<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
JUNE 3, 1996
(Date of Report)
CAPSURE HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
0-3565
(Commission File No.)
DELAWARE 34-1010356
(State or other jurisdiction) (IRS Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip code)
(312) 879-1900
(Registrant's telephone number, include area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 29, 1996, Capsure Holdings Corp., a Delaware corporation,
("Capsure," the "Company" or "Registrant"), through its wholly owned subsidiary,
NI Acquisition Corp., a Texas corporation, ("Seller") entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Frontier Insurance
Company, a New York corporation, ("Buyer") pursuant to which Buyer agreed to
purchase all of the issued and outstanding shares of Common Stock and Preferred
Stock (collectively, the "Shares") of United Capitol Holding Company, a Delaware
corporation and wholly owned subsidiary of the Seller, ("UCHC") and its
subsidiaries, United Capitol Insurance Company, United Capitol Managers, Inc.
and Fischer Underwriting Group, Incorporated.
On May 22, 1996 (the "Closing Date"), the sale of UCHC was completed.
In accordance with the Stock Purchase Agreement, Buyer paid to Capsure on the
Closing Date $30.9 million (the "Purchase Price") in cash in consideration of
the sale of the Shares of UCHC. Prior to closing, UCHC released $49.8 million
of excess statutory surplus by payment of a dividend to Capsure.
The Stock Purchase Agreement provides that the Purchase Price is
subject to adjustment for the difference, if any, between the post-closing
adjusted surplus (as defined in the Stock Purchase Agreement) and the estimated
adjusted surplus at closing. Such an adjustment to the Purchase Price will be
determined after completion of a closing balance sheet and closing income
statement. Such closing financial statements must be delivered by Seller to
Buyer within 45 days of the Closing Date. Any unresolved dispute concerning a
possible adjustment to the Purchase Price will be subject to binding
arbitration.
In the Stock Purchase Agreement, Capsure made various representations
and warranties as to itself and UCHC, and has agreed to indemnify Buyer for any
breaches thereof.
On the Closing Date, Capsure entered into various agreements with
Buyer pursuant to the Stock Purchase Agreement including non-competition and
non-solicitation agreements.
In conjunction with the sale of UCHC, Capsure entered into an amended
and restated senior reducing revolving credit facility with a syndicate of banks
led by Chemical Bank. The amendment to the facility reduced the commitment to
$100 million from $135 million and permits an initial draw for a special
dividend of up to $70 million. The remaining $30 million of availability may be
used for additional dividends, stock repurchases, acquisitions, and for general
corporate purposes. Transaction costs totaled approximately $0.5 million. The
credit available under the facility reduces semi-annually commencing March 31,
1997 and expires March 31, 2003. Interest on borrowings under the facility
varies based on leverage.
ITEM 5. OTHER EVENTS
On May 28, 1996, the Company announced that it has retained Smith
Barney Inc. to advise and assist Capsure's Board of Directors in an assessment
of the strategic options available to Capsure to enhance long-term value for its
stockholders. Options being explored include recapitalization of Capsure by
means of the payment of a leveraged, special dividend to stockholders and a
possible sale or merger of Capsure or its subsidiaries. The Board of Directors
has not reached any decision regarding the course of action or combination of
actions.
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated
financial statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996... Page F-1
Pro Forma Condensed Consolidated Statements of Income:
Year Ended December 31, 1995 .................................. Page F-2
Three Months Ended March 31, 1996.............................. Page F-3
The Pro Forma Condensed Consolidated Balance Sheet of
Registrant as of March 31, 1996 reflects the financial position of
Registrant after giving effect to the Disposition discussed in Item 2
and assumes the Disposition took place on March 31, 1996. The Pro
Forma Condensed Consolidated Statements of Income for the fiscal year
ended December 31, 1995 and the three months ended March 31, 1996
assume that the Disposition occurred on January 1, 1995 and are based
on the operations of Registrant for the year ended December 31, 1995
and the three months ended March 31, 1996.
The unaudited pro forma condensed consolidated financial
statements have been prepared by Registrant based upon assumptions
deemed appropriate. The unaudited pro forma condensed consolidated
financial statements presented herein are shown for illustrative
purposes only and are not necessarily indicative of the future
financial position or future results of operations of Registrant, or
of the financial position or results of operations of Registrant that
would have actually occurred had the transaction been in effect as of
the date or for the periods presented. In addition, it should be
noted that Registrant's financial statements will reflect the
Disposition as of May 22, 1996, the Closing Date.
The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements and related notes of Registrant.
(c) Exhibits
2.1 Stock Purchase Agreement, dated February 29,
1996, by and among Registrant, Seller and Buyer.
2.2 Credit Agreement, dated March 29, 1994, as
amended and restated as of May 22, 1996.
99 Press Release issued by Registrant, dated May 28,
1996.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSURE HOLDINGS CORP.
By: /s/ John S. Heneghan
-----------------------------
John S. Heneghan
Vice President and Controller
Dated: June 3, 1996
-4-
<PAGE> 5
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
-----------------------
Historical UCHC (a) Other Pro Forma
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Invested assets and cash:
Fixed maturities, at fair value .......... $ 201,485 $ 76,194 $ $ 125,291
Equity securities, at fair value ......... 13,720 -- 13,720
Short-term investments, at cost which
approximates fair value ................ 67,379 45,083 67,664 (b) 89,960
Other investments, at fair value ......... 3,275 -- 3,275
Cash ..................................... 4,089 2,726 1,363
--------- --------- -------- ---------
289,948 124,003 67,664 233,609
Deferred policy acquisition costs ......... 28,570 459 28,111
Reinsurance receivable .................... 40,645 33,269 7,376
Intangible assets, net of amortization .... 15,289 -- 15,289
Excess cost over net assets acquired,
net of amortization ...................... 68,016 4,805 63,211
Deferred income taxes, net of valuation
allowance ................................ 27,030 5,212 21,818
Other assets .............................. 36,985 12,704 24,281
--------- --------- -------- ---------
$ 506,483 $ 180,452 $ 67,664 $ 393,695
========= ========= ======== =========
LIABILITIES
Reserves:
Unpaid losses and loss adjustment
expenses................................. $ 125,940 $ 84,428 $ $ 41,512
Unearned premiums ........................ 82,385 12,405 69,980
--------- --------- -------- ---------
208,325 96,833 111,492
Reinsurance payable ....................... 701 701 --
Long-term debt ............................ 9,000 -- (9,000)(b) --
Other liabilities ......................... 27,115 6,254 -- 20,861
--------- --------- -------- ---------
Total liabilities ........................ 245,141 103,788 (9,000) 132,353
Total stockholders' equity ............... 261,342 76,664 76,664 261,342
--------- --------- -------- ---------
$ 506,483 $ 180,452 $ 67,664 $ 393,695
========= ========= ======== =========
</TABLE>
______________________________
(a) To eliminate the assets and liabilities of UCHC as of March 31, 1996.
(b) The estimated net proceeds on the sale are expected to approximate the
net assets of UCHC at March 31, 1996. The $76.7 million in net proceeds
from the sale of UCHC are invested in short-term investments after
retiring $9.0 million of outstanding long-term debt.
F-1
<PAGE> 6
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
--------------------
Historical UCHC (a) Other Pro Forma
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net earned premiums ....................... $ 98,692 $ 13,709 $ $ 84,983
Net investment income ..................... 20,471 9,257 4,196(b) 15,410
Net investment gains (losses) ............. (1,653) (1,030) (623)
Other income .............................. 6 -- 6
-------- -------- ------ --------
117,516 21,936 4,196 99,776
-------- -------- ------ --------
Expenses:
Net losses and loss adjustment expenses ... (7,451) (15,030) 7,579
Net commissions, brokerage and other
underwriting .............................. 61,312 3,142 58,170
Interest expense .......................... 4,103 -- 4,103
Amortization of goodwill and intangibles .. 16,853 13,952 2,901
Other ..................................... 2,448 -- 2,448
-------- -------- ------ --------
77,265 2,064 75,201
-------- -------- ------ --------
Income before income taxes ................. 40,251 19,872 4,196 24,575
Income taxes ............................... 19,721 11,215 1,469(c) 9,975
-------- -------- ------ --------
Net income ................................. $ 20,530 $ 8,657 $2,727 $ 14,600
======== ======== ====== ========
Weighted average shares outstanding:
Primary ................................... 15,404 15,404
========= ========
Fully Diluted ............................. 15,917 15,917
========= ========
Earnings per share:
Primary ................................... $ 1.33 $ .95
========= ========
Fully Diluted ............................. $ 1.29 $ .92
========= ========
</TABLE>
______________________________
(a) To eliminate the operations of UCHC for the entire period.
(b) To reflect the investment of the net proceeds from the sale of UCHC,
assuming a yield of 5.5%.
(c) To reflect the tax effect of pro forma adjustments, calculated at the
statutory rate of 35%.
F-2
<PAGE> 7
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
-------------------
Historical UCHC (a) Other Pro Forma
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net earned premiums ....................... $23,349 $1,972 $ $21,377
Net investment income ..................... 5,034 2,262 1,107(b) 3,879
Net investment gains ...................... 523 297 226
Other income .............................. 1 -- 1
------- ------ ------ -------
28,907 4,531 1,107 25,483
------- ------ ------ -------
Expenses:
Net losses and loss adjustment expenses ... 3,396 431 2,965
Net commissions, brokerage and other
underwriting ............................. 14,756 (83) 14,839
Interest expense .......................... 506 -- 506
Amortization of goodwill and intangibles .. 713 -- 713
Other ..................................... 619 -- 619
------- ------ ------ -------
19,990 348 19,642
------- ------ ------ -------
Income before income taxes ................. 8,917 4,183 1,107 5,841
Income taxes ............................... 3,397 1,487 387(c) 2,297
------- ------ ------ -------
Net income ................................. $ 5,520 $2,696 $ 720 $ 3,544
======= ====== ====== =======
Weighted average shares outstanding:
Primary ................................... 15,906 15,906
======= =======
Fully Diluted ............................. 15,907 15,907
======= =======
Earnings per share:
Primary ................................... $ .35 $ .22
======= =======
Fully Diluted ............................. $ .35 $ .22
======= =======
</TABLE>
______________________________
(a) To eliminate the operations of UCHC for the entire period.
(b) To reflect the investment of the net proceeds from the sale of UCHC,
assuming a yield of 5.5%.
(c) To reflect the tax effect of pro forma adjustments, calculated at the
statutory rate of 35%.
F-3
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED FEBRUARY 29, 1996
AMONG
FRONTIER INSURANCE COMPANY,
NI ACQUISITION CORP.
AND
CAPSURE HOLDINGS CORP.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Definitions..................................... 1
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale............................... 6
2.2 Closing......................................... 6
2.3 Post-Closing Purchase Price Adjustment.......... 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence and Power................... 9
3.2 Corporate Authorization......................... 9
3.3 Governmental Authorization...................... 9
3.4 Non-Contravention............................... 9
3.5 Capitalization.................................. 10
3.6 Ownership of Shares............................. 10
3.7 Subsidiaries.................................... 10
3.8 Financial Statements............................ 10
3.9 Absence of Certain Changes...................... 11
3.10 Material Contracts.............................. 12
3.11 Litigation...................................... 12
3.12 Compliance with Laws............................ 12
3.13 Properties...................................... 12
3.14 Intentionally omitted........................... 13
3.15 Brokers' Fees................................... 13
3.16 ERISA and Employee Representations.............. 13
3.17 Environmental Matters........................... 14
3.18 Intercompany Accounts........................... 14
3.19 Reserves........................................ 14
3.20 The Company..................................... 15
3.21 Investments..................................... 15
3.22 Taxes........................................... 15
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power................... 16
4.2 Corporate Authorization......................... 16
4.3 Governmental Authorization...................... 16
4.4 Non-Contravention............................... 16
<PAGE> 3
4.5 Financing................................... 16
4.6 Purchase for Investment..................... 16
4.7 Brokers' Fees............................... 17
ARTICLE 5
COVENANTS OF SELLER
5.1 Conduct of the Business...................... 17
5.2 Access to Information........................ 17
5.3 Resignations................................. 17
5.4 Regulatory Matters........................... 18
5.5 Release from Lenders......................... 18
5.6 Audited Financial Statements................. 18
5.7 Investment Portfolio Adjustments............. 18
5.8 Estimated UCM Financial Statements........... 18
5.9 Case Reserves Files.......................... 18
5.10 Confidentiality.............................. 18
5.11 Intercompany Accounts........................ 18
5.12 Updated Schedules............................ 19
5.13 Estimated Adjusted Surplus................... 19
5.14 Tangible Net Worth of UCM.................... 19
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality.............................. 19
6.2 Post-Closing Access.......................... 19
6.3 Regulatory Matters........................... 19
6.4 Post-Closing Use of Office Space............. 19
6.5 Agreement to Sublease........................ 19
ARTICLE 7
COVENANTS OF BUYER AND SELLER
7.1 Necessary Assurances.......................... 20
7.2 Filings and Consents.......................... 20
7.3 Public Announcements.......................... 20
7.4 Post-Closing Reinsurance...................... 20
7.5 Government Filings............................ 21
7.6 Closing Statementx............................ 21
7.7 Termination Notices........................... 21
ARTICLE 8
TAX MATTERS
8.1 Buyer Tax Covenants........................... 21
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.2 Property and Casualty Loss Discount Determination........... 22
8.3 Termination of Tax Sharing Agreements....................... 22
8.4 Tax Sharing................................................. 22
8.5 Cooperation on Tax Matters.................................. 22
8.6 Responsibility for Taxes and Tax Returns.................... 22
8.7 Intentionally omitted....................................... 23
8.8 Apportionment............................................... 23
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Individual Account Plans.................................... 23
9.2 Plans Following the Closing................................. 23
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller.............. 24
10.2 Conditions to Obligation of Buyer.......................... 24
10.3 Conditions to Obligation of Seller......................... 26
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival of Representations, Warranties and Covenants....... 27
11.2 Indemnification by Parent................................... 27
11.3 Indemnification by Buyer.................................... 28
11.4 Terms of Indemnification.................................... 29
11.5 Exclusive Remedy............................................ 31
11.6 Damages Net of Insurance, Etc............................... 31
ARTICLE 12
TERMINATION
12.1 Grounds for Termination...................................... 32
12.2 Effect of Termination........................................ 32
ARTICLE 13
MISCELLANEOUS
13.1 Notices..................................................... 32
13.2 Amendments and Waivers...................................... 33
13.3 Expenses.................................................... 33
13.4 Successors and Assigns...................................... 33
13.5 Governing Law............................................... 33
13.6 Counterparts; Facsimile Signatures.......................... 33
13.7 Third Party Beneficiaries................................... 34
13.8 Entire Agreement............................................ 34
</TABLE>
iii
<PAGE> 5
13.9 Headings................................... 34
13.10 Schedules.................................. 34
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
AGREEMENT dated this 29th day of February, 1996 ("Agreement") between
Frontier Insurance Company, a New York corporation ("Buyer"), and NI Acquisition
Corp., a Texas corporation ("Seller") and, for purposes of Section 2.3(c) and
Article 11 hereof only, Capsure Holdings Corp., a Delaware corporation
("Parent").
WITNESSETH:
WHEREAS, Seller is the record and beneficial owner of all of the
issued and outstanding shares of common stock, $.01 par value per share (the
"Common Stock"), and preferred stock, $.01 par value per share (the "Preferred
Stock") of United Capitol Holding Company, a Delaware corporation (the
"Company"); and
WHEREAS, Seller desires to sell all of the issued and outstanding
shares of Common Stock and Preferred Stock (collectively, the "Shares") to
Buyer, and Buyer desires to purchase the Shares from Seller, upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Closing Statements" shall have the meaning ascribed to it in
Section 2.3(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided, however, that for purposes of this Agreement neither the
Company nor any of its Subsidiaries shall be considered an Affiliate of Seller.
"Agreement" shall have the meaning ascribed to it in the first
paragraph of this Agreement.
"Applicable Tax Rate" means the corporate Tax rate (without the
application of net operating loss carryovers) actually applicable to Buyer or
Seller at the time a Tax Benefit becomes allowable to Buyer, any of its
Affiliates, Seller, the Company or a Subsidiary of the Company (as the case may
be).
"Arbitrating Accountant" shall have the meaning ascribed to it in
Section 2.3(b).
"Audited Consolidated Financial Statements" shall have the meaning
ascribed to it in Section 3.8(a).
"Audited Statutory Financial Statements" shall have the meaning
ascribed to it in Section 3.8(b).
"Audited UCM Financial Statements" shall have the meaning ascribed to
it in Section 3.8(a).
"Balance Sheet Date" means December 31, 1995.
<PAGE> 7
"Basket" shall have the meaning ascribed to it in Section 11.4(a)(i).
"Benefit Arrangement" means any employment, severance or similar
contract, or any plan or arrangement (whether or not written) providing for
severance benefits, disability, health and life insurance coverage (including
any self-insured arrangements), workers' compensation, disability benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (a) is not an Employee
Plan, (b) is entered into or maintained, by Seller or any of its ERISA
Affiliates and (c) covers any employee or former employee of the Company or any
of its Subsidiaries.
"Buyer" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Business" means the businesses of the Company and its Subsidiaries
taken as a whole.
"Closing" shall have the meaning ascribed to it in Section 2.2.
"Closing Adjusted Surplus" means the Surplus of UCIC as set forth in
the Closing Balance Sheet (i) minus the Invested Assets (including the
investment in Subsidiaries) as set forth in the Closing Balance Sheet, (ii) plus
such Invested Assets (excluding the investment in Subsidiaries) reflected at the
fair market value thereof as of the Closing Date, (iii) plus the positive amount
of any current liability for Taxes that is the responsibility of Seller pursuant
to Section 8.6 hereof that is reflected in the Closing Balance Sheet, and (iv)
minus the positive amount of any Taxes that is reflected as a recoverable in the
Closing Balance Sheet and which is recoverable by Parent or an Affiliate of
Parent pursuant to Section 8.1(c).
"Closing Balance Sheet" shall have the meaning ascribed to it in
Section 2.3(a).
"Closing Date" means the date of the Closing.
"Closing Income Statement" shall have the meaning ascribed to it in
Section 2.3(a).
"Closing Purchase Price" shall have the meaning ascribed to it in
Section 2.1.
"Closing Statements" shall have the meaning ascribed to it in Section
2.3(a).
"Closing Worksheet" shall have the meaning ascribed to it in Section
2.3(a).
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated thereunder.
"Common Stock" shall have the meaning ascribed to it in the second
paragraph of this Agreement.
"Company" shall have the meaning ascribed to it in the second
paragraph of this Agreement.
"Confidentiality Agreement" shall have the meaning ascribed to it in
Section 6.1.
"Credit Agreement" shall have the meaning ascribed to it in Section
5.5.
"Damages" shall have the meaning ascribed to it in Section 11.2(a).
2
<PAGE> 8
"Direct Rollover" shall have the meaning ascribed to it in Section
9.1.
"Employee" shall mean any full time, part-time or former employee of
the Company or any of its Subsidiaries who is eligible to participate in an
Employee Plan.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (a) is subject to any provision of ERISA, (b) is
maintained or contributed to by Seller or any ERISA Affiliate of Seller and (c)
covers any employee or former employee of the Company or any of its
Subsidiaries.
"Environmental Laws" shall have the meaning ascribed to it in Section
3.17.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Estimated Adjusted Surplus" means the Surplus of UCIC as set forth in
the Estimated SAP Closing Balance Sheet (i) minus the Invested Assets (including
the investment in Subsidiaries) as set forth in the Estimated SAP Closing
Balance Sheet, (ii) plus such Invested Assets (excluding the investment in
Subsidiaries) reflected at the fair market value thereof as of two business days
prior to the date of delivery of the Estimated SAP Closing Balance Sheet, (iii)
plus the positive amount of any current liability for Taxes that is the
responsibility of Seller pursuant to Section 8.6 hereof, that is reflected in
the Estimated SAP Closing Balance Sheet, and (iv) minus the positive amount of
any Taxes that is reflected as a recoverable in the Estimated SAP Closing
Balance Sheet and which is recoverable by Parent or an Affiliate of Parent
pursuant to Section 8.1(c).
"Estimated GAAP Closing Balance Sheet" shall have the meaning ascribed
to it in Section 2.2(c)(ii).
"Estimated SAP Closing Balance Sheet" shall have the meaning ascribed
to it in Section 2.2(c)(i).
"Estimated Worksheet" shall have the meaning ascribed to it in Section
2.3(c)(i).
"Federal Tax" means any Tax imposed under Subtitle A of the Code.
"Final Determination" means (a) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870-AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations) or (b) the payment of Tax by Buyer, Seller
or any of their Affiliates, whichever is responsible for payment of such Tax
under applicable law, with respect to any item disallowed or adjusted by a
Taxing Authority, provided that such responsible party determines that no action
should be taken to recoup such payment and the other party agrees.
"Frontier 401(k) Plan" shall have the meaning ascribed to it in
Section 9.1.
"Frontier Pacific" shall have the meaning ascribed to it in Section
10.1(d).
"GAAP" means U.S. generally accepted accounting principles.
3
<PAGE> 9
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Hazardous Materials" shall have the meaning ascribed to it in Section
3.17.
"IBNR" shall have the meaning ascribed to it in Section 2.2(d)(i).
"Indemnified Party" shall have the meaning ascribed to it in Section
11.6.
"Individual Account Plans" means the Pension Plan and the Parent
401(k) Plan.
"Intercompany Account Statement" shall have the meaning ascribed to it
in Section 5.11.
"Invested Assets" means, as of any date, with respect to (a) UCIC,
those assets required to be included on Page 2, Line 8(a) of UCIC's Statutory
Annual Statement and (b) the Company and its other Subsidiaries, assets of the
type described in clause (a) above.
"Investment Portfolio Adjustments" means the actions taken by Seller
or any of its Subsidiaries to comply with the obligations set forth in Section
5.7 and in connection with the payment of the Special Dividends.
"Leased Properties" means any offices, buildings and other real
property that are leased by the Company or any of its Subsidiaries as of the
date hereof and that are used in the operation of the Business.
"Lien" means, with respect to any material property or asset, any
mortgage, lien, pledge, security interest or encumbrance of any kind in respect
of such material property or asset. For the purposes of the Agreement, a Person
shall be deemed to own any property or asset subject to a Lien if it has
acquired or holds such property or asset subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Liquidated Damages" shall have the meaning ascribed to it in Section
11.4(a)(ii).
"Litigation" shall have the meaning ascribed to it in Section 3.11.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, business or assets of such
Person and its Subsidiaries, taken as a whole, excluding the effect of the
transactions contemplated under this Agreement including, without limitation,
the Investment Portfolio Adjustments and the payment of the Special Dividends.
"MGA Agreement" shall have the meaning ascribed to it in Section 7.4.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"Negative Material Breach" means aggregate costs and penalties in
excess of $75,000; provided, however, that no individual cost or penalty shall
be included in such aggregate unless it exceeds $10,000.
"Parent" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Parent 401(k) Plan" means the Capsure Holdings Corp. 401(k) Plan.
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"Pension Plan" means the United Capitol Insurance Company Pension Plan
and Trust.
"Person" means an individual, corporation, partnership, association,
trust, limited liability company, limited liability partnership or other entity
or organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Post-Closing Tax Period" means any Tax period (or portion thereof)
commencing on or after the close of business on the Closing Date.
"Post-Closing Purchase Price Adjustment" shall have the meaning
ascribed to it in Section 2.3(c).
"Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the close of business on the Closing Date.
"Purchase Price" shall have the meaning ascribed to it in Section 2.1.
"Reinsurance Agreement" shall have the meaning ascribed to it in
Section 7.4.
"Reserves" shall have the meaning ascribed to it in Section 3.19.
"SAP" means the statutory accounting practices prescribed or permitted
by the Office of the Commissioner of Insurance of the State of Wisconsin or the
National Association of Insurance Commissioners.
"SAP Equity Adjustment" shall have the meaning ascribed to it in
Section 2.2(f).
"Seller" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Seller Group" means, with respect to Federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which Seller is a member.
"Seller's Senior Officers" means Bruce A. Esselborn, Mary Jane
Robertson, Kelly L. Stonebraker and Ronald D. Bobman.
"Shares" shall have the meaning ascribed to it in the third paragraph
of this Agreement.
"Special Dividends" means the aggregate of all dividends paid by the
Company to Seller and by the Company's Subsidiaries to the Company from January
1, 1996 through and including the Closing Date.
"Straddle Period" shall have the meaning ascribed to it in Section
8.8.
"Subsidiary" means, with respect to any Person, any entity whose
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are, at the time, directly owned by such Person or indirectly owned by such
Person through a Subsidiary.
"Surplus" means surplus as regards policyholders determined in
accordance with SAP.
"Tangible Net Worth" shall have the meaning ascribed to it in Section
5.14.
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"Tax" means (a) any net income tax or franchise tax based on net
income, (including any alternative or add-on minimum taxes, and gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, payroll, employment, excise, severance, stamp, occupation, property or
windfall profit tax, custom duty or other tax, governmental fee or other like
assessments), together with any interest, penalty, addition to tax or additional
amount due from, or in respect of, the Company and its Subsidiaries imposed by a
Taxing Authority and (b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a result of the Company or
any of its Subsidiaries being a member of Seller Group.
"Tax Benefit" means any deduction, amortization, exclusion from income
or credit or other allowance.
"Tax Loss" shall have the meaning ascribed to it in Section
11.2(c)(iii).
"Tax Returns" means all material Tax returns, statements, reports and
forms, including, without limitation, consolidated returns, statements, reports
and forms, where applicable.
"Tax Sharing Agreements" means the various Tax sharing agreements
entered into by and between Parent, Seller, the Company and its Subsidiaries,
applicable to all taxable periods commencing February 20, 1990 and ending on the
Closing Date.
"Taxing Authority" means any governmental authority (domestic or
foreign) responsible for the imposition of any Tax.
"Termination Notice" shall have the meaning ascribed to it in Section
10.1(d).
"Third Party Claim" shall have the meaning ascribed to it in Section
11.4(d)(i).
"UCIC" shall have the meaning ascribed to it in Section 2.2(c)(i).
"UCM" means United Capitol Managers, Inc., a Delaware corporation and
wholly-owned subsidiary of UCIC.
"Western Surety" shall have the meaning ascribed to it in Section 7.4.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions
set forth in this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the Shares at the Closing. The purchase price for the
Shares is Thirty Million Nine Hundred Twenty Thousand and 00/100 Dollars
($30,920,000) (the "Purchase Price") plus or minus the amount of the SAP Equity
Adjustment calculated pursuant to Section 2.2(f) (the "Closing Purchase Price").
The Closing Purchase Price shall be paid in cash as provided in Section 2.2 and
further adjusted, if applicable, pursuant to the provisions of Section 2.3
hereto.
2.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall take place at the offices of Epstein Becker &
Green, P.C., New York, New York as soon as possible, but in no event later than
twelve business days after satisfaction of the conditions set forth in Article
10, or at such other time or place as Buyer and Seller may agree. At the
Closing:
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(a) Buyer shall deliver to Seller the Closing Purchase Price in
immediately available funds by wire transfer to an account of Seller, designated
in writing by Seller by notice to Buyer at least two business days prior to the
Closing Date, and all documents to be delivered under Section 10.3.
(b) Seller shall deliver to Buyer certificates for the Shares
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
and all documents to be delivered under Section 10.2.
(c) At least five business days prior to the Closing Date,
Seller shall deliver, or cause to be delivered, to Buyer the following:
(i) a balance sheet of United Capitol Insurance Company, a
Wisconsin corporation ("UCIC"), estimated as of the Closing Date prepared
(x) in accordance with SAP and (y) on a basis consistent with the SAP
balance sheet included in the Audited Statutory Financial Statements (the
"Estimated SAP Closing Balance Sheet"), accompanied by a worksheet (the
"Estimated Worksheet") setting forth the calculation of Estimated Adjusted
Surplus, together with the related statement of income for the period
January 1, 1996 through the Closing Date;
(ii) an interim consolidated balance sheet of the Company
and its Subsidiaries estimated as of the Closing Date prepared, except as
noted in Section 2.2(e)(ii), (x) in accordance with GAAP, (y) on a basis
consistent with the GAAP balance sheet included in the 1995 Audited
Consolidated Financial Statements (the "Estimated GAAP Closing Balance
Sheet"), together with the related consolidated statement of income for the
period January 1, 1996 through and including the Closing Date; and
(iii) a certification by the Chief Financial Officer of
Seller and the Controller of the Company representing that the Estimated
SAP Closing Balance Sheet and the Estimated GAAP Closing Balance Sheet,
together with the respective related statements of income for the period
January 1, 1996 through and including the Closing Date, have been prepared,
in all material respects, in accordance with SAP and, except as noted in
Section 2.2(e)(ii), in accordance with GAAP, respectively, applied on a
basis consistent with the Audited Statutory Financial Statements and the
1995 Audited Consolidated Financial Statements, respectively, and in
accordance with the provisions of Section 2.2(d) and 2.2(e), respectively.
(d) The Estimated SAP Closing Balance Sheet shall be prepared
in accordance with SAP as set forth in Section 2.2(c)(i) and shall reflect the
following:
(i) Reserves shall be estimated in accordance with
generally accepted actuarial standards and consistent with past practice
and, in estimating Reserves as at the Closing Date, such calculation shall
include, among other things, the amounts of the (x) incurred but not
reported losses (net of ceded reinsurance) and (y) unpaid unallocated loss
adjustment expenses ((x) and (y) together referred to as "IBNR", which IBNR
was twenty-six million dollars ($26,000,000) as of December 31, 1995); and
(ii) Invested Assets comprised only of (x) cash and cash
equivalents, (y) short-term investments and (z) fixed income securities
that were owned by the Company on December 31, 1995, and which are not set
forth on Schedule 2.2(d)(ii) hereto furnished by Buyer;
(e) The Estimated GAAP Closing Balance Sheet shall be prepared
on an interim basis in accordance with GAAP (except as provided in subsection
(ii) below) applied as set forth in Section 2.2(c)(ii) and shall reflect the
following:
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(i) the accounts of the Company and its Subsidiaries on a
stand-alone basis; and
(ii) the exclusion of financial statement footnotes.
(f) The "SAP Equity Adjustment" shall be equal to the positive
amount of the difference between $19,000,000 and Estimated Adjusted Surplus.
The Closing Purchase Price shall thereupon be determined as follows: (i) if
Estimated Adjusted Surplus exceeds $19,000,000, then the Closing Purchase Price
shall be equal to the Purchase Price plus the amount by which Estimated Adjusted
Surplus exceeds $19,000,000, or (ii) if Estimated Adjusted Surplus is less than
$19,000,000, then the Closing Purchase Price shall be equal to the Purchase
Price minus the amount by which $19,000,000 exceeds Estimated Adjusted Surplus.
2.3 Post-Closing Purchase Price Adjustment. (a) Within 45 days
after the Closing Date, Buyer shall cause to be prepared, under the supervision
of Seller and its representatives, a balance sheet of UCIC as at the Closing
Date (the "Closing Balance Sheet") and a statement of income of UCIC for the
period January 1, 1996 through and including the Closing Date (the "Closing
Income Statement"), each prepared on a basis consistent with the Estimated SAP
Closing Balance Sheet, with account balances computed in accordance with SAP
consistently applied, and a worksheet setting forth the calculation of Closing
Adjusted Surplus (the "Closing Worksheet" and, together with the Closing Balance
Sheet, the "Closing Statements") and certified to such effect by the Controller
of the Company and approved by Buyer and Seller.
(b) Within 15 days after receipt of the Closing Statements,
either Buyer or Seller may notify the other that it disputes all or part of the
Closing Statements, and if neither Buyer nor Seller so notifies the other, then
Buyer and Seller shall be deemed to have accepted the Closing Statements. If
either party notifies the other of a dispute, then, during the 15-day period
following the date of the last notice of dispute given, Buyer and Seller shall
use reasonable efforts to resolve the dispute and agree upon the Closing
Statements. If Buyer and Seller are unable to resolve the dispute within such
15-day period, then the dispute shall be submitted within five days of such
15-day period to an office of KPMG Peat Marwick in the eastern United States
having a significant property and casualty insurance practice for determination
(the "Arbitrating Accountant"). The determination of the Arbitrating Accountant
shall be made within 30 days after submission by the parties hereto, and any
changes to the Closing Statements required by such determination shall be set
forth by the Arbitrating Accountant in adjustments to the Closing Statements
(the "Adjusted Closing Statements"), which Adjusted Closing Statements shall be
final and binding and shall be delivered by the Arbitrating Accountant to Buyer
and Seller. If the Arbitrating Accountant's determination with respect to all
disputes (i) results in a net adjustment to the Closing Purchase Price in favor
of Seller, then Buyer shall pay the reasonable fees and expenses of the
Arbitrating Accountant; (ii) results in a net adjustment to the Closing Purchase
Price in favor of Buyer, then Seller shall pay the reasonable fees and expenses
of the Arbitrating Accountant; (iii) results in no net adjustment to the Closing
Purchase Price, then the party giving the dispute notice shall pay the
reasonable fees and expenses of the Arbitrating Accountant; or (iv) results in
no net adjustment to the Closing Purchase Price and both Buyer and Seller gave a
dispute notice, then Buyer shall pay fifty percent (50%) and Seller shall pay
fifty percent (50%) of the reasonable fees and expenses of the Arbitrating
Accountant.
