, successors and permitted assigns.
9.8 Modification; Waiver. This Agreement may be modified only by a
written instrument executed by the parties to this Agreement. Any of the terms
and conditions of this Agreement may be waived in writing at any time on or
prior to the Closing Date by the party entitled to the benefits of such terms
and conditions.
9.9 Entire Agreement. This Agreement and the Ancillary Agreements
constitute the entire agreement and supersedes all prior agreements,
understandings, representations and warranties, oral or written, between the
parties in respect of the subject matter of this Agreement (including, without
limitation, the Confidential Information Memorandum, and any supplements thereto
or materials or information delivered in connection therewith), except that this
Agreement does not supersede the Confidentiality Agreement, the terms and
conditions of which Fremont General, the Buyer, the Seller and Continental
expressly reaffirm.
9.10 Schedules. The Schedules to the Seller's Disclosure Statement and
the Buyer's Disclosure Statement form an integral part hereof. Capitalized terms
defined in one Schedule are used as so defined in all Schedules (unless the
context otherwise requires), and capitalized terms used in the Schedules without
definition are used as defined in this Agreement. The fact that any matter is
disclosed in any Schedule or previously disclosed to the Buyer in writing will
not be construed to mean that such disclosure is required by this Agreement,
including, without limitation, in order to render any representation or warranty
true or correct or in order to permit any action or event to take place
consistent with any covenant or agreement. The Seller or the Buyer may amend any
Schedule to the extent necessary to reflect changes resulting from events
occurring after the date of this Agreement, provided that without the prior
consent of the Seller or the Buyer, as the case may be (which consent shall not
be unreasonably withheld), the Seller or the Buyer, as the case may be, may not
amend any Schedule to correct or complete a Schedule that did not provide
adequate disclosure of facts and circumstances existing as of the date of this
Agreement, provided further that any amendment of a Schedule pursuant to this
sentence shall not be considered when determining whether the conditions
precedent set forth in Sections 5.2.1, 5.2.2 and 5.3.1 have been satisfied.
9.11 Severability. Any provision (including, without limitation, any
term, phrase, clause, sentence, section or subsection) of this Agreement which
is invalid or unenforceable for any reason in any jurisdiction will, as to that
jurisdiction, be ineffective only to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
provisions of this Agreement or affecting the validity or enforceability of the
remaining provisions of this Agreement in any other
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jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
9.12 Headings. The article and section headings in this Agreement are
for convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision of this Agreement.
9.13 Counterparts. This Agreement may be executed in several
counterparts, each of which is deemed an original and all of which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
THE BUCKEYE UNION INSURANCE COMPANY
By
Name:
Title:
THE CONTINENTAL CORPORATION
By
Name:
Title:
CASUALTY INSURANCE COMPANY
By
Name:
Title:
FREMONT COMPENSATION INSURANCE COMPANY
By
Name:
Title:
FREMONT GENERAL CORPORATION
By
Name:
Title:
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
THE BUCKEYE UNION INSURANCE COMPANY
By /s/ Wayne H. Fisher
Name: Wayne H. Fisher
Title: Senior Vice President
THE CONTINENTAL CORPORATION
By /s/ Wayne H. Fisher
Name: Wayne H. Fisher
Title: Senior Executive Vice President
CASUALTY INSURANCE COMPANY
By /s/ Robert H. Dorgan
Name: Robert H. Dorgan
Title: Vice President
FREMONT COMPENSATION INSURANCE COMPANY
By /s/ James E. Little
Name: James E. Little
Title: President and CEO
FREMONT GENERAL CORPORATION
By: /s/ Louis J. Rampino
Name: Louis J. Rampino
Title: Executive Vice President & COO
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Exhibit A
Aggregate Excess of Loss Reinsurance Agreement
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(the "Agreement")
between
CASUALTY INSURANCE COMPANY
of Chicago, Illinois
AND
WORKERS' COMPENSATION AND INDEMNITY
COMPANY OF CALIFORNIA
of Brea, California
(hereinafter referred to
as the "Reinsured")
and
THE CONTINENTAL INSURANCE COMPANY
of New York, New York
(hereinafter referred to as the "Reinsurer")
Policy Reference Number:
In consideration of the transactions and agreements set forth in the Stock
Purchase Agreement dated as of ______________, 1994 among Fremont Compensation
Insurance Company, Fremont General Corporation, The Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance Company (the
"Stock Purchase Agreement") and other good and valuable consideration, the
Reinsured and the Reinsurer agree as follows:
WITNESSETH:
The Reinsurer hereby reinsures the Reinsured's workers' compensation and
employers' liability insurance business to the extent and on terms and
conditions and subject to the exceptions, exclusions and limitations hereinafter
set forth and nothing hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or any
persons not parties to this Agreement.
<PAGE>
ARTICLE ONE
SUBJECT BUSINESS
This Agreement and the coverage hereunder applies to Aggregate Ultimate Net
Losses (as hereinafter defined) incurred by the Reinsured for the 1989 and
prior Accident Years (as defined below) in respect of the Subject Business. The
"Subject Business" means the insurance business of the Reinsured, other than
the Excluded Business (as defined in the Stock Purchase Agreement) (the
"Subject Business").
ARTICLE TWO
COVERAGE
(A) Subject to the provisions of Article Three, Limit of Liability, the
Reinsurer will indemnify the Reinsured for 100% of Aggregate Ultimate Net
Losses incurred for the 1989 and prior Accident Years as respects the
Subject Business and settled on and after the Closing Date (as defined in
the Stock Purchase Agreement).
(B) The Subject Business covered hereunder is set forth in Article One and is
subject to the Limit of Liability set forth in Article Three.
ARTICLE THREE
LIMIT OF LIABILITY
The Reinsurer agrees to reimburse the Reinsured as respects Aggregate Ultimate
Net Losses settled by the Reinsured for the 1989 and prior Accident Years in
respect of the Subject Business up to a limit (the "Limit of Liability") equal
to an amount which is the lesser of:
(A) the Aggregate Ultimate Net Loss reserves for the 1989 and prior Accident
Years in respect of the Subject Business as of the Closing Date, and
(B) $56 million.
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The Reinsurer's obligation to reimburse the Reinsured shall apply only to the
extent that the Ultimate Net Loss exceeds all ceded reinsurance balances payable
to the Reinsured pursuant to specific excess reinsurance as respects any loss to
which this Agreement applies (whether collectible or not).
ARTICLE FOUR
COMMENCEMENT AND TERMINATION
This Agreement shall be deemed to have an inception date of the Closing Date and
time and shall continue in full force and effect until all liability has ceased
or otherwise terminated.
ARTICLE FIVE
DEFINITIONS
(A) ULTIMATE NET LOSSES
(1) The term "Ultimate Net Loss" as used herein shall be understood
to mean all gross losses of the Reinsured for the 1989 and prior
Accident Years in respect of the Subject Business, net of
specific excess reinsurance recoverable applicable thereto
(whether collectible or not).
(2) All allocated loss adjustment expenses incurred by the Reinsured
pertaining to coverage hereunder ("ALAE") shall be included in
"Ultimate Net Loss" as defined above.
(3) All unallocated loss adjustment expenses incurred by the Reinsured
pertaining to the coverage hereunder ("ULAE") shall be included in
"Ultimate Net Loss" as defined above. For purposes of the
preceding sentence, ULAE shall be calculated as a percentage
(the "ULAE Percentage") of paid losses and ALAE by state as
submitted to the Reinsurer for settlement. The ULAE Percentage
for each state is as follows:
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<PAGE>
STATE(S) ULAE PERCENTAGE
Illinois 3%
Wisconsin, Michigan 7%
and Indiana
California 7.7%
(B) AGGREGATE ULTIMATE NET LOSSES
The term "Aggregate Ultimate Net Losses" as used herein means the sum total
of the Ultimate Net Losses.
(C) ACCIDENT YEAR
The term "Accident Year" as used herein means each twelve month period
commencing January 1st with losses incurred by the Reinsured being matched
to such period (regardless of when such losses are reported).
ARTICLE SIX
SALVAGES AND RECOVERIES
All salvages, recoveries and payments inuring to the benefit of this reinsurance
recovered or received subsequent to a loss settlement under this Agreement shall
be applied as if recovered or received prior to the said settlement and all
necessary adjustments shall be made by the parties hereto. Costs of obtaining
salvage or recoveries shall be deducted from the actual salvage or recovery
amount.
ARTICLE SEVEN
REPORTS AND REMITTANCES
(A) The Reinsured will submit reports to the Reinsurer monthly or quarterly
within thirty (30) days of the close of each calendar month or quarter;
such reports to
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furnish the Reinsurer with experience on the Subject Business in respect of
each Accident Year covered under this Agreement pertaining to:
(1) For monthly reports: (a) paid losses, ALAE and ULAE, and (b)
- -
recoveries, if any, due hereunder.
(2) For quarterly reports: (a) outstanding losses, ALAE and ULAE, and
-
(b) reserve for losses incurred but not reported ("IBNR").
-
(B) The manner in which the Reinsurer shall pay the Reinsured as respects any
and all amounts due hereunder and under any Commutation, if applicable, in
accordance with Article Seventeen shall be cash by the Reinsurer.
ARTICLE EIGHT
LOSS SETTLEMENTS
(A) Loss settlements by the Reinsurer shall be effected monthly. In accordance
with Article Seven, loss settlements shall be in cash and shall be paid by
Reinsurer to Reinsured within thirty (30) days of receipt of a of a monthly
report and demand from Reinsured to the Reinsurer.
(B) It is warranted that the Reinsurer's liability hereunder shall not be
impacted adversely by any material change subsequent to the inception of
this Agreement as respects the general administrative procedures
established by the Reinsured as respects settlement of losses covered
hereunder.
ARTICLE NINE
CURRENCY CLAUSE
All transactions hereunder shall be conducted in U.S. dollars. For the purposes
of this Agreement, all amounts relating to the Reinsured in currencies other
than U.S. dollars shall be converted into U.S. dollars at the rate of exchange
at which such items are entered in the Reinsured's books.
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<PAGE>
ARTICLE TEN
RESERVES
(This clause applies to Reinsurers (l) that do not qualify for credit by any
state or any other governmental authority having jurisdiction over the
Reinsured's loss and unearned premium reserves or for whom the Reinsured would
incur an overdue reinsurance liability, and (b) whose A.M. Best rating is below
"A-" (but only for the period of time that such rating is below that level))
As regards Policies issued by the Reinsured coming Within the scope of this
Agreement, the Reinsured agrees that, when it shall file with the Insurance
Department or set up on its books, unearned premium and loss reserves covered
hereunder (including IBNR) and any overdue reinsurance liability which it shall
be required to set up by law, it will forward to the Reinsurer a statement
showing the proportion of such reserves and liability which is applicable to
them. The Reinsurer hereby agrees to apply for and secure delivery to the
Reinsured, as Beneficiary, a clean, evergreen, unconditional, irrevocable letter
of credit, (including any confirmation thereof) in a form and from a bank
acceptable to the Reinsured and the governmental authority having jurisdiction
over the Reinsured's reserves. Alternatively, the Reinsurer shall (a) enter into
a trust agreement and establish a trust account in the United States of America
for the sole benefit of the Reinsured in such form and with a trustee that is
acceptable to the Reinsured and the governmental authority having jurisdiction
over the Reinsured's reserves, (b) establish a funds withheld account, or (c)
provide any other form of security that is recognized on the statutory financial
statements of the Reinsured. The amount available to be drawn by the Reinsured
against such letter of credit, or confirmation thereof, or from such trust
account shall at all times be no less than the Reinsured's share of said
reserves and liability and the Reinsurer agrees, irrespective of any
intermediary clause herein, that within ten (10) business days of delivery of
written notice of deficiency to it from the Reinsured that the Reinsurer shall
unconditionally deliver for receipt by the Trustee within such period, cash
(U.S. legal tender) and/or unencumbered eligible securities under the trust
agreement to restore such trust account to said amount or shall increase said
letter of credit to said amount.
The assets that are deposited and maintained in such trust account shall be
valued according to their current fair market value, and shall consist only of
cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Reinsured's
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<PAGE>
state of domicile; provided that no such investments are issued by an
institution that is the parent, a subsidiary or an affiliate of either the
Reinsured or the Reinsurer and that no state insurance department which has
authority to regulate the Reinsured has determined the types of securities
permitted by the domicile state to be ineligible investments for the purpose of
this trust account under its own laws. Within twenty (20) days of delivery of
notice of ineligible investments for the purpose of this trust account under its
own laws. Within twenty days of delivery of notice of ineligible securities from
the Reinsured to the Reinsurer, the Reinsurer, irrespective of any intermediary
clause herein, agree to direct the Trustee to substitute cash (U.S. legal
tender) or securities then eligible to the Reinsured for this trust account as
determined by the state insurance department(s), which are of no less than
equivalent fair market value to the trust assets determined to be ineligible.
Prior to depositing assets with the Trustee for such trust account, the
Reinsured shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Reinsured, or the trustee upon the direction of
the Reinsured, may whenever necessary negotiate any such assets without consent
or signature from the Reinsured or any other entity. All settlements of account
between the Reinsured and the Reinsurer shall be made cash or its equivalent.
The Reinsurer and the Reinsured agree that the assets in such trust account may
be withdrawn by the Reinsured at any time without notice to or consent of the
Reinsurer, notwithstanding any other provisions in the reinsurance or any other
agreement and shall be utilized and applied by the Reinsured or its successor in
interest without diminution because of insolvency on the part of the Reinsured
or the Companies, only for the following purposes:
1. to pay or reimburse the Reinsured for the unpaid or unreimbursed
portion of the Reinsurer's share of any losses and allocated loss
expenses paid by the Reinsured, or of unearned premiums due to the
Reinsured under this Agreement;
2. to reimburse the Reinsured for the Reinsured's share of surrenders and
benefits or Losses paid by the Reinsured pursuant to the provisions of
the Policies reinsured under this Agreement;
3. to fund an account with the Reinsured in an amount at least equal to the
deduction, for reinsurance ceded, from the Reinsured's liabilities for
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<PAGE>
the Policies ceded hereunder. Such account shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and
4. to pay any other amounts the Reinsured claims are due under this
Agreement and for any other purpose permitted by the trust agreement
establishing such trust account.
The Reinsurer shall have the right to seek approval from the Reinsured to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible
securities under the trust agreement establishing such trust account and
which at the time of receipt by the Trustee have a fair market value no
less than equal to the fair market value of the assets withdrawn so as
to maintain at all times the amounts available to be drawn under this
Article; or
2. after such withdrawal and transfer the current fair market value of the
unencumbered assets held in such trust account exceeds 102 % of the
amounts available to the drawn by the Reinsured from such trust account
under this Article.
It is agreed by the Reinsurer and the Reinsured that this Article shall survive
termination of this Agreement.
For the purpose of this Article, Reinsured shall mean the named Reinsured under
this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Reinsured
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Reinsured except if the Reinsured under this Agreement is domiciled in
California, in which case if a court of law appoints a successor in interest to
the named Reinsured, then the Reinsured is limited to the court appointed
domiciliary, receiver, conservator, rehabilitator or liquidator. Drawings by any
liquidator, rehabilitator, receiver or conservator of any named Reinsured not
domiciled in California shall be for the benefit of all the named Reinsured's
policyholders.
8
<PAGE>
ARTICLE ELEVEN
INSOLVENCY CLAUSE
In the event of the insolvency of the Reinsured and the appointment of a
conservator, liquidator, receiver or statutory successor of the Reinsured, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Reinsured having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or statutory successor has failed to pay all or a portion
of any claims. It is agreed, however, that the conservator, liquidator, receiver
or statutory successor of the Reinsured shall give written notice to the
Reinsurer of the pendency of a claim against the Reinsured indicating the policy
or bond reinsured which claim would involve a possible liability on the part of
the Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses that it may deem available to the Reinsured
or its conservator, liquidator, receiver or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the court, against the Reinsured as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Reinsured solely as a result of the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same claim
and a majority in interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of this Agreement as though
such expense had been incurred by the Reinsured.
As to all reinsurance made, ceded, renewed or otherwise becoming effective under
this agreement, the reinsurance shall be payable as set forth above by the
Reinsurer to the Reinsured or to its conservator, liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of the New York
Insurance Law or except (1) where the original contract of insurance or
reinsurance specifically provides another payee in the event of the insolvency
of the Reinsured, and (2) where the Reinsurer, with the consent of the direct
Principal or Principals, has assumed such policy obligations of
9
<PAGE>
the Reinsured as direct obligations of the Reinsurer to the payees under such
policies and in substitution for the obligations of the Reinsured to such
payees.
ARTICLE TWELVE
SERVICE OF SUIT
(A)
It is agreed that in the event of the failure of the Reinsurer hereon to pay any
amount claimed to be due hereunder, the Reinsurer hereon, at the request of the
Reinsured, will submit to the jurisdiction of any Court of competent
jurisdiction within the U.S. and will comply will all requirements necessary to
give such Court jurisdiction and all matters arising hereunder shall be
determined in accordance with the law and practice of such Court.
(B)
It is further agreed that service of process in such suit may be made upon
Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022 and that in any
suit instituted against the Reinsurer upon the Contract, the Reinsurer will
abide by the final decision of such Court or of an appellate
court in the event of an appeal.
(c)
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Reinsured to give a written undertaking to the Reinsured that they will enter a
general appearance upon the Reinsurer's behalf in the event that such a suit
shall be instituted.
(D)
Further, pursuant to any statute of any state, territory or district of the U.S.
which make provision therefor, the Reinsurer hereon hereby designates the
Superintendent, Commissioner or Director of Insurance or other officer specified
for that purpose in the statute, or his successor or successors in office, as
their true and lawful attorney upon whom may be served any lawful process in any
action, suit or processing instituted by or on behalf of the Reinsured or any
beneficiary hereunder arising out of this Agreement, and hereby designate the
above-named as the person to whom the said officer is authorized to mail such
process or a true copy thereof.
10
<PAGE>
ARTICLE THIRTEEN
INSPECTION AND REVIEW
The Reinsured shall place at the disposal of the Reinsurer and the Reinsurer
shall have the right to inspect and review, through its authorized
representatives, at all reasonable times during the currency of this Agreement
and thereafter the books, records and papers of the Reinsured pertaining to the
reinsurance provided hereunder and all claims made and reserves established by
the Reinsured in connection therewith.
At the Reinsurer's request and expense the Reinsurer may contract for an
independent actuarial review of the loss reports as respects the Subject
Business covered under this Agreement submitted in accordance with Article Seven
(A), subject to the prior approval, which shall not be unreasonably withheld, by
the' Reinsured.
ARTICLE FOURTEEN
OFFSET CLAUSE
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under the reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as assuming insurer or as ceding
insurer, in which each party acted under the agreement, provided, however, that,
in the event of the insolvency of a party hereto, offsets shall only be allowed
in accordance with the applicable provisions of New York Law. The application of
this offset provision shall not be deemed to constitute diminution in the event
of insolvency.
11
<PAGE>
ARTICLE FIFTEEN
ERRORS AND OMISSIONS CLAUSE
It is hereby declared and agreed that any inadvertent delays, omissions or
errors made in connection with this Agreement shall not be held to relieve
either of the parties hereto from any liability which would have attached to
them hereunder if such delays, omissions or errors had not been made; such
omissions and/or errors to be made good as soon as reasonably possible after
discovery.
ARTICLE SIXTEEN
WAR RISK EXCLUSION
Coverage under this Agreement shall not apply to any recovery otherwise due
hereunder if the losses incurred by the Reinsured be due to any enemy attack by
a Foreign Government or Sovereign Power or any action taken by the United
States of America, Canada or other Ally in resisting such attack.
ARTICLE SEVENTEEN
COMMUTATION
The Reinsured may elect to commute the coverage provided under this Agreement
with settlement effected in accordance with Article Seven. Such commutation may
be made (a) on any date during the twelve month period commencing March 31, 2002
-
(the "Commutation Date"), provided that the Reinsured give the Reinsurer as
least thirty (30) days written notice prior to the Commutation Date, and (b) by
-
payment by the Reinsurer to the Reinsured of an amount (the "Commutation
Amount") equal to the lesser of: (a) the Limit of Liability less all payments
-
made by the Reinsurer to the Reinsured under this Agreement, and (b) the
-
Aggregate Ultimate Net Loss carried reserves of the Reinsured for the 1989
and prior Accident Years in respect of the Subject Business as of the
Commutation Date.
Payment of the Commutation Amount in accordance with the provisions of this
Article shall terminate any and all liability of the Reinsurer under this
Agreement to effect payments to the Reinsured.
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<PAGE>
ARTICLE EIGHTEEN
ARBITRATION
If any dispute arises between the Reinsured and the Reinsurer with reference to
the interpretation, performance, or breach of this Agreement (whether the
dispute arises before or after termination of this Agreement) such dispute, upon
the written request of either party, will be submitted to three arbitrators, one
to be chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within thirty (30)
days after receipt of written notice from the other party requesting it to do
so, the requesting party may appoint both arbitrators. If the two arbitrators
fail to agree in the selection of a third within thirty (30) days of their
appointment, each will nominate three individuals, of whom the other will
decline two. The final decision will be made by drawing lots. All arbitrators
will be active or retired officers of insurance or reinsurance companies and
will not have personal or financial interests in the result of the arbitration.
The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
The jurisdiction of the arbitrators to make any decision will be restricted by
the limit of liability expressly set forth in this Agreement. The decision in
writing rendered by a majority of the arbitrators will be final and binding for
both parties. Such decision will be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment may be rendered upon the
final decision of the arbitrators in any court having jurisdiction.
Each party to this Agreement will bear the expense of its own arbitrator and
will equally divide the expense of the third arbitrator with the other party.
Except as provided above, arbitration will be based upon the procedures of the
American Arbitration Association.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate this __ day of , 1994.
FOR AND ON BEHALF OF
CASUALTY INSURANCE COMPANY
Name:
Title:
FOR AND ON BEHALF OF
WORKERS' COMPENSATION AND INDEMNITY COMPANY OF CALIFORNIA
Name:
Title:
And in duplicate this __ day of , 1994.
FOR AND ON BEHALF OF
THE CONTINENTAL INSURANCE COMPANY
Name:
Title:
<PAGE>
Exhibit B
Assumption Reinsurance and Administration Agreement
ASSUMPTION REINSURANCE AND ADMINISTRATION AGREEMENT
This ASSUMPTION REINSURANCE AND ADMINISTRATION AGREEMENT (this
"Agreement"), executed the __ day of , 199_ by and between [name of the Company]
solely in respect of the Business (defined in Article V hereof) (the "Company"),
and [name of Assuming Company], a corporation organized and existing under the
laws of the State of [name of domestic state of Assuming Company] (the "Assuming
Company").
WITNESSETH THAT
WHEREAS, a Stock Purchase Agreement dated as of , 1994 among Fremont
Compensation Insurance Company, Fremont General Corporation, The Buckeye Union
Insurance Company, The Continental Corporation and Casualty Insurance Company
(the 'Stock Purchase Agreement") was entered into; and
WHEREAS, pursuant to Section __ and __ of the Stock Purchase Agreement,
the Company and the Assuming Company are entering into this Agreement on the
terms and conditions contained herein so that the Company shall cede to the
Assuming Company one hundred percent (100%) of its gross direct obligations and
liabilities and rights under and relating to the Business and the Assuming
Company shall assume by novation such obligations and liabilities and rights of
the Company with respect to such Business subject to receipt of all necessary
regulatory approvals and requisite policyholder consents thereto;
NOW, THEREFORE, in consideration of the mutual covenants and premises,
and subject to the terms and conditions, stated herein, the parties hereto agree
as follows:
ARTICLE I
BUSINESS ASSUMPTIVELY REINSURED
1. The Company hereby cedes to the Assuming Company, and the Assuming
Company hereby assumes from the Company as direct obligations of the Assuming
<PAGE>
Company, one hundred percent (100'%) of the Policy Liabilities (as defined in
Article V hereof) relating to any and all binders, riders, policies, contracts
and endorsements of direct insurance and all slips, cover notes, treaties or
contracts of reinsurance constituting the Business (all such binders, riders,
policies, contracts, endorsements, slips, cover notes, treaties and reinsurance
contracts referred to above are referred to herein as the 'Policy' or 'Policies.
').
2. The Assuming Company shall have the benefit of any and all rights of
action defenses, recoupments, setoffs and counterclaims to which the Company
would be entitled with respect to such Policy Liabilities, it being expressly
understood and agreed by the parties hereto that no such defenses, recoupments,
setoffs or counterclaims are waived by the execution of this Agreement or the
consummation of the transactions contemplated hereunder and that, on and after
the Effective Date (as defined in Article IV hereof), the Assuming Company shall
be fully subrogated to all such defenses, recoupments, setoffs and
counterclaims.
3. On and after the Effective Date, subject to receipt of all necessary
regulatory approvals and requisite policyholder consents, the Assuming Company
shall be the successor to the Company under the Policies as if such Policies
were direct obligations of the Assuming Company. The Assuming Company
substitutes itself in the place and stead of the Company as if named in the
place of the Company, and each insured or reinsured under any Policy may
thereafter disregard the Company as a party thereto and treat the Assuming
Company as if it had been originally obligated thereunder. Payments made by the
Assuming Company to insureds or reinsureds subsequent to the Effective date in
discharge of obligations to provide direct coverage to insureds or reinsureds
will diminish any alleged obligation in respect thereof which the Assuming
Company may have to the estate of the Company if it shall be in receivership,
liquidation or rehabilitation proceedings. After the Effective Date, the
insureds or reinsureds shall have the right to file claims arising under and as
provided in Article VI hereof, with respect, to the Policies, directly with the
Assuming Company, and the Assuming Company hereby consents to be subject to
direct action taken by any insured or reinsured in accordance with such
insured's or reinsured's rights under, or as provided herein, with respect to
the Policy; provided, however, that this Agreement shall not confer upon any
insured or reinsured's rights other than such rights that the insured or
reinsured would have had in the absence of this Agreement (except that in
assessing such rights no effect shall be given to any bankruptcy, liquidation,
insolvency, reorganization or moratorium of the Company, or the effect of laws
or legal procedures affecting enforcement of creditors' rights against the
Company generally). On and after the Effective Date, the Assuming
2
<PAGE>
Company, shall have all rights to subrogation and salvage under the Policies and
to any third party action in connection with the Policies.
4. The Assuming Company shall, after the execution of this Agreement, use
its best efforts to immediately issue to each direct insured and reinsured of
any inforce Policies and runoff Policies subject to any claim a certificate of
assumption substantially in the form attached hereto as Exhibit A or with
respect to an insured, as otherwise required by law of the state where the risk
is located. In each case such direct insured shall be afforded a reasonable
period of time in which to object to such assumption in the manner provided in
Exhibit A hereto or as expressly provided by statutory law. The obligation of
the Assuming Company hereunder shall not be diminished by any receivership,
liquidation or rehabilitation proceedings as to the Company.
ARTICLE II
ASSIGNMENT OF REINSURANCE AGREEMENTS
1. Regardless of whether reinsurance novation agreements are entered
into between the Assuming Company and any reinsurer, the Assuming Company shall
be deemed substituted for and succeed to all of the rights and liabilities of
the Company, and shall be recognized for all purposes as the 'Company" hereunder
in substitution for the Company, under any reinsurance agreements in effect as
of the Effective Date between the Company (as the named cedent) and any
reinsurer solely with respect to the Policies (the 'Reinsurance Agreements'). As
of the Effective Date, the Company shall use its best efforts to assign, and the
Assuming Company shall hereby, be bound by and assume, any and all rights and
obligations of the Company with respect to the Policies under any Reinsurance
Agreement including amounts held by or which may become due from reinsurers for
losses or loss adjustment expenses on the Policies for which the Assuming
Company has assumed liability or for losses paid by the Company which were not
indemnified prior to the Effective Date. The Company agrees to enter into
endorsements in substantially the form attached hereto as Exhibit B, when and if
reasonably requested by the Assuming Company.
2. As of the Effective Date, the Company shall assign to the Assuming
Company all reinsurance recoverables on or under the Reinsurance Agreements with
respect to the Policies.
3
<PAGE>
3. The Company shall, if reasonably requested by the Assuming Company,
aid the Assuming Company, at the Assuming Company's expense, in collection of
all amounts due in respect of the Policy Liabilities from reinsurers which may
not account for the assignment hereunder and do not agree to an endorsement to
the applicable Reinsurance Agreements, and shall forward any funds collected to
the Assuming Company. The collectibility of such reinsurance shall be at the
risk and for the account of the Assuming Company.
4. Notwithstanding the foregoing, the Assuming Company shall have full
power and authority in accordance with the designation of the Assuming Company
as attorney-in-fact for the Company pursuant to Article VI hereof for purposes
of assigning and administering the Policies and Reinsurance Agreements, and to
assign or to act for and in the name of the Company with respect to any and all
funds withheld, letters of credit and trust funds outstanding for the benefit of
the Company in respect of the Business pursuant to the terms of any of the
Reinsurance Agreements. The Company shall upon request of and at the expense of
the Assuming Company, if necessary, assist the Assuming Company to cause the
reinsurer under the Reinsurance Agreements to provide funds withheld for the
Assuming Company and/or to post letters of credit and/or trust funds replacement
or otherwise, to be issued directly in favor and for the benefit of the Assuming
Company, in such amount and form as the Assuming Company shall require,
consistent with the terms of the Reinsurance Agreements, and subject to
execution by the reinsurer of the Reinsurance Novation Agreement Endorsement in
a form substantially similar to Exhibit B hereto.
ARTICLE III
TERRITORY
This Agreement shall apply to Policies covering risks wherever situated.
ARTICLE IV
TERM
This Agreement shall be made effective as of 12:01 A.M., [date of
Effective Date] (the "Effective Date'), and shall continue in effect until and
unless terminated in accordance with Article XI hereof.
4
<PAGE>
ARTICLE V
DEFINITIONS
The term "Policy Liabilities" shall mean all gross liabilities and
obligations of the Company based upon or arising out of the Policies (excluding
liabilities and obligations paid or otherwise discharged prior to the Effective
Date) before deduction for all applicable cessions, if any, under the
Reinsurance Agreements and, in addition, shall include losses, liabilities,
unpaid declared dividends, assignments, assessments, costs and expenses (i)
arising out of the Company participation in assigned risk plans, guaranty funds
or governmentally mandated programs or associations of any kind which are
predicated in any way on the Policies or the business reinsured thereunder, or
the premium volume generated by the Policies, regardless of when the losses,
liabilities, costs or expenses are incurred, any premium loss or charge is
assessed, or any policy under any such plan, program or association is written,
(ii) arising out of the handling of any claim under any Policy, including, but
not limited to, liability arising out of alleged or actual bad faith or
negligence in rejecting a settlement within any policy limits, in the duty to
defend, in the preparation of the defense, in the trial of any action against
any policyholder or in the preparation or prosection of an appeal consequent
upon such action and (iii) arising out of claims of reinsurers relating to the
Policies, whether for additional premiums or otherwise.
The term "Business" shall mean [describe the Business to be transferred by
the Company to the Assuming Company].
ARTICLE VI
POLICY ADMINISTRATION
1. The Assuming Company shall administer and service all of the Policies
novated under this Agreement. The Company grants to the Assuming Company
authority in all matters relating to risk management and policy administration,
to the extent such authority may be granted pursuant to applicable law,
including but not limited to policy changes and filings, reinstatement
standards, premium rate changes and filings, policy renewals, broker,
administrator, and agents commissions and compensation, and administrative
methods and procedures. In order to assist and to more fully evidence the
substitution of the Assuming Company in the place and stead
<PAGE>
of the Company, the Company hereby nominates, constitutes and appoints the
Assuming Company as the attorney-in-fact of the Company with respect to the
rights, duties, privileges and obligations of the Company in and to the Policies
and to any and all Reinsurance Agreements solely in respect of the Policies on
which the Company is the sole named Cedent, with full power and authority to act
in the name, place and stead of the Company with respect to the Policies and
such Reinsurance Agreements including without limitation, the power, without
reservation, to service all Policies; to adjust, to defend, to settle and to pay
all claims; to prosecute any third party action in connection with the Policies;
to recover salvage and subrogation for any losses incurred under any of the
Policies; to adjust, draw down, modify, renew, replace or otherwise act as to
letters of credit or trust funds, or funds withheld and to take such other and
further actions as may be necessary or desirable to effect the transactions
contemplated by this Agreement.
2. The Assuming Company shall bear all expenses in connection with the
administration of the Policies incurred on or after the Effective Date.
3. The Assuming Company shall have authority and discretion with respect
to all matters relating to claim settlement, salvage, arbitration, mediation and
litigation concerning the Policies and Reinsurance Agreements in which the
Company was the sole named cedent including, but not limited to, the selection
of counsel, arbitrators and mediators. The Assuming Company shall bear all
expenses incurred in connection with settling such claims, with recovering any
salvage amounts, with exercising rights of subrogation or with such arbitration,
mediation or litigation, including but not limited to the cost of routine
investigations, legal fees and interest charges and shall pay directly on behalf
of the Company all amounts due under the Policies and Reinsurance Agreements.
ARTICLE VII
INDEMNIFICATION
1. The Assuming Company shall indemnify the Company against, and hold it
harmless from, (i) Policy Liabilities (as defined in Article V) and (ii) all
losses, claims, damages and liabilities and shall reimburse the Company for all
expense of any kind or nature whatsoever (including reasonable attorneys' fees)
as incurred, that are based upon or arise out of (x) the breach of any
obligation of the Assuming Company provided for in this Agreement or (y) the
failure by Assuming Company to
6
<PAGE>
discharge any obligations of the Company to the extent that the same are assumed
by the Assuming Company pursuant to this Agreement.
2. The Company shall indemnify the Assuming Company against, and hold it
harmless from, all losses, claims, damages and liabilities and shall reimburse
the Assuming Company for such and all expenses of any kind or nature whatsoever
(including reasonable attorneys' fees) as incurred in connection therewith, that
are based upon or arise out of the breach of any obligation of the Company
provided for in this Agreement on or after the Closing Date.
ARTICLE VIII
PREMIUMS
1. As consideration for the assumption of the Policy Liabilities by the
Assuming Company, the Company shall [terminate the [name of indemnity
reinsurance agreement] entered into between the Company and the Assuming
Company executed on ., 1994 for each Policy that is novated under this Agreement
and allow the Assuming Company to retain the ceded assets and liabilities for
such novated Policy].
2. The Assuming Company shall be entitled to one hundred percent (100%)
of all premium adjustments and other consideration not already received by the
Assuming Company, with respect to the Policies written or renewed on or prior to
the Effective Date including any funds in respect of novated Reinsurance
Agreements in regard to the Policies and policies issued or serviced for which
liability may attach under Article V(1) ("Plan Policies"). The Company shall
promptly remit and hereby assigns to the Assuming Company any premiums and other
considerations received by it in respect of any of the Policies and as otherwise
provided herein. Furthermore with respect to any such remittance, the Company
shall also promptly furnish the Assuming Company with any information received
by the Company accompanying any such remittance pertaining thereto (e. g., the
nature of the payment, source of funds, policy number and period(s) to which it
relates and any special rates or instructions accompanying same). On the
Effective Date, the Assuming Company shall assume the responsibility for
adjusting premiums.
ARTICLE IX
7
<PAGE>
RECORDS AND ACCOUNTING
1. The Company shall forward to the Assuming Company such books, records,
reports, underwriting files, policies, reinsurance agreements, claims files and
similar documents in respect of the Policies, reinsurance thereof, and Plan
Policies (the "Records") and shall cooperate with the Assuming Company in the
transfer of the administration of the Policies, Reinsurance Agreements and Plan
Policies to the Assuming Company. All right, title and interest in the Policies,
Reinsurance Agreements and Plan Policies and the Records shall vest in the
Assuming Company for utilization and disposition in any manner by the Assuming
Company, provided that the Assuming Company (i) shall provide the Company access
during the Assuming Company's normal business hours, to all such reports,
records and information necessary to permit the Company to respond to or comply
with requests for information by governmental or judicial authorities, insurance
regulatory bodies, financial auditors or tax auditors or to defend lawsuits or
for any other valid business purpose agreed to by the Assuming Company (which
Agreement shall not be unreasonably withheld), and (ii) shall not destroy any
Records without at least 30 days written notice to the Company, during which
time the Company shall have the right to take possession of such Records, at the
expense of the Company.
2. All premium adjustments, losses, and loss adjustment and expenses
incurred after the Effective Date in respect of the Policies, reinsurance
thereof, and Plan Policies will be accounted for as the obligation of the
Assuming Company. The Company will have no further obligations for accounting
for the business under this Agreement as of and after the Effective Date.
ARTICLE X
AMENDMENT OR TERMINATION
This Agreement may be amended or terminated only by written instrument
signed by both parties, and upon any necessary prior approval or no objection
from any regulatory authority.
ARTICLE XI
GENERAL PROVISIONS
8
<PAGE>
1. All notices and other communications shall be in writing and shall be
delivered personally or mailed postage prepaid, certified or registered mail,
return receipt requested, or telexed, to the party at the address set forth
after its respective name below or at such different address as such party shall
have advised the other party in writing:
If to the Company:
c/o
Attention:
If to the Assuming Company:
c/o
Attention:
2. The invalidity or unenforceability of any provision or portion hereof
shall not affect the validity or enforceability of the other provision or
portions hereof.
3. Any inadvertent delay, omission or error shall not be held to
relieve either party hereto from any obligation under this Agreement, if such
delay, omission or error is rectified immediately upon discovery and will not
prejudice the other party.
4. This Agreement:
(a) constitutes the entire agreement and supersedes all prior
agreements, understandings, and negotiations, both written and oral,
between the parties with respect to the subject matter hereof;
(b) may be executed in counterparts (or by counterpart signature
pages), each of which shall be deemed an original and all of which
constitute one and the same instrument;
9
<PAGE>
(c) is not intended to confer any rights upon any person other than the
parties hereto consenting policyholders and their respective successors and
assigns;
(d) shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; and
(e) shall be governed by and construed in accordance with the laws
of the state of domicile of the Company.
10
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement
as of the first day and year written above.
[Name of the Company]
By
Name:
Title:
[Name of the Assuming Company]
By
Name:
Title:
11
<PAGE>
[ASSUMING COMPANY NAME AND ADDRESS]
Attn:
NOTICE AND CERTIFICATE
OF
ASSUMPTION
Policy No.:
Issued To:
This is to certify that, pursuant to the terms of an Assumption
Reinsurance and Administration Agreement, the above policy and all endorsements
thereto (herein called the 'Policy") issued by [name of Company] was assumed by
[name of Assuming Company].
This change is effective the later of 12:10 A.M. on [Effective Date] [
] or the Policy effective date.
All of the terms and conditions of the Policy remain unchanged, except
that [name of Assuming Company] shall be the insurer. All premium payments,
notices, claims and suits or actions of the Policy shall hereafter be made to
[name of Assuming Company] as though it had issued the Policy originally.
Inquiries concerning the Policy should be directed to [name of Assuming
Company] at the address indicated above. The Certificate should be attached to
and made part of the Policy.
IN WITNESS WHEREOF, [name of Assuming Company] has caused this Notice
and Certification of Assumption to be signed by its duly authorized officer.
[ASSUMING COMPANY NAME]
<PAGE>
By:
Name:
Title:
2
<PAGE>
[ASSUMING COMPANY NAME AND ADDRESS]
(Name)
(Address)
Re: Policy No.
Dear
The [name of Assuming Company] has assumed all obligations and
liabilities under the above insurance policy previously issued to you by [name
of Company].
[Name of Assuming Company] is a subsidiary of ____________. ____________
is [no longer] an affiliate [or subsidiary] of ________________________.
Enclosed is a Notice and Certificate of Assumption that evidences this
assumption.
This assumption in no way affects your insurance coverage, your rights
and obligations under the policy, or the insurer's rights and obligations under
the policy, except that [name of Assuming Company] is now the insurer in place
of [name of Company].
This assumption does not require any action on your part. If you wish to
object to this transfer of your policy, you must send us a letter so stating and
returning the enclosed Notice and Certificate of Assumption no later
than ____________.
If you take no action, you will be deemed to have accepted and consented to
the direct assumption of the policy by [name of Assuming Company] and the
release of [name of Company].
Very truly yours,
<PAGE>
Name:
Title:
2
<PAGE>
EXHIBIT B
REINSURANCE NOVATION AGREEMENT ENDORSEMENT
This Agreement is made and entered into by and among [name of Company]
(the "Ceding Company"), [name of Assuming Company] (the "Assuming Company") and
___________ (the "Reinsurer") as of the _____ day of _________, 19__.
WHEREAS, the Ceding Company and the Reinsurer entered into a [reinsurance
treaty contract (Contract Number) dated ____________ or reinsurance treaties
or contracts as on the attached schedule] (the "Contract") whereby the
Reinsurer acts as a reinsurer of the Ceding Company; and
WHEREAS, the Ceding Company and the Assuming Company have entered into an
Assumption Reinsurance and Administration Agreement dated (the "Assumption
Reinsurance Agreement") whereby the Assuming Company has assumed all of the
gross policy obligations of the Ceding Company under the policies covering the
Business which are the subject of the Contract; and
WHEREAS, the parties wish to substitute the Assuming Company for the
Ceding Company as a party to the Contract in respect of the Business;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the Ceding Company, the Assuming Company and the Reinsurer
agree as follows:
1. On and after the Effective Date (as defined below), the Assuming
Company shall assume all of the liabilities and obligations of the Ceding
Company under the Contract in respect of the Business and shall be substituted
for the Ceding Company, in the Ceding Company's name, place and stead, as the
cedent thereon so as to consummate a novation of the Contract and release the
Ceding Company from any and all liabilities or obligations thereunder in respect
of the Business.
2. On and after the Effective Date, the Assuming Company shall be
entitled to all of the rights of the Ceding Company under the Contract in
respect of novated Business and shall be entitled to enforce all such rights in
the name, place and stead of the Ceding Company.
3. The effective date of this Endorsement shall be 12:01 a.m.
[Effective Date] (the 'Effective Date").
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4. "Business" means [include definition of Business from the
Assumption Reinsurance and Administration Agreement].
IN WITNESS WHEREOF,
the parties have entered into this Endorsement as of the first day and year
written above.
[Name of Company]
By:
Name:
Title:
[Name of Assuming Company]
By:
Name:
Title:
[Name of the Reinsurer]
By:
Name:
Title:
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Exhibit C
Casualty Indemnity Reinsurance and Service Agreement
INDEMNITY REINSURANCE
AND SERVICE AGREEMENT
This Indemnity Reinsurance and Service Agreement (the "Agreement") is
made and entered into by and among Casualty Insurance Company, an Illinois
capital stock insurance company with its principal business offices located at
321 Clark St., Chicago, Illinois 60610 (referred to herein as the "Reinsurer" or
the "Administrator"), Boston Old Colony Insurance Company, a Massachusetts
capital stock insurance company with its principal business offices located at
180 Maiden Lane, New York, New York 10038 ("BOC"), National-Ben Franklin
Insurance Company of Illinois, an Illinois capital stock insurance company with
its principal business offices located at 200 South Wacker Dr., Chicago,
Illinois 60606 ("NBF") and The Continental Insurance Company, a New Hampshire
capital stock insurance company with its principal business office located at
180 Maiden Lane, New York, NY 10038 ("CIC"). BOC and NBF are referred to herein
collectively as the "Original Insurers". CIC is referred to herein as the
"Company" or the "Reinsured".
WITNESSETH:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as
of _________ __, 1994 among Fremont Compensation Insurance Company
("Fremont Compensation"), Fremont General Corporation, The Buckeye Union
Insurance Company ("Buckeye"), The Continental Corporation and Reinsurer
(the "Stock Purchase Agreement"), Fremont Compensation has agreed to
purchase from Buckeye all of the outstanding capital stock of the
Reinsurer for the consideration recited in, and subject to the terms
and conditions of, the Stock Purchase Agreement; and
WHEREAS, Reinsurer desires to issue directly worker's compensation and
employers' liability insurance policies but, as of the Effective Date (as
defined herein), all required licenses and approvals from state insurance
regulators of certain jurisdictions have not been obtained including, without
limitation, approvals to use applicable policy forms, rates, rating plans and
dividend plans; and
WHEREAS, pending receipt of such approvals, Reinsurer desires to
continue to accept risks and obligations on certain new or renewal workers'
compensation and employers' liability insurance policies issued and delivered by
each Original Insurer,
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and each Original Insurer agrees to continue to directly write certain policies,
pending the Reinsurer obtaining such approvals; and
WHEREAS, the Original Insurers desire to cede to the Reinsured and the
Reinsured desires to assume 100% of the risks and obligations under such polices
pursuant to the Intercompany Pooling Agreement by and between the Reinsured and
its U.S. affiliates (the "Pooling Agreement"); and
WHEREAS, Reinsured desires to retrocede to the Reinsurer 100% of the
risks and obligations under such policies issued by the Original Insurers and
assumed by the Reinsured under the Pooling Agreement; and
WHEREAS, pending the assumption and novation of such policies ceded to
Reinsurer as provided for in the Stock Purchase Agreement, Reinsurer desires to
provide, and the Original Insurers desire to accept, certain administrative
services with respect to such policies issued and ceded hereunder.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Assumption Agreement" shall mean the Assumption Reinsurance and
Administration Agreement as defined in the Stock Purchase Agreement.
1.2 "Books and Records" shall mean (a) all policy file records,
policyholder service records, claims records, underwriting records, accounting
records, correspondence, audit papers, statutory filing materials (including,
but not limited to, records of regulatory authority approval or filing of policy
forms, endorsements, riders, supplemental contracts, applications, premium
rates, rating plans, dividend plans and actuarial memoranda prepared in
developing same) relating to the Policies, including all electronically stored
data relating thereto, and (b) all supplies of blank policy forms, riders,
endorsements, supplemental contracts, applications, premium notices and other
similar forms pertaining to the Policies.
1.3 "Effective Date" shall mean the Closing Date and time as defined in
the Stock Purchase Agreement.
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1.4 "Expenses" shall mean expenditures by or on behalf of the Reinsured
in payment of dividends, commissions, taxes, assessments (including, but not
limited to, assessments pursuant to those laws and regulations creating
obligatory funds such as insurance guaranty and insolvency funds, pools, joint
underwriting associations, FAIR plans, Assigned Risk plans and similar plans)
and all other expenses of whatever nature, except Loss Expenses, attributable to
the issuance by the Reinsured of business reinsured hereunder.
1.5 "Liability" shall mean all liability, including but not limited to,
Losses and Loss Expenses, provided that "Liability" shall not include direct
Expenses incurred by or on behalf of the Reinsured.
1.6 "Losses* shall mean the amount of any settlement, award or judgment
paid by or on behalf of the Reinsured (including interest accrued prior to final
judgment which is included as part of the final judgment), after deduction of
all recoveries, salvages, chose in action subrogations, whether received or not.
Losses shall include Loss Expense as provided in Section 1.7, extra contractual
obligations as provided in Article 16 and loss excess of original policy limits
as provided in Article 17.
1.7 "Loss Expenses" shall mean expenditures by or on behalf of the
Reinsured in the direct defense, investigation or settlement of claims and
allocated to an individual claim or loss, but not including office expenses or
salaries, other compensation and expenses of regular employees. "Loss Expenses"
shall include investigation, appraisal, adjustment, negotiation and legal
expenses, court costs, statutory penalties, Prejudgment Interest or Delayed
Damages (as defined herein) and interest on any judgment or award. However, the
salaries and office expenses of officials and staff classified by the
Administrator as field adjusters, rehabilitation coordinators, medical
management nurses, hearing representatives and claims attorneys, allocated to a
specific claim, or to a loss occurrence arising out of a natural disaster, shall
be included in the Loss Expenses, but not the salaries and expenses of other
Administrator's personnel.
1.8 "Plan of Operation" shall mean the Plan of Operation set forth in
Appendix A.
1.9 *Policies" shall mean the workers' compensation and employers'
liability insurance contracts or policies issued and delivered by NBF and BOC
pursuant to Section 3.1 of this Agreement on and after the Effective Date.
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1.10 "Prejudgment Interest" or "Delayed Damages" shall mean interest or
damages added to a settlement, verdict, award, or judgment based on the amount
of time prior to the settlement, verdict, award, or judgment whether or not
made part of the settlement, verdict, award, or judgment.
1.11 "Services" shall mean the ordinary and reasonable services of, and
incidental to, the marketing, underwriting, issuance, renewal, billing and
collection, administration and claims handling of insurance contracts and
policies, as specified in the Plan of Operation. Services shall not include the
payment of premium taxes by the Reinsured to any taxing jurisdiction with
respect to the Policies.
ARTICLE 2
EFFECTIVE DATE: TERMINATION
The effective date of this Agreement shall be the Effective Date.
This Agreement shall become effective only upon the Closing (as defined in the
Stock Purchase Agreement) of the purchase and sale of the Shares (as defined in
the Stock Purchase Agreement). This Agreement will remain in full force and
effect until all Liabilities have been indemnified in full by the Reinsurer.
ARTICLE 3
OBLIGATIONS OF THE ORIGINAL INSURERS
3.1 Policy Issue and Delivery.
3.1.1 BOC agrees to issue and deliver guaranteed cost workers'
compensation policies in Michigan and flat dividend workers compensation
policies in Wisconsin on the basis of rate and form filings made in accordance
with the Plan of Operation for the period commencing on the Effective Date and
terminating, on the earlier of (a) the first anniversary of the Effective Date,
or (b) the licensing of the Reinsurer for workers' compensation insurance and
the approval or deemed approval of comparable rate and form filings as
necessary, for such classes of business in such state or states.
3.1.2 NBF agrees to issue and deliver guaranteed cost and retrospective
workers' compensation policies in Wisconsin on the basis of rate and form
filings
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made in accordance with the Plan of Operation for the period commencing on the
Effective Date and terminating, on the earlier of (a) the first anniversary of
the Effective Date, or (b) the approval or deemed approval of comparable rate
and form filings as necessary for such classes of business in Wisconsin.
3.1.3 Each policy issued and delivered pursuant to this Article 3 shall
be included in the following annual statement line of business:
Line 16 Workers' Compensation and Employers' Liability
3.1.4 Each Original Insurer shall use its best efforts to maintain all
licenses and approvals necessary to continue the issuance of policies under this
Article in such jurisdictions for the periods described in this Article. Each
Original Insurer shall issue policies under this Article in conformance with the
Plan of Operation, provided that, no Original Insurer shall be required to issue
or administer any such policies in violation of applicable law, regulation, or
order.
ARTICLE 4
OBLIGATIONS OF ADMINISTRATOR
4.1 Services. Administrator shall provide to each Original Insurer all
Services with respect to the Policies, subject to the terms and conditions of
this Agreement. Administrator shall perform the Services in a manner adequate to
satisfy the commitments of the Original Insurers under the Policies, and shall
use its best efforts to avoid actions or inactions that would cause injury to
the goodwill of the Original Insurers.
4.2 Indemnification. Administrator shall indemnify and hold each Original
Insurer and the Reinsured (the "Indemnitee") harmless from all losses, claims,
damages and liabilities and shall reimburse the Indemnitee from all expenses of
any kind or nature whatsoever (including reasonable attorneys' fees) as
incurred, that are based upon or arise out of (a) breach of any obligation of
the Administrator provided for in this Agreement, and (b) any acts, errors or
omissions of the Administrator or its officers, directors, agents or employees
relating to Services to be provided by Administrator under this Agreement. For
purposes of this Section 4.2, "liabilities" shall include, without limitation,
any declaratory judgment expense, extra-contractual or punitive damages, excess
of limits obligations and fees and expenses (including,
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without limitation, all insurance regulatory fines and penalties relating to any
Policy that may arise because of Administrator's actions or inactions, or those
of its affiliates, directors, officers, agents or employees).
ARTICLE 5
AGENCY
Each of the Original Insurers hereby appoints Administrator its
attorney-in-fact, solely in respect of the Policies and shall cooperate with
Administrator in determining what authorizations are necessary, and shall obtain
all authorizations necessary for, or reasonably requested by, Administrator to
validity act as the agent of the Original Insurer for the purpose of providing
the Services under this Agreement.
ARTICLE 6
REGULATORY ACTIONS
Administrator, Reinsured and each Original Insurer shall promptly advise
each other whenever notice is received of any proposed regulatory action or
sanction against Administrator, Reinsured or any Original Insurer relating to
the Policies. The parties agree to work together in good faith and use their
best efforts to resolve the proposed regulatory action or sanction so as to
protect the good names of the parties.
ARTICLE 7
REPORTS, ACCOUNTING AND REMITTANCES
7.1 Within thirty (30) days after the end of each month, the Reinsured
shall report to the Reinsurer on the Policies ceded hereunder: (a) ceded net
written premiums for the month; (b) provisional expenses thereon; and (c) ceded
losses (including loss expenses) paid during the month.
Upon completion of the report, the Administrator will prepare a report of
the cash receipts and disbursements during the month, and advise the Reinsured
and
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Reinsurer of the balance due to or from the parties. Such balance due, is to be
paid within thirty (30) days of the receipt of such cash flow exhibit. The
Administrator shall, pursuant to the Plan of Operation, provide Reinsured,
Reinsurer and Original Insurer with all required reports and accounting.
7.2 Within thirty (30) days after the end of each calendar quarter, the
Reinsured shall report to the Reinsurer the ceded unearned premiums and ceded
outstanding loss reserves as of the end of the calendar quarter.
7.3 Annually, the Reinsured shall furnish the Reinsurer with such
information as the Reinsurer and the Original Insurers may require to complete
their statutory annual statements.
ARTICLE 8
NO ASSIGNMENT
Neither the Original Insurer nor the Reinsurer may sell or transfer its
interest in any of the Policies reinsured by Reinsurer hereunder, other than as
contemplated under the Stock Purchase Agreement.
ARTICLE 9
INSPECTION
So long as any Policy is reinsured under this Agreement, the
Reinsured and the Original Insurers agree to allow Reinsurer, its attorneys,
accountants and actuaries, upon reasonable notice and during regular business
hours, to inspect and copy their Books and Records relating to the Policy. So
long as any Policy is reinsured under this Agreement, Reinsurer agrees to allow
Reinsured and the Original Insurers and each of their attorneys, accountants and
actuaries, upon reasonable notice and during regular business hours, to inspect
and copy any Books and Records of Reinsurer relating to such Policy.
ARTICLE 10
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INDEMNITY REINSURANCE
10.1 Commencement of Liability. The liability of the Reinsurer as to any
Policy ceded hereunder shall commence on the date on which the liability of any
Original Insurer on such Policy commences or is reinstated.
10.2 Termination of Liability. The liability of the Reinsurer under this
Agreement as to any Policy ceded or retroceded hereunder shall terminate
simultaneously with that of the Original Insurer.
10.3 Limit of Liability. Reinsurer's maximum liability on any one loss
or in the aggregate shall be 100%.
10.4 Reinsurance Premium. The Reinsured shall pay to the Reinsurer 100%
of the premiums (and premium adjustments) received by the Reinsured in respect
of the Policies ceded hereunder.
10.5 Indemnity Reinsurance. Reinsured shall cede to Reinsurer, and
Reinsurer agrees to accept, 100% of all Liability under and in respect of any
Policy hereunder.
10.6 Expense Reimbursement. Reinsurer shall pay the Reinsured for all
direct Expenses incurred by or on behalf of the Reinsured.
10.7 Reimbursements. It is agreed that reimbursement for premiums,
Losses and Expenses under this Article will be made in accordance with Article
7.
ARTICLE 11
RESERVES
(This clause applies only to Reinsurers that do not qualify for credit
by any state or any other governmental authority having jurisdiction over the
Company's loss and unearned premium reserves or for whom the Company would incur
an overdue reinsurance liability. )
As regards Policies issued or assumed by the Company coming within the
scope of this Agreement, the Reinsured agrees that, when it shall file with the
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Insurance Department or set up on its books, unearned premium and loss reserves
covered hereunder (including IBNR) and any overdue reinsurance liability which
it shall be required to set up by law, it will forward to the Reinsurer a
statement showing the proportion of such reserves and liability which is
applicable to them. The Reinsurer hereby agrees to apply for and secure delivery
to the Company, as beneficiary, a clean, evergreen, unconditional, irrevocable
letter of credit (including any confirmation thereof), in a form and from a bank
acceptable to the Company and the governmental authority having jurisdiction
over the Company's reserves. Alternatively, the Reinsurer shall enter into a
trust agreement and establish a trust account in the United States of America
for the sole benefit of the Company in such form and with a trustee that is
acceptable to the Company and the governmental authority having jurisdiction
over the Company's reserves. The amount available to be drawn by the Company
against such letter of credit, or confirmation thereof, or from such trust
account shall at all times be no less than the Company's share of said reserves
and liability and the Reinsurer agrees, irrespective of any intermediary clause
herein, that within ten (10) business days of delivery of written notice of
deficiency to it from the Company that the Reinsurer shall unconditionally
deliver for receipt by the trustee within such period, cash (U.S. legal tender)
and/or unencumbered eligible securities under the trust agreement to restore
such trust account to said amount or shall increase said letter of credit to
said amount.
The assets that are deposited and maintained in such trust account shall
be valued according to their current fair market value, and shall consist only
of cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Company's state of domicile; provided that no such
investments are issued by an institution that is the parent, a subsidiary or an
affiliate of either the Company or the Reinsurer and that no state insurance
department which has authority to regulate the Company has determined the types
of securities permitted by the domicile state to be ineligible investments for
the purpose of this trust account under its own laws. Within twenty (20) days of
delivery of notice of ineligible investments for the purpose of this trust
account under its own laws. Within twenty (20) days of delivery of notice of
ineligible securities from the Company to the Reinsurer, the Reinsurer,
irrespective of any intermediary clause herein, agrees to direct the trustee to
substitute cash (U.S. legal tender) or securities then eligible to the Company
for this trust account as determined by the state insurance department(s), which
are of no less than equivalent fair market value to the trust assets determined
to be ineligible.
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Prior to depositing assets with the trustee for such trust account, the
Company shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Company, or the trustee upon the direction of the
Company, may whenever necessary negotiate any such assets without consent or
signature from the Company or any other entity. All settlements of account
between the Company and the Reinsurer shall be made cash or its equivalent.
The Reinsurer and the Company agree that the assets in such trust account
may be withdrawn by the Company at any time without notice to or consent of the
Reinsurer, notwithstanding any other provisions in the reinsurance or any other
agreement and shall be utilized and applied by the Company or its successor in
interest without diminution because of insolvency on the part of the Company or
the Companies, only for the following purposes:
1. to pay or reimburse the Company for the unpaid or
unreimbursed portion of the Reinsurer's share of any losses and allocated
loss expenses paid by the Company, or of unearned premiums due to the
Company under this Agreement;
2. to reimburse the Company for the Company's share of
surrenders and benefits or losses paid by the Company pursuant to the
provisions of the Policies reinsured under this Agreement;
3. to fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the Company's
liabilities for the Policies ceded hereunder. Such account shall include,
but not be limited to, amounts for policy reserves, claims and losses
incurred, and unearned premium reserves; and
4. to pay any other amounts the Company claims are due under
this Agreement and for any other purpose permitted by the trust agreement
establishing such trust account.
The Reinsurer shall have the right to seek approval from the Company to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
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1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible
securities under the trust agreement establishing such trust account and
which at the time of receipt by the trustee have a fair market value no
less than equal to the fair market value of the assets withdrawn so as to
maintain at all times the amounts available to be drawn under this Article;
or
2. after such withdrawal and transfer the current fair market
value of the unencumbered assets held in such trust account exceeds 102 %
of the amounts available to the drawn by the Company from such trust
account under this Article.
It is agreed by the Reinsurer and the Company that this Article shall
survive termination of this Agreement.
For the purpose of this Article, Company shall mean the named Company
under this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Company
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Company except if the Company under this Agreement is domiciled in California,
in which case if a court of law appoints a successor in interest to the named
Company, then the Company is limited to the court appointed domiciliary,
receiver, conservator, rehabilitator or liquidator. Drawings by any liquidator,
rehabilitator, receiver or conservator of any named Company not domiciled in
California shall be for the benefit of all the named Company's policyholders.
ARTICLE 12
INSOLVENCY
In the event of the insolvency of the Company and the appointment of a
conservator, liquidator, receiver or statutory successor of the Company, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Company having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or
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statutory successor has failed to pay all or a portion of any claims. It is
agreed, however, that the conservator, liquidator, receiver or statutory
successor of the Company shall give written notice to the Reinsurer of the
pendency of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the Reinsurer
within a reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency of
such claim, the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated any defense or
defenses that it may deem available to the Company or its conservator,
liquidator, receiver or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the court, against the
Company as part of the expense of conservation or liquidation to the extent of a
pro rata share of the benefit which may accrue to the Company solely as a result
of the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
As to all reinsurance made, ceded, renewed or otherwise becoming
effective under this agreement, the reinsurance shall be payable as set forth
above by the Reinsurer to the Company or to its conservator, liquidator,
receiver or statutory successor, except (1) where the original contract of
insurance or reinsurance specifically provides another payee in the event of the
insolvency of the Company, and (2) where the Reinsurer, with the consent of the
direct Principal or Principals, has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the Company to such payees.
ARTICLE 13
ARBITRATION
If any dispute arises between the Company and the Reinsurer with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this Agreement) such
dispute, upon the written
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request of either party, will be submitted to three arbitrators, one to be
chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after receipt of written notice from the other party requesting
it to do so, the requesting party may appoint both arbitrators. If the two
arbitrators fail to agree in the selection of a third within thirty (30) days of
their appointment, each will nominate three individuals, of whom the other will
decline two. The final decision will be made by drawing lots. All arbitrators
will be active or retired officers of insurance or reinsurance companies and
will not have personal or financial interests in the result of the arbitration.
The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
The jurisdiction of the arbitrators to make any decision will be
restricted by the limit of liability expressly set forth in this Agreement. The
decision in writing rendered by a majority of the arbitrators will be final and
binding for both parties. Such decision will be a condition precedent to any
right of legal action arising out of the arbitrated dispute. Judgment may be
rendered upon the final decision of the arbitrators in any court having
jurisdiction.
Each party to this Agreement will bear the expense of its own arbitrator
and will equally divide the expense of the third arbitrator with the other
party. Except as provided above, arbitration will be based upon the procedures
of the American Arbitration Association.
ARTICLE 14
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed
to be due hereunder or meet its other obligations, the Reinsurer, at the
request of the
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Company, shall submit to the jurisdiction of any court of competent jurisdiction
within the United States and all matters arising hereunder shall be determined
in accordance with the law and practice of such court. The Reinsurer agrees that
any judgment rendered by such court shall be enforceable against the Reinsurer
in the jurisdiction of its domicile.
Service of process in such suit may be made upon the Secretary of the
Reinsurer and, in any suit instituted against the Company or the Reinsurer under
this Agreement, the Reinsurer will abide by the final decision of such court or
of any appellate court in the event of an appeal.
The Reinsurer warrants that the Secretary is authorized and directed to
accept service of process on behalf of the Reinsurer in any suit and, upon the
request of the Company, to give a written undertaking to the Company that a
general appearance upon the Reinsurer's behalf will be entered in the event such
a suit shall be instituted.
Further, pursuant to the requirement of a statute of any state, territory
or district of the United States which makes provision therefor, the Reinsurer
hereby designates the Superintendent, Commissioner or Director of Insurance or
their successors in office, as its true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by or on
behalf of the Company or any beneficiary arising out of this Agreement. The
Reinsurer hereby designates the Secretary as the person to whom this said
officer is authorized to mail such process or a true copy thereof.
The provisions of this Article are not intended to conflict with or
override the obligation of the parties to arbitrate under Article 13.
ARTICLE 15
SELF-INSURED OBLIGATIONS
As respects all business the subject matter hereof, this Agreement
shall cover self-insured obligations of the Company assumed by it as a
self-insurer including self-insured obligations in excess of any valid and
collectible insurance available to the Company to the same extent as if all
types of insurance covered by this Agreement were afforded under the broadest
forms of policies issued by the
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Company provided, such self-insured obligations are within the scope of
underwriting criteria furnished by the Company to the Reinsurer.
Any insurance or reinsurance wherein the Company hereby reinsured
and/or its affiliates and/or subsidiary companies are named as the insured or
reinsured party, either alone or jointly with some other party, shall be deemed
to be insurance or reinsurance coming within the scope of this Agreement,
notwithstanding that no legal liability may arise in respect thereof by reason
of the fact that the Company hereby reinsured and/or its affiliated and/or
subsidiary companies are named as the insured or reinsured party or one of the
insured or reinsured parties.
ARTICLE 16
EXTRA-CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company for any Extra
Contractual Obligations within the limits hereof. The term "Extra Contractual
Obligations" is defined as those liabilities not covered under any other
provision of this Agreement and which arise from the handling of any claim on
business covered hereunder, such liabilities arising because of, but not limited
to, the following: failure by the Agreement to settle within the policy limit,
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation of prosecution
of an appeal consequent upon such action.
The date on which an Extra Contractual Obligation is incurred by
the Agreement shall be deemed, in all circumstances, to the date of the original
disaster and/or casualty.
However, this Article shall not apply where the loss has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Company acting individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
ARTICLE 17
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EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company, within the limits hereof, in
connection with loss in excess of the limit of its original policy, such loss in
excess of the limit having been incurred because of failure by it to settle
within the policy limit or by reason of alleged or actual negligence, fraud, or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts
for which the Company would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 18
OVERSIGHT
It is expressly understood and agreed that if failure to comply with any
condition of this Agreement is shown to be unintentional and as a result of
misunderstanding, oversight or clerical error on the part of either the
Reinsurer, Administrator, the Reinsured or any Original Insurer, then
appropriate adjustments shall be made so that the Reinsurer, Administrator,
Reinsured or Original Insurer shall be restored to the position they would have
occupied had no such error or oversight occurred.
ARTICLE 19
OFFSET
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Each party hereto shall have, and may exercise at any time and from time
to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under any reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as assuming insurer or as ceding
insurer, in which each party acted under any agreement, provided, however, that,
in the event of the insolvency of a party hereto, offsets shall only be allowed
in accordance with the applicable provisions of New York Law. The application of
this offset provision shall not be deemed to constitute diminution in the event
of insolvency.
ARTICLE 20
EXCLUSIONS
This Agreement follows the exclusions under the Policies.
ARTICLE 21
TERRITORY
The Reinsurer's liability will be for all Losses occurring on a risk
located anywhere covered under the original Policies.
ARTICLE 22
SALVAGE AND SUBROGATION
(This Article applies only when there is no enforceable assignment of salvage
and subrogation rights by the Reinsured to the Reinsurer).
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The Reinsurer will be credited with salvage and/or subrogation (i.e.,
reimbursement obtained or recovery made by the Reinsured less the actual cost,
excluding salaries of employees and office expenses of the Reinsured and sums
paid to attorneys as retainers, incurred in obtaining such reimbursement or
making such recovery) pertaining to the claims and settlements involving
reinsurance hereunder. The Reinsured will enforce its right to salvage and/or
subrogation relating to any Loss and will prosecute all claims arising out of
such right. Should the Reinsured refuse or neglect to enforce this right the
Reinsurer is hereby empowered and authorized to instigate appropriate action in
the name of the Reinsured. If salvage and/or subrogation is insufficient to
cover the expense incurred in its recovery, the net expense will be apportioned
in proportion to the Reinsurer's respective interest in this Agreement.
ARTICLE 23
INTERMEDIARY
The parties to this Agreement represent and warrant to each other that no
intermediary was involved in the procurement of this Agreement.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate as a
waiver of any thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement are cumulative and not exclusive of any rights or
remedies provided by law.
24.2 Entire Agreement; Modification. This Agreement and the Stock
Purchase Agreement set forth the entire agreement and understanding between the
parties as to the subject matter hereof, and merges and supersedes all prior
discussions, agreements, representations, and understandings of every and any
nature between them, and no party shall be bound by any condition, definition,
warranty, or representation, other than as expressly set forth or provided for
in this Agreement or
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the Stock Purchase Agreement. This Agreement may not be changed or modified,
except by agreement in writing, signed by all of the parties hereto.
24.3 Third-Party Beneficiaries. This Agreement is made exclusively
between Reinsurer and the Reinsured and the Original Insurers and the acceptance
by Reinsurer of the liabilities of the Policies ceded hereunder shall not create
any right or legal relation whatsoever between Reinsurer and the policyholder,
the insured or the beneficiary under any such Policy.
24.4 Severability. It is the desire and the intent of the parties that
the terms and conditions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular term
or condition of this Agreement shall be adjudicated or becomes by operation of
law invalid or unenforceable, this Agreement shall be deemed amended to delete
therefrom the portion which is adjudicated or which becomes by operation of law
invalid or unenforceable, and the reminder of this Agreement shall remain in
full force and effect unless such deletion would materially prejudice the rights
of any party to this Agreement of frustrate the fundamental purposes of this
Agreement.
24.5 Notices. All notices, requests, demands certificates and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or upon the second day following mailing,
which shall be by certified or registered mail, with first-class postage paid to
the address listed below:
To the Reinsured or the Original Insurers:
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attn:
To Reinsurer:
Casualty Insurance Company
[Address]
Attn:
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24.6 Further Instruments. Each party shall, on such dates as another may
request, without cost or expense to such other, execute and deliver or cause to
be executed and delivered to the requesting party such further instruments as
such party may reasonably request to more effectively consummate the
transactions contemplated by this Agreement.
24.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24.8 Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof or be
construed as adding to or derogating from the meaning of the text of this
Agreement.
24.9 Governing Law. The provisions hereof shall be governed by the laws
of the State of without regard to its principles of conflicts
of law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
The Continental Insurance Company
By:
[name]
[title]
Boston Old Colony Insurance Company
By:
[namel
[title]
National-Ben Franklin Insurance
Company of Illinois
By:
[name]
[title]
Casualty Insurance Company
By:
[name]
[title]
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[Administrator
By:
[name]
[title]]
II060&]O
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Appendix A
PLAN OF OPERATION
Policies shall be serviced under this Agreement according to the
following Plan of Operation. In general, Administrator shall direct, approve,
and perform the issuance, renewal and administration of Policies and the
handling of claims thereon. Original Insurer and Administrator agree to the
following specifics:
1. The Administrator may appoint local agents for the purpose of soliciting and
producing insurance business subject hereto using procedures and the
Original Insurer's standard form of limited agency agreement in effect on
the Closing Date. The Original Insurer must approve any changes to such
procedures or form of limited agency agreement.
2. The Administrator may, within the scope of his authority, (a) solicit,
receive and accept applications or proposals for insurance; (b) issue and
countersign policies of insurance and endorsements thereto; and (c)
effect cancellation of such policies.
3. The Administrator shall be responsible for all policies entrusted to it,
whether issued or not, and shall only issue policies in series.
4. The Administrator shall be responsible for underwriting risks and
determining rates appropriate therefor consistent with the filed and
approved rates, rating plans and dividend plans of the Original Insurer.
5. The Administrator shall collect, receive and receipt for premiums due for
the insurance subject hereto.
6. The Administrator shall adjust, compromise, settle, deny and/or pay all
losses incurred under policies issued pursuant hereto, and maintain usual
and customary records with respect to such loss handling in accordance
with the legal requirements of the various states and in accordance with
any reasonable requirements made by the Original Insurer. The Original
Insurer reserves the right to review relevant information and consult
with the Administrator on any matter involving payment, adjustment,
compromise, settlement or denial of any claim with an incurred value of
$500,000 or more, or any claim, regardless of incurred value, involving
any one of the following types of
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claims: fatality, brain damage, spinal cord injury with partial/total
paralysis, employer liability, AIDS, heart attack, asbestos, serious
burns or disfigurement, substantial bilateral hearing loss, substantial
loss of sight, amputation or loss of use of 100% of upper or lower
extremity, strokes, multiple fractures of major body parts, mental
illness and emotional stress with total disability potential. Claims
of the kinds described in the preceding sentence must be reported to
the Original Insurer within thirty (30) days of administrator becoming
aware of the claim. The Original Insurer shall be entitled to perform
an audit, not more than twice each calendar year, of the Administrator
in order to ascertain that the Administrator is acting in accord
with the standards of this Item 6.
7. The Administrator shall not issue any advertising or promotional material
bearing the Original Insurer's name without first obtaining the written
approval of the Original Insurer. All advertising materials, sales
brochures and other sales materials shall be in compliance with all
applicable insurance regulations, and, if applicable and required by
law or regulation, Administrator shall deliver a Certificate of
Compliance to each Original Insurer annually to enable such Original
Insurer to make any required state filings.
8. No changes shall be made to an Original Insurer's product filings
including, without limitation, policy forms, rates, rating plans and
dividend plans (the "Product Change"), without prior approval of the
Original Insurer. Administrator shall give each Original Insurer at
least thirty (30) days prior notice advising the Original Insurer of
its need to file any Product Change with any state insurance regulator.
Such notice shall be accompanied by a description of the proposed
Product Change. Unless the Original Insurer objects to the proposed
Product Change within thirty (30) days of receipt of the proposal, the
Original Insurer will be deemed to have approved the proposed Product
Change. The Original Insurer will not unreasonably withhold approval
of any proposed Product Change.
9. The Administrator shall comply with all laws and regulations governing the
Original Insurer and the Administrator with respect to the insurance
business written within the scope of this Agreement.
10. The Administrator shall maintain all records, including, but not limited
to, statistical and accounting records, that an insurance company would
maintain with respect to the insurance business in question so as to
allow the Original
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Insurer to make only general ledger entries in its books and records, with
all other data maintained by the Administrator and provided by the
Administrator to the Original Insurer as is necessary to enable the
Original Insurer to prepare its annual convention statement and any
other reports required by any governmental agency, and to submit the
data required by the various reporting bureaus.
11. The Administrator shall be entitled to use any materials containing
the Original Insurer's trademarks and logos currently being used in
conjunction with the business reinsured under this Agreement without
obligation to pay royalties or similar fees to the Original Insurer
during the period that the Agreement remains in force, provided that
such use is consistent with the practices of the Company on the
Effective Date.
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Exhibit D
Casualty Quota Share Reinsurance and Service Agreement
QUOTA SHARE REINSURANCE
AND SERVICE AGREEMENT
This Quota Share Reinsurance and Service Agreement (the "Agreement") is
made and entered into by and among Casualty Insurance Company, an Illinois
capital stock insurance company with its principal business offices located at
321 Clark St., Chicago, Illinois 60610 (referred to herein as the "Reinsurer" or
the "Administrator"), Boston Old Colony Insurance Company, a Massachusetts
capital stock insurance company with its principal business offices located at
180 Maiden Lane, New York, New York 10038 ("BOC"), Kansas City Fire and Marine
Insurance Company, a Missouri capital stock insurance company with its principal
offices located at 7733 Forsyth Boulevard, Clayton, Missouri 63105 ("KCF"),
National-Ben Franklin Insurance Company of Illinois, an Illinois capital stock
insurance company with its principal business offices located at 200 South
Wacker Dr., Chicago, Illinois 60606 ("NBF") and The Continental Insurance
Company, a New Hampshire capital stock insurance company with its principal
business office located at 180 Maiden Lane, New York, NY 10038 ("CIC"). BOC, KCF
and NBF are referred to herein collectively as the "Original Insurers". CIC is
referred to herein as the "Company" or the "Reinsured".
