<PAGE>
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission File Number 0-14243
ALLIED Group, Inc.
(Exact name of registrant as specified in its charter)
Iowa
(State or other jurisdiction of incorporation or organization)
42-0958655
(I.R.S. Employer Identification No.)
701 Fifth Avenue, Des Moines, Iowa
(Address of principal executive offices)
50391-2000
(Zip Code)
515-280-4211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 28, 1995:
9,173,123 shares of Common Stock.
<PAGE>
2
PART I
Item 1. Financial Statements
ALLIED Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Assets
Investments
Fixed maturities
Held to maturity at amortized cost (fair value $393,225,553
and $388,486,183) $393,823,066 $401,716,819
Available for sale at fair value (amortized cost $271,853,316
and $251,810,148) 271,817,301 243,567,793
Equity securities at fair value (cost $4,477,586 and $4,374,400) 4,823,188 4,507,163
Other investments at equity 420,135 458,187
Short-term investments at cost (note 2) 10,547,010 5,656,327
------------ ------------
Total investments 681,430,700 655,906,289
Cash 1,588,626 1,541,280
Indebtedness from affiliates --- 571,725
Accrued investment income 10,759,768 10,348,751
Securities held for sale (note 3) 12,884,944 15,540,332
Accounts receivable (less allowance for doubtful accounts
of $578,571 and $451,089) 73,186,632 68,466,424
Reinsurance receivables for losses and loss settlement expenses 22,215,127 20,935,911
Deferred policy acquisition costs 39,257,922 38,269,534
Prepaid reinsurance premiums 6,565,303 6,380,857
Equipment 8,997,954 8,641,858
Current income taxes recoverable --- 2,593,629
Deferred income taxes 6,634,157 9,099,807
Other assets 54,074,959 54,454,743
------------ ------------
Total assets $917,596,092 $892,751,140
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
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3
ALLIED Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Liabilities
Losses and loss settlement expenses $317,974,662 $310,996,429
Unearned premiums 184,626,067 180,112,525
Notes payable to nonaffiliates (note 3) 36,911,238 41,540,782
Notes payable to affiliates (note 2) 6,150,000 2,000,000
Guarantee of ESOP obligations (note 4) 28,150,000 28,150,000
Outstanding drafts 11,559,185 13,309,164
Current income taxes payable 2,540,479 ---
Other liabilities 32,142,255 34,761,544
------------ ------------
Total liabilities 620,053,886 610,870,444
------------ ------------
Stockholders' equity
Preferred stock, no par value, issuable in series, authorized
7,500,000 shares
6-3/4% Series, 1,827,222 shares issued and outstanding 37,812,387 37,812,387
ESOP Series, issued and outstanding 3,130,274 shares in
1995 and 3,154,244 shares in 1994 47,394,328 47,753,129
Common stock, no par value, $1 stated value, authorized
40,000,000 shares, issued and outstanding 9,062,020
shares in 1995 and 8,999,661 shares in 1994 9,062,020 8,999,661
Additional paid-in capital 99,848,014 98,926,297
Retained earnings 128,990,162 119,752,032
Unrealized appreciation (depreciation) of investments (net of
deferred income tax (expense) benefit of ($102,133) and
$2,868,709) 207,454 (5,240,883)
Unearned compensation related to ESOP (25,772,159) (26,121,927)
------------ ------------
Total stockholders' equity 297,542,206 281,880,696
------------ ------------
Total liabilities and stockholders' equity $917,596,092 $892,751,140
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
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4
ALLIED Group, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenues
Premiums earned $109,480,938 $ 97,816,841
Investment income 11,275,002 9,613,864
Realized investment gains 14,750 390,785
Income from affiliates (note 2) 1,194,101 1,212,084
Other income 10,311,061 10,700,251
------------ ------------
132,275,852 119,733,825
------------ ------------
Losses and expenses
Losses and loss settlement expenses 74,431,343 65,448,060
Amortization of deferred policy acquisition costs 24,131,939 21,608,554
Other underwriting expenses 6,272,091 7,219,751
Other expenses 9,734,153 8,663,429
Interest expense 446,394 722,820
------------ ------------
115,015,920 103,662,614
------------ ------------
Income before income taxes 17,259,932 16,071,211
------------ ------------
Income taxes
Current 5,380,801 3,642,180
Deferred (505,192) 957,830
------------ ------------
4,875,609 4,600,010
------------ ------------
Net income $ 12,384,323 $ 11,471,201
============ ============
Net income applicable to common stock $ 10,564,385 $ 9,637,772
============ ============
Earnings per share
Primary $ 1.17 $ 1.06
============ ============
Fully diluted $ .83 $ .76
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
5
ALLIED Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,384,323 $ 11,471,201
Adjustments to reconcile net income to net cash provided by
operating activities
Losses and loss settlement expenses 6,978,233 4,232,991
Unearned premiums, net 4,329,096 3,607,632
Deferred policy acquisition costs (988,388) (899,748)
Accounts receivable, net (5,999,424) (2,408,742)
Depreciation and amortization 2,022,415 2,065,231
Realized investment gains (14,750) (390,785)
Securities held for sale, net (144,156) 37,941
Indebtedness with affiliates 1,700,969 1,792,822
Accrued investment income (411,017) (285,206)
Other assets 1,419,954 413,143
Unearned compensation related to ESOP 349,768 412,671
Income taxes
Current 5,134,108 3,405,872
Deferred (505,192) 957,830
Other, net (7,159,540) (4,363,363)
------------ ------------
Net cash provided by operating activities 19,096,399 20,049,490
------------ ------------
Cash flows from investing activities
Purchase of fixed maturities
Held to maturity --- (37,024,372)
Available for sale (26,004,267) (19,834,375)
Purchase of equity securities (177,075) (269,318)
Purchase of equipment (1,430,888) (1,663,899)
Sale of fixed maturities - Available for sale 3,021,328 32,147,613
Maturities, calls, and principal reductions of fixed maturities
Held to maturity 7,582,293 16,978,692
Available for sale 2,905,632 9,043,676
Sale of equity securities 66,098 ---
Short-term investments, net (4,890,683) (16,077,759)
Sale of equipment 79,427 139,474
------------ ------------
Net cash used in investing activities (18,848,135) (16,560,268)
------------ ------------
Cash flows from financing activities
Notes payable to nonaffiliates, net (1,830,000) 1,200,000
Issuance of notes payable to affiliates 4,150,000 1,025,000
Issuance of common stock 625,275 292,369
Repurchase of common stock --- (4,892,691)
Dividends paid to stockholders, net of income tax benefit (3,146,193) (2,958,412)
------------ ------------
Net cash used in financing activities (200,918) (5,333,734)
------------ ------------
Net increase (decrease) in cash 47,346 (1,844,512)
Cash at beginning of year 1,541,280 2,843,220
------------ ------------
Cash at end of quarter $ 1,588,626 $ 998,708
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
<PAGE>
6
ALLIED Group, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
ALLIED Group, Inc. (the Company) and its property-casualty, excess & surplus
lines, and noninsurance subsidiaries on a consolidated basis.
At March 31, 1995, The ALLIED Group Employee Stock Ownership Trust (ESOP Trust)
owned 28.5% of the outstanding voting stock of the Company. ALLIED Mutual
Insurance Company (ALLIED Mutual), an affiliated property-casualty insurance
company, controlled 18.3% of the voting stock of the Company.
The accompanying interim consolidated financial statements should be read in
conjunction with the following notes and with the Notes to Consolidated
Financial Statements included in the ALLIED Group, Inc. 1994 Annual Report to
Stockholders. The interim consolidated financial statements have been prepared
in conformity with generally accepted accounting principles (GAAP) and include
all adjustments which are in the opinion of management necessary for fair
presentation of the results for the interim periods. In the opinion of
management, all such adjustments are of a normal and recurring nature. All
significant intercompany balances and transactions have been eliminated. Certain
amounts have been reclassified to conform to current-period presentation.
(2) Transactions with Affiliates
The Company leases employees to its subsidiaries and ALLIED Mutual and certain
of ALLIED Mutual's subsidiaries pursuant to the terms of the Intercompany
Operating Agreement. Each company that leases employees is charged a fee based
upon costs incurred for salaries, related benefits, taxes, and expenses
associated with the employees it leases. The Company received revenues of
$674,662 and $619,853 for employees leased to affiliates for the three months
ended March 31, 1995 and 1994, respectively, which are included in income from
affiliates.
ALLIED Group Information Systems, Inc. provides data processing and other
services for ALLIED Mutual and its subsidiaries. Included in income from
affiliates are revenues of $519,439 and $592,231 relating to services performed
for ALLIED Mutual and subsidiaries for the three months ended March 31, 1995 and
1994, respectively.
ALLIED Mutual participates with a nonaffiliated reinsurance company in a
property catastrophe reinsurance agreement that covers the property-casualty
segment's share of pooled losses up to $5,000,000 in excess of $5,000,000.
ALLIED Mutual's and the reinsurance company's participations in such agreement
are 90% and 10%, respectively. Premiums paid by the property-casualty segment to
ALLIED Mutual were $362,565 and $320,540 in the first three months of 1995 and
1994, respectively. There were recoveries of $50,919 from ALLIED Mutual under
the agreement in the first three months of 1995 and none in the first quarter of
1994.
<PAGE>
7
ALLIED Group, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
At March 31, 1995, the Company had $6,505,765 invested in a short-term
investment fund with affiliated companies. One of the affiliates, AID Finance
Services, Inc. (a wholly owned subsidiary of ALLIED Mutual), is the
administrator of the fund. The Company also had various unsecured notes payable
to the investment fund at March 31, 1995 totaling $6,150,000. The borrowings had
maturity dates within 30 days of March 31, 1995 and interest rates ranging from
6.1% to 9.3%.
The Company had interest income from affiliates of $75,473 and $116,956 in the
first three months of 1995 and 1994, respectively. Interest expense with
affiliates was $59,516 and $45,163 in the first quarter of 1995 and 1994,
respectively.
(3) Notes Payable to Nonaffiliates
At March 31, 1995, ALLIED Group Mortgage Company (ALLIED Mortgage) had borrowed
$20,786,238 under the terms of two separate mortgage loan warehousing agreements
with different commercial banks. On March 27, 1995, ALLIED Mortgage negotiated a
$10,000,000 mortgage loan warehousing agreement, which includes a $2,000,000
servicing acquisition subline, with a third bank. ALLIED Mortgage had borrowings
of $775,000 under the service acquisition line of credit on March 31, 1995.
Under the terms of the agreements, ALLIED Mortgage can borrow up to the lesser
of $67,000,000 or 98% of the mortgage credit base. At March 31, 1995, the
outstanding borrowings of ALLIED Mortgage were secured by $12,884,944 of pledged
mortgage loans held for sale. Interest rates applicable to ALLIED Mortgage's
borrowing arrangements vary with the level of investable deposits maintained at
the respective commercial banks.
ALLIED Mortgage had $15,000,000 of 8.4% senior secured notes outstanding as of
March 31, 1995. The notes are payable to a nonaffiliated life insurance company
and are secured by pledged mortgage servicing rights. The notes are payable in
10 equal annual installments of $1,500,000 beginning September 1, 1995 with
interest payable semi-annually. The final installment and interest is due
September 1, 2004.
The Federal Home Loan Bank of Des Moines provides a $3,000,000 committed credit
facility through a line of credit agreement with AMCO Insurance Company that
expires March 1996. Interest on any outstanding borrowings is payable at an
annual rate equal to the federal funds unsecured rate for Federal Reserve member
banks. There was an outstanding balance of $350,000 at March 31, 1995. The
borrowings with the Federal Home Loan Bank of Des Moines are secured by United
States Government securities with a carrying value of $10,845,342.
(4) Guarantee of ESOP Obligations
Effective March 13, 1995, the ESOP Trust refinanced its $28,150,000 Remarketed
Floating Rate Notes under the terms of a Term Credit Agreement and Guaranty (the
Agreement) with two separate commercial banks. The notes mature July 12, 2005
and interest rates applicable to the borrowings are adjusted at the beginning of
each interest period. The interest periods may range from one to three months
<PAGE>
8
ALLIED Group, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
depending on the interest rate selected. The Company has guaranteed the ESOP
Trust's obligations under the terms of the Agreement. The Agreement includes
various financial and operating covenants with which the Company must comply.
(5) Segment Information
The Company's operations include two major segments: property-casualty and
excess & surplus lines. Their principal products, services, and effect on
revenues, income before income taxes, and assets are identified by segment.
Property-casualty--Predominantly private passenger automobile, homeowners, and
small commercial lines of insurance. Excess & surplus lines--Primarily
commercial casualty and commercial property lines of insurance coverages that
standard insurers are unable or unwilling to provide.
Eliminations and other--Eliminations between segments plus other noninsurance
operations not reported as segments (including investment services, data
processing, and employee leasing).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenues (1)
Property-casualty $113,776,544 $101,908,803
Excess & surplus lines 8,157,696 7,292,594
Eliminations and other (2) 10,341,612 10,532,428
------------ ------------
Total $132,275,852 $119,733,825
============ ============
Income before income taxes (1)
Property-casualty $ 16,017,755 $ 13,428,598
Excess & surplus lines 1,081,112 1,496,434
Eliminations and other (2) 161,065 1,146,179
------------ ------------
Total $ 17,259,932 $ 16,071,211
============ ============
March 31, December 31,
1995 1994
------------ ------------
Assets
Property-casualty $770,849,682 $749,759,680
Excess & surplus lines 110,422,400 105,721,707
Eliminations and other (2) 36,324,010 37,269,753
------------ ------------
Total $917,596,092 $892,751,140
============ ============
</TABLE>
(1) Including realized investment gains or losses.
(2) All noninsurance operations (including investment services, data
processing, and employee leasing) are included in Eliminations and other.
Segment information for 1994 was restated.
<PAGE>
9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The following analysis of the consolidated results of operations and financial
condition of the Company should be read in conjunction with the interim
consolidated financial statements and related footnotes included elsewhere
herein, and with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
ALLIED Group, Inc. (the Company) is a regional holding company. Its largest
segment includes three property-casualty insurance companies that write
primarily personal lines of insurance in the central and western states. The
Company's other reportable segment is excess & surplus lines insurance.
Property-casualty insurance was the most significant segment, accounting for 86%
of consolidated revenues for the three months ended March 31, 1995. The
property-casualty segment participates in a reinsurance pooling agreement with
ALLIED Mutual Insurance Company (ALLIED Mutual), an affiliated property-casualty
insurance company. The agreement generally provides that the property-casualty
insurance business is combined and then prorated among the participants
according to predetermined percentages. Participation percentages are based on
certain factors such as capitalization and business produced by the respective
companies. The segment's participation is 64% in the reinsurance pool.
As of March 31, 1995, The ALLIED Group Employee Stock Ownership Trust (ESOP
Trust) owned 28.5% of the outstanding voting stock and ALLIED Mutual controlled
18.3% of the voting stock of the Company.
The operating results of the property-casualty insurance industry are subject to
significant fluctuations from quarter to quarter and from year to year due to
the effect of competition on pricing, the frequency and severity of losses
incurred in connection with weather-related and other catastrophic events,
general economic conditions, and other factors such as changes in tax laws and
the regulatory environment.
Results of Operations
Consolidated revenues for the three months ended March 31, 1995 were $132.3
million, up 10.5% over the $119.7 million reported for the first three months of
1994. The increase in consolidated revenues was primarily because of the 11.9%
growth in premiums earned for the three months ended March 31, 1995.
Income before income taxes for the first three months of 1995 was up 7.4% to
$17.3 million from $16.1 million for the first quarter of 1994. Income before
income taxes increased primarily because of an improved combined ratio for the
property-casualty segment. The property-casualty segment was the dominant
contributor to improved operating results with an increase of $2.6 million.
Net income was up 8% to $12.4 million, bringing fully diluted earnings per share
to $0.83 for the three months ended March 31, 1995, from $11.5 million for the
corresponding period in 1994. Fully diluted earnings per share before net
realized gains were $0.83 for the first three months of 1995 compared with $0.74
<PAGE>
10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the same period of 1994. The Company had no reportable realized gains or
losses on a per share basis in the first quarter of 1995. Book value per share
increased to $20.75 from $19.68 at December 31, 1994.
The statutory combined ratio for the Company on a consolidated basis improved to
95.5 from 96.1 for the three months ended March 31, 1994. The improvement was
due to a 1.6 point improvement in the underwriting expense ratio that more than
offset the increase in the loss and loss adjusting expense ratio. For the
quarter ended March 31, 1995, the loss and loss adjusting ratio increased 1.1
points to 68.0 from 66.9 for the same period last year.
Property-casualty
Revenues for the property-casualty segment increased to $113.8 million from
$101.9 million for the three months ended March 31, 1995 and 1994, respectively.
Direct earned premiums for the segment were $103.3 million for the first three
months of 1995 compared with $90.8 million one year earlier. Earned premiums
increased 11.9% for the first three months of 1995 to $102.7 million from $91.8
million for the same quarter in 1994. The increase in earned premiums resulted
primarily from growth in insurance exposure.
Pooled net written premiums (including ALLIED Mutual) totaled $166.6 million, an
11.4% increase over production in the first three months of 1994. The average
premium per policy for personal lines was up 3.6% from the first three months of
1994 to $572 while the policy count grew 7.7%. The average premium per policy
for commercial lines excluding crop-hail increased 4.5% from the first three
months of 1994 to $1,079 and the policy count was up 5.1%. Earned premiums for
the property-casualty segment were 65.4% personal lines and 34.6% commercial
lines in the first three months of 1995. The business mix for the first three
months of 1994 was 65.9% personal lines and 34.6% commercial lines.
Income before income taxes increased to $16 million from $13.4 million in the
first three months of 1994 primarily as a result of improved underwriting
experience. Investment income for the first three months of 1995 was $9.4
million compared with $8.2 million for the same period in 1994. The pretax yield
on invested assets was 6.5%, up from 6.3% due to the purchase of securities in
the higher interest rate environment of 1994. Realized investment gains were
$21,000 compared with $437,000 in the first three months of 1994. Other income
for the first three months of 1995 increased to $1.7 million from $1.5 million
for the same period in 1994.
The statutory combined ratio (after policyholder dividends) for the first three
months of 1995 improved to 94.9 from the 96.1 reported in the first three months
of 1994. Improvement in the combined ratio was primarily attributed to a 1.5
point decrease in the underwriting expense ratio. Wind and hail losses for the
first three months of 1995 increased to $5.4 million from $1.3 million for the
same period of 1994. The impact of wind and hail losses on the combined ratio
was 5.3 points and 1.4 points for the three months ended March 31, 1995 and
1994, respectively. The underwriting gain (on a generally accepted accounting
principles basis) was $5 million compared with a gain of $3.3 million for the
first three months of 1994.
<PAGE>
11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The following table presents the property-casualty's combined ratio by line of
business for the three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----- ----
<S> <C> <C>
Personal automobile 94.0 96.3
Homeowners 103.8 99.2
Personal lines 96.4 96.9
Commercial automobile 97.7 92.2
Workers' compensation 77.7 91.6
Other property/liability 96.3 96.4
Other lines 54.0 73.5
Commercial lines 91.9 94.2
Total 94.9 96.1
</TABLE>
The private passenger auto statutory combined ratio improved to 94.0 for the
first three months of 1995 from 96.3 for the same period in 1994. The
improvement in the combined ratio for the private passenger auto was due
primarily to a 1.4 point reduction in the underwriting expense ratio. The
statutory combined ratio for the homeowners line was 103.8 for the first three
months of 1995 compared with 99.2 for the same period of 1994. The increase in
the homeowners line combined ratio was due to unusually high wind and hail
losses experienced in the first quarter of 1995. Most of the increase came from
weather-related claims in California. The impact of wind and hail losses on the
combined ratio for the homeowners line increased to 20.4 points from 5.8 points
for the first three months of 1994. Overall, the personal lines statutory
combined ratio improved to 96.4 in the first three months of 1995 from 96.9 in
the same period of 1994. The statutory combined ratio for commercial lines
improved to 91.9 in the first three months of 1995 from 94.2 for the previous
year's first quarter. The improvement in commercial lines was primarily
attributable to a 13.9 point reduction in the combined ratio for workers'
compensation to 77.7 from 91.6 for the first three months of 1994. On a fully
diluted basis, wind and hail losses cost the Company $0.26 per share versus
$0.06 per share in the first three months of 1994.
Excess & Surplus Lines
Earned premiums increased to $6.8 million for the first three months of 1995
from $6 million for the first three months of 1994. Net written premiums
increased 25.6% to $7.5 million through March 31, 1995 from $6 million through
March 31, 1994. Direct earned premiums increased 16% to $8.7 million for the
three months ended March 31, 1995 from $7.5 million for the same period in 1994.
As of March 31, 1995, the segment's book of business was comprised of 2.5%
<PAGE>
12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
personal lines and 97.5% commercial lines. For the first three months of 1994,
the business mix was 3.1% personal lines and 96.9% commercial lines.
The statutory combined ratio (after policyholder dividends) was 104.0, which
produced an underwriting loss (on a generally accepted accounting principles
basis) of $305,000 for the first three months of 1995. The combined ratio of
96.0 for the first quarter of 1994 resulted in an underwriting gain of $244,000.
