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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
December 24, 1998 (December 10, 1998)
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Date of Report (Date of earliest event reported)
Superior National Insurance Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-25984 95-4610936
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
26601 Agoura Road, Calabasas, California 91302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 880-1600
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On December 10, 1998, Superior National Insurance Group,
Inc. (the "Registrant") completed the acquisition of Business Insurance
Group, Inc., a Delaware corporation ("BIG"), and its wholly-owned
subsidiaries: California Compensation Insurance Company, a California
corporation ("CalComp"), Business Insurance Company, a Delaware corporation
("BICO"), and Combined Benefits Insurance Company, a California corporation
("CBIC"), pursuant to the terms of a Purchase Agreement entered into on May
5, 1998 (the "Purchase Agreement") by and between Foundation Health
Corporation, a Delaware corporation ("FHC"), and the Registrant. In
accordance with the terms of the Purchase Agreement, BIG became a wholly
owned subsidiary of the Registrant and CalComp, CBIC and BICO became indirect
operating subsidiaries of the Registrant (the subsequent sale of BICO is
discussed in Item 5 of this Report). Additionally, pursuant to the Purchase
Agreement, on December 17, 1998, the Registrant acquired Commercial
Compensation Insurance Company, a New York corporation ("CCIC"), from FHC,
upon receipt of all required regulatory approvals. CalComp, CBIC, CCIC, and
BICO are referred to herein as the "BIG Insurance Subsidiaries." For the
sale of its shares of BIG, including the subsequent sale of CCIC
(collectively, the "Acquisition"), FHC received total consideration
consisting of $285.0 million in cash. ($36.0 million was paid by FHC to
provide the Registrant with a $212.5 million Loss Reserves Guarantee obtained
through the purchase of reinsurance on behalf of the BIG Insurance
Subsidiaries.) Prior to the closing, FHC caused all of BIG's intercompany
balances and real estate holdings related to FHC and its parent, Foundation
Health Systems, Inc. ("FHS"), and their affiliates, to be settled in cash.
FHC contributed an additional $12.6 million in capital to BIG prior to the
closing.
The Acquisition was funded with (a) senior debt financing in the
amount of $110.0 million and (b) equity financing in the amount of $200.1
million. The senior debt financing was obtained pursuant to the terms of a
Credit Agreement dated as of December 10, 1998, among the Registrant, The
Chase Manhattan Bank, as Administrative Agent, and various lending
institutions. In addition, the Registrant obtained a working capital credit
facility under the terms of the Credit Agreement, and had $15.0 million in
unused availability as of the date of this Report. Prior to incurring the
indebtedness, the Registrant obtained the consent of holders of the
outstanding 10 3/4% Trust Preferred Securities of the Registrant's
subsidiary, Superior National Capital Trust I, a Delaware statutory trust
(the "Trust"), authorizing the Preferred Trustee of the Trust to waive a
provision of the covenant limiting the incurrence of indebtedness set forth
in the Senior Subordinated Indenture dated as of December 3, 1997 between the
Registrant, as issuer, and Wilmington Trust Company, as trustee. This waiver
was effected pursuant to the First Supplemental Indenture, dated as of
November 17, 1998, between the Registrant and the Wilmington Trust Company,
as trustee.
The equity financing was obtained pursuant to (a) the sale of
1,902,233 shares of the Registrant's Common Stock ("Common Stock") for $31.9
million, in connection with the
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exercise of subscription rights ("Rights") to purchase Common Stock
distributed to existing stockholders (other than Insurance Partners, L.P.
("IP Delaware") and Insurance Partners Offshore (Bermuda), L.P. ("IP
Bermuda")) and warrant holders (the "Rights Offering"), (b) the sale of
620,610 shares of Common Stock for $10.4 million, all paid in the form of
promissory notes in favor of the Registrant, in connection with the Rights
Offering to holders of the Registrant's stock options and restricted Common
Stock (the "Employee Participation") and (c) the private placement (the "IP
Stock Issuance") pursuant to the Stock Purchase Agreement (as defined below)
of (i) 5,276,960 shares of Common Stock for $88.4 million to Capital Z
Financial Services Fund II, L.P. ("IP II"), (ii) 2,949,594 shares of Common
Stock for $49.4 million to IP Delaware and (iii) 1,196,588 shares of Common
Stock for $20.0 million to IP Bermuda. All of the shares were sold at $16.75
per share. Employees purchasing Common Stock included William L. Gentz and J.
Chris Seaman, who are directors and executive officers of the Registrant.
Prior to the consummation of the Acquisition, IP Delaware and IP Bermuda
beneficially owned approximately 23% and 13%, respectively, of the then
outstanding shares of Common Stock. IP II owned no shares of Common Stock
prior to the consummation of the Acquisition. Robert A. Spass, Steven B.
Gruber and Bradley E. Cooper, directors of the Registrant, own certain direct
and indirect limited partnership interests in IP Delaware and IP Bermuda.
Messrs. Gruber and Spass are officers of the ultimate general partners of IP
Delaware and IP Bermuda and Messrs. Spass and Cooper are officers of Capital
Z Partners, Ltd. ("Cap Z"), the ultimate general partner of IP II. Certain
members of the Registrant's management are investors in an investment fund
that is a limited partner of IP II.
Pursuant to the terms of the Stock Purchase Agreement dated as of
May 5, 1998 (the "Stock Purchase Agreement") among the Registrant and IP
Delaware, IP Bermuda and Cap Z (Cap Z subsequently assigned its rights and
obligations thereunder to IP II) (collectively, the "Purchasers"), the
Registrant agreed to pay a commitment fee in the form of warrants to
purchase an aggregate of 734,000 shares of Common Stock at $16.75 per share
to the Purchasers or their designees (or, in the case of Cap Z, assignee) and
Zurich Centre Investments Limited ("ZCIL") or its designee as compensation,
in the case of the Purchasers, for agreeing to purchase that number of shares
necessary to bring the total proceeds of the Rights Offering, Employee
Participation and the IP Stock Issuance to $200.0 million, and, in the case
of ZCIL, for ZCIL's providing certain financing commitments to the Purchasers
under the Stock Purchase Agreement. The Registrant paid this commitment fee
through the issuance of (a) 229,754 warrants to Insurance Partners Advisors,
Inc., the designee of IP Delaware, (b) 93,206 warrants to Insurance Partners
Advisors, Inc., the designee of IP Bermuda, (c) 205,520 warrants to Zurich
Centre Group Holdings Limited ("Zurich"), the successor-in-interest to ZCIL,
and (d) 205,520 warrants to various Cap Z employees as assigned by Cap Z.
Robert A. Spass and Bradley E. Cooper, who are directors of the Registrant
and officers of Cap Z, were designated to receive 32,825 warrants and 16,413
warrants, respectively, by Cap Z. Steven B. Gruber and Robert A. Spass,
directors of the Registrant, are executive officers of Insurance Partners
Advisors, Inc. In addition, the Registrant paid to designees of the
Purchasers fees totaling $3.9 million in consideration of their
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providing the Registrant with the opportunity to undertake the Acquisition,
originating a portion of the financing for the Acquisition and assisting in
negotiating the terms of the Acquisition.
The purchase price and other terms of the Acquisition were
negotiated by means of arm's length bargaining among the parties over a
period of approximately four weeks by representatives of the Registrant and
FHC and approved by the boards of directors of both parties. The GAAP book
value of BIG was not a significant factor in the Registrant's proposal to
purchase BIG, although the Registrant relied very heavily on the book value
determined under statutory accounting principles to arrive at the purchase
price it was willing to pay. The Registrant adopted this position because,
in the insurance industry, statutory book value, or multiples thereof, have
historically been the basis upon which acquisitions occur. The Registrant
concluded that BIG, because it was operating at a loss in 1997, in a line of
business generally viewed as unattractive, was worth 100 percent or less of
statutory book value. The Registrant also concluded that FHC was a motivated
seller, FHC's parent, FHS, had stated its intention to divest itself of risk
bearing activities that were not part of FHS' core operations. FHS had, in
fact, discontinued its workers' compensation insurance operations and
announced its intention to sell those operations prior to engaging in sale
negotiations with the Registrant. Based on published accounts of the sale of
BIG, and news associated with FHS, it appeared to the Registrant that a
prompt sale of BIG was a key issue for FHS. Under these circumstances, FHS
was apparently motivated to accept a purchase price below GAAP book value,
and approximating statutory book value, to assure the timely disposition of
its discontinued operations.
In addition, the Registrant believed the fundamentals of BIG's
business deteriorated temporarily, but significantly after FHS announced its
intention to discontinue its workers' compensation operations. The BIG
Insurance Subsidiaries received a downgrade from a major rating agency, BIG's
non-California operations received inquiries from certain state insurance
regulators due to the failure of one of the BIG Insurance Subsidiaries to be
within the usual range of six regulatory financial ratio tests run using the
1997 statutory annual statement, and there was a substantial amount of
negative publicity associated with FHS' withdrawal from the workers'
compensation insurance market. Furthermore, in early 1998, BIG adopted a
premium pricing strategy that, in the Registrant's view, was resulting in a
significant decline in BIG's direct premium written. All of the above
contributed to a temporary, but nonetheless real, decline in the intangible
value of the BIG franchise, which decline the Registrant took into account in
the determination of the purchase price. Prior to the Acquisition, there was
no material relationship between any of FHS, FHC, BIG, CalComp, CBIC, CCIC,
BICO (including their officers, directors and stockholders) and the
Registrant or any of its affiliates, any director or officer of the
Registrant or any associate of any such officer or director.
(b) BIG is a holding company that, through its subsidiaries, writes
workers' compensation and group health insurance, principally in California,
with branch operations throughout the continental United States. BIG operated
16 regional offices and 21 branch offices
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which the Registrant expects to continue to operate in substantially the same
manner as operated prior to the Acquisition under their existing names.
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ITEM 5. OTHER EVENTS
On December 10, 1998, immediately following the consummation of
the Acquisition, the Registrant filed its Amended and Restated Certificate of
Incorporation with the Delaware Secretary of State, which (i) increased the
total number of authorized shares of Common Stock from 25 million to 40
million and (ii) removed transfer restrictions on Common Stock that related
to the Registrant's net operating loss carryforwards for federal income tax
purposes.
On December 18, 1998, the Registrant completed the sale of BICO
to Centre Solutions Holdings (Delaware) Limited ("Holdings") pursuant to a
Purchase Agreement dated December 7, 1998 (the "BICO Purchase Agreement")
between Holdings and the Registrant for a purchase price of approximately
$11.7 million. An additional $600,000 was withheld by Holdings and, subject
to possible downward adjustments specified in the BICO Purchase Agreement,
will be paid to the Registrant on September 18, 1999 (or such sooner time as
specified in the BICO Purchase Agreement). Prior to the sale of BICO, under
the terms of the Loss Portfolio Transfer and 100% Quota Share Reinsurance
Contract between BICO and CalComp, CalComp assumed BICO's insurance business
(excluding BICO's licenses and statutory capital) and liabilities, and
received assets with a fair market value equal to the liabilities assumed.
The BICO purchase price was arrived at by means of arm's length
bargaining among the parties to the BICO Purchase Agreement. Holdings is an
affiliate Zurich and Zurich is the owner of CentreLine Reinsurance Limited
and Centre Solutions (Bermuda) Limited, both of which have made investments
in the Registrant. In addition, several affiliates of Zurich are significant
investors in some of the IP partnerships. As discussed in Item 2 above, IP
Delaware, IP Bermuda and IP II provided a portion of the equity financing for
the Acquisition.
Prior to the Acquisition, BIG and the BIG Insurance Subsidiaries
completed the following transactions:
(1) A sale leaseback agreement with BancBoston Leasing, Inc.
pursuant to which BancBoston Leasing, Inc. acquired certain of the BIG
Insurance Subsidiaries information systems and related assets for
approximately $8.4 million, and BIG and the BIG Insurance Subsidiaries agreed
to leaseback such assets. This lease agreement has a one year minimum term
and is renewable from year to year thereafter.
(2) A Receivables Purchase and Sale Agreement dated as of
December 9, 1998 among the BIG Insurance Subsidiaries and Insurance Funding
LLC pursuant to which the BIG Insurance Subsidiaries sold approximately $67.1
million in certain premium and reinsurance
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receivables and received proceeds of approximately $62.8 million in cash with
5.5% or $3.7 million of the receivables sold held in reserve pending
collection of the receivables. In addition, the Registrant entered into a
Support Agreement and Receivables Purchase Agreement, each of which are dated
as of December 9, 1998, pursuant to which the Registrant agreed to certain
matters related to the sale of such receivables, including, among other
things, the servicing and administering of those receivables.
(3) On December 9, 1998, the BIG Insurance Subsidiaries agreed
with General Re Insurance Corporation ("Gen Re") to commute outstanding
reinsurance contracts, effective on that date. Upon the commutation, Gen Re
paid $99.7 million to the BIG Insurance Subsidiaries, and the BIG Insurance
Subsidiaries re-assumed loss and loss adjustment expense reserves of $119.4
million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements of BIG required to be filed as part of
this Report were filed with the Securities and Exchange Commission (the
"SEC") on November 4, 1998 as part of the Registrant's Amendment No. 3 to
Form S-1 on Form S-3 Registration Statement (Registration No. 333-58579) for
the periods ended December 31, 1995, 1996 and 1997 and as of December 31,
1996 and 1997 located at pages F-53 to F-73, and as part of the Registrant's
Form 10-Q filed with the SEC for the quarterly period ended September 30,
1998 and as of September 30, 1998 located at pages 22 to 30, and are
incorporated herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information required to be filed as part
of this Report will be filed, by amendment, within 60 days of the date of
this report.
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(c) EXHIBITS.
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.3 Purchase Agreement dated as of May 5, 1998 by and between FHC and the
Registrant. (1)
2.4 Purchase Agreement dated as of December 7, 1998 between Holdings and
the Registrant.
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
4.7 First Supplemental Indenture dated as of November 17, 1998 between
the Registrant and Wilmington Trust Company, as Trustee.
10.64 Stock Purchase Agreement dated as of May 5, 1998 among the
Registrant, IP Delaware, IP Bermuda and Cap Z. (1)
10.65 Form of Common Stock Purchase Warrant dated as of December 10, 1998
held by those parties set forth on the schedule attached hereto, to
purchase an aggregate of 734,000 shares of Common Stock.
10.66 Amended and Restated Registration Rights Agreement dated December 10,
1998 among the Registrant, IP Delaware, IP Bermuda and IP II.
10.67 Credit Agreement dated as of December 10, 1998 (the "Credit
Agreement") among the Registrant, various lending institutions and
The Chase Manhattan Bank.
10.68 Subsidiary Guaranty dated as of December 10, 1998 made by certain
subsidiaries of the Registrant in connection with the Credit
Agreement.
10.69 Pledge Agreement dated as of December 10, 1998 made by the Registrant
and certain subsidiaries of the Registrant in connection with the
Credit Agreement.
10.70 Receivables Purchase and Sale Agreement dated as of December 9, 1998
among CalComp, CBIC, CCIC, BICO and Insurance Funding LLC.
10.71 Support Agreement dated as of December 9, 1998 by the Registrant in
favor of Insurance Funding LLC, EagleFunding Capital Corporation and
BancBoston Robertson Stephens, Inc.
10.72 Receivables Purchase Agreement dated as of December 9, 1998 among
Insurance Funding LLC, EagleFunding Capital Corporation, BancBoston
Robertson Stephens, Inc. and the Regsitrant.
10.73 Loss Portfolio Transfer and 100% Quota Share Reinsurance Contract
between BICO and CalComp.
10.74 Aggregate Excess of Loss Reinsurance Agreement, dated as of September
3, 1998, between Inter-Ocean Reinsurance Company Ltd. and BIG acting
solely on behalf of the following subsidiaries: CalComp, BICO, CBIC
and CCIC.
23.1 Consent of Deloitte & Touche LLP.
99.1 Press Release dated December 10, 1998.
99.2 Press Release dated December 18, 1998.
</TABLE>
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____________________
(1) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on
May 15, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 24, 1998
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. CHRIS SEAMAN
----------------------------------------------------
J. Chris Seaman
Executive Vice President and Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.3 Purchase Agreement dated as of May 5, 1998 by and between FHC and the
Registrant. (1)
2.4 Purchase Agreement dated as of December 7, 1998 between Holdings and
the Registrant.
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
4.7 First Supplemental Indenture dated as of November 17, 1998 between
the Registrant and Wilmington Trust Company, as Trustee.
10.64 Stock Purchase Agreement dated as of May 5, 1998 among the
Registrant, IP Delaware, IP Bermuda and Cap Z. (1)
10.65 Form of Common Stock Purchase Warrant dated as of December 10, 1998
held by those parties set forth on the schedule attached hereto, to
purchase an aggregate of 734,000 shares of Common Stock.
10.66 Amended and Restated Registration Rights Agreement dated December 10,
1998 among the Registrant, IP Delaware, IP Bermuda and IP II.
10.67 Credit Agreement dated as of December 10, 1998 (the "Credit
Agreement") among the Registrant, various lending institutions and
The Chase Manhattan Bank.
10.68 Subsidiary Guaranty dated as of December 10, 1998 made by certain
subsidiaries of the Registrant in connection with the Credit
Agreement.
10.69 Pledge Agreement dated as of December 10, 1998 made by the Registrant
and certain subsidiaries of the Registrant in connection with the
Credit Agreement.
10.70 Receivables Purchase and Sale Agreement dated as of December 9, 1998
among CalComp, CBIC, CCIC, BICO and Insurance Funding LLC.
10.71 Support Agreement dated as of December 9, 1998 by the Registrant in
favor of Insurance Funding LLC, EagleFunding Capital Corporation and
BancBoston Robertson Stephens, Inc.
10.72 Receivables Purchase Agreement dated as of December 9, 1998 among
Insurance Funding LLC, EagleFunding Capital Corporation, BancBoston
Robertson Stephens, Inc. and the Regsitrant.
10.73 Loss Portfolio Transfer and 100% Quota Share Reinsurance Contract
between BICO and CalComp.
10.74 Aggregate Excess of Loss Reinsurance Agreement, dated as of September
3, 1998, between Inter-Ocean Reinsurance Company Ltd. and BIG acting
solely on behalf of the following subsidiaries: CalComp, BICO, CBIC
and CCIC.
23.1 Consent of Deloitte & Touche LLP.
99.1 Press Release dated December 10, 1998.
99.2 Press Release dated December 18, 1998.
</TABLE>
___________________
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(1) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on
May 15, 1998.
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PURCHASE AGREEMENT
by and between
CENTRE SOLUTIONS HOLDINGS (DELAWARE) LIMITED
and
SUPERIOR NATIONAL INSURANCE GROUP, INC.
December 7, 1998
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TABLE OF CONTENTS
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PAGE
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ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.1 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER AND BIG . . . . . . . . . . . . . . 4
SECTION 2.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 AUTHORIZATION; VALIDITY OF AGREEMENT. . . . . . . . . . . . . . . . . . 5
SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATIONS . . . . . . . . . . . . . . . . . 5
SECTION 2.4 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.5 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.6 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS . . . . . . . . . . . . . . 6
SECTION 2.7 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.8 BROKERS OR FINDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.9 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.10 EMPLOYMENT MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . .11
SECTION 2.11 NO LIABILITY FOR EMPLOYEE BENEFIT PLANS, ETC. . . . . . . . . . . . . .12
SECTION 2.12 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 2.13 NO UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . .13
SECTION 3.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. . . . . . . . .13
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS . . . . . . . . . . . . . . . . .13
SECTION 3.4 ACQUISITION FOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE IV. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.1 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.2 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.3 TAX INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.4 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION . . . . . . . . . . .17
SECTION 4.5 NO SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.6 TERMINATION AND RELEASE . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 4.8 SELLER'S ENVIRONMENTAL INDEMNITIES. . . . . . . . . . . . . . . . . . .19
SECTION 4.9 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 4.10 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 4.11 NOTICE AND CURE . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 4.12 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 4.13 REINSURANCE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.14 BICO LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.15 OPERATIONS INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 4.16 MANAGED CARE REPLACEMENT AGREEMENT. . . . . . . . . . . . . . . . . . .21
SECTION 4.17 INDEMNIFICATION FOR EMPLOYEE MATTERS LIABILITIES. . . . . . . . . . . .22
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ARTICLE V. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 5.1 INDEMNIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 5.2 INDEMNIFICATION BY PURCHASER. . . . . . . . . . . . . . . . . . . . . .23
SECTION 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . .23
SECTION 5.4 NOTICE AND OPPORTUNITY TO DEFEND. . . . . . . . . . . . . . . . . . . .24
SECTION 5.5 ADJUSTMENT FOR INSURANCE AND TAXES. . . . . . . . . . . . . . . . . . .24
SECTION 5.6 MITIGATION OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.7 SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.8 TAX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.9 SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.10 EXCLUSIVE REMEDY. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE VI. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING . . . . . .26
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. . . . . . . . . . . . . . .26
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . .29
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.1 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . .30
ARTICLE VIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION. . . . . . . . . . . . . . .31
SECTION 8.2 AMENDMENT AND MODIFICATION. . . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.4 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 8.5 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . .34
SECTION 8.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.8 SPECIFIC PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.9 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.10 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 8.11 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 8.12 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
</TABLE>
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of December 7, 1998 (this
"AGREEMENT"), by and between Centre Solutions Holdings (Delaware) Limited, a
holding company incorporated in the State of Delaware ("PURCHASER") and Superior
National Insurance Group, Inc., a Delaware corporation ("SELLER").
WHEREAS, Seller and Foundation Health Corporation ("FHC") have
entered into that certain Purchase Agreement dated as of May 5, 1998 (the
"ACQUISITION AGREEMENT"), pursuant to which Seller will indirectly acquire from
FHC, among other things, all of the issued and outstanding shares of capital
stock of Business Insurance Group, Inc., a Delaware corporation ("BIG") and
BIG's insurance company subsidiaries, including by and between Centre Solutions
Holdings (Delaware) Limited, a holding company incorporated in the State of
Delaware ("PURCHASER") and Superior National Insurance Group, Inc., a Delaware
corporation ("SELLER").
WHEREAS, Purchaser desires to purchase from Seller, and Seller
desires to cause to be sold to Purchaser, all of the issued and outstanding
shares of capital stock of BICO (the "SHARES") immediately after the closing of
the transactions contemplated by the Acquisition Agreement;
WHEREAS, Seller intends, immediately prior to the Closing (as
hereinafter defined), to cause BICO to transfer all of its assets, liabilities,
employees and business operations to one or more Affiliates (as hereinafter
defined) of Seller so that upon the Closing, BICO will have only the Licenses
(as hereinafter defined), the Surviving Contracts (as defined in Section
6.2(a)(iv)), and certain other assets and liabilities specified herein; and
WHEREAS, prior to or simultaneous with the Closing, in
furtherance of the foregoing and in order to assure continuity of the
underwriting of certain non-California and non-Arizona business presently
underwritten by BICO, the rights to which Seller will have acquired by its
acquisition of BICO, the Underwriting Management Agreement, the Quota Share
Reinsurance Agreement, the Loss Portfolio Transfer Agreement and the Claims
Administration Services Agreement (each as hereinafter defined, each of which is
sometimes hereinafter referred to as a "PROGRAM AGREEMENT" and collectively as
the "PROGRAM AGREEMENTS") shall be executed and delivered.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
<PAGE>
ARTICLE I.
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
assign, transfer and deliver, or cause BIG to sell, assign, transfer and deliver
to Purchaser, and Purchaser shall purchase from Seller or BIG, the Shares, free
and clear of all options, pledges, mortgages, security interests, liens, claims,
rights of first refusal, leases, transfer restrictions under any shareholder or
similar agreement, or other encumbrances or restrictions on voting or transfer
of any kind whatsoever ("ENCUMBRANCES"), other than restrictions imposed by
federal or state securities laws, and free from any and all defects in title.
SECTION 1.2 PURCHASE PRICE.
(a) On the Closing Date (as hereinafter defined) and subject to
the terms and conditions set forth in this Agreement, Seller shall deliver or
cause to be delivered a certificate or certificates representing the Shares duly
endorsed in blank or accompanied by a stock power or stock powers duly executed
in blank and, in consideration of the sale, assignment, transfer and delivery of
the Shares, Purchaser shall pay to Seller an amount (the "PURCHASE PRICE") equal
to the sum of (i) Five million Dollars ($5,000,000), plus (ii) the Adjustment
Amount, as defined below, plus (iii) an amount equal to the Net Statutory
Amount. The term "NET STATUTORY AMOUNT" shall mean the amount resulting from
the subtraction of the Excluded Statutory Amount, as hereinafter defined, from
the BICO Statutory Amount, as hereinafter defined. The term "BICO STATUTORY
AMOUNT" shall mean the amount of the statutory capital and surplus of BICO at
and as of the Closing Date, which amount shall not materially exceed the minimum
statutory or regulatory amount (the "MINIMUM STATUTORY AMOUNT") required to
preserve and maintain in effect the Licenses (as hereinafter defined). The term
"EXCLUDED STATUTORY AMOUNT" shall mean the amount equal to the statutory
deposits (the "EXCLUDED DEPOSITS") that would be listed on Schedule E, Part 2 of
BICO's Annual Statement, with respect to the States listed on EXHIBIT 1.2,
attached hereto and hereby incorporated by reference, if such deposits were
calculated as of the Closing Date. Seller and Purchaser shall use commercially
reasonable efforts to obtain from the applicable state regulatory authorities'
permission to release the Excluded Deposits as promptly as reasonably
practicable on or following the Closing Date. Upon such release, Purchaser
shall transfer to the Seller the Excluded Deposits.
(b) The amount to be paid by Purchaser pursuant to clause
(iii) above shall be determined in accordance with statutory accounting
practices prescribed or permitted by the Department of Insurance of the State of
Delaware, consistently applied. It is understood that at and as of the Closing
Date, BICO shall have a statutory capital and surplus in an amount not less than
the Minimum Statutory Amount. Notwithstanding the foregoing, and without
limiting Purchaser's rights under Article V hereof, the Purchaser shall pay to
Seller, as an adjustment to the Purchase Price, the Adjustment Amount, as
defined below, on the date nine (9) months following the Closing, or such sooner
time as the parties hereto may confirm that the Licenses (as defined in Section
2.1, below) are without lapse, suspension, termination, adverse modification
and/or limitation (the "ADJUSTMENT PERIOD"). For purposes of this Agreement the
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term "ADJUSTMENT AMOUNT" shall mean Six Hundred Thousand Dollars ($600,000), as
such amount may be reduced pursuant to this Section 1.2(b). In the event that
prior to the expiration of the Adjustment Period, any of the Licenses lapse or
are suspended, adversely modified, limited and/or terminated, and are not
reinstated in full prior to the expiration of the Adjustment Period (or, with
respect to the limitations disclosed in Schedule 2.1(a) on the Licenses for the
states of Minnesota and North Carolina, and notwithstanding any such disclosure
in Schedule 2.1(a), any of such Licenses are not reinstated in full prior to
the expiration of the Adjustment Period), then the Adjustment Amount shall be
reduced by $100,000 per jurisdiction in which such lapse, suspension
termination, adverse modification and/or limitation is effective (or, with
respect to the Licenses for the states of Minnesota and North Carolina, per
jurisdiction in which any of such Licenses are not reinstated in full). The
parties understand and agree that Purchaser does not intend to acquire, and will
not acquire, and that BICO will not continue to employ on or after the Closing
Date, any of the employees or officers of BICO. As such, the Purchase Price
does not contemplate Purchaser's acquisition of any employees or officers of
BICO, nor does this Agreement obligate in any way whatsoever Purchaser or BICO
to be responsible for any payroll, benefits, severance, pensions or other
employee related costs or obligations with respect to any employees or officers
of BICO.
SECTION 1.3 CLOSING.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "CLOSING") to be held at the
offices of Riordan & McKinzie in Los Angeles as promptly as possible after the
consummation of the transactions contemplated by the Acquisition Agreement, but
in no event later than December 31, 1998, or at such other place or at such
other time or on such other date as Seller and Purchaser may mutually agree in
writing (the day on which the Closing takes place being the "CLOSING DATE").
(b) At the Closing, Seller shall deliver or cause to be delivered
to Purchaser (i) a stock certificate or stock certificates evidencing the Shares
duly endorsed in blank or accompanied by a stock power or stock powers, duly
executed in blank, (ii) an original Underwriting Management Agreement, as
hereinafter defined, duly executed by SN Insurance Services, Inc. ("SNIS") and
BICO, (iii) an original Quota Share Reinsurance Agreement, as hereinafter
defined, duly executed by California Compensation Insurance Company ("CALCOMP")
and BICO, (iv) an original Loss Portfolio Transfer Agreement, as hereinafter
defined, duly executed by CalComp and BICO, (v) an original Claims
Administration Services Agreement, as hereinafter defined, duly executed by a
designee of Seller (reasonably acceptable to Purchaser), and BICO, (vi) evidence
of termination or assumption by Seller and/or any Affiliates thereof of any and
all Contracts by which BICO or any of its assets are bound (other than the
Surviving Contracts), (vii) all books and records of BICO (it being understood
and agreed that if, at any time after the Closing, Seller discovers in its
possession or under its control any other books and records of BICO, Seller will
forthwith deliver such books and records to Purchaser), (viii) certified copies
of resolutions duly adopted by the Boards of Directors of Seller, BIG and/or
BICO, as the case may be, authorizing and approving the execution, delivery and
performance of this Agreement and each other agreement required to be executed
and delivered by Seller, BIG and/or BICO pursuant to this Agreement, (ix)
certified complete and correct copies of the Amended and Restated Certificate of
Incorporation and bylaws of BICO, as in effect on the Closing Date, and (x) all
other previously undelivered certificates and other
3
<PAGE>
documents required to be delivered by Seller to Purchaser at or prior to the
Closing Date in connection with the transactions contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller: (i) the
Purchase Price (not including the Adjustment Amount, as defined below) by
wire transfer in immediately available funds to an account or accounts
designated by Seller, (ii) certified copies of resolutions duly adopted by
the Board of Directors of Purchaser authorizing and approving the execution,
delivery and performance of this Agreement, and each other agreement required
to be executed and delivered by Purchaser pursuant to this Agreement, and
(iii) all other previously undelivered certificates and other documents
required to be delivered by Purchaser to Seller at or prior to the Closing
Date in connection with the transactions contemplated hereby.
(d) At the Closing, Seller shall assign, convey and transfer to
the Purchaser, and Seller shall cause BIG to assign, convey and transfer to
the Purchaser their respective entire right (including the right to seek
remedies for past infringements and to retain any proceeds recovered in such
suit), title and interest in and to all trade names, service marks and
trademarks, whether registered or unregistered, of BICO, throughout the world
(including all applications for registration, registrations, extensions,
reissues and renewals thereof.)
(e) Notwithstanding anything to the contrary in this Agreement,
Seller and/or BIG, and not Purchaser or BICO, shall be responsible and shall
retain any and all liability for (i) all compensation, benefits, and
perquisites of any kind due any person on account of employment by BICO at
any time or times prior to the Closing Date, or the termination of employment
of any such person by Seller, BICO and/or BIG, including, but not limited to,
medical or dental benefits either reported but not paid or incurred but not
reported prior to the Closing Date and continuation of health care coverage
pursuant to COBRA; and (ii) all notices, payments, fines, taxes or
assessments due to any Governmental Entity pursuant to any applicable
foreign, federal, state or local law, common law, statute, rule or regulation
with respect to the employment, discharge or layoff of employees of BICO by
Seller, BICO and/or BIG for any period prior to the Closing Date, including,
but not limited to, the WARN Act and any applicable state severance pay law
and any rules or regulations that have been issued in connection with any of
the foregoing.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER AND BIG
Seller, on its own behalf and on behalf of BIG, represents and warrants
to Purchaser as follows:
SECTION 2.1 ORGANIZATION. Each of Seller and BICO is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Seller has delivered to Purchaser a complete and correct
copy of the Amended and Restated Certificate of Incorporation and bylaws of
BICO, as in effect on the date hereof. Except as set forth in Schedule 2.1(a),
the licenses, certificates of authority, authorizations, government approvals,
orders, registrations, qualifications, consents and permits and filings, all of
which are described
4
<PAGE>
in Schedule 2.1(b) (collectively, the "LICENSES") are valid, binding and in
full force and effect and in good standing in all respects (it being
acknowledged by the parties that certain notifications to regulatory
authorities may be required following a change in control of BICO). Schedule
2.1(b) lists all jurisdictions in which BICO is currently authorized to
transact the business of insurance and/or reinsurance and maintains a valid
License from the applicable insurance department to transact insurance and/or
reinsurance business, along with a description of the scope, by line of
business, of BICO's Licenses in each such jurisdiction. Except as set forth
in Schedule 2.1(a), no such License is the subject of a proceeding for
suspension, revocation or limitation or any similar proceedings and, to the
knowledge of Seller, there is no pending threat of such suspension,
revocation or limitation or any similar proceedings by any Governmental
Entity, as defined below. To the Seller's knowledge, except for compliance
with periodic renewal procedures, no approvals or authorizations are required
to permit BICO to continue to conduct its business as presently conducted
following the Closing.
SECTION 2.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has the
power and authority to execute and deliver this Agreement and all of the
agreements and documents contemplated hereby, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Seller of this
Agreement and all of the agreements and documents contemplated hereby, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by Seller by all necessary corporate action and no other
corporate action on the part of Seller is necessary to authorize the execution
and delivery by Seller of this Agreement and all agreements and documents
contemplated hereby and thereby and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and each of the agreements and
documents contemplated hereby has been duly executed and delivered by Seller,
and (assuming due and valid authorization, execution and delivery hereof and
thereof by Purchaser and each other party thereto other than Seller) is a valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
contemplated by the Acquisition Agreement and except for (a) approvals or
consents of any court, arbitration panel or tribunal, legislative, executive or
regulatory authority or agency (each a "GOVERNMENTAL ENTITY" and collectively
the "GOVERNMENTAL ENTITIES") under applicable insurance laws of each of the
jurisdictions listed in Schedule 2.1(b) or as may be otherwise required by law,
(b) applicable requirements under corporation or "blue sky" laws of various
states and (c) matters specifically described in this Agreement, neither the
execution, delivery or performance of this Agreement or any agreement or
document contemplated hereby by Seller nor the consummation by Seller of the
transactions contemplated hereby or thereby will (i) violate any provision of
the certificate of incorporation, bylaws or other organizational documents of
Seller or BICO, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrances upon any of the
properties or assets of BICO under (or result in being declared void, voidable
or without further binding
5
<PAGE>
effect) any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, License, contract, agreement or other instrument,
commitment or obligation to which BICO is a party or by which BICO or any of
its properties or assets may be bound, (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Seller or BICO, (iv) require on the part of Seller or BICO any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity or (v) result in a termination, loss or adverse
modification or limitation of any License, except in the case of clauses
(iii), (iv) and (v), for such violations, breaches, defaults or other events
specified therein, which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would
not adversely affect the ability of Seller to consummate the transactions
contemplated by this Agreement or become applicable as a result of the
business or activities in which Purchaser is or proposes to be engaged (to
the extent, and only to the extent, that such business or activities differ
from the business or activities engaged in by BICO prior to the Closing
Date), or as a result of any acts or omissions by Purchaser (other than acts
or omissions resulting from a breach by Seller of any of the representations,
warranties and/or covenants of Seller in this Agreement).
SECTION 2.4 CAPITALIZATION. Schedule 2.4 sets forth the
authorized, issued and outstanding capital stock of BICO. The Shares
constitute all of the issued and outstanding shares of capital stock of BICO.
All of the Shares are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, with no defects of title. There
are no existing (i) options, warrants, calls, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating
BICO to issue, transfer or sell any shares of capital stock or other equity
interest in BICO or securities convertible into or exchangeable for such
shares or equity interests, (ii) contractual or other obligations of BICO to
repurchase, redeem or otherwise acquire any capital stock of BICO or (iii)
voting trusts or similar agreements or understandings to which Seller or BICO
is a party with respect to the voting of the capital stock of BICO.
SECTION 2.5 LITIGATION. Except as disclosed in Schedule 2.5, there
is no action, suit, proceeding (or, to the knowledge of Seller or BICO,
investigation) pending, or to the knowledge of Seller or BICO, action, suit,
proceeding or investigation threatened, involving Seller or BICO or any of
their respective officers or directors as such, or any of BICO's assets,
including without limitation, any of the Licenses, nor is there any action,
suit, proceeding (or, to the knowledge of Seller or BICO, investigation)
pending, or to the knowledge of Seller or BICO, action, suit, proceeding or
investigation threatened, challenging the validity or propriety of the
transactions contemplated by this Agreement, by or before any Governmental
Entity or by any third party that is reasonably likely to adversely affect
the ability of Seller to consummate the transactions contemplated by this
Agreement or contemplated by the Acquisition Agreement that relate to this
Agreement. Except as disclosed in Schedule 2.5, no material orders, decrees,
awards, sanctions or judgments exist against Seller or BICO or any of their
respective officers or directors, as such, other than those applicable to the
industry as a whole in the jurisdiction where issued.
SECTION 2.6 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. Except as
disclosed in Schedule 2.6, neither Seller nor BICO is in default or violation of
any term, condition or provision of its certificate of incorporation or bylaws,
or, with respect to BICO only, (i) any License or (ii) statute, law, rule,
regulation, judgment, decree, order or arbitration award
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applicable to BICO, excluding from this clause (ii), defaults or violations
which would not adversely affect the ability of Seller to consummate the
transactions contemplated by this Agreement or which become applicable as a
result of the business or activities in which Purchaser is or proposes to be
engaged (to the extent, and only to the extent, that such business or
activities differ from the business or activities engaged in by BICO prior to
the Closing Date), or as a result of any acts or omissions by Purchaser
(other than acts or omissions resulting from a breach by Seller of any of the
representations, warranties and/or covenants of Seller in this Agreement), or
the status of any facts pertaining to, Purchaser. Except as set forth on
Schedule 2.6, neither Seller nor BICO has received any written notice since
December 31, 1995 from any Governmental Entity alleging any violation
described in clause (ii) (without giving effect to the exclusions referenced
therein) or directing BICO to take any remedial action with respect to such
law, ordinance or regulation which, in each case, would materially adversely
affect the ability of Seller to consummate the transactions contemplated by
this Agreement.
SECTION 2.7 TAXES. To the knowledge of Seller and except as
disclosed in Schedule 2.7 and the federal waiver given by BICO in connection
with the federal income tax examination which is currently in process for the
tax years disclosed on Schedule 2.7(c) and the related automatic extensions
which result under state law from the execution of such federal waiver:
(a) BICO is taxable as an insurance company. BICO has filed,
within the time and manner prescribed by law, all material returns, material
information statements and material reports (including schedules attached to any
of the foregoing) required to be filed with or supplied to a Tax Authority
(hereinafter defined) with respect to Taxes (hereinafter defined) (collectively,
"TAX RETURNS"). All such Tax Returns were correct and complete in all material
respects. All federal, state, local or foreign income, capital gains, profits,
premium, gross receipts, payroll, capital stock, franchise, employment,
withholding, social security, unemployment, disability, real property, personal
property, stamp, excise, occupation, sales, use, transfer, mining, value added,
investment credit recapture, alternative or add-on minimum, environmental,
estimated or other taxes, duties or assessments of any kind, including any
interest, penalty and additions imposed with respect to such amounts
(collectively, "TAXES") owed by BICO (whether or not shown on any Tax Return)
have been paid. BICO is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by any
federal, national, foreign, state, municipal or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body or other authority exercising any taxing or tax regulatory authority (each,
a "TAX AUTHORITY") in a jurisdiction where BICO does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no Liens on
any of the assets of BICO that arose in connection with any failure (or alleged
failure) to pay any Tax. All written assessments of material Taxes due and
payable by, on behalf of or with respect to BICO have been paid, or are being
contested in good faith by appropriate proceedings and have been reserved
against in accordance with GAAP and statutory accounting procedures and
practices.
(b) BICO has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing by it to each
employee, independent contractor, creditor, stockholder, partner or other third
party.
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(c) BICO does not nor does any director or officer (or employee
responsible for Tax matters) of BICO expect or have reason to expect any Tax
Authority to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no dispute or claim concerning any Tax liability
of BICO either (i) claimed or raised by any Tax Authority in writing or (ii)
as to which any Seller or any director or officer (or employee responsible
for Tax matters) of any Company has knowledge. Part (c) of Schedule 2.7
lists all income Tax Returns filed with respect to BICO for taxable periods
ended after December 31, 1994, and indicates those Tax Returns that have been
audited or are currently the subject of an audit. Sellers have delivered to
the Purchaser correct and complete copies of all federal Tax Returns,
examination reports and statements of deficiencies assessed against or agreed
to by BICO for any period subsequent to December 31, 1994.
(d) BICO has not waived or extended any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) BICO has not has filed a consent under Section 341(f) of
the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute thereto (the "CODE") concerning collapsible corporations.
(f) BICO has not made any payments, is not obligated to make
any payments, or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(g) BICO has not 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.
(h) BICO is not a party to any Tax allocation or sharing
agreement which will require any payment by BICO for Taxes accruing after the
Closing Date.
(i) Part (i) of Schedule 2.7 sets forth the following
information with respect to BICO on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby: (i) the basis of BICO in its assets; (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to any such party;
and (iii) the amount of any deferred gain or loss allocable to each party
arising out of any deferred intercompany transaction.
(j) The unpaid Taxes of BICO (i) did not, as of the most recent
fiscal month end, exceed the reserve for Tax liabilities (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the Balance Sheet (rather than in any notes
thereto) included in the financial statements and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of BICO in filing their Tax
Returns.
SECTION 2.8 BROKERS OR FINDERS. Seller represents, as to itself
and BICO, that no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any brokers' or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement.
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SECTION 2.9 ENVIRONMENTAL MATTERS.
(a) For the purpose of this Agreement, the following words and
phrases shall have the following meanings:
(i) "ENVIRONMENT" shall mean soil, surface waters,
ground waters, land, stream sediments, surface or subsurface
strata, ambient air, and any environmental medium.
(ii) "ENVIRONMENTAL CONDITION" shall mean any condition
with respect to the Environment on or off any property, owned,
leased or otherwise occupied by BICO ("PREMISES"), whether or not
yet discovered, which could or does result in any damage, loss,
cost, expense, claim, demand, order, or liability to or against
BICO by any third party (including, without limitation, any
Governmental Entity), including, without limitation, any condition
resulting from the operation of BICO's business and/or the
operation of the business of any other property owner or operator
in the vicinity of such Premises and/or any activity or operation
formerly conducted by any person or entity on or off the Premises.
(iii) "ENVIRONMENTAL LAWS" shall mean (a) any federal,
state, or local law, regulation, ordinance, rule, guideline or
by-law regulating or referring to the Environment, whether existing
as of the date hereof or subsequently enacted; (b) any law,
ordinance, regulation, rule, guideline or by-law of any Governmental
Entity that asserts or may assert jurisdiction over the Seller, BICO
or the Premises, or the operations or activities at the Premises,
that regulates or refers to the presence, release, threat of
release, use, handling, manufacturing, generation, production,
storage, treatment, processing, transportation or disposal of any
Hazardous Substances, including, but not limited to (i) requiring
any permit, license, approval, consent or authorization, or the
renewal thereof; (ii) regulating the amount, form, manner of
storage, transport and/or disposal of Hazardous Substances; or (iii)
requiring any reporting, inspection report, business plan,
notification, or any other dissemination of or access to
information regarding Hazardous Substances, including warnings or
notices to tenants, subtenants, employees, occupants, invitees or
consumers.
(iv) "HAZARDOUS SUBSTANCES" shall mean (a) any
pollutant, toxic substance, contaminant, chemical, hazardous waste,
hazardous material, petroleum product, oil, radioactive material or
energy; (whether such energy is radioactive or not) (b) any
substance, gas material or chemical which is or may be defined as
or included in the definition of "hazardous substances," "toxic
substances," "hazardous materials," "hazardous wastes," or words of
similar import under any Environmental Law; (c) radon gas, asbestos
in any form which could or does become friable, urea formaldehyde
foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in
excess of federal, state or local safety guidelines, whichever are
more stringent; (d) any other chemical, material, gas, or
substance,
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the exposure or release of which is or may be prohibited, limited
or regulated by any Governmental Entity that asserts or may assert
jurisdiction over the Premises, or the operations or activity at
the Premises, or any chemical, material, gas or substance that does
or may pose a hazard to health and/or safety of the occupants of the
Premises or the owners and/or occupants of property adjacent to or
surrounding the Premises.
(v) "PERMIT" shall mean any environmental permit,
license, approval, consent, or authorization issued by a federal,
state, or local Governmental Entity under any Environmental Law.
(vi) "PREMISES" shall mean any property or location,
whether owned, leased, or otherwise occupied at, from, or which
BICO now or has heretofore conducted business.
(vii) "RELEASE" shall mean any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing, or dumping into the
Environment.
(viii) "THREAT OF RELEASE" shall mean a substantial
likelihood of a Release which requires action to prevent or
mitigate damage to the Environment which may result from such
Release.
(b) Seller's Representations, Warranties, and Obligations.
The Seller, on its own behalf and on behalf of BICO, represents and
warrants to Purchaser, that the following are true and on the date hereof and as
of the Closing Date:
(i) the activities, operations and business by BICO,
including, but not limited to, the business conducted by BICO at
any Premises or any past or ongoing alterations or improvements by
BICO at any Premises is, and has been at all times in compliance
with all Environmental Laws and with all agreements with
Governmental Entities, court and administrative orders regarding
the Environment and binding on BICO, (ii) to the knowledge of
Seller and/or BICO, Hazardous Substances have not been generated,
used, treated, handled, stored, released or disposed of, on, at,
under or about the Premises, and (iii) neither the Seller nor BICO
has knowledge of the existence of any Environmental Condition at
any of the Premises and that, with respect to those Premises where
the Seller or BICO has knowledge of such an Environmental
Condition, that no further action is required to remedy any
condition.
(ii) Neither the Seller nor BICO is aware of any
pending or threatened litigation or proceedings before any
administrative agency in which any person or entity alleges the
violation by BICO of any Environmental Law or the presence,
release, threat of release, placement, storage, disposal or use,
generation or treatment of Hazardous Substances on, at, under or
from any of the Premises,
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including, without limitation, that Hazardous Substances used,
generated, stored or treated at any Premises were released or
treated to be released at any site other than the Premises
("OFF SITE CLAIMS"), nor has the Seller or BICO (A) received any
notice of and has no actual or constructive knowledge that any
third party, Governmental Entity or any employee or agent thereof,
has determined, threatens to determine or requires an investigation
to determine that there exists any violation by BICO of any
Environmental Law or the presence, release, threat of release, or
placement, use, gain, storage, disposal or treatment of Hazaradous
Substances on, at, under or from the Premises, (B) received any
notice of a claim against BICO under any citizen suit provision of
any Environmental Law; or (C) received any request for inspection
or request for information, notice, demand, administrative inquiry
or any formal or informal complaint or claim with respect to or in
connection with any Environmental Law relating to the busines of
BICO or to any Premises.
(iii) No lien has been imposed on any of BICO's assets
by any Governmental Entity in connection with Environmental Law.
(iv) BICO has all Permits necessary for its activities
and operations of its business and for any past or ongoing
alterations or improvements by BICO at any Premises.
(v) That no storage tanks presently exist on, at,
under or about any Premises or, to Seller's or BICO's knowledge,
previously existed on, at, under or about any Premises, or to the
best of Seller's and BICO's knowledge, are located on any adjoining
property.
(c) Seller, on its own behalf and on behalf of BICO, covenants to
Purchaser, from the date hereof, that Seller shall provide to Purchaser, within
five (5) business days of the date hereof, copies of all documents, records, and
information in its possession or control or available to Seller concerning (A)
BICO's compliance with Environmental Laws, (B) the presence, use, emission,
generation, storage, treatment or disposal of Hazardous Substances at, or under
or from any Premises and (C) Environmental Conditions relevant to BICO's
business and/or any Premises, whether generated by BICO or others, including,
without limitation, environmental audits, environmental risk assessments, or
site assessments of the Premises and/or any adjacent property, documentation
regarding offsite disposal of Hazardous Substances, reports and correspondence.
Furthermore, Seller shall have an ongoing obligation to provide to Purchaser
copies of any additional such documents which come into the possession or
control of or become available to Seller and/or BICO subsequent to the date
hereof and on or prior to the Closing Date, within two (2) business days of any
such document becoming available to Seller or to BICO.
SECTION 2.10 EMPLOYMENT MATTERS. BICO is in compliance in all
material respects with all "Employment Practices Laws." BICO is not engaged in
any unfair labor practice or discriminatory employment practice and, except as
disclosed on Schedule 2.10, no complaint of any such practice against BICO, or
any officer, director, employee or agent of BICO, has been
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filed or, to Seller's, BIG's or BICO's knowledge, threatened to be filed with
or by the National Labor Relations Board, the Equal Employment Opportunity
Commission or any other administrative agency, federal, state or local, that
regulates labor or employment practices, nor is any grievance filed or, to
the knowledge of Seller, BIG or BICO, threatened to be filed, against BICO
by any employee pursuant to any collective bargaining or other employment
agreement to which BICO is a party or is bound. BICO is in compliance in all
material respects with all applicable federal, state and local laws and
regulations regarding occupational safety and health standards, and has
received no complaints from any federal, state or local agency or regulatory
body alleging violations of any such laws and regulations. For purposes of
this Agreement, the term "EMPLOYMENT PRACTICES LAWS" shall mean any and all
federal, state and/or local laws and/or regulations relating to the terms and
conditions of employment, equal employment opportunity, non-discrimination,
and/or collective bargaining and payment of social security and other taxes.
SECTION 2.11 NO LIABILITY FOR EMPLOYEE BENEFIT PLANS, ETC. Neither
BICO nor Purchaser, nor any of Purchaser's Affiliates, shall, on and after the
Closing Date, have any liability for (i) any compensation, benefits, and
perquisites of any kind with respect to any person on account of employment by
BICO at any time or times prior to the Closing Date, or the termination of
employment of any such person by Seller, BICO and/or BIG, including, but not
limited to, medical or dental benefits either reported but not paid or incurred
but not reported prior to the Closing Date, continuation of health care coverage
pursuant to COBRA or any liabilities arising under, in connection with, or with
respect to any employee benefit plan within the meaning of Section 3(3) of
ERISA or bonus, deferred compensation, stock purchase, stock option, salary
continuation, vacation, sick leave, fringe benefit, incentive, insurance,
welfare or similar arrangement which at any time covered employees of BICO;
and/or (ii) notices, payments, fines, taxes or assessments due to any
Governmental Entity pursuant to any applicable foreign, federal, state or local
law, common law, statute, rule or regulation with respect to the employment,
discharge or layoff of employees of BICO by Seller, BICO and/or BIG for any
period prior to the Closing Date, including, but not limited to, the WARN Act
and any applicable state severance pay law and any rules or regulations that
have been issued in connection with any of the foregoing.
SECTION 2.12 INTELLECTUAL PROPERTY. Schedule 2.12 lists all material
trademarks, copyrights and patents owned or used by BICO in the conduct of its
business, and states all royalties or license fees BICO pays for intellectual
property and/or other proprietary rights used in its business. Except as
disclosed in Section 2.12 of the Disclosure Schedule, there are no pending or,
to the knowledge of Seller and/or BIG, threatened claims of which Seller and/or
BIG have been given written notice, by any person and neither Seller nor BIG has
asserted a claim against any person with respect to any patents, patent rights,
trademarks, trademark rights, service marks, service mark rights, trade names,
trade name rights, copyrights, logos, assumed names and applications therefor
and any know-how, technology, trade secrets or other proprietary information
owned or used by BICO in its operations as currently conducted (collectively,
the "BICO INTELLECTUAL PROPERTY"). BICO has such ownership of or such rights by
license, lease or other agreement to BICO Intellectual Property as are necessary
to permit it to conduct its operations as currently conducted. Except as set
forth in Schedule 2.12, to the knowledge of the Seller and BIG, BICO has taken
all appropriate actions and made all appropriate applications and filings
pursuant to applicable laws to perfect or protect its interest in the BICO
Intellectual Property.
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SECTION 2.13 NO UNDISCLOSED LIABILITIES. Except as specifically
reflected in the balance sheet included in BICO's Quarterly Statement as of
September 30, 1998 (or in the notes relating thereto), there are no liabilities
against, relating to or affecting BICO except liabilities incurred in the
ordinary course of business.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Purchaser has the corporate power and authority to execute and deliver this
Agreement and all of the agreements and documents contemplated hereby, to carry
out its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Purchaser of this Agreement and all of the agreements and documents contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate proceedings and no
other action on the part of Purchaser is necessary to authorize the execution
and delivery by Purchaser of this Agreement and all of the agreements and
documents contemplated hereby, and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and all of the agreements and
documents contemplated hereby have been duly executed and delivered by Purchaser
(and assuming due and valid authorization, execution and delivery hereof and
thereof by Seller and each other party thereto other than Purchaser) is a valid
and binding obligation of Purchaser enforceable against it in accordance with
its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
contemplated by the Acquisition Agreement and except for (a) approvals or
consents of any Governmental Entity under applicable insurance laws of each of
the jurisdictions listed in Schedule 2.1(b) or as may be otherwise required by
law, (b) applicable requirements under corporation or "blue sky" laws of various
states and (c) matters specifically described in this Agreement, neither the
execution, delivery or performance of this Agreement or any agreement or
document contemplated hereby by Purchaser nor the consummation by Purchaser of
the transactions contemplated hereby or thereby will (i) violate any provision
of the articles of incorporation or by-laws of Purchaser, (ii) violate any
order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to Purchaser or (iii) require on the part of Purchaser any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity, except in the case of clauses (ii) and (iii) for such
violations, breaches or defaults which, or filings,
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registrations, notifications, authorizations, consents xor approvals the
failure of which to obtain, would not materially adversely affect the ability
of Purchaser to consummate the transactions contemplated by this Agreement.
SECTION 3.4 ACQUISITION FOR INVESTMENT. Purchaser is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of the Shares, and the Shares will not be transferred except
in a transaction registered or exempt from registration under the Securities Act
of 1933, as amended.
ARTICLE IV.
COVENANTS
SECTION 4.1 ACCESS TO INFORMATION. To the extent Seller is permitted
under the terms of the Acquisition Agreement, Seller shall cause BIG and/or BICO
(and, to the extent deemed necessary by Purchaser, FHC) to afford Purchaser's
officers, employees, accountants, counsel and other authorized representatives
access at reasonable times and places throughout the period prior to the Closing
Date or the date of termination of this Agreement, to all books, Contracts,
facilities and personnel of BIG, BICO, FHC and Seller so that Purchaser may
conduct due diligence with respect to BICO's and, to the extent deemed necessary
by Purchaser, FHC's financial and legal condition, including, without
limitation, financial statements, accounting methods, assets, liabilities, tax
matters, regulatory requirements, insurance and reinsurance agreements and other
contractual arrangements. Purchaser and all persons conducting such
investigations on its behalf shall cooperate to minimize interference with the
business operations of BICO, FHC and Seller.
SECTION 4.2 PUBLICITY. Purchaser and Seller shall, subject to their
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), at all times at or before the Closing, consult
with one another before issuing or making any reports, statements or releases to
the public with respect to this Agreement and/or the transactions contemplated
hereby, and will use good faith efforts to agree on the text of a joint public
report, statement or release or will use good faith efforts to obtain the other
party's approval of the text of any public report, statement or release to be
made solely on behalf of a party. If Seller and Purchaser are unable to agree
on or approve any such public report, statement or release, then such party may
make or issue the legally required or appropriate report, statement or release.
Any such report, statement or release approved or permitted to be made pursuant
to this Section 4.2 may be disclosed or otherwise provided by Seller or
Purchaser to any person or entity, including without limitation to any employee
or customer of either party hereto and to any Governmental Entity.
SECTION 4.3 TAX INDEMNITY. The following provisions shall govern the
allocation of responsibility for certain tax matters and shall govern the tax
indemnification between the parties following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Purchaser
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for BICO for all
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periods ending on or prior to the Closing Date which are filed after the
Closing Date other than income Tax Returns with respect to periods for which
a consolidated, unitary or combined income Tax Return of Seller will include
the operations of BICO. Purchaser shall permit Seller to review and comment
on each such Tax Return described in the preceding sentence prior to filing.
Sellers shall reimburse Purchaser for Taxes of BICO with respect to such
periods (including taxes resulting from an election under Code Section
338(h)(10), if any, within fifteen (15) days after payment by Purchaser or
BICO of such Taxes to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of
the Closing Balance Sheet. In all events, Seller shall be responsible for
all taxes resulting from the election under Code Section 338(h)(10).
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Purchaser shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of BICO for Tax periods which begin before the Closing
Date and end after the Closing Date. Sellers shall pay to Purchaser within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of which relates to the portion of such
Taxable period ending on the Closing Date (the "PRE-CLOSING PERIOD") shall (i)
in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (ii) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practices
of BICO.
(c) REFUNDS OF CREDITS. At the reasonable request of Seller,
Purchaser shall cooperate or cause BICO to cooperate with Seller in obtaining
any refunds or credits (including interest thereon), other than any refunds or
credits reflected in the reserve for Tax Liability or otherwise shown, on the
face of the Closing Balance Sheet, relating to Taxes for which Seller may be
liable under Section 4.3(i). Purchaser shall be entitled to all other refunds
and credits of Taxes. For purposes of this Section, the terms "refund" and
"credit" shall include a reduction in Taxes and the use of an overpayment of
Taxes as an audit or other Tax offset. Receipt of a refund shall occur upon the
filing of a return or adjustment thereto using such reduction, overpayment or
offset, or upon the receipt of cash.
(d) AMENDED RETURNS. Neither Purchaser nor Seller shall amend
any Tax Returns for periods ending prior to the Closing Date without the prior
written consent of the Purchaser and the Seller. If the Seller desires to amend
or have amended a Tax Return for
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periods ending prior to the Closing Date, and the Seller agrees to hold the
Purchaser harmless from any additional Taxes that Purchaser may have to bear
on account of such amended Tax Returns, Purchaser and Seller shall, at the
Seller's cost, cooperate in such matter to the extent reasonable.
(e) COOPERATION. From and after the Closing, the Seller and the
Purchaser shall cooperate fully with each other and make available or cause to
be made available to each other for consultation, inspection and copying (at
such other party's expense) in a timely fashion such personnel, tax data, Tax
Returns and filings, files, books, records, documents, financial, technical and
operating data, computer records and other information as may be reasonably
required (i) for the preparation by the Purchaser or the Seller of any Tax
Returns, elections, consents or certificates required to be prepared and filed
by the Purchaser or the Seller or any Subsidiary or (ii) in connection with any
audit or proceeding relating to Taxes for which the Purchaser or the Seller is
responsible.
(f) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the BICO shall be terminated as of the
Closing Date and, after the Closing Date, BICO shall not be bound thereby or
have any liability thereunder.
(g) TRANSFER TAXES. The Seller shall be responsible for the
payment of any and all sales, use, recordation, gains, transfer or similar Taxes
or fees with respect to the transfer of the Assets hereunder (including any
interest or penalties with respect thereto) and shall deliver copies of all Tax
Returns and other documentation filed with respect thereto to the Purchaser
promptly after filing.
(h) CODE SECTION 338(h) (10) ELECTION. Seller covenants and
agrees, at Purchaser's request, to join with Purchaser to make an election
pursuant to Section 338(h)(10) of the Code and to file such forms as are
necessary to effectuate such election in accordance with this Section 4.3.
Purchaser and Seller shall allocate the purchase price under this Agreement
among BICO's assets as set forth in Schedule 4.3(h) and shall file Tax Returns
consistent with such allocation pursuant to Section 1060 of the Code.
(i) INDEMNIFICATION - TAX MATTERS.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereby by the parties to this
Agreement and their respective covenants, agreements and
obligations to be performed pursuant to the terms of this Section
4.3 and Section 2.7 shall, unless waived in writing, survive the
Closing until such time as all applicable statute of limitations in
respect of claims or potential claims by any Tax Authority for
Taxes in respect of all periods ended on or prior to the Closing
Date has expired.
(ii) BY THE SELLER. The Seller agrees to indemnify and
hold harmless the Purchaser, and their respective directors,
officers, employees, agents, successors and assigns (collectively,
the "PURCHASER PARTIES") against, and to reimburse the Purchaser
Parties with respect to, any and all losses, liabilities,
obligations, suits, proceedings, demands, judgments, damages,
claims, expenses and costs, including, without reasonable
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fees, expenses and disbursements of counsel (collectively,
"DAMAGES"), which each may suffer, incur or pay by reason of any
liability or obligation for Taxes, levied by any foreign, Federal,
state or local Tax Authority with respect to the ownership or use
of the assets of BICO or the conduct of the business of BICO on or
prior to the Closing Date, including, without limitation, any and
all of the Seller's Tax liabilities (whether a direct liability or a
joint and several liability pursuant to Treasury Regulation Section
1.1502-6 or any comparable provision under foreign, state or local
laws by reason of Seller or BICO having been a member of any
consolidated, combined, unitary or similar group).
(iii) BY THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Seller and its agents,
representatives, heirs, successors and assigns (collectively, the
"SELLER PARTIES") against, and to reimburse the Seller Parties on
demand with respect to, any and all Damages which each may suffer,
incur or pay by reason of any liability of the Purchaser for Taxes
with respect to the ownership or use of the assets of BICO or the
conduct of the Business of BICO after the Closing Date, including,
without limitation, any and all of Purchaser's tax liabilities.
SECTION 4.4 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION.
(a) The parties shall use their best efforts and good faith, and
cooperate with each other, to obtain as promptly as practicable all approvals,
consents and agreements of Governmental Entities and/or third parties necessary
or advisable to consummate the transactions contemplated by this Agreement, and
each party shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby. The party responsible for
any such filing shall promptly deliver to the other party evidence of the filing
of all applications, filings, registrations and notifications relating thereto,
and any supplement, amendment or item of additional information in connection
therewith. The party responsible for a filing shall, to the extent reasonably
requested, also promptly deliver to the other party a copy of each material
notice, order, opinion and other item or correspondence received by such filing
party from any Governmental Entity in respect of any such application.
(b) Seller and Purchaser shall use all reasonable efforts to file
as soon as practicable all notifications, filings and other documents required
to obtain all governmental authorizations, approvals, consents or waivers, and
to respond as promptly as practicable to any inquiries received from any
insurance regulatory authority or other Governmental Entity for additional
information or documentation and to respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other
Governmental Entity in connection therewith.
(c) Purchaser and Seller shall each promptly make any and all
filings and submissions of information with the insurance departments of the
states listed in Schedule 4.4(c) which are required or requested by such
insurance departments to obtain the approvals required by such insurance
departments to consummate the transactions contemplated hereby. Seller and
Purchaser each agree to furnish the other party with such information and
reasonable assistance as such other party may reasonably request in connection
with its preparation of such Form A filings and other filings or submissions.
Purchaser and Seller shall each use reasonable efforts to keep the other party
fully apprised of its actions with respect to all such filings and submissions
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and shall provide the other party with copies of such Form A filings and other
filings or submissions in connection with the transactions contemplated by this
Agreement.
(d) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
(e) Each of Seller and Purchaser shall give prompt notice to the
other of the occurrence or failure to occur of an event that would, or, with the
lapse of time would, cause any condition to the consummation of the transactions
contemplated hereby not to be satisfied.
SECTION 4.5 NO SOLICITATION. Seller shall not, directly or
indirectly, through any Affiliate, officer, director, employee, investment
banker, attorney, representative or agent of Seller or BICO, solicit, initiate,
or encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, an Acquisition Proposal (as hereinafter defined). Seller
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. For purposes of this Agreement, "ACQUISITION PROPOSAL"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving BICO or the acquisition of any equity
interest in, or a substantial portion of the assets of, BICO, other than the
transactions contemplated by this Agreement.
SECTION 4.6 TERMINATION AND RELEASE.
(a) Except as set forth on Schedule 4.6(a), Seller, BIG and/or
BICO shall have terminated and/or Seller and/or any Affiliate(s) thereof shall
have assumed, in each case effective on or prior to the Closing Date, any and
all agreements, arrangements, instruments, bonds, indemnities, indentures,
leases, licenses (not including the Licenses listed on Schedule 2.1(b)) and/or
understandings (each a "CONTRACT" and collectively the "CONTRACTS") to which
BICO is a party or to which any of its assets is subject, and Seller and/or any
Affiliate(s) thereof shall retain all remaining obligations and/or liability, if
any, arising out of or relating to such Contracts and/or the termination of or
assumption by Seller and/or any Affiliate(s) thereof, BICO and/or BIG of any or
all such Contracts.
(b) Without limiting anything in Section 4.6(a), above, and
except as set forth on Schedule 4.6(a), Seller shall, and Seller shall cause BIG
and BICO and their respective Affiliates, including such Affiliates as are, or
have been party to, any Contract to which BICO is a party or to which any of its
assets is subject, to release BICO and Purchaser, effective as of the Closing
Date, from any and all liabilities and obligations owing by BICO with respect to
such Contracts.
SECTION 4.7 FURTHER ASSURANCES. Each party agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement.
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SECTION 4.8 SELLER'S ENVIRONMENTAL INDEMNITIES.
(a) Seller agrees to indemnify and hold harmless Purchaser, its
officers, directors, employees, agents, successors, and assigns (the
"INDEMNITEES"), against and in respect of, any and all damages, claims,
losses, liabilities, and expenses (including without limitation, reasonable
legal, accounting, consulting, engineering, and other expenses), which may be
imposed upon, incurred by, or asserted against any of the Indemnitees by any
other party or parties (including, without limitation, a Governmental
Entity), arising out of, in connection with, or relating to the subject
matter of: (a) Seller's or BICO's breach of any of the representations and
warranties set forth in Section 2.9; (b) any Environmental Condition or
claimed Environmental Condition, existing as of and/or prior to the Closing
Date, even if not discovered until after the Closing Date; or (c) any
violation of any Environmental Laws or any claimed violation of any
Environmental Laws with respect to the Premises, or the Seller's business
activities or any facilities or operations thereon, existing as of and/or
prior to the Closing Date. Such damages, claims, losses, liabilities, and
expenses are hereinafter referred to as "ENVIRONMENTAL LIABILITIES". This
indemnity shall survive the Closing and shall be in addition to Seller's
obligations under Section 5.1. Anything to the contrary contained herein
notwithstanding, no Indemnitee shall be entitled to recover from Seller
pursuant to this Section 4.8 unless and until the total of all claims
pursuant to this Section 4.8 by all Indemnitees exceeds $25,000 and then only
for the amount by which such claims exceed $25,000.
(b) Purchaser shall provide to Seller prompt written notice of
any Environmental Liability, with respect to which indemnification is to be
claimed hereunder. However, Seller shall not be relieved of its obligations
under this agreement if Purchaser's failure to promptly notify Seller of an
Environmental Liability does not prejudice Seller's rights or materially
increase its liabilities and obligations hereunder.
SECTION 4.9 CONDUCT OF BUSINESS. Except as contemplated by this
Agreement and the Acquisition Agreement, Seller and/or BIG will cause BICO
to, and BICO will, conduct its business only in the ordinary course and
consistent with past practice, and neither the Seller, BIG nor BICO shall
take any actions inconsistent with the transactions contemplated by this
Agreement. Without limitation of the foregoing, BIG will cause BICO to, and
BICO will: (i) comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to BICO; (ii) perform in all
material respects its obligations under all Surviving Contracts; (iii)
conduct all underwriting of all new, renewal and existing insurance business
in accordance with BICO's now existing underwriting guidelines applied
consistent with Seller's past practice; and (iv) administer, investigate and
otherwise handle all claims with respect to any and all insurance policies,
binders, certificates, endorsements, annuities, and/or Contracts of
insurance or reinsurance issued, renewed, reinsured, or underwritten by or
on behalf of the Company (each an "INSURANCE POLICY" and collectively the
"INSURANCE POLICIES") in accordance with BICO's now existing claims
administration guidelines applied consistent with Seller's past practice.
SECTION 4.10 NEGATIVE COVENANTS. Seller and/or BIG will cause BICO
to, and BICO will, refrain from (unless otherwise consented to in writing by
Purchaser, as respects each such action):
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(a) Amending its Amended and Restated Certificate of
Incorporation or bylaws and from taking any action with respect to any such
amendment;
(b) Authorizing or issuing any shares of BICO's capital stock
or other equity securities or entering into any Contract or granting any
option, warrant or right calling for the authorization or issuance of any
such shares or other equity securities, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any such shares
or other equity securities, or issuing any option, warrant or right to
purchase any such convertible securities or securities exchangeable for such
shares or other equity securities;
(c) Violating, breaching, defaulting, or, except as
contemplated by this Agreement, terminating and from taking or failing to
take any action that (with or without notice or lapse of time or both) would
constitute a violation, breach, default, or termination in any way under any
term of any of the Contracts to which BICO is a party or by which any of the
assets of BICO is or may be bound;
(d) (i) Merging, consolidating, or otherwise combining or
agreeing to merge, consolidate, or otherwise combine with any other person or
entity, (ii) acquiring or agreeing to acquire blocks of business or all or
substantially all the assets or properties or capital stock or other equity
securities of any other person or entity, or (iii) otherwise acquiring or
agreeing to acquire control or ownership of any other person or entity; and
(e) Except in the ordinary course of business and consistent
with past practice, and/or except as set forth in any or all of the Program
Agreements, creating, incurring, assuming, guaranteeing or otherwise becoming
liable for, and from canceling, paying, agreeing to cancel or pay, or
otherwise providing for a complete or partial discharge in advance of a
scheduled payment date with respect to, any liability, and from waiving any
right of BICO to receive any direct or indirect payment or other benefit
under any liability owing to BICO.
SECTION 4.11 NOTICE AND CURE. Seller will notify Purchaser promptly
in writing of, and contemporaneously will provide Purchaser with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance occurring after the date of this Agreement
that causes or will cause any covenant or agreement of Seller (on its own
behalf or on behalf of BIG or BICO) under this Agreement to be breached, or
that renders or will render untrue any representation or warranty of Seller
(on its own behalf or on behalf of BIG or BICO) contained in this Agreement
as if the same were made on or as of the date of such event, transaction or
circumstance.
SECTION 4.12 CONFIDENTIALITY. Each of Purchaser and Seller will
refrain, and will cause its respective officers, directors, employees, agents
and other representatives to refrain, from disclosing to any other person or
entity any confidential documents or confidential information disclosed by or
on behalf of the other party hereto acquired by it in connection with this
Agreement or the transactions contemplated hereby unless (i) such disclosure
is compelled by judicial or administrative process or by other requirements
of law and notice of such disclosure is furnished to such other party hereto;
(ii) either party hereto deems it necessary (upon advice of such party's
legal counsel) to disclose any such confidential documents or
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information in connection with the requirements of any federal securities or
state blue sky law; or (iii) such confidential documents or information can
be shown to have been (A) previously known by the party hereto receiving such
documents or information, (B) in the public domain through no fault of such
receiving party, or (C) later acquired by such receiving party from other
public sources.
SECTION 4.13 REINSURANCE AGREEMENT. In the event CalComp shall at
any time have an A.M. Best rating of B- or less (or in the event CalComp's
A.M. Best rating shall have been downgraded two or more levels from its
rating on the Closing Date), BICO shall have the right, in its discretion:
(a) to cancel the Loss Portfolio Transfer and 100% Quota Share Reinsurance
Contract between BICO and CalComp (the "REINSURANCE AGREEMENT") effective
upon 30 days prior written notice to CalComp; and (b) to require Seller to
arrange for a substitute reinsurer to enter into a reinsurance agreement with
BICO on terms identical to the terms of the Reinsurance Agreement.
SECTION 4.14 BICO LIABILITIES.
(a) Schedule 4.14 lists all liabilities of BICO as of September
30, 1998. Seller guarantees that on the Closing Date, BICO shall have cash
or cash equivalents in an amount equal to the sum of: (i) such liabilities of
BICO remaining on the Closing Date, plus (ii) any and all liabilities of BICO
arising subsequent to September 30, 1998 and on or prior to the Closing Date
that remain outstanding on the Closing Date (other than pursuant to the
Surviving Contracts), whether or not reflected on the books and records of
BICO on the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement,
including, without limitation, any disclosure by Seller to Purchaser with
respect to any Contracts, Seller agrees to indemnify and hold harmless the
Indemnitees, against and in respect of, any and all damages, claims, losses,
liabilities, and expenses (including without limitation, reasonable legal,
accounting, consulting and other expenses), which may be imposed upon,
incurred by, or asserted against any of the Indemnitees by any other party or
parties (including, without limitation, any Governmental Entity), arising out
of, in connection with, or relating to (i) any breach by Seller of the
representations, warranties and/or covenants in Section 4.14(a), and/or (ii)
any Contracts (other than the Surviving Contracts). This indemnity shall
survive the Closing, shall be in addition to Seller's obligations under
Section 5.1 and shall be consistent with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and
5.9.
SECTION 4.15 OPERATIONS INSURANCE. Seller shall, on or before the
Closing Date, cause BICO, BIG and/or FHS to enter into such liability,
property and casualty, automobile, workers' compensation, errors and
omissions, directors and officers liability, and other similar insurance
policies and/or Contracts of insurance with respect to the ownership, use
and/or operations of the businesses or property of BICO (collectively the
"OPERATIONS INSURANCE POLICIES"), which Operations Insurance Policies shall
in form and substance be satisfactory to Purchaser, will be in effect on the
Closing Date, and will be in the amounts and provide such coverages as are
described in Schedule 4.15.
SECTION 4.16 MANAGED CARE REPLACEMENT AGREEMENT. Seller shall, on
or before the Closing Date or as soon thereafter as possible: (i) cause BICO
to terminate, effective on or
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before the Closing Date or as soon thereafter as possible, the agreement
between Healthcare Compare Corp. and BICO, entered into as of October 1,
1995, as amended, including, without limitation, all supplements, appendices
and exhibits thereto (collectively, the "HEALTHCARE COMPARE CORP. CONTRACT"),
and (ii) cause BICO to enter into with Healthcare Compare Corp. (or another
managed-care provider acceptable to Purchaser in Purchaser's discretion), an
agreement to replace the Healthcare Compare Corp. Contract (the "MANAGED CARE
REPLACEMENT AGREEMENT"), containing such terms and conditions as are
satisfactory to Purchaser in its sole discretion, and in form and substance
satisfactory to Purchaser, in its sole discretion. Notwithstanding anything
to the contrary in this Agreement, including, without limitation, any
disclosure by Seller to Purchaser, Seller agrees to indemnify and hold
harmless the Indemnitees against and in respect of, any and all damages,
claims, losses, liabilities, and expenses (including without limitation,
reasonable legal, accounting, consulting and other expenses), which may be
imposed upon, incurred by, or asserted against any of the Indemnitees by any
other party or parties (including, without limitation, any Governmental
Entity), arising out of, in connection with, or relating to the Healthcare
Compare Corp. Contract (whether arising prior to or subsequent to the
Closing Date) and/or arising out of, in connection with, or relating to the
Managed Care Replacement Agreement prior to the Closing Date. This indemnity
shall survive the Closing, shall be in addition to Seller's obligations under
Section 5.1 and shall be consistent with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and
5.9.
SECTION 4.17 INDEMNIFICATION FOR EMPLOYEE MATTERS LIABILITIES.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, any disclosure in Schedule 2.5 or Schedule 2.10, Seller
agrees to indemnify and hold harmless the Indemnitees against and in respect
of, any and all "Employee Matters Liabilities". For purposes of this
Agreement, the term "EMPLOYEE MATTERS LIABILITIES" shall mean any and all
damages, claims, losses, liabilities, and expenses (including without
limitation, reasonable legal, accounting, consulting and other expenses),
which may be imposed upon, incurred by, or asserted against any of the
Indemnitees by any other party or parties (including, without limitation, any
Governmental Entity), arising out of, in connection with, or relating to: (i)
Seller's, BIG's or BICO's breach of any of the representations, warranties
and/or covenants by or on behalf of Seller, BIG and/or BICO set forth in
Section 2.10, Section 2.11 and/or Section 6.2(b)(v), and (ii) any "Employment
Practices Litigation". For purposes of this Agreement, the term "EMPLOYMENT
PRACTICES LITIGATION" shall mean any and all actions and/or proceedings of
any kind whatsoever arising out of, relating to or in connection with the
breach or violation, or alleged breach or violation, on or prior to the
Closing Date, by Seller, BIG and/or BICO and/or any officer, director,
employee or agent of Seller, BIG and/or BICO, of any or all Employment
Practices Laws. This indemnity shall survive the Closing, shall be in
addition to Seller's obligations under Section 5.1 and shall be consistent
with Sections 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9.
ARTICLE V.
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION BY SELLER. Subject to the conditions
set forth in this Article V, Seller agrees to indemnify, defend and hold
Purchaser, its officers, directors, agents,
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employees, successors, assigns and Affiliates (the "PURCHASER INDEMNIFIED
PARTIES"), harmless from and in respect of any and all losses, damages, costs
and reasonable expenses (including, without limitation, reasonable expenses
of investigation and defense fees and disbursements of counsel and other
professionals) (collectively, "LOSSES"), that they may incur (i) arising out
of or due to any inaccuracy of any representation or the breach of any
warranty, covenant, undertaking or other agreement of Seller contained in
this Agreement or described in any Schedule hereto or (ii) that relate to or
arise out of or in connection with the assets, businesses, operations,
conduct, products or employees (including former employees) of BICO relating
to or arising out of or in connection with occurrences existing prior to the
Closing Date.
SECTION 5.2 INDEMNIFICATION BY PURCHASER. Subject to the limits
set forth in this Article V, Purchaser agrees to indemnify, defend and hold
Seller, its officers, directors, agents, employees, successors, assigns and
Affiliates (the "Seller Indemnified Parties"), harmless from and in respect
of any and all Losses that they may incur (i) arising out of or due to any
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of Purchaser contained in this Agreement or
(ii) arising out of any and all actions, suits, claims and administrative or
other proceedings of every kind and nature instituted or pending against
Seller or any of its Affiliates at any time after the Closing Date to the
extent that such Losses (x) relate to or arise out of or in connection with
the assets, businesses, operations, conduct, products, environmental
conditions or violations of Environmental Laws and/or employees (including
former employees) of BICO relating to or arising out of or in connection with
occurrences after the Closing Date and (y) do not arise out of a breach of
Seller's representations and warranties in, or a default in the performance
of any of Seller's covenants under, this Agreement and/or the Acquisition
Agreement.
SECTION 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in this Agreement or
in any instrument delivered pursuant to this Agreement and the
indemnification obligations of Seller under Section 5.1 will survive the
Closing Date and will remain in full force and effect thereafter for a period
of three (3) years from the Closing Date; PROVIDED, HOWEVER, that (i) the
representations and warranties contained in Section 2.7 shall be governed by
Section 4.3, (ii) the representations and warranties contained in Section 2.9
shall be governed by Section 4.8, and (iii) the representations and
warranties contained in Section 2.10 and 2.11 shall be governed by Section
4.17; PROVIDED, FURTHER, that such representations, warranties and
indemnification obligations shall survive (if at all) beyond such period with
respect to any inaccuracy therein, breach thereof or obligation thereunder,
provided notice of such shall have been duly given within the applicable time
period, in accordance with Section 5.4. Anything to the contrary contained
in this Article V notwithstanding, no Purchaser Indemnified Party shall be
entitled to recover from Seller with respect to any Losses that may be
incurred arising out of or relating to any inaccuracy or breach of any
representation or warranty or any breach of any covenant, undertaking or
other agreement unless and until the total of all claims for such Losses,
whether such claims are brought under this Article V or otherwise, exceeds
$25,000 and then only for the amount by which such claims exceed $25,000.
Anything to the contrary contained in this Article V notwithstanding, no
Seller Indemnified Party shall be entitled to recover from Purchaser with
respect to any Losses that may be incurred arising out of or relating to any
inaccuracy or breach of any representation or warranty or any breach of any
covenant, undertaking or other agreement unless and until the total of all
claims for such Losses, whether such claims are brought under this Article V
or otherwise,
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exceeds $25,000 and then only for the amount by which such claims exceed
$25,000. In addition, anything to the contrary contained herein
notwithstanding, Seller shall not be entitled to recover from Purchaser more
than the Purchase Price in the aggregate pursuant to this Article V.
SECTION 5.4 NOTICE AND OPPORTUNITY TO DEFEND. If an event occurs
which a party asserts is an indemnifiable event pursuant to Section 5.1 or
5.2, the party seeking indemnification shall promptly notify the other party
obligated to provide indemnification (the "INDEMNIFYING PARTY"). If such
event involves (i) any claim or (ii) the commencement of any action or
proceeding by a third person, the party seeking indemnification will give
such Indemnifying Party prompt written notice of such claim or the
commencement of such action or proceeding; PROVIDED, HOWEVER, that the
failure to provide prompt notice as provided herein will relieve the
Indemnifying Party of its obligations hereunder only to the extent that such
failure prejudices the Indemnifying Party hereunder. If any such action is
brought against any party seeking indemnification and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall
be entitled to participate therein and, to the extent that it wishes, at its
cost, risk and expense to assume the defense thereof, with counsel reasonably
satisfactory to the party seeking indemnification, unless the named party to
such action or proceeding includes both an Indemnifying Party and a party
seeking indemnification and the party seeking indemnification has been
advised in writing by counsel that there may be one or more legal defenses
available to such party that are different from or additional to those
available to the Indemnifying Party, in which event the party seeking
indemnification shall be entitled, at the Indemnifying Party's reasonable
cost and expense, to separate counsel of its own choosing reasonably
acceptable to the Indemnifying Party. After notice from the Indemnifying
Party to the party seeking indemnification of such election to so assume the
defense thereof, the Indemnifying Party shall not be liable to the party
seeking indemnification for any legal expenses of other counsel or any other
expenses subsequently incurred by such party in connection with the defense
thereof. The party seeking indemnification agrees to cooperate in all
reasonable respects with the Indemnifying Party and its counsel in the
defense against any such asserted liability. The party seeking
indemnification shall have the right to participate at its own expense in the
defense of such asserted liability. The Indemnifying Party shall be entitled
to compromise or settle any claim as to which it is providing
indemnification, which compromise or settlement shall be made only with the
written consent of the party being indemnified, such consent not to be
unreasonably withheld. If an Indemnifying Party fails to assume the defense
of a claim within 30 calendar days after receipt of the notice of claim by
the Indemnifying Party, the party seeking indemnification, against which such
claim has been asserted, will, upon delivering notice to such effect to the
Indemnifying Party, have the right to undertake, at the Indemnifying Party's
reasonable cost and expense subject to the limitations set forth in this
Article V, the defense, compromise or settlement of such claim on behalf of
and for the account of the Indemnifying Party subject to the limitations set
forth in this Article V; PROVIDED, HOWEVER, that such claim shall not be
compromised or settled without the written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld. If the party seeking
indemnity assumes the defense of the claim, it shall keep the Indemnifying
Party reasonably informed of the progress of any such defense, compromise or
settlement. In no event shall an Indemnifying Party be liable for any
settlement effected without its consent, which will not be unreasonably
withheld.
SECTION 5.5 ADJUSTMENT FOR INSURANCE AND TAXES. The amount which
an Indemnifying Party is required to pay to, for or on behalf of the other
party (hereinafter referred
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to as an "INDEMNITEE") pursuant to this Article V and Section 4.3 shall be
adjusted (including, without limitation, retroactively) (i) by any insurance
proceeds actually recovered by or on behalf of such Indemnitee in reduction
of the related indemnifiable loss (the "INDEMNIFIABLE LOSS") and (ii) to take
account of any tax benefit actually realized as a result of any Indemnifiable
Loss, less the cost of procuring such insurance proceeds or tax benefit.
Amounts required to be paid, as so reduced, are hereinafter sometimes called
an "INDEMNITY PAYMENT." If an Indemnitee has received or has had paid on its
behalf an Indemnity Payment for an Indemnifiable Loss and subsequently
receives insurance proceeds for such Indemnifiable Loss, or realizes any tax
benefit as a result of such Indemnifiable Loss, then the Indemnitee shall (i)
promptly notify the Indemnifying Party of the amount and nature of such
proceeds and benefits, together with the cost of procuring them, and (ii) pay
to the Indemnifying Party the amount of such insurance proceeds or tax
benefit (reduced by such procurement cost), or, if lesser, the amount of the
Indemnity Payment.
SECTION 5.6 MITIGATION OF LOSS. Each Indemnitee is obligated to
use its reasonable efforts to mitigate the amount of any Loss for which it is
entitled to seek indemnification hereunder, and the Indemnifying Party shall
not be required to make any payment to an Indemnitee in respect of such Loss
to the extent such Indemnitee failed to comply with the foregoing obligation.
SECTION 5.7 SUBROGATION. Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to
which the payment relates; PROVIDED, HOWEVER, that until the Indemnitee
recovers full payment of its Loss, any and all claims of the Indemnifying
Party against any such third party on account of such payment are hereby made
expressly subordinated and subjected in right of payment of the Indemnitee's
rights against such third party. Without limiting the generality of any
other provision hereof, each such Indemnitee and Indemnifying Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights.
SECTION 5.8 TAX INDEMNIFICATION. None of the provisions of this
Article V, with the exception of Section 5.5, shall apply to the claims,
obligations, liabilities, covenants and representations under Section 4.3,
which shall be governed solely by the terms thereof.
SECTION 5.9 SET-OFF. Neither Seller nor Purchaser shall have any
right to set-off any Losses against any payments to be made by such party or
parties pursuant to this Agreement, except as otherwise expressly provided
herein or therein.
SECTION 5.10 EXCLUSIVE REMEDY. Following the Closing, the
indemnities provided for in this Article V shall be the sole and exclusive
remedies (other than the indemnities provided in Sections 4.3, 4.8, 4.14,
4.16, and/or 4.17) of the parties and their respective officers, directors,
employees, Affiliates, agents, representatives, successors and assigns for
any breach of or inaccuracy in any representation or warranty or any breach,
nonfulfillment or default in the performance of any of the covenants or
agreements contained in this Agreement (but not any such covenants or
agreements to the extent they are by their terms to be performed after the
Closing Date). The parties shall not be entitled to a recission of this
Agreement or to any further indemnification rights or claims of any nature
whatsoever in respect thereof (whether by
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contract, common law, statute, law, regulation or otherwise, including,
without limitation, under the Racketeer Influence and Corrupt Organizations
Act of 1970, as amended), all of which the parties hereby waive; PROVIDED,
HOWEVER, that nothing herein is intended to waive any claims for intentional
fraud.
ARTICLE VI.
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
CLOSING. The obligations of Seller, on the one hand, and Purchaser, on the
other hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of
the following conditions:
(a) no arbitrator or Governmental Entity shall have issued any
preliminary restraining order, injunction, writ, decree, order or ruling of
any nature, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of any of the material
transactions contemplated by this Agreement; PROVIDED, that the parties shall
have used all reasonable efforts to cause any such order, decree, ruling,
statute, rule or regulation to be vacated or lifted;
(b) the required insurance regulatory approvals of the
consummation of the transactions contemplated hereunder (the "STATE INSURANCE
REGULATORY APPROVAL"), which are set forth in Schedule 6.1(b), shall have
been obtained;
(c) except as permitted under Section 1.2, above, with respect
to no more than ten (10) Licenses, as more fully described in Section 1.2,
above, all appropriate consents, approvals, authorizations, licenses and
orders of any applicable federal, state, local and foreign regulatory
authority having or asserting jurisdiction over the subject matter of this
Agreement or as otherwise required in connection with the consummation of the
transactions contemplated hereby, and otherwise as may be required to permit
the change or transfer in control of BICO to occur while preserving in full
force and effect in all respects any and all of the Licenses; and
(d) to the extent required or so structured, approval by the
board of directors of FHC.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The
obligations of Purchaser to consummate the transactions contemplated hereby
are subject to the satisfaction (or waiver by Purchaser) of the following
further conditions:
(a) the representations and warranties of Seller and/or by or
on behalf of BIG and/or BICO shall be true and accurate as of the Closing
Date as if made at and as of such time (other than those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need to be true and accurate only
as of such date or with respect to such period);
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(b) the Seller shall have made the following additional
representations and warranties, which shall be true and accurate as of the
Closing Date:
(i) OWNERSHIP OF STOCK. The Shares are owned by Seller free
and clear of all Encumbrances, other than restrictions imposed by federal and
state securities laws. Upon the consummation of the transactions
contemplated hereby, Purchaser will acquire title to the Shares, free and
clear of all Encumbrances, other than restrictions imposed by federal and
state securities laws;
(ii) ASSETS. BICO has no subsidiaries and its assets consist
solely of the Licenses listed on Schedule 2.1(b), and the U.S. Treasury
securities, cash and other securities or assets on deposit with insurance
regulatory authorities in accordance with applicable law that are described
on Schedule 6.2(b)(ii), a copy of which shall be delivered on the Closing
Date and which Schedule shall be satisfactory to Purchaser, in form and
substance, in its sole judgment;
(iii) NO UNDISCLOSED LIABILITIES. Except as set forth in
Schedule 6.2(b)(iii), BICO has no liabilities, contingent or otherwise, of
any kind or nature;
(iv) SURVIVING CONTRACTS. Except for the Program Agreements,
the Managed Care Replacement Agreement, and the Operations Insurance Policies
(collectively, the "SURVIVING CONTRACTS"), BICO is not party to any Contracts
of any kind or nature. Each Surviving Contract is in full force and effect
and, to the knowledge of Seller or BICO, is valid and enforceable by BICO in
accordance with its terms. BICO is not in default in the observance or the
performance of any term or obligation to be performed by it under any
Surviving Contract; to the knowledge of Seller there does not exist any event
that, with the giving of notice or the lapse of time or both, would
constitute a breach of or a default under any Surviving Contract; and to the
knowledge of Seller, there have been no intentional waivers or releases of
any rights or remedies of BICO under any Surviving Contract except for such
breaches, defaults or waivers the effect of which, individually or in the
aggregate, would not materially adversely affect the ability of Seller to
consummate the transactions contemplated hereby. To the knowledge of Seller
and/or BICO, no other person is in default in the observance or the
performance of any term or obligation to be performed by it under any
Surviving Contract; and
(v) EMPLOYEES. BICO shall, on and after the Closing Date, have
no officers or employees, and neither BICO nor Purchaser, nor any of
Purchaser's Affiliates, shall have, on or after the Closing Date, any
liability for (A) any compensation, benefits, and perquisites of any kind
with respect to any person on account of employment by BICO at any time or
times prior to the Closing Date, or the termination of employment of any such
person by Seller, BICO and/or BIG, including, but not limited to, medical or
dental benefits either reported but not paid or incurred but not reported
prior to the Closing Date, continuation of health care coverage pursuant to
COBRA or any liabilities arising under, in connection with, or with respect
to any employee benefit plan within the meaning of Section 3(3) of ERISA or
bonus, deferred compensation, stock purchase, stock option, salary
continuation, vacation, sick leave, fringe benefit, incentive, insurance,
welfare or similar arrangement which at any time covered employees of BICO;
and/or (B) notices, payments, fines, taxes or assessments due to any
Governmental Entity pursuant to any applicable foreign, federal, state or
local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of employees of BICO by Seller, BICO and/or
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BIG for any period prior to the Closing Date, including, but not limited to,
the WARN Act and any applicable state severance pay law and any rules or
regulations that have been issued in connection with any of the foregoing;
(c) Seller, BIG and BICO shall have performed in all material
respects the obligations hereunder required to be performed by them at or
prior to the Closing Date;
(d) Purchaser shall have received an incumbency certificate and
a certificate signed by two executive officers of Seller, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.2(a),
Section 6.2(b) and Section 6.2(c) have been satisfied;
(e) Purchaser shall have received an original of the
"UNDERWRITING MANAGEMENT AGREEMENT," in the form of EXHIBIT A hereto, duly
executed by SNIS and BICO;
(f) Purchaser shall have received an original of the "QUOTA
SHARE REINSURANCE AGREEMENT," in the form of EXHIBIT B hereto; duly executed
by CalComp and BICO;
(g) Purchaser shall have received an original of the LOSS
PORTFOLIO TRANSFER AGREEMENT, in the form of EXHIBIT C hereto, duly executed
by CalComp and BICO;
(h) Purchaser shall have received an original of the CLAIMS
ADMINISTRATION SERVICES AGREEMENT, in the form of EXHIBIT D hereto, duly
executed by Seller's designee (reasonably acceptable to Purchaser) and BICO;
(i) Purchaser shall have received originals of the Operations
Insurance Policies, in form and substance be satisfactory to Purchaser in its
sole discretion, in the amounts and providing such coverages as are described
in Schedule 4.15.
