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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report December 31, 1998
(Date of earliest event reported)
THE CENTRIS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 001-12099 33-0097221
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
650 Town Center Drive, Suite 1600
Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 549-1600
N/A
(Former name and former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On December 31, 1998, The Centris Group, Inc. (the "Company"), completed
the acquisition of 100% of the outstanding shares of common stock of Seaboard
Life Insurance Company (USA) ("SLIC (USA)") and VASA North America, Inc. ("VNA")
from Seaboard Life Insurance Company, a Canadian federal insurance company
("SLIC (Canada)"), and Seaboard North American Holdings, Inc., a British
Columbia corporation ("SNAHI"), (SLIC (Canada) and SNAHI collectively referred
to as Sellers), respectively, (the "Acquisition") for $42.7 million, $22.9
million of which was paid to the Sellers at closing and the remaining $19.8
million of which was distributed to ABN AMRO Bank N.V. in payment of an
outstanding promissory note issued by VNA.
The Acquisition was consummated pursuant to the terms of the Stock Purchase
Agreement dated as of August 20, 1998, between SLIC (Canada), SNAHI and Eureko
B.V., a company organized under the laws of The Netherlands ("Eureko") (the
"Stock Purchase Agreement"). SLIC (Canada) and SNAHI agreed to sell and the
Company agreed to buy 100% of the issued and outstanding capital stock of SLIC
(USA), an Indiana stock life insurance company and VNA, an Indiana corporation,
owned respectively by SLIC (Canada) and SNAHI. The outstanding capital stock of
SLIC (USA) consists of 250 shares of common stock ($25,000 per share par value).
The outstanding capital stock of VNA consists of 11,258 shares of common stock
(no par value). At the time of the closing of the Acquisition VNA had the
following subsidiaries: VASA Insurance Group, Inc.; VASA Brougher, Inc.; VASA
North Atlantic Insurance Company ("VNAIC") an Indiana stock insurance company,
and Select Benefits, Inc. The purchase price for the Acquisition was based on
the audited statutory policyholders' surplus of SLIC (USA) and VNAIC as of the
Acquisition closing date. The purchase price was reduced by (i) the amount
outstanding under a promissory note payable to ABN AMRO Bank N.V., (ii) the
amount of goodwill on the books of SLIC (USA) and VNAIC as of the closing date
(approximately $2.2 million), and (iii) $2.5 million, and was further adjusted
to reflect a mark-to market of the investment portfolios of SLIC (USA) and VNAIC
as of the closing date (approximately a $1.8 million upward adjustment). The
purchase price is subject to adjustment based upon an audit of the books and
records of SLIC (USA) and VNAIC as of the closing date.
The purchase price was determined though arms-length negotiation. The
Company intends to continue the insurance operations of acquired companies and
their subsidiaries. The Company borrowed approximately $42.7 million under the
Company's existing credit agreement with Fleet National Bank (the "Credit
Agreement") to finance this acquisition. To permit such borrowing, certain
provisions of the Credit Agreement were waived and others amended.
Specifically, Fleet National Bank waived the covenant contained at Section
7.5(b) of the Credit Agreement on a limited basis to permit the Acquisition as
consummated.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired
At the time of filing of this report on Form 8-K, it is not practical
to provide the financial statements required by Item 7(a). In
accordance with Item 7(a)(4) of Form 8-K, such financial statements
will be filed within 60 days of this filing by an amendment on Form
8-K/A to this report.
(b) Pro Forma Financial Information
At the time of filing of this report on Form 8-K, it is not practical
to provide the pro forma financial information required by Item 7(b).
In accordance with Item 7(b)(2) of Form 8-K, such pro forma financial
information will be filed within 60 days of this filing by an
amendment on Form 8-K/A to this report.
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(c) Exhibits
Set forth below is a list of exhibits included as part of this Current
Report:
Exhibit Number Description of Exhibit
- -------------- -------------------------------------------------------------
2.01 Stock Purchase Agreement dated as of August 20, 1998 by and
between The Centris Group, Inc., Seaboard Life Insurance
Company, Seaboard North American Holdings, Inc. and Eureko
B.V.
10.01 Fifth Amendment to the Credit Agreement between The Centris
Group, Inc. and Fleet National Bank (the "Credit Agreement")
dated as of December 28, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Centris Group, Inc. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: January 14, 1999 THE CENTRIS GROUP, INC.
By: /s/ CHARLES M. CAPORALE
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Charles M. Caporale
Senior Vice President, Chief
Financial Officer and Treasurer
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.01 Stock Purchase Agreement dated as of August 20, 1998 by and
between The Centris Group, Inc., Seaboard Life Insurance
Company, Seaboard North American Holdings, Inc. and Eureko
B.V.
10.01 Fifth Amendment to the Credit Agreement between The Centris
Group, Inc. and Fleet National Bank (the "Credit Agreement")
dated as of December 28, 1998.
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STOCK PURCHASE AGREEMENT
Dated as of
August 20, 1998 between
THE CENTRIS GROUP, INC.,
SEABOARD LIFE INSURANCE COMPANY,
SEABOARD NORTH AMERICAN HOLDINGS, INC.
and
EUREKO B.V.
relating to the purchase and sale
of 100% of the Common Stock of
SEABOARD LIFE INSURANCE COMPANY (USA) and
VASA NORTH AMERICA, INC.
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TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS....................................................... 1
SECTION 1.1 Definitions..................................................... 1
ARTICLE 2 PURCHASE AND SALE................................................. 6
SECTION 2.1 Purchase and Sale............................................... 6
SECTION 2.2 Closing......................................................... 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EUREKO.......................... 8
SECTION 3.1 Corporate Existence and Power................................... 8
SECTION 3.2 Corporate Authorization......................................... 8
SECTION 3.3 Governmental Authorization...................................... 9
SECTION 3.4 Non-Contravention............................................... 9
SECTION 3.5 Capitalization.................................................. 9
SECTION 3.6 Ownership of Shares............................................. 10
SECTION 3.7 Subsidiaries.................................................... 10
SECTION 3.8 Financial Statements............................................ 11
SECTION 3.9 Absence of Certain Changes...................................... 11
SECTION 3.10 No Undisclosed Material Liabilities............................ 13
SECTION 3.11 Material Contracts............................................. 13
SECTION 3.12 Litigation..................................................... 15
SECTION 3.13 Compliance with Laws........................................... 15
SECTION 3.14 Properties..................................................... 15
SECTION 3.15 Licenses and Permits; Policies: Regulatory Matters............. 16
SECTION 3.16 ERISA Representations.......................................... 17
SECTION 3.17 Environmental Compliance....................................... 19
SECTION 3.18 Intellectual Property; Software................................ 19
SECTION 3.19 Labor Matters.................................................. 21
SECTION 3.20 Reserves....................................................... 21
SECTION 3.21 Investments.................................................... 22
SECTION 3.22 No Other Representations....................................... 22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER........................... 22
SECTION 4.1 Corporate Existence and Power................................... 22
SECTION 4.2 Corporate Authorization......................................... 22
SECTION 4.3 Governmental Authorization...................................... 22
SECTION 4.4 Non-Contravention............................................... 23
SECTION 4.5 Financing....................................................... 23
SECTION 4.6 Purchase for Investment......................................... 23
ARTICLE 5 COVENANTS OF THE SELLERS AND EUREKO............................... 23
SECTION 5.1 Conduct of the Companies........................................ 23
SECTION 5.2 Access to Information........................................... 26
SECTION 5.3 Notices of Certain Events....................................... 26
SECTION 5.4 Resignations.................................................... 27
SECTION 5.5 No Solicitation................................................. 27
SECTION 5.6 Certain Other Transactions...................................... 27
SECTION 5.7 Use of Computer Software........................................ 28
SECTION 5.8 Testing and Remediation of Computer Systems..................... 28
SECTION 5.9 Filing of Policy................................................ 28
ARTICLE 6 COVENANTS OF BUYER................................................ 29
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SECTION 6.1 Employees....................................................... 29
SECTION 6.2 Employee Plans and Benefit Arrangements......................... 29
SECTION 6.3 Severance Arrangements.......................................... 29
SECTION 6.4 Repayment of Loan............................................... 30
ARTICLE 7 COVENANTS OF BUYER, EUREKO AND THE SELLERS........................ 30
SECTION 7.1 Reasonable Efforts.............................................. 30
SECTION 7.2 Certain Filings................................................. 31
SECTION 7.3 Public Announcements............................................ 31
SECTION 7.4 Trademarks; Trade Names......................................... 31
SECTION 7.5 Intercompany Accounts........................................... 32
SECTION 7.6 Non-Solicitation of Employees; Non-Competition.................. 33
SECTION 7.7 Post-Closing Access............................................. 34
SECTION 7.8 Supplemental Disclosure......................................... 34
SECTION 7.9 Confidentiality................................................. 34
SECTION 7.10 Management of Certain Business................................. 35
SECTION 7.11 Override Commissions........................................... 40
SECTION 7.12 Directors' and Officers' Insurance............................. 40
ARTICLE 8 TAX MATTERS....................................................... 41
SECTION 8.1 Tax Representations............................................. 41
SECTION 8.2 Tax Covenants................................................... 42
SECTION 8.3 Tax Sharing Agreements.......................................... 43
SECTION 8.4 Return Filings and Payment of Tax............................... 43
SECTION 8.5 Cooperation on Tax Matters...................................... 43
SECTION 8.6 Tax Benefits.................................................... 44
SECTION 8.7 Indemnification by Eureko....................................... 45
SECTION 8.8 Indemnification by Buyer........................................ 46
SECTION 8.9 Survival; Exclusivity........................................... 46
SECTION 8.10 Late Payments.................................................. 46
SECTION 8.11 No Duplicative Payments; Offsets............................... 46
SECTION 8.12 Rule of Construction........................................... 47
ARTICLE 9 CONDITIONS TO CLOSING............................................. 47
SECTION 9.1 Conditions to Obligations of Buyer, Eureko and the Sellers...... 47
SECTION 9.2 Conditions to Obligation of Buyer............................... 47
SECTION 9.3 Conditions to Obligation of Eureko and the Sellers.............. 49
ARTICLE 10 SURVIVAL; INDEMNIFICATION........................................ 50
SECTION 10.1 Survival....................................................... 50
SECTION 10.2 Indemnification................................................ 50
SECTION 10.3 Environmental Indemnity........................................ 51
SECTION 10.4 Procedures; Exclusivity........................................ 52
SECTION 10.5 Limitations on Indemnification Obligations..................... 53
ARTICLE 11 TERMINATION...................................................... 54
SECTION 11.1 Grounds for Termination........................................ 54
SECTION 11.2 Effect of Termination.......................................... 54
ARTICLE 12 MISCELLANEOUS.................................................... 54
SECTION 12.1 Notices........................................................ 54
SECTION 12.2 Amendments and Waivers......................................... 56
SECTION 12.3 Expenses....................................................... 56
SECTION 12.4 Successors and Assigns......................................... 56
SECTION 12.5 Governing Law.................................................. 56
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SECTION 12.6 Jurisdiction................................................... 56
SECTION 12.7 Counterparts; No Third Party Beneficiaries..................... 57
SECTION 12.8 Entire Agreement............................................... 57
SECTION 12.9 Construction................................................... 57
EXHIBITS
A Allocation of Purchase Price
B License Agreement
SCHEDULES
3.3 Required Insurance Law Approvals
3.4 Consents, etc.
3.7 Subsidiaries
3.9 Certain Changes
3.10 Non-Balance Sheet Liabilities
3.11 Material Contracts
3.12 Litigation
3.13 Non-Compliance With Laws
3.15 Regulatory Matters, etc.
3.16 ERISA/Benefits
3.17 Environmental
3.18 Intellectual Property
3.19 Labor Matters
3.21 Company Investment Assets
4.3 Governmental Authorization
4.4 Non-Contravention
5.1 Conduct of the Companies
5.7 Computer Software
6.3 Severance Arrangements
7.4 Trademarks; Trade names
7.6 Non-Solicitation of Employees
8.1 Tax Representations
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of August 20, 1998 between The Centris Group, Inc., a
Delaware corporation ("Buyer"), and Seaboard Life Insurance Company, a Canadian
federal insurance company ("SLIC"), Seaboard North American Holdings, Inc., a
British Columbia corporation ("SNAHI" and together with SLIC, the "Sellers") and
Eureko B.V., a company organized under the laws of The Netherlands ("Eureko").
W I T N E S S E T H:
WHEREAS, each of the Sellers is a subsidiary of Eureko;
WHEREAS, SLIC is the record and beneficial owner of all of the issued and
outstanding shares of common stock, par value $10,000 per share (the "SLIC (USA)
Common Stock"), of Seaboard Life Insurance Company (USA), an Indiana stock
insurance company ("SLIC (USA)");
WHEREAS, SNAHI is the record and beneficial owner of all of the issued and
outstanding shares of common stock, with no par value (the "VNA Common Stock"),
of VASA North America, Inc., an Indiana corporation ("VNA" and, together with
SLIC (USA), the "Companies"); and
WHEREAS, the Sellers desire to sell all of the issued and outstanding
shares of SLIC (USA) Common Stock and VNA Common Stock (collectively, the
"Shares") to Buyer, and Buyer desires to purchase the Shares from the Sellers,
upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
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SECTION 1.1 Definitions.
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(a) The following terms, as used herein, have the following meanings:
"ABN AMRO Note" means that certain Promissory Note executed by VNA in favor
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of ABN AMRO Bank N.V. on September 30, 1997.
"Affiliate" means, with respect to any Person, any other Person directly or
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indirectly controlling, controlled by, or under common control with such Person;
provided that neither of the Companies nor any of their respective Subsidiaries
shall be considered an Affiliate of either Seller.
"Agreement" means this agreement, including the Schedules and Exhibits
---------
hereto.
"Balance Sheet Date" means June 30, 1998.
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"Benefit Arrangement" means any employment, severance or similar contract,
-------------------
arrangement or policy, or any plan or arrangement (whether or not written)
providing for severance benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation rights
or other forms of incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not an Employee Plan, (ii) is entered into
or maintained, administered or contributed to, as the case may be, by Sellers or
any of their respective ERISA Affiliates and (iii) covers any employee or former
employee of any of the Companies or any of their Subsidiaries.
"Closing Date" means the date of the Closing.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Employee Plan" means any "employee benefit plan," as defined in Section
-------------
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by either Seller or any ERISA
Affiliate of either Seller and (iii) covers any employee or former employee of
either Company or any of their respective Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of any entity means any other entity which, together with
---------------
such entity, would be treated as a single employer under Section 414 of the
Code.
"GAAP" means U.S. generally accepted accounting principles.
----
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Insurance Companies" means SLIC (USA) and VASA North Atlantic Insurance
-------------------
Company.
"Letter of Credit" means a clean, irrevocable letter of credit reasonably
-----------------
satisfactory to Buyer issued by a bank that is a member of the Federal Reserve
System, and which shall be evergreen, i.e., renewable on an annual basis, and
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which shall not be cancelable except on ninety (90) days prior notice to and
consent of Buyer which shall not be unreasonably withheld. Any such letter of
credit shall provide that, as a condition to drawing on such letter, Buyer shall
certify to the issuer that (i) the conditions to drawing upon such letter, as
set forth in this Agreement, have been satisfied, and (ii) Buyer has provided to
Eureko, not later than fifteen (15) business days prior to drawing on such
letter, a written notice setting forth in reasonable detail the factual and
financial information indicating that such conditions have been satisfied.
"Lien" means, with respect to any property or asset, any mortgage, lien,
----
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under
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any conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Loss Adjustment Expenses" means all expenses of handling and settling
------------------------
claims directly chargeable to claim files including, but not limited to, outside
counsel fees and expenses, court costs and fees, all managed care fees and any
other out of pocket expenses incurred by Buyer in handling claims on the Covered
Business, but excluding all expenses related to staff employed by Buyer or its
Affiliates. In any litigation where VBI is named as a defendant in connection
with a claim filed under an insurance policy managed by VBI, the cost of
defending VBI (net of actual recoveries from third parties) shall also be
considered Loss Adjustment Expenses whether or not the insurance company that
issued the policy is also named as a defendant in such litigation.
"Losses" means, for the purposes of Section 7.10, all payments with respect
------
to claims under insurance policies, including without limitation consequential,
pain and suffering, extra contractual, punitive, exemplary or any other damages
paid with respect to such claims, but excluding any such damages to the extent
attributable to actions taken by Buyer after the Closing. For the purposes of
this definition, (i) the denial of a claim based upon Eureko's refusal to
approve payment thereof pursuant to Section 7.10(b)(i) will not be deemed to be
an action taken by Buyer, and (ii) the amount of any Losses with respect to any
claim shall be offset by the amount of any amounts recovered from third parties
(including without limitations errors and omissions insurers) with respect
thereto.
"Material Adverse Effect" means with respect to either Company or any of
-----------------------
their respective Subsidiaries, a material adverse effect on the financial
condition, results of operations, business, assets or liabilities of such
Companies and their respective Subsidiaries, taken as a whole. With respect to
either Buyer or either of the Sellers, "Material Adverse Effect" means a
material adverse effect on the ability of such Buyer or Seller to consummate the
transactions contemplated hereby.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
------------------
as defined in Section 3(37) of ERISA.
"Person" means an individual, corporation, partnership, association, trust,
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limited liability company or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Post-Closing Tax Period" means any Tax period ending after the Closing
-----------------------
Date. As to any Tax period of the Companies and their respective Subsidiaries
that begins prior to the Closing Date and that does not end on or prior to the
Closing Date, such term shall also mean the portion of any such Tax period that
begins following the Closing Date as a result of an election by the parties
described under the definition "Pre-Closing Tax Period" or that is deemed to
begin the day following the Closing Date as a result of the parties hereto
treating such Tax period as ending on the Closing Date as described under the
definition "Pre-Closing Tax Period."
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"Pre-Closing Tax Period" means any Tax period ending on or before the
----------------------
Closing Date. As to any Tax period of the Companies and their respective
Subsidiaries that begins prior to the Closing Date and that does not end on or
prior to the Closing Date, the parties hereto will, to the extent permitted by
applicable law, elect with the relevant taxing authority to treat for all
purposes the Closing Date as the last day of such taxable period of the
Companies and their respective Subsidiaries, and such period ending on the
Closing Date as a result of such election shall constitute a "Pre-Closing Tax
Period." In any case where a Tax period of the Companies and their respective
Subsidiaries that begins prior to the Closing Date and that does not end on the
Closing Date, by operation of law or by election of the parties pursuant to
applicable law, then for purposes of this Agreement, the parties hereto shall
treat such Tax period as ending on the Closing Date and the portion of such Tax
period beginning before and deemed to end on the Closing Date shall also
constitute a "Pre-Closing Tax Period." For purposes of allocating liabilities
for Taxes between a Pre-Closing Tax Period and a Post-Closing Tax Period where
the parties have deemed a Tax period to end on the Closing Date, (i) liabilities
for non-income Taxes shall be allocated based on the respective number of days
in the Pre-Closing Tax Period and Post-Closing Tax Period in comparison to the
total number of days in the Tax period and (ii) liabilities for income Taxes
shall be allocated as if the Tax period actually terminated on the Closing Date.
"SAP" means the statutory accounting principles and practices prescribed or
---
permitted by the Insurance Department of the State of Indiana.
"Statutory Policyholders' Surplus" means (i) as to SLIC (USA), the amount
--------------------------------
that would be included in line 38 of the Liabilities, Surplus and Other Funds
page of the NAIC Annual Statement Blank (Life, Accident and Health) (1997
format), and (ii) as to VASA North Atlantic, the amount that would be included
in line 25 of the Liabilities, Surplus and Other Funds page of the NAIC Annual
Statement Blank (Property and Casualty) (1997 format).
"Subsidiary" means, with respect to any Person, any entity of which
----------
securities or other ownership interests having ordinary voting power to elect
50% or more of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Tax" or "Taxes" means all taxes, charges, fees, levies or other
--- -----
assessments, including, without limitation, any net income tax or franchise tax
based on net income, any alternative or add-on minimum taxes, any gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, social security, Medicare, payroll, employment, excise, severance,
stamp, occupation, property, environmental or windfall profit tax, custom duty
or other tax, governmental fee or other like assessment, together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority (domestic or foreign) responsible for the imposition of
any such tax (a "Taxing Authority").
"Tax Benefit" means any deduction, credit, amortization, exclusion from
-----------
income, loss or other tax attribute.
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"Uncollectable Receivable" means any statutorily admitted account
------------------------
receivable on the books of the Insurance Companies as of the Closing Date (after
giving effect to any changes resulting from the audit contemplated by Section
2.1(c)) that ultimately proves to be uncollectable in whole or in part;
provided, that differences between the amounts actually collected and the
amounts shown on such books with respect to receivables reflecting estimates of
amounts billed to third parties shall not be deemed to be Uncollectable
Receivables to the extent that such differences reflect only the differences
between such estimated and actual amounts.
"VBI" means VASA Brougher, Inc.
---
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
<S> <C>
Acquisition Proposal 5.5
Annual Statements 3.8
Balance Sheets 3.8
Closing 2.2
COBRA 6.3
Company Investment Assets 3.21
Company Securities 3.5
Computer Systems 3.18
Confidential Information 7.9
Conveyance Taxes 8.2
Covered Business 7.10
Damages 10.2
Department 3.8
D&O Insurance 7.12
E&O Insurance 7.12
Environmental Costs 10.3
Environmental Laws 3.17
Excess Amount 7.10
Fully Insured Business 5.6
Hazardous Substances 3.17
Indemnified Party 10.4
Indemnifying Party 10.4
ILA Business 5.6
ILA Reinsurance Transaction 5.6
Intellectual Property 3.18
License Agreement 7.4
Managed Business 7.10
Medicare Supplement Business 7.10
Payoff Amount 6.4
PC Reinsurance Transaction 7.10
Permits 3.15
</TABLE>
5
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<TABLE>
<S> <C>
Producer 3.11
Purchase Price 2.1
Quarterly Statements 3.8
Returns 8.1
Run-off Fund 7.10
Run-off PC Business 7.10
Significant Agreements 3.11
Software 3.18
Subsidiary Securities 3.7
Tax Claim 8.7
Tax Indemnified Party 8.2
Tax Indemnifying Party 8.2
Termination Payments 6.3
Third Party Accountant 2.1
Three-Month Treasury Bill Rate 2.1
Transferred Employees 6.1
Trigger Date 7.10
VASA North Atlantic 3.8
Withdrawal Businesses 7.10
Year 2000 Compliant 3.18
Year 2000 Plan 3.18
</TABLE>
(c) As used in this Agreement, "knowledge" of the Sellers means the
knowledge of the executive officers and the chief legal or compliance officers
of Eureko, the Sellers, the Companies and their Subsidiaries after due inquiry.
ARTICLE 2
PURCHASE AND SALE
-----------------
SECTION 2.1 Purchase and Sale.
-----------------
(a) Upon the terms and subject to the conditions of this Agreement, the
Sellers agree to sell to Buyer and Buyer agrees to purchase from the Sellers,
directly or through one or more Subsidiaries, the Shares at the Closing. The
purchase price for the Shares (the "Purchase Price") shall equal:
(i) the audited Statutory Policyholders' Surplus of the Insurance
Companies as of the Closing Date determined in a manner required in Section
3.8(b)(iv) hereof;
(ii) minus the payoff amount of the ABN AMRO Note as of the Closing
Date;
(iii) plus or minus the amount required to mark-to-market on a U.S.
GAAP basis the investments of the Insurance Companies as of the Closing Date;
(iv) minus the amount of any goodwill on the books of the Insurance
Companies as of the Closing Date;
6
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(v) minus $2,500,000.
(b) The Purchase Price shall be paid as provided in Section 2.2. The
Purchase Price shall be allocable and payable to the Sellers as set forth in
Exhibit A hereto.
- ---------
(c) For the purpose of the Closing, a preliminary determination of the
Purchase Price shall be determined not later than ten (10) days prior to the
Closing Date on the basis of the books and records of the Companies as of the
calendar month end immediately preceding the Closing Date and making the
adjustments specified in (a)(ii), (iii) and (iv) above. Such adjustments shall
be made as of the calendar month end immediately preceding the Closing Date,
with the exception of the adjustment specified in (a)(ii) which shall be made as
of the Closing Date. Within forty-five (45) days after the Closing Date, Buyer
shall prepare a proposed final Purchase Price determination based upon an audit
of the books and records of the Insurance Companies, at Buyer's expense, as of
the Closing Date, by a so-called Big 5 auditing firm selected by Buyer, and
shall submit the same to Eureko for review and approval. Any additions or
reductions to the Purchase Price as a result of such determination shall be paid
by Eureko or Buyer, as the case may be, together with interest on the amount
thereof at the Three-Month Treasury Bill Rate. The "Three-Month Treasury Bill
Rate" means the rate as published in the Wall Street Journal on the Closing Date
or such other date as may be noted elsewhere in this Agreement. Such interest
shall be calculated on the basis of a year of 365 days and the actual number of
days elapsed.
(d) If Buyer and Eureko do not agree upon the final Purchase Price
calculation, such determination shall be finally resolved and settled by
arbitration, administered by Deloitte & Touche LLP (the "Third Party
Accountant") the costs and fees of the Third Party Accountant shall be allocated
between Buyer and Eureko by the Third Party Accountant based upon the Third
Party Accountant's determination of the merits of the respective positions of
the parties with respect to the disputed matters.
(e) If the closing of the ILA Reinsurance Transaction occurs after the
Closing, then not later than seven business days following the closing of the
ILA Reinsurance Transaction, Buyer shall deliver to Eureko in immediately
available funds by wire transfer to the account of Eureko (designated by Eureko
by notice to Buyer not later than two business days prior to such closing) an
amount equal to the ceding commission received by SLIC (USA) in such
transaction, plus an amount equal to the amount, if any, of credit received by
SLIC (USA) for goodwill on its books as an offset against the amount of assets
required to be transferred to the reinsurer at the closing of the ILA
Reinsurance Transaction. In the event that SLIC (USA) receives any amount in
connection with any post-closing adjustment with respect to the ILA Reinsurance
Transaction, Buyer shall transfer to Eureko in immediately available funds an
amount equal to such amount received by SLIC (USA). In the event that SLIC
(USA) is required to pay any amount in connection with any such post-closing
adjustment, Eureko shall transfer to Buyer in immediately available funds an
amount equal to such amount paid by SLIC (USA).
SECTION 2.2 Closing. The Closing (the "Closing") of the purchase and
-------
sale of the Shares hereunder shall take place at the offices of Buyer, Bank One
Center Tower, 111 Monument Circle, Suite 320, Indianapolis, Indiana 46204-5187,
on the last business day of the
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month in which the conditions set forth in Article 9 have been satisfied, or at
such other time or place as Buyer and the Sellers may agree.
(a) At the Closing, Buyer shall deliver the preliminary Purchase Price to
the Sellers in immediately available funds by wire transfer to the account(s) of
the Sellers (designated in writing by the Sellers by notice to Buyer not later
than two business days prior to the Closing Date), as allocated as set forth on
Exhibit A hereto.
- ---------
(b) At the Closing, the Sellers shall deliver to Buyer certificates for the
Shares, duly endorsed or accompanied by stock powers duly endorsed in blank with
all appropriate transfer tax stamps affixed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EUREKO
----------------------------------------
Eureko represents and warrants to Buyer as of the date hereof and as of the
Closing Date (but as of no other dates unless expressly so stated) that:
SECTION 3.1 Corporate Existence and Power. Each of the Sellers and
-----------------------------
Eureko has been duly incorporated and is validly existing and in good standing
under the laws of their respective jurisdiction of incorporation and has all
corporate power required to carry on its business as now conducted. Each Company
(i) has been duly incorporated and is validly existing and in good standing
under the laws of the State of Indiana, (ii) has all corporate power required to
carry on its business as now conducted, (iii) has all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted and (iv) is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, or is duly licensed to do business as an insurer and
is in good standing in each jurisdiction where such licensing is necessary, as
the case may be, except for those jurisdictions where failure to be so qualified
or licensed, as the case may be, would not, individually or in the aggregate,
have a Material Adverse Effect on the Companies. The Sellers have heretofore
delivered or made available to Buyer true and complete copies of the certificate
of incorporation and bylaws of Eureko, each Seller, each Company and each of
their respective Subsidiaries as in effect on the date hereof. Neither of the
Companies nor any of their respective Subsidiaries is in violation of any of the
provisions of its certificate of incorporation or bylaws.
SECTION 3.2 Corporate Authorization. The execution, delivery and,
-----------------------
subject to the receipt of the approvals referred to in Section 3.3, performance
by the Sellers and Eureko of this Agreement are within the Sellers' and Eureko's
respective corporate power and have been duly authorized by all necessary
corporate action on the part of the Sellers. This Agreement constitutes a valid
and legally binding agreement of Eureko and the Sellers, enforceable against
Eureko and the Sellers in accordance with its terms, subject to (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and, in the case of SLIC, the rights of creditors of insurance
companies generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
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SECTION 3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by Eureko and the Sellers of this Agreement require no action by or
in respect of, or filing with, any governmental body, agency, or official on the
part of Eureko, any of the Sellers, the Companies or their Subsidiaries other
than (i) compliance with any applicable requirements of the HSR Act, (ii)
approvals or filings under the insurance laws of the jurisdictions set forth on
Schedule 3.3, (iii) filings and notices not required to be made or given until
after the Closing Date, (iv) filings, at any time, of tax returns, tax reports
and tax information statements and (v) any such action or filing as to which the
failure to make or obtain would not, individually or in the aggregate,
materially impair the ability of the Companies and their Subsidiaries, taken as
a whole, to conduct their businesses.
SECTION 3.4 Non-Contravention. Except as set forth in Schedule 3.4, the
-----------------
execution, delivery and performance by Eureko and the Sellers of this Agreement
do not and will not (i) violate the certificate of incorporation or bylaws of
Eureko, either Seller, either Company or any Subsidiary of either Company, (ii)
assuming compliance with the matters referred to in Section 3.3, violate any
applicable law, rule, regulation, judgment, injunction, order or decree, (iii)
require any consent or other action by any Person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of any Company or any Subsidiary of any Company or to a
loss of any benefit to which any Company or any Subsidiary of any Company is
entitled under, any material agreement or other material instrument binding upon
any Company or any Subsidiary of any Company or any material license, franchise,
permit or other similar authorization held by any Company or any Subsidiary of
any Company, (iv) result in the creation or imposition of any material Lien on
any asset of any Company or any Subsidiary of any Company or (v) cause or
constitute a "distribution date," "flip in event" or comparable event under any
stockholder rights plan or comparable plan of any Person the capital stock of
which is directly or indirectly beneficially owned by any Company or any
Subsidiary of any Company.
SECTION 3.5 Capitalization.
--------------
(a) The authorized capital stock of SLIC (USA) consists of 1,000 shares of
SLIC (USA) Common Stock. As of the date hereof, there are 250 shares of SLIC
(USA) Common Stock outstanding. The authorized capital stock of VNA consists of
9,000,000 shares of VNA Common Stock and 1,000,000 shares of VNA Preferred
Stock. As of the date hereof, there are 11,258 shares of VNA Common Stock and
zero shares of VNA Preferred Stock outstanding.
(b) All outstanding shares of capital stock of each Company have been duly
authorized and validly issued and are fully paid and non-assessable and free of
preemptive rights. Except as set forth in this Section 3.5, there are no
outstanding (i) shares of capital stock or voting securities of any Company,
(ii) securities of any Company convertible into or exchangeable for shares of
capital stock or voting securities of any Company or (iii) options or other
rights to acquire from any Company, or other obligation of any Company to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of any Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of any Company
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or any of their respective Subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities.
SECTION 3.6 Ownership of Shares. SNAHI is the record and beneficial
-------------------
owner of the VNA Common Stock, free and clear of any Lien and any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of the VNA Common Stock other than pursuant to generally
applicable regulatory requirements), and will transfer and deliver to Buyer at
the Closing valid title to the VNA Common Stock free and clear of any Lien and
any such limitation or restriction. SLIC is the record and beneficial owner of
the SLIC (USA) Common Stock, free and clear of any Lien and any other limitation
or restriction (including any restriction on the right to vote, sell or
otherwise dispose of the SLIC (USA) Common Stock other than pursuant to
generally applicable regulatory requirements), and will transfer and deliver to
Buyer at the Closing valid title to the SLIC (USA) Common Stock free and clear
of any Lien and any such limitation or restriction.
SECTION 3.7 Subsidiaries.
------------
(a) Each Subsidiary of each Company has been duly incorporated or organized
and is validly existing and in good standing under the laws of its jurisdiction
of incorporation and has all power and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Each Subsidiary of each Company is duly qualified to
do business as a foreign corporation or organization and is in good standing in
each jurisdiction where such qualification is necessary, or is duly licensed to
do business as an insurer or an insurance producer and is in good standing in
each jurisdiction where such licensing is necessary, as the case may be, except
for those jurisdictions where failure to be so qualified or licensed, as the
case may be, would not, individually or in the aggregate, have a Material
Adverse Effect on the Companies. All Subsidiaries of each Company and their
respective jurisdictions of incorporation or organization are identified on
Schedule 3.7.
(b) All outstanding shares of capital stock of each corporate Subsidiary of
each Company have been duly authorized and validly issued and are fully paid and
non-assessable and free of preemptive rights. As of the Closing Date, except as
disclosed in Schedule 3.7, all of the outstanding capital stock of, and other
voting securities or ownership interests in, each corporate Subsidiary of each
Company will be owned by one of the Companies, directly or indirectly, free and
clear of any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other voting securities or ownership interests other than pursuant to
generally applicable regulatory requirements). Except as set forth in Schedule
3.7, there are no outstanding (i) securities of any of the Companies or any of
their respective Subsidiaries convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary of any Company or (ii) options or other rights to acquire from any of
the Companies or any of their respective Subsidiaries, or other obligations of
any of the Companies or any of their respective Subsidiaries to issue, any
capital stock or other voting securities or ownership interests in, or any
securities convertible into or exchangeable for any capital stock or other
voting securities or ownership interests in, any Subsidiary of any of the
Companies (the items in clauses (i) and (ii) being referred to collectively as
the "Subsidiary Securities"). There are no outstanding obligations of any of the
Companies or
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<PAGE>
any of their respective Subsidiaries to repurchase, redeem or otherwise acquire
any outstanding Subsidiary Securities.
SECTION 3.8 Financial Statements.
--------------------
(a) The audited GAAP consolidated balance sheet of VNA and its Subsidiaries
as of December 31, 1996 and December 31, 1997 and as of June 30, 1998
(unaudited) (such balance sheets shall hereinafter be referred to as the
"Balance Sheets") and the related statements of income and cash flows for each
of the years ended December 31, 1996 and December 31, 1997 and six months ended
June 30, 1998 previously delivered to Buyer, including in the notes thereto in
the case of the year end financial statements, present fairly, in all material
respects, the financial position of VNA as of the dates thereof and the results
of operations of VNA for the periods then ended in accordance with GAAP
consistently applied.
(b) The audited statutory balance sheets of each of SLIC (USA) and VASA
North Atlantic Insurance Company, an Indiana stock insurance company ("VASA
North Atlantic") as of December 31, 1996 and December 31, 1997, and the related
statements of operations and statements of cash flows for the year then ended,
and their respective Annual Statements for the fiscal years ended December 31,
1996 and December 31, 1997 (the "Annual Statements") and for the quarters ended
March 31, 1998 and June 30, 1998 (the "Quarterly Statements") filed with the
Indiana Department of Insurance (the "Department"), copies of which have been
delivered to Buyer, (i) fairly present in all material respects their respective
statutory financial conditions as of such date and the results of their
respective operations for the years then ended in conformity with SAP; (ii) were
prepared from the books of account and other financial records of SLIC (USA) and
VASA North Atlantic, respectively; (iii) were filed with or submitted to the
Department on forms prescribed or permitted by the Department; and (iv) were
prepared in accordance with SAP applied on a basis consistent with the past
practices of SLIC (USA) and VASA North Atlantic, respectively, and complied on
their respective dates of filing or submission in all material respects with the
laws of the State of Indiana. The other information contained in the Annual
Statements fairly presents in all material respects the information required to
be contained therein in conformity with SAP.
SECTION 3.9 Absence of Certain Changes. Except as disclosed in Schedule
--------------------------
3.9, during the period from December 31, 1997 to the date hereof, the business
of the Companies and their Subsidiaries has been conducted in the ordinary
course consistent with past practices (including, without limitation, with
regard to underwriting, pricing, actuarial and investment policies generally)
and there has not been:
(a) any event, occurrence, development or state of circumstances or facts
which has had or would reasonably be expected to have a Material Adverse Effect
on the Companies, other than those resulting from changes in general economic
conditions or changes generally affecting companies engaged in the lines of
insurance business in which the Companies and their Subsidiaries engage;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of any Company, or any
repurchase, redemption or
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other acquisition by any Company or any Subsidiary of any Company of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, any Company or any Subsidiary of any Company;
(c) any incurrence, assumption or guarantee by any Company or any
Subsidiary of any Company of any indebtedness for borrowed money;
(d) any transaction or commitment made, or any contract or agreement
entered into, by any Company or any Subsidiary of any Company (including the
acquisition or disposition of any assets) or any relinquishment by any Company
or any Subsidiary of any Company of any contract or other right, other than
transactions and commitments in the ordinary course of business consistent with
past practices, or any acquisition of assets or incurrence of liabilities by any
Company or any Subsidiary of any Company which are not primarily related to the
insurance business of the Companies and their Subsidiaries;
(e) any change in any method of accounting or accounting practice or policy
(including, without limitation, any reserving method, practice or policy) by any
Company or any Subsidiary of any Company, except for any such change to conform
with SAP or GAAP as a result of a concurrent change in GAAP or SAP;
(f) to the extent payable directly or indirectly by any Company or any
Subsidiary of any Company, any (i) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director, officer or
employee (or any amendment to any such existing agreement), (ii) grant of any
severance or termination pay to any director, officer or employee other than in
the ordinary course of business, (iii) change in compensation or other benefits
payable to any director, officer or employee other than in the ordinary course
of business or (iv) loans or advances to any directors, officers or employees,
except for ordinary travel and business expenses in the ordinary course of
business;
(g) any change in any material way by any Company or any Subsidiary of any
Company in underwriting practices or standards;
(h) any material insurance transaction (other than the transactions
contemplated by Section 7.10) by any Company or any Subsidiary of any Company;
(i) any significant change by the Company or any Subsidiary of any Company
in the compensation structure of, or benefits available to, any significant
agent or with respect to agents generally;
(j) any lien created or assumed on any of the assets of the Company or any
Subsidiary of any Company, which lien relates to liabilities individually or in
the aggregate exceeding $100,000;
(k) any damage, destruction or loss (whether or not covered by insurance)
exceeding $100,000 affecting any of the assets of the Company or any Subsidiary
of any Company;
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(l) any work stoppage, strike, labor difficulty or union organizational
campaign (in process or threatened) at or affecting the Company or any
Subsidiary of any Company;
(m) any sale, transfer or conveyance of any investments or other assets of
the Company or any Subsidiary of any Company other than the Brougher Building
with an individual book value in excess of $75,000, except in the ordinary
course of business and consistent with past practice;
(n) any amendment, termination, waiver, disposal or lapse thereof, or other
failure to preserve, any material license, permit or other form of authorization
of the Company or any Subsidiary of any Company;
(o) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible Assets which exceed $75,000 in the
aggregate; and
(p) any agreement or commitment (contingent or otherwise) by any Company or
any Subsidiary of any Company to do any of the foregoing.
SECTION 3.10 No Undisclosed Material Liabilities. There are no
-----------------------------------
liabilities of any Company or any Subsidiary of any Company of any kind
whatsoever (including any liabilities related to VASA Properties or the Brougher
Building), whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities provided for in the Balance Sheets;
(b) liabilities disclosed on Schedule 3.10;
(c) liabilities incurred since the Balance Sheet Date in the ordinary
course of business and in amounts and on terms consistent with past practice;
and
(d) other undisclosed liabilities that do not have a Material Adverse
Effect on the Companies and their Subsidiaries, taken as a whole.
SECTION 3.11 Material Contracts.
------------------
(a) Except as disclosed in Schedule 3.11, as of the date hereof neither of
the Companies nor any of their Subsidiaries is a party to or bound by:
(i) any lease of real property where any of the Companies or their
Subsidiaries are tenants (A) providing for annual base rentals of $25,000 or
more, (B) expiring after December 31, 1998 or (C) where the Sellers or any of
their Affiliates holds an equity interest in such real property;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets, including any license for Software, that
provides for either (A) annual payments by any Company or any Subsidiary of any
Company of $25,000 or more or (B) aggregate payments by any Company or any
Subsidiary of any Company of $100,000 or more;
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(iii) any limited partnership, joint venture or other unincorporated
business organization or similar arrangement or agreement in which such Company
or Subsidiary serves as a general partner or otherwise has unlimited liability,
or any other material similar agreement or arrangement);
(iv) any agreement relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or otherwise);
(v) any agreement with any unaffiliated third party relating to the
indebtedness for borrowed money or any guarantee or similar agreement or
arrangement relating thereto;
(vi) any license, franchise or similar agreement material to the
Companies and their Subsidiaries, taken as a whole;
(vii) any agency, dealer, sales representative, marketing or other
similar agreement material to the Companies and their Subsidiaries, taken as a
whole;
(viii) any agreement that restricts or prohibits any Company or any
Subsidiary of any Company from competing with any Person in any line of business
or from competing in, engaging in or entering into any line of business in any
area and which would so restrict or prohibit any Company or any Subsidiary of
any Company after the Closing Date;
(ix) any reinsurance treaty or any material facultative reinsurance
contract (in each case applicable to insurance in force);
(x) any significant agreement containing "change in control" or
similar provisions relating to change in control of any of the Companies or
their Subsidiaries;
(xi) any powers of attorney other than those entered into in the
ordinary course of business in the surety bond business;
(xii) any "stop-loss" agreements, other than those entered into in
the ordinary course of business consistent with past practice;
(xiii) any agreements (other than insurance policies or other similar
agreements issued by any Company or any Subsidiary of any Company in the
ordinary course of its business) material to the Companies and their
Subsidiaries taken as a whole pursuant to which any Company or any Subsidiary of
any Company is obligated to indemnify any other person;
(xiv) any agreement with the Sellers or any of their Affiliates; or
(xv) any agreement with any broker, reinsurance intermediary, agent,
consultant or third-party administrator.
(b) The Sellers have heretofore furnished or made available to Buyer
complete and correct copies of the contracts, agreements and instruments listed
on Schedule 3.11, each as amended or modified to the date hereof (including any
waivers with respect thereto) (the
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"Significant Agreements"). Except as specifically disclosed on Schedule 3.11,
and except to the extent not material to the Companies and their Subsidiaries
taken as a whole: (i) each of the Significant Agreements is in full force and
effect and enforceable in accordance with its terms, subject to (x) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and the rights of creditors of insurance companies generally and (y)
general principles of equity (regardless of whether considered in a proceeding
at law or in equity); (ii) neither the Sellers, nor any of the Companies nor any
of their Subsidiaries has received any notice (written or oral) of cancellation
or termination of any of the Significant Agreements; (iii) no Significant
Agreement is the subject of, or, to the knowledge of the Sellers, has been
threatened to be made the subject of, any arbitration, suit or other legal
proceeding; (iv) with respect to any Significant Agreement which by its terms
will terminate as of a certain date unless renewed or unless an option to extend
such Significant Agreement is exercised, neither the Sellers, nor any of the
Companies nor any of their Subsidiaries has received any notice (written or
oral), or otherwise has any knowledge, that any such Significant Agreement will
not be so renewed or that any such extension option will not be exercised; and
(v) there exists no material event of default or occurrence, condition or act on
the part of any Company or any Subsidiary of any Company or, to the knowledge of
the Sellers on the part of the other parties to the Significant Agreements,
which constitutes or would constitute (with notice or lapse of time or both) a
material breach of or material default under any of the Significant Agreements.
SECTION 3.12 Litigation. Except as disclosed in Schedule 3.12, neither
----------
Company nor any Subsidiary of any Company nor any of their respective properties
is subject to any material order, writ, judgment, injunction, decree,
determination or award which would prevent or delay the consummation of the
transactions contemplated hereby. All pending or, to the knowledge of the
Sellers, threatened litigation against any Company or Subsidiary, regardless of
damages or relief requested, is set forth on Schedule 3.12.
SECTION 3.13 Compliance with Laws. Except as set forth in Schedule
--------------------
3.13, the Companies and their Subsidiaries are and have at all times since
January 1, 1993 been in compliance in all respects with all applicable laws,
statutes, ordinances, regulations, judgments, decrees and orders of any
governmental body, agency or official, whether foreign, Federal, state or local,
except for possible noncompliance that would not, individually or in the
aggregate, have a Material Adverse Effect on any Company or any Subsidiary.
SECTION 3.14 Properties. The Companies and their Subsidiaries have good
----------
title to, or in the case of leased property have valid leasehold interests in,
all of their respective property and assets (whether real or personal, tangible
or intangible) except for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate, materially detract from
the value reflected on the Balance Sheets. None of such property or assets is
subject to any Liens except:
(a) Liens reflected on the Balance Sheets;
(b) Liens for Taxes not yet due or being contested in good faith (and for
which adequate accruals or reserves have been established on the Balance
Sheets); and
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(c) Liens which do not, individually or in the aggregate, materially
detract from the value reflected on the Balance Sheets or materially interfere
with any present or intended use of any material property or assets.
SECTION 3.15 Licenses and Permits; Policies: Regulatory Matters.
--------------------------------------------------
(a) The Companies and their Subsidiaries hold all licenses, franchises,
permits or other similar authorizations (the "Permits") necessary for the
ownership and conduct of the respective businesses of the Companies and their
Subsidiaries in each of the jurisdictions in which the Companies and their
Subsidiaries conduct or operate their respective businesses in the manner now
conducted as set forth on Schedule 3.15, and such Permits are in full force and
effect except where any failure to hold any Permit or any failure of any Permit
to be in full force and effect would not, individually or in the aggregate,
materially impair the ability of the Companies and their Subsidiaries, taken as
a whole, to conduct their businesses.
(b) No material violations exist in respect of any material Permit of the
Companies and their Subsidiaries and except as set forth on Schedule 3.15, no
proceeding or investigation is pending or, to the knowledge of the Sellers,
threatened, that would be reasonably likely to result in the suspension,
revocation or material limitation or restriction of any material Permit. Except
as set forth on Schedule 3.15, neither of the Companies nor any Company
Subsidiary has received notice of any investigation, examination, administrative
proceeding, grand jury investigation or other law enforcement or administrative
proceeding by any governmental authority involving compliance by the Company or
any Company Subsidiary with any law, governmental order or Company Permit, and,
to the knowledge of the Company, no such proceeding or investigation is
threatened.
(c) All insurance policies issued by each Company and each Subsidiary of
each Company as now in force are, to the extent required under applicable law,
in a form acceptable to applicable regulatory authorities, or have been filed
and not objected to by such authorities within the period provided for
objection.
(d) Each Company and each Subsidiary of each Company has filed all material
reports, statements, documents, registrations, filings or submissions required
to be filed by such Company or Subsidiary with any applicable Federal, state or
local regulatory authorities, including, without limitation, state insurance
regulatory authorities. All such reports, statements, documents, registrations,
filings and submissions complied in all material respects with applicable law in
effect when filed and no material deficiencies have been asserted by any such
regulatory authority with respect to such reports, statements, documents,
registrations, filings or submissions that have not been satisfied. Such
reports, statements, documents, registrations, filings or submissions were in
material compliance with applicable law when filed. Since January 1, 1993,
except as disclosed in Schedule 3.15, neither the Companies nor any Company
Subsidiary has submitted any written response with respect to material comments
from any governmental insurance authority concerning such reports, statements,
documents, filings, registrations, submissions or reports and no fine or penalty
in excess of $2,500 has been imposed on the Companies or any Company Subsidiary
by any governmental agency.
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(e) Except as set forth on Schedule 3.15, all premium rates, rating plans
and policy forms established or used by any Company or any Subsidiary of any
Company that are required to be filed with or approved by insurance regulatory
authorities have been so filed or approved, the premiums charged and policy
forms used conform in all material respects to the premiums, rating plans and
policy forms so filed or approved and comply in all material respects with the
insurance laws applicable thereto and, to the Sellers' knowledge, no such
premiums are subject to any review or investigation by any insurance regulatory
authority.
(f) Except as set forth on Schedule 3.15, to the knowledge of the Sellers,
each appointed agent and broker was, at the time of appointment or reappointment
with either of the Insurance Companies or any other insurance company for which
VBI acts as an underwriter, properly licensed by appropriate regulatory
authorities to represent the relevant insurance company.
SECTION 3.16 ERISA Representations.
---------------------
(a) Schedule 3.16(a) identifies each Employee Plan. The Sellers have
furnished or made available to Buyer current copies of the Employee Plans,
summary plan descriptions, and, if applicable, related trust agreements, and all
amendments thereto together with (i) the most recent annual report prepared in
connection with any Employee Plan (Form 5500 including, if applicable, Schedule
B thereto) and (ii) the most recent actuarial valuation report prepared in
connection with any Employee Plan.
(b) All contributions required to be made and all contributions accrued as
of the Balance Sheet Date under the terms of any Employee Plan or Benefit
Arrangement for which the Companies or any of their Subsidiaries or ERISA
Affiliates may have liability have been timely made or have been reflected on
the appropriate financial statements. There is no accumulated funding
deficiency, whether or not waived, within the meaning of Section 302 of ERISA or
Section 412 of the Code, with respect to any Employee Plan that is a pension
plan subject to Part 3 of Title I of ERISA. The Companies have not incurred,
nor reasonably expect to incur prior to the Closing Date (other than a liability
for premiums under Section 4007 of ERISA), any liability under Title IV of ERISA
that will not be satisfied in full as of the Closing Date.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has received a favorable determination
letter from the Internal Revenue Service. No circumstance has occurred that may
result in loss of such qualification or is likely to result in a revocation of
any such favorable determination letter. No Employee Plan is a Multiemployer
Plan or a multiple employer plan (within the meaning of Section 413(c) of the
Code). Each Employee Plan that is not a Multiemployer Plan has been maintained
in compliance in all material respects with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code.
(d) Schedule 3.16(d)(i) identifies each Benefit Arrangement. The Sellers
have furnished or made available to Buyer current copies or descriptions of each
Benefit Arrangement. Each Benefit Arrangement has been maintained in compliance
in all material respects with its
17
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terms and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations.
(e) Each Employee Plan that is a "group health plan" (as defined in Section
4980B of the Code) has, to the knowledge of the Sellers, been operated in
substantial compliance with Section 4980B of the Code at all times.
(f) Neither the Companies nor any of their Subsidiaries have any
obligations for retiree or former employee health or life benefits under any
Employee Plan or Benefit Arrangement except as set forth on Schedule 3.16 or as
provided under Section 601 et seq. of ERISA and Section 4980B of the Code.
(g) Except as provided for in Section 6.3 of this Agreement or as set forth
in Schedule 3.16, the execution and delivery of this Agreement do not, and the
performance of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any of the Companies' Employee Plans or Benefit Arrangements that
will or may result in any payment (whether of severance or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee of the
Companies or any of their Subsidiaries or ERISA Affiliates.
(h) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Companies or any of their Subsidiaries or
ERISA Affiliates that, individually or collectively, could give rise as a result
of the transactions contemplated by this Agreement to the payment of any amount
that would not be deductible pursuant to the terms of Section 162(a)(1) or 280G
of the Code.
(i) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Companies or any of their Subsidiaries or ERISA
Affiliates relating to, or change in employee participation or coverage under,
any of the Companies' Employee Plans or Benefit Arrangements which would
increase the expense of or for such Employee Plans or Benefit Arrangements to
the Companies or any of their Subsidiaries materially above the level of the
expense incurred in respect thereof for the fiscal quarter ended on the Balance
Sheet Date.
(j) With respect to a plan or arrangement that is neither a Benefit
Arrangement or an Employee Plan on or after the date of this Agreement but was a
Benefit Arrangement or an Employee Plan on any prior date, no circumstance has
occurred or exists for which Buyer or the Companies or any of their Subsidiaries
reasonably may be anticipated to have any liability.
(k) Neither any of the Companies nor any of their Subsidiaries or ERISA
Affiliates is subject to any agreement pursuant to which Buyer or the Companies
or any of their Subsidiaries may be required to indemnify any other party in
connection with a liability arising in connection with a Benefit Arrangement or
an Employee Plan.
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SECTION 3.17 Environmental Compliance. Except as set forth in Schedule
-------------------------
3.17 or as would not individually or in the aggregate have a Material Adverse
Effect, (a) the Companies and their Subsidiaries are each in compliance, and
have at all times been in compliance, with all applicable Environmental Laws;
(b) the Companies and their Subsidiaries have all Permits required under any
applicable Environmental Laws and are in compliance with their respective
requirements; (c) there are no pending or, to the knowledge of Sellers,
threatened claims under Environmental Laws against any of the Companies or any
of their Subsidiaries; (d) under applicable law, there are no circumstances with
respect to any property or operations, or any former properties or former
operations, of any of the Companies or their Subsidiaries, or any site where any
Hazardous Substances may have been disposed of or released by or on behalf of
any of the Companies or any Subsidiary, that are reasonably likely to form the
basis of a claim under Environmental Laws against any of the Companies or their
Subsidiaries; (e) neither the Companies nor their Subsidiaries have exposed any
employee or third party to any Hazardous Substances which has subjected or may
subject the Companies or their Subsidiaries to liability under any Environmental
Laws; (f) no underground storage tanks or asbestos-containing material have ever
been located on properties currently or formerly owned or operated by the
Companies or their Subsidiaries; and (g) the Companies and their Subsidiaries
have delivered to Buyer copies of all environmental assessments, audits,
studies, and other environmental reports in its possession or reasonably
available to it relating to the Companies or the Subsidiaries or any of their
current or former properties or operations. "Environmental Laws" means any and
all foreign, Federal, state or local statutes, laws, regulations, ordinances,
rules codes, common law, and all judicial, administrative, and regulatory
orders, judgments, decrees, permits, and authorizations relating to the
environment, to the effect of the environment on human health or safety or to
the use, generation, manufacturing, treatment, disposal, storage, discharge or
release of Hazardous Substances into the environment, including without
limitation, ambient air, surface water, around water or land, or the remediation
thereof. "Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum and its derivatives and by-
products, or any substance having any constituent elements displaying any of the
foregoing characteristics, regulated under Environmental Laws.
SECTION 3.18 Intellectual Property; Software.
-------------------------------
(a) The Companies and their Subsidiaries own or otherwise have rights to
use (in each case, free and clear of any material Liens or other material
limitations or restrictions) all Intellectual Property used in their respective
businesses as currently conducted, and, except as provided in Section 7.4, the
consummation of the transactions contemplated hereby will not result in the loss
of any such rights (or require the payment of any additional fees or royalties
in order to maintain such rights); the use of any Intellectual Property by the
Companies and their Subsidiaries does not infringe on or otherwise violate the
rights of any Person; and to the Sellers' knowledge no person is challenging,
infringing on or otherwise violating any right of any Company or any Subsidiary
of any Company with respect to any Intellectual Property owned by and/or
licensed to the Companies and their Subsidiaries. For purposes of this Agreement
"Intellectual Property" shall mean trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration
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or application; inventions, discoveries and ideas, whether patentable or not in
any jurisdiction; patents, applications for patents (including, without
limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential information
and rights in any jurisdiction to limit the use or disclosure thereof by any
Person; writings and other works, whether copyrightable or not in any
jurisdiction; registrations or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights, but shall not include Software. For
purposes of this Agreement, "Software" shall mean all computer and
telecommunication software including source and object code and documentation
and any other media (including, without limitation, manuals, journals and
reference books).
(b) Except as set forth in Schedule 3.18, the Companies and their
Subsidiaries own, or have valid and enforceable licenses or other rights to use
(in each case, free and clear of any material Liens or other material
limitations or restrictions), all Software used in the conduct of their
respective businesses as currently conducted; the use of the Software by the
Companies and their Subsidiaries does not infringe on or otherwise violate the
rights of any person; and to the Sellers' knowledge no person is challenging,
infringing on or otherwise violating any right of any Company or any Subsidiary
of any Company with respect to any Software used by the Companies and their
Subsidiaries.
(c) Except as set forth in Schedule 3.18, the information technology
systems of the Companies and their Subsidiaries, including without limitation,
their client/server networks, are in good operating condition, with adequate
capacity suitable for the conduct of the business as presently conducted and as
contemplated for 1998 and 1999. Except as set forth in Schedule 3.18, there are
no planned upgrades to or investments in such information technology systems
during 1998 or 1999.
(d) Attached as Schedule 3.18, is the plan of the Companies and their
Subsidiaries designed to ensure that all date-related output, calculations or
results before, during or after the calendar year 2000 that are produced or used
by any hardware, software, firmware or facilities systems ("Computer Systems")
owned or used by either Company or any Subsidiary are Year 2000 Compliant (the
"Year 2000 Plan"). For purposes of this section, "Year 2000 Compliant" means:
(i) all dates receivable by the Computer Systems, as well as
calculations, output and results will (A) include a consistent-length century
indicator of at least two base ten digits, and (B) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(ii) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
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(iii) data calculations involving either a single century or multiple
centuries will neither (A) cause an abnormal ending or operation nor (B)
generate incorrect results or results inconsistent with output or results from
any other century;
(iv) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(v) leap years will be determined by the following standard: (A)
if dividing the year by 4 yields an integer, it is a leap year, except for
years ending in 00, but (B) a year ending in 00 is a leap year if dividing it by
400 yields an integer.
(e) To the knowledge of Sellers, the Year 2000 Plan, if executed in
accordance with the time schedules set forth therein, will result in the
Computer Systems being Year 2000 Compliant by December 31, 1998. Except as
disclosed therein in Schedule 3.18, the Year 2000 Plan has been implemented in
accordance with such time schedules.
(f) Neither Eureko nor the Sellers make any representation as to whether
any hardware, software, firmware of facilities systems used but not owned by
either Company or any Subsidiary are Year 2000 Compliant.
SECTION 3.19 Labor Matters. Neither Company nor any Subsidiary of any
-------------
Company is a party to any collective bargaining or other labor union contract
and no collective bargaining agreement is being negotiated by any Company or any
Subsidiary of any Company. Except as set forth in Schedule 3.19, neither Seller
has any knowledge of any material activities or proceedings of any labor union
to organize any employees of any Company or any Subsidiary of any Company.
There is no material labor dispute, strike or work stoppage against any Company
or any Subsidiary of any Company pending or, to the Sellers' knowledge,
threatened that would have a Material Adverse Effect on the respective business
activities of the Companies or any of their Subsidiaries.
SECTION 3.20 Reserves. The reserves of SLIC (USA) and VASA North
--------
Atlantic are determined in accordance with generally accepted actuarial
standards, are fairly stated in accordance with sound actuarial principles, are
based on actuarial assumptions approved by the respective appointed actuaries,
are reasonable provisions for the unpaid claims obligations under the Companies'
insurance policies, and in all material respects meet the requirements of
applicable insurance statutes, laws and regulations. The reserves of the
Insurance Companies as of December 31, 1997, were examined but not certified by
an independent actuary and the reports of such actuary related to such
examinations have been made available to Buyer.
SECTION 3.21 Investments. Schedule 3.21 describes in reasonable detail
-----------
all Company Investment Assets as of the Balance Sheet Date. For purposes of
this Agreement, "Company Investment Assets" means any investment assets (whether
or not required by GAAP or SAP to be reflected on a balance sheet) beneficially
owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) by any Company or any Subsidiary of any Company, including,
without limitation, bonds, notes, debentures, mortgage loans, collateral
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loans and all other instruments of indebtedness, stocks, partnership or joint
venture interests and all other equity interests, certificates issued by or
interests in trusts, derivatives and all other assets acquired for investment
purposes.
SECTION 3.22 No Other Representations. Buyer acknowledges that Eureko
------------------------
and the Sellers make no representations or warranties with respect to (i) any
financial projection or forecast relating to the Companies or (ii) any other
information provided to Buyer or its representatives, except to the extent set
forth as representations and warranties in this Article 3 and the Schedules.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to each of the Sellers and Eureko as of the
date hereof and as of the Closing Date (but as of no other dates unless
expressly so stated) that:
SECTION 4.1 Corporate Existence and Power. Buyer has been duly
-----------------------------
incorporated and is validly existing and in good standing under the laws of
Delaware and has all corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Buyer has heretofore delivered to the Sellers true
and complete copies of its certificate of incorporation and bylaws as in effect
on the date hereof.
SECTION 4.2 Corporate Authorization. The execution, delivery and,
-----------------------
subject to the receipt of the approvals referred to in Section 4.3, performance
by Buyer of this Agreement are within the corporate power of Buyer and have been
duly authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and legally binding agreement of Buyer,
enforceable against Buyer in accordance with its terms, subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and the rights of creditors of insurance companies
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
SECTION 4.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by Buyer of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official on the part of Buyer
other than (i) compliance with any applicable requirements of the HSR Act, (ii)
approvals or filings under the insurance laws of the jurisdictions set forth in
Schedule 4.3, (iii) filings and notices not required to be made or given until
after the Closing Date, (iv) filings, at any time, of tax returns, tax reports
and tax information statements and (v) any such action or filing as to which the
failure to make or obtain would not individually or in the aggregate have a
Material Adverse Effect on Buyer.
SECTION 4.4 Non-Contravention. Except as set forth in Schedule 4.4,
-----------------
the execution, delivery and performance by Buyer of this Agreement do not and
will not (i) violate the certificate of incorporation or bylaws of Buyer, (ii)
assuming compliance with the matters referred to in Section 4.3, violate any
applicable law, rule, regulation, judgment, injunction, order or decree, (iii)
require any consent or other action by any Person under, constitute a default
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under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Buyer or any of its Subsidiaries or to a loss of any
benefit to which Buyer or any of its Subsidiaries is entitled under, any
material agreement or other instrument binding upon Buyer or any material
license, franchise, permit or other similar authorization held by Buyer or (iv)
result in the creation or imposition of any material Lien on any asset of Buyer.
SECTION 4.5 Financing. Buyer has, or will have prior to the Closing,
---------
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make payment of the Purchase Price and any other
amounts to be paid by it hereunder.
SECTION 4.6 Purchase for Investment. Buyer is purchasing the Shares for
-----------------------
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its
investments in the Shares and is capable of bearing the economic risks of such
investment.
ARTICLE 5
COVENANTS OF THE SELLERS AND EUREKO
-----------------------------------
Each of the Sellers and Eureko agrees that (it being understood that each
Seller and Eureko makes only such covenants as may be performed by it or its
Subsidiaries):
SECTION 5.1 Conduct of the Companies. Except as otherwise expressly
------------------------
provided in this Agreement, during the period from the date hereof to the
Closing, the Sellers will cause the Companies and their Subsidiaries to conduct
their operations according to their ordinary course of business consistent with
past practices, will cause the Companies and their Subsidiaries to use their
reasonable best efforts to preserve intact their respective business
organizations, generally to keep available the services of their respective
officers and employees and generally to maintain existing relationships with
agents, licensors, licensees, suppliers, contractors, distributors, customers
and others having business relationships with them, and will cause the Companies
and their Subsidiaries, to the extent permitted by applicable law, to confer
with Buyer on significant operational matters and material decisions affecting
the business of the Companies and their Subsidiaries. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement or as set forth in Schedule 5.1, the Sellers will cause each of the
Companies and each Subsidiary of any Company not to, without the prior written
consent of Buyer:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, stock appreciation rights), or amend any of the terms of any such
securities or agreements outstanding as of the date hereof;
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(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock, or
property or any combination thereof) in respect of its capital stock, or redeem,
repurchase or otherwise acquire any of its securities;
(d) (i) incur any indebtedness for borrowed money or issue any debt
securities or, assume, guarantee or endorse the obligations of any other Person;
(ii) make any loans, advances or capital contributions to, or investments in,
any other Person (other than (A) to wholly owned Subsidiaries of the Companies,
(B) investments in the ordinary course of business consistent with past
practice, or (C) pursuant to the terms of the agreements listed in Schedule
3.11), in excess of $100,000; (iii) pledge or otherwise encumber shares of its
capital stock; (iv) enter into or invest in any derivative financial instruments
except in the ordinary course of business consistent with current investment and
risk management policies; or (v) mortgage or pledge any of its assets, tangible
or intangible, or create or suffer to exist any Lien thereupon;
(e) to the extent payable directly or indirectly by any Company or any
Subsidiary of any Company, enter into, adopt or (except as may be required by
law or the terms of any such arrangement) terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee, amend any such
arrangement as it relates to such directors, officers or employees or (except
for increases in base compensation in the ordinary course of business consistent
with past practice) increase in any manner the compensation or benefits of any
director, officer or employee or, with respect to any director or officer, pay
any benefit not required by any plan or arrangement as in effect as of the date
hereof or, with respect to any employee who is not an officer or director, pay
any benefit other than in the ordinary course of business consistent with past
practice in accordance with plans or arrangements in effect as of the date
hereof (including, without limitation, with respect to any such director,
officer or employee, the granting of stock options, restricted stock, stock
appreciation rights or performance units); provided that Buyer agrees it will
not unreasonably withhold its consent, if requested by the Sellers, to
transactions proposed under this paragraph (e);
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or, whether or not in the ordinary course of business, any
assets which in the aggregate exceed $25,000 or are material to the Companies
and their Subsidiaries, taken as a whole, or enter into any contract, agreement,
commitment or transaction with respect thereto outside the ordinary course of
business consistent with past practice, except the transactions contemplated by
Section 7.10, the sale of the Brougher Building and any transaction or series of
transactions effectuated in order to satisfy the condition set forth in Section
9.2(b) hereof;
(g) change any of the accounting principles, practices, methods or policies
(including, without limitation, any reserving methods, practices or policies)
used by it, except as may be required as a result of a change in law, GAAP or
SAP;
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(h) change the method of determining the GAAP reserves for any guaranty
fund assessment, second injury fund assessment, special insurance assessment or
similar assessment or tax;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or
assets, but excluding foreclosure) any corporation, partnership or other
business organization or division thereof; (ii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $25,000 or, in
the aggregate, are in excess of $100,000; (iii) settle any litigation for
amounts more than $200,000; or (iv) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(j) make any Tax election or settle or compromise any Tax liability, other
than in the ordinary course of business or enter into any tax sharing agreements
or arrangements with any party;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
(i) the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in the consolidated financial statements (or the
notes thereto) of the Companies and their Subsidiaries or incurred in the
ordinary course of business consistent with past practice and (ii) the payment
of any debt owed by either Company or any Subsidiary thereof to either Company
or any Subsidiary thereof;
(1) terminate, or in any manner material thereto modify, amend or waive
compliance with, any provision of any of the Significant Agreements;
(m) change its underwriting standards or practices in any material way;
(n) effect any material or unusual insurance transaction other than the
transactions contemplated by Section 7.10;
(o) significantly change the compensation structure of, or other benefits
available to, any of its significant agents or to its agents generally;
(p) effect any transactions with the Sellers or any of their Affiliates,
other than pursuant to arrangements existing as of the date hereof;
(q) enter into any "stop-loss" agreement, other than those entered into in
the ordinary course of business consistent with past practice, facultative
reinsurance contract or reinsurance treaty, other than the transactions
contemplated by Section 7.10;
(r) enter into any agency, dealer, sales representative, marketing or other
similar agreement material to the Companies and their Subsidiaries, taken as a
whole;
(s) make an investment in any Company Investment Assets other than in
accordance with the Companies' and their Subsidiaries' current investment
policies; or
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(t) take, or agree in writing or otherwise to take, any of the actions
described above in this Section 5.1.
SECTION 5.2 Access to Information. From the date hereof until the
---------------------
Closing Date, subject to any applicable contractual restrictions and applicable
legal privileges, and to the extent applicable law would not thereby be
violated, the Sellers will (i) give, and will cause the Companies and their
Subsidiaries to give, Buyer, its counsel, financial advisors, auditors and other
authorized representatives full access, upon reasonable prior notice and during
normal business hours, to the offices, properties, books and records of the
Companies and each of their Subsidiaries and to the books and records of the
Sellers relating to the Companies and their Subsidiaries, (ii) furnish, and will
cause the Companies and their Subsidiaries to furnish, to Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information relating to the Companies or any of
their Subsidiaries as such Persons may reasonably request and (iii) instruct the
employees, counsel and financial advisors of the Sellers or the Companies or any
of their Subsidiaries to cooperate with Buyer in its investigation of the
Companies or any of their Subsidiaries; provided that this Section 5.2 shall not
obligate the Sellers to provide or make available to Buyer any employee medical
records; provided, further, that to the extent contractual restrictions limit
the Sellers' ability to take any of the actions set forth in this Section 5.2,
the Sellers shall use its best efforts to obtain any necessary contractual
consent or accommodate any reasonable request by Buyer with respect to such
action by alternative means and provided, further, that to the extent applicable
legal privileges or applicable laws limit the Sellers' ability to take any of
the actions set forth in this Section 5.2, the Sellers shall use their best
efforts to accommodate any reasonable request by Buyer with respect to such
action by alternative means.
SECTION 5.3 Notices of Certain Events. The Sellers shall promptly notify
-------------------------
Buyer of:
(a) any notice or other communication received by the Sellers from any
Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication received by the Sellers or the
Companies or any Subsidiary of either Company relating to the transactions
contemplated by this Agreement and any other significant notices or other
communications from any governmental or regulatory agency or authority other
than reports or communications regarding consumer complaints received in the
ordinary course of business;
(c) any actions, suits, claims, investigations or proceedings commenced or,
to the Sellers' knowledge threatened against, relating to or involving or
otherwise affecting the Sellers, the Companies or any Subsidiaries of any of the
Companies that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.12 or that relate to the
consummation of the transactions contemplated by this Agreement; and
(d) any notice or other communications received by Sellers or the Companies
or any Subsidiary of either Company relative to (i) a reduction or threatened
reduction to the AM Best
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rating of either Insurance Company or (ii) a disavowal or threatened disavowal
by any reinsurer of coverage under any reinsurance contract.
SECTION 5.4 Resignations. The Sellers will deliver to Buyer the
------------
resignations of all directors of the Companies and each Subsidiary of any of the
Companies at or prior to the Closing Date.
SECTION 5.5 No Solicitation. The Sellers will immediately cease any
---------------
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any Acquisition Proposal (as defined below). The
Sellers shall not, directly or indirectly, through any officer, director,
employee, representative or agent or any of the Sellers, any of the Companies or
any of their Subsidiaries, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or would lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of a
substantial percentage of shares of capital stock or similar transactions
involving any of the Companies or their Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information to any person or entity relating to, any Acquisition Proposal or
(iii) agree to or approve any Acquisition Proposal. The Sellers shall notify
Buyer promptly after receipt by the Sellers of any Acquisition Proposal or any
request for nonpublic information in connection with an Acquisition Proposal or
for access to the properties, books or records of the Companies or any of their
Subsidiaries by any person or entity that informs the Sellers that it is
considering making, or has made, an Acquisition Proposal. Such notice shall be
made orally (and confirmed in writing) and shall indicate the identity of the
offeror and the terms and conditions of such proposal, inquiry or contract.
SECTION 5.6 Certain Other Transactions. Prior to the Closing Date,
--------------------------
Eureko shall cause the ownership of VASA Properties to be transferred or shall
cause VASA Properties to be liquidated and all of its liabilities and
obligations assigned to an Affiliate of Eureko; in either case with the result
that neither any Company nor Subsidiary thereof has an ownership or other
economic interest in VASA Properties or in the Brougher Building, or any
liability or obligation with respect thereto. Prior to the Closing Date,
Sellers shall have caused Lessee's interest in the lease between Thomas Pollard
and VBI, as amended through First Amendment to Lease dated June 22, 1998 for
residential property at 14403 Misty Pine, Carmel, Indiana to have been
transferred or terminated in either case with the result that neither any
Company nor Subsidiary thereof has an economic or other interest or obligation
for the lease of said property.
SECTION 5.7 Use of Computer Software.
------------------------
(a) With respect to all Software that is not owned by either of the
Companies or any of their respective Subsidiaries but which is presently used in
the operation of the business of any of the Companies or their Subsidiaries, the
Sellers shall use their best efforts, prior to Closing, to transfer or procure
from the necessary third parties an enforceable license with terms and
conditions of like tenor to those that are currently in force. Except as
specified on Schedule 5.7, Buyer shall incur all costs and expenses in excess of
ongoing royalty obligations incurred in
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connection with the transfer or license to the Companies and their Subsidiaries
of all such Software, including, but not limited to, payment of any transfer or
license fees or similar costs.
(b) From the date hereof and prior to the Closing, the Sellers agree that,
to the extent they develop, acquire or license any Software that is used in the
operation of the business of the Companies and their Subsidiaries, any such
Software owned exclusively by the Sellers shall be licensed to the Companies and
their Subsidiaries prior to the Closing on terms and conditions mutually
acceptable to Sellers and Buyer, and any such Software not owned exclusively by
the Sellers shall be licensed directly by one or more of the Companies and
their Subsidiaries.
SECTION 5.8 Testing and Remediation of Computer Systems. During the
-------------------------------------------
period commencing on the date hereof and ending on the Closing Date, Eureko
shall cause VBI to continue to devote three full-time employees to testing and,
if necessary, remediation of the Computer Systems owned or used by either
Company or their Subsidiaries in connection with VBI's efforts to ensure that
such Computer Systems become Year 2000 Compliant. Such employees shall remain
under the direct supervision and control of VBI, but Eureko shall cause VBI to
implement any recommendation made by Buyer with respect to the sequencing and
timing of the testing, remediation and assessment of such Computer Systems. In
addition, Eureko shall cause the Companies and their Subsidiaries to take
commercially reasonable steps to assess whether the Computer Systems of third
parties who perform insurance management, administrative or other services for
any Company or its Subsidiaries with respect to the ILA Business, the Fully
Insured Business, the Medicare Supplement Business or the Run-off PC Business
are Year 2000 Compliant and, if not, the extent of non-compliance. Eureko shall
cause the Companies and their Subsidiaries to use their commercially reasonable
efforts to require that the aforementioned third parties with non-compliant
Computer Systems cause their Computer Systems to become Year 2000 Compliant.
SECTION 5.9 Filing of Policy. During the period prior to the Closing
----------------
Date, the Insurance Companies shall, at Buyer's request, file a provider excess
policy, and rates filings related thereto, with the departments of insurance for
the states in which the Insurance Companies are licensed. In the event that the
transactions contemplated by this Agreement do not occur, at the Buyer's
request, the Insurance Companies shall withdraw any policy or rates filings that
had previously been made in accordance with this Section 5.9.
ARTICLE 6
COVENANTS OF BUYER
------------------
Buyer agrees that:
SECTION 6.1 Employees. With respect to each employee of the Companies
---------
or any Subsidiary who, as of the Closing Date, is employed by any of the
Companies or any of their Subsidiaries (including any such employee absent as of
such date from active service for any reason, including but not limited to
disability or leave of absence but excluding any terminated employee or part-
time or contract employee whether or not receiving severance) ("Transferred
Employees"), Buyer shall have no obligation to continue to employ such
Transferred Employee as of the Closing Date and shall be entitled to terminate
any employee of the Companies or any
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Subsidiary notwithstanding that such termination will trigger severance or
termination payments. Buyer shall have no obligation following the Closing to
retain the employment policies, practices and procedures of the Companies and
their Subsidiaries, and may require that all Transferred Employees remaining in
the employ of Buyer or the Companies and their Subsidiaries serve pursuant to
Buyer's employment policies, practices and procedures.
SECTION 6.2 Employee Plans and Benefit Arrangements. Buyer shall have
---------------------------------------
no obligation to maintain or continue to maintain any or all Employee Plans and
Benefit Arrangements covering Transferred Employees or be responsible for any
liability to provide benefits under such Employee Plans or Benefit Arrangements
that exist on the Closing Date.
SECTION 6.3 Severance Arrangements. Not later than September 15, 1998,
----------------------
Buyer shall deliver to Sellers a list of employees of any of the Companies or
their Subsidiaries that Buyer does not intend to retain following the Closing
and Sellers shall cause the Companies and the relevant Subsidiaries to terminate
the employment of all such employees prior to or concurrent with the Closing.
Except as noted below and in Section 10.2(b), Eureko shall be responsible and
assume all liability for all salary and benefit continuation and/or severance
payments (as identified in Schedule 6.3 hereto, "Termination Payments") relating
to any such employee that may be payable as a result of any termination of
employment of any such employee or the transactions contemplated by this
Agreement (including without limitations, the arrangements described in Schedule
3.9(f)), in accordance with the policies, practices and procedures of the
Companies regarding such matters as in effect on the date of Closing, and for
all notices, payments, fines or assessments due to any government authority
pursuant to any applicable statutes, orders, rules or regulations, including but
not limited to ERISA and the Worker Adjustment and Retraining Notification Act.
Notwithstanding the above, any group health plan coverage to which a Transferred
Employee or any employee described in the first sentence of this Section 6.3 may
become entitled pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA") or the terms of any arrangement or agreement to provide
Termination Payments shall be provided under plans maintained by Buyer or the
Companies or their Subsidiaries. To the extent that any such coverage is
provided to any such employee at a cost to the employee that is less than the
cost that could be charged under Section 4980B(f)(2)(C)(i) of the Code such
difference shall be deemed to be a Termination Payment. Eureko shall only be
required to make Termination Payments with respect to up to 100 persons employed
by the Companies or any of their Subsidiaries as of the date hereof (including
those subject to arrangements described in Schedule 3.9(f)). In the event that
fewer than 100 persons are terminated prior to the Closing, and Buyer terminates
the employment of any Transferred Employee not later than the second anniversary
of the Closing Date, Eureko shall reimburse Buyer within thirty (30) days of
demand therefore for all Termination Payments made with respect to such
terminated employee. In no event shall (i) Eureko be obligated to make
Termination Payments with respect to more than 100 employees (including those
subject to arrangements described in Schedule 3.9(f)); or (ii) the amount of
Termination Payments payable with respect to any person exceed the amount
identified in Schedule 6.3 or in the relevant arrangement described in Schedule
3.9(f)). Eureko shall not establish a liability for the Termination Payments on
the books of the Companies or their Subsidiaries except for the Insurance
Companies.