WITNESSETH:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of , 1994
among Fremont Compensation Insurance Company ("Fremont Compensation"), Fremont
General Corporation, The Buckeye Union Insurance Company ("Buckeye"), The
Continental Corporation and Reinsurer (the "Stock Purchase Agreement"), Fremont
Compensation has agreed to purchase from Buckeye all of the outstanding capital
stock of the Reinsurer for the consideration recited in, and subject to the
terms and conditions of, the Stock Purchase Agreement; and
WHEREAS, Original Insurers have issued certain run-off and in-force
workers compensation and employers' liability insurance policies issued in the
States of Wisconsin, and Michigan; and
WHEREAS, the Original Insurers have ceded 100% of the risks and
obligations under such policies to the Reinsured pursuant to the to the
Intercompany
<PAGE>
Pooling Agreement by and between the Reinsured and its U.S. affiliates (the
"Pooling Agreement"); and
WHEREAS, Reinsured desires to retrocede to the Reinsurer 100% of the
risks and obligations under such run-off and in-force policies issued by the
Original Insurers and assumed by the Reinsured under the Pooling Agreement; and
WHEREAS, Reinsurer also desires to issue directly certain worker's
compensation and employers' liability insurance policies in the State of
Michigan and Wisconsin solely for the purpose of reinstating the aforementioned
in-force policies that are cancelled by the Original Insurer but, as of the
Effective Date (as defined herein), all required licenses and approvals from
state insurance regulators of certain jurisdictions have not been obtained by
the Reinsurer including, without limitation, approvals to use applicable policy
forms, rates, rating plans and dividend plans; and
WHEREAS, the Original Insurers desire to cede to the Reinsured and the
Reinsured desires to assume 100% of the risks and obligations under such
reinstated polices pursuant to the Pooling Agreement; and
WHEREAS, Reinsured desires to retrocede to the Reinsurer 100% of the
risks and obligations under such reinstated policies issued by the Original
Insurers and assumed by the Reinsured under the Pooling Agreement; and
WHEREAS, pending the assumption and novation of all such run-off,
in-force and reinstated policies ceded to Reinsurer as provided for in the
Stock Purchase Agreement, Reinsurer desires to provide, and the Original
Insurers desire to accept, certain administrative services with respect to all
such policies issued and ceded hereunder.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Assumption Agreement" shall mean the Assumption Reinsurance and
Administration Agreement as defined in the Stock Purchase Agreement.
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1.2 "Books and Records" shall mean (a) all policy file records,
policyholder service records, claims records, underwriting records, accounting
records, correspondence, audit papers, statutory filing materials (including,
but not limited to, records of regulatory authority approval or filing of policy
forms, endorsements, riders, supplemental contracts, applications, premium
rates, rating plans, dividend plans and actuarial memoranda prepared in
developing same) relating to the Policies, including all electronically stored
data relating thereto, and (b) all supplies of blank policy forms, riders,
endorsements, supplemental contracts, applications, premium notices and other
similar forms pertaining to the Policies.
1.3 "Effective Date" shall mean the Closing Date and time as defined in
the Stock Purchase Agreement.
1.4 "Expenses" shall mean expenditures by or on behalf of the Reinsured
in payment of dividends, commissions, taxes, assessments (including, but not
limited to, assessments pursuant to those laws and regulations creating
obligatory funds such as insurance guaranty and insolvency funds, pools, joint
underwriting associations, FAIR plans, Assigned Risk plans and similar plans)
and all other expenses of whatever nature, except Loss Expenses, attributable to
the issuance by the Reinsured of business reinsured hereunder.
1.5 "Liability" shall mean all liability, including but not limited to,
Losses and Loss Expenses, provided that "Liability" shall not include direct
Expenses incurred by or on behalf of the Reinsured.
1.6 "Losses" shall mean the amount of any settlement, award or judgment
paid by or on behalf of the Reinsured (including interest accrued prior to final
judgment which is included as part of the final judgment), after deduction of
all recoveries, salvages, chose in action subrogations, whether received or not.
Losses shall include Loss Expense as provided in Section 1.7, extra contractual
obligations as provided in Article 16 and loss excess of original policy limits
as provided in Article 17.
1.7 "Loss Expenses" shall mean expenditures by or on behalf of the
Reinsured in the direct defense, investigation or settlement of claims and
allocated to an individual claim or loss, but not including office expenses or
salaries, other compensation and expenses of regular employees. "Loss Expenses"
shall include investigation, appraisal, adjustment, negotiation and legal
expenses, court costs, statutory penalties, Prejudgment Interest or Delayed
Damages (as defined herein) and
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interest on any judgment or award. However, the salaries and office expenses of
officials and staff classified by the Administrator as field adjusters,
rehabilitation coordinators, medical management nurses, hearing representatives
and claims attorneys, allocated to a specific claim, or to a loss occurrence
arising out of a natural disaster, shall be included in the Loss Expenses, but
not the salaries and expenses of other Administrator's personnel.
1.8 "Plan of Operation" shall mean the Plan of Operation set forth in
Appendix A.
1.9 "Policies" shall mean (a) the run-off and in-force policies of
workers' compensation and employers' liability insurance that were written by
the Original Insurers and are referred to in clauses (i) and (ii) of the Profit
Center Business, and (b) reinstated policies of workers' compensation and
employers' liability insurance contracts or policies issued and delivered by NBF
and BOC pursuant to Section 3.1 of this Agreement on and after the Effective
Date.
1.10 "Prejudgment Interest" or "Delayed Damages" shall mean interest or
gages added to a settlement, verdict, award, or judgment based on the amount of
time prior to the settlement, verdict, award, or judgment whether or not made
part of the settlement, verdict, award, or judgment.
1.11 "Profit Center Business" shall have the meaning as defined in the
Stock Purchase Agreement.
1.12 "Services" shall mean the ordinary and reasonable services of, and
incidental to the underwriting, issuance, billing and collection, administration
and claims handling of insurance contracts and policies, as specified in the
Plan of Operation. Services shall not include the payment of premium taxes by
the Reinsured to any taxing jurisdiction with respect to the Policies.
ARTICLE 2
EFFECTIVE DATE; TERMINATION
The effective date of this Agreement shall be the Effective Date.
This Agreement shall become effective only upon the Closing (as defined in the
Stock Purchase Agreement) of the purchase and sale of the Shares (as defined in
the Stock
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Purchase Agreement). This Agreement will remain in full force and effect until
all Liabilities have been indemnified in full by the Reinsurer.
ARTICLE 3
OBLIGATIONS OF THE ORIGINAL INSURERS
3.1 Policy Issue and Delivery.
3.1.1 BOC agrees to issue and deliver guaranteed cost workers'
compensation policies in Michigan and flat dividend workers compensation
policies in Wisconsin on the basis of rate and form filings made in accordance
with the Plan of Operation, provided that such policies shall be issued and
delivered solely to reinstate a Policy that would have originally expired on or
after the Effective Date but is or was cancelled by the Original Insurer prior
to such expiration.
3.1.2 NBF agrees to issue and deliver guaranteed cost and retrospective
workers' compensation policies in Wisconsin on the basis of rate and form
filings made in accordance with the Plan of Operation, provided that such
policies shall be issued and delivered solely to reinstate a Policy that would
have originally expired on or after the Effective Date but is or was cancelled
by the Original Insurer prior to such expiration.
3.1.3 Each policy issued and delivered pursuant to this Article 3 shall
be included in the following annual statement line of business:
Line 16 - Workers' Compensation and Employers' Liability
3.1.4 Each Original Insurer shall use its best efforts to maintain all
licenses and approvals necessary to service the Policies issued prior to the
Effective Date and to continue the issuance of policies under this Article. The
Original Insurer shall issue policies under this Article in conformance with the
Plan of Operation, provided that, no Original Insurer shall be required to issue
or administer any such policies in violation of applicable law, regulation, or
order.
ARTICLE 4
5
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OBLIGATIONS OF ADMINISTRATOR
4.1 Services. Administrator shall provide to each Original Insurer all
Services with respect to the Policies, subject to the terms and conditions of
this Agreement. Administrator shall perform the Services in a manner adequate to
satisfy the commitments of the Original Insurers under the Policies, and shall
use its best efforts to avoid actions or inactions that would cause injury to
the goodwill of the Original Insurers.
4.2 Indemnification. Administrator shall indemnify and hold each Original
Insurer and the Reinsured (the "Indemnitee") harmless from all losses, claims,
damages and liabilities and shall reimburse the Indemnitee from all expenses of
any kind or nature whatsoever (including reasonable attorneys' fees) as
incurred, that are based upon or arise out of (a) breach of any obligation of
the Administrator provided for in this Agreement, and (b) any acts, errors or
omissions of the Administrator or its officers, directors, agents or employees
relating to Services to be provided by Administrator under this Agreement. For
purposes of this Section 4.2, "liabilities" shall include, without limitation,
any declaratory judgment expense, extra-contractual or punitive damages, excess
of limits obligations and fees and expenses (including, without limitation, all
insurance regulatory fines and penalties relating to any Policy that may arise
because of Administrator's actions or inactions, or those of its affiliates,
directors, officers, agents or employees).
ARTICLE 5
AGENCY
Each of the Original Insurers hereby appoints Administrator its
attorney-in-fact, solely in respect of the Policies and shall cooperate with
Administrator in determining what authorizations are necessary, and shall obtain
all authorizations necessary for, or reasonably requested by, Administrator to
validity act as the agent of the Original Insurer for the purpose of providing
the Services under this Agreement.
ARTICLE 6
REGULATORY ACTIONS
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Administrator, Reinsured and each Original Insurer shall promptly advise
each other whenever notice is received of any proposed regulatory action or
sanction against Administrator, Reinsured or any Original Insurer relating to
the Policies. The parties agree to work together in good faith and use their
best efforts to resolve the proposed regulatory action or sanction so as to
protect the good names of the parties.
ARTICLE 7
REPORTS, ACCOUNTING AND REMITTANCES
7.1 Net Balances at Effective Date. The net balances due to or from the
Reinsurer and the Reinsured on the Effective Date with respect to the
reinsurance provided under this Agreement will be settled pursuant to the terms
and conditions of the Stock Purchase Agreement.
7.2 Transactions Subsequent to the Effective Date. The net balances due
to or from the Reinsurer and the Reinsured after the Effective Date with respect
to the reinsurance and services provided under this Agreement shall be reported
and accounted for as follows:
7.2.1 Within thirty (30) days after the end of each month, the
Reinsured shall report to the Reinsurer on the policies ceded hereunder:
(a) ceded net written premiums for the month; (b) provisional expenses
thereon; and (c) ceded losses (including loss expenses) paid during the
month.
Upon completion of the report, the administrator will prepare a
report of the cash receipts and disbursements during the month, and advise
the Reinsured and Reinsurer of the balance due to or from the parties. Such
balance due, is to be paid within thirty (30) days of the receipt of such
cash flow exhibit. The Administrator shall, pursuant to the Plan of
Operation, provide Reinsurer, Reinsured and Original Insurers with all
required reports and accounting.
7.2.2 Within thirty (30) days after the end of each calendar
quarter, the Reinsured shall report to the Reinsurer the ceded unearned
premiums and ceded outstanding loss reserves as of the end of the calendar
quarter.
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7.2.3 Annually, the Reinsured shall furnish the Reinsurer with such
information as the Reinsurer and the Original Insurers may require to
complete their statutory annual statements.
ARTICLE 8
NO ASSIGNMENT
Neither the Original Insurer nor the Reinsurer may sell or transfer its
interest in any of the Policies reinsured by Reinsurer hereunder, other than as
contemplated under the Stock Purchase Agreement.
ARTICLE 9
INSPECTION
So long as any Policy is reinsured under this Agreement, the
Reinsured and the Original Insurers agree to allow Reinsurer, its attorneys,
accountants and actuaries, upon reasonable notice and during regular business
hours, to inspect and copy their Books and Records relating to the Policy. So
long as any Policy is reinsured under this Agreement, Reinsurer agrees to allow
Reinsured and the Original Insurers and each of their attorneys, accountants and
actuaries, upon reasonable notice and during regular business hours, to inspect
and copy any Books and Records of Reinsurer relating to such Policy.
ARTICLE 10
INDEMNITY REINSURANCE
10.1 Commencement of Liability. The liability of the Reinsurer as to
any Policy ceded hereunder shall commence on the later of the Effective Date or
the date on which the liability of any Original Insurer on such Policy is
reinstated.
10.2 Termination of Liability. The liability of the Reinsurer under
this Agreement as to any Policy ceded or retroceded hereunder shall terminate
simultaneously with that of the Original Insurer.
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10.3 Limit of Liability. Reinsurers maximum liability on any one loss
or in the aggregate shall be 100%.
10.4 Reinsurance Premium. The Reinsured shall pay to the Reinsurer 100%
of the premiums (and premium adjustments) received by the Reinsured after the
Effective Date in respect of the Policies ceded hereunder.
10.5 Indemnity Reinsurance. Reinsured shall cede to Reinsurer, and
Reinsurer agrees to accept, 100% of all Liability under and in respect of any
Policy hereunder.
10.6 Expense Reimbursement. Reinsurer shall pay the Reinsured for all
direct Expenses incurred after the Effective Date by or on behalf of the
Reinsured.
10.7 Reimbursements. It is agreed that reimbursement for premiums,
Losses and Expenses under this Article will be made in accordance with
Article 7.
ARTICLE 11
RESERVES
(This clause applies only to Reinsurers that do not qualify for credit
by any state or any other governmental authority having jurisdiction over the
Company's loss and unearned premium reserves or for whom the Company would incur
an overdue reinsurance liability)
As regards Policies issued or assumed by the Company coming within the
scope of this Agreement, the Reinsured agrees that, when it shall file with the
Insurance Department or set up on its books, unearned premium and loss reserves
covered hereunder (including IBNR) and any overdue reinsurance liability which
it shall be required to set up by law, it will forward to the Reinsurer a
statement showing the proportion of such reserves and liability which is
applicable to them. The Reinsurer hereby agrees to apply for and secure delivery
to the Company, as beneficiary, a clean, evergreen, unconditional, irrevocable
letter of credit (including any confirmation thereof), in a form and from a bank
acceptable to the Company and the governmental authority having jurisdiction
over the Company's reserves. Alternatively, the Reinsurer shall enter into a
trust agreement and establish a trust account in the United States of America
for the sole benefit of the Company in such
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form and with a trustee that is acceptable to the Company and the governmental
authority having jurisdiction over the Company's reserves. The amount available
to be drawn by the Company against such letter of credit, or confirmation
thereof, or from such trust account shall at all times be no less than the
Company's share of said reserves and liability and the Reinsurer agrees,
irrespective of any intermediary clause herein, that within ten (10) business
days of delivery of written notice of deficiency to it from the Company that the
Reinsurer shall unconditionally deliver for receipt by the trustee within such
period, cash (U.S. legal tender) and/or unencumbered eligible securities under
the trust agreement to restore such trust account to said amount or shall
increase said letter of credit to said amount.
The assets that are deposited and maintained in such trust account shall
be valued according to their current fair market value, and shall consist only
of cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Company's state of domicile; provided that no such
investments are issued by an institution that is the parent, a subsidiary or an
affiliate of either the Company or the Reinsurer and that no state insurance
department which has authority to regulate the Company has determined the types
of securities permitted by the domicile state to be ineligible investments for
the purpose of this trust account under its own laws. Within twenty (20) days of
delivery of notice of ineligible investments for the purpose of this trust
account under its own laws. Within twenty (20) days of delivery of notice of
ineligible securities from the Company to the Reinsurer, the Reinsurer,
irrespective of any intermediary clause herein, agrees to direct the trustee to
substitute cash (U.S. legal tender) or securities then eligible to the Company
for this trust account as determined by the state insurance department(s), which
are of no less than equivalent fair market value to the trust assets determined
to be ineligible.
Prior to depositing assets with the trustee for such trust account, the
Company shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Company, or the trustee upon the direction of the
Company, may whenever necessary negotiate any such assets without consent or
signature from the Company or any other entity. All settlements of account
between the Company and the Reinsurer shall be made cash or its equivalent.
The Reinsurer and the Company agree that the assets in such trust account
may be withdrawn by the Company at any time without notice to or consent of the
Reinsurer, notwithstanding any other provisions in the reinsurance or any other
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agreement and shall be utilized and applied by the Company or its successor in
interest without diminution because of insolvency on the part of the Company or
the Companies, only for the following purposes:
1. to pay or reimburse the Company for the unpaid or
unreimbursed portion of the Reinsurer's share of any losses and allocated loss
expenses paid by the Company, or of unearned premiums due to the Company
under this Agreement;
2. to reimburse the Company for the Company's share of
surrenders and benefits or losses paid by the Company pursuant to the
provisions of the Policies reinsured under this Agreement;
3. to fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the Company's liabilities
for the Policies ceded hereunder. Such account shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and
4. to pay any other amounts the Company claims are due under
this Agreement and for any other purpose permitted by the trust agreement
establishing such trust account.
The Reinsurer shall have the right to seek approval from the Company to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible securities
under the trust agreement establishing such trust account and which at the time
of receipt by the trustee have a fair market value no less than equal to the
fair market value of the assets withdrawn so as to maintain at all times the
amounts available to be drawn under this Article; or
2. after such withdrawal and transfer the current fair market value of
the unencumbered assets held in such trust account exceeds 102 % of the amounts
available to the drawn by the Company from such trust account under this
Article.
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It is agreed by the Reinsurer and the Company that this Article shall
survive termination of this Agreement.
For the purpose of this Article, Company shall mean the named Company
under this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Company
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Company except if the Company under this Agreement is domiciled in California,
in which case if a court of law appoints a successor in interest to the named
Company, then the Company is limited to the court appointed domiciliary,
receiver, conservator, rehabilitator or liquidator. Drawings by any liquidator,
rehabilitator, receiver or conservator of any named Company not domiciled in
California shall be for the benefit of all the named Company's policyholders.
ARTICLE 12
INSOLVENCY
In the event of the insolvency of the Company and the appointment of a
conservator, liquidator, receiver or statutory successor of the Company, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Company having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or statutory successor has failed to pay all or a portion
of any claims. It is agreed, however, that the conservator, liquidator, receiver
or statutory successor of the Company shall give written notice to the Reinsurer
of the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the conservation
or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated any defense
or defenses that it may deem available to the Company or its conservator,
liquidator, receiver or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the court, against the
Company as part of the expense of conservation or liquidation to the extent of a
pro
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rata share of the benefit which may accrue to the Company solely as a result of
the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
As to all reinsurance made, ceded, renewed or otherwise becoming
effective under this agreement, the reinsurance shall be payable as set forth
above by the Reinsurer to the Company or to its conservator, liquidator,
receiver or statutory successor, except (1) where the original contract of
insurance or reinsurance specifically provides another payee in the event of the
insolvency of the Company, and (2) where the Reinsurer, with the consent of the
direct Principal or Principals, has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the Company to such payees.
ARTICLE 13
ARBITRATION
If any dispute arises between the Company and the Reinsurer with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this Agreement) such
dispute, upon the written request of either party, will be submitted to three
arbitrators, one to be chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after receipt of written notice from the other party requesting
it to do so, the requesting party may appoint both arbitrators. If the two
arbitrators fail to agree in the selection of a third within thirty (30) days of
their appointment, each will nominate three individuals, of whom the other will
decline two. The final decision will be made by drawing lots. All arbitrators
will be active or retired officers of insurance or reinsurance companies and
will not have personal or financial interests in the result of the arbitration.
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The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
The jurisdiction of the arbitrators to make any decision will be
restricted by the limit of liability expressly set forth in this Agreement. The
decision in writing rendered by a majority of the arbitrators will be final and
binding for both parties. Such decision will be a condition precedent to any
right of legal action arising out of the arbitrated dispute. Judgment may be
rendered upon the final decision of the arbitrators in any court having
jurisdiction.
Each party to this Agreement will bear the expense of its own arbitrator
and will equally divide the expense of the third arbitrator with the other
party. Except as provided above, arbitration will be based upon the procedures
of the American Arbitration Association.
ARTICLE 14
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed
to be due hereunder or meet its other obligations, the Reinsurer, at the request
of the Company, shall submit to the jurisdiction of any court of competent
jurisdiction within the United States and all matters arising hereunder shall be
determined in accordance with the law and practice of such court. The Reinsurer
agrees that any judgment rendered by such court shall be enforceable against the
Reinsurer in the jurisdiction of its domicile.
Service of process in such suit may be made upon the Secretary of the
Reinsurer and, in any suit instituted against the Company or the Reinsurer under
this Agreement, the Reinsurer will abide by the final decision of such court or
of any appellate court in the event of an appeal.
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The Reinsurer warrants that the Secretary is authorized and directed to
accept service of process on behalf of the Reinsurer in any suit and, upon the
request of the Company, to give a written undertaking to the Company that a
general appearance upon the Reinsurer's behalf will be entered in the event such
a suit shall be instituted.
Further, pursuant to the requirement of a statute of any state, territory
or district of the United States which makes provision therefor, the Reinsurer
hereby designates the Superintendent, Commissioner or Director of Insurance or
their successors in office, as its true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by or on
behalf of the Company or any beneficiary arising out of this Agreement. The
Reinsurer hereby designates the Secretary as the person to whom this said
officer is authorized to mail such process or a true copy thereof.
The provisions of this Article are not intended to conflict with or
override the obligation of the parties to arbitrate under Article 13.
ARTICLE 15
SELF-INSURED OBLIGATIONS
As respects all business the subject matter hereof, this
Agreement shall cover self-insured obligations of the Company assumed by it as a
self-insurer including self-insured obligations in excess of any valid and
collectible insurance available to the Company to the same extent as if all
types of insurance covered by this Agreement were afforded under the broadest
forms of policies issued by the Company provided, such self-insured obligations
are within the scope of underwriting criteria furnished by the Company to the
Reinsurer.
Any insurance or reinsurance wherein the Company hereby
reinsured and/or its affiliates and/or subsidiary companies are named as the
Insured or Reinsured party, either alone or jointly with some other party, shall
be deemed to be insurance or reinsurance coming within the scope of this
Agreement, notwithstanding that no legal liability may arise in respect thereof
by reason of the fact that the Company hereby reinsured and/or its affiliated
and/or subsidiary companies are named as the Insured or Reinsured party or one
of the Insured or Reinsured parties.
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ARTICLE 16
EXTRA-CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company for any Extra
Contractual Obligations within the limits hereof. The term "Extra Contractual
Obligations is defined as those liabilities not covered under any other
provision of this Agreement and which arise from the handling of any claim on
business covered hereunder, such liabilities arising because of, but not limited
to, the following: failure by the Agreement to settle within the policy limit,
or by reason of alleged or actual negligence, fraud, or bad faith in rejecting
an offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation of prosecution
of an appeal consequent upon such action.
The date on which an Extra Contractual Obligation is incurred by
the Agreement shall be deemed, in all circumstances, to the date of the original
disaster and/or casualty.
However, this Article shall not apply where the loss has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Company acting individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
ARTICLE 17
EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company, within the limits hereof, in
connection with loss in excess of the limit of its original policy, such loss in
excess of the limit having been incurred because of failure by it to settle
within the policy limit or by reason of alleged or actual negligence, fraud, or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
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However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts
for which the Company would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 18
OVERSIGHT
It is expressly understood and agreed that if failure to comply with any
condition of this Agreement is shown to be unintentional and as a result of
misunderstanding, oversight or clerical error on the part of either the
Reinsurer, Administrator, the Reinsured or any Original Insurer, then
appropriate adjustments shall be made so that the Reinsurer, Administrator,
Reinsured or Original Insurer shall be restored to the position they would have
occupied had no such error or oversight occurred.
ARTICLE 19
OFFSET
Each party hereto shall have, and may exercise at any time and from time
to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under any reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as assuming insurer or as ceding
insurer, in which each party acted under any agreement, provided, however, that,
in the event of the insolvency of a party
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hereto, offsets shall only be allowed in accordance with the applicable
provisions of New York Law. The application of this offset provision shall not
be deemed to constitute diminution in the event of insolvency.
ARTICLE 20
EXCLUSIONS
This Agreement follows the exclusions under the Policies.
ARTICLE 21
TERRITORY
The Reinsurer's liability will be for all Losses occurring on a risk
located anywhere covered under the original Policies.
ARTICLE 22
SALVAGE AND SUBROGATION
(This Article applies only when there is no enforceable assignment of salvage
and subrogation rights by the Reinsured to the Reinsurer).
The Reinsurer will be credited with salvage and/or subrogation (i.e.,
reimbursement obtained or recovery made by the Reinsured less the actual cost,
excluding salaries of employees and office expenses of the Reinsured and sums
paid to attorneys as retainers, incurred in obtaining such reimbursement or
making such recovery) pertaining to the claims and settlements involving
reinsurance hereunder. The Reinsured will enforce its right to salvage and/or
subrogation relating to any Loss and will prosecute all claims arising out of
such right. Should the Reinsured refuse or neglect to enforce this right the
Reinsurer is hereby empowered and authorized to instigate appropriate action in
the name of the Reinsured. If salvage and/or subrogation is insufficient to
cover the expense incurred in its recovery, the net expense will be apportioned
in proportion to the Reinsurer's respective interest in this Agreement.
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ARTICLE 23
INTERMEDIARY
The parties to this Agreement represent and warrant to each other that no
intermediary was involved in the procurement of this Agreement.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate as a
waiver of any thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement are cumulative and not exclusive of any rights or
remedies provided by law.
24.2 Entire Agreement; Modification. This Agreement and the Stock
Purchase Agreement set forth the entire agreement and understanding between the
parties as to the subject matter hereof, and merges and supersedes all prior
discussions, agreements, representations, and understandings of every and any
nature between them, and no party shall be bound by any condition, definition,
warranty, or representation, other than as expressly set forth or provided for
in this Agreement or the Stock Purchase Agreement. This Agreement may not be
changed or modified, except by agreement in writing, signed by all of the
parties hereto.
24.3 Third-Party Beneficiaries. This Agreement is made exclusively
between Reinsurer and the Reinsured and the Original Insurers and the acceptance
by Reinsurer of the liabilities of the Policies ceded hereunder shall not create
any right or legal relation whatsoever between Reinsurer and the policyholder,
the insured or the beneficiary under any such Policy.
24.4 Severability. It is the desire and the intent of the parties that
the terms and conditions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular term
or condition of this Agreement shall be adjudicated or becomes by operation of
law invalid or unenforceable, this Agreement
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shall be deemed amended to delete therefrom the portion which is adjudicated or
which becomes by operation of law invalid or unenforceable, and the remainder of
this Agreement shall remain in full force and effect unless such deletion would
materially prejudice the rights of any party to this Agreement of frustrate the
fundamental purposes of this Agreement.
24.5 Notices. All notices, requests, demands certificates and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or upon the second day following mailing,
which shall be by certified or registered mail, with first-class postage paid to
the address listed below:
To the Reinsured or the Original Insurers:
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attn:
To Reinsurer:
Casualty Insurance Company
[Address]
Attn:
24.6 Further Instruments. Each party shall, on such dates as another may
request, without cost or expense to such other, execute and deliver or cause to
be executed and delivered to the requesting party such further instruments as
such party may reasonably request to more effectively consummate the
transactions contemplated by this Agreement.
24.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24.8 Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof or be
construed as adding to or derogating from the meaning of the text of this
Agreement.
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24.9 Governing Law. The provisions hereof shall be governed by the laws
of the State of without regard to its principles of conflicts
of law.
21
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
The Continental Insurance Company
By:
[name]
[title]
Boston Old Colony Insurance Company
By:
[name]
[title]
Kansas City Fire and Marine
Insurance Company
By:
[name]
[title]
National-Ben Franklin Insurance
Company of Illinois
By:
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[name]
[title]
Casualty Insurance Company
By:
[name]
[title]
[Administrator
By:
[name]
[title]]
23
<PAGE>
Appendix A
PLAN OF OPERATION
Policies shall be serviced under this Agreement according to the
following Plan of Operation. In general, Administrator shall direct, approve,
and perform the issuance (reinstatements only) and administration of Policies
and the handling of claims thereon. Original Insurer and Administrator agree to
the following specifics:
1. The Administrator may, within the scope of his authority, (a) issue and
countersign policies of insurance and endorsements thereto; and (b) effect
cancellation of such policies.
2. The Administrator shall be responsible for all policies entrusted to it,
whether issued or not, and shall only issue policies in series.
3. The Administrator shall be responsible for underwriting risks and
determining rates appropriate therefor consistent with the filed and
approved rates, rating plans and dividend plans of the Original Insurer.
4. The Administrator shall collect, receive and receipt for premiums due for
the insurance subject hereto.
5. The Administrator shall adjust, compromise, settle, deny and/or pay all
losses incurred under policies issued pursuant hereto, and maintain usual
and customary records with respect to such loss handling in accordance
with the legal requirements of the various states and in accordance with
any reasonable requirements made by the Original Insurer. The Original
Insurer reserves the right to review relevant information and consult
with the Administrator on any matter involving payment, adjustment,
compromise, settlement or denial of any claim with an incurred value of
$500,000 or more, or any claim, regardless of incurred value, involving
any one of the following types of claims: fatality, brain damage, spinal
cord injury with partial/total paralysis, employer liability, AIDS,
heart attack, asbestos, serious burns or disfigurement, substantial
bilateral hearing loss, substantial loss of sight, amputation or loss
of use of 100% of upper or lower extremity, strokes, multiple fractures of
major body parts, mental illness and emotional stress with total disability
potential. Claims of the kinds described in the preceding sentence must be
reported to the Original Insurer within thirty (30) days of
<PAGE>
administrator becoming aware of the claim. The Original Insurer shall be
entitled to perform an audit, not more than twice each calendar year, of
the Administrator in order to ascertain that the Administrator is acting
in accord with the standards of this Item 5.
6. The Administrator shall not issue any advertising or promotional material
bearing the Original Insurer's name without first obtaining the written
approval of the Original Insurer. All advertising materials, sales
brochures and other sales materials shall be in compliance with all
applicable insurance regulations, and, if applicable and required by
law or regulation, Administrator shall deliver a Certificate of
Compliance to each Original Insurer annually to enable such Original
Insurer to make any required state filings.
7. The Administrator shall comply with all laws and regulations governing the
Original Insurer and the Administrator with respect to the insurance
business written within the scope of this Agreement.
8. The Administrator shall maintain all records, including, but not limited
to, statistical and accounting records, that an insurance company would
maintain with respect to the insurance business in question so as to
allow the Original Insurer to make only general ledger entries in its
books and records, with all other data maintained by the Administrator
and provided by the Administrator to the Original Insurer as is
necessary to enable the Original Insurer to prepare its annual convention
statement and any other reports required by any governmental agency, and
to submit the data required by the various reporting bureaus.
9. The Administrator shall be entitled to use any materials containing the
Original Insurer's trademarks and logos currently being used in
conjunction with the business reinsured under this Agreement without
obligation to pay royalties or similar fees to the Original Insurer during
the period that the Agreement remains in force, provided that such use
is consistent with the practices of the Original Insurer on the Effective
Date.
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Exhibit E
Continental Indemnity Reinsurance and Service Agreement
INDEMNITY REINSURANCE
AND SERVICE AGREEMENT
This Indemnity Reinsurance and Service Agreement (the "Agreement") is
made and entered into by and among The Continental Insurance Company, a New
Hampshire capital stock insurance company with its principal business office
located at 180 Maiden Lane, New York, NY 10038 (the "Reinsurer"), Casualty
Insurance Company, an Illinois capital stock insurance company with its
principal business offices located at 321 Clark St., Chicago, Illinois 60610
(the "Company") and [Name of Administrator, if any], a [state] corporation with
its principal business offices located at [Street, City, State, Zip Code] (the
"Administrator").
WITNESSETH:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of
,
1994 among Fremont Compensation Insurance Company ("Fremont Compensation"),
Fremont General Corporation, The Buckeye Union Insurance Company ("Buckeye"),
The Continental Corporation and Reinsurer (the "Stock Purchase Agreement"),
Fremont Compensation has agreed to purchase from Buckeye all of the outstanding
capital stock of the Reinsurer for the consideration recited in, and subject to
the terms and conditions of, the Stock Purchase Agreement; and
WHEREAS, Reinsurer desires to issue certain excess lines insurance
policies covering New York risks but, as of the Effective Date (as defined
herein), neither Reinsurer nor any of its affiliate insurers is qualified to
issue such policies; and
WHEREAS, pending Reinsurer or one of its subsidiary insurers becoming
qualified to issue excess lines insurance policies covering New York risks,
Reinsurer desires to continue to accept risks and obligations on new and renewal
excess lines insurance policies issued by Company, and Company agrees to
continue to directly write such policies, pending the Reinsurer or one of its
subsidiary insurers becoming so qualified; and
WHEREAS, Company desires to cede to the Reinsurer 100% of the risks and
obligations under such policies issued by the Company; and
<PAGE>
WHEREAS, pending the assumption and novation of such policies ceded to
Reinsurer as provided for in the Stock Purchase Agreement, Reinsurer or its
affiliate (the "Administrator") desires to provide, and the Company desires to
accept, certain administrative services with respect to such policies issued and
ceded hereunder.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Assumption Agreement" shall mean the Assumption Reinsurance and
Administration Agreement as defined in the Stock Purchase Agreement.
1.2 "Books and Records" shall mean (a) all policy file records,
policyholder service records, claims records, underwriting records, accounting
records, correspondence, audit papers, statutory filing materials (including,
but not limited to, records of regulatory authority approval or filing of policy
forms, endorsements, riders, supplemental contracts, applications, premium
rates, rating plans, dividend plans and actuarial memoranda prepared in
developing same) relating to the Policies, including all electronically stored
data relating thereto, and (b) all supplies of blank policy forms, riders,
endorsements, supplemental contracts, applications, premium notices and other
similar forms pertaining to the Policies.
1.3 "Credit Event" shall mean the occurrence of the following event:
Reinsurer fails to maintain an A.M. Best rating of A- or better.
1.4 "Effective Date" shall mean the Closing Date and time as defined in
the Stock Purchase Agreement.
1.5 "Expenses" shall mean expenditures by or on behalf of the Company in
payment of dividends, commissions, taxes, assessments (including, but not
limited to, assessments pursuant to those laws and regulations creating
obligatory funds such as insurance guaranty and insolvency funds, pools, joint
underwriting associations, FAIR plans, Assigned Risk plans and similar plans)
and all other expenses of whatever nature, except Loss Expenses, attributable
to the issuance by the Company of business reinsured hereunder.
2
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1.6 "Liability" shall mean all liability, including but not limited to,
Losses and Loss Expenses, provided that "Liability" shall not include direct
Expenses incurred by or on behalf of the Company.
1.7 "Losses" shall mean the amount of any settlement, award or judgment
paid by or on behalf of the Company (including interest accrued prior to final
judgment which is included as part of the final judgment), after deduction of
all recoveries, salvages, chose in action subrogations, whether received or not.
Losses shall include Loss Expense as provided in Section 1.8, extra contractual
obligations as provided in Article 16 and loss excess of original policy limits
as provided in Article 17.
1.8 "Loss Expenses" shall mean expenditures by or on behalf of the
Company in the direct defense, investigation or settlement of claims and
allocated to an individual claim or loss, but not including office expenses or
salaries, other compensation and expenses of regular employees. "Loss Expenses"
shall include investigation, appraisal, adjustment, negotiation and legal
expenses, court costs, statutory penalties, Prejudgment Interest or Delayed
Damages (as defined herein) and interest on any judgment or award. However, the
salaries and office expenses of officials and staff classified by the
Administrator as field adjusters and claims attorneys, allocated to a specific
claim, or to a loss occurrence arising out of a natural disaster, shall be
included in the Loss Expenses, but not the salaries and expenses of other
Administrator's personnel.
1.9 "Plan of Operation" shall mean the Plan of Operation set forth in
Appendix A.
1.10 "Policies" shall mean the excess lines insurance contracts or
policies issued and delivered by Company pursuant to Section 3.1 of this
Agreement on and after the Effective Date.
1.11 "Prejudgment Interest" or "Delayed Damages" shall mean interest or
damages added to a settlement, verdict, award, or judgment based on the amount
of time prior to the settlement, verdict, award, or judgment whether or not made
part of the settlement, verdict, award, or judgment.
1.12 "Services" shall mean the ordinary and reasonable services of, and
incidental to, the marketing, underwriting, issuance, renewal, billing and
collection, administration and claims handling of insurance contracts and
policies, as specified in
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the Plan of Operation. Services shall not include the payment of premium taxes
by the Company to any taxing jurisdiction with respect to the Policies.
ARTICLE 2
EFFECTIVE DATE; TERMINATION
The effective date of this Agreement shall be the Effective Date.
This Agreement shall become effective only upon the Closing (as defined in the
Stock Purchase Agreement) of the purchase and sale of the Shares (as defined in
the Stock Purchase Agreement). This Agreement will remain in full force and
effect until all Liabilities have been indemnified in full by the Reinsurer.
ARTICLE 3
OBLIGATIONS OF THE COMPANY
3.1 Policy Issue and Delivery. The Company agrees to issue and deliver
policies in the State of New York on an non-admitted excess lines basis for the
period commencing on the Effective Date and terminating, on the earlier of (a)
six months from the Effective Date, (b) the date as of which the aggregate
amount of insurance written pursuant to this Article exceeds $20 million, and
(c) the date that Reinsurer or one of its insurer affiliates becomes licensed
and has the necessary rate and form filings approved or deemed approved to write
non-admitted excess lines business in New York.
3.2 Maintenance of Qualification. The Company shall use its best efforts
to maintain its excess lines qualification in New York in order to continue the
issuance of policies under this Article in New York for the periods described
in this Article. The Company shall issue policies under this Article in
conformance with the Plan of Operation, provided that, the Company shall not be
required to issue or administer any such policies in violation of applicable
law, regulation, or order.
4
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ARTICLE 4
OBLIGATIONS OF ADMINISTRATOR
4.1 Services. Administrator shall provide to the Company all Services
with respect to the Policies, subject to the terms and conditions of this
Agreement. Administrator shall perform the Services in a manner adequate to
satisfy the commitments of the Company under the Policies, and shall use its
best efforts to avoid actions or inactions that would cause injury to the
goodwill of the Company.
4.2 Indemnification. Administrator shall indemnify and hold the Company
harmless from all losses, claims, damages and liabilities and shall reimburse
the Company from all expenses of any kind or nature whatsoever (including
reasonable attorneys' fees) as incurred, that are based upon or arise out of (a)
breach of any obligation of the Administrator provided for in this Agreement,
and (b) any acts, errors or omissions of the Administrator or its officers,
directors, agents or employees relating to Services to be provided by
Administrator under this Agreement. For purposes of this Section 4.2,
"liabilities" shall include, without limitation, any declaratory judgment
expense, extra-contractual or punitive damages, excess of limits obligations and
fees and expenses (including, without limitation, all insurance regulatory fines
and penalties relating to any Policy that may arise because of Administrator's
actions or inactions, or those of its affiliates, directors, officers, agents or
employees).
ARTICLE 5
AGENCY
The Company hereby appoints Administrator its attorney-in-fact, solely in
respect of the Policies and shall cooperate with Administrator in determining
what authorizations axe necessary, and shall obtain all authorizations necessary
for, or reasonably requested by, Administrator to validity act as the agent of
the Company for the purpose of providing the Services under this Agreement.
ARTICLE 6
REGULATORY ACTIONS
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Administrator and the Company shall promptly advise each other whenever
notice is received of any proposed regulatory action or sanction against
Administrator or the Company relating to the Policies. The parties agree to work
together in good faith and use their best efforts to resolve the proposed
regulatory action or sanction so as to protect the good names of the parties.
ARTICLE 7
REPORTS, ACCOUNTING AND REMITTANCES
7.1 Within thirty (30) days after the end of each month, the Company
shall report to the Reinsurer on the Policies ceded hereunder: (a) ceded net
written premiums for the month; (b) provisional expenses thereon; and (c) ceded
losses (including loss expenses) paid during the month.
Upon completion of the report, the Administrator will prepare a report of
the cash receipts and disbursements during the month, and advise the Company and
Reinsurer of the balance due to or from the parties. Such balance due, is to be
paid within thirty (30) days of the receipt of such cash flow exhibit. The
Administrator shall, pursuant to the Plan of Operation, provide Reinsurer and
Company with all required reports and accounting.
7.2 Within thirty (30) days after the end of each calendar quarter, the
Company shall report to the Reinsurer the ceded unearned premiums and ceded
outstanding loss reserves as of the end of the calendar quarter.
7.3 Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its statutory annual
statements.
ARTICLE 8
NO ASSIGNMENT
Neither the Company nor the Reinsurer may sell or transfer its interest
in any of the Policies reinsured by Reinsurer hereunder, other than as
contemplated under the Stock Purchase Agreement.
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ARTICLE 9
INSPECTION
So long as any Policy is reinsured under this Agreement, the
Company agrees to allow Reinsurer, its attorneys, accountants and actuaries,
upon reasonable notice and during regular business hours, to inspect and copy
their Books and Records relating to the Policy. So long as any Policy is
reinsured under this Agreement, Reinsurer agrees to allow the Company and each
of its attorneys, accountants and actuaries, upon reasonable notice and during
regular business hours, to inspect and copy any Books and Records of the
Reinsurer relating to such Policy.
ARTICLE 10
INDEMNITY REINSURANCE
10.1 Commencement of Liability. The liability of the Reinsurer as to any
Policy ceded hereunder shall commence on the date on which the liability of the
Company on such Policy commences or is reinstated.
10.2 Termination of Liability. The liability of the Reinsurer under this
Agreement as to any Policy ceded or retroceded hereunder shall terminate
simultaneously with that of the Company.
10.3 Limit of Liability. Reinsurer's maximum liability on any one loss
or in the aggregate shall be 100%.
10.4 Reinsurance Premium. The Company shall pay to the Reinsurer 100% of
the premiums (and premium adjustments) received by the Company in respect of the
Policies ceded hereunder.
10.5 Indemnity Reinsurance. Company shall cede to Reinsurer, and
Reinsurer agrees to accept, 100% of all Liability under and in respect of any
Policy hereunder.
10.6 Expense Reimbursement. Reinsurer shall pay the Company for all
direct Expenses incurred by or on behalf of the Company.
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10.7 Reimbursements. It is agreed that reimbursement for premiums,
Losses and Expenses under this Article will be made in accordance with Article
7.
ARTICLE 11
SECURITY FOR CREDIT EVENTS
11.1 Action Required By Credit Event.
11.1.1 Upon the occurrence of a Credit Event, Reinsurer shall
immediately notify Company of such occurrence. The Company shall then notify
Reinsurer if the Company elects to have Reinsurer proceed hereunder. Reinsurer
shall within thirty (30) days of such notification, at Reinsurer's election,
either (a) procure a "clean", irrevocable and evergreen letter of credit with
the Company as the beneficiary thereof and issued by a bank acceptable to the
Company, (b) deposit assets in a trust or custodial account, (c) permit funds
withheld, or (d) enter into any other arrangement that will allow Company to
obtain financial statement credit for reinsurance ceded under this Agreement.
Any of these procedures must be acceptable to the Company in form, substance and
amount; provided that the amount shall not be required at any time to exceed the
reserves on the Policies ceded hereunder.
11.1.2 If assets are deposited in a trust or custodial account, all
investment income, maturity of principal, proceeds of sale, reinvestment, and
any other amount arising from such assets shall be for the benefit and account
of Reinsurer except for such amount if any that is necessary to satisfy
Reinsurer's obligations to the Company under this Agreement.
11.2 Reserves. (This clause applies only to Reinsurers that do not
qualify for credit by any state or any other governmental authority having
jurisdiction over the Company's loss and unearned premium reserves or for whom
the Company would incur an overdue reinsurance liability and is in addition to
Section 11.1.)
As regards Policies issued or assumed by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books, unearned premium and loss reserves
covered hereunder (including IBNR) and any overdue reinsurance liability which
it shall be required to set up by law, it will forward to the Reinsurer a
statement showing the proportion of such reserves and liability which is
applicable to it. The
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Reinsurer hereby agrees to apply for and secure delivery to the Company, as
beneficiary, a clean, evergreen, unconditional, irrevocable letter of credit
(including any confirmation thereof), in a form and from a bank acceptable to
the Company and the governmental authority having jurisdiction over the
Company's reserves. Alternatively, the Reinsurer shall enter into a trust
agreement and establish a trust account in the United States of America for the
sole benefit of the Company in such form and with a trustee that is acceptable
to the Company and the governmental authority having jurisdiction over the
Company's reserves. The amount available to be drawn by the Company against such
letter of credit, or confirmation thereof, or from such trust account shall at
all times be no less than the Company's share of said reserves and liability and
the Reinsurer agrees, irrespective of any intermediary clause herein, that
within ten (10) business days of delivery of written notice of deficiency to it
from the Company that the Reinsurer shall unconditionally deliver for receipt by
the trustee within such period, cash (U.S. legal tender) and/or unencumbered
eligible securities under the trust agreement to restore such trust account to
said amount or shall increase said letter of credit to said amount.
The assets that are deposited and maintained in such trust account shall
be valued according to their current fair market value, and shall consist only
of cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Company's state of domicile; provided that no such
investments are issued by an institution that is the parent, a subsidiary or an
affiliate of either the Company or the Reinsurer and that no state insurance
department which has authority to regulate the Company has determined the types
of securities permitted by the domicile state to be ineligible investments for
the purpose of this trust account under its own laws. Within twenty (20) days of
delivery of notice of ineligible investments for the purpose of this trust
account under its own laws. Within twenty (20) days of delivery of notice of
ineligible securities from the Company to the Reinsurer, the Reinsurer,
irrespective of any intermediary clause herein, agrees to direct the trustee to
substitute cash (U.S. legal tender) or securities then eligible to the Company
for this trust account as determined by the state insurance department(s), which
are of no less than equivalent fair market value to the trust assets determined
to be ineligible.
Prior to depositing assets with the trustee for such trust account, the
Company shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Company, or the trustee upon the direction of the
Company, may whenever necessary negotiate any such assets without consent or
signature from the Company or any other
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entity. All settlements of account between the Company and the Reinsurer shall
be made cash or its equivalent.
The Reinsurer and the Company agree that the assets in such trust account
may be withdrawn by the Company at any time without notice to or consent of the
Reinsurer, notwithstanding any other provisions in the reinsurance or any other
agreement and shall be utilized and applied by the Company or its successor in
interest without diminution because of insolvency on the part of the Company,
only for the following purposes:
1. to pay or reimburse the Company for the unpaid or
unreimbursed portion of the Reinsurer's share of any losses and allocated loss
expenses paid by the Company, or of unearned premiums due to the Company
under this Agreement;
2. to reimburse the Company for the Company's share of
surrenders and benefits or losses paid by the Company pursuant to the
provisions of the Policies reinsured under this Agreement;
3. to fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the Company's liabilities
for the Policies ceded hereunder. Such account shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and
4. to pay any other amounts the Company claims are due under
this Agreement and for any other purpose permitted by the trust agreement
establishing such trust account.
The Reinsurer shall have the right to seek approval from the Company to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible securities
under the trust agreement establishing such trust account and which at the time
of receipt by the trustee have a fair market value no less than equal to the
fair market value of the assets withdrawn so as to maintain at all times the
amounts available to be drawn under this Article; or
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2. after such withdrawal and transfer the current fair market value of
the unencumbered assets held in such trust account exceeds 102 % of the amounts
available to the drawn by the Company from such trust account under this
Article.
It is agreed by the Reinsurer and the Company that this Article shall
survive termination of this Agreement.
For the purpose of this Article, Company shall mean the named Company
under this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Company
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Company except if the Company under this Agreement is domiciled in California,
in which case if a court of law appoints a successor in interest to the named
Company, then the Company is limited to the court appointed domiciliary,
receiver, conservator, rehabilitator or liquidator. Drawings by any liquidator,
rehabilitator, receiver or conservator of any named Company not domiciled in
California shall be for the benefit of all the named Company's policyholders.
ARTICLE 12
INSOLVENCY
In the event of the insolvency of the Company and the appointment of a
conservator, liquidator, receiver or statutory successor of the Company, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Company having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or statutory successor has failed to pay all or a portion
of any claims. It is greed, however, that the conservator, liquidator, receiver
or statutory successor of the Company shall give written notice to the Reinsurer
of the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the conservation
or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and
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interpose, at its own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses that it may deem available to the Company or
its conservator, liquidator, receiver or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the approval of the
court, against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
As to all reinsurance made, ceded, renewed or otherwise becoming
effective under this agreement, the reinsurance shall be payable as set forth
above by the Reinsurer to the Company or to its conservator, liquidator,
receiver or statutory successor, except (1) where the original contract of
insurance or reinsurance specifically provides another payee in the event of the
insolvency of the Company, and (2) where the Reinsurer, with the consent of the
direct Principal or Principals, has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the Company to such payees.
ARTICLE 13
ARBITRATION
If any dispute arises between the Company and the Reinsurer with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this Agreement) such
dispute, upon the written request of either party, will be submitted to three
arbitrators, one to be chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after receipt of written notice from the other party
requesting it to do so, the requesting party may appoint both arbitrators. If
the two arbitrators fail to agree in the selection of a third within thirty
(30) days of their appointment, each will nominate three individuals, of whom
the other will decline two. The final decision
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will be made by drawing lots. All arbitrators will be active or retired officers
of insurance or reinsurance companies and will not have personal or financial
interests in the result of the arbitration.
The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
The jurisdiction of the arbitrators to make any decision will be
restricted by the limit of liability expressly set forth in this Agreement. The
decision in writing rendered by a majority of the arbitrators will be final and
binding for both parties. Such decision will be a condition precedent to any
right of legal action arising out of the arbitrated dispute. Judgment may be
rendered upon the final decision of the arbitrators in any court having
jurisdiction.
Each party to this Agreement will bear the expense of its own arbitrator
and will equally divide the expense of the third arbitrator with the other
party. Except as provided above, arbitration will be based upon the procedures
of the American Arbitration Association.
ARTICLE 14
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed to
be due hereunder or meet its other obligations, the Reinsurer, at the request of
the Company, shall submit to the jurisdiction of any court of competent
jurisdiction within the United States and all matters arising hereunder shall be
determined in accordance with the law and practice of such court. The Reinsurer
agrees that any judgment rendered by such court shall be enforceable against the
Reinsurer in the jurisdiction of its domicile.
Service of process in such suit may be made upon the Secretary of the
Reinsurer and, in any suit instituted against the Company or the Reinsurer under
this
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Agreement, the Reinsurer will abide by the final decision of such court or of
any appellate court in the event of an appeal.
The Reinsurer warrants that the Secretary is authorized and directed to
accept service of process on behalf of the Reinsurer in any suit and, upon the
request of the Company, to give a written undertaking to the Company that a
general appearance upon the Reinsurer's behalf will be entered in the event such
a suit shall be instituted.
Further, pursuant to the requirement of a statute of any state,
territory or district of the United States which makes provision therefor, the
Reinsurer hereby designates the Superintendent, Commissioner or Director of
Insurance or their successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary arising out of this
Agreement. The Reinsurer hereby designates the Secretary as the person to whom
this said officer is authorized to mail such process or a true copy thereof.
The provisions of this Article are not intended to conflict with or
override the obligation of the parties to arbitrate under Article 13.
ARTICLE 15
SELF-INSURED OBLIGATIONS
As respects all business the subject matter hereof, this
Agreement shall cover self-insured obligations of the Company assumed by it as a
self-insurer including self-insured obligations in excess of any valid and
collectible insurance available to the Company to the same extent as if all
types of insurance covered by this Agreement were afforded under the broadest
forms of policies issued by the Company provided, such self-insured obligations
are within the scope of underwriting criteria furnished by the Company to the
Reinsurer.
Any insurance or reinsurance wherein the Company hereby
reinsured and/or its affiliates and/or subsidiary companies are named as the
insured or reinsured party, either alone or jointly with some other party, shall
be deemed to be insurance or reinsurance coming within the scope of this
Agreement, notwithstanding that no legal liability may arise in respect thereof
by reason of the fact that the Company
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hereby reinsured and/or its affiliated and/or subsidiary companies are named as
the insured or reinsured party or one of the insured or reinsured parties.
ARTICLE 16
EXTRA-CONTRACTUAL OBLIGATIONS
This agreement shall protect the Company for any Extra
Contractual Obligations within the limits hereof. The term "Extra Contractual
Obligations" is defined as those liabilities not covered under any other
provision of this Agreement and which arise from the handling of any claim on
business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Agreement to settle within the policy
limit, or by reason of alleged or actual negligence, fraud, or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation of
prosecution of an appeal consequent upon such action.
The date on which an Extra Contractual Obligation is incurred by
the Agreement shall be deemed, in all circumstances, to the date of the
original disaster and/or casualty.
However, this Article shall not apply where the loss has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Company acting individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in
the presentation, defense or settlement of any claim covered hereunder.
ARTICLE 17
EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company, within the limits hereof, in
connection with loss in excess of the limit of its original policy, such loss in
excess of the limit having been incurred because of failure by it to settle
within the policy limit or by reason of alleged or actual negligence, fraud, or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its
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insured or reinsured or in the preparation or prosecution of an appeal
consequent upon such action.
However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts
for which the Company would have been contractually liable to pay had it not
been for the limit of the original policy.
ARTICLE 18
OVERSIGHT
It is expressly understood and agreed that if failure to comply with any
condition of this Agreement is shown to be unintentional and as a result of
misunderstanding, oversight or clerical error on the part of either the
Reinsurer, Administrator or the Company, then appropriate adjustments shall be
made so that the Reinsurer, Administrator or the Company shall be restored to
the position they would have occupied had no such error or oversight occurred.
ARTICLE 19
OFFSET
Each party hereto shall have, and may exercise at any time and from time
to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under any reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity,
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whether as assuming insurer or as ceding insurer, in which each party acted
under any agreement, provided, however, that, in the event of the insolvency of
a party hereto, offsets shall only be allowed in accordance with the applicable
provisions of New York Law. The application of this offset provision shall not
be deemed to constitute diminution in the event of insolvency.
ARTICLE 20
EXCLUSIONS
This Agreement follows the exclusions under the Policies.
ARTICLE 21
TERRITORY
The Reinsurer's liability will be for all Losses occurring on a risk
located anywhere covered under the original Policies.
ARTICLE 22
SALVAGE AND SUBROGATION
(This Article applies only when there is no enforceable assignment of salvage
and subrogation rights by the Company to the Reinsurer).
The Reinsurer will be credited with salvage and/or subrogation (i.e.,
reimbursement obtained or recovery made by the Company less the actual cost,
excluding salaries of employees and office expenses of the Company and sums paid
to attorneys as retainers, incurred in obtaining such reimbursement or making
such recovery) pertaining to the claims and settlements involving reinsurance
hereunder. The Company will enforce its right to salvage and/or subrogation
relating to any Loss and will prosecute all claims arising out of such right.
Should the Company refuse or neglect to enforce this right the Reinsurer is
hereby empowered and authorized to instigate appropriate action in the name of
the Company. If salvage and/or subrogation is insufficient to cover the expense
incurred in its recovery, the net
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expense will be apportioned in proportion to the Reinsurer's respective
interest in this Agreement.
ARTICLE 23
INTERMEDIARY
The parties to this Agreement represent and warrant to each other that no
intermediary was involved in the procurement of this Agreement.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate as a
waiver of any thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement are cumulative and not exclusive of any rights or
remedies provided by law.
24.2 Entire Agreement; Modification. This Agreement and the Stock
Purchase Agreement set forth the entire agreement and understanding between the
parties as to the subject matter hereof, and merges and supersedes all prior
discussions, agreements, representations, and understandings of every and any
nature between them, and no party shall be bound by any condition, definition,
warranty, or representation, other than as expressly set forth or provided for
in this Agreement or the Stock Purchase Agreement. This Agreement may not be
changed or modified, except by agreement in writing, signed by all of the
parties hereto.
24.3 Third-Party Beneficiaries. This Agreement is made exclusively
between Reinsurer and the Company and the acceptance by Reinsurer of the
liabilities of the Policies ceded hereunder shall not create any right or legal
relation whatsoever between Reinsurer and the policyholder, the insured or the
beneficiary under any such Policy.
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24.4 Severability. It is the desire and the intent of the parties that
the terms and conditions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular term
or condition of this Agreement shall be adjudicated or becomes by operation of
law invalid or unenforceable, this Agreement shall be deemed amended to delete
therefrom the portion which is adjudicated or which becomes by operation of law
invalid or unenforceable, and the reminder of this Agreement shall remain in
full force and effect unless such deletion would materially prejudice the rights
of any party to this Agreement of frustrate the fundamental purposes of this
Agreement.
24.5 Notices. All notices, requests, demands certificates and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or upon the second day following mailing,
which shall be by certified or registered mail, with first-class postage paid to
the address listed below:
To the Company:
Casualty Insurance Company
[Address]
Attn:
To Reinsurer:
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attn:
24.6 Further Instruments. Each party shall, on such dates as another may
request, without cost or expense to such other, execute and deliver or cause to
be executed and delivered to the requesting party such further instruments as
such party may reasonably request to more effectively consummate the
transactions contemplated by this Agreement.
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24.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24.8 Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof or be
construed as adding to or derogating from the meaning of the text of this
Agreement.
24.9 Governing Law. The provisions hereof shall be governed by the laws
of the State of ____________ without regard to its principles of conflicts
of law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
Casualty Insurance Company
By:
[name]
[title]
The Continental Insurance Company
By:
[name]
[title]
[Administrator
By:
[name]
[title]]
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Appendix A
PLAN OF OPERATION
Policies shall be serviced under this Agreement according to the
following Plan of Operation. In general, Administrator shall direct, approve,
and perform the issuance, renewal and administration of Policies and the
handling of claims thereon. Company and Administrator agree to the following
specifics:
1. The Administrator may accept non-admitted excess lines business from excess
lines and other brokers.
2. The Administrator may, within the scope of his authority, (a) solicit,
receive and accept applications or proposals for insurance; (b) issue and
countersign policies of insurance and endorsements thereto; and (c)
effect cancellation of such policies.
3. The Administrator shall be responsible for all policies entrusted to it,
whether issued or not, and shall only issue policies in series.
4. The Administrator shall be responsible for underwriting risks and
determining rates appropriate therefor consistent with any filed and
approved rates, rating plans or other filings as currently may, or may
in the future, be required by law or regulation.
5. The Administrator shall collect, receive and receipt for premiums due
for the insurance subject hereto.
6. The Administrator shall adjust, compromise, settle, deny and/or pay all
losses incurred under policies issued pursuant hereto, and maintain usual
and customary records with respect to such loss handling in accordance
with the legal requirements of the various states and in accordance with
any reasonable requirements made by the Company. The Company reserves
the right to review relevant information and consult with the
Administrator on any matter involving payment, adjustment, compromise,
settlement or denial of any claim with an incurred value of $500,000, or
any claim, regardless of incurred value, involving any one of the
following types of claims: fatality, brain damage, spinal cord injury
with partial/total paralysis, employer liability, AIDS, heart attack,
asbestos, serious burns or disfigurement, substantial
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bilateral hearing loss, substantial loss of sight, amputation or loss of
use of 100% of upper or lower extremity, strokes, multiple fractures of
major body parts, mental illness and emotional stress with total
disability potential. Claims of the kinds described in the preceding
sentence must be reported to the Company within thirty (30) days of
administrator becoming aware of the claim. The Company shall be entitled
to perform an audit, not more than twice each calendar year, of the
Administrator in order to ascertain that the Administrator is acting
in accord with the standards of this Item 6.
7. The Administrator shall not issue any advertising or promotional material
bearing the Company's name without first obtaining the written approval of
the Company. All advertising materials, sales brochures and other sales
materials shall be in compliance with all applicable insurance
regulations, and, if applicable and required by law or regulation,
Administrator shall deliver a Certificate of Compliance to each Company
annually to enable such Company to make any required state filings.
8. No changes shall be made to Company's product filings including, without
limitation, policy forms, rates, rating plans and dividend plans (the
"Product Change"), without prior approval of the Company. Administrator
shall give the Company at least thirty (30) days prior notice advising
the Company of its need to file any Product Change with any state
insurance regulator. Such notice shall be accompanied by a description
of the proposed Product Change. Unless the Company objects to the
proposed Product Change within thirty (30) days of receipt of the
proposal, the Company will be deemed to have approved the proposed
Product Change. The Company will not unreasonably withhold approval of
any proposed Product Change.
9. The Administrator shall comply with all laws and regulations governing the
Company and the Administrator with respect to the insurance business
written within the scope of this Agreement.
10. The Administrator shall maintain all records, including, but not limited
to, statistical and accounting records, that an insurance company would
maintain with respect to the insurance business in question so as to
allow the Company to make only general ledger entries in its books and
records, with all other data maintained by the Administrator and provided
by the Administrator to the Company as is necessary to enable the Company
to prepare its annual
23
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convention statement and any other reports required by any governmental
agency, and to submit the data required by the various reporting bureaus.
11. The Administrator shall be entitled to use any materials containing the
Company's trademarks and logos currently being used in conjunction with the
business reinsured under this Agreement without obligation to pay royalties
or similar fees to the Company or the Company during the period that the
Agreement remains in force, provided that such use is consistent with the
practices of the Company on the Effective Date.
24
<PAGE>
Exhibit F
Continental Quota Share Reinsurance and Service Agreement
QUOTA SHARE REINSURANCE
AND SERVICE AGREEMENT
This Quota Share Reinsurance and Service Agreement (the "Agreement") is
made and entered into by and among The Continental Insurance Company, a New
Hampshire capital stock insurance company with its principal business office
located at 180 Maiden Lane, New York, NY 10038 (the "Reinsurer"), Casualty
Insurance Company, an Illinois capital stock insurance company with its
principal business offices located at 321 Clark St., Chicago, Illinois 60610
("Casualty"), Workers' Compensation and Indemnity Company of California, a
California capital stock insurance company with its principal business office
located at 500 South Kramer Boulevard, Brea, California 92621 ("WCIC") and
[Name of Administrator, if any], a [state] corporation with its principal
business offices located at [Street, City, State, Zip Code] (the
"Administrator"). Casualty and WCIC are referred to herein as the "Company ".
WITNESSETH:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as
of ___________ __, 1994 among Fremont Compensation Insurance Company
("Fremont Compensation"), Fremont General Corporation, The Buckeye Union
Insurance Company ("Buckeye"), The Continental Corporation and Reinsurer
(the "Stock Purchase Agreement"), Fremont Compensation has agreed to
purchase from Buckeye all of the outstanding capital stock of the
Reinsurer for the consideration recited in, and subject to the terms and
conditions of, the Stock Purchase Agreement; and
WHEREAS, Company has issued certain run-off and in-force insurance
policies; and
WHEREAS, Company desires to cede to the Reinsurer 100% of the risks and
obligations under such run-off and in-force policies; and
WHEREAS, Reinsurer also desires to issue certain excess lines insurance
policies covering New York risks solely for the purpose of reinstating the
aforementioned in-force policies that are cancelled by the Company but, as of
the Effective Date (as defined herein), neither Reinsurer nor any of its
affiliate insurers is qualified to issue such policies; and
<PAGE>
WHEREAS, Company desires to cede to the Reinsurer 100% of the risks and
obligations under such reinstated policies issued by the Company; and
WHEREAS, pending the assumption and novation of such policies ceded to
Reinsurer as provided for in the Stock Purchase Agreement, Administrator desires
to provide, and the Company desires to accept, certain administrative services
with respect to all such policies issued and ceded hereunder.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Assumption Agreement" shall mean the Assumption Reinsurance and
Administration Agreement as defined in the Stock Purchase Agreement.
1.2 "Books and Records" shall mean (a) all policy file records,
policyholder service records, claims records, underwriting records, accounting
records, correspondence, audit papers, statutory filing materials (including,
but not limited to, records of regulatory authority approval or filing of policy
forms, endorsements, riders, supplemental contracts, applications, premium
rates, rating plans, dividend plans and actuarial memoranda prepared in
developing same) relating to the Policies, including all electronically stored
data relating thereto, and (b) all supplies of blank policy forms, riders,
endorsements, supplemental contracts, applications, premium notices and other
similar forms pertaining to the Policies.
1.3 "Credit Event" shall mean the occurrence of the following event:
Reinsurer fails to maintain an A.M. Best rating of A- or better.
1.4 "Effective Date" shall mean the Closing Date and time as defined in
the Stock Purchase Agreement.
1.5 "Expenses" shall mean expenditures by or on behalf of the Company in
payment of dividends, commissions, taxes, assessments (including, but not
limited to, assessments pursuant to those laws and regulations creating
obligatory funds such as insurance guaranty and insolvency funds, pools, joint
underwriting associations, FAIR plans, Assigned Risk plans and similar plans)
and all other expenses of whatever
<PAGE>
nature, except Loss Expenses, attributable to the issuance by the Company of
business reinsured hereunder.
1.6 "Liability" shall mean all liability, including but not limited to,
Losses and Loss Expenses, provided that "Liability" shall not include direct
Expenses incurred by or on behalf of the Company.
1.7 "Losses" shall mean the amount of any settlement, award or judgment
paid by or on behalf of the Company (including interest accrued prior to final
judgment which is included as part of the final judgment), after deduction of
all recoveries, salvages, chose in action subrogations, whether received or not.
Losses shall include Loss Expense as provided in Section 1.8, extra contractual
obligations as provided in Article 16 and loss excess of original policy limits
as provided in Article 17.
1.8 "Loss Expenses" shall mean expenditures by or on behalf of the
Company in the direct defense, investigation or settlement of claims and
allocated to an individual claim or loss, but not including office expenses or
salaries, other compensation and expenses of regular employees. "Loss Expenses"
shall include investigation, appraisal, adjustment, negotiation and legal
expenses, court costs, statutory penalties, Prejudgment Interest or Delayed
Damages (as defined herein) and interest on any judgment or award. However, the
salaries and office expenses of officials and staff classified by the
Administrator as field adjusters and claims attorneys, allocated to a specific
claim, or to a loss occurrence arising out of a natural disaster, shall be
included in the Loss Expenses, but not the salaries and expenses of other
Administrator's personnel.
1.9 "Plan of Operation" shall mean the Plan of Operation set forth in
Appendix A.
1.10 "Policies" shall mean (a) all insurance policies written by the
Company, and all reinsurance and assignment and assumption agreements entered
into by the Company, whether known or unknown, prior to the Effective Date
excluding insurance policies, reinsurance agreements and contracts relating to
(i) workers' compensation and employers' liability policies directly written by
the Company in the States of Illinois, Wisconsin, Indiana and California, (ii)
workers' compensation and employers' liability assigned risk service business in
Illinois, and (iii) the involuntary assigned risk business resulting from clause
(a)(i) above, and (b) reinstated excess
<PAGE>
lines insurance contracts or policies issued and delivered by Company pursuant
to Section 3.1 of this Agreement on and after the Effective Date.
1.11 "Prejudgment Interest" or "Delayed Damages" shall mean interest or
damages added to a settlement, verdict, award, or judgment based on the amount
of time prior to the settlement, verdict, award, or judgment whether or not made
pan of the settlement, verdict, award, or judgment.
1.12 "Services" shall mean the ordinary and reasonable services of, and
incidental to the underwriting, issuance, billing and collection, administration
and claims handling of insurance contracts and policies, as specified in the
Plan of Operation. Services shall not include the payment of premium taxes by
the Company to any taxing jurisdiction with respect to the Policies.
ARTICLE 2
EFFECTIVE DATE; TERMINATION
The effective date of this Agreement shall be the Effective Date.
This Agreement shall become effective only upon the Closing (as defined in the
Stock Purchase Agreement) of the purchase and sale of the Shares (as defined in
the Stock Purchase Agreement). This Agreement will remain in full force and
effect until all Liabilities have been indemnified in full by the Reinsurer.
ARTICLE 3
OBLIGATIONS OF THE COMPANY
3.1 Policy Issue and Delivery. The Company agrees to issue and deliver
policies in the State of New York on an non-admitted excess lines basis,
provided that such policies shall be issued and delivered solely to reinstate a
Policy that would have originally expired on or after the Effective Date but is
or was cancelled by the Company prior to such expiration.
3.2 Maintenance of Qualification. The Company shall use its best efforts
to maintain its excess lines qualification in New York in order to service the
Policies issued prior to the Effective Date and to continue the issuance of
policies under this
4
<PAGE>
Article in New York. The Company shall issue policies under this Article in
conformance with the Plan of Operation, provided that the Company shall not be
required to issue or administer any such policies in violation of applicable
law, regulation, or order.
ARTICLE 4
OBLIGATIONS OF ADMINISTRATOR
4.1 Services. Administrator shall provide to the Company all Services
with respect to the Policies, subject to the terms and conditions of this
Agreement. Administrator shall perform the Services in a manner adequate to
satisfy the commitments of the Company under the Policies, and shall use its
best efforts to avoid actions or inactions that would cause injury to the
goodwill of the Company.
4.2 Indemnification. Administrator shall indemnify and hold the Company
harmless from all losses, claims, damages and liabilities and shall reimburse
the Company from all expenses of any kind or nature whatsoever (including
reasonable attorneys' fees) as incurred, that are based upon or arise out of
(a) breach of any obligation of the Administrator provided for in this
Agreement, and (b) any acts, errors or omissions of the Administrator or its
officers, directors, agents or employees relating to Services to be provided by
Administrator under this Agreement. For purposes of this Section 4.2,
"liabilities" shall include, without limitation, any declaratory judgment
expense, extra-contractual or punitive damages, excess of limits obligations and
fees and expenses (including, without limitation, all insurance regulatory fines
and penalties relating to any Policy that may arise because of Administrator's
actions or inactions, or those of its affiliates, directors, officers, agents or
employees).
ARTICLE 5
AGENCY
The Company hereby appoints Administrator its attorney-in-fact, solely
in respect of the Policies and shall cooperate with Administrator in determining
what authorizations are necessary, and shall obtain all authorizations necessary
for, or
5
<PAGE>
reasonably requested by, Administrator to validity act as the agent of the
Company for the purpose of providing the Services under this Agreement.
ARTICLE 6
REGULATORY ACTIONS
Administrator, Reinsurer and the Company shall promptly advise each other
whenever notice is received of any proposed regulatory action or sanction
against Administrator, Reinsurer or the Company relating to the Policies. The
parties agree to work together in good faith and use their best efforts to
resolve the proposed regulatory action or sanction so as to protect the good
names of the parties.
ARTICLE 7
REPORTS, ACCOUNTING AND REMITTANCES
7.1 Net Balances at Effective Date. The net balances due to or from the
Reinsurer and the Company on the Effective Date with respect to the reinsurance
provided under this Agreement will be settled pursuant to the terms and
conditions of the Stock Purchase Agreement.
7.2 Transactions Subsequent to the Effective Date. The net balances due
to or from the Reinsurer and the Company after the Effective Date with respect
to the reinsurance and services provided under this Agreement shall be reported
and accounted for as follows:
7.2.1 Within thirty (30) days after the end of each month, the
Company shall report to the Reinsurer on the Policies ceded hereunder:
(a) ceded net written premiums for the month; (b) provisional expenses
thereon; and (c) ceded losses (including loss expenses) paid during
the month.
Upon completion of the report, the Administrator will prepare a
report of the cash receipts and disbursements during the month, and advise
the Company and Reinsurer of the balance due to or from the parties. Such
balance due, is to be paid within thirty (30) days of the receipt of such
cash
6
<PAGE>
flow exhibit. The Administrator shall, pursuant to the Plan of Operation,
provide Reinsurer and Company with all required reports and accounting.
7.2.2 Within thirty (30) days after the end of each calendar
quarter, the Company shall report to the Reinsurer the ceded unearned
premiums and ceded outstanding loss reserves as of the end of the calendar
quarter.
7.2.3 Annually, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require to complete its statutory annual
statements.
ARTICLE 8
NO ASSIGNMENT
Neither the Company nor the Reinsurer may sell or transfer its interest
in any of the Policies reinsured by Reinsurer hereunder, other than as
contemplated under the Stock Purchase Agreement.
ARTICLE 9
INSPECTION
So long as any Policy is reinsured under this Agreement, the
Company agrees to allow Reinsurer, its attorneys, accountants and actuaries,
upon reasonable notice and during regular business hours, to inspect and copy
their Books and Records relating to the Policy. So long as any Policy is
reinsured under this Agreement, Reinsurer agrees to allow the Company and each
of its attorneys, accountants and actuaries, upon reasonable notice and during
regular business hours, to inspect and copy any Books and Records of the
Reinsurer relating to such Policy.
ARTICLE 10
INDEMNITY REINSURANCE
7
<PAGE>
10.1 Commencement of Liability. The liability of the Reinsurer as to any
Policy ceded hereunder shall commence on the later of the Effective Date or the
date on which the liability of the Company on such Policy is reinstated.
10.2 Termination of Liability. The liability of the Reinsurer under this
Agreement as to any Policy ceded or retroceded hereunder shall terminate
simultaneously with that of the Company.
10.3 Limit of Liability. Reinsurer's maximum liability on any one loss
or in the aggregate shall be 100%.
10.4 Reinsurance Premium. The Company shall pay to the Reinsurer 100% of
the premiums (and premium adjustments) received by the Company after the
Effective Date in respect of the Policies ceded hereunder.
10.5 Indemnity Reinsurance. Company shall cede to Reinsurer, and
Reinsurer agrees to accept, 100% of all Liability under and in respect of any
Policy hereunder.
10.6 Expense Reimbursement. Reinsurer shall pay the Company for all
direct Expenses incurred after the Effective Date by or on behalf of the
Company.
10.7 Reimbursements. It is agreed that reimbursement for premiums, Losses
and Expenses under this Article will be made in accordance with Article 7.
ARTICLE 11
SECURITY FOR CREDIT EVENTS
11.1 Action Required By Credit Event.
11.1.1 Upon the occurrence of a Credit Event, Reinsurer shall
immediately notify Company of such occurrence. The Company shall then notify
Reinsurer if the Company elects to have Reinsurer proceed! hereunder. Reinsurer
shall within thirty (30) days of such notification, at Reinsurer's election,
either (a) procure a "clean", irrevocable and evergreen letter of credit with
the Company as the beneficiary thereof and issued by a bank acceptable to the
Company, (b) deposit assets in a trust or custodial account, (c) permit funds
withheld, or (d) enter into any other
8
<PAGE>
arrangement that will allow Company to obtain financial statement credit for
reinsurance ceded under this Agreement. Any of these procedures must be
acceptable to the Company in form, substance and amount; provided that the
amount shall not be required at any time to exceed the reserves on the
Policies ceded hereunder.
11.1.2 If assets are deposited in a trust or custodial account,
all investment income, maturity of principal, proceeds of sale, reinvestment,
and any other amount arising from such assets shall be for the benefit and
account of Reinsurer except for such amount if any that is necessary to satisfy
Reinsurer's obligations to the Company under this Agreement.