(j) Purchaser shall have received letters of resignation from
each member of the board of directors of BICO, which resignations shall be
effective as of the Closing Date;
(k) Purchaser shall have received certified copies of
resolutions duly adopted by the Boards of Directors of Seller, BIG and/or
BICO, as the case may be, authorizing and approving the execution, delivery
and performance of this Agreement and each other agreement required to be
executed and delivered by Seller, BIG and/or BICO pursuant to this Agreement;
(l) Purchaser shall have completed its due diligence
investigation of BICO, and, to the extent deemed necessary by Purchaser, FHC
and BIG and their respective financial and legal condition, including,
without limitation, financial statements, accounting methods, assets,
liabilities, tax matters, regulatory requirements, insurance and reinsurance
agreements and other contractual arrangements, it being understood and agreed
that the completion by Purchaser of such due diligence shall not limit in any
respect any of Purchaser's rights with respect to any breach by Seller, BIG
and/or BICO of any of their respective representations, warranties and/or
covenants in this Agreement (made by them or on their behalf);
(m) Seller shall have delivered copies to Purchaser of all
certificates of good standing, certificates of qualification and certificates
of authority for BICO, consistent with the
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disclosure provided in Schedule 2.1(b); and
(n) Purchaser shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by it.
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The
obligations of Seller to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Seller) of the following conditions:
(a) the representations and warranties of Purchaser shall be
true and accurate as of the Closing Date as if made at and as of such time
(other than those representations and warranties that address matters only as
of a particular date or only with respect to a specific period of time which
need to be true and accurate only as of such date or with respect to such
period), except where the failure of such representations and warranties to
be so true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) would not
materially adversely affect the ability of Purchaser to consummate the
transactions contemplated by this Agreement;
(b) Purchaser shall have performed in all material respects all
of the obligations hereunder required to be performed by Purchaser, at or
prior to the Closing Date;
(c) Seller shall have received an incumbency certificate and a
certificate signed by two executive officers of Purchaser, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.3(a)
and Section 6.3(b) have been satisfied;
(d) The transactions contemplated by the Acquisition Agreement
shall have been consummated;
(e) Seller shall have received a duly executed copy of the
Underwriting Management Agreement;
(f) Seller shall have received a duly executed copy of the
Quota Share Reinsurance Agreement; and
(g) Seller shall have received certified copies of resolutions
duly adopted by the Board of Directors of Purchaser authorizing and
approving the execution, delivery and performance of this Agreement and each
other agreement required to be executed and delivered by Purchaser pursuant
to this Agreement;
(h) Seller shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by it.
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ARTICLE VII.
TERMINATION
SECTION 7.1 TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time prior to the
Closing Date:
(a) by the mutual consent of Seller and Purchaser;
(b) by Seller or Purchaser:
(i) upon the termination of the Acquisition Agreement;
(ii) if the Closing shall not have occurred on or prior
to December 31, 1998; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to any party whose failure to fulfill any obligation
under this Agreement (or, with respect to Seller, whose failure to
fulfill any obligation under the Acquisition Agreement) has been
the cause of, or resulted in, the failure of the Closing to occur
on or prior to such date; or
(iii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use all
reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the material transactions
contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable;
(c) by Seller if Purchaser (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect, in each case such that the conditions set forth in Section 6.1
or Section 6.3 would not be satisfied; PROVIDED, HOWEVER, that if any such
breach is curable within a reasonable period of time by Purchaser through the
exercise of Purchaser's best efforts and for so long as Purchaser shall be so
using its best efforts to cure such breach, Seller may not terminate this
Agreement pursuant to this Section 7.1(c); or
(d) by Purchaser if Seller (x) breaches or fails in any
material respect to perform or comply with any of its material covenants and
agreements contained herein or (y) breaches its representations and
warranties in any material respect, in each case such that the conditions set
forth in Section 6.1 or Section 6.2 would not be satisfied; PROVIDED,
HOWEVER, that if any such breach is curable within a reasonable period of
time by Seller through the exercise of Seller's best efforts and for so long
as Seller shall be so using its best efforts to cure such breach, Purchaser
may not terminate this Agreement pursuant to this Section 7.1(d).
SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of
the termination and abandonment of this Agreement by Seller or Purchaser
pursuant to Section 7.1, written
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notice thereof shall forthwith be given to the other party. If the
transactions contemplated by this Agreement are terminated as provided herein:
(a) each party will return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by either party with
respect to the business of any other party or its subsidiaries or Affiliates
shall be treated in accordance with the provisions of the Section 4.12, which
shall survive the termination of this Agreement; and
(c) neither party will have any liability under this Agreement
to the other except (i) as stated in subparagraphs (a) and (b) of this
Section 7.2, and (ii) for any willful breach of any provision of this
Agreement.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION.
(a) The laws of the State of New York (irrespective of its
choice of law principles) shall govern all issues concerning the validity of
this Agreement, the construction of its terms and the interpretation and
enforcement of the rights and duties of the parties.
(b) To the extent permitted by law, Seller and Purchaser each
hereby irrevocably:
(i) consent to any suit, action or other proceeding
with respect to this Agreement being brought in any federal court
of competent jurisdiction; and
(ii) waive any objection that they may have now or
hereafter to the venue of any such suit, action or other proceeding
in any such court and any claim that any of the foregoing have been
brought in an inconvenient forum; and
(iii) acknowledge the competence of any such court; and
agree that the final judgment in any such suit, action or other
proceeding brought in any such court, after expiration of all
rights of appeal, shall be conclusive and binding upon them and may
be enforced in any court to the jurisdiction of which they are or
may be subject by a suit upon such judgment, a certified copy of
which shall be conclusive evidence of their liability; and
(iv) agree that service of process in any suit, action
or other proceeding brought in any such court may be made upon them
by notice sent by certified mail to the address set forth in this
Agreement, or to such other address of which they shall have given
written notice to the other sent by overnight courier or certified
mail to the address set forth in this Agreement; and
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(v) waive all claims of error by reason of any service
effected in accordance with the provisions of subparagraph (iv)
above and agree that such service shall be deemed in every respect
effective service upon them in any suit, action or other proceeding
and shall be taken and held to be valid personal service upon or
personal delivery to them, to the fullest extent permitted by law.
SECTION 8.2 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all
respects by written agreement of the parties at any time prior to the Closing
Date with respect to any of the terms contained herein.
SECTION 8.3 NOTICES. All notices, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon actual receipt or when delivered by hand or by Federal
Express or a similar overnight courier, (ii) five days after being deposited
in any United States Post Office enclosed in a postage prepaid, registered or
certified envelope addressed or (iii) when successfully transmitted by
facsimile (with a confirming copy of such communication to be sent as
provided in clause (i) or (ii) above), to the receiving party during regular
business hours at the address or facsimile number set forth below (or at such
other address or facsimile number for a party as shall be specified by like
notice); PROVIDED, HOWEVER, that any notice of change of address or facsimile
number shall be effective only upon receipt:
(a) if to Purchaser, to:
Centre Solutions Holdings (Delaware) Limited
c/o Zurich Centre Group, LLC
Telephone No.: (212) 898-5300
Facsimile No.: (212) 898-5400
Attention: President
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with a copy to:
Rosenman & Colin LLP
575 Madison Ave.
New York, New York 10022
Telephone No.: (212) - 940-7003
Facsimile No.: (212) 940-8776
Attention: Richard H. Fortmann
(b) if Seller, to:
Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Telephone No.: (818) 880-1600
Facsimile No.: (818) 880-8615
Attention: Chief Financial Officer
with a copy to:
Riordan & McKinzie
300 South Grand Avenue, Suite 2900
Los Angeles, CA 90071
Telephone No.: (213) 229-8509
Facsimile No.: (213) 229-8550
Attention: Dana M. Warren, Esq.
SECTION 8.4 INTERPRETATION.
(a) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, Section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. The words describing the singular number shall
include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa. As used in this Agreement, the
term "AFFILIATE(S)" shall have the meaning set forth in Rule l2b-2 of the
Securities Exchange Act of 1934, as amended. The phrases "to the knowledge
of," "to a party's best knowledge," or any similar phrase shall mean such
facts and other information which as of the date of determination are known
to the referenced party. The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof" and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to December
7, 1998. As used in this Agreement, the term "business day" means a day,
other than a Saturday or a Sunday, on which banking institutions in the city
of New York are open. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this
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Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provisions of this Agreement.
(b) The Schedules and Exhibits hereto shall be construed with
and as an integral part of this Agreement as if the same had been set forth
verbatim herein. Any matter disclosed pursuant to such Schedules and
Exhibits shall be deemed to be disclosed for all purposes under this
Agreement, but such disclosure shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
(c) Headings are for convenience of the parties only and shall
be given no substantive or interpretative effect whatsoever.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, all of which shall together be considered one and the
same agreement.
SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement, including the Exhibits, Schedules and other documents and
instruments referred to herein, (i) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
including the letter of intent dated June 2, 1998, as amended, between the
parties with respect to the subject matter hereof and (ii) except as provided
herein, are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
SECTION 8.7 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 SPECIFIC PERFORMANCE. Each party acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party would be irreparably and immediately harmed and could not be made whole
by monetary damages. It is accordingly agreed that the parties will (a)
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and (b) be entitled, in addition to any other remedy to which
they may be entitled at law or in equity, to compel specific performance of
this Agreement in any action instituted in accordance with Section 8.1.
SECTION 8.9 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
(whether by operation of law or otherwise) without the prior written consent
of the other party. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
SECTION 8.10 EXPENSES. Except as otherwise provided herein, all
costs and expenses incurred in connection with the transactions contemplated
hereby, this Agreement and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, whether
or not the transactions contemplated hereby are consummated.
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SECTION 8.11 WAIVERS. Except as otherwise provided in this
Agreement, any failure of either party to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled
to the benefits thereof only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
SECTION 8.12 SURVIVAL. The indemnification agreements set forth in
Sections 4.3, 4.8, 4.14, 4.16, 4.17 and Article V hereof, shall survive the
Closing in accordance with their respective terms, and any and all covenants
and agreements in this Agreement to be performed after the Closing shall
survive the Closing in accordance with their terms, including, without
limitation, the covenants and agreements of Seller set forth in Sections 1.2
and/or 4.13 of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
PURCHASER: CENTRE SOLUTIONS HOLDINGS (DELAWARE) LIMITED
By: /s/ DAVID L. WASSERMAN
--------------------------------------------------
Name: David L. Wasserman
Title: President
SELLER: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. CHRIS SEAMAN
--------------------------------------------------
Name: J. Chris Seaman
Title: Executive Vice President &
Chief Financial Officer
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<PAGE>
SCHEDULE NO. GENERAL DESCRIPTION OF SCHEDULE
Exhibit 1.2: States whose statutory deposits will be used to
calculate the "Excluded Statutory Amount"
Schedule 2.1(a): exceptions to valid licenses
Schedule 2.1(b): licenses in all jurisdictions in which BICO is
currently authorized to transact the business of
insurance
Schedule 2.4: the authorized, issued and outstanding capital stock of
BICO
Schedule 2.5: actions, suits, or proceedings involving Seller or BICO
or any of their respective officers or directors as
such, or any of BICO's assets
Schedule 2.6: default or violation of any term, condition or
provision of its certificate of incorporation or
bylaws, by Seller or BICO
Schedule 2.7: Exceptions to BICO tax information represented by
Seller.
Schedule 2.7 Part (c): all income Tax Returns filed with respect to BICO for
taxable periods ended after December 31, 1994, and
indicates those Tax Returns that have been audited or
are currently the subject of an audit
Schedule 2.7 Part (i): the basis of BICO in its assets; the amount of any net
operating loss, net capital loss, and the amount of any
deferred gain or loss allocable to each party
Schedule 2.10: complaints of any unfair labor practice or
discriminatory employment practice against BICO filed
or threatened to be filed by the NLRB, the EEOC or any
other administrative agency
Schedule 2.12: Intellectual Property -- listing of all material
trademarks, copyrights and patents owned or used by
BICO in the conduct of its business
Schedule 4.3(h): Code Section 338(h)(10) Election - allocation by
Purchaser and Seller of the purchase price among BICO's
assets
Schedule 4.4(c): list of states which require Purchaser and Seller to
make filings and submissions of information with the
insurance departments of those states
Schedule 4.6(a): contracts not terminated and released by Seller, BIG
and/or BICO as of the Closing Date
<PAGE>
Schedule 4.14: all liabilities of BICO as of September 30, 1998.
Schedule 4.15: operations insurance provided by Seller in favor of
BICO.
Schedule 6.1(b): required insurance regulatory approvals of the
consummation of the transactions contemplated in SPA
Schedule 6.2(b)(ii): BICO assets on deposit with insurance regulatory
authorities
Schedule 6.2(b)(iii): BICO's liabilities as of Closing
The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUPERIOR NATIONAL INSURANCE GROUP, INC.
Superior National Insurance Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the corporation is Superior National Insurance Group,
Inc. (the "Corporation"), and that the corporation was incorporated on
December 3, 1996 pursuant to the General Corporation Law.
SECOND: This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors at a meeting held on July 16, 1998 and was
duly adopted by the stockholders of the Corporation at a stockholders meeting
held on November 3, 1998 in accordance with the provisions of Sections 242 and
245 of the General Corporation Law.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
FIRST. The name of the corporation is Superior National Insurance Group,
Inc. (the "Corporation").
SECOND. The address of the Corporation's registered office in the State of
Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City
of Wilmington, County of New Castle, 19801. The name of its registered agent at
such address is RL&F Service Corp.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE>
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is forty million (40,000,000.00). All such shares are
to be common stock, par value of $.01 per share (the "Common Stock"), and are to
be of one class.
FIFTH. (a) Each holder of the Corporation's 14.5% Senior Subordinated
Voting Notes due April 1, 2002 (the "Special Voting Notes") issued pursuant
to the Note Purchase Agreement dated March 31, 1992 (the "Note Purchase
Agreement") shall be entitled to vote only for the election or removal of
directors to (or from) the board of directors of the Corporation (the
"Board"), and shall have that number of votes arrived at by the following
calculations: (i) dividing the principal amount of the Special Voting Note
held by a particular holder by the total principal amount of all outstanding
Special Voting Notes; and (ii) multiplying the result of (i) by the total
number of shares of this Corporation's Common Stock issuable upon exercise of
all the warrants issued pursuant to the Note Purchase Agreement and
outstanding on the record date for any vote of this Corporation's
shareholders for the election or removal of directors. To the extent of this
limited right to vote granted to holders of the Special Voting Notes, the
holders of the Common Stock and of the Special Voting Notes shall vote
together and not as separate classes.
(b) The terms of paragraph (a) of article FIFTH may not be amended without
the approval of the holders of the Special Voting Notes then outstanding, voting
as a separate class.
(c) The Board of Directors shall consist of eleven (11) members unless
changed by an amendment to the Certificate of Incorporation. Any change in the
authorized number of directors or the provisions regarding the election of
directors shall require the affirmative vote of the majority of the outstanding
Special Voting Notes, voting as a separate class.
SIXTH. The holders of the Special Voting Notes and the Common Stock,
voting together as a single class, shall be entitled at all elections of
directors to as many votes as shall equal the number of votes which (except for
this provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected, and such holder may cast all of such votes
for a single director or may distribute them among the number to be voted for,
or for any two or more of them as he or she may see fit. The holders of the
Common Stock shall be entitled to one vote for each share upon all other
matters.
SEVENTH. The incorporator of the Corporation is C. Stephen Bigler, P.O.
Box 551, Wilmington, DE 19899.
EIGHTH. Unless and except to the extent that the by-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
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NINTH. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board is expressly authorized to make, alter
and repeal the by-laws of the Corporation, subject to the power of the
stockholders of the Corporation to alter or repeal any by-law whether adopted by
them or otherwise.
TENTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal.
ELEVENTH. The Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed by the Executive Vice President and Secretary of the Corporation
this 7th day of December, 1998.
SUPERIOR NATIONAL INSURANCE
GROUP, INC.,
a Delaware corporation
/s/ J. CHRIS SEAMAN
----------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
ATTEST:
/s/ ROBERT E. NAGLE
- -----------------------------
Name: Robert E. Nagle
Title: Secretary
3
<PAGE>
----------------------------------------
SUPERIOR NATIONAL INSURANCE GROUP, INC.
AS ISSUER
WILMINGTON TRUST COMPANY
AS TRUSTEE
----------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of November 17, 1998
----------------------
To
The Senior Subordinated Indenture Dated as of December 3, 1997
Between Superior National Insurance Group, Inc., as Issuer, and
Wilmington Trust Company, as Trustee, Relating to
$108,325,000 Aggregate Principal Amount
of 10 3/4% Senior Subordinated Notes due 2017
----------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of November 17, 1998 (this
"Supplemental Indenture"), between Superior National Insurance Group, Inc., a
corporation organized under the law of the State of Delaware (the "Company"),
and Wilmington Trust Company, a Delaware banking corporation (the "Trustee"),
as Trustee under the Indenture (as defined below). Capitalized terms used
and not defined herein shall have the same meanings given to them in the
Indenture unless otherwise indicated.
WHEREAS, the Company and the Trustee are parties to that certain Senior
Subordinated Indenture, dated as of December 3, 1997 (the "Indenture"),
pursuant to which the Company issued its 10 3/4% Senior Subordinated Notes due
2017;
WHEREAS, pursuant to Section 9.2 of the Indenture, the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities affected thereby,
may modify the Indenture to, among other things, modify the rights of the
Holders under the Indenture in the manner set forth herein;
WHEREAS, pursuant to Section 9.2 of the Indenture, no such modification
to the Indenture may be made without the additional prior consent of the
holders of at least a majority of the outstanding aggregate liquidation
preference of the 10 3/4% Trust Preferred Securities (the "Preferred
Securities") of Superior National Capital Trust I (the "Trust");
WHEREAS, pursuant to a Consent Solicitation Statement, dated October 30,
1998, of the Company and the Trust, the requisite prior consent of the
holders of the Preferred Securities has been obtained to effect the
modification of the Indenture in the manner described herein (the "Waiver")
by way of this Supplemental Indenture;
WHEREAS, Holders of not less than a majority in outstanding aggregate
principal amount of the Outstanding Securities have consented to the Waiver;
and
WHEREAS, by entering into this Supplemental Indenture, the Company and
the Trustee have consented to modify the Indenture in accordance with the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Trustee hereby agree for the benefit of
each other and the equal and ratable benefit of the holders of the Securities
as follows:
1. MODIFICATION TO THE INDENTURE. On the Effective Date (as
hereinafter defined) the Indenture is modified as follows:
(a) Section 10.8(a) of the Indenture is hereby waived to the extent
required to permit the Company to Incur, for purposes of the Company's
acquisition of Business Insurance Group, Inc.,
1
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up to $110,000,000 in aggregate principal amount of Senior Indebtedness
through a public or private offering of senior notes or through a credit
facility or other borrowing arrangement with a lender or lenders, or a
combination thereof (the "Senior Debt Financing").
(b) After giving effect to the Incurrence of the Indebtedness
pursuant to the Senior Debt Financing, the Company will be deemed, for all
purposes of the Indenture, as having Incurred such Indebtedness pursuant to
Section 10.8(a) of the Indenture.
2. COMPLIANCE WITH AND FULFILLMENT OF CONDITIONS PRECEDENT. All
conditions precedent to the execution and delivery of this Supplemental
Indenture have been met, including, but not limited to (a) an Opinion of
Counsel and/or an Officers' Certificate (i) as to the due authorization,
execution and delivery of the Supplemental Indenture by the Company, (ii) as
to the enforceability of the Supplemental Indenture, (iii) as to the due
authorization of the Supplemental Indenture by the Indenture, and (iv) as to
the satisfaction of all conditions precedent to the execution, delivery and
performance of the Supplemental Indenture; (b) that Holders of not less than
a majority in principal amount of the Outstanding Securities affected by this
Supplemental Indenture have consented (in accordance with the terms of the
Indenture) and that such consent has been delivered to the Company and the
Trustees; and (c) the adoption of a Board Resolution of the Company
authorizing this Supplemental Indenture.
3. EFFECTIVE DATE. This Supplemental Indenture shall become effective
on the date (the "Effective Date") on which the Company and the Trustee
execute and deliver this Supplemental Indenture.
4. CONSTRUCTION. For all purposes of this Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same
meanings as corresponding terms and expressions used in the Indenture; and
(ii) the words "herein," "hereof" and "hereby" and other words of similar
import used in this Supplemental Indenture refer to this Supplemental
Indenture as a whole and not to any particular Section hereof.
5. TRUSTEE ACCEPTANCE. The Trustee accepts the modification of the
Indenture effected by this Supplemental Indenture, but only upon the terms
and conditions set forth in the Indenture, as hereby amended, including the
terms and provisions defining and limiting the liabilities and
responsibilities of the Trustee in the performance of its duties and
obligations under the Indenture, as hereby amended. Without limiting the
generality of the foregoing, the Trustee has no responsibility for the
correctness of the recitals of fact herein contained which shall be taken as
the statements of the Company, and makes no representations as to the
validity or enforceability against the Company.
6. INDENTURE RATIFIED. Except as expressly amended hereby, the Indenture
is in all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in
2
<PAGE>
full force and effect. All protection afforded the Trustee by the Indenture
shall also be afforded to the Trustee in connection with its execution,
delivery and performance of this Supplemental Indenture.
7. HOLDERS BOUND. This Supplemental Indenture shall form a part of
the Indenture for all purposes, and every Holder of the Securities heretofore
or hereafter authenticated and delivered shall be bound hereby.
8. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits,
qualifies or conflicts with a provision of the Trust Indenture Act that is
required or deemed under the Trust Indenture Act to be part of and govern
this Supplemental Indenture, the latter provision shall control. If any
provision of this Supplemental Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Supplemental Indenture as so
modified or to be excluded, as the case may be.
9. HEADINGS. The Section headings herein are for convenience only and
shall not affect the construction hereof.
10. SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Supplemental Indenture by the Company shall bind its respective successors
and assigns, whether so expressed or not.
11. SEPARABILITY CLAUSE. In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
12. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
13. DUPLICATE ORIGINALS. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
14. NO RECOURSE AGAINST OTHERS. A Director, officer, employee,
stockholder or incorporator as such, of the Company shall not have any
liability for any obligations of the Company under this Supplemental
Indenture for any claims based on, in respect of or by reason of such
obligations or their creation.
15. COUNTERPARTS. This Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be
an original, and all of such counterparts shall together constitute one and
the same instrument.
3
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4
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IN WITNESS WHEREOF, the Company and the Trustee have caused this
Supplemental Indenture to be duly executed as of the date first above written.
COMPANY:
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a Delaware corporation
By /s/ J. CHRIS SEAMAN
----------------------------------------
Name: J. Chris Seaman
Title: Executive Vice President and
Chief Financial Officer
TRUSTEE:
WILMINGTON TRUST COMPANY,
a Delaware banking corporation, as Trustee
By /s/ ANNE ROBERTS
----------------------------------------
Name: Anne Roberts
Title: Sr. Financial Svc. Officer
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<PAGE>
The attached form of warrant was issued on December 10, 1998 as follows:
Holder Warrant Allocation
------ ------------------
Insurance Partners Advisors, Inc 229,754
Insurance Partners Advisors, Inc. 93,206
Zurich Centre Group Holdings Limited 205,520
Robert Spass 32,825
Steven Gluckstern 32,825
Laurence Cheng 82,825
Mark Gormley 21,336
Brad Cooper 16,413
Paul Warren 16,413
Adam Mizel 16,413
Scott Delman 10,504
Philip Larson 3,138
Sharissa Jones 3,138
Eric Rahe 3,138
Susan Fleming 3,138
Julian Allen 3,138
Elizabeth Danes 2,092
David Spuria 1,395
Jon Kelly 4,184
Roland Bernardon 523
Eric Leathers 694
Avi Kalichstein 694
Justin Cohen 694
<PAGE>
COMMON STOCK PURCHASE WARRANT
Issued By
SUPERIOR NATIONAL INSURANCE GROUP, INC.
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT,
EXCEPT UNDER CIRCUMSTANCES WHERE NEITHER SUCH REGISTRATION NOR SUCH AN EXEMPTION
IS REQUIRED BY LAW. THIS WARRANT AND SUCH SECURITIES MAY BE TRANSFERRED ONLY
UPON THE FULFILLMENT OF THE CONDITIONS SPECIFIED IN THIS WARRANT.
- --------------------------------------------------------------------------------
No. 1998 W-__ Dated as of December 10, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Manner of Exercise . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 When Exercise Effective. . . . . . . . . . . . . . . . . . . 2
Section 1.3 Delivery of Stock Certificate, etc.. . . . . . . . . . . . . 3
Section 1.4 Company to Reaffirm Obligations. . . . . . . . . . . . . . . 3
Section 1.5 Compliance with Law, etc.. . . . . . . . . . . . . . . . . . 3
SECTION 2. ADJUSTMENT OF COMMON STOCK ISSUABLEUPON EXERCISE OF WARRANT. . . . 3
Section 2.1 General; Warrant Price . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Adjustment of Warrant Price. . . . . . . . . . . . . . . . . 4
Section 2.3 Options and Convertible Securities . . . . . . . . . . . . . 5
Section 2.4 Stock Dividends, Stock Splits. etc.. . . . . . . . . . . . . 7
Section 2.5 Computation of Consideration . . . . . . . . . . . . . . . . 7
Section 2.6 Dilution in Case of Other Securities . . . . . . . . . . . . 8
Section 2.7 Adjustments for Combinations, etc. . . . . . . . . . . . . . 9
Section 2.8 Other Adjustments. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.9 Determinations by Board of Directors . . . . . . . . . . . . 9
SECTION 3. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALEOF ASSETS,
REORGANIZATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4. OTHER DILUTIVE EVENTS. . . . . . . . . . . . . . . . . . . . . . .10
SECTION 5. NO DILUTION OR IMPAIRMENT. . . . . . . . . . . . . . . . . . . . .11
SECTION 6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. . . . . . . . . . . . . . .11
SECTION 7. NOTICES OF CORPORATE ACTION. . . . . . . . . . . . . . . . . . . .12
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION . . . . . . . . . . . . . .13
Section 8.1 Restrictive Legends. . . . . . . . . . . . . . . . . . . . .13
Section 8.2 Notice of Proposed Transfer; Opinions of Counsel . . . . . .14
Section 8.3 Termination of Restrictions. . . . . . . . . . . . . . . . .15
SECTION 9. AVAILABILITY OF INFORMATION. . . . . . . . . . . . . . . . . . . .15
</TABLE>
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<TABLE>
<S> <C>
SECTION 10. RESERVATION OF STOCK, ETC.. . . . . . . . . . . . . . . . . . . .16
SECTION 11. LISTING ON SECURITIES EXCHANGES . . . . . . . . . . . . . . . . .17
SECTION 12. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . . .17
SECTION 13. OWNERSHIP, REGISTRATION OF TRANSFER, EXCHANGEAND SUBSTITUTION
OF WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 13.1 Ownership of Warrants. . . . . . . . . . . . . . . . . . . .17
Section 13.2 Transfer and Exchange of Warrants. . . . . . . . . . . . . .17
Section 13.3 Replacement of Warrants. . . . . . . . . . . . . . . . . . .18
Section 13.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 14. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 15. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER . . . . . . . . . . . . .22
SECTION 17. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 18. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 19. EXPIRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SUBSCRIPTION NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
</TABLE>
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<PAGE>
COMMON STOCK PURCHASE WARRANT
Dated as of December 10, 1998
Superior National Insurance Group, Inc., a Delaware corporation (the
"Company"), for value received, hereby certifies that ________ ("Holder"), is
entitled to purchase from the Company _______ duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock (as defined in Section 14
herein) at the purchase price per share of $16.75, at any time or from time to
time prior to 5:00 p.m. Pacific time, on December 10, 2003 (or such later date
as may be determined pursuant to Section 19), all subject to the terms,
conditions and adjustments set forth below in this Warrant, and is entitled to
exercise the other rights, powers and privileges hereinafter specified.
This Warrant constitutes (or has been issued in exchange or
substitution for, or upon registration of transfer of one of) one of the Common
Stock Purchase Warrants issued and delivered pursuant to the Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of May 5, 1998, among the
Company, Insurance Partners, L.P., Insurance Partners Offshore (Bermuda), L.P.
and Capital Z Partners, Ltd. The Stock Purchase Agreement is available for
inspection by the holder of this Warrant during normal business hours at the
office or agency maintained by the Company pursuant to Section 12 and at the
principal office of the Company referred to in, or notice of which is given by
the Company pursuant to, Section 17, and, upon request therefor, the Company
will furnish to the holder of this Warrant a true and complete copy of the Stock
Purchase Agreement as in effect at the time. All the Warrants, as originally so
issued, evidenced the right to purchase an aggregate of 734,000 shares of Common
Stock, subject to adjustment as provided herein. The term "Warrants," when used
herein, means this Warrant and all Warrants issued in exchange or substitution
therefor or upon registration of transfer hereof. The Warrants, although issued
in connection with the issuance and sale of shares of Common Stock pursuant to
the Stock Purchase Agreement (the "Purchase Shares") and although containing
provisions that refer to the Stock Purchase Agreement, are detachable warrants
and, accordingly, are exercisable and transferable (subject to compliance with
Section 8, if applicable) without presentation of any of the Purchase Shares.
Certain terms used in this Warrant are defined in Section 14.
SECTION 1. EXERCISE OF WARRANT
Section 1.1 MANNER OF EXERCISE. This Warrant may be exercised by
the holder hereof, in whole or in part, during normal business hours on any
Business Day by
<PAGE>
surrender of this Warrant, with the form of subscription at the end hereof or a
reasonable facsimile thereto duly executed by such holder, to the Company at the
office or agency maintained by the Company pursuant to Section 12,
(a) accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in the amount (the "Exercise
Price") obtained by multiplying (i) the number of shares of Common Stock
(without giving effect to any adjustment therein) designated in such form of
subscription (or such reasonable facsimile) by (ii) $16.75, and such holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided in Section 2; or
(b) accompanied by a notice to exercise its Cashless Exercise
Right (as defined herein). The holder hereof shall have the right to require
the Company to reduce the number of shares of Common Stock to be received by
such holder in lieu of paying the Exercise Price (the "Cashless Exercise
Right"). If the Cashless Exercise Right is exercised, the holder shall not be
obligated to pay the Exercise Price and the Company shall deliver to such holder
(without payment by such holder of any of the Exercise Price) the number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
(or Other Securities) determined by Section 2 reduced by that number of shares
of Common Stock (or Other Securities) equal to the quotient obtained by dividing
(i) the Exercise Price by (ii) the Market Price of one share of Common Stock (or
Other Securities) on the Business Day next preceding the date of exercise of the
Cashless Exercise Right; or
(c) accompanied by a notice to exercise its In-Kind Exercise
Right (as defined herein). The holder shall have the right to pay the Exercise
Price with shares of Common Stock (the "In-Kind Exercise Right") that either
accompany the notice or are acquired concurrently therewith pursuant to
paragraph (a), (b) or this paragraph (c). For purposes of this paragraph, any
share of Common Stock used to pay the Exercise Price shall be deemed to have a
value equal to the Market Price of one share of Common Stock on the Business Day
next preceding the date of exercise of the In-Kind Exercise Right.
Section 1.2 WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered as
provided in Section 1.1, and immediately prior to the close of business on such
Business Day the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be issuable
upon such exercise as provided in Section 1.3 shall be deemed to have become the
holder or holders of record thereof.
2
<PAGE>
Section 1.3 DELIVERY OF STOCK CERTIFICATE, ETC. As soon as
practicable after the exercise of this Warrant in whole or in part, and in any
event within five Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof or, subject to
Section 8, as such holder (upon payment by such holder of any applicable
transfer taxes) may direct,
(a) a certificate or certificates for the number of fully paid
and non-assessable shares of Common Stock (or Other Securities) to which
such holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in
an amount equal to the same fraction (calculated to the nearest 1/100th of
a share) of the Market Price of one full share on the Business Day next
preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by
the holder upon such exercise as provided in Section 1.1.
Section 1.4 COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at
the time of each exercise of this Warrant, acknowledge in writing its continuing
obligation to afford to such holder all rights to which such holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant; PROVIDED, HOWEVER, that if the Company shall fail to make any such
written acknowledgment, such failure shall not affect the continuing obligation
of the Company to afford such rights to such holder.
Section 1.5 COMPLIANCE WITH LAW, ETC. Each exercise of this
Warrant shall at all times be subject to the provisions of any applicable law
relating to the rights of non-citizens of the United States of America or other
classes of Persons to own shares of the Company.
SECTION 2. ADJUSTMENT OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANT
3
<PAGE>
Section 2.1 GENERAL; WARRANT PRICE. The number of shares of Common
Stock which the holder of this Warrant shall be entitled to receive upon the
exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1, by the fraction of which (a) the numerator is $16.75 and (b) the
denominator is the Warrant Price (as defined below in this Section 2.1) in
effect on the date of such exercise. If a holder exercises a Cashless Exercise
Right, the number of shares of Common Stock such holder shall be entitled to
receive upon exercise of the warrant shall be reduced in accordance with Section
1.1(b). The "Warrant Price" per share of Common Stock shall initially be
$16.75, shall be adjusted and readjusted from time to time as provided in this
Section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 2.
Section 2.2 ADJUSTMENT OF WARRANT PRICE.
Section 2.2.1 In case the Company, at any time or from time to time
after the Closing Date shall issue or sell Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Sections 2.3 or 2.4) without consideration or for a consideration per share less
than the Current Market Price in effect immediately prior to such issue or sale,
then, and in each such case, such Warrant Price shall be reduced, concurrently
with such issue or sale, to a price (calculated to the nearest cent) determined
by multiplying such Warrant Price by a fraction:
(a) the numerator of which shall be the number of shares of Common
Stock outstanding, which number shall for purposes of this Section 2.2.l(a)
include the Common Stock Deemed to be Outstanding, immediately prior to
such issue or sale, plus the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
such Additional Shares of Common Stock so issued or sold would purchase at
the greater of such Current Market Price and such Warrant Price; and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding, which number shall for purposes of this Section 2.2.
l(b) include the Common Stock Deemed to be Outstanding, immediately after
such issue or scale;
PROVIDED, HOWEVER, that for the purposes of this Section 2.2.1, treasury shares
shall not be deemed to be outstanding; and PROVIDED, FURTHER, that if any such
Additional Shares of Common Stock are issued pursuant to a binding agreement
entered into prior to the date of issuance of such shares and the per share
consideration to be paid by the purchaser
4
<PAGE>
for each such Additional Share of Common Stock under such agreement is at least
eighty-five percent (85%) of the Market Price per share of Common Stock on the
Business Day next preceding the date such agreement is entered into by the
parties thereto, then no adjustment shall be made to the Warrant Price pursuant
to this Section 2.2.1.
Section 2.2.2 In case the Company, at any time or from time to time
after the Closing Date, shall declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spin-off, reclassification, recapitalization, merger or consolidation in
which the Company is the continuing or resulting corporation, or similar
corporate rearrangement) on the Common Stock, other than (a) a dividend payable
in Additional Shares of Common Stock for which an adjustment has been made
pursuant to Section 2.2.1 hereof and (b) regular periodic cash dividends
declared out of earned surplus of the Company in an aggregate amount not greater
than fifty cents ($.50) per share of Common Stock per annum (as adjusted for any
stock split, combination, reclassification or similar events with respect to the
Common Stock), then, and in each such case, the Warrant Price in effect
immediately prior to the close of business on the record date fixed for the
determination of the Persons entitled to receive such dividend or distribution
shall be adjusted, effective as of the close of business on such record date, to
a price (calculated to the nearest cent) determined by multiplying such Warrant
Price by a fraction:
(i) the numerator of which shall be the Current Market Price
in effect on such record date less the amount of such dividend or
distribution (as determined in good faith by the Board of Directors of
the Company) applicable to one share of Common Stock; and
(ii) the denominator of which shall be such Current Market
Price.
Section 2.3 OPTIONS AND CONVERTIBLE SECURITIES. In case the Company,
at any time or from time to time after the Closing Date, shall issue, sell,
grant or assume, or shall fix a record date for the determination of holders of
any class of securities entitled to receive, any Options (other than those
provided for and reserved pursuant to the Stock Option Plan as of the date of
the original issuance of this Warrant) or Convertible Securities, then, and in
each such case, the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of
5
<PAGE>
business on such record date; PROVIDED, HOWEVER, that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined in accordance with Section 2.5) of such shares would be
less than the Current Market Price in effect on the date of and immediately
prior to such issue, sale, grant or assumption or immediately prior to the close
of business on such record date, as the case may be, and PROVIDED, FURTHER, that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or any increase or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof (by change of rate or otherwise), the Warrant Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration (or purchase by the Company and cancellation)
of any such Options or any rights of conversion or exchange under such
Convertible Securities which shall not have been exercised, the Warrant
Price computed upon the original issue, sale, grant or assumption thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration (or such
cancellation, as the case may be), be recomputed as if:
(i) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued or
sold were the shares of Common Stock, if any, actually issued or sold
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received therefor
was the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were
6
<PAGE>
actually converted or exchanged, plus the additional consideration, if
any, actually received by the Company upon such conversion or
exchange; and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise thereof were issued at the time of the issue, sale, grant or
assumption of such Options, and the consideration received by the
Company for the Additional Shares of Common Stock deemed to have then
been issued was the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration deemed to have been received by
the Company (in accordance with Section 2.5) upon the issue or sale of
the Convertible Securities in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(d) no readjustment pursuant to clause (b) or (c) above shall have
the effect of increasing the Warrant Price by an amount in excess of the amount
of the adjustment thereof originally made in respect of the issue, sale, grant
or assumption of such Options or Convertible Securities.
Section 2.4 STOCK DIVIDENDS, STOCK SPLITS. ETC. In case the Company,
at any time or from time to time after the Closing Date, shall declare or pay
any dividend on the Common Stock or any other security, payable in Common Stock,
or shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then, and in each such case, the
Warrant Price in effect immediately prior to the payment of such dividend or
effectiveness of such subdivision shall be proportionately reduced (a) in the
case of any such dividend, immediately after the close of business on the record
date for the determination of holders of any class of securities entitled to
receive such dividend, or (b) in the case of any such subdivision, at the close
of business on the day immediately prior to the day upon which such corporate
action becomes effective.
Section 2.5 COMPUTATION OF CONSIDERATION. For the purposes of this
Section 2:
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration:
7
<PAGE>
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, before deducting any expenses
paid or incurred by the Company and all commissions and compensation
paid and concessions and discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale;
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company; and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, by the applicable
proportion of such consideration so received, computed as provided in
clauses (i) and (ii) above, as determined in good faith by the Board
of Directors of the Company.
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing:
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities or, in the case
of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration as
provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable
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upon the exercise of such Options or the conversion or exchange of
such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4, relating to stock dividends and stock splits,
shall be deemed to have been issued for no consideration.
Section 2.6 DILUTION IN CASE OF OTHER SECURITIES. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any other issuer or Person), the computations,
adjustments and readjustments provided for in this Section 2 with respect to the
Warrant Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrants, so as to protect the holders of the Warrants
against the effect of the dilution of the purchase rights granted by the
Warrants.
Section 2.7 ADJUSTMENTS FOR COMBINATIONS, ETC. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then, and in each such case, the Warrant Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
Section 2.8 OTHER ADJUSTMENTS. Adjustments shall also be made at the
times and under the circumstances specified in Sections 3 and 4.
Section 2.9 DETERMINATIONS BY BOARD OF DIRECTORS. All determinations
by the Board of Directors of the Company under the provisions of this Warrant
shall be made in good faith with due regard to the interests of the holder of
this Warrant, and in accordance with good financial practice.
SECTION 3. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE
OF ASSETS, REORGANIZATION, ETC.
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In case the Company, after the Closing Date, (a) shall consolidate
with or merge into any other Person and shall not be the continuing or surviving
corporation in such consolidation or merger, (b) shall permit any other Person
to consolidate with or merge into the Company and the Company shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, the Common Stock or Other Securities shall be changed into or exchanged
for stock of other securities of any other Person or cash or any other property,
(c) shall transfer all or substantially all of its properties or assets to any
other Person, or (d) shall effect a capital reorganization or reclassification
of the Common Stock or Other Securities (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment in the Warrant Price is provided in Section 2.2), then, and in
each such case, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Section 3, the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such
consolidation, merger, transfer, reorganization or reclassification, shall be
entitled to receive (at the aggregate Warrant Price in effect at the time of
such consummation for all Common Stock or Other Securities issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock or
Other Securities issuable upon such exercise prior to such consummation, the
stock and other securities, cash and property to which such holder would have
been entitled upon such consummation if such holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such corporate
action) as nearly equivalent as possible to the adjustments provided for in
Section 2 and this Section 3; PROVIDED, HOWEVER (and the Company covenants),
that (1) the Company shall not effect any of the transactions described in
clauses (a) through (c) above with any Person other than a corporation, and that
(2) the Company shall not effect any of the transactions described in clauses
(a) through (d) above unless, immediately after the date of the consummation of
such transaction, the Acquiring Corporation or its Parent is required to file,
and in each of its three fiscal years immediately preceding the date of the
consummation of such transaction has filed, reports with the Commission pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act. In the event
that the Acquiring Corporation fulfills the requirements contained in the
immediately preceding proviso, then, if the holder of this Warrant shall elect
(or shall be deemed to elect) to receive common stock pursuant to clause (b)
above, such holder shall be entitled to receive, upon the basis stated in such
clause (b), the common stock of the Acquiring Corporation and not of its Parent.
Notwithstanding anything contained herein to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) above
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any stock, securities, cash or property upon
the exercise hereof shall assume, by written instrument delivered and
satisfactory to the holder of this Warrant, the obligation to deliver to such
holder such shares of stock, securities, cash or property as in accordance with
the foregoing provisions, such holder may be entitled to purchase, and such
Person shall have furnished to the holder
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hereof an opinion of counsel for such Person, which counsel shall be
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of Section 2 and this Section 3) shall be applicable to
the stock, securities, cash or property which such Person may be required to
deliver upon the exercise hereof.
SECTION 4. OTHER DILUTIVE EVENTS
In case any event shall occur as to which the provisions of Section 2
or Section 3 are not strictly applicable but the failure to make any adjustment
would not fairly protect the purchase rights represented by this Warrant in
accordance with the essential intent and principles of such Sections, then, in
each such case, the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular
independent auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 2 and 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
SECTION 5. NO DILUTION OR IMPAIRMENT
The Company will not, by amendment of its charter or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not permit the par value of any shares of
stock receivable upon the exercise of the Warrants to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue, free
from preemptive rights, fully paid and non-assessable shares of stock upon the
exercise of all Warrants from time to time outstanding, (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's charter and
available for the purpose of issue upon such exercise, and (d) will not issue
any capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution,
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liquidation or winding-up, unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par value in respect of participation in
dividends and in any such distribution of assets.
SECTION 6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS
In the case of any adjustment or readjustment in the shares of Common
Stock (or Other Securities) issuable upon the exercise of the Warrants, the
Company at its expense will promptly compute such adjustment or readjustment in
accordance with the terms of the Warrants and cause independent public
accountants of recognized national standing selected by the Company to verify
such computation and prepare a report setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Company for any Additional Shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 2) on account thereof. The Company will forthwith mail
a copy of each such report to each holder of a Warrant, and will, upon the
written request at any time of any holder of a Warrant, furnish to such holder a
like report setting forth the Warrant Price at the time in effect and showing
how it was calculated. The Company will also keep copies of all such reports at
its principal office and at the office or agency maintained by the Company
pursuant to Section 12, and will cause the same to be available for inspection
at such offices during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof.
SECTION 7. NOTICES OF CORPORATE ACTION
In the event of a proposal by the Company (or of which the Company
shall have knowledge) for:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus at the rate most recently established by the Board of
Directors of the Company) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
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(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation, merger or exchange of shares involving the Company and any
other Person or any transfer of all or substantially all the assets of the
Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, and (ii) the date or expected date on
which any such reorganization, reclassification, recapitalization,
consolidation, merger, exchange of shares, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, exchange of shares,
transfer, dissolution, liquidation or winding-up. Such notice shall be mailed
at least 30 days prior to the date therein specified.
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION
Section 8.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by
this Section 8, the Warrant originally issued pursuant to the Stock Purchase
Agreement, each Warrant issued in exchange or substitution for any Warrant
pursuant to Section 13, and each Warrant issued upon the registration of
transfer of any Warrant, shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"This Warrant and any securities acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933 and
may not be transferred in the absence of such registration or an
exemption therefrom under such Act, except under circumstances where
neither such registration nor such an exemption is required by law.
This Warrant and such securities may be transferred only upon the
fulfillment of the conditions specified in this Warrant."
Except as otherwise permitted by this Section 8, each certificate representing
shares of Common Stock (or Other Securities) issued upon the exercise of any
Warrant, and each
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certificate issued upon the registration of transfer of any shares of such
Common Stock (or Other Securities), shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act, except under circumstances where neither such registration
nor such an exemption is required by law. Such securities may be
transferred only upon the fulfillment of the conditions specified in
certain Common Stock Purchase Warrants issued pursuant to the Stock
Purchase Agreement, dated as of May 5, 1998, between Superior National
Insurance Group, Inc. (the "Company"), Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P., and Capital Z Partners,
Ltd. and in the Stock Purchase Agreement. A complete and correct copy
of the form of such warrants and the Stock Purchase Agreement are
available for inspection at the principal office of the Company and
will be furnished to the holder of such securities upon written
request and without charge."
Section 8.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior
to any transfer of any Restricted Securities, the holder thereof will give
written notice to the Company of such holder's intention to effect such transfer
and to comply in all other respects with this Section 8.2. Each such notice (a)
shall describe the manner and circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions referred to below,
and (b) shall designate counsel for the holder giving such notice (who may be
in-house counsel for such holder). The holder giving such notice will submit a
copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(i) If in the opinion of each such counsel the proposed
transfer may be effected without registration of such Restricted
Securities under the Securities Act, the Company will promptly notify
the holder thereof and such holder shall thereupon be entitled to
transfer such Restricted Securities in accordance with the terms of
the notice delivered by such holder to the Company. Each Warrant or
certificate, if any, issued upon or in connection with such transfer
shall bear the applicable restrictive legend set forth in Section 8.1,
unless in the opinion of
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each such counsel such legend is no longer required to ensure
compliance with the Securities Act. If for any reason counsel for the
Company (after having been furnished with the information required to
be furnished by clause (a) of this Section 8.2) shall fail to deliver
an opinion to the Company, or the Company shall fail to notify such
holder thereof as aforesaid, within 15 days after counsel for such
holder shall have delivered its opinion to such holder (with a copy to
the Company), then for all purposes of this Warrant the opinion of
counsel for such holder shall be sufficient to authorize the proposed
transfer and the opinion of counsel for the Company shall not be
required in connection with such proposed transfer; and
(ii) If in the opinion of either or both of such counsel the
proposed transfer may not be effected without registration of such
Restricted Securities under the Securities Act, the Company will
promptly so notify the holder thereof and such holder shall not be
entitled to transfer such Restricted Securities until receipt of a
further notice from the Company under clause (i) above or until
registration of such Restricted Securities under the Securities Act
has become effective.
Notwithstanding the foregoing provisions of this Section 8.2 but subject to the
provisions of the Stock Purchase Agreement, the Holder shall be permitted at any
time or from time to time to transfer any Restricted Securities to a limited
number of institutional investors; PROVIDED, HOWEVER, that (w) each such
investor represents in writing that it is acquiring such Restricted Securities
for investment and not with a view to the distribution thereof (subject,
however, to any requirement of law to the effect that the disposition thereof
shall at all times be within the control of such transferee), (x) each such
investor agrees in writing to be bound by all the restrictions on transfer of
such Restricted Securities contained in this Section 8.2, (y) the Holder
delivers to the Company an opinion of Paul, Weiss, Rifkind, Wharton & Garrison
or in-house counsel for the Holder, or other counsel satisfactory to the
Company, stating that such transfer may be effected without registration under
the Securities Act, and (z) the Holder delivers to the Company, at least 10 days
prior to such transfer, the name of the counsel who will deliver the opinion
referred to in clause (y) above. The Company will pay the reasonable fees and
disbursements of counsel (other than in-house counsel) for any holder of
Restricted Securities and of counsel for the Company in connection with all
opinions rendered by them pursuant to this Section 8.2 and pursuant to
Section 8.3.
Section 8.3 TERMINATION OF RESTRICTIONS. The restrictions imposed by
this Section 8 upon the transferability of Warrants and Common Stock (or Other
Securities) shall cease and terminate as to any particular Warrants or Common
Stock (or Other Securities) (a) when such securities shall have been effectively
registered under the
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Securities Act and disposed of in accordance with the registration statement
covering such securities, or (b) when, in the opinions of both counsel for the
holder thereof and counsel for the Company, or when, on the basis of a pertinent
Commission rule or regulation promulgated under the Securities Act, or a
pertinent "no-action" position taken by the staff of the Commission, such
restrictions are no longer required in order to ensure compliance with the
Securities Act. Whenever such restrictions shall terminate as to any Warrants
or Common Stock (or Other Securities), the holder thereof shall be entitled to
receive from the Company, without expense (other than transfer taxes, if any),
new securities of like tenor not bearing the applicable legend set forth in
Section 8.1.
SECTION 9. AVAILABILITY OF INFORMATION
If and so long as the Company is a Public Company, the Company will
comply with the reporting requirements of Sections 13 and 15(d) of the
Securities Exchange Act and will comply with all other public information
reporting requirements of the Commission (including the requirements of Rule 144
promulgated by the Commission under the Securities Act) from time to time in
effect and relating to the availability of an exemption from the Securities Act
for the sale of any Restricted Securities or the sale of securities by
affiliates. The Company will also cooperate with each holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Restricted Securities or the sale of
securities by affiliates. The Company will deliver to each holder of a Warrant,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange, or with the Commission.
SECTION 10. RESERVATION OF STOCK, ETC.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants and free from preemptive
rights, all shares of Common Stock (or Other Securities) from time to time
issuable upon the exercise of the Warrants at the time outstanding. All such
shares (and any such Other Securities consisting of shares of capital stock)
shall be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid and nonassessable with no liability on the part of the
holders thereof. Any such Other Securities (other than shares of capital stock)
shall be duly authorized and, when issued upon such exercise, shall be validly
issued and legally binding obligations, enforceable in
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accordance with their terms, with no liability on the part of the holders
thereof. Without limiting the generality of the foregoing, if any shares of
Common Stock (or Other Securities) required to be reserved for the purposes of
exercise of this Warrant require registration with or approval of any
governmental authority under any federal law (other than the Securities Act) or
under any state law before such shares (or Other Securities) may be issued upon
exercise of this Warrant, the Company will at its expense, as expeditiously as
possible, cause such shares (or Other Securities) to be duly registered or
approved, as the case may be. The Company, in addition, will review its stock
ledgers, stock transfer books and other corporate records periodically (and not
less often than once in each calendar quarter) in order to determine whether, as
a result of any action taken by the Company or any officer of the Company, any
holder of a Warrant is or shall have become, directly or indirectly, the
beneficial owner of more than such percentage of any class of its equity
securities (as defined in the Securities Exchange Act) as shall cause such
holder to be required to make any filings or declarations to the Company, the
Commission or any national securities exchange pursuant to the proviions of the
Securities Exchange Act or any comparable federal statute, and the Company will
give prompt written notice to such holder whenever it shall have determined,
upon the basis of the information disclosed by any such review, that such holder
is or has become such a holder because of such action, which notice shall also
specify the information upon which the Company bases such determination;
PROVIDED, HOWEVER, that the Company need give such notice only once in each
fiscal year to any holder whose percentage of beneficial ownership of any class
of the Company's equity securities has not changed since the date of the giving
of the immediately preceding notice.
SECTION 11. LISTING ON SECURITIES EXCHANGES
The Company will list on each national securities exchange (or the
Nasdaq National Market System) on which any Common Stock may at any time be
listed, subject to official notice of issuance upon the exercise of the
Warrants, and will maintain such listing of, all shares of Common Stock from
time to time issuable upon the exercise of the Warrants; and the Company will so
list on each national securities exchange (or the Nasdaq National Market
System), and will maintain such listing of, any Other Securities if at the time
any securities of the same class shall be listed on such national securities
exchange (or the Nasdaq National Market System) by the Company.
SECTION 12. MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain an office or agency in Los Angeles County,
California where books for the registration and registration of transfer of the
Warrants
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will be kept and where the Warrants may be presented for exercise, registration
of transfer, exchange and replacement pursuant to the provisions hereof. The
principal office of the Company shall be such office or agency unless the
Company, by at least 10 days' prior written notice to each holder of any
Warrants, shall designate the principal office of a law firm or a bank or trust
company in such city or area as such office or agency, in which case the
principal office of such other law firm or bank or trust company shall
thereafter be such office or agency.
SECTION 13. OWNERSHIP, REGISTRATION OF TRANSFER, EXCHANGE
AND SUBSTITUTION OF WARRANTS
Section 13.1 OWNERSHIP OF WARRANTS. Until due presentment for
registration of transfer as permitted by Section 8, the Company may treat the
Person in whose name any Warrant is registered on the register kept at the
office or agency of the Company maintained pursuant to Section 12 as the owner
and holder thereof for all purposes, notwithstanding any notice to the contrary.
Subject to the foregoing provisions and to Section 8, a Warrant, if properly
assigned, may be exercised by the assignee without first having a new Warrant
issued.
Section 13.2 TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender
of any Warrant, properly endorsed, for registration of transfer or for exchange
(for the purpose of combination of Warrants, split-up of Warrants or any other
purpose) at the office or agency maintained by the Company pursuant to Section
12, the Company at its expense will (subject to compliance with Section 8, if
applicable) promptly execute and deliver to or upon the order of the holder
thereof a new Warrant or Warrants of like tenor, in the name of such holder or
as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the number
of shares of Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered, and thereupon the old Warrant shall be canceled.
Section 13.3 REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than the Holder or any
institutional investor, upon delivery of indemnity reasonably satisfactory to
the Company in form and amount, or, in the case of any such mutilation,
surrender of such Warrant for cancellation at the office or agency maintained by
the Company pursuant to Section 12, the Company at its expense will promptly
execute and deliver, in lieu thereof, a new Warrant of like tenor.
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Section 13.4 EXPENSES. The Company will pay all expenses, taxes
(other than transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery from time to time of Warrants.
SECTION 14. DEFINITIONS
For all purposes of this Warrant, the following definitions shall
apply (the definitions to be applicable to both the singular and the plural
forms of the terms defined where either such form is used in this Warrant):
"ACQUIRING CORPORATION" means the continuing or surviving corporation
in a consolidation or merger with the Company (if other than the Company), the
transferee of all or substantially all the properties or assets of the Company,
the corporation consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Stock (or Other
Securities) is (or are) changed into or exchanged for stock or other Securities
of any other Person or cash or any other property, or, in the case of a capital
reorganization or reclassification, the Company.
"ADDITIONAL SHARES OF COMMON STOCK" means all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Sections 2.3 or
2.4, deemed to be issued) by the Company after the Closing Date, whether
subsequently reacquired or retired) by the Company, other than shares issued,
upon the exercise of the Warrants.
"BUSINESS DAY" means any day other than a Saturday, Sunday or day upon
which banking institutions are authorized or required by law or executive order
to be closed in Los Angeles, California or in the Borough of Manhattan in The
City of New York, New York.
"CASHLESS EXERCISE RIGHT" has the meaning set forth in Section 1.1 of
this Warrant.
"CLOSING DATE" means the date of original issuance and delivery of the
Warrants being December 10, 1998.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock, $0.01 par value, of the Company
as constituted on the Closing Date, any stock into which such Common Stock shall
have been changed or any stock resulting from any reclassification of such
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Common Stock, and all other stock of any class or classes (however designated)
of the Company, the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
"COMMON STOCK DEEMED TO BE OUTSTANDING" means all shares of Common
Stock that (a) can be acquired upon the conversion of any then outstanding
shares of Convertible Securities, (b) can be purchased upon the exercise of any
then outstanding rights, Options or warrants including, but not limited to,
these Warrants and all Options issued or available for issuance under the Stock
Option Plan or (c) can be acquired upon the conversion of any Convertible
Securities that can be purchased upon the exercise of any then outstanding
rights, Options or warrants.
"COMPANY" has the meaning set forth in the opening paragraph of this
Warrant, and any corporation which shall succeed to or assume the obligations of
the Company hereunder in compliance with Section 3.
"CONVERTIBLE SECURITIES" means any evidences of indebtedness, shares
of stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
"CURRENT MARKET PRICE" on any date of determination means the average
of the daily Market Price per share of Common Stock during the period of the 20
consecutive days on which national securities exchanges were open for trading,
ending on the day immediately preceding such date of determination; PROVIDED,
HOWEVER, that if and so long as there shall be no exchange or over-the-counter
market for the Common Stock, the Current Market Price shall be deemed to be the
greater of the Warrant Price on the date of determination or such price, if any,
at which the most recent issue and sale by the Company of Common Stock in a good
faith arm's-length transaction has been effected.
"EXERCISE PRICE" has the meaning set forth in Section 1.1 of this
Warrant.
"EXPIRATION DATE" has the meaning set forth in Section 19 of this
Warrant.
"MARKET PRICE" per share of Common Stock on any date of determination
means (a) the last sale price, regular way, on such date or, if no such sale
takes place on such date, the average of the closing bid and asked prices on
such date, in each case as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading, or (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange, the average of the reported
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closing bid and asked prices on such date as shown by the Nasdaq National Market
System, or, if such notices are not at the time so shown, as determined in good
faith by any member of the National Association of Securities Dealers, Inc.
selected by the Company and satisfactory to the holder of this Warrant;
PROVIDED, HOWEVER, that if and so long as there shall be no exchange or
over-the-counter market for the Common Stock, the Market Price shall be deemed
to be the greater of the Warrant Price on the date of determination or such
price, if any, at which the most recent issue and sale by the Company of Common
Stock in a good faith arm's-length transaction has been effected.
"OPTIONS" means rights, options or warrants to subscribe for, purchase
or otherwise acquire either Common Stock or Convertible Securities.
"OTHER SECURITIES" means any stock (other than Common Stock) and other
securities of the Company or any other Person which the holders of the Warrants
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Warrants in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
"PARENT" means as to any Acquiring Corporation, any corporation which
(a) controls the Acquiring Corporation directly or indirectly through one or
more intermediaries, (b) is (or, if not required to file such reports, would, if
so required, be) required to include the Acquiring Corporation in the
consolidated financial statements contained in such Parent's Annual Report on
Form 10-K under the Securities Exchange Act and (c) is not itself included in
the consolidated financial statements of any other Person (other than its
consolidated subsidiaries).
"PERSONS" means individuals, corporations, partnerships (including
"joint ventures"), trusts, estates, unincorporated organizations and governments
(including political subdivisions), authorities and agencies.
"PUBLIC COMPANY" means the Company, if and so long as the Common Stock
is "held of record" (within the meaning of Rule 12g5-1, as promulgated by the
Commission under the Securities Exchange Act and in effect on December 10, 1998)
by 500 or more Persons, and a registration statement with respect thereto is
effective under Section 12 of the Securities Exchange Act.
"PURCHASE SHARES" has the meaning set forth in the second opening
paragraph of this Warrant.
21
<PAGE>
"RESTRICTED SECURITIES" means (a) any Warrants bearing the applicable
legend set forth in Section 8.1, (b) any shares of Common Stock (or Other
Securities) which have bean issued upon the exercise of Warrants and which are
evidenced by a certificate or certificates bearing the applicable legend set
forth in Section 8.1, and (c) unless the context otherwise requires, any shares
of Common Stock (or Other Securities) which are at the time issuable upon the
exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend set forth in
Section 8.1.
"SECURITIES ACT" means the Securities Act of 1933, or any similar
federal statute replacing said statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
or any similar federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"STOCK OPTION PLAN" means, collectively, all equity incentive plans or
arrangements for employees, directors or consultants of the Company which, in
each case, are approved by the Board of Directors of the Company.
"STOCK PURCHASE AGREEMENT" has the meaning set forth in the second
opening paragraph of this Warrant.
"TRANSFER" means, with respect to any Restricted Securities, any sale,
assignment, pledge or other disposition thereof, or of any interest therein,
which could constitute a "sale" thereof, as that term is defined in Section 2(3)
of the Securities Act.
"WARRANT PRICE" shall have the meaning specified in Section 2.1.
"WARRANTS" has the meaning set forth in the second opening paragraph
of this Warrant.
SECTION 15. REMEDIES
The Company hereby expressly acknowledges and stipulates to the
understanding of the holder of this Warrant that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and agrees that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
22
<PAGE>
SECTION 16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER
Nothing contained in this Warrant shall be construed as conferring
upon the holder hereof any rights as a stockholder of the Company, and nothing
shall be construed as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company.
SECTION 17. NOTICES
All notices and other communications provided for herein shall be
mailed by first class mail, postage prepaid, addressed (a) if to any holder of
any Warrant, at the registered address of holder as set forth in the register
kept at the office or agency maintained by the Company pursuant to Section 12,
or (b) if to the Company, at its principal office, being an that date of
original issuance of this Warrant 26601 Agoura Road, Calabasas, California
91302, or at such other address of the principal office of the Company of which
the Company shall have given notice to each holder of any Warrants in writing;
PROVIDED, HOWEVER, that the exercise of any Warrant shall be effective if
effected in the manner provided in Section 1.
SECTION 18. MISCELLANEOUS
The terms and provisions of Sections 2, 4 and 5 of this Warrant may be
amended or waived only by an instrument in writing signed by the Company and the
holders of a majority of the Common Stock Purchase Warrants originally issued
pursuant to the terms of the Stock Purchase Agreement, without prior notice to
the Holder; and notice of any such action shall be given to the Holder promptly
thereafter. The terms and provisions of this Warrant other than the terms and
provisions of Sections 2, 4 and 5 may be amended, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge, or termination is sought. THIS
WARRANT AND THE STOCK PURCHASE AGREEMENT ARE TO BE GOVERNED BY AND TO BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF DELAWARE. The
headings in this Warrant are inserted for convenience only and shall not be
deemed to constitute a part hereof.
23
<PAGE>
SECTION 19. EXPIRATION
The right to exercise this Warrant shall expire at 5:00 p.m. Pacific
Time, on December 10, 2003 (or, if such date shall not be a Business Day, on the
next day that is a Business Day) (the "Expiration Date").
On the 30th day prior to the Expiration Date, the Company shall give
written notice of the expiration of this Warrant to the holder hereof. In the
event the Company fails to give such written notice, the right to exercise this
Warrant shall be extended to 5:00 p.m. Pacific time on the 30th day following
the date on which such written notice is given (or, if such date shall not be a
Business Day, on the next day that is a Business Day).
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ ROBERT E. NAGLE
------------------------------------------------
Name: Robert E. Nagle
Title: Senior Vice President, General Counsel
and Secretary
24
<PAGE>
SUBSCRIPTION NOTICE
SUPERIOR NATIONAL INSURANCE GROUP, INC.
The undersigned, the registered holder of the foregoing Warrant,
hereby elects to exercise purchase rights represented by said Warrant for, and
to purchase thereunder, ___________________ shares of the Common Stock covered
by said Warrant and [herewith makes payment in full therefor of $_______________
by certified or official bank check payable to the order of the Company] [hereby
exercises its Cashless Exercise Right] [hereby exercises its In-Kind Exercise
Right] and requests that (a) certificates for such shares (and any Other
Securities issuable upon such exercise) be issued in the name of and delivered
to __________________ ___________________, whose address is
___________________________________, and (b) if such shares (or Other
Securities) shall not include all of the shares (or Other Securities) issuable
as provided in said Warrant, then a new Warrant of like tenor and date for the
balance of the shares (or Other Securities) issuable thereunder be delivered to
the undersigned.
Signature guaranteed:
Dated:
---------------------------------------
25
<PAGE>
ASSIGNMENT
For Value Received, the undersigned registered owner hereby sells,
assigns and transfers unto ________________________, the rights represented by
the foregoing Warrant of Superior National Insurance Group, Inc., and appoints
___________________ attorney to transfer said rights on the books of said
corporation, with full power of substitution in the premises.
Signature guaranteed:
Dated:
---------------------------------------
26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P., and
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.,
------------------------
Dated: December 10, 1998
------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. General; Securities Subject to this Agreement . . . . . . . . . . . . 5
(a) Grant of Rights . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Registrable Securities . . . . . . . . . . . . . . . . . . . . . 5
(c) Holders of Registrable Securities . . . . . . . . . . . . . . . 6
3. Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Request for Demand Registration . . . . . . . . . . . . . . . . 6
(b) Limitation on Demand Registrations . . . . . . . . . . . . . . . 7
(c) Effective Demand Registration . . . . . . . . . . . . . . . . . 7
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Underwriting Procedures . . . . . . . . . . . . . . . . . . . . 8
(f) Selection of Underwriters . . . . . . . . . . . . . . . . . . . 8
4. Incidental or "Piggy-Back" Registration . . . . . . . . . . . . . . . 8
(a) Request for Incidental Registration . . . . . . . . . . . . . . 8
(b) Reduction in Registrable Securities to be Registered . . . . . . 9
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Restrictions on Public Sale by Designated Holders . . . . . . . 10
(b) Restrictions on Public Sale by the Company . . . . . . . . . . . 11
6. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Obligations of the Company . . . . . . . . . . . . . . . . . . . 11
(b) Seller Information . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Preparation; Reasonable Investigation . . . . . . . . . . . . . 14
(d) Notice to Discontinue . . . . . . . . . . . . . . . . . . . . . 14
7. Indemnification; Contribution . . . . . . . . . . . . . . . . . . . . 14
(a) Indemnification by the Company . . . . . . . . . . . . . . . . . 14
(b) Indemnification by Designated Holders . . . . . . . . . . . . . 15
(c) Conduct of Indemnification Proceedings . . . . . . . . . . . . . 16
(d) Other Indemnification . . . . . . . . . . . . . . . . . . . . . 17
(e) Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8. Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Recapitalizations, Exchanges, etc. . . . . . . . . . . . . . . . 18
(b) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . 18
(c) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 19
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Successors and Assigns; Third Party Beneficiaries . . . . . . . 21
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 21
(j) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(k) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
(l) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated
December 10, 1998 (this "Agreement"), among Superior National Insurance
Group, Inc., a Delaware corporation (the "Company"), Insurance Partners,
L.P., a Delaware limited partnership ("IP"), Insurance Partners Offshore
(Bermuda), L.P., a Bermuda limited partnership ("IP Bermuda"), and Capital Z
Financial Services Fund II, L.P., a Bermuda limited partnership ("Cap Z Fund
II" and, together with IP and IP Bermuda, "Insurance Partners").
WHEREAS, pursuant to the Amended and Restated Stock Purchase
Agreement, dated as of September 17, 1996, as amended and restated effective
as of February 17, 1997 (the "Stock Purchase Agreement"), by and among the
Company, IP, IP Bermuda and such other persons or entities that executed the
form of subscription agreement attached thereto as Exhibit A, pursuant to
which the Company agreed to, among other things, issue and sell to (a) IP,
and IP agreed to purchase from the Company, an aggregate of 1,369,856 shares
of Common Stock and (b) IP Bermuda, and IP Bermuda agreed to purchase from
the Company, an aggregate of 754,978 shares of Common Stock;
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
May 5, 1998 (the "New Stock Purchase Agreement"), by and among the Company,
IP, IP Bermuda and Capital Z Partners, Ltd., a Bermuda corporation ("Cap Z"),
pursuant to which the Company has agreed to, among other things, issue and
sell to (a) IP, and IP has agreed to purchase from the Company, up to an
aggregate of 3,737,504 shares of Common Stock; (b) IP Bermuda, and IP Bermuda
has agreed to purchase from the Company, up to an aggregate of 1,516,227
shares of Common Stock; and (c) Cap Z, and Cap Z has agreed to purchase from
the Company, up to an aggregate of 6,686,567 shares of Common Stock;
WHEREAS, pursuant to the certain letter, dated December 7,
1998, among Cap Z, Cap Z Fund II and the Company, Cap Z assigned all of its
rights and obligations under the Stock Purchase Agreement to Cap Z Fund II;
WHEREAS, in order to induce each of IP and IP Bermuda to
purchase shares of Common Stock pursuant to the Stock Purchase Agreement (in
the aggregate, the "Original Shares"), the Company granted certain
registration rights as set forth in the Registration Rights Agreement, dated
April 11, 1997 (the "Original Agreement"), among the Company, IP and IP
Bermuda; and
<PAGE>
2
WHEREAS, in order to induce each of IP, IP Bermuda and Cap Z
Fund II (as the assignee of Cap Z) to purchase shares of Common Stock
pursuant to the New Stock Purchase Agreement (in the aggregate, the "New
Shares" and, together with the Original Shares, the "Shares"), the Company
has agreed to grant registration rights with respect to the Registrable
Securities (as hereinafter defined) and to modify the Original Agreement, in
each case as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, and notwithstanding
anything to the contrary contained in the Original Agreement, the Original
Agreement is hereby amended and restated in its entirety as follows:
1. DEFINITIONS. As used in this Agreement the following
terms have the meanings indicated:
"AFFILIATE" shall mean any Person who is an "affiliate"
as defined in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"APPROVED UNDERWRITER" has the meaning set forth in
Section 3(f).
"CAP Z" has the meaning assigned to such term in the
recitals to this Agreement.
"CAP Z FUND II" has the meaning assigned to such term in
the recitals to this Agreement.
"CENTRELINE" means CentreLine Reinsured Limited, a
Bermuda corporation.
"CENTRELINE WARRANT" means the Common Stock Purchase
Warrant, dated as of June 30, 1994, issued by the Company to CentreLine
pursuant to the Preferred Securities Purchase Agreement, dated as of June 30,
1994, by and between the Company, Superior National Capital Holding
Corporation, Superior National Capital, L.P. and Centre Reinsurance Services
(Bermuda) III Limited.
"COMMISSION" means the Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"COMMON STOCK" means the Common Stock, par value $.01
per share, of the Company or any other equity securities of the Company into
which such securities are converted, reclassified, reconstituted or exchanged.
<PAGE>
3
"COMPANY" has the meaning assigned to such term in the
recital to this Agreement.
"COMPANY INDEMNIFIED PARTY" has the meaning set forth in
Section 7(b).
"DEMAND REGISTRATION" has the meaning set forth in
Section 3(a).
"DESIGNATED HOLDER" means each of the Insurance Partners
Stockholders and any transferee thereof to whom Registrable Securities have
been transferred in accordance with Section 9(f).
"DESIGNATED INDEMNIFIED PARTY" has the meaning set forth
in Section 7(a).
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"IIA" means International Insurance Advisors, Inc., a
Delaware corporation.
"III" means International Insurance Investors, L.P., a
Bermuda limited partnership.
"INCIDENTAL REGISTRATION" has the meaning set forth in
Section 4(a).
"INDEMNIFIED PARTY" has the meaning set forth in Section
7(c).
"INITIATING HOLDER" has the meaning set forth in Section
3(a).
"INSURANCE PARTNERS" has the meaning assigned to such
term in the recitals to this Agreement.
"INSURANCE PARTNERS STOCKHOLDERS" means each of IP, IP
Bermuda, Cap Z Fund II, ZCI, any Affiliate thereof to whom or which
Registrable Securities are transferred.
"IP" has the meaning assigned to such term in the
recitals to this Agreement.
"IP BERMUDA" has the meaning assigned to such term in
the recitals to this Agreement.
<PAGE>
4
"NEW SHARES" has the meaning assigned to such term in
the recitals to this Agreement.
"NEW STOCK PURCHASE AGREEMENT" has the meaning assigned
to such term in the recitals to this Agreement.
"1992 COMMON STOCK PURCHASE WARRANTS" means each of the
Common Stock Purchase Warrants, dated as of March 31, 1992, issued by the
Company pursuant to the Note Purchase Agreement, dated as of March 31, 1992,
among the Company and the purchasers listed on Schedule I thereto.
"1998 COMMON STOCK PURCHASE WARRANTS" means each of the
Common Stock Purchase Warrants, dated as of December 10, 1998, issued by the
Company pursuant to the New Stock Purchase Agreement.
"ORIGINAL AGREEMENT" has the meaning assigned to such
term in the recitals to this Agreement.
"ORIGINAL SHARES" has the meaning assigned to such term
in the recitals to this Agreement.
"OTHER RIGHTHOLDERS" has the meaning set forth in
Section 3(a).
"PERSON" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"REGISTRABLE SECURITIES" means each of the following:
(a) any and all Shares owned by the Designated Holders and (b) any shares of
Common Stock issued or issuable to any of the Designated Holders (i) upon
conversion, exercise or exchange of the 1998 Common Stock Purchase Warrants
or (ii) with respect to the Shares by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise and shares of Common Stock
issuable upon conversion, exercise or exchange thereof.
"REGISTRATION EXPENSES" means all expenses arising from
or incident to the Company's performance of, or compliance with, this
Agreement, including, without limitation, all registration, filing and
listing fees; all fees and expenses of complying with securities or "blue
sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualifications of Registrable Securities); all
printing, messenger and delivery expenses; the fees and disbursements of
counsel for the Company and its independent public accountants; the
<PAGE>
5
fees and disbursements of one firm of counsel (other than in-house counsel)
retained by the holders of Registrable Securities being registered; the
expenses of any special audits required by or incident to such performance
and compliance; and any liability insurance or other premiums for insurance
obtained in connection with any registration pursuant to the terms of this
Agreement; PROVIDED, HOWEVER, that Registration Expenses shall not include
underwriting discounts and commissions and transfer taxes, if any; and
PROVIDED FURTHER, that in any case where Registration Expenses are borne by
the holders pursuant to Section 3(d), Registration Expenses shall not include
general overhead expenses of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business.
"REGISTRATION STATEMENT" means a registration statement
filed pursuant to the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SHARES" has the meaning assigned to such term in the
recitals to this Agreement.
"STOCK PURCHASE AGREEMENT" has the meaning assigned to
such term in the recitals to this Agreement.
"SUBSIDIARY" has the meaning set forth in Section 6(c).
"ZCI" means Zurich Centre Investments Ltd.
2. GENERAL; SECURITIES SUBJECT TO THIS AGREEMENT.
(a) GRANT OF RIGHTS. The Company hereby grants
registration rights to the Insurance Partners Stockholders upon the terms and
conditions set forth in this Agreement.
(b) REGISTRABLE SECURITIES. For the purposes of
this Agreement, Registrable Securities will cease to be Registrable
Securities when (i) a Registration Statement covering such Registrable
Securities has been declared effective under the Securities Act by the
Commission and such Registrable Securities have been disposed of pursuant to
such effective Registration Statement, (ii) the entire amount of Registrable
Securities proposed to be sold in a single sale by a Designated Holder, in
the opinion of counsel satisfactory to the Company and the Designated Holder,
each in their reasonable judgment, may be distributed to the public without
any limitation as to volume pursuant to Rule 144 (or any successor provision
then in effect) under the Securities Act and the Designated Holder is not
then an Affiliate of the Company, or
<PAGE>
6
(iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.
(c) HOLDERS OF REGISTRABLE SECURITIES. A Person is
deemed to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company may
act upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security
shall be deemed outstanding for the purposes of this Agreement.
3. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION. At any time
any of the Insurance Partners Stockholders (the "Initiating Holders") shall
be entitled to request in writing that the Company use its best efforts to
effect the registration under the Securities Act, and under the securities or
"blue sky" laws of any jurisdiction designated by such Initiating Holders, of
all or part of such Initiating Holders' Registrable Securities in accordance
with this Section 3 (a "Demand Registration"). Any such request for a Demand
Registration shall specify the amount of Registrable Securities proposed to
be sold and the intended method of disposition thereof. Upon receiving a
request for a Demand Registration, the Company will promptly, but in no event
more than 10 days after the receipt from the Initiating Holders of a request
for a Demand Registration, give written notice of such Demand Registration to
(i) all of the Insurance Partners Stockholders (other than the Initiating
Holders), (ii) all holders of (x) the 1992 Common Stock Purchase Warrants,
(y) the CentreLine Warrant and (z) the 1998 Common Stock Purchase Warrants,
and (iii) in the event that any Insurance Partners Stockholder distributed
Registrable Securities to its partners or members, all such partners and
members (the Persons in clauses (i), (ii) and (iii) being referred to
collectively as the "Other Rightholders"), and thereupon will, as provided in
Section 6, use its best efforts to effect the registration under the
Securities Act of (i) the Registrable Securities which the Company has been
so requested by the Initiating Holders to register and (ii) all other shares
of Common Stock which the Company has been requested in writing to register
by such Insurance Partners Stockholders and Other Rightholders (which
requests shall specify the number of shares of Common Stock proposed to be
sold and the intended method of disposition thereof and shall be given to the
Company within 30 days after the giving of such written notice of the Demand
Registration by the Company).
(b) LIMITATION ON DEMAND REGISTRATIONS.
Notwithstanding anything to the contrary set forth in Section 3(a), the
Company shall not be obligated to
<PAGE>
7
file a Registration Statement with respect to a Demand Registration upon a
request by the Initiating Holders under Section 3(a) if (i) the Company has
any other Registration Statement on file but not yet declared effective, (ii)
the Company has filed any other Registration Statement that has an effective
date within a period of 180 days prior to the filing of the Registration
Statement with respect to the Demand Registration, or (iii) Registrable
Securities having an anticipated aggregate net offering price of less than
$7,500,000 are to be registered in such Demand Registration.
(c) EFFECTIVE DEMAND REGISTRATION. A registration
shall not constitute a Demand Registration until it has become effective and
remains continuously effective for the lesser of (i) the period during which
all Registrable Securities registered in the Demand Registration are sold and
(ii) 180 days; PROVIDED, HOWEVER, that a registration shall not constitute a
Demand Registration if (x) after such Demand Registration has become
effective, such registration or the related offer, sale or distribution of
Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the
Initiating Holders and such interference is not thereafter eliminated or (y)
the conditions to closing specified in the underwriting agreement, if any,
entered into in connection with such Demand Registration are not satisfied or
waived, other than by reason of a failure by the Initiating Holders.
(d) EXPENSES. The Company will pay all Registration
Expenses in connection with (i) two Demand Registrations of which IP or IP
Bermuda were Initiating Holders and (ii) two Demand Registrations of which
Cap Z Fund II was an Initiating Holder, under this Section 3 that either
become effective under the Securities Act or are withdrawn prior to the
effective date thereof; PROVIDED HOWEVER, that any withdrawal prior to the
effective date of a Demand Registration as the result of the actions of any
Person or Persons other than the Initiating Holders, or based upon material
adverse information relating to the Company that is different from the
information known by or available (upon request from the Company or
otherwise) to the Initiating Holders at the time of their request for a
Demand Registration under this Section 3, shall not diminish the number of
registrations in connection with which the Company agrees to pay Registration
Expenses; and PROVIDED FURTHER, that if such withdrawal is the result of the
actions of the Initiating Holders, then such Initiating Holders may in their
sole and unlimited discretion elect to bear the Registration Expenses of such
Demand Registration, in which case such registration shall not be counted as
a Demand Registration pursuant to this Section 3. In the event that the
Initiating Holders elect to bear the Registration Expenses (and underwriting
discounts and commissions and transfer taxes, if any) in connection with any
Demand Registration requested under this Section 3, such Registration
Expenses shall be apportioned among the holders whose shares of Common Stock
are then being registered, on the basis of the respective amounts (by number
of shares) of Common Stock then being registered by them or on their behalf.
<PAGE>
8
(e) UNDERWRITING PROCEDURES. If the Initiating
Holders so elect, the offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall
be the Approved Underwriter (as hereinafter defined) selected in accordance
with Section 3(f). In connection with any Demand Registration under this
Section 3 involving an underwriting, none of the Registrable Securities held
by any of the Insurance Partners Stockholders (other than the Initiating
Holders) or shares of Common Stock held by any Other Rightholders making a
request for inclusion thereof pursuant to Section 3(a) shall be included in
such underwriting unless such Insurance Partners Stockholders or Other
Rightholders, as the case may be, accept the terms of the underwriting as
agreed upon by the Company, the Initiating Holders and the Approved
Underwriter, and then only in such quantity as will not, in the opinion of
the Approved Underwriter, jeopardize the success of such offering. If the
Approved Underwriter advises the Company in writing that in its opinion the
aggregate amount of Common Stock requested to be included in such offering is
sufficiently large to have a material adverse effect on the success of such
offering, then the Company shall include in such registration only the
aggregate amount of Common Stock that in the opinion of the Approved
Underwriter may be sold without any such material adverse effect and shall
reduce, as to the Initiating Holders, the Insurance Partners Stockholders
(other than the Initiating Holders) and the Other Rightholders as a group,
the amount of Common Stock to be included in such registration, pro rata
within such group based on the number of Registrable Securities and other
shares of Common Stock included in the request for registration pursuant to
Section 3(a).
(f) SELECTION OF UNDERWRITERS. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the Initiating Holders holding a majority of the Registrable
Securities held by all such Initiating Holders shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); PROVIDED, HOWEVER,
that the Approved Underwriter shall, in any case, be acceptable to the
Company in its reasonable judgment.
4. INCIDENTAL OR "PIGGY-BACK" REGISTRATION.
(a) REQUEST FOR INCIDENTAL REGISTRATION. If the
Company, at any time or from time to time, proposes to register any of its
shares of Common Stock for its own account under the Securities Act (other
than a registration of shares of Common Stock solely in connection with any
plan for the acquisition of shares of Common Stock by employees of the
Company or any dividend reinvestment plan, and other than a registration of
shares of Common Stock, the Registration Statement pertaining to which does
not permit secondary sales or include substantially the same information as
would be required to be included in a Registration Statement covering
<PAGE>
9
the sale of Registrable Securities), then it will at each such time give
written notice (given at least 30 days prior to the proposed filing date)
describing the proposed registration and distribution to each of the
Designated Holders of its intention to do so and, upon the written request of
each of the Designated Holders, made within 30 days after the receipt of any
such notice (which request shall specify the amount of Registrable Securities
proposed to be sold by such Designated Holder and the intended method of
disposition thereof), the Company will, as provided in Section 6, use its
best efforts to effect the registration under the Securities Act of all of
the Registrable Securities that the Company has been so requested to register
by the Designated Holders, to the extent required to permit the disposition
(in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities to be registered (each, an "Incidental Registration");
PROVIDED, HOWEVER, that if, at any time after giving written notice of its
intention to register any of its shares of Common Stock and prior to the
effective date of the Registration Statement filed in connection with such
Incidental Registration, the Company shall determine for any reason not to
register such shares of Common Stock, the Company may, at its election, give
written notice of such determination to each of the Designated Holders and,
thereupon, shall be relieved from its obligation to register any Registrable
Securities in connection with such Incidental Registration (but not from its
obligation to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any Insurance Partners Stockholder to
request that such registration be effected as a Demand Registration under
Section 3. In connection with any Incidental Registration under this Section
4(a) involving an underwriter, or a distribution with the assistance of a
selling agent, the right of any Designated Holder to participate in such
Incidental Registration shall be conditioned upon such Designated Holder's
participation in such underwriting or distribution.
(b) REDUCTION IN REGISTRABLE SECURITIES TO BE
REGISTERED. Notwithstanding anything to the contrary set forth in Section
4(a), if a proposed Incidental Registration is for a registered public
offering involving an underwriting and the representative of the underwriters
advises the Company in writing that the registration of all or part of the
shares of Common Stock to be underwritten in such Incidental Registration
would materially adversely effect such offering, then the Company shall so
advise the Designated Holders and any other holders of shares of Common Stock
requesting registration in such Incidental Registration, and the number of
shares of Common Stock that are entitled to be included in the Incidental
Registration shall be allocated (i) first, to the Company for shares of
Common Stock being sold for its own account, (ii) second, among the
Designated Holders and any other holders of shares of Common Stock entitled
to "incidental" registration rights and requesting inclusion of shares of
Common Stock in such Incidental Registration, pro rata on the basis of the
number of shares of Common Stock requested to be included in such Incidental
Registration, and (iii) third, any other shares of Common Stock requested to
be included in such Incidental Registration; PROVIDED, HOWEVER, that if any
Insurance Partners Stockholder or Other Rightholder does not request
inclusion of the
<PAGE>
10
maximum number of shares of Common Stock allocated to it pursuant to the
foregoing procedure, then the remaining portion of its allocation shall be
reallocated among those Insurance Partners Stockholders and Other
Rightholders whose allocations were not satisfied on the basis of the number
of shares of Common Stock requested to be included in such Incidental
Registration, and this procedure shall be repeated until all of the shares of
Common Stock that may be included in the registration on behalf of the
Insurance Partners Stockholders and the Other Rightholders have been so
allocated. The Company shall not limit the number of shares of Common Stock
to be included in an Incidental Registration pursuant to this Agreement in
order to include shares held by stockholders with no registration rights or
to include any shares of stock issued to employees, officers, directors or
consultants pursuant to any stock option plan, or in order to include in such
registration securities registered for the Company's own account.
If any shares of Common Stock are withdrawn from the Incidental
Registration or if the number of shares of Common Stock to be included in
such Incidental Registration was previously reduced as a result of marketing
factors, then the Company shall then offer to all Persons who have retained
the right to include Common Stock in the Incidental Registration the right to
include additional shares of Common Stock in the registration in an aggregate
amount equal to the number of shares of Common Stock so withdrawn, with such
shares of Common Stock to be allocated among the Persons requesting
additional inclusion pro rata in accordance with the terms of this Section
4(b).
(c) EXPENSES. The Company shall pay all
Registration Expenses in connection with any Incidental Registration pursuant
to this Section 4, whether or not such Incidental Registration becomes
effective. No Incidental Registration under this Section 4 shall relieve the
Company of its obligations to effect a Demand Registration upon request under
Section 3(a).
5. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY DESIGNATED
HOLDERS. Each of the Designated Holders agrees not to effect any public sale
or distribution of any Registrable Securities being registered or of any
securities convertible into or exchangeable or exercisable for such
Registrable Securities, including a sale pursuant to Rule 144 under the
Securities Act, during the 90 day period beginning on the effective date of
such Registration Statement (except as part of such registration), (i) in
the case of a non-underwritten public offering, if and to the extent
requested by the Company or (ii) in the case of an underwritten public
offering, if and to the extent requested by the Approved Underwriter (in the
event of a Demand Registration pursuant to Section 3) or the Company's
underwriters (in the event of an Incidental Registration pursuant to Section
4(a)), as the case may be.
<PAGE>
11
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or Form S-8
or any successor thereto), during the period beginning on the effective date
of any Registration Statement in which the Designated Holders of Registrable
Securities are participating and ending on the earlier of (i) the date on
which all Registrable Securities registered on such Registration Statement
are sold and (ii) 180 days after the effective date of such Registration
Statement.
6. REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. If and whenever the
Company is requested to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 3 and 4, then the Company
will promptly use its best efforts to:
(i) prepare and (in any event within 90 days
after the end of the period within which requests for registration
may be given to the Company) file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best
efforts to cause such Registration Statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of
all Registrable Securities covered by such Registration Statement until
such time as all of such securities have been disposed of in accordance
with the intended methods of disposition thereof by the seller or
sellers thereof set forth in such Registration Statement, but in no
event for a period of more than six months (or, with respect to any
Registration Statement covering Registrable Securities the distribution
of which has been deferred pursuant to Section 4(c), nine months) after
such Registration Statement becomes effective;
(iii) as soon as reasonably possible, furnish to
each seller of Registrable Securities, prior to filing a Registration
Statement, such number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto (in each
case including all exhibits, except that the Company shall not be
obligated to furnish any seller of Registrable Securities with more than
two copies of such exhibits), such number of copies of the prospectus
contained in such Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity with the
<PAGE>
12
requirements of the Securities Act, and such other documents, as such
seller may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such seller;
(iv) register or qualify such Registrable
Securities covered by such Registration Statement under such other
securities or "blue sky" laws of such jurisdictions as each seller of
Registrable Securities shall request, and do any and all other acts and
things which may be necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified,
or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(v) cause the Registrable Securities covered
by such Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable
the seller or sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of any Registrable
Securities covered by such Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make statements therein not misleading in the light of
the circumstances then existing, and prepare and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing;
(vii) advise each seller of Registrable
Securities as to the time when such Registration Statement becomes
effective and as to the threat of or the issuance by the Commission of
any stop order suspending the effectiveness of such Registration
Statement or the institution of any proceedings for that purpose, and
use its best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible the removal thereof, if issued;
<PAGE>
13
(viii) comply with all applicable rules and
regulations of the Commission, and make available to each seller of
Registrable Securities, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, but not more than
18 months, beginning with the first month after the effective date of
the Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(ix) list all the Registrable Securities on
any securities exchange (or The Nasdaq Stock Market, Inc. or the
over-the-counter market) on which similar securities are then listed,
if such securities are not already so listed and such listing is then
permitted under the rules of such exchange;
(x) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of
such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc.; and
(xi) furnish to each seller a signed
counterpart, addressed to the sellers, of (x) an opinion of counsel
representing the Company for purposes of such registration, dated the
effective date of such Registration Statement, and (y) a "comfort
letter" signed by the independent public accountants of the Company who
have certified the Company's financial statements included in such
Registration Statement, in each case, covering substantially the same
matters with respect to such Registration Statement (and the prospectus
included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities; PROVIDED, HOWEVER, that the Company
shall not be obligated to furnish such accountants' letter except in
connection with an underwritten offering.
