<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
For the fiscal year ended December 31, 1995 File Number 1-9371
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ALLEGHANY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0283071
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
375 Park Avenue, New York, New York 10152
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/752-1356
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 1996, 7,056,993 shares of Common Stock were outstanding, and the
aggregate market value (based upon the closing price of these shares on the New
York Stock Exchange) of the shares of Common Stock of Alleghany Corporation held
by non-affiliates was $1,104,422,202.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part(s) of this Report:
Part
Annual Report to Stockholders of Alleghany I and II
Corporation for the year 1995
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 26, 1996
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ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1995
Table of Contents
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Description Page
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PART I
Item 1. Business 5
Item 2. Properties 55
Item 3. Legal Proceedings 64
Item 4. Submission of Matters to a Vote
of Security Holders 68
Supplemental Executive Officers of Registrant 68
Item
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 70
Item 6. Selected Financial Data 70
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 70
Item 8. Financial Statements and Supple-
mentary Data 70
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 70
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<TABLE>
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Description Page
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PART III
Item 10. Directors and Executive Officers
of Registrant 71
Item 11. Executive Compensation 71
Item 12. Security Ownership of Certain
Beneficial Owners and Management 71
Item 13. Certain Relationships and Related
Transactions 71
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 72
Signatures 92
</TABLE>
Index to Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
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PART I
Item 1. Business.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the
laws of the State of Delaware. In December 1986, Alleghany succeeded to the
business of its parent company, Alleghany Corporation, a Maryland corporation
incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue,
New York, New York 10152 and its telephone number is (212) 752-1356. Alleghany
is engaged, through its subsidiaries Chicago Title and Trust Company ("CT&T"),
Chicago Title Insurance Company ("CTI"), Security Union Title Insurance Company
("Security Union") and Ticor Title Insurance Company ("Ticor Title") and their
subsidiaries, in the sale and underwriting of title insurance and in other real
estate-related services businesses, and through CT&T's subsidiary, Alleghany
Asset Management, Inc. ("Alleghany Asset Management") and its subsidiaries, in
certain other financial services businesses. Alleghany is also engaged, through
its subsidiary Underwriters Reinsurance Company ("Underwriters"), in the
property and casualty reinsurance and insurance businesses. In addition,
Alleghany is engaged, through its subsidiaries World Minerals Inc. ("World
Minerals"), Celite Corporation ("Celite"), Harborlite Corporation ("Harborlite")
and Europerlite Acquisition Corporation ("Europerlite") and their subsidiaries,
in the industrial minerals business. Alleghany conducts a steel fastener
importing and distribution business through its Heads and Threads division.
Until October 31, 1994, Alleghany was also engaged, through its
subsidiary Sacramento Savings Bank ("Sacramento Savings") in retail banking. On
that date, Alleghany completed the sale of Sacramento Savings and an ancillary
company to First Interstate Bank of California for a cash purchase price of $331
million. As part of the transaction, Alleghany, through its wholly owned
subsidiary Alleghany Properties, Inc. ("API"), purchased real estate and real
estate-related assets of Sacramento Savings for a purchase price of about $116
million. Alleghany's intention with respect to such assets, the bulk of which is
raw land, is to dispose of them in an orderly fashion, which may take several
years. Based on Alleghany's liquidation plan and anticipated higher carrying
costs for the real estate and real estate-related assets, Alleghany expects to
realize less than $116 million. Accordingly, and in recognition that no general
loss reserves of Sacramento Savings were transferred, Alleghany reduced the
carrying value of such assets by about $20 million, net of related tax benefits.
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During 1994 and early 1995, with temporary borrowings under Alleghany's
revolving credit agreement, the proceeds from the sale of Sacramento Savings and
cash on hand, Alleghany and its subsidiaries acquired a substantial number of
shares of common stock of Santa Fe Pacific Corporation ("Santa Fe"). On
September 22, 1995, Santa Fe and Burlington Northern, Inc. merged under a new
holding company named Burlington Northern Santa Fe Corporation ("BNSF"). As a
result of the merger, 18.06 million shares of Santa Fe beneficially owned by
Alleghany were converted into about 7.43 million shares of common stock of BNSF,
or about 5.2 percent of the outstanding. BNSF is engaged primarily in rail
transportation. BNSF owns the largest railroad network in North America,
providing transportation services to shippers throughout the western two-thirds
of the United States as well as to Canada and Mexico.
On October 7, 1993, Alleghany acquired approximately 93 percent of the
capital stock of the holding company which owns all of the capital stock of
Underwriters for a cash purchase price of approximately $201 million. Alleghany
acquired its 93 percent interest in the holding company from a holding company
formerly owned by The Continental Corporation, Goldman, Sachs & Co. and certain
affiliated investment partnerships, and members of Underwriters management.
Prior to the acquisition by Alleghany, The Continental Corporation acquired the
interests of the Goldman, Sachs entities for cash and the interests of the
members of Underwriters management for cash and the remaining 7 percent of the
capital stock of the holding company which owns Underwriters. In December 1994,
Alleghany contributed approximately 6 million shares of Santa Fe common stock,
having an aggregate market value of about $100 million, to the holding company
which owns Underwriters, which increased Alleghany's equity interest in the
holding company to 96.4 percent as of 1994 year-end. Such shares have
subsequently been converted into approximately 2.5 million shares of BNSF common
stock. As of 1995 year-end, Alleghany's equity interest in the holding company
was 96.8 percent of the outstanding.
In 1995, Alleghany studied a number of potential acquisitions.
Alleghany intends to continue to expand its operations through internal growth
at its subsidiaries as well as through possible operating-company acquisitions
and investments.
Reference is made to Items 7 and 8 of this Report for further
information about the business of Alleghany in 1995. The consolidated financial
statements of Alleghany, incorporated by reference in Item 8 of this Report,
include the accounts of Alleghany and its subsidiaries for all periods
presented.
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TITLE INSURANCE, REAL ESTATE-RELATED SERVICES AND FINANCIAL SERVICES BUSINESSES
Title Operations
CT&T, headquartered in Chicago, is engaged in the sale and underwriting
of title insurance and related services (including abstracting, searches, and
escrow, closing and disbursement services) through CTI, Security Union, Ticor
Title and their title insurance subsidiaries, collectively known as the CT&T
Family of Title Insurers. Organized as an Illinois corporation in 1912, CT&T was
acquired, along with CTI, by Alleghany in June 1985. CTI, a Missouri corporation
incorporated in 1961, succeeded to businesses conducted by predecessor
corporations since 1847, and is headquartered in Chicago. Security Union
(acquired in 1987) and Ticor Title (acquired in 1991) were incorporated in
California in 1962 and 1965, respectively, but both were a part of business
organizations that had succeeded to businesses conducted since around the turn
of the century. Security Union and Ticor Title are headquartered in Rosemead,
California.
On March 8, 1991, CT&T acquired Ticor Title's immediate parent, Ticor
Title Insurance Company of California (which was merged into CTI in September
1992), from Westwood Equities Corporation for a total cash purchase price of
$55.6 million and a promissory note in the principal amount of $15 million,
subject to adjustment. The principal amount of the promissory note issued by
CT&T to Westwood Equities Corporation, which matured on March 31, 1995, was
subject to an increase to $20 million or a decrease to zero based on a
re-evaluation of the title loss reserves of Ticor Title Insurance Company of
California and its subsidiaries as of December 31, 1994. The re-evaluation
consisted of a formula-driven projection of ultimate claims payments on policies
which existed at the date of acquisition, and was based on actual claims
payments through December 31, 1994. Based on the re-evaluation, the principal
amount of the promissory note was zero and, accordingly, Alleghany has excluded
this note from the determination of the purchase price and from its consolidated
financial statements.
The CT&T Family of Title Insurers is the largest title insurance
organization in the world, based upon net written premiums in 1994 (the latest
full year for which data is available). Each of the principal title insurance
subsidiaries -- CTI, Security Union and Ticor Title -- was assigned a
claims-paying ability rating of "A" by Standard & Poor's Corporation (an upgrade
on October 17, 1995 from "A-") and an "A" by Duff & Phelps Credit Rating Co.,
confirming the financial strength of the CT&T Family of Title Insurers. The CT&T
Family of Title Insurers has approximately 250 full-service offices
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and more than 3,500 policy-issuing agents in 49 states, Puerto Rico, the Virgin
Islands, Guam and Canada.
As CT&T's title insurance operations have grown, CT&T has sought to
improve the effectiveness and efficiency of the company as a whole. In late
1994, CT&T's title insurance operations were realigned to improve CT&T's service
to customers at both the local and national levels. The CT&T Family of Title
Insurers' nationwide network of branch office and agency operations was
restructured into eight geographic areas: the Northeast, Southeast, Great Lakes,
Southwest, Chicago Central, Chicago Metro and Pacific Northwest regions, and the
Western division.
In 1995, CT&T's title insurance operations launched a program to
redesign its internal operations to better focus on customer needs and to
achieve greater operational and cost efficiencies. Title plant and production
facilities are being consolidated in certain markets to provide greater product
consistency, reduce turnaround times, and reduce expenses. Technology
investments are being made to streamline workflow processes and secure
competitive advantages through automation. New training programs are being
developed to help agents and employees sharpen their problem solving abilities
and to heighten their responsiveness to customer needs. Implementation of these
initiatives, which is expected in 1996, will result in a better, more cost
effective alignment of the internal operations of CT&T's title insurance
operations with marketplace demands.
General Description of Title Insurance
The CT&T Family of Title Insurers insures a variety of interests in
real property. For a one-time premium, purchasers of residential and commercial
properties, mortgagees, lessees and others with an interest in real property,
purchase insurance policies to insure against loss suffered as a result of
encumbrances or other defects in title, as that title is defined in the policy.
Prior to the issuance of a policy, a title insurer conducts a title search and
examination of the property, a process by which it identifies risks and defines
the risks to be assumed by the insurer under the policy.
To conduct a title search and examination, an agent or employee of the
CT&T Family of Title Insurers reviews various records providing a history of
transfers of interests in the parcel of real estate with respect to which a
policy of title insurance is to be issued. These records are maintained by local
governmental entities, such as counties and municipalities. Title records, known
as title plants, owned by the CT&T Family of
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Title Insurers are also used as a reference, allowing complete title searches
without resorting to governmental records. The CT&T Family of Title Insurers'
title plants consist of compilations of land title and deed information copied
from public records dating back many years on properties in various geographical
locations. These title plants are updated daily.
Marketing
The CT&T Family of Title Insurers issues title insurance policies
directly through its branch office operations as well as through policy-issuing
independent agents. The CT&T Family of Title Insurers also issues policies of
insurance in situations where the title search and examination process is
performed by approved attorneys working as independent contractors.
The primary sources of title insurance business are the major
participants in local real estate markets: attorneys, builders, commercial
banks, thrift institutions, mortgage banks and real estate brokers. Other
significant sources of business are large commercial developers and real estate
brokerage firms operating on a national scale.
To meet the needs of national commercial customers, the National
Business Unit and National Title Services offices serve as one-stop sources of
title services for both single-site and multi-site commercial and industrial
real estate ventures. Other business components of the national operations
organization include the Unisource unit, a one-stop source for national
residential lenders and low liability commercial accounts; and SAFETRANS, which
provides one-stop title services to employee relocation firms.
The title insurance business of the CT&T Family of Title Insurers is
not dependent on one or a few customers.
Business Conditions; Seasonality
The title insurance industry is highly sensitive to the volume of real
estate transactions and to interest rate levels. The title industry was
adversely affected by the recession and severely depressed real estate markets
in 1990 and 1991. However, interest rates began to drop in 1992 and in 1993
reached new thirty-year lows. Driven by first-time buyers enticed into the
market by the low interest rates, home sales increased in those years. Low
interest rates also resulted in a high volume of refinancing orders. Beginning
in February 1994, a series of increases in short-term interest rates
significantly
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reduced the volume of real estate transactions and brought to an abrupt end one
of the longest refinancing surges in history. The overall industry-wide decline
in revenues and volume of orders from 1993 to 1994 was the steepest downturn the
industry experienced since it began keeping those statistics in the early
1960's. While total industry-wide results for 1995 have not been tabulated, it
appears that the decline from 1994 to 1995 may have been even steeper. This
trend began to reverse its course in the second half of 1995 when lower rates,
again, prompted an increase in real estate activity.
The business of the CT&T Family of Title Insurers is seasonal, as real
estate activity is seasonal. The strongest quarters are typically the third and
fourth quarters because there are more home sales and commercial and industrial
construction during the summer. Revenues generally are recognized by CT&T at the
time of the closing of the real estate transaction with respect to which a title
insurance policy is issued; accordingly, there is typically a lag of about two
months between the time that a title insurance order is placed, at which time
work commences, and the time that CT&T recognizes the revenues associated with
the order. Additionally, agency revenues are recognized by CT&T when reported by
the agent and typically lag two or three months from the time realized by the
agent. The fourth quarter is also aided by a higher level of commercial and
industrial transactions, typically representing the desire of commercial
entities to complete transactions by year-end. The first quarter is typically
the weakest quarter.
Approximately 70 percent of the title revenues of the CT&T Family of
Title Insurers in 1995 are estimated to have been generated by residential real
estate activity, consisting of resales (50 percent), refinancings (10 percent)
and new housing (10 percent). Commercial and industrial real estate activity is
estimated to account for the remaining 30 percent of 1995 revenues, attributable
to initial sales and resales (24 percent) and refinancings (6 percent).
Underwriting Operations
While most other forms of insurance provide for the assumption of risk
of loss arising out of unforeseen future events, title insurance serves to
protect the policyholder from the risk of loss from events that predate the
issuance of the policy. This distinction underlies the low claims loss
experience of title insurers as compared with other insurance underwriters.
Realized losses generally result from either judgment errors or mistakes made in
the title search and examination process or the escrow process, or from other
problems such as fraud or incapacity of persons transferring property rights.
Operating expenses, on the other hand, are higher for title insurance companies
than for
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other companies in the insurance industry. Most title insurers incur
considerable costs relating to the personnel required to process forms, search
titles, collect information on specific properties and prepare title insurance
commitments and policies. Many title insurers also face ongoing costs associated
with the establishment, operation and maintenance of title plants, or, in the
case of smaller regional title insurers, access to title plants owned by others
or employment of abstractors to search public records on behalf of such regional
title insurers.
The CT&T Family of Title Insurers' operations facilitate rapid
communication between field underwriters and the principal office underwriting
staff for dealing with difficult, large or unusual underwriting risks. Authority
levels for field underwriters are set based on their skills and experience
level. The most experienced field underwriters are required to be involved in
the decision to insure difficult, large or unusual risks. Risks with very high
potential liability require approval from higher levels of the title insurer's
management, which may include, dependent upon the particular risk, the Chief
Underwriting Counsel, the General Counsel or senior executive officers of the
title insurer.
Geographic concentration of risk is less significant in underwriting
title insurance coverage than in casualty insurance lines. The title insurance
underwriting process reduces the number of perils which are covered on an
actuarial basis to a minimum through reliance on state public records acts.
However, maintaining geographic diversity spreads the risk of fraud which may
result from regional economic recession, and of claims which are not readily
determinable from public records, such as aboriginal title claims of Native
Americans.
CTI, Security Union and Ticor Title each have generally restricted the
size of any one risk of loss that they will retain to $70 million, $30 million
and $50 million, respectively. The title insurers in the CT&T Family of Title
Insurers reinsure risks with each other and with other title insurance companies
in excess of what they are willing to retain. In addition, the title insurers
have purchased reinsurance coverage for individual losses in excess of $12.5
million, subject to certain exclusions. This coverage will pay 90 percent of
such losses up to $50 million. However, reinsurance arrangements do not relieve
a title insurance company that issues a policy from its legal liability to the
holder of the policy and, thus, the risk of nonperformance by the assuming
reinsurer is borne by the issuer of the policy.
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Losses and Loss Adjustment Expenses
The largest single liability on CT&T's books is its reserve for title
insurance claims. Historical experience with respect to payments made under
title insurance policies indicates that, for policies issued in a given year,
approximately two-thirds of the total projected payments with respect to such
policies are made within five years of the issuance of such policies.
Losses are reported to CT&T directly by its insured parties or
indirectly through its agents. When a claim is reported, CT&T establishes a
"case" reserve, based upon the best estimate of the total amount necessary to
settle the claim and to provide for allocated loss adjustment expenses ("LAE").
These reserves are periodically adjusted by CT&T based on its evaluation of
subsequent reports regarding the reported claim.
In addition to case reserves, CT&T also maintains incurred but not
reported ("IBNR") reserves for losses that are incurred but not yet reported.
These reserves are particularly significant in long tail lines of insurance,
such as title insurance, for which the claim and the circumstances causing the
claim are separated by a long period of time. Unlike most other types of
insurance, for title insurance, the event giving rise to a possible future
claim, the defect in the title, occurred before issuance of the title insurance
policy, but may not be discovered, if ever, until a future date.
CT&T establishes IBNR reserves by using actuarial principles and
procedures commonly used in the title insurance industry to estimate the
ultimate liability for losses and LAE. The actuarial procedures use historic
claims reporting patterns to predict likely future reporting of claims.
Projections are analyzed in the context of changing economic conditions,
including implicitly recognizing the impact of inflation, business mix, and
other contingent variables, and the projections and related reserves are
modified when appropriate.
IBNR reserves are also established for very large or unusual claims
which might fall outside the normal distribution of expected claims experience.
Reserves for these claims are based on an analysis of the experience of both
CT&T and the industry, generally.
CT&T's reserves are reviewed monthly by management, and tested
semi-annually for adequacy by an independent actuary. CT&T does not discount
its reserves for
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reported or unreported claims for anticipated investment income. Provisions to
reserves are derived directly from premium revenues, based upon anticipated loss
ratios. There are inherent uncertainties in estimating reserves primarily due to
the long-term nature of most title insurance business. Actual losses and LAE may
deviate, perhaps substantially, from reserves on CT&T's financial statements,
which could have a material adverse effect on CT&T's financial condition and
results of operations. Based on current information, CT&T believes reserves for
losses and LAE at December 31, 1995 are adequate.
Real Estate-Related Services
In recent years, mortgage lenders have made significant investments in
technology to reduce costs and shorten the time necessary to originate a
mortgage loan. Increasingly, they are seeking cost efficiencies by requiring
vendors to provide a bundle of services and to deliver them in an electronic
format which is compatible with their automated systems. Such services include
not only the traditional title insurance and escrow services provided by the
CT&T Family of Title Insurers, but new services such as flood certifications,
credit information and appraisals.
Two acquisitions were completed in 1995 that expanded CT&T's real
estate-related services business and improved its ability to service mortgage
lenders. In May 1995, CT&T acquired National Flood Information Services, Inc., a
Delaware corporation based in Arlington, Texas ("NFIS"), which has provided
flood certification services since 1987. In August 1995, Alleghany acquired
Credit Data Reporting Services, Inc., a New York corporation ("CDRS"), in an
exchange of stock, and subsequently contributed the stock of CDRS to CT&T. CDRS
is headquartered in Kingston, New York and has been in the credit reporting
business since 1941.
Federal law requires that lenders check flood maps maintained by the
Federal Emergency Management Agency to determine whether a parcel of real
property pledged to secure a loan is in a flood hazard zone. Property found to
be in a flood hazard zone is required to be covered by flood insurance before it
can be used to secure a loan. NFIS has the ability to check the flood zone
status of any property located in the United States. NFIS is neither an issuer
nor an underwriter of flood insurance policies.
In 1995, Congress instituted a new requirement that lenders monitor
the flood zone status of a mortgaged property for the life of the loan. The
previous requirement was to check the flood zone status only at the time of loan
origination. The new law
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created a significant increase in demand for the services of flood zone
determination companies. To efficiently handle the increased demand, NFIS
recently developed a proprietary system which can determine the flood zone
status of many properties on an automated basis.
Mortgage credit reporting is a specialized task in that the secondary
market requires the obtaining and merging of credit information from at least
two of the three nationally recognized repositories of such information. CDRS
has developed a state-of-the art proprietary system which can receive an order;
obtain, edit and merge credit information from each of the three national
repositories; and report back to the lending institution in a matter of seconds
without human intervention. CDRS can also perform the investigative work
required to verify items appearing on a borrower's mortgage loan application
(e.g., employment, financial assets and disputed credit items).
In addition to these two new businesses, CT&T's National Mortgage
Services ("NMS") unit maintains a network of 750 state-licensed contract
appraisers covering all 50 states. Through this network, NMS offers a full array
of property appraisal products for first and second mortgage residential loans.
Property appraisals for commercial properties are also available on a limited
basis.
To meet the demands of the marketplace for new real estate-related
services, in 1995 CT&T formed a separate business unit, which includes NFIS,
CDRS and NMS. This business unit has responsibility for coordinating the
production and delivery of flood certifications, credit information and
appraisals on a nationwide basis.
Financial Services
CT&T's Financial Services Group was restructured during 1995 under a
new CT&T subsidiary, Alleghany Asset Management, a Delaware corporation. The
financial services businesses conducted directly by CT&T were transferred to a
recently acquired Illinois trust company renamed The Chicago Trust Company
("Chicago Trust"), which became a subsidiary of Alleghany Asset Management. Also
transferred to Alleghany Asset Management were Montag & Caldwell, Inc. ("Montag
& Caldwell"), an Atlanta-based investment counseling firm acquired in July 1994
in an exchange of stock and subsequently contributed by Alleghany to CT&T, and
The Chicago Deferred Exchange Corporation, an Illinois corporation, which
facilitates certain tax-deferred property exchanges.
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The following are the significant lines of business within the
Financial Services Group:
Institutional Investment Management--manages equity, fixed
income, and balanced accounts primarily for employee benefit plans,
foundations, endowments, corporations, insurance companies and
Taft-Hartley plans.
Retirement Trust Resources--administers 401(k) plans, profit
sharing plans, matching savings plan and money purchase pensions, and
provides consulting services, for mid-sized companies primarily in the
Midwest and South.
Personal Trust and Investment Services--provides investment
management and trust and estate planning services primarily for
accounts in the $250,000 to $50 million range.
Real Estate Trust Services--offers land trusts, which permit
real estate to be conveyed to a trustee while reserving to the
beneficiaries the full management and control of the property, and
facilitates tax-deferred exchanges of income-producing real property.
CT&T Funds--a mutual fund family which offers the following
eight no-load, open-end mutual funds:
--Chicago Trust Growth and Income Fund
--Montag & Caldwell Growth Fund
--Chicago Trust Talon Fund
--Montag & Caldwell Balanced Fund
--Chicago Trust Bond Fund
--Chicago Trust Municipal Bond Fund
--Chicago Trust Money Market Fund
--Chicago Trust Asset Allocation Fund
While available to the general public, fund marketing is focused on
specific niches, including rollover funds from existing clients in the
Financial Services Group's 401(k) and pension fund programs, third
party distribution channels, and new 401(k) clients.
As of December 31, 1995, Alleghany Asset Management, through its
subsidiaries, managed assets totalling about $10.3 billion.
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Investment Operations
Investments held by CT&T or any of its subsidiaries must comply with
the insurance laws of the state of incorporation of the company holding the
investment; relevant states are Illinois, Missouri, California, New York, and
Oregon, as applicable. These laws prescribe the kind, quality and concentration
of investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks and real estate mortgages.
CT&T's current investment strategy is to maximize after-tax investment
income through a high-quality diversified investment portfolio, consisting
primarily of taxable and tax-exempt fixed maturity securities, while maintaining
an adequate level of liquidity.
The following table reflects investment results for CT&T for the years
ended December 31, 1993, 1994 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Investment Results
Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments (1) Income (2) Income (3) Gains Yield (4) Yield (5)
(Losses)
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<S> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993 $939,842 $53,630 $37,160 $3,138 5.7% 4.0%
Year Ended
December 31, 1994 $896,509 $51,385 $36,502 ($5,447) 5.7% 4.1%
Year Ended
December 31, 1995 $836,462 $58,385 $41,342 $3,702 7.0% 4.9%
</TABLE>
(1) Average of amortized cost of fixed maturities plus cost of equity
securities at beginning and end of period, excluding operating cash.
(2) Excludes realized gains or losses from sale of investments.
(3) Pre-tax investment income less appropriate income taxes.
(4) Pre-tax investment income for the period divided by average investments
for the same period.
(5) After-tax investment income for the period divided by average
investments for the same period.
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The following table summarizes the investments of CT&T, excluding
cash, as of December 31, 1995, with all investments carried at market value
(dollars in thousands):
<TABLE>
<CAPTION>
Investments
Amortized Cost
or Cost Market Value
------------------------ ------------------------
Amount Percentage Amount Percentage
<S> <C> <C> <C> <C>
Short-term investments............... $ 88,100 10.88% $ 88,100 10.58%
Corporate bonds...................... 105,423 13.02% 109,092 13.11%
United States government and 201,190 24.87% 208,484 25.05%
government agency bonds.......
Mortgage- and asset-backed 154,064 19.03% 157,324 18.90%
securities.....................
Municipal bonds...................... 215,318 26.60% 218,606 26.26%
Foreign bonds........................ 384 .04% 373 .04%
Redeemable preferred stock........... 6,363 .79% 6,609 .80%
Other preferred stock................ 5,754 .71% 5,623 .68%
Equity securities.................... 32,832 4.06% 38,130 4.58%
Total.......................... $809,428 100.00% $832,341 100.00%
======== ====== ======== ======
</TABLE>
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<PAGE> 18
The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, as of December 31, 1995 by the
rating system of the National Association of Insurance Commissioners ("NAIC")
(dollars in thousands):
<TABLE>
<CAPTION>
Long-Term Fixed Maturity Portfolio by NAIC Rating
Market Value Percentage
------------ ----------
<S> <C> <C>
NAIC 1............................... $643,221 91.09%
NAIC 2............................... 45,985 6.51%
NAIC 3............................... 4,588 .65%
NAIC 6............................... 86 .01%
NAIC L & P3 (Preferred stock-
redeemable).................... 6,609 .94%
NAIC A, L & P3 (Preferred
stock-other)................... 5,622 .80%
-------- -------
Total.......................... $706,111 100.00%
======== =======
</TABLE>
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<PAGE> 19
The following table indicates the composition of the long-term fixed
maturity portfolio, including preferred stock, by years until maturity as of
December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
------------ ----------
<S> <C> <C>
One year or less*.................... $146,945 20.8%
Over one through five years.......... 284,690 40.3%
Over five through ten years.......... 68,631 9.7%
Over ten years....................... 48,521 6.9%
Mortgage- and asset-backed........... 157,324 22.3%
Total.......................... $706,111 100.0%
======== ======
</TABLE>
* Included in this category are $5,623 of preferred stock-other and
$6,609 of preferred stock-redeemable.
The principal tangible asset of CT&T and its subsidiaries is the
investment portfolio. The entire investment portfolio is classified as available
for sale. CT&T has a conservative investment philosophy with respect to both
asset quality and maturity distribution. CT&T maintains a short-term investment
portfolio ranging from approximately $100 million to $150 million, consisting of
top rated commercial paper (A-1/ P-1), highest rated bank certificates of
deposit, and institutional money market funds. The average maturity period of
securities in the short-term portfolio is approximately 30 days. CT&T's
long-term portfolio consists of top rated tax-exempt bonds, United States
Treasury securities, corporate bonds of United States issuers, mortgage backed
securities, and a limited amount of publicly traded common stocks. Average
quality of the long-term portfolio is maintained at a Moody's rating of Aa3 or
higher, with over 97 percent of all securities rated investment grade by Moody's
and less than 1 percent in derivative instruments as of 1995 year-end. The
duration of securities in the long-term portfolio is approximately 3.1 years,
and is managed within a range of 2.3 to 4.0 years. This relatively short average
portfolio maturity is maintained so that
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<PAGE> 20
investment income responds to changes in the level of interest rates,
offsetting to some degree the cyclicality of title insurance operations.
CT&T does not specifically match particular assets to related
liabilities, but instead holds the investment portfolio to a shorter maturity
than liabilities. However, asset allocation and bond portfolio maturity are
modified periodically based on the market outlook, interest rates and/or title
insurance operating conditions.
Competition
The title insurance industry is competitive throughout the United
States, with large firms such as CT&T's title insurers competing on a national
basis, while smaller firms have significant market shares on a regional basis.
During 1995, CTI, Security Union, Ticor Title, First American Title Insurance
Company, Commonwealth Land Title Insurance Company, Stewart Title Insurance Co.,
Fidelity National Title Insurance Co., Lawyers Title Insurance Corporation and
Old Republic Title Insurance Group, Inc. together accounted for approximately 85
percent of the revenues generated by title insurance companies. The CT&T Family
of Title Insurers also competes with abstractors, attorneys issuing opinions
and, in some areas, state land registration systems. Competition in the title
insurance industry is primarily on the basis of service. In addition, the
financial strength of the insurer has become an increasingly important factor in
title insurance purchase decisions, particularly in multi-site transactions and
investment decisions regarding real estate-related investment vehicles such as
real estate investment trusts and real estate mortgage investment conduits.
Each of the businesses within CT&T's real estate-related services
business unit faces significant competition from other real estate service
providers. Mortgage lenders may choose to produce these services internally
rather than purchase them from outside vendors. Competition is generally on the
basis of service, technological capabilities and price.
Alleghany Asset Management and its subsidiaries compete with national,
regional and local providers of financial services. Such competition is chiefly
on the basis of service and investment performance.
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<PAGE> 21
Regulation
Title insurance companies are subject to regulation and supervision by
state insurance regulators under the insurance statutes and regulations of
states in which they are incorporated. CTI is incorporated in Missouri, Security
Union is incorporated in California and has a title insurance subsidiary
incorporated in Oregon, and Ticor Title is incorporated in California and has a
title insurance subsidiary incorporated in New York. Each of these companies is
also regulated in each jurisdiction in which it is authorized to write title
insurance. Regulation and supervision vary from state to state, but generally
cover such matters as the standards of solvency which must be met and
maintained, the nature of limitations on investments, the amount of dividends
which may be distributed to a parent corporation, requirements regarding
reserves for unearned premiums and losses, the licensing of insurers and their
agents, the approval of policy forms and premium rates, periodic examinations of
title insurers and annual and other reports required to be filed on the
financial condition of title insurance companies.
As insurance holding companies, Alleghany and CT&T are also subject to
the insurance regulations of Missouri, California, Oregon and New York. The
acquisition of CTI, Security Union and Ticor Title and their respective title
insurance subsidiaries by Alleghany and/or CT&T was subject to prior approval
from the insurance regulatory authorities in the states in which such title
insurance companies are incorporated. Alleghany, CT&T and their other
subsidiaries, however, are generally not subject to restrictions on their
business activities due to their affiliation with CT&T's title insurance
subsidiaries.
While CDRS and NFIS are not subject to direct regulatory supervision,
federal and state laws governing real estate settlement practices, credit
reporting and flood zone determinations significantly impact their businesses.
NMS is a unit within CTI and is therefore subject to supervision by insurance
industry regulators.
Acting as fiduciaries, CT&T and Chicago Trust are primarily regulated
by the State of Illinois Commissioner of Banks and Trust Companies. Regulation
covers such matters as the fiduciary's management capabilities, the investment
of funds held for its own account, the soundness of its policies and procedures,
the quality of the services it renders to the public and the effect of its trust
activities on its financial soundness. Montag & Caldwell is a registered
investment advisor and is therefore subject to regulation by the Securities and
Exchange Commission, the state of Georgia, its
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<PAGE> 22
domiciliary jurisdiction, and all other states in which it is licensed to act
in the capacity of investment advisor.
Employees
At December 31, 1995, CT&T and its subsidiaries had approximately 7,553
employees.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
Underwriters, headquartered in Woodland Hills, California, provides
reinsurance to property and casualty insurers and reinsurers. Underwriters
initially was organized in 1867 as a primary insurer in New York under the name
"Buffalo German Insurance Company." By 1970, Underwriters had become principally
a reinsurer, and in 1977 it changed its corporate domicile to New Hampshire.
Underwriters is licensed in 37 states, Puerto Rico and the District of Columbia,
is authorized to engage in business in three additional states and Canada, and
has branch offices in Atlanta, Chicago, Houston, New York and Woodland Hills.
In October 1993, Alleghany acquired approximately 93 percent of the
holding company which owns Underwriters, and thereafter contributed about $51
million in 1993 and $100 million in 1994 to the capital of Underwriters. The
capital contribution in 1994 was in the form of about 6 million shares of Santa
Fe common stock, which was subsequently converted into approximately 2.5 million
shares of BNSF common stock. As of December 31, 1995, Underwriters' statutory
surplus was $458 million. Underwriters' management currently owns about 3.2
percent of the capital stock of the holding company which owns Underwriters.
In 1995, Underwriters was upgraded from "A (Excellent)" to "A+
(Superior)" by A.M. Best Company, Inc., an independent insurance industry rating
organization ("Best's"). Best's publications indicate that the higher rating is
assigned to companies which Best's believes have achieved superior overall
performance and have a very strong ability to meet their obligations over a long
period of time. According to Best's, the rating reflects Underwriters' strong
operating earnings, solid internal capital generation and forward market
momentum.
Additionally, during 1995 Underwriters received an initial
claims-paying ability rating of "AA- (Excellent)" from Standard & Poor's.
Standard & Poor's publications
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<PAGE> 23
indicate that this rating is assigned to companies with strong capacity to meet
policyholders obligations under a variety of economic and underwriting
conditions.
Alleghany's acquisition of Underwriters was accounted for as a
purchase, and therefore, the accounts of Underwriters and its results of
operations included in Alleghany's financial statements reflect purchase
accounting adjustments and are not comparable to Underwriters' prior reported
results.
To capitalize on advantageous market conditions for certain primary
insurance business lines and on Underwriters' expertise in specialized
coverages, Underwriters established Commercial Underwriters Insurance Company
("CUIC") at the end of 1992. CUIC is a California property and casualty
insurance company that focuses on specialized primary commercial insurance,
individual commercial excess liability insurance and specialized personal lines
liability insurance, including excess private passenger liability and
comprehensive personal liability insurance. CUIC conducts its business in
California on an admitted basis and in 31 other states, Guam and the District of
Columbia on an approved, non-admitted basis. In 1995, CUIC generated $52 million
in gross written premiums. Underwriters or CUIC retained $27 million of such
amount, constituting 9 percent of Underwriters' consolidated net written
premiums in 1995.
To further expand its ability to market specialized primary insurance
lines, in 1994, Underwriters acquired an inactive Nebraska insurance company,
which was subsequently renamed Underwriters Insurance Company ("UIC"). In
connection with the acquisition, Underwriters was indemnified for all losses
that occurred prior to the acquisition date. A capital contribution of $100
million was made to UIC, consisting principally of about 5 million shares of
Santa Fe common stock, which was subsequently converted to approximately 2.1
million shares of BNSF common stock. UIC's statutory surplus was $112.1 million
at 1994 year-end.
UIC has licenses to write primary property and casualty insurance in 33
states and the District of Columbia and will initially focus on primary and
umbrella liability policies for medium- to large-sized businesses.
CUIC and UIC are also rated "A+ (Superior)" by Best's.
To capitalize on the considerable expertise of certain individuals in
handling specialized classes of primary business, The Underwriting Center, Inc.
("The Underwriting Center") was established in 1995 as a wholly owned subsidiary
of the
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<PAGE> 24
holding company which owns Underwriters. The focus of The Underwriting Center
includes specialized products liability insurance, general liability insurance
for certain insureds with significant self-insured retentions, and specialized
environmental liability insurance. A subsidiary of The Underwriting Center acts
as an agent and underwrites business on behalf of CUIC and, to a lesser extent,
non-affiliated insurers. Such subsidiary also expects to underwrite business on
behalf of UIC in the future. During 1995, approximately $19.0 million of gross
written premium was underwritten by The Underwriting Center. The Underwriting
Center has offices in Baltimore, Maryland; Kennesaw and Roswell, Georgia; and
New York, New York.
To provide international underwriting opportunities to Underwriters,
URC International, Inc., was established at the end of 1995 as a wholly owned
subsidiary of the holding company which owns Underwriters.
General Description of Reinsurance
Reinsurance is an agreement between two insurance companies in which
one company, the "reinsurer," agrees to indemnify the other company, the
"cedent" or "ceding company," for all or part of the insurance risks
underwritten by the ceding company. Reinsurance provides ceding companies with
three major benefits: it reduces net liability on individual risks, protects
against catastrophic losses and helps to maintain acceptable surplus and reserve
ratios. Related to the last of these, reinsurance also provides the ceding
company with additional underwriting capacity. Ordinarily, a ceding company will
enter into a reinsurance agreement only if it will receive credit for the
reinsurance ceded on its statutory financial statements; in general, such credit
is allowed if the reinsurer meets the licensing and accreditation requirements
of the ceding company's domicile, or the reinsurance obligations are
appropriately collateralized.
In general, property insurance protects the insured against financial
loss arising out of loss of property or its use, caused by an insured peril.
Casualty insurance protects the insured against financial loss arising out of
its obligation to others for loss or damage to persons or property. While both
property and casualty reinsurance involve a high degree of volatility, property
losses are generally reported within a relatively short time period after the
event; in contrast, there tends to be a greater lag in the reporting and payment
of casualty claims. Consequently, the losses associated with property risks are
generally known in a shorter time than losses associated with casualty risks.
-24-
<PAGE> 25
Underwriters provides reinsurance on both a treaty and facultative
basis. Treaty reinsurance is based on a standing arrangement (a "treaty"),
usually for a year, between a cedent and reinsurer for the cession and
assumption of risks defined in the treaty. Under most treaties, the cedent is
obligated to offer and the reinsurer is obligated to accept a specified portion
of all such risks originally underwritten by the cedent. Risks are assumed under
treaties without having been individually reviewed. Facultative reinsurance is
the reinsurance of individual risks. Rather than agreeing to reinsure all or a
portion of a class of risk, the reinsurer separately rates and underwrites each
individual risk and is free to accept or reject each risk offered by the
reinsured. Facultative reinsurance is normally purchased by insurance companies
for risks not covered or covered only in part by their reinsurance treaties, and
for unusual risks.
Underwriters writes treaty and facultative reinsurance in both of the
major forms, pro rata and excess of loss. The pro rata form is an agreement in
which the ceding company and reinsurer share the premiums as well as the losses
and expenses of a single risk, or an entire group of risks, based upon an
established percentage. Under excess of loss reinsurance, the reinsurer agrees
to reimburse the ceding company for all losses in excess of a predetermined
amount (commonly referred to as the cedent's "retention"), generally up to a
predetermined limit. Excess of loss reinsurance is often written in layers or
levels, with one reinsurer taking the risk from the cedent's retention level up
to an established level, above which the risk is assumed by another reinsurer or
reverts to the cedent. Excess of loss reinsurance allows the reinsurer to
control better the relationship of the premium charged to the exposures assumed.
The reinsurer assuming the risk immediately above the cedent's retention level
is said to write "working layer" or "low layer" excess of loss reinsurance. A
loss that reaches just beyond the cedent's retention level would create a loss
for the lower level reinsurers but not for the reinsurers on higher layers.
Marketing
Underwriters primarily reinsures commercial general, auto and umbrella
liability, professional liability, directors and officers' liability, workers'
compensation, homeowners, marine and aviation and property clash* and
catastrophe risks. Premiums associated with such risks comprised approximately
93 percent of Underwriters gross
- --------
*An excess of loss reinsurance policy covering losses arising from a
single set of circumstances covered by more than one primary insurance policy.
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<PAGE> 26
written premiums for the year ended December 31, 1995. Underwriters concentrates
on coverages requiring specialized underwriting expertise and a high degree of
actuarial analysis.
An important element of Underwriters' marketing strategy is to respond
quickly to market opportunities (such as increased demand or more favorable
pricing) by adjusting the mix of the different lines of property and casualty
business it writes. Underwriters writes certain unusual professional,
environmental, directors and officers' liability and catastrophe coverages,
again in the belief that these coverages offer greater potential for favorable
results than more general coverages, based on current premium rates.
Underwriters' business is not seasonal.
Underwriters writes 91 percent of its treaty business and 63 percent of
its facultative business through reinsurance brokers. The remaining treaty
business is principally reinsurance by Underwriters of a significant portion of
the primary insurance written by The Underwriting Center. The remainder of its
facultative business is written directly with ceding companies. By working
primarily through brokers and The Underwriting Center, Underwriters does not
need to maintain a large sales organization which, during periods of reduced
premium volume, could comprise a significant and nonproductive part of overhead.
In addition, Underwriters believes that submissions from the broker market,
including certain targeted specialty coverages, are more numerous and diverse
than would be available through a salaried sales organization, and Underwriters
is able to exercise greater selectivity than would usually be possible in
dealing directly with ceding companies.
Reinsurance brokers regularly approach Underwriters for quotations on
reinsurance being placed on behalf of the ceding companies. In 1995,
Underwriters paid brokers $10.8 million in commissions, which represents 3
percent of its gross written premiums of $385 million. Underwriters' five
leading brokers, Holborn Agency, E.W. Blanch Company, Guy Carpenter & Co., AM-RE
Brokers, Inc. and AON Reinsurance Agency, Inc., accounted for 35 percent of
Underwriters' gross written premiums in 1995. None of the brokers accounted for
10 percent or more of such premiums. The brokers that account for relatively
large percentages of gross written premiums tend to vary from year to year.
While Underwriters has generally been successful in replacing brokers, there can
be no assurance that it will continue to do so in the future. Underwriters does
not believe that the loss of any one broker would have a material effect on
Underwriters' financial condition or results of operation.
-26-
<PAGE> 27
A significant percentage of Underwriters' gross written premiums are
generally obtained from a relatively small number of ceding companies. In 1995,
approximately 46 percent of gross written premiums were obtained from
Underwriters' ten largest ceding companies. None of the ceding companies
accounted for 10 percent or more of such premiums. The ceding companies that
account for relatively large percentages of gross written premiums tend to vary
from year to year. While Underwriters has generally been successful in replacing
accounts that have not been renewed, there can be no assurance that it will
continue to do so in the future. Underwriters does not believe that the loss of
any one ceding company account would have a material effect on Underwriters'
financial condition or results of operations.
Underwriting Operations
Underwriters maintains a disciplined underwriting strategy with a focus
on generating profitable business rather than on increasing market share.
Underwriters has maintained a defensive underwriting posture by withdrawing from
lines of business that it considers to offer inadequate contract terms.
Underwriters' underwriting discipline is enhanced by its focus on low level
attachment points (i.e., dollar-levels at which risk is assumed). Such layers
are characterized by greater loss frequency, lower loss severity and quicker
loss settlement than layers with higher attachment points. Underwriters believes
that these factors result in greater predictability of losses, which improves
Underwriters' ability to analyze its exposures and price them appropriately.
Underwriters seeks to serve as lead or co-lead reinsurer on its
treaties. As lead or co-lead reinsurer, Underwriters believes that it is able to
more effectively influence the pricing and terms of the treaties and achieve
better underwriting results. During 1995, Underwriters was a lead or co-lead
reinsurer on a majority of its treaty business.
Treaty operations generated approximately $228.6 million or 78 percent
of Underwriters' consolidated net written premiums in 1995. Casualty lines
treaties represented approximately 66 percent of total treaty net written
premiums with the remainder represented by property lines treaties.
Approximately 86 percent of total treaty net written premiums represented treaty
reinsurance written on an excess of loss basis and the balance represented
treaty reinsurance written on a pro rata basis. In 1995, treaty net written
premiums increased 61 percent, or $87 million, from 1994. Underwriters believes
that the increase in such premiums is at least partly attributable to its
increased statutory
-27-
<PAGE> 28
surplus level and upgraded Best's rating, which enabled it to attract more
desirable reinsurance opportunities.
Underwriters' treaty department generally wrote up to $1.0 million per
risk in 1995 on a net basis. In the case of certain clash coverage, Underwriters
has written up to $2.5 million on a net basis and in limited circumstances has
accepted more. The largest net risk assumed in 1995 was $14.0 million.
Facultative operations generated approximately $36.3 million or 12
percent of Underwriters' consolidated net written premiums in 1995. Casualty
risks represented 89 percent of total facultative net written premiums with
property risks comprising the remainder. Over 90 percent of total facultative
net written premiums represented facultative reinsurance written on an excess of
loss basis and the balance represented facultative reinsurance written on a pro
rata basis. Facultative net written premiums decreased 19 percent, or $8.3
million, from 1994 due to the continuing soft market for casualty facultative
reinsurance and Underwriters' decision to decline unprofitable business.
In 1995, Underwriters offered gross casualty facultative underwriting
capacity of $2.5 million, with a net retention of $1.75 million. Underwriters
has a $2.0 million gross property facultative underwriting capacity with a net
retention of $0.7 million.
Retrocessional Arrangements
A reinsurer often reinsures some of its risk with other reinsurers
("retrocessionaires") pursuant to retrocessional agreements, and pays such
retrocessionaires a portion of the premiums it receives. Reinsurance companies
enter into retrocessional agreements for the same reasons that primary insurers
purchase reinsurance.
Underwriters has retrocessional agreements with a number of domestic
and international reinsurance companies. In the event that a retrocessionaire is
unable to meet its obligations assumed under a retrocessional agreement,
Underwriters remains liable to its ceding companies for the portion reinsured.
Consequently, one of the most important factors in Underwriters' selection of
retrocessionaires is financial strength.
Underwriters carefully evaluates potential retrocessionaires and, once
engaged, monitors the financial condition of such retrocessionaires and takes
appropriate actions to
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<PAGE> 29
eliminate or minimize bad debt exposure. As a general rule, Underwriters
requires that unpaid losses and loss adjustment expenses for non-admitted
reinsurers that are not regulated by domestic insurance regulatory authorities
be collateralized by letters of credit, funds withheld or pledged trust
agreements. Additionally, commutations may be taken to reduce or eliminate
exposure when necessary. Underwriters did not experience any significant
difficulty with retrocessionaires fulfilling their obligations in 1995, 1994 and
1993. As of December 31, 1995, Underwriters had an allowance for estimated
unrecoverable reinsurance of $2.1 million.
Underwriters currently has reinsurance contracts in force which cede to
retrocessionaires risks in excess of Underwriters' net risk retention, ceding up
to $0.75 million per casualty facultative risk and up to $1.3 million per
property facultative risk. Underwriters also has an aggregate reinsurance
contract to cover losses up to $50 million, incurred during the period July 1,
1995 through June 30, 1996 in excess of a 72 percent loss and loss adjustment
expense ratio. The contract covers essentially all lines of business written by
Underwriters; however, property catastrophe losses are subject to a sublimit of
$40 million. Also, Underwriters from time to time purchases retrocessional
reinsurance in varying amounts for specific assumed treaties.
Underwriters has two reinsurance contracts with a subsidiary of
Continental Insurance Group (the "Continental reinsurance contracts") that
provide coverage for pre-1987 business up to an aggregate limit of $200
million. Underwriters began receiving quarterly payments under these contracts
in 1994 reducing the reinsurance receivable from $200 million to $149.1 million
at year-end 1995. Such receivable is secured by a combination of letters of
credit and a trust fund dedicated solely to payments under the Continental
reinsurance contracts.
As of December 31, 1995, Underwriters had reported reinsurance
receivables of $399.8 million through retrocessional agreements, including
$149.1 million of reinsurance receivables under the Continental reinsurance
contracts. In addition, $106.4 million is due from another reinsurer, which
amount is fully secured with a combination of letters of credit and funds
withheld.
Outstanding Losses and Loss Adjustment Expenses
In many cases, significant periods of time may elapse between the
occurrence of an insured loss, the reporting of the loss to the insurer and the
reinsurer, the insurer's payment of that loss and subsequent payments by the
reinsurer. To recognize liabilities
-29-
<PAGE> 30
for unpaid losses, insurers and reinsurers establish "reserves," which are
balance sheet liabilities representing estimates of future amounts needed to pay
claims and related expenses with respect to insured events which have occurred,
including events which have not been reported to the insurer.
When a claim is reported by the ceding company, Underwriters
establishes a "case" reserve for the estimated amount of Underwriters' ultimate
payment. Such reserves are based upon the amounts recommended by the ceding
company and are supplemented by additional amounts as deemed necessary by
Underwriters, after an evaluation of numerous factors including coverage,
liability, severity of injury or damage, jurisdiction and ability of the ceding
company to evaluate and handle the claim properly. In many cases Underwriters
establishes case reserves even when the ceding company believes the reinsurer
has no liability. In no instance is the case reserve established by Underwriters
less than that suggested by the ceding company. These reserves are periodically
adjusted by Underwriters based on its evaluation of subsequent reports from and
audits of the ceding company.
Incurred but not reported ("IBNR") reserves are established on an
aggregate basis to provide for losses incurred but not yet reported to the
reinsurer and to supplement the overall adequacy of reported case reserves and
estimated expenses of settling such claims, including legal and other fees and
general expenses of administering the claims adjustment process. Underwriters
establishes IBNR reserves by using accepted loss reserving standards and
principles to estimate the ultimate liability for losses and loss adjustment
expenses ("LAE"). The process implicitly recognizes the impact of inflation and
other factors that affect claims reporting by taking into account changes in
historic loss reporting patterns and perceived probable trends.
Underwriters performs reviews of aggregate loss reserves at least twice
each year. Between the semi-annual reviews, Underwriters updates its loss
reserves by applying the loss ratios determined in the previous review to earned
premiums to date, less incurred losses reported. Underwriters does not discount
its reserves for reported or unreported claims for anticipated investment
income. There are inherent uncertainties in estimating reserves primarily due to
the long-term nature of most reinsurance business, the diversity of development
patterns among different lines of business and types of reinsurance, and the
necessary reliance on the ceding company for information regarding claims.
Actual losses and LAE may deviate, perhaps substantially, from reserves on
Underwriters' financial statements, which could have a material adverse effect
on Underwriters'
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<PAGE> 31
financial condition and results of operations. Based on current information,
Underwriters believes reserves for losses and LAE at December 31, 1995 are
adequate.
Underwriters' reserve for losses and LAE include amounts for various
liability coverages related to asbestos and environmental impairment claims that
arose from general liability and certain commercial multiple-peril coverages.
Restrictive asbestos and environmental impairment exclusions were introduced in
late 1986 on both primary and reinsurance contracts, significantly reducing
these exposures for accidents occurring after 1986. Reserves for asbestos and
environmental impairment claims cannot be estimated with traditional loss
reserving techniques because of uncertainties that are greater than those
associated with other types of claims. Factors contributing to those
uncertainties include a lack of historical data, the significant period of time
that has elapsed between the occurrence of the loss and the reporting of that
loss to the ceding company and the reinsurer, uncertainty as to the number and
identity of insureds with potential exposure to such risks, unresolved legal
issues regarding policy coverage, and the extent and timing of any such
contractual liability. Such uncertainties are not likely to be resolved in the
near future.
As with all reinsurance claims, Underwriters establishes case reserves
for both asbestos and environmental excess of loss reinsurance claims by
applying reinsurance contract terms to losses reported by ceding companies,
analyzing from the first dollar of loss incurred by the primary insurer.
Additionally, ceding companies often report potential losses on a precautionary
basis (a "precautionary notice") to protect their rights under reinsurance
contracts, which generally call for prompt notice to the reinsurer. Ceding
companies, at the time they report such potential losses, advise Underwriters of
the ceding companies' current estimate of the extent of such loss. Underwriters
reviews each of these precautionary notices and, based upon current information,
assesses the likelihood of loss to Underwriters. Such assessment is one of the
factors used in determining the adequacy of IBNR reserves.
For asbestos claims, emphasis is placed on a review of precautionary
notices with a named insured previously linked to large asbestos exposure (a
"target defendant"). If the named insured is a "target defendant," Underwriters
considers there is a probability of loss even if the named ceding company has
not reported reserves. IBNR reserves are recorded based on this review, as well
as the additional subjective consideration of the aggregate reported losses
(approximately $4.0 million per year) and paid losses (approximately $2.2
million per year) for the last three years. The per year figures are net of
reinsurance, including the Continental reinsurance contracts.
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<PAGE> 32
For environmental claims, Underwriters establishes case reserves and
reviews precautionary notices as described above. Ultimate environmental claims
exposure is especially uncertain because of the problematic apportionment of
clean-up costs, the uncertain enforceability of contract exclusions and the lack
of specific "target defendants." IBNR reserves are recorded based on
Underwriters' assessment of precautionary notices and a review of aggregate
reported losses (approximately $4.6 million per year) and paid losses
(approximately $0.5 million per year) for the last three years. The per year
figures are net of reinsurance, including the Continental reinsurance contracts.
During the three years ended December 31, 1995, the average net loss
payment per claim (open and settled) for asbestos and environmental exposures,
excluding cessions to the Continental reinsurance contracts, was $25,000 and
$18,000, respectively, and the highest paid loss was $1.9 million for an
asbestos claim and $0.6 million for an environmental claim, in each case net of
ceded reinsurance (excluding cessions to the Continental reinsurance contracts).
Most claims paid to date have been paid under contracts with varying levels of
retention by the ceding company or insurer. Although the range of losses paid by
Underwriters has been wide, most losses paid involve lower dollar amounts.
As of December 31, 1995, Underwriters' case and IBNR reserves (net of
reinsurance, including cessions to the Continental reinsurance contracts)
totalled about $14.5 million for asbestos-related liabilities, which includes
reserves for approximately 833 open claims where cedents have advised
Underwriters that they currently expect to recover from Underwriters. As of
December 31, 1995, Underwriters' case and IBNR reserves (net of reinsurance,
including cessions to the Continental reinsurance contracts) totalled about
$19.6 million for environmental impairment claims, which includes reserves for
approximately 613 open claims where cedents have advised Underwriters that they
currently expect to recover from Underwriters. Additionally, ceding companies
have submitted about 1,059 precautionary notices for asbestos-related claims and
7,612 precautionary notices for environmental impairment claims to Underwriters;
however, based on information provided by the ceding companies and Underwriters'
assessment of such claims, Underwriters does not expect such underlying losses
to grow large enough to reach Underwriters' layer of reinsurance coverage.
The reconciliation of the beginning and ending reserves for unpaid
losses and LAE related to asbestos and environmental impairment claims for the
last three years (net of cessions to the Continental reinsurance contracts, but
excluding an additional $35.8
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<PAGE> 33
million provision for such claims, discussed in the text following the tables),
is shown below (in thousands):
<TABLE>
<CAPTION>
Reconciliation of Asbestos-Related Claims Reserve for Losses and LAE
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 10,136 $ 10,000 $ 9,000
Incurred loss, net of reinsurance......................... 4,358 3,505 4,173
Paid loss, net of reinsurance............................. 0 (3,369) (3,173)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 14,494 10,136 10,000
Reinsurance recoverables, as of December 31............... 23,858 32,487 21,560
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 38,352 $ 42,623 $ 31,560
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 4,494 $ 136 $ 0
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 14,494 $ 10,136 $ 10,000
======== ======== ========
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
Reconciliation of Environmental Impairment Claims Reserve for Losses and LAE
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 16,198 $ 12,879 $ 7,256
Incurred loss, net of reinsurance......................... 3,402 3,074 7,230
Paid loss, net of reinsurance............................. 0 245 (1,607)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 19,600 16,198 12,879
Reinsurance recoverables, as of December 31............... 12,896 17,994 14,803
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 32,496 $ 34,192 $ 27,682
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 9,600 $ 6,198 $ 2,879
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 19,600 $ 16,198 $ 12,879
======== ======== ========
</TABLE>
Increases to asbestos-related and environmental impairment claims
reserves, if any, would be covered to varying degrees, if at all, by
Underwriters' existing reinsurance contracts with its retrocessionaires.
In addition to the case and IBNR reserves for asbestos-related and
environmental impairment claims reported in the tables above, Underwriters
carried an additional reserve for such exposures in their financial statements
prepared in accordance with generally accepted accounting principles ("GAAP").
The amount of such reserve was $32.4 million as of December 31, 1995, compared
with $35.8 million as of December 31, 1994. Taking into consideration these
additional reserves, Underwriters believes that its total asbestos-related and
environmental impairment reserves are a reasonable provision for such claims.
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<PAGE> 35
The table below shows changes in historical net loss and LAE reserves
for Underwriters for each year since 1985. Reported reserve development is
derived primarily from information included in Underwriters' statutory financial
statements. The first line of the upper portion of the table shows the net
reserves at December 31 of each of the indicated years, representing the
estimated amounts of net outstanding losses and LAE for claims arising during
that year and in all prior years that are unpaid, including losses that have
been incurred but not yet reported to Underwriters. The upper (paid) portion of
the table shows the cumulative net amounts paid as of December 31 of successive
years with respect to the net reserve liability for each year. The lower
(liability re-estimated) portion of the table shows the re-estimated amount of
the previously recorded net reserves for each year based on experience as of the
end of each succeeding year. The estimate changes as more information becomes
known about claims for individual years. In evaluating the information in the
table, it should be noted that a reserve amount reported in any period includes
the effect of any subsequent change in such reserve amount. For example, if a
loss was first reserved in 1987 at $100,000 and was determined in 1990 to be
$150,000, the $50,000 deficiency would be included in the Cumulative Redundancy
(Deficiency) row shown below for each of the years 1987 through 1989.
Conditions and trends that have affected the development of the net
reserve liability in the past may not necessarily occur in the future.
Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies based on this table. During the mid-1980's, the reinsurance
industry, including Underwriters, experienced substantial underwriting losses.
Such losses are reflected in the table, beginning with the comparatively high
cumulative deficiencies in the years 1985-86. The $35.8 million reserve
strengthening in 1993, along with prior increases to asbestos-related and
environmental impairment reserves, was the primary cause of the cumulative
reserve deficiencies in the years 1988-92.
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<PAGE> 36
<TABLE>
<CAPTION>
Changes in Historical Net Reserves for Losses and LAE
(in millions)
Year Ended December 31,
-------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability as of the end
of year*........................... $ 279 $ 359 $ 470 $ 461 $453 $411 $411 $437 $509 $536 $ 628
Cumulative amount of net
liability paid as of:
One year later.................. $ 80 $ 94 $ 116 $ 119 $137 $101 $ 84 $ 98 $112 $102 --
Two years later................. 161 193 208 242 227 173 161 178 189 -- --
Three years later............... 258 277 330 306 285 239 214 236 -- -- --
Four years later................ 341 375 380 348 342 274 254 -- -- -- --
Five years later................ 389 407 416 394 370 294 -- -- -- -- --
Six years later................. 404 423 458 414 384 -- -- -- -- -- --
Seven years later............... 413 460 475 425 -- -- -- -- -- -- --
Eight years later............... 445 471 483 -- -- -- -- -- -- -- --
Nine years later................ 454 475 -- -- -- -- -- -- -- -- --
Ten years later................. 458 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated
as of:
One year later.................. 341 439 481 454 457 414 412 483 516 539 --
Two years later................. 426 449 473 457 460 421 455 487 518 -- --
Three years later............... 432 441 476 462 474 465 460 491 -- -- --
Four years later................ 428 444 478 492 520 472 469 -- -- -- --
Five years later................ 426 445 516 538 528 485 -- -- -- -- --
Six years later................. 427 484 562 548 545 -- -- -- -- -- --
Seven years later............... 454 531 572 568 -- -- -- -- -- -- --
Eight years later............... 495 539 591 -- -- -- -- -- -- -- --
Nine years later................ 498 554 -- -- -- -- -- -- -- -- --
Ten years later................. 511 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy
(Deficiency)................. $(232) $(195) $(121) $(107) $(92) $(74) $(58) $(54) $ (9) $(3) --
Gross Liability-End of Year $861 $940 $1,014
Reinsurance Recoverable 352 404 386
---- ---- ------
Net Liability - End of Year 509 536 $ 628
==== ==== ======
Gross Re-estimated Liability-Latest 959 953
Re-estimated Recoverable-Latest 441 414
---- ----
Net Re-estimated Liability-Latest $518 $539
==== ====
</TABLE>
*Amounts for 1985-1986 were determined in accordance with statutory accounting
principles.
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<PAGE> 37
The reconciliation between the reserves reported in the annual
statement filed with state insurance departments in accordance with statutory
accounting practices ("SAP") and those reported in Underwriters' consolidated
financial statements prepared in accordance with GAAP for the last three years
is shown below (in thousands):
<TABLE>
<CAPTION>
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP Basis
December 31
--------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Reserves........................................ $ 596,070 $500,567 $473,625
Additional Mass Action Reserves (1)....................... 32,350 35,750 35,750
Reinsurance Recoverables.................................. 385,580 404,210 351,829
---------- -------- --------
GAAP Reserves............................................. $1,014,000 $940,527 $861,204
========== ======== ========
</TABLE>
(1) Amount represents additional reserves recorded by Underwriters in 1993
for probable asbestos-related and environmental impairment claims
exposure.
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<PAGE> 38
The reconciliation of reserves for the last three years on a GAAP basis
is shown below (in thousands):
<TABLE>
<CAPTION>
Reconciliation of Reserves for Losses and LAE
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 536,317 $ 509,375 $ 436,601
Incurred Loss, net of reinsurance,
related to:
Current year....................................... 200,543 146,426 143,723
Prior years........................................ 2,565 6,630 46,404
---------- --------- ---------
Total Incurred Loss, net of reinsurance................... 203,108 153,056 190,127
---------- --------- ---------
Paid Loss, net of reinsurance, related to:
Current year....................................... (9,239) (13,826) (19,640)
Prior years........................................ (101,766) (112,288) (97.713)
---------- --------- ---------
Total Paid Loss, net of reinsurance....................... (111,005) (126,114) (117,353)
---------- --------- ---------
Reserve, net of reinsurance recoverables,
as of December 31.................................. 628,420 536,317 509,375
Reinsurance recoverables, as of December 31............... 385,580 404,210 351,829
---------- --------- ---------
Reserve, gross of reinsurance
recoverables, as of December 31.................... $1,014,000 $ 940,527 $ 861,204
========== ========= =========
</TABLE>
Investment Operations
Underwriters' investments must comply with the insurance laws of New
Hampshire, California and Nebraska, the domiciliary states of Underwriters, CUIC
and UIC, respectively, and the other states in which they are licensed. These
laws prescribe the kind, quality and concentration of investments which may be
made by insurance companies. In general, these laws permit investments, within
specified limits and subject
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<PAGE> 39
to certain qualifications, in federal, state and municipal obligations,
corporate bonds, preferred and common stocks and real estate mortgages.
Underwriters' investment strategy is to match the average duration of
its high-quality diversified fixed maturity portfolio to the average adjusted
duration of its liabilities, which approximates 4 years, and to provide
sufficient cash flow to meet its obligations while maximizing its after-tax rate
of return. The average adjusted duration of liabilities is estimated by
adjusting the average duration of liabilities to reflect anticipated cash flows
from writings of future business. Securities may be sold to take advantage of
investment opportunities created by changing interest rates, prepayments, tax
and credit considerations or other factors. The entire fixed maturity portfolio
is designed to be able to react to such opportunities or other situations that
may otherwise result in a mismatch between the duration of assets and
liabilities and as such is classified as available for sale.
The following table reflects investment results for the fixed maturity
portfolio of Underwriters for the three months ended December 31, 1993 and the
years ended December 31, 1994 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Investment Results
Net Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments (1) Income (2) Income (3) Losses Yield (4) Yield (5)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended
December 31, 1993 $728,478 $10,390 $ 7,943 $2,381 5.7% 4.4%
Year Ended
December 31, 1994 $748,681 $41,226 $32,465 $6,115 5.5% 4.3%
Year Ended
December 31, 1995 $797,132 $50,173 $36,113 $5,476 5.9% 4.5%
</TABLE>
(1) Average of amortized cost of fixed maturities at beginning and end of
period, excluding operating cash.
(2) After investment expenses, excluding realized gains or losses from sale
of investments.
(3) Net pre-tax investment income less appropriate income taxes.
(4) Net pre-tax investment income for the period, annualized for the three
months ended December 31, 1993, divided by average investments for the
same period.
(5) Net after-tax investment income for the period, annualized for the
three months ended December 31, 1993, divided by average investments
for the same period.
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<PAGE> 40
As of December 31, 1995, the equity portfolio of Underwriters was
carried at a market value of approximately $210.4 million with an original cost
of approximately $114.7 million, and consisted primarily of approximately 2.5
million shares of BNSF common stock. The cost of equities listed in the table
below, $88.9 million, represents the cost paid by Alleghany prior to being
contributed to Underwriters. In 1995, Underwriters realized a gain of $0.1
million related to the sale of equity securities and had dividend income of $3.3
million therefrom.
The following table summarizes the investments of Underwriters,
excluding cash, as of December 31, 1995, with all investments carried at market
value (dollars in thousands):
<TABLE>
<CAPTION>
Investments
Amortized Cost
or Cost Market Value
-----------------------------------------------------------
Amount Percentage Amount Percentage
<S> <C> <C> <C> <C>
Short-term investments..................... $126,944 14% $126,944 12%
Corporate bonds............................ 142,171 15 142,658 13
United States government and
government agency bonds............. 38,009 4 38,510 4
Mortgage- and asset-backed
securities.......................... 283,797 30 287,941 27
Foreign bonds.............................. 16,259 2 16,429 1
Redeemable preferred stocks................ 18,773 2 18,679 2
Municipal bonds............................ 222,611 24 222,093 21
Equity securities (1)...................... 88,889 9 210,382 20
-------- ---- ---------- ----
Total............................... $937,453 100% $1,063,636 100%
======== ==== ========== ====
</TABLE>
(1) Includes 2,474,823 shares of BNSF common stock at the original cost to
Alleghany.
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<PAGE> 41
The following table indicates the composition of the long-term fixed
maturity portfolio by Moody's rating as of December 31, 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
Long-Term Fixed Maturity Portfolio by Moody's Rating
Market Value Percentage
------------ ----------
<S> <C> <C>
Aaa....................................................... $406,448 56%
Aa........................................................ 135,165 19
A......................................................... 146,535 20
Baa....................................................... 27,924 4
Ba........................................................ 10,238 1
-------- ---
Total............................................ $726,310 100%
======== ===
</TABLE>
The following table indicates the composition of the long-term fixed
maturity portfolio by years until maturity as of December 31, 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
------------ ----------
<S> <C> <C>
One year or less.......................................... $ 16,266 2%
Over one through five years............................... 128,178 18
Over five through ten years............................... 153,822 21
Over ten years............................................ 140,103 19
Mortgage- and asset-backed securities..................... 287,941 40
-------- ---
Total............................................ $726,310 100%
======== ===
</TABLE>
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<PAGE> 42
Competition
Competition in the property and casualty reinsurance industry has
historically been cyclical in nature. Typically, a cycle begins with attractive
premium rates for reinsurance, which cause increased writing by existing
reinsurers and the entrance into the market of new reinsurers. Competition
within the market continues to grow, resulting in a decrease in premium rates.
As the cycle continues, assuming loss experience is consistent, these
declining premium rates eventually result in a period of underwriting losses.
Such losses in turn cause reinsurers to slow or stop writing reinsurance or to
withdraw from the market altogether, which results in decreased competition and
a subsequent increase in premium rates. Underwriters believes this competitive
cycle, which may affect particular market segments at different times, is a
critical factor affecting reinsurance profitability over time. There is no
assurance that historical trends in the property and casualty reinsurance
industry will continue or that Underwriters will be able to accurately
anticipate any such trends.
The property and casualty reinsurance business at times is highly
competitive, depending upon the cycle described above. Underwriters competes
primarily in the United States reinsurance market with numerous foreign and
domestic reinsurers, many of which have greater financial resources than
Underwriters. Competition in the types of reinsurance in which Underwriters is
engaged is based on many factors, including the perceived overall financial
strength of the reinsurer, premiums charged, contract terms and conditions,
services offered, speed of claims payment, reputation and experience.
Underwriters' competitors include independent reinsurance companies,
subsidiaries or affiliates of established worldwide insurance companies,
reinsurance departments of certain primary insurance companies and domestic,
European and Asian underwriting syndicates.
To enhance Underwriters' financial strength, Alleghany, through the
holding company which owns Underwriters, contributed a total of approximately
$151 million in cash and equity securities to the capital of Underwriters in
1993 and 1994. Underwriters' enhanced financial strength has allowed it to
benefit from the continuing trend toward consolidation in the domestic
reinsurance market, resulting from the tendency of
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<PAGE> 43
reinsurance buyers to purchase coverage from larger and more financially secure
reinsurers. According to the Reinsurance Association of America, at December 31,
1995, there were 56 domestic professional reinsurers, and Underwriters was the
nation's eleventh-largest in terms of statutory surplus and fourteenth-largest
in terms of net premiums written.
The commercial property and casualty insurance industry is highly
competitive chiefly on the basis of price and service. CUIC's competitors
include other primary insurers and new forms of insurance organizations such as
alternative self-insurance mechanisms. Many of CUIC's competitors have
considerably greater financial resources, greater experience in the insurance
industry and offer a broader line of insurance products than CUIC.
Regulation
Underwriters, CUIC and UIC are subject to regulation and supervision by
state insurance regulators under the insurance statutes and regulations of
states in which they are incorporated (New Hampshire, California and Nebraska,
respectively). In addition, each of these companies is regulated in each
jurisdiction in which it conducts business. Among other things, insurance
statutes and regulations typically limit the amount of dividends that can be
paid without prior regulatory notification and approval, impose restrictions on
the amounts and types of investments that may be held, prescribe solvency
standards that must be met and maintained, require filing of annual or other
reports with respect to financial condition and other matters and provide for
periodic examinations of Underwriters, CUIC and UIC.
The terms and conditions of reinsurance agreements generally are not
subject to regulation by any governmental authority with respect to rates or
policy terms. These agreements contrast with primary insurance policies and
agreements, the rates and policy terms of which are generally closely regulated
by state insurance departments. As a practical matter, however, the rates
charged by primary insurers have an effect on the rates that can be charged by
reinsurers.
The Underwriting Center is subject to regulation and supervision by the
state insurance regulators in the states in which its subsidiary is licensed as
an insurance agency (Maryland, Georgia and New York). Such regulations address
the solicitation and effectuation of insurance in such states and impose certain
requirements relating to,
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<PAGE> 44
among others things, countersignatures, continuing education and maintenance of
trust accounts.
As an insurance holding company, Alleghany is also subject to the
insurance regulations of New Hampshire, California and Nebraska. Each state
required prior regulatory approval of Alleghany's acquisition of Underwriters,
CUIC and UIC, respectively. Alleghany and its other subsidiaries, however, are
generally not subject to restrictions on their business activities due to their
affiliation with Underwriters.
Beginning with the 1994 year end statutory financial statements, the
insurance laws of New Hampshire, California and Nebraska imposed risk based
capital ("RBC") requirements on property and casualty insurers and reinsurers,
based on a model adopted by the National Association of Independent Insurers.
The RBC laws, and the instructions thereunder, attempt to measure a property and
casualty company's statutory capital and surplus needs, taking into account the
risk characteristics of the companies' investments and products. The RBC laws
provide for four different levels of regulatory attention, dependent upon the
ratio of a company's total adjusted capital to its risk-based capital (the "RBC
ratio"), providing regulators with an early warning tool to identify weakly
capitalized companies for purposes of initiating further regulatory action. At
December 31, 1995, each of Underwriters, CUIC and UIC had RBC ratios well in
excess of the first level at which regulatory attention under such laws would be
warranted.
Employees
Underwriters employed 193 persons as of December 31, 1995.
INDUSTRIAL MINERALS BUSINESS
On July 31, 1991, a holding company subsidiary of Alleghany acquired
all of Manville Corporation's worldwide industrial minerals business, now
conducted principally through World Minerals, at a cost of about $144 million,
including capitalized expenses. The present chief executive officer of World
Minerals currently owns an equity interest, including outstanding options, of
about 6.6 percent of World Minerals' immediate parent company.
World Minerals is principally engaged in the production and sale of two
industrial minerals, diatomite and perlite:
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<PAGE> 45
Diatomite
World Minerals conducts its diatomite business through its Celite
subsidiary.
In 1995, World Minerals, through various subsidiaries of Celite,
acquired controlling interests in three joint ventures which are engaged in the
mining and processing of diatomite in Jilin Province, Peoples Republic of China
("PRC"). Two of the three joint ventures are in the start-up phase of
production and the third is under construction.
Celite is believed to be the world's largest producer of filter-aid
grade diatomite, which it markets worldwide under the Celite(R) and Kenite(R)
brand names; Celite also markets filter-aid grade diatomite in Europe under the
Primisil(R) brand name and in Latin America and other areas under the Diactiv(R)
brand name. Celite also produces calcium silicate products and magnesium
silicate products, which are sold worldwide under the MicroCel(R) and Celkate(R)
brand names (except in portions of Europe where calcium silicate products are
sold under the Calflo(R) brand name).
Diatomite is a silica-based mineral consisting of the fossilized
remains of microscopic freshwater or marine plants. Diatomite's primary
applications are in filtration and as a functional filler. Filtration accounts
for the majority of the worldwide diatomite market and for over 50 percent of
Celite's diatomite sales. Diatomite is used as a filter aid in the production of
beer, food, juice, wine, water, sweeteners, fats and oils, pharmaceuticals,
chemicals, lubricants and petroleum; it is used as a filler, mainly in paints,
and as an anti-block agent in plastic film.
Celite's calcium and magnesium silicate products, which have high
surface area and adsorption and absorption capabilities, are used to convert
liquid, semi-solid and sticky ingredients into dry, free-flowing powders.
Celite's calcium and magnesium silicate products are used in the production of
rubber, sweeteners, flavorings and pesticides.
Perlite
World Minerals conducts its perlite business through its Harborlite and
Europerlite subsidiaries.
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<PAGE> 46
On November 16, 1992, New Harborlite Corporation ("Harborlite"), a
newly formed subsidiary of World Minerals, acquired all of the capital stock of
Harborlite Corporation ("Old Harborlite"), a privately-owned perlite filter-aid
company, for cash and non-voting preferred stock of Harborlite. All of World
Minerals' pre-existing perlite operations were transferred to Harborlite, and
Old Harborlite was merged into Harborlite, which was then renamed Harborlite
Corporation.
On October 31, 1995, World Minerals, through its Europerlite
subsidiary, acquired control of all of the capital stock of two privately owned
perlite filter aid companies with operations in Italy and Spain, respectively,
and a privately owned perlite sales company in Spain.
World Minerals believes that Harborlite and Europerlite are, in the
aggregate, the world's largest producer of perlite filter aids and that
Harborlite, which is also engaged in the business of selling perlite ore, is the
world's largest merchant producer of perlite ore. These products are marketed
worldwide under the Harborlite(R) and Europerl(R) brand names.
Perlite is a volcanic rock which contains between 2 percent and 5
percent natural combined water. When heated rapidly, the natural combined water
turns explosively to steam and the perlite ore "pops" in a manner similar to
popcorn, expanding up to twenty times its original volume and creating a soft
material with large surface area and correspondingly low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine and is
sold to companies that expand it in their own expansion plants and use it
primarily in the manufacture of roofing board, formed pipe insulation and
acoustical ceiling tile. Perlite ore for filter-aid and certain filler
applications is mined at Harborlite's Superior, Arizona mine and is expanded at
one of Harborlite's six expansion plants located within the United States.
Expanded perlite is also produced at Harborlite's expansion plants in Hessle,
United Kingdom and Wissembourg, France and Europerlite's expansion plants in
Barcelona, Spain and Milan, Italy, from perlite ore obtained from Harborlite's
perlite mine in Dikili, Turkey and from merchant ore producers in Europe. Most
of the expanded perlite is used as a filter aid in the brewing, food, wine,
sweetener, pharmaceutical, chemical and lubricant industries, or as a filler and
insulating medium in various construction applications.
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<PAGE> 47
World Minerals directs its business from its world headquarters in
Lompoc, California. Its Celite subsidiary also has its world headquarters in
Lompoc, California and owns, directly or through wholly owned subsidiaries,
diatomite mines and processing plants in Lompoc, California; Quincy, Washington;
Murat, France; Alicante, Spain; Arica, Chile; and Guadalajara, Mexico. Celite
also owns 48.6 percent of Kisilidjan, h.f., a joint venture with the Government
of Iceland which mines and processes diatomite from Lake Myvatn in Iceland and
controlling interests in three joint ventures which mine and process diatomite
in Jilin Province, PRC.
Harborlite is currently relocating its world headquarters to Houston,
Texas and owns a perlite mine and mill in No Agua, New Mexico; Superior,
Arizona; and Dikili, Turkey; a perlite loading facility in Antonito, Colorado;
and perlite expansion facilities in Escondido, California; Green River, Wyoming;
Laporte, Texas; Youngsville, North Carolina; Vicksburg, Michigan; Quincy,
Florida; Wissembourg, France; and Hessle, England.
Europerlite has its world headquarters in Lompoc, California and owns
perlite expansion plants in Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining
and processing operations in ten countries. In 1995, approximately 37 percent of
World Minerals' revenues (equal to 3.7 percent of Alleghany's consolidated
revenues from continuing operations) were generated by foreign operations, and
an additional 13 percent of World Minerals' revenues were generated by export
sales from the United States. While World Minerals believes that the
international scope of its operations gives it unique competitive advantages,
international operations can be subject to additional risks, such as currency
fluctuations, changes in foreign legal requirements and political instability.
World Minerals closely monitors its methods of operating in each country and
adopts strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency
fluctuation by, among other things, having its foreign subsidiaries declare and
pay dividends whenever feasible and invoice their export customers in United
States dollars or other "hard currencies." World Minerals' foreign operations do
not subject Alleghany to a material risk from foreign currency fluctuation.
Celite's largest diatomite mine and plant is located in Lompoc,
California. All additional diatomite supplies are currently obtained by Celite
from its mines in the state of
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<PAGE> 48
Washington, France, Spain, Mexico, Chile, PRC and from the Lake Myvatn mine in
Iceland (although environmental regulations and seismic activity may adversely
affect future production at Lake Myvatn). Celite believes that its diatomite
reserves at each site are generally sufficient to last for at least 20 more
years at the current rate of utilization.
Harborlite obtains perlite ore in the United States from its No Agua
and Superior mines, and believes that its perlite ore reserves at each site are
sufficient to last at least 20 more years at the current rate of utilization.
The perlite used by Harborlite and Europerlite for expansion in Europe is
obtained from Harborlite's Dikili mine and from third parties in Europe.
Celite's silicate products are produced from purchased magnesium and
calcium compounds and internally produced diatomite.
World Minerals experienced no interruption in raw material availability
in 1995, and barring unforeseen circumstances anticipates no such interruption
in 1996. While there can be no assurance that adequate supplies of all raw
materials will be available in the future, Celite, Europerlite and Harborlite
believe that they have taken reasonable precautions for the continuous supply of
their critical raw materials.
Many of Celite's, Europerlite's and Harborlite's operations use
substantial amounts of energy, including electricity, fuel oil, natural gas, and
propane. Celite, Europerlite and Harborlite have supply contracts for most of
their energy requirements. Most of such contracts are for one year or less.
Celite, Europerlite and Harborlite have not experienced any energy shortages and
they believe that they have taken reasonable precautions to ensure that their
energy needs will be met, barring any unusual or unpredictable developments.
From the time World Minerals began operations in 1991, none of its
customers accounted for 10 percent or more of World Minerals' annual sales.