The combined ratio increased primarily because of a 31.3% increase in losses and
loss adjusting expenses experienced in the first quarter of 1995. The loss
experience of the first quarter of 1995 increased the loss ratio 11 points from
the same quarter last year.
Income before income taxes for the three months ended March 31, 1995 decreased
27.8% to $1.1 million from $1.5 million for the three months ended March 31,
1994. Realized investment gains were $2,000 in the first three months of 1995
compared with losses of $6,000 for the first three months in 1994. Investment
income for the first three months of 1995 increased 10% to $1.4 million from
$1.3 million for the same period in 1994. Investment income increased due to a
larger average balance in the investment portfolio and a slightly higher pretax
yield on those assets of 6.8% compared to 6.7% in the first three months of 1995
and 1994, respectively. Invested assets increased 3.5% from the previous
year-end to $82.4 million at March 31, 1995.
Noninsurance Operations
Prior to January 1, 1995, the Company disclosed noninsurance operations
(investment services and data processing) as reportable segments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 14, "Financial
Reporting for Segments of a Business Enterprise" and Regulation S-K. In 1995,
the noninsurance operations are not reported as segments since they did not meet
the reporting requirements of SFAS No. 14. Management does not anticipate that
their results of operations and financial position will qualify them as segments
in the future.
Revenues for ALLIED Group Mortgage Company (ALLIED Mortgage) in the first three
months of 1995 decreased 13.9% to $4.3 million from $5 million in 1994. The
decrease in revenues is primarily attributed to interest income decreasing
$661,000 for the three months ended March 31, 1995. The decrease is due to a
lower average balance of securities held for sale for the first quarter of 1995.
Income before income taxes increased 8.3% to $965,000 from $891,000 for the
first three months of 1994. The servicing portfolio remained unchanged at $3
billion for the three months ended March 31, 1995 compared to year-end 1994 but
the portfolio has increased 21.5% from $2.5 billion at March 31, 1994.
Data processing revenues decreased 1.2% for the first three months of 1995, to
$11.5 million from $11.7 million for the same period of 1994. For the quarter
ended March 31, 1995, data processing reported a loss before income taxes of
$846,000 compared to income before income taxes of $128,000 for the first
quarter of 1994. The loss before income taxes is due to a 6.4% increase in
operating expenses and a decrease in revenues.
<PAGE>
13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Investment Income
The investment policy for the Company's insurance segments requires that the
fixed maturity portfolios be invested primarily in debt obligations rated "A" or
higher by Standard & Poor's Corporation or a recognized equivalent at the time
of acquisition. The Company's investment portfolios consisted almost exclusively
of fixed income securities, 97.7% of which had at least an "A" rating from
Standard & Poor's (or the equivalent from Moody's) at March 31, 1995. At the end
of the first three months of 1995, the fixed maturities portfolios consisted of
99.3% investment-grade securities. The fair value of the Company's investment in
fixed maturities held to maturity was $598,000 below amortized cost compared
with $13.2 million below amortized cost at December 31, 1994. The portfolios
contained no commercial or residential real estate or mortgage loans.
Invested assets were up 3.9% to $681.4 million from $655.9 million at year-end
1994. Three-month consolidated investment income increased 17.3% to $11.3
million from $9.6 million through March 31, 1994. The Company's rate of return
on invested assets was up to 6.7% from last year's 6.3%. The higher interest
rate environment of 1994 allowed the Company to reinvest proceeds from maturing
investments in investments of similar quality bearing higher interest rates.
As of March 31, 1995, the Company held collateralized mortgage obligation (CMO)
investments with a book value of $71.5 million (fair value of $70.8 million)
compared to a book and fair value of $86.6 million as of March 31, 1994.
Substantially all of the Company's CMO investments are in planned amortization
class bonds or sequential pay bonds with anticipated durations of approximately
5 years at the time of acquisition. The Company has not invested in the more
volatile types of CMO products such as companion or accrual (Z-bond) tranches.
All of the Company's CMO investments have an active secondary market;
accordingly their effect on the Company's liquidity does not differ from that of
other fixed income investments.
Income Taxes
The Company's year-to-date effective income tax rate was down to 28.2% from
28.6% at year-end 1994. The lower effective income tax rate was due to the
larger investment in tax-exempt securities. The income tax expense for the first
three quarters of 1995 was up to $4.9 million from $4.6 million for the same
period in 1994. The increase in income tax expense was due to higher operating
income in 1995.
Regulations
The National Association of Insurance Commissioners' (NAIC) risk-based capital
(RBC) requirements were adopted by the NAIC in 1993 and require
property-casualty companies to calculate and report information under the RBC
formula. It is anticipated the Iowa legislature will enact the NAIC's proposal
into law in 1996. The RBC formula uses the statutory financial statements to
calculate the minimum indicated capital level to support asset (investment and
credit) risk and underwriting (loss reserves, premiums written, and unearned
<PAGE>
14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
premium) risk. Based upon the subsidiaries statutory financial statements and
management's interpretation of the RBC formula, management believes capital
levels are sufficient to support the level of risk inherent in Company
operations and are in excess of the minimums required.
The NAIC's model legislation to govern insurance company investments is in
development. An exposure draft was released in August of 1994, and no specific
timetable for completion and adoption of the final model legislation has been
determined.
Liquidity and Capital Resources
Substantial cash inflows are generated from premiums, pool administration fees,
investment income, and proceeds from maturities of portfolio investments. The
principal outflows of cash are payment of claims, commissions, premium taxes,
operating expenses, and income taxes and the purchase of fixed maturities. In
developing its investment strategy, the Company establishes a level of cash and
highly liquid short and intermediate term securities which, combined with
expected cash flow, is believed adequate to meet anticipated short-term and
long-term payment obligations.
In the first three months of 1995, operating activities generated cash flows of
$19.1 million; in the first three months of 1994, the total was $20 million. For
both years, the primary source of funds was premium growth in the Company's
property-casualty insurance operations.
Funds generated from the operating activities for the first three months of 1995
and 1994 were used primarily to purchase investment-grade fixed securities which
accounted for the majority of the investing activities. Operating cash flows
were also used to pay $3.4 million of dividends to stockholders in the first
three months of 1995. For the same period in 1994 the funds generated from the
operating activities were used to repurchase $4.9 million of common stock and to
pay dividends to stockholders of $3.2 million.
Management anticipates that short-term and long-term capital expenditures, cash
dividends, and operating cash needs will be met from existing capital and
internally generated funds. As of March 31, 1995, the Company and its
subsidiaries had no material commitments for capital expenditures. Future debt
and stock issuance will be considered as additional capital needs arise. The
method of funding will depend upon financial market conditions.
Certain of the Company's noninsurance subsidiaries have separate credit
arrangements to support their operations. Short-term and long-term notes payable
to nonaffiliated companies are used by ALLIED Mortgage to finance its securities
held for sale and to purchase servicing rights. The level of short-term
borrowings fluctuates daily depending on the level of inventory being financed.
At March 31, 1995, short-term borrowings amounted to $21.6 million to be repaid
through the subsequent sale of securities inventory and long-term borrowings
amounted to $15 million to be repaid over 10 years. These notes payable are not
<PAGE>
15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
guaranteed by the Company. In the normal course of its business, ALLIED Mortgage
also makes commitments to buy and sell securities that may result in credit and
market risk in the event the counterparty is unable to fulfill its obligation.
Historically, the Company's insurance subsidiaries have generated sufficient
funds from operations to pay their claims. While the property-casualty and
excess & surplus lines insurance companies have maintained adequate investment
liquidity, they have in the past required additional capital contributions to
support premium growth. Industry and regulatory guidelines suggest that a
property-casualty insurer's annual net written premiums should not exceed
approximately 300% of statutory surplus.
A source of cash flows for the holding company is dividend payments from its
subsidiaries. During the first three months of 1995, the Company received
dividend payments of $2.7 million from the property-casualty subsidiaries and
$169,000 from noninsurance subsidiaries. During the same period of 1994, the
Company received dividend payments of $1.1 million from the property-casualty
subsidiaries and $269,000 from noninsurance subsidiaries. Holding company
dividend payments to common stockholders totaled $1.5 million for the three
months ended March 31, 1995, up from $1.4 million for the same period in 1994.
In the first three months of 1995, the Company paid dividends of $941,000 and
$879,000 on the ESOP Convertible Preferred Stock (ESOP Series) and 6-3/4% Series
Preferred Stock, respectively. In the first quarter of 1994, the Company paid
dividends of $955,000 and $879,000 on the ESOP Series and 6-3/4% Series
preferred stock, respectively.
In 1990, the ESOP Trust issued notes totaling $35 million (ESOP obligations) to
acquire ESOP Series preferred stock for the Company's Employee Stock Ownership
Plan (ESOP). In March 1995, the ESOP Trust refinanced its notes with a Term
Credit Agreement and Guaranty (Agreement) with two separate commercial banks.
The Company guaranteed the ESOP Trust's obligations under the Agreement (see
note 4 of Notes to Interim Consolidated Financial Statements). At March 31,
1995, the balance of the obligation was $28.2 million. Company contributions
plus dividends on the ESOP Series preferred stock are used by the ESOP Trust to
service the ESOP obligations. Dividends and payments for the employee lease fees
from its subsidiaries are used by the Company to fund the amounts. In connection
with its guarantee of ESOP obligations, the Company is required to maintain
minimum stockholders' equity and to comply with certain other financial
covenants.
Insurance premiums are established before the amount of losses and loss
settlement expenses, or the extent to which inflation may affect such expenses,
is known. Consequently, the Company attempts to anticipate the impact of
inflation in establishing premiums. Inflation is implicitly considered in the
determination of reserves for losses and loss settlement expenses since portions
of the reserves are expected to be paid over extended periods of time. The
importance of continually reviewing reserves is even more pronounced in periods
of extreme inflation.
<PAGE>
16
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.29 Term Credit Agreement and Guaranty between ALLIED Group, Inc.,
ALLIED Group Employee Stock Ownership Trust, Bank of Montreal,
and Norwest Bank Iowa,N.A.
10.50 First Amendment to the ALLIED Group Employee Stock Ownership
Plan dated March 7, 1995
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule
b) The Company filed no reports on Form 8-K during the first quarter ended
March 31, 1995.
<PAGE>
17
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.
ALLIED Group, Inc.
(Registrant)
May 4, 1995 /s/ Jamie H. Shaffer
(Date) ---------------------------------------
Jamie H. Shaffer, President (Financial)
and Treasurer
<PAGE>
18
ALLIED Group, Inc. and Subsidiaries
INDEX TO EXHIBITS
EXHIBIT
NUMBER ITEM PAGE
10.29 Term Credit Agreement and Guaranty between ALLIED 19
Group, Inc., ALLIED Group Employee Stock Ownership
Trust, Bank of Montreal, and Norwest Bank Iowa, N.A.
10.50 First Amendment to the ALLIED Group Employee Stock
Ownership Plan dated March 7, 1995 74
11 Statement re Computation of Per Share Earnings 77
27 Financial Data Schedule 78
<PAGE>
19
TERM CREDIT AGREEMENT AND GUARANTY
THIS TERM CREDIT AGREEMENT AND GUARANTY dated as of March 13, 1995
("Agreement") is entered into by and among ALLIED Group, Inc., a company duly
organized and existing under the laws of the State of Iowa (the "Company"),
State Street Bank and Trust Company, not in its individual capacity (except as
otherwise provided in Sections 5.2(a) and (b)) but as trustee for The ALLIED
Group Employee Stock Ownership Trust (the "ESOP Trustee"), a trust company duly
organized and existing under the laws of the Commonwealth of Massachusetts (the
"ESOP Trust"), Bank of Montreal, Chicago Branch ("BOM"), Norwest Bank Iowa,
National Association ("Norwest") (BOM and Norwest each a "Bank" and, together
with any other lenders that become a party hereto, the "Banks") and Bank of
Montreal, Chicago Branch, as agent for the Banks (in such capacity, the
"Agent").
WHEREAS, in order to finance the purchase by the ESOP Trust of the
Company's Series A ESOP Convertible Preferred Stock, no par value and $15 stated
value per share (the "ESOP Preferred Stock"), the ESOP Trust issued Remarketed
ESOP Notes Due July 12, 2005 in the aggregate principal amount of $35,000,000
(the "Floating Rate Notes"), authorized and issued pursuant to the Indenture (as
defined below);
WHEREAS, the ESOP Trust has determined that it is desirable to
refinance the Floating Rate Notes and desires to obtain the Loans (as defined
below) from the Banks in order to refinance such Floating Rate Notes;
WHEREAS, the Company has agreed to guarantee the prompt payment and
performance of the ESOP Trust Liabilities (as defined below) and has agreed to
purchase the Banks' right, title and interest in, to and under the Credit
Documents (as defined below) under certain terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and subject to the terms, limitations and conditions hereof, the Company,
the ESOP Trust, the Banks and the Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions and Principles of Construction.
Section 1.1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Adjusted Net Income" shall mean net income of the Company and
its Consolidated Subsidiaries (determined in accordance with GAAP) less
dividends paid on the ESOP Preferred Stock owned by the ESOP Trust, all other
preferred stock of the Company purchased by the ESOP Trust and all other
preferred stock of the Company which is outstanding as of January 27, 1995.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
<PAGE>
20
(a) the ESOP Trust shall be deemed not to be an affiliate of the Company, and
(b) "control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" shall have the meaning set forth in the first
paragraph of this Agreement and shall include any successor appointed pursuant
to Section 11.9.
"AGIS" shall mean ALLIED Group Information Systems, Inc., an
Iowa corporation.
"ALLIED Mortgage" shall mean ALLIED Group Mortgage Company, an
Iowa corporation.
"ALLIED Mutual" means ALLIED Mutual Insurance Company, a
mutual insurance company organized under the laws of the State of Iowa.
"Alternate Rate" shall mean for any day, the sum of (x)
quotient of (i) the rate per annum (rounded upwards, if necessary, to the
nearest 1/16th of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers on such day, as published for such day (or if such day
is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for a day
which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from Federal funds brokers of recognized
standing selected by it, divided by (ii) a percentage equal to 100% minus the
then stated maximum rate of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System, plus (y) 50 basis
points; provided that, from and after the purchase by the Company of the Banks'
right, title and interest in, to and under the Credit Documents pursuant to
Section 10.1, the Alternate Rate shall be the rate described in clause (x)(i)
plus 50 basis points.
"Annual Statement" shall mean the Annual Statement of any
Property and Casualty Insurance Company, as the case may be, to the insurance
regulatory authorities of its domiciliary state, as the same may be amended from
time to time.
"Applicable Lending Office" shall mean, with respect to each
Bank, the office of such Bank specified on Schedule 1 hereto, or such other
office as such Bank may specify from time to time to the ESOP Trust.
"Applicable Margin" shall mean the number of basis points
indicated in the table set forth below under the heading "Applicable Margin" and
opposite the applicable Best's Rating. The Applicable Margin shall be determined
with respect to the Quoted Rate during an Interest Period by reference to the
Best's Rating on the first day of the calendar quarter in which the Interest
Period began.
<TABLE>
<CAPTION>
Best's Applicable
Rating Margin
------ ------
<S> <C>
A+ 62.5
A 75.0
A- 87.5
Below A- 200
</TABLE>
<PAGE>
21
"Authorized Officer" means, in the case of the Company, any
President, Vice President or Secretary of the Company or, in the case of the
ESOP Trust, a vice-president or assistant vice-president of the ESOP Trustee.
"Bank Reimbursement Obligations" means all indebtedness and
other liabilities and obligations of either the Company or the ESOP Trust to the
Banks or the Agent under, arising out of or in any way connected with any of the
Credit Documents.
"Bank" or "Banks" shall have the meaning set forth in the
first paragraph of this Agreement and shall include any assignee pursuant to
Section 12.4.
"Best's Rating" shall mean the pooled rating assigned to each
Property and Casualty Insurance Company by A.M. Best & Co.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday, and any day that
shall be in Chicago, Illinois, Des Moines, Iowa or Boston, Massachusetts, a
legal holiday or a day on which banking institutions are authorized or required
by law or other government action to close and (ii) with respect to all notices
and determinations in connection with the Quoted Rate, any day that is a
Business Day described in clause (i) above and that is also a day for trading by
and between banks in the interbank Eurodollar market.
"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"Certificate" shall mean Certificate of Designation for the
Series A ESOP Convertible Preferred Stock of ALLIED Group, Inc.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. Section references to the Code are to the Code as in
effect at the date of this Agreement and to any subsequent provisions of the
Code that are amendatory thereof, supplemental thereto, or substituted therefor.
"Commissioner" means the Commissioner of Insurance of the
State of Iowa.
"Commitment" shall mean, for each Bank, the amount set forth
opposite such Bank's name in Schedule 1 under the heading "Commitment."
"Companies" shall mean the Company and the ESOP Trust.
"Company" means ALLIED Group, Inc., a corporation duly
organized and validly existing under the laws of the State of Iowa.
"Company Guaranty" shall mean the guaranty by the Company of
the prompt payment and performance of the ESOP Trust Liabilities, as more fully
set forth in Article IX of this Agreement.
<PAGE>
22
"Consolidated Net Premiums Written" for any calendar year
shall mean the sum of the Net Premiums Written of each Property and Casualty
Insurance Company for such year.
"Consolidated Statutory Net Income" for any calendar year
shall mean the sum of the Statutory Net Income of each Property and Casualty
Insurance Company for such year.
"Consolidated Statutory Surplus" for any calendar year shall
mean the sum of the Statutory Surplus of each Property and Casualty Insurance
Company for such year.
"Consolidated Subsidiary" means, as to any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of such Person in accordance with
GAAP.
"Controlled Group" means all members of a group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company are treated as a single employer
under Section 414(b), 414(c), 414(m) or 414(o) of the Code, and any other
subsidiary or other Person which is under common control with the Company within
the meaning of Section 4001(a) of ERISA.
"Credit Documents" means this Agreement (including the Company
Guaranty), the Notes and all amendments, modifications and supplements thereto.
"Default" shall mean any event, act, or condition that with
notice or lapse of time, or both, would constitute an Event of Default.
"Default Rate" means (i) the Prime Base Rate (as it may change
from time to time), plus (ii) 2% per annum, subject to Sections 2.3(d) and
12.16.
"Dollars" and the sign "$" shall each mean freely
transferable lawful money of the United States.
"Effective Date" shall mean March 13, 1995 or such other date
as the parties shall mutually agree.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to ERISA as
in effect at the date of this Agreement and to any subsequent provisions of
ERISA that are amendatory thereof, supplemental thereto, or substituted
therefor.
"ESOP Documents" means the ESOP Trust Agreement and the ESOP
Plan.
"ESOP Plan" means The ALLIED Group Employee Stock Ownership
Plan effective as of January 1, 1990, as the same may be amended from time to
time.
"ESOP Preferred Stock" shall have the meaning set forth in the
first Whereas Clause in this Agreement.
"ESOP Preferred Stock Dividends" shall mean the dividends
required to be paid on the ESOP Preferred Stock pursuant to the Certificate.
<PAGE>
23
"ESOP Trust" means The ALLIED Group Employee Stock Ownership
Trust, an employee stock ownership trust which implements and forms a part of
the ESOP Plan.
"ESOP Trust Agreement" means that certain agreement dated as
of April 16, 1991, by and between the Company and the ESOP Trustee, establishing
the ESOP Trust, as amended to the date hereof and as amended from time to time.
"ESOP Trust Liabilities" shall have the meaning set forth in
Section 9.1(a).
"ESOP Trustee" means State Street Bank and Trust Company, not
in its individual capacity (except for Sections 5.2(a) and (b)), but as Trustee
of the ESOP Trust or any duly appointed successor thereof as trustee of the ESOP
Trust.
"Event of Default" has the meaning set forth in Article VIII
of this Agreement.
"Fees" shall mean all amounts payable pursuant to Sections
3.1 and 3.2.
"Floating Rate Notes" shall have the meaning set forth in the
first Whereas Clause in this Agreement.
"Funded Debt" of a Person means all Indebtedness of such
Person; provided, however, that Funded Debt of the Company and its Subsidiaries
shall not include (i) all Non-Recourse Indebtedness, (ii) the Company Guaranty,
and (iii) the Subordinated Debt of the Company or its Subsidiaries not in excess
of $20,000,000.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time, in conformity with those used in
preparation of the financial statements referred to in Section 5.1(e).
"Guarantee" means a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock of any corporation, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of his, her or its
obligations or an agreement to assure a creditor against loss, and including,
without limitation, contracting with a bank to issue a letter of credit for the
benefit of another Person, but excluding endorsements for collection of deposit
in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used
as a verb shall have a correlative meaning.
"Indebtedness" means, as to any Person: (a) Indebtedness
created, issued or incurred by such Person for borrowed money (whether by loan
or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date of respective goods are
delivered or respective services rendered; (c) Indebtedness of others secured by
a Security Interest on the property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
<PAGE>
24
instruments issued or accepted by banks and other financial institutions for the
account of such Person; (e) Capital Lease Obligations of such Person; and (f)
all Indebtedness or other obligations of others Guaranteed by such Person.