(c) The Closing Purchase Price shall be adjusted as follows
(the "Post-Closing Purchase Price Adjustment"): (i) If Closing Adjusted Surplus
set forth on the Closing Worksheet (or the closing worksheet included in the
Adjusted Closing Statements, if applicable) exceeds Estimated Adjusted Surplus,
then Buyer shall pay to Seller the amount of such difference, or (ii) if Closing
Adjusted Surplus set forth on the Closing Worksheet (or the closing worksheet
included in the Adjusted Closing Statements, if applicable) is less than
Estimated Adjusted Surplus, then Parent shall pay to Buyer the amount of such
difference. Any payment required in this Section shall be made in immediately
available funds by wire transfer to an account of Seller or
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Buyer, as the case may be, as designated in writing by notice by the other
party, within 10 days following the determination of such Post-Closing Purchase
Price Adjustment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as
of the Closing Date that:
3.1 Corporate Existence and Power. Seller has been incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Texas and has all corporate powers required to carry on its business as
now conducted. The Company (a) has been incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, (b) has
all corporate powers required to carry on its business as now conducted, (c) has
all governmental licenses, permits, authorizations, consents and approvals
required to carry on the Business as now conducted, all of which are in full
force and effect, and (d) is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except, with respect to clauses (c) and (d) above, for those
licenses, permits, authorizations, consents and approvals the absence of which,
and those jurisdictions where failure to be so qualified, would not result in a
Negative Material Breach. Seller has heretofore provided to Buyer true and
complete copies of the certificate of incorporation and bylaws of Seller and the
Company as in effect on the date hereof.
3.2 Corporate Authorization. Except as set forth in Schedule 3.2
hereto, the execution, delivery and, subject to the receipt of the approvals
referred to in Section 3.3, performance by Seller of this Agreement and the
transactions contemplated hereunder are within Seller's corporate powers and
have been duly authorized by all necessary corporate action on the part of
Seller. This Agreement constitutes a valid and legally binding agreement of
Seller, enforceable against Seller in accordance with its terms, subject to (a)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and the rights of creditors of
insurance companies generally and (b) general principles of equity (regardless
of whether considered in a proceeding at law or equity).
3.3 Governmental Authorization. Except as set forth in Schedule 3.3
hereto, the execution, delivery and performance by Seller of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official on the part of Seller or any of its Subsidiaries other than
(a) compliance with any applicable requirements of the HSR Act, (b) approvals or
filings under applicable Federal and state securities laws and under the
applicable state insurance laws of the jurisdictions set forth on Schedule 3.3
hereto, (c) filings and notices not required to be made or given until after the
Closing Date and filings, at any time, of Tax Returns, Tax reports and Tax
information statements and (d) any such action or filing as to which the failure
to make or obtain would not result in a Negative Material Breach.
3.4 Non-Contravention. Except as set forth in Schedule 3.4 hereto,
the execution, delivery and performance by Seller of this Agreement do not and
will not (a) violate the certificate of incorporation or bylaws of Seller, the
Company or any of its Subsidiaries, (b) assuming compliance with the matters
referred to in Section 3.3, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (c) require any consent or other action
by any Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries, or to a loss of any benefit to which the
Company or any Subsidiary of the Company is entitled, under any agreement or
other instrument binding upon the Company or any of its Subsidiaries or (d)
result in the creation or imposition of any Lien on any asset of the Company or
any of its Subsidiaries except, in the case of clauses (b),
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(c) and (d) above, to the extent that any such violation, failure to obtain any
such consent or other action, default, right, loss or Lien would not result in a
Negative Material Breach.
3.5 Capitalization. (a) The authorized capital stock of the
Company consists of 650,000 shares of Common Stock and 493,750 shares of
Preferred Stock. As of the date hereof, there are outstanding 73,850 shares of
Common Stock and 447,418 shares of Preferred Stock.
(b) All outstanding shares of Common Stock and Preferred Stock
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth in this Section 3.5 and Schedule 3.5 hereto,
there are no outstanding (i) shares of capital stock or voting securities of
the Company, (ii) securities of the Company convertible into or exchangeable
for shares of capital stock or voting securities of the Company or (iii)
options or other rights to acquire from the Company, or other obligations of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company; and there are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any such securities.
3.6 Ownership of Shares. Except as set forth in Schedule 3.6
hereto, Seller is the record and beneficial owner of the Shares, free and clear
of any Lien (except for the pledge pursuant to the Credit Agreement) and will
transfer and deliver to Buyer at the Closing valid title to the Shares, free and
clear of any Lien, except Liens arising as a result of any action taken by Buyer
or any of its Affiliates; provided, however, that Seller makes no representation
regarding the ability of any Person other than Seller to transfer or otherwise
dispose of the Shares without registration or qualification under, or in
compliance with, applicable Federal securities or state securities or insurance
laws.
3.7 Subsidiaries. Except as set forth in Schedule 3.7: (a) Each
Subsidiary of the Company has been incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has all corporate powers and all governmental licenses, permits,
authorizations, consents and approvals required to carry on its business as now
conducted, all of which are in full force and effect, and is qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified, and those licenses, authorizations, consents and
approvals the absence of which, would not result in a Negative Material Breach.
Each Subsidiary of the Company, together with its jurisdiction of incorporation
and percentage ownership of the capital stock of any other Subsidiary, is
described on Schedule 3.7 hereto. Attached to Schedule 3.7 are true and
complete copies of the articles of incorporation and by-laws of each of the
Subsidiaries of the Company.
(b) Except as set forth on Schedule 3.7 hereto, as of the
Closing Date, all of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary of the Company will be
owned by the Company, directly or indirectly, free and clear of any Lien. There
are no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary of the Company or (ii)
options or other rights to acquire from the Company or any of its Subsidiaries,
or other obligations of the Company or any of its Subsidiaries to issue, any
capital stock or other voting securities or ownership interests in, or any
securities convertible into or exchangeable for any capital stock or other
voting securities or ownership interests in, any Subsidiary of the Company; and
there are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any such securities.
3.8 Financial Statements. (a) GAAP Financial Statements. As of
the date of this Agreement, the draft consolidated balance sheets of the Company
and its Subsidiaries as of December 31, 1994 and 1995 and the related draft
consolidated statements of income and cash flows for the years then ended, which
previously have been furnished to Buyer, present fairly, in all material
respects, the consolidated financial
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position of the Company and its Subsidiaries as of the dates thereof and the
consolidated results of operations of the Company and its Subsidiaries for the
respective periods then ended in conformity with GAAP. In addition, the draft
balance sheet of UCM as of December 31, 1995 and the related statement of income
and cash flows for the year then ended, which previously have been furnished to
Buyer, present fairly, in all material respects, the financial position of UCM
as of December 31, 1995 and the results of operations of UCM for the year then
ended in conformity with GAAP. As of the Closing Date, the audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1994 and
1995 and the related audited consolidated statements of income and cash flows
for the years then ended (the "Audited Consolidated Financial Statements"), to
be furnished to Buyer pursuant to Section 5.6 hereof, will present fairly, in
all material respects, the consolidated financial position of the Company and
its Subsidiaries as of the dates thereof and the consolidated results of
operations of the Company and its Subsidiaries for the respective periods then
ended in conformity with GAAP. In addition, as of the Closing Date the audited
balance sheets of UCM as of December 31, 1994 and 1995 and the related audited
statements of income and cash flows for the years then ended (the "Audited UCM
Financial Statements"), to be furnished to Buyer pursuant to Section 5.6 hereof,
will present fairly, in all material respects, the financial position of UCM as
of the dates thereof and the results of operations of UCM for the years then
ended in conformity with GAAP.
(b) Statutory Financial Statements. The audited statutory
balance sheets of UCIC as of December 31, 1993 and December 31, 1994, and the
related audited statutory statements of income and changes in capital and
surplus and cash flows for each of the years then ended and, as at the date of
this Agreement, the draft statutory balance sheet of UCIC as of December 31,
1995 and the related draft statutory statements of income and changes in capital
and surplus and cash flows for the year then ended, which previously have been
furnished to Buyer, present fairly, in all material respects, the admitted
assets, liabilities, capital and surplus, cash flows and other funds of UCIC as
at the dates and for the periods indicated, in conformity with SAP. As of the
Closing Date, the audited statutory balance sheet of UCIC as of December 31,
1995 and the related audited statutory statements of income and changes in
capital and surplus and cash flows for the year then ended (the "Audited
Statutory Financial Statements") to be furnished to Buyer pursuant to Section
5.6 hereof, will present fairly, in all material respects, the admitted assets,
liabilities, capital and surplus, cash flows and other funds of UCIC as at the
date and for the period indicated, in conformity with SAP.
3.9 Absence of Certain Changes. Except as disclosed in Schedule 3.9
hereto, since the Balance Sheet Date, the Business has been conducted, in all
material respects, in the ordinary course consistent with past practices, and
other than (a) the Investment Portfolio Adjustments and the transactions
relating to, and the payment of, the Special Dividends, (b) any payments
pursuant to the Tax Sharing Agreements, and (c) a downgrade, if any, in UCIC's
A.M. Best & Co. rating to "A-" or an announcement, if any, that UCIC's rating is
under review with or without negative implications, there has not been:
(i) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of the Company or any of its Subsidiaries or any repurchase, redemption or
other acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any of its Subsidiaries;
(ii) any incurrence, assumption or guarantee by the Company
or any of its Subsidiaries of any outstanding indebtedness for borrowed
money in excess of an aggregate of $100,000 other than under, or in
connection with, the Credit Agreement;
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(iii) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any of its Subsidiaries requiring
payments aggregating in excess of $250,000, other than obligations arising
under or in connection with insurance, reinsurance or indemnity agreements
or policies, surety bonds, agency, brokerage or similar contracts or
undertakings issued or entered into in the ordinary course of the Business
consistent with past practices, or transactions or commitments contemplated
by this Agreement;
(iv) any material change in any method of accounting or
accounting practice by the Company or any of its Subsidiaries, except for
any such change after the date hereof as a result of a change in GAAP or
SAP or as contemplated by Sections 2.2(d) and 2.2(e) hereto; or
(v) any (x) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of the Company or any of its Subsidiaries (or any
amendment to any such existing agreement), other than in the ordinary
course of Business consistent with past practice, (y) grant of any
severance or termination pay to any director, officer or employee of the
Company or any of its Subsidiaries other than in the ordinary course of
Business consistent with existing policies, or (z) change in compensation
or other benefits payable to any director, officer or employee of the
Company or any of its Subsidiaries other than in the ordinary course of
Business consistent with past practice.
3.10 Material Contracts. Except as disclosed in Schedule 3.10
hereto, neither the Company nor any of its Subsidiaries is bound by or a party
to any contract, other than insurance, reinsurance or indemnity agreements or
policies, surety bonds, agency, brokerage or similar contracts or undertakings,
or contracts cancelable on not more than 60 days' notice, which provides for
payments aggregating $100,000 or more, and the Company has not received written
notice of any breach under any such contract.
3.11 Litigation. Except as set forth on Schedule 3.11 hereto and
except for any action, suit, investigation or proceeding ("Litigation") which
may result in, or which relates in any way to, any insurance, reinsurance or
indemnity policy or agreement, surety bond or similar contract or undertaking
issued or entered into by the Company or any of its Subsidiaries, there is no
Litigation pending or, to the knowledge of Seller's Senior Officers, threatened
against or affecting, the Company or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which, assuming an adverse decision, individually and net of
insurance proceeds or other recoveries and any financial statement reserve for
such Litigation, would reasonably be expected to require payments by the Company
or any of its Subsidiaries of an amount in excess of $50,000.
3.12 Compliance with Laws. Except as set forth on Schedule 3.12
hereto or as previously disclosed to Buyer in writing expressly for the purposes
of this Section 3.12 prior to the date hereof, the Company and its Subsidiaries
are in compliance with all applicable laws, statutes, ordinances and
regulations, whether Federal, state or local, except where the failure to comply
would not result in a Negative Material Breach.
3.13 Properties. Schedule 3.13-A hereto sets forth a schedule of
the fixed assets of the Company and its Subsidiaries as set forth on the draft
consolidated balance sheet of the Company and its Subsidiaries as at December
31, 1995 previously furnished to Buyer and the related costs thereof and will,
at the Closing Date, set forth a schedule of such fixed assets as set forth on
the audited consolidated balance sheet of the Company and its Subsidiaries as at
December 31, 1995 to be delivered pursuant to Section 5.6 hereof, and related
costs thereof, except where the failure to schedule assets would not result in a
Negative Material Breach. Except as set forth on Schedule 3.13-B hereto, the
Company and its Subsidiaries have good title to or, in the case of leased
property, have valid leasehold interests in, all property and assets (whether
real or personal, tangible
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or intangible, other than the Invested Assets which are referred to in Section
3.21 hereof), to be reflected on the audited consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1995 or acquired after the
Balance Sheet Date except for (a) property and assets sold or otherwise disposed
of since the Balance Sheet Date in the ordinary course of Business consistent
with past practice, (b) property or assets sold or distributed to Seller by the
Company pursuant to the Special Dividends, and (c) such imperfections in title
or invalidities in leasehold interests as do not result in a Negative Material
Breach. None of such property or assets is subject to any Liens, except:
(i) Liens disclosed on the balance sheet contained in the
1995 Audited Consolidated Financial Statements;
(ii) Liens for Taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established on
the balance sheet contained in the 1995 Audited Consolidated Financial
Statements);
(iii) Liens arising after the Balance Sheet Date in the
ordinary course of the Business consistent with past practice; or
(iv) Liens which do not materially detract from the value
or materially interfere with any present or intended use of such property
or assets.
3.14 Intentionally omitted.
3.15 Brokers' Fees. Except for Smith Barney Inc., whose fees will
be paid by Seller, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Seller, the Company or any of its Subsidiaries who might be entitled to any fee
or commission in connection with the transactions contemplated by this
Agreement.
3.16 ERISA and Employee Representations. (a) Schedule 3.16(a)
identifies each Employee Plan. Seller has furnished or made available to Buyer
copies of the Employee Plans (and, if applicable, related trust agreements) and
all amendments thereto together with the most recent annual report prepared in
connection with any Employee Plan (Form 5500 including, if applicable, Schedule
B thereto). Except as set forth on Schedule 3.16(a) hereto, all required
reports and descriptions of the Employee Plans (including Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions, as required) have
been appropriately filed and distributed, and any notice required by ERISA or
the Code or any other state or Federal law or any ruling or regulation of any
state or Federal administrative agency with respect to the Employee Plans have
been appropriately made, and all contributions for all periods prior to the date
hereof have been made, except where the failure to make such filings,
distributions, notices or contributions would not result in a Negative Material
Breach.
(b) Neither Seller nor any ERISA Affiliate of Seller has
incurred, or reasonably expects to incur prior to the Closing Date, any
liability under Title IV or ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any Employee Plan that is reasonably
expected to become a liability of Buyer or any of its ERISA Affiliates after the
Closing Date.
(c) Except as described in Schedule 3.16(c) hereto, each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has been subject to a favorable determination letter from the Internal
Revenue Service and/or has pending a request for a determination timely filed
with the Internal Revenue Service in respect of compliance with the Code.
Except as set forth in Schedule 3.16(c) hereto, each Employee Plan has been
maintained in compliance with its terms and with requirements prescribed by
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ERISA and the Code, except where the failure to so comply would not result in a
Negative Material Breach. No Employee Plan is a Multiemployer Plan.
(d) Schedule 3.16(d) identifies each Benefit Arrangement, and
identifies all outstanding claims for benefits made by any Employee thereunder
as of the date hereof other than health, dental, long-term disability, group
life, and group accidental death and dismemberment claims. Seller has furnished
or made available to Buyer copies or descriptions of each Benefit Arrangement.
Except as set forth in Schedule 3.16(d), each Benefit Arrangement has been
maintained in compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations including,
without limitation, the payment in full of insurance premiums due through the
date hereof, except where the failure to so comply would not result in a
Negative Material Breach.
(e) Seller previously has furnished Buyer with a list of all
Employees, together with their respective salaries and accrued vacation days,
and identifying those Employees classified by the Company as "exempt" under the
Federal Labor Standards Act as at the delivery date of such list.
3.17 Environmental Matters. To the actual knowledge of Seller's
Senior Officers without inquiry, except as disclosed on Schedule 3.17, neither
the Company nor any of its Subsidiaries nor any other Person, has stored,
disposed or discharged, on, under or about any of the Leased Properties any
flammables, contaminants, gasoline, petroleum products, crude oil, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, polychlorinated biphenyls or related or similar materials, asbestos
or any material containing asbestos, any air, soil or water pollution, or any
other substance or material as may be defined as a hazardous or toxic substance
(collectively, "Hazardous Materials") under any applicable Federal or state
governmental law, rule, or regulation, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Sections 9601, et. seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et. seq.), the Solid
Waste Disposal Act, as amended (42 U.S.C. Section 6901 et. seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901 et. seq.),
the Federal Water Pollution Prevention and Control Act, as amended (33 U.S.C.
Sections 1251 et. seq.), the Clean Air Act, as amended (42 U.S.C. Sections 7401
et. seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Sections 2601
et. seq.), the Occupational Safety and Health Act, as amended (29 U.S.C.
Sections 651 et. seq.) and the state laws implementing said acts (collectively,
"Environmental Laws") requiring remediation or notice to any governmental
authority under the Environmental Laws, and neither the Company nor any of its
Subsidiaries has received written notice from any governmental authority
alleging violations of any Environmental Laws. To the actual knowledge of
Seller's Senior Officers without inquiry, none of the Leased Properties has ever
been used to generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process material amounts of Hazardous Materials,
except in compliance with Environmental Laws. Notwithstanding anything to the
contrary contained in this Section, no representation or warranty is being made
with respect to the liability of the Company and its Subsidiaries under any
policy or agreement of insurance, reinsurance or indemnity relating to any
Environmental Laws or Hazardous Materials.
3.18 Intercompany Accounts. Schedule 3.18 hereto lists all
intercompany balances as of the Balance Sheet Date between Seller and its
Affiliates, on the one hand, and the Company and its Subsidiaries, on the other
hand (except for inaccuracies which would not result in a Negative Material
Breach), and describes the general types of intercompany transactions that have
occurred between the Balance Sheet Date and the date of this Agreement.
3.19 Reserves. The reserves for unpaid losses and loss adjustment
expenses, including but not limited to IBNR (collectively, the "Reserves"), in
the draft consolidated balance sheet of the Company and its Subsidiaries as of
December 31, 1995 and the draft statutory financial statement of UCIC as of
December 31,
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1995, each previously furnished to Buyer, were, and upon delivery of the audited
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 1995 and the audited statutory balance sheet of UCIC as of December 31, 1995
the Reserves therein will be, estimated as of December 31, 1995 in accordance
with generally accepted actuarial standards, in accordance with GAAP and SAP,
respectively. Due to the variability and uncertainty which are intrinsic to the
claim evaluation and settlement processes, neither Parent nor Seller can
guaranty, and neither Parent nor Seller assumes any liability or makes any
representation or warranty with respect to, the ultimate adequacy of Reserves or
the sufficiency of Reserves to provide for all unpaid loss and loss adjustment
expense obligations.
3.20 The Company. Prior to the date hereof, the Company has not
engaged in any operations or activities other than operations or activities in
connection with (a) its formation and organization, (b) this Agreement and the
transactions contemplated hereby and (c) the ownership of stock of one or more
of its Subsidiaries.
3.21 Investments. Except as set forth on Schedule 3.21 hereof, the
Company or its Subsidiaries are in possession of all certificates and other
documentation necessary to evidence ownership of the Invested Assets, and has
good and marketable title, free and clear of all Liens, to all Invested Assets
as of December 31, 1995 or acquired after December 31, 1995, other than Invested
Assets that (a) have been disposed of in the ordinary course of the Business
consistent with past practices, or (b) have been transferred or disposed of by
the Company or its Subsidiaries (i) in connection with the Investment Portfolio
Adjustments or (ii) pursuant to transactions relating to, and the payment of,
the Special Dividends.
3.22 Taxes. Except as set forth on Schedule 3.22-A hereto, (a) all
Tax Returns required to be filed with any Taxing Authority by or with respect to
the Company or any of its Subsidiaries with respect to any Pre-Closing Tax
Period have been filed or will be filed in accordance with all applicable laws
(taking into account any extension of a required filing date); (b) the Company
and its Subsidiaries have timely paid all Taxes including, without limitation,
pursuant to the Tax Sharing Agreements, shown as due and payable on the Tax
Returns that have been filed by or on behalf of the Company and its
Subsidiaries; (c) the Company and its Subsidiaries have made or will on or
before the Closing Date make provision for all Taxes payable by the Company and
its Subsidiaries for any pre-Closing Tax Period for which no Tax Return has yet
been filed; (d) the amounts paid to Seller or Parent pursuant to the Tax Sharing
Agreements and the reserves for Taxes with respect to the Company and its
Subsidiaries to be reflected on the Estimated GAAP Closing Balance Sheet will be
adequate to cover the Tax liabilities accruing through the date thereof; (e)
there is no action, suit, proceeding, investigation, audit or claim now pending
or, to the knowledge of Seller's Senior Officers, proposed against or with
respect to the Company or its Subsidiaries in respect of any Tax; (f) the
Company and its Subsidiaries have withheld payments of all amounts required to
be withheld and have paid all withholding Taxes required to be paid under
Federal, state, local and foreign Tax laws or have made adequate provision for
all such withholding or payments; (g) no election under Sections 108, 168, 338,
441, 1017, 1033 or 4977 of the Code is in effect with respect to the Company or
any of its Subsidiaries; (h) neither the Company nor any of its Subsidiaries is
required to make any adjustment pursuant to Section 481 of the Code by reason of
a change in accounting method, and there are no applications for changes in
accounting method pending with any Tax Authority; (i) there are no deferred
intercompany gains or losses (as defined in Treasury Regulation 1.1502-13 of the
Code) with respect to the Company and its Subsidiaries, on the one hand, and the
Seller and its Affiliates, on the other hand; (j) neither the Company nor any of
its Subsidiaries is jointly or severally liable for Federal Taxes on income as a
result of being a member of another consolidated group, other than Seller Group;
and (k) each of the Company and its Subsidiaries has paid or made adequate
provision for payment of all guarantee fund assessments that are due, claimed or
asserted by any insurance regulatory authority, provided, however, with respect
to guarantee fund assessments claimed or asserted, that written notice of such
claimed or asserted assessments has been received by the Company or its
Subsidiaries. Schedule 3.22-B hereto lists all of the Tax Sharing Agreements,
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and a list of jurisdictions in which the Company or any of its Subsidiaries has
filed an income, franchise or premium Tax Return.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as
of the Closing Date that:
4.1 Corporate Existence and Power. Buyer has been incorporated and
is validly existing as a corporation in good standing under the laws of the
State of New York and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, consents
and approvals the absence of which would not have a Material Adverse Effect on
Buyer. Buyer has heretofore provided to Seller true and complete copies of its
certificate of incorporation and bylaws as in effect on the date hereof.
Schedule 4.1 hereto sets forth a list of each insurance Affiliate of Buyer and
its respective State of incorporation.
4.2 Corporate Authorization. The execution, delivery and, subject
to the receipt of the approvals referred to in Section 4.3, performance by Buyer
of this Agreement is within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and legally binding agreement of Buyer,
enforceable against Buyer in accordance with its terms, subject to (a)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and the rights of creditors of
insurance companies generally and (b) general principles of equity (regardless
of whether considered in a proceeding at law or in equity).
4.3 Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement requires no action by or in respect of,
or filing with, any governmental body, agency or official on the part of Buyer
or any of its Subsidiaries other than (a) compliance with any applicable
requirements of the HSR Act, (b) approvals or filings under the applicable
insurance laws of the jurisdictions set forth in Schedule 4.3, and (c) filings
and notices not required to be made or given until after the Closing Date and
filings, at any time, of Tax Returns, Tax reports and Tax information
statements.
4.4 Non-Contravention. The execution, delivery and performance by
Buyer of this Agreement do not and will not (a) violate the certificate of
incorporation or bylaws of Buyer or any of its Subsidiaries, (b) assuming
compliance with the matters referred to in Section 4.3, violate (x) any
applicable law, rule or regulation or (y) any judgment, injunction, order or
decree, (c) require any consent or other action by any Person under, constitute
a default under, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Buyer or any of its Subsidiaries or
to a loss of any benefit to which Buyer or any of its Subsidiaries is entitled
under, any agreement or other instrument binding upon Buyer or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by Buyer or any of its Subsidiaries or (d) result in the creation or
imposition of any Lien on any asset of Buyer or any of its Subsidiaries except,
in the case of clauses (b), (c) and (d) above, to the extent that any such
violation, failure to obtain any such consent or other action, default, right,
loss or Lien would not result in a Material Adverse Effect on Buyer.
4.5 Financing. Buyer has, or will have prior to the Closing,
sufficient immediately available funds to enable it to make payment at the
Closing of the Closing Purchase Price, plus a Post-Closing Purchase Price
Adjustment, if any, and any other amounts to be paid by it hereunder.
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4.6 Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer is an "accredited investor" within the
meaning of Rule 501 of the Securities Act of 1933, as amended, and (either alone
or together with its advisors) has had access to Seller and the Company and has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the Shares
and is capable of bearing the economic risks of such investment.
4.7 Brokers' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer who might be entitled to any fee or commission from Seller or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
ARTICLE 5
COVENANTS OF SELLER
Seller hereby covenants and agrees that:
5.1 Conduct of the Business. Except as contemplated by this
Agreement (including, without limitation, the Investment Portfolio Adjustments,
the transactions relating to, and the payment of, the Special Dividends and the
payments under the Tax Sharing Agreements), including the Schedules hereto, from
the date hereof until the Closing Date, Seller shall cause the Company and its
Subsidiaries to conduct the Business in all material respects in the ordinary
course consistent with past practice. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, except as set forth on
Schedule 5.1(c) hereto, Seller will not permit the Company or any of its
Subsidiaries to:
(a) adopt or propose any change in its certificate of
incorporation or bylaws;
(b) merge or consolidate with any other Person or acquire a
material amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any assets or
property having a value in excess of $5,000 except (i) pursuant to existing
contracts or commitments, (ii) in the ordinary course of the Business consistent
with past practices, or (iii) the furniture and equipment set forth on Schedule
5.1(c) hereof; or
(d) agree or commit to do any of the foregoing.
5.2 Access to Information. From the date hereof until the Closing
Date and subject to the terms of the Confidentiality Agreement, applicable legal
privileges and legal or contractual restrictions, Seller will (a) give, and will
cause the Company and its Subsidiaries to give, Buyer, its counsel, financial
advisors, auditors and other authorized representatives full access, upon
reasonable prior notice and during normal business hours, to the offices,
properties, books and records of the Company and each of its Subsidiaries and to
the books and records of Seller relating to the Company and its Subsidiaries,
(b) furnish, and will cause the Company and its Subsidiaries to furnish, to
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating
to the Company or any of its Subsidiaries as such Persons may reasonably request
and (c) instruct the employees, counsel and financial advisors of Seller or the
Company or any of its Subsidiaries to cooperate with Buyer in its investigation
of the Company or any of its Subsidiaries.
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5.3 Resignations. At or prior to the Closing Date, Seller will
deliver to Buyer the resignations of Bruce A. Esselborn, Mary Jane Robertson,
Kelly L. Stonebraker, and all other non-employee officers and directors of the
Company and its Subsidiaries from their positions with the Company or any of its
Subsidiaries.
5.4 Regulatory Matters. Seller, with Buyer's cooperation, will
promptly prepare and file all applications and notices to obtain the state
regulatory approvals specified on Schedule 3.3, and use all reasonable efforts
to process such applications and notices and obtain the requisite consents.
5.5 Release from Lenders. Seller will use all reasonable efforts to
cause the release of the pledged capital stock of the Company and its
Subsidiaries by, and any and all obligations of the Company and the Subsidiaries
to, Chemical Bank and the other lenders named in the Credit Agreement dated
March 29, 1994 among such lenders, Capsure Financial Group, Inc. and Parent (the
"Credit Agreement").
5.6 Audited Financial Statements. Within ten days following the date
of this Agreement, Seller shall deliver to Buyer the Audited Consolidated
Financial Statements, the Audited Statutory Financial Statements and the Audited
UCM Financial Statements, each of which shall be substantially similar to their
respective drafts previously furnished to Buyer.
5.7 Investment Portfolio Adjustments. Prior to the Closing Date,
Seller shall take such actions as is required to cause UCIC's Invested Assets to
conform to the description set forth in Section 2.2(d)(ii) of this Agreement.
5.8 Estimated UCM Financial Statements. At least five business days
prior to the Closing Date, Seller shall deliver, or cause to be delivered, to
Buyer, an unaudited balance sheet of UCM estimated as of the Closing Date, and
related statements of income and cash flows for the period January 1, 1996
through and including the Closing Date (on an estimated basis), prepared, except
as noted in Section 2.2(e)(ii) of this Agreement, (x) in accordance with GAAP
and (y) on a basis consistent with the audited balance sheet of UCM as of
December 31, 1995 included as part of the Audited UCM Financial Statements to be
delivered to Buyer pursuant to Section 5.6 hereof.
5.9 Case Reserves Files. At least five business days prior to the
Closing Date, Seller shall deliver, or cause to be delivered, to Buyer, a
schedule setting forth every case reserve file opened or closed and every change
in the estimate of case reserves of UCIC from January 1, 1996 through and
including a date not more than ten business days prior to the Closing Date.
5.10 Confidentiality. Seller will hold, and will use reasonable
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by any judicial or administrative process or by other requirements of
law, all confidential documents and information concerning the Company or any of
its Subsidiaries provided to it pursuant to Section 6.2 or otherwise.
5.11 Intercompany Accounts. At least five business days prior to
the Closing, Seller shall prepare and deliver to Buyer a statement (the
"Intercompany Account Statement") setting forth in reasonable detail the
calculation of the intercompany account balances between Seller or any of its
Affiliates, on the one hand, and the Company and its Subsidiaries, on the other
hand, based upon the latest available financial information as of five business
days prior to such date and, to the extent requested in writing by Buyer,
provide Buyer with supporting documentation to verify the underlying
intercompany charges and transactions. All such intercompany account balances
(other than those under or relating to reinsurance contracts, agency agreements
and arrangements) shall be paid in full in cash at or prior to the Closing.
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<PAGE> 24
5.12 Updated Schedules. No later than ten business days prior to
the Closing Date, Seller shall provide updated, amended and/or supplemental
Schedules to Buyer.
5.13 Estimated Adjusted Surplus. Prior to the Closing Date, Seller
shall use its reasonable efforts to cause Estimated Adjusted Surplus to be
$19,000,000.
5.14 Tangible Net Worth of UCM. The payment of the Special
Dividends shall not cause the net worth of UCM as reflected on the balance sheet
of UCM described in Section 5.8 above, after excluding excess cost over net
assets acquired, net of amortization ("Tangible Net Worth") to be less than such
Tangible Net Worth as calculated from the audited UCM balance sheet as of
December 31, 1995.
ARTICLE 6
COVENANTS OF BUYER
Buyer hereby covenants and agrees that:
6.1 Confidentiality. All information provided to Buyer or any of
the persons referred to in Section 5.2 hereof will be treated as if provided
under the confidentiality agreement dated as of September 29, 1995 by and
between Frontier Insurance Group, Inc. and Parent (the "Confidentiality
Agreement").
6.2 Post-Closing Access. Buyer will cause the Company and each of
its Subsidiaries, on and after the Closing Date, so long as Parent has
indemnification obligations to Buyer pursuant to Article 11 hereof, to afford
promptly to Seller and its agents and representatives full access, upon
reasonable prior notice and during normal business hours, to their offices,
properties, books, records, employees and auditors to the extent reasonably
necessary to permit Seller to determine any matter relating to its rights and
obligations hereunder or to any period ending on or before the Closing Date,
including, without limitation, in connection with the preparation of Tax Returns
and the Closing Financial Statements.
6.3 Regulatory Matters. Buyer, with Seller's cooperation will
promptly, and in any event no later than ten business days after the date
hereof, prepare and file all applications, notices, consents and other documents
necessary or advisable to obtain the state regulatory approvals specified in
Schedule 4.3, promptly file all supplements or amendments thereto and use all
reasonable efforts to obtain the regulatory approvals specified in Schedule 4.3
hereto as promptly as practicable. Buyer will provide Seller and its counsel
(a) the opportunity to review in advance and comment on all such filings with
regulatory authorities and rating agencies relating to this transaction and all
written communications with respect thereto a reasonable time prior to such
filings or written communications, (b) prompt notice of all contacts by such
regulatory authorities and rating agencies, and (c) with respect to any
regulatory approval or review required by any state other than Buyer's and
UCIC's states of domicile, the right to approve any filings, written
communications and the substance of any oral communications and to participate
in any meetings. Buyer will keep Seller informed of the status of matters
relating to obtaining the regulatory approvals specified in Schedule 4.3 hereto
and will promptly furnish Seller with copies of all written communications with
respect thereto.
6.4 Post-Closing Use of Office Space. To assist in an orderly
transition of ownership of the Business, Buyer shall permit each of Bruce A.
Esselborn, Mary Jane Robertson, Ronald D. Bobman and Vicki Hicks to continue to
use the office space currently occupied by them for a period of 60 days
following the Closing Date.