World Minerals presently owns, controls or holds licenses either
directly or through its subsidiaries to approximately 25 United States and 41
foreign patents and patent applications. While World Minerals considers all of
its patents and licenses to be valuable, World Minerals believes that none of
its patents or licenses is by itself material to its business.
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<PAGE> 49
World Minerals normally maintains approximately a one- to three-week
supply of inventory on certain products due to production lead times. Although
diatomite mining activities at Celite's principal mine in Lompoc, California may
be suspended during periods of heavy rainfall, World Minerals believes that,
because of the stockpiling of ore during dry periods, such suspensions do not
materially affect the supply of inventory. Barring unusual circumstances, World
Minerals does not experience backlogs of orders. World Minerals' business is not
seasonal to any material degree.
Programs instituted by management from 1991 through 1993 have
strengthened World Minerals. Financial systems and controls have been upgraded,
and the Celite, Harborlite and Europerlite sales forces have been consolidated
to improve efficiency and take advantage of synergies. World Minerals acts as
the sales agent for both Celite and Harborlite in the United States and procures
orders from customers and distributors on their behalf. Celite distributes
Harborlite's products in Europe to dealers, distributors and end users on
Harborlite's behalf. Europerlite sells its products in Europe to dealers,
distributors and end users.
World Minerals has research and development, environmental control and
quality control laboratories at its Lompoc production facilities and quality
control laboratories at each of its other production facilities. In 1995, World
Minerals spent approximately $1.0 million on company-sponsored research and
technical services (in addition to amounts spent on engineering and exploration)
related to the development and improvement of its products and services.
Competition
World Minerals believes that Celite is the world's largest producer of
diatomite. The remainder of the market is shared by Celite's four major
competitors: Eagle-Picher Minerals (United States), Grefco (United States), CECA
(France) and Showa (Japan), and a number of smaller competitors. Celite's
silicates compete with a wide variety of other synthetic mineral products.
World Minerals believes that Harborlite and Europerlite are, in the
aggregate, the world's largest producer of perlite filter aids and that
Harborlite, which is also engaged in the business of selling perlite ore, is the
world's largest merchant producer of perlite ore. Harborlite and Europerlite
each have two large competitors in the expanded perlite market, Grefco and CECA,
and many smaller competitors.
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<PAGE> 50
Competition is principally on the basis of service, product quality
and performance, warranty terms, speed and reliability of delivery,
availability of the product and price. The filter aid products of Celite,
Europerlite and Harborlite also compete with other filter aids, such as
cellulose, and other filtration technologies, such as crossflow and centrifugal
separation.
Regulation
All of Celite's and Harborlite's domestic operations are subject to a
variety of federal, state and local environmental laws and regulations. These
laws and regulations establish potential liability for costs incurred in
cleaning up waste sites and impose limitations on atmospheric emissions,
discharges to domestic waters, and disposal of hazardous materials. Certain
state and local jurisdictions have adopted regulations that may be more
stringent than corresponding federal regulations. Celite and Harborlite
believe that the impact of environmental regulation on their respective
operating results has been minimal due to their environmental compliance
programs; however, Celite and Harborlite cannot predict the potential future
impact of such regulations, given the increasing number and complexity, and
changing character, of such regulations.
Moreover, federal and state laws governing disposal of wastes impact
customers who must dispose of used filter-aid materials. World Minerals works
with its customers to implement disposal strategies to minimize the impact of
these disposal regulations.
The domestic mining operations of Celite and Harborlite are subject to
regulation by the Mine Safety and Health Administration ("MSHA"). This agency
establishes health and safety standards for employee work environments in the
mining industry. MSHA promulgates regulations relating to noise, respiratory
protection and dust. Celite's and Harborlite's domestic production facilities
which are not under the jurisdiction of MSHA are subject to regulation by the
Occupational Safety and Health Administration ("OSHA") which establishes
regulations regarding, among other things, workplace conditions, and exposure
to dust and noise. In addition, certain state agencies exercise concurrent
jurisdiction in these areas.
World Minerals maintains a staff of experienced environmental and
industrial hygiene professionals who assist plant personnel in complying with
environmental, health and safety regulations. This group also performs routine
internal audits and reviews of World Minerals' plant facilities worldwide. Due
to these programs and responsible
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<PAGE> 51
management at the local plant level, compliance with such regulations has been
facilitated and the financial impact of such regulations on operating results
has been minimal.
Certain products of Celite and Harborlite are subject to the Hazard
Communication Standard promulgated by OSHA, which requires Celite and
Harborlite, respectively, to disclose the hazards of their products to
employees and customers. Celite's diatomite products and certain of
Harborlite's products contain varying amounts of crystalline silica, a
substance which is among the most common found on earth. In 1987, the
International Agency for Research on Cancer ("IARC") issued a report, which was
supplemented in 1988, designating crystalline silica as "probably carcinogenic
to humans," which is a tentative classification falling between "probably not
carcinogenic to humans" and "sufficient evidence of human carcinogenicity."
Celite and Harborlite therefore provide required warning labels on their
products containing in excess of 0.1 percent respirable crystalline silica,
advising customers of the IARC designation and providing recommended safety
precautions. Such requirements also mandate that industrial customers who
purchase diatomite or perlite for use as a filler in their products label such
products to disclose hazards which may result from the inclusion of crystalline
silica-based fillers, if such products contain in excess of 0.1 percent of
crystalline silica by volume. Therefore, some manufacturers of paint may be
considering the use of other fillers in place of Celite's products. However,
Celite believes that the loss of these customers would not have a material
adverse effect on its operating results. Several states have also enacted or
adopted "right to know" laws or regulations, which seek to expand the federal
Hazard Communication Standard to include providing notice of hazards to the
general public, as well as to employees and customers.
The 1987 IARC designation has been the subject of controversy and
continued study. Celite, through the industry-sponsored International
Diatomite Producers Association ("IDPA"), has participated in funding several
studies to examine in more detail the cancer risk to humans from crystalline
silica. One such study, conducted by the University of Washington, found a
modest increase in lung cancer deaths in the cohort compared with national
rates (indicated by a standardized mortality ratio ("SMR") equal to 1.43). The
standardized mortality ratio compares the number of cancer deaths in the cohort
with 1, representing the number of cancer deaths in the population at large.
The study also found an increase in non-malignant respiratory disease ("NMRD")
(SMR equal to 2.59); this finding was expected because the NMRD category
included silicosis resulting from exposures in past decades.
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<PAGE> 52
After the publication of the Washington study, Celite conducted its
own review of the portion of the cohort representing the Lompoc plant and found
that more workers in this portion of the cohort may have been exposed to
asbestos than originally thought. Since exposure to asbestos has been found to
cause lung cancer and respiratory disease, this finding has raised concern that
the Washington study may have overstated the adverse health effects of exposure
to crystalline silica. IDPA engaged an epidemiologist and an industrial
hygienist to examine the cohort to determine whether asbestos exposure was
fully accounted for in the Washington study's results. The final IDPA report
was issued in December 1994 and found:
"Although asbestos operations were small relative to the
diatomaceous earth operations, analyses in this report showed that
exposure to asbestos by workers was relatively common. For example,
the number of cohort members who were ever definitely, probably or
possibly exposed to asbestos was shown to involve approximately 60
percent of the cohort. Even when only men employed in jobs definitely
exposed to asbestos for more than [one] year in the period 1950-1977
were considered, more than 8 percent of the cohort had held such jobs."
The asbestos study's authors called for further analyses which fully take into
account the results of their study stating "[t]he interpretation of the
silica-lung cancer risk relationships based on the [Lompoc] cohort should await
the outcome of such analyses."
During 1995, the results of the asbestos study were analyzed by the
authors of the Washington study. In a report to the Office of Pollution
Prevention and Toxics of the U.S. Environmental Protection Agency by the IDPA
reporting on the results of the reanalysis, the IDPA reported:
"The lung cancer SMR for the group with no asbestos exposure
was 1.13 (95% CI, 0.73-1.69); for the group with any asbestos exposure
it was 1.78 (95% CI, 1.18-2.57). The cross-classified SMR results were
numerically unstable because of the small numbers of observed lung
cancers.
* * *
"In summary, the additional information gained from an
in-depth assessment of possible exposures to asbestos experienced by
the cohort has lead to re-analysis of the original study report. Some
of the excess lung cancer risk reported
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<PAGE> 53
previously (Checkoway et al., 1993) can be attributed to asbestos
exposure and the remaining numbers are weaker and lacking in
statistical significance."
Certain other cohort mortality studies of workers occupationally
exposed to crystalline silica, including a study of gold miners in North
Dakota, have found no statistically significant increases in lung cancer
compared with national populations. The issue remains subject to considerable
debate.
The various agreements covering the purchase of the business of Celite
in 1991 provide for the indemnification of the holding company subsidiary of
Alleghany which acquired Celite by the various selling Manville entities in
respect of any environmental and health claims arising from the operations of
the business of Celite prior to its acquisition by the holding company
subsidiary.
Employees
As of December 31, 1995, World Minerals had 115 employees, all located
in the United States, Celite had a total of about 1,153 employees worldwide,
and Harborlite had a total of about 212 employees worldwide. Europerlite had a
total of about 71 employees, all located in Europe. Approximately 346 of
Celite's employees and 40 of Harborlite's employees in the United States are
covered by collective bargaining agreements. All of the collective bargaining
agreements covering workers at Celite and Harborlite are in full force and
effect.
STEEL FASTENER BUSINESS
The Heads and Threads division of Alleghany, headquartered in
Northbrook, Illinois, is believed to be the nation's leading distributor of
imported steel fasteners. Heads and Threads imports and sells commercial
fasteners - nuts, bolts, screws, washers and other fasteners - for resale to
fastener manufacturers and distributors through a network of sales offices and
warehouses located in sixteen states. The strength of Heads and Threads lies
in its five major warehouses and fourteen regional satellite warehouses, long
years of association with suppliers and customers, and ability to control
operating costs.
Since Heads and Threads imports virtually all of its fasteners, it is
necessary to forecast inventory requirements from six months to a year in
advance to allow time for shipments to reach their destinations in the United
States. In addition, Heads and Threads'
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<PAGE> 54
costs are subject to fluctuations in foreign currency and import duties.
Increases in import duties may result from determinations by United States
federal agencies that foreign countries are violating United States laws or
intellectual property rights, or are following restrictive import policies.
Heads and Threads operations do not subject Alleghany to a material risk from
fluctuations in foreign currency or import duties.
Regulations implementing the Fastener Quality Act, which are to become
effective in 1996, will increase costs.
At December 31, 1995, Heads and Threads had about 165 employees.
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<PAGE> 55
Item 2. Properties.
Alleghany's headquarters is located in leased office space of about
11,000 square feet at 375 Park Avenue in New York City.
CT&T and CTI lease about 282,000 square feet for their headquarters
operations in the Chicago Title and Trust Center, a 49-story office complex at
171 North Clark Street in Chicago, Illinois.
Ticor Title's and Security Union's headquarters are in company-owned
premises of about 180,000 square feet in Rosemead, California. It is
anticipated that these headquarters will be moved to a leased location in
Pasadena, California in April 1996 as the building in Rosemead, California is
currently being marketed for sale. CT&T and its subsidiaries own or lease
buildings or office space in approximately 452 locations throughout the United
States, primarily for CTI, Security Union and Ticor Title full-service and
satellite branch office operations.
Underwriters leases about 29,000 square feet of office space for its
headquarters operations in Woodland Hills, California. All of its five branch
office locations are also in leased spaces, ranging in size from about 3,000
square feet to 6,700 square feet. CUIC leases about 9,400 square feet of
office space. All four of the branch offices of The Underwriting Center are
also in leased space, ranging in size from about 1,100 square feet to 4,600
square feet.
World Minerals' headquarters is located in leased premises of
approximately 17,300 square feet in Lompoc, California, which it shares with
Celite and Europerlite. Harborlite's headquarters is presently relocating to
Houston, Texas.
A description of the major plants and properties owned and operated by
Celite, Europerlite and Harborlite is set forth below. All of the following
properties are owned, with the exception of Plant # 1 at Quincy, Washington,
the headquarters offices at Lompoc, California, the Rueil, France and Santiago,
Chile offices and the plant at Wissembourg, France, which are leased.
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<PAGE> 56
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
CELITE:
- -------
Lompoc, CA 961,410 Diatomite filter
Production facility; aids, fillers,
17 multi-story production silicates and
buildings; 5 one- specialty
story warehouse products
buildings; 6 one-
story laboratory
buildings; 4 multi-
story bulk handling
buildings; 6 one-
story office buildings;
2 one-story lunch and
locker-room buildings;
and 10 one-story shops.
Lompoc, CA 17,300 Headquarters
1 one story building; offices
3 units within
1 one-story building.
Quincy, WA 60,941 Diatomite filter
Production facility; Plant aids and fillers
#1-1 multi-story
production building and
7 one-story buildings.
Plant #2-1 multi-
story production
building and 6 one-
story buildings.
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
Murat, Department 77,000 Diatomite filter
of Cantal, France aids
Production facility;
1 one-story
manufacturing
building; 2 one-
story warehouses;
and 1 one-story
office building.
Rueil, France 10,000 Sales and
1 single floor. administrative offices
Guadalajara, Mexico 116,610 Diatomite filter
Production facility; aids and fillers
2 multi-story production
buildings; 2 multi-story
pollution-control
buildings; and 20
one-story buildings.
Mexico City, Mexico 2,700 Offices
1 single floor
condominium.
Arica, Chile 50,000 Diatomite
Production facility; filter aids
1 calcined line; 1 natural
line; 1 administration
building; 1 laboratory;
1 warehouse building; 1
changing room building;
1 maintenance workshop; and
1 product warehouse.
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
Santiago, Chile 1,682 Offices
1 single floor in
a multi-story, rented
office building.
Alicante, Spain 69,410 Diatomite filter
Production facility; aids and fillers
2 multi-story manufac-
turing buildings;
3 one-story ware-
houses; 2 one-story
office buildings;
and 3 miscellaneous
buildings.
Changbai County, 205,985 Diatomite filter
Jilin Province, PRC aids
Production facility;
1 multi-story processing
facility; 4 one-story
warehouse buildings;
1 multi-story office building;
and 4 one-story miscellaneous
buildings.
Linjiang County, 74,665 Diatomite filter
Jilin Province, PRC aids
Production facility;
1 multi-story production
facility; 1 two-story office
building; 3 one-story
warehouse buildings; and
3 one-story miscellaneous
buildings.
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
Linjiang County, under Diatomite filter
Jilin Province, PRC construction aids
Production facility.
HARBORLITE:
- ----------
Antonito, CO 9,780 Warehouse
1 one-story manu- facilities for
facturing building perlite ore
and warehouse; 1 one-
story office building;
and 1 one-story ware-
house.
No Agua, NM 40,550 Perlite ore
Production facility;
1 six-story mill
building; 1 one-
story office and
shop building; and
8 miscellaneous one-
story buildings.
Superior, AZ 6,900 Perlite ore
Production facility;
1 one-story
warehouse building; and
1 one-story office
building.
Escondido, CA 8,450 Perlite filter
1 one-story aids
warehouse building;
and 1 one-story office
building.
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
Green River, WY 17,300 Perlite filter
1 one-story aids
warehouse building;
and 1 one-story office
building.
Vicksburg, MI 25,050 Perlite filter
2 one-story aids
warehouse buildings;
and 1 one-story office
building.
Youngsville, NC 22,500 Perlite filter
1 one-story warehouse aids
building; 1 one-story
manufacturing building;
and 1 one-story office
building.
Quincy, FL 18,450 Perlite filter
1 one-story warehouse aids
building; 1 one-story
manufacturing building;
and 1 one-story office
building.
LaPorte, TX 23,000 Perlite filter
1 one-story aids and
expansion warehouse fillers
and office building.
Wissembourg, France 50,000 Perlite filter
1 multi-story aids and fillers
production and ware-
house building.
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
Location and Approximate Product
Nature of Property Square Footage or Use
- ------------------ -------------- -------
<S> <C> <C>
Hessle, Humberside,
United Kingdom 36,700 Perlite filter
1 one-story aids and fillers
manufacturing
building; and 1
two-story office
building.
Dikili, Turkey 63,200 Perlite crushing
Production facility; mill
1 four-story manu-
facturing building;
1 one-story warehouse
building; 1 one-story raw
material warehouse; 1
one-story office building;
and 1 one-story
maintenance shop.
EUROPERLITE:
- ------------
Barcelona, Spain 70,300 Perlite filter aids
Production facility; and fillers
1 one-story manufacturing
warehouse building;
1 one-story raw material
warehouse; and 1 two-story
office building.
Milan, Italy 68,600 Perlite filter aids
Production facility;
1 one-story manufacturing/
warehouse building; 1
one-story raw material
warehouse; and 1 two-story
office building.
</TABLE>
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<PAGE> 62
World Minerals' largest mine is located on Celite-owned property
immediately adjacent to the City of Lompoc, California, and is the site of one
of the most unusual marine diatomite deposits in the world. The mine
celebrated its 100th anniversary of production in 1993 and has been in
continuous operation for more than 60 years. Reserves are believed to be
sufficient for the operation of the plant for at least 20 more years at the
current rate of utilization. The Lompoc production facility has a rated
capacity in excess of 200,000 tons annually and currently supplies more than 25
different grades of products to the filtration and filler markets. The
facility also houses World Minerals' research and development, and health,
safety and environmental departments and Celite's quality control laboratories.
Celite and Harborlite also lease warehouses, office space and other
facilities in the United States and abroad. A joint venture between Celite and
the Government of Iceland has mining rights to mine diatomaceous earth in
sections of Lake Myvatn, Iceland and Celite's joint ventures in PRC have mining
rights to mine diatomaceous earth in sections of Jilin Province, PRC.
The operations of Alleghany's Heads and Threads division are conducted
in 16 states at 19 locations. There are either warehouses, or combined
warehouses and sales offices, at such locations; two locations are owned and
the remainder are leased. Heads and Threads' headquarters in Northbrook,
Illinois is owned by Alleghany.
API's headquarters is located in leased premises of approximately 3,630
square feet in Sacramento, California. API or its subsidiary owns 38
properties in fee and two additional properties for which foreclosure is
probable but has not yet occurred, in California. Such properties are
comprised of improved and unimproved commercial land (office, retail and
industrial), improved and unimproved commercial and residential lots, and
office, retail, commercial and residential buildings. In addition, the
following properties are held by joint ventures in dissolution in which API has
an interest, but the liquidation of such joint ventures has not yet been
completed. API intends to dispose of all of these properties in an orderly
fashion, which may take several years.
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<PAGE> 63
<TABLE>
<CAPTION>
Location Approximate Acreage Property Type
- -------- ------------------- -------------
<S> <C> <C>
Roseville, 15.7 acres Unimproved land
California (commercial/
residential)
Roseville, 112.3 acres Unimproved land
California (commercial/
(subject to a residential)
first deed of
trust)
Folsom, 7.4 acres Unimproved land
California (commercial/
office/retail)
Sacramento, 215.8 acres Unimproved land
California (commercial/
residential)
Sacramento, 136.0 acres Unimproved land
California (commercial/
residential)
</TABLE>
Alleghany also owns one truck terminal property in Ohio which is being
held for sale, and which has been leased from time to time on an interim basis.
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<PAGE> 64
Item 3. Legal Proceedings.
A. On January 7, 1985, the Federal Trade Commission (the "FTC") filed
a complaint alleging that six of the largest title insurance companies,
including CTI, Security Union and Ticor Title, violated Section 5 of the
Federal Trade Commission Act. The violation was alleged with respect to the
companies' participation in title insurance rating bureaus in thirteen states,
to the extent those rating bureaus had proposed for state regulatory approval
rates relating to title search and examination services and settlement services
performed in connection with the issuance of title insurance policies. After
proceedings before an administrative law judge and the FTC, the FTC issued an
opinion and order dated September 19, 1989, finding a violation of the Federal
Trade Commission Act in six states. Subsequent appeals in the United States
Court of Appeals for the Third Circuit and the United States Supreme Court
resulted in an affirmance of the FTC order as to four states. The FTC issued a
modified order dated April 22, 1994, to conform to the results of these
appeals. By that order CTI, Security Union and Ticor Title are prohibited in
Connecticut, Wisconsin, Arizona and Montana, from discussing, proposing,
setting or filing any rates for title search and examination services through a
rating bureau, except where such activity is engaged in pursuant to clearly
articulated and affirmatively expressed state policy and where such activity is
actively supervised by a state regulatory body. CT&T experienced no practical
adverse consequences from this order since its title insurance subsidiaries are
not engaged in any types of activities proscribed thereby.
Beginning shortly after the filing of the FTC complaint in 1985, a
series of private suits brought under Section 1 of the Sherman Act and based on
the matters alleged in the FTC proceedings, seeking treble damages and other
relief against the same six title insurance companies, were filed in a number
of federal district courts. These actions were consolidated in the United
States District Court for the Eastern District of Pennsylvania. In June 1986,
that Court issued a final judgment approving a class action settlement of the
asserted claims, in consideration of the defendant companies providing class
members with enhanced title insurance coverage, discounts on future purchases
of title insurance, and other benefits. Additional federal and state civil
actions subsequently were filed seeking damages and injunctive relief on the
basis of the same matters complained of in the suits subject to the class
settlement. A number of such later actions were dismissed; however, two such
actions are currently pending.
In December 1992, the United States Court of Appeals for the Ninth
Circuit reversed the dismissal of damage claims asserted in one such pending
case filed in the
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<PAGE> 65
United States District Court for the District of Arizona, ruling that the prior
class settlement did not bar the assertion of the plaintiffs' damage claims
challenging rating bureau activity in Arizona and Wisconsin. The United States
Supreme Court granted the title insurers' petition for a writ of certiorari to
review the decision of the Court of Appeals on this issue in October 1993, but,
after full argument by the parties on the merits of the case, dismissed the
writ as improvidently granted. In June 1994, counsel for the plaintiffs and
the defendants filed with the District Court in Arizona a definitive written
agreement embodying terms for a proposed class action settlement of the
asserted claims, which would have become effective upon final approval of the
Court. Subsequently, the attorneys for the plaintiffs advised the Court that
they were unable to continue to support the settlement as in the best interests
of the settlement class; the title insurance companies stated their belief that
the settlement agreement was binding upon the plaintiffs and their counsel and
that the agreement was in the best interests of the settlement class.
On April 21, 1994, prior to the filing of the settlement agreement
with the District Court in Arizona, a separate class action suit seeking treble
damages was filed in the United States District Court for the Eastern District
of Wisconsin, asserting federal antitrust claims against the same six
defendants and a number of additional title insurers arising from Wisconsin
rating bureau activity. On October 11, 1994, the Wisconsin suit was
transferred to and consolidated with the suit in the United States District
Court in Arizona.
The District Court in Arizona did not act upon the settlement
agreement and, on March 28, 1995, the Court deferred further action to allow
the parties to reach agreement on a global settlement of the foregoing actions.
The parties subsequently filed a global settlement with the Court, to which the
Court has given its preliminary approval, entering a Preliminary Settlement
Order dated June 19, 1995.
Pursuant to the terms of the proposed global settlement, class members
will be provided with a number of benefits, including the option to receive
cash payments from the title insurance companies named in the Arizona and
Wisconsin actions, not to exceed in the aggregate $1,996,613 in Arizona and
$2,070,326 in Wisconsin; an increase in the face amount of title insurance
policies purchased from the title insurance companies reflecting the impact of
inflation since January 1, 1981; and the last $5,000 of future insurance
coverage at no cost on any new title insurance policy for property in Arizona
or
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<PAGE> 66
Wisconsin purchased from any of such title insurance companies within the
one-year period following final Court approval of the settlement. The
settlement also contemplates that the title insurance companies will pay
attorneys' fees of the plaintiffs and the costs of administering the
settlement.
In July 1995, pursuant to an order of the Court, notice of the
settlement was given to the class by publication. No member of the plaintiff
class commented upon or requested to opt out of the settlement, and the period
for such comment or request closed on September 15, 1995. The plaintiffs filed
for their attorneys' fees and costs on or about September 22, 1995. The Court
held a hearing on October 10, 1995, at which the fairness of the settlement was
considered and members of the plaintiff class were given an opportunity to be
heard. No class member appeared at the hearing. On October 30, 1995, the
Court issued an order certifying the plaintiff class for all purposes.
The parties have affirmed to the Court their support of the settlement
agreement; however, disputes arose regarding the valuation of the settlement
benefits and various matters pertaining to the plaintiffs' petitions for
attorneys' fees and costs. The parties have filed briefs with the Court on the
areas of disagreement. The defendants have reached an agreement regarding
attorneys' fees and costs with the plaintiffs who initiated the Arizona action,
and the parties have submitted such agreement for the approval of the Court.
The Court has yet to act in this regard. No agreement has been reached with
the plaintiffs who initiated the Wisconsin action.
The Stock Purchase Agreement between Alleghany and Lincoln National
Corporation, among other parties, dated as of June 18, 1985, provides for the
indemnification of Alleghany by Lincoln National Corporation in respect of a
portion of any liability resulting from the foregoing FTC and private actions
and in respect of certain other pending or potential claims against CT&T and
its subsidiaries.
B. The federal tax returns of the Alleghany group for the tax years
1991 and 1992 are being audited by the Internal Revenue Service ("IRS"). By
letter dated December 27, 1995, the IRS proposed adjustments to the Alleghany
group's federal income tax liability for the 1988, 1991 and 1992 tax years
totalling about $6.7 million.
Among the positions taken by the IRS is a proposal to disallow a
deduction of approximately $6.2 million in the 1992 tax year, representing the
"imputed" interest portion of a payment made by Alleghany to Lincoln National
Corporation ("Lincoln") of Lincoln's share of a litigation recovery pursuant to
the terms of the agreement between
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<PAGE> 67
them relating to Alleghany's acquisition of CT&T in 1985. The proposed
adjustment is based on the IRS's position that the statute under which the
deduction was claimed is inoperative in the absence of regulations required to
be promulgated by the IRS. Independent counsel for Alleghany believes that
this position has little merit.
The IRS also proposed to disallow about $3.3 million of bad debt
deductions claimed by Ticor Title and its subsidiaries (the "Ticor Group")
after CT&T's acquisition of the Ticor Group in 1991. The IRS has taken the
position that the Ticor Group failed to demonstrate that the receivables giving
rise to the bad debts were not worthless earlier than the period in which the
bad debt deductions were claimed. Alleghany does not intend to challenge the
position of the IRS with respect to deductions aggregating about $1 million,
and is currently evaluating its response with respect to the remainder. To the
extent that an adjustment proposed by the IRS in respect of these bad debt
deductions is made, the pre-acquisition net operating loss carryforward of the
Ticor Group should be increased by an amount which corresponds to the reduction
in such bad debt deductions.
In addition, the IRS proposed adjustments increasing taxable income
for the 1991 and 1992 tax years by a total of about $7.1 million, as a result
of a reallocation of the purchase price among various assets acquired by
Alleghany and subsequently contributed to Celite upon its formation. An
independent appraiser has been retained to evaluate the original appraisal
obtained by Alleghany and the IRS's proposed reallocation.
Alleghany is currently evaluating the legal and factual bases of the
proposed adjustments and intends to file a protest with the IRS Appeals Office
in New York City.
C. Alleghany's subsidiaries and division are parties to pending
litigation and claims in connection with the ordinary course of their
businesses. Each such operating unit makes provision on its books, in
accordance with generally accepted accounting principles, for estimated losses
to be incurred in such litigation and claims, including legal costs. In the
opinion of management, such provision is adequate under generally accepted
accounting principles as of December 31, 1995.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of 1995.
Supplemental Item. Executive Officers of Registrant.
The name, age, current position, date elected and five-year business
history of each executive officer of Alleghany are as follows:
<TABLE>
<CAPTION>
Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
<S> <C> <C> <C>
F.M. Kirby 76 Chairman of Chairman of the
the Board Board, Alleghany;
Chairman of the
Board and chief executive
officer, Alleghany, prior
to July 1992.
John J. 64 President, President, chief
Burns, Jr. chief executive officer
executive and chief operating
officer officer, Alleghany
and chief since July 1992;
operating President and
officer chief operating
officer, Alleghany,
prior thereto.
</TABLE>
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<PAGE> 69
<TABLE>
<CAPTION>
Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
<S> <C> <C> <C>
David B. 63 Senior Vice Senior Vice
Cuming President President and
and chief chief financial
financial officer, Alleghany.
officer
Robert M. Hart 51 Senior Vice Senior Vice President
President, General and General Counsel
Counsel and since September 1994
Secretary and Secretary since January 1995; Partner,
Donovan Leisure Newton & Irvine, prior thereto.
Peter R. Sismondo 40 Vice President, Vice President,
Controller, Controller, Treasurer,
Treasurer, Assistant Secretary
Assistant and principal
Secretary and accounting officer,
principal Alleghany,
accounting officer since January
1995; Vice President,
Controller, Assistant
Secretary and
principal accounting
officer, Alleghany,
prior thereto.
</TABLE>
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<PAGE> 70
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information required by this Item 5 is incorporated by reference
from page 5 of Alleghany's Annual Report to Stockholders for the year 1995,
filed as Exhibit 13 hereto.
Item 6. Selected Financial Data.
The information required by this Item 6 is incorporated by reference
from page 5 of Alleghany's Annual Report to Stockholders for the year 1995,
filed as Exhibit 13 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item 7 is incorporated by reference
from pages 1 through 3, from pages 6 through 14, and from pages 16 and 17, of
Alleghany's Annual Report to Stockholders for the year 1995, filed as Exhibit
13 hereto.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference
from pages 18 through 35 of Alleghany's Annual Report to Stockholders for the
year 1995, filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE> 71
PART III
Item 10. Directors and Executive Officers of Registrant.
As permitted by General Instruction G(3), information concerning the
executive officers of Alleghany is set forth as a supplemental item included in
Part I of this Form 10-K Report under the caption "Executive Officers of
Registrant." Information concerning the directors of Alleghany is incorporated
by reference from pages 5 through 8 of Alleghany's Proxy Statement, filed or to
be filed in connection with its Annual Meeting of Stockholders to be held on
April 26, 1996. Information concerning compliance with the reporting
requirements under Section 16 of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from page 3 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 26, 1996.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference
from pages 12 through the first two lines of page 26 of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 26, 1996. The information set forth beginning
on page 26 through the first [half of] page 34 of Alleghany's Proxy Statement,
filed or to be filed in connection with its Annual Meeting of Stockholders to
be held on April 26, 1996, is not "filed" as a part hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 is incorporated by reference
from pages 1 through 4, and from pages 10 and 11, of Alleghany's Proxy
Statement, filed or to be filed in connection with its Annual Meeting of
Stockholders to be held on April 26, 1996.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference
from pages 24 and 25 of Alleghany's Proxy Statement, filed or to be filed in
connection with its Annual Meeting of Stockholders to be held on April 26,
1996.
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<PAGE> 72
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and subsidiaries,
together with the report thereon of KPMG Peat Marwick LLP, independent
certified public accountants, are incorporated by reference from the Annual
Report to Stockholders for the year 1995 into Item 8 of this Report.
2. Financial Statement Schedules.
The schedules relating to the consolidated financial statements of
Alleghany and subsidiaries, together with the report thereon of KPMG Peat
Marwick LLP, independent certified public accountants, are detailed in a
separate index herein.
3. Exhibits.
The following are filed as exhibits to this Report:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.01 Restated Certificate of Incorporation of Alleghany,
as amended by Amendment accepted and received for
filing by the Secretary of State of the State of
Delaware on June 23, 1988, filed as Exhibit 20 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
</TABLE>
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<PAGE> 73
<TABLE>
<S> <C>
3.02 By-Laws of Alleghany as amended April 18, 1995,
filed as Exhibit 3.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated herein by reference .
4.01 Indenture dated as of June 15, 1989 between
Alleghany and Pittsburgh National Bank, as Trustee,
relating to the 6-1/2% Subordinated Exchangeable
Debentures due June 15, 2014 (the "Debentures"),
including the form of Debenture, filed as Exhibit
4.1 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.02(a) Agreement dated as of December 22, 1993 between
Alleghany and David B. Cuming, filed as Exhibit
10.02(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1993, is
incorporated herein by reference. Agreements dated
as of December 22, 1993 between Alleghany and each
of F.M. Kirby, John J. Burns, Jr., Richard P. Toft,
Theodore E. Somerville, John E. Conway and Peter R.
Sismondo were omitted pursuant to Instruction 2 of
Item 601 of Regulation S-K.
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 74
<TABLE>
<S> <C>
*10.02(b) Agreement dated as of December 15, 1993 between
CT&T and Richard P. Toft, filed as Exhibit 10.02(b)
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1993, is incorporated
herein by reference.
*10.03 Agreement dated August 18, 1994 between Alleghany
and Theodore E. Somerville, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1994, is incorporated
herein by reference.
*10.04 Alleghany Corporation Deferred Compensation Plan as
amended and restated as of December 15, 1992, filed
as Exhibit 10.03 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted
on March 16, 1983, filed as Exhibit 10.24 to the
Annual Report on Form 10-K of Alleghany
Corporation, a Maryland corporation and the
predecessor of Alleghany ("Old Alleghany"), for the
year ended December 31, 1982, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
*10.05(b) Description of amendments to the Alleghany 1983
Long-Term Incentive Plan as adopted on December 30,
1986, filed as Exhibit 10.05(b) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 75
<TABLE>
<S> <C>
*10.06 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.07 Alleghany Supplemental Death Benefit Plan dated as
of May 15, 1985 and effective as of January 1,
1985, filed as Exhibit 10.08 to Old Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1985, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
*10.08(a) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated
on March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.09 Alleghany Retirement COLA Plan dated and effective
as of January 1, 1992, as adopted on March 17,
1992, filed as Exhibit 10.7 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
*10.10 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995.
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 76
<TABLE>
<S> <C>
*10.11 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
*10.14(a) Employment Agreement dated as of January 1, 1992,
and Amendment to Employment Agreement dated as of
January 1, 1993, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.12 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by
reference.
*10.14(b) Second Amendment to Employment Agreement dated as
of January 1, 1994, among CT&T, Alleghany and
Richard P. Toft, filed as Exhibit 10.11(b) of
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1993 is incorporated herein by
reference.
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 77
<TABLE>
<S> <C>
*10.14(c) Third Amendment to Employment Agreement dated as of
October 31, 1994, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.1 of Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, is incorporated herein by
reference.
*10.15 Split/Owner "Split Dollar" Life Insurance Plan
Assignment dated March 19, 1986 by and between
Richard P. Toft and CT&T, filed as Exhibit 10.10(c)
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1991, is incorporated
herein by reference.
*10.16 Description of CT&T Presidents' Plan, adopted and
effective as of July 1, 1985 and as amended as of
January 26, 1993, filed as Exhibit 10.14 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1992, is incorporated herein by
reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of
1992, adopted and effective as of January 1, 1992,
as amended and restated effective January 1, 1993,
filed as Exhibit 10.15 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.18 Description of CT&T Quality Business Management
Incentive Program for the Presidents of CT&T and
Chicago Title Insurance Company, effective as of
January 1, 1989, as amended as of January 1, 1992,
filed as Exhibit 10.16 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 78
<TABLE>
<S> <C>
*10.19 CT&T Excess Benefits Pension Plan, effective
January 1, 1987, as amended by First Amendment to
CT&T Excess Benefits Pension Plan dated May 5,
1994, effective as of January 1, 1994, filed as
Exhibit 10.19 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.20 CT&T Executive Salary Continuation Plan effective
as of January 1, 1979, as adopted on August 23,
1978, filed as Exhibit 10.15 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1990, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
</TABLE>
- ----------------------------------
* Compensatory plan or arrangement.
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<PAGE> 79
<TABLE>
<S> <C>
10.23(a) Stock Purchase Agreement dated as of June 18, 1985
by and among Old Alleghany, Alleghany, Alleghany
Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"),
filed as Exhibit (2)(i) to Old Alleghany's Current
Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock
Purchase Agreement, filed as Exhibit (2)(ii) to Old
Alleghany's Current Report on Form 8-K dated July
11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T
Stock Purchase Agreement, filed as Exhibit 10.12(c)
to Old Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1985, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.24 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed
as Exhibit 10.21 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.25 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between
Alleghany and MSL Industries, Inc., filed as
Exhibit 10.22 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
</TABLE>
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<PAGE> 80
<TABLE>
<S> <C>
10.26(a) Agreement and Plan of Merger dated as of April 29,
1994 among Montag & Caldwell Associates, Inc.,
Alleghany Acquisition Corporation, Alleghany and
the Shareholders of Montag & Caldwell Associates,
Inc. (the "Montag & Caldwell Acquisition
Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, is incorporated
herein by reference.
10.26(b) List of Contents of Exhibits to the Montag &
Caldwell Acquisition Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, is
incorporated herein by reference.
10.27(a) Stock Purchase Agreement dated as of May 18, 1994
by and between First Interstate Bank of California
and Alleghany (the "Sacramento Savings Stock
Purchase Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, is incorporated herein
by reference.
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed
as Exhibit 10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994,
is incorporated herein by reference.
</TABLE>
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<PAGE> 81
<TABLE>
<S> <C>
10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
</TABLE>
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<PAGE> 82
<TABLE>
<S> <C>
10.29 Letter agreement dated January 24, 1995 among
Alleghany, Santa Fe Pacific Corporation and
Burlington Northern Inc., filed as Exhibit 2 to
Amendment No. 3 to Alleghany's Schedule 13D
relating to Santa Fe Pacific Corporation dated
January 24, 1995, is incorporated herein by
reference.
10.30(a) Installment Sales Agreement dated December 8, 1986
by and among Alleghany, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc., filed as Exhibit 10.10 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.30(b) Intercreditor and Collateral Agency Agreement dated
as of August 1, 1990 among Manufacturers Hanover
Trust Company, Barclays Bank PLC and Alleghany
Funding Corporation, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.30(c) Interest Rate and Currency Exchange Agreement dated
as of August 14, 1990 between Barclays Bank PLC and
Alleghany Funding Corporation, and related
Confirmation dated August 13, 1990 between Barclays
Bank PLC and Alleghany Funding Corporation, filed
as Exhibit 10.2 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990,
are incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C>
10.30(d) Indenture dated as of August 1, 1990 between
Alleghany Funding Corporation and Manufacturers
Hanover Trust Company, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.31(a) Acquisition Agreement dated as of November 29, 1990
by and between CT&T and Westwood Equities
Corporation (the "Ticor Acquisition Agreement"),
filed as Exhibit (2)(i) to Alleghany's Current
Report on Form 8-K dated December 21, 1990, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.31(b) List of Contents of Schedules to the Ticor
Acquisition Agreement, filed as Exhibit 2(ii) to
Alleghany's Current Report on Form 8-K dated
December 21, 1990, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.31(c) Amendment to the Ticor Acquisition Agreement dated
as of January 9, 1991 by and between CT&T and
Westwood Equities Corporation, filed as Exhibit
(2)(iii) to Alleghany's Current Report on Form 8-K
dated March 21, 1991, is incorporated herein by
reference.
10.31(d) Amended and Restated Credit Agreement dated as of
December 30, 1993 among CT&T, certain commercial
lending institutions and Continental Bank, N.A. as
agent, filed as Exhibit 10.28(d) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by
reference.
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C>
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate
swap effective May 6, 1991, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991, is incorporated
herein by reference.
10.31(f) Letter Agreement dated December 13, 1994 between
CT&T and Bank of America Illinois (previously known
as Continental Bank) relating to the transfer of
Continental Bank's risk management business to Bank
of America National Trust and Savings Association,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
10.32(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville International, B.V. (the
"Celite Stock Purchase Agreement"), filed as
Exhibit 10.2(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.32(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.33(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
</TABLE>
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<PAGE> 85
<TABLE>
<S> <C>
10.33(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement,
filed as Exhibit 10.3(b) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
10.34(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville Sales Corporation (the
"Celite Asset Purchase Agreement"), filed as
Exhibit 10.4(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.35(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
</TABLE>
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<PAGE> 86
<TABLE>
<S> <C>
10.35(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.35(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.36(a) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) Letter Agreement dated January 23, 1992 between
Celite and Bank of America National Trust and
Savings Association relating to an interest rate
swap effective January 16, 1992, filed as Exhibit
10.37 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated
herein by reference.
10.36(d) Letter Agreement dated January 13, 1992 between
Celite and Chemical Bank relating to an interest
rate swap effective January 13, 1992, filed as
Exhibit 10.38 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is
incorporated herein by reference.
</TABLE>
-86-
<PAGE> 87
<TABLE>
<S> <C>
10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(b) Amendment dated as of March 17, 1992 to the
Standstill Agreement, filed as Exhibit 10.39(f) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17,
1992, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992, is incorporated herein by
reference.
10.38(a) Stock Purchase Agreement dated as of October 31,
1991 among Associated Insurance Companies, Inc.,
Alleghany and The Shelby Insurance Group, Inc. (the
"Shelby Stock Purchase Agreement"), filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991,
is incorporated herein by reference.
10.38(b) List of Contents of Exhibits and Schedules to the
Shelby Stock Purchase Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991, is
incorporated herein by reference.
</TABLE>
-87-
<PAGE> 88
<TABLE>
<S> <C>
10.39(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs
& Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit
10.3(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(c) Stock Purchase Related Agreement dated as of July
28, 1993 (the "Underwriters Stock Purchase Related
Agreement") among certain persons named therein and
Alleghany, filed as Exhibit 10.3(c) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
10.39(d) List of Exhibits and Schedules to the Underwriters
Stock Purchase Related Agreement, filed as Exhibit
10.3(d) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
</TABLE>
-88-
<PAGE> 89
<TABLE>
<S> <C>
10.39(f) Amendment to Underwriters Stock Purchase Related
Agreement made as of October 7, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto and
Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
10.39(i) Credit Agreement dated as of November 16, 1992
(the "Underwriters Credit Agreement") among
Underwriters Re Corporation, a predecessor of URC
Holdings Corp., the lenders named therein and The
First National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment Number One to Underwriters Credit
Agreement dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
</TABLE>
-89-
<PAGE> 90
<TABLE>
<S> <C>
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent
certified public accountants, to the incorporation
by reference of their reports relating to the
financial statements and related schedules of
Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration
No. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
</TABLE>
-90-
<PAGE> 91
<TABLE>
<S> <C>
28(p) Information from reports furnished to state
insurance regulatory authorities by Underwriters
Reinsurance Company, Commercial Underwriters
Insurance Company, and Underwriters Insurance
Company is filed under cover of Form SE, pursuant
to Rule 311(c) of Regulation S-T.
</TABLE>
(b) Reports on Form 8-K.
Alleghany did not file any reports on Form 8-K during the fourth quarter
of 1995.
-91-
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALLEGHANY CORPORATION
------------------------------
(Registrant)
Date: March 22, 1996 By /s/ John J. Burns, Jr.
-------------- ---------------------------
John J. Burns, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 22, 1996 By /s/ John J. Burns, Jr.
-------------- ---------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: March 22, 1996 By /s/ Dan R. Carmichael
-------------- --------------------------
Dan R. Carmichael
Director
Date: March 22, 1996 By /s/ David B. Cuming
-------------- ---------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 22, 1996 By /s/ Allan P. Kirby, Jr.
-------------- ---------------------------
Allan P. Kirby, Jr.
Director
-92-
<PAGE> 93
Date: March 22, 1996 By /s/ F.M. Kirby
-------------- ---------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 22, 1996 By /s/ William K. Lavin
-------------- ---------------------------
William K. Lavin
Director
Date: March 22, 1996 By /s/ Peter R. Sismondo
-------------- ---------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 22, 1996 By /s/ John E. Tobin
-------------- ---------------------------
John E. Tobin
Director
Date: March 22, 1996 By /s/ James F. Will
-------------- ---------------------------
James F. Will
Director
Date: March 22, 1996 By /s/ Paul F. Woodberry
-------------- ---------------------------
Paul F. Woodberry
Director
Date: March 22, 1996 By /s/ S. Arnold Zimmerman
-------------- ---------------------------
S. Arnold Zimmerman
Director
-93-
<PAGE> 94
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
III CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
V SUPPLEMENTARY INSURANCE INFORMATION
VI REINSURANCE
X SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted since they are not required, are not applicable,
or the required information is set forth in the financial statements or notes
thereto.
<PAGE> 95
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Amount at which
shown in the
Type of Investment Cost Value Balance Sheet
=============================================================================================================================
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities $ 582,170 $ 596,614 $ 596,614
States, municipalities and political subdivisions 437,928 440,698 440,698
Foreign governments 17,896 18,116 18,116
Public utilities 18,856 18,760 18,760
All other corporate bonds 322,376 327,322 327,322
Certificates of deposit 20,587 20,587 20,587
Redeemable preferred stock 30,889 30,911 30,911
---------- ---------- ----------
Total fixed maturities 1,430,702 $1,453,008 1,453,008
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust, and insurance companies 8,909 $ 11,287 $ 11,287
Industrial, miscellaneous, and all other 299,301 626,669 626,669
---------- ---------- ----------
Total equity securities 308,210 $ 637,956 637,956
---------- ========== ----------
Other long-term investments 9,813 9,813
Short-term investments 236,961 236,961
---------- ----------
Total investments $1,985,686 $2,337,738
========== ==========
</TABLE>
<PAGE> 96
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
=========================
<S> <C> <C>
ASSETS
Investment securities
(Cost: 1995 $208,011; 1994 $205,094) $ 410,966 $ 264,433
Cash 832 1,495
Accounts and other receivables, less allowances 19,042 17,190
Property and equipment - at cost, less accumulated depreciation 2,436 2,375
Other assets 33,078 30,352
Investment in consolidated subsidiaries 1,067,229 906,984
-------------------------
$1,533,583 $1,222,829
=========================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities $ 88,702 $ 61,242
Net deferred tax liability 105,115 61,671
Long-term debt 19,123 78,723
-------------------------
Total liabilities 212,940 201,636
Commitments and contingent liabilities
Common stockholders' equity 1,320,643 1,021,193
-------------------------
$1,533,583 $1,222,829
=========================
</TABLE>
See accompanying Notes to Condensed Financial Statements.
<PAGE> 97
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
==================================================
<S> <C> <C> <C>
Revenues:
Interest, dividend and other income $ 59,967 $ 62,302 $55,305
Net gain on investment transactions 37,836 23,403 13,376
--------------------------------------------------
Total revenues 97,803 85,705 68,681
--------------------------------------------------
Costs and Expenses:
Interest expense 5,832 7,743 6,401
General and administrative 69,694 71,354 64,888
--------------------------------------------------
Total costs and expenses 75,526 79,097 71,289
--------------------------------------------------
Operating income (loss) 22,277 6,608 (2,608)
Equity in earnings of consolidated subsidiaries 98,799 86,386 92,111
--------------------------------------------------
Earnings from continuing operations, before income taxes 121,076 92,994 89,503
Income taxes 35,776 24,622 8,654
--------------------------------------------------
Earnings from continuing operations 85,300 68,372 80,849
Discontinued operations:
Earnings from discontinued operations, net of tax 0 6,265 16,703
Gain on sale of Sacramento Savings, net of tax 0 62,869 0
--------------------------------------------------
Net earnings $ 85,300 $137,506 $97,552
==================================================
</TABLE>
See accompanying Notes to Condensed Financial Statements.
<PAGE> 98
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
====================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 539 661 731
Net gain on investment transactions (37,836) (23,403) (13,376)
Increase in accounts and other receivables, less allowances (1,852) (773) (5,160)
(Increase) decrease in other assets (2,973) (2,862) 1,573
Increase (decrease) in other liabilities 25,811 (2,927) (20,407)
Equity in net earnings of consolidated subsidiaries (69,859) (63,812) (62,976)
----------------------------------------------------
Net adjustments (86,170) (93,116) (99,615)
----------------------------------------------------
Cash used in continuing operations (870) (24,744) (18,766)
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (92,005) (331,992) (190,482)
Maturities of investments 0 0 160,670
Sales of investments 124,110 135,159 79,103
Capital contributions to consolidated subsidiaries (33,700) (4,320) (55,923)
Capital contributions to discontinued operations 0 (4,000) (1,575)
Cash dividends from consolidated subsidiaries 69,216 73,039 237,482
Purchases of property and equipment (354) (164) (243)
Disposition of property and equipment 1 4 45
Proceeds from sale of Sacramento Savings, net of expenses 0 316,348 0
Purchase of real estate and real estate related assets
related to the sale of Sacramento Savings 0 (116,089) 0
Purchase of Underwriters Re 0 0 (203,865)
----------------------------------------------------
Net cash provided by investing activities 67,268 67,985 25,212
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (129,600) (341,000) 0
Proceeds of long-term debt 70,000 307,000 0
Purchase of treasury shares (7,605) (10,127) (7,897)
Common stock distributions 144 (75) 1,753
----------------------------------------------------
Net cash used in financing activities (67,061) (44,202) (6,144)
----------------------------------------------------
Net (decrease) increase in cash (663) (961) 302
Cash at beginning of year 1,495 2,456 2,154
----------------------------------------------------
CASH AT END OF YEAR $ 832 $ 1,495 $ 2,456
====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,982 $ 7,869 $ 6,401
Income taxes $ 11,979 $ 44,226 $ 46,236
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, Alleghany made a noncash capital contribution to its consolidated
subsidiaries by contributing a newly acquired company with a cost basis of
$4,480.
In 1994, Alleghany made a noncash capital contribution of $76,478 to its
consolidated subsidiaries by contributing investment securities with a cost
basis of $74,213, a newly acquired company with a cost basis of $1,900 and
a partnership interest with a cost basis of $365. The Company contributed
the real estate and real estate related assets of $116,089 purchased in
connection with the sale of Sacramento Savings net of additional reserves
to a consolidated subsidiary. In addition, in connection with dissolving a
previously consolidated subsidiary, the Company relieved said subsidiary of
$34,250 of its long term debt and received from said subsidiary investment
securities with a cost basis of $5,209.
In 1993, Alleghany made a noncash capital contribution of $16,315 to its
consolidated subsidiaries and discontinued operations by contributing a
partnership interest with a cost basis of $2,525 and investment securities
with a cost of $13,790.
See accompanying Notes to Condensed Financial Statements.
<PAGE> 99
SCHEDULE III
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
1. INVESTMENT IN CONSOLIDATED SUBSIDIARIES. Reference is made to
Notes 2 and 3 of the Notes to Consolidated Financial Statements
incorporated herein by reference for information regarding the acquisition
of Credit Data Reporting Services, Montag & Caldwell, Inc., and
Underwriters Re and the sale of Sacramento Savings Bank.
2. LONG-TERM DEBT. Reference is made to Note 7 of the Notes to
Consolidated Financial Statements incorporated herein by reference for
information regarding the significant provisions of long-term debt of
Alleghany. Included in long-term debt in the accompanying condensed
balance sheets is $19,123 in 1995 and 1994 of intercompany notes payable
due to Alleghany Funding.
3. INCOME TAXES. Reference is made to Note 8 of the Notes to
Consolidated Financial Statements incorporated herein by reference.
4. COMMITMENTS AND CONTINGENCIES. Reference is made to Note 11
of the Notes to Consolidated Financial Statements incorporated herein
by reference.
5. STOCKHOLDERS' EQUITY. Reference is made to Note 9 of the Notes
to Consolidated Financial Statements incorporated herein by reference with
respect to stockholders' equity and surplus available for dividend
payments to Alleghany from its subsidiaries.
<PAGE> 100
SCHEDULE V
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------------------------------------
FUTURE
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE
====== ============= ==================================================
<S> <C> <C> <C> <C> <C>
1995 Title $ 0 $ 529,915 $ 0 $0
==================================================
Property
and casualty
reinsurance $16,951 $1,014,000 $74,561 $0
==================================================
1994 Title $ 0 $ 536,068 $ 0 $0
==================================================
Property
and casualty
reinsurance $11,325 $ 940,527 $52,828 $0
==================================================
1993 Title $ 0 $ 523,123 $ 0 $0
==================================================
Property
and casualty
reinsurance * $10,363 $ 861,204 $49,078 $0
==================================================
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED
NET AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
YEAR SEGMENT REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
====== ============= ==============================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1995 Title $ 953,364 $45,361 $ 81,385 $ 0 $ 989,775 $ 0
==============================================================================
Property
and casualty
reinsurance $ 277,507 $50,173 $203,108 $63,617 $ 29,833 $291,995
==============================================================================
1994 Title $1,162,207 $39,850 $ 94,845 $ 0 $1,138,921 $ 0
==============================================================================
Property
and casualty
reinsurance $ 190,279 $41,226 $153,056 $38,883 $ 24,200 $200,596
==============================================================================
1993 Title $1,236,165 $37,736 $121,864 $ 0 $1,177,507 $ 0
==============================================================================
Property
and casualty
reinsurance * $ 32,703 $10,390 $ 25,131 $ 6,020 $ 6,406 $ 36,172
==============================================================================
</TABLE>
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal
subsidiary is Underwriters Reinsurance Company. The acquisition for accounting
purposes was effective as of October 1, 1993. Accordingly, results of operations
are from October 1, 1993.
<PAGE> 101
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
==== ====================== =========================================================================
<S> <C> <C> <C> <C> <C> <C>
1995 Title premiums $ 953,364 $ 5,872 $ 2,012 $ 949,504 0.21%
=========================================================================
Property and casualty
reinsurance premiums $ 42,413 $ 85,234 $ 320,328 $ 277,507 115.43%
=========================================================================
1994 Title premiums $1,162,207 $ 5,250 $ 2,771 $1,159,728 0.24%
=========================================================================
Property and casualty
reinsurance premiums $ 8,821 $ 69,299 $ 250,757 $ 190,279 131.78%
=========================================================================
1993 Title premiums $1,236,165 $ 5,547 $ 1,865 $1,232,483 0.15%
=========================================================================
Property and casualty
reinsurance premiums * $ 4,218 $ 9,994 $ 38,479 $ 32,703 117.66%
=========================================================================
</TABLE>
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal
subsidiary is Underwriters Reinsurance Company. The acquisition for accounting
purposes was effective as of October 1, 1993. Accordingly, results of operations
are from October 1, 1993.
<PAGE> 102
SCHEDULE X
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
DISCOUNT,
IF ANY,
RESERVES DEDUCTED CLAIMS AND CLAIM
FOR IN RESERVES ADJUSTMENT EXPENSES
UNPAID FOR UNPAID INCURRED RELATED TO
DEFERRED CLAIMS CLAIMS -------------------
AFFILIATION POLICY AND CLAIM AND CLAIM NET (1) (2)
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME YEAR YEAR
============ ==================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Consolidated
property-
casualty
entities $ 16,951 $1,014,000 $0 $74,561 $277,507 $50,173 $199,783 $3,325
===============================================================================================
1994
Consolidated
property-
casualty
entities $ 11,325 $ 940,527 $0 $52,828 $190,279 $41,226 $146,416 $6,630
===============================================================================================
1993
Consolidated
property-
casualty
entities * $ 10,363 $ 861,204 $0 $49,078 $ 32,703 $10,390 $ 25,131 $ 0
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION POLICY AND CLAIM
WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
============ ====================================
<S> <C> <C> <C>
1995
Consolidated
property-
casualty
entities $63,617 $111,005 $291,995
====================================
1994
Consolidated
property-
casualty
entities $38,883 $126,114 $200,596
====================================
1993
Consolidated
property-
casualty
entities * $ 6,020 $ 27,876 $ 36,172
====================================
</TABLE>
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal
subsidiary is Underwriters Reinsurance Company. The acquisition, for accounting
purposes, was effective as of October 1, 1993. Accordingly, results of
operations are from October 1, 1993.
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 22, 1996, we reported on the consolidated balance sheets
of Alleghany Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of earnings, changes in common stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995 as contained in the 1995 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Annual Report on Form 10-K for year 1995. In connection with
our audits of the aforementioned consolidated financial statements, we also have
audited the related financial statement schedules as listed in the accompanying
index. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" at December 31, 1993.
/s/ KPMG Peat Marwick LLP
New York, New York
February 22, 1996
<PAGE> 104
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany, as
amended by Amendment accepted and received for filing
by the Secretary of State of the State of Delaware on
June 23, 1988, filed as Exhibit 20 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended April 18, 1995, filed
as Exhibit 3.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, is
incorporated herein by reference .
4.01 Indenture dated as of June 15, 1989 between Alleghany
and Pittsburgh National Bank, as Trustee, relating to
the 6-1/2% Subordinated Exchangeable Debentures due
June 15, 2014 (the "Debentures"), including the form of
Debenture, filed as Exhibit 4.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
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* Compensatory plan or arrangement.
<PAGE> 105
*10.02(a) Agreement dated as of December 22, 1993 between
Alleghany and David B. Cuming, filed as Exhibit
10.02(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1993, is
incorporated herein by reference. Agreements dated
as of December 22, 1993 between Alleghany and each
of F.M. Kirby, John J. Burns, Jr., Richard P. Toft,
Theodore E. Somerville, John E. Conway and Peter R.
Sismondo were omitted pursuant to Instruction 2 of
Item 601 of Regulation S-K.
*10.02(b) Agreement dated as of December 15, 1993 between CT&T
and Richard P. Toft, filed as Exhibit 10.02(b) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by
reference.
*10.03 Agreement dated August 18, 1994 between Alleghany
and Theodore E. Somerville, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1994, is incorporated herein
by reference.
*10.04 Alleghany Corporation Deferred Compensation Plan as
amended and restated as of December 15, 1992, filed
as Exhibit 10.03 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted
on March 16, 1983, filed as Exhibit 10.24 to the
Annual Report on Form 10-K of Alleghany Corporation,
a Maryland corporation and the predecessor of
Alleghany ("Old Alleghany"), for the year ended
December 31, 1982, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
- ------------------------
* Compensatory plan or arrangement.
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<PAGE> 106
*10.05(b) Description of amendments to the Alleghany 1983
Long-Term Incentive Plan as adopted on December 30,
1986, filed as Exhibit 10.05(b) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1986, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
*10.06 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.07 Alleghany Supplemental Death Benefit Plan dated as of
May 15, 1985 and effective as of January 1, 1985,
filed as Exhibit 10.08 to Old Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1985, is incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
*10.08(a) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated on
March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.09 Alleghany Retirement COLA Plan dated and effective as
of January 1, 1992, as adopted on March 17, 1992,
filed as Exhibit 10.7 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
*10.10 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995.
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* Compensatory plan or arrangement.
-3-
<PAGE> 107
*10.11 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
*10.14(a) Employment Agreement dated as of January 1, 1992,
and Amendment to Employment Agreement dated as of
January 1, 1993, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.12 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by
reference.
*10.14(b) Second Amendment to Employment Agreement dated as of
January 1, 1994, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.11(b) of Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1993 is incorporated herein by
reference.
*10.14(c) Third Amendment to Employment Agreement dated as of
October 31, 1994, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.1 of Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, is incorporated herein by
reference.
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* Compensatory plan or arrangement.
-4-
<PAGE> 108
*10.15 Split/Owner "Split Dollar" Life Insurance Plan
Assignment dated March 19, 1986 by and between
Richard P. Toft and CT&T, filed as Exhibit 10.10(c)
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1991, is incorporated herein
by reference.
*10.16 Description of CT&T Presidents' Plan, adopted and
effective as of July 1, 1985 and as amended as of
January 26, 1993, filed as Exhibit 10.14 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1992, is incorporated herein by
reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of
1992, adopted and effective as of January 1, 1992,
as amended and restated effective January 1, 1993,
filed as Exhibit 10.15 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.18 Description of CT&T Quality Business Management
Incentive Program for the Presidents of CT&T and
Chicago Title Insurance Company, effective as of
January 1, 1989, as amended as of January 1, 1992,
filed as Exhibit 10.16 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.19 CT&T Excess Benefits Pension Plan, effective January
1, 1987, as amended by First Amendment to CT&T
Excess Benefits Pension Plan dated May 5, 1994,
effective as of January 1, 1994, filed as Exhibit
10.19 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
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* Compensatory plan or arrangement.
-5-
<PAGE> 109
*10.20 CT&T Executive Salary Continuation Plan effective
as of January 1, 1979, as adopted on August 23,
1978, filed as Exhibit 10.15 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1990, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10.23(a) Stock Purchase Agreement dated as of June 18, 1985
by and among Old Alleghany, Alleghany, Alleghany
Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"),
filed as Exhibit (2)(i) to Old Alleghany's Current
Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock
Purchase Agreement, filed as Exhibit (2)(ii) to Old
Alleghany's Current Report on Form 8-K dated July
11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
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* Compensatory plan or arrangement.
-6-
<PAGE> 110
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T
Stock Purchase Agreement, filed as Exhibit 10.12(c)
to Old Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1985, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.24 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed
as Exhibit 10.21 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.25 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between
Alleghany and MSL Industries, Inc., filed as
Exhibit 10.22 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.26(a) Agreement and Plan of Merger dated as of April 29,
1994 among Montag & Caldwell Associates, Inc.,
Alleghany Acquisition Corporation, Alleghany and
the Shareholders of Montag & Caldwell Associates,
Inc. (the "Montag & Caldwell Acquisition
Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, is incorporated
herein by reference.
10.26(b) List of Contents of Exhibits to the Montag &
Caldwell Acquisition Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, is
incorporated herein by reference.
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<PAGE> 111
10.27(a) Stock Purchase Agreement dated as of May 18, 1994
by and between First Interstate Bank of California
and Alleghany (the "Sacramento Savings Stock
Purchase Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, is incorporated herein
by reference.
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed
as Exhibit 10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994,
is incorporated herein by reference.
10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
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<PAGE> 112
10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
10.29 Letter agreement dated January 24, 1995 among
Alleghany, Santa Fe Pacific Corporation and
Burlington Northern Inc., filed as Exhibit 2 to
Amendment No. 3 to Alleghany's Schedule 13D
relating to Santa Fe Pacific Corporation dated
January 24, 1995, is incorporated herein by
reference.
10.30(a) Installment Sales Agreement dated December 8, 1986
by and among Alleghany, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc., filed as Exhibit 10.10 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.30(b) Intercreditor and Collateral Agency Agreement dated
as of August 1, 1990 among Manufacturers Hanover
Trust Company, Barclays Bank PLC and Alleghany
Funding Corporation, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
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<PAGE> 113
10.30(c) Interest Rate and Currency Exchange Agreement dated
as of August 14, 1990 between Barclays Bank PLC and
Alleghany Funding Corporation, and related
Confirmation dated August 13, 1990 between Barclays
Bank PLC and Alleghany Funding Corporation, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1990, are
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.30(d) Indenture dated as of August 1, 1990 between
Alleghany Funding Corporation and Manufacturers
Hanover Trust Company, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.31(a) Acquisition Agreement dated as of November 29, 1990
by and between CT&T and Westwood Equities
Corporation (the "Ticor Acquisition Agreement"),
filed as Exhibit (2)(i) to Alleghany's Current
Report on Form 8-K dated December 21, 1990, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.31(b) List of Contents of Schedules to the Ticor
Acquisition Agreement, filed as Exhibit 2(ii) to
Alleghany's Current Report on Form 8-K dated
December 21, 1990, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.31(c) Amendment to the Ticor Acquisition Agreement dated
as of January 9, 1991 by and between CT&T and
Westwood Equities Corporation, filed as Exhibit
(2)(iii) to Alleghany's Current Report on Form 8-K
dated March 21, 1991, is incorporated herein by
reference.
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<PAGE> 114
10.31(d) Amended and Restated Credit Agreement dated as of
December 30, 1993 among CT&T, certain commercial
lending institutions and Continental Bank, N.A. as
agent, filed as Exhibit 10.28(d) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by
reference.
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate
swap effective May 6, 1991, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991, is incorporated
herein by reference.
10.31(f) Letter Agreement dated December 13, 1994 between
CT&T and Bank of America Illinois (previously known
as Continental Bank) relating to the transfer of
Continental Bank's risk management business to Bank
of America National Trust and Savings Association,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
10.32(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville International, B.V. (the
"Celite Stock Purchase Agreement"), filed as
Exhibit 10.2(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.32(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
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<PAGE> 115
10.33(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
10.33(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement, filed
as Exhibit 10.3(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville Sales Corporation (the
"Celite Asset Purchase Agreement"), filed as Exhibit
10.4(a) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference.
10.34(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference.
10.34(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.35(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
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<PAGE> 116
10.35(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.35(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.36(a) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) Letter Agreement dated January 23, 1992 between
Celite and Bank of America National Trust and
Savings Association relating to an interest rate
swap effective January 16, 1992, filed as Exhibit
10.37 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated
herein by reference.
10.36(d) Letter Agreement dated January 13, 1992 between
Celite and Chemical Bank relating to an interest
rate swap effective January 13, 1992, filed as
Exhibit 10.38 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is
incorporated herein by reference.
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<PAGE> 117
10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(b) Amendment dated as of March 17, 1992 to the
Standstill Agreement, filed as Exhibit 10.39(f) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17,
1992, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992, is incorporated herein by
reference.
10.38(a) Stock Purchase Agreement dated as of October 31,
1991 among Associated Insurance Companies, Inc.,
Alleghany and The Shelby Insurance Group, Inc. (the
"Shelby Stock Purchase Agreement"), filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991,
is incorporated herein by reference.
10.38(b) List of Contents of Exhibits and Schedules to the
Shelby Stock Purchase Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991, is
incorporated herein by reference.
10.39(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs
& Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit
10.3(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
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<PAGE> 118
10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(c) Stock Purchase Related Agreement dated as of July
28, 1993 (the "Underwriters Stock Purchase Related
Agreement") among certain persons named therein and
Alleghany, filed as Exhibit 10.3(c) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
10.39(d) List of Exhibits and Schedules to the Underwriters
Stock Purchase Related Agreement, filed as Exhibit
10.3(d) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(f) Amendment to Underwriters Stock Purchase Related
Agreement made as of October 7, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto
and Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
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<PAGE> 119
10.39(i) Credit Agreement dated as of November 16, 1992 (the
"Underwriters Credit Agreement") among Underwriters
Re Corporation, a predecessor of URC Holdings
Corp., the lenders named therein and The First
National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment No. One to Underwriters Credit Agreement
dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
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<PAGE> 120
13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent
certified public accountants, to the incorporation
by reference of their reports relating to the
financial statements and related schedules of
Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration
No. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
28(p) Information from reports furnished to state
insurance regulatory authorities by Underwriters
Reinsurance Company, Commercial Underwriters
Insurance Company, and Underwriters Insurance
Company is filed under cover of Form SE, pursuant
to Rule 311(c) of Regulation S-T.
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<PAGE> 1
Exhibit 10.08(a)
AGREEMENT
BETWEEN
CHEMICAL BANK, AS TRUSTEE
AND
ALLEGHANY CORPORATION
<PAGE> 2
TRUST AGREEMENT AMENDMENT, made as of the 8th day of July, 1994, between
ALLEGHANY CORPORATION, a Delaware corporation (the "Company"), and CHEMICAL
BANK, a New York banking corporation (the "Trustee").
WHEREAS, the Company and Bankers Trust Company entered into a Trust
Agreement, dated January 1, 1989, relating to the Alleghany Corporation
Retirement Plan (the "Trust Agreement"), which Trust Agreement reserved to the
Company the rights to remove Bankers Trust Company as trustee and to amend in
whole or in part any or all of the provisions of the Trust Agreement; and
WHEREAS, the Company has removed Bankers Trust Company as trustee and
appointed Chemical Bank, as successor trustee; and
WHEREAS, the Company and Chemical Bank, as successor Trustee, desire to
amend and restate the Trust Agreement in its entirety.
NOW, THEREFORE, the Company and the Trustee agree that the Trust
Agreement shall be amended and restated to provide as follows:
W I T N E S S E T H:
WHEREAS, the Company has heretofore adopted a retirement plan for the
benefit of certain of its employees known as the Alleghany Corporation
Retirement Plan (hereinafter the "Plan") which Plan is not intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), but which is intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); and
WHEREAS, the Plan provides that contributions will be held IN TRUST, by
a trustee, for the benefit of those persons participating in the Plan (the
"Participants") and their surviving spouses or beneficiaries pursuant to a
trust agreement to be entered into between the Company and a trustee; and
WHEREAS, under the Plan a separate account (hereinafter an "Account")
is to be maintained by a recordkeeper with respect to each Participant to which
contributions of the Company (and the earnings thereon) to provide the
retirement benefits of such Participant shall be credited and which Account
shall be used by the Trustee solely in satisfaction of the liabilities of the
Plan with respect to that Participant and for the payment of a proportionate
part of the Trust expenses as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual and
independent promises herein, the parties hereto covenant and agree as follows:
<PAGE> 3
ARTICLE I
1.1 The Company hereby establishes with the Trustee a trust (the
"Trust") consisting of such sums of money and such property acceptable to the
Trustee as shall from time to time be paid or delivered to the Trustee and the
earnings and profits thereon. All such money and property, the earnings and
profits thereon, all investments made therewith and proceeds thereof, less the
payments or other distributions which, at the time of reference, shall have been
made by the Trustee, as authorized herein, are referred to herein as the "Fund"
and shall be held by the Trustee, IN TRUST, in accordance with the provisions of
this Agreement. Except as permitted by ERISA, at no time prior to the
satisfaction of all liabilities with respect to the Participants and their
beneficiaries under the Plan shall any part of the Fund be used for or diverted
to purposes other than for the exclusive benefit of such Participants and
beneficiaries.
1.2 Subject to the direction of an investment manger or the
Investment Committee provided for in the Plan ("Investment Committee"), the
Trustee shall hold, manage, invest and otherwise administer the Fund pursuant
to the terms of this Agreement. The Trustee shall not be responsible (i) for
contributions required to be made hereunder until actually received by it
hereunder or, (ii) to enforce the collection of any contributions. The amount
of each contribution by the Company to the Fund shall be determined in the sole
discretion of the Company and the Trustee shall have no duty or responsibility
with respect thereto.
1.3 KPMG Peat Marwick shall act as the independent consulting actuary
and the recordkeeper of the Plan so long as it is serving as the Company's
independent consulting actuary, and if the Company replaces or no longer uses
said firm as its independent consulting actuary, the Company shall designate a
new recordkeeper (KPMG Peat Marwick or any successor thereto being referred to
herein as the "Recordkeeper"). The Trustee shall have no responsibility
hereunder for the continued retention of the Recordkeeper and/or any
responsibility assigned to said Recordkeeper under this Agreement or by the
plan administrator of the Plan (the "Plan Administrator") or its performance
thereof. The Company agrees to indemnify and hold the Trustee harmless for
any losses, damages, liabilities and expenses incurred by the Trustee resulting
from any actions or omissions of the Recordkeeper.
The Recordkeeper shall maintain in an equitable manner the Account
of each Participant in which it shall keep a separate record of the share of
such Participant in the Fund. The Company shall certify to the Recordkeeper at
the time of each contribution to the Fund the amount of such contribution being
made in respect of each Participant. The Recordkeeper shall be responsible for
the maintenance of all tax information with respect to the Fund and each
Account and the timely preparation of all tax information and tax returns with
respect to the Fund and any distribution therefrom. The Fund shall be revalued
by the Trustee as of the last business day of each calendar quarter at current
market values, as determined by the Trustee, and at such other times as the
Investment Committee shall direct.
<PAGE> 4
ARTICLE II
2.1 All retirement or other benefits payable from the Fund to a
Participant (or his beneficiary) shall be paid solely from the Account of such
Participant. All expenses of and charges against the Fund shall be apportioned
among the Accounts of all Participants in a fair and equitable manner as
determined by the Recordkeeper. Any taxes and any and all assessments of any
kind whatsoever imposed upon the Fund shall be charged against each Account in
the proportion which the taxes or assessments which would be imposed upon such
Account if it were the only Account in the Fund bears to the total of the taxes
or assessments which would be imposed upon all Accounts if each such Account
were the only Account in the Fund.
Each Account shall be administered as a substantially separate and
independent share of the Trust hereunder in such manner that each such Account
will be treated as a separate trust under Section 663(c) of the Code for
purposes of determining the amount of distributable net income allocable to each
such share under Section 661 of the Code. Accordingly, the Trustee may not
distribute, apportion, or accumulate income, or distribute corpus, to or for one
or more of the Participants, unless payment of income, accumulated income, or
corpus of the share of one Participant cannot affect the proportionate share of
income, accumulated income, or corpus of the shares of the other Participants,
or unless substantially proper adjustment shall thereafter be made so that
substantially separate and independent shares exist. Nothing provided in this
Agreement shall relieve the Company of its obligation to pay the retirement
benefits provided under the Plan except to the extent such liabilities are met
by application of Fund assets.
2.2 Except for the records dealing solely with the Fund and its
investments, which shall be maintained by the Trustee, the Recordkeeper shall
maintain all the Participant records contemplated by this Agreement, including
the maintenance of the separate Accounts of each Participant under this
Agreement. All such records shall be made available promptly on request of the
Trustee or the Company. The Trustee has no obligation to review the records of
the Recordkeeper.
ARTICLE III
3.1 It shall be the duty of the Trustee to hold the Fund and to perform
with respect thereto the functions of the trustee set forth in this Trust
Agreement, including following instructions of the Plan Administrator of the
Plan (i) to make payments or distributions of retirement benefits, (ii) to apply
for and purchase insurance company contracts, (iii) to pay the premiums and
other charges on such contracts, (iv) to surrender or modify such contracts and
(v) to make distributions of tax payments (as provided in Article VII of the
Plan) directly to Participants (and their beneficiaries) or by depositing the
same for the benefit of such persons with the applicable taxing authority. The
Trustee shall not be responsible in any way for funds (or taxes thereon)
disbursed in accordance with instructions of the Plan Administrator or for the
administration of the Plan. If the Trustee, in accordance with directions of the
Plan
<PAGE> 5
Administrator, purchases any insurance contracts, the Trustee shall not be
responsible for the form or terms of such insurance contract, for the selection
of the issuer thereof, or for the performance of any duties other than the
payment of premiums and signing documents in connection therewith. The Trustee
shall be under no duty to enforce payment of any contribution and shall not be
responsible for the adequacy of the Fund to pay retirement benefits, to make
tax payments or pay any other liabilities under the Plan. The Trustee shall not
be obligated to pay interest on any moneys held by or on deposit with it
pursuant hereto.
3.2 The Plan Administrator may direct payments to be made to any
person, including the Plan Administrator, the Company or to any paying agent
designated by the Company, and in such amounts as the Plan Administrator shall
direct. The Trustee shall have no responsibility with respect to any payment
made, pursuant to such a direction, to the Company, the Plan Administrator, to
any paying agent, or to any other person, and any payment so made shall be held
in trust by the recipient until disbursed in accordance with the Plan. Each
direction of the Plan Administrator shall be in writing and shall be deemed to
include a certification that any payment directed thereby is one which the Plan
Administrator is authorized to direct, and the Trustee may conclusively rely on
such certification without further investigation. Payments by the Trustee may
be made by its check to the order of the payee and mailed to the payee at the
address last furnished to the Trustee, or if no such address has been so
furnished, to the payee in care of the Company.
In the event that any amount shall become payable under the Plan to a
person or the executor or administrator of any deceased person and if, after
written notice from the Trustee mailed to such person or such executor or
administrator he shall not have presented himself to the Trustee within two
years after the mailing of such notice, the Trustee shall notify the Plan
Administrator, and the Plan Administrator shall instruct the Trustee as to the
disposition of such amounts.
ARTICLE IV
4.1 Without in any way limiting the powers and discretion conferred upon
it by the other provisions of this Agreement or by law, the Trustee is expressly
authorized and empowered:
(a) to invest and reinvest the Fund, subject to instructions of
the Investment Committee or an Investment Manager, without distinction between
principal and income, at such time or times, in such investments and pursuant to
such strategies or courses of action and in such shares or proportions as the
Investment Committee or an Investment Manager, in its sole discretion, shall
deem advisable;
(b) to retain counsel or an Investment Manger affiliated with
the Trustee (if not appointed by the Investment Committee) and other experts;
(c) to employ suitable agents, depositaries and counsel,
domestic or
<PAGE> 6
foreign, and to charge their reasonable expenses and compensation against the
Fund;
(d) if an Investment Manager has been appointed, the Trustee
shall not exercise voting rights. In all other cases, the Trustee shall
exercise voting rights;
(e) with respect to any investment, to consent or object to any
action or nonaction of any corporation, or of the directors, officers or
stockholders of any corporation;
(f) to sell, exchange, convey, transfer or otherwise dispose of
any property held by it, by private contract or at public auction, and no person
dealing with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency or propriety of any
such sale or other disposition;
(g) to enter into contracts or to make commitments either alone
or in company with others to sell at any future date any property acquired for
the Fund or to purchase at any future date any property which it may be
authorized to acquire under this Agreement;
(h) to make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments that may
be necessary or appropriate to carry out the powers herein granted;
(i) to register any investments held in the Fund in its own
name or in the name of a nominee and to hold any investment in bearer form, or
to combine certificates representing such investments with certificates of the
same issue held by the Trustee in other fiduciary capacities, or to deposit or
to arrange for the deposit of securities in a qualified central depositary even
though, when so deposited, such securities may be merged and held in bulk in the
name of the nominee of such depositary with other securities deposited therein
by any other person, or to deposit or to arrange for the deposit of any
securities issued by the United States Government, or any agency or
instrumentality thereof, with a federal reserve bank but the books and records
of the Trustee shall at all times show that all such investments are part of the
Fund;
(j) to borrow money (subject to the approval of the Investment
Committee) from any source as may be necessary or advisable to effectuate the
purposes of the Trust on such terms and conditions as the Trustee, in its
absolute discretion, may deem advisable;
(k) to deposit any funds of the Trust in interest-bearing
accounts maintained or savings certificates issued by the Trustee, in its
separate corporate capacity, or any other banking institution affiliated with
the Trustee;
(l) to organize corporations under the laws of any state for
the purpose of acquiring or holding title to any property for the Fund or to
request the Company to appoint another trustee for such purpose; and
(m) to make any distribution or transfer of Fund assets in cash
or in
<PAGE> 7
kind as the Plan Administrator may direct the Trustee to so distribute or
transfer and, in furtherance thereof, to value such assets, which valuation
shall be conclusive and binding on all persons.
(n) to compromise or otherwise adjust all claims in favor of or
against the Fund, except that it will not exercise this power without the
consent of the Plan Administrator if the claim solely affects an interpretation
of a Participant's (or his beneficiary's) rights under the Plan, but the Trustee
shall not be required to commence or defend any suit or legal proceeding unless
it shall be indemnified by the Company to its reasonable satisfaction against
liabilities or expenses it might incur therefrom;
(o) to deposit any property with any protective, reorganization
or similar committee; to delegate power thereto and to pay and agree to pay part
of its expenses and compensation and any assessments levied with respect to any
property so deposited;
(p) generally to do all acts which the Trustee may deem
necessary or desirable for the protection of the Trust Fund.
4.2 If an affiliate of the Trustee is acting as Investment Manager
with respect to the Trust Fund, in addition to its other investment powers,
such Investment Manager is authorized to direct the Trustee to invest in, sell
or redeem, shares of mutual funds with respect to which the Trustee or one or
more of its affiliates provide services, including investment management
services and shareholder servicing.