"Indenture" means the Indenture dated as of July 1, 1990
between the Company, the ESOP Trust and Citibank, N.A. and all amendments and
supplements to that Indenture.
"Interest Determination Date" shall mean the second Business
Day prior to the commencement of any Interest Period relating to the Quoted
Rate.
"Interest Period" shall have the meaning provided in Section
2.3(b).
"Loan" and "Loans" shall have the meaning provided in Section
2.1.
"Mandatory Payments" shall mean the payments described in
Section 4.2.
"Maturity Date" shall mean July 31, 2005.
"Net Premiums Written" shall mean (i) for any calendar year,
the amount shown in the Underwriting and Investment Exhibit, page 8, part 2B,
column 4, line 32 in the Annual Statement (or the equivalent item if the form of
said Annual Statement shall be amended) of any Property and Casualty Insurance
Company for such calendar year, and (ii) for any quarter, the comparable amount
shown on the quarterly statements provided by any Property and Casualty Company
to the insurance regulatory authorities of its domiciliary state.
"1934 Act Documents" shall mean the most recent annual report
of the Company on Form 10-K filed with the SEC, the most recent quarterly report
of the Company on Form 10-Q and any report on Form 8-K filed by the Company with
the SEC since the filing of such Form 10-K.
"Non-Recourse Indebtedness" shall mean Indebtedness of ALLIED
Mortgage which is not Guaranteed by, and which is not an Indebtedness of, the
Company.
"Note" and "Notes" shall have the meaning set forth in
Section 2.2.
"Officer's Certificate" means a certificate signed, in the
case of a certificate delivered by a corporation, by any President or Vice
President, or any other duly authorized officer of such corporation or, in the
case of a certificate delivered by any other Person, the chief executive or
chief financial officer of such other Person, in either case whose authority to
execute such certificate shall be evidenced to the reasonable satisfaction of
the Agent.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Payment Office" shall mean the offices of the Banks or the
Agent set forth on Schedule 1, or such other offices the Banks or the Agent may
hereafter designate in writing as such to the ESOP Trust.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, Plan, unincorporated
organization, or government or any agency or political subdivision thereof.
<PAGE>
25
"Plan" means a defined benefit pension plan under ERISA for
which the Company or any Subsidiary could be held liable by the PBGC for the
Unfunded Liabilities of such Plan upon its termination.
"Pooling Agreement" shall mean that certain Second Restated
and Amended Reinsurance Pooling Agreement dated December 14, 1992 and effective
January 1, 1993, and amended as of February 18, 1993 and February 10, 1995 by
and between ALLIED Mutual and the Property and Casualty Insurance Companies, as
in effect on the date hereof.
"Prime Base Rate" means at any time the rate per annum then
most recently publicly announced by the Agent as its prime rate, it being
expressly understood that such rate (i) may not be the lowest rate charged by
the Agent at such time and (ii) is used as an index only and (iii) is in the
Agent's control. Such Prime Base Rate shall change when and as such prime rate
changes.
"Property" means any and all rights, title and interest of the
Company in and to any and all property, whether real or personal, tangible or
intangible, and wherever situated.
"Property and Casualty Insurance Company" shall mean each of
(i) ALLIED Property and Casualty Insurance Company, an insurance company
organized under the laws of the State of Iowa, (ii) AMCO Insurance Company, an
insurance company organized under the laws of the State of Iowa, and (iii)
Depositors Insurance Company, an insurance company organized under the laws of
the State of Iowa.
"Quoted Rate" shall mean, with respect to each Interest
Period, the average of the offered quotation to first-class banks in the London
interbank Eurodollar market by the Reference Bank for Dollar deposits of amounts
comparable to the outstanding principal amount of the Loan of the Reference Bank
for which an interest rate is then being determined with maturities comparable
to the Interest Period to be applicable to the Loan, determined as of 11:00 a.m.
(Chicago time) on the date that is two Business Days prior to the commencement
of such Interest Period (rounded upward to the next whole multiple of 1/16 of
1%); provided that, from and after the purchase by the Company of the Banks'
right, title and interest in, to and under the Credit Documents pursuant to
Section 10.1, the term "Quoted Rate" shall mean, with respect to each Interest
Period for the Loan, the London Interbank Offered Rate (LIBOR) as listed in the
Money Rates column of the Wall Street Journal for loans with maturities
comparable to the Interest Period to be applicable to the Loan effective for
contracts entered into for the period.
"Reference Bank" shall mean the Agent from time to time.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System from time to time in effect and shall include any
successor or other regulation of the Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Required Banks" shall mean, at any time, a Bank or Banks
holding a majority of the then aggregate principal amount of the Loans
outstanding or, if no Loans are outstanding, Banks having Commitments
representing a majority of the aggregate. For purposes of consents pursuant to
Section 6.1 and changes to or waivers of section 6.1 pursuant to section 12.19,
such consent, changes or waivers must be approved by Norwest during such period
<PAGE>
26
that Norwest holds at least 28% of the outstanding prinicpal amount of the Loans
(and such Norwest approval may be counted in the calculation whether the
requirements of the preceding sentence are met).
"Repurchase Price" shall have the meaning provided in Section
10.1.
"SEC" means the Securities and Exchange Commission or any
other governmental agency or body which succeeds to the powers, duties and
functions of the Securities and Exchange Commission.
"Section" means a numbered section of this Agreement unless
another document is specifically referenced.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, conditional sale, title retention agreement or other security
interest which secures payment or performance of an obligation, but excluding
lease obligations which are not Capital Lease Obligations.
"Statutory Net Income" of any Property and Casualty Insurance
Company shall mean the amount set forth on line 16 in column 1 on page 4 of such
Company's Annual Statement.
"Statutory Surplus" shall mean (i) for any calendar year, the
amount shown in the Underwriting and Investment Exhibit, page 4, column 1, line
32 of the Annual Statement (or the equivalent item if the form of said Annual
Statement shall be amended) of any Subsidiary of the Company that is a Property
and Casualty Insurance Company, and (ii) for any calendar quarter, the
comparable amount shown on the quarterly statements provided by any Subsidiary
of the Company that is a Property and Casualty Insurance Company to the
insurance regulatory authorities of its domiciliary state.
"Stockholder Equity" of any Person shall mean such Person's
stockholder equity computed on the basis of GAAP.
"Subordinated Debt" of a Person shall mean all indebtedness of
a Person as to which the obligations of such Person to a creditor are junior and
subordinated in all respects to the payment of any Bank Reimbursement
Obligations which are currently due but not yet paid.
"Subsidiary" means any corporation of which at least a
majority of the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by the Company or one or more of its Subsidiaries.
"Taxes" shall have the meaning given to that term in Section
2.9.
"Total Assets" shall mean the amount shown as total assets on
the consolidated balance sheet of the Company for the most recent period as
reported on the Company's Form 10-K or Form 10-Q.
"Transfer Date" shall have the meaning set forth in section
10.1.
"Unfunded Liabilities" means, with regard to any Plan, the
excess (if any) of the value of benefit liabilities under the Plan (determined
as of any date on the basis of assumptions prescribed by the PBGC for the
purposes of valuing benefits under Section 4044 of ERISA) over the current value
(as of such date) of the Plan's assets allocable to such benefits.
<PAGE>
27
Section 1.2 Principles of Construction. (a) All references to sections,
schedules, and exhibits are to sections, schedules, and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein," and
"hereunder," and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) All references to line items in any column and on any page of
Property and Casualty Insurance Company's Annual Statement shall be deemed to be
references to the equivalent item in the event that the form of such Company's
Annual Statement is amended.
(c) All definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
Section 2.1 The Loan. (a) Subject to and upon the terms and conditions
set forth herein, each Bank severally agrees, on the Effective Date, to make a
term loan in the amount of such Bank's Commitment (any loan by either Bank a
"Loan" and the loans by the Banks, the "Loans") to the ESOP Trust. Any portion
of the Commitment not drawn on the Effective Date will be cancelled as of the
close of business on such date.
(b) The Loans under this Agreement shall be incurred from the Banks pro
rata on the basis of their Commitments. It is understood that no Bank shall be
responsible for any default by the other Bank of its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans provided to be
made by it hereunder regardless of the failure of the other Banks to make its
Loans hereunder.
Section 2.2 Notes. The ESOP Trust's obligation to pay the principal of,
and interest on, the Loan made by each Bank shall be evidenced by a promissory
note duly executed and delivered by the ESOP Trust to each such Bank
substantially in the form of Exhibits A-1 and A-2 with blanks appropriately
completed in conformity herewith (each a "Note" and collectively the "Notes").
The Note issued to each Bank shall (i) be payable to the order of such Bank and
be dated the Effective Date, (ii) be in a stated principal amount equal to the
Commitment of such Bank, (iii) mature, with respect to the Loan evidenced
thereby, as set forth in Section 4 hereof, (iv) bear interest as provided in
Section 2.3 at the Quoted Rate plus the Applicable Margin (or, in the
circumstances set forth in Section 2.4, at the Alternate Rate), and (v) be
entitled to the benefits of this Agreement. Each Bank will note on its internal
records the amount of the Loan made by it and each payment in respect thereof
and will, prior to any transfer of its Note, endorse on the reverse side thereof
the outstanding principal amount of the Loan evidenced thereby. Failure to make
any such notation shall not affect the ESOP Trust's obligations in respect of
the Loans.
Section 2.3 Interest. (a) The ESOP Trust agrees to pay interest in
respect of the unpaid principal amount of the Loans from the date the proceeds
thereof are made available to the ESOP Trust until the maturity thereof (whether
by acceleration or otherwise) at a rate per annum which shall, during each
Interest Period applicable thereto, be equal to the sum of the Quoted Rate for
such Interest Period plus the Applicable Margin in effect for such Interest
Period; provided that, if the Alternate Rate is applicable, the ESOP Trust
agrees to pay interest in respect of the unpaid principal amount of the Loans
during the period the Alternate Rate is applicable until the maturity thereof
(whether by acceleration or otherwise) at a rate per annum equal to the
Alternate Rate as in effect from time to time.
<PAGE>
28
(b) Three Business Days prior to the Effective Date (in the case of any
initial Interest Period) or on the third Business Day prior to the expiration of
an Interest Period applicable to the Loans (in the case of any subsequent
Interest Period), the ESOP Trust shall have the right to elect, by giving the
Agent notice thereof, one or more interest periods (each an "Interest Period")
applicable to the Loans (or, if more than one Interest Period, portions thereof
selected by the ESOP Trust in accordance herewith) which Interest Period(s)
shall, at the option of the ESOP Trust, be a one, three, or six month period,
provided that: (i) the initial Interest Period shall commence on the Effective
Date and each Interest Period occurring thereafter in respect of such Loans
shall commence on the day on which the next preceding Interest Period applicable
thereto expires; (ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of such
calendar month; (iii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the month
after which no further Business Day occurs in such month, such Interest Period
shall expire on the next preceding Business Day; (iv) no Interest Period shall
extend beyond the Maturity Date; (v) no Interest Period for any portion of the
Loans subject to a Mandatory Payment shall extend beyond any date upon which
such Mandatory Payment is required to be made under Section 4.2; (vi) there
shall be no more than three Interest Periods applicable to the Loans at any one
time; and (vii) any Interest Period selected shall apply to at least $300,000 of
the outstanding principal amount of the Loans. The Agent shall, upon request,
informally notify the ESOP Trust of the Quoted Rate in effect on the date of
such notice with respect to the various Interest Periods then being considered
by the ESOP Trust (but all parties understand that (i) any Quoted Rates provided
in such notice will vary on a day-by-day basis and will likely not be in effect
on the Interest Determination Date, and (ii) the Quoted Rate on each Interest
Determination Date will be determined as set forth in the applicable provisions
of this Agreement). If upon the expiration of any Interest Period applicable to
the Loans, the ESOP Trust has failed to elect a new Interest Period to be
applicable to the Loans (or any portion thereof) as provided above, the ESOP
Trust shall be deemed to have elected an Interest Period of one month effective
as of the expiration date of such current Interest Period. If, with respect to
any amount subject to such Mandatory Payment ("Mandatory Payment Portion"), a
period of less than one month remains ("Standby Period") from the expiration of
the Interest Period previously applicable to such Mandatory Payment Portion to
the date of any Mandatory Payment, the ESOP Trust shall have the right to elect,
by giving the Agent notice thereof pursuant to the terms of this Section 2.3(b),
an Interest Period of less than one month corresponding to such Standby Period
with respect to the Mandatory Payment Portion, subject to availability (as
determined by Agent in its sole discretion), and, if available, the Mandatory
Payment Portion (but no other portion of the Loans), shall bear interest at the
Quoted Rate established by the Agent for such Standby Period, plus the
Applicable Margin. If at the time of determination of such Quoted Rate for such
Standby Period, the Agent determines that adequate and fair means do not exist
for ascertaining the applicable Quoted Rate or that a Quoted Rate for such
Standby Period is not generally available, such Mandatory Payment Portion shall
bear interest at the Alternate Rate.
(c) On each Interest Determination Date, the Agent shall determine the
interest rate applicable to the Loans and shall promptly notify the ESOP Trust.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
(d) Overdue principal and, to the extent permitted by law, overdue
interest in respect of the Loans and any other overdue amount payable by the
ESOP Trust hereunder shall bear interest at a rate per annum equal to the
Default Rate in effect from time to time; provided, however, that no portion of
<PAGE>
29
the Loans shall bear interest after a Default at a rate per annum less than 2%
in excess of the rate of interest applicable thereto on the date the Default
occurred.
(e) Accrued (and theretofore unpaid) interest shall be payable (i) with
respect to each portion of the Loans, on the last day of each Interest Period
applicable to such portion of the Loans and, in the case of an Interest Period
in excess of three months, on each date occurring at three-month intervals after
the first day of such Interest Period (or if the Alternate Rate applies,
quarterly in arrears on the last Business Day of each March, June, September,
and December commencing on March 31, 1995), and (ii) on the date of any
prepayment (on the amount prepaid), at maturity of the Loans (whether by
acceleration or otherwise), and, after such maturity of the Loans, on demand.
Section 2.4 Increased Costs, Illegality, Etc. (a) In the event that any
Bank shall have reasonably determined (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto but,
with respect to clause (i) below, such determination may be made only by the
Agent):
(i) on any Interest Determination Date that adequate and fair means do
not exist for ascertaining the applicable interest rate on the basis provided
for in the definition of Quoted Rate or that such rate is not generally
available; or
(ii) at any time that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to its
Loan because of (x) any introduction of or change in any applicable law or
governmental rule, regulation, order, or request (whether or not having the
force of law) (or in the interpretation or administration thereof and including
the introduction of any new law or governmental rule, regulation, order, or
request), such as, for example, but not limited to, (i) a change in the basis of
taxation of payments to such Bank or its Applicable Lending Office of the
principal of or interest on its Note or any other amounts payable hereunder
(except for changes in the rate of tax on, or determined by reference to, the
net income or profits of such Bank or its Applicable Lending Office imposed by
the jurisdiction in which its principal office or Applicable Lending Office is
located) or (ii) a change in reserve (including reserves required under
Regulation D), special deposit, compulsory loan or similar requirements (but
excluding any such reserve requirement taken into account in the calculation of
the Alternate Rate), and/or (y) other circumstances affecting such Bank or the
interbank Eurodollar market, or the position of such Bank in such market; or
(iii) at any time that the making or continuance of an interest rate
based on the Quoted Rate has been made (x) unlawful by any law or governmental
rule, regulation, or order, (y) impossible by compliance by such Bank with any
governmental request (whether or not having force of law), or (z) impracticable
as a result of a contingency occurring after the date of this Agreement that
materially and adversely affects the interbank Eurodollar market;
then, and in any event, such Bank (or the Agent, in the case of clause (i)
above) shall promptly give notice (by telephone confirmed in writing) to the
ESOP Trust of such determination. Thereafter (x) in the case of clause (i)
above, the interest rate determined on the basis of the Quoted Rate shall no
longer be available from the Banks until such time as the Agent notifies the
ESOP Trust and the Banks that the circumstances giving rise to such notice by
the Agent no longer exist, and, upon the expiration of any Interest Period, the
Loans shall bear interest at the Alternate Rate, (y) in the case of clause (iii)
above, such Bank's Loan shall immediately bear interest at the Alternate Rate
and the interest rate determined on the basis of the Quoted Rate shall no longer
be available from such Bank until such time as such Bank notifies the ESOP Trust
and the Agent that the circumstances giving rise to such notice by such Bank no
longer exist, and (z) in the case of clause (ii) above, the ESOP Trust shall pay
<PAGE>
30
to such Bank, within five (5) Business Days after receipt of the certificate
described in Section 2.4(c), such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Bank in its sole discretion shall determine) as shall be required to
compensate such Bank on an after-tax basis for such increased costs or
reductions in amounts received or receivable hereunder.
(b) In the event that any Bank shall have reasonably determined that
the adoption of any law, rule, regulation, treaty or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
application of any of the foregoing or compliance by such Bank with any request
or directive regarding capital adequacy (whether or not having the force of law)
from any central bank or other governmental authority, agency or instrumentality
or regulatory body, does or shall have the effect of reducing the rate of return
on such Bank's or its parent's capital as a consequence of its obligations under
this Agreement to a level below that which such Bank or its parent could have
achieved but for such adoption, change, or compliance (taking into consideration
such Bank's or its parent's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, after
submission by such Bank to the ESOP Trust of a certificate described in Section
2.4(c), the ESOP Trust shall pay to such Bank, within five (5) Business Days
after its receipt of such certificate, such additional amount or amounts as will
compensate such Bank or its parent on an after-tax basis for such reduction.
(c) Any Bank seeking payment pursuant to Section 2.4(a)(ii) and/or
Section 2.4(b) shall provide to the ESOP Trust a certificate in reasonable
detail calculating any amount payable to such Bank pursuant to Section
2.4(a)(ii) and/or Section 2.4(b), which certificate shall, absent manifest
error, be final and conclusive and binding on all parties hereto.
Section 2.5 Compensation. The ESOP Trust shall compensate each Bank,
upon its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses, and liabilities
(including, without limitation, any loss, expense, or liability incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Bank to fund or maintain its Loan) that such Bank may sustain: (i) if for
any reason the Loan by such Bank is not made on the Effective Date (other than
due to breach by such Bank) (if the ESOP Trust has notified such Bank pursuant
to Section 2.3(b) of the initial Interest Period(s) for such Bank's Loan to be
made on the Effective Date); (ii) if any repayment (including any repayment made
pursuant to Article IV) occurs on a date that is not the last day of an Interest
Period with respect thereto; (iii) if any prepayment is not made on any date
specified in a notice of prepayment given by the ESOP Trust (which shall be the
last day of an Interest Period); or (iv) as a consequence of (x) any other
default by the ESOP Trust in repaying of such Bank's Loan (or any part thereof)
when required by the terms of this Agreement or such Bank's Note or (y) any
shift from the Quoted Rate plus the Applicable Margin to the Alternate Rate made
pursuant to Section 2.4(a) or any prepayment pursuant to Article IV or any
repurchase made pursuant to Article X, or (z) the Alternate Rate becoming
applicable.
Section 2.6 Making of Payments. All payments by the Companies hereunder
shall be made in lawful currency of the United States of America and in
immediately available funds not later than 3 p.m., Chicago time, on the date
due. Funds received after 3 p.m., Chicago time, shall be deemed to have been
received on the next following Business Day. Except as specifically provided
herein, all such payments are to be made to the Agent at the Agent's Payment
Office for the pro rata account of each Bank. The Agent shall promptly
distribute to each Bank, at each Bank's Payment Office, such Bank's pro rata
share of such payments.
Section 2.7 Basis of Computation. Unless otherwise expressly provided
in this Agreement, interest and fees shall be computed for the actual number of
days elapsed on the basis of a 360 day year.
<PAGE>
31
Section 2.8 Non-Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, such
payment shall be due on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest or
fees, as the case may be.
Section 2.9 Net Payments. (a) All payments made by the Companies
hereunder and the other Credit Documents will be made without setoff,
counterclaim, or other defense. All payments made by the Companies under this
Agreement and the other Credit Documents shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, deductions, charges, or
withholdings imposed, assessed, levied or collected by any country or any
political subdivision or taxing authority thereof or therein, but excluding
taxes imposed on the net income of each Bank or the Agent by the country and
state under the laws of which such Bank or the Agent is organized or is managed
and controlled or in which it engages in the conduct of a trade or business or
any political subdivision or taxing authority thereof or therein (all such
non-excluded taxes, levies, imposts, deduction, charges or withholdings being
hereinafter called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to any Bank or the Agent hereunder, the amounts so payable to
such Bank or the Agent shall be increased to the extent necessary to yield to
such Bank and the Agent (after payment of all Taxes) interest, fees or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Agreement or the other Credit Documents. Whenever any Tax is paid by the
Companies, as promptly as possible thereafter, the Companies shall send to the
Agent and the Bank on whose behalf such tax is paid a certified copy of any
original official receipt received by the Companies showing payment thereof. If
the Companies fail to pay any Taxes when due to the appropriate taxing
authority, the Companies shall indemnify each Bank and the Agent for any
incremental taxes, interest or penalties that may become payable by such Bank or
the Agent as a result of any such failure.