6.5 Agreement to Sublease. In the event Richard Weingarten &
Company ("Weingarten"), which currently occupies office space within the
Company's leased premises, is unable to enter into an
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independent lease with Taylor & Mathis, the landlord of such premises, on or
prior to the Closing Date with respect to such office space, Buyer hereby agrees
to cause the Company to enter into a sublease with Weingarten or any other
Person reasonably satisfactory to Buyer with respect to such space, on
substantially the same terms and conditions as are contained in the master
lease, with rent to be determined according to the pro rata portion attributable
to the space being sublet, and expiring on the expiration date of the initial
term of the master lease. Notwithstanding the foregoing, if Weingarten elects to
vacate such space on or before the Closing Date and gives Buyer written notice
thereof at least 30 days prior to the Closing Date, the requirement provided in
Section 10.2(b)(xi) shall be waived.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller hereby covenant and agree that:
7.1 Necessary Assurances. Subject to the terms and conditions of
this Agreement, Buyer and Seller will use reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things reasonably
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Seller and Buyer agree, and
Seller, prior to the Closing and Buyer, after the Closing, agree to cause the
Company and each of its Subsidiaries to execute and deliver such other
documents, certificates, applications, agreements and other writings and to take
such other actions as may be reasonably necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
7.2 Filings and Consents. Seller and Buyer shall cooperate with one
another (a) with respect to any filing with any governmental body, agency,
official or authority required in connection with this Agreement or the
consummation of the transactions contemplated by this Agreement, or any actions,
consents, approvals or waivers required to be obtained from parties to any
material contracts, in connection with this Agreement or the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection
therewith, timely seeking to obtain any such actions, consents, approvals or
waivers and Seller shall have the right to attend meetings with governmental
authorities or rating agencies in connection therewith.
7.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, subject
to any such party's disclosure obligations under applicable law or any
applicable listing agreement, manual, by-laws, rules or regulations of any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
7.4 Post-Closing Reinsurance. Prior to the Closing Date, Seller
shall cause (a) UCIC and Western Surety Company ("Western Surety") to agree to
continue in full force and effect the Directors' and Officers' and Errors and
Omissions Liability Quota Share Reinsurance Agreement between Western Surety and
UCIC dated August 15, 1994 (the "Reinsurance Agreement") until the 61st day
following the Closing Date and granting UCIC the unilateral right to terminate
the Reinsurance Agreement at any time prior to the expiration date upon three
days' prior written notice, pursuant to the Termination Addendum with respect to
the Reinsurance Agreement to be delivered pursuant to Section 10.2(b)(ix)
hereof, and (b) Western Surety and UCM to agree to continue in full force and
effect the Managing General Agency Agreement dated October 29, 1992 between
Western Surety and UCM (the "MGA Agreement") until the 61st day following the
Closing Date and granting UCM the unilateral right to terminate the MGA
Agreement at any time prior to the expiration date upon three days' prior
written notice, pursuant to the Termination Addendum with respect to the MGA
Agreement to
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be delivered pursuant to Section 10.2(b)(ix) hereof, such MGA Agreement to be
amended to terminate the authority with respect to certain lines of business
reinsured under the Reinsurance Agreement, pursuant to Amendment No. 4 to the
MGA Agreement to be delivered pursuant to Section 10.2(b)(ix) hereof. Buyer
hereby agrees to cause UCIC to continue to manage, adjust and settle claims
under the policies reinsured under the Reinsurance Agreement consistent with
past practices, and shall use its reasonable efforts prior to and during the
60-day period following the Closing Date to replace Western Surety as the direct
insurer under all policies reinsured under the Reinsurance Agreement. Buyer
hereby agrees to save, indemnify and hold Seller and Western Surety harmless
from and against any Damages relating to policies issued by Western Surety
pursuant to the MGA Agreement and reinsured under the Reinsurance Agreement
subsequent to the Closing Date, or arising out of any actions taken by UCIC or
its Subsidiaries subsequent to the Closing Date with respect to the Reinsurance
Agreement or MGA Agreement, including all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including reasonable
outside attorneys' fees, incident to the foregoing.
7.5 Government Filings. Each of Buyer, Seller, the Company and its
Subsidiaries shall as soon as practicable, but no later than ten business days
following execution of this Agreement, make any and all filings required to be
made by it with any and all governmental authorities in connection with the
consummation of the transactions contemplated herein. Accordingly, and not in
limitation of the preceding sentence, Buyer, Seller and the Company shall
promptly file, after the execution of this Agreement, (a) the notification
required by the HSR Act and any requested or supplementary filings required
pursuant to the HSR Act in such manner and at such places as are specified in
the HSR Act and the applicable rules and regulations thereunder, and (b) any
other notifications or requests, including the filing by the Buyer at its
expense of an application for authority to acquire control of the Company and
its Subsidiaries with the insurance authorities of the jurisdictions specified
on Schedule 4.3 hereto. Buyer and Seller equally shall pay the fee due in
connection with the filing of the notification required under the HSR Act. Each
party shall furnish the other party with any information, certificates and other
documents in a timely manner and shall cooperate with the other party in all
reasonable ways necessary to effect such filings.
7.6 Closing Statements. Buyer and Seller shall cooperate, use
reasonable efforts and act in good faith in the preparation and delivery, each
on a timely basis, of the Closing Statements in accordance with Section 2.3(a)
hereof.
7.7 Termination Notices. Until six months after the Closing Date,
Buyer shall cause the Company to use its reasonable efforts, with Seller's
cooperation to the extent required, to cure any Termination Notices received
prior to the Closing Date.
ARTICLE 8
TAX MATTERS
8.1 Buyer Tax Covenants. (a) Buyer covenants that it will not
cause or permit the Company, any Subsidiary or any Affiliate of Buyer to (i)
make any election or deemed election under Section 338 of the Code or (ii) amend
any Tax Returns for any Pre-Closing Tax Periods.
(b) Buyer agrees to cause the Company and its Subsidiaries to
elect, where permitted by law, to carry forward any net operating loss or other
item arising after the Closing Date that would, absent such election, be carried
back to a Pre-Closing Tax Period of the Company or a Subsidiary which filed a
consolidated, combined or unitary Tax Return with Seller or an Affiliate of
Seller.
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(c) Buyer shall promptly pay or shall cause prompt payment to
be made to Parent of (i) the amount of any reduction of Tax liability
attributable to the carryover of any net operating loss or capital loss, and
(ii) all refunds of Taxes and interest thereon realized or received,
respectively, by Buyer, any Affiliate of Buyer, the Company or any of its
Subsidiaries, attributable to Taxes paid by or on behalf of Seller, the Company
or any of its Subsidiaries, whether pursuant to the Tax Sharing Agreements or
otherwise, with respect to any Pre-Closing Tax Period.
(d) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any state real property transfer and
gains taxes, city real property transfer tax and any similar tax imposed in
other states or subdivisions) shall be borne and paid by Buyer and Buyer will,
at its own expense, file all necessary Tax Returns and other documentation with
respect to all such Taxes and fees if required by applicable law.
8.2 Property and Casualty Loss Discount Determination. Seller shall
determine the provision for discounted unpaid losses of the Company and its
Subsidiaries under Sections 832(b)(5) and 846 of the Code for all Pre-Closing
Tax Periods, provided that such determination shall be made in a manner
consistent with past practice of the Company and its Subsidiaries and in
compliance with the Code.
8.3 Termination of Tax Sharing Agreements. The Tax Sharing
Agreements between the Company and its Subsidiaries and any member of the Seller
Group shall be terminated as of the Closing Date. Subject to Sections 8.1(c)
and 8.4 hereof, after the Closing Date neither the Company and its Subsidiaries,
Seller nor any Affiliate of Seller shall have any further rights or liabilities
thereunder.
8.4 Tax Sharing. Immediately preceding the Closing, the Company and
each of its Subsidiaries shall pay to Seller and Seller shall pay to Parent the
amount, with respect to all Pre-Closing Tax Periods for which no Tax Return has
yet been filed, required by the Tax Sharing Agreements and, with respect to
pre-Closing interim periods not required by the Tax Sharing Agreements,
estimated in accordance with the provisions of the Tax Sharing Agreements, or
determined in accordance with principles comparable thereto, based upon Seller's
good faith estimates, as of the Closing Date, of the consolidated Tax liability
of the Company and its Subsidiaries, and reduced by the amount of any payments
on account of such Taxes previously paid to Seller.
8.5 Cooperation on Tax Matters. Buyer and Seller agree to furnish
or cause to be furnished to each other, upon request, as promptly as
practicable, such information (including access to books and records) and
assistance relating to the Company or its Subsidiaries as is reasonably
necessary (i) for the filing of any Tax Return, (ii) for the verification of any
amounts due in accordance with Section 8.1(c), (iii) for the preparation for any
audit and (iv) for the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment. Buyer and Seller agree to retain or cause
to be retained all books and records pertinent to the Company or its
Subsidiaries (such books and records not limited solely to Tax accounting books,
records and work papers) until the applicable period for assessment under
applicable law (giving effect to any and all extensions or waivers and to the
period of Tax indemnification provided in this Agreement) has expired, and to
abide by or cause the abidance with all record retention agreements entered into
with any Taxing Authority. Buyer agrees, and after the Closing shall cause the
Company and its Subsidiaries, to give Seller reasonable notice prior to
transferring, discarding or destroying any such books and records and, if Seller
so requests, the Company and its Subsidiaries shall allow Seller to take
possession of such books and records. Buyer and Seller shall notify each other
in writing of, and cooperate with each other in the conduct of, any claim,
audit, examination or other proceeding or proposed change or other adjustment
involving the Company and its Subsidiaries for any Tax purposes and each shall
execute and deliver such other documents as are necessary to carry out the
intent of this Section 8.5.
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8.6 Responsibility for Taxes and Tax Returns. Except as expressly
provided otherwise in this Article 8, Seller is responsible for all Taxes, and
for preparing and filing all Tax Returns, with respect to the Company and its
Subsidiaries, for all periods commencing prior to and ending on the Closing
Date, and Buyer is so responsible for all periods commencing on the Closing Date
and ending thereafter.
8.7 Intentionally omitted.
8.8 Apportionment. For any Tax period that begins on or before and
ends after the Closing Date (a "Straddle Period"), for purposes of apportioning
a Tax to the portion of such Tax period that ends on the Closing Date, (i) the
parties shall treat the Closing Date as the last day of such period, and (ii)
the Tax for the Tax period that is allocable to the portion of the Tax period
ending on the Closing Date shall be (A), in the case of a Tax that is not based
on income or gross receipts, the total Tax for the Straddle Period multiplied by
a fraction, the numerator of which is the number of days in the Tax period
ending on (and including) the Closing Date and the denominator of which is the
total number of days in the Straddle Period, and (B), in the case of a Tax that
is based on income or gross receipts, the Tax that would be due with respect to
the period ending on (and including) the Closing Date, based on actual
operations of the Company and its Subsidiaries during such period as shown on
their permanent books and records.
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Individual Account Plans. Prior to the Closing Date, Seller
shall cause the sponsorship of the Pension Plan to be transferred to and assumed
by Parent. Seller shall take such action as may be necessary (not including the
termination of the Pension Plan and/or Parent 401(k) Plan), to permit each
Employee to elect within a reasonable period of time following the Closing Date,
an immediate distribution of the vested balance of such Employee's respective
accounts under the Pension Plan and the Parent 401(k) Plan or to effect a
tax-free rollover (a "Direct Rollover") of the taxable portions of the
respective account balances into the 401(k) Plan maintained for the employees of
Frontier Insurance Group, Inc. and its subsidiaries, which constitutes an
eligible retirement plan within the meaning of Section 401(a)(31) of the Code
(the "Frontier 401(k) Plan"), and Buyer shall cooperate with Seller in its
efforts to permit such election; provided, however, that nothing contained
herein shall obligate the Frontier 401(k) Plan to accept a Direct Rollover in a
form other than cash. If, in the opinion of counsel for Seller, a distribution
or Direct Rollover of the Employees' respective accounts under the Pension Plan
and/or Parent 401(k) Plan could adversely affect the qualification of such
Plan(s) under Section 401 of the Code unless such Plan(s) were terminated or, in
the opinion of counsel to Buyer, such Direct Rollover could adversely affect the
qualification of the Frontier 401(k) Plan under Section 401 of the Code, then at
Buyer's election, either the account balances of all Employees participating in
such Plan(s) who cease to be covered by virtue of the transaction contemplated
hereunder will be transferred to the Frontier 401(k) Plan by means of a direct
trustee-to-trustee transfer in a manner consistent with Sections 411(d)(6) and
414(l) of the Code, or the account balances of such Employees will be retained
in the Pension Plan and/or Parent 401(k) Plan and such Employees will thereafter
be treated as inactive participants, and such distribution or Direct Rollover
shall be accomplished with respect to the Employees when it is permissible, in
the opinion of such counsel.
9.2 Plans Following the Closing. (a) Following the Closing, the
Employees will be entitled to participate in the employee plans and benefit
arrangements generally available to employees of Frontier Insurance Group, Inc.
and its subsidiaries and, for purposes of eligibility, vesting and pre-existing
medical conditions thereunder (but not for benefit accrual purposes), will be
given full credit, as applicable, for services recognized for such purposes
under the Employee Plans and Benefit Arrangements.
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(b) For a period of one year from the Closing Date, the
Employees (other than Employees party to change in control agreements assumed by
Buyer) will be entitled to the more favorable of the following severance
arrangements: (i) the Company's current severance arrangement, consisting of
severance payment of two weeks' salary for non-management-level employees and
four weeks' salary for management-level employees upon termination of
employment; and (ii) the standard severance arrangement available to employees
of Frontier Insurance Group, Inc. and its subsidiaries.
(c) Buyer shall cause UCIC and its Subsidiaries to pay their
respective employees, in December 1996, an aggregate of $200,000 in special cash
bonuses (in addition to bonuses or compensation, if any, which such employees
are otherwise entitled to receive as employees of the Company and its
Subsidiaries at such time), which shall be distributed in accordance with
written instructions to be furnished by Seller to Buyer not later than ten days
prior to the Closing Date. In the event any person designated to receive such a
special cash bonus is not employed by the Company or its Subsidiaries at the
date of distribution, such person's special cash bonus shall be distributed per
capita to all other distributees.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller. The obligations
of Buyer and Seller to consummate the transactions contemplated hereunder at the
Closing are subject to the satisfaction or waiver by both parties of the
following conditions:
(a) any applicable waiting period under the HSR Act relating to
the transactions contemplated hereby shall have expired or been terminated;
(b) no action or proceeding shall have been instituted before
any court or instituted or threatened by any governmental agency to restrain or
prohibit, or to obtain damages in respect of, this Agreement, or the
consummation of the transactions contemplated by this Agreement;
(c) all regulatory approvals set forth in Schedule 3.3 and
approvals from insurance authorities in the jurisdictions set forth in Schedule
4.3 and any other regulatory approvals requested of Buyer or its Affiliates
after the date of this Agreement in a written notice received from any other
State in which an insurance company Affiliate of Buyer is domiciled and
necessary for the execution and performance of this Agreement shall have been
obtained and be in full force and effect and without conditions or limitations
which unreasonably restrict the ability of the parties hereto to perform this
Agreement or the Company's or any of its Subsidiaries' ability to conduct their
respective businesses as presently conducted and Buyer and Seller shall have
been furnished with appropriate evidence, reasonably satisfactory to them and
their respective counsel, of the granting of such consents and approvals.
(d) neither Buyer, the Company nor its Subsidiaries shall have
received written notice from any state commissioner of insurance of the states
in which the Company or its Subsidiaries conduct business that such state will
seek to terminate the authority of the Company and its Subsidiaries to conduct
business in such state following the Closing (a "Termination Notice"); provided,
however, that no failure of this condition shall be deemed to have occurred if a
Termination Notice is received with respect to (i) any state in which Frontier
Pacific Insurance Company ("Frontier Pacific") has authority to act as an excess
and surplus lines insurer as set forth in Schedule 10.1(d) hereof or (ii) any
state not described in clause (i) above in which UCIC's direct written premiums
in 1995 (as set forth in Schedule T of UCIC's 1995 Statutory Annual Statement)
did not exceed $200,000, provided that UCIC's direct written premiums in 1995
(as set forth in such Schedule T) from
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all states for which a Termination Notice has been received and which are not
described in clause (i) above did not, in the aggregate, exceed $700,000.
10.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions contemplated hereunder at the Closing is subject to
the satisfaction or waiver by Buyer of the following further conditions:
(a) (i) Seller shall have performed, in all material respects,
all of its obligations hereunder required to be performed by it on or prior to
the Closing Date, (ii) the representations and warranties and covenants of
Seller contained in this Agreement shall be true and correct at and as of the
Closing Date, as if made at and as of such date, except for any inaccuracies in
any such representations and warranties which have not had a Material Adverse
Effect on the Company, and (iii) Buyer shall have been delivered a certificate
signed by the Chief Financial Officer of Seller and the Controller of the
Company, certifying the information in subsections (i) and (ii) hereof.
(b) Buyer shall have received the following deliveries from
Seller:
(i) certificates of good standing (or comparable
documents) for the Company (long-form with a statement as to the payment of
franchise taxes from the State of Delaware) and each of its Subsidiaries
from their respective States of incorporation, and certificates of good
standing (or comparable documents) as foreign corporations in each
jurisdiction where the Company and its Subsidiaries are so qualified, in
each case issued as of a date not more than fourteen days prior to the
Closing Date;
(ii) a Secretary's certificate of Seller certifying as to
the incumbency of Seller's authorized officers, genuineness of their
respective signatures and validity and effectiveness of attached copies of
the Company's certificate of incorporation, by-laws and authorizing
corporate resolutions;
(iii) an opinion of counsel to Seller, addressed to Buyer,
substantially in the form attached as Exhibit A hereto;
(iv) an opinion of counsel to Parent, addressed to Buyer,
as to the authorization and enforceability of Section 2.3(c) and Article 11
hereof with respect to Parent, substantially in the form attached as
Exhibit B hereto;
(v) evidence reasonably satisfactory to Buyer that the
Company and its Subsidiaries have been released of any and all obligations
under the Credit Agreement;
(vi) non-competition/non-solicitation agreements executed
by Parent and Bruce A. Esselborn substantially in the forms attached as
Exhibit C-1 and Exhibit C-2 hereof, and a non-solicitation agreement
executed by Mary Jane Robertson substantially in the form attached as
Exhibit C-3 hereto;
(vii) a signed letter from Tillinghast substantially in the
form attached as Exhibit D hereto, to be furnished at Buyer's expense;
(viii) the resignations specified in Section 5.3 hereof;
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(ix) executed copies of the Termination Addendum with
respect to the Reinsurance Agreement substantially in the form attached as
Exhibit E-1 hereto, Amendment No. 4 to the MGA Agreement substantially in
the form attached as Exhibit E-2 hereto, the Termination Addendum with
respect to the MGA Agreement, substantially in the form attached as Exhibit
E-3 hereto, and the Termination Addendum with respect to the Surety Bond
Quota Share Reinsurance Agreement effective September 1, 1992 between
Western Surety and UCIC substantially in the form attached as Exhibit E-4
hereto;
(x) evidence reasonably satisfactory to Buyer of the
termination of (A) the Tax Sharing Agreements pursuant to Section 8.3
hereof, and (B) the Service Agreement dated January 1, 1993 between Parent
and UCIC; and
(xi) a signed letter from Equity Group Investments, Inc.
with respect to certain matters relating to Section 6.5 hereof,
substantially in the form attached as Exhibit F hereto.
(c) Except as disclosed in Schedule 3.9 hereto, since the
Balance Sheet Date, there has not been any event, occurrence, development or
state of circumstances or facts which has had a Material Adverse Effect on the
Company other than those resulting from (i) changes in general conditions
applicable to the property and casualty insurance industry (excluding changes in
statutes and regulations applicable to UCIC) or changes in general economic
conditions, (ii) the Investment Portfolio Adjustments and the transactions
relating to, and the payment of, the Special Dividends, and (iii) any payments
pursuant to the Tax Sharing Agreements.
(d) The capital stock of the Company and its Subsidiaries shall
be free and clear of all Liens.
(e) UCIC shall have maintained a rating by A.M. Best & Co. of
"A-" ("A Minus") or better from the date of this Agreement through and including
one business day prior to the Closing Date. For purposes hereof, any notice
that UCIC's rating is under review, whether with or without negative
implications, by A.M. Best & Co. shall not constitute a downgrade below A Minus.
10.3 Conditions to Obligation of Seller. The obligation of Seller
to consummate the transactions contemplated hereunder at the Closing is subject
to the satisfaction or waiver by Seller of the following further conditions:
(a) (i) Buyer shall have performed, in all material respects,
all of its obligations hereunder required to be performed by it at or prior to
the Closing Date; provided, however, that the obligation to pay to Seller the
Closing Purchase Price and any other amounts hereunder shall be without
qualification of any kind; (ii) the representations and warranties of Buyer
contained in this Agreement shall be true and correct at and as of the Closing
Date, as if made at and as of such date, except for any inaccuracies in any such
representations and warranties which have not had a Material Adverse Effect on
Buyer, and (iii) Seller shall have received a certificate signed by the Chief
Financial Officer (or equivalent officer) of Buyer to the foregoing effect.
(b) Seller shall have received from Buyer the following:
(i) an executed Assignment and Assumption of Executive
Change In Control And Termination Benefits Agreement substantially in the
form attached as Exhibit G hereto, providing for the assumption by Buyer of
the obligations of the Executive Change in Control and Termination Benefits
Agreements previously furnished to Buyer, provided that the transaction
bonus payments thereunder have been paid by Parent;
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(ii) a Secretary's certificate of Buyer certifying as to
the incumbency of Seller's authorized officers, genuineness of their
respective signatures and validity of and effectiveness of attached copies
of the Company's certificate of incorporation, by-laws and authorizing
corporate resolution;
(iii) an opinion of counsel to Buyer, addressed to Seller,
substantially in the form attached as Exhibit H hereto;
(iv) an officer's certificate of Frontier Pacific or Buyer
certifying the states in which Frontier Pacific has authority to act as an
excess and surplus lines insurer as of the Closing Date; and
(v) executed Assignments of Employment Agreement and
Guaranty substantially in the forms attached as Exhibit I-1 and Exhibit I-2
hereto.
(c) Seller, the Company or its Subsidiaries, as the case may
be, shall have received all approvals from all state commissioners of insurance
of the states in which the Company and its Subsidiaries conduct the Business
that any of the Company and its Subsidiaries is required by applicable law or
regulation to obtain or provide in connection with the Special Dividends, all in
amount, form and substance acceptable to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of Seller set forth in Article 3 hereof, and of
Buyer set forth in Article 4 hereof, shall survive the Closing, as follows: (a)
the representations and warranties of Seller set forth in Sections 3.5, 3.6 and
3.7(b), and the representations and warranties of Buyer in Section 4.6 hereof
shall survive the Closing without limitation, (b) the representations and
warranties of Seller contained in Section 3.22 and the covenants and agreements
set forth in Section 5.10 and Article 8 hereof shall survive until the
applicable statutes of limitations have expired, and (c) all other
representations and warranties set forth in Articles 3 and 4 hereof and, unless
expressly provided otherwise in this Agreement, the covenants and agreements
contained in Article 9 hereof shall survive the Closing for a period of one year
following the Closing Date. Except as set forth above, no covenant or indemnity
contained in this Agreement shall survive (i) the Closing unless the express
terms of such covenant or agreement provide for performance or effect after the
Closing; or (ii) after the time at which it would otherwise terminate pursuant
to the preceding clause (i), unless notice of the breach thereof shall have been
given to the party against whom such indemnity may be sought prior to such time.
11.2 Indemnification by Parent. Parent agrees to save, indemnify
and hold Buyer and, effective after the Closing Date but without duplication,
the Company and its Subsidiaries, harmless from and against:
(a) any and all actual loss, liability or damage (collectively,
"Damages") resulting from any misrepresentation or breach of warranty by Seller
or non-fulfillment of any covenant or condition to be performed or complied with
by Seller under the terms of this Agreement or as a result of any Litigation set
forth on Schedule 3.11, or as a result of the receipt of any Termination Notices
subject, however, to the cure period in Section 7.7 hereof and excluding,
however, any Damages resulting from the termination or demotion of any Employee
after the Closing Date;
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(b) any and all Damages directly resulting from the failure by
Seller and, prior to the Closing Date, the Company or any of its Subsidiaries,
to substantially perform their respective obligations pursuant to Section 9.1;
(c) (i) any and all Taxes with respect to any Pre-Closing
Period resulting from the Company or its Subsidiaries ceasing to be included in
the consolidated Federal income Tax Return filed by Seller Group including,
without limitation, any Taxes attributable to the restoration of a "deferred
intercompany transaction" within the meaning of Treasury Regulations Section
1.1502-13 (a)(2), and the recognition of excess loss accounts;
(ii) any and all unpaid Federal, state, local, or foreign
Taxes imposed on the Company or its Subsidiaries directly or indirectly,
whether determined on a separate, consolidated, combined, unitary, or group
basis, (A) pursuant to Treasury Regulation Section 1.1502-6 or any
comparable provisions of state, local, or foreign law by reason of the
Company or its Subsidiary having been a member of a consolidated, combined,
unitary, or group Tax Return during any Pre-Closing Taxable Period, or (B)
pursuant to any guaranty, indemnification, or similar agreement made on or
before the Closing Date relating to the sharing of liability for, or
payment of, Taxes, or (C) arising out of, resulting from, or attributable
to any transaction contemplated by this Agreement to be performed by Seller
or, prior to the Closing Date, by the Company or its Subsidiaries;
(iii) any (x) Tax of the Company and its Subsidiaries and
(y) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and outside attorneys' fees and expenses),
arising out of or incident to the imposition, assessment or assertion of
any Tax, including those incurred in the contest of good faith in
appropriate proceedings relating to the imposition, assessment or assertion
of any Tax, in each case with respect to any Pre-Closing Tax Period and in
each case incurred or suffered by Buyer, any of its Affiliates or,
effective upon the Closing, the Company and its Subsidiaries (the sum of
paragraphs (i) and (ii) above and clauses (x) and (y) of this paragraph
(iii) being referred to as a "Tax Loss"); provided, however, that Parent
shall have no liability for any Tax Loss attributable to or resulting from
any action described in Section 8.1(a) hereof, including, but not limited
to, an election made or deemed made by Buyer under Section 338 of the Code
or any comparable provision of applicable law. In the event Parent's
indemnification obligation under this Section 11.2(c) arises in respect of
an adjustment which makes allowable to Buyer, any of its Affiliates or,
effective upon the Closing, the Company or any of its Subsidiaries, a Tax
Benefit which would not, but for such adjustment be allowable, then Buyer
shall reimburse Parent for such Tax Benefit when and if realized; and
(d) all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable outside
attorneys' fees, incident to the foregoing.
(e) Notwithstanding the foregoing, Parent shall not be liable
under Section 11.2(c) for (i) any Tax the payment of which was made without
Parent's prior written consent or (ii) any settlements effected without the
consent of Parent, not to be unreasonably withheld, or resulting from any claim,
suit, action, litigation or proceeding in which Parent was not permitted an
opportunity to participate.
11.3 Indemnification by Buyer. Buyer agrees to save, indemnify and
hold Seller harmless from and against:
(a) any and all Damages resulting from any misrepresentation or
breach of warranty by Buyer or non-fulfillment of any covenant or condition to
be performed or complied with by Buyer under the terms of this Agreement;
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(b) any Tax or any reduction in the value of any net operating
loss carryover, Tax credit deduction, recovery of Tax or deferred Tax asset
resulting from any action referred to in Section 8.1(a) hereof, of the Company
and its Subsidiaries, Buyer or any Affiliate of Buyer; and
(c) all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable outside
attorneys' fees, incident to the foregoing.
11.4 Terms of Indemnification. The foregoing indemnification
obligations are subject to the following:
(a) Limitations on Time Periods and Amounts.
(i) No party hereto shall be required to indemnify another
party pursuant to the foregoing unless the party claiming the right to be
indemnified promptly notifies the other party of facts which are the basis
for indemnification hereunder specifying in reasonable detail the basis of
any such claim ("Notice") pursuant to this Article 11 on or before the
expiration or termination of such representation, warranty, covenant or
agreement. If, after the Closing Date and prior to the close of business
on the date any representation, warranty or covenant ceases to survive, the
indemnifying party shall have received the written Notice and such claim
shall not have been finally resolved or disposed of at such date, such
claim shall continue as a basis for indemnity until it is finally resolved
or disposed of, subject to applicable statutes of limitation. If the
recipient of the Notice desires to dispute such claim, it shall, within 30
days after notice of the claim of loss against it is given, give a
counternotice, setting forth the basis for disputing such claim, to Buyer
or Parent, as the case may be. If no such counternotice is given within
such 30-day period, or if Buyer or Parent, as the case may be, acknowledges
liability for indemnification, then such loss shall be promptly satisfied.
The amount of any indemnification for Damages recoverable from Parent under
this Agreement shall be reduced by the amount of any reserve,
contra-liability or other provision for such Damages reflected in the
Closing Statements. In the event that Damages arise as a result of new or
corrected disclosures set forth in updated Schedules furnished to Buyer
after the date hereof which are not reflected in the Closing Statements,
then 70% of such Damages shall be indemnifiable by Parent hereunder if the
updated Schedules do not correct disclosures in the Schedules delivered as
of the date of this Agreement, and 100% of such Damages shall be so
indemnifiable if such updated Schedules correct the disclosures in the
Schedules delivered as of the date of this Agreement. Notwithstanding
anything to the contrary in this Agreement and subject to the provisions of
Sections 11.4(a)(ii) and 11.6 below, except for liability for a breach of
the representations set forth in Sections 3.5, 3.6, 3.7(b) and 3.22 hereof,
and a breach of the covenants set forth in Sections 8.6 and 11.2(c) hereof,
Buyer shall not be entitled to recover under rights to indemnification
hereunder until the aggregate Damages suffered by Buyer in respect of all
such claims exceed $300,000 (such amount being referred to herein as the
"Basket"), at which time Buyer shall be entitled to indemnification for all
such Damages, including the Basket; and in no event shall any party hereto
be entitled to consequential or punitive damages or damages for lost
profits in any action under this Agreement or relating to the subject
matter hereof. The maximum aggregate liability of Parent and Seller to
Buyer pursuant to this Article 11 for all Damages suffered by Buyer, and
all other expenses, Taxes and other amounts indemnifiable by Parent to
Buyer under this Article 11, is $7,500,000.
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(ii) Notwithstanding anything to the contrary contained in
Section 11.4(a)(i) above, the Basket shall not be applicable to (x) Tax
Losses and (y) Damages that arise in connection with the EEOC claim set
forth on Schedule 3.11 and the receipt of Termination Notices. For
purposes of this Agreement, Damages from the receipt of Termination Notices
shall be deemed to be the following: for each state for which a Termination
Notice is received, 50% of Buyer's expenses incurred in connection with
curing such Termination Notice (subject to a maximum of $25,000 per state
in expenses), to be increased to 15% of UCIC's direct written premiums in
1995 in such state (as set forth in Schedule T of UCIC's 1995 Statutory
Annual Statement) in the event such Termination Notice is not cured within
six months following the Closing Date ("Liquidated Damages"); provided,
however, that Parent shall be entitled to a credit against such Liquidated
Damages for the amount of Buyer's expenses reimbursed by Seller.
(b) Arbitration. If, within thirty (30) days after giving the
counternotice by Buyer or Parent, as the case may be, Parent and Buyer shall not
have reached agreement as to the claim in question, then the claim for
indemnification may be submitted to and settled by arbitration as hereinafter
provided. Arbitration shall be by a single arbitrator experienced in the
matters at issue selected by Parent and Buyer in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The meeting of the
arbitrator shall be held in Atlanta, Georgia and shall be conducted in
accordance with, but not under the auspices of, the Commercial Arbitration Rules
existing at the date thereof of the American Arbitration Association to the
extent not inconsistent with this Agreement. The decision of the arbitrator
shall be final and binding as to any matters submitted to such arbitrator under
this Agreement, and to the extent this decision is that a loss has been suffered
for which either party is to be indemnified under this Agreement, it shall be
promptly satisfied; provided, however, that, if necessary, such decision and
satisfaction procedure may be enforced by either Buyer or Parent in any court of
record having jurisdiction over the subject matter or over any of the parties
hereto. All costs and expenses incurred in connection with any such arbitration
proceeding shall be borne by the party against whom the decision is rendered or,
if no decision is rendered or if the decision is a compromise, equally by Buyer
and Parent.
(c) Satisfaction of Damages. Any Damages suffered by Seller
and Parent or Buyer, as the case may be, for which it is to be indemnified
hereunder shall be paid promptly by the indemnifying party.
(d) Notice and Right to Contest.
(i) Upon obtaining knowledge of the institution or threat
of any action, proceeding or other event by a third party which could give
rise to a claim of indemnity under Section 11.2 or 11.3 hereof ("Third
Party Claim"), the party seeking indemnification shall promptly notify the
indemnifying party of such claim.
(ii) The provisions of this Section 11.4(d)(ii) shall apply
to any Third Party Claim (other than those under Section 11.4(d)(iv) hereto
relating to Taxes), for which the indemnifying party is liable hereunder.
The indemnifying party shall have the right, at the indemnifying party's
expense to defend such claim or demand. Any defense undertaken by the
indemnifying party hereunder shall not be deemed an admission by the
indemnifying party and may be subject to a reservation of rights as to the
indemnified party's rights to indemnification pursuant to this Article 11.
If the indemnifying party fails to notify the indemnified party of its
election to defend such Third Party Claim within 30 days after notice
thereof was given to the indemnifying party, the indemnifying party shall
be deemed to have waived its right to defend such Third Party Claim. If
the indemnifying party elects to defend such Third Party Claim, it shall
not be responsible for attorney's fees incurred by the indemnified party;
provided, however, that the indemnified party may participate in such
defense at its own cost and expense. So long
30
<PAGE> 36
as the indemnifying party is defending such Third Party Claim in good
faith, the indemnified party will not settle such claim or demand without
the indemnifying party's consent, which consent shall not be unreasonably
withheld. The indemnified party shall make available to the indemnifying
party all records and other materials and employees reasonably required by
it in contesting a Third Party Claim and shall cooperate in the defense
thereof.