11.2 Reserves. (This clause applies only to Reinsurers that do not
qualify for credit by any state or any other governmental authority having
jurisdiction over the Company's loss and unearned premium reserves or for whom
the Company would incur an overdue reinsurance liability and is in addition to
Section 11.1.)
As regards Policies issued or assumed by the Company coming within the
scope of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books, unearned premium and loss reserves
covered hereunder (including IBNR) and any overdue reinsurance liability which
it shall be required to set up by law, it will forward to the Reinsurer a
statement showing the proportion of such reserves and liability which is
applicable to it. The Reinsurer hereby agrees to apply for and secure delivery
to the Company, as beneficiary, a clean, evergreen, unconditional, irrevocable
letter of credit (including any confirmation thereof), in a form and from a bank
acceptable to the Company and the governmental authority having jurisdiction
over the Company's reserves. Alternatively, the Reinsurer shall enter into a
trust agreement and establish a trust account in the United States of America
for the sole benefit of the Company in such form and with a trustee that is
acceptable to the Company and the governmental authority having jurisdiction
over the Company's reserves. The amount available to be drawn by the Company
against such letter of credit, or confirmation thereof, or from such trust
account shall at all times be no less than the Company's share of said reserves
and liability and the Reinsurer agrees, irrespective of any intermediary clause
herein, that within ten (10) business days of delivery of written notice of
deficiency to it from the Company that the Reinsurer shall unconditionally
deliver for receipt by the trustee within such period, cash (U.S. legal tender)
and/or unencumbered eligible securities under the trust agreement to restore
such trust account to said amount or shall increase said letter of credit to
said amount.
9
<PAGE>
The assets that are deposited and maintained in such trust account shall
be valued according to their current fair market value, and shall consist only
of cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Company's state of domicile; provided that no such
investments are issued by an institution that is the parent, a subsidiary or an
affiliate of either the Company or the Reinsurer and that no state insurance
department which has authority to regulate the Company has determined the types
of securities permitted by the domicile state to be ineligible investments for
the purpose of this trust account under its own laws. Within twenty (20) days of
delivery of notice of ineligible investments for the purpose of this trust
account under its own laws. Within twenty (20) days of delivery of notice of
ineligible securities from the Company to the Reinsurer, the Reinsurer,
irrespective of any intermediary clause herein, agrees to direct the trustee to
substitute cash (U.S. legal tender) or securities then eligible to the Company
for this trust account as determined by the state insurance department(s), which
are of no less than equivalent fair market value to the trust assets determined
to be ineligible.
Prior to depositing assets with the trustee for such trust account, the
Company shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Company, or the trustee upon the direction of the
Company, may whenever necessary negotiate any such assets without consent or
signature from the Company or any other entity. All settlements of account
between the Company and the Reinsurer shall be made cash or its equivalent.
The Reinsurer and the Company agree that the assets in such trust
account may be withdrawn by the Company at any time without notice to or consent
of the Reinsurer, notwithstanding any other provisions in the reinsurance or any
other agreement and shall be utilized and applied by the Company or its
successor in interest without diminution because of insolvency on the part of
the Company, only for the following purposes:
1. to pay or reimburse the Company for the unpaid or
unreimbursed portion of the Reinsurer's share of any losses and allocated loss
expenses paid by the Company, or of unearned premiums due to the Company
under this Agreement;
10
<PAGE>
2. to reimburse the Company for the Company's share of
surrenders and benefits or losses paid by the Company pursuant to the
provisions of the Policies reinsured under this Agreement;
3. to fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the Company's liabilities
for the Policies ceded hereunder. Such account shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and
4. to pay any other amounts the Company claims are due under
this Agreement and for any other purpose permitted by the trust agreement
establishing such trust account.
The Reinsurer shall have the right to seek approval from the Company to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible securities
under the trust agreement establishing such trust account and which at the time
of receipt by the trustee have a fair market value no less than equal to the
fair market value of the assets withdrawn so as to maintain at all times the
amounts available to be drawn under this Article; or
2. after such withdrawal and transfer the current fair market value of
the unencumbered assets held in such trust account exceeds 102 % of the amounts
available to the drawn by the Company from such trust account under this
Article.
It is agreed by the Reinsurer and the Company that this Article shall
survive termination of this Agreement.
For the purpose of this Article, Company shall mean the named Company
under this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Company
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Company except if the Company under this Agreement is domiciled in California,
in which case if a court of
11
<PAGE>
law appoints a successor in interest to the named Company, then the Company is
limited to the court appointed domiciliary, receiver, conservator, rehabilitator
or liquidator. Drawings by any liquidator, rehabilitator, receiver or
conservator of any named Company not domiciled in California shall be for the
benefit of all the named Company's policyholders.
ARTICLE 12
INSOLVENCY
In the event of the insolvency of the Company and the appointment of a
conservator, liquidator, receiver or statutory successor of the Company, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Company having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or statutory successor has failed to pay all or a portion
of any claims. It is agreed, however, that the conservator, liquidator, receiver
or statutory successor of the Company shall give written notice to the Reinsurer
of the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the conservation
or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated any defense
or defenses that it may deem available to the Company or its conservator,
liquidator, receiver or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the court, against the
Company as part of the expense of conservation or liquidation to the extent of a
pro rata share of the benefit which may accrue to the Company solely as a result
of the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
12
<PAGE>
As to all reinsurance made, ceded, renewed or otherwise becoming
effective under this agreement, the reinsurance shall be payable as set forth
above by the Reinsurer to the Company or to its conservator, liquidator,
receiver or statutory successor, except (1) where the original contract of
insurance or reinsurance specifically provides another payee in the event of the
insolvency of the Company, and (2) where the Reinsurer, with the consent of the
direct Principal or Principals, has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the Company to such payees.
ARTICLE 13
ARBITRATION
If any dispute arises between the Company and the Reinsurer with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this Agreement) such
dispute, upon the written request of either party, will be submitted to three
arbitrators, one to be chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after receipt of written notice from the other party requesting
it to do so, the requesting party may appoint both arbitrators. If the two
arbitrators fail to agree in the selection of a third within thirty (30) days of
their appointment, each will nominate three individuals, of whom the other will
decline two. The final decision will be made by drawing lots. All arbitrators
will be active or retired officers of insurance or reinsurance companies and
will not have personal or financial interests in the result of the arbitration.
The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
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<PAGE>
The jurisdiction of the arbitrators to make any decision will be
restricted by the limit of liability expressly set forth in this Agreement. The
decision in writing rendered by a majority of the arbitrators will be final and
binding for both parties. Such decision will be a condition precedent to any
right of legal action arising out of the arbitrated dispute. Judgment may be
rendered upon the final decision of the arbitrators in any court having
jurisdiction.
Each party to this Agreement will bear the expense of its own arbitrator
and will equally divide the expense of the third arbitrator with the other
party. Except as provided above, arbitration will be based upon the procedures
of the American Arbitration Association.
ARTICLE 14
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed
to be due hereunder or meet its other obligations, the Reinsurer, at the request
of the Company, shall submit to the jurisdiction of any court of competent
jurisdiction within the United States and all matters arising hereunder shall be
determined in accordance with the law and practice of such court. The Reinsurer
agrees that any judgment rendered by such court shall be enforceable against the
Reinsurer in the jurisdiction of its domicile.
Service of process in such suit may be made upon the Secretary of the
Reinsurer and, in any suit instituted against the Company or the Reinsurer under
this Agreement, the Reinsurer will abide by the final decision of such court or
of any appellate court in the event of an appeal.
The Reinsurer warrants that the Secretary is authorized and directed to
accept service of process on behalf of the Reinsurer in any suit and, upon the
request of the Company, to give a written undertaking to the Company that a
general appearance upon the Reinsurer's behalf will be entered in the event such
a suit shall be instituted.
Further, pursuant to the requirement of a statute of any state,
territory or district of the United States which makes provision therefor, the
Reinsurer hereby designates the Superintendent, Commissioner or Director of
Insurance or their successors in office, as its true and lawful attorney upon
whom may be served any
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<PAGE>
lawful process in any action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary arising out of this Agreement. The Reinsurer
hereby designates the Secretary as the person to whom this said officer is
authorized to mail such process or a true copy thereof.
The provisions of this Article are not intended to conflict with or
override the obligation of the parties to arbitrate under Article 13.
ARTICLE 15
SELF-INSURED OBLIGATIONS
As respects all business the subject matter hereof, this
Agreement shall cover self-insured obligations of the Company assumed by it as a
self-insurer including self-insured obligations in excess of any valid and
collectible insurance available to the Company to the same extent as if all
types of insurance covered by this Agreement were afforded under the broadest
forms of policies issued by the Company provided, such self-insured obligations
are within the scope of underwriting criteria furnished by the Company to the
Reinsurer.
Any insurance or reinsurance wherein the Company hereby reinsured
and/or its affiliates and/or subsidiary companies are named as the insured or
reinsured party, either alone or jointly with some other party, shall be deemed
to be insurance or reinsurance coming within the scope of this Agreement,
notwithstanding that no legal liability may arise in respect thereof by reason
of the fact that the Company hereby reinsured and/or its affiliated and/or
subsidiary companies are named as the insured or reinsured party or one of the
insured or reinsured parties.
ARTICLE 16
EXTRA-CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company for any Extra
Contractual Obligations within the limits hereof. The term "Extra Contractual
Obligations" is defined as those liabilities not covered under any other
provision of this Agreement and which arise from the handling of any claim on
business covered hereunder, such
15
<PAGE>
liabilities arising because of, but not limited to, the following: failure by
the Agreement to settle within the policy limit, or by reason of alleged or
actual negligence, fraud, or bad faith in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any action against its insured
or reinsured or in the preparation of prosecution of an appeal consequent upon
such action.
The date on which an Extra Contractual Obligation is incurred by
the Agreement shall be deemed, in all circumstances, to the date of the original
disaster and/or casualty.
However, this Article shall not apply where the loss has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Company acting individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
ARTICLE 17
EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company, within the limits hereof, in
connection with loss in excess of the limit of its original policy, such loss in
excess of the limit having been incurred because of failure by it to settle
within the policy limit or by reason of alleged or actual negligence, fraud, or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "loss" shall mean any amounts
for which the Company would have been contractually liable to pay had it not
been for the limit of the original policy.
16
<PAGE>
ARTICLE 18
OVERSIGHT
It is expressly understood and agreed that if failure to comply with any
condition of this Agreement is shown to be unintentional and as a result of
misunderstanding, oversight or clerical error on the part of either the
Reinsurer, Administrator or the Company, then appropriate adjustments shall be
made so that the Reinsurer, Administrator or the Company shall be restored to
the position they would have occupied had no such error or oversight occurred.
ARTICLE 19
OFFSET
Each party hereto shall have, and may exercise at any time and from time
to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under any reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as assuming insurer or as ceding
insurer, in which each party acted under any agreement, provided, however, that,
in the event of the insolvency of a party hereto, offsets shall only be allowed
in accordance with the applicable provisions of New York Law. The application of
this offset provision shall not be deemed to constitute diminution in the event
of insolvency.
ARTICLE 20
EXCLUSIONS
This Agreement follows the exclusions under the Policies.
17
<PAGE>
ARTICLE 21
TERRITORY
The Reinsurer's liability will be for all Losses occurring on a risk
located anywhere covered under the original Policies.
ARTICLE 22
SALVAGE AND SUBROGATION
(This Article applies only when there is no enforceable assignment of salvage
and subrogation rights by the Company to the Reinsurer).
The Reinsurer will be credited with salvage and/or subrogation (i.e.,
reimbursement obtained or recovery made by the Company less the actual cost,
excluding salaries of employees and office expenses of the Company and sums paid
to attorneys as retainers, incurred in obtaining such reimbursement or making
such recovery) pertaining to the claims and settlements involving reinsurance
hereunder. The Company will enforce its right to salvage and/or subrogation
relating to any Loss and will prosecute all claims arising out of such right.
Should the Company refuse or neglect to enforce this right the Reinsurer is
hereby empowered and authorized to instigate appropriate action in the name of
the Company. If salvage and/or subrogation is insufficient to cover the expense
incurred in its recovery, the net expense will be apportioned in proportion to
the Reinsurer's respective interest in this Agreement.
ARTICLE 23
INTERMEDIARY
The parties to this Agreement represent and warrant to each other that
no intermediary was involved in the procurement of this Agreement.
ARTICLE 24
18
<PAGE>
MISCELLANEOUS
24.1 No Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate
as a waiver of any thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.
24.2 Entire Agreement; Modification. This Agreement and the Stock
Purchase Agreement set forth the entire agreement and understanding between the
parties as to the subject matter hereof, and merges and supersedes all prior
discussions, agreements, representations, and understandings of every and any
nature between them, and no party shall be bound by any condition, definition,
warranty, or representation, other than as expressly set forth or provided for
in this Agreement or the Stock Purchase Agreement. This Agreement may not be
changed or modified, except by agreement in writing, signed by all of the
parties hereto.
24.3 Third-Party Beneficiaries. This Agreement is made exclusively
between Reinsurer and the Company and the acceptance by Reinsurer of the
liabilities of the Policies ceded hereunder shall not create any right or legal
relation whatsoever between Reinsurer and the policyholder, the insured or the
beneficiary under any such Policy.
24.4 Severability. It is the desire and the intent of the parties that
the terms and conditions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular term
or condition of this Agreement shall be adjudicated or becomes by operation of
law invalid or unenforceable, this Agreement shall be deemed amended to delete
therefrom the portion which is adjudicated or which becomes by operation of law
invalid or unenforceable, and the remainder of this Agreement shall remain in
full force and effect unless such deletion would materially prejudice the rights
of any party to this Agreement of frustrate the fundamental purposes of this
Agreement.
24.5 Notices. All notices, requests, demands certificates and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or upon the second day following mailing,
which shall
19
<PAGE>
be by certified or registered mail, with first-class postage paid to the address
listed below:
To the Company:
Casualty Insurance Company
[Address]
Attn:
To Reinsurer:
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attn:
24.6 Further Instruments. Each party shall, on such dates as another may
request, without cost or expense to such other, execute and deliver or cause to
be executed and delivered to the requesting party such further instruments as
such party may reasonably request to more effectively consummate the
transactions contemplated by this Agreement.
24.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24.8 Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof or be
construed as adding to or derogating from the meaning of the text of this
Agreement.
24.9 Governing Law. The provisions hereof shall be governed by the laws
of the State of without regard to its principles of conflicts
of law.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
above written.
Casualty Insurance Company
By:
[name]
[title]
Workers' Compensation and Indemnity
Company of California
By:
[name]
[title]
The Continental Insurance Company
By:
[name]
[title]
[Administrator
By:
[name]
[title]]
21
<PAGE>
Appendix A
PLAN OF OPERATION
Policies shall be serviced under this Agreement according to the
following Plan of Operation. In general, Administrator shall direct, approve,
and perform the issuance (reinstatements only) and administration of Policies
and the handling of claims thereon. Company and Administrator agree to the
following specifics:
1. The Administrator may, within the scope of his authority, (a) issue and
countersign policies of insurance and endorsements thereto; and (b) effect
cancellation of such policies.
2. The Administrator shall be responsible for all policies entrusted to it,
whether issued or not, and shall only issue policies in series.
3. The Administrator shall be responsible for underwriting risks and
determining rates appropriate therefor consistent with any fried and
approved rates, rating plans or other filings as currently may, or may
in the future, be required by law or regulation.
4. The Administrator shall collect, receive and receipt for premiums due
for the insurance subject hereto.
5. The Administrator shall adjust, compromise, settle, deny and/or pay all
losses incurred under policies issued pursuant hereto, and maintain usual
and customary records with respect to such loss handling in accordance
with the legal requirements of the various states and in accordance with
any reasonable requirements made by the Company. The Company reserves the
fight to review relevant information and consult with the Administrator
on any matter involving payment, adjustment, compromise, settlement or
denial of any claim with an incurred value of $500,000, or any claim,
regardless of incurred value, involving any one of the following types
of claims: fatality, brain damage, spinal cord injury with partial/total
paralysis, employer liability, AIDS, heart attack, asbestos, serious burns
or disfigurement, substantial bilateral hearing loss, substantial loss of
sight, amputation or loss of use of 100% of upper or lower extremity,
strokes, multiple fractures of major body parts, mental illness and
emotional stress with total disability potential. Claims of the kinds
described in the preceding sentence must be reported to
<PAGE>
the Company within thirty (30) days of administrator becoming aware of the
claim. The Company shall be entitled to perform an audit, not more than
twice each calendar year, of the Administrator in order to ascertain that
the Administrator is acting in accord with the standards of this Item 5.
6. The Administrator shall not issue any advertising or promotional material
bearing the Company's name without first obtaining the written approval
of the Company. All advertising materials, sales brochures and other sales
materials shall be in compliance with all applicable insurance
regulations, and, if applicable and required by law or regulation,
Administrator shall deliver a Certificate of Compliance to each Company
annually to enable such Company to make any required state filings.
7. The Administrator shall comply with all laws and regulations governing the
Company and the Administrator with respect to the insurance business written
within the scope of this Agreement.
8. The Administrator shall maintain all records, including, but not limited
to, statistical and accounting records, that an insurance company would
maintain with respect to the insurance business in question so as to allow
the Company to make only general ledger entries in its books and records,
with all other data maintained by the Administrator and provided by the
Administrator to the Company as is necessary to enable the Company to
prepare its annual convention statement and any other reports required
by any governmental agency, and to submit the data required by the various
reporting bureaus.
9. The Administrator shall be entitled to use any materials containing the
Company's trademarks and logos currently being used in conjunction with the
business reinsured under this Agreement without obligation to pay royalties
or similar fees to the Company during the period that the Agreement
remains in force, provided that such use is consistent with the practices
of the Company on the Effective Date.
<PAGE>
Exhibit G
NON-COMPETITION AGREEMENT
THIS AGREEMENT, dated as of December __ 1994, between FREMONT
GENERAL CORPORATION, a California corporation ("Fremont General"), and THE
CONTINENTAL CORPORATION, a New York corporation ("Continental").
WHEREAS, the Fremont General, Fremont Compensation Insurance
Company (the "Buyer"), The Buckeye Union Insurance Company (the "Seller") and
Continental have entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated as of December , 1994, pursuant to which the Seller has
agreed to sell, and the Buyer has agreed to purchase, all of the outstanding
shares of capital stock of Casualty Insurance Company (together with its
wholly-owned subsidiary, The Workers' Compensation and Indemnity Company of
California, the "Company"); and
WHEREAS, it is a condition precedent to the obligations of the
Buyer and Fremont General under the Stock Purchase Agreement that this Agreement
be executed and delivered on or prior to the Closing Date;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Stock Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings (each such meaning to be equally applicable to
both the singular and plural forms of the respective terms so defined):
National Account: any insurance account of which (i) at least
20% of the gross written premiums of such account are derived from sources other
than the Restricted Business in the Restricted States or (ii) the standard gross
written premium attributable to the workers' compensation insurance business
exceeds $1 million per year.
Package Account: any insurance account of which
less than 75% of the gross written premiums attributable to
such account are derived from the Restricted Business.
<PAGE>
Person: any natural person, firm, partnership,
association, corporation, company, trust, business trust,
governmental authority or other entity.
Restricted Business: the meaning specified in
Section 2.
Restricted Period: the meaning specified in
Section 2.
Restricted States: the meaning specified in
Section 2.
2. Non-Competition. For the period commencing with the Closing
Date and ending on the third anniversary of the Closing Date (the "Restricted
Period"), Continental agrees that, except in connection with the transactions
contemplated by the Stock Purchase Agreement, including Sections 4.4 and 4.5
thereof, it shall not, and it shall cause its subsidiaries not to, individually
or jointly with others, whether for their own account or for that of any other
Person, engage in, or own or hold any ownership or debt interest in, or control
or otherwise participate in, or act as a partner or principal of any Person that
engages in, the workers' compensation insurance business (the "Restricted
Business") within the States of Wisconsin, Michigan, California, Indiana and
Illinois (the "Restricted States"), provided that it shall not be a violation of
this Agreement for Continental or its subsidiaries to (i) own or hold a passive
investment as part of its investment portfolios in any Person which engages in
the Restricted Business in the Restricted States, (ii) acquire a Person or a
book of insurance business that has not derived more than 25% of its
consolidated revenues from the Restricted Business in the Restricted States in
each of the three fiscal years of such Person or book of insurance business
immediately preceding the acquisition of such Person or book of insurance
business by Continental or its subsidiaries, so long as after the date of
acquisition, the gross written premiums derived by such Person or book of
insurance business from the Restricted Business in the Restricted States shall
not increase by more than 5% in each calendar year (or portion thereof) during
the Restricted Period,
(iii) underwrite the Restricted Business in the Restricted States for a
National Account, (iv) underwrite the Restricted Business in the Restricted
States for a Package Account or (v) underwrite any unsolicited Restricted
Business in the Restricted States, provided that the gross
<PAGE>
written premiums derived from such business pursuant to clause (v) shall not
exceed $30 million during the Restricted Period.
3. Non-Solicitation. During the Restricted Period, none of
Continental, any subsidiary of Continental and any officer, director, employee,
agent or representative of Continental or any such subsidiary (the "Employing
Persons") shall (a) solicit to hire or solicit to employ any employee of the
Company or induce or endeavor to induce any employee of the Company to leave his
or her employment, other than as part of a general solicitation of employees not
directed specifically to the Company or the Company's employees, (b) hire or
employ any of the employees of the Company listed on Schedule A hereto or (c)
hire or employ in the aggregate (excluding those employees specified in clause
(b) above) more than 10% of the employees of the Company as of the date hereof,
provided that clauses (b) and (c) above shall not prevent any Employing Person
from hiring or employing any employee of the Company whose employment has been
involuntarily terminated by the Company (at the direction of, or upon notice to
and with the consent or acquiescence of, Fremont General) prior to or as of the
Closing Date or by Fremont General or the Company after the Closing Date.
4. Proprietary Information. During the Restricted Period, no
Employing Person shall, directly or indirectly, disclose or reveal any Company
Proprietary Information to any other person (including any Employing Person) or
use the Company Proprietary Information in the solicitation, underwriting or
operation of the Restricted Business in the Restricted States. For purposes of
this Agreement, "Company Proprietary Information" shall mean any proprietary
product or marketing information, trade secret, customer list, experience rating
program or system or other similar property or materials owned by the Company.
5. Termination. This Agreement shall terminate
and be of no further force and effect upon the consummation
of the merger of Continental with CNA Financial Corporation
("CNA") or one of CNA's subsidiaries pursuant to the Agreement and Plan of
Merger, dated as of December 6, 1994, among Continental, CNA and Chicago
Acquisition Corp.
6. Notices. All notices, requests, demands,
waivers and other communications under or in relation to
<PAGE>
this Agreement will be given in accordance with the provisions of Section 9.1 of
the Stock Purchase Agreement.
7. Injunctive Relief. The parties agree that
any remedy at law for any breach of the provisions contained
herein shall be inadequate and that Fremont General shall be
entitled to injunctive relief in addition to any other
remedy it has.
8. Governing Law. This Agreement shall be
governed by and construed in accordance with the internal
laws of the State of Illinois, without regard to the
conflicts of law principles of such state.
9. Waiver of Punitive Damages. The parties expressly waive and
forego any right to recover punitive, exemplary, or similar damages in any
arbitration, lawsuit, litigation or proceeding arising out of or resulting from
any controversy or claim arising out of or relating to this Agreement, or the
breach, termination or validity of this Agreement. Each party certifies and
acknowledges that
(a) no representative, agent or attorney of any other party has represented
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver, (b) it understands and has
considered the implications of this waiver, (c) it makes this waiver voluntarily
and (d) it has been induced to enter into this Agreement by, among other things,
the mutual waivers and certifications in this Section 9.
10. Assignment. This Agreement will be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns, but shall not be assignable or otherwise transferable, by operation of
law or otherwise, by any party without the prior written consent of the other
party. Any purported assignment or other transfer in violation of this Section
10 shall be void and unenforceable.
11. Modification; Waiver. This Agreement may be
modified only by a written instrument executed by the
parties to this Agreement. Any of the terms and conditions
of this Agreement may be waived in writing at any time by
the party entitled to the benefits of such terms and
conditions.
12. Entire Agreement. This Agreement constitutes
the entire agreement and supersedes all prior agreements,
<PAGE>
understandings, representations and warranties, oral or written, between the
parties in respect of the subject matter of this Agreement.
13. Severability. Any provision (including, without limitation,
any term, phrase, clause, sentence, section or subsection) of this Agreement
which is invalid or unenforceable for any reason in any jurisdiction will, as to
that jurisdiction, be ineffective only to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
provisions of this Agreement or affecting the validity or unenforceability of
the remaining provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted, to the extent permitted by law, to be only so broad as is
enforceable.
14. Headings. The section headings in this
Agreement are for convenience of reference only and shall
not be deemed to alter or affect the meaning or
interpretation of any provision of this Agreement.
15. Counterparts. This Agreement may be executed
in several counterparts, each of which is deemed an original
and all of which together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be executed as of the date first above written.
FREMONT GENERAL CORPORATION
By
Name:
Title:
THE CONTINENTAL CORPORATION
By
Name:
Title:
5
<PAGE>
Exhibit H
Power of Attorney
POWER OF ATTORNEY
[Name of Original Insurer under Reinsurance Agreement]
[Closing Date]
[Name and Address
of Reinsurer/Administrator]
Dear Sirs:
[Name of Original Insurer] (the "Company") hereby nominates,
constitutes and appoints [Name of Reinsurer/Administrator] (the
"Reinsurer/Administrator") as the Attorney-in- Fact of the Company with respect
to the rights, duties, privileges and obligations of the Company under and in
respect of all its "Policies" as defined in and ceded under the [Quota Share
Reinsurance and Service Agreement] [Indemnity Reinsurance and Service Agreement]
between the Company and the [Reinsurer/Administrator and other parties] (the
"Reinsurance Agreement") entered into pursuant to Section of, and effective as
of the Closing Date of, the Stock Purchase Agreement, dated as of __________ __,
1994 among Fremont Compensation Insurance Company, Fremont General Corporation,
The Buckeye Union Insurance Company, The Continental Corporation and Casualty
Insurance Company (the "Stock Purchase Agreement"), with full power and
authority to act in the name, place and stead of the Company with respect to
or in connection with (a) claims under such Policies, including without
limitation, the power to adjust, offset, defend, and settle at its discretion
all claims and bad faith actions under and in respect of such Policies subject
to the rights of the Company to associate, review or consult under the
Reinsurance Agreement, and to prosecute an action or appeal in respect of a
claim under the Policy, and (b) providing Services (as defined in the
Reinsurance Agreement) with respect to the Policies].
<PAGE>
This Power of Attorney and all authority conferred hereby are
granted and conferred for the purpose of completing the transactions
contemplated by the Reinsurance Agreement and the Stock Purchase Agreement.
This Power of Attorney is an agency coupled with an interest, shall not be
terminated by the Company or by operation of law and shall remain in full force
and effect until the cancellation, termination or expiration of the Reinsurance
Agreement.
This Power of Attorney sets forth exclusively the duties of the
Attorney-in-Fact with respect to any and all matters pertinent hereto and no
implied duties or obligations shall be read into this power of attorney against
the Attorney-in-Fact.
This instrument constitutes a representation of the authority of
the undersigned Company to execute and deliver this Power of Attorney.
This Power of Attorney shall be governed by the laws of the State
of [domiciliary state of Original Insurer].
[Name of Original Insurer]
By
Title:
Accepted on behalf of
the Attorney-in-Fact
[Name of Reinsurer/Administrator]
By
Title:
2
<PAGE>
EXHIBIT I
FREMONT GENERAL CORPORATION
PROMISSORY NOTE
DUE _________ __, 199_
$25,000,000 New York, New York
As of ___________ __, 1994
FOR VALUE RECEIVED, FREMONT GENERAL CORPORATION, a Nevada corporation
(the "Borrower"), hereby absolutely and unconditionally promises to pay to THE
BUCKEYE UNION INSURANCE COMPANY, an Ohio insurance company, or its registered
assigns (collectively, the "Lender"), on _________ __, 199_ [3 years from
issue date] (the "Stated Maturity") the principal amount of TWENTY-FIVE
MILLION DOLLARS ($25,000,000) or, if less, the aggregate principal amount of
this Note outstanding on such date, and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the principal amount from time
to time remaining unpaid hereon at a rate per annum equal to __% [the rate
reported on the Reuters LIBO Page for three month maturities as determined as
of 10:00 a.m., New York City time, on the date which is two Business Days
prior to the date of this Note plus .875%] from the issue date of this Note
to March 15, 1995, and thereafter on the 15th day of each June, September,
December and March (each an "Interest Payment Date") at an interest rate equal
to LIBOR plus .875 % (the "Interest Rate") on the Interest Determination Date
(as defined below) applicable to each such Interest Period (as defined below),
until the principal hereof is paid, provided that the Interest Rate in effect
for the 10 days prior to the Stated Maturity shall be that in effect on the
tenth day preceding such Stated Maturity.
LIBOR will be determined as follows:
(i) two Business Days prior to each Interest Payment Date (each, an
"Interest Determination Date"), LIBOR will be determined for the next three
months (each such three-month period ending on an Interest Payment Date, an
"Interest Period") on the basis of the offered rates for deposits in U.S.
Dollars having a three-month maturity (the "Index Maturity"), commencing on the
second Business Day following each such Interest Determination Date, which
appear as of 10:00 a.m., New York City time, on such Interest Determination Date
on the Reuters Screen LIBO Page. If at least two offered rates appear on the
Reuters Screen LIBO Page, LIBOR for the next Interest Period will be the
arithmetic mean (rounded to the next higher one hundred-thousandth of a
percentage point) of the offered rates. If fewer than two offered rates appear
on the Reuters Screen LIBO Page, LIBOR for the next Interest Period will be
determined as described in (ii) below. "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page as may replace the LIBO page on that service for the purpose of
displaying London interbank overnight rates of major banks).
<PAGE>
(ii) With respect to an Interest Determination Date on which fewer than
two offered rates for the applicable Index Maturity appear on the Reuters Screen
LIBO Page, LIBOR for the next Interest Period will be determined on the basis of
the rates at approximately 10:00 a.m., New York City time, on such Interest
Determination Date by three major banks in the City of New York, selected by the
Lender for purchases of U.S. Dollars in the interbank market customarily used by
such major banks having the specified Index Maturity for the specified Interest
Period and in an amount of at least $10,000,000; provided, however, that if
fewer than three banks selected as aforesaid by the Lender are quoting as
mentioned in this sentence, LIBOR for the next Interest Period will be the LIBOR
in effect on such Interest Determination Date.
Interest hereon shall be computed from the original issue date of this
Note or from the last date to which interest has been paid by multiplying the
principal amount outstanding under this Note by an accrued interest factor. Such
accrued interest factor is computed by adding the interest factor calculated for
each day from the Issue Date or from the last date to which interest has been
paid, to but excluding the date for which interest hereon is being calculated.
Unless otherwise specified above, the interest factor (expressed as a decimal)
for each such day is computed by dividing the Interest Rate (expressed as a
decimal) applicable to such date by 360.
1. Payments. The Borrower will punctually pay when due the principal
hereof and interest hereon due with respect to such principal, without
presentment, to the holder of this Note by wire transfer to the following
account: _____________, or to such other account as shall have been designated
to the Borrower by the Lender in writing no less than two Business Days prior
to the relevant Interest Payment Date, or, as the case may be, the Stated
Maturity, in currency of the United States of America which at the time of
payment shall be legal tender for the payment of public and private debts. If
any payment date with respect to this Note would otherwise be a day that is
not a Business Day (as hereinafter defined) such payment need not be made on
such day, but may be made on the next succeeding Business Day with the same
force and effect as if made on the due date, and interest shall accrue on the
period from and after such due date to the date of payment. "Business Day"
means any day other than a Saturday, Sunday or other day on which banks in
California or New York are required by law to close or are customarily closed.
2. Defaults. Anything to the contrary notwithstanding, all amounts
payable under this Note (i) shall immediately and automatically become due and
payable upon the (a) initiation of any bankruptcy, insolvency, moratorium,
receivership or reorganization by or against the Borrower or (b) the
acceleration of the obligations of the Borrower under the Bank Credit Agreement
(as defined below); provided, that in such event, if the underlying default is
cured to the satisfaction of, or waived by, the Bank Creditors (as defined
below), and such acceleration is rescinded, any default arising hereunder solely
by reason of such acceleration shall immediately and automatically deemed to be
cured, and the acceleration of this Note consequent thereupon shall immediately
and automatically be rescinded, and (ii) may be declared by written notice to
the Borrower to be due and payable upon the failure by the Borrower to (a) make
any payment
-2-
<PAGE>
of interest hereunder within 5 days following the date on which such payment was
due, (b) cure a breach of any covenant (i) set forth in Section 3 (a) or (b) of
this Note within 10 days after, or (ii) set forth in Section 3(c) of this Note
within 30 days after, written notice of such breach has been given to the
Borrower by the Lender or (c) make any payment when due (whether by lapse of
time, by declaration, by call for redemption or otherwise) of the principal of
or interest on any indebtedness for borrowed money in excess of $10,000,000
(other than this Note) of the Borrower and such default shall continue beyond
the period of grace, if any, allowed with respect thereto; provided, that in
such event, upon the satisfaction of the underlying payment obligation or the
waiver of any default occasioned thereby, any default arising hereunder solely
by reason thereof shall immediately and automatically be deemed to be cured.
3. Covenants. The Borrower (a) shall cause Fremont Indemnity Insurance
Company to maintain a consolidated statutory surplus of at least $200,000,000 at
the end of each fiscal quarter, (b) shall not incur any indebtedness for
borrowed money from financial or lending institutions or otherwise pursuant to
notes, debentures, loan agreements or similar instruments, after the date of
this Note and (c) shall furnish the information required by Section 6.01 of the
Bank Credit Agreement to the extent the requirements thereof relate to the
Borrower or to Fremont Compensation Insurance Company.
4. Prepayment. The principal amount of this Note is subject to
prepayment in whole or in part at the sole option of the Borrower at any time
without penalty or premium.
5. Subordination. The payment of all indebtedness of the Borrower
arising under or in respect of this Note is hereby expressly subordinated in
right of payment to all Bank Debt (as defined below) to the extent and with the
effect hereinafter described:
(a) Bank Debt Defined. "Bank Debt" shall mean all indebtedness,
obligations and liabilities (including, without limitation, principal, interest
(whether accruing prior to or following the initiation of any proceedings under
bankruptcy, insolvency or similar laws, regardless of whether the Bank
Creditors' (as defined below) claim therefor is allowed or allowable in any case
or proceeding relating thereto), costs, fees and expenses and other amounts
payable pursuant thereto) of the Borrower arising under or in respect of the
Credit Agreement dated as of August 11, 1994 by and among the Borrower, certain
financial institutions from time to time party thereto (the "Banks") and The
Chase Manhattan Bank, N.A., in its capacity as agent thereunder (the
"Representative," and collectively with the Banks, the "Bank Creditors") for
itself and the other Banks, as such Credit Agreement may be modified,
supplemented, amended and restated, restructured or refinanced from time to
time, or any successor or replacement agreements or instruments with the Bank
Creditors or any successor group of creditors so long as any of the foregoing
are effected through a bank syndicate or otherwise with bank lenders (the "Bank
Credit Agreement"); provided, that the aggregate outstanding principal amount of
all Bank Debt shall not at any time exceed $150,000,000.
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(b) Suspension of Payment. In the event that: (i) any liquidation,
dissolution or winding up of the Borrower, or of any execution, sale,
receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization
or other similar proceeding relative to the Borrower or its property, all
principal, interest, premium or other amounts owing in respect of the Bank Debt
shall first be paid in full before any payment or distribution of any assets of
the Borrower of any kind or character is made upon the indebtedness evidenced by
this Note; and in any such event any payment or distribution of any kind or
character, whether in cash, property or securities (other than in securities,
including equity securities, or other evidences of unsecured indebtedness, the
payment of which is expressly subordinated, on terms no less favorable to the
holders of the Bank Debt than the terms of this Note, to the payment of all Bank
Debt which may at the time be outstanding) which shall be made upon or in
respect of this Note shall be received in trust for the benefit of, and shall be
paid over to the holders of, the Bank Debt unless such Bank Debt shall have been
paid in full;
(ii) (A) the Borrower shall be in default on Bank Debt and such default
relates to the non-payment of principal, interest, premium or other amounts
owing in respect of the Bank Debt or (B) the holders of Bank Debt accelerate the
maturity of the Bank Debt, no payment or distribution of any assets of the
Borrower of any kind or character shall be made by the Borrower on account of
any principal or interest on this Note until such default is cured or waived or
such acceleration is rescinded; and
(iii) the Borrower shall be in default on Bank Debt and such default does
not relate to the failure by the Borrower to pay principal, interest, premium or
other amounts owing in respect of the Bank Debt ("Non-Payment Default") and such
default shall have continued for a period of time sufficient to permit the
acceleration of the maturity of such Bank Debt, no payment or distribution of
any assets of the Borrower of any kind or character shall be made by the
Borrower on account of any principal or interest on this Note for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Borrower of
written notice of a Non-Payment Default unless and until the earliest of (A) 180
days after receipt of such written notice by the Borrower (a "Payment Notice")
(provided any Bank Debt to which such notice was given shall theretofore have
not been accelerated), (B) the date such Non-Payment Default and all other
Non-Payment Defaults as to which notice is also given after such period is
initiated shall have been cured or waived or shall have ceased to exist or the
Bank Debt related thereto shall have been discharged or paid in full and (C) the
date such Payment Blockage Period and any Payment Blockage Periods initiated
during such period shall have been terminated by written notice to the Borrower
from the holders of Bank Debt that have given notice of a Non-Payment Default at
or after the initiation of such Payment Blockage Period, after which, in the
case of clause (A), (B) or (C), the Borrower shall resume making any and all
required payments in respect of this Note, including any missed payments. Any
obligations of the Borrower under or in respect of this Note which would, but
for the pendency of any Payment Blockage Period, have been due and payable
during such Payment Blockage Period shall be due on the Business Day immediately
following the expiration of such Payment Blockage Period. Notwithstanding any
other provision to the contrary, in no event shall a Payment Blockage Period
extend beyond 180 days from the
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date of the receipt by the Borrower of the notice referred to above (the
"Initial Blockage Period"). Any number of notices of events of default may be
given during the Initial Blockage Period; provided, that during any 365-day
consecutive period the aggregate duration of all Payment Blockage Periods may
not exceed 180 days.
(c) Enforcement. The Lender will not take or omit to take any action or
assert any claim with respect to the obligations of the Borrower hereunder which
is inconsistent with the provisions of this Note. Without limiting the
foregoing, during any Payment Blockage Period the Lender will not assert,
collect or enforce the obligations of the Borrower hereunder or any part thereof
or take any action to realize upon the obligations of the Borrower hereunder or
any part thereof or enforce any of the remedies available under this Note or
applicable law, except (i) in each such case as necessary, upon 5 days written
notice to the Representative, to collect any sums expressly permitted to be paid
by the Borrower to the Lender pursuant to Section 5(b), or (ii) to the extent
(but only to such extent) that the commencement of a legal action may be
required to toll the running of any applicable statute of limitation. The Lender
shall not enforce any right of subrogation, reimbursement or indemnity
whatsoever from any assets of the Borrower or any guarantor of or provider of
collateral security for the Bank Debt until the Bank Debt has been paid in full.
The Lender by its acceptance of this Note further waives any and all rights with
respect to marshalling.
(d) Rights of Bank Creditors Upon Enforcement. If the Lender, in
contravention of the terms of this Note, shall commence, prosecute or
participate in any suit, action or proceeding against the Borrower, then the
Borrower may interpose as a defense or plea the making of this Note, and the
Representative may intervene and interpose such defense or plea in its name or
in the name of the Borrower. If the Lender, in contravention of the terms of
this Note, shall attempt to collect any of the obligations of the Borrower
hereunder or enforce this Note then the Representative on behalf of the Bank
Creditors or the Borrower may, by virtue of this Note, restrain the enforcement
thereof in the name of the Bank Creditors or in the name of the Borrower.
(e) Voting of Claims, Etc. At any meeting of creditors of the Borrower or
in the event of any case or proceeding, voluntary or involuntary, for the
distribution, division or application of all or part of the assets of the
Borrower or the proceeds thereof, whether such case or proceeding be for the
liquidation, dissolution or winding up of the Borrower or its business, a
receivership, insolvency or bankruptcy case or proceeding, an assignment for the
benefit of creditors or a proceeding by or against the Borrower for relief under
the Federal Bankruptcy Code or any other bankruptcy, reorganization or
insolvency law or any other law relating to the relief of debtors, readjustment
of indebtedness, reorganization, arrangement, composition or extension or
marshaling of assets or otherwise, the Lender shall retain the right to vote and
otherwise to act with respect to the obligations of the Borrower hereunder
(including, without limitation, the right to vote to accept or reject any plan
of partial or complete liquidation, reorganization, arrangement, composition or
extension), provided that the Lender shall not vote with respect to any such
plan or take any other action in any way so as to contest (i) the
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validity of any Bank Debt or any collateral therefor or guaranties thereof, (ii)
the relative rights and duties of any holders of any Bank Debt established in
any instruments or agreements creating or evidencing any thereof with respect to
such collateral or guaranties or (iii) the Lender's obligations and agreements
set forth in this Note and accepted by the Lender in accepting this Note.
(f) Borrower's Obligations Absolute. Nothing contained in this Note shall
impair, as between the Borrower and the Lender, the obligation of the Borrower
to pay to the Lender all amounts payable in respect of the obligations of the
Borrower hereunder as and when the same shall become due and payable in
accordance with the terms thereof, or prevent the Lender (except as expressly
otherwise provided in Section 5(c) or 5(e), from exercising all rights, powers
and remedies otherwise permitted by this Note and by applicable law upon a
default in the payment under this Note, all, however, subject to the rights of
the Bank Creditors as set forth in this Note.
(g) Payments Held in Trust. The Lender by its acceptance of this Note
agrees to hold in trust and immediately pay over to the Bank Creditors, in the
same form of payment received, with appropriate endorsements, for application to
the Bank Debt, any cash amount that the Borrower pays to the Lender with respect
to the obligations of Borrower hereunder, or as collateral for the Bank Debt,
any other assets of the Borrower that the Lender may receive with respect to the
obligations of Borrower hereunder, in each case except with respect to payments
expressly permitted hereby.
(h) Payment in to Full. For all purposes of this Note, "payment in full"
of the Bank Debt shall mean final payment in full in cash, or provision for
payment satisfactory to the Bank Creditors. "Paid in full" and "satisfied in
full" shall have corresponding meanings.
(i) Termination of Subordination. This Note shall continue in full force
and effect, and the obligations and agreements of the Lender and the Borrower
hereunder shall continue to be fully operative, until all of the Bank Debt shall
have been paid and satisfied in full. To the extent that the Borrower or any
guarantor of or provider of collateral for the Bank Debt makes any payment on
the Bank Debt that is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be repaid to a trustee, receiver or
any other party under any bankruptcy, insolvency or reorganization act, state or
federal law, common law or equitable cause (such payment being hereinafter
referred to as a "Voided Payment"), then to the extent of such Voided Payment,
that portion of the Bank Debt that had been previously satisfied by such Voided
Payment shall be revived and continue in full force and effect as if such Voided
Payment had never been made. In the event that a Voided Payment is recovered
from any Bank Creditor, an Event of Default shall be deemed to have existed and
to be continuing under the Bank Credit Agreement from the date of such Bank
Creditor's initial receipt of such Voided Payment until the full amount of such
Voided Payment is restored to the Bank Creditor. During any continuance of any
such Event of Default, this Note shall be in full force and effect with respect
to the obligations of the Borrower hereunder. To the extent that the Lender has
received any payments
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<PAGE>
with respect to the obligations of the Borrower hereunder subsequent to the date
of such Bank Creditor's initial receipt of such Voided Payment and such payments
have not been invalidated, declared to be fraudulent or preferential or set
aside or are required to be repaid to a trustee, receiver, or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
the Lender shall be obligated and hereby agrees that any such payment so made or
received shall be deemed to have been received in trust for the benefit of such
Bank Creditor, and the Lender by its acceptance of this Note agrees to pay to
such Bank Creditor, upon demand, the full amount so received by the Lender
during such period of time to the extent necessary fully to restore to such Bank
Creditor the amount of such Voided Payment. Upon the payment and satisfaction in
full in cash of all of the Bank Debt, which payment shall be final and not
avoidable, this Note will automatically terminate without any additional action
by any party hereto.
6. Notices. All notices and other communications which are required and
may be given pursuant to the terms of this Note shall be in writing and shall be
sufficient and effective in all respects if given in writing or telecopied,
delivered or mailed by registered or certified mail, postage prepaid, as
follows:
(a) If to the Bank Creditors, to the Representative at:
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081
Attention: Robert A. Foster
Telecopy: (2 12) 552-365 1
Telephone: (212) 552-5512
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036-2717
Attention: David N. Koschik, Esq.
Telecopy: (212) 354-8113
Telephone: (212) 819-8200
(b) If to the Lender, to it at:
The Continental Corporation
180 Maiden Lane
New York, NY 10038
Attention: William F. Gleason, Jr., Esq.
Senior Vice President,
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<PAGE>
General Counsel and Secretary
Telecopy: (212) 440-7982
Telephone: (212) 440-7380
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attention: Deborah F. Stiles, Esq.
Telecopy: (212) 909-6836
Telephone: (212) 909-6000
(c) If to the Borrower, to it at:
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, CA 90404
Attention: Louis J. Rampino
Executive Vice President
and Chief Operating Officer
Telecopy: (310) 315-5594
Telephone: (310) 315-5505
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Alan K. Austin, Esq.
Telecopy: (415) 493-6811
Telephone: (4 15) 493-9300
or such other address or address's as any party hereto shall have designated by
written notice to the other parties hereto. Notices shall be deemed given and
effective upon the earlier to occur of (i) the third day following deposit
thereof in the U.S. mail or (ii) receipt by the party to whom such notice is
directed.
7. No Waiver by Lender. No delay or omission on the part of the Lender or
any holder hereof in exercising any right hereunder shall operate as a waiver of
such right or any other right of the Lender or of such holder, nor shall any
delay, omission or waiver of any one occasion be deemed a bar to or waiver of
the same or any other right or any other occasion.
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<PAGE>
The Borrower and every endorser of this Note regardless of the time, order or
place of signing hereby waives presentment, demand, protest and notice of every
kind, and assents to any extension or postponement of the time for payment or
any other indulgence.
8. Expenses, etc. All fees, costs and expenses of enforcement of the
Lender's rights hereunder (including reasonable legal and other professional
fees) shall be paid by the Borrower.
9. Governing Law. THIS NOTE SHALL FOR ALL PURPOSES BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CONFLICTS OF
LAW).
10. Transfer. This Note is registered on the books of the Borrower and
is transferable only by surrender thereof at the principal office of the
Borrower duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing. Payment of or on account of principal and interest on this Note
shall be made only to or upon the order in writing of the registered holder.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officer to take effect as of the date first hereinabove
written.
FREMONT GENERAL CORPORATION
By:
Name:
Title:
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Exhibit J
Stop Loss Reinsurance Agreement
STOP LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
CASUALTY INSURANCE COMPANY
of Chicago, Illinois
AND
WORKERS' COMPENSATION AND INDEMNITY
COMPANY OF CALIFORNIA
of Brea, California
(hereinafter referred to as the "Reinsured")
and
THE CONTINENTAL INSURANCE COMPANY
of New York, New York
(hereinafter referred to as the "Reinsurer")
In consideration of the transactions and agreements set forth in the Stock
Purchase Agreement dated as of _________ __, 1994 among Fremont Compensation
Insurance Company, Fremont General Corporation, The Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance Company (the
"Stock Purchase Agreement") and other good and valuable consideration, the
Reinsured and the Reinsurer agree as follows:
ARTICLE ONE
BUSINESS REINSURED
The Reinsurer agrees to indemnify the Reinsured within the terms, limits and
conditions of this Agreement as respects the Net Settlement (as defined in
Article Four) made by the Reinsured to the Reinsurer in consequence of the
Aggregate Excess of Loss Reinsurance Agreement entered into between the
Reinsured and Reinsurer and designated by the Reinsured as Policy Reference
Number: ____________, a
<PAGE>
copy of which is attached hereto as Exhibit A (hereinafter referred to as the
"Reinsurance Agreement").
ARTICLE TWO
INSURING CLAUSE
To pay 100% of each and every Net Settlement up to a limit of $8 million for all
Net Settlements (the "Limit of Liability"), provided that the Reinsurer shall
only be obligated to pay under this Agreement if the Limit of Liability under
the Reinsurance Agreement has been exhausted by the payment of Ultimate Net
Losses (as defined in the Reinsurance Agreement) by the Reinsurer under the
Reinsurance Agreement. Notwithstanding the preceding sentence, as of the earlier
of (a) March 31, 2003, or (b) the date the Reinsurance Agreement is commuted
(the "Settlement Date"):
(x) no additional case incurred losses may be ceded under this Agreement
for payment by the Reinsurer, and
(y) on and after the Settlement Date, the Limit of Liability shall be the
lesser of:
(i) $8 million, and
(ii) an amount equal to the aggregate amount of outstanding case
reserves known by the Reinsured and ceded by the Reinsured to
the Reinsurer under this Agreement as of the Settlement Date.
ARTICLE THREE
COMMENCEMENT AND TERMINATION
This Agreement shall be effective upon inception of the Reinsurance Agreement
and remain in force and effect until all liability hereunder has ceased or
otherwise terminated.
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ARTICLE FOUR
NET SETTLEMENT
Each and every cash payment made by the Reinsured that would have been covered
under the Reinsurance Agreement but for the exhaustion of the Limit of Liability
thereunder shall constitute a "Net Settlement" for the purposes of this
Agreement.
ARTICLE FIVE
REPORTS
In respect of each Net Settlement, a statement (the "Loss Statement") shall be
prepared by the Reinsured in a form acceptable to the Reinsurer and rendered to
the Reinsurer along with such other reports and supporting information as the
Reinsurer may from time to time require. A Loss Statement shall be prepared by
the Reinsured and forwarded to the Reinsurer within thirty (30) days of a Net
Settlement becoming due.
ARTICLE SIX
SETTLEMENT OF LOSS
In the event that a Loss Statement shows an amount due to the Reinsured from the
Reinsurer in accordance with Article Four hereof, the Reinsurer shall effect
settlement of such amount in cash to the Reinsured without deduction and without
offset of any balance which maybe outstanding between the Reinsurer and the
Reinsured. Settlement shall be made by the Reinsurer within thirty (30) days
from receipt of the Loss Statement.
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<PAGE>
ARTICLE SEVEN
INSOLVENCY
In the event of the insolvency of the Reinsured and the appointment of a
conservator, liquidator, receiver or statutory successor the Reinsured, this
reinsurance shall be payable directly to such conservator, liquidator, receiver
or statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, receiver
or statutory successor of the Reinsured having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator, receiver or statutory successor has failed to pay all or a portion
of any claims. It is agreed, however, that the conservator, liquidator, receiver
or statutory successor of the Reinsured shall give written notice to the
Reinsurer of the pendency of a claim against the Reinsured indicating the policy
or bond reinsured which claim would involve a possible liability on the part of
the Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses that it may deem available to the Reinsured
or its conservator, liquidator, receiver or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the court, against the Reinsured as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Reinsured solely as a result of the defense undertaken by the Reinsurer.
Where two or more Reinsurers on this Agreement are involved in the same claim
and a majority in interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of this Agreement as though
such expense had been incurred by the Reinsured.
As to all reinsurance made, ceded, renewed or otherwise becoming effective under
this Agreement, the reinsurance shall be payable as set forth above by the
Reinsurer to the Reinsured or to its conservator, liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of the New York
Insurance Law or except (1) where the original contract of insurance or
reinsurance specifically provides another payee in the event of the insolvency
of the Reinsured, and (2) where the Reinsurer, with the consent of the direct
Principal or Principals, has assumed such policy
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<PAGE>
obligations of the Reinsured as direct obligations of the Reinsurer to the payee
under such policies and in substitution for the obligations of the Reinsured to
such payees.
ARTICLE EIGHT
ARBITRATION
If any dispute arises between the Reinsured and the Reinsurer with reference to
the interpretation, performance, or breach of this Agreement (whether the
dispute arises before or after termination of this Agreement) such dispute, upon
the written request of either party, will be submitted to three arbitrators, one
to be chosen by each party and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within thirty (30)
days after receipt of written notice from the other party requesting it to do
so, the requesting party may appoint both arbitrators. If the two arbitrators
fail to agree in the selection of a third within thirty (30) days of their
appointment, each will nominate three individuals, of whom the other will
decline two. The final decision will be made by drawing lots. All arbitrators
will be active or retired officers of insurance or reinsurance companies and
will not have personal or financial interests in the result of the arbitration.
The arbitration hearings will be held in New York, New York or in another
location agreed upon by the parties to this Agreement. Each party will submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed upon. The
arbitrators will not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by the State law of the site of
arbitration. Further, the arbitrators will interpret this Agreement according to
the practice of the reinsurance business.
The jurisdiction of the arbitrators to make any decision will be restricted by
the limit of liability expressly set forth in this Agreement. The decision in
writing rendered by a majority of the arbitrators will be final and binding for
both parties. Such decision will be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment may be rendered upon the
final decision of the arbitrators in any court having jurisdiction.
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<PAGE>
ARTICLE NINE
CURRENCY CLAUSE
All transactions hereunder shall be conducted in U.S. dollars. For the purposes
of this Agreement, all amounts relating to the Reinsured in currencies other
than U.S. dollars shall be converted into U.S. dollars at the rate of exchange
at which such items are entered in the Reinsured's books.
ARTICLE TEN
ERRORS AND OMISSIONS CLAUSE
It is hereby declared and greed that any inadvertent delays, omissions or errors
made in connection with this Agreement shall not be held to relieve either of
the parties hereto from any liability which would have attached to them
hereunder if such delays, omissions or errors had not been made; such omissions
and/or errors to be made good as soon as reasonably possible after discovery.
ARTICLE ELEVEN
SALVAGES AND RECOVERIES
All salvages, recoveries and payments as respects the insurance reinsured under
this Agreement recovered or received subsequent to a loss settlement under this
Agreement shall be applied as if required or received prior to the said
settlement and all necessary adjustments shall be made by the parties hereto.
ARTICLE TWELVE
RESERVES
(This clause applies only to Reinsurers (a) that do not qualify for credit by
any state or any other governmental authority having jurisdiction over the
Reinsured's loss and unearned premium reserves or for whom the Reinsured would
incur an overdue
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<PAGE>
reinsurance liability, or (b) whose A.M. Best rating is below "A-" (but only for
the period of time that such rating is below that level))
As regards Policies issued by the Reinsured coming Within the scope of this
Agreement, the Reinsured agrees that, when it shall file with the Insurance
Department or set up on its books, unearned premium and loss reserves covered
hereunder (including IBNR) and any overdue reinsurance liability which it shall
be required to set up by law, it will forward to the Reinsurer a statement
showing the proportion of such reserves and liability which is applicable to
them. The Reinsurer hereby agrees to apply for and secure delivery to the
Reinsured, as Beneficiary, a clean, evergreen, unconditional, irrevocable letter
of credit, (including any confirmation thereof) in a form and from a bank
acceptable to the Reinsured and the governmental authority having jurisdiction
over the Reinsured's reserves. Alternatively, the Reinsurer shall (a) enter into
a trust agreement and establish a trust account in the United States of America
for the sole benefit of the Reinsured in such form and with a trustee that is
acceptable to the Reinsured and the governmental authority having jurisdiction
over the Reinsured's reserves, (h) establish a funds withheld account, or
provide any other form of security that is recognized on the statutory financial
statements of the Reinsured. The amount available to be drawn by the Reinsured
against such letter of credit, or confirmation thereof, or from such trust
account shall at all times be no less than the Reinsured's share of said
reserves and liability and the Reinsurer agrees, irrespective of any
intermediary clause herein, that within ten (10) business days of delivery of
written notice of deficiency to it from the Reinsured that the Reinsurer shall
unconditionally deliver for receipt by the Trustee within such period, cash
(U.S. legal tender) and/or unencumbered eligible securities under the trust
agreement to restore such trust account to said amount or shall increase said
letter of credit to said amount.
The assets that are deposited and maintained in such trust account shall be
valued according to their current fair market value, and shall consist only of
cash (U.S. legal tender), certificates of deposit (issued by a U.S. bank and
payable in U.S. legal tender) and investments of the types permitted by the
insurance law of the Reinsured's state of domicile; provided that no such
investments are issued by an institution that is the parent, a subsidiary or an
affiliate of either the Reinsured or the Reinsurer and that no state insurance
department which has authority to regulate the Reinsured has determined the
types of securities permitted by the domicile state to be ineligible investments
for the purpose of this trust account under its own laws. Within twenty (20)
days of delivery of notice of ineligible investments for the purpose of this
trust account under its own laws. Within twenty days of delivery of notice of
ineligible
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<PAGE>
securities from the Reinsured to the Reinsurer, the Reinsurer, irrespective of
any intermediary clause herein, agree to direct the Trustee to substitute cash
(U.S. legal tender) or securities then eligible to the Reinsured for this trust
account as determined by the state insurance department(s), which are of no less
than equivalent fair market value to the trust assets determined to be
ineligible.
Prior to depositing assets with the Trustee for such trust account, the
Reinsured shall execute assignments, endorsements in blank, or transfer legal
title to the trustee of all shares, obligations or any other assets requiring
assignments in order that the Reinsured, or the trustee upon the direction of
the Reinsured, may whenever necessary negotiate any such assets without consent
or signature from the Reinsured or any other entity. All settlements of account
between the Reinsured and the Reinsurer shall be made cash or its equivalent.
The Reinsurer and the Reinsured agree that the assets in such trust account may
be withdrawn by the Reinsured at any time without notice to or consent of the
Reinsurer, notwithstanding any other provisions in the reinsurance or any other
agreement and shall be utilized and applied by the Reinsured or its successor in
interest without diminution because of insolvency on the part of the Reinsured
or the Companies, only for the following purposes:
1. to pay or reimburse the Reinsured for the unpaid or unreimbursed
portion of the Reinsurer's share of any losses and allocated loss
expenses paid by the Reinsured, or of unearned premiums due to the
Reinsured under this Agreement;
2. to reimburse the Reinsured for the Reinsured's share of
surrenders and benefits or Losses paid by the Reinsured pursuant
to the provisions of the Policies reinsured under this Agreement;
3. to fund an account with the Reinsured in an amount at least equal
to the deduction, for reinsurance ceded, from the Reinsured's
liabilities for the Policies ceded hereunder. Such account shall
include, but not be limited to, amounts for policy reserves,
claims and losses incurred, and unearned premium reserves; and
4. to pay any other amounts the Reinsured claims are due under this
Agreement and for any other purpose permitted by the trust
agreement establishing such trust account.
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<PAGE>
The Reinsurer shall have the right to seek approval from the Reinsured to
withdraw from such trust account all or any part of the assets contained therein
and to have such assets transferred to it, provided:
1. the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other unencumbered assets which are eligible
securities under the trust agreement establishing such trust account
and which at the time of receipt by the Trustee have a fair market
value no less than equal to the fair market value of the assets
withdrawn so as to maintain at all times the amounts available to be
drawn under this Article; or
2. after such withdrawal and transfer the current fair market value of
the unencumbered assets held in such trust account exceeds 102 % of
the amounts available to the drawn by the Reinsured from such trust
account under this Article.
It is agreed by the Reinsurer and the Reinsured that this Article shall survive
termination of this Agreement.
For the purpose of this Article, Reinsured shall mean the named Reinsured under
this Agreement in whose favor the letter of credit or its confirmation was
established or for whose sole benefit the trust has been established. Reinsured
also shall include any successor by operation of law, including without
limitation, any liquidator, rehabilitator, receiver or conservator of the named
Reinsured except if the Reinsured under this Agreement is domiciled in
California, in which case if a court of law appoints a successor in interest to
the named Reinsured, then the Reinsured is limited to the court appointed
domiciliary, receiver, conservator, rehabilitator or liquidator. Drawings by
any liquidator, rehabilitator, receiver or conservator of any named Reinsured
not domiciled in California shall be for the benefit of all the named
Reinsured's policyholders.
ARTICLE THIRTEEN
SERVICE OF SUIT
(A) It is agreed that in the event of the failure of the Reinsurer hereon to
pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of
9
<PAGE>
the Reinsured, will submit to the jurisdiction of any Court of competent
jurisdiction within the U.S. and will comply will all requirements
necessary to give such Court jurisdiction and all matters arising
hereunder shall be determined in accordance with the law and practice
of such Court.
(B) It is further agreed that service of process in such suit may be made
upon Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022
and that in any suit instituted against the Reinsurer upon the
Contract, the Reinsurer will abide by the final decision of such Court
or of an appellate court in the event of an appeal.
(C) The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the
request of the Reinsured to give a written undertaking to the Reinsured
that they will enter a general appearance upon the Reinsurer's behalf
in the event that such a suit shall be instituted.
(D) Further, pursuant to any statute of any state, territory or district of
the U.S. which make provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance
or other officer specified for that purpose in the statute, or his
successor or successors in office, as their true and lawful attorney
upon whom may be served any lawful process in any action, suit or
processing instituted by or on behalf of the Reinsured or any
beneficiary hereunder arising out of this Agreement, and hereby
designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE FOURTEEN
INSPECTION AND REVIEW
The Reinsured shall place at the disposal of the Reinsurer and the Reinsurer
shall have the right to inspect and review, through its authorized
representatives, at all reasonable times during the currency of this Agreement
and thereafter the books, records and papers of the Reinsured pertaining to the
reinsurance provided hereunder and all claims made and reserves established by
the Reinsured in connection therewith.
10
<PAGE>
At the Reinsurer's request and expense the Reinsurer may contract for an
independent actuarial review of the loss reports as respects the insurance
covered under this Agreement submitted in accordance with Article Five, subject
to the prior approval, which shall not be unreasonably withheld, by the
Reinsured.
ARTICLE FIFTEEN
OFFSET CLAUSE
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under any reinsurance agreement
between them and may offset the same against any balance or balances due or to
become due to the former from the latter under the reinsurance agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as assuming insurer or as ceding
insurer, in which each party acted under the agreement, provided, however, that,
in the event of the insolvency of a party hereto, offsets shall only be allowed
in accordance with the applicable provisions of New York Law. The application of
this offset provision shall not be deemed to constitute diminution in the event
of insolvency.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate this __ day of , 1994.
FOR AND ON BEHALF OF
CASUALTY INSURANCE COMPANY
Name:
Title:
FOR AND ON BEHALF OF
WORKERS' COMPENSATION AND INDEMNITY COMPANY OF CALIFORNIA
Name:
Title:
And in duplicate this __ day of , 1994.
FOR AND ON BEHALF OF
THE CONTINENTAL INSURANCE COMPANY
Name:
Title:
12
<PAGE>
Casualty EXHIBIT K
Pro Forma
September 30. 1994 GLS California Combined
Cash & Investments 586,239 128,199 714,438
Reinsurance Recoverable 57,482 395 57,877
Deferred Acquisition Costs 18,270 3,158 21,429
Receivable on Excluded Reserves 50,000 50,000
Premiums Receivable 118,254 20,209 138,483
Audits Receivable 10,578 (12) 10,566
Deferred Tax Asset 40,303 14,662 54,965
Other Assets 2,700 819 3,519
------- ------- ---------
Total 883,826 167,431 1,051,257
------- ------- ---------
Unearned Premiums 140,329 23,394 163,723
Loss Reserves 511,945 100,945 612,890
Loss Reserves on excluded bus 50,000 50,000
Unpaid Policyholder Dive 4,833 12,023 16,856
Retros & Surcharge 121 3,782 3,903
Other Liabilities 2,018 87 2,105
------- ------- ---------
Total Liabilities 709,246 140,231 849,477
------- ------- ---------
Shareholders Equity 174.580 27,200 201,780
------- ------- ---------
Total Liabilities & Equity 883,826 167,431 1,051,257
------- ------- ---------
<PAGE>
EXHIBIT L
SEPTEMBER 30 METHODOLOGY
The September 30 Methodology consists of the following assumptions and methods
that are to be used to calculate account balances, in accordance with GAAP,
which are to be reflected in the September 30 Balance Sheet, the Estimated
Closing Balance Sheet and the Closing Balance Sheet. Capitalized terms used in
this Exhibit L have the meanings set forth under the respective captioned
paragraph below or, if the term is not defined herein, the meaning set forth in
the Stock Purchase Agreement. Any amounts shown or calculated herein other than
shareholders' equity are subject to audit by E&Y.
I. ASSETS
A. Cash & Investments: Cash & Investments
METHODOLOGY: The fair market value of the cash and investments balance
shall be equal to Total Liabilities, plus shareholders' equity of $201,780,000,
less Total Assets (excluding cash and investments as calculated in this
subsection).
B. Cash & Investments: Accrued Investment Income
METHODOLOGY: The accrued investment income balance shall be equal to
investment income earned and not received as of the date of each specified
Balance Sheet, calculated in accordance with the terms of the specific
investments.
C. Reinsurance Recoverables: Reinsurance Recoverable on
Other than Excluded Business Specific Excess Unpaid
Losses
METHODOLOGY: As of September 30, the reinsurance recoverable on other
than Excluded Business for unpaid case loss shall equal $8,898,000, and for
incurred but not reported shall equal $7,420,000. The Closing Balance Sheet for
these recoverables shall be equal to the September 30 balances less amounts paid
over specific excess retentions from September 30 through the Closing Date.
D. Reinsurance Recoverables: Aggregate Excess Of Loss
Reinsurance Agreement
METHODOLOGY: The Aggregate Excess of Loss Reinsurance Agreement balance
as of September 30 shall be equal to the lesser of (i) 1989 and prior accident
year loss and loss adjustment expense reserves, net of specific excess reserves,
for all business except Excluded Business or (ii) $56,000,000. The Aggregate
Excess of Loss Reinsurance Agreement balance as of the Closing Date shall be
equal to the lesser of (i) 1989 and prior accident year loss and
<PAGE>
loss adjustment expense reserves, net of specific excess reserves, for all
business except Excluded Business or (ii) $56,000,000.
E. Reinsurance Recoverables: Stop Loss Reinsurance Agreement
METHODOLOGY: The Stop Loss Reinsurance Agreement balance shall apply to
the 1989 and prior accident year loss and loss adjustment expense reserves, net
of specific excess reserves, for all business except Excluded Business. The Stop
Loss Reinsurance Agreement balance shall be equal to the lesser of (i) $8
million or (ii) the net loss and loss adjustment expense reserves after giving
effect to the calculation of the Aggregate Excess of Loss Reinsurance Agreement
set forth in subsection I(D) above.
F. Reinsurance Recoverables: Excluded Business
METHODOLOGY: The Excluded Business loss and allocated loss adjustment
expense reserves balance which are being ceded by Buyer to Seller shall be equal
to the Excluded Business direct loss and allocated loss adjustment expense
reserves (as described in subsection II(H) below).
G. Reinsurance Recoverables: Paid Loss Recoverables
METHODOLOGY: The paid loss recoverables shall be zero.
H. Deferred Acquisition Costs
METHODOLOGY: The deferred acquisition costs balance shall be equal to
the Voluntary Unearned Premium Reserve multiplied by 13.5%, plus the Involuntary
Unearned Premium Reserve multiplied by 4%.
I. Premiums Receivable: Billed But Not Collected Premiums
METHODOLOGY: The billed but not collected premiums balance shall be
equal to the amount recorded in the report titled "Aging Of Receivables (Report
Number SAR 109)", adjusted as appropriate for reconciling items.
J. Premiums Receivable: Booked But Not Due Receivables
METHODOLOGY: The booked but not due receivables balance shall
be equal to the amount recorded in the report titled "Booked But
Not Due List (Report Number ACR 506)", adjusted as appropriate for
reconciling items.
-2-
<PAGE>
K. Premiums Receivable: Allowance For Doubtful Accounts
METHODOLOGY: The allowance for doubtful accounts balance shall be equal
to the amount recorded as over 90 days past due in the report titled "Aging Of
Receivables (Report Number SAR 109)", adjusted as appropriate for reconciling
items.
L. Premiums Receivable: National Council on Compensation
Insurance ("NCCI") Serviced Business Ceded Treaty
Balances Receivable/Payable
METHODOLOGY: The NCCI serviced business ceded treaty balances
receivable/payable shall be equal to the net unsettled balances related to
servicing of National Workers' Compensation Reinsurance Pool business.
M. Premiums Receivable: NCCI Serviced Business Allowance
For Doubtful Ceding Commissions
METHODOLOGY: The NCCI serviced business allowance for doubtful ceding
commissions balance shall be equal to 26% of the amount recorded as over 90 days
past due in the report titled "Aging Of Receivables (Report Number SAR 109)",
adjusted as appropriate for reconciling items.
N. Premiums Receivable: Agency Cash Suspense
METHODOLOGY: The agency cash suspense balance shall be equal to cash
received on voluntary business which has been deposited and recorded but has not
been applied to the detail accounts receivable record.
O. Premiums Receivable: NCCI Serviced Business Cash
Suspense
METHODOLOGY: The NCCI serviced business cash suspense balance shall be
equal to cash received on serviced business which has been deposited and
recorded but has not been applied to the detail accounts receivable record.
P. Audits Receivable
The audits receivable balance, including Illinois High-Low policies,
shall equal $10,566,000.
Q. Deferred Tax Balance
METHODOLOGY: The deferred tax balance shall be calculated in
accordance with FAS 109 and shall be equal to the aggregate amount
calculated as the product of the applicable federal income tax rate
multiplied by the temporary book-tax differences. However, there
-3-
<PAGE>
shall be no valuation allowance. Such calculation shall take into account only
temporary differences which can be verified and reconciled to the financial
books and records and Tax Returns and Internal Revenue Service audit reports of
Continental, and shall reflect temporary book-tax differences attributable to
the amounts to be reported in the final Continental consolidated federal income
Tax Return and Internal Revenue Service audit reports relating to prior Tax
Returns in respect of the Company and the Subsidiary for the period ending on
the Closing Date, and after withdrawal of the Company and the Subsidiary from
the Continental Pooling Agreement.
R. Other Assets: Fixed Assets
METHODOLOGY: The fixed asset balance shall be equal to the net book
value amount recorded in the reports titled "REG 82," "REG 13," "REG 69," and
the personal computer inventory for items not included in the above reports, and
shall be calculated on a basis consistent with prior periods.
S. Other Assets: Equity in Underwriting Associations
Receivable/Payable
METHODOLOGY: The equity in underwriting associations balance
shall be equal to the amount reported by the NCCI and not yet settled.
T. Other Assets: Miscellaneous Assets
METHODOLOGY: The miscellaneous assets balance shall be calculated in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods.
U. Total Assets
METHODOLOGY: The total assets balance shall be equal to the
sum of each of items (A)-(T) under this Section I.
II. LIABILITIES
A. Unearned Premiums: Voluntary Unearned Premium Reserve
METHODOLOGY: The voluntary unearned premium reserve shall be equal to
the amount recorded in the report titled "Inforce and Unearned by Expiration
Date, Term Within Peril (Report Number INF002)", adjusted as appropriate for
reconciling items.
B. Unearned Premiums: Involuntary Unearned Premium Reserve
-4-
<PAGE>
METHODOLOGY: The involuntary unearned premium reserve shall
be equal to the amount reported by the NCCI in the latest statement
received.
C. Loss Reserves: Voluntary Loss and Allocated Loss Adjustment
Expense Reserves
METHODOLOGY: The voluntary loss and allocated loss adjustment
expense reserves shall be an amount calculated as follows:
1. For accident years 1993 and prior, the loss and allocated
loss adjustment expense reserves shall be recorded pursuant to the Milliman &
Robertson Study, minus direct amounts paid through the Balance Sheet date.
2. For the 1994 accident year, the loss and allocated loss
adjustment expense reserves shall be calculated as set forth in paragraphs a, b,
c, and d below based on "Earned Premium for 1994" which, for each respective
state, shall be equal to the beginning balance minus the ending balance from the
report "Inforce and Unearned by Expiration Date, Term Within Peril (Report
Number INF002)", plus written premium from the report "Premiums by Peril (Report
Number MP220)" for 1994, adjusted for any reconciling items.
a. For Illinois business, the loss and allocated loss
adjustment expense reserves shall be calculated as 82.85% times Earned Premium
for 1994 through the Balance Sheet date, less paid amounts through the Balance
Sheet date.
b. For Wisconsin and Indiana business, the loss and
allocated loss adjustment expense reserves shall be calculated as 65% times
Earned Premium for 1994 through the Balance Sheet date, less paid amounts
through the Balance Sheet date.
c. For California business, the loss and allocated
loss adjustment expense reserves shall be calculated as 71% times Earned Premium
for 1994 through the Balance Sheet date, less paid amounts through the Balance
Sheet date.
d. For Michigan business, the loss and allocated loss
adjustment expense reserves shall be calculated as 85% times Earned Premium for
1994 through the Balance Sheet date, less paid amounts through the Balance Sheet
date.
3. If the purchase is not completed by December 31, 1994, the
loss and allocated loss adjustment expense ratios for the 1995 accident year
will be equal to those for the 1994 accident year adjusted for premium rate
changes effective in 1995. The loss and allocated loss adjustment expense
reserves for the 1995 accident year for each state shall be calculated by using
the
-5-
<PAGE>
ratios described above multiplied by the Earned Premium for 1995 for each
respective state, less paid amounts through the Balance Sheet date. "Earned
Premium for 1995" for each respective state shall be equal to earned premium
calculated for 1995 on a basis consistent with subsection II(C)(2) above,
adjusted for any reconciling items.
D. Loss Reserves: Unallocated Loss Adjustment Expense
Reserves For Voluntary Business
METHODOLOGY: The unallocated loss adjustment expense reserves
for voluntary business shall be calculated as follows:
1. For Illinois business, the reserve shall be calculated as 3%
of gross voluntary loss and allocated loss adjustment expense reserves,
excluding service business reserves.
2. For Wisconsin, Michigan and Indiana business, the reserve
shall be calculated as 7% of gross voluntary loss and allocated loss adjustment
expense reserves.
3. For California business, the reserve shall be calculated as
7.7% of gross voluntary loss and allocated loss adjustment expense reserves.
E. Loss Reserves: Life Pension Discount
METHODOLOGY: The life pension discount balance shall equal
$10,200,000.
F. Loss Reserves: Involuntary Loss and Allocated Loss
Adjustment Expense Reserves
METHODOLOGY: The involuntary loss and allocated loss adjustment expense
reserves shall be equal to the amount reported by the NCCI, on an undiscounted
basis, on the latest statement received.
G. Loss Reserves: Loss Adjustment Expense Reserves For
Serviced Business
METHODOLOGY: The loss adjustment expense reserves for ser-
viced business shall equal $7,320,000.