(b) SELLER INFORMATION. The Company may require
each seller of Registrable Securities as to which any registration is
being effected to furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time
reasonably request in writing and as shall be required by law in
connection therewith.
(c) PREPARATION; REASONABLE INVESTIGATION. In
connection with the preparation and filing of each Registration
Statement registering Registrable Securities under the Securities Act,
the Company will give the holders of such Registrable Securities so
registered and their underwriters, if any, and their respective counsel
and financial advisors, the opportunity to participate in the
preparation of such Registration Statement, each prospectus included
therein or filed with the Commission,
<PAGE>
14
and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records (including the books and
records of its Subsidiaries (as hereinafter defined)) and such
opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' and
such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act; PROVIDED,
HOWEVER, that the Company shall not be obligated to give such
opportunities and access to any holder of Registrable Securities
holding less than 150,000 Registrable Securities other than the
Initiating Holders, as a group, requesting a Demand Registration
pursuant to Section 3(a). A "Subsidiary" means, with respect to the
Company, a corporation or other entity of which 50% or more of the
voting power of the outstanding voting securities or 50% or more of
the outstanding equity interests is held, directly or indirectly, by
the Company.
(d) NOTICE TO DISCONTINUE. Each Designated Holder
of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in
Section 6(a)(vi), such Designated Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Designated
Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(a)(vi) and, if so directed by the
Company, such Designated Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in
such Designated Holder's possession, of the prospectus covering such
Registrable Securities that is current at the time of receipt of such
notice. If the Company shall give any such notice, the Company shall
extend the period during which such Registration Statement shall be
maintained effective pursuant to this Agreement (including, without
limitation, the period referred to in Section 6(a)(ii)) by the number
of days during the period from and including the date of the giving of
such notice pursuant to Section 6(a)(vi) to and including the date
when the Designated Holder shall have received the copies of the
supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(vi).
7. INDEMNIFICATION; CONTRIBUTION.
<PAGE>
15
(a) INDEMNIFICATION BY THE COMPANY. In the event of
any registration of any Registrable Securities pursuant to the terms of
Section 3 or Section 4, (i) the Company will indemnify and hold harmless, to
the fullest extent permitted by law, each of the Designated Holders and their
respective directors, officers, partners, members, trustees, employees, legal
counsel, accountants, financial advisors and agents, and each other Person,
if any, who controls (within the meaning of the Securities Act and the
Exchange Act) such Designated Holder or any such directors, officers,
partners, trustees, employees, legal counsel, accountants, financial advisors
and agents (each of the foregoing, a "designated indemnified party") against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, to which such
designated indemnified party may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable
Securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, any
notification or offering circular, or any amendment or supplement thereto or
(y) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (ii) the Company will reimburse such designated indemnified
party for any legal or any other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, liability or
action; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability (or actions
or proceedings in respect thereof) arises out of or is based upon (x) any
untrue statement or alleged untrue statement of any material fact made in
such Registration Statement, any such preliminary prospectus, final
prospectus, summary prospectus, notification or offering circular, or any
amendment or supplement thereto or (y) any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, in reliance upon and in conformity with
written information concerning such Designated Holder and furnished to the
Company through an instrument duly executed by such Designated Holder
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such designated indemnified party and
shall survive the transfer of such securities by any Designated Holder.
(b) INDEMNIFICATION BY DESIGNATED HOLDERS. The
Company may require, as a condition to including any Registrable Securities
in any Registration Statement filed pursuant to Section 3 or Section 4, that
the Company shall have received an undertaking from each Designated Holder
selling such Registrable Securities to indemnify and hold harmless the
Company, its directors, officers, legal counsel, accountants and financial
advisors and each other Person, if any, who controls (within the meaning of
the Securities Act and the Exchange Act) the Company or any such directors,
officers, legal counsel, accountants and financial advisors (each of the
<PAGE>
16
foregoing, a "Company indemnified party") against any losses, claims,
damages, liabilities or expenses, joint or several, to which such Company
indemnified party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
or proceedings in respect thereof) arise out of or are based upon any
statement of a material fact or omission to state a material fact in such
Registration Statement, any preliminary prospectus or final prospectus
contained therein, any notification or offering circular, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon
and in conformity with written information concerning such Designated Holder
and furnished to the Company through an instrument duly executed by such
Designated Holder specifically stating that it is for use in the preparation
of such Registration Statement, preliminary prospectus, final prospectus,
summary prospectus, notification or offering circular, or amendment or
supplement thereto. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Company
indemnified party and shall survive the transfer of such securities by any
Designated Holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly
after receipt by any designated indemnified party or Company indemnified
party (each, an "indemnified party") of notice of the commencement of any
action, suit, proceeding or investigation or threatened thereof in writing
for which the indemnified party intends to claim indemnification or
contribution pursuant to this Agreement, such indemnified party will give
written notice thereof to the indemnifying party; PROVIDED, HOWEVER, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Agreement,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. If notice of commencement of any such action is
brought against an indemnified party, the indemnifying party may (and, upon
request by the indemnified party, will), at its expense, participate in and
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that in the event of any failure by the
indemnifying party diligently to assume and conduct such defense, the
indemnifying party will pay all costs and expenses (including legal fees and
expenses) incurred by such indemnified party in connection with such claim or
litigation. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be paid by the indemnified party
unless (i) the indemnifying party agrees to pay the same, (ii) the
indemnifying party fails to assume the defense of such action with counsel
satisfactory to the indemnified party in its reasonable judgment or (iii) the
named parties to any such action (including any impleaded parties) have been
advised by such counsel in writing that either (x) representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the indemnified party which
are different from or additional to those available to the indemnifying
party. In either of such cases, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such
<PAGE>
17
indemnified party. No indemnifying party, in the defense of any such claim
or litigation, shall, except with the written consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to
that specified in this Section 7 (with appropriate modifications) shall be given
by the Company and each seller of Registrable Securities with respect to any
registration or other qualification of such Registrable Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
(e) CONTRIBUTION. If the indemnification provided for in
this Section 7 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative faults of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in Sections 7(a), 7(b) and
7(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(e) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person.
(f) INSURANCE. In connection with any Demand
Registration or Incidental Registration, the Company will provide at its
expense a binder or binders of insurance in form satisfactory to the
Designated Holders participating in such registration, and, as soon as
practicable thereafter, a policy or policies of insurance, insuring each such
Designated Holder, and each Person, if any, who controls such
<PAGE>
18
Designated Holder within the meaning of the Securities Act and the Exchange
Act, for the aggregate amount of the public offering price received for the
Registrable Securities disposed of by such Designated Holder (subject to such
deductible as is customarily contained in underwriting insurance policies at
such time) against all losses, claims, damages, liabilities and expenses
which arise out of or are based upon any untrue statement, alleged untrue
statement, omission or alleged omission of the character described in this
Section 7 in connection with such registration and disposition and which are
customarily covered under underwriting insurance policies; PROVIDED, HOWEVER,
that the Company shall not be obligated to provide such insurance if it
determines in good faith that such insurance is not available on commercially
reasonable terms at the time of such registration, and the holders of a
majority of the Registrable Securities to be registered reasonably agree.
8. RULE 144. The Company covenants that it shall file (a)
any reports required to be filed by it under the Exchange Act and (b) take
such further action as each Designated Holder of Registrable Securities may
reasonably request (including providing any information necessary to comply
with Rule 144 under the Securities Act), all to the extent required from time
to time to enable such Designated Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such rule
may be amended from time to time, or (ii) any similar rules or regulations
hereafter adopted by the Commission. The Company shall, upon the request of
any Designated Holder of Registrable Securities, deliver to such Designated
Holder a written statement as to whether it has complied with such
requirements.
9. MISCELLANEOUS.
(a) RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of
this Agreement shall apply, to the full extent set forth herein, with respect
to (i) the shares of Common Stock and (ii) any and all equity securities of
the Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise), which may be issued in respect
of, in conversion of, in exchange for or in substitution of, the shares of
Common Stock, and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like
occurring after the date hereof. The Company shall cause any successor or
assign (whether by merger, consolidation, sale of assets or otherwise) to
enter into a new registration rights agreement with the Designated Holders on
terms substantially similar to this Agreement as a condition of any such
transaction.
(b) NO INCONSISTENT AGREEMENTS. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the registration rights granted in this Agreement or grant any
additional registration rights to any Person or with respect to any
securities that are not Registrable Securities that are prior in right to or
inconsistent with the rights granted in this Agreement. If at any
<PAGE>
19
time after the date hereof, any Person other than an Other Rightholder shall
advise or give notice to the Company of such Person's exercise of
registration rights granted by the Company to such Person prior to the date
hereof, the Company shall use its best efforts to cause such Person to
acknowledge the registration rights granted pursuant to this Agreement and
agree that such Person's registration rights shall not be prior in right to
the rights granted in this Agreement.
(c) REMEDIES. The Designated Holders, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless consented to in writing by (i) the Company and
(ii) the Insurance Partners Stockholders holding Registrable Securities
representing (after giving effect to any adjustments) at least 60% of the
aggregate number of Registrable Securities owned by all of the Insurance
Partners Stockholders. Any such written consent shall be binding upon the
Company, all of the Designated Holders and all other Persons party hereto.
(e) NOTICES. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing
and shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Telecopy: (818) 880-8615
Attention: Chief Financial Officer
<PAGE>
20
with a copy to:
Riordan & McKinzie
5743 Corsa Avenue, Suite 116
Westlake Village, California 91362
Telecopy: (818) 706-2956
Attention: Dana M. Warren, Esq.
(ii) if to IP or IP Bermuda
c/o Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Telecopy: (212) 898-8720
Attention: Steven B. Gruber
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Marilyn Sobel, Esq.
(iii) If to Cap Z Fund II:
c/o Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-8720
Attention: Bradley E. Cooper
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Marilyn Sobel, Esq.
(iv) if to any other Designated Holder or any
other Person party hereto, at its address
as it appears on the record books of the
Company.
<PAGE>
21
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when
delivered by courier or overnight mail, if delivered by commercial courier
service or overnight mail; five (5) Business Days after being deposited in
the mail, postage prepaid, if mailed; and when receipt is mechanically
acknowledged, if telecopied.
(f) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The Demand
Registration rights of the Insurance Partners Stockholders contained in
Section 3 and the other rights of each of the Insurance Partners Stockholders
with respect thereto and the incidental or "piggy-back" registration rights
of the Designated Holders contained in Section 4 and the other rights of each
of the Designated Holders with respect thereto shall be, with respect to any
Registrable Security, automatically transferred to any Person who is the
transferee of such Registrable Security, provided that such transfer was made
in compliance with applicable securities laws and such transferee is made a
party to this Agreement and, after such transfer, is the holder of not less
than 150,000 Registrable Securities. All of the obligations of the Company
hereunder shall survive any such transfer. Subject to Section 7, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the rights granted hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(j) SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, it being intended that all of the rights and privileges of the
Designated Holders shall be enforceable to the fullest extent permitted by
law.
(k) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and
<PAGE>
22
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings in respect of the subject
matter contained herein, other than those set forth or referred to herein, in
the Stock Purchase Agreement and in the New Stock Purchase Agreement. This
Agreement supersedes the Original Agreement and all other prior agreements
and understandings between the parties with respect to such subject matter.
(l) FURTHER ASSURANCES. Each of the parties shall
execute such documents and perform such further acts as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement.
<PAGE>
23
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By: /s/ Robert E. Nagle
--------------------------
Name: Robert E. Nagle
Title: Secretary
<PAGE>
24
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P., its General
Partner
By: Insurance GenPar MGP, L.P., its General
Partner
By: Insurance GenPar MGP, Inc., its General
Partner
By: /s/ Daniel L. Doctoroff
------------------------------
Name: Daniel L. Doctoroff
Title: Vice President
<PAGE>
25
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P., its
General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd.,
its General Partner
By: /s/ Daniel L. Doctoroff
------------------------------
Name: Daniel L. Doctoroff
Title: Vice President
<PAGE>
26
CAPITAL Z FINANCIAL SERVICES
FUND II, L.P., a Bermuda limited
partnership
By: Capital Z Partners, L.P., its
General Partner
By: Capital Z Partners, Ltd., its
General Partner
By: /s/ Bradley E. Cooper
------------------------------
Name: Bradley E. Cooper
Title: Senior Vice President
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
VARIOUS LENDING INSTITUTIONS,
and
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
-----------------------------
Dated as of December 10, 1998
-----------------------------
$125,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHASE SECURITIES INC.,
AS LEAD ARRANGER AND BOOK MANAGER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Amount and Terms of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. . . . . . . . 2
1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.07 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.08 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.09 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . . . . . . . . 6
1.11 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.12 Change of Lending Office. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.13 Replacement of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Fees; Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.01 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.02 Voluntary Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . .10
2.03 Mandatory Reductions of Commitments . . . . . . . . . . . . . . . . . . . . .10
SECTION 3. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.02 Mandatory Repayments and Prepayments. . . . . . . . . . . . . . . . . . . . .11
3.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . .13
3.04 Net Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.01 Effectiveness; Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.02 No Default; Representations and Warranties. . . . . . . . . . . . . . . . . .16
4.03 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.04 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.05 Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.06 Existing Reinsurance Agreements . . . . . . . . . . . . . . . . . . . . . . .16
4.07 Adverse Change, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.08 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.09 Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.10 Pledge Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
-i-
<PAGE>
4.11 Consummation of the Transaction . . . . . . . . . . . . . . . . . . . . . . .18
4.12 Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.13 Various Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.14 Financial Statements; Projections . . . . . . . . . . . . . . . . . . . . . .19
4.15 Approvals, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.16 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.17 Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.18 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.19 Insurance Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.20 Trust Preferred Note Documents. . . . . . . . . . . . . . . . . . . . . . . .21
4.21 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.22 Surplus Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 5. Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . .22
5.01 Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
5.02 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . .22
5.03 No Contravention of Laws, Agreements or Organizational Documents. . . . . . .22
5.04 Litigation and Contingent Liabilities . . . . . . . . . . . . . . . . . . . .23
5.05 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . .23
5.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5.07 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5.08 Public Utility Holding Company Act. . . . . . . . . . . . . . . . . . . . . .24
5.09 True and Complete Disclosure; Projections and Assumptions . . . . . . . . . .24
5.10 Consummation of Transaction . . . . . . . . . . . . . . . . . . . . . . . . .24
5.11 Financial Condition; Financial Statements . . . . . . . . . . . . . . . . . .24
5.12 Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.13 Tax Returns and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.14 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
5.15 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
5.16 Intellectual Property, etc. . . . . . . . . . . . . . . . . . . . . . . . . .27
5.17 Pollution and Other Regulations . . . . . . . . . . . . . . . . . . . . . . .27
5.18 Labor Relations; Collective Bargaining Agreements . . . . . . . . . . . . . .27
5.19 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
5.21 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
5.22 Compliance with Statutes, etc . . . . . . . . . . . . . . . . . . . . . . . .30
5.23 Insurance Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.24 Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 6. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
6.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
6.02 Books, Records and Inspections. . . . . . . . . . . . . . . . . . . . . . . .34
6.03 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
6.04 Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
6.05 Corporate Franchises. . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
-ii-
<PAGE>
6.06 Compliance with Statutes, etc . . . . . . . . . . . . . . . . . . . . . . . .34
6.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.08 Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . .35
6.09 Good Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
6.10 End of Fiscal Years; Fiscal Quarters. . . . . . . . . . . . . . . . . . . . .36
6.11 Loan Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
6.12 Maintenance of Licenses and Permits . . . . . . . . . . . . . . . . . . . . .36
6.13 Register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
6.14 Foreign Subsidiaries Security . . . . . . . . . . . . . . . . . . . . . . . .37
6.15 Acquisition of CCIC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 7. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
7.01 Changes in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. . . . . . . . . . . .38
7.03 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
7.04 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
7.05 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
7.06 Advances, Investments and Loans . . . . . . . . . . . . . . . . . . . . . . .42
7.07 Prepayments of Indebtedness, Modifications of Agreements, etc . . . . . . . .44
7.08 Dividends, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
7.09 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . .45
7.10 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
7.11 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .45
7.12 Minimum Combined Statutory Surplus. . . . . . . . . . . . . . . . . . . . . .46
7.13 Minimum Risk-Based Capital. . . . . . . . . . . . . . . . . . . . . . . . . .46
7.14 Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
7.15 Creation of Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . .46
7.16 Partnership Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . .47
SECTION 8. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.02 Representations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.04 Default Under Other Agreements. . . . . . . . . . . . . . . . . . . . . . . .47
8.05 Bankruptcy, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
8.07 Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.08 Pledge Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.09 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.10 A.M. Best Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.11 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
-iii-
<PAGE>
SECTION 9. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 10. The Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . .68
10.01 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
10.03 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .68
10.04 Reliance by Administrative Agent . . . . . . . . . . . . . . . . . . . . . .69
10.05 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
10.06 Non-Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
10.07 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
10.08 The Administrative Agent in its Individual Capacity. . . . . . . . . . . . .70
10.09 Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . .71
SECTION 11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
11.01 Payment of Expenses, etc . . . . . . . . . . . . . . . . . . . . . . . . . .71
11.02 Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
11.03 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
11.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
11.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . .74
11.06 Payments Pro Rata. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
11.07 Calculations; Computations . . . . . . . . . . . . . . . . . . . . . . . . .75
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE . . . . . . . . . . . . . .75
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
11.10 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
11.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
11.12 Amendment or Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
11.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
11.14 Domicile of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
11.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
11.16 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
11.17 Trust Preferred Note Documents . . . . . . . . . . . . . . . . . . . . . . .78
</TABLE>
-iv-
<PAGE>
ANNEX I -- List of Banks and Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Existing Indebtedness
ANNEX IV -- Plans
ANNEX V -- Subsidiaries
ANNEX VI -- Collective Bargaining Agreements
ANNEX VII -- Existing Liens
ANNEX VIII -- Existing Investment Commitments
ANNEX IX -- Capitalization
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B-1 -- Form of Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT C-1 -- Form of Opinion of Riordan & McKinzie
EXHIBIT C-2 -- Form of Opinion of White & Case
EXHIBIT D -- Form of Officer's Certificate
EXHIBIT E -- Form of Section 3.04(b)(ii) Certificate
EXHIBIT F -- Form of Subsidiary Guaranty
EXHIBIT G -- Form of Pledge Agreement
EXHIBIT H -- Form of Assignment and Assumption Agreement
-v-
<PAGE>
CREDIT AGREEMENT, dated as of December 10, 1998, among SUPERIOR
NATIONAL INSURANCE GROUP, INC., a Delaware corporation (the "Borrower"), the
lending institutions listed from time to time on Annex I hereto (each a "Bank"
and, collectively, the "Banks"), and THE CHASE MANHATTAN BANK, as Administrative
Agent (the "Administrative Agent"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 9 are used herein as so
defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions set forth
herein, the Banks are willing to make available to the Borrower the credit
facilities provided for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 COMMITMENTS. Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees to make a loan or loans (each a
"Loan" and, collectively, the "Loans") to the Borrower, which Loans shall be
drawn, to the extent such Bank has a commitment under such Facility, under the
Term Loan Facility and the Revolving Loan Facility, respectively, as set forth
below:
(a) Each Loan under the Term Loan Facility (each, a "Term Loan"
and, collectively, the "Term Loans"):
(i) shall be incurred by the Borrower on the Initial
Borrowing Date;
(ii) shall be denominated in U.S. Dollars;
(iii) may, except as hereinafter provided, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base
Rate Loans or Eurodollar Loans, PROVIDED, that (x) all Term Loans made
as part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of Term Loans of the same Type and (y)
incurrences of, or conversions into, Eurodollar Loans may not be
effected prior to the Syndication Date;
(iv) shall not exceed for any Bank at the time of incurrence
thereof that aggregate principal amount which equals the Term Loan
Commitment, if any, of such Bank at such time; and
(v) once repaid, may not be reborrowed.
(b) Each Loan under the Revolving Loan Facility (each, a
"Revolving Loan" and, collectively, the "Revolving Loans"):
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(i) may be incurred by the Borrower at any time and from time
to time after the Initial Borrowing Date and prior to the Revolving Loan
Maturity Date;
(ii) shall be denominated in U.S. Dollars;
(iii) may, except as hereinafter provided, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base
Rate Loans or Eurodollar Loans, PROVIDED, that (x) all Revolving Loans
made as part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of Revolving Loans of the same Type and (y)
incurrences of, or conversions into, Eurodollar Loans may not be
effected prior to the Syndication Date;
(iv) may be repaid and reborrowed in accordance with the
provisions hereof; and
(v) shall not exceed for any Bank at any time outstanding
that aggregate principal amount which equals the Revolving Loan
Commitment, if any, of such Bank at such time.
1.02 MINIMUM AMOUNT OF EACH BORROWING; MAXIMUM NUMBER OF
BORROWINGS. The aggregate principal amount of each Borrowing hereunder shall
not be less than $1,000,000 and, if in excess thereof, shall be in an integral
multiple of $500,000. More than one Borrowing may be incurred on any day;
PROVIDED that at no time shall there be outstanding more than five Borrowings of
Eurodollar Loans.
1.03 NOTICE OF BORROWING. (a) Whenever the Borrower desires to
incur Loans under any Facility, it shall give the Administrative Agent at its
Notice Office, prior to 12:00 Noon (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans and at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Base Rate Loans to be incurred hereunder. Each such notice (each,
a "Notice of Borrowing") shall, except as expressly provided in Section 1.10, be
irrevocable, and, in the case of each written notice and each written
confirmation of telephonic notice, shall be in the form of Exhibit A hereto,
appropriately completed to specify (i) the Facility pursuant to which such
Borrowing is to be made, (ii) the aggregate principal amount of the Loans to be
made pursuant to such Borrowing, (iii) the date of such Borrowing (which shall
be a Business Day) and (iv) whether such Borrowing shall consist of Base Rate
Loans or, to the extent permitted hereunder, Eurodollar Loans and, if Eurodollar
Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Bank which is required to make
Loans of the Facility specified in the respective Notice of Borrowing written
notice (or telephonic notice promptly confirmed in writing) of each proposed
Borrowing, of such Bank's proportionate share thereof and of the other matters
covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower
to confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice,
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believed by the Administrative Agent in good faith to be from an Authorized
Officer of the Borrower. In each such case the Borrower hereby waives the
right to dispute the Administrative Agent's record of the terms of any such
telephonic notice.
1.04 DISBURSEMENT OF FUNDS. (a) Subject to the terms and
conditions herein set forth, no later than 11:00 A.M. (New York time) on the
date specified in each Notice of Borrowing, each Bank with a Commitment under
the respective Facility will make available its PRO RATA share of each Borrowing
requested to be made on such date in the manner provided below. All amounts
shall be made available to the Administrative Agent in immediately available
funds, denominated in U.S. Dollars, at the Payment Office and the Administrative
Agent will promptly make available to the Borrower by depositing to the
Borrower's account at the Payment Office the aggregate of the amounts so made
available in the type of funds received. Unless the Administrative Agent shall
have been notified by any Bank prior to the date of Borrowing that such Bank
does not intend to make available to the Administrative Agent its portion of the
Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Bank has made such amount available to the Administrative Agent
on such date of Borrowing, and the Administrative Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Administrative Agent by such Bank
and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from
such Bank. If such Bank does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Administrative Agent. The Administrative Agent
shall also be entitled to recover from the Bank or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Bank, the
overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then
applicable rate of interest, calculated in accordance with Section 1.08, for the
respective Loans.
(b) Nothing in this Section 1.04 shall be deemed to relieve any
Bank from its obligation to fulfill its commitments hereunder or to prejudice
any rights which the Borrower may have against any Bank as a result of any
default by such Bank hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal
of, and interest on, all the Loans made to it by each Bank shall be evidenced
(i) if Term Loans, by a promissory note substantially in the form of Exhibit B-1
with blanks appropriately completed in conformity herewith (each, a "Term Note"
and, collectively, the "Term Notes") and (ii) if Revolving Loans, by a
promissory note substantially in the form of Exhibit B-2 with blanks
appropriately completed in conformity herewith (each, a "Revolving Note" and,
collectively, the "Revolving Notes").
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(b) The Term Note issued to each Bank that has a Term Loan
Commitment or outstanding Term Loans shall (i) be executed by the Borrower, (ii)
be payable to the order of such Bank or its registered assigns and be dated the
Initial Borrowing Date (or if issued thereafter, the date of issuance thereof),
(iii) be in a stated principal amount equal to the initial Term Loan Commitment
of such Bank and be payable in the principal amount of Term Loans evidenced
thereby (or in the case of a new Term Note issued pursuant to Section 11.04, the
Term Loans evidenced thereby at the time of issuance), (iv) mature on the Term
Loan Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided
in Section 3.01, and mandatory repayment and prepayment as provided in Section
3.02, and (vii) be entitled to the benefits of this Agreement and the other
Credit Documents.
(c) The Revolving Note issued to each Bank that has a Revolving
Loan Commitment shall (i) be executed by the Borrower, (ii) be payable to the
order of such Bank or its registered assigns and be dated the Initial Borrowing
Date (or if issued thereafter, the date of issuance thereof), (iii) be in a
stated principal amount equal to the Revolving Loan Commitment of such Bank and
be payable in the principal amount of the Revolving Loans evidenced thereby,
(iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 3.01, and mandatory prepayment as
provided in Section 3.02, and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(d) Each Bank will record on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect the Borrower's obligations in
respect of such Loans.
1.06 CONVERSIONS. The Borrower shall have the option to convert
on any Business Day occurring after the Syndication Date, all or a portion at
least equal to $1,000,000 (and, if in excess thereof, an integral multiple of
$500,000) of the outstanding principal amount of the Loans of one Type pursuant
to a Facility into a Borrowing or Borrowings of the other Type of Loan under
such Facility; PROVIDED that (i) no partial conversion of a Borrowing of
Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar
Loans pursuant to such Borrowing to less than $1,000,000, (ii) Base Rate Loans
may only be converted into Eurodollar Loans if no Default or Event of Default is
in existence on the date of the conversion, (iii) Borrowings of Eurodollar Loans
resulting from this Section 1.06 shall be limited in number as provided in
Section 1.02, (iv) Eurodollar Loans may only be converted into Base Rate Loans
on the last day of the Interest Period applicable thereto and (v) each such
conversion shall be made PRO RATA among the Loans of each Bank of the Type being
converted. Each such conversion shall be effected by the Borrower by giving the
Administrative Agent at its Notice Office, prior to 12:00 Noon (New York time),
at least three Business Days' (or one Business Day's in the case of a conversion
into Base Rate Loans) prior written notice (or telephonic notice
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promptly confirmed in writing) (each a "Notice of Conversion") specifying the
Loans to be so converted, the Type of Loans to be converted into and, if to
be converted into a Borrowing of Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall give each Bank
prompt notice of any such proposed conversion affecting any of its Loans.
1.07 PRO RATA BORROWINGS. All Loans under this Agreement shall
be made by the Banks PRO RATA on the basis of their Term Loan Commitments and
Revolving Loan Commitments, as the case may be. It is understood that no Bank
shall be responsible for any default by any other Bank in its obligation to make
Loans hereunder and that each Bank shall be obligated to make the Loans provided
to be made by it hereunder, regardless of the failure of any other Bank to
fulfill its commitments hereunder.
1.08 INTEREST. (a) The unpaid principal amount of each Base
Rate Loan shall bear interest from the date of the Borrowing thereof until the
earlier of (i) the maturity (whether by acceleration or otherwise) of such Base
Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan
pursuant to Section 1.06, at a rate per annum which shall at all times be the
Applicable Percentage then in effect for Base Rate Loans plus the Base Rate in
effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until the earlier of (i)
the maturity (whether by acceleration or otherwise) of such Eurodollar Loan or
(ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to
Section 1.06, at a rate per annum which shall at all times be the Applicable
Percentage then in effect for Eurodollar Loans plus the relevant Eurodollar Rate
for the Interest Period applicable to such Eurodollar Loan.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall bear interest at a rate per annum equal to the greater of (x)
the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the
Applicable Percentage then in effect for Base Rate Loans and (y) the rate which
is 2% in excess of the rate then borne by such Loan.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each calendar quarter, (ii) in respect of each Eurodollar Loan,
on the last day of each Interest Period applicable thereto and, in the case of
an Interest Period of six months, on the date occurring three months after the
first day of such Interest Period and (iii) in respect of each Loan, on any
conversion or prepayment (on the amount so converted or prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 11.07(b) and (c).
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(f) The Administrative Agent, upon determining the interest rate
for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly
notify the Borrower and the Banks thereof.
1.09 INTEREST PERIODS. At the time the Borrower gives a Notice
of Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period to be applicable to such Borrowing, which
Interest Period shall, at the option of the Borrower, be a one, two, three or
six month period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing (including
the date of any conversion from a Borrowing of Base Rate Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall
commence on the day on which the next preceding Interest Period expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, PROVIDED that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period for a Borrowing under a Facility may
be elected if it would extend beyond the Maturity Date for such
Facility;
(v) no Interest Period may be elected at any time when a
Default or Event of Default is then in existence; and
(vi) no Interest Period with respect to any Borrowing of Term
Loans may be elected that would extend beyond any date upon which a
mandatory repayment of Term Loans is required to be made under Section
3.02(i)(a) if, after giving effect to the selection of such Interest
Period, the aggregate principal amount of Term Loans maintained as
Eurodollar Loans with Interest Periods ending after such date would
exceed the aggregate principal amount of Term Loans permitted to be
outstanding after such mandatory repayment.
If upon the expiration of any Interest Period, the Borrower has failed, or is
not permitted, to elect a new Interest Period to be applicable to the respective
Borrowing of Eurodollar Loans as
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provided above, the Borrower shall be deemed to have elected to convert such
Borrowing into a Borrowing of Base Rate Loans effective as of the expiration
date of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs
or reductions in the amounts received or receivable hereunder in an
amount which such Bank deems material with respect to any Eurodollar
Loans (other than any increased cost or reduction in the amount received
or receivable resulting from the imposition of or a change in the rate
of taxes or similar charges) because of (x) any change since the
Effective Date in any applicable law, governmental rule, regulation,
guideline, order or request (whether or not having the force of law), or
in the interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation, guideline,
order or request (such as, for example, but not limited to, a change in
official reserve requirements, but, in all events, excluding reserves
required under Regulation D to the extent included in the computation of
the Eurodollar Rate) and/or (y) other circumstances affecting the
interbank Eurodollar market or the position of such Bank in such market;
or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Bank in good
faith with any change since the Effective Date in any law, governmental
rule, regulation, guideline or order, or the interpretation or
application thereof, or would conflict with any thereof not having the
force of law but with which such Bank customarily complies, or has
become impracticable as a result of a contingency occurring after the
Effective Date which materially adversely affects the interbank
Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within 10 Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower or, in the case of a Notice of Borrowing, shall, at the option
of the Borrower, be deemed converted into a Notice of Borrowing for Base Rate
Loans to
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be made on the date of Borrowing contained in such Notice of Borrowing, (y)
in the case of clause (ii) above, the Borrower shall pay to such Bank, upon
written demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Bank shall determine) as shall be required to compensate such Bank for such
increased costs or reductions in amounts receivable hereunder (a written
notice as to the additional amounts owed to such Bank, showing the basis for
the calculation thereof, which basis shall be reasonable and consistently
applied, submitted to the Borrower by such Bank shall, absent manifest error,
be final and conclusive and binding upon all parties hereto) and (z) in the
case of clause (iii) above, the Borrower shall take one of the actions
specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, by giving the Administrative Agent telephonic notice
(confirmed promptly in writing) thereof on the same date that the Borrower was
notified by a Bank pursuant to Section 1.10(a)(ii) or (iii), cancel said
Borrowing, convert the related Notice of Borrowing into one requesting a
Borrowing of Base Rate Loans or require the affected Bank to make its requested
Loan as a Base Rate Loan, or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least one Business Day's notice to the Administrative
Agent, require the affected Bank to convert each such affected Eurodollar Loan
into a Base Rate Loan, PROVIDED that if more than one Bank is affected at any
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
(c) If any Bank shall have determined that after the Effective
Date the adoption or effectiveness of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged by law with the interpretation or
administration thereof, or compliance by such Bank or its parent corporation
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, in
each case made subsequent to the Effective Date, has or would have the effect of
reducing the rate of return on such Bank's or its parent corporation's capital
or assets as a consequence of such Bank's commitments or obligations hereunder
to a level below that which such Bank or its parent corporation could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Bank's or its parent corporation's policies with respect to
capital adequacy), then from time to time, upon demand by such Bank (with a copy
to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or its parent
corporation for such reduction. Each Bank, upon determining in good faith that
any additional amounts will be payable pursuant to this Section 1.10(c), will
give prompt written notice thereof to the Borrower, which notice shall set forth
the basis of the calculation of such additional amounts, which basis must be
reasonable and consistently applied, although the failure to give any such
notice shall not release or diminish any of the Borrower's obligations to pay
additional amounts pursuant to this Section 1.10(c) upon the subsequent receipt
of such notice.
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(d) Notwithstanding anything in this Agreement to the contrary,
to the extent any notice required by this Section 1.10 is given by any Bank more
than 90 days after such Bank obtained, or reasonably should have obtained,
knowledge of the occurrence of the event giving rise to the additional costs of
the type described in this Section 1.10, such Bank shall not be entitled to
compensation under this Section 1.10 for any amounts incurred or accruing more
than 90 days prior to such notice to the Borrower.
1.11 COMPENSATION. The Borrower shall compensate each Bank,
upon its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
such Bank to fund its Eurodollar Loans but excluding any loss of anticipated
profit with respect to such Loans) which such Bank may sustain: (i) if for any
reason (other than a default by such Bank or the Administrative Agent) a
Borrowing of Eurodollar Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the
Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any
repayment, prepayment or conversion of any of its Eurodollar Loans occurs on a
date which is not the last day of an Interest Period applicable thereto; (iii)
if any prepayment of any of its Eurodollar Loans is not made on any date
specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other failure by the Borrower to repay its Loans when
required by the terms of this Agreement or (y) an election made pursuant to
Section 1.10(b). Calculation of all amounts payable to a Bank under this
Section 1.11 shall be made as though that Bank had actually funded its relevant
Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at
the Eurodollar Rate in an amount equal to the amount of that Loan, having a
maturity comparable to the relevant Interest Period and through the transfer of
such Eurodollar deposit from an offshore office of that Bank or other bank to a
domestic office of that Bank in the United States of America; PROVIDED, HOWEVER,
that each Bank may fund each of its Eurodollar Loans in any manner it sees fit
and the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section 1.11.
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii) or 3.04 with respect to such Bank, it will, if requested by the Borrower,
use reasonable efforts (subject to overall policy considerations of such Bank)
to designate another lending office for any Loans affected by such event;
PROVIDED that such designation is made on such terms that, in the opinion of
such Bank, such Bank and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Bank provided in Section 1.10 or 3.04.
1.13 REPLACEMENT OF BANKS. (x) If any Bank becomes a Defaulting
Bank or (y) upon the occurrence of any event giving rise to the operation of
Section 1.10(a)(ii) or (iii), Section 1.10(c) or Section 3.04 with respect to
any Bank which results in such Bank charging to the Borrower increased costs in
excess of those being generally charged by the other Banks, the Borrower shall
have the right, if no Default or Event of Default, then exists, to replace such
Bank
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(the "Replaced Bank") with one or more other banks or financial institutions,
none of whom shall constitute a Defaulting Bank at the time of such
replacement (collectively, the "Replacement Bank") reasonably acceptable to
the Administrative Agent, PROVIDED that (i) at the time of any replacement
pursuant to this Section 1.13, the Replacement Bank shall enter into one or
more Assignment and Assumption Agreements pursuant to Section 11.04(b) (and
with all fees payable pursuant to said Section 11.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans of the Replaced Bank and, in connection
therewith, shall pay to the Replaced Bank in respect thereof an amount equal
to (A) the principal of, and all accrued interest on, all outstanding Loans
of the Replaced Bank, (B) all accrued, but theretofore unpaid, Fees owing to
the Replaced Bank pursuant to Section 2.01, and (ii) all obligations
(including, without limitation, all such amounts, if any, due and owing under
Section 1.11) of the Borrower due and owing to the Replaced Bank (other than
those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid) shall be
paid in full to such Replaced Bank concurrently with such replacement. Upon
the execution of the respective Assignment and Assumption Agreement, the
payment of amounts referred to in clauses (i) and (ii) above, recordation of
the assignment on the Register by the Administrative Agent pursuant to
Section 6.13 and, if so requested by the Replacement Bank, delivery to the
Replacement Bank of the appropriate Note or Notes executed by the Borrower,
(x) the Replacement Bank shall become a Bank hereunder and the Replaced Bank
shall cease to constitute a Bank hereunder, except with respect to
indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 3.04, 10.07 and 11.01), which shall survive
as to such Replaced Bank and (y) Annex I hereto shall be deemed modified to
reflect the changed Commitments (and/or outstanding Term Loans, as the case
may be) resulting from the assignment from the Replaced Bank to the
Replacement Bank.
SECTION 2. FEES; COMMITMENTS.
2.01 FEES. (a) The Borrower shall pay to the Administrative
Agent for the account of each Bank a commitment fee (the "Commitment Fee") for
the period from the Effective Date to but not including the date on which the
Total Revolving Loan Commitment has been terminated, computed at a rate for each
day equal to 1/2 of 1% per annum on the daily Unutilized Revolving Loan
Commitment of each such Bank. Accrued Commitment Fees shall be due and payable
in arrears on the last Business Day of each calendar quarter and the date upon
which the Total Revolving Loan Commitment is terminated.
(b) The Borrower shall pay to the Administrative Agent, for the
account of the Administrative Agent, when and as due, such fees as have been, or
are from time to time, separately agreed upon.
(c) All computations of Fees shall be made in accordance with
Section 11.07(b).
2.02 VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) given by the Borrower to the Administrative Agent at its Notice Office
(which notice the Administrative Agent shall
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promptly transmit to each of the Banks), the Borrower shall have the right,
without premium or penalty, to terminate or partially reduce the Total
Unutilized Revolving Loan Commitment, PROVIDED that any such partial
reductions shall be in the amount of at least $1,000,000.
2.03 MANDATORY REDUCTIONS OF COMMITMENTS. (a) The Total
Commitment (and the Commitment of each Bank) shall terminate in its entirety at
5:00 p.m. (New York time) on the Expiration Date unless the Initial Borrowing
Date has occurred on or before such date.
(b) The Total Term Loan Commitment shall terminate on the
Initial Borrowing Date, after giving effect to the incurrence of Term Loans on
such date.
(c) The Total Revolving Loan Commitment (and the Revolving Loan
Commitment of each Bank) shall terminate on the earlier of (i) the Revolving
Loan Maturity Date and (ii) the date on which a Change of Control occurs.
(d) On each date upon which a mandatory prepayment of Term Loans
pursuant to Section 3.02(i)(b), (c) or (d) is required and exceeds in amount the
aggregate principal amount of Term Loans then outstanding or would be required
if an unlimited amount of Term Loans were then outstanding, the Total Revolving
Loan Commitment shall be permanently reduced by the amount by which the amount
required to be applied pursuant to said Sections (determined as if an unlimited
amount of Term Loans were actually outstanding) exceeds the aggregate principal
amount of Term Loans then outstanding.
(e) Each partial reduction of the Total Revolving Loan
Commitment pursuant to this Section 2.03 shall apply proportionately to the
Revolving Loan Commitment of each Bank with such a Commitment.
SECTION 3. PAYMENTS.
3.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right
to prepay Loans, without premium or penalty (except for amounts payable pursuant
to Section 1.11), in whole or in part, from time to time on the following terms
and conditions: (i) the Borrower shall give the Administrative Agent at its
Notice Office written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay the Loans, whether such Loans are Term Loans or
Revolving Loans, the amount of such prepayment and (in the case of Eurodollar
Loans) the specific Borrowing(s) pursuant to which made, which notice shall be
received by the Administrative Agent (x) in the case of Base Rate Loans, no
later than 12:00 Noon (New York time) one Business Day prior to the date of such
prepayment, or (y) in the case of Eurodollar Loans, three Business Days prior to
the date of such prepayment, which notice shall promptly be transmitted by the
Administrative Agent to each of the Banks; (ii) each partial prepayment of any
Borrowing shall be in an aggregate principal amount of at least $1,000,000,
PROVIDED that no partial prepayment of Eurodollar Loans made pursuant to a
Borrowing shall reduce the aggregate principal amount of the Loans outstanding
pursuant to such Borrowing to an amount less than $1,000,000; (iii) each
prepayment in respect of any Loans made pursuant to a Borrowing shall be applied
PRO RATA among such Loans; and (iv) each prepayment of Term Loans pursuant to
this
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Section 3.01 shall reduce the then remaining Scheduled Repayments on a PRO
RATA basis (based upon the then remaining principal amount of each such
Scheduled Repayment).
3.02 MANDATORY REPAYMENTS AND PREPAYMENTS.
(i) Requirements:
(a) On each date set forth below, the Borrower shall be required
to repay the principal amount of Term Loans as is set forth opposite such date
(each such repayment, as the same may be reduced pursuant to Section 2.03, 3.01
and/or 3.02(ii)(a), a "Scheduled Repayment"):
<TABLE>
<CAPTION>
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
June 30, 2000 $10,000,000
December 31, 2000 $10,000,000
June 30, 2001 $10,000,000
December 31, 2001 $10,000,000
June 30, 2002 $10,000,000
December 31, 2002 $10,000,000
June 30, 2003 $12,500,000
December 31, 2003 $12,500,000
June 30, 2004 $12,500,000
Term Loan Maturity Date $12,500,000
</TABLE>
(b) Subject to Section 3.02(i)(f), on the date of receipt
thereof by the Borrower and/or any of its Subsidiaries of the proceeds of any
Asset Sale (other than the sale of BIC to Centre Solutions Holdings (Delaware)
Limited, but no later than December 31, 1998), an amount equal to 100% of the
Net Available Proceeds of such Asset Sale shall be applied as a mandatory
prepayment of principal of the then outstanding Term Loans.
(c) On the date of the receipt thereof by the Borrower and/or
any of its Subsidiaries, an amount equal to 100% of the proceeds (net of
underwriting discounts and commissions and other reasonable fees and costs
associated therewith) of the incurrence of Indebtedness by the Borrower and/or
any of its Subsidiaries (other than Indebtedness permitted by Section 7.04 as in
effect on the Effective Date) shall be applied to the prepayment of the
outstanding principal amount of the Term Loans.
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<PAGE>
(d) On the date of the receipt thereof by the Borrower and/or
any of its Subsidiaries, an amount equal to 100% of the proceeds (net of
underwriting discounts and commissions and other reasonable fees and costs
associated therewith) of the sale or issuance of equity by, or cash capital
contributions to, the Borrower or any Subsidiary of the Borrower (other than (i)
any issuance of common stock by the Borrower to the extent issued to the
employees or claims consultants of the Borrower or its Subsidiaries and (ii)
issuances of stock by Subsidiaries of the Borrower to the Borrower on to Wholly
Owned Subsidiaries of the Borrower, and capital contributions by the Borrower to
its Subsidiaries), shall be applied as a mandatory prepayment of the outstanding
principal amount of the then outstanding Term Loans.
(e) On the date on which any Change of Control occurs, the
outstanding principal amount of all Term Loans shall be due and payable in full.
(f) To the extent that (x) funds for any prepayment otherwise
required to be made pursuant to the terms of Section 3.02(i)(b) are only
available to the Borrower through dividend payments to the Borrower from one or
more Regulated Insurance Companies, (y) such dividend payments cannot be made at
such time within the ordinary dividend-paying capacity of such Regulated
Insurance Company or Companies and, accordingly, require specific affirmative
regulatory approval for the payment of extraordinary dividends and (z) the
Borrower has used reasonable efforts (including without limitation due written
application or request) to obtain such approval for the payment of extraordinary
dividends and such approval cannot be obtained by such Regulated Insurance
Company, upon certification by the Borrower to the Administrative Agent (which
shall promptly deliver a copy of such certification to the Banks) to such effect
(together with, in the case of an application or request for regulatory
approval, copies of all documents submitted, and all written responses received,
in connection therewith), the Borrower shall not, to such extent, be required to
make such prepayment for so long as such dividend payments may not, for such
reasons, be made.
(g) If on any date the outstanding principal amount of Revolving
Loans (after giving effect to all other repayments thereof on such date) exceeds
the Total Revolving Loan Commitment as then in effect, the Borrower shall repay
on such date the principal of the Revolving Loans in an amount equal to such
excess.
(ii) Application:
(a) Each mandatory prepayment of Term Loans pursuant to Section
3.02(i)(b), (c) and (d) shall be applied to reduce the then remaining Scheduled
Repayments on a PRO RATA basis (based upon the then remaining principal amount
of each such Scheduled Repayment).
(b) With respect to each prepayment of Loans required by this
Section 3.02, the Borrower may designate the Types of Loans which are to be
prepaid and the specific Borrowing(s) pursuant to which made; PROVIDED that (i)
the Borrower shall first so designate all Base Rate Loans and Eurodollar Loans
with Interest Periods ending on the date of repayment prior to designating any
other Eurodollar Loans; (ii) if any prepayment of Eurodollar Loans made pursuant
to a single Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than $1,000,000, such Borrowing shall be immediately
converted
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<PAGE>
into Base Rate Loans; and (iii) each prepayment of any Loans made pursuant to
a Borrowing shall be applied PRO RATA among such Loans. In the absence of a
designation by the Borrower as described in the preceding sentence, the
Administrative Agent shall, subject to the above, make such designation in
its sole discretion with a view, but no obligation, to minimize breakage
costs owing under Section 1.11.
3.03 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement and the Notes
shall be made to the Administrative Agent for the ratable account of the Banks
entitled thereto, not later than 1:00 P.M. (New York time) on the date when due
and shall be made in immediately available funds and in lawful money of the
United States of America at the Payment Office, it being understood that
written, telex or facsimile notice by the Borrower to the Administrative Agent
to make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
3.04 NET PAYMENTS. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 3.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Bank is located
or any subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence, the
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or net profits of such Bank
pursuant to the laws of the jurisdiction in which such Bank is organized or in
which the principal office or applicable lending office of such Bank is located
or under the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal office or
applicable lending office of such Bank is located and for any withholding of
taxes as such Bank shall determine are payable by, or withheld from, such Bank,
in respect of such amounts so paid to or on behalf of such Bank pursuant to the
preceding sentence and in respect
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<PAGE>
of any amounts paid to or on behalf of such Bank pursuant to this sentence.
The Borrower will furnish to the Administrative Agent within 45 days after
the date the payment of any Taxes is due pursuant to applicable law certified
copies of tax receipts evidencing such payment by the Borrower. The Borrower
agrees to indemnify and hold harmless each Bank, and reimburse such Bank upon
its written request, for the amount of any Taxes so levied or imposed and
paid by such Bank.
(b) Each Bank that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 11.04(b)
(unless the respective Bank was already a Bank hereunder immediately prior to
such assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Bank's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Note, or (ii)
if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit E (any such certificate, a "Section 3.04(b)(ii) Certificate") and
(y) two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement and under any Note. In addition, each
Bank agrees that from time to time after the Effective Date, when a lapse in
time or change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
3.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify the Borrower and the Administrative Agent of its inability to deliver any
such Form or Certificate, in which case such Bank shall not be required to
deliver any such Form or Certificate pursuant to this Section 3.04(b).
Notwithstanding anything to the contrary contained in Section 3.04(a), but
subject to Section 11.04(b) and the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
Fees or other amounts payable hereunder for the account of any Bank which is not
a United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes to the extent that such Bank has not
provided to the Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrower shall
not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be
made to a Bank in respect of income or similar taxes imposed by the United
States if (I) such Bank has not provided to the Borrower the Internal Revenue
Service Forms required to be provided to the Borrower pursuant to this Section
3.04(b) or (II) in the case of a payment, other than interest, to a Bank
described in clause (ii) above, to the extent that such
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<PAGE>
Forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence
or elsewhere in this Section 3.04 and except as set forth in Section
11.04(b), the Borrower agrees to pay any additional amounts and to indemnify
each Bank in the manner set forth in Section 3.04(a) (without regard to the
identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the
immediately preceding sentence as a result of any changes after the Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline
or order, or in the interpretation thereof, relating to the deducting or
withholding of such Taxes.
SECTION 4. CONDITIONS PRECEDENT. The obligation of the Banks to
make Loans to the Borrower hereunder is subject, at the time of the making of
each such Loan (except as otherwise hereinafter indicated), to the satisfaction
of each of the following conditions:
4.01 EFFECTIVENESS; NOTES. On or prior to the Initial Borrowing
Date, (i) the Effective Date shall have occurred, and (ii) there shall have been
delivered to the Administrative Agent for the account of each Bank the
appropriate Term Note and Revolving Note executed by the Borrower in the amount,
maturity and as otherwise provided herein.
4.02 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
the making of each Loan and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of the making of such Loan,
unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date.
4.03 OFFICER'S CERTIFICATE. On the Initial Borrowing Date, the
Administrative Agent shall have received an officer's certificate dated such
date, signed by an appropriate officer of the Borrower, stating that all of the
applicable conditions set forth in Sections 4.02, 4.06, 4.07, 4.08, 4.11, 4.15
and 4.22 exist as of such date.
4.04 OPINIONS OF COUNSEL. On the Initial Borrowing Date, the
Administrative Agent shall have received an opinion, or opinions, in form and
substance reasonably satisfactory to the Administrative Agent, addressed to each
of the Banks and dated the Initial Borrowing Date, from (i) Riordan & McKinzie,
counsel to the Borrower, which opinion shall cover the matters contained in
Exhibit C-1 hereto, and (ii) White & Case, special counsel to the Banks, which
opinion shall cover the matters contained in Exhibit C-2 hereto.
4.05 CORPORATE PROCEEDINGS. (a) On the Initial Borrowing
Date, the Banks shall have received from each Credit Party an officer's
certificate, dated the Initial Borrowing Date, signed by the President or any
Vice President of such Credit Party, and attested to by the Secretary or any
Assistant Secretary of such Credit Party, in the form of Exhibit D hereto
with appropriate insertions, together with (x) copies of the Certificate of
Incorporation and By-Laws of such Credit Party and (y) the resolutions of
such Credit Party and the other documents referred
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<PAGE>
to in such certificate, and the foregoing shall be reasonably satisfactory to
the Administrative Agent.
(b) All corporate, tax and legal proceedings and all instruments
and agreements in connection with the transactions contemplated by this
Agreement, the other Credit Documents and the Transaction Documents shall be
reasonably satisfactory in form and substance to the Administrative Agent, and
the Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Administrative Agent reasonably may have requested in connection therewith,
such documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
4.06 EXISTING REINSURANCE AGREEMENTS. Each of the parties
thereto shall have entered into the respective Existing Reinsurance Agreements,
and all agreements evidencing, governing or relating to the Existing Reinsurance
Agreements (the "Existing Reinsurance Agreement Documents") shall have been
delivered to the Banks and shall be in form and substance satisfactory to the
Banks.
4.07 ADVERSE CHANGE, ETC. Neither the Administrative Agent nor
the Required Banks shall have become aware of any facts or conditions not
previously known or disclosed, whether occurring prior to or after the Effective
Date, and since December 31, 1997 nothing shall have occurred, which, when taken
as a whole, the Administrative Agent shall reasonably determine (i) has, or is
reasonably likely to have, a material adverse effect on the rights or remedies
of the Banks or the Administrative Agent under this Agreement or any other
Credit Document, or on the ability of any Credit Party to perform its
obligations to them, or (ii) has or is reasonably likely to have a Material
Adverse Effect.
4.08 LITIGATION. No actions, suits or proceedings shall be
pending or, to the knowledge of the Borrower, threatened against the Borrower
(i) with respect to this Agreement or any other Credit Document, the Transaction
Documents or the transactions contemplated hereby or thereby (including the
Acquisition) or (ii) which either the Administrative Agent or the Required Banks
shall determine has, or is reasonably likely to have, (x) a Material Adverse
Effect or (y) a material adverse effect on the rights or remedies of the Banks
or the Administrative Agent hereunder or under any other Credit Document or on
the ability of the any Credit Party to perform its obligations to them hereunder
or under any other Credit Documents.
4.09 SUBSIDIARY GUARANTY. On the Initial Borrowing Date, each
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Subsidiary Guaranty in the form of Exhibit F (as modified, amended or
supplemented from time to time in accordance with the terms hereof and thereof,
the "Subsidiary Guaranty"), and the Subsidiary Guaranty shall be in full force
and effect.
4.10 PLEDGE AGREEMENT. On or prior to the Initial Borrowing
Date, each Credit Party shall have duly authorized, executed and delivered a
Pledge Agreement substantially in the form of Exhibit G hereto (as modified,
amended or supplemented from time to time in accordance with the terms thereof
and hereof, the "Pledge Agreement"), which Pledge
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Agreement shall be in full force and effect, and shall have delivered to the
Collateral Agent, as pledgee thereunder:
(A) all of the Pledged Securities referred to therein, endorsed
in blank or together with undated stock powers executed in blank, as
appropriate;
(B) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as may be
reasonably necessary to perfect the security interests purported to be
created by the Pledge Agreement;
(C) evidence of the completion of all recordings and filings of,
or with respect to, the Pledge Agreement (other than the filing of the
UCC-1 Financing Statements referred to in (B) above) as may be necessary
or, in the reasonable opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created thereunder; and
(D) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Pledge
Agreement have been taken or will be taken promptly after the Initial
Borrowing Date.
4.11 CONSUMMATION OF THE TRANSACTION. (a) On the Initial
Borrowing Date, the Acquisition shall have been consummated in accordance with
the Acquisition Documents, which Acquisition Documents shall be in form and
substance reasonably satisfactory to the Administrative Agent, and all
applicable laws, and each of the conditions precedent to the consummation of the
Acquisition (including, without limitation, the accuracy in all material
respects of the representations and warranties contained in the Acquisition
Agreement) shall have been satisfied and not waived except with the consent of
the Administrative Agent and the Required Banks to the satisfaction of the
Administrative Agent and the Required Banks. Notwithstanding the foregoing, the
Borrower shall not be required to acquire CCIC on or prior to the Initial
Borrowing Date, but shall be required to purchase CCIC in accordance with
Section 6.15.
(b) The Borrower shall have received net cash proceeds (and
shall have used such proceeds to make payments owing in connection with the
Transaction) from the issuance by the Borrower of at least $200,000,000 of
common stock (the "Equity Financing") consisting of (x) at least $94,000,000 to
be issued to (i) Capital Z Financial Services Fund II, L.P., (ii) Capital Z
Financial Services Private Fund II, L.P., (iii) Insurance Partners Offshore
(Bermuda), L.P. and (iv) Insurance Partners, L.P. and (y) not more than
$109,600,000 to be issued through a rights offering to existing shareholders,
option holders and warrant holders, the terms and conditions of which shall be
reasonably satisfactory to the Administrative Agent.
4.12 TRANSACTION DOCUMENTS. On or before the Initial Borrowing
Date, there shall have been delivered to the Administrative Agent, with copies
for the Banks, true and correct copies of the Transaction Documents and all
terms of such Transaction Documents shall be reasonably satisfactory in form and
substance to the Administrative Agent and the Required Banks. The
representations and warranties set forth in the Transaction Documents shall be
true
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and correct in all material respects as if made on and as of the Initial
Borrowing Date, unless stated to relate to a specific earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date. Concurrently with the incurrence
of the Term Loans on the Initial Borrowing Date, the Transaction shall have
been consummated in substantial compliance with the terms of the Transaction
Documents and all Legal Requirements. Notwithstanding the foregoing, the
Borrower shall not be required to acquire CCIC on or prior to the Initial
Borrowing Date, but shall be required to purchase CCIC in accordance with
Section 6.15.
4.13 VARIOUS AGREEMENTS. On or prior to the Initial Borrowing
Date, there shall have been made available to the Administrative Agent (and
copies thereof shall have been made available to the Banks requesting same)
copies, certified as true and correct by an appropriate officer of the Borrower,
of:
(a) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related financial and
actuarial statements and opinions and other supporting statements,
certifications, schedules and information), and for each Plan that is a "single
employer plan," as defined in Section 4001(a)(15) of ERISA, the most recently
prepared actuarial valuation therefor) and any other "employee benefit plans,"
as defined in Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees of the
Borrower or any of its Subsidiaries or any ERISA Affiliate (provided that the
foregoing shall apply in the case of any multiemployer plan, as defined in
4001(a)(3) of ERISA, only to the extent that any document described therein is
in the possession of the Borrower or any of its Subsidiaries or any ERISA
Affiliate or reasonably available thereto from the sponsor or trustee of any
such plan) (collectively, the "Plan Documents");
(b) all material employment agreements (or the forms thereof),
if any, with respect to the senior management of the Borrower or any of its
Subsidiaries including, without limitation, BIG and its Subsidiaries
(collectively, the "Management Agreements");
(c) all agreements, if any, (or the forms thereof) entered or to
be entered into by the Borrower or any of its Subsidiaries governing the terms
and relative rights of its capital stock and any agreements (or the forms
thereof) entered or to be entered into by stockholders relating to any such
entity with respect to its capital stock, but excluding agreements with
directors of any Subsidiaries of the Borrower relating to directors' qualifying
shares held by such directors (collectively, the "Stockholders Agreements");
(d) all tax sharing, tax allocation and other similar agreements
(or the forms thereof) entered or to be entered into by the Borrower and/or any
of its Subsidiaries (collectively, the "Tax Sharing Agreements");
(e) all material agreements entered into between the Borrower
and any of its Subsidiaries and/or among or between any of the Borrower's
Subsidiaries relating to the allocation of expenses incurred by the Borrower or
any such Subsidiary (collectively, the "Shared Expenses Agreements");
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(f) all material contracts of the Borrower or any of its
Subsidiaries that are to remain in effect after giving effect to the
consummation of the Transaction (collectively, the "Material Contracts"); and
(g) all material Reinsurance Agreements of the Borrower and each
of its Subsidiaries;
all of which Plan Documents, Management Agreements, Stockholders Agreements, Tax
Sharing Agreements, Shared Expenses Agreements, Material Contracts and
Reinsurance Agreements shall be in form and substance reasonably satisfactory to
the Administrative Agent and the Required Banks.
4.14 FINANCIAL STATEMENTS; PROJECTIONS. Prior to the Initial
Borrowing Date, the Borrower shall have delivered or caused to be delivered to
the Administrative Agent with copies for each Bank:
(a)(i) the audited Annual Statement of each of SNIC, SPCC,
CalComp, CBIC and CCIC for the fiscal year ended December 31, 1997, prepared in
accordance with SAP and as filed with the respective Applicable Insurance
Regulatory Authority, which Annual Statements shall be satisfactory in form and
substance to the Administrative Agent and (ii) the unaudited Quarterly Statement
of each of SNIC, SPCC, CalComp, CBIC and CCIC for the quarter ended
September 30, 1998, prepared in accordance with SAP and as filed with the
respective Applicable Insurance Regulatory Authority, which Quarterly Statements
shall be satisfactory in form and substance to the Administrative Agent;
(b)(i) the audited consolidated balance sheet of each of the
Borrower and BIG for the fiscal year ended December 31, 1997, and the related
consolidated statements of income, of stockholder's equity and of cash flows, in
each case prepared in accordance with GAAP and (ii) the unaudited consolidated
balance sheet of each of the Borrower and BIG for the fiscal quarter ended
September 30, 1998, and the related consolidated statements of income, of
stockholders' equity and of cash flows, in each case prepared in accordance with
GAAP;
(c) projected financial statements for the Borrower and its
Subsidiaries reflecting the projected financial condition, income and expenses
of the Borrower and its Subsidiaries after giving effect to the Transaction and
the other transactions contemplated hereby, which projected financial statements
shall be the same in all material respects as the projected financial statements
set forth in Section 10 of the Confidential Information Memorandum dated
November, 1998 delivered to the Banks in connection with this Agreement;
(d) a closing funds flow statement in connection with the
Transaction, in form and substance satisfactory to the Administrative Agent; and
(e) a PRO FORMA balance sheet of Borrower, as of the Initial
Borrowing Date, after giving effect to the Transaction and the other
transactions contemplated hereby.
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4.15 APPROVALS, ETC. On the Initial Borrowing Date the
following approvals shall have been obtained to the satisfaction of the Banks:
(i) all necessary and material governmental and third party
approvals, permits and licenses in connection with the Transaction and
the transactions contemplated by the Transaction Documents and otherwise
referred to herein or therein (including without limitation the approval
of the respective Departments of Insurance of the States of California
and Delaware), to the extent such approvals, consents, permits and
licenses are required to be obtained or made prior to the Initial
Borrowing Date, shall have been obtained and remain in full force and
effect, and all applicable waiting periods shall have expired, in each
case without any action being taken by any competent authority
(including any court having jurisdiction) which restrains, prevents or
imposes, in the reasonable judgment of the Required Banks or the
Administrative Agent, materially adverse conditions upon the
consummation of the Transaction or any such agreement or transaction;
(ii) the Form A filed by the Borrower with the Insurance
Department of the States of California and Delaware, together with the
approval of such Insurance Departments of each such Form A (and all
stipulations or conditions relating to such approval), which approvals
(and stipulations and conditions, if any) shall be reasonably
satisfactory to the Administrative Agent;
(iii) all necessary shareholder approvals in connection with
the Transaction shall have been obtained and remain in full force and
effect; and
(iv) all regulatory approvals in connection with the pledge of
the stock of each Regulated Insurance Company shall have been obtained
and remain in full force and effect.
4.16 INDEBTEDNESS. On the Initial Borrowing Date and after
giving effect to the consummation of the Transaction, the only Indebtedness of
the Borrower and its Subsidiaries shall consist of (a) the Indebtedness incurred
pursuant to the Credit Documents and (b) Indebtedness listed on Annex III.
4.17 PAYMENT OF FEES. On the Initial Borrowing Date, all costs,
fees and expenses (including, without limitation, legal fees and expenses), and
all other compensation contemplated by this Agreement or the other Credit
Documents, due to the Administrative Agent or any Banks shall have been paid to
the extent due.
4.18 NOTICE OF BORROWING. The Administrative Agent shall have
received a Notice of Borrowing satisfying the requirements of Section 1.03 with
respect to all Borrowings of Loans.
4.19 INSURANCE POLICIES. On the Initial Borrowing Date, the
Administrative Agent shall have received evidence of insurance complying with
the requirements of Section 6.03 for
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the business and properties of the Borrower and its Subsidiaries, in form and
substance reasonably satisfactory to the Administrative Agent.
4.20 TRUST PREFERRED NOTE DOCUMENTS. The Trust Preferred
Note Documents shall have been amended in a manner satisfactory to the
Administrative Agent or a waiver in form and substance satisfactory to the
Administrative Agent shall have been granted by the holders of the Trust
Preferred Notes.
4.21 REPORTS. The Borrower shall have delivered, or shall
have caused to be delivered, to the Administrative Agent and the Banks (a) a
letter of Tillinghast, dated May 5, 1998, relating to the reserve position of
BIG and (b) a Milliman and Robertson report, dated as of March 4, 1998, in
respect of the reserve position of BIG and its Subsidiaries.
4.22 SURPLUS CONTRIBUTION. On the Initial Borrowing Date, an
amount of at least $23,500,000 shall have been contributed to CalComp, CCIC
(to the extent acquired on or prior to the Initial Borrowing Date) and/or
CBIC.
The acceptance of the benefits of the Loans on the Initial
Borrowing Date and on the date of each Loan thereafter shall constitute a
representation and warranty by the Borrower to each of the Banks that all of
the applicable conditions specified in this Section 4 exist or have been
satisfied as of such date. All of the certificates, legal opinions and other
documents and papers referred to in this Section 4, unless otherwise
specified, shall be delivered to the Administrative Agent at its Notice
Office for the account of each of the Banks.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In
order to induce the Banks to enter into this Agreement and to make the Loans
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Banks, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans (with
the making of the Loans being deemed to constitute a representation and
warranty that the matters specified in this Section 5 are true and correct in
all material respects on and as of the date of the making of the Loans (after
giving effect to the consummation of the Transaction on such date) unless
such representation and warranty expressly indicates that it is being made as
of any other specific date in which case such representation and warranty
shall be true and correct in all material respects as of such other specified
date):
5.01 CORPORATE STATUS. The Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its organization and has the
corporate or other organizational power and authority to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage and (ii) has been duly qualified and is authorized to do
business and is in good standing in all jurisdictions where it is required to
be so qualified and where the failure to be so qualified would have a
Material Adverse Effect.
5.02 CORPORATE POWER AND AUTHORITY. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Transaction Documents to which it is a party and has taken all
necessary corporate action to authorize the
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execution, delivery and performance of the Transaction Documents to which it
is a party. Each Credit Party and each of its Subsidiaries has duly executed
and delivered each Transaction Document to which it is a party and each such
Transaction Document constitutes the legal, valid and binding obligation of
such Credit Party enforceable against such Credit Party in accordance with
its terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law.
5.03 NO CONTRAVENTION OF LAWS, AGREEMENTS OR ORGANIZATIONAL
DOCUMENTS. Neither the execution, delivery and performance by any Credit
Party of the Transaction Documents to which it is a party nor compliance with
the terms and provisions thereof, nor the consummation of the transactions
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Pledge
Agreement) result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of the Borrower
or any of its Subsidiaries pursuant to the terms of any indenture, mortgage,
deed of trust, loan agreement, credit agreement or any other material
instrument to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its property or assets are bound or to which it may be
subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws of the Borrower or any of its Subsidiaries.
5.04 LITIGATION AND CONTINGENT LIABILITIES. (a) There are
no actions, suits or proceedings pending or threatened in writing involving
the Borrower or any of its Subsidiaries (including, without limitation, with
respect to the Transaction, this Agreement or any documentation executed in
connection therewith or herewith) (i) which has or is likely to have a
Material Adverse Effect or (ii) that could reasonably be expected to have a
material adverse effect on the rights or remedies of the Banks or on the
ability of any Credit Party to perform its respective obligations to the
Banks hereunder and under the other Credit Documents to which it is, or will
be, a party. Additionally, there does not exist any judgment, order or
injunction prohibiting or imposing material adverse conditions upon the
making of any Loan hereunder.
(b) Except as fully reflected in the financial statements
described in Section 5.11(b) (including the footnotes thereto), the
Indebtedness incurred under this Agreement and all obligations incurred in
the ordinary course of business since the date of the financial statements
described in Section 5.11(b), there were as of the Initial Borrowing Date
(and after giving effect to the Loans made on such date), no liabilities or
obligations with respect to the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due), and the Borrower does not know of any basis for the
assertion against the Borrower or any of its Subsidiaries of any such
liability or obligation, which, in the case of any of the foregoing referred
to in this clause (b), either individually or in the aggregate, are or would
be reasonably likely to have a Material Adverse Effect.
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5.05 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds
of all Term Loans shall be utilized solely to effect the Transaction and to
pay costs and expenses in connection therewith.
(b) The proceeds of all Revolving Loans shall be utilized for
general corporate and working capital purposes.
(c) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System
and no part of the proceeds of any Loan will be used to purchase or carry any
Margin Stock or to extend credit for the purpose of purchasing or carrying
any Margin Stock.
5.06 APPROVALS. Except for filings and approvals made or
obtained on or prior to the Initial Borrowing Date, no order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any foreign or domestic governmental or
public body or authority, or any subdivision thereof, is required to
authorize or is required prior to the Initial Borrowing Date in connection
with (i) the execution, delivery and performance of any Transaction Document
or (ii) the legality, validity, binding effect or enforceability of any
Transaction Document.
5.07 INVESTMENT COMPANY ACT. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
5.08 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the
Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or
of a "subsidiary company" of a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
5.09 TRUE AND COMPLETE DISCLOSURE; PROJECTIONS AND
ASSUMPTIONS. All factual information (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or any Bank (including, without
limitation, all information contained in the Transaction Documents) for
purposes of or in connection with this Agreement or any transaction
contemplated herein is, and all other factual information (taken as a whole)
hereafter furnished by or on behalf of any such Persons in writing to the
Administrative Agent will be, true and accurate in all material respects on
the date as of which such information is dated and not incomplete by omitting
to state any material fact necessary to make such information (taken as a
whole) not misleading at such time in light of the circumstances under which
such information was provided. The Projections contained in such materials
are based on good faith estimates and assumptions believed by the Borrower to
be reasonable and attainable at the time made, it being recognized by the
Banks that such Projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
Projections may differ from the projected results.
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5.10 CONSUMMATION OF TRANSACTION. As of the Initial
Borrowing Date, (i) the Transaction has been consummated in accordance with,
in all material respects, the terms and conditions of the Transaction
Documents and all applicable laws and (ii) the Borrower is the direct or
indirect owner of 100% of the outstanding capital stock of BIG, SNIC, SPCC,
CalComp and CBIC, free and clear of all Liens (other than Liens created
pursuant to the Pledge Agreement). All material consents and approvals of,
and material filings and registrations with, and all other material actions
in respect of, all governmental agencies, authorities or instrumentalities
required in order to consummate the Transaction in accordance with the terms
and conditions of the Transaction Documents and all applicable laws have
been, or prior to the time required, will have been, obtained, given, filed
or taken (with no concessions, agreements or understandings having been made
or entered into by the Borrower or any of its Subsidiaries in connection
therewith other than those disclosed to the Banks prior to the Effective Date
and found reasonably acceptable by the Administrative Agent) and are or will
be in full force and effect. All applicable waiting periods with respect
thereto have, or, prior to the time when required, will have, expired
without, in all such cases, any action being taken by any competent authority
which restrains, prevents, or imposes material adverse conditions upon the
consummation of the Transaction. Additionally, there does not exist any
judgment, order, or injunction prohibiting or imposing material adverse
conditions upon the Transaction or the making of the Loans or the performance
by the Borrower and its Subsidiaries of their obligations under the
Transaction Documents.
5.11 FINANCIAL CONDITION; FINANCIAL STATEMENTS. (a) On and
as of the Initial Borrowing Date, on a PRO FORMA basis after giving effect to
the Transaction and all Indebtedness incurred, and to be incurred, on or
prior to the Initial Borrowing Date, and Liens created, and to be created, on
or prior to the Initial Borrowing Date, in connection with this Agreement,
with respect to each of the Borrower (on a stand-alone basis) and the
Borrower and its Subsidiaries (on a consolidated basis) (x) the sum of the
assets, at a fair valuation, of each of the Borrower (on a stand-alone basis)
and the Borrower and its Subsidiaries (on a consolidated basis) will exceed
their debts, (y) the Borrower (on a stand-alone basis) and the Borrower and
its Subsidiaries (on a consolidated basis) will not have incurred nor
intended to, or believe that they will, incur debts beyond their ability to
pay such debts as such debts mature and (z) the Borrower (on a stand-alone
basis), and the Borrower and its Subsidiaries (on a consolidated basis) will
have sufficient capital with which to conduct their business. For purposes
of this Section 5.11(a), "debt" means any liability on a claim, and "claim"
means (i) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, 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.
(b) The financial statements and PRO FORMA balance sheet
(after giving effect to the Transaction and the other transactions
contemplated hereby) delivered to the Administrative Agent pursuant to
Section 4.14 present fairly in all material respects the financial position
of the respective Persons referred to in such Sections at the dates of said
statements and the results of operations for the periods covered thereby (or,
in the case of the PRO FORMA balance sheet, present
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a good faith estimate of the consolidated PRO FORMA financial condition of
each of the Borrower and its Subsidiaries and the Borrower and its
Subsidiaries at the date thereof). All such financial statements have been
prepared in accordance with SAP or GAAP, as indicated in Section 4.14,
consistently applied except to the extent provided in the notes to said
financial statements.
(c) Since December 31, 1997, nothing has occurred which, when
taken as a whole, has or is reasonably likely to have a Material Adverse
Effect.
5.12 SECURITY INTERESTS. On and after the Initial Borrowing
Date, the Pledge Agreement creates, as security for the Obligations, valid
and enforceable perfected security interests in and Liens on all of the
Collateral subject thereto, superior to and prior to the rights of all third
persons and subject to no other Liens other than Liens permitted pursuant to
Sections 7.03(a), (b), (f), (g) and (h), in favor of the Collateral Agent for
the benefit of the Banks. At all times on or after the Initial Borrowing
Date, the Borrower has good and marketable title to all Collateral free and
clear of all Liens (except as created pursuant to the Pledge Agreement). No
filings or recordings are required in order to perfect the security interests
created under the Pledge Agreement except for filings or recordings which
shall have been made, or provided for to the reasonable satisfaction of the
Administrative Agent, upon or prior to the Initial Borrowing Date.
5.13 TAX RETURNS AND PAYMENTS. The Borrower and each of its
Subsidiaries has filed all federal income tax returns and all other tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other
than those not yet delinquent and except for those contested in good faith.
The Borrower and each of its Subsidiaries has paid, or has provided adequate
reserves (in the good faith judgment of the management of such Person) for
the payment of, all federal, state and foreign income taxes applicable for
all prior fiscal years and for the current fiscal year to the date hereof.
There is no material action, suit, proceeding, investigation, audit, or claim
now pending or, to the knowledge of the Borrower or any of its Subsidiaries,
threatened by any authority regarding any taxes relating to the Borrower or
any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries
has entered into an agreement or waiver or been requested to enter into an
agreement or waiver extending any statute of limitations relating to the
payment or collection of taxes of the Borrower or any of its Subsidiaries, or
is aware of any circumstances that would cause the taxable years or other
taxable periods of the Borrower or any of its Subsidiaries not to be subject
to the normally applicable statute of limitations.
5.14 COMPLIANCE WITH ERISA. (a) Annex IV sets forth each Plan;
each Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including without
limitation ERISA and the Code; each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable
Event has occurred; no Plan which is a multiemployer plan (as defined in Section
4001(a) (3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the
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meaning of such sections of the Code or ERISA, in excess of $10,000, or has
applied for or received a waiver of an accumulated funding deficiency or an
extension of any amortization period, within the meaning of Section 412 of
the Code or Section 303 of 304 of ERISA; all contributions required to be
made with respect to a Plan have been timely made except to the extent of any
such contribution which, if not timely made, would not result in a material
liability to the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate; neither the Borrower nor any Subsidiary of the Borrower nor any
ERISA Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204, or 4212
of ERISA or Section 401(a) (29), 4971 or 4975 of the Code or expects to incur
any material amount of such liability under any of the foregoing sections
with respect to any Plan; no condition exists which presents a material risk
to the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of
incurring a material amount of liability to or on account of a Plan pursuant
to the foregoing provisions of ERISA and the Code; no proceedings have been
instituted by the PBGC to terminate or appoint a trustee to administer any
Plan which is subject to Title IV of ERISA in a distress termination; no
action, suit, proceeding, hearing, audit or investigation with respect to the
administration, operation or the investment of assets of any Plan (other than
routine claims for benefits or relating to qualified domestic relations
orders) is pending, expected or threatened; no Plan is a multiemployer plan
(as defined in Section 4001(a)(3) of ERISA); neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material
liability as a result of any group health plan (as defined in Section 607(1)
of ERISA or Section 4980B(g)(2) of the Code) other than a multiemployer plan
described in Section 3(37) of ERISA which covers or has covered employees or
former employees of the Borrower, any Subsidiary of the Borrower, or any
ERISA Affiliate having not been operated in compliance with the provisions of
Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no
lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to
arise on account of any Plan; and the Borrower and its Subsidiaries may cease
contributions to or terminate any employee benefit plan maintained by any of
them without incurring any material liability.
5.15 SUBSIDIARIES. (a) Annex V hereto lists each Subsidiary
of the Borrower (and the direct and indirect ownership interest of the
Borrower therein) and also identifies the owner thereof in each case existing
on the Initial Borrowing Date (after giving effect to the Transaction). All
such Subsidiaries are direct or indirect Wholly-Owned Subsidiaries of the
Borrower.
(b) There are no restrictions on the Borrower or any of its
Subsidiaries which prohibit or otherwise restrict the transfer of cash or
other assets from any Subsidiary of the Borrower to the Borrower, other than
prohibitions or restrictions existing under or by reason of (i) this
Agreement or the other Credit Documents, (ii) Legal Requirements, (iii)
customary non-assignment provisions in contracts entered into in the ordinary
course of business and consistent with past practices, and (iv) purchase
money obligations for property acquired in the ordinary course of business,
so long as such obligations are permitted under this Agreement.
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5.16 INTELLECTUAL PROPERTY, ETC. The Borrower and each of
its Subsidiaries have obtained all material patents, trademarks,
servicemarks, trade names, copyrights, licenses and other rights, free from
burdensome restrictions, that are necessary for the operation of their
respective businesses as presently conducted and as proposed to be conducted.
5.17 POLLUTION AND OTHER REGULATIONS. The Borrower and each
of its Subsidiaries are in compliance with all laws and regulations relating
to pollution and environmental control, equal employment opportunity and
employee safety in all domestic and foreign jurisdictions in which the
Borrower and each of its Subsidiaries is presently doing business, and the
Borrower will comply and cause each of its Subsidiaries to comply with all
such laws and regulations which may be imposed in the future in jurisdictions
in which the Borrower or such Subsidiary may then be doing business; in each
case other than those the non-compliance with which would not have a Material
Adverse Effect.
5.18 LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS. (a)
Set forth on Annex VI is a list and description (including dates of
termination) of all Collective Bargaining Agreements between or applicable to
the Borrower or any of its Subsidiaries and any union, labor organization or
other bargaining agent in respect of the employees of the Borrower and/or any
Subsidiary on the Initial Borrowing Date.
(b) Neither the Borrower nor any of its Subsidiaries is
engaged in any unfair labor practice that is reasonably likely to have a
Material Adverse Effect. There is (i) no significant unfair labor practice
complaint pending against the Borrower or any of its Subsidiaries or
threatened in writing against any of them, before the National Labor
Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any Collective Bargaining Agreement is now
pending against the Borrower or any of its Subsidiaries or threatened in
writing against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against the Borrower or any of its
Subsidiaries or threatened in writing against the Borrower or any of its
Subsidiaries and (iii) to the best knowledge of the Borrower and the
Borrower, no union representation question exists with respect to the
employees of the Borrower or any of its Subsidiaries, except (with respect to
any matter specified in clause (i), (ii) or (iii) above, either individually
or in the aggregate) such as is not reasonably likely to have a Material
Adverse Effect.
5.19 CAPITALIZATION. (a) On the Initial Borrowing Date, and
after giving effect to the Transaction and the other transactions
contemplated hereby, the authorized capital stock of the Borrower consists of
40,000,000 shares of common stock, $.01 par value per share, 17,905,382 of
which shall be issued and outstanding. As of the Initial Borrowing Date, all
such outstanding shares of the Borrower have been duly and validly issued and
are fully paid and nonassessable. Neither the Borrower nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable
for its capital stock or outstanding any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, its capital stock except, in the case of
the Borrower, for options, warrants and grants outstanding in the aggregate
amounts set forth on Annex IX.
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(b) On the Initial Borrowing Date and after giving effect to
the Transaction and the other transactions contemplated hereby, the
authorized capital stock of BIG shall consist of 10,000 shares of common
stock, $0.01 par value per share, and all of the issued and outstanding
shares of such common stock are owned by the Borrower. All such outstanding
shares have been duly and validly issued, are fully paid and nonassessable.
BIG does not have outstanding any securities convertible into or exchangeable
for its capital stock or outstanding any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, its capital stock.
(c) On the Initial Borrowing Date, and after giving effect to
the Transaction and the other transactions contemplated hereby, the
authorized capital stock of SNIC consists of 40,000 shares of common stock,
$75.00 par value per share, 40,000 of which shall be issued and outstanding.
As of the Initial Borrowing Date, all such outstanding shares of SNIC have
been duly and validly issued and are fully paid and nonassessable. SNIC does
not have outstanding any securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
(d) On the Initial Borrowing Date, and after giving effect to
the Transaction and the other transactions contemplated hereby, the
authorized capital stock of SPCC consists of 1,000,000 shares of common
stock, $50.00 par value, 31,000 of which shall be issued and outstanding. As
of the Initial Borrowing Date, all such outstanding shares of SPCC have been
duly and validly issued and are fully paid and nonassessable. SPCC does not
have outstanding any securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
(e) On the Initial Borrowing Date and after giving effect to
the Transaction and the other transactions contemplated hereby, the
authorized capital stock of CalComp shall consist of 2,000,000 shares of
common stock, $3.00 par value per share, and all of the issued and
outstanding shares of such common stock are owned by BIG. All such
outstanding shares have been duly and validly issued, are fully paid and
nonassessable. CalComp does not have outstanding any securities convertible
into or exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
(f) On the Initial Borrowing Date and after giving effect to the
Transaction and the other transactions contemplated hereby, the authorized
capital stock of CBIC shall consist of 100,000 shares of common stock, $100.00
par value per share, and all of the issued and outstanding shares of such common
stock are owned by BIG. All such outstanding shares have been duly and validly
issued, are fully paid and nonassessable. CBIC does not have outstanding
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any securities convertible into or exchangeable for its capital stock or
outstanding any rights to subscribe for or to purchase, or any options for
the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating
to, its capital stock.
(g) On the date on which the closing of the Borrower's
acquisition of CCIC is consummated pursuant to Section 6.15, and after giving
effect to the Transaction and the other transactions contemplated hereby, the
authorized capital stock of CCIC shall consist of 10,000 shares of common
stock, $500 par value per share, and all of the issued and outstanding shares
of such common stock shall be owned by BIG. All such outstanding shares have
been duly and validly issued, are fully paid and nonassessable. CCIC does
not have outstanding any securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
5.20 REPRESENTATIONS AND WARRANTIES IN TRANSACTION DOCUMENTS.
All representations and warranties set forth in the Transaction Documents
were true and correct in all material respects as of the time such
representations and warranties were made and shall be true and correct in all
material respects as of the Initial Borrowing Date as if such representations
and warranties were made on and as of such date, unless stated to relate to a
specific earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier date.
5.21 INDEBTEDNESS. Annex III sets forth a true and complete
list of all Indebtedness of the Borrower and its Subsidiaries as of the
Initial Borrowing Date (other than the Indebtedness incurred pursuant to the
Credit Documents) which has been reviewed and approved by the Banks (after
giving effect to the Transaction), in each case showing the aggregate
principal amount thereof, the name of the lender in respect thereof and the
name of the respective borrower and any other entity which has directly or
indirectly guaranteed such Indebtedness.
5.22 COMPLIANCE WITH STATUTES, ETC. The Borrower and each of
its Subsidiaries is in compliance with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and
the ownership of its property (including compliance with all applicable
environmental laws), except such noncompliances as would not, in the
aggregate, have a Material Adverse Effect.
5.23 INSURANCE LICENSES. Each Regulated Insurance Company
has obtained and maintains in full force and effect all licenses and permits
from all regulatory authorities necessary to operate in the jurisdictions in
which such Regulated Insurance Company operates, in each case other than such
licenses and permits the failure to obtain or maintain, individually or in
the aggregate, is not reasonably likely to have a Material Adverse Effect.
5.24 YEAR 2000 COMPLIANCE. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's and its Subsidiaries' computer
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systems and (ii) equipment containing embedded microchips (including systems
and equipment supplied by others or with which Borrower's or its
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by March 31, 1999. The cost
to the Borrower and its Subsidiaries of such reprogramming and testing and of
the reasonably foreseeable consequences of year 2000 to the Borrower and its
Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in
the preceding sentence as may be necessary, the computer and management
information systems of the Borrower and its Subsidiaries are and, with
ordinary course upgrading and maintenance, will continue for the term of this
Agreement to be, sufficient to permit the Borrower to conduct its business
without a Material Adverse Effect.
Notwithstanding anything to the contrary contained herein, no
Bank shall have any claim against the Borrower for a breach of representation
or warranty contained in this Section 5 after the date on which the Total
Commitment has been terminated and all principal, interest and other amounts
owing hereunder and under the other Credit Documents have been irrevocably
repaid in full.
SECTION 6. AFFIRMATIVE COVENANTS. The Borrower hereby
covenants and agrees that on the Initial Borrowing Date and thereafter, for
so long as this Agreement is in effect and until the Loans, together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:
6.01 INFORMATION COVENANTS. The Borrower will furnish or
cause to be furnished to each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. (i) As soon as available and
in any event within 100 days after the close of each fiscal year of the
Borrower, (x) the consolidated balance sheet of the Borrower and its
Subsidiaries, in each case, as at the end of such fiscal year and the
related consolidated statements of income, of stockholder's equity and
of cash flows for such fiscal year and (y) the consolidating balance
sheet of the Borrower and each of its Subsidiaries as at the end of the
fiscal year and the related consolidating statements of income, of
stockholders' equity and of cash flows for such fiscal year; in each
case prepared in accordance with GAAP and setting forth comparative
figures for the preceding fiscal year, and, in the case of such
consolidated statements, examined by independent certified public
accountants of recognized national standing whose opinion shall not be
qualified as to the scope of audit or as to the status of the Borrower
and its Subsidiaries as a going concern, together with a certificate of
such accounting firm stating that in the course of its regular audit of
the business of the Borrower and its Subsidiaries, which audit was
conducted in accordance with GAAP, such accounting firm has obtained no
knowledge of any Default or Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such a Default
or Event of Default has occurred and is continuing, a statement as to
the nature thereof.
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(ii) As soon as available and in any event within 100 days
after the close of each fiscal year of each Regulated Insurance Company,
the Annual Statement (prepared in accordance with SAP) for such fiscal
year of such Regulated Insurance Company, each on a consolidated basis
and, in addition, on a stand alone basis in the case of SNIC, SPCC,
CalComp, CBIC and CCIC (to the extent acquired in accordance with
Section 6.15), as filed with the Applicable Insurance Regulatory
Authority in compliance with the requirements thereof (or a report
containing equivalent information for any Regulated Insurance Company
not so required to file the foregoing with the Applicable Insurance
Regulatory Authority) together with the opinion thereon of the Chief
Financial Officer or other Authorized Officer of such Regulated
Insurance Company stating that such Annual Statement presents fairly in
all material respects the financial condition and results of operations
of such Regulated Insurance Company in accordance with SAP.
(iii) As soon as available and in any event within 100 days
after the close of each fiscal year of the Borrower, a copy of the
"Statement of Actuarial Opinion" and "Management Discussion and
Analysis" for each Regulated Insurance Company (prepared in accordance
with SAP) for such fiscal year and as filed with the Applicable
Regulatory Insurance Authority in compliance with the requirements
thereof (or a report containing equivalent information for any Regulated
Insurance Company not so required to file the foregoing with the
Applicable Regulatory Insurance Authority).
(b) QUARTERLY FINANCIAL STATEMENTS. (i) As soon as available
and in any event within 45 days after the close of each of the first
three quarterly accounting periods in each fiscal year of the Borrower,
(x) the consolidated balance sheet of the Borrower and its Subsidiaries,
each as at the end of such fiscal quarter and the related consolidated
statements of income, of stockholder's equity and of cash flows for such
quarterly period and for the elapsed portion of the fiscal year ended
with the last day of such quarterly period and (y) the consolidating
balance sheet of the Borrower and each of its Subsidiaries as at the end
of such fiscal quarter and the related consolidating statements of
income, of stockholders' equity and of cash flows for such quarterly
period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period; in each case setting forth
comparative figures for the related periods in the prior fiscal year,
and all of which shall be prepared in accordance with GAAP and certified
by the Chief Financial Officer or other Authorized Officer of the
Borrower, as the case may be, subject to changes resulting from normal
year-end audit adjustments.
(ii) As soon as available and in any event within 45 days
after the close of each of the first three quarterly accounting periods
in each fiscal year of each Regulated Insurance Company, quarterly
financial statements (prepared in accordance with SAP) for such fiscal
period of such Regulated Insurance Company, each on a consolidated basis
and, in addition, on a stand alone basis in the case of SNIC, SPCC,
CalComp, SBIC and CCIC (to the extent acquired in accordance with
Section 6.15), as filed with the Applicable Insurance Regulatory
Authority together with the opinion thereon of the Chief Financial
Officer or other Authorized Officer of such Regulated Insurance Company
stating that such financial statements present fairly in all material
respects the financial
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condition and results of operations of such Regulated Insurance Company
in accordance with SAP.
(c) FINANCIAL PLANS, ETC. No later than 60 days following the
first day of each fiscal year of the Borrower, copies of the annual
financial plan or budget for such fiscal year prepared by management of
the Borrower for its internal use and distributed to the Board of
Directors of the Borrower. Together with each delivery of financial
statements pursuant to Section 6.01(a)(ii) and (b)(ii), a comparison of
the current year to date financial results (other than in respect of the
balance sheets included therein) against the plans required to be
submitted pursuant to this clause (c) shall be presented.
(d) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 6.01(a)(i) and (ii) and
(b)(i) and (ii), a certificate of the Chief Financial Officer or other
Authorized Officer of the Borrower to the effect that no Default or
Event of Default exists or, if any Default or Event of Default does
exist, specifying the nature and extent thereof, which certificate shall
set forth (x) the calculations required to establish whether the
Borrower and its Subsidiaries were in compliance with the provisions of
Sections 6.11, 7.10, 7.11, 7.12 and 7.13 as at the end of such fiscal
year or quarter, as the case may be, and (y) a summary of all
outstanding litigation at the end of such fiscal year or quarter and of
all litigation settled during the preceding fiscal quarter, in each case
involving the Borrower or any of its Subsidiaries, but only to the
extent that any such litigation (i) arises outside the ordinary course
of business of the Borrower and its Subsidiaries or (ii) could have a
Material Adverse Effect.
(e) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within three Business Days after the Borrower or any of its Subsidiaries
obtains knowledge thereof, (x) notice of the occurrence of any event
which constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto and (y)
promptly after the Borrower or any of its Subsidiaries obtains knowledge
thereof, notice of any outstanding litigation or governmental or
regulatory proceeding pending against the Borrower or any of its
Subsidiaries which could have a Material Adverse Effect, or a material
adverse effect on the ability of any Credit Party to perform its
respective obligations hereunder or under any other Credit Document.
(f) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of
(x) each other report or "management letter" submitted to the Borrower
or any of its Subsidiaries by their independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Borrower or any of its Subsidiaries and (y) each report
submitted to the Borrower or any of its Subsidiaries by any independent
actuary to the extent that such report, in the good faith opinion of the
Borrower, identifies a condition, situation or event that has or is
reasonably likely to have a Material Adverse Effect.
(g) RESERVE ADEQUACY REPORT. Promptly following a request from
the Administrative Agent or the Required Banks (which request may only
be made when an
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Event of Default has occurred and is continuing), a report prepared by
an independent actuarial consulting firm of recognized professional
standing reasonably satisfactory to the Administrative Agent and the
Required Banks reviewing the adequacy of reserves of each Regulated
Insurance Company determined in accordance with SAP, which firm shall
be provided access to or copies of all reserve analyses and valuations
relating to the insurance business of each Regulated Insurance Company
in the possession of or available to the Borrower or its Subsidiaries.