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SECTION 6.4 Repayment of Loan. On the Closing Date, Buyer shall pay all
-----------------
outstanding principal and accrued interest under the ABN AMRO Note, plus any
indemnification payment required thereunder as a result of prepayment on a day
prior to the last "Business Day" of any "Interest Period" (as such terms are
defined in the ABN AMRO Note), and provide to Eureko copies of all documentation
with respect to such repayment, all such payments referred to collectively as
the "Payoff Amount."
ARTICLE 7
COVENANTS OF BUYER, EUREKO AND THE SELLERS
------------------------------------------
Buyer and the Sellers agree that (it being understood that each Seller and
Eureko makes only such covenants as may be performed by it or its Subsidiaries):
SECTION 7.1 Reasonable Efforts. Subject to the terms and conditions of
------------------
this Agreement, Buyer and each Seller will use their reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
reasonably necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Buyer and each
Seller will promptly, and in any event within thirty (30) days of the date
hereof, prepare and file all applications, notices, consents and other documents
necessary or advisable to obtain the regulatory approvals specified in Schedule
4.3 and Schedule 3.3, respectively, promptly file all supplements or amendments
thereto and use reasonable efforts to obtain the regulatory approvals specified
in Schedule 4.3 and Schedule 3.3 as promptly as practicable. Buyer and each
Seller will provide each other and their counsel the opportunity to review in
advance and comment on all such filings. Buyer and each Seller will keep each
other informed of the status of matters relating to obtaining the regulatory
approvals specified in Schedule 4.3 and Schedule 3.3. The Sellers and Buyer
agree, and the Sellers, prior to the Closing, and Buyer, after the Closing,
agree to cause the Companies and each Subsidiary of any of the Companies to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
SECTION 7.2 Certain Filings. The Sellers and Buyer shall cooperate with
---------------
one another (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (ii) in taking such reasonable actions or
making any such filings, furnishing information required in connection therewith
and reasonably seeking to obtain in a timely fashion any such actions, consents,
approvals or waivers.
SECTION 7.3 Public Announcements. The parties agree to consult with
--------------------
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law, will not issue any such press release or make
any such public statement prior to such consultation.
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SECTION 7.4 Trademarks; Trade Names.
-----------------------
(a) Prior to the Closing Date, SLIC and SLIC (USA) shall enter into the
license agreement attached hereto as Exhibit B (the "License Agreement") with
---------
respect to use of "Seaboard."
(b) After the Closing, Buyer will not, and will not permit the Companies or
any of their Subsidiaries to, use any of the Sellers' other logos, marks or
names not specifically licensed or assigned by the License Agreement giving
effect to any updates to the schedules thereto as provided therein.
(c) On or before the expiration of the term of the License Agreement, Buyer
will cause SLIC (USA) to file with the applicable governmental body, agency or
official amendments to the Companies' or such Subsidiaries' articles or
certificate of incorporation to delete from its name the word "Seaboard Life"
and any marks and names derived therefrom and shall do or cause to be done all
other acts, including the payment of any fees required in connection therewith,
to cause each such amendment to become effective.
(d) The Sellers agree to cooperate with Buyer in connection with all
regulatory matters relating to the License Agreement.
(e) After the Closing, Buyer will cause the Companies and their
Subsidiaries to use the marks and names licensed to them pursuant to the License
Agreement only in connection with one or more of Buyer's existing names or
marks.
(f) Notwithstanding any provision in this Agreement or the License
Agreement to the contrary, following the Closing, the Companies and their
Subsidiaries may continue to use signs, labels, containers, stationery, forms
(including policy forms) and other printed material or matter which are included
as of the Closing in the assets or inventory of any Company or any Subsidiary of
any Company; provided that Buyer shall (i) use its reasonable efforts to deplete
the supply of such materials (excluding signs) containing or bearing the
trademarks, trade names and service marks listed on a schedule to the License
Agreement as soon as practicable in the ordinary course of business, but in no
event later than two years after the Closing Date and (ii) as promptly as
practicable following the Closing, remove any such signs which contain or bear
any of the trademarks, trade names and service marks listed on a schedule to the
License Agreement.
(g) Buyer shall retain all rights held by the Companies or any Subsidiaries
to the names "VASA," "Brougher" and to logos and marks associated therewith, as
set forth on Schedule 7.4.
SECTION 7.5 Intercompany Accounts.
---------------------
(a) All intercompany accounts between either Seller or any Affiliate of
either Seller (other than either Company or any Subsidiary of either Company),
on the one hand, and either Company or any Subsidiary of either Company, on the
other hand, as of the Closing shall be settled (irrespective of the terms of
payment of such intercompany accounts) in the manner provided in this Section
7.5. At least five (5) business days prior to the Closing, the Sellers shall
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prepare and deliver to Buyer a statement setting out in reasonable detail the
calculation of all such intercompany account balances based upon the latest
available financial information as of such date and, to the extent requested by
Buyer, provide Buyer with supporting documentation to verify the underlying
intercompany charges and transactions. All such intercompany account balances
shall be paid in full in cash prior to the Closing.
(b) As promptly as practicable, but no later than thirty (30) days after
the Closing Date, the Sellers will cause to be prepared and delivered to Buyer a
statement setting out in reasonable detail the calculation of such intercompany
account balances as of the Closing Date (giving effect to any settlement under
subsection (a) and any other payments in respect thereof). Buyer and the Sellers
shall cooperate in the preparation of any such calculation including the
provision of supporting documentation to verify the underlying intercompany
charges, transaction and payments. If Buyer disagrees with the Sellers'
calculation of such intercompany balances, Buyer may, within thirty (30) days
after delivery of such statement, deliver a notice to the Sellers disagreeing
with such calculation and setting forth Buyer's calculation of such amount. If
Buyer and the Sellers are unable to resolve such disagreement within thirty (30)
days thereafter, such disagreement shall be resolved by the Third Party
Accountant. The net amount of any such intercompany balance shall be paid in
cash promptly thereafter, together with interest thereon from and including the
Closing Date to but excluding the date of payment at the Three-Month Treasury
Bill Rate as of the date of delivery of Sellers' notice as required by this
Section 7.5(b).
SECTION 7.6 Non-Solicitation of Employees; Non-Competition.
----------------------------------------------
(a) For a period commencing on the date hereof through the third
anniversary of the Closing Date, (i) except as set forth on Schedule 7.6,
neither the Sellers nor any of their Affiliates shall affirmatively seek to hire
any officer or key employee of the Companies or any Subsidiary or Buyer or
Buyer's Subsidiaries whose annual base salary as of the date hereof equals or
exceeds $60,000 in any capacity whatsoever without the express written consent
of Buyer, and (ii) none of Buyer or any of their Affiliates shall affirmatively
seek to hire any officer or key employee of the Sellers whose annual base salary
as of the date hereof equals or exceeds $60,000 and with whom Buyer had
significant contact in connection with the transactions contemplated hereby in
any capacity whatsoever without the express written consent of the Sellers.
(b) For a period commencing on the date hereof through the third
anniversary of the termination of this Agreement pursuant to Section 10.1, none
of Buyer or any of its Affiliates shall (x) affirmatively seek to hire in any
capacity whatsoever any officer or key employee of the Companies whose annual
base salary as of the date hereof equals or exceeds $60,000 and with whom Buyer
had significant contact in connection with the transactions contemplated hereby
or (y) while any such officer or key employee is employed by the Sellers or any
of their Affiliates in a position having greater or substantially the same level
of compensation and responsibility as the position with the Companies held by
such officer or key employee on the date hereof, hire any such officer or key
employee in any capacity whatsoever without, in either case (x) or (y), the
express written consent of the Sellers.
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(c) The Sellers recognize that the provisions of clause (a)(i) of this
Section 7.6 are reasonable and necessary for Buyer's protection and Buyer
recognizes that the provisions of clause (a)(ii) and paragraph (b) of this
Section 7.6 are reasonable and necessary for the Sellers' protection, and the
Sellers and Buyer acknowledge that any breach of Section 7.6(a) or (b) will
cause irreparable injury to the Sellers or Buyer, as the case may be, which
injury will not be reasonably measurable or compensable by money damages.
Accordingly, each of the parties hereto agrees that it shall be entitled without
posting any bond to an injunction or injunctions to prevent breaches of the
provisions of paragraphs (a) and (b) of this Section 7.6 and to enforce
specifically the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having subject matter
jurisdiction in addition to any other remedy to which such party may be entitled
at law or equity.
(d) Until the third anniversary of the Closing Date, Eureko, Sellers and
their Subsidiaries and Affiliates covenant and agree with Buyer that they will
not, either directly or indirectly themselves or through a wholly or partially
owned Subsidiary, utilize the Seaboard name in any insurance related business in
the United States.
(e) If any provision of this Section 7.6 is held unenforceable because of
the scope or duration of its applicability, the court making such determinations
shall have the power to modify such scope or duration and such provisions shall
then be applicable in such modified form.
SECTION 7.7 Post-Closing Access. From and after the Closing Date, the
-------------------
Buyers shall retain the originals of all records of the Companies and their
Subsidiaries concerning Taxes. The Sellers shall cause all other books and
records of the Companies and their Subsidiaries, whether currently maintained by
the Sellers, any Company or any Subsidiary of any Company, or a third party, to
be available on the premises of the applicable Company or Subsidiary on the
Closing Date. On and after the Closing Date, Buyer will afford promptly to
Sellers, Eureko and their agents reasonable access, upon reasonable prior notice
and during normal business hours, to its offices, properties, books, records,
employees and auditors to the extent reasonably necessary to permit Sellers and
Eureko to determine any matter relating to the business of the Companies prior
to the Closing Date. Sellers and Eureko may, at their own expense, make such
copies of and excerpts from such books and records as it may deem necessary for
the preparation of Tax or regulatory reports or other purposes permitted hereby.
The Buyer shall maintain all such books and records for the period required by
law.
SECTION 7.8 Supplemental Disclosure. Each of Eureko and Buyer shall
-----------------------
have the continuing obligation promptly to advise the other with respect to (i)
any material matter hereafter arising and (ii) any material matter hereafter
discovered which, in the case of a matter being disclosed pursuant to clause (i)
hereof if existing at the date hereof or, in the case of a matter being
disclosed pursuant to clause (ii) hereof, if known at the date hereof would have
been required to be set forth or described in the respective Schedules provided
by them provided, however, that for the purpose of the rights and obligations of
the parties hereunder, any such supplemental or amended disclosure by any party
shall not be deemed to have been disclosed as of the date hereof, to constitute
part of, or an amendment or supplement to, such party's Schedules or cure any
breach or inaccuracy of a representation or warranty unless so agreed to in
writing by the other party. If prior to the Closing either Eureko or Buyer
becomes aware of a
33
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breach or inaccuracy of a representation or warranty made by it herein, such
party shall use its best efforts to cure such breach or inaccuracy as promptly
as practicable; provided, however, that no such cure will relieve such party of
any liability for such breach or inaccuracy.
SECTION 7.9 Confidentiality. Between the date of this Agreement and the
---------------
Closing Date, Buyer and the Sellers will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of Buyer, the Companies
and any of the Subsidiaries of any of the Companies to maintain in confidence
any written, oral, or other information obtained in confidence from another
party or any Company or any Subsidiary of any Company in connection with this
Agreement or the transactions contemplated by this Agreement (such information,
collectively, "Confidential Information"), unless (a) such Confidential
Information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such Confidential Information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated by this Agreement, or (c)
the furnishing or use of such Confidential Information is required by legal
proceedings; provided, however, that if, in the course of any legal proceedings,
either party is requested or required to disclose Confidential Information, such
party will, prior to any disclosure and within five (5) business days, notify
the other party in writing and provide the other party with copies of any such
written request or demand so that the other party may seek a protective order or
other appropriate remedy or waive in writing the provisions of this Section 7.9
to the extent necessary (provided that one or the other be done). If the
transactions contemplated by this Agreement are not consummated, each party will
return or destroy as much of such written Confidential Information as the other
party may reasonably request.
SECTION 7.10 Management of Certain Business.
------------------------------
(a) (i) Prior to Closing, the Sellers shall use commercially reasonable
efforts to cause the relevant Insurance Company to consummate as soon as
possible transactions pursuant to which the following lines of business of the
Insurance Companies will be reinsured on a 100% basis or otherwise transferred
to another insurance company and administered by such insurance company or a
third party administrator: (A) individual life insurance policies and annuity
business (the "ILA Business"); (B) fully insured group medical business (the
"Fully Insured Business"); (C) Medicare Supplement business (the "Medicare
Supplement Business"); and (D) professional liability insurance and non-standard
auto insurance business, together with contracts written through the New York
Insurance Exchange from 1984 through 1988 (the "Run-off PC Business" and any
transaction involving the reinsurance of the Run-off PC Business being referred
to herein as the "PC Reinsurance Transaction"). The reinsurer in any such
transaction and the terms thereof shall be subject to Buyer's consent. Without
limiting the generality of the foregoing, following any transition period called
for by the relevant agreements, the reinsurer or the relevant third party
administrator shall be responsible for the servicing and handling of all the
reinsured or transferred business, and neither of the Insurance Companies shall
thereafter have any responsibility for the servicing, handling or management of
such policies and contracts. During any aforementioned transition period, SLIC
shall continue to provide such management and financial reporting and
administrative services as it is currently providing to SLIC (USA) for the ILA
Business as Buyer shall request, unless SLIC (USA) has established in-house
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management and financial reporting and other administrative services or arranges
to obtain those services from another party.
(ii) As an alternative to reinsuring or otherwise transferring the
relevant business, the Sellers may cause the relevant Insurance Company to
withdraw from the Fully Insured Business, the non-standard auto insurance
business, and/or the Medicare Supplement Business (collectively, the "Withdrawal
Businesses"); provided, that neither of the Insurance Companies shall so
withdraw in any jurisdiction in which such withdrawal would adversely affect its
ability to transact medical stop-loss, group term life, or provider excess
insurance. Sellers shall consult with Buyer before taking any action to formally
withdraw from doing business in any jurisdiction and shall not take any such
action without the prior consent of Buyer, which consent shall not be
unreasonably withheld.
(iii) In the event that either SLIC (USA) or VASA North Atlantic is
unable to reinsure, transfer or withdraw from any of the ILA Business, the Fully
Insured Business, the Medicare Supplement Business or the Run-off PC Business
prior to Closing, Eureko shall continue to use commercially reasonable efforts,
and Buyer shall cause SLIC (USA) and VASA North Atlantic to cooperate with
Eureko in such efforts, to arrange the 100% reinsurance or transfer to a third
party of the ILA Business or the Run-off PC Business, as applicable, and a
withdrawal from, reinsurance of or transfer to another insurance company of the
Withdrawal Businesses. If no definitive agreement for the reinsurance or
transfer of any of the Withdrawal Businesses has been executed by January 1,
1999, Buyer shall be entitled, at Eureko's expense, to cause the Insurance
Companies to withdraw from such Withdrawal Business. Pending the time at which
the Insurance Companies have reinsured, transferred or withdrawn from all of the
lines of business addressed by this Section 7.10(a), and for the duration of any
period during which transitional services are provided to the relevant reinsurer
or third party administrator, Buyer shall continue to manage the business lines
that have not been reinsured, transferred or withdrawn from on behalf of Eureko
and shall be paid a fee by Eureko equal to: (A) direct out-of-pocket costs
incurred by Buyer in connection with the management of such business lines (to
the extent that such costs exceed (1) reserves specifically established on the
books of VASA North Atlantic for such expenses and (2) any payments by the
relevant reinsurer with respect to transitional services), plus (B) direct out-
of-pocket costs incurred by Buyer to purchase, acquire license or obtain the
rights to use Year 2000 Compliant Computer Systems (or portions thereof) and
overhead costs for implementation and operation of such Computer Systems (or
portions thereof) necessary to manage such business lines that have not been
reinsured, transferred or withdrawn from in the event that the Computer Systems
(or any portions thereof) of the Companies or their Subsidiaries, or any parties
administering any of the aforementioned business lines on behalf of the
Insurance Companies, are not Year 2000 Compliant and such non-compliance affects
in any material respect the ability of the Buyer to manage such business lines
on behalf of Eureko, and plus (C) an allocated management overhead charge
(consistent with Buyer's internal methodology related to charging back overhead
to its business units) related thereto. Upon consummation of any transaction to
reinsure, transfer or withdraw from any of such lines of business, and the
expiration of any period during which transitional services are provided to the
relevant reinsurer or third party administrator, Eureko shall be relieved of its
obligations to pay Buyer management fees relating to such line of business. If
following a period of six months after the Closing, Eureko is unable to arrange
the reinsurance or transfer of the ILA
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Business or the Run-off PC Business or if following a period of two years
following the Closing Eureko is unable to arrange the reinsurance or transfer of
or a withdrawal from the Withdrawal Businesses, Buyer may at its sole option
find a third party reinsurer or insurer to assume or take over any of the ILA
Business, the Run-off PC Business or the Withdrawal Businesses. Eureko shall
reimburse Buyer for Buyer's efforts in connection with any such transaction in
accordance with Section 7.10(a)(iii). Regardless of whether any reinsurance
transaction or other transfer of business pursuant to this Section 7.10(a)(iii)
is arranged by Eureko or by Buyer, it is acknowledged and agreed that all ceding
commissions or other concessions payable by the reinsurer shall inure to the
benefit of Eureko, and that Eureko shall be responsible for any guarantees,
indemnification, financial benefits or concessions given or granted to a third
party entering into any of such transactions, subject to the prior consent of
Eureko, which shall not unreasonably be withheld. For the avoidance of doubt, it
is hereby acknowledged and agreed that Buyer shall neither profit nor incur any
loss in connection with any such transaction.
(iv) During any time period in which Buyer is managing any business
lines pursuant to this Section 7.10(a), Buyer shall use commercially reasonable
efforts (and shall be reimbursed in accordance with Section 7.10(a)(iii) for
such efforts) to enforce all contractual rights either Insurance Company may
have with respect to such business lines. Without limiting the generality of
the foregoing, during any such period Buyer shall provide Eureko, upon Eureko's
request, with copies of financial and other reports received from third party
administrators with respect to such business lines. In addition, during any
such period Buyer shall, at Eureko's request and expense, exercise any audit
rights with respect to third parties and provide Eureko with copies of the
relevant audit reports.
(v) Eureko shall bear the credit and collection risk on all
reinsurance transactions contemplated by this Section 7.10(a). Accordingly,
should any reinsurer of any such business line not be able or willing to fulfill
its obligations under the applicable reinsurance arrangement, Eureko or an
Affiliate of Eureko shall assume in full the liabilities or obligations of such
reinsurer to the relevant Insurance Company.
(b) (i) Following the Closing Date, Buyer (through its Affiliates,
including the Insurance Companies) shall be responsible pursuant to this Section
7.10(b) for the servicing, management and run-off of the insurance business
currently conducted by the Companies and their Subsidiaries other than the ILA
Business, the Fully Insured Business, the Medicare Supplement Business and the
Run-off PC Business. All business to be managed by Buyer pursuant to this
Section 7.10(b) is referred to in this Agreement as the "Managed Business";
provided, that "Managed Business" shall not include any medical stop-loss or
group term life insurance policy renewed by or through Buyer or its Affiliates
or effective on or after the Closing, regardless of whether such policy is
issued by one of the Insurance Companies, but shall include all liabilities
attaching to any policy effective prior to the Closing Date. Buyer shall have
the right to collect all amounts due with respect to the Managed Business and to
pay all amounts owed with respect to the Managed Business. In addition, Buyer
shall have the exclusive right but not the obligation to renew the medical stop-
loss and group term life business included within the Managed Business. Buyer
shall exercise its business judgment in its sole discretion with respect to
management of the Managed Business and shall handle such Managed Business
consistent with its own customary business practices. All individual claim
payments in excess of $200,000
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shall be subject to prior approval by Eureko, provided that Eureko shall review
and approve all such claim payments consistent with Buyer's obligations to
process claims in a timely manner as required under applicable state insurance
laws, and provided further that Buyer shall provide Eureko written notice of the
pendency of such claim and relevant supporting documentation not later than five
(5) business days prior to the time at which payment of any such claim would be
required.
(ii) The Buyer will maintain such records regarding the Managed
Business as may be required by law. The Buyer will provide detailed monthly
financial reports to Eureko, in a form to be agreed upon by Buyer and Eureko,
with respect to the Managed Business. Eureko shall have the right to audit at
its expense the records of Buyer relating to the Managed Business up to four
times per year for the first year following the Closing and up to two times per
year for the next four years thereafter, provided that it shall give reasonable
advance notice of such audits and that the audits will be conducted during
normal business hours at the convenience of Buyer and at the offices of Buyer as
designated by Buyer.
(c) (i) Eureko shall be responsible for all loss development on the
Managed Business, the Fully Insured Business, the Run-off PC Business and the
Medicare Supplement Business (collectively, the "Covered Business"), all parties
hereto clearly understanding and agreeing that (A) Buyer shall not have any
obligation, liability or exposure, nor shall it suffer any financial loss
relating to any adverse loss development on the Covered Business or benefit from
any financial gain relating to any favorable loss development on the Covered
Business, and (B) Buyer shall not incur any underwriting loss or realize any
underwriting gain with respect to the Covered Business. Eureko or an Affiliate
of Eureko will provide protection for the Buyer as provided in this Section
7.10(c). In the event that an Affiliate is to provide such protection, Eureko
shall so notify Buyer prior to the Closing and the Affiliate shall execute a
signature page under which it will become a party to this Agreement solely for
the purpose of providing the protection contemplated by this Section 7.10(c).
(ii) At the Closing a claims run-off fund (the "Run-off Fund") shall
be established in an amount equal to 100% of the net statutory loss and loss
adjustment expense reserves on the books of the Insurance Companies on the
Closing Date for the Covered Business. The Run-off Fund will be increased or
decreased, as appropriate, on a monthly basis by an amount equal to the
difference between (A) 80% of the premium collected (net of ceded reinsurance
premium paid and refunds of premium) on the Covered Business and (B) Losses and
Loss Adjustment Expenses actually paid (net of ceded reinsurance Losses and Loss
Adjustment Expenses collected) on the Covered Business. The Run-off Fund will
be credited at the end of each month with one half of the imputed investment
income on the Run-off Fund, which shall be calculated by averaging the Run-off
Fund balances at the beginning and end of such month (exclusive of the interest
amount for such month) and multiplying the result by one-twelfth of the Three-
Month Treasury Bill Rate at the beginning of each such month.
(iii) At the Closing, Eureko or its Affiliate will deliver to Buyer a
Letter of Credit to secure its obligations under the arrangement contemplated by
this Section 7.10(c). The initial amount of the Letter of Credit will be
$5,000,000 if the PC Reinsurance Transaction has been consummated prior to the
Closing or $6,000,000 if the PC Reinsurance Transaction has not
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been consummated. The amount of the Letter of Credit will be adjusted by Eureko
or its Affiliate on a monthly basis to equal the greater of: (i) during the
first twelve months following the Closing, either $5,000,000 or $6,000,000,
depending upon whether or not the PC Reinsurance Transaction has been
consummated at the relevant time, and thereafter an amount equal to the total
amount of Losses and Loss Adjustment Expenses actually paid (net of reinsurance
Losses and Loss Adjustment Expenses collected) during the three months preceding
the time at which the amount is being determined under policies included in the
Covered Business; or (ii) the amount by which the sum of Losses and Loss
Adjustment Expenses actually paid (net of ceded reinsurance Losses and Loss
Adjustment Expenses collected) on the Covered Business subsequent to Closing,
plus the net statutory loss and loss adjustment expense reserves on the books of
the Insurance Companies with respect to the Covered Business at such time,
exceed 100% of the net statutory loss and loss adjustment expense reserves on
the books of the Insurance Companies on the Closing Date for the Covered
Business, plus 80% of premiums collected (net of ceded reinsurance premium paid
and refunds of premium) on the Covered Business subsequent to the Closing Date.
For the purposes of this Section 7.10(c), the net statutory loss and loss
adjustment expense reserves with respect to the Covered Business shall be
established in accordance with SAP and generally accepted actuarial standards of
practice. These reserves shall be reviewed and approved on a monthly basis and
opined upon at the end of each calendar year by the valuation and/or appointed
actuary or actuaries of the Insurance Companies at the end of each calendar
year. If the amount of the Letter of Credit is less than the amount determined
pursuant to this paragraph at the end of any month, then Eureko shall increase
the amount of the Letter of Credit to such amount within seven (7) business days
of the date upon which Buyer gives notice of such shortfall. If the amount of
the Letter of Credit is greater than the amount determined pursuant to this
paragraph at the end of any month, then Eureko shall be entitled to reduce the
amount of the Letter of Credit to such amount.
(iv) In the event that the amount of the Run-off Fund at the end of
any month (after taking into account the month-end adjustments contemplated by
Section 7.10(c)(ii)) is less than the average monthly amount of Losses and Loss
Adjustment Expenses paid (net of ceded reinsurance Losses and Loss Adjustment
Expenses collected) during the three-month period ending with such month, Buyer
shall be entitled to draw on the Letter of Credit an amount that, taken together
with the remaining balance of the Run-off Fund, equals the amount of such three-
month average.
(v) After the first month end at which no policies included within
the Covered Business remain in force (the "Trigger Date"), Buyer shall transfer
to Eureko or its Affiliate an amount equal to X% of the excess (if any) of the
balance of the Run-off Fund over the net statutory loss and loss adjustment
expense reserves on the books of the Insurance Companies (the "Excess Amount")
where X is determined, and the appropriate amount is paid, in accordance with
the following schedule: three months after the Trigger Date, 25% of the Excess
Amount at such time; six months after the Trigger Date, 33% of the Excess Amount
at such time; nine months after the Trigger Date, 50% of the Excess Amount at
such time; twelve months after the Trigger Date, 100% of the Excess Amount at
such time.
(vi) In the event that, at any time prior to the termination or
expiration of all claims liabilities attached to the Covered Business, Losses or
Loss Adjustment Expenses are paid
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with respect to the Covered Business and the balance of the Run-off Fund is zero
and the amount of the Letter of Credit is zero, Eureko shall pay directly to
Buyer the amount of such Losses or Loss Adjustment Expenses within seven (7)
business days of the date upon which Buyer gives notice. Any amounts remaining
in the Run-off Fund following the termination or expiration of all claim
liabilities attached to the Covered Business shall be transferred within seven
(7) business days to Eureko or its Affiliate. In the event that the final
settlement of all such liabilities exceeds the remaining balance of the Run-off
Fund and the amount of the Letter of Credit, Eureko or its Affiliate shall
reimburse Buyer for the shortfall within seven (7) business days of the date
upon which it receives notice and supporting computations with respect to such
shortfall from Buyer.
(vii) Each month commencing with the first month following the
Closing, Buyer shall pay to Eureko an amount equal to (A) 20% of the premium
collected (net of ceded reinsurance premium paid and refunds of premium) on the
Covered Business, plus (B) reinsurance ceding commission on the Covered
Business, plus (C) 5.8% of the premiums collected (net of refund of premium, but
prior to reinsurance) with respect to Managed Business written on Standard
Security Life Insurance Company of New York paper, minus (D) variable out-of-
pocket expenses (i.e., expenses that vary directly with collected premium
including but not limited to commissions, premium taxes, and assessments)
associated with the Covered Business. Buyer shall provide to Eureko an
accounting with respect to such amounts not later than thirty (30) days
following the end of each such month together with the accounting required by
Section 7.11 and shall pay such amounts by wire transfer of immediately
available funds on the date such accounting is transmitted to Eureko.
(viii) For the avoidance of doubt, Eureko shall bear the credit and
collection risk on all reinsurance in place on the Closing Date with respect to
the Covered Business.
(d) In the event that a transaction under which the ILA Business will be
reinsured and administered as contemplated by Section 7.10(a) (the "ILA
Reinsurance Transaction") has not been consummated by December 15, 1998, Eureko
shall cause one of its Affiliates to 100% reinsure the ILA Business, which
reinsurance shall be effective as of the Closing Date. For the avoidance of
doubt, it is hereby acknowledged and agreed that Buyer shall neither profit nor
incur any loss in connection with such transaction.
(e) SLIC shall continue to provide such management and financial reporting
and other administrative services as it is currently providing to SLIC (USA) as
the Buyer shall request during a transitional period of up to six months
following the Closing Date to enable SLIC (USA) to establish in-house management
and financial reporting and other administrative services or arrange to obtain
those services from a third party.
SECTION 7.11 Override Commissions. Buyer shall pay to Eureko an
--------------------
override commission of 3% of all premiums collected on medical stop-loss and
group term life insurance policies in force on the Closing Date that are (i) on
the books of either of the Insurance Companies or (ii) on the books of another
insurance company but were underwritten by VBI, and (iii) renewed by or through
any Affiliate of Buyer (including any Affiliate of either of the Companies).
Provided that such policies remain in force, Buyer shall pay to Eureko this 3%
fee
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for the 24-month period following the renewal of such policies by or through
any Affiliate of Buyer. Buyer shall provide to Eureko an accounting with
respect to such override commissions not later than thirty (30) days following
the end of each such month and shall pay such commissions by wire transfer of
immediately available funds on the date such accounting is transmitted to
Eureko.
SECTION 7.12 Directors' and Officers' Insurance. Prior to or concurrent
----------------------------------
with the Closing, Eureko shall purchase for a period of six years after the
Closing Date an extension of all of the Companies' and their Subsidiaries'
current directors' and officers' insurance and indemnification policies which
policies shall provide coverage for events occurring prior to the Closing Date
(collectively the "D&O Insurance") for all current or former directors, officers
or employees of the Companies or their Subsidiaries. Eureko shall purchase
similar coverage with respect to professional errors and omissions insurance
policies (the "E&O Insurance") for a period of three years after the Closing
Date which shall provide coverage for events occurring prior to the Closing
Date.
ARTICLE 8
TAX MATTERS
-----------
SECTION 8.1 Tax Representations. Eureko represents and warrants to
-------------------
Buyer as of the date hereof that, except as set forth on Schedule 8.1:
(a) all Tax returns, statements, reports, forms and other documentation
(collectively, "Returns") required to be filed with any Taxing Authority by or
with respect to the Companies or any of their Subsidiaries on or before the
Closing Date have been filed or will be timely filed on or before the Closing
Date in accordance with all applicable laws, and all such Returns are or will be
(if not yet filed) true, correct and complete in all respects;
(b) the Companies and their Subsidiaries have timely paid all Taxes shown
to be due on such Returns (including subsequent assessments with respect
thereto), and no other Taxes are payable by the Companies and their respective
Subsidiaries with respect to items or periods covered by such Returns (whether
or not shown on or reportable on such Returns);
(c) each of the Companies and its respective Subsidiaries has withheld and
paid over all Taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party;
(d) the Companies and their Subsidiaries have made adequate provision on
the Balance Sheets, Annual Statements, and Quarterly Statements for all Taxes
payable by the Companies and their Subsidiaries for any period for which no
Return has yet been filed or for which Returns have been filed but payment of
the Tax shown to be due thereon is not yet due (excluding reserves for deferred
Taxes), and the amount of liability for unpaid Taxes of the Companies and their
respective Subsidiaries for the period beginning June 30, 1998 and ending on the
Closing Date shall not exceed the reserves for Taxes (excluding reserves for
deferred
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Taxes) established on the balances sheets of the Companies and their respective
Subsidiaries for such period;
(e) there is no action, suit, proceeding, investigation, assessment,
adjustment, audit or claim now proposed or pending against or with respect to
the Companies or their Subsidiaries in respect of any Tax;
(f) there are no outstanding waivers or other agreements extending any
statutory periods of limitation for the assessment of Taxes of the Companies or
their Subsidiaries;
(g) SLIC (USA) does not file and is not required to file Returns in any
jurisdiction with any other entity on a consolidated, combined, or unitary
basis;
(h) except with respect to its Subsidiaries, VNA does not file and is not
required to file Returns in any other jurisdiction with any other entity on a
consolidated, combined, or unitary basis;
(i) there are no agreements between the Sellers and the Companies and their
Subsidiaries that govern the Companies' or their Subsidiaries' liability for
Taxes;
(j) neither of the Companies is or has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code and
Buyer is not required to withhold tax on the purchase of the Shares by reason of
Section 1445 of the Code; and
(k) except for the group of which the Companies and their respective
Subsidiaries is/are presently members, neither the Companies nor their
respective Subsidiaries has ever been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, other than as a
common parent corporation.
SECTION 8.2 Tax Covenants.
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(a) Except as otherwise required by law, Buyer covenants that it will not
cause or permit the Companies, any of their Subsidiaries or any Affiliate of
Buyer (i) to take any action on the Closing Date, other than in the ordinary
course of business or except as agreed in writing between the parties that could
give rise to any Tax liability or loss to the Sellers, (ii) to make any election
or deemed election under Section 338 of the Code with respect to the purchase of
the Shares pursuant to this Agreement or (iii) to amend any Return or file a
claim for refund that results in any increased Tax liability or reduction of any
Tax Benefit of the Sellers or their Affiliates in respect of any Pre-Closing Tax
Period.
(b) Except as otherwise required by law or set forth in section (c) below,
the Sellers covenant and agree that neither the Sellers nor their Affiliates
shall amend any Return, file any claim for refund, change any method of tax
accounting, or make or change any Tax election with respect to any Tax period
that results in any increased Tax liability or reduction of Tax Benefits of
Buyer, the Companies or any of their Subsidiaries, or any of their Affiliates in
respect of any Post-Closing Tax Period.
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(c) Each party agrees that, as between the Sellers on the one hand and the
Buyer on the other hand, the other is to have no liability for any Tax or
reduction of Tax Benefits resulting from any action referred to in Sections
8.2(a) or (b), and each party shall indemnify and hold harmless (hereafter, the
"Tax Indemnifying Party") the other party and its Affiliates (hereafter, the
"Tax Indemnified Party") against any such Tax or reduction in Tax Benefits. Each
Tax Indemnified Party shall give prompt notice to the Tax Indemnifying Party of
the assertion of any claim, or the commencement of any action or proceeding, in
respect of which indemnity may be sought under this Section 8.2(c). Failure to
give the Tax Indemnifying Party such notice shall not relieve such party of its
indemnification obligation pursuant to Sections 8.2(a) and (b) unless and to the
extent that the Tax Indemnifying Party and its Affiliates are materially
prejudiced as a result thereof. The Tax Indemnifying Party shall be entitled to
participate in, and to the extent the matter reasonably can be handled
separately from other items not within the scope of this Agreement, shall be
entitled to control the defense of any such claim, action or proceeding at its
own expense and neither party shall settle any such claim, action or proceeding
without the other party's prior written consent, which shall not be unreasonably
withheld.
(d) Buyer shall promptly pay or cause to be paid to Eureko all refunds of
Taxes (including any interest thereon) received by Buyer or any of its
Affiliates which are attributable to Taxes paid by or on behalf of Eureko, the
Sellers, the Companies or any of their Subsidiaries with respect to any Pre-
Closing Tax Period.
(e) All transfer, documentary, sales, use, stamp, registration and other
such Taxes incurred in connection with this Agreement (collectively, "Conveyance
Taxes") shall be paid by the Sellers. The Sellers will, at their own expense,
file all necessary Returns with respect to all such Conveyance Taxes, and, to
the extent required by applicable law, Buyer will, and will cause its Affiliates
to, join in the execution of any such Returns.
SECTION 8.3 Tax Sharing Agreements. Prior to the Closing Date, all Tax
-----------------------
sharing or allocation agreements between either Seller or any Affiliate of
either Seller (other than either Company or any Subsidiary of either Company),
on the one hand, and either Company or any Subsidiary of either Company, on the
other hand, shall be terminated. After such date, neither the Companies and
their Subsidiaries, the Sellers nor any of their Affiliates shall have any
further rights or liabilities thereunder. This Agreement shall be the sole Tax
sharing agreement relating to the Companies and their Subsidiaries for all Tax
periods (or portions thereof) ending on or prior to the Closing Date.
SECTION 8.4 Return Filings and Payment of Tax. Buyer shall prepare or
---------------------------------
cause to be prepared and file or cause to be filed on a timely basis all Returns
with respect to the Companies and their Subsidiaries due after the Closing Date.
Buyer shall pay or cause to be paid to the appropriate Taxing Authority the
Taxes shown to be due on all Returns required to be filed by it pursuant to this
Section 8.4; provided, however, that Eureko shall indemnify Buyer for any Taxes
attributable to any Pre-Closing Period that are payable by Buyer under this
Section 8.4 and that are not adequately reserved for (excluding reserves for
deferred Taxes) on the balance sheets of the Companies and their respective
Subsidiaries on the Closing Date.
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SECTION 8.5 Cooperation on Tax Matters.
--------------------------
(a) Buyer shall, and shall cause its Affiliates, the Companies and their
Subsidiaries to, and the Sellers shall, and shall cause their Affiliates to,
provide any requesting party with such reasonable assistance (including the
execution and delivery of such powers of attorney as are reasonably necessary to
carry out the intent of this section) and information (including access to books
and records) as may reasonably be requested by such party in connection with (i)
the preparation of any Return, (ii) the conduct of any proceeding relating to
liability for or refunds or adjustments with respect to Taxes, and (iii) any
other matter that is a subject of this Article 8. Such cooperation and
assistance shall be provided to the requesting party promptly upon its request.
(b) Buyer and its Affiliates, on the one hand, and the Sellers and their
Affiliates, on the other hand, shall retain or cause to be retained all Returns,
schedules, workpapers, and all material records or other documents relating
thereto, until the expiration of the statute of limitations (including any
waivers or extensions thereof) of the taxable years to which such Returns and
other documents relate. Before transferring, discarding or destroying any
material records or documents prior to the expiration of the statute of
limitations (including any waivers or extensions thereof) of the taxable years
to which such records or documents relate, Buyer and its Affiliates, on the one
hand, and the Sellers and their Affiliates, on the other, shall provide the
other party with reasonable notice and, if such party so requests, the
opportunity to take possession of such records and documents solely at its cost
and expense.
(c) In order to keep all parties informed as to the expiration of the
statute of limitations for any period, at least thirty (30) days prior to the
end of each calendar year, Buyer shall provide Sellers and Eureko with a
schedule setting forth in reasonable detail which Pre-Closing Tax periods remain
open with respect to the assessment of Taxes of the Companies and their
Subsidiaries as of the date of such notice and a good faith estimate of when
such Tax periods are expected to be closed by the expiration of the applicable
statutory period of limitations or otherwise, provided, however, that a failure
to provide such notice shall not prejudice the right of Buyer to receive
indemnification hereunder.
SECTION 8.6 Tax Benefits. In the event that any adjustment is made to
------------
the Tax liability of the Companies or their Subsidiaries for any Pre-Closing Tax
Period and such adjustment could reasonably be expected to produce a Tax Benefit
to Buyer or the Companies or their Subsidiaries for any Post-Closing Tax Period,
Buyer shall pay to Eureko the reasonably anticipated net after-Tax value to
Buyer or the Companies or their Subsidiaries of such Tax Benefit, discounted at
a rate of 7 percent per annum from the anticipated date of realization of such
Tax Benefit to the date of payment, as the amount of the Tax Benefit is
determined under this section. Following the date of any such adjustment to the
Tax liability of the Companies or their Subsidiaries, Eureko shall prepare a
statement showing a proposed computation of the anticipated payment by Buyer and
shall submit it to Buyer for review. If, within thirty (30) days of Buyer's
receipt of the statement, Buyer and Eureko have not agreed on the correct
payment due to Eureko hereunder, the dispute shall be submitted to the Third
Party Accountant for resolution, and the Third Party Accountant shall resolve
the dispute within thirty (30) days of submission. The decision of the Third
Party Accountant shall be final, and the costs, expenses,
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and fees of the Third Party Accountant shall be borne equally by Buyer and
Eureko. Buyer shall pay Eureko the amount, if any, determined by the Third Party
Accountant within fifteen (15) days of their determination. For purposes of this
provision, Buyer, Eureko, and, if necessary, the Third Party Accountant shall
make reasonable assumptions regarding the existing and future business and
operations of the Companies and their Subsidiaries, the Tax positions of the
Companies and their Subsidiaries and Buyer, probable Tax consequences under the
Code, and other factors relevant to a reasonable and equitable determination of
the anticipated value of any such Tax Benefit, taking into account any special
circumstances known to the parties at the time of such determination.
SECTION 8.7 Indemnification by Eureko.
-------------------------
(a) Eureko hereby indemnifies Buyer and its Affiliates against and agrees
to hold them harmless from any (i) Tax of the Companies and their Subsidiaries
for any Pre-Closing Tax Period, (ii) liability of the Companies and their
Subsidiaries for any Tax of the Sellers or their Affiliates under Treasury
regulation section 1.1502-6 or any similar provision of state or local law as a
result of the Companies or any of their Subsidiaries being a member of any
consolidated, combined, or unitary group of which the Sellers are members and
(iii) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses), arising
out of or incident to the imposition, assessment or assertion of any Tax
(including those incurred in the contest in good faith of appropriate
proceedings relating to the imposition, assessment or assertion of any Tax)
described in clauses (i) or (ii) of this paragraph, except to the extent, in any
such case, that such Taxes, liabilities, costs, or expenses are adequately
reserved for (excluding reserves for deferred Taxes) on the balance sheets of
the Companies or their Subsidiaries on the Closing Date.
(b) Any payment required of Eureko pursuant to Section 8.7(a) shall be made
not later than thirty (30) days after receipt by Eureko of written notice from
Buyer stating that an indemnifiable Tax has been paid by Buyer or any of its
Affiliates and the amount thereof and of the indemnity payment requested.
Failure to give Eureko such written notice shall not relieve Eureko of its
indemnification obligation pursuant to Section 8.7(a) unless and to the extent
that Eureko is materially prejudiced as a result thereof.
(c) Each party shall notify the other, within ten (10) days of receipt
thereof, of any claim for Taxes made in writing to such party or its Affiliates
by a Taxing Authority (a "Tax Claim") which, if successful, could affect the
other party's liability for Taxes. Eureko may, at its own expense, participate
in and, upon notice to Buyer, assume the defense of any Tax Claim for which
Eureko may be obligated to indemnify Buyer pursuant to Section 8.7(a). If
Eureko assumes such defense, Buyer shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by Eureko; provided, however, that to the
extent such action reasonably could be expected adversely to affect the Tax
liability of Buyer and its Affiliates for any Post-Closing Tax Period, Eureko
shall not settle, compromise, or otherwise dispose of any such Tax Claim without
Buyer's prior written consent, which shall not be unreasonably withheld.
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(d) Eureko shall not be liable under Section 8.7(a) for (i) any Tax the
payment of which by Buyer was made without Eureko's prior written consent, which
shall not be unreasonably withheld, or (ii) any settlements relating to a Tax of
the Companies or any of their Subsidiaries for a Pre-Closing Tax Period effected
without the consent of Eureko, or resulting from any Tax Claim in which Eureko
was not permitted an opportunity to participate, but only to the extent (in the
case of both clause (i) and (ii) herein) that Buyer's failure to obtain Eureko's
consent or provide Eureko with such an opportunity to participate materially
prejudiced Eureko.
SECTION 8.8 Indemnification by Buyer.
------------------------
(a) After the Closing Date, Buyer shall indemnify Eureko and the Sellers
against and agrees to hold Eureko and the Sellers harmless from any (i) Tax of
the Companies and their Subsidiaries for any Post-Closing Tax Period and (ii)
liabilities, costs, expenses (including, without limitation, reasonable expenses
of investigation and reasonable attorneys' fees and expenses), arising out of or
incident to the imposition, assessment or assertion of any Tax (including those
incurred in the contest in good faith in appropriate proceedings relating to the
imposition, assessment or assertion of any Tax) described in clause (i) of this
paragraph.
(b) Any payment required of Buyer pursuant to Section 8.8(a) shall be made
not later than thirty (30) days after receipt by Buyer of written notice from
Eureko or the Sellers stating that an indemnifiable Tax has been paid by Eureko
or the Sellers and the amount thereof and of the indemnity payment requested.
Failure to give Buyer such written notice shall not relieve Buyer of its
indemnification obligation pursuant to Section 8.8(a) unless and to the extent
that Buyer is materially prejudiced as a result thereof. Buyer shall not be
liable under Section 8.8(a) for (i) any Tax the payment of which by Eureko was
made without Buyer's prior written consent, which shall not be unreasonably
withheld, or (ii) any settlements relating to a Tax of the Companies or any of
their Subsidiaries for a Post-Closing Tax Period effected without the consent of
Buyer, or resulting from any Tax Claim in which Buyer was not permitted an
opportunity to participate, but only to the extent (in the case of both clause
(i) and (ii) herein) that Eureko's failure to obtain Buyer's consent or provide
Buyer with such an opportunity to participate materially prejudiced Buyer.
SECTION 8.9 Survival; Exclusivity. Notwithstanding anything in this
---------------------
Agreement to the contrary, (i) this Article 8 shall govern the procedure for all
indemnification claims relating to Taxes and (ii) the provisions of this Article
8 shall survive for the full period of all statutes of limitations (giving
effect to any waiver, mitigation or extension thereof) for the assessment of
Taxes for the Tax period in question, and any claim to be brought under this
Article 8 must be brought prior to the expiration of such period.
SECTION 8.10 Late Payments. Any payment required to be made by Buyer or
-------------
Eureko pursuant to this Article 8 that is not made when due shall bear interest
from and including the due date of payment to but excluding the date of payment
at a rate per annum equal to the Three-Month Treasury Bill Rate as of the due
date of the payment.
SECTION 8.11 No Duplicative Payments; Offsets. The Provisions of this
--------------------------------
Article 8 shall be interpreted in a manner such that no payment shall be made by
any party with respect to
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the same item more than once. To the extent that any item causes parties to make
reciprocal payments in any Tax period, such parties shall be entitled to offset
such payments and the party which is obligated to make the greater payment shall
pay only the difference between the amount of its original obligation and the
amount it would have received had the reciprocal payments been made.
SECTION 8.12 Rule of Construction. For purposes of this Article 8, the
--------------------
term "Buyer and its Affiliates" shall include the Companies and their
Subsidiaries for all Post-Closing Tax Periods.
ARTICLE 9
CONDITIONS TO CLOSING
---------------------
SECTION 9.1 Conditions to Obligations of Buyer, Eureko and the Sellers.
----------------------------------------------------------
The obligations of Buyer, Eureko and the Sellers to consummate the Closing are
subject to the satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(b) All other regulatory consents, approvals or clearances necessary for
the consummation of the Closing shall have been obtained, and no provision of
any applicable law or regulation shall prohibit the consummation of the Closing.
(c) All material consents, approvals or waivers of all non-governmental
Persons necessary for the consummation of the Closing shall have been obtained.
(d) There shall not be in effect any temporary restraining order,
preliminary injunction or permanent injunction or other order issued by any
court of competent jurisdiction preventing the consummation of the transactions
contemplated hereby; provided that the party invoking this condition shall have
used its reasonable best efforts to have such order or injunction vacated.
SECTION 9.2 Conditions to Obligation of Buyer. The obligations of Buyer
---------------------------------
to consummate the Closing are subject to the satisfaction of the following
further conditions:
(a) Representations, Warranties and Covenants.
(i) Eureko and the Sellers shall have performed in all material
respects all of their obligations hereunder required to be performed by them on
or prior to the Closing Date, including without limitation those set forth in
Section 7.10,
(ii) the representations and warranties of Eureko contained in this
Agreement shall be true at and as of the Closing Date, as if made at and as of
such date (without giving effect to any materiality qualifications or
materiality exceptions contained therein); provided that this condition (ii)
shall be deemed satisfied if any inaccuracies in any such representations and
warranties at and as of the Closing Date would not, individually or in the
aggregate, have or
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reasonably be expected to have a Material Adverse Effect on the Companies and
their Subsidiaries, taken as a whole, and
(iii) Buyer shall have received a certificate signed by the Chief
Financial Officer of each Seller to the effect that the foregoing conditions
have been satisfied.
(b) VASA Properties shall no longer be a Subsidiary of any of the
Companies.
(c) Standard Security Life Insurance Company of New York shall have
provided all required consents, in writing, to the transactions contemplated
hereby.
(d) Except as disclosed in Schedule 3.9, since the Balance Sheet Date,
there shall not have been any event, occurrence, development or state of
circumstances or facts which has had or would reasonably be expected to have a
Material Adverse Effect on the Companies, other than those resulting from
changes in general economic conditions or changes generally affecting companies
engaged in the lines of insurance business in which the Companies and their
Subsidiaries engage.
(e) Buyer shall have received original certificates of good standing for
each of the Companies and their corporate Subsidiaries and all other documents
it may reasonably request relating to the existence of the Sellers, the
Companies and their Subsidiaries and the authority of the Sellers for this
Agreement, all in form and substance reasonably satisfactory to Buyer.
(f) No governmental or regulatory authority shall have commenced any
proceeding seeking a temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the transactions
contemplated hereby, other than any such proceeding which, in the reasonable
judgment of Buyer, would not be reasonably likely, assuming such consummation
occurs, to have a Material Adverse Effect on the Companies and their
Subsidiaries, taken as a whole; provided that Buyer shall have used its
reasonable best efforts to have such proceeding dismissed or terminated.
(g) Buyer shall have received original certificates of license status from
the department of insurance for each of the states in which either of the
Insurance Companies are authorized to do business as described on Schedule 3.15,
which certificates of license status shall be dated no more than sixty (60) days
prior to the Closing Date and reasonably satisfactory to Buyer. With respect to
any such certificate of license status for either Insurance Company that is
dated more than forty-five (45) days prior to the Closing Date, Buyer shall have
received a certificate signed by an officer of such Insurance Company to the
effect that from the date of this Agreement there has been no adverse action
taken or threatened to be taken that would impair the status of the certificate
of authority of such Insurance Company or its ability to do business in that
state.
(h) Buyer shall have received original certificates of license status from
the department of insurance and certificates of good standing from the secretary
of state for each of the states in which VBI is authorized to do business as
described on Schedule 3.15 which certificates shall be reasonably satisfactory
to Buyer. The certificates of license status shall be
47
<PAGE>
dated no more than sixty (60) days prior to the Closing Date and the
certificates of good standing shall be dated no more than thirty (30) days prior
to the Closing Date. With respect to any such certificate of license status for
VBI that is dated more than forty-five (45) days prior to the Closing Date,
Buyer shall have received a certificate signed by an officer of VBI to the
effect that from the date of this Agreement there has been no adverse action
taken or threatened to be taken that would impair the status of the license of
VBI or its ability to do business in that state.
(i) Buyer shall have received copies of all communications by or between
the Companies and insurance rating agencies for the period commencing January 1,
1998 to the Closing Date.
(j) Buyer shall have received delivery of the Letter of Credit in a form
and initial amount satisfying the requirements of Section 7.10(c)(iii).
(k) Buyer shall have received opinions dated the Closing Date of
Sutherland, Asbill & Brennan LLP, counsel to Sellers, or other counsel
satisfactory to Buyer, as to matters customarily opined to by counsel for
sellers in similar transactions, which opinion shall be reasonably satisfactory
in form and substance to Buyer.
SECTION 9.3 Conditions to Obligation of Eureko and the Sellers. The
--------------------------------------------------
obligation of Eureko and the Sellers to consummate the Closing is subject to the
satisfaction of the following further conditions:
(a) Representations, Warranties and Covenants.
(i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date,
(ii) the representations and warranties of Buyer contained in this
Agreement shall be true at and as of the Closing Date, as if made at and as of
such date (without giving effect to any materiality qualifications or
materiality exceptions contained therein); provided that this condition (ii)
shall be deemed satisfied if any inaccuracies in any such representations and
warranties at and as of the Closing Date would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect on
Buyer, and
(iii) the Sellers shall have received a certificate signed by the
Chief Financial Officer of Buyer to the effect that the foregoing conditions
have been satisfied.
(b) Buyer shall have provided for payment of the ABN AMRO Note in
accordance with Section 6.4.
(c) Sellers shall have received an original certificate of good standing
for Buyer and all other documents they may reasonably request relating to the
existence of Buyer and the authority of Buyer for this Agreement, all in form
and substance reasonably satisfactory to the Sellers.
48
<PAGE>
(d) Sellers shall have received opinions dated the Closing Date of Gibson,
Dunn & Crutcher LLP, counsel to Buyer, or other counsel satisfactory to Sellers,
as to matters customarily opined to by counsel for buyers in similar
transactions, which opinion shall be reasonably satisfactory in form and
substance to Sellers.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
-------------------------
SECTION 10.1 Survival. The covenants, agreements, representations and
--------
warranties of the parties hereto contained in this Agreement shall survive until
the third anniversary of the Closing Date; provided that the covenants and
agreements which, by their terms, are to have effect or be performed after the
Closing shall survive in accordance with their terms.
SECTION 10.2 Indemnification.
---------------
(a) Subject to the limitations set forth in this Article 10, effective at
the Closing, Eureko hereby indemnifies Buyer and, effective at the Closing,
without duplication, the Companies and their Subsidiaries against, and agrees to
hold them harmless from any and all damage (whether consequential, noneconomic,
extracontractual, punitive, exemplary or otherwise), judgments, settlements,
loss, liability and expense (including, without limitation, reasonable expenses
of investigation and reasonable attorneys' fees and expenses in connection with
any action, suit or proceeding) ("Damages") incurred or suffered by Buyer, any
Company or any Subsidiary of any Company arising out of (i) the breach of any
representation or warranty in Article 3 of this Agreement (without giving effect
to any materiality qualifications or materiality exceptions contained therein,
or to the disclosure or exceptions set forth in Schedules 3.13 and 3.15 hereto),
(ii) the breach of any covenant or agreement of Eureko or Sellers, (iii)
Uncollectible Receivables, in each case which is asserted prior to the third
anniversary of the Closing Date, (iv) any misrepresentation or material omission
from representations made by any of the Companies or their Subsidiaries, to any
third party (other than Buyer or any of its representatives) prior to the
Closing Date, regarding the Computer Systems (or any portions thereof) owned or
used by any of the Companies or their Subsidiaries as being Year 2000 Compliant
or its status in relation to becoming Year 2000 Compliant (without giving effect
to any disclosures or exceptions to representations or warranties set forth in
Schedule 3.18 hereto), or (v) the conduct of the business of the Companies and
their Subsidiaries prior to the Closing Date, including any claims known or
unknown but excluding any Damages arising out of actions taken or not taken at
the request or direction of Buyer; provided, that if prior to the date of
expiration of indemnification a specific state of facts shall have become known
which may constitute or give rise to a claim for Damages as to which indemnity
may be payable and a indemnified party shall have given notice of such fact to
Eureko, then the right to indemnification with respect thereto shall remain in
effect until such matter shall have been paid, according to the date on which
notice of the applicable claim is given.
(b) Subject to the limitations set forth in this Article 10, effective at
the Closing, Buyer hereby indemnifies Eureko and the Sellers against and agrees
to hold Eureko and the Sellers harmless from any and all Damages incurred or
suffered by either Seller or Eureko arising out of (i) the breach of any
representation or warranty in Article 4 of this Agreement, (ii) the
49
<PAGE>
breach of any covenant or agreement of Buyer, or (iii) any violation by Buyer of
any Applicable Law in connection with the identification pursuant to Section 6.3
of employees that Buyer does not wish to retain, in each case which is asserted
prior to the third anniversary of the Closing Date; provided, that if prior to
the date of expiration of indemnification a specific state of facts shall have
become known which may constitute or give rise to a claim for Damages as to
which indemnity may be payable and either Seller or Eureko shall have given
notice of such fact to Buyer, then the right to indemnification with respect
thereto shall remain in effect until such matter shall have been paid, according
to the date on which notice of the applicable claim is given.
SECTION 10.3 Environmental Indemnity.
-----------------------
(a) Subject to the limitations set forth in this Article 10, effective at
the Closing, Eureko hereby indemnifies Buyer and, effective at the Closing,
without duplication, the Companies and their Subsidiaries against, and agrees to
hold them harmless from any and all Environmental Costs (as defined below),
arising in any manner in connection with: (i) the presence at or on any
property currently or formerly owned or operated by the Companies or their
Subsidiaries of any Hazardous Substances or the release, leak, discharge, spill,
disposal, migration or emission of Hazardous Substances from any such property;
(ii) the failure of the Company to comply with any applicable Environmental Laws
prior to the Closing Date; or (iii) the transportation to, disposal at, or
migration onto or into adjacent property or any off-site location of any
Hazardous Substances from any property currently or formerly owned or operated
by the Companies or their Subsidiaries, whether or not the transportation or
disposal was conducted in full compliance with Environmental Laws. The
obligations in this Section 10.3 shall not be affected by disclosure of any
matter on Schedule 3.17 of this Agreement.
(b) The obligations of this Section 10.3 shall include the obligation to
defend the Buyer, any Company or any Subsidiary of any Company against any claim
or demand for Environmental Costs, the obligation to pay and discharge any
Environmental Costs imposed on the Buyer, any Company or any Subsidiary of any
Company and the obligation to reimburse the Buyer, any Company or any Subsidiary
of any Company for any Environmental Costs incurred or suffered, provided in
each instance that the claim for Environmental Costs arises in connection with a
matter for which the Buyer, any Company or any Subsidiary of any Company are
entitled to indemnification under this Agreement. The obligation to reimburse
the Buyer, any Company or any Subsidiary of any Company shall also include the
costs and expenses (including, without limitation, reasonable attorneys' fees)
to establish or enforce the rights of Buyer, any Company or any Subsidiary of
any Company or such other persons to indemnification hereunder.
(c) "Environmental Costs" shall mean any of the following that arise in any
manner regardless of whether based in contract, tort, implied or express
warranty, strict liability, Environmental Law or otherwise: all liabilities,
losses, judgments, damages, punitive damages, consequential damages, treble
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and fees and disbursements of environmental consultants, all
costs related to the performance of any required or necessary assessments,
investigations, remediation, response, containment, closure, restoration,
repair, cleanup or detoxification of any impacted property, the preparation and
implementation of any maintenance, monitoring, closure,
50
<PAGE>
remediation, abatement or other plans required by any governmental agency or by
Environmental Laws and any other costs recovered or recoverable under any
Environmental Law), fines, penalties, or monetary sanctions. Environmental Costs
shall include without limitation: (i) damages for personal injury or death, or
injury to property or to natural resources; (ii) damage to real property or
damage resulting from the loss of the use of all or any part of the property,
including but not limited to business loss, and (iii) the cost of any
demolition, rebuilding or repair of any property required by Environmental Laws
or necessary to restore such property to its condition prior to damage caused by
an environmental condition or by the remediation of an environmental condition.
(d) The obligations of Eureko to provide indemnification under this Section
10.3 are not subject to the $300,000 "deductible" provided for in Section
10.5(a); accordingly, the Buyer, any Company or any Subsidiary of any Company
shall be indemnified for the first dollar of Environmental Costs incurred by the
Buyer, any Company or any Subsidiary of any Company.
SECTION 10.4 Procedures; Exclusivity. The party seeking indemnification
-----------------------
under Sections 10.2 or 10.3 (the "Indemnified Party") agrees to give prompt
notice to the party against whom indemnity is sought (the "Indemnifying Party")
of the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought under such Section,
provided, however, that the failure to give any such notice shall not prejudice
the right of such party to receive indemnification hereunder except to the
extent that the Indemnifying Party is actually prejudiced by such failure. The
Indemnifying Party may, and at the request of the Indemnified Party shall,
participate in or control the defense of any such suit, action or proceeding at
its own expense. If the Indemnifying Party assumes such defense, the Indemnified
Party shall have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from counsel
employed by the Indemnifying Party. Whether or not the Indemnifying Party
chooses to defend or prosecute any claim, all of the parties hereto shall
cooperate in the defense or prosecution thereof. The Indemnifying Party shall
not be liable under Sections 10.2 or 10.3 for any settlement effected without
its consent of any claim, litigation or proceeding in respect of which indemnity
may be sought hereunder, which consent shall not be unreasonably withheld or
delayed.
The rights and remedies of the Buyer, Eureko, either Seller, either Company
and their Subsidiaries set forth in Section 10.2 shall be the exclusive rights
and remedies with respect to any breach of any representation or warranty,
anything in this Agreement to the contrary notwithstanding.
SECTION 10.5 Limitations on Indemnification Obligations. In addition
------------------------------------------
to any other limitations contained in this Article 10, the indemnification
obligations hereunder are subject to, and limited by, the following:
(a) Eureko shall be obligated to provide indemnification under Section 10.2
on account of any misrepresentation or breach of warranty (without giving effect
to any materiality qualifications or materiality exceptions contained therein,
or to the disclosure or exceptions to representations or warranties set forth in
Schedules 3.13 and 3.15 hereto) only to the extent that the aggregate dollar
amount of Damages with respect to all such misrepresentations and breaches
51
<PAGE>
of warranty exceeds $300,000. Notwithstanding the foregoing sentence, Eureko
shall be obligated to provide indemnification under Section 10.2 on account of
any Damages resulting from or related to disclosures or exceptions to
representations or warranties set forth in Schedules 3.13 and 3.15 hereto to the
extent that the aggregate amount of such Damages exceeds $150,000. Any Damages
included in calculating the $150,000 "deductible" for Damages resulting from or
related to disclosures or exceptions to representations or warranties set forth
in Schedules 3.13 and 3.15, shall be included on a dollar-for-dollar basis in
calculating the $300,000 "deductible" set forth in this section for Damages
resulting from any other misrepresentation or breach of warranty. The maximum
aggregate liability of Eureko for indemnification for all Damages subject to
indemnification under this Article 10 shall be $35,000,000.
(b) Each Indemnified Party shall be obligated to use its best efforts to
mitigate to the extent reasonably practicable the amount of any Damages for
which it is entitled to seek indemnification hereunder.
(c) Upon making any indemnification payment, the Indemnifying Party will,
to the extent of such payment, be subrogated to all rights of the Indemnified
Party against any third party in respect of the Damages to which the payment
relates; provided, however, that until the Indemnified Party recovers full
payment of its Damages, any and all claims of the Indemnifying Party against any
such third party on account of said payment are hereby made expressly
subordinated and subjected in right of payment to the Indemnified Party's rights
against such third party. Without limiting the generality of any other
provision hereof, each such Indemnified Party and Indemnifying Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights.
(d) The amount of any Damages sustained by an Indemnified Party and owed by
an Indemnifying Party shall be reduced by any amount received by such
Indemnified Party with respect thereto under any insurance or reinsurance
coverage or from any other party alleged to be responsible therefor. The
Indemnified Party shall use its best efforts to collect any amounts available
under such insurance or reinsurance coverage and from such other party alleged
to have responsibility. If the Indemnified Party receives an amount under
insurance or reinsurance coverage or from such other party with respect to
Damages sustained at any time subsequent to any indemnification actually paid
pursuant to this Article 10, then, subject to the immediately preceding
sentence, such Indemnified Party shall promptly reimburse the Indemnifying Party
for any such indemnification payment actually made by such Indemnifying Party up
to the actual amount of insurance actually received.
ARTICLE 11
TERMINATION
-----------
SECTION 11.1 Grounds for Termination. This Agreement may be terminated
-----------------------
at any time prior to the Closing:
(a) by mutual written agreement of the Sellers and Buyer;
52
<PAGE>
(b) by Sellers if any of the conditions set forth in Sections 9.1 or 9.3
shall have become incapable of fulfillment, and shall not have been waived by
Sellers;
(c) by Buyer if any of the conditions set forth in Sections 9.1 or 9.2
shall have become incapable of fulfillment, and shall not have been waived by
Buyer; or
(d) by either the Sellers, collectively, or Buyer if the Closing shall not
have been consummated on or before December 31, 1998, unless the delay is caused
by the failure of the party or parties seeking to terminate to fulfill their
respective obligations hereunder.
The party desiring to terminate this Agreement shall give notice of such
termination to the other party.
SECTION 11.2 Effect of Termination. If this Agreement is terminated as
---------------------
permitted by Section 11.1, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement, except as
provided in Section 12.3 and except that no such termination shall relieve Buyer
of its obligations under Section 7.9; and provided that if such termination
shall result from the willful failure of either party to fulfill a condition to
the performance of the obligations of the other party or to perform a covenant
of this Agreement or from a willful breach by either party to this Agreement,
such party shall be fully liable for any and all Damages incurred or suffered by
the other party as a result of such failure or breach. The provisions of Section
7.6, this Section 11.2, Section 12.3 and Section 12.5 shall survive any
termination hereof pursuant to Section 11.1.
ARTICLE 12
MISCELLANEOUS
-------------
SECTION 12.1 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including facsimile transmission) and
shall be given:
if to Buyer, to:
The Centris Group, Inc.
650 Town Center Drive, Suite 1600
Costa Mesa, CA 92626
Attention: Jose A. Velasco
Fax: (714) 434-0750
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with copies to:
Gibson, Dunn & Crutcher LLP
Jamboree Center
4 Park Plaza
Irvine, CA 92614-8557
Attention: Robert E. Dean, Esq.
Fax: (949) 475-4632
if to the Sellers, to:
Seaboard North American Holdings, Inc.
Seaboard Life Insurance Company
2165 West Broadway
P.O. Box 5900
Vancouver BC
Canada V6B 5H6
Attention: Chief Financial Officer
Fax: (604) 734-8221
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey, Esq.
Fax: (202) 637-3593
if to Eureko, to:
Eureko B.V.
Entrada 111, P.O. Box 94215
1090 GE Amsterdam, The Netherlands
Attention: Jeff Medlock
Fax: 011-31-20-6903481
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey, Esq.
Fax: (202) 637-3593
54
<PAGE>
or at such other address to the attention of such other person as Buyer, Eureko
or the Sellers may designate by written notice to the other party hereto. All
such notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 12.2 Amendments and Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Other than as provided herein,
the rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 12.3 Expenses. Except as otherwise expressly provided herein,
--------
all costs and expenses incurred in connection with this Agreement, including all
brokers', finders' or similar fees, shall be paid by the party incurring or
responsible for incurring such cost or expense. Sellers and Buyer shall split
the cost of the filing fees in connection with the filings by any of the parties
hereto with the Federal Trade Commission and the Antitrust Division under the
HSR Act with respect to the transactions contemplated hereby.
SECTION 12.4 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
SECTION 12.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the law of the State of Indiana, without regard to
the conflict of laws rules of such state.
SECTION 12.6 Jurisdiction. Except as otherwise expressly provided in
------------
this Agreement, any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement
or the transactions contemplated hereby shall be brought only in the United
States District Court for the Southern District of Indiana or any Indiana court
sitting in Indiana, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or
55
<PAGE>
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in this Section
12.6 shall be deemed effective service of process on such party.
SECTION 12.7 Counterparts; No Third Party Beneficiaries. This Agreement
------------------------------------------
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 12.8 Entire Agreement. This Agreement and the License Agreement
----------------
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter of
this Agreement. No representation, inducement, promise, understanding, condition
or warranty not set forth herein has been made or relied upon by either party
hereto.
SECTION 12.9 Construction. This Agreement is the result of arms-length
------------
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
THE CENTRIS GROUP, INC.
By: /s/ DAVID L. CARGILE
------------------------------------------------------
Name: David L. Cargile
Title: Chairman, President and Chief Executive Officer
SEABOARD LIFE INSURANCE COMPANY
By: /s/ ROBERT T. SMITH
------------------------------------------------------
Name: Robert T. Smith
Title: President and Chief Executive Officer
By: /s/ MICHAEL L. STICKNEY
-------------------------------------------------
Name: Michael L. Stickney
Title: Executive Vice President
SEABOARD NORTH AMERICAN HOLDINGS, INC.
By: /s/ ROBERT T. SMITH
-------------------------------------------------
Name: Robert T. Smith
Title: President and Chief Executive Officer
By: /s/ MICHAEL L. STICKNEY
-------------------------------------------------
Name: Michael L. Stickney
Title: Vice President and Chief Financial Officer
EUREKO B.V.
By: /s/ JEFF MEDLOCK
-------------------------------------------------
Name: Jeff Medlock
Title: Managing Director
57
<PAGE>
By its execution below, Eureko Reinsurance, S.A. ("Eureko Re"), agrees to
be, and shall become, a party to the Stock Purchase Agreement dated as of August
20, 1998, between The Centris Group, Inc. ("Centris"), Seaboard Life Insurance
Company, Seaboard North American Holdings, Inc., and Eureko B.V.("Eureko") (the
"Stock Purchase Agreement"), solely for the purposes of providing the
protections to Centris contemplated by Section 7.10(c) of the Stock Purchase
Agreement. By its execution below, Eureko confirms that (i) it will establish,
maintain and replenish the Letter of Credit contemplated by Section 7.10(c) in
accordance with the terms of such Section, and (ii) it will not be released from
any obligation under Section 7.10(c) solely by virtue of Eureko Re becoming a
party to the Stock Purchase Agreement; provided, that any payment by Eureko Re
pursuant to Section 7.10(c) shall be an offset against any liability of Eureko
thereunder.
IN WITNESS WHEREOF, Eureko Re and Eureko have caused their respective
authorized officers to duly execute this instrument as of the 31st day of
December, 1998.
EUREKO REINSURANCE, S.A.
By: /s/ KELD BOECK
---------------------------
Name: Keld Boeck
Title: Managing Director
EUREKO B.V.
By: /s/ JEFF MEDLOCK
---------------------------
Name: Jeff Medlock
Title: Managing Director
58
<PAGE>
EXHIBIT A
ALLOCATION OF PURCHASE PRICE
SLIC (USA)
- ----------
The portion of the purchase price allocable to the SLIC (USA) stock being
purchased by Buyer shall be determined as follows:
(i) the audited Statutory Policyholders' Surplus of SLIC (USA) as of the
Closing Date;
(ii) plus or minus the amount required to mark-to-market on a U.S. GAAP
basis the investments of SLIC (USA) as of the Closing Date;
(iii) minus the amount of any goodwill on the books of SLIC (USA) as of the
Closing Date;
(iv) minus $2,500,000.
VNA
- ---
The portion of the purchase price allocable to the VNA stock being purchased by
Buyer shall be determined as follows:
(i) the audited Statutory Policyholders' Surplus of VASA North Atlantic
as of the Closing Date;
(ii) minus the payoff amount of the ABN AMRO Note as of the Closing Date;
(iii) plus or minus the amount required to mark-to-market on a U.S. GAAP
basis the investments of VASA North Atlantic as of the Closing Date;
(iv) minus the amount of any goodwill on the books of VASA North Atlantic
as of the Closing Date.
<PAGE>
EXHIBIT B
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") is made and entered into as
of _______ __, 1998 by and between Seaboard Life Insurance Company, a Canadian
federal insurance company ("Licensor") and Seaboard Life Insurance Company
(USA), an Indiana stock insurance company ("Licensee").
RECITALS:
WHEREAS, Licensor has adopted, used and is now using the term
"Seaboard Life" as a service mark and trade name, and the logo shown in Appendix
A hereto (the "Seaboard Logo") as a service mark, in connection with its
insurance business;
WHEREAS, as contemplated by a Stock Purchase Agreement dated as of
____________, 1998 (the "Stock Purchase Agreement"), by and among
[_________________] ("Buyer"), Licensor, Seaboard North American Holdings, Inc.,
a British Columbia corporation and Eureko, B.V., a company organized under the
laws of the Netherlands, Licensor is to sell all of the issued and outstanding
shares of Licensee common stock to Buyer (the "Transactions"); and
WHEREAS, Licensee desires to continue to use the term "Seaboard Life"
and the Seaboard Logo in connection with its business, for a limited period of
time after the consummation of the Transactions (the "Effective Time");
NOW, THEREFORE, in consideration of the mutual and several promises
and undertakings contained in the Stock Purchase Agreement and herein, and for
other good and valuable consideration, Licensor and Licensee agree as follows:
Section 1. Grant of License. Licensor grants to Licensee a royalty-
free exclusive, nontransferable license to continue to use the term "Seaboard
Life" as a service mark and trade name, and the Seaboard Logo as a service mark,
in connection with Licensee's business in the United States (the "Licensed
Territory") for a period of two (2) years after the Effective Time (the
"License").
Section 2. Validity of the Service Mark and Trade Name. (a) Licensee
acknowledges and stipulates that the term "Seaboard Life" is a valid and
enforceable service mark and trade name, and the Seaboard Logo is a valid and
enforceable service mark, both owned exclusively by Licensor in the Licensed
Territory and that, pursuant to such ownership, Licensor has the exclusive
ownership to use, and license others to use, the term and logo as indication of
source, origin, sponsorship, affiliation, or endorsement for any insurance
services.
(b) Licensee agrees never to contend otherwise, or to permit any
of its affiliates to contend otherwise, in legal proceedings or in any other
circumstances. Further,
<PAGE>
Licensee acknowledges and agrees that the use of the term "Seaboard Life" and
the Seaboard Logo by Licensee's affiliates pursuant to this agreement shall not
create any right of service mark or trade name ownership for Licensee in the
term or logo.
Section 3. Quality Standard. The License granted herein is
contingent upon Licensee rendering the insurance services in connection with the
term "Seaboard Life" to be of at least the same quality as the services being
rendered by it during the twelve (12) months immediately prior to the Effective
Time. Should Licensor determine that Licensee is not providing the same quality
of service as was rendered by it during the twelve (12) months immediately prior
to the Effective Date, said lack of quality service shall be considered a
default hereunder and Licensee shall have thirty (30) days to cure said default.
Failure to cure said default within thirty (30) days shall be grounds for
revocation of the license on ten (10) days written notice. Such revocation
shall not relieve Licensee or any of its affiliates of liability for damages
suffered by Licensor, its subsidiaries, or affiliates as a consequence of such
failure.
Section 4. Quality-Control Inspection. Licensee agrees to allow
Licensor's authorized agents and nominees, on reasonable notice, to periodically
inspect the operations of Licensee, including its business records and
advertising materials, throughout the term of the License, to ascertain whether
the quality of the insurance services rendered by Licensee in connection with
the term "Seaboard Life" at least equals the quality of the services being
rendered by Licensee during the twelve (12) months immediately prior to the
Effective Time.
Section 5. Receivership; Bankruptcy. In the event of receivership or
bankruptcy of Licensee, the License granted herein shall terminate immediately.
Section 6. Post Termination Restraint of Use. Upon termination of
the License, by any means or for any reason, Licensee agrees to promptly
discontinue using the term "Seaboard Life" and the Seaboard Logo, as well as
any terms or designs confusingly similar to "Seaboard Life" or the Seaboard
Logo, in or as a service mark, trade name, corporate name, or advertising slogan
for insurance or any other type of business, throughout the world, for so long
as Licensor or its successor, subsidiaries or assigns still are using the term
or logo in or as a service mark, trade name, corporate name, or advertising
slogan anywhere in the world. This means, among other things, that Licensee
shall see to it that its corporate name is officially changed no later than two
(2) years after the Effective Time to names that do not include the word
"Seaboard Life".
Section 7. Non-Agency between the Parties. The parties intend that
Licensee shall not be deemed an agent, partner, joint venturer, servant, or
employee of Licensor as a result of, or in any transaction relating to, this
agreement, and Licensee agrees not to represent or contend otherwise or to allow
any of its affiliates to do so; this is intended to mean, among other things,
that Licensee shall in no way purport to pledge Licensor's credit or incur any
obligation on behalf of Licensor.
2
<PAGE>
Section 8. Amendments. This Agreement may not be modified, changed,
discharged or terminated, except by an instrument in writing signed by an
authorized officer of each of the parties hereto.
Section 9. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all, of the parties hereto.
Section 10. No Third-Party Beneficiaries. Nothing in this Agreement
is intended or shall be construed to give any person, other than the parties
hereto, their successors and permitted assigns, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
Section 11. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Except as otherwise provided
herein, neither this Agreement, nor any right hereunder, may be assigned by
Licensee in whole or in part without the written consent of Licensor.
Section 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
LICENSOR
SEABOARD LIFE INSURANCE COMPANY
By:_____________________________________
Name:
Title:
LICENSEE
SEABOARD LIFE INSURANCE COMPANY (USA)
By:_____________________________________
Name:
Title:
3
<PAGE>
Schedule 3.3
Governmental Authorization
--------------------------
None
1
<PAGE>
Schedule 3.4
Non-Contravention
-----------------
Execution of this Agreement will not violate the Articles or Certificate of
Incorporation or the By-Laws of the Companies or their Subsidiaries. However,
it has been the past practice of the Companies and their Subsidiaries to obtain
approval by resolution from the Board of Directors before entering into such an
agreement.
Each of the following contracts contains a "change of control" provision. (In
case of a change of control of the Insurance Companies, the contract will be
canceled or terminated. However, a change of control does not result in a
default of the Insurance Companies.)
Employment Agreement between Norm Torrison and VASA Brougher, Inc. dated March
1, 1996
Letter of Understanding regarding Independent Agency Agreement between VASA
Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the other
hand, dated June 8, 1998
VASA North Atlantic Insurance Company 80/20 Quota Share Reinsurance Agreement
effective January 1, 1994, reinsured with Transatlantic Re
VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective April 1, 1991, reinsured with Skandia American
and Transamerica
VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss
Reinsurance Agreement effective April 1, 1991, reinsured with Cologne Life Re,
Re Capital, Skandia American and Transamerica
VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American,
Cologne Life Re and Transamerica
VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American
and Transamerica
VASA North Atlantic Insurance Company $500,000, Excess $500,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990 reinsured with Skandia American,
Cologne Life Re, Re Capital and Transamerica
2
<PAGE>
VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American and Re Capital
VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American and Transamerica
VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American, Cologne Life Re, Re Capital and Transamerica
VASA North Atlantic Insurance Company $150,000 Excess $100,000, Excess of Loss
Reinsurance Agreement effective March 1, 1988, reinsured with Re Capital
VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1988, reinsured with Transamerica
VASA North Atlantic Insurance Company $200,000 Excess $50,000, Excess of Loss
Reinsurance Agreement effective March 1, 1987, reinsured with Re Capital (only
75% placed on this layer)
VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1987, reinsured with Clarendon National
and The New York Insurance Exchange (only 75% placed on this layer)
VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement
effective October 1, 1993, reinsured with WASA International, Chartwell Re,
Cologne Life Re, Cignet Re, Trenwick Re and Transatlantic Re
3
<PAGE>
Schedule 3.7
Subsidiaries
------------
3.7(a)
Jurisdiction of Incorporation
Select Benefits, Inc. Indiana
VASA North America, Inc. Indiana
VASA Insurance Group, Inc. Indiana
VASA Brougher, Inc. Indiana
VASA North Atlantic Insurance Company Indiana
Seaboard Life Insurance Company (USA) Indiana
VASA Properties Indiana General Partnership
(VASA Brougher, Inc. and
VASA North America, Inc. are
the general partners)
Brougher Syndicate, Inc. and North Atlantic Treaty Managers, Inc. were merged
into VASA Insurance Group, Inc. in the State of Indiana on June 2, 1992;
however, the State of New York has not yet recognized these transactions. For
federal income tax purposes, the mergers have been recognized and have not been
challenged since 1992.