(b) On or prior to Closing, or on or prior to January 1 of each year,
or upon written request of the ESOP Trust or the Company, each Bank or Agent
that is not incorporated or organized under the laws of the United States or any
state thereof shall deliver to the Agent and to either the Company or the ESOP
Trust such certificates, documents or other evidence, as required by the Code or
Treasury Regulations issued pursuant thereto, including Internal Revenue Service
Form 1001 or Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or
any subsequent version thereof, properly completed and duly executed
establishing that such payment is (i) not subject to withholding under the Code
because such payment is effectively connected with the conduct by such Bank or
Agent of a trade or business in the United States or (ii) totally exempt from
United States tax under a provision of an applicable tax treaty. If such Bank or
Agent fails to provide such forms or other documents, or if the ESOP Trust is
not reasonably satisfied that such forms and documents meet the applicable
requirements of the Code and Treasury Regulations, the ESOP Trust shall,
notwithstanding the provisions of Section 2.9(a), withhold taxes from such
payments at the applicable statutory rate in the case of payments to such Bank
or Agent, and upon such withholding the ESOP Trust shall have no obligation to
increase payments to such Bank or Agent in accordance with the third sentence of
Section 2.9(a). The Companies shall be entitled to rely on the forms and other
documents which are referred to above and which are submitted to it by such Bank
or Agent.
Section 2.10 Non-Recourse. Notwithstanding anything in this Agreement
to the contrary, the Banks and the Agent in enforcing or obtaining satisfaction
of the obligations of the ESOP Trust hereunder shall have no recourse against
the ESOP Trust or rights to payment out of the assets of the ESOP Trust other
than such recourse or rights as the Banks or the Agent are permitted to have
under Section 4975 of the Code and Section 408(b)(3) of ERISA and the
regulations issued thereunder including but not limited to Treas. Reg. Section
54.4975-7(b) (including such recourse or rights as may be permitted under any
<PAGE>
32
applicable "grandfathering" provisions of such sections or regulations as then
in effect). The foregoing limitations shall not affect the rights of the Banks
or the Agent to proceed against the Company under the Company Guaranty to
recover the full amount of the Bank Reimbursement Obligations (determined
without reference to such limitations).
ARTICLE III
FEES
Section 3.1 Structuring Fee. The ESOP Trust agrees to pay to BOM a
structuring fee equal to $50,000 ($25,000 of which was paid on January 27, 1995
and $25,000 of which shall be paid on the Effective Date). Such fee shall be
deemed fully earned and non-refundable on the Effective Date.
Section 3.2 Commitment Fee. The ESOP Trust shall, on the Effective
Date, pay to each Bank a Commitment Fee equal to .4% per annum of such Bank's
Commitment from March 13, 1995 to the Effective Date.
ARTICLE IV
PREPAYMENTS; PAYMENTS
Section 4.1 Voluntary Prepayments. The ESOP Trust shall have the right
to prepay to the Agent the Loans, subject to the provisions of Section 2.5, in
whole or in part from time to time on the following terms and conditions: (i)
the ESOP Trust shall give the Agent at least two Business Days' prior notice of
its intent to prepay the Loans, the date of such prepayment and the amount of
such prepayment, and (ii) prepayments will be applied to Mandatory Payments in
the inverse order of maturity. Amounts prepaid may not be reborrowed under this
Agreement.
Section 4.2 Mandatory Payments. (a) The ESOP Trust shall repay, subject
to the provisions of Section 2.5, the Loans in installments payable to the Agent
on the dates and in the amounts set forth below ("Mandatory Payments"):
<TABLE>
<CAPTION>
Date Amount of Payment
---- -----------------
<S> <C>
December 12, 1995 $1,500,000
December 12, 1996 $1,750,000
December 12, 1997 $1,800,000
December 12, 1998 $1,900,000
December 12, 1999 $1,900,000
December 12, 2000 $2,000,000
December 12, 2001 $2,100,000
December 12, 2002 $2,200,000
December 12, 2003 $2,200,000
December 12, 2004 $2,200,000
July 31, 2005 The remaining principal balance
</TABLE>
<PAGE>
33
(b) The ESOP Trust shall prepay to the Agent, subject to the provisions
of Section 2.5, the Loans in an amount equal to the amount of any payments
received by the ESOP Trust from the Company for purposes of repaying the Loans.
Any such prepayment (i) shall be made within 3 Business Days of the ESOP Trust's
receipt of a letter of direction from the Company directing it to make such
payments, (ii) shall be made upon at least two Business Days prior notice to the
Agent (which notice shall specify the date of such prepayment and the amount of
such prepayment) and (iii) shall be applied to Mandatory Payments in the inverse
order of maturity. Any amount so prepaid may not be reborrowed under this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Company. The Company
represents and warrants to each Bank that:
(a) Corporate Existence and Standing. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Iowa. The Company has all requisite authority to conduct
its activities in each jurisdiction in which its activities are conducted and to
enter into, deliver and perform the Credit Documents to which it is a party.
Assuming the accuracy of the representation in Section 5.2(a), the ESOP Trust
has all requisite authority to conduct its activities as contemplated in the
ESOP Trust Documents, and to enter into, deliver and perform the Credit
Documents to which it is a party.
(b) Subsidiaries. Each Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has all corporate power and
requisite authority to conduct its business in each jurisdiction in which its
activities are conducted. All of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly issued, is fully paid
and non- assessable and, except for directors' qualifying shares, is owned by
the Company, directly or through subsidiaries, free and clear of any Security
Interest, except for certain existing options to purchase in the aggregate no
more than 20% of the capital stock of ALLIED Mortgage held by certain officers
of ALLIED Mortgage.
(c) Authorization and Validity. All approvals, authorizations or
consents required by law for the execution, delivery and performance by the
Company and the ESOP Trust of the Credit Documents to which it is a party have
been obtained (assuming in the case of the ESOP Trust the accuracy of the
representation in Section 5.2(a)). The execution, delivery and performance by
the Company and the ESOP Trust of the Credit Documents to which it is a party
have been duly authorized by proper proceedings, and the Credit Documents to
which either the Company or the ESOP Trust is a party constitute legal, valid
and binding obligations of the Company and the ESOP Trust respectively (assuming
in the case of the ESOP Trust the accuracy of the representation in Section
5.2(a)), enforceable against each of them in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws and by general principles
of equity. Without limiting the generality of the foregoing, the obligations of
the Company under the Company Guaranty and Article X constitute the legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and by general principles of equity.
<PAGE>
34
(d) Compliance with Laws and Contracts. Neither the Company, its
Subsidiaries or the ESOP Trust is in material violation of any statute, rule,
regulation, order or decree applicable to it (including, without limitation, any
applicable rule, regulation or order of the Commissioner and of any other
governmental agency that regulates or controls the business or operation of the
Company or its Subsidiaries) which would materially adversely affect the
financial condition, properties, profits, business or operations of the Company
or its Subsidiaries or the financial condition of the ESOP Trust or impair the
ability of the Company, its Subsidiaries or the ESOP Trust to perform their
respective obligations under the Credit Documents. Neither the Company nor any
of its Subsidiaries nor the ESOP Trust is in violation of its charter or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or any of them or their properties may be bound. Neither the execution and
delivery of the Credit Documents, nor the consummation of the transactions
contemplated in those documents, nor compliance with the provisions of those
documents has violated or will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Company or the ESOP Trust,
their respective articles of incorporation or ESOP Trust Agreement or by-laws or
the provisions of any indenture, instrument or agreement to which the Company or
the ESOP Trust is a party or is subject, or by which the Company or the ESOP
Trust, or their respective property, is bound, or conflict with or constitute a
default thereunder, or result in the creation or imposition of any lien pursuant
to the terms of any such indenture, instrument or agreement, other than as
provided in the Credit Documents. No authorization, approval or consent of, and
no filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by the Company
or the ESOP Trust of the ESOP Documents, or the Credit Documents, or for the
validity or enforceability thereof, except for filings with the Internal Revenue
Service or the Department of Labor which may hereafter from time to time be
required by ERISA or the Code.
(e) Financial Statements. The financial statements of the Company and
its Consolidated Subsidiaries as of December 31, 1994, copies of which have been
furnished to each Bank, were prepared in accordance with GAAP and fairly present
the financial condition of the Company and its Consolidated Subsidiaries at such
date and the results of its operations for the year then ended. The Annual
Statements of each Property and Casualty Insurance Company as of December 31,
1994, copies of which have been furnished to each Bank, have been prepared in
conformity with statutory accounting principles applicable to such insurance
companies, and accurately present the financial condition of each of the
Company's Property and Casualty Insurance Companies as of such date and the
results of operations for the year then ended. No material adverse change in the
condition of the Company or its Property and Casualty Insurance Companies has
occurred since the date of those statements until the Effective Date.
(f) Default. No Event of Default or Default has occurred and is
continuing.
(g) Litigation; Contingent Liabilities. There is not pending or, to the
best knowledge of the Company, any threatened action, suit, proceeding or
investigation at law or in equity, by or before any court, public board or body
involving the Companies or, to the best knowledge of the Company, any basis
therefor, wherein an unfavorable decision, ruling or finding would materially
and adversely affect the financial condition, properties, profits, business or
operations of the Company or the financial condition of the ESOP Trust or the
ability of the Companies to perform their obligations under the Credit
Documents, or the ESOP Documents. There have been no inquiries, whether formal
or informal, made of the Companies by any governmental agency or Person or
otherwise, which may give rise to such actions, proceedings or investigations.
To the best of the Company's knowledge, the Company has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
<PAGE>
35
violation or failure to obtain might materially and adversely affect the
Company's financial condition, properties, prospects, profits, business or
operations or the financial condition of the ESOP Trust. The Company has no
material contingent liabilities, except as disclosed in the financial statements
referred to in Section 5.1(e) or as contemplated by the Company Guaranty.
(h) Investment Company; Purpose Credit. The Company is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, nor will the
Company become such after giving effect to the transactions contemplated by the
Credit Documents. Neither the Company or the ESOP Trust is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" (as defined in
Regulation U). The Loan shall not be used for the purpose, directly or
indirectly, whether immediate, incidental or ultimately, of buying or carrying
"margin stock", and does not and shall not constitute a "purpose credit" as such
terms are defined under Regulation U.
(i) Material Facts. Neither this Agreement (including, without
limitation, the financial statements referred to in Section 5.1(e)), nor any
other documents furnished by the Company or the ESOP Trust to the Banks in
connection with the transactions contemplated hereby contained, as of their
respective dates, any untrue statement of a material fact or omitted a material
fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading, nor is there any fact
known to the Company (or which should reasonably be known to the Company) which
materially adversely affects the Company's financial condition, properties,
profits, business or operations, the financial condition of the ESOP Trust or
the Company's or the ESOP Trust's ability to perform its obligations under this
Agreement or the other Credit Documents.
(j) Liens. None of the assets of the Company, its Subsidiaries or the
ESOP Trust is subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest, except (i) for current taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings, (ii) those arising in the ordinary course of business for sums not
due or sums being contested in good faith and by appropriate proceedings, and
(iii) to the extent shown in the financial statements referred to in Section
5.1(e).
(k) Title to Properties. The Company and each Subsidiary has good and
marketable title in fee simple to its real property and has good title to all
the other property it purports to own as reflected in the financial statements
referred to in Section 5.1(e) except as sold or otherwise disposed of in the
ordinary course of business and except for liens disclosed in notes to the
financial statements referred to in Section 5.1(e) or specified in Section
5.1(j)(i) and (ii). The ESOP Trust has good title to the ESOP Preferred Stock.
(1) ERISA Matters.
(i) The consummation of the transactions provided for in the
Credit Documents and compliance by the ESOP Trust and the Company with the
provisions thereof, the prior acquisition by the ESOP Trust of the ESOP
Preferred Stock, the redemption by the ESOP Trust of the Floating Rate Notes and
the use of the proceeds of the Loans to refinance such redemption, did not and
will not constitute a non-exempt prohibited transaction for purposes of ERISA or
Section 4975 of the Code (including in each case the regulations thereunder).
The ESOP Preferred Stock constitutes qualifying employer securities for purposes
of Section 407(d)(5) of ERISA and Section 4975(e)(8) of the Code and the
applicable rules and regulations issued thereunder. The proceeds of the Loans
shall be used solely for the purpose of repaying a prior loan which constitutes
an exempt loan under 29 C.F.R. Section 2550.408b-3(a)(3).
<PAGE>
36
(ii) The ESOP Plan has been duly adopted by the Board of Directors of
the Company, has been communicated to employees to the extent required to
establish the ESOP Plan and is being maintained in compliance with the Code and
ERISA as an employee stock ownership plan and trust qualified under Code Section
401(a), exempt under Code Section 501(a) and satisfying the requirement of Code
Section 4975(e)(7) and Section 407(d)(6) of ERISA, and, in each case, the
regulations thereunder and all necessary action has or will be taken (by the end
of the remedial amendment period discussed in Section 401(b) of the Code and the
regulations thereunder (and as extended by I.R.S. Announcement 94-136, I.R.B.
1994-44)) to obtain the determination from the Internal Revenue Service that the
ESOP Plan is so qualified, including, without limitation, amending the ESOP Plan
retroactively under Section 401(b) of the Code or Treas. Reg. Section 54.4975-
11(a)(4) if so requested by the Internal Revenue Service. The terms and
provisions of the ESOP Plan are in compliance with the applicable requirements
for qualification under Code Section 401(a), for exemption under Code Section
501(a), and of Code Section 4975(e)(7) and of 407(d)(6) of ERISA, and, in each
case, the regulations thereunder. Each of the Company, the ESOP Trust, and the
ESOP Plan are in compliance with all material provisions of ERISA. The ESOP
Trust has been duly constituted in accordance with the ESOP Trust Agreement and
is validly existing. At the Effective Date the ESOP Trust will have complied in
all respects with the ESOP Trust Agreement and will have complied in all
material respects with ERISA in connection with the transactions contemplated in
the Credit Documents. The ESOP Trust Agreement has not been amended since April
16, 1991 and the ESOP Plan has not been amended since March 7, 1995.
(iii) Assuming the accuracy of the representation in Section 5.2(a),
the ESOP Trust Agreement constitutes the legal, valid and binding obligation of
the ESOP Trust enforceable against the ESOP Trust in accordance with its terms.
(iv) The execution, delivery and performance of this Agreement, the
Notes and the ESOP Trust Agreement by the ESOP Trustee (a) are within the powers
of the ESOP Trust (assuming the accuracy of the representation in Section
5.2(a)), (b) require, in respect of the ESOP Trust and the ESOP Plan, no action
by or in respect of, or filing with, any governmental body, agency or official
(other than the reporting and disclosure requirements of ERISA and the Code,
which requirements shall be met), and (c) did not and do not contravene, or
constitute a default or give rise to liability under, any provision of law or
regulation (including, without limitation, Section 406 of ERISA (when read in
conjunction with Section 408), Section 4975 of the Code or Regulation X of the
Board of Governors of the Federal Reserve System) applicable to the ESOP Plan or
the ESOP Trust or of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System or of any rules, regulations or by-laws of the ESOP Plan
of the ESOP Trust or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the ESOP Trustee, the ESOP Plan or the ESOP Trust
or result in the creation or imposition of any Security Interest (other than
pursuant to the ESOP Documents) on any asset of the ESOP Trust.
(v) No "employee pension benefit plan", as defined in ERISA, to which
Section 302 of ERISA applies, maintained by the Company, any Subsidiary or any
Person which is under common control with the Company within the meaning of
Section 4001(b) of ERISA has incurred any "accumulated funding deficiency" as
defined in Section 302 of ERISA nor does any such plan have Unfunded
Liabilities.
(m) Material Changes or Material Transactions. Since the respective
dates as of which information is given in the 1934 Act Documents, except as may
otherwise be stated therein, (a) there has been no material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
<PAGE>
37
business prospects of the Company and its Subsidiaries considered as one
enterprise, or of the ESOP Trust, whether or not arising in the ordinary course
of business, (b) there have been no material transactions entered into by the
Company or any of its Subsidiaries, or by the ESOP Trust, other than those in
the ordinary course of business and (c) there has not been any change in the
capital stock (except as a result of issuances relating to employee stock option
or other benefit plans) or increase in long-term debt of the Company or any
materially adverse change, or any development which the Company has reasonable
cause to believe will involve a material adverse change, in the consolidated
financial position, stockholders' equity or results of operations of the Company
and its Subsidiaries, taken as a whole.
(n) 1934 Act Documents. The 1934 Act Documents, at the time they were
or hereafter are filed with the SEC, complied and will comply in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations promulgated thereunder
(the "1934 Act Regulations"), and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
lights of the circumstances under which they were or are made, not misleading.
(o) Proceeds; Indenture. All proceeds of the Loans shall be used to
refinance the prior ESOP loan by redeeming the Floating Rate Notes. The Company
shall effect the termination of the Indenture within 5 Business Days of the
Effective Date.
Section 5.2 Representations and Warranties of the ESOP Trustee. The
ESOP Trustee, as ESOP Trustee (and individually with respect to Section 5.2(a)
and (b)), represents and warrants to each Bank that:
(a) The ESOP Trustee, individually and as ESOP Trustee, has all
requisite power and authority to execute, deliver and perform its obligations
under the Credit Documents to which it is a party.
(b) The execution, delivery and performance of the Credit Documents by
the ESOP Trustee, individually and as ESOP Trustee, did not and will not violate
the charter or the by-laws of the ESOP Trustee or, to its best knowledge, any
order, judgment or decree binding on the ESOP Trustee (individually or as
trustee) and did not and will not violate any provisions of the ESOP Trust
Agreement.
(c) The Credit Documents and the ESOP Trust Agreement have been
executed and delivered by the ESOP Trustee as Trustee, and constitute legal,
valid and binding obligations of the ESOP Trust, enforceable in accordance with
their terms, except as enforceability may be limited to by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting the enforcement of creditors' rights generally, or (ii) equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(d) No authorization, approval or consent of, and no filings or
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by the ESOP Trustee of the
ESOP Trust Agreement, the Credit Documents, or for the validity or
enforceability thereof, except for filings with the Internal Revenue Service or
the Department of Labor which may hereafter from time to time be required by
ERISA or the Code.
(e) All proceeds of the Loans shall be used to refinance the prior ESOP
loan by redeeming the Floating Rate Notes. The ESOP Trust shall take all steps
required by it to effect a termination of the Indenture within 5 Business Days
of the Effective Date.
<PAGE>
38
ARTICLE VI
COVENANTS OF THE COMPANIES
Section 6.1 Covenants of the Company. During the term of this
Agreement, and until all Bank Reimbursement Obligations payable by the Companies
are paid in full, the Company covenants and agrees with each Bank that, unless
the Required Banks shall otherwise consent in writing, the Company will:
Section 6.1.1 Reports, Certificates and Other Information.
Furnish or cause to be furnished to each Bank:
(a) Audit Report. As soon as practicable and in any event (i) within 75
days after the end of each fiscal year of the Company, a copy of ALLIED Mutual's
and each Property and Casualty Insurance Company's Annual Statements prepared in
conformity with applicable statutory accounting rules, and (ii) within 90 days
after the end of each fiscal year of the Company, a copy of an annual audit
report (which shall be an unqualified audit report except for changes resulting
from a change in GAAP standards) of the Company and its Subsidiaries prepared on
a consolidating and consolidated basis in conformity with GAAP applied on a
consistent basis, duly certified by independent certified public accountants of
recognized standing selected by the Company.
(b) Quarterly Reports. As soon as practicable and in any event within
60 days after the end of each quarterly period in each of the Company's fiscal
years (excluding the quarterly period at the end of such fiscal year), a copy of
the statutory accounting reports for each Property and Casualty Insurance
Company prepared and submitted to the insurance regulatory authorities of its
domiciliary state with respect to such quarterly period, and (ii) within 45 days
after the end of each quarterly period in each of the Company's fiscal years
(excluding the quarterly period at the end of such fiscal year), unaudited
financial statements of the Company, prepared in the same manner as the audit
report referred to in Section 6.1.1(a)(ii) signed by the chief financial officer
of the Company and consisting of at least a balance sheet as at the close of
such quarter and statements of earnings and cash flow for the period from the
beginning of such fiscal year to the close of such quarter.
(c) Compliance Certificates. (i) Together with each delivery of
financial statements required by Sections 6.1.1(a) and (b), a certificate, dated
the date of such annual report or such set of quarterly statements and signed by
an Authorized Officer of the Company, which (a) sets forth calculations
respecting compliance with Sections 6.1.14, 6.1.15, 6.1.19, 6.1.21(ii) and
6.1.25 hereof, and (b) states that no Event of Default or Default has occurred
and is continuing, or, if any Event of Default or Default has occurred and is
continuing, describing it and the steps, if any, being taken to cure it; (ii)
together with each delivery of the financial statements required by Section
6.1.1(a), a certificate, dated the date of such annual report and signed by an
Authorized Officer of the Company which sets forth calculations respecting
compliance with Section 6.1.22.