(iii) If with respect to any claim for indemnification under
this Article 11 the indemnified party refuses to consent to any settlement
recommended by the indemnifying party and the indemnified party elects to
contest or continue any dispute or legal proceedings in connection with
such claim, then in connection with such claim (x) the indemnifying party's
liability for all Damages, including all costs of defense, plus any later
settlements or Damage awards arising from such claim, shall not exceed the
amount for which the claim could have been settled (the "Recommended
Settlement"), and the indemnified party (y) shall assume all costs of
defense reasonably incurred by the indemnifying party after the date of
such refusal in contesting or continuing any dispute or legal proceedings
and (z) shall hold the indemnifying party harmless from all amounts in
excess of the Recommended Settlement.
(iv) Notwithstanding the foregoing Section 11.4(d)(ii), if
any claim or demand for Taxes in respect of which indemnity may be sought
pursuant to this Section 11.4(d)(iv) is asserted in writing against Buyer,
any of its Affiliates or, effective upon the Closing, the Company and its
Subsidiaries, Buyer shall notify Parent of such claim or demand within 10
days of receipt thereof, or such earlier time that would allow Parent to
timely respond to such claim or demand, and shall give Parent such
information with respect thereto as Parent may reasonably request. Parent
may discharge, at any time, its indemnification obligation under this
Section 11.4(d)(iv) by paying to Buyer the amount of the applicable Tax
Loss, calculated on the date of such payment. Parent may, at its own
expense, participate in and, upon notice to Buyer, assume the defense of
any such claim, suit, action, litigation or proceeding (including any Tax
audit), provided, however, that Parent shall not agree to any settlement of
an issue without the consent of Buyer, which consent shall not be
unreasonably withheld, to the extent that such settlement would have an
adverse effect, with respect to any Taxes which are the responsibility of
Buyer hereunder, on the Company or its Subsidiaries after the Closing Date.
Any defense undertaken by the indemnifying party hereunder shall not be
deemed an admission by the indemnifying party and may be subject to a
reservation of rights as to the indemnified party's rights to
indemnification pursuant to this Article 11. If Parent assumes such
defense, Buyer shall have the right (but not the duty) to participate in
the defense thereof and to employ counsel, at its own expense, separate
from the counsel employed by Parent. Whether or not Parent chooses to
defend or prosecute any claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof.
11.5 Exclusive Remedy. The provisions of this Article 11 are the
exclusive remedy of any party to this Agreement against any other party to this
Agreement (excluding the Parent non-competition/non-solicitation agreement
delivered pursuant to Section 10.2(b)(vi) hereof) for any claim for breach of
any covenant, agreement, representation, warranty or other provision of this
Agreement or any agreement, certificate or other document delivered hereto by
any party to this Agreement (other than a claim for specific performance or
injunctive relief or a claim based upon intentional fraud) with the intent that
all such claims shall be subject to the limitations and other provisions
contained in this Article 11.
11.6 Damages Net of Insurance, Etc. The amount of any Damages or
Tax for which indemnification is provided under this Agreement shall be net of
any amounts actually recovered by any party seeking indemnification under this
Agreement (the "Indemnified Party"), and shall be net of any amounts recoverable
under insurance policies or reinsurance agreements, proceeds from indemnity,
contribution or recoveries from Third Party Actions, with respect to such
Damages or Tax and shall be reduced by any Tax Benefit arising from the
incurrence or payment of any such Damages or Tax by the Indemnified Party. Any
31
<PAGE> 37
indemnity payment by Parent to Buyer under Article 11 shall be treated as an
adjustment to Buyer's basis in the Shares unless such treatment would be
inconsistent with any Final Determination governing such treatment, in which
case Parent shall also indemnify Buyer for any increase in liability for Taxes
that is imposed on Buyer, the Company, and/or any Subsidiary, which is
attributable to the indemnity payment or other payment made by Parent being
treated as currently taxable. Buyer and/or its Subsidiaries shall not be a
party to any such Final Determination without the written approval of Seller
which approval shall not be unreasonably withheld.
ARTICLE 12
TERMINATION
12.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement of Seller and Buyer; or
(b) by either Seller or Buyer if the Closing shall not have
been consummated on or before June 30, 1996; or
(c) by Buyer within five business days following receipt of
updated Schedules pursuant to Section 5.12 hereof containing new or corrected
information which would reasonably be expected to have a Material Adverse Effect
on the Company.
The party desiring to terminate this Agreement shall give written
notice of such termination to the other party.
12.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 12.1, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement, except that
no such termination shall relieve Buyer of its obligations under Section 6.1.
The provisions of Sections 6.1, 7.3, this Section 12.2 and Section 13.4 shall
survive any termination hereof pursuant to Section 12.1.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any notices hereunder shall be in writing and shall
be deemed to have been given when delivered by hand or when transmitted by
facsimile transmission, the first business day after sent by a
nationally-recognized overnight courier (such as Airborne or Federal Express),
or on the fifth business day after deposit in the United States Mail, registered
or certified, return receipt requested, postage prepaid, addressed to:
32
<PAGE> 38
if to Buyer, to:
Mr. Walter A. Rhulen, President
Frontier Insurance Group, Inc.
195 Lake Louise Marie Road
Rock Hill, New York 12775
Fax: (914) 796-1900
with a copy to:
Sidney Todres, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Fax: (212) 661-0989
if to Seller, to:
Bruce A. Esselborn, President
Capsure Holdings Corp.
Two N. Riverside Plaza
Suite 1600
Chicago, Illinois 60606
Fax: (312) 454-1819
with a copy to:
Kelly L. Stonebraker, Esq.
Rosenberg & Liebentritt, P.C.
Two N. Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Fax: (312) 454-0335
or at such other address, or facsimile number or to the attention of such other
person as Buyer or Seller may designate by written notice to the other party
hereto. Notice by facsimile transmission shall be confirmed by certified or
registered mail, postage prepaid, return receipt requested but shall be deemed
given when such facsimile was transmitted.
13.2 Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights and
remedies provided by law.
33
<PAGE> 39
13.3 Expenses. Unless otherwise expressly provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the written consent of each other party hereto.
13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without regard to
the conflict of laws rules of such state.
13.6 Counterparts; Facsimile Signatures. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. The parties hereto acknowledge and agree that original signatures
delivered by facsimile transmission shall be acceptable as original signatures.
13.7 Third Party Beneficiaries. No provision of this Agreement is
intended to confer upon any Person, other than the parties hereto, any rights or
remedies hereunder, including, without limitation, any employee or former
employee of the Company or any of its Subsidiaries.
13.8 Entire Agreement. This Agreement, together with the Exhibits
and Schedules hereto and the Confidentiality Agreement, constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto.
13.9 Headings. The headings of the articles, sections and schedules
of this Agreement are inserted for the sake of convenience only and shall not
constitute a part hereof.
13.10 Schedules. For purposes of this Agreement, the disclosure of
an item on a schedule hereto shall be deemed to be disclosure of such item on
each other applicable schedule.
34
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
FRONTIER INSURANCE COMPANY
By: /s/ Peter H. Foley
----------------------
Name: Peter H. Foley
Title: Vice President
NI ACQUISITION CORP.
By: /s/ Bruce A. Esselborn
--------------------------
Name: Bruce A. Esselborn
Title: President
FOR PURPOSES OF SECTIONS 2.3(c)
AND ARTICLE 11 ONLY:
CAPSURE HOLDINGS CORP.
By: /s/ Bruce A. Esselborn
--------------------------
Name: Bruce A. Esselborn
Title: President
35
<PAGE> 41
Schedule 4.1
Insurance Affiliate of Buyer State of Incorporation
---------------------------- ----------------------
Frontier Pacific Insurance Company California
<PAGE> 42
Schedule 4.3
Governmental Authorization
1. New York
2. Wisconsin
<PAGE> 43
INDEX OF EXHIBITS
A Form of Opinion of Counsel to Seller
B Form of Opinion of Counsel to Parent (contained
in Exhibit A)
C-1 Form of Non-Solicitation/Non-Competition
Agreement to be executed by Parent
C-2 Form of Non-Solicitation/Non-Competition
Agreement to be executed by Bruce A. Esselborn
C-3 Form of Non-Solicitation Agreement to be
executed by Mary Jane Robertson
D Form of Tillinghast letter
E-1 Form of Termination Addendum with respect to
the Reinsurance Agreement
E-2 Form of Amendment No. 4 to the MGA Agreement
E-3 Form of Termination Addendum with respect to
the MGA Agreement
E-4 Form of Termination Addendum with respect to
the Surety Bond Quota Share Reinsurance
Agreement effective September 1, 1992 between
Western Surety and UCIC
F Form of letter from Equity Group Investments,
Inc. re: obligations under sublease
G Form of Assignment and Assumption of Executive
Change In Control And Termination Benefits
Agreements to be executed by Buyer
H Form of Opinion of Counsel to Buyer
I-1 Form of Assignment of Employment Agreement and
Guaranty for Mr. Zeitman
I-2 Form of Assignment of Employment Agreement and
Guaranty for Mr. Fischer
<PAGE> 1
EXHIBIT 2.2
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of March 29, 1994,
as amended and restated as of
May 22, 1996
Among
CAPSURE FINANCIAL GROUP, INC.,
CAPSURE HOLDINGS CORP.,
THE LENDERS NAMED HEREIN and
CHEMICAL BANK,
as Administrative Agent
- -------------------------------------------------------------------------------
[CS&M Ref. No. 6700-202]
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms ......................................... 1
SECTION 1.02. Terms Generally........................................ 19
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments ........................................... 19
SECTION 2.02. Loans ................................................. 19
SECTION 2.03. Notice of Borrowings................................... 21
SECTION 2.04. Notes; Repayment of Loans.............................. 21
SECTION 2.05. Fees................................................... 21
SECTION 2.06. Interest on Loans...................................... 22
SECTION 2.07. Default Interest....................................... 22
SECTION 2.08. Alternate Rate of Interest............................. 22
SECTION 2.09. Termination and Reduction of Commitments .............. 23
SECTION 2.10. Prepayment............................................. 23
SECTION 2.11. Lender Reserve Requirements; Change
in Circumstances ...................................... 24
SECTION 2.12. Change in Legality..................................... 25
SECTION 2.13. Indemnity.............................................. 26
SECTION 2.14. Pro Rata Treatment..................................... 26
SECTION 2.15. Sharing of Setoffs..................................... 26
SECTION 2.16. Payments............................................... 27
SECTION 2.17. Taxes.................................................. 27
<PAGE> 3
Contents, p. 2
Page
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization; Powers.................................. 29
SECTION 3.02. Authorization......................................... 30
SECTION 3.03. Enforceability........................................ 30
SECTION 3.04. Governmental Approvals................................ 30
SECTION 3.05. Financial Statements.................................. 30
SECTION 3.06. No Material Adverse Change............................ 30
SECTION 3.07. Title to Properties; Possession Under Leases.......... 31
SECTION 3.08. Subsidiaries.......................................... 31
SECTION 3.09. Litigation; Compliance with Laws...................... 31
SECTION 3.10. Agreements............................................ 31
SECTION 3.11. Federal Reserve Regulations........................... 32
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act........................................... 32
SECTION 3.13. Use of Proceeds....................................... 32
SECTION 3.14. Tax Returns........................................... 32
SECTION 3.15. No Material Misstatements............................. 32
SECTION 3.16. Employee Benefit Plans................................ 32
SECTION 3.17. Environmental and Safety Matters...................... 33
SECTION 3.18. Security Documents.................................... 33
SECTION 3.19. Absence of Certain Restrictions....................... 33
SECTION 3.20. Reserves.............................................. 33
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. All Credit Events .................................... 34
SECTION 4.02. First Credit Event.................................... 35
<PAGE> 4
Contents, p. 3
Page
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Existence; Businesses and Properties................ 38
SECTION 5.02. Insurance........................................... 38
SECTION 5.03. Obligations and Taxes............................... 39
SECTION 5.04. Financial Statements, Reports, Etc.................. 39
SECTION 5.05. Litigation and Other Notices........................ 41
SECTION 5.06. Employee Benefits................................... 41
SECTION 5.07. Maintaining Records; Access to Properties
and Inspections..................................... 42
SECTION 5.08. Use of Proceeds..................................... 42
SECTION 5.09. Further Assurances.................................. 42
SECTION 5.10. Environmental and Safety Laws....................... 43
SECTION 5.11. Risk-Based Capital.................................. 43
SECTION 5.12. Insurance Regulatory Information System............. 44
SECTION 5.13. Investment Ratios................................... 44
SECTION 5.14. Deposit and Investment Accounts..................... 44
SECTION 5.15. Fiscal Year......................................... 44
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Indebtedness........................................ 45
SECTION 6.02. Liens............................................... 45
SECTION 6.03. Sale and Leaseback Transactions..................... 46
SECTION 6.04. Investments, Loans and Advances..................... 46
SECTION 6.05. Mergers, Consolidations and Acquisitions............ 47
SECTION 6.06. Dividends and Distributions......................... 49
SECTION 6.07. Transactions with Affiliates........................ 49
SECTION 6.08. Nature of Business.................................. 49
SECTION 6.09. Net Operating Losses................................ 49
SECTION 6.10. Debt Payments....................................... 49
SECTION 6.11. Limitation on Surplus Relief Reinsurance
Agreements.......................................... 50
SECTION 6.12. Reinsurance......................................... 50
SECTION 6.13. Total Debt to Adjusted Capital Ratio................ 50
SECTION 6.14. Fixed Charge Coverage Ratio......................... 50
<PAGE> 5
Contents, p. 4
Page
SECTION 6.15. Total Debt to Total Cash Flow Sources Ratio.......... 51
SECTION 6.16. Operating Leverage Ratio............................. 51
SECTION 6.17. Amendment of Certain Documents....................... 51
ARTICLE VII
EVENTS OF DEFAULT...................... 51
ARTICLE VIII
GUARANTEE.......................... 55
ARTICLE IX
THE ADMINISTRATIVE AGENT................... 58
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices............................................. 60
SECTION 10.02. Survival of Agreement............................... 61
SECTION 10.03. Binding Effect...................................... 61
SECTION 10.04. Successors and Assigns.............................. 61
SECTION 10.05. Expenses; Indemnity................................. 63
SECTION 10.06. Right of Setoff..................................... 64
SECTION 10.07. Applicable Law...................................... 64
SECTION 10.08. Waivers; Amendment.................................. 64
SECTION 10.09. Interest Rate Limitation............................ 65
SECTION 10.10. Entire Agreement.................................... 65
SECTION 10.11. Waiver of Jury Trial................................ 65
SECTION 10.12. Severability........................................ 66
SECTION 10.13. Counterparts........................................ 66
SECTION 10.14. Headings............................................ 66
<PAGE> 6
Contents, p. 5
Page
SECTION 10.15. Jurisdiction; Consent to Service of Process ............. 66
Exhibits
- --------
Exhibit A Form of Note
Exhibit B Assignment and Acceptance
Exhibit C Administrative Questionnaire
Exhibit D Form of Opinion of Rosenberg & Liebentritt, P.C.
Exhibit E Form of Indemnity, Subrogation and Contribution Agreement
Exhibit F Form of Pledge Agreement
Exhibit G Form of Security Agreement
Exhibit H Form of Pledgeholder Agreement
Exhibit I Form of Guarantee Agreement
Exhibit J Form of Mortgage
Schedules
- -----------------
Schedule 2.01 Lenders and Commitments
Schedule 3.08 Subsidiaries
Schedule 3.17 Environmental and Safety Matters
Schedule 3.18(b) UCC Filing Offices
Schedule 3.20 Reinsurance Agreements
Schedule 4.02(g) Stocks to be Pledged
Schedule 6.01 Indebtedness
Schedule 6.02 Liens
<PAGE> 7
CREDIT AGREEMENT dated as of March 29, 1994, as amended and
restated as of May 22, 1996, among CAPSURE FINANCIAL GROUP, INC., an
Oklahoma corporation (the "Borrower"), CAPSURE HOLDINGS CORP., a
Delaware corporation ("Capsure"), the financial institutions listed on
Schedule 2.01 (the "Lenders") and CHEMICAL BANK, a New York banking
corporation ("Chemical Bank"), as agent for the Lenders (in such
capacity, the "Administrative Agent").
The Borrower has requested the Lenders to extend credit in order to enable
the Borrower, on the terms and subject to the conditions set forth in this
Agreement, to borrow on a revolving basis, at any time and from time to time
prior to the Maturity Date (such term and each other capitalized term used but
not defined in this introductory statement having the meanings assigned to such
terms in Section 1.01), an aggregate principal amount at any time outstanding
not to exceed $100,000,000 less the amount of any reductions in Commitments
pursuant to Section 2.09. The proceeds of such borrowings are to be used (a) on
the Restatement Date, to continue or convert all loans outstanding under the
Existing Credit Facility and (b) on or after the Restatement Date, (i) in an
aggregate amount not to exceed $70,000,000, to finance a portion of a special
dividend to be paid by Capsure to its common stockholders prior to December 31,
1996 in an amount not to exceed $145,000,000 (the "Special Dividend"), (ii) for
general corporate purposes in the ordinary course of business of the Borrower
and the Subsidiaries, including funding the working capital requirements of the
Borrower and the Subsidiaries, whether now owned or hereafter existing (such
working capital requirements to include investment activities to the extent
permitted by Section 6.04 and dividend payments to the extent permitted by
Section 6.06), (iii) to finance all or part of the purchase price to be paid in
connection with any Permitted Acquisition, (iv) to make capital contributions to
any Subsidiary to the extent permitted hereunder and (v) in an aggregate amount
not to exceed (A) $100,000,000 minus (B) the sum of (x) the aggregate principal
amount of loans outstanding under the Existing Credit Facility on the
Restatement Date (excluding any such loans repaid on the Restatement Date) and
(y) the aggregate principal amount of Loans made to finance the payment of the
Special Dividend, to pay dividends on, or repurchase shares of, common stock of
Capsure. The Lenders are willing to extend such credit to the Borrower on the
terms and subject to the conditions set forth in this Agreement.
<PAGE> 8
2
Accordingly, the Borrower, Capsure, the Lenders and the Administrative
Agent agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Article II.
"Adjusted Capital" shall mean, at any time, the sum of (a) Total Debt at
such time and (b) the difference between (i) Stockholders' Equity at such time
and (ii) the aggregate amount of deferred tax assets relating to the Available
Net Operating Losses at such time, net of any valuation allowance, determined in
accordance with GAAP, of Capsure and its subsidiaries on a consolidated basis at
such time.
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit C.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/100 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, the term "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Administrative
Agent as its prime rate in effect at its principal office in New York City; each
change in the Prime Rate shall be effective on the date such change is publicly
announced as being effective. The term "Base CD
<PAGE> 9
3
Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD
Rate and (ii) Statutory Bank Reserves and (b) the Assessment Rate. The term
"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 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. 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 Alternate Base
Rate 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 Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Amendment Agreement" shall mean the Amendment Agreement dated as of the
Restatement Date among the Borrower, Capsure, the financial institutions party
thereto and Chemical Bank, as Administrative Agent.
"Analysis of Assets" shall mean the information set forth on page 12 in the
Annual Statement or on page 2 in the Quarterly Statement of the Insurance
Subsidiary most recently delivered to the Administrative Agent and the Lenders
pursuant to Section 5.04 (or, in the case of any Insurance Subsidiary acquired
after the date hereof that has not yet delivered such statement to the
Administrative Agent, in the Annual or Quarterly Statement of such Insurance
Subsidiary most recently filed with the Applicable
<PAGE> 10
4
Insurance Regulatory Authority) or, if such statement shall be modified, the
equivalent item on any applicable successor form.
"Annual Statement" shall mean, with respect to any Insurance Subsidiary,
the Annual Statement of such Insurance Subsidiary required to be filed with the
Applicable Insurance Regulatory Authority in accordance with state law,
including any exhibits, schedules, certificates or actuarial opinions filed or
delivered therewith.
"Applicable Commitment Fee Percentage" shall mean, for any date, the
applicable percentage set forth below based on the ratio of Total Debt to Total
Cash Flow Sources as of the last day of the Borrower's fiscal quarter most
recently ended as of such date:
<TABLE>
<CAPTION>
Ratio Commitment Fee
<S> <C>
Below 1.25 to 1.00 0.250%
At least 1.25 to 1.00 but below 2.25 to 1.00 0.300%
At least 2.25 to 1.00 but below 3.25 to 1.00 0.325%
At least 3.25 to 1.00 but below 4.00 to 1.00 0.350%
At least 4.00 to 1.00 0.375%
</TABLE>
For purposes of the foregoing, the Applicable Commitment Fee Percentage at
any time shall be determined by reference to the ratio of Total Debt to Total
Cash Flow Sources as of the last day of the Borrower's fiscal quarter most
recently ended as of such date and any change in the Applicable Commitment Fee
Percentage shall become effective for all purposes on and after the date of
delivery to the Administrative Agent of the certificate described in Section
5.04(c) relating to such fiscal quarter; provided, however, that if the proceeds
of any Borrowing are used to finance a Permitted Acquisition and the ratio of
Total Debt to Total Cash Flow Sources after giving effect to such Permitted
Acquisition would result in a change in the Applicable Commitment Fee
Percentage, such change shall become effective for all purposes simultaneously
with such Borrowing. Notwithstanding the foregoing, at any time during which the
Borrower has failed to deliver the certificate described in Section 5.04(c) with
respect to a
<PAGE> 11
5
fiscal quarter in accordance with the provisions thereof, the ratio of Total
Debt to Total Cash Flow Sources shall be deemed, solely for the purposes of this
definition, to be 4.00 to 1.00 until such time as the Borrower shall deliver
such certificate in accordance with the provisions of Section 5.04(c).
"Applicable Insurance Regulatory Authority" shall mean, with respect to any
Insurance Subsidiary, the insurance commission or similar Governmental Authority
located in the state in which such Insurance Subsidiary is domiciled and any
Federal insurance Governmental Authority and any successor to any of the
foregoing.
"Applicable Margin" shall mean, for any date, with respect to the Loans
comprising any Eurodollar Borrowing or ABR Borrowing, as the case may be, the
applicable spread set forth below based on the ratio of Total Debt to Total Cash
Flow Sources as of the last day of the Borrower's fiscal quarter most recently
ended as of such date:
<TABLE>
<CAPTION>
Ratio Eurodollar Loan Spread ABR Loan Spread
<S> <C> <C>
Below 1.25 to 1.00 0.750% None
At least 1.25 to 1.00 but
below 2.25 to 1.00 1.000% None
At least 2.25 to 1.00 but
below 3.25 to 1.00 1.125% 0.125%
At least 3.25 to 1.00 but
below 4.00 to 1.00 1.250% 0.250%
At least 4.00 to 1.00 1.500% 0.500%
</TABLE>
For purposes of the foregoing, the Applicable Margin at any time shall be
determined by reference to the ratio of Total Debt to Total Cash Flow Sources as
of the last day of the Borrower's fiscal quarter most recently ended as of such
date and any change in the Applicable Margin shall become effective upon the
delivery to the Administrative Agent of the certificate described in Section
5.04(c) relating to such fiscal quarter and shall apply (a) to ABR Loans
outstanding on such delivery date or made on or after such delivery date and (b)
to Eurodollar Loans made on or after such delivery date; provided, however,
that, if the proceeds of any Borrowing are used to finance a Permitted
Acquisition and the ratio of Total Debt to Total Cash Flow
<PAGE> 12
6
Sources after giving effect to such Permitted Acquisition would result in a
change in the Applicable Margin, such change shall become effective for all
purposes simultaneously with such Borrowing and shall apply (a) to ABR Loans
outstanding on such date or made on or after such date and (b) to Eurodollar
Loans made on or after such date. Notwithstanding the foregoing, at any time
during which the Borrower has failed to deliver the certificate described in
Section 5.04(c) with respect to a fiscal quarter in accordance with the
provisions thereof, the ratio of Total Debt to Total Cash Flow Sources shall be
deemed, solely for the purposes of this definition, to be 4.00 to 1.00 until
such time as the Borrower shall deliver such certificate in accordance with the
provisions of Section 5.0.4(c).
"Arlington" shall mean Arlington Leasing Co., a Nevada corporation.
"Assessment Rate" shall mean for any date the annual rate (rounded upwards,
if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then-current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the Administrative Agent, in
the form of Exhibit B or such other form as shall be approved by the
Administrative Agent and as shall be reasonably satisfactory to the parties to
such assignment and acceptance.
"Available Net Operating Losses" shall mean, for any date in any taxable
year, the net operating loss carryforwards to such taxable year for Federal
income tax purposes of Capsure and its subsidiaries that are not subject to the
limitations of Section 382 of the Code, Treasury Regulation Section 1.1502 -
21(c), Treasury Regulation Section 1.1502 - 21(d) or any similar limitation.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"Borrower Tax Sharing Agreement" shall mean each Tax Sharing Agreement as
in effect on the date hereof between the Borrower and any of its direct
subsidiaries.
<PAGE> 13
7
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a Saturday, Sunday or legal
holiday in the State of New York) on which banks are open for business in New
York City; provided, however, that, when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Cash Equivalents" shall mean:
(a) United States Government Securities maturing within 90 days from
the date of acquisition thereof;
(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1 or higher from Standard & Poor's or a rating of P1 or higher
from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) maturing within 90 days
from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any domestic
office of any commercial bank of recognized standing organized under the
laws of the United States of America or any state thereof that has a
combined capital and surplus and undivided profits of not less than
$250,000,000 and the deposits of which are rated (or the senior debt
securities of the holding company of such commercial bank are rated) A- or
better by Standard & Poor's or A3 or better by Moody's or carrying an
equivalent rating by another nationally recognized rating agency if neither
of the two named rating agencies
<PAGE> 14
8
shall rate such commercial bank (or the holding company of such commercial
bank);
(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions that have a combined capital
and surplus and undivided profits of not less than $250,000,000; and
(e) investments in repurchase agreements, dollar rolls, money market
preferred and collateralized short term puts, in each case maturing within
90 days from the date of acquisition thereof and having, at such date of
acquisition, a rating of A1 or higher from Standard & Poor's or a rating of
P1 or higher from Moody's.
A "Change in Control" shall be deemed to have occurred if (a) the Zell
Entities, collectively, shall cease to own in the aggregate, directly,
beneficially and of record, shares representing at least 20% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
Capsure, provided that such 20% shall be reduced by dilution suffered by such
persons on a pro rata basis with all other shareholders of Capsure as a result
of any issuance by Capsure for fair value after the Closing Date of any capital
stock representing ordinary voting power (i) to a seller as consideration for a
Permitted Acquisition or (ii) in a public offering, the entire net proceeds
(after underwriting discount and expenses incurred in connection with such
offering) of which are (A) paid to a seller as consideration for a Permitted
Acquisition or (B) contributed as capital to the Borrower; (b) Capsure shall
cease to own and control directly, of record and beneficially, 100% of each
class of outstanding capital stock of the Borrower free and clear of all Liens
(other than any Liens under the Security Documents); or (c) the Borrower shall
issue any class of capital stock (or security convertible into any of its
capital stock) that is not pledged to the Collateral Agent for the ratable
benefit of the Secured Parties.
"Closing Date" shall mean March 29, 1994.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time and any successor statute thereto.
"Collateral" shall mean all the "Collateral" as such term is defined in any
Security Document.
<PAGE> 15
9
"Collateral Agent" shall mean Chemical Bank, as Collateral Agent under the
Security Documents, or any successor thereto.
"Commitment" shall mean, with respect to each Lender, the commitment of
such Lender to make Loans hereunder as set forth on Schedule 2.01, as the same
may be reduced from time to time pursuant to Section 2.09.
"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Credit Event" shall have the meaning assigned to such term in Article IV.
"Default" shall mean any event or condition that upon notice, lapse of time
or both would constitute an Event of Default. "dollars" or "$" shall mean lawful
money of the United States of America.
"EBIDA" shall mean, with respect to any person for any period, the sum of
(a) Net Income of such person for such period, (b) Interest Expense deducted in
determining such Net Income and (c) depreciation, amortization and other noncash
charges deducted in determining such Net Income.
"Environmental and Safety Laws" shall mean any and all applicable current
and future treaties, laws, regulations, requirements, binding determinations,
orders, decrees, judgments, injunctions, permits, approvals, authorizations,
licenses, permissions, notices or binding agreements issued, promulgated or
entered by any Governmental Authority, relating to the environment, to employee
health or safety as it pertains to the use or handling of, or exposure to,
Hazardous Substances, to preservation or reclamation of natural resources or to
the management, release or threatened release of contaminants or noxious odors,
including the Hazardous Materials Transportation Act, the Comprehensive
Environmental Response,
<PAGE> 16
10
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("CERCLA"), the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous
and Solid Waste Amendments of 1984, the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, the Clean Air Act of 1970 (to the extent
it pertains to the use or handling of, or exposure to, Hazardous Substances), as
amended, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act of 1970, as amended, the Emergency Planning and Community
Right-to-Know Act of 1986, the Safe Drinking Water Act of 1974, as amended, and
any similar or implementing state law and all amendments or regulations
promulgated thereunder.
"Environmental Claim" shall mean any written notice of any Governmental
Authority alleging liability for damage to the environment or by any person
alleging liability for personal injury (including sickness, disease or death),
in either case resulting from or based upon (a) the presence or release
(including intentional and unintentional, negligent and nonnegligent, sudden or
nonsudden, accidental or nonaccidental leaks or spills) of any Hazardous
Substance at, in or from the property of any person, whether or not owned or
leased by such person, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental and Safety Law; provided,
that the term "Environmental Claim" shall not include any allegation of
liability on the part of any Insurance Subsidiary for any of the foregoing under
any bond or policy issued by such Insurance Subsidiary.
"Equity Contribution" shall mean the contribution by Capsure to the
Borrower of (a) all the capital stock of, and intercompany indebtedness owing to
Capsure by, each subsidiary of Capsure in existence on the date hereof and any
other interest Capsure may hold with respect to any such subsidiary or such
subsidiary's assets, (b) all marketable securities held by Capsure on the date
hereof and (c) all cash held by Capsure on the date hereof (other than $250,000
(net of fees and expenses incurred in connection with the Transactions) to be
retained by Capsure for the payment of reasonable and customary accounting,
legal and other administrative expenses in the ordinary course of Capsure's
business).
"Equity Holdings" shall mean Equity Holdings, an Illinois partnership.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
<PAGE> 17
11
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is, together with Capsure and/or the Borrower, treated as a
single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
by reference to the LIBO Rate in accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Excess Cash Flow" shall mean, for any period, the difference between (a)
Total Cash Flow Sources for such period (determined without giving effect to (i)
clauses (a)(ii), (b)(ii) and (c)(ii) of the definition of the term "Total Cash
Flow Sources" and (ii) any gain resulting from the sale of any assets by any
Subsidiary other than any realized gain from the sale of Invested Assets by the
Borrower or any Subsidiary (other than any Insurance Subsidiary)) and (b) Total
Cash Flow Uses for such period minus the aggregate amount of reductions in the
Commitments required under Section 2.09(b) and Section 2.09(c) during such
period, but only to the extent that such reductions (i) have been included in
Total Cash Flow Uses for such period and (ii) did not result in a required
payment or prepayment under Section 2.10(b).
"Excluded Distribution Amount" shall mean the excess of (a) the sum of (i)
the amount of the Special Dividend and (ii) $100,000,000 over (b) the sum of (i)
the aggregate principal amount of loans outstanding under the Existing Credit
Facility on the Restatement Date (excluding any such loans repaid on the
Restatement Date) and (ii) the aggregate principal amount of Loans made to
finance the Special Dividend.
"Excluded Investments" shall have the meaning assigned to such term in
Section 6.04(f).
"Existing Credit Facility" shall mean the Credit Agreement dated as of
March 29, 1994 among the parties hereto, including all amendments and
modifications thereto prior to the Restatement Date.
<PAGE> 18
12
"Extraordinary Dividend" shall mean any dividend paid or payable by any
Insurance Subsidiary that is not an Ordinary Dividend at the time of payment
thereof.
"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 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 that 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.
"Fee Letter" shall mean the Fee Letter dated April 5, 1996, between Capsure
and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Participation Fees and all other
amounts required to be paid to the Administrative Agent and/or the Lenders
pursuant to Section 2.05.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Charge Coverage Ratio" shall mean, with respect to any period, the
ratio of (a) Total Cash Flow Sources for such period to (b) Total Cash Flow Uses
for such period.
"Funded Indebtedness" shall mean, for Capsure and its subsidiaries at any
time, the aggregate amount of Indebtedness consisting of obligations for
borrowed money and Capital Lease Obligations of Capsure and its subsidiaries at
such time.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
<PAGE> 19
13
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase property, securities or services for the purpose
of assuring the owner of such Indebtedness of the payment of such Indebtedness
or (c) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness; provided, however, that the term "Guarantee"
shall not include (i) endorsements for collection or deposit, or (ii) surety
bonds issued by any Insurance Subsidiary in either case in the ordinary course
of business.
"Guarantee Agreement" shall mean the Guarantee Agreement, substantially in
the form of Exhibit I, among the Subsidiary Guarantors, any person that shall
become a party thereto pursuant to Section 5.09 and the Collateral Agent.
"Guarantor" shall mean Capsure and each Subsidiary Guarantor.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, material or waste, including petroleum, its
derivatives, by-products and other hydrocarbons, including polychlorinated
biphenyls ("PCBs"), asbestos or asbestos-containing material, and any substance,
waste or material regulated under Environmental and Safety Laws.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such person,
<PAGE> 20
14
whether or not the obligations secured thereby have been assumed, (g) all
Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations of such person in respect of
Rate Protection Agreements, foreign currency exchange agreements or other
interest or exchange rate hedging arrangements and (j) all obligations of such
person as an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any person shall include the Indebtedness of
any partnership in which such person is a general partner.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Subsidiary Guarantors, any person that shall become a party
thereto pursuant to Section 5.09 and the Borrower.