3.7(b)
None.
4
<PAGE>
Schedule 3.9
Absence of Certain Changes
--------------------------
3.9(a) For any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material Adverse
Effect on the Companies, other than those resulting from changes in general
economic conditions or changes affecting generally the lines of insurance
business in which the Companies and their Subsidiaries engage, since December
31, 1997, see Schedules 3.12, 3.13 and 3.15.
3.9(b) No exceptions.
3.9(c) No exceptions.
3.9(d) The following are transactions, commitments, contracts or agreements
entered into, by any Company or any Subsidiary, other than transactions and
commitments in the ordinary course of business consistent with past practices,
since December 31, 1997:
1) Sale of Real Estate - VASA Properties entered into a Real Estate
-------------------
Purchase and Sale Agreement ("REPSA") with Kite Capital, LLC ("Kite")
for the sale of certain parcels of real property including other
related property ("Properties") set forth on Exhibit A to that
Agreement. The purchase price for the Properties is $9,500,000 payable
at the closing. At this time, the closing is expected to occur on
September 15, 1998.
2) Early Possession Agreement - VASA Properties and Kite have entered
--------------------------
into an Early Possession Agreement whereby Kite may occupy portions of
the Brougher Building. Under this Agreement, the rental of portions of
the Brougher Building will be at $11.50 per rentable square foot per
year. For purposes of that Agreement, a rentable square foot will be a
useable square foot multiplied by 1.15 as a load factor. This Early
Possession arrangement will end on the closing which is anticipated to
occur on September 15, 1998.
3) Sublease - Under the REPSA, VASA Brougher, Inc. ("VASA Brougher,
--------
Inc.") will sublease and occupy portions of the Brougher Building. This
sublease will commence upon the closing. The base rent will be equal to
the base rent under the master lease between Kite or its assigns as
landlord and Eli Lilly and Company as tenant (not to be more than
$12.00 per sq. ft.) plus pro rata expenses for taxes, common area
maintenance, insurance and other customary expenses associated with the
building. The term of this sublease ends on January 31, 1999.
4) Sale of Certain Fixed Assets - In anticipation of the sale of the
----------------------------
Properties, the Companies and their Subsidiaries have been disposing of
certain excess fixed assets, such as excess fitness equipment, file
cabinets, and office furniture. To date, the proceeds of the largest
individual sale item (video conferencing equipment) were $15,000.
5
<PAGE>
3.9(e) In the fall of 1997, Seaboard Life Insurance Company (USA) and VASA
North Atlantic Insurance Company changed their Indiana tax elections from
premium tax to gross receipts tax to be effective January 1, 1998.
3.9(f) The following are employment or other forms of agreement:
1) Senior Management Incentive to Stay Bonus. Each eligible member of
-----------------------------------------
the Senior Management Group (Arlene Cayetano, Patti Freeman Dorson,
Roelof Konterman, Kevin Robbins, Patty Smith, and John Storm) has been
granted an incentive to stay bonus payment equal to six (6) months
salary, payable upon the earlier of the following events:
(i) three months following completion of the sale of the
Companies and their Subsidiaries;
(ii) termination of efforts to sell the Companies and their
Subsidiaries; or
(iii) termination of employment.
The incentive to stay bonus is in addition to, and not in lieu of, any
severance benefits payable and shall be paid by Eureko.
In addition to the stay bonus payment, Kevin Robbins was granted a six-
month termination period during which full salary and benefits would
continue in the event of job termination. This benefit is payable in
the event of job termination where notice of termination is given to
Mr. Robbins within one year following the earlier of the following
contingent events:
(i) completion of the sale of the Companies and their
Subsidiaries;
(ii) termination of efforts to sell the Companies and their
Subsidiaries; or
(iii) termination of employment
For purposes of this termination period, the six-month period commences
on the first day following termination of active work status.
2) Middle Management/Operations Arrangement. Twenty members of middle
----------------------------------------
management or operations staff have been offered an arrangement whereby
the individual will receive a lump sum payment equal to three (3)
months of his or her then-current base salary if the individual's
employment is involuntarily terminated
6
<PAGE>
through no fault of the individual following and within three (3)
months after the closing date of the sale of the Companies and their
Subsidiaries.
These individuals include: Kirk Boller, Gordon Bruder, Pat Calvin,
Brenda Cook, Ken Drake, Cheryl Goode, Ted Harpeneau, Patty Herbertz,
Debbie Hunter, Mike Kennelly, Dorrie Keyes, Bob Mallison, Dan
Markovich, Mike Mathias, Tim Plunkett, Sandy Pritchard, Patsy Schwab,
Marsha Warren, Andy Weissert and Rick Zeller.
For individuals eligible for this arrangement and severance benefits,
severance benefits payable will be reduced by the amount of benefits
payable by Eureko under this arrangement.
3) Customary Severance Arrangement. VASA Insurance Group, Inc.
-------------------------------
adopted an Employees' Severance Plan effective January 1, 1993. This
Employees' Severance Plan provided the following severance benefits:
If an Employee's employment with the Employer is terminated, the
Employer, in its sole discretion, shall determine whether or not to
provide severance benefits to the Employee, and, if the Employer
decides to pay severance benefits to an Employee, it, in its sole
discretion, shall determine the amount and the timing of such
payment. This Plan shall not be construed as providing a guarantee
or expectation of severance benefits, but only a means for
providing severance benefits in those cases for which the Employer
determines severance benefits are appropriate.
The Employees' Severance Plan was either never communicated or
communicated to only a small number of employees. Rather, the
historical custom and practice of the Companies and their Subsidiaries
has been, as a general rule, to pay a severance benefit to employees
whose employment has been terminated or whose position has been
eliminated through no fault of their own in accordance with the
following formulae:
A. Employees Below Vice President Level
------------------------------------
An amount equal to:
(1) Two (2) months of then-current base salary;
(2) Two (2) months of continuation of core medical coverage
pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"); and
(3) One (1) week per year of service.
B. Employees Vice President Level and Above
----------------------------------------
An amount equal to:
7
<PAGE>
(1) Six (6) months of then-current base salary;
(2) Six (6) months of continuation of core medical coverage
pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"); and
The Companies and their Subsidiaries will adopt an amended and
restated Employees' Severance Plan with terms consistent with their
historical custom and practice.
4) Specific Arrangements Currently in Place
----------------------------------------
A. VNAIC Professional Liability Severance and Bonus
------------------------------------------------
One employee, Kathryn McGlothlin, had been granted the following
arrangement when the Companies de-emphasized the professional
liability lines of business prior to December 31, 1997:
An amount equal to:
(1) Two (2) months of then-current base salary;
(2) Two (2) months of continuation of core medical coverage
pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA");
(3) One (1) week per year of service;
(4) Twenty-five percent (25%) of then-current base salary;
and
(5) The remaining unpaid balance of the employee's Claims
Incentive Plan.
In addition, the Company agreed to give Ms. McGlothlin ninety (90)
days notice of the termination of her employment. Any benefits
payable under the Employees' Severance Plan will be reduced by the
benefits payable under Ms. McGlothlin's arrangement.
B. Facilities Employees Impacted by Sale of Real Estate
----------------------------------------------------
Two employees, Pete Drummond and Gina Bennett, employed in the
Facilities Engineering Department had been granted the following
arrangement in conjunction with the prospective sale of the
properties currently owned by the Companies and their Subsidiaries
prior to December 31, 1997:
An amount equal to:
(1) Two (2) months of then-current base salary;
8
<PAGE>
(2) Two (2) months of continuation of core medical coverage
pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"); and
(3) One (1) week per year of service.
Any benefits payable under the Employees' Severance Plan will be
reduced by the benefits payable under this prior arrangement.
C. Notice of Termination
---------------------
Jack Hewett has an Employment Agreement that terminates in August
1998. In lieu of extending that agreement, Mr. Hewett and VASA
Brougher, Inc. agreed that he will continue upon its termination as
an at-will employee. In addition, VASA Brougher, Inc. agreed that
it will give Mr. Hewett six (6) months prior written notice of any
elimination of his position or termination of his employment and he
will give the company thirty (30) days prior notice if he should
choose to resign.
Norm Torrison's employment is governed by an Employment Agreement.
Under that Agreement, VASA Brougher, Inc. agreed to give Mr.
Torrison ninety (90) days notice of termination and Norm Torrison
agreed to give VASA Brougher, Inc. thirty (30) days prior notice if
he should choose to terminate the Agreement.
The terms of the employment agreement will govern termination of
employment and no benefits shall be payable under the Employees'
Severance Plan.
D. Stay On Incentive
-----------------
One employee, Tamara Jayne, was granted a stay on incentive payable
in three intervals during 1998. One payment remains payable under
this arrangement: $3,333.00 by December 1, 1998 which shall be
payable by Eureko and shall not be payable under the Employees'
Severance Plan.
3.9(g) Stop Loss. The following changes have been made to the underwriting
practices or policies of VASA Brougher, Inc. on the stop loss business it
underwrites for several carriers, including but not limited to Seaboard Life
Insurance Company (USA), since December 31, 1997:
1) Claims Experience - VASA Brougher, Inc. will request the final
-----------------
three months of claims experience on renewal cases. Initial renewal
quotes will be based upon nine months of claims experience. Aggregate
experience rates on renewals will be based on a rolling 12 months.
Underwriters will review this information and re-rate the case if
necessary. Only cases through third party administrators approved by
VASA Brougher,
9
<PAGE>
Inc. as "Renewal Only" administrators will be re-rated. Cases sold
through "Active" or "Approved" third party administrators will not be
re-rated but the final three months of claims experience will be
reviewed by the underwriter. If an underwriter sees a problem
developing with an administrator's pattern of claim paying, a meeting
will be held to discuss the possibility of re-rating the
administrator's cases.
2) TPA Approvals - VASA Brougher, Inc. implemented a new third party
-------------
administrator approval process. VASA Brougher, Inc. has also
implemented a review process of all third party administrators
currently approved by VASA Brougher, Inc. VASA Brougher, Inc. is in the
process of discontinuing business relationships with TPAs which do not
have philosophies consistent with VASA Brougher, Inc.'s underwriting
and general business philosophies.
3) Rate Loads and Industry Types - VASA Brougher, Inc. adopted
-----------------------------
Industry Guidelines. Manual rate loads were implemented for certain
industry groups. The following industries will be loaded 10%: trucking,
auto dealers, insurance groups, Indian tribes, health industry,
municipalities, school districts, and miscellaneous manufacturing
groups. The underwriting guidelines suggest that municipalities be
given a minimum of a $10,000 specific retention depending on the state
regulations.
The following industries are considered ineligible risks: associations,
multiple employer trusts and employee leasing companies.
The Industry Guidelines also suggest that certain industries should be
reviewed and given special attention including state availability and
possible financial considerations including: municipalities, religious
groups, Taft-Hartley groups, railroads, seasonal groups, mining &
logging, and agricultural groups.
4) Changes In Laws - VASA Brougher, Inc. implemented changes to its
---------------
underwriting guidelines and rates to consider amendments made to an
insured employer's plan document to comply with the Health Insurance
Portability and Accountability Act of 1996 and the Mental Nervous
Parity Act.
5) 90% Aggregate Attachment Point - VASA Brougher, Inc. implemented a
------------------------------
procedure to set the employer's minimum aggregate attachment point as
set forth on the Schedule page using 90% of the number of eligible
employees times factors times the number of contract months (usually
12). This procedure was implemented to make a uniform adjustment for
employers with declining enrollment.
6) Massachusetts Surcharge - VASA Brougher, Inc. agreed to consider
-----------------------
the Massachusetts Uncompensated Care Pool Surcharge of 5.06% a covered
expense under the stop loss policy through September 1, 1998 provided
an insured employer's plan also considers the surcharge a covered
expense under the self-funded plan. VASA Brougher,
10
<PAGE>
Inc. will review this matter in September 1998 after the Massachusetts
Division of Health Care Finance and Policy has determined the surcharge
for the next year.
7) Block Takeovers - VASA Brougher, Inc. has underwritten and taken
---------------
over 2-3 blocks of stop loss insurance coverage written through various
TPAs. Through some of these block take overs, VASA Brougher, Inc.,
through its carriers, assumed the risk mid-contract.
3.9(g) Fully Insured. The following changes have been made to the underwriting
guidelines for Seaboard Life Insurance Company (USA)'s fully-insured Navigator
product since December 31, 1997:
1) Changes in Laws - Corporate Benefits Services of America, Inc.
---------------
("CBSA") is the administrator of the Navigator book of business on
behalf of Seaboard Life Insurance Company (USA) pursuant to the
Underwriting Administration Agreement. CBSA implemented changes to its
underwriting guidelines for this product to comply with the Health
Insurance Portability and Accountability Act of 1996 and the Mental
Health Parity Act.
2) Rate Changes - Corporate Benefit Services of America, Inc.
------------
("CBSA") manages and administers Seaboard Life Insurance Company
(USA's) Navigator fully-insured One Life and Met products in the States
of Indiana, Ohio, Mississippi, Louisiana and Iowa (MET only).
Anticipating that Westport would become the successor carrier for the
One Life and MET products, First Excess and Reinsurance Corporation, an
affiliate of Westport, entered into the Fully-Insured Medical Quota
Share Reinsurance Contract with Seaboard (USA) effective September 1,
1997. Accordingly, Westport reviewed Seaboard (USA) premium rates and
produced a March 2, 1998 memorandum recommending premium rate increased
to CBSA for Seaboard (USA's) approval for the One Life and MET product
in the States of Indiana, Ohio, Mississippi, Louisiana and Iowa. At
this time, Seaboard (USA) is working to determine what rate changes
have been made.
3.9(h) The following are material transactions (other than the transactions
contemplated by the ILA Reinsurance Transaction) by any Company or any
Subsidiary of any Company, since December 31, 1997:
1) Insurance Coverages - The Companies renewed their errors and
-------------------
omissions insurance policy effective June 27, 1998. This policy
provides coverage to the Companies and their Subsidiaries. The
insurance carrier on this coverage was changed this year to Reliance
Insurance Company. This coverage was renewed with the same limit of
$5,000,000. The premium for this one year policy is $248,000.
The Companies also purchased Employment Practices Liability
insurance coverage through Reliance Insurance Company effective June 27,
1998 with a $5,000,000 limit. This policy provides coverage to the
Companies and their Subsidiaries. The premium for this one year policy is
$50,000.
11
<PAGE>
VASA North America, Inc. has renewed its commercial insurance
package with the Chubb Group of Companies to be effective on August 7,
1998. This policy provides coverage to VASA North America, Inc. and its
Subsidiaries. Seaboard Life Insurance Company (USA) is only provided
workers' compensation coverage under this package. This package includes
property, commercial general liability, umbrella, workers' compensation,
business automobile, boiler and machinery and electronic data processing
insurance coverages. The limits on this policy are $10,000,000. The premium
for this one year policy is $89,314.
2) Reinsurance - Effective January 1, 1998, VASA North Atlantic Insurance
-----------
Company and Seaboard Life Insurance Company (USA) entered into a Mega
Medical Quota Share and Stop Loss Reinsurance Agreement for Aggregate
and/or Specific Stop Loss (Excess) Insurance for Self-Insured Group Medical
Benefits Programs and Community Health Plans, including partially Self-
Funded Programs and Medical Conversion Insurance written in conjunction
therewith, as well as any Quota Share Reinsurance assumed on this same
business. In addition, liabilities from work-related injuries (when
applicable) and reinsurance assumed on Fully Insured Medical Insurance from
the First Dakota Indemnity Company were included in this Agreement.
3) The following are the material contracts entered or to be entered into
after December 31, 1997.
Producer Agreement between VASA Brougher, Inc. and Corporate Benefit
Services of America, Inc. (Still in draft form though services being
performed are consistent with terms.)
Administrative Services Agreement between Seaboard Life Insurance Company
(USA) and HealthPlan Services, Inc. (Still in draft form.)
Early Possession Agreement between VASA Properties and Eli Lilly and
Company dated July 22, 1998
Real Estate Purchase and Sale Agreement between VASA Properties and Kite
Capital, LLC dated June 23, 1998
Draft Post Closing Possession Agreement between VASA Properties and Eli
Lilly and Company
Demolition Agreement between VASA Brougher, Inc. and Jordan Demolition
Corporation dated August 5, 1998
Assumption Agreement between Seaboard Life Insurance Company (USA) and
ReliaStar Life Insurance Company dated June 24, 1998
12
<PAGE>
Letter Agreement between Jack Hewett and VASA Brougher, Inc. dated June 8,
1998
Letter of Understanding regarding Independent Agency Agreement between VASA
Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the
other hand, dated June 8, 1998
Letter of Understanding regarding terms of employment between Fred Snively
and VASA Brougher, Inc. (Draft dated July 16, 1998)
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company
(USA) (the "Companies") Mega Medical 50/50 Quota Share Reinsurance
Agreement effective January 1, 1998, reinsured with Constitution Re,
Transatlantic Re and Sun Life of Canada. Section B of the Agreement would
provide aggregate coverage equal to 5% gross net written premium for the
Companies' retention (being $500,000) attaching at a 72.5% loss ratio
reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company
(USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement
effective January 1, 1998, reinsured with Sun Life of Canada and
Transatlantic Re
Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance
Agreement effective July 1, 1998, reinsured with Sun Life of Canada,
Everest Re, Phoenix Home Life, Reliance National and Transatlantic Re
Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 (Excess of
$50,000) effective May 1, 1998, from First Dakota Indemnity Company
effective January 1, 1998 and in turn reinsures through a Mega Medical
50/50 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of
Canada and Constitution Re and Section B of the Agreement which provides
aggregate coverage equal to 5% gross net written premium for the Seaboard
Life Insurance Company (USA)'s retention (being $500,000) attaching at a
72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun
Life of Canada (listed above) and through a $4,000,000 Excess $1,000,000
Excess Cessions Reinsurance Agreement reinsured with Transatlantic Re and
Sun Life of Canada (listed above)
VASA North Atlantic Insurance Company Assumes 80% Quota Share effective
January 1, 1998 from Standard Security Life Insurance Company of New York
and in turn reinsures through Mega Medical 50/50 Quota Share Reinsurance
Agreement with Transatlantic Re, Sun Life of Canada and Constitution Re and
Section B of the Agreement which provides aggregate coverage equal to 5%
gross net written premium for the VASA North Atlantic Insurance Company's
retention (being $500,000) attaching at a 72.5% loss ratio reinsured with
Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and
through a $4,000,000 Excess $1,000,000 Excess Cessions
13
<PAGE>
Reinsurance Agreement reinsured with Transatlantic Re and Sun Life of
Canada (listed above)
3.9(i) The following are significant changes by the Company or any Subsidiary
of any Company in the compensation structure of, or benefits available to, any
significant agent or with respect to agents generally, since December 31, 1997:
Independent Agency Agreement - On June 8, 1998, Steve Butz ("Butz") and
----------------------------
Greg Edwards ("Edwards") executed a Letter of Understanding ("Letter")
relating to an Independent Agency Agreement to be entered into with VASA
Brougher, Inc. Under the terms of the Letter, Butz and Edwards ceased
employment with VASA Brougher, Inc. as of July 1, 1998 and established
their own agency, Phase II Marketing, LLC.
3.9(j) No exceptions.
3.9(k) No exceptions.
3.9(l) No exceptions.
3.9(m) The following are any sales, transfers or conveyances of any investments
or other assets of any Company or any Subsidiary of any Company with an
individual book value in excess of $75,000, except in the ordinary course of
business and consistent with past practices, since December 31, 1997:
Sale of Real Estate - VASA Properties entered into a Real Estate
-------------------
Purchase and Sale Agreement with Kite for the sale of certain parcels of
certain Properties set forth on Exhibit A of the Agreement. The purchase
price for the Properties is $9,500,000 payable at the closing. At this
time, the closing is expected to occur on September 15, 1998. See (d)
above.
3.9(n) For any amendment, termination, waiver, disposal or lapse thereof, or
other failure to preserve, any material license, permit or other form of
authorization of the Company or any Subsidiary of any Company, since December
31, 1997, see Schedule 3.15.
3.9(o) The following are any expenditures or commitments for additions to
property, plant, equipment or other tangible or intangible Assets which exceed
$75,000 in the aggregate, since December 31, 1997:
Expenditures Related To Properties - In the aggregate, expenditures
----------------------------------
related to the Companies properties may exceed $75,000- The Companies
and/or their Subsidiaries have already spent $21,000 for Patriot
Engineering and Environmental, LLC to abate above group storage tanks
and asbestos-containing materials at 108 E. McCarty Street,
Indianapolis, Indiana (Warehouse) and 751 S. Meridian Street,
Indianapolis, Indiana (Circle City Glass) properties. Additional monies
will be spent for Patriot to excavate the
14
<PAGE>
north point of the 525 S. Meridian Street, Indianapolis, Indiana
property for the possible existence of one or more underground storage
tanks during the week of July 27, 1998. At this time, the Companies and
their Subsidiaries are reviewing proposals for the demolition of two
structures located at 751 S. Meridian Street (Circle City Glass). The
proposals project the cost of demolition to be approximately $50,000.
3.9(p) None except as may have otherwise been noted in this Section 3.9.
15
<PAGE>
Schedule 3.10
No Undisclosed Material Liabilities
-----------------------------------
(b) There are no material liabilities to be disclosed beyond those otherwise
referred to in Section 3.10.
16
<PAGE>
Schedule 3.11
Material Contracts
------------------
[The contracts that have change of control provisions are marked with
asterisks.]
1. Operational Agreements
----------------------
Underwriting Services Agreement between VASA Brougher, Inc. and Healthcare
Management Administrators, Inc. dated September 12, 1995
Underwriting Services Agreement between VASA Brougher, Inc. and Midwest Security
Administrators, Inc. dated January 1, 1995
Underwriting Services Agreement between VASA Brougher, Inc. and Medical Benefit
Administrators dated September 1, 1994
Underwriting Services Agreement between VASA Brougher, Inc. and Business
Administrators & Consultants, Inc. dated January 1, 1995 (Authority has been
withdrawn but Agreement has not been terminated.)
Underwriting Services Agreement between VASA Brougher, Inc. and Cottingham &
Butler, Inc. dated January 1, 1995 (Authority has been withdrawn but Agreement
has not been terminated.)
Underwriting Services Agreement between VASA Brougher, Inc. and Brokerage
Concepts, Inc. dated January 1, 1993
Underwriting Services Agreement between VASA Brougher, Inc. and Boon-Chapman
Benefit Administrators, Inc. dated January 16, 1996
Underwriting Services Agreement between VASA Brougher, Inc. and Greentree
Administrators, Inc. dated January 16, 1996
Underwriting Services Agreement between VASA Brougher, Inc. and Robey-Barber
Insurance Services Corporation dated March 14, 1995
Underwriting Services Agreement between VASA Brougher, Inc. and Self-Funded
Plans, Inc. dated January 1, 1994 (Authority has been withdrawn but Agreement
has not been terminated.)
Underwriting Services Agreement between VASA Brougher, Inc. and Corporate
Benefit Services of America, Inc. dated June 1, 1994
Producer Agreement between VASA Brougher, Inc. and Corporate Benefit Services of
America, Inc. (Still in draft form though services being performed are
consistent with terms.)
17
<PAGE>
The following third party administrators perform services contemplated by an
Underwriting Services Agreement and are compensated accordingly, but have not
executed a written agreement: HRM (new cases only), Advanced Insurance
Administrators and Minton Financial
Underwriting Services Agreement between Seaboard Life Insurance Company (USA)
and ABI Administrative Services Corporation d/b/a Corporate Benefit Services of
America, Inc. dated May 1, 1995
Trust Agreement between Seaboard Life Insurance Company (USA) and Banc One dated
March 15, 1995
Seaboard Multiple Employer Trust - Declaration of Trust by Settlor dated June 1,
1981
Seaboard Life Insurance Company (USA) Multiple Employer Trust - Declaration of
Trust by Settlor dated June 24, 1994
Fully Insured Medical Multiple Employer Trust Agreement dated August 1, 1997
Policyholders: Wholesale Trade HealthPlan Services Trust of Indiana;
Manufacturing HealthPlan Services Trust of Indiana; Transportation,
Communication and Public Utilities HealthPlan Services Trust of Indiana;
Finance, Insurance and Real Estate HealthPlan Services Trust of Indiana;
Contract Construction HealthPlan Services Trust of Indiana; Retail Trade
HealthPlan Services Trust of Indiana, and Service HealthPlan Services Trust of
Indiana
Underwriting Administration Agreement between VASA Brougher, Inc. (f/k/a
Brougher Insurance Management Services, Inc.) and Seaboard Life Insurance
Company (USA) (f/k/a VASA Life Insurance Company) dated May 1, 1991, as amended
Binder Agreement and Cover Note Nos. 975700001 and 975700002 between Certain
Underwriters at Lloyd's, London and VASA Brougher, Inc. dated February 20, 1997
Agreement between Seaboard Life Insurance Company (USA) and Celtic Life
Insurance Company for a Medical Expense Conversion Program dated July 1, 1997
Underwriting Administration Agreement between VASA Brougher, Inc. and VASA North
Atlantic Insurance Company dated January 1, 1995, as amended
Underwriting Administration Agreement between VASA Brougher, Inc. and Standard
Security Life Insurance Company dated January 1, 1992, as amended
WASA Life Mutual Insurance Company Limited's Guaranty in favor of Standard
Security Life Insurance Company of New York date June 14, 1990
Group General Agent Contract between Brougher Insurance Management Services,
Inc. and Kansas City Life Insurance Company dated January 15, 1990
18
<PAGE>
Administrative Services Agreement between Seaboard Life Insurance Company (USA)
and HealthPlan Services, Inc. (Still in draft form.)
Service Agreement between Seaboard Life Insurance Company and Seaboard Life
Insurance Company (USA) dated as of November 10, 1993
Hardware Lease Agreement between VASA North America, Inc. and Amplicon Financial
dated March 19, 1997
Master Lease Agreement between VASA Brougher, Inc. and Sun Microsystems Finance
dated July 31, 1996
Agreement between Indiana Bell Telephone Company, Inc. and Brougher Insurance
Group, Inc. dated December 18, 1990
Product Agreement between AT&T and Brougher Insurance Group, Inc. dated August
28, 1989
Early Possession Agreement between VASA Properties and Eli Lilly and Company
dated July 22, 1998
Real Estate Purchase and Sale Agreement between VASA Properties and Kite
Capital, LLC dated June 23, 1998
Draft Post Closing Possession Agreement between VASA Properties and Eli Lilly
and Company
Demolition Agreement between VASA Brougher, Inc. and Jordan Demolition
Corporation dated August 5, 1998.
Assumption Agreement between Seaboard Life Insurance Company (USA) and ReliaStar
Life Insurance Company dated June 24, 1998
Producer Agreement between Seaboard Life Insurance Company (USA) and Avalon
Benefit Services, Inc. dated June 1, 1994
Administrative Services Agreement between Seaboard Life Insurance Company (USA)
and Avalon Benefit Services, Inc., dated June 1, 1994, as amended
Administrative Service Agreement between Seaboard Life Insurance Company (USA)
and Key Benefit Administrators, Inc. dated December 1, 1994
Underwriting Administration Agreement between Seaboard Life Insurance Company
(USA) and Olympic Health Management Systems, Inc. dated August 1, 1994
Producer Agreement between Seaboard Life Insurance Company (USA) and Key Senior
Benefits, Inc. dated December 1, 1994
19
<PAGE>
Service Agreement between VASA Brougher, Inc. d/b/a VASA Care and Matria
Healthcare, Inc. dated November 12, 1996, as amended
Agreement for Case Management and Utilization Review Services between VASA
Brougher, Inc. and American Health Holding, Inc. dated June 1, 1996, as amended
Software License between VASA North America, Inc. and Wheatly Insurance Systems,
Inc. dated July 9, 1993
Maintenance Agreement between VASA North America, Inc. and Wheatly Insurance
Systems, Inc. dated July 9, 1993
Non-Exclusive License Agreement between Lawson Associates, Inc. and VASA North
America, Inc. dated September 5, 1990
Contract for Events and Activities between VASA Brougher, Inc. and Newport
Hospitality, Inc. dated November 19, 1997
PAL SERVICE License Agreement between VASA Brougher, Inc. and Pictorial, Inc.
dated May 22, 1996
AppointPAK License Agreement between VASA Brougher, Inc. and Pictorial, Inc.
dated August 23, 1995
License Agreement between VASA Brougher, Inc. and NILS Publishing, Inc. for
INSOURCE Services
WASA Properties I, L.P., an Indiana Limited Partnership, Limited Partnership
Agreement between North Atlantic Casualty and Surety Insurance Company, Inc. and
WASA Capital Holdings, Inc. dated July 2, 1990, as amended
Promissory Note between VASA Properties and The Manufacturers Life Insurance
Company dated April 8, 1994
Real Estate Mortgage and Security Agreement between VASA Properties and The
Manufacturers Life Insurance Company dated April 8, 1994
Lease between Eli Lilly and Company and North Atlantic Casualty and Surety
Insurance Company dated April 10, 1989, as amended
Term Note between VASA North America, Inc. and ABN AMRO Bank N. V. dated
September 30, 1997
*Employment Agreement between Norm Torrison and VASA Brougher, Inc. dated March
1, 1996
20
<PAGE>
Letter of Assignment regarding employment of Roelof Konterman between AVCB
Diensten B.V., VASA Brougher, Inc. and Roelof Konterman dated April 18, 1997
Letter Agreement between Jack Hewett and VASA Brougher, Inc. dated June 8, 1998
*Letter of Understanding regarding Independent Agency Agreement between VASA
Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the other
hand, dated June 8, 1998
Letter of Understanding regarding terms of employment between Fred Snively and
VASA Brougher, Inc. (Draft dated July 16, 1998)
Promissory Note between VASA Insurance Group, Inc. and VASA North Atlantic
Insurance Company dated December 31, 1997
Promissory Note between VASA North America, Inc. and VASA North Atlantic
Insurance Company dated December 31, 1997
Administrative and Technical Services Agreement between VASA North Atlantic
Insurance Company and Seaboard Life Insurance Company dated January 2, 1996
Cost Sharing Agreement between VASA North America, Inc. and Eureko B.V. dated
January 1, 1992, as amended
Tax Allocation Agreement between VASA North America, Inc. and its affiliates
dated January 1, 1997
Health Care Policy Consulting Retainer (no formal written agreement) between
VASA Brougher, Inc. and Health Policy and Strategy Associates effective June
1994.
Federal Affairs Consulting and Lobbying Retainer (no formal written agreement)
between VASA Brougher, Inc. and Sagamore Associates effective October 1994.
Service Agreement between Policy Management Systems Corporation and VASA North
Atlantic Insurance Company dated December 15, 1995.
2. Medical Excess Risk Reinsurance
-------------------------------
Sun Medical Reinsurance Facility Retrocession Agreement between Seaboard Life
Insurance Company (USA) and Sun Life Assurance of Canada dated January 1, 1992,
as amended
Medical Stop Loss 90/10 Quota Share Reinsurance Agreement between Seaboard Life
Insurance Company (USA) and Eureko Re dated January 1, 1996
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
(the "Companies") Mega Medical 50/50 Quota Share Reinsurance Agreement effective
January 1,
21
<PAGE>
1998, reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada.
Section B of the Agreement would provide aggregate coverage equal to 5% gross
net written premium for the Companies' retention (being $500,000) attaching at a
72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life
of Canada.
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
$4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective
January 1, 1998, reinsured with Sun Life of Canada and Transatlantic Re.
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
Mega Medical 60/40 Quota Share Reinsurance Agreement effective January 1, 1997,
reinsured with Transatlantic Re, Sun Life of Canada and Eureko Re.
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
$4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective
January 1, 1997, reinsured with American United Life, Manulife Reinsurance Corp.
and Mercantile & General.
VASA North Atlantic Insurance Company Mega Medical 65/35 Quota Share Reinsurance
Agreement effective January 1, 1996, reinsured with Eureko Re and Seaboard Life
Insurance Company (USA)
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
$900,000 Excess of $100,000, Excess Reinsurance Agreement effective January 1,
1996, reinsured with Transatlantic Re, Anthem Life Insurance Company and Sun
Life of Canada
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
$4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective
January 1, 1996, reinsured with American United Life, Manulife Reinsurance Corp.
and Mercantile & General.
VASA North Atlantic Insurance Company Mega Medical 65/35 Quota Share Reinsurance
Agreement effective January 1, 1995, reinsured with Eureko Re, Seaboard Life
Insurance Company (USA) and Transatlantic Re
VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA)
$4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective
January 1, 1995, reinsured with American United Life, Manulife Reinsurance Corp.
and Mercantile & General.
3. Lawyers Professional Liability Reinsurance
------------------------------------------
*VASA North Atlantic Insurance Company 80/20 Quota Share Reinsurance Agreement
effective January 1, 1994, reinsured with Transatlantic Re
22
<PAGE>
VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement
effective January 1, 1993, reinsured with Transatlantic Re
VASA North Atlantic Insurance Company $250,000 Excess of $250,000, Underlying
Excess of Loss Reinsurance Agreement effective January 1, 1993, reinsured with
Cologne Life Re, Chartwell, Security Re and Transatlantic Re
VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement
effective January 1, 1992, reinsured with Transatlantic Re
VASA North Atlantic Insurance Company $300,000 Excess of $300,000, Underlying
Excess of Loss Reinsurance Agreement effective January 1, 1992, reinsured with
Chartwell, Cologne Life Re, Hansa Re, Transatlantic Re and Lloyd's London
VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement
effective November 1, 1990 through December 31, 1991, reinsured with
Transatlantic Re
VASA North Atlantic Insurance Company $300,000 Excess of $300,000, Underlying
Excess of Loss Reinsurance Agreement effective November 1, 1990 through December
31, 1991, reinsured with Chartwell, Cologne Life Re, St. Paul Re, Hansa Re,
Transatlantic Re and Lloyd's London
VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement
effective November 1, 1989, reinsured with Transatlantic Re
VASA North Atlantic Insurance Company $250,000 Excess of $250,000, Underlying
Excess of Loss Reinsurance Agreement effective November 1, 1989, reinsured with
American Continental, Colonial Insurance Co., Dai Tokyo Ins. Co., Hansa Re,
Lloyd's London, Transatlantic Re, Royal Reinsurance Co., Sphere Drake, The Toa
Re Insurance Co. and Harleysville
4. Dental Professional Liability Reinsurance
-----------------------------------------
*VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective April 1, 1991, reinsured with Skandia American
and Transamerica
*VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss
Reinsurance Agreement effective April 1, 1991, reinsured with Cologne Life Re,
Re Capital, Skandia American and Transamerica
*VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American,
Cologne Life Re and Transamerica
23
<PAGE>
*VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American
and Transamerica
*VASA North Atlantic Insurance Company $500,000, Excess $500,000, Excess of Loss
Reinsurance Agreement effective April 1, 1990 reinsured with Skandia American,
Cologne Life Re, Re Capital and Transamerica
*VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American and Re Capital
*VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American and Transamerica
*VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss
Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured
with Skandia American, Cologne Life Re, Re Capital and Transamerica
*VASA North Atlantic Insurance Company $150,000 Excess $100,000, Excess of Loss
Reinsurance Agreement effective March 1, 1988, reinsured with Re Capital
*VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1988, reinsured with Transamerica
*VASA North Atlantic Insurance Company $200,000 Excess $50,000, Excess of Loss
Reinsurance Agreement effective March 1, 1987, reinsured with Re Capital (only
75% placed on this layer)
*VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss
Reinsurance Agreement effective March 1, 1987, reinsured with Clarendon National
and The New York Insurance Exchange (only 75% placed on this layer)
5. Non-Standard Auto Reinsurance
-----------------------------
*VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement
effective October 1, 1993, reinsured with WASA International, Chartwell Re,
Cologne Life Re, Cignet Re, Trenwick Re and Transatlantic Re
VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement
effective July 1, 1992 through October 1, 1993, reinsured with Constitution Re,
Transatlantic Re and WASA International
24
<PAGE>
VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement
effective July 1, 1991, reinsured with Constitution Re
6. Fully Insured Medical Programs Reinsurance
------------------------------------------
Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance Agreement
effective July 1, 1998, reinsured with Sun Life of Canada, Everest Re, Phoenix
Home Life, Reliance National and Transatlantic Re
Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance Agreement
effective July 1, 1997, reinsured with Sun Life of Canada, Phoenix Home Life,
Reliance National and RSP
Seaboard Life Insurance Company (USA) 77/23 Quota Share Reinsurance Agreement
effective May 1, 1997, through September 1, 1998 reinsured with Sun Life of
Canada, Transatlantic Re, and Eureko Re
Seaboard Life Insurance Company (USA) 80/20 Quota Share Reinsurance Agreement
effective December 1, 1995 through May 1, 1997, reinsured with Sun Life of
Canada, Transatlantic Re, and Mercantile and General
Seaboard Life Insurance Company (USA) 100% Quota Share Reinsurance Agreement
effective September 1, 1997 through December 31, 1998, reinsured with First
Excess and Reinsurance Corporation
Seaboard Life Insurance Company (USA) 77/23 Quota Share Reinsurance Agreement
effective May 1, 1997 through September 1, 1997, reinsured with Sun Life of
Canada, Transatlantic Re and Eureko Re
Seaboard Life Insurance Company (USA) 80/20 Quota Share Reinsurance Agreement
effective May 1, 1996, reinsured with Mercantile and General, Sun Life of
Canada, Eureko Re and Transatlantic Re
Seaboard Life Insurance Company (USA) 70/30 Quota Share Reinsurance Agreement
effective May 1, 1995, reinsured with Mercantile and General, Sun Life of Canada
and Transatlantic Re
7. Group Life and AD&D Reinsurance
-------------------------------
Seaboard Life Insurance Company (USA) Group Life Excess of Loss Reinsurance
Agreement Excess of $75,000, effective May 1, 1997, reinsured with Munich
American Re
Seaboard Life Insurance Company (USA) AD&D 100% Quota Share Reinsurance
Agreement effective May 1, 1997, reinsured with Munich American Re
Seaboard Life Insurance Company (USA) Group Life Excess of Loss Reinsurance
Agreement Excess of $75,000, effective April 1, 1996 to May 1, 1997, reinsured
with Lincoln National
25
<PAGE>
Seaboard Life Insurance Company (USA) AD&D 50/50 Quota Share Reinsurance
Agreement effective April 1, 1996 to May 1, 1997, reinsured with Lincoln
National
8. Facultative Reinsurance
-----------------------
Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 from First
Dakota Indemnity Company effective January 1, 1997 and in turn reinsures through
a Mega Medical 60/40 Quota Share Reinsurance Agreement with Transatlantic Re,
Sun Life of Canada and Eureko Re (listed above) and through a $4,000,000 Excess
$1,000,000 Excess Cessions Reinsurance Agreement reinsured with American United
Life, Manulife Reinsurance Corp. and Mercantile & General (listed above)
Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 (Excess of
$50,000) effective May 1, 1998, from First Dakota Indemnity Company effective
January 1, 1998 and in turn reinsures through a Mega Medical 50/50 Quota Share
Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Constitution
Re and Section B of the Agreement which provides aggregate coverage equal to 5%
gross net written premium for the Seaboard Life Insurance Company (USA)'s
retention (being $500,000) attaching at a 72.5% loss ratio reinsured with
Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and
through a $4,000,000 Excess $1,000,000 Excess Cessions Reinsurance Agreement
reinsured with Transatlantic Re and Sun Life of Canada (listed above)
9. Assumed Reinsurance Treaty
--------------------------
VASA North Atlantic Insurance Company Assumes 80% Quota Share effective January
1, 1998 from Standard Security Life Insurance Company of New York and in turn
reinsures through Mega Medical 50/50 Quota Share Reinsurance Agreement with
Transatlantic Re, Sun Life of Canada and Constitution Re and Section B of the
Agreement which provides aggregate coverage equal to 5% gross net written
premium for the VASA North Atlantic Insurance Company's retention (being
$500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re,
Transatlantic Re and Sun Life of Canada (listed above) and through a $4,000,000
Excess $1,000,000 Excess Cessions Reinsurance Agreement reinsured with
Transatlantic Re and Sun Life of Canada (listed above)
26
<PAGE>
Schedule 3.12
Litigation
----------
POTENTIAL LITIGATION
--------------------
1. Insured: Joe's Ready Mix
Claimant: Sarah Bartels
Carrier: VASA North Atlantic Insurance Company
TPA: Medical Benefit Administrators, Inc.
SUMMARY: VASA Brougher, Inc. ("VBI") became aware of adverse claims that
were not disclosed during the initial underwriting process and prior to the
date the policy was bound. VBI withdrew the FORCE quote and declined to
issue a new quote. VBI has since been advised that the Insured was not
able to renew coverage with the prior carrier and was uninsured for a short
period of time. Ms. Bartels gave birth to one premature twin in January of
1997 at 24 weeks gestation. The second twin was fully-developed and was
born in April. A portion of Ms. Bartels' claims for the premature infant
fall into this gap in coverage.
STATUS: VBI advised counsel for Joe's Ready Mix that no stop loss coverage
was formally offered to Joe's Ready Mix, Inc. by VBI and that neither VBI
nor VNAIC have any liability for any claims incurred by Joe's Ready Mix or
Sarah Bartels. VBI put its E&O carrier on notice of a potential claim.
VBI received a letter from the attorney representing Joe's Ready Mix dated
July 8, 1998 advising that depositions would soon be taken to explore the
full extent of communications between the TPA and VBI. Joe's Ready Mix
filed a Petition in the District Court in Sioux County against the TPA and
Jim Norland. Counsel also asks if VBI would be willing to participate
early on in formal face to face discussions to resolve this matter. VBI
declined to participate in the meeting.
2. Insured: NEA Alaska Health Plan Trust
Claim: Aggregate
Carrier: Standard Security Life Ins. Co. of New York
TPA: Employee Security, Inc.
SUMMARY: TPA submitted an aggregate stop loss claim request in the amount
of $541,418.46 under the stop loss contract. The aggregate claim request
submitted contained charges incurred only by Anchorage Education
Association members and calculated the "true" aggregate attachment point
considering only the funding factors and eligibility data of Anchorage
Education Association members. It is VBI's position that it issued one
policy with only one aggregate excess benefit to the NEA Alaska Health Plan
Trust which was inclusive of both Anchorage and Juneau Education
27
<PAGE>
Association Members. It is the Trust's opinion that VBI issued: (1) two
separate stop loss policies to the Anchorage and Juneau Education
Associations; or (2) one stop loss policy to the trust with a separate
aggregate excess benefit for each association.
STATUS: VBI issued a conditional reimbursement advance in the amount of
$270,709.23. VBI audited the claim and a determination was made that the
aggregate claim due was only $39,925.24. VBI requested a refund from NEA
Alaska for $230,783.99. NEA Alaska retained legal counsel to pursue this
matter. Legal counsel for the Trust has made an offer to settle this
matter and has demanded the return of all premium paid or payment of the
aggregate claim request. VBI responded to the Trust's settlement offer by
offering to settle this matter for payment of 50% of the refund due or
$115,392. NEA Alaska rejected VBI's counter offer and restated their
original settlement offer. VBI will respond by offering to settle for
payment of $57,696. VBI put its E&O carrier on notice of this possible
claim.
3. Insured: Kansas Schools - including South Central and Smoky Hill
Carrier: Seaboard Life Insurance Company (USA)
TPA: Harden & Associates
SUMMARY: On January 26, 1998, VBI and Seaboard (USA) paid Smoky Hill
approximately $487,486.69 of a $830,895.76 aggregate stop loss claim
request. On February 3, 1998, VBI and Seaboard Life Insurance Company
(USA) ("Seaboard (USA)") advised South Central that no aggregate claim
payment was due even though South Central had filed a $281,129.07 aggregate
claim request. Shortly thereafter, VBI and Seaboard (USA) received
complaints from the Kansas Department of Insurance (the "Department")
related to VBI's aggregate claim determinations. At issue is VBI's and
Seaboard (USA)'s determination that Smoky Hill and South Central paid
claims outside the terms and conditions of their respective plan documents.
Generally, the plan documents state that "no claim will be paid unless it
is submitted within ninety (90) days of the date the claim is incurred
unless not reasonably possible".
The aggregate audit and information provided to VBI indicates that Smoky
Hill paid $323,443.09 in claims even though the participant claims were not
submitted to the Plan within ninety (90) days of being incurred.
Similarly, it appears that South Central paid approximately $1,406,324.94
in claims despite the ninety (90) day requirement.
The Department reported that Smoky Hill and South Central paid the claims
at issue because the Department instructed them to do so. The Department
also suggested that Smoky Hill and South Central are likely to become
insolvent.
STATUS: Seaboard (USA)'s legal counsel visited with the Kansas Department
of Insurance to discuss this matter. VBI and Seaboard (USA) retained local
counsel in Kansas City, Missouri to represent VBI and Seaboard (USA) in
this matter. During
28
<PAGE>
this meeting, the Department advised VBI and Seaboard (USA) that Seaboard
(USA) should pay the claims at issue because, in their opinion, the ninety
(90) day requirement: (1) does not act as a claims bar; (2) has not been
enforced by any other carrier; (3) the stop loss policy does not exclude
such claims; (4) the pool may not have such a provision in its plan under
Kansas law and Seaboard (USA) violated this law; and (5) any reason is
reasonable for not submitting claims within ninety (90) days. The
Department also stated that VBI and Seaboard (USA) will pay the claims at
issue or be subject to regulatory and/or other various sanctions.
At the meeting, VBI and Seaboard (USA) adamantly disagreed with the opinion
and allegations being made by the Department. Seaboard (USA) again advised
the Department that Seaboard (USA) is ready and willing to review any
information and/or documentation that Smoky Hill or South Central may
believe supports the reimbursement of the claims at issue. VBI and
Seaboard (USA) advised the Department that Smoky Hill, South Central and
Harden have not provided VBI and Seaboard (USA) with any documentation
and/or information that supports the claims. VBI and Seaboard (USA) also
stated that the Department instruction to Smoky Hill and South Central to
pay the claims does not make Seaboard (USA) liable for the claims under the
terms and conditions of the stop loss policy.
At the request of the Department, VBI and Seaboard (USA) provided the
Department with a written response to the opinion of and allegations made
by the Department in a letter dated February 27, 1998. In that letter, VBI
refuted the Department's opinions and allegations and provided its
reasoning. Once again, VBI and Seaboard (USA) expressed their willingness
to review any information and/or documentation that Smoky Hill or South
Central may believe supports the payment of the claims at issue.
On March 6, 1998, the Department responded to VBI's February 27, 1998
letter, writing to the legal counsel for VBI/Seaboard (USA) and alleging
that Seaboard (USA) had violated Kansas' Unfair Claim Settlement Practices
Act. In that letter, the Department directs Seaboard (USA) to pay the
claims at issue or be subject to administrative action and a market conduct
investigation of all of Seaboard (USA)'s Kansas health claims to determine
if VBI or Seaboard (USA) has violated Kansas law when adjudicating other
health claims. VBI/Seaboard (USA) prepared a timely written response.
The Kansas Department did not wait for VBI's response before it initiated a
market conduct investigation.
Seaboard (USA) counsel and claim auditors visited the offices of the pools
as well as the TPA's office to obtain the previously-requested information
and determine whether additional expenses were eligible for reimbursement.
Following these reviews, it was determined that a large portion of the
denied expenses were eligible for reimbursement and have been processed
accordingly. On May 7, 1998, VBI received the draft report of the target
market conduct examination conducted by the Kansas Department. The
findings were not material, the courtesy and cooperation
29
<PAGE>
of Seaboard (USA) was noted and no fines or penalties were recommended.
Seaboard (USA) accepted the report as drafted.
South Central filed a lawsuit against VBI and Seaboard (USA) (refer to the
Litigation section of this Schedule). VBI/Seaboard (USA) put their E&O
carrier on notice of a possible claim by Smoky Hill.
4. Insured: Kansas Municipal Employee Health Insurance Group (KMEHIG)
Carrier: Seaboard Life Insurance Company (USA)
TPA: Century Health Solutions
SUMMARY: In January 1998, the Department received a complaint from KMEHIG
regarding VBI and Seaboard (USA). KMEHIG has alleged the following:
A. MedPlans 2000 (the former TPA), as an agent of Seaboard (USA),
misrepresented Seaboard (USA)'s aggregate accommodation product
thereby denying KMEHIG the opportunity to submit incurred claims for
consideration during the January 1, 1997 through December 31, 1997
policy period.
B. VBI and Seaboard (USA) did not promptly process and pay
accommodation payment requests and claims thereby denying KMEHIG the
opportunity to fund for pending claims during the January 1, 1997
through December 31, 1997 policy period; and
C. The VBI underwriter on this case did not provide KMEHIG with a
timely renewal proposal and subsequently on January 16, 1998 either
rescinded coverage or withdrew an offer of coverage with a proposed
effective date of January 1, 1998 to avoid paying claims.
STATUS: Seaboard (USA)'s legal counsel also discussed this case with the
Kansas Insurance Department during his visit. On February 12, 1998, VBI
and Seaboard (USA) addressed many of the allegations set forth in KMEHIG's
January 21, 1998 letter to the Department. Following some discussion, the
Department requested that VBI and Seaboard (USA) provide the Department
with a written response to KMEHIG's allegations. The Department expressed
serious concern regarding the allegation of misrepresentation and VBI's
withdrawal of the offer of coverage. VBI/Seaboard (USA) prepared and
submitted a written response to the Department's inquiry. VBI and Seaboard
(USA) received a letter from an attorney representing KMEHIG on June 23,
1998 demanding $209,328. VBI and Seaboard (USA) have retained an attorney
to assist in responding to this letter. VBI put its E&O carrier on notice
of this possible claim.
5. Former Employee: Mike Brown
30
<PAGE>
SUMMARY: Mike Brown, a former regional sales representative for VBI,
retained an attorney and has threatened to sue VBI for age and disability
discrimination. Mr. Brown's employment was terminated for failure to
achieve certain sales targets. Mr. Brown advised that a severance package
of $40,000 would be acceptable. VBI declined this offer and advised it
would be willing to pay Mr. Brown $1,500 in settlement of this matter. Mr.
Brown rejected VBI's offer but advised he would agree to settle for
$10,000.00. Counsel for VBI is reviewing this offer.
LITIGATION
----------
1. Richard Karam v. VASA North Atlantic Insurance Company
------------------------------------------------------
Court: District Court of Oklahoma County, State of Oklahoma
Case No.: CJ 93 5774-63
Date Filed: July 27, 1993
Carrier: VASA North Atlantic Insurance Company
Insured: Richard S. Karam; Karam & Smith
Prayer: Unspecified actual damages; punitive
damages of two times actual damages
Type of Coverage: Professional liability
SUMMARY: Plaintiff alleges VASA North Atlantic Insurance Company ("VASA North
Atlantic") breached its contract and breached the duty of good faith and fair
dealing in failing to accept coverage and defend/indemnify the insured in the
underlying professional liability suit against Mr. Karam.
STATUS: In the underlying suit, Mr. Karam is named as a defendant in a federal
RICO suit in his capacities as stockholder and officer of one of the business
entities involved and not in his capacity as a lawyer. VASA North Atlantic
filed an Answer and Counterclaim for Rescission and a Motion to Transfer the
Case to the Original Judge. The basis for the Counterclaim is that Mr. Karam
should have advised the VASA North Atlantic underwriters that he had been sued
for racketeering, fraud, etc. and that out of that litigation a legal
malpractice claim might arise. This case is currently in the discovery stage.
This claim was reported to VASA North Atlantic's E&O carrier.
2. Alexis Herman, Secretary of U.S. Department of Labor v. John J. Wolfe, et
-------------------------------------------------------------------------
al.
- ---
Court: United States District Court
Northern District of Illinois
Eastern Division
Date Filed: August 6, 1996
Carrier: Standard Security Life Insurance Company of New York
31
<PAGE>
Insured: International Professional Craft and Maintenance Employee
Association Trust
Type of Coverage: Stop loss
SUMMARY: Suit was filed by Robert B. Reich, then Secretary of the U.S.
Department of Labor, against the International Professional Craft and
Maintenance Employee Association Trust ("IPCMEAT") requesting the removal of the
former trustees and management of the Trust. On August 23, 1996, the Court
entered an Agreed Preliminary Injunctive Order freezing the assets of the Trust
and appointing an Independent Fiduciary to oversee the Trust. The Independent
Fiduciary filed motions with the Court that were granted that terminated the
IPCMEAT as of September 30, 1996 and placed the Trust in liquidation. VBI
believes there were individuals covered under the IPCMEAT in most of the 50
states. The Illinois Department of Insurance is advised of the status of this
matter and has apprised other insurance departments of this situation.
Pleadings in the liquidation proceedings indicate that the named fiduciary,
Betty Cordial, believes that there are approximately $3.5 million in outstanding
participant claims.
On behalf of Standard Security Life Insurance Company of New York ("Standard
Security"), VBI paid $419,000 in claims under the stop loss policy prior to the
termination date of the policy. The policy lapsed for non-payment of premium
effective May 31, 1996. DOL investigators have visited the offices of VBI two
times to review files in this matter. On both occasions, the investigators
confirmed that neither VBI nor Standard Security is targeted or implicated in
this matter. The investigators reported that the DOL was pursuing criminal
charges against the trustees of IPCMEAT.
STATUS: VBI reported this as a possible claim to its E&O carrier. On November
11, 1997, VBI and Standard Security legal counsel met with the independent
fiduciary and various others who had been dealing with the trust liquidation.
VBI and Standard Security counsel were advised that the independent fiduciary
was going to file a claim under the stop loss policy for $3,248,384.19.
Subsequently, VBI received 4 boxes of claim documentation. On December 16,
1997, VBI and Standard Security counsel met in VBI's offices to discuss the
matter and establish the positions and defenses of VBI and Standard Security.
VBI's claim auditor has determined that less than $1,000 is eligible for
reimbursement under the stop loss policy based upon the documentation submitted
to date. The parties negotiated a mutual tolling agreement with the named
fiduciary so that neither claims filed by the fiduciary nor defenses asserted by
VBI and Standard Security will be time-barred. Counsel for VBI is currently in
the process of setting up a meeting with the Independent Fiduciary to discuss
the claims reviewed by VBI and our claim determination. No actual case reserves
are set for this claim, but this claim is included in the calculation of IBNR.
3. Crete Carrier Corporation, et al. v. Seaboard Life Insurance Company
---------------------------------------------------------------------
(USA), and Cottingham & Butler, Inc.
- -------------------------------------
Court: United States District Court for the
District of Nebraska
Case No. 4:97CV3065
32
<PAGE>
Date Filed: February 19, 1997
Prayer: $689,583.78 plus attorney fees
Carrier: Seaboard Life Insurance Company (USA)
Coverage: Stop loss
SUMMARY: Seaboard (USA) rescinded the 1996 stop loss policy issued to Crete
Carrier upon determining there were several large claims that were not disclosed
at the time of underwriting. Seaboard (USA) filed a Counterclaim against Crete
Carrier Corporation requesting reimbursement of $258,213.59 in claims already
paid. Claims submitted to VBI under the stop loss policy included claims that
were incurred prior to and after the effective date of Seaboard (USA)'s
contract. Blue Cross/Blue Shield of Nebraska was the prior carrier for the 1995
calendar year and handled the claim processing for Crete Carrier under its plan
during the 1996 calendar year. Several large claims incurred in 1995 were not
paid until 1996.
STATUS: This case is currently in the discovery stage. On October 1, 1997,
Seaboard (USA) filed a Motion for Leave to Add Party which included a Third-
Party Complaint against Blue Cross/Blue Shield of Nebraska. Cottingham & Butler
also filed a Third Party Complaint against Blue Cross/Blue Shield. Seaboard
(USA)'s attorney advised that he believes upon completion of depositions, all
parties will be in a position to assess the merits of their respective cases.
VBI/Seaboard (USA)'s E&O carrier has been put on notice of this claim. The
parties are working with the Magistrate to schedule a settlement conference. No
actual case reserves are set for this claim, but this claim is included in the
calculation of IBNR.
4. Sugar Cane Health Care Trust v. Seaboard Life Insurance Company, Benefit
------------------------------------------------------------------------
Resources, Inc., et al.
- -----------------------
Court: 16th Judicial District Court
Parish of Iberia, Louisiana
Case No.: 86918-D
Date Filed: July 22, 1997
Prayer: Claim paid, interest statutory penalties and attorney
fees
Carrier: Seaboard Life Insurance Company (USA)
Coverage: Stop loss
SUMMARY: This involves a stop loss policy sold by Benefit Resources, Inc., a
managing general underwriter owned by Myron McClenney. The complaint alleges
that Seaboard Life Insurance Company of Vancouver B.C., Canada ("Seaboard")
refused to reimburse a $678,810.20 aggregate claim due to the Sugar Cane Health
Care Trust under its Seaboard (USA) stop loss policy. An aggregate claim was
submitted and an audit was conducted. The results of the audit showed that no
aggregate claim was due. The complaint names Seaboard; however, the carrier on
the risk for the policy issued to the Sugar Cane Health Care Trust is Seaboard
(USA).
33
<PAGE>
STATUS: Ms. Karim-Bondy, a lawyer for Seaboard, retained counsel to represent
Seaboard and Seaboard (USA) in this matter. This case is being handled in
Canada. Seaboard (USA)'s E&O carrier has been notified of this claim. Seaboard
(USA) is working with Ms. Karim-Bondy to keep the E&O carrier updated. Reserves
in the amount of $170,000 will be booked to the US Group line (MET Stop Loss) at
the end of August.
5. Richelle Spitzer v. VASA North Atlantic Insurance Company
---------------------------------------------------------
Court: Superior Court, State of Washington, County of Spokane
Case No.: 97-2064460
Date Filed: September 8, 1997
Prayer: All special, general, punitive damages caused by
Plaintiff attorney fees, treble damages and interest.
Carrier: VASA North Atlantic Insurance Company
Coverage: Non-standard automobile
SUMMARY: Ms. Spitzer was involved in an automobile accident with an uninsured
motorist in September of 1993. Ms. Spitzer alleges that she sustained physical
and physiological injuries. She filed a claim for uninsured motorists benefits
under her VASA North Atlantic automobile insurance policy. The complaint
contains allegations of bad faith in the processing of the claim and
unsatisfactory handling of the insured's personal injury claim. The insured had
$25,000 uninsured motorist coverage. The case was settled in arbitration for
$42,500.00. The demand for damages is for the amount of $33,132.59. Plaintiff
feels she should have also been offered compensation and the costs of litigation
or arbitration.
STATUS: This claim is being handled by VASA North Atlantic's managing general
agent in Washington. This case is currently in the discovery stage. This
matter has been reported to VASA North Atlantic's E&O insurance carrier.
6. Alan and Elizabeth Triplett v. Seaboard Life Insurance Company (USA),
---------------------------------------------------------------------
Corporate Benefit Services of America, Inc., et al.
- ---------------------------------------------------
Court: Circuit Court of Itawamba County, Mississippi
Civil Action No.: CI 97-099 (R)I
Date Filed: August 28, 1997
Prayer: Compensatory damages and punitive damages 5% of the net
worth of the defendant and interest and costs
Carrier: Seaboard Life Insurance Company (USA)
TPA for Carrier: Corporate Benefit Services of America, Inc.
Coverage: Fully-insured medical (Navigator)
SUMMARY: Ms. Triplett was insured under a fully-insured group medical policy
sold to Triplett Electric, her husband's employer. Claims incurred by Mrs.
Triplett were denied by
34
<PAGE>
Corporate Benefit Services of America, Inc. ("CBSA"), on behalf of Seaboard
(USA), as relating to a pre-existing condition. Seaboard (USA) will pay for the
defense of CBSA pursuant to the Underwriting Administration Agreement between
the parties. Ms. Triplett also filed a complaint with the Mississippi Insurance
Department.
STATUS: Seaboard (USA)'s counsel called Ms. Triplett's attorney prior to
retaining a local attorney to represent Seaboard (USA) and offered to settle
this matter by paying Ms. Triplett's denied claims then totaling approximately
$678.00. Ms. Triplett's counsel would not talk about settlement. This case is
currently in the discovery stage. Seaboard (USA)'s E&O carrier has been advised
of this matter and has retained its own counsel to monitor this matter. No
actual case reserves are set for this claim, but this claim is included in the
calculation of IBNR.
7. Mercy Healthcare Arizona, d/b/a St. Joseph's Hospital and Medical Center v.
---------------------------------------------------------------------------
San Carlos Apache Tribe, Corporate Benefit Services of America, et al, v. VASA
- ------------------------------------------------------------------------------
North Atlantic Insurance Company
- --------------------------------
Court: San Carlos Apache
Tribal Court
Date Filed: August 7, 1997
Case No.: 97-101
Prayer: Tribe requests judgment event that the Tribe is under the
Plan for retention including against VASA in the
determined to be liable any amount over the attorney
fees. $15,000
Carrier: VASA North Atlantic Insurance Company
Coverage: Stop loss
SUMMARY: CBSA, as third party administrator for the Tribe, denied coverage to
Leonard Gonzales and his family. Mr. Gonzales' daughter incurred charges from
St. Joseph shortly after her birth. The providers are seeking payment of their
bills from the plan. Claims requested by providers total approximately
$608,204. The Tribe filed a third party complaint against VASA North Atlantic
requesting that in the event judgment is rendered against the self-funded plan
maintained by the Tribe, the court find the stop loss carrier liable for all
claims over the $15,000 stop loss specific retention.
STATUS: VASA North Atlantic responded to the complaint. The plaintiffs and the
tribe have been arguing in federal court about whether jurisdiction properly
rests in the federal court or in tribal court. The federal court issued a
memorandum indicating that they believe the tribal court can exercise
jurisdiction and the federal court should relinquish its jurisdiction.
Plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals
regarding the order granting jurisdiction to the tribal court. Plaintiffs also
filed a Motion to Stay the Tribal Court action pending resolution of the appeal.
Our E&O carrier is on notice of this claim.
35
<PAGE>
8. School Nine Development Corp., LLC v. VASA Brougher, Inc.
---------------------------------------------------------
Court: United States District Court
Southern District of Indiana
Cause No.: IP97-0333-C (M/S)
Date Filed: February 12, 1997
SUMMARY: Plaintiff, owned by the Jeff Brougher family, seeks to use the name
"Brougher International Building" as the name of the old school/office building
they are renovating. VBI denied plaintiff's request to use the name and advised
that VBI owns the rights to the name "Brougher".
STATUS: A settlement conference was held by the Magistrate Judge and the
parties agreed that the Brougher family could use the name on a plaque on the
building only. It cannot be used for any business or in the address of the
company. The Brougher family agreed to pay a fine to VBI for each violation if
the name is used for any other purpose without permission from VBI; however, the
Brougher family recently reneged on the settlement agreement prior to its
execution. VBI filed a motion to have another settlement conference.
9. David Hooten v. Seaboard Life Insurance Company (USA), Robey-Barber
-------------------------------------------------------------------
Insurance Services Corporation and Pearce & Company Insurance Brokerage, Inc.
- -----------------------------------------------------------------------------
Court: United States District Court, Middle District of
Georgia, Columbus Division
Case No.: 4:98-CV-103(JRE)
Prayer: Actual damages in the amount of $31,468.15,
attorney fees
Carrier: Seaboard Life Insurance Company (USA)
Coverage: Stop loss
SUMMARY: The stop loss policy issued to Joe Hooten, Inc. was terminated June 1,
1997 for non-payment of premium. The policy was originally issued with a policy
period of August 1, 1996 to August 1, 1997. The group changed its plan funding
to a fully-insured plan. Plaintiff's son was hospitalized July 29-31, 1997.
The TPA denied the claim under the employer's plan. No stop loss claim was
submitted to VBI.
STATUS: This case, originally filed in state court, was dismissed and refiled
in federal court. VBI, Robey-Barber and Pearce and Company were all present at
a meeting that was held in Atlanta in July. The purpose of the meeting was to
try to determine the events and facts in this case. The results of the meeting
revealed that the agent presented the stop loss policy to the insured. The
parties will try to locate the agent and meet again to discuss this matter in
more detail with the agent also present. Seaboard (USA) filed an Answer to
Plaintiff's Complaint, Interrogatories and Request to Produce Documents to
Plaintiff and a Motion to Dismiss. VBI/Seaboard (USA)'s E&O carrier has been
put on notice of this claim.
36
<PAGE>
10. South Central Kansas Health Insurance Group v. VASA Brougher, Inc.,
-------------------------------------------------------------------
Seaboard Life Ins. Co. (USA), Harden & Company Insurance Services, Inc., South
- ------------------------------------------------------------------------------
Central Kansas Education Service Center, Unified School District No. 628, and
- -----------------------------------------------------------------------------
Patricia Stephens, Ph.D.
- ------------------------
Court: The Eighteenth Judicial District, District Court,
Sedgwick County, Kansas, Civil Dept.
Case Number: 98 C1280
Date Filed: May 8, 1998
Prayer: $1,075,000 plus attorney fees and costs.
Carrier: Seaboard Life Insurance Company (USA)
Coverage: Stop loss
The complaint alleges that the premiums set for participants in the pool were
inadequate to pay the losses incurred, and the specific deductibles set on the
stop loss policy were set too high to generate excess loss reimbursements.
Specifically as regards VBI/Seaboard (USA), the complaint alleges that the Vice
President of Actuarial for VBI certified that the rates and factors calculated
for the South Central group were not inadequate. VBI and Seaboard (USA) have
notified their E&O carrier of this matter. (See discussion above under
Potential Litigation in this Schedule.) VBI will file a Motion to Dismiss.
11. Vicky Hamilton v. Shauna Freeman and VASA North Atlantic Insurance Company
--------------------------------------------------------------------------
Court: Commonwealth of Kentucky, Boone Circuit Court
Case No.: 97-CI-236
Date Filed: July 10, 1998
Carrier: VASA North Atlantic Insurance Company
Insured: Vicky Hamilton
Prayer: $25,000
Type of Coverage: Non-standard automobile
SUMMARY: Ms. Freeman operated her vehicle in a reckless and negligent manner so
as to strike the vehicle occupied by Ms. Hamilton. Ms. Freeman was uninsured.
Plaintiff alleges that VASA North Atlantic is responsible for her uninsured
motorists claim in the amount of policy limits of $25,000. Ms. Freeman alleges
she suffered permanent physical injuries, medical expenses totaling $1,000 and
pain and suffering.
STATUS: VASA North Atlantic was served with the Complaint on July 31, 1998.
Counsel for VASA North Atlantic will retain local counsel in the State of
Kentucky to represent VASA North Atlantic in this matter.
37
<PAGE>
Schedule 3.13
Compliance With Laws
--------------------
3.13
1) Possible Limitations
VASA North Atlantic Insurance Company has been contacted by the following states
regarding its losses and its plan of operation going forward:
Minnesota: Originally contacted by letter from the Minnesota Department of
Commerce dated June 30, 1997. Most recent communication was a telephone
conversation with Ms. Jill Rickheim of the Minnesota Department of Commerce
on June 26, 1998. A memorandum by Andrew M. Weissert of VASA North
Atlantic Insurance Company memorializing that conversation has been
provided to Buyer.
North Carolina: Originally contacted by letter from the North Carolina
Department of Insurance dated July 9, 1998. Most recent communication was
a telephone conversation between Mr. Larry Boykin, of the North Carolina
Department of Insurance and Andrew M. Weissert of VASA North Atlantic
Insurance Company on August 19, 1998. Mr. Weissert informed Mr. Boykin
that VASA North Atlantic Insurance Company projected roughly $800,000 in
premium would be written by it in North Carolina in 1998. However, VASA
North Atlantic Insurance Company was for sale. Mr. Boykin responded that
no limitations would be placed on VASA North Atlantic Insurance Company at
this time and to please notify the North Carolina Department of Insurance
when the sale was closed.
2) Filing of Reports
VASA North Atlantic Insurance Company has not yet filed the necessary forms
with the Insurance Services Office regarding its 1996 book of business in
the State of Texas. The Insurance Services Office is under contract with
the Texas Department of Insurance to collect this information. VASA North
Atlantic Insurance Company is working with the Insurance Services Office to
receive an exemption due to the diminishing book of business written in
Texas as a result of the de-emphasis by VASA North Atlantic Insurance
Company in the Lawyers Professional Liability line of business. The last
communication with the Insurance Services office was a letter from VASA
North Atlantic Insurance Company dated August 7, 1998, in which it formally
requested the exemption. Should VASA North Atlantic Insurance Company not
receive the exemption, a fine of less than $5,000 may be forthcoming.
38
<PAGE>
VASA North Atlantic Insurance Company paid a $5,000 fine to the
Commonwealth of Kentucky in 1996 for the late filing of a fraud plan.
VASA North Atlantic Insurance Company paid a $4,538.00 fine to the Colorado
Department of Insurance in 1994.
VASA North Atlantic Insurance Company paid a $2,864.07 fine to the Georgia
Municipal Association in 1994.
VASA North Atlantic Insurance Company paid a $3,269.80 fine to the Georgia
Department of Insurance in 1994.
VASA North Atlantic Insurance Company paid a $9,000 fine to the Arizona
Department of Insurance in 1995 as the result of a market conduct
examination.
3) Rates and Policies
Seaboard Life Insurance Company (USA) has de-emphasized its Medicare
supplement line of business. Its Medicare supplement policies and related
forms, while in compliance at the time of filing and approval, have not
been updated since 1996.
The insurance regulators in the states of Mississippi and Ohio have
expressed concern regarding or made inquiry as to the forms and/or rates of
the Seaboard Life Insurance Company (USA) Navigator Multiple Employer Trust
and/or One Life Discretionary Group Fully Insured Health Policy (ies).
These policies are administered by Corporate Benefit Services of America
("CBSA") on behalf of Seaboard Life Insurance Company (USA). Each issue
raised is currently being reviewed by Seaboard Life Insurance Company (USA)
and appropriate action has been or will be taken. (See below for details).
Specific issues that may have a material impact upon the ability of the
Companies to conduct business are as follows:
(A) As a result of consumer complaints, Seaboard Life Insurance
Company (USA) became aware that CBSA imposed rate increases for its
One Life and MET products in the State of Mississippi without Seaboard
(USA's) prior approval. As a result of the complaints, the
Mississippi Department of Insurance advised Seaboard (USA) that its
rate increases were in excess of a cap established by the Department
in Bulletin 94-1. While investigating the matter, the Department's
actuary inquired whether Seaboard (USA) had filed rate changes with
the Department for prior approval. In an effort to resolve this
mater, Seaboard (USA) has retained legal counsel in the State of
Mississippi. On June 30, 1998, Seaboard (USA), through its legal
counsel, filed an actuarial memorandum and rates related to the rate
increase. The
39
<PAGE>
Department later found the actuarial memorandum and rate filing to be
incomplete and requested experience information which supported the
filing. On August 5, 1998, Seaboard (USA), through its legal counsel,
filed experience information with the Department. At this time, the
actuarial memorandum and rates are pending review and approval. In
response to the Department's inquiry, Seaboard (USA) is in the process
of advising the Department regarding: (1) how CBSA implemented any
premium credits or refunds related to the unauthorized rate increases;
(2) how the unauthorized rate increases occurred; and (3) how Seaboard
(USA) will insure that no future unauthorized rate increased will
occur.
(B) In July 1997, the Ohio General Assembly enacted HB374 which made a
number of HIPAA-related changes to Ohio insurance laws. The provisions
of HB374 immediately became effective on July 1, 1997. At that time,
it was the intention of Seaboard Life Insurance Company (USA) to stop
marketing the Navigator One Life Discretionary Group health product
effective July 1, 1997. CBSA elected to seek another carrier for both
the Navigator One Life Discretionary Group and the Multiple Employer
Trust health products and Seaboard Life Insurance Company (USA) agreed
to continue the products until CBSA's successor carrier could obtain
form and rate approvals in the various states.
In December 1997, the Ohio Department of Insurance wrote all accident
and health carriers doing business in the State of Ohio and
requested written responses explaining if and/or why policy forms had
not been submitted to the Department for purposes of compliance with
HB374 and threatening carriers with fines and/or penalties for
noncompliance. On December 26, 1997, Seaboard Life Insurance Company
(USA) advised the Department that policy/certificate form amendments
would be filed within the following few weeks and subsequently filed
its policy/certificate form amendments as well as standard/basic plans
for both the Multiple Employer Trust and One Life Discretionary Group
health products. The policy/certificate form amendments and the
standard/basic plans were disapproved by the Department in February
1998. The reason for the disapproval of the MET form amendments was
that: (1) the first phrase in the Continuation provision of Form SL-
MET-SCL (9/97)OH needed to be revised; (2) the word "not" was
inadvertently omitted from the first line of item 2 in the
Conversation Privilege provision; (3) item 5 of the When Coverage Ends
provision of Form SL-MET-HIPPA (10/97) was inconsistent with ORC
3923.381 related to continuation of coverage for reservists and item 8
of the same provision was not a permissible reason for non-renewal
pursuant to ORC 3923.571(B). These same objections were applicable to
Form SL-MET-C(OH-B/S)1/98. The reason for that disapproval of the One
Life form amendments was that item 5 of the When Coverage Ends
provision of Form SL-ONE-SCL(12/97) was not a permissible reason for
non-renewal pursuant to ORC 3923.571(B). At that
40
<PAGE>
time, the Department advised Seaboard (USA) that neither the MET nor
the One Life form amendments would not be approved without the filing
and approval of related rates, actuarial memorandum and a Flesch score
certification as required by ORC 3902.04(D). Finally, the Department
advised Seaboard (USA) that it must satisfy its conversion
requirements on an individual policy contract basis and not on a group
basis. Seaboard (USA) has addressed the issues raised by the
Department in its February 1998 disapproval and Seaboard (USA) has
refiled the One Life and MET policy/certificate form amendments, the
standard/basis plans, rates and related information with the
Department on August 18, 1998. At this time, the August 18, 1998
filing is pending review and approval.
While compliant amended forms are not available to be issued and
delivered, CBSA has administratively applied the terms of the draft
policy/certificate form amendments and the products have been
administered in a manner that is consistent with Ohio law. Seaboard
Life Insurance Company (USA) has, however, been writing Multiple
Employer Trust and One Life Discretionary Group health business in the
State of Ohio since July 1997 without the availability of
standard/basic plans for "federally eligible individuals."
CBSA ceased soliciting, issuing and delivering new One Life
Discretionary Group coverage through Seaboard Life Insurance Company
(USA) in the State of Ohio for effective dates on or after August 1,
1998.
C. In May of 1994, the Florida Department of Insurance requested,
pursuant to Informational Bulletin 94-023, a list of all of VASA North
Atlantic Insurance Company's policy forms to be marketed after July 1,
1994 and other certain information. In response to their request,
VASA North Atlantic Insurance Company provided certain information
related to forms to be marketed after July 1, 1994, including form
numbers. On June 22, 1994, the Department wrote VASA North Atlantic
Insurance Company and stated "experience on policies sold on or after
July 1, 1994 are subject to the requirements of Rule Chapter 4-149.001
through 4-149.006." The Department also stated that "we expect that
rate filings will follow in a timely manner" as well as requested that
VASA North Atlantic Insurance Company "demonstrate that these forms
will meet the new loss ratio requirements." The VASA North Atlantic
Insurance Company compliance files indicate that its last rate filing
was in 1990 and suggests that there has been no further correspondence
with the Department regarding their June 22, 1994 letter.
D. Seaboard Life Insurance Company (USA) is currently reviewing the
Navigator One Life and Met products for appropriate actions to be
taken. Various internal and external operational issues may exist,
including but not limited to the following:
41
<PAGE>
In late 1995, Seaboard Life Insurance Company (USA) began to
issue, through Corporate Benefit Services of America, Inc. ("CBSA"),
its Navigator One Life and MET policy/certificate forms after the
Louisiana Department of Insurance had not responded to its filing
(dated: September 26, 1995) within the 30-day deemer provision. The
30-day deemer provision was exercised because CBSA had been authorized
to begin marketing in the State of Louisiana. Shortly thereafter, the
Department responded by disapproving the One Life and Met
policy/certificate forms. While disapproved, CBSA continued to
solicit coverage. Following changes to policy/certificate forms, the
forms were ultimately approved for issue and delivery in the State of
Louisiana in February 1997. Those forms have been forwarded to CBSA
for issue and delivery. At that time, the Department was aware of the
policy/certificate forms being issued and delivered although not
approved and no action was taken.
During 1995 and 1996, CBSA solicited and issued coverage through
the One Life or MET products to a number of Illinois residents despite
Seaboard Life Insurance Company (USA's) lack of authority to transact
accident and/or health insurance business in the State of Illinois.
This matter was resolved by another carrier assuming this coverage.
Through its Illinois legal counsel, Seaboard (USA) revealed to the
Department in January 1997 that health insurance coverage was
inadvertently provided to Illinois residents. No action was taken.
In 1996, CBSA began marketing fully-insured group health
insurance coverage through Seaboard Life Insurance Company (USA) to
Iowa employers. At the time, CBSA was authorized to enter Iowa, it
was agreed that CBSA would provide such coverage through Seaboard
(USA's) matrix policy form. In January 1998, VASA Brougher, Inc.
determined that CBSA has been providing coverage to Iowa employers
through the Navigator MET product. The Navigator MET product may not
conform, in every respect, to Iowa state insurance laws and
regulations. At this time, Seaboard (USA) is preparing
policy/certificate form amendments for the State of Iowa.
CBSA has reported that there may be lack of affinity between the
individuals receiving coverage under the Navigator One Life Trust
despite the Trust's contemplation of each insured being a member of a
"Participant's group, as described in the PARTICIPANTS ADDENDUM."
Most states do not allow groups to be formed solely for the purposes
of obtaining group insurance. This fact and the passage of HIPAA
raise the issue whether the Navigator One Life product could be viewed
as individual coverage. The One Life product was not designed to be
compliant with the requirements of individual products. CBSA has
42
<PAGE>
stopped soliciting, issuing or delivering new One Life coverage
through Seaboard (USA) in the States of Indiana, Ohio, Mississippi,
and Louisiana effective August 1, 1998.