(h) OTHER REGULATORY STATEMENTS AND REPORTS. Promptly (A) after
receipt thereof, copies of all triennial examinations and risk adjusted
capital reports of any Regulated Insurance Company, delivered to such
Person by any Applicable Insurance Regulatory Authority, insurance
commission or similar regulatory authority, (B) after receipt thereof,
written notice of any assertion by any Applicable Insurance Regulatory
Authority or any governmental agency or agencies substituted therefor,
as to a violation of any Legal Requirement by any Regulated Insurance
Company which is likely to have a Material Adverse Effect, (C) after
receipt thereof, a copy of the final report to each Regulated Insurance
Company from the NAIC for each fiscal year, as to such Regulated
Insurance Company's compliance or noncompliance with each of the NAIC
Tests, (D) after receipt thereof, a copy of any notice of termination,
cancellation or recapture of any Reinsurance Agreement or Retrocession
Agreement to which a Regulated Insurance Company is a party to the
extent such termination or cancellation is likely to have a Material
Adverse Effect, (E) and in any event within ten Business Days after
receipt thereof, copies of any notice of actual suspension, termination
or revocation of any license of any Regulated Insurance Company by any
Applicable Insurance Regulatory Authority, including any request by an
Applicable Insurance Regulatory Authority which commits a Regulated
Insurance Company to take or refrain from taking any action or which
otherwise affects the authority of such Regulated Insurance Company to
conduct its business, and (F) and in any event within ten Business Days
after the Borrower or any of its Subsidiaries obtains knowledge thereof,
notice of any actual changes in the insurance laws enacted in any state
in which any Regulated Insurance Company is domiciled which could have a
Material Adverse Effect.
(i) AGING REPORTS. Within 90 days following the Initial
Borrowing Date, an aged accounts receivable report in respect of the
assets transferred pursuant to the Asset Restructuring Transaction.
(j) OTHER INFORMATION. Promptly upon transmission thereof,
copies of any final filings and final registrations with, and reports
to, the SEC by the Borrower or any of its Subsidiaries (other than any
registration statement on Form S-8) and copies of all financial
statements, proxy statements, notices and reports as the Borrower or any
of its Subsidiaries shall send to analysts generally or the holders of
their capital stock or of the Trust Preferred Notes in their capacity as
such holders (in each case to the extent not theretofore delivered to
the Banks pursuant to this Agreement) and, with reasonable promptness,
such other information or existing documents (financial or otherwise) as
the Administrative Agent or any Bank may reasonably request from time to
time.
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6.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and
will cause each of its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect any
of the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession (but only to the extent the Borrower or such Subsidiary
has the right to do so to the extent in the possession of another Person), and
to examine the books of account of the Borrower and any of its Subsidiaries and
discuss the affairs, finances and accounts of the Borrower and of any of its
Subsidiaries with, and be advised as to the same by, its and their officers and
independent accountants and independent actuaries, if any, all at such
reasonable times and intervals, upon reasonable prior notice and to such
reasonable extent as the Administrative Agent or any Bank may request.
6.03 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice.
6.04 PAYMENT OF TAXES. The Borrower will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims (other than claims relating to
the adjustment or settling, in the ordinary course of business, of claims in
respect of insurance policies or reinsurance contracts) which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries; PROVIDED that neither the Borrower nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if it has maintained adequate
reserves (in the good faith judgment of the management of the Borrower) with
respect thereto in accordance with GAAP.
6.05 CORPORATE FRANCHISES. The Borrower will do, and will cause
each Subsidiary to do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
authority; PROVIDED that any transaction permitted by Section 7.02 will not
constitute a breach of this Section 6.05.
6.06 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will
cause each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls) other than those
the non-compliance with which would not have a Material Adverse Effect.
6.07 ERISA. As soon as possible and, in any event, within 10
Business Days after the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Banks a certificate of the chief
financial officer of the Borrower setting forth the full details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such
ERISA Affiliate is
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required or proposes to take, together with any notices required or proposed
to be given to or filed with or by the Borrower, the Subsidiary, the ERISA
Affiliate, the PBGC, a Plan participant or the Plan administrator with
respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency, within the meaning of Section 412 of the Code or Section
302 of ERISA, in excess of $10,000 has been incurred or an application may be
or has been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of
ERISA with respect to a Plan; that any contribution required to be made with
respect to a Plan has not been timely made except to the extent that any such
untimely contribution would not result in a material liability to the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate; that a Plan
has been or may be terminated, reorganized, partitioned or declared insolvent
under Title IV of ERISA; that a Plan has an Unfunded Current Liability; that
proceedings may be or have been instituted to terminate or appoint a trustee
to administer a Plan which is subject to Title IV of ERISA; that a proceeding
has been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate will or may incur any material amount of liability
(including any indirect, contingent, or secondary liability) to or on account
of the termination of or withdrawal from a Plan under Section 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under
Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i)
or 502(1) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section
4980B of the Code; or that the Borrower or any Subsidiary of the Borrower may
incur any material liability pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides death, health or
severance benefits to retired employees or other former employees (other than
as required by Section 601 of ERISA or appicable state law) or any Plan. At
the request of any Bank, the Borrower will promptly deliver to such Bank a
complete copy of the annual report (on Internal Revenue Service Form
5500-series) of each Plan (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to be filed
with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Banks pursuant to the first sentence hereof, if
requested by the Banks, copies of annual reports and any material notices
received by the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate with respect to any Plan shall be delivered to the Banks no later
than 10 Business Days after the date such notice has been received by the
Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
6.08 PERFORMANCE OF OBLIGATIONS. The Borrower will, and will
cause each of its Subsidiaries to, perform in all material respects all of its
obligations under the terms of each mortgage, indenture, security agreement,
other debt instrument and material contract by which it is bound or to which it
is a party.
6.09 GOOD REPAIR. The Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and
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improvements thereto, to the extent and in the manner customary for companies
in similar businesses.
6.10 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower
will, for financial reporting purposes, cause (i) each of its, and each of
its Subsidiaries', fiscal years to end on December 31 of each year and (ii)
each of its, and each of its Subsidiaries', fiscal quarters to end on March
31, June 30, September 30 and December 31 of each year.
6.11 LOAN RATINGS. No later than 90 days following the
Initial Borrowing Date, the Borrower will ensure that the Loans are rated by
Moody's and S&P.
6.12 MAINTENANCE OF LICENSES AND PERMITS. The Borrower will,
and will cause each of its Subsidiaries to, maintain all permits, licenses
and consents as may be required for the conduct of its business by any state,
federal or local government agency or instrumentality except where failure to
maintain the same could not reasonably be expected to have a Material Adverse
Effect.
6.13 REGISTER. The Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this
Section 6.13, to maintain a register (the "Register") on which it will record
the Commitments from time to time of each of the Banks, the Loans made by
each of the Banks and each repayment in respect of the principal amount of
the Loans of each Bank. Failure to make any such recordation, or any error
in such recordation shall not affect the obligations of the Borrower in
respect of such Loans. With respect to any Bank, the transfer of the
Commitments of such Bank and the rights to the principal of, and interest on,
any Loan made pursuant to such Commitments shall not be effective until such
transfer is recorded on the Register maintained by the Administrative Agent
with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such
Commitments and Loans shall remain owing to the transferor. The registration
of assignment or transfer of all or part of any Commitments and Loans shall
be recorded by the Administrative Agent on the Register only upon the
acceptance by the Administrative Agent of a properly executed and delivered
Assignment and Assumption Agreement pursuant to Section 11.04(b). Coincident
with the delivery of such an Assignment and Assumption Agreement to the
Administrative Agent for acceptance and registration of assignment or
transfer of all or part of a Loan, or as soon thereafter as practicable, the
assigning or transferor Bank shall surrender the Note evidencing such Loan,
and thereupon one or more new Notes in the same aggregate principal amount
shall be issued to the assigning or transferor Bank and/or the new Bank. The
Borrower agrees to indemnify the Administrative Agent from and against any
and all losses, claims, damages and liabilities of whatsoever nature which
may be imposed on, asserted against or incurred by the Administrative Agent
in performing its duties under this Section 6.13 (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Administrative
Agent).
6.14 FOREIGN SUBSIDIARIES SECURITY. If following a change in
the relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Borrower acceptable to the Administrative Agent and
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the Required Banks does not within 30 days after a request from the
Administrative Agent or the Required Banks deliver evidence, in form and
substance mutually satisfactory to the Administrative Agent and the Borrower,
with respect to any Foreign Subsidiary which has not already had all of its
stock pledged pursuant to the Pledge Agreement that (i) a pledge (x) of
66-2/3% or more of the total combined voting power of all classes of capital
stock of such Foreign Subsidiary entitled to vote, and (y) of any promissory
note issued by such Foreign Subsidiary to the Borrower or any of its Domestic
Subsidiaries and (ii) the entering into by such Foreign Subsidiary of a
pledge agreement in substantially the form of the Pledge Agreement, in any
such case would cause the undistributed earnings of such Foreign Subsidiary
as determined for Federal income tax purposes to be treated as a deemed
dividend to such Foreign Subsidiary's United States parent for Federal income
tax purposes, then in the case of a failure to deliver the evidence described
in clause (i) above, that portion of such Foreign Subsidiary's outstanding
capital stock or any promissory notes so issued by such Foreign Subsidiary,
in each case not theretofore pledged pursuant to the Pledge Agreement shall
be pledged to the Collateral Agent for the benefit of the Secured Creditors
pursuant to the Pledge Agreement (or another pledge agreement in
substantially similar form, if needed), and in the case of a failure to
deliver the evidence described in clause (ii) above, such Foreign Subsidiary
shall execute and deliver the Pledge Agreement (or another pledge agreement
in substantially similar form, if needed), granting the Secured Creditors a
security interest in all of such Foreign Subsidiary's assets and securing the
Obligations of the Borrower under the Credit Documents and under any Interest
Rate Agreement or Other Hedging Agreement, to the extent that the entering
into such Pledge Agreement is permitted by the laws of the respective foreign
jurisdiction and with all documents delivered pursuant to this Section 6.14
to be in form and substance reasonably satisfactory to the Administrative
Agent and the Required Banks.
6.15 ACQUISITION OF CCIC. As soon as possible after
obtaining the approval of the Department of Insurance of the State of New
York, the Borrower shall become the direct or indirect owner of 100% of the
outstanding capital stock of CCIC, free and clear of all Liens (other than
Liens created pursuant to the Pledge Agreement). In the event that the
Borrower has not acquired CCIC on or before December 31, 1999, then the
Borrower shall acquire, or shall cause its Subsidiaries to acquire, such
licenses, charters, approvals and other assets necessary so that the Borrower
and its Subsidiaries can engage in the type business in which CCIC is
currently engaged.
SECTION 7. NEGATIVE COVENANTS. The Borrower hereby covenants
and agrees that on the Initial Borrowing Date and thereafter, for so long as
this Agreement is in effect and until the Loans together with interest, Fees
and all other Obligations incurred hereunder, are paid in full:
7.01 CHANGES IN BUSINESS. (a) The Borrower will not permit
any of its Subsidiaries to engage in any business other than the business the
Borrower's Subsidiaries are engaged in as of the Initial Borrowing Date
(after giving effect to the Transaction) and activities related thereto.
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(b) The Borrower will engage in no business other than (i)
the ownership of the capital stock and other equity interests in its
Subsidiaries, (ii) the incurrence of Indebtedness permitted to be incurred by
it under Section 7.04, (iii) acquisitions permitted under Section 7.02(i),
(iv) the entering into and performing of its obligations under the
Transaction Documents and (v) the making of investments in accordance with
the provisions of Section 7.06(b).
7.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC.
The Borrower will not, and will not permit any of its Subsidiaries to, wind
up, liquidate or dissolve its affairs, or enter into any transaction of
merger or consolidation, or sell or otherwise dispose of any of its property
or assets (including the sale of capital stock of any of its Subsidiaries,
but excluding any sale or disposition of property or assets in the ordinary
course of business), or purchase, lease or otherwise acquire (in one
transaction or a series of related transactions) all or any part of the
property or assets of any Person (excluding any purchases, leases or other
acquisitions of property or assets in, and for use in, the ordinary course of
business) or agree to do any of the foregoing at any future time, except that
the following shall be permitted:
(a) The Transaction;
(b) Capital Expenditures by the Borrower and its Subsidiaries to
the extent permitted by Section 7.05;
(c) The investments, acquisitions and transfers or dispositions
of property permitted pursuant to Section 7.06;
(d) The merger or consolidation or liquidation of any
Wholly-Owned Subsidiary of the Borrower with or into another Wholly-Owned
Subsidiary of the Borrower, PROVIDED that no Subsidiary may merge,
consolidate or liquidate with or into SNCHC or any of its Subsidiaries;
(e) Any Regulated Insurance Company may enter into any Insurance
Contract, Reinsurance Agreement or Retrocession Agreement in the
ordinary course of business in accordance with its normal underwriting,
indemnity and retention policies, PROVIDED that, except as provided
below, no Regulated Insurance Company shall enter into any Financial
Reinsurance Agreements after the Initial Borrowing Date, PROVIDED
FURTHER, that Regulated Insurance Companies may enter into Financial
Reinsurance Agreements constituting loss portfolio transfers and/or
retrospective aggregate excess of loss reinsurance contracts so long as
(i) the aggregate annual premiums associated with such Financial
Reinsurance Agreements entered into by all Regulated Insurance Companies
shall not exceed $10,000,000 and (ii) such Financial Reinsurance
Agreements do not meet the conditions for reinsurance accounting as
provided in FASB 113 solely because they relate to losses incurred in
prior years;
(f) The Borrower or any of its Subsidiaries may enter into
leases of property or assets in the ordinary course of business not
otherwise in violation of this Agreement;
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(g) each of the Borrower and its Subsidiaries may sell assets
(including, without limitation, the capital stock of BIC acquired
pursuant to the Acquisition), PROVIDED that (w) each such sale shall be
for an amount at least equal to the fair market value thereof (as
determined in good faith by senior management of the Borrower), (x) each
such sale results in consideration in the form of cash, (y) the
aggregate sale proceeds from all assets subject to such sales pursuant
to this clause (g) in any fiscal year shall not exceed 10% of the
Consolidated Net Worth of the Borrower as of the first day of such
fiscal year provided that (i) on a PRO FORMA basis (the PRO FORMA
adjustments made by the Borrower pursuant to this clause (i) shall be
subject to the reasonable satisfaction of the Administrative Agent)
determined as if such asset sale had been consummated on the date
occurring twelve months prior to the last day of the most recently ended
fiscal quarter of the Borrower with respect to any asset sale, the
Borrower and its Subsidiaries would have been in compliance with
Sections 7.10 through 7.13 of this Agreement as of, or for the relevant
period ended on, the last day of such fiscal quarter and (ii) on a PRO
FORMA basis (the PRO FORMA adjustments made by the Borrower pursuant to
this clause (ii) shall be subject to the reasonable satisfaction of the
Administrative Agent) determined as if such asset sale had been
consummated, the covenants contained in Sections 7.10 through 7.13 will
continue to be met for the twelve-month period following the last day of
the fiscal quarter ended after the date of the consummation of such
asset sale and (z) to the extent required by Section 3.02(i)(b), the Net
Available Proceeds therefrom are applied to repay Loans as provided in
Section 3.02(i)(b);
(h) the Asset Restructuring Transaction; and
(i) so long as no Default or Event of Default then exists or
would result therefrom, the Borrower and its Subsidiaries may acquire
assets or the capital stock of any Person (any such acquisitions
permitted by this clause (i), a "Permitted Acquisition"), PROVIDED, that
(i) such Person (or the assets so acquired) was, immediately prior to
such acquisition, engaged (or used) primarily in the businesses
permitted pursuant to Section 7.01(a), (ii) each such acquisition shall
be for an amount not greater than the fair market value thereof (as
determined in good faith by the Board of Directors of the Borrower),
(iii) the aggregate amount expended by the Borrower and its Subsidiaries
for Permitted Acquisitions shall not in any fiscal year exceed 10% of
the Consolidated Net Worth of the Borrower and its Subsidiaries as of
the first day of such fiscal year, (iv) on a PRO FORMA basis (the PRO
FORMA adjustments made by the Borrower pursuant to this clause (iv)
shall be subject to the reasonable satisfaction of the Administrative
Agent) determined as if such acquisition had been consummated on the
date occurring twelve months prior to the last day of the most recently
ended fiscal quarter of the Borrower, the Borrower and its Subsidiaries
would have been in compliance with Sections 7.10 through 7.13 of this
Agreement as of, or for the relevant period ended on, the last day of
such fiscal quarter, (v) on a PRO FORMA basis (the PRO FORMA adjustments
made by the Borrower pursuant to this clause (v) shall be subject to the
reasonable satisfaction of the Administrative Agent) determined as if
such acquisition had been consummated, the covenants contained in
Sections 7.10 through 7.13 will continue to be met for the twelve-month
period following the last day of the fiscal quarter ended after the date
of the consummation of such
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<PAGE>
acquisition and (vi) no such acquisition shall be consummated on a
"hostile" basis (I.E., without the consent of the Board of Directors of
the Person to be acquired).
To the extent the Required Banks (or all the Banks to the extent required by
Section 11.12) waive the provisions of this Section 7.02 with respect to the
disposition of any Collateral, or any Collateral is disposed of as permitted
by this Section 7.02, (i) such Collateral in each case shall be sold free and
clear of the Liens in favor of the Secured Creditors created by the Pledge
Agreement and (ii) if such Collateral includes all of the capital stock of a
Subsidiary, such capital stock shall be released from the Pledge Agreement
and such Subsidiary shall be released from the Subsidiary Guaranty; and the
Administrative Agent and the Collateral Agent shall be authorized to take
such actions as the Administrative Agent or the Collateral Agent reasonably
deems appropriate in connection therewith.
7.03 LIENS. The Borrower will not, and will not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon or with respect to any property or assets of any kind (real or personal,
tangible or intangible) of the Borrower or any such Subsidiary whether now
owned or hereafter acquired, or sell any such property or assets subject to
an understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable or notes with
recourse to the Borrower or any of its Subsidiaries) or assign any right to
receive income, or file or permit the filing of any financing statement under
the UCC or any other similar notice of Lien under any similar recording or
notice statute relating to any such property, except:
(a) Liens for taxes not yet due or Liens for taxes being
contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of the
Borrower) have been established;
(b) Liens in respect of property or assets of any of the
Borrower's Subsidiaries imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course
of business, and (x) which do not in the aggregate materially detract
from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or any
Subsidiary or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or asset subject to such Lien;
(c) Liens created by this Agreement or the other Credit
Documents;
(d) Liens in existence on the Effective Date which (x) have been
reviewed and approved by the Banks and are listed, and the property
subject thereto on the Effective Date described, in Annex VII, without
giving effect to any extensions or renewals thereof (provided that (i)
the securities subject to any such Lien may be replaced by other
securities of no greater principal amount and (ii) no such extension or
renewal will increase the obligations secured thereby or result in any
such Lien attaching to any additional property) or (y) are otherwise
permitted under this Section 7.03;
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<PAGE>
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.09;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds, Reinsurance
Agreements, Retrocession Agreements and other similar obligations
incurred in the ordinary course of business (exclusive of obligations in
respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in any
material respect with the business of the Borrower or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
(h) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases
not in violation of this Agreement;
(j) Liens on pledges or deposits of cash or securities made by
any Regulated Insurance Company as a condition to obtaining or
maintaining any licenses issued to it by any Applicable Insurance
Regulatory Authority; and
(k) Liens on assets which are subject to the Asset Restructuring
Transaction.
7.04 INDEBTEDNESS. The Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Capitalized Lease Obligations of the Borrower and its
Subsidiaries, provided that the aggregate Capitalized Lease Obligations
under all Capital Leases shall not exceed $15,000,000 at any time;
(c) Indebtedness in existence on the Effective Date which has
been reviewed and approved by the Banks and is listed in Annex III
(including the Trust Preferred Notes), without giving effect to any
subsequent extension, renewal or refinancing thereof;
(d) Obligations of any Regulated Insurance Company with respect
to (i) letters of credit securing obligations under Reinsurance
Agreements entered into in the ordinary course of business of any such
Regulated Insurance Company, (ii) letters of credit issued in lieu of
deposits to satisfy Legal Requirements or (iii) letters of credit or
surety bonds
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<PAGE>
issued in lieu of depositing securities with any Applicable
Insurance Regulatory Authority to satisfy regulatory requirements in
connection with worker's compensation insurance; in any case to the
extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than 10 days
following receipt by the Borrower or such Subsidiary of notice of
payment on such letter of credit;
(e) Indebtedness of the Borrower under Interest Rate Agreements
entered into in respect of the Obligations;
(f) Indebtedness under reimbursement obligations in respect of
letters of credit issued to guaranty or support the payment of
performance bonds, workers' compensation claims, insurance claims and
contested appeals and compliance with operations and regulatory
obligations incurred in the ordinary course of business, in an aggregate
principal amount not to exceed $10,000,000; and
(g) Indebtedness owing pursuant to the Reverse Repurchase
Program in an aggregate principal amount not to exceed $20,000,000 at
any time and which shall remain outstanding for no more than 90 days at
any time; and
(h) Other unsecured Indebtedness of the Borrower and its
Subsidiaries not to exceed $5,000,000 in the aggregate principal amount
outstanding at any time.
7.05 CAPITAL EXPENDITURES. The Borrower will not incur, and will not
permit any of its Subsidiaries to incur, Capital Expenditures, PROVIDED that
the Borrower and its Subsidiaries may incur Capital Expenditures so long as
the aggregate amount so incurred by the Borrower and its Subsidiaries (on a
consolidated basis) during any fiscal year does not exceed $5,000,000.
7.06 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not,
and will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) The Transaction shall be permitted;
(b) The Borrower and its Subsidiaries which are not Regulated
Insurance Companies may invest in cash, Cash Equivalents, open-ended
mutual funds and Investment Grade Securities other than investments
which are Risk Derivatives (determined at the time of acquisition);
PROVIDED that (i) investments in open-ended mutual funds shall not
exceed $5,000,000 in the aggregate and (ii) any investment in Investment
Grade Securities (other than U.S. Government Obligations) issued by any
single Issuer shall not exceed on the date such investment is made an
amount which, when added to all other investments by all Regulated
Insurance Companies and the Borrower in such Issuer and outstanding on
such date, is equal to 5% of Invested Assets at such time;
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<PAGE>
(c) The Borrower and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms;
(d) Loans and advances to employees for business-related travel
expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business;
(e) The transactions described in Section 7.02(d), (e) and (i)
shall be permitted;
(f) Regulated Insurance Companies may invest in (i) cash, (ii)
Cash Equivalents, (iii) Investment Grade Securities and
(iv) Non-Investment Grade Securities; PROVIDED that (A) no investment
will be made in (i) any debt securities which are Non-Investment Grade
Securities or (ii) any equity securities, at a time when, or if after
giving effect thereto, the aggregate principal amount of all
Non-Investment Grade Securities held by all Regulated Insurance Companies
plus the aggregate outstanding investment made by all Regulated
Insurance Companies in equity securities (other than securities of
Persons which are Affiliates of the Borrower on the Effective Date)
equals or exceeds or would equal or exceed 10% of Invested Assets; (B)
no investment will be made in any real estate or loan secured by real
estate (other than (I) credit tenant loans (as defined by the NAIC on
the Effective Date), (II) those existing on the Effective Date (without
giving effect to any increase thereto) and (III) loans secured by
owner-occupied real estate, if made at a time when, and if after giving
effect thereto, the aggregate of all such investments in mortgage loans
does not exceed, and would not exceed, 1% of Invested Assets); and (C) no
investment (other than U.S. Government Obligations) in any single Issuer
shall exceed on the date such investment is made an amount which, when
added to all other investments by the Borrower and its Subsidiaries in
the same Issuer and outstanding on such date, is equal to 5% of Invested
Assets at such time;
(g) Any Regulated Insurance Company may make investments in
companies which are Wholly-Owned Subsidiaries of such Person (or any
other Subsidiary of such Person created or acquired in accordance with
Section 7.15) but only to the extent that any such investment, at the
time made, does not reduce Statutory Surplus of such Regulated Insurance
Company;
(h) The Borrower and its Subsidiaries may make investments
pursuant to commitments in effect as of the Effective Date and described
(as to matter and amount) on Annex VIII;
(i) Investments acquired by the Borrower or any of its
Subsidiaries (x) in exchange for any other investment held by the
Borrower or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of
such other investment or (y) as a result of a foreclosure by the
Borrower or any of its Subsidiaries with respect to any secured
investment or other transfer of title with respect to any secured
investment in default;
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<PAGE>
(j) Any Regulated Insurance Company may make (i) policy loans in
the ordinary course of business and (ii) agent debit balances in the
ordinary course of business;
(k) Investments existing on the Effective Date which have been
reviewed and approved by the Banks and are identified on Annex VIII;
(l) The Borrower may make Employee Participation Loans, provided
that the aggregate principal amount of such loans does not exceed
$10,400,000; and
(m) Investments existing in connection with the Reverse
Repurchase Program; PROVIDED that (i) the aggregate amount of such
investments shall not exceed $20,000,000 at any time and (ii) each such
investment shall remain outstanding for no more than 90 days.
7.07 PREPAYMENTS OF INDEBTEDNESS, MODIFICATIONS OF AGREEMENTS,
ETC. The Borrower will not, and will not permit any of its Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary
or optional payment or prepayment or redemption or acquisition for value
of (including, without limitation, by way of depositing with the trustee
with respect thereto money or securities before due for the purpose of
payment when due) or exchange of, any Trust Preferred Notes;
(b) amend or modify (or permit the amendment or modification of)
in any manner adverse to the interests of the Banks any of the terms or
provisions of the Acquisition Documents, the Existing Reinsurance
Agreement Documents, the Asset Restructuring Transaction documents, or
the Trust Preferred Note Documents;
(c) amend, modify or change in any manner adverse to the
interests of the Banks the Certificate of Incorporation (including,
without limitation, by the filing of any certificate of designation) or
By-Laws of the Borrower or any of its Subsidiaries, or any other
agreement entered into by the Borrower or any of its Subsidiaries with
respect to its capital stock, or enter into any new agreement with
respect to the capital stock of the Borrower (to the extent adverse to
the interests of the Banks) or any of its Subsidiaries; and/or
(d) amend, modify or terminate (or permit the amendment,
modification or termination of) in any manner adverse to the interests
of the Banks the Tax Sharing Agreements.
7.08 DIVIDENDS, ETC. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of such Person) or return any capital
to, its stockholders or authorize or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a consideration, any
shares of any class of its capital stock now or hereafter outstanding (or any
warrants for or options or stock
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<PAGE>
appreciation rights in respect of any of such shares), or set aside any funds
for any of the foregoing purposes, or purchase or otherwise acquire or permit
any of its Subsidiaries to purchase or otherwise acquire for consideration
any shares of any class of the capital stock of the Borrower or any of its
Subsidiaries, as the case may be, now or hereafter outstanding (or any
options or warrants or stock appreciation rights issued by such Person with
respect to its capital stock) (all of the foregoing "Dividends"), except that
any Subsidiary of the Borrower may pay cash dividends to its parent if such
parent is the Borrower or a Wholly-Owned Subsidiary of the Borrower.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or otherwise restricts (i) the ability of any
Subsidiary to (A) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any of its Subsidiaries, as applicable, (B)
make loans or advances to the Borrower or any Subsidiary, as applicable, (C)
transfer any of its properties or assets to the Borrower or any Subsidiary, as
applicable, or (D) guarantee the Obligations or (ii) the ability of the Borrower
or any Subsidiary of the Borrower to create, incur, assume or suffer to exist
any Lien upon its property or assets to secure the Obligations, other than
prohibitions or restrictions existing under or by reason of (I) this Agreement,
the other Credit Documents and the Trust Preferred Note Documents and (II) Legal
Requirements.
7.09 TRANSACTIONS WITH RELATED PARTIES. The Borrower will not,
and will not permit any Subsidiary to, enter into any transaction or series of
transactions with any Related Party (excluding the Borrower or any Wholly-Owned
Subsidiary of the Borrower) other than in the ordinary course of business and on
terms and conditions substantially as favorable to the Borrower or such
Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time
in a comparable arm's-length transaction with a Person other than a Related
Party.
7.10 LEVERAGE RATIO. The Borrower will not permit the ratio of
(i) Consolidated Indebtedness of the Borrower to (ii) Consolidated Total Capital
of the Borrower at any time during any period set forth below to be greater than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Initial Borrowing Date
to and including December 31, 2000 0.30:1.00
January 1, 2001
to and including December 31, 2001 0.25:1.00
January 1, 2002 and thereafter 0.20:1.00
</TABLE>
7.11 INTEREST COVERAGE RATIO. The Borrower will not permit the
Interest Coverage Ratio for any Test Period ending during a period set forth
below to be less than the ratio set forth opposite such period below:
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<PAGE>
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Initial Borrowing Date
to and including December 31, 2000 2.50:1.00
January 1, 2001
to and including December 31, 2001 2.75:1.00
January 1, 2002 and thereafter 3.00:1.00
</TABLE>
7.12 MINIMUM COMBINED STATUTORY SURPLUS. The Borrower shall not
permit the Regulated Insurance Companies, collectively, on a combined basis, to
have Statutory Surplus at any time of less than the minimum combined Statutory
Surplus of (a) at any time prior to December 31, 1999, $285,000,000, and (b) at
any time after December 31, 1999, the sum of (i) $285,000,000 and (ii) an
amount, if positive, equal to 50% of the net income of all Regulated Insurance
Companies (determined on a combined basis, in accordance with SAP) for the
period from January 1, 1999 through the last day of the then most recently ended
fiscal quarter.
7.13 MINIMUM RISK-BASED CAPITAL. (a) The Borrower will not
permit the Risk-Based Capital for any Regulated Insurance Company to be less
than 225%.
(b) The Borrower will not permit the Risk-Based Capital for all
Regulated Insurance Companies (collectively, on a combined basis) to be less
than 275%.
7.14 ISSUANCE OF STOCK. (a) The Borrower will not directly or
indirectly issue, sell, assign, pledge, or otherwise encumber or dispose of any
shares of its capital stock or other equity securities (or warrants, rights or
options to acquire shares or other equity securities), except (i) the issuance
of common stock (and warrants, options and other rights to acquire common
stock), so long as no Event of Default occurs under Section 8.11, and (ii) the
issuance of preferred stock, so long as (x) no part of the preferred stock is
mandatorily redeemable until after the tenth anniversary of the Initial
Borrowing Date, (y) any dividends associated with such preferred stock are
solely payable in kind and (z) the aggregate amount of such preferred stock
issued after the Initial Borrowing Date does not exceed $75,000,000.
(b) The Borrower will not permit any of its Subsidiaries
directly or indirectly to issue, sell, assign, pledge, or otherwise encumber or
dispose of any shares of its capital stock or other equity securities (or
warrants, rights or options to acquire shares or other equity securities) of
such Subsidiary, except (i) to the Borrower or to a Wholly-Owned Subsidiary of
the Borrower, (ii) to qualify directors if required by applicable law and (iii)
pursuant to the Pledge Agreement.
7.15 CREATION OF SUBSIDIARIES. The Borrower shall not create or
acquire any Subsidiary other than (i) Regulated Insurance Companies which are
direct Subsidiaries of the Borrower or of a Subsidiary Guarantor and all of the
capital stock of such Subsidiary owned by the Borrower or such Subsidiary
Guarantor is pledged pursuant to the Pledge Agreement; and (ii) Non-Regulated
Insurance Companies which are not Subsidiaries of any Regulated Insurance
Company, so long as (x) all of the capital stock of such Subsidiary is pledged
pursuant to the
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Pledge Agreement and (y) such new Subsidiary executes a counterpart of the
Subsidiary Guaranty and the Pledge Agreement. In addition, at the request of
the Administrative Agent, each new Subsidiary that is required to execute any
Credit Document shall execute and deliver, or cause to be executed and
delivered, all other relevant documentation of the type described in Section
4 as such new Subsidiary would have had to deliver if such new Subsidiary
were a Credit Party on the Initial Borrowing Date.
7.16 PARTNERSHIP AGREEMENTS. The Borrower will not enter into
any partnership agreement as a general partner.
SECTION 8. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
8.01 PAYMENTS. The Borrower shall (i) default in the payment
when due of any principal of the Loans, (ii) default, and such default shall
continue for two or more days, in the payment when due of any interest on the
Loans or any Fees or (iii) default in the prompt payment following notice or
demand in respect of any other amounts owing hereunder or under any other Credit
Document; or
8.02 REPRESENTATIONS, ETC. Any representation, warranty or
statement made or deemed made by the Borrower or any other Credit Party herein
or in any other Credit Document or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
8.03 COVENANTS. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 6.10 or 7, or (b) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in Section 8.01 or
clause (a) of this Section 8.03) contained in this Agreement and such default
shall continue unremedied for a period of at least 30 days; or
8.04 DEFAULT UNDER OTHER AGREEMENTS. (a) The Borrower or any
of its Subsidiaries shall (i) default in any payment with respect to
Indebtedness (other than the Obligations, but including the Trust Preferred
Notes) in excess of $2,500,000 individually or in the aggregate, for the
Borrower and its Subsidiaries, beyond the period of grace, if any, provided in
the instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause (determined without regard to whether
any notice of acceleration, or any lapse of time prior to the effectiveness of
any notice of acceleration, is required), any such Indebtedness to become due
prior to its stated maturity; or (b) any Indebtedness of the Borrower or any of
its Subsidiaries of the type referred to in clause (a) above shall be declared
to be due and payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity thereof; or
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8.05 BANKRUPTCY, ETC. The Borrower or any of its
Subsidiaries shall commence a voluntary case concerning itself under Title 11
of the United States Code entitled "Bankruptcy," as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary
case is commenced against the Borrower or any of its Subsidiaries and the
petition is not controverted within 10 days, or is not dismissed within 60
days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of the Borrower or any of its Subsidiaries; or the
Borrower or any of its Subsidiaries commences (including by way of applying
for or consenting to the appointment of, or the taking of possession by, a
rehabilitator, receiver, custodian, trustee, conservator or liquidator
(collectively, a "conservator") of itself or all or any substantial portion
of its property) any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency, liquidation,
rehabilitation, conservatorship or similar law of any jurisdiction whether
now or hereafter in effect relating to the Borrower or any of its
Subsidiaries; or any such proceeding is commenced against (a) any Regulated
Insurance Company which is engaged in the business of underwriting insurance
and/or reinsurance in the United States, or (b) the Borrower or any of its
Subsidiaries (other than (x) any Regulated Insurance Company described in the
immediately preceding clause (a) or (y) any dissolution or liquidation
proceeding commenced against a Non-Regulated Subsidiary (i) the assets of
which do not exceed an aggregate amount of $100,000 and (ii) in connection
with the winding-up of such Subsidiary) to the extent such proceeding is
consented to by such Person, and in the case of either clause (a) or (b)
remains undismissed for a period of 60 days; or the Borrower or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or (a) any
Regulated Insurance Company which is engaged in the business of underwriting
insurance and/or reinsurance in the United States suffers any appointment of
any conservator or the like for it or any substantial part of its property,
or (b) the Borrower or any of its Subsidiaries (other than any Regulated
Insurance Company described in the immediately preceding clause (a)) suffers
any appointment of any conservator or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period of 60
days; or the Borrower or any of its Subsidiaries makes a general assignment
for the benefit of creditors; or any corporate action is taken by the
Borrower or any of its Subsidiaries for the purpose of effecting any of the
foregoing; or
8.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee appointed by the PBGC to administer such Plan, any Plan which is subject
to Title IV of ERISA is, shall have been or is likely to be terminated or to be
the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made with respect to a
Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate has incurred or is likely to incur any liability to or on
account of a Plan under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the
Code or on account of a group health plan (as defined in Section 607(1) of ERISA
or Section 4980B(g)(2) of the Code)
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under Section 4980B of the Code, or the Borrower or any Subsidiary of the
Borrower has incurred or is likely to incur liabilities pursuant to one or
more employee welfare benefit plans (as defined in Section 3(1) of ERISA)
that provide death, health or severance benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA or
applicable state law) or Plans; (b) there shall result from any such event or
events the imposition of a lien, the granting of a security interest, or a
liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to
have, a Material Adverse Effect; or
8.07 SUBSIDIARY GUARANTY. The Subsidiary Guaranty or any
provision thereof shall cease to be in full force and effect, or any Subsidiary
Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor
shall deny or disaffirm such Subsidiary Guarantor's obligations under the
Subsidiary Guaranty or any Subsidiary Guarantor shall default in the due
performance or observance of any material term, covenant or agreement on its
part to be performed or observed pursuant to the Subsidiary Guaranty; or
8.08 PLEDGE AGREEMENT. The Pledge Agreement shall cease to be
in full force and effect, or shall cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby (including,
without limitation, a first priority perfected security interest in, and Lien
on, all of the Collateral subject thereto, in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons and subject to no other
Liens), or any Credit Party shall default in the due performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant to the Pledge Agreement; or
8.09 JUDGMENTS. One or more judgments or decrees shall be
entered against the Borrower or any of its Subsidiaries involving a liability,
net of undisputed reinsurance, of $2,500,000 or more in the case of any one such
judgment or decree or in the aggregate for all such judgments and decrees for
the Borrower and its Subsidiaries and any such judgments or decrees shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or
8.10 A.M. BEST RATINGS. Any Regulated Insurance Company shall
fail to maintain an A.M. Best rating of at least B; or
8.11 OWNERSHIP. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Administrative Agent shall, upon the
written request of the Required Banks, by written notice to the Borrower,
take any or all of the following actions, without prejudice to the rights of
the Administrative Agent or any Bank to enforce its claims against the
Borrower or any other Credit Party, except as otherwise specifically provided
for in this Agreement (PROVIDED that if an Event of Default specified in
Section 8.05 shall occur with respect to the Borrower, the result which would
occur upon the giving of written notice by the Administrative Agent as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitment terminated,
whereupon the Commitment of each Bank
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shall forthwith terminate immediately; (ii) declare the principal of and any
accrued interest in respect of all Loans and all Obligations owing hereunder
and under the other Credit Documents to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and/or
(iii) enforce, as Collateral Agent (or direct the Collateral Agent to
enforce), any or all of the Liens and security interests created pursuant to
the Pledge Agreement. Any and all remedies and rights notwithstanding, in
the event of a default and acceleration of the Obligations hereunder, neither
the Collateral Agent nor any Bank shall vote, sell, or in any manner exercise
control as to any Regulated Insurance Company pledged as Collateral without
first filing for and obtaining written prior approval pursuant to California
Insurance Code Section 1215.2.
SECTION 9. DEFINITIONS. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition" shall mean the acquisition by the Borrower of 100%
of the equity interests of BIG from Foundation Health Corporation ("FHC"), a
wholly owned subsidiary of Foundation Health Systems, Inc.
"Acquisition Agreement" shall mean the Purchase Agreement, dated
as of May 5, 1998, by and between the Borrower and FHC.
"Acquisition Documents" shall mean the Acquisition Agreement
and all other agreements and documents relating to the Acquisition including
the Annexes and Exhibits to the Acquisition Agreement, in the form delivered
pursuant to Section 4.11 and as the same may be amended or modified pursuant
to the terms thereof and hereof.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power (i) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such corporation or (ii) to direct or cause
the direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may be
from time to time modified, amended and/or supplemented.
"Annual Statement" shall mean the annual financial statement
required to be filed by any Regulated Insurance Company with the Applicable
Insurance Regulatory Authority.
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"Applicable Insurance Regulatory Authority" shall mean, when
used with respect to any Regulated Insurance Company, the insurance
department or similar administrative authority or agency located in (x) each
state in which such Regulated Insurance Company is domiciled or (y) to the
extent asserting regulatory jurisdiction over such Regulated Insurance
Company, the insurance department, authority or agency in each state in which
such Regulated Insurance Company is licensed, and shall include any Federal
insurance regulatory department, authority or agency that may be created and
that asserts regulatory jurisdiction over such Regulated Insurance Company.
"Applicable Percentage" shall mean (a) with respect to Base Rate
Loans, 2% and (ii) with respect to Eurodollar Loans, 3%.
"Approved Bank" shall have the meaning provided in the definition
of "Cash Equivalents."
"Approved Company" shall have the meaning provided in the
definition of "Cash Equivalents".
"Asset Sale" shall mean any sale, transfer or other disposition
effected on or after the Initial Borrowing Date by the Borrower or any of its
Subsidiaries of (i) any capital stock or equity securities of a Subsidiary of
the Borrower or (ii) any other asset, in each case to any Person other than the
Borrower or any of its Wholly-Owned Subsidiaries (other than sales, transfers or
other dispositions in the ordinary course of business).
"Asset Restructuring Transaction" shall mean the sale of agent
balances, retro receivables and due and accrued investment income by CalComp,
CCIC and CBIC (together with a related sale/leaseback transaction not to
exceed $18,500,000), provided that such transaction may only be consummated
if (i) the documentation governing such transaction has been submitted to,
and determined to be in form and substance satisfactory to, the
Administrative Agent, (ii) such transaction is permitted under the terms of
the Trust Preferred Note Documents and (iii) the Banks shall have received an
opinion from Riordan & McKinzie, counsel to the Borrower, that such
transaction is permitted under the terms of the Trust Preferred Note
Documents.
"Assignment and Assumption Agreement" shall have the meaning
provided in Section 11.04(b).
"Associates" shall mean each of (i) Capital Z Financial
Services Fund II, L.P., (ii) Capital Z Financial Services Private Fund II,
L.P., (iii) Insurance Partners Offshore (Bermuda), L.P. and (iv) Insurance
Partners, L.P., and any person or entity that controls, is under common
control with, or is controlled by Insurance Partners or such persons or
entities, and all individuals who are officers, directors or control persons
of any such entities, including Insurance Partners; PROVIDED, HOWEVER, that
International Insurance Investors, LP or its limited partners shall not be
deemed Associates hereunder.
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"Authorized Control Level" shall mean "Authorized Control
Level" as defined by the NAIC from time to time and as applied in the context
of the Risk Based Capital Guidelines promulgated by the NAIC (or any term
substituted therefor by the NAIC).
"Authorized Officer" shall mean any senior officer of the
Borrower designated as such in writing by the Borrower to, and found
acceptable by, the Administrative Agent.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or (ii) a
Bank having notified the Administrative Agent and/or the Borrower that it
does not intend to comply with the obligations under Section 1.01, in the
case of either clause (i) or (ii) above as a result of the appointment of a
receiver or conservator with respect to such Bank at the direction or request
of any regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section
8.05.
"Base Rate" at any time shall mean the higher of (x) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the
Prime Lending Rate as in effect from time to time.
"Base Rate Loans" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Benchmark Statement" shall mean, as of any date, an annual
financial statement of the Regulated Insurance Companies as would be prepared
as of such date utilizing the identical format utilized by SNIC in preparing
its December 31, 1997 Annual Statement filed with the Insurance Department of
the State of California, with each page, line item and column of a Benchmark
Statement to contain the same type of information, computed in the same
manner, as contained in the identically numbered page, line item and column
of such Annual Statement.
"BIC" shall means Business Insurance Company, a New York stock
insurance company.
"BIG" shall mean Business Insurance Group, Inc., a Delaware
insurance holding company.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan
pursuant to a single Facility by the Borrower from all of the Banks having
Commitments with respect to such Facility, on a PRO RATA basis on a given
date (or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period, PROVIDED that Base Rate Loans
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incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day, excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close, and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day
which is a Business Day described in clause (i) and which is also a day for
trading by and between banks in U.S. dollar deposits in the interbank
Eurodollar market.
"CalComp" shall mean California Compensation Insurance
Company, a California stock insurance company.
"Capital Expenditures" shall mean expenditures (whether paid
in cash or accrued as liabilities and including in all events all amounts
expended or capitalized under Capital Leases but excluding any amount
representing capitalized interest) by the Borrower and its Subsidiaries that,
in conformity with GAAP, are or are required to be included in the property,
plant or equipment reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries, PROVIDED that Capital Expenditures shall in
any event include the purchase price paid in connection with the acquisition
of any Person (including through the purchase of all of the capital stock or
other ownership interests of such Person or through merger or consolidation)
to the extent allocable to property, plant and equipment.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Capital Lease" as applied to any Person, shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is, or is required to be, accounted for as a
capital lease on the balance sheet of that Person.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (PROVIDED that the full faith and
credit of the United States of America is pledged in support thereof) having
maturities of not more than one year from the date of acquisition, (ii) U.S.
dollar denominated time deposits, certificates of deposit and bankers
acceptances of (x) any FDIC insured bank, in amounts up to the FDIC insured
limit, (y) any Bank having capital and surplus in excess of $500,000,000 or
the U.S. dollar equivalent thereof or (z) any bank whose short-term
commercial paper rating from S&P is at least A-1 or the equivalent thereof or
from Moody's is at least P-1 or the equivalent thereof (any such bank, an
"Approved Bank"), in each case with maturities of not more than one year from
the date of acquisition, (iii) commercial paper issued by any Bank or
Approved Bank or by the parent company of any Bank or Approved Bank and
commercial paper issued by, or guaranteed by, any industrial or financial
company with a short-term commercial paper rating of at least A-2 or the
equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moody's (any such company, an "Approved Company"), or guaranteed
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by any industrial company with a long term unsecured debt rating of at least
A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case
may be, and in each case maturing within six months after the date of
acquisition, PROVIDED, HOWEVER, that commercial paper rated A-2 or the
equivalent thereof by S&P or P-2 or the equivalent thereof by Moody's and
held by the Borrower and all Regulated Insurance Companies under this clause
(iii) shall not exceed (x) for any Issuer, 1% of Invested Assets, and (y) in
the aggregate, 3% of Invested Assets, (iv) commercial paper of any United
States municipal, state or local government rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's and maturing within one year after the date of acquisition, (v) any
fund or funds investing solely in investments of the type described in
clauses (i) through (iv) above, and (vi) agreements to sell and repurchase
direct obligations of, or obligations that are fully guaranteed as to
principal and interest by, the U.S. Treasury, such agreements to be with
primary treasury dealers, to be evidenced by standard industry forms and to
have maturities of not more than six months from the date of commencement of
the repurchase transaction.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset
Sale, other than the portion of such deferred payment constituting interest,
but only as and when received) received by the Borrower and/or any Subsidiary
from such Asset Sale, PROVIDED that any such proceeds received in currency
other than U.S. dollars shall be converted into U.S. dollars at the spot
exchange rate for the currency in question on the date of receipt by the
Borrower and/or its Subsidiaries of such proceeds.
"CBIC" shall mean Combined Benefits Insurance Company, a
California stock insurance company.
"CCIC" shall mean Commercial Compensation Insurance Company, a
California stock insurance company.
"Change of Control" shall mean (a) Insurance Partners and its
Associates collectively shall cease to own directly or indirectly an amount
of the economic and voting interest in the Borrower's capital stock equal to
at least 70% of the amount of the economic and voting interest in the
Borrower's capital stock that was owned by Insurance Partners and its
Associates collectively as of the Initial Borrowing Date; (b) the Borrower
shall cease to own directly or indirectly (other than as a result of a
transaction permitted under Section 7.02(d) hereof) 100% of the capital stock
of SPIG, BIG, SNIC, SPCC, CalComp, CBIC or, to the extent acquired by the
Borrower pursuant to Section 6.15, CCIC; (c) any Person other than Insurance
Partners and Centre Solutions (Bermuda) Limited (together with their
respective Affiliates) shall own directly or indirectly 20% or more on a
fully diluted basis of the economic and voting interest in the capital stock
of the Borrower; (d) a majority of the Board of Directors of the Borrower
shall cease to consist of Continuing Directors; or (e) any "Change of
Control" as such term is defined in the Trust Preferred Note Documents or any
successor or similar provision shall occur.
"Chase" shall mean The Chase Manhattan Bank.
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"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at
the date of this Agreement and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in the
Pledge Agreement.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Banks.
"Commitment" shall mean, with respect to each Bank, such Bank's
Term Loan Commitment and Revolving Loan Commitment.
"Commitment Fee" shall have the meaning provided in Section
2.01(a).
"Consolidated Indebtedness" shall mean, at any time and as to
any Person, all Indebtedness for borrowed money of such Person and its
Subsidiaries at such time determined on a consolidated basis in accordance
with GAAP, but, in the case of the Borrower and its Subsidiaries, excluding
the Trust Preferred Notes and including (i) any Residual Indemnity
Liabilities outstanding subsequent to April 30, 1999 and (ii) all obligations
under the Reverse Repurchase Program.
"Consolidated Interest Expense" shall mean, for any period and
as to any Person, total interest expense (including that attributable to
Capital Leases in accordance with GAAP and all interest paid on the Trust
Preferred Notes) of such Person and its Subsidiaries on a consolidated basis
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Interest Rate Agreements, but excluding
however, (i) any amortization of deferred financing costs.
"Consolidated Net Worth" shall mean, with respect to any
Person, the Net Worth of such Person and its Subsidiaries determined on a
consolidated basis in accordance with GAAP after appropriate deduction for
any minority interests in Subsidiaries.
"Consolidated Total Capital" shall mean, at any time and as to
any Person, (i) the sum of Consolidated Indebtedness of such Person at such
time, (ii) Consolidated Net Worth of such Person at such time and (iii) in
the case of the Borrower, to the extent not included in (i) or (ii) above,
the Trust Preferred Notes at such time.
"Contingent Obligations" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of
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the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(d) otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof; PROVIDED, HOWEVER, that the term Contingent
Obligation shall not include (x) endorsements of instruments for deposit or
collection in the ordinary course of business or (y) obligations of any
Regulated Insurance Company under Insurance Contracts, Reinsurance Agreements
or Retrocession Agreements. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
"Continuing Directors" shall mean the directors of the
Borrower on the Initial Borrowing Date and each other director if such
director's nomination for the election to the Board of Directors of the
Borrower is recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, the Notes, the
Subsidiary Guaranty and the Pledge Agreement.
"Credit Party" shall mean the Borrower and each Subsidiary
Guarantor.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Dividends" shall have the meaning provided in Section 7.08.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower
which is not a Foreign Subsidiary.
"Effective Date" shall have the meaning provided in Section
11.10.
"Employee Participation Loans" shall mean the loans by the
Borrower to employees, officers and claims consultants of the Borrower and
its Subsidiaries in an aggregate principal amount not to exceed $10,400,000
the proceeds of which are used to purchase common stock of the Borrower in
connection with the November, 1998 registered offering of such stock to fund
the Acquisition.
"Equity Financing" shall have the meaning provided in Section
4.11(b).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the regulations promulgated and
rulings issued thereunder.
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Section references to ERISA are to ERISA, as in effect at the date of this
Agreement and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of
the Borrower would be deemed to be a "single employer" within the meaning of
Section 414(b),(c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at the
rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean, with respect to each Interest
Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the
nearest 1/100 of 1%) of the offered quotation to first-class banks in the
interbank Eurodollar market by Chase for U.S. dollar deposits of amounts in
same day funds comparable to the outstanding principal amount of the
Eurodollar Loan of Chase for which an interest rate is then being determined
with maturities comparable to the Interest Period to be applicable to such
Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date
which is two Business Days prior to the commencement of such Interest Period
divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii)
a percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section 8.
"Existing Reinsurance Agreements" shall mean (a) the Workers'
Compensation Quota Share Reinsurance Contract, effective May 1, 1998, between
the Borrower, various Subsidiaries of the Borrower and United States Life
Insurance Company, and (b) the Aggregate Excess of Loss Reinsurance
Agreement, dated as of September 3, 1998, between BIG, various Subsidiaries
of BIG and Inter-Ocean Reinsurance Company Ltd., in each case as amended,
modified or supplemented from time to time in accordance with the terms
thereof and hereof.
"Existing Reinsurance Agreement Documents" shall have the meaning
provided in Section 4.06.
"Expiration Date" shall mean December 31, 1998.
"Facility" shall mean any of the credit facilities established
under this Agreement, I.E., the Term Loan Facility and the Revolving Loan
Facility.
"FASB 113" shall mean the Statement of Financial Accounting
Standards No. 113, as the same may be revised, replaced, or supplemented from
time to time.
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"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period 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
Administrative Agent from three Federal Funds brokers of recognized standing
selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to
in, Section 2.01.
"FHC" shall mean Foundation Health Corporation, a wholly owned
subsidiary of Foundation Health Systems, Inc.
"Financial Reinsurance Agreement" shall mean a reinsurance
agreement covering any transaction in which any Regulated Insurance Company
cedes business that does not meet the conditions for reinsurance accounting
as provided by the Financial Accounting Standards Board in FASB 113.
"Foreign Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated under the laws of any jurisdiction other than
the United States of America, any State thereof, or any territory thereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America; it being understood and agreed that
determinations in accordance with GAAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein)
to Section 11.07(a).
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money, (ii) the deferred purchase price of assets
or services which in accordance with GAAP would be shown on the liability
side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person,
whether or not such Indebtedness has been assumed, (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, I.E., take-or-pay and similar obligations, (vii) all obligations of
such Person under Interest Rate Agreements and Other Hedging Agreements,
(viii) all Contingent Obligations of such Person and (ix) all obligations of
such Person under the Reverse Repurchase Program; PROVIDED that Indebtedness
shall not include trade payables (including payables under insurance
contracts and reinsurance payables) and accrued expenses, in each case
arising in the ordinary course of business.
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"Initial Borrowing Date" shall mean the date upon which the
Term Loans are initially incurred hereunder.
"Insurance Business" shall mean one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" shall mean any insurance contract or
policy issued by a Regulated Insurance Company but shall not include any
Reinsurance Agreement or Retrocession Agreement.
"Insurance Partners" shall mean Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P.
"Interest Coverage Ratio" shall mean, for any period, the
ratio of Statutory EBIT for such period to Consolidated Interest Expense of
the Borrower for such period.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the interest period applicable thereto, as determined pursuant to
Section 1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Invested Assets" shall mean, at any date for the Regulated
Insurance Companies (on a consolidated basis), the total amount as would be
shown on line 9, page 2, column 1 of a Benchmark Statement for the Regulated
Insurance Companies (on a consolidated basis) prepared as of such date.
"Investment Grade Securities" shall mean and include (i) U.S.
Government Obligations (other than Cash Equivalents), (ii) debt securities
or debt instruments with a rating of BBB- or higher by S&P, Baa3 or higher by
Moody's, Class (2) or higher by NAIC or the equivalent of such rating by S&P,
Moody's or NAIC, or if none of S&P, Moody's and NAIC shall then exist, the
equivalent of such rating by any other nationally recognized securities
rating agency, but excluding any debt securities or instruments constituting
loans or advances among the Borrower and its Wholly-Owned Subsidiaries, and
(iii) any fund investing exclusively in investments of the type described in
clauses (i) and (ii) which funds may also hold immaterial amounts of cash
pending investment and/or distribution.
"Issuer" shall mean any issuer of Investment Grade Securities
or Non-Investment Grade Securities acquired or proposed to be acquired by
the Borrower or any of its Subsidiaries pursuant to Section 7.06.
"Legal Requirements" shall mean all applicable laws, rules and
regulations made by any governmental body or regulatory authority (including,
without limitation, any Applicable Insurance Regulatory Authority) having
jurisdiction over the Borrower or a Subsidiary of the Borrower.
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"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any
of the foregoing, any conditional sale or other title retention agreement or
any lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Management Agreements" shall have the meaning provided in
Section 4.13.
"Margin Stock" shall have the meaning provided in Regulation U.
"Master Repurchase Agreement" shall mean the Master Repurchase
Agreement, dated as of February 8, 1995, between SNIC and Merrill Lynch
Government Securities Inc. and/or Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Material Adverse Effect" shall mean a material adverse effect on
the business, operations, property, condition (financial or otherwise), material
agreements, contracts, contingent liabilities or prospects of the Borrower and
its Subsidiaries taken as a whole after giving effect to the Transaction.
"Material Contracts" shall have the meaning provided in Section
4.13.
"Maturity Date" with respect to any Facility shall mean either
the Term Loan Maturity Date or the Revolving Loan Maturity Date, as the case may
be.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.
"NAIC" shall mean the National Association of Insurance
Commissioners or any successor organization thereto.
"NAIC Tests" shall mean the ratios and other financial
measurements developed by the NAIC under its Insurance Regulatory Information
System, as in effect from time to time.
"Net Available Proceeds" shall mean (i) with respect to any Asset
Sale consummated by a Regulated Insurance Company, the Surplus Increase with
respect to such Regulated Insurance Company as a result of such Asset Sale, (ii)
with respect to any Asset Sale consummated by the Borrower or any Non-Regulated
Insurance Company which is not a Subsidiary of a Regulated Insurance Company,
the Net Cash Proceeds resulting therefrom and (iii) with respect to any Asset
Sale consummated by a Non-Regulated Insurance Company which is a Subsidiary of a
Regulated Insurance Company, an amount equal to the dividend that such Regulated
Insurance Company would be permitted to pay in accordance with the Legal
Requirements applicable to it as a result of the receipt by such Regulated
Insurance Company of a dividend from such Non-Regulated Insurance Company in an
amount equal to the Net Cash Proceeds resulting from such Asset Sale; in each
case as determined in good faith by the Borrower and certified in writing by the
Borrower to the Administrative Agent (showing the calculation thereof and
supporting assumptions) on or prior to the date on which the Borrower or any
Subsidiary is to receive the initial proceeds from such Asset Sale.
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"Net Cash Proceeds" shall mean, with respect to any Asset Sale,
the Cash Proceeds resulting therefrom net of (a) cash expenses of sale
(including payment of principal, premium and interest on Indebtedness other than
the Loans required to be repaid as a result of such Asset Sale) and (b)
incremental income taxes paid or payable as a result thereof, in each case as
determined in good faith by the Borrower and certified in writing by the
Borrower to the Administrative Agent (showing the calculation thereof and
supporting assumptions) on or prior to the date on which the Borrower or any
Subsidiary is to receive the initial proceeds from such Asset Sale.
"Net Worth" shall mean, as to any Person, the sum of its capital
stock (including, without limitation, its preferred stock), capital in excess of
par or stated value of shares of its capital stock (including, without
limitation, its preferred stock), retained earnings and any other account which,
in accordance with GAAP, constitutes stockholders equity, but excluding (i) any
treasury stock and (ii) the effects of Financial Accounting Statement No. 115.
"Non-Defaulting Bank" shall mean any Bank other than a Defaulting
Bank.
"Non-Investment Grade Securities" shall mean debt and equity
securities and debt and equity instruments that do not constitute Investment
Grade Securities or Cash Equivalents (but excluding any debt or equity
securities or instruments constituting loans or advances among the Borrower and
its Wholly-Owned Subsidiaries), it being understood that for the purposes of any
determination under Section 7.06(f), the amounts, if any, paid by such Regulated
Insurance Company to purchase such equity securities or warrants shall be
included in the principal amounts of Non-Investment Grade Securities.
"Non-Regulated Company" shall mean each Subsidiary of the
Borrower which is not a Regulated Insurance Company.
"Note" shall mean each Term Note and each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
at 270 Park Avenue, New York, New York 10017; Attn: Russell Myers, Telephone:
(212) 270-7169, Fax: (212) 270-1001, or such other office as the Administrative
Agent may designate to the Borrower and the Banks from time to time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent, the Collateral Agent or any Bank pursuant to
the terms of this Agreement or any other Credit Document.
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"Other Hedging Agreements" shall mean any foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against fluctuations in currency values.
"Payment Office" shall mean the office of the Administrative
Agent c/o The Loan and Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York 10081, Attention: Laura Rebecca, Facsimile No.: (212)
552-7490 or such other office as the Administrative Agent may designate to the
Borrower and the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in
Section 7.02(i).
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Plan Documents" shall have the meaning provided in Section
4.13(a).
"Pledge Agreement" shall have the meaning provided in Section
4.10.
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which Chase announces
from time to time as its prime commercial lending rate, the Prime Lending Rate
to change when and as such prime commercial lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. Chase may make commercial loans
or other loans at rates of interest at, above or below the Prime Lending Rate.
"Quarterly Statement" shall mean the quarterly financial
statement required to be filed by any Regulated Insurance Company with the
Applicable Regulatory Insurance Authority.
"Register" shall have the meaning provided in Section 6.13.
"Regulated Insurance Company" shall mean any Subsidiary of the
Borrower, whether now owned or hereafter acquired, that is authorized or
admitted to carry on or transact Insurance Business in any jurisdiction and is
regulated by any Applicable Insurance Regulatory Authority.
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"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof establishing margin requirements.
"Reinsurance Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers, as reinsurers, assume
liabilities under insurance policies or agreements issued by another insurance
or reinsurance company or companies.
"Related Parties" shall mean any Affiliate, any Associate, Centre
Reinsurance (Bermuda) Limited and Insurance Partners.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan other than those events as to which the
30-day notice period is waived under subsection .13, .14, .16, .18, .19 or .20
of PBGC Regulation Section 2615.
"Required Banks" shall mean Non-Defaulting Banks the sum of whose
outstanding Term Loans and Revolving Loan Commitment (or, if after the Total
Revolving Loan Commitment has been terminated, outstanding Revolving Loans)
constitute 66 2/3% or more of the sum of (i) the total outstanding Term Loans of
Non-Defaulting Banks and (ii) the Total Revolving Loan Commitment less the
aggregate Revolving Loan Commitments of Defaulting Banks, if any, or, if after
the Total Revolving Loan Commitment has been terminated, the total outstanding
Revolving Loans of Non-Defaulting Banks)
"Residual Indemnity Liabilities" shall mean the dollar amount of
any accounts receivable of CalComp or CBIC (or CCIC to the extent acquired in
accordance with Section 6.15) transferred pursuant to the Asset Restructuring
Transaction which are not paid prior to April 30, 1999 and with respect to which
the Borrower is liable pursuant to the Support Agreement entered into by the
Borrower in connection with the Asset Restructuring Transaction, which
indemnifies the purchaser of the accounts receivable for up to 80% of the face
value of such accounts receivable.
"Retrocession Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers or reinsurers, as
retrocessionaires, assume liabilities of reinsurers under a Reinsurance
Agreement or other retrocessionaires under another Retrocession Agreement.
"Reverse Repurchase Program" shall mean the reverse repurchase
program entered into pursuant to the Master Repurchase Agreement.
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"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Commitment" shall mean, with respect to each
Bank, the amount set forth opposite such Bank's name in Annex I directly below
the column entitled "Revolving Loan Commitment," as the same may be reduced from
time to time or terminated pursuant to Sections 2.02, 2.03 and/or 8.
"Revolving Loan Facility" shall mean the Facility evidenced by
the Total Revolving Loan Commitment.
"Revolving Loan Maturity Date" shall mean December 10, 2003.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"Risk-Based Capital" shall mean for any Subsidiary listed in
Section 7.14, the ratio (expressed as a percentage), at any time, of the Total
Adjusted Capital of such Subsidiary to the Authorized Control Level of such
Subsidiary.
"Risk Derivatives" shall mean Z bonds, floaters/inverse floaters,
PAC II, PAC III, Ioettes, support bonds, Interest Only Investments, Principal
Only Investments residuals, inverse IO's, super floaters, any other instruments
with similar economic risk factors and any bonds backed in whole or in part by
any of the foregoing (including component or "kitchen sink" bonds).
"S&P" shall mean Standard & Poor's Ratings Group and its
successors.
"S&P Credit Rating" shall mean the rating level (it being
understood that a rating level shall include numerical modifiers and (+) and (-)
modifiers) assigned by S&P to the senior unsecured long-term debt of an Issuer.
"S&P Equivalent Rating" shall mean, with respect to any
Investment Grade Security or Non-Investment Grade Security, the rating given
such security by S&P or the S&P equivalent rating of the rating given such
security by Moody's or NAIC, it being understood that if any such security is
rated by more than one of S&P, Moody's and NAIC and any of such ratings (or the
S&P equivalent of such ratings) differ, then the S&P Equivalent Rating for such
security shall be the lower or lowest, as the case may be, of such ratings (or
the S&P equivalent of such ratings).
"SAP" shall mean, with respect to any Regulated Insurance
Company, the accounting procedures and practices prescribed or permitted by the
Applicable Insurance Regulatory Authority of the state in which such Regulated
Insurance Company is domiciled; it being understood and agreed that
determinations in accordance with SAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 11.07(a).
"Scheduled Repayments" shall have the meaning provided in Section
3.02(i)(a).
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"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"SEC Regulation D" shall mean Regulation D as promulgated under
the Securities Act of 1933, as amended, as the same may be in effect from time
to time.
"Section 3.04(b)(ii) Certificate" shall have the meaning provided
in Section 3.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the Pledge
Agreement.
"Shared Expenses Agreements" shall have the meaning provided in
Section 4.13.
"SNCHC" shall mean Superior National Capital Holding Company, a
Nevada corporation.
"SNIC" shall mean Superior National Insurance Company, a
California corporation.
"SPCC" shall mean Superior Pacific Casualty Company, a California
corporation.
"SPIG" shall mean Superior Pacific Insurance Group, a Delaware
corporation.
"Statutory Earnings" shall mean, for any period, for any
Regulated Insurance Company, (i) the total amount as would be shown on line 16,
page 4, column 1 of a Benchmark Statement for such Regulated Insurance Company
(I.E., net gain from operations, after taxes but before unrealized capital gains
and losses) prepared for such period less (ii) the undistributed earnings of
Subsidiaries of such Regulated Insurance Company to the extent included in such
total amount.
"Statutory EBIT" shall mean, for any period, the sum (without
duplication) of the net income before dividends to policyholders and before
federal and foreign income taxes as same would be shown on line 14(b), page 4,
column 1 of a Benchmark Statement of each Regulated Insurance Company, in each
case for such period as determined on a consolidated basis in accordance with
SAP.
"Statutory Surplus" shall mean, at any date for any Regulated
Insurance Company, the total amount as would be shown on line 25, page 3, column
1 of a Benchmark Statement for such Regulated Insurance Company prepared as of
such date.
"Stockholders Agreements" shall have the meaning provided in
Section 4.13.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly
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through Subsidiaries and (ii) any partnership, association, joint venture or
other entity in which such Person directly or indirectly through Subsidiaries
has more than a 50% equity or voting interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Subsidiary Guarantor" shall mean each Subsidiary of the Borrower
which is a Non-Regulated Company, except Non-Regulated Company Subsidiaries of
any Regulated Insurance Company.
"Subsidiary Guaranty" shall have the meaning provided in Section
4.09.
"Surplus Increase" shall mean, with respect to each Asset Sale
effected by a Regulated Insurance Company, the increase in Statutory Surplus of
such Regulated Insurance Company as a result of such Asset Sale.
"Syndication Date" shall mean the earlier of (x) the date which
is 90 days after the Initial Borrowing Date and (y) the date upon which the
Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication (and the resulting addition of Banks
pursuant to Section 11.04) has been completed.
"Tax Sharing Agreements" shall have the meaning provided in
Section 4.13.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, with respect to each Bank,
the amount set forth opposite such Bank's name in Annex I directly below the
column entitled "Term Loan Commitment," as the same may be terminated
pursuant to Sections 2.02, 2.03 and/or 8.
"Term Loan Facility" shall mean the Facility evidenced by the
Total Term Loan Commitment.
"Term Loan Maturity Date" shall mean December 10, 2004.
"Term Note" shall have the meaning provided in Section 1.05(a).
"Test Period" shall mean (i) for any determination made on and
prior to September 30, 1999, the period from January 1, 1999 to the last day of
the fiscal quarter of the Borrower then last ended, PROVIDED that the first Test
Period shall end on March 31, 1999, and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of the Borrower ended on the
last day of the most recently ended fiscal quarter of the Borrower (taken as one
accounting period).
"Total Adjusted Capital" shall mean "Total Adjusted Capital" as
defined by the NAIC as of December 31, 1997 and as applied in the context of the
Risk Based Capital Guidelines promulgated by the NAIC.
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"Total Commitment" shall mean the sum of the Total Term Loan
Commitment and the Total Revolving Loan Commitment.
"Total Revolving Loan Commitment" shall mean the sum of the
Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean the sum of the Term Loan
Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, (i) the Total Revolving Loan Commitment at such time less (ii) the sum of
the aggregate principal amount of all Revolving Loans outstanding at such time.
"Transaction" shall mean, collectively, (i) the Acquisition, (ii)
the Equity Financing, (iii) the incurrence by the Borrower of the Term Loans
hereunder on the Initial Borrowing Date and (iv) the payment of fees and
expenses in connection with the foregoing.
"Transaction Documents" shall mean, collectively, (i) the
Acquisition Documents, (ii) the documents and instruments governing the Equity
Financing and (iii) the Credit Documents.
"Trust Preferred Note Documents" shall mean the Trust Preferred
Notes, the Trust Preferred Note Indenture and all other documents and
instruments entered into in connection with the Trust Preferred Note Indenture.
"Trust Preferred Note Indenture" shall mean the Senior
Subordinated Indenture, dated as of December 3, 1997, between the Borrower and
Wilmington Trust Company, as Trustee.
"Trust Preferred Notes" shall mean the Borrower's 10 3/4% Senior
Subordinated Notes due December 1, 2017, issued pursuant to the Trust Preferred
Note Indenture.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Base Rate Loan or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the amount,
if any, by which the actuarial present value of the accumulated plan benefits
under the Plan as of the close of its most recent plan year exceeds the fair
market value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.
"Unutilized Revolving Loan Commitment" with respect to any Bank
at any time shall mean such Bank's Revolving Loan Commitment at such time LESS
the aggregate outstanding principal amount of all Revolving Loans made by such
Bank.
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"U.S. Government Obligations" shall mean and include (A)
securities that are (x) direct obligations of the United States of America for
the timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt
and (B) to the extent in each case having an S&P Equivalent Rating of AAA,
obligations issued or guaranteed by the Federal Home Loan Mortgage Corporation,
the Federal National Mortgage Association, the Government National Mortgage
Association, the Student Loan Marketing Association and the Federal Home Loan
Bank.
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary
of such Person to the extent all of the capital stock or other ownership
interests in such Subsidiary, other than directors' or nominees' qualifying
shares, is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile device, telegraph
or cable.
SECTION 10. The Administrative Agent.
10.01 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as Administrative Agent (such term as used in this Section 10 to
include Chase acting as Collateral Agent) to act as specified herein and in the
other Credit Documents, and each such Bank hereby irrevocably authorizes Chase
as the Administrative Agent for such Bank, to take such action on its behalf
under the provisions of this Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent agrees to act as such upon the express conditions
contained in this Section 10. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein or in the other
Credit Documents, nor any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this Section 10 are solely for the benefit of the
Administrative Agent and the Banks, and no Credit Party shall have any rights as
a third party beneficiary of any of the provisions hereof. In performing its
functions and duties
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under this Agreement, the Administrative Agent shall act solely as agent of
the Banks and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for the Credit Party.
10.02 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 10.03.
10.03 EXCULPATORY PROVISIONS. Neither the Administrative
Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Banks for
any recitals, statements, representations or warranties made by the Borrower
or any Subsidiary or any of their respective officers contained in this
Agreement, any other Credit Document or in any certificate, report, statement
or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Credit Document or for any failure of the Borrower or any of its Subsidiaries
or any of their respective officers to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be under any obligation to
any Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of the Borrower or any of its
Subsidiaries. The Administrative Agent shall not be responsible to any Bank
for the effectiveness, genuineness, validity, enforceability, collectibility
or sufficiency of this Agreement or any Credit Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative
Agent to the Banks or by or on behalf of the Borrower to the Administrative
Agent or any Bank or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
10.04 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, facsimile transmission, telex or teletype
message, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such
advice or concurrence of the Required Banks as it deems appropriate or it
shall first be indemnified to its satisfaction by
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the Banks against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Credit Documents
in accordance with a request of the Required Banks, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Banks.
10.05 NOTICE OF DEFAULT. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Administrative Agent has received
notice from a Bank or any other Credit Party referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that the Administrative Agent receives
such a notice, the Administrative Agent shall give prompt notice thereof to
the Banks. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the
Required Banks, PROVIDED that unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
10.06 NON-RELIANCE. Each Bank expressly acknowledges that
neither the Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower
or any of its Subsidiaries, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Bank. Each Bank represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower and its
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Bank also represents that it will, independently
and without reliance upon the Administrative Agent or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries. The Administrative
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, operations, assets,
property, financial and other conditions, prospects or creditworthiness of
the Borrower or any Subsidiary which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
10.07 INDEMNIFICATION. Each Bank agrees to indemnify the
Administrative Agent and the Collateral Agent in its respective capacities as
such ratably according to such Bank's respective Loans and Unutilized Revolving
Loan Commitment, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
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limitation, at any time following the payment of the Obligations) be imposed
on, incurred by or asserted against the Administrative Agent in its capacity
as such in any way relating to or arising out of this Agreement or any other
Credit Document, or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted to be
taken by the Administrative Agent under or in connection with any of the
foregoing, but only to the extent that any of the foregoing is not paid by
the Borrower or any of its Subsidiaries, PROVIDED that no Bank shall be
liable to the Administrative Agent for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Administrative
Agent's gross negligence or willful misconduct. If any indemnity furnished
to the Administrative Agent for any purpose shall, in the opinion of the
Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this Section 10.07 shall survive the payment of all Obligations.
10.08 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower
and its Subsidiaries as though not acting as Administrative Agent hereunder.
With respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the
Administrative Agent, and the terms "Bank" and "Banks" shall include the
Administrative Agent in its individual capacity.
10.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign as the Administrative Agent upon 20 days' notice to the
Banks and the Borrower. Upon such resignation, the Required Banks shall, with
the consent of the Borrower (such consent not to be unreasonably withheld),
appoint from among the Banks a successor Administrative Agent for the Banks,
whereupon such successor agent shall succeed to the rights, powers and duties
of the Administrative Agent, and the term "Administrative Agent" shall
include such successor agent effective upon its appointment, and the
resigning Administrative Agent's rights, powers and duties as the
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement. After the retiring Administrative Agent's resignation
hereunder as the Administrative Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent under this Agreement.
SECTION 11. MISCELLANEOUS.
11.01 PAYMENT OF EXPENSES, ETC. The Borrower hereby agree
to: (i) whether or not the transactions herein contemplated are consummated,
pay all reasonable out-of-pocket costs and expenses of the Administrative
Agent in connection with the negotiation, preparation, syndication, execution
and delivery of the Credit Documents and the documents and instruments
referred to therein and any amendment, waiver or consent relating thereto
(including, without limitation, the reasonable fees and disbursements of
White & Case); (ii) whether or not the
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transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent and each of the
Banks in connection with the enforcement of the Credit Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and disbursements of counsel for the Administrative Agent
and for each of the Banks); (iii) pay and hold each of the Banks harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and save each of the Banks harmless
from and against any and all liabilities with respect to or resulting from
any delay or omission to pay such taxes; and (iv) indemnify the
Administrative Agent and each Bank, and their respective officers, directors,
employees, representatives and agents (each, an "indemnified person") from
and hold each of them harmless against any and all losses, liabilities,
claims, damages or expenses (collectively, "Claims") incurred by any of them
as a result of, or arising out of, or in any way related to, or by reason of,
any investigation, litigation or other proceeding (whether or not the
Administrative Agent or any Bank is a party thereto) related to the entering
into and/or performance of any Credit Document or other Transaction Document
or the use of the proceeds of any Loans hereunder or the Transaction or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of
counsel incurred in connection with any such investigation, litigation or
other proceeding (but excluding any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
11.02 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and continuance of an
Event of Default, each Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to any
Credit Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general
or special) and any other Indebtedness at any time held or owing by such Bank
(including, without limitation, by branches and agencies of such Bank
wherever located) to or for the credit or the account of such Credit Party
against and on account of the Obligations and liabilities of such Credit
Party to such Bank or any other Bank under this Agreement or under any of the
other Credit Documents, including, without limitation, all interests in
Obligations of such Credit Party purchased by such Bank or any other Bank
pursuant to Section 11.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other
Credit Document, irrespective of whether or not such Bank shall have made any
demand hereunder and although said Obligations, liabilities or claims, or any
of them, shall be contingent or unmatured. Each Bank is hereby designated
the agent of all other Banks for purposes of effecting set off pursuant to
this Section 11.02 and each Credit Party hereby grants to each Bank for such
Bank's own benefit and as agent for all other Banks a continuing security
interest in any and all deposits, accounts or moneys of such Credit Party
maintained from time to time with such Bank.
11.03 NOTICES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Credit Party,
at the address specified opposite its signature below; if to any
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Bank, at its address specified for such Bank on Annex II hereto; or, at such
other address as shall be designated by any party in a written notice to the
other parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied, cabled or sent by overnight courier and
shall be effective when received.
11.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; PROVIDED, HOWEVER, no Credit
Party may assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Banks. Each Bank may at any time
grant participations in any of its rights hereunder or under any of its Notes
to any bank or other financial institution; PROVIDED that in the case of any
such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents, including rights of consent,
approval or waiver (the participant's rights against such Bank in respect of
such participation to be those set forth in the agreement executed by such
Bank in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that the participant shall be entitled to receive the
additional amounts under Sections 1.10, 1.11 and 3.04 of this Agreement to,
and only to, the extent that such Bank would be entitled to such benefits if
the participation had not been entered into or sold; and PROVIDED FURTHER,
that no Bank shall transfer, grant or assign any participation under which
the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such
amendment or waiver would (i) extend any Scheduled Repayment or the final
scheduled maturity of any Loan or Note in which such participant is
participating (it being understood that any waiver of the application of any
prepayment or the method of application of any prepayment to the amortization
of, the Loans shall not constitute an extension of a Scheduled Repayment or
the final scheduled maturity date), or reduce the rate or extend the time of
payment of interest thereon or Fees, or reduce the principal amount thereof,
or increase such participant's participating interest in any Commitment or
Loan over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Total Commitment or of a mandatory repayment or prepayment shall not
constitute a change in the terms of any Commitment and that an increase in
any Commitment shall be permitted without the consent of any participant if
such participant's participation is not increased as a result thereof), (ii)
release all or any material portion of the Collateral (except as expressly
provided in the Credit Documents) or (iii) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement or any other Credit Document except in accordance with the terms
hereof and thereof.
(b) Notwithstanding the foregoing, any Bank may assign all or a
portion of its rights and obligations hereunder to a bank or other financial
institution with the prior written consent of the Administrative Agent, which
consent shall not be unreasonably withheld. No assignment of less than all of a
Bank's rights and obligations hereunder pursuant to the immediately preceding
sentence shall, to the extent such transaction represents an assignment to an
institution other than one or more Banks hereunder, be in an aggregate amount
less than the minimum of $5,000,000 unless otherwise agreed to by the
Administrative Agent and the Borrower in writing. If any Bank so sells or
assigns all or a part of its rights hereunder or under
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the Notes, any reference in this Agreement or the Notes to such assigning
Bank shall thereafter refer to such Bank and to the respective assignee to
the extent of their respective interests and the respective assignee shall
have, to the extent of such assignment (unless otherwise provided therein),
the same rights and benefits as it would if it were such assigning Bank.
Each assignment pursuant to this Section 11.04(b) shall be effected by the
assigning Bank and the assignee Bank executing an Assignment and Assumption
Agreement substantially in the form of Exhibit H (appropriately completed)
(the "Assignment and Assumption Agreement"). At the time of any such
assignment, (i) Annex I shall be deemed to be amended to reflect the
Commitments, if any, and outstanding Loans of the respective assignee (which
shall result in a direct reduction to the Commitments, if any, and
outstanding Loans of the assigning Bank) and of the other Banks, (ii) if any
such assignment occurs after the Initial Borrowing Date, at the request of
the assignor or the assignee the Borrower will issue new Notes to the
respective assignee and to the assigning Bank in conformity with the
requirements of Section 1.05, (iii) the Administrative Agent shall receive
from the assigning Bank and/or the assignee Bank or financial institution at
the time of each assignment the payment of a nonrefundable assignment fee of
$3,500 and (iv) the Administrative Agent shall receive from the assignee Bank
the Administrative Agent's administrative questionnaire completed by such
assignee Bank, PROVIDED that such transfer or assignment will not be
effective until recorded by the Administrative Agent on the Register pursuant
to Section 6.13 hereof. At the time of each assignment pursuant to this
Section 11.04(b) to a Person which is not already a Bank hereunder and which
is not a United States person (as such term is defined in Section 7701(a)(30)
of the Code) for Federal income tax purposes, the respective assignee Bank
shall provide to the Borrower and the Administrative Agent the appropriate
Internal Revenue Service forms (and, if applicable a Section 3.04(b)(ii)
Certificate) described in Section 3.04(b). Each Bank and the Borrower agrees
to execute such documents (including, without limitation, amendments to this
Agreement and the other Credit Documents) as shall be necessary to effect the
foregoing. Promptly following any assignment pursuant to this Section
11.04(b), the assigning Bank shall promptly notify the Borrower and the
Administrative Agent thereof. Nothing in this Section 11.04 shall prevent or
prohibit any Bank from pledging its Loans or Notes hereunder to a Federal
Reserve Bank in support of borrowings made by such Bank from such Federal
Reserve Bank.
(c) Notwithstanding any other provisions of this Section
11.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a
registration statement with the SEC or to qualify the Loans under the "Blue
Sky" laws of any State.
(d) Each Bank initially party to this Agreement hereby
represents, and each Person that becomes a Bank pursuant to an assignment
permitted by clause (b) above will upon its becoming party to this Agreement
represent, that it is a commercial lender, other financial institution or other
"accredited investor" (as defined in SEC Regulation D) which makes loans in the
ordinary course of its business or is acquiring the Loans without a view to
distribution of the Loans within the meaning of the federal securities laws, and
that it will make or acquire Loans for its own account in the ordinary course of
such business, PROVIDED that, subject to the
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preceding clauses (a) through (c), the disposition of any promissory notes or
other evidences of or interests in Indebtedness held by such Bank shall at
all times be within its exclusive control.
11.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Administrative Agent or any Bank in exercising any right,
power or privilege hereunder or under any other Credit Document and no course
of dealing between any Credit Party and the Administrative Agent or any Bank
shall operate as a waiver thereof; nor shall any single or partial exercise
of any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Administrative Agent or any Bank would otherwise have. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Administrative Agent or the Banks to
any other or further action in any circumstances without notice or demand.
11.06 PAYMENTS PRO RATA. (a) The Administrative Agent
agrees that promptly after its receipt of each payment from or on behalf of
the Borrower in respect of any Obligations of the Borrower, it shall
distribute such payment to the Banks (other than any Bank that has consented
in writing to waive its PRO RATA share of such payment) PRO RATA based upon
their respective shares, if any, of the Obligations with respect to which
such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or
interest on, the Loans or Fees, of a sum which with respect to the related
sum or sums received by other Banks is in a greater proportion than the total
of such Obligation then owed and due to such Bank bears to the total of such
Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the
Obligations of the Borrower to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount, PROVIDED that
if all or any portion of such excess amount is thereafter recovered from such
Bank, such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained
herein, the provisions of the preceding Sections 11.06(a) and (b) shall be
subject to the express provisions of this Agreement which require, or permit,
differing payments to be made to Non-Defaulting Banks as opposed to
Defaulting Banks.
11.07 CALCULATIONS; COMPUTATIONS. (a) The financial
statements to be furnished to the Banks pursuant hereto shall be made and
prepared in accordance with GAAP or SAP, as the case may be, consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks).
In addition,
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except as otherwise specifically provided herein, all computations
determining compliance with Section 7, including definitions used therein,
shall utilize accounting principles and policies in effect from time to time;
PROVIDED that (i) if any such accounting principle or policy (whether GAAP or
SAP or both) shall change after the Effective Date, the Borrower shall give
reasonable notice thereof to the Administrative Agent and each of the Banks
and if within 30 days following such notice the Borrower, the Administrative
Agent or the Required Banks shall elect by giving written notice of such
election to the other parties hereto, such computations shall not give effect
to such change unless and until this Agreement shall be amended pursuant to
Section 11.12 to give effect to such change, and (ii) if at any time the
computations determining compliance with Section 7 utilize accounting
principles different from those utilized in the financial statements then
being furnished to the Banks pursuant to Section 6.01, such financial
statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest on Eurodollar Loans and Fees
hereunder shall be made on the actual number of days elapsed over a year of
360 days.
(c) All computations of interest on Base Rate Loans hereunder
shall be made on the actual number of days elapsed over a year of 365/366
days.
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a)
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH CREDIT PARTY HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY
SUCH COURTS LACK JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR
CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH
COURT LACKS JURISDICTION OVER SUCH CREDIT PARTY. EACH CREDIT PARTY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY AT ITS
ADDRESS FOR NOTICES PURSUANT TO SECTION 11.03, SUCH SERVICE TO BECOME EFFECTIVE
30 DAYS AFTER SUCH MAILING. EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING HEREUNDER OR UNDER ANY OTHER
CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY
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INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
(b) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto shall be
lodged with the Borrower and the Administrative Agent.
11.10 EFFECTIVENESS. This Agreement shall become effective
on the date (the "Effective Date") on which the Borrower and each of the
Banks shall have signed a copy hereof (whether the same or different copies)
and shall have delivered the same to the Administrative Agent at the
Administrative Agent's Notice Office or, in the case of the Banks, shall have
given to the Administrative Agent telephonic (confirmed in writing), written,
telex or telecopy notice (actually received) at such office that the same has
been signed and mailed to it. The Administrative Agent will give the
Borrower and each Bank prompt written notice of the occurrence of the
Effective Date.
11.11 HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Agreement are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision
of this Agreement.
11.12 AMENDMENT OR WAIVER. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by the respective Credit Parties thereto and the
Required Banks, PROVIDED that no such change, waiver, discharge or
termination shall, without the consent of each Bank affected thereby (other
than a Defaulting Bank), (i) extend any Scheduled Repayment or the scheduled
final maturity of any Loan or Note (it being understood that any waiver of
the application of any prepayment or the method of application of any
prepayment to the amortization of the Loans shall not constitute an extension
of any Scheduled Repayment or the scheduled final maturity thereof), or
reduce the rate or extend the time of payment of interest thereon or Fees or
reduce the principal amount thereof, (ii) increase the Commitments of any
Bank over the amount thereof then in effect (it being
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understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment or mandatory repayment or prepayment shall
not constitute a change in the terms of any Commitment of any Bank), (iii)
release all or any material portion of the Collateral (except as expressly
provided in the Credit Documents), (iv) amend, modify or waive any provision
of this Section 11.12, (v) reduce any percentage specified in, or otherwise
modify, the definition of Required Banks or (vi) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement. No provision of Section 10 or any other provision relating to the
rights and/or obligations of the Administrative Agent may be amended without
the consent of the Administrative Agent.
11.13 SURVIVAL. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 3.04, 10.07 or 11.01 shall survive
the execution and delivery of this Agreement and the making of the Loans, the
repayment of the Obligations and the termination of the Total Commitment.
11.14 DOMICILE OF LOANS. Subject to Section 11.04, each Bank
may transfer and carry its Loans at, to or for the account of any branch
office, subsidiary or affiliate of such Bank, PROVIDED that the Borrower
shall not be responsible for costs arising under Section 1.10 or 3.04
resulting from any such transfer to the extent not otherwise applicable to
such Bank prior to such transfer.
11.15 CONFIDENTIALITY. Each Bank shall hold all non-public
information furnished by or on behalf of the Borrower in connection with such
Bank's evaluation of whether to become a Bank hereunder or obtained by such
Bank pursuant to the requirements of this Agreement ("Confidential Information")
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking or lending
practices; PROVIDED that any Bank and/or its affiliates may disclose any such
Confidential Information (a) to their respective affiliates, directors,
officers, employees, auditors or counsel for purposes related to the
Transaction, PROVIDED that the Bank disclosing such confidential information
pursuant to this clause (a) shall remain liable for any non-permitted disclosure
of such information by any such employee, director, agent, attorney, accountant
or professional advisor, (b) as has become generally available to the public
other than as a result of disclosure in violation of this Section 11.15, (c) as
has become available to such Bank or any such affiliate on a non-confidential
basis from a source other than the Borrower and its affiliates, provided that
the source is not known by such Bank to be prohibited from transmitting such
information to such Bank by a contractual, legal or fiduciary obligation, (d) as
may be required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank and/or its affiliates, (e) as may be required or
appropriate in respect to any summons or subpoena or in connection with any
litigation or other judicial process (it being understood that, to the extent
reasonably practicable under the circumstances, the Borrower shall be given
prior notice and an opportunity to contest any proposed disclosure pursuant to
this clause (e)), (f) in order to comply with any law, order, regulation or
ruling applicable to such Bank and/or its affiliates, and (g) to any permitted
prospective or actual syndicate member or participant in the Loans, provided
that such prospective or actual syndicate member or participant agrees with the
respective assigning Bank
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to be bound by the provisions of this Section 11.15. The provisions of this
Section 11.15 shall survive any termination of this Agreement.
11.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.17 TRUST PREFERRED NOTE DOCUMENTS. All Obligations shall be
senior in right of payment to the Trust Preferred Notes and shall constitute
"Senior Indebtedness" for all purposes of the Trust Preferred Note Documents.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
ADDRESS:
26601 Agoura Road SUPERIOR NATIONAL INSURANCE
Calabasas, CA 91302 GROUP, INC.
Tel: (818) 878-2240
Fax: (818) 880-8615
Attention: J. Chris Seaman By /s/ J. CHRIS SEAMAN
-------------------------------
Title: Executive Vice President &
Chief Financial Officer
<PAGE>
ADDRESS: THE CHASE MANHATTAN BANK,
270 Park Avenue Individually and as Administrative Agent
New York, New York 10017
By /s/ LAWRENCE PALUMBO, JR.
---------------------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
DRESDNER BANK AG NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By: /s/ LLOYD C. STEVENS
--------------------------------
Name: Lloyd C. Stevens
Title: Vice President
By: /s/ RAJIV GUPTA
--------------------------------
Name: Rajiv Gupta
Title: Associate
<PAGE>
THE BANK OF NEW YORK
By: /s/ BENJAMIN L. BOLKIND
--------------------------------
Name: Benjamin L. Bolkind
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ GAIL M. GOLIGHTLY
--------------------------------
Name: Gail M. Golightly
Title: Senior Vice President
<PAGE>
LASALLE NATIONAL BANK
By: /s/ JANET R. GATES
--------------------------------
Name: Janet R. Gates
Title: First Vice President
<PAGE>
IMPERIAL BANK
By: /s/ EMILY B. WU
--------------------------------
Name: Emily B. Wu
Title: Vice President
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ JAMES R. FOTHENGILL
--------------------------------
Name: James R. Fothengill
Title: Vice President
<PAGE>
SUBSIDIARY GUARANTY
GUARANTY, dated as of December 10, 1998 (as amended, modified or
supplemented from time to time, this "Guaranty"), made by each of the
undersigned guarantors (each, a "Guarantor" and, together with any other entity
that becomes a party hereto pursuant to Section 26 hereof, the "Guarantors").