"Insurance Business" shall mean one or more aspects of the business of
selling, issuing, underwriting, reinsuring, producing, administering, managing
or servicing property and casualty insurance and activities incidental thereto.
"Insurance Liabilities" shall mean (a) with respect to any Insurance
Subsidiary at any time, the amount set forth on line 21 of the Liabilities,
Surplus and Other Funds Statement in the Annual Statement of such Insurance
Subsidiary or line 22 of the Liabilities, Surplus and Other Funds Statement in
the Quarterly Statement of such Insurance Subsidiary, in each case most recently
delivered to the Administrative Agent and the Lenders pursuant to Section 5.04
(or, in the case of any Insurance Subsidiary acquired after the date hereof that
has not yet delivered any such statement to the Administrative Agent, in the
Annual Statement or Quarterly Statement of such Insurance Subsidiary most
recently filed with the Applicable Insurance Regulatory Authority) or, if any
such statement shall be modified, the equivalent item on any applicable
successor form and (b) with respect to any other Subsidiary engaged in the
Insurance Business at such time, the total liabilities (other than Funded
Indebtedness and amounts available to be borrowed under credit facilities the
proceeds of which are to be used for working capital purposes of such
Subsidiary) of such Subsidiary that would properly be classified as liabilities
at such time, determined in accordance with GAAP.
"Insurance Regulatory Information System" shall mean the Insurance
Regulatory Information System promulgated by the NAIC, or any successor system
promulgated by the NAIC.
<PAGE> 21
15
"Insurance Subsidiaries" shall mean Western Surety, Universal Surety,
Surety Bonding Company of America and any other Subsidiary, whether now owned or
hereafter acquired, that is regulated, in accordance with applicable state law
or any Federal law, as an insurer by an insurance commission or similar
Governmental Authority located in the state in which such Subsidiary is
domiciled or by any Federal insurance Governmental Authority.
"Interest Expense" shall mean, with respect to any person for any period,
the interest expense of such person for such period, as shown on the
unconsolidated statement of earnings of such person for such period, determined
in accordance with GAAP.
"Interest Payment Date" shall mean, with respect to any Loan, the last day
of the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each day that would have been an Interest Payment Date
had successive Interest Periods of three months' duration been applicable to
such Borrowing, and, in addition, the date of any refinancing or conversion of
such Borrowing with or to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing or on the last day of the immediately
preceding Interest Period applicable to such Borrowing, as the case may be, and
ending on the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6
months thereafter, as the Borrower may elect, and (b) as to any ABR Borrowing,
the period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the earliest of (i) the next succeeding March 31, June 30,
September 30 or December 31, (ii) the Maturity Date and (iii) the date such
Borrowing is prepaid in accordance with Section 2.10; provided, however, that if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of a Eurodollar Borrowing only, such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day.
"Invested Assets" of any person shall mean (a) in the case of any Insurance
Subsidiary, the amount equal to the sum of (i) lines 1 through 8 of
<PAGE> 22
16
column (1) less the sum of lines 1 through 8 of column (3) of Exhibit 1-Analysis
of Assets in the Annual Statement and (ii) line 8a of column (1) less the line
8(a) of column (3) of Analysis of Assets in the Quarterly Statement of the
Insurance Subsidiary most recently delivered to the Administrative Agent and the
Lenders pursuant to Section 5.04 (or, in the case of any Insurance Subsidiary
acquired after the date hereof that has not yet delivered any such statement to
the Administrative Agent, in the Annual Statement or Quarterly Statement of such
Insurance Subsidiary most recently filed with the Applicable Insurance
Regulatory Authority) or, if any such statement shall be modified, the
equivalent item on any applicable successor form or (b) in the case of any other
person, assets of such person of the type described in clause (a) above
consistently applied.
"Investment-Grade Security" shall mean any of the following: (a) any United
States Government Security, (b) any Invested Asset that is rated NAIC 1 or NAIC
2 by the NAIC, (c) any Invested Asset that is rated BBB- or higher by Standard &
Poor's or Baa3 or higher by Moody's and (d) any Invested Asset that is rated
BBB- or higher by Duff & Phelps Credit Rating Co. or by Fitch Investors Service,
Inc., provided that any Invested Asset specified in this clause (d) shall cease
to be an Investment-Grade Security if such Invested Asset shall not receive a
rating of NAIC 1 or NAIC 2 from the NAIC on or before the day that is 90 days
following the date of issuance of such Invested Asset.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, the interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the product of (a) the rate at which dollar
deposits approximately equal in principal amount to the Administrative Agent's
portion of such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered to the principal London office of the Administrative
Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period and (b) Statutory Bank Reserves.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
<PAGE> 23
17
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, the Guarantee Agreement, the Indemnity, Subrogation and Contribution
Agreement and the Fee Letter.
"Loans" shall mean the revolving loans made by the Lenders to the Borrower
pursuant to Section 2.01. Each Loan shall be a Eurodollar Loan or an ABR Loan.
"Long Tail Insurance Line of Business" shall mean any line of business in
respect of which the NAIC requires, at the time of determination, computation of
an excess statutory reserve of the type set forth on page 93 of the Annual
Statement of any Insurance Subsidiary for the year ended December 31, 1993, or,
if such statement shall be modified, the equivalent item on any applicable
successor form.
"Margin Stock" shall have the meaning given such term under Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
business, assets, operations, prospects or condition, financial or otherwise, of
Capsure and its subsidiaries, taken as a whole, or (b) a material impairment of
the ability of Capsure, the Borrower or any of the Subsidiaries to perform any
of its material obligations under any Loan Document to which it is or will be a
party or under any of its other Indebtedness.
"Maturity Date" shall mean March 31, 2003.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage" shall mean each Mortgage Security Agreement and Assignment of
Leases and Rents, substantially in the form of Exhibit J hereto, entered into
after the date hereof between the Borrower or any person that shall become a
party thereto pursuant to Section 5.09 and the Collateral Agent.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which Capsure, the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing or has within any of the
preceding five plan years made or accrued an obligation to contribute.
<PAGE> 24
18
"NAIC" shall mean the National Association of Insurance Commissioners or
any association or Governmental Authority succeeding to any or all of the
functions of the National Association of Insurance Commissioners.
"NAIC 1" shall mean the rating NAIC 1 of the NAIC.
"NAIC 2" shall mean the rating NAIC 2 of the NAIC.
"Net Income" shall mean with respect to any person for any period, the
aggregate net income (or net deficit) of such person for such period computed in
accordance with GAAP, provided that the term "Net Income" shall exclude all
extraordinary items determined in accordance with GAAP.
"Net Written Premiums" shall mean, with respect to any Insurance Subsidiary
for any period of four consecutive fiscal quarters, the amount set forth on line
1 of Exhibit 3 to the Reconciliation of Ledger Assets in the Annual Statement
and/or Quarterly Statement of such Insurance Subsidiary relating to such period
or, if any such statement shall be modified, the equivalent item on any
applicable successor form.
"NI Acquisition" shall mean NI Acquisition Corp., a Texas corporation and a
wholly owned subsidiary of the Borrower.
"Note" shall mean a promissory note of the Borrower, substantially in the
form of Exhibit A, evidencing Loans.
"Obligations" shall mean all obligations defined as "Obligations" in the
Guarantee Agreement and the Security Documents.
"Operating Leverage Ratio" shall mean the ratio, with respect to any
Insurance Subsidiary, of (a) Net Written Premiums of such Insurance Subsidiary
for the period of four consecutive fiscal quarters preceding the date of any
determination to (b) Surplus of such Insurance Subsidiary at such date.
"Ordinary Dividends" shall mean, with respect to any Insurance Subsidiary,
the maximum amount of dividends that such Insurance Subsidiary may pay during
any period of four consecutive fiscal quarters without seeking regulatory
approval under applicable regulations, in effect during such period.
<PAGE> 25
19
"Participation Fee" shall have the meaning given to such term in Section
2.05(c).
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" shall mean the Perfection Certificate,
substantially in the form of Annex 2 to the Security Agreement, prepared by
Capsure and the Borrower.
"Permitted Acquisition" shall have the meaning assigned to such term in
Section 6.05(c)(ii).
"Permitted Investments" shall mean:
(a) United States Government Securities maturing within 360 days from
the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1 or higher from Standard & Poor's or a rating of P1 or higher
from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) maturing within 360 days
from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any domestic
office of any commercial bank of recognized standing, organized under the
laws of the United States of America or any state thereof that has a
combined capital and surplus and undivided profits of not less than
$250,000,000 and the deposits of which are rated (or the senior debt
securities of the holding company of such commercial bank are rated) A- or
better by Standard & Poor's or A3 by Moody's or carrying an equivalent
rating by another nationally recognized rating agency if neither of the two
named rating agencies shall rate such commercial bank (or the holding
company of such commercial bank);
(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions that have a
<PAGE> 26
20
combined capital and surplus and undivided profits of not less than
$250,000,000; and
(e) other Investment Grade Securities maturing within three years from
the date of acquisition thereof.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) that is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and is maintained for current or former employees, or
any beneficiary thereof, of Capsure, the Borrower or any ERISA Affiliate.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit F, among Capsure, the Borrower, each Subsidiary Guarantor,
certain other Subsidiaries, any person that shall become a party thereto
pursuant to Section 5.09 and the Collateral Agent.
"Pledgeholder Agreement" shall mean each Pledgeholder Agreement,
substantially in the form of Exhibit H hereto, between the Borrower or any
person that shall become a party thereto pursuant to Section 5.09, any
Pledgeholder named therein and the Collateral Agent.
"Quarterly Statement" shall mean, with respect to any Insurance Subsidiary,
the Quarterly Statement of such Insurance Subsidiary required to be filed with
the Applicable Insurance Regulatory Authority in accordance with state law,
including any exhibits, schedules, certificates or actuarial opinions filed or
delivered therewith.
"Rate Protection Agreements" shall mean interest rate swap, cap, collar or
floor agreements or other similar agreements entered to provide protection
against fluctuations in interest rates. Each Rate Protection Agreement shall be
with a Lender or a person whose unsecured debt securities, debt instruments or
redeemable preferred stock is rated BBB- or higher by Standard & Poor's or Baa3
or higher by Moody's.
"Register" shall have the meaning given such term in Section 10.04(d).
<PAGE> 27
21
"Regulation G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Reinsurance Agreements" shall mean all agreements, contracts, treaties,
certificates and other arrangements whereby an insurance company agrees to
transfer or cede to another insurer all or part of the liability assumed by such
insurance company under a policy or policies of insurance reinsured by such
insurance company, provided that, for purposes of Section 3.20 and Section
5.04(j) only, the term "Reinsurance Agreements" shall not include individual
facultative reinsurance agreements or arrangements.
"Reportable Event" shall mean any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).
"Required Lenders" shall mean, at any time, Lenders holding Loans
representing at least a majority of the aggregate principal amount of the Loans
outstanding or, if no Loans are outstanding, Lenders having Commitments
representing at least a majority of the aggregate Commitments.
"Responsible Officer" of any corporation shall mean any executive officer
or Financial Officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Restatement Date" shall mean May 22, 1996, the effective date of this
Amended and Restated Credit Agreement.
"Risk-Based Capital" shall mean, with respect to the Insurance Subsidiaries
at any time, the Risk-Based Capital (as defined by the NAIC at
<PAGE> 28
22
such time and as computed in accordance with SAP) of the Insurance Subsidiaries
(consolidated in accordance with SAP) at such time.
"SAP" shall mean, with respect to any Insurance Subsidiary, the accounting
procedures prescribed or permitted by the Applicable Insurance Regulatory
Authority applied on a basis consistent with those that are indicated in Section
1.02.
"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit G, among Capsure, the Borrower, each Subsidiary Guarantor,
any person that shall become a party thereto pursuant to Section 5.09 and the
Collateral Agent.
"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, each Mortgage, each Pledgeholder Agreement and each of the security
agreements and other instruments and documents executed and delivered pursuant
to any of the foregoing or pursuant to Section 5.09.
"Short Tail Insurance Line of Business" shall mean any line of business in
the Insurance Business that is not, at the time of determination, a Long Tail
Insurance Line of Business.
"Special Dividend" shall have the meaning assigned to such term in the
preamble hereto.
"Standard & Poor's" shall mean Standard and Poor's Rating Services, a
division of The McGraw Hill Companies, Inc.
"Statement of Actuarial Opinion" shall mean, with respect to any Insurance
Subsidiary, the Statement of Actuarial Opinion required to be filed with the
Applicable Insurance Regulatory Authority in accordance with state law or, if
such Applicable Insurance Regulatory Authority shall no longer require such a
statement, information equivalent to that required to be included in the
Statement of Actuarial Opinion that was filed immediately prior to the time such
statement was no longer required.
"Statutory Bank Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of
<PAGE> 29
23
which is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority to which
the Administrative Agent is subject (a) with respect to the Base CD Rate (as
such term is used in the definition of "Alternate Base Rate"), for new
negotiable nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months and (b) with respect to the LIBO Rate, for
Eurocurrency Liabilities (as defined in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets which may be available from time to time to any
Lender under such Regulation D. Statutory Bank Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Statutory Surplus" or "Surplus" shall mean, with respect to any Insurance
Subsidiary at any time, the amount set forth on line 25 of the Liabilities,
Surplus and Other Funds Statement in the Annual Statement of such Insurance
Subsidiary or line 26 of the Liabilities, Surplus and Other Funds Statement in
the Quarterly Statement of such Insurance Subsidiary, in each case most recently
delivered to the Administrative Agent and the Lenders pursuant to Section 5.04
(or, in the case of any Insurance Subsidiary acquired after the date hereof that
has not yet delivered any such statement to the Administrative Agent, in the
Annual Statement or Quarterly Statement of such Insurance Subsidiary most
recently filed with the Applicable Insurance Regulatory Authority) or, if such
statement shall be modified, the equivalent item on any applicable successor
form.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement and
related agreements, each dated as of February 29, 1996, among Capsure, NI
Acquisition and Frontier Insurance Company.
"Stockholders' Equity" shall mean, at any date, for Capsure and its
subsidiaries on a consolidated basis, stockholders equity at such date,
determined in accordance with GAAP and after giving effect to all adjustments
required thereby.
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
<PAGE> 30
24
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Subsidiary Guarantor" shall mean SI Acquisition Corp., NI Acquisition,
Surewest Financial Corp., Universal Surety Holdings Corp., Pin Oak Petroleum
Inc., Capsure Agency Holding Corp., APGO Drilling & Production Services, Capital
Dredge & Dock Corp., Cogburn Pump & Supply Co., Condor Pipe, Incorporated,
Crowder Tank, Inc., Del-Tex, Inc., Eagle Upsetters, Inc., Jim Williams &
Associates, Inc., Martin Pipe Co., Inc., Nucorp Compressor, Inc., Nucorp
Management Company, Nucorp Properties, Inc., SMCI Incorporated, Superior Allied
Products, Inc., Sweetwater Pump & Supply, Inc., Taylor Rig and Equipment Company
and Wildcat Supply, Inc., and each person that shall become a Subsidiary
Guarantor pursuant to Section 5.09.
"Surplus Relief Reinsurance Agreement" shall mean any agreement whereby any
Insurance Subsidiary either assumes or cedes business under a Reinsurance
Agreement that would be considered a "financing-type" reinsurance agreement and
is entered into solely for the purpose of impacting or affecting the income
statement of such Insurance Subsidiary.
"Tax Sharing Agreement" shall mean each Tax Sharing Agreement (including
each Borrower Tax Sharing Agreement) as in effect on the date hereof between (a)
Capsure and the Borrower, (b) the Borrower and any of its subsidiaries or (c)
any subsidiary of the Borrower and any other subsidiary of the Borrower.
"Tax Sharing Payments" shall mean payments made pursuant to the Tax Sharing
Agreements.
"Total Cash Flow Sources" shall mean, at any measurement date, for the
period of four consecutive fiscal quarters preceding such measurement date (the
"Reference Period"), the sum, without duplication, of (a)(i) in the case of
Western Surety and, for any measurement date occurring after the completion of
three consecutive fiscal quarters immediately following the
<PAGE> 31
25
fiscal quarter during which the acquisition thereof is consummated in accordance
with Section 6.05, any Insurance Subsidiary (other than any Insurance Subsidiary
that is a subsidiary of any other Insurance Subsidiary) hereafter acquired, (A)
the capacity to pay Ordinary Dividends (calculated as if the measurement date is
the end of a calendar year and determined by reference to the regulations
governing the payment of dividends by insurance companies to insurance holding
companies promulgated by the Applicable Insurance Regulatory Authority as in
effect from time to time) of such persons during the Reference Period or (B) if
Ordinary Dividends have not been paid during the Reference Period, the aggregate
amount of dividends actually paid during the Reference Period by such persons or
(ii) for purposes of determining compliance with Section 6.05 (c)(ii)(H), and
for any measurement date occurring prior to the completion of three consecutive
fiscal quarters immediately following the fiscal quarter during which the
acquisition thereof is consummated in accordance with Section 6.05 (but
occurring after the date on which such acquisition is consummated), the capacity
to pay Ordinary Dividends (calculated as if the measurement date is the end of a
calendar year and determined by reference to the regulations governing the
payment of dividends by insurance companies to insurance holding companies
promulgated by the Applicable Insurance Regulatory Authority as in effect from
time to time) during the Reference Period of any Insurance Subsidiary hereafter
acquired, calculated as if such Subsidiary had been a Subsidiary as of the first
day of the Reference Period, (b)(i) EBIDA during the Reference Period of all
Subsidiaries (other than Insurance Subsidiaries and subsidiaries of Insurance
Subsidiaries) now owned and, for any measurement date occurring after the
completion of three consecutive fiscal quarters immediately following the fiscal
quarter during which the acquisition thereof is consummated in accordance with
Section 6.05, any Subsidiary (other than Insurance Subsidiaries and
subsidiaries of Insurance Subsidiaries) hereafter acquired and (ii) for
purposes of determining compliance with Section 6.05(c)(ii)(H), and for any
measurement date occurring prior to the completion of three consecutive fiscal
quarters immediately following the fiscal quarter during which the acquisition
thereof is consummated in accordance with Section 6.05 (but occurring after the
date on which such acquisition is consummated), EBIDA during the Reference
Period of any Subsidiary (other than Insurance Subsidiaries and subsidiaries of
Insurance Subsidiaries) hereafter acquired, calculated as if such Subsidiary
had been a Subsidiary as of the first day of the Reference Period, (c)(i) in
the case of any direct subsidiary of the Borrower existing on the date hereof
and, for any measurement date occurring after the completion of three
consecutive fiscal quarters immediately following the fiscal quarter during
which the acquisition
<PAGE> 32
26
thereof is consummated in accordance with Section 6.05, any other direct
subsidiary of the Borrower hereafter acquired, the net payments (determined
without giving effect to the tax benefit resulting from the payment of
interest under the Existing Credit Facility) required to be made to the
Borrower during the Reference Period under the Borrower Tax Sharing Agreements
by such persons and (ii) for purposes of determining compliance with Section
6.05(c)(ii)(H), and for any measurement date occurring prior to the completion
of three consecutive fiscal quarters immediately following the fiscal quarter
during which the acquisition thereof is consummated in accordance with Section
6.05 (but occurring after the date on which such acquisition is consummated),
the net payments that would have been required to have been made to the
Borrower under the Borrower Tax Sharing Agreements during the Reference Period
by any direct subsidiary of the Borrower hereafter acquired, assuming such
Subsidiary had been a Subsidiary as of the first day of the Reference Period,
and (d) cash received by the Borrower during the Reference Period (or, for any
Reference Period that includes one or more of the four consecutive fiscal
quarters ended March 31, 1994, by Capsure during any of such fiscal quarters
included in such Reference Period) as a result of income from management fees
earned and income (determined in accordance with GAAP) from Invested Assets of
the Borrower or Capsure, as applicable. The term "Total Cash Flow Sources"
shall in all cases exclude aggregate amount of Extraordinary Dividends and
extraordinary distributions or other payments received by the Borrower during
the applicable Reference Period.
"Total Cash Flow Uses" shall mean, for any period of four consecutive
fiscal quarters, the sum, without duplication, of (a) the aggregate amount of
Commitment reductions required under Section 2.09(b) and Section 2.09(c) during
such period to the extent that the amount of Commitments outstanding after any
such reduction is less than the greatest amount of Loans that has been
outstanding at any time during such period before giving effect to such
reduction, (b) the aggregate amount of Indebtedness required to be repaid by
Capsure and its subsidiaries during such period (other than amounts included in
clause (a) above), (c) Interest Expense of Capsure and its subsidiaries during
such period, (d) the aggregate amount of taxes paid by the Borrower or Capsure
during such period, (e) the aggregate amount of dividends, distributions or
other payments made by the Borrower to Capsure during such period (excluding
dividends, distributions or other payments made pursuant to Sections 6.06(b) or
6.06(c) in an aggregate amount not to exceed the Excluded Distribution Amount,
so long as the Borrower has cash and Cash Equivalents equal to the amount of any
such excluded dividend,
<PAGE> 33
27
distribution or other payment immediately prior to the payment thereof) and (f)
any other expenses of the Borrower and the Subsidiaries during such period and
any other uses of cash by Capsure (excluding expenses of Capsure for which
dividends have been paid to Capsure under Section 6.06(c) to the extent such
dividends have been included under clause (e) of this definition) and its
subsidiaries (other than Insurance Subsidiaries) during such period (including
dividends or other distributions in respect of the capital stock of Capsure and
its subsidiaries), in each case to the extent not otherwise included in EBIDA
during such period of such Subsidiaries (other than Insurance Subsidiaries).
"Total Debt" shall mean, at any time, the aggregate amount of Funded
Indebtedness at such time.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Transferee" shall have the meaning assigned to such term in Section 2.17.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
LIBO Rate and the Alternate Base Rate.
"United States Government Securities" shall mean direct obligations of, or
obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America, any agency thereof, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Government National Mortgage Association, the Student Loan Market Association,
the Federal Home Loan Bank or the Federal Farm Credit Bank.
"Universal Surety" shall mean Universal Surety of America, a Texas
corporation.
"Western Surety" shall mean Western Surety Company, a South Dakota
corporation.
<PAGE> 34
28
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"UC Sale" shall mean the sale by NI Acquisition to Frontier Insurance
Company of all the issued and outstanding capital stock of United Capitol
Holding Company pursuant to the terms and conditions of the Stock Purchase
Agreement.
"United Capitol" shall mean United Capitol Insurance Company, a Wisconsin
corporation.
"Zell Entities" shall mean (a) each of Equity Holdings and Arlington so
long as Samuel Zell, Ann B. Lurie and the persons specified in clauses (b) and
(c) of this definition, collectively, (i) shall Control each such entity and
(ii) shall own, directly and indirectly, beneficially and of record, at least
51% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock or general partnership interests of each such entity,
(b) trusts created for the benefit of Samuel Zell, Ann Lurie or their respective
immediate family members and (c) any other person Controlled by Samuel Zell or
the trusts specified in clause (b) of this definition.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or, to the extent such terms apply to an
Insurance Subsidiary, SAP, in each case as in effect from time to time;
provided, however, that for purposes of determining compliance with any covenant
set forth in Article VI, such terms shall be construed in accordance with GAAP
or SAP (and the NAIC and the Insurance Regulatory Information System), as
applicable, as in effect on the date of this Agreement applied on a basis
consistent with the application used in preparing Capsure's audited financial
statements referred to in Section 305 or the Insurance Subsidiaries' financial
statements filed with
<PAGE> 35
29
their respective Applicable Insurance Regulatory Authorities, as the case may
be.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Upon the terms and subject to the conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Loans to the Borrower, at any
time and from time to time on or after the Restatement Date and until the
earlier of the Maturity Date and the termination of the Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding not to exceed (after giving effect to all Loans repaid) an
amount equal to the Commitment set forth opposite such Lender's name on Schedule
2.01, as such Commitment may be reduced from time to time pursuant to Section
2.09. Within the limits set forth in the preceding sentence, the Borrower may
borrow, pay or prepay and reborrow Loans on or after the Restatement Date and
prior to the Maturity Date, upon the terms and subject to the conditions and
limitations set forth herein.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
respective Commitments; provided, however, that the failure of any Lender to
make any Loan shall not in itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). The Loans comprising each Borrowing shall be in an
aggregate principal amount that is an integral multiple of $1,000,000 and not
less than $1,000,000 (or, if less, an aggregate principal amount equal to the
remaining balance of the Commitments).
(b) Each Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans, as the Borrower may request pursuant to Section 2.03. Each Lender may at
its option fulfill its Commitment with respect to any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan,
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement and
the applicable Note.
<PAGE> 36
30
Borrowings of more than one Type may be outstanding at the same time; provided,
however, that the Borrower shall not be entitled to request any Borrowing that,
if made, would result in an aggregate of more than three separate Eurodollar
Loans of any Lender being outstanding hereunder at any one time. For purposes
of the foregoing, Loans having different Interest Periods, regardless of whether
they commence on the same date, shall be considered separate Loans.
(c) Subject to paragraph (e) below, each Lender shall make a Loan in the
amount of its pro rata portion, as determined under Section 2.14, of each
Borrowing hereunder on the proposed date thereof by wire transfer of immediately
available funds to the Administrative Agent in New York, New York, not later
than 12:00 noon, New York City time, and the Administrative Agent shall by 3:00
p.m., New York City time, credit the amounts so received to the general deposit
account of the Borrower with the Administrative Agent or, if a Borrowing shall
not occur on such date because any condition precedent herein specified shall
not have been met, return the amounts so received to the respective Lenders.
Unless the Administrative Agent shall have received notice from a Lender prior
to any Borrowing that such Lender will not make available to the Administrative
Agent such Lender's portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with this paragraph (c) and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date such amount is repaid to the
Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Maturity Date.
<PAGE> 37
31
(e) The Borrower may refinance all or any part of any Borrowing with a
Borrowing of the same or a different Type, subject to the conditions and
limitations set forth in this Agreement. Any Borrowing or part thereof so
refinanced shall be deemed to be repaid or prepaid in accordance with Section
2.04 or 2.10, as applicable, with the proceeds of a new Borrowing, and the
proceeds of the new Borrowing, to the extent they do not exceed the principal
amount of the Borrowing being refinanced, shall not be paid by the Lenders to
the Administrative Agent or by the Administrative Agent to the Borrower pursuant
to paragraph (c) above.
SECTION 2.03. Notice of Borrowings. Except in the case of the Credit
Event occurring on the Restatement Date (which shall consist solely of an ABR
Borrowing), the Borrower shall give the Administrative Agent written or telecopy
notice (or telephone notice promptly confirmed in writing or by telecopy) (a) in
the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City
time, three Business Days before a proposed borrowing and (b) in the case of an
ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day
before a proposed borrowing. Such notice shall be irrevocable and shall in each
case refer to this Agreement and specify (a) whether such Borrowing is to be a
Eurodollar Borrowing or an ABR Borrowing; (b) the date of such Borrowing (which
shall be a Business Day) and the amount thereof; and (c) if such Borrowing is to
be a Eurodollar Borrowing, the Interest Period with respect thereto. If no
election as to the Type of Borrowing is specified in any such notice, then the
requested Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Borrowing is specified in any such notice, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. If the Borrower shall not have given notice in accordance with this
Section 2.03 of its election to refinance a Borrowing prior to the end of the
Interest Period in effect for such Borrowing, then the Borrower shall (unless
such Borrowing is repaid at the end of such Interest Period) be deemed to have
given notice of an election to refinance such Borrowing with an ABR Borrowing.
The Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.03 and of each Lender's portion of the requested
Borrowing.
SECTION 2.04. Notes; Repayment of Loans. The Loans made by each Lender
shall be evidenced by a Note, duly executed on behalf of the Borrower, dated the
Restatement Date, in substantially the form attached hereto as Exhibit A, with
the blanks appropriately filled, payable to the order of such Lender in a
principal amount equal to such Lender's Commitment.
<PAGE> 38
32
The outstanding principal balance of each Loan, as evidenced by such a Note,
shall be payable on the last day of the Interest Period applicable to such Loan
and on the Maturity Date. Each Note shall bear interest from and including the
date of the first Borrowing hereunder on the outstanding principal balance
thereof as set forth in Section 2.06. Each Lender shall, and is hereby
authorized by the Borrower to, endorse on the schedule attached to each Note
delivered to such Lender (or on a continuation of such schedule attached to such
Note and made a part thereof), or otherwise to record in such Lender's internal
records, an appropriate notation evidencing the date and amount of each Loan
from such Lender, each payment and prepayment of principal of any such Loan,
each payment of interest on any such Loan and the other information provided for
on such schedule; provided, however, that the failure of any Lender to make such
a notation or any error therein shall not affect the obligation of the Borrower
to repay the Loans made by such Lender in accordance with the terms of this
Agreement and the applicable Notes. Such a notation shall be conclusive absent
manifest error.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, the following fees (each, a "Commitment Fee")
on the last day of March, June, September and December in each year, and on the
date on which the Commitment of such Lender shall be terminated as provided
herein, a Commitment Fee equal to the Applicable Commitment Fee Percentage on
the average daily unused amount of the Commitment of such Lender during the
preceding quarter (or shorter period commencing with the Restatement Date or
ending with the Maturity Date or the date on which the Commitment of such Lender
shall be terminated). All Commitment Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days.
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the fees set forth in the Fee Letter at the times set forth in the Fee
Letter.
(c) The Borrower agrees to pay to the Administrative Agent, for the
account of the Lenders other than Chemical Bank, the participation fees (the
"Participation Fees") set forth in the Fee Letter on the Restatement Date.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the Fees shall be refundable under any
circumstances, absent manifest error in the calculation thereof.
<PAGE> 39
33
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when such interest is determined by reference
to the Prime Rate and over a year of 360 days at all other times) at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin at the time in
effect.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Margin in effect at the time of the making of such Loans.
(c) Interest on each Loan shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement. The
applicable Alternate Base Rate or LIBO Rate for each Interest Period or day
within an Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
(d) Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, the Borrower shall on demand from
time to time pay interest, to the extent permitted by law, on such defaulted
amount up to but excluding the date of actual payment (after as well as before
judgment) at a rate per annum (computed on the same basis as an ABR Loan) equal
to the rate that would at the time be applicable to an ABR Loan under Section
2.06 plus 2% per annum.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to Lenders having at such time
Commitments representing at least 20% of the total Commitments
<PAGE> 40
34
at such time of making or maintaining their Eurodollar Loans during such
Interest Period, or that reasonable means do not exist for ascertaining the LIBO
Rate, the Administrative Agent shall, as soon as practicable thereafter, give
written or telecopy notice of such determination to the Borrower and the
Lenders. In the event of any such determination, any request by the Borrower
for a Eurodollar Borrowing pursuant to Section 2.03 shall, until the
Administrative Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, be deemed to be a
request for an ABR Borrowing. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The
Commitments shall be automatically and permanently terminated on the Maturity
Date.
(b) The Commitments shall be automatically and permanently reduced on each
of the following dates in the amounts corresponding to such dates as set forth
below:
<TABLE>
<CAPTION>
Date Commitment Reduction
<S> <C>
March 31, 1997 $6,250,000
September 30, 1997 $6,250,000
March 31, 1998 $7,000,000
September 30, 1998 $7,000,000
March 31, 1999 $7,500,000
September 30, 1999 $7,500,000
March 31, 2000 $8,500,000
September 30, 2000 $8,500,000
March 31, 2001 $8,500,000
September 30, 2001 $8,500,000
March 31, 2002 $8,500,000
September 30, 2002 $8,500,000
March 31, 2003 $7,500,000
</TABLE>
(c) The Commitments shall be automatically and permanently reduced upon
any sale or other disposition permitted hereunder of assets (other than sales or
dispositions of Invested Assets) by Capsure, the Borrower or any Subsidiary
Guarantor (other than sales or other dispositions of assets in an amount not
exceeding $2,000,000 in the aggregate in any fiscal year), such reduction to be
in an amount equal to 100% of the net proceeds (after sales commissions, other
expenses incurred in connection with such sale or
<PAGE> 41
35
disposition and a reasonable estimate of taxes payable in connection with such
sale or disposition) of such sale or disposition. Commitment reductions
pursuant to this paragraph (c) shall be applied pro rata against the reductions
required under paragraph (b) above.
(d) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Commitments; provided, however, that each partial reduction of the
Commitments shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $5,000,000. Reductions pursuant to this paragraph (d) shall
be applied, first, in any six-month period, against the next succeeding
reduction required during such six-month period under paragraph (b) above and,
thereafter, pro rata against the remaining reductions required under paragraph
(b) above.
(e) Each reduction in the Commitments hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments. The Borrower
shall pay to the Administrative Agent for the account of the Lenders, on the
date of each termination or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to the date of such termination or
reduction.
SECTION 2.10. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Borrowing, in whole or in part, upon at
least two Business Days' prior written or telecopy notice (or telephone notice
promptly confirmed by written or telecopy notice) to the Administrative Agent;
provided, however, that each partial prepayment shall be in an amount that is an
integral multiple of $1,000,000.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.09, the Borrower shall pay or prepay so much of the
Borrowings as shall be necessary in order that the aggregate principal amount of
the Loans outstanding on such date will not exceed the aggregate Commitments on
such date (after giving effect to such termination or reduction).
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the amount
stated therein on the date stated therein. All prepayments
<PAGE> 42
36
under this Section 2.10 shall be subject to Section 2.13 but otherwise without
premium or penalty. All prepayments under this Section 2.10 shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of payment.