Seaboard (USA) has not yet received approval of its most recent
Navigator policy/certificate form amendments for its MET and One Life
products in the State of Louisiana. The policy/certificate form
amendments were filed in June 1998. At this time, the
policy/certificate form amendments are pending review and approval
with the Louisiana Department of Insurance. CBSA has been provided
with the "draft" policy/certificate form amendments for administrative
purposes. CBSA has stopped soliciting, issuing and delivering any new
One Life coverage in the State of Louisiana.
3.15(d)
In late 1993 and throughout 1994, in response to various routine regulatory
financial filings, state analysts inquired about the capital and surplus, losses
and three-year business plan of VASA North Atlantic Insurance Company and
satisfactory responses were provided by VASA North Atlantic Insurance Company.
VASA North Atlantic Insurance Company is late in submitting its 1998 NAII Data
Call, due June 15, 1998, relating to its property and casualty lines. An
extension to answer was requested on July 24, 1998. VASA North Atlantic
Insurance Company is in the process of contracting with outside system resources
so that it may answer the Data Call.
6) Tax returns not filed but which will be filed by Closing.
Income or Franchise Tax Returns yet to be Filed
(All in Process with Ernst & Young)
1995
- ----
VASA North Atlantic Insurance Company California
Mississippi
VASA Brougher, Inc. Arkansas
Louisiana
Michigan
Pennsylvania
South Carolina
Select Benefits, Inc. Arizona
Oregon
Pennsylvania
43
<PAGE>
South Carolina
Utah
1996 & 1997
- -----------
VASA North Atlantic Insurance Company Alabama
California
Florida
Illinois
Indiana - Part of Consolidated VASA
North America
Mississippi
Nebraska
Tennessee
VASA Brougher, Inc. Alabama
Arizona
Arkansas
California
Colorado
Georgia
Illinois
Indiana - Part of Consolidated VASA
North America
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Montana
North Carolina
Oklahoma
Pennsylvania
South Carolina
Utah
44
<PAGE>
1996 & 1997
- -----------
Select Benefits, Inc. Arizona
Oregon
Pennsylvania
South Carolina
Utah
45
<PAGE>
Schedule 3.15
Licenses and Permits; Policies; Regulatory Matters
--------------------------------------------------
3.15(a) Licenses, Franchises, Permits or other similar authorizations
VASA Brougher, Inc.
Third Party Administrator License by state: Illinois, Indiana, Iowa, Kentucky,
Minnesota, Nevada, Oklahoma, Oregon, Tennessee, Texas, Wisconsin
Agent, Agency or Broker License by state: Alaska, Arkansas, California,
Colorado, Connecticut, Delaware, District of Columbia, Idaho, Illinois, Indiana,
Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana,
Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Virginia,
Washington, Wyoming
Managing General Agent License or Appointment by state: Arizona, Colorado,
Florida, Illinois, Idaho, Kentucky, Michigan, Missouri, Montana, New Jersey,
Virginia, Washington, Wisconsin
In the following states where a non-resident corporation cannot be licensed as
an agent, a sales representative and/or underwriter is licensed: Alabama,
Georgia, Massachusetts, New Mexico, North Carolina, Ohio, Vermont and West
Virginia
VASA North Atlantic Insurance Company
Certificate of Authority by state: Alabama, Arizona, Arkansas, Colorado,
District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,
Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana,
Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah,
Virginia, Washington, West Virginia, Wisconsin, Wyoming
Surplus Lines Authority by state: Alaska, Hawaii, Kansas, Louisiana, Michigan
Seaboard Life Insurance Company (USA)
Certificate of Authority by state: Alabama, Arizona, Arkansas, California,
Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan,
Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina,
South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia,
Wisconsin, Wyoming
46
<PAGE>
3.15(b) & (e)
1) Possible Limitations
VASA North Atlantic Insurance Company has been contacted by the following
states regarding its losses and its plan of operation going forward:
Minnesota: Originally contacted by letter from the Minnesota Department of
Commerce dated June 30, 1997. Most recent communication was a telephone
conversation with Ms. Jill Rickheim of the Minnesota Department of Commerce
on June 26, 1998. A memorandum by Andrew M. Weissert of VASA North
Atlantic Insurance Company memorializing that conversation has been
provided to Buyer.
North Carolina: Originally contacted by letter from the North Carolina
Department of Insurance dated July 9, 1998. Most recent communication was
a telephone conversation between Mr. Larry Boykin, of the North Carolina
Department of Insurance and Andrew M. Weissert of VASA North Atlantic
Insurance Company on August 19, 1998. Mr. Weissert informed Mr. Boykin
that VASA North Atlantic Insurance Company projected roughly $800,000 in
premium would be written by it in North Carolina in 1998. However, VASA
North Atlantic Insurance Company was for sale. Mr. Boykin responded that
no limitations would be placed on VASA North Atlantic Insurance Company at
this time and to please notify the North Carolina Department of Insurance
when the sale was closed.
2) Filing of Reports
VASA North Atlantic Insurance Company has not yet filed the necessary forms
with the Insurance Services Office regarding its 1996 book of business in
the State of Texas. The Insurance Services Office is under contract with
the Texas Department of Insurance to collect this information. VASA North
Atlantic Insurance Company is working with the Insurance Services Office to
receive an exemption due to the diminishing book of business written in
Texas as a result of the de-emphasis by VASA North Atlantic Insurance
Company in the Lawyers Professional Liability line of business. The last
communication with the Insurance Services office was a letter from VASA
North Atlantic Insurance Company dated August 7, 1998, in which it formally
requested the exemption. Should VASA North Atlantic Insurance Company not
receive the exemption, a fine of less than $5,000 may be forthcoming.
VASA North Atlantic Insurance Company paid a $5,000 fine to the
Commonwealth of Kentucky in 1996 for the late filing of a fraud plan.
47
<PAGE>
VASA North Atlantic Insurance Company paid a $4,538.00 fine to the Colorado
Department of Insurance in 1994.
VASA North Atlantic Insurance Company paid a $2,864.07 fine to the Georgia
Municipal Association in 1994.
VASA North Atlantic Insurance Company paid a $3,269.80 fine to the Georgia
Department of Insurance in 1994.
VASA North Atlantic Insurance Company paid a $9,000 fine to the Arizona
Department of Insurance in 1995 as the result of a market conduct
examination.
3) Rates and Policies
Seaboard Life Insurance Company (USA) has de-emphasized its Medicare
supplement line of business. Its Medicare supplement policies and related
forms, while in compliance at the time of filing and approval, have not
been updated since 1996.
The insurance regulators in the states of Mississippi and Ohio have
expressed concern regarding or made inquiry as to the forms and/or rates of
the Seaboard Life Insurance Company (USA) Navigator Multiple Employer Trust
and/or One Life Discretionary Group Fully Insured Health Policy (ies).
These policies are administered by Corporate Benefit Services of America
("CBSA") on behalf of Seaboard Life Insurance Company (USA). Each issue
raised is currently being reviewed by Seaboard Life Insurance Company (USA)
and appropriate action has been or will be taken. (See below for
details).
Specific issues that may have a material impact upon the ability of the
Companies to conduct business are as follows:
(A) As a result of consumer complaints, Seaboard Life Insurance
Company (USA) became aware that CBSA imposed rate increases for its
One Life and MET products in the State of Mississippi without Seaboard
(USA's) prior approval. As a result of the complaints, the
Mississippi Department of Insurance advised Seaboard (USA) that its
rate increases were in excess of a cap established by the Department
in Bulletin 94-1. While investigating the matter, the Department's
actuary inquired whether Seaboard (USA) had filed rate changes with
the Department for prior approval. In an effort to resolve this
mater, Seaboard (USA) has retained legal counsel in the State of
Mississippi. On June 30, 1998, Seaboard (USA), through its legal
counsel, filed an actuarial memorandum and rates related to the rate
increase. The Department later found the actuarial memorandum and
rate filing to be incomplete and requested experience information
which supported the filing. On August 5, 1998, Seaboard
48
<PAGE>
(USA), through its legal counsel, filed experience information with
the Department. At this time, the actuarial memorandum and rates are
pending review and approval. In response to the Department's inquiry,
Seaboard (USA) is in the process of advising the Department regarding:
(1) how CBSA implemented any premium credits or refunds related to the
unauthorized rate increases; (2) how the unauthorized rate increases
occurred; and (3) how Seaboard (USA) will insure that no future
unauthorized rate increased will occur.
(B) In July 1997, the Ohio General Assembly enacted HB374 which made a
number of HIPAA-related changes to Ohio insurance laws. The provisions
of HB374 immediately became effective on July 1, 1997. At that time,
it was the intention of Seaboard Life Insurance Company (USA) to stop
marketing the Navigator One Life Discretionary Group health product
effective July 1, 1997. CBSA elected to seek another carrier for both
the Navigator One Life Discretionary Group and the Multiple Employer
Trust health products and Seaboard Life Insurance Company (USA) agreed
to continue the products until CBSA's successor carrier could obtain
form and rate approvals in the various states.
In December 1997, the Ohio Department of Insurance wrote all accident
and health carriers doing business in the State of Ohio and requested
written responses explaining if and/or why policy forms had not been
submitted to the Department for purposes of compliance with HB374 and
threatening carriers with fines and/or penalties for noncompliance. On
December 26, 1997, Seaboard Life Insurance Company (USA) advised the
Department that policy/certificate form amendments would be filed
within the following few weeks and subsequently filed its
policy/certificate form amendments as well as standard/basic plans for
both the Multiple Employer Trust and One Life Discretionary Group
health products. The policy/certificate form amendments and the
standard/basic plans were disapproved by the Department in February
1998. The reason for the disapproval of the MET form amendments was
that: (1) the first phrase in the Continuation provision of Form SL-
MET-SCL (9/97)OH needed to be revised; (2) the word "not" was
inadvertently omitted from the first line of item 2 in the
Conversation Privilege provision; (3) item 5 of the When Coverage Ends
provision of Form SL-MET-HIPPA (10/97) was inconsistent with ORC
3923.381 related to continuation of coverage for reservists and item 8
of the same provision was not a permissible reason for non-renewal
pursuant to ORC 3923.571(B). These same objections were applicable to
Form SL-MET-C(OH-B/S)1/98. The reason for that disapproval of the One
Life form amendments was that item 5 of the When Coverage Ends
provision of Form SL-ONE-SCL(12/97) was not a permissible reason for
non-renewal pursuant to ORC 3923.571(B). At that time, the Department
advised Seaboard (USA) that neither the MET nor the One Life form
amendments would not be approved without the filing and
49
<PAGE>
approval of related rates, actuarial memorandum and a Flesch score
certification as required by ORC 3902.04(D). Finally, the Department
advised Seaboard (USA) that it must satisfy its conversion
requirements on an individual policy contract basis and not on a group
basis. Seaboard (USA) has addressed the issues raised by the
Department in its February 1998 disapproval and Seaboard (USA) has
refiled the One Life and MET policy/certificate form amendments, the
standard/basis plans, rates and related information with the
Department on August 18, 1998. At this time, the August 18, 1998
filing is pending review and approval.
While compliant amended forms are not available to be issued and
delivered, CBSA has administratively applied the terms of the draft
policy/certificate form amendments and the products have been
administered in a manner that is consistent with Ohio law. Seaboard
Life Insurance Company (USA) has, however, been writing Multiple
Employer Trust and One Life Discretionary Group health business in the
State of Ohio since July 1997 without the availability of
standard/basic plans for "federally eligible individuals."
CBSA ceased soliciting, issuing and delivering new One Life
Discretionary Group coverage through Seaboard Life Insurance Company
(USA) in the State of Ohio for effective dates on or after August 1,
1998.
C. In May of 1994, the Florida Department of Insurance requested,
pursuant to Informational Bulletin 94-023, a list of all of VASA North
Atlantic Insurance Company's policy forms to be marketed after July 1,
1994 and other certain information. In response to their request, VASA
North Atlantic Insurance Company provided certain information related
to forms to be marketed after July 1, 1994, including form numbers. On
June 22, 1994, the Department wrote VASA North Atlantic Insurance
Company and stated "experience on policies sold on or after July 1,
1994 are subject to the requirements of Rule Chapter 4-149.001 through
4-149.006." The Department also stated that "we expect that rate
filings will follow in a timely manner" as well as requested that VASA
North Atlantic Insurance Company "demonstrate that these forms will
meet the new loss ratio requirements." The VASA North Atlantic
Insurance Company compliance files indicate that its last rate filing
was in 1990 and suggests that there has been no further correspondence
with the Department regarding their June 22, 1994 letter.
D. Seaboard Life Insurance Company (USA) is currently reviewing the
Navigator One Life and Met products for appropriate actions to be
taken. Various internal and external operational issues may exist,
including but not limited to the following:
50
<PAGE>
In late 1995, Seaboard Life Insurance Company (USA) began to
issue, through Corporate Benefit Services of America, Inc. ("CBSA"),
its Navigator One Life and MET policy/certificate forms after the
Louisiana Department of Insurance had not responded to its filing
(dated: September 26, 1995) within the 30-day deemer provision. The
30-day deemer provision was exercised because CBSA had been authorized
to begin marketing in the State of Louisiana. Shortly thereafter, the
Department responded by disapproving the One Life and Met
policy/certificate forms. While disapproved, CBSA continued to
solicit coverage. Following changes to policy/certificate forms, the
forms were ultimately approved for issue and delivery in the State of
Louisiana in February 1997. Those forms have been forwarded to CBSA
for issue and delivery. At that time, the Department was aware of the
policy/certificate forms being issued and delivered although not
approved and no action was taken.
During 1995 and 1996, CBSA solicited and issued coverage through
the One Life or MET products to a number of Illinois residents despite
Seaboard Life Insurance Company (USA's) lack of authority to transact
accident and/or health insurance business in the State of Illinois.
This matter was resolved by another carrier assuming this coverage.
Through its Illinois legal counsel, Seaboard (USA) revealed to the
Department in January 1997 that health insurance coverage was
inadvertently provided to Illinois residents. No action was taken.
In 1996, CBSA began marketing fully-insured group health
insurance coverage through Seaboard Life Insurance Company (USA) to
Iowa employers. At the time, CBSA was authorized to enter Iowa, it was
agreed that CBSA would provide such coverage through Seaboard (USA's)
matrix policy form. In January 1998, VASA Brougher, Inc. determined
that CBSA has been providing coverage to Iowa employers through the
Navigator MET product. The Navigator MET product may not conform, in
every respect, to Iowa state insurance laws and regulations. At this
time, Seaboard (USA) is preparing policy/certificate form amendments
for the State of Iowa.
CBSA has reported that there may be lack of affinity between the
individuals receiving coverage under the Navigator One Life Trust
despite the Trust's contemplation of each insured being a member of a
"Participant's group, as described in the PARTICIPANTS ADDENDUM."
Most states do not allow groups to be formed solely for the purposes
of obtaining group insurance. This fact and the passage of HIPAA
raise the issue whether the Navigator One Life product could be viewed
as individual coverage. The One Life product was not designed to be
compliant with the requirements of individual products. CBSA has
51
<PAGE>
stopped soliciting, issuing or delivering new One Life coverage
through Seaboard (USA) in the States of Indiana, Ohio, Mississippi,
and Louisiana effective August 1, 1998.
Seaboard (USA) has not yet received approval of its most recent
Navigator policy/certificate form amendments for its MET and One Life
products in the State of Louisiana. The policy/certificate form
amendments were filed in June 1998. At this time, the
policy/certificate form amendments are pending review and approval
with the Louisiana Department of Insurance. CBSA has been provided
with the "draft" policy/certificate form amendments for administrative
purposes. CBSA has stopped soliciting, issuing and delivering any new
One Life coverage in the State of Louisiana.
3.15(d)
In late 1993 and throughout 1994, in response to various routine regulatory
financial filings, state analysts inquired about the capital and surplus, losses
and three-year business plan of VASA North Atlantic Insurance Company and
satisfactory responses were provided by VASA North Atlantic Insurance Company.
VASA North Atlantic Insurance Company is late in submitting its 1998 NAII Data
Call, due June 15, 1998, relating to its property and casualty lines. An
extension to answer was requested on July 24, 1998. VASA North Atlantic
Insurance Company is in the process of contracting with outside system resources
so that it may answer the Data Call.
52
<PAGE>
Schedule 3.16
ERISA Representations
---------------------
(a) Employee Plans
--------------
VASA North America, Inc. Welfare Benefit Plan
VASA North America, Inc. 401(k) Profit Sharing Plan
VASA North America, Inc. Group Term Life Insurance Policy
VASA North America, Inc. Flexible Benefits Plan
(d)(i) Benefit Arrangements [Note: Certain benefit-related payments made
--------------------
from the VEBA trust are being reviewed by management and the welfare benefit
plan trustees. However, there is no material non-compliance involved.]
Company Paid Holidays
Educational Assistance Plan
Employee Assistance Program
Employees' Severance Plan
Flexible Work Scheduling
Floating Holidays
Free Parking
Illness Allowance
Long Term Disability
Management Incentive Plan
Personal Time
Short Term Disability
Staff Incentive Plan
Travel Insurance
Vacation
Voluntary Term Life Insurance
Wellness Assessment/Fitness Facility
Workers Compensation Coverage
(f) Retiree or Former Employee Health or Life Benefits
--------------------------------------------------
Neither the Companies nor any of the Subsidiaries have any obligations for
retiree or former employee health or life benefits under any Employee Plan or
Benefit Arrangement except as provided under Section 601 et seq. of ERISA and
Section 4980B of the Code.
(g) Execution and Delivery of Agreement Constitute Event That Results in
--------------------------------------------------------------------
Payment, Acceleration, Forgiveness of Indebtedness, Vesting, Distribution,
- --------------------------------------------------------------------------
Increase in Benefits or Obligation to Fund Benefits
- ---------------------------------------------------
53
<PAGE>
If the VASA North America, Inc. 401(k) Profit Sharing Plan is terminated or
partially terminated, participants' matching contributions or profit sharing
contributions will immediately become 100% vested by operation of
law.
54
<PAGE>
Schedule 3.17
Environmental Compliance
------------------------
(a) The Companies and their Subsidiaries believe that they have been and are
in compliance with all applicable Environmental Laws. However, asbestos-
containing materials and above ground storage tanks were discovered on
properties currently and formerly owned or operated by the Companies and their
Subsidiaries. Actions have been taken to abate asbestos-containing materials and
remove and dispose of the above ground storage tanks. The Companies and their
Subsidiaries will be investigating the possible existence of one or more
underground storage tanks at the 525 S. Meridian Street, Indianapolis, Indiana
property.
(b) The Companies and their Subsidiaries believe that they have all Permits
required under any applicable Environmental Laws and that they are in compliance
with their respective requirements. However, asbestos-containing materials and
above ground storage tanks were discovered on properties currently and formerly
owned or operated by the Companies and their Subsidiaries. Actions have been
taken to abate asbestos-containing materials and remove and dispose of the above
ground storage tanks. The Companies and their Subsidiaries will be investigating
the possible existence of one or more underground storage tanks at the 525 S.
Meridian Street, Indianapolis, Indiana property.
(c) No exceptions.
(d) The Companies and their Subsidiaries do not believe that there have been
or are circumstances, where any Hazardous Substances may have been disposed of
or released by or on behalf of any of the Companies or any Subsidiary, that are
reasonably likely to form the basis of a claim under Environmental Laws against
any of the Companies or their Subsidiaries. However, asbestos-containing
materials and above ground storage tanks were discovered on properties currently
and formerly owned or operated by the Companies and their Subsidiaries. Actions
have been taken to abate asbestos-containing materials and remove and dispose of
the above ground storage tanks. The Companies and their Subsidiaries will be
investigating the possible existence of one or more underground storage tanks at
the 525 S. Meridian Street, Indianapolis, Indiana property.
(e) The Companies and their Subsidiaries do not believe that they have exposed
any employee or third party to any Hazardous Substances which has subjected or
may subject the Companies or their Subsidiaries to liability under any
Environmental Laws. However, asbestos-containing materials and above ground
storage tanks were discovered on properties currently and formerly owned or
operated by the Companies and their Subsidiaries. Actions have been taken to
abate asbestos-containing materials and remove and dispose of the above ground
storage tanks. The Companies and their Subsidiaries will be investigating the
possible existence of one or more underground storage tanks at the 525 S.
Meridian Street, Indianapolis, Indiana property.
55
<PAGE>
Schedule 3.18
Intellectual Property; Software
-------------------------------
1) The ULTRAPLUS system becomes the property of a third party on January 1,
2000.
2) No data-related output, calculations or results before, during or after
calendar year 2000 that are produced or used by any hardware, software, firmware
or facilities systems owned or used by the Company or any subsidiary are Year
2000 compliant. The Company is currently working on compliance and is seeking
compliance from third party vendors; however, that task is not yet complete.
See Attachment 1 for the Year 2000 Plan.
56
<PAGE>
Schedule 3.18
Attachment 1
<PAGE>
SCHEDULE 3.18
VASA Brougher
Year 2000 Report
John Storm
Vice President, Information Systems
<PAGE>
VASA Brougher Year 2000 Report
VASA Brougher's Year 2000 project began in 1996 with the initiation of a
project to rewrite the Benefits Plus System (BPS). The BPS system is the primary
software system used by VASA Brougher for underwriting, policy management,
premium accounting, and claims for the excess loss and group life products. The
Year 2000 project is designed to minimize the costs and potential business
disruption associated with the potential problems of non-compliant systems. The
project has three objectives:
Ensure that all application programs are Year 2000 compliant.
Ensure that all hardware and systems software are Year 2000 compliant.
Ensure that plans are in place to monitor Year 2000 compliance and effect
timely response where necessary.
VASA Brougher is fortunate in having a relatively modern information system
architecture and application systems. VASA operates a client server computing
environment. Software applications actually run on intelligent workstations or
clients. The client machines are responsible for edit, computation, and
presentation logic. The data used by the software application resides on a
central server. Client machines make requests to the central server for data.
[FLOWCHART OF NETWORK INTERACTION APPEARS HERE]
<PAGE>
Application Software
- --------------------
The primary system supporting VASA Brougher, the Benefits Plus System
(BPS), was rewritten and released in July 1997. The enhancements to this system
included Year 2000 compliance. A more rigorous test plan to ensure that the
system is completely Year 2000 compliant is scheduled for the fourth quarter of
1998. The other primary applications used by the company are the financial
applications (general ledger and accounts payable) purchased from Lawson
Software. These applications are considered compliant as reported by the vendor.
One system not compliant is our field underwriting system known as FORCE.
This system is approximately five years old and was written in COBOL for the
Microsoft DOS environment. Although it was a major improvement over our existing
capabilities, it is quite antiquated by today's standards. Since this system was
in need of major revisions, the approach chosen to secure Year 2000 compliance
was to rewrite the system. A new Windows 95 version of this software is
currently under development and will be released in October 1998.
The Wheatley Insurance System or WINS application is used to support the
runoff property and casualty lines of business and is not Year 2000 compliant.
At the end of July 1998 the system is providing support for approximately 82
professional liability claims with an outstanding reserve balance of $6.1
million. The system is supported under maintenance by the original vendor and a
Year 2000 compliant release is currently available. Our current plan calls for
not upgrading this system and eventually retiring it as the outstanding number
of claims continues to decline.
The other primary area of concern regarding Year 2000 compliance is with
small limited use purchased applications. Applications including licensing
software, fixed assets, payroll, and informational resources like compliance
documentation are included in this category. These applications have been
inventoried and are being reviewed as part of the project plan. Upgrading to
compliant versions will be decided on a case by case basis. A document
identifying these software applications, the number of licenses held by the
company, and the Year 2000 compliance status is attached as an appendix to this
document.
System Software
- ---------------
The network operating system used by VASA Brougher, Novell 4.1.1, is
considered compliant by the vendor. Several outstanding issues, however, remain.
An older version of Novell, version 3.12, remains in place to support the
current network fax capability. New software and hardware were purchased and
installed which will allow for the eventual replacement of the older network but
additional testing must be completed. Although the new fax software allows for
the elimination of the Novell 3.12 network, it will require a software patch to
be Year 2000 compliant. The patch will be available by the end of the fourth
quarter. Once testing is complete, a configuration
<PAGE>
change must be made to every desktop personal computer to allow for compliant
network fax services. After all personal computers are changed, the older Novell
network may be removed.
Additionally, a utility used on our local area networks which allows output
from the Lawson financial systems, which operate on a UNIX platform, to print to
any network printer must be updated for Year 2000 compliance. Novell has not
released an updated version of the software yet.
Network hardware and software components associated with the conversion of
our internal electronic mail software from DaVinci to Groupwise will be
eliminated once the Windows 95 project is complete. Since Groupwise is Internet
compliant we will be able to eliminate the SLICBAT machine used as an electronic
bulletin board system to allow producers to transfer files supporting fully
insured medical, Medicare and medical supplement, and dental product
information. Equipment supporting the DaVinci mail system and the bridge between
the old and new electronic mail systems will also be removed at the completion
of the Windows 95 project. An update of the number of employees who have been
converted to Windows 95 is attached as an appendix to this report.
The database sever operating system (SUN Solaris) was upgraded to version
2.5.1 in August 1999. This upgrade required an earlier upgrade to our ORACLE
database software to release 7.3.4. Based on information provided by ORACLE and
SUN on the Year 2000 sections of their corporate web sites, these release levels
are considered Year 2000 compliant. There are two outstanding issues related to
these systems. SUN has not yet released an upgraded version of a utility used to
manage the disks on the SUN server. A C language compiler which is used by the
Lawson software packages must also be upgraded to meet all compliance issues.
This software will be ordered in August and should be installed by the end of
September after a series of compatibility tests.
The WINS property and casualty system mentioned earlier operates on an IBM
AS400 system. The OS400 operating system currently in production is not
compliant, but will not be upgraded since we anticipate that the system will not
be in production once the remaining professional liability claims have been
processed.
Another important software application used by VASA Brougher is the
Business Objects ad hoc query tool. This tool is used by technical and business
users to develop reports from the data in the company's production databases.
The current version of this tool is not Year 2000 compliant. The software is
supported by a maintenance contract through the vendor and a compliant release
of the software package is now available. Plans are currently being developed to
upgrade to a compliant release by the end of the fourth quarter of 1998.
To decrease the effort involved in this upgrade, a project is currently
underway to eliminate Business Objects reports from our routine accounting close
as well as our claim and commission processes. This project will result in the
development of three separate applications which will increase automation of
these functions. Besides improving the actual business processes, this project
will eliminate over 100 Business Object reports which would have had to be
recreated as part of the upgrade to a compliant version.
<PAGE>
Hardware
- --------
VASA Brougher has approximately 160 personal computers assigned to
employees or serving some function in the normal production environment. Of that
number, 30 machines currently assigned in the production areas are COMPAQ M
series machines which are not Year 2000 compliant or capable of being brought
into compliance. Most other personal computers require a flash ROM upgrade to be
brought into compliance. This task is being performed in association with the
Windows 95 upgrade project. VASA's primary production network and database
servers are Year 2000 compliant. An inventory of personal computers is attached
as an appendix to this document.
VASA Brougher uses a CUBIX telecommunications server using Novell's Netware
Connect and remote control software from Reachout to allow external producers to
access internal systems or employees to access and control their assigned
personal computers. The CUBIX solution is not Year 2000 compliant and would
require approximately $32,000 to be brought into compliance and provide current
capacity levels. This project has been placed on holding pending a review of the
corporate direction in remote computing.
<PAGE>
Summary
- -------
In summary, VASA Brougher's Year 2000 project began in 1996 and if
executed in accordance with the time schedules set forth herein and in the
attached Year 2000 update, will result in the computer systems being Year 2000
compliant by December 31, 1998. The main production system used by VASA Brougher
was rewritten to include Year 2000 compliance as well as many other features and
was installed in July 1997. Also in 1997, a Year 2000 compliant version of the
financial accounting systems was installed. An inventory of small specialized
applications was completed in 1997. A copy of the list of software packages is
included in the appendix to this document. In 1998 the ORACLE database software
as well as database server operating system were upgrade to compliant versions.
The primary data analysis and report generating tool, Business Objects, will
also be upgraded in 1998. Plans call for retiring the WINS property and casualty
system and the AS400 platform prior to the end of 1998. Finally, a new release
of FORCE will be released in October 1998 to make this system compliant.
VASA Brougher does use over 30 personal computers which are not Year
2000 compliant and are incapable of becoming compliant. The company's
telecommunications server which allows access to internal systems by both
producers and employees is not compliant. Estimates have been obtained to
determine the cost of making this equipment compliant, but efforts have been
placed on hold pending a review of the company's telecommunications strategy.
<PAGE>
Summary
- -------
________________________________________________________________________________
| Application | Year 2000 | Date | Notes |
| | Compliant | Compliant | |
________________________________________________________________________________
|Benefits Plus System| No |December 1998 | Additional testing to be |
| | | | completed by December |
| | | | 1998 |
________________________________________________________________________________
|Lawson Financials | No |September 1998 | New C Compiler required. |
________________________________________________________________________________
|WINS P&C System | No | | System will be retired |
| | | | after remaining |
| | | | professional liability |
| | | | claims are processed |
________________________________________________________________________________
|FORCE Field | No |October 1998 | New Windows release |
|Underwriting | | | scheduled for |
| | | | October 1998 |
________________________________________________________________________________
________________________________________________________________________________
| System Software | Year 2000 | Date | Notes |
| | Compliant | Compliant | |
________________________________________________________________________________
|Novell 4.11 | Yes | 1996 | |
________________________________________________________________________________
|SUN Solaris (UNIX) | Yes | 1998 | Upgraded to 2.5.1 |
________________________________________________________________________________
|ORACLE Database | Yes | 1998 | Upgraded to 7.3.4 |
________________________________________________________________________________
|Business Objects | No |December 1998 | Compliant release |
| | | | available from vendor. |
| | | | Scheduled implementation |
| | | | 4th Qtr 1998 |
________________________________________________________________________________
<PAGE>
Appendix
Inventory Of Purchased PC Software
PC Hardware Inventory
Windows 95/Groupwise Conversion Project
Letter Used to Report To Third Parties on Year 2000 Compliance
Corporate Network Diagram
<PAGE>
Software Inventory
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K?
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
123 for DOS 3.1 lotus \apps\lotus\123.exe C 2 X +
123 for Windows 4.01 & 5.0 lotus \apps\123w\123w.exe & licenser C 2 X +
ABC Flowcharter 4.0 micrografx \apps\abc\ABCFlow C 9 X 6.0 upgrade
Adobe Acrobat 3.01 adobe -local 1 +
Adobe Illustrator 7.0 adobe -local 1 +
Adobe Pagemaker 6.0 adobe -local 6 +
Adobe Photoshop 4.01 adobe -local 1 +
Arcserve 6.1 cheyenne Pluto N 500 +
Arts & Letters 3.1 arts-letters -local C 8 +
Big Red Self Test \apps\cbts\stsdemo & stsware n 10 n/a
BNA - Fixed Assets 91.1 bna \apps\farn\FA.exe & fixasset C 1 X +Nel tzel
Business Objects 3.0 businessobjects \apps\obj31\OBJECTS. N 53 X 4.05 upgr
ClickArt no version Cds n/a
Codewright 5.0b premia \apps\develop\cw16\CW.exe N 5 X +
Crystal Reports 6.0 patches
CT Advantage 3.11 \apps\cta +
DBA Prep 1.0 docsoftware -local 1 n/a
EM320 2.50-WS15 emdcs -local N 50 X +
Erwin 3.5 logicworks -local N 5 X +
Faxserve 5.0 Cheyenne Mars 4th qtr 1998
File in Time 1.00 TimeValue 1 Dnetzel
FireWall 1 3.0a Checkpoint upgrade
Freedom 2.01 \apps\freedom & f 1 +
Frontpage 98 microsoft 1 +
Ghost 5.0d ghost N 175 +
Grammatik 2.0 KRussell n/a
Groupwise 5.2 novell 150 +
Gupta 5.1 centurasoft \apps\develop\gupta C 15 +T plunkett
HelpStar 4.0 helpstar \apps\hsw C 8 4.2
Insource 2.13 nils +
Lawson 2.2.8 lawson \apps\desktop.22\apps\lawtools C 20 +
Maplinx 5.0 imsisoft -local 1 +
McAfee Virus Scan 3.0 nai 2 +
Med Spell no version \users\vshowall 1 n/a
MicroFocus Cohol 4.0 Comes from Lawson 1 upgrade
Microlink 4.2 \apps\mlink\S2000.exe 2 No - Bank?
Monarch 3.03 datawatch -local (Kirk Boller) 1 +
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K?
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MS DOS 6.22 microsoft -local N +
MS Office 4.3 microsoft \apps\msoffice & msapps N 173 X +
MS Project 4.0 microsoft \apps\winproj N 14 X patch
MS Windows 3.11 microsoft \apps\win31 & \apps\wintest patch
MS Windows 95 4.3 microsoft -local +
MS Windows NT 4.0 microsoft -local 1 +
Netscape 3.04 -local +
NetViz 2.5a netviz \apps\netviz25 C 1 +
Norton Antivirus 2.0 symantec \apps\nav 50 X 4.0
NetWare 4.11 & 3.12 novell C 250 +patches
NetWare Client 2.20 novell n/a n/a +patches
NetWare Connect view 2 novell n/a n/a +patches
NetWare Unix Prt Srvs 2.1 novell n/a n/a patches
Nov CBT - Intro to NW n/a novell \apps\cbts\novcbt\netintro C 1 Yes - - n/a
Nov CBT - Net Tech n/a novell \apps\cbts\novcbt\nettech C 1 " - - n/a
Nov CBT - Intro to 4 n/a novell \apps\cbts\novcbt\int40 C 1 " - - n/a
Nov CBT - 4 Admin n/a novell \apps\cbts\novcbt\na40 C 1 " - - n/a
Oracle 7.3.4 oracle \apps\orawin, orawin95 & oratest C 100 +
Ora CBT - Intro to SQL n/a oracle \apps\cbts\ora_cbt\sql1cbt\sql1cbt C 1 Yes - - n/a
Ora CBT - PL/SQL n/a oracle \apps\cbts\ora_cbt\plsql1cbt\plsql1cbt C 1 Yes - - n/a
Ora CBT - SQL Forms n/a oracle \apps\cbts\ora_cbt\form1cbt\form1cbt C 1 Yes - - n/a
Ora CBT - Data Models n/a oracle \apps\cbts\ora_cbt\dmcbt\dm1cbt C 1 Yes - - n/a
Ora CBT - Func Models n/a oracle \apps\cbts\ora_cbt\fm1cbt\fm1cbt C 1 Yes - - n/a
Ora CBT - Architecture n/a oracle \apps\cbts\ora_cbt\arch1cbt\arch1cbt C 1 Yes - - n/a
Ora CBT - Admin I n/a oracle \apps\cbts\ora_cbt\dba1cbt\dba1cbt C 1 Yes - - n/a
Ora CBT - Admin II n/a oracle \apps\cbts\ora_cbt\dba2cbt\dba2cbt C 1 Yes - - n/a
pcAnywhere 8.0 symantec \apps\winsw X upgrading
Perform Pro 3.0 Shari Terry - only needed to print 2 Not but ok
Pictorial - AppointPak June "98" pictorial \apps\apak 10 X +
Pictorial - Lic Tracker Feb. "98" pictorial \apps\ltplus 10 X +
Pictorial - PAL June "98" pictorial \apps\pelwin 1 X +
ProComm 2.0 \apps\procomm 2 upgrade
PPT Plus 97.1 Decision Info Sys \apps\tax 1 +
PVCS 5.3 Intersolv \apps\develop\intrsolv +
Reachout 4.0 stac -local 7.0 upgrade
RIA Group Dneitzel CDS of Tax forms, regs etc. Dneitzel
Service Call 9.03 \apps\srvcall 1 upgrade
SofTrack 3.1b on \apps\softrack +
Solaris 2.5.1 sunsolve +
Solaris - Adminsuite sunsolve +
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K?
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Solaris - CDE 1.0.2 sunsolve +
Solaris - DiskSuite 4.0 sunsolve 102580-17
Sparc C Compiler 4.0 sunsolve upgrade 4.2
SPF/SE 4.0 -local 1 +
SOL Studio 2.0.4 evenlus 6 +
Tax2220 "97" edition TimeValue 1 +
TaxInterest 97.3 TimeValue 1 +
Tillinghast Health
Maps Brnallison -local (Brnallison) uses Lotus 5.0 +
Tvalue 91.3 TimeValue \apps\tvalue3 1 +
Turbo Tax 8.0 Intuit \apps\tax (DNeitzel) 1 Dneitzel
UCR (Medicode) 1.1 \apps\ucr +
Ultipro 2.0a \apps\ultipro 1 3rd qtr 98
UniVision Dorris platinum galileo +
Visual Basic 5.8 microsoft 6 +
Westcorp 5.2 +
Software...........................................I...L...L...E...G...I...B...L...E................................................
DaVinci shiell 3.50 on \apps\email\EMAIL.WIN self 250 replacing
FACSys 3.30 weltec replacing
IQuest iquest.net -local replacing
Quarterdeck -local replacing
RAM Doubter -local 130 replacing
Reslia (Visual) \apps\develop\reslia42 replacing
ROBOT AS/400 replacing
Rumba walldata \apps\rumba, rumbapcs & pcs replacing
Screen I/O replacing
Westmate 5.2 westgroup \appa\westmate 1 replacing
WINS wheatleyinsurance AS/400 replacing
Software...........................................I...L...L...E...G...I...B...L...E................................................
1099-PC 1996 \apps\fax\1099\1099PC 1 last used '96
Carbon Copy 6.1 microcomm local - CC.exe N 1 not used/7.0
Detrina Winfax no version symantec -local free with modem n/a 45 not used
Employee Appraiser c:\eap (CWhite/JRedenz) not used
Exceed hummingbird -not in use N n/a not used
FoxPro microsoft Multimedia kiosk not used
FXTools Multimedia kiosk not used
Goldmine 12 not used
Knowledge Piont jobdescriptions c:\perfnow (CWhite) not used
PC Tools 7.1 -diskettes 1 not used
Pictorial-Lic Tracker Feb."98" pictorial \apps\ltplus 1 not used
SQLBase centurasoft NOT IN USE not used
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K?
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Simple Records Mgr c:\simple (CHamilton) not used
Soft Ice numega -local not used
Timeline (PCalvin) not used
Travel Planner c:\tpr (KManney) not used
URM /apps/urm not used
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ - Vendor certified Year 2000 compliant
DNeitzel - He takes care of ordering his tax software upgrades so he is going to
get certification info.
n/a - not applicable, not date related
not used - software we are keeping in case we need to licenses but we no longer
use
replacing - software that will be eliminated before the year 2000
<PAGE>
INFORMATION SYSTEMS DEPARTMENT
- --------------------------------------------------------------------------------
TO: Dorrie Keyes
FROM: Robert McDaniel
DATE: August 17, 1998
RE: CPU Inventory (Revised)
The table below shows the status of our CPU equipment by model number
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C> <C>
33M 6 2 3 1 5 Faci, SAA, Email/Cyc.
50M 3 0 1 2 1 Westcorp,
66M 56 14 10 32 24 2-Ikon, 2led,
XL450 7 1 3 3 4
XL466 17 6 1 10 7 Auto PC, Fac.
XL566 3 3 0 0 0
XL590 1 1 0 0 0
XL5133 10 8 0 2 0
Deskpro 2000 3 2 1 0 0
Deskpro 4000 2 1 1 0 0 Manager Console
Leased DP 2000 133 29 29 0 0 0
Leased DP 2000 166 73 62 11 0 0
Totals 210 129 31 50 41
- --------------------------------------------------------------------------------
</TABLE>
We have 117 employees and 5 temporaries at this time.
<PAGE>
VASA Brougher, Inc. Windows 95 Conversions As of 8/17/1998
To Be installed
- --------------------------------------------------------------------------------
1 MKTG HAYNES SUSAN COMPAQ XL 466 RO
2.1 OPRMG ALVIS KEVIN COMPAQ XL 5133 - BANK
2.1 OPRMG HUNTER DEBBIE COMPAQ DESKPRO BANK
2.1 OPRMG WARD DOROTHY COMPAQ DESKPRO BANK
8 UW ANDERSON TERRY COMPAQ DESKPRO
8 UW ANSHUTZ SUSAN COMPAQ DESKPRO
8 UW ATWOOD SHARON COMPAQ XL 5133 -
8 UW BRIDGEFORTH JACKIE COMPAQ DESKPRO
8 UW BRUMBAUGH BARBARA COMPAQ DESKPRO
8 UW CUTLER JOEL COMPAQ DESKPRO
8 UW ELLIOTT CAROLYN COMPAQ DESKPRO
8 UW GOODE CHERYL COMPAQ XL 5133 -
8 UW HENN BOBBIE COMPAQ DESKPRO
8 UW HERBERTZ PATTY COMPAQ XL 5133 -
8 UW JOHNSON DONNA COMPAQ DESKPRO
8 UW KENNELLY MIKE COMPAQ XL 5133 -
8 UW KRAFT HENRY COMPAQ DESKPRO
8 UW LEWIS TONI COMPAQ DESKPRO
8 UW MADDEN BETH COMPAQ DESKPRO
8 UW MARKOVICH DAN COMPAQ DESKPRO
8 UW MARTIN DELMA COMPAQ 66M
8 UW MATHIAS MIKE COMPAQ XL 5133 -
8 UW NICHOLS DEBBIE COMPAQ DESKPRO
8 UW PAPP SANDRA COMPAQ DESKPRO
8 UW PRITCHARD SANDY COMPAQ XL 5133 -
8 UW SMITH MICHELLE COMPAQ DESKPRO
8 UW SPAULDING GREG COMPAQ DESKPRO
8 UW TAYLOR JOEY COMPAQ DESKPRO
8 UW VOILES LISA COMPAQ DESKPRO
8 UW WORMAN BRENDA COMPAQ 66M
9 OPRMG ADAMS TERRI COMPAQ 66M
9 OPRMG BENNETT GINA COMPAQ 66M
9 OPRMG BURRIS LEIGH ANN COMPAQ 66M
9 OPRMG FOXWORTHY DENISE COMPAQ DESKPRO
9 OPRMG GUILDNER MARTY COMPAQ DESKPRO
9 OPRMG HAMILTON CAROL COMPAQ DESKPRO
9 OPRMG JONES VICKY COMPAQ DESKPRO
9 OPRMG KELLY BARRI COMPAQ DESKPRO
9 OPRMG MAZZA-DAMERY BECKY COMPAQ DESKPRO BANK
9 OPRMG MORRIS LOIS COMPAQ DESKPRO
9 OPRMG NISHIYAMA HEATHER COMPAQ DESKPRO
9 OPRMG ROBERTS DONNA COMPAQ DESKPRO
9 OPRMG WALLACE AMY COMPAQ DESKPRO
9 OPRMG WHITAKER BETTY COMPAQ DESKPRO
9 OPRMG WILLIAMS CHARLOTTE COMPAQ DESKPRO
10 MEDMG MCGLOTHLIN MARY COMPAQ 66M
10 RUNOF MCGLOTHLIN KATHRYN COMPAQ 66M
10 MEDMG NOWAK MARTINA COMPAQ 66M
10 MEDMG SHOWALTER VERA COMPAQ 66M
11 IKON BASS TAMARA COMPAQ 66M
Page 1
<PAGE>
11 IKON CAIN BILLY COMPAQ 66M
11 IKON CONSOLE IBM 8870-861
11 IKON CONSOLE IBM 8870-861
11 IKON HOLIDAY CANDIS COMPAQ 66M
11 IKON KELLY BARB COMPAQ 66M
11 IKON SMITH JENNI COMPAQ 66M
11 IKON MCCARTHY TAMMY COMPAQ 66M
12 UW UW1 COMPAQ DESKPRO
12 UW UW2 COMPAQ DESKPRO
12 UW UW3 COMPAQ DESKPRO
12 UW UW4 COMPAQ DESKPRO
13 BALES MILLER SALLY COMPAQ DESKPRO Home
16 HRES PAYROLL COMPAQ 66M
16 CLMS TEMP TGREEN COMPAQ DESKPRO
16 CLMS TEMP CWARD COMPAQ DESKPRO
16 CLMS TEMP MMCNEIL COMPAQ 66M
16 MEDMG TEMP BUENING MARGARET COMPAQ 66M
16 CLMS TEMP DJOHNS (DLAMB) COMPAQ DESKPRO
16 MEDMG TEMP SAGAR JEANNE COMPAQ 66M
REMAINING 69
95 Installation completed
ACTRL CURRAN JOHN COMPAQ
ACTRL GRINDSTAFF MARSHA COMPAQ
ACTRL MALLISON BOB COMPAQ
ACTRL ROBBINS KEVIN COMPAQ
ACTRL STAMPLFLI ERIC COMPAQ
AUDIT BOLLER KIRK COMPAQ
AUDIT GEMINDEN KATHY COMPAQ
AUDIT LAMB DENISE COMPAQ
AUDIT LAW KT COMPAQ
AUDIT NORDHOFF JUDY COMPAQ
CLMS BREWER DAVE COMPAQ
CLMS DAVIS DARLENE COMPAQ
CLMS GILES PATTY COMPAQ
CLMS GRISMORE DEBBIE COMPAQ
CLMS JOINES-MCVEY BARBARA COMPAQ
CLMS MCKINNEY JULIE COMPAQ
CLMS NEVIN JEANETTE COMPAQ
CLMS PHELPS CONNIE COMPAQ
CLMS SCHWAB PATSY COMPAQ
CLMS URBINE DENISE COMPAQ
CLMS WARREN MARSHA COMPAQ
COMPL MCCARTY MARK COMPAQ
COMPL RUSSELL KIM COMPAQ
CORP KONTERMAN ROELOF COMPAQ
CORP PINKSTON CYNTHIA COMPAQ
HRES COOK BRENDA COMPAQ
HRES JAYNE TAMARA COMPAQ
INSYS COOK KATHY COMPAQ
INSYS CRISMORE JASON COMPAQ
Page 2
<PAGE>
VASA Brougher, Inc. Windows 95 Conversions As of 8/17/998
INSYS DESK FRONT COMPAQ
INSYS GENTRY JAN COMPAQ
INSYS KEYES DORRIE COMPAQ
INSYS KONERMAN WENDY COMPAQ
INSYS MCDANIEL BOB COMPAQ
INSYS MELLUCK KIM COMPAQ
INSYS PLUNKETT TIM COMPAQ
INSYS REDDING PAT COMPAQ
INSYS STORM JOHN COMPAQ
INSYS TERRY SHARI COMPAQ
INSYS TRANO LINDA COMPAQ
INSYS WEST TOM COMPAQ
LEGAL APOLSKIS MIKE COMPAQ
LEGAL DORSON PATTI COMPAQ
LEGAL REED CATHY COMPAQ
LEGAL SCOTT AMY COMPAQ
LEGAL STEPHENSON JENNIFER COMPAQ
MEDMG BURKHART MARKAY COMPAQ
MKTG LEININGER PAUL COMPAQ
MKTG NICKEL SCOTT COMPAQ
MKTG OLES KELLY COMPAQ
OPRMG BRUDER GORDON COMPAQ
Page 3
<PAGE>
[LOGO OF VASA BROUGHER]
Re: Year 2000 Compliance Update
Date: August 18, 1998
To Whom It May Concern:
Over the past several years the Information Systems Department of VASA North
America has been working to identify and resolve any issues related to potential
Year 2000 issues. This review has included the Group US Health business of both
VASA North Atlantic and Seaboard Life Insurance Company USA as well as the
group's managing general underwriter VASA Brougher. Listed below are the Year
2000 issues we have identified, the status, and, if necessary, the continued
action plan. It is the intent of VASA North America to have all associated
companies Year 2000 compliant except where specifically noted due to business
runoff considerations. If you have any questions regarding the following
breakdown please feel free to contact us at any time.
- --------------------------------------------------------------------------------
| Hardware | | | |
| -------- | | | |
| | | | |
- --------------------------------------------------------------------------------
|Network Servers | | | |
| Main Novell Servers | Patch | Compliant | 6/98 |
| E-Mail (DaVinci) | Remove | Not Compliant | |
| Telecommunications | Replace | Not Compliant | On Hold|
| Internet Firewall | Patch | Compliant | 6/98 |
| Fax | Replace | Not Compliant | 12/98 |
| SAA Gateway | Remove | Not Compliant | 12/99 |
| Back Up | Patch | Compliant | 6/98 |
|UNIX Servers | | | |
| ULTRA 5000 (ORACLE Server) | Patch | Compliant | 8/98 |
| ULTRA 2 (Development/Test)| | Compliant | |
| SPARC 20 (EPM) | | Compliant | |
| SPARC 10 (Extra Disk) | | Compliant | |
| SPARC 5 (CBT Courses) | | Compliant | |
|AS400 Model F35 | Remove | Not Compliant | 12/99 |
|(WINS P & C System) | | | |
|Network Clients | | | |
| Compaq Deskpro 2000 | Patch | In Progress | 12/98 |
| Compaq XL | Patch | In Progress | 12/98 |
| Compaq M Series M66 & M50 | Replace Or New Use | Not Compliant | 6/98 |
|HUBS & Routers | | Compliant | |
|Laptop Computers | Patch | In Progress | 06/99 |
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
^^ILLEGIBLE HEADING^^
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Systems
Novell Netware 4.11 Patch Compliant 6/98
Solaris 2.51 Patch Compliant 8/98
OS400 Remove Not Compliant 12/99
Windows NT 4.0 Firewall Compliant
Windows 95 Compliant
Other System Software
ORACLE Version 7.3.4 Compliant
Business Objects Upgrade Required Not Compliant 12/98
PVCS Version Control Compliant
Network FAX Software Compliant
Soft Track Licensing Software Compliant
Areserve Back Up Software Upgraded Compliant 6/98
Custom Developed
Benefits Plus System (Stoploss) Additional Testing Required Not Compliant 12/98
ULTRAPLUS Compliant
FORCE (Field Underwriting) Upgrade Project Not Compliant 10/98
Purchased Packages
Lawson Financials Compliant
WINS Property & Casualty Remove Not Compliant 12/99
ELectronic Banking Under Review
End User Applications
Microsoft Office Compliant
Electronic Mail (Groupwise) Compliant
Misc Under Review Not Compliant 12/98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
^^ILLEGIBLE HEADING^^
- -----------------------------------------------------------------------------------------
Telecommunications
Centigram (Voice Mail) Upgrade Required Not Compliant 06/99
Conveyant Console Compliant
Centigram Phone System Compliant
Office Equipment
Fax Machines Compliant
Copiers Compliant
Mail & Postage Systems Compliant
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
|^^Illegible Heading^^ |
| |
| |
- --------------------------------------------------------------------------------
| Climate Controls | | Compliant | |
| Elevators | | Compliant | |
| Security Systems | | Compliant | |
- --------------------------------------------------------------------------------
The Audit Department of VASA North America is providing copies of the Year 2000
readiness kit developed by the Information Systems Audit and Control Association
to approved producers as part of regular quarterly audits. The Audit Department
is also requesting that each of our clients return a Year 2000 questionnaire as
part of regularly scheduled audits.
Information prepared by:
John Storm
Vice President, Information Systems
(317) 238-5670
[email protected]
<PAGE>
Monday, August 17, 1998 12:00:43 AM Page: 1 of 1
Logical Network Configuration
x.x = 192.15
[Diagram of Logical Network Configuration]
Diagram: Top
<PAGE>
Schedule 3.19
Labor Matters
-------------
Neither Seller has any knowledge of any material activities or proceedings of
any labor union to organize any employees of any Company or any Subsidiary of
any Company.
<PAGE>
Schedule 3.21
Company Investment Assets
-------------------------
See Attachment 1 for spreadsheets detailing investment assets.
<PAGE>
Schedule 3.21
Attachment 1
<PAGE>
VASA NORTH ATLANTIC INSURANCE COMPANY
PORTFOLIO LIST Updated: Jul/08/1998
as at Jun/30/1998
<TABLE>
<CAPTION>
PROJECTED
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
BONDS
<C> <S> <C> <C> <C> <C> <C> <C> <C>
064159AA4 BANK OF NOVA SCOTIA USP May/O1/2003 6.88 1,000,000.00 1,018,902.00 102.8200 1,028,200.00 68,750.00
125425A02 CIBC CAPITAL FUNDING USP Dec/17/2002 6.25 1,000,000.00 998,513.00 100.8900 1,008,500.00 62,500.00
313648MD9 FEDERAL NATIONA.MORTGAGE A Oct/04/2000 6.27 750,000.00 754,400.25 101.2900 759,675.00 47,175.00
345397RW5 FORD MOTOR CREDIT Apr/28/2003 6.13 1,000,000.00 998,092.77 100.1300 1,001,300.00 61,250.00
456141D57 IN TRANS TIN AUTHHWY REV SER Jun/01/2003 5.15 520,000.00 517,830.04 104.6200 544,024.00 26,780.00
617446A-12 MORGAN STANLEY GROUP, INC. Oct/15/2001 8.88 450,000.00 457,443.45 103.2700 487,215.00 39,937.50
(Held to Maturity)
664257AC8 NORTHEAST MD WASTE DSP AUTH Jul/01/2005 5.90 645,000.00 656,286.85 103.5900 700,405.50 38,055.00
683234GW2 PROVINCE OF ONTARIO JSP Oct/17/2001 8.00 2,000,000.00 2,092,582.00 103.1400 2,122,800.00 160,000.00
694032AY6 SBC COMMUNICATIONS Aug/15/2006 6.88 1,200,000.00 1,252,131.60 104.8300 1,257,960.00 82,500.00
69418MAY6 NM PAC DUNLOP LTD Dec/07/2000 6.13 700,000.00 700,000.00 100.5400 703,780.00 42,875.00
793753D55 SAN MARCOS PUBLIC FACILITY AU Mar/01/2014 1,990,000.00 894,353.76 47.6200 947,638.00
822567AC7 SHELL CANADA LTD Jan/14/2001 8.89 1,000,000.00 1,371,802.00 106.9900 1,059,900.00 88,750.00
835615CV4 SOUTH BEND IN SEW WKS Dec/01/2004 5.23 500,000.00 497,400.50 102.9700 514,850.00 26,000.00
89233PFA9 TOYOTA MOTOR COMPANY Oct/06/2000 5.13 500,000.00 491,371.00 100.2700 501,350.00 25,500.00
912810C36 GOVERNMENT OF USA Nov/15/2008 8.75 1,000,000.00 1,169,551.00 114.1250 141,260.00 87,500.00
912827G55 GOVERNMENT OF USA Aug/15/2002 6.33 160,000.00 157,923.66 103.0000 134,800.00 10,200.00
(Held to Maturity)
912827J37 GOVERNMENT OF USA Jan/15/2000 6.33 1,000,000.00 997,932.00 100.2500 1,012,500.00 63,750.00
912827L83 GOVERNMENT OF USA Aug/15/2003 5.73 2,200,000.00 2,182,598.00 100.0310 2,222,632.00 126,500.00
912827M25 GOVERNMENT OF USA Aug/31/1998 4.75 300,000.00 299,626.20 99.9375 299,812.50 14,250.00
912827XB7 GOVERNMENT OF USA Feb/15/1999 8.83 750,000.00 763,233.00 102.0310 765,232.50 66,562.60
(Held to Maturity)
C15390D18 GOVERNMENT OF CANADA Jul/21/2005 6.38 4,500,000.00 4,423,797.00 103.4000 4,653,010.00 286,875.00
------------- ------------- ------------- ------------
BONDS 23,165,000.00 22,395,775.06 22,907,274.50 1,425,710.00
------------- ------------- ------------- ------------
</TABLE>
<PAGE>
VASA NORTH ATLANTIC INSURANCE COMPANY
PORTFOLIO LIST Updated: Jul/08/1998
as at Jun/30/1998
<TABLE>
<CAPTION>
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MBS/CMO
31359DJN4 FEDERAL NATIONAL MORTAGE A Ccl/25/2019 11.00 515,000.00 530,877.45 94.3125 485,709.38 56,650.00
------------- ------------- ------------- ------------
515,000.00 530,877.45 485,709.38 56,650.00
------------- ------------- ------------- ------------
MBS/CMO
SHORT TERM
NEK8C509C CERTIFICATE OF DEPOSIT NEVADA Aug/12/1998 5.13 200,000.00 200,000.00 100.0000 200,000.00 200,000.00
------------- ------------- ------------- ------------
SHORT TERM 200,000.00 200,000.00 200,000.00 11,250.00
------------- ------------- ------------- ------------
============= ============= ============= ============
Grand Total 23,880,000.00 23,126,652.51 23,592,981.88 1,492,610.00
============= ============= ============= ============
</TABLE>
<PAGE>
Maturity
<TABLE>
<CAPTION>
VNA U.S. GAAP Dec 31 Dec 31 June 30 June 30
1997 1997 1998 1998
Maturity
Date Book Market Book Market
HELD TO MATURITY
<S> <C> <C> <C> <C> <C>
912827-L4-2 1996 3,192,256 3,196,992 - -
One or less 3,192,256 3,196,992 - -
912827-XE-7 1999 772,043 776,018 763,233 765,233
617446-AH-2 2001 458,483 488,610 457,443 487,215
912827-G5-5 2002 157,755 164,101 157,929 164,800
After one thru five 1,383,281 1,428,729 1,378,605 1,417,248
31358T-NY-1 2002 130,865 153 - -
Mortgage-backed
securities 130,865 153 - -
TOTAL 4,711,402 4,625,874 1,378,605 1,417,248
========= ========= ========= =========
AVAILABLE FOR SALE
- ------------------
912827-M2-5 1998 298,818 298,314 299,626 299,813
One or less 298,818 298,314 299,626 299,813
313648-MD-9 2000 755,198 759,000 754,400 759,675
912827-J3-7 2000 997,610 1,014,380 997,932 1,012,500
69418N-AY-6 2000 700,000 697,130 700,000 703,780
89233P-FA-9 2000 489,910 434,750 491,371 501,350
313393-KB-5 2001 1,000,000 997,180 - -
683234-GW-2 2001 2,105,220 2,124,700 2,092,582 2,122,800
822567-AC-7 2001 1,084,780 1,075,600 1,071,802 1,069,900
125425-AC-2 2002 998,320 999,100 998,513 1,008,900
After one thru five 8,131,038 8,151,840 7,106,600 7,178,905
912827-L8-3 2003 485,525 500,155 2,182,598 2,222,682
455141-DS-7 2003 517,707 543,036 517,830 544,024
064159-AA-4 2003 1,020,390 1,022,510 1,018,902 1,028,200
345397-RW-5 2003 - - 998,093 1,001,300
836615-CV-4 2004 497,290 512,650 497,401 514,850
C15390-DT-8 2005 4,420,485 4,594,950 4,423,797 4,653,000
664257-AK-8 2005 656,655 689,312 656,287 700,406
694032-AZ-6 2006 - - 1,252,132 1,257,960
28421E-AN-1 2006 1,322,813 1,293,221 - -
Page 1
</TABLE>
<PAGE>
Maturity
After five thru ten 8,920,865 9,155,834 11,547,039 11,922,422
912810-CE-6 2008 1,175,270 1,137,810 1,169,551 1,141,250
455280-NP-8 2010 995,460 1,110,200 - -
798753-DS-5 2014 871,739 895,301 894,354 947,638
798753-DU-0 2014 431,613 443,289 - -
Over ten 3,474,082 3,586,600 2,063,905 2,088,888
31359D-JN-4 531,626 479,753 530,877 485,709
Mortgage-backed securities 2019 531,626 479,753 530,877 485,709
TOTAL 21,356,429 21,672,341 21,548,047 21,975,738
==============================================
Page 2
<PAGE>
Unreal Gains
Continuity of Unrealized Appreciation of Investments (VNAIC)
Balance at January 1, 1996
Consisting of
Bonds (1,576,970)
Equities (901,318)
Deferred Tax 842,618
(1,635,670)
Balance at December 31, 1996
Consisting of
Bonds (1,218,880)
Equities -
Deferred Tax 414,419
(804,461)
Balance at December 31, 1997
Consisting of
Bonds 315,912
Equities -
Deferred Tax (107,410)
208,502
Balance at June 30, 1998
Consisting of
Bonds 427,689
Equities -
Deferred Tax (145,414)
282,275
Page 1
<PAGE>
U.S. BALANCE SHEETS FOR JUNE 1998
(Unaudited)
STATUTORY CDN GAAP
ADJUST- SLIC/VNA
SLIC(USA) VNAT ILA MENTS GROUP
ASSETS
BONDS 96,498 22,927 57,206 154 52,373
STOCKS 4,992 - - (1,384) 3,538
MORTGAGES 22,160 - 22,160 - -
REAL ESTATE - - - 8,744 8,744
POLICY LOANS 4,894 - 4,894 - -
CASH/SHORT TERM 3,122 6,639 2,735 (3,303) 3,723
ACCRUED INTEREST 1,974 435 1,334 (440) 635
OUTSTANDING PREM 12,464 - - (1,831) 10,633
DUE FROM REINSURERS 9,403 15,491 - (24,894) -
OTHER ASSETS 42,961 (6,556) - (10,183) 26,222
GOODWILL 2,224 - 2,221 5,567 5,567
TOTAL ASSETS 200,622 38,936 100,555 (27,570) 111,435
LIABILITIES
POLICY RESERVES 100,845 56 100,280 - 621
UNPAID & UNREPORTED CLAIMS 19,510 12,354 256 - 31,608
POLICYHOLDER FUNDS 17 - 17 201 201
DUE TO REINSURERS 36,813 845 - (37,659) -
TAXES PAYABLE (1,176) 364 - 352 (460)
DEBT - - - 25,319 25,319
OTHER LIABILITIES 22,514 2,306 - 2,199 27,019
TOTAL LIABILITIES 178,523 15,925 100,553 (9,587) 84,308
CAPITAL & SURPLUS
COMMON STOCK 2,500 2,660 - - 5,160
PAID IN CAPITAL 23,961 24,057 - - 48,018
RETAINED EARNINGS (4,362) (3,706) - (17,983) (26,051)
TOTAL 22,099 23,011 - (17,983) 27,127
TOTAL LIABILITIES,
CAPITAL & SURPLUS 200,622 38,936 100,553 (27,570) 111,435
3,122 cash/st
Page 1
<PAGE>
U.S. BALANCE SHEETS FOR JUNE 1998
<TABLE>
<CAPTION>
(Unaudited)
CDN GAAP
SLIC/VNA
SLIC(USA) VNA ILA GROUP
ASSETS
<S> <C> <C> <C> <C>
BONDS 96,498 23,081 67,206 52,373
STOCKS 3,538 - - 3,538
MORTGAGES 22,160 - 22,160 -
REAL ESTATE - 8,744 - 8,744
POLICY LOANS 4,894 - 4,894 -
CASH/SHORT TERM 3,122 3,336 2,735 3,723
ACCRUED INTEREST 1,969 - 1,334 635
OUTSTANDING PREM 9,550 1,083 - 10,633
DUE FROM REINSURERS - - - -
OTHER ASSETS 7,329 18,893 - 26,222
GOODWILL 2,822 5,567 2,822 5,567
TOTAL ASSETS 151,882 60,704 101,151 111,435
LIABILITIES
POLICY RESERVES 98,240 56 97,675 621
UNPAID & UNREPORTED CLAIMS 19,510 12,354 256 31,608
POLICYHOLDER FUNDS 218 - 17 201
DUE TO REINSURERS - - - -
TAXES PAYABLE (651) 191 - (460)
DEBT - 25,319 - 25,319
OTHER LIABILITIES 7,575 19,444 - 27,019
TOTAL LIABILITIES 124,092 57,334 97,948 84,308
CAPITAL & SURPLUS
COMMON STOCK 2,500 2,660 - 5,160
PAID IN CAPITAL 23,961 24,057 - 48,018
RETAINED EARNINGS 529 (23,377) 3,203 (26,051)
TOTAL 26,990 3,340 3,203 27,127
TOTAL LIABILITIES,
CAPITAL & SURPLUS 151,882 60,704 101,151 111,435
</TABLE>
Page 2
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
PORTFOLIO LIST
as at Jun/30/1998
<TABLE>
<CAPTION>
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
031920AC1 ARCO CHEMICAL CO Nov/01/2000 9.90 1,000,000.00 1,000,000.00 ILA 108.3900 1,083,900.00 99,000.00
002041QF4 AMERICAN TELEPHONE & TELEGR Aug/13/1999 6.57 2,000,000.00 2,029,334.00 ILA 100.7500 2,075,000.00 131,400.00
01310Q553 ALBERTSONS INC Mar/24/2000 6.11 1,000,000.00 1,000,000.00 ILA 100.4300 1,004,300.00 61,100.00
039483AD4 ARCHER DANIELS MIDLAND CO Mar/01/2000 1,000,000.00 703,564.00 ILA 79.6800 796,800.00
046003EP0 ASSOCIATES CORP OF N. AMERIC Mar/30/2000 5.25 2,000,000.00 1,995,820.00 ILA 99.0000 1,980,200.00 105,000.00
064139AB2 BANK OF NOVA SCOTIA Sep/15/2008 6.25 3,000,000.00 2,749,392.00 ILA 99.9600 2,998,500.00 187,500.00
097023AV9 BOEING CO Jun/15/2003 6.35 1,000,000.00 998,740.00 ILA 102.2700 1,022,100.00 63,500.00
125425AC2 CIBC CAPITAL FUNDING USP Dec/17/2002 6.25 3,000,000.00 2,995,539.00 ILA 100.8900 3,026,700.00 187,500.00
126410BQ1 C S X TRANSPORTATION Mar/01/2006 8.41 539,786.54 546,178.69 ILA 112.6600 608,123.52 45,396.05
313400AV5 FEDERAL HOME LOAN MORTGAG Mar/15/2009 9.88 10,163.00 10,102.77 GRP 100.0000 70,163.00 1,003.60
313400W90 FEDERAL HOME LOAN MORTGAG Nov/18/2004 8.53 2,000,000.00 1,994,772.00 GRP 103.9379 2,078,760.00 170,600.00
341081DA2 FLORIDA POWER & LIGHT Dec/01/2012 7.88 750,000.00 765,861.75 ILA 104.0900 780,675.00 59,062.50
341029BX1 FLORIDA POWER CORP Jul/01/2003 6.00 1,000,000.00 1,000,000.00 ILA 100.0800 1,000,800.00 60,000.00
345370BK5 FORD MOTOR COMPANY Nov/15/1999 7.50 1,700,000.00 1,703,833.50 ILA 102.1500 1,736,550.20 127,500.00
345397RW5 FORD MOTOR CREDIT Apr/28/2003 6.13 1,000,000.00 998,092.77 ILA 100.1300 1,001,300.20 61,250.00
369628IL0 GENERAL ELECTRIC CAPITAL COR Apr/15/2000 6.00 2,000,000.00 2,027,934.00 ILA 101.8400 2,036,600.30 137,500.00
370424BB2 GENERAL MOTORS ACCEPTANCE Oct/15/2005 6.63 1,000,000.00 995,484.00 ILA 101.6900 1,016,900.00 66,250.00
459208AV3 IMPERIAL OIL LTD. Aug/20/2001 8.30 2,000,000.00 2,079,670.00 ILA 106.5100 2,130,900.00 166,000.00
459200AK7 IBM CORP Jun/15/2000 6.38 1,000,000.00 1,002,700.00 ILA 101.0000 1,010,000.00 63,750.00
462470AV7 IOWA ILLINOIS GAS & ELECTRIC Oct/15/1998 5.05 2,000,000.00 1,995,610.00 ILA 99.7100 1,994,200.00 101,000.00
47655PAJ2 JERSEY CENTRAL POWER & LIGHT Jan/23/2007 7.90 1,000,000.00 1,000,000.00 ILA 110.6700 1,106,700.00 79,000.00
</TABLE>
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
PORTFOLIO LIST Updated Jul/10/1998
as at Jun/30/1998
<TABLE>
<CAPTION>
PROJECTED
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
<C> <S> <C> <C> <C> <C> <C> <C> <C>
563459CV5 PROVINCE OF MANITOBA Dec/15/2000 9.00 3,000,000.00 3,153,245.00 ILA 106.8800 3,206,400.00 270,000.00
63100RA11 NARRAGANSETT ELECTRIC CO Jun/30/2008 6.65 1,000,000.00 1,008,871.00 ILA 103.8100 1,035,400.00 66,500.00
644239BG9 NEW ENGLAND TELEPHONE Oct/01/1998 5.05 2,000,000.00 1,999,540.00 ILA 99.7600 1,995,200.00 101,000.00
683234GW2 PROVINCE OF ONTARIO USA Oct/17/2001 8.00 3,000,000.00 3,138,873.00 ILA 106.1400 3,184,200.00 240,000.00
694032AZ6 SBC COMMUNICATIONS Aug/15/2006 6.88 1,000,000.00 1,878,197.40 ILA 104.8300 1,886,940.00 123,750.00
70870RAP7 PENNSYLVANIA ELECTRIC COMP Mar/06/2000 6.15 1,000,000.00 1,000,913.00 ILA 100.4600 1,004,600.00 61,500.00
8036554K9 PROVINCE OF SASKATCHEWAN Jul/15/2004 8.00 3,000,000.00 2,968,455.00 ILA 110.1800 3,305,400.00 240,000.00
822587AC7 SHELL CANADA LTD Jan/14/2001 8.69 3,000,000.00 3,120,516.00 ILA 106.9900 3,209,700.00 266,250.00
879811881 TEMPLE INLAND MIN Dec/01/2006 8.38 1,000,000.00 1,000,318.00 ILA 115.1900 1,151,900.00 83,000.00
881685AM3 TEXACO CAPITAL INC Dec/15/1999 9.00 1,000,000.00 1,028,680.00 ILA 104.3800 1,043,800.00 90,000.00
906518800 UNION ELECTRIC CO Dec/15/2004 7.38 1,000,000.00 1,028,506.00 ILA 107.4300 1,074,300.00 73,750.00
9128 ODW5 GOVERNMENT OF USA May/15/2016 7.25 2,750,000.00 2,671,253.71 ILA 117.0010 3,208,352.50 199,375.00
912827J37 GOVERNMENT OF USA Jan/15/2000 6.38 7,000,000.00 6,999,053.59 GRP 101.2500 7,087,500.00 146,250.00
912827J70 GOVERNMENT OF USA Feb/15/2003 6.25 3,600,000.00 3,400,821.14 GRP 102.8750 3,703,500.00 225,000.00
912837M25 GOVERNMENT OF USA Aug/31/1998 4.75 8,000,000.00 7,999,152.00 GRP 99.9575 7,995,000.00 380,000.00
912827MAA GOVERNMENT OF USA Oct/31/1998 4.75 3,500,000.00 3,493,544.50 GRP 99.7812 3,492,345.50 166,250.00
912827W73 GOVERNMENT OF USA Feb/15/1999 5.00 5,000,000.00 4,967,892.00 GRP 99.7187 4,985,940.00 250,000.00
912827YE6 GOVERNMENT OF USA Nov/15/1999 7.88 220,000.00 219,688.70 GRP 103.0629 226,738.60 17,325.00
94066VAL/ WASHINGTON WATER POWER CO Jul/08/2005 6.39 1,500,000.00 1,500,000.00 ILA 101.5800 1,523,700.00 95,850.00
999961564 FIRST FEDERAL OF MICHIGAN Feb/26/2005 1,000,000.00 576,153.00 ILA 67.1700 671,700.00
C15120000 GOVERNMENT OF CANADA Jul/21/2000 6.38 6,000,000.00 6,942,540.00 ILA 103.4000 6,204,000.00 382,500.00
------------- ------------- ------------- ----------
BONDS 85,369,949.54 88,707,841.62 91,643,288.12 67,524,214
------------- ------------- ------------- ----------
</TABLE>
COMMON STK
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
PORTFOLIO LIST Updated Jul/10/1998
as at Jun/30/1998
<TABLE>
<CAPTION>
PROJECTED
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
<C> <S> <C> <C> <C> <C> <C> <C> <C>
001957109 AT&T CORP 2,330.00 95,067.01 57.1250 133,101.25
0195 2102 ALLIED SIGNAL INC. 1,800.00 57,516.53 44.3750 79,875.00
026874107 AMERICAN INTERNATIONAL GROUP 1,450.00 98,704.79 146.0000 211,700.00
046055108 ASSOCIATES FIRST CAP CORP 576.00 25,454.25 76.9380 44,316.29
066050105 BANKAMERICA CORP. 1,840.00 78,883.13 86.5000 159,160.00
079860102 BELLSOUTH CORPORATION 2,500.00 98,829.00 67.1250 147,812.50
110122108 BRISTOL MYERS 1,550.00 120,993.00 114.9380 178,153.90
172758108 CISCO SYS INC. 1,885.00 74,614.53 92.0625 173,537.81
173034109 CITICORP 1,065.00 97,317.82 149.2500 158,951.25
204912109 COMPUTER ASSOCIATES INTL INC. 1,100.00 64,897.25 55.5630 61,119.30
263534109 DUPONT (EI) 1,290.00 85,240.10 74.6875 96,346.87
291011104 EMERSON ELECTRIC COMPANY 1,300.00 59,417.51 60.3750 78,487.50
392290101 EXXON CORP 2,195.00 95,030.05 71.3760 156,668.12
314101101 FEDERATED DEPT STORES INC. 2,000.00 68,671.45 53.8125 107,625.30
345370100 FORD MOTOR COMPANY 2,200.00 46,370.85 59.0000 129,800.00
369604103 GENERAL ELECTRIC CO 1,975.00 89,531.47 90.8750 179,478.12
375766102 GILLETTE COMPANY 2,600.00 95,347.72 53.8750 147,875.00
437076102 HOME DEPOT INC 1,720.00 95,187.55 83.0625 142,867.50
458170100 INTEL CORPORATION 695.00 45,156.34 74.1250 51,516.87
459200101 INTERNATIONAL BUSINESS MACHIN 1,200.00 75,425.80 114.8130 137,775.60
460146103 INTERNATIONAL PAPER 1,475.00 63,880.73 43.0000 63,425.00
478170104 JOHNSON & JOHNSON 1,800.00 90,134.88 74.0000 133,200.00
580135101 MCDONALDS CORPORATION 2,000.00 96,408.29 69.0000 138,000.00
585509102 MELLON BANK CORP FINA 1,250.00 91,090.63 69.6875 87,102.38
</TABLE>
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
PORTFOLIO LIST
as at Jun/30/1998
<TABLE>
<CAPTION>
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
589331107 MERCK & CO INC. 1,600.00 111,551.36 133.7600 214,000.00
594918104 MICROSOFT CORP 1,990.00 113,923.96 108.3750 215,666.25
607069102 MOBIL CORP. 2,000.00 118,040.44 76.6250 163,250.00
629140104 NIPSCO NDS INC. 4,805.00 93,369.21 28.0000 134,540.00
658585109 NATIONSBANK CORP 1,535.00 95,262.10 76.6875 117,715.31
713448108 PEPSICO INCORPORATED 2,700.00 69,647.46 41.1875 111,206.25
718154107 PHILIP MORRIS 2,245.00 69,622.54 39.3750 88,396.87
742718109 PROCTER AND GAMBLE CO. 1,800.00 83,736.00 91.0625 163,912.50
78387G108 SBC COMMUNICATIONS INC 725.00 29,224.75 40.0000 29,000.00
803111103 SARA LEE CORP CONS ST 1,340.00 78,584.76 55.9380 74,956.92
881694103 TEXACO INC. 2,000.00 96,996.48 59.6875 119,375.00
894190107 TRAVELERS GROUP INC 1,770.00 95,133.08 60.6250 107,306.25
913097102 UNITED TECHNOLOGIES CORP. 1,470.00 90,352.50 92.5000 135,975.00
931142103 WAL-MART STORES INC 1,580.00 63,196.00 60.7500 95,985.00
934480107 WARNER LAMBERT CO. HEA 2,065.00 127.971.10 69.3250 142,565.62
------------ ------------ ------------
COMMON STK 69,411.00 3,243,782.67 4,921,753.23
------------ ------------ ------------
MBS / CMO
060492AA3 BANK OF AMERICA Mar/25/2007 8.38 10,780.02 11,548.92 100.0000 10,780.32 902.83
060492AB1 BANK OF AMERICA Mar/25/2008 9.00 8,234.09 9,999.55 100.0000 8,234.39 741.07
3129066E6 FEDERAL HOME LOAN MORTGAG Jul/15/2020 8.00 701,472.80 716,394.93 100.3125 703,664.90 56,117.82
3129003K6 FEDERAL HOME LOAN MORTGAG Mar/15/2019 7.50 492,935.20 491,270.94 99.8125 492,000.97 36,939.39
3129014W7 FEDERAL HOME LOAN MORTGAG Jul/15/2007 6.50 2,000,000.00 1,996,872.50 100.7187 2,014,376.00 130,000.00
313313DC5 FEDERAL HOME LOAN MORTGAG Aug/15/2006 6.00 1,000,000.00 1,006,429.00 100.1406 1,001,406.00 60,000.00
</TABLE>
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
PORTFOLIO LIST Updated Jul/10/1998
as at Jun/30/1998
<TABLE>
<CAPTION>
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED
CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE ANNUAL INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
313OVIIDJ FEDERAL HOME LOAN MORTGAG Jun/15/2013 11.50 2,414.85 2,420.18 GRP 100.0000 2,414.85 277.71
313OWLIW0 FEDERAL HOME LOAN MORTGAG Nov/15/2009 11.50 19,250.20 19,287.22 GRP 100.0000 19,258.20 2,213.77
313591IW1 FEDERAL NATIONAL MORTGAGE A Sep/25/2006 5.80 2,000,000.00 2,005,272.00 ILA 99.2500 1,995,000.00 116,000.00
31359GHN9 FEDERAL NATIONAL MORTGAGE A Dec/25/2006 6.50 719,287.71 724,797.64 ILA 99.4062 715,076.94 46,753.70
31362NBQ3 FEDERAL NATIONAL MORTGAGE A Sep/25/2005 10.00 45,600.60 45,600.39 GRP 104.8594 47,816.52 4,550.06
3622015J0 GOVERNMENT NATIONAL MORTG Mar/15/2021 9.00 134,509.40 136,363.61 GRP 106.8063 143.799.02 12,105.85
617909AD8 MORGAN STANLEY MORTGAGE TR Sep/20/2018 8.43 598,661.55 621,785.55 ILA 103.9375 622,233.85 50,437.24
------------- ------------- -------------- ------------
MBS/CMO 7,733,136.42 7,590,045.43 7,773,993.36 517,079.43
------------- ------------- -------------- ------------
============= ============= ============== ============
Grand Total 17,172,496.96 99,541,669.62 104,346,034.71 6,269,191.58
============= ============= ============== ============
</TABLE>
(1) All Common Stocks Allocated To Group.