H. Loss Reserves: Excluded Business
METHODOLOGY: The Excluded Business loss and allocated loss adjustment
expense reserves which are being ceded by Buyer to Seller shall be equal to the
Excluded Business direct loss and allocated loss adjustment expense reserves.
I. Policyholder Dividends and Other Policyholder Liabilities
-6-
<PAGE>
METHODOLOGY:
1. The liability as of September 30 for those policies
incepting prior to 1994 shall be:
a. For policyholder dividends, $11,043,000 for
California, $3,327,000 for Wisconsin, and $0 for all other states.
b. For retro and surcharge reserves, $2,845,000
for California, $121,000 for Wisconsin, and $0 for all otherstates.
For policies that have not yet expired, this calculation will be on an
annualized basis. The liability as of the Closing Date shall be the liability as
of September 30, less amounts paid from September 30 through the Closing Date.
1993,
2. For those policies incepting after December 31,
a. the accrual rate for policyholder dividends
shall be 10% for California participating policies, 14% for all Wisconsin
policies and 0% for all other states, applied to earned premium calculated on a
basis consistent with subsection II(C)(2) above, except that the calculation
shall apply only to the subject policies defined above.
b. the accrual rate for retrospectively rated
policies shall equal 2.5% applied to California earned premium calculated on a
basis consistent with subsection II(C)(2) above, except that the calculation
shall apply only to the subject policies defined above.
J. Accord Re Funds Withheld
METHODOLOGY: The Accord Re funds withheld liability shall be
zero, and there shall be no accrued investment interest liability.
K. Other Liabilities: Audits Receivable Commissions,
Premium Tax and Assigned Risk Overburden Payable
METHODOLOGY: Commissions, premium tax and assigned risk overburden
balances shall be calculated as appropriate for the policyholder dividend,
audits receivable, retro, High-Low and surcharge balances.
L. Other Liabilities: Accrued Miscellaneous Liabilities
METHODOLOGY: The accrual for miscellaneous liabilities shall
be calculated in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods. These
-7-
<PAGE>
will include, but not be limited to: accrued vacation, deferred free rent,
accounts payable and accrued expenses, accrued commissions, accrued employee
costs, and premium taxes payable.
M. Total Liabilities
METHODOLOGY: The total liabilities balance shall be equal to
the sum of each day of items (A)-(L) under this Section II.
-8-
<PAGE>
EXHIBIT M-1
[Opinion of Debevoise & Plimpton]
[Los Angeles Office]
, 1994
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, California 90404
Fremont Compensation Insurance Company
500 North Brand Blvd.
Glendale, California 91203
Casualty Insurance Company
Ladies and Gentlemen:
We have acted as special counsel to The Buckeye Union
Insurance Company, an Ohio insurance company (the "Seller"), The Continental
Corporation, a New York corporation ("Continental"), and Casualty Insurance
Company, an Illinois insurance company (the "Company"), in connection with the
transactions contemplated by the Stock Purchase Agreement, dated as of December
, 1994 (the "Agreement-), among Fremont Compensation Insurance Company, a
California insurance company, Fremont General Corporation, a Nevada corporation,
the Seller, Continental and the Company. This opinion is being delivered to you
pursuant to Section [5.2.7] of the Agreement. Capitalized terms used herein and
not otherwise defined herein have the respective meanings set forth in the
Agreement.
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 2 , 1994
In so acting, we have participated in the preparation of the
Agreement. We have also examined and relied upon the representations and
warranties as to factual matters contained in or made pursuant to the Agreement
and upon the originals, or copies certified or otherwise identified to our
satisfaction, of such records, documents, certificates and other instruments,
and have made such other investigations, as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
Based upon the foregoing and subject to the limitations,
exceptions and assumptions hereinafter set forth, we are of the opinion that
the Agreement constitutes the legal, valid and binding obligation of each of
the Seller and Continental, enforceable against the Seller and Continental,
respectively, in accordance with its terms.
The opinion expressed above is subject to the following
limitations, exceptions and assumptions:
A. The enforceability of the Agreement may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws relating to or affecting the enforcement of
creditors' rights generally, and (ii) general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief
(regardless of whether enforcement is sought in a proceeding
in equity or at law).
B. We note the following:
(i) California law provides that a court may refuse to enforce, or
may limit the application of, a contract or any clause thereof that the
court finds as a matter of law to have been unconscionable at the time it
was made or contrary to public policy.
(ii) Under certain circumstances, a California court may not enforce
provisions imposing penalties, forfeitures, late payment charges or an
increase in interest rate upon delinquency in payment or the occurrence of a
default.
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 3 , 1994
(iii) Under certain circumstances, provisions expressly or by
implication waiving broadly or vaguely stated rights, unknown future
rights, defenses to obligations or rights granted by law may be
unenforceable under California law or court decisions, where such waivers
are against public policy or prohibited by law.
(iv) Section 1717 of the California Civil Code provides that, where
a contract permits one party to a contract to recover attorneys' fees, the
prevailing party in any action to enforce any provision of the contract
shall be entitled to recover its reasonable attorneys' fees.
C. We express no opinion as to any applicable law
relating to the protection of the environment or to building
codes, land use controls and similar matters.
D. We express no opinion as to (i) the applicability of any
provisions of any federal or state securities or fraudulent conveyance laws to
the transactions contemplated by the Agreement, and (ii) the enforceability of
any provision providing for indemnification insofar as such indemnification
would violate public policy.
E. In rendering our opinion set forth above, we have assumed
(i) the due authorization, execution and delivery of the Agreement by each party
thereto, and (ii) that the Agreement constitutes the legal, valid and binding
obligations of each of the parties thereto, other than the Seller and
Continental, enforceable in accordance with its terms.
We express no opinion as to the laws of any jurisdiction other
than the State of California.
The opinion expressed herein is rendered as of the date hereof
only in connection with the Agreement and is solely for your benefit. This
opinion may not be relied upon by you for any other purpose, and may not be
furnished to, quoted to or relied upon in any manner for any purpose by any
other person, firm or corporation. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise as to
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 4 , 1994
any other matters relating to the Company. We assume no obligation to advise you
of facts, circumstances, events or developments which hereafter may be brought
to our attention and which may alter, affect or modify the opinion expressed
herein.
Very truly yours,
<PAGE>
EXHIBIT M-2
[Opinion of Debevoise & Plimpton]
[New York Office]
, 1994
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, California 90404
Fremont Compensation Insurance Company
500 North Brand Blvd.
Glendale, California 91203
Casualty Insurance Company
Ladies and Gentlemen:
We have acted as special counsel to The Buckeye Union
Insurance Company, an Ohio insurance company (the "Seller"), The Continental
Corporation, a New York corporation ("Continental"), and Casualty Insurance
Company, an Illinois insurance company (the "Company"), in connection with the
transactions contemplated by the Stock Purchase Agreement, dated as of December
__, 1994 (the "Agreement"), among Fremont Compensation Insurance Company, a
California insurance company, Fremont General Corporation, a Nevada corporation,
the Seller, Continental and the Company. This opinion is being delivered to you
pursuant to Section [5.2.7] of the Agreement. Capitalized terms used herein and
not otherwise defined herein have the respective meanings set forth in the
Agreement.
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 2 , 1994
In so acting, we have participated in the preparation of the
Agreement. We have also examined and relied upon the representations and
warranties as to factual matters contained in or made pursuant to the Aqreement
and upon the originals, or copies certified or otherwise identified to our
satisfaction, of such records, documents, certificates and other instruments,
and have made such other investigations, as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
Based upon the foregoing and subject to the limitations,
exceptions and assumptions hereinafter set forth, we are of the following
opinion:
1. Corporate Status of Continental. Continental is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York and has all requisite corporate power and
authority to enter into the Agreement, to perform its obligations thereunder and
to consummate the transactions contemplated thereby.
2. Due Authorization, etc. by Continental. The
execution and delivery by Continental of the Agreement, the
performance of Continental's obligations thereunder and the
consummation by Continental of the transactions contemplated
thereby have been duly authorized by all requisite corporate
action of Continental. Continental has duly executed and
delivered the Agreement.
In rendering our opinion set forth above, we have assumed (i)
the due authorization, execution and delivery of the Agreement by each party
thereto other than Continental and (ii) that the Agreement constitutes the
legal, valid and binding obligation of each of the parties thereto,
enforceable in accordance with its terms.
We express no opinion as to the laws of any jurisdiction other
than the State of New York.
The opinion expressed herein is rendered as of the date hereof
only in connection with the Agreement and is solely for your benefit. This
opinion may not be relied upon by you for any other purpose, and may not be
furnished to, quoted to or relied upon in any manner for any purpose by any
other person, firm or corporation. Our opinion is
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 3 , 1994
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein.
Very truly yours,
<PAGE>
Exhibit M-3
[Opinion of General Counsel of The Continental Corporation]
, 1994
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, California 90404
Fremont Compensation Insurance Company
500 North Brand Blvd.
Glendale, California 91203
Casualty Insurance Company
Ladies and Gentlemen:
I am Senior Vice President, General Counsel and Secretary of
The Continental Corporation ("Continental"), a New York corporation, and have
acted as such in connection with the transactions contemplated by the Stock
Purchase Agreement, dated as of December __, 1994 (the "Agreement") among
Fremont Compensation Insurance Company, a California insurance company (the
"Buyer"), Fremont General Corporation, a Nevada corporation ("Fremont"),
Continental, The Buckeye Union Insurance Company, an Ohio insurance company
(the "Seller"), and Casualty Insurance Company, an Illinois insurance company
(the "Company"). Capitalized terms used herein and not otherwise defined herein
have the respective meanings set forth in the Agreement.
In so acting, I have reviewed the Agreement. I have also
examined and relied upon the representations and warranties as to factual
matters contained in or made pursuant to the Agreement and upon originals, or
copies certified or otherwise identified to my satisfaction, of such records,
documents, certificates and other instruments, and have made such other
investigations, as in my judgment are necessary or appropriate to enable me to
render the opinion expressed below.
Based on the foregoing and subject to the limitations,
exceptions and assumptions hereinafter set forth, I am of the following opinion:
1. Corporate Status of the Seller. The Seller is
an insurance company duly organized, validly existing and in
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 2 , 1994
good standing under the laws of the State of Ohio and has all requisite
corporate power and authority to execute and deliver the Agreement, to perform
its obligations thereunder and to consummate the transactions contemplated
thereby.
2. Due Authorization, etc. by the Seller. The
execution and delivery by the Seller of the Agreement, the
performance of the Seller's obligations thereunder and the
consummation by the Seller of the transactions contemplated
thereby have been duly authorized by all requisite corporate
action of the Seller. The Seller has duly executed and
delivered the Agreement.
3. The Shares. The authorized capital stock of the Company
consists of 1,000,000 shares of Common Stock, par value $3.00 per share, of
which 416,667 shares are issued and outstanding (the "Shares"). The Seller is
the beneficial and record owner of all of such issued and outstanding Shares.
4. No Conflicts, etc. The execution, delivery
and performance of the Agreement by each of the Seller and
Continental will not:
(a) conflict with any provision of the Organiza-
tional Documents of the Seller or Continental; or
(b) conflict with or result in a violation or breach of any United
States federal or New York State Law applicable to the Seller or Continental,
except for such conflicts, breaches and violations that would not have a
Material Adverse Effect or a material adverse effect on the ability of the
Seller or Continental to consummate the transactions contemplated by the
Agreement.
5. Governmental Approvals. No United States federal or New York
State Governmental Approval is required to be obtained or made by the Seller or
Continental in connection with the execution and delivery of the Agreement by
each of the Seller and Continental or the consummation of the transactions
contemplated thereby, except such as have been obtained or made under the HSR
Act.
In rendering my opinion set forth above, I have
assumed (i) the due authorization, execution and delivery of
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 3 , 1994
the Agreement by each of the parties thereto other than the Seller and
Continental, and (ii) that the Agreement constitutes the legal, valid and
binding obligations of each of the parties thereto other than the Seller and
Continental, enforceable in accordance with its terms.
I express no opinion as to the laws of any jurisdiction other
than the State of New York and the federal laws of the United States of America.
The opinion expressed herein is rendered as of the date hereof
only in connection with the Agreement and is solely for your benefit. This
opinion my not be relied upon by you for any other purpose, and may not be
furnished to, quoted to or relied upon in any manner for any purpose by any
other person, firm or corporation. My opinion is expressly limited to the
matters set forth above and I render no opinion, whether by implication or
otherwise as to any other matters. I assume no obligation to advise you of
facts, circumstances, events or developments which hereafter may be brought to
my attention and which may alter, affect or modify the opinion expressed herein.
Very truly yours,
<PAGE>
[Opinion of Shefsky & Froelich]
, 1994
Fremont General Corporation
2020 Santa Monica Boulevard
Santa Monica, California 90404
Fremont Compensation Insurance Company
500 North Brand Blvd.
Glendale, California 91203
Casualty Insurance Company
Ladies and Gentlemen:
We have acted as special Illinois counsel to the Buckeye
Union Insurance Company, an Ohio insurance company
(the "Seller"), The Continental Corporation, a New York corporation
("Continental") and Casualty Insurance Company, an Illinois insurance company
(the "Company",) in connection with the transactions contemplated by the Stock
Purchase Agreement, dated as of December__, 1994 (the "Agreement") among Fremont
Compensation Insurance Company, a California insurance company (the "Buyer"),
Fremont General Corporation, a Nevada corporation ("Fremont"), Continental, the
Seller, and the Company. Capitalized terms used herein and not otherwise defined
herein have the respective meanings set forth in the Agreement.
In so acting, we have reviewed the Agreement. We have also
examined and relied upon the representations and warranties as to factual
matters contained in or made pursuant to the Agreement and upon originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments, and have made such other
investigations, as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.
Based on the foregoing and subject to the limitations,
exceptions and assumptions hereinafter set forth, we are of the following
opinion:
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 2 , 1994
1. Corporate Status of the Company. The Company
is an insurance company duly incorporated, validly existing
and in good standing under the laws of the State of Illi-
nois.
2. The Shares. The authorized capital stock of the Company
consists of 1,000,000 shares of Common Stock, par value $3.00 per share, of
which 416,667 shares are issued and outstanding (the "Shares"). All of the
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. Upon delivery of and payment for the Shares at the Closing as
provided in the Agreement, the Buyer will acquire good and valid title to the
Shares.
3. No Conflicts, etc. The execution, delivery and performance
of the Agreement by each of the Seller and Continental will not conflict with or
result in a violation or breach of any Illinois State Law applicable to the
Seller or Continental, except for such conflicts, breaches and violations that
would not have a Material Adverse Effect or a material adverse effect on the
ability of the Seller or Continental to consummate the transactions
contemplated by the Agreement.
4. Governmental Approvals. No Illinois State
Governmental Approval is required to be obtained or made by
the Seller or Continental in connection with the execution
and delivery of the Agreement by each of the Seller and
Continental or the consummation of the transactions
contemplated thereby.
In rendering our opinion set forth above, we have assumed (i)
the due authorization, execution and delivery of the Agreement by each of the
parties thereto, and (ii) that the Agreement constitutes the legal, valid and
binding obligations of each of the parties thereto, enforceable in accordance
with its terms.
We express no opinion as to the laws of any jurisdiction other
than the State of Illinois.
The opinion expressed herein is rendered as of the date hereof
only in connection with the Agreement and is solely for your benefit. This
opinion may not be relied upon by you for any other purpose, and may not be
furnished
<PAGE>
Fremont General Corporation
and
Fremont Compensation
Insurance Company 3 , 1994
to, quoted to or relied upon in any manner for any purpose by any other person,
firm or corporation. Our opinion is expressly limited to the matters set forth
above and we render no opinion, whether by implication or otherwise as to any
other matters. We assume no obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein.
Very truly yours,
<PAGE>
EXHIBIT N-1
[Opinion of WSGR]
, 1994
The Buckeye Union Insurance Company
1111 East Broad Street
Columbus, Ohio 43205
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Ladies and Gentlemen:
Reference is made to the Stock Purchase Agreement dated as of December
__, 19 (the "Stock Purchase Agreement") among Fremont Compensation Insurance
Company a California corporation (the "Buyer"), Fremont General Corporation, a
Nevada corporation ("Fremont General"), Casualty Insurance Company, an Illinois
insurance company (the "Company"), The Buckeye Union Insurance Company an Ohio
insurance company (the "Seller"), and The Continental Corporation, a New York
corporation ("Continental"). The Stock Purchase Agreement provides for the
acquisition of all of the issued and outstanding shares of capital stock (the
"Shares") of the Company by the Buyer on the terms and conditions set forth
therein. This opinion is rendered to you pursuant to Section S.3.3 of the Stock
Purchase Agreement, and all capitalized terms used herein shall have the
meanings defined for them in the Stock Purchase Agreement unless otherwise
defined herein.
We have acted as special counsel for Fremont General and the Buyer in
connection with the negotiation of the Stock Purchase Agreement and the Senior
Note delivered pursuant to the terms of the Stock Purchase Agreement. As such
counsel, we have made such legal and factual examinations and inquiries as we
have deemed advisable or necessary for the purposes of rendering this opinion.
In addition, we have examined originals or copies of documents, corporate
records and other writings that we consider relevant for the purposes of this
opinion.
<PAGE>
The opinions hereinafter expressed are subject to the following
qualifications:
A. We express no opinion as to the effect or availability of
rules of law governing specific performance, injunctive relief or
other equitable remedies (regardless of whether any such remedy is
considered in a proceeding at law or in equity);
B. We express no opinion as to the effect of applicable
bankruptcy, insolvency, reorganization, receivership, arrangement,
moratorium or other similar federal or state laws affecting the
rights of creditors and secured parties generally;
C. We express no opinion as to compliance with the antifraud
provisions of state and federal laws, rules and regulations;
D. We express no opinion as to the enforceability of any of
the Ancillary Agreements;
E. We express no opinion as to the effect of any statute, rule,
regulation or other law enacted, or any court or regulatory decision rendered,
after the date of this opinion, or the conduct of the parties or any other
person following the date hereof (other than insofar as our opinions expressed
below address the performance by the Buyer and Fremont General of their
respective obligations under the Stock Purchase Agreement and the Senior Note
and the consummation of the transactions contemplated thereunder, in each case
in accordance with the terms thereof) and assume no obligation to advise you or
any other person of any change, whether factual or legal, or whether or not
material, that may arise or be brought to our attention after the date hereof;
F. We express no opinion as to the enforceability of the
indemnification provisions of Sections 6.8.3(c), 6.10, 6.14 and
6.19 and of Article VII of the Stock Purchase Agreement to the
extent the provisions thereof may be subject to limitations of
public policy;
G. We are licensed to practice law only in the State of California.
Accordingly, the opinions expressed herein are limited in all respects to
existing laws of the State of California, the Nevada General Corporation Law and
applicable federal laws. We have made no inquiry into, and express no opinion as
to, any federal or state statute, rule or regulation relation to any patent
copyright, trademark or tradename matter, laws and regulatory matters related to
thrift or financial or banking institutions, the statutes, regulations, treaties
or common laws of any other nation, state or jurisdiction, or the effect on the
transactions contemplated in the Stock Purchase Agreement of non-compliance
under any such statutes, regulations, treaties or common laws. We note that the
Senior Note purports to be governed by the internal
- 2 -
<PAGE>
substantive laws of the State of New York. For the purposes of this opinion, we
have assumed that such laws are identical in all pertinent respects to the
corresponding laws of the State of California, and we express no opinion as to
the impact that the laws of the State of New York might have on the opinions
rendered herein. In addition, we expressly draw your attention to the fact that
we have made no inquiry into, and express no opinion as to, matters of insurance
law or regulations of any jurisdiction;
H. This opinion is subject to the effect of statutes and principles of
law and equity providing that certain covenants and provisions of agreements are
unenforceable where enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied covenant of good faith
and fair dealing;
I. This opinion is subject to the effect of statutes and principles of
law and equity that provide that a court may refuse to enforce, or may limit the
application of, a contract or any clause thereof that the court finds to be
unconscionable or contrary to public policy;
J. This opinion is subject to the effect of statutes and principles of
law and equity providing that provisions of an agreement expressly or by
implication waiving broadly or vaguely stated rights, unknown future rights or
rights or defenses to obligations granted by law are unenforceable when such
waivers are against public policy or prohibited by law;
K. Without limitation of paragraph A above, we express no opinion
regarding any of (i) the rights or remedies available to any party for
violations or breaches of any provisions which are immaterial or the enforcement
of which would be unreasonable or unnecessary under the then existing
circumstances, (ii) the rights or remedies available to any party for material
violations or breaches which are the proximate result of actions taken by any
party other than the party against whom enforcement is sought,
(iii) the rights or remedies available to any party which takes
discretionary action which is arbitrary, unreasonable or capricious, or is not
taken in good faith, or in a commercially reasonable manner whether or not the
Senior Note purport to permits such action, or (iv) the effect of exercising any
remedy without reasonable notice and opportunity to cure;
L. We express no opinion as to the legality, validity, binding nature or
enforceability of any provision of the Senior Note providing (i) for the payment
or reimbursement of costs or expenses or indemnifying a party, to the extent
such provisions may be excessive in amount or held to be unenforceable as
contrary to public policy, or (ii) for the Seller's ability to collect
attorneys' fees and costs in an action involving the Senior Note,
- 3 -
<PAGE>
if the Seller is not the prevailing party in such action (we call your attention
to the effect of Section 1717 of the California Civil Code, which provides that,
where a contract permits one party thereto to recover attorneys' fees, the
prevailing party in any action to enforce any provision of the contract shall be
entitled to recover its reasonable attorneys' fees);
M. We express no opinion with respect to the legality, validity, binding
nature or enforceability of covenants to the extent they are construed to be
independent requirements as distinguished from conditions that may trigger an
event of default;
N. We have assumed that the Seller has filed all required franchise tax
returns, if any, and paid all required taxes, if any, under the California
Revenue & Taxation Code for all relevant periods;
O. We express no opinion as to the applicability of, or effect of
compliance or non-compliance by the Seller with any state, federal or other laws
applicable to the Seller or to the transactions contemplated by the Senior Note
because of the nature of its business, including its legal or regulatory status;
P. We express no opinion as to the effect, if any, of the usury laws of
any jurisdiction; and
Without limitation of paragraph (B) above, we express no opinion as to
the effect of Sections 544 and 548 of the Bankruptcy Code, Sections 3439 et.
seq. of the California Civil Code, or any other statutory or common law relating
to fraudulent transfers.
With your permission and without verification by us, we have assumed the
following for the purpose of rendering the opinions set forth herein:
A. That all signatures (other than those of Fremont General and the
Buyer) on the documents and instruments we have received for
review are genuine, all natural persons who are signatories have
the legal capacity to execute and deliver said documents, all
documents and instruments submitted to us as originals are
authentic and complete, all documents and instruments submitted
as copies conform to the originals and are complete and
accurate, none of the aforesaid documents and instruments has
been subsequently modified or terminated and none of the rights
or obligations under said documents have been waived or
released.
B. That each of the Stock Purchase Agreement and the Ancillary
Agreements (collectively, the "Operative Documents") and all
agreements and instruments that are
-4-
<PAGE>
exhibits to any thereof or delivered pursuant to any thereof,
and each other document or instrument submitted to us for review
has been duly authorized, executed and delivered by each party
thereto (except in the case of Fremont General and the Buyer).
Each of the Operative Documents is the legal, valid and binding
obligation of the other parties thereto, enforceable as to each
such party in accordance with its respective terms. Other than
Fremont General and the Buyer, signatories to the Operative
Documents have been duly authorized and all parties thereto
(other than Fremont General and the Buyer) are duly organized
and validly existing and have the power and authority (corporate
or otherwise) to execute, deliver and perform such documents and
instruments in accordance with their respective terms.
C. That there are no agreements or understandings between or among
the Seller, the Company, Continental or the other parties to the
Operative Documents or third parties which would expand, modify,
interpret or otherwise affect the terms of the Operative
Documents or the respective rights or obligations of the parties
thereunder and that the Operative Agreements correctly and
completely set forth the intent of all parties thereto.
D. That the representations and warranties as to factual
matters made by the Seller, Company, Continental, Fremont
General and the Buyer under the Stock Purchase Agreement
are true and correct.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Buyer is an insurance company duly incorporated, validly
existing and in good standing under the laws of the State of California and has
all requisite corporate power and corporate authority to execute and deliver the
Stock Purchase Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby.
2. Fremont General is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada and has all requisite
corporate power and corporate authority to execute and deliver the Stock
Purchase Agreement and the Senior Note, to perform its obligations thereunder
and to consummate the transactions contemplated thereby.
3. The execution and delivery by the Buyer of the Stock Purchase
Agreement, the performance of the Buyer's obligations thereunder and the
consummation by the Buyer of the transactions contemplated thereby have been
duly authorized by all necessary
-5-
<PAGE>
corporate action on the part of the Buyer. The Buyer has duly executed and
delivered the Stock Purchase Agreement and the Stock Purchase Agreement
constitutes the legal, valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms.
4. The execution and delivery by Fremont General of the Stock Purchase
Agreement and the Senior Note, the performance of Fremont General's obligations
thereunder and the consummation by Fremont General of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of Fremont General. Fremont General has duly executed and delivered
the Stock Purchase Agreement and the Senior Note and each of the Stock Purchase
Agreement and the Senior Note constitutes the legal, valid and binding
obligation of Fremont General, enforceable against Fremont General in accordance
with its terms.
5. The execution, delivery and performance by each of the Buyer and
Fremont General of the Stock Purchase Agreement and the execution, delivery and
performance by Fremont General of the Senior Note will not:
(a) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of the Buyer or Fremont
General; or
(b) conflict with or result in a violation or breach of any
United States federal or California Law or the statutes comprising the General
Corporation Law of the State of Nevada applicable to the Buyer or Fremont
General, except for such conflicts, breaches and violations that would not have
a material adverse effect on the ability of the Buyer or Fremont General to
consummate the transactions contemplated by the Stock Purchase Agreement or
Fremont General to perform its obligations under the Senior Note.
6. No United States federal or California Law or the statutes
comprising the General Corporation Law of the State of Nevada in connection with
the execution and delivery by each of the Buyer and Fremont General of the Stock
Purchase Agreement, the execution and delivery by Fremont General of the Senior
Note, or in each case the consummation of the transactions contemplated thereby,
except such as have been made in the HSR Act.
This opinion is solely for your benefit and is not to any other person
without our express written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise as to any other matters relating to Fremont General, the Buyer, the
Stock Purchase Agreement or the transactions contemplated thereby.
-6-
<PAGE>
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
-7-
<PAGE>
Exhibit N-2
Opinion of Chadbourne & Parke
The Buckeye Union Insurance Company
1111 East Broad Street
Columbus, Ohio 43205
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Re: Casualty Insurance Company
Ladies and Gentlemen:
We have acted as special California insurance counsel to Fremont General
Corporation, a Nevada corporation ("Fremont"), and Fremont Compensation
Insurance Company, a California insurance company (the "Buyer"), in connection
with the transactions contemplated by the Stock Purchase Agreement, dated as of
December , 1994 (the "Agreement"), among Fremont, the Buyer, The Continental
Corporation, a New York corporation ("Continental"), The Buckeye Union Insurance
Company, an Ohio insurance company (the "Seller") and Casualty Insurance
Company, an Illinois insurance company. Capitalized terms used herein and not
otherwise defined herein have the respective meanings set forth in the
Agreement.
In connection with this opinion, we have reviewed, among other
documents, the following:
A. The Agreement;
B. The Information Statement on Form A ("Form A") constituting the
application for prior approval of the acquisition of the Shares in accordance
with California Insurance Code Section 1215.2 ("Section 1215 2"); and
<PAGE>
The Buckeye Union
Insurance Company
The Continental Corporation -2-
C. Letter dated ______________, 1994 (the "Letter") from the
California Department of Insurance approving the acquisition of the Shares
pursuant to Section 1215.2.
In our review of the documents described above, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such copies. As to any facts
material to the opinions hereinafter expressed, we have relied without
investigation upon certificates, statements and representations of officers of
the Buyer, including the representations and warranties made in the Agreement
and the Form A. In making our examination of the documents executed by entities
other than the Buyer, we have assumed that each such other entity had the power
to enter into and perform all its obligations thereunder and the due
authorization of, and the due execution and delivery of, such documents by each
such entity.
Based on and subject to the foregoing, it is our opinion that:
1. The Buyer is an insurance company duly organized, validly existing
and in good standing under the insurance laws of the State of California and has
all requisite corporate power and authority to execute and deliver the
Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby.
2. Neither the execution and delivery by the Buyer of the Agreement
and each of the other instruments to be executed and delivered by the Buyer in
connection with the Acquisition, nor compliance by the Buyer with the terms and
provisions thereof, will violate, conflict with or result in a breach of any
provision of California insurance law, statute, rule or regulation, or of any
order, writ, judgment, decree, determination, award, injunction or ruling of any
California court or federal court construing California insurance law, or
California state or local governmental authority, of which we have knowledge,
which is presently in effect having applicability to the Buyer or an of its
subsidiaries, except for such conflicts, breaches or violations that would not
have a Material Adverse Effect or
<PAGE>
The Buckeye Union
Insurance Company
The Continental Corporation -3-
a material adverse effect on the ability of the Buyer or Fremont to consummate
the transactions contemplated by the Agreement.
3. All authorizations, consents and approvals of the State of
California Insurance Commissioner required in order to permit consummation by
the Buyer of the transactions contemplated by the Agreement have been obtained
[,provided that the Buyer complies with the terms and conditions of the Letter.]
The foregoing opinion is limited to the insurance laws of the State of
California and federal laws of the United States, and we do not express any
opinion herein concerning any other law.
The opinions expressed herein are solely for your benefit and may not
be used or relied upon by any other person or published or communicated to any
other person other than your counsel without our prior written consent in each
instance. Our opinion is expressly limited to the matters set forth above and we
render no opinion, whether by -implication or otherwise as to any other matters.
We assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein.
Very truly yours,
<PAGE>
Exhibit N-3
KATTEN MUCHIN & ZAVIS
IRVINE, CA 525 WEST MONROE STREET SUITE 1600 TELEPHONE
LOB ANGELES, CA (312) 902-5200
NEW YORK, NY CHICAGO, ILLINOIS 60661-3603 TELECOPIER
WASHINGTON, D.C. (312) 902-1081
WRITER'S DIRECT DIAL NUMBER
The Buckeye Union Insurance Company
1111 East Broad Street
Columbus, Ohio 43205
The Continental Corporation DRAFT
180 Maiden Lane
New York, New York 10038
Casualty Insurance Company
Ladies and Gentlemen:
We have acted as special Illinois regulatory counsel to Fremont
General Corporation, a Nevada corporation ("Fremont"), and Fremont Compensation
Insurance Company, a California insurance company (the "Purchaser"), in
connection with the acquisition of Casualty Insurance Company, an Illinois
insurance corporation ("Casualty"), as documented in that certain Stock Purchase
Agreement, dated December , 1994, (the "Agreement") among Fremont, the
Purchaser, The Continental Corporation, a New York corporation ("Continental"),
The Buckeye Union Insurance Company, an Ohio insurance company (the "Seller")
and Casualty. This opinion is contemplated under Section 5.3.3 of the Agreement.
Except as otherwise indicated, capitalized terms used herein are defined as set
forth in the Agreement.
In connection with this opinion, we have examined the Agreement, that
certain senior note delivered pursuant thereto (the "Note") and such corporate
records and other documents and have made such examination of law as we have
deemed necessary in connection with this opinion.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the authenticity of the documents submitted to us as
originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed or reproduced copies. We have further
assumed that all statutes, judicial and administrative decisions, and rules and
regulations of governmental agencies, applicable to this opinion, are generally
available to lawyers practicing in Illinois and are in a format that makes legal
research reasonably feasible.
In rendering this opinion, as to questions of fact material to this
opinion, we have relied, to the extent we have deemed such reliance appropriate,
without investigation, on
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
KATTEN MUCHIN & ZAVIS
The Buckeye Union Insurance Company
The Continental Corporation
, 199
Page 2
DRAFT
certificates and other communications from public officials and from officers of
Fremont and the Purchaser and on the representations of Fremont and the
Purchaser set forth in the Agreement. We have conducted no special investigation
of factual matters in connection with this opinion.
Based upon and subject to the foregoing and to the last paragraph of
this letter, it is our opinion that:
1. The execution and delivery of the Agreement by Fremont and the
Purchaser and of the Note by Fremont and the performance by
Fremont and the Purchaser of their respective obligations
thereunder will not conflict with or result in a violation of
any provision of the Illinois Insurance Code, the Illinois
Business Corporation Act or the Illinois Securities (Blue Sky)
Law, except for such conflicts or violations that would not have
a Material Adverse Effect or a material adverse effect on the
ability of Fremont or the Purchaser to consummate the
transactions contemplated by the Agreement or of Fremont to
perform its obligations under the Note.
2. Other than the approval of the Illinois Director of Insurance,
no approval or authorization of any governmental authority of
the State of Illinois is required for the execution and delivery
by Fremont or Purchaser of the Agreement or by Fremont of the
Note, or, in each case, for the consummation of the transactions
contemplated thereby.
Our opinions expressed above are limited to the insurance, corporate
and securities laws of the State of Illinois, and we do not express any opinion
herein concerning any other law. In addition, we express no opinion herein
concerning any statutes, ordinances, administrative decisions, rules or
regulations of any county, town, municipality or special political subdivision,
(whether created or enabled through legislative action at the federal, state or
regional level). This opinion is given as of the date hereof and we assume no
obligation to advise you of changes that may hereafter be brought to our
attention. This opinion is solely for the information of the addressee hereof
and is not to be quoted in whole or in part or otherwise referred to, nor is it
to be filed with any governmental agency or any other person without our prior
written consent. No one other than the addressee hereof is entitled to rely on
this opinion. This opinion is rendered solely for purposes contemplated in the
Agreement and should not be relied upon for any other purpose.
Very truly yours,
KATTEN MUCHIN & ZAVIS
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
EXHIBIT O
ADMINISTRATIVE SERVICES
1) Systems used to service the Company's and the Subsidiary's required
state reporting and financial/accounting functions.
2) Use of the Continental voice and wide area network.
3) Provide technical support in the areas of the AS/400, LAN's voice/data
networks and disaster recovery.
4) Continue arrangement with Continental with respect to maintenance of the
AS/400 (including Peripherals) and personal computers, including
previously existing payment schedules and amounts. The Company and the
Subsidiary to pay provider only for actual services rendered to such
companies.
5) With respect to software developed by Continental or its direct or
indirect subsidiaries and used by the Company or the Subsidiary, except
software solely applicable to the Excluded Business and software owned
by or licensed to the Company or the Subsidiary as set forth in Section
3.1.12 of the Agreement and Schedule 3.1.12 of the Seller's Disclosure
Statement, Continental will grant a no-fee perpetual license to the
Company and the Subsidiary.
6) With respect to software used by the Company or the Subsidiary other
than software solely applicable to the Excluded Business, software to
which paragraph 5 above is applicable or software owned by or licensed
to the Company or the Subsidiary as set forth in Section 3.1.12 of the
Agreement and Schedule 3.1.12 of the Seller's Disclosure Statement,
Continental will, or will cause its direct or indirect subsidiaries to,
use reasonable efforts to continue to provide such software to the
Company and the Subsidiary, provided that Continental and such
subsidiaries will have no obligation under this paragraph 6 if to do so
would violate the terms of Continental's or such subsidiaries, license
with respect to such software.
7) Use of Continental systems and services in the following areas: (i)
general ledger, (ii) accounts payable, (iii) cash receipts, (iv) fixed
assets, (v) investments, (vi) statutory statements, (vii) payroll (for a
maximum of one and one-half pay periods), (viii) premium taxes, (ix)
residual market accounting, and (x) unit statistical reporting.
Continental to provide "hard copy" reports on a monthly basis.
<PAGE>
8) Use of Continental receipt and disbursement bank accounts currently
utilized by the Company and the Subsidiary. Provide cash management
services including "float", investment.
9) Payroll processing of the type and in the manner provided to the Company
and the Subsidiary prior to the Closing (for a maximum of one and
one-half pay periods).
10) Administrative services relating to Record Storage Management.
<PAGE>
EXHIBIT P
FINANCIAL STATEMENTS
(1) A statement of underwriting gains and losses for the business of
Casualty Insurance Company and Workers Compensation Insurance Company
acquired under the Agreement (the "Acquired Business") for each of the
ears ended December 31, 1993 and 1994. This statement of underwriting
gains and losses will exclude investment income and realized investment
gains and losses. However, this statement will include all direct and
indirect (i.e., allocated from Continental) expenses that the Acquired
Business has incurred on an historical basis.
(2) A statement of assets to be acquired and liabilities to be assumed,
excluding cash and investments as of December 31, 1993 and 1994.
(3) Financial statements referred to in paragraphs 1 and 2 above for 1993
audited by KPMG.
The above information proposed to be reported on Form 8-K is based on a Closing
Date date of December 31, 1994. If the Closing Date were to be delayed beyond
March 31, 1995, the Company would need to provide unaudited information for any
stub period as may be required.
Exhibit 10(z)
AMENDMENT TO STOCK OPTION
AMENDMENT, dated as of January 5, 1995, to the Stock Option, dated
December 9, 1993 (the "Option"), from The Continental Corporation, a New York
Corporation (the "Company"), to CNA Financial Corporation ("Optionee"):
W I T N E S S E T H:
WHEREAS, pursuant to the Securities Purchase Agreement, dated as of
December 6, 1994 (the "Securities Purchase Agreement"), between the Company and
the "Optionee", the Company granted to Optionee the Option; and
WHEREAS, pursuant to the Securities Purchase Agreement, such Option
was to provide for the purchase by the Optionee, for a purchase price of $125
million, of 625,000 shares of Cumulative Preferred Stock, Series G, par value
$4.00 per share, of the Company (the "Series G Stock"), with a liquidation value
of $200 per share; and
WHEREAS, the Option issued on December 9, 1994, provides for the
purchase by the Optionee, for a purchase price of $125 million, of 62,500 shares
of Series G Stock, with a liquidation value of $200 per share;
WHEREAS, CNA Financial Corporation has not transferred, pledged,
hypothecated or otherwise disposed of the Option or any interest in the Option
and remains the Optionee; and
WHEREAS, the Company wishes to correct the Option to provide for the
purchase by the Optionee, for a purchase
<PAGE>
price of $125 million, of 625,000 shares of Series G Stock, with a liquidation
value of $200 per share;
NOW THEREFORE, Section 1 of the Option is hereby amended to read in
its entirety as follows:
Pursuant to the Securities Purchase Agreement, dated as of December 6,
1994 (the "Securities Purchase Agreement"), between the Continental
Corporation, a New York corporation (the "Corporation"), and CNA
Financial Corporation, a Delaware corporation (the "Optionee"), the
Corporation hereby grants to the Optionee, for the period beginning on
(x) if the Merger Agreement terminates pursuant to Section 7.1(iv) or
Section 7.1(vii) thereof, the Termination Date or (y) if the Merger
Agreement terminates other than pursuant to Section 7.1(iv) or Section
7.1(vii) thereof, the earlier of the 120th day after the Termination
Date or the date of the occurrence of a Specified Corporate Action (the
"Commencement Date"), and ending at December 9, 2001 (the "Expiration
Date"), the exclusive and irrevocable right and option (this "Option")
to purchase from the Corporation for cash in an amount equal to
$125,000,000.00 (the "Exercise Price") a total of 625,000 shares (the
"Shares") of Cumulative Preferred Stock, Series G (the "Series G
Preferred Stock"), par value $4.00 per share, of the Corporation, as
such Series G Preferred Stock is designated in the Certificate of
Incorporation of the Corporation. Accordingly, the exercise price per
Share shall be $200.00 (the "Exercise Price Per Share"). Notwithstanding
the foregoing, if, prior to the Commencement Date, all then outstanding
Chicago Preferred Stock is redeemed or purchased pursuant to Section 15
of the Securities Purchase Agreement, the Option will terminate and such
date of redemption or purchase will be deemed to be the Expiration Date.
The validity, construction, enforcement and interpretation of this
Amendment shall be governed by the
2
<PAGE>
laws of the State of New York applicable to agreements made and to be performed
entirely within such State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the 5th day of January, 1995.
THE CONTINENTAL CORPORATION
By: /s/ William F. Gleason, Jr.
Name: William F. Gleason, Jr.
Title: Senior Vice President, General Counsel
and Secretary
CNA FINANCIAL CORPORATION
By:
Name: Donald M. Lowry
Title: General Counsel
3
-----------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
Among
THE BUCKEYE UNION INSURANCE
COMPANY,
FIRST FIDELITY BANK, N.A., not in its individual
capacity except as expressly stated herein,
but solely as Trustee,
-------
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Purchaser
---------
-----------------------------------------------------------------
<PAGE>
PARTICIPATION AGREEMENT dated as of December 29, 1994
(as amended, modified or supplemented, the "Participation
Agreement"), among THE BUCKEYE UNION INSURANCE COMPANY, an Ohio
corporation (together with its successors and permitted assigns,
the "Lessee"); FIRST FIDELITY BANK, N.A., a national banking
association, not in its individual capacity except as expressly
stated herein, but solely as Trustee under that certain
Declaration of Trust dated of even date herewith (together with
its successors and permitted assigns, the "Trustee"); and THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation, as
Purchaser (together with its successors and permitted assigns,
the "Purchaser"). Capitalized terms used in this Participation
Agreement and not defined herein shall have the meanings set
forth in Appendix A hereto.
Preliminary Statement
---------------------
Lessee owns or leases certain leasehold improvements
(the "Equipment") the description and location of which is
incorporated in the Lease (as hereinafter defined). The Lessee
will lease, or sublease, as the case may be, the Equipment to the
Trustee pursuant to a prime lease, substantially in the form of
Exhibit A hereto (as the same may be amended, modified, or
supplemented from time to time, the "Prime Lease").
Concurrently, the Trustee shall sublease or sub-sublease, as the
case may be, the Equipment to the Lessee pursuant to a lease
agreement, substantially in the form of Exhibit B hereto (as the
same may be amended, modified or supplemented from time to time,
the "Lease").
The Trustee will hold its leasehold interest in the
Equipment and its rights under the Prime Lease, the Lease and
related documents in trust pursuant to a declaration of trust,
substantially in the form of Exhibit C hereto (as the same may be
amended, modified or supplemented from time to time, the
"Declaration of Trust"). In order to finance the payment of
Prime Lease Rent, and the payment of rent under substantially
similar leases between the Trustee and The Continental Union
Insurance Company ("Continental") and between the Trustee and
Firemen's Insurance Company of Newark, New Jersey ("Firemen's")
(those leases being referred to as the "Continental Prime Lease"
and the "Firemen's Prime Lease," respectively) the Trustee will
issue to the Purchaser equipment trust notes of three series
(collectively, the "Notes") as provided in the Declaration of
Trust. The Notes, in the aggregate principal amount of
$30,000,000.00, will be issued to pay the Prime Lease Rent, and
rent payable by the Trustee under the Continental Prime Lease and
the Firemen's Prime Lease and the Notes shall be issued, be
dated, mature and be payable as provided in the Declaration of
Trust. The Notes shall be secured by the trust estate held
pursuant to the Declaration of Trust, including, as applicable, a
guaranty given by The Continental Corporation (herein called the
"Guarantor") of the Lessee's obligations to make payments under
the Lease substantially in the form of Exhibit D hereto (the
"Lease Guaranty") and a security interest in the Lessee's
interest in the Equipment pursuant to the security interest
granted by the Lessee in the Lease. The Prime Lease, the Lease,
the Declaration of Trust, the Notes, the Lease Guaranty, and this
Participation Agreement are herein sometimes collectively called
the "Operative Documents."
2
<PAGE>
NOW, THEREFORE, in consideration of the agreements
herein and in the other Operative Documents and in reliance upon
the representations and warranties set forth herein and therein,
the parties agree as follows:
ARTICLE I
FINANCING
SECTION 1.01. Agreement to Issue and Purchase.
-------------------------------
(a) Subject to the terms and conditions of this Article
I, on the Closing Date the Purchaser shall advance to the Trustee
the amount of $30,000,000.00, and the Trustee shall issue to the
Purchaser in consideration therefor Notes in the aggregate
principal amount of $30,000,000.
SECTION 1.02. Closing Date. The closing of the
------------
transactions specified herein shall take place at 10:00 A.M. on
December 29, 1994 or on such other date, and in such manner and
in such place as the Trustee, the Purchaser, the Guarantor, and
the Lessee shall mutually agree (the "Closing Date").
SECTION 1.03. Closing. On the Closing Date, subject
-------
to the satisfaction of the conditions set forth in Section 2.01
of this Participation Agreement:
(a) The Operative Documents shall be duly authorized,
executed and delivered by the parties thereto; and
(b) The Purchaser shall make payment for the Notes
issued at the Closing Date at a price equal to the principal
amount thereof by transfer of immediately available funds in the
amount of $30,000,000.00 to the account of the Trustee at First
Fidelity Bank, N.A., ABA No. 031201467, account #0666249910 (with
a reference to Corporate Trust/Continental Insurance account,
Attention: Diane Sutherland, Corporate Trust Administrator (203)
929-5552); and the Trustee shall advance, as prepayment of the
full amount of the Prime Lease Rent and rent payable under the
Continental Prime Lease and the Firemen's Prime Lease, an
aggregate of $30,000,000 to the accounts of the Lessee,
Continental and Firemen's as follows:
$1,125,603.00 to the account of Lessee at Chemical
Bank, ABA # 021000128, Account No. 140008557;
$25,874,297.00 to the account of Continental at
Chemical Bank, ABA # 021000128, Account No. 140050093;
and
3
<PAGE>
$3,000,000.00 to the account of Firemen's at Chemical
Bank, ABA # 021000128, Account No. 144085584.
ARTICLE II
CONDITIONS TO CLOSING AND FUNDING
SECTION 2.01. General Conditions Precedent to Closing.
---------------------------------------
The obligations of the Purchaser set forth in Section 1.03 shall
be subject to the satisfaction on or before the Closing Date of
the following conditions precedent:
(a) Due Authorization, Execution and Delivery. The
-------------------------------------------
Operative Documents shall have been duly authorized, executed and
delivered by the respective parties thereto and shall be in full
force and effect. No condition or event shall exist or have
occurred which would constitute an Event of Default under any of
the Operative Documents;
(b) Representations. The representations and
---------------
warranties of each party set forth in the Operative Documents
shall be true and correct on the Closing Date, and the Trustee,
the Guarantor and the Lessee shall each have delivered an
Officer's Certificate to such effect dated the Closing Date;
(c) Opinions. The Purchaser shall have received the
--------
following opinions, dated the Closing Date and addressed to it:
(i) an opinion of Arnold & Porter, special
counsel to the Guarantor, in form and substance
reasonably satisfactory to the Purchaser and its
special counsel;
(ii) an opinion of counsel to the Guarantor, in
form and substance reasonably satisfactory to the
Purchaser and its special counsel;
(iii) an opinion of Arnold & Porter, special
counsel to the Lessee, in form and substance reasonably
satisfactory to the Purchaser and its special counsel;
(iv) an opinion of counsel to the Lessee, in form
and substance reasonably satisfactory to the Purchaser
and its special counsel;
(v) an opinion of Bingham, Dana & Gould, special
counsel to the Trustee, in form and substance
satisfactory to the Purchaser and its special counsel.
4
<PAGE>
(d) Proceedings Satisfactory and Other Evidence. All
--------------------------------------------
corporate and other proceedings taken or to be taken in
connection with the transactions contemplated by the Operative
Documents and all documents, papers and authorizations relating
thereto shall be satisfactory to the Purchaser and its special
counsel. The Purchaser and its special counsel shall receive
copies of such documents and papers as the Purchaser or its
special counsel has reasonably requested, in form and substance
satisfactory to the Purchaser and its special counsel, including
but not limited to the Operative Documents;
(e) Legality. The execution and delivery of the Notes
--------
by the Trustee shall not be prohibited by any applicable law or
governmental regulations (including, without limitation,
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System) and shall not subject the Purchaser to any tax
(other than a tax paid or payable by the Lessee pursuant to the
Lease or taxes on the income of the Purchaser), penalty,
liability or other onerous condition under or pursuant to any
applicable law or governmental regulations, and the Purchaser
shall receive such certificates or other evidence as it may
request to establish compliance with this condition;
(f) Condition and Use of Equipment. The Equipment or
-------------------------------
any item thereof, shall not have suffered a casualty, damage or
destruction which has a material adverse effect on the Equipment
taken as a whole.
(g) Documents relating to the Equipment. The Lessee
-------------------------------------
shall deliver an Officer's Certificate to the Trustee and the
Purchaser with respect to title (to the extent such property
constitutes personal property) to and location and condition of
the Equipment and such other documents relating to the Equipment
as may be requested by the Purchaser, all in form and substance
reasonably satisfactory to the Purchaser;
(h) Insurance. All insurance policies required by
---------
Section 4 of the Lease shall be in full force and effect, and
certificates of the insurers evidencing the coverage of such
policies and stating that the policies name the Trustee as
additional insured and name the Trustee as loss payee for all
damage amounts in excess of $1,000,000.00 shall be delivered to
the Trustee and the Purchaser in accordance with such Section;
and
(i) Taxes. All taxes, fees, and other charges, if
-----
any, which become due and payable in connection with the
execution, delivery, recording, publishing, registration and
filing of the Operative Documents and the financing statements
shall have been paid.
SECTION 2.02. Conditions Subsequent to the Closing.
--------------------------------------
Within 30 days following the Closing Date, the Operative
Documents (or financing statements relating thereto) shall have
been duly filed, registered, recorded or published at the expense
of Lessee in such manner and in all places necessary or
appropriate to publish notice and protect the validity and
effectiveness thereof and to establish, perfect, preserve and
protect the rights of the parties thereto.
5
<PAGE>
ARTICLE III
PLACEMENT OF THE NOTES
SECTION 3.01. General. The parties hereto expect that some
--------
or all the Notes will be placed with a Person or Persons other than
the Purchaser prior to their maturity, and the Lessee consents and
agrees to such placement, provided that the Notes shall not be placed
with more than 10 Persons.
SECTION 3.02. Placement. The Lessee, the Trustee and the
----------
Purchaser agree to negotiate, each at its own respective expense, the
substance, and the execution and delivery, of such further documents
or supplements to the Operative Documents which may be necessary or
proper to carry out the placement of the Notes, provided that any
changes effected by such documents or supplements are to be within the
scope of the present economic terms of the transaction and are not to
contain any additional covenants, representations or warranties
burdensome on any of the parties.
ARTICLE IV
REPRESENTATIONS
SECTION 4.01. Lessee Representations. The Lessee
-----------------------
represents and warrants to the Trustee and the Purchaser that the
following statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Lessee is a corporation, duly incorporated,
validly existing and in good standing under the laws of the
State of Ohio.
(ii) The Lessee has all requisite power, authority,
legal right and all necessary licenses to own or hold under
lease and use its property (including the Equipment) and to
carry on its business as now conducted and as presently
proposed to be conducted.
(iii) To the extent set forth in each Landlord's
Waiver and Consent, the Lessee has all requisite power and
authority to execute and deliver each Operative Document to
which it is a party and any other agreement entered into or
document delivered in connection with the transactions
contemplated by the Operative Documents and to comply with
the terms thereof and perform its obligations thereunder;
and
(iv) The Lessee is duly qualified and authorized to do
business as a foreign corporation in each jurisdiction in
which an item of Equipment is located and in each other
jurisdiction in which the character of its property or the
nature of its activities makes such qualification necessary
except for such jurisdictions wherein a failure to so
qualify or be authorized to do business would not have a
material adverse effect on its business or activities taken
as a whole.
6
<PAGE>
(b) Financial Statements.
--------------------
(i) Copies of financial statements of the Lessee
delivered by the Lessee to the Purchaser have been prepared
in conformity with the Statutory Accounting Principles
prescribed and permitted by the Department of Insurance
which present fairly the financial position of the Lessee,
as of such date and the results of its operations for such
period; and
(ii) Copies of financial statements of The Continental
Corporation delivered by the Lessee or The Continental
Corporation to the Purchaser have been prepared in
conformity with generally accepted accounting principles
applied consistently throughout the periods reflected
therein and with prior periods (except as approved by such
accountants or officer, as the case may be, and disclosed
therein); and
(iii) Since the date of the financial statements
referred to in (i) and (ii), there has been no change in the
business, profits, property or condition (financial or
otherwise of the Lessee or The Continental Corporation)
except changes in the ordinary course of business, none of
which individually or in the aggregate is materially adverse
and except for the Merger.
(c) Full Disclosure. There is no fact which the Lessee has
---------------
not disclosed in writing or is publicly available to the parties
hereto which materially adversely affects the property, business,
affairs or condition (financial or otherwise) of the Lessee or the
ability of the Lessee to perform its obligations under any Operative
Document to which it is a party or any other agreement which it has
entered into in connection with any transaction contemplated by an
Operative Document.
(d) Pending Litigation. There are no actions, suits or
------------------
proceedings pending, or, to the best knowledge of the Lessee,
threatened against or affecting the Lessee in any court or before any
government which is reasonably likely to materially adversely affect
the property, business, profits or condition (financial or otherwise)
of the Lessee or the ability of the Lessee to perform its obligations
under the Operative Documents to which it is a party. The Lessee is
not in default with respect to any order of any government, foreign or
domestic, or any agency, regulatory body, instrumentality or
subdivision of such government, which could materially and adversely
affect the Lessee's business, consolidated financial position or
consolidated results or operations.
(e) Title and Liens. To the extent the Equipment
-----------------
constitutes personal property, the Lessee owns the Equipment free and
clear of any lien, claim, encumbrance, security interest, restrictions
or any other right of a third party in and to such Equipment, except
7
<PAGE>
for Permitted Encumbrances or except to the extent that such rights
are created by the Operative Documents. Except to the extent set
forth in the Landlord's Waiver and Consent, Lessee has the full legal
power, right and authority to lease the Equipment to Trustee under the
Prime Lease.
(f) No Conflict or Default. The execution and delivery by
----------------------
the Lessee, and compliance by the Lessee with all of the provisions,
of each Operative Document to which it is a party will not conflict
with, result in any breach of any of the provisions of or constitute a
default under the provisions of any material agreement to which the
Lessee is a party or by which it may be bound or which is applicable
to any of its property, or results in the creation of any lien upon
any property of the Lessee, except as may have been created by any
provision of any Operative Document and except for Permitted
Encumbrances, or result in a violation of its charter or any
applicable law.
(g) Enforceability. Each Operative Document to which the
--------------
Lessee is a party when executed and delivered by the Lessee, will
constitute the legal, valid and binding obligation of the Lessee
enforceable against the Lessee in accordance with its terms (except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity).
(h) Consents. No consent, approval, authorization or
--------
declaration of or filing with any governmental authority is required
for the valid execution, delivery or performance by the Lessee of this
Participation Agreement or the other Operative Documents.
(i) Compliance with Law. The Lessee is not in violation of
-------------------
any law to which it is subject, which violation or failure is likely
to have a material adverse effect on the business, profits, property
or condition (financial or otherwise) of the Lessee.
(j) Status. The Lessee is not an "investment company" or a
------
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940.
(k) ERISA. The execution and delivery by the Lessee of the
-----
Operative Documents entered into in connection therewith will not
involve any prohibited transaction within the meaning of ERISA or
Section 4975 of the Code. The Lessee has not incurred any liability
to the PBGC or an Employee Plan under Title IV of ERISA (a "Plan").
(l) Taxes. The Lessee has filed all federal, state and
-----
local tax returns that it is required to file, has filed all
information returns it is required to file and has paid all taxes
shown thereon to be due, including interest and penalties, except to
the extent the same have become due and payable but are not yet
delinquent, adequate reserves have been provided for the same, or the
amount, applicability or validity of the same is currently being
contested in good faith by appropriate proceedings, and no lien has
attached (except with respect to taxes not yet due and payable) and no
foreclosure, distraint, sale or similar proceedings have been
commenced.
8
<PAGE>
SECTION 4.02. Trustee Representations. The Trustee, in its
-----------------------
individual capacity and not as Trustee (except with respect to
subsection (g) below which is made by the Trustee solely in its
capacity as Trustee and not individually), represents and warrants to
the Lessee, the Guarantor and the Purchaser that the following
statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Trustee is a national banking association duly
organized, validly existing and in good standing under the
laws of the United States of America; and
(ii) The Trustee has all requisite corporate power and
authority to act as Trustee under the Declaration of Trust
and to execute and deliver each Operative Document to which
it is a party and to comply with the terms thereof and
perform its obligations thereunder.
(b) Pending Litigation. There are no actions, suits or
------------------
proceedings pending, or, to the best knowledge of the Trustee,
threatened against or affecting the Trustee in any court or before any
governmental body which involve the possibility of materially
adversely affecting the property, business, prospects, profits or
condition (financial or otherwise) of the Trustee or the ability of
the Trustee to perform its obligations under any Operative Document to
which it is a party or any other agreement which it has entered into
in connection with any transaction contemplated by any Operative
Document.
(c) Authorization; No Conflict. The execution, delivery
---------------------------
and performance by the Trustee of, and compliance by the Trustee with
all of the provisions of, each Operative Document to which it is a
party and any other agreement entered into in connection with any
transaction contemplated by the Operative Documents are within the
corporate powers of the Trustee and are legal and authorized under
United States federal law governing banking and trust matters and
Connecticut State law and will not conflict with, result in any breach
of any of the provisions of, or constitute a default under, any
agreement, its articles of association or bylaws or other instrument
to which the Trustee is a party or by which it may be bound or
applicable to any of its property, or result in a violation of any
applicable United States federal law governing banking and trust
matters or Connecticut State law.
(d) Enforceability. Each of the Operative Documents to
--------------
which the Trustee is a party, and any other agreement entered into in
connection with any transaction contemplated by any Operative
Document, has been duly authorized by all necessary action on the part
of the Trustee, and is or will be the legal, valid and binding
obligation of the Trustee enforceable against the Trustee in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally
and that the equitable remedy of specific performance and other
equitable remedies are subject to the discretion of the court).
9
<PAGE>
(e) No Default. No event has occurred and no condition
----------
exists which, upon consummation of the transactions contemplated by
any Operative Document, would constitute an Event of Default by the
Trustee. The Trustee is not in violation in any respect of any term
of any agreement, its articles of association or any other instrument
to which it is a party or by which it or any of its property may be
bound or affected.
(f) Consents. The nature of the Trustee, its execution and
--------
delivery of each Operative Document to which it is a party, its
consummation of the transactions contemplated thereby, its compliance
with the terms thereof or any circumstance in connection with the
transactions contemplated thereby does not required under United
States federal law governing banking and trust matters or Connecticut
State law the consent of any person or the approval or authorization
of, or filing, registration or qualification with, any government on
the part of the Trustee (other than such as have been obtained) as a
condition to the execution, delivery and performance of the Operative
Documents to which the Trustee is a party or any other agreement which
it has entered into in connection with the transactions contemplated
by any Operative Document.
(g) Notes. The Notes have been duly authorized by all
-----
necessary corporate action on the part of the Trustee, have been
validly issued and constitute the legal, valid and binding obligations
of the Trustee (acting solely as Trustee under the Declaration of
Trust, and not in its individual capacity) and are enforceable against
the Trustee in accordance with their terms and the terms of the
Declaration of Trust and this Participation Agreement.
SECTION 4.03. Representation of the Purchaser. The
----------------------------------
Purchaser represents to the Lessee and the Guarantor that no part of
the funds being used by the Purchaser to pay the purchase price of the
Notes hereunder constitutes assets allocated to any "separate account"
(as defined in Section 3 of ERISA) maintained by the Purchaser. The
Purchaser acknowledges that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Act"), and agrees that it
shall not resell the Notes except pursuant to a registration under the
Act or an exemption therefrom.
ARTICLE V
COVENANTS
SECTION 5.01. Lessee Covenants.
----------------
(a) Financial Statements. The Lessee will deliver, or
---------------------
cause to be delivered, to the Trustee and the Purchaser:
(i) such financial statements as are required by
Section 14 of the Lease;
(ii) promptly upon becoming aware of the existence of
(A) any condition or event which constitutes a Default or an
Event of Default, a written notice from a duly authorized officer
of the Lessee specifying the nature and period of existence
10
<PAGE>
thereof and (B) any directive from the Director of the Department
of Insurance specifying any corrective action to be taken which
could have a material adverse effect on the Lessee's business
taken as a whole, or any special examinations or investigations
not in the ordinary course, which are performed or taken by the
Director as a result of which such a directive could issue, a
copy of such directive and/or written notice of such examinations
or investigations together with, in each case, written notice of
what action the Lessee is taking or proposes to take with respect
thereto;
(iii) at the same time as it delivers the annual
financial statements described in the Lease, an Officers'
Certificate signed by its Chief Financial Officer or Chief
Accounting Officer stating that the signers have reviewed the
Operative Documents to which it is a party and its transactions
and condition during the preceding fiscal year and that such
review has not disclosed nor do the signers know of any Event of
Default under or breach of any Operative Documents to which it is
a party or, if an Event of Default exists, specifying the nature
and the period of such Event of Default and the action, if any,
it has taken, is taking or proposes to take with respect thereto.
(b) Corporate Existence. The Lessee shall do or cause to
-------------------
be done all things necessary to preserve and keep in full effect its
existence, rights (charter and statutory) and franchises as an
insurance company under the laws of a state of the United States and
to preserve and keep in full effect its qualifications as a foreign
corporation in each jurisdiction in which the character of its
property or the nature of its business or activities makes such
qualification necessary, except for such jurisdictions wherein a
failure to so qualify would not have a material adverse effect on the
business, affairs, property or condition (financial or otherwise) of
the Lessee and its Subsidiaries taken as a whole.
(c) Compliance with Regulation. The Lessee shall deliver
--------------------------
to the Trustee and the Purchaser copies of each notice of any
violation by Lessee of any judgment, decree or order of any court of
governmental or regulatory authority, bureau, agency or official
having jurisdiction over the Lessee if such violations would have a
material adverse effect on the business, affairs, property or
condition (financial or otherwise) of the Lessee and its Subsidiaries
taken as a whole.
(d) Notice of Default. The Lessee shall give notice to the
-----------------
Trustee of any Event of Default under any of the Operative Documents
by any party thereto promptly after the Lessee obtains Actual
Knowledge of the same. For purposes of this subsection (d), "Actual
Knowledge" means actual knowledge of the Vice President-Treasurer, an
Executive Vice President or a Senior Vice President of the Lessee.
(e) No State Prohibition. The Lessee shall not be
-----------------------
prohibited by action of any state or any subdivision, department or
agency thereof from engaging in any type of insurance business at any
time where the effect of such prohibition would have a material
adverse effect on the business, affairs, property or condition
(financial or otherwise) of the Lessee and its Subsidiaries taken as a
whole.
11
<PAGE>
(f) Maintenance of Insurance Business. At all times a
-----------------------------------
substantial portion of the Lessee's business shall be the insurance
business.
(g) No Regulatory Intervention. At no time shall the
----------------------------
insurance department of any state having jurisdiction over the
business of the Lessee take any action to exercise control over the
business and operations of the Lessee or cause the Lessee to take any
action which, in the reasonable opinion of the Trustee or the
Purchaser, will be likely to result in a material adverse change in
the business and operations of the Lessee taken as a whole.
(h) Obligations Under the Lease. Lessee acknowledges and
----------------------------
agrees that its obligation to make payments to the Trustee under the
Lease are absolute and unconditional and are independent of Lessee's
use or enjoyment of the Equipment or performance by the Trustee of any
of its obligations under the Lease or otherwise. The Lessee agrees to
make all Lease Payments to the Trustee regardless of any defense,
claim, set-off, recoupment, abatement or other right, existing or
future, which the Lessee may have against the Trustee or any other
person or entity.
SECTION 5.02. Operative Documents; Further Assurance. Each
--------------------------------------
of the parties hereto does hereby covenant and agree well and truly to
abide by, perform and be governed and restricted by each and all of
the matters provided for by each of the Operative Documents to which
it is a party and, subject to the terms and conditions thereof, to use
its best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable in
connection therewith. The Lessee, the Trustee, and the Purchaser
will, upon reasonable request and at the expense of the Lessee,
execute and deliver such further instruments and do such further acts
as may be necessary or proper to carry out more effectively the
purposes of this Participation Agreement, the Prime Lease, the Lease,
the Lease Guaranty, the Declaration of Trust and the Notes and the
transactions contemplated hereby and thereby, provided that the Lessee
shall not be responsible for any costs or expenses associated with the
voluntary transfer or assignment of the Notes by the by any holder of
the Notes, including without limitation, the Purchaser. The Lessee,
the Trustee, and the Purchaser may at any time, subject to the
conditions and restrictions contained in this Participation Agreement,
enter into supplements which shall form a part hereof, when required
or permitted by any of the provisions of this Participation Agreement
to cure any ambiguity, or to cure, correct or supplement any defection
or inconsistent provision contained herein or in any other Operative
Document.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default. Any of the following
------------------
shall constitute an Event of Default hereunder:
(a) non-payment of any amount due on the Notes when such
payment shall become due if such non-payment continues for a period of
five days;
12
<PAGE>
(b) an Event of Default with respect to the Guarantor or
the Lessee under any Operative Document to which it is a party,
including, without limitation, an Event of Default under the Lease
arising from an "Event of Default" under certain agreements of
Continental and Firemen's described in the Lease;
(c) a breach by the Lessee of any covenant contained in
this Participation Agreement and such breach continues for a period of
thirty (30) days after Lessee receives notice of such breach;
(d) an event shall occur or a condition shall arise that
would constitute grounds for an appropriate United States district
court to appoint a trustee to administer a Plan or for the PBGC to
initiate proceedings to terminate any Plan if such appointment or
termination would materially adversely affect the business,
operations, property or financial or other condition of the Lessee
alone or of the Lessee and its respective Subsidiaries taken as a
whole, and no action is taken by Lessee to cure such event for a
period of more than thirty (30) days;
(e) if any representation or warranty of the Lessee set
forth in this Participation Agreement or in any Operative Document
shall prove to be incorrect in any material respect as of the time
when the same shall have been made.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Survival. Except as otherwise expressly
--------
provided, the parties' obligations under the representations,
warranties and agreements in this Participation Agreement and in any
certificate or other instrument delivered by any party or on such
party's behalf pursuant to this Participation Agreement shall
terminate upon the payment in full of any amounts then and thereafter
due on the Notes and due under any of the Operative Documents. Such
rights and obligations shall survive the execution and delivery of any
Operative Document, any issuance or disposition of the Notes, any
disposition of any interest in the Equipment or the termination of any
Operative Documents and shall continue in effect regardless of any
investigation made by or on behalf of any party hereto and
notwithstanding that any party may waive compliance with any other
provision of any Operative Document.
SECTION 7.02. Notices. Unless otherwise specifically
-------
provided in any Operative Document, all notices, consents, directions,
approvals, instructions, requests and other communications given to
any party hereto under any Operative Document shall be in writing to
such party at the address set forth below or at such address as such
party shall designate by notice to each of the other parties hereto.
Any notice so addressed and delivered by personal service, mailed
postage prepaid via United States certified mail, return receipt
requested, or sent via commercial courier, for next day delivery
return receipt requested, shall be deemed to have been given when
delivered to such party by personal service or, if so mailed or sent
via commercial courier, on the second succeeding business day.
13
<PAGE>
Purchaser:
---------
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, New Jersey 07039
Attention: Ron Haase
and to:
-------
The CIT Group/Equipment Financing, Inc.
900 Ashwood Parkway
Atlanta, Georgia 30338
Attention: Vice President of Credit
with a copy to:
---------------
Harry D. Mercer, Esq.
Hahn Loeser & Parks
3300 BP America Bldg.
200 Public Square
Cleveland, Ohio 44114
Trustee:
--------
First Fidelity Bank, N.A
5 Research Drive
Shelton, Connecticut 06484
Attention: W. Jeffrey Kramer
with a copy to:
---------------
James G. Scantling, Esq.
Bingham, Dana & Gould
100 Pearl Street
Hartford, Connecticut 06103
Lessee:
------
The Buckeye Union Insurance Company
180 Maiden Lane
New York, New York 10038
14
<PAGE>
Attention: General Counsel
and to:
------
The Buckeye Union Insurance Company
180 Maiden Lane
New York, New York 10038
Attention: Francis M. Colalucci, Vice President and Treasurer
with a copy to:
---------------
Porfirio F. Ramirez, Jr., Esq.
Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
SECTION 7.03. Severability. If any provision hereof shall
------------
be invalid, illegal or unenforceable in any jurisdiction, the
remaining provisions shall continue to be valid and enforceable and
such provision shall continue to be valid and enforceable in any other
jurisdiction.
SECTION 7.04. Amendment. No party hereto shall be bound by
---------
any amendment, supplement, waiver or modification of any term hereof
unless such party shall have consented to it in writing.
SECTION 7.05. Headings. The headings of the Articles,
--------
Sections and subsections hereof are for convenience and shall not
affect the meaning of this Participation Agreement.
SECTION 7.06. Benefit. The parties hereto and their
-------
permitted successors and assigns, but no others, shall be bound hereby
and entitled to the benefit hereof.
SECTION 7.07. Counterparts. The parties may sign this
------------
Participation Agreement in any number of counterparts and on separate
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
SECTION 7.08. Governing Law. This Participation Agreement
-------------
shall be governed by and construed in accordance with the law of the
State of New York without regard to its conflict of laws rules.
SECTION 7.09. Business Day. If the date scheduled for any
------------
payment or action under any Operative Documents shall not be a
business day, such payment shall be made or such action shall be taken
on the next succeeding business day.
15
<PAGE>
SECTION 7.10. The Trustee. Except for liability for its
-----------
representations and warranties in Section 4.02 (other than subsection
(g) thereof), the Trustee does not enter into this Agreement in its
individual capacity, but solely as Trustee under the Declaration of
Trust and shall be liable hereunder only from the Trust Estate. Each
party agrees for itself and its successors and assigns that it will
look solely to the assets, income and proceeds of the Trust Estate for
the satisfaction of any such liability of the Trustee hereunder, and
waives any right it may have to satisfy any such liability from any
other assets of the Trustee, in its individual capacity.
SECTION 7.11. Home Office Payment. So long as the
---------------------
Purchaser, any Affiliate of the Purchaser or a bank or institutional
investor is the owner of any beneficial interest in the Notes, the
Trustee will cause all amounts which become due and payable on such
interest to be paid by bank wire transfer of immediately available
funds, or at the option of the Purchaser, or any such Affiliate, bank
or institutional investor, by check of the Trustee, duly mailed,
delivered or made at such address or account within the United States
provided in writing to the Trustee.
SECTION 7.12. Satisfaction and Termination. If and when
----------------------------
the Notes shall have become due and payable (whether by lapse of time
or by acceleration or by prepayment), and there shall have been paid
the full amount due on the Notes for principal and interest, and if
there shall have been paid all other sums payable pursuant to the
provisions hereof and of the Declaration of Trust, then and in that
case the Declaration of Trust and all agreements therein contained
shall cease and terminate and, at the request of the Lessee, and at
the cost and expense of the Lessee, the Trustee shall execute and
deliver such instruments as shall be reasonably requested to satisfy
and terminate the Declaration of Trust.
SECTION 7.13. Costs and Expenses.
------------------
(a) Transaction Costs. The Lessee shall pay and save all
------------------
other parties and the holder from time to time of the Notes harmless
against any liability for the payment of the following fees, expenses,
disbursements and costs incurred in connection with the preparation,
execution and delivery of any Operative Document or of any amendment
or supplement thereto or any waivers thereof, including:
(i) the reasonable fees, expenses and disbursements of
the Trustee, the Purchaser or of their counsel for services
rendered to the Trustee or the Purchaser, in connection with
such transactions, provided that no such fees, expenses and
disbursements of the Trustee, the Purchaser or of their
counsel are incurred in connection with the placement of the
Notes as contemplated by Article III hereof;
(ii) the reasonable out-of-pocket expenses of the
Trustee and the Purchaser and their Affiliates incurred in
connection with such transactions; and
(iii) all fees and expenses in connection with any
inspection, printing and other document reproduction and
distribution expenses, sales taxes, if any,
16
<PAGE>
any documentary, stamp or other similar taxes, fees or
excise, including interest and penalties and all filing fees
in connection with the execution, delivery or performance of
any Operative Document or the recording or filing of
instruments and financing statements described in this
Participation Agreement.
(b) Compensation and Reimbursement. The Lessee agrees (a)
-------------------------------
to pay to the Trustee from time to time reasonable compensation for
all services rendered by it under the Operative Documents (which
compensation shall not be limited by any provisions of law in regard
to the compensation of a trustee of an express trust); (b) to
reimburse the Trustee for all reasonable expenses, disbursements and
advances incurred or made by it in accordance with any provisions of
the Operative Documents (including the reasonable compensation,
expenses and disbursements of its agents and counsel), except any such
17
<PAGE>
expense, disbursement or advance as may be attributable to its own
gross negligence, willful misconduct or bad faith; and (c) to
indemnify the Trustee and to hold it harmless against, any loss,
liability or expense incurred without negligence, willful misconduct
or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust created by the Declaration
of Trust or the performance of its duties under the Operative
Documents, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties thereunder.
IN WITNESS WHEREOF, the parties have caused this
Participation Agreement to be duly executed by their officers
thereunto duly authorized as of the day and year first above written.
THE BUCKEYE UNION INSURANCE COMPANY
By
--------------------------------
Title:
FIRST FIDELITY BANK, N.A.,
not in its individual capacity
except as expressly stated
herein, but solely as Trustee
By
--------------------------------
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
By
--------------------------------
Title:
18
<PAGE>
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
APPENDIX A - DEFINITIONS
"Affiliate" when used with respect to a Person, means
---------
any other Person (1) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such Person, (2) which beneficially owns or hold 5% or
more of any class of the voting stock of such Person or (3) 5% or more
of the voting stock (or in the case of a Person which is not a
corporation, 5% of more of the equity interest) of which is
beneficially owned or held by such Person or any of its subsidiaries.
The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting stock,
by contract or otherwise.
"Declaration of Trust" means the Declaration of Trust
---------------------
dated as of December 29, 1994 by the Trustee as trustee thereunder.
"Default" means any event which with the lapse of
-------
time, or giving of notice, or both would become an Event of Default.
"Department of Insurance" means the Insurance
--------------------------
Department of the State of Ohio.
"Event of Default" means any of the events specified in
----------------
Section 6.01 of this Participation Agreement or in Section 10 of the
Lease or any material default by the Guarantor under the Lease
Guaranty, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from to time to time.
"Guarantor" means The Continental Corporation, a New
---------
York Corporation.
"Landlord's Waiver and Consent" means the Landlord's
-------------------------------
Waiver and Consent of Greycas, Inc., relating to those items of
Equipment located at 1111 E. Broad Street, Columbus, Ohio.
"Lease" means the Master Agreement of Lease dated as
-----
of December 29, 1994 between the Trustee as Lessor and The Buckeye
Union Insurance Company, as Lessee, together with Schedule of Leased
Equipment No. 1 dated as of December 29, 1994, thereunder.