SECTION 2.11. Lender Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change (other than any such change that is reflected in the applicable LIBO
Rate) in applicable law or regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) shall change the
basis of taxation of payments to any Lender of the principal of or interest on
any Eurodollar Loan made by such Lender, Fees or other amounts payable hereunder
(other than changes in respect of taxes imposed on the overall net income of
such Lender by the jurisdiction in which such Lender has its principal office or
by any political subdivision or state or taxing authority therein), or shall
impose, modify or deem applicable any reserve, deposit insurance, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by such Lender or shall impose on such Lender or
the London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender, and the result of any of the foregoing
shall be to increase the cost to such Lender of making or maintaining any
Eurodollar Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder or under the Notes (whether of principal, interest or
otherwise) by an amount deemed by such Lender to be material, then the Borrower
will pay to such Lender upon demand such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
(b) If any Lender shall have determined that the adoption after the date
hereof of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change after the date hereof in any of the foregoing or in the
interpretation or administration after the date hereof of any of the foregoing
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
any lending office of such Lender) or any Lender's holding company with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding
<PAGE> 43
37
company, if any, as a consequence of this Agreement or the Loans made by such
Lender pursuant hereto to a level below that which such Lender or such Lender's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's policies and the policies
of such Lender's holding company with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(c) A certificate of each Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as specified
in paragraph (a) or (b) above, as the case may be, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
each Lender the amount shown as due on any such certificate delivered by it
within 10 days after its receipt of the same.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period, provided that if such Lender shall not have notified the Borrower,
within 90 days after the date on which such Lender shall have become aware of
such increased costs or reductions, that such Lender will demand compensation
for such increased costs or reductions, the Borrower's obligation to compensate
such Lender for such increased costs or reductions shall be limited to increased
costs or reductions accruing from and including the day that is 90 days prior to
the date on which such Lender notifies the Borrower that such Lender will demand
such compensation. The protection of this Section 2.11 shall be available to
each Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition that shall have occurred or been imposed.
(e) Each Lender will, at the request of the Borrower, designate a
different lending office if such designation (i) will avoid the need for, or
minimize the amount of, any compensation to which such Lender is entitled
pursuant to this Section 2.11 and (ii) will not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender.
<PAGE> 44
38
SECTION 2.12. Change in Legality. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written or
telecopy notice to the Borrower and to the Administrative Agent, such Lender
may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon any request by the Borrower for a Eurodollar
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall be
automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under subparagraph (i) or (ii)
above, all payments and prepayments of principal that would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.12, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day
of the Interest Period then applicable to such Eurodollar Loan; in all other
cases such notice shall be effective on the date of receipt by the Borrower.
SECTION 2.13. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a consequence of
(a) any failure by the Borrower to fulfill on the date of any borrowing
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow or to refinance any Loan hereunder after irrevocable
notice of such borrowing or refinancing has been given pursuant to Section 2.03,
(c) any payment or prepayment of a Eurodollar Loan required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period applicable thereto or
<PAGE> 45
39
(d) any default in payment or prepayment of the principal amount of any Loan or
any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise), including, in each such case, any loss or
expense sustained or incurred or to be sustained or incurred in liquidating or
employing deposits from third parties acquired to effect or maintain such Loan
or any part thereof as a Eurodollar Loan. Such loss or expense shall be equal
to the sum of (a) such Lender's actual costs and expenses incurred (other than
any lost profits) in connection with, or by reason of, any of the foregoing
events and (b) the excess, if any, as determined by such Lender, of (i) its cost
of obtaining the funds for the Loan being paid, prepaid or not borrowed (assumed
to be the LIBO Rate applicable thereto) for the period from the date of such
payment, prepayment or failure to borrow to the last day of the Interest Period
for such Loan (or, in the case of a failure to borrow, the Interest Period for
such Loan that would have commenced on the date of such failure) over (ii) the
amount of interest (as determined by such Lender) that would be realized by such
Lender in reemploying the funds so paid, prepaid or not borrowed for such period
or Interest Period, as the case may be. A certificate of any Lender setting
forth any amount or amounts that such Lender is entitled to receive pursuant to
this Section 2.13 shall be delivered to the Borrower and shall be conclusive
absent manifest error.
SECTION 2.14. Pro Rata Treatment. Except as required under Section 2.12,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, each payment of the Commitment Fees, each
reduction of the Commitments and each refinancing of any Borrowing with a
Borrowing of any Type shall be allocated pro rata among the Lenders in
accordance with their respective Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal amounts
of their outstanding Loans). Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole dollar amount.
SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable
<PAGE> 46
40
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Loan or Loans as a
result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any other
Lender, such Lender shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Loans of such other Lender so that
the aggregate unpaid principal amount of the Loans and participations in Loans
held by each Lender shall be in the same proportion to the aggregate unpaid
principal amount of all Loans then outstanding as the principal amount of its
Loans prior to such exercise of banker's lien, setoff or counterclaim or other
event was to the principal amount of all Loans outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.15 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Loan deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender by reason thereof as fully as if such Lender had
made a Loan directly to the Borrower in the amount of such participation.
SECTION 2.16. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under any other Loan Document not later than 12:00 noon,
New York City time, on the date when due in dollars to the Administrative Agent
for the account of the Administrative Agent, or the Lenders, as the case may be,
at the Administrative Agent's offices at 270 Park Avenue, New York, New York, in
immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
<PAGE> 47
41
SECTION 2.17. Taxes. (a) Any and all payments by the Borrower hereunder
shall be made, in accordance with Section 2.16, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding (i)
income taxes imposed on the net income of the Administrative Agent or any Lender
(or any transferee or assignee thereof, including a participation holder (any
such entity a "Transferee")) and (ii) franchise taxes imposed on the net income
of the Administrative Agent or any Lender (or Transferee), in each case by the
jurisdiction under the laws of which the Administrative Agent or such Lender (or
Transferee) is organized or any political subdivision thereof or state therein
(all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities, collectively or individually, "Taxes"). If the Borrower shall
be required to deduct any Taxes from or in respect of any sum payable hereunder
to any Lender (or any Transferee) or the Administrative Agent, (i) the sum
payable shall be increased by the amount (an "additional amount") necessary so
that after making all required deductions (including deductions applicable to
additional amounts payable under this Section 2.17) such Lender (or Transferee)
or the Administrative Agent (as the case may be) shall receive an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay to the relevant Governmental
Authority in accordance with applicable law any current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document ("Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes paid by such
Lender (or Transferee) or the Administrative Agent, as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate setting forth the amount of
such payment or liability prepared by a Lender or the Administrative Agent on
its behalf, absent manifest error, shall be final, conclusive and binding for
all purposes. Such indemnification shall be made
<PAGE> 48
42
within 30 days after the date any Lender (or Transferee) or the Administrative
Agent, as the case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or the Administrative Agent shall become
aware that it is entitled to claim a refund from a Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid additional amounts,
pursuant to this Section 2.17, it shall promptly notify the Borrower of the
availability of such refund claim and shall make a claim to such Governmental
Authority for such refund at the Borrower's expense. If a Lender (or Transferee)
or the Administrative Agent receives a refund (including pursuant to a claim for
refund made pursuant to the preceding sentence) in respect of any Taxes or Other
Taxes as to which it has been indemnified by the Borrower or with respect to
which the Borrower has paid additional amounts pursuant to this Section 2.17, it
shall within 30 days from the date of such receipt pay over such refund to the
Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
such Lender (or Transferee) or the Administrative Agent and without interest
(other than interest paid by the relevant Governmental Authority with respect to
such refund); provided, however, that the Borrower, upon the request of such
Lender (or Transferee) or the Administrative Agent, agrees to repay the amount
paid over to the Borrower (plus penalties, interest or other charges) to such
Lender (or Transferee) or the Administrative Agent in the event such Lender (or
Transferee) or the Administrative Agent is required to repay such refund to such
Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower will
furnish to the Administrative Agent, at its address referred to in Section
10.01, the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.17 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder and of all other Obligations.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
<PAGE> 49
43
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on
or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such
participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Under changes its applicable lending office by designating
a different lending office (a "New Lending Office"). In addition, each Non-U.S.
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Non-U.S. Lender. Notwithstanding any other
provision of this Section 2.17(g), a Non-U.S. Lender shall not be required to
deliver any form pursuant to this Section 2.17(g) that such Non-U.S. Lender is
not legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender,
or to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this clause (i) shall not apply to any Transferee or New Lending Office
that becomes a Transferee or New Lending Office as a result of an assignment,
participation, transfer or designation made at the request of the Borrower; and
provided further, however, that this clause (i) shall not apply to the extent
the indemnity payment or additional amounts any Transferee, or Lender (or
Transferee)
<PAGE> 50
44
through a New Lending Office, would be entitled to receive (without regard to
this clause (i)) do not exceed the indemnity payment or additional amounts that
the person making the assignment, participation or transfer to such Transferee,
or Lender (or Transferee) making the designation of such New Lending Office,
would have been entitled to receive in the absence of such assignment,
participation, transfer or designation or (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender to comply with the provisions of paragraph (g) above.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Borrower or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the sole determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require any Lender (or
Transferee) or the Administrative Agent to make available any of its tax returns
(or any other information that it deems to be confidential or proprietary).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and Capsure represents and warrants to each Lender and
the Administrative Agent that:
SECTION 3.01. Organization; Powers. Each of Capsure, the Borrower and
each of the Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except for those jurisdictions in which the failure to so qualify
would not result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations
<PAGE> 51
45
under each of the Loan Documents and each other agreement or instrument
contemplated thereby to which it is or will be a party and, in the case of the
Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
each of the Borrower, Capsure, each Subsidiary Guarantor and each other
Subsidiary of each of the Loan Documents, the borrowings hereunder and the
creation of the security interests contemplated by the Security Documents
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of any material law, statute, rule or regulation, or
of the certificate of incorporation or other constitutive documents or by-laws
of Capsure, the Borrower or any of the Subsidiaries, (B) any order of any
Governmental Authority or (C) any provision of any indenture or other material
agreement or instrument to which Capsure, the Borrower or any of the
Subsidiaries is a party or by which any of them or any of their property is or
may be bound, (ii) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture or other material agreement or instrument or (iii) except for the
Liens created by the Security Documents, result in the creation or imposition of
any Lien upon or with respect to any property or assets to be owned or hereafter
acquired by Capsure, the Borrower or any of the Subsidiaries.
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by Capsure and the Borrower and constitutes, and each other Loan
Document to which Capsure, the Borrower, any Subsidiary Guarantor or any other
Subsidiary is a party, when executed and delivered by it will constitute, a
legal, valid and binding obligation of Capsure, the Borrower, such Subsidiary
Guarantor or such Subsidiary, as the case may be, enforceable against it in
accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions, except (a) such filings
as are necessary to record and perfect the security interest created by the
Security Documents and (b) such as have been made or obtained and are in full
force and effect.
SECTION 3.05. Financial Statements. Capsure has heretofore furnished to
the Lenders (a) its consolidated and consolidating balance
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46
sheets and statements of income and changes in financial condition as of and for
the fiscal year ended December 31, 1995, prepared in accordance with GAAP and
audited by and accompanied by the opinion of Capsure's independent public
accountants on the date hereof or other independent public accountants
reasonably satisfactory to the Required Lenders, (b) the Annual Statement of
each of the Insurance Subsidiaries for the fiscal year ended December 31, 1995,
prepared in accordance with SAP and filed with such Insurance Subsidiary's
Applicable Insurance Regulatory Authority and (c) its pro forma consolidated
balance sheet as of March 31, 1996 and related statement of income for the
period April 1, 1995 to March 31, 1996, each after giving effect to the UC Sale
and the other transactions contemplated hereby. All the foregoing financial
statements that were prepared in accordance with GAAP present fairly the
financial condition and results of Capsure and its subsidiaries and all the
foregoing statements that were prepared in accordance with SAP present fairly
the statutory assets, liabilities, capital and surplus, results of operations
and cash flows of the applicable Insurance Subsidiary, in each case as of the
relevant dates and for the relevant periods. All the balance sheets described
in (a) and (b) above and the notes thereto disclose all material liabilities,
direct or contingent, of Capsure and its subsidiaries or such Insurance
Subsidiary, as the case may be, as of the dates thereof. The pro forma
financial statements described in (c) above fairly present the pro forma
consolidated financial condition of Capsure as of March 31, 1996.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of Capsure and its subsidiaries, taken as a whole, since
December 31, 1995 (it being understood that no such material adverse change
shall be deemed to have occurred solely as a result of the UC Sale).
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of
Capsure, the Borrower and the Subsidiaries has good and marketable title to, or
valid leasehold interests in, all its material properties and assets, except for
minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets are free and
clear of Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of Capsure, the Borrower and the Subsidiaries has complied in all
material respects with all obligations under all material leases to which
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it is a party and all such leases are in full force and effect. Each of
Capsure, the Borrower and the Subsidiaries enjoys peaceful and undisturbed
possession under all such leases.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the
Restatement Date a list of all subsidiaries of each of Capsure and the Borrower
and the percentage ownership interest of Capsure or the Borrower therein. All
outstanding shares of the capital stock of each Subsidiary are fully paid and
nonassessable and are owned beneficially and of record as set forth in Schedule
3.08, free and clear of all Liens and encumbrances whatsoever, except such as
are created pursuant to the Security Documents. There are no outstanding
subscriptions, options, warrants, calls, rights (including preemptive rights) or
other agreements or commitments of any nature relating to any capital stock of
any Subsidiary.
SECTION 3.09. Litigation; Compliance with Laws. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of Capsure or the
Borrower, threatened against or affecting Capsure, the Borrower or any of the
Subsidiaries or any business, property or rights of any such person (i) that
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, could individually or in the aggregate, result in a Material Adverse
Effect, other than any litigation arising in the ordinary course of business of
any Insurance Subsidiary in connection with which recourse is sought against
insurance policies or bonds issued by such Insurance Subsidiary or obligations
arising in connection with such insurance policies or bonds.
(b) None of Capsure, the Borrower or any Subsidiary is in violation of any
law, rule or regulation, nor is Capsure, the Borrower or any Subsidiary in
default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, including any Applicable Insurance Regulatory Authority
of any Insurance Subsidiary, where such violation or default could reasonably be
expected to result in a Material Adverse Effect. None of the Transactions will
violate any judgment, writ, injunction or decree of any Governmental Authority,
including any Applicable Insurance Regulatory Authority of any Insurance
Subsidiary, where such violation or default could reasonably be expected to
result in a Material Adverse Effect.
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SECTION 3.10. Agreements. (a) None of Capsure, the Borrower or any of
the Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect or an impairment of the rights of or
benefits available to the Administrative Agent or any of the other Lenders under
any Loan Document.
(b) None of Capsure, the Borrower or any of the Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could reasonably be expected to
result in a Material Adverse Effect or an impairment of the rights of or
benefits available to the Administrative Agent or any of the other Lenders under
any Loan Document.
SECTION 3.11. Federal Reserve Regulations. (a) None of Capsure, the
Borrower or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to purchase
or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose or (ii) for any purpose that entails a violation of,
or is inconsistent with, the provisions of the Regulations of the Board,
including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
None of Capsure, the Borrower or any of the Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of Capsure and its subsidiaries has filed
or caused to be filed all Federal, all state and all local tax returns
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49
required to have been filed by it and has paid or caused to be paid all taxes
shown to be due and payable on such returns or on any assessments received by
it, except taxes that are being contested in good faith by appropriate
proceedings and for which Capsure or the applicable subsidiary shall have set
aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. The information, reports,
financial statements, exhibits and schedules furnished by or on behalf of
Capsure or any of its subsidiaries to the Administrative Agent or any Lender in
connection with the negotiation of any Loan Document or included therein or
delivered pursuant thereto, when taken as a whole, did not contain, does not
contain and will not contain any material misstatement of fact and did not omit,
does not omit and will not omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading. The projections and pro forma financial
information contained in such materials are based on good faith estimates and
assumptions believed by Capsure to be reasonable as of the date such projections
and pro forma financial information were furnished by Capsure. Such pro forma
financial information was prepared in accordance with GAAP or SAP, as
applicable.
SECTION 3.16. Employee Benefit Plans. Each of Capsure, the Borrower and
each of their ERISA Affiliates is in compliance in all material respects with
the applicable provisions of ERISA and the Code and the final effective
regulations and published interpretation of general applicability thereunder. No
Reportable Event has occurred in respect of any Plan of Capsure, the Borrower or
any such ERISA Affiliate. The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed by more than $250,000 the
value of the assets of such Plan and the present value of all underfunded Plans
(based on those assumptions used to fund each such Plan) did not, as of the last
annual valuation dates applicable thereto, exceed by more than $250,000 the
value of the assets of all such underfunded Plans. None of Capsure, the
Borrower or any ERISA Affiliate has incurred any Withdrawal Liability that
materially adversely affects the financial condition of Capsure, the Borrower
and their ERISA Affiliates, taken as a whole. None of Capsure, the Borrower or
any ERISA Affiliate has received any notification that any Multiemployer Plan is
in reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization
or to be terminated where such reorganization or termination has resulted or
can
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50
reasonably be expected to result in an increase in the contributions required to
be made to such Plan that would materially and adversely affect the financial
condition of Capsure, the Borrower and their ERISA Affiliates, taken as a whole.
SECTION 3.17. Environmental and Safety Matters. Except as set forth on
Schedule 3.17, Capsure and each of its subsidiaries is in compliance in all
material respects with all applicable Environmental and Safety Laws. Except as
set forth on Schedule 3.17, neither Capsure nor any of its subsidiaries has
received notice of any material failure so to comply. Capsure's and each of its
subsidiaries' facilities do not store, release or dispose of any Hazardous
Substances in violation of any applicable Environmental and Safety Laws. Except
as set forth on Schedule 3.17, neither Capsure nor the Borrower is aware, after
reasonable inquiry, of any events, conditions or circumstances involving
environmental pollution or contamination or employee health or safety that could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.18. Security Documents. (a) The Pledge Agreement is effective
to create in favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and the proceeds thereof and,
when the stock that is to be pledged as Collateral is delivered to the
Collateral Agent, the Pledge Agreement shall constitute a fully perfected first
priority lien on, and security interest in, all right, title and interest of
Capsure, the Borrower, each Subsidiary Guarantor and each other Subsidiary party
thereto in such Collateral and the proceeds thereof, in each case prior and
superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and proceeds thereof, and when financing statements in appropriate
form are filed in the offices specified on Schedule 3.18(b), the Lien created
under the Security Agreement will constitute a fully perfected lien on, and
security interest in, all right, title and interest of Capsure, the Borrower and
each Subsidiary Guarantor party thereto in such Collateral and the proceeds
thereof, in each case prior and superior in right to any other person, other
than with respect to Liens expressly permitted by Section 6.02.
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SECTION 3.19. Absence of Certain Restrictions. Except as required by
law, rule or regulation or by any Governmental Authority, including any
Applicable Insurance Regulatory Authority, no indenture, certificate of
designation for preferred stock, agreement or instrument to which any Subsidiary
is a party will, directly or indirectly, prohibit or restrain the payment of
dividends by such Subsidiary. As of the Restatement Date, no such indenture,
certificate, agreement or instrument to which Capsure, the Borrower or any
Subsidiary is a party will require the prepayment of any amounts owed by
Capsure, the Borrower or such Subsidiary as a result of the consummation of the
Transactions.
SECTION 3.20. Reserves. All reserves and other liabilities with respect
to insurance contracts reflected in each Annual Statement or Quarterly Statement
of each Insurance Subsidiary filed with an Applicable Insurance Regulatory
Authority since December 31, 1995 or delivered to any Lender or the
Administrative Agent ("Reserve Liabilities"), (a) were determined in accordance
with generally accepted actuarial standards consistently applied, (b) were
fairly stated in accordance with sound actuarial principles, (c) were based on
actuarial assumptions that were in accordance with or more conservative than
those appropriate (in the reasonable determination of the applicable Insurance
Subsidiary) for the related insurance policies, (d) met the requirements of the
applicable insurance laws, rules and regulations of their respective states of
domicile and met in all material respects the requirements of the applicable
insurance laws, rules and regulations of each other jurisdiction in which they
are licensed to write insurance contracts and (e) reflected (on a net basis) the
related reinsurance, coinsurance and other similar agreement of such Insurance
Subsidiary. Adequate provision for all such Reserve Liabilities has been made
(under generally accepted actuarial principles consistently applied) to cover
the total amount of matured and unmatured benefits, claims and other liabilities
of such Insurance Subsidiary under all insurance policies under which such
Insurance Subsidiary has any liability (including any liability arising under or
as a result of any reinsurance, coinsurance or other similar agreement) on the
respective dates of the Annual Statements or Quarterly Statements based on
commonly accepted actuarial assumptions as to future contingencies that are
reasonable and appropriate under the circumstances.
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ARTICLE IV
CONDITIONS OF LENDING
The effectiveness of this Amended and Restated Credit Agreement and the
obligations of the Lenders to make Loans hereunder (the effectiveness hereof and
each making of a Loan, a "Credit Event") are subject to the satisfaction of the
following conditions:
SECTION 4.01. All Credit Events. On the date of each Credit Event,
including each Borrowing in which Loans are refinanced with new Loans as
contemplated by Section 2.02(e):
(a) The Administrative Agent shall have received a notice of such
Credit Event as required by Section 2.03.
(b) The representations and warranties set forth in Article III
hereof (except in the case of a refinancing that does not increase the
aggregate principal amount of Loans outstanding) shall be true and correct
in all material respects on and as of the date of such Credit Event with
the same effect as though made on and as of such date, except to the extent
such representations and warranties expressly relate to an earlier date.
(c) Each of Capsure, the Borrower, each Subsidiary Guarantor and each
other Subsidiary shall be in compliance in all material respects with all
the terms and provisions set forth herein and in each other Loan Document
on its part to be observed or performed, and at the time of and immediately
after such Borrowing no Event of Default or Default shall have occurred and
be continuing.
(d) In the case of any Borrowing other than a Borrowing the proceeds
of which are to be used for general corporate purposes in the ordinary
course of the Borrower's business (including funding the working capital
requirements of the Borrower and the Subsidiaries), no person or group
(within the meaning of Rule 13d-5 of the Securities and Exchange Commission
as in effect on the date hereof) other than the Zell Entities shall own,
directly or indirectly, beneficially or of record, shares representing more
than 50% of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of Capsure.
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Each Credit Event shall be deemed to constitute a representation and
warranty by Capsure and the Borrower on the date of such Borrowing as to the
matters specified in paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Credit Event. On the Restatement Date:
(a) Each Lender shall have received a duly executed Note complying
with the provisions of Section 2.04.
(b) The Administrative Agent shall have received a favorable written
opinion of Rosenberg & Liebentritt, P.C., counsel for Capsure and the
Borrower, to the effect set forth in Exhibit D hereto, dated the
Restatement Date and addressed to the Administrative Agent and the Lenders,
and Capsure and the Borrower hereby instruct such counsel to deliver such
opinion to the Administrative Agent.
(c) All legal matters incident to this Agreement and the Borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Administrative Agent.
(d) The Administrative Agent shall have received (i) a certificate as
to the good standing of each of Capsure, the Borrower and each Subsidiary
Guarantor requested by the Administrative Agent as of a recent date from
the Secretary of State of the state of its organization; (ii) a certificate
of the Secretary or Assistant Secretary of Capsure, the Borrower and each
Subsidiary Guarantor dated the Restatement Date and certifying (A) that
attached thereto is a true and complete copy of the certificate or articles
of incorporation and by-laws of Capsure, the Borrower or such Subsidiary
Guarantor, as the case may be, as in effect on the Restatement Date and at
all times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of Capsure, the Borrower
or such Subsidiary Guarantor, as the case may be (or a duly authorized
committee thereof), authorizing the execution, delivery and performance of
the Loan Documents and the borrowings hereunder, and that such resolutions
have not been modified, rescinded or amended and are in full force and
effect as of the Restatement Date and (C) as to the incumbency and specimen
signature of each officer executing any Loan Document or any other document
delivered in connection
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herewith on behalf of Capsure, the Borrower or such Subsidiary Guarantor,
as the case may be; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other
documents as the Lender or their counsel or Cravath, Swaine & Moore,
counsel for the Administrative Agent, may reasonably request.
(e) The Administrative Agent shall have received a certificate, dated
the Restatement Date and signed by a Financial Officer of each of Capsure
and the Borrower, confirming (i) compliance with the conditions precedent
set forth in paragraphs (b) and (c) of Section 4.01, (ii) pro forma
compliance with the financial covenants set forth in Sections 6.13, 6.14,
6.15 and 6.16 hereof, as of the Restatement Date and after giving effect to
the UC Sale, the payment of the Special Dividend and the other transactions
contemplated hereby and (iii) that the actual sources and uses of the funds
used to consummate the transactions contemplated hereby on or prior to the
Restatement Date are consistent in all material respects with the proposed
sources and uses previously provided to the Lenders.
(f) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Restatement Date and the
Administrative Agent shall have received, on behalf of the lenders under
the Existing Credit Facility, all fees payable pursuant to Section 2.05 of
the Existing Credit Facility for all periods ending on or prior to the
Restatement Date.
(g) The Collateral Agent shall have received an acknowledgment signed
by Capsure, the Borrower and each of its Subsidiaries stating that:
(i) The Pledge Agreement has been duly executed by the parties
thereto and delivered to the Collateral Agent and is in full force and
effect, and all the outstanding capital stock of the Borrower and each
of Western Surety and the other Subsidiaries listed on Schedule
4.02(g) has been duly and validly pledged thereunder to the Collateral
Agent for the ratable benefit of the Secured Parties and certificates
representing such shares, accompanied by instruments of transfer and
stock powers endorsed in blank, are in the actual possession of the
Collateral Agent.
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(ii) The Security Agreement has been duly executed by Capsure,
the Borrower, the Subsidiary Guarantors and the Collateral Agent and
is in full force and effect, and each document (including each Uniform
Commercial Code financing statement) required by law or reasonably
requested by the Administrative Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid and perfected first priority
security interest in or lien on the Collateral described in such
agreement has been delivered to the Collateral Agent.
(iii) The Guarantee Agreement has been duly executed by the
Subsidiary Guarantors and delivered to the Collateral Agent, and is in
full force and effect.
(iv) The Indemnity, Subrogation and Contribution Agreement has
been duly executed by the Borrower and the Subsidiary Guarantors and
delivered to the Collateral Agent, and is in full force and effect.
(v) The Perfection Certificate with respect to each of Capsure,
the Borrower and the Subsidiary Guarantors dated the Closing Date and
duly executed by a Financial Officer of each of Capsure and the
Borrower is accurate and complete in all respects.
(h) All amounts due under the Existing Credit Facility shall have
been repaid in full, the commitments thereunder shall have been assigned
pursuant to the Amendment Agreement, and the Amendment Agreement shall be
in full force and effect.
(i) The Lenders shall be reasonably satisfied with the terms and
conditions for Capsure's payment of the Special Dividend.
(j) All requisite Governmental Authorities and third parties shall
have approved or consented to (or, if applicable law or regulation provides
that approval or consent of the requisite Governmental Authority shall be
deemed to have been granted if no disapproval is issued within a specified
period, such Governmental Authority did not disapprove within such
specified period) the Transactions and the other transactions contemplated
hereby to the extent required, all
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applicable appeal periods shall have expired and there shall be no
governmental or judicial action, actual or threatened, that has or would
have a reasonable likelihood of restraining, preventing or imposing
burdensome conditions on the Transactions or the other transactions
contemplated hereby.
(k) There shall be no litigation or administrative proceedings or
other legal or regulatory developments with respect to Capsure or any of
its subsidiaries (including any governmental policy or initiative relating
to insurance), actual or overtly threatened, that, in the reasonable
judgment of the Lenders, could reasonably be expected to result in a
Material Adverse Effect or an impairment of the rights of or benefits
available to the Administrative Agent or any of the other Lenders under any
Loan Document.
(l) There shall have been no material adverse change with respect to
the business, assets, financial condition, prospects or material agreements
of Capsure and its subsidiaries, taken as a whole, since December 31, 1995
(it being understood that no such material adverse change shall be deemed
to have occurred solely as a result of the UC Sale).
(m) The Lenders shall have received a reasonably satisfactory
consolidated balance sheet and income statement of Capsure and its
subsidiaries as of and for the year ended December 31, 1995.
(n) The Lenders shall be reasonably satisfied (i) that the
transactions contemplated hereby (including, without limitation, any
modification of the Tax Sharing Agreements upon the consummation of the UC
Sale) will not materially adversely affect the tax position (including,
without limitation, the amount of Available Net Operating Losses of the
Borrower, Capsure and their respective subsidiaries) and (ii) with all
other material legal, tax and accounting matters relating to this Agreement
and the other transactions contemplated hereby.
(o) The Lenders shall be reasonably satisfied with the nature and
amount of any contingent liabilities of Capsure and its subsidiaries
(including environmental, pension and tax liabilities) and the amount of
reserves established by Capsure and its subsidiaries in connection
therewith.
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(p) The Lenders shall be reasonably satisfied with the amount, terms
and provisions of all Indebtedness of Capsure and its subsidiaries that
will be outstanding as of the Restatement Date.
(q) The UC Sale shall have been consummated in accordance with
applicable law, the Stock Purchase Agreement and related documentation
reasonably satisfactory to the Lenders.
(r) The sum of (i) the net cash proceeds of the UC Sale and (ii) the
amount of excess capital and surplus of United Capitol that are released
and paid to the Borrower as a cash dividend prior to or simultaneously with
the UC Sale, shall be at least $65,000,000.
(s) The conditions to closing set forth in the Stock Purchase
Agreement shall have been satisfied without giving effect to any waiver or
amendment adverse to the Lenders not approved by the Lenders.
ARTICLE V
AFFIRMATIVE COVENANTS
Each of the Borrower and Capsure covenants and agrees with each Lender and
the Administrative Agent that so long as this Agreement shall remain in effect
or the principal of or interest on any Loan, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, each of the Borrower and Capsure
will, and will cause each of its subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is currently conducted and operated (or, in
the case of any business acquired in a Permitted Acquisition, in substantially
the manner in which it is conducted and operated on the date on
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which such Permitted Acquisition is consummated), which, in the case of any
Insurance Subsidiary, may include the underwriting of property and casualty
lines of business not currently underwritten by such person; comply in all
material respects with all applicable laws, rules, regulations and orders of any
Governmental Authority, whether now in effect or hereafter enacted; and at all
times maintain and preserve all property material to the conduct of such
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
SECTION 5.02. Insurance. Keep its insurable properties adequately insured
at all times by financially sound and reputable insurers; maintain such other
insurance to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies in the same
or similar businesses, including public liability insurance against claims for
personal injury or death or property damage occurring upon, in, about or in
connection with the use of any properties owned, occupied or controlled by it;
maintain sufficient insurance so that neither any Insurance Subsidiary nor any
other Subsidiary will be considered a co-insurer or co-insurers; maintain such
other insurance as may be required by law; and cause each insurance policy that
is required by this Section 5.02 and insures any of the Collateral to be
endorsed or otherwise amended to include a lender's loss payable endorsement
(except in the case of liability policies) in form and substance reasonably
satisfactory to the Collateral Agent and to name the Collateral Agent as an
additional insured.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other
obligations promptly and in accordance with its terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided, however,
that such payment and discharge shall not be required with respect to any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and Capsure or the
applicable subsidiary thereof shall have set aside on its books, in accordance
with GAAP, adequate reserves with respect thereto.