Except as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Superior National Insurance Group, Inc. (the
"Borrower"), the financial institutions from time to time party thereto (the
"Banks"), and The Chase Manhattan Bank, as Administrative Agent (together with
any successor administrative agent, the "Administrative Agent"), have entered
into a Credit Agreement, dated as of December 10, 1998 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), providing for the
making of Loans to the Borrower as contemplated therein (the Banks and the
Administrative Agent are herein called the "Bank Creditors");
WHEREAS, the Borrower may from time to time be party to one or
more (i) interest rate agreements, interest rate cap agreements, interest rate
collar agreements or other similar agreements or arrangements, (ii) foreign
exchange contracts, currency swap agreements or similar agreements or
arrangements designed to protect against the fluctuations in currency values
and/or (iii) other types of hedging agreements from time to time (each such
agreement or arrangement with an Other Creditor (as hereinafter defined), an
"Interest Rate Protection Agreement or Other Hedging Agreement") with a Bank or
an affiliate of a Bank (each such Bank or affiliate, even if the respective Bank
subsequently ceases to be a Bank under the Credit Agreement for any reason,
together with such Bank's or affiliate's successors and assigns, collectively,
the "Other Creditors," and together with the Bank Creditors, are herein called
the "Creditors");
WHEREAS, each Guarantor is a Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans to the Borrower
under the Credit Agreement that each Guarantor shall have executed and delivered
this Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the incurrence
of Loans by the Borrower under the Credit Agreement and the entering into of
Interest Rate Protection Agreements or Other Hedging Agreements and,
accordingly, desires to execute this Guaranty in order to satisfy the conditions
described in the preceding paragraph and to induce the Banks to make Loans to
the Borrower and Other Creditors to enter into Interest Rate Protection
Agreements or Other Hedging Agreements with the Borrower;
<PAGE>
Page 2
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. Each Guarantor, jointly and severally, irrevocably and
unconditionally guarantees: (i) to the Bank Creditors the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of (x) the principal of and interest on the Notes issued by, and the Loans made
to, the Borrower under the Credit Agreement and (y) all other obligations
(including obligations which, but for the automatic stay under Section 362(a) of
the Bankruptcy Code, would become due) and liabilities owing by the Borrower to
the Bank Creditors under the Credit Agreement (including, without limitation,
indemnities, Fees and interest thereon) and the other Credit Documents, whether
now existing or hereafter incurred under, arising out of or in connection with
the Credit Agreement or any such other credit Document and the due performance
and compliance with the terms of the Credit Documents by the Borrower (all such
principal, interest, liabilities and obligations under this clause (i), except
to the extent consisting of obligations or liabilities with respect to Interest
Rate Protection Agreements or Other Hedging Agreements, being herein
collectively called the "Credit Document Obligations"); and (ii) to each Other
Creditor the full and prompt payment when due (whether at the stated maturity,
by acceleration or otherwise) of all obligations (including obligations which,
but for the automatic stay under Section 362(a) of the Bankruptcy Code, would
become due) and liabilities owing by the Borrower under any Interest Rate
Protection Agreements or Other Hedging Agreements, whether now in existence or
hereafter arising, and the due performance and compliance by the Borrower with
all terms, conditions and agreements contained therein (all such obligations and
liabilities being herein collectively called the "Other Obligations", and
together with the Credit Document Obligations are herein collectively called the
"Guaranteed Obligations"), provided that the maximum amount payable by each
Guarantor hereunder shall at no time exceed the Maximum Amount (as hereinafter
defined) of such Guarantor. As used herein, "Maximum Amount" of any Guarantor
means an amount equal to 95% of the amount by which (i) the present fair
saleable value of such Guarantor's assets exceeds (ii) the amount reasonably
expected to come due in respect of all liabilities (including, without
limitation, contingent liabilities), other than liabilities (contingent or
otherwise) of such Guarantor hereunder, in each case determined on the Initial
Borrowing Date (or, in the case of a Guarantor that becomes a party hereto
pursuant to Section 26 hereof, on the date such Guarantor becomes a party
hereto) or (in either case) on the day any demand is made under this Guaranty,
whichever date results in a higher Maximum Amount. Subject to the proviso in
the second preceding sentence, each Guarantor understands, agrees and confirms
that the Creditors may enforce this Guaranty up to the full amount of the
Guaranteed Obligations against each Guarantor without proceeding against any
other Guarantor, the Borrower, against any security for the Guaranteed
Obligations, or under any other guaranty covering all or a portion of the
Guaranteed Obligations. All payments by each Guarantor under this Guaranty
shall be made on the same basis as payments by the Borrower are made under
Sections 3.03 and 3.04 of the Credit Agreement.
<PAGE>
Page 3
2. Additionally, subject to the Maximum Amount limitation
contained in Section 1 above, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations of the Borrower to the Creditors whether or not due or
payable by the Borrower upon the occurrence in respect of the Borrower of any of
the events specified in Section 8.05 of the Credit Agreement, and
unconditionally and irrevocably, jointly and severally, promises to pay such
Guaranteed Obligations to the Creditors, or order, on demand, in lawful money of
the United States.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Guaranteed Obligations
of the Borrower whether executed by such Guarantor, any other Guarantor, any
other guarantor or by any other party, and the liability of each Guarantor
hereunder shall not be affected or impaired by (a) any direction as to
application of payment by the Borrower or by any other party, (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the Guaranteed Obligations of the Borrower, (c) any
payment on or in reduction of any such other guaranty or undertaking, (d) any
dissolution, termination or increase, decrease or change in personnel by the
Borrower or (e) any payment made to any Creditor on the Guaranteed Obligations
which any Creditor repays the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Guarantor waives any right to the deferral or modification
of its obligations hereunder by reason of any such proceeding.
4. The obligations of each Guarantor hereunder are independent
of the obligations of any other Guarantor, any other guarantor or the Borrower,
and a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower and whether or not any other Guarantor, any
other guarantor of the Borrower or the Borrower be joined in any such action or
actions. Each Guarantor waives, to the fullest extent permitted by law, the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives (to the fullest extent permitted
by applicable law) notice of acceptance of this Guaranty and notice of any
liability to which it may apply, and waives promptness, diligence, presentment,
demand of payment, protest, notice of dishonor or nonpayment of any such
liabilities, suit or taking of other action by the Administrative Agent or any
other Creditor against, and any other notice to, any party liable thereon
(including such Guarantor or any other guarantor or the Borrower).
6. Any Creditor may (except as shall be required by applicable
statute and cannot be waived) at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
<PAGE>
Page 4
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew, increase, accelerate or
alter, any of the Guaranteed Obligations, any security therefor, or any
liability incurred directly or indirectly in respect thereof, and the
guaranty herein made shall apply to the Guaranteed Obligations as so
changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to creditors of the
Borrower;
(e) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Borrower to the Creditors regardless
of what liabilities of the Borrower remain unpaid;
(f) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Credit Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or supplement
any of the Interest Rate Protection Agreements or Other Hedging
Agreements, the Credit Documents or any of such other instruments or
agreements; and/or
(g) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against the Borrower to recover full indemnity for any payments made
pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.
8. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Creditor in exercising any right, power or privilege
<PAGE>
Page 5
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly specified are cumulative
and not exclusive of any rights or remedies which any Creditor would
otherwise have. No notice to or demand on any Guarantor in any case shall
entitle such Guarantor to any other further notice or demand in similar or
other circumstances or constitute a waiver of the rights of any Creditor to
any other or further action in any circumstances without notice or demand.
It is not necessary for any Creditor to inquire into the capacity or powers
of the Borrower or any of its Subsidiaries or the officers, directors,
partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred and is continuing,
so requests, shall be collected, enforced and received by such Guarantor as
trustee for the Creditors and be paid over to the Creditors on account of the
indebtedness of the Borrower to the Creditors, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Prior to the transfer by any Guarantor of any note
or negotiable instrument evidencing any indebtedness of the Borrower to such
Guarantor, such Guarantor shall mark such note or negotiable instrument with a
legend that the same is subject to this subordination. Without limiting the
generality of the foregoing, each Guarantor hereby agrees with the Guaranteed
Creditors that it will not exercise any right of subrogation which it may at any
time otherwise have as a result of this Guaranty (whether contractual, under
Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed
Obligations have been irrevocably paid in full in cash.
10. (a) Each Guarantor waives any right (except as shall be
required by applicable statute or law and cannot be waived) to require the
Creditors to: (i) proceed against the Borrower, any other Guarantor, any other
guarantor of the Borrower or any other party; (ii) proceed against or exhaust
any security held from the Borrower, any other Guarantor, any other guarantor of
the Borrower or any other party; or (iii) pursue any other remedy in the
Creditors' power whatsoever. Each Guarantor waives (to the fullest extent
permitted by applicable law) any defense based on or arising out of any defense
of the Borrower, any other Guarantor, any other guarantor of the Borrower or any
other party other than payment in full of the Guaranteed Obligations, including,
without limitation, any defense based on or arising out of the disability of the
Borrower, any other Guarantor, any other guarantor of the Borrower or any other
party, or the unenforceability of the Guaranteed Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of the Borrower
other than payment in full of the Guaranteed Obligations. The Creditors may, at
their election, foreclose on any security held by the Administrative Agent, the
Collateral Agent or the other Creditors by one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable
(to the extent such sale is permitted by applicable law), or exercise any other
right or remedy the Creditors may have against the Borrower or any other party,
or any security, without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Guaranteed
<PAGE>
Page 6
Obligations have been paid in full. Each Guarantor waives any defense
arising out of any such election by the Creditors, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of such Guarantor against the Borrower or any other
party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being
and keeping itself informed of the Borrower's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations and the nature, scope and extent of the risks which such
Guarantor assumes and incurs hereunder, and agrees that the Creditors shall have
no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
11. The Creditors agree that this Guaranty may be enforced only
by the action of the Administrative Agent or the Collateral Agent, in each case
acting upon the instructions of the Required Banks (or, after the date on which
all Credit Document Obligations have been paid in full, the holders of at least
a majority of the outstanding Other Obligations) and that no other Creditor
shall have any right individually to seek to enforce or to enforce this Guaranty
or to realize upon the security to be granted by the Security Documents, it
being understood and agreed that such rights and remedies may be exercised by
the Administrative Agent or the Collateral Agent or the holders of at least a
majority of the outstanding Other Obligations, as the case may be, for the
benefit of the Creditors in accordance with the terms of this Guaranty and the
Security Documents. The Creditors further agree that this Guaranty may not be
enforced against any director, officer, employee, partner or stockholder of any
Guarantor (except to the extent such stockholder is also a Guarantor hereunder).
12. In order to induce the Banks to make Loans pursuant to the
Credit Agreement, and in order to induce the Other Creditors to execute, deliver
and perform the Interest Rate Protection Agreements or Other Hedging Agreements,
each Guarantor represents, warrants and covenants that:
(a) Such Guarantor (i) is a duly organized and validly existing
corporation, limited liability company or partnership, as the case may
be, and is in good standing (to the extent such concept is relevant in
such jurisdiction) under the laws of the jurisdiction of its
organization, and has the corporate, limited liability company or
partnership, as the case may be, power and authority to own its property
and assets and to transact the business in which it is engaged and
presently proposes to engage and (ii) is duly qualified and is
authorized to do business and is in good standing in all jurisdictions
where it is required to be so qualified and where the failure to be so
qualified could reasonably be expected to have a Material Adverse
Effect.
(b) Such Guarantor has the corporate, limited liability company
or partnership, as the case may be, power and authority to execute,
deliver and carry out the terms and
<PAGE>
Page 7
provisions of this Guaranty and each other Credit Document to which it
is a party and has taken all necessary corporate, limited liability
company or partnership, as the case may be, action to authorize the
execution, delivery and performance by it of each such Credit Document.
Such Guarantor has duly executed and delivered this Guaranty and each
other Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such
Guarantor enforceable in accordance with its terms, except to the extent
that the enforceability hereof or thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by such
Guarantor of this Guaranty or any other Credit Document to which it is a
party, nor compliance by it with the terms and provisions hereof or
thereof (i) will contravene any applicable provision of any law,
statute, rule or regulation, or any order, writ, injunction or decree of
any court or governmental instrumentality, (ii) will conflict or be
inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of such Guarantor or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, credit agreement or other material agreement or
other material instrument (other than any real property lease in effect
on the Initial Borrowing Date) to which such Guarantor or any of its
Subsidiaries is a party or by which it or any of its property or assets
is bound or to which it may be subject or (iii) will violate any
provision of the certificate of incorporation or by-laws (or equivalent
organizational documents) of such Guarantor or any of its Subsidiaries.
(d) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (other than in
connection with the Security Documents), or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the
execution, delivery and performance of this Guaranty or any other Credit
Document to which such Guarantor is a party, or (ii) the legality,
validity, binding effect or enforceability of this Guaranty or any other
Credit Document to which such Guarantor is a party (other than (x) any
such consent, approval, license, authorization, validation, filing or
registration required in order for such Guarantor to be in compliance
with the Credit Agreement, which such Guarantor will make or obtain when
and as required and (y) filings and recordings required to perfect
security interests created under the Security Documents, which such
Guarantor will make promptly (but in no event more than 10 days) after
the time such Guarantor is required to do so).
(e) There are no actions, suits or proceedings pending or, to
the knowledge of such Guarantor, threatened with respect to such
Guarantor (i) that could reasonably be expected to have a Material
Adverse Effect or (ii) that could reasonably be expected to have a
material adverse effect on the rights or remedies of the Creditors or on
the ability
<PAGE>
Page 8
of such Guarantor to perform its respective obligations to the Creditors
hereunder and under the other Credit Documents to which it is a party.
13. Each Guarantor covenants and agrees that on and after the
date hereof and until the termination of the Total Commitment and all Interest
Rate Protection Agreements or Other Hedging Agreements and when no Note or Loan
remains outstanding and all Guaranteed Obligations have been paid in full (other
than indemnities described in Section 11.13 of the Credit Agreement and
analogous provisions in the Pledge Agreement which are not then due and
payable), such Guarantor shall take, or will refrain from taking, as the case
may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Section 6 or 7 of
the Credit Agreement, and so that no Default or Event of Default, is caused by
the actions of such Guarantor or any of its Subsidiaries.
14. The Guarantors hereby jointly and severally agree to pay all
reasonable out-of-pocket costs and expenses of each Creditor in connection with
the enforcement of this Guaranty, and of the Administrative Agent in connection
with any amendment, waiver or consent relating hereto (including, without
limitation, the reasonable fees and disbursements of counsel (including in-house
counsel) employed by any of the Creditors or the Administrative Agent, as the
case may be).
15. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
16. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the written consent of
each Guarantor directly affected thereby and either (x) the Required Banks (or
to the extent required by Section 11.12 of the Credit Agreement, with the
written consent of each Bank) at all times prior to the time on which all Credit
Document Obligations have been paid in full or (y) the holders of at least a
majority of the outstanding Other Obligations at all times after the time on
which all Credit Document Obligations have been paid in full; PROVIDED, that any
change, waiver, modification or variance affecting the rights and benefits of a
single Class (as defined below) of Creditors (and not all Creditors in a like or
similar manner) shall require the written consent of the Requisite Creditors (as
defined below) of such Class of Creditors (it being understood that the addition
or release of any Guarantor hereunder shall not constitute a change, waiver,
discharge or termination affecting any Guarantor other than the Guarantor so
added or released). For the purpose of this Guaranty the term "Class" shall
mean each class of Creditors, I.E., whether (x) the Bank Creditors as holders of
the Credit Document Obligations or (y) the Other Creditors as the holders of the
Other Obligations. For the purpose of this Guaranty, the term "Requisite
Creditors" of any Class shall mean each of (x) with respect to the Credit
Document Obligations, the Required Banks (or all the Banks if required by
Section 11.12 of the Credit Agreement) and (y) with respect to the Other
Obligations, the holders of at least a majority of all obligations outstanding
from time to time under the Interest Rate Protection Agreements or Other Hedging
Agreements.
17. Each Guarantor acknowledges that an executed (or conformed)
copy of each of the Credit Documents and Interest Rate Protection Agreements or
Other Hedging Agreements
<PAGE>
Page 9
has been made available to its principal executive officers and such officers
are familiar with the contents thereof.
18. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" as defined in the Credit Agreement or
any payment default under any Interest Rate Protection Agreement or Other
Hedging Agreement continuing after any applicable grace period), each Creditor
is hereby authorized at any time or from time to time, without notice to any
Guarantor or to any other Person, any such notice being expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other indebtedness at any time held or owing by such Creditor to or for the
credit or the account of such Guarantor, against and on account of the
obligations and liabilities of such Guarantor to such Creditor under this
Guaranty, irrespective of whether or not such Creditor shall have made any
demand hereunder and although said obligations, liabilities, deposits or claims,
or any of them, shall be contingent or unmatured.
19. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at 26601 Agoura Road, Calabasas,
California 91302, Attention: General Counsel, Telephone No.: (818) 880-1600,
Telecopier No.: (818) 880-8615 and (iii) in the case of any Other Creditor, at
such address as such Other Creditor shall have specified in writing to the
Guarantor; or in any case at such other address as any of the Persons listed
above may hereafter notify the others in writing.
20. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon such Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.
21. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or
proceeding with respect to this Guaranty or any other Credit Document to which
such Guarantor is a party may be brought in the courts of the State of New York
or of the United States of America for the Southern District of New York,
<PAGE>
Page 10
and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor
hereby further irrevocably waives any claim that any such courts lack
jurisdiction over such Guarantor, and agrees not to plead or claim, in any
legal action or proceeding with respect to this Guaranty or any other Credit
Document to which such Guarantor is a party brought in any of the aforesaid
courts, that any such court lacks jurisdiction over such Guarantor. Each
Guarantor further irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to each
Guarantor at its address set forth in Section 19, such service to become
effective 30 days after such mailing. Each Guarantor hereby irrevocably
waives any objection to such service of process and further irrevocably
waives and agrees not to plead or claim in any action or proceeding commenced
hereunder or under any other Credit Document to which such Guarantor is a
party that service of process was in any way invalid or ineffective. Nothing
herein shall affect the right of any of the Creditors to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against each Guarantor in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Guaranty or any
other Credit Document brought in the courts referred to in clause (a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that such action or proceeding brought in any such court has been brought
in an inconvenient forum.
22. In the event that all of the equity interests of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 7.02 of the Credit Agreement (or such sale or other
disposition or liquidation has been approved in writing by the Required Banks
(or all Banks if required by Section 11.12 of the Credit Agreement)) and the
proceeds of such sale, disposition or liquidation are applied in accordance with
the provisions of the Credit Agreement, to the extent applicable, such Guarantor
shall be released from this Guaranty and this Guaranty shall, as to each such
Guarantor or Guarantors, terminate, and have no further force or effect (it
being understood and agreed that the sale of one or more Persons that own,
directly or indirectly, all of the equity interests of any Guarantor shall be
deemed to be a sale of such Guarantor for the purposes of this Section 22).
23. This Guaranty may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Administrative
Agent.
24. EACH GUARANTOR AND EACH OF THE CREDITORS HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS
<PAGE>
Page 11
GUARANTY, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY.
25. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
26. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute a counterpart of this Guaranty after the
date hereof pursuant to Section 7.15 of the Credit Agreement shall automatically
become a Guarantor hereunder by executing a counterpart hereof and delivering
the same to the Administrative Agent.
* * *
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
SUPERIOR PACIFIC INSURANCE GROUP,
INC., as a Pledgor
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
BUSINESS INSURANCE GROUP, INC., as
a Pledgor
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Vice President
PACIFIC INSURANCE BROKERAGE, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
<PAGE>
INFONET MANAGEMENT SYSTEMS, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
SN INSURANCE SERVICES, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
SN INSURANCE ADMINISTRATORS, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
<PAGE>
THE CHASE MANHATTAN BANK, as
Administrative Agent
By: /s/ LAWRENCE PALUMBO, JR.
-------------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 10, 1998 (as same may
be amended, amended and restated, modified or supplemented from time to time,
this "Agreement"), made by Superior National Insurance Group, Inc. (the
"Borrower"), the Subsidiary Guarantors (as defined in the Credit Agreement
referred to below) and each other Subsidiary of the Borrower that is required
to execute a counterpart hereof pursuant to Section 25 of this Agreement,
(the "Pledgors", and each, a "Pledgor"), and The Chase Manhattan Bank, not in
its individual capacity but solely as Collateral Agent (including any
successor collateral agent, the "Pledgee") for the benefit of (x) the Banks
and the Administrative Agent under, and any other lenders from time to time
party to, the Credit Agreement hereinafter referred to (such Banks, the
Administrative Agent and other lenders, if any, are hereinafter called the
"Bank Creditors") and (y) if The Chase Manhattan Bank, in its individual
capacity ("Chase") and/or any Bank or any Affiliate of a Bank enters into one
or more interest rate agreements relating to the Loans (including, without
limitation, interest rate swaps, caps, floors, collars and similar
agreements) (collectively, the "Interest Rate Agreements") with, or
guaranteed by, any of the Pledgors, Chase, any such Bank or Banks or a
syndicate of financial institutions organized by Chase or an affiliate of
Chase (even if Chase or the respective Bank subsequently ceases to be a Bank
under the Credit Agreement for any reason), so long as any such Bank or
Affiliate participates in the extension of such Interest Rate Agreements, and
their subsequent assigns, if any (collectively, the "Interest Rate
Creditors", and the Interest Rate Creditors together with the Bank Creditors,
are hereinafter called the "Secured Creditors"). Except as otherwise defined
herein, terms used herein and defined in the Credit Agreement shall be used
herein as so defined.
W I T N E S S E T H:
WHEREAS, the Borrower, the financial institutions from time to
time party thereto (the "Banks") and The Chase Manhattan Bank, as
Administrative Agent (in its capacity as Administrative Agent, being herein
referred to as the "Administrative Agent") have entered into a Credit
Agreement, dated as of December 10, 1998, providing for the making of Loans
to the Borrower (as used herein, the term "Credit Agreement" means the Credit
Agreement described above in this paragraph, as the same may be amended,
amended and restated, modified or supplemented from time to time, and
including any successor agreement extending the maturity of, or restructuring
(including, but not limited to, the inclusion of additional borrowers
thereunder that are Subsidiaries of the Borrower and whose obligations are
guaranteed by the Borrower thereunder or any increase in the amount borrowed)
of all or any portion of the Indebtedness under such agreement or any
successor agreements);
WHEREAS, the Borrower may from time to time be party to one or
more Interest Rate Agreements with the Interest Rate Creditors;
WHEREAS, pursuant to a Subsidiary Guaranty, dated as of December
10, 1998 (as amended, amended and restated, modified or supplemented from time
to time, the "Subsidiary Guaranty"), each Pledgor (other than the Borrower) has
jointly and severally
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Page 2
guaranteed to the Secured Creditors the payment when due of all obligations
and liabilities of the Borrower under or with respect to the Credit Documents
and the Interest Rate Agreements;
WHEREAS, it is a condition precedent to the making of Loans to
the Borrower under the Credit Agreement that each Pledgor shall have executed
and delivered to the Pledgee this Agreement; and
WHEREAS, each Pledgor will obtain benefits from the incurrence
of Loans by the Borrower and the Borrower's entering into Interest Rate
Agreements and, accordingly, desires to execute this Agreement in order to
satisfy the conditions precedent described in the preceding paragraph and to
induce the Banks to make Loans to the Borrower and to induce the Interest
Rate Creditors to enter into Interest Rate Agreements with the Borrower;
NOW, THEREFORE, in consideration of the benefits accruing to
each Pledgor, the receipt and sufficiency of which are hereby acknowledged,
each Pledgor hereby makes the following representations and warranties to the
Pledgee and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations,
liabilities and indebtedness (including, without limitation,
indemnities, Fees and interest thereon) of such Pledgor owing to the
Bank Creditors, whether now existing or hereafter incurred under,
arising out of, or in connection with the Credit Agreement and the other
Credit Documents to which such Pledgor is a party (including all such
obligations, liabilities and indebtedness under the Subsidiary Guaranty
to which such Pledgor is a party) and the due performance and compliance
by such Pledgor with all of the terms, conditions and agreements
contained in the Credit Agreement and such other Credit Documents (all
such obligations, liabilities and indebtedness under this clause (i),
except to the extent guaranteeing obligations of the Borrower under
Interest Rate Agreements, being herein collectively called the "Credit
Agreement Obligations");
(ii) the full and prompt payment when due (whether at stated
maturity, by acceleration or otherwise) of all obligations, liabilities
and indebtedness (including, without limitation, indemnities, fees and
interest thereon) of such Pledgor owing to the Interest Rate Creditors,
now existing or hereafter incurred under, arising out of or in
connection with any Interest Rate Agreement, whether such Interest Rate
Agreement is now in existence or hereinafter arising, and the due
performance and compliance with the terms, conditions and agreements of
each such Interest Rate Agreement by such Pledgor including, in the case
of Pledgors other than the Borrower, all obligations liabilities and
indebtedness under the Subsidiary Guaranty in respect of the Interest
Rate Agreements, and the due performance and compliance by such Pledgor
with all of the terms, conditions and agreements contained in each such
Interest Rate Agreement (all such
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Page 3
obligations, liabilities and indebtedness under this clause (ii) being
herein collectively called the "Interest Rate Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) and/or preserve its
security interest therein;
(iv) in the event of any proceeding for the collection of the
Obligations (as defined below) or the enforcement of this Agreement,
after an Event of Default (such term, as used in this Agreement, shall
mean any Event of Default under, and as defined in, the Credit Agreement
or any payment default under any Interest Rate Agreement and shall in
any event include, without limitation, any payment default (after the
expiration of any applicable grace period) on any of the Obligations (as
defined below)) shall have occurred and be continuing, the reasonable
expenses of retaking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the Collateral, or of any
exercise by the Pledgee of its rights hereunder, together with
reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Indemnitee to which such
Indemnitee has the right to reimbursement under Section 11 of this
Agreement.
all such obligations, liabilities, indebtedness, sums and expenses set forth
in clauses (i) through (v) of this Section 1 being collectively called the
"Obligations", it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether
outstanding on the date of this Agreement or extended from time to time after
the date of this Agreement.
2. DEFINITIONS; ANNEXES. (a) Unless otherwise defined
herein, all capitalized terms used herein and defined in the Credit Agreement
shall be used herein as therein defined. Reference to singular terms shall
include the plural and vice versa.
(b) The following capitalized terms used herein shall have
the definitions specified below:
"ADMINISTRATIVE AGENT" has the meaning set forth in the Recitals
hereto.
"ADVERSE CLAIM" has the meaning given such term in Section
8-102(a)(1) of the UCC.
"AGREEMENT" has the meaning set forth in the first paragraph
hereof.
"BANK CREDITORS" has the meaning set forth in the first paragraph
hereof.
"BANKS" has the meaning set forth in the Recitals hereto.
"CERTIFICATED SECURITY" has the meaning given such term in
Section 8-102(a)(4) of the UCC.
<PAGE>
Page 4
"CLEARING CORPORATION" has the meaning given such term in
Section 8-102(a)(5) of the UCC.
"COLLATERAL" has the meaning set forth in Section 3.1 hereof.
"COLLATERAL ACCOUNTS" means any and all accounts established
and maintained by the Pledgee in the name of any Pledgor to which Collateral
may be credited.
"CREDIT AGREEMENT" has the meaning set forth in the Recitals
hereto.
"CREDIT AGREEMENT OBLIGATIONS" has the meaning set forth in
Section 1 hereof.
"EVENT OF DEFAULT" has the meaning set forth in Section 1
hereof.
"FINANCIAL ASSET" has the meaning given such term in Section
8-102(a)(9) of the UCC.
"INDEMNITEES" has the meaning set forth in Section 11 hereof.
"INSTRUMENT" has the meaning given such term in Section
9-105(1)(i) of the UCC.
"INTEREST RATE AGREEMENTS" has the meaning set forth in the
first paragraph hereof.
"INTEREST RATE OBLIGATIONS" has the meaning set forth in
Section 1 hereof.
"INVESTMENT PROPERTY" has the meaning given such term in
Section 9-115(f) of the UCC.
"LIMITED LIABILITY COMPANY ASSETS" means all assets, whether
tangible or intangible and whether real, personal or mixed (including,
without limitation, all limited liability company capital and interest in
other limited liability companies), at any time owned or represented by any
Limited Liability Company Interest.
"LIMITED LIABILITY COMPANY INTERESTS" means the entire limited
liability company membership interest at any time owned by any Pledgor in any
limited liability company which is a Subsidiary.
"NOTES" means (x) all intercompany notes at any time issued to
each Pledgor and (y) all surplus notes at any time issued to, or held by,
each Pledgor.
"OBLIGATIONS" has the meaning set forth in Section 1 hereof.
"PARTNERSHIP ASSETS" means all assets, whether tangible or
intangible and whether real, personal or mixed (including, without
limitation, all partnership capital and interest in other partnerships), at
any time owned or represented by any Partnership Interest.
<PAGE>
Page 5
"PARTNERSHIP INTEREST" means the entire general partnership
interest or limited partnership interest at any time owned by any Pledgor in
any general partnership or limited partnership, in each case which is a
Subsidiary.
"PLEDGED NOTES" has the meaning set forth in Section 3.5
hereof.
"PLEDGEE" has the meaning set forth in the first paragraph
hereof.
"PLEDGOR" has the meaning set forth in the first paragraph
hereof.
"PROCEEDS" has the meaning given such term in Section 9-306(l)
of the UCC.
"REQUIRED BANKS" has the meaning given such term in the Credit
Agreement.
"SECURED CREDITORS" has the meaning set forth in the first
paragraph hereof.
"SECURED DEBT AGREEMENTS" has the meaning set forth in Section
5 hereof.
"SECURITIES ACCOUNT" has the meaning given such term in
Section 8-501(a) of the UCC.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
as in effect from time to time.
"SECURITY" and "SECURITIES" means all Stock and Notes.
"SECURITY ENTITLEMENT" has the meaning given such term in
Section 8-102(a)(17) of the UCC.
"STOCK" means all of the issued and outstanding shares of
capital stock or other ownership interests of any Subsidiary at any time
owned by any Pledgor.
"TERMINATION DATE" has the meaning set forth in Section 19
hereof.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York from time to time; PROVIDED that all references herein to
specific sections or subsections of the UCC are references to such sections
or subsections, as the case may be, of the Uniform Commercial Code as in
effect in the State of New York on the date hereof.
"UNCERTIFICATED SECURITY" has the meaning given such term in
Section 8-102(a)(18) of the UCC.
3. PLEDGE OF SECURITY INTEREST, ETC.
3.1 PLEDGE. To secure the Obligations now or hereafter owed
or to be performed by such Pledgor, each Pledgor does hereby grant, pledge
and assign to the Pledgee for the benefit of the Secured Creditors, and does
hereby create a continuing security interest (subject to those
<PAGE>
Page 6
Liens permitted to exist with respect to the Collateral pursuant to the terms
of all Secured Debt Agreements then in effect) in favor of the Pledgee for
the benefit of the Secured Creditors in, all of the right, title and interest
in and to the following, whether now existing or hereafter from time to time
acquired (collectively, the "Collateral"):
(a) each of the Collateral Accounts, including any and all
assets of whatever type or kind deposited by such Pledgor in such
Collateral Account, whether now owned or hereafter acquired, existing or
arising, including, without limitation, all Financial Assets, Investment
Property, moneys, checks, drafts, Instruments, Securities or interests
therein of any type or nature deposited or required by the Credit
Agreement or any other Secured Debt Agreement to be deposited in such
Collateral Account, and all investments and all certificates and other
Instruments (including depository receipts, if any) from time to time
representing or evidencing the same, and all dividends, interest,
distributions, cash and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any
or all of the foregoing;
(b) all Securities of such Pledgor from time to time;
(c) all Limited Liability Company Interests of such Pledgor
from time to time and all of its right, title and interest in each
limited liability company to which each such interest relates, whether
now existing or hereafter acquired, including, without limitation:
(A) all the capital thereof and its interest in all
profits, losses, Limited Liability Company Assets and other
distributions to which such Pledgor shall at any time be entitled
in respect of such Limited Liability Company Interests;
(B) all other payments due or to become due to such
Pledgor in respect of Limited Liability Company Interests,
whether under any limited liability company agreement or
otherwise, whether as contractual obligations, damages, insurance
proceeds or otherwise;
(C) all of its claims, rights, powers, privileges,
authority, options, security interests, liens and remedies, if
any, under any limited liability company agreement or operating
agreement, or at law or otherwise in respect of such Limited
Liability Company Interests;
(D) all present and future claims, if any, of such
Pledgor against any such limited liability company for moneys
loaned or advanced, for services rendered or otherwise;
(E) all of such Pledgor's rights under any limited
liability company agreement or operating agreement or at law to
exercise and enforce every right, power, remedy, authority,
option and privilege of such Pledgor relating to such Limited
Liability Company Interests, including any power to terminate,
cancel or modify any limited liability company agreement or
operating agreement, to
<PAGE>
Page 7
execute any instruments and to take any and all other action
on behalf of and in the name of any of such Pledgor in respect
of such Limited Liability Company Interests and any such
limited liability company, to make determinations, to exercise
any election (including, but not limited to, election of
remedies) or option or to give or receive any notice, consent,
amendment, waiver or approval, together with full power and
authority to demand, receive, enforce, collect or receipt for
any of the foregoing or for any Limited Liability Company
Asset, to enforce or execute any checks, or other instruments
or orders, to file any claims and to take any action in
connection with any of the foregoing; and
(F) all other property hereafter delivered in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all thereof;
(d) all Partnership Interests of such Pledgor from time to
time and all of its right, title and interest in each partnership to
which each such interest relates, whether now existing or hereafter
acquired, including, without limitation:
(A) all the capital thereof and its interest in all
profits, losses, Partnership Assets and other distributions to
which such Pledgor shall at any time be entitled in respect of
such Partnership Interests;
(B) all other payments due or to become due to such
Pledgor in respect of Partnership Interests, whether under any
partnership agreement or otherwise, whether as contractual
obligations, damages, insurance proceeds or otherwise;
(C) all of its claims, rights, powers, privileges,
authority, options, security interests, liens and remedies, if
any, under any partnership agreement or operating agreement, or
at law or otherwise in respect of such Partnership Interests;
(D) all present and future claims, if any, of such
Pledgor against any such partnership for moneys loaned or
advanced, for services rendered or otherwise;
(E) all of such Pledgor's rights under any partnership
agreement or operating agreement or at law to exercise and
enforce every right, power, remedy, authority, option and
privilege of such Pledgor relating to such Partnership Interests,
including any power to terminate, cancel or modify any
partnership agreement or operating agreement, to execute any
instruments and to take any and all other action on behalf of and
in the name of any of such Pledgor in respect of such Partnership
Interests and any such partnership, to make determinations, to
exercise any election (including, but not limited to, election of
remedies) or option
<PAGE>
Page 8
or to give or receive any notice, consent, amendment, waiver
or approval, together with full power and authority to demand,
receive, enforce, collect or receipt for any of the foregoing
or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and
to take any action in connection with any of the foregoing
(with all of the foregoing rights only to be exercisable upon
the occurrence and during the continuation of an Event of
Default); and
(F) all other property hereafter delivered in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all thereof; and
(e) all Proceeds of any and all of the foregoing.
Nothing in this Agreement is to be construed as a pledge of any tangible or
intangible asset or right of a Regulated Insurance Company, however, this
Agreement includes the pledge of capital stock of each Regulated Insurance
Company. [Notwithstanding anything to the contrary contained herein (i) SNIG is
not pledging any capital stock of SNCHC or its general partnership interest in
SNAC and (ii) SNCHC is not pledging its general partnership interest in SNAC.]
3.2 PROCEDURES. (a) To the extent that any Pledgor at any
time or from time to time owns, acquires or obtains any right, title or
interest in any Collateral, such Collateral shall automatically (and without
the taking of any action by the respective Pledgor) be pledged pursuant to
Section 3.1 of this Agreement and, in addition thereto, such Pledgor shall
(to the extent provided below) take the following actions as set forth below
(as promptly as practicable and, in any event, within 10 days after it
obtains such Collateral) for the benefit of the Pledgee and the Secured
Creditors:
(i) with respect to a Certificated Security (other than a
Certificated Security credited on the books of a Clearing Corporation),
the respective Pledgor shall physically deliver such Certificated
Security to the Pledgee, endorsed to the Pledgee or endorsed in blank;
(ii) with respect to an Uncertificated Security (other than an
Uncertificated Security credited on the books of a Clearing
Corporation), the respective Pledgor shall cause the issuer of such
Uncertificated Security to duly authorize and execute, and deliver to
the Pledgee, an agreement for the benefit of the Pledgee and the Secured
Creditors substantially in the form of Annex G hereto (appropriately
completed to the satisfaction of the Pledgee and with such
modifications, if any, as shall be satisfactory to the Pledgee) pursuant
to which such issuer agrees to comply with any and all instructions
originated by the Pledgee without further consent by the registered
owner and not to comply with instructions regarding such Uncertificated
Security (and any Partnership Interests and
<PAGE>
Page 9
Limited Liability Company Interests issued by such issuer) originated
by any other Person other than a court of competent jurisdiction;
(iii) with respect to a Certificated Security, Uncertificated
Security, Partnership Interest or Limited Liability Company Interest
credited on the books of a Clearing Corporation (including a Federal
Reserve Bank, Participants Trust Company or The Depository Trust
Company), the respective Pledgor shall promptly notify the Pledgee
thereof and shall promptly take all actions required (i) to comply with
the applicable rules of such Clearing Corporation and (ii) to perfect
the security interest of the Pledgee under applicable law (including, in
any event, under Sections 9-115 (4)(a) and (b), 9-115 (1)(e) and 8-106
(d) of the UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable to effect the foregoing;
(iv) with respect to a Partnership Interest or a Limited
Liability Company Interest (other than a Partnership Interest or Limited
Liability Interest credited on the books of a Clearing Corporation), (1)
if such Partnership Interest or Limited Liability Company Interest is
represented by a certificate, the procedure set forth in Section
3.2(a)(i), and (2) if such Partnership Interest or Limited Liability
Company Interest is not represented by a certificate, the procedure set
forth in Section 3.2(a)(ii);
(v) with respect to any Note, physical delivery of such Note
to the Pledgee, endorsed to the Pledgee or endorsed in blank; and
(vi) with respect to cash, to the extent not otherwise
provided in the Security Agreement, (i) establishment by the Pledgee of
a cash account in the name of such Pledgor over which the Pledgee shall
have exclusive and absolute control and dominion (and no withdrawals or
transfers may be made therefrom by any Person except with the prior
written consent of the Pledgee) and (ii) deposit of such cash in such
cash account.
(b) In addition to the actions required to be taken pursuant to
preceding Section 3.2(a), each Pledgor shall take the following additional
actions with respect to the Securities and Collateral (as defined below):
(i) with respect to all Collateral of such Pledgor whereby or
with respect to which the Pledgee may obtain "control" thereof within
the meaning of Section 8-106 of the UCC (or under any provision of the
UCC as same may be amended or supplemented from time to time, or under
the laws of any relevant State other than the State of New York), the
respective Pledgor shall take all actions as may be requested from time
to time by the Pledgee so that "control" of such Collateral is obtained
and at all times held by the Pledgee; and
(ii) each Pledgor shall from time to time cause appropriate
financing statements (on Form UCC-1 or other appropriate form) under the
Uniform Commercial Code as in effect in the various relevant States, on
form covering all Collateral hereunder (with the form of such financing
statements to be satisfactory to the Pledgee), to be filed in the
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Page 10
relevant filing offices so that at all times the Pledgee has a
security interest in all Collateral that is Investment Property, which
is perfected by the filing of such financing statements (in each case
to the maximum extent perfection by filing may be obtained under the
laws of the relevant States, including, without limitation, Section
9-115(4)(b) of the UCC).
3.3 SUBSEQUENTLY ACQUIRED COLLATERAL. If any Pledgor shall
acquire (by purchase, stock dividend or otherwise) any additional Collateral
at any time or from time to time after the date hereof, such Collateral shall
automatically (and without any further action being required to be taken) be
subject to the pledge and security interests created pursuant to Section 3.1
and, furthermore, the Pledgor will promptly thereafter take (or cause to be
taken) all action with respect to such Collateral in accordance with the
procedures set forth in Section 3.2, and will promptly thereafter deliver to
the Pledgee (i) a certificate executed by a principal executive officer of
such Pledgor describing such Collateral and certifying that the same has been
duly pledged in favor of the Pledgee (for the benefit of the Secured
Creditors) hereunder and (ii) supplements to Annexes A through F hereto as
are necessary to cause such annexes to be complete and accurate at such time.
3.4 TRANSFER TAXES. Each pledge of Collateral under Section
3.1 or Section 3.3 shall be accompanied by any transfer tax stamps required
in connection with the pledge of such Collateral.
3.5 DEFINITION OF PLEDGED NOTES. All Notes at any time
pledged or required to be pledged hereunder are hereinafter called the
"Pledged Notes".
3.6 CERTAIN REPRESENTATIONS AND WARRANTIES REGARDING THE
COLLATERAL. Each Pledgor represents and warrants that on the date hereof (i)
each Subsidiary of such Pledgor, and the direct ownership thereof, is listed
in Annex A hereto; (ii) the Stock held by such Pledgor consists of the number
and type of shares of the stock of the corporations as described in Annex B
hereto; (iii) such Stock constitutes that percentage of the issued and
outstanding capital stock of the issuing corporation as is set forth in Annex
B hereto; (iv) the Notes held by such Pledgor consist of the promissory notes
described in Annex C hereto where such Pledgor is listed as the lender; (v)
the Limited Liability Company Interests held by such Pledgor consist of the
number and type of interests of the Persons described in Annex D hereto; (vi)
each such Limited Liability Company Interest constitutes that percentage of
the issued and outstanding equity interest of the issuing Person as set forth
in Annex D hereto; (vii) the Partnership Interests held by such Pledgor
consist of the number and type of interests of the Persons described in Annex
E hereto; (viii) each such Partnership Interest constitutes that percentage
or portion of the entire partnership interest of the Partnership as set forth
in Annex E hereto; (ix) the Pledgor has complied with the respective
procedure set forth in Section 3.2(a) with respect to each item of Collateral
described in Annexes A through E hereto; and (x) on the date hereof, such
Pledgor owns no other Securities, Limited Liability Company Interests or
Partnership Interests.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee
shall have the right to appoint one or more sub-agents for the purpose of
retaining physical
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possession of the Collateral, which may be held (in the discretion of the
Pledgee) in the name of the relevant Pledgor, endorsed or assigned in blank
or in favor of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until
there shall have occurred and be continuing an Event of Default (or a Default
under Section 8.05 of the Credit Agreement), each Pledgor shall be entitled
to exercise all voting rights attaching to any and all Collateral owned by
it, and to give consents, waivers or ratifications in respect thereof
PROVIDED that no vote shall be cast or any consent, waiver or ratification
given or any action taken which would violate, result in breach of any
covenant contained in, or be inconsistent with, any of the terms of this
Agreement, the Credit Agreement, any other Credit Document or any Interest
Rate Agreement (collectively, the "Secured Debt Agreements"), or which would
have the effect of impairing the value of the Collateral or any part thereof
or the position or interests of the Pledgee or any Secured Creditor therein.
All such rights of a Pledgor to vote and to give consents, waivers and
ratifications shall cease in case an Event of Default (or a Default under
Section 8.05 of the Credit Agreement) shall occur and be continuing and
Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an
Event of Default (or a Default under Section 8.05 of the Credit Agreement)
shall have occurred and be continuing, all cash dividends, cash
distributions, cash Proceeds and other cash amounts payable in respect of the
Collateral shall be paid to the respective Pledgor. Subject to Section 3.2
hereof, the Pledgee shall be entitled to receive directly, and to retain as
part of the Collateral:
(i) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash dividends
other than as set forth above) paid or distributed by way of dividend or
otherwise in respect of the Collateral;
(ii) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash) paid or
distributed in respect of the Collateral by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar
rearrangement; and
(iii) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash) which may
be paid in respect of the Collateral by reason of any consolidation,
merger, exchange of stock, conveyance of assets, liquidation or similar
corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive the proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by the respective Pledgor contrary to the
provisions of this Section 6 or Section 7 shall be received in trust for the
benefit of the Pledgee, shall be segregated from other property or funds of
such Pledgor and shall be forthwith
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paid over to the Pledgee as Collateral in the same form as so received (with
any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT OR CERTAIN
DEFAULTS. In case an Event of Default shall have occurred and be continuing,
the Pledgee shall be entitled to exercise all of the rights, powers and
remedies (whether vested in it by this Agreement or by any other Secured Debt
Agreement or by law) for the protection and enforcement of its rights in
respect of the Collateral, including, without limitation, all the rights and
remedies of a secured party upon default under the Uniform Commercial Code of
the State of New York, and the Pledgee shall be entitled, without limitation,
to exercise any or all of the following rights, which each Pledgor hereby
agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6 to such Pledgor;
(ii) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated
in accordance with its terms, and take any other lawful action to
collect upon any Pledged Note (including, without limitation, to make
any demand for payment thereon);
(iv) to vote all or any part of the Collateral (whether or not
transferred into the name of the Pledgee) and give all consents, waivers
and ratifications in respect of the Collateral and otherwise act with
respect thereto as though it were the outright owner thereof (each
Pledgor hereby irrevocably constituting and appointing the Pledgee the
proxy and attorney-in-fact of such Pledgor, with full power of
substitution to do so);
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to redeem
or otherwise (all of which are hereby waived by each Pledgor), for cash,
on credit or for other property, for immediate or future delivery
without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine;
PROVIDED that at least 10 days' notice of the time and place of any such
sale shall be given to such Pledgor. The Pledgee shall not be obligated
to make such sale of Collateral regardless of whether any such notice of
sale has theretofore been given. Each purchaser at any such sale shall
hold the property so sold absolutely free from any claim or right on the
part of each Pledgor, and each Pledgor hereby waives and releases to the
fullest extent permitted by law any right or equity of redemption with
respect to the Collateral, whether before or after sale hereunder, all
rights, if any, of marshaling the Collateral and any other security for
the Obligations or otherwise, and all rights, if any, of stay and/or
appraisal which it now has or may at any time in the future have under
rule of law or statute now existing or hereafter enacted. At any such
sale, unless prohibited by applicable law, the
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Pledgee on behalf of all Secured Creditors (or certain of them) may
bid for and purchase (by bidding in Obligations or otherwise) all or
any part of the Collateral so sold free from any such right or equity
of redemption. Neither the Pledgee nor any Secured Creditor shall be
liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall any of them be under
any obligation to take any action whatsoever with regard thereto; and
(vi) to set-off any and all Collateral against any and all
Obligations, and to withdraw any and all cash or other Collateral from
any and all Collateral Accounts and to apply such cash and other
Collateral to the payment of any and all Obligations;
provided that, upon the occurrence of a Default under Section 8.05 of the Credit
Agreement, the Pledgee may exercise the rights specified in clause (i) above.
Any and all remedies and rights notwithstanding, in the event of default and
acceleration of the Obligations hereunder and under the Credit Agreement,
neither the Collateral Agent nor any Secured Creditor shall vote, sell, or in
any manner exercise control as to any Regulated Insurance Company pledged as
Collateral without first filing for and obtaining written prior approval
pursuant to California Insurance Code Section 1215.2.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of
the Pledgee provided for in this Agreement or any other Secured Debt Agreement,
or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee or
any Secured Creditor of any one or more of the rights, powers or remedies
provided for in this Agreement or any other Secured Debt Agreement or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee or any Secured
Creditor of all such other rights, powers or remedies, and no failure or delay
on the part of the Pledgee or any Secured Creditor to exercise any such right,
power or remedy shall operate as a waiver thereof. Unless otherwise required by
the Credit Documents, no notice to or demand on any Pledgor in any case shall
entitle such Pledgor to any other or further notice or demand in similar other
circumstances or constitute a waiver of any of the rights of the Pledgee or any
Secured Creditor to any other or further action in any circumstances without
demand or notice. The Secured Creditors agree that this Agreement may be
enforced only by the action of the Pledgee, acting upon the instructions of the
Required Banks (or, after the date on which all Credit Agreement Obligations
have been paid in full, the holders of at least a majority of the Interest Rate
Obligations) and that no other Secured Creditor shall have any right
individually to seek to enforce or to enforce this Agreement or to realize upon
the security to be granted hereby, it being understood and agreed that such
rights and remedies may be exercised by the Pledgee or the holders of at least a
majority of the Interest Rate Obligations, as the case may be, for the benefit
of the Secured Creditors upon the terms of this Agreement and the other Credit
Documents.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied as follows:
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(i) first, to the payment of all Obligations owing the Pledgee
of the type provided in clauses (iii) and (iv) of the definition of
Obligations contained in Section 1 hereof;
(ii) second, to the extent proceeds remain after the application
pursuant to the preceding clause (i), an amount equal to the outstanding
Obligations shall be paid to the Secured Creditors as provided in
Section 9(c) hereof with each Secured Creditor receiving an amount equal
to its outstanding Obligations or, if the proceeds are insufficient to
pay in full all such Obligations, its Pro Rata Share (as defined below)
of the amount remaining to be distributed; and
(iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii) and following the
termination of this Agreement pursuant to Section 19 hereof, to the
relevant Pledgor or, to the extent directed by such Pledgor or a court
of competent jurisdiction, to whomever may be lawfully entitled to
receive such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's
Obligations and the denominator of which is the then outstanding amount of
all Obligations.
(c) All payments required to be made to the Bank Creditors
hereunder shall be made to the Administrative Agent under the Credit
Agreement for the account of the Bank Creditors and all payments required to
be made to the Interest Rate Creditors hereunder shall be made directly to
the respective Interest Rate Creditors.
(d) For purposes of applying payments received in accordance
with this Section 9, the Pledgee shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Interest Rate
Creditors for a determination (which the Administrative Agent, each Interest
Rate Creditor and the Secured Creditors agree (or shall agree) to provide
upon request of the Collateral Agent) of the outstanding Obligations owed to
the Bank Creditors or the Interest Rate Creditors, as the case may be.
Unless it has actual knowledge (including by way of written notice from a
Bank Creditor or an Interest Rate Creditor) to the contrary, the
Administrative Agent under the Credit Agreement, in furnishing information
pursuant to the preceding sentence, and the Collateral Agent, in acting
hereunder, shall be entitled to assume that (x) no Credit Agreement
Obligations other than principal, interest and regularly accruing fees are
owing to any Bank Creditor and (y) no Interest Rate Agreement, or Interest
Rate Obligations in respect thereof, are in existence.
(e) It is understood and agreed that the Pledgors shall
remain liable to the extent of any deficiency between the amount of the
proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
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10. PURCHASERS OF COLLATERAL. Upon any sale of the
Collateral by the Pledgee hereunder (whether by virtue of the power of sale
herein granted, pursuant to judicial process or otherwise), the receipt of
the Pledgee or the officer making the sale shall be a sufficient discharge to
the purchaser or purchasers of the Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of
the purchase money paid over to the Pledgee or such officer or be answerable
in any way for the misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i)
to indemnify and hold harmless the Pledgee, each Secured Creditor and their
respective successors, assigns, employees, agents and servants (individually
an "Indemnitee", and collectively, the "Indemnitees") from and against any
and all claims, demands, losses, judgments and liabilities (including
liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse each Indemnitee for all reasonable costs and expenses, including
reasonable attorneys' fees, in each case arising out of or resulting from
this Agreement or the exercise by any Indemnitee of any right or remedy
granted to it hereunder or under any other Secured Debt Agreement (but
excluding any claims, demands, losses, judgments and liabilities (including
liabilities for penalties) or expenses of whatsoever kind or nature to the
extent incurred or arising by reason of gross negligence or willful
misconduct of such Indemnitee). In no event shall any Indemnitee hereunder
be liable, in the absence of gross negligence or willful misconduct on its
part, for any matter or thing in connection with this Agreement other than to
account for monies or other property actually received by it in accordance
with the terms hereof. If and to the extent that the obligations of any
Pledgor under this Section 11 are unenforceable for any reason, each Pledgor
hereby agrees to make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable law.
The indemnity obligations of each Pledgor contained in this Section 11 shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Interest Rate
Agreements and the payment of all other Obligations and notwithstanding the
discharge thereof.
12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) Each Pledgor
agrees that it will join with the Pledgee in executing and, at such Pledgor's
own expense, file and refile under the Uniform Commercial Code such financing
statements, continuation statements and other documents in such offices as
the Pledgee (acting on its own or on the instructions of the Required Banks)
may reasonably deem necessary or appropriate and wherever required or
permitted by law in order to perfect and preserve the Pledgee's security
interest in the Collateral hereunder and hereby authorizes the Pledgee to
file financing statements and amendments thereto relative to all or any part
of the Collateral without the signature of such Pledgor where permitted by
law, and agrees to do such further acts and things and to execute and deliver
to the Pledgee such additional conveyances, assignments, agreements and
instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm
unto the Pledgee its rights, powers and remedies hereunder or thereunder.
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Page 16
(b) Each Pledgor hereby appoints the Pledgee such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor
and in the name of such Pledgor or otherwise, from time to time after the
occurrence and during the continuance of an Event of Default, in the
Pledgee's discretion to take any action and to execute any instrument which
the Pledgee may deem necessary or advisable to accomplish the purposes of
this Agreement.
13. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will hold
in accordance with this Agreement all items of the Collateral at any time
received under this Agreement. It is expressly understood and agreed that
the obligations of the Pledgee as holder of the Collateral and interests
therein and with respect to the disposition thereof, and otherwise under this
Agreement, are only those expressly set forth in this Agreement. The Pledgee
shall act hereunder on the terms and conditions set forth herein and in
Article 10 of the Credit Agreement.
14. TRANSFER BY THE PLEDGORS. No Pledgor will sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge
or otherwise encumber any of the Collateral or any interest therein (except
in accordance with the terms of this Agreement and the Credit Documents).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGORS. (a) Each Pledgor represents, warrants and covenants that:
(i) it is the legal, beneficial and record owner of, and has
good and marketable title to, all Collateral consisting of one or more
Securities and that it has sufficient interest in all Collateral in
which a security interest is purported to be created hereunder for such
security interest to attach (subject, in each case, to no pledge, lien,
mortgage, hypothecation, security interest, charge, option, Adverse
Claim or other encumbrance whatsoever, except the liens and security
interests created by this Agreement);
(ii) it has full power, authority and legal right to pledge
all the Collateral pledged by it pursuant to this Agreement;
(iii) this Agreement has been duly authorized, executed and
delivered by such Pledgor and constitutes a legal, valid and binding
obligation of such Pledgor enforceable against such Pledgor in
accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting
creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law);
(iv) except to the extent already obtained or made, no consent
of any other party (including, without limitation, any stockholder or
creditor of such Pledgor or any of their Subsidiaries) and no consent,
license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required to be obtained by such Pledgor in connection with
(a) the execution, delivery or performance of this Agreement, (b) the
validity or
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enforceability of this Agreement (except as set forth in clause (iii)
above), (c) the perfection or enforceability of the Pledgee's security
interest in the Collateral or (d) the exercise by the Pledgee of any
of its rights or remedies provided herein, except (x) as may be
required in connection with the disposition of the Securities by laws
affecting the offering and sale of securities generally or (y) in
connection with the exercise of rights and remedies pursuant to this
Agreement, those approvals required to be obtained pursuant to
California Insurance Code Section 1215.2;
(v) the execution, delivery and performance of this Agreement
will not violate any provision of any applicable law or regulation or of
any order, judgment, writ, award or decree of any court, arbitrator or
governmental authority, domestic or foreign, applicable to such Pledgor,
or of the certificate of incorporation, operating agreement, limited
liability company agreement or by-laws of such Pledgor or of any
securities issued by such Pledgor or any of its Subsidiaries, or of any
mortgage, deed of trust, indenture, lease, loan agreement, credit
agreement or other contract, agreement or instrument or undertaking to
which such Pledgor or any of its Subsidiaries is a party or which
purports to be binding upon such Pledgor or any of its Subsidiaries or
upon any of their respective assets and will not result in the creation
or imposition of (or the obligation to create or impose) any lien or
encumbrance on any of the assets of such Pledgor or any of its
Subsidiaries except as contemplated by this Agreement (other than the
Liens created by the Collateral Documents);
(vi) all of the Collateral (consisting of Securities, Limited
Liability Company Interests or Partnership Interests) has been duly and
validly issued, is fully paid and non-assessable and is subject to no
options to purchase or similar rights;
(vii) each of the Pledged Notes constitutes, or when executed by
the obligor thereof will constitute, the legal, valid and binding
obligation of such obligor, enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at
law); and
(viii) the pledge, collateral assignment and delivery to the
Pledgee of the Collateral consisting of certificated securities pursuant
to this Agreement creates a valid and perfected first priority security
interest in such Securities, and the proceeds thereof, subject to no
prior Lien or encumbrance or to any agreement purporting to grant to any
third party a Lien or encumbrance on the property or assets of such
Pledgor which would include the Securities (other than Permitted Liens)
and the Pledgee is entitled to all the rights, priorities and benefits
afforded by the UCC or other relevant law as enacted in any relevant
jurisdiction to perfect security interests in respect of such
Collateral; and
(ix) "control" (as defined in Section 8-106 of the UCC) has been
obtained by the Pledgee over all Collateral consisting of Securities
(including Notes which are Securities)
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Page 18
with respect to which such "control" may be obtained pursuant to Section
8-106 of the UCC.
(b) Each Pledgor covenants and agrees that it will defend the
Pledgee's right, title and security interest in and to the Securities and the
proceeds thereof against the claims and demands of all persons whomsoever;
and each Pledgor covenants and agrees that it will have like title to and
right to pledge any other property at any time hereafter pledged to the
Pledgee as Collateral hereunder and will likewise defend the right thereto
and security interest therein of the Pledgee and the Secured Creditors.
(c) Each Pledgor covenants and agrees that it will take no
action which would violate any of the terms of any Secured Debt Agreement.
16. CHIEF EXECUTIVE OFFICE; RECORDS. The chief executive
office of each Pledgor is located at the address specified in Annex F hereto.
Each Pledgor will not move its chief executive office except to such new
location as such Pledgor may establish in accordance with the last sentence
of this Section 16. The originals of all documents in the possession of such
Pledgor evidencing all Collateral, including but not limited to all Limited
Liability Company Interests and Partnership Interests, and the only original
books of account and records of the Pledgor relating thereto are, and will
continue to be, kept at such chief executive office at the location specified
in Annex F hereto, or at such new locations as the Pledgor may establish in
accordance with the last sentence of this Section 16. All Limited Liability
Company Interests and Partnership Interests are, and will continue to be,
maintained at, and controlled and directed (including, without limitation,
for general accounting purposes) from, such chief executive office location
specified in Annex F hereto, or such new locations as the Pledgor may
establish in accordance with the last sentence of this Section 16. No
Pledgor shall establish a new location for such offices until (i) it shall
have given to the Collateral Agent not less than 30 days' prior written
notice of its intention so to do, clearly describing such new location and
providing such other information in connection therewith as the Collateral
Agent may reasonably request and (ii) with respect to such new location, it
shall have taken all action, satisfactory to the Collateral Agent, to
maintain the security interest of the Collateral Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect. Promptly after establishing a new location for such offices in
accordance with the immediately preceding sentence, the respective Pledgor
shall deliver to the Pledgee a supplement to Annex F hereto so as to cause
such Annex F hereto to be complete and accurate.
17. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of
each Pledgor under this Agreement shall be absolute and unconditional and
shall remain in full force and effect without regard to, and shall not be
released, suspended, discharged, terminated or otherwise affected by, any
circumstance or occurrence whatsoever (other than termination of this
Agreement pursuant to Section 19 hereof), including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any Secured Debt Agreement
(other than this Agreement
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Page 19
in accordance with its terms), or any other instrument or agreement
referred to therein, or any assignment or transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other
action or inaction under or in respect of any such agreement or
instrument or this Agreement (other than a waiver, consent or extension
with respect to this Agreement in accordance with its terms);
(iii) any furnishing of any additional security to the Pledgee
or its assignee or any acceptance thereof or any release of any security
by the Pledgee or its assignee;
(iv) any limitation on any party's liability or obligations
under any such instrument or agreement or any invalidity or
unenforceability, in whole or in part, of any such instrument or
agreement or any term thereof; or
(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating
to any Pledgor or any Subsidiary of any Pledgor, or any action taken
with respect to this Agreement by any trustee or receiver, or by any
court, in any such proceeding, whether or not such Pledgor shall have
notice or knowledge of any of the foregoing.
18. REGISTRATION, ETC. (a) If an Event of Default shall
have occurred and be continuing and any Pledgor shall have received from the
Pledgee a written request or requests that such Pledgor cause any
registration, qualification or compliance under any Federal or state
securities law or laws to be effected with respect to all or any part of the
Collateral consisting of Securities, Limited Liability Company Interests or
Partnership Interests, such Pledgor as soon as practicable and at its expense
will use its best efforts to cause such registration to be effected (and be
kept effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and
as would permit or facilitate the sale and distribution of such Collateral
consisting of Securities, Limited Liability Company Interests or Partnership
Interests, including, without limitation, registration under the Securities
Act of 1933, as then in effect (or any similar statute then in effect),
appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other governmental
requirements; PROVIDED, that the Pledgee shall furnish to such Pledgor such
information regarding the Pledgee as such Pledgor may request in writing and
as shall be required in connection with any such registration, qualification
or compliance. Each Pledgor will cause the Pledgee to be kept reasonably
advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars and other
documents incident thereto as the Pledgee from time to time may reasonably
request, and will indemnify, to the extent permitted by law, the Pledgee and
all other Secured Creditors participating in the distribution of such
Collateral consisting of Securities, Limited Liability Company Interests or
Partnership Interests against all claims, losses, damages and liabilities
caused by any untrue statement (or alleged untrue statement) of a material
fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like)
a material fact required to be stated therein
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or necessary to make the statements therein not misleading, except insofar as
the same may have been caused by an untrue statement or omission based upon
information furnished in writing to such Pledgor by the Pledgee expressly for
use therein.
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Collateral consisting of
Securities, Limited Liability Company Interests or Partnership Interests
pursuant to Section 7, and such Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act of 1933, as then in effect, the Pledgee may, in its sole and
absolute discretion, sell such Collateral or part thereof by private sale in
such manner and under such circumstances as the Pledgee may deem necessary or
advisable in order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in any such
event the Pledgee, in its sole and absolute discretion: (i) may proceed to
make such private sale notwithstanding that a registration statement for the
purpose of registering such Collateral or part thereof shall have been filed
under such Securities Act; (ii) may approach and negotiate with a single
possible purchaser to effect such sale; and (iii) may restrict such sale to a
purchaser who will represent and agree that such purchaser is purchasing for
its own account, for investment, and not with a view to the distribution or
sale of such Collateral or part thereof. In the event of any such sale, the
Pledgee shall incur no responsibility or liability for selling all or any
part of the Collateral at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until the registration as aforesaid.
19. TERMINATION; RELEASE. (a) On the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of
the respective Pledgor, will execute and deliver to such Pledgor a proper
instrument or instruments acknowledging the satisfaction and termination of
this Agreement (including, without limitation, UCC termination statements and
instruments of satisfaction, discharge and/or reconveyance), and will duly
assign, transfer and deliver to such Pledgor (without recourse and without
any representation or warranty) such of the Collateral as may be in the
possession of the Pledgee and as has not theretofore been sold or otherwise
applied or released pursuant to this Agreement, together with any moneys at
the time held by the Pledgee or any of its sub-agents hereunder and, with
respect to any Collateral consisting of an Uncertificated Security (other
than an Uncertificated Security credited on the books of a Clearing
Corporation), a Partnership Interest or a Limited Liability Company Interest,
a termination of the agreement relating thereto executed and delivered by the
issuer of such Uncertificated Security pursuant to Section 3.2(a)(ii) or by
the respective partnership or limited liability company pursuant to Section
3.2(a)(iv). As used in this Agreement, "Termination Date" shall mean the
date upon which the Total Commitments and all Interest Rate Agreements have
been terminated, no Note is outstanding (and all Loans have been paid in
full) and all other Obligations then due and payable have been paid in full.
(b) In the event that any part of the Collateral is sold or
otherwise disposed of in connection with a sale or disposition permitted by
the Credit Agreement or is otherwise released
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at the direction of the Required Banks (or all the Banks if required by
Section 11.12 of the Credit Agreement), and the proceeds of such sale or
sales or from such release are applied in accordance with the terms of the
Credit Agreement to the extent required to be so applied, the Pledgee, at the
request and expense of the respective Pledgor will duly assign, transfer and
deliver to such Pledgor (without recourse and without any representation or
warranty) such of the Collateral as is then being (or has been) so sold or
released and as may be in possession of the Pledgee and has not theretofore
been released pursuant to this Agreement.
(c) At any time that any Pledgor desires that Collateral be
released as provided in the foregoing Section 19(a) or (b), it shall deliver
to the Pledgee a certificate signed by a principal executive officer of such
Pledgor stating that the release of the respective Collateral is permitted
pursuant to Section 19(a) or (b). If reasonably requested by the Pledgee
(although the Pledgee shall have no obligation to make any such request), the
relevant Pledgor shall furnish appropriate legal opinions (from counsel
reasonably acceptable to the Pledgee) to the effect set forth in the
immediately preceding sentence. The Pledgee shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral
by it as permitted by this Section 19.
(d) The Pledgee shall have no liability whatsoever to any
Secured Creditor as the result of any release of Collateral by it in
accordance with this Section 19.
20. NOTICES, ETC. All notices and other communications
hereunder shall be in writing and shall be delivered or mailed by first class
mail, postage prepaid, addressed:
(i) if to any Pledgor, at its address set forth opposite its
signature below;
(ii) if to the Pledgee, at:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Russell Myers
Tel: (212) 270-7169
Fax: (212) 270-1001;
(iii) if to any Bank (other than the Pledgee), at such address
as such Bank shall have specified in the Credit Agreement;
(iv) if to any Interest Rate Creditor, at such address as such
Interest Rate Creditor shall have specified in writing to the Borrower
and the Pledgee;
or at such address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
21. THE PLEDGEE. The Pledgee will hold, directly or
indirectly in accordance with this Agreement, all items of the Collateral at
any time received by it under this Agreement.
<PAGE>
Page 22
It is expressly understood and agreed that the obligations of the Pledgee
with respect to the Collateral, interests therein and the disposition
thereof, and otherwise under this Agreement, are only those expressly set
forth in the UCC and this Agreement.
22. WAIVER; AMENDMENT. Except as contemplated in Section 25
hereof, none of the terms and conditions of this Agreement may be changed,
waived, discharged or terminated in any manner whatsoever unless such change,
waiver, discharge or termination is in writing duly signed by each Pledgor to
be bound thereby and the Collateral Agent (with the consent of the Required
Banks or, to the extent required by Section 11.12 of the Credit Agreement,
all of the Banks), PROVIDED, HOWEVER, that no such change, waiver,
modification or variance shall be made to Section 9 hereof or this Section 22
without the consent of each Secured Creditor adversely affected thereby,
PROVIDED FURTHER that any change, waiver, modification or variance affecting
the rights and benefits of a single Class (as defined below) of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such Class of
Secured Creditors. For the purpose of this Agreement, the term "Class" shall
mean each class of Secured Creditors, i.e., whether (x) the Bank Creditors as
holders of the Credit Agreement Obligations, (y) the Interest Rate Creditors
as holders of the Interest Rate Obligations. For the purpose of this
Agreement, the term "Requisite Creditors" of any Class shall mean each of (x)
with respect to each of the Credit Agreement Obligations, the Required Banks
and (y) with respect to the Interest Rate Obligations, the holders of 51% of
all obligations outstanding from time to time under the Interest Rate
Agreements.
23. MISCELLANEOUS. This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect, subject to release and/or termination as set forth in Section 19,
(ii) be binding upon each Pledgor, its successors and assigns; PROVIDED,
HOWEVER, that no Pledgor shall assign any of its rights or obligations
hereunder without the prior written consent of the Pledgee (with the prior
written consent of the Required Banks, or to the extent required by Section
11.12 of the Credit Agreement, all of the Banks), and (iii) inure, together
with the rights and remedies of the Pledgee hereunder, to the benefit of the
Pledgee, the Secured Creditors and their respective successors, transferees
and assigns. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings of the several
sections and subsections in this Agreement are for purposes of reference only
and shall not limit or define the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument. In the event that
any provision of this Agreement shall prove to be invalid or unenforceable,
such provision shall be deemed to be severable from the other provisions of
this Agreement which shall remain binding on all parties hereto.
24. WAIVER OF JURY TRIAL. Each Pledgor hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this agreement or the transactions contemplated
hereby.
25. ADDITIONAL PLEDGORS. It is understood and agreed that any
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement after the date hereof
<PAGE>
Page 23
pursuant to the Credit Agreement shall automatically become a Pledgor
hereunder by executing a counterpart hereof and delivering the same to the
Pledgee.
26. RECOURSE. This Agreement is made with full recourse to
the Pledgors and pursuant to and upon all the representations, warranties,
covenants and agreements on the part of the Pledgors contained herein and in
the other Secured Debt Agreements and otherwise in writing in connection
herewith or therewith.
27. LIMITED OBLIGATIONS. It is the desire and intent of each
Pledgor and the Secured Creditors that this Agreement shall be enforced
against each Pledgor to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Notwithstanding anything to the contrary contained herein, in furtherance of
the foregoing, it is noted that the obligations of each Pledgor constituting
a Subsidiary Guarantor have been limited as provided in the Subsidiary
Guaranty.
28. PLEDGEE NOT A PARTNER OR LIMITED LIABILITY COMPANY
MEMBER. (a) Nothing herein shall be construed to make the Pledgee or any
other Secured Creditor liable as a member of any limited liability company or
partnership and neither the Pledgee nor any other Secured Creditor by virtue
of this Agreement or otherwise (except as referred to in the following
sentence) shall have any of the duties, obligations or liabilities of a
member of any limited liability company or partnership. The parties hereto
expressly agree that, unless the Pledgee shall become the absolute owner of
Collateral consisting of a Limited Liability Company Interest or Partnership
Interest pursuant hereto, this Agreement shall not be construed as creating a
partnership or joint venture among the Pledgee, any other Secured Creditor
and/or any Pledgor.
(b) Except as provided in the last sentence of paragraph
(a) of this Section 28, the Pledgee, by accepting this Agreement, did not
intend to become a member of any limited liability company or partnership or
otherwise be deemed to be a co-venturer with respect to any Pledgor or any
limited liability company or partnership either before or after an Event of
Default shall have occurred. The Pledgee shall have only those powers set
forth herein and the Secured Creditors shall assume none of the duties,
obligations or liabilities of a member of any limited liability company or
partnership or any Pledgor except as provided in the last sentence of
paragraph (a) of this Section 28.
(c) The Pledgee and the other Secured Creditors shall not
be obligated to perform or discharge any obligation of any Pledgor as a
result of the pledge hereby effected.
(d) The acceptance by the Pledgee of this Agreement, with
all the rights, powers, privileges and authority so created, shall not at any
time or in any event obligate the Pledgee or any other Secured Creditor to
appear in or defend any action or proceeding relating to the Collateral to
which it is not a party, or to take any action hereunder or thereunder, or to
expend any money or incur any expenses or perform or discharge any
obligation, duty or liability under the Collateral.
<PAGE>
Page 24
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
ADDRESSES:
SUPERIOR NATIONAL INSURANCE GROUP,
INC., as a Pledgor
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
SUPERIOR PACIFIC INSURANCE GROUP,
INC., as a Pledgor
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
BUSINESS INSURANCE GROUP, INC.,
as a Pledgor
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
PACIFIC INSURANCE BROKERAGE, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
<PAGE>
Page 25
INFONET MANAGEMENT SYSTEMS, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
SN INSURANCE SERVICES, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
& Chief Financial
Officer
SN INSURANCE ADMINISTRATORS, INC.
By: /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Vice President
<PAGE>
THE CHASE MANHATTAN BANK,
as Collateral Agent and Pledgee
By: /s/ LAWRENCE PALUMBO, JR.
------------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
ANNEX G
FORM OF AGREEMENT REGARDING UNCERTIFICATED SECURITIES, LIMITED LIABILITY
COMPANY INTERESTS AND PARTNERSHIP INTERESTS
AGREEMENT (as amended, modified or supplemented from time to
time, this "Agreement"), dated as of _________ __, _____, among each of the
undersigned pledgors (each a "Pledgor" and, collectively, the "Pledgors"),
__________, not in its individual capacity but solely as Collateral Agent (the
"Pledgee"), and __________, as the issuer of the Uncertificated Securities,
Limited Liability Company Interests and/or Partnership Interests (each as
defined below) (the "Issuer").
W I T N E S S E T H :
WHEREAS, each Pledgor and the Pledgee are entering into a Pledge
Agreement, dated as of December __, 1998 (as amended, amended and restated,
modified or supplemented from time to time, the "Pledge Agreement"), under
which, among other things, in order to secure the payment of the Obligations (as
defined in the Pledge Agreement), each Pledgor will pledge to the Pledgee for
the benefit of the Secured Creditors (as defined in the Pledge Agreement), and
grant a security interest in favor of the Pledgee for the benefit of the Secured
Creditors in, all of the right, title and interest of such Pledgor in and to any
and all (1) "uncertificated securities" (as defined in Section 8-102(a)(18) of
the Uniform Commercial Code, as adopted in the State of New York)
("Uncertificated Securities"), (2) Partnership Interests (as defined in the
Pledge Agreement) and (3) Limited Liability Company Interests (as defined in the
Pledge Agreement), in each case issued from time to time by the Issuer, whether
now existing or hereafter from time to time acquired by such Pledgor (with all
of such Uncertificated Securities, Partnership Interests and Limited Liability
Company Interests being herein collectively called the "Issuer Pledged
Interests"); and
WHEREAS, each Pledgor desires the Issuer to enter into this
Agreement in order to perfect the security interest of the Pledgee under the
Pledge Agreement in the Issuer Pledged Interests, to vest in the Pledgee control
of the Issuer Pledge Interests and to provide for the rights of the parties
under this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Each Pledgor hereby irrevocably authorizes and directs the
Issuer, and the Issuer hereby agrees, to comply with any and all instructions
and orders originated by the Pledgee (and its successors and assigns) regarding
any and all of the Issuer Pledged Interests without the further consent by the
registered owner (including the respective Pledgor), and not to comply with any
instructions or orders regarding any or all of the Issuer Pledged Interests
<PAGE>
ANNEX G
Page 2
originated by any person or entity other than the Pledgee (and its successors
and assigns) or a court of competent jurisdiction.
2. The Issuer hereby certifies that (i) no notice of any
security interest, lien or other encumbrance or claim affecting the Issuer
Pledged Interests (other than the security interest of the Pledgee) has been
received by it, and (ii) the security interest of the Pledgee in the Issuer
Pledged Interests has been registered in the books and records of the Issuer.
3. The Issuer hereby represents and warrants that (i) the pledge
by the Pledgors of, and the granting by the Pledgors of a security interest in,
the Issuer Pledged Interests to the Pledgee, for the benefit of the Secured
Creditors, does not violate the charter, by-laws, partnership agreement,
membership agreement or any other agreement governing the Issuer or the Issuer
Pledged Interests, and (ii) the Issuer Pledged Interests are fully paid and
nonassessable.
4. All notices, statements of accounts, reports, prospectuses,
financial statements and other communications to be sent to any Pledgor by the
Issuer in respect of the Issuer will also be sent to the Pledgee at the
following address:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: _____________
Tel: (212) _____________
Fax: (212) _____________
5. Until the Pledgee shall have delivered written notice to the
Issuer that all of the Obligations have been paid in full and this Agreement is
terminated, the Issuer will send any and all redemptions, distributions,
interest or other payments in respect of the Issuer Pledged Interests from the
Issuer for the account of the Pledgor only by wire transfers to the following
address:
_____________________
_____________________
_____________________
_____________________
[Account Information]
ABA No.: _____________________
Account in the Name of: ___________
Account No.: ______________________
6. Except as expressly provided otherwise in Sections 4 and 5,
all notices, instructions, orders and communications hereunder shall be sent or
delivered by mail, telex, telecopy or overnight courier service and all such
notices and communications shall, when mailed, telexed, telecopied or sent by
overnight courier, be effective when deposited in the mails or delivered to the
overnight courier, prepaid and properly addressed for delivery on such or the
next Business Day, or sent by telex or telecopier, except that notices and
communications to the
<PAGE>
ANNEX G
Page 3
Pledgee shall not be effective until received by the Pledgee. All notices
and other communications shall be in writing and addressed as follows:
(a) if to any Pledgor, at:
__________________________
__________________________
Attention: ______________
Tel.: (___) _____________
Fax: (___) ______________
(b) if to the Pledgee, at:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: _____________
Tel: (212) _____________
Fax: (212) _____________
(c) if to the Issuer, at:
_________________________
_________________________
_________________________
Attention: _____________
Telephone No.:___________
Telecopier No.:__________
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. As used in this
Section 6, "Business Day" means any day other than a Saturday, Sunday, or other
day in which banks in New York are authorized to remain closed.
7. This Agreement shall be binding upon the successors and
assigns of each Pledgor and the Issuer and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. This Agreement may
be executed in any number of counterparts, each of which shall be an original,
but all of which shall constitute one instrument. In the event that any
provision of this Agreement shall prove to be invalid or unenforceable, such
provision shall be deemed to be severable from the other provisions of this
Agreement which shall remain binding on all parties hereto. None of the terms
and conditions of this Agreement may be changed, waived, modified or varied in
any manner whatsoever except in writing signed by the Pledgee, the Issuer and
any Pledgor which at such time owns any Issuer Pledged Interests.
8. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
principles of conflict of laws.
<PAGE>
ANNEX G
Page 4
IN WITNESS WHEREOF, each Pledgor, the Pledgee and the Issuer have
caused this Agreement to be executed by their duly elected officers duly
authorized as of the date first above written.
[ ],
as a Pledgor
By
-----------------------------
Name:
Title:
[ ],
as a Pledgor
By
-----------------------------
Name:
Title:
[ ],
as a Pledgor
By
-----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
not in its individual capacity but
solely as Collateral Agent and Pledgee
By
-----------------------------
Name:
Title:
<PAGE>
ANNEX G
Page 5
[ ],
the Issuer
By
-----------------------------
Name:
Title:
<PAGE>
EXECUTION VERSION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of December 9, 1998
Among
CALIFORNIA COMPENSATION INSURANCE COMPANY,
COMMERCIAL COMPENSATION INSURANCE COMPANY,
COMBINED BENEFITS INSURANCE COMPANY
and
BUSINESS INSURANCE COMPANY,
EACH AS AN ORIGINATOR,
and
INSURANCE FUNDING LLC,
AS THE BUYER.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Accounting and Certain Other Terms.. . . . . . . . . . . . . . . . . 8
SECTION 1.03. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.04. Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II AMOUNTS AND TERMS OF THE PURCHASE.
SECTION 2.01. Agreement to Purchase. . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.02. Payment for the Purchase . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.03. Payments and Computations, Etc . . . . . . . . . . . . . . . . . . . 9
SECTION 2.04. Transfer of Records to the Buyer. . . . . . . . . . . . . . . . . . .10
ARTICLE III CONDITIONS OF PURCHASE
SECTION 3.01. Conditions Precedent to the Purchase . . . . . . . . . . . . . . . .10
SECTION 3.02. Effect of Payment of Purchase Price. . . . . . . . . . . . . . . . .10
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Originators. . . . . . . . . .11
ARTICLE V GENERAL COVENANTS
SECTION 5.01. General Covenants. . . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE VI COLLECTION AND MONITORING OF ASSETS
SECTION 6.01. Collections and Lock-Boxes.. . . . . . . . . . . . . . . . . . . . .17
SECTION 6.02. UCC Matters; Protection and Perfection of Transferred Assets.. . . .18
SECTION 6.03. Obligations of the Originators With Respect to Receivables.. . . . .19
SECTION 6.04. Applications of Collections. . . . . . . . . . . . . . . . . . . . .19
ARTICLE VII FURTHER ASSURANCES
SECTION 7.01. Further Assurances.. . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE VIII INDEMNIFICATION
SECTION 8.01. Indemnities by the Originators. . . . . . . . . . . . . . . . . . . .19
ARTICLE IX MISCELLANEOUS
SECTION 9.01. Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . .21
SECTION 9.02. Notices, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 9.03. Setoff and Counterclaim. . . . . . . . . . . . . . . . . . . . . . .22
SECTION 9.04. No Waiver; Remedies. . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 9.05. Binding Effect; Assignability. . . . . . . . . . . . . . . . . . . .22
SECTION 9.06. Term of this Agreement.. . . . . . . . . . . . . . . . . . . . . . .22
SECTION 9.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF OBJECTION TO VENUE. . . . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 9.08. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 9.09. Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . .23
SECTION 9.10. Execution in Counterparts; Severability; Integration . . . . . . . .23
SECTION 9.11. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
SCHEDULES
Schedule I -- Condition Precedent Documents
Schedule II -- Description of Credit and Collection Policy
Schedule III -- Lock-Box Banks and Lock-Box Accounts
Schedule IV -- Tradenames, Fictitious Names and "Doing Business As" Names
Schedule V -- List of Receivables Purchased on the Closing Date
EXHIBITS
Exhibit A -- Form of Lock-Box Agreements
Exhibit B -- Form of Opinion of Counsel for the Originators
<PAGE>
THIS RECEIVABLES PURCHASE AND SALE AGREEMENT (the "AGREEMENT")
is made as of December 9, 1998, by and among CALIFORNIA COMPENSATION
INSURANCE COMPANY, a California corporation, COMMERCIAL COMPENSATION
INSURANCE COMPANY, a New York corporation, COMBINED BENEFITS INSURANCE
COMPANY, a California corporation, and BUSINESS INSURANCE COMPANY, a Delaware
corporation, as the originators (each an "ORIGINATOR" and, collectively, the
"ORIGINATORS"), INSURANCE FUNDING LLC, a Delaware limited liability company
(the "BUYER").
WITNESSETH:
WHEREAS, the Originators desire to sell, and the Buyer desires
to purchase, all of the Originators' right, title and interest in certain
receivables on the terms and conditions provided herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. (a) Certain capitalized
terms used throughout this Agreement are defined above or in this SECTION 1.01.
(b) As used in this Agreement and its exhibits, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"ADVERSE CLAIM" means a lien, security interest, charge,
encumbrance or other right or claim of any Person having the practical effect of
a lien, security interest, charge or encumbrance.
"AFFILIATE" when used with respect to a Person means any other
Person controlling, controlled by or under common control with such Person.
For purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise; and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
"AGENT'S BALANCE" means, in respect of an Insurance Premium, the
amount of such Insurance Premium due and payable to an Originator by (a) an
Insurance Agent, on behalf of the related Policyholder, in which case the
Insurance Agent has deducted any commissions due such Insurance Agent from the
Outstanding Balance thereof or (b) a Policyholder, in which case the
<PAGE>
Originator shall have deducted any commissions due such Insurance Agent from
the Outstanding Balance thereof.
"BANKRUPTCY CODE" means the United States Bankruptcy Reform Act
of 1978 (11 U.S.C. Sections 101 ET SEQ.), as amended from time to time, or any
successor statute.
"BASE RATE" means, on any day, a fluctuating rate of interest per
annum equal to the higher of (a) the per annum rate of interest announced from
time to time by BankBoston, N.A. at its head office in Boston, Massachusetts as
its "base rate", and (b) 1/2 of one percent per annum above the Federal Funds
Rate.
"BENEFIT PLAN" means any employee benefit plan as defined in
Section 3(3) of ERISA in respect of which any Originator or any ERISA Affiliate
of any Originator is, or at any time during the immediately preceding six years
was, an "employer" as defined in Section 3(5) of ERISA.
"BUSINESS DAY" means a day of the year other than a Saturday or a
Sunday on which banks are required to be open in New York City and Boston,
Massachusetts.
"CLOSING DATE" means the date on which the Buyer makes the
Purchase of Receivables under this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended, and
any successor statute.
"COLLECTION ACCOUNT" has the meaning set forth in the Receivables
Purchase Agreement.
"COLLECTION ACCOUNT AGREEMENT" means that certain Collection
Account Agreement dated as of even date herewith among the Collection Account
Bank, the Servicer, the Buyer and the Deal Agent.
"COLLECTION ACCOUNT BANK" means the financial institution
maintaining the Collection Account, which initially shall be BankBoston, N.A.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all cash proceeds of the Related Security with respect thereto.
"CONFIDENTIAL INFORMATION" has the meaning assigned to such term
in SECTION 9.11.
"CONTRACT" means an agreement between an Originator and a Person
pursuant to or under which such Obligor shall be obligated to make one or more
payments to an Originator including, without limitation, (i) Insurance Policies
and (ii) Reinsurance Treaties.
"CREDIT AND COLLECTION POLICY" means those credit and collection
policies and practices relating to Contracts and Receivables described in
SCHEDULE II.
<PAGE>
"DEAL AGENT" means the "Deal Agent" under the Receivables
Purchase Agreement.
"DEFAULTED RECEIVABLE" means a Receivable (a) (ii) in the case of
an Agent's Balance, as to which any payment, or part thereof, remains unpaid for
more than 270 days from the original invoice date for such payment and (ii) in
the case of a Reinsurance Recoverable, as to which any payment, or party
thereof, remains unpaid for more than 270 days from the date of this Agreement,
(b) as to which the Obligor thereof has taken any action constituting an
Insolvency Event or suffered any Insolvency Event or (c) which, consistent with
the Credit and Collection Policy, has been or should be written off the
applicable Originator's books as uncollectible.
"DILUTION FACTORS" means, with respect to the Receivables, any
credits, rebates, freight charges, discounts, allowances, disputes, chargebacks,
allowances for early payments and other allowances or adjustments granted in
accordance with the Buyer's or the Originators' usual practices.
"DISCOUNT FACTOR" means a percentage calculated to provide the
Buyer with a reasonable return on its investment in the Transferred Assets after
taking account of the time value of money based upon the anticipated dates of
collection of the Transferred Assets. The Discount Factor shall be 5.5%.
"EAGLEFUNDING" means EagleFunding Capital Corporation, a Delaware
corporation.
"ELIGIBLE RECEIVABLE" means, at any time, a Receivable:
(a) the Obligor of which is a United States resident, is not an
Affiliate of the Buyer or any Originator, and is not a government or a
governmental subdivision or agency;
(b) which is not a Defaulted Receivable;
(c) which arises under a Contract (i) the performance of which
has been completed by the applicable Originator and by all other parties
other than the Obligor and (ii) that has been duly authorized and,
together with such Receivable, is in full force and effect and
constitutes the legal, valid and binding obligation of the Obligor of
such Receivable, enforceable against such Obligor in accordance with its
terms and is not subject to any dispute, offset, counterclaim or defense
whatsoever;
(d) (i) which is an "account" or a "general intangible" within
the meaning of Section 9-106 of the UCC of all applicable jurisdictions,
(ii) as to which all performance and other action required to be taken
in connection therewith by such Originator for the
3
<PAGE>
Obligor has been so performed or taken, (iii) is denominated and payable
only in United States dollars in the United States, (iv) no portion of
which is payable on account of sales taxes, and (v) in which the
applicable Originator can grant a perfected security interest;
(e) which arises in the ordinary course of the Originators'
business in connection with providing services or the sale of goods
within the United States;
(f) the assignment of which (including, without limitation, the
sale of an undivided percentage interest therein and the assignment of
any Related Security) does not contravene or conflict with any
applicable laws, rules or regulations or any contractual or other
restriction, limitation or encumbrance;
(g) which does not have an Adverse Claim filed against it (other
than pursuant to the Receivables Purchase Agreement) and is not
otherwise subject to an Adverse Claim and has not been compromised,
adjusted or modified (including by extension of time of payment or the
granting of any discounts, allowances or credits) except for discounts,
allowances or credits made in accordance with the Credit and Collection
Policy and in the ordinary course of the Originators' business;
(h) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection
practices and privacy) and with respect to which no party to the
Contract related thereto is in violation of any such law, rule or
regulation in any material respect;
(i) which satisfies, and has been originated in accordance with,
all applicable requirements of the Credit and Collection Policy;
(j) as to which the Buyer has not notified the applicable
Originator in writing that the Buyer or Deal Agent (as Buyer's assignee)
has determined, in its reasonable business judgment, that such
Receivable (or class of Receivables) is not acceptable for purchase
hereunder;
(k) with respect to which, (i) prior to the Purchase hereunder
by Buyer, the applicable Originator has a first priority ownership
interest therein, free and clear of any Adverse Claim, and (ii) from and
after the Purchase hereunder, Buyer has a properly perfected first
priority ownership interest therein, free and clear of any Adverse
Claim; and
(l) with respect to which no Person other than the applicable
Originator or an Affiliate thereof is attempting to collect the proceeds
of such Receivable.
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"ERISA" means the U.S. Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA AFFILIATE" means (a) any corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Originators; (b) a partnership or other trade or
business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with the Originators or (c) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Originators, any corporation described in CLAUSE (a) above
or any partnership, trade or business described in CLAUSE (b) above.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, in each case consistently
applied.
"NDEMNIFIED AMOUNTS" has the meaning assigned to that term in
SECTION 8.01.
"INDEMNIFIED PARTIES" has the meaning assigned to that term in
SECTION 8.01.
"INSOLVENCY EVENT" means, with respect to any Person, any of the
following events:
such Person shall make a general assignment for the benefit of creditors; or any
case or proceeding shall be instituted by or against such Person seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, dissolution,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property.
"INSURANCE AGENT" means a Person authorized to sell an Insurance
Policy.
"INSURANCE POLICY" means a duly filed and approved contract of
insurance in force and effective on the date hereof.
"INSURANCE PREMIUM" means an amount due from a Policyholder in
order to receive the benefits of an Insurance Policy.
"INVESTMENT COMPANY ACT" means the Investment Company Act of
1940, as amended and any successor.
"LOCK-BOX" means a post office box to which Collections are
remitted for retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank
into a Lock-Box Account.
"LOCK-BOX ACCOUNT" means an account maintained for the purpose of
receiving Collections at a bank or other financial institution which has
executed a Lock-Box Agreement.
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"LOCK-BOX AGREEMENT" means an agreement, in substantially the
form of EXHIBIT A, among the applicable Originator and a Lock-Box Bank.
"LOCK-BOX BANK" means any of the banks or other financial
institutions holding one or more Lock-Box Accounts.