(d) Notice of Default or Litigation. Forthwith upon learning of the
occurrence of any of the following, written notice thereof, describing the same
and the steps being taken by the Company or the ESOP Trust, as with respect
thereto: (a) the occurrence of an Event of Default or a Default or (b) the
institution of, or any adverse determination in, any litigation, arbitration
proceeding or governmental proceeding where the amount in controversy exceeds
$5,000,000.00 (excluding litigation or insurance claims in the ordinary course
of business) or which is otherwise material to the Company or the ESOP Trust or
to the transactions contemplated hereby.
<PAGE>
39
(e) Reportable Event. If and when any member of the Controlled Group
(i) gives or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA and regulations thereunder) with respect to
any Plan which might constitute grounds for a termination of the Plan by the
PBGC under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of liability under Title IV of ERISA as a result of
complete or partial withdrawal from any Plan, a copy of such notice; or (iii)
receives notice from the PBGC under Title IV of ERISA of an intent to terminate
or appoint a Trustee to administer any Plan, a copy of such notice.
(f) Other Reports and Filings. Promptly, copies of all financial
information, proxy materials and other information and reports, if any, which
the Company shall file with the SEC as any Bank may reasonably request.
(g) Other Information. From time to time such other information
concerning the Company as any Bank may reasonably request.
Section 6.1.2 Books, Records and Inspection of Property.
Maintain complete and accurate books and records, and permit after reasonable
notice any person designated by the Agent in writing to examine the books and
financial records of the Company and make copies thereof or extracts therefrom,
to discuss the affairs, finances, and accounts of the Company with officers or
directors or agents of the Company and to visit and inspect any of the
Properties of the Company, all at such reasonable times and as often as the
Agent may reasonably request. The Company shall direct the ESOP Trustee to
maintain complete and accurate books and records, and permit after reasonable
notice any person designated by the Agent in writing to examine the books and
financial records of the ESOP Trust and make copies thereof or extracts
therefrom, to discuss the affairs, finances, and accounts of the ESOP Trust with
an Authorized Officer of the ESOP Trustee, all at such reasonable times and as
often as the Agent may reasonably request.
Section 6.1.3 Taxes and Liabilities. Pay when due all taxes,
assessments and other liabilities except as contested in good faith and by
appropriate proceedings and are properly reserved for.
Section 6.1.4 Insurance. Maintain insurance to such extent and
against such hazards and liabilities as is customarily maintained by companies
similarly situated.
Section 6.1.5 Employee Benefit Plans. Maintain each employee
benefit plan, as to which its employees are participating or as to which it may
have liability, in compliance with all applicable requirements of law and
regulations; provided that this provision shall not prohibit the Company from
lawfully terminating or changing any employee benefit plan.
Section 6.1.6 Other Agreements. Not enter into any agreement
containing any provision which would be violated or breached by the performance
of its obligations hereunder or under any instrument or document delivered or to
be delivered by it hereunder or in connection herewith.
Section 6.1.7 Purchase of Stocks. Not extend credit to others
for the purpose of "purchasing" or "carrying" any "margin stock" (as defined in
Regulation U) or use any of the proceeds of the ESOP Preferred Stock to (i)
"purchase" or "carry" any "margin stock" or (ii) acquire any security in any
transaction which is subject to Section 13(d) or made unlawful pursuant to
Section 14 of the 1934 Act.
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40
Section 6.1.8 Costs and Expenses. To the extent that payment
of costs and expenses specified in Section 6.2.9 by the ESOP Trustee is not
permissible under ERISA, the Company agrees to pay such costs and expenses.
Section 6.1.9 Compliance with Law. Duly comply with all
statutes, rules, regulations, orders and decrees applicable to it except as
contested in good faith and by appropriate proceedings.
Section 6.1.10 Compliance with Agreements. Make all payments
and perform all obligations required by the Credit Documents and the ESOP
Documents.
Section 6.1.11 Liens. Not, and not permit any Subsidiary to,
create or permit to exist any Security Interest with respect to any assets now
owned or hereafter acquired (including without limitation any capital stock of
any Subsidiary), except that the Company may, and may permit its Subsidiaries
to, create or permit to exist a Security Interest with respect to any assets now
owned or hereafter acquired (other than the capital stock of any Subsidiary) (i)
for current taxes not delinquent or for taxes being contested in good faith and
by appropriate proceedings, (ii) those arising in the ordinary course of the
business of the Company or its Subsidiaries or otherwise in the ordinary course
for sums not due or sums being contested in good faith and by appropriate
proceedings and not involving any deposits or advances or borrowed money or the
deferred purchase price of property or services, (iii) those described in the
financial statements referred to in Section 5.1(e), (iv) those Security
Interests not exceeding $7,000,000 and securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring assets
(provided that such Security Interests attach to such assets concurrently or
within 90 days after such acquisition), (v) those Security Interests pledged by
ALLIED Mortgage in the ordinary course of its business with respect to mortgages
and mortgage loan servicing rights owned by ALLIED Mortgage, and (vi) those
Security Interests pledged by AMCO Insurance Company with the Federal Home Loan
Bank to secure borrowings therefrom.
Section 6.1.12 ERISA Covenants.
(a) Maintenance of ESOP Plan and Compliance. (i) The ESOP Plan
will at all times remain qualified under Section 401(a) of the Code, (ii) the
ESOP Trust will remain exempt from Federal taxes under Section 501(a) of the
Code, (iii) the ESOP Plan's and the ESOP Trust's status as a qualified employee
stock ownership plan which complies with the requirements of Section 4957(e)(7)
of the Code and the rules and regulations promulgated thereunder will be
maintained and (iv) the performance by the parties of their respective
obligations under the Credit Documents will not be a non-exempt prohibited
transaction for purposes of ERISA or Section 4975 of the Code (and in each case
the regulations thereunder). At all times the ESOP Trust and the Company will
comply in all material respects with the requirements of the Code, ERISA and any
other law, rule or regulation applicable to them. In addition, the ESOP Plan and
ESOP Trust will comply with any conditions imposed by the Internal Revenue
Service to obtain a favorable determination letter, including any changes in the
ESOP Plan or the ESOP Trust Agreement that may be required for the issuance of
said determination letter.
(b) Amendments of the ESOP Trust Agreement. The Company will
not amend the ESOP Plan, nor agree to any amendment of the ESOP Trust Agreement,
in a manner which materially and adversely affects the rights of the Banks,
unless such amendment is required to maintain the qualification of the ESOP Plan
or ESOP Trust under Section 401(a), Section 501(a) or Section 4975(e)(7) of the
Code or to comply with other applicable law. The Company shall, if requested by
the Agent, give the Agent notice of and a copy of any amendment or modification
to the ESOP Plan or ESOP Trust Agreement and the Company shall give the Agent
<PAGE>
41
prior notice and a copy of any such amendment or modification with respect to
any amendment or modification which the Company reasonably believes would have a
material adverse effect on the rights of the Banks hereunder.
(c) Termination. The Company will not and will not permit any
Subsidiary to permit any employee benefit plan maintained by it to be terminated
in a manner which would result in the imposition of a material lien on any
property of the Company or any Subsidiary pursuant to Section 4068 of ERISA.
(d) Determination Letters. If requested by the Agent, the
Company will provide the Agent with copies of all determination letters received
from the Internal Revenue Service with respect to the ESOP Plan. The Company
applied for and received a determination letter with respect to the ESOP Plan
and the ESOP Trust and adopted all amendments on which such letter is
conditioned on or before the last day of the remedial amendment period under
Section 401(b) of the Code, as extended by the regulations thereunder.
Section 6.1.13 Corporate Existence. Maintain its corporate
existence, not dissolve, sell or otherwise dispose of all or substantially all
of its assets and not consolidate with or merge into another corporation or
Person or permit one or more other corporations or Persons to consolidate with
or merge into it.
Section 6.1.14 Stockholder's Equity. Maintain at the end of
each calendar quarter Stockholder's Equity of not less than the sum of (a)
$245,000,000, plus (b) 50% of cumulative Adjusted Net Income from and after
December 31, 1994 (excluding any quarter in which Adjusted Net Income was less
than zero), plus (c) any amount(s), in excess of $1,000,000 in any one
transaction, subsequently raised after December 31, 1994 from the issuance of
common or preferred stock, plus (d) the amount of the reduction from time to
time in the balance sheet item entitled "Unearned Compensation related to ESOP"
after December 31, 1994.
Section 6.1.15 Debt to Equity Ratio. Maintain at the end of
each calendar quarter a ratio of Funded Debt of the Company and its Subsidiaries
(on a consolidated basis) to Stockholders' Equity of .25 to 1 or less.
Section 6.1.16 Additional Debt. Not incur, after the date of
this Agreement, Indebtedness with recourse to the Company or its Subsidiaries
which exceeds (i) $10,000,000 in any transaction, or (ii) $40,000,000 in the
aggregate.
Section 6.1.17 Ownership of Subsidiaries. Not take any action,
or permit any Subsidiary to take any action, which will result in a decrease
(except for changes in director qualifying shares) in the percentage of the
outstanding shares of capital stock owned by the Company and its other
Subsidiaries of any Property and Casualty Insurance Company owned at the date of
this Agreement by the Company and its other Subsidiaries.
Section 6.1.18 Data Processing. Cause AGIS to maintain in full
force and effect, with no material modifications or amendments (other than any
modification or amendment made to any related fee schedules in the ordinary
course of business), all data processing agreements with ALLIED Mutual and all
Property and Casualty Insurance Companies existing as of date of this Agreement.
Section 6.1.19 Certain Indebtedness. Cause the aggregate
amount of the Non-Recourse Indebtedness of ALLIED Mortgage at all times to be
less than $70,000,000.
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42
Section 6.1.20 Pooling Agreement. Cause the Pooling Agreement
to remain in full force and effect with no material modifications or amendments
(other than with respect to the respective participations of ALLIED Mutual and
the Property and Casualty Insurance Companies).
Section 6.1.21 Property and Casualty Insurance Company
Subsidiaries. Cause (i) each Property and Casualty Insurance Company to maintain
a rating at all times of at least A- as assigned by A.M. Best & Co., and (ii)
the ratio of Consolidated Net Premium Written to Consolidated Statutory Surplus
at the end of each calendar year to be not greater than 2.5 to 1.
Section 6.1.22 Net Income. Cause the Consolidated Statutory
Net Income of the Property and Casualty Insurance Companies for each calendar
year to be in an amount greater than zero.
Section 6.1.23 ESOP Preferred Stock. Timely pay or cause to be
paid all amounts due with respect to the ESOP Preferred Stock and all other
preferred stock of the Company purchased by the ESOP Trust to the holders
thereof, including, without limitation, all dividends and redemption payments.
Section 6.1.24 ESOP Trust. (a) Make all payments required to
be made by it, and perform all other obligations to be performed by it, under
the ESOP Plan, and (b) make any and all contributions to the ESOP Trust as may
be necessary to enable the ESOP Trust to meet its obligations under the Credit
Documents (and, for purposes of this provision, such obligations shall be
determined without reference to limitations on such obligations in ERISA or the
Code (including in each case the regulations thereunder) or Sections 2.10 or
8.3).
Section 6.1.25 Restrictions on Invested Assets. Cause (i) the
bonds (as reported for the line item entitled "Fixed Maturities" on the
consolidated balance sheet) of the Company which are rated "A" or better by
Standard & Poor's to be at least 90% of the aggregate value of all bonds held by
the Company and its Subsidiaries, and (ii) the sum of the Company's consolidated
real estate, mortgages and non-affiliated equity securities not to exceed 5% of
the Company's consolidated Total Assets.
Section 6.2 Covenants of the ESOP Trust. During the term of this
Agreement, and until all Bank Reimbursement Obligations by the Companies are
paid in full, the ESOP Trust covenants and agrees with each Bank that, unless
the Required Banks shall otherwise consent in writing, the ESOP Trust will:
Section 6.2.1 Reports, Certificates and Other Information.
Furnish or cause to be furnished to each Bank:
(a) Notice of Default or Litigation. Forthwith upon receiving
written notice or having actual knowledge of the occurrence of any of
the following, written notice thereof, describing the same and the
steps being taken by the ESOP Trust, as with respect thereto: (a) the
occurrence of an Event of Default or a Default or (b) the institution
of, or any adverse determination in, any litigation, arbitration
proceeding or governmental proceeding which is material to the ESOP
Trust or to the transactions contemplated hereby.
(b) Other Information. From time to time such other
information concerning the ESOP Trust as any Bank may reasonably request.
Section 6.2.2 Books and Records. Maintain complete and
accurate books and records, and permit after reasonable notice any person
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43
designated by the Agent in writing to examine the books and financial records of
the ESOP Trustee with respect to the ESOP Trust and make copies thereof or
extracts therefrom, to discuss the affairs, finances, and accounts of the ESOP
Trust with an Authorized Officer, all at such reasonable times and as often as
the Agent may reasonably request.
Section 6.2.3 Taxes and Liabilities. Pay when due all taxes,
assessments and other liabilities except as contested in good faith and by
appropriate proceedings and are properly reserved for.
Section 6.2.4 Other Agreements. Not enter into any agreement
containing any provision which would be violated or breached by the performance
of its obligations hereunder or under any instrument or document delivered or to
be delivered by it hereunder or in connection herewith.
Section 6.2.5 Purchase of Stocks. Not extend credit to others
for the purpose of "purchasing" or "carrying" any "margin stock" (as defined in
Regulation U) or use any of the proceeds of the ESOP Preferred Stock to (i)
"purchase" or "carry" any "margin stock" or (ii) acquire any security in any
transaction which is subject to Section 13(d) or made unlawful pursuant to
Section 14 of the 1934 Act.
Section 6.2.6 Compliance with Law. Duly comply with all
statutes, rules, regulations, orders and decrees applicable to it.
Section 6.2.7 Compliance with Agreements. Make all payments
and perform all obligations required by the Credit Documents and the ESOP
Documents.
Section 6.2.8 Maintenance of Plan and Compliance. The ESOP
Trust shall not take any action, or omit to take any action which would cause
the ESOP Trust to (a) fail to be qualified under Section 401(a) of the Code, (b)
fail to remain exempt from Federal taxes under Section 501(a) of the Code, or
(c) fail to maintain the ESOP Trust's status as a qualified employee stock
ownership plan complying with the requirements of Section 4957(e) of the Code
and the rules and regulations promulgated thereunder. At all times the ESOP
Trust will comply in all material respects with the requirements of the Code,
ERISA and any other law, rule or regulation applicable to the ESOP Trust. In
addition, the ESOP Trust will comply with any conditions imposed by the Internal
Revenue Service to obtain a favorable determination letter, including any
changes in the ESOP Trust Agreement that may be required for the issuance of
said determination letter.
Section 6.2.9 Costs and Expenses. In each case to the extent
that such payment is permissible under ERISA, pay to the Agent on demand all
reasonable out-of-pocket costs and expenses of the Agent (including the
reasonable fees and out-of-pocket expenses of counsel for the Agent) in
connection with the preparation, execution and delivery of the Credit Documents
(provided that the ESOP Trust shall not be liable for the Agent's attorneys'
fees in excess of $25,000 in connection with the initial preparation, execution
and delivery of the Credit Documents) and any amendments, restatements or
modifications of (or supplements to) any of the foregoing.
Section 6.3 Covenant of ESOP Trustee. During the term of this
Agreement, and until all Bank Reimbursement Obligations by the Companies are
paid in full, the ESOP Trustee covenants with each Bank that, unless the
Required Banks shall otherwise consent in writing:
Section 6.3.1 Maintenance of Plan. The ESOP Trustee shall not
take any action, or omit to take any action which would cause the ESOP Trust to
(a) fail to be qualified under Section 401(a) of the Code, (b) fail to remain
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exempt from Federal Taxes under Section 501(a) of the Code, or (c) fail to
maintain the ESOP Trust's status as a qualified employee stock ownership plan
complying with the requirements of Section 4957(e) of the Code and the rules and
regulations promulgated thereunder.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions Precedent to Closing. The obligation of each
Bank to make its Loan is subject to the following conditions precedent:
(a) each Bank shall have received all of the following, each duly
executed and dated the Effective Date:
(A) A certificate of good standing of the Company and a certified copy
of the Company's Articles of Incorporation, both certified on the Effective Date
or within five (5) days prior to the Effective Date by the Secretary of State of
Iowa, together with a certificate of the Secretary or Assistant Secretary of the
Company, stating that no changes have been made in the Articles of Incorporation
or good standing of the Company since such date and a copy of the ESOP Plan and
the ESOP Trust Agreement certified by an Authorized Officer of the Company as of
the Effective Date.
(B) Copies, certified by the Secretary or Assistant Secretary of the
Company, of its By-Laws and resolutions of its Board of Directors (and
resolutions of other bodies, if any, as are deemed necessary by counsel for the
Bank) authorizing the execution of this Agreement. Each Bank and the Agent shall
be entitled to rely on the resolutions until informed of any change in writing
by the Company.
(C) A letter of direction from the Committee (as defined in the ESOP
Plan) to the ESOP Trustee authorizing the execution of this Agreement and any
other Credit Documents to which the ESOP Trust is a party.
(D) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Company and by the ESOP Trustee of the ESOP Trust, which shall
identify by name and title and bear the signature of the officers of the Company
and of the ESOP Trust, respectively authorized to sign this Agreement and the
other Credit Documents and to effect the transactions contemplated thereunder.
Each Bank and the Agent shall be entitled to rely on such incumbency certificate
until informed of any change in writing by the Company and the ESOP Trustee.
(E) Written opinions of counsel to the Company and to the ESOP Trust,
substantially in the form of Exhibits 7.1(a)(E)(1)(2)(3) and (4) hereto.
(F) A certificate, signed by an Authorized Officer of the Company and
the ESOP Trustee, stating that, to his knowledge, there is no litigation or
proceedings pending or threatened, against the Company or the ESOP Trust which,
if adversely determined, would materially and adversely affect the business or
condition of such entity (except as disclosed in the financial statements
described in Section 5.1(e)), or which seeks to enjoin, restrain or otherwise
impair consummation of the transactions contemplated by the Credit Documents.
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(G) Certified copies of all documents evidencing any necessary action,
consents and governmental or regulatory approvals, if any, with respect to the
Credit Documents and the ESOP Documents.
(H) Evidence satisfactory to each Bank and the Agent that, no later
than as part of the closing, all necessary regulatory and judicial approvals to
effectuate the foregoing transactions have been obtained.
(I) A fully executed original of (i) this Agreement executed on behalf
of all the parties thereto, and (ii) the Notes executed by the ESOP Trust in the
amount, maturity, and as otherwise provided herein.
(J) Such other documents, including, without limitation, waivers or
consents, as either Bank or the Agent may reasonably request in order to
complete the transactions contemplated by this Agreement.
(b)(i) The representations and warranties of the Company and the ESOP
Trustee contained in the Credit Documents shall be true and correct in all
material respects on and as of the Effective Date, with the same force and
effect as if those representations and warranties had been made on and as of
such date, (ii) the Companies shall have performed in all material respects all
of the undertakings, agreements and covenants of the Companies to be performed
by each of them under the Credit Documents on or before the Effective Date,
(iii) no Event of Default or Default has occurred, and (iv) each Bank shall have
received a certificate executed by an Authorized Officer of the Company and the
ESOP Trustee, dated the Effective Date, to all such effects.
(c) On the Effective Date, no suit, action, claim or governmental
proceeding shall have been instituted, taken, presented or threatened against
the Companies, its Subsidiaries, any Bank or the Agent which results or
reasonably may result in a substantial adverse effect upon, or substantial
disruption of the operations of, the Company or its Subsidiaries or which
challenges the legality or validity of the transactions contemplated in this
Agreement.
(d) The ESOP Trust shall have paid to each Bank the Fees and all
expenses of each such Bank incurred in connection with the Loans which are
reimbursable under the terms of this Agreement.
(e) All transactions contemplated hereby shall be in compliance with
and permitted by all applicable laws and regulations.
(f) Since December 31, 1994, there shall have occurred no material
adverse change, in the judgment of the Banks, in the business, operations,
property, assets, condition (financial or otherwise), or prospects of the
Company or its Property and Casualty Insurance Company Subsidiaries taken as a
whole.
(g) The Effective Date of the Loan shall occur on or before March 13,
1995 and shall occur simultaneously with (i) the termination of the
Reimbursement and Letter of Credit Agreement and Guaranty dated March 15, 1993
by and between the ESOP Trust, the Company and Norwest Bank Iowa, National
Association, and (ii) the redemption of all outstanding Floating Rate Notes.
(h) All approvals or consents of third parties which are necessary to
the closing of the Loan and the protection of each Bank's and the Agent's rights
under the Credit Documents shall have been obtained.
The Note and all certificates, legal opinions, and other documents and papers
referred to in this Article VII, unless otherwise specified, shall be
satisfactory in form and substance to each Bank and the Agent and their
respective counsel.