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SECTION 5.04. Financial Statements, Reports, Etc. Furnish to the
Administrative Agent and each Lender:
(a) within 105 days after the end of each fiscal year, its
consolidated and consolidating balance sheets and related statements of
income and changes in financial position, showing the financial condition
of Capsure and its subsidiaries as of the close of such fiscal year and the
results of their operations during such year, all audited by Coopers &
Lybrand or other independent public accountants of recognized national
standing acceptable to the Required Lenders and accompanied by an opinion
of such accountants (which shall not be qualified in any material respect)
to the effect that such consolidated financial statements fairly present
the financial condition and results of operations of Capsure on a
consolidated basis in accordance with GAAP consistently applied;
(b) within 50 days after the end of each of the first three fiscal
quarters of each fiscal year, the consolidated and consolidating balance
sheets and related statements of income and changes in financial position,
showing the financial condition of Capsure and its subsidiaries as of the
close of such fiscal quarter and the results of their operations during
such fiscal quarter and the then elapsed portion of the fiscal year, all
certified by a Financial Officer of each of Capsure and the Borrower as
fairly presenting the financial condition and results of operations of
Capsure on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
paragraph (a) or (b) above, a certificate of the accounting firm or
Financial Officers opining on or certifying such statements (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
(i) certifying that no Event of Default or Default has occurred or, if such
an Event of Default or Default has occurred, specifying the nature and
extent thereof and any corrective action taken or proposed to be taken with
respect thereto and (ii) setting forth computations in detail reasonably
satisfactory to the Administrative Agent demonstrating compliance with the
covenants contained in Sections 5.13, 6.13, 6.14, 6.15 and 6.16;
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(d) as soon as available and in any event within 105 days after the
end of each fiscal year, (i) the Statement of Actuarial Opinion of each
Insurance Subsidiary for such fiscal year and as filed with the Applicable
Insurance Regulatory Authority and (ii) the Annual Statement of each
Insurance Subsidiary for such fiscal year and as filed with the Applicable
Insurance Regulatory Authority, together with, in the case of the
statements delivered pursuant to clause (ii) above, a certificate of a
Responsible Officer of the Borrower to the effect that such statements
present fairly the statutory assets, liabilities, capital and surplus,
results of operations and cash flows of such Insurance Subsidiary in
accordance with SAP;
(e) as soon as available and in any event within 50 days after the end
of each of the first three fiscal quarters of each fiscal year, the
Quarterly Statement of each Insurance Subsidiary for such fiscal quarter
and as filed with the Applicable Insurance Regulatory Authority, certified
by a Responsible Officer of the Borrower as fairly presenting the statutory
assets, liabilities, capital and surplus, results of operations and cash
flows of such Insurance Subsidiary;
(f) as soon as available and in any event at least once each fiscal
year and no later than 30 days after the completion thereof, an actuarial
report of each Insurance Subsidiary, prepared by any independent actuarial
or accounting firm of nationally recognized standing acceptable to the
Required Lenders;
(g) promptly after delivery to an Insurance Subsidiary, final copies
of all regular and periodic reports of examinations of such Insurance
Subsidiary, delivered to such Insurance Subsidiary by the Applicable
Insurance Regulatory Authority;
(h) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
it (and any filing on Schedule 13D or Schedule 13G with respect to the
ownership of Capsure's equity securities) with the Securities and Exchange
Commission, or any governmental authority succeeding to any of or all the
functions of said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be;
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(i) upon the request of the Administrative Agent or the Required
Lenders, and promptly following the preparation thereof, copies of each
management letter prepared by Capsure's auditors (together with any
response thereto prepared by Capsure);
(j) as soon as available, and in any event no later than 105 days
after the end of each fiscal year, a revised Schedule 3.20 as of such date,
and, upon the request of the Administrative Agent or the Required Lenders,
copies of any Reinsurance Agreement of any Insurance Subsidiary;
(k) as soon as available, and in any event no later than 105 days
after the end of each fiscal year, forecasted financial projections and
summary data through the end of the then-current fiscal year, including a
specification of the underlying assumptions, all certified by a Financial
Officer of each of Capsure and the Borrower to be a fair summary of results
and a good faith estimate of the forecasted financial projections and
results of operations for such year;
(l) at least ten Business Days prior to any Permitted Acquisition,
financial projections covering the period from the date of such Permitted
Acquisition through the Maturity Date giving effect to such Permitted
Acquisition and demonstrating compliance by Capsure and its subsidiaries on
a pro forma basis with the covenants in Article VI from and after the date
of, and after giving effect to, such Permitted Acquisition through the
Maturity Date;
(m) promptly after receipt thereof, copies of any notices or other
communications received by it with respect to the Pledged Securities (as
defined in the Pledge Agreement);
(n) at least 10 days' prior written notice of the payment of any
dividend, distribution or other payment by the Borrower to Capsure or by
Capsure to any holder of its capital stock if such dividend, distribution
or payment will result in a reduction in the Commitments under Section
2.09(c);
(o) no later than 105 days after the end of each fiscal year and
within 10 days after any filing on Schedule 13D or Schedule 13G with
respect to the ownership of Capsure's equity securities, a certificate of a
Financial Officer and the chief legal officer of Capsure certifying that
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since the Restatement Date there has been no "ownership change" within the
meaning of Section 382(g) of the Code;
(p) no later than 50 days after the end of each of the first three
fiscal quarters of each fiscal year and 105 days after the end of the last
fiscal quarter of each fiscal year, a certificate of a Responsible Officer
of each of Capsure and the Borrower setting forth the aggregate amount of
dividends, distributions and other payments paid by Capsure and the
Borrower during such fiscal quarter and the aggregate cost basis of the
Excluded Investment as of the last day of such fiscal quarter; and
(q) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of Capsure or its
subsidiaries, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent and each Lender written notice of the following promptly after any
Responsible Officer of Capsure or the Borrower obtains knowledge thereof:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(b) the filing or commencement of any action, suit or proceeding,
whether at law or in equity or by or before any Governmental Authority,
against Capsure, the Borrower or any Subsidiary that, if adversely
determined, could result in a Material Adverse Effect (other than any
litigation arising in the ordinary course of business of any Insurance
Subsidiary in connection with which recourse is sought against insurance
policies or bonds issued by such Insurance Subsidiary or obligations
arising in connection with such insurance policies or bonds);
(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect; and
(d) any "ownership change" within the meaning of Section 382(g) of the
Code.
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SECTION 5.06. Employee Benefits. (a) Comply in all material respects
with the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent and each Lender (i) as soon as possible after, and in any
event within 30 days after any Responsible Officer of Capsure, the Borrower or
any of their ERISA Affiliates knows or has reason to know that, any Reportable
Event has occurred that alone or together with any other Reportable Event could
reasonably be expected to result in liability of Capsure, the Borrower or any
Subsidiary Guarantor to the PBGC in an aggregate amount exceeding $250,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such Reportable Event and the action that Capsure, the Borrower or such
Subsidiary Guarantor proposes to take with respect thereto, together with a copy
of the notice, if any, of such Reportable Event given to the PBGC, (ii) promptly
after receipt thereof, a copy of any notice that Capsure, the Borrower or any of
their ERISA Affiliates may receive from the PBGC relating to the intention of
the PBGC to terminate any Plan or Plans (other than a Plan maintained by an
ERISA Affiliate that is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414) or to appoint a trustee to administer
any such Plan, (iii) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code a notice of failure to make a required
installment or other payment with respect to a Plan, a statement of a Financial
Officer of the Borrower setting forth details as to such failure and the action
that Capsure, the Borrower or any ERISA Affiliate proposes to take with respect
thereto, together with a copy of any such notice given to the PBGC and (iv)
promptly and in any event within 30 days after receipt thereof by Capsure, the
Borrower or such ERISA Affiliate from the sponsor of a Multiemployer Plan, a
copy of each notice received by Capsure, the Borrower or any ERISA Affiliate
concerning (A) the imposition of Withdrawal Liability or (B) a determination
that a Multiemployer Plan is, or is expected to be, terminated or in
reorganization, both within the meaning of Title IV of ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Maintain all financial records in accordance with GAAP and, with respect to any
Insurance Subsidiary, SAP, and, upon reasonable notice, permit any
representatives designated by any Lender to visit and inspect the financial
records and the properties of Capsure or any of its subsidiaries at reasonable
times and as often as requested and to make extracts from and copies of such
financial records, and permit any representatives designated by any Lender to
discuss the affairs, finances and condition of Capsure or any of its
subsidiaries with the officers thereof and, in the presence of
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representatives of Capsure if requested by Capsure, independent accountants
therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for the
purposes set forth in the preamble to this Agreement.
SECTION 5.09. Further Assurances. (a) Execute and cause to be executed
any and all further documents, financing statements, agreements and instruments,
and take all further action (including (i) filing Uniform Commercial Code and
other financing statements, (ii) executing and delivering a Mortgage and (iii)
executing and delivering a Pledgeholder Agreement) that may be required under
applicable law, or which the Required Lenders, the Administrative Agent or the
Collateral Agent may reasonably request, in order to effectuate the transactions
contemplated by the Loan Documents and in order to grant, preserve, protect and
perfect the validity and first priority of the security interests or liens
created or intended to be created by the Security Documents. Each of Capsure
and the Borrower agrees to provide such evidence as the Required Lenders shall
reasonably request as to the perfection and priority status of such security
interests and Lien.
(b) Cause each subsidiary created, and (to the extent required by Section
6.05(c)(ii)) each subsidiary acquired, by the Borrower or its subsidiaries from
time to time in accordance with the terms of this Agreement and each existing
Subsidiary (to the extent required by Section 6.05(c)(ii) and to the extent not
a party thereto at such time) that acquires stock or assets in a Permitted
Acquisition (A) to undertake the obligation of and to become a Subsidiary
Guarantor under the Guarantee Agreement pursuant to one or more instruments or
agreements substantially in the form of Annex 1 to the Guarantee Agreement, (B)
to undertake the obligation of and to become a Subsidiary Guarantor under the
Indemnity, Subrogation and Contribution Agreement pursuant to one or more
instruments or agreements substantially in the form of Annex 1 thereto, (C) to
undertake the obligation of and to become a Grantor under the Security Agreement
pursuant to one or more instruments or agreements substantially in the form of
Annex 1 to the Security Agreement, (D) to undertake the obligation of and to
become a Pledgor under the Pledge Agreement pursuant to one or more instruments
or agreements substantially in the form of Annex 1 to the Pledge Agreement, (E)
to undertake the obligation of and become a Mortgagor under a Mortgage if such
subsidiary acquires real property in such Permitted Acquisition and (F) to
undertake the obligation of and become a Pledgor under a Pledgeholder
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Agreement to the extent required by Section 5.14 and allege or cause to be
pledged the shares of capital stock of any such created or acquired subsidiary
(other than the capital stock of any acquired subsidiary, the stock of which may
not be pledged due to any applicable insurance regulatory prohibition on such a
pledge) to the Collateral Agent for the benefit of the Lenders pursuant to the
Pledge Agreement or one or more agreements substantially in the form of Annex I
to the Pledge Agreement.
(c) Use its best efforts to obtain (as soon as the same practicably may be
obtained) any approvals required in order for any subsidiary of an Insurance
Subsidiary to grant any security interest or lien contemplated by Section
6.05(c)(ii)(E).
SECTION 5.10. Environmental and Safety Laws. (a) Comply with all
Environmental and Safety Laws and obtain and comply with and maintain any and
all licenses, approvals, registrations or permits required by Environmental and
Safety Laws, except to the extent that failure so to comply or to obtain and
comply with and maintain such licenses, approvals, registrations and permits
does not have, and could not reasonably be expected to result in, a Material
Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions, required under
Environmental and Safety Laws and promptly comply with all lawful orders and
directives of all Governmental Authorities in respect of Environmental and
Safety Laws, except to the extent that the same are being contested in good
faith by appropriate proceedings, the pendency of which would not have a
Material Adverse Effect.
(c) Notify the Administrative Agent and the Lenders of any of the
following that is reasonably likely to have a Material Adverse Effect:
(i) any Environmental Claim received by Capsure or any of its
subsidiaries, including any such Environmental Claim seeking to cause
Capsure of any of its subsidiaries to take or pay for any remedial,
removal, response or cleanup or other action with respect to any Hazardous
Substance contained on any property owned or leased by Capsure or any of
its subsidiaries;
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(ii) any notice of any alleged violation of or knowledge by Capsure or
any of its subsidiaries of a condition that might reasonably result in a
violation of any Environmental and Safety Law; and
(iii) any commencement or threatened commencement of any judicial or
administrative proceeding or investigation alleging a violation or
potential violation of any requirement of any Environmental and Safety Law
by Capsure or any of its subsidiaries.
SECTION 5.11. Risk-Based Capital. Cause each Insurance Subsidiary to
maintain at all times Risk-Based Capital in an amount in excess of the level at
which the Applicable Insurance Regulatory Authority may issue a corrective order
or take any other action the effect of which is substantially equivalent to the
issuance of a corrective order.
SECTION 5.12. Insurance Regulatory Information System. Cause each
Insurance Subsidiary to comply in all material respects with the requirements of
the Insurance Regulatory Information System.
SECTION 5.13. Investment Ratios. (a) Cause all Invested Assets (other
than (i) Excluded Investments and (ii) investments in the capital stock of any
subsidiary, so long as such person owns, directly, beneficially and of record,
shares representing at least 80% of the shares of each class of capital stock of
such subsidiary before giving effect to such investment) owned by it or any of
its subsidiaries (other than the Insurance Subsidiaries) to be in the form of
cash, Cash Equivalents and Permitted Investments.
(b) Cause at any time at least 90% of the Invested Assets of each
Insurance Subsidiary (excluding investments in the capital stock of subsidiaries
of such Insurance Subsidiary) to constitute Investment Grade Securities, cash
and Cash Equivalents.
(c) Cause each Insurance Subsidiary to own at any time Invested Assets
(excluding investments in United States Government Securities), of which no
single Invested Asset equals or exceeds 5% (or, in the case of any Invested
Asset that is in the form of a Cash Equivalent, 6%) of the value of all Invested
Assets owned by such Insurance Subsidiary at such time.
SECTION 5.14. Deposit and Investment Accounts. (a) In the case of the
Borrower, establish not later than 30 days after the Restatement Date and
thereafter maintain, and, in the case of the Borrower and its subsidiaries,
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cause each Subsidiary Guarantor (other than any Subsidiary Guarantor that is a
subsidiary of any Insurance Subsidiary) to establish not later than 30 days
after the Restatement Date and thereafter maintain, all its collection or
deposit accounts with the Collateral Agent.
(b) (i) In the case of the Borrower, execute and deliver, and, in the case
of the Borrower and its subsidiaries, cause each of Pin Oak Petroleum, Inc. and
NI Acquisition Corp. to execute and deliver, to the Collateral Agent an
effective Pledgeholder Agreement not later than 30 days after the Restatement
Date and (ii) in the case of the Borrower, execute and deliver, and, in the case
of the Borrower and its subsidiaries, cause each Subsidiary Guarantor (other
than any Subsidiary Guarantor that is an Insurance Subsidiary or a subsidiary of
any Insurance Subsidiary) to execute and deliver, to the Collateral Agent an
effective Pledgeholder Agreement substantially contemporaneously with the
establishment by any such person after the date hereof of any brokerage,
investment, money market or similar account with any person other than the
Collateral Agent.
SECTION 5.15. Fiscal Year. Cause its fiscal year to end on December 31 of
each year.
ARTICLE VI
NEGATIVE COVENANTS
Each of the Borrower and Capsure covenants and agrees with each Lender and
the Administrative Agent that so long as this Agreement shall remain in effect
or the principal of or interest on any Loan, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, the Borrower and Capsure will not,
and will not cause or permit any of their respective subsidiaries to:
SECTION 6.01. Indebtedness. Incur, create, issue, assume, guarantee or
permit to exist any Indebtedness, except:
(a) Indebtedness existing on the date hereof and set forth on Schedule
6.01, but not any extensions, renewals, replacements or refinancings of
such Indebtedness;
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(b) in the case of the Borrower, Indebtedness consisting of the
Borrowings hereunder;
(c) in the case of the Borrower or any of its wholly owned
Subsidiaries, Indebtedness assumed or incurred in connection with any
Permitted Acquisition, so long as such Indebtedness is permitted to be so
assumed or incurred under Section 6.05(c)(ii);
(d) in the case of Capsure, its guarantee of the Obligations pursuant
to Article VIII;
(e) in the case of each Subsidiary Guarantor, its guarantee of the
Obligations pursuant to the Guarantee Agreement; and
(f) in the case of Capsure, the Borrower or any Subsidiary of the
Borrower (other than any Insurance Subsidiary), Indebtedness incurred in
connection with Rate Protection Agreements entered into by Capsure, the
Borrower or any Subsidiary of the Borrower (other than any Insurance
Subsidiary) to provide protection to the Borrower or Capsure against
fluctuations in interest rates in respect of Loans under this Agreement.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect thereof, except:
(a) Liens on property or assets existing on the date hereof and set
forth on Schedule 6.02, provided that such Liens shall secure only those
obligations that they secure on the date hereof;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any wholly owned Subsidiary,
provided that (i) it is not created in contemplation of or in connection
with such acquisition, (ii) such Lien does not apply to any other property
or assets of Capsure or its subsidiaries and (iii) such Lien secures
Indebtedness permitted by Section 6.01(c);
(c) Liens for taxes not yet due or that are being contested in
compliance with Section 5.03;
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(d) carriers', warehousemen's, mechanic's, materialmen's or other like
Liens arising in the ordinary course of business and securing obligations
that are not due or that are being contested in compliance with Section
5.03;
(e) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations other than in respect of employee
benefit plans subject to ERISA;
(f) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations (including reserves held by or deposited with
regulatory agencies or guaranty funds), surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(g) zoning restrictions, easements, servitudes, restrictions on use of
real property and other similar encumbrances incurred in the ordinary
course of business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of Capsure
or any of its subsidiaries;
(h) Liens contemplated by the Security Documents; and
(i) extensions, renewals and replacements of Liens referred to in
clauses (a) and (b) above; provided that any such extension, renewal or
replacement Lien is limited to the property or assets covered by the Lien
extended, renewed or replaced and does not secure any Indebtedness in
addition to that secured immediately prior to such extension, renewal or
replacement.
SECTION 6.03. Sale and Leaseback Transactions. Enter into any arrangement
(a "Sale and Leaseback Transaction"), directly or indirectly, with any person
whereby it shall sell or transfer any property, real or personal, used or useful
in its business, whether now owned or hereafter acquired, and thereafter rent or
lease such property or other property which it intends to use for substantially
the same purpose or purposes as the property being sold or transferred, provided
that the Borrower or any Subsidiary may, in the ordinary course of business,
enter into any Sale and
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Leaseback Transaction involving automobiles or office equipment if, after giving
effect to such Sale and Leaseback Transaction, the aggregate purchase price of
all property subject to Sale and Leaseback Transactions does not exceed
$1,000,000.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:
(a) investments existing on the date hereof;
(b) investments by the Borrower, any Subsidiary Guarantor or any
Insurance Subsidiary in the capital stock of any Insurance Subsidiary, so
long as such capital stock has been pledged to the Collateral Agent under
the Pledge Agreement;
(c) investments permitted under Section 5.13;
(d) in the case of any Guarantor, any Guarantee permitted by Section
6.01 hereof,
(e) investments by the Borrower or any of its wholly owned
Subsidiaries in capital stock in connection with Permitted Acquisitions so
long as the Borrower, such wholly owned Subsidiary and any subsidiary
formed or acquired in connection with such Permitted Acquisition shall have
complied with Section 5.09;
(f) in the case of Capsure, the Borrower and the Subsidiaries (other
than any Insurance Subsidiary), investments ("Excluded Investments") having
a cost basis not in excess of $15,000,000 in the aggregate at any time less
the sum, without duplication, of (i) the amount of dividends, distributions
or other payments made by Capsure or the Borrower to any holder of its
capital stock (other than the Special Dividend, Tax Sharing Payments or
dividends made to enable Capsure to pay expenses pursuant to Section
6.06(c)(i)) since the Restatement Date and (ii) the amount expended by
Capsure to repurchase, retire, redeem or otherwise acquire shares of its
capital stock since the Restatement Date; and
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(g) investments arising or acquired in connection with Rate Protection
Agreements to the extent permitted under Section 6.01(f).
SECTION 6.05. Mergers, Consolidations and Acquisitions. Merge into or
consolidate with any other person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) any of its assets (whether now owned
or hereafter acquired) or any capital stock of any subsidiary, or purchase,
lease or otherwise acquire (in one transaction or a series of transactions) all
or any substantial part of the capital stock or assets of any other person,
except that (a) the Borrower and any Subsidiary may purchase and sell, transfer,
lease or otherwise dispose of assets (including Invested Assets to the extent
permitted hereunder) in the ordinary course of business on an arm's-length
basis, (b) Capsure may purchase and sell, transfer, lease or otherwise dispose
of Invested Assets to the extent permitted hereunder and (c) if at the time
thereof and immediately after giving effect thereto no Event of Default or
Default shall have occurred and be continuing:
(i) (A) any wholly owned Subsidiary of the Borrower may merge into the
Borrower in a transaction in which the Borrower is the surviving
corporation and (B) any wholly owned Subsidiary (other than any Insurance
Subsidiary) may merge into or consolidate with any other wholly owned
Subsidiary (other than any Insurance Subsidiary) in a transaction in which
the surviving entity is a wholly owned Subsidiary and no person other than
the Borrower or a wholly owned Subsidiary receives any consideration; and
(ii) the Borrower or any of its wholly owned Subsidiaries (other than,
except as contemplated by clause (C)(II) below, any Insurance Subsidiary)
may make acquisitions of assets or capital stock, so long as (A) such
acquisition shall not have been preceded by an unsolicited tender offer for
such capital stock by Capsure or any of its Affiliates (it being understood
that an unsolicited bid letter or other unsolicited expression of interest
in an acquisition shall not constitute an unsolicited tender offer); (B)
such acquisition and all transactions related thereto shall be consummated
in accordance with applicable laws, including insurance laws and
regulations and Regulations of the Board; (C) such acquisition shall
constitute an acquisition of all or a portion of the assets of, or 100% of
the common stock of, a corporation engaged in the Insurance Business (other
than (I) acquisitions of all or a portion of the assets of, or 100% of the
common stock of,
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corporations primarily engaged in the financial services business, the
aggregate consideration paid in connection with which does not (when added
together with all other acquisitions since the Restatement Date of all or a
portion of the assets of, or 100% of the common stock of, corporations
primarily engaged in the financial services business) exceed $10,000,000
and (II) acquisitions by any Insurance Subsidiary of all or a portion of
the assets of, or 100% of the common stock of, an insurance agency of such
Insurance Subsidiary); (D) simultaneously with the acquisition thereof, all
capital stock acquired in connection with such acquisition shall be duly
and validly pledged to the Collateral Agent for the ratable benefit of the
Secured Parties (other than the capital stock of any acquired Subsidiary,
the stock of which may not be pledged due to an applicable insurance
regulatory prohibition on such a pledge); (E)(I) a valid and perfected
first priority security interest or lien in favor of the Collateral Agent
for the ratable benefit of the Secured Parties shall be created in all
assets acquired in connection with such acquisition, (x) in the case of any
acquisition by the Borrower or any Subsidiary (other than any Insurance
Subsidiary and any subsidiary of an Insurance Subsidiary), simultaneously
with the acquisition thereof or (y) in the case of any acquisition by an
Insurance Subsidiary or by a subsidiary of an Insurance Subsidiary, to the
extent permitted by, and as soon as practicable after receipt of any
approval required under, applicable law, ordinance or regulation and (II) a
valid and perfected first priority security interest or lien in favor of
the Collateral Agent for the ratable benefit of the Secured Parties shall
be created in all the assets of any Subsidiary (other than any Insurance
Subsidiary or any subsidiary of an Insurance Subsidiary, in each case
except to the extent permitted by and as soon as practicable after receipt
of any approval required under, applicable law, ordinance or regulation),
the capital stock of which is acquired in connection with such acquisition,
and any acquiring subsidiary or acquired or created Subsidiary that is
required to grant a security interest or lien under this clause (E) shall
become (to the extent not a party thereto at such time) a Grantor under the
Security Agreement, a Pledgor under the Pledge Agreement and a Subsidiary
Guarantor under the Guarantee Agreement and the Indemnity, Subrogation and
Contribution Agreement, in each case in accordance with Section 5.09, and
the Borrower and any subsidiary shall execute and/or deliver any documents,
financing statements, agreements and instruments (including a Mortgage, a
Pledgeholder Agreement and, if requested by the Collateral Agent, an
appraisal of any real property acquired in such
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acquisition) and take all action (including filing Uniform Commercial Code
and other financing statements) that may be required under applicable law,
or that the Collateral Agent may request, in order to grant, preserve,
protect and perfect any security interest or lien contemplated by this
clause (E); (F) no capital stock or assets acquired in connection with such
acquisition shall be subject to any Lien (other than Liens permitted by
Section 6.02(b), (d) or (g)); (G) neither the Borrower nor any Subsidiary
may assume or incur, directly or indirectly, any Indebtedness or other
liability (including any contingent liability) in connection with such
acquisition (other than (I) the Borrowings hereunder used to finance all or
part of the purchase price of such acquisition, (II) liabilities in the
ordinary course of business of the acquired business in an amount not in
excess of $2,000,000, provided that the aggregate amount of liabilities
assumed by the Borrower and the Subsidiaries, collectively, under this
clause (G) (II) shall not exceed $10,000,000 since the Restatement Date and
(III) Insurance Liabilities incurred in the ordinary course of business of
the acquired business), (H) Capsure and its subsidiaries shall satisfy, on
a pro forma basis as of the date on which such acquisition is consummated,
after giving effect to such acquisition as if it had occurred on the first
day of the most recently completed period of four consecutive fiscal
quarters preceding the date on which such acquisition is consummated, the
covenants set forth in Sections 5.11, 5.13, 6.13, 6.14, 6.15 and 6.16; (I)
after giving effect to such acquisition, there shall not have occurred any
Material Adverse Effect; and (J) the person to be acquired, or from which
any assets are acquired, shall have had taxable income for (I) at least one
of its preceding two fiscal years and (II) at least three of its preceding
five fiscal years, in each case after giving effect to pro forma
adjustments (including adjustments attributable to purchasing only a
portion of the assets of such person) such that such taxable income will be
increased or decreased, as the case may be, by (A) extraordinary
compensation paid during the applicable period, (B) to the extent that
there are Available Net Operating Losses at the determination date, the
amount of income lost by such person during the applicable period as a
result of investing in tax-exempt securities as opposed to taxable
securities, (C) amounts paid pursuant to reinsurance arrangements during
the applicable period, (D) management fees or other payments to Affiliates
during the applicable period, (E) Interest Expense during the applicable
period related to Indebtedness discharged prior to or concurrently with the
acquisition of such person by the Borrower or
<PAGE> 80
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any of its wholly owned Subsidiaries and (F) income lost during the
applicable period due to the tax treatment of purchased intangibles (but
only if such tax treatment will not result in an increase in the tax
liability of Capsure or its subsidiaries after the acquisition of such
person or from such person is consummated) (any acquisition satisfying each
of the criteria set forth in this sentence is referred to herein as a
"Permitted Acquisition").
SECTION 6.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities (other than additional
capital stock of the Borrower, as long as such capital stock is pledged to the
Collateral Agent under the Pledge Agreement) or a combination thereof, with
respect to any shares of the Borrower's capital stock or, in the case of the
Borrower and its subsidiaries, directly or indirectly redeem, purchase, retire
or otherwise acquire for value (or permit any Subsidiary to purchase or acquire
for value) any shares of any class of capital stock of Capsure or any of its
subsidiaries or set aside any amount for any such purpose; provided, however,
that (a) any Subsidiary may declare and pay dividends or make other
distributions to any other Subsidiary that is its parent and to the Borrower,
(b) Capsure may declare and pay, and the Borrower may declare and pay dividends
to Capsure to the extent necessary to enable Capsure to pay, the Special
Dividend and (c) if at the time thereof and immediately after giving effect
thereto no Default or Event of Default shall have occurred and be continuing,
the Borrower may declare and pay dividends or make other distributions to
Capsure (and Capsure may declare and pay dividends or make other distributions
to its stockholders to the extent such dividends or other distributions are not
used for the purposes specified in clauses (i) or (ii) below), provided that the
aggregate amount of such dividends and distributions made by the Borrower to
Capsure (i) to enable Capsure to pay reasonable and customary accounting, legal
and other administrative expenses shall not exceed $3,600,000 in any calendar
year and (ii) in respect of taxes shall not exceed the amount required to be
paid by the Borrower under the Tax Sharing Agreement between Capsure and the
Borrower.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any
property, assets or services to, or purchase or acquire any property, assets or
services from, or otherwise engage in any other transaction or series of
transactions with, any of its Affiliates, except that, so long as no Default or
Event of Default shall have occurred and be continuing, Capsure or any of its
subsidiaries may engage in any of the foregoing transactions in the ordinary
<PAGE> 81
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course of business at prices and on terms and conditions not less favorable to
such person than could be obtained on an arm's-length basis from unrelated third
parties.
SECTION 6.08. Nature of Business. (a) In the case of the Borrower and
the Subsidiaries, engage or permit any Subsidiary to engage at any time in any
business or business activity other than the property and casualty Insurance
Business and business activities reasonably incidental thereto; and
(b) in the case of Capsure, engage at any time in any business or business
activity other than owning (i) all the capital stock of the Borrower and (ii)
other investments to the extent permitted by Section 6.04(f), and business
activities reasonably incidental thereto.
SECTION 6.09. Net Operating Losses. Take any action that could result in
a reduction of the Available Net Operating Losses to an amount less than
$147,000,000 minus the amount of such Available Net Operating Losses utilized in
taxable years since the Restatement Date to offset the taxable income for
Federal income tax purposes of Capsure and its subsidiaries.
SECTION 6.10. Debt Payments. Directly or indirectly make any optional
payment, prepayment, redemption, retirement or defeasance, whether in cash,
property, securities or a combination thereof, on account of the principal
amount of any Indebtedness (other than the Obligations), except payments by any
Subsidiary of Insurance Liabilities in the ordinary course of the Insurance
Business.
SECTION 6.11. Limitation on Surplus Relief Reinsurance Agreements. Permit
any Insurance Subsidiary to enter into any Surplus Relief Reinsurance Agreement.
SECTION 6.12. Reinsurance. Permit any Insurance Subsidiary to (a) enter
into any Reinsurance Agreement with any reinsurer except (i) insurance companies
(other than any other Insurance Subsidiary) rated A- or better by A.M. Best &
Co. or A or better by Standard & Poor's, (ii) other insurance companies
(including any other Insurance Subsidiary), but only if the obligations of such
other insurance companies under such Reinsurance Agreements are secured by
letters of credit, trust funds, withheld funds or other security such that such
Insurance Subsidiary would be permitted to take credit for substantially all the
ceded reinsurance in accordance with
<PAGE> 82
76
SAP for financial statement reporting purposes, even if such reinsurer was
admitted in a state other than the state in which such Insurance Subsidiary is
domiciled, and (iii) insurance companies not admitted in South Dakota, Wisconsin
or any other state in which any Insurance Subsidiary is domiciled, but only if
the obligations of such insurance companies under such Reinsurance Agreements
are secured by letters of credit, trust funds, withheld funds or other security
in a form such that such Insurance Subsidiary is permitted to take credit for
substantially all the ceded reinsurance in accordance with SAP for financial
statement reporting purposes or (b) modify in any respect adverse to the
interests of the Lenders, its policies with respect to reinsurance from those in
effect at December 31, 1995.
SECTION 6.13. Total Debt to Adjusted Capital Ratio. Permit the ratio of
Total Debt to Adjusted Capital on the last day of any fiscal quarter ending on
the last day of or during any period indicated below to be in excess of the
ratio set forth opposite such period:
<TABLE>
<CAPTION>
From and Including: To and Including: Ratio:
<S> <C> <C>
Restatement Date September 30, 1996 0.65 to 1.00
October 1, 1996 September 30, 1997 0.60 to 1.00
October 1, 1997 September 30, 1998 0.525 to 1.00
October 1, 1998 September 30, 1999 0.45 to 1.00
October 1, 1999 March 31, 2000 0.35 to 1.00
April 1, 2000 thereafter 0.25 to 1.00
</TABLE>
SECTION 6.14. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio on the last day of any period of four consecutive fiscal
quarters, commencing with the period of four consecutive fiscal quarters ending
on the Restatement Date (which for purposes of any determination made under this
Section 6.14 prior to June 30, 1996, shall be presumed to be the end of the
fiscal quarter that began on April 1, 1996) to be less than the
<PAGE> 83
77
ratio set forth below opposite the period containing the last day of such period
of four consecutive fiscal quarters:
<TABLE>
<CAPTION>
From and Including: To and Including: Ratio:
<S> <C> <C>
Restatement Date December 31, 1996 2.25 to 1.00
January 1, 1997 December 31, 2000 1.75 to 1.00
January 1, 2001 thereafter 1.25 to 1.00
</TABLE>
SECTION 6.15. Total Debt to Total Cash Flow Sources Ratio. Permit the
ratio of Total Debt to Total Cash Flow Sources on the last day of any period of
four consecutive fiscal quarters ending on the last day of or during any period
indicated below to be greater than the ratio set forth opposite such period
(provided that for purposes of any determination made under this Section 6.15
prior to June 30, 1996, the Restatement Date shall be presumed to be the end of
the fiscal quarter that began on April 1, 1996):
<TABLE>
<CAPTION>
From and Including: To and Including: Ratio:
<S> <C> <C>
Restatement Date December 31, 1996 4.50 to 1.00
January 1, 1997 December 31, 1997 4.00 to 1.00
January 1, 1998 December 31, 1998 3.50 to 1.00
January 1, 1999 December 31, 1999 2.50 to 1.00
January 1, 2000 thereafter 2.00 to 1.00
</TABLE>
SECTION 6.16. Operating Leverage Ratio. Permit, at any time, the
Operating Leverage Ratio to be greater than (a) in the case of each of Universal
Surety and Western Surety, 3.00 to 1.00, and (b) in the case of any Insurance
Subsidiary hereafter acquired by the Borrower or any of its wholly owned
Subsidiaries, (i) 2.00 to 1.00 with respect to any such Insurance
<PAGE> 84
78
Subsidiary for which 50% or more of its Net Written Premiums are in respect of
Long Tail Insurance Lines of Business and (ii) 3.00 to 1.00 with respect to any
such Insurance Subsidiary for which less than 50% of its Net Written Premiums
are in respect of Long Tail Insurance Lines of Business.
SECTION 6.17. Amendment of Certain Documents. Permit or agree to, or
permit any Subsidiary to agree to, (a) any amendment or modification that is
adverse in any material respect to the Lenders (or, in the case of any
Reinsurance Agreement, that could reasonably be expected to result in a Material
Adverse Effect) to its certificate of incorporation or by-laws, any Reinsurance
Agreement, any agreement evidencing Indebtedness or any other material agreement
to which it is a party or (b) any amendment to, or modification or termination
of, the Tax Sharing Agreements (which shall be maintained in full force and
effect at all times).