4.3 The Trustee shall discharge the foregoing powers and discretions
in accordance with any funding policy and guidelines established by the
Investment Committee from time to time and communicated in writing to the
Trustee. The Trustee shall have no responsibility with respect to the
formulation of any such funding policy or guidelines embodied in any such
direction.
The Investment Committee shall be responsible for determining
the diversification policy with respect to the investment of Plan assets, for
monitoring adherence to such policy, and for advising the Trustee with respect
to its compliance with any investment limitations on employer or other
securities or property contained in the Plan or imposed on the Plan by
applicable statute.
ARTICLE V
5.1 The expenses incurred by the Trustee in the performance of its
duties, including fees for legal services rendered to the Trustee, such
compensation to the Trustee as may be agreed upon in writing from time to time
between the Company and the Trustee, and all other proper charges and
disbursements of the Trustee, shall be paid by the Company, but until paid
shall constitute a charge upon the Fund. All taxes and any and all assessments
of any kind whatsoever that may be levied or assessed under existing or future
laws upon or in respect
<PAGE> 8
of the Fund or the income thereof shall be paid from the Fund.
ARTICLE VI
6.1 The Trustee shall keep accurate and detailed accounts of all
receipts, disbursements and other transactions hereunder, and all contracts,
accounts, books and records relating thereto shall be open to inspection and
audit at all reasonable times by any person designated by the Investment
Committee or Plan Administrator. Within ninety (90) days following the close of
each fiscal year, and within ninety (90) days after the removal or resignation
of the Trustee as provided in Article VII hereof, the Trustee shall file with
the Company, the Investment Committee and Plan Administrator a written account
setting forth all assets of the Fund, and all receipts, disbursements and other
transactions effected by it during such fiscal year or during the period from
the close of the last fiscal year to the date of such removal or resignation.
Upon the expiration of ninety (90) days from the date of filing such annual or
other account, the Trustee shall be forever released and discharged from all
liability and accountability to anyone with respect to the propriety of its
acts and transactions shown in such account, except with respect to any such
acts or transactions to which the Company, the Investment Committee or Plan
Administrator shall within such ninety day period file with the Trustee written
objections. No Participant or other person having an interest in the Fund shall
have the right to demand or be entitled to any further or different accounting
by the Trustee. The Trustee shall have the right to apply at any time to a
court of competent jurisdiction for judicial settlement of any account of the
Trustee not previously settled as herein provided or for the determination of
any question of construction or for instructions. In any such action or
proceeding it shall be necessary to join as parties only the Trustee, the
Investment Committee and the Company (although the Trustee may also join such
other parties as it may deem appropriate), no Participant or other person
having an interest in the Fund shall be entitled to any notice or process, and
any judgment or decree entered therein shall upon the conclusion of all
appeals and the expiration of the time for taking appeal therefrom, be
conclusive upon all persons claiming under this Trust.
ARTICLE VII
7.1 The Trustee may be removed by the Company at any time upon sixty
(60) day's notice in writing to the Trustee. The Trustee may resign at any
time upon sixty (60) days' notice in writing to the Company. Upon such removal
or resignation of the Trustee, the Company shall appoint a successor trustee
who shall have the same powers and duties as those conferred upon the Trustee
hereunder and, upon acceptance of such appointment by the successor trustee,
the Trustee shall assign, transfer and pay over the Fund to such successor
trustee. The Trustee is authorized, however, to reserve such sum of money as it
may deem advisable for payment of its fees and expenses in connection with the
settlement of its account or otherwise, and any balance of such reserve
remaining after the payment of such fees and expenses shall be paid over to the
successor trustee.
<PAGE> 9
7.2 If for any reason the Company cannot or does not act in the event
of the resignation or removal of the Trustee, as hereinabove provided, the
Trustee may apply to a court of competent jurisdiction for the appointment of a
successor trustee or for instructions. Notwithstanding any provision of this
Agreement to the contrary, any expenses incurred by the Trustee in connection
therewith shall be paid from the Fund as an expense of administration.
7.3 Any action by the Company pursuant to any of the provisions of this
Agreement shall be evidenced by a resolution of its Board of Directors certified
to the Trustee over the signature of its Secretary or any Assistant Secretary
under the corporate seal, and the Trustee shall be fully protected in acting in
accordance with such resolution so certified to it. All orders, requests, and
instructions of the Investment Committee to the Trustee shall be in writing
signed by two members of the Investment Committee or by its Secretary and one
member thereof, and the Trustee shall act and shall be fully protected in acting
in accordance with such orders, requests, and instructions. The Company shall
certify to the Trustee the names and specimen signatures of the members of the
Investment Committee and the name and specimen signature of the Plan
Administrator. The Company shall promptly give notice to the Trustee of changes
in the identity of the Plan Administrator or in the membership of the Investment
Committee, and until such notices are received by the Trustee, the Trustee shall
be fully protected in assuming that the identity of the Plan Administrator or
the membership of the Investment Committee is unchanged and is acting
accordingly. The Investment Committee may certify to the Trustee the names of
persons authorized to act for it in relation to the Trustees and the Trustee may
act upon any certificate, notice or direction purporting to have been signed on
behalf of the Investment Committee which the Trustee believes to be genuine and
to have been executed by the Investment Committee or by any person whose
authority to act for the Investment Committee has been certified to the Trustee
by the Investment Committee. The Trustee may rely upon any certificate, notice
or direction of the Company which the Trustee believes to be genuine and to have
been signed by a duly authorized officer or agent of the Company. Communications
from the Company or the Investment Committee or the Plan Administrator to the
Trustee shall be sent to the Trustee's office located at 270 Park Avenue, New
York, New York 10017 and such communications shall be binding upon the Trust and
the Trustee, when received by the Trustee. All orders, requests and instructions
of the Plan Administrator shall be in writing and signed by the Plan
Administrator, and the Trustee shall act and be fully protected in acting in
accordance with such orders, requests and instructions.
7.4 In the event of the termination of the Plan as provided therein,
the Trustee shall dispose of the Fund in accordance with the written orders of
the Investment Committee or Plan Administrator.
7.5 No insurance company which may issue any contract hereunder shall
be deemed to be a party to this Trust Agreement for any purpose, or be
responsible for the validity thereof, or be required to look into the terms
thereof or question any act of the Trustee hereunder, or be required to see
that any action of the Trustee is authorized thereby.
<PAGE> 10
ARTICLE VIII
8.1 The Company reserves the right at any time and from time to time
to terminate or amend, in whole or in part, any or all of the provisions of
this Agreement by notice thereof in writing delivered to the Trustee, provided
that no such amendment which affects the rights, duties or responsibilities of
the Trustee may be made without its consent, and provided further that, except
as provided under Section 403(c) of ERISA, no instrument of termination or
amendment shall authorize or permit, at any time prior to the satisfaction of
all liabilities with respect to the Participants and their beneficiaries under
the Plan, any part of the corpus or income of the Fund to be used for or
diverted to purposes other than for the exclusive benefit of such Participants
and their beneficiaries.
8.2 In the event of the termination of the Trust as above provided (or
of the Plan), the Trustee shall continue to administer the Fund as hereinabove
provided until all of the purposes for which it has been established have been
accomplished or dispose of the Fund after the payment of or other provision for
all expenses incurred in the administration and termination of the Trust
(including any compensation to which the Trustee may be entitled), all in
accordance with the written orders of the Investment Committee, the Plan
Administrator or any successor thereto. Until the final distribution of such
Fund, the Trustee, the Investment Committee, the Plan Administrator or any
successor thereto (as the case may be) shall continue to have and may exercise
all of the powers and discretions conferred upon them by this Agreement.
ARTICLE IX
9.1 The Trustee shall not be liable for the acts or omissions of the
Plan Administrator, Investment Manager or the Investment Committee or be under
any obligation to invest or otherwise manage any asset of the Trust which is
subject to the management of the Investment Manager or the Investment Committee.
Except for its own actions as an investment manager, if any, the Trustee shall
not be liable for any investment made pursuant to the direction of the Plan
Administrator, Investment Manager or Investment Committee or for the carrying
out on the direction of the Investment Manager of any other power granted to the
Trustee by Article IV hereof, and the Trustee shall not be liable by reason of
its taking any action at the direction of the Plan Administrator, Investment
Manager or Investment Committee or refraining from taking any action because of
the failure of the Plan Administrator, Investment Manager or Investment
Committee to give such direction. The Trustee shall be under no duty to question
or make inquiry as to any direction or failure to give direction by the Plan
Administrator, Investment Manager or Investment Committee.
In all events the Trustee shall not be liable for incidental,
consequential and/or punitive damages.
9.2 In consideration of the Trustee agreeing to enter into this
Agreement, the Company hereby agrees to Indemnify and hold harmless the
Trustee, individually and as trustee,
<PAGE> 11
and the Trustee's directors, officers, employees, agents and nominees from and
against all amounts, including, without limitation, taxes, liabilities, claims,
damages, actions, suits or other charges incurred by or assessed against the
Trustee, individually or as trustee, or its directors, officers, employees,
agents and nominees by reason of its responsibilities under this Agreement as
trustee:
(a) arising as a direct or indirect result of any act or omission
of any predecessor trustee;
(b) arising as a direct or indirect result of anything done, or
alleged to have been done, by or on behalf of the Trustee in
reliance upon the directions of the Plan Administration, any
Investment Manager, the Investment Committee, the Company or
any other fiduciary, or anything omitted from being done, or
alleged to have been omitted, in the absence of such
directions; or
(c) arising as a direct or indirect result of the failure of the
Plan Administrator, Company, Investment Manager, the
Investment Committee or any other fiduciary, directly or
indirectly, to adequately, carefully and diligently discharge
its fiduciary responsibilities with respect to the Plan.
Anything herein to the contrary notwithstanding, the Company shall
have no responsibility to the Trustee under this Section, if the Trustee
knowingly participated in or knowingly concealed any act or omission of any
other fiduciary knowing that such act or omission constituted a breach of its
own fiduciary responsibilities. This agreement to indemnify and hold harmless
shall be binding upon the successors and assigns of the Company and shall
survive the termination of this agreement and the resignation or removal of the
Trustee.
ARTICLE X
10.1 To the extent that State law shall not have been preempted by the
provisions of ERISA or any other laws of the United States heretofore or
hereafter enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws of the
State of New York.
10.2 The Company shall provide the Trustee with copies of all documents
constituting the Plan at the time this Agreement is executed and all other
documents amending or supplementing the Plan promptly upon their adoption. The
Trustee shall be entitled to rely upon the Company's attention to this
obligation and shall be under no duty to inquire of the Company as to the
existence of any document not provided by the Company hereunder.
<PAGE> 12
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ALLEGHANY CORPORATION
By: /s/ John J. Burns, Jr.
------------------------------------
Title: President
Attest:
/s/ John E. Conway
- ------------------------------------
Secretary
CHEMICAL BANK
By: /s/ Catherine M. Casey
------------------------------------
Title: Assistant Secretary
Attest:
/s/ Teresa Marotta
- ------------------------------------
<PAGE> 13
SCHEDULE A
ERISA ACCOUNTS
- ------------------- ---------------------
NAME OF ACCOUNT TAX I.D. NUMBER
The Custodian is:
-----------------------
The Custodian Account Number is:
------------------------
The Fiduciary relationship was created under the laws of the State of
-----------
and (is) (is not) being administered by the fiduciaries within the United
States.
The fiduciaries agree to notify TPG promptly in writing of any change in the
above status.
Address: Mail all communications concerning the Account to the client as:
- --------------------------------------------------------------------------------
Fiduciaries: The present status of each of the fiduciaries is as follows:
- --------------------------------------------------------------------------------
(1)Name Signature Date
- ---------------------- --------------------------------
Legal Residence Citizen or Subject of
- --------------------------------------------------------------------------------
(2)Name Signature Date
- ---------------------- --------------------------------
Legal Residence Citizen or Subject of
- --------------------------------------------------------------------------------
(3)Name Signature Date
- ---------------------- --------------------------------
Legal Residence Citizen or Subject of
All authorizations in connection with the Account must be signed by of
--------
the above. TPG shall be protected in relying on the directions of such
individuals until such time as the client notifies TPG to the contrary.
CHECK ONE:
1. Quarterly Fees should be taken by billing the client
-----
2. Quarterly Fees should be taken by debiting the custodian account
-----
PLEASE DETAIL BELOW ANY SPECIAL INSTRUCTIONS REGARDING THE ACCOUNT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 10.10
Description of Alleghany
Group Long Term Disability Plan
Effective July 1, 1995, group long term disability insurance was
purchased covering officers of Alleghany. Under the terms of the insurance
contract, an officer is provided disability protection equal to 60% of base
salary or a maximum benefit of $15,000 per month. The maximum payable period of
the disability benefits depends on the age of the officer on the date the
disability commenced; the maximum is to an officer's 65th birthday, if the
disability commenced on or prior to the officer's 62nd birthday, and the minimum
is 12 months, if the disability commenced on or after an officer's 69th
birthday.
<PAGE> 1
Exhibit 10.21(b)
Description of Long-Term Incentive Arrangement
Between Paul F. Woodberry and Alleghany
Alleghany authorized the grant to Mr. Woodberry of a long-term
incentive award equal to 1.5 percent of the proceeds in excess of $90 million
from the sale of the real estate assets owned by Alleghany's subsidiary,
Alleghany Properties, Inc. ("API"), and API's subsidiary. The payment of such
incentive will be made twice a year commencing at the end of the year in which
such proceeds exceed $90 million, which was the net book value of such assets at
the time API acquired such assets in connection with the sale of Alleghany's
former retail banking subsidiary. The incentive will be paid in shares of
Alleghany's common stock (valued at the book value per share of common stock as
of December 31, 1995) or, at the discretion of the Compensation Committee of
Alleghany's Board of Directors, in a combination of common stock and cash in an
amount not to exceed one-half of such payout. In the event that Mr. Woodberry is
terminated without cause after a change of control of Alleghany or more than 50
percent of the book value of the real estate assets of API has been sold, the
incentive shall be paid on the basis of the aggregate of (i) the cash proceeds
and book value of non-cash proceeds realized to the date of his termination,
plus (ii) the book value or appraised value (depending on the type of asset) of
the real estate assets of API remaining unsold on the date of his termination.
<PAGE> 1
Exhibit 10.28(d)
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT (the "Amendment") dated as
of November 6, 1995 among ALLEGHANY CORPORATION, a Delaware Corporation
("Alleghany"), ALLEGHANY PROPERTIES, INC., a Delaware Corporation ("API"), and
the Purchasers (the "Purchasers") listed on Annex 1 to the Note Purchase
Agreement, as amended (the "Agreement"), dated as of January 15, 1995 among
Alleghany, API and the Purchasers.
W I T N E S S E T H:
WHEREAS, Alleghany, API and the Purchasers entered into the Agreement,
pursuant to which the Purchasers purchased and API issued and sold $50,000,000
aggregate principal amount of 8.62% Senior Notes due February 23, 2000; and
WHEREAS, Alleghany, API and the Purchasers desire to amend the
Agreement as provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Agreement.
Section 2. Amendment of definition of "Downgrade Event". The definition
of "Downgrade Event" is hereby amended by inserting in the last line of clause
(c)(i) of the definition between the words "Moody's" and "and," the following:
", or an Issuer Credit Rating (or a comparable rating) of the Parent of at least
'BBB-' from S&P and a Counterparty Rating (or a comparable rating) of the Parent
of at least 'Baa3' from Moody's."
Section 3. Limitation to Amendment. Except as modified by this
Amendment, all of the terms and conditions contained in the Agreement shall
remain in full force and effect and are hereby ratified and confirmed.
Section 4. Counterparts. This Amendment may be executed in one or more
counterparts, all of which shall constitute one and the same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
ALLEGHANY CORPORATION
By:/s/ David B. Cuming
--------------------------
Name: David B. Cuming
Title: Senior Vice President
ALLEGHANY PROPERTIES, INC.
By:/s/ David B. Cuming
--------------------------
Name: David B. Cuming
Title: President
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT CRC
By:/s/ Patrick D. McCabe
--------------------------
Name: Patrick D. McCabe
Title: Assistant Vice President
TRANSAMERICA LIFE INSURANCE &
ANNUITY COMPANY
By:/s/ John M. Casparian
--------------------------
Name: John M. Casparian
Title: Investment Officer
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
By:/s/ John M. Casparian
--------------------------
Name: John M. Casparian
Title: Investment Officer
<PAGE> 3
UNITED OF OMAHA LIFE INSURANCE
COMPANY
By:/s/ Victor N. Hanson
--------------------------
Name: Victor N. Hanson
Title: First Vice President
MUTUAL OF OMAHA INSURANCE
COMPANY
By:/s/ Victor N. Hanson
--------------------------
Name: Victor N. Hanson
Title: First Vice President
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact, formerly Lincoln
National Investment Management
Company
By:/s/ Timothy L. Powell
--------------------------
Name: Timothy L. Powell
Title: Second Vice President
KNIGHTS OF COLUMBUS
By:/s/ Robert J. Lane
--------------------------
Name: Robert J. Lane
Title: Assistant Supreme Secretary
WOODMEN ACCIDENT AND LIFE
COMPANY
By:/s/ A.M. McCray
--------------------------
Name: A.M. McCray
Title: Vice President and Assistant Treasurer
<PAGE> 1
Exhibit 10.36(a)
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 10, 1995
among
MINERAL HOLDINGS INC.
WORLD MINERALS INC.,
THE BANKS NAMED HEREIN,
NATIONSBANK, N.A. (CAROLINAS),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Co-Agent,
and
CHEMICAL BANK,
as Administrative Agent,
Collateral Agent
and Co-Agent
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS........................................................................ 2
SECTION 1.1. Defined Terms................................................................ 2
SECTION 1.2. Terms Generally............................................................. 19
SECTION 1.3. Accounting Terms, GAAP...................................................... 20
ARTICLE II THE LOANS......................................................................... 20
SECTION 2.1. Term Loans; Conversion of Outstanding
Loans............................................................... 20
SECTION 2.2. Making of Revolving Loans................................................... 21
SECTION 2.3. Notice of Loans............................................................. 22
SECTION 2.4. Interest.................................................................... 23
SECTION 2.5. Alternative Rate of Interest................................................ 24
SECTION 2.6. Interest on Overdue Amounts................................................. 24
SECTION 2.7. Scheduled Amortization of Term Loans........................................ 25
SECTION 2.8. Mandatory Prepayments....................................................... 25
SECTION 2.9. Reduction of Revolving Loan Commitment...................................... 26
SECTION 2.10. Optional Prepayments of Term Loans.......................................... 27
SECTION 2.11. Redeployment Cost........................................................... 27
SECTION 2.12. Conversion and Continuation of
Borrowings.......................................................... 28
SECTION 2.13. Increased Costs............................................................. 29
SECTION 2.14. Change in Legality.......................................................... 31
SECTION 2.15. Pro Rata Treatment.......................................................... 31
SECTION 2.16. Sharing of Setoffs.......................................................... 32
SECTION 2.17. Payments.................................................................... 32
SECTION 2.18. Taxes .................................................................... 33
SECTION 2.19. Fees .................................................................... 35
ARTICLE III LETTERS OF CREDIT................................................................. 36
SECTION 3.1. Issuance of Letters of Credit............................................... 36
SECTION 3.2. Notice .................................................................... 37
SECTION 3.3. Reimbursement; Repayment with Loans......................................... 37
SECTION 3.4. Increased Costs............................................................. 40
SECTION 3.5. Letter of Credit Fees....................................................... 41
ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................... 42
SECTION 4.1. Organization................................................................ 42
SECTION 4.2. Corporate Power and Authority; No
Required Consents or Approvals...................................... 42
SECTION 4.3. Enforceability.............................................................. 43
SECTION 4.4. Financial Statements........................................................ 43
SECTION 4.5. No Material Adverse Change.................................................. 43
SECTION 4.6. Litigation.................................................................. 44
SECTION 4.7. Compliance with Laws........................................................ 44
SECTION 4.8. Employee Benefit Plans...................................................... 44
SECTION 4.9. Taxes .................................................................... 45
SECTION 4.10. Title to Properties......................................................... 45
SECTION 4.11. Business.................................................................... 45
SECTION 4.12. Agreements.................................................................. 46
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SECTION 4.13. No Material Misstatements................................................... 46
SECTION 4.14. Related Party Transactions.................................................. 46
SECTION 4.15. Labor Matters and Acts of God............................................... 46
SECTION 4.16. Outstanding Debt............................................................ 46
SECTION 4.17. Federal Reserve Regulations................................................. 46
SECTION 4.18. Investment Company Act and Public
Utility Holding Company Act......................................... 46
SECTION 4.19. Security Interests.......................................................... 47
SECTION 4.20. Capital Stock; Subsidiaries................................................. 47
ARTICLE V CONDITIONS TO LENDING................................................................ 49
SECTION 5.1. Loans on the Closing Date................................................... 49
(a) Notes ............................................................................ 49
(b) Corporate Documents.................................................................. 49
(c) Lien Search.......................................................................... 49
(d) No Defaults.......................................................................... 50
(e) Insurance............................................................................ 50
(f) Requisite Approvals.................................................................. 50
(g) Security ............................................................................ 50
(h) Representations and Warranties....................................................... 50
(i) Officer's Certificate................................................................ 50
(k) Legal Matters........................................................................ 51
SECTION 5.2. Revolving Loans Made After Closing Date..................................... 51
(a) Representations and Warranties....................................................... 51
(b) Compliance........................................................................... 51
(c) Notice of Borrowings................................................................. 51
(d) Officer's Certificate............................................................... 51
SECTION 5.3. Letters of Credit Issued After the
Closing Date........................................................ 51
(a) Representations and Warranties....................................................... 51
(b) Compliance........................................................................... 51
(c) Notice ............................................................................ 52
(d) Officer's Certificate................................................................ 52
ARTICLE VI AFFIRMATIVE COVENANTS................................................................ 52
SECTION 6.1. Corporate Existence......................................................... 52
SECTION 6.2. Obligations and Taxes....................................................... 52
SECTION 6.3. Performance Under Agreements................................................ 52
SECTION 6.4. Access to Properties and Inspections........................................ 53
SECTION 6.5. Defense of Claims........................................................... 53
SECTION 6.6. Notices of Litigation or Claims............................................. 53
SECTION 6.7. Notice of Certain Actions................................................... 54
SECTION 6.8. Compliance.................................................................. 54
SECTION 6.9. Further Assurances.......................................................... 54
SECTION 6.10. Business and Properties..................................................... 54
SECTION 6.11. Financial Statements and Reports............................................ 55
SECTION 6.12. Insurance................................................................... 56
SECTION 6.13. Mining Plan................................................................. 57
SECTION 6.14. Interest Rate Hedges........................................................ 57
SECTION 6.15. ERISA .................................................................... 57
SECTION 6.16. Proceeds.................................................................... 58
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ARTICLE VII NEGATIVE COVENANTS................................................................ 58
SECTION 7.1. Indebtedness................................................................ 58
SECTION 7.2. Negative Pledge............................................................. 59
SECTION 7.3. Restricted Payments......................................................... 60
SECTION 7.4. Investments................................................................. 61
SECTION 7.5. Nature of Business.......................................................... 62
SECTION 7.6. Asset Sales................................................................. 62
SECTION 7.7. Acquisitions................................................................ 62
SECTION 7.8. Transactions With Affiliates................................................ 63
SECTION 7.9. Sale and Leaseback Transactions............................................. 64
SECTION 7.10. Merger or Consolidation..................................................... 64
SECTION 7.11. Interest Coverage........................................................... 64
SECTION 7.12. Debt to Worth............................................................... 64
SECTION 7.13. Net Worth................................................................... 64
SECTION 7.14. Fiscal Year................................................................. 65
ARTICLE VIII EVENTS OF DEFAULT................................................................. 65
SECTION 8.1. Defaults.................................................................... 65
ARTICLE IX THE ADMINISTRATIVE AGENT AND CO-AGENTS............................................ 69
ARTICLE X HOLDINGS GUARANTY................................................................. 71
SECTION 10.1. Holdings Guaranty........................................................... 71
SECTION 10.2. Guarantor's Waivers......................................................... 72
SECTION 10.3. Bankruptcy.................................................................. 73
(a) No Effect on Guaranty............................................................. 73
(b) Filing of Claims.................................................................. 74
SECTION 10.4. Payment .................................................................... 75
ARTICLE XI MISCELLANEOUS..................................................................... 75
SECTION 11.1. Notices .................................................................... 75
SECTION 11.2. Survival of Agreement....................................................... 76
SECTION 11.3. Successors and Assigns; Syndications;
Loan Sales; Participations.......................................... 76
SECTION 11.4. Expenses of the Co-Agents and the Banks..................................... 80
SECTION 11.5. Indemnification............................................................. 81
SECTION 11.6. Governing Law............................................................... 82
SECTION 11.7. Waivers; Amendments......................................................... 83
SECTION 11.8. Severability................................................................ 84
SECTION 11.9. Counterparts................................................................ 84
SECTION 11.10. Headings.................................................................... 84
SECTION 11.11. Obligations of Banks Several................................................ 84
SECTION 11.12. Entire Agreement............................................................ 85
SECTION 11.13. Confidentiality............................................................. 85
SECTION 11.14. Release of Certain Liens.................................................... 85
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EXHIBITS
EXHIBIT A - Form of Alleghany Subordination Agreement
EXHIBIT B - Form of Assignment and Acceptance
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EXHIBIT C - Celite Guaranty Agreement
EXHIBIT D - Celite Pledge Agreement
EXHIBIT D-1 - Celite Mexico Pledge Agreement
EXHIBIT E - Holdings Pledge Agreement
EXHIBIT F - Pledge Agreement
EXHIBIT G - Form of Revolving Credit Note
EXHIBIT H - Form of Term Loan Note
EXHIBIT I - Letter of Credit Application
EXHIBIT J - Letter of Credit Application
EXHIBIT K - Form of Notice of Borrowing
ANNEXES
ANNEX I - The Banks
ANNEX II - Financing Documents
ANNEX III - Financials
ANNEX IV - List of Material Subsidiaries
ANNEX V - List of Jurisdictions
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<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of March 10, 1995, among MINERAL
HOLDINGS INC., a Delaware corporation
("Holdings"), WORLD MINERALS INC., a Delaware
corporation (the "Borrower"), the BANKS (as
hereinafter defined), NATIONSBANK, N.A.
("CAROLINAS) ("NationsBank"), BANK OF AMERICA
NATIONAL TRUST & SAVINGS ASSOCIATION, a
national banking association ("Bank of
America"), as co-agent, and CHEMICAL BANK, a
New York banking corporation ("Chemical"), as
administrative agent, collateral agent and
co-agent for the Banks.
PREAMBLE
The Borrower, Holdings, the Banks, Bank of America and
Chemical are parties to a Credit Agreement dated as of December 20, 1991, as
amended through Amendment No. 5 to Credit Agreement dated as of December 20,
1993 (the "Existing Agreement"), pursuant to which the Banks have provided to
the Borrower a $70 million senior secured revolving loan facility (the "Existing
Facility"). The Borrower, Holdings, the Banks, Bank of America and Chemical wish
to amend and restate the Existing Agreement in its entirety in order to, among
other things, provide for (a) a senior secured term loan facility in a principal
amount of $57,000,000 (the "Term Loan Facility") and (b) a senior secured
revolving loan facility in a principal amount of $60,000,000 (the "Revolving
Loan Facility"; and the Revolving Loan Facility collectively with the Term Loan
Facility, the "Facility") of which up to $20 million will be available for the
issuance of letters of credit on behalf of the Borrower and its Subsidiaries
(the "Letter of Credit Facility").
On the effective date of this Agreement, all of the loans
outstanding under the Existing Agreement will be converted into Term Loans (as
defined herein). Thereafter, availability under the Revolving Credit Facility
may be utilized by the Borrower for letters of credit, acquisitions and general
corporate purposes (including payments permitted pursuant to Section 7.3), in
each case subject to the terms and conditions set forth herein.
The obligations of the Borrower, Holdings and Celite under
this Agreement and the other Loan Documents are not guaranteed by Alleghany
Corporation and no commitments are made by Alleghany Corporation with respect
thereto.
<PAGE> 7
IN WITNESS WHEREOF, the parties to this Agreement, intending
to be bound hereby, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Agree-
ment, the following terms shall have the following respective
meanings:
"ABR Loan" shall mean a Loan made in accordance with the
provisions of Article II bearing interest at a rate based on the Alternate Base
Rate.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the
LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent" shall mean Chemical, as administrative
agent for the Banks hereunder.
"Administration Fee" shall mean the fee payable by the
Borrowers to the Administrative Agent in accordance with Section 2.19(b) hereof.
"Affiliate" shall mean, with respect to any Person, another
Person that directly or indirectly through one or more intermediaries Controls,
is Controlled by or is under common Control with such Person.
"Aggregate Commitment" at any time shall mean the sum of the
Revolving Credit Commitment and the Term Loan Commitment.
"Alleghany" shall mean Alleghany Corporation, a Delaware
corporation and, as of the date hereof, holder of a majority of the outstanding
capital stock of Holdings.
"Alleghany Subordination Agreement" shall mean a subordination
agreement between Alleghany and the Collateral Agent in the form of Exhibit A
attached hereto.
"Alternate Base Rate" shall mean, with respect to any ABR Loan
made by a Bank, for any day, a variable rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%, (b) the fluctuating
rate of interest announced from time to time by the Administrative Agent in its
principal office in New York City as its prime rate in effect on such day (it
being understood that the prime rate is not intended
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to represent the lowest rate of interest charged by the Administrative Agent in
connection with extensions of credit to debtors) and (c) the Base CD Rate in
effect on such day plus 1%. If for any reason any Bank shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate or the Base CD Rate or both
for any reason, including the inability or failure of the Administrative Agent
to obtain sufficient quotations in accordance with the terms thereof, the
Alternate Base Rate shall be determined without regard to clause (a) or (c), or
both, of this definition, as appropriate, until the circumstances giving rise to
such inability no longer exist. For purposes of this Agreement, any change in
the Alternate Base Rate shall be effective on the date such change is announced.
"Applicable Law" shall mean all provisions of laws, statutes,
ordinances, rules, regulations or orders of any Governmental Authority
applicable to the Person in question, and all judgments, injunctions, orders and
decrees of all courts and arbitrators in proceedings or actions in which the
Person in question is a party or by which any of its assets or properties may be
bound.
"Assessment Rate" shall mean, for any day, the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by the Administrative Agent as the then current net annual assessment rate that
will be employed in determining amounts payable by the Administrative Agent to
the Federal Deposit Insurance Corporation (or any successor) for insurance by
such corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Asset Sale" shall mean any sale, transfer, lease or other
disposition of all or any part of the assets, properties or rights of Holdings,
the Borrower or any other Subsidiary, other than (i) a sale, transfer, lease or
other disposition solely between two Subsidiaries in accordance with Section
7.8(b), (ii) sales of inventory in the ordinary course of business or (iii)
sales or trade ins of property, machinery or equipment which is being replaced
in the ordinary course of business or otherwise within one year of sale.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Bank and an assignee in the form of Exhibit B
attached hereto.
"Bank" and "Banks" shall mean the financial institutions named
in Annex I which have executed and delivered a counterpart of this Agreement,
and any assignee of a Bank pursuant to Section 11.3(b).
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"Bank of America" shall have the meaning given to such term in
the Preamble to this Agreement.
"Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate times (ii) Statutory Reserves and (b) the
Assessment Rate.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrower" shall have the meaning given to such term in the
Preamble of this Agreement.
"Business" shall have the meaning given to such term in
Section 4.11 hereof.
"Business Day" shall mean any day (other than a Saturday,
Sunday or legal holiday in the State of New York) on which banks are open for
business in New York City except that, if any determination of a "Business Day"
shall relate to a Eurodollar Loan, the term "Business Day" shall, in addition,
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
"Capital Expenditure" shall mean, with respect to any Person
in any period, the sum of all amounts that would, in accordance with GAAP, be
included as capital expenditures on a consolidated statement of cash flows of
such Person during such period; provided, however, that for the purpose of
determining compliance with Section 7.11, "Capital Expenditure" shall not
include capital expenditures made to improve or develop property (as opposed to
capital expenditures for maintenance or similar ordinary course of business
improvements) acquired in an Acquisition permitted under Section 7.7 if, prior
to the closing of such Acquisition, (i) the Borrower notifies the Administrative
Agent in writing that it has elected to treat certain capital expenditures (the
"Acquisition CapEx") relating to such Acquisition as part of the original
acquisition or investment cost, (ii) the Borrower provides the Administrative
Agent with a reasonably detailed description of the Acquisition CapEx, (iii) if
all Acquisition CapEx is included in the "aggregate consideration" for such
Acquisition, the Acquisition is permitted under Section 7.7 and (iv) the
Borrower represents to the Administrative Agent, on behalf of the Banks, that
such Acquisition CapEx will be utilized to refurbish, develop or make similar
major improvements on such property rather than to maintain or make minor
improvements in the ordinary course of business.
"Capital Lease Obligations" shall mean, with respect to any
Person in any period, the obligations of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a
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combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Cash Collateral Account" shall have the meaning given such
term in Section 3.3(d) hereof.
"Celite" shall mean Celite Corporation, a Delaware corporation
and a wholly-owned subsidiary of the Borrower.
"Celite Guaranty Agreement" shall mean the Amended and
Restated Guaranty Agreement dated as of the date hereof and delivered by Celite
to the Collateral Agent for the ratable benefit of the Banks, in the form of
Exhibit C.
"Celite Pledge Agreement" shall mean (i) the Amended and
Restated Pledge Agreement dated as of the date hereof in the form of Exhibit D
and (ii) the Pledge Agreement dated as of December 20, 1991, in the form of
Exhibit D-1, in each case delivered by Celite to the Collateral Agent for the
ratable benefit of the Banks.
"Chemical" shall have the meaning given to such term in the
Preamble to this Agreement.
"Closing" shall mean the closing of the transactions
contemplated by this Agreement.
"Closing Date" shall mean March 10, 1995, or such other date
as the Banks and the Borrower shall agree.
"Co-Agents" shall mean Chemical and Bank of America as
co-agents hereunder, severally and not jointly.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations issued thereunder, as now and hereafter
in effect, or any successor provision thereto.
"Collateral" shall mean all of the "Collateral" as defined in
each of the Financing Documents.
"Collateral Agent" shall mean Chemical, as Collateral
Agent for the Banks under the Financing Documents.
"Commitment Fee" shall have the meaning given such term in
Section 2.19(a) hereof.
"Control" shall mean, with respect to any Person, the
possession, directly or indirectly, of the power to direct or
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cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Cumulative Net Income" shall mean, at any time, an amount
equal to the sum of the Net Income of Holdings and its Subsidiaries, on a
consolidated basis, from January 1, 1992, to and including the last day of the
last fiscal quarter which has ended prior to or on the date of such calculation.
"Default" shall mean any event which, with (i) the giving of
any notice expressly provided for in Article VIII and/or (ii) the passage of any
waiting period or cure period expressly provided for therein, would constitute
an Event of Default.
"Dollars" and "$" shall mean lawful money of the United
States of America.
"Domestic Subsidiaries" shall mean, collectively, those
Subsidiaries organized and existing under the laws of the United States or any
state of the United States but excluding any branches of such Subsidiaries
registered or operating in jurisdictions located outside the United States.
"Drawing" shall mean any payment or disbursement made by the
Issuing Bank under a Letter of Credit honoring a demand for payment by a
beneficiary of such Letter of Credit.
"EBITDA" shall be calculated on a consolidated basis for
Holdings and its Subsidiaries and shall mean, for each Fiscal Year, without
duplication, (a) Net Income for such Fiscal Year, plus (b) interest expense
deducted in determining such Net Income, plus (c) depreciation expense deducted
in determining such Net Income, plus (d) amortization expense deducted in
determining such Net Income, plus (e) other non-cash items of expense deducted
in determining such Net Income, plus (f) provision for federal, state, local and
foreign taxes to the extent deducted in determining such Net Income, less (g) to
the extent included in determining such Net Income, income during such period
attributable to non-operating gains (including Asset Sales), including
extraordinary or unusual gains, gains from discontinuance of operations and
other non-recurring gains, plus (h) to the extent deducted in determining such
Net Income, losses during such period attributable to any similar non-operating
losses, in each case computed in accordance with GAAP.
"Eligible Assignee" means (A) (i) a commercial bank or trust
company organized under the laws of the United States or any state thereof; (ii)
a saving and loan association or savings bank organized under the laws of the
United States or any state thereof; and (iii) a commercial bank or trust company
organized under the laws of any other country or a political subdivision
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thereof, provided that such bank or trust company is acting through a trust
company that is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political subdivision
of such country and (B) any Bank and any Affiliate of any Bank; provided that no
Affiliate of the Borrower shall be an Eligible Assignee; and provided further
that such Eligible Assignee must have at the time of determination unimpaired
capital and surplus of not less than $100,000,000.
"Environmental Claim" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and nonnegligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in or from property,
whether or not owned by Holdings or any Subsidiary, or (b) any other
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Environmental Laws" at any date shall mean all provisions of
Applicable Law concerning the protection of the environment (including, without
limitation, soil, the air, surface waters, ground water and land use) together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the
Federal Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Emergency Planning and Community Right-to-Know Act, the California
Hazardous Waste Control Law, the California Solid Waste Management, Resource
Recovery and Recycling Act, the California Water Code and the California Health
and Safety Code.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as such Act may from time to time be amended, and final regulations
promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including each trade
or business (whether or not incorporated)) which together with Holdings or any
of its Subsidiaries would be deemed to be a
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member of the same "controlled group" within the meaning of Section 414(b) of
the Code, under "common control" within the meaning of Section 414(c) of the
Code or a member of the same "affiliated service group" within the meaning of
Section 414(m) of the Code and the regulations, if any, promulgated under
Section 414(o) of the Code.
"Eurodollar Loan" shall mean a Loan bearing interest at a rate
based on the LIBO Rate in accordance with the provisions of Article II.
"Eurodollar Margin" shall have the meaning given to such term
in Section 2.4.
"Event of Default" shall mean any of the events set
forth in Article VIII hereof.
"Excluded Subsidiary" shall have the meaning given such term
in Section 7.7 hereof.
"Existing Agreement" shall have the meaning given to such term
in the Preamble to this Agreement.
"Existing Facility" shall have the meaning given to such term
in the Preamble of this Agreement.
"Expropriatory Action" shall mean any action or series of
actions that is taken, authorized, ratified or condoned by the United States of
America or any Governmental Authority or other Person in any country in which a
Subsidiary operates, owns or maintains a place of business, or any agency or
instrumentality thereof, for the appropriation, confiscation, expropriation or
nationalization (by intervention, condemnation or other form of taking), whether
with or without compensation and whether under color of law or otherwise, of any
ownership interest in the stock of any Subsidiary or ownership interest of any
Subsidiary in any asset or property or access thereto.
"Facility" shall have the meaning given to such term in the
Preamble to this Agreement.
"Fair Value" of an asset shall mean the consideration
obtainable in a sale of such asset in an arm's-length transaction with a Person
who is not an Affiliate of the seller.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions
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received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"Fee Letter" shall mean the letter agreement dated as of the
date hereof among the Borrower, Holdings and Chemical, with respect to certain
fees and other compensation payable by the Borrower and Holdings to Chemical and
the Banks.
"Fees" shall mean any and all fees and compensation payable to
the Administrative Agent, the Co-Agents or any Bank hereunder or under any other
Loan Document, including, without limitation, any fees payable under the Fee
Letter.
"Final Maturity Date" shall mean December 31, 1999.
"Financial Officer" of any Person shall mean its chief
financial officer or principal accounting officer.
"Financing Documents" shall mean each of the documents
identified on Annex II.
"Fiscal Year" shall mean, with respect to Holdings and its
Subsidiaries, each period from January 1 to December 31 of each year.
"Foreign Subsidiaries" shall mean, collectively, those
Subsidiaries which are organized or existing under the laws of a jurisdiction
located outside of the United States and any branches of Domestic Subsidiaries
which are registered or operating in jurisdictions located outside of the United
States.
"GAAP" shall mean generally accepted accounting principles in
the United States in effect from time to time.
"Governmental Authority" shall mean any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or a
foreign jurisdiction.
"Guarantors" shall mean, collectively, Holdings and
Celite.
"Guarantor Pledge Agreements" shall mean, collectively,
the Holdings Pledge Agreement and the Celite Pledge Agreement.
"Guaranty" shall mean any obligation, contingent or otherwise,
of any Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to purchase (or to advance or supply funds for
the purchase of) any security for the
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<PAGE> 15
payment of such Indebtedness, (b) to purchase property, securities or services
for the purpose of assuring the owner of such Indebtedness of the payment of
such Indebtedness, (c) to purchase or otherwise pay for merchandise, materials,
supplies, services or other property which provides that payment for such
merchandise, materials, supplies, services or other property shall be made
regardless of whether delivery of such merchandise, materials, supplies,
services or other property is ever made or tendered, or (d) to maintain the
working capital, equity capital or other financial statement condition of the
primary obligor.
"Harborlite Common Stock" shall have the meaning given to such
term in Section 4.20(d).
"Harborlite Documents" shall mean the Perlite Business
Agreement dated as of October 30, 1992, among Minerals and the other parties
thereto, and each other document or agreement attached as an exhibit thereto.
"Harborlite Preferred Stock" shall have the meaning given to
such term in Section 4.20(d).
"Hazardous Materials" means all those substances which are
regulated by, or which may form the basis of liability under, any Environmental
Law, including all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous substance, hazardous material, or toxic
substance, or petroleum or petroleum derived substance or waste.
"Holdings" shall have the meaning given to such term in the
Preamble to this Agreement.
"Holdings Guaranty" shall have the meaning given to such term
in Section 10.1.
"Holdings Pledge Agreement" shall mean the Pledge Agreement
dated as of December 20, 1991, and delivered by Holdings to the Collateral Agent
for the ratable benefit of the Banks, in the form of Exhibit E.
"Indebtedness" of any Person shall mean, without duplication,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments (including any
acknowledgments evidencing payment-in-kind loan transactions), (c) all
obligations of such Person upon which interest charges are customarily paid
(other than trade payables in the ordinary course of business), (d)
reimbursement obligations with respect to letters of credit and similar
instruments, (e) all obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person, (f) all obligations of such Person issued or assumed as
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<PAGE> 16
the deferred purchase price of property or services, other than accounts payable
incurred and paid on terms customary in the business of such Person (it being
understood that the "deferred purchase price" in connection with any purchase of
property or assets shall include only that portion of the purchase price which
shall be deferred beyond the date on which the purchase is actually
consummated), (g) all obligations of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property owned or acquired by such Person, whether or
not the obligations secured thereby have been assumed, (h) obligations under
forward sales, futures, options and other similar hedging arrangements, (i)
obligations to purchase or otherwise pay for merchandise, materials, supplies,
services or other property which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, (j) any Guaranty by such Person of an
obligation of others and (k) all Capital Lease Obligations of such Person.
"Indemnified Person" shall have the meaning given to such term
in Section 11.5.
"Information" shall have the meaning given to such term
in Section 11.13.
"Insolvency" shall mean, with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within the meaning of such term
as used in Section 4245 of ERISA.
"Intellectual Property" shall have the meaning given to such
term in Section 4.10(b) hereof.
"Interest Expense" shall be calculated on a consolidated basis
for Holdings and its Subsidiaries and shall mean, for any period, all cash
interest expense of such Persons for all Indebtedness outstanding during such
period computed in accordance with GAAP.
"Interest Payment Date" shall mean (a) the last day of an
Interest Period, (b) in the case of any Eurodollar Loan having an Interest
Period of six months, (i) the day which is three months after the first day of
such Interest Period and (ii) the last day of such Interest Period and (c) the
date of any refinancing or conversion of such Loan with or into a Loan of a
different type, the date of prepayment of such Loan and the Final Maturity Date;
provided, however, that any Interest Payment Date which is not a Business Day
shall be extended to the immediately succeeding Business Day except with respect
to a Eurodollar Loan as provided in the definition of Interest Period.
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<PAGE> 17
"Interest Period" shall mean, (a) as to any Eurodollar Loan,
the period commencing on the date of such Loan and ending on the numerically
corresponding day in the calendar month one month, two months, three months or
six months thereafter, as the Borrower may elect and, thereafter, each period
commencing on the last day of the immediately preceding Interest Period for such
Eurodollar Loan and ending on the numerically corresponding day in the calendar
month one month, two months, three months or six months thereafter, as the
Borrower may elect and (b) as to any ABR Loan, the period commencing on the date
of such Loan and ending on the earliest of (i) the immediately succeeding March
31, June 30, September 30, or December 31 or (ii) the date of any conversion in
accordance with Section 2.12 hereof (if after the date of such Loan); provided,
however, that (A) if any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the immediately
succeeding Business Day, unless, in the case such Interest Period is applicable
to a Eurodollar Loan, such next succeeding Business Day would fall in the
immediately succeeding calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day and (B) any Interest Period with
respect to a Eurodollar Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month.
"Investments" shall have the meaning given such term in
Section 7.4 hereof.
"Issuing Bank" shall mean Chemical or Bank of America.
"LC Fee" shall have the meaning given to such term in Section
3.5.
"Lending Office" shall mean, with respect to any of the Banks,
the branch or branches (or Affiliate or Affiliates) from which any such Bank's
Eurodollar Loans or ABR Loans, as the case may be, are made or maintained and
for the account of which all payments of principal of, and interest on, such
Bank's Eurodollar Loans or ABR Loans are made, as provided to the Administrative
Agent from time to time in accordance with Section 11.1 hereof.
"Letter of Credit" shall have the meaning given to such term
in Section 3.1 hereof.
"Letter of Credit Exposure" shall mean, at any time, the sum
of (a) the aggregate undrawn principal amount of all Letters of Credit
outstanding at such time, (b) the aggregate principal amount of all Letters of
Credit requested by the Borrower prior to such time pursuant to Section 3.2 and
not yet issued by the Issuing Bank and (c) the aggregate amount of all
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<PAGE> 18
Reimbursement Obligations which have not at such time been converted to ABR
Loans.
"Letter of Credit Facility" shall have the meaning given to
such term in the Preamble to this Agreement.
"LIBO Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, the rate determined by the Administrative Agent to be
the arithmetic average of the rates (rounded upwards, if necessary, to the next
1/16 of 1%) at which dollar deposits approximately equal in principal amount to
such Eurodollar Loan made by the Co-Agents and for a maturity comparable to such
Interest Period are offered to the principal London offices of the Co-Agents in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
of any kind whatsoever in or on such asset (including the filing of or agreement
to give any financing statement under the Uniform Commercial Code of any
jurisdiction), (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement relating to such
asset and (c) in the case of securities, any purchase option, call, appreciation
right or similar right of a third party with respect to such securities.
"Loan" shall mean any Term Loan or Revolving Loan.
"Loan Documents" shall mean this Agreement, the Financing
Documents, the Alleghany Subordination Agreement, any agreement with any Bank in
connection with any interest rate, hedge or protection transaction as required
by Section 6.14 or any other agreement or certificate delivered by the Borrower
or the Guarantors in connection herewith.
"Majority Banks" shall mean, at any time, the Banks holding
sixty-six and two-thirds percent (66 2/3%) of the aggregate principal amount of
the Loans then outstanding, or if no Loans are then outstanding, Banks having
Pro Rata Shares representing sixty-six and two-thirds percent (66 2/3%) of the
Aggregate Commitment.
"Mandatory Prepayment" shall have the meaning given to such
term in Section 2.8.
"Material Adverse Effect" shall mean (a) a material adverse
effect on the business, assets, operations, condition (financial or otherwise)
of Holdings and its Subsidiaries, taken as a whole, (b) a material impairment of
the ability of either the Borrower or any Guarantor to perform any of its
material
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<PAGE> 19
obligations under any Loan Document to which it is a party or (c) any material
impairment of the security interest of the Banks in the Collateral.
"Material Subsidiary" shall mean each Subsidiary listed on
Annex IV.
"Multiemployer Plan" shall mean a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any Person for any period, the
net income of such Person computed in accordance with GAAP.
"Net Proceeds" shall mean, with respect to any Asset Sale, the
aggregate consideration received by a Person in connection with such Asset Sale
less reasonable costs incurred in respect of such sale (including taxes paid or
payable in connection therewith); provided, however, that if the consideration
received by any Person in connection with any Asset Sale does not constitute
cash or a cash equivalent, the Net Proceeds from such Asset Sale shall be deemed
to be an amount equal to the Fair Value of the consideration so received.
"Net Worth" shall be calculated on a consolidated basis for
Holdings and its Subsidiaries and shall mean, at any point in time, the net book
value of the assets of Holdings and its Subsidiaries, as shown on Holdings'
consolidated balance sheet, less the sum of (i) the amount of any write-up
effective after September 16, 1991, in the value of any asset above the cost or
depreciated cost thereof to Holdings and/or the Subsidiaries and (ii) total
liabilities as shown on such balance sheet, in each case computed in accordance
with GAAP, provided, however, that Net Worth shall not include any adjustment
required by GAAP to give effect to losses or gains arising solely as a result of
currency translations.
"Note" shall mean each Revolving Credit Note and Term Loan
Note delivered by the Borrower to the Banks in accordance with the terms hereof.
"Obligations" shall mean the due and punctual payment of
principal of and interest on the Loans, the Fees and any Reimbursement
Obligations hereunder and all other obligations of the Borrower or any Guarantor
to the Administrative Agent, the Co-Agents, the Collateral Agent or any Bank
under this Agreement (including, without limitation, all obligations under
Section 2.13 and 3.4), any Note, the Letters of Credit, any other Loan Document
or to any Bank in connection with any interest rate hedge or protection
transaction as required by Section 6.14.
"Organizational Documents" shall mean, with respect to any
Person, each instrument or other document that (a) defines the existence of such
Person, as filed or recorded with an
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<PAGE> 20
applicable Governmental Authority or (b) governs the internal affairs of such
Person, in each case as amended, supplemented or restated.
"Other Taxes" shall have the meaning given to such term in
Section 2.18(b).
"Parent Contributions" shall mean cash received by Holdings
from its stockholders as a contribution to capital and up to $10 million of any
cash received by Holdings from its stockholders as subordinated debt, provided
Alleghany has, prior to the issuance of such subordinated debt, executed and
delivered the Alleghany Subordination Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Acquisitions" shall have the meaning given such
term in Section 7.7 hereof.
"Permitted Indebtedness" shall mean Indebtedness permitted to
be incurred under clauses (a) through (j) of Section 7.1 hereof.
"Permitted Investments" shall mean (i) direct obligations of
the United States or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States government, (ii) bankers'
acceptances and certificates of deposit issued by the Administrative Agent, any
Co-Agent, any Bank or any other bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $500,000,000, the short-term
deposit rating of which is given a A1 or P1 rating by Standard & Poor's
Corporation or Moody's Investors Service, Inc., as applicable, (iii) obligations
of the Administrative Agent, any Co-Agent, any Bank or any bank or trust company
or bank holding company described in clause (ii) above, in respect of the
repurchase of obligations of the type described in clause (i) hereof, provided
that such repurchase obligations shall be fully secured by obligations of the
type described in said clause (i) and the possession of such obligations shall
be transferred to, and segregated from other obligations owned by, the
Administrative Agent, any Co-Agent, any Bank or any such Bank's trust company or
bank holding company, (iv) commercial paper given a rating of A1 or P1 by
Standard & Poor's Corporation or Moody's Investors Service, Inc., as applicable,
maturing not more than 270 days from the date of acquisition and (v) securities
issued by money market funds that meet external money market guidelines and have
90% or more of their investments in commercial paper meeting the requirements of
(iv) above or investments of comparable quality.
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<PAGE> 21
"Permitted Liens" shall mean Liens permitted in accordance
with Section 7.2 hereof.
"Permitted Subsidiary Indebtedness" shall mean, at any time,
an aggregate of $10.0 million of Indebtedness incurred by the Foreign
Subsidiaries in the ordinary course of business, other than Indebtedness of a
Foreign Subsidiary to Holdings, the Borrower or Celite incurred in accordance
with the provisions of this Agreement.
"Person" shall mean and include any natural person, company,
partnership, joint venture, corporation, business trust, unincorporated
organization or Governmental Authority.
"Plan" shall mean any defined benefit pension plan which is
subject to the provisions of Title IV of ERISA (or similar legislation in the
jurisdiction in which a Subsidiary is organized) and which is maintained for or
contributed to on behalf of employees of the Parent or any Subsidiary, as the
case may be, or any ERISA Affiliate of the Parent or any Subsidiary.
"Pledge Agreement" shall mean the Amended and Restated Pledge
Agreement dated the date hereof between the Borrower and the Banks in the form
of Exhibit F attached hereto.
"Pro Rata Share" shall mean, with respect to any Bank at any
time, the percentage set forth in Column B of Annex II attached hereto.
"Rate Certificate" shall have the meaning given to such term
in Section 2.4(c).
"Register" shall have the meaning given such term in
Section 11.3(d).
"Regulation D" shall mean Regulation D of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation T" shall mean Regulation T of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
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<PAGE> 22
"Regulation X" shall mean Regulation X of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Reimbursement Obligation" shall mean, as to any Letter of
Credit issued hereunder which has been the subject of a Drawing, the obligations
of the Borrower to reimburse the Issuing Bank or, if applicable, the Banks for
the principal amount of such Drawing, plus accrued interest thereon, as provided
in Section 3.3(a) hereof.
"Reorganization" shall mean, with respect to any Multiemployer
Plan, the condition that such Plan is in reorganization within the meaning of
such term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any reportable event as defined
in Section 4043(b) of ERISA, other than a reportable event as to which provision
for 30-day notice to the PBGC has been waived under applicable regulations
(including subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615).
"Responsible Officer" of any Person shall mean any executive
officer or the chief financial officer of such a Person.
"Restricted Payment" shall have the meaning given to such term
in Section 7.3 hereof.
"Revolving Credit Commitment" shall mean, at any time,
$60,000,000 less any reductions made in accordance with Section 2.9.
"Revolving Credit Note" shall mean each Revolving Credit Note
in substantially the form of Exhibit G and delivered by the Borrower to the
Banks in accordance with Section 2.2.
"Revolving Loan" shall mean any Loan made by a Bank to the
Borrower in accordance with Section 2.2.
"Sale and Leaseback Transaction" shall mean any arrangement
whereby a Person sells or transfers real or personal property, and thereafter
rents or leases such property to be used for substantially the same purpose or
purposes as the property was used prior to such sale or transfer.
"Scheduled Repayment Date" shall have the meaning given to
such term in Section 2.7.
"Scheduled Payment" shall have the meaning given to such term
in Section 2.7.
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<PAGE> 23
"Single Employer Plan" shall mean a Plan described in Section
4001(a)(15) of ERISA.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves), expressed
as a decimal, established by the Board and any other banking authority to which
each of the Co-Agents is subject (a) with respect to the Base CD Rate (as such
term is used in the definition of "Alternate Base Rate"), for new negotiable
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months and (b) with respect to the Adjusted LIBO
Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board).
Such reserve percentages shall include those imposed pursuant to such Regulation
D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and
to be subject to such reserve requirements as Eurocurrency Liabilities are from
time to time subject without benefit of or credit for proration, exemptions or
offsets which may be available from time to time to any Bank under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subsidiary" shall mean, at any time, any Person (other than
an Excluded Subsidiary) (a) of which more than 50% of the shares of stock
entitled to vote in the election of directors (excluding shares entitled to vote
only upon the failure to pay dividends thereon or other contingencies) are at
the time owned directly or indirectly through one or more Subsidiaries, by
Holdings (including, without limitation, the Borrower and Celite) or (b) (i) of
which at least 25% of the shares of stock entitled to vote in the election of
directors (excluding shares entitled to vote only upon the failure to pay
dividends thereon or other contingencies) are at the time owned directly or
indirectly through one or more Subsidiaries, by Holdings (including, without
limitation, the Borrower and Celite) and (ii) who is under the Control of
Holdings.
"Taxes" shall have the meaning given to such term in Section
2.18(a).
"Term Loan" shall mean the Term Loans made by the Banks to the
Borrower on the Amendment Closing Date in accordance with Section 2.1.
"Term Loan Commitment" shall mean $57,000,000.
"Term Loan Note" shall mean each Term Loan Note in the form of
Exhibit H being delivered by the Borrower to each Bank at the Closing in
accordance with Section 2.1.
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<PAGE> 24
"Third Party Financing" shall mean any funds which are (a)
obtained from sources other than (i) Parent Contributions or (ii) Loans made
pursuant to this Agreement and (b) used by Holdings or any of its Subsidiaries
to effect a Permitted Acquisition in accordance with the terms and conditions of
Section 7.7 hereof.
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day shall not be a Business Day, the
immediately preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00 a.m.,
New York City time, on such day (or, if such day shall not be a Business Day, on
the next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it.
"Total Capitalization" shall be calculated on a consolidated
basis for Holdings and its Subsidiaries and shall mean, at any time, (i) the sum
of (A) capital stock taken at par value, (B) capital surplus and (C) retained
earnings at such date less (ii) treasury stock plus (iii) Total Indebtedness, in
each case computed in accordance with GAAP.
"Total Indebtedness" shall mean, at any time, the aggregate
amount of Indebtedness of Holdings and its Subsidiaries on a consolidated basis,
computed in accordance with GAAP.
"Working Capital" shall, unless otherwise provided herein, be
calculated on a consolidated basis for Holdings and its Subsidiaries and shall
mean, at any time, the excess of the current assets (other than cash and cash
equivalents) of Holdings and its Subsidiaries over the current liabilities
(other than Indebtedness) of Holdings and the Subsidiaries, in each case
computed in accordance with GAAP.
SECTION 1.2. Terms Generally. The definitions in Section 1.1
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and
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Sections of, and Exhibits and Schedules to, this Agreement unless the context
shall otherwise require.
SECTION 1.3. Accounting Terms, GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, consistently applied, and all financial
statements or accounting determinations required herein to be prepared or made
in accordance with GAAP shall be prepared or made in accordance with GAAP
applied on a consistent basis. In the event of any change in GAAP or
announcement by the Financial Accounting Standards Board (the "FASB") of the
effective date of any change in GAAP, which change could reasonably be expected
to materially affect the Borrower's compliance with Sections 7.11 through 7.13
or any definition of a financial term used herein, each of the Borrower and the
Administrative Agent shall have the right by written notice to the other to
require such other party to negotiate in good faith for a period of thirty (30)
days with respect to amending such Sections or definitions appropriately to take
account of such change, without liability to either party in the event an
agreement is not reached with respect to any such amendment; provided, however,
that such 30-day period shall not extend beyond the effective date of any change
except to the extent that such effective date was announced by the FASB less
than thirty (30) days in advance of such effective date. Notwithstanding the
foregoing, all calculations required under Sections 7.11 through 7.13 hereof
shall be made in accordance with GAAP in effect as of the Closing Date, unless
and until such Sections shall have been modified in accordance with the
preceding sentence.
ARTICLE II
THE LOANS
SECTION 2.1. Term Loans; Conversion of Outstanding Loans. (a)
Subject to the terms and conditions contained herein, on the Closing Date, all
outstanding Loans under the Existing Facility shall be converted, without
further action by the Borrower and without penalty for breakage or similar
costs, into one Term Loan from each Bank in an aggregate amount equal to such
Bank's Pro Rata Share of the lesser of (i) the aggregate amount of Loans
outstanding immediately prior to the effectiveness of this Agreement and (ii)
the Term Loan Commitment. All Term Loans to be made on the Closing Date shall be
Eurodollar Loans with initial Interest Periods of three months. No Term Loans
will be made by the Banks after the Closing Date (other than continuations or
conversions in the manner provided in Section 2.12).
(b) On the Closing Date, the Borrower shall execute
and deliver to each Bank, a Term Loan Note in a principal
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amount equal to such Bank's Pro Rata Share of the Term Loan Commitment. Such
Term Loan Note shall be dated March 10, 1995, and shall mature on the Final
Maturity Date subject to the acceleration provisions contained therein. Each
Bank shall record the date and amount of each payment made by the Borrower with
respect to such Term Loan Note and each Bank's records shall be conclusive
absent manifest error; provided, however, that the failure of any Bank to make
such a notation or any error on a Term Loan Note shall not affect the obligation
of the Borrower to repay, in accordance with the terms of each Term Loan Note,
the Term Loans made by the Banks hereunder.
(c) On the Closing Date, each Bank shall deliver to
the Borrower the note or notes delivered by the Borrower to such Bank in
connection with the Existing Facility.
SECTION 2.2. Making of Revolving Loans. (a) Subject to the
terms and conditions contained herein, each Bank severally agrees to make
Revolving Loans to the Borrower from time to time during the period from the
date hereof to the Final Maturity Date (or upon the earlier termination of the
Revolving Credit Commitment in accordance with the provisions hereof) in an
amount not to exceed, in the aggregate at any one time outstanding, such Bank's
Pro Rata Share of (i) the Revolving Credit Commitment on such date less (ii) the
Letter of Credit Exposure. Each Loan shall be made to the Borrower by each Bank
in accordance with its Pro Rata Share of the then applicable Revolving Credit
Commitment as provided in clause (c) below. Except as expressly provided in
Section 3.3, Revolving Loans requested hereunder by the Borrower on any date
shall be in a minimum principal amount of $1,000,000 and in integral multiples
of $500,000.
(b) Each Loan shall be either an ABR Loan or a
Eurodollar Loan as the Borrower may request in accordance with Section 2.3
hereof. Revolving Loans of more than one type may be outstanding at the same
time. Each Bank may, at its option, fulfill its Pro Rata Share with respect to
any Eurodollar Loan by causing a Lending Office of such Bank to make such
Revolving Loan; provided, however, that any exercise of such option shall not
affect the obligation of the Borrower to repay such Revolving Loan in accordance
with the terms of this Agreement.
(c) Each Bank shall advance its portion of each Loan
hereunder on the proposed date thereof by paying the required amount to the
Administrative Agent in New York, New York, in immediately available funds not
later than 12:00 noon, New York City time on the date of such Loan. The
Administrative Agent shall, by 3:00 p.m., New York City time on such date,
credit the amount so received to the general deposit account maintained by the
Borrower with the Administrative Agent. If a Loan is not made on any date
requested by the Borrower because any condition precedent to such Loan hereunder
shall not have been met or for any other reason, the Administrative Agent shall
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<PAGE> 27
promptly return to each Bank which has advanced funds to the Administrative
Agent any amounts so transferred.
(d) On the Closing Date, the Borrower shall execute
and deliver to each Bank, a Revolving Credit Note in a principal amount equal to
such Bank's Pro Rata Share of the Revolving Credit Commitment. Each such
Revolving Credit Note shall be dated the Closing Date and shall mature on the
Final Maturity Date subject to the acceleration provisions contained therein.
Each Bank shall record the date and amount of each Revolving Loan made by such
Bank to the Borrower hereunder and of each prepayment made by the Borrower with
respect to such Revolving Loan and each Bank's records shall be conclusive
absent manifest error; provided, however, that the failure of any Bank to make
such a notation or any error on a Revolving Credit Note shall not affect the
obligation of the Borrower to repay, in accordance with the terms of each
Revolving Credit Note, the Revolving Loans made by the Banks hereunder.
(e) During the period from the date hereof to the
Final Maturity Date, the Borrower may borrow, pay, prepay and reborrow Revolving
Loans hereunder subject to the terms and conditions of this Agreement (including
the provisions regarding prepayment set forth in Sections 2.9 and 2.11 hereof).
SECTION 2.3. Notice of Loans. (a) In order to request a
Revolving Loan hereunder, the Borrower shall, except as otherwise expressly
provided in Section 3.3, give the Administrative Agent irrevocable written,
telegraphic or telex notice (i) not later than 12:00 noon, New York City time,
one Business Day before such Revolving Loan is to be made if such Revolving Loan
is to be an ABR Loan and (ii) not later than 10:00 a.m., New York City time,
three Business Days before such Revolving Loan is to be made if such Revolving
Loan is to be a Eurodollar Loan. Such notice shall specify (A) whether the
Revolving Loan then being requested is to be an ABR Loan or a Eurodollar Loan,
(B) the date of the proposed borrowing and amount thereof and (C) if such
Revolving Loan is to be a Eurodollar Loan, the Interest Period with respect
thereto. If no election as to the type of Revolving Loan is specified in such
notice, the Revolving Loan shall be an ABR Loan. If no Interest Period with
respect to any Eurodollar Loan is specified in any such notice, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. A notice requesting a Eurodollar Loan may condition such request upon
an Adjusted LIBO Rate being less than a specified rate. If the Administrative
Agent determines that the Adjusted LIBO Rate will exceed the maximum specified
by the Borrower, the Administrative Agent shall promptly notify the Borrower and
such request shall be deemed a request for an ABR Loan.
(b) The Borrower may continue any Eurodollar Loan or
convert all or any part of any ABR Loan or Eurodollar Loan
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<PAGE> 28
into a Loan of a different type, in each case in accordance with Section 2.12
hereof and subject to the limitations set forth therein.
(c) The Borrower shall not request from the
Administrative Agent more than 6 new Eurodollar Loans or conversions to
Eurodollar Loans from ABR Loans in any one calendar month.
SECTION 2.4. Interest. (a) In the case of an ABR Loan,
interest shall be payable at a variable rate per annum (calculated on the basis
of the actual number of days elapsed over a year of 360 days during any period
that the Alternative Base Rate is determined based upon the Base CD Rate or the
Federal Funds Effective Rate and, at all other times, 365 or 366 days, as the
case may be) equal to the Alternate Base Rate. Interest will be payable on each
ABR Loan on each applicable Interest Payment Date.
(b) Subject to Section 2.4(c) below, in the case of a
Eurodollar Loan, interest shall be payable at a variable rate per annum
(calculated on the basis of the actual number of days elapsed over a year of 360
days) equal to the Adjusted LIBO Rate, plus the Eurodollar Margin determined in
accordance with Section 2.4(c). Interest will be payable on each Eurodollar Loan
on each applicable Interest Payment Date. The Administrative Agent shall
determine the applicable Adjusted LIBO Rate for each Interest Period as soon as
practicable after 10:00 a.m., New York City time, two Business Days prior to the
commencement of such Interest Period and shall notify the Borrower of the
Adjusted LIBO Rate so determined. Such determination shall be conclusive absent
manifest error.
(c) The Eurodollar Margin for the period commencing
on January 17, 1995, and ending on March 31, 1995, shall be .625%. Within 60
days (75 days in the case of the fourth fiscal quarter of each Fiscal Year)
after the end of each fiscal quarter of each Fiscal Year prior to the Final
Maturity Date commencing on the fiscal quarter ending December 31, 1994, the
Borrower shall deliver to the Administrative Agent a certificate (a "Rate
Certificate") setting forth the Borrower's calculation, certified as to accuracy
by a Financial Officer of the Borrower, of the ratio of Total Indebtedness as of
the last day of such fiscal quarter to EBITDA for the four-fiscal-quarter period
ending on such fiscal quarter (the "Cash Flow Ratio"). If the Administrative
Agent determines that the Rate Certificate is accurate, then the Eurodollar
Margin shall be the rate (the "Eurodollar Margin") set forth in the table below
opposite the applicable range for such Cash Flow Ratio:
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<PAGE> 29
<TABLE>
<CAPTION>
Cash Flow Ratio Eurodollar Margin
--------------- -----------------
<S> <C>
Greater than 2.25x .75%
1.5x to 2.25x .625%
Less than 1.5x .50%
</TABLE>
Any change in the Eurodollar Margin following the delivery of a Rate Certificate
in accordance with this Section 2.4(c) shall become effective with respect to
all Eurodollar Loans and Letters of Credit outstanding hereunder on the first
day of the fiscal quarter immediately following the fiscal quarter in which the
Rate Certificate is delivered.
SECTION 2.5. Alternative Rate of Interest. In the event, and
on each occasion, that on the date two Business Days prior to the commencement
of any Interest Period for any Eurodollar Loan, any Bank shall have determined
(which determination shall be conclusive and binding upon the Borrower) that
dollar deposits in the unpaid principal amount of such Eurodollar Loan are not
generally available in the London interbank market, or that the rate at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to such Bank of making or maintaining the principal amount of such
Eurodollar Loan during such Interest Period, such Bank shall promptly give
written, telegraphic or telex notice of such determination to the Borrower and
the other Banks. In such event the Borrower and the Bank giving notice may agree
on a substitute rate of interest. For one Business Day after receipt of such
notice, the Borrower shall have the right to withdraw its request pursuant to
Section 2.2 for a Eurodollar Loan by written, telegraphic or telex notice to the
Administrative Agent. If the Borrower and the Bank giving notice have not agreed
on a substitute rate of interest, any request by the Borrower to make, convert
to or maintain a Eurodollar Loan pursuant to Section 2.2 (unless withdrawn as
provided above) or 2.12, as applicable, shall be deemed a request for an ABR
Loan in respect of any Bank giving such notice. After such notice shall have
been given and until the circumstances giving rise to such notice no longer
exist or until the Borrower and any Bank giving notice agree on a substitute
rate of interest, each request for a Eurodollar Loan shall be deemed to be a
request for an ABR Loan in respect of any Bank giving such notice. Each
determination by a Bank hereunder shall be conclusive absent manifest error. Any
Bank giving notice as described above shall notify the Borrower at such time as
the circumstances giving rise to such notice no longer exist.
SECTION 2.6. Interest on Overdue Amounts. If the Borrower
defaults in the payment of the principal of or interest on any Loan or any other
amount due hereunder, the Borrower shall, on demand from time to time, pay
interest to the extent permitted by law on such defaulted amount up to (but not
including) the date of actual payment (after as well as before judgment) at a
rate per annum (calculated on the basis of the
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<PAGE> 30
actual number of days elapsed over a year of 365 or 366 days, as the case may
be) equal to the Alternate Base Rate plus two percent (2%) per annum.
SECTION 2.7. Scheduled Amortization of Term Loans. (a) On the
last Business Day of each month set forth below (each, a "Scheduled Repayment
Date"), the Borrower shall pay to the Administrative Agent, for the account of
the Banks, for application against the aggregate amount of Term Loans
outstanding, the principal amount (each, a "Scheduled Payment") set forth
opposite such Scheduled Repayment Date in the table below:
<TABLE>
<CAPTION>
Scheduled Scheduled
Repayment Date Payment
-------------- -------
<S> <C>
June, 1995 $1 million
December, 1995 4 million
June, 1996 5 million
December, 1996 5 million
June, 1997 6 million
December, 1997 6 million
June, 1998 7 million
December, 1998 7 million
June, 1999 8 million
December, 1999 8 million
</TABLE>
(b) Any payment made in accordance with clause (a)
above shall (i) be applied by the Banks to reduce the aggregate amount of the
Term Loans outstanding under the Facility on the date of such payment and shall
be applied first to ABR Loans and thereafter to outstanding Eurodollar Loans in
the order of expiration of their respective Interest Periods, (ii) include (and
may be increased by) accrued but unpaid interest on the principal amount of the
Term Loans being repaid on such date and any other required charges due to the
Banks under Section 2.11 and (iii) be distributed ratably to the Banks in
accordance with their respective Pro Rata Shares.
SECTION 2.8. Mandatory Prepayments. (a) In connection with the
consummation of any Asset Sale, the Borrower shall prepay Loans by making a
payment to the Administrative Agent, on behalf of the Banks, in an amount equal
to 100% of the Net Proceeds of such Asset Sale; provided, however, that the
Borrower will be entitled to retain during each Fiscal Year for its own use, the
first $1,000,000, on a cumulative basis, of the Net Proceeds from Asset Sales
occurring during such Fiscal Year. Any prepayment under this Section 2.8 shall
be made on the (i) the thirtieth day following the consummation of such Asset
Sale or (ii) if the cash consideration in such sale is to be received in
installments, upon the earlier of the receipt of such cash consideration or the
date when such cash consideration or portion thereof is due.
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<PAGE> 31
(b) Any payment by the Borrower in accordance with
clause (a) above (each, a "Mandatory Prepayment") shall be applied ratably to
all remaining Scheduled Payments and shall be applied first to ABR Loans and
thereafter to outstanding Eurodollar Loans in the order of expiration of their
respective Interest Periods. Each Mandatory Prepayment must be accompanied by
(i) accrued interest and any other required charges on the amount prepaid
(including any payments required by Section 2.11 hereof) and (ii) a certificate
of a Financial Officer of the Borrower setting forth the calculation of such
Mandatory Prepayment. Mandatory Prepayments shall be distributed ratably to the
Banks in accordance with their respective Pro Rata Shares.
SECTION 2.9. Reduction of Revolving Loan Commitment. (a) Upon
at least two Business Days prior written, telegraphic or telex notice to the
Administrative Agent and subject to the limitations set forth in paragraph (d)
below, the Borrower may at any time permanently terminate, or from time to time
permanently reduce, the Revolving Credit Commitment in effect at such time. Each
such reduction of the Revolving Credit Commitment shall be in a minimum
principal amount of $1,000,000 or an integral multiple thereof and shall reduce,
on a dollar for dollar basis, the aggregate Revolving Credit Commitment of the
Banks in effect on such date.
(b) If on any date that the Revolving Credit
Commitment is reduced in accordance with paragraph (a) above the sum of (i) the
aggregate amount of Revolving Credit Loans outstanding under the Facility plus
(ii) the aggregate amount of the Letter of Credit Exposure at such time exceeds
the Revolving Credit Commitment as so reduced, then simultaneously with, and as
a condition to such reduction, the Borrower shall prepay Revolving Loans by
making a payment to the Administrative Agent, on behalf of the Banks, in an
amount equal to such excess so that, after giving effect to such payment, the
aggregate outstanding principal amount of all Revolving Loans plus the aggregate
amount of the Letter of Credit Exposure at such time does not exceed the
Revolving Credit Commitment as so reduced.
(c) Any reduction of the Revolving Credit Commitment
in accordance with clause (a) above shall be accompanied (i) by payment of the
accrued Commitment Fee on the amount of the reduction, (ii) in the event that
the Revolving Credit Commitment is being terminated, by payment to the
Administrative Agent in accordance with Section 3.3(d) hereof and for the
benefit of the Banks, of an amount equal to the aggregate Letter of Credit
Exposure and (iii) include any other required charges on the amount prepaid
(including any payments required by Section 2.11 hereof).
(d) All amounts paid by the Borrower under this
Section 2.9 shall be made ratably to each Bank in accordance with its respective
Pro Rata Share.
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<PAGE> 32
SECTION 2.10. Optional Prepayments of Term Loans. (a) The
Borrower shall have the right at any time and from time to time to prepay the
Term Loans, in whole or in part, without premium or penalty, upon at least one
Business Day's prior written, telegraphic or telex notice to the Administrative
Agent; provided, however, that (A) any partial prepayment shall be in a minimum
principal amount of $500,000 or an integral multiple thereof, (B) all
prepayments shall be made ratably to the Banks in accordance with their
respective Pro Rata Shares, (C) all prepayments shall be accompanied by interest
accrued to the date of prepayment on the principal amount of the Term Loans
being prepaid, and (D) all prepayments shall be applied (i) to prepay the next
two Scheduled Payments in order of maturity and (ii) ratably against all
remaining Scheduled Payments.
(b) Each notice of prepayment shall specify the
prepayment date and the principal amount of the Term Loans to be prepaid, shall
be irrevocable and shall commit the Borrower to prepay the Term Loans by the
amount stated therein.
(c) Subject to the limitations set forth in clause
(a) above, if on the date of any such payment, the Term Loans include both ABR
Loans and/or Eurodollar Loans, the notice given to the Administrative Agent
shall specify the extent to which such payment is to be applied against such ABR
Loans and/or Eurodollar Loans. If on the date of any such payment the Term Loans
include more than one Eurodollar Loan, such notice shall specify the Eurodollar
Loans against which such payment is to be applied. To the extent not otherwise
specified, each such payment shall be applied first against any outstanding ABR
Loans and next, after all such ABR Loans have been repaid, to any Eurodollar
Loans in order of expiration of their respective Interest Periods.
SECTION 2.11. Redeployment Cost. The Borrower shall reimburse
each Bank for any loss incurred or to be incurred by it in the redeployment of
the funds released as a result of (A) any Scheduled Payment applied to any
Eurodollar Loan pursuant to Section 2.7 hereof on any date prior to the last day
of the Interest Period applicable to such Loan, (B) any prepayment or payment of
any Eurodollar Loan pursuant to Section 2.8 hereof in whole or in part on a date
prior to the last day of an Interest Period for such Eurodollar Loan, (C) any
prepayment or payment of any Eurodollar Loan by reason of acceleration of the
indebtedness due hereunder on the occurrence of an Event of Default as set forth
in Article VIII hereof, (D) any failure or refusal of the Borrower to accept (or
to meet the conditions precedent for) any Eurodollar Loan as to which notice was
given by the Borrower hereunder, (E) repayment of any Revolving Loans which are
Eurodollar Loans in connection with a reduction of the Revolving Credit
Commitment in accordance with Section 2.9 or (F) automatic conversions pursuant
to Section 2.12. Such loss shall be the difference, reasonably determined by
such Bank, between the cost
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<PAGE> 33
of obtaining the funds for the Loan being prepaid or refused and any lesser
amount realized by such Bank in redeploying such funds during the period from
the date of prepayment or refusal to the end of the Interest Period of the
Eurodollar Loan being repaid or the Interest Period specified in the notice
given by the Borrower, as the case may be; provided, however, that such loss
shall not include any loss, damage or expense resulting from the failure of any
Person to whom any such funds are loaned to timely and duly repay the same, or
from any other default or nonperformance of such Person's obligations. Upon the
occurrence of any event set forth in clauses (A) through (F) above, the
Administrative Agent shall deliver to the Borrower a certificate setting forth
any amount or amounts which each Bank is entitled to receive pursuant to this
Section 2.11 and reasonable supporting calculations therefor. Such certificate
shall be conclusive absent manifest error. Within 20 days after receipt, the
Borrower shall pay the Administrative Agent, on behalf of the Banks, all amounts
set forth therein. Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.11
shall survive the payment in full of principal and interest hereunder.
SECTION 2.12. Conversion and Continuation of Borrowings. The
Borrower shall have the right, at any time, with at least three Business Days'
prior irrevocable written, telegraphic or telex notice to the Administrative
Agent, (a) to continue any Loan or portion thereof into a subsequent Interest
Period, or (b) to convert any type of Loan or portion thereof into a Loan of a
different type, subject to the following:
(i) no Default shall have occurred and be continuing
at the time of such continuation or conversion and, with respect to
Eurodollar Loans, no notice described in Section 2.5 or 2.14 (which
shall not have been rescinded) shall have been given by the Bank from
which the Eurodollar Loan is requested;
(ii) each conversion shall be effected by the Banks
applying the proceeds of the new Loan to the Loan (or portion thereof)
being converted;
(iii) if the new Loan made in respect of the
conversion shall be a Eurodollar Loan, the first Interest Period with
respect thereto shall commence on the date of conversion;
(iv) each request for a Eurodollar Loan, conversion
or for a continuation thereof which shall fail to state the applicable
Interest Period shall be for one month's duration;
(v) no more than a total of 6 new Eurodollar Loans
or conversions to Eurodollar Loans from ABR Loans
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<PAGE> 34
may be requested from the Banks by all of the Borrower
in any one calendar month; and
(vi) each request for conversion of an ABR Loan to a
Eurodollar Loan hereunder shall be in the principal amount of at least
$500,000.