"MATERIAL ADVERSE EFFECT" means any act, omission, situation,
circumstance, event or undertaking which could, singly or in any combination
with one or more other acts, omissions, situations, circumstances, events or
undertakings, have, or are reasonably likely to have, a material adverse
effect upon (a) the business, assets, properties, liabilities, financial
condition, or results of operations of any Originator and its subsidiaries
taken as a whole, (b) the value of the whole or any material part of the
Transferred Assets, the interests therein transferred or purported to be
transferred pursuant to the terms hereof or the priority of such interests,
(c) the respective ability of the Originators or any of their subsidiaries to
perform any obligations under this Agreement or any other Originator Document
to which it is a party, or (d) the legality, validity, binding effect or
enforceability of any Originator Document or the ability of the Buyer or the
Deal Agent to enforce any rights or remedies under or in connection with any
Originator Document.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding five years contributed to by an Originator or any
ERISA Affiliate on behalf of its employees.
"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract, and includes, without limitation, (i) in the case of a Reinsurance
Recoverable, the applicable Reinsurance Company and (ii) in the case of an
Agent's Balance, either the Insurance Agent or the Policyholder, as the case may
be.
"ORIGINATOR DOCUMENTS" means this Agreement, the Lock-Box
Agreements, and all other certificates, instruments, UCC financing statements,
reports, notices, agreements and documents executed or delivered under or in
connection with this Agreement, in each case as the same may be amended,
supplemented or otherwise modified from time to time in accordance with this
Agreement.
"OUTSTANDING BALANCE" of any Receivable at any time means the
then outstanding principal balance thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
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"PERSON" means an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company, government (or any agency or political
subdivision thereof) or other entity.
"POLICYHOLDER" means the Person who is the named insured under an
Insurance Policy.
"PURCHASE" means a purchase of Transferred Assets by the Buyer
from the Originators pursuant to SECTION 2.01.
"PURCHASE PRICE" means, with respect to the Purchase hereunder,
the aggregate price to be paid to the applicable Originator for the Purchase in
accordance with SECTION 2.02 for the Receivables, Related Security and
Collections being sold to the Buyer, which price shall equal the product of (x)
the aggregate Outstanding Balance of such Receivables and (y) one minus the
Discount Factor.
"RECEIVABLE" means an Agent's Balance or a Reinsurance
Recoverable.
"RECEIVABLES PURCHASE AGREEMENT" means that certain Receivables
Purchase Agreement dated as of even date herewith by and among the Buyer, as the
seller thereunder, EagleFunding, as the purchaser, BancBoston Robertson Stephens
Inc., as the "Deal Agent", and the Servicer, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"RECORDS" means all Contracts and other documents, books, records
and other information (including without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
maintained with respect to Receivables and the related Obligors which the
applicable Originator has itself generated or in which such Originator has
otherwise obtained an interest.
"REINSURANCE COMPANY" means an insurance company listed on
Schedule V hereto which has entered into a Reinsurance Treaty with an
Originator.
"REINSURANCE RECOVERABLE" means an amount due an Originator from
a Reinsurance Company in respect of a claim under a Reinsurance Treaty.
"REINSURANCE TREATY" means a contract listed on Schedule V hereto
pursuant to which an Originator reinsures or is otherwise indemnified against
all or a portion of claims it must pay to a Policyholder under any Insurance
Policy.
"RELATED SECURITY" means with respect to any Receivable:
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(a) all Adverse Claims and property subject thereto from time to
time purporting to secure payment of such Receivable, whether pursuant
to the Contract related to such Receivable or otherwise;
(b) the assignment to the Buyer of all UCC financing statements
covering any collateral securing payment of such Receivable;
(c) all guarantees, indemnities, warranties, letters of credit,
insurance policies and proceeds and premium refunds thereof and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable whether pursuant to
the Contract related to such Receivable or otherwise;
(d) all right, title and interest of the relevant Originator in
to and under the related Contract (but only to the extent relating to
such Receivable);
(d) all Records; and
(e) all proceeds of the foregoing.
"SERVICER" means at any time the Person then authorized pursuant
to the Receivables Purchase Agreement to service, administer and collect
Receivables.
"SUPERIOR" means Superior National Insurance Group, a Delaware
corporation.
"SUPPORT AGREEMENT" means the Support Agreement, dated as of
December 9, 1998, executed by Superior in favor of the Buyer, EagleFunding and
the Deal Agent.
"TERMINATION DATE" means the date on which the aggregate
Outstanding Balance of all Receivables sold hereunder has been reduced to zero
(or such earlier date which is 365 days after all outstanding Receivables sold
hereunder have become written-off in accordance with the Credit and Collection
Policy), the Buyer has received all other amounts due to it in connection with
this Agreement or any other agreement executed pursuant hereto or in connection
herewith.
"TRANSFERRED ASSETS" means, with respect to the Purchase, (a) the
Receivables sold to the Buyer in connection with the Purchase, (b) all Related
Security relating to such Receivables, and (c) all Collections with respect to,
and other proceeds of, such Receivables.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the specified jurisdiction.
"UNITED STATES" means the United States of America.
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SECTION 1.02. ACCOUNTING AND CERTAIN OTHER TERMS. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP, and all accounting determinations made and all
financial statements prepared hereunder shall be made and prepared in
accordance with GAAP. All undefined terms contained in this Agreement which
are used in Article 9 of the UCC in the State of California shall have the
meanings provided for by such Article 9.
SECTION 1.03. OTHER TERMS. The words "herein," "hereof," and
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the exhibits and schedules hereto, as the same may from time
to time be amended or supplemented and not to any particular section,
subsection, or clause contained in this Agreement, and all references to
Sections, Exhibits and Schedules shall mean, unless the context clearly
indicates otherwise, the Sections hereof and the Exhibits and Schedules
attached hereto, the terms of which Exhibits and Schedules are hereby
incorporated into this Agreement. Whenever appropriate, in the context, terms
used herein in the singular also include the plural, and vice versa.
SECTION 1.04. COMPUTATION OF TIME PERIODS. Unless otherwise
stated in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding."
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASE.
SECTION 2.01. AGREEMENT TO PURCHASE. (a) On the terms and
conditions hereinafter set forth, the Buyer agrees to make the Purchase
hereunder on the Closing Date by purchasing from each Originator, and each
Originator agrees to sell to the Buyer, all Receivables of such Originator
existing as of the close of business on the Business Day immediately prior to
the Closing Date and identified on Schedule V hereto, together with all of
the Related Security relating to such Receivables and all Collections with
respect to, and other proceeds of, such Receivables. Prior to making the
Purchase hereunder, the Buyer may request of any Originator, and the
applicable Originator shall deliver, such approvals, opinions, information,
reports or documents as the Buyer may reasonably request.
(b) It is the intention of the parties hereto that the
Purchase of Receivables to be made hereunder shall constitute an absolute
sale which vests in the Buyer all right, title and interest of the
Originators in and to such Receivables, and not a loan secured by such
Receivables. If at any time a court characterizes the transactions hereunder
as loans by the Buyer to the Originators, then each of the Originators hereby
pledges, grants a security interest in and assigns to the Deal Agent, for the
benefit of the Buyer, all of its right and title to and interest in the
Purchased Property, including the Purchased Receivables, Related Security and
Collections related thereto, as security for such loans and for the payment
and performance of all obligations of the Originators hereunder (including,
without limitation, their indemnification obligations
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under ARTICLE VIII). The security interest granted pursuant to the foregoing
sentence shall be released and terminated upon the occurrence of the
Collection Date. Each sale of Receivables by any Originator to the Buyer is
made without recourse; PROVIDED, HOWEVER, that (i) the Originators shall be
liable to the Buyer for all representations, warranties and covenants made by
the Originators pursuant to the terms of this Agreement, and (ii) such sale
does not constitute and is not intended to result in an assumption by the
Buyer or any assignee thereof of any obligation of the Originators or any
other person arising in connection with the Transferred Assets, or any other
obligations of the Originators. In view of the intention of the parties
hereto that the Purchase of Receivables to be made hereunder shall constitute
a sale of such Receivables rather than a loan secured by such Receivables,
each Originator agrees to clearly, expressly and accurately state on its
respective financial statements that the Receivables have been sold to the
Buyer.
SECTION 2.02. PAYMENT FOR THE PURCHASE. (a) The Purchase Price
for the Purchase shall be payable in full in cash by the Buyer to the applicable
Originator or its designee on the date of the Purchase.
SECTION 2.03. PAYMENTS AND COMPUTATIONS, ETC. All amounts to
be paid by any Originator to the Buyer hereunder shall be paid in accordance
with the terms hereof no later than 11:00 A.M. (Boston, Massachusetts time)
on the day when due in immediately available funds to such account as the
Buyer may from time to time specify in writing. Payments received by the
Buyer after such time shall be deemed to have been received on the next
Business Day. In the event that any payment becomes due on a day which is
not a Business Day, then such payment shall be made on the next succeeding
Business Day. Each of the Originators shall, to the extent permitted by law,
pay to the Buyer, on demand, interest on all amounts not paid when due
hereunder at 2.0% per annum above the Base Rate, payable on demand; PROVIDED,
HOWEVER, that such interest rate shall not at any time exceed the maximum
rate permitted by applicable law. All computations of interest payable
hereunder shall be made on the basis of a year of 360 days for the actual
number of days (including the first but excluding the last day) elapsed.
SECTION 2.04. TRANSFER OF RECORDS TO THE BUYER. (a) The
Purchase of Receivables hereunder shall include the transfer to the Buyer of
all of the applicable Originator's right and title to and interest in the
Records relating to such Receivables and rights to the use of such
Originator's computer software to access and create the Records, and each
Originator hereby agrees that such transfer shall be effected automatically
with the Purchase, without any action on the part of the parties hereto or
any further documentation.
(b) Each Originator shall take such action requested by the
Buyer, from time to time hereafter, that may be necessary or appropriate to
ensure that the Buyer and its assignees have (i) an enforceable ownership
interest in the Records relating to the Receivables purchased hereunder and
(ii) an enforceable right (whether by license or sublicense or otherwise) to
use all of the computer software used to account for the Receivables and/or
to recreate such Records.
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ARTICLE III
CONDITIONS OF PURCHASE
SECTION 3.01. CONDITIONS PRECEDENT TO THE PURCHASE. (a) The
Purchase hereunder is subject to the conditions precedent that the Buyer shall
have received on or before the date of such purchase the items listed in
SCHEDULE I, each (unless otherwise indicated) dated such date, in form and
substance satisfactory to the Buyer.
(b) The Purchase from the Originators by the Buyer shall be
subject to the further conditions precedent that (i) on the Closing Date, (A)
the representations and warranties contained in SECTION 4.01 are correct on
and as of such day as though made on and as of such date, and (B) no law or
regulation shall prohibit, and no order, judgment or decree of any federal,
state or local court or governmental body, agency or instrumentality shall
prohibit or enjoin, the making of the Purchase by the Buyer in accordance
with the provisions hereof and (ii) the Buyer shall have received such other
approvals, opinions or documents as the Buyer may reasonably request.
SECTION 3.02. EFFECT OF PAYMENT OF PURCHASE PRICE. Each
Originator, by accepting the proceeds of the Purchase Price, shall be deemed
to have certified to the Buyer the satisfaction of the conditions precedent
described in the immediately preceding SECTION 3.01. Upon the payment of the
Purchase Price, title to the Transferred Assets included in the Purchase
shall vest irrevocably in the Buyer, whether or not the conditions precedent
to the Purchase were in fact satisfied; PROVIDED, HOWEVER, that the Buyer
shall not be deemed to have waived thereby any claim for indemnification it
may have under this Agreement for the failure by any Originator in fact to
have satisfied any such condition precedent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS.
The Originators represent and warrant that as of the date hereof and as of the
date of the Purchase:
(a) Each of the Originators is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to do business, and is in
good standing, in every jurisdiction in which the nature of its business
requires it to be so qualified and the failure to do so could reasonably be
expected to have a Material Adverse Effect.
(b) The execution, delivery and performance by the
Originators of this Agreement and all other Originator Documents to be entered
into by them, including the Originators' use of the proceeds of the Purchase,
are within each Originator's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) each
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Originator's charter or by-laws, (ii) any law, rule or regulation applicable
to the Originators, (iii) any contractual restriction binding on or affecting
each Originator or its property or (iv) any order, writ, judgment, award,
injunction or decree binding on or affecting each Originator or its property,
and do not result in or require the creation of any Adverse Claim upon or
with respect to any of its properties (other than in favor of the Buyer with
respect to the Transferred Assets); and no transaction contemplated hereby
requires compliance with any bulk sales act or similar law. This Agreement
and each other Originator Document to be entered into by the Originators have
each been duly executed and delivered by the Originators.
(c) This Agreement and each other Originator Document to be
entered into by the Originators constitute the legal, valid and binding
obligation of the Originators enforceable against each Originator in
accordance with their respective terms subject to bankruptcy and similar laws
affecting creditors generally and principles of equity.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Originators
of this Agreement or any other Originator Document to be entered into by
them, except for the filing of the UCC financing statements referred to in
ARTICLE III, all of which financing statements have been duly executed and
are in proper form for filing in the relevant jurisdictions.
(e) No filing, recording, notice or acknowledgment is
necessary in any jurisdiction to provide third parties with notice of the
sale of the Receivables herein contemplated, and to give to the Buyer a first
priority perfected security interest in such Receivables, except for (i) the
filing of the UCC financing statements referred to in ARTICLE III, all of
which financing statements have been duly executed and are in proper form for
filing in the relevant jurisdictions and (ii) the delivery of the notices of
change of ownership referred to in ARTICLE III, all of which notices of
change of ownership have been duly executed and are in proper form for
delivery to the relevant Reinsurance Companies.
(f) (i) Each Originator has furnished to the Buyer and the
Deal Agent (A) copies of the audited consolidated balance sheets of each
Originator and its consolidated subsidiaries as at June 30, 1998, and the
related audited consolidated statements of income, shareholders' equity and
cash flows for the fiscal year of each Originator and its consolidated
subsidiaries then ended reported on by June 30, 1998, which financial
statements present fairly in all material respects in accordance with GAAP
the financial position of each Originator and its consolidated subsidiaries
as at June 30, 1998, and the results of operations of each Originator and its
consolidated subsidiaries for the fiscal year of each Originator then ended,
and (B) copies of the unaudited consolidated balance sheets of each
Originator and its consolidated subsidiaries as at September 30, 1998, and
the related unaudited consolidated statements of income, shareholders' equity
and cash flows for the three-month period then ended, which financial
statements present fairly in all material respects in accordance with GAAP
the financial position of each Originator and its consolidated subsidiaries
as at September 30, 1998, and the results of operations of each Originator
and its consolidated subsidiaries for the three-month period then ended; and
(ii) since
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September 30, 1998, (A) no material adverse change has occurred in the
business, assets, liabilities, financial condition, or results of operations
or business prospects of each Originator and its subsidiaries taken as a
whole, and (B) no event has occurred or failed to occur which has had, or may
have, singly or in the aggregate, a Material Adverse Effect.
(g) There is no pending or threatened action or proceeding
affecting any Originator or any subsidiaries of any Originator before any
court, governmental agency or arbitrator that could reasonably be expected to
have a Material Adverse Effect. None of the Originators, or any subsidiary
of any Originator is in default with respect to any order of any court,
arbitrator or governmental body except for defaults with respect to orders of
governmental agencies which defaults are not material to the business or
operations of the Originators or any subsidiary of any of the Originators.
(h) No proceeds of the Purchase will be used by the
Originators to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Immediately prior to the Purchase hereunder, each
Receivable to be sold hereunder, together with the Contract related thereto
and the other Transferred Assets relating thereto, is owned by the applicable
Originator free and clear of any Adverse Claim except as provided herein or
permitted hereby, and the Buyer shall acquire all of such Originator's right,
title and interest in such Transferred Assets and a valid and perfected first
priority ownership interest in each such Receivable then existing or
thereafter arising and in the Related Security and Collections with respect
thereto, free and clear of any Adverse Claim except as created hereby or by
the Buyer in the Receivables Purchase Agreement or any related document. No
effective financing statement or other instrument similar in effect covering
any Transferred Assets shall at any time be on file in any recording office
except such as may be filed in favor of the Buyer relating to this Agreement
or in favor of assignees of the Buyer under the Receivables Purchase
Agreement. No notice of the change of ownership of any Transferred Assets
shall at any time have been or be delivered to any Obligor except such as may
be delivered to give notice of the change in ownership of the Transferred
Assets comprised of Reinsurance Recoverables to the Buyer pursuant to this
Agreement or to the assignees of the Buyer pursuant to the Receivables
Purchase Agreement. The Purchase of the Transferred Assets by the Buyer
constitute true and valid sales and transfers for consideration (and not
merely a pledge of such Transferred Assets for security purposes),
enforceable against creditors of the Buyers and no Transferred Assets shall
constitute property of any Originator.
(j) No information, exhibit, financial statement, document,
book, record or report furnished or to be furnished by any Originator to the
Buyer in connection with this Agreement is or will be inaccurate in any
material respect as of the date it is or shall be dated or (except as
otherwise disclosed to the Buyer, as the case may be, at such time) as of the
date so furnished, and no such document contains or will contain any material
misstatement of fact or omits or shall omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
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(k) The principal place of business and chief executive
office of the Originators and the offices where the Originators keep all the
Records are located at the addresses of the Originators referred to in
SECTION 9.02 hereof (or at such other locations as to which the notice and
other requirements specified in SECTION 6.08 shall have been satisfied).
(l) The names and addresses of all the Lock-Box Banks,
together with the account numbers of the Lock-Box Accounts at such Lock-Box
Banks and the names, addresses and account numbers of all accounts to which
Collections of the Receivables outstanding before the Purchase hereunder have
been sent, are specified in SCHEDULE III (which shall be deemed to be amended
in respect of terminating or adding any Lock-Box Account or Lock-Box Bank
upon satisfaction of the notice and other requirements specified in respect
thereof). The Originators have no other lock-box accounts or similar deposit
accounts for the collection of the Transferred Assets except for the Lock-Box
Accounts. No Adverse Claim exists upon or with respect to any of the
Lock-Box Accounts.
(m) Except as described in SCHEDULE IV, none of the
Originators has any trade names, fictitious names, assumed names or "doing
business as" names or other names under which it has done (at any time during
the five year period preceding the date hereof) or is currently doing
business.
(n) The Purchase Price constitutes reasonably equivalent
value in consideration for the transfer to the Buyer of the Transferred
Assets from the Originators and no such transfer shall have been made for or
on account of an antecedent debt owed by any Originator to the Buyer and no
such transfer is or may be voidable under any Section of the Bankruptcy Code.
(o) Each Originator has received advice from its counsel
which is consistent with the conclusions set forth in the legal opinion(s) of
Tobin & Tobin, relating to the issues of substantive consolidation and true
sale of the Receivables and the related property.
(p) Each Originator is solvent at the time of (and
immediately after) each transfer of Transferred Assets to the Buyer hereunder.
(q) Each Originator has accounted for and has otherwise
treated the Purchase of Transferred Assets hereunder in its books, records
and financial statements as a sale to the Buyer, in each case consistent with
GAAP and with the requirements set forth herein.
(r) None of the Originators is an "investment company" or a
company controlled by an "investment company" registered or required to be
registered under the Investment Company Act, or otherwise subject to any
other federal or state statute or regulation limiting its ability to incur
indebtedness.
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(s) None of the Originators is engaged, principally or as
one of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" (as each of the
quoted terms is defined or used in Regulation T, U or X). No part of the
proceeds of any Transferred Asset has been used for so purchasing or carrying
margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation T, U or X.
(t) Each of the Originators has the right (whether by
license, sublicense or assignment) to use all of the computer software used
by the Originators to account for the Transferred Assets to the extent
necessary to administer the Transferred Assets, and to assign (by way of
sale) or sublicense such rights to use all of such software to the Buyer.
(u) Each Originator has filed or caused to be filed all
Federal, state and local tax returns which are required to be filed by it,
and has paid or caused to be paid all taxes shown to be due and payable on
such returns or on any assessments received by it, other than any taxes or
assessments, the validity of which are being contested in good faith by
appropriate proceedings and with respect to which the applicable Originator
has set aside adequate reserves on its books in accordance with GAAP and
which proceedings have not given rise to any Adverse Claim.
(v) Each Receivable sold hereunder is an Eligible Receivable.
(w) The copy of the Credit and Collection Policy attached
hereto as SCHEDULE II is a true and complete copy thereof.
ARTICLE V
GENERAL COVENANTS
SECTION 5.01. GENERAL COVENANTS.
(a) COMPLIANCE WITH LAWS; PRESERVATION OF CORPORATE
EXISTENCE. The Originators shall comply in all material respects with all
applicable laws (including, without limitation, ERISA and the Code), rules,
regulations, orders and Originator Documents and preserve and maintain their
corporate existence, rights, franchises, qualifications and privileges where
the failure to comply could reasonably be expected to have a Material Adverse
Effect.
(b) SALES, LIENS, ETC. Except as otherwise specifically
provided herein, no Originator shall (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any Adverse
Claim upon or with respect to, any Transferred Asset, or upon or with respect
to any Lock-Box Account, the Collection Account or any other account to which
any Collections of any Receivable are sent, or assign any right to receive
income in
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respect thereof or (ii) create or suffer to exist any Adverse Claim upon or
with respect to any of the Originators' inventory, the sale of which would
give rise to a Receivable.
(c) GENERAL REPORTING REQUIREMENTS. Each Originator will
provide, or cause to be provided, to the Buyer the following:
(i) as soon as available and in any event within 90 days after
the end of each fiscal year of each Originator, consolidated balance
sheets of each Originator and its consolidated subsidiaries and the
related statement of income, shareholders' equity and cash flows for
such year, each prepared in accordance with GAAP and reported on by
nationally recognized independent public accountants acceptable to the
Buyer;
(ii) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of each
Originator, consolidated balance sheets of each Originator and its
consolidated subsidiaries and the related statements of income,
shareholders' equity and cash flows each for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, prepared in accordance with GAAP and certified by a senior
financial officer of each Originator;
(iii) promptly after the filing or receiving thereof, copies of
all reports and notices with respect to any Reportable Event defined in
Article IV of ERISA which the applicable Originator or any ERISA
Affiliate files under ERISA with the Internal Revenue Service or the
PBGC or the U.S. Department of Labor or which the applicable Originator
or any ERISA Affiliate receives from such entity; and
(iv) promptly following the Buyer's request therefor, such other
information respecting the Receivables or the conditions or operations,
financial or otherwise, of the Originators or any of their Affiliates as
the Buyer may from time to time reasonably request in order to protect
the interests of the Buyer in connection with this Agreement.
(d) ACCOUNTING OF THE PURCHASE. Each Originator will not
prepare any financial statements which shall account for the transactions
contemplated hereby in any manner other than as the sale of the Transferred
Assets to the Buyer or in any other respect account for or treat the
transactions contemplated hereby in any manner other than as a sale of the
Transferred Assets by the applicable Originator to the Buyer.
(e) ERISA MATTERS. No Originator will (a) fail to comply in all
material respects with ERISA and the provisions of the Code applicable to the
Benefit Plans; (b) engage or permit any ERISA Affiliate to engage in any
prohibited transaction which would subject any Originator to a material tax or
penalty imposed on a prohibited transaction; (c) permit to exist any accumulated
funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of
the Code, or funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (d) incur any liability to the PBGC over and above the
premiums required by law; and (e) terminate any Benefit Plan in a manner which
could result in the imposition of a lien on the property of any Originator or
any such ERISA Affiliate.
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(f) CHANGE IN CORPORATE NAME. No Originator will make any
change to its corporate name or use any trade names, fictitious names, assumed
names or conduct business under any names other than those described in SCHEDULE
IV.
(g) AUDITS. At any time and from time to time upon prior
written notice from the Buyer during regular business hours and on an annual
(or more frequent) basis, if requested by the Buyer, the Originators will
permit the Buyer, or their agents or representatives, (i) to examine and make
copies of and abstracts from all Records, (ii) to visit the offices and
properties of the Originators for the purpose of examining such Records, and
to discuss matters relating to the Receivables or the Originators'
performance hereunder with any of the officers or employees of the
Originators having knowledge of such matters and (iii) to have access to its
software for the purposes of examining such Records. Each such audit shall
be at the sole expense of the Originators.
(h) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Originators
will maintain (or cause to be maintained) and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing the Receivables in the event of the destruction of the
originals thereof) and keep and maintain, all documents, books, records and
other information which are reasonably necessary or advisable for the
collection of the Transferred Assets (including all Receivables and
Collections included therein). Such books and records shall be marked to
indicate the sales of all Receivables and Related Security hereunder and
shall include, without limitation, records adequate to permit the daily
identification of each Receivable and all collections of and adjustments
(including, without limitation, adjustments on account of Dilution Factors)
to each Receivable.
(i) LOCATION OF RECORDS. Each Originator will keep its chief
place of business and chief executive office, and the offices where it keeps
the Records, at the addresses referred to in SECTION 9.02, or, in any such
case, upon 30 days' prior written notice to the Buyer, at such other
locations within the United States where all action required by SECTION 6.02
shall have been taken and completed.
(j) CREDIT AND COLLECTION POLICIES. Each Originator will
comply in all material respects with the Credit and Collection Policy (as
currently in effect) in regard to each Receivable and the related Contract.
The Originators shall not, without the written consent of the Buyer and the
Deal Agent (as Buyer's assignee), make any change in the Credit and
Collection Policy.
(k) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The
Originators will not add or terminate any bank as a Lock-Box Bank from those
listed in SCHEDULE III or make any change in its instructions to Obligors
regarding payments to be made to any Lock-Box Bank, unless the Buyer shall
have given its prior written consent to such addition, termination or change
(which consent shall not be unreasonably withheld) and the Buyer shall have
received (i) ten Business Days' prior notice of such addition, termination or
change, (ii) prior to the effective date of such
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addition, termination or change, (x) executed copies of Lock-Box Agreements
executed by each new Lock-Box Bank and the applicable Originator and (y)
copies of all agreements and documents signed by either the applicable
Originator or the respective Lock-Box Bank with respect to any new Lock-Box
Account, and (iii) the prior written consent of the Buyer to such addition,
termination or change (which consent shall not be unreasonably withheld).
(l) SEGREGATION OF COLLECTIONS. To the extent that any such
funds other than Collections are deposited into any of the Collection Accounts,
the applicable Originator will promptly identify any such funds to the Servicer
for segregation and remittance to the owner thereof.
(m) RECEIVABLES. No Originator will, without the written
consent of the Buyer and the Deal Agent (as Buyer's assignee), amend, modify,
waive or cancel the terms of any Receivable unless such amendment, modification,
waiver or cancellation is in the ordinary course of business of such Originator
and, with respect to the cancellation of any Receivable, for which cash
consideration is paid with respect to any such Receivable.
ARTICLE VI
COLLECTION AND MONITORING OF ASSETS
SECTION 6.01. COLLECTIONS AND LOCK-BOXES. The Originators will
(i) instruct all Obligors to cause all Collections to be either
(A) remitted to a Lock-Box and will cause each Lock-Box Bank to retrieve such
Collections promptly and deposit the same to the respective Lock-Box Accounts or
(B) deposited directly with the Lock-Box Bank, and
(ii) pursuant to the Receivables Purchase Agreement, instruct all
Lock-Box Banks to transfer such Collections in same day funds to the Collection
Account (listed in SCHEDULE III attached hereto) maintained with a Collection
Account Bank. If the Originators receive any Collections, the applicable
Originator will remit such Collections to the Collection Account within one
Business Day following such Originator's receipt thereof. The Originators will
not add or terminate any bank as Lock-Box Bank from those listed in SCHEDULE III
or make any change in their instructions to Obligors regarding payments to be
made to any Lock Box or any Lock-Box Bank, unless the Buyer shall have received
at least ten Business Days' prior written notice of such addition, termination
or change and all actions reasonably requested by the Buyer to protect and
perfect the interest of the Buyer in the Collections of Transferred Assets have
been taken and completed.
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SECTION 6.02. UCC MATTERS; PROTECTION AND PERFECTION OF
TRANSFERRED ASSETS. Each Originator will keep its principal place of business
and chief executive office, and the office where it keeps the Records, at the
address of such Originator referred to in SECTION 9.02 or, upon 30 days'
prior written notice to the Buyer, at such other locations within the United
States where all actions reasonably requested by the Buyer to protect and
perfect the interest of the Buyer in the Transferred Assets have been taken
and completed. Each Originator agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action that the Buyer may reasonably request in order to
perfect, protect or more fully evidence the Transferred Assets acquired by
the Buyer hereunder, or to enable the Buyer to exercise or enforce any of its
respective rights hereunder. Without limiting the generality of the
foregoing, the Originators will: (a) upon the request of the Buyer, execute
and file such financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be
necessary or appropriate or as the Buyer may request, and (b) on or prior to
the date hereof, mark their master data processing records evidencing such
Transferred Assets and related Contracts with a legend, acceptable to the
Buyer, evidencing that the Buyer or its assigns have purchased all right and
title thereto. Each Originator hereby authorizes the Buyer to file one or
more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Transferred Assets now
existing or hereafter arising without the signature of the applicable
Originator where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Transferred Assets or any part thereof shall be sufficient as a financing
statement. On or before the Closing Date, the Originators (at the
Originators' expense) shall (i) deliver, return receipt requested, to the
Reinsurance Companies in respect of the Reinsurance Recoverables, notice of
the change in ownership of the Transferred Assets comprised of Reinsurance
Recoverables from the applicable Originators to the Buyer. Notwithstanding
the foregoing, the Originators shall, upon the request of the Buyer at any
time and at the Originators' expense, notify (to the extent not otherwise
notified in accordance with the immediately preceding sentence) the Obligors
of Transferred Assets, or any of them, of the ownership of Transferred Assets
by the Buyer. If the Originators fail to perform any of their agreements or
obligations under this SECTION 6.02, the Buyer may (but shall not be required
to) itself perform, or cause performance of, such agreement or obligation,
and the expenses of the Buyer incurred in connection therewith shall be
payable by the Originators upon the Buyer's demand therefor. For purposes of
enabling the Buyer to exercise its rights described in the preceding sentence
and elsewhere in this ARTICLE VI, the Originators hereby authorize the Buyer
to take any and all steps in the Originators' names and on behalf of the
Originators necessary or desirable, in the determination of the Buyer, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing the Originators' names on checks and other instruments
representing Collections and enforcing such Receivables and the related
Contracts.
SECTION 6.03. OBLIGATIONS OF THE ORIGINATORS WITH RESPECT TO
RECEIVABLES. Each Originator will (a) at its expense, regardless of any
exercise by the Buyer of its rights hereunder, timely and fully perform and
comply with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Transferred Assets to the same
extent as if Transferred Assets therein had not been sold hereunder and (b)
pay when
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due any taxes, including without limitation, sales and excise taxes, payable
in connection with the Transferred Assets. In no event shall the Buyer have
any obligation or liability with respect to any Transferred Assets or related
Contracts, nor shall it be obligated to perform any of the obligations of the
Originators or any of their Affiliates thereunder. The Originators will
timely and fully comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract. The
Originators will not make any change in the character of their businesses or
in the Credit and Collection Policy, which change would, in either case,
impair the collectibility of any Transferred Asset.
SECTION 6.04. APPLICATIONS OF COLLECTIONS. Any payment by an
Obligor in respect of any indebtedness owed by it to any Originator shall,
except as otherwise specified by such Obligor or otherwise required by
contract or law and unless otherwise instructed by the Buyer, be applied as a
Collection of any Receivables constituting Transferred Assets of such
Obligor, in the order of the age of such Receivables, starting with the
oldest such Receivable, to the extent of any amounts then due and payable
thereunder, before being applied to any Receivable that is not a Transferred
Asset or other indebtedness of such Obligor.
ARTICLE VII
FURTHER ASSURANCES
SECTION 7.01. FURTHER ASSURANCES. The Originators agree to
do and perform from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the Buyer or the Deal
Agent (as the Buyer's assignee) more fully to effect the purposes of this
Agreement in a manner consistent with this Agreement including, without
limitation, the execution of any financing statements or continuation
statements or other documents or instruments relating to the Transferred
Assets for filing under the provisions of the UCC or other relevant laws of
any applicable jurisdiction.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNITIES BY THE ORIGINATORS. Without
limiting any other rights which the Buyer may have hereunder or under
applicable law, each of the Originators, on a joint and several basis, hereby
agrees to indemnify the Buyer and its assigns, and each of their respective
directors, officers, employees, agents and attorneys (all of the foregoing
being collectively referred to as "INDEMNIFIED PARTIES") from and against any
and all damages, losses, claims, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or
incurred by any of them arising out of or resulting from:
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(i) the sale of any Receivable under this Agreement which is not
at the date of Purchase an Eligible Receivable;
(ii) reliance on any representation or warranty made or deemed
made by any Originator or any of their respective officers under or in
connection with this Agreement, which shall have been false or incorrect in any
material respect when made or deemed made or delivered;
(iii) the failure by any Originator to comply with any term,
provision or covenant contained in this Agreement or the Receivables Purchase
Agreement or any of the other Originator Documents, or with any applicable law,
rule or regulation with respect to any Receivable, the related Contract or the
Related Security, or the nonconformity of any Receivable, the related Contract
or the Related Security with any such applicable law, rule or regulation;
(iv) (A) the failure to vest and maintain vested in the Buyer or
to transfer to the Buyer, legal and equitable title to and ownership of, the
Receivables and the other Transferred Assets which are, or are purported to be,
sold by the Originators hereunder; or (B) the failure to grant to the Buyer a
valid and perfected ownership interest under Article 9 of the UCC in and to the
Receivables which are, or are purported to be, Transferred Assets, together with
all Collections and Related Security; in each case free and clear of any Adverse
Claim whether existing at the time of the Purchase of any such Receivable or at
any time thereafter (other than Adverse Claims created in favor of the Buyer
hereunder or by the Buyer under the Receivables Purchase Agreement);
(v) the failure by any Originator to make any payment required
on its part to be made hereunder;
(vi) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any Receivables
and other Transferred Assets which are, or are purported to be, sold by the
Originators hereunder, whether at the time of the Purchase or at any subsequent
time;
(vii) any dispute, claim, offset or defense (other than the
discharge in bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable which is, or is purported to be sold by an Originator hereunder
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the Originator's performance of services related to such
Receivable or the failure to perform such services;
(viii) any failure of any Originator to perform its duties or
obligations in accordance with the provisions of this Agreement or any failure
by any Originator or any Affiliate thereof to perform its respective duties
under the Contracts;
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(ix) the failure to pay when due any taxes, including without
limitation, sales, excise or personal property taxes payable in connection with
the Transferred Assets;
(x) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of the Purchase or the ownership by the
Buyer of Transferred Assets except any such investigation, litigation or
proceeding arising from the gross negligence or willful misconduct of the
Buyer;
(xi) any attempt by any Person to void or otherwise avoid any
transfer of a Transferred Asset from the Originators to the Buyer under any
statutory provision or common law or equitable action, including, without
limitation, any provision of the Bankruptcy Code; or
(xii) the failure of any Originator or any of their
respective agents or representatives (including, without limitation, agents,
representatives and employees of the Originators acting pursuant to authority
granted under SECTION 6.01) to remit to the Servicer, Collections of
Transferred Assets remitted to such Originator or any such agent or
representative.
Any amounts subject to the indemnification provisions of this
SECTION 8.01 shall be paid by the applicable Originator to the Buyer within
two (2) Business Days following the Buyer's written demand therefor.
Notwithstanding any other provision of this Agreement to the contrary, the
Originators shall not indemnify the Indemnified Parties for or with respect
to any Indemnified Amounts that would constitute recourse for uncollectible
Transferred Assets due to credit reasons.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS AND WAIVERS. No amendment to or
modification of any provision of this Agreement shall be effective without
the written agreement of the parties hereto and, to the extent then required
in the Receivables Purchase Agreement, the written consent of the Deal Agent.
Any waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 9.02. NOTICES, ETC. All notices and other
communications provided for hereunder shall, unless otherwise stated herein,
be in writing (including telex communication and communication by facsimile
copy) and mailed, telexed, transmitted or delivered, as to each party hereto,
at its address set forth under its name on the signature pages hereof or at
such other address as shall be designated by such party in a written notice
to the other parties hereto. All such notices and communications shall be
effective, upon receipt, or in the case of (a) notice by mail, five days
after being deposited in the United States mails, first class postage
prepaid, (b) notice by telex, when telexed against receipt of answerback, or
(c) notice by facsimile copy, when verbal communication of receipt is
obtained, except that notices and communications pursuant to ARTICLE II shall
not be effective until received.
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SECTION 9.03. SETOFF AND COUNTERCLAIM. All payments to be
made by the Originators under this Agreement shall be made free and clear of
any counterclaim, set-off, deduction or other defense, which the Originators
may have against the Buyer, or against each other.
SECTION 9.04. NO WAIVER; REMEDIES. No failure on the part of
the Buyer to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 9.05. BINDING EFFECT; ASSIGNABILITY. (a) This
Agreement shall be binding upon and inure to the benefit of the Originators,
the Buyer and their respective successors and permitted assigns. None of the
Originators may assign its rights and obligations or any interest herein
without the prior written consent of the Buyer. The Buyer may, subject to
any restrictions in the Receivables Purchase Agreement, assign at any time
all of its rights and obligations hereunder and interests herein without the
consent of the Originators. Without limiting the foregoing, the Originators
acknowledge the assignment of Buyer's rights and interests hereunder pursuant
to the Receivables Purchase Agreement and agrees that, subject to the terms
set forth in the Receivables Purchase Agreement, any such assignee of the
Buyer (and any further assignee of such assignee) shall have the right, as
the assignee of the Buyer (or the assignee of such assignee), to enforce the
Buyer's rights and remedies under this Agreement directly against such party
(including, without limitation, the right to give or withhold any and all
consents, requests, notices, directions, approvals, demands, extensions or
waivers under or with respect to this Agreement or the obligations in respect
of any Originator hereunder to the same extent as the Buyer may do), but
without any obligation on the part of any such assignee to perform any of the
obligations of the Buyer hereunder. Each of the Originators also agrees that
it shall send to the Deal Agent a copy of all notices required or desired to
be given by the Originators to the Buyer hereunder.
SECTION 9.06. TERM OF THIS AGREEMENT. This Agreement,
including, without limitation, the Originators' obligations to observe its
covenants set forth in ARTICLES V and VI, shall remain in full force and
effect until the Termination Date; PROVIDED, HOWEVER, that the rights and
remedies with respect to any breach of any representation and warranty made
or deemed made by the Originators pursuant to ARTICLES III and IV, and the
indemnification and payment provisions of ARTICLE VIII shall be continuing
and shall survive any termination of this Agreement.
SECTION 9.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF OBJECTION TO VENUE. THIS AGREEMENT, OTHER THAN THE PROVISIONS RELATING TO
THE CREATION, PERFECTION AND PRIORITY OF THE SECURITY INTEREST IN THE
RECEIVABLES, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK; THE PROVISIONS OF THIS AGREEMENT RELATING TO THE
GRANT,
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PERFECTION AND PRIORITY OF THE SECURITY INTEREST IN THE RECEIVABLES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE UNIFORM COMMERCIAL CODE AS
IN EFFECT IN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO HEREBY
AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
SECTION 9.08. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, THE BUYER AND THE ORIGINATORS EACH WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
SECTION 9.09. COSTS, EXPENSES AND TAXES. In addition to the
rights of indemnification granted to the Buyer and the Indemnified Parties
under ARTICLE VIII hereof, the Originators agree to pay on demand, on a joint
and several basis, all reasonable costs and expenses of the Buyer and its
assignee incurred in connection with the preparation, execution, delivery,
administration (including periodic auditing), amendment or modification of,
or any waiver or consent issued in connection with, this Agreement and the
other documents to be delivered hereunder or in connection herewith,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Buyer and its assignee with respect thereto, and with
respect to advising the Buyer and its assignee as to its respective rights
and remedies under this Agreement and the other documents to be delivered
hereunder or in connection herewith, and all reasonable costs and expenses,
if any (including reasonable counsel fees and expenses), incurred by the
Buyer and its assignee in connection with the enforcement of this Agreement
and the other documents to be delivered hereunder or in connection herewith.
SECTION 9.10. EXECUTION IN COUNTERPARTS; SEVERABILITY;
INTEGRATION. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. In case any provision
in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby. This Agreement contains the final and complete integration
of all prior
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expressions by the parties hereto with respect to the subject matter hereof
and shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, superseding all prior oral or written
understandings.
SECTION 9.11. CONFIDENTIALITY. Except to the extent
otherwise required by applicable laws, rules or regulation, unless the
provider thereof shall otherwise consent in writing, each Originator agrees
that it shall (i) maintain the confidentiality of information obtained as a
result of being a party hereto, to any related documents or to any of the
transactions contemplated hereby or thereby (including, without limitation,
the contents of any summary of indicative terms and conditions with respect
to such transactions, and the provisions of this Agreement and any of the
other Originator Documents) ("CONFIDENTIAL INFORMATION") and (ii) not
disclose, deliver or otherwise make available to any third party any part of
any such Confidential Information; PROVIDED, HOWEVER, that the Originators
may disclose any Confidential Information (w) to its legal counsel, auditors
and accountants, (x) as may be required or requested by any governmental
authority, regulatory body or rating agency, (y) subject to a written
confidentiality agreement having terms substantially similar to this SECTION
9.11, to any financial institution or other party that extends or is
considering the extension of material debt or equity financing to the
applicable Originator or (z) as may be required or appropriate in response to
a court order or in connection with any litigation; PROVIDED FURTHER,
HOWEVER, that the Originators shall have no obligation of confidentiality
whatsoever in respect of any information which may be generally available to
the public or becomes available to the public through no fault of the Buyer.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE ORIGINATORS: CALIFORNIA COMPENSATION INSURANCE COMPANY
By: /s/ J. CHRIS SEAMAN
---------------------------------------
Name: J. Chris Seaman
Title: Vice President
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, CA 91302
Attention: J. Chris Seaman,
Executive Vice President and CFO
Phone: 818-880-1600
Facsimile: 818-880-8615
COMMERCIAL COMPENSATION
INSURANCE COMPANY
By: /s/ J. CHRIS SEAMAN
---------------------------------------
Name: J. Chris Seaman
Title: Vice President
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, CA 91302
Attention: J. Chris Seaman,
Executive Vice President and CFO
Phone: 818-880-1600
Facsimile: 818-880-8615
<PAGE>
COMBINED BENEFITS INSURANCE
COMPANY
By: /s/ J. CHRIS SEAMAN
---------------------------------------
Name:
Title:
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, CA 91302
Attention: J. Chris Seaman,
Executive Vice President and CFO
Phone: 818-880-1600
Facsimile: 818-880-8615
BUSINESS INSURANCE COMPANY
By: /s/ J. CHRIS SEAMAN
---------------------------------------
Name:
Title:
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, CA 91302
Attention: J. Chris Seaman,
Executive Vice President and CFO
Phone: 818-880-1600
Facsimile: 818-880-8615
<PAGE>
THE BUYER: INSURANCE FUNDING LLC
By: /s/ ANDREW L. STIDD
---------------------------------------
Name: Andrew L. Stidd
Title: Manager
c/o GSS Holdings II, Inc.
25 West 43rd Street
Suite 704
New York, New York 10036
Attention: Andy Stidd
Facsimile No: (212)302-8767
Telephone No: (212)302-8330
<PAGE>
EXECUTION VERSION
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "AGREEMENT") is made as of
December 9, 1998 by SUPERIOR NATIONAL INSURANCE GROUP, INC., a Delaware
corporation ("SUPERIOR") in favor of INSURANCE FUNDING LLC, a Delaware
limited liability company ("INSURANCE FUNDING"), EAGLEFUNDING CAPITAL
CORPORATION, a Delaware corporation (the "PURCHASER"), and BANCBOSTON
ROBERTSON STEPHENS INC. (the "DEAL AGENT").
Reference is made to (i) that certain Receivables Purchase and
Sale Agreement (as the same may from time to time be amended, restated,
supplemented or otherwise modified, the "ORIGINATOR SALE AGREEMENT") of even
date herewith between California Compensation Insurance Company, a California
corporation, Commercial Compensation Insurance Company, a New York
corporation, Combined Benefits Insurance Company, a California corporation
and Business Insurance Company, a Delaware corporation, as the originators
(each an "ORIGINATOR" and, collectively, the "ORIGINATORS"), and Insurance
Funding, as the buyer and (ii) that certain Receivables Purchase Agreement
(as the same may from time to time be amended, restated, supplemented or
otherwise modified, the "RECEIVABLES PURCHASE AGREEMENT") of even date
herewith among Insurance Funding, the Purchaser, the Deal Agent and Superior,
in its capacity as servicer thereunder. It is a condition precedent to the
willingness of Insurance Funding to enter into the Originator Sale Agreement
and to make the "Purchase" (as defined in the Originator Sale Agreement) from
the Originators thereunder and a condition precedent to the willingness of
the Purchaser and the Deal Agent to enter into the Receivables Purchase
Agreement and to make the "Purchase" (as defined in the Receivables Purchase
Agreement) from Insurance Funding thereunder, that Superior execute and
deliver this Agreement.
Section 1. DEFINITIONS. Unless otherwise defined herein, all
capitalized terms shall have the meanings set forth in the Receivables
Purchase Agreement and the Originator Sale Agreement, as applicable. As used
in this Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms
of the terms defined):
"AGGREGATE YIELD AND FEES" shall mean, for any Settlement
Date, the sum of accrued and unpaid (i) Servicer Fee, (ii) Yield, (iii)
Liquidity Fee, (iv) Program Fee and (v) Administrative Fee.
<PAGE>
"DEFAULTED RECEIVABLE" shall have the meaning assigned thereto
in the Receivables Purchase Agreement, PROVIDED that such term shall include
any Receivable that has been written off Insurance Funding's or the
applicable Originator's books as uncollectible.
"DILUTION FACTORS" means, with respect to the Receivables, any
credits, rebates, freight charges, discounts, allowances, disputes,
chargebacks, allowances for early payments and other allowances or
adjustments granted in accordance with Insurance Funding's or an Originator's
usual practices.
"ELIGIBLE ACCOUNT BANK" means (a) any commercial bank
satisfactory to the Administrator and having (i) combined capital and surplus
of at least $250,000,000, (ii) a short-term debt rating of at least A-1 from
S&P, P-1 from Moody's and D-1 from DCR (if rated by DCR), and (iii) in a
manner acceptable to the Deal Agent and the Borrower, expressly waived all
contractual and equitable rights of set-off and combination of accounts it
may have with respect to the relevant Support Account, or (b) such other
commercial bank satisfactory to the Administrator and in respect of which
each of S&P, Moody's and DCR shall have delivered prior written confirmation
to the Administrator that the maintenance of the Support Account with such
commercial bank will not result in the reduction or withdrawal of the
respective ratings of the EagleFunding CP Notes.
"EQUITY INVESTMENT" shall have the meaning given such term in
the Recievables Purchase Agreement.
"FUNDED SUPPORT BALANCE" means an amount equal to the sum of
all payments made by Superior pursuant to paragraphs (a), (b), (c) and (d) of
SECTION 2 of this Agreement.
"NONCOMPLYING RECEIVABLE" means any Receivable with respect to
which (i) an Originator or Superior has received notice from Insurance
Funding or the Deal Agent (as Insurance Funding's assignee) that such
Receivable was not an Eligible Receivable as of the date purchased under the
Originator Sale Agreement or that such Originator otherwise breached any
representation, warranty or covenant made with respect to such Receivable
under the Originator Sale Agreement or (ii) Insurance Funding or Superior has
received notice from the Purchaser or the Deal Agent that such Receivable was
not an Eligible Receivable as of the date purchased under the Receivables
Purchase Agreement or that Insurance Funding otherwise breached any
representation, warranty or covenant made with respect to such Receivable
under the Receivables Purchase Agreement.
"SERVICER DOWNGRADE TERMINATION EVENT" shall have the meaning
assigned thereto in the Receivables Purchase Agreement.
<PAGE>
"SUPPORT ACCOUNT" means a segregated trust account, in the
name of the Purchaser and referencing the name of the Deal Agent, maintained
at an Eligible Account Bank chosen by the Purchaser.
"SUPPORT ACCOUNT BALANCE" shall have the meaning assigned
thereto in paragraph (b) of SECTION 5 hereof.
"SUPPORT AMOUNT" means an amount equal to the Purchase Limit
in effect on the Closing Date TIMES 80%.
"SUPPORT DEFICIENCY AMOUNT" shall have the meaning assigned
thereto in paragraph (b) of SECTION 5 hereof.
"SUPPORT PAYMENT" shall have the meaning assigned thereto in
paragraph (b) of SECTION 5 hereof.
"TOTAL SUPPORT PAYMENT" shall have the meaning assigned
thereto in paragraph (b) of SECTION 5 hereof.
"UNFUNDED SUPPORT BALANCE" means an amount equal to the
Support Amount MINUS the Funded Support Balance.
Section 2. PERFORMANCE AND RECOURSE OBLIGATIONS. (a)
Superior does hereby unconditionally and irrevocably guarantee:
(i) to Insurance Funding and all of its successors and
assigns, the due and punctual performance and observance by each
Originator of all covenants, agreements, terms, conditions,
undertakings, indemnities and other obligations to be performed
and observed by each such Originator under the Originator Sale
Agreement and each of the other Transaction Documents to which
each such Originator is a party including, without limitation,
the due and punctual payment of all sums which are or may become
due and owing by each such Originator under the terms and
provisions of the Originator Sale Agreement, whether for fees,
expenses (including, without limitation, attorneys' fees),
indemnified amounts or otherwise, whether upon any termination or
for any other reason; and
(ii) to the Deal Agent and the Purchaser and all of their
respective successors and assigns, the due and punctual performance and
observance by Insurance Funding of all covenants, agreements, terms,
conditions, undertakings, indemnities and other obligations to be
performed and observed by Insurance Funding under the Receivables
Purchase Agreement and each of the other Transaction Documents to which
Insurance Funding is a party including, without limitation, the due and
punctual payment of all sums which are or may become due and owing by
Insurance Funding under the terms and provisions of the
<PAGE>
Receivables Purchase Agreement, whether for fees, expenses (including,
without limitation, attorneys' fees), indemnified amounts or
otherwise, whether upon any termination or for any other reason;
PROVIDED, HOWEVER, that Superior shall only be obligated to make a payment
with respect to amounts under this SECTION 2(a) to the extent that the
aggregate amounts paid under this SECTION 2(a) (together with the aggregate
amounts paid under other provisions of this SECTION 2 other than 2(e)) does
not exceed an amount equal to the lesser of (i) the Support Amount and (ii)
the amounts necessary to reduce the Purchased Interest to zero. The
obligations of Superior under this SECTION 2(a) are in addition to, and not
in limitation or in lieu of, all other obligations of Superior under this
SECTION 2.
(b) In addition to and not in limitation of the foregoing,
Superior does hereby unconditionally and irrevocably agree, notwithstanding
any limitations on the recourse obligations of the Originators under the
Originator Sale Agreement or any limitations on the recourse obligations of
Insurance Funding under the Receivables Purchase Agreement, that Superior
shall, upon written demand from the Purchaser or the Deal Agent, pay to the
Purchaser and any other Person to whom the Purchaser may have assigned a
portion of the Purchased Interest under the Receivables Purchase Agreement an
amount equal to their respective percentage interests of the Outstanding
Balance of any Purchased Receivables which have become Defaulted Receivables;
PROVIDED, HOWEVER, that Superior shall only be obligated to make a payment
with respect to any such Defaulted Receivables under this SECTION 2(b) to the
extent that the aggregate amounts paid under this SECTION 2(b) (together with
the aggregate amounts paid under other provisions of this SECTION 2 other
than 2(e)) does not exceed an amount equal to the lesser of (i) the Support
Amount and (ii) the amounts necessary to reduce the Purchased Interest to
zero. The obligations of Superior under this SECTION 2(b) are in addition to,
and not in limitation or in lieu of, all other obligations of Superior under
this SECTION 2.
(c) In addition to and not in limitation of the foregoing,
Superior does hereby unconditionally and irrevocably agree, notwithstanding any
limitations on the recourse obligations of the Originators under the Originator
Sale Agreement or any limitations on the recourse obligations of Insurance
Funding under the Receivables Purchase Agreement, that Superior shall, upon
written demand from the Purchaser or the Deal Agent, (i) pay to the Purchaser
and any other Person to whom the Purchaser may have assigned a portion of the
Purchased Interest under the Receivables Purchase Agreement an amount equal to
their respective percentage interests of the Outstanding Balance of any
Purchased Receivables which are reasonably determined by the Purchaser or the
Deal Agent to be Noncomplying Receivables and (ii) pay to the Purchaser and any
other Person to whom the Purchaser may have assigned a portion of the Purchased
Interest under the Receivables Purchase Agreement an amount equal to their
respective percentage interests of the actual reduction in the Outstanding
Balance of any Purchased Receivables as a result of any of the Dilution Factors;
PROVIDED, HOWEVER, that Superior shall only be obligated to make a payment with
respect to any such Noncomplying Receivables or Dilutions Factors under this
SECTION 2(c) to the extent that the aggregate
<PAGE>
amounts paid under the provisions of this SECTION 2(c) (together with the
aggregate amounts paid under other provisions of this SECTION 2 other than
2(e)) does not exceed an amount equal to the lesser of (i) the Support Amount
and (ii) the amounts necessary to reduce the Purchased Interest to zero. The
obligations of Superior under this SECTION 2(c) are in addition to, and not
in limitation or in lieu of, all other obligations of Superior under this
SECTIONS 2.
(d) Any payment owed by Superior under any of the foregoing
provisions of this SECTION 2 shall be due and owing upon the 5th Business Day
following Insurance Funding's, Purchaser's or Deal Agent's written demand
therefor. Superior shall pay interest on all amounts owed by it under this
Agreement at the per annum rate of 2% PLUS the Adjusted Base Rate, from the
date of demand for such amounts until such amounts are paid in full.
(e) Upon the occurrence of a Servicer Downgrade Termination
Event solely with respect to Superior, the Purchaser shall, by delivery of a
written notice to the Deal Agent and Superior, require Superior to deposit an
amount equal to the Unfunded Support Balance into the Support Account within
5 Business Days of receipt of such notice.
(i) The Purchaser and EagleFunding hereby grant to the
Deal Agent full power and authority, on behalf of the Purchaser and
Insurance Funding, to withdraw funds from the Support Account in
accordance with the terms of and for the purposes set forth in this
Agreement.
(ii) From and after the establishment of the Support
Account, and until the earlier of (i) the date upon which the balance of
the Support Account shall be zero and (ii) the termination date of this
Agreement as set forth in SECTION 9, all payments to be made by Superior
under this Agreement shall be made automatically by the Deal Agent from
the Support Account.
(iii) From and after the establishment of the Support
Account, and until the earlier of (i) the date upon which the balance of
the Support Account shall be zero and (ii) the termination date of this
Agreement as set forth in SECTION 9, at the direction of the Purchaser,
the Deal Agent shall from time to time invest and reinvest the funds on
deposit in such Support Account from time to time in Permitted
Investments. Notwithstanding anything herein to the contrary, neither
the Deal Agent nor the Purchaser shall have any liability for any loss
arising from any investment or reinvestment made by it in accordance
with, and pursuant to, the provisions hereof.
(v) If on the termination date of this Agreement as set
forth in SECTION 9, after giving effect to paragraph (b) of SECTION 5,
there are funds remaining in the Support Account, the Deal Agent shall
withdraw the balance of such funds and pay them to Superior.
<PAGE>
Section 3. WAIVERS; VALIDITY OF OBLIGATIONS. (a) Superior
hereby waives promptness, diligence and notice of acceptance of this
Agreement, of any action taken or omitted in reliance hereon or of any
default in the payment of any sums or in the performance of any covenants,
agreements, terms, conditions, and any demand, protest or other notice of any
kind. Superior expressly waives the right to require Insurance Funding, the
Deal Agent or the Purchaser to protect, secure, perfect, insure, proceed
against or exhaust any security granted to it as security for the payment of
any sums due under the Transaction Documents or to exhaust any right or take
any action against any Originator or any other Person or any collateral.
Superior further agrees that the execution and delivery of this Agreement by
Superior shall be conclusive evidence against Superior that its obligations
under this Agreement are unconditional and absolute. Superior hereby
warrants to the Purchaser and the Deal Agent that it has adequate means to
obtain from the Originators and Insurance Funding on a continuing basis all
information concerning each of the Transaction Documents, the financial
condition of the Originators and Insurance Funding and the collectibility of
the Receivables, and that it is not relying on the Purchaser or the Deal
Agent to provide such information either now or in the future.
(b) The obligations of Superior under this Agreement
constitute a present and continuing guaranty of payment and not of
collectibility, shall be absolute and unconditional, shall not be subject to
any counterclaim, set-off, deduction or defense based upon any claim
Superior, any Originator, Insurance Funding or any Affiliate may have against
each other or against the Deal Agent, the Purchaser or any other Person and
shall remain in full force and effect without regard to and shall not be
released, discharged or in any way affected or impaired by, any thing, event,
happening, matter, circumstance or condition whatsoever (whether or not
Superior shall have any knowledge or notice thereof or consent thereto),
including, without limitation: (i) any amendment or modification of or
supplement to the Originator Sale Agreement, the Receivables Purchase
Agreement or any other Transaction Document or in connection therewith agreed
to by the requisite parties specified therein, or any assignment or transfer
of any interest of Insurance Funding, the Deal Agent or Purchaser therein,
including, without limitation, any renewal or extension of the terms of
payment of any sums due or contingently due thereunder or the granting of
time in respect of any payment, or any furnishing or acceptance of security
or any release of any security so furnished or accepted for the sum due or
contingently due under any Transaction Document or any addition of one or
more new or different Lock-Box Banks or eligibility criteria for the purchase
of Receivables and Purchased Interests thereunder; (ii) any waiver, consent,
extension, granting of time, forbearance, indulgence or other action or
inaction under or in respect of the Originator Sale Agreement, the
Receivables Purchase Agreement or any other Transaction Document or any
exercise or nonexercise of any right, remedy or power in respect thereof;
(iii) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceedings with respect to any
Originator or any other Person, or the properties or creditors of any of
them; (iv) the occurrence of any Trigger Event under the Receivables Purchase
Agreement, or any
<PAGE>
invalidity or any unenforceability of, or any misrepresentation, irregularity
or other defect in, the Originator Sale Agreement, the Receivables Purchase
Agreement or any other Transaction Document or any other document to be
delivered in connection therewith; (v) any failure by Insurance Funding to
take any required steps to perfect and maintain perfected its 100% ownership
interest in any Receivable, Related Security related thereto or Collections
with respect thereto, or any failure by the Deal Agent or the Purchaser to
take any required steps to perfect and maintain perfected its respective
Purchased Interest in any Purchased Property; (vi) any transfer or purported
transfer, any consolidation or merger of an Originator or Insurance Funding
with or into any other corporation or entity, or any change whatsoever in the
objects, capital structure, constitution or business of an Originator or
Insurance Funding; (vii) any failure on the part of the Originators or
Insurance Funding to perform or comply with any term of the Originator Sale
Agreement, the Receivables Purchase Agreement or any other Transaction
Document or any other document to be delivered in connection therewith;
(viii) any suit or other action brought by any creditors of an Originator or
Insurance Funding for any reason whatsoever, including, without limitation,
any suit or action in any way attacking or involving the Originator Sale
Agreement, the Receivables Purchase Agreement or any other Transaction
Document or any other document to be delivered in connection therewith; or
(ix) any other fact or circumstance which might constitute a defense
available to, or a discharge of, an Originator or Insurance Funding or a
guarantor.
(c) Superior further acknowledges and agrees that the rights
and defenses waived by it pursuant to this Agreement include any right or
defense that it may have or be entitled to assert based upon or arising out
of any one or more of Sections 2787 to 2855, inclusive, of the California
Civil Code.
Section 4. REINSTATEMENT. The obligations of Superior in
respect of this Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment of any obligations
guaranteed hereunder is rescinded or must otherwise be returned by Insurance
Funding, the Deal Agent or the Purchaser upon the insolvency, bankruptcy or
reorganization of an Originator or Insurance Funding or otherwise, all as
though such payment had not been made.
Section 5. SUBROGATION. (a) If Superior shall make any payment
due in respect of the Originator Sale Agreement, the Receivables Purchase
Agreement or any other Transaction Document pursuant to this Agreement, it
shall, to the extent permitted by applicable law, be subrogated to the rights of
Insurance Funding, the Deal Agent and the Purchaser in respect of which such
payment was made; PROVIDED, HOWEVER, that such rights of subrogation and all
indebtedness and claims arising therefrom shall be, and Superior hereby declares
that they are, and shall at all times be, in all respects subordinate and junior
to all sums due or contingently due under the Originator Sale Agreement, the
Receivables Purchase Agreement or such Transaction Document in respect of which
payment was not made. Superior hereby agrees that the foregoing right of
subrogation shall not be effective until, and that it shall not be entitled to
receive any payment, under any condition, in respect of any such subrogated
claim unless and until, all sums which
<PAGE>
may become due, or are stated in the Originator Sale Agreement, the
Receivables Purchase Agreement or such Transaction Document to become due,
shall have become due and shall have been paid in full or funds for their
payment shall have been duly and sufficiently provided. Superior further
agrees that, if, solely as a result of (i) the existence of this Agreement
and (ii) the application of Section 550 of the Bankruptcy Code, or any
similar provision of any state insolvency law, Insurance Funding, the
Purchaser or the Deal Agent is required in any bankruptcy or insolvency
proceeding to turn over or otherwise pay to the estate of an Originator or
Insurance Funding or lose the right to receive from an Originator's or
Insurance Funding's estate any amount representing or constituting a transfer
avoidable as to Insurance Funding, the Purchaser or the Deal Agent (which
transfer, but for the existence of this Agreement, would not have been
recoverable from any such Person), Superior agrees to pay or cause to be paid
to the Deal Agent, for the benefit of the Purchaser, an amount, in cash,
equal to such avoided or recovered amount.
(b) If, prior to the termination date of this Agreement
pursuant to SECTION 9, Superior made any payment due in respect of the
Originator Sale Agreement, the Receivables Purchase Agreement or any other
Transaction Document pursuant to this Agreement other than SECTION 2(e) (each
a "Support Payment" and collectively, the "Support Payments"), then, solely
to the extent funds are available from the sources set forth in clauses (i)
and (ii) below, Superior shall be entitled to reimbursement in an amount up
to the aggregate amount of all such Support Payments (the "Total Support
Payment Amount").
(i) If (A) prior to such termination of this Agreement
Superior funded the Support Account pursuant to SECTION 2(e), and (B)
following such termination of this Agreement, there are funds remaining
in the Support Account (the total amount of such funds, the "Support
Account Balance"), then the Deal Agent shall pay to Superior, solely
from the Support Balance, an amount equal to the lesser of (i) the
Total Support Payment Amount or (ii) the Support Account Balance.
(ii) If (A) (i) the Support Account Balance is
insufficient to pay the Total Support Payment Amount (the amount by
which the Total Support Payment Amount exceeds the Support Account
Balance, the "Support Deficiency Amount"), or (ii) Superior did not fund
the Support Account pursuant to SECTION 2(e) , and (B) following the
termination of this Agreement pursuant to SECTION 9, there are
Collections remaining in the Collection Account after the payment to the
Seller of its Equity Investment, then the Servicer shall pay to
Superior, solely from the Collections remaining in the Collection
Account, an amount equal to the lesser of (i) the Support Deficiency
Amount or (ii) the total amount of Collections remaining in the
Collection Account.
Section 6. REPRESENTATIONS AND WARRANTIES OF SUPERIOR. Superior
hereby represents and warrants as follows on and as of the date hereof and on
and as of each date
<PAGE>
on which a purchase shall be made under the Originator Sale Agreement or the
Receivables Purchase Agreement:
(a) Superior is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and is
duly qualified to do business, and is in good standing, in every jurisdiction
in which the nature of its business requires it to be so qualified and the
failure to do so could reasonably be expected to have a material adverse
effect on Superior's ability to perform its obligations under this Agreement
or the other Transaction Documents to which it is a party.
(b) The execution, delivery and performance by Superior of
this Agreement and all other Transaction Documents to which it is a party,
(i) are within Superior's corporate powers, (ii) have been duly authorized by
all necessary corporate action, (iii) do not contravene (A) Superior's
charter or by-laws, (B) any law, rule or regulation applicable to Superior,
(C) any contractual restriction binding on or affecting Superior or its
property or (D) any order, writ, judgment, award, injunction or decree
binding on or affecting Superior or its property, and (iv) do not result in
or require the creation of any Adverse Claim upon or with respect to any of
its properties. This Agreement and each other Transaction Document to which
Superior is a party have each been duly executed and delivered by Superior.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Superior of this
Agreement or any other Transaction Document to which it is a party.
(d) This Agreement and each other Transaction Document to
which Superior is a party constitutes the legal, valid and binding obligation
of Superior enforceable against it in accordance with their respective terms.
(e) (i) Superior has furnished to the Deal Agent (A) copies
of the audited consolidated balance sheets of Superior and its consolidated
subsidiaries as at December 31, 1997 audited consolidated statements of
income, shareholders' equity and cash flows for the fiscal year of Superior
and its consolidated subsidiaries then ended reported on by December 31,
1997, which financial statements present fairly in all material respects in
accordance with GAAP the financial position of Superior and its consolidated
subsidiaries as at December 31, 1997, and the results of operations of
Superior and its consolidated subsidiaries for the fiscal year of Superior
then ended, and (B) copies of the unaudited consolidated balance sheets of
Superior and its consolidated subsidiaries as at September 30, 1998, and the
related unaudited consolidated statements of income, shareholders' equity and
cash flows for the three-month period then ended, which financial statements
present fairly in all material respects in accordance with GAAP the financial
position of Superior and its consolidated subsidiaries as at September 30,
1998, and the results of operations of Superior and its consolidated
subsidiaries for the three-month period then ended; and (ii) since September
30, 1998, (A) no material adverse
<PAGE>
change has occurred in the business, assets, liabilities, financial
condition, results of operations or business prospects of Superior and its
subsidiaries taken as a whole, and (B) no event has occurred or failed to
occur which has had, or can be reasonably expected to have, singly or in the
aggregate, a material adverse effect on the ability of Superior to perform
its obligations under this Agreement or any other Transaction Document to
which it is a party.
(f) There is no pending or threatened action or proceeding
affecting Superior or any of its subsidiaries before any court, governmental
agency or arbitrator that could reasonably be expected to have a material
adverse effect on the financial condition of Superior or any of its
subsidiaries, the ability of Superior to perform its obligations under this
Agreement or the other Transaction Documents to which it is a party or which
affects or purports to affect the legality, validity or enforceability of
this Agreement or any other Transaction Document.
(g) None of the information, exhibits, financial statements,
documents, books, records or reports furnished or to be furnished by Superior
to the Deal Agent or the Purchaser pursuant to the provisions of this
Agreement is or will be inaccurate in any material respect as of the date it
is or shall be dated or (except as otherwise disclosed to the Deal Agent or
the Purchaser, as the case may be, at such time) as of the date so furnished,
and no such document contains or will contain any material misstatement of
fact or omits or shall omit to state a material fact or any fact necessary to
make the statements contained therein not misleading.
(h) Superior has filed or caused to be filed all Federal,
state and local tax returns which are required to be filed by it, and has
paid or caused to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, other than any taxes or
assessments, the validity of which are being contested in good faith by
appropriate proceedings and with respect to which Superior has set aside
adequate reserves on its books in accordance with GAAP and which proceedings
have not given rise to any Adverse Claim.
(i) Superior does not have any direct ownership or other
financial interest in the Purchaser.
Section 7. COVENANTS OF SUPERIOR. Superior hereby covenants
that, until this Agreement is terminated in accordance with SECTION 9 hereof,
(a) Superior shall (x) comply in all material respects with
all applicable laws (including, without limitation, ERISA and the Code),
rules, regulations, orders and each of the Transaction Documents to which it
is a party and (y) preserve and maintain its corporate existence, rights,
franchises, qualifications and privileges where the failure to comply,
preserve or maintain could reasonably be expected to have a material adverse
effect on Superior's ability to perform its obligations under this Agreement
or any other Transaction Document to which it is a party;
<PAGE>
(b) Superior will, except to the extent that Insurance
Funding or Superior (as Servicer under the Receivables Purchase Agreement)
has already delivered the same to the Deal Agent in accordance with Section
5.01 of the Receivables Purchase Agreement, promptly deliver to the Deal
Agent copies of all financial statements of Superior, reports to Superior's
security holders, registration statements and similar filings made by
Superior, ERISA notices, notices of litigation, notices of material adverse
change and similar information in the possession and/or under the control of
Superior or otherwise pertaining to Superior and its subsidiaries, all as
more particularly described in subsection (c) of Section 5.01 of the
Receivables Purchase Agreement;
(c) Superior will not (a) fail to comply in all material
respects with ERISA and the provisions of the Code applicable to the Benefit
Plans; (b) engage or permit any ERISA Affiliate to engage in any prohibited
transaction which would subject Superior to a material tax or penalty imposed
on a prohibited transaction; (c) permit to exist any accumulated funding
deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of the
Code, or funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (d) incur any liability to the PBGC over and above the
premiums required by law; or (e) terminate any Benefit Plan in a manner which
could result in the imposition of a lien on the property of Superior or any
such ERISA Affiliate.
(d) Superior will file or cause to be filed all federal,
state and local tax returns which are required to be filed by it. Superior
shall pay or cause to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, other than any taxes or
assessments, the validity of which are being contested in good faith by
appropriate proceedings and with respect to which Superior shall have set
aside adequate reserves on its books in accordance with GAAP.
Section 8. NO PROCEEDINGS. Superior covenants and agrees
that it will not institute against, or join any other Person in instituting
against, either Insurance Funding or the Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar law, for one year
and one day after the latest maturing commercial paper note issued by the
Purchaser is paid in full.
Section 9. TERMINATION. Subject to SECTION 4 hereof, this
Agreement shall terminate after the latest to occur of (i) the Collection
Date under the Receivables Purchase Agreement, (ii) the Termination Date
under the Originator Sale Agreement or (iii) the date all other amounts owed
to the Purchaser, the Deal Agent and any other Indemnified Party or Affected
Person by an Originator, Insurance Funding or Superior under this Agreement
and each of the other Transaction Documents to which Originator, Insurance
Funding or Superior is a party shall be paid in full
SECTION 10. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN
<PAGE>
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SUPERIOR HEREBY AGREES TO
THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK.
SUPERIOR IRREVOCABLY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
SECTION 11. WAIVER OF JURY TRIAL. SUPERIOR WAIVES ITS RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. SUPERIOR AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, SUPERIOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.
Section 12. AMENDMENT AND WAIVER. No amendment or waiver of
any provision of this Agreement shall be effective unless in a writing signed
by Superior, Insurance Funding, the Purchaser and the Deal Agent and then
such amendment or waiver shall be effective only in the specific instance and
for the specific purpose for which given. No failure on the part of
Insurance Funding, the Purchaser or the Deal Agent to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver hereof; nor
shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.
Section 13. SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of each of Insurance Funding, the Purchaser and the Deal Agent
and their respective successors and assigns. Each such Person shall have the
right to assign any and all of its or their rights hereunder to any other Person
and the Person acquiring any interest herein shall succeed to all of the rights
of the transferor thereof hereunder to the extent of such transfer. Without
limiting the foregoing, Superior acknowledges the assignment of Insurance
Funding's rights and interests hereunder pursuant to the Receivables Purchase
Agreement and agrees that, subject to the terms of the Receivables Purchase
Agreement, any such assignee of Insurance Funding (and any further assignee
<PAGE>
of such assignee) shall have the right, as the assignee of Insurance Funding
(or the assignee of such assignee), to enforce Insurance Funding's rights and
remedies under this Agreement directly against Superior (including, without
limitation, the right to give or withhold any and all consents, requests,
notices, directions, approvals, demands, extensions or waivers under or with
respect to this Agreement or the obligations in respect of Superior hereunder
to the same extent as Insurance Funding may do), but without any obligation
on the part of any such assignee to perform any of the obligations of
Insurance Funding hereunder.
Section 14. COSTS AND EXPENSES. Superior shall pay on demand
all reasonable costs and expenses of Insurance Funding, the Purchaser or the
Agent or their respective successors and assigns incurred in connection with
the preparation, execution, delivery, administration, amendment or
modification of, or any waiver or consent issued in connection with, this
Agreement and the other documents to be delivered hereunder or in connection
herewith, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for Insurance Funding, the Purchaser, the
Deal Agent and their respective successors and assigns with respect thereto,
and with respect to advising Insurance Funding, the Purchaser, the Deal Agent
and their respective successors or assigns as to their respective rights and
remedies under this Agreement and the other documents to be delivered
hereunder or in connection herewith, and all reasonable costs and expenses,
if any (including reasonable counsel fees and expenses), incurred by
Insurance Funding, the Purchaser, the Deal Agent and their respective
successors and assigns in connection with the enforcement of this Agreement
and the other documents to be delivered hereunder or in connection herewith.
Section 15. EXECUTION IN COUNTERPARTS; SEVERABILITY;
INTEGRATION. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. In case any provision
in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby. This Agreement contains a final and complete integration
of all prior expressions of the parties hereto with respect to the subject
matter hereof, and shall constitute the entire agreement among the parties
hereto with respect to the subject matter hereof, superseding all prior oral
or written understandings.
Section 16. HEADINGS. The captions and headings of this
Agreement are for convenience of reference only and shall not affect the
interpretation hereof or thereof.
Section 17. CONFIDENTIALITY. Except to the extent otherwise
required by applicable laws, rules or regulation, unless the provider thereof
shall otherwise consent in writing, Superior agrees that it shall (i) maintain
the confidentiality of information obtained as a result of being a party hereto,
to any related documents or to any of the
<PAGE>
transactions contemplated hereby or thereby (including, without limitation,
the contents of any summary of indicative terms and conditions with respect
to such transactions, and the provisions of this Agreement and any of the
other Transaction Documents) ("CONFIDENTIAL INFORMATION") and (ii) not
disclose, deliver or otherwise make available to any third party any part of
any such Confidential Information; PROVIDED, HOWEVER, that Superior may
disclose any Confidential Information (w) to its legal counsel, auditors and
accountants, (x) as may be required or requested by any governmental
authority, regulatory body or rating agency, (y) subject to a written
confidentiality agreement having terms substantially similar to this SECTION
17, to any financial institution or other party that extends or is
considering the extension of material debt or equity financing to Superior or
(z) as may be required or appropriate in response to a court order or in
connection with any litigation; PROVIDED, FURTHER, that Superior shall have
no obligation of confidentiality whatsoever in respect of any information
which may be generally available to the public or becomes available to the
public through no fault of Superior or any of its Affiliates.
<PAGE>
[Support Agreement -- signature page]
IN WITNESS WHEREOF, the undersigned has caused this Agreement
to be signed by its duly authorized officer as of the date first set forth
above.
SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By: /s/ ROBERT E. NAGLE
----------------------------
Name: Robert E. Nagle
Title:
<PAGE>
EXECUTION VERSION
U.S. $63,416,465
RECEIVABLES PURCHASE AGREEMENT
Dated as of December 9, 1998
Among
INSURANCE FUNDING LLC,
as the Seller
-------------
and
EAGLEFUNDING CAPITAL CORPORATION,
as the Purchaser
----------------
and
BANCBOSTON ROBERTSON STEPHENS INC.,
as the Deal Agent
-----------------
and
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
as the Servicer
---------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 1.03. Computation of Time Periods. . . . . . . . . . . . . . . . . . . . .16
ARTICLE II THE PURCHASE FACILITY
SECTION 2.01. Purchase of the Purchased Interest. (a). . . . . . . . . . . . . . .16
SECTION 2.02. The Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 2.03. Selection of Purchase Periods. . . . . . . . . . . . . . . . . . . .17
SECTION 2.04. Settlement Procedures. . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 2.05. Payments and Computations, Etc . . . . . . . . . . . . . . . . . . .19
SECTION 2.06. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 2.07. Increased Costs; Capital Adequacy; Illegality. . . . . . . . . . . .21
SECTION 2.08. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 2.09. Assignment of the Originator Sale Agreement. . . . . . . . . . . . .23
ARTICLE III CONDITIONS OF THE PURCHASE
SECTION 3.01. Conditions Precedent to the Purchase . . . . . . . . . . . . . . . .24
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller . . . . . . . . . . . .25
SECTION 4.02. Representations and Warranties of the Servicer . . . . . . . . . . .29
ARTICLE V GENERAL COVENANTS
SECTION 5.01. General Covenants of the Seller. . . . . . . . . . . . . . . . . . .31
SECTION 5.02. General Covenants of the Servicer. . . . . . . . . . . . . . . . . .35
ARTICLE VI ADMINISTRATION, COLLECTION AND MONITORING OF ASSETS
SECTION 6.01. Appointment and Designation of the Servicer. . . . . . . . . . . . .38
SECTION 6.02. Collection of Receivables by the Servicer; Extensions and
Amendments of Receivables. . . . . . . . . . . . . . . . . . . . . .38
SECTION 6.03. Distribution and Application of Collections. . . . . . . . . . . . .39
SECTION 6.04. Other Rights of the Deal Agent . . . . . . . . . . . . . . . . . . .39
SECTION 6.05. Records; Audits. . . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.06. Receivable Reporting . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.07. Collections and Lock-Boxes . . . . . . . . . . . . . . . . . . . . .41
SECTION 6.08. UCC Matters; Protection and Perfection of Purchased Property . . . .41
SECTION 6.09. Obligations of the Seller With Respect to Receivables. . . . . . . .42
SECTION 6.10. Applications of Collections. . . . . . . . . . . . . . . . . . . . .42
SECTION 6.11. Annual Servicing Report of Independent Public Accountants. . . . . .43
<PAGE>
ARTICLE VII TRIGGER EVENTS
SECTION 7.01. Trigger Events . . . . . . . . . . . . . . . . . . . . . . . . . . .43
ARTICLE VIII INDEMNIFICATION
SECTION 8.01. Indemnities by the Seller. . . . . . . . . . . . . . . . . . . . . .45
SECTION 8.02. Optional Repurchase of the Purchased Interest. . . . . . . . . . . .47
ARTICLE IX THE DEAL AGENT
SECTION 9.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . .48
SECTION 9.02. Deal Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . .49
SECTION 9.03. Deal Agent and Affiliates. . . . . . . . . . . . . . . . . . . . . .49
SECTION 9.04. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
SECTION 9.05. Resignation of the Deal Agent. . . . . . . . . . . . . . . . . . . .49
SECTION 9.06. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
ARTICLE X MISCELLANEOUS
SECTION 10.01. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . .50
SECTION 10.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 10.03 Setoff and Counterclaim . . . . . . . . . . . . . . . . . . . . . .51
SECTION 10.04. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 10.05. Binding Effect; Assignability . . . . . . . . . . . . . . . . . . .51
SECTION 10.06. Term of this Agreement. . . . . . . . . . . . . . . . . . . . . . .52
SECTION 10.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF OBJECTION TO VENUE . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 10.08. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 10.09. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . .52
SECTION 10.10. No Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 10.11. Recourse Against Certain Parties. . . . . . . . . . . . . . . . . .54
SECTION 10.12. Execution in Counterparts; Severability; Integration. . . . . . . .54
SECTION 10.13. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . .54
</TABLE>
SCHEDULES
Schedule I -- Condition Precedent Documents
Schedule II -- Description of Credit and Collection Policy
Schedule III -- Lock-Box Banks and Lock-Box Accounts
Schedule IV -- Tradenames, Fictitious Names and "Doing Business As" Names
Schedule V -- List of Purchased Receivables
EXHIBITS
Exhibit A -- Form of Lock-Box Agreements
Exhibit B -- Form of Monthly Asset Report
Exhibit C -- Form of Opinion of Counsel for the Seller
Exhibit D -- Seller's Certificate of Formation
<PAGE>
THIS RECEIVABLES PURCHASE AGREEMENT (the "AGREEMENT") is made as of
December 9, 1998, among:
(1) INSURANCE FUNDING LLC, a Delaware limited liability company (the
"SELLER");
(2) EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation
("EAGLEFUNDING"), as the purchaser (the "Purchaser");
(3) BANCBOSTON ROBERTSON STEPHENS INC. ("BRSI"), as agent (the "DEAL
AGENT"); and
(4) SUPERIOR NATIONAL INSURANCE GROUP, INC., a Delaware corporation
("SUPERIOR"), in its capacity as the initial Servicer hereunder (in
such capacity, the "SERVICER").
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. (a) Certain capitalized terms
used throughout this Agreement are defined above or in this SECTION 1.01.
(b) As used in this Agreement and its exhibits, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ADJUSTED BASE RATE" means, at any time, the rate of interest equal to
the sum of (a) the Applicable Base Rate Margin and (b) the Base Rate in effect
at such time and from time to time.
"ADJUSTED EURODOLLAR RATE" means, with respect to any Purchase Period
for all Capital allocated to such Purchase Period, an interest rate per annum
equal to the sum of
(a) a per annum rate equal to the Applicable Eurodollar Margin; PLUS
(b) the quotient, stated as a percentage, of (i) the per annum rate
determined by the Deal Agent at which dollar deposits for such Purchase Period
are offered by BankBoston, N.A. based on information presented on Telerate Page
3750 as of 11:00 a.m. London time on the second Business Day prior to the first
day of such Purchase Period, divided by (ii) a number equal to 1.00 minus the
Eurodollar Reserve Percentage, if applicable.
<PAGE>
"ADMINISTRATIVE FEE" means the fee payable by the Seller to the Deal
Agent annually in advance on the Closing Date and, if the Collection Date has
not occurred, on each anniversary of the Closing Date, and identified as the
"Administrative Fee" in the Fee Letter.
"ADVERSE CLAIM" means a lien, security interest, charge, encumbrance
or other right or claim of any Person having the practical effect of a lien,
security interest, charge or encumbrance.
"AFFECTED PARTY" has the meaning assigned to that term in SECTION
2.07(a).
"AFFILIATE" when used with respect to a Person means any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract, or otherwise; and the terms "controlling" and "controlled" have the
meanings correlative to the foregoing.
"AGENT'S BALANCE" means, in respect of an Insurance Premium, the
amount of such Insurance Premium due and payable to an Originator by (a) an
Insurance Agent, on behalf of the related Policyholder, in which case the
Insurance Agent has deducted any commissions due such Insurance Agent from the
Outstanding Balance thereof or (b) a Policyholder, in which case the Originator
shall reduce the Outstanding Balance thereof for any commissions due such
Insurance Agent.
"ALTERNATIVE RATE" means, with respect to any Purchase Period for all
Capital allocated to such Purchase Period, an interest rate per annum equal to
the Adjusted Eurodollar Rate or the Adjusted Base Rate as the Seller shall
select by notice to the Deal Agent in accordance with the terms of this
Agreement; PROVIDED, HOWEVER, that the "ALTERNATIVE RATE" for such Capital
allocated to such Purchase Period shall be the Adjusted Base Rate if (a) on or
before the first day of such Purchase Period, the Purchaser shall have notified
the Deal Agent that a Eurodollar Disruption Event has occurred, (b) such
Purchase Period is a period of 29 days or less, or (c) such Capital is less than
$1,000,000.
"APPLICABLE BASE RATE MARGIN" means 0.0% per annum; PROVIDED, HOWEVER,
that, at all times after the occurrence of a Trigger Event (other than with
respect to an event of the type described in SECTION 7.01(h) hereof), the
"Applicable Base Rate Margin" means 2.0% per annum.
"APPLICABLE EURODOLLAR RATE MARGIN" means 0.75% per annum; PROVIDED,
HOWEVER, that, at all times after the occurrence of a Trigger Event (other than
with respect to an event of the type described in SECTION 7.01(h) hereof), the
"Applicable Eurodollar Rate Margin" means 4.25% per annum.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
pursuant to which the assignee agrees to purchase an interest in the
Purchased Interest
<PAGE>
and this Agreement from the Purchaser, in form and substance satisfactory to
the Deal Agent and the Seller, entered into by the Purchaser and such
assignee pursuant to SECTION 10.05.
"BANKRUPTCY CODE" means the United States Bankruptcy Reform Act of
1978 (11 U.S.C. Sections 101, ET SEQ.), as amended from time to time, or any
successor statute.
"BASE RATE" means, on any day, a fluctuating rate of interest per
annum equal to the higher of (a) the per annum rate of interest announced from
time to time by BankBoston, N.A. at its head office in Boston, Massachusetts as
its "base rate", and (b) 1/2 of one percent per annum above the Federal Funds
Rate.
"BENEFIT PLAN" means any employee benefit plan as defined in
Section 3(3) of ERISA in respect of which the Seller or any ERISA Affiliate of
the Seller is, or at any time during the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA.
"BUSINESS DAY" means a day of the year other than a Saturday or a
Sunday on which (a) banks are required to be open in New York City and Boston,
Massachusetts and (b) if the term "Business Day" is used in connection with the
Adjusted Eurodollar Rate, dealings in dollar deposits are carried on in the
London interbank market.
"CAPITAL" means the Purchase Price, reduced from time to time by any
amounts paid by the Seller to the Purchaser as a reduction to Capital and any
Collections received and distributed on account of such Capital pursuant to
SECTION 2.04; PROVIDED, HOWEVER, that such Capital shall not be reduced by any
distribution of any portion of Collections if at any time such distribution is
rescinded or must be returned for any reason.
"CAPITAL LIMIT" means, at any time, an amount equal to the remainder
of (a) the Eligible Receivables Balance at such time, MINUS (b) the Yield
Reserve at such time.
"CERTIFICATE OF FORMATION" means the certificate of formation of
Insurance Funding LLC filed with the Secretary of State of the State of Delaware
on December 1, 1998.
"CLOSING DATE" means December 9, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor.
"COLLECTION ACCOUNT" has the meaning specified in SECTION 6.07.
"COLLECTION ACCOUNT AGREEMENT" means that certain Collection Account
Agreement dated as of even date herewith among the Collection Account Bank, the
Servicer, the Purchaser and the Deal Agent
<PAGE>
"COLLECTION ACCOUNT BANK" has the meaning specified in SECTION 6.07.
"COLLECTION DATE" means the date on which the aggregate outstanding
Capital has been reduced to zero, the Purchaser has received all Yield and other
amounts due to it in connection with this Agreement and the Deal Agent has
received all amounts due to it in connection with this Agreement.
"COLLECTIONS" means, (a) with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all cash proceeds of the Related Security with respect to such
Receivable, and (b) any amounts paid to the Seller (or the Deal Agent, the
Purchaser or any assignees thereof) pursuant to the terms of the Originator Sale
Agreement.
"COMMERCIAL PAPER" means the short-term promissory notes of
EagleFunding denominated in dollars, issued by EagleFunding in connection with
the transactions contemplated by the Transaction Documents, including any
portion of such short-term promissory notes that are identified on the books and
records of EagleFunding as issued in respect of the transactions contemplated by
the Transaction Documents.
"CONFIDENTIAL INFORMATION" has the meaning assigned to such term in
SECTION 10.13.
"CONTRACT" means an agreement between an Originator and a Person
pursuant to or under which an Obligor shall be obligated to make one or more
payments to an Originator including, without limitation, (i) an Insurance Policy
and (ii) a Reinsurance Contract.
"COVERAGE SHORTFALL EVENT" means, at any time, the aggregate Capital
outstanding hereunder exceeds the Capital Limit in effect at such time.
"CP DEALER FEE" means, on any day, the fees payable to the Dealer in
respect of any Commercial Paper.
"CP DISRUPTION EVENT" means the inability of EagleFunding, at any
time, whether as a result of a prohibition, a contractual restriction or any
other event or circumstance whatsoever, to raise funds through the issuance of
its commercial paper notes (whether or not constituting "Commercial Paper"
hereunder) in the United States commercial paper market.
"CP RATE" means, with respect to any Purchase Period for all Capital
allocated to such Purchase Period, the rate equivalent to the rate (or if more
than one rate, the weighted average of the rates) at which commercial paper
notes of EagleFunding having a term equal to such Purchase Period and to be
issued to fund or maintain the applicable Purchase by EagleFunding may be sold
by any placement agent or commercial paper dealer selected by EagleFunding, as
agreed between each such agent or dealer and
<PAGE>
EagleFunding and notified by EagleFunding or such agent or dealer to the Deal
Agent and the Servicer, including an increment to such rate sufficient in amount
to enable EagleFunding to collect all amounts of CP Dealer Fees payable in
respect of all such commercial paper notes issued for the term of such Purchase
Period; PROVIDED, HOWEVER, if the rate (or rates) as agreed between any such
agent or dealer and EagleFunding with regard to any Purchase Period for the
applicable Purchase is a discount rate (or rates), the "CP RATE" for such
Purchase Period shall be the rate (or if more than one rate, the weighted
average of the rates) resulting from converting such discount rate (or rates) to
an interest-bearing equivalent rate per annum.
"CREDIT AND COLLECTION POLICY" means those credit and collection
policies and practices relating to Contracts and Receivables described in
SCHEDULE II.
"DCR" means Duff & Phelps Credit Rating Co., and any successor
thereto.
"DEAL AGENT'S ACCOUNT" means a special account (account number 24207)
in the name of the Deal Agent (or for so long as EagleFunding is the Purchaser,
in the name of EagleFunding), maintained at Bankers Trust Company for the
benefit of the Deal Agent and the Purchaser.
"DEALER" means any dealer or placement agent in respect of the
Commercial Paper.
"DEBT" of any Person means (a) indebtedness of such Person for
borrowed money, (b) obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) obligations of such Person to pay the
deferred purchase price of property or services beyond ordinary course of
business payment terms for trade payables, (d) obligations of such Person as
lessee under leases which shall have been or should be, in accordance with GAAP,
recorded as capital leases, (e) obligations secured by an Adverse Claim upon
property or assets owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations and (f) without duplication
obligations of such Person under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in CLAUSES (a) THROUGH (e) above.
"DEFAULTED RECEIVABLE" means a Receivable (a) (ii) in the case of an
Agent's Balance, as to which any payment, or part thereof, remains unpaid for
more than 270 days from the original invoice date for such payment and (ii) in
the case of a Reinsurance Recoverable, as to which any payment, or party
thereof, remains unpaid for more than 270 days from the date of this Agreement,
(b) as to which the Obligor thereof has taken any action constituting an
Insolvency Event or suffered any Insolvency Event or (c) which, consistent with
the Credit and Collection Policy, has been or should be written off the
applicable Originator's books as uncollectible.
"DILUTION FACTORS" means, with respect to the Receivables, any
credits, rebates, freight charges, discounts, allowances, disputes, chargebacks,
allowances for
<PAGE>
early payments and other allowances or adjustments granted in accordance with
the Originators' and the Seller's usual practices.
"DISCOUNT FACTOR" means a percentage calculated to provide the
Purchaser with a reasonable return on its investment in the Purchased Property
after taking account of the time value of money based upon the anticipated dates
of collection of the Transferred Assets. The Discount Factor shall be 5.5%.