ARTICLE VII
EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings hereunder, or any
representation, warranty, statement or information contained in any report,
certificate, financial statement or other instrument furnished in
connection with or pursuant to any Loan Document, shall prove to have been
false or misleading in any material respect when so made, deemed made or
furnished;
(b) default shall be made in the payment of any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan
or any Fee or any other amount (other than an amount referred to in
paragraph (b) above) due under any Loan Document, when and as the same
shall become due and payable, and such default shall continue unremedied
for a period of three Business Days;
(d) default shall be made in the due observance or performance by
Capsure or the Borrower of any covenant, condition or agreement
<PAGE> 85
79
contained in Section 5.01(a) or 5.05 or in Article VI (other than Sections
6.04 and 6.12);
(e) default shall be made in the due observance or performance by
Capsure or the Borrower of any covenant, condition or agreement contained
in Section 6.04 or 6.12 and such default shall continue unremedied for a
period of (i) in the case of any covenant, condition or agreement contained
in Section 6.04, ten days, or (ii) in the case of any covenant, condition
or agreement contained in Section 6.12, thirty days, in either case after
any Responsible Officer of Capsure or the Borrower obtains knowledge of
such default;
(f) default shall be made in the due observance or performance by
Capsure or any of its subsidiaries of any covenant, condition or agreement
contained in any Loan Document (other than those specified in paragraph
(b), (c), (d) or (e) above) and such default shall continue unremedied for
a period of five days after notice thereof from the Administrative Agent or
any Lender to the Borrower;
(g) Capsure or any of its subsidiaries shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $2,000,000, when and as the
same shall become due and payable, or (ii) fail to observe or perform any
other term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness if the effect of
any failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their behalf
(with or without the giving of notice, the lapse of time or both) to cause,
such Indebtedness to become due prior to its stated maturity;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of Capsure or any of its subsidiaries, or of a
substantial part of the property or assets of Capsure or any of its
subsidiaries, under Title II of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Capsure or any
of its subsidiaries or for a substantial part of the property or assets of
Capsure or any of its subsidiaries or (iii) the winding-up or liquidation
of Capsure or any of its subsidiaries; and such proceeding or petition
shall continue
<PAGE> 86
80
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(i) Capsure or any of its subsidiaries shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title II of the
United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (h) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for
Capsure or any of its subsidiaries or for a substantial part of the
property or assets of Capsure or any of its subsidiaries, (iv) file an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
(j) one or more judgments (other than judgments or such portion
thereof for which there is full insurance or reinsurance and with respect
to which a creditworthy insurer or reinsurers as applicable, has assumed
responsibility in writing) for the payment of money in an aggregate amount
(after giving effect to the existence of such insurance or reinsurance) in
excess of $4,000,000 shall be rendered against Capsure or any of its
subsidiaries or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of Capsure or any of
its subsidiaries to enforce any such judgment;
(k) (i) a Reportable Event or Reportable Events, or a failure to make
a required installment or other payment (within the meaning of Section
412(n)(l) of the Code), shall have occurred with respect to any Plan or
Plans that reasonably could be expected to result in liability of Capsure,
the Borrower or any Subsidiary Guarantor to be PBGC or to a Plan in an
aggregate amount exceeding $250,000 and, within 30 days after the reporting
of any such Reportable Event to the Administrative Agent or after the
receipt by the Administrative Agent of the statement required pursuant to
Section 5.06, the Administrative Agent shall have notified Capsure or the
Borrower in writing that (A) the Required Lenders have made a determination
that, on the basis of such Reportable Event or Reportable Events or the
failure to make a
<PAGE> 87
81
required payment, there are reasonable grounds for the termination of such
Plan or Plans by the PBGC, the appointment by the appropriate United States
district court of a trustee to administer such Plan or Plan, or the
imposition of a Lien in favor of a Plan and (B) as a result thereof an
Event of Default exists hereunder; (ii) a trustee shall be appointed by a
United States district court to administer any such Plan or Plans; or (iii)
the PBGC shall institute proceedings (including giving notice of intent
thereof) to terminate any Plan or Plans;
(l) (i) Capsure, the Borrower or any of their ERISA Affiliates shall
have been notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan, (ii) Capsure, the
Borrower or such ERISA Affiliate does not have reasonable grounds for
contesting such Withdrawal Liability or is not contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of such
Withdrawal Liability specified in such notice, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date or days of such
notification), either (A) exceeds $250,000 or requires payments exceeding
$100,000 in any year or (B) is less than $250,000 but any Withdrawal
Liability payment remains unpaid 30 days after such payment is due;
(m) Capsure, the Borrower or any of their ERISA Affiliates shall have
been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if solely as a result of such reorganization
or termination the aggregate annual contributions of Capsure, the Borrower
and their ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will be
increased over the amounts required to be contributed to such Multiemployer
Plans for their most recently completed plan years by an amount exceeding
$250,000;
(n) there shall have occurred a Change in Control;
(o) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by Capsure or any of its
subsidiaries not to be, a valid, perfected, first priority security
interest in the securities or assets covered thereby, except to the extent
that any such loss of perfection or priority results from the failure of
the Collateral Agent (i) to maintain possession of certificates
representing securities pledged under the Pledge Agreement or (ii) to
<PAGE> 88
82
file any continuation statement required to be filed under the Uniform
Commercial Code;
(p) any Loan Document shall cease to be, or shall be asserted by
Capsure or any of its subsidiaries not to be, in full force and effect and
enforceable in accordance with its terms;
(q) any Applicable Insurance Regulatory Authority shall issue with
respect to any Insurance Subsidiary (i) any order of conservation,
supervision or any other order of like effect or (ii) any other order that
could result in a Material Adverse Effect or an impairment of the rights of
or benefits available to the Administrative Agent or any of the other
Lenders under any Loan Document;
(r)(i) any party to any Reinsurance Agreement (whether entered into as
of the date hereof or hereafter entered into) to which any Insurance
Subsidiary is a party shall fail to comply with any material provision
thereof or (ii) any reinsurer under any Reinsurance Agreement shall become
or shall be declared insolvent or any order of liquidation, rehabilitation,
conservation or supervision shall be entered against any such reinsurers or
any other kind of delinquency proceeding shall be commenced against any
such reinsurers if any event contemplated by clause (i) or (ii) could
reasonably be expected to result in a Material Adverse Effect;
(s) the amount of Available Net Operating Losses at any time shall be
less than $147,000,000 minus the amount of such Available Net Operating
Losses utilized in taxable years since the Restatement Date to offset the
taxable income for Federal income tax purposes of Capsure and its
subsidiaries;
(t) any person that shall (i) become a direct or indirect 'parent' (as
such term is used in the Tax Sharing Agreements) of Capsure and (ii) enter
into any tax sharing arrangement with Capsure, shall fail to enter into,
substantially contemporaneously with becoming such a parent, an agreement
(on terms satisfactory to the Required Lenders) pursuant to which such
parent shall guarantee the Obligations; or
(u) Capsure shall at any time fail to, or be unable to, file a Federal
consolidated income tax return with each of its subsidiaries;
then, and in every such event (other than an event with respect to Capsure and
its subsidiaries described in paragraph (h) or (i) above), and at any time
thereafter during the continuance of such event, the Administrative Agent
<PAGE> 89
83
may, and at the request of the Required Lenders shall, by notice to the
Borrower, take any or all of the following actions, at the same or different
times: (i) terminate forthwith the Commitments, (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrower,
anything contained herein or in any other Loan Document to the contrary
notwithstanding and (iii) exercise any remedies available under any Loan
Document or otherwise; and in any event with respect to Capsure and its
subsidiaries described in paragraph (h) or (i) above, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Loan Document,
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
ARTICLE VIII
GUARANTEE
Capsure unconditionally and irrevocably guarantees, jointly with the other
Guarantors and severally, as a principal obligor and not merely as a surety, the
due and punctual payment and performance of all the Obligations. Capsure further
agrees that the Obligations may be extended or renewed, in whole or in part,
without notice or further assent from it, and that it will remain bound upon the
provisions of this Article VIII notwithstanding any extension or renewal of any
Obligation.
Capsure waives presentment to, demand of, payment from and protest to the
Borrower of any of the Obligations, and also waives notice of acceptance of the
guarantee set forth in this Article VIII and notice of protest for nonpayment.
The obligations of Capsure hereunder shall not be affected by (a) the failure of
the Administrative Agent (which term, for purposes of this Article VIII, shall
be deemed to refer to the Administrative Agent and the Collateral Agent) or any
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower under the provisions of any guarantee or any Loan Document; (b) any
rescission, waiver, amendment or
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84
modification of, or any release from any of the terms or provisions of this
Agreement, any other Loan Document, any guarantee or any other agreement,
including with respect to any other Guarantor under the Guarantee Agreement; (c)
the release of any security held by the Collateral Agent or any other Secured
Party for the Obligations or any of them; or (d) the failure of the
Administrative Agent or any other Secured Party to exercise any right or remedy
against any other Guarantor or guarantor of the Obligations.
Capsure hereby authorizes the Collateral Agent and each of the other
Secured Parties, in accordance with the terms and subject to the conditions set
forth in the Security Documents to which Capsure is a party, to (a) take and
hold security for the payment of this guarantee or the Obligations and exchange,
enforce, waive and release any such security, (b) apply such security and direct
the order or manner of sale thereof as they in their sole discretion may
determine and (c) release or substitute any one or more endorsees, other
guarantors or other obligors.
Capsure further agrees that the guarantee set forth in this Article VIII
constitutes a guarantee of payment when due and not of collection and waives any
right to require that any resort be had by the Administrative Agent or any
Lender to the balance of any deposit account or credit on the books of the
Administrative Agent or such Lender, as applicable, in favor of the Borrower or
any other person.
The obligations of Capsure hereunder shall be absolute and unconditional
and shall not be subject to any reduction, limitation, impairment or termination
for any reason, including any claim or waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense of setoff, counterclaim,
deduction, diminution, abatement, suspension, deferment, reduction, recoupment,
termination or defense whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the Obligations shall not be released, discharged
or impaired or otherwise affected by the failure of the Administrative Agent or
any Lender to assert any claim or demand or to enforce any remedy under this
Agreement or any other Loan Document, by any waiver or modification of any
thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations or by any other circumstance or condition
whatsoever (whether or not Capsure, the Borrower, the Administrative Agent or
any Lender has knowledge thereof) that may or might in any manner or to any
extent vary the risk of Capsure or would otherwise operate as a discharge of
Capsure as a matter of law or equity (other than the indefeasible payment in
full of all the Obligations), including:
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85
(a) any termination, amendment, modification, addition, deletion or
supplement to or other change to any of the terms of any Loan Document or
any other instrument or agreement applicable to any of the parties hereto
or thereto, or any assignment or transfer of any thereof, or any furnishing
or acceptance of security, or any release of any security, for any
Obligations of the Borrower, Capsure or any other Guarantor hereunder or
thereunder, or the failure of any security or the failure of any person to
perfect any interest in any collateral;
(b) any failure, forbearance, omission or delay on the part of the
Borrower or any Guarantor or the Administrative Agent or any other Secured
Party to conform or comply with any term of any Loan Document or any other
instrument or agreement, or any failure to give notice to the Borrower or
any Guarantor of the occurrence of an Event of Default or any Default
occurring hereunder;
(c) any waiver of the payment, performance or observance of any of the
obligations, conditions, covenants or agreements contained in any Loan
Document, or any other waiver, consent, extension, renewal, indulgence,
compromise, release, settlement, refunding or other action or inaction
under or in respect of any Loan Document or any other instrument or
agreement, or under or in respect of any obligation or liability of the
Borrower or any Guarantor or the Administrative Agent or any other Secured
Party or any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of any such instrument of agreement or any
such obligation or liability;
(d) any extension of the time for payment of the principal of or
interest on any Obligation, or of the time for performance of any other
obligations, covenants or agreements under or arising out of any Loan
Document, or the extension or the renewal of any thereof;
(e) the exchange, surrender, substitution or modification of, or the
furnishing of any additional, collateral security for the Obligations under
any Loan Document;
(f) any failure, omission or delay on the part of the Administrative
Agent or any other Secured Party to enforce, assert or exercise any right,
power or remedy conferred on it in any Loan Document, or any such failure,
omission or delay on the part of the Administrative Agent or any other
Secured Party in connection with any Loan Document or any other action or
inaction on the part of the Administrative Agent or any other Secured
Party;
<PAGE> 92
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(g) to the extent permitted by applicable law, any voluntary or
involuntary bankruptcy, insolvency, reorganization, moratorium,
arrangement, adjustment, readjustment, composition, assignment for the
benefit of creditors, receivership, conservatorship, custodianship,
liquidation, marshalling of assets and liabilities or similar proceedings
with respect to the Borrower or any Guarantor or any other person or any of
their respective properties or creditors, or any action taken by any
trustee or receiver or by any court in any such proceeding (including any
automatic stay incident to any such proceeding);
(h) any limitation on the liability or obligations of the Borrower or
any Guarantor under any Loan Document or any other instrument or agreement
that may now or hereafter be imposed by any statute, regulation, rule of
law or otherwise, or any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of any
thereof;
(i) any merger, consolidation or amalgamation of the Borrower or any
Guarantor into or with any other person, or any sale, lease or transfer of
any of the assets of the Borrower or any Guarantor to any other person;
(j) any change in the ownership of any shares of capital stock of the
Borrower or any Guarantor;
(k) to the extent permitted by applicable law, any release or
discharge, by operation of law, of the Borrower, Capsure or any other
Guarantor from the performance or observance of any obligation, covenant or
agreement contained in any Loan Document; or
(l) any other occurrence, circumstance, happening or event whatsoever,
whether similar or dissimilar to the foregoing, whether foreseen or
unforeseen, and any other circumstance that might otherwise constitute a
legal or equitable defense, release or discharge (including the release or
discharge of the liabilities of a guarantor or surety or that might
otherwise limit recourse against the Borrower or any Guarantor, whether or
not the Borrower of any Guarantor shall have notice or knowledge of the
foregoing).
Capsure hereby waives any claim, right or remedy that it may now have or
hereafter acquire against the Borrower or any other Guarantor that arises under
any Loan Document and/or from the performance of such Guarantor under any Loan
Document, including any claim, right or remedy of the Administrative Agent or
any Secured Party or any security that the
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Administrative Agent or any Secured Party now has or hereafter acquires,
regardless of whether such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise.
Capsure agrees that, as between Capsure, on the one hand, and the
Administrative Agent and the other Secured Parties, on the other hand, (a) the
maturity of the Obligations guaranteed hereby may be accelerated as provided
herein for the purposes of Capsure's guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby and (b) in the event of any declaration of
acceleration of such Obligations as provided herein, such Obligations (whether
or not due and payable) shall forthwith become due and payable in full by
Capsure for purposes of this Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
Collateral Agent may elect to nonjudicially or judicially foreclose against any
real or personal property security it holds for the Obligations or any part
thereof, or accept an assignment of any such security in lieu of foreclosure or
compromise or adjust any part of the Obligations, or make any other
accommodation with the Borrower or any Guarantor, or exercise any other remedy
against the Borrower or any Guarantor or any security, in accordance with and
subject to the provisions of the Security Documents. No such action by the
Collateral Agent will release or limit the liability of Capsure to the
Administrative Agent, even if the effect of that action is to deprive Capsure of
the right to collect reimbursement from the Borrower for any sums paid to the
Administrative Agent.
To the extent permitted by applicable law, Capsure waives any defense based
on or arising out of any defense of the Borrower or the unenforceability of the
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower, other than the indefeasible payment in full of
the Obligations. The Collateral Agent and the other Secured Parties may, at
their election, in accordance with the terms and subject to the conditions set
forth in the Security Documents to which Capsure is a party, foreclose on any
security held by one or more of them by one or more judicial or nonjudicial
sales, or exercise any other right or remedy available to them against the
Borrower or any Guarantor, or any security, without affecting or impairing in
any way the liability of Capsure hereunder except to the extent the Obligations
have been indefeasibly paid in full. Capsure waives any defense arising out of
any such election even though such election operates to impair or to extinguish
any right of reimbursement or subrogation or other right or remedy of Capsure
against the Borrower or any other Guarantor, as the case may be, or any
security.
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Capsure further agrees that this guarantee shall continue to be effective
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any Obligation is rescinded, invalidated, declared to be fraudulent
or preferential, or must otherwise be returned, refunded, renamed or restored by
the Administrative Agent or any Lender upon the bankruptcy or reorganization of
the Borrower, any Guarantor or otherwise.
In furtherance of the foregoing and not in limitation of any other right
that the Administrative Agent or any Lender may have at law or in equity against
Capsure by virtue hereof, upon the failure of the Borrower to pay any Obligation
when and as the same shall become due, whether at maturity, by acceleration,
after notice of prepayment or otherwise, Capsure hereby promises to and will,
upon receipt of written demand by the Administrative Agent, promptly pay, or
cause to be paid, to the Administrative Agent in cash the amount of such unpaid
Obligation.
The guarantee made hereunder shall terminate when all the Obligations have
been indefeasibly paid in full and the Lenders have no further commitment to
lend under the Credit Agreement.
Without limiting the generality of the foregoing, (a) Capsure assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and all other circumstances bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks
Capsure assumes and incurs hereunder, and agrees that none of the Administrative
Agent and the other Secured Parties will have any duty to advise Capsure of
information known to it or any of them regarding such circumstances or risks,
and (b) the execution and delivery of any instrument adding a Subsidiary
Guarantor as a party to the Guarantee Agreement pursuant to Section 5.09 shall
not require the consent of Capsure hereunder. The rights and obligations of
Capsure hereunder shall remain in full force and effect notwithstanding the
addition of any new Subsidiary Guarantor as a party to the Guarantee Agreement.
ARTICLE IX
THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
Chemical Bank is hereby appointed to act as Administrative Agent (which term,
for purposes of this Article IX, shall be deemed to refer to the Administrative
Agent and the Collateral Agent) on behalf of the Lenders. Each of the Lenders
and each subsequent holder of any Note, by its
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acceptance thereof, hereby irrevocably authorizes the Administrative Agent to
take such actions on their behalf and to exercise such powers as are
specifically delegated to the Administrative Agent by the terms and provisions
hereof and of the other Loan Documents, together with such actions and powers as
are reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders, without limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b)
promptly to give notice on behalf of each of the Lenders to the Borrower of any
Event of Default specified in this Agreement of which the Administrative Agent
has actual knowledge acquired in connection with its agency hereunder; and (c)
promptly to distribute to each Lender copies of all notices, financial
statements and other materials delivered by Capsure, the Borrower or any
Subsidiary pursuant to this Agreement as received by the Administrative Agent.
Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its, his or her own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by Capsure or any of its subsidiaries of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The
Administrative Agent shall not be responsible to the Lenders or the holders of
the Notes for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement, the Notes or any other Loan Documents or other
instruments or agreements. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof until it shall
have received from the payee of such Note notice, given as provided herein, of
the transfer thereof in compliance with Section 10.04. The Administrative Agent
shall in all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders and each
subsequent holder of any Note. The Administrative Agent shall, in the absence
of knowledge to the contrary, be entitled to rely on any instrument or document
believed by it in good faith to be genuine and correct and to have been signed
or sent by the proper person or persons. Neither the Administrative Agent nor
any of its directors, officers, employees or agents shall have any
responsibility to the Borrower or any other person on account of the failure of
or delay in performance or breach by any Lender of any of its obligations
hereunder or to any Lender or
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any other person on account of the failure of or delay in performance or breach
by any other Lender or by Capsure, the Borrower or any Subsidiary of any of
their respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Administrative Agent may execute any and
all duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered in
good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall be under
no duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement or any other Loan Document unless it shall be
requested in writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor, subject to the Borrower's
approval, which shall not be unreasonably withheld. If no successor shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be a bank with an
office in the United States of America having a combined capital and surplus of
at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
With respect to the Loans made by it hereunder and the Notes issued to it,
the Administrative Agent in its individual capacity and not as Administrative
Agent shall have the same rights and powers as any other Lender and may exercise
the same as though it were not the Administrative Agent, and the Administrative
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with Capsure or any of its subsidiaries or other
Affiliates as if it were not the Administrative Agent.
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Each Lender agrees (a) to reimburse the Administrative Agent, on demand, in
the amount of its pro rata share (based on its Commitment hereunder) of any
expenses incurred for the benefit of the Lenders by the Administrative Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless the Administrative Agent
and its Affiliates and each of their respective directors, officers, employees
and agents, on demand, in the amount of such pro rata share, from and against
any and all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, costs, whatsoever that are imposed on, incurred by or
asserted expenses or disbursements of any kind or nature against the
Administrative Agent in its capacity as the Administrative Agent or any of them
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrower, provided that no Lender shall be liable to any such
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
that are determined to have resulted from the gross negligence or wilful
misconduct of such indemnified person.
Each Lender acknowledges 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 credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges 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 from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement or any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy as follows:
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(a) if to Capsure, the Borrower or any Subsidiary Guarantor, to it at:
Capsure Holdings Corp., 400 Perimeter Center Terrace, Suite 345, Atlanta,
Georgia 30346, Attention of Mary Jane Robertson (Telecopy No. (770)
399-0779) with a copy to Rosenberg & Liebentritt, P.C., Two North Riverside
Plaza, Suite 1600, Chicago, Illinois 60606, Attention of Sheli Z. Rosenberg
(Telecopy No. (312) 454-0335);
(b) if to the Administrative Agent, to; Chemical Bank Agency Services
Corporation, Grand Central Tower, 140 East 45th Street, New York, New York
10017, Attention of Maxeen Francis (Telecopy No. (212) 622-0002) with a
copy to Chemical Bank, at 270 Park Avenue, New York, New York 10017,
Attention of Heather Lindstrom (Telecopy No. (212) 270-5222); or
(c) if to a Lender, to it at its address (or telecopy number) set
forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy with confirmation of receipt from the sending telecopy machine or on
the date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 10.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 10.01.
SECTION 10.02. Survival of Agreement. Unless a longer period is provided
herein, all covenants, agreements, representations and warranties made by
Capsure and the Borrower herein and by Capsure, the Borrower or any Subsidiary
Guarantor in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Administrative Agent and the
Lenders and shall survive the making by the Lenders of the Loans and the
execution and delivery to the Lenders of the Notes evidencing such Loans,
regardless of any investigation made by the Lenders or on any of their behalf,
and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any Fee or any other amount payable under this
Agreement or any other Loan Document is outstanding and unpaid and so long as
the Commitments have not been terminated, provided that, without prejudice to
the survival of any other agreement contained herein, the agreements and
obligations contained in Sections 2.11
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and 2.13 shall survive the payment in full of the principal of and interest on
all Loans made hereunder.
SECTION 10.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by Capsure, the Borrower and the Administrative
Agent and when the Administrative Agent shall have received copies hereof that,
when taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of Capsure, the Borrower, the
Administrative Agent and each Lender and their respective successors and
assigns, except that neither Capsure nor the Borrower shall have the right to
assign its rights hereunder or any interest herein without the prior consent of
all the Lenders.
SECTION 10.04. Successors and Assigns. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party, and all covenants, promises
and agreements by or on behalf of Capsure, the Borrower, the Administrative
Agent or the Lenders that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the loans at the time owing to it and the Notes
held by it); provided, however, that (i) except in the case of an assignment to
a Lender or an Affiliate of such Lender (in which case the assigning Lender
shall give prior notice to the Borrower and the Administrative Agent), the
Borrower and the Administrative Agent must each give their prior written consent
to such assignment (which consent shall not be unreasonably withheld), (ii) each
such assignment shall be of a constant, and not a varying, percentage of all the
assigning lender's rights and obligations under this Agreement, (iii) the amount
of the Commitment of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 (or the Commitment of the assigning Lender immediately prior to the
assignment, if such Commitment is less than $5,000,000), (iv) the parties to
each such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with the Note or Notes subject to such
assignment and a processing and recordation fee of $3,500, and (v) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire and any certificates or other instruments required
to be delivered pursuant thereto. Upon acceptance and recording pursuant to
paragraph (e) of this Section 10.04, from and after the effective date
specified
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in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (i) the assignee thereunder shall be
a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this Agreement
and (ii) the assigning Lender thereunder shall, to the extent of the interest
assigned by 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 Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.11, 2.13, 2.15, 2.17 and
10.05, as well as to any Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment and the outstanding balances of its Loans, in each case without
giving effect to assignments thereof that have not become effective, are as set
forth in such Assignment and Acceptance, (ii) except as set forth in clause (i)
above, such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of Capsure or any of its subsidiaries or the
performance or observance by Capsure or any of its subsidiaries or any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Administrative Agent, such assigning Lender 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 this Agreement; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
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reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations that by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in The
City of New York a copy of each Assignment and Acceptance delivered to it and a
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 pursuant
to the terms hereof from time to time (the "Register"). 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 pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with the Note or Notes
subject to such assignment, an Administrative Questionnaire completed in respect
of the assignee (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) above and the
written consent of the Borrower and the Administrative Agent to such assignment,
the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
notice thereof to the Lenders. Within five Business Days after receipt of
notice, the Borrower, at its own expense, shall execute and deliver to the
Administrative Agent, in exchange for the surrendered Note or Notes, a new Note
or Notes to the order of such assignee in a principal amount equal to the
applicable Commitment assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained a Commitment, a new Note to the order
of such assigning Lender in a principal amount equal to the applicable
Commitment retained by it. Such new Note or Notes that shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note; such new Notes shall be dated the date of the surrendered Notes that they
replace and shall otherwise be in substantially the form of Exhibit A, as
appropriate. Canceled Notes shall be returned to the Borrower.
(f) Each Lender may without the consent of the Borrower or the
Administrative Agent (but with prior notice to the Borrower and the
Administrative Agent) sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it and the
Notes held by it); provided, however, that (i) such Lender's obligations under
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this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost protection provisions contained in Sections 2.11, 2.13 and 2.17 to
the same extent as if they were Lenders, provided that the Borrower shall not be
required to reimburse a participating tender or other entity pursuant to Section
2.11, 2.13 or 2.17 in an amount in excess of the amount that would have been
payable thereunder to the Lender granting such participation had such Lender not
sold such participation and (iv) the Borrower, the Administrative Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Borrower relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications
or waivers decreasing any fees payable hereunder or be amount of principal of or
the rate at which interest is payable on the Loans, extending the final maturity
date or date fixed for the payment of interest on the Loans or changing or
extending the Commitments or releasing all or substantially all the Collateral).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to Capsure and its subsidiaries furnished
to such Lender by or on behalf of the Borrower, provided that, prior to any
disclosure of information designated by the Borrower as confidential, each such
assignee or participant or proposed assignee or participant shall execute an
agreement whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information.
(h) Any Lender may at any time assign to a Federal Reserve Bank all or any
portion of its rights under this Agreement and the Notes issued to it, provided
that no such assignment shall release a Lender from any of its obligations
hereunder.
(i) Neither Capsure nor the Borrower shall assign or delegate any of its
rights or duties hereunder.
SECTION 10.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
out-of-pocket expenses incurred by the Administrative Agent and the Collateral
Agent in connection with the preparation of this Agreement and the other Loan
Documents or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the
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transactions hereby contemplated shall be consummated) or incurred by the
Administrative Agent, the Collateral Agent or any Lender in connection with the
enforcement or protection of their rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans, made or the Notes
issued hereunder, including the fees, other charges and disbursements of
Cravath, Swaine & Moore, counsel for the Administrative Agent and the Collateral
Agent, and, in connection with any such enforcement or protection, the fees,
charges and disbursements of any other counsel for the Administrative Agent, the
Collateral Agent or any Lender. The Borrower further agrees that it shall
indemnify the Lenders and the Collateral Agent from and hold them harmless
against any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any of
the other Loan Documents.
(b) The Borrower and Capsure agree, jointly and severally, to indemnify
the Administrative Agent, each Lender and the Collateral Agent and each of their
respective directors, officers, employees and agents (each such person being
called an "Indemnitee") against, and to hold each indemnitee harmless from, any
and all losses, claims, demands, damages, penalties, fines, liabilities,
settlements, costs and related expenses, including reasonable counsel fees,
charges and disbursements, incurred by or asserted against any lndemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties thereto of their
respective obligations thereunder or the consummation of the Transactions and
the other transactions contemplated hereby, (ii) the use of the proceeds of the
Loans, (iii) any claim, litigation, investigation or proceeding relating to any
of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) the
violation of, noncompliance with or liability under any Environmental and Safety
Laws applicable to the operations of Capsure and its subsidiaries, or any
orders, requirements or demands of Governmental Authorities related thereto
(including reasonable and documented attorneys' and consultants' fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses relating thereto), provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) The provisions of this Section 10.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the Transactions or the other transactions
contemplated hereby, the repayment of any of the Loans, the invalidity or
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unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent,
the Collateral Agent or any Lender. All amounts due under this Section 10.05
shall be payable on written demand therefor.
SECTION 10.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower or Capsure against any of and all
the obligations of the Borrower or Capsure now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
such Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 10.06 are in addition to other rights and remedies
(including other rights of setoff) that such Lender may have.
SECTION 10.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
SECTION 10.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent or any Lender in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent, the Collateral Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by Capsure or any of its subsidiaries therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on Capsure or any of its
subsidiaries in any case shall entitle such person to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement, the Guarantee Agreement or any of the Security
Documents nor any provision hereof or thereof may be waived, amended or modified
except, in the case of this Agreement, pursuant to an
<PAGE> 105
99
agreement or agreements in writing entered into by Capsure, the Borrower and the
Required Lenders or, in the case of any of the Security Domain pursuant to an
agreement or agreement in writing entered into by Capsure, the Borrower, the
Subsidiary Guarantors and the Collateral Agent and consented to by the Required
Lenders or, in the case of the Guarantee Agreement, pursuant to an agreement or
agreements in writing entered into by the Guarantors and the Collateral Agent
and consented to by the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the final
maturity date of or date for the payment of any interest on any Loan, or waive
or excuse any such payment or any part thereof, or decrease the rate of interest
on any Loan, or amend or modify the provisions of Section 2.09(b), without the
prior written consent of each Lender affected thereby, (ii) change or extend the
Commitment of any Lender or decrease the Commitment Fees of any Lender without
the prior written consent of such Lender, (iii) amend or modify the provisions
of Section 2.14, the provisions of this Section 10.08 or the definition of the
term "Required Lenders" without the prior written consent of each Lender or (iv)
release any material part of the Collateral under any Security Document without
the prior written consent of each Lender; provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder without the prior written consent of the
Administrative Agent. Each Lender and each holder of a Note shall be bound by
any waiver, amendment or modification authorized by this Section 10.08
regardless of whether its Note shall have been marked to make reference thereto,
and any consent by any Lender or bolder of a Note pursuant to this Section 10.08
shall bind any person subsequently acquiring a Note from it, whether or not such
Note shall have been so marked.
SECTION 10.09. Interest Rate Limitation. Notwithstanding anything herein
or in the Notes to the contrary, if at any time the applicable interest rate,
together with all fees and charges that are treated as interest under applicable
law (collectively, the "Charges"), as provided for herein or in any other
document executed in connection herewith, or otherwise contracted for, charged,
received, taken or reserved by any Lender, shall exceed the maximum lawful rate
(the "Maximum Rate") that may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable under the Note held by such Lender, together with all Charges payable to
such Lender, shall be limited to the Maximum Rate.
SECTION 10.10. Entire Agreement. This Agreement and the other Loan
Documents constitute the entire contract between the parties relative to the
subject matter hereof and thereof. Any previous agreement among the parties
with respect to the subject matter hereof is superseded by this
<PAGE> 106
100
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, express or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
SECTION 10.11. Waiver of Jury Trial. Each party hereto hereby waives, to
the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any litigation directly or indirectly arising out of,
under or in connection with, this Agreement or any of the other Loan Documents.
Each party hereto (a) certifies that 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 and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and the other Loan Documents, as applicable, by, among other
things, the mutual waivers and certifications in this Section 10.11.
SECTION 10.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 10.13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 10.03.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each of
Capsure, the Borrower, the Administrative Agent and each Lender hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
<PAGE> 107
101
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any Lender may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents against Capsure or any of its subsidiaries or the properties of
any of the foregoing in the courts of any jurisdiction.
(b) Each of Capsure, the Borrower, the Administrative Agent and each
Lender hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or the other Loan Documents in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
IN WITNESS WHEREOF, the Borrower, Capsure, the Administrative Agent and the
Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
CAPSURE FINANCIAL GROUP, INC.,
by
----------------------------
Name:
Title:
<PAGE> 108
102
CAPSURE HOLDINGS CORP.,
by
----------------------------
Name:
Title:
CHEMICAL BANK, individually and as
Administrative Agent,
by
----------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.,
by
----------------------------
Name:
Title:
BANQUE PARIBAS,
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
----------------------------
Name:
Title:
<PAGE> 109
103
FIRST BANK NATIONAL ASSOCIATION,
by
----------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by
----------------------------
Name:
Title:
NATIONSBANK OF GEORGIA, N.A.,
by
----------------------------
Name:
Title:
FLEET NATIONAL BANK.,
by
----------------------------
Name:
Title:
<PAGE> 110
104
UNION BANK,
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 99
[CAPSURE HOLDINGS LETTERHEAD]
NEWS RELEASE
CONTACT: Mary Jane Robertson FOR IMMEDIATE RELEASE
(770) 677-0323
or
Doreen Lubeck
(312) 466-3444
CAPSURE HOLDINGS RETAINS SMITH BARNEY
TO ASSESS STRATEGIC OPTIONS
CHICAGO, ILLINOIS, MAY 28, 1996 -- Capsure Holdings Corp. (NYSE:CSH) today
announced that it has retained Smith Barney Inc. to advise and assist Capsure's
Board of Directors in an assessment of the strategic options available to
Capsure to enhance long-term value for its stockholders. Options being explored
include recapitalization of Capsure by means of the payment of a leveraged,
special dividend to stockholders and a possible sale or merger of Capsure or its
subsidiaries. The Board of Directors has not reached any decision regarding the
course of action or combination of actions.
Capsure Holdings Corp., through its subsidiaries, Western Surety Company
and Universal Surety of America, provides surety and fidelity bonds in all 50
states through a combined network of 120,000 independent agents.
# # #