In the event that the Borrower shall not give notice to continue any Eurodollar
Loan, such Loan (unless repaid) shall automatically become an ABR Loan at the
expiration of the then current Interest Period. The Borrower may condition any
request to any Bank for conversion to or maintenance of a Eurodollar Loan upon a
maximum Adjusted LIBO Rate; provided, however, that if such Bank determines that
the Adjusted LIBO Rate will exceed such maximum specified by the Borrower, such
Bank shall so notify the Borrower and such request shall be deemed a request for
an ABR Loan.
SECTION 2.13. Increased Costs. (a) Subject to compliance with
subsections (d) and (e) below, if after the date of this Agreement any change in
Applicable Law or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(whether or not having the force of law) shall change the basis of taxation of
payments to any Bank of the principal of or interest on any Eurodollar Loan or
any other fees or amounts payable hereunder (other than Taxes), or shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
such Bank or shall impose on such Bank or the London interbank market any other
condition affecting this Agreement or the Eurodollar Loans, and the result of
any of the foregoing shall be to increase the cost to such Bank of making or
maintaining any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Bank hereunder (whether of principal, interest or otherwise)
in respect thereof, by an amount deemed by such Bank to be material, then (to
the extent the amount is not included in the computation of the Adjusted LIBO
Rate) the Borrower shall pay to such Bank, upon such Bank's demand, such
additional amount or amounts as will compensate such Bank for such additional
costs or reduction.
(b) Subject to compliance with subsections (d) and
(e) below, if any Bank shall have determined that the adoption after the date
hereof of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any Lending Office of such Bank) or any
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental
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<PAGE> 35
Authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Bank's capital or on the capital of such
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made by such Bank pursuant hereto to a level below that which such Bank or such
Bank's holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies and the policies of
such Bank's holding company 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 Borrower of a written request therefor, the Borrower shall pay
to such Bank such additional amount or amounts as will compensate such Bank or
such Bank's holding company for any such reduction suffered.
(c) A certificate of each Bank setting forth such
amount or amounts and the basis for determination from time to time of such
amount or amounts as shall be necessary to compensate such Bank or its holding
company as specified in paragraph (a) or (b) above, as the case may be, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay each Bank the amount shown as due on any such certificate
delivered by it within 10 days after their receipt of the same.
(d) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Bank's right to demand compensation with respect
to such period, except that no Bank shall be entitled to compensation under this
Section 2.13 for any costs incurred or reduction suffered with respect to any
date unless such Bank shall have notified the Borrower that it will demand
compensation for such costs or reductions not more than nine months after the
later of (i) such date and (ii) the date on which such Bank shall have become
aware of such costs or reductions. The protection of this Section 2.13 shall be
available to each Bank regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Any Bank claiming any additional amounts payable
pursuant to this Section 2.13 shall use reasonable efforts (consistent with
legal and regulatory restrictions and such Bank's internal policies) to file any
certificate or document requested by the Borrower or change its applicable
Lending Office to another of its offices, branches or Affiliates, if the making
of such filing or change of Lending Office would avoid the need for or reduce
the amount of any such additional amount attributable to the Loans and would
not, in the sole determination of such Bank, result in any unreimbursed loss,
cost or expense or otherwise be disadvantageous to such Bank.
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<PAGE> 36
(f) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 2.13 shall survive the payment in full of principal and interest
hereunder.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby then, by written notice to the Borrower and to the other
Banks, (i) such Bank may require payment (together with accrued interest to the
date of payment) of all outstanding Eurodollar Loans due to it hereunder,
whereupon all such Eurodollar Loans then outstanding shall be automatically
converted to an ABR Loan, subject to Sections 2.11 and 2.12, as of the effective
date of such notice as provided in paragraph (b) below, (ii) the obligation of
such Bank to continue or convert to Eurodollar Loans shall terminate immediately
and (iii) each subsequent request to such Bank for a Eurodollar Loan shall be
deemed to be a request for an ABR Loan. Any Bank giving such notice shall (A)
use reasonable efforts (consistent with legal and regulatory restrictions and
such Bank's internal policies) to change its applicable Lending Office to
another of its offices, branches or Affiliates, if such change of Lending Office
would permit such Bank to make Eurodollar Loans and would not, in the sole
determination of such Bank, result in any unreimbursed loss, cost or expense or
otherwise be disadvantageous to such Bank and (B) notify the Administrative
Agent and the Borrower at such time as the circumstances giving rise to its
notice shall cease to exist. If the Borrower shall be prohibited from incurring,
continuing or converting to a Eurodollar Loan from any Bank, Eurodollar Loans
shall be made, continued or converted by the other Banks pro rata in accordance
with their respective Pro Rata Share of the Aggregate Commitment.
(b) For purposes of Section 2.14(a)(i), a notice to
the Borrower by any Bank shall be effective, if lawful, and if any Eurodollar
Loans shall then be outstanding, on the last day of the then current Interest
Period or, if there is more than one current Interest Period, on the last day of
each such Interest Period, respectively; otherwise, such notice shall be
effective on the date of receipt by the Borrower.
SECTION 2.15. Pro Rata Treatment. Except as required under
Section 2.14, each Loan, each payment or prepayment of principal of any Loan,
each payment of interest on any Loan and each conversion of any Loan or
continuation of any Loan as a Loan of any type shall be allocated pro rata among
each Bank in accordance with its respective Pro Rata Share. Each Bank agrees
that in computing such Bank's portion of any Loan or any payment, prepayment,
interest payment, conversion or continuation with
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<PAGE> 37
respect thereto, the Administrative Agent may, in its sole discretion, round the
dollar amount of such Bank's pro rata portion to the next higher or lower whole
dollar amount.
SECTION 2.16. Sharing of Setoffs. (a) Each Bank agrees that
if, through the exercise of a right of banker's lien, set-off or counterclaim
against the Borrower, the unpaid portion of the Loans made by it is
proportionately less than the unpaid portion of the Loans made by any other Bank
(i) it shall simultaneously purchase from such other Bank a participation in the
Loans made by such other Bank, so that the aggregate unpaid principal amount of
all Loans and participations in Loans made by each Bank shall be in the same
proportion to the aggregate unpaid principal amounts of all Loans then
outstanding as the principal amount of such Loans made by it prior to such
exercise of banker's lien, set-off or counterclaim and (ii) such other
adjustments shall be made from time to time as shall be equitable to ensure that
all the Banks share such payment pro rata; provided, however, that if any such
purchase or purchases shall be made pursuant to clause (i) above and the payment
giving rise thereto shall be recovered, such purchase or purchases shall be
rescinded to the extent of such recovery and the purchase price or prices
restored without interest.
(b) If an Event of Default shall have occurred and be
continuing, each Bank is hereby authorized at any time and from time to time to
the fullest extent permitted by law, to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Agreement and other Loan Documents held by
such Bank, irrespective of whether or not such Bank shall have made any demand
under this Agreement or such other Loan Document and although such obligations
may be unmatured. The rights of each Bank under this Section 2.16(b) are in
addition to other rights and remedies (including other rights of set-off) which
such Bank may have.
SECTION 2.17. Payments. (a) The Borrower shall make each
payment in respect of the principal of or accrued interest on any Loan, Fee,
Reimbursement Obligation, LC Fee or other amount due to the Administrative
Agent, any Co-Agent or any Bank under this Agreement or any other Loan Document,
not later than 1:00 p.m, New York City time, on the day when due, to the
Administrative Agent at its offices at 270 Park Avenue, New York, New York
10017, for the account of such Bank. All payments hereunder shall be made in
United States Dollars in federal or other immediately available funds.
(b) This transaction is an international loan
transaction in which the specification of Dollars is of the
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<PAGE> 38
essence, and Dollars shall be the currency of account and of payment in all
events. The payment obligations of the Borrower shall not be discharged by an
amount paid in another currency, whether pursuant to a judgment or otherwise, to
the extent that the amount so paid on prompt conversion to Dollars under normal
banking procedures shall not yield the amount of Dollars due hereunder. In the
event that any payment made in a currency other than Dollars, whether pursuant
to a judgment or otherwise, upon conversion shall not yield such amount of
Dollars, each Bank shall be entitled to demand immediate payment of, and shall
have a separate cause of action for, such Dollar deficiency.
(c) Whenever any payment (including principal of or
interest on any Loan or any Fee or other amount) hereunder or under any other
Loan Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of such
interest, Fee or other amount, if applicable; provided, however, that, in the
case of any Eurodollar Loan, if such next succeeding Business Day would fall in
the next calendar month, such payment shall be made on the first preceding
Business Day.
SECTION 2.18. Taxes. (a) Subject to compliance with Section
2.18(f), any and all payments by the Borrower in respect of principal or accrued
interest on any Loan, Fee, Reimbursement Obligation or other amount due to the
Administrative Agent, any Co-Agent or any Bank under this Agreement or by a
Guarantor pursuant to the Holdings Guaranty or the Celite Guaranty Agreement
shall be made, in accordance with Section 2.17, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto so long as the
recipient thereof is a corporation created or organized under the laws of the
United States or any State or is otherwise a resident of the United States (and
is taxed as such on such income) for purposes of the Code (excluding taxes
imposed on the Administrative Agent's or any Bank's overall net income and
franchise taxes imposed on the Administrative Agent or any Bank by the
jurisdiction of such Bank's Lending Office or any political subdivision
thereof), including withholding taxes relating to United States income taxes or
any jurisdiction under the laws of which the Borrower is organized or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being referred to herein as
"Taxes"). Subject to Section 2.18(f), if the Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to the Banks
or the Administrative Agent (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.18) such Bank or the
Administrative Agent (as the
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case may be) shall receive an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) Subject to compliance with Section 2.18(f), the
Borrower will indemnify each Bank and the Administrative Agent for the full
amount of Taxes (including any Taxes or Other Taxes imposed by any jurisdiction
or amounts payable under this Section 2.18) paid by such Bank or the
Administrative Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within 30 days following the date any Bank or
the Administrative Agent, as the case may be, makes written demand therefor. If
any Bank or the Administrative Agent receives a refund (or a credit against its
taxes due) directly attributable to any Taxes or Other Taxes for which such Bank
or the Administrative Agent has received payment hereunder (or which were paid
directly by the Borrower), it shall repay such refund to the Borrower without
interest promptly after the responsible account officer of such Bank or the
Administrative Agent has notice that such refund was so received.
(d) Within 30 days after the date of any payment of
Taxes or Other Taxes withheld by the Borrower in respect of any payment to any
Bank or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address set forth in Section 10.1, the original or
a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 2.18 shall survive the payment in full of principal and interest
hereunder.
(f) Each Bank which is organized under the laws of a
jurisdiction outside the United States shall deliver to the Borrower and the
Administrative Agent, on or before the next date of any payment by the Borrower
hereunder, such certificates, documents or other evidence, as required by the
Code or Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 4224 and any other certificate or statement or exemption required
by Treasury Regulation Section 1.1441-1(a) or
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Section 1.1441-6(c) or any subsequent version thereof, properly completed and
duly executed by such Bank 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 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. Unless the Borrower and the Administrative Agent have received forms or
other documents satisfactory to them indicating that payments hereunder or under
the Notes are not subject to United States withholding tax or are subject to
such tax at a rate reduced by an applicable tax treaty, the Administrative Agent
shall withhold taxes from such payments at the applicable statutory rate in the
case of payments to or from any Bank or assignee organized under the laws of a
jurisdiction outside the United States.
(g) Any Bank claiming any additional amounts in
respect of Taxes payable pursuant to this Section 2.18 shall use reasonable
efforts (consistent with legal and regulatory restrictions and such Bank's
internal policies) to file any certificate or document requested by the Borrower
or to change its applicable Lending Office to another of its offices, branches
or Affiliates, if the making of such a filing or change of Lending Office would
avoid the need for or reduce the amount of any such Taxes attributable to the
Loans and would not, in the sole determination of such Bank, result in any
unreimbursed loss, cost or expense or otherwise be disadvantageous to such Bank.
SECTION 2.19. Fees. (a) The Borrower agrees to pay to each
Bank a commitment fee (the "Commitment Fee") from March 10, 1995, to the Final
Maturity Date, calculated at the rate of 1/4 of 1 percent (.25%) per annum on
the average daily unused amount of such Bank's Pro Rata Share of the Revolving
Credit Commitment (less the Letter of Credit Exposure, if any) during the period
for which payment is made. The Commitment Fee shall be payable (i) quarterly on
the last Business Day of each March, June, September and December of each Fiscal
Year and (ii) on any date that the Revolving Credit Commitment is terminated or
reduced as provided herein.
(b) The Borrower shall pay to the Administrative
Agent an annual administration fee as specified in the Fee Letter.
(c) All Fees shall be paid on the date due, in
immediately available funds, to the Administrative Agent for the account of the
applicable Bank. Once paid no Fee shall be refundable under any circumstances.
(d) All Fees shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days.
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ARTICLE III
LETTERS OF CREDIT
SECTION 3.1. Issuance of Letters of Credit. (a) Subject to the
terms and conditions contained herein, the Issuing Bank shall from time to time
issue, on behalf of the Borrower and its Subsidiaries, letters of credit (each,
a "Letter of Credit") to (i) insurance carriers, (ii) Governmental Authorities
in connection with reclamation plans implemented by the Borrower and its
Subsidiaries, (iii) trade creditors to support purchases and sale of materials
and inventory and (iv) other Persons with whom the Borrower and its Subsidiaries
have business dealings for requirements which arise in the ordinary course of
business. The aggregate Letter of Credit Exposure on any date shall not exceed
the lesser of (A) $20,000,000 and (B) the Revolving Credit Commitment less the
sum of (x) the amount of all Revolving Loans then outstanding (or requested in
accordance with Section 2.2 hereof) under the Facility plus (y) the Letter of
Credit Exposure on such date. The aggregate Letter of Credit Exposure for
Letters of Credit issued to Governmental Authorities to satisfy or secure
obligations of the Borrower and its Subsidiaries with respect to workers'
compensation laws shall not exceed $5,000,000 at any time. Each letter of credit
issued under the Existing Facility and listed on Schedule 3.1 which is
outstanding on the Closing Date shall constitute a "Letter of Credit" for all
purposes under this Agreement.
(b) Each Letter of Credit shall be issued pursuant to
and in accordance with a letter of credit application in substantially the form
attached hereto as Exhibit I or Exhibit J or such other application as shall be
acceptable to the Issuing Bank. Each Letter of Credit shall be issued in a
minimum principal amount of $5,000, and shall permit drawings upon the
presentation of one or more sight drafts; provided, however, that no more than
thirty (30) Letters of Credit shall be outstanding at any time. Each Letter of
Credit shall have an expiry which shall be a Business Day and (i) at least two
Business Days prior to the Final Maturity Date and (ii) no later than the first
anniversary of the date such Letter of Credit is issued.
(c) Immediately upon issuance by the Issuing Bank of
a Letter of Credit in accordance herewith, each other Bank shall be deemed to
have irrevocably and unconditionally purchased and received from the Issuing
Bank, without recourse or warranty, an undivided interest and participation in
such Letter of Credit, including all obligations of the Borrower with respect
thereto and any security therefor or guaranty pertaining thereto, in an amount
equal to the product of (i) the Pro Rata Share of such Bank and (ii) the stated
amount of such Letter of Credit. Each issuance of a Letter of Credit by the
Issuing Bank shall be deemed to utilize the Revolving Credit Commitment of each
Bank (other than the Issuing Bank) by an amount equal to the amount of
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such participation and to utilize the Revolving Credit Commitment of the Issuing
Bank by an amount equal to the stated amount of such Letter of Credit less the
aggregate amount of all participations therein.
SECTION 3.2. Notice. The Borrower shall give the Issuing Bank
irrevocable written, telegraphic or telex notice not later than 12:00 noon, New
York time, at least three Business Days prior to the date of requested issuance
of any Letter of Credit under this Agreement. Such notice shall refer to this
Agreement and shall include (i) a properly completed letter of credit
application on an appropriate form and (ii) a form of notice with respect to
such Letter of Credit including (A) the date of issuance (which shall be a
Business Day) (B) the principal amount, (C) the name and address of the
beneficiary, (D) whether multiple drawings should be permitted, (E) the form of
the draft and any other documents required to be presented at the time of any
drawing (such notice to attach copies of such documents) and (F) the expiry
date. Each notice pursuant to this Section 3.2 shall include a representation by
the Borrower, in form satisfactory to the Issuing Bank, as to the purpose of the
issuance thereof. The Issuing Bank shall promptly advise the Banks of any notice
given hereunder.
SECTION 3.3. Reimbursement; Repayment with Loans. (a) In the
event of a Drawing on any Letter of Credit, the Issuing Bank shall give prompt
telephonic, telecopied or telex notice to the Borrower and the other Banks of
the amount of such Drawing. If the Issuing Bank shall pay any Drawing under a
Letter of Credit, then the Borrower shall without further notice reimburse the
Issuing Bank (or the Issuing Bank shall set-off from the general account of the
Borrower) an amount equal to the amount so drawn, within one Business Day after
the date of such Drawing (but in any event before the Final Maturity Date),
together with interest on such amount at a rate per annum (calculated on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be) equal to the Alternate Base Rate. If the Issuing Bank shall pay
any Drawing under a Letter of Credit, then the Borrower's failure to pay such
Reimbursement Obligation as provided above shall be deemed to constitute a
request by the Borrower for an ABR Loan in accordance with Section 2.2, to be
made on the third Business Day following such Drawing in an amount equal to the
Reimbursement Obligation on the date such ABR Loan is to be made and the Issuing
Bank shall so notify the other Banks of such request for an ABR Loan. The
proceeds of such ABR Loan shall be applied by the Administrative Agent to pay
the Reimbursement Obligation to the Issuing Bank. If at the time of the making
of such ABR Loan, the conditions to such Loan set forth in Section 5.3 have not
been met, such ABR Loan shall still be made by the Banks but shall be due and
payable in full on the date such ABR Loan is made.
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(b) The obligations of the Borrower under this
Section 3.3 shall be absolute, unconditional and irrevocable and shall be
satisfied strictly in accordance with the terms of this Agreement and the
applicable Letter of Credit irrespective of:
(i) the lack of validity or enforceability, in
whole or in part, of any Letter of Credit;
(ii) the existence of any claim, set- off,
defense or other right which the Borrower, any Subsidiary of the
Borrower or any other Person may at any time have against the
beneficiary under such Letter of Credit, the Issuing Bank or any Bank
(other than the defense of payment in accordance with the terms of this
Agreement and the applicable Letter of Credit or a defense based on the
gross negligence or willful misconduct of the Issuing Bank) or any
other Person in connection with this Agreement or any other
transaction;
(iii) any draft or other document presented
under a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; provided, however, that payment by the
Issuing Bank under such Letter of Credit against presentation of such
draft or document shall not have constituted gross negligence or
willful misconduct of the Issuing Bank;
(iv) payment by the Issuing Bank under a Letter
of Credit against presentation of a draft or other document which does
not comply with terms of such Letter of Credit; provided, however, that
payment by the Issuing Bank under such Letter of Credit against
presentation of such draft or document shall not have constituted gross
negligence or willful misconduct of the Issuing Bank; and
(v) any other circumstance or event whatsoever,
whether or not similar to any of the foregoing; provided, however, that
such other circumstance or event shall not have been the result of
gross negligence or willful misconduct of the Issuing Bank.
It is understood and agreed that in making any payment under a Letter of Credit
(x) the Issuing Bank's exclusive reliance on the documents presented to it under
such Letter of Credit as to any and all matters set forth therein, including,
without limitation, reliance on the amount of any draft presented under such
Letter of Credit, whether or not the amount due to the beneficiary
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equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in any respect, if
such document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement proves to be inaccurate or
untrue in any respect whatsoever, and (y) any non-compliance in any immaterial
respect of the documents presented under a Letter of Credit with the terms
thereof shall, in each case, not be deemed willful misconduct or gross
negligence of the Issuing Bank.
(c) If the Issuing Bank shall pay any Drawing on a
Letter of Credit and shall not have received, for any reason, payment of the
Reimbursement Obligation (whether from the Borrower or through an ABR Loan) by
12:00 noon, New York time, on the third Business Day following such Drawing,
then the Issuing Bank shall promptly so notify, by telephonic or telex notice,
each Bank of such failure to receive payment of the Reimbursement Obligation and
each Bank shall pay to the Issuing Bank in New York, New York, in immediately
available funds, not later than 3:00 p.m., New York time on the immediately
succeeding Business Day, such Bank's Pro Rata Share of the Reimbursement
Obligation and the Issuing Bank shall assign to each such Bank its Pro Rata
Share of such Reimbursement Obligation. Notwithstanding anything contained in
this Agreement to the contrary, each Bank's obligation to make payments to the
Issuing Bank under this Section 3.3 shall be unconditional and shall survive the
termination of this Agreement.
(d) If on the date of termination of this Agreement
in accordance with Section 2.9 or Section 8.1 hereof, any Letter of Credit shall
be outstanding, then on the date of such termination and as a condition thereto,
the Borrower shall deposit in an interest-bearing account of the Collateral
Agent, for the benefit of the Banks (the "Cash Collateral Account") an amount
equal to the aggregate Letter of Credit Exposure existing on such date plus any
LC Fees payable to the last expiry date of any Letter of Credit issued
hereunder. If the Issuing Bank shall pay any Drawing after the date of
termination of this Agreement, the Administrative Agent shall make a payment to
each Bank out of the Cash Collateral Account in an amount equal to such Bank's
Pro Rata Share of the aggregate amount of such Drawing. Any amounts deposited by
the Borrower pursuant to this clause (d) (other than amounts representing fees
or expenses due hereunder) shall be returned with any interest actually earned
to the Borrower, to the extent such funds have not been used to pay
Reimbursement Obligations, on the Business Day following the latest expiry date
of any Letter of Credit issued hereunder.
(e) If on any date on which the Revolving Credit
Committee is reduced in accordance with Section 2.9, the aggregate Letter of
Credit Exposure exceeds the Revolving Credit
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Commitment in effect after giving effect to such reduction, then on such date
the Borrower shall deposit in the Cash Collateral Account an amount equal to the
amount by which the Letter of Credit Exposure then exceeds the Revolving Credit
Commitment in effect after giving effect to such reduction.
SECTION 3.4. Increased Costs. (a) Subject to compliance with
subsections (d) and (e) below, any other provision herein, if after the date of
this Agreement any change in Applicable Law or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) (i) shall change the basis of taxation of payments to any Bank of the LC
Fee or any other amounts payable hereunder in respect of the Letters of Credit
except to the extent converted to Loans (other than Taxes imposed on the overall
net income of such Bank by the jurisdiction in which such Bank has its principal
office or by any political subdivision or taxing authority therein), or (ii)
shall impose, modify or deem applicable any reserve, special deposit or similar
requirement with respect to its obligations under this Article III or the
Letters of Credit or shall impose on such Bank any other condition affecting
this Agreement with respect to the obligations of such Bank under this Article
III or the Letters of Credit, and the result of any of the foregoing shall be to
increase the cost to such Bank of issuing or participating in any Letters of
Credit or to reduce the amount of any sum received or receivable by such Bank
hereunder in respect thereof, by any amount reasonably deemed by such Bank to be
material, then the Borrower will pay such Bank, upon demand, such additional
amount or amounts as will compensate such Bank for such additional costs
incurred or reduction suffered.
(b) Subject to compliance with subsections (d) and
(e) below, if any Bank shall determine that the adoption after the date hereof
of any law, rule, regulation, agreement or guideline regarding capital adequacy,
or any change in any of the foregoing or in the interpretation or administration
of any of the foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Bank (or any Lending Office of such Bank) or such Bank's
holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Bank's capital or on the capital of such Bank's holding
company, if any, as a consequence of its obligations with respect to this
Article III or any Letter of Credit to a level below that which such Bank or
such Bank's holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies and the policies of
such Bank's holding company with respect to capital adequacy) by an amount
deemed by such Bank to be
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material, then from time to time, after submission by such Bank to the Borrower
of a written request therefor, the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such Bank's holding
company for any such reduction suffered.
(c) A certificate of any Bank setting forth such
amount or amounts and the basis for determination from time to time of such
amount or amounts as shall be necessary to compensate such Bank or its holding
company as specified in paragraph (a) or (b) above, as the case may be shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Bank the amount shown as due on any such certificate
delivered by it within 10 days after its receipt of the same.
(d) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Bank's right to demand compensation with respect
to such period, except that no Bank shall be entitled to compensation under this
Section 3.4 for any costs incurred or reduction suffered with respect to any
date unless such Bank shall have notified the Borrower that it will demand
compensation for such costs or reductions not more than nine months after the
later of (i) such date and (ii) the date on which such Bank shall have become
aware of such costs or reductions. The protection of this Section 3.4 shall be
available to any Bank regardless of any possible contention of the invalidity or
inapplicability of any law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Any Bank claiming any additional amounts payable
pursuant to this Section 3.4 shall use reasonable efforts (consistent with legal
and regulatory restrictions and such Bank's internal policies) to file any
certificate or document requested by the Borrower or change its applicable
Lending Office to another of its offices, branches or Affiliates, if the making
of such filing or change of Lending Office would avoid the need for or reduce
the amount of any such additional amount attributable to the Loans and would
not, in the sole determination of such Bank, result in any unreimbursed loss,
cost or expense or otherwise be disadvantageous to such Bank.
(f) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 3.4 shall survive the payment in full of principal and interest
hereunder.
SECTION 3.5. Letter of Credit Fees. (a) The Borrower agrees to
pay each Bank a letter of credit fee (the "LC Fee"), on the last Business Day of
each March, June, September and
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December, equal to such Bank's Pro Rata Share of the then applicable Eurodollar
Margin (determined in accordance with Section 2.4(c)) per annum of the average
daily Letter of Credit Exposure existing from time to time during the fiscal
quarter ending on such date of payment. In addition, the Borrower agrees to pay
to the Issuing Bank, on demand, the customary documentation fees for each Letter
of Credit issued by the Issuing Bank (including reasonable fees of counsel). LC
Fees shall be calculated on the basis of the actual number of days elapsed over
a year of 360 days.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of Holdings and the Borrower, jointly and severally,
represent and warrant to each of the Banks that:
SECTION 4.1. Organization. Each of Holdings and each of its
Subsidiaries is a company duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, has all
requisite power and authority to own its property and assets and to carry on its
business as currently conducted and is qualified to do business in each
jurisdiction in which the nature of the business conducted or the property owned
or leased by it requires such qualification except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
SECTION 4.2. Corporate Power and Authority; No Required
Consents or Approvals. (a) The Borrower and each Guarantor has the power to
execute, deliver and perform its obligations under each Loan Document to which
it is a party, to borrow hereunder (if applicable), to grant Liens pursuant to
the Financing Documents to which it is a party and to deliver any Notes to be
delivered by it hereunder.
(b) The execution, delivery and performance by the
Borrower and each Guarantor of each Loan Document to which it is a party, the
borrowings to be made hereunder by the Borrower, the grant by each of the
Borrower and each Guarantor of Liens pursuant to the Financing Documents to
which it is a party and the execution and delivery of the Notes by the Borrower
have been duly authorized by all required company and stockholder action of such
Person and will not (i) violate any provision of Applicable Law, any
Organizational Document, or any indenture or other material agreement or
instrument to which the Borrower or any Guarantor is a party, or by which the
Borrower or any Guarantor or any of their respective properties are or may be
bound, (ii) conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under any such indenture, material
agreement or instrument to which the Borrower
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or any Guarantor is a party, or by which the Borrower or any Guarantor or any of
their respective properties are or may be bound or (iii) result in the creation
or imposition of any Lien (other than a Permitted Lien) upon any property of the
Borrower or any Guarantor.
(c) No registration with or consent or approval of,
or other action by, any Governmental Authority is or will be required in
connection with the execution, delivery and performance by any Guarantor or the
Borrower of any Loan Document to which it is a party, any borrowings hereunder
(if applicable) or the grant of Liens by any Guarantor or the Borrower pursuant
to the Financing Documents to which it is a party.
SECTION 4.3. Enforceability. Each Loan Document has been duly
executed and delivered by the Borrower or Guarantor party thereto and
constitutes the legal, valid and binding obligation of the Borrower or such
Guarantor enforceable in accordance with its terms, subject as to matters of law
to any exceptions set forth in the legal opinions delivered pursuant to Section
5.1(m) of this Agreement
SECTION 4.4. Financial Statements; No Undisclosed Liabilities.
(a) Except as set forth on Schedule 4.4(a), the audited consolidated financial
statements of Holdings and its Subsidiaries for the Fiscal Year ended December
31, 1993 (the "Audited Financial Statements"), (i) fairly present in all
material respects the financial position of Holdings and its Subsidiaries at the
dates thereof and their respective results of operations for the periods covered
therein in accordance with GAAP (except as set forth in the notes to such
financial statements) and (ii) disclose all material liabilities, including
contingent and/or unmatured liabilities, of Holdings and its Subsidiaries as of
the dates thereof, which are required to be disclosed thereon in accordance with
GAAP.
(b) Except as set forth on Schedule 4.4(b), neither
Holdings nor any Subsidiary has any obligations or liabilities, contingent,
unmatured or otherwise, which are material to Holdings and the Subsidiaries
considered as a whole and which have not been disclosed in the unaudited
consolidated financial statements of Holdings and its subsidiaries for the
nine-month period ending September 30, 1994 (the "Unaudited Financial
Statements"; and the Unaudited Financial Statements collectively with the
Audited Financial Statements, the "Financial Statements").
SECTION 4.5. No Material Adverse Change. As of the date
hereof, there has been no material adverse change in the business, assets,
operations or condition (financial or otherwise) of Holdings and the
Subsidiaries taken as a whole since September 30, 1994.
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SECTION 4.6. Litigation. To the knowledge of Holdings and its
Subsidiaries, there are no actions, suits or proceedings at law or in equity
instituted or threatened against or directly affecting Holdings or any such
Subsidiary or any of their respective businesses, properties or rights which, if
adversely determined, would result in a Material Adverse Effect.
SECTION 4.7. Compliance with Laws. Neither Holdings nor any of
its Subsidiaries is in violation of, or in default with respect to, any
Applicable Law (including, without limitation, any Environmental Law), other
than any such violations or defaults which, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.8. Employee Benefit Plans. Holdings, each of its
Domestic Subsidiaries, each Plan and each "employee benefit plan" (within the
meaning of Section 3(3) of ERISA) maintained by Holdings or any of its Domestic
Subsidiaries is in compliance in all material respects with all provisions of
ERISA (or similar legislation in the jurisdiction in which a Domestic Subsidiary
is organized) which are applicable thereto. No Reportable Event within the
preceding six years has occurred with respect to any Single Employer Plan as to
which Holdings or any of its Domestic Subsidiaries was required to file a report
with the PBGC. No Single Employer Plan has any material unfunded liability that
subjects such Plan to additional funding requirements under Section 412(l) of
the Code. No Single Employer Plan has an accumulated or waived funding
deficiency or an extension of amortization periods for unfunded liability as
reflected in its funding standard account within the meaning of Section 412 of
the Code. Neither Holdings, any of its Domestic Subsidiaries nor any ERISA
Affiliate thereof has incurred any material liability to or on account of a Plan
pursuant to Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to
incur any liability under any of the foregoing Sections on account of the
termination of participation in or contributions to any Plan. No proceedings
have been instituted to terminate any Plan in other than a "standard
termination" under Section 4041(b) of ERISA. No condition exists which presents
a material risk to Holdings or any of its Domestic Subsidiaries of incurring a
material liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code. No Lien imposed under the Code or ERISA on the
assets of Holdings or any of its Domestic Subsidiaries exists or is likely to
arise on account of any Plan. Except as set forth on Schedule 4.8, Holdings and
each of its Domestic Subsidiaries may terminate contributions to any other
employee benefit plans maintained by it without incurring any material liability
to any Person interested therein (other than claims for benefits incurred or
payable under the terms of such plans in the ordinary course of business and
plans maintained pursuant to collective bargaining agreements).
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SECTION 4.9. Taxes. Each of Holdings and each of its
Subsidiaries has filed or caused to be filed all federal, state, local and
foreign tax returns which, to its best knowledge, are required to be filed by
it, and have paid or caused to be paid all taxes shown to be due and payable on
such returns or on any assessments received by it, other than any taxes or
assessments the validity of which it is contesting in good faith by appropriate
proceedings and with respect to which adequate accounting reserves have been set
aside to the extent required by GAAP.
SECTION 4.10. Title to Properties. (a) Except as set forth on
Schedule 4.10(a), Holdings or a Subsidiary has good title, of a quality
commensurate with prudent standards of business practice, to all of the
properties and assets purported to be owned by them (excluding unpatented mining
claims), including all properties reflected on the Financial Statements
(including real property, tangible and intangible personal property, minerals,
whether or not extracted from the ground, and other mineral rights), except
properties and assets disposed of from the date of the most recent Financial
Statement through the Closing Date in the ordinary course of business. No Lien
exists with respect to any such assets or properties other than Permitted Liens.
(b) Holdings and its Subsidiaries, own, or are
licensed to use, all trademarks, tradenames, patents, patent applications,
copyrights, technology, know-how, processes and other intellectual and
proprietary rights (collectively, the "Intellectual Property") necessary for the
conduct of their respective businesses, except where the failure to own or
license such Intellectual Property would not have a Material Adverse Effect.
Schedule 4.10(b) attached hereto contains a list of all patents, patent
applications, trademark and service mark registrations and applications
therefor, and copyright registrations and applications therefor, purported to be
owned by Holdings. Except as set forth on Schedule 4.10(b), no claim has been
asserted and is pending by any Person with respect to the use by Holdings or any
of its Subsidiaries of any such Intellectual Property, or challenging or
questioning the validity or effectiveness of any such Intellectual Property
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.
SECTION 4.11. Business. Except as set forth on Schedule 4.11
attached hereto, Holdings and its Subsidiaries have engaged (and are currently
engaged) only in the mining, processing and sale of diatomite, perlite and other
industrial minerals, the manufacture and sale of silicates and other filtration
products for industrial and retail applications and the provision of related
services (the "Business").
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SECTION 4.12. Agreements. Neither Holdings nor any of its
Subsidiaries is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any material agreement
or instrument the breach of which would result in a Material Adverse Effect.
SECTION 4.13. No Material Misstatements. No information,
report, financial statement, exhibit or schedule contained in or attached to the
Loan Documents or set forth on Schedule 4.13 contains any misstatement of
material fact or omits to state any material fact necessary to make such
statements, in light of the circumstances under which they were made, not
misleading.
SECTION 4.14. Related Party Transactions. The terms of any
transactions between Holdings and any of its Subsidiaries, on the one hand, and
any Affiliate of Alleghany which is not a Subsidiary, on the other hand, were
not materially less favorable to Holdings and its Subsidiaries than terms
obtainable in a comparable arm's-length transaction between non-affiliated
parties (it being understood that such transactions have not been submitted for
competitive bids by unrelated Persons).
SECTION 4.15. Labor Matters and Acts of God. Neither Holdings
nor any of its Subsidiaries has been affected by any fire, explosion, accident,
strike, lockout or other labor dispute since September 30, 1994, which has had a
Material Adverse Effect.
SECTION 4.16. Outstanding Debt. Neither Holdings nor any of
its Subsidiaries has outstanding Indebtedness, directly or indirectly, except
Permitted Indebtedness. There does not exist, and, after giving effect to the
transactions contemplated by the Loan Documents, there will not exist, any
material default under any instrument or agreement relating to or evidencing any
direct or indirect Indebtedness of Holdings or any of its Subsidiaries (or any
event which, with only the giving of notice or the passage of time or both,
would result in such a breach or default).
SECTION 4.17. Federal Reserve Regulations. The making of the
Loans hereunder to the Borrower, the use by the Borrower of the proceeds thereof
as contemplated hereby and the security arrangements contemplated hereby and by
the Financing Documents, will not violate or be inconsistent with any of the
provisions of Regulation G, Regulation T, Regulation U or Regulation X.
SECTION 4.18. Investment Company Act and Public Utility
Holding Company Act. Neither Holdings nor any of its Subsidiaries is an
"investment company" or Affiliate of an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, as amended, or
is a
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"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935, as amended.
SECTION 4.19. Security Interests. The provisions of each
Collateral Agreement to which the Borrower or any Guarantor is a party is
effective to create in favor of the Collateral Agent, on behalf of the Banks, a
valid, binding and perfected security interest in and Lien on all right, title
and interest of the Borrower and such Guarantor in all of the Collateral. Upon
the delivery of the shares of capital stock to be pledged, such security
interests and Liens shall have first priority for all purposes over any other
Lien (other than Permitted Liens with higher priority under Applicable Law) on
the Collateral.
SECTION 4.20. Capital Stock; Subsidiaries. (a) The authorized
capital stock of Holdings consists of 200,000 shares of Common Stock, $1.00 par
value, and 1,700 shares of Preferred Stock, $1.00 par value, of which 80,000
shares of Common Stock are validly issued, fully paid and nonassessable and are
outstanding and owned beneficially and of record in the amounts and by the
Persons set forth on Schedule 4.20 hereto. Except for the option held by William
J. Woods, Jr., a copy of which has been previously delivered to the
Administrative Agent, no Person holds any option, warrant, stock subscription or
other right to acquire any capital stock of Holdings and no securities
convertible into or exercisable or exchangeable for any capital stock of
Holdings have been authorized or issued.
(b) The authorized capital of the Borrower consists
of 1,000 shares of common stock, par value $1.00 per share (the "Borrower Common
Stock") all of which shares are validly issued, fully paid and nonassessable and
are outstanding. All of the shares of Borrower Common Stock are owned
beneficially and of record by Holdings and pledged to the Collateral Agent for
the benefit of the Banks as provided in the Holdings Pledge Agreement. No Person
holds any option, warrant, stock subscription or other right to acquire any
capital stock of the Borrower and no securities convertible into or exercisable
or exchangeable for any capital stock of the Borrower have been authorized or
issued. Except for the pledge provided for in the Holdings Pledge Agreement, no
Person has any Lien against any capital stock of the Borrower.
(c) The authorized capital of Celite consists of
1,000 shares of common stock, par value $1.00 per share (the "Celite Common
Stock") all of which shares are validly issued, fully paid and nonassessable and
are outstanding. All of the shares of Celite Common Stock are owned beneficially
and of record by the Borrower and pledged to the Collateral Agent for the
benefit of the Banks as provided in the Pledge Agreement. No Person holds any
option, warrant, stock subscription or other right to acquire any capital stock
of Celite and no securities convertible into or exercisable or exchangeable for
any capital
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stock of Celite have been authorized or issued. Except for the pledge provided
for in the Pledge Agreement and as set forth on Schedule 4.20, no Person has any
Lien against any capital stock of Celite.
(d) The authorized capital stock of Harborlite
consists of 1,000,000 shares of Common Stock, $1.00 par value (the "Harborlite
Common Stock"), and 40,000 shares of Preferred Stock, $1.00 par value, (the
"Harborlite Preferred Stock"). 88,551.69 shares of Harborlite Common Stock and
25,871.47 shares of Harborlite Preferred Stock are validly issued and
outstanding, fully paid and nonassessable and owned beneficially and of record
by the Borrower and pledged to the Collateral Agent for the benefit of the Banks
as provided in the Pledge Agreement. Schedule 4.20 sets forth a list of each
Person holding any option, warrant, stock subscription or other right to acquire
any capital stock of Harborlite and any securities convertible into or
exercisable or exchangeable for any capital stock of Harborlite. Except for the
pledge provided for in the Pledge Agreement and the Liens granted in the
Harborlite Documents, no Person has any Lien against any capital stock of
Harborlite.
(e) The authorized capital of each Subsidiary (other
than the Borrower, Celite and Harborlite) is set forth opposite such
Subsidiary's name on Schedule 4.20 attached hereto. All of the shares listed on
Schedule 4.20 are validly issued, fully paid and nonassessable and are
outstanding and owned beneficially and of record in the amounts and by the
Persons set forth thereon and 65% of such shares have been pledged to the
Collateral Agent for the benefit of the Banks as provided in the Celite Pledge
Agreement. No person holds any option, warrant, stock subscription or other
right to acquire any capital stock of any Subsidiary and no securities
convertible into or exercisable or exchangeable for any capital stock of such
Subsidiary have been authorized or issued. Except for the pledge provided for in
the Celite Pledge Agreement, no Person has any Lien against any capital stock of
any Subsidiary.
(f) Schedule 4.20 attached hereto sets forth a
correct and complete list of each Person (other than the Subsidiaries) in whom
the Borrower or any Subsidiary presently owns, directly or indirectly, any
ownership interest (other than securities representing less than 10% of the
aggregate ownership interest of Persons making periodic reports under the
Securities Exchange Act of 1934, as amended, or similar foreign laws). Except as
set forth on Schedule 4.20, Holdings and/or a Subsidiary has the absolute right
and power to sell, assign, convey and transfer any right or benefit incident to
the ownership thereof.
(g) Annex IV attached hereto sets forth a list of
each Subsidiary which is material to Holdings and its Subsidiaries viewed on a
consolidated basis.
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ARTICLE V
CONDITIONS TO LENDING
SECTION 5.1. Loans on the Closing Date. The obligations of the
Banks to make Loans hereunder and the obligations of the Issuing Bank to issue
Letters of Credit hereunder, in each case on the Closing Date, are subject to
the satisfaction of the following conditions:
(a) Notes. The Administrative Agent shall have
received duly executed Notes from the Borrower complying with the provisions of
Section 2.1(b) and Section 2.2(d).
(b) Corporate Documents. The Administrative Agent
shall have received (i) a copy of each Organizational Document of Holdings, the
Borrower and Celite, including all amendments thereto, certified, as of a recent
date by an appropriate public official of its jurisdiction of incorporation and
a certificate as to the good standing and charter documents from such public
official as of a recent date, (ii) a certificate of the Secretary or Assistant
Secretary of each Guarantor and the Borrower dated the Closing Date and
certifying (A) that attached thereto is a correct and complete copy of the
by-laws of such Person as in effect on the Closing Date and at all times since a
date prior to the date of the resolutions described in clause (B) below, (B)
that attached thereto is a correct and complete copy of resolutions duly adopted
by the Board of Directors of such Person, authorizing the execution, delivery
and performance of the Loan Documents, the borrowings hereunder (if applicable),
the granting of Liens pursuant to the Financing Documents and the other
transactions contemplated hereby, (C) that the certificate of incorporation of
such Person has not been amended since the date of the last amendment thereto
shown on the certificate of good standing furnished pursuant to clause (i)
above, and (D) as to the incumbency and specimen signature of each officer of
such Person executing any Loan Document or any other document delivered in
connection herewith, (iii) a certificate of another officer of such Person as to
the incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above, (iv) a certificate from the
Secretary of State of each state in the United States in which such Person
conducts material business or owns material assets, as to the qualification of
such Person to do business and its good standing in such state, and (v) such
other documents as the Administrative Agent, or O'Sullivan Graev & Karabell,
LLP, counsel to the Banks, may reasonably request.
(c) Lien Search. The Collateral Agent shall have
received and be reasonably satisfied with the results of a search of the Uniform
Commercial Code filings made with respect to each Guarantor and the Borrower in
the jurisdictions listed on Annex
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V, which shall not have disclosed any prior Lien or security interest in the
Collateral, other than (A) Permitted Liens and (B) any Liens being released
contemporaneously with the Closing.
(d) No Defaults. The Borrower and each Guarantor
shall be in compliance with the terms and provisions set forth in each Loan
Document to which it is a party, and at the time of and immediately after the
consummation of the transactions contemplated hereby, no Event of Default or
Default shall have occurred and be continuing.
(e) Insurance. Holdings and its Subsidiaries shall
have delivered to the Administrative Agent certificates of insurance complying
with Section 6.12.
(f) Requisite Approvals. Holdings and its
Subsidiaries shall have obtained all required governmental and other consents,
licenses, permits and approvals relating to the transactions contemplated hereby
and the other Loan Documents, including all necessary permits and licenses to
operate the Business in the manner such Business has previously been conducted,
except for any consent, license, permit or approval the failure of which to
obtain would not reasonably be expected to have a Material Adverse Effect.
(g) Security. The Financing Documents shall be in
full force and effect and no default or event of default shall have occurred and
be continuing thereunder. Each Guarantor and the Borrower shall have delivered
to the Collateral Agent all certificates representing shares of capital stock of
any Subsidiary to be pledged to the Collateral Agent on behalf of the Bank in
connection with the transactions contemplated by this Agreement, accompanied by
blank undated stock powers and duly executed for transfer.
(h) Representations and Warranties. The
representations and warranties of Holdings and the Borrower contained herein, in
any other Loan Document and in any certificate or other instrument delivered
pursuant to this Agreement or any Loan Document shall be correct in all material
respects as though made on and as of such date.
(i) Officer's Certificate. The Administrative Agent
shall have received certificates signed by a Responsible Officer of Holdings and
the Borrower confirming the satisfaction of the conditions precedent set forth
herein on and as of the Closing Date.
(j) Fees and Expenses. All fees and other
consideration owing by Holdings or any of its Subsidiaries to the Banks under
the terms of the Fee Letter, this Agreement, the other Loan Documents, or any
other document executed in connection herewith shall have been paid in full.
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(k) Legal Matters. All matters relating to this
Agreement, the other Loan Documents and the transactions contemplated hereby and
thereby shall be satisfactory to the Co-Agents and O'Sullivan Graev & Karabell,
LLP, counsel to the Banks. The Administrative Agent shall have received a legal
opinion from Orrick Herrington & Sutcliffe, satisfactory in form and substance
to O'Sullivan Graev & Karabell, LLP, counsel to the Banks.
SECTION 5.2. Revolving Loans Made After Closing Date. The
obligation of the Banks to make Revolving Loans to the Borrower hereunder from
time to time after the Closing Date are subject to the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.17, 4.18
and 4.19 shall be correct and complete as of the date of such Revolving Loan.
(b) Compliance. The Borrower and each Guarantor shall
be in compliance in all material respects with the terms and provisions set
forth in each Loan Document to which it is a party, and at the time of and
immediately following the consummation of such Revolving Loan or Revolving
Loans, no Default or Event of Default shall have occurred and be continuing.
(c) Notice of Borrowings. The Borrower shall have
provided (i) a notice of borrowing to the Administrative Agent in substantially
the form of Exhibit K and (ii) all other documents reasonably requested by the
Banks related to the making of Revolving Loans hereunder.
(d) Officer's Certificate. The Administrative Agent
shall have received a certificate executed by a Responsible Officer of Holdings
and the Borrower certifying as to the matters set forth in clauses (a) and (b)
above.
SECTION 5.3. Letters of Credit Issued After the Closing Date.
The obligation of the Issuing Bank to issue Letters of Credit hereunder from
time to time after the Closing Date are subject to the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.17, 4.18
and 4.19 shall be correct and complete as of the date of issuance of such Letter
of Credit.
(b) Compliance. The Borrower and each Guarantor shall
be in compliance in all material respects with the terms and provisions set
forth in each Loan Document to which it is a party, and at the time of and
immediately following the issuance
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of such Letter of Credit, no Default or Event of Default shall have occurred and
be continuing.
(c) Notice. The Borrower shall have provided the
notice required by Section 3.2 hereof.
(d) Officer's Certificate. The Administrative Agent
shall have received a certificate executed by a Responsible Officer of Holdings
and each Borrower certifying as to the matters set forth in clauses (a) and (b)
above.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each of the Borrower and each Guarantor, jointly and
severally, covenants and agrees with each Bank that, so long as this Agreement
shall remain in effect or any Obligation is outstanding, without the written
consent of the Majority Banks, it will, and it will cause each Subsidiary to:
SECTION 6.1. Corporate Existence. Do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its
corporate existence and any necessary state or foreign qualifications (other
than any qualifications the absence of which, in the aggregate, would not result
in a Material Adverse Effect).
SECTION 6.2. Obligations and Taxes. Pay or discharge, or cause
to be paid or discharged, before the same shall become delinquent (i) all taxes,
assessments and governmental charges or levies lawfully imposed upon it or upon
its income or profits or in respect of its property, (ii) all mineral and other
royalties, (iii) all lawful claims for labor, materials and supplies, (iv) all
required payments under any Permitted Indebtedness and (v) all other
Obligations; provided, however, that it shall not be required to pay or
discharge or to cause to be paid or discharged any such amount so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and, if required by GAAP, appropriate reserves or accruals have been
made with respect thereto.
SECTION 6.3. Performance Under Agreements. Perform its
obligations under this Agreement, each Collateral Agreement, Loan Document and
each other material indenture, agreement or other instrument to which it is a
party; provided, however, that it shall not be required to so perform its
obligations under any such other material indenture, agreement or other
instrument to the extent it shall reasonably believe in good faith that such
performance is not required and, if required by GAAP, appropriate reserves or
accruals have been made with respect thereto.
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SECTION 6.4. Access to Properties and Inspections. Maintain
financial records in accordance with reasonable and prudent accounting practices
and controls sufficient to prepare the financial statements required by Section
6.11 and, upon reasonable written notice, at all reasonable times and as often
as any Bank may reasonably request, permit any authorized representative of any
Bank to visit and inspect its properties and records during normal business
hours, and to make extracts from such records and permit any authorized
representative of any Bank to discuss its affairs, finances and condition with
such officers and, with the consent of an Executive Officer (which consent shall
not be unreasonably withheld), with its independent public accountants, in each
case as any Bank shall deem appropriate.
SECTION 6.5. Defense of Claims. Use reasonable commercial
efforts to vigorously defend itself and its properties from and against any
lawsuits or claims which could reasonably be expected to result in a Material
Adverse Effect unless the Borrower reasonably believes it has no good faith
defense to any such lawsuit or claim.
SECTION 6.6. Notices of Litigation or Claims. Promptly upon
obtaining notice of the commencement thereof, provide the Administrative Agent
with written notice of any of the following events which could reasonably be
expected to have a Material Adverse Effect:
(a) the issuance by any court or Governmental
Authority of any injunction, order or decision involving Holdings or
any Subsidiary or any of their respective properties;
(b) the filing or commencement of any action, suit or
proceeding against or affecting Holdings or any Subsidiary or any of
their respective properties whether at law or in equity or by or before
any court or any federal, state, municipal, foreign or other
Governmental Authority;
(c) any imposition by any Governmental Authority of a
Lien which is not a Permitted Lien;
(d) any claim, demand or action impairing title to
any of the properties or assets of Holdings or any Subsidiary; and
(e) any other adverse action by or notice from a
Governmental Authority with respect to Holdings or any Subsidiary or
any of their respective properties (including any such action under any
Environmental Law).
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SECTION 6.7. Notice of Certain Actions. Furnish as promptly as
possible after obtaining knowledge of the occurrence thereof, written notice of
(a) any Default hereunder, (b) any default by Holdings or any Subsidiary under
any other material agreement or instrument evidencing Indebtedness, (c) any
development in the business or affairs of Holdings or any Subsidiary which is
likely, in the reasonable judgment of Holdings, to have a Material Adverse
Effect or (d) the sale by Alleghany of any capital stock of Holdings, in each
case specifying, as applicable, (i) the nature and extent thereof, (ii) any
rights of any other parties thereto with respect to termination, acceleration or
similar provisions and (iii) any corrective action taken or proposed to be taken
with respect thereto.
SECTION 6.8. Compliance. Comply with all Applicable Laws
(including ERISA and Environmental Laws), and maintain all required clearances,
consents, permits and governmental approvals, if the failure to comply with such
Applicable Laws or failure to maintain such clearances, consents, permits and
governmental approvals could reasonably be expected to result in a Material
Adverse Effect.
SECTION 6.9. Further Assurances. Duly execute and deliver, or
cause to be duly executed and delivered, at its own cost and expense, such
further documents as may be necessary or proper in the reasonable judgment of
the Administrative Agent to carry out the provisions and purposes of this
Agreement and the other Loan Documents and to maintain and preserve the
perfection and priority of the Liens granted pursuant to the Financing
Documents.
SECTION 6.10. Business and Properties. (a) At all times do or
cause to be done all things necessary to (i) preserve, renew and keep in full
force and effect the rights, licenses, permits, franchises and mining
concessions necessary to, or used or useful in the conduct of, its Business;
provided, however, that Holdings and the Subsidiaries will not be required to
preserve, renew or maintain any right, license, permit or franchise if the Board
of Directors of the Borrower shall determine that the preservation thereof is no
longer desirable in the conduct of the business of such Person, and (ii) keep
its properties used or useful in the conduct of its business in good repair,
working order and condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals and replacements, betterments and
improvements thereto, all as in the judgment of Holdings or such Subsidiary may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 6.10 shall prevent Holdings and any Subsidiary from
discontinuing the operation or maintenance of any of its properties if such
discontinuance is, in the judgment of
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the Board of Directors of Borrower, desirable in the conduct of
the business of such Person.
(b) As promptly as possible after obtaining knowledge
of the occurrence thereof, furnish written notice to the Collateral Agent of the
institution of any proceeding for the condemnation or other taking of any
material property of Holdings or its Subsidiaries. An award, proceeds or other
amounts paid or payable as a result of, in connection with or in any way related
to a condemnation or taking of, or exercise by any Governmental Authority of
eminent domain over, any property of Holdings or its Subsidiaries shall be paid,
promptly upon receipt, to the Collateral Agent and disbursed in accordance with
Section 6.14(c) of this Agreement as if such proceeds were insurance proceeds.
SECTION 6.11. Financial Statements and Reports.
Furnish to the Administrative Agent:
(a) within 120 days after the end of each Fiscal Year
(commencing with the Fiscal Year ending December 31, 1994),
consolidated and consolidating balance sheets, income statements, cash
flow statements and comparisons to budget showing their financial
condition as of the close of such Fiscal Year and the results of their
operations during such year of Holdings and the Subsidiaries, the
consolidated financial statements to be audited by independent
accountants of nationally recognized standing and prepared in
accordance with GAAP;
(b) within 120 days after the end of each Fiscal
Year, current and projected annual and cumulative budgets, operating
plans and financial projections for Holdings and the Subsidiaries on a
consolidated and consolidating basis, for such Fiscal Year and the next
four succeeding Fiscal Years;
(c) within 60 days after the end of the first three
fiscal quarters of each Fiscal Year, commencing March 31, 1995, the
unaudited consolidating and consolidated balance sheets, income
statements and cash flow statements (along with comparisons to budget),
showing the financial condition and results of operations of Holdings
and the Subsidiaries, as at the end of each such quarter and for the
then elapsed portion of the fiscal year, in each case prepared in
accordance with GAAP;
(d) concurrently with the financial statements
delivered pursuant to Section 6.11(a) and (c), certificates of a
Financial Officer of Holdings and concurrently with the financial
statements delivered pursuant to Section 6.11(a) certificates of
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the independent auditors of Holdings, certifying that no Default or
Event of Default has occurred or, if such a Default or Event of Default
has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto;
(e) concurrently with the statements delivered
pursuant to Section 6.11(a) and (c), a report, in form and substance
satisfactory to the Banks, describing (i) the compliance activities of
Holdings or any Subsidiary undertaken with respect to applicable
Environmental Law and (ii) describing any material notice, charge or
complaint received by Holdings or any Subsidiary from any Governmental
Authority with respect to any Environmental Law;
(f) concurrently with the statements delivered
pursuant to Section 6.11(a) and (c), certificates of a Financial
Officer of Holdings, certifying for the fiscal period then ended and as
of the last day of such fiscal period compliance with the covenants set
forth in Sections 7.11, 7.12 and 7.13 hereof, in each case showing the
calculation thereof; and
(g) promptly, from time to time, such other
information regarding the operations, business affairs and financial
condition of Holdings and the Subsidiaries as any Bank may reasonably
request.
Each consolidated financial statement delivered in accordance with this
Agreement shall be accompanied by a certificate of a Financial Officer of
Holdings, (and, in the case of year-end financial statements and reports, the
independent auditors of Holdings) certifying that such statement fairly presents
in all material respects the consolidated financial position and results of
operations of Holdings and each Subsidiary at the dates thereof and for the
periods then ended and has been prepared in accordance with GAAP, subject to
normal year-end adjustments, as appropriate.
SECTION 6.12. Insurance. (a) Maintain insurance (including,
without limitation, business interruption insurance) on the business and
properties of Holdings and each Subsidiary to such extent and against such
risks, including fire and other risks insured against by extended coverage, as
is customary with companies similarly situated and in the same or similar
businesses, provided that primary insurance coverages for property and general
liability will at all times be provided by insurance carriers rated at least A+,
A1 or A by Standard & Poor's Corporation, Moody's Investors Services or A.M.
Best, respectively.
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(b) Maintain in full force and effect workers'
compensation insurance (with respect to the Domestic Subsidiaries only) and
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with, the use of any
properties owned, occupied or controlled by Holdings or any Subsidiary, in each
case as such Person shall deem reasonably necessary.
(c) Each insurance policy required under Section
6.12(a) shall contain endorsements in form satisfactory to the Collateral Agent
providing, among other things, that any loss shall be payable in accordance with
the terms of such policy notwithstanding any act of Holdings or any Subsidiary
which might otherwise result in forfeiture of such insurance and that the
insurer waives all rights of set-off, counterclaim, deduction or subrogation
against Holdings or any Subsidiary.
SECTION 6.13. Mining Plan. Prepare and deliver to the Banks
(a) on each anniversary of the Closing Date, an annual calculation of minable
reserves for the Lompoc, California, Zacoalco, Mexico, Quincy, Washington,
Alicante, Spain, Murat, France and No Aqua, New Mexico mining properties
together with a detailed five-year mine plan for such reserves and a conceptual
mine plan for recovery of such reserves for an additional five year period and
(b) within 12 months of any Permitted Acquisition which involves material mining
properties, the mine plans described in clause (a) above prepared with respect
to such acquired mining properties.
SECTION 6.14. Interest Rate Hedges. From and after the date
hereof, maintain hedging or interest rate protection agreements acceptable to
the Majority Banks. Prior to entering into any such arrangement, the Borrower
shall (a) notify the Banks of all material terms thereof, (b) provide the Banks
time to prepare bids on such hedging and/or interest rate protection
arrangements and (c) consider in good faith the terms of a Bank's bid, if any;
provided, however, that, in connection with any such hedging or interest rate
protection agreement, the Borrower shall only be required to provide each Bank
with one opportunity to bid on such hedge or interest rate protection
arrangement.
SECTION 6.15. ERISA. (a) Comply in all material respects with
the provisions of ERISA (or other similar legislation in the jurisdiction in
which such Subsidiary is organized) applicable to the Plans or any "employee
benefit plan" (within the meaning of Section 3(3) of ERISA) maintained by
Holdings or any Subsidiary and (b) furnish to each Bank, as soon as possible,
and in any event within 30 days after any Responsible Officer of Holdings or any
Subsidiary knows or has reason to know of the following events: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan or any withdrawal from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan or (ii) the institution
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of proceedings or the taking of any other action by the PBGC, the Borrower or
any ERISA Affiliate, or any Multiemployer Plan with respect to the withdrawal
from, or the terminating, Reorganization or Insolvency of, any Plan, a
certificate of a Financial Officer of the Borrower setting forth the details
thereof and the action that Holdings or such ERISA Affiliate proposes to take
with respect thereto.
SECTION 6.16. Proceeds. Use the proceeds of the Loans solely
for the purposes set forth in the Preamble to this Agreement.
ARTICLE VII
NEGATIVE COVENANTS
Each of the Borrower and each Guarantor jointly and severally
covenants and agrees with each Bank that, so long as this Agreement shall remain
in effect or any Obligation is outstanding, without the written consent of the
Majority Banks, it will not, and will not permit any Subsidiary to:
SECTION 7.1. Indebtedness. Incur, create, assume or
permit to exist any Indebtedness, except:
(a) Indebtedness under this Agreement and
the other Loan Documents;
(b) Indebtedness between or among Holdings and the
Subsidiaries which (i) in each instance is unsecured and (ii) if the
issuer of such Indebtedness is the Borrower or Celite, such
Indebtedness is subordinate in all respects to the payment in full of
all Obligations under the Facility;
(c) any obligations in respect of forward sales
contracts, commodities futures, options or similar hedging arrangements
regarding commodities entered into with the written consent of the
Majority Banks;
(d) any Letter of Credit issued hereunder;
(e) endorsements for collection or deposit
in the ordinary course of business;
(f) purchase money security interests created in
the ordinary course and not to exceed $5,000,000 at any time
outstanding;
(g) the Permitted Subsidiary Indebtedness;
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(h) Indebtedness to Alleghany (i) not to exceed $10
million and (ii) which is subordinated in all respects to the payment
in full of the Obligations of the Guarantors and the Borrowers to the
Banks in accordance with the Alleghany Subordination Agreement;
(i) Indebtedness of the Borrower arising in
connection with (i) the guaranty by the Borrower of certain obligations
of Harborlite Corporation, a California corporation ("Old Harborlite"),
which were guaranteed by the stockholders of Old Harborlite prior to
the closing under the Harborlite Documents or (ii) the Borrower's
indemnification under the Harborlite Documents of the stockholders of
Old Harborlite from and against certain liabilities of Old Harborlite
which were guaranteed by such stockholders; and
(j) Indebtedness arising under one or more
carnets obtained in the ordinary course of business.
SECTION 7.2. Negative Pledge. Incur, create, assume or suffer
or permit to exist any Lien on any property or assets (including the capital
stock of any Subsidiary) or on any income or rights in respect of any thereof,
except:
(a) Liens granted to the Collateral Agent in favor of
the Banks pursuant to this Agreement, the Financing Documents, or any
other Loan Document;
(b) Liens incurred and arising out of surety bonds,
appeal bonds, statutory obligations, bids, performance and return of
money and similar obligations and pledges or deposits made in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, old age pensions and other social security
benefits;
(c) Liens imposed by law, including carriers',
warehousemen's, mechanics', materialmen's and vendors' Liens incurred
in the ordinary course of business and securing obligations which are
not yet due or which are being contested in good faith by appropriate
proceedings and as to which it shall have set aside adequate reserves
in accordance with GAAP;
(d) Liens securing the payment of Taxes, assessments
and governmental charges or levies, either not yet delinquent or being
contested in good faith by appropriate legal or administrative
proceedings and as to which it shall have set aside adequate reserves
in accordance with GAAP;
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(e) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions
on the use of property or minor irregularities of title which do not in
the aggregate impair the use of any parcel of property material to the
operation of the business of Holdings or any Subsidiary or the value of
such property for the purpose of the business of Holdings or any
Subsidiary (it being understood that the existing conditions set forth
on Schedule 4.10(a) constitute Permitted Liens hereunder);
(f) Liens constituting purchase money security
interests permitted by Section 7.1(f) hereof;
(g) Liens described on Schedule 7.2 attached hereto;
(h) Liens on the capital stock of Harborlite arising
under the New Harborlite Corporation Shareholders Agreement dated
November 13, 1992, among Robert W. Blunt, David W. Blunt, William G.
Blunt, Dorothy L. Blunt Residential Trust U/T/A dated April 13, 1990,
Susan B. Blunt, Harborlite and the Borrower;
(i) extensions and renewals of Liens permitted
hereunder; provided, however, that the Indebtedness secured thereby is
not increased and the Lien does not encumber any property not
encumbered by the Lien so extended or renewed; and
(j) Liens on assets acquired in an Acquisition
permitted under Section 7.7.
Notwithstanding anything herein to the contrary, neither the Borrower nor any
Guarantor shall create, incur, assume, or suffer or permit to exist any Lien on
the capital stock of any Subsidiary, or any part thereof or interest therein,
except Liens granted pursuant to the Financing Documents.
SECTION 7.3. Restricted Payments. Declare or pay any dividends
(other than dividends payable solely in shares of its capital stock) or make any
other distribution to any security holder, whether in cash, property, securities
or a combination thereof, or directly or indirectly redeem, repurchase, retire
or otherwise acquire for a consideration, any shares of any class of its
respective capital stock or other ownership interest or set apart any sum for
the aforesaid purposes (any such dividend, distribution, redemption, purchase,
retirement or acquisition being referred to herein as a "Restricted Payment")
except as follows:
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(a) (i) Each Subsidiary shall be authorized to
distribute to Celite, the Borrower or Holdings and Holdings shall be
authorized to distribute to Alleghany such funds as shall be required
to pay the obligations of such Person for reasonable federal, state,
local and foreign income tax purposes in accordance with the Tax
Sharing Agreement dated as of January 1, 1994, between Alleghany and
Holdings and (ii) each Subsidiary shall be authorized to make dividends
or distributions from time to time to Celite, the Borrower or Holdings;
and
(b) The Borrower and Harborlite shall be permitted to
redeem or repurchase the preferred stock and earn out units issued to
the former stockholders of Old Harborlite provided that such redemption
or repurchase does not involve aggregate consideration in excess of $25
million.
Any Restricted Payment permitted pursuant to this Section 7.3 may be made in the
form of a dividend or distribution as the Person making such Restricted Payment
shall determine. The making of any loan to an Affiliate, or the repayment of any
Indebtedness to an Affiliate shall be a Restricted Payment for the purposes
hereof.
SECTION 7.4. Investments. Purchase, directly or beneficially,
any stock, other securities or evidences of Indebtedness of, or make or permit
to exist any loans or advances to, or make any investment or acquire any
interest whatsoever in any other Person, including any Excluded Subsidiary (any
such transaction, an "Investment") other than Permitted Investments and
Investments (a) by Holdings in the Borrower, (b) by the Borrower in Celite, (c)
by Holdings, the Borrower or Celite in any other Subsidiary provided such
Investment is in the form of equity or subordinated debt, and, if such
Subsidiary is a newly-formed Subsidiary and is material to Holdings and the
Subsidiaries viewed on a consolidated basis, the stock of such Subsidiary is
first pledged to the Collateral Agent for the benefit of the Banks in a manner
acceptable to the Collateral Agent and counsel to the Banks (which pledge shall
be for 100% of such stock if the new Subsidiary is a Domestic Subsidiary owned
directly by Holdings, the Borrower or Celite and 65% of such stock if the new
Subsidiary is a Foreign Subsidiary owned directly by Holdings, the Borrower or
Celite), (d) as permitted in accordance with Section 7.7 hereof, (e) by
Holdings, the Borrower or Celite in any other Subsidiary resulting from the
delivery of goods or the provision of services in the ordinary course of
business and (f) by any Subsidiary (other than the Borrower or Celite) in any
other Subsidiary; provided, however, that in no event shall any Investment be
made if any Default or Event of Default shall have occurred and be continuing.
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SECTION 7.5. Nature of Business. (a) Effect any material
change in its business or create any new business or subsidiary (including any
Excluded Subsidiary) which does not involve filtration, fillers, diatomite,
perlite and/or other industrial minerals, and related materials and services.
(b) Engage or invest in any business relating to the
recycling of spent filter cake at locations other than Celite's existing
facilities without (i) providing an environmental assessment, in form and
substance satisfactory to the Majority Banks, of such proposed activity and (ii)
receiving written acknowledgement from the Majority Banks of their receipt and
satisfaction with such report.
(c) Engage in any business involving the disposal in
landfills or other means of permanent storage of spent filter cake without (i)
providing an environmental assessment, in form and substance satisfactory to the
Majority Banks, of such proposed disposal activities and (ii) receiving written
acknowledgment from the Majority Banks of their receipt and satisfaction with
such report.
SECTION 7.6. Asset Sales. Make any Asset Sale, unless (a) such
Asset Sale is for consideration reasonably believed to be at least equal to the
Fair Value of the assets being sold and the Borrower complies with the
provisions of Section 2.8 in respect of Mandatory Prepayments or (b) the
Borrower obtains the written consent of the Majority Banks.
SECTION 7.7. Acquisitions. Acquire all or a substantial part
of the assets or stock of any other Person (an "Acquisition"), unless:
(a) no Default or Event of Default (i) has occurred
and is continuing or (ii) will occur after giving effect to such Acquisition;
(b) if the Acquisition involves aggregate
consideration exceeding $25 million, the Majority Banks give prior written
approval to make such Acquisition;
(c) no Third Party Financing is used to effect such
Acquisition;
(d) Holdings shall use its best efforts provide to
the Banks at least 15 days prior to the consummation of such Acquisition (i) an
income statement covering the twelve month period ending on the last day of the
most recently completed fiscal quarter for which financials were last provided
with pro forma adjustments to reflect the consummation, on the first day of such
period, of such Acquisition (including the incurrence of any related Loans under
this Agreement) and (ii) a balance sheet as of the last day of the most recently
completed fiscal quarter
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for which financials were last provided, with pro forma adjustments to reflect
the consummation of such Acquisition (including the incurrence of any related
Loans under this Agreement);
(e) the pro forma financial statements provided
pursuant to subsection (e) above shall show that the financial covenants set
forth in Sections 7.11, 7.12 and 7.13 shall have been satisfied on such pro
forma basis; and
(f) the Borrower shall have taken all steps necessary
to pledge as security for the Facility any capital stock acquired in any
Acquisition in a form satisfactory to the Collateral Agent;
provided, however, that Holdings or any Subsidiary may effect an Acquisition
using Third Party Financing if (i) no Default or Event of Default (A) has
occurred and is continuing or (B) will occur as a result of such Acquisition,
(ii) 50% of the aggregate consideration involved in such acquisition is provided
as an equity contribution; (iii) the Borrower shall have (A) notified the Banks
of all material terms of such proposed Acquisition, given the Banks reasonable
time to prepare bids on providing such additional debt financing and (C)
considered in good faith the terms of a Bank's bid, if any, (iv) the Borrower
shall have created a special purpose subsidiary (an "Excluded Subsidiary") to
effect such Acquisition and recourse under such Third Party Financing shall be
limited to the assets or capital stock of such Excluded Subsidiary, (v) no
Guaranty or other commitment with respect to such Excluded Subsidiary shall be
entered into by Holdings, the Borrower or any Subsidiary, and (vi) if required
under Section 7.4, the Administrative Agent, on behalf of the Banks, shall have
received documentation in form and substance acceptable to the Collateral Agent,
to pledge as security for the Facility the capital stock of such Excluded
Subsidiary, provided, however, that (x) in the case of an Excluded Subsidiary
organized in a jurisdiction other than in the United States, the Borrower shall
pledge to the Collateral Agent, for the benefit of the Banks, an amount equal to
65% of the outstanding capital stock of such Excluded Subsidiary and (y) any
pledge under this Section 7.7 may be subordinate to such Third Party Financing.
Any Acquisition permitted under this Section 7.7 is herein
referred to as a "Permitted Acquisition."
SECTION 7.8. Transactions With Affiliates. (a) Except as
permitted by Section 7.4, enter into any transaction (including the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate (including an Excluded Subsidiary but excluding Holdings or any of
its Subsidiaries), except (i) in the ordinary course of business and upon terms
which are not less favorable and reasonable than those obtainable in an
arm's-length transaction with a Person who is
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not an Affiliate or (ii) any management agreement, entered into in the ordinary
course of the Borrower's business, pursuant to which the Borrower provides
reasonable management services to any Affiliate in which Holdings or one of its
Subsidiaries owns a material amount of capital stock.
(b) Enter into any transaction providing for the
purchase, sale, lease or exchange of any property or the rendering of any
service involving Holdings, Celite or the Borrower, on the one hand, and any
other Subsidiary on the other hand, except in the ordinary course of business
and upon terms which are not less favorable to Holdings, the Borrower or Celite
than those obtainable in an arm's-length transaction with a Person who is not an
Affiliate of Holdings.
SECTION 7.9. Sale and Leaseback Transactions. Enter into any
Sale and Leaseback Transaction.
SECTION 7.10. Merger or Consolidation. Merge into or
consolidate or combine with any other Person; provided, however, that this
provision shall not prohibit the merger or consolidation of a wholly owned
Subsidiary (other than Celite or the Borrower) with or into the Borrower, Celite
or another wholly owned Subsidiary which is not an Excluded Subsidiary or as
otherwise permitted in accordance with Section 7.7 hereof if (i) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing and (ii) the Borrower shall deliver a
certificate of a Financial Officer and an opinion of counsel satisfactory in
form and substance to the Banks to the effect that such transaction complies
with clause (i) above.
SECTION 7.11. Interest Coverage. Permit the ratio of (a)
EBITDA for any Fiscal Year less actual Capital Expenditures for such Fiscal Year
to (b) Interest Expense for such Fiscal Year to be less than 2.25x.
SECTION 7.12. Debt to Worth. Permit the ratio of Total
Indebtedness to Total Capitalization to exceed at any time the following
percentages at any time during the periods set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
On or prior to
December 31, 1996 46%
After December 31, 1996 42%
</TABLE>
SECTION 7.13. Net Worth. Permit Net Worth to be less than (a)
at any time prior to December 31, 1996, the sum of (i) $80,000,000 plus (ii) 50%
of Cumulative Net Income to the last day of the fiscal quarter then ended and
(b) at any time after
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December 31, 1996, the sum of (i) $90,000,000 plus (ii) 50% of Cumulative Net
Income to the last day of the fiscal quarter then ended.
SECTION 7.14. Fiscal Year. Effect any change in the
Fiscal Year without obtaining the prior written approval of the
Banks and making any necessary amendments to the provisions of
this Agreement.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Defaults. In case of the happening of
any of the following events (each, an "Event of Default"):
(a) the Borrower shall fail to make any payment on
principal of any Loan when and as the same shall become due and payable
including at the due date thereof, by acceleration or otherwise, including any
Mandatory Prepayment required by Section 2.8; or
(b) the Borrower shall fail to pay any interest or
Fee due hereunder or in connection herewith when and as the same shall become
due and payable, whether at the due date thereof, by acceleration or otherwise,
and such failure shall continue for more than two Business Days following the
date such payment was due; or
(c) the Borrower shall fail to pay any Reimbursement
Obligation when and as the same shall become due or payable; or
(d) default shall be made in the due observance or
performance of any restrictive covenant or agreement contained in Article VII of
this Agreement or any obligation of the Borrowers pursuant to Sections 6.1, 6.6,
6.7 or 6.12; or
(e) default shall be made in the due observance or
performance of any other covenant or agreement to be observed or performed under
this Agreement or in any other Loan Document, and such default shall continue
unremedied for 30 days after written notice thereof to the Borrower by the
Administrative Agent; or
(f) any representation or warranty contained in this
Agreement or in any other Loan Document or in any report, certificate, financial
statement or other instrument furnished pursuant to this Agreement shall prove
to have been false or misleading in any material respect when made or furnished;
or
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(g) Holdings or any Material Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code or any other federal, state or foreign
bankruptcy, insolvency or similar law, (ii) consent to the institution of, or
fail to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator or similar official for any such
Person or for any substantial part of its property or assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors,
(vi) fail generally to pay its debts as they become due or (vii) take any
corporate or stockholder action in furtherance of any of the foregoing; or
(h) an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of Holdings or any Material Subsidiary or of any
substantial part of the property or assets thereof, under Title 11 of the United
States Code or any other federal, state or foreign bankruptcy, insolvency or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for any such Person or for any substantial part
of its property or (iii) the winding-up or liquidation of any such Person, and
such proceeding, petition or order shall continue unstayed and in effect for a
period of 60 consecutive days; or
(i) a final judgment for the payment of money in an
amount in excess of $5,000,000 shall be rendered by a court or other tribunal
against Holdings or any Subsidiary and shall remain undischarged for a period of
60 consecutive days during which execution of any such judgment shall not have
been effectively stayed, bonded or vacated; or
(j) any event shall occur or fail to occur if the
effect of such occurrence or failure is to accelerate the maturity of
Indebtedness for borrowed money aggregating $2,500,000 of Holdings or any
Subsidiary (other than any Loan or Letter of Credit Exposure hereunder) or to
permit the holder thereof (or a trustee on behalf of such holder) to cause such
Indebtedness to become due prior to the stated maturity thereof and such
occurrence or failure shall not have been remedied within any applicable period
of grace, or any such Indebtedness shall not be paid when due, whether by
acceleration or otherwise; or
(k) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
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Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the reasonable
opinion of the Majority Banks, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate
for purposes of Title IV of ERISA, (v) Holdings or any Subsidiary or any ERISA
Affiliate thereof shall, or is, in the reasonable opinion of the Majority Banks,
likely to, incur any liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together with all other
such events or conditions, if any, has any reasonable likelihood of subjecting
Holdings or any Subsidiary to any tax, penalty or other liabilities which, if
the then present value thereof (estimated in good faith by such Person) were
deducted from the then total assets of such Person, could reasonably be
determined to have a Material Adverse Effect; or
(l) any of the other Loan Documents shall cease to be
in full force and effect, enforceable in accordance with its terms or any
security interest purported to be created by the Financing Documents shall cease
to be a valid and perfected first priority security interest or first priority
Lien, as applicable, subject to any Permitted Liens or Holdings, Celite or any
Borrower shall assert the invalidity of any such security interest or Lien; or
(m) any event of default shall have occurred and
shall be continuing under any other Loan Document; or
(n) any Expropriatory Action shall have been taken by
any Person against assets or capital stock of Holdings or any Subsidiary having
a Fair Value in excess of $5,000,000; provided, however, that the Borrower will
be permitted to cure such default within 30 days of the occurrence thereof, by
making a payment with respect to then outstanding Loans to the Administrative
Agent, on behalf of the Banks, in an amount equal to the Fair Value of the
assets subject to such Expropriatory Action (which repayment shall be treated as
a Mandatory Prepayment in accordance with Section 2.8 to prepay Term Loans
outstanding hereunder); or
(o) Holdings shall cease to be the record and
beneficial owner of all of the outstanding shares of the capital stock of the
Borrower or the Borrower shall cease to be the record and beneficial owner of
all of the outstanding shares of the capital stock of Celite; or
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(p) Holdings shall cease to own beneficially,
directly or indirectly, all of the outstanding capital stock of each other
Subsidiary; provided, however, that management or employees of Holdings or the
Subsidiaries shall be permitted to hold the minimum number of shares of any
Subsidiary, not to exceed 1% of its shares, which under Applicable Law must be
held by more than one shareholder, or by directors, of such Subsidiary; or
(q) Alleghany shall cease to own of record and
beneficially 80% of the outstanding capital stock of Holdings; provided,
however, that Alleghany may sell outstanding capital stock of Holdings if (i)
such sale of stock is for cash consideration at least equal to the Fair Value of
the stock being sold, (ii) the proceeds of such sale are contributed to Holdings
as a Parent Contribution and designated to (A) fund Capital Expenditures, (B)
fund Permitted Acquisitions in accordance with Section 7.7 hereof or (C) prepay
Loans outstanding hereunder in accordance with Section 2.9 hereof and (iii)
after giving effect to such sale Alleghany owns of record and beneficially at
least 60% of the outstanding capital stock of Holdings;
then, and in any such event (other than an event described in paragraph (g) or
(h) above), and at any time thereafter during the continuance of such event, the
Administrative Agent shall, upon the written request of the Majority Banks, by
written or telegraphic notice to the Borrower, take any of the following actions
at the same or different times: (iv) terminate forthwith the Revolving Credit
Commitment of the Banks under the Facility, (v) declare any Notes then
outstanding to be forthwith due and payable, whereupon the entire unpaid
principal of such Notes, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of Holdings and the Borrower accrued
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Borrower, anything contained herein or in any Note to the contrary
notwithstanding, and (vi) refuse to issue any additional Letters of Credit and
demand that the Borrowers provide to the Collateral Agent cash collateral in an
amount equal to the Letter of Credit Exposure, such collateral to be deposited
in the Cash Collateral Account to be held by the Collateral Agent for the
benefit of the Banks; and in any event described in paragraph (g) or (h) above,
the Revolving Credit Commitment of the Banks under the Facility shall
automatically terminate (together with all obligations to issue Letters of
Credit) and any Notes shall automatically become due and payable and the
Borrower shall be obligated to provide cash collateral to the Administrative
Agent as described in clause (iii), all without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the Parent
and Borrower, anything contained herein or in any Note to the contrary
notwithstanding.