ILA - Individual Life
GRP - Group Business
<PAGE>
Schedule 4.3
Governmental Authorization
--------------------------
(ii) Approvals or filings under the insurance laws:
Indiana as respects to the Holding Company Act and such other
-------
jurisdictions where SLIC (USA) or VASA North Atlantic are licensed that
may required preapproval of the transaction, from which exemptions are
not available.
<PAGE>
Schedule 4.4
Non-Contravention
-----------------
(i)
(ii)
(iii)
(a) approval of Fleet National Bank pursuant to a Credit Agreement dated
as of December 20, 1994 between Fleet National Bank (formerly known as
Shawmut Bank Connecticut, N.A.) and The Centris Group, Inc. (formerly
known as US Facilities Corporation), as amended through Second Amendment
dated July 1, 1992.
(b) pursuant to the terms of Management Agreement No. 1 between US
Benefits Insurance Services Inc. and The Continental Insurance Company,
Buyer will need the consent of The Continental Insurance Company in order
to provide the management services to SLIC (USA) and VASA North Atlantic
specified in Section 7.10(c) hereof.
<PAGE>
Schedule 5.1
Conduct of the Companies
------------------------
5.1(q) Group term life insurance - Certain terms and death benefit
amounts require facultative reinsurance placement. Such facultative
reinsurance coverage is entered into in the ordinary course of business
consistent with past practice.
<PAGE>
Schedule 5.7
Use of Computer Software
------------------------
None
<PAGE>
Schedule 6.3
Severance Formula
-----------------
See Schedule 3.9(f)(3).
<PAGE>
Schedule 7.4
Trademarks; Trade Names
-----------------------
Registration Number 1370515 for the service mark "BROUGHER" as set forth on the
Attachment 1 to this Schedule 7.4
The designs for "VASA" on the Attachment 2 to this Schedule 7.4. On January 21,
1997, VASA North America, Inc. and Visa International entered into a Settlement
Agreement which outlines Visa International's agreement to VASA North America,
Inc.'s future use and registration of "VASA".
Registration Number 2034389 for the service mark "NAVIGATOR" as set forth on the
Attachment 3 to this Schedule 7.4
<PAGE>
Schedule 7.4
Attachment 1
<PAGE>
3171-12763
Exhibit "A"
-----------
ASSIGNMENT
----------
Brougher Agency, Inc., an Indiana corporation, the record title owner of
the Service Mark BROUGHER and the U.S. registration 1,370,515 issued November
12, 1985 thereof, hereby assigns, sells, and sets over unto VASA Brougher, Inc.,
an Indiana corporation, residing at 525 South Meridian Street, Indianapolis,
Indiana 46206, and having a postal address of P.O. Box 6033, Indianapolis,
Indiana 46206-6033, all right, title and interest in and to the mark, the
federal registration 1,370,515 thereof, and the goodwill represented thereby.
BROUGHER AGENCY, INC.
By /s/ JOHN B. BRIDGE
------------------------------------
John B. Bridge
------------------------------------
Title Vice President
---------------------------------
Date: January 20, 1992
---------------------------------
<PAGE>
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
Combined Declaration Under Sections 8 and 15
of the Trademark Act of 1946
Mark: BROUGHER
Registration No. 1,370,515
Registered: November 12, 1985
Class: 36 (U.S. Class 102)
Our File No. 3171-12763
John B. Bridge declares that he is an officer of VASA Brougher, Inc.; that
--------------
said corporation owns United States Service Mark Registration No. 1,370,515,
issued November 12, 1985, as shown by the records of the Patent and Trademark
Office; that the mark shown therein has been in continuous use in interstate
commerce for five consecutive years from the date of registration to the present
on or in connection with each of the following services recited in the
registration, namely, Insurance Agency and Underwriting Services; that the mark
is still in use in interstate commerce, as evidenced by the accompanying
specimen(s) showing the mark as currently used; that there has been no final
decision adverse to the registrant's claim of ownership of said mark or to its
right to register the same or maintain it on the Register, and that there is no
proceeding involving any of said rights pending and not disposed of either in
the Patent and Trademark Office or in the Courts.
<PAGE>
The registrant hereby appoints William R. Coffey, Jerry E. Hyland, Richard
D. Conard, James A. Coles, Richard A. Rezek, Steven R. Lammert, David R. Melton,
Perry Palan and Mark M. Newman, all attorneys at law, whose business address is
BARNES & THORNBURG, 1313 Merchants Bank Building, 11 South Meridian Street,
Indianapolis, Indiana 46204 (Telephone 317-231-7280), its attorneys to file this
declaration, with full power of substitution and revocation, and to transact all
business in the Patent and Trademark Office in connection therewith.
He further declares that all statements made herein of his own knowledge
are true and that all statements made on information and belief are believed to
be true; and further that these statements are made with the knowledge that
willful false statements and the like so made are punishable by fine or
imprisonment, or both, under Section 1001 of Title 18 of United States Code and
that such willful false statements may jeopardize the validity of the
application or document or any registration resulting therefrom.
Declared at Indianapolis, Indiana, this 22nd day of October, 1991.
---- -------
VASA Brougher, Inc.
By: /s/ JOHN B. BRIDGE
------------------------------------
John B. Bridge
---------------------------------------
(Typed Name)
Title: Vice President
---------------------------------
<PAGE>
[SEAL OF THE UNITED STATES OF AMERICA APPEARS HERE]
No. 1370515
THE UNITED STATES OF AMERICA
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and Trademark Office show
that an application was filed in said Office for registration of the Mark shown
herein, a copy of said Mark and pertinent data from the Application being
annexed hereto and made a part hereof,
And there having been due compliance with the requirements of the law and
with the regulations prescribed by the Commissioner of Patents and Trademarks,
Upon examination, it appeared that the applicant was entitled to have said
Mark registered under the Trademark Act of 1946, and the said Mark has been duly
registered this day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein.
This registration shall remain in force for Twenty Years unless sooner
terminated as provided by law.
[SEAL OF PATENT AND In Testimony Whereof I have hereunto set
TRADEMARK OFFICE my hand and caused the seal of the Patent
APPEARS HERE] and Trademark Office to be affixed this
twelfth day of November, 1985.
/s/ ^^ILLEGIBLE SIGNATURE^^
Commissioner of Patents and Trademarks
<PAGE>
Int. Cl.: 36
Prior U.S. Cl.: 102
Reg.No. 1,370,515
United States Patent and Trademark Office Registered Nov. 12, 1985
________________________________________________________________________________
SERVICE MARK
PRINCIPAL REGISTER
[SERVICE MARK OF BROUGHER APPEARS HERE]
BROUGHER AGENCY, INC. (INDIANA COR- FIRST USE 12-31-1972; IN COMMERCE
PORATION 12-31-1972.
P.O. BOX BAI
2528 U.S. 31 SOUTH SEC. 2(F).
GREENWOOD, IN 46142
SER. NO. 485,256, FILED 6-15-1984.
FOR: INSURANCE AGENCY AND UNDER-
WRITING SERVICES, IN CLASS 36 (U.S. CL. MARGERY A. TIERNEY, EXAMINING ATTOR-
102) NEY
<PAGE>
Schedule 7.4
Attachment 2
<PAGE>
Exhibit "A"
-----------
[LOGO OF VASA APPEARS HERE]
[LOGO OF VASA BROUGHER APPEARS HERE]
[LOGO OF VASA NORTH AMERICA APPEARS HERE]
[LOGO OF VASA NORTH ATLANTIC APPEARS HERE]
<PAGE>
[LETTERHEAD OF HELLER EHRMAN WHITE & McAULIFFE APPEARS HERE]
January 21, 1997
RECEIVED
JAN 27 1997 VIA FACSIMILE
BARNES & THORNBURG AND U.S. MAIL
Jerry E. Hyland, Esq.
Barnes & Thornburg
11 South Meridian Street
Indianapolis, IN 46204
Re: Visa International v. Vasa North America
Trademark: VASA
Opposition No. 88,565
Your File: 7953-22203
Our File: 13118-0873
Dear Jerry:
The terms below have been revised per our conversation of January 13, 1997
and this letter shall now finalize our agreement with respect to Vasa North
America Inc.'s use and registration of the mark VASA.
Vasa will abandon its applications for Serial Nos. 74/171,423 and
74/171,503 for the word mark VASA, and VASA in stylized lettering as it appears
on Exhibit A (the "Old Applications"), will not knowingly use VASA as a word
mark or as it appears on Exhibit A, and will not file any application anywhere
in the world therefor or for any mark likely to be confused therewith; provided,
however, Vasa may use and file an application in the U.S. Patent and Trademark
Office for VASA in highly stylized lettering as it appears on Exhibit B (the
"New Appliction"). Vasa will not list travel insurance services on the New
Application, will not knowingly use, and will not seek to register VASA in any
form anywhere in the world in connection with any financial service. Vasa may
use and file VASABROUGHER without restriction.
When Visa receives evidence that application Serial Nos. 74/171,423 and
74/171,503 have been abandoned by the Patent and Trademark Office, it will file
a withdrawal of Notice of Opposition. Vasa hereby consents to additional
extensions to the discovery period until such time as the above-referenced
applications have been abandoned.
<PAGE>
Jerry E. Hyland, Esq.
Barnes & Thornburg
January 21, 1997
Page 2
Please sign below to indicate your agreement to the terms of this letter
agreement.
Very truly yours,
/s/ BETH M. GOLDMAN
Beth M. Goldman
PMG/kw
Enclosure
cc: James Y. Leong, Esq.
AGREED TO AND ACCEPTED:
Vasa North America, Inc.
By: /s/ ROBERT SMITH
--------------------------------
Name: ROBERT SMITH
------------------------------
Title: ACTING PRESIDENT
-----------------------------
<PAGE>
1/5/1
DIALOG(R)File 226:TRADEMARKSCAN(R)-US FED
(c) 1996 Thomson & Thomson. All rts. reserv.
04171423
VASA
INTL CLASS: 36 (Insurance & Financial Services)
U.S. CLASS: 102 (Financial & Insurance Services)
STATUS: Pending-Published for Opposition; Request For Extension
of Time To File Opposition; Intent to Use - Application; Intent
To Use - Current
GOODS/SERVICES: INSURANCE SERVICES; NAMELY, UNDERWRITING PROFESSIONAL
LIABILITY INSURANCE, MEDICAL STOP LOSS INSURANCE, AND GROUP LIFE
INSURANCE, AND INSURANCE PREMIUM FINANCING SERVICES
SERIAL NO.: 74-171,423
FILED: May 30, 1991
PUBLISHED: April 7, 1992
ORIGINAL APPLICANT: VASA NORTH AMERICA, INC. (Indiana Corporation),
POST OFFICE BOX 6056, 525 SOUTH MERIDIAN STREET, INDIANAPOLIS, IN
(Indiana), 462066056, USA (United States of America)
OPPOSITION ACTION: 88565
Filed: August 4, 1992
Outcome: SUSPENDED
Date of Outcome: August 10, 1995
Opposing TM: VISA
Opposing SN: 73-099,033
Opposing RN: 1,071,114
Opposer: VISA INTERNATIONAL SERVICE ASSOCIATION
FILING CORRESPONDENT: JERRY E. HYLAND, BARNES & THORNBURG, 1313
MERCHANTS BANK BUILDING, 11 SOUTH MERIDIAN STREET,
INDIANAPOLIS, INDIANA 46204
2/5/1
DIALOG(R)File 226:TRADEMARKSCAN(R)-US FED
(c) 1996 Thomson & Thomson. All rts. reserv.
04171503 * TRADEMARK IMAGE AVAILABLE *
VASA Stylized Letters
INTL CLASS: 36 (Insurance & Financial Services)
U.S. CLASS: 102 (Financial & Insurance Services)
STATUS: Pending-Published for Opposition; Request For Extension
[LOGO of Time To File Opposition; Intent to Use - Application; Intent
OF VASA] To Use - Current
GOODS/SERVICES: INSURANCE SERVICES; NAMELY, UNDERWRITING
PROFESSIONAL LIABILITY INSURANCE, MEDICAL STOP LOSS INSURANCE,
AND GROUP LIFE INSURANCE, AND INSURANCE PREMIUM FINANCING SERVICES
SERIAL NO.: 74-171,503
FILED: May 30, 1991
PUBLISHED: May 19, 1992
ORIGINAL APPLICANT: VASA NORTH AMERICA, INC. (Indiana Corporation),
POST OFFICE BOX 6056, 525 SOUTH MERIDIAN STREET, INDIANAPOLIS, IN
(Indiana), 462066056, USA (United States of
<PAGE>
America)
OPPOSITION ACTION: 88565
Filed: August 4, 1992
Outcome: SUSPENDED
Date of Outcome: August 10, 1995
Opposing TM: VISA
Opposing SN: 73-099,033
Opposing RN: 1,071,114
Opposer: VISA INTERNATIONAL SERVICE ASSOCIATION
FILING CORRESPONDENT: JERRY E. HYLAND, BARNES & THORNBURG, 1313
MERCHANTS BANK BUILDING, 11 SOUTH MERIDIAN STREET,
INDIANAPOLIS, INDIANA 46204
<PAGE>
EXHIBIT B
[LOGO OF VASA]
<PAGE>
RECEIVED UNITED STATES DEPARTMENT OF COMMERCE
APR 17 1997 Patent and Trademark Office
BARNES & THORNBURG Trademark Trial and Appeal Board
2900 Crystal Drive
Arlington, Virginia 22202-3513
By Baez
Opposition No. 88,565
Visa International Service
Association
v.
Vasa North America, Inc.
MAILED
APR 14 1997
PAT. & T.M. OFFICE
On February 24, 1997, applicant filed abandonments of its application
Serial Nos. 74/171,423 and 74/171,503.
Trademark Rule 2.135 provides that if, in an inter partes proceeding, the
applicant files an abandonment without the written consent of every adverse
party to the proceeding, judgment shall be entered against applicant.
In view thereof, and because opposer's written consent to the abandonments
is not of record, judgment is hereby entered against applicant, the opposition
is sustained and registration to applicant is refused.
<PAGE>
Opposition No. 88,565
Copies of the abandonments are forwarded herewith to opposer.
/s/ R. L. SIMMS
R. L. Simms
/s/ R. F. CISSEL
R. F. Cissel
/s/ E. W. HANAK
E. W. Hanak
Administrative Trademark
Judges, Trademark Trial
and Appeal Board
2
<PAGE>
Schedule 7.4
Attachment 3
<PAGE>
Exhibit "A"
-----------
[LOGO AND SEAL OF THE UNITED STATES OF AMERICA APPEARS HERE]
CERTIFICATE OF REGISTRATION
PRINCIPAL REGISTER
The Mark shown in this certificate has been registered in the United
States Patent and Trademark Office to the named registrant.
The records of the United States Patent and Trademark Office show that an
application for registration of the Mark shown in this Certificate was filed in
the Office; that the application was examined and determined to be in compliance
with the requirements of the law and with the regulations prescribed by the
Commissioner of Patents and Trademarks, and that the Applicant is entitled to
registration of the Mark under the Trademark Act of 1946, as Amended.
A copy of the Mark and pertinent data from the application are a part of
this certificate.
This registration shall remain in force for TEN (10) years, unless
terminated earlier as provided by law, and subject to compliance with the
provisions of Section 8 of the Trademark Act of 1946, as Amended.
[SEAL OF U.S. PATENT
AND TRADEMARK OFFICE /s/ BRUCE LEHMAN
APPEARS HERE]
Commissioner of Patents and Trademarks
<PAGE>
Maintenance Requirements
Section 8: This registration will be cancelled after six (6) years by the
Commissioner of Patents and Trademarks, UNLESS, before the end of the sixth year
following the date of registration shown on this certificate, the registrant
files in the U.S. Patent and Trademark Office an affidavit of continued use as
required by Section 8 of the Trademark Act of 1946, 15 U.S.C. (S) 1058, as
Amended. It is recommended that the Registrant contact the Patent and Trademark
Office approximately five years after the date shown on this registration to
determine the requirements and fees for filing a Section 8 affidavit that are in
effect at that time. Currently, a fee of $100, and a specimen showing how the
mark is used in commerce, is required for each international class of goods
and/or services identified in the certificate of registration and must be
enclosed with the affidavit.
Section 9: This registration will expire by law after ten (10) years,
UNLESS, before the end of the tenth year following the date of registration
shown on this certificate, the registrant files in the U.S. Patent and Trademark
Office an application for renewal of the registration as required by Section 9
of the Trademark Act of 1946, 15 U.S.C. (S) 1059, as Amended. It is recommended
that the Registrant contact the Patent and Trademark Office approximately nine
years after the date shown on this registration to determine the requirements
and fees for filing a Section 9 application for renewal that are in effect at
that time. Currently, a fee of $300, and a specimen showing how the mark is used
in commerce, is required for each international class of goods and/or services
identified in the certificate of registration and must be enclosed with the
affidavit.
<PAGE>
Int. Cl.: 36
Prior U.S. Cls.: 100, 101, and 102 Reg. No. 2,034,389
United States Patent and Trademark Office Registered Jan. 28, 1997
________________________________________________________________________________
SERVICE MARK
PRINCIPAL REGISTER
NAVIGATOR
SEABOARD LIFE INSURANCE COMPANY HEALTH INSURANCE, IN CLASS 36 (U.S. CLS.
(USA) (INDIANA CORPORATION) 100, 101 AND 102).
525 SOUTH MERIDIAN STREET FIRST USE 5-10-1995; IN COMMERCE
P.O. BOX 6047 5-10-1995.
INDIANAPOLIS, IN 462066047
SN 74-661,697, FILED 4-17-1995.
FOR: INSURANCE SERVICES, NAMELY UN-
DERWRITING AND ADMINISTERING GROUP ALAN ATCHISON, EXAMINING ATTORNEY
<PAGE>
Schedule 7.6
Non-Solicitation of Employees
-----------------------------
Roelof Konterman, President of VASA North America, Inc., is serving at the
request of Eureko B.V., as a participant in its Management Exchange Programme.
Mr. Konterman is an employee of AVCB Diensten B.V. and will return to that
company at the conclusion of his tenure with VASA North America, Inc.
<PAGE>
Schedule 8.1
Tax Representations
-------------------
Tax Returns Yet To Be Filed
But Which Will Be Filed
By Closing
Income or Franchise Tax Returns yet to be Filed
(All in Process with Ernst & Young)
1995
- ----
VASA North Atlantic Insurance Company California
Mississippi
VASA Brougher, Inc. Arkansas
Louisiana
Michigan
Pennsylvania
South Carolina
Select Benefits, Inc. Arizona
Oregon
Pennsylvania
South Carolina
Utah
1996 & 1997
- -----------
VASA North Atlantic Insurance Company Alabama
California
Florida
Illinois
Indiana - Part of Consolidated VASA
North America
Mississippi
Nebraska
Tennessee
<PAGE>
VASA Brougher, Inc. Alabama
Arizona
Arkansas
California
Colorado
Georgia
Illinois
Indiana - Part of Consolidated VASA
North America
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Montana
North Carolina
Oklahoma
Pennsylvania
South Carolina
Utah
1996 & 1997
- -----------
Select Benefits, Inc. Arizona
Oregon
Pennsylvania
South Carolina
Utah
<PAGE>
EXHIBIT 10.01
FIFTH AMENDMENT TO THE CREDIT AGREEMENT
(AMENDING AND RESTATING THE CREDIT AGREEMENT)
This FIFTH AMENDMENT dated as of December 28, 1998 (this "Fifth Amendment")
is between THE CENTRIS GROUP, INC., formerly known as US Facilities Corporation
(the "Borrower"), and FLEET NATIONAL BANK, a national banking association
formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of
Connecticut (the "Bank").
PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit
Agreement dated as of December 20, 1994, which agreement was amended by a First
Amendment to the Credit Agreement dated as of March 29, 1996, a Second Amendment
to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the
Credit Agreement dated as of September 30, 1998 and a Fourth Amendment to the
Credit Agreement (Amending and Restating the Credit Agreement) dated October 26,
1998 (as so amended, the "Existing Credit Agreement").
The Borrower has requested the Bank to further amend the Existing Credit
Agreement to increase the Bank's Commitment to enable the Borrower to make
certain acquisitions and the Bank has agreed to such request upon certain terms
and conditions. The parties therefore wish to amend and restate the Existing
Credit Agreement to reflect their understandings.
Accordingly, the Borrower and the Bank agree as follows:
Section 1. Amendment and Restatement of the Existing Credit Agreement.
----------------------------------------------------------
The Existing Credit Agreement, including, without limitation, the schedules and
exhibits thereto, is hereby amended and restated in its entirety to read as set
forth in Exhibit A to Fifth Amendment attached hereto (as so amended and
----------------------------
restated hereby, the "Credit Agreement"). Such amendment and restatement shall
be effective as of the date hereof, subject to the satisfaction of the
conditions precedent set forth in Section 2 of this Fifth Amendment.
Section 2. Conditions Precedent. The effectiveness of this Fifth
--------------------
Amendment is hereby subject to the satisfaction on a date to be mutually agreed
upon, but not later than January 31, 1999 (the "Amendment Closing Date"), of the
following conditions in a manner acceptable to the Bank and its counsel:
(a) the execution and delivery to the Bank by the Borrower of this Fifth
Amendment;
(b) the execution and delivery to the Bank of a Revolving Note for the
account of the Bank in the amount of its Commitment in exchange for the
promissory note issued under the Existing Credit Agreement;
<PAGE>
(c) receipt by the Bank of a certificate of the Secretary or Assistant
Secretary of the Borrower, dated the Closing Date, attesting on behalf of
the Borrower to all corporate action taken by the Borrower, including
resolutions of its Board of Directors authorizing the execution, delivery
and performance of this Fifth Amendment, the Revolving Note and each other
document to be delivered pursuant to this Fifth Amendment;
(d) receipt by the Bank of a certificate of a Senior Officer of the
Borrower, dated the Closing Date, stating that:
(i) the representations and warranties contained in Article 5 of
the Credit Agreement are correct on and as of the date of such
certificate as though made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date);
(ii) no Event of Default or Default has occurred and is continuing
or would result from the signing of the Fifth Amendment to the Credit
Agreement or the transactions contemplated thereby; and
(iii) there has been no material adverse change in the financial
condition, operations, Properties, business or business prospects of
the Borrower and its Subsidiaries, since the date of the last audited
financial statements furnished to the Bank;
(e) receipt by the Bank of a certificate of a Senior Officer of the
Borrower, dated the Closing Date, substantially in the form of Exhibit B to
------------
Fifth Amendment, which certificate shall include information required to
---------------
establish that the Borrower will be in compliance with the covenants set
forth in the Credit Agreement, after giving effect to the transactions
contemplated herein;
(f) receipt by the Bank of a certificate of good standing for the Borrower
as of a recent date by the Secretary of State of its jurisdiction of
incorporation and each state where the Borrower, by the nature of its
business, is required to qualify to do business, except where the failure
to be so qualified would not have a material adverse effect on the
financial condition, operations, Properties, business or, as far as the
Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole;
(g) receipt by the Bank of a certificate of good standing for USBENEFITS
as of a recent date by the Secretary of State of its jurisdiction of
incorporation and, if different, its principal place of business;
(h) receipt by the Bank of a certificate or similar instrument as of a
recent date from the appropriate tax authority in the State of California
and Delaware as to the payment by the Borrower of all taxes owed;
-2-
<PAGE>
(i) receipt by the Bank of a certificate of authority as of a recent date
from the Insurance Commissioner of Massachusetts certifying that USF RE is
duly licensed and in good standing with such Insurance Commissioner;
(j) receipt by the Bank of a certificate of good standing for each of VASA
North America, Inc. ("VASA North America"), VASA North Atlantic Insurance
Company ("VASA North Atlantic") and Seaboard Life Insurance Company (USA)
("Seaboard") as of a recent date from the Secretary of the State of its
jurisdiction of incorporation, and, if different, its principal place of
business;
(k) receipt by the Bank of a certificate of authority as of a recent date
from the Insurance Commissioner of Indiana certifying that VASA North
Atlantic and Seaboard are duly licensed and in good standing with such
Insurance Commissioner;
(l) receipt by the Bank of a copy of the Certificate of Incorporation for
each of VASA North America, VASA North Atlantic and Seaboard and all
amendments and other corporate documents relating thereto, certified as of
a recent date by the Secretary of the State of its jurisdiction of
incorporation;
(m) receipt by the Bank of a certificate of a Senior Officer, Secretary or
Assistant Secretary of each of VASA North America, VASA North Atlantic and
Seaboard stating that (i) no action has been taken to amend the certificate
of incorporation since the date of certification by the Secretary of the
State, (ii) the certificate of incorporation is in full force and effect as
of the Closing Date, and (iii) attached are true, correct and complete
copies of the bylaws of the company;
(n) receipt by the Bank of a favorable opinion of R.W. Loeb, Professional
Law Corporation, California counsel to the Borrower, dated the Closing
Date, in substantially the form set forth in Exhibit C to Fifth Amendment
----------------------------
hereto;
(o) receipt by the Bank of a favorable opinion of Anderson & Kreiger,
Massachusetts insurance counsel to the Borrower, dated the Closing Date, in
substantially the form set forth in Exhibit D to Fifth Amendment hereto;
----------------------------
(p) receipt by the Bank of a duly executed Acknowledgment and Ratification
of the Pledge Agreement, dated the Closing Date, in substantially the form
set forth in Exhibit E to Fifth Amendment hereto;
----------------------------
(q) receipt by the Bank of a copy of each consent, license, approval and
notice required in connection with the execution, delivery, performance,
validity and enforceability of this Fifth Amendment, the Revolving Note,
the Pledge Agreements, the Acquisition Agreements and each other document
and instrument required to be delivered in connection herewith, if any;
-3-
<PAGE>
(r) the provision of all information, documents, certificates and opinions
of counsel relating to the Borrower and its Subsidiaries, as the Bank may
reasonably request, all in form and substance satisfactory to the Bank and
its special counsel;
(s) payment to the Bank of an up-front fee of $75,000; and
(t) payment to Day, Berry & Howard LLP, special counsel to the Bank, of its
legal fees and disbursements.
Section 3. Representations and Warranties of the Borrower. The Borrower
----------------------------------------------
represents as follows:
(a) The execution, delivery and performance by the Borrower of this Fifth
Amendment have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of its shareholders; (ii)
violate any provisions of its articles of incorporation or by-laws; (iii)
violate any provision of any law, rule, regulation (including without
limitation, Regulation U and X), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and binding
upon the Borrower or any Subsidiary; (iv) result in a breach of or constitute a
default or require any consent under any indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the Borrower or
any Subsidiary is a party or by which it or its Properties may be bound; or (v)
result in, or require, the creation or imposition of any Lien upon or with
respect to any of the Properties now owned or hereafter acquired by the
Borrower.
(b) No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person,
including without limitation, the California, Indiana or Massachusetts Insurance
Commissioner, is required to authorize, or is required in connection with the
execution, delivery and performance by the Borrower of, or the legality,
validity, binding effect or enforceability of, this Fifth Amendment except for
such approvals as have been obtained and are in full force and effect.
(c) This Fifth Amendment constitutes the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and by general principles of equity.
(d) No actions, suits or proceedings or investigations (other than routine
examinations performed by insurance regulatory authorities) are pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower or
any Subsidiary, or any Property of any of them before any court, governmental
agency or arbitrator, which if determined adversely to the Borrower or any
Subsidiary would in any one case or in the aggregate, materially adversely
affect the financial condition, operations, Properties, business or, to the
knowledge of the Borrower,
-4-
<PAGE>
prospects of the Borrower and its Subsidiaries taken as a whole or the ability
of the Borrower to perform its obligations under the Existing Credit Agreement,
as amended by this Fifth Amendment.
(e) No information, exhibit or report furnished in writing by or on behalf
of the Borrower or any officer or director of the Borrower to the Bank in
connection with the negotiation of, or pursuant to the terms of, this Fifth
Amendment contained when made any material misstatement of fact or omitted to
state a material fact necessary to make the statements contained therein not
misleading.
Section 4. Effect on the Existing Credit Agreement. The execution,
---------------------------------------
delivery and effectiveness of this Fifth Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
the Bank under the Existing Credit Agreement, nor constitute a waiver of any
provision of the Existing Credit Agreement.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all costs and expenses of the Bank in connection with the preparation,
execution and delivery of this Fifth Amendment and the other instruments and
documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Bank with respect
thereto and with respect to advising the Bank as to its rights and
responsibilities hereunder and thereunder. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Fifth Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
Section 6. Execution in Counterparts. This Fifth Amendment may be
-------------------------
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
Section 7. Integration. This Fifth Amendment to the Credit Agreement,
-----------
together with Exhibit A to Fifth Amendment, as well as the schedules and
----------------------------
exhibits thereto and hereto, including the Revolving Note, the Pledge Agreements
and the Acknowledgment and Ratification of the Pledge Agreement, comprise the
entire agreement between the parties hereto relating to the transactions
contemplated hereby and thereby, and supersede any and all prior oral or written
statements or agreements with respect to the loan and pledge transaction between
the parties hereto.
Section 8. Governing Law. This Fifth Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of Connecticut.
-5-
<PAGE>
Section 9. Defined Terms. Until this Fifth Amendment shall become
-------------
effective, capitalized terms used herein which are not expressly defined herein
shall have the meanings ascribed to them in the Existing Credit Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE CENTRIS GROUP, INC.
By /s/ Charles M. Caporale
--------------------------------
Name: CHARLES M. CAPORALE
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
FLEET NATIONAL BANK
By /s/ David A. Albanesi
--------------------------------
Name: David A. Albanesi
Title: Vice President
-7-
<PAGE>
EXHIBIT A TO FIFTH AMENDMENT
----------------------------
<PAGE>
CREDIT AGREEMENT
dated as of December 20, 1994
between
THE CENTRIS GROUP, INC.
and
FLEET NATIONAL BANK
AMENDED AND RESTATED AS OF DECEMBER 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS............................................................ 1
Section 1.1. Definitions........................................................................ 1
-----------
Section 1.2. Accounting Terms................................................................... 13
----------------
Section 1.3. Rounding........................................................................... 14
--------
Section 1.4. Exhibits and Schedules............................................................. 14
----------------------
Section 1.5. References to "Borrower and its Subsidiaries"...................................... 14
---------------------------------------------
Section 1.6. Miscellaneous Terms................................................................ 14
-------------------
ARTICLE 2. THE CREDIT............................................................................... 14
Section 2.1. The Revolving Loans................................................................ 14
-------------------
Section 2.2. The Revolving Note................................................................. 15
------------------
Section 2.3. Procedure for Borrowing............................................................ 15
-----------------------
Section 2.4. Termination or Optional Reduction of Commitment.................................... 16
-----------------------------------------------
Section 2.5. Mandatory Reduction of Commitment.................................................. 17
---------------------------------
Section 2.6. Maturity of Revolving Loans........................................................ 17
---------------------------
Section 2.7. Optional Prepayments............................................................... 17
--------------------
Section 2.8. Interest on the Revolving Loans.................................................... 18
-------------------------------
Section 2.9. Fees............................................................................... 18
----
Section 2.10. Payments Generally................................................................. 19
------------------
Section 2.11. Capital Adequacy................................................................... 19
----------------
Section 2.12. Increased Costs.................................................................... 20
---------------
Section 2.13. Illegality......................................................................... 20
----------
Section 2.14. Payments to be Free of Deductions.................................................. 21
---------------------------------
Section 2.15. Computations....................................................................... 21
------------
Section 2.16. Obligations Absolute............................................................... 22
--------------------
ARTICLE 3. SECURITY................................................................................. 22
Section 3.1. Pledge Agreement................................................................... 22
----------------
Section 3.2. Further Assurances................................................................. 22
------------------
ARTICLE 4. CONDITIONS PRECEDENT..................................................................... 23
Section 4.1. Documentary Conditions Precedent................................................... 23
--------------------------------
Section 4.2. Additional Conditions Precedent to Each Loan....................................... 24
--------------------------------------------
Section 4.3. Deemed Representations............................................................. 26
----------------------
ARTICLE 5. REPRESENTATIONS AND WARRANTIES........................................................... 26
Section 5.1. Incorporation, Good Standing and Due Qualification................................. 26
--------------------------------------------------
Section 5.2. Corporate Power and Authority; No Conflicts........................................ 27
-------------------------------------------
Section 5.3. Legally Enforceable Agreements..................................................... 27
------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.4. Litigation......................................................................... 27
----------
Section 5.5. Financial Statements............................................................... 27
--------------------
Section 5.6. Ownership and Liens................................................................ 28
--------------------
Section 5.7. Taxes.............................................................................. 28
-----
Section 5.8. ERISA.............................................................................. 28
-----
Section 5.9. Subsidiaries and Ownership of Stock................................................ 29
-----------------------------------
Section 5.10. Credit Arrangements................................................................ 30
-------------------
Section 5.11. Operation of Business.............................................................. 30
---------------------
Section 5.12. No Default on Outstanding Judgments or Orders...................................... 30
---------------------------------------------
Section 5.13. No Defaults on Other Agreements.................................................... 30
-------------------------------
Section 5.14. Governmental Regulation............................................................ 31
-----------------------
Section 5.15. Consents and Approvals............................................................. 31
----------------------
Section 5.16. Partnerships....................................................................... 31
------------
Section 5.17. Environmental Protection........................................................... 31
------------------------
Section 5.18. Copyrights, Patents, Trademarks, Etc............................................... 32
-------------------------------------
Section 5.19. Compliance with Laws............................................................... 32
--------------------
Section 5.20. Events of Default.................................................................. 32
-----------------
Section 5.21. Use of Proceeds.................................................................... 32
---------------
Section 5.22. Continental Agreements............................................................. 32
----------------------
ARTICLE 6. AFFIRMATIVE COVENANTS.................................................................... 33
Section 6.1. Maintenance of Existence and Domicile of Insurance Subsidiaries.................... 33
---------------------------------------------------------------
Section 6.2. Conduct of Business................................................................ 33
-------------------
Section 6.3. Maintenance of Properties.......................................................... 33
-------------------------
Section 6.4. Maintenance of Records............................................................. 33
----------------------
Section 6.5. Maintenance of Insurance........................................................... 33
------------------------
Section 6.6. Compliance with Laws............................................................... 33
--------------------
Section 6.7. Right of Inspection................................................................ 34
-------------------
Section 6.8. Reporting Requirements............................................................. 34
----------------------
(a) Annual GAAP Statements............................................................. 34
----------------------
(b) Annual SAP Financial Statements.................................................... 35
-------------------------------
(c) Quarterly GAAP Statements.......................................................... 35
-------------------------
(d) Quarterly SAP Statements........................................................... 36
------------------------
(e) Annual/Quarterly Reports........................................................... 36
------------------------
(f) Annual Forecasts................................................................... 36
----------------
(g) Management Letters................................................................. 36
------------------
(h) SEC Filings........................................................................ 36
-----------
(i) Notice of Litigation............................................................... 36
--------------------
(j) Notices of Default................................................................. 37
------------------
(k) Actuarial Report Confirming Reserves............................................... 37
------------------------------------
(l) Other Filings...................................................................... 37
-------------
(m) Notice of Transactions............................................................. 37
----------------------
(n) Additional Information............................................................. 38
----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 6.9. Certificates....................................................................... 38
------------
(a) Officers' Certificate.............................................................. 38
---------------------
(b) Accountant's Certificate........................................................... 38
------------------------
Section 6.10. Further Assurances................................................................. 38
------------------
Section 6.11. Compliance with Agreements......................................................... 39
--------------------------
Section 6.12. Use of Proceeds.................................................................... 39
---------------
Section 6.13. Continental Agreements............................................................. 39
----------------------
ARTICLE 7. NEGATIVE COVENANTS....................................................................... 39
Section 7.1. Debt............................................................................... 39
----
Section 7.2. Guaranties, Etc.................................................................... 39
---------------
Section 7.3. Liens.............................................................................. 40
-----
Section 7.4. Investments........................................................................ 40
-----------
Section 7.5. Mergers and Consolidations and Acquisitions of Assets.............................. 40
-----------------------------------------------------
Section 7.6. Sale of Assets..................................................................... 41
--------------
Section 7.7. Stock of Subsidiaries, Etc......................................................... 41
--------------------------
Section 7.8. Transactions with Affiliates....................................................... 41
----------------------------
Section 7.9. Capital Expenditures............................................................... 41
--------------------
Section 7.10. Minimum Statutory Surplus.......................................................... 41
-------------------------
Section 7.11. Minimum Consolidated GAAP Net Worth................................................ 42
-----------------------------------
Section 7.12. Maximum Premiums to Surplus........................................................ 42
---------------------------
Section 7.13. [Reserved]......................................................................... 42
Section 7.14. Minimum Interest Coverage.......................................................... 42
-------------------------
Section 7.15. Minimum Fixed Charge Coverage...................................................... 43
-----------------------------
Section 7.16. Minimum Debt Service Coverage...................................................... 43
-----------------------------
Section 7.17. Distributions...................................................................... 43
-------------
Section 7.18. Risk-Based Capital Ratio........................................................... 43
------------------------
Section 7.19. Minimum A.M.Best Rating............................................................ 43
-----------------------
Section 7.20. Continental Agreements............................................................. 44
----------------------
Section 7.21. Debt to Capital Ratio.............................................................. 44
---------------------
ARTICLE 8. EVENTS OF DEFAULT........................................................................ 44
Section 8.1. Events of Default.................................................................. 44
-----------------
Section 8.2. Remedies........................................................................... 47
--------
ARTICLE 9. MISCELLANEOUS............................................................................ 47
Section 9.1. Amendments and Waivers............................................................. 47
----------------------
Section 9.2. Usury.............................................................................. 47
-----
Section 9.3. Expenses; Indemnities.............................................................. 47
---------------------
Section 9.4. Term; Survival..................................................................... 49
--------------
Section 9.5. Assignment; Participations......................................................... 49
--------------------------
Section 9.6. Notices............................................................................ 50
-------
Section 9.7. Setoff............................................................................. 50
------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 9.8. Jurisdiction; Immunities........................................................... 50
------------------------
Section 9.9. Table of Contents; Headings........................................................ 51
---------------------------
Section 9.10. Severability....................................................................... 51
------------
Section 9.11. Counterparts....................................................................... 51
------------
Section 9.12. Integration........................................................................ 51
-----------
Section 9.13. Governing Law...................................................................... 51
-------------
Section 9.14. Confidentiality.................................................................... 51
---------------
Section 9.15. Authorization of Third Parties to Deliver Opinions, Etc............................ 52
-------------------------------------------------------
Section 9.16. Borrower's Waivers................................................................. 52
------------------
Section 9.17. State of Making and Substantial Performance........................................ 52
-------------------------------------------
</TABLE>
Schedule 1.1 Commitments and Lending Offices
Schedule 5.4 Litigation
Schedule 5.6 Liens
Schedule 5.9 Subsidiaries
Schedule 5.10 Credit Arrangements
Schedule 5.15 Consents and Approvals
Schedule 5.16 Partnerships
Schedule 7.2 Guaranties
Exhibit A Revolving Note
Exhibit B Notice of Borrowing
Exhibit C Officer's Certificate
Exhibit D Form of Opinion of California Counsel to Borrower
Exhibit E Form of Opinion of Massachusetts Insurance Counsel to Borrower
Exhibit F Pledge Agreement (with respect to USF RE)
Exhibit G Form of Subordinated Debt Provisions
Exhibit H-1 Form of Opinion of California Counsel to the Borrower
Exhibit H-2 Form of Opinion of Indiana Counsel to the Borrower
Exhibit I-1 Pledge Agreement (with respect to Seaboard)
Exhibit I-2 Pledge Agreement (with respect to VASA North Atlantic)
Exhibit J Form of Guaranty Agreement
<PAGE>
CREDIT AGREEMENT dated as of December 20, 1994 between THE CENTRIS
GROUP, INC., a Delaware corporation formerly known as US Facilities Corporation
(the "Borrower"), and FLEET NATIONAL BANK, formerly known as Shawmut Bank
Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank").
The Borrower desires that the Bank extend credit as provided herein,
and the Bank is prepared to extend such credit. Accordingly, the Borrower and
the Bank agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. Definitions. As used in this Agreement, the following
-----------
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa):
"Acquisition" means the acquisition by the Borrower of all of the
capital stock of each of VASA North America and Seaboard.
"Acquisition Agreements" means the agreements setting forth the terms
and conditions of the Acquisition.
"Acquisition Pro-Formas" means financial projections, prepared by the
Borrower on a GAAP and SAP basis, showing the consolidated and consolidating
balance sheets and statements of operations of Borrower and its Subsidiaries
giving effect to the Acquisition.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
-------- ----
event: (i) any Person which owns directly or indirectly 20% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 20% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(ii) each corporate officer at or above the level of senior vice president of
the Person and each director of the Person shall be deemed to be an Affiliate of
the Person; provided, however, that each director and officer of the Bank shall
-------- -------
constitute an Affiliate of the Bank.
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
-1-
<PAGE>
"A.M. Best Rating" means the most recent rating announced by A.M. Best
(or any successor thereto) or, if such rating is no longer announced by A.M.
Best (or its successor), the most recent rating announced by another rating
agency selected by the Bank.
"Applicable Interest Rate" means for any Revolving Loan, the Base Rate,
CD Rate, or Eurodollar Rate for such Revolving Loan, plus in each case the
Applicable Margin.
"Applicable Margin" means:
(a) with respect to Base Rate Loans, the rate per annum for each rating
level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period 0.50%
Level II Period 0.25%
(b) with respect to CD Rate Loans, the rate per annum for each rating
level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period 2.125%
Level II Period 1.875%
(c) with respect to Eurodollar Rate Loans, the rate per annum for each
rating level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period .875%
Level II Period .75%
Notwithstanding the foregoing, the Applicable Margin with respect to
Eurodollar Rate Loans shall increase on January 31, 1999 to (i) 1.125% with
respect to the Level I Period and (ii) 1% with respect to the Level II Period,
if by that date, (i) the Borrower has not entered into a purchase agreement for
the sale of all of the stock of USF RE or (ii) the Commitment has not been
permanently reduced to $50,000,000.
-2-
<PAGE>
Any change in the Applicable Margin by reason of a change in the A.M.
Best Rating shall become effective on the date of announcement or publication by
the rating agency of a change in such rating or, in the absence of such
announcement or publication, on the effective date of such changed rating.
"Assessment Rate" means, at any time, the average of the rates (rounded
upwards, if necessary, to the nearest 1/100 of 1%) then charged by the Federal
Deposit Insurance Corporation (or any successor) to the Bank for deposit
insurance for Dollar time deposits with the Bank as determined by the Bank.
"Available Dividends" at the end of any fiscal quarter means the
portion of Statutory Surplus of any Insurance Subsidiary that is permitted by
the laws and regulations applicable to such Insurance Subsidiary to be
distributed to shareholders.
"Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall at all times be equal to the highest of (a) the rate
of interest announced publicly by the Bank in Hartford, Connecticut, from time
to time, as the Bank's base rate or prime rate, which does not necessarily
represent the lowest or best rate being charged to any customer, or (b) 1/2 of
1% per annum above the Federal Funds Effective Rate.
"Base Rate Loan" means a Revolving Loan which bears interest at the
Base Rate, plus the Applicable Margin.
"Borrowing" means a borrowing consisting of a Revolving Loan from the
Bank under this Agreement.
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday) on which commercial banks are not authorized or required to close in
Connecticut or California, except that, with respect to Borrowings, notices,
determinations and payments with respect to Eurodollar Rate Loans, such day
shall be a "Business Day" only if it is also a day for trading by and between
banks in the London interbank Eurodollar market.
"Capital Expenditures" means, for any period, the Dollar amount of
gross expenditures (including payments in respect of Capital Lease Obligations)
made for fixed assets, real property, plant and equipment, and all renewals,
improvements and replacements thereto (but not repairs thereof) incurred during
such period, all as determined in accordance with GAAP.
"Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Capital Lease Obligation" means the obligation of the lessee under a
Capital Lease. The amount of a Capital Lease Obligation at any date is the
amount at which the lessee's liability
-3-
<PAGE>
under the related Capital Lease would be required to be shown on its balance
sheet at such date in accordance with GAAP.
"CD Rate" means for the Interest Period for each CD Rate Loan
comprising part of the same Borrowing, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Bank to be equal to the
sum of: (a) (x) the rate determined by the Bank to be its rate at or before
11:00 a.m. (Connecticut time) one Business Day before the first day of such
Interest Period for the purchase at face value of certificates of deposit of the
Bank in the approximate amount of the relevant CD Rate Loan and having a
maturity approximately equal to such CD Interest Period, divided by (y) one (1)
minus the Reserve Requirement for each such CD Rate Loan for such Interest
Period, plus (b) the Assessment Rate in effect at the commencement of such
Interest Period.
"CD Rate Loan" means a Revolving Loan which bears interest at the CD
Rate, plus the Applicable Margin.
"Closing Date" means December 20, 1994.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means the commitment of the Bank to make Revolving Loans
hereunder as set forth in Schedule 1.1, as the same may be reduced from time to
------------
time pursuant to Sections 2.4 and 2.5.
"Commitment Period" means the period from and including the date hereof
to but not including the Revolving Loan Termination Date or such earlier date as
the Commitment shall terminate as provided herein.
"Consolidated GAAP Net Worth" means the sum of (a) the capital stock
and additional paid-in capital of the Borrower and its Subsidiaries on a
consolidated basis, plus (without duplication) (b) the amount of retained
earnings (or, in the case of a deficit, minus the deficit), minus (c) treasury
stock, plus or minus (d) any other account which is customarily added or
deducted in determining shareholders' equity, all of which shall be determined
on a consolidated basis in accordance with GAAP.
"Continental Agreements" means, collectively, (a) that certain Quota
Share Retrocession Agreement between The Continental Insurance Company (formerly
Harbor Insurance Company) and USF RE Insurance Company (formerly Massachusetts
Plate Glass Insurance Company) dated May 21, 1986, as amended through Amendment
No. 10 effective as of January 1, 1995, (b) that certain Management Agreement
No. 1 between USBENEFITS Insurance Services, Inc. and The Continental Insurance
Company effective as of January 1, 1993, and the addenda thereto; and (c) that
certain Management Agreement No. 2 between USBENEFITS Insurance Services, Inc.
and The Continental Assurance Company effective as of January 1, 1997.
-4-
<PAGE>
"Debt" means, with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price of
Property or services (except trade payables in the ordinary course of business);
(c) Unfunded Vested Liabilities of such Person (if such Person is not the
Borrower, determined in a manner analogous to that of determining Unfunded
Vested Liabilities of the Borrower); (d) the face amount of any outstanding
letters of credit issued for the account of such Person; (e) obligations arising
under acceptance facilities; (f) guaranties, endorsements (other than for
collection in the ordinary course of business) and other contingent obligations
to purchase or to provide funds for payment of the obligations of another
Person, to supply funds to invest in any Person to cause such Person to maintain
a minimum working capital or net worth or otherwise assure the creditors of such
Person against loss; (g) obligations secured by any Lien on Property of such
Person; and (h) Capital Lease Obligations.
"Debt Service Coverage Ratio" at the end of any fiscal quarter means
for each Insurance Subsidiary, the ratio of (a) the sum of (i) Available
Dividends, plus (ii) total taxes paid by such Insurance Subsidiary to the
Borrower pursuant to any intercorporate tax sharing agreement for the
immediately preceding four fiscal quarters (ending on such date), plus (iii) the
consolidating income before provision for income taxes of the Borrower and all
Subsidiaries, except the Insurance Subsidiaries (determined in accordance with
GAAP and eliminating intercompany balances and transactions, as applicable) for
the immediately preceding four fiscal quarters (ending on such date), minus (iv)
total taxes (determined in accordance with GAAP) paid by the Borrower on a
consolidated basis for the immediately preceding four fiscal quarters (ending on
such date), minus (v) Distributions by the Borrower for the immediately
preceding four fiscal quarters (ending on such date) to (b) the sum of (i) total
Interest Expense of the Borrower and its Subsidiaries on a consolidated basis
for the immediately succeeding four fiscal quarters (beginning on such date),
plus (ii) scheduled reductions of the Commitment for the immediately succeeding
four fiscal quarters (beginning on such date). For purposes of clause (b) above,
Interest Expense shall be calculated on the assumption that Base Rate Loans for
the full amount of the Commitment will be outstanding for the succeeding four
fiscal quarters and the A.M. Best Rating of all Insurance Subsidiaries on the
date of the certification required by Section 6.9(a) with respect to the fiscal
quarter being tested will remain in effect for the succeeding four fiscal
quarters.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal at all times to the lesser
of 2% per annum above the Base Rate in effect from time to time or the highest
rate permitted by law.
"Distributions" means (a) dividends or other distributions in respect
of capital stock of a Person (except distributions in such stock) and (b) the
redemption or acquisition of such stock or of warrants, rights or other options
to purchase such stock (except when solely in exchange for such stock) unless
made, contemporaneously, from the net proceeds of a sale of such stock; in
-5-
<PAGE>
either case valued at the greater of book or fair market value of the Property
being dividended, distributed or otherwise transferred as a Distribution.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to (x) the rate quoted by the Bank at which deposits in Dollars are
offered by prime commercial banks to prime commercial banks in the London
interbank Eurodollar market two Business Days before the first day of such
Interest Period for a period equal to such Interest Period and in an amount
equal to the Borrowing, divided by (y) one (1) minus the Reserve Requirement for
each such Eurodollar Rate Loan for such Interest Period.
"Eurodollar Rate Loan" means a Revolving Loan which bears interest at
the Eurodollar Rate, plus the Applicable Margin.
----
"Event of Default" has the meaning given such term in Section 8.1.
"Federal Funds Effective Rate" at any time means a fluctuating 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, as published for such day (or, if such day is not a
Business Day, for the next 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 for such day on such transactions
received by the Agent from three (3) Federal Funds brokers of recognized
standing selected by the Agent.
"Financing Statements" means the UCC-1 financing statements signed by
the Borrower, VASA Insurance Group and VASA Brougher, in connection with the
security interests granted to the Bank pursuant to the Pledge Agreements.
"Fixed Charges" means, for any period, the sum of (a) the Interest
Expense, plus (b) rental payments (other than the interest component of rental
payments under Capital Leases included in Interest Expense) under all leases of
the Borrower and its Subsidiaries, plus (c) principal payments of Debt owed by
the Borrower during such period.
-6-
<PAGE>
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except for changes concurred in by the Borrower's independent
public accountants).
"GAAP EBIT" means, with respect to any Person, for any period, earnings
of such Person before interest and taxes and shall equal the sum of (a) net
income for such period, plus (b) Interest Expense for such period, plus (c)
income tax expense deducted in determining net income for such period, all of
which shall be determined in accordance with GAAP.
"Guaranty Agreement" shall mean the Guaranty Agreement in the form of
Exhibit J hereto, duly executed by VASA North America, VASA Brougher and VASA
Insurance Group and delivered to the Bank in connection with the Acquisition.
"Indiana Insurance Code" means Title 27 of the Indiana Code.
"Insurance Commissioner" means with respect to any Insurance
Subsidiary, the head of any insurance regulatory authority and/or such insurance
regulatory authority in the relevant place of domicile of such Subsidiary at the
relevant time.
"Insurance Subsidiary" means USF RE (until a USF RE Sale), VASA North
Atlantic, (upon consummation of the Acquisition), Seaboard (upon consummation of
the Acquisition), USFIC (until a USF RE Sale) and any other insurance company
Subsidiaries of the Borrower hereafter owned or acquired.
"Interest Expense" means, for any period, the consolidated interest
expense, including the interest portion of rental payments under Capital Leases,
of the Borrower and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
"Interest Period" means (a) for each Eurodollar Rate Loan comprising
part of the same Borrowing, the period commencing on the date of such Eurodollar
Rate Loan or on the last day of the preceding Interest Period, as the case may
be, and ending on the numerically corresponding day of the last month of the
period selected by the Borrower pursuant to the following provisions: the
duration of each Eurodollar Rate Loan Interest Period shall be one, two, three
or six months, in each case as the Borrower may select, upon notice received by
the Bank not later than 11:00 a.m. (Connecticut time) on the third Business Day
prior to the first day of such Interest Period; (b) for each CD Rate Loan
comprising part of the same Borrowing, the period commencing on the date of such
CD Rate Loan or on the last day of the preceding Interest Period, as the case
may be, and ending on the last day of the period selected by the Borrower
pursuant to the following provisions: the duration of each CD Rate Loan shall be
30, 60, 90 or 180 days, in each case as the Borrower may select, upon notice
received by the Bank not later than 11:00 a.m. (Connecticut time) on the first
Business Day prior to the first day of such Interest Period; and (c) for each
Base Rate Loan comprising part of the same Borrowing,
-7-
<PAGE>
the period commencing on the date of such Base Rate Loan or on the last day of
the preceding Interest Period, as the case may be, pursuant to notice received
by the Bank not later than 11:00 a.m. (Connecticut time) on any Business Day
selected by the Borrower as the first day of such Interest Period, and ending on
the 90th day after the date of such Base Rate Loan or the last day of the
preceding Interest Period, as the case may be; provided, however, that:
-------- -------
(i) all Eurodollar Rate Loans or CD Rate Loans comprising part of
the same Borrowing shall be of the same duration;
(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next
succeeding Business Day; provided that, if such extension
would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business
Day; and
(iii) no Interest Period for any Revolving Loan shall extend beyond
the Revolving Loan Termination Date.
"Investment" means, with respect to any Person, any investment by or of
such Person, whether by means of purchase or other acquisition of capital stock
or other Securities of any other Person or by means of loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts and
similar expenditures made in the ordinary course of business), capital
contribution or other debt or equity participation or interest, in any other
Person, including any partnership and joint venture interests of such Person in
any other Person.
"Investment Grade Securities" means any Securities having a fixed
maturity which have a rating by the NAIC of 1 or 2 or, if the NAIC rating
categories in effect on the Closing Date change, such other rating or ratings of
such Securities determined by the NAIC to be symbolic of investment grade
quality.
"Lending Office" means, for each type of Revolving Loan, the lending
office of the Bank (or of an affiliate of the Bank) designated as such for such
type of Revolving Loan on Schedule 1.1 or such other office of the Bank (or of
------------
an affiliate of the Bank) as the Bank may from time to time specify to the
Borrower as the office through which its Revolving Loans of such type are to be
made and maintained.
"Level I Period" shall mean any period during which the Level II Period
does not apply and the A.M. Best Rating of USF RE is below "A", except that upon
the sale by the Borrower of all of the stock of USF RE, the Level I Period shall
mean any period during which the consolidated Debt of the Borrower and its
Subsidiaries is greater than or equal to 30% of its Total Capitalization.
-8-
<PAGE>
"Level II Period" shall mean any period during which (a) no Event of
Default has occurred and is continuing and (b) the A.M. Best Rating of USF RE is
at or above "A", except that upon the sale of all of the stock of USF RE by the
Borrower, the Level II Period shall mean any period during which (a) no Event of
Default has occurred and is continuing and (b) the consolidated Debt of the
Borrower and its Subsidiaries is less than 30% of its Total Capitalization.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Massachusetts Insurance Code" means chapter 175 of the General Laws of
Massachusetts.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"NAIC" means the National Association of Insurance Commissioners or any
successor thereto, or in lieu thereof, any other association, agency or other
organization performing substantially similar 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 with respect to a USF RE Sale, the sum
of cash or readily marketable cash equivalents received therefrom, whether at
the time of such disposition or subsequent thereto, net of all reasonable legal
expenses, commissions and other fees and costs and expenses reasonably incurred
in connection with the sale.
"Net Premiums Written" of any Insurance Subsidiary for any period means
the net premiums of such Insurance Subsidiary of the Borrower. On the annual SAP
Financial Statements form for each Insurance Subsidiary for the year ended
December 31, 1993, the net premiums appears on line 32, column (1) on page 7
thereof.
"Notice of Borrowing" means the certificate, in the form of Exhibit B
---------
hereto, to be delivered by the Borrower to the Bank pursuant to Sections 2.3 and
4.2(e) and shall include any accompanying certifications or documents.
"Obligations" means all indebtedness, obligations and liabilities of
the Borrower and its Subsidiaries, if any, to the Bank under this Agreement, the
Revolving Note or the Pledge Agreements.
-9-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Pledge Agreements" mean collectively the Seaboard Pledge Agreement,
USF RE Pledge Agreement and the VASA North Atlantic Pledge Agreement.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code for which there is no applicable statutory
or regulatory exemption (including a class exemption or an individual
exemption).
"Property" means any interest of any kind in property or assets,
whether real, personal or mixed, and whether tangible or intangible.
"Regulations D, X and U" means Regulations D, X and U of the Board of
Governors of the Federal Reserve System, as amended or supplemented from time to
time.
"Regulatory Change" means any change after the date of this Agreement
in United States federal, state or foreign laws or regulations (including
Regulation D and the laws or regulations which designate any assessment rate
relating to certificates of deposit or otherwise (including the "Assessment
Rate" if applicable to any Revolving Loan)) or the adoption or making after such
date of any orders, rulings, interpretations, directives, guidelines or requests
applying to a class of banks including the Bank, of or under any United States
federal, state, or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
--------
funding standard of Section 412 of the Code or Section 302 of ERISA shall be a
Reportable Event regardless of any waivers given under Section 412(d) of the
Code.
"Reserve Requirement" means for any Eurodollar Rate Loans for any
quarterly period (or, as the case may be, shorter period) as to which interest
is payable hereunder, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such period under Regulation D by member banks of the
-10-
<PAGE>
Federal Reserve System in Boston, Massachusetts with deposits exceeding one
billion Dollars against "Eurocurrency liabilities" (as such term is used in
Regulation D) or, in the case of CD Rate Loans, nonpersonal Dollar time deposits
in an amount of $100,000 or more. Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against: (i)
any category of liabilities which includes deposits by references to which the
Eurodollar Rate or CD Rate for Eurodollar Rate Loans or CD Loans (as the case
may be) is to be determined as provided in the definition of "Eurodollar Rate"
or "CD Rate", as applicable, in this Article 1, or (ii) any category of
extensions of credit or other assets which include Eurodollar Rate Loans or CD
Rate Loans (as the case may be).
"Revolving Loans" means any loan made by the Bank pursuant to Section
2.1. Each Revolving Loan shall be a Base Rate Loan, a Eurodollar Rate Loan or a
CD Rate Loan.
"Revolving Loan Termination Date" means October 26, 2003. If such date
is not a Business Day, the Revolving Loan Termination Date shall be the next
preceding Business Day.
"Revolving Note" means a promissory note of the Borrower, in the form
of Exhibit A hereto, evidencing the Revolving Loans made by the Bank hereunder.
---------
"Risk-Based Capital Ratio" of any Person means, as at any date of
determination, the ratio of "Total Adjusted Capital" of such Person as at such
date to "Authorized Control Level RBC" of such Person as at such date, as such
terms are defined by the NAIC Risk-Based Capital (RBC) for Insurers Model Act,
as amended from time to time.
"SAP" means the statutory accounting practices permitted or prescribed
by the Insurance Commissioner for the preparation of annual statements and other
financial reports by insurance corporations of the same type as the Insurance
Subsidiary.
"SAP Financial Statements" means the financial statements which have
been submitted or are required to be submitted to the Insurance Commissioner.
"Seaboard" means Seaboard Life Insurance Company (USA), an Indiana
corporation, its successors and assigns.
"Seaboard Pledge Agreement" means the Pledge Agreement in the form of
Exhibit I-1 hereto, duly executed by the Borrower and delivered to the Bank in
- -----------
connection with the Acquisition.
"Securities" means any capital stock, share, voting trust certificate,
bonds, debentures, notes or other evidences of indebtedness, limited partnership
interests, or any warrant, option or other right to purchase or acquire any of
the foregoing.
-11-
<PAGE>
"Select Benefits" means Select Benefits, Inc., an Indiana corporation,
its successor and assigns.
"Senior Officer" means the (a) chief executive officer, (b) chief
financial officer, or (c) president of the Person designated.
"Statutory Net Income" means, for any period the net income of each
Insurance Subsidiary of the Borrower that appears, or should appear, on the SAP
Financial Statements. On the respective annual SAP Financial Statements form for
each Insurance Subsidiary for the year ended December 31, 1993, the net income
amount appears on line 16, column (1) on page 4 thereof.
"Statutory Surplus" of any Insurance Subsidiary means, for any period,
the surplus of such Insurance Subsidiary that appears, or should appear, on the
SAP Financial Statements of such Insurance Subsidiary on the annual SAP
Financial Statements form prescribed for each Insurance Subsidiary for the year
ended December 31, 1993, such amount appears on line 45, column (1) on page 3
thereof.
"Subordinated Debt" means unsecured Debt which does not permit any
payment or prepayment of the principal amount thereof prior to the payment in
full of the Obligations, but permits payment of interest on the principal amount
thereof so long as no Default or Event of Default has occurred and is continuing
under this Agreement and contains in the instrument evidencing such Debt or in
the agreement under which it is issued (which agreement shall be binding on all
holders of such Debt) subordination provisions substantially in the form of
Exhibit G hereto (without limitation as to further, not inconsistent,
- ---------
provisions, if so desired.)
"Subsidiary" means with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person or (ii) in the case of a partnership or joint
venture, in which such Person is a general partner or joint venturer or of which
a majority of the partnership or other ownership interests are at the time owned
by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrower or of a Subsidiary of the Borrower and upon consummation of the
Acquisition shall include VASA North America, VASA North Atlantic, VASA
Insurance Group, VASA Brougher, Select Benefits and Seaboard.
"Total Capitalization" means the sum of the Debt of the Borrower and
its Subsidiaries plus the Consolidated GAAP Net Worth of the Borrower and its
Subsidiaries.
-12-
<PAGE>
"Total Invested Assets" means, as at any date of determination, the
aggregate value of all Insurance Subsidiaries' portfolios of stocks, bonds,
mortgage loans, real estate, policy loans and other assets classified as
invested assets under and valued in accordance with SAP as at such date.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
"USBENEFITS" means USBENEFITS Insurance Services, Inc., a California
corporation, formerly known as USB Insurance Services, Inc., its successors and
assigns.
"USFIC" means USF Insurance Company, a Pennsylvania corporation, its
successors and assigns.
"USF RE" means USF RE INSURANCE COMPANY, a Massachusetts corporation,
its successors and assigns.
"USF RE Pledge Agreement" means the Pledge Agreement in the form of
Exhibit F-1 hereto, duly executed by the Borrower.
"USF RE Sale" means the sale of 100% of the capital stock or
substantially all of the assets of USF RE by the Borrower.
"VASA Brougher" means VASA Brougher, Inc., an Indiana corporation, its
successors and assigns.
"VASA Insurance Group" means VASA Insurance Group, Inc., an Indiana
corporation, its successors and assigns.
"VASA North America means VASA North America, Inc., an Indiana
corporation, its successors and assigns.
"VASA North Atlantic" means VASA North Atlantic Insurance Company, an
Indiana corporation, its successors and assigns.
"VASA North Atlantic Pledge Agreement" means the Pledge Agreement in
the form of Exhibit I-2 hereto, duly executed by VASA Brougher and VASA
-----------
Insurance Group delivered to the Bank in connection with the Acquisition.
Section 1.2. Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with GAAP, applied on a
consistent basis, and all financial data
-13-
<PAGE>
required to be delivered hereunder shall be prepared in accordance with GAAP,
applied on a consistent basis; except as otherwise specifically prescribed
------
herein. In the event that GAAP changes during the term of this Agreement such
that the financial covenants contained in Article 7 would then be calculated in
a different manner or with different components (a) the Borrower and the Bank
agree to enter into good faith negotiations to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
the Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (b) the Borrower shall be deemed to
be in compliance with the financial covenants contained in such Sections during
the 60 days following any such change in GAAP if and to the extent that the
Borrower would have been in compliance therewith under GAAP as in effect
immediately prior to such change; provided, however, if an amendment shall not
-------- -------
be agreed upon within 60 days or such longer period as shall be agreed to by the
Bank, for purposes of determining compliance with such covenants until such
amendment shall be agreed upon, such terms shall be construed in accordance with
GAAP as in effect on the Closing Date applied on a basis consistent with the
application used in preparing the financial statements for the year ended
December 31, 1993 but assuming that SFAS No. 115 had been adopted by the
Borrower for such year.
Section 1.3. Rounding. Any financial ratios required to be maintained by
--------
Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
Section 1.4. Exhibits and Schedules. All Exhibits and Schedules to this
----------------------
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
Section 1.5. References to "Borrower and its Subsidiaries". Any reference
---------------------------------------------
herein to "Borrower and its Subsidiaries" or the like shall refer solely to
Borrower during such times, if any, as Borrower shall have no Subsidiaries.
Section 1.6. Miscellaneous Terms. The term "or" is disjunctive; the term
-------------------
"and" is conjunctive. The term "shall" is mandatory, the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply to
males. The term "including" is by way of example and not limitation.
ARTICLE 2. THE CREDIT.
Section 2.1. The Revolving Loans. (a) Subject to the terms and conditions
-------------------
of this Agreement, the Bank agrees to make revolving loans to the Borrower
(hereinafter collectively
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<PAGE>
referred to as "Revolving Loans") from time to time from and including the date
hereof until the earlier of the Revolving Loan Termination Date or the
termination of the Commitment of the Bank, up to, but not exceeding in the
aggregate principal amount at any one time outstanding, the amount of SEVENTY-
FIVE MILLION AND NO/100 DOLLARS ($75,000,000.00). The Commitment is subject to
mandatory reduction as set forth in Section 2.5.
(b) Each Borrowing under this Section 2.1 of (i) a Base Rate Loan shall be
in the principal amount of not less than $500,000 or any greater amount which is
an integral multiple thereof (ii) a Eurodollar Rate Loan shall be in the
principal amount of not less than $1,000,000 or any greater amount which is an
integral multiple thereof; or (iii) a CD Rate Loan shall be in the principal
amount of not less than $1,000,000 or any greater amount which is an integral
multiple thereof. During the Commitment Period and subject to the foregoing
limitations, the Borrower may borrow, repay and reborrow Revolving Loans, all in
accordance with the terms and conditions of this Agreement.
Section 2.2. The Revolving Note.
------------------
(a) The Revolving Loans of the Bank shall be evidenced by a single
promissory note in favor of the Bank in the form of Exhibit A and duly completed
---------
and executed by the Borrower.
(b) The Bank is authorized to record and, prior to any transfer of the
Revolving Note, endorse on a schedule forming a part thereof appropriate
notations evidencing the date, the type, the amount and the maturity of each
Revolving Loan made by it which is evidenced by such Revolving Note and the date
and amount of each payment of principal made by the Borrower with respect
thereto; provided, that failure to make any such endorsement or notation shall
--------
not affect the Obligations of the Borrower hereunder or under the Revolving
Note. The Bank is hereby irrevocably authorized by the Borrower to so endorse
the Revolving Note and to attach to and make a part of the Revolving Note a
continuation of any such schedule as and when required. The Bank may, at its
option, record and maintain such information in its internal records rather than
on such schedule.
Section 2.3. Procedure for Borrowing.
-----------------------
(a) The Borrower shall give the Bank a Notice of Borrowing, in the form of
Exhibit B hereto, prior to 11:00 a.m. (Connecticut time), on the date at least
- ---------
one (1) Business Day before a Borrowing of a Base Rate Loan, at least three (3)
Business Days before a Borrowing of a Eurodollar Rate Loan, and at least one (1)
Business Day before a Borrowing of a CD Rate Loan, specifying:
(i) the date of such Borrowing, which shall be a Business Day,
(ii) the principal amount of such Borrowing,
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<PAGE>
(iii) whether the Revolving Loan comprising such Borrowing is to be
a Base Rate Loan, a Eurodollar Rate Loan or a CD Rate Loan,
and
(iv) if a Eurodollar Rate Loan, the Interest Period with respect
to such Borrowing.
(b) No Notice of Borrowing shall be revocable by the Borrower.
(c) It is understood that if the Borrower elects an Interest Period with
respect to a CD Rate Loan of 180 days or with respect to a Eurodollar Rate Loan
of six months, the CD Rate or Eurodollar Rate quoted to the Borrower one or two
Business Days preceding the first day of the Interest Period, as the case may
be, will be based on Bank's good faith estimate of its costs of funding such
Revolving Loan and that the actual interest rate for the Interest Period for
such Revolving Loan may vary from that quoted to reflect the Banks' actual costs
of funding on the date of the Revolving Loan.
(d) There shall be no more than four (4) Interest Periods relating to
Eurodollar Rate Loans or CD Rate Loans or any combination thereof outstanding at
any time.
(e) If the Bank makes a new Revolving Loan hereunder on a day on which
the Borrower is to repay an outstanding Revolving Loan from the Bank, the Bank
shall apply the proceeds of its new Revolving Loan to make such repayment and
only an amount equal to the excess (if any) of the amount being borrowed over
the amount being repaid shall be made available by the Bank to the Borrower.
(f) Notwithstanding anything to the contrary herein contained, if, upon
the expiration of any Interest Period applicable to any Borrowing of Revolving
Loans, the Borrower shall fail to give a new Notice of Borrowing as set forth in
this Section 2.3, the Borrower shall be deemed to have given a new Notice of
Borrowing of Base Rate Loans in principal amount equal to the outstanding
principal amount of such Revolving Loans, and the proceeds of the new Borrowing
shall be applied directly to repay such outstanding principal amount on the day
of such Borrowing.
Section 2.4. Termination or Optional Reduction of Commitment. The
-----------------------------------------------
Commitment with respect to Revolving Loans shall terminate on the Revolving Loan
Termination Date. Any Revolving Loans outstanding on the Revolving Loan
Termination Date (together with accrued interest thereon) shall be due and
payable on the Revolving Loan Termination Date (or such earlier date as provided
herein). No termination of the Commitment hereunder shall relieve the Borrower
of any of its outstanding Obligations to the Bank hereunder or otherwise. The
Borrower shall have the right, upon prior written notice of at least five (5)
Business Days to the Bank, to terminate or, from time to time, reduce the
Commitment, provided that (i) any such reduction of the Commitment shall be
--------
accompanied by the prepayment of the Revolving Note, together with accrued
interest thereon to the date of such prepayment and any amount due
-16-
<PAGE>
pursuant to Section 2.7, to the extent, if any, that the aggregate unpaid
principal amount thereof then outstanding exceeds the Commitment as then reduced
and (ii) any such termination of the Commitment to make Revolving Loans shall be
accompanied by prepayment in full of the unpaid principal amount of the
Revolving Note together with accrued interest thereon to the date of such
prepayment and any amount due pursuant to Section 2.7. Any such partial
reduction of the Commitment shall be in an aggregate principal amount of
$500,000 or any whole multiple thereof and shall reduce permanently the
Commitment then in effect hereunder.
Section 2.5. Mandatory Reduction of Commitment.
---------------------------------
(a) The Commitment of the Bank to make Revolving Loans shall be
automatically and permanently reduced in the amount of $25,000,000 on the
earlier to occur of (i) the receipt by the Borrower or any Subsidiary of the Net
Available Proceeds realized upon the USF RE Sale or (ii) June 30, 1999.
(b) Commencing September 30, 2000 and continuing on each succeeding
December 31, March 31, June 30 and September 30 thereafter until the Revolving
Loan Termination Date, the Commitment of the Bank to make Revolving Loans shall
be automatically and permanently reduced by $2,500,000 except that on the
Revolving Loan Termination Date, the Commitment shall be automatically and
permanently reduced to zero.
(c) On the effective date of each reduction of the Commitment of the
Bank pursuant to Section 2.5(a) the Borrower shall repay such principal amount
(together with accrued interest thereon and any amount due pursuant to Section
2.7(b)) of outstanding Revolving Loans, if any, as may be necessary so that
after such repayment, the aggregate unpaid principal amount of the Revolving
Loans does not exceed the Commitment as then reduced.
Section 2.6. Maturity of Revolving Loans. Each Revolving Loan shall
---------------------------
mature, and the principal amount thereof shall be due and payable, on the
Revolving Loan Termination Date.
Section 2.7. Optional Prepayments.
--------------------
(a) The Borrower may, upon at least one (1) Business Day's notice to
the Bank, prepay the Base Rate Loans, without premium or penalty, in whole at
any time or from time to time in part by paying the principal amount being
prepaid together with accrued interest thereon to the date of prepayment.
(b) The Borrower may, upon at least three (3) Business Days' notice to
the Bank, prepay the Eurodollar Rate Loans or the CD Rate Loans, in whole at any
time or from time to time in part, by paying the principal amount being prepaid
together with (i) accrued interest thereon to the date of prepayment and (ii) if
such prepayment occurs on a date that is not the last day of the Interest Period
applicable to such Revolving Loan, any amounts required to compensate the Bank
for any reasonable losses, costs or expenses (excluding any losses of
-17-
<PAGE>
anticipated profit), as certified by the Bank (such certification setting forth
the basis for such compensation), which the Bank may reasonably incur as a
result of such prepayment, including without limitation, any loss, cost or
expense incurred by reason of funds liquidation or reemployment of deposits or
other funds acquired by the Bank to fund or maintain such Eurodollar Rate Loan
or CD Rate Loan and any administrative costs, expenses or charges of the Bank as
a result thereof.
Section 2.8. Interest on the Revolving Loans.
-------------------------------
(a) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Base Rate Loan is made until it
becomes due, at a rate per annum equal to the Base Rate for such day, plus the
Applicable Margin. Interest shall be payable on the last day of the Interest
Period applicable thereto. Such interest shall accrue from and including the
date of such Borrowing to but excluding the date of any repayment thereof and
shall be computed on the basis of a fraction, the numerator of which is the
actual number of days elapsed from the date of Borrowing and the denominator of
which is three hundred sixty (360). Overdue principal of and, to the extent
permitted by law, overdue interest on the Base Rate Loans shall bear interest
for each day until paid at a rate per annum equal to the Default Rate.
(b) Each Eurodollar Rate Loan shall bear interest on the unpaid
principal amount thereof, for each day from the date such Eurodollar Rate Loan
is made until it becomes due, at a rate per annum equal to the Eurodollar Rate
for the relevant Interest Period, plus the Applicable Margin. Interest shall be
payable on the last day of the Interest Period applicable thereto; provided,
--------
that if such Interest Period is longer than ninety (90) days, interest shall be
payable every 90 days and on the last day of such Interest Period. Such interest
shall accrue from and including the date of such Borrowing to but excluding the
date of any repayment thereof and shall be computed on the basis of a fraction,
the numerator of which is the actual number of days elapsed from the date of
Borrowing and the denominator of which is three hundred sixty (360). Overdue
principal of and, to the extent permitted by law, overdue interest on the
Eurodollar Rate Loans shall bear interest for each day until paid at a rate per
annum equal to the Default Rate.
(c) Each CD Rate Loan shall bear interest on the unpaid principal amount
thereof, for each day from the date such CD Rate Loan is made until it becomes
due, at a rate per annum equal to the CD Rate for the relevant Interest Period,
plus the Applicable Margin. Interest shall be payable on the last day of the
Interest Period applicable thereto. Such interest shall accrue from and
including the date of such Borrowing to but excluding the date of any repayment
thereof and shall be computed on the basis of a fraction, the numerator of which
is the actual number of days elapsed from the date of Borrowing and the
denominator of which is 360. Overdue principal of and, to the extent permitted
by law, overdue interest on CD Rate Loans shall bear interest for each day until
paid at a rate per annum equal to the Default Rate.
Section 2.9. Fees. The Borrower shall pay to the Bank a stand-by
----
commitment fee for the Commitment Period, payable in arrears, on the average
daily unused portion of the Bank's
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<PAGE>
Commitment with respect to the Revolving Loans, which stand-by commitment fee
shall be payable quarterly on the first Business Day of January, April, July and
October of each year. Such fee shall be payable at the rate of 1/4 of 1% per
annum for the period from the Closing Date and thereafter. The fee required by
this Section shall not be refundable.
Section 2.10. Payments Generally. All payments under this Agreement shall
------------------
be made in Dollars in immediately available funds not later than 1:00 p.m.
(Connecticut time) on the due date (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day) to the Bank at its address set forth on the signature pages hereof or at
such other address as it may hereafter designate by notice to the Borrower for
the account of the Lending Office of the Bank specified by the Bank on Schedule
--------
1.1 hereto. The Borrower shall, at the time of making each payment under this
- ----------
Agreement, specify to the Bank the principal or other amount payable by the
Borrower under this Agreement to which such payment is to be applied (and in the
event that it fails to so specify, or if a Default or Event of Default has
occurred and is continuing, the Bank may apply such payment as it may elect in
its sole discretion). If the due date of any payment under this Agreement would
otherwise fall on a day which is not a Business Day, such date shall be extended
to the next succeeding Business Day and such extension of time shall in such
case be included in the computation of such payment; provided that, if such
--------
extension would cause the last day of an Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day.
Section 2.11. Capital Adequacy. If after the date hereof, either (i) the
----------------
introduction of, or any change in, or in the interpretation or enforcement of,
any law, regulation, order, ruling, interpretation, directive, guideline or
request or (ii) the compliance with any order, ruling, interpretation,
directive, guideline or request from any central bank or other governmental
authority (whether or not having the force of law) issued, announced, published,
promulgated or made after the date hereof (including, in any event, any law,
regulation, order, ruling, interpretation, directive, guideline or request
contemplated by the report dated July, 1988 entitled "International Convergence
of Capital Measurement and Capital Standards" issued by the Basle Committee on
Banking Regulation and Supervisory Practices) affects or would affect the amount
of capital required or expected to be maintained by the Bank or any corporation
controlling the Bank and the Bank reasonably determines that the amount of such
required or expected capital is increased by or based upon the existence of the
Bank's Revolving Loans hereunder or the Bank's commitment to lend hereunder,
then, upon demand by the Bank, the Borrower shall be liable for, and shall pay
to the Bank, within thirty (30) days following demand from time to time by the
Bank, additional amounts sufficient to compensate the Bank in the light of such
circumstances for the effects of such law, regulation, order, ruling,
interpretation, directive, guideline or request, to the extent that the Bank
reasonably determines such increase in capital to be allocable to the existence
of the Bank's Revolving Loans hereunder or of the Bank's commitment to lend
hereunder. A certificate substantiating such amounts and identifying the event
giving rise thereto, submitted to the Borrower by the Bank, shall be conclusive,
absent manifest error. The Bank shall promptly notify the Borrower of any event
of which it has
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<PAGE>
knowledge occurring after the date of this Agreement which will entitle the Bank
to compensation pursuant to this Section, and the Bank shall take any reasonable
action available to it consistent with its internal policy and legal and
regulatory restrictions (including the designation of a different Lending
Office, if any) that will avoid the need for, or reduce the amount of, such
compensation and will not in the reasonable judgment of the Bank be otherwise
disadvantageous to the Bank.