"ELIGIBLE RECEIVABLE" means, at any time, a Receivable:
(a) the Obligor of which is a United States resident, is not an
Affiliate of the Seller, the Servicer or any Originator, and is not a
government or a governmental subdivision or agency;
(b) which is not a Defaulted Receivable;
(c) which arises under a Contract (i) the performance of which has
been completed by the applicable Originator and by all other parties other
than the Obligor and (ii) that has been duly authorized and, together with
such Receivable, is in full force and effect and constitutes the legal,
valid and binding obligation of the Obligor of such Receivable, enforceable
against such Obligor in accordance with its terms and is not subject to any
dispute, offset, counterclaim or defense whatsoever;
(d) (i) which is an "account" or "general intangible" within the
meaning of Section 9-106 of the UCC of all applicable jurisdictions, (ii)
as to which all performance and other action required to be taken in
connection therewith by the applicable Originator (and, if applicable, the
Seller) for the Obligor has been so performed or taken, (iii) is
denominated and payable only in United States dollars in the United States,
(iv) no portion of which is payable on account of sales taxes, and (v) in
which the applicable Originator can grant a perfected security interest;
(e) which arises in the ordinary course of the Originators' business
in connection with providing services or the sale of goods within the
United States;
(f) the assignment of which (including, without limitation, the sale
of an undivided percentage interest therein and the assignment of any
Related Security) does not contravene or conflict with any applicable laws,
rules or regulations or any contractual or other restriction, limitation or
encumbrance;
(g) which does not have an Adverse Claim filed against it and is not
otherwise subject to an Adverse Claim and has not been compromised,
adjusted or modified (including by extension of time of payment or the
granting of any discounts, allowances or credits) except for discounts,
allowances or credits made in accordance with the Credit and Collection
Policy and in the ordinary course of the Originators' business;
<PAGE>
(h) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no party to the Contract related thereto
is in violation of any such law, rule or regulation in any material
respect;
(i) which satisfies, and has been originated in accordance with, all
applicable requirements of the Credit and Collection Policy;
(j) as to which the Deal Agent has not notified the Seller that the
Deal Agent has determined, in its reasonable business judgment, that such
Receivable (or class of Receivables) is not acceptable for purchase
hereunder;
(k) with respect to which, (i) prior to the Purchase thereof by
Purchaser, Seller has a first priority ownership interest therein, free and
clear of any Adverse Claim, and (ii) from and after the Purchase thereof,
EagleFunding has a properly perfected first priority undivided percentage
ownership interest therein, free and clear of any Adverse Claim; and
(l) with respect to which no Person other than the applicable
Originator or an Affiliate thereof is attempting to collect the proceeds of
such Receivable.
"ELIGIBLE RECEIVABLES BALANCE" means, at any time, the aggregate
Outstanding Balance of Eligible Receivables which constitute Purchased
Receivables.
"EQUITY INVESTMENT" means, the sum of $1,000.00.
"ERISA" means the U.S. Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" means (a) any corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Code) as the Seller; (b) a partnership or other trade or business (whether
or not incorporated) under common control (within the meaning of Section 414(c)
of the Code) with the Seller or (c) a member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as the Seller, any
corporation described in CLAUSE (a) above or any partnership, trade or business
described in CLAUSE (b) above.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
<PAGE>
"EURODOLLAR DISRUPTION EVENT" means, with respect to all Capital
allocated to any Purchase Period, any of the following: (a) a determination by
the Purchaser that it would be contrary to law or to the directive of any
central bank or other governmental authority (whether or not having the force of
law) to obtain United States dollars in the London interbank market to make,
fund or maintain the Purchase for such Purchase Period, (b) the failure of
BankBoston, N.A. to furnish timely information for purposes of determining the
Adjusted Eurodollar Rate, (c) a determination by the Purchaser that the rate at
which deposits of United States dollars are being offered in the London
interbank market does not accurately reflect the cost to the Purchaser of
making, funding or maintaining the Purchase for such Purchase Period or (d) the
inability of the Purchaser to obtain United States dollars in the London
interbank market to make, fund or maintain the Purchase for such Purchase
Period.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day with respect to a
Purchase Period to which Capital has been allocated hereunder, the maximum rate
(expressed as a decimal) at which any lender subject thereto would be required
to maintain reserves under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor or similar regulations relating to such reserve
requirements) against Eurocurrency Liabilities, if such liabilities were
outstanding. The Eurodollar Reserve Percentage shall be adjusted automatically
on and as of the effective date of any change in the maximum rate described
above.
"FEDERAL FUNDS RATE" means, for any day, 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 for such transactions received by the
Liquidity Agent from three Federal funds brokers of recognized standing selected
by it.
"FEE LETTER" has the meaning assigned to that term in SECTION 2.06(a).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, in each case consistently applied.
"INDEMNIFIED AMOUNTS" has the meaning assigned to that term in
SECTION 8.01.
"INDEMNIFIED PARTIES" has the meaning assigned to that term in
SECTION 8.01.
"INSURANCE AGENT" means a Person authorized to sell an Insurance
Policy.
"INSURANCE POLICY" means a duly filed and approved contract of
insurance in force and effective on the date hereof.
<PAGE>
"INSURANCE PREMIUM" means an amount due from a Policyholder in order
to receive the benefits of an Insurance Policy.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan, advance or investment by such Person in any other Person, whether by means
of share purchase, capital contribution, loan or otherwise, excluding the
acquisition of Receivables and other Purchased Property (and interests therein)
pursuant to the Originator Sale Agreement and excluding commission, travel and
similar advances to officers, employees and directors made in the ordinary
course of business.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended and any successor.
"IRS" shall mean the Internal Revenue Service and any Person
succeeding to the functions thereof.
"ISSUER" means EagleFunding and any other Purchaser whose principal
business consists of issuing commercial paper or other rated securities to fund
the acquisition and maintenance of interests in, or the making of loans secured
by a grant of security interests in, receivables, accounts, instruments, chattel
paper, general intangibles and other similar assets.
"LIQUIDATION FEE" means, for the Capital allocated to a Purchase
Period (computed without regard to any shortened duration of such Purchase
Period as a result of the occurrence of the Termination Date) during which such
Capital is reduced or the applicable Yield Rate for such Capital is for any
reason changed, the amount, if any, by which (a) the additional Yield
(calculated without taking into account any Liquidation Fee) which would have
accrued on the reduction of such Capital during such Purchase Period (as so
computed) if such reductions had remained as Capital or if the applicable Yield
Rate had remained unchanged, as the case may be, exceeds (b) the sum of (i)
Yield actually received by a Purchaser in respect of such Capital for such
Purchase Period and (ii) if applicable, the income, if any, received by such
Purchaser from such Purchaser's investing the proceeds of reductions of Capital.
"LIQUIDITY AGENT" means BankBoston, N.A., in its capacity as
"Liquidity Agent" under the Liquidity Agreement, together with any successor or
permitted assign in such capacity.
"LIQUIDITY AGREEMENT" means that certain Liquidity Agreement dated as
of even date herewith by and among EagleFunding, the financial institutions
party thereto from time to time as "Liquidity Providers," and the Liquidity
Agent, as the same may be amended, restated, supplemented or otherwise modified
from time to time.
"LIQUIDITY FEE" means the fee payable by the Seller and identified as
the "Liquidity Fee" in the Fee Letter.
<PAGE>
"LIQUIDITY PROVIDERS" means the financial institutions party to the
Liquidity Agreement from time to time as "Liquidity Providers" thereunder.
"LLC AGREEMENT" means the Operating Agreement of Insurance Funding LLC
executed by GSS Holdings II, Inc., as the sole member, as the same may be
amended, restated, supplemented or otherwise modified from time to time
hereafter.
"LOCK-BOX" means a post office box to which Collections are remitted
for retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank into a
Lock-Box Account.
"LOCK-BOX ACCOUNT" means an account maintained for the purpose of
receiving Collections at a bank or other financial institution which has
executed a Lock-Box Agreement.
"LOCK-BOX AGREEMENT" means an agreement, in substantially the form of
EXHIBIT A, among the applicable Originator and a Lock-Box Bank.
"LOCK-BOX BANK" means any of the banks or other financial institutions
holding one or more Lock-Box Accounts.
"MANAGEMENT AGREEMENT" means the Management Agreement dated as of
December 9, 1998 between Global Securitization Services LLC and the Seller (as
the same may be amended, restated, supplemented or otherwise modified from time
to time).
"MANAGEMENT FEE" means the fee payable by the Seller and identified as
the "Management Fee" in the Management Agreement.
"MANAGER" means Global Securitization Services LLC, a Delaware limited
liability company.
"MONTHLY ASSET REPORT" means a report, in substantially the form of
EXHIBIT B, furnished by the Servicer to the Deal Agent for the Purchaser
pursuant to SECTION 6.06(b).
"MONTHLY ASSET REPORT DATE" means, with respect to any calendar month,
the 20th day of such month, or if such date is not a Business Day, the next
Business Day to occur thereafter.
"MOODY'S" means Moody's Investors Service, Inc., and any successor
thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding five years contributed to by the Seller or any
ERISA Affiliate on behalf of its employees.
<PAGE>
"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract, and includes, without limitation, (i) in the case of a Reinsurance
Recoverable, the applicable Reinsurance Company and (ii) in the case of an
Agent's Balance, either the Insurance Agent or the Policyholder, as the case may
be.
"ORIGINATOR" means each of California Compensation Insurance Company,
a California corporation, Commercial Compensation Insurance Company, a New York
corporation, Combined Benefits Insurance Company, a California corporation and
Business Insurance Company, a Delaware corporation; and "ORIGINATORS" means such
corporations, collectively.
"ORIGINATOR SALE AGREEMENT" means the Receivables Purchase and Sale
Agreement of even date herewith among the Originators and the Seller, together
with all instruments, documents and agreements executed by the Originators in
connection therewith, in each case as the same may from time to time be amended,
supplemented or otherwise modified in accordance with the terms hereof.
"OTHER COSTS" has the meaning assigned to such term in SECTION
10.09(c).
"OTHER SELLERS" has the meaning assigned to such term in SECTION
10.09(c).
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any Person
succeeding to the functions thereof.
"PERMITTED INVESTMENTS" means (a) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of no more than 45 days from the date
of acquisition (or, if earlier, maturing no later than the next occurring end of
any Purchase Period); (b) time deposits and certificates of deposit having
maturities of no more than 45 days from the date of acquisition (or, if earlier,
maturing no later than the next occurring end of any Purchase Period),
maintained with or issued by any commercial bank having capital and surplus in
excess of $500,000,000 and having a short-term rating of not less than P-1 or
the equivalent thereof from Moody's, A-1 or the equivalent thereof from S&P, and
D-1 or the equivalent thereof from DCR (if rated by DCR); (c) repurchase
obligations for underlying securities of the types described in CLAUSES (a) or
(b) above with a term of not more than ten days and maturing no later than 45
days after the date of acquisition (or, if earlier, maturing no later than the
next occurring end of any Purchase Period); and (d) commercial paper maturing
within 45 days after the date of acquisition (or, if earlier, maturing no later
than the next occurring end of any Purchase Period) and having a rating of not
less than P-1 or the equivalent thereof from Moody's, A-1 or the equivalent
thereof from S&P, and D-1 or the equivalent thereof from DCR (if rated by DCR).
<PAGE>
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company, government (or any agency or political
subdivision thereof) or other entity.
"POLICYHOLDER" means the Person who is the named insured under an
Insurance Policy.
"PROGRAM FEE" means the fee payable by the Seller and identified as
the "Program Fee" in the Fee Letter.
"PURCHASE" means a purchase by the Purchaser of interests in the
Purchased Property from the Seller pursuant to ARTICLE II.
"PURCHASE LIMIT" means, at any time, $63,416,465.
"PURCHASE PERIOD" for any outstanding Capital means (a) if Yield in
respect of all or any part thereof is computed by reference to the CP Rate, a
period of 1 to and including 45 days, (b) if Yield in respect thereof is
computed by reference to the Adjusted Eurodollar Rate, a period of one month and
(c) if Yield in respect thereof is computed at the Adjusted Base Rate, a period
of 1 to and including 31 days, PROVIDED that the last day of such period shall
in each case be a Settlement Date, in each case, as determined pursuant to
SECTION 2.03.
"PURCHASE PRICE" means, with respect to the Purchase hereunder, the
aggregate price to be paid to the Seller for the Purchase of the Purchased
Property in accordance with SECTION 2.02, which price shall be equal to the
product of (x) the aggregate Outstanding Balance of the Purchased Receivables
and (y) one MINUS the Discount Factor, and shall be an integral multiple of
$250,000.
"PURCHASED INTEREST" means the undivided percentage ownership interest
in the Purchased Property conveyed by Seller to the Purchaser under this
Agreement. The Purchased Interest shall be equal to 100% and shall remain
constant until the Collection Date, on which date the Purchased Interest shall
become zero.
"PURCHASED PROPERTY" means (i) all the Receivables purchased in
accordance with SECTION 2.01 or 2.02 and identified in SCHEDULE V hereto, (ii)
all Related Security relating to such Receivables and (iii) all Collections with
respect to, and other proceeds of, such Receivables.
"PURCHASED RECEIVABLE" means any Receivable included in the Purchased
Property and in which a Purchased Interest has been purchased under this
Agreement.
"PURCHASER" means EagleFunding or any other Person that agrees,
pursuant to an Assignment and Acceptance, to purchase an interest in this
Agreement and in the
<PAGE>
Purchased Interest pursuant to SECTION 2.02 of this Agreement, and to assume the
obligations of EagleFunding under this Agreement.
"RATE VARIANCE FACTOR" means that number which reflects the Deal
Agent's reasonable estimate of the potential variance in selected interest rates
over a period of time designated by the Deal Agent, as shall be computed from
time to time by the Deal Agent. The Deal Agent shall notify the Servicer in
writing of the Rate Variance Factor in effect from time to time.
"RATING AGENCY" has the meaning assigned to such term in SECTION 10.01
of this Agreement.
"RECEIVABLE" means an Agent's Balance or a Reinsurance Recoverable.
"RECORDS" means all Contracts and other documents, books, records and
other information (including without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
maintained with respect to Receivables and the related Obligors which the Seller
has itself generated, in which the Seller has acquired an interest pursuant to
the Originator Sale Agreement or in which the Seller has otherwise obtained an
interest.
"REINSURANCE COMPANY" means an insurance company listed on Schedule V
hereto which has entered into a Reinsurance Treaty with an Originator.
"REINSURANCE RECOVERABLE" means an amount due an Originator from a
Reinsurance Company in respect of a claim under a Reinsurance Treaty.
"REINSURANCE TREATY" means a contract listed on Schedule V hereto
pursuant to which an Originator reinsures or is otherwise indemnified against
all or a portion of claims it must pay to a Policyholder under any Insurance
Policy.
"RELATED SECURITY" means with respect to any Receivable:
(a) all Adverse Claims and property subject thereto from time to time
purporting to secure payment of such Receivable, whether pursuant to the
Contract related to such Receivable or otherwise;
(b) the assignment to the Deal Agent, for the benefit of the
Purchaser, of all UCC financing statements covering any collateral securing
payment of such Receivable;
(c) all guarantees, indemnities, warranties, letters of credit,
insurance policies and proceeds and premium refunds thereof and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable whether pursuant to the
Contract related to such Receivable or otherwise;
<PAGE>
(d) all Records;
(e) all of the Seller's right and title to, and interest in, the
Originator Sale Agreement, the Support Agreement and the assignment to
the Deal Agent of all UCC financing statements filed by the Seller
against the Originators under or in connection with the Originator
Sale Agreement;
(f) all right, title and interest of the relevant Originators in to
and under the related Contract (but only to the extent relating to such
Receivable); and
(g) all proceeds of the foregoing.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and any successor thereto.
"SECURITY AGREEMENT" means that certain Security Agreement dated as of
even date herewith by and between EagleFunding and Bankers Trust Company, as
"Liquidity Collateral Agent" and as "Supplemental Enhancement Collateral Agent"
thereunder, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"SERVICER" means at any time the Person then authorized pursuant to
ARTICLE VI to service, administer and collect Receivables.
"SERVICER DOWNGRADE TERMINATION EVENT" has the meaning assigned to
that term in paragraph (c) of the definition of "Servicer Termination Event".
"SERVICER FEE" has the meaning assigned to that term in
SECTION 2.06(b).
"SERVICER TERMINATION EVENT" means the occurrence of any of the
following:
(a) any representation or warranty made or deemed to be made by the
Servicer (or any of its officers or agents) under or in connection with this
Agreement or any information, document or report delivered pursuant hereto shall
prove to have been false or incorrect in any material respect when made;
(b) the Servicer shall fail to pay any principal of or premium or
interest on any Debt when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue, without waiver or cure, for a period of 45 Business
Days; or (ii) any other default or any event which, with the passage of time or
the giving of notice, or both, would constitute a default under any agreement or
instrument relating to any such Debt, shall occur and shall continue, without
waiver or cure, for a period of 45 Business Days; or (iii) any Debt of
<PAGE>
the Servicer 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;
(c) the unsecured financial obligation credit rating of the Servicer
shall be rated lower than "BB" by Standard & Poor's or "B1" by Moody's or the
equivalent thereof by a nationally recognized credit rating agency (a "SERVICER
DOWNGRADE TERMINATION EVENT"); or
(d) a material failure on the part of the Servicer to observe or
perform any of its duties or obligations as Servicer under this Agreement, as
determined by the Deal Agent in the exercise of its reasonable commercial
judgment and such failure shall remain unremedied for two Business Days.
"SETTLEMENT DATE" means, with respect to any calendar month, the 25th
day of such month, or if such date is not a Business Day, the next Business Day
to occur thereafter.
"SUPPLEMENTAL ENHANCEMENT AGREEMENT" means the Supplemental
Enhancement Agreement dated as of December 9, 1998, among the Borrower, the
financial institutions from time to time parties thereto as Supplemental
Enhancement Providers, BankBoston, N.A. as supplemental enhancement agent for
the Supplemental Enhancement Providers and Bankers Trust Company, as
supplemental collateral agent for the Supplemental Enhancement Providers, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
"SUPPLEMENTAL ENHANCEMENT AGENT" means BankBoston, N.A., in its
capacity as agent for the Supplemental Enhancement Providers under the
Supplemental Enhancement Agreement, and any successor "Supplemental Enhancement
Agent" thereunder.
"SUPPLEMENTAL ENHANCEMENT FEE" means the fee payable by the Seller and
identified as the "Supplemental Enhancement Fee" in the Fee Letter.
"SUPPLEMENTAL ENHANCEMENT PROVIDERS" means the financial institutions
parties to the Supplemental Enhancement Agreement from time to time as lenders
thereunder.
"SUPPORT AGREEMENT" means the Support Agreement dated as of the date
hereof executed by Superior in favor of the Seller, the Purchaser and the Deal
Agent.
"SUPPORT DEFICIENCY AMOUNT" has the meaning assigned to such term in
the Support Agreement.
"TAXES" has the meaning assigned to such term in SECTION 2.08(a).
<PAGE>
"TERMINATION DATE" means the date of the declaration or automatic
occurrence of the Termination Date pursuant to SECTION 7.01.
"TRANSACTION DOCUMENTS" means this Agreement, the Collection Account
Agreement, the Originator Sale Agreement, the Support Agreement, the Fee Letter,
the Liquidity Agreement, the Liquidity Fee Letter, the Supplemental Enhancement
Agreement, the Supplemental Enhancement Fee Letter, the Security Agreement, and
all other certificates, instruments, UCC financing statements, reports, notices,
agreements and documents executed or delivered under or in connection with such
documents, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance therewith.
"TRIGGER EVENT" has the meaning assigned to that term in SECTION 7.01.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
"UNITED STATES" means the United States of America.
"YIELD" means, for all Capital allocated to any Purchase Period during
any such Purchase Period, the product of
YRT x C x ED
---
360
where:
C = the Capital allocated to such Purchase Period,
ED = the actual number of days elapsed during such Purchase
Period, and
YRT = the Yield Rate for such Purchase Period;
PROVIDED, HOWEVER that (a) no provision of this Agreement shall require the
payment or permit the collection of Yield in excess of the maximum permitted by
applicable law and (b) Yield shall not be considered paid by any distribution if
at any time such distribution is rescinded or must otherwise be returned for any
reason.
"YIELD RATE" means, for any Purchase Period for all Capital allocated
to such Purchase Period:
(a) to the extent a Purchaser will be funding the applicable Purchase
on the first day of such Purchase Period through the issuance of commercial
paper, a rate equal to the CP Rate for such Purchase Period, and
<PAGE>
(b) to the extent a Purchaser will not be funding the applicable
Purchase on the first day of such Purchase Period through the issuance of
commercial paper, a rate equal to the Alternative Rate for such Purchase
Period or such other rate as the Deal Agent and the Seller shall agree to
in writing.
"YIELD RESERVE" means, at any time, an amount equal to (a) the product
of (i) the aggregate outstanding Capital at such time MULTIPLIED BY (ii) a rate
equal to 5.5% per annum.
SECTION 1.02. OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. All terms used in
Article 9 of the UCC in the State of California, and not specifically defined
herein, are used herein as defined in such Article 9.
SECTION 1.03. COMPUTATION OF TIME PERIODS. Unless otherwise stated
in this Agreement, in the computation of a period of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding."
ARTICLE II
THE PURCHASE FACILITY
SECTION 2.01. PURCHASE OF THE PURCHASED INTEREST. (a) On the terms
and conditions hereinafter set forth, the Purchaser shall Purchase the Purchased
Interest from the Seller. Under no circumstances shall the Purchaser make the
Purchase if (i) the Purchase Price would exceed the Purchase Limit or (ii) a
Coverage Shortfall Event would exist.
(b) It is the intention of the parties hereto that the Purchase to be
made hereunder shall constitute a sale of an undivided percentage ownership
interest in the Purchased Property, and not a loan secured by such Purchased
Property. If at any time a court characterizes the transactions hereunder as
loans by the Purchaser to the Seller, then the Seller hereby pledges, grants a
security interest in and assigns to the Deal Agent, for the benefit of the
Purchaser, all of its right and title to and interest in the Purchased Property,
including the Purchased Receivables, Related Security and Collections related
thereto, as security for such loans and for the payment and performance of all
obligations of the Seller hereunder (including, without limitation, its
indemnification obligations under ARTICLE VIII). The security interest granted
pursuant to the foregoing sentence shall be released and terminated upon the
occurrence of the Collection Date.
SECTION 2.02. THE PURCHASE. (a) Subject to the conditions described
in SECTION 2.01(a), the Purchase shall be made in accordance with the procedures
described in SECTION 2.02(b). After the Collection Date has occurred, the
Purchaser and the Deal Agent, in accordance with their respective interests,
shall assign and transfer to the Seller their respective remaining interest in
the Purchased Property in accordance with SECTION
<PAGE>
2.09 free and clear of any Adverse Claim resulting or arising from any act or
omission by the Purchaser or the Deal Agent, but without any other
representation or warranty, express or implied.
(b) The Purchase shall be made on at least two Business Days' notice
from the Seller to the Deal Agent prior to 10:00 a.m. (Boston, Massachusetts
time) on the day of notice; PROVIDED, HOWEVER, that if the Yield to accrue with
respect to the Purchase is computed by reference to the Adjusted Eurodollar
Rate, such notice must be received by the Deal Agent prior to 10:00 a.m.
(Boston, Massachusetts time) at least three Business Days prior to the date of
the Purchase. The notice shall specify (i) the Purchase Price, (ii) the date of
the Purchase, (iii) the duration of the initial Purchase Periods for the Capital
arising as a result of the Purchase, and (iv) the rate at which Yield is to
accrue on such Capital for such Purchase Periods. The Deal Agent shall notify
the Seller whether the duration and applicable rates of the initial Purchase
Periods described in such notice are acceptable or, if not acceptable, the Deal
Agent shall advise the Seller of such Purchase Periods and rates as may be
acceptable. On the date of the Purchase, the Purchaser shall, upon satisfaction
of the applicable conditions set forth in ARTICLE III, make available to the
Seller in same day funds, at Account No.26817259 at BankBoston, N.A., the
Purchase Price.
(c) It is expressly acknowledged that the Purchase hereunder shall be
made without recourse to the Seller; PROVIDED, HOWEVER, that the Seller shall be
liable to the Deal Agent and the Purchaser (i) for all representations,
warranties, covenants and indemnities made hereunder and (ii) for all fees,
costs, expenses, taxes and other indemnifications owed under this Agreement.
SECTION 2.03. SELECTION OF PURCHASE PERIODS. At all times hereafter
until the Termination Date, the Seller shall, subject to the Deal Agent's and
the Purchaser's approval and the limitations described below, select (a)
Purchase Periods and allocate a portion of the outstanding Capital to each
selected Purchase Period, so that the outstanding Capital is at all times
allocated to a Purchase Period and (b) Yield Rates to apply to such Capital for
such Purchase Periods. The initial Purchase Period(s) and Yield Rate(s)
applicable to the Capital arising as a result of the Purchase shall be specified
in the notice relating to the Purchase described in SECTION 2.02(b). Each
subsequent Purchase Period shall commence on the last day of the immediately
preceding Purchase Period, and the duration of and Yield Rate applicable to such
subsequent Purchase Period shall be such as the Seller shall select and the Deal
Agent shall approve on notice from the Seller received by the Deal Agent
(including notice by telephone, confirmed in writing) not later than 11:00 A.M.
(Boston, Massachusetts time) on the Business Day next preceding such last day,
EXCEPT that (a) if the Deal Agent shall not have received such notice before
11:00 A.M. (Boston, Massachusetts time) or the Deal Agent and the Seller shall
not have so mutually agreed before 12:30 P.M. (Boston, Massachusetts time) on
the Business Day next preceding such last day, such Purchase Period shall be one
day and the applicable Yield Rate shall be the Adjusted Base Rate and (b) if the
Deal Agent notifies the Seller that the Yield shall accrue for each Purchase
Period at the Alternative Rate, and the Seller notifies the Deal Agent that it
selects the Adjusted Eurodollar Rate
<PAGE>
(as opposed to the Adjusted Base Rate) for such Purchase Period, such notice
must be received by the Deal Agent no later than 11:00 A.M. (Boston,
Massachusetts time) on the third Business Day prior to such last day. Any
Purchase Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day; PROVIDED, HOWEVER, that
if Yield in respect of such Purchase Period is computed by reference to the
Adjusted Eurodollar Rate, and such next succeeding Business Day is in the next
calendar month, then such Purchase Period shall end on the next preceding
Business Day. In addition, whenever any Purchase Period as to which Yield
accrues at the Adjusted Eurodollar Rate commences on the last Business Day in a
month or on a day for which there is no numerically corresponding day in the
month in which such Purchase Period ends, the last day of such Purchase Period
shall occur on the last Business Day of the month in which such Purchase Period
ends. Furthermore, if a CP Disruption Event shall have occurred and be
continuing, the Purchaser, or the Deal Agent on its behalf, may, upon notice to
the Seller, terminate any Purchase Period then in effect if the Purchaser has
funded the Capital allocated to such Purchase Period by issuing its commercial
paper notes. Any Purchase Period which commences before the Termination Date
and would otherwise end on a date occurring after the Termination Date shall end
on the Termination Date. On or after the Termination Date, the Deal Agent shall
have the right to allocate outstanding Capital to Purchase Periods of such
duration as shall be selected by the Deal Agent. The Purchaser shall, on the
first day of each Purchase Period, notify the Deal Agent of the Yield Rate for
the Capital allocated to such Purchase Period.
SECTION 2.04. SETTLEMENT PROCEDURES. (a) The Servicer shall cause
all Collections received by it or deposited in the Lock-Box Accounts to be
transferred in same day funds to the Collection Account. The Servicer shall
segregate, set aside and hold in trust for the Purchaser, in the Collection
Account, the percentage interest representing the Purchased Interest in
Collections of Purchased Receivables received on such day.
(b) On each Settlement Date, the amounts set aside in the Collection
Account in accordance with CLAUSE (a) above shall be withdrawn from the
Collection Account to be applied in the following order of priority;
(i) First, (if the Servicer is a party other than Superior, an
Originator or an Affiliate thereof) to pay any accrued and unpaid Servicer
Fee which is then due and payable, or to be retained in the Collection
Account to the extent of any daily accrued and unpaid amounts of such
Servicer Fee which are not then due and payable, until the next relevant
payment date therefor, and not to be applied to any of the following items;
(ii) Second, to pay accrued and unpaid Yield which is then due and
payable, or to be retained in the Collection Account to the extent of any
accrued and unpaid amounts of such Yield which are not then due and
payable, and not to be applied to any of the following items;
<PAGE>
(iii) Third, (to the extent that the payment of such Liquidity Fee
does not cause a Coverage Shortfall Event to occur) to pay accrued and
unpaid Liquidity Fee which is then due and payable, or to be retained in
the Collection Account to the extent of any accrued and unpaid amounts of
such Liquidity Fee which are not then due and payable, and not to be
applied to any of the following items;
(iv) Fourth, (to the extent that the payment of such Supplemental
Enhancement Fee does not cause a Coverage Shortfall Event to occur) to pay
accrued and unpaid Supplemental Enhancement Fee which is then due and
payable, or to be retained in the Collection Account to the extent of any
accrued and unpaid amounts of such Supplemental Enhancement Fee which are
not then due and payable, and not to be applied to any of the following
items;
(v) Fifth, (to the extent that the payment of such Program Fee does
not cause a Coverage Shortfall Event to occur) to pay accrued and unpaid
Program Fee which is then due and payable, or to be retained in the
Collection Account to the extent of any accrued and unpaid amounts of such
Program Fee which are not then due and payable, and not to be applied to
any of the following items;
(vi) Sixth, (to the extent that the payment of such Administrative Fee
does not cause a Coverage Shortfall Event to occur) to pay any
Administrative Fee which is then due and payable, or to be retained in the
Collection Account to the extent of the Administrative Fee payable in
respect of the next succeeding annual period, until the next relevant
payment date therefor, and not to be applied to any of the following items;
(vii) Seventh, to pay all Capital then outstanding relating to any
Yield which is then due and payable, or to be retained in the Collection
Account to the extent of any Capital remaining outstanding;
(viii) Eighth, to pay the portion of any other accrued and unpaid
obligations which have not been paid pursuant to clauses (i) through (vi)
above and which are then due and payable by the Seller to the Purchaser or
the Deal Agent under this Agreement or any of the other Transaction
Documents, or to be retained in the Collection Account to the extent of any
accrued and unpaid amounts of such obligations which are not then due and
payable, until the next relevant payment date therefor, and not to be
applied to any of the following items;
(iv) Ninth, to pay any accrued and unpaid Management Fee which is then
due and payable, or to be retained in the Collection Account to the extent
of any daily accrued and unpaid amounts of such Management Fee which are
not then due and payable, until the next relevant payment date therefor,
and not to be applied to any of the following items;
<PAGE>
(ix) Tenth, (if the Servicer is Superior, an Originator or an
Affiliate thereof) to pay any accrued and unpaid Servicer Fee which is then
due and payable, or to be retained in the Collection Account to the extent
of any accrued and unpaid amounts of such Servicer Fee which are not then
due and payable, until the next relevant payment date therefor.
Following the Collection Date, the Servicer shall pay any remaining Collections
set aside and held by the Servicer pursuant to CLAUSE (a) of this SECTION 2.04,
in the following order of priority;
(i) First, to Seller in the amount of its Equity Investment;
(ii) Second, to Superior in respect of any Support Deficiency Amount;
and
(iii) Third, any and all remaining amounts to the Seller.
SECTION 2.05. PAYMENTS AND COMPUTATIONS, ETC. (a) All amounts to be
paid or deposited by the Seller or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 A.M. (Boston,
Massachusetts time) on the day when due in lawful money of the United States in
immediately available funds to the Deal Agent's Account. The Seller shall, to
the extent permitted by law, pay to the Deal Agent interest on all amounts not
paid or deposited when due hereunder (whether owing by the Seller individually
or by the Servicer) at 2.0% per annum above the Adjusted Base Rate, payable on
demand; PROVIDED, HOWEVER, that such interest rate shall not at any time exceed
the maximum rate permitted by applicable law. Such interest shall be retained
by the Deal Agent except to the extent that such failure to make a timely
payment or deposit has continued beyond the date for distribution by the Deal
Agent of such overdue amount to the Purchaser, in which case such interest
accruing after such date shall be for the account of, and distributed by the
Deal Agent to the Purchaser. All computations of interest and all computations
of Yield, Servicer Fee, Program Fee, Liquidation Fee and other fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of Yield, interest or any fee payable hereunder, as the
case may be; PROVIDED, HOWEVER, that, if such extension would cause payment of
Yield on or Capital in respect of any Purchased Property on which Yield accrues
at the Adjusted Eurodollar Rate to be made in the next following month, such
payment shall be made on the next preceding Business Day.
(c) If the Purchase requested by the Seller and approved by the
Purchaser and the Deal Agent pursuant to SECTION 2.02 or any selection of a
subsequent Purchase Period for any Capital requested by the Seller and approved
by the Deal Agent pursuant
<PAGE>
to SECTION 2.03 is not for any reason other than the act or omission of
Purchaser contrary to this Agreement made or effectuated, as the case may be, on
the date specified therefor, the Seller shall indemnify the Purchaser against
any loss, cost or expense incurred by the Purchaser, including, without
limitation, any loss (including loss of anticipated profits, net of anticipated
profits in the reemployment of such funds in the manner determined by the
Purchaser), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Purchaser to fund or
maintain the Purchase, as the case may be, during such Purchase Period.
SECTION 2.06. FEES. (a) The Seller shall pay to the Purchaser
(either directly or through the Deal Agent) and to the Deal Agent certain fees
in the amounts and on the dates set forth in a fee letter executed among the
Seller, the Purchaser and the Deal Agent, dated on or about the date hereof (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "FEE LETTER").
(b) The Seller shall pay to the Manager the Management Fee in the
amounts and on the dates set forth in Section 2 of the Management Agreement.
(c) The Purchaser shall pay to the Servicer a collection fee (the
"SERVICER FEE") of 0.5% per annum on the average daily amount of the Outstanding
Balance of Purchased Receivables, from the date hereof until the Collection
Date, payable on each Settlement Date; PROVIDED, HOWEVER, that such fee shall be
payable only from Collections pursuant to, and subject to the priority of
payment set forth in, SECTION 2.04; and PROVIDED, FURTHER, that, upon three
Business Days' notice to the Deal Agent, the Servicer may (if not Superior, an
Originator or an Affiliate thereof), elect to be paid, as such fee, another
percentage per annum on the average daily amount of outstanding Receivables, but
in no event shall the Servicer Fee payable in respect of any calendar month
after the date any such election is made exceed 110% of the reasonable and
appropriate costs and expenses of the Servicer incurred during such calendar
month.
(d) The Seller shall pay to the Deal Agent, within one Business Day
after the Deal Agent's demand therefore, for the benefit of the Purchaser, the
Liquidation Fee relating to the Purchased Property.
<PAGE>
SECTION 2.07. INCREASED COSTS; CAPITAL ADEQUACY; ILLEGALITY. (a) If
either (i) the introduction of or any change (including, without limitation, any
change by way of imposition or increase of reserve requirements) in any law,
regulation, treaty or official directive, or in the interpretation or
application thereof by any central bank or other governmental agency or
authority charged with the administration thereof (whether or not having the
force of law), or (ii) the compliance by the Deal Agent, the Purchaser or any
affiliate of either thereof (each of which, an "AFFECTED PARTY") with any
guideline or request from any central bank or other governmental agency or
authority (whether or not having the force of law), (A) shall subject an
Affected Party to any tax (except for taxes on the overall net income of such
Affected Party imposed by the United States of America or any political
subdivision thereof), duty or other charge with respect to the Purchased
Property, or any right or obligation to make Purchases hereunder, or on any
payment made hereunder or (B) shall impose, modify or deem applicable any
reserve requirement (including, without limitation, any reserve requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
any reserve requirement, if any, included in the determination of Yield),
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Affected Party or (C) shall impose
any other condition affecting the Purchased Property or the Purchaser's rights
or obligations hereunder, the result of which is to increase the cost to any
Affected Party or to reduce the amount of any sum received or receivable by an
Affected Party under this Agreement, then within ten days after demand by such
Affected Party (which demand shall be accompanied by a statement setting forth
the basis for such demand), the Seller shall pay directly to such Affected Party
such additional amount or amounts as will compensate such Affected Party for
such additional or increased cost incurred or such reduction suffered.
(b) If either (i) the introduction of or any change (including,
without limitation, any change by way of imposition or increase of reserve
requirements) in any law, regulation, treaty or official directive, or in the
interpretation or application thereof, in each case occurring after the date
hereof, by any central bank or other governmental agency or authority charged
with the administration thereof (whether or not having the force of law), or
(ii) the compliance by an Affected Party with any guideline or request from any
central bank or other governmental agency or authority (whether or not having
the force of law) in each case promulgated after the date hereof, including,
without limitation, compliance by an Affected Party with any request or
directive regarding capital adequacy, has or would have the effect of reducing
the rate of return on the capital of any Affected Party as a consequence of its
obligations hereunder or otherwise arising in connection herewith to a level
below that which any such Affected Party could have achieved but for such
introduction, change or compliance (taking into consideration the policies of
such Affected Party with respect to capital adequacy and assuming full
utilization of such Affected Party's capital) by an amount deemed by such
Affected Party to be material, then from time to time, within ten days after
demand by such Affected Party (which demand shall be accompanied by a statement
setting forth the basis for such demand), the Seller shall pay directly to such
Affected Party such additional amount or amounts as will compensate such
Affected Party for such reduction.
<PAGE>
(c) If as a result of any event or circumstance similar to those
described in SECTION 2.07(a) or 2.07(b), any Affected Party is required to
compensate a bank or other financial institution providing liquidity support,
credit enhancement or other similar support to such Affected Party in connection
with this Agreement or the funding or maintenance of Purchases hereunder, then
within ten days after demand by such Affected Party, the Seller shall pay to
such Affected Party such additional amount or amounts as may be necessary to
reimburse such Affected Party for any amounts to be paid by it.
(d) In determining any amount provided for in this SECTION 2.07, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this SECTION 2.07 shall submit to the Seller
a certificate as to the calculation of such additional or increased cost or
reduction, which certificate shall be conclusive absent manifest error.
(e) If the Purchaser shall notify the Deal Agent that a Eurodollar
Disruption Event as described in CLAUSE (a) of the definition of "EURODOLLAR
DISRUPTION EVENT" has occurred, the Deal Agent shall in turn so notify the
Seller, whereupon all Capital in respect of which Yield accrues at the Adjusted
Eurodollar Rate for the then current Purchase Period shall immediately be
converted into Capital in respect of which Yield accrues at the Adjusted Base
Rate for the remainder of such Purchase Period.
(f) Without prejudice to the survival of any other agreement of the
Seller hereunder, the agreements and obligations of the Seller contained in this
SECTION 2.07 shall survive the termination of this Agreement.
SECTION 2.08. TAXES. (a) Any and all payments by the Seller or the
Servicer hereunder shall be made, in accordance with SECTION 2.05, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING, in the case of the Purchaser and the Deal Agent, net income
taxes and branch profits taxes that are imposed by the United States and
franchise taxes, net income taxes and branch profits taxes that are imposed on
the Purchaser or the Deal Agent by the state or foreign jurisdiction under the
laws of which the Purchaser or the Deal Agent (as the case may be) is organized
or conducts business or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES"). If the Seller or the Servicer shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Purchaser or the Deal Agent, (i) the Seller shall make an
additional payment to the Purchaser or the Deal Agent, as the case may be, in an
amount sufficient so that, after making all required deductions (including
deductions applicable to additional sums payable under this SECTION 2.08), the
Purchaser or the Deal Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Seller or
the Servicer, as the case may be, shall make such deductions and (iii) the
Seller or the Servicer, as the case may be, shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
<PAGE>
(b) The Seller will indemnify the Purchaser and the Deal Agent for
the full amount of Taxes (including, without limitation, any Taxes imposed by
any jurisdiction on amounts payable under this SECTION 2.08) paid by the
Purchaser or the Deal Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto;
PROVIDED that the Purchaser or the Deal Agent, as appropriate, making a demand
for indemnity payment shall provide the Seller, at its address referred to in
SECTION 10.02, with a certificate from the relevant taxing authority or from a
responsible officer of the Purchaser or the Deal Agent stating or otherwise
evidencing that the Purchaser or the Deal Agent has made payment of such Taxes
and will provide a copy of or extract from documentation, if available,
furnished by such taxing authority evidencing assertion or payment of such
Taxes. This indemnification shall be made within ten days from the date the
Purchaser or the Deal Agent (as the case may be) makes written demand therefor.
(c) Within 30 days after the date of any payment by the Seller of any
Taxes, the Seller will furnish to the Deal Agent, at its address referred to in
SECTION 10.02, appropriate evidence of payment thereof.
(d) Within 30 days of the written request of the Seller therefor, the
Deal Agent and the Purchaser, as appropriate, shall execute and deliver to the
Seller such certificates, forms or other documents which can be furnished
consistent with the facts and which are reasonably necessary to assist the
Seller in applying for refunds of taxes remitted hereunder.
(e) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support to the Purchaser
in connection with this Agreement or the funding or maintenance of Purchases
hereunder, the Purchaser is required to compensate a bank or other financial
institution in respect of taxes under circumstances similar to those described
in this SECTION 2.08 then within ten days after demand by the Purchaser, the
Seller shall pay to the Purchaser such additional amount or amounts as may be
necessary to reimburse such Purchaser for any amounts paid by it.
(f) Without prejudice to the survival of any other agreement of the
Seller hereunder, the agreements and obligations of the Seller contained in this
SECTION 2.08 shall survive the termination of this Agreement.
SECTION 2.09. ASSIGNMENT OF THE ORIGINATOR SALE AGREEMENT. The
Seller hereby represents, warrants and confirms to the Deal Agent that the
Seller has assigned to the Deal Agent, for the benefit of itself and the
Purchaser hereunder, all of the Seller's right and title to and interest in each
of the Originator Sale Agreement and the Support Agreement. The Seller confirms
and agrees that the Deal Agent shall have, following a Trigger Event, the sole
right to enforce the Seller's rights and remedies under the Originator Sale
Agreement for the benefit of the Purchaser, but without any obligation on the
part of the Deal Agent, the Purchaser or any of their respective Affiliates, to
perform any of the obligations of the Seller under the Originator Sale
Agreement. The
<PAGE>
Seller further confirms and agrees that such assignment to the Deal Agent shall
terminate upon the Collection Date; PROVIDED, HOWEVER, that the rights of the
Deal Agent and the Purchaser pursuant to such assignment with respect to rights
and remedies in connection with any indemnities and any breach of any
representation, warranty or covenants made by the Originators pursuant to the
Originator Sale Agreement or Superior pursuant to the Support Agreement, which
rights and remedies survive the termination of the Originator Sale Agreement and
the Support Agreement, respectively, shall be continuing and shall survive any
termination of such assignment.
ARTICLE III
CONDITIONS OF THE PURCHASE
SECTION 3.01. CONDITIONS PRECEDENT TO THE PURCHASE. (a) The
Purchase hereunder is subject to the conditions precedent (i) that the Deal
Agent shall have received on or before the Closing Date the items listed in
SCHEDULE I, each (unless otherwise indicated) dated as of such date, in form and
substance satisfactory to the Deal Agent and the Purchaser, (ii) that all fees
and expenses required to be paid prior to the Purchase pursuant to the Fee
Letter have been paid, (iii) on and as of the Closing Date, the Purchase Price
is less than or equal to the remainder of the Eligible Receivables Balance MINUS
the Yield Reserve, and (iv) each of S&P, Moody's and DCR shall have delivered
written confirmation to the Deal Agent to the effect that the consummation of
this Agreement will not result in the reduction or withdrawal of their
respective ratings of the Commercial Paper.
(b) The Purchase from the Seller by the Purchaser shall be subject
to the further conditions precedent that (i) on or prior to the Closing Date,
the Servicer shall have delivered to the Deal Agent, in each case in form and
substance satisfactory to the Deal Agent, a completed Monthly Asset Report dated
as of November 30, 1998, and containing such additional information as may be
reasonably requested by the Deal Agent; (ii) on the date of the Purchase the
following statements shall be true and the Seller by accepting the Purchase
Price shall be deemed to have certified that:
(A) The representations and warranties contained in SECTION 4.01 are
correct on and as of such day as though made on and as of such date,
(B) No event has occurred and is continuing, or would result from the
Purchase which constitutes a Trigger Event,
(C) On and as of such day, after giving effect to the Purchase, a
Coverage Shortfall Event does not exist,
(D) On and as of such day, there are no Receivables as to which any
payment, or part thereof, has been unpaid for no more than 90 days from the
original invoice date for such payment, and
<PAGE>
(E) No law or regulation shall prohibit, and no order, judgment or
decree of any federal, state or local court or governmental body, agency or
instrumentality shall prohibit or enjoin, the making of the Purchase by the
Purchaser in accordance with the provisions hereof.
and (iii) the Deal Agent shall have received such other approvals, opinions or
documents as the Deal Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller represents and warrants as follows:
(a) The Seller is a limited liability company duly incorporated,
validly existing and in good standing under the laws of the jurisdiction named
at the beginning hereof and is duly qualified to do business, and is in good
standing, in every jurisdiction in which the nature of its business requires it
to be so qualified and the failure to do so could reasonably be expected to have
a material adverse effect on the Seller's ability to perform its obligations
hereunder or the ability to assign or collect the Purchased Receivables
hereunder.
(b) The execution, delivery and performance by the Seller of this
Agreement, the Originator Sale Agreement and all other Transaction Documents to
be entered into by it, including the Seller's use of the proceeds of the
Purchase, are within the Seller's corporate powers, have been duly authorized by
all necessary corporate action, do not contravene (i) the Seller's Certificate
of Formation or LLC Agreement, (ii) any law, rule or regulation applicable to
the Seller, (iii) any contractual restriction binding on or affecting the Seller
or its property or (iv) any order, writ, judgment, award, injunction or decree
binding on or affecting the Seller or its property, and do not result in or
require the creation of any Adverse Claim upon or with respect to any of its
properties (other than in favor of the Deal Agent for the benefit of the
Purchaser with respect to the Purchased Receivables and related Purchased
Property); and no transaction contemplated hereby or by the Originator Sale
Agreement requires compliance with any bulk sales act or similar law. This
Agreement, the Originator Sale Agreement and each other Transaction Document to
be entered into by the Seller have each been duly executed and delivered by the
Seller.
(c) This Agreement, the Originator Sale Agreement and each other
Transaction Document to be entered into by the Seller constitute the legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with their respective terms subject to bankruptcy and similar laws
affecting creditors generally and principles of equity.
<PAGE>
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller of this Agreement, the
Originator Sale Agreement or any other Transaction Document to be entered into
by it, except for the filing of the UCC financing statements described in
SCHEDULE I.
(e) No filing, recording, notice or acknowledgment is necessary in
any jurisdiction to provide third parties with notice of the Purchase of the
Purchased Interests contemplated herein, and to give the Purchaser or the Deal
Agent, on behalf of the Purchaser, a valid and perfected first priority
"security interest", under Article 9 of the UCC, in and to the Purchased
Receivables, except for (i) the filing of the UCC financing statements referred
to in Article III, all of which financing statements have been duly executed and
are in acceptable form for filing in the relevant jurisdictions and (ii) the
delivery of the notices of the Purchaser's interest in the Reinsurance
Recoverables referred to in SECTION 6.04 hereof, all of which notices have been
duly executed and are in acceptable form for delivery to the relevant
Reinsurance Companies.
(f) There is no pending or threatened action or proceeding affecting
any Originator, the Seller or any subsidiary of any Originator before any court,
governmental agency or arbitrator that could reasonably be expected to have a
material adverse effect on the financial condition of any Originator, the Seller
or any subsidiary of any Originator or the ability of any Originator to perform
its obligations under the Originator Sale Agreement or the ability of the Seller
to perform its obligations under this Agreement or the ability to assign or
collect the Purchased Receivables hereunder. None of the Originators, the
Seller, or any subsidiary of any of the Originators is in default with respect
to any order of any court, arbitrator or governmental body except for defaults
with respect to orders of governmental agencies which defaults are not material
to the business or operations of the Originators, the Seller or any subsidiary
of any of the Originators.
(g) No proceeds of the Purchase will be used by the Seller (i) to
acquire any security in any transaction which is subject to Section 13 or 14 of
the Securities Exchange Act of 1934, as amended, or (ii) for any purpose other
than to fund a purchase of Receivables and related assets from the Originators.
(h) Each Receivable, together with the Contract related thereto,
shall, at all times, be owned by the Seller free and clear of any Adverse Claim
except as provided herein, and upon the Purchase, the Purchaser shall acquire a
valid and perfected first priority undivided percentage ownership interest in
each Purchased Receivable then existing or thereafter arising and in the Related
Security and Collections with respect thereto, which percentage shall correspond
at any time hereunder to the Purchased Interest, free and clear of any Adverse
Claim except as provided hereunder. No effective financing statement or other
instrument similar in effect covering any Receivable or the Related Security or
Collections with respect thereto shall at any time be on file in any recording
office except such as may be filed in favor of the Deal Agent relating to this
Agreement or in favor of Seller relating to the Originator Sale Agreement. The
purchase of the Receivables and related assets by the Seller from each of the
Originators constitute valid and true sales and transfers for consideration (and
not merely a pledge of such
<PAGE>
Receivables and assets for security purposes), enforceable against creditors of
each such Originator, and no such Receivables or related assets shall constitute
property of any such Originator.
(i) As of the close of business on the Closing Date, a Coverage
Shortfall Event shall not exist.
(j) No Monthly Asset Report (if prepared by the Seller or any
Affiliate thereof, or to the extent that information contained therein is
supplied by the Seller or such Affiliate), information, exhibit, financial
statement, document, book, record or report furnished or to be furnished by the
Seller to the Deal Agent or the Purchaser in connection with this Agreement is
or will be inaccurate in any material respect as of the date it is or shall be
dated or (except as otherwise disclosed to the Deal Agent or the Purchaser, as
the case may be, at such time) as of the date so furnished, and no such document
contains or will contain any material misstatement of fact or omits or shall
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(k) The principal place of business and chief executive office of the
Seller and the office where the Seller keeps all the Records are located at the
address of the Seller referred to in SECTION 10.02 hereof (or at such other
locations as to which the notice and other requirements specified in SECTION
6.08 shall have been satisfied).
(l) The names and addresses of all the Lock-Box Banks, together with
the account numbers of the Lock-Box Accounts at such Lock-Box Banks and the
names, addresses and account numbers of all accounts to which Collections of the
Receivables outstanding before the Purchase hereunder have been sent, are
specified in SCHEDULE III (which shall be deemed to be amended in respect of
terminating or adding any Lock-Box Account or Lock-Box Bank upon satisfaction of
the notice and other requirements specified in respect thereof). The Seller has
no other lock-box accounts or similar deposit accounts for the collection of the
Purchased Property except for the Lock-Box Accounts. No Adverse Claim exists
upon or with respect to any of the Lock-Box Accounts.
(m) Except as described in SCHEDULE IV, the Seller has no trade
names, fictitious names, assumed names or "doing business as" names or other
names under which it has done or is doing business.
(n) The Originator Sale Agreement is the only agreement pursuant to
which the Seller purchases Receivables; the Seller has furnished to the Deal
Agent true, correct and complete copies of the Originator Sale Agreement; and
the Originator Sale Agreement is in full force and effect and no event or
circumstance has occurred that would constitute (or, with the giving of notice
or the passage of time or both, would constitute) a Trigger Event pursuant to
SECTION 7.01(h).
(o) The Seller shall have given reasonably equivalent value to each
Originator in consideration for the transfer by such Originator to the Seller of
the
<PAGE>
Receivables and Related Security under the Originator Sale Agreement, no such
transfer shall have been made for or on account of an antecedent debt owed by
any Originator to the Seller, and no such transfer is or may be voidable or
subject to avoidance under any section of the Bankruptcy Code.
(p) A copy of the Certificate of Formation of the Seller as in effect
on the date of this Agreement is attached as EXHIBIT D hereto. Each of the
Seller and the Originators has received advice from its counsel which is
consistent with the conclusions set forth in the legal opinion(s) of Tobin &
Tobin, special counsel to the Originators, issued in connection with the
Originator Sale Agreement and relating to the issues of substantive
consolidation and true sale of the Receivables and the related property.
(q) The Seller is not "insolvent" (within the meaning of such term in
the Bankruptcy Code); at the time of (and immediately after) the transfer of
Receivables to the Seller under the Originator Sale Agreement, the Seller shall
not have been insolvent; and at the time of (and immediately after) the Purchase
hereunder, the Seller shall not have been insolvent.
(r) The Seller accounts for the transfers to it from the Originators
of interests in Receivables, Related Security and Collections under the
Originator Sale Agreement as sales of such Receivables, Related Security and
Collections in its books, records and financial statements, in each case
consistent with GAAP and with the requirements set forth herein.
(s) The sole and exclusive business of the Seller is the purchase of
Receivables and Related Security pursuant to the Originator Sale Agreement for
its own account and for resale to the Purchaser pursuant to the terms of this
Agreement.
(t) The Seller is not an "investment company" or a company controlled
by an "investment company" registered or required to be registered under the
Investment Company Act, or otherwise subject to any other federal or state
statute or regulation limiting its ability to incur indebtedness.
(u) The Seller is not engaged, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" (as each of the quoted terms is defined or used
in Regulation T, U or X). No part of the proceeds of any Purchased Receivable
has been used for so purchasing or carrying margin stock or for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulation T, U or X.
(v) Each of the Seller, the Servicer and the Deal Agent has the right
(whether by license, sublicense or assignment) to use all of the computer
software used by the Servicer and/or the Originators to account for the
Purchased Property to the extent necessary to administer the Purchased Property,
and, in the case of the Seller and the Servicer, to assign (by way of sale or
collateral pledge) or sublicense such rights to use all of such software to the
Deal Agent.
<PAGE>
(w) The Seller has filed or caused to be filed all Federal, state and
local tax returns which are required to be filed by it, if any, and has paid or
caused to be paid all taxes shown to be due and payable on such returns or on
any assessments received by it, if any, other than any taxes or assessments, the
validity of which are being contested in good faith by appropriate proceedings
and with respect to which the Seller has set aside adequate reserves on its
books in accordance with GAAP and which proceedings have not given rise to any
Adverse Claim.
(x) The copy of the Credit and Collection Policy attached hereto as
SCHEDULE II is a true and complete copy thereof.
(y) Each Purchased Receivable, as of the date of purchase, is an
Eligible Receivable.
SECTION 4.02. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The
Servicer represents and warrants as follows:
(a) The Servicer is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction named at the beginning
hereof and is duly qualified to do business, and is in good standing, in every
jurisdiction in which the nature of its business requires it to be so qualified
and the failure to do so could reasonably be expected to have a material adverse
effect on the Servicer's ability to perform its obligations hereunder or the
ability to collect the Purchased Receivables hereunder.
(b) The execution, delivery and performance by the Servicer of this
Agreement and all other Transaction Documents to be entered into by it are
within the Servicer's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Servicer's charter or
by-laws, (ii) any law, rule or regulation applicable to the Servicer, (iii) any
contractual restriction binding on or affecting the Servicer or its property or
(iv) any order, writ, judgment, award, injunction or decree binding on or
affecting the Servicer or its property, and do not result in or require the
creation of any Adverse Claim upon or with respect to any of its properties.
This Agreement and each other Transaction Document to be entered into by the
Servicer have each been duly executed and delivered by the Servicer.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Servicer of this Agreement or
any other Transaction Document to be entered into by it.
(d) This Agreement and each other Transaction Document to be entered
into by the Servicer constitute the legal, valid and binding obligation of the
Servicer enforceable against the Servicer in accordance with their respective
terms subject to bankruptcy and similar laws affecting creditors generally and
principles of equity.
<PAGE>
(e) (i) The Servicer has furnished to the Deal Agent (A) copies of the
audited consolidated balance sheets of Servicer and its consolidated
subsidiaries as at December 31, 1997, and the related audited consolidated
statements of income, shareholders' equity and cash flows for the fiscal year of
Servicer and its consolidated subsidiaries then ended reported on by December
31, 1997, which financial statements present fairly in all material respects in
accordance with GAAP the financial position of Servicer and its consolidated
subsidiaries as at December 31, 1997, and the results of operations of Servicer
and its consolidated subsidiaries for the fiscal year of Servicer then ended,
and (B) copies of the unaudited consolidated balance sheets of Servicer and its
consolidated subsidiaries as at September 30, 1998, and the related unaudited
consolidated statements of income, shareholders' equity and cash flows for the
three-month period then ended, which financial statements present fairly in all
material respects in accordance with GAAP the financial position of Servicer and
its consolidated subsidiaries as at September 30, 1998, and the results of
operations of Servicer and its consolidated subsidiaries for the three-month
period then ended; and (ii) since September 30, 1998, (A) no material adverse
change has occurred in the business, assets, liabilities, financial condition,
results of operations or business prospects of Servicer and its subsidiaries
taken as a whole, and (B) no event has occurred or failed to occur which has
had, or may have, singly or in the aggregate, a material adverse effect on the
ability of the Servicer to perform its obligations under this Agreement or the
ability to collect the Purchased Receivables hereunder.
(f) There is no pending or threatened action or proceeding affecting
the Servicer before any court, governmental agency or arbitrator that could
reasonably be expected to have a material adverse effect on the financial
condition of the Servicer or the ability of the Servicer to perform its
obligations under this Agreement or the ability to collect the Purchased
Receivables hereunder. The Servicer is not in default with respect to any order
of any court, arbitrator or governmental body except for defaults with respect
to orders of governmental agencies which defaults are not material to the
business or operations of the Servicer.
(g) No Monthly Asset Report (if prepared by the Servicer or any
Affiliate thereof, or to the extent that information contained therein is
supplied by the Servicer or such Affiliate), information, exhibit, financial
statement, document, book, record or report furnished or to be furnished by the
Servicer to the Deal Agent or the Purchaser in connection with this Agreement is
or will be inaccurate in any material respect as of the date it is or shall be
dated or (except as otherwise disclosed to the Deal Agent or the Purchaser, as
the case may be, at such time) as of the date so furnished, and no such document
contains or will contain any material misstatement of fact or omits or shall
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(h) The Servicer has filed or caused to be filed all Federal, state
and local tax returns which are required to be filed by it, and has paid or
caused to be paid all taxes shown to be due and payable on such returns or on
any assessments received by it, other than any taxes or assessments, the
validity of which are being contested in good faith by
<PAGE>
appropriate proceedings and with respect to which the Servicer has set aside
adequate reserves on its books in accordance with GAAP and which proceedings
have not given rise to any Adverse Claim.
(i) The principal place of business and chief executive office of the
Servicer and the office where the Servicer keeps all the Records are located at
the address of the Servicer referred to in SECTION 10.02 hereof or, in any case,
upon thirty (30) days' prior notice to the Deal Agent, at another location
within the United States.
(j) The copy of the Credit and Collection Policy attached hereto as
SCHEDULE II is a true and complete copy thereof.
ARTICLE V
GENERAL COVENANTS
SECTION 5.01. GENERAL COVENANTS OF THE SELLER.
(a) COMPLIANCE WITH LAWS; PRESERVATION OF CORPORATE EXISTENCE. The
Seller shall comply in all material respects with all applicable laws
(including, without limitation, ERISA and the Code), rules, regulations, orders
and Transaction Documents and preserve and maintain its corporate existence,
rights, franchises, qualifications and privileges where the failure to comply
could reasonably be expected to have a material adverse effect on the Seller's
ability to perform its obligations hereunder or the ability to assign or collect
the Purchased Receivables hereunder.
(b) SALES, LIENS, ETC. Except as otherwise specifically provided
herein, the Seller shall not (i) sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Purchased Receivable or the related Contract, Collections
or Related Security, or upon or with respect to any Lock-Box Account, the
Collection Account or any other account to which any Collections of any
Receivable are sent, or assign any right to receive income in respect thereof
or (ii) create or suffer to exist any Adverse Claim upon or with respect to any
of the Seller's other assets.
(c) GENERAL REPORTING REQUIREMENTS. The Seller will provide, or
cause to be provided, to the Deal Agent (with a copy for the Purchaser) the
following:
(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Seller,
a copy of the balance sheet of the Seller and the related statement of
income and cash flows each for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, prepared in
accordance with GAAP and certified by a senior financial officer of the
Seller;
<PAGE>
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Seller, a copy of the balance sheet of the
Seller and the related statement of income and cash flows for such year,
each prepared in accordance with GAAP consistently applied and reported on
by nationally recognized independent public accountants acceptable to the
Deal Agent;
(iii) promptly after the filing or receiving thereof, copies of all
reports and notices with respect to any Reportable Event defined in
Article IV of ERISA which the Seller or any ERISA Affiliate files under
ERISA with the Internal Revenue Service or the PBGC or the U.S. Department
of Labor or which the Seller or any ERISA Affiliate receives from such
entity;
(iv) as soon as possible and in any event within three days after the
occurrence of each Trigger Event or each event which, with the giving of
notice or lapse of time or both, would constitute a Trigger Event, a
statement of the chief financial officer or chief accounting officer of the
Seller setting forth details of such Trigger Event or event and the action
which the Seller has taken and proposes to take with respect thereto;
(v) promptly following receipt thereof, copies of all financial
statements, settlement statements, portfolio and other reports, notices,
disclosures, certificates, budgets and other written material delivered or
made available to the Seller by any Originator pursuant to the terms of the
Originator Sale Agreement; and
(vi) promptly following the Deal Agent's request therefor, such other
information respecting the Receivables or the conditions or operations,
financial or otherwise, of the Seller as the Deal Agent may from time to
time request in order to protect the interests of the Deal Agent or the
Purchaser in connection with this Agreement.
(d) MERGER, ETC. The Seller will not merge or consolidate with, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions), all or substantially all of its assets (whether
now owned or hereafter acquired), or acquire all or substantially all of the
assets or capital stock or other ownership interest of any Person, other than,
with respect to asset dispositions, in connection herewith.
(e) ACCOUNTING OF PURCHASES. The Seller will not account for or
treat (whether in financial statements or otherwise) the transactions
contemplated by the Originator Sale Agreement in any manner other than the sale
of the "Transferred Assets" (as defined therein) by the Originators to the
Seller.
(f) ERISA MATTERS. The Seller will not (a) fail to comply in all
material respects with ERISA and the provisions of the Code applicable to the
Benefit Plans; (b) engage or permit any ERISA Affiliate to engage in any
prohibited transaction which would subject the Seller to a material tax or
penalty imposed on a prohibited transaction;
<PAGE>
(c) permit to exist any accumulated funding deficiency, as defined in Section
302(a) of ERISA and Section 412(a) of the Code, or funding deficiency with
respect to any Benefit Plan other than a Multiemployer Plan; (d) incur any
liability to the PBGC over and above the premiums required by law; or (e)
terminate any Benefit Plan in a manner which could result in the imposition of a
lien on the property of the Seller or any such ERISA Affiliate.
(g) NATURE OF BUSINESS. The Seller will engage in no business other
than the purchase of Receivables and Related Security from the Originators, the
resale or grant of such Receivables and Related Security to the Purchaser and
the other transactions permitted or contemplated by this Agreement.
(h) ORIGINATOR RECEIVABLES. With respect to each Receivable acquired
by the Seller from an Originator, the Seller will (i) acquire such Receivable
pursuant to and in accordance with the terms of the Originator Sale Agreement,
(ii) take all action necessary to perfect, protect and more fully evidence the
Seller's ownership of such Receivable, including, without limitation, (A) filing
and maintaining effective financing statements (Form UCC-1) against the
Originators in all necessary or appropriate filing offices, and filing
continuation statements, amendments or assignments with respect thereto in such
filing offices and (B) executing or causing to be executed such other
instruments or notices as may be necessary or appropriate and (iii) take all
additional action that the Deal Agent may reasonably request to perfect, protect
and more fully evidence the respective interests of the parties to this
Agreement in the Receivables and other Purchased Property related thereto.
(i) DEBT; INVESTMENTS. The Seller will not incur any Debt other than
Debt arising hereunder or under the Originator Sale Agreement. The Seller will
not make any Investments (including, without limitation, the creation of, and
the making of capital contributions to, a subsidiary) other than Permitted
Investments.
(j) CHANGE IN THE ORIGINATOR SALE AGREEMENT. The Seller will not,
without the prior consent of the Deal Agent, (a) amend, modify, waive or
terminate any terms or conditions of the Originator Sale Agreement or of any
other Transaction Document to which it is a party, or (b) exercise any
discretionary rights granted to the Seller under the Originator Sale Agreement
pursuant to provisions thereof providing for certain actions to be taken "with
the consent of the Buyer", "acceptable to the Buyer" as "specified by the
Buyer", "in the reasonable judgment of the Buyer" or similar provisions.
(k) AMENDMENT TO CERTIFICATE OF FORMATION OR THE LLC AGREEMENT. The
Seller will not amend, modify or otherwise make any change to its Certificate of
Formation or its LLC Agreement, except in accordance with the terms and
provisions thereof.
(l) AUDITS. At any time and from time to time upon prior written
notice to the Seller during regular business hours and on an annual (or more
frequent) basis, if requested by the Deal Agent, the Seller will permit the Deal
Agent, or its agents or
<PAGE>
representatives, (i) to examine and make copies of and abstracts from all
Records, and (ii) to visit the offices and properties of the Seller for the
purpose of examining such Records, and to discuss matters relating to the
Receivables or the Seller's performance hereunder with any of the officers or
employees of the Seller having knowledge of such matters. Each such audit shall
be at the sole expense of the Seller (subject to the Seller's right under the
Originator Sale Agreement to recover such expenses from the Originators).
(m) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Seller will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing the Receivables in
the event of the destruction of the originals thereof) and keep and maintain,
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Purchased Receivables (including, without
limitation, records adequate to permit the daily identification of all
collections of and adjustments to each Purchased Receivable).
(n) LOCATION OF RECORDS. The Seller will keep its chief place of
business and chief executive office, and the offices where it keeps the Records,
at the address of the Seller referred to in SECTION 10.02, or, in any such case,
upon 30 days' prior written notice to the Deal Agent, at such other locations
within the United States where all action required by SECTION 6.08 shall have
been taken and completed.
(o) CREDIT AND COLLECTION POLICIES. The Seller will, and will cause
the Servicer to, comply in all material respects with the Credit and Collection
Policy in regard to each Purchased Receivable and the related Contract. The
Seller shall not, without the written consent of the Deal Agent (i) make any
change in the character of its business or (ii) make or agree to make any
material change in the Credit and Collection Policy.
(p) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Seller will not
add or terminate any bank as a Lock-Box Bank from those listed in Schedule III
to the Originator Sale Agreement or SCHEDULE III hereto or make any change in
its instructions to Obligors regarding payments to be made to any Lock-Box Bank,
unless the Deal Agent shall have given its prior written consent to such
addition, termination or change (which consent shall not be unreasonably
withheld) and the Deal Agent shall have received (i) ten Business Days' prior
notice of such addition, termination or change, (ii) prior to the effective date
of such addition, termination or change, (x) executed copies of Lock-Box
Agreements executed by each new Lock-Box Bank and the Seller and (y) copies of
all agreements and documents signed by either the Seller or the respective
Lock-Box Bank with respect to any new Lock-Box Account, and (iii) the prior
written consent of the Purchaser to such addition, termination or change (which
consent shall not be unreasonably withheld).
(q) CHANGE IN CORPORATE NAME. The Seller will not make any change to
its corporate name, or use any trade names, fictitious names, assumed names or
"doing business as" names.
<PAGE>
(r) TAXES. The Seller will file or cause to be filed all federal,
state and local tax returns which are required to be filed by it. The Seller
shall pay or cause to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, other than any taxes or
assessments, the validity of which are being contested in good faith by
appropriate proceedings and with respect to which the Seller shall have set
aside adequate reserves on its books in accordance with GAAP.
(s) TRANSACTION DOCUMENTS. The Seller will comply in all material
respects with the terms of and employ the procedures outlined in and enforce the
obligations of the Originators under the Originator Sale Agreement, enforce all
of the other rights of the Seller under each of the other Transaction Documents
to which it is a party, take all such action to such end as may be from time to
time reasonably requested by the Deal Agent, and maintain all such Transaction
Documents in full force and effect and make to the Originators such reasonable
demands and requests for information and reports or for action as the Seller is
entitled to make thereunder and as may be from time to time reasonably requested
by the Deal Agent.
(t) SEGREGATION OF COLLECTIONS. The Seller will prevent the deposit
into the Collection Account of any funds other than Collections and, to the
extent that any such funds are nevertheless deposited into the Collection
Account, will promptly identify any such funds to the Servicer for segregation
and remittance to the owner thereof.
(u) ACCOUNTING TREATMENT. The Seller will not prepare any financial
statements or other statements which shall account for the transactions
contemplated by the Originator Sale Agreement in any manner other than as the
sale of, or a capital contribution of, the "Transferred Assets" (as defined
therein) by the Originators to the Seller.
(v) QUALIFICATION TO DO BUSINESS. The Seller will duly qualify to do
business, and be in good standing, in every jurisdiction in which the nature of
its business requires it to be so qualified and the failure to do so could
reasonably be expected to have a material adverse effect on the Seller's ability
to perform its obligations hereunder or the ability to assign or collect the
Purchased Receivables hereunder.
(w) RECEIVABLES. The Seller will not, without the written consent of
the Purchaser and the Deal Agent, amend, modify, waive or cancel the terms of
any Receivable unless such amendment, modification, waiver or cancellation is in
the ordinary course of business of the Seller.
SECTION 5.02. GENERAL COVENANTS OF THE SERVICER.
(a) COMPLIANCE WITH LAWS; PRESERVATION OF CORPORATE EXISTENCE. The
Servicer shall comply in all material respects with all applicable laws
(including, without limitation, ERISA and the Code), rules, regulations, orders
and Transaction Documents and preserve and maintain its corporate existence,
rights, franchises, qualifications and privileges where the failure to comply
could reasonably be expected to have a material
<PAGE>
adverse effect on the Servicer's ability to perform its obligations hereunder or
the ability to collect the Purchased Receivables hereunder.
(b) GENERAL REPORTING REQUIREMENTS. The Servicer will provide, or
cause to be provided, to the Deal Agent (with a copy for the Purchaser) the
following:
(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the
Servicer, consolidated balance sheets of the Servicer and its consolidated
subsidiaries and the related statements of income, shareholders' equity and
cash flows each for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, prepared in accordance with
GAAP and certified by a senior financial officer of the Servicer;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Servicer, a copy of the consolidated balance
sheets of the Servicer and its consolidated subsidiaries and the related
statements of income, shareholders' equity and cash flows for such year,
each prepared in accordance with GAAP consistently applied and reported on
by nationally recognized independent public accountants acceptable to the
Deal Agent;
(iii) promptly after the filing or receiving thereof, copies of all
reports and notices with respect to any Reportable Event defined in
Article IV of ERISA which the Servicer or any ERISA Affiliate files under
ERISA with the Internal Revenue Service or the PBGC or the U.S. Department
of Labor or which the Servicer or any ERISA Affiliate receives from such
entity;
(iv) promptly upon discovery thereof, written notice to the Deal
Agent that a Coverage Shortfall Event has occurred or is likely to occur;
(v) promptly following the Deal Agent's request therefor, such other
information respecting the Receivables or the conditions or operations,
financial or otherwise, of the Servicer as the Deal Agent may from time to
time request in order to protect the interests of the Deal Agent or the
Purchaser in connection with this Agreement.
(c) ERISA MATTERS. The Servicer will not (a) fail to comply in all
material respects with ERISA and the provisions of the Code applicable to the
Benefit Plans; (b) engage or permit any ERISA Affiliate to engage in any
prohibited transaction which would subject the Servicer to a material tax or
penalty imposed on a prohibited transaction; (c) permit to exist any accumulated
funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of
the Code, or funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (d) incur any liability to the PBGC over and above the
premiums required by law; or (e) terminate any Benefit Plan in a manner which
could result in the imposition of a lien on the property of the Servicer or any
such ERISA Affiliate.
<PAGE>
(c) AUDITS. At any time and from time to time upon prior written
notice to the Servicer during regular business hours and on an annual (or more
frequent) basis, if requested by the Deal Agent, the Servicer will permit the
Deal Agent, or its agents or representatives, (i) to examine and make copies of
and abstracts from all Records, and (ii) to visit the offices and properties of
the Servicer for the purpose of examining such Records, and to discuss matters
relating to the Receivables or the Servicer's performance hereunder with any of
the officers or employees of the Servicer having knowledge of such matters.
Each such audit shall be at the sole expense of the Servicer.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Servicer will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing the Receivables in
the event of the destruction of the originals thereof) and keep and maintain,
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Purchased Receivables (including, without
limitation, records adequate to permit the daily identification of all
collections of and adjustments to each Purchased Receivable).
(e) LOCATION OF RECORDS. The Servicer will keep its chief place of
business and chief executive office, and the offices where it keeps the Records,
at the address of the Servicer referred to in SECTION 10.02, or, in any such
case, upon 30 days' prior written notice to the Deal Agent, at such other
locations within the United States.
(f) CREDIT AND COLLECTION POLICIES. The Servicer will comply in all
material respects with the Credit and Collection Policy in regard to each
Purchased Receivable and the related Contract. The Servicer shall not, without
the written consent of the Deal Agent make or agree to make any material change
in the Credit and Collection Policy.
(g) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Servicer will
not add or terminate any bank as a Lock-Box Bank from those listed in Schedule
III to the Originator Sale Agreement or SCHEDULE III hereto or make any change
in its instructions to Obligors regarding payments to be made to any Lock-Box
Bank, unless the Deal Agent shall have given its prior written consent to such
addition, termination or change (which consent shall not be unreasonably
withheld) and the Deal Agent shall have received (i) ten Business Days' prior
notice of such addition, termination or change, (ii) prior to the effective date
of such addition, termination or change, (x) executed copies of Lock-Box
Agreements executed by each new Lock-Box Bank and the Servicer and (y) copies of
all agreements and documents signed by either the Servicer or the respective
Lock-Box Bank with respect to any new Lock-Box Account, and (iii) the prior
written consent of the Purchaser to such addition, termination or change (which
consent shall not be unreasonably withheld).
(h) TAXES. The Servicer will file or cause to be filed all federal,
state and local tax returns which are required to be filed by it. The Servicer
shall pay or cause to be paid all taxes shown to be due and payable on such
returns or on any assessments
<PAGE>
received by it, other than any taxes or assessments, the validity of which are
being contested in good faith by appropriate proceedings and with respect to
which the Servicer shall have set aside adequate reserves on its books in
accordance with GAAP.
(i) TRANSACTION DOCUMENTS. The Servicer will comply in all material
respects with the terms of this Agreement and each of the other Transaction
Documents to which it is a party, take all such action to such end as may be
from time to time reasonably requested by the Deal Agent, and maintain all such
Transaction Documents in full force and effect and make such reasonable demands
and requests for information and reports or for action as the Servicer is
entitled to make thereunder and as may be from time to time reasonably requested
by the Deal Agent.
(j) SEGREGATION OF COLLECTIONS. To the extent that any funds other
than Collections are deposited into the Collection Account, the Servicer will
promptly identify any such funds for segregation and remittance to the owner
thereof.
(k) QUALIFICATION TO DO BUSINESS. The Servicer will duly qualify to
do business, and be in good standing, in every jurisdiction in which the nature
of its business requires it to be so qualified and the failure to do so could
reasonably be expected to have a material adverse effect on the Servicer's
ability to perform its obligations hereunder or the ability to collect the
Purchased Receivables hereunder.
(l) RECEIVABLES. The Servicer will not, without the written consent
of the Purchaser and the Deal Agent, amend, modify, waive or cancel the terms of
any Receivable unless such amendment, modification, waiver or cancellation is in
the ordinary course of business of the Servicer and, with respect to the
cancellation of any Receivable, for which cash consideration is paid with
respect to any such Receivable.
<PAGE>
ARTICLE VI
ADMINISTRATION, COLLECTION AND MONITORING OF ASSETS
SECTION 6.01. APPOINTMENT AND DESIGNATION OF THE SERVICER. The
Seller, the Purchaser and the Deal Agent hereby appoint the Person (the
"SERVICER") designated by the Deal Agent from time to time with the approval of
the Purchaser pursuant to this SECTION 6.01, and subject to the third sentence
of this SECTION 6.01, as their agent to service, administer and collect the
Receivables and otherwise to enforce their respective rights and interests in,
to and under the Receivables, the Related Security and the Contracts. The
Servicer's authorization under this Agreement shall terminate on the Collection
Date. Unless and until the Deal Agent gives notice to the Seller of a
designation of a new Servicer after the occurrence of a Servicer Termination
Event and continuously until such time, Superior is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Servicer pursuant to
the terms hereof. Subject to the preceding sentence, the Deal Agent may (with
the approval of the Purchaser and after the occurrence of a Servicer Termination
Event) designate as Servicer any Person to succeed Superior or any successor
Servicer, on the condition in each case that any such Person so designated shall
agree to perform the duties and obligations of the Servicer pursuant to the
terms hereof. Each of the Seller and the Servicer hereby grants to any
successor Servicer an irrevocable power of attorney to take any and all steps in
the Seller's or the Servicer's name, as applicable, and on behalf of the Seller
or the Purchaser, as may be necessary or desirable, in the determination of the
successor Servicer, to collect all amounts due under any and all Receivables,
including, without limitation, endorsing the Seller's name on checks and other
instruments representing Collections and enforcing such Receivables and the
related Contracts. The Servicer may, with the prior consent of the Deal Agent,
subcontract with any other Person for servicing, administering or collecting the
Receivables, PROVIDED that the Servicer shall remain liable for the performance
of the duties and obligations of the Servicer pursuant to the terms hereof.
Notwithstanding anything to the contrary contained in this Agreement, the
Servicer, if not the Seller, an Originator or an Affiliate thereof, shall have
no obligation to collect, enforce or take any other action described in this
ARTICLE VI with respect to any Receivable that is not a Purchased Receivable
other than to deliver to the Seller the Collections and documents with respect
to any such Receivable that is not a Purchased Receivable as described in
SECTIONS 6.03 and 6.06(b).
SECTION 6.02. COLLECTION OF RECEIVABLES BY THE SERVICER; EXTENSIONS
AND AMENDMENTS OF RECEIVABLES. The Servicer shall take or cause to be taken all
such actions as may be necessary or advisable to collect each Receivable from
time to time, all in accordance with applicable laws, rules and regulations,
with reasonable care and diligence, and in accordance with the Credit and
Collection Policy; PROVIDED, HOWEVER, that, (a) the Deal Agent shall have the
absolute and unlimited right to direct the Servicer (whether the Servicer is the
Seller, an Originator or otherwise) to commence or settle any legal action, to
enforce collection of any Purchased Receivable or to foreclose upon or repossess
any Related Security, (b) the Servicer shall not make the Deal Agent
<PAGE>
or the Purchaser a party to any litigation without the express written consent
of the Deal Agent or the Purchaser, as the case may be. If the Termination Date
shall not have occurred, Superior, while it is Servicer, may, in accordance with
the Credit and Collection Policy, (a) extend the maturity or adjust the
Outstanding Balance of any Defaulted Receivable as Superior may determine to be
appropriate to maximize Collections thereof and (b) adjust the Outstanding
Balance of any Receivable to reflect the reductions or cancellations resulting
from any Dilution Factor, in each such case in accordance with the requirements
of the Credit and Collection Policy and provided that such extension or
adjustment shall not alter the status of such Receivable as a Defaulted
Receivable or limit the rights of the Purchaser or Deal Agent under this
Agreement. Except as otherwise permitted pursuant to the next preceding
sentence, neither the Servicer nor the Seller will extend, amend, cancel or
otherwise modify the terms of any Purchased Receivable, or amend, modify, cancel
or waive any term or condition of any Contract related thereto without the prior
written approval of the Deal Agent.
SECTION 6.03. DISTRIBUTION AND APPLICATION OF COLLECTIONS. The
Servicer shall set aside for the account of the Seller and the Purchaser their
respective allocable shares of the Collections of Receivables in accordance with
SECTION 2.04. The Servicer shall as soon as practicable following receipt turn
over to the Seller the Collections of any Receivable which is not a Purchased
Receivable less, in the event neither Superior nor an Affiliate thereof is the
Servicer, all reasonable and appropriate out-of-pocket costs and expenses of
such Servicer of servicing, collecting and administering the Receivables to the
extent not covered by the Servicer Fee received by it.
SECTION 6.04. OTHER RIGHTS OF THE DEAL AGENT. (a) On or before the
Closing Date, the Seller shall have, or shall have caused the Servicer or the
applicable Originator to (in each case, at the Seller's expense), (i) deliver,
return receipt requested, to each of the Reinsurance Companies in respect of the
Reinsurance Recoverables notice of the Purchaser's interest in the Purchased
Receivables comprised of Reinsurance Recoverables.
(b) At any time following the occurrence of a Servicer Termination
Event or the designation of a Servicer other than Superior, the Seller or any
Affiliate of either thereof pursuant to SECTION 6.01:
(i) The Deal Agent may or, at the request of the Deal Agent, the
Seller shall (in either case, at the Seller's expense) direct the Obligors
of Receivables, or any of them, to pay all amounts payable under any
Receivable directly to the Deal Agent or its designee;
(ii) The Deal Agent may or, at the request of the Deal Agent, the
Seller shall (in either case, at the Seller's expense) give each of the
Obligors notice (to the extent the Seller has not otherwise given notice to
such Obligors in accordance with clause (a)(i) of this SECTION 6.04) of the
Purchaser's interests in the Purchased Receivables; and
<PAGE>
(iii) The Seller shall, at the Deal Agent's request and at the
Seller's expense, (A) assemble all Records and make the same available to
the Deal Agent or its designee at a place selected by the Deal Agent or its
designee, and (B) segregate all cash, checks and other instruments received
by it from time to time constituting Collections of Receivables in a manner
acceptable to the Deal Agent and, promptly following receipt, remit all
such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Deal Agent or its designee.
SECTION 6.05. RECORDS; AUDITS. (a) The Servicer will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing the Receivables in the
event of the destruction of the originals thereof), and keep and maintain all
documents, books, records and other information reasonably necessary or
advisable for the timely and full collection of all Receivables (including,
without limitation, all Collections of and adjustments to each Purchased
Receivable).
(b) The Servicer, whether or not Superior or an Affiliate thereof,
shall hold all Records in trust for the Seller and the Purchaser in accordance
with their respective interests. Subject to the receipt of contrary
instructions from the Deal Agent, the Seller will deliver all Records to such
Servicer; PROVIDED, HOWEVER, that the Servicer, if other than Superior, shall as
soon as practicable upon demand deliver to the Seller all Records in its
possession relating to Receivables of the Seller other than Purchased
Receivables, and copies of Records in its possession relating to Purchased
Receivables.
(c) The Servicer will, from time to time during regular business
hours as requested by the Deal Agent, permit the Deal Agent, or its agents or
representatives, (i) to examine and make copies of and abstracts from all
Records and (ii) to visit the offices and properties of the Servicer for the
purpose of examining such Records and to discuss matters relating to the
Receivables or the Servicer's or the Seller's performance hereunder with any of
the officers or employees of the Servicer or the Seller having knowledge of such
matters.
SECTION 6.06. RECEIVABLE REPORTING. (a) The Servicer, so long as it
is Superior or an Affiliate thereof, and otherwise the Seller, will deliver to
the Deal Agent (i) prior to the Monthly Asset Report Date occurring during each
calendar month hereafter, a report identifying the Purchased Receivables, by
Obligor, as of the last day of the preceding calendar month, (ii) as of the
Termination Date, a report identifying the Purchased Receivables, by Obligor, on
the day immediately preceding the Termination Date and (iii) prior to the
Monthly Asset Report Date occurring in each calendar month hereafter, a report
identifying the outstanding accounts payable of each of the Originators as of
the last day of the preceding calendar month, identified by the relevant
Originator and the account payee.
(b) On or prior to the Monthly Asset Report Date occurring in each
calendar month, the Servicer shall prepare and forward to the Deal Agent for the
<PAGE>
Purchaser, a Monthly Asset Report relating to all Purchased Receivables, as of
the close of business of the Servicer on the last day of the preceding calendar
month.
SECTION 6.07. COLLECTIONS AND LOCK-BOXES. The Seller and the
Servicer will
(i) instruct all Obligors to cause all Collections to be either (A)
remitted to a Lock-Box and will cause each Lock-Box Bank to retrieve such
Collections promptly and deposit the same to the respective Lock-Box Accounts or
(B) deposited directly with the Lock-Box Bank, and
(ii) instruct all Lock-Box Banks to transfer such Collections in same
day funds to one of the special-purpose segregated interest-bearing trust
accounts established in the name of the Deal Agent and as listed in SCHEDULE III
attached hereto (each a "COLLECTION ACCOUNT") maintained with a financial
institution (the "COLLECTION ACCOUNT BANK") acceptable to the Deal Agent, which
shall initially be BankBoston, N.A. (PROVIDED, HOWEVER, that in the event that
the Collection Account is maintained at a commercial bank having (x) combined
capital and surplus of at least $250,000,000 and (y) a short-term debt rating of
at least A-1 from S&P, P-1 from Moody's and D-1 from DCR (if rated by DCR), the
Collection Account need not be a trust account). In accordance with the terms
of the Collection Account Agreement, to be entered into among the Collection
Account Bank, the Servicer, the Purchaser and the Deal Agent, the Servicer shall
instruct the Collection Account Bank to allocate and remit such Collections in
accordance with SECTION 2.04; PROVIDED, HOWEVER, that the Deal Agent may, at any
time, revoke the Servicer's authority with respect to the Collection Account,
direct the Collection Account Bank to cease taking instructions from the
Servicer and to thereafter take direction solely from the Deal Agent. If the
Seller receives any Collections, the Seller will remit such Collections to the
Collection Account within one Business Day following the Seller's receipt
thereof. The Seller will not add or terminate any bank as Lock-Box Bank from
those listed in SCHEDULE III or make any change in its instructions to Obligors
regarding payments to be made to any Lock Box or any Lock-Box Bank, unless the
Deal Agent shall have received at least ten Business Days' prior written notice
of such addition, termination or change and all actions reasonably requested by
the Deal Agent to protect and perfect the interest of the Deal Agent and the
Purchaser in the Collections of Purchased Receivables have been taken and
completed.
SECTION 6.08. UCC MATTERS; PROTECTION AND PERFECTION OF PURCHASED
PROPERTY. The Seller will keep its principal place of business and chief
executive office, and the office where it keeps the Records, at the address of
the Seller referred to in SECTION 4.01(k) or, upon 30 days' prior written notice
to the Deal Agent, at such other locations within the United States where all
actions reasonably requested by the Deal Agent to protect and perfect the
interest of the Deal Agent and the Purchaser in the Purchased Receivables have
been taken and completed. The Seller agrees that from time to time, at its
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action that the Deal Agent may reasonably
request in order to perfect, protect or more fully evidence the Purchased
Interest acquired by the
<PAGE>
Purchaser hereunder, or to enable the Purchaser or the Deal Agent to exercise or
enforce any of their respective rights hereunder. Without limiting the
generality of the foregoing, the Seller will: (a) upon the request of the Deal
Agent, execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate or as the Deal Agent may request, and (b) on or prior
to the date hereof, mark its master data processing records evidencing such
Purchased Receivables and related Contracts with a legend, acceptable to the
Deal Agent, evidencing that the Purchaser has acquired an interest therein as
provided in this Agreement. The Seller hereby authorizes the Deal Agent to file
one or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Purchased Property now
existing or hereafter arising without the signature of the Seller where
permitted by law. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Purchased Property or any part
thereof shall be sufficient as a financing statement. Notwithstanding anything
to the contrary herein, the Seller shall, upon the request of the Deal Agent at
any time and at the Seller's expense, notify the Obligors of Purchased
Receivables, or any of them, of the ownership of the Purchased Interest by the
Purchaser. If the Seller fails to perform any of its agreements or obligations
under this SECTION 6.08, the Deal Agent may (but shall not be required to)
itself perform, or cause performance of, such agreement or obligation, and the
expenses of the Deal Agent incurred in connection therewith shall be payable by
the Seller upon the Deal Agent's demand therefor. For purposes of enabling the
Deal Agent to exercise its rights described in the preceding sentence and
elsewhere in this ARTICLE VI, the Seller and the Purchaser hereby authorize the
Deal Agent to take any and all steps in the Seller's name and on behalf of the
Seller and the Purchaser necessary or desirable, in the determination of the
Deal Agent, to collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Seller's name on checks and other instruments
representing Collections and enforcing such Receivables and the related
Contracts.
SECTION 6.09. OBLIGATIONS OF THE SELLER WITH RESPECT TO RECEIVABLES.
The Seller will (a) at its expense, regardless of any exercise by the Deal Agent
or the Purchaser of their rights hereunder, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Purchased Receivables to the
same extent as if the Purchased Interest therein had not been sold hereunder and
(b) pay when due any taxes, including without limitation, sales and excise
taxes, payable in connection with the Purchased Receivables. In no event shall
the Deal Agent or the Purchaser have any obligation or liability with respect to
any Purchased Receivables or related Contracts, nor shall any of them be
obligated to perform any of the obligations of the Seller or the Originators or
any of their Affiliates thereunder. The Seller will, and will cause the
Servicer to, timely and fully comply in all material respects with the Credit
and Collection Policy in regard to each Purchased Receivable and the related
Contract. The Seller will not make any change in the character of its business
or make or agree to make any change in the Credit and Collection Policy, which
change would, in either case, impair the collectibility of any Purchased
Receivable.
<PAGE>
SECTION 6.10. APPLICATIONS OF COLLECTIONS. Any payment by an Obligor
in respect of any indebtedness owed by it to the Seller or any Originator shall,
except as otherwise specified by such Obligor or otherwise required by contract
or law and unless otherwise instructed by the Deal Agent, be applied as a
Collection of any Purchased Receivable of such Obligor, in the order of the age
of such Receivables, starting with the oldest such Purchased Receivable, to the
extent of any amounts then due and payable thereunder, before being applied to
any Receivable that is not a Purchased Receivable or other indebtedness of such
Obligor.
SECTION 6.11. ANNUAL SERVICING REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS. On an annual basis on or before November 30 of each calendar year,
beginning with November 30, 1999, the Servicer shall cause nationally recognized
independent public accountants acceptable to the Deal Agent, to furnish a report
to each of the Servicer, the Seller, the Purchaser, the Deal Agent and each
Rating Agency then rating the Commercial Paper at the request of EagleFunding
substantially to the effect that (i) such accountants have examined certain
documents and records relating to the servicing of Receivables under this
Agreement, compared the information contained in the Monthly Asset Reports
delivered by or on behalf of the Seller under this Agreement during the annual
period covered by such report (or such shorter initial period, as the case may
be) with such documents and records and that, on the basis of such examination,
and subject to such reasonable limitations and qualifications as may be set
forth in such report, such accountants are of the opinion that the servicing has
been conducted substantially in compliance with the terms and conditions as set
forth in Article VI of this Agreement, except for such exceptions as they
believe to be immaterial and such other exceptions as shall be set forth in such
statement and (ii) such accountants have compared the mathematical calculations
of each amount set forth in the Monthly Asset Reports delivered pursuant to this
Agreement during the period covered by such report with the Servicer's computer
reports which were the source of such amounts and that on the basis of such
comparison, such accountants are of the opinion that such amounts are in
agreement, except for such exceptions as they believe to be immaterial and such
other exceptions as shall be set forth in such statement.