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ARTICLE IX
THE ADMINISTRATIVE AGENT AND CO-AGENTS
In order to expedite the various transactions contemplated by
this Agreement, Chemical is hereby appointed to act as Administrative Agent,
Collateral Agent and Co-Agent and Bank of America is hereby appointed to act as
Co-Agent. Each Bank hereby irrevocably authorizes and directs the Administrative
Agent and the Collateral Agent, respectively, to take such action on behalf of
such Bank under the terms and provisions of this Agreement and the Loan
Documents and to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Administrative Agent and the
Collateral Agent, respectively, by the terms and provisions hereof and thereof,
together with such powers as are reasonably incidental thereto. Nothing in this
Agreement shall be construed as imposing any duty or obligation on any Co-Agent
in its capacity as Co-Agent.
The Administrative Agent is hereby expressly authorized on
behalf of the Banks, without hereby limiting any implied authority, (a) to
receive on behalf of each Bank any payment of principal of or interest on the
Notes outstanding hereunder and all other amounts accrued hereunder paid to the
Administrative Agent, and promptly to distribute to each Bank its proper share
of all payments so received, (b) to give notice within a reasonable time on
behalf of each of the Banks to the Borrower of any Event of Default specified in
this Agreement of which the Administrative Agent has actual knowledge, and (c)
to distribute promptly to each Bank copies of all notices, agreements and other
material as provided for in this Agreement as received by the Administrative
Agent.
The Collateral Agent is hereby expressly authorized on behalf
of the Banks, without hereby limiting any implied authority, (a) to receive and
hold on behalf of the Banks any instrument or certificate which constitutes
Collateral, (b) to give notice within a reasonable time on behalf of each of the
Banks to the Guarantor or the Borrowers of any event of default specified in any
Collateral Agreement of which the Collateral Agent has actual knowledge and (c)
to take any and all action on behalf of the Banks permitted under the terms of
any Collateral Agreement. The Collateral Agent may, in its discretion and
without the consent of the Banks, appoint sub-agents to act as the Collateral
Agent in any jurisdiction or with respect to any Collateral.
Neither the Administrative Agent, the Collateral Agent, the
Co-Agents, nor any of their respective directors, officers, employees or agents
shall be liable as such for any action taken or omitted by any of them hereunder
except for its or his own gross negligence or willful misconduct, or be
responsible for any statement, warranty or representation herein or the contents
of
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any document delivered in connection herewith or be required to ascertain or to
make any inquiry concerning the performance or observance by Holdings or any
Borrower of any of the terms, conditions, covenants or agreements of this
Agreement or any other Loan Document. The Administrative Agent, the Collateral
Agent and the Co-Agents shall not be responsible to the Banks for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement, the Financing Documents, the Notes or any other instrument or
agreement to which reference is made herein. The Administrative Agent, the
Collateral Agent and the Co-Agents may deem and treat the payee of any Note as
the owner thereof for all purposes hereof until it shall have received from the
payee of such Note notice, given as provided herein, of the transfer thereof.
The Administrative Agent, the Collateral Agent and the Co-Agents shall in all
cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Majority Banks, and, except as otherwise
specifically provided herein, such instructions and any action taken or failure
to act pursuant thereto shall be binding on all the Banks. Each of the
Administrative Agent, the Collateral Agent and the Co-Agents shall, in the
absence of knowledge to the contrary, be entitled to rely on any paper or
document believed by it in good faith to be genuine and correct and to have been
signed or sent by the proper Person or Persons. None of the Administrative
Agent, the Collateral Agent, the Co-Agents, the Banks or any of their respective
directors, officers, employees or agents shall have any responsibility to
Holdings, any Borrower, or any other Person on account of the failure or delay
in performance or breach by any other Bank of any of its obligations hereunder
or to any other Bank on account of the failure of or delay in performance or
breach by such other Bank, Holdings, or such Borrower, or any other Person of
any of their respective obligations hereunder or in connection herewith. The
Administrative Agent, the Collateral Agent and the Co-Agents may execute any and
all their respective duties hereunder by or through agents or employees and
shall be entitled to advice of legal counsel selected by the Administrative
Agent with respect to all matters arising hereunder and shall not be liable for
any action taken or suffered in good faith by it in accordance with the advice
of such counsel.
Each of the Administrative Agent, the Collateral Agent, the
Co-Agents and their respective Affiliates may accept deposits from, lend money
to and generally engage in any kind of business with the Borrower and its
Affiliates as if it were not the Administrative Agent, the Collateral Agent, a
Co-Agent, or such an Affiliate.
Each Bank agrees (i) to reimburse each of the Administrative
Agent, the Collateral Agent and the Co-Agents in the amount of such Bank's Pro
Rata Share of any expenses incurred for the benefit of the Banks by such
Administrative Agent,
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Collateral Agent or Co-Agent, including counsel fees and compensation of agents
and employees paid for services rendered on behalf of the Banks, not reimbursed
by the Borrower or the Guarantors and (ii) to indemnify and hold harmless the
Administrative Agent, the Collateral Agent, the Co-Agents and any of their
respective directors, officers, employees or agents, on demand, in the amount of
such Bank's Pro Rata Share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in such capacity or in any way relating
to or arising out of this Agreement, any other Loan Document or any action taken
or omitted by it or any of them under this Agreement or any other Loan Document,
to the extent not reimbursed by the Borrower or the Guarantors; provided,
however, that no Bank shall be liable to the Administrative Agent, the
Collateral Agent or any Co-Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent, the Collateral Agent or such Co-Agent,
as the case may be, or of any of the directors, officers, employees or agents of
such Person.
Each Bank acknowledges that it has, independently and without
reliance upon the Administrative Agent, the Collateral Agent, any Co-Agent or
any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and the other Loan Documents and to make Loans as contemplated hereby.
Each Bank also acknowledges that it will, independently and without reliance
upon the Administrative Agent, the Collateral Agent, any Co-Agent or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder.
ARTICLE X
HOLDINGS GUARANTY
SECTION 10.1. Holdings Guaranty. Holdings hereby absolutely,
unconditionally and irrevocably guarantees to the Banks and their successors and
assigns, as primary obligor and not merely as surety, the full and punctual
payment and performance of all Obligations of the Borrower to the Banks, when
and as due, whether at maturity, by acceleration, or upon a date fixed for
prepayment or mandatory prepayment (the "Holdings Guaranty"). The liability of
Holdings hereunder is as a guarantor of payment and performance, and not merely
of collectability, and is not conditioned or contingent upon the
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enforceability of the Loan Documents or any other instruments relating to the
creation or performance of the Obligations or the pursuit by the Co-Agents or
the Banks of any remedies which they now have or may hereafter have under any
Loan Document, at law, in equity or otherwise. Neither the Administrative Agent,
Collateral Agent, Co-Agents nor the Banks need inquire into the power of the
Borrower or the authority its officers or agents acting or purporting to act on
its behalf. Nothing contained in this Article X shall prevent the Administrative
Agent, Collateral Agent, Co-Agents or the Banks from suing on the Notes or from
exercising any rights available to them hereunder, under any of the Loan
Documents or under applicable law, and the exercise of any of such rights shall
not constitute a legal or equitable discharge of Holdings. Holdings shall
continue to be liable under this Guaranty and the provisions hereof shall remain
in full force and effect notwithstanding the occurrence of any or all of the
following, none of which shall require notice to Holdings: (a) any modification,
agreement, stipulation or course of dealing between the Borrower and any
Co-Agent, any Bank, the Collateral Agent or the Administrative Agent with
respect to the Obligations or any other matter relating to the Loan Documents,
including, without limitation, any alteration, compromise, acceleration,
extension or change in the time or manner for the payment or performance of any
Obligations, any increase or reduction in the rate of interest charged on funds
borrowed pursuant to the Loan Documents; (b) any waiver of or failure to enforce
any of the terms, covenants or conditions contained in the Loan Documents; (c)
any waiver of any right or remedy against the Borrower or against any other
Person, including, without limitation, any other guarantor, with respect to all
or any portion of the Borrower's or such other Person's liability for or with
respect to the Obligations; (d) the addition or substitution of one or more
guarantors of any or all of the Borrower's Obligations under the Loan Documents;
(e) the subordination of any rights with respect to any security given for the
Borrower's Obligations or the acceptance of any additional or substituted
security therefor; or (f) the foreclosure of any Lien with respect to any or all
of the real or personal property now or hereafter securing any of the
Obligations, whether by exercise of a power of sale contained therein, by an
action for judicial foreclosure or by acceptance of a deed in lieu of
foreclosure. As security for the performance of its obligation under this
Article X, Holdings shall execute and deliver to the Collateral Agent on behalf
of the Banks the Holdings Security Agreement and the Holdings Pledge Agreement.
SECTION 10.2. Guarantor's Waivers. Holdings hereby irrevocably
waives and relinquishes, and agrees not to assert or take advantage of, to the
maximum extent permitted by law in each jurisdiction in which the enforcement of
such waiver is sought, any and all rights, remedies and defenses accorded by
Applicable Law to guarantors or sureties. In addition to, not in limitation of
the immediately preceding sentence, Holdings hereby expressly
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waives and relinquishes, and agrees not to assert or take advantage of, to the
maximum extent permitted by law in each jurisdiction in which the enforcement of
such waiver is sought, the following rights, remedies and defenses: (a) notice
of acceptance of this Guaranty; (b) notice of the existence, creation,
incurrence, renewal, extension, modification or accrual of any Obligations of
the Borrower to the Co-Agents, Administrative Agent, Collateral Agent or the
Banks; (c) notice of any action on the part of the Borrower, the Co-Agents,
Administrative Agent, Collateral Agent, the Banks or any creditor of the
Borrower or Holding, or on the part of any other Person whomsoever relating to
the Obligations or the Loan Documents, including, without limitation, notice of
enforcement of any right or remedy with respect thereto, except as otherwise
expressly set forth herein; (d) any statute of limitations affecting Holding's
liability hereunder or the enforcement thereof; (e) any defense that may arise
by reason of the incapacity, lack of authority, death or disability of any
Person or the failure of the Co-Agents, the Collateral Agent, the Administrative
Agent or the Banks to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any Person; (f) the right
to require the Co-Agents, the Collateral Agent, the Administrative Agent or the
Banks to proceed against the Borrower or any other Person (including, without
limitation, any other guarantor), or to proceed against or exhaust any security
or collateral held by the Collateral Agent or the Banks at any time, or to
enforce any other right or pursue any other remedy, and Holdings expressly
agrees that the Co-Agents, the Collateral Agent, the Administrative Agent or the
Banks may enforce this Guaranty without the necessity of resorting to or
exhausting any security or collateral and without the necessity of proceeding
against the Borrower or any other Person; (g) any defense based upon an election
of remedies by the Co-Agents, the Collateral Agent, the Administrative Agent or
the Banks; (h) any other defense based upon destruction or diminution of
Holding's rights against the Borrower or the Borrower's assets, whether or not
hypothecated as security; and (i) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal.
Holding's sole right with respect to any foreclosure of real or personal
property collateral or security for any of the Obligations shall be to bid at
the sale thereof in accordance with applicable law. The Banks may also bid at
any such sale, and in the event such collateral is sold to any Banks in whole or
in partial satisfaction of the Obligations, Holdings shall have no further right
or interest with respect thereto, including, without limitation, any right of
redemption, whether arising under law or in equity.
SECTION 10.3. Bankruptcy. (a) No Effect on Guaranty. The
obligations of Holdings under this Guaranty shall not be altered, limited or
affected by any proceeding, voluntary or involuntary, involving the bankruptcy,
insolvency, receivership,
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reorganization, liquidation, or arrangement of the Borrower, or by any defense
or decision of any court or administrative body resulting from any such
proceeding. Any interest on the Obligations which accrues after the commencement
of any such proceeding (or, if interest on any portion of the Obligations ceases
to accrue by operation of law by reason of the commencement of such proceeding,
such interest as would have accrued on any such portion of the Obligations if
such proceeding had not been commenced) shall be included in the Obligations for
the purposes hereof, Holdings expressly agreeing that its liability pursuant to
this Guaranty shall be determined without regard to any rule of law or order
arising out of such proceeding which may relieve the Borrower of liability for
any portion of the Obligations. Holdings will permit any trustee in bankruptcy,
receiver, debtor in possession, assignee for the benefit of creditors, or
similar Person, to pay the Banks, or to allow the claim of the Banks with
respect to, any such interest accruing after the date on which such proceeding
is commenced. In the event that all or any portion of the Obligations are paid
or performed by the Borrower, the obligations of Holdings hereunder shall
continue and remain in full force and effect in the event that all or any part
of such payment or performance is avoided or recovered directly or indirectly
from the Banks as a preference, fraudulent transfer or otherwise.
(b) Filing of Claims. In any bankruptcy or other
proceeding involving the Borrower in which the filing of claims is required or
permitted by law, Holdings shall file all claims that it may have against the
Borrower relating to any Indebtedness of the Borrower to Holdings, and will
assign to the Collateral Agent on behalf of the Banks all rights of Holdings
thereunder. If Holdings does not file any such claim, the Collateral Agent, as
attorney-in-fact for Holdings, is hereby authorized to do so in the name of
Holdings, or, in the Collateral Agent's discretion, to assign the claim to a
nominee and to cause a proof of claim to be filed in the name of the Collateral
Agent's nominee. The foregoing power of attorney is coupled with an interest and
cannot be revoked. The Collateral Agent or its nominee shall have the sole right
to accept or reject any plan proposed in such proceeding and to take any other
action which a party filing a claim is entitled to do. In any such case, whether
in administration, bankruptcy or otherwise, the Person authorized to pay such
claim shall pay to the Collateral Agent, on behalf of the Banks, the amount
payable on such claim and, to the full extent necessary for that purpose,
Holdings hereby assigns to the Collateral Agent, on behalf of the Banks, all of
Holding's rights to any such payments or distributions to which Holdings would
otherwise be entitled; provided, however, that Holding's obligations hereunder
shall not be satisfied except to the extent that the Collateral Agent receives
cash by reason of any such payment or distribution. If the Collateral Agent
receives anything hereunder other than cash,
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the same shall be held as additional collateral for amounts due
under this Guaranty.
SECTION 10.4. Payment. In furtherance of the provisions of
this Article and not in limitation of any other right which the Administrative
Agent, the Collateral Agent, any Co-Agent or any Bank may have at law or in
equity against Holdings by virtue of this Guaranty or otherwise, upon the
failure of the Borrower to pay any Obligation when and as the same shall become
due, whether at maturity, by acceleration, upon a date fixed for prepayment or
mandatory prepayment or otherwise, Holdings hereby promises to, and will, upon
receipt of a written or telexed demand by the Administrative Agent, forthwith
pay, or cause to be paid, to the Collateral Agent for distribution to the Banks,
in cash, the amount of such unpaid Obligation.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, demands and requests of
any kind to be delivered to any party hereto in connection with this Agreement
shall be deemed to have been duly given and received if delivered personally or
if sent by nationally-recognized overnight courier, by telecopier or by first
class, registered or certified mail, return receipt requested, to such party at
its address as follows:
(a) if to the Borrower, to:
World Minerals Inc.
137 West Central Avenue
Lompoc, California 93436
Attention: Mr. John F. Liechty,
Vice President, Finance
Telephone: (805) 737-2424
Telecopier: (805) 737-2497
with a copy to:
World Minerals Inc.
137 West Central Avenue
Lompoc, California 93436
Attention: Marc E. Fleischman, Esq.
Vice President and
General Counsel
Telephone: (805) 737-2470
Telecopier: (805) 737-2497
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(b) if to Chemical, as Administrative Agent and
Co-Agent, to:
Chemical Bank
270 Park Avenue
New York, New York 10172
Attention: Theodore L. Parker,
Vice President
Telephone: (212) 270-7834
Telecopier: (212) 270-2555
(c) if to Bank of America, as Co-Agent, or any
other Bank, at its address set forth on
Annex II attached hereto.
Any such notice, demand or request so delivered shall be deemed to have been
received (i) on the day of actual delivery in the case of personal delivery or
telecopier delivery, (ii) on the next business day after the date when sent in
the case of delivery by nationally-recognized overnight courier, or (iii) on the
fifth business day after the date of deposit in the U.S. mail in the case of
mailing. Any party hereto may from time to time by notice in writing served upon
the other as aforesaid designate a different mailing address or a different
person to which all such notices, demands or requests thereafter are to be
addressed.
SECTION 11.2. Survival of Agreement. All representations and
warranties made by the Borrower or any Guarantor herein and in the other Loan
Documents and in any certificate or other instrument prepared or delivered
pursuant to this Agreement or any other Loan Document (i) shall be considered to
have been relied upon by the Administrative Agent, the Co-Agent and the Banks
and (ii) shall survive the making of Loans by the Banks and the execution and
delivery to the Banks of the Notes evidencing such Loans and all covenants and
agreements made by the Borrower or any Guarantor herein or in any other Loan
Document and continue in full force and effect as long as any principal of or
accrued interest on any Loan, any Fee, any Reimbursement Obligation, any LC Fee
or any other amount payable under or in connection with this Agreement or any
other Loan Document is outstanding and unpaid.
SECTION 11.3. Successors and Assigns; Syndications; Loan
Sales; Participations. (a) Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the permitted
successors and assigns of such party, and all covenants, promises and agreements
by or on behalf of the Borrower, any Guarantor the Administrative Agent, the
Collateral Agent, the Co-Agents or the Banks that are contained in this
Agreement or any other Loan Document shall bind and inure to the benefit of
their respective successors and assigns. In connection with any syndication, the
Borrower agrees to assist the Co-Agents actively in their syndication efforts by
providing
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to the Co-Agents and any potential participants direct contact with senior
management and representatives of Holdings and its Subsidiaries and all
information reasonably requested by the CoAgents and such participants,
including financial forecasts in a format acceptable to a bank syndication.
(b) Each Bank may assign to one or more Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Aggregate Commitment, the Loans at
the time owing to it and Notes held by it and its rights, titles and interests
under the other Loan Documents); provided, however, that (i) except in the case
of an assignment to a Bank or an Affiliate of a Bank, the written consent of the
Borrower to such assignment shall have been given (which consent shall not be
unreasonably withheld), (ii) such assignment shall be of a constant, and not a
varying, percentage of all the assigning Bank's rights and obligations under
this Agreement (other than any rights or obligations relating to the Letters of
Credit), (iii) except in the case of an assignment to a Bank or an Affiliate of
a Bank, the Pro Rata Share of the Aggregate Commitment 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 Administrative
Agent) shall not be less than $5,000,000 and the Pro Rata Share of the Aggregate
Commitment of such Bank remaining after such assignment shall not be less than
$5,000,000 or shall be zero, (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with the Notes subject to such assignment and a processing and
recordation fee of $2,000, in addition, the assignee shall also execute and
deliver to the Collateral Agent a counterpart to the Collateral Agent Agreement
and (v) such assignment shall not result in any increased costs which must be
paid by the Borrower. Upon acceptance and recording pursuant to paragraph (e) of
this Section 11.3, 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, unless the Administrative Agent shall
otherwise agree) (A) the assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, become and have the rights
and obligations of a Bank under this Agreement and (B) the assigning Bank
thereunder shall, to the extent of the interest assigned pursuant to 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) but shall continue to be entitled to the benefits of
Sections 2.13 and 3.4 as well as to any fees or other amounts accrued to its
account but unpaid on such date.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Bank thereunder and the assignee
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thereunder shall be deemed to confirm to and agree with each other and the other
parties hereto as follows: (i) such assigning Bank warrants that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim and that its Pro Rata Share of the Aggregate Commitment and
the total outstanding balance of its Loans, in each case without giving effect
to assignments thereof which have not become effective, are as set forth in such
Assignment and Acceptance, (ii) except as set forth in clause (i) above, 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 other
Loan Documents or any other instrument or document furnished pursuant hereto, or
to the financial condition of any Guarantor or the Borrower, or the performance
or observance by any Guarantor or the Borrower of any of its obligations under
this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, (iii) such assignee represents and warrants that it
is legally authorized to execute and deliver the Assignment and Acceptance, (iv)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant to
Section 6.11 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, any Co-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; (vi) such assignee appoints and
authorizes the Administrative Agent and the Collateral Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent and Collateral Agent, respectively, by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees 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. Effective upon the assignment of an interest
hereunder, Annex I hereto shall be amended by the Administrative Agent to
reflect such assignment.
(d) The Administrative Agent shall maintain at one of
its offices in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Banks, and the commitments of, and principal amount of the Loans owing to,
each Bank pursuant to the terms thereof from time to time (the "Register"). The
entries in the Register shall be conclusive in the absence of manifest error,
and Holdings and the Borrower, the Administrative Agent, the Co-Agents and the
Banks may treat each
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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 Borrower, the Co-Agents 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 a permitted assignee together
with the Notes subject to such assignment, the processing and recordation fee
referred to in paragraph (b) above and the written consent of the Borrower to
such assignment if required pursuant to paragraph (b) above, the Administrative
Agent shall (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Banks, the Co-Agents and the Borrower. Within five Business Days
after receipt of notice, each Borrower, at its own expense, shall execute and
deliver to the Administrative Agent, in exchange for the surrendered Notes, new
Notes under the Facility to the order of such assignee in a principal amount
equal to the principal amount of the Aggregate Commitment assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Bank has retained any
portion of a Aggregate Commitment, new Notes under the Facility to the order of
such assigning Bank in a principal amount equal to the principal amount of Loans
retained by it. Such new Notes shall be in the 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 Exhibit G and Exhibit H, as
applicable. Canceled Notes shall be returned to the applicable Borrower.
(f) Each Bank may without the consent of the Borrower
or any Guarantor or the Administrative Agent or CoAgents sell participations to
one or more banks or other entities in all or a portion of its rights and
obligations under this Agreement (including all or a portion of the Loans owing
to it and the Notes held by it); provided, however, that (i) such Bank's
obligations under this Agreement (including its Pro Rata Share of the Aggregate
Commitment) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost and yield protection provisions contained in Sections 2.11, 2.13,
2.18 and 3.4 to the same extent that the Bank from which such participating bank
or other entity acquired its participation would be entitled to the benefit of
such cost protection provisions (but shall not, in the aggregate, be entitled to
receive payments under such Sections in amounts in excess of the payments which
would have been made to the selling Bank had such participations not been sold)
and (iv) the Borrowers, the Administrative Agent, the Co-Agents and the other
Banks shall continue to deal solely and directly with such Bank
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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 Holdings or
the Borrower relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications
or waivers with respect to reducing any Fees payable hereunder or reduce the
amount of principal of or decrease the rate at which interest is payable on the
Loans, or the dates fixed for payments of principal of or interest on the Loans
and changing or extending the Aggregate Commitment).
(g) Any Bank or participant may, in connection with
any assignment or participation or proposed assignment or participation pursuant
to this Section 11.3, disclose to the assignee or participant or proposed
assignee or participant any information relating to Holdings and any Subsidiary
furnished to such Bank by or on behalf of Holdings and such Subsidiary;
provided, however, that, prior to any such disclosure of information designated
by Holdings or any Subsidiary as confidential, each such assignee or participant
or proposed assignee or proposed participant shall execute an agreement whereby
such Person shall agree (subject to customary exceptions) to preserve the
confidentiality of such confidential information and to use such information
solely for purposes related to this Agreement.
(h) Any Bank may at any time assign all or any
portion of its rights under this Agreement and the Notes issued to such Bank
hereunder to a Federal Reserve Bank; provided, however, that no such assignment
shall release a Bank from any of its obligations hereunder.
(i) Neither the Borrower nor any Guarantor shall
assign or delegate any of its rights or duties hereunder without the prior
written consent of all of the Banks.
SECTION 11.4. Expenses of the Co-Agents and the Banks. The
Borrower agrees to pay all out-of-pocket expenses reasonably incurred by the
Administrative Agent associated with the arrangement of the credit facilities
hereunder (including printing, duplicating, mailing, advertising and similar
expenses), the preparation, execution and delivery of this Agreement and the
other Loan Documents (whether or not the transactions hereby contemplated shall
be consummated) or reasonably incurred by the Administrative Agent, any Co-Agent
or any Bank in connection with the enforcement or protection of its rights under
this Agreement, any other Loan Document or the Loans made and Letters of Credit
issued hereunder, including, but not limited to, the fees and disbursements of
O'Sullivan Graev & Karabell, LLP, special counsel for the Administrative Agent,
the Co-Agents and the Banks, and in connection with such enforcement or
protection, the reasonable fees and disbursements of other counsel (including
in-house counsel) for the Banks. All amounts
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due under this Section 11.4 shall be payable on demand of any Bank therefor.
SECTION 11.5. Indemnification. (a) General. The Borrower
hereby agrees to indemnify and hold harmless the Administrative Agent, the
Co-Agents, the Banks and each of their respective officers, directors,
employees, counsel and agents (each, an "Indemnified Person") from and against
any and all losses, claims, damages and liabilities to which any Indemnified
Person may become subject (excluding any losses, claims, damages and liabilities
arising from gross negligence, willful misconduct, fraud or breach of fiduciary
duty owed to third parties on the part of such Indemnified Person or arising
from any assertion, putative or otherwise, as to the legal capacity or authority
of any Indemnified Person to execute and deliver this Agreement or in respect of
any law governing the corporate powers of any Indemnified Person to perform its
obligations hereunder) arising out of this Agreement, any other Loan Document,
the Facility or any Loans, Letters of Credit or other financial accommodations
thereunder, the use of the proceeds of any such Loans, Letters of Credit or
financial accommodations, the breach of any representation or covenant contained
herein or in any other Loan Document, any act or omission by the Administrative
Agent or the Co-Agents in connection herewith or with any of the foregoing
(including any claim asserted in any litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnified Person is a
party thereto), and to reimburse each Indemnified Person, upon written demand,
for all legal and other expenses incurred in connection with investigating or
defending any of the foregoing. The foregoing indemnity obligation shall not, as
to any Indemnified Person, apply to any loss, claim, damage or liability (i)
incurred by any Indemnified Person against any other Indemnified Person
hereunder, (ii) arising from the breach by any Indemnified Person of any of its
obligations to Holdings or the Borrower hereunder or (iii) arising out of any
commitment made by any Indemnified Person which would be breached by performance
of such Indemnified Person's obligations hereunder. Each Indemnified Person will
provide prompt written notice to the Borrower of its assertion of any claim or
the commencement of any legal action or proceeding against such Indemnified
Person related to the Facility or the transactions contemplated hereby.
(b) Environmental Indemnity. The Borrower hereby
agrees to indemnify, defend and hold harmless each Indemnified Person, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses or disbursements (including
reasonable fees and expenses of counsel and the allocated cost of internal
counsel), which may be incurred by or asserted against an Indemnified Person in
connection with or arising out of any pending or threatened investigation,
litigation or proceeding, or any action taken by any Person, with respect to any
Environmental Claim
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arising out of or related to any property subject to a Mortgage in favor of the
Collateral Agent or any Bank. No action taken by legal counsel chosen by the
Collateral Agent or any Bank in defending against any such investigation,
litigation or proceeding or requested remedial, removal or response action shall
vitiate or any way impair the Borrower's obligation and duties hereunder to
indemnify and hold harmless the Indemnified Persons. In no event shall site
visit, observation, or testing by the Collateral Agent or any Bank be a
representation that Hazardous Materials are or are not present in, on, or under
the site, or that there has been or shall be compliance with any law,
regulation, or ordinance pertaining to Hazardous Materials or any other
Applicable Law. Neither the Borrower nor any Guarantor nor any other party is
entitled to rely on any site visit, observation, or testing by the Collateral
Agent or any Bank. Except as may be required by Applicable Law, neither the
Collateral Agent nor any Bank owes any duty of care to protect Holdings or any
Subsidiary or any other party against, or to inform Holdings or any Subsidiary
or any other party of, any Hazardous Materials or any other adverse condition
affecting any site or property. Except as may be required by Applicable Law,
neither the Collateral Agent nor any Bank shall be obligated to disclose to
Holdings or any Subsidiary or any other party any report or findings made as a
result of, or in connection with, any site visit, observation, or testing by the
Collateral Agent or any Bank.
(c) The provisions of this Section 11.5 shall remain
operative and in full force and effect regardless of the expiration of the term
of this Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document or any investigation made
by or on behalf of the Administrative Agent, the Collateral Agent, the Co-Agents
or any Bank. All amounts due under this Section 11.5 shall be payable on written
demand therefor.
SECTION 11.6. Governing Law. (a) This Agreement and the Notes
shall be construed in accordance with and governed by the laws of the State of
New York.
(b) For all purposes of this Agreement or any other
Loan Document, and for all purposes of any suit or proceeding arising out of or
relating to the transactions contemplated hereby or thereby or for recognition
or enforcement of any judgment, the Borrower, each Guarantor, Chemical, Bank of
America and each Bank hereby submits to the personal jurisdiction of the courts
of the State of New York and the federal courts of the United States sitting in
New York City, and any appellate court from any such state or federal court, and
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in
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<PAGE> 88
such New York court or, to the extent permitted by law, in such federal court.
The Borrower, each Guarantor, Chemical, Bank of America and each Bank hereby
agree that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement shall affect any right
that any Bank or the Borrower may otherwise have to bring any action or
proceeding relating to this Agreement or any related matter against the Borrower
or its properties in the case of the Banks, or against any Bank, Chemical or
Bank of America, or their respective properties in the case of the Borrower, in
the courts of any jurisdiction.
(c) The Borrower, each Guarantor, Chemical, Bank of
America and each Bank hereby irrevocably and unconditionally waive, to the
fullest extent it may legally and effectively do so, (i) any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any related matter in
any New York State or federal court located in New York and (ii) the defense of
an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(d) The Borrower, Chemical, Bank of America and each
Bank hereby irrevocably consent to service of process by registered United
States mail, return receipt requested, as provided in Section 11.1. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 11.7. Waivers; Amendments. (a) No failure or delay of
any Bank in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Banks hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or consent
to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be authorized as provided in paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances. Each Bank shall be bound by any amendment, modification,
waiver or consent authorized as provided herein, whether or not the Note issued
to such Bank shall have been marked to indicate such amendment, modification,
waiver or consent.
-83-
<PAGE> 89
(b) No Loan Document nor any provision thereof, nor
any provision of any Loan, may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Banks; provided, however, that no such agreement shall (i) except for a
waiver of a Mandatory Prepayment under Section 2.8, change the principal amount
of, or extend or advance the maturity of or any date for the payment of any Note
or any Fee or Reimbursement Obligation or waive or excuse any such payment or
any part thereof, or change the rate of interest on any Note, without the
written consent of each Bank affected thereby, (ii) amend or modify the
provisions of this Section 11.7 or Article VIII or the definitions of "Interest
Period" and "Majority Banks", without the written consent of each Bank, or (iii)
release any material part of the Collateral (except as expressly permitted by
the applicable Financing Agreement) without the written consent of each Bank;
and provided, further, however, that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent, Collateral
Agent or the Co-Agents under this Agreement or any other Loan Document without
the written consent of such Administrative Agent, Collateral Agent and CoAgents,
respectively.
SECTION 11.8. Severability. In the event any one or more of
the provisions contained in this Agreement or in any Note or other Loan Document
should be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 11.9. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto shall be delivered or mailed to the Administrative
Agent, the Collateral Agent, the Co-Agents, Holdings and the Borrower.
SECTION 11.10. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 11.11. Obligations of Banks Several. The rights and
obligations of the Banks under this Agreement and the other Loan Documents are
several and not joint. Nothing contained in this Agreement or any other Loan
Document and no
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<PAGE> 90
action taken by any Bank or the Borrower pursuant hereto or thereto shall be
deemed to constitute the Banks as a partnership, association, joint venture or
other entity.
SECTION 11.12. Entire Agreement. This Agreement, together with
the agreements and documents referred to herein and the Fee Letters contain the
entire agreement of the parties and supersedes any and all prior agreements
among the parties with respect to the subject matter hereof.
SECTION 11.13. Confidentiality. (a) Each Bank agrees to keep
confidential (and to cause its respective officers, directors, employees,
agents, representatives and Affiliates to keep confidential) the Information (as
defined below), except that any Bank shall be permitted to disclose Information:
(i) to such of its officers, directors, employees, agents, representatives and
Affiliates (including outside counsel) as need to know such Information; (ii) to
the extent required by applicable laws and regulations or by any subpoena or
similar legal process, or requested by any bank regulatory authority (provided
that such Bank shall, except for Information requested by any such bank
regulatory authority, promptly notify Borrower (to the extent practicable and
lawful, notice shall be given to the Borrower before such disclosure is made so
as to permit Borrower to seek a protective order) of the circumstances and
content of each such disclosure and shall request confidential treatment of any
Information so disclosed); (iii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Agreement, (B)
becomes available to such Bank on a non-confidential basis from a source other
than the Borrower or its Affiliates or (C) was available to such Bank on a
non-confidential basis prior to its disclosure to such Bank by the Borrower or
its Affiliates; or (iv) to the extent the Borrower shall have consented to such
disclosure in writing. As used in this Section 11.13, as to any Bank,
"Information" shall mean any financial statements, materials, documents and
other information that the Borrower or any of its Affiliates may have furnished
or may hereafter furnish to the Administrative Agent or any Bank in connection
with this Agreement or any other materials prepared by any such person from any
of the foregoing.
SECTION 11.14. Release of Certain Liens. The Collateral Agent,
on behalf of the Banks, shall execute and deliver to the Borrower any documents
or instruments reasonably required to release any Lien which was created for the
benefit of the Banks in connection with the Existing Facility but which covers
assets which are no longer Collateral for purposes of this Agreement and the
other Loan Documents.
* * * *
-85-
<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
MINERALS HOLDINGS INC.
By: /s/ William J. Woods, Jr.
----------------------------------
Name: William J. Woods, Jr.
Title: Chairman, President and
Chief Executive Officer
WORLD MINERALS INC.
By: /s/ John F. Liechty
----------------------------------
Name: John F. Liechty
Title: Vice President, Finance
and Chief Financial Officer
CHEMICAL BANK,
individually and as
Administrative Agent and
Co-Agent
By: /s/ John F. Gehebe
----------------------------------
Name: JOHN F. GEHEBE
Title: ASSISTANT VICE PRESIDENT
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
individually and as Co-Agent
By: /s/ Adam N. Balbach
----------------------------------
Name: ADAM N. BALBACH
Title: VICE PRESIDENT
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ Margaret K. Vandenberg
----------------------------------
Name: Margaret K. Vandenberg
Title: Senior Vice President
<PAGE> 1
Exhibit 10.36(b)
List of Contents of Exhibits and Annexes
to the World Minerals Credit Agreement
Exhibits
--------
Exhibit A Form of Alleghany Subordination Agreement
Exhibit B Form of Assignment and Acceptance
Exhibit C Celite Guaranty Agreement
Exhibit D Celite Pledge Agreement
Exhibit D-1 Celite Mexico Pledge Agreement
Exhibit E Holdings Pledge Agreement
Exhibit F Pledge Agreement
Exhibit G Form of Revolving Credit Note
Exhibit H Form of Term Loan Note
Exhibit I Letter of Credit Application
Exhibit J Letter of Credit Application
Exhibit K Form of Notice of Borrowing
Annexes
-------
Annex I The Banks
Annex II Financing Documents
Annex III Financials
Annex IV List of Material Subsidiaries
Annex V List of Jurisdictions
<PAGE> 1
Exhibit 10.39(g)
AMENDMENT NO. 1
TO
STOCK PURCHASE RELATED AGREEMENT
AMENDMENT NO. 1 TO STOCK PURCHASE RELATED AGREEMENT, effective as of
January 1, 1995, among the stockholders named in Schedule 1 hereto (each, a
"Stockholder," together the "Stockholders"), and ALLEGHANY CORPORATION, a
Delaware corporation ("Alleghany").
W I T N E S S E T H:
WHEREAS, Alleghany and the Stockholders other than Harry Petru, Jr.,
Edward D. Santos, Thomas A. Dean and William C. Leone, Jr. are parties to the
Stock Purchase Related Agreement dated as of July 28, 1993, as supplemented by
the Supplement to Stock Purchase Agreement dated as of August 12, 1993
(collectively, the "Stock Purchase Related Agreement");
WHEREAS, the parties hereto desire to add Harry Petru, Jr., Edward D.
Santos, Thomas A. Dean and William C. Leone, Jr. as "Stockholder" parties to the
Stock Purchase Related Agreement; and
WHEREAS, the parties hereto desire to amend the Stock Purchase Related
Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and provisions contained herein, the parties hereto agree
as follows:
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Stock Purchase Related Agreement.
Section 2. Additional Parties to Stock Purchase Related Agreement. Each
of Harry Petru, Jr., Edward D. Santos, Thomas A. Dean and William C. Leone, Jr.
is hereby added as a "Stockholder" party to the Stock Purchase Related Agreement
as amended hereby, upon such Stockholder's execution of a counterpart hereof.
Section 3. Amendments to Stock Purchase Related Agreement. The Stock
Purchase Related Agreement is hereby amended as follows:
<PAGE> 2
(i) Section 1(d)(vi) of the Stock Purchase Related Agreement
is hereby amended to read in its entirety as follows:
(vi) lapse if not exercised prior to the earliest of (A)
the expiration of the option, (B) the termination of employment
for any reason whatsoever and the subsequent completion of a
tender offer for the Common Stock by Alleghany, or (C) two
years after termination of employment for any reason
whatsoever.
(ii) Section 1(d)(vii) of the Stock Purchase Related Agreement
is hereby deleted.
(iii) Section 5(b) of the Stock Purchase Related Agreement is
hereby amended to read in its entirety as follows:
(b) Eligible Shares. "Eligible Shares" shall mean 100% of
the shares of Common Stock owned by each Stockholder on the
Closing Date, as set forth on Schedule 5 hereto (referred to
herein as the "Post-Closing Ownership"), on a cumulative basis
on the fourth anniversary of the Closing, with 25% of such
Post-Closing Ownership becoming eligible on each of the first
four anniversaries of the Closing.
(iv) Section 6 of the Stock Purchase Related Agreement is
hereby amended to read in its entirety as follows:
Section 6. Purchase of Common Stock Upon Termination of
Employment.
(a) Purchase of Common Stock. Upon the termination of
employment with NHC or any of its subsidiaries of any
Stockholder who holds at the time of termination shares of
Common Stock which were owned by such Stockholder on the
Closing Date (the "Repurchase Shares"), prior to an Initial
Public Offering (as defined below) or a Sale (as defined in
Section 7 hereof), Alleghany shall purchase from such
Stockholder or the Permitted Transferees (as defined in Section
10 hereof) of such Stockholder (the "Selling Person"), and such
Selling Person shall sell to Alleghany, all of the Repurchase
Shares held by such Selling Person at a price per share of
Common Stock (the "Repurchase Price") equal to the fully
diluted book value of the Common Stock, determined in
accordance with generally accepted accounting principles as at
the end of the calendar quarter immediately preceding
-2-
<PAGE> 3
such termination, as determined by NHC and as reported upon by
the independent public accountants of NHC, provided, however,
that if employment of such Stockholder was terminated by NHC
without Cause (as defined below) or terminated as a result of
death or permanent disability, the Repurchase Price shall equal
the Adjusted Book Value of the Common Stock, as at the end of
the calendar quarter immediately preceding such termination, as
determined by NHC and as reported upon by the independent
public accountants of NHC. Non-employee directors shall be
subject, in respect of any Repurchase Shares held by them, to
the same terms and conditions set forth in this Section 6 with
respect to the Stockholders.
(b) Certain Definitions. The term "Initial Public
Offering" shall mean the sale by Alleghany, of shares of Common
Stock equal to 20% or more of the then outstanding shares of
Common Stock in a public offering pursuant to a registration
statement under the Securities Act or a public distribution of
shares of Common Stock by Alleghany to its stockholders. The
term "Cause" shall mean (i) material breach of the
Stockholder's Employment Agreement (as defined in Section 17
hereof), (ii) dishonesty of the Stockholder detrimental to the
best interests of NHC or any of its subsidiaries or affiliates
or conviction of the Stockholder of a crime which constitutes a
felony, (iii) any material act or omission by the Stockholder
involving willful malfeasance or gross negligence in the
performance of his duties with NHC or its subsidiaries, and
(iv) continued inattention and neglect by the Stockholder of
his duties with NHC or its subsidiaries (other than inattention
or neglect resulting from illness or disability of the
Stockholder) which inattention and neglect does not cease
within fifteen days after written notice thereof specifying the
details of such conduct is given by the Board of Directors of
NHC to the Stockholder. The Stockholder shall be entitled to
only one such fifteen day notice and right to cure.
(c) Notice. No later than thirty days following the
termination of employment of such Stockholder, Alleghany shall
send to such Selling Person written notice with respect to its
purchase of all Repurchase Shares held by such Selling Person.
-3-
<PAGE> 4
(d) Payment. Alleghany shall cause NHC to determine the
Repurchase Price, which shall be reported upon by the
independent public accountants of NHC, and Alleghany shall send
written notice of said determination to such Selling Person.
The closing of the purchase shall take place at the principal
office of Alleghany on the fifteenth day after delivery by
Alleghany of its notice pursuant to paragraph (c) above.
Delivery of the stock certificates covering the Repurchase
Shares shall be made by such Selling Person on the closing date
against payment in the manner set forth below. The stock
certificates, when delivered to Alleghany, shall be endorsed in
blank or accompanied by stock powers executed in blank. Payment
therefor shall be made in full in cash (or by wire transfer or
certified or official bank check) at the closing.
(v) Section 10(a) of the Stock Purchase Related Agreement is
hereby amended to read in its entirety as follows:
(a) a transfer made to Alleghany or any Stockholder;
(vi) Section 12 of the Stock Purchase Related Agreement is
hereby amended to read in its entirety as follows:
Section 12. Put Option. (a) Each Stockholder shall have
the right commencing the year following the tenth anniversary
of the Closing and each year thereafter as herein provided to
require Alleghany to repurchase all, or any part, of the
Eligible Shares held by such Stockholder at a price per share
of Common Stock (the "Put Option Price") equal to the fully
diluted book value per share of Common Stock, determined in
accordance with generally accepted accounting principles as of
the end of the year immediately preceding the exercise of such
right by a Stockholder, as determined by NHC and as reported
upon by the independent public accountants of NHC. Each
Stockholder wishing to exercise his rights under this Section
12 shall send to Alleghany written notice of his intention to
exercise his rights no later than sixty (60) days following the
delivery to such Stockholder of the audited financial
statements of NHC (the "Audited Financial Statements") for the
end of the year preceding such notice.
-4-
<PAGE> 5
(b) Commencing the year following the tenth anniversary
of the Closing and each year thereafter, Alleghany shall cause
NHC to determine the Put Option Price, which shall be reported
upon by the independent public accountants of NHC, and
Alleghany shall send written notice of said determination to
each Stockholder together with the Audited Financial
Statements. The closing of the purchase shall take place at the
principal office of Alleghany on the fifteenth day after
delivery of a Stockholder's notice as provided in Section
12(a). Delivery of the stock certificates covering the Eligible
Shares held by such Stockholder and any transferees of such
Stockholder, shall be made by such Stockholder and any
transferees of such Stockholder on the closing date against
payment in the manner set forth below. The stock certificates,
when delivered to Alleghany, shall be endorsed in blank or
accompanied by stock powers executed in blank. Payment therefor
shall be made at the closing in full in cash (or by wire
transfer or certified or official bank check).
(vii) A new Section 36 is hereby added to the Stock Purchase
Related Agreement to read in its entirety as follows:
Section 36. Change in Control. (a) In the event of a
Change in Control, all of the options then held by any of the
Stockholders, whether or not then exercisable, shall be
immediately exercisable, and each Stockholder shall have the
right to require Alleghany to repurchase all, or any part, of
(i) the shares of Common Stock issued upon such exercise of
options held by such Stockholder at a price per share equal to
the Adjusted Book Value per share of the Common Stock; or (ii)
the options then held by such Stockholder at a price per
underlying share equal to the Adjusted Book Value per share of
the Common Stock less the Option Price per share, as defined in
the 1993 Plan and as set forth in the relevant Option Agreement
evidencing the options. For purposes of this Section 36,
"Adjusted Book Value" shall mean the higher of (x) Adjusted
Book Value as at the end of the calendar quarter immediately
preceding such Change in Control, or (y) eighty-five percent
(85%) of Adjusted Book Value as at the end of the year
immediately preceding such Change in Control, in each case as
determined by NHC and as reported upon by the independent
public accountants of NHC. A "Change in Control" shall be
deemed to have occurred if (x) any person or group (within the
-5-
<PAGE> 6
meaning of Rule 13d-5 of the Securities and Exchange Commission
as in effect on January 1, 1995) other than Alleghany or any
affiliate of Alleghany shall own, beneficially or of record,
shares representing more than fifty percent (50%) of the
aggregate ordinary voting power represented by the issued and
outstanding capital stock of NHC; (y) any person or group
(within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on January 1, 1995) other than
the principal stockholders of Alleghany identified in
Alleghany's proxy statement dated March 27, 1995, or any of the
respective children, spouses or issue thereof or any entity
beneficially owned by one or more of them, shall own,
beneficially or of record, shares representing more than 50% of
the aggregate ordinary voting power represented by the issued
and outstanding capital stock of Alleghany; or (z) a majority
of the seats (other than vacant seats) on the board of
directors of Alleghany shall at any time be occupied by persons
who were neither nominated or appointed by a majority of the
directors of Alleghany who were in office as of January 1, 1995
nor who were nominated or appointed by directors so nominated.
(b) Each Stockholder wishing to exercise his rights under
this Section 36 shall send to Alleghany written notice of his
intention no later than fifteen (15) days following the
effective date of such Change in Control. The closing of the
purchase shall take place at the principal office of Alleghany
on the tenth day after delivery of a Stockholder's notice as
provided herein. Stock certificates representing shares of
Common Stock held by such Stockholder endorsed in blank or
accompanied by stock powers executed in blank, and/or an
assignment of the Option Agreement, as defined in the 1993
Plan, shall be delivered by such Stockholder on the closing
date against payment in full in cash (by wire transfer or
certified or official bank check).
(viii) A new Section 37 is hereby added to the Stock Purchase
Related Agreement to read in its entirety as follows:
Section 37. Cash-out Transactions. Alleghany hereby
agrees that so long as the Stockholders hold exercisable
options or Common Stock issued upon exercise of options,
Alleghany as a stockholder of NHC will not approve any sale,
-6-
<PAGE> 7
merger or other corporate transaction involving NHC in which
such exercisable options or Common Stock would be converted
into the right to receive cash or securities (other than
exercisable options or Common Stock of a successor to NHC
representing the same ownership interests theretofore
represented by such exercisable options or Common Stock) (a
"Cash-out Transaction"), unless: (a) the Stockholders would
receive in the Cash-out Transaction a consideration per share
of Common Stock issued upon exercise of options or issuable
upon exercise of exercisable options with a value equal to or
greater than the Adjusted Book Value per share of Common Stock,
or (b) Stockholders holding shares of Common Stock issued upon
exercise of options or issuable upon exercise of exercisable
options representing more than two-thirds of all such shares
shall have approved the Cash-out Transaction. For purposes of
this Section 37, "Adjusted Book Value" shall mean the higher of
(x) Adjusted Book Value as at the end of the calendar quarter
immediately preceding such Cash-out Transaction, or (y)
eighty-five percent (85%) of Adjusted Book Value as at the end
of the year immediately preceding such Cash-out Transaction, in
each case as determined by NHC and as reported upon by the
independent public accountants of NHC.
(ix) A new Section 38 is hereby added to the Stock Purchase
Related Agreement to read in its entirety as follows:
Section 38. Conflicts. In the event of any conflict or
inconsistency between the provisions of the Stock Purchase
Related Agreement as amended hereby and the 1993 Plan or a
Stockholders Nonstatutory Stock Option Agreement entered into
by NHC and a Stockholder upon the issuance of Options pursuant
to the 1993 Plan, the provisions of the Stock Purchase Related
Agreement as amended hereby shall be controlling, and NHC shall
be entitled to rely on the provisions of the Stock Purchase
Related Agreement as amended hereby unless otherwise instructed
in a writing signed by Alleghany and the affected Stockholder.
Section 4. Counterparts. This Amendment No. 1 may be executed
in one or more counterparts, all of which shall constitute one and the same
instrument.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 as of the date first written above.
ALLEGHANY CORPORATION
By:/s/ David B. Cuming
-----------------------------
Name: David B. Cuming
Attest: Title: Senior Vice
President
By:/s/Robert M. Hart
------------------------------
Name: Robert M. Hart
Title: Senior Vice President,
General Counsel and
Secretary
STOCKHOLDERS
/s/ Steven H. Newman
--------------------------------
Steven H. Newman
/s/ Dennis E. Arnold
--------------------------------
Dennis E. Arnold
/s/ Russell T. John
--------------------------------
Russell T. John
/s/ F. Paul Japp
--------------------------------
F. Paul Japp
/s/ Stephen C. Kolakowski
--------------------------------
Stephen C. Kolakowski
-8-
<PAGE> 9
/s/ Mark A. Bennett
--------------------------------
Mark A. Bennett
/s/ Theodore A. Blundell
--------------------------------
Theodore A. Blundell
/s/ Denise A. Coleman
--------------------------------
Denise A. Coleman
/s/ Pamela Taylor
--------------------------------
Pamela Taylor
/s/ Todd J. Hess
--------------------------------
Todd J. Hess
/s/ Judy Mann
--------------------------------
Judy Mann
/s/ Nancy Moore
--------------------------------
Nancy Moore
/s/ Harry Petru, Jr.
--------------------------------
Harry Petru, Jr.
/s/ Edward D. Santos
--------------------------------
Edward D. Santos
/s/ Thomas A. Dean
--------------------------------
Thomas A. Dean
/s/ William C. Leone, Jr.
--------------------------------
William C. Leone, Jr.
-9-
<PAGE> 10
Schedule 1
List of Stockholders
Steven H. Newman
Dennis E. Arnold
Russell T. John
F. Paul Japp
Stephen C. Kolakowski
Mark A. Bennett
Theodore A. Blundell
Denise A. Coleman
Pamela Taylor
Todd J. Hess
Judy Mann
Nancy Moore
Harry Petru, Jr.
Edward D. Santos
Thomas A. Dean
William C. Leone, Jr.
<PAGE> 1
Exhibit 10.39(i)
EXECUTION COPY
=================================================================
$100,000,000
CREDIT AGREEMENT
DATED AS OF NOVEMBER 16, 1992
AMONG
UNDERWRITERS RE CORPORATION,
THE LENDERS NAMED HEREIN
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
=================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2. Ratable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3. Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4. Commitment Fee; Reductions in Aggregate
Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5. Minimum Amount of Each Advance . . . . . . . . . . . . . . . . . . . . . . . 19
2.6. Optional Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7. Mandatory Commitment Reductions . . . . . . . . . . . . . . . . . . . . . . . 19
2.8. Method of Selecting Types and Interest Periods for
New Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9. Conversion and Continuation of Outstanding
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10. Interest Rate, Changes etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.11. Rates Applicable After Default . . . . . . . . . . . . . . . . . . . . . . . . 22
2.12. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.13. Notes; Telephonic Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.14. Interest Payment Dates; Interest and Fee Basis . . . . . . . . . . . . . . . . 23
2.15. Notification of Advances, Interest Rates,
Prepayments and Commitment Reductions . . . . . . . . . . . . . . . . . . . 23
2.16. Lending Installations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.17. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . 24
2.18. Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.19. Agent's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III
CHANGE IN CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2. Changes in Capital Adequacy Regulations . . . . . . . . . . . . . . . . . . . . 26
3.3. Availability of Types of Advances . . . . . . . . . . . . . . . . . . . . . . . 26
3.4. Funding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.5. Lender Statements; Survival of Indemnity . . . . . . . . . . . . . . . . . . . 27
3.6. Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1. Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2. Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1. Corporate Existence and Standing . . . . . . . . . . . . . . . . . . . . . . . 31
5.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3. Compliance with Laws and Contracts . . . . . . . . . . . . . . . . . . . . . . 31
5.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.8. Litigation and Third Party Obligations . . . . . . . . . . . . . . . . . . . . 33
5.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.11. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.13. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.14. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.15. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.16. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.17. Stock of the Borrower, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.19. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.20. Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.21. Employee Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.22. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.23. Insurance Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.24. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.25. Corporate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.26. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.27. A.M. Best Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.1. Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3. Notice of Default and Other Matters . . . . . . . . . . . . . . . . . . . . . . 41
6.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6. Corporate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.10. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.14. Sale of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.15. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.16. Investments and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<TABLE>
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6.17. Third Party Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.18. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.19. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.20. Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.21. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.22. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.23. Financial Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.24. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.25. Agreements as to Prohibited Acts . . . . . . . . . . . . . . . . . . . . . . . 50
6.26. Change in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . 50
6.27. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.28. Borrower Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.28.1. Minimum Tangible Net Worth . . . . . . . . . . . . . . . . . . . . 50
6.28.2. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . 51
6.29. Insurance Company Financial Covenants . . . . . . . . . . . . . . . . . . . . 51
6.29.1. Surplus as Regards Policyholders . . . . . . . . . . . . . . . . . . 51
6.29.2. Operating Leverage . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.29.3. Statutory Income . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.30. Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.31. Reports to NAIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.32. Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.33. Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.34. CUIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VII
DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 56
8.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3. Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.1. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.2. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.3. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5. Several Obligations; Benefits of this Agreement . . . . . . . . . . . . . . . 58
9.6. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.7. Numbers of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.8. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.9. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.10. Nonliability of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.11. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.12. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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<TABLE>
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9.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.15. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE X
THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.4. No Responsibility for Loans, Recitals, etc. . . . . . . . . . . . . . . . . . 62
10.5. Action on Instructions of Lenders . . . . . . . . . . . . . . . . . . . . . . 62
10.6. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . 62
10.7. Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . . . . . . 63
10.8. Agent's Reimbursement and Indemnification . . . . . . . . . . . . . . . . . . 63
10.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.10. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.11. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XI
SETOFF; RATABLE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.1. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.2. Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . 65
12.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.2. Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.2.1. Permitted Participants; Effect. . . . . . . . . . . . . . . . . . 65
12.2.2. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.2.3. Benefit of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.3. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.3.1. Permitted Assignments . . . . . . . . . . . . . . . . . . . . . . . 66
12.3.2. Effect; Effective Date . . . . . . . . . . . . . . . . . . . . . . 67
12.4. Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . 67
12.5. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XIII
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.1. Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.2. Change of Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE XIV
COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
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<TABLE>
<S> <C>
EXHIBITS
- --------
Exhibit A -- Form of Note
Exhibit B -- Form of Pledge Agreement
Exhibit C -- Form of Security Agreement
Exhibit D-1 -- Form of Opinion of Arnold & Porter
Exhibit D-2 -- Form of Opinion of Roussos, Hage & Hodes
Exhibit E -- Form of Letter of KPMG Peat Marwick
Exhibit F -- Form of Compliance Certificate
Exhibit G -- Form of Assignment Agreement
SCHEDULES
- ---------
Schedule 5.3 -- Required Consents
Schedule 5.4 -- Governmental Consents
Schedule 5.8 -- Litigation and Third Party Obligations
Schedule 5.9 -- Subsidiaries
Schedule 5.17 -- Capitalization
Schedule 5.19 -- Indebtedness
Schedule 5.23 -- Insurance Licenses and Business
Schedule 5.24 -- Environmental
Schedule 6.16 -- Investments
Schedule 6.18 -- Liens
</TABLE>
<PAGE> 7
CREDIT AGREEMENT
This Agreement, dated as of November 16, 1992, is among Underwriters
Re Corporation, a Delaware corporation, the Lenders and The First National Bank
of Chicago, as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Accounts" means all present and future rights of the Borrower and
each of the Subsidiaries to payment for goods sold or leased or for services
rendered, whether or not they have been earned by performance.
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (a) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (b) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election
of directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of
the outstanding partnership interests of a partnership.
"Acquisition Corp." means Underwriters Re Acquisition Corp., a
Delaware corporation.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made on the same Borrowing Date by the Lenders to
the Borrower of the same Type and, in the case of Eurodollar Advances, for the
same Interest Period.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person for the purposes of this
definition if the controlling Person owns 10% or more of any class of voting
securities (or other ownership interests) of the controlled Person or
possesses, directly or indirectly, the power to direct or cause the direction
of the management or policies of the controlled Person, whether through
ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as
agent for the Lenders pursuant to Article X, and not in
<PAGE> 8
its individual capacity as a Lender, and any successor Agent appointed pursuant
to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders hereunder.
"Agreement" means this credit agreement, as it may be amended,
supplemented or modified and in effect from time to time.
"Agreement Accounting Principles" means United States generally
accepted accounting principles as in effect from time to time, applied in a
manner consistent with that used in preparing the financial statements referred
to in Section 5.5.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (a) the Corporate Base Rate for such day and (b) the sum
of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Annual Statement" means the annual statutory financial statement of
any Insurance Subsidiary required to be filed with the insurance commissioner
(or similar authority) of its jurisdiction of incorporation, which statement
shall be in the form required by such Insurance Subsidiary's jurisdiction of
incorporation or, if no specific form is so required, in the form of financial
statements recommended by the NAIC to be used for filing annual statutory
financial statements and shall contain the type of information recommended by
the NAIC to be disclosed therein, together with all exhibits or schedules filed
therewith.
"Applicable ABR Margin" means, subject to the last sentence of this
definition, the applicable of the following percentages in effect with respect
to such periods as the Leverage Ratio of the Borrower shall fall within the
indicated ranges:
<TABLE>
<CAPTION>
Leverage Ratio Applicable ABR Margin
- -------------------------------------- ---------------------
Greater than
or Equal to But less than
- ------------ -------------
<S> <C> <C>
.35:1.0 -------- .50%
.30:1.0 .35:1.0 .25%
- ------- .30:1.0 0%
</TABLE>
The Leverage Ratio shall be calculated by the Borrower as of the end of each of
its fiscal quarters commencing March 31, 1994 and shall be reported to the
Agent pursuant to a certificate executed by the chief financial officer of the
Borrower and delivered in accordance with Section 6.1 in connection with the
delivery by the Borrower of its financial statements. The Applicable ABR
Margin shall be adjusted, if necessary, quarterly as of the tenth day after the
required delivery date for each of the certificate and the financial statements
provided for above; provided, that if such certificate and financial statements
are not delivered by such
-2-
<PAGE> 9
tenth day, then the Applicable ABR Margin shall be equal to .50% for the
relevant quarter. Until adjusted as described above after March 31, 1994, the
Applicable ABR Margin shall be equal to .50%.
"Applicable Eurodollar Margin" means, subject to the last sentence of
this definition, the applicable of the following percentages in effect with
respect to such periods as the Leverage Ratio of the Borrower shall fall within
the indicated ranges:
<TABLE>
<CAPTION>
Applicable
Leverage Ratio Eurodollar Margin
- -------------------------------------- -----------------
Greater than
or Equal to But less than
- ------------ -------------
<S> <C> <C>
.35:1.0 -------- 1.75%
.30:1.0 .35:1.0 1.50%
- ------- .30:1.0 1.25%
</TABLE>
The Leverage Ratio shall be calculated by the Borrower as of the end of each of
its fiscal quarters commencing March 31, 1994 and shall be reported to the
Agent pursuant to a certificate executed by the chief financial officer of the
Borrower and delivered in accordance with Section 6.1 in connection with the
delivery by the Borrower of its financial statements. The Applicable
Eurodollar Margin shall be adjusted, if necessary, quarterly as of the tenth
day after the required delivery date for each of the certificate and the
financial statements provided for above; provided, that if such certificate and
financial statements are not delivered by such tenth day, then the Applicable
Eurodollar Margin shall be equal to 1.75% for the relevant quarter. Until
adjusted as described above after March 31, 1994, the Applicable Eurodollar
Margin shall be equal to 1.75%. The Applicable Eurodollar Margin for any
Interest Period shall be that in effect on the first day of such Interest
Period and shall not change during such Interest Period.
"Article" means an article of this Agreement unless another document
is specifically referenced.
"Asset Disposition" means the disposition whether by sale, merger or
otherwise of any of the stock of any of Borrower's Subsidiaries, constituting
at least 10% of the Consolidated Tangible Net Worth of the Borrower.
"Asset Valuation Reserve" means, with respect to any Person, such
Person's asset valuation reserve, computed in accordance with SAP.
"Authorized Officer" means any of the chief executive officer or chief
financial officer of the Borrower, acting singly.
"Available Cash" means, at any time of determination, the sum of (a)
the Borrower's cash and Investments described in Section
-3-
<PAGE> 10
6.16(a)(i) - (iv) plus (b) to the extent the Borrower could then satisfy the
conditions for borrowing such amounts, the excess of the then Aggregate
Commitment over the aggregate outstanding principal amount of the Loans.
"Bankruptcy Code" means Title 11, United States Code, sections 1 et
seq., as the same may be amended from time to time, and any successor thereto or
replacement therefor which may be hereafter enacted.
"Borrower" means Underwriters Re Corporation, a Delaware corporation,
and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (a) with respect to any borrowing, payment or
rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday)
on which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (b)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures
for any purchase or other acquisition for value of any asset that is classified
on a consolidated balance sheet of the Borrower with the Subsidiaries prepared
in accordance with Agreement Accounting Principles as a fixed or capital asset
excluding (a) the cost of assets acquired under Capitalized Lease Obligations,
(b) expenditures of insurance proceeds to rebuild or replace any asset after a
casualty loss and (c) leasehold improvement expenditures for which the Borrower
or a Subsidiary is reimbursed promptly by the lessor.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 USC Sections 9601 et. seq.), as amended by the
Superfund Amendments and Reauthorization Act.
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"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act) of
20% or more of the outstanding shares of voting stock of the Borrower or
Acquisition Corp. (other than pursuant to (a) an Initial Public Offering, all
or a portion of the proceeds of which are applied to reduce the Aggregate
Commitment pursuant to Section 2.7(a)(ii) or (b) a merger or consolidation
permitted under Section 6.12).
"Closing Date" means the date of the initial Advance hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Collateral" means, collectively, the real and personal property of
the Borrower which is pledged, assigned or mortgaged to the Agent for the
benefit of the Lenders pursuant to the Loan Documents.
"Combined Statutory Basis" means, with respect to any two or more of
the Insurance Subsidiaries at any time, the financial results achieved by
combining the then most recent Annual Statements or Quarterly Statements of
such Insurance Subsidiaries (or any one or more parts thereof), after
eliminating therefrom the amount and the effect (including, without limitation,
any effect on Surplus as Regards Policyholders) of any investments,
liabilities, expenses, income or other items appearing in such Annual
Statements or Quarterly Statements which may have arisen out of any one or more
transactions by and among any of such Insurance Subsidiaries.
"Commitment" means, for each Lender, the obligation of such Lender to
make Loans to the Borrower in an aggregate amount at any one time outstanding
not exceeding the amount set forth opposite its signature below, as such amount
may be modified or reduced from time to time pursuant to the terms hereof.
"Condemnation" is defined in Section 7.8.
"Consolidated" or "consolidated", when used in connection with any
calculation, means a calculation to be determined on a consolidated basis for
the Borrower and its Subsidiaries in accordance with Agreement Accounting
Principles.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries,
are treated as a single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
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"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes. The Corporate Base Rate is a
reference rate and does not necessarily represent the lowest or best rate of
interest actually charged to any customer. First Chicago may make commercial
loans or other loans at rates of interest at, above, or below the Corporate
Base Rate.
"CUIC" means Commercial Underwriters Insurance Company, a California
insurance corporation and a wholly owned subsidiary of URC.
"Default" means an event described in Article VII.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Eurodollar Interest Period, the rate determined by the Agent to be
the arithmetic average of the rates reported to the Agent by each Reference
Bank as the rate at which deposits in U.S. dollars are offered by such
Reference Banks to first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
such Eurodollar Interest Period, in the approximate amount of such Reference
Bank's relevant Eurodollar Loan and having a maturity approximately equal to
such Eurodollar Interest Period. If any Reference Bank fails to provide such
quotation to the Agent, then the Agent shall determine the Eurodollar Base Rate
on the basis of the quotations of the remaining Reference Bank(s).
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar
Base Rate applicable to such Interest Period, divided by (ii) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Interest
Period, plus (b) the Applicable Eurodollar Margin. The Eurodollar Rate shall
be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"Exchange Act" means the Securities Exchange Act of 1934, as the same
may be amended from time to time, and any successor thereto or replacement
thereof which may be hereafter enacted.
"Facility Termination Date" means December 31, 1998.
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"Federal Funds Effective Rate" means, for any day, an interest rate
per annum 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 any day
which is a Business Day, the average of the quotations at approximately 10 a.m.
(Chicago time) on such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by the Agent in its
sole discretion.
"Financial Statements" shall have the meaning set forth in Section 5.5.
"Financial Undertaking" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any sale and leaseback transactions which do not create a liability on the
consolidated balance sheet of such Person and its Subsidiaries, (c) any
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, interest rate exchange agreements,
forward currency exchange agreements, interest rate cap or collar protection
agreements, forward rate currency or interest rate options or (d) any other
similar transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person and its Subsidiaries.
"First Chicago" means The First National Bank of Chicago in its
individual capacity and its successors.
"Fiscal Year" means the twelve-month accounting period commencing on
January 1 and ending on the last day of December of each year.
"Floating Rate" means, for any day, with respect to any Revolving
Credit Advance, a rate per annum equal to (a) the Alternate Base Rate for such
day plus (b) the Applicable ABR Margin, in each case changing when and as the
Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity
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exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government including, without limitation, any
board of insurance, insurance department or insurance commissioner.
"Indebtedness" of a Person means such Person's (a) obligations for
borrowed money, (b) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade), (c)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (d) obligations which are evidenced by notes, acceptances, or other
instruments, (e) Capitalized Lease Obligations, (f) net liabilities under
interest rate swap, exchange or cap agreements, and (g) Third Party Obligations
and (h) obligations for which such Person is obligated pursuant to a Letter of
Credit.
"Initial Public Offering" means the first offering after the date
hereof of shares of the Borrower's or Acquisition Corp.'s common stock, or
options, warrants or securities convertible into or exchangeable for, or rights
to acquire, shares of such common stock, which is registered pursuant to an
effective registration statement filed by the Borrower or Acquisition Corp.
under the Securities Act (other than (a) a registration statement filed on Form
S-4 (or any successor form thereto) or (b) a registration statement filed on
Form S-8 (or any successor form thereto), or any other applicable form with
respect to the issuance of shares of such common stock, or options, warrants or
securities convertible into or exchangeable for, or rights to acquire, such
shares of common stock, issued or to be issued or granted to directors,
officers or employees of Acquisition Corp., the Borrower and its Subsidiaries).
"Insurance Subsidiary" means any Subsidiary which is engaged in the
property and casualty insurance or reinsurance business.
"Interest Period" means, with respect to a Eurodollar Advance, a
period of one, two, three or six months commencing on a Business Day selected
by the Borrower pursuant to this Agreement. Such Interest Period shall end on
(but exclude) the day which corresponds numerically to such date one, two,
three or six months thereafter, provided, however, that if there is no such
numerically corresponding day in such next, second, third or sixth succeeding
month, such Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day; provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
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"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade or extensions of credit pursuant to the existing agreements referenced in
the preceding parenthetical), deposit account or contribution of capital by
such Person to any other Person or any investment in, or Acquisition of, the
stock, partnership interests, notes, debentures or other securities of any
other Person made by such Person.
"IRIS Tests" means the ratios and other financial measurements
developed by NAIC under its Insurance Regulatory Information System or, in lieu
thereof, any substitute therefor or other system or other similar guidelines
intended to measure the financial performance of companies in the property and
casualty insurance industry, as the same shall be in effect from time to time.
"Lenders" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender (or its head office)
or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Leverage Ratio" means, with respect to the Borrower on a consolidated
basis with the Subsidiaries, at any time, the ratio of (a) the Borrower's
Consolidated Indebtedness to (b) the sum of (i) the Borrower's Consolidated
Indebtedness, plus (ii) the Borrower's Consolidated Tangible Net Worth;
provided, that for the purposes of determining this ratio, Consolidated
Indebtedness shall not include Indebtedness arising from Letters of Credit
permitted by Section 6.21.
"License" means any license, certificate of authority, permit or other
authorization which is required to be obtained from any Governmental Authority
in connection with the operation, ownership or transaction of insurance
business.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
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"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement, the Notes, the Security
Documents and the Rate Swap Agreements.
"Managers" means URC Risk Managers, Inc., a Delaware corporation and a
Wholly-Owned Subsidiary of the Borrower.
"Margin Stock" has the meaning assigned to such term under Regulation
U.
"Material Adverse Effect" means a material adverse effect on (a) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, or (b) the
ability of the Borrower to perform its obligations under any of the Loan
Documents.
"Material Document Effect" means a material adverse effect on the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Agent or the Lenders thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"NAIC" means the National Association of Insurance Commissioners or
any successor thereto, or in lieu thereof, any other association, agency or
other organization performing advisory, coordination or other like functions
among insurance departments, insurance commissions and similar Governmental
Authorities of the various states of the United States of America toward the
promotion of uniformity in the practices of such Governmental Authorities.
"Net Available Proceeds" means (a) with respect to any Asset
Disposition, the sum of cash or readily marketable cash equivalents received
(including by way of a cash generating sale or discounting of a note or
receivable, but excluding any other consideration received in the form of
assumption by the acquiring Person of debt or other obligations relating to the
properties or assets so disposed of or received in any other non-cash form)
therefrom, whether at the time of such disposition or subsequent thereto, or
(b) with respect to any sale or issuance of any debt or equity securities of
Acquisition Corp., the Borrower or any Subsidiary, cash or readily marketable
cash equivalents received (but excluding any other non-cash form) therefrom,
whether at the time of such disposition or subsequent thereto, net, in either
case, of all legal, title and recording tax expenses, commissions and other
fees and all costs and expenses incurred and all federal, state, local and
other taxes required to be accrued as a liability as a consequence of such
transactions.
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"Net Written Premium" means, with respect to any Insurance Subsidiary,
the net written premiums thereof for the relevant period ("Underwriting and
Investment" statement, page 8, part 2B, column 4, line 32).
"Note" means a promissory note in the form of Exhibit A hereto, with
appropriate insertions, duly executed and delivered to the Agent by the Borrower
and payable to the order of a Lender in the amount of its Commitment, including
any amendment, modification, renewal or replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent or any indemnified party hereunder arising
under any of the Loan Documents, including without limitation, any Rate Hedging
Obligations owed to any Lender.
"Offering Documents" means (a) the Confidential Offering Memorandum
dated September 21, 1992 relating to the Borrower distributed to prospective
lenders in connection with this Agreement and (b) the Borrower's Prospectus
dated July 25, 1991 pertaining to the Senior Notes.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last Business Day of each March, June,
September and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code as to which the Borrower or any member of the Controlled Group may
have any liability.
"Pledge Agreement" means that certain Stock Pledge Agreement,
substantially in the form of Exhibit B hereto, dated as of the date hereof,
duly executed and delivered by the Borrower in favor of the Agent and the
Lenders, as the same may be amended, supplemented, or otherwise modified from
time to time.
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"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"pro-rata" means, when used with respect to a Lender, and any
described aggregate or total amount, an amount equal to such Lender's pro-rata
share or portion based on its percentage of the Aggregate Commitment or if the
Aggregate Commitment has been terminated, its percentage of the aggregate
principal amount of outstanding Advances.
"Quarterly Statement" means the quarterly statutory financial
statement of any Insurance Subsidiary required to be filed with the insurance
commissioner (or similar authority) of its jurisdiction of incorporation, which
statement shall be in the form required by such Insurance Subsidiary's
jurisdiction of incorporation or, if no specific form is so required, in the
form of financial statements recommended by NAIC to be used for filing
quarterly statutory financial statements and shall contain the type of
information recommended by NAIC to be disclosed therein, together with all
exhibits or schedules filed therewith.
"Rate Hedging Obligations" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (b) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Rate Swap Agreements" means interest rate swap, exchange, cap,
hedging or similar interest rate protection agreements entered into by the
Borrower with a Lender in respect of any portion of the Obligations.
"Reference Banks" means First Chicago and The Bank of New York.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
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"Regulation G" means Regulation G of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said 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.
"Regulation T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said 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.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors applicable to member banks of the Federal Reserve System.
"Rentals" of a Person means the aggregate fixed amounts payable by
such Person under any lease of Property having an original term (including any
required renewals or any renewals at the option of the lessor or lessee) of one
year or more but does not include any amounts payable under Capitalized Leases
of such Person.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of
the notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 66
2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Lenders in the aggregate holding at least 66 2/3% of the aggregate
unpaid principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves)
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which is imposed under Regulation D on eurocurrency liabilities (in the case of
Eurodollar Advances).
"SAP" means, with respect to any Insurance Subsidiary, the statutory
accounting practices prescribed or permitted by the insurance commissioner (or
other similar authority) as of the date hereof in the jurisdiction of
incorporation of such Insurance Subsidiary for the preparation of annual
statements and other financial reports by insurance companies of the same type
as such Insurance Subsidiary.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Obligations" means, collectively, (a) the Obligations and (b)
all Rate Hedging Obligations owing to one or more Lenders.
"Securities Act" means the Securities Act of 1933, as the same may be
amended from time to time, and any successor thereto or replacement thereof
which may be hereafter enacted.
"Security Agreement" means the Security Agreement, substantially in
the form of Exhibit C hereto, dated as of the date hereto, duly executed and
delivered by the Borrower in favor of the Agent and the Lenders, as the same
may be amended, supplemented or otherwise modified from time to time.
"Security Documents" means the Security Agreement, the Pledge
Agreement and such other agreements and amendments thereto as the Borrower may
from time to time enter into with the Agent or the Lenders to secure the
Obligations.
"Senior Notes" means those certain 15% Senior Notes Due 1997 issued by
the Borrower on December 30, 1987.
"Shareholders Agreement" means that certain Shareholders Agreement,
dated as of December 29, 1987, among the shareholders named therein and
Acquisition Corp., as amended, modified or supplemented from time to time.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Solvent" means, when used with respect to a Person, that (a) the
fair saleable value of the assets of such Person is in excess of the total
amount of the present value of its liabilities (including for purposes of this
definition all liabilities (including loss reserves as determined by the
Borrower), whether or not reflected on a balance sheet prepared in accordance
with Agreement Accounting Principles, and whether direct or indirect, fixed or
contingent, secured or unsecured, disputed or undisputed), (b) such Person is
able to pay its debts or obligations in the
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<PAGE> 21
ordinary course as they mature and (c) such Person does not have unreasonably
small capital to carry out its business as conducted and as proposed to be
conducted. "Solvency" shall have a correlative meaning.
"Statutory Income" means the pre-tax statutory income of the
Borrower's Consolidated Insurance Subsidiaries (excluding capital gains and
losses, but adjusting the amount of investment income derived from tax-exempt
securities by dividing the nominal amount of such tax-exempt investment income
by a fraction equal to 1 minus the Borrower's marginal tax rate).
"Subordinated Indebtedness" of a Person means any Indebtedness for
borrowed money of such Person the payment of which is subordinated to payment
of the Secured Obligations to the written satisfaction of the Required Lenders.
"Subsidiary" of a Person means (a) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (b) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall
mean a Subsidiary of the Borrower.
"Substantial Portion" means Property of the Borrower and its
Subsidiaries having a fair market value in excess of $15,000,000.
"Surplus as Regards Policyholders" means, with respect to any
Insurance Subsidiary at any time, the "capital stock" of such Insurance
Subsidiary at such time, as determined in accordance with SAP ("Liabilities,
Surplus and Other Funds" statement, Line 26 of the Annual Statement).
"Tangible Net Worth" means at any date the consolidated stockholders'
equity of the Borrower and its consolidated Subsidiaries determined in
accordance with Agreement Accounting Principles, excluding the impact of
unrealized gains and losses on investments in debt securities reported as a
separate component of shareholder equity, less their consolidated Intangible
Assets, all determined as of such date. For purposes of this definition
"Intangible Assets" means the amount (to the extent reflected in determining
such consolidated stockholders' equity) of (a) all write-ups (other than (i)
write-ups resulting from foreign currency translations or (ii) write-ups of
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to December 31, 1991 in the book value
of any asset owned by the Borrower or a consolidated Subsidiary, and (b) all
unamortized debt discount and expense (other than deferred expenses related to
the transactions contemplated by this
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Agreement), unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, organization or developmental expenses
and other intangible items.
"Tax Sharing Agreements" means the agreements referenced in Section
4.1(l), as in effect on the date hereof and as such agreements may be hereafter
amended, subject to compliance with the terms hereof.
"Third Party Obligation" of a Person means any agreement, undertaking
or arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon (except to the extent arising solely by operation
of law or regulation without independent action by such Person), the obligation
or liability of any other Person, or agrees to maintain the net worth or
working capital or other financial condition of any other Person, or otherwise
assures any creditor of such other Person against loss, including, without
limitation, any comfort letter, operating agreement or take-or-pay contract or
application for a Letter of Credit but excluding any insurance contracts,
reinsurance contracts or other similar arrangements entered into by an
Insurance Subsidiary in the ordinary course of its business.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or Eurodollar Advance.
"UCC" means the Illinois Uniform Commercial Code as amended or
modified and in effect from time to time.
"URC" means Underwriters Reinsurance Company, a New Hampshire
insurance company and a Wholly-Owned Subsidiary of the Borrower.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (b) any partnership, association, joint venture
or similar business organization 100% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
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The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. References herein to
particular columns, lines or sections of any Person's Annual Statement shall be
deemed, where appropriate, to be references to the corresponding column, line
or section of such Person's Quarterly Statement, or if no such corresponding
column, line or section exists or if any report form changes, then to the
corresponding item referenced thereby. Each accounting term used herein which
is not otherwise defined herein shall be defined in accordance with Agreement
Accounting Principles unless otherwise specified.
ARTICLE II
THE CREDITS
2.1. Advances. (a) From and including the date hereof to but not
including the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to the Borrower
from time to time in amounts not to exceed in the aggregate at any one time
outstanding the amount of its Commitment existing at such time. Subject to the
terms of this Agreement, the Borrower may borrow, repay and reborrow Advances
at any time prior to the Facility Termination Date.