Section 2.12. Increased Costs. If after the date hereof, due to either (i)
---------------
the introduction of or any change in or in the interpretation or enforcement of,
any law, regulation, order, ruling, directive, guideline or request, or (ii) the
compliance with any order, ruling, directive, guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) issued, announced, published, promulgated or made after the date hereof,
there shall be any increase in the cost to the Bank of agreeing to make or
making, funding or maintaining Eurodollar Rate Loans, then the Borrower shall be
liable for, and shall from time to time, within thirty (30) days following a
demand by the Bank, pay to the Bank for the account of the Bank additional
amounts sufficient to compensate the Bank for such increased cost; provided,
--------
however, that before making any such demand, the Bank agrees to use reasonable
- -------
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office if the making of such a
designation would allow the Bank or its Lending Office to continue to perform
its obligations to make Eurodollar Rate Loans or to continue to fund or maintain
Eurodollar Rate Loans and would not, in the reasonable judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate substantiating the amount
of such increased cost, submitted to the Borrower by the Bank, shall be
conclusive, absent manifest error.
Section 2.13. Illegality. Notwithstanding any other provision of this
----------
Agreement, if after the date hereof the introduction of, or any change in or in
the interpretation or enforcement of, any law, regulation, order, ruling,
directive, guideline or request shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for the Bank or
its Lending Office to perform its obligations hereunder to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then,
on notice thereof by the Bank to the Borrower, (i) the obligation of the Bank to
make Eurodollar Rate Loans shall terminate (and the Bank shall make all of its
Revolving Loans as Base Rate Loans or CD Rate Loans notwithstanding any election
by the Borrower to have the Bank make Eurodollar Rate Loans) and (ii) if legally
permissible, at the end of the current Interest Period for such Eurodollar Rate
Loans, otherwise five Business Days after such notice and demand, all Eurodollar
Rate Loans of the Bank then outstanding will automatically convert into Base
Rate Loans; provided, however, that before making any such demand, the Bank
-------- -------
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different Lending Office if the
making of such a designation would allow the Bank or its Lending Office to
continue to perform its obligations to make Eurodollar Rate Loans and would not,
in the judgment of the Bank, be otherwise disadvantageous to the Bank. A
certificate describing such introduction or change in or in the interpretation
or enforcement of such law,
-20-
<PAGE>
regulation, order, ruling, directive, guideline or request, submitted to the
Borrower by the Bank, shall be conclusive evidence of such introduction, change,
interpretation or enforcement, absent manifest error. The Bank and the Borrower
agree to negotiate in good faith in order to agree upon a mutually acceptable
mechanism to provide that Eurodollar Rate Loans made by the Bank as to which the
foregoing conditions occur shall convert into Base Rate Loans.
Section 2.14. Payments to be Free of Deductions. All payments by the
---------------------------------
Borrower under this Agreement shall be made without setoff or counterclaim and
free and clear of, and without deduction for, any taxes (other than any taxes
imposed on or measured by the gross income or profits of the Bank), levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied by
any country or any political subdivision thereof or taxing or other authority
therein unless the Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrower with respect to
any amount payable by it hereunder, it will pay to the Bank, on the date on
which such amount becomes due and payable hereunder and in Dollars, such
additional amount as shall be necessary to enable the Bank to receive the same
net amount which it would have received on such due date had no such obligation
been imposed upon the Borrower. If the Bank is at any time, or any permitted
assignee of the Bank hereunder (an "Assignee"), is organized under the laws of
any jurisdiction other than the United States or any state or other political
subdivision thereof, the Bank or the Assignee shall deliver to the Borrower on
the date it becomes a party to this Agreement, and at such other times as may be
necessary in the determination of the Borrower in its reasonable discretion,
such certificates, documents or other evidence, properly completed and duly
executed by the Bank or the Assignee (including, without limitation, Internal
Revenue Service Form 1001 or Form 4224 or any other certificate or statement of
exemption required by Treasury Regulations Section 1.1441-4(a) or Section
1.1441-6(c) or any successor thereto) to establish that the Bank or the Assignee
is not subject to deduction or withholding of United States Federal Income Tax
under Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under
any comparable provisions of any successor statute) with respect to any payments
to the Bank or the Assignee of principal, interest, fees or other amounts
payable hereunder. Borrower shall not be required to pay any additional amount
to the Bank or any Assignee under this Section 2.14 if the Bank or such Assignee
shall have failed to satisfy the requirements of the immediately preceding
sentence; provided that if the Bank or any Assignee shall have satisfied such
--------
requirements on the date it became a party to this Agreement, nothing in this
Section 2.14 shall relieve Borrower of its obligation to pay any additional
amounts pursuant to this Section 2.14 in the event that, as a result of any
change in applicable law, the Bank or such Assignee is no longer properly
entitled to deliver certificates, documents or other evidence at a subsequent
date establishing the fact that the Bank or the Assignee is not subject to
withholding as described in the immediately preceding sentence.
Section 2.15. Computations. All computations of interest and like payments
------------
hereunder on the Revolving Loans shall, in the absence of clearly demonstrable
error, be considered correct and binding on the Borrower and the Bank, unless
within thirty (30) Business Days after receipt
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<PAGE>
of any notice by the Bank of such outstanding amount, the Borrower notifies the
Bank to the contrary.
Section 2.16. Obligations Absolute. The Obligations of the Borrower
--------------------
to make payments under this Agreement shall be unconditional and irrevocable,
and shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, and irrespective of, the following circumstances:
(a) any lack of validity or enforceability of all or any portion of this
Agreement or any other agreement or any instrument relating hereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations of the Borrower;
(c) the existence of any claim, setoff, defense or other right that the
Borrower may have; or
(d) any other circumstance or happening whatsoever, whether or not similar
to any of the foregoing, including without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower.
ARTICLE 3. SECURITY.
Section 3.1. Pledge Agreement. In order to secure payment when due of the
----------------
principal and interest under the Revolving Note and the other Obligations under
this Agreement, the Borrower agrees to deliver to the Bank on the Closing Date
the following:
(a) the Pledge Agreement;
(b) stock certificates representing all of the outstanding capital stock
of USF RE (with stock powers signed in blank); and
(c) the Financing Statements.
Section 3.2. Further Assurances. At any time following the delivery of the
------------------
Pledge Agreements to the Bank, at the request of the Bank, the Borrower will
execute any certificate, instrument, statement or document and will procure any
such certificate, instrument, statement or document (and pay all connected
costs) which the Bank reasonably deems necessary to preserve the security
interests of the Bank contemplated hereby.
-22-
<PAGE>
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.1. Documentary Conditions Precedent. The Commitment of the Bank
--------------------------------
to make Revolving Loans under this Agreement is subject to the condition
precedent that the Borrower shall have delivered the following, in form and
substance satisfactory to the Bank:
(a) a Revolving Note for the account of the Bank duly executed by the
Borrower;
(b) a certificate of the Secretary or Assistant Secretary of the Borrower,
dated the Closing Date, attesting on behalf of the Borrower to all
corporate action taken by the Borrower, including resolutions of its Board
of Directors authorizing the execution, delivery and performance of this
Agreement, the Revolving Note, the Pledge Agreement and each other document
to be delivered pursuant to this Agreement, and attesting to the names and
true signatures of the officers of the Borrower authorized to sign this
Agreement, the Revolving Note, the Pledge Agreement and the other documents
to be delivered by the Borrower under this Agreement;
(c) a certificate of a Senior Officer of the Borrower, dated the Closing
Date, certifying on behalf of the Borrower that (i) the representations and
warranties in Article 5 are true, complete and correct in all material
respects on such date as though made on and as of such date, (ii) no event
has occurred and is continuing which constitutes a Default or Event of
Default, (iii) the Borrower has performed and complied with all agreements
and conditions contained in this Agreement which are required to be
performed or complied with by the Borrower at or before the Closing Date,
and (iv) there has been no material adverse change in the financial
condition, operations, Properties, business, or as far as the Borrower can
reasonably foresee, prospects of the Borrower and its Subsidiaries, if any,
taken as a whole, since September 30, 1997;
(d) a certificate of a Senior Officer of the Borrower, substantially in
the form of Exhibit C, which certificate shall include information required
---------
to establish that the Borrower will be in compliance with the covenants set
forth in this Agreement, after giving effect to the transactions
contemplated herein;
(e) a certificate of good standing for the Borrower as of a recent date
by the Secretary of State of its jurisdiction of incorporation and each
state where the Borrower, by the nature of its business, is required to
qualify to do business, except where the failure to be so qualified would
not have a material adverse effect on the financial condition, operations,
Properties, business or, as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, taken as a whole;
(f) a certificate of good standing for USBENEFITS as of a recent date by
the Secretary of State of its jurisdiction of incorporation and, if
different, its principal place of business;
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<PAGE>
(g) a certificate or similar instrument from the appropriate tax authority
in the State of California as to the payment by the Borrower of all taxes
owed;
(h) a certificate of authority from each Insurance Commissioner certifying
that USF RE is duly licensed and in good standing with each Insurance
Commissioner;
(i) a favorable opinion of R.W. Loeb, Professional Law Corporation,
California counsel to the Borrower, dated the Closing Date, in
substantially the form set forth in Exhibit D hereto;
-------
(j) a favorable opinion of Anderson & Kreiger, Massachusetts insurance
counsel to the Borrower, dated the Closing Date, in substantially the form
set forth in Exhibit E hereto;
(k) a Pledge Agreement in substantially the form set forth in Exhibit F,
duly executed by the Borrower;
(l) evidence that each consent, license, approval and notice required in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement, the Pledge Agreement, and each other
document and instrument required to be delivered in connection herewith,
shall have been received or given and such consents, licenses, approvals
and notices shall be in full force and effect;
(m) all corporate and legal proceedings and all instruments and agreements
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank and the Bank shall have
received any and all other information and documents with respect to the
Borrower which it may reasonably request;
(n) payment to the Bank of the closing fee in the amount of $187,500.00;
and
(o) payment to Day, Berry & Howard LLP, special counsel to the Bank, of
its legal fees and disbursements (with appropriate detail) in accordance
with the letter between the Borrower and the Bank dated November 4, 1994.
Section 4.2. Additional Conditions Precedent to Each Loan. The obligation
--------------------------------------------
of the Bank to make the Revolving Loans pursuant to a Borrowing (including the
initial Borrowing), unless waived by the Bank, shall be subject to the further
conditions precedent that on the date of such Revolving Loan:
(a) the representations and warranties contained in Article 5 of this
Agreement are true and correct in all material respects on and as of the
date of such Revolving Loan as
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<PAGE>
though made on and as of such date (or, if such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date);
(b) the Borrower has performed and complied with and is in compliance with
all agreements and conditions contained in this Agreement which are
required to be performed or complied with by the Borrower;
(c) there does not exist any Default or Event of Default under this
Agreement;
(d) there has been no material adverse change in the financial condition,
operations, Properties, business or prospects of the Borrower and its
Subsidiaries, if any, taken as a whole, since the date of the last
Borrowing under this Agreement (or if no Borrowing has occurred, since the
date of this Agreement);
(e) the Bank shall have received a Notice of Borrowing in the form of
Exhibit B, except to the extent otherwise provided in Section 2.3(f);
(f) With respect only to the initial Borrowing that would result in
outstanding Revolving Loans exceeding fifty million dollars ($50,000,000),
(i) the Borrower shall have contemporaneously consummated the Acquisition,
(ii) the Bank shall have received a favorable opinion of R.W. Loeb,
Professional Law Corporation, California counsel to the Borrower, dated the
date of such initial Borrowing, in the form of Exhibit H-1 hereto, (iii)
the Bank shall have received a favorable opinion of Baker & Daniels,
Indiana counsel to the Borrower, dated the date of such initial Borrowing,
in form of Exhibit H-2 hereto, (iv) the Bank shall have received the
Guaranty Agreement duly executed by VASA North America, VASA Brougher and
VASA Insurance Group, dated the date of such initial Borrowing, (v) the
Bank shall have received the Seaboard Pledge Agreement duly executed by the
Borrower, dated the date of such initial Borrowing, together with
appropriate stock certificates, undated stock powers executed in blank and
Uniform Commercial Code financing statements relating thereto, (vi) the
Bank shall have received the VASA North Atlantic Pledge Agreement duly
executed by VASA Brougher and VASA Insurance Group, dated the date of such
initial Borrowing, together with appropriate stock certificates, undated
stock powers executed in blank and Uniform Commercial Code financing
statements relating thereto, (vii) the Bank shall have received a
certificate of a Senior Officer of the Borrower, dated the date of such
initial Borrowing, certifying on behalf of the Borrower that attached
thereto are true, correct and complete copies of the Acquisition Pro-Formas
and the Acquisition Agreement (and all amendments thereto) as in effect on
the date of such initial Borrowing, (viii) the Bank shall have received a
certificate of a Senior Officer of the Borrower certifying that upon the
consummation of the Acquisition, (a) the representations and warranties
contained in Article 5 of the Credit Agreement are true and correct in all
material respects on and as of the date of the initial Borrowing, (b) the
Borrower has performed and complied with and is in compliance with all
agreements and conditions contained in the Credit Agreement which are
-25-
<PAGE>
required to be performed or complied with by the Borrower, (c) there does
not exist any Default or Event of Default under the Credit Agreement and
(d) there has been no material adverse change in the financial condition,
operations, Properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, since the Amendment Closing Date, (ix) the
Bank shall have received a certificate of a Senior Officer or Secretary of
the Borrower dated the date of such initial Borrowing, certifying on behalf
of the Borrower that the certificate of incorporation and bylaws of each of
VASA North America, VASA North Atlantic and Seaboard delivered to the Bank
in connection with the Fifth Amendment to the Credit Agreement have not
been amended and are in full force and effect, (x) the Bank shall have
received a certificate of good standing with respect to each of VASA
Brougher and VASA Insurance Group as of a recent date of such initial
Borrowing from the Secretary of the State of its jurisdiction of
incorporation, and if different, its principal place of business, (xi) the
Bank shall have received a copy of the Certificate of Incorporation for
each of VASA Brougher and VASA Insurance Group and all amendments and other
corporate documents relating thereto, certified as of a recent date by the
Secretary of the State of its jurisdiction of incorporation, (xii) the Bank
shall have received a copy of each consent, license approval and notice
required in connection with the execution, delivery, performance, validity
and enforceability of the Acquisition Agreements and the Pledge Agreements
and (xiii) the Bank shall have received such other documents, certificates
and opinions as the Bank or its special counsel may reasonably request.
Section 4.3. Deemed Representations. Each Notice of Borrowing hereunder
----------------------
and acceptance by the Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty that the statements contained in
Section 4.2(a) are true and correct both on the date of such Notice of Borrowing
and, unless the Borrower otherwise notifies the Bank prior to such Borrowing, as
of the date of such Borrowing.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants the following:
Section 5.1. Incorporation, Good Standing and Due Qualification. The
--------------------------------------------------
Borrower is duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of incorporation, has the power and authority to own
its assets and to transact the business in which it is now engaged, and is duly
qualified as a foreign corporation and in good standing under the laws of each
other jurisdiction in which such qualification is required, except where the
failure to be so qualified would not have a material adverse effect on the
financial condition, operations, Properties, business or, as far as the Borrower
can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as
a whole. The Borrower has all requisite power and authority to execute and
deliver and to perform all of its obligations under this Agreement, the
Revolving Note and the Pledge Agreements and the other writings contemplated
hereby.
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<PAGE>
Section 5.2. Corporate Power and Authority; No Conflicts. The execution,
-------------------------------------------
delivery and performance by the Borrower of this Agreement, the Revolving Note
and the Pledge Agreements have been duly authorized by all necessary corporate
action and do not and will not (a) require any consent or approval of its
shareholders; (b) violate any provisions of its articles of incorporation or by-
laws; (c) violate any provision of, or require any filing, registration, consent
or approval under, any law, rule, regulation (including without limitation,
Regulation U and X), order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to and binding upon the Borrower
or any Subsidiary; (d) result in a breach of or constitute a default or require
any consent under any indenture, mortgage or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower or any
Subsidiary is a party or by which it or its Properties may be bound; or (e)
result in, or require, the creation or imposition of any Lien upon or with
respect to any of the Properties now owned or hereafter acquired by the
Borrower, except as created by the Pledge Agreements.
Section 5.3. Legally Enforceable Agreements. This Agreement, the Revolving
------------------------------
Note and the Pledge Agreements constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally and by general principles of equity.
Section 5.4. Litigation. Except as disclosed on Schedule 5.4, there are no
---------- ------------
actions, suits or proceedings or investigations (other than routine examinations
performed by insurance regulatory authorities) pending or, as far as the
Borrower can reasonably foresee, threatened against or affecting the Borrower or
any Subsidiary, or any Property of any of them before any court, governmental
agency or arbitrator, which if determined adversely to the Borrower or any
Subsidiary would in any one case or in the aggregate, materially adversely
affect the financial condition, operations, Properties, business or, as far as
the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement, the Revolving Note or the Pledge Agreements.
Section 5.5. Financial Statements. (a) The consolidated balance sheets of
--------------------
the Borrower and its Subsidiaries as of December 31, 1996 and December 31, 1997
and the related consolidated statements of income, stockholders' equity, and
cash flows of the Borrower and its Subsidiaries for the fiscal years then ended,
and the accompanying footnotes, together with the opinion thereon of KPMG Peat
Marwick, independent certified public accountants, and the unaudited interim
consolidated balance sheet of the Borrower and its Subsidiaries as at September
30, 1998 and the related consolidated statements of income, stockholders' equity
and cash flows for the nine-month period then ended, copies of which have been
furnished to the Bank, fairly present the financial condition of the Borrower
and its Subsidiaries, taken as a whole, as at such dates and the results of the
operations of the Borrower and its Subsidiaries, taken as a whole, for the
periods covered by such statements, all in accordance with GAAP consistently
applied (subject to year-end adjustments in the case of the interim financial
statements). There are no liabilities of the Borrower or any Subsidiary, fixed
or contingent,
-27-
<PAGE>
which are material but are not reflected in the financial statements or in the
notes thereto, other than liabilities arising in the ordinary course of business
since September 30, 1998 and other than this Agreement and the Revolving Note.
No written information, exhibit or report furnished by the Borrower to the Bank
in connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state any fact necessary to make the
statements contained therein not materially misleading. Since September 30,
1998, no event or circumstance has occurred that would materially adversely
affect the financial condition, operations, Properties, business or, as far as
the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement, the Revolving Note or the Pledge Agreements.
(b) The Acquisition Pro-Formas have been prepared in good faith and on
reasonable assumptions.
Section 5.6. Ownership and Liens. Each of the Borrower and its
-------------------
Subsidiaries has good and valid title to, or valid leasehold interests in, its
material Properties and assets, real and personal, including the material
Properties and assets, and leasehold interests reflected in the financial
statements referred to in Section 5.5 (other than any Properties or assets
disposed of in the ordinary course of business), and none of the material
Properties and assets owned by the Borrower or its Subsidiaries, and none of its
leasehold interests is subject to any Lien, except as disclosed in such
financial statements or in Schedule 5.6, or as may be permitted hereunder.
------------
Section 5.7. Taxes. Each of the Borrower and its Subsidiaries has filed
-----
all federal and state tax returns and all other material local tax returns
required to be filed, has paid all due and payable taxes, assessments and
governmental charges and levies, including interest and penalties, imposed upon
it or upon its Properties, and has made adequate provision for the payment of
such taxes, assessments and other charges accruing but not yet due and payable,
except with respect to taxes which are being contested in good faith by the
Borrower or its Subsidiaries and for which the Borrower or its Subsidiaries has
established and maintains adequate reserves for payment. To the best knowledge
of Borrower, there is no tax assessment contemplated or proposed by any
governmental agency against Borrower or any of its Subsidiaries that would
materially adversely affect the financial condition, operations, Properties,
business or, as far as the Borrower can reasonably foresee, prospects of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under this Agreement, the Revolving Note or the
Pledge Agreements, other than, as of each date subsequent to the Closing Date,
such contemplated or proposed tax assessments with respect to which (i) Borrower
has promptly notified Bank in writing of its knowledge and (ii) Borrower or the
appropriate Subsidiary of Borrower has in good faith commenced, and thereafter
diligently pursued, appropriate proceedings in opposition to such assessment.
Section 5.8. ERISA. Each of the Borrower and its Subsidiaries is in
-----
compliance in all material respects with all applicable provisions of ERISA.
Within the three-year period prior to the date hereof, neither a Reportable
Event nor a Prohibited Transaction has occurred with
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respect to any Plan; no notice of intent to terminate a Plan has been filed nor
has any Plan been terminated; no circumstance exists which constitutes grounds
under Section 4042 of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer, a Plan, nor has the PBGC
instituted any such proceedings; neither the Borrower nor any ERISA Affiliate
has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from
a Multiemployer Plan; each of the Borrower and its ERISA Affiliates has met its
minimum funding requirements under ERISA with respect to all of its Plans and
there are no Unfunded Vested Liabilities and neither the Borrower nor any ERISA
Affiliate has incurred any material liability to the PBGC under ERISA other than
for premium payments incurred in the normal course of operating the Plans.
Section 5.9. Subsidiaries and Ownership of Stock.
-----------------------------------
(a) Schedule 5.9 correctly sets forth the names of all Subsidiaries of
------------
the Borrower. All of the outstanding shares of capital stock, or all of the
units of equity interest, as the case may be, of each Subsidiary are owned of
record and beneficially by the Borrower or a Subsidiary of the Borrower, as
disclosed on said Schedule; there are no outstanding options, warrants or other
rights to purchase capital stock of any such Subsidiary; and all such shares or
equity interests so owned are duly authorized, validly issued, fully paid,
non-assessable, and were issued in compliance with all applicable state and
federal securities and other laws, and are free and clear of all Liens, except
as may be permitted hereunder and except for restrictions imposed upon the sale
of stock of the Insurance Subsidiaries of the Borrower by the Insurance
Commissioner or other insurance regulatory authorities.
(b) Each Subsidiary of the Borrower, VASA North Atlantic and Seaboard
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, has the power and authority to
own its assets and to transact the business in which it is now engaged, and is
duly qualified as a foreign corporation and in good standing under the laws of
each other jurisdiction in which such qualification is required, except where
the failure to be so qualified would not materially adversely affect the
financial condition, operations, Properties, business or, as far as the Borrower
can reasonably foresee, prospects of the Borrower, its Subsidiaries, VASA North
Atlantic and Seaboard, taken as a whole, or the ability of the Borrower to
perform its obligations under this Agreement, the Revolving Note or the Pledge
Agreements.
(c) Each Subsidiary of Borrower, VASA North Atlantic and Seaboard is in
compliance with all laws and other requirements applicable to its business and
has obtained all authorizations, consents, approvals, orders, licenses, and
permits from, and each Subsidiary, VASA North Atlantic and Seaboard, has
accomplished all filings, registrations, and qualifications with, or obtained
exemptions from any of the foregoing from, any governmental or public agency
that are necessary for the transaction of its business, except where the failure
to be in such compliance, obtain such authorizations, consents, approvals,
orders, licenses, and permits, accomplish such filings, registrations, and
qualifications, or obtain such exemptions,
-29-
<PAGE>
would not materially adversely affect the financial condition, operations,
Properties, business or, as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability
of the Borrower to perform its obligations under this Agreement, the Revolving
Note or the Pledge Agreements.
Section 5.10. Credit Arrangements. Section 5.10 is a complete and correct
------------------- ------------
list of all credit agreements, indentures, guaranties, Capital Leases,
mortgages, and other instruments, agreements and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any of its Subsidiaries is in any
manner directly or contingently obligated, other than trade payables in the
ordinary course of business; and the maximum principal or face amounts of the
credit in question, which are outstanding and which can be outstanding, are
therein set forth and are correctly stated as of the date hereof, and all Liens
given or agreed to be given as security therefor are therein set forth and are
correctly described or indicated in such Schedule.
Section 5.11. Operation of Business. Each of the Borrower and its
---------------------
Subsidiaries possesses all licenses, permits and franchises, or rights thereto,
necessary to conduct its business as now conducted and as presently proposed to
be conducted, the absence of which would have a material adverse effect on the
financial condition, operations, Properties or business of the Borrower and its
Subsidiaries, taken as a whole, and neither the Borrower nor any of its
Subsidiaries is in violation in any material respect of any valid rights of
others with respect to any of the foregoing.
Section 5.12. No Default on Outstanding Judgments or Orders. Each of the
---------------------------------------------
Borrower and its Subsidiaries has satisfied all material judgments and neither
the Borrower nor any Subsidiary is in default with respect to any judgment,
writ, injunction, decree, rule or regulation of any court, arbitrator or
federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would, in any one
case or in the aggregate, materially adversely affect the financial condition,
operations, Properties, business or, as far as the Borrower can reasonably
foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to perform its obligations under this Agreement, the
Revolving Note or the Pledge Agreements.
Section 5.13. No Defaults on Other Agreements. Neither the Borrower nor any
-------------------------------
of its Subsidiaries is a party to any indenture, mortgage or loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which would have a material adverse effect on
the business, Properties, assets, operations, financial condition or, as far as
the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its
obligations under this Agreement, the Revolving Note or the Pledge Agreements.
Neither the Borrower nor any of its Subsidiaries is in default in any material
respect in the performance, observance or fulfillment of any of the
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<PAGE>
obligations, covenants or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 5.14. Governmental Regulation. Neither the Borrower nor any of
-----------------------
its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, or any statute or regulation limiting its ability to incur
indebtedness for money borrowed as contemplated hereby.
Section 5.15. Consents and Approvals. No authorization, consent,
----------------------
approval, order, license or permit from, or filing, registration or
qualification with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, or any other Person, including without
limitation, any Insurance Commissioner, is required to authorize, or is required
in connection with the execution, delivery and performance by the Borrower of,
or the legality, validity, binding effect or enforceability of, this Agreement,
the Revolving Note, the Pledge Agreements or the Acquisition Agreements, except
the consents, approvals or other similar actions listed on Schedule 5.15
-------------
attached hereto. Schedule 5.15 describes those consents, approvals or other
-------------
similar actions which have been duly and properly obtained or which may have to
be obtained by the Bank in order to enforce its rights under this Agreement, the
Revolving Note or the Pledge Agreements. Except as disclosed on said Schedule,
such consents, approvals or other similar actions have been obtained and have
not been modified, amended, rescinded or revoked, and are in full force and
effect.
Section 5.16. Partnerships. Except as set forth in Schedule 5.16,
------------ -------------
neither the Borrower nor any of its Subsidiaries is a partner in any
partnership.
Section 5.17. Environmental Protection. Each of Borrower and its
------------------------
Subsidiaries has obtained all material permits, licenses and other
authorizations which are required under all environmental laws, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes, except to the extent failure to have any such
permit, license or authorization would not reasonably be expected to have a
material adverse effect on the business, financial condition, operations,
Properties or, as far as the Borrower can reasonably foresee, prospects of the
Borrower and its Subsidiaries, taken as a whole. Each of the Borrower and its
Subsidiaries is in compliance with all terms and conditions of the required
permits, licenses and authorizations, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply would not reasonably be expected to have
a material adverse effect on the business, financial condition, operations,
Properties or, as far as
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<PAGE>
the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its
obligations under this Agreement, the Revolving Note or the Pledge Agreements.
None of the Properties of the Borrower or its Subsidiaries, either owned or
leased, have been included or, as far as the Borrower can reasonably foresee,
proposed for inclusion on the National Priorities List adopted pursuant to the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
or on any similar list or inventory of sites requiring response or cleanup
actions adopted by any other federal, state or local agency.
Section 5.18. Copyrights, Patents, Trademarks, Etc. Each of the
------------------------------------
Borrower and its Subsidiaries is duly licensed or otherwise entitled to use all
patents, trademarks, service marks, trade names, and copyrighted materials which
are used in the operation of its business as presently conducted, except where
the failure to be so licensed or entitled would not have a materially adverse
effect on the financial condition, operations, Properties, business or, as far
as the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries, taken as a whole. No claim is pending or, as far as the Borrower
can reasonably foresee, threatened against the Borrower or any of its
Subsidiaries contesting the use of any such patents, trademarks, service marks,
trade names or copyrighted materials, nor does the Borrower know of any valid
basis for any such claims, other than claims which, if adversely determined,
would not have a material adverse effect on the financial condition, operations,
Properties, business or, as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability
of the Borrower to carry out its obligations under this Agreement, the Revolving
Note or the Pledge Agreements.
Section 5.19. Compliance with Laws. Neither the Borrower nor any of its
--------------------
Subsidiaries is in violation of any laws, ordinances, rules or regulations,
applicable to it, of any federal, state or municipal governmental authorities,
instrumentalities or agencies, including without limitation, the United States
Occupational Safety and Health Act of 1970, as amended, except where such
violation would not have a material adverse effect on the financial condition,
operations, Properties, business or, as far as the Borrower can reasonably
foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to carry out its obligations under this Agreement,
the Revolving Note or the Pledge Agreements.
Section 5.20. Events of Default. No Default or Event of Default has
-----------------
occurred and is continuing.
Section 5.21. Use of Proceeds. The Borrower shall use the proceeds of
---------------
the Revolving Loans for general corporate purposes, including stock buybacks and
acquisition financing and shall use the proceeds of the Revolving Loans in
excess of fifty million dollars ($50,000,000) only for the Acquisition.
Section 5.22. Continental Agreements. The Continental Agreements are in
----------------------
full force and effect, no default exists under the Continental Agreements and no
event has occurred and no
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<PAGE>
condition exists which, with the giving of notice or the lapse of time or both,
will constitute a default under the Continental Agreements.
ARTICLE 6. AFFIRMATIVE COVENANTS
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that it shall, and shall cause each of its Subsidiaries to, unless the
Bank otherwise consents in writing:
Section 6.1. Maintenance of Existence and Domicile of Insurance
--------------------------------------------------
Subsidiaries. Preserve and maintain its corporate existence and good standing in
- ------------
the jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is required
from time to time, except where failure to be so qualified would not have a
material adverse effect on the business, financial condition, operations,
Properties or, as far as the Borrower can reasonably foresee, prospects of the
Borrower and its Subsidiaries, taken as a whole; and preserve and maintain the
domicile of each of its Insurance Subsidiaries as in effect on the date hereof.
Section 6.2. Conduct of Business. Continue to engage in a business of
-------------------
the same general type as conducted by it on the date of this Agreement.
Section 6.3. Maintenance of Properties. Maintain, keep and preserve all
-------------------------
of its material Properties (tangible and intangible), necessary or useful in the
conduct of its business, in good working order and condition, ordinary wear and
tear excepted, except that the failure to maintain, preserve and protect a
------
particular item of depreciable Property that is not of significant value, either
intrinsically or to the operations of Borrower and its Subsidiaries, taken as a
whole, shall not constitute a violation of this covenant.
Section 6.4. Maintenance of Records. Keep accurate and complete records
----------------------
and books of account, in which complete entries will be made in accordance with
GAAP and SAP, reflecting all financial transactions of the Borrower and its
Subsidiaries.
Section 6.5. Maintenance of Insurance. Maintain insurance (subject to
------------------------
customary deductibles and retentions) with financially sound and reputable
insurance companies, in such amounts and with such coverages (including without
limitation public liability insurance, fire, hazard and extended coverage
insurance on all of its assets, necessary workers' compensation insurance and
all other coverages as are consistent with industry practice) as are maintained
by companies of established reputation engaged in similar businesses and
similarly situated.
Section 6.6. Compliance with Laws. Comply in all respects with all
--------------------
applicable laws, rules, regulations and orders, except where the failure to so
comply would not have a material adverse effect on the business, financial
condition, operations, Properties or, as far as the
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<PAGE>
Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries
taken as whole or the ability of the Borrower to carry out its obligations under
this Agreement, the Revolving Note or the Pledge Agreements. Such compliance
shall include, without limitation, paying all taxes, assessments and
governmental charges imposed upon it or upon its Property (and all penalties and
other costs, if any, related thereto), unless contested in good faith by
appropriate proceedings and for which adequate reserves have been set aside.
Section 6.7. Right of Inspection. From time to time upon prior notice
-------------------
and in accordance with customary standards and practices within the banking
industry (including, without limitation, upon any Event of Default or whenever
the Bank may have reasonable cause to believe that an Event of Default has
occurred), the Borrower shall permit the Bank or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the Properties of, the Borrower and its Subsidiaries to
discuss the affairs, finances and accounts of the Borrower and any such
Subsidiaries with any of their respective officers and directors and the
Borrower's independent accountants, and to make such verification concerning the
Borrower and its Subsidiaries as may be reasonable under the circumstances, and
upon reasonable request, furnish promptly to the Bank true copies of all
financial information made available to Senior Officers of Borrower and its
Subsidiaries; provided, that the Bank shall use reasonable efforts to not
--------
materially interfere with the business of the Borrower and its Subsidiaries and
to treat as confidential any and all information obtained pursuant to this
Section 6.7, except to the extent disclosure is required by any law, regulation,
order, ruling, directive, guideline or request from any central bank or other
government authority (whether or not having the force of law).
Section 6.8. Reporting Requirements. The Borrower shall, and shall
----------------------
cause each of its Subsidiaries, as applicable, to, furnish to the Bank:
(a) Annual GAAP Statements. Within ninety (90) days following the end
----------------------
of Borrower's fiscal year (or such earlier date as the Borrower's Form
10-K is filed with the Securities and Exchange Commission) copies of:
(i) the consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at the close of such fiscal
year, and
(ii) the consolidated and consolidating statements of income and
consolidated statements of stockholders' equity and cash
flows, in each case of the Borrower and its Subsidiaries for
such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in
reasonable detail and accompanied by an opinion thereon of KPMG Peat
Marwick or other firm of independent public accountants of recognized
national standing selected by the Borrower and reasonably acceptable to
the Bank, to the effect that the consolidated financial statements have
been prepared in
-34-
<PAGE>
accordance with GAAP (except for changes in application in which such
accountants concur) and present fairly in all material respects in
accordance with GAAP the financial condition of the Borrower and its
Subsidiaries as of the end of such fiscal year and the results of its
operations for the fiscal year then ended and that the examination of
such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered necessary
under the circumstances.
(b) Annual SAP Financial Statements. As soon as available, and in any
-------------------------------
event within sixty (60) and one hundred and fifty (150) days,
respectively, following the end of each Insurance Subsidiary's fiscal
year (or such earlier date as such are filed with the applicable
insurance regulatory authority), copies of the unaudited (if required
to be filed with a regulatory authority) and audited SAP Financial
Statements for such Insurance Subsidiary, in each case setting forth in
comparative form the figures for the preceding fiscal year and prepared
in accordance with SAP, all in reasonable detail and accompanied by an
opinion thereon of KPMG Peat Marwick or other firm of independent
public accountants of recognized national standing selected by the
Borrower and reasonably acceptable to the Bank, to the effect that the
financial statements have been prepared in accordance with SAP (except
for changes in application in which such accountants concur) and
present fairly in all material respects in accordance with SAP the
financial condition of such Insurance Subsidiary as of the end of such
fiscal year and the results of its operations for the fiscal year then
ended and that the examination of such accountants in connection with
such financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, included such tests of
the accounting records and such other auditing procedures as were
considered necessary under the circumstances.
(c) Quarterly GAAP Statements. As soon as available, and in any event
-------------------------
within forty-five (45) days after the end of each quarterly fiscal
period of the Borrower (other than the fourth fiscal quarter of any
fiscal year), copies of:
(i) the consolidated and consolidating balance sheets of
Borrower and its Subsidiaries as at the end of such fiscal
quarter, and
(ii) the consolidated and consolidating statements of income and
consolidated statements of stockholders' equity and cash
flows, in each case of Borrower and its Subsidiaries for
such fiscal quarter and the portion of such fiscal year
ended with such fiscal quarter,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP all in
reasonable detail and certified as presenting fairly in accordance with
GAAP the financial condition of the Borrower and
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<PAGE>
its Subsidiaries as of the end of such period and the results of
operations for such period by a Senior Officer of such company, subject
only to normal year-end accruals and audit adjustments and the absence
of footnotes.
(d) Quarterly SAP Statements. As soon as available, and in any event
------------------------
within the time period required by the applicable regulatory authority,
copies of the unaudited SAP Financial Statements for each quarterly
fiscal period of each Insurance Subsidiary, in each case setting forth
in comparative form the figures for the preceding fiscal year and
prepared in accordance with SAP, all in reasonable detail and certified
as presenting fairly in accordance with SAP the financial condition of
such Insurance Subsidiary as of the end of such period and results of
operations for such period by a Senior Officer of such Insurance
Subsidiary, subject to normal year-end accruals and audit adjustments.
(e) Annual/Quarterly Reports. Concurrently with the delivery of the
------------------------
financial statements required pursuant to subsections (a), (b), (c) and
(d) of this Section, copies of all reports required to be filed with
the Insurance Commissioner in connection with the filing of such
financial statements.
(f) Annual Forecasts. On or before March 1 of each year, a forecast
----------------
of the consolidated operations of the Borrower and its Subsidiaries and
of the Statutory Surplus of each Insurance Subsidiary in each case in
form satisfactory to the Bank, for the current fiscal year, together
with a certificate of a Senior Officer that such forecasts have been
prepared in good faith and on reasonable assumptions.
(g) Management Letters. Promptly upon receipt thereof, copies of any
------------------
reports or management letters relating to the internal financial
controls and procedures delivered to the Borrower or any of its
Subsidiaries by any independent certified public accountant in
connection with examination of the financial statements of the Borrower
or any such Subsidiary.
(h) SEC Filings. Promptly after the same are available, copies of
-----------
each annual report, proxy or financial statement or other report or
communication sent to the stockholders of the Borrower and copies of
all annual, regular, periodic and special reports and registration
statements which the Borrower may file or be required to file with the
Securities and Exchange Commission under Sections 13 and 15(d) of the
Securities and Exchange Act of 1934.
(i) Notice of Litigation. Promptly after the commencement thereof,
--------------------
notice of any action, suit and proceeding before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, against the Borrower or any of
its Subsidiaries (A) not arising out of an insurance policy issued by
the Borrower or any of its Subsidiaries, which, if determined adversely
to the Borrower or such Subsidiary, would have a material adverse
effect on the financial condition, operations,
-36-
<PAGE>
Properties, business or, as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to carry out its obligations under this
Agreement, the Revolving Note or the Pledge Agreements, (B) arising out
of an insurance policy issued by any of the Subsidiaries of the
Borrower, which demands relief, net of reinsurance obtained by the
Borrower or its Subsidiaries with respect to such insurance policy,
which, if determined adversely to the Borrower or such Subsidiary would
have a material adverse effect on the financial condition, operations,
Properties, business or, as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to carry out its obligations under this
Agreement, the Revolving Note or the Pledge Agreements, or (C)
commenced by any creditor or lessor under any written credit agreement
with respect to borrowed money or material lease which asserts a
default thereunder on the part of the Borrower or any of its
Subsidiaries.
(j) Notices of Default. As soon as practicable and in any event
------------------
within fifteen (15) days after the occurrence of each Default or Event
of Default, a written notice setting forth the details of such Default
or Event of Default and the action which is proposed to be taken by the
Borrower with respect thereto.
(k) Actuarial Report Confirming Reserves. As soon as available, and
------------------------------------
in any event within ninety (90) days after the close of each fiscal
year of the Borrower, a report confirming the adequacy of the SAP
reserves of each Insurance Subsidiary from an actuarial firm of
recognized national standing or the actuarial division of an accounting
firm of recognized national standing acceptable to the Bank.
(l) Other Filings. Promptly upon the filing thereof, copies of any
-------------
reports or other communications required to be filed with the Insurance
Commissioner in connection with the pledge by the Borrower of the
Pledged Collateral (as defined in and pursuant to the Pledge
Agreements); and at any time upon the reasonable request of the Bank,
permit the Bank the opportunity to review copies of all reports,
including annual reports, and notices which the Borrower or any
Subsidiary files with or receives from the PBGC or the U.S. Department
of Labor under ERISA; and as soon as practicable and in any event
within fifteen (15) days after the Borrower or any if its Subsidiaries
knows or has reason to know that any Reportable Event or Prohibited
Transaction has occurred with respect to any Plan or that the PBGC or
the Borrower or any such Subsidiary has instituted or will institute
proceedings under Title IV of ERISA to terminate any Plan, the Borrower
will deliver to the Bank a certificate of a Senior Officer of the
Borrower setting forth details as to such Reportable Event or
Prohibited Transaction or Plan termination and the action the Borrower
proposes to take with respect thereto.
(m) Notice of Transactions. Promptly after knowledge thereof, written
----------------------
notice of the Borrower's decision (i) to not consummate either the
acquisition of all of the stock of VASA North America or Seaboard or
(ii) to not consummate the USF RE Sale.
-37-
<PAGE>
(n) Additional Information. Such additional information as the Bank
----------------------
may reasonably request concerning the Borrower and its Subsidiaries and
for that purpose all pertinent books, documents and vouchers relating
to its business, affairs and Properties, including investments as shall
from time to time be designated by the Bank.
Section 6.9. Certificates.
------------
(a) Officers' Certificate. Simultaneously with each delivery of
---------------------
financial statements pursuant to Section 6.8(a) and 6.8(c), the
Borrower shall deliver to the Bank a certificate of its Chief Financial
Officer which will
(i) certify on behalf of the Borrower that such officer has
reviewed the Agreement and the condition and transactions of the
Borrower and its Subsidiaries for the period covered by such
financial statements, and state that to the best of his knowledge
the Borrower has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in
this Agreement, the Revolving Note and the Pledge Agreements, and
no Default or Event of Default has occurred and is continuing or,
if a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, and
(ii) include information (with detailed calculations in the form
set out in Exhibit C) required to establish whether the Borrower
---------
was in compliance with the covenants set forth in this Agreement
during the period covered by the financial statements then being
delivered.
(b) Accountant's Certificate. Simultaneously with each delivery of
------------------------
financial statements pursuant to Section 6.8(a), the Borrower will
deliver to the Bank a certificate of the independent certified public
accountants who certify such statements, stating whether, in the course
of their audit of the financial statements, they obtained any knowledge
of a condition or event which constitutes a Default or Event of Default
and the nature thereof.
Section 6.10. Further Assurances. The Borrower shall take all such
------------------
further actions and execute and file or record, at its own cost and expense, all
such further documents and instruments as the Bank may at any time reasonably
determine may be necessary or advisable; and shall do, execute, acknowledge,
deliver, record, file, re-file, record, register and re-register any and all
such further acts, deeds, conveyances, estoppel certificates, transfers,
certificates, assurances and other instruments as the Bank may reasonably
require from time to time in order to carry out more effectively the purposes of
this Agreement, the Revolving Note and the Pledge Agreements.
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<PAGE>
Section 6.11. Compliance with Agreements. Promptly and fully comply
--------------------------
with all contractual obligations under all agreements, mortgages, indentures,
leases and/or instruments to which any one or more of the Borrower and its
Subsidiaries is a party, whether such agreements, mortgages, indentures, leases
or instruments are with the Bank or another Person, except where such failure to
so comply would not have a material adverse effect on the business, financial
condition, operations, Properties or, as far as the Borrower can reasonably
foresee, prospects of the Borrower and its Subsidiaries taken as whole or the
ability of the Borrower to carry out its obligations under this Agreement, the
Revolving Note or the Pledge Agreements.
Section 6.12. Use of Proceeds. Use the proceeds of the Revolving Loans
---------------
only for the purposes described in Section 5.21.
Section 6.13. Continental Agreements. The Borrower shall keep, observe
----------------------
and perform, or cause to be kept, observed and performed, prior to the
expiration of the applicable grace period, if any, all of the terms, covenants,
provisions and agreements of the Continental Agreements to be kept, observed and
performed by USBENEFITS or USF RE thereunder.
ARTICLE 7. NEGATIVE COVENANTS.
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that Borrower shall not, and shall not permit its Subsidiaries to, unless
the Bank otherwise consents in writing:
Section 7.1. Debt. Create, incur, assume or suffer to exist any Debt,
----
except:
(a) Debt of the Borrower under this Agreement and the Revolving Note;
(b) Debt permitted under Section 7.2 hereof;
(c) Subordinated Debt of the Borrower; and
(d) Debt of USF RE in connection with reimbursement agreements for
letters of credit collateralizing reinsurance obligations of USF
RE, provided the aggregate amount of such Debt does not exceed
$1,000,000.
Section 7.2. Guaranties, Etc. Assume, guarantee, endorse or otherwise
---------------
be or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, or to supply or advance any
funds, or an agreement to cause such Person to maintain a minimum working
capital or net worth or otherwise to assure the creditors of any Person against
loss) for the obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and except as disclosed on Schedule 7.2 hereof.
------------
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<PAGE>
Section 7.3. Liens. Create, incur, assume or suffer to exist any Lien,
-----
upon or with respect to any of its Properties, now owned or hereafter acquired,
except:
(a) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable, if they are
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(b) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar
Liens, securing obligations incurred in the ordinary course of business
which are not past due for more than forty-five 45 days, or which are
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established;
(c) Liens under workers' compensation, unemployment insurance, social
security or similar legislation (other than ERISA);
(d) judgment and other similar Liens arising in connection with court
proceedings; provided that the execution or other enforcement of such
--------
Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
(e) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use and enjoyment by the Borrower or any of its
Subsidiaries of the Property or assets encumbered thereby in the normal
course of its business or materially impair the value of the Property
subject thereto;
(f) Liens referred to in Schedule 5.6; and
(g) Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary
course of business to which Borrower or a Subsidiary is a party as
lessee, provided the aggregate value of all such pledges and deposits
--------
in connection with any such lease does not at any time exceed 15% of
the annual fixed rentals payable under such lease.
Section 7.4. Investments. Permit the total consolidated Investment in
-----------
Investment Grade Securities of all Insurance Subsidiaries of the Borrower, as of
the end of any fiscal quarter, to be less than ninety-five percent (95%) of the
aggregate amount of Total Invested Assets.
Section 7.5. Mergers and Consolidations and Acquisitions of Assets.
-----------------------------------------------------
Merge or consolidate with any Person (whether or not Borrower or any Subsidiary
is the surviving entity), or acquire all or substantially all of the assets or
any of the capital stock of any Person; provided
--------
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<PAGE>
that any Subsidiary (other than any Insurance Subsidiary) may merge into the
Borrower or any other Subsidiary, and the Borrower may merge with or acquire the
assets of another Person if
(a) after giving effect to such transaction, (i) the Borrower is the
corporation which survives such merger or acquisition, and (ii) no
Default or Event of Default would exist, and
(b) the aggregate purchase price and other consideration paid or
payable by the Borrower for all such mergers and/or acquisitions shall
not exceed $15,000,000 in the aggregate during the term of this
Agreement.
Section 7.6. Sale of Assets. Sell, lease or otherwise dispose of all or
--------------
substantially all of its assets, including through any reinsurance arrangements,
except in the ordinary course of business; provided, however, the Borrower may
-------- -------
complete the USF RE Sale if (i) no Default or Event of Default exists at the
time of such USF RE Sale or would result therefrom and ii) the Borrower complies
with the requirements of Section 2.5 and all other provisions of this Agreement.
Section 7.7. Stock of Subsidiaries, Etc. Pledge, assign, hypothecate,
--------------------------
transfer, convey, sell or otherwise dispose of, encumber or grant any security
interest in, or deliver to any other Person, any shares of capital stock of its
Subsidiaries, or permit any such Subsidiaries to issue any additional shares of
its capital stock to any Person other than the Borrower or any Subsidiaries,
except (i) directors' qualifying shares, (ii) pursuant to the Pledge Agreements
and (iii) pursuant to Section 7.6.
Section 7.8. Transactions with Affiliates. Enter into any transaction
----------------------------
of any kind with any Affiliate of the Borrower, or any Person that owns or holds
5% or more of the outstanding common stock of the Borrower, other than (a)
transactions between or among Borrower and its wholly owned Subsidiaries or
between or among its wholly owned Subsidiaries or (b) transactions on terms at
least as favorable to the Borrower or its Subsidiaries as would be the case in
an arm's-length transaction between unrelated parties of equal bargaining power.
Section 7.9. Capital Expenditures. Make or permit to be made any
--------------------
Capital Expenditure in any fiscal year, or commit to make any Capital
Expenditure in any fiscal year, which when added to the aggregate Capital
Expenditures of the Borrower and its Subsidiaries theretofore made or committed
to be made in that fiscal year, would exceed $2,500,000. The Bank agrees to
consider any request of the Borrower to modify this covenant to the extent
necessary to permit it to buy or construct a building for its offices, it being
understood, however, that while the Bank shall be under no obligation whatsoever
to grant any such request, the Bank shall not unreasonably deny same.
Section 7.10. Minimum Statutory Surplus. (a) As of the end of any
-------------------------
fiscal quarter prior to the USF RE Sale, permit Statutory Surplus of USF RE to
be less than an amount equal to the
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<PAGE>
sum of (i) $80,000,000 plus (ii) 75% of any positive Statutory Net Income, after
dividends to the Borrower, for each fiscal quarter following the fiscal quarter
ending December 31, 1995, plus (iii) any contributions to surplus made by the
Borrower to USF RE, from Revolving Loans or otherwise, during each fiscal
quarter following the fiscal quarter ending December 31, 1995.
(b) Upon consummation of the Acquisition, as of the end of any fiscal
quarter, permit the combined Statutory Surplus of VASA North Atlantic and
Seaboard to be less than an amount equal to the sum of (i) $42,500,000 plus (ii)
75% of any positive Statutory Net Income of VASA North Atlantic and Seaboard,
after dividends to the Borrower, for each fiscal quarter following the fiscal
quarter ending June 30, 1999, plus (iii) any contributions to surplus made by
the Borrower to VASA North Atlantic or Seaboard, as applicable, from Revolving
Loans or otherwise, during each fiscal quarter following the fiscal quarter
ending June 30, 1999.
Section 7.11. Minimum Consolidated GAAP Net Worth. As of the end of any
-----------------------------------
fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and its
Subsidiaries to be less than an amount equal to the sum of (a) $100,000,000,
plus (b) 50% of cumulative positive net income (as determined in accordance with
GAAP) for each fiscal quarter following the fiscal quarter ending June 30, 1998,
plus (c) the amount of paid-in capital resulting from any issuance by the
Borrower of its capital stock after December 28, 1998.
Section 7.12. Maximum Premiums to Surplus. As of the end of each fiscal
---------------------------
quarter, permit the ratio of combined Net Premiums Written of all of the
Insurance Subsidiaries of the Borrower for the immediately preceding four fiscal
quarters (ending on such date) to combined Statutory Surplus of such Insurance
Subsidiary at the end of such fiscal quarter to be greater than the following:
3.0 to 1 at the end of the first fiscal quarter of each year and 2.0 to 1 at the
end of the second, third and fourth fiscal quarters of each fiscal year.
Section 7.13. [Reserved]
Section 7.14. Minimum Interest Coverage. As of the end of each fiscal
-------------------------
quarter during the periods set forth below, for each Insurance Subsidiary,
permit the ratio of (a) the sum of (i) Available Dividends, minus dividends paid
by such Insurance Subsidiary to the Borrower for the immediately preceding four
fiscal quarters (ending on such date), plus (ii) an amount equal to the
aggregate consolidating GAAP EBIT of the Borrower and all Subsidiaries
(eliminating intercompany balances and transactions, as applicable), except the
Insurance Subsidiaries, for the immediately preceding four fiscal quarters
(ending on such date) to (b) Interest Expense for the immediately succeeding
four fiscal quarters (beginning on such date) to be less than (i) 2.0 to 1 for
the fiscal year ending December 31, 1995, and (ii) 3.0 to 1 for each fiscal year
thereafter. For purposes of clause (b) above, Interest Expense shall be
calculated on the assumption that Base Rate Loans for the full amount of the
Commitment will be outstanding for the succeeding four fiscal quarters and the
A.M. Best Rating of all Insurance Subsidiaries on the date of the certification
required by Section 6.9(a) with respect to the fiscal quarter being tested will
remain in effect for the succeeding four fiscal quarters.
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<PAGE>
Section 7.15. Minimum Fixed Charge Coverage. As of the end of each
-----------------------------
fiscal quarter during the periods set forth below, for each Insurance
Subsidiary, permit the ratio of (a) the sum of (i) Available Dividends, minus
dividends paid by such Insurance Subsidiary to the Borrower for the immediately
preceding four fiscal quarters (ending on such date), plus (ii) an amount equal
to the aggregate consolidating GAAP EBIT of the Borrower and all Subsidiaries
(eliminating intercompany balances and transactions, as applicable), except
Insurance Subsidiaries, for the immediately preceding four fiscal quarters
(ending on such date) to (b) Fixed Charges for the immediately succeeding four
fiscal quarters (beginning on such date) to be less than (i) 1.5 to 1 for the
fiscal year ending December 31, 1995, and (ii) 1.7 to 1 for each fiscal year
thereafter. For purposes of clause (b) above, Interest Expense shall be
calculated on the assumption that Base Rate Loans for the full amount of the
Commitment will be outstanding for the succeeding four fiscal quarters and the
A.M. Best Rating of all Insurance Subsidiaries on the date of the certification
required by Section 6.9(a) with respect to the fiscal quarter being tested will
remain in effect for the succeeding four fiscal quarters.
Section 7.16. Minimum Debt Service Coverage. As of the end of each
-----------------------------
fiscal quarter, permit the Debt Service Coverage Ratio for each Insurance
Subsidiary for the immediately preceding four fiscal quarters (ending on such
date) to be less than 1.5 to 1.0.
Section 7.17. Distributions. In any fiscal year make any Distributions
-------------
from net income of the Borrower (as determined in accordance with GAAP), other
than Distributions from time to time up to an aggregate amount not to exceed 33-
1/3% of consolidated positive net income of the Borrower and its Subsidiaries
(determined in accordance with GAAP) for such fiscal year.
Section 7.18. Risk-Based Capital Ratio. As at any date, permit the
------------------------
Risk-Based Capital Ratio of the Insurance Subsidiaries, on a combined basis, as
at such date to be less than 200%. In the event of any change after the date of
this Agreement in the NAIC Risk-Based Capital (RBC) for Insurers Model Act or
NAIC's interpretations thereof affecting the calculation of the Risk-Based
Capital Ratio, (a) the Borrower and the Bank agree to enter into good faith
negotiations to amend this Agreement in such respects as are necessary to
conform this Section 7.18 as a measurement of the sufficiency of the Insurance
Subsidiaries' risk-based capital to substantially the same measurement as was
effective prior to such change and (b) the Borrower shall be deemed to be in
compliance with this Section 7.18 during the 60 days following any such change
if and to the extent that the Insurance Subsidiaries on a combined basis would
have been in compliance therewith under said Act and interpretations as in
effect immediately prior to such change; provided, however, if an amendment
shall not be agreed upon within 60 days or such longer period as shall be agreed
to by the Bank, for purposes of determining compliance with this Section 7.18
until such amendment shall be agreed upon, compliance shall be determined in
accordance with said Act and interpretations as in effect on the Closing Date.
Section 7.19. Minimum A.M.Best Rating. Permit the A.M. Best Rating of
-----------------------
USF RE (until the USF RE Sale), VASA North Atlantic (upon consummation of the
Acquisition) or Seaboard (upon consummation of the Acquisition) to be less than
"A-" at any time.
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<PAGE>
Section 7.20. Continental Agreements. Permit the cancellation,
----------------------
surrender, termination, amendment or modification of the Continental Agreements
or the expiration of the Continental Agreements unless, on or before the
expiration date thereof, a replacement agreement is entered into by the Borrower
and/or its Subsidiaries in form and content satisfactory to the Bank in the
exercise of the Bank's reasonable discretion.
Section 7.21. Debt to Capital Ratio. Permit the consolidated Debt of
---------------------
the Borrower and its Subsidiaries to exceed 45% of Total Capitalization during
the period December 28, 1998 to and including June 30, 1999 or 35% of Total
Capitalization after June 30, 1999.
ARTICLE 8. EVENTS OF DEFAULT.ARTICLE 8.
Section 8.1. Events of Default. Any of the following events shall be an
-----------------
"Event of Default":
(a) the Borrower shall fail to pay any principal amount when due,
whether at stated maturity, by acceleration, by notice of prepayment or
otherwise, or Borrower shall fail to pay any premium or interest, or
any fees or other amounts payable hereunder, within five days after the
date due;
(b) any written statement, representation or warranty made by the
Borrower in this Agreement, or the Revolving Note or the Pledge
Agreements, or which is contained in any certificate, document,
financial or other written statement furnished at any time under or in
connection with this Agreement, the Revolving Note or the Pledge
Agreements shall prove to have been incorrect in any material respect
on or as of the date made;
(c) the Borrower shall (i) fail to perform or observe any term,
covenant, or agreement contained in Section 5.21, Section 6.8(i) or
Article 7; or (ii) fail to perform or observe any term, covenant, or
agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section 8.1) in
this Agreement (including without limitation any such term, covenant or
agreement contained in Article 6 hereof), the Pledge Agreements or the
Revolving Note and such failure shall continue unremedied for 30
consecutive days. The Bank shall use reasonable efforts to give the
Borrower notice of any Default or Event of Default under this Section
8.1(c); provided, however, that failure to give any such notice shall
-------- -------
not impair or otherwise adversely affect the Bank's rights and remedies
hereunder;
(d) the Borrower or any Subsidiary shall (i) fail to pay any
indebtedness, including but not limited to indebtedness for borrowed
money (other than the payment Obligations described in (a) above), of
the Borrower or such Subsidiary, as the case may be, or any interest or
premium thereon, when due (whether by scheduled maturity, required
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<PAGE>
prepayment, acceleration, demand or otherwise); or (ii) fail to perform
or observe any term, covenant or condition on its part to be performed
or observed under any agreement or instrument relating to any such
indebtedness, when required to be performed or observed and such
failure continues after any applicable notice and grace period, if the
effect of such failure to perform or observe is to accelerate, or to
permit the acceleration of the maturity of such indebtedness, or (iii)
any such indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; provided, however,
-------- -------
that it shall not be a Default or Event of Default under this Section
8.1(d) unless the aggregate principal amount of all such indebtedness
as described in clauses (i) through (iii) above shall exceed $500,000;
(e) the Borrower or any Subsidiary (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (ii) shall make an assignment for the benefit
of creditors or petition or apply to any tribunal for the appointment
of a custodian, receiver or trustee for it or a substantial part of its
assets; or (iii) shall commence any proceeding under any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced
against it in which an adjudication or appointment is made or order for
relief is entered, or which petition, application or proceeding remains
undismissed for a period of sixty (60) days or more; or (v) shall be
the subject of any proceeding under which its assets may be subject to
seizure, forfeiture or divestiture (other than a proceeding in respect
of a Lien permitted under Section 7.3(a)); or (vi) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its Property; or (vii) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
(f) (A) Any Insurance Commissioner or any other head of any insurance
regulatory authority and/or such insurance regulatory authority shall
apply for an order pursuant to any section of the applicable insurance
code directing the rehabilitation, conservation or liquidation of any
Insurance Subsidiary, and any such application shall not be dismissed
or otherwise terminated during a period of 60 consecutive days, or a
court of competent jurisdiction shall enter an order granting the
relief sought; or (B) any Insurance Commissioner or any other head of
any insurance regulatory authority and/or such insurance regulatory
authority shall file a complaint or petition pursuant to any applicable
insurance code seeking the dissolution of any Insurance Subsidiary, and
such complaint or petition is not dismissed or otherwise terminated for
a period of 60 consecutive days, or a court of competent jurisdiction
shall order the dissolution of any Insurance Subsidiary;
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<PAGE>
(g) one or more judgments, decrees or orders for the payment of money
in excess of $500,000 in the aggregate shall have been rendered against
the Borrower or any of its Subsidiaries (excluding judgments which are
covered by insurance other than self-insurance and excluding judgments
rendered against any Insurance Subsidiary which judgments have been
both (i) rendered in the ordinary course of business in connection with
its insurance and reinsurance obligations, and (ii) adequately reserved
against) and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of sixty (60) consecutive days
without being vacated, discharged, satisfied or stayed or bonded
pending appeal;
(h) any of the following events shall occur or exist with respect to
the Borrower or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event shall occur with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan (other
than in a "standard termination" referred to in Section 4041 of ERISA);
(iv) any event or circumstance exists which would constitute grounds
entitling the PBGC to institute proceedings under Section 4042 of ERISA
for the termination of, or for the appointment of a trustee to
administer any Plan, or the institution by the PBGC of any such
proceedings; (v) complete or partial withdrawal under Section 4201 or
4204 of ERISA from a Multiemployer Plan or the reorganization,
insolvency or termination of any Multiemployer Plan; and in each case
above, such event or condition, together with all other such events or
conditions, if any, would in the reasonable opinion of the Bank subject
the Borrower to any tax, penalty or other liability to a Plan,
Multiemployer Plan, the PBGC or otherwise (or any combination thereof)
which in the aggregate exceed or may exceed $250,000;
(i) this Agreement, the Revolving Note or the Pledge Agreements shall
at any time after its execution and delivery and for any reason cease
to be in full force and effect or shall be declared null and void, or
the validity or enforceability thereof shall be contested by the
Borrower or the Borrower shall deny it has any further liability or
obligation hereunder;
(j) any event occurs which gives the holder or holders of any
Subordinated Debt (or an agent or trustee on its or their behalf) the
right to declare such indebtedness due before the date on which it
otherwise would become due, or the right to require the issuer thereof
to redeem or purchase, or offer to redeem or purchase, all or any
portions of any Subordinated Debt;
(k) any determination is made by a court of competent jurisdiction
that payment of principal or interest or both shall be made to the
holder of any Subordinated Debt which would not be permitted by this
Agreement or that any obligation with respect to Subordinated Debt is
not subordinated in accordance with its terms to the Obligations; or
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<PAGE>
(l) the Borrower shall be in default under either of the Pledge
Agreements.
Section 8.2. Remedies. Without limiting any other rights or remedies of
--------
the Bank provided for elsewhere in this Agreement, the Revolving Note or the
Pledge Agreements, or by applicable law, or in equity, or otherwise, if any
Event of Default shall occur and be continuing, the Bank may by notice to the
Borrower, (i) declare the Commitment to be terminated, whereupon the same shall
forthwith terminate, (ii) declare all amounts owing under this Agreement and the
Revolving Note (whether or not such Obligations be contingent or unmatured) to
be forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided that, in the case of an Event of Default referred to in Section 8.1(e)
and Section 8.1(f) above with respect to the Borrower, the Commitment shall be
immediately terminated, and all such amounts shall be immediately due and
payable without notice, presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Borrower. NOTWITHSTANDING
THE FOREGOING, THE BANK SHALL NOT SELL, VOTE OR IN ANY MANNER EXERCISE CONTROL
OVER THE PLEDGED COLLATERAL (AS DEFINED IN EACH OF THE PLEDGE AGREEMENTS) OF THE
BORROWER WITHOUT OBTAINING, TO THE EXTENT REQUIRED BY LAW, THE PRIOR APPROVAL
(INCLUDING ANY HEARING REQUIRED BY LAW) OF THE MASSACHUSETTS DIVISION OF
INSURANCE OR INDIANA DEPARTMENT OF INSURANCE.
ARTICLE 9. MISCELLANEOUS9.
Section 9.1. Amendments and Waivers. Amendments and Waivers. No
----------------------
amendment or waiver of any provision of this Agreement, the Revolving Note or
the Pledge Agreements nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Bank and the Borrower, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
failure on the part of the Bank to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 9.2. Usury. Anything herein to the contrary notwithstanding,
-----
the Obligations of the Borrower with respect to this Agreement and the Revolving
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank.
Section 9.3. Expenses; Indemnities.
---------------------
(a) Unless otherwise agreed in writing, the Borrower shall reimburse
the Bank on demand for all reasonable costs, expenses and charges (including
without limitation, reasonable
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<PAGE>
fees and charges of Day, Berry & Howard LLP (with appropriate detail) in
accordance with the letter between the Borrower and the Bank dated November 4,
1994) incurred by the Bank in connection with the preparation, filing and
recording of this Agreement, the Revolving Note or the Pledge Agreements. The
Borrower further agrees to pay the Bank on demand for all reasonable costs,
expenses and charges (including without limitation, reasonable fees and charges
of external legal counsel for the Bank and costs allocated by the Bank's
internal legal department) incurred by the Bank in connection with the
performance, modification and amendment of this Agreement, the Revolving Note or
the Pledge Agreements provided, however, that Borrower shall not be liable for
-------- -------
any such costs allocated by the Bank's internal legal department arising prior
to the date of the first Borrowing pursuant to a Notice of Borrowing. The
Borrower further agrees to pay on demand all reasonable costs and expenses
(including reasonable counsel fees and expenses), if any, in connection with the
enforcement, including without limitation, the enforcement of judgments (whether
through negotiations, legal proceedings or otherwise) of this Agreement, the
Revolving Note or the Pledge Agreements or any other document to be delivered
under this Agreement. Until paid, the amount of any cost, expense or charge
shall constitute, together with all accrued interest thereon, part of the
Obligations.
(b) The Borrower hereby agrees to indemnify the Bank upon demand at
any time, against any and all losses, costs or expenses which the Bank may at
any time or from time to time sustain or incur as a consequence of (i) any
failure by the Borrower to pay, punctually on the due date thereof, any amount
payable by the Borrower to the Bank or (ii) the acceleration, in accordance with
the terms of this Agreement, of the time of payment of any of the Obligations of
the Borrower. Such losses, costs or expenses may include, without limitation,
(i) any costs incurred by the Bank in carrying funds to cover any overdue
principal, overdue interest, or any other overdue sums payable by the Borrower
to the Bank or (ii) any losses incurred or sustained by the Bank in liquidating
or reemploying funds acquired by the Bank from third parties, except to the
extent caused by the Bank's gross negligence or willful misconduct.
(c) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, costs or expenses
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any transaction contemplated by
this Agreement or the Pledge Agreements, any actions or omissions of the
Borrower or any Subsidiary or any of their respective directors, officers,
employees or agents in connection with this Agreement, or any actual or proposed
use by the Borrower or any Subsidiary of the proceeds of the Revolving Loans,
including without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
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<PAGE>
(d) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, costs or expenses
(including without limitation, reasonable fees and disbursements of counsel,
engineers or similar professionals) which may be incurred by or asserted against
the Bank or any such party in connection with or arising out of or relating to
(i) the Bank's compliance with any environmental law with respect to the
Properties or operations of the Borrower or its Subsidiaries, (ii) any natural
resource damages, governmental fines or penalties or other amounts mandated by
any governmental authority, court order, demand or decree in connection with the
disposal by the Borrower or its Subsidiaries either on-site or off-site
(including leakage or seepage from any such site including third party treatment
facilities) of pollutants, contaminants or hazardous wastes and (iii) any
personal injury or property damage to third parties resulting from such
pollutants, contaminants or hazardous wastes.
Section 9.4. Term; Survival. This Agreement shall continue in full
--------------
force and effect as long as any Obligations are owing by the Borrower to the
Bank. No termination of this Agreement shall in any way affect or impair the
rights and obligations of the parties hereto relating to any transactions or
events prior to such termination date, and all warranties and representations of
the Borrower shall survive such termination. All representations and warranties
made hereunder and in any document, certificate, or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement, the Revolving Note or the Pledge Agreements. The obligations of
the Borrower under Sections 2.11, 2.12 and 9.3 shall survive the repayment of
the Revolving Loans and the termination of the Commitment.
Section 9.5. Assignment; Participations. This Agreement shall be
--------------------------
binding upon, and shall inure to the benefit of, the Borrower, the Bank and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights or obligations hereunder. Subject to the consent of any
Insurance Commissioner, if required, the Bank may sell participations in, or
upon ten (10) days' notice to the Borrower may assign all or any part of, any
Revolving Loan to another lender, in which event (a) in the case of an
assignment, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it were the Bank hereunder; and (b) in the case of a
participation, the participant shall have no rights under this Agreement, the
Revolving Note or the Pledge Agreements. The agreement executed by the Bank in
favor of the participant shall not give the participant the right to require the
Bank to take or omit to take any action hereunder except action directly
relating to (i) the extension of a regularly scheduled payment date with respect
to any portion of the principal of or interest on any amount outstanding
hereunder allocated to such participant, (ii) the reduction of the principal
amount allocated to such participant or (iii) the reduction of the rate of
interest payable on such amount or any amount of fees payable hereunder to a
rate or amount, as the case may be, below that which the participant is entitled
to receive under its agreement with the Bank. The Bank may furnish any
information concerning the Borrower in the possession of the Bank from time to
time to assignees and participants (including prospective assignees and
participants); provided that the Bank shall require any such
--------
-49-
<PAGE>
prospective assignee or such participant (prospective or otherwise) to agree in
writing to maintain the confidentiality of such information.
Section 9.6. Notices. All notices, requests, demands and other
-------
communications provided for herein shall be in writing and shall be (i) hand
delivered; (ii) sent by certified, registered or express United States mail,
return receipt requested, or reputable next-day courier service; or (iii) given
by telex, telecopy, telegraph or similar means of electronic communication. All
such communications shall be effective upon the receipt thereof. Notices shall
be addressed to the Borrower and the Bank at their respective addresses set
forth on the signature pages of this Agreement, or to such other address as the
Borrower or the Bank shall theretofore have transmitted to the other party in
writing by any of the means specified in this Section.
Section 9.7. Setoff. The Borrower agrees that, in addition to (and
------
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final, and
regardless of whether such balances are then due to the Borrower) held by it for
the account of the Borrower at any of the Bank's offices, in Dollars or in any
other currency, against any amount payable by the Borrower under this Agreement,
the Revolving Note or the Pledge Agreements which is not paid when due, taking
into account any applicable grace period, in which case it shall promptly notify
the Borrower thereof; provided that the Bank's failure to give such notice shall
--------
not affect the validity thereof.
Section 9.8. Jurisdiction; Immunities.
------------------------
(a) The Borrower hereby irrevocably submits to the jurisdiction of any
Connecticut State or United States Federal court sitting in Connecticut over any
action or proceeding arising out of or relating to this Agreement, the Revolving
Note or the Pledge Agreements, and the Borrower hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such Connecticut State or Federal court. The Borrower irrevocably consents to
the service of any and all process in any such action or proceeding by the
mailing of copies of such process to the Borrower at its address specified in
Section 9.6. The Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The Borrower
further waives any objection to venue in such State and any objection to an
action or proceeding in such State on the basis of forum non conveniens. The
Borrower further agrees that any action or proceeding brought against the Bank
shall be brought only in Connecticut State or United States Federal courts
sitting in Connecticut.
(b) Nothing in this Section shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the Borrower or its Property
in the courts of any other jurisdictions.
-50-
<PAGE>
Section 9.9. Table of Contents; Headings. Any table of contents and
---------------------------
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 9.10. Severability. The provisions of this Agreement are
------------
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 9.11. Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
Section 9.12. Integration. This Agreement, the Revolving Note and the
-----------
Pledge Agreements set forth the entire agreement between the parties hereto
relating to the transactions contemplated hereby and thereby and supersede any
prior oral or written statements or agreements with respect to such
transactions.
Section 9.13. Governing Law. This Agreement shall be governed by, and
-------------
interpreted and construed in accordance with, the laws of the State of
Connecticut except to the extent that the remedies under the Pledge Agreements
in respect of the Pledged Collateral are governed by the laws of the State of
California, the Commonwealth of Massachusetts or the State of Indiana.
Section 9.14. Confidentiality. Subject to the following sentence, the
---------------
Bank and any assignee of the Bank becoming a party to this Agreement agrees to
use its best efforts, consistent with its normal operating procedures, to retain
in confidence and not disclose without the prior written consent of the Borrower
any written information about the Borrower and its Subsidiaries obtained
pursuant to the requirements of this Agreement and identified in writing by the
Borrower as "non-public," except as permitted under Section 9.5 of this
Agreement. Notwithstanding the foregoing, the Bank (A) may disclose or otherwise
use such information to the extent that such information is required in any
application, report, statement or testimony submitted to any governmental agency
having or claiming to have jurisdiction over the Bank, (B) may disclose or
otherwise use such information to the extent that such information is required
in response to any summons or subpoena or in connection with any litigation
relating to the Revolving Loans, (C) may disclose or otherwise use such
information to the extent that such information is reasonably believed by the
Bank (after notification to the Borrower, unless such notification is prohibited
by law) to be required in order to comply with any law, order, regulation, or
ruling applicable to the Bank, and (D) may disclose or otherwise use such
information to the extent that such information becomes publicly available.
-51-
<PAGE>
Section 9.15. Authorization of Third Parties to Deliver Opinions, Etc.
-------------------------------------------------------
The Borrower hereby authorizes and directs each Person whose preparation or
delivery to the Bank of any opinion, report or other information is a condition
or covenant under this Agreement (including under Articles 5, 6 and 7) to so
prepare or deliver such opinion, report or other information for the benefit of
the Bank. The Borrower agrees to confirm such authorizations and directions
provided for in this Section 9.15 from time to time as may be requested by the
Bank.
Section 9.16. Borrower's Waivers. THE BORROWER ACKNOWLEDGES THAT IT HAS
------------------
BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS
AGREEMENT AND THAT IT MAKES THE FOLLOWING WAIVERS KNOWINGLY AND VOLUNTARILY:
(a) THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH
OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, THE REVOLVING NOTE, THE PLEDGE AGREEMENTS OR ANY OF THE
BORROWER'S DOCUMENTS RELATED THERETO AND THE ENFORCEMENT OF ANY OF THE
BANK'S RIGHTS AND REMEDIES.
(b) THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS AGREEMENT IS
DELIVERED AS PART OF A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND
DEFINED IN CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES AND
VOLUNTARILY AND KNOWINGLY WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE
CONFERRED UPON IT UNDER CHAPTER 903a OF SAID STATUTES (OR ANY OTHER
STATUTE AFFECTING PREJUDGMENT REMEDIES) TO ANY NOTICE OR HEARING OR
PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR TO ANY PREJUDGMENT
REMEDY WHICH THE BANK MAY USE. THE BORROWER ACKNOWLEDGES THAT IT HAS
BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION
AND THE REVOLVING LOANS.
Section 9.17. State of Making and Substantial Performance. The parties
-------------------------------------------
hereto agree that this Agreement is being made and is to be substantially
performed in the State of Connecticut.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-52-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE CENTRIS GROUP, INC.
By:___________________
Print Name:
Print Title:
Address for Notices:
650 Town Center Drive
Suite 1600
Costa Mesa, CA 92626
Attn: Charles M. Caporale, Senior Vice President,
Chief Financial Officer and Treasurer
and
Jose A. Velasco
Senior Vice President, General Counsel
and Secretary
Telecopier No.: (714) 434-0750
With a copy to:
Rodney W. Loeb, Esq.
R.W. Loeb, Professional Law Corporation
865 South Figueroa Street
Suite 2500
Los Angeles, CA 90017-2567
Telecopier No.: (213) 892-1066
-53-
<PAGE>
FLEET NATIONAL BANK
By:_________________________
Name:
Title:
Address for Notices:
Financial Institutions Group
777 Main Street, MSN 250
Hartford, CT 06115
Attn: David A. Albanesi
Telecopier No.: (860) 986-1264
With a copy to:
Richard C. MacKenzie, Esq.
Day, Berry & Howard LLP
CityPlace I
Hartford, CT 06103-3499
Telecopier No.: (860) 275-0343
-54-
<PAGE>
SCHEDULE 1.1
COMMITMENTS AND LENDING OFFICES
-------------------------------
Percentage
Name and Address of Type of
of Bank Commitment Commitments Loans
---------------- ---------- ----------- -------
Fleet National Bank, Revolving Loans 100% Base Rate
777 Main Street $75,000,000 Eurodollar Rate
Hartford, Connecticut 06115 CD Rate
<PAGE>
SCHEDULE 5.4
LITIGATION
----------
There are no actions, suits, proceedings or investigations which are required to
be reported or disclosed pursuant to Section 5.4 of Exhibit A to the Fifth
Amendment to the Credit Agreement.
<PAGE>
SCHEDULE 5.6
LIENS
-----
There are no liens required to be reported pursuant to Section 5.6 of Exhibit A
to the Fifth Amendment to the Credit Agreement.
<PAGE>
<TABLE>
<CAPTION>
State of Number of Percent
Name Incorporation Shares Owned Owner Owned
---- ------------- ------------ ----- -----
<S> <C> <C> <C> <C>
USF RE INSURANCE COMPANY Massachusetts 50,000 Borrower 100%
US Holding, Inc. Delaware 1,000 USF RE 100%
USF Insurance Company Pennsylvania 150,000 US Holdings 100%
USFBenefits Insurance Service, Inc. California 1,000 Borrower 100%
US Health Management Corporation California 1,000 Borrower 100%
US MedCare Review, Inc. Illinois 1,000 Interra, Inc. 100%
Interra, Inc. Indiana 1,000 Interra, Inc. 100%
Interra Reinsurance Group, Inc. Indiana 3,000 Interra, Inc. 100%
Centris Risk Management, Inc. Indiana 1,000 Interra, Inc. 100%
*Seaboard Life Insurance Company (USA) Indiana 250 Borrower 100%
*VASA North America, Inc. ("VNA") Indiana 11,258 Borrower 100%
*VASA North Atlantic Insurance Company Indiana 1,000 VASA Ins. 94%
Group
64 VASA Ins. 6%
Brougher
*VASA Insurance Group, Inc. Indiana 3,353,295 VNA 100%
*VASA Brougher, Inc. Indiana 1,000 VSA Ins. 100%
Group
*Select Benefits, Inc. Indiana 510 VASA Ins. 100%
Group
</TABLE>
<PAGE>
SCHEDULE 5.10
CREDIT ARRANGEMENTS
-------------------
In the normal course of USF RE INSURANCE COMPANY's ("USF RE") reinsurance
business, companies that cede insurance to USF RE sometimes ask USF RE to secure
its potential liabilities with either letters of credit or "funds held" or a
"trust" into which USF RE deposits some of its portfolio securities in trust for
the ceding companies. In some cases, especially in jurisdictions where USF RE
is not an admitted carrier, such an arrangement is necessary so that the ceding
company can take credit for its ceded reinsurance liabilities on its annual
statement. Such liabilities to ceding companies, which are not considered to be
contingent liabilities, are stated in USF RE's regular financial statements, and
are included in the consolidated financing statements of the Borrower.