"Lease Payments" means the rent and all other amounts
--------------
payable by the Lessee under the Lease, including, without limitation,
all rent payable during any renewal term of the Lease and all amounts
payable in the event Lessee exercises any end of term options or the
Lease is terminated for any reason prior to the end of the Maximum
Lease Term (as that term is defined in the Lease).
19
<PAGE>
"Merger" means the transaction described in the
------
Agreement, dated December 6, 1994, between the Guarantor and CNA
Financial Corporation ("CNA Financial") under which CNA Financial will
acquire the Guarantor through a merger with a wholly-owned CNA
Financial subsidiary, including the investment, under separate
agreement, whereby CNA has agreed to invest $275,000,000.00 in the
Guarantor, which investment has been made as of the date hereof.
"Notes" means the Secured Promissory Notes issued, or
-----
any note issued in replacement thereof, and, unless the context
otherwise specifies or requires, outstanding under this Participation
Agreement.
"Officer" means, the president, any vice president or
-------
any other duly authorized and responsible officer of such corporation
or entity.
"Officer's Certificate" or "Officers' Certificate" of
--------------------- ---------------------
a Person means a certificate signed by an Officer or Officers of such
Person.
"PBGC" means the Pension Benefit Guarantee Corporation
----
or any entity succeeding to any or all of its functions under ERISA.
"Permit" means any action, approval, certificate of
------
occupancy, consent, waiver, exemption, variance, franchise, order,
permit, authorization, right or license of or from a government or
agency or subdivision thereof.
"Permitted Encumbrance" means, with respect to the
----------------------
Equipment: (i) the respective rights of the Lessee and the Trustee
under the Lease and the Prime Lease; (ii) liens for taxes either not
yet due or being contested in good faith and by appropriate
proceedings so long as such proceedings do to involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and so long as such Lessee shall
be maintaining adequate reserves on its books for the payment of such
taxes to the extent such taxes are federal or state income taxes;
(iii) inchoate materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of
business and securing obligations which are not delinquent or which
are being contested by such Lessee in good faith and by appropriate
proceedings so long as such proceedings do not involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and (iv) any liens securing
obligations of landlords of locations at which the Equipment is
located to third parties.
"Person" means any individual, corporation,
------
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government.
"Prime Lease Rent" means the aggregate rent payable
-----------------
under the Prime Lease.
"Purchaser" means The CIT Group/Equipment Financing,
---------
Inc., a corporation organized under the laws of the State of New York.
20
<PAGE>
"Statutory Accounting Principles" or "SAP" means the
-------------------------------------------
standard accounting principles prescribed or permitted by the
insurance commissioner (or other similar authority) in the
jurisdiction of domicile of any insurance company incorporated in any
jurisdiction of the United States for the preparation of annual
statements and other financial reports by insurance companies of the
same type as such company applied consistently throughout the periods
reflected therein (except as approved by such officers, as the case
may be, and disclosed therein).
"Subsidiary" shall mean any corporation more than 50%
----------
of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time
owned by any Person directly or indirectly through Subsidiaries.
"Trust Estate" shall have the meaning assigned it in
-------------
the Declaration of Trust.
21
<PAGE>
This is Counterpart No. of 3 serially numbered,
--------
manually executed counterparts. To the extent that this
document constitutes chattel paper under the Uniform
Commercial Code ("UCC"), no security interest in this
document may be created through the transfer and possession
of any counterpart other than Counterpart No. 1.
Master Lease
MASTER AGREEMENT OF LEASE ("Master Lease") dated as of December 29, 1994 between
First Fidelity Bank, N.A., not in its individual capacity, but solely as
Trustee (Lessor), having a place of business at 5 Research Drive, Shelton,
Connecticut 06484, and THE BUCKEYE UNION INSURANCE COMPANY ("Lessee"), having a
place of business at 180 Maiden Lane, New York, New York 10038,
Lessee wants to lease from Lessor leasehold improvements to be described in the
schedule of leased equipment (as amended, modified or supplemented, the
"Schedule"). Lessor is willing to lease such leasehold improvements to Lessee
at the rent, for the term and upon the conditions provided hereinafter. The
Schedule executed by Lessor and Lessee which is identified as being entered into
pursuant to this Master Lease shall be deemed to incorporate by reference all
the terms and conditions of this Master Lease except as provided in such
Schedule. The term "Lease" when used herein shall refer to the Schedule, which
incorporates this Master Lease.
1. Equipment Leased and Term.
This Lease shall cover such leasehold improvements as is described in the
Schedule executed by or pursuant to the authority of Lessee, accepted by Lessor
in writing and identified as a part of this Lease (which leasehold improvements
with all replacement parts, additions, repairs, accessions and accessories
incorporated therein and/or affixed thereto is hereinafter called the
"Equipment"). Lessor hereby leases to Lessee and Lessee hereby hires and takes
from Lessor, upon and subject to the covenants and conditions hereinafter
contained, the Equipment described in the Schedule. The Initial Lease Term with
respect to any item of Equipment shall be for the period as set forth in the
Schedule. The Initial Lease Term together with all renewal terms provided for
in the Schedule constitute the "Maximum Lease Term."
2. Rent.
The aggregate rent payable with respect to the Equipment shall be the amount
shown on the Schedule as the "Aggregate Rent." Lessee shall pay to Lessor the
Aggregate Rent for the Equipment for the full period and term for which the
Equipment is leased, such rent to be payable at such times and in such amounts
for the Equipment as shown in the Schedule.
All rent and other amounts payable hereunder shall be paid at Lessor's place of
business shown above, or such other place as Lessor may designate by written
notice to the Lessee. All rent and other amounts shall be paid without notice
or demand and without abatement, deduction or set off of any amount whatsoever.
This is a non-cancelable net lease, and the obligation of Lessee to make
payments hereunder is absolute and unconditional. Lessee shall not be entitled
to any abatement or reduction of payments hereunder for any reason including,
without limitation, any existing or future offset or claim which may be asserted
by Lessee.
3. No Warranties by Lessor; Maintenance and Compliance with Laws.
Lessor, not being the manufacturer of the Equipment, nor manufacturer's agent,
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR
PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING
AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN
LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE AT ITS SOLE RISK AND EXPENSE;
Lessee accordingly agrees not to assert any claim whatsoever against Lessor
based thereon. Lessee further agrees, regardless of cause, not to assert any
claim whatsoever against Lessor for loss of anticipatory profits or
consequential damages. Lessor shall have no obligation to install, erect, test,
adjust or service the Equipment. Lessee shall look to the manufacturer and/or
seller of the Equipment for any claims related to the Equipment. "Seller" as
used in this Lease means the supplier from which Lessee originally acquired any
item of Equipment.
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations related
hereto and/or to the Equipment are integrated herein. Lessee agrees, at its own
cost and expense:
55-SA-2279 (12/94) Master Lease - Continental Lease Page 1 of 8
<PAGE>
(a) to pay all charges and expenses in connection with the operation of each
item of Equipment;
(b) to comply with all governmental laws, ordinances, regulations, requirements
and rules with respect to the use, maintenance and operation of the
Equipment; and
(c) to make all repairs and replacements required to be made to maintain the
Equipment in good condition, reasonable wear and tear excepted.
4. Insurance.
Lessee shall maintain at all times on the Equipment, at its expense, all-risk
physical damage insurance and comprehensive general liability insurance
(covering bodily injury and property damage exposures including, but not limited
to, contractual liability and products liability) in such amounts, against such
risks, in such form and with such insurers as shall be reasonably satisfactory
to Lessor; provided, that the amount of all-risk physical damage insurance shall
not on any date be less than the greater of the full replacement value or the
Liquidated Damages Amount (as defined in Section 11). Each physical damage
insurance policy shall name Lessor as loss payee for all damage amounts in
excess of $1,000,000, and each liability insurance policy shall name Lessor as
additional insured. All insurance for loss or damage shall provide that the
proceeds thereof shall be payable directly to Lessor for all damage amounts in
excess of $1,000,000. Each insurance policy shall require that the insurer give
Lessor at least thirty (30) days prior written notice of any alteration in or
cancellation of the terms of such policy and require that Lessor's interests be
continued insured regardless of any breach or violation by Lessee or others of
any warranties, declarations or conditions contained in such insurance policy.
In no event shall Lessor be responsible for premiums, warranties or
representations to any insurer or any agent thereof. Lessee shall furnish to
Lessor a certificate or other evidence satisfactory to Lessor that such
insurance coverage is in effect, but Lessor shall be under no duty to ascertain
the existence or adequacy of such insurance. The insurance maintained by Lessee
shall be primary without any right of contribution from insurance which may be
maintained by Lessor. Lessee shall be liable for all deductible portions of all
required insurance. Lessor may (but without any obligation to do so), at its
own expense, for its own benefit, purchase insurance in excess of that required
under this Lease Agreement.
5. Loss and Damage.
Lessee assumes and shall bear the entire risk of any partial or complete loss
with respect to the Equipment from any and every cause whatsoever including
theft, loss, damage, destruction or governmental taking, whether or not such
loss is covered by insurance or caused by any default or neglect of Lessee.
Lessee agrees to give Lessor prompt notice of any damage to or loss of any
Equipment.
If any item of Equipment is lost, totally destroyed, damaged beyond repair or
taken by governmental action (a "casualty loss") the rent due and to become due
thereon shall not abate and Lessee shall at its own expense replace the lost or
destroyed Equipment in accordance with the terms of this Section. Lessee shall,
within thirty days after the date of the casualty loss, (i) acquire items of
equipment equal in number to the items of lost or destroyed Equipment, of the
same or an improved make and model, owned by Lessee free and clear of all liens,
claims and encumbrances and having a value, utility and remaining useful life at
least equal to, and being in as good condition as, the lost or destroyed items
of Equipment, (ii) cause each such replacement item of equipment to be leased to
Lessor on the same terms and conditions as provided in Schedule of Leased
Equipment No. 1 to that certain Prime Master Lease (the "Prime Master Lease")
dated of even date herewith between Lessee as Prime Lessor and Lessor as Prime
Lessee for a term equal to the term then remaining under the Prime Master Lease,
(iii) if requested by Lessor, execute and deliver to Lessor a supplement to the
related Schedule under this Master Lease confirming that such replacement item
of equipment is for all purposes Equipment subject to such Schedule, and (iv)
take such other action as Lessor may reasonably request, including filing UCC
financing statements and fixture filings with appropriate filing offices. Each
replacement item of equipment shall be deemed upon its acquisition by Lessee to
be and become part of the leasehold improvements hereunder subject to the terms
and conditions hereof and each such replacement item of equipment shall be
deemed an item of Equipment under its related Schedule whether or not a
supplement to that effect is signed and delivered by Lessee. In the event of
partial destruction of any Equipment, the rent due and to become due thereon
shall not abate and Lessee shall, at its own expense, cause such Equipment to be
restored to usable condition, or Lessee may replace such damaged Equipment in
accordance with the procedure set forth above as though the damaged Equipment
was totally destroyed. Lessor shall, upon receiving satisfactory evidence of
replacement due to a casualty loss or restoration due to partial loss, promptly
pay to Lessee the proceeds of any insurance or compensation actually received by
Lessor by reason of such damage and shall upon Lessee's request execute and
deliver such releases and other instruments as may be necessary to release such
replaced equipment or parts from this Lease. Lessor shall not be obligated
to undertake by litigation or otherwise the collection of any claim against
any person for loss of or governmental taking of the Equipment, but Lessor
will cooperate with Lessee at Lessee's expense to pursue such claims.
The total or partial destruction of any Equipment or the total or partial loss
of use or possession thereof to Lessee shall not release or relieve Lessee from
its obligations hereunder, including the duty to pay the Aggregate Rent herein
provided.
6. Taxes.
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<PAGE>
Lessee agrees that, during the term of this Lease, in addition to the Aggregate
Rent and all other amounts provided herein to be paid, it will promptly pay all
taxes, assessments and other governmental charges (including penalties and
interest, if any, and fees for titling or registration, if required) levied or
assessed:
(a) upon the interest of Lessee in the Equipment or upon the use or operation
thereof or on the earnings arising therefrom; and
(b) against Lessor on account of its acquisition or ownership of or interest in
the Equipment or any part thereof, or the use or operation thereof or the
leasing thereof to Lessee, or the Aggregate Rent herein provided for, or
the earnings arising therefrom, exclusive, however, of any taxes based on
net income of Lessor.
Lessee agrees to file, in behalf of Lessor, all required tax returns and reports
concerning the Equipment (but no returns or reports, if any, required to be
filed by Lessor as a result of its status as a trustee) with all appropriate
governmental agencies, and within not more than 45 days after the due date of
such filing to send Lessor confirmation, in form satisfactory to Lessor, of such
filing. If any report, return or property listing, or any fee, tax or
assessment is, by law, required to be filed by, assessed or billed to, or paid
by Lessor, Lessee will, at Lessee's expense, do all things required by Lessor to
be done (to the extent permitted by law) in connection therewith. Lessee may,
in good faith and with due diligence, contest taxes, assessments or governmental
charges related to the Equipment or this Lease, provided, however, that no item
of Equipment will be subject to a lien, forfeiture, sale or diminution in value
in connection with such contested tax or other charge during any such contest.
7. Lessor's Interest, No Merger of Title, Return and Inspection of Equipment.
Lessor's interest in and right to use and possess the Equipment arises under the
Prime Master Lease. Lessee will at all times protect and defend, at its own
cost and expense, the rights and interests of Lessor in the Equipment under the
Prime Master Lease from and against all claims, liens and legal processes of
creditors of Lessee and, to the extent such property constitutes personal
property keep all the Equipment free and clear from any and all such claims,
liens and processes.
There shall be no merger of this Lease nor of the property interest in the
Equipment created by this Lease with the ownership of or other property interest
in the Equipment or any item thereof by reason of the fact that the same
corporation, firm or other entity may acquire, own or hold, directly or
indirectly, this Lease or the property interest created by this Lease or any
interest in such leasehold or ownership, and no such merger shall occur unless
and until all corporations, firms and other entities having any ownership or
other property interest in the Equipment or any item thereof shall join in a
written instrument effecting such merger.
Upon the expiration or termination of this Lease with respect to any item of
Equipment:
(a) if the relevant Schedule sets forth return provisions, Lessee shall return
the Equipment as provided in such Schedule; or
(b) if the relevant Schedule does not contain return provisions, Lessee at
Lessee's sole expense shall return such Equipment unencumbered to Lessor at
the place where the rent is payable or to such other place as Lessor and
Lessee agree upon, and in the same condition as when received by Lessee,
reasonable wear and tear resulting from use thereof alone excepted.
Lessor shall have the right (but not the obligation) from time to time during
reasonable business hours after reasonable prior notice (written or otherwise)
to Lessee to enter upon Lessee's premises or elsewhere for the purpose of
confirming the existence, condition and proper maintenance of the Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as Lessee shall not be in default under the Lease (taking into account
applicable periods of notice and grace) it shall be entitled to the possession
and use of the Equipment in accordance with the terms of this Lease. The
Equipment shall be used in the conduct of the lawful business of Lessee, and no
item of Equipment shall be removed from its location shown on the Schedule,
without the prior written consent of Lessor, such consent to not be unreasonably
withheld. Lessee shall not, without Lessor's prior written consent (such
consent to not be unreasonably withheld), part with possession or control of the
Equipment or attempt or purport to sell, pledge, mortgage or otherwise encumber
any of the Equipment or otherwise dispose of or encumber any interest under this
Lease. In the event Lessor agrees to the relocation of any Equipment, Lessee
shall sign and deliver such documents and take such other steps, at Lessee's
expense, as Lessor may request, including filing UCC financing statements and
fixture filings.
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9. Performance of Obligations of Lessee by Lessor.
In the event that the Lessee shall fail duly and promptly to perform any of its
obligations under the provisions of Sections 3, 4, 5, 6, 7 or 8 of this Lease,
taking into account applicable periods of notice and grace, Lessor may, at its
option but without any obligation to do so, perform the same for the account of
Lessee without thereby waiving such default, and any amount paid or expense
(including reasonable attorneys' fees), penalty or other liability incurred by
Lessor in such performance, together with interest at the rate of 1 1/2% per
month thereon (but in no event greater than the highest rate permitted by
relevant law) until paid by Lessee to Lessor, shall be payable by Lessee upon
demand as additional rent for the Equipment.
10. Default.
An Event of Default shall occur if:
(a) Lessee fails to pay when due any installment of rent and such failure
continues for a period of 5 days; or
(b) Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after the earlier of written notice thereof
to Lessee by Lessor or actual knowledge of such failure by the Vice
President-Treasurer or an Executive Vice President or Senior Vice President
of Lessee; or
(c) Lessee ceases doing business as a going concern, makes an assignment for
the benefit of creditors, admits in writing its inability to pay its debts
as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law
or regulation or files an answer admitting the material allegations of a
petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation; or
(d) within 60 days after the commencement of any proceedings against Lessee
seeking reorganization, arrangement, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation,
such proceedings shall not have been dismissed, or if within 60 days after
the appointment without Lessee's consent or acquiescence of any trustee,
receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall not be vacated; or
(e) Lessee removes, sells, transfers, encumbers, parts with possession or
sublets the Equipment or any item thereof; or
(f) one or more judgments or decrees shall be entered against the Lessee, The
Continental Corporation or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance or
reinsurance) of $25,000,000 or more, and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending appeal
within 60 days from the entry thereof; or
(g) (i) The Continental Corporation fails to pay or to perform or is otherwise
in default under any term, covenant or agreement on its part to be
performed (the "failure") under that certain Credit Agreement (the "Credit
Agreement") dated as of December 30, 1993, among The Continental
Corporation, the lenders from time to time parties thereto, Chemical Bank
and Citibank, N.A., as Co-Agents, and Chemical Bank, as Administrative
Agent, as amended by the Amendment dated as of March 30, 1994, the Second
Amendment dated as of June 30, 1994, the Third Amendment dated as of
September 29, 1994, the Fourth Amendment dated as of November 22, 1994, and
the Fifth Amendment effective as of December 15, 1994 (which Lessee
represents and warrants are the only amendments to the Credit Agreement as
of the date of this Lease), as such agreement may be further amended,
modified or supplemented, and (ii) such failure constitutes an "Event of
Default" as defined in the Credit Agreement which Event of Default would
entitle any party or parties to, or the holders of any indebtedness issued
pursuant to, the Credit Agreement, directly or indirectly, together or
individually, to accelerate any of the indebtedness evidenced or secured
thereby; or
(h) The Continental Insurance Company fails to pay or to perform any term,
covenant or agreement on its part to be performed under that certain
Participation Agreement dated as of December 28, 1988, among Lessee, The
Connecticut Bank and Trust Company, National Association, as Trustee, and
Citibank, N.A., as Purchaser, as amended, modified or supplemented, or any
agreement or instrument evidencing, securing or relating to any refinancing
of all or part of the indebtedness evidenced thereby or any other
replacement thereof and such failure on the part of Lessee constitutes a
default under the corresponding agreement or instrument entitling any other
party thereto or holder thereof to accelerate the indebtedness evidenced or
secured thereby; or
(i) Lessee fails to notify Lessor promptly of any "Event of Default" (as
defined therein) by The Continental Corporation or by Lessee under any of
the agreements or instruments identified in subsections (g) or (h) of
this Section; or
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(j) an Event of Default occurs with respect to The Continental Insurance
Company ("Continental") under that certain Schedule of Leased Equipment
dated of even date herewith to that certain Master Agreement of Lease dated
of even date herewith between First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee, as Lessor and Continental as
Lessee (the "Continental Lease") or an Event of Default occurs with respect
to Firemen's Insurance Company of Newark, New Jersey ("Firemen's") under
that certain Schedule of Leased Equipment dated of even date herewith to
that certain Master Agreement of Lease dated of even date herewith between
First Fidelity Bank, N.A., not in its individual capacity, but solely as
Trustee, as Lessor and Firemen's as Lessee (the "Firemen's Lease"); or
(k) an "Event of Default" (as defined therein) under that certain Participation
Agreement as such Agreement may be amended or modified (the "Participation
Agreement") among Lessor, Lessee and The CIT Group/Equipment Financing,
Inc. dated of even date herewith.
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11. Remedies.
Upon the occurrence of an Event of Default, Lessor shall have all the rights and
remedies provided by applicable law and by this Lease. Notwithstanding that
this Agreement is a lease, Lessor may nevertheless at its option choose those
rights and remedies of a secured party under the Uniform Commercial Code. In
addition, Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Lessee, upon demand by Lessor for
payment of the unpaid rent, upon acceleration of the maturity thereof or
otherwise, be obligated to pay any amount in excess of the lesser of that
permitted by law or the Liquidated Damages Amount (as that term is defined
below);
(b) proceed by appropriate court action or actions or other proceedings either
at law or equity to enforce performance by the Lessee of any and all
covenants of this Lease and to recover damages for the breach thereof or
exercise any other right or remedy available to Lessor at law or in equity,
provided, however, that such damages shall in no event exceed the
Liquidated Damages Amount;
(c) demand that Lessee deliver the Equipment forthwith to Lessor at Lessee's
expense at such place as Lessor may designate;
(d) cancel this Lease as to any or all of the Equipment;
(e) without notice or liability or legal process, by itself and/or by its
agents, enter into any premises of or under control or jurisdiction of
Lessee or any agent of Lessee where the Equipment may be or by Lessor is
believed to be, and repossess all or any item thereof, disconnecting and
separating all thereof from any other property and using all force
necessary or permitted by applicable law so to do, Lessee hereby expressly
waiving all further rights to possession of the Equipment and all claims
for injuries suffered through or loss caused by such repossession; and
(f) sell or lease the Equipment at a time and location of its choosing provided
that the Lessor acts in good faith and in a commercially reasonable manner;
and
(g) demand that Lessee pay, and Lessee shall be entitled to recover
immediately, as liquidated damages for loss of a bargain and not as a
penalty, the "Liquidated Damages Amount." The Liquidated Damages Amount
shall be an amount equal to the sum of (i) the rent then due for the
Equipment, plus (ii) all rent to become due thereon during the remaining
term of the Lease, discounted to present value at the Discount Rate (as
that term is defined in the Schedule), plus (iii) the product of the
Maximum Purchase Price Percentage (set forth in the Schedule) which would
be applicable if Lessee elected to purchase Lessor's interest in the
Equipment at the end of the lease term then in effect multiplied by the
Lessor's Equipment Cost at the beginning of the Initial Lease Term,
discounted to present value at the Discount Rate, plus (iv) the
Breakfunding Fee (as defined in Section 16 below), plus (v) the amount of
all commercially reasonable costs and expenses incurred by Lessor in
exercising any of its remedies hereunder, including reasonable attorneys'
fees and costs incurred in connection therewith or otherwise resulting from
any default of Lessee.
Notwithstanding Lessor's right to recover the Liquidated Damages Amount, if any
statute governing the proceeding in which damages are to be proved specifies the
amount of such claim, Lessor shall be entitled to prove as and for damages for
the breach an amount equal to that allowed under such statute. The provisions
of this Section shall be without prejudice to any rights given to the Lessor by
such statute to prove any amounts allowed thereby. Should any proceedings be
instituted by or against Lessor for monies due to Lessor hereunder and/or for
possession of any or all the Equipment or for any other relief or should any
other actions be taken by or against Lessor to collect any monies due hereunder
or to enforce any rights hereunder, Lessee shall pay all costs and expenses
incurred by Lessor in connection with such proceeding or other action including,
without limitation, reasonable attorneys' fees. No remedy of Lessor hereunder
shall be exclusive of any remedy herein or by law provided, but each shall be
cumulative and in addition to every other remedy.
12. Indemnity.
Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee shall
indemnify and save Lessor (in both its individual and fiduciary capacities), its
agents and employees and any assignee harmless from and against any and all
liability, loss, damage, expense (including reasonable legal fees and expenses),
causes of action, suits, claims or judgments arising from or caused directly or
indirectly by:
(a) Lessee's failure to promptly perform any of its obligations under the
provisions of Sections 3, 4, 5, 6, 7, 8 and 14 of this Lease; or
(b) injury to persons or damage to property resulting from or based upon actual
or alleged use, operation, delivery or transportation of any or all of the
Equipment or its location or condition; or
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(c) inadequacy of the Equipment, or any part thereof, for any purpose or any
deficiency or defect therein or the use or maintenance thereof or any
repairs, servicing or adjustments thereto or any delay in providing or
failure to provide any thereof or any interruption or loss of service or
use thereof.
Lessee shall, at its own cost and expense, defend any and all suits which may be
brought against Lessor, either alone or in conjunction with others upon any such
liability or claim or claims. Lessee shall satisfy, pay and discharge any and
all judgments and fines that may be recovered against Lessor in any such action
or actions. Lessor shall give Lessee written notice of any such claim or
demand. Lessee agrees that its obligations under this Section 12 shall survive
the expiration or termination of this Lease.
13. No Assignment by Lessee, Assignment to Successor Trustee, Notices and
Waivers.
Lessee shall not assign this Lease or its interests hereunder or enter into any
sub-lease with respect to the Equipment covered hereby without the prior written
consent of Lessor, such consent not to be unreasonably withheld, provided,
however, that no such assignment or sublease shall relieve Lessee of its
obligations hereunder.
In the event of the resignation or removal of the First Fidelity Bank, N.A., as
Trustee under that certain Declaration of Trust (the "Declaration of Trust")
dated of even date herewith, and appointment of a successor trustee in
accordance with the terms thereof, Lessor may assign all its rights and
obligations hereunder to the successor trustee which shall, for all purposes
from the date of such assignment, be substituted for First Fidelity Bank, N.A.,
as Lessor hereunder. The successor trustee shall have and be entitled to
exercise any and all rights and powers of Lessor hereunder and shall be
obligated to perform all of Lessor's obligations hereunder. Any assignment of
this Lease by First Fidelity Bank, N.A., as Trustee, to a successor trustee
shall, from the date of such assignment, relieve First Fidelity Bank, N.A., of
any further obligations or liability to Lessee hereunder.
All notices to Lessor shall be delivered in person to an officer of the Lessor,
or shall be sent to Lessor at its address shown herein by certified mail or by
commercial courier in either case with return receipt requested. All notices to
Lessee shall be in writing and shall be delivered by regular mail, certified
mail return receipt requested or commercial courier to Lessee's address shown
herein or at any subsequent address of which Lessee has given notice to Lessor
as provided herein. A waiver of a default shall not be a waiver of any other or
a subsequent default.
14. Financial Statements.
Lessee shall furnish or cause to be furnished to Lessor financial statements as
follows:
(a) GAAP financial statements:
--------------------------
(i) as soon as available, but in any event within 120 days after the end
of each fiscal year of The Continental Corporation, a copy of the consolidated
balance sheet of The Continental Corporation and its consolidated subsidiaries
as at the end of such year and the related consolidated statements of income and
retained earnings and of cash flows for such year, set forth in each case in
comparative form with the same information as of the end of and for the previous
year, all as reported on by KPMG Peat Marwick or other independent certified
public accountants of nationally recognized standing; and
(ii) as soon as available, but in any event not later than 60 days after
the end of each of the first three quarterly periods of each fiscal year of The
Continental Corporation, an unaudited consolidated balance sheet of The
Continental Corporation and its consolidated subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and retained
earnings and of cash flows of The Continental Corporation and its consolidated
subsidiaries for such quarter and the portion of the fiscal year through the end
of such quarter, set forth in each case in comparative form with the same
information for the corresponding date or period in the previous year, certified
by the chief financial officer or Treasurer of The Continental Corporation as
being fairly stated in all material respects (subject to normal year-end audit
adjustments);
all such financial statements to be prepared in reasonable detail and in
accordance with generally accepted accounting principles applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein); and
(b) SAP financial statements:
-------------------------
(i) as soon as possible, but in any event within 120 days after the end of
each fiscal year of Lessee and each other Reporting Insurance Subsidiary (as
defined below) of The Continental Corporation, a copy of the consolidated
Statutory Statement of Lessee and its affiliated fire and casualty insurers for
such fiscal year, subscribed and sworn to and certified by officers of Lessee or
such other Reporting Insurance Subsidiary as required by applicable law; and
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(ii) as soon as possible, but in any event within 60 days after the end of
each of the first three fiscal quarters of each fiscal year of each Reporting
Insurance Subsidiary, a copy of the consolidated Statutory Statement of Lessee
and its affiliated fire and casualty insurers for such fiscal quarter, certified
by officers of Lessee or such other Reporting Insurance Subsidiary as required
by applicable law;
all such financial statements to be prepared in accordance with the standard
accounting principles prescribed or permitted by the insurance commissioner (or
other similar authority) in the jurisdiction of domicile of any insurance
company incorporated in any jurisdiction of the United States for the
preparation of annual statements and other financial reports by insurance
companies of the same type as such company ("SAP") applied consistently
throughout the periods reflected therein (except as approved by such officers,
as the case may be, and disclosed therein). "Statutory Statement" as used in
this Section means, for any subsidiary of The Continental Corporation which is
an insurance company, for each fiscal year of such subsidiary, the most recent
annual statement, prepared in accordance with SAP, as required to be filed with
the appropriate regulatory authority and, for each fiscal quarter of such
subsidiary, the quarterly statement, as required to be filed with the
appropriate regulatory authority, which quarterly statement shall be prepared in
accordance with SAP. Reporting Insurance Subsidiary means each of the following
entities: The Continental Insurance Company, The Buckeye Union Insurance
Company, The Fidelity and Casualty Company of New York, Firemen's Insurance
Company of Newark, New Jersey, and National-Ben Franklin Insurance Company of
Illinois.
15. Further Assurances; Termination of Credit Agreement.
(a) Lessee shall execute and deliver to Lessor, upon Lessor's request such
documents, instruments and assurances and take any such action as Lessor
deems necessary or advisable for the confirmation or perfection of this
Lease and Lessor's rights hereunder or in order for Lessor to effect any
assignment or syndication of any rights, obligations, title or interest in
any Equipment or under this Lease or any related instrument or document,
provided, however, that in no event shall Lessee be required for purposes
of the immediately preceding clause to execute or deliver any such further
documents, instruments or assurances or take such further action to the
extent that such would increase the obligations or reduce the rights of
Lessee as of the date of this Lease. Lessee may not terminate the Schedule
except as provided therein without the written consent of Lessor.
(b) In the event the Credit Agreement referred to in Section 10(g) is
terminated or replaced, Lessee shall notify Lessor of such event within 10
days of its occurrence. In such notice (the "Covenant Notice") Lessee
shall advise Lessor as to whether Lessee will agree, by amendment of this
Lease, to provide the Lessor with the same financial covenants as appear in
Sections 6.1(a) and 6.1(b) of the Credit Agreement as in effect on the date
of this Lease, so that a violation of such covenants would thereafter be an
Event of Default hereunder taking into account such period of grace as is
provided under Section 10(b) hereof. If the Lessee agrees in the Covenant
Notice to provide such covenants, the Lessor shall promptly cause the
necessary amendment(s) to this Lease to be prepared and signed by the
parties hereto (at Lessee's expense).
16. Lease Irrevocability, Breakfunding Fee and Late Charges.
This Lease is irrevocable for the full terms thereof as set forth in the
Schedule and for the Aggregate Rent therein reserved and the rent shall not
abate by reason of termination of Lessee's right of possession and/or the taking
of possession by the Lessor or for any other reason. If for any reason this
Lease is terminated prior to the end of the Maximum Lease Term, Lessee shall pay
Lessor an amount (the "Breakfunding Fee") equal to the Make Whole Premium
defined in Section 6.3 of the Declaration of Trust plus any reasonable out of
pocket costs and expenses incurred in connection with such termination. Any
payment of rent or other amounts payable under this Lease not made when due
shall bear late charges thereon calculated at the rate of 1 1/2% per month, but
in no event greater than the highest rate permitted by relevant law.
17. Purchase, Renewal or Other End of Term Option.
So long as no Event of Default has occurred and is continuing under the Lease,
then Lessee may exercise such purchase, renewal or other end of term options in
accordance with the terms and conditions set forth in the Schedule.
Any purchase or renewal option price stated as "fair market value" ("FMV") for
any item of Equipment on the Schedule shall be determined by an independent
third party appraiser selected by Lessee on the basis of, and shall be equal in
amount to, the value which would be obtained in an arm's length transaction
between an informed and willing buyer-user (other than a Lessee currently in
possession and a used Equipment dealer) and an informed and willing
seller/lessor under no compulsion to sell/lease.
18. Legal Expenses and Closing Costs.
Lessee shall pay all reasonable costs and expenses, including, without
limitation legal fees and expenses, incurred by Lessor, Lessor's lender and any
broker, consultant or agent engaged by Lessor in connection with the
negotiation, structuring, documentation, closing or financing of this Lease or
any documents related hereto. Lessee shall pay such amounts to
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Lessor, or to such parties as Lessor may direct, as such expenses are incurred,
provided, however, that no such payment shall be due prior to the date on which
Lessee executes this Lease.
19. Liability of Lessor.
It is expressly agreed, anything herein to the contrary notwithstanding, that
each and all of the representations, warranties, undertakings and agreements
herein made on the part of Lessor are made and intended not as personal
representations, warranties, undertakings and agreements by First Fidelity Bank,
N.A., or for the purpose or with the intention of binding said bank personally,
but are made and intended for the purpose of binding only the Trust Estate (as
that term is defined in the Declaration of Trust), and this Lease is executed
and delivered by said bank not in its own right but solely in the exercise of
the powers expressly conferred upon it as trustee under the Declaration of
Trust.
20. Security Interest.
Lessee hereby grants Lessor a security interest in all of Lessee's right, title
and interest in and to the Equipment and all proceeds thereof, including any
proceeds of insurance referred to in Section 4 hereof, as security for all of
Lessee's indebtedness and obligations owing under the Lease and the
Participation Agreement, and all of the indebtedness and obligations of
Continental under the Continental Lease and under that certain Participation
Agreement dated of even date herewith among Continental, Lessor and CIT and all
of the indebtedness and obligations of Firemen's under the Firemen's Lease and
under that certain Participation Agreement dated of even date herewith among
Firemen's, Lessor and CIT. "Proceeds" shall have the meaning set forth in the
Uniform Commercial Code and shall include without limitation all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash or liquidated
claims including insurance proceeds and condemnation awards.
21. Miscellaneous.
All amounts to be reduced to present value shall be discounted at the Discount
Rate set forth in the Schedule.
If any provision of this Lease is contrary to, prohibited by or deemed invalid
under applicable laws or regulations of any jurisdiction, such provision shall
be inapplicable and deemed omitted but shall not invalidate the remaining
provisions hereof. This Lease shall be governed by and construed in accordance
with the laws (but not the choice of law rules) of the State of New York.
This Lease contains the entire agreement between the parties with respect to the
Equipment, and may not be altered, modified, terminated or discharged except by
a writing signed by the party against whom such alteration, modification,
termination or discharge is sought. The parties may sign this Master Lease in
any number of counterparts and on separate counterparts, each of which shall be
an original, but all of which together shall constitute one and the same
instrument. To the extent this document constitutes chattel paper under the
Uniform Commercial Code, no security interest in this document may be created
through the transfer and possession of any counterpart other than Counterpart
No. 1.
With respect to this Lease or any document contemplated by this Lease, the
parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing the
document as the handwritten execution upon an original copy of the document.
The parties agree that they will promptly forward to the others an executed
original of any document transmitted by facsimile, but that the failure of a
party to do so or the absence of arrival of any such executed document shall
have no effect on the binding nature of the document transmitted by facsimile.
Lessee is a corporation, and this Lease is executed by authority of its Board of
Directors.
Lessor: Lessee:
FIRST FIDELITY BANK, N.A., THE BUCKEYE UNION INSURANCE COMPANY
not in its individual capacity, but
solely as Trustee
By: By:
---------------------------------- ---------------------------------
Name: Name:
---------------------------------- ---------------------------------
Title: Title:
---------------------------------- ---------------------------------
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This is Counterpart No. of 3 serially numbered,
--------
manually executed counterparts. To the extent that this
document constitutes chattel paper under the Uniform
Commercial Code ("UCC"), no security interest in this
document may be created through the transfer and possession
of any counterpart other than Counterpart No. 1.
Prime Master Lease
AGREEMENT OF LEASE ("Prime Master Lease") dated as of December 29, 1994 between
The Buckeye Union Insurance Company ("Prime Lessor"), having a place of business
at 180 Maiden Lane, New York, New York 10038, and First Fidelity Bank, N.A., not
in its individual capacity but solely as Trustee, ("Prime Lessee"), having a
place of business at 5 Research Drive, Shelton, Connecticut 06484.
Prime Lessee wants to lease from Prime Lessor leasehold improvements to be
described in the schedule of leased equipment (as such schedule may be modified,
amended or supplemented, the "Schedule"). Prime Lessor is willing to lease such
leasehold improvements to Prime Lessee at the rent, for the term and upon the
conditions provided hereinafter. The Schedule executed by Prime Lessor and
Prime Lessee which is identified as being a part of this Lease shall be deemed
to incorporate by reference all the terms and conditions of this Lease except as
provided in the Schedule. The term "Prime Lease" when used herein shall refer
to the Schedule which incorporates this Prime Master Lease.
1. Equipment Leased and Term.
This Prime Lease shall cover such leasehold improvements as is described in the
Schedule executed by or pursuant to the authority of Prime Lessee, accepted by
Prime Lessor in writing and identified as a part of this Prime Lease (which
leasehold improvements with all replacement parts, additions, repairs,
accessions and accessories incorporated therein and/or affixed thereto is
hereinafter called the "Equipment"). Prime Lessor hereby leases to Prime Lessee
and Prime Lessee hereby hires and takes from Prime Lessor, upon and subject to
the covenants and conditions hereinafter contained, the Equipment described in
the Schedule.
2. Rent.
The aggregate rent payable with respect the Equipment shall be the amount shown
on the Schedule as the "Aggregate Rent." Prime Lessee shall pay to Prime Lessor
the Aggregate Rent for the Equipment for the full period and term for which the
Equipment is leased, such rent to be payable at such times and in such amounts
for the Equipment as shown in the Schedule.
Prime Lessee may prepay the Aggregate Rent payable with respect to all, but not
less than all, of the Equipment at any time during the term of this Prime Lease
by paying to Prime Lessor an amount equal to the Aggregate Rent remaining,
discounted to present value at the rate of ten percent (10%) per annum (the
"Prepayment Amount"). Upon receipt by Prime Lessor of the Prepayment Amount,
Prime Lessee shall, without further payment of rent, be entitled for the
remaining term of this Prime Lease to the use and possession of the Equipment in
accordance with the terms of this Prime Lease.
All rent shall be paid at Prime Lessor's place of business shown above, or such
other place as Prime Lessor may designate by written notice to the Prime Lessee.
All rent shall be paid without notice or demand and without abatement, deduction
or set off of any amount whatsoever. This is a non-cancelable lease, and the
obligation of Prime Lessee to make the payments hereunder is absolute and
unconditional. Prime Lessee shall not be entitled to any abatement or reduction
of payments hereunder for any reason including, without limitation, any existing
or future offset or claim which may be asserted by Prime Lessee. The operation
and use of the Equipment shall be at the risk of Prime Lessor, except that
during the term of any sublease permitted hereby, the operation and use of the
Equipment shall be at the risk of the sublessee under such sublease.
3. No Warranties by Prime Lessor; Maintenance and Compliance with Laws.
Prime Lessor, not being the manufacturer of the Equipment, nor manufacturer's
agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR
PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING
AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN
PRIME LESSOR AND PRIME LESSEE, ARE TO BE BORNE BY PRIME LESSEE AT ITS SOLE RISK
AND EXPENSE; Prime Lessee accordingly agrees not to assert any claim whatsoever
against Prime Lessor based thereon. Prime Lessee further agrees, regardless of
cause, not to assert any claim whatsoever against Prime Lessor for loss of
anticipatory profits or consequential damages. Prime Lessor shall have no
obligation to install, erect, test, adjust or service the Equipment. Prime
Lessee shall look to the manufacturer and/or the seller of the Equipment for any
claims related thereto. Prime Lessor hereby acknowledges that any
manufacturer's and/or seller's warranties are for the benefit of both Prime
Lessor and Prime Lessee. "Seller" as used herein means the supplier from which
Prime Lessor acquires any item of Equipment.
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<PAGE>
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations related
hereto and/or to the Equipment are integrated herein. Prime Lessee agrees, at
its own cost and expense:
(a) to pay or cause to be paid all charges and expenses in connection with the
operation of each item of Equipment;
(b) to comply or cause compliance with all governmental laws, ordinances,
regulations, requirements and rules with respect to the use, maintenance
and operation of the Equipment; and,
(c) subject to the provisions of Sections 4 and 5 hereof, to make or cause to
be made in the normal course of its operation all repairs and replacements
required to be made to maintain the Equipment in good condition, reasonable
wear and tear excepted.
4. Insurance.
Prime Lessor shall maintain at all times on the Equipment, at its expense,
all-risk physical damage insurance and comprehensive general liability insurance
(covering bodily injury and property damage exposures including, but not limited
to, contractual liability and products liability) in such amounts, against such
risks, in such form and with such insurers as shall be satisfactory to Prime
Lessee; provided, that the amount of all-risk physical damage insurance shall
not on any date be less than the full replacement value of the Equipment. Each
physical damage insurance policy shall name Prime Lessee as loss payee for all
damage amounts in excess of $1,000,000.00, and each liability insurance policy
shall name Prime Lessee as additional insured. All insurance for loss or damage
shall provide that the proceeds thereof shall be payable directly to Prime
Lessee for all damage amounts in excess of $1,000,000.00. Each insurance policy
shall also require that the insurer give Prime Lessee at least thirty (30) days
prior written notice of any alteration in or cancellation of the terms of such
policy and require that Prime Lessee's interests be continued insured regardless
of any breach or violation by Prime Lessor or others of any warranties,
declarations or conditions contained in such insurance policy. In no event
shall Prime Lessee under the terms hereof be responsible for premiums,
warranties or representations to any insurer or any agent thereof. Prime Lessor
shall furnish to Prime Lessee a certificate or other evidence satisfactory to
Prime Lessee that such insurance coverage is in effect, but Prime Lessee shall
be under no duty to ascertain the existence or adequacy of such insurance. The
insurance maintained by Prime Lessor shall be primary without any right of
contribution from insurance which may be maintained by Prime Lessee. Prime
Lessor shall be liable for all deductible portions of all required insurance.
Prime Lessee may (but without obligation to do so), at its own expense, for its
own benefit, purchase insurance in excess of that required under this Prime
Lease Agreement.
5. Loss or Damage.
Prime Lessor assumes and shall bear the entire risk of any partial or complete
loss with respect to the Equipment from any and every cause whatsoever including
theft, loss, damage, destruction or governmental taking (but not including
reasonable wear and tear from normal operation), whether or not such loss is
covered by insurance or caused by any default or neglect of Prime Lessee,
provided, however, that during the term of any sublease permitted herein, all
risk of loss shall be on the sublessee under such sublease. Prime Lessee agrees
to give Prime Lessor prompt notice of any damage to or loss of any Equipment of
which Prime Lessee receives notice.
If any item of Equipment is lost, totally destroyed, damaged beyond repair or
taken by governmental action at a time when there is no permitted sublease in
effect, Prime Lessor shall, so long as no Event of Default has occurred and
remains continuing hereunder, replace the lost or destroyed Equipment in
accordance with the terms of this Section and shall, within thirty days after
the date of the casualty, (i) acquire good and marketable title to those items
of equipment, equal in number to the items of lost or destroyed Equipment, of
the same or an improved make and model, free and clear of all liens, claims and
encumbrances and having a value, utility and remaining useful life at least
equal to, and being in as good condition as the lost or destroyed items of
Equipment, and (ii) if requested by Prime Lessee, execute and deliver to Prime
Lessee a supplement to the related Schedule confirming that such replacement
item of equipment is for all purposes Equipment subject to such Schedule. Prime
Lessor may take such action as it may reasonably determine at its expense with
respect to such replacement equipment, including filing UCC financing
statements, fixture filings and amendments to existing financing statements and
fixture filings with appropriate filing offices and Prime Lessee shall cooperate
with respect thereto. Each replacement item of equipment shall be deemed part
of the property leased hereunder subject to the terms and conditions hereof and
each such replacement item of equipment shall be deemed an item of Equipment for
all purposes under its related Schedule.
In the event of partial destruction of any Equipment at a time when there is no
permitted sublease in effect, the rent due and to become due thereon shall not
abate and Prime Lessor shall, at its own expense, cause such Equipment to be
restored to usable condition, but Prime Lessee shall, upon receiving
satisfactory evidence of such restoration, promptly pay Prime Lessor the
proceeds of any insurance or compensation received by reason of such damage up
to the amount expended by Prime Lessor in making the repair. Prime Lessor shall
determine in the exercise of its reasonable judgment, subject to Prime Lessee's
approval, whether the Equipment is damaged beyond repair. However, if the
estimated cost of restoring such Equipment exceeds 50% of the unmatured rent
therefor, such Equipment shall be deemed, for all purposes hereof, to be totally
destroyed and the obligations of Prime Lessor therefor shall be as set forth in
the preceding paragraph of this Section.
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Neither Prime Lessor nor Prime Lessee shall be obligated by the terms of this
Prime Lease to undertake by litigation or otherwise the collection of any claim
against any person for loss of or governmental taking of the Equipment, and the
obligation of Prime Lessor to replace such Equipment at Prime Lessor's expense
as provided in this Section 5 shall not be affected by the existence or non-
existence of any such claim.
The total or partial destruction of any Equipment or the total or partial loss
of use or possession thereof to Prime Lessee shall not release or relieve Prime
Lessee from its obligations hereunder, including the duty to pay the Aggregate
Rent herein provided.
6. Taxes.
Prime Lessor agrees that, during the term of this Prime Lease, it will promptly
pay all taxes, assessments and other governmental charges (including penalties
and interest, if any, and fees for titling or registration, if required) levied
or assessed:
(a) upon the interest of Prime Lessee in the Equipment or upon the use or
operation thereof or on the earnings arising therefrom; and
(b) against Prime Lessor on account of its acquisition or ownership of the
Equipment or any part thereof, or the use or operation thereof or the
leasing thereof to Prime Lessee, or the rent herein provided for, or the
earnings arising therefrom.
Prime Lessor agrees to file, in behalf of Prime Lessee, all required tax returns
and reports concerning the Equipment (but no returns or reports, if any,
required to be filed by Lessee as a result of its status as Trustee) with all
appropriate governmental agencies, and within not more than 45 days after the
due date of such filing to send Prime Lessee confirmation, in form satisfactory
to Prime Lessee, of such filing.
7. Prime Lessor's Title, Right of Inspection and Identification of Equipment.
To the extent the Equipment constitutes personal property and not a fixture,
Prime Lessor represents and warrants that it owns the Equipment free and clear
of all liens, claims and encumbrances except for the rights of Prime Lessee
under this Prime Lease. Throughout the term of this Prime Lease, title to the
Equipment shall at all times remain in Prime Lessor, and Prime Lessor will at
all times protect and defend, at its own cost and expense, the Equipment from
and against all claims, liens and legal processes of creditors of Prime Lessor
and keep all the Equipment free and clear from all such claims, liens and
processes. Prime Lessor's interest in and right to lease any Equipment not
constituting personal property arises under the Landlord's Waiver and Consent
forms listed on Exhibit A hereto. Except to the extent set forth in the
Landlord's Waiver and Consent, Prime Lessor has the full legal power, right and
authority to lease the Equipment to Prime Lessee. Upon the expiration or
termination of this Prime Lease with respect to any item of Equipment, Prime
Lessee at Prime Lessor's sole expense shall return such Equipment unencumbered
to Prime Lessor at the place where the rent is payable or to such other place as
Prime Lessor and Prime Lessee agree upon, and in the same condition as when
received by Prime Lessee, reasonable wear and tear resulting from use thereof
alone excepted.
Prime Lessor shall have the right from time to time during reasonable business
hours to enter upon Prime Lessee's premises or elsewhere for the purpose of
confirming the existence, condition and proper maintenance of the Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as no Event of Default as defined herein has occurred and remains
continuing, Prime Lessee shall be entitled to the possession and use of the
Equipment in accordance with the terms of this Prime Lease. The Equipment shall
be used in the conduct of the lawful business of Prime Lessee, and no item of
Equipment shall be removed from its location shown on the Schedule, without the
prior written consent of Prime Lessor. Prime Lessee shall not, without Prime
Lessor's prior written consent, part with possession or control of the Equipment
or attempt or purport to sell, pledge, mortgage or otherwise encumber any of the
Equipment or otherwise dispose of or encumber any interest under this Prime
Lease except as provided in Section 13.
9. Performance of Obligations of Prime Lessee by Prime Lessor.
In the event that the Prime Lessee shall fail duly and promptly to perform any
of its obligations under the provisions of this Prime Lease, Prime Lessor may,
at its option, perform the same for the account of Prime Lessee without thereby
waiving such default, and any amount paid or expense (including reasonable
attorneys' fees), penalty or other liability incurred by Prime Lessor in such
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 3 of 6
<PAGE>
performance, together with interest at the rate of 1 1/2% per month thereon (but
in no event greater than the highest rate permitted by relevant law) until paid
by Prime Lessee to Prime Lessor, shall be payable by Prime Lessee upon demand as
additional rent for the Equipment.
10. Default.
An Event of Default shall occur if:
(a) Prime Lessee fails to pay when due any installment of rent and such failure
continues for a period of 5 days;
(b) Prime Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after written notice thereof to Prime Lessee
by Prime Lessor;
(c) Prime Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay its
debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law
or regulation or files an answer admitting the material allegations of a
petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation;
(d) within 60 days after the commencement of any proceedings against Prime
Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceedings shall not have been dismissed, or if within 60
days after the appointment without Prime Lessee's consent or acquiescence
of any trustee, receiver or liquidator of it or of all or any substantial
part of its assets and properties, such appointment shall not be vacated;
or
(e) Prime Lessee attempts to remove, sell, transfer, encumber or part with
possession the Equipment or any item thereof except as provided in Section
13.
11. Remedies
Upon the occurrence of an Event of Default, Prime Lessor shall have all the
rights and remedies provided by applicable law and by this Prime Lease.
Notwithstanding that this Agreement is a lease and title to the Equipment is at
all times in Prime Lessor, Prime Lessor may nevertheless at its option choose
those rights and remedies of a secured party under the Uniform Commercial Code.
In addition, Prime Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Prime Lessee, upon demand by Prime
Lessor for payment of the unpaid rent, upon acceleration of the maturity
thereof or otherwise, be obligated to pay any amount in excess of that
permitted by law;
(b) proceed by appropriate court action or actions or other proceedings either
at law or equity to enforce performance by the Prime Lessee of any and all
covenants of this Prime Lease and to recover damages for the breach
thereof;
(c) demand that Prime Lessee deliver the Equipment forthwith to Prime Lessor at
Prime Lessor's expense at such place as Prime Lessor may designate; and
(d) Prime Lessor and/or its agents may without notice or liability or legal
process, enter into any premises of or under control or jurisdiction of
Prime Lessee or any agent of Prime Lessee where the Equipment may be or by
Prime Lessor is believed to be, and repossess all or any item thereof,
disconnecting and separating all thereof from any other property and using
all force necessary or permitted by applicable law so to do, Prime Lessee
hereby expressly waiving all further rights to possession of the Equipment
and all claims for injuries suffered through or loss caused by such
repossession; Prime Lessor may sell or lease the Equipment at a time and
location of its choosing provided that the Prime Lessor acts in good faith
and in a commercially reasonable manner, but the Prime Lessor shall
nevertheless, be entitled to recover immediately as liquidated damages for
loss of the bargain and not as a penalty any unpaid rent that accrued on or
before the occurrence of the event of default plus an amount equal to the
difference between the aggregate unpaid rent reserved hereunder for the
unexpired term of this Prime Lease and the then aggregate fair market
rental value of all Equipment for such unexpired term, provided, however,
that if any statute governing the proceeding in which such damages are to
be proved specifies the amount of such claim, Prime Lessor shall be
entitled to prove as and for damages for the breach an amount equal to that
allowed under such statute. The provisions of this paragraph shall be
without prejudice to any rights given to the Prime Lessor by such statute
to prove any amounts allowed thereby. Should any proceedings be instituted
by or against Prime Lessee for monies due to Prime Lessor hereunder and/or
for possession of any or all of the Equipment or for any other relief,
Prime Lessee shall pay a reasonable sum as attorneys' fees.
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 4 of 6
<PAGE>
No remedy of Prime Lessor hereunder shall be exclusive of any remedy herein or
by law provided, but each shall be cumulative and in addition to every other
remedy.
12. Indemnity.
Prime Lessee agrees that Prime Lessor shall not be liable to Prime Lessee for,
and Prime Lessee shall indemnify and save Prime Lessor harmless from and
against, any and all liability, loss, damage, expense, causes of action, suits,
claims or judgments arising from or caused directly or indirectly by Prime
Lessee's failure to promptly perform any of its obligations under the provisions
of this Prime Lease.
13. Assignment, Notices and Waivers.
This Prime Lease and all rights of Prime Lessor hereunder shall be assignable by
Prime Lessor only with Prime Lessee's consent, such consent not to be
unreasonably withheld. After such assignment, Prime Lessor shall not be
assignee's agent for any purpose, Prime Lessee will settle all claims arising
out of alleged breach of warranties or otherwise, defenses, set-offs and
counterclaims it may have against Prime Lessor directly with Prime Lessor, and
not set up any such against Prime Lessor's assignee, Prime Lessor hereby
agreeing to remain responsible therefor. Prime Lessee, upon consenting to and
receiving notice of any such assignment, shall abide thereby and make payment as
may therein be directed. Following such assignment, solely for the purpose of
determining assignee's rights hereunder, the term "Prime Lessor" shall be deemed
to include or refer to Prime Lessor's assignee. Prime Lessee may assign this
Prime Lease or its interests hereunder or sublease the Equipment covered hereby.
No such assignment or sublease shall relieve Prime Lessee of any of its
obligations to Prime Lessor hereunder, except as provided in the immediately
succeeding paragraph of this Section.
In the event of the resignation or removal of the First Fidelity Bank, N.A., as
Trustee under that certain Declaration of Trust (the "Declaration of Trust")
dated of even date herewith, and appointment of a successor trustee in
accordance with the terms thereof, Prime Lessee may assign all its rights and
obligations hereunder to the successor trustee which shall, for all purposes
from the date of such assignment, be substituted for First Fidelity Bank, N.A.,
as Prime Lessee hereunder. The successor trustee shall have and be entitled to
exercise any and all rights and powers of Prime Lessee hereunder and shall be
obligated to perform all of Prime Lessee's obligations hereunder. Any
assignment of this Prime Lease by First Fidelity Bank, N.A., as Trustee, to a
successor trustee shall, from the date of such assignment, relieve First
Fidelity Bank, N.A., of any further obligations or liability to Prime Lessor
hereunder.
All notices to Prime Lessor shall be delivered in person to an officer of the
Prime Lessor, or shall be sent certified mail return receipt requested or by
courier to Prime Lessor at its address shown herein or at any later address last
known to the sender. All notices to Prime Lessee shall be in writing and shall
be delivered by mail at its address shown herein or at any later address last
known to the sender.
A waiver of a default shall not be a waiver of any other or a subsequent
default.
14. Further Assurances.
Prime Lessee shall execute and deliver to Prime Lessor, upon Prime Lessor's
request such instruments and assurances as Prime Lessor deems necessary or
advisable for the confirmation or perfection of this Prime Lease and Prime
Lessor's rights hereunder. Prime Lessee may not terminate the Schedule without
the written consent of Prime Lessor.
15. Prime Lease Irrevocability and Charges.
This Prime Lease is irrevocable for the full terms thereof as set forth in the
Schedule and for the aggregate rentals therein reserved and the rent shall not
abate by reason of termination of Prime Lessee's right of possession and/or the
taking of possession by the Prime Lessor or for any other reason. Any payment
not made when due shall, at the option of Prime Lessor, bear late charges
thereon calculated at the rate of 1 1/2% per month, but in no event greater than
the highest rate permitted by relevant law. Prime Lessee shall be responsible
for and pay to Prime Lessor a returned check fee, not to exceed the maximum
permitted by law, which fee will be equal to the sum of (i) the actual bank
charges incurred by Prime Lessor plus (ii) all other actual costs and expenses
incurred by Prime Lessor. The returned check fee is payable upon demand as
additional rent under this Prime Lease.
16. Liability of Prime Lessee.
It is expressly agreed, anything herein to the contrary notwithstanding, that
each and all of the representations, warranties, undertakings and agreements
herein made on the part of Prime Lessee are made and intended not as personal
representations, warranties, undertakings and agreements by First Fidelity Bank,
N.A., or for the purpose or with the intention of binding said bank personally,
but are made and intended for the purpose of binding only the Trust Estate (as
that term is defined in the Declaration of Trust), and this Prime Lease is
executed and delivered by said bank not in its own right but solely in the
exercise of the powers expressly conferred upon it as trustee under the
Declaration of Trust.
17. Miscellaneous.
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<PAGE>
If any provision of this Prime Lease is contrary to, prohibited by or deemed
invalid under applicable laws or regulations of any jurisdiction, such provision
shall be inapplicable and deemed omitted but shall not invalidate the remaining
provisions hereof. This Prime Lease shall be governed by and construed in
accordance with the laws (but not the choice of law rules) of the state of New
York.
This lease contains the entire agreement between the parties with respect to the
Equipment, and may not be altered, modified, terminated or discharged except by
a writing signed by the party against whom such alteration, modification,
termination or discharge is sought.
The parties may sign this Prime Master Lease in any number of counterparts and
on separate counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument. To the extent this
document constitutes chattel paper under the Uniform Commercial Code, no
security interest in this document may be created through the transfer and
possession of any counterpart other than Counterpart No. 1.
With respect to this Prime Master Lease or any document contemplated by this
Prime Master Lease, the parties agree that the execution and transmittal of any
such document by facsimile shall be of the same binding effect on the party so
executing the document as the handwritten execution upon an original copy of the
document. The parties agree that they will promptly forward to the others an
executed original of any document transmitted by facsimile, but that the failure
of a party to do so or the absence of arrival of any such executed document
shall have no effect on the binding nature of the document transmitted by
facsimile.
This Prime Lease is executed by Prime Lessee by authority of the Declaration of
Trust.
Dated: December 29, 19
----
Prime Lessor: Prime Lessee:
THE BUCKEYE UNION INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
not in its individual capacity, but
solely as Trustee
By Title By Title
-------------- ------------ -------------- ------------
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 6 of 6
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Master Lease")
between First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Lessor")
and The Buckeye Union Insurance Company ("Lessee").
This is Counterpart No. of 3 serially numbered, manually executed
-----
counterparts. To the extent that this document constitutes chattel
paper under the Uniform Commercial Code, no security interest in this
document may be created through the transfer and possession of any
counterpart other than Counterpart No. 1.
Pursuant to the Master Lease, which is incorporated herein by reference, Lessee
agrees to lease the below-described Equipment from Lessor, its successors or
permitted assigns, and Lessor, by acceptance of this Lease, agrees to lease the
Equipment to Lessee, its successors or permitted assigns, on the terms set forth
in this Schedule of Leased Equipment (herein the "Schedule").
1. Equipment Description: The Equipment to be leased pursuant to this
Schedule is described in Exhibit A to this Schedule, which is incorporated
herein by reference.
2. Aggregate Rent for the Initial Lease Term and Each Renewal Term:$337,926.84
3. Monthly Rent (for Initial Lease Term and Each Renewal Term): $28,160.57
4. Commencement Date: December 29, 1994
5. Due Date of First Monthly Rent: January 29, 1995
6. Initial Lease Term: The initial term of this Lease for the Equipment
described in this Schedule shall expire 12 months from the Commencement
Date hereof.
7. Maximum Lease Term: The maximum term of this Lease for the Equipment
described in this Schedule shall be the Initial Lease Term plus the three
twelve-month renewal terms permitted by this Schedule.
8. Rentals: For said Initial Term, and each renewal term, if any, Lessee
shall pay to Lessor the stated aggregate rent payable thereunder in 12
equal, successive, monthly payments as stated, of which the first is due on
the first monthly rent date set forth above, and the others on a like date
of each month thereafter, until fully paid.
9. Lessor's Equipment Cost: For the Initial Lease Term and for each renewal
term, if any, the Lessor's Equipment Cost shall be the amount set forth
below:
Initial Lease Term $1,125,603.00
First Renewal Term $939,629.51
Second Renewal Term $672,369.05
Third Renewal Term $379,224.24
10. Discount Rate: 9.28% percent per annum.
11. Special Provisions:
(a) End of Term Options: So long as no Event of Default has occurred and is
continuing under the Lease, Lessee shall have the options set forth herein.
Page 1 of 4
<PAGE>
(i) Option to Renew. At the expiration of the Initial Lease Term or at
---------------
the expiration of any renewal term provided herein, Lessee may renew
this Lease with respect to all, but not less than all, of the
Equipment, on the terms and conditions of this Lease, for a renewal
term of twelve months at the monthly rent set forth in the Schedule;
provided, however, that Lessee may exercise this option only if
Continental and Firemen's make the same election to renew under the
Continental Lease and the Firemen's Lease, respectively; and provided
further that Lessee may not renew this Lease for more than three
consecutive twelve-month renewal terms beyond the expiration of the
Initial Lease Term. If Lessee desires to exercise this option, Lessee
shall give Lessor written notice of its election to renew at least 10
days prior to the expiration of the Initial Lease Term or such renewal
term then in effect. Such election shall be effective with respect to
all of the Equipment.
(ii) Option to Purchase. At the expiration of the Initial Lease Term or at
------------------
the expiration of any renewal term provided herein, Lessee may
purchase from Lessor all of Lessor's rights to and interests in all,
but not less than all, the Equipment as Prime Lessee under Schedule of
Leased Equipment No. 1 to that certain Prime Master Lease (said
Schedule and Prime Master Lease being referred to collectively herein
as the "Prime Lease") dated of even date herewith between Lessor as
Prime Lessee and Lessee as Prime Lessor; provided, however, that
Lessee may exercise this option only if Continental and Firemen's make
the same election to purchase under the Continental Lease and the
Firemen's Lease, respectively. If Lessee desires to exercise this
option, Lessee shall give Lessor written notice of its election at
least 90 days prior to the expiration of the Initial Lease Term or
such renewal term then in effect. Such election shall be effective
with respect to all the Equipment subject to this Lease and the Prime
Lease. At the expiration of the lease term during which Lessee
exercises this option to purchase, Lessee shall pay to Lessor in cash
the Maximum Purchase Price, plus the Breakfunding Fee described in
Section 16 of the Master Lease. The Maximum Purchase Price shall be
an amount equal to the greater of (1) the fair market rental value of
the Equipment for the remaining term of said Prime Lease as determined
by an independent third-party appraiser selected by Lessee or (2) the
product of Lessor's Equipment Cost at the beginning of the Initial
Term, multiplied by the Maximum Purchase Price Percentage set forth
below corresponding to the lease term at the end of which Lessee
exercises this option:
Option Exercised Maximum Purchase Lessor's Maximum
at End of Price Percentage Equipment Cost Purchase Price
--------- ---------------- -------------- --------------
Initial Lease Term 78.35% $1,125,000.00 $881,941.33
First Renewal Term 54.61% $1,125,000.00 $614,680.87
Second Renewal 28.57% $1,125,000.00 $321,538.06
Term Fair Market Value
Third Renewal Term
Lessee shall bear all costs related to any appraisal of the Equipment.
Upon receipt of the Maximum Purchase Price, Lessor shall transfer and
assign to Lessee all of Lessor's rights to and interests in the
Equipment and under the Prime Lease without recourse or warranty.
Lessor shall not be required to make and may specifically disclaim any
representation or warranty as to the condition of the Equipment or any
other matters. Notwithstanding any election of Lessee to purchase,
the provisions of this Lease shall continue in full force and effect
until the transfer and assignment of interests contemplated herein is
completed.
(iii) Option to Return. At the expiration of the Initial Lease Term or at
----------------
the expiration of any renewal term provided herein, Lessee may return
to Lessor all, but not less than all, of the Equipment, in accordance
with the return provisions set forth in the Lease; provided, however,
that Lessee may exercise this option only if Continental and Firemen's
make the same election to return under the Continental Lease and the
Page 2 of 4
<PAGE>
Firemen's Lease, respectively. If Lessee desires to exercise this
option, Lessee shall give Lessor written notice of its election to
return the Equipment at least 365 days prior to the expiration of the
Initial Lease Term or such renewal term then in effect. On the date
Lessee gives such notice, Lessee shall pay to Lessor in cash a deposit
(the "Deposit") to cover the costs of crating, shipping, storing or
refurbishing the Equipment. The Deposit shall be an amount equal to
ten and one-half percent of the Lessor's Equipment Cost if the Lessee
exercises this option at the end of the initial Lease Term or, if the
Lessee exercises this option at the end of a renewal term, an amount
equal to ten percent of the Lessor's Equipment Cost for the renewal
term at the end of which Lessee has elected to return the Equipment.
Lessor may, in Lessor's sole discretion, refund the Deposit to Lessee
if Lessor determines that Lessee has complied in all respects with the
return provisions set forth in this Lease. Such election to return
the Equipment shall be effective with respect to all of the Equipment.
At the expiration of the Lease Term during which Lessee exercises this
option, Lessee shall return the Equipment to Lessor in accordance with
the return provisions set forth in the Lease, and Lessee shall pay to
Lessor in cash the Termination Fee, plus the Breakfunding Fee. The
Termination Fee shall be an amount equal to the product of the
Lessor's Equipment Cost at the beginning of the Initial Term
multiplied by the Termination Fee Percentage set forth below
corresponding to the lease term during which Lessee exercises this
Option:
<TABLE><CAPTION>
Option Exercised at End of Termination Fee Percentage Lessor's Equipment Cost
-------------------------- -------------------------- ----------------------
<S> <C> <C>
Initial Lease Term 67.37% $1,125,603.00
First Renewal Term 51.07% $1,125,603.00
Second Renewal Term 27.63% $1,125,603.00
Third Renewal Term 0% $1,125,603.00
</TABLE>
(iv) If Lessee fails to exercise any of the options set forth herein, or if
Continental and Firemen's fail to exercise simultaneously with Lessee
the same option under the Continental Lease and the Firemen's Lease,
respectively, then at the expiration of the Initial Lease Term or any
renewal term, this Lease shall be automatically renewed with respect
to all the Equipment on the terms and conditions of this Lease, for a
renewal term of twelve months at the monthly rent set forth in the
Schedule; provided, however, that this Lease shall not be renewed for
more than three consecutive twelve-month renewal terms beyond the
expiration of the Initial Lease Term.
(b) Return Provisions: Lessee shall, if Lessee intends to terminate the Lease
at the termination of the Initial Lease Term or at the termination of any
renewal term prior to the expiration of the Maximum Lease Term (the
"Termination Date"), at its expense, de-install, pack and return all the
Equipment to Lessor at such locations within the continental United States
as shall be designated by Lessor. Lessee shall have each item of Equipment
restored, reconditioned, refurbished or refinished so as to be in the same
operating order, repair, condition and appearance as when it was new
(subject to ordinary wear and tear) with all subsequent engineering changes
prescribed by the manufacturer of the Equipment or any maintenance
contractor approved by Lessor incorporated in the Equipment. All Equipment
will be cleaned and cosmetically acceptable, with no noticeable cracks,
scratches or other visual or mechanical damage and in such condition that
it may be immediately installed and placed into use. Lessee shall ensure
that all Equipment and equipment operations conform to all applicable
local, state and federal laws and health and safety guidelines. At
Lessor's request, Lessee shall at its expense within 30 days of the
Termination Date assemble the Equipment in an appropriate storage facility.
While the Equipment is being stored by Lessee, and until it is returned as
herein provided, Lessee shall continue at its expense to insure the
Equipment as provided in the Lease and shall continue to bear the risk of
loss with respect to the Equipment as provided in the Lease.
Page 3 of 4
<PAGE>
In the event Lessee exercises none of the end of term options set forth
herein, then at the expiration of the Maximum Lease Term, Lessee shall
return the Equipment in accordance with the return provisions set forth in
the Master Lease as if no return provisions were set forth in this
Schedule.
This Schedule of Leased Equipment together with its Exhibits and Riders, if any,
and the Master Lease incorporated herein by reference constitute the entire
agreement between the parties as to the Lease and Equipment.
With respect to this Schedule or any document contemplated by this Schedule, the
parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing the
document as the handwritten execution upon an original copy of the document.
The parties agree that they will promptly forward to the others an executed
original of any document transmitted by facsimile, but that the failure of a
party to do so or the absence of arrival of any such executed document shall
have no effect on the binding nature of the document transmitted by facsimile.
The parties may sign this Schedule in any number of counterparts and on separate
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. To the extent this document
constitutes chattel paper under the Uniform Commercial Code, no security
interest in this document may be created through the transfer and possession of
any counterpart other than Counterpart No. 1.
Accepted:
LESSOR: LESSEE:
FIRST FIDELITY BANK, N.A., THE BUCKEYE UNION INSURANCE COMPANY
not in its individual capacity, but
solely as Trustee
By:_____________________________ By:______________________________
Name:___________________________ Name:____________________________
Title:__________________________ Title:___________________________
Page 4 of 4
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Prime Master Lease")
between The Buckeye Union Insurance Company ("Prime Lessor")
and First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Prime Lessee").
This is Counterpart No. of 3 serially numbered,
------
manually executed counterparts. To the extent that
this document constitutes chattel paper under the
Uniform Commercial Code, no security interest in this
document may be created through the transfer and
possession of any counterpart other than Counterpart
No. 1.
Pursuant to the Prime Master Lease, which is incorporated herein
by reference, Prime Lessee agrees to lease the below-described
Equipment from Prime Lessor, its successors or assigns, and Prime
Lessor, by acceptance of this Prime Lease, agrees to lease the
Equipment to Prime Lessee, on the terms set forth in this
Schedule of Leased Equipment (herein the "Schedule").
1. Equipment Description: The Equipment to be leased pursuant
to this Schedule is described in Exhibit A to this Schedule,
which is incorporated herein by reference.
2. Aggregate Rent for the Lease Term: $ 1,784,991.60
3. Monthly Rent: $ 14,874.93
4. Commencement Date: December 29, 1994
5. Due Date of First Annual Rent: January 29, 1995
6. Lease Term: The term of this Prime Lease for the Equipment
described in this Schedule shall be 10 years from the
Commencement Date hereof.
7. Rentals: For said Lease Term or any portion thereof, Prime
Lessee shall pay to Prime Lessor the stated Aggregate Rent
payable thereunder in 10 equal, successive, annual payments
as stated, of which the first is due on the first annual
rent date set forth above, and the others on a like date of
each year thereafter, until fully paid.
This Schedule of Leased Equipment together with its Exhibits and
Riders, if any, and the Prime Master Lease incorporated herein by
reference constitute the entire agreement between the parties as
to the Prime Lease and Equipment.
Accepted:
LESSOR: LESSEE:
THE BUCKEYE UNION INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
not in its individual
capacity, but solely
as Trustee
By:___________________________ By:___________________________________
Name:_________________________ Name:_________________________________
Title:_________________________ Title:________________________________
-----------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
Among
THE CONTINENTAL INSURANCE
COMPANY,
FIRST FIDELITY BANK, N.A., not in its individual
capacity except as expressly stated herein,
but solely as Trustee,
-------
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Purchaser
---------
-----------------------------------------------------------------
<PAGE>
PARTICIPATION AGREEMENT dated as of December 29, 1994
(as amended, modified or supplemented, the "Participation
Agreement"), among THE CONTINENTAL INSURANCE COMPANY, a New
Hampshire corporation (together with its successors and permitted
assigns, the "Lessee"); FIRST FIDELITY BANK, N.A., a national
banking association, not in its individual capacity except as
expressly stated herein, but solely as Trustee under that certain
Declaration of Trust dated of even date herewith (together with
its successors and permitted assigns, the "Trustee"); and THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation, as
Purchaser (together with its successors and permitted assigns,
the "Purchaser"). Capitalized terms used in this Participation
Agreement and not defined herein shall have the meanings set
forth in Appendix A hereto.
Preliminary Statement
---------------------
Lessee owns or leases certain leasehold improvements
(the "Equipment") the description and location of which is
incorporated in the Lease (as hereinafter defined). The Lessee
will lease, or sublease, as the case may be, the Equipment to the
Trustee pursuant to a prime lease, substantially in the form of
Exhibit A hereto (as the same may be amended, modified, or
supplemented from time to time, the "Prime Lease").
Concurrently, the Trustee shall sublease or sub-sublease, as the
case may be, the Equipment to the Lessee pursuant to a lease
agreement, substantially in the form of Exhibit B hereto (as the
same may be amended, modified or supplemented from time to time,
the "Lease").
The Trustee will hold its leasehold interest in the
Equipment and its rights under the Prime Lease, the Lease and
related documents in trust pursuant to a declaration of trust,
substantially in the form of Exhibit C hereto (as the same may be
amended, modified or supplemented from time to time, the
"Declaration of Trust"). In order to finance the payment of
Prime Lease Rent, and the payment of rent under substantially
similar leases between the Trustee and The Buckeye Union
Insurance Company ("Buckeye") and between the Trustee and
Firemen's Insurance Company of Newark, New Jersey ("Firemen's")
(those leases being referred to as the "Buckeye Prime Lease" and
the "Firemen's Prime Lease," respectively) the Trustee will issue
to the Purchaser equipment trust notes of three series
(collectively, the "Notes") as provided in the Declaration of
Trust. The Notes, in the aggregate principal amount of
$30,000,000.00, will be issued to pay the Prime Lease Rent, and
rent payable by the Trustee under the Buckeye Prime Lease and the
Firemen's Prime Lease and the Notes shall be issued, be dated,
mature and be payable as provided in the Declaration of Trust.
The Notes shall be secured by the trust estate held pursuant to
the Declaration of Trust, including, as applicable, a guaranty
given by The Continental Corporation (herein called the
"Guarantor") of the Lessee's obligations to make payments under
the Lease substantially in the form of Exhibit D hereto (the
"Lease Guaranty") and a security interest in the Lessee's
interest in the Equipment pursuant to the security interest
granted by the Lessee in the Lease. The Prime Lease, the Lease,
the Declaration of Trust, the Notes, the Lease Guaranty, and this
Participation Agreement are herein sometimes collectively called
the "Operative Documents."
2
<PAGE>
NOW, THEREFORE, in consideration of the agreements
herein and in the other Operative Documents and in reliance upon
the representations and warranties set forth herein and therein,
the parties agree as follows:
ARTICLE I
FINANCING
SECTION 1.01. Agreement to Issue and Purchase.
-------------------------------
(a) Subject to the terms and conditions of this Article
I, on the Closing Date the Purchaser shall advance to the Trustee
the amount of $30,000,000.00, and the Trustee shall issue to the
Purchaser in consideration therefor Notes in the aggregate
principal amount of $30,000,000.