(b) The Borrower hereby agrees that if at any time, as a
result of reductions in the Aggregate Commitment pursuant to Section 2.4,
Section 2.7 or otherwise, the aggregate balance of the Loans exceeds the
Aggregate Commitment, the Borrower shall repay immediately its then outstanding
Loans in such amount as may be necessary to eliminate such excess. The
Borrower further agrees that at the time of any reduction in the Aggregate
Commitment pursuant to Section 2.7(a)(i) or (ii), it shall prepay the Loans in
an amount equal to the full amount of such reduction. Following the prepayment
referenced in the preceding sentence and subject to the terms of this
Agreement, the Borrower shall be permitted to reborrow amounts hereunder up to
the full amount of the reduced Aggregate Commitment.
(c) The Borrower's obligation to pay the principal of,
and interest on, the Loans shall be evidenced by the Notes. Although the Notes
shall be dated the date of the initial Advance, interest in respect thereof
shall be payable only for the periods during which the Loans evidenced thereby
are outstanding and, although the stated amount of each Note shall be equal to
the applicable Lender's Commitment, each Note shall be enforceable, with
respect to the Borrower's obligation to pay the principal amount thereof, only
to the extent of the unpaid principal amount of the Loan at the time evidenced
thereby.
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<PAGE> 24
(d) Each Loan included in an Advance shall mature, and
the principal amount thereof and the unpaid accrued interest thereon shall be
due and payable, on the Facility Termination Date.
2.2. Ratable Loans. Each Advance hereunder shall consist of Loans
made from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment.
2.3. Types of Advances. The Advances may be Floating Rate Advances
or Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.4. Commitment Fee; Reductions in Aggregate Commitment. (a) The
Borrower agrees to pay to the Agent for the ratable account of each Lender a
commitment fee of .375% per annum on the daily unborrowed portion of such
Lender's Commitment from the date hereof to and including the Facility
Termination Date, payable in arrears on each Payment Date hereafter and on the
Facility Termination Date. All accrued commitment fees shall be payable on the
effective date of any termination of the obligations of the Lenders to make
Loans hereunder.
(b) The Borrower may, at its sole discretion, permanently
reduce the Aggregate Commitment in whole, or in part ratably among the Lenders,
in a minimum amount of $3,000,000 or any integral multiple of $1,000,000 in
excess thereof, upon at least three (3) Business Days' prior written notice to
the Agent, which notice shall specify the amount of any such reduction;
provided, however, that the amount of the Aggregate Commitment may not be
reduced below the aggregate principal amount of the outstanding Advances. Such
reductions shall be in addition to reductions occurring pursuant to Section
2.4(c) or Section 2.7.
(c) On each date specified below, the Aggregate
Commitment shall be permanently reduced, ratably among the Lenders, by an
amount equal to the amount determined by multiplying the Aggregate Commitment
as of the Closing Date by the percentage specified below opposite such date.
Such reductions in the Aggregate Commitment shall occur regardless of any other
reductions which may have already occurred pursuant to Section 2.4(b) or
Section 2.7(a).
<TABLE>
<CAPTION>
Date Reduction Percentage
---- --------------------
<S> <C>
3/31/93 2.5 %
6/30/93 2.5 %
9/30/93 2.5 %
12/31/93 2.5 %
3/31/94 3.75 %
6/30/94 3.75 %
9/30/94 3.75 %
12/31/94 3.75 %
</TABLE>
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<PAGE> 25
<TABLE>
<S> <C>
3/31/95 4.375 %
6/30/95 4.375 %
9/30/95 4.375 %
12/31/95 4.375 %
3/31/96 4.375 %
6/30/96 4.375 %
9/30/96 4.375 %
12/31/96 4.375 %
3/31/97 5.0 %
6/30/97 5.0 %
9/30/97 5.0 %
12/31/97 5.0 %
3/31/98 5.0 %
6/30/98 5.0 %
9/30/98 5.0 %
12/31/98 5.0 %
</TABLE>
Concurrently with such reduction the Borrower shall make such payments as are
required by Section 2.1(b).
2.5. Minimum Amount of Each Advance. Each Advance shall be in the
minimum amount of $3,000,000 (and in multiples of $1,000,000 if in excess
thereof); provided, however, that any Floating Rate Advance may be in the
amount of the unused Aggregate Commitment.
2.6. Optional Principal Payments. The Borrower may from time to
time pay, without penalty or premium, all outstanding Floating Rate Advances,
or, in a minimum aggregate amount of $3,000,000 or any integral multiple of
$1,000,000 in excess thereof, any portion of the outstanding Floating Rate
Advances upon notice to the Agent received not later than 10:00 a.m. (Chicago
time) on the date of such prepayment. A Eurodollar Rate Advance may not be
paid prior to the last day of the applicable Interest Period.
2.7. Mandatory Commitment Reductions. (a) In addition to the
Aggregate Commitment reductions required pursuant to Section 2.4(c):
(i) concurrently with the receipt thereof by the Borrower
or any Subsidiary (or, in the case of a prepayment of Eurodollar
Loans, on the last day of the current Interest Period for such
Eurodollar Loans), the Aggregate Commitment shall be automatically and
permanently reduced by an amount equal to 100% of the Net Available
Proceeds realized upon any Asset Disposition;
(ii) concurrently with the receipt thereof by Acquisition
Corp., the Borrower or any Subsidiary (or, in the case of a prepayment
of Eurodollar Loans, on the last day of the current Interest Period
for such Eurodollar Loans), the Aggregate Commitment shall be
automatically and permanently reduced by an amount equal to 100% of
the Net Available Proceeds realized upon the sale by Acquisition
Corp., the Borrower or such
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<PAGE> 26
Subsidiary of any equity, securities or the issuance by any such Person of any
Subordinated Indebtedness, provided, however , that:
(A) if the Initial Public Offering occurs on or
prior to June 30, 1993, then the Borrower may elect to
contribute up to 80% of the Net Available Proceeds thereof to
the surplus of URC;
(B) if the Initial Public Offering occurs after
June 30, 1993 and on or prior to June 30, 1994, then the
Borrower may elect to contribute up to 50% of the Net
Available Proceeds thereof to the surplus of URC;
(C) if the Initial Public Offering occurs after
June 30, 1994 and on or prior to June 30, 1995, then the
Borrower may elect to contribute up to 25% of the Net
Available Proceeds thereof to the surplus of URC; and
(D) no reduction in the Aggregate Commitment
shall occur with respect to the portion of the Initial Public
Offering Net Available Proceeds which are contributed to the
surplus of URC as permitted by (A) - (C) above within five (5)
Business Days after receipt by the Borrower or Acquisition
Corp., as applicable, of such proceeds. If such proceeds are
not so contributed in their entirety within such time period,
then the Aggregate Commitment shall be reduced by the amount
of any uncontributed portion thereof on the sixth Business Day
following receipt of such proceeds; and
(iii) at the election of the Required Lenders, the
Aggregate Commitment shall be reduced to zero (A) following the
publication of any A.M. Best rating of any Insurance Subsidiary
evidencing a decline therein or (B) in the event that URC is no longer
rated by A.M. Best.
(b) Any reduction in the Aggregate Commitment pursuant to
this Section or otherwise shall ratably reduce the Commitment of each Lender in
proportion to each Lender's Commitment.
2.8. Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable to each Advance from time to
time. The Borrower shall give the Agent irrevocable notice (a "Borrowing
Notice") not later than 11:00 a.m. (Chicago time) at least one (1) Business Day
before the Borrowing Date of each Floating Rate Advance and three (3) Business
Days before the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of
such Advance,
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<PAGE> 27
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest
Period applicable thereto; provided, however, that at no time shall
there be more than two Interest Periods relating to outstanding
Eurodollar Advances; provided, further, that the Borrower may not
specify an Interest Period with respect to any Eurodollar Advance that
would require the Borrower to make payments to the Lenders pursuant to
Section 3.4 because of a reduction in the Aggregate Commitment
required under Section 2.4(c) prior to the end of such Interest
Period.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans, in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will
make the funds so received from the Lenders available to the Borrower at the
Agent's aforesaid address.
2.9. Conversion and Continuation of Outstanding Advances. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance
shall be automatically converted into a Floating Rate Advance unless the
Borrower shall have given the Agent a Conversion/Continuation Notice requesting
that, at the end of such Interest Period, such Eurodollar Advance either
continue as a Eurodollar Advance for the same or another Interest Period or be
converted into a Floating Rate Advance. Subject to the terms of Section 2.6,
the Borrower may elect from time to time to convert all or any part of an
Advance of any Type into any other Type or Types of Advances; provided, that
any conversion of any Eurodollar Advance shall be made on, and only on, the
last day of the Interest Period applicable thereto. The Borrower shall give
the Agent irrevocable notice (a "Conversion/Continuation Notice") of each
conversion of an Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Chicago time) at least one (1) Business Day, in the case of a
conversion into a Floating Rate Advance, or three (3) Business Days, in the
case of a conversion into or continuation of a Eurodollar Advance, prior to the
date of the requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of
such conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is
to be converted or continued; and
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<PAGE> 28
(iii) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a
conversion into or continuation of a Eurodollar Advance, the duration
of the Interest Period applicable thereto; provided, further, that the
Borrower may not specify an Interest Period with respect to any
Eurodollar Advance that would require the Borrower to make payments to
the Lenders pursuant to Section 3.4 because of a reduction in the
Aggregate Commitment required under Section 2.4(c) prior to the end of
such Interest Period.
2.10. Interest Rate, Changes etc.. Each Floating Rate Advance shall
bear interest at the Floating Rate from and including the date of such Advance
to (but not including) the date on which such Floating Rate Advance is paid or
converted to a Eurodollar Advance. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate or the Applicable
Margin, as applicable. Each Eurodollar Advance shall bear interest from and
including the first day of the Interest Period applicable thereto to (but not
including) the last day of such Interest Period at the interest rate determined
as applicable to such Eurodollar Advance. No Interest Period may end after the
Facility Termination Date. The Borrower shall select Interest Periods so that
it is not necessary to repay any portion of a Eurodollar Advance prior to the
last day of the applicable Interest Period in order to make a mandatory
repayment required pursuant to Section 2.1(b).
2.11. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.9 or 2.18, no Advance may be made as, converted
into or continued as a Eurodollar Advance (except with the consent of the
Required Lenders) when any Default or Unmatured Default has occurred and is
continuing. During the continuance of a Default, the Required Lenders may, at
their option, by notice to the Borrower (which notice may be revoked at the
option of the Required Lenders notwithstanding any provision of Section 8.2
requiring unanimous consent of the Lenders to changes in interest rates),
declare that all outstanding Advances shall bear interest at the Alternate Base
Rate plus 3% per annum.
2.12. Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrower, by noon (local time) on the date when due
and shall be applied ratably by the Agent among the Lenders. Each payment
delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds that the Agent
received at its address specified pursuant to Article XIII or at any Lending
Installation specified in a
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<PAGE> 29
notice received by the Agent from such Lender. The Agent is hereby authorized
to charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest and fees as it becomes due hereunder.
2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note; provided, however, that the failure to so record
shall not affect the Borrower's obligations under such Note. The Borrower
hereby authorizes the Lenders and the Agent to extend, convert or continue
Advances, effect selections of Types of Advances and to transfer funds based on
telephonic notices made by any person or persons the Agent or any Lender in
good faith believes to be acting on behalf of the Borrower. The Borrower
agrees to deliver promptly to the Agent a written confirmation, if such
confirmation is requested by the Agent or any Lender, of each telephonic notice
signed by an Authorized Officer. If the written confirmation differs in any
material respect from the action taken by the Agent and the Lenders, the
records of the Agent and the Lenders shall govern absent manifest error.
2.14. Interest Payment Dates; Interest and Fee Basis. Interest
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof upon which a
Floating Rate Advance is then outstanding, on any date on which such Floating
Rate Advance is prepaid, whether due to acceleration or otherwise, and at
maturity. Interest accrued on that portion of the outstanding principal amount
of any Floating Rate Advance converted into a Eurodollar Advance on a day other
than a Payment Date shall be payable on the date of conversion. Interest
accrued on each Eurodollar Advance shall be payable in arrears on the last day
of its applicable Interest Period, on any date on which the Eurodollar Advance
is prepaid, whether by acceleration or otherwise, and at maturity. Interest
accrued on each Eurodollar Advance having an Interest Period longer than three
months shall also be payable on the last day of each three-month interval
during such Interest Period. Interest on all Loans and commitment fees shall
be calculated for actual days elapsed on the basis of a 360-day year. Interest
shall be payable for the day an Advance is made but not for the day of any
payment on the amount paid if payment is received prior to noon (local time) at
the place of payment. If any payment of principal of or interest on an Advance
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
2.15. Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice,
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<PAGE> 30
Conversion/Continuation Notice, and repayment notice received by it hereunder.
The Agent will notify each Lender of the interest rate applicable to each
Eurodollar Advance promptly upon determination of such interest rate and will
give each Lender prompt notice of each change in the Alternate Base Rate. Each
Reference Bank agrees to furnish timely information for the purpose of
determining the Eurodollar Rate.
2.16. Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or telex
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.17. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (a) in the case of a Lender, the
proceeds of a Loan or (b) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption.
If such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (a) in the case of payment by a
Lender, the Federal Funds Effective Rate for such day or (b) in the case of
payment by the Borrower, the interest rate applicable to the relevant Loan.
2.18. Withholding Tax Exemption. At least five Business Days prior to
the first date on which interest or fees are payable hereunder for the account
of any Lender, each Lender that is not incorporated under the laws of the
United States of America, or a state thereof, agrees that it will deliver to
each of the Borrower and the Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Lender is entitled to receive payments under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes.
Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver
to each of the Borrower and the Agent two additional copies of such form (or a
successor form) on or before the date that such form expires (currently, three
successive calendar years for Form 1001 and one calendar year for Form 4224) or
becomes obsolete or after the occurrence of any event
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<PAGE> 31
requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, in each case certifying that such
Lender is entitled to receive payments under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax.
2.19. Agent's Fees. The Borrower shall pay to the Agent those fees,
in addition to the commitment fees referenced in Section 2.4(a), in the amounts
and at the times separately agreed to between the Agent and the Borrower.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1. Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Lender therewith,
(a) subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or from
payments due from the Borrower (excluding federal taxation of the
overall net income of any Lender or applicable Lending Installation),
or changes the basis of taxation of payments to any Lender in respect
of its Loans or other amounts due it hereunder, or
(b) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Lender or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Advances), or
(c) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation
of making, funding or maintaining loans or reduces any amount
receivable by any Lender or any applicable Lending Installation in
connection with loans, or requires any Lender or any applicable
Lending Installation to make any
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<PAGE> 32
payment calculated by reference to the amount of loans held or
interest received by it, by an amount deemed material by such Lender,
then, within 15 days of the Borrower's receipt of a demand by such Lender which
is accompanied by the written statement referenced in Section 3.5, the Borrower
shall pay such Lender that portion of such increased expense incurred or
reduction in an amount received which such Lender determines is attributable to
making, funding and maintaining its Loans and its Commitment.
3.2. Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required or expected to be maintained by such
Lender, any Lending Installation of such Lender or any corporation controlling
such Lender is increased as a result of a Change (as hereinafter defined),
then, within 15 days of the Borrower's receipt of a demand by such Lender which
is accompanied by the written statement referenced in Section 3.5, the Borrower
shall pay such Lender the amount necessary to compensate for any shortfall in
the rate of return on the portion of such increased capital which such Lender
determines is attributable to this Agreement, its Loans or its obligation to
make Loans hereunder (after taking into account such Lender's policies as to
capital adequacy). "Change" means (a) any change after the date of this
Agreement in the Risk-Based Capital Guidelines (as hereinafter defined) or (b)
any adoption of or change in any other law, governmental or quasi-governmental
rule, regulation, policy, guideline, interpretation, or directive (whether or
not having the force of law) after the date of this Agreement which affects the
amount of capital required or expected to be maintained by any Lender or any
Lending Installation or any corporation controlling any Lender. "Risk-Based
Capital Guidelines" means (a) the risk-based capital guidelines in effect in
the United States on the date of this Agreement, including transition rules,
and (b) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted
prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines
that maintenance of its Eurodollar Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or
not having the force of law, or if the Required Lenders determine that (a)
deposits of a type and maturity appropriate to match fund Eurodollar Advances
are not available or (b) the interest rate applicable to a Type of Advance does
not accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and
require any Eurodollar Advances of the affected Type to be repaid.
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<PAGE> 33
3.4. Funding Indemnification. If any payment of a Eurodollar
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Advance is not made, or an existing Advance is not converted into or
continued as a Eurodollar Advance, on the date specified by the Borrower for
any reason other than default by the Lenders, then the Borrower will indemnify
each Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Advance and will pay over to such
Lender any amounts so indemnified within fifteen days of the Borrower's receipt
of a demand by such Lender which is accompanied by the written statement
referenced in Section 3.5.
3.5. Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability of
the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the
unavailability of a Type of Advance under Section 3.3, so long as such
designation is not disadvantageous to such Lender, as determined in its sole
discretion. Each Lender shall deliver a written statement of such Lender as to
the amount due, if any, under Section 3.1, 3.2 or 3.4. Such written statement
shall set forth in reasonable detail the calculations upon which such Lender
determined such amount and shall be final, conclusive and binding on the
Borrower in the absence of manifest error. Determination of amounts payable
under such Sections in connection with a Eurodollar Loan shall be calculated as
though each Lender funded its Eurodollar Loan through the purchase of a deposit
of the type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan, whether in fact that
is the case or not. Unless otherwise provided herein, the amount specified in
the written statement shall be payable on demand within fifteen days after
receipt by the Borrower of the written statement. The obligations of the
Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the
Obligations and termination of this Agreement.
3.6. Net Payments. All payments by the Borrower under this
Agreement and the Notes shall be made without setoff or counterclaim and in
such amounts as may be necessary in order that all payments (after deduction or
withholding for or on account of any present or future taxes, levies, imposts,
duties or other charges of whatsoever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any tax on or
measured by the income of a Lender pursuant to the income and franchise tax
laws of the United States of America or the jurisdiction where such Lender's
principal or lending offices are located (collectively, the "Taxes")) shall not
be less than the amounts otherwise specified to be paid under this Agreement
and the Notes. A certificate as to any additional amounts payable to any
Lender under this Section 3.6 submitted to the Borrower by such
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<PAGE> 34
Lender shall show in reasonable detail the amount payable and the calculations
used to determine in good faith such amount and shall, absent manifest error,
be final, conclusive and binding upon all parties thereto. With respect to
each deduction or withholding for or on account of any Taxes, the Borrower
shall promptly furnish to such Lender such certificates, receipts and other
documents as may be reasonably required in the judgment of such Lender to
establish any tax credit to which such Lender may be entitled.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advances. The Lenders shall not be required to make
the initial Advance hereunder unless the Borrower has furnished to the Agent
with sufficient copies for the Lenders:
(a) Copies of the certificate of incorporation of the
Borrower and URC, together with all amendments, and a certificate of good
standing, both certified as of a date not earlier than ten (10) days before the
Closing Date by the appropriate governmental officer in their respective
jurisdictions of incorporation and certificates of good standing regarding both
such Persons from the State of California.
(b) Copies, certified as of the Closing Date by the
Secretary or Assistant Secretary of the Borrower, of its by-laws and of its
Board of Directors' resolutions (and resolutions of other bodies, if any are
deemed necessary by counsel for any Lender) authorizing the execution of the
Loan Documents.
(c) An incumbency certificate, executed as of the Closing
Date by the Secretary or Assistant Secretary of the Borrower, which shall
identify by name and title and bear the signature of the officers of the
Borrower authorized to sign the Loan Documents and to make borrowings
hereunder, upon which certificate the Agent and the Lenders shall be entitled
to rely until informed of any change in writing by the Borrower.
(d) A certificate, dated the initial Borrowing Date,
signed by an Authorized Officer of the Borrower to the effect that: (i) on the
initial Borrowing Date no Default or Unmatured Default has occurred and is
continuing; (ii) no injunction or temporary restraining order which would
prohibit the making of the Loans or the consummation of any of the transactions
contemplated by any of the Loan Documents or other litigation which could
reasonably be expected to have a Material Adverse Effect or a Material Document
Effect is pending or, to the best of such Person's knowledge, threatened; (iii)
all orders, consents, approvals, licenses, authorizations, or validations of,
or filings, recordings or registrations with, or exemptions by, any
governmental or public
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<PAGE> 35
body or authority, or any subdivision thereof, required in connection with the
Agreement or the other Loan Documents have been or, prior to the time required,
will have been, obtained, given, filed or taken and are or will be in full
force and effect (or the Borrower has obtained effective judicial relief with
respect to the application thereof) and that all applicable waiting periods
have expired; (iv) since December 31, 1991, no event or change has occurred
that has caused or evidences a Material Adverse Effect; (v) such Authorized
Officer has no reason to believe that the Borrower will not be Solvent both
immediately before and after the delivery of the Loan Documents; and (vi) each
of the representations and warranties contained in Article V are true and
correct in all material respects on and as of such initial Borrowing Date
(except for changes in the Schedules reflecting transactions permitted by this
Agreement).
(e) A written opinion of (i) Messrs. Arnold & Porter, the
Borrower's counsel, addressed to the Agent and the Lenders in substantially the
form of Exhibit D-1 hereto, (ii) Roussos, Hage & Hodes Professional
Association, the Borrower's New Hampshire insurance counsel, addressed to the
Agent and the Lenders in substantially the form of Exhibit D-2 hereto, and
(iii) such other local counsel as the Agent may request, in each case with such
changes as may be satisfactory to the Agent.
(f) Notes payable to the order of each of the Lenders.
(g) Executed originals of the Agreement and each of the
Loan Documents, which shall be in full force and effect, together with all
schedules, exhibits, certificates, instruments, opinions, documents and
financial statements required to be delivered pursuant hereto and thereto.
(h) Executed copy of the Pledge Agreement, together with
the stock certificate(s) representing all of the outstanding shares of capital
stock of URC and Managers and stock powers with respect thereto executed in
blank.
(i) Written money transfer instructions addressed to the
Agent and signed by an Authorized Officer, together with such other related
money transfer authorizations as the Agent may have reasonably requested.
(j) An executed copy of the insurance certificate
described in Section 5.25.
(k) Evidence of the contemporaneous (i) repayment in full
of all of the Senior Notes and (ii) satisfaction of each of the conditions
precedent to the satisfaction and discharge of the Indenture relating to the
Senior Notes.
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(l) A copy of each tax sharing agreement to which
Acquisition Corp., the Borrower or any of the Borrower's Subsidiaries is a
party.
(m) A copy of the reserve analysis report dated May 1992
prepared by KPMG Peat Marwick and a summary dated September 17, 1992 prepared
by the Borrower of the December 31, 1991 reserve analysis report prepared by
Milliman & Robertson.
(n) A signed letter from KPMG Peat Marwick in
substantially the form of Exhibit E hereto.
(o) Copies of searches of financing statements filed
under the Uniform Commercial Code, together with tax lien and judgment searches
with respect to the assets of the Borrower and URC, in both cases in such
jurisdictions as the Agent may request.
(p) Proof that the appropriate financing statements
covering the Collateral including, without limitation, such fixture filings as
the Agent may request, have been executed and delivered by the Borrower and
filed or recorded in such jurisdictions as the Agent shall have specified or
other arrangements with respect to filing or recording satisfactory to the
Agent have been made.
(q) Receipt of any required New Hampshire insurance
commission approvals and all other required regulatory approvals.
(r) Evidence satisfactory to the Agent of the
contemporaneous termination of the Borrower's obligations in respect of its
$25,000,000 line of credit with Chemical Bank, N.A.
(s) Such other documents as any Lender or its counsel may
have reasonably requested.
4.2. Each Advance. The Lenders shall not be required to make any
Advance, unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in
Article V are true and correct in all material respects as of such
Borrowing Date except for changes in the Schedules hereto reflecting
transactions permitted by this Agreement.
(iii) All legal matters incident to the making of such
Advance shall be reasonably satisfactory to the Lenders and their
counsel.
Each Borrowing Notice with respect to each such Advance shall
constitute a representation and warranty by the Borrower that the conditions
contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender may
require a duly completed compliance
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certificate in substantially the form of Exhibit F hereto as a condition to
making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. Each of the Borrower and
each Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation
and is duly qualified and in good standing as a foreign corporation and is duly
authorized to conduct its business in each jurisdiction in which its business
is conducted or proposed to be conducted.
5.2. Authorization and Validity. The Borrower has all requisite
power and authority (corporate and otherwise) and legal right (a) to execute
and deliver (or file, as the case may be) each of the Loan Documents and to
perform its obligations thereunder and (b) to assign, pledge and grant a pledge
of and security interest in the Collateral which it owns in the manner and for
the purpose contemplated in any of the Loan Documents to which it is a party.
The execution and delivery (or filing, as the case may be) by the Borrower of
the Loan Documents and the performance of its obligations thereunder have been
duly authorized by all necessary corporate proceedings and the Loan Documents
constitute legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.3. Compliance with Laws and Contracts. The Borrower and each
Subsidiary has complied in all material respects with all applicable statutes,
rules, regulations, orders and restrictions of any domestic or foreign
government or any instrumentality or agency thereof, having jurisdiction over
the conduct of their respective businesses or the ownership of their respective
properties. Neither the execution and delivery by the Borrower of the Loan
Documents, the application of the proceeds of the Loans, the consummation of
any transaction contemplated in the Loan Documents, nor compliance with the
provisions of the Loan Documents will, or at the relevant time did, (a) violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower or any Subsidiary or the Borrower's or any Subsidiary's
charter, articles or certificate of incorporation or by-laws, or (b) violate
the provisions of or require the approval or consent of any party to any
indenture, instrument or agreement to which the Borrower or any Subsidiary is a
party or is subject, or by which it, or its property, is bound, or conflict
with or constitute a
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default thereunder, or result in the creation or imposition of any Lien (other
than Liens permitted by, and created under, the Loan Documents) in, of or on
the property of the Borrower or any Subsidiary pursuant to the terms of any
such indenture, instrument or agreement, or (c) require any consent of the
stockholders of any Person, except for approvals or consents which will be
obtained on or before the initial Advance and disclosed on Schedule 5.3.
5.4. Governmental Consents. Except as set forth on Schedule 5.4,
no order, consent, approval, qualification, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
other action in respect of, any court, governmental or public body or
authority, or any subdivision thereof, any securities exchange or other Person
is or at the relevant time was required to authorize, or is or at the relevant
time was required in connection with the execution, delivery, consummation or
performance of, or the legality, validity, binding effect or enforceability of,
any of the Loan Documents, the application of the proceeds of the Loans or the
consummation of any transaction contemplated in the Loan Documents. Neither
the Borrower nor any Subsidiary is in default under or in violation of any
foreign, federal, state or local law, rule, regulation, order, writ, judgment,
injunction, decree or award binding upon or applicable to the Borrower or such
Subsidiary, in each case the consequences of which default or violation could
have a Material Adverse Effect or a Material Document Effect.
5.5. Financial Statements. The Borrower has heretofore furnished
to each of the Lenders (a) the December 31, 1991 audited consolidated financial
statements of the Borrower and its Subsidiaries, (b) the unaudited consolidated
financial statements of the Borrower and its Subsidiaries through June 30,
1992, (c) the December 31, 1991 Annual Statement of URC and (d) the June 30,
1992 Quarterly Statement of URC (the "Financial Statements"). Each of the
Financial Statements was prepared in accordance with Agreement Accounting
Principles or SAP, as applicable, in effect on the date such statements were
prepared and fairly present the consolidated financial condition and operations
of the Borrower and its Subsidiaries (or the financial conditions and
operations of URC, as applicable) at such dates and the consolidated results of
their operations for the respective periods then ended (except, in the case of
such unaudited statements, for normal year-end audit adjustments).
5.6. Material Adverse Change. No material adverse change in the
business, properties, financial condition, prospects or results of operations
of the Borrower and the Subsidiaries, taken as a whole, has occurred since
December 31, 1991.
5.7. Taxes. Each of the Borrower, the Subsidiaries and Acquisition
Corp. have filed or caused to be filed all United States federal and applicable
state tax returns and all other tax returns which are required to be filed and
have paid all taxes due
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pursuant to said returns or pursuant to any assessment received by the
Borrower, any Subsidiary or Acquisition Corp., except such taxes, if any, as
are being contested in good faith and as to which adequate reserves have been
provided in accordance with Agreement Accounting Principles and to which no
Lien exists. Acquisition Corp., the Borrower and URC are, and since at least
January 1, 1989 have been, entitled to join in the filing of a consolidated
federal income tax return, having properly made all elections required for such
consolidation and having timely filed the first consolidated return for such
consolidated group. No United States income tax returns of the Borrower or
Acquisition Corp. on a consolidated basis have been audited or are currently
under audit by the Internal Revenue Service. No tax liens have been filed and
no claims are being asserted with respect to any such taxes which would have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Borrower and the Subsidiaries in respect of any taxes or other governmental
charges are in accordance with Agreement Accounting Principles.
5.8. Litigation and Third Party Obligations. There is no
litigation, arbitration, proceeding, inquiry or governmental investigation (a
"Proceeding") pending or, to the knowledge of any of their officers, threatened
against or affecting the Borrower or any Subsidiary or any of their respective
properties which may reasonably be expected to have a Material Adverse Effect
or a Material Document Effect or which would be expected to prevent, enjoin or
unduly delay the making of the Advances under this Agreement. There is no
Proceeding pending or, to the knowledge or Borrower, threatened on the date
hereof, except as disclosed on Schedule 5.8. Neither the Borrower nor any
Subsidiary has any material Third Party Obligations except as set forth on
Schedule 5.8.
5.9. Subsidiaries. Schedule 5.9 hereto contains an accurate list
of all of the existing Subsidiaries as of the date of this Agreement, setting
forth their respective jurisdictions of incorporation and the percentage of
their capital stock owned by the Borrower or other Subsidiaries. All of the
issued and outstanding shares of capital stock of the Subsidiaries have been
duly authorized and issued and are fully paid and non-assessable and, in the
case of the shares owned by the Borrower, are owned by the Borrower free and
clear of all Liens, other than the Liens created by the Loan Documents. No
authorized but unissued or treasury shares of capital stock of any Subsidiary
are subject to any option, warrant, right to call or commitment of any kind or
character.
5.10. ERISA. The Unfunded Liabilities of all Single Employer Plans do
not in the aggregate exceed $1,000,000. Neither the Borrower nor any other
member of the Controlled Group maintains, or is liable in respect of, any
Multiemployer Plan. Each Plan complies in all material respects with all
applicable requirements of law and regulations, no Reportable Event has
occurred with
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respect to any Plan, neither the Borrower nor any other members of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and
no steps have been taken to reorganize or terminate any Plan.
5.11. Defaults. No Default or Unmatured Default has occurred and is
continuing.
5.12. Federal Reserve Regulations. Neither the Borrower nor any
Subsidiary is engaged, directly or indirectly, principally, or as one of its
important activities, in the business of extending, or arranging for the
extension of, credit for the purpose of purchasing or carrying Margin Stock.
No part of the proceeds of any Loan will be used in a manner which would
violate, or result in a violation of, Regulation G, Regulation T, Regulation U
or Regulation X. Neither the making of any Advance hereunder nor the use of
the proceeds thereof will violate or be inconsistent with the provisions of any
of Regulation G, Regulation T, Regulation U or Regulation X. Following the
application of the proceeds of the initial Advance, less than 25% of the value
(as determined by any reasonable method) of the assets of the Borrower and the
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder taken as a whole have been, and will continue to be,
represented by Margin Stock.
5.13. Investment Company. Neither the Borrower nor any Subsidiary is,
or after giving effect to any Advance will be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.14. Certain Fees. No broker's or finder's fee or commission was, is
or will be payable by the Borrower or any Subsidiary with respect to any of the
transactions contemplated by this Agreement. The Borrower hereby agrees to
indemnify the Agent and the Lenders against and agrees that it will hold each
of them harmless from any claim, demand or liability for broker's or finder's
fees or commissions alleged to have been incurred by the Borrower in connection
with any of the transactions contemplated by this Agreement and any expenses
(including, without limitation, attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) arising in
connection with any such claim, demand or liability. No other similar fee or
commissions will be payable by the Borrower or any Subsidiary for any other
services rendered to the Borrower or any Subsidiary ancillary to any of the
transactions contemplated by this Agreement.
5.15. Solvency. As of the Closing Date, after giving effect to the
consummation of the transactions contemplated by the Loan Documents and the
payment of all fees, costs and expenses payable by the Borrower with respect to
the transactions contemplated by the Loan Documents, the Borrower was Solvent.
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5.16. Ownership of Properties. Each of the Borrower and the
Subsidiaries have a subsisting leasehold interest in, or good and marketable
title, free of all Liens, other than those permitted by Section 6.18 or by any
of the Loan Documents, to all of the Property and assets reflected in the
Financial Statements as being owned by it, except for assets sold, transferred
or otherwise disposed of in the ordinary course of business since the date
thereof. To the knowledge of the Borrower, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which the
Borrower or any Subsidiary is lessee or lessor which would have a Material
Adverse Effect.
5.17. Stock of the Borrower, etc. The capitalization of the Borrower
is as set forth on Schedule 5.17. All shares of capital stock of the Borrower
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth on Schedule 5.17, no authorized but
unissued or treasury shares of capital stock of the Borrower are subject to any
option, warrant, right to call or commitment of any kind or character. The
Borrower does not have any outstanding stock or securities convertible into or
exchangeable for any shares of its capital stock, or any right issued to any
Person (either preemptive or otherwise) to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to any of its capital stock or any stock or securities
convertible into or exchangeable for any of its capital stock other than as
expressly set forth in the certificate of incorporation of the Borrower.
Neither the Borrower nor any Subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights or options of
the type described in the preceding sentence except as otherwise set forth on
Schedule 5.17.
5.18. Security. The provisions of the Security Agreement are
effective to create and give the Agent, for the benefit of the Lenders, as
security for the repayment of the obligations secured thereby, a legal, valid,
perfected and enforceable Lien (which priority is subject only to prior Liens
permitted by such agreements) upon all right, title and interest of the
Borrower in any and all of the Collateral described therein. The Pledge
Agreement is effective to create and give the Agent, for the benefit of the
Lenders, as security for the repayment of the obligations secured thereby, a
legal, valid, perfected and enforceable first priority Lien upon and security
interest in the capital stock pledged thereby.
5.19. Indebtedness. Attached hereto as Schedule 5.19 is a complete
and correct list of all Indebtedness of the Borrower and the Subsidiaries
outstanding on the date of this Agreement (other than Indebtedness in a
principal amount not exceeding $1,000,000 for a single item of Indebtedness and
$5,000,000 in the aggregate
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for all such Indebtedness listed), showing the aggregate principal amount which
was outstanding on such date after giving effect to the making of the Loans.
The Borrower has delivered or caused to be delivered to the Agent a true and
complete copy of the form of each instrument evidencing any Indebtedness listed
on Schedule 5.19 and of each document pursuant to which any of such
Indebtedness was issued.
5.20. Retirement Benefits. The present value of the expected cost of
post-retirement medical and insurance benefits payable by the Borrower and the
Subsidiaries to its employees, as estimated by the Borrower in accordance with
procedures and assumptions deemed reasonable by the Agent, does not exceed
$500,000.
5.21. Employee Controversies. There are no strikes, work stoppages or
controversies pending or threatened between the Borrower or any Subsidiary and
any of its employees, other than employee grievances arising in the ordinary
course of business, which, in the aggregate, are not material to the financial
condition, results of operations or business of the Borrower and the
Subsidiaries taken as a whole.
5.22. Material Agreements. Neither the Borrower nor any Subsidiary is
a party to any agreement or instrument or subject to any charter or other
corporate restriction which would have a Material Adverse Effect or a Material
Document Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or a Material
Document Effect.
5.23. Insurance Licenses. Schedule 5.23 attached hereto lists all of
the jurisdictions in which any Insurance Subsidiary holds active Licenses and
is authorized to transact property and casualty insurance business. No such
License is the subject of a proceeding for suspension or revocation, there is
no sustainable basis for such suspension or revocation, and to the Borrower's
knowledge no such suspension or revocation has been threatened by any
Governmental Authority. Schedule 5.23 also indicates the line or lines of
insurance in which each such Insurance Subsidiary is permitted to engage with
respect to each License therein listed.
5.24. Hazardous Materials. Neither the Borrower nor any Subsidiary
has received any notice to the effect that its operations are not in compliance
with any of the requirements of applicable federal, state and local
environmental, health and safety statutes and regulations with respect to, or
are the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment. To the best of the Borrower's
knowledge and after undertaking due inquiry, (a) neither the Borrower nor any
Subsidiary has caused or permitted any
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toxic or hazardous waste or product to be disposed of, either on or under real
property legally or beneficially owned or operated by the Borrower or any
Subsidiary sufficient to cause or give rise to a reasonable likelihood of a
Material Adverse Effect; (b) no such real property has ever been used as a dump
site or long-term storage site for any toxic or hazardous waste or product
sufficient to cause or give rise to a reasonable likelihood of a Material
Adverse Effect; (c) the failure, if any, of the Borrower or any Subsidiary, in
connection with the operation of their business, to obtain or be in compliance
with any permit, certificate, license, approval and other authorization, or to
file any notification or report relating to chemical substances, air emissions,
effluent discharges and storage, treatment, transport and disposal has not had,
nor is there a reasonable likelihood that it will have, a Material Adverse
Effect; (d) the Borrower and the Subsidiaries have no liabilities with respect
to toxic or hazardous waste or product arising from or relating to property
owned or occupied or actions taken by such Persons, and no facts or
circumstances exist which could give rise to liabilities with respect to toxic
or hazardous waste or product, which, in either case, have or could have any
reasonable likelihood of a Material Adverse Effect; and (e) (i) except as
disclosed on Schedule 5.24, the Borrower and the Subsidiaries have no
liabilities arising from or relating to property owned or occupied or actions
taken by such Persons, exceeding $100,000 with respect to toxic or hazardous
waste or product and no facts or circumstances exist which could give rise to
such liabilities with respect to toxic or hazardous waste product, and (ii)
none of the matters disclosed on Schedule 5.24, have or could have any
reasonable likelihood of a Material Adverse Effect.
5.25. Corporate Insurance. The certificate signed by the President or
Chief Financial Officer of the Borrower, that attests to the existence and
adequacy of, and summarizes, the property and casualty insurance program
carried by the Borrower and that has been furnished by the Borrower to the
Agent and the Lenders, is complete and accurate. This summary includes the
insurer's or insurers' name(s), policy number(s), expiration date(s), amount(s)
of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary
also includes similar information, and describes any reserves, relating to any
self-insurance program that is in effect.
5.26. Disclosure. Neither (a) taken as a whole, the information,
exhibits or reports relating to the Borrower, its Subsidiaries or Acquisition
Corp. (including, without limitation, the Offering Documents) furnished by the
Borrower or any Subsidiary to the Agent or to any Lender in connection with the
negotiation of the Loan Documents nor (b) taken as a whole, the information
regarding the Borrower set forth in the representations and warranties of the
Borrower contained in this Agreement, the other Loan Documents or any other
certificate furnished to the Agent or the Lenders pursuant to the Loan
Documents by or on behalf of the Borrower for use in connection with the
transactions contemplated
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by this Agreement, in light of the information requested by such representations
and warranties, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances and as of the time in which the same were furnished or made. The
pro forma financial information contained in such materials is based upon good
faith estimates and assumptions believed by the Borrower to be reasonable at the
time made and under the circumstances such materials were prepared. There is no
fact known to the Borrower (other than matters of a general economic nature)
that has had or may reasonably be expected to have a Material Adverse Effect or
a Material Document Effect and that has not been disclosed herein or in such
other documents, certificates and statements furnished to the Lenders for use in
connection with the transactions contemplated by this Agreement.
5.27. A.M. Best Rating. URC's A.M. Best & Co. rating as of the date
of this Agreement is "A-(Excellent)".
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles and SAP, as
applicable, and furnish to the Lenders:
(a) Within 90 days after the close of each of its fiscal
years, an unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in generally accepted
principles of accounting and required or approved by the Borrower's independent
certified public accountants) audit report certified by independent certified
public accountants, acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated and consolidating basis
(consolidating statements need not be certified by such accountants) for itself
and the Subsidiaries, including balance sheets as of the end of such period,
related profit and loss and reconciliation of surplus statements, and a
statement of cash flows, accompanied by (i) any management letter prepared by
said accountants, (ii) a certificate of said accountants that, in the course of
their examination necessary for their certification of the foregoing, they have
obtained no knowledge of any Default or Unmatured Default, or if, in the
opinion of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof, (iii) if then deliverable in accordance
with said
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accountants' internal policies and procedures, a letter from said accountants
addressed to the Lenders substantially in the form of Exhibit E with respect to
such financial statements (or in such other form as shall then comply with such
policies and procedures) and (iv) a copy of a written reconciliation between
SAP and Agreement Accounting Principles with respect to such financial
statements if provided to the insurance regulatory authority in the state of
domicile of any Insurance Subsidiary.
(b) Within 45 days after the close of the first three
quarterly periods of each of its fiscal years, for itself and the Subsidiaries,
consolidated and consolidating unaudited balance sheets as at the close of each
such period and consolidated and consolidating profit and loss and
reconciliation of surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of such quarter, all
certified by its chief financial officer.
(c) Upon the earlier of (i) fifteen (15) days after the
regulatory filing date or (ii) 75 days after the close of each Fiscal Year of
each Insurance Subsidiary, copies of the Annual Statement of each of the
Insurance Subsidiaries, certified by the president, secretary and treasurer and
the actuary for each such Insurance Subsidiary and prepared on the NAIC annual
statement blanks (or such other form as shall be required by the jurisdiction
of incorporation of each such Insurance Subsidiary), all such statements to be
prepared in accordance with SAP consistently applied throughout the periods
reflected therein and to be certified by independent certified public
accountants reasonably acceptable to the Agent if so required by any
Governmental Authority.
(d) Upon the earlier of (i) five (5) days after the
regulatory filing date or (ii) 60 days after the close of each of the first
three fiscal quarters of each Fiscal Year of each Insurance Subsidiary, copies
of the Quarterly Statement of each of the Insurance Subsidiaries, certified by
the president, secretary and treasurer of each such Insurance Subsidiary and
prepared on the NAIC quarterly statement blanks (or such other form as shall be
required by the jurisdiction of incorporation of each such Insurance
Subsidiary), all such statements to be prepared in accordance with SAP
consistently applied through the period reflected therein.
(e) Promptly upon receipt thereof, copies of the IRIS
reports from NAIC to each Insurance Subsidiary with respect to such Insurance
Subsidiary's results relative to NAIC ranges for each of the IRIS Tests,
together with (i) a written statement from the chief financial officer of each
such Insurance Subsidiary explaining the nature and status of, and reasons for,
any such results outside ranges and describing the action which such Insurance
Subsidiary proposes to take with respect thereto, and (ii) all correspondence
from each Insurance Subsidiary to the
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insurance commissioner in such Insurance Subsidiary's jurisdiction of
incorporation in respect of such IRIS reports.
(f) Promptly and in any event within ten days after
learning thereof, notification of any changes after the date hereof in the
rating given by A.M. Best & Co. in respect of any Insurance Subsidiary.
(g) Concurrently with the first meeting of the Borrower's
Board of Directors in each year, but in any event within 90 days after the
beginning of each fiscal year of the Borrower, a copy of the plan and forecast
(including a projected consolidated and consolidating balance sheet, income
statement and funds flow statement) of the Borrower for such fiscal year.
(h) Together with the financial statements required by
Sections 6.1(a) and (b), a compliance certificate in substantially the form of
Exhibit F hereto signed by its chief financial officer showing the calculations
necessary to determine compliance with this Agreement and stating that no
Default or Unmatured Default exists, or if any Default or Unmatured Default
exists, stating the nature and status thereof.
(i) By May 15 of each calendar year, (i) a certificate
from a qualified actuary, the form of which certificate shall be in compliance
with all applicable insurance laws and regulations and all applicable published
actuarial standards, attesting to the amount and the adequacy of the reserves
of each Insurance Subsidiary and (ii) a report from an independent qualified
actuary, which actuary shall be reasonably acceptable to the Agent, attesting
to the adequacy of the reserves of each Insurance Subsidiary or, if such
actuary deems such reserves to be inadequate, stating a recommended amount for
such reserves.
(j) Within 270 days after the close of each fiscal year,
a statement of the Unfunded Liabilities of each Single Employer Plan, certified
as correct by an actuary enrolled under ERISA.
(k) As soon as possible and in any event within 10 days
after the Borrower knows that any Reportable Event has occurred with respect to
any Plan, a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower proposes to
take with respect thereto.
(l) As soon as possible and in any event within 10 days
after receipt by the Borrower, a copy of (i) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to any Person
as a result of the release by the Borrower, any of its Subsidiaries or any
other Person of any toxic or hazardous waste or substance into the environment,
and (ii) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower
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<PAGE> 47
or any of its Subsidiaries, which, in either case, could reasonably be expected
to have a Material Adverse Effect.
(m) Promptly upon the furnishing thereof to the
shareholders of the Borrower, copies of all financial statements, reports and
proxy statements so furnished.
(n) Promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other regular reports
which the Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission, the National Association of Securities Dealers, any
securities exchange, the NAIC or any insurance commission or department or
analogous Governmental Authority (including, without limitation, any filing
made by the Borrower or any Subsidiary pursuant to any insurance holding
company act or related rules or regulations).
(o) Such other information (including, without
limitation, the annual Best's Advance Report Service report prepared with
respect to each Insurance Subsidiary rated by A.M. Best & Co. and non-financial
information) as the Agent or any Lender may from time to time reasonably
request.
6.2. Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Advances to refinance the Senior Notes
and to meet the working capital needs of the Borrower and its Subsidiaries.
The Borrower will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Advances to purchase or carry any "margin stock" (as defined in
Regulation U).
6.3. Notice of Default and Other Matters. The Borrower will, and
will cause each Subsidiary to, give prompt notice in writing to the Lenders of
(a) the occurrence of any Default or Unmatured Default, together with a written
explanation of the nature and status thereof, (b) the occurrence of any other
development, financial or otherwise, relating to the Borrower or any of its
Subsidiaries or Acquisition Corp. which could reasonably be expected to have a
Material Adverse Effect or a Material Document Effect, (c) the receipt of any
notice from any Governmental Authority of the expiration without renewal,
revocation or suspension of, or the institution of any proceedings to revoke or
suspend, any License now or hereafter held by any Insurance Subsidiary which is
required to conduct insurance business in compliance with all applicable laws
and regulations, (d) the receipt of any notice from any Governmental Authority
of the institution of any disciplinary proceedings against or in respect of any
Insurance Subsidiary, or the issuance of any order, the taking of any action or
any request for an extraordinary audit for cause by any Governmental Authority
which, if adversely determined, could have a Material Adverse Effect or a
Material Document Effect or (e) any judicial or administrative order limiting
or controlling the insurance business of any Insurance Subsidiary (and not the
insurance industry generally) which has been issued or adopted and
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<PAGE> 48
which has had, or is reasonably expected to have, a material adverse effect on
the operations of the insurance businesses conducted by the Insurance
Subsidiaries, taken as a whole.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, (a) carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted (or, in the case of Managers and CUIC, as such business is presently
intended to be conducted), (b) do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation
in its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
and (c) do all things necessary to renew, extend and continue in effect all
Licenses which may at any time and from time to time be necessary for any
Insurance Subsidiary to operate its insurance business in compliance with all
applicable laws and regulations; provided, however, that (i) any Insurance
Subsidiary may withdraw from one or more states (other than the state of its
domicile) as an admitted insurer, and (ii) any Subsidiary that is not actively
engaged in business may be dissolved, if, in any such case, such withdrawal or
dissolution is determined by the Borrower's Board of Directors to be in the
best interests of the Borrower and would not have a Material Adverse Effect.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to,
pay when due all taxes, assessments and governmental charges and levies upon it
or its income, profits or Property, except those which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves (determined in accordance with Agreement Accounting Principles) have
been set aside.
6.6. Corporate Insurance. The Borrower will, and will cause each
Subsidiary to, maintain with financially sound and reputable insurance
companies insurance on all their Property in such amounts and covering such
risks as is consistent with sound business practice, and the Borrower will
furnish to any Lender upon request full information as to the insurance
carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject. The
Borrower shall cause URC to timely file any reports with respect to the
execution and consummation of this Agreement and the other Loan Documents that
may be required pursuant to Section 401-B of the New Hampshire Insurance Code
or otherwise.
6.8. Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect and
keep its Property in good repair, working
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<PAGE> 49
order and condition, and make all necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary
to, permit the Lenders, by their respective representatives and agents, to
inspect any of the Property, corporate books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and
to discuss the affairs, finances and accounts of the Borrower and each
Subsidiary with, and to be advised as to the same by, their respective officers
at such reasonable times and intervals as the Lenders may designate. The
Borrower will keep or cause to be kept, and cause each Subsidiary to keep or
cause to be kept, appropriate records and books of account in which complete
entries are to be made reflecting its and their business and financial
transactions, such entries to be made in accordance with Agreement Accounting
Principles or SAP, as applicable, consistently applied.
6.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except that
(a) any Subsidiary may declare and pay dividends to the Borrower or to a
Wholly-Owned Subsidiary and (b) so long as no Default or Unmatured Default
shall have occurred and be continuing either before or after giving effect
thereto, (i) if the Initial Public Offering has not occurred, the Borrower may
declare and pay dividends in any calendar year in an amount not exceeding the
amount set forth below opposite such calendar year:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1993 $1,000,000
1994 $1,250,000
1995 $1,500,000
1996 $1,750,000
1997 $2,000,000
1998 $2,250,000
</TABLE>
and (ii) if the Initial Public Offering has occurred, the Borrower may declare
and pay dividends in each twelve (12) month period next succeeding the date
such offering is consummated in an aggregate amount not to exceed:
<TABLE>
<CAPTION>
If, after giving effect to the
reduction in Aggregate Commitment
resulting from the Initial Public
Offering and all prior reductions,
the Aggregate Commitment is between: Amount
----------------------------------- ------
<S> <C>
</TABLE>
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<PAGE> 50
<TABLE>
<S> <C>
$80,000,001 and $100,000,000 Amount permitted by
(i) above
$50,000,001 and $80,000,000 $ 6,000,000
$25,000,001 and $50,000,000 $ 7,500,000
$0 and $25,000,000 $10,000,000
</TABLE>
; provided, however, that with respect to both (i) and (ii) above, (A) in no
event may any dividend be declared in an amount which exceeds 50% of the
Borrower's Available Cash at the time of declaration, (B) dividends may be
declared no more than once a quarter and (C) dividends may be declared in any
quarter only after the Borrower has delivered the compliance certificate
required by Section 6.1(h) with respect to the next preceding quarter.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) The Loans.
(b) Indebtedness existing on the date hereof and
described in Schedule 5.19 hereto.
(c) Indebtedness in respect of Third Party Obligations
permitted by Section 6.17 or Letters of Credit permitted by Section 6.21.
(d) Indebtedness owed (i) by the Borrower to any
Wholly-Owned Subsidiary or (ii) by any Subsidiary to the Borrower or any
Wholly-Owned Subsidiary, but in the case of (ii), only to the extent such
Indebtedness is an Investment permitted by Section 6.16(a).
(e) Upon the delivery of a certificate of the Borrower's
chief financial officer to the Agent and the Lenders evidencing a Leverage
Ratio not greater than .30 to 1 and for so long as the Leverage Ratio remains
less than or equal to .30 to 1, such additional unsecured Indebtedness as (i)
would not cause the Leverage Ratio, after giving effect to the incurrence of
such Indebtedness, to exceed .30 to 1, (ii) has a maturity no earlier than the
Facility Termination Date and does not otherwise require principal payments or
prepayments prior to such date and (iii) is otherwise on terms satisfactory to
the Required Lenders.
(f) Unsecured Subordinated Indebtedness with an aggregate
principal amount outstanding of not more than $25,000,000, issued on terms and
conditions satisfactory to the Required Lenders, with the proceeds of such
Indebtedness to be
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<PAGE> 51
applied to reduce the Aggregate Commitment in accordance with Section
2.7(a)(ii).
6.12. Merger. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except that
(a) the Borrower may enter into any merger or consolidation, so long as (i) the
surviving corporation is organized under the laws of any state of the United
States and assumes the Obligations of the Borrower by written instrument
acceptable in form and substance to the Required Lenders, (ii) no Default or
Unmatured Default has occurred and is continuing or would occur after giving
effect thereto and (iii) the Required Lenders have given their prior written
consent to such transaction, such consent not to unreasonably be withheld, (b)
a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary and (c)
so long as the condition set forth in Section 6.12(a)(ii) is satisfied,
Acquisition Corp. may merge into the Borrower.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person except for (a) sales of Investments in the ordinary course of business
and (b) leases, sales or other dispositions of its Property that, together with
all other Property of the Borrower and its Subsidiaries previously leased, sold
or disposed of as permitted by this Section 6.13(b) during the twelve-month
period ending with the month in which any such lease, sale or other disposition
occurs, do not constitute a Substantial Portion of the Property of the Borrower
and its Subsidiaries.
6.14. Sale of Accounts. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse.
6.15. Sale and Leaseback. The Borrower will not, nor will it permit
any Subsidiary to, sell or transfer any of its Property in order to
concurrently or subsequently lease as lessee such or similar Property.
6.16. Investments and Acquisitions.
(a) The Borrower will not, nor will it permit any Subsidiary
which is not an Insurance Subsidiary to, make or suffer to exist any Investments
(including without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisitions of any Person, except:
(i) Short-term obligations of, or fully guaranteed by, the United
States of America.
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<PAGE> 52
(ii) Commercial paper rated A-l or better by Standard and Poor's
Corporation or P-l or better by Moody's Investors Service, Inc.
(iii) Demand deposit accounts maintained in the ordinary course
of business.
(iv) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and
surplus in excess of $100,000,000.
(v) Investments in existence on the date hereof and described on
Schedule 6.16 hereto.
(vi) Investments of up to $5,000,000 in the aggregate in one or
more Subsidiaries of the Borrower to be formed for the purpose of
engaging in the insurance or reinsurance business. Such Investments may
be made only in Wholly-Owned Subsidiaries all of the stock of which is
either (i) pledged to the Agent for the benefit of the Lenders to
secure the Obligations on the terms set forth in the Pledge Agreement
or (ii) wholly owned by a Subsidiary all of whose stock is so pledged;
provided, that up to $1,000,000 in the aggregate of such Investments
may be made by the Borrower (either directly or by any of its
Wholly-Owned Subsidiaries) in Subsidiaries which are not Wholly-Owned
Subsidiaries.
(vii) Up to $5,000,000 in the aggregate at any time outstanding
of other Investments rated A or better by Standard and Poor's
Corporation or A2 or better by Moody's Investors Services, Inc.
(viii) Investments in URC consisting of the proceeds of a public
offering of the equity securities of the Borrower or Acquisition Corp.,
but only to the extent that such proceeds are not required by the terms
hereof to be used to repay the Obligations.
(b) The Borrower will not permit URC or any other Subsidiary to
make or suffer to exist any Investments (including without limitation, loans and
advances to, and other Investments in, Subsidiaries), or commitments therefor,
or to create any Subsidiary or to become or remain a partner in any partnership
or joint venture, or to make any Acquisition of any Person, except:
(i) Cash and Cash Equivalents.
(ii) Investments in bonds rated BBB or better by Standard and
Poor's Corporation or Baa-2 or better by Moody's Investors Services,
Inc.
(iii) Investments in mortgages, private placements and other
investment assets (including preferred stock) of a
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<PAGE> 53
quality acceptable to the insurance commissioner in the respective
domiciliary state of URC or such Insurance Subsidiary; provided, that
such Investments do not exceed, in the aggregate at any one time
outstanding, the difference between (A) 10% of the combined Investments
of URC and the other Insurance Subsidiaries and (B) the aggregate
Investments made by the Borrower's Wholly-Owned Subsidiaries pursuant
to the proviso to Section 6.16(a)(vi).
(iv) Existing Investments in Subsidiaries (other than CUIC)
and other Investments in existence on the date hereof and described in
Schedule 6.16 hereto.
(v) Investments of up to $15,000,000 in the aggregate in
CUIC plus, so long as no Default or Unmatured Default is then pending,
additional investments of up to $5,000,000 in the aggregate required
for CUIC to qualify for an insurance license in any state.
(vi) Investments consisting of loans and advances to employees
of the Borrower's Subsidiaries in connection with relocation expenses
not to exceed $500,000 in the aggregate at any one time outstanding.
(c) The Borrower will not permit any Insurance Subsidiary to
acquire any book of business or become directly or indirectly liable in respect
of any policy of insurance unless such Insurance Subsidiary has first engaged in
its customary underwriting procedures with respect to such book of business or
policy. The foregoing shall not restrict the ability of any Insurance Subsidiary
to acquire renewal rights with respect to a book of business.
6.17. Third Party Obligations. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Third Party Obligation
(including, without limitation, any Third Party Obligation with respect to the
obligations of a Subsidiary), except (a) by endorsement of instruments for
deposit or collection in the ordinary course of business, (b) obligations in
respect of Letters of Credit permitted by Section 6.21 and (c) Third Party
Obligations in existence on the date hereof and described on Schedule 5.8
hereto.
6.18. Liens. The Borrower will not, nor will it permit any Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or
levies on its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books.
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<PAGE> 54
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books.
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Borrower or the Subsidiaries.
(e) Liens existing on the date hereof and described in Schedule
6.18 hereto.
(f) Liens in favor of the Agent or the Lenders granted pursuant
to any Security Document.
(g) Deposits made by any Insurance Subsidiary with the insurance
regulatory authority in its jurisdiction of incorporation or other statutory
liens or liens or claims imposed or required by applicable insurance law or
regulation against the assets of any Insurance Subsidiary, in each case in favor
of all policyholders of such Insurance Subsidiary and in the ordinary course of
such Insurance Subsidiary's business.
(h) Rights of third parties with respect to amounts deposited
with or for the benefit of an Insurance Subsidiary in trust to secure
obligations owed to an Insurance Subsidiary under contracts of reinsurance
entered into in the ordinary course of such Insurance Subsidiary's business.
6.19. Capital Expenditures. The Borrower will not, nor will it permit
any Subsidiary to, incur, or be committed to incur, on a cumulative basis,
Capital Expenditures in excess of (a) $2,000,000 in the aggregate in calendar
years 1993 and 1994 for the Borrower and its Subsidiaries and (b) $1,000,000 in
the aggregate for the Borrower and its Subsidiaries in each calendar year
thereafter.
6.20. Rentals. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist obligations for Rentals in
excess of $2,000,000 during any one fiscal year on a non-cumulative basis in
the aggregate for the Borrower and its Subsidiaries.
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<PAGE> 55
6.21. Letters of Credit. The Borrower will not, nor will it permit any
Subsidiary to, apply for or become liable upon any Letter of Credit, except for
Letters of Credit (a) in respect of which an Insurance Subsidiary (and not the
Borrower) is liable and (b) which are provided by an Insurance Subsidiary in the
ordinary course of the insurance or reinsurance business of such Insurance
Subsidiary and which do not secure obligations other than obligations of such
Insurance Subsidiary arising under contracts of insurance or reinsurance.
6.22. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.
6.23. Financial Undertakings. The Borrower will not, and will not
permit any Subsidiary to, enter into or remain liable upon any Financial
Undertaking, except Rate Hedging Obligations entered into with Lenders in
respect of the Obligations.
6.24. Environmental Matters. (a) If the Borrower or any Subsidiary
receives notice of any of the following: (i) the issuance of a complaint, notice
or citation alleging a violation of any environmental law or regulation by the
Borrower or any Subsidiary; (ii) the issuance of an administrative or judicial
complaint or order against the Borrower or any Subsidiary requiring that action
be taken to respond to or clean up a "release" of "hazardous substances" (as
those terms are defined in CERCLA) into the environment; or (iii) a notice
alleging that the Borrower or any Subsidiary may be liable or responsible for
costs associated with a response to or cleanup of a "release" of "hazardous
substances" (as those terms are defined in CERCLA); and if, based upon
information reasonably available at the time of receipt, the Borrower or any
Subsidiary expects that any such complaint, notice, citation or order is
reasonably likely to result in the payment of fines, compliance costs or cleanup
costs by the Borrower or any Subsidiary in excess of an aggregate of $100,000,
then the Borrower shall provide the Agent with a copy of such notice within
thirty (30) days of receipt thereof by the Borrower or its Subsidiary. In
addition, if at any time subsequent to any such notice, any information
subsequently becomes available to the Borrower or any Subsidiary which leads the
Borrower to expect that any such complaint, notice, or citation is reasonably
likely to result in the payment of fines, compliance costs or clean-up costs by
the Borrower or any Subsidiary in excess of an aggregate of $100,000, then the
Borrower shall provide the Agent with a copy of such notice and a summary of
such information within ten (10) days after receipt of such information by the
Borrower or any Subsidiary.
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<PAGE> 56
(b) Within ten days after the Borrower or any Subsidiary has
learned of the proposal, enactment or promulgation of any federal, state or
local environmental law or regulation which has a reasonable likelihood of
having a Material Adverse Effect, the Borrower shall provide the Agent with
written notice thereof.
6.25. Agreements as to Prohibited Acts. The Borrower shall not agree or
in any manner commit itself to take or fail to take any action which, if taken
or not taken, as applicable, would constitute a breach of this Agreement.
6.26. Change in Corporate Structure. Except as may be required by law
or as otherwise expressly permitted hereunder, the Borrower shall not, nor shall
it permit any Subsidiary to, permit any amendment or modification to be made to
its certificate or articles of incorporation or by-laws.
6.27. Inconsistent Agreements. The Borrower shall not, nor shall it
permit any Subsidiary to, enter into any indenture, agreement, instrument or
other arrangement which, (a) directly or indirectly, prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the incurrence of the Obligations or the granting of Liens to
secure the Obligations, or (b) contains any provision which would be violated or
breached by the making of Advances or by the performance by the Borrower of any
of its obligations under any Loan Document.
6.28. Borrower Financial Covenants. Subject to normal year-end and
closing audit adjustments for calculations or determinations made in accordance
with Agreement Accounting Principles prior to the end of a Fiscal Year, the
Borrower, on a consolidated basis with the Subsidiaries shall:
6.28.1. Minimum Tangible Net Worth. At all times after the date
hereof, determined as at the end of each calendar quarter (commencing March 31,
1993) maintain a Consolidated Tangible Net Worth equal to or greater than (a)
the average of the Borrower's Consolidated Tangible Net Worth as at the last day
of each of the four next preceding calendar quarters, plus (b) 5% of the average
amount determined pursuant to clause (a); provided, that (i) for the purposes of
this Section 6.28.1, the amount of the Borrower's "deferred tax" asset will not
be included in the determination of Consolidated Tangible Net Worth, (ii) for
all purposes of determining compliance with this covenant, increases in
Consolidated Tangible Net Worth resulting from the sale by the Borrower or its
Subsidiaries of equity securities (or receipt of capital contributions without
the issuance of equity securities) shall be excluded, although investment
earnings on such sale proceeds and capital contributions will be given effect
and (iii) the amount of Consolidated Tangible Net Worth required to be
maintained shall be adjusted to reflect any changes in the manner
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<PAGE> 57
of computing same arising out of changes in Agreement Accounting Principles
after the date hereof.
6.28.2. Fixed Charge Coverage Ratio. As of the end of each fiscal
quarter, maintain a ratio of (a) net income from operations (as reported on Line
14 of the Statement of Income, computed for the four-quarter period then ended
for the Insurance Subsidiaries on a consolidated basis, determined in accordance
with SAP, to (b) the sum of (i) if positive, (A) the aggregate principal amount
of Loans outstanding as of the end of such fiscal quarter minus (B) $100,000,000
minus the aggregate amount of all reductions in the Aggregate Commitment which
have occurred on or prior to the end of such fiscal quarter or which are
scheduled to occur during the next succeeding four quarters pursuant to Section
2.4(c), plus (ii) the aggregate interest expense (calculated using the
outstanding principal amount of the Loans or other Indebtedness as of the date
of determination and at the interest rate applicable thereto on the last
Business Day of the relevant period of calculation), computed for the
four-quarter period next succeeding the date of calculation) for the Borrower,
determined in accordance with Agreement Accounting Principles, plus (iii) the
aggregate consolidated income taxes paid or payable by the Borrower, computed
for the four-quarter period then ended, determined in accordance with Agreement
Accounting Principles, of at least 1.5 to 1.
6.29. Insurance Company Financial Covenants. Subject to normal year-end
and closing audit adjustments for calculations or determinations made in
accordance with SAP prior to the end of a Fiscal Year, the Borrower shall cause
its Consolidated Insurance Subsidiaries to:
6.29.1. Surplus as Regards Policyholders. Commencing March 31,
1993 and determined as at the end of each calendar quarter (commencing as of
such date), at all times after the date hereof, maintain an aggregate Surplus as
Regards Policyholders (including any Asset Valuation Reserve) of at least
$170,000,000 plus the amount of any contributions to the surplus thereof after
the date hereof.
6.29.2. Operating Leverage. Commencing March 31, 1993 and
determined as at the end of each calendar quarter (commencing as of such date),
at all times after the date hereof, maintain a ratio for the four calendar
quarters then ended of (a) Net Written Premiums to (b) aggregate Surplus as
Regards Policyholders of less than or equal to 1.5 to 1.
6.29.3. Statutory Income. As of the end of each Fiscal Year set
forth below, maintain consolidated Statutory Income of at least the
corresponding amount set forth below for such fiscal year:
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<PAGE> 58
<TABLE>
<CAPTION>
Fiscal Year Statutory Income
----------- ----------------
<S> <C>
1992 $30,000,000
1993 $30,000,000
1994 $30,000,000
1995 $35,000,000
1996 $35,000,000
1997 $40,000,000
1998 $40,000,000
</TABLE>
6.30. Tax Consolidation. The Borrower will not and will not permit any
of its Subsidiaries to file or consent to the filing of any consolidated income
tax return with any Person (other than any of its Subsidiaries), except as
required by law. The Borrower will not amend any Tax Sharing Agreement without
the prior written consent of the Required Lenders except as required by
applicable law.
6.31. Reports to NAIC. Concurrently with the delivery to the Lenders of
each financial statement required by Section 6.1(c), the Borrower will deliver a
copy thereof to: Securities Valuation Offices, National Association of Insurance
Commissioners, 67 Wall Street, New York, New York 10005.
6.32. Additional Collateral. Upon the request of the Agent following
the Borrower's acquisition of any surplus note or debenture or material
leasehold interest or other real property, the Borrower will execute and deliver
to the Agent such documents as the Agent may reasonably request to subject such
property to a Lien in favor of the Agent and the Lenders securing the
Obligations.
6.33. Multiemployer Plan. Neither the Borrower nor any member of the
Controlled Group shall maintain or become obligated in respect of a
Multiemployer Plan.
6.34. CUIC. The Borrower will cause CUIC to remain a Wholly-Owned
Subsidiary of the Borrower.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or
in connection with this Agreement, any Loan, or any certificate or information
delivered in connection with this
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Agreement or any other Loan Document shall be false or misleading in any
material respect on the date as of which made.
7.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any commitment fee or other obligations under any
of the Loan Documents within five (5) days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2 or 6.3(a) or any of Sections 6.10 through 6.24 or Sections 6.26
through 6.30.
7.4. The breach by the Borrower (other than a breach which constitutes
a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of
this Agreement which is not remedied within twenty (20) days after written
notice from the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness for money borrowed aggregating in excess of $1,000,000 when due
(taking into account any applicable grace period); or the default by the
Borrower or any of its Subsidiaries in the performance of any term, provision or
condition contained in any agreement under which any such Indebtedness was
created or is governed, or any other event shall occur or condition exist, the
effect of which is to cause, or to permit the holder or holders of such
Indebtedness to cause, such Indebtedness to become due prior to its stated
maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries
shall be declared to be due and payable or required to be prepaid (other than by
a regularly scheduled payment) prior to the stated maturity thereof.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as now
or hereafter in effect, (ii) make an assignment for the benefit of creditors,
(iii) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it or
any Substantial Portion of its Property, (iv) institute any proceeding seeking
an order for relief under the Federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it as bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (v) take any corporate action to authorize or effect any of the foregoing
actions set forth in this Section 7.6, (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7 or (vii) not pay, or admit in
writing its inability to pay, its debts generally as they become due.
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7.7. Without the application, approval or consent of the Borrower or
any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of 30 consecutive days.
7.8. Any court or Governmental Authority shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days
(or in the case of judgments or orders entered against an Insurance Subsidiary
arising from insurance or reinsurance contracts, 180 days, so long as no action
has been taken to execute upon such judgment or order against the assets of such
Insurance Subsidiary) to pay, bond or otherwise discharge any single judgment or
order entered against the Borrower or any of its Subsidiaries for the payment of
money in excess of $500,000 (or multiple judgments or orders for the payment of
an aggregate amount in excess of $1,000,000), which is not stayed on appeal or
otherwise being appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $500,000 or any Reportable Event shall occur in
connection with any Plan.
7.11. The Borrower or any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to the release by the Borrower or
any of its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
7.12. Any Change in Control shall occur.
7.13. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement or the Notes) or Rate Swap Agreement or the breach of
any of the terms or provisions of any Loan Document (other than this Agreement
or the Notes) or Rate Swap Agreement, which default or breach continues beyond
any period of grace therein provided.
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7.14. Any Security Document shall for any reason fail to create a valid
and perfected first priority security interest in any collateral purported to be
covered thereby, except as permitted by the terms of such Security Document, or
any Security Document shall fail to remain in full force or effect or any action
shall be taken to discontinue or to assert the invalidity or unenforceability of
any Security Document.
7.15. The Borrower or any Insurance Subsidiary fails to comply with any
insurance law, rule or regulation non-compliance with which could have a
Material Adverse Effect or a Material Document Effect or shall become subject to
any order, including without limitation, any conservation, liquidation or cease
and desist order, directive or mandate issued by any Governmental Authority
which is not stayed within ten (10) days.
7.16. Any member of the Borrower's management sells any capital stock
of Acquisition Corp. or, following or in connection with any merger of
Acquisition Corp. into the Borrower, the Borrower, unless (a) such sale is a put
or call pursuant to the terms of the Shareholders Agreement, (b) such sale
complies with both Rule 144 under the Securities Act and Section 2.1 of the
Shareholders Agreement or (c) such sale, viewed in light of all sales of
Acquisition Corp.'s capital stock after the date hereof, does not result in a
proportionately greater disposition of such capital stock held by management and
their permitted assigns and transferees than the disposition by non-management
holders on the date hereof and their permitted assigns and transferees.
7.17. Any License of any Insurance Subsidiary held by such Insurance
Subsidiary on the date hereof or acquired by such Insurance Subsidiary
thereafter, the loss of which would have, in the reasonable judgment of the
Required Lenders, a Material Adverse Effect or a Material Document Effect, (a)
shall be revoked by the state which shall have issued such License, or any
action (administrative or judicial) to revoke such License shall have been
commenced against such Insurance Subsidiary and shall not have been dismissed
within 30 days of the commencement thereof, (b) shall be suspended by such state
for a period in excess of 30 days or (c) shall not be reissued or renewed by
such state upon the expiration thereof following application for such reissuance
or renewal by such Insurance Subsidiary.
7.18. Any Insurance Subsidiary shall be fined in an amount in excess of
$250,000 in any single instance by, or at the request of any state insurance
regulatory agency as a result of the violation by such Insurance Subsidiary of
such state's applicable insurance laws or the regulations promulgated in
connection therewith; provided, however, that the imposition of any such fine
shall not constitute a Default if (a) the Agent receives notice of such fine
within five (5) Business Days of its imposition, and (b) (i) the Borrower
provides the Agent within five (5) Business Days of the imposition of such fine
with evidence reasonably satisfactory to
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the Agent that the cause of such fine has been corrected or (ii) neither such
fine nor the circumstances leading to its imposition would have a Material
Adverse Effect or Material Document Effect.
7.19. Any report required pursuant to Section 6.1(i)(ii) shall indicate
that the actual total reserves of any Insurance Subsidiary as of the next
preceding December 31 are less than 95% of the reserves for such Insurance
Subsidiary recommended by such report and such Insurance Subsidiary shall not
have increased its reserves to at least 95% of the recommended reserve level
within forty-five (45) days after the date of such report.
7.20. Acquisition Corp. engages in any business activities other than
acting as the holding company of the Borrower and performing reasonably related
functions.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on the part of
the Agent or any Lender, without presentment, demand, protest or notice of any
kind, all of which the Borrower hereby expressly waives. If any other Default
occurs and shall be continuing, the Required Lenders, or the Agent with the
consent of the Required Lenders may, or at the direction of the Required
Lenders, the Agent shall, by written notice to the Borrower, terminate or
suspend the obligations of the Lenders to make Loans hereunder, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby expressly waives.
If, within fourteen (14) days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been obtained or
entered, the Lenders (in their sole discretion) shall so direct, the Agent
shall, by notice to the Borrower, rescind and annul such acceleration and/or
termination; provided, that the Obligations may thereafter be accelerated
pursuant to Section 8.1 for so long as the Default giving rise to such rescinded
or annulled acceleration shall be continuing.
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8.2. Waivers and Amendments. Subject to the provisions of this Article
VIII, the Required Lenders (or the Agent with the consent in writing of the
Required Lenders) and the Borrower may enter into agreements supplemental hereto
for the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lenders or the Borrower hereunder or
waiving any Default hereunder; provided, however, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(a) Extend the final maturity of any Loan or Note or reduce the
principal amount thereof, or increase or reduce the rate or extend the time of
payment of interest or fees thereon.
(b) Reduce the percentage specified in the definition of Required
Lenders.
(c) Reduce the amount or extend the payment date for, the
mandatory payments required under Section 2.1(b), increase the amount of the
Commitment of any Lender hereunder, increase at any time the Aggregate
Commitment above that amount specified in Section 2.4 or permit the Borrower to
assign its rights under this Agreement.
(d) Extend the Facility Termination Date.
(e) Amend this Section 8.2.
(f) Release any guarantor of any Advance or all or any material
portion of the Collateral (as defined in the Security Documents, respectively).
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive
payment of the fee required under Section 12.3.2 without obtaining the consent
of any other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall
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be cumulative and all shall be available to the Agent and the Lenders until the
Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
9.2. Taxes. Any taxes (excluding federal, state and local income taxes
on the overall net income of any Lender) or other similar assessments or charges
payable or ruled payable by any governmental authority in respect of the Loan
Documents shall be paid by the Borrower, together with interest and penalties,
if any.
9.3. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.4. Entire Agreement. The Loan Documents embody the entire agreement
and understanding among the Borrower, the Agent and the Lenders and supersede
all prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
9.5. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns.
9.6. Expenses; Indemnification. The Borrower shall reimburse the
Agent for any costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Agent, which attorneys
may be employees of the Agent) paid or incurred by the Agent in connection with
the preparation, negotiation, execution, delivery, review, amendment,
modification, or administration of the Loan Documents. The Borrower also
agrees to reimburse the Agent and the Lenders for any costs, internal charges
and out-of-pocket expenses (including attorneys' fees and time charges of
attorneys for the Agent and the Lenders, which attorneys may be employees of
the Agent or the Lenders) paid or incurred by the Agent or any Lender in
connection with the
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collection and enforcement of the Loan Documents. Expenses being reimbursed by
the Borrower under this Section 9.6 include, without limitation, the cost and
expense of obtaining an appraisal of each parcel of real property or interest
in real property described in any mortgage or leasehold mortgage from time to
time executed by the Borrower in favor of the Agent, which appraisal shall be
in conformity with the applicable requirements of any law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, including, without limitation,
the provisions of Title XI of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended, reformed or otherwise modified from time
to time, and any rules promulgated to implement such provisions. The Borrower
further agrees to indemnify the Agent and each Lender, its directors, officers,
employees, attorneys and agents against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all
expenses of litigation or preparation therefor whether or not the Agent or any
Lender is a party thereto) which any of them may pay or incur arising out of or
relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Loan hereunder; provided, however, that no
Lender shall have the right to be indemnified hereunder for its own gross
negligence or willful misconduct. The obligations of the Borrower under this
Section 9.6 shall survive the termination of this Agreement and the payment of
the other Obligations.
9.7. Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.8. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with (a) SAP in the case of
determination applicable to the insurance operations of the Insurance
Subsidiaries and (b) in the case of other determinations, Agreement Accounting
Principles.
9.9. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.10. Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agent
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nor any Lender undertakes any responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the
Borrower's business or operations. The Borrower shall rely entirely upon its
own judgment with respect to its business, and any review, inspection or
supervision of, or information supplied to the Borrower by the Agent or the
Lenders is for the protection of the Agent and the Lenders and neither the
Borrower nor any other Person is entitled to rely thereon. The Borrower (a)
agrees that neither the Agent nor any Lender shall have liability to the
Borrower (whether sounding in tort, contract or otherwise) for losses suffered
by the Borrower in connection with, arising out of, or in any way related to,
the transactions contemplated and the relationship established by the Loan
Documents, or any act, omission or event occurring in connection therewith,
unless it is determined by a judgment of a court that is binding on the Agent,
or such Lender, final and not subject to review on appeal, that such losses
were the result of acts or omissions on the part of the Agent or such Lender,
as the case may be, constituting gross negligence, willful misconduct or
knowing violations of law and (b) to the extent permitted by law waives,
releases and agrees not to sue upon any claim against the Agent or any Lender
(whether sounding in tort, contract or otherwise) except a claim based upon
gross negligence, willful misconduct or knowing violations of law. Whether or
not such damages are related to a claim that is subject to the waiver effected
above and whether or not such waiver is effective, neither the Agent nor any
Lender shall have any liability with respect to, and the Borrower hereby
waives, releases and agrees not to sue for, any special, indirect or
consequential damages suffered by the Borrower in connection with, arising out
of, or in any way related to the transactions contemplated or the relationship
established by the Loan Documents, or any act, omission or event occurring in
connection therewith, unless it is determined by a judgment of a court that is
binding on the Agent or such Lender, as the case may be, final and not subject
to review on appeal, that such damages were the result of acts or omissions on
the part of the Agent or such Lender, as the case may be, constituting gross
negligence, willful misconduct or knowing violations of law.
9.11. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.12. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND, TO THE EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY OBJECTION IT
MAY NOW OR HEREAFTER HAVE AS TO
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THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT
OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS.
9.13. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE
BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.14. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (a) to other Lenders and their respective
Affiliates, (b) to agents of and legal counsel, accountants, and other
professional advisors to that Lender, (c) to regulatory officials, (d) as
requested pursuant to or as required by law, regulation, or legal process, (e)
in connection with any legal proceeding to which that Lender is a party, or (f)
permitted by Section 12.4.