The aggregate amount of USF RE's assets which are held under these types of
arrangements as of September 30, 1998 is $29,461,000.
Other than as described hereinabove, there are no other credit arrangements
required to be reported pursuant to Section 5.10 of Exhibit A to the Fifth
Amendment to the Credit Agreement.
<PAGE>
SCHEDULE 5.15
CONSENTS AND APPROVALS
----------------------
Apart from the approval obtained from the Division of Insurance of the
Commonwealth of Massachusetts and the Department of Insurance of the State of
Indiana, no other consents or approvals are required in connection with the
execution, delivery and performance by Borrower with respect to the Credit
Agreement, the Revolving Note, the Pledge Agreements or the Acknowledgment and
Ratification of the Pledge Agreement.
<PAGE>
SCHEDULE 5.16
PARTNERSHIPS
------------
As part of its investment portfolio, during the fourth quarter of 1989 USF RE
INSURANCE COMPANY acquired 2.448 limited partnership units of Financial
Securities Fund, L.P. The partnership has sold all of its assets and is
currently in liquidation, which is scheduled to be completed by year-end 1998.
The collection of certain contingent assets held by the partnership may
subsequently produce a payment of an immaterial amount to USF RE INSURANCE
COMPANY.
<PAGE>
SCHEDULE 7.2
GUARANTIES
----------
There are no assumptions, guarantees, endorsements, other contingent
responsibilities or liabilities for obligations of any person which are required
to be reported or disclosed pursuant to Section 7.2 of Exhibit A to the Fifth
Amendment to the Credit Agreement.
<PAGE>
EXHIBIT A
REVOLVING NOTE
$75,000,000 Hartford, Connecticut
___________, 1998
THE CENTRIS GROUP, INC., formerly known as US Facilities Corporation
(the "Borrower"), for value received, hereby unconditionally promises to pay to
the order of FLEET NATIONAL BANK, a national banking association, formerly known
as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the
"Bank") at its office located at 777 Main Street, Hartford, Connecticut 06115,
for the account of the appropriate Lending Office of the Bank, the principal sum
of SEVENTY-FIVE MILLION AND NO/100 Dollars ($75,000,000) or, if less, the unpaid
principal amount loaned by the Bank to the Borrower pursuant to the Agreement
referred to below, in lawful money of the United States of America and in
immediately available funds, on the date(s) and in the manner provided in said
Agreement. The Borrower also promises to pay interest on the unpaid principal
balance hereof, for the period such balance is outstanding, at said principal
office for the account of said Lending Office, in like money, at the rates of
interest, on the date(s) and in the manner provided in said Agreement; and to
pay interest on any overdue principal and interest at the Default Rate.
The date, type, amount and maturity date of each Revolving Loan made by
the Bank to the Borrower under the Agreement referred to below, and each payment
of principal thereof, shall be recorded by the Bank on its books and, prior to
any transfer of this Revolving Note (or, at the discretion of the Bank, at any
other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof or otherwise recorded and maintained in its internal
records.
This is the Revolving Note referred to in that certain Credit Agreement
(as amended from time to time, the "Agreement") dated as of December 20, 1994
and amended and restated by the Fifth Amendment to the Credit Agreement dated as
of December 28, 1998 between the Borrower and the Bank and evidences the
Revolving Loans made by the Bank thereunder and is secured by the Pledge
Agreements as set forth in the Agreement and is entitled to the benefits
thereof. All terms not defined herein shall have the meanings given to them in
the Agreement.
The Agreement provides for the acceleration of the maturity of this
Revolving Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any
other notice or formality with respect to this Revolving Note.
<PAGE>
No waiver of any right or remedy under this Revolving Note shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
In accordance with the provisions of the Agreement, the Borrower shall
reimburse the Bank on demand for all reasonable costs, expenses and charges
(including without limitation, reasonable fees and charges of external legal
counsel for the Bank and costs allocated by the Bank's internal legal
department) incurred by the Bank in connection with the preparation, performance
or enforcement of this Revolving Note.
This Revolving Note shall be binding on the Borrower and its permitted
successors and assigns and shall inure to the benefit of the Bank and its
permitted successors and assigns, provided that the Borrower may not delegate
--------
any obligations hereunder without the prior written consent of the Bank.
This Revolving Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of Connecticut.
THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THE REVOLVING LOANS EVIDENCED HEREBY
ARE PART OF A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND DEFINED IN CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES AND HEREBY VOLUNTARILY AND KNOWINGLY
WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON IT UNDER CHAPTER
903a OF SAID STATUTES (OR ANY OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO
ANY NOTICE OR HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR TO
ANY PREJUDGMENT REMEDY WHICH THE BANK MAY USE. THE BORROWER ACKNOWLEDGES THAT IT
HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND
THE REVOLVING LOANS.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to
be duly executed as of the day and year first above written.
THE CENTRIS GROUP, INC.
By:_______________________________
Print Name:
Print Title:
-2-
<PAGE>
Schedule to
-----------
Revolving Note
--------------
REVOLVING LOANS AND PAYMENTS
----------------------------
Amount and Payments Unpaid
Type of Maturity Principal/ Principal Notation
Date Loan Date Interest Balance By
- ---- ---------- -------- ---------- --------- --------
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
______ _________ ________ __________ _________ ________
<PAGE>
EXHIBIT B
Notice of Borrowing
-------------------
_________, 19__
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Financial Institutions Group
Re: Credit Agreement dated as of December 20, 1994 (as amended,
the "Agreement") between The Centris Group, Inc., formerly
known as US Facilities Corporation (the "Borrower"), and Fleet
National Bank, formerly known as Shawmut Bank Connecticut,
N.A. and Fleet National Bank of Connecticut
Ladies and Gentlemen:
Pursuant to Section 2.3 of the Agreement, the undersigned Borrower
hereby gives you irrevocable notice that the Borrower requests a Revolving Loan
under the Agreement, and in that connection Borrower sets forth below the
information relating to such Revolving Loan:
Borrowing Date: ___________
Aggregate Principal
Amount: ___________
Type of Loan (Base
Rate, Eurodollar,
or CD Rate): ___________
Interest Period: ___________
As required by Section 4.2 of the Agreement, the undersigned officer on
behalf of the Borrower hereby certifies that:
(a) the representations and warranties contained in Article 5 of the
Agreement are true and correct in all material respects on and as of the date
hereof (or, if such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date);
<PAGE>
(b) the Borrower has performed and complied with and is in compliance
with all of the terms, covenants and conditions of the Agreement;
(c) there does not exist any Default or Event of Default under the
Agreement; and
(d) each of the other conditions precedent set forth in Section 4.2
have been satisfied and complied with.
All capitalized terms used in this notice not otherwise defined herein shall
have the same meaning as assigned to them in the Agreement.
THE CENTRIS GROUP, INC.
By:__________________________
Print Name:
Print Title:
-2-
<PAGE>
EXHIBIT C
OFFICER'S CERTIFICATE
THE CENTRIS GROUP, INC.
______ __, 199_
Pursuant to Section 6.9(a) of the Credit Agreement dated as of December
20, 1994 (as amended, the "Credit Agreement") between The Centris Group, Inc.,
formerly known as US Facilities Corporation (the "Borrower"), and Fleet National
Bank, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank
of Connecticut (the "Bank"),
I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that:
1. I am the duly elected, qualified and acting Chief Financial
Officer of the Borrower; and
2. Attached hereto as Attachment 1 is a true and correct copy of
the consolidated and consolidating SAP and GAAP financial
statements of the Borrower and its Subsidiaries as of the
close of the fiscal [YEAR/QUARTER] ending __________, 199_;
and
3. I have reviewed the Credit Agreement and the condition and
transactions of the Borrower and its Subsidiaries for the
fiscal [YEAR/QUARTER] ending _____, 199_, and to the best of
my knowledge the Borrower has observed and performed all of
its covenants and other agreements, and satisfied every
condition contained in the Credit Agreement and the Revolving
Note, and I have not obtained knowledge of any condition or
event which constitutes a Default or an Event of Default,
except as set forth on Attachment 2 attached hereto; and
4. Attached hereto as Attachment 3 is true and correct
information (with detailed calculations) establishing that the
Borrower was in compliance with the covenants set forth in the
Credit Agreement during the fiscal [YEAR/QUARTER] ending
__________ ___, 199_.
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement, pursuant to which this certificate is
delivered.
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate as of the date
hereof on behalf of _______________.
By:________________________________
Print Name:
Title: Chief Financial Officer
-2-
<PAGE>
ATTACHMENT 1
to
Officer's Certificate
Financial Statements
--------------------
for the period ending
_____________ __, 199_
<PAGE>
ATTACHMENT 2
to
Officer's Certificate
Defaults and Events of Default
------------------------------
Note: If a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action proposed to be taken
by the Borrower with respect thereto as required.
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 1 of 6
Computations and Information
Showing Compliance with
Sections 7.9 to 7.16, 7.18, 7.19 and 7.21
of the
Credit Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement.
SECTION 7.9. CAPITAL EXPENDITURES
--------------------
1. Aggregate Capital Expenditures actually made, or committed
to be made, during the fiscal year beginning [FILL IN DATE OF
START OF FISCAL YEAR] = ----------------
2. Line 1 does not exceed $2,500,000.
SECTION 7.10(A). MINIMUM STATUTORY SURPLUS
-------------------------
1. Statutory Surplus of USF RE as of the fiscal quarter
ending ____ __, 199__ (prior to the USF RE Sale) = ----------------
2. Positive Statutory Net Income for each fiscal quarter
following the fiscal quarter ended December 31, 1995 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of positive Statutory Net Income for each of
the quarters set forth in Line 2 above = ----------------
2b. 75% of line 2a = ----------------
3. Contributions to surplus made by Borrower to USF RE
during each fiscal quarter following the fiscal quarter
ended December 31, 1995 were:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
3a. The sum of the contributions for each of the quarters
set forth in line 3 above = ----------------
4. The sum of $80,000,000 and line 2b and line 3a = ----------------
5. Line 1 is not less than line 4.
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 2 of 6
SECTION 7.10(B).
<TABLE>
<S> <C>
1. Combined Statutory Surplus of VASA North Atlantic and Seaboard
as of the fiscal quarter ending ____ __, 199__ =
----------------
2. Positive Statutory Net Income for each fiscal quarter following the fiscal
quarter ended June 30, 1999 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of positive Statutory Net Income for each of the quarters set forth
in Line 2 above =
----------------
2b. 75% of line 2a =
----------------
3. Contributions to surplus made by Borrower to VASA North Atlantic and
Seaboard during each fiscal quarter following the fiscal quarter ended June 30,
1999 were:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
3a. The sum of the contributions for each of the quarters set forth in line 3
above =
----------------
4. The sum of $42,500,000 and line 2b and line 3a =
----------------
5. Line 1 is not less than line 4.
</TABLE>
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 3 of 6
SECTION 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH
-----------------------------------
<TABLE>
<S> <C>
1. Consolidated GAAP Net Worth as of the fiscal quarter ending
______________, 199__. =
----------------
2. Consolidated positive net income (as determined in accordance with GAAP) for
each fiscal quarter following the fiscal quarter ended June 30, 1998 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of the positive net income for each of the quarters
set forth in Line 2 above =
----------------
2b. 50% of line 2a =
----------------
3. Paid-in capital resulting from any issuance by the Borrower of its
capital stock =
----------------
4. The sum of $100,000,000 and line 2b and line 3 =
----------------
5. Line 1 is not less than line 4.
</TABLE>
SECTION 7.12. MAXIMUM PREMIUMS TO SURPLUS
---------------------------
<TABLE>
<S> <C>
1. Aggregate Net Premiums Written by all Insurance Subsidiaries of the Borrower
for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING
DATE FOR FISCAL QUARTER]) =
----------------
2. Combined Statutory Surplus of all Insurance Subsidiaries of the Borrower at
the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =
----------------
3. The ratio of line 1 to line 2 =
----------------
4. The ratio in line 3 is not greater than 3.0 to 1 at the end of the first
fiscal quarter of each year and 2.0 to 1 at the end of the second, third and
fourth fiscal quarters of each fiscal year.
</TABLE>
SECTION 7.13. [Reserved.]
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 4 of 6
SECTION 7.14. MINIMUM INTEREST COVERAGE.
-------------------------
For each Insurance Subsidiary:
<TABLE>
<S> <C>
1. Available Dividends minus dividends paid by such Insurance Subsidiary to the
Borrower for the immediately preceding four fiscal quarters ending on [FILL IN
ENDING DATE FOR FISCAL QUARTER] =
----------------
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance
Subsidiaries) for the immediately preceding four
fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). =
----------------
3. The sum of line 1 and line 2 =
----------------
4. Interest Expense for the immediately following four fiscal quarters
(beginning on [FILL IN BEGINNING DATE FOR FOLLOWING FOUR FISCAL QUARTERS]) =
----------------
5. The ratio of line 3 to line 4 =
----------------
6. The ratio in line 5 is not less than 2.0 to 1.0 for the fiscal year ending
December 31, 1995 (3.0 to 1.0 for each fiscal year thereafter).
<CAPTION>
SECTION 7.15. MINIMUM FIXED CHARGE COVERAGE.
-----------------------------
For each Insurance Subsidiary:
<S> <C>
1. Available Dividends minus dividends paid by such Insurance Subsidiary to the
Borrower for the immediately preceding four fiscal quarters ending on [FILL IN
ENDING DATE FOR FISCAL QUARTER] =
----------------
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance
Subsidiaries) for the immediately preceding four
fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =
----------------
3. The sum of line 1 and line 2 =
----------------
4. Fixed Charges for the immediately succeeding four fiscal quarters (beginning
on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =
----------------
5. The ratio of line 3 to line 4 =
----------------
6. The ratio in line 5 is not less than 1.5 to 1.0 for the fiscal year ending
December 31, 1995 (1.7 to 1.0 for each fiscal year thereafter).
</TABLE>
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 5 of 6
SECTION 7.16. MINIMUM DEBT SERVICE COVERAGE.
-----------------------------
For each Insurance Subsidiary:
<TABLE>
<S> <C>
1. Available Dividends of such Insurance Subsidiary as of the end of the
fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =
----------------
2. Total taxes paid by such Insurance Subsidiary to the Borrower pursuant to any
intercorporate tax-sharing agreement for the immediately preceding four fiscal
quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =
----------------
3. Consolidating income before taxes of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding four fiscal
quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =
----------------
4. Total taxes (based on GAAP) paid by the Borrower on a consolidated basis for
the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE
FOR FISCAL QUARTER]) =
----------------
5. Distributions by Borrower for the immediately preceding four fiscal quarters
(ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). =
----------------
6. The sum of line 1, line 2 and line 3 minus line 4 and line 5 =
----------------
7. Total Interest Expense of the Borrower and its Subsidiaries on a consolidated
basis for the immediately succeeding four fiscal quarters (beginning on [FILL IN
THE BEGINNING DATE OF THE NEXT SUCCEEDING QUARTER]) =
----------------
8. Total mandatory reductions of Commitment for the succeeding four fiscal
quarters (beginning on [FILL IN THE BEGINNING DATE OF THE NEXT SUCCEEDING
QUARTER]). =
----------------
9. The sum of line 7 and line 8 =
----------------
10. The ratio of line 6 to line 9 =
----------------
11. The ratio in line 10 is not less than 1.5 to 1.0.
SECTION 7.18. RISK-BASED CAPITAL RATIO.
------------------------
1. The combined Risk-Based Capital Ratio of the Insurance
Subsidiaries of the Borrower as of the end of the fiscal quarter
ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =
----------------
2. The ratio in line 1 is not less than 200%
</TABLE>
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 6 of 6
SECTION 7.19. MINIMUM CREDIT RATINGS.
----------------------
1. The A.M. Best Rating of USF RE (until the USF RE Sale) =
----------------
2. The A.M. Best Rating of VASA North Atlantic =
----------------
3. The A.M. Best Rating of Seaboard. =
----------------
4. The ratings in lines 1, 2 and 3 are not less than "A-".
SECTION 7.21. DEBT TO CAPITAL RATIO.
---------------------
1. From the period of December 28, 1998 to June 30, 1999,
a. For the fiscal quarter ended [______], consolidated
Debt of the Borrower and its Subsidiaries =
----------------
b. For the fiscal quarter ended [______], consolidated
GAAP Net Worth =
----------------
c. Sum of lines a and b. =
----------------
d. 45% of line c =
----------------
e. Line a does not exceed line d.
2. After June 30, 1999,
a. For the fiscal quarter ended [______], consolidated
Debt of the Borrower and its Subsidiaries =
----------------
b. For the fiscal quarter ended [______], consolidated
GAAP Net Worth =
----------------
c. Sum of lines a and b. =
----------------
d. 35% of line c. =
----------------
e. Line a does not exceed line d.
<PAGE>
EXHIBIT D
(Description of Opinion of California Counsel to Borrower)
The opinion of R.W. Loeb, Professional Law Corporation, counsel to the
Borrower, which is called for by Section 4.1(i) of the Agreement, shall be dated
the Closing Date and addressed to the Bank, and shall be in form and substance
satisfactory to the Bank, and shall be to the effect that:
1. The Borrower, and each of its Subsidiaries (excluding USF RE INSURANCE
COMPANY), is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority (a) to own its assets and to transact the business
in which it is now engaged and (b) with respect to the Borrower (i) to enter
into and perform the Credit Agreement and the Pledge Agreement, (ii) to issue
and deliver the Revolving Note, (iii) to execute and deliver the documents and
certificates delivered in connection with the Credit Agreement, the Revolving
Note and the Pledge Agreement and (iv) to carry out the transactions
contemplated by the Credit Agreement, the Revolving Note and the Pledge
Agreement.
2. The Borrower and each of its Subsidiaries are each duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required, except where the failure
to be so qualified would not have a material adverse effect on the financial
condition, operations, Properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under the Credit Agreement, the Pledge Agreement or the Revolving
Note. The Borrower is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of USF RE INSURANCE COMPANY, USBENEFITS
Insurance Services, Inc. and the other Subsidiaries, free and clear of any Lien,
and all such shares have been duly issued and are fully paid and non-assessable.
The certificates and/or other instruments or writings pledged to you and being
delivered to you pursuant to the Pledge Agreement represent all of the issued
and outstanding shares of capital stock of USF RE INSURANCE COMPANY.
3. The Credit Agreement, the Pledge Agreement and the Revolving Note have
been duly executed and delivered by duly authorized officers of the Borrower and
constitute the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, except to the
extent that such enforcement may be limited by applicable bankruptcy, insolvency
and other similar laws affecting creditors' rights generally and by general
principles of equity.
<PAGE>
4. The execution, delivery and performance by the Borrower of the Credit
Agreement, the Pledge Agreement and the Revolving Note have been duly authorized
by all necessary corporate action and do not and will not: (a) require any
consent or approval of the shareholders of the Borrower; (b) violate any
provisions of the articles of incorporation or by-laws of the Borrower; (c)
violate any provision of any law, rule or regulation (including without
limitation, Regulation U and X of the Board of Governors of the Federal Reserve
System) or, to our knowledge, after due inquiry, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to and binding upon the Borrower or any of its Subsidiaries; (d)
result in a breach of or constitute a default or require any consent under any
loan or credit agreement or any other agreement, mortgage, indenture, lease or
instrument known to us, after due inquiry, to which the Borrower or any
Subsidiary is a party or by which the Properties of the Borrower or any of its
Subsidiaries may be bound or affected; or (e) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the Properties
now owned or hereafter acquired by the Borrower or any of its Subsidiaries,
except as created by the Pledge Agreement.
5. To the best of our knowledge, based on our inquiry of the President
of the Borrower and our knowledge of those matters as to which this firm has
been engaged by the Borrower for legal consultation or representation, except as
described in Schedule 5.4 to the Credit Agreement, there are no actions, suits
or proceedings or investigations (other than routine examinations performed by
insurance regulatory authorities) pending or threatened against or affecting the
Borrower or any of its Subsidiaries, or any Property of any of them before any
court, governmental agency or arbitrator, which if determined adversely to the
Borrower or any of its Subsidiaries would in any one case or in the aggregate,
materially adversely affect the financial condition, operations, Properties,
business or prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to perform its obligations under the Credit
Agreement, the Pledge Agreement or the Revolving Note.
6. Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, or any statute
or regulation limiting its ability to incur indebtedness for money borrowed as
contemplated by the Credit Agreement.
7. No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person under
any law, act, rule, regulation or otherwise, including without limitation the
California Insurance Holding Company System Regulatory Act, as amended (the
"Act") and the California Insurance Code (the "Code"), is required to authorize,
or is required in connection with the execution, delivery and performance by the
Borrower of, or the legality, validity, binding effect or enforceability of, the
Credit Agreement, the Pledge Agreement or the Revolving Note, except the
authorizations, consents, approvals, orders, licenses or permits described in
Schedule 5.15 of the Credit Agreement which have been obtained and are in full
force and effect.
-2-
<PAGE>
8. The utilization by the Borrower of the proceeds of a Borrowing to
contribute to the statutory surplus of USF RE INSURANCE COMPANY does not require
the further approval, consent or authorization of, or any registration or
filing, with the California Department of Insurance whether under the Act, the
Code or otherwise.
9. The Pledge Agreement creates for the benefit of the holder of the
Revolving Note a valid security interest in the Pledged Collateral (as defined
in the Pledge Agreement) by such Holder, such security interest will be duly
perfected and no other action is necessary to effect or preserve such security
interest (assuming the Pledged Shares are at all times in your possession)
except that it may be advisable to file duly executed financing statements in
the forms attached as Schedule A hereto in the jurisdiction in which the
Borrower's chief executive office is located and thereafter to file continuation
statements for such financing statements within six months prior to the
expiration of five years following the date of original filing.
The opinions expressed herein are limited to the laws of the State of
California and the federal laws of the United States of America.
The opinions expressed herein are solely for your benefit and may not be
relied upon by any other person or entity without our consent.
-3-
<PAGE>
EXHIBIT E
(Description of Opinion of Massachusetts Insurance Counsel to Borrower)
The opinion of Palmer & Dodge, Massachusetts insurance counsel to the
Borrower, which is called for by Section 4.1(k) of the Agreement, shall be dated
the Closing Date and addressed to the Bank, and shall be in form and substance
satisfactory to the Bank, and shall be to the effect that:
1. The execution, delivery and performance by the Borrower of the Credit
Agreement, the Pledge Agreement and the Revolving Note do not and will not
violate any provision of any law, rule or regulation or, to our knowledge, after
due inquiry, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to and binding upon the Borrower or any
of its Subsidiaries.
2. No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person under
any law, act, rule, regulation or otherwise, including without limitation the
[MASSACHUSETTS INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE MASSACHUSETTS
HOLDING COMPANY ACT (THE "ACT")], is required to authorize, or is required in
connection with the execution, delivery and performance by the Borrower of, or
the legality, validity, binding effect or enforceability of, the Credit
Agreement, the Pledge Agreement or the Revolving Note.
3. The utilization by the Borrower of the proceeds of a Borrowing to
contribute to the statutory surplus of USF RE INSURANCE COMPANY does not require
the prior approval, consent or authorization of, or any registration or filing,
with the Massachusetts Department of Insurance whether under the Code, the Act
or otherwise.
4. USF RE INSURANCE COMPANY is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own its assets and to
transact the business in which it is now engaged.
The opinions expressed herein are limited to the laws of the Commonwealth
of Massachusetts.
The opinions expressed herein are solely for your benefit and may not be
relied upon by any other person or entity without our consent.
<PAGE>
EXHIBIT F
PLEDGE AGREEMENT
----------------
This PLEDGE AGREEMENT, dated as of December 20, 1994, is between US
FACILITIES CORPORATION, a Delaware corporation ("Pledgor"), and SHAWMUT BANK
CONNECTICUT, N.A., a national banking association ("Pledgee").
RECITALS:
---------
1. Pledgor owns, on and as of the date on which this Pledge Agreement is
executed and delivered, 100% of the issued and outstanding shares of the capital
stock of USF RE INSURANCE COMPANY, a Massachusetts corporation, all of which
shares (including any certificates and/or other tangible evidences thereof) are
more specifically described in Attachment A hereto.
------------
2. Pursuant to the Credit Agreement dated as of December 20, 1994 between
Pledgor and Pledgee (said Credit Agreement as currently in effect and as from
time to time amended, modified or supplemented being herein called the
"Financing Agreement"), Pledgee has agreed to make certain revolving loans to
Pledgor subject to certain conditions.
3. Pledgee is willing to extend such financing, but only on the
condition, among others, that Pledgor shall first have executed and delivered to
Pledgee this Pledge Agreement.
NOW, THEREFORE, in consideration of such financing and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor and
Pledgee agree as follows:
1. Pledge and Delivery. (a) To secure the prompt and complete payment and
-------------------
performance when due of the Obligations (as defined in Section 1(b) hereof),
Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants
Pledgee a continuing security interest in, all of the following property and
rights and interests in property (all such property, rights and interests being
hereinafter collectively called the "Pledged Collateral"):
(i) all issued and outstanding shares of the capital stock of USF RE
INSURANCE COMPANY described in Attachment A hereto, and any additional shares of
------------
the capital stock of any class or series of USF RE INSURANCE COMPANY which
Pledgor may at any time and from time to time hereafter purchase or otherwise
acquire, together with the certificates and/or other instruments or writings
representing them (such shares, certificates and other writings being
hereinafter collectively called the "Pledged Shares");
(ii) (A) all shares and other securities and all warrants, rights and
options to acquire Pledged Shares (such shares, securities, warrants, rights and
options together with the
<PAGE>
certificates and/or other instruments or writings representing them being
hereinafter collectively called the "Additional Pledged Securities") and (B) all
money and other property, at any time and from time to time received or
receivable by or distributed or distributable to Pledgor from the issuer of any
or all of the Pledged Shares in exchange or substitution for or otherwise in
respect of any or all of the Pledged Shares or earlier-issued Additional Pledged
Securities (whether in the ordinary course of such issuer's business or
representing or resulting from cash or stock dividends, stock splits or
reclassifications, the recapitalization, reorganization, merger, consolidation,
disposition of assets, liquidation or dissolution of such issuer, the exercise
by Pledgor of warrants, rights or options, or any other action or cause); and
(iii) all proceeds of any or all of the foregoing.
(b) As used herein, the term "Obligations" shall mean all
indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee
(whether directly as principal or maker or indirectly as guarantor, surety,
endorser or otherwise), now or hereafter existing, due or to become due,
howsoever incurred, arising or evidenced, whether of principal or interest or
payment or performance under the Financing Agreement.
(c) Prior to or simultaneously with the execution and delivery hereof
by Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written
receipt to Pledgor shall acknowledge its prior receipt of, the certificate(s)
and/or other instruments and documents evidencing all of the Pledged Shares,
Additional Pledged Securities and all other items of the Pledged Collateral then
owned by Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee
any and all of the Pledged Shares, Additional Pledged Securities and other
Pledged Collateral (including any and all certificates and/or other instruments
or documents representing each item thereof) which it acquires in any way at any
time after such execution and delivery. Upon delivery to Pledgee, each item of
the Pledged Collateral shall be accompanied by, as appropriate, (i) undated,
duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in
a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or
documents as Pledgee shall reasonably request.
2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor
---------------------------------------------------
represents and warrants that: (i) Pledgor has the right, power and authority to
execute, deliver and perform this Pledge Agreement and to pledge, assign,
deliver, transfer and grant a security interest in the Pledged Collateral; (ii)
this Pledge Agreement constitutes the legal, valid and binding obligation of
Pledgor, enforceable against Pledgor in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
and subject to the availability of equitable remedies and any limitation that
may restrict Pledgee from selling, voting or exercising control over USF RE
INSURANCE COMPANY without obtaining approval of the Insurance Commissioner;
(iii) Pledgor has good title to all of the Pledged Shares and is the legal
record and beneficial owner of each of the Pledged Shares (and will have good
title to and be the legal record and beneficial owner of each other item of
Pledged Collateral, including any Additional Pledged Securities), free and clear
of all encumbrances except Pledgee's security interest hereunder; (iv) each of
the Pledged Shares and Additional Pledged
-2-
<PAGE>
Securities is, or will be when acquired by Pledgor and pledged hereunder, duly
and validly issued and fully paid and non-assessable, and there are no
restrictions on the transfer of any thereof other than such restrictions as
appear on the certificates or other instruments or writings representing them,
or as are referred to in clause (ii) above or otherwise may be imposed under
applicable law; (v) no action other than the delivery of each item of the
Pledged Collateral to, and its continued possession by, Pledgee or any of its
agents or nominees is necessary to maintain a perfected, first-priority security
interest in such item in favor of Pledgee; and (vi) no authorizations, approvals
or consents of, and no filings or registrations with, any governmental or
regulatory authority or agency are necessary for the execution, delivery or
performance by the Pledgor of this Agreement or for the validity or
enforceability hereof except as are referred to in clause (ii) above.
(b) Pledgor covenants and agrees that it will at its expense (i)
defend both its own rights and interests and Pledgee's rights and security
interest in and to the Pledged Collateral against the claims and demands of all
other persons and (ii) execute and deliver to Pledgee such further conveyances,
agreements, assignments, instruments and other writings, and take such further
action, as Pledgee may request in order to obtain the full benefit of this
Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies
granted to Pledgee hereunder. Pledgor further covenants and agrees that until
all Obligations have been satisfied and this Pledge Agreement has been
terminated, Pledgor will not without Pledgee's prior written consent sell,
assign, transfer, exchange or otherwise temporarily or permanently dispose of
any item of the Pledged Collateral, or offer or contract to do so, and will not
without such consent create, incur, assume or permit to exist any security
interest, pledge, claim or other charge or encumbrance on or with respect to any
such item other than the security interest granted to Pledgee hereunder.
3. Names in which Pledged Shares and Additional Pledged Securities
---------------------------------------------------------------
May Be Registered. Subject to any required approval of the California Insurance
- -----------------
Department or the Massachusetts Division of Insurance, at any time and from time
to time during the term of this Pledge Agreement, whether or not a Pledgor
Default (as defined in Section 9 hereof) is then continuing, Pledgee shall be
entitled to hold any or all of the Pledged Shares and Additional Pledged
Securities in its own name, the name(s) of one or more of its nominees or the
name of Pledgor endorsed or assigned in blank or in favor of Pledgee. With
respect to any of the Pledged Shares and/or Additional Pledged Securities which
Pledgee wishes to hold in its own name or the name of any nominee in accordance
with this Section 3, Pledgee (acting in its own name and capacity or as
Pledgor's attorney-in-fact pursuant to the power of attorney granted to Pledgee
in Section 5 hereof) may have such Pledged Shares and Additional Pledged
Securities registered accordingly on the books of the issuer(s) thereof, and
Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect
such transfer and registration.
4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default
-----------------------------
shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged Shares
and Additional Pledged Securities for
-3-
<PAGE>
any purpose not inconsistent with (A) the provisions of this Pledge Agreement
and the Financing Agreement and applicable insurance and other law and (B) the
preservation of the value of and Pledgee's security interest in the Pledged
Collateral;
(ii) Pledgor shall be entitled to receive and retain all cash
dividends, interest and other cash distributions payable in respect of the
Pledged Collateral to the extent that such distributions are charged to, and as
of the date of payment thereof do not exceed, the retained earnings of the
issuer or other person making such distribution and do not exceed any
limitations imposed by the California Insurance Holding Company System
Regulatory Act, the California Insurance Code or the Massachusetts Insurance
Code; and
(iii) If any or all of the Pledged Shares and Additional Pledged
Securities shall have been registered in the name(s) of Pledgee and/or any of
its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so
executed and delivered, all such proxies, limited powers of attorney, dividend
orders and such other instruments and writings as Pledgor may reasonably request
to enable it, subject to the provisions of Section 4(b) hereof, to exercise the
rights and powers and to receive the distributions to which it is entitled under
the provisions of paragraphs (i) and (ii) of this Section 4(a).
(b) Upon the occurrence and during the continuance of a Pledgor Default,
all rights of Pledgor to exercise the voting and consensual rights and powers
described in paragraph (i) of Section 4(a) hereof and to receive the dividends,
interest and other cash distributions described in paragraph (ii) of such
Section shall cease, and all such rights shall thereupon become vested in
Pledgee; provided, however, that Pledgor may thereafter continue to exercise any
-------- -------
and all such voting and consensual rights and powers until such time as Pledgee
shall notify Pledgor in writing that Pledgee intends to assume and exercise the
same; and provided further that Pledgee shall not sell, vote or in any manner
exercise control over USF RE Insurance Company without obtaining, to the extent
required by law, including the provisions of Section 1215.2 of the California
Insurance Code, the prior approval (including any hearing required by law) of
the Massachusetts Division of Insurance and the California Department of
Insurance.
(c) Upon the occurrence and during the continuance of a Pledgor Default
and subject to compliance with any applicable rules and regulations of the
Massachusetts Division of Insurance and the California Department of Insurance,
including the provisions of Section 1215.2 of the California Insurance Code,
Pledgee may, in its own name and capacity or as Pledgor's attorney-in-fact,
collect, receive, endorse and deposit all Additional Pledged Securities, money,
cash proceeds, instruments and any and all other property which is or may at any
time become payable in respect of any or all of the Pledged Collateral and which
Pledgee is or may become entitled to receive under subsection (a) or (b) of this
Section 4. All such property so received by Pledgee may be retained by Pledgee
as additional Pledged Collateral, and (i) all money and other cash proceeds so
received may be applied by Pledgee to payment of the Obligations in such order
as Pledgee may elect, whether or not a Pledgor Default shall then be continuing,
and (ii) during the continuance of a Pledgor Default, all other property so
received may be sold or otherwise disposed of by Pledgee as
-4-
<PAGE>
provided in Section 10 hereof and the proceeds thereof applied as also provided
in such Section. Any and all money and other property received by Pledgor
contrary to the provisions of this Section 4 shall be held by Pledgor in trust
for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and
property and shall promptly be delivered to Pledgee in exactly the form received
by Pledgor, except for any necessary endorsements.
5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby
-----------------------------------------------
appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's
place and stead, in Pledgor's name or its own name and at Pledgor's expense, to
execute, endorse and deliver any and all agreements, assignments, pledges,
instruments and any other writings, and to take any and all other actions, which
Pledgee may deem necessary or desirable to carry out the terms and effect the
purposes of this Pledge Agreement and to exercise fully its rights and remedies
hereunder. Pledgee may delegate any or all of such power to any of its officers,
directors, employees, agents, nominees, shareholders and other representatives
(hereinafter collectively called "Representatives") and to have any such
Representative(s) exercise any such delegated power as substitute(s) for
Pledgee. Pledgor hereby ratifies all that Pledgee and all such Representatives
shall lawfully do or cause to be done under this power of attorney, which power
is coupled with an interest and shall be irrevocable until all Obligations have
been satisfied and this Pledge Agreement has been terminated.
6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any
---------------------------------------
time fail to perform or comply with any of its covenants and agreements
hereunder, Pledgee may (but shall not be required or obligated to) take such
action, in its own name and capacity or as Pledgor's attorney-in-fact, as
Pledgee shall deem necessary or desirable to effect such performance or
compliance.
7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to
-------------------------------------
have used reasonable care in the custody and preservation of the Pledged
Collateral in its possession to the extent it accords such Pledged Collateral
treatment which is substantially equal to that which Pledgee accords its own
property of like kind; provided, however, that Pledgee shall have no obligation,
-------- -------
regardless of whether it takes any such action with respect to its own property,
(i) to ascertain or take action with respect to calls, tenders, conversions,
exchanges, maturities or other matters involving or affecting any item(s) of
such Pledged Collateral (whether or not Pledgee has actual or constructive
knowledge of any such matters), unless reasonably requested by Pledgor to do so,
or (ii) to take action to preserve rights against prior or other parties.
8. Limitation of Pledgee's Liability; Reimbursement of Expenses and
----------------------------------------------------------------
Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to
- ---------------
take, or refrain from taking, any action with respect to the Pledged Collateral
or Pledgor's rights and interests therein except with respect to (i) the
preservation and return of the Pledged Collateral in its possession as and to
the extent provided, respectively, in Sections 7 and 14 hereof and (ii) the
execution and delivery to Pledgor of certain instruments and other writings as
and when required under Section 4(a)(iii) hereof and other limitations imposed
by law. Pledgor further agrees that neither Pledgee nor any of its
Representatives shall have any liability to Pledgor, or to any person claiming
rights against Pledgee by, through or under Pledgor, in any way arising out of
or in connection with Pledgee's or any such
-5-
<PAGE>
Representative's administration of this Pledge Agreement or its exercise of any
of its rights, power and remedies hereunder except for (i) Pledgee's or any such
Representative's failure to take as and when required any of the actions
referenced in the first sentence of this Section 8(a) or to account to Pledgor
for those amounts of money and other property -- and only for those amounts --
which it actually receives in connection with such administration or exercise
and which it is required to pay over to Pledgor or apply to the Obligations
under any other provision hereof, (ii) its failure to exercise reasonable care
as and to the extent required in Section 7 hereof or (iii) its negligence or
willful misconduct.
(b) Pledgor shall pay or reimburse Pledgee on demand for all costs and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) paid or incurred by Pledgee in connection with (i) the administration
and any amendment of this Pledge Agreement, (ii) the custody or preservation of
the Pledged Collateral and any authorized collection from, disposition of or
other realization on any item(s) thereof, and (iii) the exercise and enforcement
of any of Pledgee's rights, powers and remedies hereunder, including without
limitation its right to perform Pledgor's covenants and agreements hereunder to
the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend
and hold harmless Pledgee, its Representatives, successors and assigns from and
against any and all liabilities, claims, actions, losses, damages, taxes,
penalties, fines, costs and expenses (including reasonable attorneys' fees and
legal expenses) which in any way arise out of or in connection with any of the
actions or matters with respect to which Pledgor has a payment or reimbursement
obligation under this Section; provided, however, that Pledgor shall have no
-------- -------
obligation to indemnify Pledgee or any such Representative, successor or assign
against any liabilities, claims, etc. resulting from such party's negligence or
willful misconduct or its failure to exercise reasonable care as and to the
extent required in Section 7 hereof. Until any reimbursement of costs or
expenses or any indemnity payment required under this Section is received by
Pledgee in cash or immediately available funds, the amount thereof shall bear
interest at the rate specified in the Financing Agreement for delinquent
payments, and such amount and such interest shall constitute part of the
Obligations secured by the Pledged Collateral.
9. Pledgor Defaults. The following shall constitute a "Pledgor
----------------
Default": (i) Pledgor fails to make payment when due or demanded, as applicable,
on or with respect to any indebtedness, obligation or liability which is then
part of the Obligations, or fails to perform or comply with any of its covenants
or agreements hereunder; (ii) any representation or warranty made by Pledgor
herein or in any statement, report or certificate furnished to Pledgee by
Pledgor hereunder proves to have been false or misleading in any material
respect; or (iii) an "Event of Default" occurs under the Financing Agreement.
10. Remedies. (a) If a Pledgor Default has occurred and is continuing,
--------
Pledgee may at any time and from time to time exercise any and all rights and
remedies available to it (i) hereunder and under the Financing Agreement and any
other agreement or instrument then in effect between Pledgor and Pledgee and
relating to the Obligations, including without limitation those rights and
remedies set out in subsections (b) through (f) of this Section 10, and (ii) as
a secured party under the Uniform Commercial Code as then in effect in the State
of Connecticut (the "Code") and under
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<PAGE>
any other applicable law or rule of law or equity. Should Pledgee elect to
proceed by action at law or in equity to foreclose its security interest in and
sell any or all of the Pledged Collateral, Pledgor waives (to the extent
permitted by law) any rights it may then have in connection therewith to require
Pledgee to post bonds, sureties or collateral security or to demand possession
of any such Pledged Collateral pending judgment therein.
(b) If a Pledgor default has occurred and is continuing, to the extent
permitted by the Insurance Commissioner and by applicable federal and state
securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or,
from time to time any part, of the Pledged Collateral at public or private sale,
over the counter or at any broker's board or securities exchange, for cash, on
credit or in exchange for other property, for immediate or future delivery,
without advertisement or notice (except as provided in this subsection), and for
such price and on such terms as Pledgee deems appropriate, provided only that
--------
all aspects of any such disposition are commercially reasonable within the
requirements of Section 42a-9-504 of the Code, as defined and supplemented by
the standards and agreements set forth herein. Pledgor agrees that to the extent
notice of the time and place of any such public sale, or of the time after which
Pledgee intends to make any such private sale or other disposition, is required
under the Code, such notice shall be deemed commercially reasonable if
transmitted by any of the means described in the Financing Agreement not less
than 15 days prior thereto. Pledgee shall not be obligated to effect any sale of
any or all of the Pledged Collateral, whether or not notice thereof has been
given, and may adjourn any public or private sale from time to time by
announcement at the time and place fixed for such sale, and such sale may be
held without further notice at the time and place to which it was so adjourned.
(c) At any such private or public sale, to the extent permitted by the
Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the
Pledged Collateral then being sold and may pay the price thereof by credit
against the Obligations then outstanding. Any purchaser of any item(s) of the
Pledged Collateral (including Pledgee) shall take such item(s) free from any
right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by
the Code and other applicable law, all rights of redemption and/or to any stay,
exemption or appraisal which Pledgor now has or may hereafter acquire.
(d) Pledgor agrees and acknowledges that requiring the issuer(s) of
the securities included in the Pledged Collateral to register such securities
under applicable provisions of federal and state securities laws would not be
practicable and therefore could not be deemed commercially reasonable. Pledgor
further agrees and acknowledges that in order to comply with applicable federal
and state securities laws without effecting such registration, Pledgee may be
required: (i) to sell or otherwise dispose of any or all of the Pledged
Collateral at one or more private rather than public sales and (ii) to limit the
prospective purchasers at such sale(s) to persons who will represent and agree
that they are purchasing the securities they intend to acquire for their own
account for investment and not with a view to the distribution or sale thereof,
and who will be compelled to accept stringent restrictions on their ability to
dispose of such securities. Accordingly, Pledgor agrees that: (i) Pledgee shall
not incur any liability to Pledgor by reason of the fact that the price obtained
for any or all the Pledged Collateral at such private sale(s) to investors
restricted as
-7-
<PAGE>
provided above may be less than the price which might be obtained therefor at a
public sale or unrestricted private sale and (iii) any and all private sales
shall be deemed commercially reasonable even if (A) the amount received is less
than the then-outstanding amount of the Obligations and/or (B) even if Pledgee
accepts the first offer received or does not offer all or any part of the
Pledged Collateral to more than one prospective purchaser, unless the sale in
question is conducted in bad faith or in a manner manifestly unreasonable for
sales of that type.
(e) In case of any sale by the Pledgee of any item(s) of the Pledged
Collateral on credit or for future delivery, such item(s) may be retained by the
Pledgee until the selling price is paid by the purchaser(s) thereof, but the
Pledgee shall incur no liability in case of failure of the purchaser to take up
and pay for such item(s). In case of any such failure, such item(s) may be sold
again upon notice, to the extent required by law, as provided in subsection (b)
of this Section 10.
(f) The proceeds of the sale or other disposition of the Pledged
Collateral shall be applied first, to that part of the Obligations consisting of
Pledgee's reasonable expenses (including without limitation reasonable
attorneys' fees and legal expenses) in preparing for disposition and disposing
of the Pledged Collateral and, to the extent not previously reimbursed by
Pledgor, in administering this Pledge Agreement and exercising and enforcing its
rights, powers and remedies hereunder, and second, to the satisfaction of the
then outstanding amount of Pledgor's indebtedness under the Financing Agreement
and of all other Obligations then remaining unpaid. Pledgee shall account to
Pledgor for any surplus and Pledgor shall be liable to Pledgee for any
deficiency.
11. Amendments, Etc. No provision of this Pledge Agreement may be
---------------
amended, modified, supplemented or waived, and no consent to any departure
therefrom by Pledgor may be given, except by a writing duly executed and
delivered by the parties hereto, and any such amendment, modification,
supplement or waiver shall be effective only as and to the extent provided
therein.
12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and
------------------------------------------
remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement
and under any other agreements, instruments and other writings now or hereafter
existing between Pledgor and Pledgee and relating to the Obligations, and (ii)
under the Code and other applicable law, are cumulative and except as otherwise
provided by law or in such agreements may be exercised concurrently or in any
order of succession. Pledgee's failure to exercise or delay in exercising any of
such rights, powers and remedies shall not constitute or imply a waiver thereof,
nor shall Pledgee's single or partial exercise of any such right, power or
remedy preclude its other or further exercise thereof, or the exercise of any
other right, power or remedy. Pledgee's cure of any Pledgor Default shall not
constitute a waiver thereof, and its waiver of one Pledgor Default shall not
constitute a waiver of any subsequent Pledgor Default.
13. Pledgor's Waivers. Pledgor agrees that until the Obligations are
-----------------
paid in full, Pledgee's security interest in the Pledged Collateral shall be
absolute and unconditional regardless
-8-
<PAGE>
of the existence or occurrence of, and expressly waives any defense or discharge
which might otherwise arise from, any of the following:
(i) any lack of validity or enforceability of this Pledge
Agreement, the Financing Agreement or any other agreement or instrument relating
hereto or thereto or otherwise relating to the Obligations;
(ii) any change in the time, manner or place of payment of, or in
any other terms of, any or all of the Obligations, or any other amendment or
waiver of, or any consent to departure from, this Pledge Agreement or the
Financing Agreement or any other agreement, instrument or other writing now or
hereafter existing between Pledgor and Pledgee and relating to the Obligations;
(iii) any exchange, release or non-perfection of any other
collateral, or any release, amendment or waiver of, or consent to departure from
any guaranty, for any or all of the Obligations;
(iv) Pledgee's resort, during the continuation of a Pledgor Default,
to any or all of the Pledged Collateral for payment of all or part of the
Obligations prior to proceeding against any other collateral or any other party
primarily or secondarily liable for payment thereof; or
(v) to the extent permitted by law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
Pledgor in respect of the Obligations or this Pledge Agreement.
14. Termination; Release of Pledged Collateral. This Agreement and the
------------------------------------------
security interest granted hereunder shall terminate on the date on which all
Obligations have been fully satisfied. Pledgee shall thereupon reassign and
redeliver (or cause to be reassigned and redelivered) to Pledgor or such
person(s) as Pledgor shall designate, against due execution and delivery by
Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form
and substance, such items of the Pledged Collateral (if any) as are then held by
Pledgee or its Representatives, together with appropriate instruments of
reassignment and release. Any such reassignment shall be without recourse to or
warranty by Pledgee or any such Representative and at the expense of Pledgor.
15. Notices. All notices, requests, directions, consents, waivers and
-------
other communications hereunder shall be in writing and shall be transmitted by
the means and to the addresses from time to time specified in the Financing
Agreement.
16. Binding Agreement; Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that Pledgor shall not assign or otherwise
-------- -------
transfer any of its obligations, rights or interests hereunder without the prior
written consent of Pledgee.
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<PAGE>
17. Governing Law; Severability. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of Connecticut, except to
the extent that the remedies hereunder in respect of the Pledged Collateral are
governed by the laws of the State of California and the Commonwealth of
Massachusetts. Wherever possible each provision of this Pledge Agreement shall
be construed in such manner as to be valid and enforceable under applicable law,
but if any provision hereof shall be deemed invalid or unenforceable to any
extent in any jurisdiction, such provision shall be ineffective only to the
extent of such invalidity or unenforceability without invalidating or rendering
unenforceable the remainder of such provision or any of the other provisions
hereof, and any such invalidity or unenforceability in one jurisdiction shall
not render such provision ineffective in any other jurisdiction.
18. Titles; Defined Terms; Counterparts. Section titles are for
-----------------------------------
convenience only and shall not define, limit, amplify, supplement or otherwise
modify or affect the substance or intent of this Pledge Agreement or any
provision hereof. Initial capitalized terms not defined herein shall have the
meanings ascribed to them in the Financing Agreement. This Pledge Agreement may
be executed in two or more counterparts, each of which shall when executed by
both parties be deemed to be an original but all of which together shall
constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
Agreement to be duly executed by its respective authorized officer as of the
date first above written.
US FACILITIES CORPORATION
By:_____________________
Print Name:
Print Title:
SHAWMUT BANK CONNECTICUT, N.A.
By:_____________________
Print Name:
Print Title:
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<PAGE>
ATTACHMENT A
ISSUED AND OUTSTANDING SHARES
OF CAPITAL STOCK
----------------
Name No. of Shares
- ---- -------------
USF RE INSURANCE COMPANY 50,000
<PAGE>
EXHIBIT G
FORM OF SUBORDINATED DEBT PROVISIONS
The holder hereof by acceptance of this instrument agrees that the
indebtedness evidenced by this instrument, and any renewals or extensions
hereof, shall at all times and in all respects be subordinate and junior in
right of payment to (i) the indebtedness of the Borrower evidenced by the
Revolving Note dated December 28, 1998 of the Borrower in the aggregate
principal amount of $75,000,000 issued under and pursuant to the Borrower's
Credit Agreement dated December 20, 1994, as amended, (ii) any other
indebtedness for money borrowed of the Borrower not expressed in the agreement
or other instrument which created such indebtedness to be subordinated or junior
to any other indebtedness of the Borrower and (iii) any and all extensions or
renewals of any such indebtedness in whole or in part. The indebtedness
described in the preceding clauses (i), (ii), and (iii) is hereinafter sometimes
referred to as "Superior Indebtedness". Without limiting the effect of the
foregoing, the holder hereof agrees as follows:
(1) in the event of any insolvency or bankruptcy proceedings, and
any receivership, liquidation, reorganization, arrangement or
other similar proceedings in connection therewith, relative to
the Borrower or to its creditors, as such, or to its property,
and in the event of any proceedings for voluntary liquidation,
dissolution or other winding-up of the Borrower, whether or
not involving insolvency or bankruptcy, then the holders of
Superior Indebtedness shall be entitled to receive payment in
full of all principal, premium and interest on all Superior
Indebtedness before the holders of these Subordinated Notes
are entitled to receive any payment on account of principal,
premium or interest on these Subordinated Notes, and to that
end (but subject to the power of a court of competent
jurisdiction to make other equitable provisions reflecting the
rights conferred in these Subordinated Notes upon the Superior
Indebtedness and the holders thereof with respect to the
subordinated indebtedness represented by these Subordinated
Notes and the holders thereof by a lawful plan of
reorganization under applicable bankruptcy law) the holders of
Superior Indebtedness shall be entitled to receive for
application in payment thereof any payment or distribution of
any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such
proceedings in respect of these Subordinated Notes, except
securities which are subordinate and junior in right of
payment to the payment of all Superior Indebtedness then
outstanding;
(2) in the event that any of these Subordinated Notes or portion
thereof shall become due and payable before their expressed
maturity for any reason other than the mere passage of time
(under circumstances when the provisions of the foregoing
paragraph (1) or the following paragraph (3) shall not be
applicable), the holders of the Superior Indebtedness
outstanding at the time such Subordinated Notes so become due
and payable because of such reason shall be entitled to
receive payment in full of all principal, premium and interest
on all Superior Indebtedness before the
<PAGE>
holders of these Subordinated Notes are entitled to receive
any payment on account of the principal, premium or interest
on the Subordinated Notes; provided, that nothing herein shall
prevent the holder of any Subordinated Note from seeking any
remedy allowed at law or at equity so long as any judgment or
decree obtained thereby makes provision for enforcing this
clause;
(3) in the event that any default shall occur and be continuing
with respect to any Superior Indebtedness permitting the
holders of such Superior Indebtedness to accelerate the
maturity thereof, no payment or prepayment of any principal,
premium or interest on account of and no repurchase,
redemption or other retirement (whether at the option of the
holder or otherwise) of these Subordinated Notes shall be made
during the continuance of such default; and
(4) in the event that, notwithstanding the foregoing paragraphs
(1), (2) and (3), any payment or distribution of assets of the
Borrower of any kind or character (whether in cash, property
or securities) which is prohibited by any one or more of such
paragraphs shall be received by the holders of these
Subordinated Notes before all Superior Indebtedness is paid in
full, or provision made for such payment in accordance with
its terms, such payment or distribution shall be held in trust
for the benefit of, and shall be paid over or delivered to,
the holders of such Superior Indebtedness or their
representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments
evidencing any of such Superior Indebtedness may have been
issued, as their respective interests may appear, for
application to the payment of all Superior Indebtedness
remaining unpaid to the extent necessary to pay such Superior
Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to the
holders of such Superior Indebtedness.
The Borrower agrees that if any default shall occur with respect to any
Superior Indebtedness permitting the holders of such Superior Indebtedness to
accelerate the maturity thereof, the Borrower will give prompt notice in writing
of such happening to all known holders of Superior Indebtedness and shall
certify to each such holder the names of the holders of the two largest
principal amounts of the Subordinated Notes outstanding [or "the name of the
Trustee" in the case of subordinated debt issued under a trust indenture] and
the names of the holders of the two largest principal amounts of each other
outstanding series of subordinated debt of the Borrower. The Borrower, forthwith
upon receipt of any notice with respect to a claimed default on Superior
Indebtedness received by it pursuant to this Section, shall send a copy thereof
by registered mail or by telegram to each holder of a Subordinated Note at the
time outstanding [or "to the Trustee" in the case of subordinated debt issued
under a trust indenture].
The Borrower agrees, for the benefit of the holders of Superior
Indebtedness, that in the event that any of these Subordinated Notes or portion
thereof shall become due and payable before their expressed maturity for any
reason other than the mere passage of time (a) the Borrower will
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<PAGE>
give prompt notice in writing of such happening to all known holders of Superior
Indebtedness and (b) any and all Superior Indebtedness shall forthwith become
immediately due and payable upon demand by the holder thereof, regardless of the
expressed maturity thereof.
No present or future holder of Superior Indebtedness shall be
prejudiced in its right to enforce subordination of the Subordinated Notes by
any act or failure to act on the part of the Borrower. The provisions of this
Section are solely for the purpose of defining the relative rights of the
holders of Superior Indebtedness on the one hand and the holders of the
Subordinated Notes on the other hand, and nothing herein shall impair as between
the Borrower and the holder of any Subordinated Note the obligation of the
Borrower, which is unconditional and absolute, to pay to the holders thereof the
principal, premium, if any, and interest thereon in accordance with its terms,
nor shall anything herein prevent the holder of a Subordinated Note from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights, if any, under this Section of holders
of Superior Indebtedness to receive cash, property or securities, otherwise
payable or deliverable to holders of the Subordinated Notes.
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<PAGE>
EXHIBIT H-1
(Description of Opinion of California Counsel to the Borrower)
The opinion of R.W. Loeb, Professional Law Corporation, counsel to the
Borrower which is called for by Section 4.2(f) of the Credit Agreement, shall be
dated the date of the initial Borrowing that would result in outstanding
Revolving Loans exceeding fifty million dollars of the Bank's Commitment and
addressed to the Bank, and shall be in form and substance satisfactory to the
Bank, and shall be to the effect that:
1. The Borrower, and each of its Subsidiaries, is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority (a)
to own its assets and to transact the business in which it is now engaged, (b)
with respect to the Borrower (i) to enter into and perform the Seaboard Pledge
Agreement, (ii) to execute and deliver the documents and certificates delivered
in connection with the Fifth Amendment and the Seaboard Pledge Agreement and
(iii) to carry out the transactions contemplated by the Fifth Amendment and the
Seaboard Pledge Agreement and (c) with respect to VASA Brougher, VASA Insurance
Group and VASA North America (i) to enter into and perform the VASA North
Atlantic Pledge Agreement and the Guaranty Agreement, as applicable, (ii) to
execute and deliver the documents and certificates delivered in connection with
the Fifth Amendment, the VASA North Atlantic Pledge Agreement and the Guaranty
Agreement, as applicable and (iii) to carry out the transactions contemplated by
the Fifth Amendment, the VASA North Atlantic Pledge Agreement and the Guaranty
Agreement, as applicable.
2. The Borrower and each of its Subsidiaries are each duly qualified as
a foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required, except where the failure
to be so qualified would not have a material adverse effect on the financial
condition, operations, Properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower, VASA Brougher,
VASA Insurance Group and VASA North America, as applicable, to perform its
obligations under the Fifth Amendment, the Seaboard Pledge Agreement, the VASA
North Atlantic Pledge Agreement and the Guaranty Agreement. The Borrower is the
record and beneficial owner of all of the issued and outstanding shares of
capital stock of VASA North America and Seaboard, free and clear of any Lien,
and all such shares have been duly issued and are fully paid and non-assessable.
Together, VASA Brougher and VASA Insurance Group are the record and beneficial
owners of all of the issued and outstanding shares of capital stock of VASA
North Atlantic, free and clear of any Lien, and all such shares have been duly
issued and are fully paid and non-assessable. The certificates and/or other
instruments or writings pledged to you and delivered to you pursuant to the
Seaboard Pledge Agreement and the VASA North Atlantic Pledge Agreement represent
all of the issued and outstanding shares of capital stock of Seaboard and VASA
North Atlantic.
<PAGE>
3. Except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and by general principles of equity (a) the Seaboard Pledge
Agreement has been duly executed and delivered by duly authorized officers of
the Borrower and constitutes the legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with its respective
terms, (b) the VASA North Atlantic Pledge Agreement has been duly executed and
delivered by duly authorized officers of VASA Brougher and VASA Insurance Group,
and constitutes the legal, valid and binding obligations of VASA Brogher and
VASA Insurance Group enforceable against such party in accordance with its
respective terms and (c) the Guaranty Agreement has been duly executed and
delivered by duly authorized officers of VASA Insurance Group, VASA Brougher and
VASA North America, and constitutes the legal, valid and binding obligations of
VASA Insurance Group and VASA North America enforceable against such party in
accordance with its respective terms.
4. The execution, delivery and performance by the Borrower of the
Seaboard Pledge Agreement, by VASA Brougher and VASA Insurance Group of the VASA
North Atlantic Pledge Agreement and the Guaranty Agreement and by VASA North
America of the Guaranty Agreement, has each been duly authorized by all
necessary corporate action and does not and will not: (a) require any consent or
approval of the shareholders of such party; (b) violate any provisions of the
articles of incorporation or by-laws of such party; (c) violate any provision of
any law, rule or regulation (including without limitation, Regulation U and X of
the Board of Governors of the Federal Reserve System) or, to our knowledge,
after due inquiry, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to and binding upon the Borrower
or any of its Subsidiaries; (d) result in a breach of or constitute a default or
require any consent under any loan or credit agreement or any other agreement,
mortgage, indenture, lease or instrument known to us, after due inquiry, to
which the Borrower or any Subsidiary is a party or by which the Properties of
the Borrower or any of its Subsidiaries may be bound or affected; or (e) result
in, or require, the creation or imposition of any Lien upon or with respect to
any of the Properties now owned or hereafter acquired by the Borrower or any of
its Subsidiaries, except as created by the Seaboard Pledge Agreement and the
VASA North Atlantic Pledge Agreement.
5. To the best of our knowledge, based on our inquiry of the President
of the Borrower and our knowledge of those matters as to which this firm has
been engaged by the Borrower for legal consultation or representation, there are
no actions, suits or proceedings or investigations (other than routine
examinations performed by insurance regulatory authorities) pending or
threatened against or affecting the Borrower or any of its Subsidiaries, or any
Property of any of them before any court, governmental agency or arbitrator,
which if determined adversely to the Borrower or any of its Subsidiaries would
in any one case or in the aggregate, materially adversely affect the financial
condition, operations, Properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower or any of its
Subsidiaries to perform its obligations under the Fifth Amendment, the Revolving
Note, the Pledge Agreements or the Guaranty Agreement.
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<PAGE>
6. The Seaboard Pledge Agreement and the VASA North Atlantic Pledge
Agreement create for the benefit of the holder of the Revolving Note a valid
security interest in the Pledged Collateral (as defined in each of the Seaboard
Pledge Agreement and VASA North Atlantic Pledge Agreement) by such Holder, such
security interest has been duly perfected and no other action is necessary to
effect or preserve such security interest (assuming the Pledged Shares are at
all times in your possession) except that it may be advisable to file duly
executed continuation statements with respect to financing statements filed in
the jurisdiction in which the Borrower's chief executive office is located
within six months prior to the expiration of five years following the date of
original filing.
7. The Acquisition has been duly consummated and the Acquisition
Agreements (i) have been duly authorized and validly executed and delivered by
duly authorized officers of the Borrower, (ii) constitute the legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally and by general principles of equity and (iii) do not
require any authorizations, consents or shareholder approvals, except the
authorizations, consents or approvals which have been obtained and are in full
force and effect. The Acquisition does not require the authorization, consent,
approval, order, license or permit from, or filing registration or qualification
with, or exemption by any governmental or public body or authority, or any
subdivision thereof, or any other Person under any law, act rule, regulation or
otherwise, or in connection with the execution, delivery and performance by the
Borrower of, or the legality, validity, binding effect or enforceability of the
Acquisition Agreements except those which have been obtained and are in full
force and effect.
The opinions expressed herein are limited to the laws of the State of
California and the federal laws of the United States of America.
The opinions expressed herein are solely for your benefit and may not
be relied upon by any other person or entity without our consent.
-3-
<PAGE>
EXHIBIT H-2
(Description of Opinion of Indiana Insurance Counsel to Borrower)
The opinion of Baker & Daniels, Indiana insurance counsel to the
Borrower, which is called for by Section 4.2(f) of the Credit Amendment, shall
be dated the date of the initial Borrowing that would result in outstanding
Revolving Loans exceeding fifty million dollars of the Bank's Commitment and
addressed to the Bank, and shall be in form and substance satisfactory to the
Bank, and shall be to the effect that:
1. The execution, delivery and performance by the Borrower of the Fifth
Amendment, the Revolving Note and the Seaboard Pledge Agreement and by the
parties to the VASA North Atlantic Pledge Agreement and the Guaranty Agreement
did not, do not and will not violate any provision of any law, rule or
regulation or, to our knowledge, after due inquiry, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to and binding upon the Borrower or any of its Subsidiaries.
2. No authorization, consent, approval, order, license or permit from,
or filing, registration or qualification with, or exemption by, any governmental
or public body or authority, or any subdivision thereof, or any other Person
under any law, act, rule, regulation or otherwise, including without limitation
the [INDIANA INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE INDIANA INSURANCE
HOLDING COMPANY SYSTEM REGULATION (THE "REGULATION")], is required to authorize,
or is required in connection with the execution, delivery and performance by the
parties to (other than the Bank) of, or the legality, validity, binding effect
or enforceability of, the Fifth Amendment, the Revolving Note, the Seaboard
Pledge Agreement, the VASA North Atlantic Pledge Agreement and the Guaranty
Agreement.
3. Each of VASA North America, VASA North Atlantic, VASA Brougher, VASA
Insurance Group and Seaboard is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own its assets and to
transact the business in which it is now engaged.
The opinions expressed herein are limited to the laws of the State of
Indiana.
The opinions expressed herein are solely for your benefit and may not
be relied upon by any other person or entity without our consent.
<PAGE>
EXHIBIT I-1
PLEDGE AGREEMENT
(with respect to Seaboard)
PLEDGE AGREEMENT
----------------
This PLEDGE AGREEMENT, dated as of ___________, 1998, is between THE
CENTRIS GROUP, INC., a Delaware corporation ("Pledgor"), and FLEET NATIONAL
BANK, a national banking association ("Pledgee").
RECITALS:
--------
1. Pledgor owns, on and as of the date on which this Pledge Agreement
is executed and delivered, 100% of the issued and outstanding shares of the
capital stock of Seaboard Life Insurance Company (USA) ("Seaboard"), an Indiana
corporations, all of which shares (including any certificates and/or other
tangible evidences thereof) are more specifically described in Attachment A
------------
hereto.
2. Pursuant to the Credit Agreement dated as of December 20, 1994
between Pledgor and Pledgee, as amended by a First Amendment dated as of March
29, 1996, a Second Amendment to the Credit Agreement dated as of July 1, 1996, a
Third Amendment to the Credit Agreement dated September 30, 1998, a Fourth
Amendment to the Credit Agreement (Amending and Restating the Credit Agreement)
dated as of October 26, 1998 and a Fifth Amendment to the Credit Agreement dated
as of December 28, 1998 (said Credit Agreement as currently in effect and as
from time to time amended, modified or supplemented being herein called the
"Financing Agreement"), Pledgee has agreed to make certain revolving loans to
Pledgor subject to certain conditions.
3. Pledgee is willing to extend such financing, but only on the
condition, among others, that Pledgor shall first have executed and delivered to
Pledgee this Pledge Agreement.
NOW, THEREFORE, in consideration of such financing and for other good
and valuable consideration, receipt of which is hereby acknowledged, Pledgor and
Pledgee agree as follows:
1. Pledge and Delivery. (a) To secure the prompt and complete payment
-------------------
and performance when due of the Obligations (as defined in Section 1(b) hereof),
Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants
Pledgee a continuing security interest in, all of the following property and
rights and interests in property (all such property, rights and interests being
hereinafter collectively called the "Pledged Collateral"):
<PAGE>
(i) all issued and outstanding shares of the capital stock
of each of Seaboard described in Attachment A hereto, and any additional shares
------------
of the capital stock of any class or series of Seaboard which Pledgor may at any
time and from time to time hereafter purchase or otherwise acquire, together
with the certificates and/or other instruments or writings representing them
(such shares, certificates and other writings being hereinafter collectively
called the "Pledged Shares");
(ii) (A) all shares and other securities and all warrants,
rights and options to acquire Pledged Shares (such shares, securities, warrants,
rights and options together with the certificates and/or other instruments or
writings representing them being hereinafter collectively called the "Additional
Pledged Securities") and (B) all money and other property, at any time and from
time to time received or receivable by or distributed or distributable to
Pledgor from the issuer of any or all of the Pledged Shares in exchange or
substitution for or otherwise in respect of any or all of the Pledged Shares or
earlier-issued Additional Pledged Securities (whether in the ordinary course of
such issuer's business or representing or resulting from cash or stock
dividends, stock splits or reclassifications, the recapitalization,
reorganization, merger, consolidation, disposition of assets, liquidation or
dissolution of such issuer, the exercise by Pledgor of warrants, rights or
options, or any other action or cause); and
(iii) all proceeds of any or all of the foregoing.
(b) As used herein, the term "Obligations" shall mean all indebtedness,
liabilities and obligations of any kind of Pledgor to Pledgee (whether directly
as principal or maker or indirectly as guarantor, surety, endorser or
otherwise), now or hereafter existing, due or to become due, howsoever incurred,
arising or evidenced, whether of principal or interest or payment or performance
under the Financing Agreement.
(c) Prior to or simultaneously with the execution and delivery hereof
by Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written
receipt to Pledgor shall acknowledge its prior receipt of, the certificate(s)
and/or other instruments and documents evidencing all of the Pledged Shares,
Additional Pledged Securities and all other items of the Pledged Collateral then
owned by Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee
any and all of the Pledged Shares, Additional Pledged Securities and other
Pledged Collateral (including any and all certificates and/or other instruments
or documents representing each item thereof) which it acquires in any way at any
time after such execution and delivery. Upon delivery to Pledgee, each item of
the Pledged Collateral shall be accompanied by, as appropriate, (i) undated,
duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in
a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or
documents as Pledgee shall reasonably request.
2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor
---------------------------------------------------
represents and warrants that: (i) Pledgor has the right, power and authority to
execute, deliver and perform this Pledge Agreement and to pledge, assign,
deliver, transfer and grant a security interest in the Pledged Collateral; (ii)
this Pledge Agreement constitutes the legal, valid and binding obligation of
Pledgor,
-2-
<PAGE>
enforceable against Pledgor in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
and subject to the availability of equitable remedies and any limitation that
may restrict Pledgee from selling, voting or exercising control over Seaboard
without obtaining approval of the Insurance Commissioner; (iii) Pledgor has good
title to all of the Pledged Shares and is the legal record and beneficial owner
of each of the Pledged Shares (and will have good title to and be the legal
record and beneficial owner of each other item of Pledged Collateral, including
any Additional Pledged Securities), free and clear of all encumbrances except
Pledgee's security interest hereunder; (iv) each of the Pledged Shares and
Additional Pledged Securities is, or will be when acquired by Pledgor and
pledged hereunder, duly and validly issued and fully paid and non-assessable,
and there are no restrictions on the transfer of any thereof other than such
restrictions as appear on the certificates or other instruments or writings
representing them, or as are referred to in clause (ii) above or otherwise may
be imposed under applicable law; (v) no action other than the delivery of each
item of the Pledged Collateral to, and its continued possession by, Pledgee or
any of its agents or nominees is necessary to maintain a perfected, first-
priority security interest in such item in favor of Pledgee; and (vi) no
authorizations, approvals or consents of, and no filings or registrations with,
any governmental or regulatory authority or agency are necessary for the
execution, delivery or performance by the Pledgor of this Agreement or for the
validity or enforceability hereof except as are referred to in clause (ii)
above.
(b) Pledgor covenants and agrees that it will at its expense (i) defend
both its own rights and interests and Pledgee's rights and security interest in
and to the Pledged Collateral against the claims and demands of all other
persons and (ii) execute and deliver to Pledgee such further conveyances,
agreements, assignments, instruments and other writings, and take such further
action, as Pledgee may request in order to obtain the full benefit of this
Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies
granted to Pledgee hereunder. Pledgor further covenants and agrees that until
all Obligations have been satisfied and this Pledge Agreement has been
terminated, Pledgor will not without Pledgee's prior written consent sell,
assign, transfer, exchange or otherwise temporarily or permanently dispose of
any item of the Pledged Collateral, or offer or contract to do so, and will not
without such consent create, incur, assume or permit to exist any security
interest, pledge, claim or other charge or encumbrance on or with respect to any
such item other than the security interest granted to Pledgee hereunder.
3. Names in which Pledged Shares and Additional Pledged Securities May
-------------------------------------------------------------------
Be Registered. Subject to any required approval of the Indiana Department of
- -------------
Insurance, at any time and from time to time during the term of this Pledge
Agreement, whether or not a Pledgor Default (as defined in Section 9 hereof) is
then continuing, Pledgee shall be entitled to hold any or all of the Pledged
Shares and Additional Pledged Securities in its own name, the name(s) of one or
more of its nominees or the name of Pledgor endorsed or assigned in blank or in
favor of Pledgee. With respect to any of the Pledged Shares and/or Additional
Pledged Securities which Pledgee wishes to hold in its own name or the name of
any nominee in accordance with this Section 3, Pledgee (acting in its own name
and capacity or as Pledgor's attorney-in-fact pursuant to the power of attorney
granted to Pledgee in Section 5 hereof) may have such Pledged Shares and
Additional Pledged
-3-
<PAGE>
Securities registered accordingly on the books of the issuer(s) thereof, and
Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect
such transfer and registration.
4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default
-----------------------------
shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged Shares
and Additional Pledged Securities for any purpose not inconsistent with (A) the
provisions of this Pledge Agreement and the Financing Agreement and applicable
insurance and other law and (B) the preservation of the value of and Pledgee's
security interest in the Pledged Collateral;
(ii) Pledgor shall be entitled to receive and retain all cash
dividends, interest and other cash distributions payable in respect of the
Pledged Collateral to the extent that such distributions are charged to, and as
of the date of payment thereof do not exceed, the retained earnings of the
issuer or other person making such distribution and do not exceed any
limitations imposed by the Indiana Insurance Holding Company System Regulation
or the Indiana Insurance Code; and
(iii) If any or all of the Pledged Shares and Additional Pledged
Securities shall have been registered in the name(s) of Pledgee and/or any of
its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so
executed and delivered, all such proxies, limited powers of attorney, dividend
orders and such other instruments and writings as Pledgor may reasonably request
to enable it, subject to the provisions of Section 4(b) hereof, to exercise the
rights and powers and to receive the distributions to which it is entitled under
the provisions of paragraphs (i) and (ii) of this Section 4(a).
(b) Upon the occurrence and during the continuance of a Pledgor
Default, all rights of Pledgor to exercise the voting and consensual rights and
powers described in paragraph (i) of Section 4(a) hereof and to receive the
dividends, interest and other cash distributions described in paragraph (ii) of
such Section shall cease, and all such rights shall thereupon become vested in
Pledgee; provided, however, that Pledgor may thereafter continue to exercise any
-------- -------
and all such voting and consensual rights and powers until such time as Pledgee
shall notify Pledgor in writing that Pledgee intends to assume and exercise the
same; and provided further that Pledgee shall not sell, vote or in any manner
-------- -------
exercise control over Seaboard without obtaining, to the extent required by law
and the prior approval (including any hearing required by law) of the Indiana
Department of Insurance.
(c) Upon the occurrence and during the continuance of a Pledgor Default
and subject to compliance with any applicable rules and regulations of the
Indiana Division of Insurance, Pledgee may, in its own name and capacity or as
Pledgor's attorney-in-fact, collect, receive, endorse and deposit all Additional
Pledged Securities, money, cash proceeds, instruments and any and all other
property which is or may at any time become payable in respect of any or all of
the Pledged
-4-
<PAGE>
Collateral and which Pledgee is or may become entitled to receive under
subsection (a) or (b) of this Section 4. All such property so received by
Pledgee may be retained by Pledgee as additional Pledged Collateral, and (i) all
money and other cash proceeds so received may be applied by Pledgee to payment
of the Obligations in such order as Pledgee may elect, whether or not a Pledgor
Default shall then be continuing, and (ii) during the continuance of a Pledgor
Default, all other property so received may be sold or otherwise disposed of by
Pledgee as provided in Section 10 hereof and the proceeds thereof applied as
also provided in such Section. Any and all money and other property received by
Pledgor contrary to the provisions of this Section 4 shall be held by Pledgor in
trust for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and
property and shall promptly be delivered to Pledgee in exactly the form received
by Pledgor, except for any necessary endorsements.
5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby
-----------------------------------------------
appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's
place and stead, in Pledgor's name or its own name and at Pledgor's expense, to
execute, endorse and deliver any and all agreements, assignments, pledges,
instruments and any other writings, and to take any and all other actions, which
Pledgee may deem necessary or desirable to carry out the terms and effect the
purposes of this Pledge Agreement and to exercise fully its rights and remedies
hereunder. Pledgee may delegate any or all of such power to any of its officers,
directors, employees, agents, nominees, shareholders and other representatives
(hereinafter collectively called "Representatives") and to have any such
Representative(s) exercise any such delegated power as substitute(s) for
Pledgee. Pledgor hereby ratifies all that Pledgee and all such Representatives
shall lawfully do or cause to be done under this power of attorney, which power
is coupled with an interest and shall be irrevocable until all Obligations have
been satisfied and this Pledge Agreement has been terminated.
6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any
---------------------------------------
time fail to perform or comply with any of its covenants and agreements
hereunder, Pledgee may (but shall not be required or obligated to) take such
action, in its own name and capacity or as Pledgor's attorney-in-fact, as
Pledgee shall deem necessary or desirable to effect such performance or
compliance.
7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to
-------------------------------------
have used reasonable care in the custody and preservation of the Pledged
Collateral in its possession to the extent it accords such Pledged Collateral
treatment which is substantially equal to that which Pledgee accords its own
property of like kind; provided, however, that Pledgee shall have no obligation,
-------- -------
regardless of whether it takes any such action with respect to its own property,
(i) to ascertain or take action with respect to calls, tenders, conversions,
exchanges, maturities or other matters involving or affecting any item(s) of
such Pledged Collateral (whether or not Pledgee has actual or constructive
knowledge of any such matters), unless reasonably requested by Pledgor to do so,
or (ii) to take action to preserve rights against prior or other parties.
8. Limitation of Pledgee's Liability; Reimbursement of Expenses and
----------------------------------------------------------------
Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to
- ---------------
take, or refrain from taking, any action with respect to the Pledged Collateral
or Pledgor's rights and interests therein except with respect
-5-
<PAGE>
to (i) the preservation and return of the Pledged Collateral in its possession
as and to the extent provided, respectively, in Sections 7 and 14 hereof and
(ii) the execution and delivery to Pledgor of certain instruments and other
writings as and when required under Section 4(a)(iii) hereof and other
limitations imposed by law. Pledgor further agrees that neither Pledgee nor any
of its Representatives shall have any liability to Pledgor, or to any person
claiming rights against Pledgee by, through or under Pledgor, in any way arising
out of or in connection with Pledgee's or any such Representative's
administration of this Pledge Agreement or its exercise of any of its rights,
power and remedies hereunder except for (i) Pledgee's or any such
Representative's failure to take as and when required any of the actions
referenced in the first sentence of this Section 8(a) or to account to Pledgor
for those amounts of money and other property -- and only for those amounts --
which it actually receives in connection with such administration or exercise
and which it is required to pay over to Pledgor or apply to the Obligations
under any other provision hereof, (ii) its failure to exercise reasonable care
as and to the extent required in Section 7 hereof or (iii) its negligence or
willful misconduct.
(b) Pledgor shall pay or reimburse Pledgee on demand for all costs and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) paid or incurred by Pledgee in connection with (i) the administration
and any amendment of this Pledge Agreement, (ii) the custody or preservation of
the Pledged Collateral and any authorized collection from, disposition of or
other realization on any item(s) thereof, and (iii) the exercise and enforcement
of any of Pledgee's rights, powers and remedies hereunder, including without
limitation its right to perform Pledgor's covenants and agreements hereunder to
the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend
and hold harmless Pledgee, its Representatives, successors and assigns from and
against any and all liabilities, claims, actions, losses, damages, taxes,
penalties, fines, costs and expenses (including reasonable attorneys' fees and
legal expenses) which in any way arise out of or in connection with any of the
actions or matters with respect to which Pledgor has a payment or reimbursement
obligation under this Section; provided, however, that Pledgor shall have no
-------- -------
obligation to indemnify Pledgee or any such Representative, successor or assign
against any liabilities, claims, etc. resulting from such party's negligence or
willful misconduct or its failure to exercise reasonable care as and to the
extent required in Section 7 hereof. Until any reimbursement of costs or
expenses or any indemnity payment required under this Section is received by
Pledgee in cash or immediately available funds, the amount thereof shall bear
interest at the rate specified in the Financing Agreement for delinquent
payments, and such amount and such interest shall constitute part of the
Obligations secured by the Pledged Collateral.
9. Pledgor Defaults. The following shall constitute a "Pledgor
----------------
Default": (i) Pledgor fails to make payment when due or demanded, as applicable,
on or with respect to any indebtedness, obligation or liability which is then
part of the Obligations, or fails to perform or comply with any of its covenants
or agreements hereunder; (ii) any representation or warranty made by Pledgor
herein or in any statement, report or certificate furnished to Pledgee by
Pledgor hereunder proves to have been false or misleading in any material
respect; or (iii) an "Event of Default" occurs under the Financing Agreement.