SECTION 1.02. Closing Date. The closing of the
-------------
transactions specified herein shall take place at 10:00 A.M. on
December 29, 1994 or on such other date, and in such manner and
in such place as the Trustee, the Purchaser, the Guarantor, and
the Lessee shall mutually agree (the "Closing Date").
SECTION 1.03. Closing. On the Closing Date, subject
-------
to the satisfaction of the conditions set forth in Section 2.01
of this Participation Agreement:
(a) The Operative Documents shall be duly authorized,
executed and delivered by the parties thereto; and
(b) The Purchaser shall make payment for the Notes
issued at the Closing Date at a price equal to the principal
amount thereof by transfer of immediately available funds in the
amount of $30,000,000.00 to the account of the Trustee at First
Fidelity Bank, N.A., ABA No. 031201467, account #0666249910 (with
a reference to Corporate Trust/Continental Insurance account,
Attention: Diane Sutherland, Corporate Trust Administrator (203)
929-5552); and the Trustee shall advance, as prepayment of the
full amount of the Prime Lease Rent and rent payable under the
Buckeye Prime Lease and the Firemen's Prime Lease, an aggregate
of $30,000,000 to the accounts of the Lessee, Buckeye and
Firemen's as follows:
$25,874,397.00 to the account of Lessee at Chemical
Bank, ABA # 021000128, Account No. 140050093;
$1,125,603.00 to the account of Buckeye at Chemical
Bank, ABA # 021000128, Account No. 140008557; and
$3,000,000.00 to the account of Firemen's at Chemical
Bank, ABA # 021000128, Account No. 144085584.
3
<PAGE>
ARTICLE II
CONDITIONS TO CLOSING AND FUNDING
SECTION 2.01. General Conditions Precedent to Closing.
---------------------------------------
The obligations of the Purchaser set forth in Section 1.03 shall
be subject to the satisfaction on or before the Closing Date of
the following conditions precedent:
(a) Due Authorization, Execution and Delivery. The
-------------------------------------------
Operative Documents shall have been duly authorized, executed and
delivered by the respective parties thereto and shall be in full
force and effect. No condition or event shall exist or have
occurred which would constitute an Event of Default under any of
the Operative Documents;
(b) Representations. The representations and
---------------
warranties of each party set forth in the Operative Documents
shall be true and correct on the Closing Date, and the Trustee,
the Guarantor and the Lessee shall each have delivered an
Officer's Certificate to such effect dated the Closing Date;
(c) Opinions. The Purchaser shall have received the
--------
following opinions, dated the Closing Date and addressed to it:
(i) an opinion of Arnold & Porter, special
counsel to the Guarantor, in form and substance
reasonably satisfactory to the Purchaser and its
special counsel;
(ii) an opinion of counsel to the Guarantor, in
form and substance reasonably satisfactory to the
Purchaser and its special counsel;
(iii) an opinion of Arnold & Porter, special
counsel to the Lessee, in form and substance reasonably
satisfactory to the Purchaser and its special counsel;
(iv) an opinion of counsel to the Lessee, in form
and substance reasonably satisfactory to the Purchaser
and its special counsel;
(v) an opinion of Bingham, Dana & Gould, special
counsel to the Trustee, in form and substance
satisfactory to the Purchaser and its special counsel.
(d) Proceedings Satisfactory and Other Evidence. All
--------------------------------------------
corporate and other proceedings taken or to be taken in
connection with the transactions contemplated by the Operative
Documents and all documents, papers and authorizations relating
thereto shall be satisfactory to the Purchaser and its special
counsel. The Purchaser and its special counsel shall receive
copies of such documents and papers as the Purchaser or its
special counsel has
4
<PAGE>
reasonably requested, in form and substance satisfactory to
the Purchaser and its special counsel, including but not limited
to the Operative Documents;
(e) Legality. The execution and delivery of the Notes
--------
by the Trustee shall not be prohibited by any applicable law or
governmental regulations (including, without limitation,
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System) and shall not subject the Purchaser to any tax
(other than a tax paid or payable by the Lessee pursuant to the
Lease or taxes on the income of the Purchaser), penalty,
liability or other onerous condition under or pursuant to any
applicable law or governmental regulations, and the Purchaser
shall receive such certificates or other evidence as it may
request to establish compliance with this condition;
(f) Condition and Use of Equipment. The Equipment or
-------------------------------
any item thereof, shall not have suffered a casualty, damage or
destruction which has a material adverse effect on the Equipment
taken as a whole.
(g) Documents relating to the Equipment. The Lessee
------------------------------------
shall deliver an Officer's Certificate to the Trustee and the
Purchaser with respect to title (to the extent such property
constitutes personal property) to and location and condition of
the Equipment and such other documents relating to the Equipment
as may be requested by the Purchaser, all in form and substance
reasonably satisfactory to the Purchaser;
(h) Insurance. All insurance policies required by
---------
Section 4 of the Lease shall be in full force and effect, and
certificates of the insurers evidencing the coverage of such
policies and stating that the policies name the Trustee as
additional insured and name the Trustee as loss payee for all
damage amounts in excess of $1,000,000.00 shall be delivered to
the Trustee and the Purchaser in accordance with such Section;
and
(i) Taxes. All taxes, fees, and other charges, if
-----
any, which become due and payable in connection with the
execution, delivery, recording, publishing, registration and
filing of the Operative Documents and the financing statements
shall have been paid.
SECTION 2.02. Conditions Subsequent to the Closing.
--------------------------------------
Within 30 days following the Closing Date, the Operative
Documents (or financing statements relating thereto) shall have
been duly filed, registered, recorded or published at the expense
of Lessee in such manner and in all places necessary or
appropriate to publish notice and protect the validity and
effectiveness thereof and to establish, perfect, preserve and
protect the rights of the parties thereto.
5
<PAGE>
ARTICLE III
PLACEMENT OF THE NOTES
SECTION 3.01. General. The parties hereto expect that
--------
some or all the Notes will be placed with a Person or Persons
other than the Purchaser prior to their maturity, and the Lessee
consents and agrees to such placement, provided that the Notes
shall not be placed with more than 10 Persons.
SECTION 3.02. Placement. The Lessee, the Trustee and
----------
the Purchaser agree to negotiate, each at its own respective
expense, the substance, and the execution and delivery, of such
further documents or supplements to the Operative Documents which
may be necessary or proper to carry out the placement of the
Notes, provided that any changes effected by such documents or
supplements are to be within the scope of the present economic
terms of the transaction and are not to contain any additional
covenants, representations or warranties burdensome on any of the
parties.
ARTICLE IV
REPRESENTATIONS
SECTION 4.01. Lessee Representations. The Lessee
----------------------
represents and warrants to the Trustee and the Purchaser that the
following statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Lessee is a corporation, duly
incorporated, validly existing and in good standing
under the laws of the State of New Hampshire.
(ii) The Lessee has all requisite power,
authority, legal right and all necessary licenses to
own or hold under lease and use its property (including
the Equipment except for lease of the property located
at 200 S. Wacker Drive, Chicago, Illinois, 60606) and
to carry on its business as now conducted and as
presently proposed to be conducted.
(iii) Except for the property located at 200
S. Wacker Drive, Chicago, Illinois, 60606, and to the
extent set forth in each applicable Landlord's Waiver
and Consent, the Lessee has all requisite power and
authority to execute and deliver each Operative
Document to which it is a party and any other agreement
entered into or document delivered in connection with
the transactions contemplated by the Operative
Documents and to comply with the terms thereof and
perform its obligations thereunder; and
(iv) The Lessee is duly qualified and authorized
to do business as a foreign corporation in each
jurisdiction in which an item of Equipment is located
and in each other jurisdiction in which the character
of its property or the nature of its activities makes
such qualification necessary except for such
jurisdictions
6
<PAGE>
wherein a failure to so qualify or be authorized to do
business would not have a material adverse effect on
its business or activities taken as a whole.
(b) Financial Statements.
--------------------
(i) Copies of financial statements of the Lessee
delivered by the Lessee to the Purchaser have been
prepared in conformity with the Statutory Accounting
Principles prescribed and permitted by the Department
of Insurance which present fairly the financial
position of the Lessee, as of such date and the results
of its operations for such period; and
(ii) Copies of financial statements of The
Continental Corporation delivered by the Lessee or The
Continental Corporation to the Purchaser have been
prepared in conformity with generally accepted
accounting principles applied consistently throughout
the periods reflected therein and with prior periods
(except as approved by such accountants or officer, as
the case may be, and disclosed therein); and
(iii) Since the date of the financial
statements referred to in (i) and (ii), there has been
no change in the business, profits, property or
condition (financial or otherwise of the Lessee or The
Continental Corporation) except changes in the ordinary
course of business, none of which individually or in
the aggregate is materially adverse and except for the
Merger.
(c) Full Disclosure. There is no fact which the
----------------
Lessee has not disclosed in writing or is publicly available to
the parties hereto which materially adversely affects the
property, business, affairs or condition (financial or otherwise)
of the Lessee or the ability of the Lessee to perform its
obligations under any Operative Document to which it is a party
or any other agreement which it has entered into in connection
with any transaction contemplated by an Operative Document.
(d) Pending Litigation. There are no actions, suits
------------------
or proceedings pending, or, to the best knowledge of the Lessee,
threatened against or affecting the Lessee in any court or before
any government which is reasonably likely to materially adversely
affect the property, business, profits or condition (financial or
otherwise) of the Lessee or the ability of the Lessee to perform
its obligations under the Operative Documents to which it is a
party. The Lessee is not in default with respect to any order of
any government, foreign or domestic, or any agency, regulatory
body, instrumentality or subdivision of such government, which
could materially and adversely affect the Lessee's business,
consolidated financial position or consolidated results or
operations.
(e) Title and Liens. To the extent the Equipment
----------------
constitutes personal property, the Lessee owns the Equipment,
free and clear of any lien, claim, encumbrance,
7
<PAGE>
security interest, restrictions or any other right of a third
party in and to such Equipment, except for Permitted Encumbrances
or except to the extent that such rights are created by the
Operative Documents, except for the property located at 200 S.
Wacker Drive, Chicago, Illinois, 60606. Except to the extent set
forth in the applicable Landlord's Waiver and Consent, Lessee has
the full legal power, right and authority to lease the Equipment
to Trustee under the Prime Lease.
(f) No Conflict or Default. The execution and
-------------------------
delivery by the Lessee, and compliance by the Lessee with all of
the provisions, of each Operative Document to which it is a party
will not conflict with, result in any breach of any of the
provisions of or constitute a default under the provisions of any
material agreement to which the Lessee is a party or by which it
may be bound or which is applicable to any of its property, or
results in the creation of any lien upon any property of the
Lessee, except as may have been created by any provision of any
Operative Document and except for Permitted Encumbrances, or
result in a violation of its charter or any applicable law.
(g) Enforceability. Each Operative Document to which
--------------
the Lessee is a party when executed and delivered by the Lessee,
will constitute the legal, valid and binding obligation of the
Lessee enforceable against the Lessee in accordance with its
terms (except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and by
general principles of equity).
(h) Consents. No consent, approval, authorization or
--------
declaration of or filing with any governmental authority is
required for the valid execution, delivery or performance by the
Lessee of this Participation Agreement or the other Operative
Documents.
(i) Compliance with Law. The Lessee is not in
---------------------
violation of any law to which it is subject, which violation or
failure is likely to have a material adverse effect on the
business, profits, property or condition (financial or otherwise)
of the Lessee.
(j) Status. The Lessee is not an "investment company"
------
or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940.
(k) ERISA. The execution and delivery by the Lessee
-----
of the Operative Documents entered into in connection therewith
will not involve any prohibited transaction within the meaning of
ERISA or Section 4975 of the Code. The Lessee has not incurred
any liability to the PBGC or an Employee Plan under Title IV of
ERISA (a "Plan").
(l) Taxes. The Lessee has filed all federal, state
-----
and local tax returns that it is required to file, has filed all
information returns it is required to file and has paid all taxes
shown thereon to be due, including interest and penalties, except
to the extent the same have become due and payable but are not
yet delinquent, adequate reserves have been provided for the
same, or the amount, applicability or validity of the same is
currently being contested in
8
<PAGE>
good faith by appropriate proceedings, and no lien has attached
(except with respect to taxes not yet due and payable) and no
foreclosure, distraint, sale or similar proceedings have been
commenced.
SECTION 4.02. Trustee Representations. The Trustee,
-----------------------
in its individual capacity and not as Trustee (except with
respect to subsection (g) below which is made by the Trustee
solely in its capacity as Trustee and not individually),
represents and warrants to the Lessee, the Guarantor and the
Purchaser that the following statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Trustee is a national banking association
duly organized, validly existing and in good standing
under the laws of the United States of America; and
(ii) The Trustee has all requisite corporate power
and authority to act as Trustee under the Declaration
of Trust and to execute and deliver each Operative
Document to which it is a party and to comply with the
terms thereof and perform its obligations thereunder.
(b) Pending Litigation. There are no actions, suits
------------------
or proceedings pending, or, to the best knowledge of the Trustee,
threatened against or affecting the Trustee in any court or
before any governmental body which involve the possibility of
materially adversely affecting the property, business, prospects,
profits or condition (financial or otherwise) of the Trustee or
the ability of the Trustee to perform its obligations under any
Operative Document to which it is a party or any other agreement
which it has entered into in connection with any transaction
contemplated by any Operative Document.
(c) Authorization; No Conflict. The execution,
-----------------------------
delivery and performance by the Trustee of, and compliance by the
Trustee with all of the provisions of, each Operative Document to
which it is a party and any other agreement entered into in
connection with any transaction contemplated by the Operative
Documents are within the corporate powers of the Trustee and are
legal and authorized under United States federal law governing
banking and trust matters and Connecticut State law and will not
conflict with, result in any breach of any of the provisions of,
or constitute a default under, any agreement, its articles of
association or bylaws or other instrument to which the Trustee is
a party or by which it may be bound or applicable to any of its
property, or result in a violation of any applicable United
States federal law governing banking and trust matters or
Connecticut State law.
(d) Enforceability. Each of the Operative Documents
--------------
to which the Trustee is a party, and any other agreement entered
into in connection with any transaction contemplated by any
Operative Document, has been duly authorized by all necessary
action on the part of the Trustee, and is or will be the legal,
valid and binding obligation of the Trustee enforceable
9
<PAGE>
against the Trustee in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and that
the equitable remedy of specific performance and other equitable
remedies are subject to the discretion of the court).
(e) No Default. No event has occurred and no
------------
condition exists which, upon consummation of the transactions
contemplated by any Operative Document, would constitute an Event
of Default by the Trustee. The Trustee is not in violation in
any respect of any term of any agreement, its articles of
association or any other instrument to which it is a party or by
which it or any of its property may be bound or affected.
(f) Consents. The nature of the Trustee, its
--------
execution and delivery of each Operative Document to which it is
a party, its consummation of the transactions contemplated
thereby, its compliance with the terms thereof or any
circumstance in connection with the transactions contemplated
thereby does not required under United States federal law
governing banking and trust matters or Connecticut State law the
consent of any person or the approval or authorization of, or
filing, registration or qualification with, any government on the
part of the Trustee (other than such as have been obtained) as a
condition to the execution, delivery and performance of the
Operative Documents to which the Trustee is a party or any other
agreement which it has entered into in connection with the
transactions contemplated by any Operative Document.
(g) Notes. The Notes have been duly authorized by all
-----
necessary corporate action on the part of the Trustee, have been
validly issued and constitute the legal, valid and binding
obligations of the Trustee (acting solely as Trustee under the
Declaration of Trust, and not in its individual capacity) and are
enforceable against the Trustee in accordance with their terms
and the terms of the Declaration of Trust and this Participation
Agreement.
SECTION 4.03. Representation of the Purchaser. The
--------------------------------
Purchaser represents to the Lessee and the Guarantor that no part
of the funds being used by the Purchaser to pay the purchase
price of the Notes hereunder constitutes assets allocated to any
"separate account" (as defined in Section 3 of ERISA) maintained
by the Purchaser. The Purchaser acknowledges that the Notes have
not been registered under the Securities Act of 1933, as amended
(the "Act"), and agrees that it shall not resell the Notes except
pursuant to a registration under the Act or an exemption
therefrom.
ARTICLE V
COVENANTS
SECTION 5.01. Lessee Covenants.
----------------
(a) Financial Statements. The Lessee will deliver, or
--------------------
cause to be delivered, to the Trustee and the Purchaser:
10
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(i) such financial statements as are required by
Section 14 of the Lease;
(ii) promptly upon becoming aware of the existence
of (A) any condition or event which constitutes a Default or
an Event of Default, a written notice from a duly authorized
officer of the Lessee specifying the nature and period of
existence thereof and (B) any directive from the
Commissioner of the Department of Insurance specifying any
corrective action to be taken which could have a material
adverse effect on the Lessee's business taken as a whole, or
any special examinations or investigations not in the
ordinary course, which are performed or taken by the
Commissioner a result of which such a directive could issue,
a copy of such directive and/or written notice of such
examinations or investigations together with, in each case,
written notice of what action the Lessee is taking or
proposes to take with respect thereto;
(iii) at the same time as it delivers the
annual financial statements described in the Lease, an
Officers' Certificate signed by its Chief Financial Officer
or Chief Accounting Officer stating that the signers have
reviewed the Operative Documents to which it is a party and
its transactions and condition during the preceding fiscal
year and that such review has not disclosed nor do the
signers know of any Event of Default under or breach of any
Operative Documents to which it is a party or, if an Event
of Default exists, specifying the nature and the period of
such Event of Default and the action, if any, it has taken,
is taking or proposes to take with respect thereto.
(b) Corporate Existence. The Lessee shall do or cause
-------------------
to be done all things necessary to preserve and keep in full
effect its existence, rights (charter and statutory) and
franchises as an insurance company under the laws of a state of
the United States and to preserve and keep in full effect its
qualifications as a foreign corporation in each jurisdiction in
which the character of its property or the nature of its business
or activities makes such qualification necessary, except for such
jurisdictions wherein a failure to so qualify would not have a
material adverse effect on the business, affairs, property or
condition (financial or otherwise) of the Lessee and its
Subsidiaries taken as a whole.
(c) Compliance with Regulation. The Lessee shall
----------------------------
deliver to the Trustee and the Purchaser copies of each notice of
any violation by Lessee of any judgment, decree or order of any
court of governmental or regulatory authority, bureau, agency or
official having jurisdiction over the Lessee if such violations
would have a material adverse effect on the business, affairs,
property or condition (financial or otherwise) of the Lessee and
its Subsidiaries taken as a whole.
(d) Notice of Default. The Lessee shall give notice
-----------------
to the Trustee of any Event of Default under any of the Operative
Documents by any party thereto promptly after the Lessee obtains
Actual Knowledge of the same. For purposes of this subsection
(d), "Actual
11
<PAGE>
Knowledge" means actual knowledge of the Vice President-
Treasurer, an Executive Vice President or a Senior Vice President
of the Lessee.
(e) No State Prohibition. The Lessee shall not be
---------------------
prohibited by action of any state or any subdivision, department
or agency thereof from engaging in any type of insurance business
at any time where the effect of such prohibition would have a
material adverse effect on the business, affairs, property or
condition (financial or otherwise) of the Lessee and its
Subsidiaries taken as a whole.
(f) Maintenance of Insurance Business. At all times a
---------------------------------
substantial portion of the Lessee's business shall be the
insurance business.
(g) No Regulatory Intervention. At no time shall the
---------------------------
insurance department of any state having jurisdiction over the
business of the Lessee take any action to exercise control over
the business and operations of the Lessee or cause the Lessee to
take any action which, in the reasonable opinion of the Trustee
or the Purchaser, will be likely to result in a material adverse
change in the business and operations of the Lessee taken as a
whole.
(h) Obligations Under the Lease. Lessee acknowledges
---------------------------
and agrees that its obligation to make payments to the Trustee
under the Lease are absolute and unconditional and are
independent of Lessee's use or enjoyment of the Equipment or
performance by the Trustee of any of its obligations under the
Lease or otherwise. The Lessee agrees to make all Lease Payments
to the Trustee regardless of any defense, claim, set-off,
recoupment, abatement or other right, existing or future, which
the Lessee may have against the Trustee or any other person or
entity.
SECTION 5.02. Operative Documents; Further Assurance.
--------------------------------------
Each of the parties hereto does hereby covenant and agree well
and truly to abide by, perform and be governed and restricted by
each and all of the matters provided for by each of the Operative
Documents to which it is a party and, subject to the terms and
conditions thereof, to use its best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable in connection therewith. The
Lessee, the Trustee, and the Purchaser will, upon reasonable
request and at the expense of the Lessee, execute and deliver
such further instruments and do such further acts as may be
necessary or proper to carry out more effectively the purposes of
this Participation Agreement, the Prime Lease, the Lease, the
Lease Guaranty, the Declaration of Trust and the Notes and the
transactions contemplated hereby and thereby, provided that the
Lessee shall not be responsible for any costs or expenses
associated with the voluntary transfer or assignment of the Notes
by the by any holder of the Notes, including without limitation,
the Purchaser. The Lessee, the Trustee, and the Purchaser may at
any time, subject to the conditions and restrictions contained in
this Participation Agreement, enter into supplements which shall
form a part hereof, when required or permitted by any of the
provisions of this Participation Agreement to cure any ambiguity,
or to cure, correct or supplement any defection or inconsistent
provision contained herein or in any other Operative Document.
12
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default. Any of the following
-----------------
shall constitute an Event of Default hereunder:
(a) non-payment of any amount due on the Notes when
such payment shall become due if such non-payment continues for a
period of five days;
(b) an Event of Default with respect to the Guarantor
or the Lessee under any Operative Document to which it is a
party, including, without limitation, an Event of Default under
the Lease arising from an "Event of Default" under certain
agreements of Buckeye and Firemen's described in the Lease;
(c) a breach by the Lessee of any covenant contained
in this Participation Agreement and such breach continues for a
period of thirty (30) days after Lessee receives notice of such
breach;
(d) an event shall occur or a condition shall arise
that would constitute grounds for an appropriate United States
district court to appoint a trustee to administer a Plan or for
the PBGC to initiate proceedings to terminate any Plan if such
appointment or termination would materially adversely affect the
business, operations, property or financial or other condition of
the Lessee alone or of the Lessee and its respective Subsidiaries
taken as a whole, and no action is taken by Lessee to cure such
event for a period of more than thirty (30) days;
(e) if any representation or warranty of the Lessee
set forth in this Participation Agreement or in any Operative
Document shall prove to be incorrect in any material respect as
of the time when the same shall have been made.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Survival. Except as otherwise expressly
--------
provided, the parties' obligations under the representations,
warranties and agreements in this Participation Agreement and in
any certificate or other instrument delivered by any party or on
such party's behalf pursuant to this Participation Agreement
shall terminate upon the payment in full of any amounts then and
thereafter due on the Notes and due under any of the Operative
Documents. Such rights and obligations shall survive the
execution and delivery of any Operative Document, any issuance or
disposition of the Notes, any disposition of any interest in the
Equipment or the termination of any Operative Documents and shall
continue in effect regardless of any investigation made by or on
behalf of any party hereto and notwithstanding that any party may
waive compliance with any other provision of any Operative
Document.
13
<PAGE>
SECTION 7.02. Notices. Unless otherwise specifically
-------
provided in any Operative Document, all notices, consents,
directions, approvals, instructions, requests and other
communications given to any party hereto under any Operative
Document shall be in writing to such party at the address set
forth below or at such address as such party shall designate by
notice to each of the other parties hereto. Any notice so
addressed and delivered by personal service, mailed postage
prepaid via United States certified mail, return receipt
requested, or sent via commercial courier, for next day delivery
return receipt requested, shall be deemed to have been given when
delivered to such party by personal service or, if so mailed or
sent via commercial courier, on the second succeeding business
day.
Purchaser:
---------
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, New Jersey 07039
Attention: Ron Haase
and to:
-------
The CIT Group/Equipment Financing, Inc.
900 Ashwood Parkway
Atlanta, Georgia 30338
Attention: Vice President of Credit
with a copy to:
---------------
Harry D. Mercer, Esq.
Hahn Loeser & Parks
3300 BP America Bldg.
200 Public Square
Cleveland, Ohio 44114
Trustee:
--------
First Fidelity Bank, N.A
5 Research Drive
Shelton, Connecticut 06484
Attention: W. Jeffrey Kramer
with a copy to:
---------------
James G. Scantling, Esq.
14
<PAGE>
Bingham, Dana & Gould
100 Pearl Street
Hartford, Connecticut 06103
Lessee:
------
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attention: General Counsel
and to:
------
The Continental Insurance Company
180 Maiden Lane
New York, New York 10038
Attention: Francis M. Colalucci, Vice President and Treasurer
with a copy to:
---------------
Porfirio F. Ramirez, Jr., Esq.
Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
SECTION 7.03. Severability. If any provision hereof
------------
shall be invalid, illegal or unenforceable in any jurisdiction,
the remaining provisions shall continue to be valid and
enforceable and such provision shall continue to be valid and
enforceable in any other jurisdiction.
SECTION 7.04. Amendment. No party hereto shall be
---------
bound by any amendment, supplement, waiver or modification of any
term hereof unless such party shall have consented to it in
writing.
SECTION 7.05. Headings. The headings of the Articles,
--------
Sections and subsections hereof are for convenience and shall not
affect the meaning of this Participation Agreement.
SECTION 7.06. Benefit. The parties hereto and their
-------
permitted successors and assigns, but no others, shall be bound
hereby and entitled to the benefit hereof.
15
<PAGE>
SECTION 7.07. Counterparts. The parties may sign this
------------
Participation Agreement in any number of counterparts and on
separate counterparts, each of which shall be an original but all
of which together shall constitute one and the same instrument.
SECTION 7.08. Governing Law. This Participation
-------------
Agreement shall be governed by and construed in accordance with
the law of the State of New York without regard to its conflict
of laws rules.
SECTION 7.09. Business Day. If the date scheduled for
------------
any payment or action under any Operative Documents shall not be
a business day, such payment shall be made or such action shall
be taken on the next succeeding business day.
SECTION 7.10. The Trustee. Except for liability for
-----------
its representations and warranties in Section 4.02 (other than
subsection (g) thereof), the Trustee does not enter into this
Agreement in its individual capacity, but solely as Trustee under
the Declaration of Trust and shall be liable hereunder only from
the Trust Estate. Each party agrees for itself and its
successors and assigns that it will look solely to the assets,
income and proceeds of the Trust Estate for the satisfaction of
any such liability of the Trustee hereunder, and waives any right
it may have to satisfy any such liability from any other assets
of the Trustee, in its individual capacity.
SECTION 7.11. Home Office Payment. So long as the
-------------------
Purchaser, any Affiliate of the Purchaser or a bank or
institutional investor is the owner of any beneficial interest in
the Notes, the Trustee will cause all amounts which become due
and payable on such interest to be paid by bank wire transfer of
immediately available funds, or at the option of the Purchaser,
or any such Affiliate, bank or institutional investor, by check
of the Trustee, duly mailed, delivered or made at such address or
account within the United States provided in writing to the
Trustee.
SECTION 7.12. Satisfaction and Termination. If and
-----------------------------
when the Notes shall have become due and payable (whether by
lapse of time or by acceleration or by prepayment), and there
shall have been paid the full amount due on the Notes for
principal and interest, and if there shall have been paid all
other sums payable pursuant to the provisions hereof and of the
Declaration of Trust, then and in that case the Declaration of
Trust and all agreements therein contained shall cease and
terminate and, at the request of the Lessee, and at the cost and
expense of the Lessee, the Trustee shall execute and deliver such
instruments as shall be reasonably requested to satisfy and
terminate the Declaration of Trust.
SECTION 7.13. Costs and Expenses.
------------------
(a) Transaction Costs. The Lessee shall pay and save
------------------
all other parties and the holder from time to time of the Notes
harmless against any liability for the payment of the following
fees, expenses, disbursements and costs incurred in connection
with the preparation, execution and delivery of any Operative
Document or of any amendment or supplement thereto or any waivers
thereof, including:
16
<PAGE>
(i) the reasonable fees, expenses and
disbursements of the Trustee, the Purchaser or of their
counsel for services rendered to the Trustee or the
Purchaser, in connection with such transactions,
provided that no such fees, expenses and disbursements
of the Trustee, the Purchaser or of their counsel are
incurred in connection with the placement of the Notes
as contemplated by Article III hereof;
(ii) the reasonable out-of-pocket expenses of the
Trustee and the Purchaser and their Affiliates incurred
in connection with such transactions; and
(iii) all fees and expenses in connection with
any inspection, printing and other document
reproduction and distribution expenses, sales taxes, if
any, any documentary, stamp or other similar taxes,
fees or excise, including interest and penalties and
all filing fees in connection with the execution,
delivery or performance of any Operative Document or
the recording or filing of instruments and financing
statements described in this Participation Agreement.
(b) Compensation and Reimbursement. The Lessee agrees
-------------------------------
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it under the Operative
Documents (which compensation shall not be limited by any
provisions of law in regard to the compensation of a trustee of
an express trust); (b) to reimburse the Trustee for all
reasonable expenses, disbursements and advances incurred or made
by it in accordance with any provisions of the Operative
Documents (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any such
17
<PAGE>
expense, disbursement or advance as may be attributable to its
own gross negligence, willful misconduct or bad faith; and (c) to
indemnify the Trustee and to hold it harmless against, any loss,
liability or expense incurred without negligence, willful
misconduct or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust
created by the Declaration of Trust or the performance of its
duties under the Operative Documents, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers
or duties thereunder.
IN WITNESS WHEREOF, the parties have caused this Participation
Agreement to be duly executed by their officers thereunto duly
authorized as of the day and year first above written.
THE CONTINENTAL INSURANCE COMPANY
By ____________________________________
Title:
FIRST FIDELITY BANK, N.A.,
not in its individual capacity
except as expressly stated
herein, but solely as Trustee
By __________________________
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
By __________________________
Title:
18
<PAGE>
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
APPENDIX A - DEFINITIONS
"Affiliate" when used with respect to a Person, means
---------
any other Person (1) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such Person, (2) which beneficially owns or hold 5% or
more of any class of the voting stock of such Person or (3) 5% or more
of the voting stock (or in the case of a Person which is not a
corporation, 5% of more of the equity interest) of which is
beneficially owned or held by such Person or any of its subsidiaries.
The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting stock,
by contract or otherwise.
"Declaration of Trust" means the Declaration of Trust
--------------------
dated as of December 29, 1994 by the Trustee as trustee thereunder.
"Default" means any event which with the lapse of
-------
time, or giving of notice, or both would become an Event of Default.
"Department of Insurance" means the Insurance
--------------------------
Department of the State of New Hampshire.
"Event of Default" means any of the events specified in
----------------
Section 6.01 of this Participation Agreement or in Section 10 of the
Lease or any material default by the Guarantor under the Lease
Guaranty, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from to time to time.
"Guarantor" means The Continental Corporation, a New
---------
York Corporation.
"Landlord's Waiver and Consent" means either of the
-------------------------------
Landlord's Waiver and Consent of Sudler-Steiner Cranbury Limited
Partnership relating to those items of Equipment located at One
Continental Drive, Cranbury, New Jersey or the Landlord's Waiver and
Consent of Greycas, Inc., relating to those items of Equipment located
at 3501 Route 66, Neptune, New Jersey.
"Lease" means the Master Agreement of Lease dated as
-----
of December 29, 1994 between the Trustee as Lessor and The Continental
Insurance Company, as Lessee, together with Schedule of Leased
Equipment No. 1 dated as of December 29, 1994, thereunder.
"Lease Payments" means the rent and all other amounts
--------------
payable by the Lessee under the Lease, including, without limitation,
all rent payable during any renewal term of the Lease
19
<PAGE>
and all amounts payable in the event Lessee exercises any end of term
options or the Lease is terminated for any reason prior to the end of
the Maximum Lease Term (as that term is defined in the Lease).
"Merger" means the transaction described in the
------
Agreement, dated December 6, 1994, between the Guarantor and CNA
Financial Corporation ("CNA Financial") under which CNA Financial will
acquire the Guarantor through a merger with a wholly-owned CNA
Financial subsidiary, including the investment, under separate
agreement, whereby CNA has agreed to invest $275,000,000.00 in the
Guarantor, which investment has been made as of the date hereof.
"Notes" means the Secured Promissory Notes issued, or
-----
any note issued in replacement thereof, and, unless the context
otherwise specifies or requires, outstanding under this Participation
Agreement.
"Officer" means, the president, any vice president or
-------
any other duly authorized and responsible officer of such corporation
or entity.
"Officer's Certificate" or "Officers' Certificate" of
--------------------- ---------------------
a Person means a certificate signed by an Officer or Officers of such
Person.
"PBGC" means the Pension Benefit Guarantee Corporation
----
or any entity succeeding to any or all of its functions under ERISA.
"Permit" means any action, approval, certificate of
------
occupancy, consent, waiver, exemption, variance, franchise, order,
permit, authorization, right or license of or from a government or
agency or subdivision thereof.
"Permitted Encumbrance" means, with respect to the
---------------------
Equipment: (i) the respective rights of the Lessee and the Trustee
under the Lease and the Prime Lease; (ii) liens for taxes either not
yet due or being contested in good faith and by appropriate
proceedings so long as such proceedings do to involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and so long as such Lessee shall
be maintaining adequate reserves on its books for the payment of such
taxes to the extent such taxes are federal or state income taxes;
(iii) inchoate materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of
business and securing obligations which are not delinquent or which
are being contested by such Lessee in good faith and by appropriate
proceedings so long as such proceedings do not involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and (iv) any liens securing
obligations of landlords of locations at which the Equipment is
located to third parties.
"Person" means any individual, corporation,
------
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government.
"Prime Lease Rent" means the aggregate rent payable
-----------------
under the Prime Lease.
20
<PAGE>
"Purchaser" means The CIT Group/Equipment Financing,
---------
Inc., a corporation organized under the laws of the State of New York.
"Statutory Accounting Principles" or "SAP" means the
-------------------------------------------
standard accounting principles prescribed or permitted by the
insurance commissioner (or other similar authority) in the
jurisdiction of domicile of any insurance company incorporated in any
jurisdiction of the United States for the preparation of annual
statements and other financial reports by insurance companies of the
same type as such company applied consistently throughout the periods
reflected therein (except as approved by such officers, as the case
may be, and disclosed therein).
"Subsidiary" shall mean any corporation more than 50%
----------
of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time
owned by any Person directly or indirectly through Subsidiaries.
"Trust Estate" shall have the meaning assigned it in
------------
the Declaration of Trust.
21
<PAGE>
This is Counterpart No. of 3 serially numbered, manually
------
executed counterparts. To the extent that this document
constitutes chattel paper under the Uniform Commercial Code
("UCC"), no security interest in this document may be created
through the transfer and possession of any counterpart other
than Counterpart No. 1.
Master Lease
MASTER AGREEMENT OF LEASE ("Master Lease") dated as of December 29, 1994
between First Fidelity Bank, N. A., not in its individual capacity, but
solely as Trustee (Lessor), having a place of business at 5 Research Drive,
Shelton, Connecticut 06484, and THE CONTINENTAL INSURANCE COMPANY
("Lessee"), having a place of business at 180 Maiden Lane, New York, New
York 10038,
Lessee wants to lease from Lessor leasehold improvements to be described in
the schedule of leased equipment (as amended, modified or supplemented, the
"Schedule"). Lessor is willing to lease such leasehold improvements to
Lessee at the rent, for the term and upon the conditions provided
hereinafter. The Schedule executed by Lessor and Lessee which is identified
as being entered into pursuant to this Master Lease shall be deemed to
incorporate by reference all the terms and conditions of this Master Lease
except as provided in such Schedule. The term "Lease" when used herein
shall refer to the Schedule, which incorporates this Master Lease.
1. Equipment Leased and Term.
This Lease shall cover such leasehold improvements as is described in the
Schedule executed by or pursuant to the authority of Lessee, accepted by
Lessor in writing and identified as a part of this Lease (which leasehold
improvements with all replacement parts, additions, repairs, accessions and
accessories incorporated therein and/or affixed thereto is hereinafter
called the "Equipment"). Lessor hereby leases to Lessee and Lessee hereby
hires and takes from Lessor, upon and subject to the covenants and
conditions hereinafter contained, the Equipment described in the Schedule.
The Initial Lease Term with respect to any item of Equipment shall be for
the period as set forth in the Schedule. The Initial Lease Term together
with all renewal terms provided for in the Schedule constitute the "Maximum
Lease Term."
2. Rent.
The aggregate rent payable with respect to the Equipment shall be the amount
shown on the Schedule as the "Aggregate Rent." Lessee shall pay to Lessor
the Aggregate Rent for the Equipment for the full period and term for which
the Equipment is leased, such rent to be payable at such times and in such
amounts for the Equipment as shown in the Schedule.
All rent and other amounts payable hereunder shall be paid at Lessor's place
of business shown above, or such other place as Lessor may designate by
written notice to the Lessee. All rent and other amounts shall be paid
without notice or demand and without abatement, deduction or set off of any
amount whatsoever. This is a non-cancelable net lease, and the obligation
of Lessee to make payments hereunder is absolute and unconditional. Lessee
shall not be entitled to any abatement or reduction of payments hereunder
for any reason including, without limitation, any existing or future offset
or claim which may be asserted by Lessee.
3. No Warranties by Lessor; Maintenance and Compliance with Laws.
Lessor, not being the manufacturer of the Equipment, nor manufacturer's
agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO
THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY,
MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR
WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS"
AND THAT ALL SUCH RISKS, AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY
LESSEE AT ITS SOLE RISK AND EXPENSE; Lessee accordingly agrees not to assert
any claim whatsoever against Lessor based thereon. Lessee further agrees,
regardless of cause, not to assert any claim whatsoever against Lessor for
loss of anticipatory profits or consequential damages. Lessor shall have no
obligation to install, erect, test, adjust or service the Equipment. Lessee
shall look to the manufacturer and/or seller of the Equipment for any claims
related to the Equipment. "Seller" as used in this Lease means the supplier
from which Lessee originally acquired any item of Equipment.
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations
related hereto and/or to the Equipment are integrated herein. Lessee
agrees, at its own cost and expense:
55-SA-2279 (12/94) Master Lease - Continental Lease Page 1 of 8
<PAGE>
(a) to pay all charges and expenses in connection with the operation of
each item of Equipment;
(b) to comply with all governmental laws, ordinances, regulations,
requirements and rules with respect to the use, maintenance and
operation of the Equipment; and
(c) to make all repairs and replacements required to be made to maintain
the Equipment in good condition, reasonable wear and tear excepted.
4. Insurance.
Lessee shall maintain at all times on the Equipment, at its expense, all-risk
physical damage insurance and comprehensive general liability insurance
(covering bodily injury and property damage exposures including, but not
limited to, contractual liability and products liability) in such amounts,
against such risks, in such form and with such insurers as shall be
reasonably satisfactory to Lessor; provided, that the amount of all-risk
physical damage insurance shall not on any date be less than the greater of
the full replacement value or the Liquidated Damages Amount (as defined in
Section 11). Each physical damage insurance policy shall name Lessor as loss
payee for all damage amounts in excess of $1,000,000, and each liability
insurance policy shall name Lessor as additional insured. All insurance
for loss or damage shall provide that the proceeds thereof shall be payable
directly to Lessor for all damage amounts in excess of $1,000,000. Each
insurance policy shall require that the insurer give Lessor at least thirty
(30) days prior written notice of any alteration in or cancellation of the
terms of the policy and require that Lessor's interests be continued insured
regardless of any breach or violation by Lessee or others of any warranties,
declarations or conditions contained in such insurance policy. In no event
shall Lessor be responsible for premiums, warranties or representations to
any insurer or any agent thereof. Lessee shall furnish to Lessor a
certificate or other evidence satisfactory to Lessor that such insurance
coverage is in effect, but Lessor shall be under no duty to ascertain the
existence or adequacy of such insurance. The insurance maintained by
Lessee shall be primary without any right of contribution from insurance
which may be maintained by Lessor. Lessee shall be liable for all
deductible portions of all required insurance. Lessor may (but without any
obligation to do so), at its own expense, for its own benefit, purchase
insurance in excess of that required under this Lease Agreement.
5. Loss and Damage.
Lessee assumes and shall bear the entire risk of any partial or complete
loss with respect to the Equipment from any and every cause whatsoever
including theft, loss, damage, destruction or governmental taking, whether
or not such loss is covered by insurance or caused by any default or neglect
of Lessee. Lessee agrees to give Lessor prompt notice of any damage to or
loss of any Equipment.
If any item of Equipment is lost, totally destroyed, damaged beyond repair
or taken by governmental action (a "casualty loss") the rent due and to
become due thereon shall not abate and Lessee shall at its own expense
replace the lost or destroyed Equipment in accordance with the terms of this
Section. Lessee shall, within thirty days after the date of the casualty
loss, (i) acquire items of equipment equal in number to the items of lost or
destroyed Equipment, of the same or an improved make and model, owned by
Lessee free and clear of all liens, claims and encumbrances and having a
value, utility and remaining useful life at least equal to, and being in as
good condition as, the lost or destroyed items of Equipment, (ii) cause each
such replacement item of equipment to be leased to Lessor on the same terms
and conditions as provided in Schedule of Leased Equipment No. 1 to that
certain Prime Master Lease (the "Prime Master Lease") dated of even date
herewith between Lessee as Prime Lessor and Lessor as Prime Lessee for a
term equal to the term then remaining under the Prime Master Lease, (iii) if
requested by Lessor, execute and deliver to Lessor a supplement to the
related Schedule under this Master Lease confirming that such replacement
item of equipment is for all purposes Equipment subject to such Schedule,
and (iv) take such other action as Lessor may reasonably request, including
filing UCC financing statements and fixture filings with appropriate filing
offices. Each replacement item of equipment shall be deemed upon its
acquisition by Lessee to be and become part of the leasehold improvements
hereunder subject to the terms and conditions hereof and each such
replacement item of equipment shall be deemed an item of Equipment under its
related Schedule whether or not a supplement to that effect is signed and
delivered by Lessee. In the event of partial destruction of any Equipment,
the rent due and to become due thereon shall not abate and Lessee shall, at
its own expense, cause such Equipment to be restored to usable condition, or
Lessee may replace such damaged Equipment in accordance with the procedure
set forth above as though the damaged Equipment was totally destroyed.
Lessor shall, upon receiving satisfactory evidence of replacement due to a
casualty loss or restoration due to partial loss, promptly pay to Lessee the
proceeds of any insurance or compensation actually received by Lessor by
reason of such damage and shall upon Lessee's request execute and deliver
such releases and other instruments as may be necessary to release such
replaced equipment or parts from this Lease. Lessor shall not be obligated
to undertake by litigation or otherwise the collection of any claim against
any person for loss of or governmental taking of the Equipment, but Lessor
will cooperate with Lessee at Lessee's expense to pursue such claims.
The total or partial destruction of any Equipment or the total or partial
loss of use or possession thereof to Lessee shall not release or relieve
Lessee from its obligations hereunder, including the duty to pay the
Aggregate Rent herein provided.
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6. Taxes.
Lessee agrees that, during the term of this Lease, in addition to the
Aggregate Rent and all other amounts provided herein to be paid, it will
promptly pay all taxes, assessments and other governmental charges
(including penalties and interest, if any, and fees for titling or
registration, if required) levied or assessed:
(a) upon the interest of Lessee in the Equipment or upon the use or
operation thereof or on the earnings arising therefrom; and
(b) against Lessor on account of its acquisition or ownership of or
interest in the Equipment or any part thereof, or the use or operation
thereof or the leasing thereof to Lessee, or the Aggregate Rent herein
provided for, or the earnings arising therefrom, exclusive, however, of
any taxes based on net income of Lessor.
Lessee agrees to file, in behalf of Lessor, all required tax returns and
reports concerning the Equipment (but no returns or reports, if any,
required to be filed by Lessor as a result of its status as a trustee) with
all appropriate governmental agencies, and within not more than 45 days
after the due date of such filing to send Lessor confirmation, in form
satisfactory to Lessor, of such filing. If any report, return or property
listing, or any fee, tax or assessment is, by law, required to be filed by,
assessed or billed to, or paid by Lessor, Lessee will, at Lessee's expense,
do all things required by Lessor to be done (to the extent permitted by law)
in connection therewith. Lessee may, in good faith and with due diligence,
contest taxes, assessments or governmental charges related to the Equipment
or this Lease, provided, however, that no item of Equipment will be subject
to a lien, forfeiture, sale or diminution in value in connection with such
contested tax or other charge during any such contest.
7. Lessor's Interest, No Merger of Title, Return and Inspection of
Equipment.
Lessor's interest in and right to use and possess the Equipment arises under
the Prime Master Lease. Lessee will at all times protect and defend, at its
own cost and expense, the rights and interests of Lessor in the Equipment
under the Prime Master Lease from and against all claims, liens and legal
processes of creditors of Lessee and, to the extent such property
constitutes personal property, and except for the property located at 200 S.
Wacker Drive, Chicago, Illinois, keep all the Equipment free and clear from
any and all such claims, liens and processes.
There shall be no merger of this Lease nor of the property interest in the
Equipment created by this Lease with the ownership of or other property
interest in the Equipment or any item thereof by reason of the fact that the
same corporation, firm or other entity may acquire, own or hold, directly or
indirectly, this Lease or the property interest created by this Lease or any
interest in such leasehold or ownership, and no such merger shall occur
unless and until all corporations, firms and other entities having any
ownership or other property interest in the Equipment or any item thereof
shall join in a written instrument effecting such merger.
Upon the expiration or termination of this Lease with respect to any item of
Equipment:
(a) if the relevant Schedule sets forth return provisions, Lessee shall
return the Equipment as provided in such Schedule; or
(b) if the relevant Schedule does not contain return provisions, Lessee at
Lessee's sole expense shall return such Equipment unencumbered to
Lessor at the place where the rent is payable or to such other place as
Lessor and Lessee agree upon, and in the same condition as when
received by Lessee, reasonable wear and tear resulting from use thereof
alone excepted.
Lessor shall have the right (but not the obligation) from time to time
during reasonable business hours after reasonable prior notice (written or
otherwise) to Lessee to enter upon Lessee's premises or elsewhere for the
purpose of confirming the existence, condition and proper maintenance of the
Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as Lessee shall not be in default under the Lease (taking into
account applicable periods of notice and grace) it shall be entitled to the
possession and use of the Equipment in accordance with the terms of this
Lease. The Equipment shall be used in the conduct of the lawful business of
Lessee, and no item of Equipment shall be removed from its location shown on
the Schedule, without the prior written consent of Lessor, such consent to
not be unreasonably withheld. Lessee shall not, without Lessor's prior
written consent (such consent to not be unreasonably withheld), part with
possession or control of the Equipment or attempt or purport to sell,
pledge, mortgage or otherwise encumber any of the Equipment or otherwise
dispose of or encumber any interest under this Lease. In the event Lessor
agrees to the relocation of any Equipment, Lessee shall sign and deliver
such documents and take such other steps, at Lessee's expense, as Lessor may
request, including filing UCC financing statements and fixture filings.
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9. Performance of Obligations of Lessee by Lessor.
In the event that the Lessee shall fail duly and promptly to perform any of
its obligations under the provisions of Sections 3, 4, 5, 6, 7 or 8 of this
Lease, taking into account applicable periods of notice and grace, Lessor
may, at its option but without any obligation to do so, perform the same for
the account of Lessee without thereby waiving such default, and any amount
paid or expense (including reasonable attorneys' fees), penalty or other
liability incurred by Lessor in such performance, together with interest at
the rate of 1 1/2% per month thereon (but in no event greater than the
highest rate permitted by relevant law) until paid by Lessee to Lessor,
shall be payable by Lessee upon demand as additional rent for the Equipment.
10. Default.
An Event of Default shall occur if:
(a) Lessee fails to pay when due any installment of rent and such failure
continues for a period of 5 days; or
(b) Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after the earlier of written notice
thereof to Lessee by Lessor or actual knowledge of such failure by the
Vice President-Treasurer or an Executive Vice President or Senior Vice
President of Lessee; or
(c) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay
its debts as they become due, files a voluntary petition in bankruptcy,
is adjudicated a bankrupt or an insolvent, files a petition seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or
future statute, law or regulation or files an answer admitting the
material allegations of a petition filed against it in any such
proceeding, consents to or acquiesces in the appointment of a trustee,
receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or if it or its shareholders shall take any
action looking to its dissolution or liquidation; or
(d) within 60 days after the commencement of any proceedings against Lessee
seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such proceedings shall not have been dismissed, or if
within 60 days after the appointment without Lessee's consent or
acquiescence of any trustee, receiver or liquidator of it or of all or
any substantial part of its assets and properties, such appointment
shall not be vacated; or
(e) Lessee removes, sells, transfers, encumbers, parts with possession or
sublets the Equipment or any item thereof; or
(f) one or more judgments or decrees shall be entered against the Lessee,
The Continental Corporation or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance or
reinsurance) of $25,000,000 or more, and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(g) (i) The Continental Corporation fails to pay or to perform or is
otherwise in default under any term, covenant or agreement on its part
to be performed (the "failure") under that certain Credit Agreement
(the "Credit Agreement") dated as of December 30, 1993, among The
Continental Corporation, the lenders from time to time parties thereto,
Chemical Bank and Citibank, N.A., as Co-Agents, and Chemical Bank, as
Administrative Agent, as amended by the Amendment dated as of March 30,
1994, the Second Amendment dated as of June 30, 1994, the Third
Amendment dated as of September 29, 1994, the Fourth Amendment dated as
of November 22, 1994 and the Fifth Amendment effective as of December
15, 1994 (which Lessee represents and warrants are the only amendments
to the Credit Agreement as of the date of this Lease), as such
agreement may be further amended, modified or supplemented, and (ii)
such failure constitutes an "Event of Default" as defined in the Credit
Agreement which Event of Default would entitle any party or parties to,
or the holders of any indebtedness issued pursuant to, the Credit
Agreement, directly or indirectly, together or individually, to
accelerate any of the indebtedness evidenced or secured thereby; or
(h) Lessee fails to pay or to perform any term, covenant or agreement on
its part to be performed under that certain Participation Agreement
dated as of December 28, 1988, among Lessee, The Connecticut Bank and
Trust Company, National Association, as Trustee, and Citibank, N.A., as
Purchaser, as amended, modified or supplemented, or any agreement or
instrument evidencing, securing or relating to any refinancing of all
or part of the indebtedness evidenced thereby or any other replacement
thereof and such failure on the part of Lessee constitutes a default
under the corresponding agreement or instrument entitling any other
party thereto or holder thereof to accelerate the indebtedness
evidenced or secured thereby; or
(i) Lessee fails to notify Lessor promptly of any "Event of Default" (as
defined therein) by The Continental Corporation or by Lessee under any
of the agreements or instruments identified in subsections (g) or (h)
of this Section; or
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(j) an "Event of Default" (as defined therein) occurs with respect to The
Buckeye Union Insurance Company ("Buckeye") under that certain Schedule of
Leased Equipment No. 1 dated of even date herewith to that certain Master
Agreement of Lease dated of even date herewith between First Fidelity Bank,
N.A., not in its individual capacity, but solely as Trustee, as Lessor and
Buckeye as Lessee as such Lease may be amended, modified or supplemented
(the "Buckeye Lease") or an "Event of Default" (as defined therein) occurs
with respect to Firemen's Insurance Company of Newark, New Jersey
("Firemen's") under that certain Schedule of Leased Equipment No. 1 dated
of even date herewith to that certain Master Agreement of Lease dated of
even date herewith between First Fidelity Bank, N.A., not in its individual
capacity, but solely as Trustee, as Lessor and Firemen's as Lessee as such
Lease may be amended, modified or supplemented (the "Firemen's Lease"); or
(k) an "Event of Default" (as defined therein) under that certain Participation
Agreement as such Agreement may be amended or modified (the "Participation
Agreement") among Lessor, Lessee and The CIT Group/Equipment Financing,
Inc. dated of even date herewith.
11. Remedies.
Upon the occurrence of an Event of Default, Lessor shall have all the rights and
remedies provided by applicable law and by this Lease. Notwithstanding that
this Agreement is a lease, Lessor may nevertheless at its option choose those
rights and remedies of a secured party under the Uniform Commercial Code. In
addition, Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Lessee, upon demand by Lessor for
payment of the unpaid rent, upon acceleration of the maturity thereof or
otherwise, be obligated to pay any amount in excess of the lesser of that
permitted by law or the Liquidated Damages Amount (as that term is defined
below);
(b) proceed by appropriate court action or actions or other proceedings either
at law or equity to enforce performance by the Lessee of any and all
covenants of this Lease and to recover damages for the breach thereof or
exercise any other right or remedy available to Lessor at law or in equity,
provided, however, that such damages shall in no event exceed the
Liquidated Damages Amount;
(c) demand that Lessee deliver the Equipment forthwith to Lessor at Lessee's
expense at such place as Lessor may designate;
(d) cancel this Lease as to any or all of the Equipment;
(e) without notice or liability or legal process, by itself and/or by its
agents, enter into any premises of or under control or jurisdiction of
Lessee or any agent of Lessee where the Equipment may be or by Lessor is
believed to be, and repossess all or any item thereof, disconnecting and
separating all thereof from any other property and using all force
necessary or permitted by applicable law so to do, Lessee hereby expressly
waiving all further rights to possession of the Equipment and all claims
for injuries suffered through or loss caused by such repossession; and
(f) sell or lease the Equipment at a time and location of its choosing provided
that the Lessor acts in good faith and in a commercially reasonable manner;
and
(g) demand that Lessee pay, and Lessee shall be entitled to recover
immediately, as liquidated damages for loss of a bargain and not as a
penalty, the "Liquidated Damages Amount." The Liquidated Damages Amount
shall be an amount equal to the sum of (i) the rent then due for the
Equipment, plus (ii) all rent to become due thereon during the remaining
term of the Lease, discounted to present value at the Discount Rate (as
that term is defined in the Schedule), plus (iii) the product of the
Maximum Purchase Price Percentage (set forth in the Schedule) which would
be applicable if Lessee elected to purchase Lessor's interest in the
Equipment at the end of the lease term then in effect multiplied by the
Lessor's Equipment Cost at the beginning of the Initial Lease Term,
discounted to present value at the Discount Rate, plus (iv) the
Breakfunding Fee (as defined in Section 16 below), plus (v) the amount of
all commercially reasonable costs and expenses incurred by Lessor in
exercising any of its remedies hereunder, including reasonable attorneys'
fees and costs incurred in connection therewith or otherwise resulting from
any default of Lessee.
Notwithstanding Lessor's right to recover the Liquidated Damages Amount, if any
statute governing the proceeding in which damages are to be proved specifies the
amount of such claim, Lessor shall be entitled to prove as and for damages for
the breach an amount equal to that allowed under such statute. The provisions
of this Section shall be without prejudice to any rights given to the Lessor by
such statute to prove any amounts allowed thereby. Should any proceedings be
instituted by or against Lessor for monies due to Lessor hereunder and/or for
possession of any or all the Equipment or for any other relief or should any
other actions be taken by or against Lessor to collect any monies due hereunder
or to enforce any rights hereunder, Lessee shall pay all costs and expenses
incurred by Lessor in connection with such proceeding or other action including,
without limitation, reasonable attorneys' fees. No remedy of Lessor hereunder
shall be exclusive of any remedy herein or by law provided, but each shall be
cumulative and in addition to every other remedy.
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12. Indemnity.
Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee shall
indemnify and save Lessor (in both its individual and fiduciary capacities), its
agents and employees and any assignee harmless from and against any and all
liability, loss, damage,
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expense (including reasonable legal fees and expenses), causes of action, suits,
claims or judgments arising from or caused directly or indirectly by:
(a) Lessee's failure to promptly perform any of its obligations under the
provisions of Sections 3, 4, 5, 6, 7, 8 and 14 of this Lease; or
(b) injury to persons or damage to property resulting from or based upon actual
or alleged use, operation, delivery or transportation of any or all of the
Equipment or its location or condition; or
(c) inadequacy of the Equipment, or any part thereof, for any purpose or any
deficiency or defect therein or the use or maintenance thereof or any
repairs, servicing or adjustments thereto or any delay in providing or
failure to provide any thereof or any interruption or loss of service or
use thereof.
Lessee shall, at its own cost and expense, defend any and all suits which may be
brought against Lessor, either alone or in conjunction with others upon any such
liability or claim or claims. Lessee shall satisfy, pay and discharge any and
all judgments and fines that may be recovered against Lessor in any such action
or actions. Lessor shall give Lessee written notice of any such claim or
demand. Lessee agrees that its obligations under this Section 12 shall survive
the expiration or termination of this Lease.
13. No Assignment by Lessee, Assignment to Successor Trustee, Notices and
Waivers.
Lessee shall not assign this Lease or its interests hereunder or enter into any
sub-lease with respect to the Equipment covered hereby without the prior written
consent of Lessor, such consent not to be unreasonably withheld, provided,
however, that no such assignment or sublease shall relieve Lessee of its
obligations hereunder.
In the event of the resignation or removal of the First Fidelity Bank, N.A., as
Trustee under that certain Declaration of Trust (the "Declaration of Trust")
dated of even date herewith, and appointment of a successor trustee in
accordance with the terms thereof, Lessor may assign all its rights and
obligations hereunder to the successor trustee which shall, for all purposes
from the date of such assignment, be substituted for First Fidelity Bank, N.A.,
as Lessor hereunder. The successor trustee shall have and be entitled to
exercise any and all rights and powers of Lessor hereunder and shall be
obligated to perform all of Lessor's obligations hereunder. Any assignment of
this Lease by First Fidelity Bank, N.A., as Trustee, to a successor trustee
shall, from the date of such assignment, relieve First Fidelity Bank, N.A., of
any further obligations or liability to Lessee hereunder.
All notices to Lessor shall be delivered in person to an officer of the Lessor,
or shall be sent to Lessor at its address shown herein by certified mail or by
commercial courier in either case with return receipt requested. All notices to
Lessee shall be in writing and shall be delivered by regular mail, certified
mail return receipt requested or commercial courier to Lessee's address shown
herein or at any subsequent address of which Lessee has given notice to Lessor
as provided herein. A waiver of a default shall not be a waiver of any other or
a subsequent default.
14. Financial Statements.
Lessee shall furnish or cause to be furnished to Lessor financial statements as
follows:
(a) GAAP financial statements:
--------------------------
(i) as soon as available, but in any event within 120 days after the end
of each fiscal year of The Continental Corporation, a copy of the consolidated
balance sheet of The Continental Corporation and its consolidated subsidiaries
as at the end of such year and the related consolidated statements of income and
retained earnings and of cash flows for such year, set forth in each case in
comparative form with the same information as of the end of and for the previous
year, all as reported on by KPMG Peat Marwick or other independent certified
public accountants of nationally recognized standing; and
(ii) as soon as available, but in any event not later than 60 days after
the end of each of the first three quarterly periods of each fiscal year of The
Continental Corporation, an unaudited consolidated balance sheet of The
Continental Corporation and its consolidated subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and retained
earnings and of cash flows of The Continental Corporation and its consolidated
subsidiaries for such quarter and the portion of the fiscal year through the end
of such quarter, set forth in each case in comparative form with the same
information for the corresponding date or period in the previous year, certified
by the chief financial officer or Treasurer of The Continental Corporation as
being fairly stated in all material respects (subject to normal year-end audit
adjustments);
all such financial statements to be prepared in reasonable detail and in
accordance with generally accepted accounting principles applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein); and
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(b) SAP financial statements:
-------------------------
(i) as soon as possible, but in any event within 120 days after the end of
each fiscal year of Lessee and each other Reporting Insurance Subsidiary (as
defined below) of The Continental Corporation, a copy of the consolidated
Statutory Statement of Lessee and its affiliated fire and casualty insurers for
such fiscal year, subscribed and sworn to and certified by officers of Lessee or
such other Reporting Insurance Subsidiary as required by applicable law; and
(ii) as soon as possible, but in any event within 60 days after the end of
each of the first three fiscal quarters of each fiscal year of each Reporting
Insurance Subsidiary, a copy of the consolidated Statutory Statement of Lessee
and its affiliated fire and casualty insurers for such fiscal quarter, certified
by officers of Lessee or such other Reporting Insurance Subsidiary as required
by applicable law;
all such financial statements to be prepared in accordance with the standard
accounting principles prescribed or permitted by the insurance commissioner (or
other similar authority) in the jurisdiction of domicile of any insurance
company incorporated in any jurisdiction of the United States for the
preparation of annual statements and other financial reports by insurance
companies of the same type as such company ("SAP") applied consistently
throughout the periods reflected therein (except as approved by such officers,
as the case may be, and disclosed therein). "Statutory Statement" as used in
this Section means, for any subsidiary of The Continental Corporation which is
an insurance company, for each fiscal year of such subsidiary, the most recent
annual statement, prepared in accordance with SAP, as required to be filed with
the appropriate regulatory authority and, for each fiscal quarter of such
subsidiary, the quarterly statement, as required to be filed with the
appropriate regulatory authority, which quarterly statement shall be prepared in
accordance with SAP. Reporting Insurance Subsidiary means each of the following
entities: The Continental Insurance Company, The Buckeye Union Insurance
Company, The Fidelity and Casualty Company of New York, Firemen's Insurance
Company of Newark, New Jersey, and National-Ben Franklin Insurance Company of
Illinois.
15. Further Assurances; Termination of Credit Agreement.
(a) Lessee shall execute and deliver to Lessor, upon Lessor's request such
documents, instruments and assurances and take any such action as Lessor
deems necessary or advisable for the confirmation or perfection of this
Lease and Lessor's rights hereunder or in order for Lessor to effect any
assignment or syndication of any rights, obligations, title or interest in
any Equipment or under this Lease or any related instrument or document,
provided, however, that in no event shall Lessee be required for purposes
of the immediately preceding clause to execute or deliver any such further
documents, instruments or assurances or take such further action to the
extent that such would increase the obligations or reduce the rights of
Lessee as of the date of this Lease. Lessee may not terminate the Schedule
except as provided therein without the written consent of Lessor.
(b) In the event the Credit Agreement referred to in Section 10(g) is
terminated or replaced, Lessee shall notify Lessor of such event within 10
days of its occurrence. In such notice (the "Covenant Notice") Lessee
shall advise Lessor as to whether Lessee will agree, by amendment of this
Lease, to provide the Lessor with the same financial covenants as appear in
Sections 6.1(a) and 6.1(b) of the Credit Agreement as in effect on the date
of this Lease, so that a violation of such covenants would thereafter be an
Event of Default hereunder taking into account such period of grace as is
provided under Section 10(b) hereof. If the Lessee agrees in the Covenant
Notice to provide such covenants, the Lessor shall promptly cause the
necessary amendment(s) to this Lease to be prepared and signed by the
parties hereto (at Lessee's expense).
16. Lease Irrevocability, Breakfunding Fee and Late Charges.
This Lease is irrevocable for the full terms thereof as set forth in the
Schedule and for the Aggregate Rent therein reserved and the rent shall not
abate by reason of termination of Lessee's right of possession and/or the taking
of possession by the Lessor or for any other reason. If for any reason this
Lease is terminated prior to the end of the Maximum Lease Term, Lessee shall pay
Lessor an amount (the "Breakfunding Fee") equal to the Make Whole Premium
defined in Section 6.3 of the Declaration of Trust plus any reasonable out of
pocket costs and expenses incurred in connection with such termination. Any
payment of rent or other amounts payable under this Lease not made when due
shall bear late charges thereon calculated at the rate of 1 1/2% per month, but
in no event greater than the highest rate permitted by relevant law.
17. Purchase, Renewal or Other End of Term Option.
So long as no Event of Default has occurred and is continuing under the Lease,
then Lessee may exercise such purchase, renewal or other end of term options in
accordance with the terms and conditions set forth in the Schedule.
Any purchase or renewal option price stated as "fair market value" ("FMV") for
any item of Equipment on the Schedule shall be determined by an independent
third party appraiser selected by Lessee on the basis of, and shall be equal in
amount to, the value which would be obtained in an arm's length transaction
between an informed and willing buyer-user (other than
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a Lessee currently in possession and a used Equipment dealer) and an informed
and willing seller/lessor under no compulsion to sell/lease.
18. Legal Expenses and Closing Costs.
Lessee shall pay all reasonable costs and expenses, including, without
limitation legal fees and expenses, incurred by Lessor, Lessor's lender and any
broker, consultant or agent engaged by Lessor in connection with the
negotiation, structuring, documentation, closing or financing of this Lease or
any documents related hereto. Lessee shall pay such amounts to Lessor, or to
such parties as Lessor may direct, as such expenses are incurred, provided,
however, that no such payment shall be due prior to the date on which Lessee
executes this Lease.
19. Liability of Lessor.
It is expressly agreed, anything herein to the contrary notwithstanding, that
each and all of the representations, warranties, undertakings and agreements
herein made on the part of Lessor are made and intended not as personal
representations, warranties, undertakings and agreements by First Fidelity Bank,
N.A., or for the purpose or with the intention of binding said bank personally,
but are made and intended for the purpose of binding only the Trust Estate (as
that term is defined in the Declaration of Trust), and this Lease is executed
and delivered by said bank not in its own right but solely in the exercise of
the powers expressly conferred upon it as trustee under the Declaration of
Trust.
20. Security Interest.
Lessee hereby grants Lessor a security interest in all of Lessee's right, title
and interest in and to the Equipment and all proceeds thereof, including any
proceeds of insurance referred to in Section 4 hereof, as security for all of
Lessee's indebtedness and obligations owing under the Lease and the
Participation Agreement, all of the indebtedness and obligations of Buckeye
under the Buckeye Lease and under that certain Participation Agreement dated of
even date herewith among Buckeye, Lessor and CIT and all of the indebtedness and
obligations of Firemen's under the Firemen's Lease and under that certain
Participation Agreement dated of even date herewith among Firemen's, Lessor and
CIT. "Proceeds" shall have the meaning set forth in the Uniform Commercial Code
and shall include without limitation all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash or liquidated claims including
insurance proceeds and condemnation awards.
21. Miscellaneous.
All amounts to be reduced to present value shall be discounted at the Discount
Rate set forth in the Schedule.
If any provision of this Lease is contrary to, prohibited by or deemed invalid
under applicable laws or regulations of any jurisdiction, such provision shall
be inapplicable and deemed omitted but shall not invalidate the remaining
provisions hereof. This Lease shall be governed by and construed in accordance
with the laws (but not the choice of law rules) of the State of New York.
This Lease contains the entire agreement between the parties with respect to the
Equipment, and may not be altered, modified, terminated or discharged except by
a writing signed by the party against whom such alteration, modification,
termination or discharge is sought. The parties may sign this Master Lease in
any number of counterparts and on separate counterparts, each of which shall be
an original, but all of which together shall constitute one and the same
instrument. To the extent this document constitutes chattel paper under the
Uniform Commercial Code, no security interest in this document may be created
through the transfer and possession of any counterpart other than Counterpart
No. 1.
With respect to this Lease or any document contemplated by this Lease, the
parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing the
document as the handwritten execution upon an original copy of the document.
The parties agree that they will promptly forward to the others an executed
original of any document transmitted by facsimile, but that the failure of a
party to do so or the absence of arrival of any such executed document shall
have no effect on the binding nature of the document transmitted by facsimile.
Lessee is a corporation, and this Lease is executed by authority of its Board of
Directors.
55-SA-2279 (12/94) Master Lease - Continental Lease Page 9 of 8
<PAGE>
Lessor: Lessee:
FIRST FIDELITY BANK, N.A., THE CONTINENTAL INSURANCE COMPANY
not in its individual capacity, but
solely as Trustee
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
55-SA-2279 (12/94) Master Lease - Continental Lease Page 10 of 8
<PAGE>
This is Counterpart No. of 3 serially numbered,
--------
manually executed counterparts. To the extent that this
document constitutes chattel paper under the Uniform
Commercial Code ("UCC"), no security interest in this
document may be created through the transfer and possession
of any counterpart other than Counterpart No. 1.
Prime Master Lease
AGREEMENT OF LEASE ("Prime Master Lease") dated as of December 29, 1994 between
The Continental Insurance Company ("Prime Lessor"), having a place of business
at 180 Maiden Lane, New York, New York 10038, and First Fidelity Bank, N.A., not
in its individual capacity but solely as Trustee, ("Prime Lessee"), having a
place of business at 5 Research Drive, Shelton, Connecticut 06484.
Prime Lessee wants to lease from Prime Lessor leasehold improvements to be
described in the schedule of leased equipment (as such schedule may be modified,
amended or supplemented, the "Schedule"). Prime Lessor is willing to lease such
leasehold improvements to Prime Lessee at the rent, for the term and upon the
conditions provided hereinafter. The Schedule executed by Prime Lessor and
Prime Lessee which is identified as being a part of this Lease shall be deemed
to incorporate by reference all the terms and conditions of this Lease except as
provided in the Schedule. The term "Prime Lease" when used herein shall refer
to the Schedule which incorporates this Prime Master Lease.
1. Equipment Leased and Term.
This Prime Lease shall cover such leasehold improvements as is described in the
Schedule executed by or pursuant to the authority of Prime Lessee, accepted by
Prime Lessor in writing and identified as a part of this Prime Lease (which
leasehold improvements with all replacement parts, additions, repairs,
accessions and accessories incorporated therein and/or affixed thereto is
hereinafter called the "Equipment"). Prime Lessor hereby leases to Prime Lessee
and Prime Lessee hereby hires and takes from Prime Lessor, upon and subject to
the covenants and conditions hereinafter contained, the Equipment described in
the Schedule.
2. Rent.
The aggregate rent payable with respect the Equipment shall be the amount shown
on the Schedule as the "Aggregate Rent." Prime Lessee shall pay to Prime Lessor
the Aggregate Rent for the Equipment for the full period and term for which the
Equipment is leased, such rent to be payable at such times and in such amounts
for the Equipment as shown in the Schedule.
Prime Lessee may prepay the Aggregate Rent payable with respect to all, but not
less than all, of the Equipment at any time during the term of this Prime Lease
by paying to Prime Lessor an amount equal to the Aggregate Rent remaining,
discounted to present value at the rate of ten percent (10%) per annum (the
"Prepayment Amount"). Upon receipt by Prime Lessor of the Prepayment Amount,
Prime Lessee shall, without further payment of rent, be entitled for the
remaining term of this Prime Lease to the use and possession of the Equipment in
accordance with the terms of this Prime Lease.
All rent shall be paid at Prime Lessor's place of business shown above, or such
other place as Prime Lessor may designate by written notice to the Prime Lessee.
All rent shall be paid without notice or demand and without abatement, deduction
or set off of any amount whatsoever. This is a non-cancelable lease, and the
obligation of Prime Lessee to make the payments hereunder is absolute and
unconditional. Prime Lessee shall not be entitled to any abatement or reduction
of payments hereunder for any reason including, without limitation, any existing
or future offset or claim which may be asserted by Prime Lessee. The operation
and use of the Equipment shall be at the risk of Prime Lessor, except that
during the term of any sublease permitted hereby, the operation and use of the
Equipment shall be at the risk of the sublessee under such sublease.
3. No Warranties by Prime Lessor; Maintenance and Compliance with Laws.
Prime Lessor, not being the manufacturer of the Equipment, nor manufacturer's
agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR
PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING
AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN
PRIME LESSOR AND PRIME LESSEE, ARE TO BE BORNE BY PRIME LESSEE AT ITS SOLE RISK
AND EXPENSE; Prime Lessee accordingly agrees not to assert any claim whatsoever
against Prime Lessor based thereon. Prime Lessee further agrees, regardless of
cause, not to assert any claim whatsoever against Prime Lessor for loss of
anticipatory profits or consequential damages. Prime Lessor shall have no
obligation to install, erect, test, adjust or service the Equipment. Prime
Lessee shall look to the manufacturer and/or the seller of the Equipment for any
claims related thereto. Prime Lessor hereby acknowledges that any
manufacturer's and/or seller's warranties are for the benefit of both Prime
Lessor and Prime Lessee. "Seller" as used herein means the supplier from which
Prime Lessor acquires any item of Equipment.
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 1 of 6
<PAGE>
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations related
hereto and/or to the Equipment are integrated herein. Prime Lessee agrees, at
its own cost and expense:
(a) to pay or cause to be paid all charges and expenses in connection with the
operation of each item of Equipment;
(b) to comply or cause compliance with all governmental laws, ordinances,
regulations, requirements and rules with respect to the use, maintenance
and operation of the Equipment; and,
(c) subject to the provisions of Sections 4 and 5 hereof, to make or cause to
be made in the normal course of its operation all repairs and replacements
required to be made to maintain the Equipment in good condition, reasonable
wear and tear excepted.
4. Insurance.
Prime Lessor shall maintain at all times on the Equipment, at its expense,
all-risk physical damage insurance and comprehensive general liability insurance
(covering bodily injury and property damage exposures including, but not limited
to, contractual liability and products liability) in such amounts, against such
risks, in such form and with such insurers as shall be satisfactory to Prime
Lessee; provided, that the amount of all-risk physical damage insurance shall
not on any date be less than the full replacement value of the Equipment. Each
physical damage insurance policy shall name Prime Lessee as loss payee for all
damage amounts in excess of $1,000,000.00, and each liability insurance policy
shall name Prime Lessee as additional insured. All insurance for loss or damage
shall provide that the proceeds thereof shall be payable directly to Prime
Lessee for all damage amounts in excess of $1,000,000.00. Each insurance policy
shall also require that the insurer give Prime Lessee at least thirty (30) days
prior written notice of any alteration in or cancellation of the terms of such
policy and require that Prime Lessee's interests be continued insured regardless
of any breach or violation by Prime Lessor or others of any warranties,
declarations or conditions contained in such insurance policy. In no event
shall Prime Lessee under the terms hereof be responsible for premiums,
warranties or representations to any insurer or any agent thereof. Prime Lessor
shall furnish to Prime Lessee a certificate or other evidence satisfactory to
Prime Lessee that such insurance coverage is in effect, but Prime Lessee shall
be under no duty to ascertain the existence or adequacy of such insurance. The
insurance maintained by Prime Lessor shall be primary without any right of
contribution from insurance which may be maintained by Prime Lessee. Prime
Lessor shall be liable for all deductible portions of all required insurance.
Prime Lessee may (but without obligation to do so), at its own expense, for its
own benefit, purchase insurance in excess of that required under this Prime
Lease Agreement.
5. Loss or Damage.
Prime Lessor assumes and shall bear the entire risk of any partial or complete
loss with respect to the Equipment from any and every cause whatsoever including
theft, loss, damage, destruction or governmental taking (but not including
reasonable wear and tear from normal operation), whether or not such loss is
covered by insurance or caused by any default or neglect of Prime Lessee,
provided, however, that during the term of any sublease permitted herein, all
risk of loss shall be on the sublessee under such sublease. Prime Lessee agrees
to give Prime Lessor prompt notice of any damage to or loss of any Equipment of
which Prime Lessee receives notice.