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46
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.1 Events of Default. The occurrence of one or more of the
following events shall constitute an Event of Default:
(a) (i) Failure by the Company or the ESOP Trust to pay when
due any amounts payable by either entity to any Bank or the Agent under Section
2.3 or Article IV or Article X and continuance of such failure for a period of
five (5) Business Days after the date such payment was due, or (ii) failure by
the Company or the ESOP Trust to pay when due any other amounts payable by
either entity to any Bank or the Agent under the Credit Documents and
continuance of such failure for a period of five (5) Business Days after written
notice to the Company or the ESOP Trust of such failure; or
(b) Any representation or warranty made by the Company, the
ESOP Trust or the ESOP Trustee in this Agreement or the other Credit Documents
shall be false or misleading in any material respect as of the date on which
made, or any schedule, certificate, financial statement, report, notice or other
writing furnished by the Company or the ESOP Trust to any Bank or the Agent is
false or misleading in any material respect on the date as of which the facts
therein set forth are stated or certified, in each case the effect of which has
a material adverse effect on any Bank or on the Company's or the ESOP Trust's
ability to perform its respective obligations under the Credit Documents; or
(c) The breach by the Company, ESOP Trust or the ESOP Trustee
(other than a breach that constitutes an Event of Default under the other
clauses of this Section 8.1) of any of the terms or provisions of this Agreement
or the other Credit Documents which is not remedied within 30 days after written
notice to the Company and the ESOP Trust by the Agent; or
(d) The entry by a court having jurisdiction in the premises
of a decree or order for relief in respect of the Company, any of its Property
and Casualty Insurance Companies or the ESOP Trust in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, rehabilitator, conservator,
assignee, custodian, trustee, sequestrator (or similar official) of the Company,
any of its Property and Casualty Insurance Companies or the ESOP Trust or for a
substantial part of its property, or ordering the winding up, liquidation,
rehabilitation or conservation of its affairs, or the commencement of any such
involuntary case which is not dismissed within 30 days after the commencement
thereof; or
(e) The commencement by the Company, any of its Property and
Casualty Insurance Companies or the ESOP Trust of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or the Company's, any of its Property and Casualty Insurance Company's
or the ESOP Trust's consent to the entry of an order for relief in any
involuntary case under any such law, or its or their consent to the appointment
of or taking possession by a receiver, liquidator, rehabilitator, conservator,
assignee, trustee, custodian, sequestrator (or similar official) of the Company,
any of its Property and Casualty Insurance Companies or the ESOP Trust or for a
substantial part of its or their property, or the making by the Company, any of
its Property and Casualty Insurance Companies or the ESOP Trust of any general
<PAGE>
47
assignment for the benefit of creditors, or the failure of the Company, any of
its Property and Casualty Insurance Companies or the ESOP Trust generally to pay
its or their debts as they become due or the taking by the Company, any of its
Property and Casualty Insurance Companies or the ESOP Trust of any corporate
action in furtherance of any of the foregoing; or
(f) Any seizure, vesting or intervention by or under the
authority of any government authority, agency or official or court by which (i)
any Property and Casualty Insurance Company becomes subject to a supervisory,
seizure or corrective order issued by any insurance regulator, or (ii) the
authority of any Property and Casualty Insurance Company in the control of its
business is curtailed in any materially adverse manner; or
(g) Default in the payment when due (subject to any applicable
grace period), whether by acceleration or otherwise, of any other indebtedness
for borrowed money of, or guaranteed by, the Company or any Property and
Casualty Insurance Company or the ESOP Trust or default in the performance or
observance of any obligation or condition with respect to any such other
indebtedness if the effect of such default is to accelerate the maturity of any
such indebtedness or to permit the holder or holders thereof, or any trustee or
agent for such holders, to cause such indebtedness to become due and payable
prior to its expressed maturity, in each case regardless whether such default is
subsequently remedied or waived; or
(h) Any Credit Document shall at any time for any reason cease
to be in full force and effect, or any Credit Document should be declared null
and void in whole or in part, or the validity or enforceability of any Credit
Document shall be contested by any party thereto or any such party shall
renounce the same or deny that it has any further liability thereunder; or
(i) Receipt by the Company from the Internal Revenue Service
of an adverse determination letter to the effect that the ESOP Plan is not a
qualified plan or a revocation by the Internal Revenue Service of a previously
issued favorable determination letter to the effect that the ESOP Plan is a
qualified plan and in each such case all avenues of appeal with respect thereto
shall have been exhausted; or
(j) Any unaffiliated "person" or "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the 1934 Act (as defined in Section 5.1(n)),
but excluding ALLIED Mutual, its or the Company's employees and the ESOP Trust)
become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of
20% or more of the total voting power of the capital stock normally entitled to
vote in the election of directors of the Company.
Section 8.2 Effect of Default. If any Event of Default shall occur and
be continuing, the Agent may, and upon the written request of the Required Banks
shall, by written notice to the ESOP Trust, take any or all of the following
actions, without prejudice to the rights of the Agent, any Bank or any assignee
to enforce its claims against the ESOP Trust or the Company (provided, that, if
an Event of Default specified in Section 8.1(d) or (e) shall occur with respect
to the ESOP Trust or the Company, the result that would occur upon the giving of
written notice by the Agent to the ESOP Trust as specified shall occur
automatically without the giving of any such notice): (i) by written notice to
the ESOP Trust, declare the principal of and any accrued interest in respect of
the Loans and the Notes and all obligations owing hereunder and thereunder to
be, whereupon the same shall become, forthwith due and payable; and (ii) enforce
any rights of the Banks or the Agent under any Credit Document or applicable
laws.
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Section 8.3 Limitations. Notwithstanding anything in this Agreement to
the contrary, if any Event of Default shall occur, the value of ESOP Trust
assets transferred in satisfaction of the ESOP Trust's obligations hereunder
shall not exceed the amount of default, and in the event that the Agent or any
Bank is a party in interest, as defined in Section 3(14) of ERISA, to the ESOP
Trust, assets of the ESOP Trust may be transferred to the Agent or such Bank
upon an Event of Default only upon and to the extent of the failure of the ESOP
Trust to pay when due (other than by reason of acceleration under any provision
of this Agreement including without limitation an acceleration pursuant to
Section 8.2) any amounts payable by it hereunder, to the extent required by and
in accordance with Treas. Reg. Section 54.4975-7(b)(6). The foregoing
limitations shall not affect the rights of the Agent or the Banks to declare the
Bank Reimbursement Obligations to be immediately due and payable and to proceed
against the Company under the Company Guaranty to recover the full amount of the
Bank Reimbursement Obligations (determined without regard to such limitations).
Section 8.4 Other Waivers. Except as specifically set forth herein, and
to the extent not prohibited by applicable law (including but not limited to the
provisions of ERISA and Section 4975 of the Code (including in each case the
regulations thereunder)), the Company and the ESOP Trust (i) waive: any notices
of acceleration or intent to accelerate; any notice of demand, protest, or
dishonor; grace (except as set forth in Section 8.1); opportunity or notice to
cure (except as set forth in Section 8.1); or diligence in taking any action by
the Banks or the Agent to collect amounts due hereunder or to pursue collateral
(if any may hereafter be obtained); and (ii) consent and agree (without notice
of any of the following) that the Banks or the Agent may pursue the Company or
the ESOP Trust or other rights or remedies in any order as the Banks or the
Agent may elect.
ARTICLE IX
COMPANY GUARANTY
Section 9.1 Guaranty.
(a) The Company hereby irrevocably, unconditionally and
continually guarantees to each Bank and the Agent prompt payment and performance
when due, whether by acceleration or otherwise, of the full amount of any and
all fees, liabilities, and obligations of the ESOP Trust (or its successor in
interest, including debtor in possession and trustee in bankruptcy) to such Bank
or the Agent under, arising out of, or in any way connected with this Agreement
or the Notes, whether such liabilities be direct or indirect, absolute or
contingent, now existing or created hereafter, due or to become due, or held or
to be held by such Bank or the Agent, and whether created directly or acquired
by assignment or otherwise, and any and all extensions or renewals thereof,
together with all reasonable costs and expenses, including attorneys' fees and
expenses, incurred by such Bank or the Agent in collecting and enforcing any of
such liabilities and this Company Guaranty (all of the foregoing being
hereinafter collectively referred to as the "ESOP Trust Liabilities").
(b) (i) This Company Guaranty shall remain in full force and
effect, notwithstanding intervening events of any kind, until the ESOP Trust
Liabilities are paid in full. No invalidity, irregularity or unenforceability of
any or all of the ESOP Trust Liabilities hereby guaranteed, or any other
circumstances which might otherwise constitute a legal or equitable discharge of
the Company, shall affect, impair, or be a defense to this Company Guaranty,
which shall in every respect be construed as a direct and primary obligation of
the Company. This Company Guaranty is a guaranty of payment and not a guaranty
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49
of collection. The Company waives any and all defenses with respect to this
Company Guaranty which may be available under ERISA or the Code (including in
each case the regulations thereunder) or under Sections 2.10 or 8.3 with respect
to the ESOP Trust Liabilities and agrees not to assert any such defense
hereunder. The Company acknowledges that such defenses shall not and are not
intended to in any manner affect, limit or impair the liability of the Company
for ESOP Trust Liabilities under this Company Guaranty and that such liability
is and is intended to be for the full amount of the ESOP Trust Liabilities
irrespective of, and without regard to, such defenses or of the value, worth or
collectibility of the sources to which recovery is thereby limited and that such
defenses shall in no manner affect, alter, impair or reduce the liability of the
Company hereunder.
(ii) If at any time all or any part of any payment theretofore
applied by any Bank or the Agent to any of the ESOP Trust Liabilities is or must
be rescinded or returned by such Bank or the Agent for any reason whatsoever,
including, without limitation, pursuant to a settlement agreement or compromise
effected by such Bank or the Agent with a claimant, such ESOP Trust Liabilities
shall, for the purposes of this Company Guaranty, to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence, notwithstanding such application by such Bank or the Agent, and this
Company Guaranty shall continue to be effective or shall be reinstated, as the
case may be, as to such ESOP Trust Liabilities, all as though such application
by such Bank or the Agent had not been made.
Section 9.2 Waivers. The Company hereby expressly waives: (a) notice of
the acceptance by any Bank or the Agent of this Company Guaranty, (b) notice of
the existence or creation or non-payment of all or any of the ESOP Trust
Liabilities, (c) presentment, demand, notice of dishonor, protest, notice of
protest and all other notices whatsoever, either in respect of this Company
Guaranty or any or all of the ESOP Trust Liabilities, (d) all diligence in
collection or protection of, or realization upon, the ESOP Trust Liabilities or
any obligations hereunder, or guaranty of any of the foregoing, and (e)
requirement on the part of any Bank or the Agent to mitigate damages resulting
from a default of the ESOP Trust. The Company also expressly waives any
requirement that any Bank or the Agent first commence any action or assert any
right against the ESOP Trust or any other obligor or join the ESOP Trust in any
action any Bank or the Agent may bring against the Company under this Company
Guaranty.
Section 9.3 Bank Indulgences, Forebearance and Consent. Any Bank or the
Agent may, at any time and from time to time, whether before or after any
discontinuance of this Company Guaranty, without the consent of or notice to the
Company, except such notice as may be required by applicable statute and cannot
be waived, without incurring responsibility to the Company and without impairing
or releasing the obligations of the Company hereunder, upon any terms or
conditions, take any or all of the following actions (which may or could have
the effect of changing the risk hereby undertaken by the Company), to each of
which actions the Company (on its own behalf but not as a fiduciary of the ESOP
Trust on behalf of the ESOP Trust) hereby consents: (a) change the manner, place
or terms of payment of any of the ESOP Trust Liabilities; (b) change, extend or
renew for one or more periods (whether or not longer than the original period),
alter or exchange any of the ESOP Trust Liabilities; (c) release, settle,
subordinate or compromise any obligation of the ESOP Trust or the Company with
respect to any of the ESOP Trust Liabilities; (d) grant any indulgence or
forebearance to the ESOP Trust, or consent to any action or failure to act of
the ESOP Trust, which, in the absence of consent of the Banks or the Agent,
violates or may be deemed to violate any agreements of the ESOP Trust with
respect to any or all of the ESOP Trust Liabilities; (e) retain or obtain, or
release, the primary or secondary obligations of any obligor or obligors, in
addition to the Company, with respect to any of the ESOP Trust Liabilities; (f)
exercise or refrain from exercising any rights against the ESOP Trust or others
(including the Company) or otherwise act or refrain from acting; (g) apply any
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sums paid by the Company or realized out of Company assets to any ESOP Trust
Liabilities or other liabilities of the Company regardless of what ESOP Trust
Liabilities or other liabilities of the Company remain unpaid; (h) act or fail
to act in any manner referred to in this Company Guaranty which may deprive the
Company of its right to subrogation against any Person to recover full indemnity
for any payments made pursuant to this Company Guaranty; and (i) resort to the
Company for payment of any of the ESOP Trust Liabilities, whether or not such
Bank or the Agent shall have proceeded against the ESOP Trust or any other
obligor primarily or secondarily obligated with respect to any of the ESOP Trust
Liabilities.
Section 9.4 Application of Payments. Any amounts received by any Bank
or the Agent from whatsoever source on account of the ESOP Trust Liabilities may
be applied by it toward the payment of such of the ESOP Trust Liabilities, and
in such order of application, as such Bank or the Agent may from time to time
elect. The Company agrees not to enforce or pursue any claim, remedy or other
right (whether or not such claim, remedy or right arises in equity or under
contract, statute or common law) which the Company may now have or hereafter
acquire against the ESOP Trust or any other Person that is primarily or
contingently liable on the ESOP Trust Liabilities that arises from the
existence, performance or enforcement of the Company's obligations under this
Company Guaranty (including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of such Bank or the Agent against the ESOP
Trust which such Bank or the Agent now has or hereafter acquires) until after
all ESOP Trust Liabilities have been paid in full. The Company hereby agrees
that neither it, nor any of its officers, directors, agents, attorneys or
employees, will interfere on the Company's behalf in any way with the
enforcement by any Bank or the Agent of any of its rights under this Company
Guaranty.
Section 9.5 Guaranty to Inure to Benefit of Assignees of Liabilities.
Any Bank may, from time to time in accordance with this Agreement, assign or
transfer any or all of the ESOP Trust Liabilities or any interest therein.
Notwithstanding any such assignment or transfer or any subsequent further
assignment or transfer thereof, such ESOP Trust Liabilities shall be and remain
ESOP Trust Liabilities for the purposes of this Company Guaranty, and each and
every immediate and successive assignee or transferee of any of the ESOP Trust
Liabilities or of any interest therein shall, to the extent of the interest of
such assignee or transferee in the ESOP Trust Liabilities, be entitled to the
benefits of this Company Guaranty to the same extent as if such assignee or
transferee were such Bank; provided, however, that unless such Bank shall
otherwise consent in writing, such Bank shall have an unimpaired right, prior
and superior to that of any such assignee or transferee, to enforce this Company
Guaranty for the benefit of such Bank as to those of the ESOP Trust Liabilities
which such Bank has not assigned or transferred or which are then owed to the
Bank.
Section 9.6 Continuing Guaranty. This Company Guaranty shall be a
continuing guaranty and each Bank and the Agent may continue to act in reliance
hereon until all ESOP Trust Liabilities have been paid in full.
Section 9.7 ESOP Trust Defenses. The provisions of this Company
Guaranty (a) shall not in any manner affect, impair, limit, prejudice or waive
any defenses available to the ESOP Trust under the Credit Documents but shall
apply to the Company notwithstanding such defenses, (b) shall not give any Bank
or the Agent any rights against the ESOP Trust or interest in the assets of the
ESOP Trust, and (c) shall not in any manner constitute consent by the ESOP Trust
or the Company on behalf of the ESOP Trust to any alteration or modification of
the rights and obligations of the ESOP Trust under the Credit Documents.
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51
ARTICLE X
COMPANY PURCHASE OBLIGATIONS
Section 10.1 (a) The Company hereby absolutely, unconditionally and
irrevocably agrees to purchase from each Bank, and each Bank agrees to sell to
the Company, in each case without recourse to such Bank, all of such Bank's
right, title and interest in, to and under the Credit Documents (excluding
rights and benefits retained pursuant to Section 10.6), if either:
(x) the Agent so requests at any time after November 15, 1997,
which request shall be in the form of Exhibit 10.1(x) ("Bank Repurchase
Request") and shall be provided to both the Company and the ESOP Trust pursuant
to Section 11.17. The Agent shall be obliged to make such request upon receipt
of any request from the Required Banks to such effect after November 15, 1997;
or
(y) the ESOP Trust so requests at any time after its receipt
from any Bank of a written notice or demand for additional amounts due pursuant
to Section 2.4 or Section 2.9(a) hereof, which request shall be in the form of
Exhibit 10.1(y) ("ESOP Repurchase Request" and hereafter collectively with a
Bank Repurchase Request referred to as a "Repurchase Request") and shall be
provided to both the Company, the Agent and each Bank pursuant to Section 11.17.
On the date ("Transfer Date") specified in a Repurchase Request (which (a) in
the case of a Bank Repurchase Request, shall not be later than 120 days after
the date of such Bank Repurchase Request, and (b) in the case of a ESOP
Repurchase Request, shall not be later than 120 days after the date of such ESOP
Purchase Request), the Company shall pay Agent, in immediately available funds
by wire transfer to the account specified in the request or notice, the sum of
(i) the full amount of the aggregate outstanding principal amount of the Loans,
plus (ii) all accrued and unpaid interest on the Loans through the date of
payment, plus (iii) all other fees and amounts which are then due and payable to
the Banks and the Agent pursuant to any Credit Document (including all amounts
payable under Sections 2.4 and 2.5), as such principal, interest, fees and other
amounts are calculated by the Agent, which calculation shall be final and
conclusive, absent manifest error (collectively, "Repurchase Price").
(b) Upon each Bank's receipt of the Repurchase Price in full
pursuant to this Section 10.1, (i) each Bank shall deliver the Credit Documents
to the Company and shall assign to the Company its right, title and interest in,
to and under the Credit Documents (excluding rights and benefits retained
pursuant to Section 10.6) without recourse, representation or warranty (other
than as set forth in the Assignment Agreement in the form of Exhibit 10.1.(b)),
pursuant to an Assignment Agreement in the form of Exhibit 10.1(b) (which, with
the Repurchase Request, shall be the sole documentation with respect to such
assignment) and (ii) each Bank shall have no further right, title or interest
in, to or under the Credit Documents (excluding rights and benefits retained
pursuant to Section 10.6) and each such Bank shall be released from its
obligations under the Credit Documents and shall cease to be a party thereto.
Section 10.2 In the event that the Company is restricted by ERISA or
the Code or any other applicable law from paying the Repurchase Price to the
Agent pursuant to Section 10.1, the Company shall either:
(x) at least two Business Days before the Transfer Date, pay
the Repurchase Price to the ESOP Trust with directions to pay the
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Repurchase Price to the Agent on or before the Transfer Date. The ESOP
Trust shall, upon receipt of such amount and such directions, pay the
Repurchase Price to the Agent on or before the Transfer Date, or
(y) if the Repurchase Price is not paid to the Agent pursuant
to clause (x) on or before the Transfer Date, pay the Repurchase Price
on or before the Transfer Date directly to the Agent. Any such payment
shall be in full satisfaction of the ESOP Trust's obligations to pay
the amounts included in such Repurchase Price, with waiver by the
Company of any and all rights of subrogation against the ESOP Trust,
and upon such payment all liabilities of the ESOP Trust with respect to
the amounts included in the Repurchase Price shall be extinguished.
Upon receipt of such Repurchase Price pursuant to this Section 10.2, each Bank
shall have no further right, title or interest in, to or under the Credit
Documents (excluding rights retained pursuant to Section 10.6) and each such
Bank shall be released from the obligations under the Credit Documents and shall
cease to be a party hereto.
Section 10.3 The obligations of the Company under this Article X shall
be absolute, unconditional, irrevocable, present and continuing obligations and
such obligation shall remain in full force and effect until each Bank and the
Agent has received payment in full of all amounts payable under this Article X
and all other provisions of this Agreement (or such earlier time as the Bank
Reimbursement Obligations have been paid in full) and, until such payment, such
obligation shall not be affected, modified, impaired or released in any respect
or manner whatsoever, upon the happening at any time or from time to time of any
act, omission, condition, circumstance, matter or event whatsoever, whether or
not with notice to or the consent of any Bank or the Agent, the Company, the
ESOP Trust or any other Person, including, without limitation, any of the
following: (i) any Default or Event of Default; (ii) any failure by any Bank or
the Agent to perform its obligations (if any) under or with respect to this
Agreement or the Notes; (iii) any invalidity, irregularity or unenforceability
of any or all of the Credit Documents or any portion thereof, (iv) any and all
defenses which may be available under ERISA or the Code (including in each case
the regulations thereunder) or under Sections 2.10 or 8.3 with respect to the
Credit Documents or any portion thereof; (v) any of the acts, omissions,
conditions, circumstances, matters or events described in Sections 9.2 and 9.3
of this Agreement, or (vi) any other circumstances which might otherwise
constitute a legal or equitable discharge of the Company.
Section 10.4 No set-off, counterclaim, reduction or diminution of any
obligation, or any defense of any kind or nature which the Company or the ESOP
Trust or any other Person has or may have against any Bank or the Agent or their
respective successors and assigns, shall affect, modify, limit, diminish, impair
or release the Company's obligations under this Article X.
Section 10.5 If the Company fails to pay the Repurchase Price in full
on the Transfer Date, any unpaid part of the Repurchase Price shall bear
interest at the Default Rate from the Transfer Date until paid in full.