-6-
<PAGE>
10. Remedies. (a) If a Pledgor Default has occurred and is continuing,
--------
Pledgee may at any time and from time to time exercise any and all rights and
remedies available to it (i) hereunder and under the Financing Agreement and any
other agreement or instrument then in effect between Pledgor and Pledgee and
relating to the Obligations, including without limitation those rights and
remedies set out in subsections (b) through (f) of this Section 10, and (ii) as
a secured party under the Uniform Commercial Code as then in effect in the State
of Connecticut (the "Code") and under any other applicable law or rule of law or
equity. Should Pledgee elect to proceed by action at law or in equity to
foreclose its security interest in and sell any or all of the Pledged
Collateral, Pledgor waives (to the extent permitted by law) any rights it may
then have in connection therewith to require Pledgee to post bonds, sureties or
collateral security or to demand possession of any such Pledged Collateral
pending judgment therein.
(b) If a Pledgor default has occurred and is continuing, to the extent
permitted by the Insurance Commissioner and by applicable federal and state
securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or,
from time to time any part, of the Pledged Collateral at public or private sale,
over the counter or at any broker's board or securities exchange, for cash, on
credit or in exchange for other property, for immediate or future delivery,
without advertisement or notice (except as provided in this subsection), and for
such price and on such terms as Pledgee deems appropriate, provided only that
--------
all aspects of any such disposition are commercially reasonable within the
requirements of Section 42a-9-504 of the Code, as defined and supplemented by
the standards and agreements set forth herein. Pledgor agrees that to the extent
notice of the time and place of any such public sale, or of the time after which
Pledgee intends to make any such private sale or other disposition, is required
under the Code, such notice shall be deemed commercially reasonable if
transmitted by any of the means described in the Financing Agreement not less
than 15 days prior thereto. Pledgee shall not be obligated to effect any sale of
any or all of the Pledged Collateral, whether or not notice thereof has been
given, and may adjourn any public or private sale from time to time by
announcement at the time and place fixed for such sale, and such sale may be
held without further notice at the time and place to which it was so adjourned.
(c) At any such private or public sale, to the extent permitted by the
Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the
Pledged Collateral then being sold and may pay the price thereof by credit
against the Obligations then outstanding. Any purchaser of any item(s) of the
Pledged Collateral (including Pledgee) shall take such item(s) free from any
right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by
the Code and other applicable law, all rights of redemption and/or to any stay,
exemption or appraisal which Pledgor now has or may hereafter acquire.
(d) Pledgor agrees and acknowledges that requiring the issuer(s) of the
securities included in the Pledged Collateral to register such securities under
applicable provisions of federal and state securities laws would not be
practicable and therefore could not be deemed commercially reasonable. Pledgor
further agrees and acknowledges that in order to comply with applicable federal
and state securities laws without effecting such registration, Pledgee may be
required: (i) to sell or otherwise dispose of any or all of the Pledged
Collateral at one or more private rather than public
-7-
<PAGE>
sales and (ii) to limit the prospective purchasers at such sale(s) to persons
who will represent and agree that they are purchasing the securities they intend
to acquire for their own account for investment and not with a view to the
distribution or sale thereof, and who will be compelled to accept stringent
restrictions on their ability to dispose of such securities. Accordingly,
Pledgor agrees that: (i) Pledgee shall not incur any liability to Pledgor by
reason of the fact that the price obtained for any or all the Pledged Collateral
at such private sale(s) to investors restricted as provided above may be less
than the price which might be obtained therefor at a public sale or unrestricted
private sale and (iii) any and all private sales shall be deemed commercially
reasonable even if (A) the amount received is less than the then-outstanding
amount of the Obligations and/or (B) even if Pledgee accepts the first offer
received or does not offer all or any part of the Pledged Collateral to more
than one prospective purchaser, unless the sale in question is conducted in bad
faith or in a manner manifestly unreasonable for sales of that type.
(e) In case of any sale by the Pledgee of any item(s) of the Pledged
Collateral on credit or for future delivery, such item(s) may be retained by the
Pledgee until the selling price is paid by the purchaser(s) thereof, but the
Pledgee shall incur no liability in case of failure of the purchaser to take up
and pay for such item(s). In case of any such failure, such item(s) may be sold
again upon notice, to the extent required by law, as provided in subsection (b)
of this Section 10.
(f) The proceeds of the sale or other disposition of the Pledged
Collateral shall be applied first, to that part of the Obligations consisting of
Pledgee's reasonable expenses (including without limitation reasonable
attorneys' fees and legal expenses) in preparing for disposition and disposing
of the Pledged Collateral and, to the extent not previously reimbursed by
Pledgor, in administering this Pledge Agreement and exercising and enforcing its
rights, powers and remedies hereunder, and second, to the satisfaction of the
then outstanding amount of Pledgor's indebtedness under the Financing Agreement
and of all other Obligations then remaining unpaid. Pledgee shall account to
Pledgor for any surplus and Pledgor shall be liable to Pledgee for any
deficiency.
11. Amendments, Etc. No provision of this Pledge Agreement may be
---------------
amended, modified, supplemented or waived, and no consent to any departure
therefrom by Pledgor may be given, except by a writing duly executed and
delivered by the parties hereto, and any such amendment, modification,
supplement or waiver shall be effective only as and to the extent provided
therein.
12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and
------------------------------------------
remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement
and under any other agreements, instruments and other writings now or hereafter
existing between Pledgor and Pledgee and relating to the Obligations, and (ii)
under the Code and other applicable law, are cumulative and except as otherwise
provided by law or in such agreements may be exercised concurrently or in any
order of succession. Pledgee's failure to exercise or delay in exercising any of
such rights, powers and remedies shall not constitute or imply a waiver thereof,
nor shall Pledgee's single or partial exercise of any such right, power or
remedy preclude its other or further exercise thereof, or the exercise of any
other right, power or remedy. Pledgee's cure of any Pledgor Default shall not
-8-
<PAGE>
constitute a waiver thereof, and its waiver of one Pledgor Default shall not
constitute a waiver of any subsequent Pledgor Default.
13. Pledgor's Waivers. Pledgor agrees that until the Obligations are
-----------------
paid in full, Pledgee's security interest in the Pledged Collateral shall be
absolute and unconditional regardless of the existence or occurrence of, and
expressly waives any defense or discharge which might otherwise arise from, any
of the following:
(i) any lack of validity or enforceability of this Pledge
Agreement, the Financing Agreement or any other agreement or instrument relating
hereto or thereto or otherwise relating to the Obligations;
(ii) any change in the time, manner or place of payment of, or in
any other terms of, any or all of the Obligations, or any other amendment or
waiver of, or any consent to departure from, this Pledge Agreement or the
Financing Agreement or any other agreement, instrument or other writing now or
hereafter existing between Pledgor and Pledgee and relating to the Obligations;
(iii) any exchange, release or non-perfection of any other
collateral, or any release, amendment or waiver of, or consent to departure from
any guaranty, for any or all of the Obligations;
(iv) Pledgee's resort, during the continuation of a Pledgor
Default, to any or all of the Pledged Collateral for payment of all or part of
the Obligations prior to proceeding against any other collateral or any other
party primarily or secondarily liable for payment thereof; or
(v) to the extent permitted by law, any other circumstance which
might otherwise constitute a defense available to, or a discharge of, Pledgor in
respect of the Obligations or this Pledge Agreement.
14. Termination; Release of Pledged Collateral. This Agreement and the
------------------------------------------
security interest granted hereunder shall terminate on the date on which all
Obligations have been fully satisfied. Pledgee shall thereupon reassign and
redeliver (or cause to be reassigned and redelivered) to Pledgor or such
person(s) as Pledgor shall designate, against due execution and delivery by
Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form
and substance, such items of the Pledged Collateral (if any) as are then held by
Pledgee or its Representatives, together with appropriate instruments of
reassignment and release. Any such reassignment shall be without recourse to or
warranty by Pledgee or any such Representative and at the expense of Pledgor.
15. Notices. All notices, requests, directions, consents, waivers and
-------
other communications hereunder shall be in writing and shall be transmitted by
the means and to the addresses from time to time specified in the Financing
Agreement.
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<PAGE>
16. Binding Agreement; Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that Pledgor shall not assign or otherwise
-------- -------
transfer any of its obligations, rights or interests hereunder without the prior
written consent of Pledgee.
17. Governing Law; Severability. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of Connecticut, except to
the extent that the remedies hereunder in respect of the Pledged Collateral are
governed by the laws of the State of Indiana. Wherever possible each provision
of this Pledge Agreement shall be construed in such manner as to be valid and
enforceable under applicable law, but if any provision hereof shall be deemed
invalid or unenforceable to any extent in any jurisdiction, such provision shall
be ineffective only to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remainder of such provision or any
of the other provisions hereof, and any such invalidity or unenforceability in
one jurisdiction shall not render such provision ineffective in any other
jurisdiction.
18. Titles; Defined Terms; Counterparts. Section titles are for
-----------------------------------
convenience only and shall not define, limit, amplify, supplement or otherwise
modify or affect the substance or intent of this Pledge Agreement or any
provision hereof. Initial capitalized terms not defined herein shall have the
meanings ascribed to them in the Financing Agreement. This Pledge Agreement may
be executed in two or more counterparts, each of which shall when executed by
both parties be deemed to be an original but all of which together shall
constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
Agreement to be duly executed by its respective authorized officer as of the
date first above written.
THE CENTRIS GROUP, INC.
By:____________________
Print Name:
Print Title:
FLEET NATIONAL BANK
By:____________________
Print Name:
Print Title:
-11-
<PAGE>
ATTACHMENT A
ISSUED AND OUTSTANDING SHARES
OF CAPITAL STOCK
Name No. of Shares
- ---- -------------
Seaboard Life Insurance Company (USA) 250
<PAGE>
EXHIBIT I-2
PLEDGE AGREEMENT
(with respect to VASA North Atlantic)
PLEDGE AGREEMENT
----------------
This PLEDGE AGREEMENT, dated as of ___________, 1998, is among VASA
Insurance Group, Inc., VASA Brougher, Inc., Indiana corporations (individually
and collectively, "Pledgor"), and FLEET NATIONAL BANK, a national banking
association ("Pledgee").
RECITALS:
---------
1. Pledgor owns, on and as of the date on which this Pledge Agreement is
executed and delivered, 100% of the issued and outstanding shares of the capital
stock of VASA North Atlantic Insurance Company ("VASA"), an Indiana
corporation, all of which shares (including any certificates and/or other
tangible evidences thereof) are more specifically described in Attachment A
------------
hereto.
2. Pursuant to the Credit Agreement dated as of December 20, 1994 between
The Centris Group, Inc. ("Centris") and Pledgee, as amended by a First
Amendment dated as of March 29, 1996, a Second Amendment to the Credit Agreement
dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated
September 30, 1998, a Fourth Amendment to the Credit Agreement (Amending and
Restating the Credit Agreement) dated as of October 26, 1998 and a Fifth
Amendment to the Credit Agreement dated as of December 28, 1998 (said Credit
Agreement as currently in effect and as from time to time amended, modified or
supplemented being herein called the "Financing Agreement"), Pledgee has agreed
to make certain revolving loans to Centris subject to certain conditions.
3. Pledgee is willing to extend such financing, but only on the condition,
among others, that Pledgor shall first have executed and delivered to Pledgee
this Pledge Agreement. As Subsidiaries of Centris, Pledgor acknowledges that it
will benefit from the existence of the Financing Agreement and therefore is
willing to enter into this Agreement.
NOW, THEREFORE, in consideration of such financing and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor and
Pledgee agree as follows:
1. Pledge and Delivery. (a) To secure the prompt and complete payment and
-------------------
performance when due of the Obligations (as defined in Section 1(b) hereof),
Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants
Pledgee a continuing security interest
<PAGE>
in, all of the following property and rights and interests in property (all such
property, rights and interests being hereinafter collectively called the
"Pledged Collateral"):
(i) all issued and outstanding shares of the capital stock of VASA
described in Attachment A hereto, and any additional shares of the capital stock
------------
of any class or series of VASA which Pledgor may at any time and from time to
time hereafter purchase or otherwise acquire, together with the certificates
and/or other instruments or writings representing them (such shares,
certificates and other writings being hereinafter collectively called the
"Pledged Shares");
(ii) (A) all shares and other securities and all warrants, rights and
options to acquire Pledged Shares (such shares, securities, warrants, rights and
options together with the certificates and/or other instruments or writings
representing them being hereinafter collectively called the "Additional Pledged
Securities") and (B) all money and other property, at any time and from time to
time received or receivable by or distributed or distributable to Pledgor from
the issuer of any or all of the Pledged Shares in exchange or substitution for
or otherwise in respect of any or all of the Pledged Shares or earlier-issued
Additional Pledged Securities (whether in the ordinary course of such issuer's
business or representing or resulting from cash or stock dividends, stock splits
or reclassifications, the recapitalization, reorganization, merger,
consolidation, disposition of assets, liquidation or dissolution of such issuer,
the exercise by Pledgor of warrants, rights or options, or any other action or
cause); and
(iii) all proceeds of any or all of the foregoing.
(b) As used herein, the term "Obligations" shall mean all indebtedness,
liabilities and obligations of any kind of Pledgor to Pledgee (whether directly
as principal or maker or indirectly as guarantor, surety, endorser or
otherwise), now or hereafter existing, due or to become due, howsoever incurred,
arising or evidenced, whether of principal or interest or payment or performance
including without limitation, arising under the Guaranty Agreement, and all
Obligations of Pledgor now or hereafter existing under this Agreement.
(c) Prior to or simultaneously with the execution and delivery hereof by
Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written receipt
to Pledgor shall acknowledge its prior receipt of, the certificate(s) and/or
other instruments and documents evidencing all of the Pledged Shares, Additional
Pledged Securities and all other items of the Pledged Collateral then owned by
Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee any and
all of the Pledged Shares, Additional Pledged Securities and other Pledged
Collateral (including any and all certificates and/or other instruments or
documents representing each item thereof) which it acquires in any way at any
time after such execution and delivery. Upon delivery to Pledgee, each item of
the Pledged Collateral shall be accompanied by, as appropriate, (i) undated,
duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in
a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or
documents as Pledgee shall reasonably request.
-2-
<PAGE>
2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor
---------------------------------------------------
represents and warrants that: (i) Pledgor has the right, power and authority to
execute, deliver and perform this Pledge Agreement and to pledge, assign,
deliver, transfer and grant a security interest in the Pledged Collateral; (ii)
this Pledge Agreement constitutes the legal, valid and binding obligation of
Pledgor, enforceable against Pledgor in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
and subject to the availability of equitable remedies and any limitation that
may restrict Pledgee from selling, voting or exercising control over VASA
without obtaining approval of the Insurance Commissioner; (iii) Pledgor has good
title to all of the Pledged Shares and is the legal record and beneficial owner
of each of the Pledged Shares (and will have good title to and be the legal
record and beneficial owner of each other item of Pledged Collateral, including
any Additional Pledged Securities), free and clear of all encumbrances except
Pledgee's security interest hereunder; (iv) each of the Pledged Shares and
Additional Pledged Securities is, or will be when acquired by Pledgor and
pledged hereunder, duly and validly issued and fully paid and non-assessable,
and there are no restrictions on the transfer of any thereof other than such
restrictions as appear on the certificates or other instruments or writings
representing them, or as are referred to in clause (ii) above or otherwise may
be imposed under applicable law; (v) no action other than the delivery of each
item of the Pledged Collateral to, and its continued possession by, Pledgee or
any of its agents or nominees is necessary to maintain a perfected, first-
priority security interest in such item in favor of Pledgee; and (vi) no
authorizations, approvals or consents of, and no filings or registrations with,
any governmental or regulatory authority or agency are necessary for the
execution, delivery or performance by the Pledgor of this Agreement or for the
validity or enforceability hereof except as are referred to in clause (ii)
above.
(b) Pledgor covenants and agrees that it will at its expense (i) defend
both its own rights and interests and Pledgee's rights and security interest in
and to the Pledged Collateral against the claims and demands of all other
persons and (ii) execute and deliver to Pledgee such further conveyances,
agreements, assignments, instruments and other writings, and take such further
action, as Pledgee may request in order to obtain the full benefit of this
Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies
granted to Pledgee hereunder. Pledgor further covenants and agrees that until
all Obligations have been satisfied and this Pledge Agreement has been
terminated, Pledgor will not without Pledgee's prior written consent sell,
assign, transfer, exchange or otherwise temporarily or permanently dispose of
any item of the Pledged Collateral, or offer or contract to do so, and will not
without such consent create, incur, assume or permit to exist any security
interest, pledge, claim or other charge or encumbrance on or with respect to any
such item other than the security interest granted to Pledgee hereunder.
3. Names in which Pledged Shares and Additional Pledged Securities May Be
----------------------------------------------------------------------
Registered. Subject to any required approval of the Indiana Department of
- ----------
Insurance, at any time and from time to time during the term of this Pledge
Agreement, whether or not a Pledgor Default (as defined in Section 9 hereof) is
then continuing, Pledgee shall be entitled to hold any or all of the Pledged
Shares and Additional Pledged Securities in its own name, the name(s) of one or
more of its nominees or the name of Pledgor endorsed or assigned in blank or in
favor of Pledgee. With
-3-
<PAGE>
respect to any of the Pledged Shares and/or Additional Pledged Securities which
Pledgee wishes to hold in its own name or the name of any nominee in accordance
with this Section 3, Pledgee (acting in its own name and capacity or as
Pledgor's attorney-in-fact pursuant to the power of attorney granted to Pledgee
in Section 5 hereof) may have such Pledged Shares and Additional Pledged
Securities registered accordingly on the books of the issuer(s) thereof, and
Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect
such transfer and registration.
4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default
------------------------------
shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and/or
consensual rights and powers accruing to an owner of the Pledged Shares and
Additional Pledged Securities for any purpose not inconsistent with (A) the
provisions of this Pledge Agreement and the Financing Agreement and applicable
insurance and other law and (B) the preservation of the value of and Pledgee's
security interest in the Pledged Collateral;
(ii) Pledgor shall be entitled to receive and retain all cash
dividends, interest and other cash distributions payable in respect of the
Pledged Collateral to the extent that such distributions are charged to, and as
of the date of payment thereof do not exceed, the retained earnings of the
issuer or other person making such distribution and do not exceed any
limitations imposed by the Indiana Insurance Holding Company System Regulation
or the Indiana Insurance Code; and
(iii) If any or all of the Pledged Shares and Additional Pledged
Securities shall have been registered in the name(s) of Pledgee and/or any of
its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so
executed and delivered, all such proxies, limited powers of attorney, dividend
orders and such other instruments and writings as Pledgor may reasonably request
to enable it, subject to the provisions of Section 4(b) hereof, to exercise the
rights and powers and to receive the distributions to which it is entitled under
the provisions of paragraphs (i) and (ii) of this Section 4(a).
(b) Upon the occurrence and during the continuance of a Pledgor Default,
all rights of Pledgor to exercise the voting and consensual rights and powers
described in paragraph (i) of Section 4(a) hereof and to receive the dividends,
interest and other cash distributions described in paragraph (ii) of such
Section shall cease, and all such rights shall thereupon become vested in
Pledgee; provided, however, that Pledgor may thereafter continue to exercise any
-------- -------
and all such voting and consensual rights and powers until such time as Pledgee
shall notify Pledgor in writing that Pledgee intends to assume and exercise the
same; and provided further that Pledgee shall not sell, vote or in any manner
-------- -------
exercise control over VASA without obtaining, to the extent required by law and
the prior approval (including any hearing required by law) of the Indiana
Department of Insurance.
-4-
<PAGE>
(c) Upon the occurrence and during the continuance of a Pledgor Default and
subject to compliance with any applicable rules and regulations of the Indiana
Division of Insurance, Pledgee may, in its own name and capacity or as Pledgor's
attorney-in-fact, collect, receive, endorse and deposit all Additional Pledged
Securities, money, cash proceeds, instruments and any and all other property
which is or may at any time become payable in respect of any or all of the
Pledged Collateral and which Pledgee is or may become entitled to receive under
subsection (a) or (b) of this Section 4. All such property so received by
Pledgee may be retained by Pledgee as additional Pledged Collateral, and (i) all
money and other cash proceeds so received may be applied by Pledgee to payment
of the Obligations in such order as Pledgee may elect, whether or not a Pledgor
Default shall then be continuing, and (ii) during the continuance of a Pledgor
Default, all other property so received may be sold or otherwise disposed of by
Pledgee as provided in Section 10 hereof and the proceeds thereof applied as
also provided in such Section. Any and all money and other property received by
Pledgor contrary to the provisions of this Section 4 shall be held by Pledgor in
trust for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and
property and shall promptly be delivered to Pledgee in exactly the form received
by Pledgor, except for any necessary endorsements.
5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby
-----------------------------------------------
appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's
place and stead, in Pledgor's name or its own name and at Pledgor's expense, to
execute, endorse and deliver any and all agreements, assignments, pledges,
instruments and any other writings, and to take any and all other actions, which
Pledgee may deem necessary or desirable to carry out the terms and effect the
purposes of this Pledge Agreement and to exercise fully its rights and remedies
hereunder. Pledgee may delegate any or all of such power to any of its
officers, directors, employees, agents, nominees, shareholders and other
representatives (hereinafter collectively called "Representatives") and to have
any such Representative(s) exercise any such delegated power as substitute(s)
for Pledgee. Pledgor hereby ratifies all that Pledgee and all such
Representatives shall lawfully do or cause to be done under this power of
attorney, which power is coupled with an interest and shall be irrevocable until
all Obligations have been satisfied and this Pledge Agreement has been
terminated.
6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any time
---------------------------------------
fail to perform or comply with any of its covenants and agreements hereunder,
Pledgee may (but shall not be required or obligated to) take such action, in its
own name and capacity or as Pledgor's attorney-in-fact, as Pledgee shall deem
necessary or desirable to effect such performance or compliance.
7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to have
-------------------------------------
used reasonable care in the custody and preservation of the Pledged Collateral
in its possession to the extent it accords such Pledged Collateral treatment
which is substantially equal to that which Pledgee accords its own property of
like kind; provided, however, that Pledgee shall have no obligation, regardless
-------- -------
of whether it takes any such action with respect to its own property, (i) to
ascertain or take action with respect to calls, tenders, conversions, exchanges,
maturities or other matters involving or affecting any item(s) of such Pledged
Collateral (whether or not Pledgee has
-5-
<PAGE>
actual or constructive knowledge of any such matters), unless reasonably
requested by Pledgor to do so, or (ii) to take action to preserve rights against
prior or other parties.
8. Limitation of Pledgee's Liability; Reimbursement of Expenses and
----------------------------------------------------------------
Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to
- ---------------
take, or refrain from taking, any action with respect to the Pledged Collateral
or Pledgor's rights and interests therein except with respect to (i) the
preservation and return of the Pledged Collateral in its possession as and to
the extent provided, respectively, in Sections 7 and 14 hereof and (ii) the
execution and delivery to Pledgor of certain instruments and other writings as
and when required under Section 4(a)(iii) hereof and other limitations imposed
by law. Pledgor further agrees that neither Pledgee nor any of its
Representatives shall have any liability to Pledgor, or to any person claiming
rights against Pledgee by, through or under Pledgor, in any way arising out of
or in connection with Pledgee's or any such Representative's administration of
this Pledge Agreement or its exercise of any of its rights, power and remedies
hereunder except for (i) Pledgee's or any such Representative's failure to take
as and when required any of the actions referenced in the first sentence of this
Section 8(a) or to account to Pledgor for those amounts of money and other
property -- and only for those amounts -- which it actually receives in
connection with such administration or exercise and which it is required to pay
over to Pledgor or apply to the Obligations under any other provision hereof,
(ii) its failure to exercise reasonable care as and to the extent required in
Section 7 hereof or (iii) its negligence or willful misconduct.
(b) Pledgor shall pay or reimburse Pledgee on demand for all costs and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) paid or incurred by Pledgee in connection with (i) the administration
and any amendment of this Pledge Agreement, (ii) the custody or preservation of
the Pledged Collateral and any authorized collection from, disposition of or
other realization on any item(s) thereof, and (iii) the exercise and enforcement
of any of Pledgee's rights, powers and remedies hereunder, including without
limitation its right to perform Pledgor's covenants and agreements hereunder to
the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend
and hold harmless Pledgee, its Representatives, successors and assigns from and
against any and all liabilities, claims, actions, losses, damages, taxes,
penalties, fines, costs and expenses (including reasonable attorneys' fees and
legal expenses) which in any way arise out of or in connection with any of the
actions or matters with respect to which Pledgor has a payment or reimbursement
obligation under this Section; provided, however, that Pledgor shall have no
-------- -------
obligation to indemnify Pledgee or any such Representative, successor or assign
against any liabilities, claims, etc. resulting from such party's negligence or
willful misconduct or its failure to exercise reasonable care as and to the
extent required in Section 7 hereof. Until any reimbursement of costs or
expenses or any indemnity payment required under this Section is received by
Pledgee in cash or immediately available funds, the amount thereof shall bear
interest at the rate specified in the Financing Agreement for delinquent
payments, and such amount and such interest shall constitute part of the
Obligations secured by the Pledged Collateral.
9. Pledgor Defaults. The following shall constitute a "Pledgor Default":
----------------
(i) Pledgor fails to make payment when due or demanded, as applicable, on or
with respect to any indebtedness,
-6-
<PAGE>
obligation or liability which is then part of the Obligations, or fails to
perform or comply with any of its covenants or agreements hereunder; (ii) any
representation or warranty made by Pledgor herein or in any statement, report or
certificate furnished to Pledgee by Pledgor hereunder proves to have been false
or misleading in any material respect; or (iii) an "Event of Default" occurs
under the Financing Agreement.
10. Remedies. (a) If a Pledgor Default has occurred and is continuing,
--------
Pledgee may at any time and from time to time exercise any and all rights and
remedies available to it (i) hereunder and under the Financing Agreement and any
other agreement or instrument then in effect between Pledgor and Pledgee and
relating to the Obligations, including without limitation those rights and
remedies set out in subsections (b) through (f) of this Section 10, and (ii) as
a secured party under the Uniform Commercial Code as then in effect in the State
of Connecticut (the "Code") and under any other applicable law or rule of law or
equity. Should Pledgee elect to proceed by action at law or in equity to
foreclose its security interest in and sell any or all of the Pledged
Collateral, Pledgor waives (to the extent permitted by law) any rights it may
then have in connection therewith to require Pledgee to post bonds, sureties or
collateral security or to demand possession of any such Pledged Collateral
pending judgment therein.
(b) If a Pledgor default has occurred and is continuing, to the extent
permitted by the Insurance Commissioner and by applicable federal and state
securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or,
from time to time any part, of the Pledged Collateral at public or private sale,
over the counter or at any broker's board or securities exchange, for cash, on
credit or in exchange for other property, for immediate or future delivery,
without advertisement or notice (except as provided in this subsection), and for
such price and on such terms as Pledgee deems appropriate, provided only that
--------
all aspects of any such disposition are commercially reasonable within the
requirements of Section 42a-9-504 of the Code, as defined and supplemented by
the standards and agreements set forth herein. Pledgor agrees that to the
extent notice of the time and place of any such public sale, or of the time
after which Pledgee intends to make any such private sale or other disposition,
is required under the Code, such notice shall be deemed commercially reasonable
if transmitted by any of the means described in the Financing Agreement not less
than 15 days prior thereto. Pledgee shall not be obligated to effect any sale
of any or all of the Pledged Collateral, whether or not notice thereof has been
given, and may adjourn any public or private sale from time to time by
announcement at the time and place fixed for such sale, and such sale may be
held without further notice at the time and place to which it was so adjourned.
(c) At any such private or public sale, to the extent permitted by the
Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the
Pledged Collateral then being sold and may pay the price thereof by credit
against the Obligations then outstanding. Any purchaser of any item(s) of the
Pledged Collateral (including Pledgee) shall take such item(s) free from any
right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by
the Code and other applicable law, all rights of redemption and/or to any stay,
exemption or appraisal which Pledgor now has or may hereafter acquire.
-7-
<PAGE>
(d) Pledgor agrees and acknowledges that requiring the issuer(s) of the
securities included in the Pledged Collateral to register such securities under
applicable provisions of federal and state securities laws would not be
practicable and therefore could not be deemed commercially reasonable. Pledgor
further agrees and acknowledges that in order to comply with applicable federal
and state securities laws without effecting such registration, Pledgee may be
required: (i) to sell or otherwise dispose of any or all of the Pledged
Collateral at one or more private rather than public sales and (ii) to limit the
prospective purchasers at such sale(s) to persons who will represent and agree
that they are purchasing the securities they intend to acquire for their own
account for investment and not with a view to the distribution or sale thereof,
and who will be compelled to accept stringent restrictions on their ability to
dispose of such securities. Accordingly, Pledgor agrees that: (i) Pledgee
shall not incur any liability to Pledgor by reason of the fact that the price
obtained for any or all the Pledged Collateral at such private sale(s) to
investors restricted as provided above may be less than the price which might be
obtained therefor at a public sale or unrestricted private sale and (iii) any
and all private sales shall be deemed commercially reasonable even if (A) the
amount received is less than the then-outstanding amount of the Obligations
and/or (B) even if Pledgee accepts the first offer received or does not offer
all or any part of the Pledged Collateral to more than one prospective
purchaser, unless the sale in question is conducted in bad faith or in a manner
manifestly unreasonable for sales of that type.
(e) In case of any sale by the Pledgee of any item(s) of the Pledged
Collateral on credit or for future delivery, such item(s) may be retained by the
Pledgee until the selling price is paid by the purchaser(s) thereof, but the
Pledgee shall incur no liability in case of failure of the purchaser to take up
and pay for such item(s). In case of any such failure, such item(s) may be sold
again upon notice, to the extent required by law, as provided in subsection (b)
of this Section 10.
(f) The proceeds of the sale or other disposition of the Pledged Collateral
shall be applied first, to that part of the Obligations consisting of Pledgee's
reasonable expenses (including without limitation reasonable attorneys' fees and
legal expenses) in preparing for disposition and disposing of the Pledged
Collateral and, to the extent not previously reimbursed by Pledgor, in
administering this Pledge Agreement and exercising and enforcing its rights,
powers and remedies hereunder, and second, to the satisfaction of the then
outstanding amount of Pledgor's indebtedness under the Financing Agreement and
of all other Obligations then remaining unpaid. Pledgee shall account to
Pledgor for any surplus and Pledgor shall be liable to Pledgee for any
deficiency.
11. Amendments, Etc. No provision of this Pledge Agreement may be
----------------
amended, modified, supplemented or waived, and no consent to any departure
therefrom by Pledgor may be given, except by a writing duly executed and
delivered by the parties hereto, and any such amendment, modification,
supplement or waiver shall be effective only as and to the extent provided
therein.
12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and
------------------------------------------
remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement
and under any other agreements, instruments and other writings now or hereafter
existing between Pledgor and Pledgee
-8-
<PAGE>
and relating to the Obligations, and (ii) under the Code and other applicable
law, are cumulative and except as otherwise provided by law or in such
agreements may be exercised concurrently or in any order of succession.
Pledgee's failure to exercise or delay in exercising any of such rights, powers
and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee's
single or partial exercise of any such right, power or remedy preclude its other
or further exercise thereof, or the exercise of any other right, power or
remedy. Pledgee's cure of any Pledgor Default shall not constitute a waiver
thereof, and its waiver of one Pledgor Default shall not constitute a waiver of
any subsequent Pledgor Default.
13. Pledgor's Waivers. Pledgor agrees that until the Obligations are paid
-----------------
in full, Pledgee's security interest in the Pledged Collateral shall be absolute
and unconditional regardless of the existence or occurrence of, and expressly
waives any defense or discharge which might otherwise arise from, any of the
following:
(i) any lack of validity or enforceability of this Pledge Agreement,
the Financing Agreement or any other agreement or instrument relating hereto or
thereto or otherwise relating to the Obligations;
(ii) any change in the time, manner or place of payment of, or in any
other terms of, any or all of the Obligations, or any other amendment or waiver
of, or any consent to departure from, this Pledge Agreement or the Financing
Agreement or any other agreement, instrument or other writing now or hereafter
existing between Pledgor and Pledgee and relating to the Obligations;
(iii) any exchange, release or non-perfection of any other collateral,
or any release, amendment or waiver of, or consent to departure from any
guaranty, for any or all of the Obligations;
(iv) Pledgee's resort, during the continuation of a Pledgor Default,
to any or all of the Pledged Collateral for payment of all or part of the
Obligations prior to proceeding against any other collateral or any other party
primarily or secondarily liable for payment thereof; or
(v) to the extent permitted by law, any other circumstance which
might otherwise constitute a defense available to, or a discharge of, Pledgor in
respect of the Obligations or this Pledge Agreement.
14. Termination; Release of Pledged Collateral. This Agreement and the
------------------------------------------
security interest granted hereunder shall terminate on the date on which all
Obligations have been fully satisfied. Pledgee shall thereupon reassign and
redeliver (or cause to be reassigned and redelivered) to Pledgor or such
person(s) as Pledgor shall designate, against due execution and delivery by
Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form
and substance, such items of the Pledged Collateral (if any) as are then held by
Pledgee or its Representatives, together with appropriate instruments of
reassignment and release. Any such reassignment shall be without recourse to or
warranty by Pledgee or any such Representative and at the expense of Pledgor.
-9-
<PAGE>
15. Notices. All notices, requests, directions, consents, waivers and
-------
other communications hereunder shall be in writing and shall be transmitted by
the means and to the addresses from time to time specified in the Financing
Agreement.
16. Binding Agreement; Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that Pledgor shall not assign or otherwise
-------- -------
transfer any of its obligations, rights or interests hereunder without the prior
written consent of Pledgee.
17. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Connecticut, except to the
extent that the remedies hereunder in respect of the Pledged Collateral are
governed by the laws of the State of Indiana. Wherever possible each provision
of this Pledge Agreement shall be construed in such manner as to be valid and
enforceable under applicable law, but if any provision hereof shall be deemed
invalid or unenforceable to any extent in any jurisdiction, such provision shall
be ineffective only to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remainder of such provision or any
of the other provisions hereof, and any such invalidity or unenforceability in
one jurisdiction shall not render such provision ineffective in any other
jurisdiction.
18. Titles; Defined Terms; Counterparts. Section titles are for
-----------------------------------
convenience only and shall not define, limit, amplify, supplement or otherwise
modify or affect the substance or intent of this Pledge Agreement or any
provision hereof. Initial capitalized terms not defined herein shall have the
meanings ascribed to them in the Financing Agreement. This Pledge Agreement may
be executed in two or more counterparts, each of which shall when executed by
both parties be deemed to be an original but all of which together shall
constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
Agreement to be duly executed by its respective authorized officer as of the
date first above written.
VASA INSURANCE GROUP, INC.
By:__________________________
Print Name:
Print Title:
VASA BROUGHER, INC.
By:__________________________
Print Name:
Print Title:
FLEET NATIONAL BANK
By:__________________________
Print Name:
Print Title:
-11-
<PAGE>
ATTACHMENT A
ISSUED AND OUTSTANDING SHARES
OF CAPITAL STOCK
----------------
Name No. of Shares
- ---- -------------
VASA North Atlantic Insurance Company 1,064
<PAGE>
EXHIBIT J
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT ("Guaranty") is dated as of December __, 1998,
by each of the corporations that is a signatory hereto (each "Guarantor") for
the benefit of FLEET NATIONAL BANK, a national banking association ("Bank").
WHEREAS, pursuant to the Credit Agreement dated as of December 20, 1994
between The Centris Group, Inc. ("Borrower") and Bank, as amended by a First
Amendment dated as of March 29, 1996, a Second Amendment to the Credit Agreement
dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated
September 30, 1998, a Fourth Amendment to the Credit Agreement (Amending and
Restating the Credit Agreement) dated as of October 26, 1998 and a Fifth
Amendment to the Credit Agreement dated as of December 28, 1998 (said Credit
Agreement as currently in effect and as from time to time amended, modified or
supplemented, the "Credit Agreement" and together with all documents and
instruments executed or to be executed in connection therewith, being herein
collectively called the "Loan Documents"), Bank has agreed to make certain
revolving loans to Borrower subject to certain conditions.
WHEREAS, Bank will extend credit to Borrower only if each Guarantor
unconditionally guarantees payment of the indebtedness and obligations of
Borrower to the Bank, as set forth herein, and a condition precedent to the
granting of any credit by Bank under the Loan Documents is the execution and
delivery of this Agreement by each Guarantor;
WHEREAS, each Guarantor is a wholly-owned subsidiary of Borrower, or a
corporation controlled by such a subsidiary of Borrower, and has received, and
will receive, material and substantial, direct or indirect benefit from the
extension of credit by Bank to Borrower;
NOW, THEREFORE, as an inducement to Bank to extend credit to Borrower,
and for other good and valuable consideration, the receipt and legal sufficiency
of which are hereby acknowledged, each Guarantor hereby agrees as follows:
Article I
---------
Nature and Scope of Guaranty
----------------------------
Section l.0l. Guaranty of Obligation. Each Guarantor hereby irrevocably
------------- ----------------------
and unconditionally guarantees to Bank and its respective successors and assigns
the due and punctual payment of the "Guaranteed Debt" (hereinafter defined).
Each Guarantor hereby irrevocably and unconditionally covenants and agrees that
it is liable for the Guaranteed Debt as primary obligor.
Section 1.02. Definition of Guaranteed Debt. As used herein, the term
------------- -----------------------------
"Guaranteed Debt" means:
<PAGE>
(a) All principal, interest, attorneys' fees, commitment fees,
liabilities for costs and expenses and other indebtedness, obligations
and liabilities of Borrower to Bank at any time created, now or
hereafter existing, due or to become due, howsoever incurred, arising
or evidenced, whether of principal or interest or payment or
performance, including without limitation any of the foregoing arising
in connection with the Loan Documents, or any amendments thereto or
substitutions therefor, under any documents and instruments executed in
connection therewith, and under any renewals, extensions, amendments,
restatements, supplements, modifications, or increases thereof or of
any promissory notes executed in connection therewith; and
(b) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the
collection of any or all amounts, indebtedness, obligations and
liabilities of Borrower to Bank described in Section l.02(a) above.
Section 1.03. Indebtedness Not Reduced by Offset. The Guaranteed Debt,
------------- -----------------------------------
and the liabilities and obligations of each Guarantor to Bank hereunder, shall
not be reduced, discharged or released because or by reason of any existing or
future offset, claim or defense of Borrower, or any other party, against Bank,
or against payment of the Guaranteed Debt, whether such offset, claim or defense
arises in connection with the Guaranteed Debt (or the transactions creating the
Guaranteed Debt) or otherwise; provided, however, nothing in this Agreement
shall be construed as a waiver by any Guarantor of any rights or claims which
such Guarantor may have against Bank under this Agreement or otherwise, but any
recovery upon such rights and claims shall be had from Bank separately. Without
limiting the foregoing or each Guarantor's liability hereunder, to the extent
that Bank advances funds or extends credit to Borrower, and does not receive
payments or benefits thereon in the amounts and at the times required or
provided by applicable agreements or laws, each Guarantor, subject to the terms
and conditions hereof, is absolutely liable to make such payments to (and confer
such benefits on) Bank, on a timely basis.
Section 1.04. "Borrower" to Include New Corporations and Partnerships.
------------- -------------------------------------------------------
The term "Borrower" as used herein shall include any new or successor
corporation or partnership technically formed as a result of any merger,
consolidation, or reorganization of Borrower permitted by the Loan Documents.
Section 1.05. Payment by Each Guarantor. If all or any part of the
------------- -------------------------
Guaranteed Debt shall not be punctually paid when due, whether upon demand or at
maturity or earlier by acceleration or otherwise, each Guarantor shall, subject
to the terms and conditions hereof, immediately upon demand by Bank, and without
presentment, protest, notice of protest, notice of non-payment, notice of
intention to accelerate or acceleration or any other notice whatsoever, pay in
lawful money of the United States of America, the amount due on the Guaranteed
Debt to Bank at Bank's principal office. Such demand(s) may be made at any time
coincident with or after the time for payment of all or part of the Guaranteed
Debt, and may be made from time to time with respect to the same or different
items of Guaranteed Debt. Such demand shall be deemed made, given and received
in accordance with Section 4.04 hereof.
------------
-2-
<PAGE>
Section 1.06. No Duty to Pursue Others. It shall not be necessary for
------------- -------------------------
Bank (and each Guarantor hereby waives any rights which such Guarantor may have
to require Bank) in order to enforce payment by such Guarantor, first to (i)
institute suit or exhaust its remedies against Borrower or others liable on the
Guaranteed Debt or any other Person, (ii) enforce Bank's rights against any
security which shall ever have been given to secure the Guaranteed Debt, (iii)
enforce Bank's rights against any other Guarantor or other guarantors, if any,
of the Guaranteed Debt, (iv) join Borrower or others, if any, liable on the
Guaranteed Debt in any action seeking to enforce this Agreement, (v) exhaust any
remedies available to Bank against any security which shall ever have been given
to secure the Guaranteed Debt, or (vi) resort to any other means of obtaining
payment of the Guaranteed Debt. Bank shall not be required to mitigate damages
or take any other action to reduce, collect or enforce the Guaranteed Debt.
Section 1.07 Waiver of Notices etc. Each Guarantor hereby waives notice
------------ ---------------------
of (i) any loans or advances made by Bank to Borrower, (ii) acceptance of this
Agreement, (iii) any amendment or extension of any instrument or document
pertaining to all or any part of the Guaranteed Debt, (iv) the execution and
delivery by Borrower or Bank of any loan or credit agreement or of Borrower's
execution and delivery of any promissory notes or other documents in connection
therewith, (v) the occurrence of any breach by Borrower of any agreement among
Borrower and Bank, (vi) the transfer or disposition of the Guaranteed Debt, or
any part thereof, by Bank, (vii) sale or foreclosure (or posting or advertising
for sale or foreclosure) of any collateral for the Guaranteed Debt, (viii)
protest, proof of non-payment or default by Borrower, or (ix) any other action
at any time taken or omitted by Bank, and, generally, all demands and notices of
every kind in connection with this Agreement, any documents or agreements
evidencing, securing or relating to any of the Guaranteed Debt and the
obligations hereby guaranteed other than demands and notices specifically
required by this Agreement.
Section l.08. Nature of Guaranty. This Agreement is an irrevocable,
------------- ------------------
absolute, guaranty of payment and not a guaranty of collection. This Agreement
may not be revoked by any Guarantor and shall continue to be effective with
respect to any Guaranteed Debt arising or created after any attempted revocation
by any Guarantor. The fact that at any time or from time to time the Guaranteed
Debt may be increased, reduced or paid in full shall not release, discharge or
reduce the obligation of each Guarantor with respect to Guaranteed Debt
thereafter incurred (or other Guaranteed Debt thereafter arising). This
Agreement may be enforced by the Bank (and any subsequent holder of the
Guaranteed Debt) and shall not be discharged by the assignment or negotiation of
all or part of the Guaranteed Debt.
Section l.09. Payment of Expenses. In the event that any Guarantor
------------- -------------------
should breach or fail to timely perform any provisions of this Agreement, each
Guarantor shall, immediately upon demand by Bank, pay to Bank all costs and
expenses (including court costs and reasonable attorneys' fees) incurred by Bank
in the enforcement hereof or the preservation of Bank's rights hereunder. The
covenant contained in this Section l.09 shall survive the payment of the
------------
Guaranteed Debt.
-3-
<PAGE>
Section 1.10. Effect of Bankruptcy. In the event that, pursuant to any
------------- --------------------
insolvency, bankruptcy, reorganization, receivership or other debtor relief law,
or any judgment, order or decision thereunder, Bank must rescind or restore any
payment, or any part thereof, received by Bank in satisfaction of the Guaranteed
Debt, as set forth herein, any prior release or discharge from the terms of this
Agreement given to any Guarantor by Bank shall be without effect, and this
Agreement shall remain in full force and effect. It is the intention of Borrower
and each Guarantor that each Guarantor's obligations hereunder shall not be
discharged except by such Guarantor's performance of such obligations and then
only to the extent of such performance or by the indefeasible payment in full of
the Guaranteed Debt in cash.
Article II
----------
Events and Circumstances Not Reducing or Discharging
----------------------------------------------------
Each Guarantor's Obligations
----------------------------
Each Guarantor hereby consents and agrees to each of the following, and
agrees that such Guarantor's obligations under this Agreement shall not be
released, diminished, impaired, reduced or adversely affected by any of the
following, and waives any common law, equitable, statutory or other rights
(including without limitation rights to notice) which such Guarantor might
otherwise have as a result of or in connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
------------- ------------------
modification, alteration or rearrangement of all or any part of the Guaranteed
Debt or any loan agreement, security agreement, collateral document or other
document, instrument, contract or understanding among any of Borrower, Bank, or
any other parties, pertaining to the Guaranteed Debt;
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance
------------- ---------------
or compromise that might be granted or given by Bank to Borrower or any
Guarantor;
Section 2.03. Condition of Borrower or Any Guarantor. The insolvency,
------------- --------------------------------------
bankruptcy, arrangement, adjustment, composition, liquidation, disability,
dissolution or lack of power of Borrower or any other party at any time liable
for the payment of all or part of the Guaranteed Debt; or any dissolution of
Borrower or any Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or any Guarantor, or any changes in the shareholders,
partners or members of Borrower or any Guarantor; or any reorganization of
Borrower or any Guarantor;
Section 2.04. Invalidity of Guaranteed Debt. The invalidity, illegality
------------- -----------------------------
or unenforceability of all or any part of the Guaranteed Debt, or any document
or agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including without limitation the fact that (i) the Guaranteed Debt,
or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
officers or representatives executing the documents creating the Guaranteed Debt
acted in excess of their authority, (iv) the Guaranteed Debt violates applicable
usury laws, (v) Borrower has valid defenses, claims or offsets
-4-
<PAGE>
(whether at law, in equity or by agreement) which render the Guaranteed Debt
wholly or partially uncollectible from Borrower, (vi) the creation, performance
or repayment of the Guaranteed Debt (or the execution, delivery and performance
of any document or instrument representing part of the Guaranteed Debt or
executed in connection with the Guaranteed Debt, or given to secure the
repayment of the Guaranteed Debt) is illegal, uncollectible or unenforceable, or
(vii) the documents or instruments pertaining to the Guaranteed Debt have been
forged or otherwise are irregular or not genuine or authentic;
Section 2.05. Release of Obligors. Any full or partial release of the
------------- -------------------
liability of Borrower on the Guaranteed Debt or any part thereof, or of any
co-guarantors, or any other Person (as defined in the Credit Agreements) now or
hereafter liable, whether directly or indirectly, jointly, severally, or jointly
and severally, to pay, perform, guarantee or assure the payment of the
Guaranteed Debt or any part thereof, it being recognized, acknowledged and
agreed by each Guarantor that such Guarantor may be required to pay the
Guaranteed Debt in full without assistance or support of any other party, and
such Guarantor has not been induced to enter into this on the basis of a
contemplation, belief, understanding or agreement that other parties will be
liable to perform the Guaranteed Debt, or that Bank will look to other parties
to perform the Guaranteed Debt;
Section 2.06. Other Security. The taking or accepting of any other
------------- --------------
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Debt;
Section 2.07. Release of Collateral etc. Any release, surrender,
------------- -------------------------
exchange, subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable impairment)
of any collateral, property or security, at any time existing in connection
with, or assuring or securing payment of, all or any part of the Guaranteed
Debt;
Section 2.08. Care and Diligence. The failure of Bank or any other
------------- ------------------
party to exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security;
Section 2.09. Status of Liens. The fact that any collateral, security,
------------- ---------------
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Guaranteed Debt shall not be
properly perfected or created, or shall prove to be unenforceable or subordinate
to any other security interest or lien, it being recognized and agreed by each
Guarantor that such Guarantor is not entering into this Agreement in reliance
on, or in contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Guaranteed Debt;
Section 2.10. Offset. The Guaranteed Debt, and the liabilities and
------------- ------
obligations of each Guarantor to Bank hereunder, shall not be reduced,
discharged or released because of or by reason of any existing or future right
of offset, claim or defense of Bank against Borrower, or any other party, or
against payment of the Guaranteed Debt, whether such right of offset, claim or
defense
-5-
<PAGE>
arises in connection with the Guaranteed Debt (or the transactions creating the
Guaranteed Debt) or otherwise, subject to the provision of Section 1.03 hereof;
------- ----
Section 2.11. Merger. The reorganization, merger or consolidation of
------------- ------
Borrower into or with any other corporation, partnership or other entity;
Section 2.12. Preference. Any payment by Borrower to Bank is held to
------------- ----------
constitute a preference under bankruptcy laws, or for any reason Bank is
required to refund such payment or pay such amount to Borrower or someone else;
or
Section 2.13. Other Actions Taken or Omitted. Any other action taken or
------------- ------------------------------
omitted to be taken with respect to, the Guaranteed Debt, or the security and
collateral therefor, whether or not such action or omission prejudices any
Guarantor or increases the likelihood that any Guarantor will be required to pay
the Guaranteed Debt pursuant to the terms hereof; it is the unambiguous and
unequivocal intention of such Guarantor that, such Guarantor shall be obligated
to pay the Guaranteed Debt when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described herein,
except for the full and final payment and satisfaction of the Guaranteed Debt.
Article III
-----------
Representations, Warranties and Covenants
-----------------------------------------
To induce Bank to extend credit to Borrower, each Guarantor represents,
warrants and covenants to Bank that:
Section 3.01. Benefit. Each Guarantor has received, or will receive,
------------- -------
material and substantial, direct or indirect benefit from the making of this
Agreement and the Guaranteed Debt;
Section 3.02. Familiarity and Reliance. Each Guarantor is familiar
------------- ------------------------
with, and has independently reviewed books and records regarding, the financial
condition of Borrower and is familiar with the value of any and all collateral
intended to be created as security for the payment of the Guaranteed Debt;
however, such Guarantor is not relying on such financial condition or the
collateral as an inducement to enter into this Agreement;
Section 3.03. No Representation by Bank. Neither Bank nor any other
------------- -------------------------
party has made any representation, warranty or statement to any Guarantor in
order to induce such Guarantor to execute this Agreement;
Section 3.04. Solvency, etc. On the date hereof and after giving effect
------------- -------------
to all the transactions contemplated hereby, (i) the assets of each Guarantor,
at a fair valuation, will exceed its liabilities, including contingent
liabilities, (ii) the remaining capital of each Guarantor will not be
unreasonably
-6-
<PAGE>
small to conduct its business, and (iii) each Guarantor will not have incurred
debts, and does not intend to incur debts, beyond its ability to pay such debts
as they mature. For purposes of this Section 3.04, "debt" means any liability on
------------
a claim, and "claim" means (i) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, secured, or unsecured; or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured;
Section 3.05. Binding Obligation. This Agreement constitutes the valid
------------- ------------------
and binding legal obligation of each Guarantor, enforceable in accordance with
its terms and the execution and delivery will not conflict with or result in a
breach of or constitute a default under any instrument to which such Guarantor
is a party or by which such Guarantor or such Guarantor's property is bound, or
violate any applicable provision of law or any judgment, order, writ,
injunction, decree, rule or regulation of any court, administrative agency or
other governmental agency or authority;
Section 3.06. Obstacles to Guaranty. The execution, delivery and
------------- ---------------------
performance by each Guarantor of this Agreement will not conflict with or result
in any breach of any provision of, or constitute a default under, or breach of
any provision of, or result in the imposition of any lien or charge upon any
asset of such Guarantor, or result in the acceleration of any obligation under
the terms of any agreement or document binding upon such Guarantor. No consent
of any party, and no approval or authorization of any governmental authority is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, other than any approval, authorization or
consent which has as of the date hereof been obtained;
Section 3.07. Survival. All representations and warranties made by each
------------- --------
Guarantor herein shall survive the execution hereof; and
Section 3.08. Litigation. There is no suit, action or proceeding
------------- ----------
pending or, to the knowledge of any Guarantor, threatened against or affecting
such Guarantor, before or by any court, administrative agency or other
governmental authority;
Article IV
----------
Miscellaneous
-------------
Section 4.01. Waiver of Subrogation. Until the payment and performance
------------- ---------------------
in full of all of the Guaranteed Debt, each Guarantor hereby irrevocably waives
any claim or other rights which it may now have or hereafter acquire against
Borrower or any other Guarantor that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under this Agreement
or any other Loan Documents, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, any
right to participate in any claim or remedy of Bank against Borrower or any
Guarantor or any collateral which Bank now has or
-7-
<PAGE>
hereafter acquires, whether or not such claim, remedy or right arises in equity,
or under contract, statute or common law, including without limitation, the
right to take or receive from Borrower, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentences and the Guaranteed Debt shall not have been
paid in full, such amount shall be deemed to have been paid to such Guarantor
for the benefit of, and held in trust for the benefit of, Bank, and shall
forthwith be paid to Bank and applied upon the Guaranteed Debt, whether matured
or unmatured, in accordance with the terms of the other Loan Documents. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Credit Agreement and that the
waiver set forth in this Section 4.01 is knowingly made in contemplation of such
------------
benefits.
Section 4.02. Subordination. All debt and other liabilities of Borrower
------------- -------------
to each Guarantor are expressly subordinate and junior to the Guaranteed Debt.
Section 4.03. Waiver. No failure to exercise, and no delay in
------------- ------
exercising, on the part of Bank, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of Bank
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Agreement, nor consent to
departure therefrom, shall be effective unless in writing signed by the
applicable Guarantor and Bank, and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
Section 4.04. Notices. Any notices or other communications required or
------------- -------
permitted to be given by this Agreement shall be in writing and shall be deemed
to have been given three (3) days after deposit in the mail, designated as
certified mail, return receipt requested, post-prepaid, or one (1) day after
being entrusted to a reputable commercial overnight delivery service, or upon
transmission of a telecopy addressed to the party to which such notice is
directed at its address determined as provided in this Section 4.04. All notices
-------------
and other communications under this Agreement shall be given to the parties
hereto at the following addresses:
Guarantors:
VASA Insurance Group, Inc.
525 South Meridian Street
Indianapolis, IN 46225-1122
Attn.: ___________
Telecopy No.: (___) _________
VASA Brougher, Inc.
525 South Meridian Street
-8-
<PAGE>
Indianapolis, IN 46225-1122
Attn.: ___________
Telecopy No.: (___) _________
VASA North America, Inc.
525 South Meridian Street
Indianapolis, IN 46225-1122
Attn.: ___________
Telecopy No.: (___) _________
Bank:
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: David Albanesi
Telecopy: (860) 986-2688
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid or, if mailed, on the day it is mailed as aforesaid, or, if
transmitted by telecopy, on the day that such notice is transmitted as
aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to the other party pursuant to this Section 4.04.
------- ----
Section 4.05. Governing Law. This Agreement has been prepared, and is
------------ -------------
intended to be performed in the State of Connecticut, and the substantive laws
of such state shall govern the validity, construction, enforcement and
interpretation of this Agreement. For purposes of this Agreement and the
resolution of disputes hereunder, each Guarantor hereby irrevocably submits and
consents to, and waives any objection to, the non-exclusive jurisdiction of any
state court of the State of Connecticut and of any United States Federal court
sitting in Connecticut.
Section 4.06. Invalid Provisions. If any provision of this Agreement is
------------ ------------------
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this Agreement,
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement, unless such continued
effectiveness of this Agreement, as modified, would be contrary to the basic
understandings and intentions of the parties as expressed herein.
Section 4.07. Entirety and Amendments. This Agreement embodies the
------------ -----------------------
entire agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the
-9-
<PAGE>
subject matter hereof, and this Agreement may be amended only by an instrument
in writing executed by an authorized officer of the party against whom such
amendment is sought to be enforced.
Section 4.08. Parties Bound Assignment. This Agreement shall be binding
------------ ------------------------
upon and inure to the benefit of the parties hereto and their respective
successors, assigns and legal representatives; provided, however, that no
Guarantor may, without the prior written consent of Bank, assign any of its
rights, powers, duties or obligations hereunder.
Section 4.09. Headings. Section headings are for convenience of
------------ --------
reference only and shall in no way affect the interpretation of this Agreement.
Section 4.10. Multiple Counterparts. This Agreement may be executed in
------------ ---------------------
any number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 4.11. Rights and Remedies. If any Guarantor becomes liable for
------------ -------------------
any indebtedness owing by Borrower to Bank, by endorsement or otherwise, other
than under this Agreement, such liability shall not be in any manner impaired or
affected hereby and the rights of Bank hereunder shall be cumulative of any and
all other rights that Bank may ever have against such Guarantor. The exercise by
Bank of any right or remedy hereunder or under any other instrument, or at law
or in equity, shall not preclude the concurrent or subsequent exercise of any
other right or remedy.
Section 4.12. Waiver of Acceptance. Each Guarantor hereby waives any
------------ --------------------
legal requirement that Bank accept this Guaranty in order to enforce such
Guarantor's promises made herein.
SECTION 4.13. ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL
------------ ----------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 4.14. WAIVER OF JURY. EACH GUARANTOR IRREVOCABLY WAIVES TRIAL
------------ --------------
BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING
IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS
CONTEMPLATED BY THIS GUARANTY OR ANY AGREEMENT, INSTRUMENT OR WRITING RELATED
THERETO AND THE ENFORCEMENT OF ANY OF BANK'S RIGHTS AND REMEDIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
EXECUTED as of the day and year first above written.
VASA INSURANCE GROUP, INC.
By:______________________________
Name:
Title:
VASA BROUGHER, INC.
By:______________________________
Name:
Title:
VASA NORTH AMERICA, INC.
By:______________________________
Name:
Title:
Acceptance by: FLEET NATIONAL BANK
By:______________________________
Name:
Title:
-11-
<PAGE>
EXHIBIT B TO FIFTH AMENDMENT
----------------------------
OFFICER'S CERTIFICATE
THE CENTRIS GROUP, INC.
______ __, 199_
Pursuant to Section 2(e) of the Fifth Amendment dated as of December
28, 1998 between The Centris Group, Inc., formerly known as US Facilities
Corporation (the "Borrower") and Fleet National Bank, formerly known as Shawmut
Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank"),
I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that:
1. I am the duly elected, qualified and acting Chief Financial
Officer of the Borrower; and
2. Attached hereto as Attachment 1 is a true and correct copy of the
consolidated and consolidating SAP and GAAP financial statements
of the Borrower and its Subsidiaries as of the close of the
fiscal [YEAR/QUARTER] ending __________, 199_; and
3. I have reviewed the Fifth Amendment and the Credit Agreement and
the condition and transactions of the Borrower and its
Subsidiaries for the fiscal [YEAR/QUARTER] ending _____, 199_,
and to the best of my knowledge the Borrower has observed and
performed all of its covenants and other agreements, and
satisfied every condition contained in the Fifth Amendment,
Credit Agreement and the Revolving Note, and I have not obtained
knowledge of any condition or event which constitutes a Default
or an Event of Default, except as set forth on Attachment 2
attached hereto; and
4. Attached hereto as Attachment 3 is true and correct information
(with detailed calculations) establishing that the Borrower was
in compliance with the covenants set forth in the Credit
Agreement during the fiscal [YEAR/QUARTER] ending __________ ___,
199_.
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement, pursuant to which this certificate is
delivered.
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate as of the date
hereof on behalf of _____________.
By:________________________________
Print Name:
Title: Chief Financial Officer
-2-
<PAGE>
ATTACHMENT 1
to
Officer's Certificate
Financial Statements
--------------------
for the period ending
_____________ __, 199_
<PAGE>
ATTACHMENT 2
to
Officer's Certificate
Defaults and Events of Default
------------------------------
Note: If a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action proposed to be taken by
the Borrower with respect thereto as required.
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 1 of 6
Computations and Information
Showing Compliance with
Sections 7.9 to 7.16, 7.18, 7.19 and 7.21
of the
Credit Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement.
SECTION 7.9. CAPITAL EXPENDITURES
--------------------
<TABLE>
<S> <C>
1. Aggregate Capital Expenditures actually made, or committed to be made, during
the fiscal year beginning [FILL IN DATE OF START OF FISCAL YEAR] = ________________
2. Line 1 does not exceed $2,500,000.
SECTION 7.10(A). MINIMUM STATUTORY SURPLUS
-------------------------
1. Statutory Surplus of USF RE as of the fiscal quarter ending ____ __, 199__
(prior to the USF RE Sale) = ________________
2. Positive Statutory Net Income for each fiscal quarter following the fiscal
quarter ended December 31, 1995 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of positive Statutory Net Income for each of the quarters set forth
in Line 2 above = ________________
2b. 75% of line 2a = ________________
3. Contributions to surplus made by Borrower to USF RE during each fiscal
quarter following the fiscal quarter ended December 31, 1995 were:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
3a. The sum of the contributions for each of the quarters set forth in line 3
above = ________________
4. The sum of $80,000,000 and line 2b and line 3a = ________________
5. Line 1 is not less than line 4.
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 2 of 6
<TABLE>
<S> <C>
1. Combined Statutory Surplus of VASA North Atlantic and Seaboard as of the
fiscal quarter ending ____ __, 199__ = ________________
2. Positive Statutory Net Income for each fiscal quarter following the fiscal
quarter ended June 30, 1999 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of positive Statutory Net Income for each of the quarters set forth
in Line 2 above = ________________
2b. 75% of line 2a = ________________
3. Contributions to surplus made by Borrower to VASA North Atlantic and Seaboard
during each fiscal quarter following the fiscal quarter ended June 30, 1999
were:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
3a. The sum of the contributions for each of the quarters set forth in line 3
above = ________________
4. The sum of $42,500,000 and line 2b and line 3a = ________________
5. Line 1 is not less than line 4.
SECTION 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH
-----------------------------------
1. Consolidated GAAP Net Worth as of the fiscal quarter ending
______________, 199__. = ________________
2. Consolidated positive net income (as determined in accordance with GAAP) for
each fiscal quarter following the fiscal quarter ended June 30, 1998 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of the positive net income for each of the quarters set forth in Line
2 above = ________________
2b. 50% of line 2a = ________________
3. Paid-in capital resulting from any issuance by the Borrower of its
capital stock = ________________
4. The sum of $100,000,000 and line 2b and line 3 = ________________
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 3 of 6
<TABLE>
<S> <C>
5. Line 1 is not less than line 4.
SECTION 7.12. MAXIMUM PREMIUMS TO SURPLUS
---------------------------
1. Aggregate Net Premiums Written by all Insurance Subsidiaries of the Borrower
for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING
DATE FOR FISCAL QUARTER]) = ________________
2. Combined Statutory Surplus of all Insurance Subsidiaries of the Borrower at
the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ________________
3. The ratio of line 1 to line 2 = ________________
4. The ratio in line 3 is not greater than 3.0 to 1 at the end of the first
fiscal quarter of each year and 2.0 to 1 at the end of the second, third and
fourth fiscal quarters of each fiscal year.
SECTION 7.13. [Reserved.]
SECTION 7.14. MINIMUM INTEREST COVERAGE.
-------------------------
For each Insurance Subsidiary:
1. Available Dividends minus dividends paid by such Insurance Subsidiary to the
Borrower for the immediately preceding four fiscal quarters ending on [FILL IN
ENDING DATE FOR FISCAL QUARTER] = ________________
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance
Subsidiaries) for the immediately preceding four
fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). = ________________
3. The sum of line 1 and line 2 = ________________
4. Interest Expense for the immediately following four fiscal quarters
(beginning on [FILL IN BEGINNING DATE FOR FOLLOWING FOUR FISCAL QUARTERS]) = ________________
5. The ratio of line 3 to line 4 = ________________
6. The ratio in line 5 is not less than 2.0 to 1.0 for the fiscal year ending
December 31, 1995 (3.0 to 1.0 for each fiscal year thereafter).
</TABLE>
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 4 of 6
SECTION 7.15. MINIMUM FIXED CHARGE COVERAGE.
-----------------------------
For each Insurance Subsidiary:
1. Available Dividends minus dividends paid by such Insurance
Subsidiary to the Borrower for the immediately preceding four
fiscal quarters ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =____________
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding
four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL
QUARTER]) =____________
3. The sum of line 1 and line 2 =____________
4. Fixed Charges for the immediately succeeding four fiscal
quarters (beginning on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________
5. The ratio of line 3 to line 4 =____________
6. The ratio in line 5 is not less than 1.5 to 1.0 for the
fiscal year ending December 31, 1995 (1.7 to 1.0 for each fiscal
year thereafter).
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 5 of 6
SECTION 7.16. MINIMUM DEBT SERVICE COVERAGE.
-----------------------------
For each Insurance Subsidiary
1. Available Dividends of such Insurance Subsidiary as of the
end of the fiscal quarter ending on [FILL IN ENDING DATE FOR
FISCAL QUARTER] =____________
2. Total taxes paid by such Insurance Subsidiary to the
Borrower pursuant to any intercorporate tax-sharing agreement for
the immediately preceding four fiscal quarters (ending on [FILL
IN ENDING DATE FOR FISCAL QUARTER]) =____________
3. Consolidating income before taxes of the Borrower and
Subsidiaries (except Insurance Subsidiaries) for the immediately
preceding four fiscal quarters (ending on [FILL IN ENDING DATE
FOR FISCAL QUARTER]) =____________
4. Total taxes (based on GAAP) paid by the Borrower on a
consolidated basis for the immediately preceding four fiscal
quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________
5. Distributions by Borrower for the immediately preceding four
fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL
QUARTER]). =____________
6. The sum of line 1, line 2 and line 3 minus line 4 and line 5 =____________
7. Total Interest Expense of the Borrower and its Subsidiaries
on a consolidated basis for the immediately succeeding four
fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF THE
NEXT SUCCEEDING QUARTER]) =____________
8. Total mandatory reductions of Commitment for the succeeding
four fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF
THE NEXT SUCCEEDING QUARTER]). =____________
9. The sum of line 7 and line 8 =____________
10. The ratio of line 6 to line 9 =____________
11. The ratio in line 10 is not less than 1.5 to 1.0.
SECTION 7.18. RISK-BASED CAPITAL RATIO.
------------------------
1. The combined Risk-Based Capital Ratio of the Insurance
Subsidiaries of the Borrower as of the end of the fiscal quarter
ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =____________
2. The ratio in line 1 is not less than 200%
<PAGE>
ATTACHMENT 3 to
Officer's Certificate
Page 6 of 6
SECTION 7.19. MINIMUM CREDIT RATINGS.
----------------------
1. The A.M. Best Rating of USF RE (until the USF RE Sale) =____________
2. The A.M. Best Rating of VASA North Atlantic =____________
3. The A.M. Best Rating of Seaboard. =____________
4. The ratings in lines 1, 2 and 3 are not less than "A-".
SECTION 7.21. DEBT TO CAPITAL RATIO.
---------------------
1. From the period of December 28, 1998 to June 30, 1999,
a. For the fiscal quarter ended [_____________],
consolidated Debt of the Borrower and its
Subsidiaries =____________
b. For the fiscal quarter ended [_____________],
consolidated GAAP Net Worth =____________
c. Sum of lines a and b. =____________
d. 45% of line c =____________
e. Line a does not exceed line d.
2. After June 30, 1999,
a. For the fiscal quarter ended [_____________],
consolidated Debt of the Borrower and its
Subsidiaries =____________
b. For the fiscal quarter ended [_____________],
consolidated GAAP Net Worth =____________
c. Sum of lines a and b. =____________
d. 35% of line c. =____________
e. Line a does not exceed line d.
<PAGE>
EXHIBIT C TO FIFTH AMENDMENT
----------------------------
(Description of Opinion of California Counsel to Borrower)
The opinion of R.W. Loeb, Professional Law Corporation, counsel to the
Borrower, which is called for by Section 2(l) of the Fifth Amendment, shall be
dated the Closing Date and addressed to the Bank, and shall be in form and
substance satisfactory to the Bank, and shall be to the effect that:
1. The Borrower, and each of its Subsidiaries, is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority (a)
to own its assets and to transact the business in which it is now engaged and
(b) with respect to the Borrower (i) to enter into and perform the Fifth
Amendment, (ii) to issue and deliver the Revolving Note, (iii) to enter into and
perform the Pledge Agreements, (iv) to execute and deliver the documents and
certificates delivered in connection with the Fifth Amendment, the Revolving
Note, the Pledge Agreements, the Acknowledgment and Ratification of the Pledge
Agreement and (iv) to carry out the transactions contemplated by the Fifth
Amendment, the Revolving Note, Pledge Agreements and the Acknowledgment and
Ratification of the Pledge Agreement.
2. The Borrower and each of its Subsidiaries are each duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required, except where the failure
to be so qualified would not have a material adverse effect on the financial
condition, operations, Properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under the Fifth Amendment, the Revolving Note, the Pledge Agreements
and the Acknowledgment and Ratification of the Pledge Agreement. The Borrower
is the record and beneficial owner of all of the issued and outstanding shares
of capital stock of USF RE INSURANCE COMPANY, USBENEFITS Insurance Services,
Inc. and the other Subsidiaries, free and clear of any Lien, and all such shares
have been duly issued and are fully paid and non-assessable. The certificates
and/or other instruments or writings pledged to you and delivered to you
pursuant to the USF RE Pledge Agreement represent all of the issued and
outstanding shares of capital stock of USF RE INSURANCE COMPANY.
3. The Fifth Amendment, the Revolving Note, the USF RE Pledge Agreement
and the Acknowledgment and Ratification of the Pledge Agreement have been duly
executed and delivered by duly authorized officers of the Borrower and
constitute the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, except to the
extent that such enforcement may be limited by applicable bankruptcy,
<PAGE>
insolvency and other similar laws affecting creditors' rights generally and by
general principles of equity.
4. The execution, delivery and performance by the Borrower of the Fifth
Amendment, the Revolving Note, the USF RE Pledge Agreement and the
Acknowledgment and Ratification of the Pledge Agreement have been duly
authorized by all necessary corporate action and do not and will not: (a)
require any consent or approval of the shareholders of the Borrower; (b) violate
any provisions of the articles of incorporation or by-laws of the Borrower; (c)
violate any provision of any law, rule or regulation (including without
limitation, Regulation U and X of the Board of Governors of the Federal Reserve
System) or, to our knowledge, after due inquiry, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to and binding upon the Borrower or any of its Subsidiaries; (d)
result in a breach of or constitute a default or require any consent under any
loan or credit agreement or any other agreement, mortgage, indenture, lease or
instrument known to us, after due inquiry, to which the Borrower or any
Subsidiary is a party or by which the Properties of the Borrower or any of its
Subsidiaries may be bound or affected; or (e) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the Properties
now owned or hereafter acquired by the Borrower or any of its Subsidiaries,
except as created by the Pledge Agreements.
5. To the best of our knowledge, based on our inquiry of the President of
the Borrower and our knowledge of those matters as to which this firm has been
engaged by the Borrower for legal consultation or representation, except as
described in Schedule 5.4 to the Credit Agreement, there are no actions, suits
or proceedings or investigations (other than routine examinations performed by
insurance regulatory authorities) pending or threatened against or affecting the
Borrower or any of its Subsidiaries, or any Property of any of them before any
court, governmental agency or arbitrator, which if determined adversely to the
Borrower or any of its Subsidiaries would in any one case or in the aggregate,
materially adversely affect the financial condition, operations, Properties,
business or prospects of the Borrower and its Subsidiaries, taken as a whole, or
the ability of the Borrower to perform its obligations under the Fifth
Amendment, the Revolving Note, the Pledge Agreements or the Acknowledgment and
Ratification of the Pledge Agreement.
6. Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, or any statute
or regulation limiting its ability to incur indebtedness for money borrowed as
contemplated by the Fifth Amendment.
7. No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person under
any law, act, rule, regulation or otherwise, is required to authorize, or is
required in connection with the execution, delivery and performance by the
Borrower of, or the legality, validity, binding effect or enforceability of, the
Fifth Amendment, the Revolving Note, the Pledge Agreements or the Acknowledgment
and Ratification of the Pledge Agreement, except the authorizations, consents,
approvals, orders, licenses or
-2-
<PAGE>
permits described in Schedule 5.15 of the Credit Agreement which have been
obtained and are in full force and effect.
8. The USF RE Pledge Agreement created for the benefit of the holder of
the Revolving Note a valid security interest in the Pledged Collateral (as
defined in the USF RE Pledge Agreement) by such Holder, such security interest
has been duly perfected and no other action is necessary to effect or preserve
such security interest (assuming the Pledged Shares are at all times in your
possession) except that it may be advisable to file duly executed continuation
statements with respect to financing statements filed in the jurisdiction in
which the Borrower's chief executive office is located within six months prior
to the expiration of five years following the date of original filing.
The opinions expressed herein are limited to the laws of the State of
California and the federal laws of the United States of America.
The opinions expressed herein are solely for your benefit and may not be
relied upon by any other person or entity without our consent.
-3-
<PAGE>
EXHIBIT D TO FIFTH AMENDMENT
----------------------------
(Description of Opinion of Massachusetts Insurance Counsel to Borrower)
The opinion of Anderson & Kreiger, Massachusetts insurance counsel to the
Borrower, which is called for by Section 2(m) of the Fifth Amendment, shall be
dated the Closing Date and addressed to the Bank, and shall be in form and
substance satisfactory to the Bank, and shall be to the effect that:
1. The execution, delivery and performance by the Borrower of the Fifth
Amendment, the Revolving Note, the USF RE Pledge Agreement and the
Acknowledgment and Ratification of the Pledge Agreement do not and will not
violate any provision of any law, rule or regulation or, to our knowledge, after
due inquiry, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to and binding upon the Borrower or any
of its Subsidiaries.
2. No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person under
any law, act, rule, regulation or otherwise, including without limitation the
[MASSACHUSETTS INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE MASSACHUSETTS
HOLDING COMPANY ACT (THE "ACT")], is required to authorize, or is required in
connection with the execution, delivery and performance by the Borrower of, or
the legality, validity, binding effect or enforceability of, the Fifth
Amendment, the Revolving Note, the USF RE Pledge Agreement or the Acknowledgment
and Ratification of the Pledge Agreement.
3. USF RE INSURANCE COMPANY is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own its assets and to
transact the business in which it is now engaged.
The opinions expressed herein are limited to the laws of the Commonwealth
of Massachusetts.
The opinions expressed herein are solely for your benefit and may not be
relied upon by any other person or entity without our consent.
<PAGE>
EXHIBIT E TO FIFTH AMENDMENT
----------------------------
ACKNOWLEDGMENT AND RATIFICATION
OF THE PLEDGE AGREEMENT
Reference is made to that certain Pledge Agreement dated as of December 20,
1994 between The Centris Group Inc., formerly known as US Facilities
Corporation, a Delaware corporation ("Pledgor"), and Fleet National Bank, a
national banking association formerly known as Shawmut Bank Connecticut, N.A.
and Fleet National Bank of Connecticut ("Pledgee").
1. To secure the prompt and complete payment and performance when due of
the Obligations (as defined below), Pledgor pledged, assigned, delivered and
-----
transferred to Pledgee, and granted Pledgee a continuing security interest in,
all of the following property and rights and interest in property (all such
property, rights and interests being hereinafter collectively called the
"Pledged Collateral"):
(i) all issued and outstanding shares of the capital stock of USF RE
INSURANCE COMPANY, and any additional shares of the capital stock of any
class or series of USF RE INSURANCE COMPANY which Pledgor may at any time
and from time to time purchase or otherwise acquire, together with the
certificates and/or other instruments or writings representing them (such
shares, certificates and other writings being hereinafter collectively
called the "Pledged Shares");
(ii) (A) all shares and other securities and all warrants, rights and
options to acquire Pledged Shares (such shares, securities, warrants,
rights and options together with the certificates and/or other instruments
or writings representing them being hereinafter collectively called the
"Additional Pledged Securities") and (B) all money and other property, at
any time and from time to time received or receivable by or distributed or
distributable to Pledgor from the issuer of any or all of the Pledged
Shares in exchange or substitution for or otherwise in respect of any or
all of the Pledged Shares or earlier-issued Additional Pledged Securities
(whether in the ordinary course of such issuer's business or representing
or resulting from cash or stock dividends, stock splits or
reclassifications, the recapitalization, reorganization, merger,
consolidation, disposition of assets, liquidation or dissolution of such
issuer, the exercise by Pledgor of warrants, rights or options, or any
other action or cause); and
(iii) all proceeds of any or all of the foregoing.
2. Under the Pledge Agreement, the term "Obligations" means all
indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee
(whether directly as principal or maker or indirectly as guarantor, surety,
endorser or otherwise), now or hereafter existing, due or to become due,
howsoever incurred, arising or evidenced, whether of principal or interest or
payment
<PAGE>
or performance under the Credit Agreement dated as of December 20, 1994 between
Pledgor and Pledgee (said Credit Agreement as currently in effect and as from
time to time amended, modified or supplemented).
3. Pledgor and Pledgee have amended and restated such Credit Agreement
pursuant to the Fifth Amendment to the Credit Agreement dated December 28, 1998
between Pledgor and Pledgee (the "Fifth Amendment") which, among other things,
increases the Bank's Commitment to $75,000,000.
4. Pledgee has requested that Pledgor acknowledge that the Pledge
Agreement applies to the Credit Agreement as amended and restated by the Fifth
Amendment.
5. Accordingly, Pledgor acknowledges, ratifies and confirms the
following:
A. The term "Obligations" referred to in the Pledge Agreement
includes all indebtedness, liabilities and obligations of any
kind of Pledgor to Pledgee arising under the Credit Agreement as
amended by the Fifth Amendment;
B. The Pledge Agreement remains in full force and effect; and
C. Pledgor hereby ratifies and confirms Pledgor's pledge,
assignment, delivery and transfer to Pledgee and grant to Pledgee
of a continuing security interest in the Pledged Collateral.
This Acknowledgment and Ratification of the Pledge Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any party hereto may execute this
Acknowledgment and Ratification by signing any such counterpart.
All capitalized terms used herein, but not defined herein shall have the
meanings described to them in the Pledge Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Acknowledgment and
Ratification of the Pledge Agreement to be executed by its duly authorized
officer as of the date hereof.
Dated: __________, 1998 THE CENTRIS GROUP, INC.
_________________________
Name:
Title:
ACCEPTED BY:
FLEET NATIONAL BANK
_________________________
Name:
Title:
-3-