If any item of Equipment is lost, totally destroyed, damaged beyond repair or
taken by governmental action at a time when there is no permitted sublease in
effect, Prime Lessor shall, so long as no Event of Default has occurred and
remains continuing hereunder, replace the lost or destroyed Equipment in
accordance with the terms of this Section and shall, within thirty days after
the date of the casualty, (i) acquire good and marketable title to those items
of equipment, equal in number to the items of lost or destroyed Equipment, of
the same or an improved make and model, free and clear of all liens, claims and
encumbrances and having a value, utility and remaining useful life at least
equal to, and being in as good condition as the lost or destroyed items of
Equipment, and (ii) if requested by Prime Lessee, execute and deliver to Prime
Lessee a supplement to the related Schedule confirming that such replacement
item of equipment is for all purposes Equipment subject to such Schedule. Prime
Lessor may take such action as it may reasonably determine at its expense with
respect to such replacement equipment, including filing UCC financing
statements, fixture filings and amendments to existing financing statements and
fixture filings with appropriate filing offices and Prime Lessee shall cooperate
with respect thereto. Each replacement item of equipment shall be deemed part
of the property leased hereunder subject to the terms and conditions hereof and
each such replacement item of equipment shall be deemed an item of Equipment for
all purposes under its related Schedule.
In the event of partial destruction of any Equipment at a time when there is no
permitted sublease in effect, the rent due and to become due thereon shall not
abate and Prime Lessor shall, at its own expense, cause such Equipment to be
restored to usable condition, but Prime Lessee shall, upon receiving
satisfactory evidence of such restoration, promptly pay Prime Lessor the
proceeds of any insurance or compensation received by reason of such damage up
to the amount expended by Prime Lessor in making the repair. Prime Lessor shall
determine in the exercise of its reasonable judgment, subject to Prime Lessee's
approval, whether the Equipment is damaged beyond repair. However, if the
estimated cost of restoring such Equipment exceeds 50% of the unmatured rent
therefor, such Equipment shall be deemed, for all purposes hereof, to be totally
destroyed and the obligations of Prime Lessor therefor shall be as set forth in
the preceding paragraph of this Section.
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 2 of 6
<PAGE>
Neither Prime Lessor nor Prime Lessee shall be obligated by the terms of this
Prime Lease to undertake by litigation or otherwise the collection of any claim
against any person for loss of or governmental taking of the Equipment, and the
obligation of Prime Lessor to replace such Equipment at Prime Lessor's expense
as provided in this Section 5 shall not be affected by the existence or non-
existence of any such claim.
The total or partial destruction of any Equipment or the total or partial loss
of use or possession thereof to Prime Lessee shall not release or relieve Prime
Lessee from its obligations hereunder, including the duty to pay the Aggregate
Rent herein provided.
6. Taxes.
Prime Lessor agrees that, during the term of this Prime Lease, it will promptly
pay all taxes, assessments and other governmental charges (including penalties
and interest, if any, and fees for titling or registration, if required) levied
or assessed:
(a) upon the interest of Prime Lessee in the Equipment or upon the use or
operation thereof or on the earnings arising therefrom; and
(b) against Prime Lessor on account of its acquisition or ownership of the
Equipment or any part thereof, or the use or operation thereof or the
leasing thereof to Prime Lessee, or the rent herein provided for, or the
earnings arising therefrom.
Prime Lessor agrees to file, in behalf of Prime Lessee, all required tax returns
and reports concerning the Equipment (but no returns or reports, if any,
required to be filed by Lessee as a result of the status as a trustee) with all
appropriate governmental agencies, and within not more than 45 days after the
due date of such filing to send Prime Lessee confirmation, in form satisfactory
to Prime Lessee, of such filing.
7. Prime Lessor's Title, Right of Inspection and Identification of Equipment.
To the extent the Equipment constitutes personal property and not a fixture, and
except for the property located at 200 S. Wacker Drive, Chicago, Illinois 60606,
Prime Lessor represents and warrants that it owns the Equipment free and clear
of all liens, claims and encumbrances except for the rights of Prime Lessee
under this Prime Lease. Throughout the term of this Prime Lease, title to the
Equipment shall at all times remain in Prime Lessor, and Prime Lessor will at
all times protect and defend, at its own cost and expense, the Equipment from
and against all claims, liens and legal processes of creditors of Prime Lessor
and keep all the Equipment free and clear from all such claims, liens and
processes. Prime Lessor's interest in and right to lease any Equipment not
constituting personal property arises under the Landlord's Waiver and Consent
forms listed on Exhibit A hereto. Except for the property located at 200 S.
Wacker Drive, Chicago, Illinois 60606, and to the extent set forth in Landlord's
Waiver and Consents, Prime Lessor has the full legal power, right and authority
to lease the Equipment to Prime Lessee. Upon the expiration or termination of
this Prime Lease with respect to any item of Equipment, Prime Lessee at Prime
Lessor's sole expense shall return such Equipment unencumbered to Prime Lessor
at the place where the rent is payable or to such other place as Prime Lessor
and Prime Lessee agree upon, and in the same condition as when received by Prime
Lessee, reasonable wear and tear resulting from use thereof alone excepted.
Prime Lessor shall have the right from time to time during reasonable business
hours to enter upon Prime Lessee's premises or elsewhere for the purpose of
confirming the existence, condition and proper maintenance of the Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as no Event of Default as defined herein has occurred and remains
continuing, Prime Lessee shall be entitled to the possession and use of the
Equipment in accordance with the terms of this Prime Lease. The Equipment shall
be used in the conduct of the lawful business of Prime Lessee, and no item of
Equipment shall be removed from its location shown on the Schedule, without the
prior written consent of Prime Lessor. Prime Lessee shall not, without Prime
Lessor's prior written consent, part with possession or control of the Equipment
or attempt or purport to sell, pledge, mortgage or otherwise encumber any of the
Equipment or otherwise dispose of or encumber any interest under this Prime
Lease except as provided in Section 13.
9. Performance of Obligations of Prime Lessee by Prime Lessor.
In the event that the Prime Lessee shall fail duly and promptly to perform any
of its obligations under the provisions of this Prime Lease, Prime Lessor may,
at its option, perform the same for the account of Prime Lessee without thereby
waiving such default, and any amount paid or expense (including reasonable
attorneys' fees), penalty or other liability incurred by Prime Lessor in such
performance, together with interest at the rate of 1 1/2% per month thereon (but
in no event greater than the highest rate permitted by relevant law) until paid
by Prime Lessee to Prime Lessor, shall be payable by Prime Lessee upon demand as
additional rent for the Equipment.
10. Default.
An Event of Default shall occur if:
(a) Prime Lessee fails to pay when due any installment of rent and such failure
continues for a period of 5 days;
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 3 of 6
<PAGE>
(b) Prime Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after written notice thereof to Prime Lessee
by Prime Lessor;
(c) Prime Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay its
debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law
or regulation or files an answer admitting the material allegations of a
petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation;
(d) within 60 days after the commencement of any proceedings against Prime
Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceedings shall not have been dismissed, or if within 60
days after the appointment without Prime Lessee's consent or acquiescence
of any trustee, receiver or liquidator of it or of all or any substantial
part of its assets and properties, such appointment shall not be vacated;
or
(e) Prime Lessee attempts to remove, sell, transfer, encumber or part with
possession the Equipment or any item thereof except as provided in Section
13.
11. Remedies
Upon the occurrence of an Event of Default, Prime Lessor shall have all the
rights and remedies provided by applicable law and by this Prime Lease.
Notwithstanding that this Agreement is a lease and title to the Equipment is at
all times in Prime Lessor, Prime Lessor may nevertheless at its option choose
those rights and remedies of a secured party under the Uniform Commercial Code.
In addition, Prime Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Prime Lessee, upon demand by Prime
Lessor for payment of the unpaid rent, upon acceleration of the maturity
thereof or otherwise, be obligated to pay any amount in excess of that
permitted by law;
(b) proceed by appropriate court action or actions or other proceedings either
at law or equity to enforce performance by the Prime Lessee of any and all
covenants of this Prime Lease and to recover damages for the breach
thereof;
(c) demand that Prime Lessee deliver the Equipment forthwith to Prime Lessor at
Prime Lessor's expense at such place as Prime Lessor may designate; and
(d) Prime Lessor and/or its agents may without notice or liability or legal
process, enter into any premises of or under control or jurisdiction of
Prime Lessee or any agent of Prime Lessee where the Equipment may be or by
Prime Lessor is believed to be, and repossess all or any item thereof,
disconnecting and separating all thereof from any other property and using
all force necessary or permitted by applicable law so to do, Prime Lessee
hereby expressly waiving all further rights to possession of the Equipment
and all claims for injuries suffered through or loss caused by such
repossession; Prime Lessor may sell or lease the Equipment at a time and
location of its choosing provided that the Prime Lessor acts in good faith
and in a commercially reasonable manner, but the Prime Lessor shall
nevertheless, be entitled to recover immediately as liquidated damages for
loss of the bargain and not as a penalty any unpaid rent that accrued on or
before the occurrence of the event of default plus an amount equal to the
difference between the aggregate unpaid rent reserved hereunder for the
unexpired term of this Prime Lease and the then aggregate fair market
rental value of all Equipment for such unexpired term, provided, however,
that if any statute governing the proceeding in which such damages are to
be proved specifies the amount of such claim, Prime Lessor shall be
entitled to prove as and for damages for the breach an amount equal to that
allowed under such statute. The provisions of this paragraph shall be
without prejudice to any rights given to the Prime Lessor by such statute
to prove any amounts allowed thereby. Should any proceedings be instituted
by or against Prime Lessee for monies due to Prime Lessor hereunder and/or
for possession of any or all of the Equipment or for any other relief,
Prime Lessee shall pay a reasonable sum as attorneys' fees.
No remedy of Prime Lessor hereunder shall be exclusive of any remedy herein or
by law provided, but each shall be cumulative and in addition to every other
remedy.
12. Indemnity.
Prime Lessee agrees that Prime Lessor shall not be liable to Prime Lessee for,
and Prime Lessee shall indemnify and save Prime Lessor harmless from and
against, any and all liability, loss, damage, expense, causes of action, suits,
claims or judgments arising from or caused directly or indirectly by Prime
Lessee's failure to promptly perform any of its obligations under the provisions
of this Prime Lease.
13. Assignment, Notices and Waivers.
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 4 of 6
<PAGE>
This Prime Lease and all rights of Prime Lessor hereunder shall be assignable by
Prime Lessor only with Prime Lessee's consent, such consent not to be
unreasonably withheld. After such assignment, Prime Lessor shall not be
assignee's agent for any purpose, Prime Lessee will settle all claims arising
out of alleged breach of warranties or otherwise, defenses, set-offs and
counterclaims it may have against Prime Lessor directly with Prime Lessor, and
not set up any such against Prime Lessor's assignee, Prime Lessor hereby
agreeing to remain responsible therefor. Prime Lessee, upon consenting to and
receiving notice of any such assignment, shall abide thereby and make payment as
may therein be directed. Following such assignment, solely for the purpose of
determining assignee's rights hereunder, the term "Prime Lessor" shall be deemed
to include or refer to Prime Lessor's assignee. Prime Lessee may assign this
Prime Lease or its interests hereunder or sublease the Equipment covered hereby.
No such assignment or sublease shall relieve Prime Lessee of any of its
obligations to Prime Lessor hereunder, except as provided in the immediately
succeeding paragraph of this Section.
In the event of the resignation or removal of the First Fidelity Bank, N.A., as
Trustee under that certain Declaration of Trust (the "Declaration of Trust")
dated of even date herewith, and appointment of a successor trustee in
accordance with the terms thereof, Prime Lessee may assign all its rights and
obligations hereunder to the successor trustee which shall, for all purposes
from the date of such assignment, be substituted for First Fidelity Bank, N.A.,
as Prime Lessee hereunder. The successor trustee shall have and be entitled to
exercise any and all rights and powers of Prime Lessee hereunder and shall be
obligated to perform all of Prime Lessee's obligations hereunder. Any
assignment of this Prime Lease by First Fidelity Bank, N.A., as Trustee, to a
successor trustee shall, from the date of such assignment, relieve First
Fidelity Bank, N.A., of any further obligations or liability to Prime Lessor
hereunder.
All notices to Prime Lessor shall be delivered in person to an officer of the
Prime Lessor, or shall be sent certified mail return receipt requested or by
courier to Prime Lessor at its address shown herein or at any later address last
known to the sender. All notices to Prime Lessee shall be in writing and shall
be delivered by mail at its address shown herein or at any later address last
known to the sender.
A waiver of a default shall not be a waiver of any other or a subsequent
default.
14. Further Assurances.
Prime Lessee shall execute and deliver to Prime Lessor, upon Prime Lessor's
request such instruments and assurances as Prime Lessor deems necessary or
advisable for the confirmation or perfection of this Prime Lease and Prime
Lessor's rights hereunder. Prime Lessee may not terminate the Schedule without
the written consent of Prime Lessor.
15. Prime Lease Irrevocability and Charges.
This Prime Lease is irrevocable for the full terms thereof as set forth in the
Schedule and for the aggregate rentals therein reserved and the rent shall not
abate by reason of termination of Prime Lessee's right of possession and/or the
taking of possession by the Prime Lessor or for any other reason. Any payment
not made when due shall, at the option of Prime Lessor, bear late charges
thereon calculated at the rate of 1 1/2% per month, but in no event greater than
the highest rate permitted by relevant law. Prime Lessee shall be responsible
for and pay to Prime Lessor a returned check fee, not to exceed the maximum
permitted by law, which fee will be equal to the sum of (i) the actual bank
charges incurred by Prime Lessor plus (ii) all other actual costs and expenses
incurred by Prime Lessor. The returned check fee is payable upon demand as
additional rent under this Prime Lease.
16. Liability of Prime Lessee.
It is expressly agreed, anything herein to the contrary notwithstanding, that
each and all of the representations, warranties, undertakings and agreements
herein made on the part of Prime Lessee are made and intended not as personal
representations, warranties, undertakings and agreements by First Fidelity Bank,
N.A., or for the purpose or with the intention of binding said bank personally,
but are made and intended for the purpose of binding only the Trust Estate (as
that term is defined in the Declaration of Trust), and this Prime Lease is
executed and delivered by said bank not in its own right but solely in the
exercise of the powers expressly conferred upon it as trustee under the
Declaration of Trust.
17. Miscellaneous.
If any provision of this Prime Lease is contrary to, prohibited by or deemed
invalid under applicable laws or regulations of any jurisdiction, such provision
shall be inapplicable and deemed omitted but shall not invalidate the remaining
provisions hereof. This Prime Lease shall be governed by and construed in
accordance with the laws (but not the choice of law rules) of the state of New
York.
This lease contains the entire agreement between the parties with respect to the
Equipment, and may not be altered, modified, terminated or discharged except by
a writing signed by the party against whom such alteration, modification,
termination or discharge is sought.
The parties may sign this Prime Master Lease in any number of counterparts and
on separate counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument. To the extent this
document constitutes
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 5 of 6
<PAGE>
chattel paper under the Uniform Commercial Code, no security interest in this
document may be created through the transfer and possession of any counterpart
other than Counterpart No. 1.
With respect to this Prime Master Lease or any document contemplated by this
Prime Master Lease, the parties agree that the execution and transmittal of any
such document by facsimile shall be of the same binding effect on the party so
executing the document as the handwritten execution upon an original copy of the
document. The parties agree that they will promptly forward to the others an
executed original of any document transmitted by facsimile, but that the failure
of a party to do so or the absence of arrival of any such executed document
shall have no effect on the binding nature of the document transmitted by
facsimile.
This Prime Lease is executed by Prime Lessee by authority of the Declaration of
Trust.
Dated: December 29, 1994
Prime Lessor: Prime Lessee:
THE CONTINENTAL INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
not in its individual capacity, but
solely as Trustee
By Title By Title
---------------- ----------- ------------- -------------
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 6 of 6
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Master Lease")
between First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Lessor")
and The Continental Insurance Company ("Lessee").
This is Counterpart No. of 3 serially numbered,
------
manually executed counterparts. To the extent that
this document constitutes chattel paper under the
Uniform Commercial Code, no security interest in this
document may be created through the transfer and
possession of any counterpart other than Counterpart
No. 1.
Pursuant to the Master Lease, which is incorporated herein by
reference, Lessee agrees to lease the below-described Equipment
from Lessor, its successors or permitted assigns, and Lessor, by
acceptance of this Lease, agrees to lease the Equipment to
Lessee, its successors or permitted assigns, on the terms set
forth in this Schedule of Leased Equipment (herein the
"Schedule").
1. Equipment Description: The Equipment to be leased pursuant
to this Schedule is described in Exhibit A to this Schedule,
which is incorporated herein by reference.
2. Aggregate Rent for the Initial Lease Term and Each Renewal Term:
$7,767,972.70
3. Monthly Rent (for Initial Lease Term and Each Renewal Term): $647,331.06
4. Commencement Date: December 29, 1994
5. Due Date of First Monthly Rent: January 29, 1995
6. Initial Lease Term: The initial term of this Lease for the
Equipment described in this Schedule shall expire 12 months
from the Commencement Date hereof.
7. Maximum Lease Term: The maximum term of this Lease for the
Equipment described in this Schedule shall be the Initial
Lease Term plus the three twelve-month renewal terms
permitted by this Schedule.
8. Rentals: For said Initial Term, and each renewal term, if
any, Lessee shall pay to Lessor the stated aggregate rent
payable thereunder in 12 equal, successive, monthly payments
as stated, of which the first is due on the first monthly
rent date set forth above, and the others on a like date of
each month thereafter, until fully paid.
9. Lessor's Equipment Cost: For the Initial Lease Term and for
each renewal term, if any, the Lessor's Equipment Cost shall
be the amount set forth below:
Initial Lease Term $25,874,397.00
First Renewal Term $21,599,397.73
Second Renewal Term $15,455,843.35
Third Renewal Term $ 8,717,281.85
10. Discount Rate: 9.28% percent per annum.
Page 1 of 4
<PAGE>
11. Special Provisions:
(a) End of Term Options: So long as no Event of Default has occurred and is
continuing under the Lease, Lessee shall have the options set forth herein.
(i) Option to Renew. At the expiration of the Initial Lease Term or at
---------------
the expiration of any renewal term provided herein, Lessee may renew
this Lease with respect to all, but not less than all, of the
Equipment, on the terms and conditions of this Lease, for a renewal
term of twelve months at the monthly rent set forth in the Schedule;
provided, however, that Lessee may exercise this option only if
Buckeye and Firemen's make the same election to renew under the
Buckeye Lease and the Firemen's Lease, respectively; and provided
further that Lessee may not renew this Lease for more than three
consecutive twelve-month renewal terms beyond the expiration of the
Initial Lease Term. If Lessee desires to exercise this option, Lessee
shall give Lessor written notice of its election to renew at least 10
days prior to the expiration of the Initial Lease Term or such renewal
term then in effect. Such election shall be effective with respect to
all of the Equipment.
(ii) Option to Purchase. At the expiration of the Initial Lease Term or at
------------------
the expiration of any renewal term provided herein, Lessee may
purchase from Lessor all of Lessor's rights to and interests in all,
but not less than all, the Equipment as Prime Lessee under Schedule of
Leased Equipment No. 1 to that certain Prime Master Lease (said
Schedule and Prime Master Lease being referred to collectively herein
as the "Prime Lease") dated of even date herewith between Lessor as
Prime Lessee and Lessee as Prime Lessor; provided, however, that
Lessee may exercise this option only if Buckeye and Firemen's make the
same election to purchase under the Buckeye Lease and the Firemen's
Lease, respectively. If Lessee desires to exercise this option,
Lessee shall give Lessor written notice of its election at least 90
days prior to the expiration of the Initial Lease Term or such renewal
term then in effect. Such election shall be effective with respect to
all the Equipment subject to this Lease and the Prime Lease. At the
expiration of the lease term during which Lessee exercises this option
to purchase, Lessee shall pay to Lessor in cash the Maximum Purchase
Price, plus the Breakfunding Fee described in Section 16 of the Master
Lease. The Maximum Purchase Price shall be an amount equal to the
greater of (1) the fair market rental value of the Equipment for the
remaining term of said Prime Lease as determined by an independent
third-party appraiser selected by Lessee or (2) the product of
Lessor's Equipment Cost at the beginning of the Initial Term,
multiplied by the Maximum Purchase Price Percentage set forth below
corresponding to the lease term at the end of which Lessee exercises
this option:
Option Exercised Maximum Purchase Lessor's Maximum
at End of Price Percentage Equipment Cost Purchase Price
--------- ---------------- -------------- --------------
Initial Lease Term 78.35% $25,874,397.00 $20,273,311.32
First Renewal Term 54.61% $25,874,397.00 $14,129,756.95
Second Renewal Term 28.57% $25,874,397.00 $7,391,195.45
Third Renewal Term Fair Market Value
Lessee shall bear all costs related to any appraisal of the Equipment.
Upon receipt of the Maximum Purchase Price, Lessor shall transfer and
assign to Lessee all of Lessor's rights to and interests in the
Equipment and under the Prime Lease without recourse or warranty.
Lessor shall not be required to make and may specifically disclaim any
Page 2 of 4
<PAGE>
representation or warranty as to the condition of the Equipment or any
other matters. Notwithstanding any election of Lessee to purchase,
the provisions of this Lease shall continue in full force and effect
until the transfer and assignment of interests contemplated herein is
completed.
(iii) Option to Return. At the expiration of the Initial Lease Term or at
-----------------
the expiration of any renewal term provided herein, Lessee may return
to Lessor all, but not less than all, of the Equipment, in accordance
with the return provisions set forth in the Lease; provided, however,
that Lessee may exercise this option only if Buckeye and Firemen's
make the same election to return under the Buckeye Lease and the
Firemen's Lease, respectively. If Lessee desires to exercise this
option, Lessee shall give Lessor written notice of its election to
return the Equipment at least 365 days prior to the expiration of the
Initial Lease Term or such renewal term then in effect. On the date
Lessee gives such notice, Lessee shall pay to Lessor in cash a deposit
(the "Deposit") to cover the costs of crating, shipping, storing or
refurbishing the Equipment. The Deposit shall be an amount equal to
ten and one-half percent of the Lessor's Equipment Cost if the Lessee
exercises this option at the end of the initial Lease Term or, if the
Lessee exercises this option at the end of a renewal term, an amount
equal to ten percent of the Lessor's Equipment Cost for the renewal
term at the end of which Lessee has elected to return the Equipment.
Lessor may, in Lessor's sole discretion, refund the Deposit to Lessee
if Lessor determines that Lessee has complied in all respects with the
return provisions set forth in this Lease. Such election to return
the Equipment shall be effective with respect to all of the Equipment.
At the expiration of the Lease Term during which Lessee exercises this
option, Lessee shall return the Equipment to Lessor in accordance with
the return provisions set forth in the Lease, and Lessee shall pay to
Lessor in cash the Termination Fee, plus the Breakfunding Fee. The
Termination Fee shall be an amount equal to the product of the
Lessor's Equipment Cost at the beginning of the Initial Term
multiplied by the Termination Fee Percentage set forth below
corresponding to the lease term during which Lessee exercises this
Option:
<TABLE><CAPTION>
Option Exercised at End of Termination Fee Percentage Lessor's Equipment Cost
-------------------------- -------------------------- ------------------------
<S> <C> <C>
Initial Lease Term 67.37% $25,874,397.00
First Renewal Term 51.07% $25,874,397.00
Second Renewal Term 27.63% $25,874,397.00
Third Renewal Term 0% $25,874,397.00
</TABLE>
(iv) If Lessee fails to exercise any of the options set forth herein, or if
Buckeye and Firemen's fail to exercise simultaneously with Lessee the
same option under the Buckeye Lease and the Firemen's Lease,
respectively, then at the expiration of the Initial Lease Term or any
renewal term, this Lease shall be automatically renewed with respect
to all the Equipment on the terms and conditions of this Lease, for a
renewal term of twelve months at the monthly rent set forth in the
Schedule; provided, however, that this Lease shall not be renewed for
more than three consecutive twelve-month renewal terms beyond the
expiration of the Initial Lease Term.
(b) Return Provisions: Lessee shall, if Lessee intends to terminate the Lease
at the termination of the Initial Lease Term or at the termination of any
renewal term prior to the expiration of the Maximum Lease Term (the
"Termination Date"), at its expense, de-install, pack and return all the
Equipment to Lessor at such locations within the continental United States
as shall be designated by Lessor. Lessee shall have each item of Equipment
restored, reconditioned, refurbished or refinished so as to be in the same
operating order, repair, condition and appearance as when it was new
(subject to ordinary wear and tear) with all subsequent engineering changes
prescribed by the manufacturer of the Equipment or any maintenance
Page 3 of 4
<PAGE>
contractor approved by Lessor incorporated in the Equipment. All Equipment
will be cleaned and cosmetically acceptable, with no noticeable cracks,
scratches or other visual or mechanical damage and in such condition that
it may be immediately installed and placed into use. Lessee shall ensure
that all Equipment and equipment operations conform to all applicable
local, state and federal laws and health and safety guidelines. At
Lessor's request, Lessee shall at its expense within 30 days of the
Termination Date assemble the Equipment in an appropriate storage facility.
While the Equipment is being stored by Lessee, and until it is returned as
herein provided, Lessee shall continue at its expense to insure the
Equipment as provided in the Lease and shall continue to bear the risk of
loss with respect to the Equipment as provided in the Lease.
In the event Lessee exercises none of the end of term options set forth
herein, then at the expiration of the Maximum Lease Term, Lessee shall
return the Equipment in accordance with the return provisions set forth in
the Master Lease as if no return provisions were set forth in this
Schedule.
This Schedule of Leased Equipment together with its Exhibits and Riders, if any,
and the Master Lease incorporated herein by reference constitute the entire
agreement between the parties as to the Lease and Equipment.
With respect to this Schedule or any document contemplated by this Schedule, the
parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing the
document as the handwritten execution upon an original copy of the document.
The parties agree that they will promptly forward to the others an executed
original of any document transmitted by facsimile, but that the failure of a
party to do so or the absence of arrival of any such executed document shall
have no effect on the binding nature of the document transmitted by facsimile.
The parties may sign this Schedule in any number of counterparts and on separate
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. To the extent this document
constitutes chattel paper under the Uniform Commercial Code, no security
interest in this document may be created through the transfer and possession of
any counterpart other than Counterpart No. 1.
Accepted:
LESSOR: LESSEE:
FIRST FIDELITY BANK, N.A., THE CONTINENTAL INSURANCE COMPANY
not in its individual capacity, but
solely as Trustee
By:_________________________ By:_________________________
Name:_______________________ Name:_______________________
Title:______________________ Title:______________________
Page 4 of 4
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Prime Master Lease")
between The Continental Insurance Company ("Prime Lessor")
and First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Prime Lessee").
This is Counterpart No. of 3 serially numbered, manually executed
-----
counterparts. To the extent that this document constitutes chattel
paper under the Uniform Commercial Code, no security interest in this
document may be created through the transfer and possession of any
counterpart other than Counterpart No. 1.
Pursuant to the Prime Master Lease, which is incorporated herein by reference,
Prime Lessee agrees to lease the below-described Equipment from Prime Lessor,
its successors or assigns, and Prime Lessor, by acceptance of this Prime Lease,
agrees to lease the Equipment to Prime Lessee, on the terms set forth in this
Schedule of Leased Equipment (herein the "Schedule").
1. Equipment Description: The Equipment to be leased pursuant to this
Schedule is described in Exhibit A to this Schedule, which is incorporated
herein by reference.
2. Aggregate Rent for the Lease Term: $ 41,031,847.20
3. Monthly Rent: $ 341,932.06
4. Commencement Date: December 29, 1994
5. Due Date of First Annual Rent: January 29, 1995
6. Lease Term: The term of this Prime Lease for the Equipment described in
this Schedule shall be 10 years from the Commencement Date hereof.
7. Rentals: For said Lease Term or any portion thereof, Prime Lessee shall
pay to Prime Lessor the stated Aggregate Rent payable thereunder in 10
equal, successive, annual payments as stated, of which the first is due on
the first annual rent date set forth above, and the others on a like date
of each year thereafter, until fully paid.
This Schedule of Leased Equipment together with its Exhibits and Riders, if any,
and the Prime Master Lease incorporated herein by reference constitute the
entire agreement between the parties as to the Prime Lease and Equipment.
Accepted:
LESSOR: LESSEE:
THE CONTINENTAL INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
not in its individual capacity, but
solely
as Trustee
By:______________________________ By:_______________________________
Name:____________________________ Name:_____________________________
Title:___________________________ Title:____________________________
-----------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
Among
FIREMEN'S INSURANCE COMPANY,
OF NEWARK, NEW JERSEY
FIRST FIDELITY BANK, N.A., not in its individual
capacity except as expressly stated herein,
but solely as Trustee,
-------
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Purchaser
---------
-----------------------------------------------------------------
<PAGE>
PARTICIPATION AGREEMENT dated as of December 29, 1994
(as amended, modified or supplemented, the "Participation
Agreement"), among FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW
JERSEY, a New Jersey corporation (together with its successors
and permitted assigns, the "Lessee"); FIRST FIDELITY BANK, N.A.,
a national banking association, not in its individual capacity
except as expressly stated herein, but solely as Trustee under
that certain Declaration of Trust dated of even date herewith
(together with its successors and permitted assigns, the
"Trustee"); and THE CIT GROUP/EQUIPMENT FINANCING, INC., a New
York corporation, as Purchaser (together with its successors and
permitted assigns, the "Purchaser"). Capitalized terms used in
this Participation Agreement and not defined herein shall have
the meanings set forth in Appendix A hereto.
Preliminary Statement
---------------------
Lessee owns or leases certain leasehold improvements
(the "Equipment") the description and location of which is
incorporated in the Lease (as hereinafter defined). The Lessee
will lease, or sublease, as the case may be, the Equipment to the
Trustee pursuant to a prime lease, substantially in the form of
Exhibit A hereto (as the same may be amended, modified, or
supplemented from time to time, the "Prime Lease").
Concurrently, the Trustee shall sublease or sub-sublease, as the
case may be, the Equipment to the Lessee pursuant to a lease
agreement, substantially in the form of Exhibit B hereto (as the
same may be amended, modified or supplemented from time to time,
the "Lease").
The Trustee will hold its leasehold interest in the
Equipment and its rights under the Prime Lease, the Lease and
related documents in trust pursuant to a declaration of trust,
substantially in the form of Exhibit C hereto (as the same may be
amended, modified or supplemented from time to time, the
"Declaration of Trust"). In order to finance the payment of
Prime Lease Rent, and the payment of rent under substantially
similar leases between the Trustee and The Continental Insurance
Company ("Continental") and between the Trustee and The Buckeye
Union Insurance Company ("Buckeye") (those leases being referred
to as the "Continental Prime Lease" and the "Buckeye Prime
Lease," respectively) the Trustee will issue to the Purchaser
equipment trust notes of three series (collectively, the "Notes")
as provided in the Declaration of Trust. The Notes, in the
aggregate principal amount of $30,000,000.00, will be issued to
pay the Prime Lease Rent, and rent payable by the Trustee under
the Continental Prime Lease and the Buckeye Prime Lease and the
Notes shall be issued, be dated, mature and be payable as
provided in the Declaration of Trust. The Notes shall be secured
by the trust estate held pursuant to the Declaration of Trust,
including, as applicable, a guaranty given by The Continental
Corporation (herein called the "Guarantor") of the Lessee's
obligations to make payments under the Lease substantially in the
form of Exhibit D hereto (the "Lease Guaranty") and a security
interest in the Lessee's interest in the Equipment pursuant to
the security interest granted by the Lessee in the Lease. The
Prime Lease, the Lease, the Declaration of Trust, the Notes, the
Lease Guaranty, and this Participation Agreement are herein
sometimes collectively called the "Operative Documents."
2
<PAGE>
NOW, THEREFORE, in consideration of the agreements
herein and in the other Operative Documents and in reliance upon
the representations and warranties set forth herein and therein,
the parties agree as follows:
ARTICLE I
FINANCING
SECTION 1.01. Agreement to Issue and Purchase.
-------------------------------
(a) Subject to the terms and conditions of this Article
I, on the Closing Date the Purchaser shall advance to the Trustee
the amount of $30,000,000.00, and the Trustee shall issue to the
Purchaser in consideration therefor Notes in the aggregate
principal amount of $30,000,000.
SECTION 1.02. Closing Date. The closing of the
-------------
transactions specified herein shall take place at 10:00 A.M. on
December 29, 1994 or on such other date, and in such manner and
in such place as the Trustee, the Purchaser, the Guarantor, and
the Lessee shall mutually agree (the "Closing Date").
SECTION 1.03. Closing. On the Closing Date, subject
-------
to the satisfaction of the conditions set forth in Section 2.01
of this Participation Agreement:
(a) The Operative Documents shall be duly authorized,
executed and delivered by the parties thereto; and
(b) The Purchaser shall make payment for the Notes
issued at the Closing Date at a price equal to the principal
amount thereof by transfer of immediately available funds in the
amount of $30,000,000.00 to the account of the Trustee at First
Fidelity Bank, N.A., ABA No. 031201467, account #0666249910 (with
a reference to Corporate Trust/Continental Insurance account,
Attention: Diane Sutherland, Corporate Trust Administrator (203)
929-5552); and the Trustee shall advance, as prepayment of the
full amount of the Prime Lease Rent and rent payable under the
Continental Prime Lease and the Buckeye Prime Lease an aggregate
of $30,000,000 to the accounts of the Lessee, Continental and
Buckeye as follows:
$3,000,000.00 to the account of Lessee at Chemical
Bank, ABA # 021000128, Account No. 144085584;
$25,874,297.00 to the account of Continental at
Chemical Bank ABA # 021000128, Account No. 140050093;
and
3
<PAGE>
$1,125,603.00 to the account of Buckeye at Chemical
Bank, ABA # 021000128, Account No. 140008557
ARTICLE II
CONDITIONS TO CLOSING AND FUNDING
SECTION 2.01. General Conditions Precedent to Closing.
---------------------------------------
The obligations of the Purchaser set forth in Section 1.03 shall
be subject to the satisfaction on or before the Closing Date of
the following conditions precedent:
(a) Due Authorization, Execution and Delivery. The
-------------------------------------------
Operative Documents shall have been duly authorized, executed and
delivered by the respective parties thereto and shall be in full
force and effect. No condition or event shall exist or have
occurred which would constitute an Event of Default under any of
the Operative Documents;
(b) Representations. The representations and
---------------
warranties of each party set forth in the Operative Documents
shall be true and correct on the Closing Date, and the Trustee,
the Guarantor and the Lessee shall each have delivered an
Officer's Certificate to such effect dated the Closing Date;
(c) Opinions. The Purchaser shall have received the
--------
following opinions, dated the Closing Date and addressed to it:
(i) an opinion of Arnold & Porter, special
counsel to the Guarantor, in form and substance
satisfactory to the Purchaser and its special counsel;
(ii) an opinion of counsel to the Guarantor, in
form and substance reasonably satisfactory to the
Purchaser and its special counsel;
(iii) an opinion of Arnold & Porter, special
counsel to the Lessee, in form and substance reasonably
satisfactory to the Purchaser and its special counsel;
(iv) an opinion of counsel to the Lessee, in form
and substance satisfactory to the Purchaser and its
special counsel;
(v) an opinion of Bingham, Dana & Gould, special
counsel to the Trustee, in form and substance
satisfactory to the Purchaser and its special counsel.
(d) Proceedings Satisfactory and Other Evidence. All
-------------------------------------------
corporate and other proceedings taken or to be taken in
connection with the transactions contemplated by the
4
<PAGE>
Operative Documents and all documents, papers and authorizations
relating thereto shall be satisfactory to the Purchaser and its
special counsel. The Purchaser and its special counsel shall
receive copies of such documents and papers as the Purchaser or
its special counsel has reasonably requested, in form and
substance satisfactory to the Purchaser and its special counsel,
including but not limited to the Operative Documents;
(e) Legality. The execution and delivery of the Notes
--------
by the Trustee shall not be prohibited by any applicable law or
governmental regulations (including, without limitation,
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System) and shall not subject the Purchaser to any tax
(other than a tax paid or payable by the Lessee pursuant to the
Lease or taxes on the income of the Purchaser), penalty,
liability or other onerous condition under or pursuant to any
applicable law or governmental regulations, and the Purchaser
shall receive such certificates or other evidence as it may
request to establish compliance with this condition;
(f) Condition and Use of Equipment. The Equipment or
-------------------------------
any item thereof, shall not have suffered a casualty, damage or
destruction which has a material adverse effect on the Equipment
taken as a whole.
(g) Documents relating to the Equipment. The Lessee
------------------------------------
shall deliver an Officer's Certificate to the Trustee and the
Purchaser with respect to title (to the extent such property
constitutes personal property) to and location and condition of
the Equipment and such other documents relating to the Equipment
as may be requested by the Purchaser, all in form and substance
reasonably satisfactory to the Purchaser;
(h) Insurance. All insurance policies required by
---------
Section 4 of the Lease shall be in full force and effect, and
certificates of the insurers evidencing the coverage of such
policies and stating that the policies name the Trustee as
additional insured and name the Trustee as loss payee for all
damage amounts in excess of $1,000,000.00 shall be delivered to
the Trustee and the Purchaser in accordance with such Section;
and
(i) Taxes. All taxes, fees, and other charges, if
-----
any, which become due and payable in connection with the
execution, delivery, recording, publishing, registration and
filing of the Operative Documents and the financing statements
shall have been paid.
SECTION 2.02. Conditions Subsequent to the Closing.
--------------------------------------
Within 30 days following the Closing Date, the Operative
Documents (or financing statements relating thereto) shall have
been duly filed, registered, recorded or published at the expense
of Lessee in such manner and in all places necessary or
appropriate to publish notice and protect the validity and
effectiveness thereof and to establish, perfect, preserve and
protect the rights of the parties thereto.
5
<PAGE>
ARTICLE III
PLACEMENT OF THE NOTES
SECTION 3.01. General. The parties hereto expect that
--------
some or all the Notes will be placed with a Person or Persons
other than the Purchaser prior to their maturity, and the Lessee
consents and agrees to such placement, provided that the Notes
shall not be placed with more than 10 Persons.
SECTION 3.02. Placement. The Lessee, the Trustee and
----------
the Purchaser agree to negotiate, each at its own respective
expense, the substance, and the execution and delivery, of such
further documents or supplements to the Operative Documents which
may be necessary or proper to carry out the placement of the
Notes, provided that any changes effected by such documents or
supplements are to be within the scope of the present economic
terms of the transaction and are not to contain any additional
covenants, representations or warranties burdensome on any of the
parties.
ARTICLE IV
REPRESENTATIONS
SECTION 4.01. Lessee Representations. The Lessee
-----------------------
represents and warrants to the Trustee and the Purchaser that the
following statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Lessee is a corporation, duly
incorporated, validly existing and in good standing
under the laws of the State of New Jersey.
(ii) The Lessee has all requisite power,
authority, legal right and all necessary licenses to
own or hold under lease and use its property (including
the Equipment) and to carry on its business as now
conducted and as presently proposed to be conducted.
(iii) To the extent set forth in each
Landlord's Waiver and Consent, the Lessee has all
requisite power and authority to execute and deliver
each Operative Document to which it is a party and any
other agreement entered into or document delivered in
connection with the transactions contemplated by the
Operative Documents and to comply with the terms
thereof and perform its obligations thereunder; and
(iv) The Lessee is duly qualified and authorized
to do business as a foreign corporation in each
jurisdiction in which an item of Equipment is located
and in each other jurisdiction in which the character
of its property or the nature of its activities makes
such qualification necessary except for such
jurisdictions
6
<PAGE>
wherein a failure to so qualify or be authorized to do
business would not have a material adverse effect on
its business or activities taken as a whole.
(b) Financial Statements.
--------------------
(i) Copies of financial statements of the Lessee
delivered by the Lessee to the Purchaser have been
prepared in conformity with the Statutory Accounting
Principles prescribed and permitted by the Department
of Insurance which present fairly the financial
position of the Lessee, as of such date and the results
of its operations for such period; and
(ii) Copies of financial statements of The
Continental Corporation delivered by the Lessee or The
Continental Corporation to the Purchaser have been
prepared in conformity with generally accepted
accounting principles applied consistently throughout
the periods reflected therein and with prior periods
(except as approved by such accountants or officer, as
the case may be, and disclosed therein); and
(iii) Since the date of the financial
statements referred to in (i) and (ii), there has been
no change in the business, profits, property or
condition (financial or otherwise of the Lessee or The
Continental Corporation) except changes in the ordinary
course of business, none of which individually or in
the aggregate is materially adverse and except for the
Merger.
(c) Full Disclosure. There is no fact which the
----------------
Lessee has not disclosed in writing or is publicly available to
the parties hereto which materially adversely affects the
property, business, affairs or condition (financial or otherwise)
of the Lessee or the ability of the Lessee to perform its
obligations under any Operative Document to which it is a party
or any other agreement which it has entered into in connection
with any transaction contemplated by an Operative Document.
(d) Pending Litigation. There are no actions, suits
-------------------
or proceedings pending, or, to the best knowledge of the Lessee,
threatened against or affecting the Lessee in any court or before
any government which is reasonably likely to materially adversely
affect the property, business, profits or condition (financial or
otherwise) of the Lessee or the ability of the Lessee to perform
its obligations under the Operative Documents to which it is a
party. The Lessee is not in default with respect to any order of
any government, foreign or domestic, or any agency, regulatory
body, instrumentality or subdivision of such government, which
could materially and adversely affect the Lessee's business,
consolidated financial position or consolidated results or
operations.
(e) Title and Liens. To the extent the Equipment
----------------
constitutes personal property, the Lessee owns the Equipment,
free and clear of any lien, claim, encumbrance, security
interest, restrictions or any other right of a third party in and
to such Equipment, except
7
<PAGE>
for Permitted Encumbrances or except to the extent that such
rights are created by the Operative Documents. Except to the
extent set forth in the Landlord's Waiver and Consent, Lessee has
the full legal power, right and authority to lease the Equipment
to Trustee under the Prime Lease.
(f) No Conflict or Default. The execution and
--------------------------
delivery by the Lessee, and compliance by the Lessee with all of
the provisions, of each Operative Document to which it is a party
will not conflict with, result in any breach of any of the
provisions of or constitute a default under the provisions of any
material agreement to which the Lessee is a party or by which it
may be bound or which is applicable to any of its property, or
results in the creation of any lien upon any property of the
Lessee, except as may have been created by any provision of any
Operative Document and except for Permitted Encumbrances, or
result in a violation of its charter or any applicable law.
(g) Enforceability. Each Operative Document to which
--------------
the Lessee is a party when executed and delivered by the Lessee,
will constitute the legal, valid and binding obligation of the
Lessee enforceable against the Lessee in accordance with its
terms (except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and by
general principles of equity).
(h) Consents. No consent, approval, authorization or
--------
declaration of or filing with any governmental authority is
required for the valid execution, delivery or performance by the
Lessee of this Participation Agreement or the other Operative
Documents.
(i) Compliance with Law. The Lessee is not in
---------------------
violation of any law to which it is subject, which violation or
failure is likely to have a material adverse effect on the
business, profits, property or condition (financial or otherwise)
of the Lessee.
(j) Status. The Lessee is not an "investment company"
------
or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940.
(k) ERISA. The execution and delivery by the Lessee
-----
of the Operative Documents entered into in connection therewith
will not involve any prohibited transaction within the meaning of
ERISA or Section 4975 of the Code. The Lessee has not incurred
any liability to the PBGC or an Employee Plan under Title IV of
ERISA (a "Plan").
(l) Taxes. The Lessee has filed all federal, state
-----
and local tax returns that it is required to file, has filed all
information returns it is required to file and has paid all taxes
shown thereon to be due, including interest and penalties, except
to the extent the same have become due and payable but are not
yet delinquent, adequate reserves have been provided for the
same, or the amount, applicability or validity of the same is
currently being
8
<PAGE>
contested in good faith by appropriate proceedings, and no lien
has attached (except with respect to taxes not yet due and
payable) and no foreclosure, distraint, sale or similar
proceedings have been commenced.
SECTION 4.02. Trustee Representations. The Trustee,
-----------------------
in its individual capacity and not as Trustee (except with
respect to subsection (g) below which is made by the Trustee
solely in its capacity as Trustee and not individually),
represents and warrants to the Lessee, the Guarantor and the
Purchaser that the following statements are true and correct:
(a) Organization and Authority.
--------------------------
(i) The Trustee is a national banking association
duly organized, validly existing and in good standing
under the laws of the United States of America; and
(ii) The Trustee has all requisite corporate power
and authority to act as Trustee under the Declaration
of Trust and to execute and deliver each Operative
Document to which it is a party and to comply with the
terms thereof and perform its obligations thereunder.
(b) Pending Litigation. There are no actions, suits
------------------
or proceedings pending, or, to the best knowledge of the Trustee,
threatened against or affecting the Trustee in any court or
before any governmental body which involve the possibility of
materially adversely affecting the property, business, prospects,
profits or condition (financial or otherwise) of the Trustee or
the ability of the Trustee to perform its obligations under any
Operative Document to which it is a party or any other agreement
which it has entered into in connection with any transaction
contemplated by any Operative Document.
(c) Authorization; No Conflict. The execution,
-----------------------------
delivery and performance by the Trustee of, and compliance by the
Trustee with all of the provisions of, each Operative Document to
which it is a party and any other agreement entered into in
connection with any transaction contemplated by the Operative
Documents are within the corporate powers of the Trustee and are
legal and authorized under United States federal law governing
banking and trust matters and Connecticut State law and will not
conflict with, result in any breach of any of the provisions of,
or constitute a default under, any agreement, its articles of
association or bylaws or other instrument to which the Trustee is
a party or by which it may be bound or applicable to any of its
property, or result in a violation of any applicable United
States federal law governing banking and trust matters or
Connecticut State law.
(d) Enforceability. Each of the Operative Documents
--------------
to which the Trustee is a party, and any other agreement entered
into in connection with any transaction contemplated by any
Operative Document, has been duly authorized by all necessary
action on the part of the Trustee, and is or will be the legal,
valid and binding obligation of the Trustee enforceable against
the Trustee in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting
9
<PAGE>
the enforcement of creditors' rights generally and that the
equitable remedy of specific performance and other equitable
remedies are subject to the discretion of the court).
(e) No Default. No event has occurred and no
------------
condition exists which, upon consummation of the transactions
contemplated by any Operative Document, would constitute an Event
of Default by the Trustee. The Trustee is not in violation in
any respect of any term of any agreement, its articles of
association or any other instrument to which it is a party or by
which it or any of its property may be bound or affected.
(f) Consents. The nature of the Trustee, its
--------
execution and delivery of each Operative Document to which it is
a party, its consummation of the transactions contemplated
thereby, its compliance with the terms thereof or any
circumstance in connection with the transactions contemplated
thereby does not required under United States federal law
governing banking and trust matters or Connecticut State law the
consent of any person or the approval or authorization of, or
filing, registration or qualification with, any government on the
part of the Trustee (other than such as have been obtained) as a
condition to the execution, delivery and performance of the
Operative Documents to which the Trustee is a party or any other
agreement which it has entered into in connection with the
transactions contemplated by any Operative Document.
(g) Notes. The Notes have been duly authorized by all
-----
necessary corporate action on the part of the Trustee, have been
validly issued and constitute the legal, valid and binding
obligations of the Trustee (acting solely as Trustee under the
Declaration of Trust, and not in its individual capacity) and are
enforceable against the Trustee in accordance with their terms
and the terms of the Declaration of Trust and this Participation
Agreement.
SECTION 4.03. Representation of the Purchaser. The
--------------------------------
Purchaser represents to the Lessee and the Guarantor that no part
of the funds being used by the Purchaser to pay the purchase
price of the Notes hereunder constitutes assets allocated to any
"separate account" (as defined in Section 3 of ERISA) maintained
by the Purchaser. The Purchaser acknowledges that the Notes have
not been registered under the Securities Act of 1933, as amended
(the "Act"), and agrees that it shall not resell the Notes except
pursuant to a registration under the Act or an exemption
therefrom.
ARTICLE V
COVENANTS
SECTION 5.01. Lessee Covenants.
----------------
(a) Financial Statements. The Lessee will deliver, or
--------------------
cause to be delivered, to the Trustee and the Purchaser:
(i) such financial statements as are required by
Section 14 of the Lease;
10
<PAGE>
(ii) promptly upon becoming aware of the existence
of (A) any condition or event which constitutes a Default or
an Event of Default, a written notice from a duly authorized
officer of the Lessee specifying the nature and period of
existence thereof and (B) any directive from the
Commissioner of the Department of Insurance specifying any
corrective action to be taken which could have a material
adverse effect on the Lessee's business taken as a whole, or
any special examinations or investigations not in the
ordinary course, which are performed or taken by the
Commissioner as a result of which such a directive could
issue, a copy of such directive and/or written notice of
such examinations or investigations together with, in each
case, written notice of what action the Lessee is taking or
proposes to take with respect thereto;
(iii) at the same time as it delivers the
annual financial statements described in the Lease, an
Officers' Certificate signed by its Chief Financial Officer
or Chief Accounting Officer stating that the signers have
reviewed the Operative Documents to which it is a party and
its transactions and condition during the preceding fiscal
year and that such review has not disclosed nor do the
signers know of any Event of Default under or breach of any
Operative Documents to which it is a party or, if an Event
of Default exists, specifying the nature and the period of
such Event of Default and the action, if any, it has taken,
is taking or proposes to take with respect thereto.
(b) Corporate Existence. The Lessee shall do or cause
-------------------
to be done all things necessary to preserve and keep in full
effect its existence, rights (charter and statutory) and
franchises as an insurance company under the laws of a state of
the United States and to preserve and keep in full effect its
qualifications as a foreign corporation in each jurisdiction in
which the character of its property or the nature of its business
or activities makes such qualification necessary, except for such
jurisdictions wherein a failure to so qualify would not have a
material adverse effect on the business, affairs, property or
condition (financial or otherwise) of the Lessee and its
Subsidiaries taken as a whole.
(c) Compliance with Regulation. The Lessee shall
----------------------------
deliver to the Trustee and the Purchaser copies of each notice of
any violation by Lessee of any judgment, decree or order of any
court of governmental or regulatory authority, bureau, agency or
official having jurisdiction over the Lessee if such violations
would have a material adverse effect on the business, affairs,
property or condition (financial or otherwise) of the Lessee and
its Subsidiaries taken as a whole.
(d) Notice of Default. The Lessee shall give notice
-----------------
to the Trustee of any Event of Default under any of the Operative
Documents by any party thereto promptly after the Lessee obtains
Actual Knowledge of the same. For purposes of this subsection
(d), "Actual Knowledge" means actual knowledge of the Vice
President-Treasurer, an Executive Vice President or a Senior Vice
President of the Lessee.
(e) No State Prohibition. The Lessee shall not be
---------------------
prohibited by action of any state or any subdivision, department
or agency thereof from engaging in any type of insurance business
at any time where the effect of such prohibition would have a
material adverse effect
11
<PAGE>
on the business, affairs, property or condition (financial or
otherwise) of the Lessee and its Subsidiaries taken as a whole.
(f) Maintenance of Insurance Business. At all times a
---------------------------------
substantial portion of the Lessee's business shall be the
insurance business.
(g) No Regulatory Intervention. At no time shall the
---------------------------
insurance department of any state having jurisdiction over the
business of the Lessee take any action to exercise control over
the business and operations of the Lessee or cause the Lessee to
take any action which, in the reasonable opinion of the Trustee
or the Purchaser, will be likely to result in a material adverse
change in the business and operations of the Lessee taken as a
whole.
(h) Obligations Under the Lease. Lessee acknowledges
---------------------------
and agrees that its obligation to make payments to the Trustee
under the Lease are absolute and unconditional and are
independent of Lessee's use or enjoyment of the Equipment or
performance by the Trustee of any of its obligations under the
Lease or otherwise. The Lessee agrees to make all Lease Payments
to the Trustee regardless of any defense, claim, set-off,
recoupment, abatement or other right, existing or future, which
the Lessee may have against the Trustee or any other person or
entity.
SECTION 5.02. Operative Documents; Further Assurance.
--------------------------------------
Each of the parties hereto does hereby covenant and agree well
and truly to abide by, perform and be governed and restricted by
each and all of the matters provided for by each of the Operative
Documents to which it is a party and, subject to the terms and
conditions thereof, to use its best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable in connection therewith. The
Lessee, the Trustee, and the Purchaser will, upon reasonable
request and at the expense of the Lessee, execute and deliver
such further instruments and do such further acts as may be
necessary or proper to carry out more effectively the purposes of
this Participation Agreement, the Prime Lease, the Lease, the
Lease Guaranty, the Declaration of Trust and the Notes and the
transactions contemplated hereby and thereby, provided that the
Lessee shall not be responsible for any costs or expenses
associated with the voluntary transfer or assignment of the Notes
by the by any holder of the Notes, including without limitation,
the Purchaser. The Lessee, the Trustee, and the Purchaser may at
any time, subject to the conditions and restrictions contained in
this Participation Agreement, enter into supplements which shall
form a part hereof, when required or permitted by any of the
provisions of this Participation Agreement to cure any ambiguity,
or to cure, correct or supplement any defection or inconsistent
provision contained herein or in any other Operative Document.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default. Any of the following
-----------------
shall constitute an Event of Default hereunder:
12
<PAGE>
(a) non-payment of any amount due on the Notes when
such payment shall become due if such non-payment continues for a
period of five days;
(b) an Event of Default with respect to the Guarantor
or the Lessee under any Operative Document to which it is a
party, including, without limitation, an Event of Default under
the Lease arising from an "Event of Default" under certain
agreements of Continental and Buckeye described in the Lease;
(c) a breach by the Lessee of any covenant contained
in this Participation Agreement and such breach continues for a
period of thirty (30) days after Lessee receives notice of such
breach;
(d) an event shall occur or a condition shall arise
that would constitute grounds for an appropriate United States
district court to appoint a trustee to administer a Plan or for
the PBGC to initiate proceedings to terminate any Plan if such
appointment or termination would materially adversely affect the
business, operations, property or financial or other condition of
the Lessee alone or of the Lessee and its respective Subsidiaries
taken as a whole, and no action is taken by Lessee to cure such
event for a period of more than thirty (30) days;
(e) if any representation or warranty of the Lessee
set forth in this Participation Agreement or in any Operative
Document shall prove to be incorrect in any material respect as
of the time when the same shall have been made.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Survival. Except as otherwise expressly
--------
provided, the parties' obligations under the representations,
warranties and agreements in this Participation Agreement and in
any certificate or other instrument delivered by any party or on
such party's behalf pursuant to this Participation Agreement
shall terminate upon the payment in full of any amounts then and
thereafter due on the Notes and due under any of the Operative
Documents. Such rights and obligations shall survive the
execution and delivery of any Operative Document, any issuance or
disposition of the Notes, any disposition of any interest in the
Equipment or the termination of any Operative Documents and shall
continue in effect regardless of any investigation made by or on
behalf of any party hereto and notwithstanding that any party may
waive compliance with any other provision of any Operative
Document.
SECTION 7.02. Notices. Unless otherwise specifically
-------
provided in any Operative Document, all notices, consents,
directions, approvals, instructions, requests and other
communications given to any party hereto under any Operative
Document shall be in writing to such party at the address set
forth below or at such address as such party shall designate by
notice to each of the other parties hereto. Any notice so
addressed and delivered by personal service, mailed postage
prepaid via United States certified mail, return receipt
requested, or sent via commercial courier, for next day delivery
return receipt requested, shall be deemed to have
13
<PAGE>
been given when delivered to such party by personal service or,
if so mailed or sent via commercial courier, on the second
succeeding business day.
Purchaser:
---------
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, New Jersey 07039
Attention: Ron Haase
and to:
-------
The CIT Group/Equipment Financing, Inc.
900 Ashwood Parkway
Atlanta, Georgia 30338
Attention: Vice President of Credit
with a copy to:
---------------
Harry D. Mercer, Esq.
Hahn Loeser & Parks
3300 BP America Bldg.
200 Public Square
Cleveland, Ohio 44114
Trustee:
--------
First Fidelity Bank, N.A
5 Research Drive
Shelton, Connecticut 06484
Attention: W. Jeffrey Kramer
with a copy to:
---------------
James G. Scantling, Esq.
Bingham, Dana & Gould
100 Pearl Street
Hartford, Connecticut 06103
14
<PAGE>
Lessee:
------
Firemen's Insurance Company of Newark, New Jersey
180 Maiden Lane
New York, New York 10038
Attention: General Counsel
and to:
------
Firemen's Insurance Company of Newark, New Jersey
180 Maiden Lane
New York, New York 10038
Attention: Francis M. Colalucci, Vice President and Treasurer
with a copy to:
---------------
Porfirio F. Ramirez, Jr., Esq.
Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
SECTION 7.03. Severability. If any provision hereof
------------
shall be invalid, illegal or unenforceable in any jurisdiction,
the remaining provisions shall continue to be valid and
enforceable and such provision shall continue to be valid and
enforceable in any other jurisdiction.
SECTION 7.04. Amendment. No party hereto shall be
---------
bound by any amendment, supplement, waiver or modification of any
term hereof unless such party shall have consented to it in
writing.
SECTION 7.05. Headings. The headings of the Articles,
--------
Sections and subsections hereof are for convenience and shall not
affect the meaning of this Participation Agreement.
SECTION 7.06. Benefit. The parties hereto and their
-------
permitted successors and assigns, but no others, shall be bound
hereby and entitled to the benefit hereof.
SECTION 7.07. Counterparts. The parties may sign this
------------
Participation Agreement in any number of counterparts and on
separate counterparts, each of which shall be an original but all
of which together shall constitute one and the same instrument.
SECTION 7.08. Governing Law. This Participation
--------------
Agreement shall be governed by and construed in accordance with
the law of the State of New York without regard to its conflict
of laws rules.
15
<PAGE>
SECTION 7.09. Business Day. If the date scheduled for
------------
any payment or action under any Operative Documents shall not be
a business day, such payment shall be made or such action shall
be taken on the next succeeding business day.
SECTION 7.10. The Trustee. Except for liability for
-----------
its representations and warranties in Section 4.02 (other than
subsection (g) thereof), the Trustee does not enter into this
Agreement in its individual capacity, but solely as Trustee under
the Declaration of Trust and shall be liable hereunder only from
the Trust Estate. Each party agrees for itself and its
successors and assigns that it will look solely to the assets,
income and proceeds of the Trust Estate for the satisfaction of
any such liability of the Trustee hereunder, and waives any right
it may have to satisfy any such liability from any other assets
of the Trustee, in its individual capacity.
SECTION 7.11. Home Office Payment. So long as the
--------------------
Purchaser, any Affiliate of the Purchaser or a bank or
institutional investor is the owner of any beneficial interest in
the Notes, the Trustee will cause all amounts which become due
and payable on such interest to be paid by bank wire transfer of
immediately available funds, or at the option of the Purchaser,
or any such Affiliate, bank or institutional investor, by check
of the Trustee, duly mailed, delivered or made at such address or
account within the United States provided in writing to the
Trustee.
SECTION 7.12. Satisfaction and Termination. If and
-----------------------------
when the Notes shall have become due and payable (whether by
lapse of time or by acceleration or by prepayment), and there
shall have been paid the full amount due on the Notes for
principal and interest, and if there shall have been paid all
other sums payable pursuant to the provisions hereof and of the
Declaration of Trust, then and in that case the Declaration of
Trust and all agreements therein contained shall cease and
terminate and, at the request of the Lessee, and at the cost and
expense of the Lessee, the Trustee shall execute and deliver such
instruments as shall be reasonably requested to satisfy and
terminate the Declaration of Trust.
SECTION 7.13. Costs and Expenses.
------------------
(a) Transaction Costs. The Lessee shall pay and save
------------------
all other parties and the holder from time to time of the Notes
harmless against any liability for the payment of the following
fees, expenses, disbursements and costs incurred in connection
with the preparation, execution and delivery of any Operative
Document or of any amendment or supplement thereto or any waivers
thereof, including:
(i) the reasonable fees, expenses and
disbursements of the Trustee, the Purchaser or of their
counsel for services rendered to the Trustee or the
Purchaser, in connection with such transactions,
provided that no such fees, expenses and disbursements
of the Trustee, the Purchaser or of their counsel are
incurred in connection with the placement of the Notes
as contemplated by Article III hereof;
16
<PAGE>
(ii) the reasonable out-of-pocket expenses of the
Trustee and the Purchaser and their Affiliates incurred
in connection with such transactions; and
(iii) all fees and expenses in connection with
any inspection, printing and other document
reproduction and distribution expenses, sales taxes, if
any, any documentary, stamp or other similar taxes,
fees or excise, including interest and penalties and
all filing fees in connection with the execution,
delivery or performance of any Operative Document or
the recording or filing of instruments and financing
statements described in this Participation Agreement.
(b) Compensation and Reimbursement. The Lessee agrees
-------------------------------
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it under the Operative
Documents (which compensation shall not be limited by any
provisions of law in regard to the compensation of a trustee of
an express trust); (b) to reimburse the Trustee for all
reasonable expenses, disbursements and advances incurred or made
by it in accordance with any provisions of the Operative
Documents (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any such
17
<PAGE>
expense, disbursement or advance as may be attributable to its
own gross negligence, willful misconduct or bad faith; and (c) to
indemnify the Trustee and to hold it harmless against, any loss,
liability or expense incurred without negligence, willful
misconduct or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust
created by the Declaration of Trust or the performance of its
duties under the Operative Documents, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers
or duties thereunder.
IN WITNESS WHEREOF, the parties have caused this
Participation Agreement to be duly executed by their officers
thereunto duly authorized as of the day and year first above
written.
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY
By ________________________________
Title:
FIRST FIDELITY BANK, N.A.
not in its individual capacity
except as expressly stated
herein, but solely as Trustee
By ___________________________
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
By ___________________________
Title:
18
<PAGE>
PARTICIPATION AGREEMENT
Dated as of December 29, 1994
APPENDIX A - DEFINITIONS
"Affiliate" when used with respect to a Person, means
---------
any other Person (1) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such Person, (2) which beneficially owns or hold 5% or
more of any class of the voting stock of such Person or (3) 5% or more
of the voting stock (or in the case of a Person which is not a
corporation, 5% of more of the equity interest) of which is
beneficially owned or held by such Person or any of its subsidiaries.
The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting stock,
by contract or otherwise.
"Declaration of Trust" means the Declaration of Trust
---------------------
dated as of December 29, 1994 by the Trustee as trustee thereunder.
"Default" means any event which with the lapse of
-------
time, or giving of notice, or both would become an Event of Default.
"Department of Insurance" means the Insurance
--------------------------
Department of the State of New Jersey.
"Event of Default" means any of the events specified in
----------------
Section 6.01 of this Participation Agreement or in Section 10 of the
Lease or any material default by the Guarantor under the Lease
Guaranty, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from to time to time.
"Guarantor" means The Continental Corporation, a New
---------
York Corporation.
"Landlord's Waiver and Consent" means the Landlord's
-------------------------------
Waiver and Consent of Greycas, Inc., relating to those items of
Equipment located at 333 Glen Street, Glens Falls, New York.
"Lease" means the Master Agreement of Lease dated as
-----
of December 29, 1994 between the Trustee as Lessor and Firemen's
Insurance Company of Newark, New Jersey, as Lessee, together with
Schedule of Leased Equipment No. 1 dated as of December 29, 1994,
thereunder.
"Lease Payments" means the rent and all other amounts
--------------
payable by the Lessee under the Lease, including, without limitation,
all rent payable during any renewal term of the Lease and all amounts
payable in the event Lessee exercises any end of term options or the
Lease is terminated for any reason prior to the end of the Maximum
Lease Term (as that term is defined in the Lease).
19
<PAGE>
"Merger" means the transaction described in the
------
Agreement, dated December 6, 1994, between the Guarantor and CNA
Financial Corporation ("CNA Financial") under which CNA Financial will
acquire the Guarantor through a merger with a wholly-owned CNA
Financial subsidiary, including the investment, under separate
agreement, whereby CNA has agreed to invest $275,000,000.00 in the
Guarantor, which investment has been made as of the date hereof.
"Notes" means the Secured Promissory Notes issued, or
-----
any note issued in replacement thereof, and, unless the context
otherwise specifies or requires, outstanding under this Participation
Agreement.
"Officer" means, the president, any vice president or
-------
any other duly authorized and responsible officer of such corporation
or entity.
"Officer's Certificate" or "Officers' Certificate" of
--------------------- ---------------------
a Person means a certificate signed by an Officer or Officers of such
Person.
"PBGC" means the Pension Benefit Guarantee Corporation
----
or any entity succeeding to any or all of its functions under ERISA.
"Permit" means any action, approval, certificate of
------
occupancy, consent, waiver, exemption, variance, franchise, order,
permit, authorization, right or license of or from a government or
agency or subdivision thereof.
"Permitted Encumbrance" means, with respect to the
----------------------
Equipment: (i) the respective rights of the Lessee and the Trustee
under the Lease and the Prime Lease; (ii) liens for taxes either not
yet due or being contested in good faith and by appropriate
proceedings so long as such proceedings do to involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and so long as such Lessee shall
be maintaining adequate reserves on its books for the payment of such
taxes to the extent such taxes are federal or state income taxes;
(iii) inchoate materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of
business and securing obligations which are not delinquent or which
are being contested by such Lessee in good faith and by appropriate
proceedings so long as such proceedings do not involve any danger of
the sale, forfeiture or loss of, or the loss of the use of, such item
of Equipment or any interest therein and (iv) any liens securing
obligations of landlords of locations at which the Equipment is
located to third parties.
"Person" means any individual, corporation,
------
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government.
"Prime Lease Rent" means the aggregate rent payable
-----------------
under the Prime Lease.
"Purchaser" means The CIT Group/Equipment Financing,
---------
Inc., a corporation organized under the laws of the State of New York.
20
<PAGE>
"Statutory Accounting Principles" or "SAP" means the
-------------------------------------------
standard accounting principles prescribed or permitted by the
insurance commissioner (or other similar authority) in the
jurisdiction of domicile of any insurance company incorporated in any
jurisdiction of the United States for the preparation of annual
statements and other financial reports by insurance companies of the
same type as such company applied consistently throughout the periods
reflected therein (except as approved by such officers, as the case
may be, and disclosed therein).
"Subsidiary" shall mean any corporation more than 50%
----------
of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time
owned by any Person directly or indirectly through Subsidiaries.
"Trust Estate" shall have the meaning assigned it in
-------------
the Declaration of Trust.
21
<PAGE>
This is Counterpart No. of 3 serially numbered, manually
------
executed counterparts. To the extent that this document
constitutes chattel paper under the Uniform Commercial Code
("UCC"), no security interest in this document may be created
through the transfer and possession of any counterpart other
than Counterpart No. 1.
Master Lease
MASTER AGREEMENT OF LEASE ("Master Lease") dated as of December 29, 1994
between First Fidelity Bank, N. A., not in its individual capacity, but
solely as Trustee (Lessor), having a place of business at 5 Research Drive,
Shelton, Connecticut 06484, and FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW
JERSEY ("Lessee"), having a place of business at 180 Maiden Lane, New York,
New York 10038,
Lessee wants to lease from Lessor leasehold improvements to be described in
the schedule of leased equipment (as amended, modified or supplemented, the
"Schedule"). Lessor is willing to lease such leasehold improvements to
Lessee at the rent, for the term and upon the conditions provided
hereinafter. The Schedule executed by Lessor and Lessee which is identified
as being entered into pursuant to this Master Lease shall be deemed to
incorporate by reference all the terms and conditions of this Master Lease
except as provided in such Schedule. The term "Lease" when used herein
shall refer to the Schedule, which incorporates this Master Lease.
1. Equipment Leased and Term.
This Lease shall cover such leasehold improvements as is described in the
Schedule executed by or pursuant to the authority of Lessee, accepted by
Lessor in writing and identified as a part of this Lease (which leasehold
improvements with all replacement parts, additions, repairs, accessions and
accessories incorporated therein and/or affixed thereto is hereinafter
called the "Equipment"). Lessor hereby leases to Lessee and Lessee hereby
hires and takes from Lessor, upon and subject to the covenants and
conditions hereinafter contained, the Equipment described in the Schedule.
The Initial Lease Term with respect to any item of Equipment shall be for
the period as set forth in the Schedule. The Initial Lease Term together
with all renewal terms provided for in the Schedule constitute the "Maximum
Lease Term."
2. Rent.
The aggregate rent payable with respect to the Equipment shall be the amount
shown on the Schedule as the "Aggregate Rent." Lessee shall pay to Lessor
the Aggregate Rent for the Equipment for the full period and term for which
the Equipment is leased, such rent to be payable at such times and in such
amounts for the Equipment as shown in the Schedule.
All rent and other amounts payable hereunder shall be paid at Lessor's place
of business shown above, or such other place as Lessor may designate by
written notice to the Lessee. All rent and other amounts shall be paid
without notice or demand and without abatement, deduction or set off of any
amount whatsoever. This is a non-cancelable net lease, and the obligation
of Lessee to make payments hereunder is absolute and unconditional. Lessee
shall not be entitled to any abatement or reduction of payments hereunder
for any reason including, without limitation, any existing or future offset
or claim which may be asserted by Lessee.
3. No Warranties by Lessor; Maintenance and Compliance with Laws.
Lessor, not being the manufacturer of the Equipment, nor manufacturer's
agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO
THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY,
MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR
WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS"
AND THAT ALL SUCH RISKS, AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY
LESSEE AT ITS SOLE RISK AND EXPENSE; Lessee accordingly agrees not to assert
any claim whatsoever against Lessor based thereon. Lessee further agrees,
regardless of cause, not to assert any claim whatsoever against Lessor for
loss of anticipatory profits or consequential damages. Lessor shall have no
obligation to install, erect, test, adjust or service the Equipment. Lessee
shall look to the manufacturer and/or seller of the Equipment for any claims
related to the Equipment. "Seller" as used in this Lease means the supplier
from which Lessee originally acquired any item of Equipment.
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations
related hereto and/or to the Equipment are integrated herein. Lessee
agrees, at its own cost and expense:
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(a) to pay all charges and expenses in connection with the operation of
each item of Equipment;
(b) to comply with all governmental laws, ordinances, regulations,
requirements and rules with respect to the use, maintenance and
operation of the Equipment; and
(c) to make all repairs and replacements required to be made to maintain
the Equipment in good condition, reasonable wear and tear excepted.
4. Insurance.
Lessee shall maintain at all times on the Equipment, at its expense,
all-risk physical damage insurance and comprehensive general liability
insurance (covering bodily injury and property damage exposures including,
but not limited to, contractual liability and products liability) in such
amounts, against such risks, in such form and with such insurers as shall be
reasonably satisfactory to Lessor; provided, that the amount of all-risk
physical damage insurance shall not on any date be less than the greater of
the full replacement value or the Liquidated Damages Amount (as defined in
Section 11). Each physical damage insurance policy shall name Lessor as
loss payee for all damage amounts in excess of $1,000,000, and each
liability insurance policy shall name Lessor as additional insured. All
insurance for loss or damage shall provide that the proceeds thereof shall
be payable directly to Lessor for all damage amounts in excess of
$1,000,000. Each insurance policy shall require that the insurer give
Lessor at least thirty (30) days prior written notice of any alteration in
or cancellation of the terms of such policy and require that Lessor's
interests be continued insured regardless of any breach or violation by
Lessee or others of any warranties, declarations or conditions contained in
such insurance policy. In no event shall Lessor be responsible for
premiums, warranties or representations to any insurer or any agent thereof.
Lessee shall furnish to Lessor a certificate or other evidence satisfactory
to Lessor that such insurance coverage is in effect, but Lessor shall be
under no duty to ascertain the existence or adequacy of such insurance. The
insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor. Lessee shall
be liable for all deductible portions of all required insurance. Lessor may
(but without any obligation to do so), at its own expense, for its own
benefit, purchase insurance in excess of that required under this Lease
Agreement.
5. Loss and Damage.
Lessee assumes and shall bear the entire risk of any partial or complete
loss with respect to the Equipment from any and every cause whatsoever
including theft, loss, damage, destruction or governmental taking, whether
or not such loss is covered by insurance or caused by any default or neglect
of Lessee. Lessee agrees to give Lessor prompt notice of any damage to or
loss of any Equipment.
If any item of Equipment is lost, totally destroyed, damaged beyond repair
or taken by governmental action (a "casualty loss") the rent due and to
become due thereon shall not abate and Lessee shall at its own expense
replace the lost or destroyed Equipment in accordance with the terms of this
Section. Lessee shall, within thirty days after the date of the casualty
loss, (i) acquire items of equipment equal in number to the items of lost or
destroyed Equipment, of the same or an improved make and model, owned by
Lessee free and clear of all liens, claims and encumbrances and having a
value, utility and remaining useful life at least equal to, and being in as
good condition as, the lost or destroyed items of Equipment, (ii) cause each
such replacement item of equipment to be leased to Lessor on the same terms
and conditions as provided in Schedule of Leased Equipment No. 1 to that
certain Prime Master Lease (the "Prime Master Lease") dated of even date
herewith between Lessee as Prime Lessor and Lessor as Prime Lessee for a
term equal to the term then remaining under the Prime Master Lease, (iii) if
requested by Lessor, execute and deliver to Lessor a supplement to the
related Schedule under this Master Lease confirming that such replacement
item of equipment is for all purposes Equipment subject to such Schedule,
and (iv) take such other action as Lessor may reasonably request, including
filing UCC financing statements and fixture filings with appropriate filing
offices. Each replacement item of equipment shall be deemed upon its
acquisition by Lessee to be and become part of the leasehold improvements
hereunder subject to the terms and conditions hereof and each such
replacement item of equipment shall be deemed an item of Equipment under its
related Schedule whether or not a supplement to that effect is signed and
delivered by Lessee. In the event of partial destruction of any Equipment,
the rent due and to become due thereon shall not abate and Lessee shall, at
its own expense, cause such Equipment to be restored to usable condition, or
Lessee may replace such damaged Equipment in accordance with the procedure
set forth above as though the damaged Equipment was totally destroyed.
Lessor shall, upon receiving satisfactory evidence of replacement due to a
casualty loss or restoration due to partial loss, promptly pay to Lessee the
proceeds of any insurance or compensation actually received by Lessor by
reason of such damage and shall upon Lessee's request execute and deliver
such releases and other instruments as may be necessary to release such
replaced equipment or parts from this Lease.
Lessor shall not be obligated to undertake by litigation or otherwise the
collection of any claim against any person for loss of or governmental
taking of the Equipment, but Lessor will cooperate with Lessee at Lessee's
expense to pursue such claims.
The total or partial destruction of any Equipment or the total or partial
loss of use or possession thereof to Lessee shall not release or relieve
Lessee from its obligations hereunder, including the duty to pay the
Aggregate Rent herein provided.