Section 10.6 Notwithstanding the purchase and sale of the Banks' right,
title and interest in, to and under the Credit Documents or the delivery of the
Credit Documents to the Company pursuant to Section 10.1 or the payments to the
Banks pursuant to Section 10.2, each Bank and the Agent shall continue to be
entitled to the benefits of Sections 2.4, 2.5, 2.9 and 11.15 and Article IX of
this Agreement with respect to the period prior to the time at which each Bank
is paid the Repurchase Price.
Section 10.7 Each Bank may, from time to time in accordance with this
Agreement, assign or transfer any or all of its right, title and interest in, to
and under the Credit Documents or any interest therein. Notwithstanding any such
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53
assignment or transfer or any subsequent further assignment or transfer thereof,
each and every immediate and successive assignee or transferee of any of the
Credit Documents or of any interest therein shall, to the extent of the interest
of such assignee or transferee, be entitled to the benefits of and be bound by
this Article X to the same extent as if such assignee or transferee were such
Bank; provided, however, that unless such Bank shall otherwise consent in
writing, such Bank shall have an unimpaired right, prior and superior to that of
any such assignee or transferee, to enforce this Article X for the benefit of
such Bank as to those Credit Documents which such Bank has not assigned or
transferred or in which such Bank has retained an interest.
ARTICLE XI
THE AGENT
Section 11.1 Appointment. The Banks hereby designate BOM as Agent to
act as specified herein and in the other Credit Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such
Note shall be deemed irrevocably to authorize, the Agent to take such action on
its behalf under the provisions of this Agreement, the other Credit Documents,
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its officers, directors,
agents, or employees.
Section 11.2 Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement. Neither the
Agent nor any of its officers, directors, agents, or employees shall be liable
for any action taken or omitted by it or them hereunder or under any other
Credit Document or in connection herewith or therewith, unless caused by its or
their gross negligence or willful misconduct. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by reason of
this Agreement or any other Credit Document a fiduciary relationship in respect
of any Bank or the holder of any Note; and nothing in this Agreement or any
other Credit Document, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of this
Agreement or any other Credit Document except as expressly set forth herein.
Section 11.3 Lack of Reliance on the Agent. Independently and without
reliance upon the Agent, each Bank and the holder of each Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Companies in
connection with the making and the continuance of the Loans and the taking or
not taking of any action in connection herewith and (ii) its own appraisal of
the creditworthiness of the Companies and, except as expressly provided in this
Agreement, the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank or the holder of any Note with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter.
The Agent shall not be responsible to any Bank or the holder of any Note for any
recitals, statements, information, representations, or warranties herein or in
any document, certificate, or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority, or sufficiency of this Agreement or any
other Credit Document or the financial condition of the Companies or be required
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54
to make any inquiry concerning either the performance or observance of any of
the terms, provisions, or conditions of this Agreement or any other Credit
Document, or the financial condition of the Companies or the existence or
possible existence of any Default or Event of Default.
Section 11.4 Certain Rights of the Agent. If the Agent shall request
instructions from the Banks with respect to any act or action (including failure
to act) in connection with this Agreement or any other Credit Document, it being
understood that the Agent shall be under no obligation to request any such
instructions, the Agent shall be entitled to refrain from such act or taking
such action unless and until the Agent shall have received instructions from the
Required Banks; and the Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, no Bank or the holder of any
Note shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Banks.
Section 11.5 Reliance. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype, or telecopier message, cablegram,
radiogram, order, or other document or telephone message signed, sent, or made
by any Person that the Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by it.
Section 11.6 Indemnification. To the extent the Agent is not reimbursed
and indemnified by the Companies, the Banks will reimburse and indemnify the
Agent, in proportion to their respective outstanding Loans, for and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses, or disbursements of whatsoever kind or nature
that may be imposed on, asserted against, or incurred by the Agent in performing
its duties hereunder or under any other Credit Document, or in any way relating
to or arising out of this Agreement or any other Credit Document; provided that
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements resulting from the Agent's gross negligence or willful misconduct.
Section 11.7 The Agent in its Individual Capacity. With respect to its
obligation to make a Loan under this Agreement, the Agent shall have the rights
and powers specified herein for a "Bank" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Banks," "Holders of Notes," or any similar terms shall, unless the context
clearly otherwise indicates, include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, and generally engage in any kind
of banking, trust, or other business with the Companies or any Affiliate of the
Companies as if it were not performing the duties specified herein, and may
accept fees and other consideration from the Companies for services in
connection with this Agreement and otherwise without having to account for the
same to the Banks.
Section 11.8 Holders. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer, or endorsement thereof, as the case may be,
shall have been filed with the Agent. Any request, authority, or consent of any
Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee, or endorsee, as the case may be, of
such Note or of any Note or Notes issued in exchange therefor.
Section 11.9 Resignation by the Agent. (a) The Agent may resign from
the performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
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55
the Companies and the Banks. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to paragraphs (b) and (c) below or as
otherwise provided below.
(b) Upon any such resignation, the Required Banks shall, with
the consent of the Companies, appoint a successor Agent hereunder or thereunder
which shall be a commercial bank or trust company.
(c) If a successor Agent shall not have been so appointed
within such 15 Business Day period, the Agent, with the consent of the
Companies, may then appoint a successor Agent who shall serve as Agent hereunder
or thereunder until such time, if any, as the Required Banks appoint a successor
Agent as provided above.
(d) If no successor Agent has been appointed pursuant to
paragraph (b) or (c) above by the 20th Business Day after the date that such
notice of resignation was given by the Agent, the Agent's resignation shall
become effective and the Banks shall thereafter perform all the duties of the
Agent hereunder and/or under any other Credit Document until such time, if any,
as the Required Banks appoint a successor Agent as provided above in clause (b)
with the consent of the Companies.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Survival of Certain Representations and Obligations. The
respective agreements, representations and other statements of the Companies and
the Banks and the Agent and each of their respective officials or officers set
forth in or made pursuant to this Agreement will survive the Effective Date.
SECTION 12.2 GOVERNING LAW. THE OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.
Section 12.3 Headings. Section headings in this Agreement are for
convenience and reference only and shall not govern, or be used in, the
interpretation of any of the provisions of this Agreement.
Section 12.4 Benefit of Agreement; Successors; Transfer of Note. (a)
The terms and provisions of this Agreement each shall be binding upon and inure
to the benefit of the Company, the ESOP Trust, each Bank, the Agent and their
respective successors and assigns; provided that neither the Company nor the
ESOP Trust shall have the right to assign its rights or delegate its duties
under this Agreement or the other Credit Documents, or any interest therein,
without the prior written consent of the Required Banks.
(b) Each Bank may assign to one or more banks or other
financial institutions regularly engaged in making or acquiring loans all or a
portion of its interest, rights and obligations under this Agreement (including
all or a portion of 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 Bank or an
Affiliate of a Bank, the Agent must give its 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 Bank's rights and obligations under this Agreement, (iii) the
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56
aggregate amount of the Loans of the assigning Bank subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Agent) shall not be less than $5,000,000
(iv) the parties to each such assignment shall execute and deliver to the Agent
an Assignment and Acceptance, together with the Notes subject to such assignment
and a processing and recordation fee of $2,000; (v) BOM shall not, without the
prior consent of the ESOP Trust and the Company, which consent shall not be
unreasonably withheld, effect any assignment which would reduce its outstanding
principal amount of Loans to less than 50.1% of the outstanding principal amount
of the Loans; and (vi) each of BOM and Norwest shall not effect any assignment
to any other Person unless (A) it shall have first afforded the other 5 Business
Days prior written notice and the opportunity to purchase the outstanding
principal amount of the Loans to be assigned on the same terms and conditions as
the proposed assignment to such other Person, and (B) such other Bank shall have
failed to accept such assignment within such period or shall have declined to
accept such assignment. Upon acceptance and recording pursuant to paragraph (d)
of this Section 12.4, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (A) the assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Bank under this Agreement and (B) the assigning Bank
thereunder shall, to the extent provided in such assignment, 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 Bank's rights
and obligations under this Agreement, such Bank shall cease to be a party
hereto). Each assignee Bank which was not previously a Bank hereunder and which
is not organized under the laws of the United States of America or a state
thereof shall, within three (3) Business Days of becoming a Bank, deliver to the
ESOP Trust and the Agent either two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or successor applicable form), as
the case may be, certifying in each case that such Bank is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal taxes.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Bank thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim, such assigning Bank 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 Note or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Companies or
the performance or observance by the Companies of any of its obligations under
this Agreement, any Note or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this Loan
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.1.1 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; (iv) such assignee will independently and
without reliance upon the Agent, such assigning Bank or any other Bank 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; (v) such assignee appoints and authorizes the Agent to take such
action as agent on it behalf and to exercise such powers under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it accepts all
terms and conditions hereof and that it will perform in accordance with their
terms all the obligations which by the terms of this Agreement are required to
be performed by it as a Bank.
(d) The Agent shall maintain at its office in The City of
Chicago a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Banks, and the principal
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57
amount of the Loans owing to, each Bank 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 Companies, the Agent and the Banks may treat
each person whose name is recorded in the Register pursuant to the terms hereof
as a Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Companies and any Bank, 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 Bank and assignee together with the Notes
subject to such assignment and the processing and recording fee referred to in
paragraph (b) above, the Agent shall (subject to the consent of the Agent to
such assignment, if required), (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and, with respect to
any Assignment and Acceptance and allocation of commitments under this Agreement
by the Agent, record such information on Schedule 1 and (iii) give prompt notice
thereof to the Companies and the Banks. Within five Business Days after receipt
of notice, the ESOP Trust, at its own expense, shall execute and deliver to the
Agent, in exchange for the surrendered Notes, new Notes to the order of such
assignee in a principal amount equal to the outstanding principal amount of the
Loan assigned to it pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained any portion of the Loans, new Notes to the order of
such assigning Bank in a principal amount equal to the principal amount of the
Loans retained by it. Such new Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Notes; such new
Notes shall be dated the date of the surrendered Notes which they replace and
shall otherwise be in substantially the form of Exhibits A-1 and A-2 hereto (but
the ESOP Trust shall have no liability to the assignee in respect of payments of
principal, interest or Fees already made). Each canceled Note shall be returned
to the ESOP Trust. The assigning Bank and the assignee Bank shall each bear
their own expenses in connection with any such assignment.
(f) Each Bank may without the consent of the ESOP Trust or the
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 the Loans
owing to it and the Notes held by it); provided however, that (i) such Bank's
obligations under this Loan Agreement shall remain unchanged, (ii) such Bank
shall remain solely responsible to the ESOP Trust for the performance of such
obligations, (iii) except as expressly provided herein, all amounts payable by
the Companies shall be computed as if such Bank had not sold any such
participations, and (iv) the Companies shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement, and such Bank shall retain the sole right to enforce the
obligations of the Companies relating to the Loans and to approve any amendment,
modification or waiver or any provision of this Agreement.
Section 12.5 Entire Agreement. The Credit Documents embody the entire
agreement and understanding between the Company, the ESOP Trust, the Banks and
the Agent supersede all prior agreements between the Company, the ESOP Trust,
and the Banks and the Agent relating to the subject matter of this Agreement.
Section 12.6 Termination. This Agreement shall not terminate until the
date of the payment in full by the Companies of all Bank Reimbursement
Obligations and thereafter until each Bank and the Agent shall be fully paid
beyond any period of preference, set aside or avoidance.
Section 12.7 Set-Off. In addition to and not in limitation of all
rights of offset that each Bank may have under applicable law, each Bank is
hereby authorized, upon the occurrence of any Event of Default, at any time and
from time to time thereafter without notice to the Company (any such notice
being expressly waived by the Company) and to the fullest extent permitted by
law, to set off, to exercise any banker's lien or any other right of attachment
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58
or garnishment and to apply any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts or monies at any time
held and other indebtedness at any time owing by such Bank to or for the account
of the Company, whether matured or unmatured, against any and all payment
obligations hereunder, regardless of whether such Bank shall have made any
demand under or with respect to any of such payment obligations.
Section 12.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
Section 12.9 No Waiver. No delays or omissions of any Bank or the Agent
to exercise any right under the Credit Documents shall impair such right or be
construed to be a waiver of or an acquiescence in any Event of Default or
Default, and any single or partial exercise of any such right shall not preclude
other or further exercise of that right or the exercise of any other right.
Section 12.10 Remedies Cumulative. The rights, powers, and remedies
herein or in any other Credit Document expressly provided are cumulative and not
exclusive of any rights, powers, or remedies that the Banks or the holder of any
Note or the Agent would otherwise have.
Section 12.11 Limitation of Bank Liability. Notwithstanding any other
provision of this Agreement and subject to applicable law, in no event shall any
Bank or the Agent be liable, regardless of whether any claim is based on
contract or tort, for any special, consequential, indirect or incidental
damages, including, but not limited to, lost profits, arising out of or in
connection with any action or omission taken by such Bank or the Agent in
connection with this Agreement or the other Credit Documents.
Section 12.12 Nature of Obligations. The obligation of the Company and
the ESOP Trust to pay any and all amounts under this Agreement and the other
Credit Documents ranks and shall at all times during the term of this Agreement
rank at least pari passu in all respects with all other unsecured and
unsubordinated loans or debts or other obligations created, assumed or
guaranteed by the Company and the ESOP Trust. In the event that the obligations
of either of the Company or the ESOP Trust are limited by the provisions of this
Agreement or the other Credit Documents or by law (including without limitation
ERISA or the Code (including in each case the regulations thereunder)), or in
the event that either the Company or the ESOP Trust are unable to meet their
respective obligations under this Agreement or the other Credit Documents, such
limitation or inability shall not affect the obligations of the other under this
Agreement or the other Credit Documents.
Section 12.13 Severability. If any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision of this
Agreement.
Section 12.14 Concerning the ESOP Trustee. State Street Bank and Trust
Company and any successor trustee under the ESOP Trust Agreement (including any
and all directors, officers and agents thereof) shall have no personal liability
or responsibility for observance or performance of the covenants and agreements
herein contained or for the accuracy of the representations and warranties
herein or therein contained (other than those contained in Section 5.2 (a) and
(b) hereof), the ESOP Trustee having executed this Agreement not individually
but solely as Trustee (except as provided in Section 5.2(a) and (b)) under the
ESOP Trust Agreement to bind the ESOP Trust and the trust estate.
Section 12.15 Expenses; Indemnity. The Company hereby indemnifies and
holds harmless each Bank, the Agent, and their respective officers, directors,
employees and attorneys from and against any and all claims, damages, losses
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59
(including amounts due but not paid hereunder), liabilities, penalties,
judgments and reasonable costs or expenses (including but not limited to
reasonable attorneys' fees and expenses) which such Bank or the Agent may incur
(or which may be claimed against such Bank or the Agent by any entity or
entities whatsoever) by reason of or in connection with: (i) the issuance, sale,
resale, remarketing or redemption of the ESOP Preferred Stock and the Floating
Rate Notes; (ii) any provision, misstatement or omission of a material fact
contained in (or not contained in, as the case may be) any document pursuant to
which the ESOP Preferred Stock and the Floating Rate Notes were offered for sale
or were sold, resold or remarketed or are redeemed; (iii) any breach by the
Company or the ESOP Trust of the representations, warranties, covenants or terms
of the Credit Documents (including without limitation the representations,
warranties and covenants of the Company in Sections 5.1(c), 5.1(l), and 6.1.12);
(iv) any other matter or event relating to the Credit Documents or any other
document or instrument which may be delivered in connection therewith, except
for any claims, damages, losses, liabilities, penalties, judgments, costs or
expenses to the extent, but only to the extent, caused by the gross negligence
or willful misconduct of such Bank or the Agent; (v) any taxes (including
interest and penalties but excluding income taxes) which may be payable in
connection with the execution or delivery of the Credit Documents (without
duplication of any amounts paid pursuant to Section 2.9); (vi) the collection of
any amounts owed to such Bank or the Agent under the Credit Documents; (vii) the
protection, exercise or enforcement of such Bank's or the Agent's rights and
remedies under the Credit Documents; or (viii) all acts or omissions of the
Indenture Trustee, the Custodian and the Remarketing Agent (each as defined in
the Indenture). If and to the extent that the obligations of the Company under
this Section 12.15 are unenforceable for any reason, the Company hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law. The obligations of the
Company under this Section 12.15 shall survive the termination of this Agreement
and the discharge of all other obligations hereunder.
Section 12.16 Interest Limitation. Notwithstanding anything in this
Agreement or the Notes or other Credit Document to the contrary, the Companies
shall never be required to pay interest at a rate in excess of the highest
lawful rate, and if the effective rate of interest that would otherwise be
payable under this Agreement or the Notes or other Credit Document would exceed
the highest lawful rate, or if any holder of the Notes shall receive monies that
are deemed to constitute interest which would increase the effective rate of
interest payable under this Agreement or the Notes or other Credit Document to a
rate in excess of the highest lawful rate, then (a) the amount of interest that
would otherwise be payable under this Agreement or the Notes or other Credit
Document shall be reduced to the amount allowed under applicable law, and (b)
any interest paid in excess of the highest lawful rate shall, at the option of
the holder of the Notes, be either refunded to the payor or credited on the
principal of the Notes.
Section 12.17 Notice. Unless otherwise provided for in this Agreement,
any notice required or permitted to be given under this Agreement may be given
by mail by depositing such notice in the United States mail, first class postage
prepaid, or by overnight courier, facsimile transmission, telegram or telex,
charges prepaid, addressed:
To the Company as follows:
ALLIED Group, Inc.
701 Fifth Avenue
Des Moines, Iowa 50391-2000
Attention: George Oleson
Facsimile No.: (515) 280-4953
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60
To the ESOP Trust as follows:
State Street Bank and Trust Company
Benefit Plan Services Division
200 Newport Avenue
North Quincy, Massachusetts 02171
Attention: The ALLIED Group, Inc., ESOP Manager
Facsimile No.: (617) 985-3946
with a copy to:
State Street Bank and Trust Company
Legal Trust Division
Batterymarch Park III
Three Pine Hill Drive
Quincy, Massachusetts 02169
Attention: Denise Courcy
Facsimile No.: (617) 376-4602
To BOM as follows:
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60602
Attn: Elise Brenneman
Facsimile No. (312) 750-3783
To the Agent as follows:
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60602
Attn: Elise Brenneman
Facsimile No. (312) 750-3783
To Norwest as follows:
Norwest Bank Iowa, National Association
666 Walnut Street
Des Moines, Iowa 50309
Attention: William Green
Facsimile No.: (515) 245-3128
The ESOP Trust and the Company shall provide a copy of any notice to Agent and
each Bank. A notice or communication given under this Agreement will be
effective, if delivered by hand or facsimile or sent by overnight courier, on
the day it is delivered (or if that day is not a Business Day, or if delivered
after the close of business on a Business Day, on the first following day that
is a Business Day), if sent by telex on the day the recipient's answerback is
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61
received (or if that day is not a Business Day, or if delivered after the close
of business on a Business Day, on the first following day that is a Business
Day) or, if sent by certified registered mail (airmail if overseas) or the
equivalent (return receipt requested), three (3) Business Days after dispatch if
the recipient's address for notice is in the same country as the place of
dispatch and otherwise seven (7) Business Days after dispatch (or, in either
case, if delivered after the close of business on a Business Day, on the first
following day that is a Business Day). Each party may change the address for
service of notice upon it by a notice in writing to the other.
Section 12.18 Sharing of Setoffs. Each Bank agrees that, if it should
receive any amount hereunder (whether by voluntary payment, by realization upon
security, by the exercise of the right of setoff or banker's lien, by
counterclaim or cross action, by the enforcement of any right under the Credit
Documents, or otherwise) that is applicable to the payment of the principal of,
or interest on, the Loans and that, with respect to the related amount or
amounts received by the other Banks, is in a greater proportion than the total
amount of Bank Reimbursement Obligations then owed and due to such Bank bears to
the total amount of Bank Reimbursement Obligations then owed and due to all of
the Banks immediately prior to such receipt, then such Bank receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Banks an interest in Bank Reimbursement Obligations of the Companies to
such Banks in such amount as shall result in a proportional participation by all
the Banks in such amount; provided, however, that if all or any portion of such
excess amount is thereafter recovered from such Bank, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 12.19 Amendment or Waiver. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged, or terminated unless such change, waiver, discharge, or termination
is in writing signed by the Agent and the Required Banks; provided, however,
that no such change, waiver, discharge, or termination shall, without the
consent of each Bank, (i) extend the final maturity of any Loans or Notes or
reduce the rate or extend the time of payment of principal thereof or interest
or Fees thereon, or reduce the principal amount thereof, or increase the
Commitment of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default shall not constitute
a change in the terms of any Commitment of any Bank), or (ii) amend, modify, or
waive any provision of this Section 12.19 or Articles 9 or 10.