9.15. Disclosure. The Borrower and each Lender hereby (a) acknowledge
and agree that First Chicago and/or its Affiliates from time to time may hold
other investments in, make other loans to or have other relationships with the
Continental Corporation and Goldman Sachs & Co., and (b) subject to the Agent's
obligations to the Lenders set forth in Article X, waive any liability of First
Chicago or such Affiliate to the Borrower or any Lender, respectively, arising
out of or resulting from such investments, loans or relationships other than
liabilities arising out of the gross negligence or willful misconduct of First
Chicago or its Affiliates.
ARTICLE X
THE AGENT
10.1. Appointment. The First National Bank of Chicago is hereby
appointed Agent hereunder and under each other Loan Document, and each of the
Lenders irrevocably authorizes the Agent to act as the agent of such Lender
pursuant hereto and to such other agreements, including with respect to all
collateral. The Agent agrees to act as such upon the express conditions
contained in this Article X. The Agent shall not have a fiduciary
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relationship in respect of the Borrower or any Lender by reason of this
Agreement.
10.2. Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document; (c) the satisfaction of any
condition specified in Article IV, except receipt of items required to be
delivered to the Agent; or (d) the validity, effectiveness or genuineness of any
Loan Document or any other instrument or writing furnished in connection
therewith.
10.5. Action on Instructions of Lenders. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders (or all of the Lenders, where applicable), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders and on all holders of Notes. The Agent shall be
fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
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10.7. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (a) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents, (b)
for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (c) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of this
Agreement.
10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context 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 trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Agent, in its individual capacity, is not obligated to remain a Lender.
10.10. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to
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make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.11. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint, on behalf of the Borrower and
the Lenders, a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty days after the retiring Agent's giving notice of resignation, then
the retiring Agent may appoint, on behalf of the Borrower and the Lenders, a
successor Agent. Such successor Agent shall be a commercial bank having capital
and retained earnings of at least $50,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Agent, and the retiring or removed Agent
shall be discharged from its duties and obligations hereunder and under the
other Loan Documents. After any retiring or removed Agent's resignation or
removal hereunder as Agent, the provisions of this Article X shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under the other Loan
Documents.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for
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<PAGE> 71
its Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to their
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made. If an amount to be set off is
to be applied to Indebtedness of the Borrower to a Lender, other than
Indebtedness evidenced by any of the Notes held by such Lender, such amount
shall be applied ratably to such other Indebtedness and to the Indebtedness
evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (a) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (b) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (b) of this Section, any Lender may at
any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; provided, however, that no such assignment shall release the transferor
Lender from its obligations hereunder. The Agent may treat the payee of any Note
as the owner thereof for all purposes hereof unless and until such payee
complies with Section 12.3 in the case of an assignment thereof or, in the case
of any other transfer, a written notice of the transfer is filed with the Agent.
Any assignee or transferee of a Note (other than any Federal Reserve Bank)
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. 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 or
assignee of such Note or of any Note or Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender under the Loan
Documents. In the event of any such sale by a Lender of participating interests
to a Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the
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<PAGE> 72
performance of such obligations, such Lender shall remain the holder of any
such Note for all purposes under the Loan Documents, all amounts payable by the
Borrower under this Agreement shall be determined as if such Lender had not
sold such participating interests, and the Borrower and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan or Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or fees payable with respect to any such Loan or
Commitment, postpones any date fixed for any regularly-scheduled payment of
principal of, or interest or fees on, any such Loan or Commitment, or releases
any substantial portion of the Collateral securing any such Loan.
12.2.3. Benefit of Setoff. The Borrower agrees that each
Participant which has been identified to the Borrower by written notice shall be
deemed to have the right of setoff provided in Section 11.1 in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents; provided, that each Lender shall retain
the right of setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of setoff
provided in Section 11.1, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities ("Purchasers") all or any part of its
rights and obligations under the Loan Documents in an amount equal to or greater
than $5,000,000 or, in the case of purchases pursuant to Section 11.2, such
amount as is required thereby. Such assignment shall be substantially in the
form of Exhibit G hereto or in such other form as may be agreed to by the
parties thereto. The consent of the Borrower and the Agent shall be required
prior to an assignment becoming effective with respect to a Purchaser which is
not a Lender or Lending Installation or an Affiliate thereof; provided, that the
Borrower's consent need not be obtained for any assignment while a Default has
occurred and is continuing. Such consent shall not be unreasonably withheld.
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<PAGE> 73
12.3.2. Effect; Effective Date. Upon the (a) delivery to the
Agent of a notice of assignment, substantially in the form attached as Exhibit A
to Exhibit G hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (b) payment of a $2,500 fee to the Agent for
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. On and after the
effective date of such assignment, such Purchaser shall for all purposes be a
Lender party to this Agreement and any other Loan Document executed by the
Lenders and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation
of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor
Lender, the Agent and the Borrower shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, each dated the Closing Date, are issued to such
Purchaser, in each case in principal amounts reflecting their Commitment, as
adjusted pursuant to such assignment.
12.4. Dissemination of Information. The Borrower authorizes each Lender
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrower and its Subsidiaries.
12.5. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.18.
ARTICLE XIII
NOTICES
13.1. Giving Notice. Except as otherwise permitted by Section 2.13 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received, and any notice, if
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<PAGE> 74
transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of telexes).
13.2. Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by telex or
telephone, that it has taken such action.
[signature pages to follow]
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<PAGE> 75
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
Commitments UNDERWRITERS RE CORPORATION
-----------
By: /s/ Peter A. Bengelsdorf
---------------------------------
Print Name: Peter A. Bengelsdorf
-------------------------
Title: Vice President and
Chief Financial Officer
------------------------------
22801 Ventura Boulevard
Woodland Hills, California 91364
Attention: Peter A. Bengelsdorf
Telephone: (818) 225-1000
Telecopy: (818) 225-8219
$14,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Print Name: Marcia Saper
--------------------------
Title: Vice President
------------------------------
One First National Plaza
Chicago, Illinois 60670
Attention: Marcia Saper
Telephone: (312) 732-4754
Telecopy: (312) 732-4033
$13,000,000 THE BANK OF NEW YORK
By: /s/ W. Michael George
---------------------------------
Print Name: W. Michael George
-------------------------
Title: Vice President
------------------------------
One Wall Street
Seventeenth Floor
New York, New York 10286
Attention: Stratton R. Heath
Telephone: (212) 635-6466
Telecopy: (212) 809-9520
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<PAGE> 76
$13,000,000 CIBC, INC.
By: /s/ Gail M. Golightly
----------------------------------
Print Name: Gail M. Golightly
--------------------------
Title: Vice President
-------------------------------
425 Lexington Avenue
Sixth Floor
New York, New York 10017
Attention: Stephen D. Reynolds
Telephone: (212) 856-3566
Telecopy: (212) 856-3599
$13,000,000 CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Jacques Mounier
----------------------------------
Print Name: Jacques Mounier
--------------------------
Title: Senior Vice President-Treasurer
-------------------------------
1301 Avenue of the Americas
Seventeenth Floor
New York, New York 10019
Attention: Susan A. Maros
Telephone: (212) 261-7407
Telecopy: (212) 261-3401
$13,000,000 FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Anne P. Benson
----------------------------------
Print Name: Anne P. Benson
--------------------------
Title: Vice President
-------------------------------
One First Union Center
TW-19
Charlotte, North Carolina
28288-0735
Attention: Anne Benson
Telephone: (704) 374-6619
Telecopy: (704) 374-4092
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<PAGE> 77
$13,000,000 MELLON BANK, N.A.
By: /s/ W. Scott Sanford
---------------------------------
Print Name: W. Scott Sanford
-------------------------
Title: Senior Vice President
------------------------------
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Attention: W. Scott Sanford
Telephone: (412) 234-3098
Telecopy: (412) 234-9047
$12,000,000 SANWA BANK CALIFORNIA
By: /s/ John C. Hyche
---------------------------------
Print Name: John C. Hyche
-------------------------
Title: Vice President
------------------------------
Insurance and Financial Services
601 South Figueroa Street
Los Angeles, California 90017
Attention: John C. Hyche
Telephone: (213) 896-7543
Telecopy: (213) 896-7282
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<PAGE> 78
$ 9,000,000 UNION BANK, N.A.
By: /s/ Richard H. Palmer
---------------------------------
Print Name: Richard H. Palmer
-------------------------
Title: Vice President
------------------------------
By: /s/ Patricia C. Rohling
---------------------------------
Print Name: Patricia C. Rohling
-------------------------
Title: Vice President and Manager
------------------------------
Thirteenth Floor
445 South Figueroa Street
Los Angeles, California 90017
Attention: Richard Palmer
Telephone: (213) 236-5596
Telecopy: (213) 629-5328
-----------
$100,000,000
-----------
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<PAGE> 1
Exhibit 10.39(j)
List of Contents of Exhibits and
Schedules to Underwriters Credit Agreement
Exhibits
--------
Exhibit A Form of Note
Exhibit B Form of Pledge Agreement
Exhibit C Form of Security Agreement
Exhibit D-1 Form of Opinion of Arnold & Porter
Exhibit D-2 Form of Opinion of Roussos, Hage & Hodes
Exhibit E Form of Letter of KPMG Peat Marwick
Exhibit F Form of Compliance Certificate
Exhibit G Form of Assignment Agreement
Schedules
---------
Schedule 5.3 Required Consents
Schedule 5.4 Governmental Consents
Schedule 5.8 Litigation and Third Party Obligations
Schedule 5.9 Subsidiaries
Schedule 5.17 Capitalization
Schedule 5.19 Indebtedness
Schedule 5.23 Insurance Licenses and Business
Schedule 5.24 Environmental
Schedule 6.16 Investments
Schedule 6.18 Liens
<PAGE> 1
Exhibit 10.39(k)
AMENDMENT NUMBER ONE
DATED AS OF APRIL 23, 1993
TO
CREDIT AGREEMENT
DATED AS OF NOVEMBER 16, 1992
This Amendment to the Credit Agreement described below is entered into as of
April 23, 1993.
1. Preliminary Statement. Reference is made to a Credit
Agreement dated as of November 16, 1992 (which, as it may be amended, extended
or supplemented from time to time, is herein called the "Credit Agreement")
among Underwriters Re Corporation (the "Borrower"), the lenders which are a
party thereto (the "Lenders") and The First National Bank of Chicago, as agent
for the Lenders (the "Agent").
2. Amendments. The Borrower, the Required Lenders and the Agent
hereby amend the Credit Agreement as follows:
In Section 2.7(a)(ii)(A) and (B) the date "June 30, 1993" is hereby
deleted and the date "September 30, 1993" is hereby inserted in lieu thereof.
3. Representations. In order to induce the Lenders to enter into
this Amendment the Borrower represents and warrants that:
A. The representations and warranties set forth in
Section 5 of the Credit Agreement, as hereby amended, are true,
correct and complete on the date hereof as if made on and as of the
date hereof and that there exists no Default or Unmatured Default on
the date hereof;
B. The execution and delivery by the Borrower of this
Amendment have been duly authorized by proper corporate proceedings
and this Amendment, and the Credit Agreement, as amended by this
Amendment, constitute valid and binding obligations of the Borrower;
and
C. Neither the execution and delivery by the Borrower of
this Amendment, the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof will violate
any law, rule, regulation, order, writ, judgment, injunction, decree
or award binding on the Borrower or the Borrower's articles of
incorporation or by-laws or the provisions of any indenture,
instrument or agreement to which the Borrower is a party or is
subject, or by which it or its property, is bound, or conflict with or
constitute a default thereunder.
<PAGE> 2
4. Closing Conditions. This Amendment shall be effective upon
receipt by the Agent from the Required Lenders and the Borrower of executed
counterparts of this Amendment or of telex or telecopied confirmation of their
execution and mailing of this Amendment.
5. Definitions. Unless the context shall otherwise require, all
terms used herein which are defined in the Credit Agreement shall have the
meanings assigned to them therein.
6. Counterparts. This Amendment may be executed by the parties
hereto individually, or in any combinations of the parties hereto in several
counterparts, all of which taken together shall constitute one and the same
amendment.
7. Ratification. Except as expressly amended hereby, all of the
representations, warranties, provisions, covenants, terms and conditions of the
Credit Agreement shall remain unaltered and in full force and effect and, as
amended hereby, the Credit Agreement is in all respects agreed to, ratified and
confirmed by the Borrower and the Lenders.
8. Effective Date. Upon satisfaction of all conditions contained
in Paragraph 4 above, this Amendment shall be effective as of April 23, 1993
(the "Effective Date").
9. Expenses. The Borrower shall pay all expenses of the Agent
(including reasonable charges for in-house counsel) incurred by the Agent in
the preparation of this Amendment.
10. Reference to and Effect on the Loan Documents. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement and the
other Loan Documents to "this Credit Agreement," "hereunder," "hereof,"
"herein" or words of like import referring to the Credit Agreement, and each
reference in the Notes and the other Loan Documents to the "Agreement,"
"thereunder," "thereof," or words of like import referring to the Agreement,
shall mean and be a reference to the Credit Agreement, as amended hereby.
UNDERWRITERS RE CORPORATION
By:/s/ Peter Bengelsdorf
-------------------------------------------
Its: Vice President
------------------------------------------
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<PAGE> 3
THE FIRST NATIONAL BANK OF CHICAGO
Individually and as Agent
By:/s/ Marcia Saper
-------------------------------------------
Its: Vice President
------------------------------------------
BANK OF NEW YORK
By:/s/ Indecipherable on behalf of
Bank of New York
-------------------------------------------
Its: Senior Vice President
------------------------------------------
CIBC, INC.
By:/s/ Stephen D. Reynolds
-------------------------------------------
Its: Vice President
------------------------------------------
CREDIT LYONNAIS
By:/s/ Jacques Mounier
-------------------------------------------
Its:Sr. V.P. Treasurer Deputy General Mgr.
------------------------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:/s/ Robert Monk
-------------------------------------------
Its: Assistant Vice President
------------------------------------------
MELLON BANK, N.A.
By:/s/ W.S. Sanford
-------------------------------------------
Its: Senior Vice President
------------------------------------------
-3-
<PAGE> 4
SANWA BANK CALIFORNIA
By:/s/ John Hyche
-------------------------------------------
Its: Vice President
------------------------------------------
UNION BANK, N.A.
By:/s/Robert Dawson P.C. Rohling
-------------------------------------------
Its: Vice President Vice President
------------------------------------------
-4-
<PAGE> 1
Exhibit 10.39(l)
ASSIGNMENT AND ASSUMPTION, WAIVER AND AMENDMENT AGREEMENT
This Assignment and Assumption, Waiver and Amendment Agreement (this
"Amendment Agreement") is entered into as of October 7, 1993 by and among
Underwriters Re Corporation (the "Old Borrower"), URC Holdings Corp. (the
"Borrower"), the undersigned lenders (the "Lenders") and The First National Bank
of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Old Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated as of November 16, 1992 (the "Credit Agreement");
WHEREAS, Alleghany Corporation, The Continental Corporation ("Continental"),
Goldman, Sachs & Co. and certain funds which Goldman, Sachs & Co. either control
or of which they are general partner, Underwriters Re Holdings Corp.
("Holdings") and the Old Borrower have entered into that certain Stock Purchase
Agreement dated as of July 28, 1993 (the "Purchase Agreement"), pursuant to
which the Old Borrower (a) is concurrently transferring all of the assets and
liabilities of the Old Borrower, including without limitation certain of the
issued and outstanding capital stock of each of Underwriters Reinsurance Company
("URC") and URC Risk Managers, Inc. ("Managers"), to the Borrower and its
Subsidiaries and (b) will subsequently sell all of the issued and outstanding
capital stock of the Borrower owned by it to Alleghany; and
WHEREAS, Continental, Holdings, the Old Borrower and the individuals listed
therein (the "Management Stockholders") have entered into that certain
Management Stock Purchase Agreement dated as of July 28, 1993 and supplemented
as of August 12, 1993 (the "Management Purchase Agreement" and, together with
the Purchase Agreement and the other agreements and instruments executed and
delivered in connection with the Purchase Agreement and the Management Purchase
Agreement, the "Acquisition Documents"), pursuant to which the Management
Stockholders will acquire certain shares of the Borrower in exchange for shares
of Holdings owned by them and to be owned by them upon the exercise of certain
outstanding stock options;
WHEREAS, in connection with the consummation of the transactions contemplated
by the Acquisition Documents (the "Acquisition"), (a) the Old Borrower desires
to assign its obligations under the Credit Agreement to the Borrower and the
Borrower desires to assume such obligations, (b) the Lenders agree to consent to
such assignment and assumption and (b) the Borrower, the Lenders and the Agent
desire to amend the Credit Agreement as herein set forth;
<PAGE> 2
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein
shall have the meanings attributed to such terms in the Credit Agreement, as
amended hereby.
2. Assignment and Assumption by the Borrower and Release of the Old Borrower.
Subject to the terms and conditions of this Amendment Agreement, each party
hereto agrees that effective as of the Effective Time (as hereinafter defined),
(a) the Old Borrower hereby transfers, assigns and delegates to the Borrower,
and the Borrower hereby assumes and undertakes, absolutely and unconditionally,
from the Old Borrower, all of the Old Borrower's rights, benefits, obligations,
liabilities, duties and indemnities arising under the Credit Agreement and the
other Loan Documents, whether actual or contingent, including without
limitation, all Obligations which may have accrued and not been discharged prior
to the effectiveness of this Amendment Agreement, (b) the Borrower shall be the
"Borrower" under the Credit Agreement and all related documents and agreements
and shall be bound by the terms of the Credit Agreement and each such document
and agreement as if the Borrower were an original signatory party thereto and
(c) the Old Borrower shall be released from any and all obligations of any
nature whatsoever in respect of the Loan Documents and the Obligations.
3. Waivers. Each Lender hereby waives the default by the Old Borrower in the
observance of Sections 6.16(a), 6.22, 6.25, 6.26, 6.27, 6.30 and 7.12 of the
Credit Agreement to the extent that such default is exclusively the result of
the Acquisition.
4. Amendments to Credit Agreement.
4.1 Article I of the Credit Agreement is hereby amended by (a) deleting the
reference to "Underwriters Re Corporation" in the definition of "Borrower" and
replacing it with a reference to "URC Holdings Corp.", (b) deleting the
reference to "Underwriters Re Acquisition Corp." in the definition of
"Acquisition Corp." and replacing it with a reference to "Continental Holding
Corporation (formerly Underwriters Re Holdings Corp. and formerly Underwriters
Re Acquisition Corp.)", (c) deleting the references to "as of the date hereof"
in the definitions of "Pledge Agreement" and "Security Agreement" and replacing
them with references to "October 7, 1993", (d) deleting the references to
"Acquisition Corp." in the definitions of "Change in Control", "Initial Public
Offering" and "Net Available Proceeds", (e) adding the following language to the
definition of "Tangible Net Worth" following the reference to "Agreement
Accounting Principles": "(as modified by interpretations of the FASB Emerging
Issues Task Force regarding multi-year funded
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<PAGE> 3
reinsurance contracts)", (f) deleting the definition of "Unfunded Liabilities"
in its entirety and replacing it with the following:
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
(g) adding the following language to the definition of "Agreement Accounting
Principles": "and for all financial information and determinations given or
made after June 30, 1993, as modified by interpretations of the FASB Emerging
Issues Task Force regarding multi-year funded reinsurance contracts", (h)
adding the following language to the definition of "Loan Documents": "and that
certain Assignment and Assumption, Waiver and Amendment Agreement dated as of
October 7, 1993 among the Old Borrower, the Borrower, the Lender and the Agent"
and (i) adding the following definitions:
"Alleghany" means Alleghany Corporation, a Delaware corporation.
"Alleghany Tax Sharing Agreements" means, collectively, that certain
Agreement dated as of October 7, 1993 between Alleghany and the Borrower,
that certain Tax Sharing Agreement dated as of October 7, 1993 among the
Borrower, URC and CUIC and that certain Agreement dated as of October 7, 1993
between the Borrower and Managers, as each is in effect on such date,
together with any other agreements entered into pursuant to the proviso to
Section 6.30, as any such agreement may be hereafter amended, subject to
compliance with the terms hereof.
"Consolidated Person" means, for the taxable year of reference of
Alleghany, each Person which has joined or which is required to join in the
filing of a consolidated federal income tax return with Alleghany.
"Continental" means The Continental Corporation, a New York corporation.
"Continental Tax Sharing Agreement" means that certain Tax Sharing
Agreement dated as of October 7, 1993 among Continental, Acquisition Corp.,
the Old Borrower, the Borrower, Managers, URC and CUIC, as in effect on such
date and as such agreement may be hereafter amended, subject to compliance
with the terms hereof."
-3-
<PAGE> 4
"Old Borrower" means Continental Subsidiary Corporation, a Delaware
corporation (formerly, Underwriters Re Corporation).
4.2 Article II of the Credit Agreement is hereby amended by deleting the
references to "Acquisition Corp." in Section 2.7(a)(ii).
4.3 Article V of the Credit Agreement is hereby amended by (a) deleting
Section 5.7 in its entirety and replacing it with the following:
5.7 Taxes. Except as set forth on Schedule 5.7 hereto, each of the
Borrower and the Subsidiaries has filed or caused to be filed all United
States federal and applicable state tax returns and all other tax returns
which are required to be filed by it, each of Alleghany and each other
Consolidated Person has filed or caused to be filed all United States federal
and material applicable state tax returns which are required to be filed by
it and each of the Borrower, the Subsidiaries, Alleghany and each other
Consolidated Person has paid all taxes due pursuant to said returns or
pursuant to any assessment received by such Person, except such taxes, if
any, as are being contested in good faith and as to which adequate reserves
have been provided in accordance with Agreement Accounting Principles and as
to which no Lien exists. From and after the day after the effective date of
Alleghany's acquisition of certain shares of the Borrower's common stock,
each of the Borrower and each Subsidiary shall join in the filing of a
consolidated federal income tax return with Alleghany. No tax liens have been
filed and no claims are being asserted with respect to any taxes for which
any Consolidated Person may be liable which would have a Material Adverse
Effect. The charges, accruals and reserves (a) on the books of the Borrower
and the Subsidiaries in respect of any taxes or other governmental charges
and (b) on the books of Alleghany and each other Consolidated Person in
respect of any taxes or other governmental charges owing with respect to any
tax year beginning after December 31, 1992 are in accordance with Agreement
Accounting Principles.
(b) deleting Section 5.10 in its entirety and replacing it with the following:
5.10. ERISA. The Unfunded Liabilities of all Single Employer Plans
maintained by the Borrower or any of its Subsidiaries do not in the aggregate
exceed $1,000,000, and the Unfunded Liabilities of all Single Employer Plans
maintained by the other members of the Controlled Group do not in the
aggregate exceed an amount which could reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any other member of the
Controlled Group
-4-
<PAGE> 5
maintains, or is obligated to contribute to, any Multiemployer Plan. Each
Plan complies in all material respects with all applicable requirements of
law and regulations, no Reportable Event has occurred with respect to any
Plan maintained by the Borrower or any of its Subsidiaries, no Reportable
Event has occurred with respect to any Plan maintained by any other member of
the Controlled Group that could reasonably be expected to have a Material
Adverse Effect, neither the Borrower nor any Subsidiary has withdrawn from
any Multiemployer Plan or initiated steps to do so, no other member of the
Controlled Group has withdrawn from any Multiemployer Plan resulting in any
withdrawal liability that could reasonably be expected to have a Material
Adverse Effect or initiated steps to do so, and no steps have been taken to
reorganize or terminate any Plan other than the Acquisition Corp. retirement
plan.
and (c) adding the following at the end of clause (b) of Section 5.26:
nor (c) taken as a whole, the information regarding the Borrower and
Alleghany furnished by the Borrower to the Agent or to any Lender in
connection with the transactions contemplated by that certain Stock Purchase
Agreement dated as of July 28, 1993 among Alleghany, Continental, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs & Co. either control or of
which they are general partner, Acquisition Corp. and Underwriters Re
Corporation,
4.4 Article VI of the Credit Agreement is hereby amended as follows:
(a) Section 6.1 is hereby amended by (i) adding the following language at the
end of paragraph (k):
and as soon as possible and in any event with ten (10) days after learning
thereof, notification of any Lien imposed by the PBGC or the IRS on the
assets of any member of the Controlled Group in respect of any Plan
maintained by any such member (or any other employee pension benefit plan as
to which any such member may be liable) which relates to liabilities in
excess of ten percent (10%) of the net worth (determined according to
generally accepted accounting principles and without reduction for any
reserve for such liabilities) of Alleghany and its Subsidiaries.
and (ii) adding paragraph (p) as follows:
(p) Promptly and in any event within ten (10) days after learning
thereof, notification of (i) any tax assessment, demand or notice of
deficiency received by the Borrower, any Subsidiary, Alleghany or any other
Consolidated Person or (ii)
-5-
<PAGE> 6
the filing of any tax Lien or commencement of any judicial proceeding against
any such Person, if any such assessment, demand, notice, Lien or judicial
proceeding relates to tax liabilities in excess of ten percent (10%) of the
net worth (determined according to generally accepted accounting principles
and without reduction for any reserve for such liabilities) of Alleghany and
its Subsidiaries.
(b) Section 6.3 is hereby amended by deleting the reference to "Acquisition
Corp." in clause (b) thereof and replacing it with a reference to "Alleghany".
(c) Section 6.11 is hereby amended by adding paragraph (g) as follows:
(g) Indebtedness with a principal amount not to exceed $3,593,136
evidenced by that certain Loan Agreement dated as of October 7, 1993 between
Continental and the Borrower unless and until any amount of the Indebtedness
described in clause (ix) of Section 6.16(a) has been forgiven by the Borrower
or has been subject to any default by any obligor thereunder.
(d) Section 6.12 is hereby amended by inserting the word "and" before clause
(b) and deleting the remainder of the paragraph following clause (b).
(e) Section 6.16 is hereby amended by (i) deleting the words "or Acquisition
Corp." from clause (viii) of Section 6.16(a), (ii) adding the following to
Section 6.16(a):
(ix) Up to $3,593,136 of loans by the Borrower to its stockholders in
accordance with Section 24(a) of that certain Stock Purchase Related
Agreement dated as of July 28, 1993 among the stockholders listed therein and
Alleghany.
(iii) adding the words "but not including any securities of CUIC" to the end of
the parenthetical in clause (iii) of Section 6.16(b), and (iv) adding the words
"so long as CUIC remains a Wholly-Owned Subsidiary of the Borrower" to the end
of clause (v) of Section 6.16(b).
(f) Section 6.30 is hereby amended by deleting Section 6.30 in its entirety
and replacing it with the following:
6.30. Tax Consolidation. The Borrower will not and will not permit any of
its Subsidiaries to file or consent to the filing of any consolidated income
tax return with any Person (other than the affiliated group of which
Acquisition Corp. or Continental is the common parent for any taxable year
that includes any part of the 1993 calendar year or any of the Borrower's
Subsidiaries, Alleghany or any other Consolidated Person), except as required
by law. The Borrower will not and
-6-
<PAGE> 7
will not permit any of its Subsidiaries to (a) amend either the Continental
Tax Sharing Agreement or any of the Alleghany Tax Sharing Agreements or (b)
enter into a tax sharing agreement with any other Person without the prior
written consent of the Required Lenders except as required by applicable law;
provided, that the Borrower shall enter into a tax sharing agreement with any
newly acquired or created Subsidiary which contains substantially the same
terms and provisions as the tax sharing agreement between the Borrower and
Alleghany which is then in effect.
4.5 Article VII of the Credit Agreement is hereby amended by (a) deleting
Section 7.10 in its entirety and replacing it with the following:
7.10. (a) The Unfunded Liabilities of all Single Employer Plans
maintained by the Borrower and its Subsidiaries shall exceed in the aggregate
$1,000,000 or a Reportable Event shall occur in connection with any Plan
maintained by the Borrower or any of its Subsidiaries, (b) the Unfunded
Liabilities of all Single Employer Plans maintained by other members of the
Controlled Group shall exceed an amount which could reasonably be expected to
have a Material Adverse Effect or any Reportable Event shall occur in
connection with any Plan maintained by other members of the Controlled Group
which could reasonably be expected to have a Material Adverse Effect or (c)
any Lien shall be imposed by the PBGC or the IRS against any assets of the
Borrower or any of its Subsidiaries with respect to a Plan maintained by any
other member of the Controlled Group (or any other employee pension benefit
plan as to which any such member may be liable).
(b) deleting Section 7.16 in its entirety and replacing it with the following:
7.16. At any time any two or more of the following individuals shall for
any reason cease to be actively and on a full-time basis involved in the
business of the Borrower: Steven H. Newman, Peter A. Bengelsdorf, Russell T.
John, James P. Rapp and Dennis E. Arnold.
and (c) deleting Section 7.20 in its entirety and replacing it with the
following:
7.20. The Borrower, any of its Subsidiaries, Alleghany or any other
Consolidated Person shall receive any tax assessment, demand or notice of
deficiency or have any tax Liens filed or any judicial proceeding relating to
any tax matter commenced against it which, in any such case, could reasonably
be expected to have a Material Adverse Effect or any tax Lien shall be filed
against the Borrower or any
-7-
<PAGE> 8
Subsidiary relating to the tax liabilities of any other Person.
4.6 The schedules to the Credit Agreement are hereby amended by (a) deleting
Schedules 5.3, 5.4, 5.8, 5.9, 5.17, 5.19 and 5.23 in their entirety and
replacing them with Schedules 5.3, 5.4, 5.8, 5.9, 5.17, 5.19 and 5.23 hereto and
(b) adding Schedule 5.7 hereto.
5. Conditions Precedent.
5.1 This Amendment Agreement shall become effective when the Borrower has
furnished, or caused to be furnished, to the Agent, with sufficient copies for
each Lender, each of the following (the "Effective Time"):
(a) Copies of the certificate of incorporation of the Borrower, a
certificate of good standing regarding the Borrower from the States of
California and Delaware and a certificate of compliance from the state of
domicile of each Insurance Subsidiary, in each case certified by the appropriate
governmental officer as of a date not earlier than ten (10) days before the date
hereof.
(b) Copies, certified as of the date hereof by the Secretary or Assistant
Secretary of the Borrower, of its by-laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are deemed necessary by
counsel for any Lender) authorizing the execution of this Amendment Agreement
and the other documents executed by it in connection herewith (collectively, the
"Amendment Documents").
(c) An incumbency certificate, executed as of the date hereof by the
Secretary or Assistant Secretary of the Borrower, which shall identify by name
and title and bear the signature of the officers of the Borrower authorized to
sign the Amendment Documents and to make borrowings under the Credit Agreement,
upon which certificate the Agent and the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower.
(d) A certificate, dated as of the date hereof, signed by an Authorized
Officer of the Borrower to the effect that: (i) after giving effect to the
Amendment Documents, no Default or Unmatured Default has occurred and is
continuing; (ii) no injunction or temporary restraining order which would
prohibit the consummation of any of the transactions contemplated by any of the
Amendment Documents or other litigation which could reasonably be expected to
have a Material Adverse Effect or a Material Document Effect is pending or, to
the best of such Person's knowledge, threatened; (iii) all orders, consents,
approvals, licenses, authorizations or validations of, or filings, recordings or
registrations with, or exemptions by, any governmental or public body or
authority, or any subdivision thereof, required in connection with any of the
Amendment Documents have been or, prior
-8-
<PAGE> 9
to the time required, will have been, obtained, given, filed or taken and are
or will be in full force and effect (or the applicable Person has obtained
effective judicial relief with respect to the application thereof) and all
applicable waiting periods have expired; (iv) since December 31, 1992, no event
or change has occurred that has caused or evidences a Material Adverse Effect;
and (v) after giving effect to the Amendment Documents, each of the
representations and warranties contained in Article V of the Credit Agreement
is true and correct in all material respects on and as of the date hereof.
(e) A written opinion of (i) Messrs. Arnold & Porter, the Borrower's
counsel, (ii) Roussos, Hage & Hodes Professional Association, the Borrower's New
Hampshire insurance counsel, (iii) Messrs. Buchalter, Nemer, Fields & Younger,
the Borrower's California insurance counsel, and (iv) such other local counsel
as the Agent may request, in each case addressed to and in form and substance
acceptable to the Agent and the Lenders.
(f) Executed copy of this Amendment Agreement.
(g) Notes executed by the Borrower and payable to the order of each of
the Lenders.
(h) Executed copy of the Pledge Agreement dated as of the date hereof
between the Borrower and the Agent, together with the stock certificates
representing all of the outstanding shares of capital stock of URC and Managers
and stock powers with respect thereto executed in blank.
(i) Executed copy of the Security Agreement dated as of the date hereof
between the Borrower and the Agent.
(j) Proof that the appropriate financing statements covering the
Collateral including, without limitation, such fixture filings as the Agent may
request, have been executed and delivered by the Borrower and filed or recorded
in such jurisdictions as the Agent shall have specified or other arrangements
with respect to filing or recording satisfactory to the Agent have been made.
(k) Written money transfer instructions addressed to the Agent and signed
by an Authorized Officer of the Borrower, together with such other related money
transfer authorizations as the Agent may have reasonably requested.
(l) An executed copy of the insurance certificate described in Section
5.25 of the Credit Agreement showing the Borrower as the insured party.
(m) A copy of the Continental Tax Sharing Agreement.
-9-
<PAGE> 10
(n) Receipt of any required New Hampshire and California insurance
commission approvals and all other required regulatory approvals.
(o) Evidence of the payment of all fees to the Agent and the Lenders
required in connection with the execution and delivery of this Amendment
Agreement.
(p) Executed copy of an acknowledgement by Continental of the assignment
under the Security Agreement by the Borrower to the Lenders of the indemnities
under the Acquisition Documents.
(q) Such other documents as the Agent or any Lender may have reasonably
requested.
5.2 Notwithstanding the satisfaction of Section 5.1 hereof, as of 11:59 p.m.
on October 8, 1993, this Amendment Agreement shall be deemed to be null and void
and shall cease to be effective, the Credit Agreement and the other Loan
Documents as in effect prior to the effectiveness of this Amendment Agreement
shall be reinstated and the Old Borrower shall be deemed to have reassumed all
of the Obligations and shall be and remain liable in respect thereof as if this
Amendment Agreement had never become effective, unless the Borrower shall have
furnished, or caused to be furnished, to the Agent by such date, with sufficient
copies for each Lender, each of the following:
(a) A certificate, dated as of the date on which the transactions
contemplated by the Acquisition Documents have been consummated, signed by an
Authorized Officer of the Borrower, to the effect that: (i) each of the
transactions contemplated by the Acquisition Documents has been consummated
substantially in accordance with the terms of the Acquisition Documents without
any waiver thereof not consented to by the Agent; (ii) after giving effect to
the consummation of the Acquisition, no Default or Unmatured Default has
occurred and is continuing; (iii) all orders, consents, approvals, licenses,
authorizations or validations of, or filings, recordings or registrations with,
or exemptions by, any governmental or public body or authority, or any
subdivision thereof, required in connection with any of the Acquisition
Documents have been or, prior to the time required, will have been obtained,
given, filed or taken and are or will be in full force and effect (or the
applicable Person has obtained effective judicial relief with respect to the
application thereof) and all applicable waiting periods have expired; and (iv)
after giving effect to the consummation of the Acquisition, each of the
representations and warranties contained in Article V of the Credit Agreement is
true and correct in all material respects as of such date.
-10-
<PAGE> 11
(b) Confirmation that the Agent and the Lenders may rely upon each of the
opinions delivered pursuant to the Acquisition Documents.
(c) A copy of the Purchase Agreement, the Management Purchase Agreement
and the other Acquisition Documents.
(d) A copy of the Alleghany Tax Sharing Agreements, in form and substance
satisfactory to the Agent and the Lenders.
(e) Confirmation that Alleghany has contributed at least $10,000,000 in
cash to the capital of the Borrower in exchange for additional shares of stock
of the Borrower.
(f) Such other documents as the Agent or any Lender may have reasonably
requested.
6. Reference to and Effect on the Credit Agreement.
6.1 Upon the effectiveness of Section 5.1 hereof (and subject to Section 5.2
hereof), on or after the date hereof each reference in the Credit Agreement to
"this Agreement," "hereunder," "hereof," "herein" or words of like import and
each reference to the Credit Agreement in each Loan Document shall mean and be a
reference to the Credit Agreement as amended hereby.
6.2 Except as specifically amended and waived above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan Documents
shall remain unaltered and in full force and effect (other than with respect to
the Old Borrower) and shall be binding upon the Borrower in all respects and are
hereby ratified and confirmed.
6.3 The execution, delivery and effectiveness of this Amendment Agreement
shall not, except as expressly provided herein, operate as a waiver of (a) any
right, power or remedy of any Lender or the Agent under the Credit Agreement or
any of the Loan Documents, or (b) any Default or Unmatured Default under the
Credit Agreement.
7. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto.
8. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
-11-
<PAGE> 12
9. Execution in Counterparts. This Amendment Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. This Amendment
Agreement shall become effective as of the date first above written, subject to
the provisions of Section 5.2 hereof; provided, that all of the conditions
precedent set forth in Section 5.1 of this Amendment Agreement are satisfied and
the Agent has received counterparts of this Amendment Agreement duly executed by
the Old Borrower, the Borrower and each Lender.
[signature pages to follow]
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Old Borrower, the Borrower, the Agent and the Lenders
have executed this Amendment Agreement as of the date first above written.
UNDERWRITERS RE CORPORATION
By: /s/ Peter A. Bengelsdorf
---------------------------------
Title: Vice President
-----------------------------
URC HOLDINGS CORP.
By: /s/ Peter A. Bengelsdorf
---------------------------------
Title: Vice President
-----------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
-----------------------------
THE BANK OF NEW YORK
By: /s/ Stratton R. Heath
---------------------------------
Title: Assistant Vice President
-----------------------------
CIBC, INC.
By: /s/ Stephen D. Reynolds
---------------------------------
Title: Vice President
-----------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Jacques Mounier
---------------------------------
Title: Senior Vice President
-----------------------------
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<PAGE> 14
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ John E. Guenther
---------------------------------
Title: Corporate Banking Officer
-----------------------------
MELLON BANK, N.A.
By: /s/ Tim Marchando
---------------------------------
Title: Officer
-----------------------------
SANWA BANK CALIFORNIA
By: /s/ R. H. Palmer
---------------------------------
Title: Vice President
-----------------------------
UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
-----------------------------
By: /s/ Indecipherable on behalf
of Union Bank
---------------------------------
Title: Vice President
-----------------------------
-14-
<PAGE> 1
Exhibit 10.39(m)
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement (this "Amendment Agreement")
is entered into as of February 1, 1994 by and among URC Holdings Corp. (the
"Borrower"), the undersigned lenders (the "Lenders") and The First National Bank
of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, Underwriters Re Corporation (the "Old Borrower"), the Lenders and
the Agent entered into that certain Credit Agreement dated as of November 16,
1992 (as assigned by the Old Borrower to the Borrower and as amended pursuant to
that certain Assignment and Assumption, Waiver and Amendment Agreement dated as
of October 7, 1993 among the Old Borrower, the Borrower, the Lenders and the
Agent, the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to further amend
the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein
shall have the meanings attributed to such terms in the Credit Agreement, as
amended hereby.
2. Amendments to Credit Agreement.
2.1 Article I of the Credit Agreement is hereby amended by (a) deleting the
definition of "Applicable ABR Margin", (b) amending the definition of
"Applicable Eurodollar Margin" by (i) deleting the chart therein and replacing
it with the following:
<TABLE>
<CAPTION>
Applicable
Leverage Ratio Eurodollar Margin
- --------------------------------------- -----------------
Greater than
or Equal to But less than
- ----------- -------------
<S> <C> <C>
.20:1.0 ------- 1.00%
.10:1.0 .20:1.0 .75%
- ------- .10:1.0 .50%
</TABLE>
and (ii) deleting the references to "1.75%" in the paragraph following such
chart and replacing them with "1.00%", and (c) deleting the definition of
"Floating Rate" in its entirety and replacing it with the following:
"Floating Rate" means, for any day, with respect to any Revolving Credit
Advance, a rate per annum equal to the Alternate Base Rate for such day.
<PAGE> 2
and (d) adding the definitions of "Cash Equivalents" and "Statutory Surplus" as
follows:
"Cash Equivalents" means those Investments described in clauses (i)
through (iv) of Section 6.16(a) hereof.
"Statutory Surplus" means the aggregate surplus of the Borrower's
Consolidated Insurance Subsidiaries, as determined in accordance with SAP
("Liabilities, Surplus and Other Funds" statement, line 26 of the Annual
Statement).
2.2 Article IV of the Credit Agreement is hereby amended as follows:
(a) Sections 6.28.1 and 6.28.2 are hereby deleted in their entirety and
replaced with the following:
6.28.1. Minimum Tangible Net Worth. At all times after the date hereof
(commencing on December 31, 1993), determined as at the end of each calendar
quarter, maintain a Consolidated Tangible Net Worth equal to or greater than
$150,000,000; provided, that (a) for the purposes of this Section 6.28.1, (i)
the amount of the Borrower's "deferred tax" asset will not be included in the
determination of Consolidated Tangible Net Worth and (ii) the difference
between the "carrying value" of the consolidated invested assets of the
Insurance Subsidiaries (as determined according to Agreement Accounting
Principles) and the value of such assets determined according to SAP (which
difference as of September 30, 1993 was equal to $42,166,503) will not be
included in the determination of Consolidated Tangible Net Worth, and (b) the
amount of Consolidated Tangible Net Worth required to be maintained shall be
adjusted to reflect any changes in the manner of computing same arising out
of changes in Agreement Accounting Principles after the date hereof.
6.28.2. Fixed Charge Coverage Ratio. As of the end of each fiscal
quarter, maintain (a) a ratio of (i) Statutory Income computed for the
four-quarter period then ended, to (ii) the sum of (A) if positive, (1) the
aggregate principal amount of Loans outstanding as of the end of such fiscal
quarter minus (2) $100,000,000 minus the aggregate amount of all reductions
in the Aggregate Commitment which have occurred on or prior to the end of
such fiscal quarter or which are scheduled to occur during the next
succeeding four quarters pursuant to Section 2.4(c), plus (B) the aggregate
interest expense of the Borrower (calculated using the outstanding principal
amount of the Loans or other Indebtedness as of the date of determination and
at the interest rate applicable thereto on the last Business Day of the
relevant period of calculation), computed for the four-quarter period next
succeeding the date of calculation, determined in accordance
-2-
<PAGE> 3
with Agreement Accounting Principles, plus (C) the aggregate consolidated
income taxes paid or payable by the Borrower, computed for the four-quarter
period then ended, determined in accordance with Agreement Accounting
Principles, of at least 1.5 to 1 and (b) a ratio of (i) the sum of (A) 10% of
Statutory Surplus as of the end of such fiscal quarter plus (B) the
Borrower's cash and Cash Equivalents to (ii) the amount determined pursuant
to clause (a)(ii) above, of at least 1.0 to 1.
(b) Section 6.29.2 is hereby amended by deleting the words "1.5 to 1" and
replacing them with the words "2.0 to 1".
3. Representations and Warranties of the Borrower.
3.1 The Borrower represents and warrants that the execution, delivery and
performance by the Borrower of this Amendment Agreement have been duly
authorized by all necessary corporate action and that this Amendment Agreement
is a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, except as the enforcement thereof may
be subject to (a) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (b) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law).
3.2 The Borrower hereby certifies that each of the representations and
warranties contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment Agreement, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import and each reference to the Credit Agreement in each Loan Document
shall mean and be a reference to the Credit Agreement as amended hereby.
4.2 Except as specifically amended and waived above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan Documents
shall remain unaltered and in full force and effect and shall be binding upon
the Borrower in all respects and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment Agreement
shall not operate as a waiver of (a) any right, power or remedy of any Lender or
the Agent under the Credit Agreement or any of the Loan Documents, or (b) any
Default or Unmatured Default under the Credit Agreement.
-3-
<PAGE> 4
5. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto.
6. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
7. Execution in Counterparts. This Amendment Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. This Amendment
Agreement shall become effective as of the date first above written; provided,
that the Agent has received counterparts of this Amendment Agreement duly
executed by the Borrower and each Lender.
[signature pages to follow]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed
this Amendment Agreement as of the date first above written.
URC HOLDINGS CORP.
By: /s/ Peter Bengelsdorf
---------------------------------
Title: Chief Financial Officer
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
------------------------------
THE BANK OF NEW YORK
By: /s/ Stratton R. Heath
---------------------------------
Title: Assistant Vice President
------------------------------
CIBC, INC.
By: /s/ Stephen D. Reynolds
---------------------------------
Title: Vice President
------------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Vice President
------------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: Catherine E. Dolan
---------------------------------
Title: Vice President
------------------------------
-5-
<PAGE> 6
MELLON BANK, N.A.
By: /s/ Tim Marchando
---------------------------------
Title: Officer
------------------------------
SANWA BANK CALIFORNIA
By: /s/ R. H. Palmer
---------------------------------
Title: Vice President
------------------------------
UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
------------------------------
-6-
<PAGE> 1
Exhibit 10.39(n)
AMENDMENT NO. 3 TO CREDIT AGREEMENT
This Amendment No. 3 to Credit Agreement (this "Amendment Agreement") is
entered into as of September 29, 1995 by and among URC Holdings Corp. (the
"Borrower"), the undersigned lenders (the "Lenders") and The First National Bank
of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, Underwriters Re Corporation (the "Old Borrower"), the Lenders and
the Agent entered into that certain Credit Agreement dated as of November 16,
1992 (as assigned by the Old Borrower to the Borrower and as amended pursuant to
that certain Assignment and Assumption, Waiver and Amendment Agreement dated as
of October 7, 1993 among the Old Borrower, the Borrower, the Lenders and the
Agent and as further amended pursuant to that certain Amendment No. 2 to Credit
Agreement dated as of February 1, 1994, the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to further amend
the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein
shall have the meanings attributed to such terms in the Credit Agreement, as
amended hereby.
2. Amendment to Credit Agreement. Section 6.17 of the Credit Agreement is hereby
amended by (i) deleting the word "and" at the end of clause (b) thereof and
inserting a comma in its place and (ii) adding the following to the end of such
section:
"and (d) by the extension of guaranties in the ordinary course of business to
insureds of the obligations of insurers under insurance policies"
3. Consent. Notwithstanding Section 6.19 of the Credit Agreement to the
contrary, the Borrower may purchase a parcel of real estate in New York, New
York in 1995 or 1996 so long as the purchase price for such real estate does not
exceed $1,800,000.
4. Representations and Warranties of the Borrower.
4.1 The Borrower represents and warrants that the execution, delivery and
performance by the Borrower of this Amendment Agreement have been duly
authorized by all necessary corporate action and that this Amendment Agreement
is a legal, valid and
<PAGE> 2
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be subject to
(a) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and (b) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
4.2 The Borrower hereby certifies that each of the representations and
warranties contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof.
5. Reference to and Effect on the Credit Agreement.
5.1 Upon the effectiveness of this Amendment Agreement, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import and each reference to the Credit Agreement in each Loan Document
shall mean and be a reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, all of the terms, conditions and
covenants of the Credit Agreement and the other Loan Documents shall remain
unaltered and in full force and effect and shall be binding upon the Borrower in
all respects and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this Amendment Agreement
shall not operate as a waiver of (a) any right, power or remedy of any Lender or
the Agent under the Credit Agreement or any of the Loan Documents, or (b) any
Default or Unmatured Default under the Credit Agreement.
6. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto.
7. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
8. Execution in Counterparts. This Amendment Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. This Amendment
Agreement shall become effective as of the date first above written; provided,
that the Agent has received counterparts of this
-2-
<PAGE> 3
Amendment Agreement duly executed by the Borrower and the Required Lenders.
[signature pages to follow]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed
this Amendment Agreement as of the date first above written.
URC HOLDINGS CORP.
By: /s/ Stephen C. Kolakowski
---------------------------------
Title: Senior Vice President, CFO
and Treasurer
-----------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
-----------------------------
THE BANK OF NEW YORK
By: /s/ Christine M. Gerrich
---------------------------------
Title: Vice President
-----------------------------
CREDIT LYONNAIS, SAN FRANCISCO BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Vice President & Manager
-----------------------------
CREDIT LYONNAIS, CAYMAN ISLANDS BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Authorized Signatory
-----------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Jim F. Redman
---------------------------------
Title: Senior Vice President
-----------------------------
-4-
<PAGE> 5
MELLON BANK, N.A.
By: /s/ Richard A. Spelke
---------------------------------
Title: First Vice President
-----------------------------
SANWA BANK CALIFORNIA
By: /s/ John Hyche
---------------------------------
Title: Vice President
-----------------------------
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ James H. Steane
---------------------------------
Title: Senior Vice President
-----------------------------
UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
-----------------------------
By: /s/ P.C. Rohling
---------------------------------
Title: Vice President
-----------------------------
-5-
<PAGE> 1
EXHIBIT 13
TO OUR STOCKHOLDERS
In 1995 Alleghany Corporation's net earnings were $85.3 million, or $12.07 per
share, compared with $137.5 million, or $19.72 per share, in 1994. Net earnings
from continuing operations were $85.3 million, or $12.07 per share, in 1995,
compared with $68.4 million, or $9.80 per share, in 1994. Financial highlights
of both years are summarized in the first table on page 4 of this report.
Net earnings in 1995 included $23.6 million, or $3.33 per share,
representing net gains in connection with Alleghany's redemption in the fourth
quarter of its 6-1/2% Subordinated Exchangeable Debentures due 2014, and the
disposition of common shares of American Express Company into which such
Debentures were exchangeable. Net earnings in 1994 included $69.1 million, or
$9.92 per share, representing the gain on the sale of Alleghany's retail banking
subsidiary, Sacramento Savings Bank, for $331 million in cash (net of
transaction-related expenses, taxes and provisions related to real estate assets
retained by Alleghany), and Sacramento Savings' earnings prior to the sale.
Alleghany's principal operating unit, Chicago Title and Trust Company,
recorded pre-tax earnings in 1995 of $46.2 million. This represents a 30 percent
drop from 1994, reflecting a severe decline in real estate markets caused by
sharp increases in interest rates that began in February 1994. The increase in
interest rates in 1994 ended one of the longest refinancing surges in history
and precipitated in 1995 one of the strongest downturns in year-to-year title
industry revenue and orders since the industry began keeping those statistics.
While Chicago Title moved to bring its costs into line with reduced revenues,
its efforts were insufficient to avert a pre-tax loss of $12 million in the
first quarter of 1995. The real estate market in general began to improve in the
second quarter of 1995 and continued to improve thereafter with declining
interest rates. Nevertheless, some geographic areas, notably Southern
California, have not improved as strongly as other regions. A commendable effort
by Chicago Title to reduce expenses, including salary cuts and salary increase
deferrals for highly compensated employees in 1995, together with strong levels
of investment income and exceptional performance by Chicago Title's financial
services businesses, enabled Chicago Title to end the year with a satisfactory
level of earnings. Although market conditions have in general rebounded, Chicago
Title remains committed to reducing its permanent overhead expenses in order to
assure its ability to respond profitably to changing market conditions and
competitive challenges.
[GRAPH -- SEE EDGAR APPENDIX]
STOCKHOLDERS' EQUITY PER SHARE
(in dollars) - Adjusted for 2% stock dividends
'95 $186.12
'94 144.97
'93 132.82
'92 114.80
'91 104.62
'90 93.75
'89 85.07
'88 75.19
'87 68.94
'86 65.23
During the fourth quarter of 1995, the claims-paying ability rating of each
of Chicago Title's principal title insurance subsidiaries - Chicago Title
Insurance Company, Security Union Title Insurance Company and Ticor Title
Insurance Company - was raised from "A-" to "A" by Standard & Poor's
Corporation. These companies also maintained their "A" rating by Duff & Phelps
Credit Rating Co.
During 1995, Chicago Title restructured its financial services businesses
under a new Chicago Title subsidiary named Alleghany Asset Management, Inc., in
order to foster the independent development of this fast growing part of its
business. In this connection, the financial services businesses formerly
conducted directly by Chicago Title were transferred to a recently acquired
1
<PAGE> 2
trust company renamed The Chicago Trust Company. Alleghany Asset Management and
its subsidiaries, including The Chicago Trust Company and Montag & Caldwell,
Inc. (which was acquired in July 1994), comprise Chicago Title's Financial
Services Group. The Financial Services Group contributed pre-tax earnings of
$11.5 million to Chicago Title in 1995, an increase of 40 percent over 1994, and
ended the year with approximately $10.3 billion of assets under management.
[GRAPH -- SEE EDGAR APPENDIX]
YEAR-END CLOSING STOCK PRICES
(in dollars)
'95 $198.00
'94 149.02
'93 137.92
'92 126.03
'91 102.55
'90 77.09
'89 81.25
'88 61.81
'87 61.88
'86 56.48
Alleghany's other major operating businesses - Underwriters Reinsurance
Company and World Minerals Inc. - recorded significantly higher pre-tax earnings
for 1995 than in the prior year. Underwriters contributed pre-tax earnings of
$24.8 million in 1995, almost three times its 1994 pre-tax earnings, reflecting
increased business and an absence of significant catastrophe losses.
Underwriters' enhanced financial strength as a result of capital contributions
by Alleghany in 1994 helped to attract additional business and aided in the
improvement of Underwriters' rating by A.M. Best Company, Inc. from "A
(Excellent)" to "A+ (Superior)." As of December 31, 1995, Underwriters'
statutory surplus was $458 million, making Underwriters the eleventh largest
domestic professional reinsurer in terms of statutory surplus at 1995 year-end,
according to the Reinsurance Association of America.
World Minerals contributed pre-tax earnings of $26.1 million in 1995,
representing an increase of more than 40 percent from its 1994 pre-tax earnings.
World Minerals' improved results in 1995 reflect strong economic activity in the
markets it serves, as well as the benefits of price increases, strategic
acquisitions and capital spending, in addition to ongoing management attention
to improving production efficiency, customer service and cost reductions.
The comparative contributions to Alleghany's earnings from continuing
operations before income taxes made by these operating units and by Alleghany's
parent-company operations were as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended Quarter Ended
December 31 December 31
- --------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chicago Title $ 46.2 $65.7 $22.3 $16.1
Underwriters 24.9 8.6 4.1 5.7
World Minerals 26.1 18.2 7.3 5.2
Parent company 23.9 0.5 32.7 (7.9)
- --------------------------------------------------------------------------------
Earnings from
continuing
operations, before
income taxes $121.1 $93.0 $66.4 $19.1
================================================================================
</TABLE>
On September 22, 1995, Santa Fe Pacific Corporation and Burlington Northern
Inc. merged under a new holding company named Burlington Northern Santa Fe
Corporation. As a result of the merger, 18.06 million shares of Santa Fe Pacific
Corporation beneficially owned by Alleghany were converted into about 7.43
million shares of BNSF, or about 5.2 percent of BNSF's outstanding common stock.
As of March 1, 1996, such 7.43 million shares had an aggregate market value of
approximately $593.6 million, or $79.875 per BNSF share. The aggregate cost of
such shares was approximately $253.7 million, or $34.15 per BNSF share.
2
<PAGE> 3
After twenty-five years of dedicated service as a director of Alleghany, S.
Arnold Zimmerman has decided to retire from the Board of Directors when his term
expires at the 1996 Annual Meeting. We extend our sincere thanks to Arnold for
his contributions to Alleghany over the years and our best wishes for his future
endeavors.
Alleghany common stockholders' equity per share was $186.12 at 1995
year-end, an increase of 28.4 percent over common stockholders' equity per share
at 1994 year-end of $144.97, after adjustment to reflect the 2 percent dividend
paid in common stock in 1995.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Standing, John J. Burns, Jr., President.
Seated, F.M. Kirby, Chairman of the Board.
Overall, we feel the year 1995, while not without its challenges, was a very
satisfactory one for Alleghany Corporation.
Yours sincerely,
/s/ John J. Burns, Jr. /s/ F.M. Kirby
-------------------- ---------------------
President Chairman of the Board
March 19, 1996
3
<PAGE> 4
Alleghany Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues from continuing operations $1,784,810 $1,827,105 $1,698,147 $1,548,820 $1,144,794
===============================================================================================================
Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849 $ 44,366 $ 8,100
Earnings from discontinued operations -- 69,134 16,703 20,255 55,873
Cumulative effect of accounting change -- -- -- 8,216 --
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 85,300 $ 137,506 $ 97,552 $ 72,837 $ 63,973
===============================================================================================================
Earnings per share of common stock:*
Continuing operations $ 12.07 $ 9.80 $ 11.68 $ 6.40 $ 1.17
Discontinued operations -- 9.92 2.41 2.92 8.07
Cumulative effect of accounting change -- -- -- 1.19 --
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 12.07 $ 19.72 $ 14.09 $ 10.51 $ 9.24
===============================================================================================================
Average number of shares of common stock* 7,069,226 6,971,446 6,924,900 6,927,625 6,919,747
===============================================================================================================
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet
Total assets $4,122,514 $3,587,891 $3,469,123 $2,226,637 $2,018,474
===============================================================================================================
Long-term debt $ 331,689 $ 335,073 $ 405,303 $ 352,075 $ 357,431
===============================================================================================================
Common stockholders' equity $1,320,643 $1,021,193 $ 915,734 $ 796,268 $ 724,184
===============================================================================================================
Common stockholders' equity per share
of common stock* $ 186.12 $ 144.97 $ 132.82 $ 114.80 $ 104.62
===============================================================================================================
</TABLE>
The Company acquired Ticor Title Insurance Company of California on March 8,
1991, most of the businesses of World Minerals Inc. on July 31, 1991, and
Underwriters Reinsurance Company on October 7, 1993. The Company sold The Shelby
Insurance Company on December 31, 1991 and Sacramento Savings Bank on October
31, 1994; accordingly, the operations of Shelby and Sacramento Savings have been
classified as discontinued operations.
* Restated to reflect subsequent common stock dividends.
DIVIDENDS, MARKET PRICES AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1995, there were approximately 2,300 holders of record of
Alleghany common stock. The following table indicates quarterly high and low
prices of the common stock in 1995 and 1994 on the New York Stock Exchange.
Alleghany's ticker symbol is Y.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Quarter Ended High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31 $158 $146 1/8 $146 1/2 $136 3/4
June 30 159 3/4 154 3/4 150 138 1/2
September 30 172 1/2 158 1/4 152 141
December 31 199 1/2 171 3/4 152 7/8 142 1/2
- --------------------------------------------------------------------------------
</TABLE>
In each of 1994, 1995 and 1996, Alleghany's Board of Directors declared, as
Alleghany's dividend on its common stock for that year, a stock dividend
consisting of one share of Alleghany common stock for every fifty shares
outstanding. The 1994 and 1995 stock dividends were paid in April of each of
those years.
Alleghany's ability to pay cash dividends is restricted by the terms of a
revolving credit loan agreement. At December 31, 1995, this agreement permitted
the payment of dividends aggregating approximately $135 million. At that date
about $1.172 billion of Alleghany's consolidated common stockholders' equity of
$1.320 billion was unavailable for dividends or advances to Alleghany from its
subsidiaries, due to limitations imposed by statutes and agreements with
lenders to which those subsidiaries are subject.
5
<PAGE> 5
CHICAGO TITLE AND TRUST COMPANY
Headquartered in Chicago, CT&T, through its subsidiaries, is engaged in the sale
and underwriting of title insurance, and in the real estate-related services and
financial services businesses. The CT&T Family of Title Insurers, consisting of
Chicago Title Insurance Company, Security Union Title Insurance Company and
Ticor Title Insurance Company and their respective subsidiaries, is the largest
title insurance organization in the world, with approximately 250 full-service
offices, 7,500 employees and more than 3,500 policy-issuing agents in 49 states,
Puerto Rico, the Virgin Islands, Guam and Canada.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Chicago Title and Trust Company's headquarters (center) stands out prominently
in one of its major market areas, downtown Chicago.
CT&T contributed pre-tax earnings of $46.2 million on revenues of $1.17
billion in 1995, a 30 percent drop in pre-tax earnings from 1994's pre-tax
earnings of $65.7 million on revenues of $1.35 billion. 1994 was the second best
year in CT&T's history, although 26 percent less than 1993's record pre-tax
earnings of $88.6 million on record revenues of $1.44 billion.
In the first quarter of 1994, CT&T contributed pre-tax earnings of $23.3
million, the best first quarter results in its history, reflecting record levels
of home mortgage refinancings. Then, beginning in February 1994, the Federal
Reserve Board implemented a series of increases in short-term interest rates in
an effort to forestall inflation, resulting in a significant reduction in the
volume of real estate transactions and bringing to an abrupt end one of the
longest refinancing surges in history. Based on branch office operations, it is
estimated that refinancings accounted for about 10 percent of title revenues in
1995, 13 percent of title revenues in 1994 (mostly in the first quarter), and 26
percent in 1993. The overall industry-wide decline in revenues and volume of
orders from 1993 to 1994 was the steepest downturn the industry experienced
since it began keeping those statistics in the early 1960's. While total
industry-wide results for 1995 have not been tabulated, it appears that the
decline from 1994 to 1995 may have been even steeper. Real estate market
conditions started improving in the second quarter of 1995 and continued to show
improvement throughout the year, but have not yet returned to 1993 levels, and
some areas, notably Southern California, have not improved as strongly as other
regions.
While CT&T responded quickly in 1994 and 1995 to bring costs into line with
its declining revenues, including reduction of staff, deferral of pay increases
and pay cuts for highly compensated employees, such actions were insufficient to
avoid a pre-tax loss in the
6
<PAGE> 6
first quarter of 1995 of $12 million. CT&T has continued its efforts to reduce
costs, including further staff cuts, consolidation of operations and
re-engineering of various of its operations. The benefits of expense
reductions in 1995 were offset somewhat by severance benefits of $2.6 million
paid to terminated employees.
Agency revenues are recognized by CT&T when reported by the agent and
typically lag two or three months from the time realized by the agent, as
compared with branch office operations, which are recognized upon receipt of
payment or the closing of the real estate transaction. Thus, CT&T started to
recognize increased agency revenues in the fourth quarter of 1995 reflecting
improved conditions prevailing in the third quarter of 1995. Similarly, CT&T's
1994 revenues included a larger contribution from its agency operations than in
prior years, reflecting the carryforward from 1993.
In 1995, CT&T's title insurance operations launched a program to redesign
its internal operations to better focus on customer needs and to achieve greater
operational and cost efficiencies. Title plant and production facilities are
being consolidated in certain markets to provide greater product consistency,
reduce turnaround times and reduce expenses. Technology investments are being
made to streamline workflow and to secure competitive advantages
through automation. New training programs are being developed to help agents and
employees sharpen their problem solving abilities and to heighten their
responsiveness to customer needs. Implementation of these initiatives, which is
expected in 1996, will result in a better, more cost effective alignment of the
internal operations of CT&T's title insurance operations with marketplace
demands.
Investment income totalled $58.4 million in 1995, compared with $51.4
million in 1994 and $53.6 million in 1993, reflecting higher short-term interest
rates in 1995. CT&T also recorded a pre-tax gain of $3.7 million on investment
transactions in 1995, compared with a pre-tax loss of $5.4 million in 1994 and a
pre-tax gain of $7.1 million in 1993.
The financial strength of title insurers has become an increasingly
important factor in title insurance purchase decisions, particularly in
multi-site transactions and in investment decisions regarding real
estate-related investment vehicles such as real estate investment trusts and
real estate mortgage investment conduits. CT&T's principal title insurance
subsidiaries each carries a claims-paying ability rating of "A" (an upgrade as
of October 1995 from "A-") from Standard & Poor's Corporation and a rating of
"A" from Duff & Phelps Credit Rating Co.
Real Estate-Related Services
Beginning in 1994, CT&T restructured its national operations organization to
address the increasing importance of national residential lenders and regional
and national players in the commercial market. In recent years, mortgage lenders
have made significant investments in technology to drive down costs and to
shorten the time necessary to originate a mortgage loan. Increasingly, they are
seeking cost efficiencies by requiring vendors to provide a bundle of services
and to deliver them in an electronic format which is compatible with their
automated systems. Such services include not only the traditional title
insurance and escrow services provided by CT&T, but new services such as flood
certifications, credit information and appraisals.
Two acquisitions were completed in 1995 that expanded CT&T's real
estate-related services business and improved its ability to service mortgage
lenders. In May 1995, CT&T acquired National Flood Information Services, Inc.
NFIS is based in Arlington, Texas and has provided flood certification services
since 1987. In August 1995, Alleghany acquired Credit Data Reporting Services,
Inc. in an exchange of stock, and subsequently contributed the stock of CDRS to
CT&T. CDRS is headquartered in Kingston, New York and has been in the credit
reporting business since 1941.
7
<PAGE> 7
Federal law requires that lenders check flood maps maintained by the Federal
Emergency Management Agency to determine whether a parcel of real property
pledged to secure a loan is in a flood hazard zone. NFIS has the ability to
check the flood zone status of any property located in the United States. In
1995, Congress instituted a new requirement that lenders monitor the flood zone
status of a mortgaged property for the life of the loan, significantly
increasing the demand for the services of flood zone determination companies. To
efficiently handle the increased demand, NFIS recently developed a proprietary
system which can determine the flood zone status of many properties on an
automated basis.
[DIAGRAM -- SEE EDGAR APPENDIX]
PROPERTY TRANSACTION
Qualification
Credit Report
Appraisal
Flood Certification
Title Search
Escrow
Insurance
Closing
Diagram Caption:
Chicago Title and Trust is now able to provide under one roof a range of real
estate transaction services that previously required customers to deal with a
number of independent agencies.
Mortgage credit reporting is a specialized task in that the secondary market
requires the obtaining and merging of credit information from at least two of
the three nationally recognized repositories of such information. CDRS has
developed a state-of-the-art proprietary system which can receive an order;
obtain, edit and merge credit information from each of the three national
repositories; and report back to the lending institution in a matter of seconds
without human intervention. CDRS can also perform the investigative work
required to verify items appearing on a borrower's mortgage loan application
(e.g., employment, financial assets and disputed credit items).
In addition to these two new businesses, CT&T's National Mortgage Services
unit maintains a network of 750 state-licensed contract appraisers covering all
50 states. Through this network, NMS offers a full array of property appraisal
products for first and second mortgage residential loans. Property appraisals
for commercial properties are also available on a limited basis.
To meet the demands of the marketplace for new real estate-related services,
in 1995 CT&T formed a separate business unit, which includes NFIS, CDRS and NMS.
This business unit has responsibility for coordinating the production and
delivery of flood certifications, credit information and appraisals on a
nationwide basis.
Financial Services
CT&T's Financial Services Group was restructured during 1995 under a new CT&T
subsidiary named Alleghany Asset Management, Inc. The financial services
businesses conducted directly by CT&T were transferred to a recently acquired
Illinois trust company renamed The Chicago Trust Company, which became a
subsidiary of Alleghany Asset Management. Also transferred to Alleghany Asset
Management were Montag & Caldwell,
8
<PAGE> 8
Inc., an Atlanta-based investment counseling firm acquired in July 1994, and
The Chicago Deferred Exchange Corporation, which facilitates certain tax-
deferred property exchanges.
The following are the significant lines of business within the Financial
Services Group:
Institutional Investment Management - manages equity, fixed income, and
balanced accounts primarily for employee benefit plans, foundations, endowments,
corporations, insurance companies and Taft-Hartley plans.
Retirement Trust Resources - administers 401(k) plans, profit sharing plans,
matching savings plans and money purchase pensions, and provides consulting
services, for mid-sized companies primarily in the Midwest and South.
Personal Trust and Investment Services - provides investment management and
trust and estate planning services primarily for accounts in the $250,000 to $50
million range.
Real Estate Trust Services - offers land trusts, which permit real estate to
be conveyed to a trustee while reserving to the beneficiaries the full
management and control of the property. This group also facilitates tax-deferred
exchanges of income-producing real property.
[DIAGRAM -- SEE EDGAR APPENDIX]
Chicago Title and Trust Company
Financial Services:
Alleghany Asset Management, Inc.
The Chicago Trust Company
Montag & Caldwell
Chicago Deferred Exchange Corporation
Title Operations:
Chicago Title
Ticor Title
Security Union
CT&T Funds - a mutual fund family which offers the following eight no-load,
open-end mutual funds to the general public:
- - Chicago Trust Growth and Income Fund
- - Montag & Caldwell Growth Fund
- - Chicago Trust Talon Fund
- - Montag & Caldwell Balanced Fund
- - Chicago Trust Bond Fund
- - Chicago Trust Municipal Bond Fund
- - Chicago Trust Money Market Fund
- - Chicago Trust Asset Allocation Fund
CT&T's Financial Services Group, which includes Montag & Caldwell results
commencing August 1994, posted pre-tax earnings of $11.5 million on revenues of
$42.9 million in 1995, compared with pre-tax earnings of $8.2 million on
revenues of $31.7 million in 1994, and pre-tax earnings of $7.6 million on
revenues of $26.5 million in 1993. As of December 31, 1995, Alleghany Asset
Management, through its subsidiaries, managed approximately $10.3 billion in
assets.
9
<PAGE> 9
UNDERWRITERS REINSURANCE COMPANY
Underwriters, headquartered in Woodland Hills, California, provides reinsurance
to property and casualty insurers and reinsurers. Although it writes many lines
of business, Underwriters concentrates on coverages requiring specialized
underwriting expertise and a high degree of actuarial analysis. Underwriters is
licensed in 37 states, Puerto Rico and the District of Columbia, is authorized
to engage in business in three additional states and Canada, and has branch
offices in Atlanta, Chicago, Houston, New York and Woodland Hills.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Transportation by air, land and sea is a major market for Underwriters.
Underwriters also provides coverages for professionals, municipalities and
manufacturers of consumer products.
Underwriters contributed pre-tax earnings of $24.8 million on revenues of
$322.2 million in 1995 compared with $8.6 million on revenues of $225.4 million
in 1994. After its acquisition by Alleghany on October 7, 1993, Underwriters
contributed pre-tax earnings of $3.0 million on revenues of $40.7 million in the
remaining three months of 1993. Underwriters' results in 1995 reflect increased
business, including a 61 percent, or $87 million, increase in treaty net written
premiums from 1994, without a proportional increase in operating expenses, and
an absence of significant catastrophe losses. Underwriters believes the increase
in premiums is at least partly attributable to the increase in its surplus level
and upgraded rating, as described below, enabling it to attract a broader range
of reinsurance opportunities. Investment income totalled $50.2 million in 1995,
compared with $41.2 million in 1994 and $10.4 million for the three months ended
December 31, 1993, reflecting an increase in invested assets. The 1994 results
reflect a charge (before reinsurance recoveries and taxes) of about $5.0 million
for estimated losses associated with the earthquake in Northridge, California in
January of that year. In addition, Underwriters recorded pre-tax losses of $5.5
million on investment transactions during 1995, compared with $6.1 million for
1994 and $2.4 million for the three months ended December 31, 1993. Most of the
losses in 1995 and 1994 were due to portfolio restructurings to respond to
changes in interest rates and the writedown in the fourth quarter of 1995 of the
carrying value of an investment which was downgraded.
To enhance Underwriters' financial strength, Alleghany, through the holding
company which owns Underwriters, contributed to the capital of Underwriters
approximately $51 million in cash and shares of Armco Inc. common stock in 1993
and $100 million in shares of Santa Fe Pacific Corporation common stock in 1994
(now Burlington Northern Santa Fe Corporation). As of December 31, 1995,
Underwriters' statutory surplus was $458 million, making Underwriters the
eleventh largest domestic professional reinsurer in terms of statutory surplus
at 1995 year-end, according to the Reinsurance Association of America.
In 1995, in recognition of Underwriters' enhanced financial strength and
consistent performance, A.M. Best Company, Inc. upgraded Underwriters' rating
from "A (Excellent)" to "A+ (Superior)." Underwriters also
10
<PAGE> 10
received an initial claims-paying ability rating of "AA- (Excellent)" from
Standard & Poor's in 1995.
Underwriters' enhanced financial strength has allowed it to benefit from the
continuing trend toward consolidation in the domestic reinsurance market,
resulting from the tendency of reinsurance buyers to purchase coverage from
larger and more financially secure reinsurers.
Underwriters provides reinsurance coverages on both a treaty basis (pursuant
to a standing agreement with a reinsured to reinsure a specified amount of all
risks originally underwritten by the reinsured) and a facultative basis
(pursuant to a contract issued to cover specific risks). Treaty operations,
conducted primarily by headquarters staff, represented 83 percent of 1995 net
reinsurance premiums written; facultative underwriting, most of which was done
at the branch offices, accounted for the balance.
Underwriters writes a significant portion of its reinsurance business
through brokers and the remainder of its business directly with reinsureds. As a
result, Underwriters does not need to maintain a large sales organization which,
during periods of reduced premium volume, could comprise a significant and
non-productive part of overhead. In addition, Underwriters believes that
submissions from the broker market, particularly certain targeted specialty
coverages, are more numerous and diverse than would be available through a
salaried sales organization, and Underwriters is able to exercise greater
selectivity than would usually be possible in dealing directly with reinsureds.
Underwriters maintains a disciplined underwriting strategy with a focus on
generating profitable business rather than on increasing market share. An
important element of this strategy is to respond quickly to market opportunities
(such as increased demand or more favorable pricing) by adjusting the mix of the
different lines of property and casualty business it writes. Underwriters writes
certain unusual professional, environmental, directors and officers' liability
and catastrophe coverages, again in the belief that these coverages offer
greater potential for favorable results than more general coverages, based upon
current premium rates. Underwriters has maintained a defensive underwriting
posture by withdrawing from certain other lines of business that it considers
offer inadequate contract terms.
To capitalize on advantageous market conditions for certain primary
insurance business lines and on Underwriters' expertise in specialized
coverages, Underwriters established Commercial Underwriters Insurance Company in
late 1992, and acquired Underwriters Insurance Company in late 1994. Commercial
Underwriters is a property and casualty insurance company that focuses on
specialized primary insurance lines in California on an admitted basis and in
other states on an approved non-admitted basis. Underwriters Insurance is a
property and casualty insurance company licensed in 33 states and the District
of Columbia that will initially focus on primary and umbrella liability policies
for medium- to large-sized businesses. Commercial Underwriters and Underwriters
Insurance are also rated "A+ (Superior)" by Best's.
[GRAPH -- SEE EDGAR APPENDIX]
REVENUES AND PRE-TAX EARNINGS ($ in millions)
<TABLE>
<CAPTION>
Year Revenues Pre-tax Earnings
- ---- -------- ----------------
<S> <C> <C>
'95 $322.2 24.8
'94 225.4 8.6
'93 (results for three months) 40.7 3.0
</TABLE>
[GRAPH -- SEE EDGAR APPENDIX]
POLICY HOLDER SURPLUS ($ in millions)
<TABLE>
<S> <C>
'95 $458.0
'94 361.0
'93 250.0
</TABLE>
To capitalize on the considerable expertise of certain individuals in
handling specialized classes of primary business, Underwriters established The
Underwriting Center, Inc. in 1995. The Underwriting Center will underwrite
business on behalf of Commercial Underwriters, Underwriters Insurance and, to a
lesser extent, non-affiliated insurers. Underwriters will reinsure a significant
portion of the primary insurance written by The Underwriting Center.
Property and casualty reinsurance comprised about 28 percent and 63 percent,
respectively, of Underwriters' net premiums written in 1995, with primary
property and casualty insurance comprising the remainder.
11
<PAGE> 11
WORLD MINERALS INC.
World Minerals, headquartered in Lompoc, California, conducts a worldwide
industrial minerals business through its subsidiaries, Celite Corporation,
Harborlite Corporation and Europerlite Acquisition Corporation.
World Minerals contributed pre-tax earnings of $26.1 million on revenues of
$178.7 million in 1995, compared with $18.2 million on revenues of $162.6
million in 1994 and $8.2 million on revenues of $149.5 million in 1993. The
increase in revenues in 1995 was due to strong economic activity in markets
served by World Minerals, the benefits of price increases, and strategic
acquisitions, which accounted for just over one-half of such revenue increase.
Pre-tax earnings in 1995 were favorably impacted not only by higher sales, but
also by improved production efficiencies and other cost reduction measures at
most locations.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
World Minerals' surface-mining operation at Lompoc, California, is the
world's largest diatomite mine.
In contrast to 1993, which was characterized by sluggish demand in virtually
all market sectors, 1994 and 1995 were periods of resurgent economic activity in
the United States, Europe and Latin America. This occurred at a time when World
Minerals was positioned to take advantage of economic growth as a result of
programs instituted by management from 1991 through 1993 that strengthened the
organization. Financial systems and controls have been upgraded, and the Celite,
Harborlite and Europerlite sales forces have been consolidated to improve
efficiency and to take advantage of synergies.
Celite is believed to be the world's largest producer of filter-aid grade
diatomite, a silica-based mineral consisting of the fossilized remains of
microscopic freshwater or marine plants. Diatomite is used as a filter aid in
the production of beer, food, juice, wine, water, sweeteners, fats and oils,
pharmaceuticals, chemicals, lubricants and petroleum; it is used as a filler,
mainly in paints, and as an anti-block agent in plastic film.
Celite is also a producer of calcium and magnesium silicate products, which
are used to convert liquid, semi-solid and sticky ingredients into dry,
free-flowing powders in the production of rubber, sweeteners, flavorings and
pesticides.
World Minerals believes that Harborlite and Europerlite together constitute
the world's largest producer
12
<PAGE> 12
of perlite filter aids and that Harborlite, which is also engaged in the
business of selling perlite ore, is the world's largest merchant producer of
perlite ore, a volcanic rock containing a small amount of water that causes the
ore to "pop" when heated, expanding it up to twenty times its original volume.
Harborlite sells perlite ore to companies that expand it for use primarily in
the manufacture of roofing board, formed pipe insulation, acoustical ceiling
tile and filter aids. Harborlite and Europerlite also expand perlite in their
own expansion plants in the United States and Europe. Most of this expanded
perlite is sold as a filter aid to companies in the brewing, food, wine,
sweetener, pharmaceutical, chemical and lubricant industries, or as a filler and
insulating medium to companies in the construction industry.
World Minerals enhanced its position in the diatomaceous earth mining
business during 1995 through the strategic investment by Celite in mining,
processing and distribution facilities in China and South Korea. Its China
operations consist of controlling interests through various subsidiaries of
Celite in three joint ventures which are engaged in the mining and processing of
diatomite in Jilin Province, China. Two of the joint ventures are in the
start-up phase of production and the third is under construction; World Minerals
does not expect them to add significantly to revenues in 1996.
During 1995, World Minerals' position in the perlite business was enhanced
by the acquisition by Harborlite of perlite ore reserves in Dikili, Turkey, the
construction of a new expansion plant in Youngsville, North Carolina, and the
acquisition by Europerlite of perlite expansion plants in Barcelona, Spain and
Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining or
processing operations in ten countries. While World Minerals believes that the
international scope of its operations gives it unique competitive advantages,
international operations can be subject to additional risks, such as currency
fluctuations, changes in foreign legal requirements and political instability.
World Minerals closely monitors its methods of operating in each country and
adopts strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency
fluctuation by, among other things, having its foreign subsidiaries declare and
pay dividends whenever feasible and invoice their export customers in United
States dollars or other "hard currencies."