6. Taxes.
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Lessee agrees that, during the term of this Lease, in addition to the
Aggregate Rent and all other amounts provided herein to be paid, it will
promptly pay all taxes, assessments and other governmental charges
(including penalties and interest, if any, and fees for titling or
registration, if required) levied or assessed:
(a) upon the interest of Lessee in the Equipment or upon the use or
operation thereof or on the earnings arising therefrom; and
(b) against Lessor on account of its acquisition or ownership of or
interest in the Equipment or any part thereof, or the use or operation
thereof or the leasing thereof to Lessee, or the Aggregate Rent herein
provided for, or the earnings arising therefrom, exclusive, however, of
any taxes based on net income of Lessor.
Lessee agrees to file, in behalf of Lessor, all required tax returns and
reports concerning the Equipment (but no returns or reports, if any,
required to be filed by Lessor as a result of its status as a trustee) with
all appropriate governmental agencies, and within not more than 45 days
after the due date of such filing to send Lessor confirmation, in form
satisfactory to Lessor, of such filing. If any report, return or property
listing, or any fee, tax or assessment is, by law, required to be filed by,
assessed or billed to, or paid by Lessor, Lessee will, at Lessee's expense,
do all things required by Lessor to be done (to the extent permitted by law)
in connection therewith. Lessee may, in good faith and with due diligence,
contest taxes, assessments or governmental charges related to the Equipment
or this Lease, provided, however, that no item of Equipment will be subject
to a lien, forfeiture, sale or diminution in value in connection with such
contested tax or other charge during any such contest.
7. Lessor's Interest, No Merger of Title, Return and Inspection of
Equipment.
Lessor's interest in and right to use and possess the Equipment arises under
the Prime Master Lease. Lessee will at all times protect and defend, at its
own cost and expense, the rights and interests of Lessor in the Equipment
under the Prime Master Lease from and against all claims, liens and legal
processes of creditors of Lessee and, to the extent such property
constitutes personal property keep all the Equipment free and clear from any
and all such claims, liens and processes.
There shall be no merger of this Lease nor of the property interest in the
Equipment created by this Lease with the ownership of or other property
interest in the Equipment or any item thereof by reason of the fact that the
same corporation, firm or other entity may acquire, own or hold, directly or
indirectly, this Lease or the property interest created by this Lease or any
interest in such leasehold or ownership, and no such merger shall occur
unless and until all corporations, firms and other entities having any
ownership or other property interest in the Equipment or any item thereof
shall join in a written instrument effecting such merger.
Upon the expiration or termination of this Lease with respect to any item of
Equipment:
(a) if the relevant Schedule sets forth return provisions, Lessee shall
return the Equipment as provided in such Schedule; or
(b) if the relevant Schedule does not contain return provisions, Lessee at
Lessee's sole expense shall return such Equipment unencumbered to
Lessor at the place where the rent is payable or to such other place as
Lessor and Lessee agree upon, and in the same condition as when
received by Lessee, reasonable wear and tear resulting from use thereof
alone excepted.
Lessor shall have the right (but not the obligation) from time to time
during reasonable business hours after reasonable prior notice (written or
otherwise) to Lessee to enter upon Lessee's premises or elsewhere for the
purpose of confirming the existence, condition and proper maintenance of the
Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as Lessee shall not be in default under the Lease (taking into
account applicable periods of notice and grace) it shall be entitled to the
possession and use of the Equipment in accordance with the terms of this
Lease. The Equipment shall be used in the conduct of the lawful business of
Lessee, and no item of Equipment shall be removed from its location shown on
the Schedule, without the prior written consent of Lessor, such consent to
not be unreasonably withheld. Lessee shall not, without Lessor's prior
written consent (such consent to not be unreasonably withheld), part with
possession or control of the Equipment or attempt or purport to sell,
pledge, mortgage or otherwise encumber any of the Equipment or otherwise
dispose of or encumber any interest under this Lease. In the event Lessor
agrees to the relocation of any Equipment, Lessee shall sign and deliver
such documents and take such other steps, at Lessee's expense, as Lessor may
request, including filing UCC financing statements and fixture filings.
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9. Performance of Obligations of Lessee by Lessor.
In the event that the Lessee shall fail duly and promptly to perform any of
its obligations under the provisions of Sections 3, 4, 5, 6, 7 or 8 of this
Lease, taking into account applicable periods of notice and grace, Lessor
may, at its option but without any obligation to do so, perform the same for
the account of Lessee without thereby waiving such default, and any amount
paid or expense (including reasonable attorneys' fees), penalty or other
liability incurred by Lessor in such performance, together with interest at
the rate of 1 1/2% per month thereon (but in no event greater than the
highest rate permitted by relevant law) until paid by Lessee to Lessor,
shall be payable by Lessee upon demand as additional rent for the Equipment.
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10. Default.
An Event of Default shall occur if:
(a) Lessee fails to pay when due any installment of rent and such failure
continues for a period of 5 days; or
(b) Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after the earlier of written notice
thereof to Lessee by Lessor or actual knowledge of such failure by the
Vice President-Treasurer or an Executive Vice President or Senior Vice
President of Lessee; or
(c) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay
its debts as they become due, files a voluntary petition in bankruptcy,
is adjudicated a bankrupt or an insolvent, files a petition seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or
future statute, law or regulation or files an answer admitting the
material allegations of a petition filed against it in any such
proceeding, consents to or acquiesces in the appointment of a trustee,
receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or if it or its shareholders shall take any
action looking to its dissolution or liquidation; or
(d) within 60 days after the commencement of any proceedings against Lessee
seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such proceedings shall not have been dismissed, or if
within 60 days after the appointment without Lessee's consent or
acquiescence of any trustee, receiver or liquidator of it or of all or
any substantial part of its assets and properties, such appointment
shall not be vacated; or
(e) Lessee removes, sells, transfers, encumbers, parts with possession or
sublets the Equipment or any item thereof; or
(f) one or more judgments or decrees shall be entered against the Lessee,
The Continental Corporation or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance or
reinsurance) of $25,000,000 or more, and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(g) (i) The Continental Corporation fails to pay or to perform or is
otherwise in default under any term, covenant or agreement on its part
to be performed (the "failure") under that certain Credit Agreement
(the "Credit Agreement") dated as of December 30, 1993, among The
Continental Corporation, the lenders from time to time parties thereto,
Chemical Bank and Citibank, N.A., as Co-Agents, and Chemical Bank, as
Administrative Agent, as amended by the Amendment dated as of March 30,
1994, the Second Amendment dated as of June 30, 1994, the Third
Amendment dated as of September 29, 1994, the Fourth Amendment dated as
of November 22, 1994, and the Fifth Amendment effective as of December
15, 1994 (which Lessee represents and warrants are the only amendments
to the Credit Agreement as of the date of this Lease), as such
agreement may be further amended, modified or supplemented, and (ii)
such failure constitutes an "Event of Default" as defined in the Credit
Agreement which Event of Default would entitle any party or parties to,
or the holders of any indebtedness issued pursuant to, the Credit
Agreement, directly or indirectly, together or individually, to
accelerate any of the indebtedness evidenced or secured thereby; or
(h) The Continental Insurance Company fails to pay or to perform any term,
covenant or agreement on its part to be performed under that certain
Participation Agreement dated as of December 28, 1988, among Lessee,
The Connecticut Bank and Trust Company, National Association, as
Trustee, and Citibank, N.A., as Purchaser, as amended, modified or
supplemented, or any agreement or instrument evidencing, securing or
relating to any refinancing of all or part of the indebtedness
evidenced thereby or any other replacement thereof and such failure on
the part of Lessee constitutes a default under the corresponding
agreement or instrument entitling any other party thereto or holder
thereof to accelerate the indebtedness evidenced or secured thereby; or
(i) Lessee fails to notify Lessor promptly of any "Event of Default" (as
defined therein) by The Continental Corporation or by Lessee under any
of the agreements or instruments identified in subsections (g) or (h)
of this Section; or
(j) an Event of Default occurs with respect to The Continental Insurance
Company ("Continental") under that certain Schedule of Leased Equipment
dated of even date herewith to that certain Master Agreement of Lease
dated of even date herewith between First Fidelity Bank, N.A., not in
its individual capacity, but solely as Trustee, as Lessor and
Continental as Lessee (the "Continental Lease") or an Event of Default
occurs with respect to The Buckeye Union Insurance Company ("Buckeye")
under that certain Schedule of Leased Equipment dated of even date
herewith to that certain Master Agreement of Lease dated of even date
herewith between First Fidelity Bank, N.A., not in its individual
capacity, but solely as Trustee, as Lessor and Buckeye Union as Lessee
(the "Buckeye Lease"); or
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(k) an "Event of Default" (as defined therein) under that certain
Participation Agreement as such Agreement may be amended or modified
(the "Participation Agreement") among Lessor, Lessee and The CIT
Group/Equipment Financing, Inc. dated of even date herewith.
11. Remedies.
Upon the occurrence of an Event of Default, Lessor shall have all the rights
and remedies provided by applicable law and by this Lease. Notwithstanding
that this Agreement is a lease, Lessor may nevertheless at its option choose
those rights and remedies of a secured party under the Uniform Commercial
Code. In addition, Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Lessee, upon demand by Lessor for
payment of the unpaid rent, upon acceleration of the maturity thereof
or otherwise, be obligated to pay any amount in excess of the lesser of
that permitted by law or the Liquidated Damages Amount (as that term is
defined below);
(b) proceed by appropriate court action or actions or other proceedings
either at law or equity to enforce performance by the Lessee of any and
all covenants of this Lease and to recover damages for the breach
thereof or exercise any other right or remedy available to Lessor at
law or in equity, provided, however, that such damages shall in no
event exceed the Liquidated Damages Amount;
(c) demand that Lessee deliver the Equipment forthwith to Lessor at
Lessee's expense at such place as Lessor may designate;
(d) cancel this Lease as to any or all of the Equipment;
(e) without notice or liability or legal process, by itself and/or by its
agents, enter into any premises of or under control or jurisdiction of
Lessee or any agent of Lessee where the Equipment may be or by Lessor
is believed to be, and repossess all or any item thereof, disconnecting
and separating all thereof from any other property and using all force
necessary or permitted by applicable law so to do, Lessee hereby
expressly waiving all further rights to possession of the Equipment and
all claims for injuries suffered through or loss caused by such
repossession; and
(f) sell or lease the Equipment at a time and location of its choosing
provided that the Lessor acts in good faith and in a commercially
reasonable manner; and
(g) demand that Lessee pay, and Lessee shall be entitled to recover
immediately, as liquidated damages for loss of a bargain and not as a
penalty, the "Liquidated Damages Amount." The Liquidated Damages
Amount shall be an amount equal to the sum of (i) the rent then due for
the Equipment, plus (ii) all rent to become due thereon during the
remaining term of the Lease, discounted to present value at the
Discount Rate (as that term is defined in the Schedule), plus (iii) the
product of the Maximum Purchase Price Percentage (set forth in the
Schedule) which would be applicable if Lessee elected to purchase
Lessor's interest in the Equipment at the end of the lease term then in
effect multiplied by the Lessor's Equipment Cost at the beginning of
the Initial Lease Term, discounted to present value at the Discount
Rate, plus (iv) the Breakfunding Fee (as defined in Section 16 below),
plus (v) the amount of all commercially reasonable costs and expenses
incurred by Lessor in exercising any of its remedies hereunder,
including reasonable attorneys' fees and costs incurred in connection
therewith or otherwise resulting from any default of Lessee.
Notwithstanding Lessor's right to recover the Liquidated Damages Amount, if
any statute governing the proceeding in which damages are to be proved
specifies the amount of such claim, Lessor shall be entitled to prove as and
for damages for the breach an amount equal to that allowed under such
statute. The provisions of this Section shall be without prejudice to any
rights given to the Lessor by such statute to prove any amounts allowed
thereby. Should any proceedings be instituted by or against Lessor for
monies due to Lessor hereunder and/or for possession of any or all the
Equipment or for any other relief or should any other actions be taken by or
against Lessor to collect any monies due hereunder or to enforce any rights
hereunder, Lessee shall pay all costs and expenses incurred by Lessor in
connection with such proceeding or other action including, without
limitation, reasonable attorneys' fees. No remedy of Lessor hereunder
shall be exclusive of any remedy herein or by law provided, but each shall
be cumulative and in addition to every other remedy.
12. Indemnity.
Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee
shall indemnify and save Lessor (in both its individual and fiduciary
capacities), its agents and employees and any assignee harmless from and
against any and all liability, loss, damage, expense (including reasonable
legal fees and expenses), causes of action, suits, claims or judgments
arising from or caused directly or indirectly by:
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(a) Lessee's failure to promptly perform any of its obligations under the
provisions of Sections 3, 4, 5, 6, 7, 8 and 14 of this Lease; or
(b) injury to persons or damage to property resulting from or based upon
actual or alleged use, operation, delivery or transportation of any or
all of the Equipment or its location or condition; or
(c) inadequacy of the Equipment, or any part thereof, for any purpose or
any deficiency or defect therein or the use or maintenance thereof or
any repairs, servicing or adjustments thereto or any delay in providing
or failure to provide any thereof or any interruption or loss of
service or use thereof.
Lessee shall, at its own cost and expense, defend any and all suits which
may be brought against Lessor, either alone or in conjunction with others
upon any such liability or claim or claims. Lessee shall satisfy, pay and
discharge any and all judgments and fines that may be recovered against
Lessor in any such action or actions. Lessor shall give Lessee written
notice of any such claim or demand. Lessee agrees that its obligations
under this Section 12 shall survive the expiration or termination of this
Lease.
13. No Assignment by Lessee, Assignment to Successor Trustee, Notices and
Waivers.
Lessee shall not assign this Lease or its interests hereunder or enter into
any sub-lease with respect to the Equipment covered hereby without the prior
written consent of Lessor, such consent not to be unreasonably withheld,
provided, however, that no such assignment or sublease shall relieve Lessee
of its obligations hereunder.
In the event of the resignation or removal of the First Fidelity Bank, N.A.,
as Trustee under that certain Declaration of Trust (the "Declaration of
Trust") dated of even date herewith, and appointment of a successor trustee
in accordance with the terms thereof, Lessor may assign all its rights and
obligations hereunder to the successor trustee which shall, for all purposes
from the date of such assignment, be substituted for First Fidelity Bank,
N.A., as Lessor hereunder. The successor trustee shall have and be entitled
to exercise any and all rights and powers of Lessor hereunder and shall be
obligated to perform all of Lessor's obligations hereunder. Any assignment
of this Lease by First Fidelity Bank, N.A., as Trustee, to a successor
trustee shall, from the date of such assignment, relieve First Fidelity
Bank, N.A., of any further obligations or liability to Lessee hereunder.
All notices to Lessor shall be delivered in person to an officer of the
Lessor, or shall be sent to Lessor at its address shown herein by certified
mail or by commercial courier in either case with return receipt requested.
All notices to Lessee shall be in writing and shall be delivered by regular
mail, certified mail return receipt requested or commercial courier to
Lessee's address shown herein or at any subsequent address of which Lessee
has given notice to Lessor as provided herein. A waiver of a default shall
not be a waiver of any other or a subsequent default.
14. Financial Statements.
Lessee shall furnish or cause to be furnished to Lessor financial statements
as follows:
(a) GAAP financial statements:
--------------------------
(i) as soon as available, but in any event within 120 days after the end
of each fiscal year of The Continental Corporation, a copy of the
consolidated balance sheet of The Continental Corporation and its
consolidated subsidiaries as at the end of such year and the related
consolidated statements of income and retained earnings and of cash flows
for such year, set forth in each case in comparative form with the same
information as of the end of and for the previous year, all as reported on
by KPMG Peat Marwick or other independent certified public accountants of
nationally recognized standing; and
(ii) as soon as available, but in any event not later than 60 days after
the end of each of the first three quarterly periods of each fiscal year of
The Continental Corporation, an unaudited consolidated balance sheet of The
Continental Corporation and its consolidated subsidiaries as at the end of
such quarter and the related unaudited consolidated statements of income and
retained earnings and of cash flows of The Continental Corporation and its
consolidated subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter, set forth in each case in comparative
form with the same information for the corresponding date or period in the
previous year, certified by the chief financial officer or Treasurer of The
Continental Corporation as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements to be prepared in reasonable detail and in
accordance with generally accepted accounting principles applied
consistently throughout the periods reflected therein and with prior periods
(except as approved by such accountants or officer, as the case may be, and
disclosed therein); and
(b) SAP financial statements:
-------------------------
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(i) as soon as possible, but in any event within 120 days after the end of
each fiscal year of Lessee and each other Reporting Insurance Subsidiary (as
defined below) of The Continental Corporation, a copy of the consolidated
Statutory Statement of Lessee and its affiliated fire and casualty insurers
for such fiscal year, subscribed and sworn to and certified by officers of
Lessee or such other Reporting Insurance Subsidiary as required by
applicable law; and
(ii) as soon as possible, but in any event within 60 days after the end of
each of the first three fiscal quarters of each fiscal year of each
Reporting Insurance Subsidiary, a copy of the consolidated Statutory
Statement of Lessee and its affiliated fire and casualty insurers for such
fiscal quarter, certified by officers of Lessee or such other Reporting
Insurance Subsidiary as required by applicable law;
all such financial statements to be prepared in accordance with the standard
accounting principles prescribed or permitted by the insurance commissioner
(or other similar authority) in the jurisdiction of domicile of any
insurance company incorporated in any jurisdiction of the United States for
the preparation of annual statements and other financial reports by
insurance companies of the same type as such company ("SAP") applied
consistently throughout the periods reflected therein (except as approved by
such officers, as the case may be, and disclosed therein). "Statutory
Statement" as used in this Section means, for any subsidiary of The
Continental Corporation which is an insurance company, for each fiscal year
of such subsidiary, the most recent annual statement, prepared in accordance
with SAP, as required to be filed with the appropriate regulatory authority
and, for each fiscal quarter of such subsidiary, the quarterly statement, as
required to be filed with the appropriate regulatory authority, which
quarterly statement shall be prepared in accordance with SAP. Reporting
Insurance Subsidiary means each of the following entities: The Continental
Insurance Company, The Buckeye Union Insurance Company, The Fidelity and
Casualty Company of New York, Firemen's Insurance Company of Newark, New
Jersey, and National-Ben Franklin Insurance Company of Illinois.
15. Further Assurances; Termination of Credit Agreement.
(a) Lessee shall execute and deliver to Lessor, upon Lessor's request such
documents, instruments and assurances and take any such action as
Lessor deems necessary or advisable for the confirmation or perfection
of this Lease and Lessor's rights hereunder or in order for Lessor to
effect any assignment or syndication of any rights, obligations, title
or interest in any Equipment or under this Lease or any related
instrument or document, provided, however, that in no event shall
Lessee be required for purposes of the immediately preceding clause to
execute or deliver any such further documents, instruments or
assurances or take such further action to the extent that such would
increase the obligations or reduce the rights of Lessee as of the date
of this Lease. Lessee may not terminate the Schedule except as
provided therein without the written consent of Lessor.
(b) In the event the Credit Agreement referred to in Section 10(g) is
terminated or replaced, Lessee shall notify Lessor of such event within
10 days of its occurrence. In such notice (the "Covenant Notice")
Lessee shall advise Lessor as to whether Lessee will agree, by
amendment of this Lease, to provide the Lessor with the same financial
covenants as appear in Sections 6.1(a) and 6.1(b) of the Credit
Agreement as in effect on the date of this Lease, so that a violation
of such covenants would thereafter be an Event of Default hereunder
taking into account such period of grace as is provided under Section
10(b) hereof. If the Lessee agrees in the Covenant Notice to provide
such covenants, the Lessor shall promptly cause the necessary
amendment(s) to this Lease to be prepared and signed by the parties
hereto (at Lessee's expense).
16. Lease Irrevocability, Breakfunding Fee and Late Charges.
This Lease is irrevocable for the full terms thereof as set forth in the
Schedule and for the Aggregate Rent therein reserved and the rent shall not
abate by reason of termination of Lessee's right of possession and/or the
taking of possession by the Lessor or for any other reason. If for any
reason this Lease is terminated prior to the end of the Maximum Lease Term,
Lessee shall pay Lessor an amount (the "Breakfunding Fee") equal to the Make
Whole Premium defined in Section 6.3 of the Declaration of Trust plus any
reasonable out of pocket costs and expenses incurred in connection with such
termination. Any payment of rent or other amounts payable under this Lease
not made when due shall bear late charges thereon calculated at the rate of
1 1/2% per month, but in no event greater than the highest rate permitted by
relevant law.
17. Purchase, Renewal or Other End of Term Option.
So long as no Event of Default has occurred and is continuing under the
Lease, then Lessee may exercise such purchase, renewal or other end of term
options in accordance with the terms and conditions set forth in the
Schedule.
Any purchase or renewal option price stated as "fair market value" ("FMV")
for any item of Equipment on the Schedule shall be determined by an
independent third party appraiser selected by Lessee on the basis of, and
shall be equal in amount to, the value which would be obtained in an arm's
length transaction between an informed and willing buyer-user (other than a
Lessee currently in possession and a used Equipment dealer) and an informed
and willing seller/lessor under no compulsion to sell/lease.
18. Legal Expenses and Closing Costs.
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Lessee shall pay all reasonable costs and expenses, including, without
limitation legal fees and expenses, incurred by Lessor, Lessor's lender and
any broker, consultant or agent engaged by Lessor in connection with the
negotiation, structuring, documentation, closing or financing of this Lease
or any documents related hereto. Lessee shall pay such amounts to Lessor,
or to such parties as Lessor may direct, as such expenses are incurred,
provided, however, that no such payment shall be due prior to the date on
which Lessee executes this Lease.
19. Liability of Lessor.
It is expressly agreed, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, undertakings and
agreements herein made on the part of Lessor are made and intended not as
personal representations, warranties, undertakings and agreements by First
Fidelity Bank, N.A., or for the purpose or with the intention of binding
said bank personally, but are made and intended for the purpose of binding
only the Trust Estate (as that term is defined in the Declaration of Trust),
and this Lease is executed and delivered by said bank not in its own right
but solely in the exercise of the powers expressly conferred upon it as
trustee under the Declaration of Trust.
20. Security Interest.
Lessee hereby grants Lessor a security interest in all of Lessee's right,
title and interest in and to the Equipment and all proceeds thereof,
including any proceeds of insurance referred to in Section 4 hereof, as
security for all of Lessee's indebtedness and obligations owing under the
Lease and the Participation Agreement, all of the indebtedness and
obligations of Continental under the Continental Lease and under that
certain Participation Agreement dated of even date herewith among
Continental, Lessor and CIT and all of the indebtedness and obligations of
Buckeye under the Buckeye Lease and under that certain Participation
Agreement dated of even date herewith among Buckeye, Lessor and CIT.
"Proceeds" shall have the meaning set forth in the Uniform Commercial Code
and shall include without limitation all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash or liquidated claims
including insurance proceeds and condemnation awards.
21. Miscellaneous.
All amounts to be reduced to present value shall be discounted at the
Discount Rate set forth in the Schedule.
If any provision of this Lease is contrary to, prohibited by or deemed
invalid under applicable laws or regulations of any jurisdiction, such
provision shall be inapplicable and deemed omitted but shall not invalidate
the remaining provisions hereof. This Lease shall be governed by and
construed in accordance with the laws (but not the choice of law rules) of
the State of New York.
This Lease contains the entire agreement between the parties with respect to
the Equipment, and may not be altered, modified, terminated or discharged
except by a writing signed by the party against whom such alteration,
modification, termination or discharge is sought. The parties may sign this
Master Lease in any number of counterparts and on separate counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same instrument. To the extent this document
constitutes chattel paper under the Uniform Commercial Code, no security
interest in this document may be created through the transfer and possession
of any counterpart other than Counterpart No. 1.
With respect to this Lease or any document contemplated by this Lease, the
parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing the
document as the handwritten execution upon an original copy of the document.
The parties agree that they will promptly forward to the others an executed
original of any document transmitted by facsimile, but that the failure of a
party to do so or the absence of arrival of any such executed document shall
have no effect on the binding nature of the document transmitted by
facsimile.
Lessee is a corporation, and this Lease is executed by authority of its
Board of Directors.
Lessor: Lessee:
FIRST FIDELITY BANK, N.A., FIREMEN'S INSURANCE COMPANY OF
not in its individual capacity, NEWARK, NEW JERSEY
but solely as Trustee
By: By:
---------------------------------- --------------------------------
Name: Name:
--------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
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G:\ATTY\CMJ\CIT\CONT\MSTLEASE.007
55-SA-2279 (12/94) Master Lease - Continental Lease Page 10 of 8
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This is Counterpart No. of 3 serially numbered, manually
-----
executed counterparts. To the extent that this document
constitutes chattel paper under the Uniform Commercial Code
("UCC"), no security interest in this document may be created
through the transfer and possession of any counterpart other
than Counterpart No. 1.
Prime Master Lease
AGREEMENT OF LEASE ("Prime Master Lease") dated as of December 29, 1994
between Firemen's Insurance Company of Newark, New Jersey ("Prime Lessor"),
having a place of business at 180 Maiden Lane, New York, New York 10038, and
First Fidelity Bank, N.A., not in its individual capacity but solely as
Trustee, ("Prime Lessee"), having a place of business at 5 Research Drive,
Shelton, Connecticut 06484.
Prime Lessee wants to lease from Prime Lessor leasehold improvements to be
described in the schedule of leased equipment (as such schedule may be
modified, amended or supplemented, the "Schedule"). Prime Lessor is willing
to lease such leasehold improvements to Prime Lessee at the rent, for the
term and upon the conditions provided hereinafter. The Schedule executed by
Prime Lessor and Prime Lessee which is identified as being a part of this
Lease shall be deemed to incorporate by reference all the terms and
conditions of this Lease except as provided in the Schedule. The term
"Prime Lease" when used herein shall refer to the Schedule which
incorporates this Prime Master Lease.
1. Equipment Leased and Term.
This Prime Lease shall cover such leasehold improvements as is described in
the Schedule executed by or pursuant to the authority of Prime Lessee,
accepted by Prime Lessor in writing and identified as a part of this Prime
Lease (which leasehold improvements with all replacement parts, additions,
repairs, accessions and accessories incorporated therein and/or affixed
thereto is hereinafter called the "Equipment"). Prime Lessor hereby leases
to Prime Lessee and Prime Lessee hereby hires and takes from Prime Lessor,
upon and subject to the covenants and conditions hereinafter contained, the
Equipment described in the Schedule.
2. Rent.
The aggregate rent payable with respect the Equipment shall be the amount
shown on the Schedule as the "Aggregate Rent." Prime Lessee shall pay to
Prime Lessor the Aggregate Rent for the Equipment for the full period and
term for which the Equipment is leased, such rent to be payable at such
times and in such amounts for the Equipment as shown in the Schedule.
Prime Lessee may prepay the Aggregate Rent payable with respect to all, but
not less than all, of the Equipment at any time during the term of this
Prime Lease by paying to Prime Lessor an amount equal to the Aggregate Rent
remaining, discounted to present value at the rate of ten percent (10%) per
annum (the "Prepayment Amount"). Upon receipt by Prime Lessor of the
Prepayment Amount, Prime Lessee shall, without further payment of rent, be
entitled for the remaining term of this Prime Lease to the use and
possession of the Equipment in accordance with the terms of this Prime
Lease.
All rent shall be paid at Prime Lessor's place of business shown above, or
such other place as Prime Lessor may designate by written notice to the
Prime Lessee. All rent shall be paid without notice or demand and without
abatement, deduction or set off of any amount whatsoever. This is a non-
cancelable lease, and the obligation of Prime Lessee to make the payments
hereunder is absolute and unconditional. Prime Lessee shall not be entitled
to any abatement or reduction of payments hereunder for any reason
including, without limitation, any existing or future offset or claim which
may be asserted by Prime Lessee. The operation and use of the Equipment
shall be at the risk of Prime Lessor, except that during the term of any
sublease permitted hereby, the operation and use of the Equipment shall be
at the risk of the sublessee under such sublease.
3. No Warranties by Prime Lessor; Maintenance and Compliance with Laws.
Prime Lessor, not being the manufacturer of the Equipment, nor
manufacturer's agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY,
SUITABILITY, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE
MATERIAL OR WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS
LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN PRIME LESSOR AND PRIME
LESSEE, ARE TO BE BORNE BY PRIME LESSEE AT ITS SOLE RISK AND EXPENSE; Prime
Lessee accordingly agrees not to assert any claim whatsoever against Prime
Lessor based thereon. Prime Lessee further agrees, regardless of cause, not
to assert any claim whatsoever against Prime Lessor for loss of anticipatory
profits or consequential damages. Prime Lessor shall have no obligation to
install, erect, test, adjust or service the Equipment. Prime Lessee shall
look to the manufacturer and/or the seller of the Equipment for any claims
related thereto. Prime Lessor hereby acknowledges that any manufacturer's
and/or seller's warranties are for the benefit of both Prime Lessor and
Prime Lessee. "Seller" as used herein means the supplier from which Prime
Lessor acquires any item of Equipment.
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<PAGE>
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations
related hereto and/or to the Equipment are integrated herein. Prime Lessee
agrees, at its own cost and expense:
(a) to pay or cause to be paid all charges and expenses in connection with
the operation of each item of Equipment;
(b) to comply or cause compliance with all governmental laws, ordinances,
regulations, requirements and rules with respect to the use,
maintenance and operation of the Equipment; and,
(c) subject to the provisions of Sections 4 and 5 hereof, to make or cause
to be made in the normal course of its operation all repairs and
replacements required to be made to maintain the Equipment in good
condition, reasonable wear and tear excepted.
4. Insurance.
Prime Lessor shall maintain at all times on the Equipment, at its expense,
all-risk physical damage insurance and comprehensive general liability
insurance (covering bodily injury and property damage exposures including,
but not limited to, contractual liability and products liability) in such
amounts, against such risks, in such form and with such insurers as shall be
satisfactory to Prime Lessee; provided, that the amount of all-risk physical
damage insurance shall not on any date be less than the full replacement
value of the Equipment. Each physical damage insurance policy shall name
Prime Lessee as loss payee for all damage amounts in excess of
$1,000,000.00, and each liability insurance policy shall name Prime Lessee
as additional insured. All insurance for loss or damage shall provide that
the proceeds thereof shall be payable directly to Prime Lessee for all
damage amounts in excess of $1,000,000.00. Each insurance policy shall also
require that the insurer give Prime Lessee at least thirty (30) days prior
written notice of any alteration in or cancellation of the terms of such
policy and require that Prime Lessee's interests be continued insured
regardless of any breach or violation by Prime Lessor or others of any
warranties, declarations or conditions contained in such insurance policy.
In no event shall Prime Lessee under the terms hereof be responsible for
premiums, warranties or representations to any insurer or any agent thereof.
Prime Lessor shall furnish to Prime Lessee a certificate or other evidence
satisfactory to Prime Lessee that such insurance coverage is in effect, but
Prime Lessee shall be under no duty to ascertain the existence or adequacy
of such insurance. The insurance maintained by Prime Lessor shall be
primary without any right of contribution from insurance which may be
maintained by Prime Lessee. Prime Lessor shall be liable for all deductible
portions of all required insurance. Prime Lessee may (but without
obligation to do so), at its own expense, for its own benefit, purchase
insurance in excess of that required under this Prime Lease Agreement.
5. Loss or Damage.
Prime Lessor assumes and shall bear the entire risk of any partial or
complete loss with respect to the Equipment from any and every cause
whatsoever including theft, loss, damage, destruction or governmental taking
(but not including reasonable wear and tear from normal operation), whether
or not such loss is covered by insurance or caused by any default or neglect
of Prime Lessee, provided, however, that during the term of any sublease
permitted herein, all risk of loss shall be on the sublessee under such
sublease. Prime Lessee agrees to give Prime Lessor prompt notice of any
damage to or loss of any Equipment of which Prime Lessee receives notice.
If any item of Equipment is lost, totally destroyed, damaged beyond repair
or taken by governmental action at a time when there is no permitted
sublease in effect, Prime Lessor shall, so long as no Event of Default has
occurred and remains continuing hereunder, replace the lost or destroyed
Equipment in accordance with the terms of this Section and shall, within
thirty days after the date of the casualty, (i) acquire good and marketable
title to those items of equipment, equal in number to the items of lost or
destroyed Equipment, of the same or an improved make and model, free and
clear of all liens, claims and encumbrances and having a value, utility and
remaining useful life at least equal to, and being in as good condition as
the lost or destroyed items of Equipment, and (ii) if requested by Prime
Lessee, execute and deliver to Prime Lessee a supplement to the related
Schedule confirming that such replacement item of equipment is for all
purposes Equipment subject to such Schedule. Prime Lessor may take such
action as it may reasonably determine at its expense with respect to such
replacement equipment, including filing UCC financing statements, fixture
filings and amendments to existing financing statements and fixture filings
with appropriate filing offices and Prime Lessee shall cooperate with
respect thereto. Each replacement item of equipment shall be deemed part of
the property leased hereunder subject to the terms and conditions hereof and
each such replacement item of equipment shall be deemed an item of Equipment
for all purposes under its related Schedule.
In the event of partial destruction of any Equipment at a time when there is
no permitted sublease in effect, the rent due and to become due thereon
shall not abate and Prime Lessor shall, at its own expense, cause such
Equipment to be restored to usable condition, but Prime Lessee shall, upon
receiving satisfactory evidence of such restoration, promptly pay Prime
Lessor the proceeds of any insurance or compensation received by reason of
such damage up to the amount expended by Prime Lessor in making the repair.
Prime Lessor shall determine in the exercise of its reasonable judgment,
subject to Prime Lessee's approval, whether the Equipment is damaged beyond
repair. However, if the estimated cost of restoring such Equipment exceeds
50% of the unmatured rent therefor, such Equipment shall be deemed, for all
purposes hereof, to be totally destroyed and the obligations of Prime Lessor
therefor shall be as set forth in the preceding paragraph of this Section.
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 2 of 6
<PAGE>
Neither Prime Lessor nor Prime Lessee shall be obligated by the terms of
this Prime Lease to undertake by litigation or otherwise the collection of
any claim against any person for loss of or governmental taking of the
Equipment, and the obligation of Prime Lessor to replace such Equipment at
Prime Lessor's expense as provided in this Section 5 shall not be affected
by the existence or non-existence of any such claim.
The total or partial destruction of any Equipment or the total or partial
loss of use or possession thereof to Prime Lessee shall not release or
relieve Prime Lessee from its obligations hereunder, including the duty to
pay the Aggregate Rent herein provided.
6. Taxes.
Prime Lessor agrees that, during the term of this Prime Lease, it will
promptly pay all taxes, assessments and other governmental charges
(including penalties and interest, if any, and fees for titling or
registration, if required) levied or assessed:
(a) upon the interest of Prime Lessee in the Equipment or upon the use or
operation thereof or on the earnings arising therefrom; and
(b) against Prime Lessor on account of its acquisition or ownership of the
Equipment or any part thereof, or the use or operation thereof or the
leasing thereof to Prime Lessee, or the rent herein provided for, or
the earnings arising therefrom.
Prime Lessor agrees to file, in behalf of Prime Lessee, all required tax
returns and reports concerning the Equipment (but no returns or reports, if
any, required to be filed by Lessee as a result of its status as a trustee)
with all appropriate governmental agencies, and within not more than 45 days
after the due date of such filing to send Prime Lessee confirmation, in form
satisfactory to Prime Lessee, of such filing.
7. Prime Lessor's Title, Right of Inspection and Identification of
Equipment.
To the extent the Equipment constitutes personal property and not a fixture,
Prime Lessor represents and warrants that it owns the Equipment free and
clear of all liens, claims and encumbrances except for the rights of Prime
Lessee under this Prime Lease. Throughout the term of this Prime Lease,
title to the Equipment shall at all times remain in Prime Lessor, and Prime
Lessor will at all times protect and defend, at its own cost and expense,
the Equipment from and against all claims, liens and legal processes of
creditors of Prime Lessor and keep all the Equipment free and clear from all
such claims, liens and processes. Prime Lessor's interest in and right to
lease any Equipment not constituting personal property arises under the
Landlord's Waiver and Consent forms listed on Exhibit A hereto. Except to
the extent set forth in the Landlord's Waiver and Consent, Prime Lessor has
the full legal power, right and authority to lease the Equipment to Prime
Lessee. Upon the expiration or termination of this Prime Lease with respect
to any item of Equipment, Prime Lessee at Prime Lessor's sole expense shall
return such Equipment unencumbered to Prime Lessor at the place where the
rent is payable or to such other place as Prime Lessor and Prime Lessee
agree upon, and in the same condition as when received by Prime Lessee,
reasonable wear and tear resulting from use thereof alone excepted.
Prime Lessor shall have the right from time to time during reasonable
business hours to enter upon Prime Lessee's premises or elsewhere for the
purpose of confirming the existence, condition and proper maintenance of the
Equipment.
8. Possession, Use and Changes in Location of Equipment.
So long as no Event of Default as defined herein has occurred and remains
continuing, Prime Lessee shall be entitled to the possession and use of the
Equipment in accordance with the terms of this Prime Lease. The Equipment
shall be used in the conduct of the lawful business of Prime Lessee, and no
item of Equipment shall be removed from its location shown on the Schedule,
without the prior written consent of Prime Lessor. Prime Lessee shall not,
without Prime Lessor's prior written consent, part with possession or
control of the Equipment or attempt or purport to sell, pledge, mortgage or
otherwise encumber any of the Equipment or otherwise dispose of or encumber
any interest under this Prime Lease except as provided in Section 13.
9. Performance of Obligations of Prime Lessee by Prime Lessor.
In the event that the Prime Lessee shall fail duly and promptly to perform
any of its obligations under the provisions of this Prime Lease, Prime Lessor
may, at its option, perform the same for the account of Prime Lessee without
thereby waiving such default, and any amount paid or expense (including
reasonable attorneys' fees), penalty or other liability incurred by Prime
Lessor in such
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 3 of 6
<PAGE>
performance, together with interest at the rate of 1 1/2% per month thereon
(but in no event greater than the highest rate permitted by relevant law)
until paid by Prime Lessee to Prime Lessor, shall be payable by Prime Lessee
upon demand as additional rent for the Equipment.
10. Default.
An Event of Default shall occur if:
(a) Prime Lessee fails to pay when due any installment of rent and such
failure continues for a period of 5 days;
(b) Prime Lessee shall fail to perform or observe any covenant, condition
or agreement to be performed or observed by it hereunder and such
failure continues uncured for 15 days after written notice thereof to
Prime Lessee by Prime Lessor;
(c) Prime Lessee ceases doing business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary
petition in bankruptcy, is adjudicated a bankrupt or an insolvent,
files a petition seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of a petition filed
against it in any such proceeding, consents to or acquiesces in the
appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation;
(d) within 60 days after the commencement of any proceedings against Prime
Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such proceedings shall not have been dismissed, or if
within 60 days after the appointment without Prime Lessee's consent or
acquiescence of any trustee, receiver or liquidator of it or of all or
any substantial part of its assets and properties, such appointment
shall not be vacated; or
(e) Prime Lessee attempts to remove, sell, transfer, encumber or part with
possession the Equipment or any item thereof except as provided in
Section 13.
11. Remedies
Upon the occurrence of an Event of Default, Prime Lessor shall have all the
rights and remedies provided by applicable law and by this Prime Lease.
Notwithstanding that this Agreement is a lease and title to the Equipment is
at all times in Prime Lessor, Prime Lessor may nevertheless at its option
choose those rights and remedies of a secured party under the Uniform
Commercial Code. In addition, Prime Lessor, at its option, may:
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Prime Lessee, upon demand by Prime
Lessor for payment of the unpaid rent, upon acceleration of the
maturity thereof or otherwise, be obligated to pay any amount in excess
of that permitted by law;
(b) proceed by appropriate court action or actions or other proceedings
either at law or equity to enforce performance by the Prime Lessee of
any and all covenants of this Prime Lease and to recover damages for
the breach thereof;
(c) demand that Prime Lessee deliver the Equipment forthwith to Prime
Lessor at Prime Lessor's expense at such place as Prime Lessor may
designate; and
(d) Prime Lessor and/or its agents may without notice or liability or legal
process, enter into any premises of or under control or jurisdiction of
Prime Lessee or any agent of Prime Lessee where the Equipment may be or
by Prime Lessor is believed to be, and repossess all or any item
thereof, disconnecting and separating all thereof from any other
property and using all force necessary or permitted by applicable law
so to do, Prime Lessee hereby expressly waiving all further rights to
possession of the Equipment and all claims for injuries suffered
through or loss caused by such repossession; Prime Lessor may sell or
lease the Equipment at a time and location of its choosing provided
that the Prime Lessor acts in good faith and in a commercially
reasonable manner, but the Prime Lessor shall nevertheless, be entitled
to recover immediately as liquidated damages for loss of the bargain
and not as a penalty any unpaid rent that accrued on or before the
occurrence of the event of default plus an amount equal to the
difference between the aggregate unpaid rent reserved hereunder for the
unexpired term of this Prime Lease and the then aggregate fair market
rental value of all Equipment for such unexpired term, provided,
however, that if any statute governing the proceeding in which such
damages are to be proved specifies the amount of such claim, Prime
Lessor shall be entitled to prove as and for damages for the breach an
amount equal to that allowed under such statute. The provisions of
this paragraph shall be without prejudice to any rights given to the
Prime Lessor by such statute to prove any amounts allowed thereby.
Should any proceedings be instituted by or against Prime Lessee for
monies due to Prime Lessor hereunder and/or for possession of any or
all of the Equipment or for any other relief, Prime Lessee shall pay a
reasonable sum as attorneys' fees.
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No remedy of Prime Lessor hereunder shall be exclusive of any remedy herein
or by law provided, but each shall be cumulative and in addition to every
other remedy.
12. Indemnity.
Prime Lessee agrees that Prime Lessor shall not be liable to Prime Lessee
for, and Prime Lessee shall indemnify and save Prime Lessor harmless from
and against, any and all liability, loss, damage, expense, causes of action,
suits, claims or judgments arising from or caused directly or indirectly by
Prime Lessee's failure to promptly perform any of its obligations under the
provisions of this Prime Lease.
13. Assignment, Notices and Waivers.
This Prime Lease and all rights of Prime Lessor hereunder shall be
assignable by Prime Lessor only with Prime Lessee's consent, such consent
not to be unreasonably withheld. After such assignment, Prime Lessor shall
not be assignee's agent for any purpose, Prime Lessee will settle all claims
arising out of alleged breach of warranties or otherwise, defenses, set-offs
and counterclaims it may have against Prime Lessor directly with Prime
Lessor, and not set up any such against Prime Lessor's assignee, Prime
Lessor hereby agreeing to remain responsible therefor. Prime Lessee, upon
consenting to and receiving notice of any such assignment, shall abide
thereby and make payment as may therein be directed. Following such
assignment, solely for the purpose of determining assignee's rights
hereunder, the term "Prime Lessor" shall be deemed to include or refer to
Prime Lessor's assignee. Prime Lessee may assign this Prime Lease or its
interests hereunder or sublease the Equipment covered hereby. No such
assignment or sublease shall relieve Prime Lessee of any of its obligations
to Prime Lessor hereunder, except as provided in the immediately succeeding
paragraph of this Section.
In the event of the resignation or removal of the First Fidelity Bank, N.A.,
as Trustee under that certain Declaration of Trust (the "Declaration of
Trust") dated of even date herewith, and appointment of a successor trustee
in accordance with the terms thereof, Prime Lessee may assign all its rights
and obligations hereunder to the successor trustee which shall, for all
purposes from the date of such assignment, be substituted for First Fidelity
Bank, N.A., as Prime Lessee hereunder. The successor trustee shall have and
be entitled to exercise any and all rights and powers of Prime Lessee
hereunder and shall be obligated to perform all of Prime Lessee's
obligations hereunder. Any assignment of this Prime Lease by First Fidelity
Bank, N.A., as Trustee, to a successor trustee shall, from the date of such
assignment, relieve First Fidelity Bank, N.A., of any further obligations or
liability to Prime Lessor hereunder.
All notices to Prime Lessor shall be delivered in person to an officer of
the Prime Lessor, or shall be sent certified mail return receipt requested
or by courier to Prime Lessor at its address shown herein or at any later
address last known to the sender. All notices to Prime Lessee shall be in
writing and shall be delivered by mail at its address shown herein or at any
later address last known to the sender.
A waiver of a default shall not be a waiver of any other or a subsequent
default.
14. Further Assurances.
Prime Lessee shall execute and deliver to Prime Lessor, upon Prime Lessor's
request such instruments and assurances as Prime Lessor deems necessary or
advisable for the confirmation or perfection of this Prime Lease and Prime
Lessor's rights hereunder. Prime Lessee may not terminate the Schedule
without the written consent of Prime Lessor.
15. Prime Lease Irrevocability and Charges.
This Prime Lease is irrevocable for the full terms thereof as set forth in
the Schedule and for the aggregate rentals therein reserved and the rent
shall not abate by reason of termination of Prime Lessee's right of
possession and/or the taking of possession by the Prime Lessor or for any
other reason. Any payment not made when due shall, at the option of Prime
Lessor, bear late charges thereon calculated at the rate of 1 1/2% per
month, but in no event greater than the highest rate permitted by relevant
law. Prime Lessee shall be responsible for and pay to Prime Lessor a
returned check fee, not to exceed the maximum permitted by law, which fee
will be equal to the sum of (i) the actual bank charges incurred by Prime
Lessor plus (ii) all other actual costs and expenses incurred by Prime
Lessor. The returned check fee is payable upon demand as additional rent
under this Prime Lease.
16. Liability of Prime Lessee.
It is expressly agreed, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, undertakings and
agreements herein made on the part of Prime Lessee are made and intended not
as personal representations, warranties, undertakings and agreements by
First Fidelity Bank, N.A., or for the purpose or with the intention of
binding said bank personally, but are made and intended for the purpose of
binding only the Trust Estate (as that term is defined in the Declaration of
Trust), and this Prime Lease is executed and delivered by said bank not in
its own right but solely in the exercise of the powers expressly conferred
upon it as trustee under the Declaration of Trust.
17. Miscellaneous.
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If any provision of this Prime Lease is contrary to, prohibited by or deemed
invalid under applicable laws or regulations of any jurisdiction, such
provision shall be inapplicable and deemed omitted but shall not invalidate
the remaining provisions hereof. This Prime Lease shall be governed by and
construed in accordance with the laws (but not the choice of law rules) of
the state of New York.
This lease contains the entire agreement between the parties with respect to
the Equipment, and may not be altered, modified, terminated or discharged
except by a writing signed by the party against whom such alteration,
modification, termination or discharge is sought.
The parties may sign this Prime Master Lease in any number of counterparts
and on separate counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument. To the extent
this document constitutes chattel paper under the Uniform Commercial Code,
no security interest in this document may be created through the transfer
and possession of any counterpart other than Counterpart No. 1.
With respect to this Prime Master Lease or any document contemplated by this
Prime Master Lease, the parties agree that the execution and transmittal of
any such document by facsimile shall be of the same binding effect on the
party so executing the document as the handwritten execution upon an
original copy of the document. The parties agree that they will promptly
forward to the others an executed original of any document transmitted by
facsimile, but that the failure of a party to do so or the absence of
arrival of any such executed document shall have no effect on the binding
nature of the document transmitted by facsimile.
This Prime Lease is executed by Prime Lessee by authority of the Declaration
of Trust.
Dated: December 29, 19
----
Prime Lessor: Prime Lessee:
FIREMEN'S INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
OF NEWARK, NEW JERSEY not in its individual capacity, but
solely as Trustee
By Title By Title
------------------ --------- ------------------ --------
55-SA-2279 (11/94) Master Lease - Prime Continental Lease Page 6 of 6
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Master Lease")
between First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Lessor")
and Firemen's Insurance Company of Newark, New Jersey ("Lessee").
This is Counterpart No. of 3 serially numbered, manually executed
-----
counterparts. To the extent that this document constitutes chattel
paper under the Uniform Commercial Code, no security interest in this
document may be created through the transfer and possession of any
counterpart other than Counterpart No. 1.
Pursuant to the Master Lease, which is incorporated herein by reference, Lessee
agrees to lease the below-described Equipment from Lessor, its successors or
permitted assigns, and Lessor, by acceptance of this Lease, agrees to lease the
Equipment to Lessee, its successors or permitted assigns, on the terms set forth
in this Schedule of Leased Equipment (herein the "Schedule").
1. Equipment Description: The Equipment to be leased pursuant to this
Schedule is described in Exhibit A to this Schedule, which is incorporated
herein by reference.
2. Aggregate Rent for the Initial Lease Term and Each Renewal Term:$900,655.56
3. Monthly Rent (for Initial Lease Term and Each Renewal Term): $75,054.63
4. Commencement Date: December 29, 1994
5. Due Date of First Monthly Rent: January 29, 1995
6. Initial Lease Term: The initial term of this Lease for the Equipment
described in this Schedule shall expire 12 months from the Commencement
Date hereof.
7. Maximum Lease Term: The maximum term of this Lease for the Equipment
described in this Schedule shall be the Initial Lease Term plus the three
twelve-month renewal terms permitted by this Schedule.
8. Rentals: For said Initial Term, and each renewal term, if any, Lessee
shall pay to Lessor the stated aggregate rent payable thereunder in 12
equal, successive, monthly payments as stated, of which the first is due on
the first monthly rent date set forth above, and the others on a like date
of each month thereafter, until fully paid.
9. Lessor's Equipment Cost: For the Initial Lease Term and for each renewal
term, if any, the Lessor's Equipment Cost shall be the amount set forth
below:
Initial Lease Term $3,000,000.00
First Renewal Term $2,504,336.36
Second Renewal Term $1,792,023.60
Third Renewal Term $1,010,722.90
10. Discount Rate: 9.28% percent per annum.
11. Special Provisions:
(a) End of Term Options: So long as no Event of Default has occurred and is
continuing under the Lease, Lessee shall have the options set forth herein.
(i) Option to Renew. At the expiration of the Initial Lease Term or at
----------------
the expiration of any renewal term provided herein, Lessee may renew
this Lease with respect to all, but not less than all, of the
Equipment, on the terms and conditions of this Lease, for a renewal
Page 1 of 4
<PAGE>
term of twelve months at the monthly rent set forth in the Schedule;
provided, however, that Lessee may exercise this option only if
Continental and Buckeye make the same election to renew under the
Continental Lease and the Buckeye Lease, respectively; and provided
further that Lessee may not renew this Lease for more than three
consecutive twelve-month renewal terms beyond the expiration of the
Initial Lease Term. If Lessee desires to exercise this option, Lessee
shall give Lessor written notice of its election to renew at least 10
days prior to the expiration of the Initial Lease Term or such renewal
term then in effect. Such election shall be effective with respect to
all of the Equipment.
(ii) Option to Purchase. At the expiration of the Initial Lease Term or at
------------------
the expiration of any renewal term provided herein, Lessee may
purchase from Lessor all of Lessor's rights to and interests in all,
but not less than all, the Equipment as Prime Lessee under Schedule of
Leased Equipment No. 1 to that certain Prime Master Lease (said
Schedule and Prime Master Lease being referred to collectively herein
as the "Prime Lease") dated of even date herewith between Lessor as
Prime Lessee and Lessee as Prime Lessor; provided, however, that
Lessee may exercise this option only if Continental and Buckeye make
the same election to purchase under the Continental Lease the Buckeye
Lease, respectively. If Lessee desires to exercise this option,
Lessee shall give Lessor written notice of its election at least 90
days prior to the expiration of the Initial Lease Term or such renewal
term then in effect. Such election shall be effective with respect to
all the Equipment subject to this Lease and the Prime Lease. At the
expiration of the lease term during which Lessee exercises this option
to purchase, Lessee shall pay to Lessor in cash the Maximum Purchase
Price, plus the Breakfunding Fee described in Section 16 of the Master
Lease. The Maximum Purchase Price shall be an amount equal to the
greater of (1) the fair market rental value of the Equipment for the
remaining term of said Prime Lease as determined by an independent
third-party appraiser selected by Lessee or (2) the product of
Lessor's Equipment Cost at the beginning of the Initial Term,
multiplied by the Maximum Purchase Price Percentage set forth below
corresponding to the lease term at the end of which Lessee exercises
this option:
Option Exercised Maximum Purchase Lessor's Maximum
at End of Price Percentage Equipment Cost Purchase Price
--------- ---------------- -------------- --------------
Initial Lease Term 78.35% $3,000,000.00 $2,350,583.63
First Renewal Term 54.61% $3,000,000.00 $1,638,270.67
Second Renewal Term 28.57% $3,000,000.00 $856,970.17
Third Renewal Term Fair Market Value
Lessee shall bear all costs related to any appraisal of the Equipment.
Upon receipt of the Maximum Purchase Price, Lessor shall transfer and
assign to Lessee all of Lessor's rights to and interests in the
Equipment and under the Prime Lease without recourse or warranty.
Lessor shall not be required to make and may specifically disclaim any
representation or warranty as to the condition of the Equipment or any
other matters. Notwithstanding any election of Lessee to purchase,
the provisions of this Lease shall continue in full force and effect
until the transfer and assignment of interests contemplated herein is
completed.
(iii) Option to Return. At the expiration of the Initial Lease Term or
----------------
at the expiration of any renewal term provided herein, Lessee may
return to Lessor all, but not less than all, of the Equipment, in
accordance with the return provisions set forth in the Lease;
provided, however, that Lessee may exercise this option only if
Continental and Buckeye make the same election to return under the
Continental Lease and the Buckeye Lease, respectively. If Lessee
desires to exercise this option, Lessee shall give Lessor written
notice of its election to return the Equipment at least 365 days prior
to the expiration of the Initial Lease Term or such renewal term then
in effect. On the date Lessee gives such notice, Lessee shall pay to
Lessor in cash a deposit (the "Deposit") to cover the costs of
crating, shipping, storing or refurbishing the Equipment. The
Page 2 of 4
<PAGE>
Deposit shall be an amount equal to ten and one-half percent of the
Lessor's Equipment Cost if the Lessee exercises this option at the end
of the initial Lease Term or, if the Lessee exercises this option at
the end of a renewal term, an amount equal to ten percent of the
Lessor's Equipment Cost for the renewal term at the end of which
Lessee has elected to return the Equipment. Lessor may, in Lessor's
sole discretion, refund the Deposit to Lessee if Lessor determines
that Lessee has complied in all respects with the return provisions
set forth in this Lease. Such election to return the Equipment shall
be effective with respect to all of the Equipment. At the expiration
of the Lease Term during which Lessee exercises this option, Lessee
shall return the Equipment to Lessor in accordance with the return
provisions set forth in the Lease, and Lessee shall pay to Lessor in
cash the Termination Fee, plus the Breakfunding Fee. The Termination
Fee shall be an amount equal to the product of the Lessor's Equipment
Cost at the beginning of the Initial Term multiplied by the
Termination Fee Percentage set forth below corresponding to the lease
term during which Lessee exercises this Option:
Option Termination Lessor's
Exercised at End of Fee Percentage Equipment Cost
---------------------- ----------------- ---------------
Initial Lease Term 67.37% $3,000,000.00
First Renewal Term 51.07% $3,000,000.00
Second Renewal Term 27.63% $3,000,000.00
Third Renewal Term 0% $3,000,000.00
(iv) If Lessee fails to exercise any of the options set forth herein, or if
Continental and Buckeye fail to exercise simultaneously with Lessee
the same option under the Continental Lease and the Buckeye Lease,
respectively, then at the expiration of the Initial Lease Term or any
renewal term, this Lease shall be automatically renewed with respect
to all the Equipment on the terms and conditions of this Lease, for a
renewal term of twelve months at the monthly rent set forth in the
Schedule; provided, however, that this Lease shall not be renewed for
more than three consecutive twelve-month renewal terms beyond the
expiration of the Initial Lease Term.
(b) Return Provisions: Lessee shall, if Lessee intends to terminate the Lease
at the termination of the Initial Lease Term or at the termination of any
renewal term prior to the expiration of the Maximum Lease Term (the
"Termination Date"), at its expense, de-install, pack and return all the
Equipment to Lessor at such locations within the continental United States
as shall be designated by Lessor. Lessee shall have each item of Equipment
restored, reconditioned, refurbished or refinished so as to be in the same
operating order, repair, condition and appearance as when it was new
(subject to ordinary wear and tear) with all subsequent engineering changes
prescribed by the manufacturer of the Equipment or any maintenance
contractor approved by Lessor incorporated in the Equipment. All Equipment
will be cleaned and cosmetically acceptable, with no noticeable cracks,
scratches or other visual or mechanical damage and in such condition that
it may be immediately installed and placed into use. Lessee shall ensure
that all Equipment and equipment operations conform to all applicable
local, state and federal laws and health and safety guidelines. At
Lessor's request, Lessee shall at its expense within 30 days of the
Termination Date assemble the Equipment in an appropriate storage facility.
While the Equipment is being stored by Lessee, and until it is returned as
herein provided, Lessee shall continue at its expense to insure the
Equipment as provided in the Lease and shall continue to bear the risk of
loss with respect to the Equipment as provided in the Lease.
In the event Lessee exercises none of the end of term options set forth
herein, then at the expiration of the Maximum Lease Term, Lessee shall
return the Equipment in accordance with the return provisions set forth in
the Master Lease as if no return provisions were set forth in this
Schedule.
This Schedule of Leased Equipment together with its Exhibits and Riders, if any,
and the Master Lease incorporated herein by reference constitute the entire
agreement between the parties as to the Lease
Page 3 of 4
<PAGE>
and Equipment.
With respect to this Schedule or any document contemplated by this Schedule,
the parties agree that the execution and transmittal of any such document by
facsimile shall be of the same binding effect on the party so executing
the document as the handwritten execution upon an original copy of the
document. The parties agree that they will promptly forward to the others an
executed original of any document transmitted by facsimile, but that the failure
of a party to do so or the absence of arrival of any such executed document
shall have no effect on the binding nature of the document transmitted by
facsimile.
The parties may sign this Schedule in any number of counterparts and on separate
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. To the extent this document
constitutes chattel paper under the Uniform Commercial Code, no security
interest in this document may be created through the transfer and possession of
any counterpart other than Counterpart No. 1.
Accepted:
LESSOR: LESSEE:
FIRST FIDELITY BANK, N.A., FIREMEN'S INSURANCE COMPANY
not in its individual capacity, but OF NEWARK, NEW JERSEY
solely as Trustee
By:__________________________ By:__________________________
Name:________________________ Name:________________________
Title:_______________________ Title:_______________________
Page 5 of 4
<PAGE>
Schedule of Leased Equipment No. 1,
dated December 29, 1994
made pursuant to Master Agreement of Lease
dated December 29, 1994 ("Prime Master Lease")
between Firemen's Insurance Company of Newark, New Jersey ("Prime Lessor")
and First Fidelity Bank, N.A., not in its
individual capacity, but solely as Trustee ("Prime Lessee").
This is Counterpart No. of 3 serially numbered,
------
manually executed counterparts. To the extent that
this document constitutes chattel paper under the
Uniform Commercial Code, no security interest in this
document may be created through the transfer and
possession of any counterpart other than Counterpart
No. 1.
Pursuant to the Prime Master Lease, which is incorporated herein
by reference, Prime Lessee agrees to lease the below-described
Equipment from Prime Lessor, its successors or assigns, and Prime
Lessor, by acceptance of this Prime Lease, agrees to lease the
Equipment to Prime Lessee, on the terms set forth in this
Schedule of Leased Equipment (herein the "Schedule").
1. Equipment Description: The Equipment to be leased pursuant
to this Schedule is described in Exhibit A to this Schedule,
which is incorporated herein by reference.
2. Aggregate Rent for the Lease Term: $ 4,757,426.40
3. Monthly Rent: $ 39,645.22
4. Commencement Date: December 29, 1994
5. Due Date of First Annual Rent: January 29, 1995
6. Lease Term: The term of this Prime Lease for the Equipment
described in this Schedule shall be 10 years from the
Commencement Date hereof.
7. Rentals: For said Lease Term or any portion thereof, Prime
Lessee shall pay to Prime Lessor the stated Aggregate Rent
payable thereunder in 10 equal, successive, annual payments
as stated, of which the first is due on the first annual
rent date set forth above, and the others on a like date of
each year thereafter, until fully paid.
This Schedule of Leased Equipment together with its Exhibits and
Riders, if any, and the Prime Master Lease incorporated herein by
reference constitute the entire agreement between the parties as
to the Prime Lease and Equipment.
Accepted:
LESSOR: LESSEE:
FIREMEN'S INSURANCE COMPANY FIRST FIDELITY BANK, N.A.,
OF NEWARK, NEW JERSEY not in its individual capacity,
but solely as Trustee
By:_________________________ By:_________________________
Name:_______________________ Name:_______________________
Title:______________________ Title:______________________
Lease Guaranty
To: First Fidelity Bank, N.A., not in its individual capacity,
but solely as Trustee ("Lessor")
5 Research Drive
Shelton, Connecticut 06484
Re: The Continental Insurance Company ("Continental")
180 Maiden Lane
New York, New York 10038
The Buckeye Union Insurance Company ("Buckeye")
180 Maiden Lane
New York, New York 10038
Firemen's Insurance Company of Newark, New Jersey
("Firemen's")
180 Maiden Lane
New York, New York 10038
Continental, Buckeye and Firemen's are referred to
collectively herein as the "Lessees."
Description of Leases: Schedule of Leased Equipment
No. 1, dated December 29, 1994, under Master
Agreement of Lease dated December 29, 1994 between
Lessor and Continental
Schedule of Leased Equipment No. 1, dated December
29, 1994, under Master Agreement of Lease dated
December 29, 1994 between Lessor and Buckeye
Schedule of Leased Equipment No. 1, dated December
29, 1994, under Master Agreement of Lease dated
December 29, 1994 between Lessor and Firemen's
We request you as Lessor to enter into the Leases described
above, with the above-named Lessees, and to induce you to do so
and in consideration thereof and of benefits to accrue to us
therefrom, we, as a primary obligor, unconditionally guarantee to
you that the Lessees will fully and promptly pay, when due, every
rental installment and all other sums payable under such Leases,
including, without limitation, any amounts payable during any
renewal term of the Leases and any amount payable as a result of
Lessees' elections to exercise any end-of-term option or in the
event the Leases are terminated for any reason prior to the
expiration of the Maximum Lease Term (as that term is defined in
the Leases), and we will perform all Lessees' present and future
obligations to you under such Leases, irrespective of any
invalidity or unenforceability of the Leases on any such
obligation or the insufficiency, invalidity or unenforceability
of any security therefor; and we agree, without your first having
to proceed against the Lessees or to liquidate the Leases or the
property subject to the Leases (the "Equipment"), to pay on
demand the entire unpaid balance of the rentals and any other
amounts due under said Leases and to become due you from the
Lessees thereunder and including all losses, costs, reasonable
attorneys' fees or expenses which may be suffered by you by
reason of Lessees' default or default of the undersigned; and we
agree to be bound by and on demand to pay any deficiency
established by a sale of the Leases and/or the Equipment, with or
without notice to us. This Guaranty is an unconditional
guarantee of payment and performance. We shall not be released
or discharged, either in whole or in part, by your failure or
delay to perfect or continue the perfection of any security
interest in any property which secures the obligations of Lessees
or of us to you, or to protect the property covered by such
security interest.
This Guaranty shall continue until payment and performance of
Lessees' obligations to you under the Leases have been paid or
performed in full. No earlier termination of this Guaranty shall
be effective except by notice sent to you by certified mail or by
commercial courier, in either case, return receipt requested,
naming
55-SA-772 (12/94) Continental Lease Guaranty Page 1 of 3
<PAGE>
a termination date effective not less than 90 days after the
receipt of such notice by you. No such termination shall affect
our liability hereunder for any transaction effected prior to the
effective date of such termination.
We waive: notice of acceptance hereof; presentment, demand,
protest and notice of nonpayment or protest as to any note or
obligation signed, accepted, endorsed or assigned to you by
Lessees; all exemptions and any other demands and notices
required by law; all setoffs and counterclaims; and any duty on
your part (should such duty exist) to disclose to us any matter,
fact or thing related to the business operations or condition
(financial or otherwise) of the Lessees or its affiliates or
property, whether now or hereafter known by you. We also agree
that we may not exercise or pursue any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution
or any other claim which we may now or hereafter have against the
Lessees or any other person directly or contingently liable for
the obligations guaranteed hereunder, or against or with respect
to the Lessees' property (including, without limitation, the
Equipment), arising from the existence or performance of this
Guaranty for a period of one year from the date such rights
accrue, and that any and all such rights shall be subordinate to
your claims against Lessees, until in each case you have been
paid in full.
You may at any time without affecting or impairing our
obligations hereunder, do any of the following:
1. With prior notice to us and our written consent:
(a) renew, extend, (including extensions beyond the original
term of such Lease), modify, release or discharge any
obligations of Lessee or of any other party at any time
directly or contingently liable for the payment of
Lessee's obligations under the Lease;
(b) accept new or additional documents, instruments or
agreements relating to or in substitution of Lessee's
obligations under the Lease;
2. With at least ten (10) days prior written notice to us:
(a) after an Event of Default has occurred under the Lease,
consent to the transfer or return of the Equipment;
(b) after an Event of Default has occurred under the Lease,
bid and purchase at any sale of the Lease or the
Equipment and apply any proceeds or security, and direct
the order and manner of sale;
3. Without our consent and without notice to us:
(a) accept partial payments of Lessee's obligations under the
Lease;
(b) take and hold additional security or guaranties for
Lessee's obligations under the Lease;
(c) exchange, release or waive any security; or
(d) after an Event of Default has occurred under the Lease,
settle, release (by operation of law or otherwise),
compound, compromise, collect or liquidate any of
Lessee's obligations under the Lease or the leased
property in any manner.
If a claim is made upon you at any time for repayment or recovery
of any amount(s) or other value received by you, from any source,
in payment of or on account of any of the obligations of the
Lessee guaranteed hereunder and you repay or otherwise become
liable for all or any part of such claim by reason of:
(a) any judgment, decree or order of any court or administrative
body having competent jurisdiction; or
(b) any settlement or compromise of any such claim,
55-SA-772 (12/94) Continental Lease Guaranty Page 2 of 3
<PAGE>
we shall remain liable to you hereunder for the amount so repaid
or for which you are otherwise liable to the same extent as if
such amount(s) had never been received by you, notwithstanding
any termination hereof or the cancellation of any note or other
agreement evidencing any of the obligations of the Lessee.
This Guaranty shall bind our successors and assigns, and shall
inure to your successors and assigns, including, but not limited
to, any party to whom you may assign such Lease, provided we
receive written notice of any such assignment. All of your
rights are cumulative and not alternative.
By execution of this Guaranty we agree to waive all rights to
trial by jury in any action, proceeding, or counterclaim on any
matter whatsoever arising out of, in connection with, or related
to this Guaranty.
Executed December 29, 1994.
Corporate
Guarantor
THE CONTINENTAL CORPORATION
New York, New York
CORPORATE SEAL
By Title
------------------ ---
------------------------------
Attest
Secretary
-------------------------------
Witness
-------------------------------
Home Address
55-SA-772 (12/94) Continental Lease Guaranty Page 3 of 3
<TABLE><CAPTION>
THE CONTINENTAL CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Millions, except share and per share amounts)
Column A Column B Column C Column D
Preferred Per Common Share
--------------------------
Earnings Dividends Fully
Description (Loss) for Primary Primary(1) Diluted(2)
--------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended Decmber 31, 1994:
Loss from Continuing Operations $ (642.4) $ 0.10 $ (11.60) $ (11.55)
Income from Discontinued Operations,
Net of Income Taxes $ 39.5 $ - $ 0.71 $ 0.71
Loss before Net Cumulative
Effect of Changes in Accounting
Principles $ (602.9) $ 0.10 $ (10.89) $ (10.84)
Net Cumulative Effect of Changes in
Accounting Principles $ - $ - $ - $ -
Net Loss $ (602.9) $ 0.10 $ (10.89) $ (10.84)
Weighted Average Shares of Common
Stock Outstanding
Primary - 55,439,251
Fully Diluted - 55,556,588
Year Ended Decmber 31, 1993:
Income from Continuing Operations $ 159.7 $ 3.20 $ 2.83 $ 2.86
Income from Discontinued Operations,
Net of Income Taxes $ 48.7 $ - $ 0.88 $ 0.87
Income before Net Cumulative
Effect of Changes in Accounting
Principles $ 208.4 $ 3.20 $ 3.71 $ 3.73
Net Cumulative Effect of Changes in
Accounting Principles $ 1.6 $ - $ 0.03 $ 0.03
Net Income $ 210.0 $ 3.20 $ 3.74 $ 3.76
Weighted Average Shares of Common
Stock Outstanding
Primary - 55,306,330
Fully Diluted - 55,846,590
Year Ended Decmber 31, 1992:
Income from Continuing Operations $ 102.0 $ 3.20 $ 1.80 $ 1.84
Loss from Discontinued Operations,
Net of Income Taxes $ (174.7) $ - $ (3.18) $ (3.15)
Loss before Net Cumulative
Effect of Changes in Accounting
Principles $ (72.7) $ 3.20 $ (1.38) $ (1.31)
Net Cumulative Effect of Changes in
Accounting Principles $ (11.0) $ - $ (0.20) $ (0.20)
Net Loss $ (83.7) $ 3.20 $ (1.58) $ (1.51)
Weighted Average Shares of Common
Stock Outstanding
Primary - 54,898,736
Fully Diluted - 55,486,242
<FN>
1 Per share amounts are computed on the weighted average number of common equivelant shares outstanding during the
period. Common equivelant shares include the dilutive effect of stock options and shares which would become issuable
pursuant to performance awards (See Note 20 of Notes to Consolidated Financial Statements on F-44 through F-47 in the
Proxy Statement). Dividend requirements on all preferred shares, plus any periodic accretion for the difference between
the liquidation value and the fair value of preferred shares, are deducted from earnings to derive common earnings, upon
which primary per share earnings are based.
2 Fully diluted per share amounts are computed on the weighted average number of common equivelant shares outstanding
during the period, increased by the assumed conversion of all convertible securities as of the beginning of each period.
Fully diluted earnings amounts are based on earnings after deduction of preferred dividends on shares which are not
convertible, but before deduction of dividends on convertible preferred shares.
</TABLE>
EXHIBIT 21
THE CONTINENTAL CORPORATION
SUBSIDIARIES
------------
AFCO Agent Service Corporation
Bayside Management Company, Inc.
Bayside Reinsurance Company, Ltd.
Boston Old Colony Insurance Company
Buckeye Union Insurance Company (The)
California Central Trust Bank Corporation
Casualty Insurance Company
Commercial Insurance Company Of Newark, N.J.
Connaught Insurance Company, Limited
Continental Asset Management Corp.
Continental Center Associates
Continental Corporate Realty Services, Inc.
Continental Guaranty & Credit Corporation
Continental Holding Corporation
Continental Insurance Company (The)
Continental Insurance Company of Canada (The)
Continental Insurance Holdings (Europe) Limited (The)
Continental Insurance Company of New Jersey (The)
Continental Insurance Company (Europe) Limited (The)
Continental Insurance Company of Puerto Rico (The)
Continental Insurance Management Limited
Continental Insurance (International Agencies) Australia Pty Limited
Continental International Insurance, Limited
Continental Life (Europe) Limited
Continental Life Insurance PLC
Continental Life (International) Limited
Continental Life Unit Trust Management Limited
Continental Lloyd's Insurance Company
Continental Loss Adjusting Services, Inc.
Continental Maiden Lane, Inc.
Continental Management Services, Ltd.
Continental Pacific (Australia) Holdings Limited
Continental Pacific Insurance Company (Australia) Limited
Continental Rehabilitation Resources, Inc.
Continental Re Management Inc.
Continental Reinsurance Corporation
Continental Reinsurance Corporation International Limited
Continental Reinsurance Corporation (U.K.) Limited
Continental Reinsurance Management Company Limited
Continental Reinsurance Management Holding Company Limited
Continental Reinsurance Technical Risk Management Limited
Continental Risk Services (Barbados) Ltd.
Continental Risk Services, Ltd. (Bermuda)
Continental Service Plan, Inc.
Continental Solution, Inc.
Continental Subsidary Corporation
Continental Vision Financial Services, Inc.
<PAGE>
CPI Group Incorporated (The)
CPI Pension Services Inc.
Ctek, Inc.
Davis & Company Pty., Ltd.
East River Insurance Company Ltd.
East River Insurance Company Ltd. (Bermuda)
Elizabethan Insurance Co. Limited
Fidelity and Casualty Company of New York (The)
Firemen's Insurance Company of Newark, New Jersey
First Benefit Services, Inc.
First Fire & Casualty Insurance Company of Hawaii, Inc.
First Idemnity Insurance of Hawaii, Inc.
First Insurance Company of Hawaii, Ltd.
Glens Falls Insurance Company (The)
Global Management Consultants, Inc.
Hongkong Fire Insurance Co., Ltd. (The)
Hull & Cargo Surveyors, Inc.
Hull & Cargo Surveyors, Inc. (Canada)
IDBI Managers, Inc.
Kansas City Fire and Marine Insurance Company
LCI Finance Limited
LIG Investments Ltd.
Lombard Continental Insurance Holdings Limited
Lombard Insurance Services Limited
Maiden Lane Syndicate Inc. (The)
Marine Office of America Corporation
Marine Office of America Corporation (Canada)
Marine Office of America (Deutschland) GmbH
Marine Office of America Corporation Italia, Spa
Marine Office of America Corporation (U.K.) Ltd.
MOAC Insurance Managers (Singapore) Pte. Ltd.
Marine Office of Asia Corporation (Hong Kong) Limited
Master Capital Corporation
Mayflower Insurance Company, Ltd. (The)
National-Ben Franklin Insurance Company of Illinois
Niagara Fire Insurance Company
North Pearl Management, Inc.
Pacific Insurance Company
Pacific Underwriters, Inc.
Pension/Profit Sharing Systems, Inc.
Settlement Options, Inc.
South Place Syndicate Inc. (The)
TCC Acquisition Corp.
TCC Holdings, Inc.
TCC Properties Inc.
UAM Limited
Unionamerica Management Co. Limited
United States P & I Agency, Inc.
Zeuxis Corp. VIII
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Continental Corporation:
We consent to incorporation by reference in the registration
statement No. 33-43824 on Form S-3 of The Continental Corporation
and the registration statement No. 2-97474 on Form S-8 of The
Continental Corporation of our reports dated February 16, 1995,
relating to the consolidated financial statements of The
Continental Corporation and subsidiaries and the related financial
statement schedules as of December 31, 1994 and 1993, and for each
of the years in the three-year period ended December 31, 1994,
which reports appear in or are incorporated by reference in the
December 31, 1994 Annual Report on Form 10-K405 of The
Continental Corporation.
Our reports refer to The Continental Corporation and
subsidiaries' change in methods of accounting for multiple-year
retrospectively rated reinsurance contracts and for the adoption
of the provisions of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits," No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," and No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," in 1993. SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and No. 109, "Accounting for Income Taxes" were
adopted in 1992.
KPMG PEAT MARWICK LLP
New York, New York
March 30, 1995