Section 12.20 Appointment of the Agent for Service of Process;
Jurisdiction. (a) The Company irrevocably agrees that any legal action, suit or
proceeding against it with respect to its obligations, liabilities or any other
matter under or arising out of or in connection with this Agreement or any of
the obligations, or for recognition or enforcement of any judgments rendered in
any such action, suit or proceedings may be brought in the United States Court
for the Northern District of Illinois or in the courts of the State of Illinois
located in Cook County, as the Agent or any Bank may, in its sole and absolute
discretion, elect and by execution and delivery of this Agreement, the Company
hereby unconditionally and irrevocably accepts and submits to the jurisdiction
of each of the aforesaid courts in personam, generally and unconditionally with
respect to any such action, suit, or proceeding for it and in respect of its
properties, assets and revenues. The Company hereby unconditionally and
irrevocably designates, appoints and empowers Prentice-Hall Corporation System,
Inc. (the "Process Agent") at 33 North LaSalle Street, Chicago, Illinois 60602,
as its designee, appointee and agent to receive, accept and acknowledge for it
and on its behalf and its properties, assets and revenues, service of any and
all legal process, summons, notices and documents that may be served in any such
action, suit or proceeding in the United States Court for the Northern District
of Illinois or the courts of the State of Illinois located in Cook County, which
service may be made on the Process Agent in accordance with legal procedures
prescribed for such courts. The Company shall be entitled to designate and
appoint and empower a different Process Agent located in Chicago, Illinois to
perform to functions in the preceding sentence upon delivery to and acceptance
by the Agent of (x) an instrument so designating, appointing and empowering such
<PAGE>
62
different entity, and (y) a letter from such different entity indicating its
commitment to act as Process Agent hereunder. The Company agrees to take any and
all action necessary to continue such designation in full force and effect and
to advise the Agent of any change of address of the Process Agent and should the
Process Agent become unavailable for this purpose for any reason, the Company
shall forthwith irrevocably designate a new designee, appointee and agent within
the City of Chicago and State of Illinois, which shall irrevocably agree to act
as Process Agent hereunder, with the powers and for the purposes specified in
this Section 11.18. The Company further agrees that service upon the Process
Agent shall constitute valid and effective service upon it. Service of any and
all such process or other document on the Company may also be effected by
registered mail, postage prepaid, to its address set forth in Section 11.17
hereof. Nothing herein shall, or shall be construed so as to, limit the right of
any Bank or the Agent, to the extent permitted by applicable law, to bring
actions, suits or proceedings with respect to the obligations and liabilities of
the Company under, or any other matter arising out of or in connection with,
this Agreement or for recognition or enforcement of any judgment rendered in any
such action, suit or proceeding in the courts of any jurisdiction in which any
office of such Bank or the Agent may be located or any assets, properties or
revenues of the Company may be found or as such Bank or the Agent shall
otherwise deem appropriate, or the right to effect service of process in any
jurisdiction in any other manner permitted by law.
(b) In addition, the Company irrevocably and unconditionally
waives any objection that it may now or hereafter have to the laying of venue of
any of the aforesaid actions, suits or proceedings brought in any of the courts
referred to in the first sentence of the next preceding paragraph, and further
irrevocably and unconditionally waives and agrees not to plead or claim that any
such action, suit or proceeding brought in any of the aforesaid courts has been
brought in any inconvenient forum.
SECTION 12.21 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, THE NOTE OR ANY OF THE OTHER CREDIT
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE 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, THE NOTES AND THE OTHER CREDIT DOCUMENTS, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 12.22 Confidentiality. Each Bank and the Agent shall use its
reasonable efforts not to disclose to any Person any information with respect to
the Company or the ESOP Trust which is furnished pursuant to this Agreement,
except that any Bank or the Agent may disclose any such information (a) to its
own directors, officers, employees, auditors, counsel and other professional
advisors and to its Affiliates if such Bank or Agent or such Bank's or such
Agent's holding or parent company in its sole discretion determines that any
such party should have access to such information; (b) to another Bank; (c) if
such information is or becomes generally available to the public; (d) if
required or appropriate in any report, statement or testimony submitted to any
governmental authority having or reasonably claiming to have jurisdiction over
such Bank or the Agent; (e) if required or appropriate in response to any
request by any such governmental authority to review the records of the Bank or
the Agent; (f) if required or appropriate in response to any summons or subpoena
or in connection with any litigation, to the extent permitted or deemed
<PAGE>
63
advisable by counsel; (g) to comply with any requirement of law applicable to
such Bank or the Agent; (h) to any participant or assignee Bank or any
prospective participant or assignee Bank, provided that such Person agrees in
writing to be bound by the terms of this Section 12.22 and the ESOP Trust is
given advance notice; or (i) otherwise with the prior consent of the ESOP Trust
or the Company.
<PAGE>
64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the day and year first above
written.
ALLIED GROUP, INC.
By:______________________________________
Title:___________________________________
THE ALLIED GROUP EMPLOYEE STOCK OWNERSHIP
TRUST
By State Street Bank and Trust Company,
not individually (except for Sections
5.2(a) and (b)), but solely in its
capacity as ESOP Trustee (as hereinabove
defined)
By:______________________________________
Title:___________________________________
BANK OF MONTREAL, Chicago Branch
By:______________________________________
Title:___________________________________
NORWEST BANK Iowa, National Association
By:______________________________________
Title:___________________________________
<PAGE>
65
SCHEDULE 1
<TABLE>
<CAPTION>
Payment
Office/Applicable
Bank Lending Office Commitment
<S> <C> <C>
Bank of Montreal 115 South LaSalle Street $20,150,000
Chicago, Illinois 60602
ABA No. 071000288
Norwest Bank Iowa, National 666 Walnut Street 8,000,000
Association Des Moines, Iowa 50309
</TABLE>
<PAGE>
66
EXHIBIT A-1
TERM LOAN NOTE
$20,150,000 March 13, 1995
FOR VALUE RECEIVED, the undersigned, THE ALLIED GROUP EMPLOYEE STOCK
OWNERSHIP TRUST, a trust organized and existing under the laws of the
Commonwealth of Massachusetts (the "Borrower"), hereby promises to pay to the
order of THE BANK OF MONTREAL, Chicago Branch, its successors and assigns (the
"Bank"), at the Payment Office of the Agent under, and on the dates and at the
times specified in, the Term Credit Agreement and Guaranty, dated as of March
13, 1995 between the Borrower, the Bank, Norwest Bank Iowa, National Association
and ALLIED Group, Inc., an Iowa company (as amended, modified, restated or
supplemented from time to time, the "Agreement"), the principal sum of TWENTY
MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($20,150,000) or so much thereof as
shall from time to time be outstanding by the Bank to the Borrower pursuant to
Article II and Article IV of the Agreement, in lawful money of the United States
of America, in immediately available funds, and to pay interest (computed on the
basis of 360 days and actual days elapsed) from the date hereof on the principal
amount hereof from time to time outstanding, in like funds and at said office,
at a rate or rates per annum and payable on the dates determined pursuant to the
Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from and after
the day after their due dates at a rate or rates determined as set forth in the
Agreement.
The Borrower, all endorsers, and all persons liable or to become liable
under this Note, hereby waive diligence, presentment, demand, protest and notice
of any kind whatsoever. The non-exercise by the holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and made
a part hereof, or on a continuation thereof which shall be attached hereto and
made a part hereof, or otherwise recorded by such holder in its internal
records; provided, however, that the failure of the holder hereof to make such a
notation or any error in such a notation shall not affect the obligations of the
Borrower under this Note.
This Note is the Note referred to in the Agreement, which, among other
things, contains provisions for the acceleration of the maturity hereof upon the
happening of certain events, for optional and mandatory prepayment of the
principal hereof prior to the maturity hereof and for the amendment or waiver of
certain provisions of the Agreement, all upon the terms and conditions therein
specified.
The Borrower agrees to pay all costs, expenses and attorneys' fees of
the Bank as set forth in the Agreement in connection with the enforcement of
payment of this Note.
Reference is made to sections 2.10 and 11.14 of the Agreement as to
certain limitations on the obligations of the Borrower and State Street Bank and
Trust Company in its capacity as ESOP Trustee.
<PAGE>
67
This Note shall be construed in accordance with and governed by the laws
of the State of Illinois, without giving effect to choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note as
of the date and year first set forth above.
THE ALLIED GROUP EMPLOYEE STOCK OWNERSHIP
TRUST
By State Street Bank and Trust Company,
not individually, but solely in its
capacity as ESOP Trustee
By:______________________________________
Title:___________________________________
<PAGE>
68
EXHIBIT A-2
TERM LOAN NOTE
$8,000,000 March 13, 1995
FOR VALUE RECEIVED, the undersigned, THE ALLIED GROUP EMPLOYEE STOCK
OWNERSHIP TRUST, a trust organized and existing under the laws of the
Commonwealth of Massachusetts (the "Borrower"), hereby promises to pay to the
order of Norwest Bank Iowa, National Association, its successors and assigns
(the "Bank"), at the Payment Office of the Agent under, and on the dates and at
the times specified in, the Term Credit Agreement and Guaranty, dated as of
March 13, 1995 between the Borrower, the Bank, Bank of Montreal, Chicago Branch
and ALLIED Group, Inc., an Iowa company (as amended, modified, restated or
supplemented from time to time, the "Agreement"), the principal sum of EIGHT
MILLION DOLLARS ($8,000,000) or so much thereof as shall from time to time be
outstanding by the Bank to the Borrower pursuant to Article II and Article IV of
the Agreement, in lawful money of the United States of America, in immediately
available funds, and to pay interest (computed on the basis of 360 days and
actual days elapsed) from the date hereof on the principal amount hereof from
time to time outstanding, in like funds and at said office, at a rate or rates
per annum and payable on the dates determined pursuant to the Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from and after
the day after their due dates at a rate or rates determined as set forth in the
Agreement.
The Borrower, all endorsers, and all persons liable or to become liable
under this Note, hereby waive diligence, presentment, demand, protest and notice
of any kind whatsoever. The non-exercise by the holder of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and made
a part hereof, or on a continuation thereof which shall be attached hereto and
made a part hereof, or otherwise recorded by such holder in its internal
records; provided, however, that the failure of the holder hereof to make such a
notation or any error in such a notation shall not affect the obligations of the
Borrower under this Note.
This Note is the Note referred to in the Agreement, which, among other
things, contains provisions for the acceleration of the maturity hereof upon the
happening of certain events, for optional and mandatory prepayment of the
principal hereof prior to the maturity hereof and for the amendment or waiver of
certain provisions of the Agreement, all upon the terms and conditions therein
specified.
The Borrower agrees to pay all costs, expenses and attorneys' fees of
the Bank as set forth in the Agreement in connection with the enforcement of
payment of this Note.
Reference is made to sections 2.10 and 11.14 of the Agreement as to
certain limitations on the obligations of the Borrower and State Street Bank and
Trust Company in its capacity as ESOP Trustee.
This Note shall be construed in accordance with and governed by the laws
of the State of Illinois, without giving effect to choice of law doctrine.
<PAGE>
69
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note as
of the date and year first set forth above.
THE ALLIED GROUP EMPLOYEE STOCK OWNERSHIP
TRUST
By State Street Bank and Trust Company,
not individually, but solely in its
capacity as ESOP Trustee
By:______________________________________
Title:___________________________________
<PAGE>
70
Exhibit 10.1(x)
BANK REPURCHASE REQUEST
ALLIED Group, Inc.
___________________
___________________
___________________
The ALLIED Group Employee
Stock Ownership Trust
___________________
___________________
___________________
Pursuant to Section 10.1(x) of the Term Credit Agreement and Guaranty
dated as of March 13, 1995 between ALLIED Group, Inc. (the "Company"), The
ALLIED Group Employee Stock Ownership Trust, Bank of Montreal, Chicago Branch
and Norwest Bank, Iowa, National Association (the "Credit Agreement"), the Agent
hereby requires that the Company purchase all of the Banks' right, title and
interest in, to and under the Credit Documents (except as provided in section
10.6 of the Credit Agreement).
Repurchase Price on Transfer Date $______________
Transfer Date: ____________
Bank Wire Transfer Instructions:
______________________
______________________
______________________
Capitalized terms used herein shall have the same meaning as in the
Credit Agreement.
[AGENT]
By:______________________________________
Its:_____________________________________
Date: _________________________
<PAGE>
71
Exhibit 10.1(y)
ESOP REPURCHASE REQUEST
ALLIED Group, Inc.
_________________
_________________
_________________
Agent
_________________
_________________
_________________
_________________
Pursuant to Section 10.1(y) of the Term Credit Agreement and Guaranty
dated as of March 13, 1995 between ALLIED Group, Inc. (the "Company"), The
ALLIED Group Employee Stock Ownership Trust, Bank of Montreal, Chicago Branch
and Norwest Bank Iowa, National Association (the "Credit Agreement"), the ESOP
Trust hereby requires that the Company purchase all of the Banks' right, title
and interest in, to and under the Credit Documents (except as provided in
section 10.6 of the Credit Agreement).
The Repurchase Price on the Transfer Date shall be calculated by the
Agent.
Transfer Date: ___________________
Bank Wire Transfer Instructions shall be supplied by the Agent.
Capitalized terms used herein shall have the same meaning as in the
Credit Agreement.
THE ALLIED GROUP EMPLOYEE STOCK OWNERSHIP
TRUST
By:______________________________________
Its:_____________________________________
Date: _________________________
<PAGE>
72
EXHIBIT 10.1(b)
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Term Credit Agreement and Guaranty, dated as
of March 13, 1995, (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among ALLIED Group, Inc. (the "Assignee"), The
ALLIED Group Employee Stock Ownership Trust ("ESOP Trust"), and Bank of
Montreal, Chicago Branch and Norwest Bank Iowa, National Association. For
purposes of this Assignment, the undersigned Bank shall be the "Assignor".
Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.
The Assignor and the Assignee agree as follows:
I. For and in consideration of the Repurchase Price (receipt by
Assignor of which shall be a condition to the effectiveness of Transfer Date)
the Assignor hereby irrevocably sells and assigns to the Assignee without
recourse to the Assignor, and the Assignee hereby irrevocably purchases and
assumes from the Assignor without recourse to the Assignor, as of the Transfer
Date, all of the Assignor's right, title and interest in and to the Loan, the
Credit Agreement and the Credit Documents (the "Assigned Interest").
II. The Assignor (A) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, any other Credit Document or any other instrument or document
furnished pursuant thereto, other than that it has not created any adverse claim
upon the interest being assigned by it hereunder and that such interest is free
and clear of any such adverse claim created by or through the Assignor; (B)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the ESOP Trust or any other obligor or the
performance or observance by the ESOP Trust or any other obligor of any of their
respective obligations under the Credit Agreement or any other Credit Document
or any other instrument or document furnished pursuant hereto or thereto; and
(C) attaches the Note held by it evidencing the Assigned Interest.
III. The Assignee (A) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (B) confirms that it
has received a copy of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; and (C) agrees that it
will be bound by the provisions of the Credit Agreement and will perform in
accordance with its terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as the Bank.
<PAGE>
73
IV. The effective date of this Agreement and Acceptance shall be the
Transfer Date.
V. From and after the Transfer Date, the Companies shall make all
payments in respect of the Assigned Interest (including payments of principal,
interest, fees and other amounts) to the Assignee whether such amounts have
accrued prior to the Transfer Date or accrue subsequent to the Transfer Date.
VI. From and after the Transfer Date, (A) the Assignee shall be party
to the Credit Agreement and have the rights and obligations of the Bank
thereunder and under the other Credit Documents and shall be bound by the
provisions thereof; and (B) the Assignor shall relinquish its rights and be
released and discharged from its obligations under the Credit Agreement (except
that the Assignor shall remain entitled to the benefits of Sections 2.4, 2.5,
2.9 and 11.15 and Article IX of the Credit Agreement).
VII. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO
ILLINOIS CHOICE OF LAW DOCTRINE).
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers.
[BANK]
ASSIGNOR
_________________________________________
_________________________________________
ALLIED GROUP, INC.
ASSIGNEE
_________________________________________
_________________________________________
<PAGE>
74
AMENDMENT TO ALLIED GROUP EMPLOYEE STOCK OWNERSHIP PLAN
March 7, 1995
WHEREAS, the Internal Revenue Service issued a favorable determination
letter on the ALLIED Group Employee Stock Ownership Plan (the "Plan) on December
20, 1994 that requires the adoption of certain amendments to the Plan that are
attached hereto as the First Amendment to the Plan;
BE IT RESOLVED, that the ALLIED Group Employee Stock Ownership Plan
shall be amended as set forth in the attached First Amendment to the Plan.
<PAGE>
75
FIRST AMENDMENT
TO THE
ALLIED GROUP EMPLOYEE STOCK OWNERSHIP PLAN
By virtue and in exercise of the amending power reserved to ALLIED
Group, Inc. (the "Company") pursuant to section 12.1 of the ALLIED Group
Employee Stock Ownership Plan (the "Plan"), and pursuant to resolutions to amend
adopted March 7, 1995, the Plan is hereby amended as set forth below, effective
as of January 1, 1990.
1. Section 6.6 of the Plan is hereby amended to add the following paragraph
at the end thereof:
In determining the limitation on Compensation under section
401(a)(17) of the Code, the rules of section 414(q)(6) of the
Code ("family aggregation") shall apply, except the term
"family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not
attained age 19 before the close of the year. If the limit on
Compensation is exceeded, then the limitation shall be
pro-rated among the affected individuals in proportion to each
such individual's Compensation determined without regard to
the limitation under section 401(a)(17) of the Code.
2. Section 10 of the Plan is hereby amended to add the following sentences
at the end thereof:
Notwithstanding the foregoing, if the employer does not have a
registration-type class of securities, as defined in section
409(e)(4) of the Code, each Participant or Beneficiary in the
Plan is entitled to direct the Plan as to the manner in which
voting rights of securities allocate to the Account of the
Participant or Beneficiary are to be exercised with respect to
any corporate matter which involves the voting of such shares
with respect to the approval or disapproval of any corporate
merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all the assets
of a trade or business, or such similar transaction as the
Secretary of the Treasury may prescribe in regulations.
3. Sections 9.1(a) and 9.4(a) of the Plan are hereby amended to add the
following parenthetical language after the words "does not exceed $3,500" in
both Sections:
"(and in the past has never exceeded $3,500)"
<PAGE>
76
4. Sections 9.1(b) and 9.4(b) of the Plan are hereby amended to add the
following parenthetical language after the words "exceeds $3,500" in both
Sections:
"(or in the past has ever exceeded $3,500)"
IN WITNESS WHEREOF, the undersigned has caused these presents to be
signed on behalf of the Company and its corporate seal affixed and attested,
this 7th day of March, 1995.
ALLIED Group, Inc.
By: /s/ Jamie H. Shaffer
----------------------------------
Its: President (Financial)
----------------------------------
Attest:
By: /s/ George T. Oleson
-----------------------------
Its: Secretary
-----------------------------
<PAGE>
77
Exhibit 11
ALLIED Group, Inc. and Subsidiaries
Computation of Per Share Earnings
For the three months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY
Net income $ 12,384,323 $ 11,471,201
Preferred stock dividends (1,819,938) (1,833,430)
Stock options in subsidiary (78,028) (69,764)
------------ ------------
Adjusted net income $ 10,486,357 $ 9,568,007
============ ============
Earnings per share $ 1.14 $ 1.04
============ ============
Weighted average shares outstanding 9,034,294 9,074,376
Dilutive effective of unexercised
stock options* 140,988 146,303
------------ ------------
9,175,282 9,220,679
============ ============
FULLY DILUTED
Net income $ 12,384,323 $ 11,471,201
Preferred stock dividends (878,779) (878,780)
Stock options in subsidiary (78,222) (69,791)
Additional net ESOP expenses-assuming conversion of
ESOP Series preferred stock (45,469) (79,966)
------------ ------------
Adjusted net income $ 11,381,853 $ 10,442,664
============ ============
Earnings per share $ 0.82 $ 0.75
============ ============
Weighted average shares outstanding 13,741,115 13,850,639
Dilutive effective of unexercised
stock option* 148,847 146,303
------------ ------------
13,889,962 13,996,942
============ ============
</TABLE>
* Primary - Based on average market price
Fully Diluted - Based on the higher of the average market price or the market
price at March 31 of each year
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED
GROUP, INC'S MARCH 31, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIREITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000774624
<NAME> ALLIED GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 271,817,301
<DEBT-CARRYING-VALUE> 393,823,066
<DEBT-MARKET-VALUE> 393,225,553
<EQUITIES> 4,823,188
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 681,430,700
<CASH> 1,588,626
<RECOVER-REINSURE> 22,215,127
<DEFERRED-ACQUISITION> 39,257,922
<TOTAL-ASSETS> 917,596,092
<POLICY-LOSSES> 317,974,662
<UNEARNED-PREMIUMS> 184,626,067
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 43,061,238
<COMMON> 9,062,020
0
85,206,715
<OTHER-SE> 203,273,471
<TOTAL-LIABILITY-AND-EQUITY> 917,596,092
109,480,938
<INVESTMENT-INCOME> 11,275,002
<INVESTMENT-GAINS> 14,750
<OTHER-INCOME> 11,505,162
<BENEFITS> 74,431,343
<UNDERWRITING-AMORTIZATION> 24,131,939
<UNDERWRITING-OTHER> 6,272,091
<INCOME-PRETAX> 17,259,932
<INCOME-TAX> 4,875,609
<INCOME-CONTINUING> 12,384,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,384,323
<EPS-PRIMARY> 1.170
<EPS-DILUTED> 0.830
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