[GRAPH -- SEE EDGAR APPENDIX]
REVENUES ($ in millions)
'95 $178.7
'94 162.6
'93 149.5
'92 141.1
'91 (results for five months) 53.0
[GRAPH -- SEE EDGAR APPENDIX]
PRE-TAX EARNINGS ($ in millions)
'95 $26.1
'94 18.2
'93 8.2
'92 11.6
'91 (results for five months) 6.1
During 1995, World Minerals' largest domestic customer began installing
centrifuges in its breweries, which will decrease its use of diatomite as a
filter aid for the brewing of beer. Many beer producers in the United States use
centrifuges in the filtration of beer. World Minerals believes that new business
opportunities and new product applications will more than offset this expected
future loss of business.
13
<PAGE> 13
HEADS AND THREADS
The Heads and Threads division of Alleghany, headquartered in Northbrook,
Illinois, is believed to be the nation's leading distributor of imported steel
fasteners. Nuts, bolts, screws, washers and other fasteners are imported and
resold to fastener manufacturers and distributors through a network of sales
offices and warehouses located in sixteen states. The strength of Heads and
Threads lies in its five major warehouses and fourteen regional satellite
warehouses, and its long years of association with suppliers and customers.
Heads and Threads has been consistently profitable since its acquisition by
Alleghany in 1974, despite the cyclical nature of its business and changing
market conditions. Its earnings contribution to Alleghany increased in each
of the years 1993 and 1994, with the latter year being the highest since 1979.
The contribution in 1995 was lower than 1994's record level due to LIFO
inventory adjustments and, to a lesser extent, lower sales.
Since Heads and Threads imports virtually all of its fasteners, its costs
are subject to fluctuations in foreign currency and import duties. Costs will
also be impacted by regulations implementing the Fastener Quality Act, which are
to become effective in 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION
Alleghany became the second largest shareholder of Burlington Northern Santa Fe
Corporation on September 22, 1995, when the merger of Burlington Northern Inc.
and Santa Fe Pacific Corporation became effective. Alleghany currently owns
approximately 7.43 million common shares of BNSF.
Because of its end-to-end nature, the merger that created BNSF provides
shippers with extended single-line service, while creating new market
opportunities for their products. BNSF's diverse product mix, extensive
geographic coverage and cost-saving opportunities ensure that it is
well-positioned to meet the needs of shippers who require greater transportation
value.
BNSF, which employs about 45,000 people, owns the largest rail network in
North America, providing transportation services to shippers throughout the
western two-thirds of the United States as well as to Canada and Mexico.
[MAP -- SEE EDGAR APPENDIX]
BNSF has a strong portfolio with a diversified, balanced traffic mix. About
25 percent of its combined revenues are derived from transporting coal. In 1995,
a record 204 million tons of coal were carried, most of it low-sulphur coal from
the Powder River Basin of Wyoming and Montana. Another 25 percent of revenues
come from intermodal shipments. More than 2.5 million trailers and containers,
another record, were moved in 1995. About 15 percent of revenues are derived
from transporting agricultural commodities, primarily corn, wheat and soybeans,
and in 1995, a record 663,000 carloads were moved. Shipment of automobiles,
foods, beverages, forest products, chemicals, minerals and metals accounted for
the remaining 35 percent of revenues.
For 1995, BNSF generated $1.576 billion in combined operating income,
excluding unusual items, 32 percent better than 1994. The combined operating
ratio, a standard measure used by railroads of operating expenses divided by
revenues, improved 3.8 points to 80.7 in 1995.
In 1996, BNSF expects to have a capital program approaching $1.7 billion to
support its efforts to increase revenues and reduce operating costs. Of this,
about $1.1 billion will be spent to maintain and upgrade the BNSF franchise, and
more than $500 million is slated for capacity expansion projects at key
locations across the network.
A copy of the Burlington Northern Santa Fe Corporation 1995 Annual Report
may be obtained free of charge by written request to the Secretary of Alleghany
Corporation, 375 Park Avenue, New York, NY 10152.
14
<PAGE> 14
FINANCIAL CONDITION
In recent years, Alleghany has followed a policy of maintaining a relatively
liquid financial condition, in the form of cash, marketable securities,
available credit lines and minimal amounts of debt at the parent company. This
has permitted Alleghany to expand its operations through internal growth at its
subsidiaries and through acquisitions or substantial investments in well-managed
operating companies.
On November 6, 1995, Alleghany redeemed its $59.6 million aggregate
principal amount of 6-1/2% Subordinated Exchangeable Debentures due 2014 and
disposed of common shares of American Express Company into which such Debentures
were exchangeable, resulting in net gains to Alleghany of $23.6 million.
During 1994 and early 1995, with temporary borrowings under Alleghany's
revolving credit agreement, the proceeds from the sale of Sacramento Savings
Bank, as described below, and cash on hand, Alleghany and its subsidiaries
acquired about 18.06 million shares, or 11.8 percent of the outstanding common
stock of Santa Fe Pacific Corporation ("Santa Fe"). On September 22, 1995, Santa
Fe and Burlington Northern Inc. merged under a new holding company named
Burlington Northern Santa Fe Corporation ("BNSF"). As a result of the merger,
18.06 million shares of Santa Fe beneficially owned by Alleghany were converted
into about 7.43 million shares of BNSF, or about 5.2 percent of BNSF's
outstanding common stock. As of March 1, 1996, such 7.43 million shares had an
aggregate market value of approximately $593.6 million, or $79.875 per BNSF
share. The aggregate cost of such shares was approximately $253.7 million, or
$34.15 per BNSF share.
As of March 1, 1996, Alleghany and its subsidiaries owned about 5.64
million shares of Armco Inc., or about 5.3 percent of Armco's outstanding
common stock.
Alleghany has declared stock dividends in lieu of cash dividends every year
since 1987, which have helped to conserve Alleghany's financial strength and, in
particular, the liquid assets available to finance internal growth and operating
company acquisitions and investments. On April 26, 1996, Alleghany will pay to
stockholders of record on April 1, as its dividend on its common stock for 1996,
a dividend of one share of Alleghany common stock for every 50 shares
outstanding.
In addition to its liquid financial assets, Alleghany has a revolving credit
agreement with a bank which provides a commitment for revolving credit loans in
an aggregate principal amount of $200 million. Borrowings have been repaid
promptly in order to keep the facility available for future acquisitions. No
amounts were outstanding under this facility at 1995 or 1994 year-end. This
agreement was renewed in June 1995 and will mature in July 2000.
Alleghany has announced that it may purchase shares of its common stock in
open market transactions from time to time. In 1995, Alleghany purchased an
aggregate of 44,523 shares of its common stock for about $7.6 million, at an
average cost of about $171 per share. In 1994, Alleghany purchased an aggregate
of 69,509 shares of its common stock for about $10.1 million, at an average cost
of about $146 per share.
At December 31, 1995, about $148 million of the equity of Alleghany's
subsidiaries was available for dividends or advances to Alleghany. CT&T's
availability of funds for dividends, however, may be further restricted by
limitations imposed by statutes to which its subsidiaries are subject. At that
date about $1.172 billion of Alleghany's equity of $1.320 billion was
unavailable for dividends or advances to Alleghany from its subsidiaries, due to
limitations imposed by statutes and agreements with lenders to which those
subsidiaries are subject. These limitations have not affected Alleghany's
ability to meet its obligations.
CT&T
Financial strength is also a high priority of Alleghany's subsidiaries, whose
assets stand behind their financial commitments to their customers and vendors.
The financial strength of CT&T is illustrated by the following statistics from
its insurance regulatory filings. CT&T's combined statutory premium reserves
increased to $377.4 million in 1995 from $376.0 million in 1994. Incurred claims
were $75.2 million in 1995, representing a decline of 7.0 percent from the
preceding year. CT&T's combined surplus as regards policyholders was $159.6
million in 1995, an increase of $2.9 million from $156.7 million in 1994.
Combined cash and marketable securities were $568.8 million in 1995,
representing a decrease of about $51.3 million from 1994 levels.
CT&T paid cash dividends to Alleghany totalling $29.5 million in 1995 and
$66.5 million in 1994.
Title insurance loss reserves at 1995 year-end totalled $529.9 million
(based on generally accepted accounting principles), the highest level ever
and eight times the estimated amount of claims then in process. In this regard,
CT&T is reviewing its reserves to determine whether they should be reduced.
Any reduction in reserves would result in an increase in CT&T's net earnings.
At December 31, 1995, CT&T's investment portfolio had a market value of
$832.3 million and consisted primarily of short and intermediate maturity
investment grade rated debt securities. Modest investment is made in preferred
stocks, convertible and lower quality bonds, and publicly traded equity
securities, including 82,286 shares of BNSF common stock with a market value of
$6.6 million at March 1, 1996. A relatively short average portfolio maturity is
maintained so that investment income responds to changes in the level of
interest rates,
16
<PAGE> 15
offsetting to some degree the cyclicality of title insurance
operations. Overall portfolio quality is maintained at a Moody's rating of Aa3
or higher, with over 97 percent of all securities rated investment grade by
Moody's and less than one percent in derivative instruments as of 1995 year-end.
As of December 31, 1995, $50 million was outstanding under a loan agreement
among CT&T and several banks. The loan calls for annual principal payments, with
final maturity in December 2000.
Underwriters
In October 1993, Alleghany acquired Underwriters for a purchase price of about
$201 million in cash. After the acquisition, Alleghany, through the holding
company which owns Underwriters, contributed to the capital of Underwriters
approximately $51 million in cash and shares of Armco common stock in 1993 and
$100 million in shares of Santa Fe common stock in 1994 (now BNSF). As of
December 31, 1995, Underwriters' statutory surplus was $458 million.
At December 31, 1995, Underwriters' investment portfolio had a market value
of $1.1 billion and consisted primarily of high quality fixed-maturity
securities and about 2.5 million shares of BNSF common stock with a market value
of $197.5 million at March 1, 1996.
Over 98 percent of Underwriters' portfolio of long-term fixed-maturity
securities was rated investment grade by Moody's as of December 31, 1995.
Underwriters' portfolio contains no investments of a derivative nature.
During 1995, Underwriters decreased its long-term indebtedness under a
credit agreement with several banks from $66 million to $50 million. The
principal amount outstanding is required to be reduced periodically, with final
maturity in December 1998.
World Minerals
In March 1995, World Minerals amended its credit facility with three banks to
increase the combined borrowing and letter of credit limit from $64 million to
$117 million, to lower the effective borrowing rate, and to incorporate less
stringent debt covenant requirements. As of December 31, 1995, $88 million of
indebtedness and $6.2 million of letters of credit were outstanding. The
principal amount outstanding is required to be reduced periodically, with final
maturity in December 1999.
During 1995, Alleghany, through the holding company which owns World
Minerals, contributed $30 million to the capital of World Minerals. Aided by
such contribution, World Minerals, through its subsidiary Celite, made strategic
investments in diatomaceous earth mining and processing facilities in China and,
through its subsidiary Europerlite, acquired perlite expansion plants in Spain
and Italy.
API
On October 31, 1994, Alleghany completed the sale of Sacramento Savings Bank
("Sacramento Savings") and an ancillary company to First Interstate Bank of
California for $331 million in cash.
As part of the sale of Sacramento Savings, Alleghany, through its wholly
owned subsidiary Alleghany Properties, Inc. ("API"), purchased real estate and
real estate-related assets of Sacramento Savings for about $116 million.
Alleghany's intention with respect to such assets, the bulk of which is raw
land, is to dispose of them in an orderly fashion, which may take several years.
Accordingly, and in recognition that no general loss reserves of Sacramento
Savings were transferred, Alleghany reduced the carrying value of such assets by
about $20 million, net of related tax benefits. API is Alleghany's only
subsidiary holding substantial passive real estate investments.
On February 23, 1995, API issued $50 million aggregate principal amount of
8.62 percent senior notes due 2000 (the "Notes"). The Notes will be repaid in
five equal annual principal amortization payments beginning on the first
anniversary of the issuance of the Notes. A portion of the proceeds from the
sale of the Notes was used to pay a dividend of $37 million to Alleghany and to
repay outstanding indebtedness of a subsidiary of API in the amount of $8
million; the balance was used for API's working capital. On February 23, 1996,
API made its first principal payment on the Notes, including interest accrued
thereon, in the amount of $12.2 million.
As of December 31, 1995, API held 57 loans and properties having a total
book value of approximately $80.1 million, as compared to 89 loans and
properties having a total book value of approximately $90.1 million as of
October 31, 1994 (the date the assets were purchased by API).
Heads and Threads
Heads and Threads has a credit facility with a bank providing for letters of
credit totalling up to $25 million.
Alleghany management believes that Alleghany and its subsidiaries have and
will have adequate internally generated funds, cash resources and unused credit
facilities to provide for the currently foreseeable needs of its and their
businesses. Alleghany and its subsidiaries have no material commitments for
capital expenditures.
17
<PAGE> 16
Alleghany Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Available for sale securities
Fixed maturities (amortized cost: 1995 $1,677,476; 1994 $1,655,437) $1,699,782 $1,578,514
Equity securities (cost: 1995 $308,210; 1994 $262,292) 637,956 357,220
- --------------------------------------------------------------------------------------------------------
2,337,738 1,935,734
- --------------------------------------------------------------------------------------------------------
Cash 178,068 107,942
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 301,290 211,451
Title records and indexes 155,170 156,293
Property and equipment - at cost, less accumulated depreciation and amortization 272,289 202,918
Reinsurance receivable 399,783 422,683
Net deferred tax asset -- 99,362
Other assets 386,640 359,972
- --------------------------------------------------------------------------------------------------------
$4,122,514 $3,587,891
========================================================================================================
Liabilities and Common Stockholders' Equity
Title losses and other claims 530,986 537,073
Property and casualty losses and loss adjustment expenses 1,014,000 940,527
Other liabilities 538,750 436,180
Long-term debt of parent company -- 59,600
Long-term debt of subsidiaries 331,689 275,473
Net deferred tax liability 21,659 --
Trust and escrow deposits secured by pledged assets 364,787 317,845
- --------------------------------------------------------------------------------------------------------
Total liabilities 2,801,871 2,566,698
Commitments and contingent liabilities
Common stockholders' equity
(common shares authorized: 1995 and 1994 - 22,000,000;
common shares issued and outstanding: 1995 - 7,095,646; 1994 - 7,044,407) 1,320,643 1,021,193
- --------------------------------------------------------------------------------------------------------
$4,122,514 $3,587,891
========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE> 17
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Title premiums, escrow and trust fees $1,110,540 $1,306,708 $1,379,463
Net reinsurance premiums earned 277,507 190,279 32,703
Interest, dividend and other income 183,516 158,950 122,009
Net mineral and filtration sales 177,185 162,427 148,719
Net gain on investment transactions 36,062 8,741 15,253
- ------------------------------------------------------------------------------------------------------
Total revenues 1,784,810 1,827,105 1,698,147
- ------------------------------------------------------------------------------------------------------
Costs and expenses
Salaries, commissions and other employee benefits 859,839 982,324 973,172
Administrative, selling and other operating expenses 350,341 339,078 330,441
Provisions for title losses and other claims 87,076 98,185 126,329
Property and casualty loss and loss adjustment expenses 203,108 153,056 25,131
Cost of mineral and filtration sales 113,149 109,433 107,846
Interest expense 28,982 29,285 28,828
Corporate administration 21,239 22,750 16,897
- ------------------------------------------------------------------------------------------------------
Total costs and expenses 1,663,734 1,734,111 1,608,644
- ------------------------------------------------------------------------------------------------------
Earnings from continuing operations, before income taxes 121,076 92,994 89,503
Income taxes 35,776 24,622 8,654
- ------------------------------------------------------------------------------------------------------
Earnings from continuing operations 85,300 68,372 80,849
Discontinued operations
Earnings from discontinued operations, net of tax -- 6,265 16,703
Gain on sale of Sacramento Savings, net of tax -- 62,869 --
- ------------------------------------------------------------------------------------------------------
Net earnings $ 85,300 $ 137,506 $ 97,552
- ------------------------------------------------------------------------------------------------------
Earnings per share of common stock:*
Continuing operations $ 12.07 $ 9.80 $ 11.68
Discontinued operations -- 0.90 2.41
Gain on sale of Sacramento Savings -- 9.02 --
- ------------------------------------------------------------------------------------------------------
Net earnings $ 12.07 $ 19.72 $ 14.09
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Restated to reflect subsequent common stock dividends.
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE> 18
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized
Appreciation Total
(Depreciation) Cumulative Common
Common Contributed of Treasury Retained Translation Stockholders'
(in thousands, except share amounts) Stock Capital Securities Stock Earnings Gain (Loss) Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $6,638 $433,272 $ 1,146 $ (8,382) $364,385 $ (791) $ 796,268
(7,044,020 shares of common
stock issued; 107,954 in treasury)*
Add (deduct):
Net earnings -- -- -- -- 97,552 -- 97,552
Purchase of treasury shares -- -- -- (7,897) -- -- (7,897)
Performance share plan distributions -- 322 -- 966 -- -- 1,288
Common stock dividend 130 17,450 -- -- (17,716) -- (136)
Stock purchase plan distributions -- 51 -- 550 -- -- 601
Cumulative translation loss -- -- -- -- -- (2,042) (2,042)
Change in unrealized appreciation of
investments, net** -- -- 30,100 -- -- -- 30,100
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 6,768 451,095 31,246 (14,763) 444,221 (2,833) 915,734
(7,040,926 shares of common
stock issued; 146,601 in treasury)*
Add (deduct):
Shares issued in pooling 212 850 -- -- 838 -- 1,900
Net earnings -- -- -- -- 137,506 -- 137,506
Purchase of treasury shares -- -- -- (10,127) -- -- (10,127)
Performance share plan distributions -- 24 -- 620 -- -- 644
Common stock dividend -- 4,601 -- 13,834 (18,556) -- (121)
Stock purchase plan distributions -- 12 -- 34 -- -- 46
Cumulative translation loss -- -- -- -- -- (4,849) (4,849)
Change in unrealized appreciation of
investments, net -- -- (19,540) -- -- -- (19,540)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,980 456,582 11,706 (10,402) 564,009 (7,682) 1,021,193
(7,119,890 shares of common
stock issued; 75,483 in treasury)*
Add (deduct):
Shares issued in pooling 79 4,401 -- -- -- -- 4,480
Net earnings -- -- -- -- 85,300 -- 85,300
Purchase of treasury shares -- -- -- (7,605) -- -- (7,605)
Performance share plan distributions -- 260 -- 2,279 -- -- 2,539
Common stock dividend 100 16,400 -- 5,318 (21,939) -- (121)
Stock purchase plan distributions -- 29 -- 236 -- -- 265
Cumulative translation loss -- -- -- -- -- (2,536) (2,536)
Change in unrealized appreciation of
investments, net -- -- 217,128 -- -- -- 217,128
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $7,159 $477,672 $228,834 $(10,174) $627,370 $ (10,218) $1,320,643
(7,159,256 shares of common
stock issued; 63,610 in treasury)
===============================================================================================================================
</TABLE>
*Adjusted to reflect subsequent common stock dividends.
**Includes the effect of the adoption of FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," of $30,249, net.
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE> 19
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31,
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 44,148 44,778 38,916
Net gain on investment transactions (36,062) (8,741) (15,253)
Other charges to continuing operations, net 1,836 6,827 5,582
Increase in funds held, accounts and other receivables (89,839) (29,193) (3,644)
Decrease (increase) in reinsurance receivable 22,900 (68,780) 9,614
(Decrease) increase in title losses and other claims (6,087) 3,883 20,738
Increase (decrease) in property and casualty loss and
loss adjustment expenses 73,473 79,323 (10,040)
Increase (decrease) in other assets 75,210 (11,428) 1,202
Increase in other liabilities 1,011 5,527 29,198
Increase (decrease) in trust and escrow deposits 46,942 (35,169) 40,237
- ----------------------------------------------------------------------------------------------------------
Net adjustments 133,532 (12,973) 116,550
- ----------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 218,832 55,399 197,399
Cash provided by discontinued operations -- 5,502 6,095
- ----------------------------------------------------------------------------------------------------------
Cash provided by operations 218,832 60,901 203,494
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of investments (718,751) (929,961) (1,531,866)
Maturities of investments 208,809 139,156 326,283
Sales of investments 468,683 634,385 1,201,956
Purchases of property and equipment (41,469) (30,541) (38,249)
Disposition of property and equipment 5,727 4,397 2,023
Net sales (purchases) of title records and indexes 1,123 (1,172) 4,390
Proceeds from sale of Sacramento Savings, net of expenses -- 316,348 --
Purchase of real estate and real estate related assets -- (116,089) --
Net assets acquired in pooling 4,480 1,900 --
Purchase of mining operations and other acquisitions (82,043) -- --
Purchase of Underwriters Re -- -- (203,865)
Cash of purchased subsidiaries 15,580 -- 10,159
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (137,861) $ 18,423 $ (229,169)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 20
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Years Ended December 31,
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Principal payments on long-term debt $(167,274) $(379,818) $ (33,081)
Proceeds of long-term debt 163,890 309,472 1,050
Purchase of treasury shares (7,605) (10,127) (7,897)
Common stock distributions 144 (75) 1,753
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (10,845) (80,548) (38,175)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash 70,126 (1,224) (63,850)
Cash at beginning of year 107,942 109,166 173,016
- ---------------------------------------------------------------------------------------------
Cash at end of year $ 178,068 $ 107,942 $ 109,166
=============================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 26,943 $ 28,038 $ 28,139
Income taxes $ 19,161 $ 49,526 $ 55,539
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE> 21
Alleghany Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles
a. Principles of Financial Statement Presentation.
Alleghany Corporation, a Delaware corporation ("Alleghany" or together with its
subsidiaries, the "Company") owns Chicago Title and Trust Company ("CT&T") whose
principal subsidiaries are Chicago Title Insurance Company ("CTI"), Security
Union Title Insurance Company ("Security Union"), Ticor Title Insurance Company
("Ticor Title"), and Alleghany Asset Management, Inc.; Alleghany Funding
Corporation ("AFC"); World Minerals Inc. ("World Minerals"); URC Holdings Corp.
("Underwriters Re") whose principal subsidiaries are Underwriters Reinsurance
Company ("Underwriters Reinsurance"), Commercial Underwriters Insurance Company
("CUIC") and Underwriters Insurance Company ("UIC"); and Alleghany Properties
Inc. ("API"). Sacramento Savings Bank ("Sacramento Savings") was sold on October
31, 1994, and accordingly its operations are shown as discontinued operations
for all periods presented. See Note 3.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include the
accounts of Alleghany and its subsidiaries. All significant intercompany items
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Such estimates and
assumptions include those associated with estimating title insurance loss
reserves which involve interpretations of varying real estate laws and inherent
uncertainties primarily due to the long-term nature of the business. Estimates
and assumptions associated with property and casualty loss reserves include
inherent uncertainties primarily due to the long-term nature of most reinsurance
business, the diversity of development patterns among different lines of
business and types of reinsurance, and the necessary reliance on the ceding
company for information regarding claims. Actual results could differ from those
estimates.
b. Investments.
Marketable investment securities at December 31, 1995 and 1994 consist of U.S.
Treasury securities, obligations of U.S. government agencies, municipal
obligations, mortgage-backed securities, corporate debt securities, certificates
of deposit, and equity securities. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993. Under Statement
No. 115, the Company classifies its debt and marketable equity securities into
one of three categories: trading, available for sale, or held to maturity.
Trading securities are bought and held principally for the purpose of selling
them in the near term. Held to maturity securities are those fixed maturity
securities which the Company has the ability and intent to hold until maturity.
Securities held for indefinite periods of time which may not be held to maturity
are classified as available for sale.
All securities are classified as available for sale securities and recorded
at fair value. Unrealized holding gains and losses, net of the related tax
effect, on available for sale securities are excluded from earnings and are
reported as a separate component of stockholders' equity until realized. A
decline in the fair value of an available for sale security below cost that is
deemed other than temporary is charged to earnings.
Realized gains and losses on investments are determined on the specific
identification method.
c. Property and Equipment.
Depreciation of buildings and equipment and amortization of leasehold
improvements are principally calculated using the straight-line method over the
estimated useful lives of the respective assets or the life of the lease,
whichever is less.
d. Title Records and Indexes.
Title records and indexes are recorded at cost. The cost is not being amortized
and, in management's opinion, has not diminished in value. Costs of maintaining
title records and indexes are expensed in the year incurred.
e. Title Losses and Other Claims.
Liabilities for title losses and other claims are estimated based on the title
insurance subsidiaries' experience. These amounts include both case-basis
evaluations and formula calculations and represent the estimated net cost of all
unpaid losses. In management's opinion, reserves for title losses and other
claims are adequate.
f. Property and Casualty Losses and Loss Adjustment Expenses.
The liability for outstanding losses and loss adjustment expenses includes
estimated provisions for all reported and unreported claims incurred and is
reduced by allowances for salvage and subrogation. In management's opinion,
reserves for property and casualty losses and loss adjustment expenses are
adequate.
g. Revenue Recognition.
Title insurance premiums are recognized as revenues principally at the time of
the real estate closing. Escrow and trust fees are recognized principally when
billed.
Property and casualty insurance premiums are reflected in income generally
on a daily pro rata basis for facultative business and as reported by the ceding
company for treaty business.
23
<PAGE> 22
h. Post-employment Benefits.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits." Statement No. 112 requires accrual of a liability representing the
cost of certain benefits earned by employees over their employment period.
Statement No. 112 applies to vested benefits provided to former or inactive
employees, their beneficiaries and covered dependents, after employment but
before retirement. The adoption of Statement No. 112 had an insignificant impact
on the Company's financial position and results of operations.
i. Derivative Financial Instruments.
In October 1994, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments." This
Statement amends Statement of Financial Accounting Standards No. 105,
"Disclosure of Information about Financial Instruments with
Off-Balance-Sheet-Risk and Financial Instruments with Concentrations of Credit
Risk" and Statement of Financial Accounting Standards No. 107,"Disclosure about
Fair Value of Financial Instruments" and provides specific disclosure
requirements for derivative financial instruments. Statement No. 119 is
effective for financial statements issued for fiscal years ending after December
15, 1994. This Statement applies to interest rate swap agreements ("swaps")
entered into by the Company. The Company has only limited involvement with
derivative financial instruments and does not use them for trading purposes. The
Company enters into interest rate swaps for purposes of converting variable
interest rate exposure to a fixed rate and to match interest expense with
interest income. Interest rate swaps are accounted for as a hedge of the
obligation. Interest expense is recorded using the revised interest rate.
j. Income Taxes.
The Company files a consolidated federal income tax return with its domestic
subsidiaries. The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are recognized for the future tax
consequence attributable to differences between the financial statement carrying
amount of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
k. Funds Held, Accounts, and Other Receivables
Funds held, accounts, and other receivables consists of funds held under
reinsurance contracts and accounts and other receivables, net of allowances.
l. Acquisition Costs.
Acquisition costs related to unearned property and casualty reinsurance premiums
are deferred by major underwriting lines and amortized over the period in which
the premiums are earned. The method followed in computing the deferred
acquisition costs consists of deferring only those variable acquisition costs,
such as commissions and brokerage fees, which relate directly to the production
of business, and limiting the amount of those costs deferred to their net
realizable value after allowing for anticipated investment income.
m. Reinsurance.
Underwriters Re follows the provisions of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance for Short-Duration
and Long-Duration Contracts." Reinsurance receivables (including amounts related
to claims incurred but not reported) and prepaid reinsurance premiums are
reported as assets. Reinsurance contracts that do not result in a reasonable
possibility that the reinsurer may realize a significant loss from the insurance
risk assumed and that do not provide for the transfer of significant insurance
risk generally do not meet the conditions for reinsurance accounting and are
accounted for as deposits.
n. Cash.
For purposes of the consolidated statements of cash flows, cash includes only
funds on deposit which are available for immediate withdrawal.
o. Net Earnings Per Share of Common Stock.
Net earnings per share of common stock are based on the average number of shares
of Alleghany common stock outstanding during the years ended December 31, 1995,
1994, and 1993, respectively, as adjusted for stock dividends. The average
number of shares of common stock outstanding, as adjusted for stock dividends,
was 7,069,226 in 1995, 6,971,446 in 1994, and 6,924,900 in 1993.
p. Recent Accounting Pronouncements.
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Statement No. 121 provides guidance for recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and assets
to be disposed of. Statement No. 121 is effective for financial statements
issued for fiscal years beginning after December 15, 1995. Management is
currently reviewing the impact of Statement No. 121, however, management does
not expect it to have a material impact on the Company's financial position or
results of operations.
24
<PAGE> 23
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." Statement No. 123
establishes accounting and reporting standards for stock-based employee
compensation plans. This statement allows companies to choose between the "fair
value based method of accounting" as defined in this statement and the
"intrinsic value based method of accounting" as prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement No. 123 is effective for fiscal years beginning after
December 15, 1995, though it may be adopted earlier. The Company intends to
continue to follow the accounting guidance provided by APB 25 as permitted in
its 1996 consolidated financial statements.
2. Acquisitions
a. 1995 Acquisitions
CT&T acquired National Flood Information Services, Inc., a provider of flood
certification services, for $12 million and accounted for the acquisition by the
purchase method of accounting.
Alleghany acquired Credit Data Reporting Services, Inc. ("Credit Data"), a
mortgage credit reporting business, by an exchange of stock whereby the Company
issued 78,972 shares of its common stock. Alleghany subsequently contributed the
stock of Credit Data to CT&T. The acquisition of Credit Data was accounted for
as a pooling of interests.
World Minerals acquired several mining related operations at a total cost of
approximately $70 million. These acquisitions consisted primarily of perlite
expansion plants in Spain and Italy, mining, processing and distribution
facilities in China and South Korea, and perlite ore reserves in Turkey. All
acquisitions were accounted for by the purchase method of accounting.
The aggregate effect of these transactions was immaterial to the Company's
1995 financial position and results of operations. Therefore, prior period
financial information was not restated and proforma financial information is not
presented.
b. 1994 Acquisitions
The Company acquired Montag & Caldwell, Inc., a privately held investment
counseling firm, in an exchange of stock whereby the Company issued 212,757
shares of its common stock. Montag & Caldwell, Inc. was subsequently contributed
to CT&T. The acquisition was accounted for as a pooling of interests; the
consolidated financial statements of Alleghany for prior periods were not
restated because the effect was immaterial.
Underwriters Reinsurance acquired an inactive insurance company for $10
million, which represented the approximate carrying value of its investment
portfolio and other intangible assets, with licenses to write primary property
and casualty insurance in 31 states and the District of Columbia. The company
was renamed Underwriters Insurance Company. A capital contribution of $100
million, consisting principally of five million shares of Santa Fe common
stock was made to UIC. UIC's statutory surplus was $112.1 million at 1994 year
end.
c. 1993 Acquisition
On October 7, 1993, the Company acquired approximately 93% of the capital stock
of a new holding company which owned all of the capital stock of Underwriters
Reinsurance, a New Hampshire corporation headquartered in California, which
provides reinsurance to property and casualty insurers and reinsurers.
Underwriters Reinsurance also owned a recently formed property and casualty
insurance subsidiary, Commercial Underwriters Insurance Company, which
concentrates on specialized insurance lines. The purchase price was
approximately $204 million, including capitalized costs.
The acquisition of Underwriters Reinsurance was effective for accounting
purposes as of October 1, 1993, and has been accounted for by the purchase
method of accounting. Accordingly, the accounts of Underwriters Reinsurance,
after adjustment to reflect fair values assigned to assets and liabilities, have
been included in the consolidated financial statements of the Company after the
effective date of the acquisition.
3. Sale of Sacramento Savings
On October 31, 1994, Alleghany sold its wholly owned retail banking subsidiary,
Sacramento Savings and an ancillary company, to First Interstate Bank of
California for a cash purchase price of approximately $331 million. The
operations of Sacramento Savings and the ancillary company are presented as
discontinued operations in the accompanying consolidated financial statements.
Alleghany Financial Inc. ("AFI"), the holding company of Sacramento Savings and
ancillary companies, was dissolved prior to the sale.
Net proceeds from the sale were used to repay borrowings under Alleghany's
revolving credit loan agreement which had been drawn on to purchase investment
securities and to repay an AFI note payable.
Condensed information relating to discontinued operations is as follows (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Revenues $150,277 $210,305
============================================================
Pre-tax earnings from
discontinued operations $ 11,305 $ 29,624
Income taxes 5,040 12,921
- ------------------------------------------------------------
Earnings from discontinued
operations, net 6,265 16,703
Gain on sale of Sacramento
Savings, net of tax of $31,946 62,869 --
- ------------------------------------------------------------
Earnings from discontinued
operations $ 69,134 $ 16,703
============================================================
</TABLE>
25
<PAGE> 24
Additionally, as part of the transaction, the Company purchased real estate
and real estate related assets for about $116 million. These assets were
contributed to a newly formed subsidiary, API. The Company intends to dispose of
the assets in an orderly fashion, which may take several years. Based on the
Company's liquidation plan and anticipated higher carrying costs for the real
estate and real estate related assets, the Company expects to realize less than
$116 million. Accordingly, and in recognition that no general loss reserves of
Sacramento Savings were transferred to the Company, the carrying value of the
assets was reduced by about $20 million, net of tax. This charge is reflected in
the gain on sale of Sacramento Savings.
The original reserve of $30 million ($20 million on an after tax basis) has
since been partially utilized and $25 million remains at December 31, 1995.
4. Investments
Available for sale securities at December 31, 1995 and 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
Consolidated or Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government,
government agency
and municipal
obligations $1,019,799 $ 20,865 $(3,352) $1,037,312
Certificates of deposit 20,587 -- -- 20,587
Commercial paper 70,315 -- -- 70,315
Bonds, notes and other 566,775 6,690 (1,897) 571,568
- ------------------------------------------------------------------------------------------------
1,677,476 27,555 (5,249) 1,699,782
Equity securities 308,210 331,825 (2,079) 637,956
- ------------------------------------------------------------------------------------------------
$1,985,686 $ 359,380 $(7,328) $2,337,738
================================================================================================
Industry Segment
- ------------------------------------------------------------------------------------------------
Title, trust and escrow $ 809,426 $ 26,017 $(3,102) $ 832,341
Property and casualty
reinsurance 937,453 129,899 (3,716) 1,063,636
Mining and filtration 6,961 -- -- 6,961
Corporate activities 231,846 203,464 (510) 434,800
- ------------------------------------------------------------------------------------------------
$1,985,686 $ 359,380 $(7,328) $2,337,738
================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
Consolidated or Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government,
government agency
and municipal
obligations $ 1,063,523 $ 1,238 $(58,340) $1,006,421
Certificates of deposit 64,832 -- -- 64,832
Commercial paper 42,250 -- -- 42,250
Bonds, notes and other 484,832 302 (20,123) 465,011
- ------------------------------------------------------------------------------------------------
1,655,437 1,540 (78,463) 1,578,514
Equity securities 262,292 96,502 (1,574) 357,220
- ------------------------------------------------------------------------------------------------
$ 1,917,729 $ 98,042 $(80,037) $1,935,734
================================================================================================
Industry Segment
- ------------------------------------------------------------------------------------------------
Title, trust and escrow $ 863,494 $ 6,106 $(21,034) $ 848,566
Property and casualty
reinsurance 838,490 32,422 (58,829) 812,083
Mining and filtration 468 -- -- 468
Corporate activities 215,277 59,514 (174) 274,617
- ------------------------------------------------------------------------------------------------
$ 1,917,729 $ 98,042 $(80,037) $1,935,734
================================================================================================
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Amortized Fair
Cost Value
- -------------------------------------------------------------------
<S> <C> <C>
Fixed maturities:
Due in one year or less $ 429,714 $ 430,572
Due after one year through five years 407,471 412,868
Due after five years through ten years 220,097 222,453
Due after ten years 182,333 188,624
Mortgage-backed securities 437,861 445,265
- -------------------------------------------------------------------
$1,677,476 $1,699,782
===================================================================
</TABLE>
The proceeds from sales of available for sale securities were $469 million,
$634 million, and $1.2 billion, which included the proceeds from sales of fixed
maturities of $382 million, $476 million, and $792 million in 1995, 1994, and
1993, respectively.
Gross realized gains and gross realized losses of available for sale
securities were $42.6 million and $6.6 million, $24.3 million and $15.6 million,
and $22.8 million and $7.5 million, respectively, in 1995, 1994, and 1993.
26
<PAGE> 25
These amounts include gross realized gains and gross realized losses on
sales of fixed maturities of $1.7 million and $6.3 million, $0.9 million and
$10.7 million, and $3.4 million and $2.6 million, respectively, in 1995, 1994,
and 1993.
During 1995, 1994 and 1993, Alleghany had fixed maturity and equity
investments that were trading below cost. The Company determined that these
declines were other than temporary and, accordingly, recorded a loss provision
of approximately $2.3 million, $3.1 million and $4.6 million, respectively, for
these investments.
The Company owned 7,429,000 shares of Burlington Northern Santa Fe
Corporation at December 31, 1995 with a cost basis of $254 million and a fair
value of $579 million.
At December 31, 1995 and 1994, investments totalling approximately $377
million and $376 million, respectively, were pledged principally to secure
unearned title insurance premium liabilities computed under statutory insurance
regulations, as required by law.
At December 31, 1995 and 1994, investments totalling approximately $25
million and $19 million, respectively, were on deposit with various states or
governmental departments to comply with property and casualty insurance laws.
Assets pledged to secure trust and escrow deposits at December 31, 1995 and
1994, carried at fair value, were as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Cash $122,893 $ 60,445
U.S. Government and municipal obligations 218,116 196,538
Certificates of deposit 16,405 59,522
Commercial paper 30,000 --
Equity securities 10,209 9,520
Other 224 --
- ---------------------------------------------------------------
$397,847 $326,025
===============================================================
</TABLE>
Additionally, Alleghany's title insurance subsidiaries administer escrow
deposits generally related to customers' real estate transactions. The funds are
not considered assets and liabilities of the Company and, accordingly, amounts
aggregating approximately $1,215 million and $832 million are excluded from the
accompanying consolidated balance sheets at December 31, 1995 and 1994,
respectively.
5. Reinsurance
In the ordinary course of business, Underwriters Reinsurance assumes and cedes
reinsurance for purposes of risk diversification and limiting maximum loss
exposure of catastrophic events. If such assuming reinsurers are unable to meet
the obligations assumed under these agreements, Underwriters Reinsurance would
remain liable. Reinsurance receivable at December 31, 1995 and 1994 consist of
the following (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Reinsurance recoverable on paid losses $ 14,203 $ 18,473
- ------------------------------------------------------------------
Ceded outstanding losses and loss
adjustment expenses $385,580 $404,210
==================================================================
</TABLE>
For the years ended December 31, 1995 and 1994 and the three months ended
December 31, 1993, Underwriters Reinsurance ceded losses and loss adjustment
expenses of $49.5 million, $51.4 million and $19.6 million, respectively.
The following table indicates premiums assumed and ceded for the years ended
December 31, 1995 and 1994 and the three months ended December 31, 1993 (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------
Written Earned
- ------------------------------------------------
1995
- ------------------------------------------------
<S> <C> <C>
Premiums assumed $330,435 $320,328
Premiums ceded $ 92,478 $ 85,234
================================================
1994
- ------------------------------------------------
Premiums assumed $254,832 $250,757
Premiums ceded $ 64,493 $ 69,299
================================================
1993
- ------------------------------------------------
Premiums assumed $ 36,435 $ 38,479
Premiums ceded $ 6,166 $ 9,994
================================================
</TABLE>
Effective January 1, 1988, Underwriters Reinsurance, on behalf of
Underwriters Re, purchased for $57.5 million two excess of loss reinsurance
contracts ("the reinsurance contracts") from Continental Re. Under the
reinsurance contracts, Continental Re assumes the risk of losses incurred by
Underwriters Re to the extent that Underwriters Re's net ultimate incurred
losses, including unrecoverable reinsurance, for pre-1987 business exceeds the
aggregate deductible as defined, subject to a limit of $200 million. The limit
was fully utilized prior to October 1993. During 1995 and 1994, approximately
$39 million and $12 million, respectively, were received under these reinsurance
contracts and the remaining $149 million is included in the reinsurance
receivable balance as of December 31, 1995.
27
<PAGE> 26
Loss reserves ceded under the reinsurance contracts must be secured by a
trust fund or other acceptable security. As of December 31, 1995 and 1994, loss
reserves ceded are secured by $179.2 million and $151.7 million, respectively,
deposited in a trust fund and letters of credit totalling $133.3 million and
$155.4 million, respectively.
6. Liability for Unpaid Claims and Claim Adjustment Expenses
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Title Losses
- --------------------------------------------------------------------------
Balance at January 1 $536,068 $532,123 $511,455
Less reinsurance recoverables -- -- --
- --------------------------------------------------------------------------
Net balance at January 1 536,068 532,123 511,455
- --------------------------------------------------------------------------
Incurred related to:
Current year 81,385 94,845 121,864
Prior years -- -- --
- --------------------------------------------------------------------------
Total incurred 81,385 94,845 121,864
- --------------------------------------------------------------------------
Paid related to:
Current year 2,829 3,105 2,866
Prior years 84,709 87,795 98,330
- --------------------------------------------------------------------------
Total paid 87,538 90,900 101,196
- --------------------------------------------------------------------------
Net balance at December 31 529,915 536,068 532,123
Plus reinsurance recoverables -- -- --
- --------------------------------------------------------------------------
Balance at December 31 $529,915 $536,068 $532,123
==========================================================================
</TABLE>
The above reserves for title losses excludes trust and escrow reserves of $1.1
million, $1.0 million, and $1.1 million, in 1995, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty Losses
and Loss Adjustment Expenses
- ----------------------------------------------------------------------
Balance at January 1, 1995
and 1994 and October 1, 1993 $ 940,527 $861,204 $871,244
Less reinsurance recoverables 404,210 351,829 359,124
- ----------------------------------------------------------------------
Net balance at January 1, 1995
and 1994 and October 1, 1993 536,317 509,375 512,120
- ----------------------------------------------------------------------
Incurred related to:
Current year 199,783 146,426 23,826
Prior years 3,325 6,630 1,305
- ----------------------------------------------------------------------
Total incurred 203,108 153,056 25,131
- ----------------------------------------------------------------------
Paid related to:
Current year 9,239 13,826 3,056
Prior years 101,766 112,288 24,820
- ----------------------------------------------------------------------
Total paid 111,005 126,114 27,876
- ----------------------------------------------------------------------
Net balance at December 31 628,420 536,317 509,375
Plus reinsurance recoverables 385,580 404,210 351,829
- ----------------------------------------------------------------------
Balance at December 31 $1,014,000 $940,527 $861,204
======================================================================
</TABLE>
Underwriters' reserve for unpaid losses and loss adjustment expenses
includes $103.2 million and $112.6 million gross reserves and $66.5 and $62.1
million net reserves at December 31, 1995 and 1994, respectively, for various
liability coverages related to asbestos and environmental impairment claims that
arose from general liability and certain commercial multiple-peril coverages.
Restrictive asbestos and environmental impairment exclusions were introduced in
late 1986 on both primary and reinsurance contracts, significantly reducing
these exposures for accidents occurring after 1986. Reserves for asbestos and
environmental impairment claims cannot be estimated with traditional loss
reserving techniques because of uncertainties that are greater than those
associated with other types of claims. Factors contributing to those
uncertainties include a lack of historical data, the significant periods of time
that often elapse between the occurrence of an insured loss and the reporting of
that loss to the ceding company and the reinsurer, uncertainty as to the number
and identity of insureds with potential exposure to such risks, unresolved legal
issues regarding policy coverage, and the extent and timing of any such
contractual liability. Such uncertainties are not likely to be resolved in the
near future, and therefore management believes it is not possible at this time
to determine the ultimate losses in this area or develop a meaningful range of
such losses.
For both asbestos and environmental excess of loss reinsurance claims,
Underwriters Reinsurance establishes case reserves by applying reinsurance
contract terms to losses reported by ceding companies, analyzing from the first
dollar of loss incurred by the primary insurer. In establishing the liability
for claims for asbestos related liability and for environmental impairment
claims, management considers facts currently known and the current state of the
law and coverage litigation. Additionally, ceding companies often report
potential losses on a precautionary basis to protect their rights under the
reinsurance arrangement, which generally call for prompt notice to the
reinsurer. Ceding companies, at the time they report such potential losses,
advise Underwriters Reinsurance of the ceding companies' current estimate of the
extent of such loss. Underwriters Reinsurance's claims department reviews each
of the precautionary claims notices and, based upon current information,
assesses the likelihood of loss to Underwriters Reinsurance. Such assessment is
one of the factors used in determining the adequacy of the recorded asbestos and
environmental reserves.
28
<PAGE> 27
7. Long-Term Debt
Long-term debt at December 31, 1995 and 1994 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Alleghany
Debentures at 6.5%, due 2014, exchangeable for
common shares of American Express at an
exchange rate of 22.8833 common shares per
$1,000 principal amount of debentures $ -- $ 59,600
API
Senior notes at 8.62%, due 2000 50,000 --
AFC
Notes payable at 4.1% to 7.1% due 1999 80,000 80,000
CT&T
Bank borrowings at 6.3% to 8.7%,
due through 2000 50,000 60,500
Other loans payable at 5.0% to 10.0%,
due through 1997 4,970 3,826
Capital lease obligations at 10.5% to 12.0%,
less amounts representing interest of $11
in 1995 and $18 in 1994, due through 1996 73 115
Underwriters Re
Notes payable at 4.5% to 7.5%,
due through 1998 50,000 66,000
World Minerals
Notes payable at 8.2% to 8.3%,
due through 1998 88,000 57,000
Harborlite redeemable preferred stock 7,825 7,643
Term Loan at 12.1%, due 1997 102 --
Capital lease obligations at 8.2%, less
amounts representing interest of $29
in 1995 and $43 in 1994, due through 1998 719 389
- ---------------------------------------------------------------------------
$331,689 $335,073
===========================================================================
</TABLE>
Under the terms of a revolving credit loan agreement dated June 14, 1995,
with a bank, Alleghany may borrow up to $200 million until July 2000. At
Alleghany's option, borrowings bear interest at a rate based on the purchase of
negotiable certificates of deposit, prevailing rates for dollar deposits in the
London interbank market or the greatest of the Federal funds rate, the bank's
prime rate or a specified certificate of deposit rate. No amounts were
outstanding under this agreement or a prior similar agreement at December 31,
1995 or 1994. A commitment fee of 1/4 of 1% per annum of the unused commitment
is charged. The revolving credit agreement, among other things, requires
Alleghany to maintain tangible net worth not less than $750 million, limits the
amount of certain other indebtedness and contains restrictions with respect to
mortgaging or pledging any of Alleghany's assets and consolidation or merger
with any other corporation.
In November 1995, the Company redeemed its exchangeable debentures at a
redemption price of 102.6 percent of principal. Proceeds from the sale of
American Express common shares were used to redeem the exchangeable debentures.
In February 1995, API issued $50 million of senior notes. Proceeds were used
to repay short term borrowings and to make a dividend to Alleghany. The senior
notes will be repaid in five equal annual installments beginning in 1996.
AFC notes are primarily secured by a $91.5 million installment note
receivable. AFC has entered into a related interest rate swap agreement with a
notional amount of $88 million for the purpose of matching interest expense with
interest income. This swap is pay variable, receive variable. Alleghany pays a
variable rate equal to the one month commercial paper rate plus 0.125% and
receives a variable rate equal to the three month LIBOR rate plus 0.85%. The
swap matures on January 20, 1999. AFC is exposed to credit risk in the unlikely
event of nonperformance by the swap counter party.
On March 28, 1991, CT&T borrowed $42 million, without recourse to Alleghany,
to repay bridge financing used for the Ticor Title acquisition. On May 2, 1991,
CT&T entered into a swap agreement with a notional amount of $42 million for the
purpose of converting variable interest rate exposure to a fixed rate. The
notional amount was reset on December 31, 1995 at $21 million. This swap is pay
fixed, receive variable. The fixed rate is 8.10% and the variable rate is equal
to the three month LIBOR rate. The swap matures on December 31, 1997. CT&T is
exposed to credit risk in the unlikely event of nonperformance by the swap
counter party.
Under the terms of the bank loan agreement, CT&T is required to maintain
certain financial ratios and balances and is limited on the amount of additional
indebtedness or future mergers and acquisitions except as permitted by the
agreements. The agreements also contain restrictions with respect to the
mortgaging or pledging of assets.
On November 16, 1992, Underwriters Re entered into a six-year, $100 million
reducing revolving bank credit agreement ("the credit agreement") without
recourse to Alleghany. Under the terms of the credit agreement, Underwriters Re
may borrow up to the maximum commitment available, which is reduced quarterly.
Underwriters Re is required to make principal payments so the total loan balance
is no greater than the maximum commitment available. In addition to the
mandatory payments, Underwriters Re may permanently reduce the aggregate
commitment in whole or in part at its sole discretion. At December 31, 1995 and
1994, the maximum commitment available was $57.5 million and $75.0 million,
respectively. Amounts borrowed bear interest at either the LIBOR rate plus 1.75%
or the higher of (a) the Corporate Base Rate of the bank or (b) the Federal
funds effective rate plus 0.5%. The credit agreement also contains covenants
relating to, among other things, restrictions on debt, mergers, acquisitions,
dispositions of assets, capital expenditures, paying dividends, liens and
investments. Additionally, the credit agreement requires
29
<PAGE> 28
Underwriters Re to maintain certain financial ratios and minimum levels of
consolidated tangible net worth, statutory surplus and pre-tax statutory income.
The credit agreement is secured primarily by a pledge of the capital stock of
Underwriters Reinsurance.
On December 20, 1991, World Minerals entered into a bank loan agreement,
providing for borrowings of up to $70 million, pursuant to which it borrowed $50
million, without recourse to Alleghany. The loan proceeds were used to repay
part of an acquisition-related advance from Alleghany. On March 10, 1995, the
bank loan agreement was renegotiated to provide borrowing up to $117 million.
During 1995, World Minerals borrowed an additional $31 million to fund a number
of small acquisitions and joint ventures. In January 1992, World Minerals
entered into two interest rate swap agreements each with a notional amount of
$30 million. These swaps mature on January 15, 1997 and January 15, 1999. These
swaps were entered into for the purpose of converting variable interest rate
exposure to a fixed rate. One such swap was entered into as a condition of a
related variable rate loan agreement which required that hedging or interest
rate protection agreements be maintained with respect to not less than 50% of
the variable rate borrowing commitment. World Minerals is exposed to credit risk
in the unlikely event of nonperformance by the swap counterparty.
Regarding the Company's interest rate swaps, there were no deferred gains or
losses related to terminated interest rate swap contracts as of the end of the
last three fiscal years. The impact of Alleghany's hedging activities has been
to increase the weighted average borrowing rates by 0.48%, 0.86%, and 0.97%, and
to increase reported interest expense by $1.6 million, $3.2 million, and $3.7
million for the years ending 1995, 1994, and 1993, respectively.
Scheduled aggregate annual maturities of long-term debt for each of the next
five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------
<S> <C>
1996 $ 44,016
1997 53,665
1998 54,089
1999 151,927
2000 19,917
Thereafter 8,075
- --------------------------
$331,689
==========================
</TABLE>
8. Income Taxes
Income tax expense (benefit) from continuing operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------
Federal State Foreign Total
- ------------------------------------------------------
<S> <C> <C> <C> <C>
1995
- ------------------------------------------------------
Current $27,380 $2,636 $4,938 $34,954
Deferred 43 600 179 822
- ------------------------------------------------------
$27,423 $3,236 $5,117 $35,776
======================================================
1994
- ------------------------------------------------------
Current $11,719 $ 837 $3,665 $16,221
Deferred 7,846 572 (17) 8,401
- ------------------------------------------------------
$19,565 $1,409 $3,648 $24,622
======================================================
1993
- ------------------------------------------------------
Current $14,365 $1,091 $2,306 $17,762
Deferred (9,158) (105) 155 (9,108)
- ------------------------------------------------------
$ 5,207 $ 986 $2,461 $ 8,654
======================================================
</TABLE>
Pre-tax earnings from continuing operations includes $16.1 million, $11.5
million, and $7.3 million from foreign operations in 1995, 1994, and 1993,
respectively.
The difference between the federal income tax rate and the effective income
tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 %
Goodwill amortization 1.6 2.0 1.3
Income subject to dividends-received
deduction (0.9) (1.6) (0.5)
State taxes, net of federal tax benefit 0.7 0.9 0.2
Tax-exempt interest income (6.3) (8.8) (4.0)
Reversal of previously accrued
tax expenses -- -- (22.3)
Other, net (0.6) (1.0) --
- -----------------------------------------------------------------------
29.5 % 26.5 % 9.7 %
=======================================================================
</TABLE>
30
<PAGE> 29
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Title losses, trust, and other claim reserves $ 167,472 $ 165,362
Property and casualty loss reserves 55,150 52,375
Net operating loss and alternative
minimum tax carryforwards 7,566 8,184
Reserves for impaired assets 23,522 29,846
Expenses deducted for tax purposes
when paid 34,502 35,794
Other 7,966 6,976
- ---------------------------------------------------------------------------
296,178 298,537
- ---------------------------------------------------------------------------
Valuation allowance 3,840 4,360
- ---------------------------------------------------------------------------
Total deferred tax assets 292,338 294,177
- ---------------------------------------------------------------------------
Deferred tax liabilities
Unearned premium reserves (81,398) (77,948)
Deferred revenues and gains (160,398) (51,594)
Title plant (29,085) (29,085)
Tax over book depreciation (23,155) (20,389)
Other (19,963) (15,799)
- ---------------------------------------------------------------------------
Total deferred tax liabilities (313,997) (194,815)
- ---------------------------------------------------------------------------
Net deferred tax (liability) asset $ (21,659) $ 99,362
- ---------------------------------------------------------------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. At December 31, 1995
and 1994, the Company has established a valuation allowance of $3.8 million and
$4.4 million, respectively, for certain deferred state tax assets which it
believes will not be realized.
The amount of operating loss and tax credit carryforwards available to
offset future federal taxable income is approximately $21.6 million, expiring
through 2005. The Company utilized approximately $1.8 million and $76.6 million,
respectively, of operating loss and tax credit carryforwards during 1995 and
1994.
The Internal Revenue Service has examined Alleghany's federal income tax
returns for 1991 and 1992 and has asserted federal income tax deficiencies.
Management is contesting such proposed deficiencies and believes that any such
proposed deficiencies will be resolved for amounts, net of existing reserves,
that are not material to the Company's financial position or results of
operations.
The Internal Revenue Service asserted substantial federal income tax
deficiencies for the years 1984 and 1985. During 1993, the issues were settled
resulting in a credit to earnings for previously accrued tax expenses of $20
million. Tax years 1984 and 1985 are now closed.
9. Stockholders' Equity
The total number of shares of all classes of capital stock which Alleghany has
authority to issue is 30,000,000, of which 8,000,000 shares are preferred stock,
par value of $1.00, and 22,000,000 shares are common stock, par value of $1.00.
Stockholder's equity and surplus of CT&T, CTI, Security Union and Ticor
Title are restricted by borrowing agreements and statutory limitations as to
payment of dividends. At December 31, 1995 approximately $146.4 million was
available from CT&T for dividends to Alleghany. CT&T's availability of funds for
dividends, however, may be further restricted by limitations imposed by statutes
to which its subsidiaries are subject. CT&T's statutory surplus at December 31,
1995 and 1994 was $160 million and $157 million, respectively, and statutory net
income for the years ended December 31, 1995, 1994, and 1993 was $45 million,
$51 million, and $71 million, respectively.
Stockholders' equity and surplus of Underwriters Re is also restricted by
borrowing agreements and statutory limitations as to payment of dividends. At
December 31, 1995 approximately $1.5 million was available for dividends to
Alleghany. Underwriters Reinsurance statutory surplus at December 31, 1995 and
1994 was $458 million and $361 million, respectively, and statutory net income
for the years ended December 31, 1995 and 1994 and the three months ended
December 31, 1993 was $23 million and $24 million and $12 million, respectively.
Stockholders' equity of World Minerals is restricted by a borrowing
agreement as to payment of dividends. At December 31, 1995, substantially all of
World Minerals stockholders' equity was restricted as to dividend payment to
Alleghany.
Additionally, payments of dividends (other than stock dividends) by
Alleghany to its stockholders are limited by the terms of the revolving credit
loan agreement which stipulates that Alleghany can pay dividends up to the sum
of cumulative net earnings after 1994, proceeds from the issuance of stock after
1994 and $50 million, provided that Alleghany maintains certain financial ratios
as defined in the agreement. At December 31, 1995 approximately $135 million of
capital was available for dividends.
In April 1993, stockholders of Alleghany approved a Long-Term Incentive Plan
effective as of January 1, 1993. The incentive plan replaces the 1983 Long-Term
Incentive Plan which terminated by its terms on December 31, 1992. The incentive
plan is substantially similar to the 1983 Long-Term Incentive Plan. A maximum of
300,000 shares of Alleghany common stock can be paid to participants under the
incentive plan through December 31,
31
<PAGE> 30
2002 (subject to anti-dilution and other adjustments). The incentive plan
permits Alleghany to provide incentive compensation of the types commonly known
as restricted stock, stock options, stock appreciation rights, performance
shares, performance units, and phantom stock, as well as other types of
incentive compensation. Awards may include, but are not limited to, cash and/or
shares of Alleghany's common stock, rights to receive cash and/or shares of
common stock and options to purchase shares of common stock including options
intended to qualify as incentive stock options under the Internal Revenue Code
and options not intended to qualify. The number of performance shares awarded
under the incentive plan and its predecessor to employees of the Company were
30,997 in 1995, 43,202 in 1994, and 15,283 in 1993 (as adjusted for stock
dividends).
Under the incentive plans, participants are entitled, at the end of a
four-year award period, to the fair value of an equal number of shares of
Alleghany's common stock (adjusted for anti-dilution from date of award), based
on market value on the payment date and normally payable half in cash and half
in stock, provided defined levels of performance are achieved. As of December
31, 1995 (for all award periods through the award period 1995), approximately
273,000 performance shares were granted, of which 129,000 have been paid out,
none have expired, and 144,000 have not matured. The amounts charged to the
Company's earnings with respect to the plans were $6.2 million in 1995, $4.5
million in 1994, and $3.3 million in 1993.
In April 1994, stockholders of Alleghany approved an amended and restated
stock option plan effective in April 1993 under which options to purchase a
maximum of 75,000 shares (subject to anti-dilution and other adjustments) of
Alleghany's common stock are awarded to non-employee directors. The plan
replaces the Directors' Stock Option Plan which terminated in April 1993. The
stock option plan provides for the automatic grant of non-qualified stock
options to purchase 1,000 shares of common stock in each year after 1987 to each
non-employee director. Options to purchase 7,000 shares at the then fair market
value of $155.25 were granted in 1995. Options to purchase 7,000 shares at the
then fair market value of $141.75 were granted in 1994. Through December 31,
1995, pursuant to the plans and as adjusted for stock dividends, 62,000 options
were granted, 13,000 options have been exercised, and 49,000 options remain
outstanding. Alleghany has reserved 74,000 shares (as adjusted for stock
dividends) at December 31, 1995 for the satisfaction of exercises of options.
The Board of Directors has authorized the purchase from time to time of
additional shares of common stock for the treasury. During 1995, 1994, and 1993,
Alleghany repurchased 44,523 shares, 69,509 shares, and 55,200 shares of its
common stock at a cost of $7.6 million, $10.1 million, and $7.9 million,
respectively.
10. Employee Benefit Plans
The Company has several noncontributory defined benefit pension plans covering
substantially all of its employees. The defined benefits are based on years of
service and the employee's average compensation generally during the last five
years of employment. The Company's funding policy is to contribute annually the
amount necessary to satisfy the Internal Revenue Service's funding standards.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future. CT&T is
a qualified trust company and, as such, serves as trustee for the assets of
certain of the pension plans.
The following tables set forth the defined benefit plans' funded status at
December 31, 1995 and 1994 (in millions except percentages):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations
Vested benefit obligation $126.7 $107.6
================================================================================
Accumulated benefit obligation $134.2 $114.6
================================================================================
Projected benefit obligation $155.9 $130.6
Plan assets at fair value 130.9 114.4
- --------------------------------------------------------------------------------
Projected benefit obligation,
more than plan assets (25.0) (16.2)
Unrecognized net loss 42.4 26.5
Unrecognized prior service cost 5.4 6.1
Unrecognized net asset (4.1) (4.5)
- --------------------------------------------------------------------------------
Pension asset recognized in
the balance sheet $ 18.7 $ 11.9
================================================================================
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension cost included the following
expense (income) components
Service cost - benefits earned
during the year $ 5.6 $ 7.9 $ 6.7
Interest cost on projected
benefit obligation 11.2 10.9 9.9
Actual return on plan assets (18.0) 1.9 (7.2)
Net amortization and deferral 7.4 (8.9) (1.5)
================================================================================
Net periodic pension cost included
in costs and expenses $ 6.2 $11.8 $ 7.9
================================================================================
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assumptions used in computing
the funded status of the plans
are as follows
Range of rates for increases in
compensation levels 4.5%-5.0% 4.5%-5.0%
Range of weighted average
discount rates 6.5%-7.8% 8.0%-8.8%
Range of expected long-term
rates of return 4.0%-9.0% 4.0%-9.0%
================================================================================
</TABLE>
32
<PAGE> 31
The Company provides supplemental retirement benefits through deferred
compensation programs and profit sharing plans for certain of its officers and
employees for which earnings were charged $8.2 million in 1995, $12.5 million in
1994, and $17.3 million in 1993.
The Company also provides certain healthcare and life insurance benefits for
retired employees. The cost of these benefits is accrued during the period that
employees render service. The accrued postretirement benefit obligation was
$33.4 million and $31.5 million at December 31, 1995 and 1994, respectively. The
postretirement healthcare and life insurance costs recognized were $3.2 million,
$3.1 million, and $3.0 million for 1995, 1994, and 1993, respectively.
11. Commitments and Contingencies
The Company leases certain facilities, furniture and equipment under long-term
lease agreements. In addition, certain land, office space and equipment are
leased under noncancelable operating leases which expire at various dates
through 2012. Rent expense was $69.1 million in 1995, $66.5 million in 1994, and
$65.7 million in 1993.
The aggregate minimum payments under operating leases with initial or
remaining terms of more than one year are $43.6 million, $36.2 million, $30.4
million, $24.7 million, $19.6 million, and $131.0 million in 1996, 1997, 1998,
1999, 2000, and thereafter, respectively.
The Company's subsidiaries and division are parties to pending litigation
and claims in connection with the ordinary course of their businesses. Each such
operating unit makes provisions for estimated losses to be incurred in such
litigation and claims, including legal costs. In the opinion of management,
based in part on advice of counsel, such provision is adequate.
12. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------
Calculated Calculated
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments $2,337,738 $2,337,738 $1,935,734 $1,935,734
Notes receivable $ 91,536 $ 91,536 $ 91,536 $ 91,536
Liabilities
Long-term debt $ 331,689 $ 334,317 $ 335,073 $ 334,819
==================================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value:
Investments: The fair value of fixed maturities and equity securities are
based upon quoted market prices. The fair value of short term investments
approximates amortized cost.
Notes receivable: The carrying amount approximates fair value because
interest rates approximate market rates.
Long-term debt: The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on current
rates offered to the Company for debt of the same remaining maturities. The fair
value includes the effects of the interest rate swaps.
13. Segments of Business
Information concerning the Company's continuing operations by industry
segment as of and for the years ended December 31, 1995, 1994, and 1993,
respectively, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Title, trust and escrow $1,172,627 $1,352,646 $1,440,151
Property and casualty
reinsurance* 322,204 225,390 40,712
Mining and filtration 178,686 162,636 149,545
Corporate activities 111,293 86,433 67,739
- -----------------------------------------------------------------------
Total $1,784,810 $1,827,105 $1,698,147
=======================================================================
Earnings from continuing
operations, before
income taxes
Title, trust and escrow $ 52,660 $ 72,510 $ 98,171
Property and casualty
reinsurance* 28,998 12,504 4,058
Mining and filtration 31,407 23,539 13,745
Corporate activities 58,232 36,476 19,527
- -----------------------------------------------------------------------
171,297 145,029 135,501
Interest expense 28,982 29,285 29,101
Corporate administration 21,239 22,750 16,897
- -----------------------------------------------------------------------
Total $ 121,076 $ 92,994 $ 89,503
=======================================================================
Identifiable assets at
December 31
Title, trust and escrow $1,402,217 $1,407,840 $1,515,746
Property and casualty
reinsurance 1,750,008 1,510,335 1,339,824
Mining and filtration 315,074 215,204 208,377
Corporate activities 655,215 454,512 405,176
- -----------------------------------------------------------------------
Total $4,122,514 $3,587,891 $3,469,123
=======================================================================
Capital expenditures
Title, trust and escrow $ 17,045 $ 19,427 $ 12,350
Property and casualty
reinsurance* 1,292 1,396 199
Mining and filtration 22,749 9,501 25,457
Corporate activities 383 217 243
- -----------------------------------------------------------------------
Total $ 41,469 $ 30,541 $ 38,249
=======================================================================
Depreciation and
amortization
Title, trust and escrow $ 24,825 $ 25,540 $ 29,161
Property and casualty
reinsurance* 7,180 8,916 2,201
Mining and filtration 11,590 9,657 6,823
Corporate activities 553 665 731
- -----------------------------------------------------------------------
Total $ 44,148 $ 44,778 $ 38,916
=======================================================================
</TABLE>
* Includes results of operations from October 1, 1993.
33
<PAGE> 32
14. Quarterly Results of Operations (unaudited)
Selected quarterly financial data for 1995 and 1994 are presented below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Quarter Ended
--------------------------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
- --------------------------------------------------------------------------------------------
Revenues from
continuing operations $397,052 $415,176 $447,890 $524,692
- --------------------------------------------------------------------------------------------
Net earnings from
continuing operations $ 793 $ 17,189 $ 23,417 $ 43,901
- --------------------------------------------------------------------------------------------
Net earnings per share
of common stock* $ 0.11 $ 2.44 $ 3.31 $ 6.18
- --------------------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------------------
Revenues from
continuing operations $479,983 $468,170 $447,642 $431,310
- --------------------------------------------------------------------------------------------
Earnings from
continuing operations $ 16,989 $ 16,330 $ 21,195 $ 13,858
Earnings from
discontinued operations 2,950 2,275 1,040 --
Gain on sale of
Sacramento Savings, net -- 16,800 -- 46,069
- --------------------------------------------------------------------------------------------
Net earnings $ 19,939 $ 35,405 $ 22,235 $ 59,927
- --------------------------------------------------------------------------------------------
Net earnings per share of
common stock:*
Continuing operations $ 2.46 $ 2.37 $ 2.98 $ 1.96
Discontinued operations .43 .33 .16 --
Gain on sale of
Sacramento Savings, net -- 2.44 -- 6.53
- --------------------------------------------------------------------------------------------
Net earnings $ 2.89 $ 5.14 $ 3.14 $ 8.49
============================================================================================
</TABLE>
* Restated to reflect subsequent stock dividends.
The $16.8 million gain on the sale of Sacramento Savings recognized in the
second quarter of 1994 represents a tax benefit which reflected the excess of
the Company's tax basis in Sacramento Savings over its book basis.
The sum of four quarters of the net earnings per share for 1995 and 1994
presented above do not agree to the total net earnings per share for 1995 and
1994. This difference is due to the distribution of 78,972 shares and 212,757
shares of Alleghany common stock in August 1995 and July 1994 in connection with
the acquisition of Credit Data and Montag & Caldwell, Inc., respectively.
15. Other Information
a. Other assets shown in the consolidated balance sheets at December 31, 1995
and 1994 include goodwill, net of accumulated amortization, as follows (in
thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------
Amortization
1995 1994 Period
- ----------------------------------------------------
<S> <C> <C> <C>
CT&T $ 72,832 $ 55,770 5-40 years
Underwriters Re 49,113 51,880 20 years
World Minerals 28,139 16,784 40 years
- ----------------------------------------------------
$150,084 $124,434
- ----------------------------------------------------
</TABLE>
Goodwill is reviewed for impairment whenever events or circumstances
provide evidence that suggests that the carrying amount of the asset may not be
recoverable.
In addition, other assets shown at December 31, 1995 and 1994 includes
$17.0 million and $11.3 million, respectively, of deferred acquisition costs.
Amortization of deferred acquisition costs included in the 1995, 1994 and 1993
statement of earnings were $63.6 million, $38.9 million and $6.0 million,
respectively.
b. Other liabilities shown in the consolidated balance sheets include the
following amounts at December 31, 1995 and 1994 (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------
1995 1994
- ----------------------------------------------------
<S> <C> <C>
Accounts payable $76.6 $88.5
Unearned premiums $74.6 $52.8
Reinsurance payable $23.4 $25.5
Funds held for
reinsurers $95.9 $45.4
- ----------------------------------------------------
</TABLE>
c. Property and equipment, net of accumulated depreciation and amortization at
December 31, 1995 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Depreciation
1995 1994 Period
- --------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 26,608 $ 21,403 --
Buildings and
improvements 90,162 62,349 30-40 years
Furniture and equipment 194,598 163,862 3-20 years
Ore reserves 25,696 10,148 30 years
Leasehold improvements 24,407 25,122 Various
- --------------------------------------------------------------------
361,471 282,884
Less: Accumulated
depreciation
and amortization (89,182) (79,966)
- --------------------------------------------------------------------
$272,289 $202,918
- --------------------------------------------------------------------
</TABLE>
34
<PAGE> 33
Alleghany Corporation and Subsidiaries
INDEPENDENT AUDITORS' REPORT
KPMG LOGO
Certified Public Accountants
345 Park Avenue
New York, NY 10154
The Board of Directors and Stockholders
Alleghany Corporation:
We have audited the accompanying consolidated balance sheets of Alleghany
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, changes in common stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements, appearing on pages 18 through 34,
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alleghany
Corporation and subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993.
<PAGE> 34
/s/ KPMG Peat Marwick LLP
----------------------------------------
KPMG Peat Marwick LLP
February 22, 1996
Member firm of
Klynveld Peat Marwick Goerdeler
35
<PAGE> 35
Appendix
<TABLE>
<CAPTION>
Page Narrative Description of Graphic or Image Material
- ---- --------------------------------------------------
<S> <C>
1 A table of stockholders' equity per share for the years 1986-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
2 A table of year-end closing stock prices for the years 1986-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
3 A photograph of John J. Burns, Jr., President and F.M. Kirby,
Chairman, appears in the paper format version.
6 A photograph of Chicago Title's headquarters appears in the paper
format version.
8 A list of the services provided by Chicago Title with respect to a
property transaction appears in the electronic format version,
replacing a diagram that appears in the paper format version.
9 A list of the business units comprising the financial
services and title operations of Chicago Title
appears in the electronic format version, replacing a
diagram that appears in the paper format version.
10 A photograph including an airplane and a truck appears in the paper
format version.
11 A table of Underwriters' revenues and pre-tax
earnings for the years 1993-95 appears in the
electronic format version, replacing a bar graph that
appears in the paper format version.
11 A table of Underwriters' policy holder surplus for the years 1993-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
12 A photograph of World Minerals' diatomite mine appears in the
paper format.
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
Page Narrative Description of Graphic or Image Material
- ---- --------------------------------------------------
<S> <C>
13 A table of World Minerals' revenues for the years 1991-95 appears
in the electronic format version, replacing a bar graph that appears in
the paper format version.
13 A table of World Minerals' pre-tax earnings for the years 1991-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
14 A map illustrating the principal routes of Burlington Northern Santa
Fe appears in the paper format.
</TABLE>
-2-
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF ALLEGHANY
Chicago Title and Trust Company (Illinois)
Chicago Title Insurance Company (Missouri)
Alexander Title Agency, Inc. (Virginia)
CATCO, Inc. (Oklahoma - 50%)
Chicago Title Company (California)
Tri-Safe, Inc. (California - 25%)
Chicago Title Company of Alameda County
(California - 80%)
Chicago Title Insurance Company of Puerto Rico
(Puerto Rico - 99.2%)
Creative Land Services, Inc. (Minnesota)
CTOA, Inc. (Texas)
Johnson County Title Company (Kansas)
Liberty Title Company (Minnesota)
Liberty Escrow Services Company (Minnesota)
McHenry County Title Company (Illinois)
Meade Title Agency, Inc. (Ohio)
Service Title of Virginia, Inc. (Virginia - 30%)
Joint Title Plants and Associations
CTP, Inc. (Florida - 16%)
Dallas Seven Index, Inc. (Texas - 14%)
SKLD, Inc. (Colorado - 12.91%)
Title Data, Inc. (Texas - 6.25%)
Diversified Information Services Corporation (Arizona)
Spring Services Corporation (California)
Spring Services Texas, Inc. (Texas)
TPO, Inc. (Oklahoma)
Title and Trust Company (Idaho)
The Title Guarantee Company (Maryland)
Maryland Escrow, Inc. (Maryland)
Baton Rouge Title Company, Inc. (Louisiana)
The Title Company of Canada, Ltd.
Heritage American Insurance Services, Inc. (California)
<PAGE> 2
Chicago Title and Trust Company Foundation (Illinois)(1)
Title Accounting Services Corporation (Illinois)
Iowa Land Services Corporation (Iowa)
LC Investment Corporation (Indiana)
The Lake County Trust Company (Indiana)
Chicago Technology Services Corporation (Illinois)
RealInfo, Inc. (Illinois LLC - 50%)
Ticor Financial Company (California)
Chicago Title Agency of Central Ohio (Ohio)
Decator Title Company (Illinois LLC - 60%)
National Flood Information Services, Inc. (Delaware)
Credit Data Reporting Services, Inc. (New York)
TT Acquisition Corp. (Texas)
Alleghany Asset Management, Inc. (Delaware)
Montag & Caldwell Associates, Inc. (Georgia)
Montag & Caldwell Inc. (Georgia)
Chicago Deferred Exchange Corporation (Illinois)
The Chicago Trust Company (Illinois)
Security Union Title Insurance Company (California)
Charter Title Company (California)
Land Escrow and Safe Deposit Company (California)
Land Title of Pierce County (Washington)
Los Angeles Escrow Company (California)
Merchants Title Company (California)
Northwest Equities, Inc. (Texas)
Guardian Title Company of Houston (Texas)
RJW Development Company (New Jersey)
Chicago Title Insurance Company of Oregon (Oregon)
Real Estate Exchange, Inc. (Oregon)
Security Trust Company (California)
Southern California Escrow Company (California)
Title-Tax, Inc. (California)
Ticor Title Insurance Company (California)
Commonwealth Title Co. (Washington)
Ticor Title Guarantee Company (New York)
Washington Title Company (Washington)
- --------
(1) A charitable foundation in which Chicago Title and Trust Company
possesses no ownership interest.
-2-
<PAGE> 3
Alleghany Properties, Inc. (Delaware)
Sacramento Properties Holdings, Inc. (California)
Superior California Insurance Agency (California)
Alleghany Funding Corporation (Delaware)
Alleghany Capital Corporation (Delaware)
Mineral Holdings Inc. (Delaware - 93.8%)
World Minerals Inc. (Delaware)
Advanced Minerals Corporation (Delaware)
Celite Corporation (Delaware)
Celite Europe Corporation (Delaware)
Celite France, S.A. (France)
Celite Italiana S.r.L. (Italy)
Celite Hispanica, S.A. (Spain)
Celite (U.K.) Limited (United Kingdom)
Celite Canada Inc. (Canada)
Celite Island, h.f. (Iceland)
Kisilidjan, h.f. (Iceland - 48.56%)
Celite Mexico S.A. de C.V. (Mexico)
Almeria, S.A. de C.V. (Mexico)
Diatomita San Nicolas, S.A. de C.V. (Mexico)
Celite Pacific Limited (Hong Kong)
Celite China Inc. (Delaware)
Linjiang Celite Diatomite Company Ltd.
(China 70%)
Celite Jilin, Inc. (Delaware)
Changbai Celite Diatomite Company Limited
(China 65%)
Celite Minerals China Corporation (Delaware)
Linjiang Lin-Lin Celite Diatomite Company
Limited (China 70%)
Celite Chile S.A. (Chile)
Celite Korea Ltd. (South Korea)
Celite do Brasil Ltda. (Brazil)
Harborlite Corporation (Delaware)
Perlite, Inc. (Delaware)
Harborlite (U.K.) Limited (United Kingdom)
Harborlite France (France)
Harborlite Europe B.V. (Amsterdam, the Netherlands)
Harborlite Aegean Endustri Mineralleri-Sanai, a.s.
(Turkey)
-3-
<PAGE> 4
Europerlite Acquisition Corp. (Delaware)
Europerlita Espanola, S.A. (Spain)
Europerlita, S.A. (Spain)
Europerlite Italiana, S.p.A. (Italy)
Bibb Steel and Supply Company (Delaware)
MSL Property Holdings, Inc. (Delaware)
MSL Capital Recovery Corp. (Delaware)
J & E Corporation (Tennessee)
URC Holdings Corp. (Delaware - 96.8%)
Underwriters Reinsurance Company (New Hampshire)
Commercial Underwriters Insurance Company (California)
Underwriters Insurance Company (Nebraska)
URC Risk Managers, Inc. (Delaware)
The Underwriting Center, Inc. (Delaware)
The Underwriting Center of Georgia, Inc. (Georgia)
URC International, Inc. (Barbados)
-4-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Alleghany Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-27598 on Form S-8, No. 333-323 on Form S-8, No. 33-62477 on Form S-3, and No.
33-55707 on Form S-3 of our reports dated February 22, 1996 relating to the
financial statements and related schedules of Alleghany Corporation and
subsidiaries, which appear in, or are incorporated by reference in this Annual
Report on Form 10-K of Alleghany Corporation for the fiscal year ended December
31, 1995. Our reports refer to the adoption of the provisions of Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" at December
31, 1993. We also consent to the reference to our Firm in Registration
Statements No. 33-27598 and No. 333-323 and under the heading "Experts" in
Registration Statements No. 33-55707 and No. 33-62477.
/s/ KPMG Peat Marwick LLP
New York, New York
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEGHANY
CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED
DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,699,782
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 637,956
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,337,738
<CASH> 178,068
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,122,514
<POLICY-LOSSES> 1,544,986
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 331,689
0
0
<COMMON> 0
<OTHER-SE> 1,320,643
<TOTAL-LIABILITY-AND-EQUITY> 4,122,514
1,388,047
<INVESTMENT-INCOME> 183,516
<INVESTMENT-GAINS> 36,062
<OTHER-INCOME> 177,185
<BENEFITS> 290,184
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 121,076
<INCOME-TAX> 35,776
<INCOME-CONTINUING> 85,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,300
<EPS-PRIMARY> 12.07
<EPS-DILUTED> 12.07
<RESERVE-OPEN> 536,317
<PROVISION-CURRENT> 199,783
<PROVISION-PRIOR> 3,325
<PAYMENTS-CURRENT> 9,239
<PAYMENTS-PRIOR> 101,766
<RESERVE-CLOSE> 628,420
<CUMULATIVE-DEFICIENCY> 3,000
</TABLE>