ARTICLE VII
TRIGGER EVENTS
SECTION 7.01. TRIGGER EVENTS. If any of the following events
("TRIGGER EVENTS") shall occur:
(a) (i) The Servicer (if other than the Deal Agent or an Affiliate
thereof) shall fail to perform or observe any term, covenant or agreement
hereunder (other than as referred to in CLAUSE (ii) of this SECTION 7.01(a)) and
such failure shall remain unremedied for two Business Days after written notice
to Servicer and Seller or (ii) either the Servicer (if other than the Deal
Agent) or the Seller shall fail to make any payment or deposit to be made by it
hereunder when due; or
<PAGE>
(b) (i) Any representation or warranty made or deemed to be made by
the Seller (or any of its officers or agents) under or in connection with this
Agreement or any Monthly Asset Report or other information or report delivered
pursuant hereto shall prove to have been false or incorrect in any material
respect when made or (ii) any representation or warranty made or deemed to be
made by any Originator (or any of their respective officers or agents) under or
in connection with the Originator Sale Agreement shall prove to have been false
or incorrect in any material respect when made; or
(c) Either the Seller, the Servicer or any Originator shall fail to
perform or observe any term, covenant or agreement (other than any term
covenant, or agreement described in either of clauses (a) or (b) above)
contained in this Agreement or in the Originator Sale Agreement (as the case may
be) on its part to be performed or observed and any such failure shall remain
unremedied for two (2) Business Days after written notice thereof shall have
been given by the Deal Agent to the Seller; or
(d) Either (i) the Purchase shall for any reason, except to the extent
permitted by the terms hereof, cease to create a valid and perfected first
priority undivided percentage ownership or security interest in each Purchased
Receivable and the Related Security and Collections with respect thereto or (ii)
the purchase by the Seller of a Receivable from the Originators shall, for any
reason, cease to create in favor of the Seller a valid and perfected first
priority ownership or security interest in each Purchased Receivable and the
Related Security and Collections with respect thereto; or
(e) (i) The Seller, the Servicer, any Originator or any of their
respective Affiliates shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Seller, the Servicer or any Originator
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property and, in the case of any such
proceeding instituted against (but not by) the Servicer or any Originator,
either such proceeding shall have remained undismissed or unstayed for a period
of 60 days or any order for relief of the sort described above shall have been
entered; or (ii) the Seller, the Servicer or any Originator shall take any
corporate action to authorize any of the actions set forth in CLAUSE (i) above
in this SECTION 7.01(e); or
(f) (i) The Originator Sale Agreement shall have ceased to be valid,
binding and enforceable as against any of the parties thereto without any
amendment, modification, waiver or termination of any terms or conditions
thereof, other than as agreed to in writing by the Deal Agent, or (ii) the
assignment to the Deal Agent of all of the Seller's right and title to and
interest in the Originator Sale Agreement shall have ceased, for any reason, to
be fully effective and enforceable by the Deal Agent as against any of the
parties of the Originator Sale Agreement; or
<PAGE>
(g) A Servicer Termination Event shall have occurred and be
continuing; or
(h) The date on which some or all of the "Liquidity Commitments"
under the Liquidity Agreement shall cease to be effective or shall terminate
without renewal or such "Liquidity Commitments" shall ever be less than 102% of
the Purchase Limit; or
(i) Any Originator, the Seller or the Servicer shall fail to perform
or observe any material term, covenant or agreement contained in the Credit and
Collection Policy; or
(j) The IRS or the PBGC shall have filed notice of one or more
Adverse Claims against any Originator, the Seller or any ERISA Affiliate under
ERISA or the Code, UNLESS such Adverse Claim does not purport to cover the
Receivables, and such notice shall have remained in effect for more than thirty
(30) Business Days unless, prior to the expiration of such period, such Adverse
Claims shall have been adequately bonded by such Originator, Seller or the ERISA
Affiliate (as the case may be) in a transaction with respect to which the Deal
Agent has given its prior written approval; or
(k) The Seller shall have become subject to registration as an
"investment company" within the meaning of the Investment Company Act;
then, and in any such event, the Deal Agent may, by notice to the Seller declare
the Termination Date to have occurred, EXCEPT that, in the case of any event
described in SECTION 7.01(h) or (k), or in CLAUSE (i) of SECTION 7.01(e) above,
the Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event. Upon any such declaration or automatic occurrence,
the Deal Agent and the Purchaser shall have, in addition to all other rights and
remedies under this Agreement or otherwise, all other rights and remedies
provided under the UCC of the applicable jurisdiction and other applicable laws,
which rights shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNITIES BY THE SELLER. Without limiting any
other rights which the Deal Agent, the Purchaser, the Liquidity Providers,
the Supplemental Enhancement Providers or any of their respective Affiliates
may have hereunder or under applicable law, the Seller hereby agrees to
indemnify the Deal Agent, the Purchaser, each Liquidity Provider, each
Supplemental Enhancement Provider each of their respective Affiliates, and
each of their respective directors, officers, employees, agents and attorneys
(all of the foregoing being collectively referred to as "INDEMNIFIED
PARTIES") from and against any and all damages, losses, claims, liabilities
and related costs and expenses, including reasonable attorneys' fees and
disbursements (all of the foregoing being
<PAGE>
collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or actually
incurred by any of them arising out of or resulting from:
(i) any Purchased Receivable represented or deemed represented by the
Seller to be an Eligible Receivable which is not an Eligible Receivable at
the time such representation is made or deemed made;
(ii) reliance on any representation or warranty made or deemed made
by the Seller, the Servicer or any of their respective officers under this
Agreement, which shall have been false or incorrect in any material respect
when made or deemed made or delivered;
(iii) the failure by the Seller or the Servicer to comply with any
term, provision or covenant contained in this Agreement or any of the other
Transaction Documents, or with any applicable law, rule or regulation with
respect to any Receivable, the related Contract or the Related Security, or
the nonconformity of any Receivable, the related Contract or the Related
Security with any such applicable law, rule or regulation;
(iv) (A) the failure to vest and maintain vested in the Purchaser or
to transfer to the Purchaser, legal and equitable title to and ownership
of, a percentage ownership interest, corresponding to the Purchased
Interest, in the Receivables which are, or are purported to be, Purchased
Receivables, together with all Collections and Related Security; or (B) the
failure to grant to the Deal Agent, for the benefit of itself and the
Purchaser, a valid and perfected first priority "security interest," under
Article 9 of the UCC, in and to the Receivables which are, or are purported
to be, Purchased Receivables, together with all Collections and Related
Security; in each case free and clear of any Adverse Claim whether existing
at the time of the Purchase of any such Receivable or at any time
thereafter;
(v) the failure by the Seller or the Servicer to make any payment
required on its part to be made hereunder;
(vi) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables which are, or are purported to be, Purchased Receivables,
whether at the time of the Purchase or at any subsequent time;
(vii) any dispute, claim, offset or defense (other than the discharge
in bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable which is, or is purported to be, a Purchased Receivable
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale of the merchandise or
<PAGE>
services related to such Receivable or the furnishing or failure to furnish
such merchandise or services;
(viii) any failure of the Seller or the Servicer to perform its
duties or obligations in accordance with the provisions of this Agreement
or any failure by an Originator, the Seller or any Affiliate thereof to
perform its respective duties under the Contracts;
(ix) the failure to pay when due any taxes, including without
limitation, sales, excise or personal property taxes payable in connection
with the Purchased Receivables;
(x) any repayment by the Deal Agent or the Purchaser of any amount
previously distributed in reduction of Capital or payment of Yield or any
other amount due hereunder, in each case which amount the Deal Agent or the
Purchaser reasonably believes is required to be repaid;
(xi) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or reinvestments or the
ownership of Purchased Property or in respect of any Receivable, Related
Security or Contract;
(xii) any failure by the Seller to give reasonably equivalent value
to each Originator in consideration for the transfer by such Originator to
the Seller of any Receivables or Related Security, or any attempt by any
Person to void or otherwise avoid any such transfer under any statutory
provision or common law or equitable action, including, without limitation,
any provision of the Bankruptcy Code; or
(xiii) the failure of the Seller, any Originator or any of their
respective agents or representatives (including, without limitation,
agents, representatives and employees of the Originators acting pursuant to
authority granted under SECTION 6.01) to remit to the Servicer or the Deal
Agent, Collections of Purchased Receivables remitted to the Seller, such
Originator or any such agent or representative.
Any amounts subject to the indemnification provisions of this SECTION 8.01 shall
be paid by the Seller to the Deal Agent within two Business Days following the
Deal Agent's demand therefor. Notwithstanding any other provision of this
Agreement to the contrary, the Seller shall not indemnify the Indemnified
Parties for or with respect to any Indemnified Amounts that would constitute
recourse for uncollectible Purchased Receivables due to credit reasons.
SECTION 8.02. OPTIONAL REPURCHASE OF THE PURCHASED INTEREST. (a)
The Servicer may, at any time after the aggregate Outstanding Balance of the
Purchased Receivables has declined to 10% or less of the Purchase Limit and upon
not less than five Business Days' prior written notice to the Deal Agent, elect
to purchase all, but not less than all, of the Purchased Interest outstanding on
such date, which purchase shall take
<PAGE>
place on the Business Day next succeeding the fifth Business Day to occur
following the Deal Agent's receipt of such notice, in consideration of the
payment of all outstanding Capital and accrued Yield on such day in accordance
with the terms of SUBSECTION (b) of this SECTION 8.02.
(b) In the case of a purchase from the Purchaser by the Servicer of
the Purchased Interest pursuant to this SECTION 8.02, the Seller shall, on the
Business Day coinciding with such purchase, make a payment to the Deal Agent,
the proceeds of which purchase shall be deemed to be Collections relating to the
Purchased Interest, and the amount of which payment shall be applied in the
following order of priority:
(i) First, to pay any accrued and unpaid Servicer Fee (if the Servicer
is a party other than Superior, an Originator or an Affiliate thereof), and
to pay any such Servicer Fee to be accrued through (and including) the next
scheduled payment date therefor;
(ii) Second, to pay accrued and unpaid Yield with respect to Purchase
Periods associated with the portions of Capital to be reduced in accordance
with CLAUSE (vii) below, and to pay any Liquidation Fee payable in
connection with such reduction of Capital;
(iii) Third, to pay accrued and unpaid Liquidity Fee which is then due
and payable, and to pay any such Liquidity Fee to be accrued through such
date;
(iv) Fourth, to pay accrued and unpaid Supplemental Enhancement Fee
which is then due and payable, and to pay any such Supplemental Enhancement
Fee to be accrued through such date;
(v) Fifth, to pay accrued and unpaid Program Fee which is then due and
payable, and to pay any such Program Fee to be accrued through such date;
(vi) Sixth, to pay any Administrative Fee which is then due and
payable, and (unless such payment is sufficient to reduce Capital to zero
in accordance with the application to be made pursuant to this SECTION
8.02(b)), to be retained in the Collection Account to the extent of the
Administrative Fee payable in respect of the next succeeding annual period;
(vii) Seventh, to pay the portion of any other accrued and unpaid
obligations which have not been paid pursuant to clauses (i) through (v)
above and which are then due and payable by the Seller or the Servicer to
the Purchaser or the Deal Agent under this Agreement or any of the other
Transaction Documents;
(viii) Eighth, to pay all Capital relating to any Purchase Periods
selected by the Deal Agent in the exercise of its sole discretion;
<PAGE>
(ix) Ninth, to pay accrued and unpaid Management Fee which is then due
and payable, and to pay any such Management Fee to be accrued through such
date;
(x) Tenth, to pay any accrued and unpaid Servicer Fee (if the Servicer
is Superior, an Originator or an Affiliate thereof) which is then due and
payable, and to pay any such Servicer Fee to be accrued through (and
including) the next scheduled payment date therefor.
(c) Any purchase made pursuant to this SECTION 8.02 shall be made
without recourse or warranty, express or implied (other than a representation
and warranty that the Purchased Interest so purchased is free and clear of any
Adverse Claim created by or through the Purchaser).
ARTICLE IX
THE DEAL AGENT
SECTION 9.01. AUTHORIZATION AND ACTION. The Purchaser hereby
appoints and authorizes the Deal Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Deal Agent by the terms hereof, together with such powers as are reasonably
incidental thereto, including, without limitation, the power and authority to
hold and to perfect any ownership interest or security interest created pursuant
hereto or in connection herewith on behalf of the Purchaser.
SECTION 9.02. DEAL AGENT'S RELIANCE, ETC. Neither the Deal Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them as Deal Agent under or in
connection with this Agreement (including, without limitation, any action taken
or omitted to be taken by it or them if the Deal Agent is designated as Servicer
pursuant to SECTION 6.01) or any other agreement executed pursuant hereto,
except for its or their own negligence or willful malfeasance or misfeasance.
Without limiting the foregoing, the Deal Agent: (i) may consult with legal
counsel (including counsel for the Seller), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to any
Person and shall not be responsible to any other Person for any statements,
warranties or representations made in or in connection with this Agreement or in
connection with any of the other agreements executed pursuant hereto; (iii)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
part of the Seller or to inspect the property (including the books and records)
of the Seller; (iv) shall not be responsible to the Purchaser or any other
Person for the due execution, legality, validity, enforceability, genuineness or
sufficiency of value of this Agreement or any other agreement, instrument or
document furnished pursuant hereto; and (v) shall incur no liability under or in
respect of this Agreement or any other agreement executed pursuant hereto, by
acting upon any notice (including
<PAGE>
notice by telephone with respect to notices under SECTION 2.02), consent,
certificate or other instrument or writing (which may be by telex or facsimile)
believed by it to be genuine and signed or sent by the proper party or parties.
Notwithstanding anything in this SECTION 9.02 to the contrary, the foregoing
provisions of this SECTION 9.02 shall not run in favor of the Deal Agent in
connection with any claim against the Deal Agent made by EagleFunding.
SECTION 9.03. DEAL AGENT AND AFFILIATES. With respect to any
interests which may be assigned by the Purchaser to BRSI, or any Affiliate of
BRSI, pursuant to SECTION 10.04, BRSI or such Affiliate shall have the same
rights and powers under this Agreement as would the Purchaser if it were holding
such interests and may exercise the same as though it were not the Deal Agent.
BRSI and its Affiliates may generally engage in any kind of business with the
Seller, any Originator or any Obligor, any of their respective Affiliates and
any Person who may do business with or own securities of the Seller, any
Originator or any Obligor or any of their respective Affiliates, all as if BRSI
were not the Deal Agent and without any duty to account therefor to the
Purchaser, any Liquidity Provider or any Supplemental Enhancement Provider.
SECTION 9.04. [Reserved].
SECTION 9.05. RESIGNATION OF THE DEAL AGENT. The Deal Agent may
resign as Deal Agent hereunder at any time by giving not less than five (5)
Business Days' prior written notice to the Purchaser, the Seller, the Servicer
and each Rating Agency then rating the Commercial Paper, at the request of
EagleFunding; such resignation to become effective only upon the later to occur
of
(i) the earlier of (x) the appointment and acceptance of a successor
Deal Agent as provided below and (y) the 30th day following delivery of
such notice, and
(ii) the Purchaser's obtaining of written confirmation from each such
Rating Agency that such resignation and appointment will not result in a
withdrawal or downgrading of the then-current rating of the Commercial
Paper by such Rating Agency.
Upon any such resignation, the Purchaser shall appoint a financial institution
of its choosing as Deal Agent. Following the appointment of a successor Deal
Agent and such successor Deal Agent's acceptance thereof, such successor Deal
Agent shall succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Deal Agent as Deal Agent hereunder, and the
resigning Deal Agent shall be discharged from its duties and obligations as Deal
Agent hereunder. After the Deal Agent's resignation, the provisions of this
ARTICLE IX shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Deal Agent.
SECTION 9.06. PAYMENTS. If in the opinion of the Deal Agent the
distribution of any amount received by it in such capacity hereunder or under
any of the other Transaction Documents might involve it in liability, it may
refrain from making
<PAGE>
distribution until its right to make distribution shall have been finally
adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Deal
Agent is to be repaid, each Person to whom any such distribution shall have been
made shall either repay to the Deal Agent its proportionate share of the amount
so adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. AMENDMENTS AND WAIVERS. (a) Except as provided in
SECTION 10.01(b), no amendment or modification of any provision of this
Agreement shall be effective without the written agreement of the Seller, the
Servicer and the Deal Agent, and no termination or waiver of any provision of
this Agreement or consent to any departure therefrom by the Seller shall be
effective without the written concurrence of the Deal Agent. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) Notwithstanding the provisions of SECTION 10.01(a), (i) the
written consent of the Purchaser shall be required for any amendment,
modification or waiver (A) reducing any Capital, or the Yield thereon, for any
Purchase Period, (B) postponing any date for any payment of any Capital or the
Yield thereon, for any Purchase Period, or for any payment of fees payable under
the terms of the Fee Letter, or (C) modifying the provisions of this SECTION
10.01, and (ii) the written consent of the Purchaser shall be required for any
amendment, modification or waiver increasing the Purchase Limit.
(c) Any time that the Commercial Paper is being rated by one or more
of Moody's, S&P and DCR (as applicable) (each, a "Rating Agency"), at the
request of EagleFunding, no material amendment or modification of any material
provisions hereof shall be effective absent written confirmation by each such
Rating Agency that such amendment or modification will not result in a
withdrawal or downgrading of the then-current rating of the Commercial Paper by
such Rating Agency. EagleFunding shall send, or shall cause to be sent, copies
of all amendments, modifications or supplements to this Agreement to each Rating
Agency then rating the Commercial Paper, at the request of EagleFunding, prior
to the execution thereof by all parties thereto.
SECTION 10.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including telex communication and communication by facsimile copy) and mailed,
telexed, transmitted or delivered, as to each party hereto, at its address set
forth under its name on the signature pages hereof or specified in such party's
Assignment and Acceptance or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices
and communications shall be effective, upon receipt, or in the case of (a)
notice by mail, five days after being deposited in the United States mails,
first class postage prepaid, (b) notice by telex, when telexed against receipt
of answerback, or
<PAGE>
(c) notice by facsimile copy, when verbal communication of receipt is
obtained, except that notices and communications pursuant to ARTICLE II shall
not be effective until received.
SECTION 10.03 SETOFF AND COUNTERCLAIM. All payments to be made by
the Seller or the Servicer under this Agreement shall be made free and clear of
any counterclaim, set-off, deduction or other defense, which the Seller or the
Servicer may have against the Purchaser, the Deal Agent, any Liquidity Provider,
any Supplemental Enhancement Provider, or against each other.
SECTION 10.04. NO WAIVER; REMEDIES. No failure on the part of the
Deal Agent or the Purchaser to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 10.05. BINDING EFFECT; ASSIGNABILITY. This Agreement shall
be binding upon and inure to the benefit of the Seller, the Deal Agent, the
Purchaser, the Servicer and their respective successors and permitted assigns.
This Agreement and the Purchaser's rights and obligations hereunder and interest
herein shall be assignable in whole or in part (including by way of the sale of
participation interests therein) by the Purchaser and their respective
successors and assigns. EagleFunding shall send, or cause to be sent, notice of
such proposed assignment by the Purchaser, to each Rating Agency then rating the
Commercial Paper at the request of EagleFunding, prior to the effectiveness
thereof. The Seller may not assign any of its rights and obligations hereunder
or any interest herein without the prior written consent of the Purchaser and
the Deal Agent. The parties to each assignment or participation made pursuant
to this SECTION 10.05 shall execute and deliver to the Deal Agent for its
acceptance and recording in its books and records, an Assignment and Acceptance
or a participation agreement or other transfer instrument reasonably
satisfactory in form and substance to the Deal Agent and the Seller. Each such
assignment or participation shall be effective as of the date specified in the
applicable Assignment and Acceptance or other agreement or instrument only after
the execution, delivery, acceptance and recording as described in the preceding
sentence. The Deal Agent shall notify the Seller of any assignment or
participation thereof made pursuant to this SECTION 10.05. The Purchaser may in
connection with any assignment or participation or any proposed assignment or
participation pursuant to this SECTION 10.05, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Seller and the Purchased Property furnished to the Purchaser by or on behalf of
the Seller or the Servicer.
SECTION 10.06. TERM OF THIS AGREEMENT. This Agreement, including,
without limitation, the Seller's obligation to observe its covenants set forth
in ARTICLES V and VI, and the Servicer's obligation to observe its covenants set
forth in ARTICLE VI, shall remain in full force and effect until the Collection
Date; PROVIDED, HOWEVER, that the rights and remedies with respect to any breach
of any representation and warranty made
<PAGE>
or deemed made by the Seller pursuant to ARTICLES III and IV, and the
indemnification and payment provisions of ARTICLE VIII and ARTICLE IX and the
provisions of SECTION 10.10 and SECTION 10.11 shall be continuing and shall
survive any termination of this Agreement.
SECTION 10.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
OBJECTION TO VENUE. THIS AGREEMENT, OTHER THAN THE PROVISIONS RELATING TO THE
CREATION, PERFECTION AND PRIORITY OF THE SECURITY INTEREST IN THE PURCHASED
PROPERTY, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK; THE PROVISIONS OF THIS AGREEMENT RELATING TO THE GRANT,
PERFECTION AND PRIORITY OF THE SECURITY INTEREST IN THE PURCHASED PROPERTY SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE UNIFORM COMMERCIAL CODE AS
IN EFFECT IN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO HEREBY AGREES
TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK.
EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY
OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
SECTION 10.08. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE PURCHASER, THE SELLER AND THE DEAL AGENT EACH WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
SECTION 10.09. COSTS, EXPENSES AND TAXES. (a) In addition to the
rights of indemnification granted to the Deal Agent, the Purchaser and the
Indemnified Parties under ARTICLE VIII hereof, the Seller agrees to pay on
demand all costs and expenses of EagleFunding and the Deal Agent incurred in
connection with the preparation, execution, delivery, administration (including
periodic auditing), amendment or modification of, or any waiver or consent
issued in connection with, this Agreement and the other documents to be
delivered hereunder or in connection herewith, including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Deal Agent and
EagleFunding with respect thereto, and with respect to advising the Deal Agent
and the Purchaser as to their respective rights and remedies under this
Agreement and the other documents to be delivered hereunder or in connection
herewith, and all
<PAGE>
costs and expenses, if any (including reasonable counsel fees and expenses),
incurred by the Deal Agent or the Purchaser in connection with the enforcement
of this Agreement and the other documents to be delivered hereunder or in
connection herewith.
(b) The Seller shall pay on demand any and all commissions of
placement agents and dealers in respect of commercial paper notes (to the extent
not otherwise received by the Purchaser as a portion of Yield or Program Fee)
issued to fund the Purchase of any interests in Purchased Property and any and
all stamp, sales, excise and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Agreement, the other documents to be delivered hereunder or any agreement or
other document providing liquidity support, credit enhancement or other similar
support to the Purchaser in connection with this Agreement or the funding or
maintenance of Purchases hereunder.
(c) The Seller shall pay on demand all other costs, expenses and
taxes (excluding income taxes) incurred by an Issuer or any general or limited
partner or shareholder of such Issuer ("OTHER COSTS"), including, without
limitation, the cost of auditing such Issuer's books by certified public
accountants, the cost of rating such Issuer's commercial paper by independent
financial rating agencies, the taxes (excluding income taxes) resulting from
such Issuer's operations, and the reasonable fees and out-of-pocket expenses of
counsel for such Issuer or any counsel for any general or limited partner or
shareholder of such Issuer with respect to (i) advising such Person as to its
rights and remedies under this Agreement and the other documents to be delivered
hereunder or in connection herewith, (ii) the enforcement of this Agreement and
the other documents to be delivered hereunder or in connection herewith or
matters relating to such Issuer's operations and (iii) advising such Person as
to the issuance of its commercial paper notes and action in connection with such
issuance; PROVIDED, HOWEVER, that the Seller and any other Persons who from time
to time sell receivables or interests therein to the Purchaser ("OTHER SELLERS")
each shall be liable for such Other Costs ratably in accordance with the usage
under their respective facilities; and PROVIDED, FURTHER, that if such Other
Costs are attributable to the Seller and not attributable to any Other Seller,
the Seller shall be solely liable for such Other Costs.
SECTION 10.10. NO PROCEEDINGS. Each of the Seller, the Deal Agent,
the Servicer and the Purchaser hereby agrees that it will not institute against,
or join any other Person in instituting against, any Issuer any proceedings of
the type referred to in CLAUSE (I) of SECTION 7.01(E) so long as any commercial
paper issued by such Issuer shall be outstanding or there shall not have elapsed
one year and one day since the last day on which any such commercial paper shall
have been outstanding.
SECTION 10.11. RECOURSE AGAINST CERTAIN PARTIES. No recourse
under or with respect to any obligation, covenant or agreement (including,
without limitation, the payment of any fees or any other obligations) of the
Purchaser as contained in this Agreement or any other agreement, instrument
or document entered into by it pursuant hereto or in connection herewith
shall be had against any administrator of the Purchaser or any incorporator,
affiliate, stockholder, officer, employee or director of the Purchaser
<PAGE>
or of any such administrator, as such, by the enforcement of any assessment
or by any legal or equitable proceeding, by virtue of any statute or
otherwise; IT BEING EXPRESSLY AGREED AND UNDERSTOOD that the agreements of
the Purchaser contained in this Agreement and all of the other agreements,
instruments and documents entered into by it pursuant hereto or in connection
herewith are, in each case, solely the corporate obligations of the
Purchaser, and that no personal liability whatsoever shall attach to or be
incurred by any administrator of the Purchaser or any incorporator,
stockholder, affiliate, officer, employee or director of the Purchaser or of
any such administrator, as such, or any other of them, under or by reason of
any of the obligations, covenants or agreements of the Purchaser contained in
this Agreement or in any other such instruments, documents or agreements, or
which are implied therefrom, and that any and all personal liability of every
such administrator of the Purchaser and each incorporator, stockholder,
affiliate, officer, employee or director of the Purchaser or of any such
administrator, or any of them, for breaches by the Purchaser of any such
obligations, covenants or agreements, which liability may arise either at
common law or at equity, by statute or constitution, or otherwise, is hereby
expressly waived as a condition of and in consideration for the execution of
this Agreement. The provisions of this SECTION 10.11 shall survive the
termination of this Agreement.
SECTION 10.12. EXECUTION IN COUNTERPARTS; SEVERABILITY; INTEGRATION.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby. This Agreement contains the
final and complete integration of all prior expressions by the parties hereto
with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof,
superseding all prior oral or written understandings other than the fee letters
described in SECTION 2.06(a).
SECTION 10.13. CONFIDENTIALITY. Except to the extent otherwise
required by applicable laws, rules or regulation, unless the provider thereof
shall otherwise consent in writing the Seller agrees that it shall (i) maintain
the confidentiality of information obtained as a result of being a party hereto,
to any related documents or to any of the transactions contemplated hereby or
thereby (including, without limitation, the contents of any summary of
indicative terms and conditions with respect to such transactions, and the
provisions of this Agreement and any of the other Transaction Documents)
("CONFIDENTIAL INFORMATION") and (ii) not disclose, deliver or otherwise make
available to any third party any part of any such Confidential Information;
PROVIDED, HOWEVER, that the Seller may disclose any Confidential Information (w)
to its legal counsel, auditors and accountants, (x) as may be required or
requested by any governmental authority, regulatory body or rating agency, (y)
subject to a written confidentiality agreement having terms substantially
similar to this SECTION 10.13, to any Originator or any Affiliate thereof, any
financial institution or other party that extends or is considering the
<PAGE>
extension of material debt or equity financing to any Originator or any
Affiliate thereof, or (z) as may be required or appropriate in response to a
court order or in connection with any litigation; PROVIDED FURTHER, HOWEVER,
that the Seller shall have no obligation of confidentiality whatsoever in
respect of any information which may be generally available to the public or
becomes available to the public through no fault of the Seller, any Originator
or any of their respective Affiliates.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE SELLER: INSURANCE FUNDING LLC
By: /s/ ANDREW L. STIDD
----------------------------------
Name: Andrew L. Stidd
Title: Manager
c/o GSS Holdings II, Inc.
25 West 43rd Street
Suite 704
New York, New York 10036
Attention: Andy Stidd
Facsimile No: (212)302-8767
Telephone No: (212)302-8330
THE DEAL AGENT:
BANCBOSTON ROBERTSON STEPHENS INC.
By: /s/ MARK GALLIVAN
-----------------------------------
Name: Mark Gallivan
Title: Director
BancBoston Robertson Stephens Inc.
100 Federal Street, 9th Floor
Boston, Massachusetts 02110
Attention: Adam Cohen
Facsimile No.: (617) 434-1533
Telephone No.: (617) 434-4301
<PAGE>
THE SERVICER: SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By: /s/ ROBERT E. NAGLE
----------------------------------
Name: Robert E. Nagle
Title:
26601 Agoura Road
Calabasas, CA 91302
Attention: J. Chris Seaman,
Executive Vice President and CFO
Phone: 818-880-1600
Facsimile: 818-880-8615
THE PURCHASER: EAGLEFUNDING CAPITAL CORPORATION
By: BankBoston, N.A., as its
attorney-in-fact
By: /s/ MARK GALLIVAN
----------------------------------
Name: Mark Gallivan
Title: Director
EagleFunding Capital Corporation
c/o BancBoston Robertson Stephens Inc.
100 Federal Street, 9th Floor
Boston, Massachusetts 02110
Attention: Mitchell Feldman
Facsimile No.: (617) 434-9591
Telephone No.: (617) 434-5760
c/o Lord Securities Corporation
2 Wall Street, 19th Floor
New York, New York 10005
Attention: Dwight Jenkins
Telephone No.: (212) 346-9007
Facsimile No.: (212) 346-9012
<PAGE>
LOSS PORTFOLIO TRANSFER AND 100% QUOTA SHARE REINSURANCE CONTRACT
(hereinafter called the "AGREEMENT")
between
BUSINESS INSURANCE COMPANY
(to be renamed "CENTRE INSURANCE COMPANY")
(hereinafter called the "REINSURED")
and
CALIFORNIA COMPENSATION INSURANCE COMPANY
(hereinafter called the "REINSURER")
ARTICLE I - BUSINESS COVERED
Subject to the terms, conditions and limitations of this Agreement, the
Reinsured obligates itself to cede and the Reinsurer obligates itself to
accept as reinsurance from the Reinsured a quota share participation of 100%
of the Reinsured's Net Liability resulting from any loss or losses occurring
under any and all policies, certificates, endorsements, bonds, contracts, and
binders of insurance or reinsurance written or renewed prior to the Effective
Date (each a "POLICY" and collectively "POLICIES").
ARTICLE 2 - TERM
This Agreement shall become effective immediately prior to the Closing of the
Acquisition (the "EFFECTIVE DATE") and shall remain in force until all the
obligations of the Reinsurer shall have been satisfied or discharged in full
(the "TERMINATION DATE").
ARTICLE 3 - TERRITORY
The territorial limits of this Agreement shall be identical with those of the
Policies and shall apply to losses wheresoever occurring.
ARTICLE 4 - CONSIDERATION
The Reinsured acknowledges receipt of good and valuable consideration for the
reinsurance assumed under this Agreement. On the Effective Date the Reinsured
shall remit to the Reinsurer: (a) an amount equal to 100% of the Reinsured's
Gross Net Unearned Premium Reserve net of the Ceding Commission on the
Policies that were in force on the Effective Date, and (b) an amount equal to
the unearned portion of the Reinsured's Gross Net Written Premium collected
on or before the Effective Date. It is currently estimated that this amount
will be, in the aggregate, $144,514,051 (including an estimated $118,354,000
of Losses as of December 10, 1998, an estimated $19,004,000 of loss
adjustment expenses as of December 10, 1998 and an estimated $7,156,051 of
unearned Premium as of September 30, 1998). The actual amounts will be
determined as of the Effective Date.
ARTICLE 5 - CEDING COMMISSION
The Reinsured shall be entitled to retain:
1
<PAGE>
(i) an amount equal to the actual expenses of the Reinsured, including,
but not limited to, all commissions (including, without limitation,
commissions paid to the Underwriting Manager) and brokerages, taxes
(including, without limitation, taxes on premiums paid to the Reinsurer
under this Agreement), boards and bureau fees, residual market charges,
insolvency assessments and all other expenses whatsoever which are the
obligations of the Reinsured (excluding Loss Adjustment Expenses) (the
"Reinsured's Expense"); and
(ii) 2.5% of Gross Net Written Premium (the "Ceding Commission").
ARTICLE 6 - REPORTS AND REMITTANCES
1. (i) Promptly following the execution and delivery of this Agreement by
the Reinsured and the Reinsurer, the Reinsured shall deliver to the Reinsurer
(with a copy to the Underwriting Manager), a written notice (the "Initial
Three Month Net Liability Notice"), setting forth the Reinsured's estimate of
the amount of Net Liability (the "Estimated Net Liability Amount") for the
three month period commencing on the Effective Date and ending three months
after the Effective Date. The Reinsurer shall, within five (5) business days
after receipt from the Reinsured of the Initial Three Month Net Liability
Notice, pay the Estimated Net Liability Amount by wire transfer into the
Claims Fiduciary Account established pursuant to the Claims Services
Agreement and maintained by the TPA in the name and on behalf of the
Reinsured.
(ii) Periodically during the term of this Agreement (but no more
frequently than monthly), the Reinsured shall have the right to deliver to
the Reinsurer (with a copy to the Underwriting Manager), written notice (each
a "Revised Three Month Net Liability Notice"), setting forth the Reinsured's
revised estimate of the amount of Net Liability (the "Revised Estimated Net
Liability Amount") for the three month period commencing on the date of such
Revised Three Month Net Liability Notice and ending three months thereafter.
The Reinsurer shall, within five (5) business days after receipt from the
Reinsured of the Revised Three Month Net Liability Notice, pay by wire
transfer into the Claims Fiduciary Account, the amount (if a positive number)
equal to: (A) the Revised Estimated Net Liability Amount, minus (B) the
balance in the Claims Fiduciary Account on the date of such Revised Three
Month Net Liability Notice.
2. If, at any time or times during the term of this Agreement, the
Reinsured has paid, or intends to pay, Net Liability ceded under this
Agreement in an amount that exceeds (or will exceed) Fifty Percent (50%) of
the then-current balance of the Claims Fiduciary Account, then the Reinsurer
shall, within five (5) business days after receipt from the Reinsured of the
Cash Call Notice, pay the Cash Call Amount by wire transfer into the Claims
Fiduciary Account. The term "Cash Call Amount" shall mean the amount by which
any such payments (or intended payments) by the Reinsured exceeds (or will
exceed) Fifty Percent (50%) of the then-current balance of the Claims
Fiduciary Account. The term "Cash Call Notice" shall mean written notice from
the Reinsured to the Reinsurer setting forth the Cash Call Amount and
accompanied by reasonably satisfactory proof of loss or similar documentation.
3. Within fifteen (15) days after the close of each calendar month during
the term of this Agreement, and until all claims, losses or disputes arising
out of the Policies have been finally resolved, the Underwriting Manager
shall render a report (the "Monthly Report") to the Reinsured and the
Reinsurer on forms established by the Reinsured and reasonably acceptable to
the Reinsurer, setting forth the following information with respect to such
month or as of the end of such month (as the case may be):
i) Gross Net Written Premium;
ii) Ceding Commission;
iii) Collected Gross Net Written Premium;
iv) Gross Net Unearned Premium Reserve;
v) Reinsured Expense;
2
<PAGE>
vi) Net Liability ceded under this Agreement which has not been paid
by the Reinsured (segregated by case reserves and incurred but not
reported reserves) ("Unpaid Net Liability");
vii) Net Liability ceded under this Agreement which has been paid by
the Reinsured; ("Paid Net Liability"); and
viii) Cash Call Amounts.
The Gross Net Unearned Premium Reserves, the Unpaid Net Liability Reserves
and the Paid Net Liability reserves shall hereinafter be collectively
referred to as the "Reserves."
4. If the Monthly Report shows a positive balance of (a) the sum of (i)
collected Gross Net Written Premium, plus (ii) Cash Call Amounts, minus (b)
the sum of (i) Ceding Commission, (ii) the Reinsured's Expense, and (iii) any
Paid Net Liability, then the Reinsured shall, within thirty (30) days of such
Monthly Report, remit by certified check or wire transfer, such positive
balance to the Reinsurer from the Premium Account or otherwise. If the
Monthly Report shows a negative balance of (a) the sum of (i) collected Gross
Net Written Premium, plus (ii) Cash Call Amounts, minus, (b) the sum of (i)
the Ceding Commission, (ii) the Reinsured's Expense, and (iii) any Paid Net
Liability, then the Reinsurer shall, within thirty (30) days of such Monthly
Report, remit such negative balance to the Reinsured. Such remittance to the
Reinsured shall be made by certified check or wire transfer to the Reinsured;
provided, however, that such remittance shall be deemed to have been made by
Reinsurer to the extent of Reinsurer's payment(s) to the Claims Fiduciary
Account made pursuant to Sections 6.1(i) and (ii) during the month that is
the subject of such Monthly Report.
5. The Underwriting Manager and TPA shall also periodically update and
render to the Reinsured and the Reinsurer such other reports or information
as are required by the Underwriting Management Agreement and/or the Claims
Services Agreement or as may reasonably be required by the Reinsured or the
Reinsurer and reasonably available to the Underwriting Manager or the TPA, as
the case may be.
ARTICLE 7 - LOSS SETTLEMENTS
The liability of the Reinsurer shall follow that of the Reinsured in every
case. Any settlement made by or on behalf of the Reinsured of any claim or
loss which is alleged to arise under the Policies shall be unconditionally
binding upon the Reinsurer, whether under strict Policy conditions
(including, but not limited to, the general and specific stipulations,
clauses, waivers, extensions, modifications and endorsements of any of the
Reinsured's Policies), or by way of compromise (including, without
limitation, EX GRATIA payments)
ARTICLE 8 - DEFINITIONS
"ACQUISITION" shall mean the purchase by Centre Solutions Holdings (Delaware)
Limited, pursuant to that certain Purchase Agreement by and among Centre
Solutions Holdings (Delaware) Limited and Superior National Insurance Group
dated as of December 7, 1998 (the "Acquisition Agreement") of all of the
issued and outstanding shares of capital stock of Business Insurance Company.
"CLAIMS SERVICES AGREEMENT" shall mean that certain Claims Administration
Services Agreement entered into and effective on the Effective Date between
the Reinsured and the TPA.
"CLOSING" shall mean the closing of the Acquisition.
"GROSS NET UNEARNED PREMIUM RESERVE" shall be defined as the gross unearned
premium reserve of the Reinsured (including the reserve for unearned premiums
associated with risks assumed by the Reinsured
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<PAGE>
pursuant to any residual market mechanism, pools, associations, syndicates
and similar assignments) on all Policies, less return premiums for
cancellations and reductions.
"GROSS NET WRITTEN PREMIUM" shall be defined as the gross direct and assumed
audit or other additional written premium of the Reinsured on all Policies
(including the reserve for unearned premiums associated with risks assumed by
the Reinsured pursuant to any residual market mechanism, pools, associations,
syndicates and similar assignments), less return premium for cancellations
and reductions, and, if applicable, less premium paid for reinsurance which
inures to the benefit of the Reinsurer under this Agreement Gross Net Written
Premium shall not include any premiums ultimately determined to be
uncollectible.
"LOSS ADJUSTMENT EXAM" shall mean all costs and expenses incurred by the
Reinsured in connection with the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal of any claim or loss which arises
under the Policies or incurred in connection with declaratory judgment
actions with respect to the Policies, including court costs and costs of
supersedeas and appeal bonds, and shall include a) prejudgment interest,
unless included as part of the award or judgment; and b) post-judgment
interest. As used herein, "SUPERSEDEAS BOND" shall mean a bond required of
one who petitions to set aside a judgment or execution and from which the
other party may be made whole if the action is unsuccessful. The terms Loss
Adjustment Expense shall include all such claim or loss expenses, except the
salaries of the Reinsured's employees (including, but not limited to, in
house counsel, medical bill reviewers and claims investigators) office
expenses, overhead and other expenses of the Reinsured generally treated as
unallocated loss adjustment expenses (collectively, the "OVERHEAD EXPENSES");
provided, however, that to the extent that all or any portion of such
Overhead Expenses are allocated by the Reinsured on its books and records to
any or all claims or losses arising under the Policies, such Overhead
Expenses shall be treated as Loss Adjustment Expenses.
"NET LIABILITY" shall mean all the Reinsured's liability with respect to each
Policy reinsured under this Agreement, including pre-judgment interest or
delay damages, Excess of Policy Limits and Extra Contractual Obligations, as
specified in Article 9 and Article 10, after deduction of all other
reinsurance which inures to the benefit of the Reinsurer under this
Agreement, if any. The term Net Liability shall include Loss Adjustment
Expense. Nothing herein shall be construed to mean that losses under this
Agreement are not recoverable until the Reinsured's Net Liability has been
ascertained
"PREMIUM ACCOUNT" shall mean the premium fiduciary account maintained by the
Underwriting Manager in the name and on behalf of the Reinsured pursuant to
and in accordance with the Underwriting Management Agreement
"SNIS" shall mean SN Insurance Services, Inc.
"TPA" shall mean the third party administrator under the Claims Services
Agreement.
"UNDERWRITING MANAGER" shall mean the entity acting as underwriting manager
for the Reinsured with respect to the Policies pursuant to the Underwriting
Management Agreement. The initial Underwriting Manager shall be SNIS.
"UNDERWRITING MANAGEMENT AGREEMENT" shall mean that certain Underwriting
Management Agreement entered into and effective on the Effective Date between
the Reinsured and the Underwriting Manager.
ARTICLE 9 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
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<PAGE>
This Agreement shall indemnify the Reinsured where the Net Liability includes
any Excess of Original Policy Limits Loss. Notwithstanding the foregoing, in
no event shall indemnification be provided to the extent such indemnification
is not permitted under New York law.
"EXCESS OF POLICY LIMITS LOSS" shall mean any loss of the Reinsured in
excess of the limit of its Policy that has been incurred because of failure
by it to settle within the Policy limit or by reason of its alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured
or in the preparation or prosecution of an appeal consequent upon such action.
For the purposes of this Article, the word "LOSS" shall mean any amounts for
which the Reinsured would have been contractually liable to pay had it not
been for the limit of the Policy.
ARTICLE 10 - EXTRA CONTRACTUAL, OBLIGATIONS
This Agreement shall protect the Reinsured where the Net Liability includes
any Extra Contractual Obligations. Notwithstanding the foregoing, in no event
shall coverage be provided to the extent such coverage is not permitted under
New York law.
"EXTRA CONTRACTUAL OBLIGATIONS" shall mean those liabilities not covered
under any other provision of this Agreement and which arise from the handling
of any claim under any of the Policies, including, but not limited to,
liabilities arising because of the following: failure by the Reinsured to
settle within the Policy limit, or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation
of the defense or in the trial of any action against its insured or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the
Reinsured shall be deemed, in all circumstances, to be the date of the
original accident, casualty, disaster, loss, event or occurrence (or, if
there is a question or dispute about the applicable date, the date
established by the Reinsured).
ARTICLE 11 - SALVAGE AND SUBROGATION
The Reinsured shall pay to or credit the Reinsurer with any recovery
connected with a Paid Net Liability which is obtained from salvage,
subrogation, or other insurance or any other recovery, after charging the
Reinsurer with the expenses incurred by the Reinsured in obtaining any such
recovery.
Any such recoveries received subsequent to any loss or claim settlement
hereunder shall be applied as if received prior to the aforesaid loss or
claim settlement and all necessary adjustments in such regard shall be made
accordingly.
ARTICLE 12 - LATE PAYMENTS
Any late payment by either party shall accrue simple interest at the rate of
1% per month.
ARTICLE 13 - ACCESS TO RECORDS
Each of the parties and their respective duly appointed representatives shall
have access to the books, records and papers of the other party and such
other party's agents at all reasonable times during the term of this
Agreement or until the natural expiration of the Policies or until all
claims, losses or disputes arising
5
<PAGE>
out of the Policies have been finally resolved, whichever is later, for the
purpose of obtaining information concerning this Agreement or the subject
matter hereof.
ARTICLE 14 - ARBITRATION
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted
for decision to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return receipt
requested.
One arbitrator shall be chosen by each party, and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"UMPIRE") who shall preside at the hearing. If either party fails to appoint
its arbitrator within 30 days after being requested to do so by the other
party, the latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within 30 days of
their appointment, each of the arbitrators shall nominate three individuals.
Each arbitrator shall then decline two of the nominations presented by the
other arbitrator, and the Umpire shall then be chosen from the remaining two
individuals by drawing of lots by the two arbitrators. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
The arbitrators shall be active or former officers of insurance or
reinsurance companies, who shall not have a personal or financial interest in
the result of the arbitration
Within 30 days after notice of appointment of all arbitrators, the panel
shall meet and determine timely periods for briefs, discovery procedures and
schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound
by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration shall take place in New York, New York, but the venue
may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. The decision of any two arbitrators when rendered in
writing shall be final and binding. The panel is empowered to grant interim
relief as it may deem appropriate but shall not be authorized to award any
punitive or exemplary damages.
In reaching its decision, the panel shall apply the laws of the State of New
York, without giving effect to the conflict of laws principles thereof, and
shall keep in mind the purpose of this Agreement. To the extent, and only to
the extent, that the provisions of this Agreement arc ambiguous or unclear,
the panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business. The panel shall render its
decision within 60 days following the termination of hearings, which decision
shall be in writing, stating the reasons thereof.
Judgment upon the award may be entered in any court having jurisdiction
thereof. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to, attorneys fees, to the extent
permitted by law.
ARTICLE 15 - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an error or
accidental omission by the Reinsured, provided that the error or omission is
rectified promptly after discovery.
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<PAGE>
ARTICLE 16 - TAXES
The Reinsured shall be liable to the appropriate governmental authorities for
all taxes on premiums paid to the Reinsurer under this Agreement, except
income or profit taxes of the Reinsurer.
ARTICLE 17 - INSOLVENCY
In the event of insolvency and the appointment of a conservator, liquidator,
or statutory successor of the Reinsured, the portion of any risk or
obligation assumed by the Reinsurer shall be payable to the conservator,
liquidator, or statutory successor on the basis of claims allowed against the
insolvent company by any court of competent jurisdiction or by any
conservator, liquidator, or statutory successor of the Reinsured having
authority to allow such claims, without diminution because of that
insolvency, or because the conservator, liquidator, or statutory successor
has failed to pay all or a portion of any claims. Payments by the Reinsurer
as set forth in this subdivision shall be made directly to the Reinsured or
to its conservator, liquidator, or statutory successor, except where the
Policy specifically provides another payee of such reinsurance in the event
of the insolvency of the Reinsured.
It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Reinsured shall give written notice to the
Reinsurer of the pendency of a claim against the Reinsured involving a
possible liability on the part of the Reinsurer (indicating the Policy under
which such claim arises) within a reasonable time after such claim is filed
in the conservation or liquidation proceeding or the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such claim
and interpose, at its own expense, in the proceeding where such claim is to
be adjudicated, any defense or defenses that it may deem available to the
Reinsured or its liquidator, receiver, conservator or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to
the approval or the court, against the Reinsured as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Reinsured solely as a result of the defense
undertaken by the Reinsurer.
As to all reinsurance made, ceded, renewed or otherwise becoming effective
under this Agreement, the reinsurance shall be payable as set forth above by
the Reinsurer to the Reinsured or to its liquidator, receiver, conservator,
or statutory successor (except as provided by Sections 4118(a) (1) (A) and
1114 (c) of the New York Insurance Law or the Delaware Insurance Law or other
similar applicable state insurance laws relating to Fidelity and Surety risks
or) except (1) where the Policy specifically provides another payee in the
event of the insolvency of the Reinsured, and (2) where the Reinsurer with
the consent of the direct insured or insured has assumed such Policy
obligations of the Reinsured as direct obligations of the Reinsurer to the
payees under such Policies and in substitution for the obligations of the
Reinsured to the payees. Then, and in that event only, the Reinsured with the
prior approval of the certificate of assumption on New York risks by the
Superintendent of Insurance of the State of New York and the Delaware
Department of Insurance, is entirely released from its obligation and the
Reinsurer pays any loss directly to payees under such Policies.
ARTICLE 18 - OFFSET
Subject to applicable laws governing offset entitlement, the Reinsured and
the Reinsurer may offset any balance or amount due from one party to the
other under this Agreement.
ARTICLE 19 - CURRENCY
Whenever the word "DOLLARS" or the "$" sign appear in this Agreement, they
shall be construed to mean United States Dollars, and all transactions under
this Agreement shall be in United States Dollars.
7
<PAGE>
ARTICLE 20- NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES
This Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors, assigns and legal representatives. Neither
this Agreement, not any right hereunder, may be assigned by any party without
the written consent of the other party hereto. This Agreement is not intended
to, and shall not be construed to, confer rights on any persons other than
the signatories to this Agreement and their respective successors and
permitted assigns.
ARTICLE 21 - AMENDMENTS
This Agreement shall not be amended in whole or in part except by written
agreement executed by the Reinsured and the Reinsurer.
ARTICLE 22 - SECURITY
Promptly after the receipt of the first Monthly Report, and every third
Monthly Report thereafter, the Reinsurer shall provide security in an amount
equal to the Reserves, to secure the Reinsurer's performance of its
obligations under this Agreement (the "Reinsurer's Obligations") by trust
agreement, cash advances or a Letter of Credit. Subject to the consent of the
Reinsured, which shall not be unreasonably withheld, the Reinsurer shall have
the option of determining the method of security, provided it is in a form
acceptable to the applicable insurance regulatory authorities.
When providing security by a Letter of Credit, the Reinsurer agrees to apply
for and secure timely delivery to the Reinsured of a "clean", irrevocable and
unconditional Letter of Credit issued by a bank and containing provisions
acceptable to the applicable insurance regulatory authorities in an amount
equal to such Reserves. Such Letter of Credit shall be issued for a period of
not less than one year, and shall be automatically extended for one year from
its date of expiration or any future expiration date unless thirty (30) days
(sixty (60) days where required by any insurance regulatory authorities)
prior to any expiration date, the issuing bank shall notify the Reinsured by
certified or registered mail that the issuing bank elects not to extend or
renew the Letter of Credit for any additional period.
The Letters of Credit provided by the Reinsurer pursuant to the provisions of
this Agreement may be drawn upon at any time, notwithstanding any other
provision of this Agreement, and be utilized by the Reinsured or any
successor, by operation of law, of the Reinsured including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Reinsured for the following purposes, unless otherwise provided for in a
separate Trust Agreement:
(a) to reimburse the Reinsured an amount equal to the Paid Net Liability
for which the Reinsurer has not reimbursed the Reinsured;
(b) to make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's Obligations under this Agreement;
(c) to fund an account with the Reinsured for the Reinsurer's Obligations.
Such cash deposit shall be held in an interest bearing account separate
from the Reinsured's other assets, and interest thereon not in excess of
the prime rate shall accrue to the benefit of the Reinsurer;
(d) to pay the Reinsures share of any other amounts the Reinsured claims
are due under this Agreement.
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<PAGE>
In the event the amount drawn by the Reinsured on any Letter of Credit is in
excess of the actual amount required for (a), (c), and (d), the Reinsured
shall promptly return to the Reinsurer the excess amount so drawn. All of the
foregoing shall be applied without diminution because of insolvency on the
part of the Reinsured or the Reinsurer.
The issuing bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Reinsured or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the
order of properly authorized representatives of the Reinsured.
At quarterly intervals (i.e. upon receipt of every third Monthly Report), the
Reinsured or the Reinsurer (as the case may be) shall cause the Letter of
Credit to be amended in the following manner.
(a) If the Monthly Report shows that the Reserves exceed the balance of the
Letter of Credit as of the Monthly Report date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess, secure
delivery to the Reinsured of an amendment to the Letter of Credit
increasing the amount of the Letter of Credit by the amount of such
difference
(b) If, however, the Monthly Report shows that the Reserves are less than
the balance of the Letter of Credit as of the Monthly Report date, the
Reinsured shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of the
Letter of Credit available by the amount of such excess.
ARTICLE 23 - GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York,
without giving effect to the conflict of laws principles thereof, and of the
United States, including the United States Arbitration Act, 9 U.S.C. Section
I ET SEQ.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
_______ day of December, 1998.
For and on behalf of:
BUSINESS INSURANCE COMPANY
/s/ J. CHRIS SEAMAN
- ---------------------------------
Name: J. Chris Seaman
Vice President
For and on behalf of:
CALIFORNIA COMPENSATION INSURANCE COMPANY
/s/ J. CHRIS SEAMAN
- ---------------------------------
Name: J. Chris Seaman
Title: Vice President
9
<PAGE>
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
between
THE INSURANCE SUBSIDIARIES OF BUSINESS INSURANCE GROUP, INC.,
ACTING SOLELY ON BEHALF OF THE FOLLOWING SUBSIDIARIES:
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
and
INTER-OCEAN REINSURANCE COMPANY LTD.
<PAGE>
INDEX
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. AGGREGATE RETENTION, NET RETENTION AND AGGREGATE LIMIT . 3
ARTICLE III. REPORTS . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV. REMITTANCES . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V. PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI. COMMUTATIONS OF CEDED REINSURANCE . . . . . . . . . . . 6
ARTICLE VII. CREDIT FOR REINSURANCE . . . . . . . . . . . . . . . . . 6
ARTICLE VIII. FUNDS WITHHELD . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . .10
ARTICLE X. RESERVING, TAXES, RIGHT OF INSPECTION AND
PARTICIPATION, CLAIMS MANAGEMENT, TERRITORY . . . . . .10
ARTICLE XI. EXCLUSIONS . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS; LOSSES
IN EXCESS OF POLICY LIMITS . . . . . . . . . . . . . . .12
ARTICLE XIII. DECLARATORY JUDGMENT EXPENSES . . . . . . . . . . . . .13
ARTICLE XIV. ERRORS AND OMISSIONS . . . . . . . . . . . . . . . . . .13
ARTICLE XV. INSOLVENCY . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE XVI. TERM AND TERMINATION . . . . . . . . . . . . . . . . . .14
ARTICLE XVII. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . .14
ARTICLE XVIII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE XIX. ASSIGNMENTS AND SURVIVAL . . . . . . . . . . . . . . . .15
ARTICLE XX. FEDERAL EXCISE TAX . . . . . . . . . . . . . . . . . . .15
ARTICLE XXI. CURRENCY . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE XXII. ACTUARIAL REVIEW CLAUSE . . . . . . . . . . . . . . . .15
ARTICLE XXIII. ARBITRATION . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE XXIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . .17
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
ATTACHMENT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
<PAGE>
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of September 3, 1998 by
and between BUSINESS INSURANCE GROUP, INC. (the "Company") solely on behalf
of its subsidiaries CALIFORNIA COMPENSATION INSURANCE COMPANY, BUSINESS
INSURANCE COMPANY, COMBINED BENEFITS INSURANCE COMPANY, COMMERCIAL
COMPENSATION INSURANCE COMPANY (hereinafter collectively referred to as the
"Reinsured") and INTER-OCEAN REINSURANCE COMPANY LTD., a Bermuda stock
insurance company (the "Reinsurer").
WHEREAS, the Reinsurer desires to reinsure the Reinsured, and the
Company desires that the Reinsurer reinsure the Reinsured, to the extent and
upon the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I. DEFINITIONS
As used herein, the following terms shall have the following
respective meanings:
"ACCIDENT YEAR" as used herein shall refer to each 12-month period
commencing January 1 and ending December 31 in which covered claims occur.
For purposes of this Agreement, the period from the immediately preceding
January 1 to, but not including the Effective Date also shall be considered
an Accident Year.
"AGGREGATE ULTIMATE NET LOSSES" shall mean the aggregate sums paid
or to be paid by the Reinsured in settlement of losses under contracts and
policies that are the Subject Business reinsured hereunder, including
Allocated Loss Adjustment Expenses, plus any Extra Contractual Obligations
and Losses in Excess of Policy Limits and any Declaratory Judgment Expenses,
all as respects covered losses attributable to claims made (for claims made
policies) and losses occurring during the Accident Years prior to the
Effective Date and paid or payable by the Reinsured while the Agreement is in
effect for which the Reinsured is liable, after making proper deductions for,
all Ceded Reinsurance, whether collectible or not, and all salvages, and all
recoveries of every nature.
Aggregate Ultimate Net Losses does not include any of the
following: (i) all net losses or ALAE paid by the Reinsured before the
Effective Date, (ii) all net losses or ALAE incurred by the Reinsured for
losses occurring, on or after the Effective Date, (iii) all net losses or
ALAE under insurance or reinsurance contracts and policies written by the
Reinsured on or
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<PAGE>
after the Effective Date, (iv) all net losses or ALAE under contracts and
policies written by the Reinsured before the Effective Date but amended,
effective on or after the Effective Date but only to the extent that such
losses would not have been covered prior to the effective date of such
amendments, (v) all net losses or ALAE for which the Reinsured becomes
obligated to pay as a result of a merger with or acquisition of any other
insurance or reinsurance company, (vi) all unallocated loss adjustment
expenses of the Reinsured, and (vii) all costs and expenses of the Reinsured
incurred in connection with Ceded Reinsurance collection activities.
"AGGREGATE RETENTION" shall have the meaning and be determined as
set forth in Attachment A.
"ALLOCATED LOSS ADJUSTMENT EXPENSES" or "ALAE" shall mean all
expenses including but not limited to court costs, attorney fees, medical
cost containment expenses, outside adjuster fees, and prejudgment and
postjudgment interest that are incurred by the Reinsured and are allocable to
specific losses that are or would be covered under this Agreement in each
case as determined in accordance with the Company's standard practice in
effect as of the Effective Date of this Agreement. However, such amounts
shall not include office expenses of the Reinsured, including salaries of
their officials and employees, and loss adjustment expenses unallocable to
claims recoverable under contracts and policies reinsured hereunder.
"CEDED REINSURANCE" shall mean those contracts of reinsurance in
effect on the Effective Date as to which the Reinsured is a party as a ceding
insurer and that reinsures the obligations of the Reinsured with respect to
any portion of Aggregate Ultimate Net Losses hereunder. Ceded Reinsurance
shall specifically not include the Quota Share Reinsurance Contract entered
into by the Reinsured with affiliates of Superior National Insurance Group,
Inc. effective May 1, 1998.
"COMMUTATION" shall mean a commutation, release of liability, loss
portfolio transfer or other similar transaction, which is consummated or is
effective on or after the Effective Date with respect to any Ceded
Reinsurance.
"DECLARATORY JUDGMENT EXPENSES" shall have the meaning set forth in
Article XIII hereof.
"EFFECTIVE DATE" shall mean the date of consummation of the closing
of a private sale of the Company.
"EXTRA CONTRACTUAL OBLIGATIONS" shall have the meaning set forth in
Article XII hereof.
"INCURRED BUT NOT REPORTED" or "IBNR" shall refer to that amount of
reserves for outstanding losses and Allocated Loss Adjustment Expenses
arising from insured losses that have already occurred prior to the Effective
Date but have not yet been reported to and/or recorded as losses recoverable
under contracts and policies reinsured hereunder by the Reinsured.
2
<PAGE>
Such amounts shall contemplate the ultimate valuation of such
losses and Allocated Loss Adjustment Expenses.
"LOSSES IN EXCESS OF POLICY LIMITS" shall have the meaning set
forth in Article XII hereof.
"PREMIUM" shall have the meaning set forth in Article V hereof.
"QUARTERLY REPORT" shall have the meaning set forth in Article III
hereof.
"SUBJECT BUSINESS" shall mean all contracts and policies where the
related insurance and reinsurance premium has been written and earned by the
Reinsured before the Effective Date for claims made, or losses occurring,
during all Accident Years prior thereto, subject to the exclusions set forth
in Article XI herein.
"SUBJECT NET EARNED PREMIUM" shall mean gross premium earned by the
Reinsured less earned premium ceded for Ceded Reinsurance that inures to the
benefit of this Agreement, and less earned premium derived from any Pool,
Association, Syndicate, Exchange Plan, Fund or other facility described in
Article XI, from January 1, 1998 through and including the Effective Date.
"YEARLY REPORT" shall have the meaning set forth in Article III
hereof.
ARTICLE II. AGGREGATE RETENTION, NET RETENTION AND AGGREGATE LIMIT
(a) COVER. Commencing on the Effective Date, the Reinsurer hereby
agrees to indemnify the Reinsured in respect of all Aggregate Ultimate Net
Losses in excess of the Aggregate Retention up to but not exceeding the
Aggregate Limit.
(b) AGGREGATE RETENTION. The Reinsured shall retain all Aggregate
Ultimate Net Losses in an amount equal to the Aggregate Retention. The
Reinsured shall first pay the entire amount of its Aggregate Retention under
Subject Business and the Reinsurer shall thereafter pay its Aggregate Limit
on Subject Business to the extent Aggregate Ultimate Net Losses exceed the
Reinsured's Aggregate Retention.
(c) AGGREGATE LIMIT. THE MAXIMUM AMOUNT OF AGGREGATE ULTIMATE NET
LOSSES THAT MAY BE CEDED UNDER THIS AGREEMENT SHALL NOT EXCEED $175,000,000.
UNDER NO CIRCUMSTANCES WILL THE REINSURER'S INDEMNITY OBLIGATION HEREUNDER
EXCEED $175,000,000 IN TOTAL IN EXCESS OF THE REINSURED'S AGGREGATE RETENTION.
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ARTICLE III. REPORTS
(a) YEARLY REPORTS. During the term of this Agreement, the
Reinsured shall deliver to the Reinsurer, within ninety-five (95) calendar
days after the end of each calendar year, a report (a "Yearly Report")
setting forth (i) its calculation of Aggregate Ultimate Net Losses cumulative
to date, (ii) the annual convention statements of the Reinsured as filed
hereafter with the appropriate insurance regulatory authority, and (iii) if
applicable, a statement of any amount payable by the Reinsurer pursuant to
Articles II and IV hereof and a demand for payment of such amount. Paid and
outstanding losses including a provision for Incurred But Not Reported
losses, contemplating the ultimate valuation of losses and ALAE shall be
provided by reserve category, line of business and Accident Year.
(b) QUARTERLY REPORTS. During the term of this Agreement, the
Reinsured shall deliver to the Reinsurer, within sixty (60) calendar days
after the end of each calendar quarter, a report (a "Quarterly Report")
setting forth (i) its calculation of Aggregate Ultimate Net Losses cumulative
to date, and (ii) if applicable, a statement of any amount payable by the
Reinsurer pursuant to Articles II and IV hereof and a demand for payment of
such amount. Paid and outstanding losses including a provision for Incurred
But Not Reported losses, contemplating the ultimate valuation of losses and
ALAE shall be provided by reserve category, line of business and Accident
Year.
(c) ADDITIONAL REPORTS. In addition, the Reinsured shall include
in Quarterly Reports or any Yearly Reports during the term of this Agreement
such additional information and documentation as the Reinsurer may reasonably
request and specify (including, but not limited to, data supporting reserve
reviews (to the extent available in the ordinary course of business of the
Reinsured), Ceded Reinsurance monitoring and collection activity,
Commutations, loss activity on asbestos, pollution and other categories with
respect to Incurred But Not Reported loss calculations, and all adjustments
to net losses).
(d) CONFIDENTIALITY OF REPORTS. Except as otherwise required by
law, by governmental or regulatory authorities, or in response to a court
order, or upon the prior written consent of the Reinsured, all non-public
information included in all Yearly Reports, Quarterly Reports and Additional
Reports and amendments thereto shall be kept confidential by the Reinsurer
and its directors, officers, employees, agents and representatives, shall not
be disclosed to any other person or entity, and shall only be used for the
purposes provided herein. Notwithstanding the foregoing, non-public
information included in a Yearly Report, Quarterly Report and Additional
Reports or amendments thereto may be disclosed to any retrocessionaire of the
Reinsurer to the extent such disclosure is necessary for the Reinsurer to
retrocede any of its liabilities hereunder to such retrocessionaire.
ARTICLE IV. REMITTANCES
(a) COVERAGE PAYMENTS. Except as provided in paragraph (b) of
this Article IV, the Reinsurer shall pay to the Company on behalf of the
Reinsured any and all amounts
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payable hereunder, as shown and demanded in each Yearly Report, Quarterly
Report or amendments thereto, within thirty (30) calendar days following
receipt by the Reinsurer of each such Yearly Report, Quarterly Report or
amendments thereto from the Reinsured. Any payments by the Reinsurer to the
Company or other entity or person designated by the Reinsured to receive
payment of amounts due hereunder on behalf of the Reinsured shall constitute
payment to the Reinsured under this Agreement.
(b) NO SETTLEMENTS UNTIL PAYMENT BY REINSURED. Except in the event
of insolvency of the Reinsured as described in Article XV, no settlements
shall be payable by the Reinsurer to the Reinsured for Aggregate Ultimate Net
Losses recoverable hereunder until the Reinsured has effected cumulative
payments of Aggregate Ultimate Net Losses during the term of this Agreement
in an amount equal to the Aggregate Retention hereunder.
(c) REPAYMENT TO REINSURER. If the Reinsurer shall have paid any
amounts under this Agreement that are subsequently deemed not to be due by
the Reinsurer, then the Reinsured shall promptly remit such amounts to the
Reinsurer.
ARTICLE V. PREMIUM
A premium in the amount of twenty eight million five hundred
thousand dollars ($28,500,000) in immediately available funds shall be paid
to the Reinsurer in consideration of the coverage provided hereunder as
follows: (i) a nonrefundable premium installment of $300,000 will have been
paid within five (5) days after the binders pertaining to this Agreement
shall have been signed by the Reinsurer and delivered to the Reinsured, and
an additional non-refundable premium installment of $300,000 will have been
paid on or before August 10,1998, and (ii) the remaining premium of
$27,900,000 on the Effective Date.
This Agreement will automatically expire if the Effective Date does
not occur on or before September 30, 1998. On September 30, 1998, the
Agreement shall automatically extend for an additional period expiring on
December 31, 1998 upon receipt of an additional non-refundable payment of
$300,000 in which case the remaining premium due on the Effective Date will
be $27,850,000. On the last day of each of the 4 calendar quarters subsequent
to September 30, 1998, the Agreement shall automatically extend for an
additional quarter upon receipt of an additional non-refundable premium
installment of $50,000 for each quarterly extension. The premium installments
for each extension shall be due and payable five (5) days prior to each
extension. The remaining premium due on the Effective Date will be reduced by
the cumulative amount of premium installments paid for all extensions other
than the payment for the extension from September 30, 1998 to December 31,
1998, which payment shall reduce the remaining premium due to the Reinsurer
by only $50,000. In no event will the premium due on the Effective Date ever
be reduced below $27,650,000. This Agreement will automatically expire if the
Effective Date does not occur on or before December 31, 1999.
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ARTICLE VI. COMMUTATIONS OF CEDED REINSURANCE
In the event that the Reinsured commutes, amends or terminates any
reinsurance agreement which was in place as of the Effective Date pertaining
to the Subject Business, the parties hereto will amend this Agreement in such
a manner so as to put each party in the same relative economic position as it
would have been in the absence of any such commutation, amendment or
termination. For example, a reinsurance agreement pertaining to the Subject
Business which was in place as of the Effective Date may be deemed to remain
in place irrespective of any commutation, release of liability, loss
portfolio transfer or other similar transaction with respect thereto.
ARTICLE VII. CREDIT FOR REINSURANCE
(a) As regards contracts and policies or bonds issued by the
Reinsured coming within the scope of this Agreement, the Reinsured agrees
that when it shall file with the insurance regulatory authority or set up on
its books, reserves for losses covered hereunder which it shall be required
by law to set up, it will forward to the Reinsurer a statement showing
reserves ceded to the Reinsurer. Within fifteen (15) days of its receipt of
an Annual Report or a Quarterly Report, the Reinsurer hereby agrees that it
will apply for and secure delivery to the Reinsured of a clean, irrevocable
and unconditional Letter of Credit, issued by a qualified bank acceptable to
insurance regulatory authorities having jurisdiction over the Reinsured, or
establish a Trust Account for the benefit of the Reinsured, in each case
containing provisions acceptable to the insurance regulatory authorities
having jurisdiction over the Reinsured in an amount equal to the Aggregate
Ultimate Net Losses including IBNR ceded to the Reinsurer, as shown in the
statement prepared by the Reinsured (hereinafter referred to as "Reinsurer's
Obligations").
(b) If a Letter of Credit is to be used to satisfy the
requirements of this Article VII, the Letter of Credit shall be issued for a
period of not less than one year, and shall be automatically extended for one
year from its date of expiration or any future expiration date. The Letter of
Credit shall remain in effect to the extent necessary to fulfill the
Reinsurer's Obligations as described in paragraph (a) above; however,
Reinsurer may substitute a Letter of Credit from a new qualified bank if,
thirty (30) days prior to any expiration date, the issuing bank shall notify
the Reinsured by certified or registered mail that the issuing bank elects
not to consider the Letter of Credit extended for any additional period and
the new qualified bank simultaneously confirms that it will issue a Letter of
Credit under the same terms upon expiration of the existing Letter of Credit.
(c) The Reinsurer and Reinsured agree that the Letters of Credit
or Trust Account provided by the Reinsurer pursuant to the provisions of this
Agreement may be drawn upon at any time, and be utilized by the Reinsured or
any successor of the Reinsured including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Reinsured. Notwithstanding the
unconditional nature of the obligation represented by the Letter of Credit or
the Trust Account, the Reinsurer and the Reinsured agree that the Letter of
Credit or Trust Account proceeds be used only as follows:
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(i) to reimburse the Reinsured for the Reinsurer's Obligations,
the payment of which is due under the terms of this Agreement
and which has not been otherwise paid;
(ii) to make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's Obligations under this
Agreement; and
(iii) to fund an account with the Reinsured for the Reinsurer's
Obligations. Such cash deposit shall be held in an interest
bearing account separate from the Reinsured's other assets,
and interest thereon not in excess of the prime rate shall
accrue to the benefit of the Reinsurer.
(d) With respect to the Reinsurer's Obligations, to the extent
that any special security deposits are required of the Reinsured to be
maintained with state insurance regulatory authorities under the laws of any
jurisdiction in which the Reinsured is licensed to issue contracts and
policies or bonds, the Reinsurer shall provide, at the expense of the
Reinsurer, a Letter of Credit to or a Trust Account deposit for the benefit
of the state insurance regulatory authorities in an amount equal to such
special security deposit requirement ("Special Deposit Requirement"). Upon
notification by the Reinsured that such Special Deposit Requirement exists,
the Reinsurer shall promptly establish such special security deposit and
provide evidence on the date of such establishment and within forty-five (45)
days of the expiration of each calendar quarter thereafter that the Reinsurer
or an affiliate of the Reinsurer has satisfied such Special Deposit
Requirement. In addition, upon establishing the security deposit, the
Reinsurer shall provide written confirmation that the insurance regulatory
authority has accepted such security deposit in lieu of the Reinsured
providing such security deposit. In the event that any insurance regulatory
authority denies or rejects any such security deposit, the Reinsured shall
have the right to immediately draw down the Letter of Credit held by the
Reinsured or Trust Account established for the benefit of the Reinsured,
issued in each case pursuant to Article VII (a)-(c) above for the purpose of
satisfying such Special Deposit Requirement. The Reinsurer shall immediately
thereafter replace the Letter of Credit or Trust Account to secure the
entirety of Reinsurer's Obligations without diminution for the funding of the
Special Deposit Requirement, if required by the applicable insurance
regulatory authority.
(e) In the event the amount drawn by the Reinsured or any
insurance regulatory authority on any Letter of Credit or Trust Account is in
excess of the actual amount of the Reinsurer's Obligations, the Reinsured
shall be deemed to be holding such funds in trust for the benefit of the
Reinsurer and shall promptly return to the Reinsurer the excess amount so
drawn. All of the foregoing shall be applied without diminution because of
insolvency on the part of the Reinsured or the Reinsurer.
(f) The issuing or trustee bank shall have no responsibility
whatsoever in connection with the priority of withdrawals made by the
Reinsured or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized
representatives of the Reinsured.
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(g) At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Reinsured shall prepare a specific statement
of the Reinsurer's Obligations, for the sole purpose of amending the Letter of
Credit or adjusting the Trust Account balance, in the following manner:
(i) If the statement shows that the cumulative balance of the
Reinsurer's Obligations and any Special Deposit Requirement
exceed the balance of the Letter of Credit or market value of
the eligible assets held in the Trust Account as of the
statement date, the Reinsurer shall, within thirty (30) days
after receipt of notice of such excess, secure delivery to
the Reinsured of an amendment to the Letter of Credit
increasing the amount of credit by the amount of such
difference or add eligible assets to the Trust Account with a
market value equal to such difference.
(ii) If, however, the statement shows that the Reinsurer's
Obligations and any Special Deposit Requirement are less than
the balance of the Letter of Credit or market value of the
eligible assets held in the Trust Account as of the statement
date, the Reinsured shall, within thirty (30) days after
receipt of written request from the Reinsurer, release such
excess credit or excess assets by agreement to secure an
amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit or
withdraw assets from the Trust Account with such excess value
and deliver them to the Reinsurer.
ARTICLE VIII. FUNDS WITHHELD
(a) It is hereby agreed that the Reinsurer shall be allowed to
pay to the Reinsured, and the Reinsured shall thereafter retain, Aggregate
Ultimate Net Losses, in whole or in part, in advance of the date due and
payable hereunder. The advance Aggregate Ultimate Net Losses so retained
shall be defined as Funds Withheld under this Agreement, and the cumulative
amount of retained advance Aggregate Ultimate Net Losses, subject to the
adjustments described below, shall be referred to as the Funds Withheld
Balance. The Reinsurer may terminate this Funds Withheld provision in whole
or in part, at its sole option, at any time, subject to the re-institution,
in advance of such termination, of all security and deposit requirements set
forth elsewhere in this Agreement. This Funds Withheld provision does not
relieve the Reinsurer of its obligations to provide security and/or make
deposits required elsewhere in this Agreement to the extent that Funds
Withheld are insufficient to satisfy such requirements.
(b) The Reinsured agrees that any Funds Withheld under this
Agreement shall be applied to satisfy, in whole or in part, to the maximum
extent possible given the amount of the Funds Withheld Balance, any security
and deposit requirements associated with this Agreement imposed by any
regulatory authority having jurisdiction over the Reinsured. If
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<PAGE>
this Funds Withheld provision is not acceptable to any such regulatory
authority, upon receipt of a written demand from such regulatory authority to
eliminate all or part of the Funds Withheld Balance, the Reinsurer agrees
that the Reinsured shall have the right to return to the Reinsurer that part
of the then current Funds Withheld Balance that is at issue, at which time
the Reinsurer shall provide security for the reinsurance herein, and other
statutorily prescribed security deposits, satisfactory to the regulatory
authorities, at the Reinsurer's expense.
At the end of each calendar quarter the Funds Withheld Balance
shall be equal to:
(i) The Funds Withheld Balance at the end of the prior quarter
plus,
(ii) Increases in Aggregate Ultimate Net Losses ceded under this
Agreement that the Reinsurer chooses to pay in advance as
Funds Withheld, minus
(iii) Decreases in Aggregate Ultimate Net Losses ceded under this
Agreement that the Reinsurer chooses to apply as a credit
against Funds Withheld, minus
(iv) Aggregate Ultimate Net Losses paid by Reinsurer's Set-Off
(as defined below) for the quarter, minus
(v) Funds Withheld Balance repaid, if any, by the Reinsured
to the Reinsurer, plus
(vi) Interest at the rate of interest actually earned (gross
of taxes) by the Reinsured on the Funds Withheld Balance
during the quarter.
(c) The Reinsured agrees that the Funds Withheld Balance may, at
the Reinsurer's option, be set off by the Reinsurer (the "Reinsurer's
Set-Off") against liability of any nature whatsoever (whether then
contingent, due and payable, or in the future becoming due) that it may then
have, or in the future may have under this Agreement, and such set off shall
occur as a condition precedent to any further payments by the Reinsurer
hereunder. The Reinsurer shall have no obligation whatsoever to pay Aggregate
Ultimate Net Losses ceded under this Agreement directly to the Reinsured to
the extent of the Funds Withheld Balance already held by the Reinsured.
(d) To secure its obligations hereunder, the Reinsured agrees to
pay the Funds Withheld into the Reinsured's statutory workers' compensation
pledged asset trust account (or such other account as may be agreed from time
to time by the Reinsurer), and that the Funds Withheld shall be maintained in
a segregated account and shall not be co-mingled with the Reinsured's general
account assets. The Reinsured agrees that the Funds Withheld Balance shall be
invested pursuant to investment guidelines agreed to from time to time by the
Reinsurer. Funds Withheld paid to the Reinsured through the
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Reinsurer's Set-Off shall be immediately transferred from the segregated account
to the Reinsured's general accounts. To the extent the Funds Withheld Balance
exceeds the Aggregate Ultimate Net Losses ceded under this Agreement, the
Reinsured shall, on five (5) days advance written notice from the Reinsurer, pay
such excess to the Reinsurer in accordance with the Reinsurer's instructions.
ARTICLE IX. REPRESENTATIONS AND WARRANTIES
The Reinsured represents and warrants to the Reinsurer as of the
Effective Date that (i) there are no discounted reserves held by the
Reinsured, and (ii) all Subject Net Earned Premium will have been recorded on
the Reinsured's books within 60 days after the Effective Date.
ARTICLE X. RESERVING, TAXES, RIGHT OF INSPECTION AND PARTICIPATION,
CLAIMS MANAGEMENT, TERRITORY
(a) RESERVING. For insurance regulatory accounting purposes, (i)
the Reinsured shall determine the amount of its reserves and those of its
subsidiaries on the Subject Business and may change those reserves from time
to time as it, in its sole discretion, deems necessary or appropriate, (ii)
the Reinsurer shall determine the amount of its reserves on its liability
hereunder and may change those reserves from time to time as it, in its sole
discretion, deems necessary or appropriate. Notwithstanding the amount of
reserves carried by the Reinsurer, if Reinsurer's Obligations are subject to
any special security deposit under which an insurance regulatory authority
requires identical assumed and ceded reserves for purpose of computing the
amount of the special security deposit, the Reinsurer or Reinsurer's
affiliate shall satisfy the special security deposit by reference to the
reserve amount required by the insurance regulatory authority.
(b) TAXES. The Reinsured will be liable for all taxes on
premiums (except Federal Excise Taxes) reported to the Reinsurer hereunder
and will reimburse the Reinsurer for such taxes where the Reinsurer is
required to pay the same.
(c) RIGHT OF INSPECTION. At all reasonable times during the term
of this Agreement, the Reinsurer shall have the right to inspect and copy,
through its duly authorized representatives, the books, records and accounts
of the Reinsured and its subsidiaries pertaining to the Subject Business and
the calculation of Aggregate Ultimate Net Losses and all claims under this
Agreement.
(d) COMPANY CLAIMS MANAGEMENT. The Reinsured shall manage the
payment of losses and ALAE and the defense of pending or threatened claims,
suits or proceedings relating to the Subject Business in good faith and in
accordance with its existing practices on the date of this Agreement and
consistent with the Reinsured's payment of its losses and ALAE in general and
its defense of claims, suits or proceedings in general.
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(e) CERTAIN RIGHTS OF PARTICIPATION IN EXTRAORDINARY CLAIMS.
During the term of this Agreement, the Reinsured shall advise the Reinsurer
of any claim or group of related claims pertaining to the Subject Business
which exceeds or is reasonably likely to exceed seven hundred fifty thousand
dollars ($750,000) on a net basis, and any material subsequent developments
pertaining thereto. In each case, the Reinsured shall furnish to the
Reinsurer within thirty (30) days of receipt of notice of such claim,
dispute, litigation or other matter, a written statement setting forth a
reasonable amount of pertinent information respecting the same; provided,
however, that a failure to furnish such written statement to Reinsurer within
such thirty (30) day period shall not relieve Reinsurer of its obligations
under the Agreement. Upon the written request of the Reinsurer, the Reinsured
will afford the Reinsurer an opportunity to participate with the Reinsured,
at the sole expense of the Reinsurer, in the settlement of such claim, and
the Reinsured and the Reinsurer shall cooperate in every respect in such
settlement. Notwithstanding the foregoing, all final determinations as to the
handling, defense, settlement or any other matter relating to any such claim
shall be made by the Reinsured, in its reasonable discretion.
(f) TERRITORY. The Reinsurer's liability shall be limited to
losses occurring within the territorial limits covered by the original
contracts and policies reinsured hereunder.
ARTICLE XI. EXCLUSIONS
This Agreement does not apply to and specifically excludes:
(a) Business derived from any Pool, Association, including Joint
Underwriting Association, Syndicate, Exchange, Plan, Fund or other facility
directly as a member, subscriber or participant, or indirectly by way of
reinsurance or assessments. This exclusion shall not apply to intercompany
reinsurances among the Reinsured and affiliated and/or member companies of
the Reinsured.
(b) Liability of the Reinsured arising from its participation or
membership, whether voluntary or involuntary, in any insolvency fund,
including any guarantee fund, association, pool, plan or other facility which
provides for the assessment of, payment by, or assumption by the Reinsured of
a part or the whole of any claim, debt, charge, fee or other obligations of
an insurer, or its successors or assigns, which has been declared insolvent
by any authority having jurisdiction.
(c) Liability excluded by the provisions of the following clauses
attached hereto. The word "Reassured" used therein means "Reinsured."
Nuclear Incident Exclusion Clause Liability - Reinsurance - No. 1B
Nuclear Incident Exclusion Clauses - Physical Damage - Reinsurance -
No. 2
Nuclear Incident Exclusion Clause - Reinsurance - No. 4
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(d) The Reinsured's liability for punitive, exemplary or
consequential damages or compensatory damages, including incurred expenses,
resulting from a legal action of the Insured or assignee against the
Reinsured, other than an action arising from insurance coverage or claim
handling.
(e) Losses arising from the perils of earthquake, landslide and
other earth movement.
(f) Contracts and policies issued by the Reinsured to insurance
or reinsurance companies (each hereafter referred to as the "insurer") which
provides insurance against liability of the insurer for any damages resulting
from the alleged or actual tortious conduct of the insurer in the handling of
claims made by any of its policyholders or in the handling of any other
business matters with any of its policyholders.
ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS; LOSSES IN EXCESS OF POLICY LIMITS
(a) This Agreement shall protect the Reinsured within the limits
hereof, where its Aggregate Ultimate Net Losses include any Extra Contractual
Obligations. "Extra Contractual Obligations" shall mean those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on Subject Business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the Reinsured
to settle within the policy limit, or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial or any action against its insured or reinsured, or
in the preparation or prosecution of an appeal consequent upon such action, but
only to the extent that liability for such failure, negligence, bad faith, etc.
arose from acts or omissions by the Reinsured taking place prior to the
Effective Date.
(b) This Agreement shall also protect the Reinsured, within the
limits hereof, where Aggregate Ultimate Net Losses include Losses in Excess
of Policy Limits. Losses in Excess of Policy Limits shall mean those losses
in excess of policy limits, but otherwise within the coverage terms of the
policy reinsured hereunder, including legal costs and expenses in connection
therewith, incurred by the Reinsured as a result of an action against it by
its insured or its insured's assignee to recover damages awarded by a court
of competent jurisdiction to a third party claimant because of alleged
failure by the Reinsured to settle within the policy limit or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or in the preparation of prosecution of an appeal
consequent upon such action but only to the extent that such failure,
negligence, fraud, etc. occurred prior to the Effective Date.
(c) However, coverage under this Agreement shall not apply where
any Extra Contractual Obligation or Loss in Excess of Policy Limits has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Reinsured acting individually or collectively or in collusion
with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim covered
hereunder.
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ARTICLE XIII. DECLARATORY JUDGMENT EXPENSES
(a) This Agreement shall indemnify the Reinsured, within the
limits of this Agreement, for Declaratory Judgment Expenses paid by the
Reinsured that arise from the business reinsured hereunder.
(b) "Declaratory Judgment Expenses" shall mean legal expenses
paid by the Reinsured for the investigation, analysis, evaluation, and/or
resolution of litigation of coverage issues between the Reinsured and any
other party to determine the Reinsured's obligation to defend, indemnify
and/or pay on behalf of its insured(s) under contracts and policies reinsured
hereunder arising from a specific claim or claims.
(c) The date on which Declaratory Judgment Expenses are incurred
by the Reinsured shall be deemed, in all circumstances, to be the same date
as the specific claim or claims under the policy reinsured hereunder.
(d) Recoveries from any form of insurance and/or reinsurance that
protect the Reinsured against claims the subject matter of this clause will
inure to the benefit of the Reinsurer and shall be deducted from the total
amount of Declaratory Judgment Expenses for purposes of determining the
amount recoverable hereunder.
ARTICLE XIV. ERRORS AND OMISSIONS
Errors or omissions on the part of the Reinsured shall not
invalidate the reinsurance under this Agreement, provided such errors; or
omissions are corrected promptly after discovery thereof, but the liability
of the Reinsurer under this Agreement or any exhibits or endorsements
attached thereto shall in no event exceed the limits specified herein or
therein, nor be extended to cover any risks, perils or classes of insurance
generally or specifically excluded therein.
ARTICLE XV. INSOLVENCY
In the event of the insolvency of any of the Reinsured and the
appointment of a conservator, liquidator or statutory successor, the
appropriate amount of reinsurance provided by this Agreement shall be payable
by the Reinsurer directly to such Reinsured or to its liquidator, receiver or
statutory successor on the basis of the liability of the Reinsured under the
contract or contracts reinsured. Subject to the right of offset and the
verification of coverage, the Reinsurer shall pay its share of the loss
without diminution because of the insolvency of such Reinsured. The
liquidator, receiver or statutory successor of such subsidiary shall give
written notice of the pendency of each claim against such Reinsured on a
policy or bond reinsured within a reasonable time after such claim is filed
in the insolvency proceeding. During the pendency of such claim,
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the Reinsurer may, at its own expense, investigate such claim and interpose in
the proceeding where such claim is to be adjudicated any defense or defenses
which it may deem available to such Reinsured, its liquidator or receiver or
statutory successor. Subject to court approval, any expense thus incurred by the
Reinsurer shall be chargeable against such Reinsured as part of the expense of
liquidation to the extent of such proportionate share of the benefit as shall
accrue to the Reinsured solely as a result of the defense undertaken by the
Reinsurer. The reinsurance shall be payable as set forth above except where this
Agreement specifically provides for the payment of reinsurance proceeds to
another party in the event of the insolvency of such subsidiary. The provisions
of this Article XV shall only apply to the insolvent company or companies that
are the Reinsured hereunder.
ARTICLE XVI. TERM AND TERMINATION
This Agreement shall be binding as of the date hereof and shall
remain bound until the natural expiry or prior termination of all liabilities
on the Subject Business, unless it shall have automatically expired in
accordance Article V of this Agreement.
ARTICLE XVII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to its principles of
choice of law. The provision for choice of law in this Agreement is being
made pursuant to Section 5-1401 of the General Obligations Law of the State
of New York.
ARTICLE XVIII. NOTICES
Any notice or other communication hereunder shall be in writing and
delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested, as follows:
If to the Company: BUSINESS INSURANCE GROUP
11171 Sun Center Drive
Rancho Cordova, CA 95670
Attention: Vice President Finance
If to the Reinsurer: INTER-OCEAN REINSURANCE COMPANY LTD.
12 Wesley Street, P.O. Box HM 1204
Hamilton, HM FX
Bermuda
Attention: President
or to such other place as the Reinsurer or the Reinsured may designate as to the
Reinsurer or the Reinsured, respectively, by written notice to the other.
14
<PAGE>
ARTICLE XIX. ASSIGNMENTS AND SURVIVAL
(a) ASSIGNMENTS AND DELEGATIONS. Except as otherwise provided
herein, this Agreement is not intended to confer any rights upon any person
or persons other than the parties hereto. This Agreement may not be assigned
or delegated, in whole or in part, by the Reinsurer without the prior
written consent of the Reinsured. With the prior written consent of the
Reinsurer (which shall not be unreasonably withheld), the terms, conditions,
rights and obligations under the Agreement shall be fully assignable in the
event the Reinsured cedes, sells or otherwise transfers all or part of the
reserves which are subject of the Agreement. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
(b) SURVIVAL. Notwithstanding anything herein to the contrary,
the provisions of this Agreement shall survive any direct or indirect sale or
exchange of capital stock, merger, consolidation, sale or transfer of
substantially all assets, business combination or other change in control of,
or change in the form of business conducted by, the Reinsured or the
Reinsurer.
ARTICLE XX. FEDERAL EXCISE TAX
(a) The Reinsurer agrees to allow for the purpose of paying the
Federal Excise Tax the applicable percentage of the premium payable hereon
(as imposed under Section 4371 of the Internal Revenue Code) to the extent
such premium is subject to the Federal Excise Tax.
(b) In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the return premium
payable hereon and the Reinsured or its agent is responsible for recovering
the tax from the United States Government.
ARTICLE XXI. CURRENCY
Whenever the word "Dollar" or the "$" sign appears in this
Agreement, they shall be construed to mean United States Dollars and all
transactions under this Agreement shall be in United States Dollars.
ARTICLE XXII. ACTUARIAL REVIEW CLAUSE
(a) After the Effective Date the Reinsurer shall have the right
to review the Reinsured's determination of the Aggregate Ultimate Net Losses.
If the Reinsurer does not agree with the Reinsured's determination, and if
the difference between the Reinsured's determination of Aggregate Ultimate
Net Losses and the Reinsurer's determination of Aggregate Ultimate Net Losses
is irreconcilable between the parties to this Agreement, such difference
shall be referred
15
<PAGE>
to an independent actuarial firm to be agreed upon by the parties to this
Agreement. To the extent that the parties fail to mutually agree on an
independent actuarial firm, they may agree to settle any difference by using
a panel of three actuaries, one to be chosen by each party and the third by
the two so chosen. The determinations of the three actuaries will be averaged
and the result shall be final and binding on the parties hereto. The cost of
any independent actuarial firm or firms shall be shared equally by the
Reinsurer and the Reinsured.
(b) Notwithstanding paragraph (a) above, in the event that any
regulatory authority having jurisdiction over the Reinsured requires in
writing that the Reinsured to establish reserves for any particular amount of
Aggregate Ultimate Net Losses, or adjusts the Reinsured's Aggregate Ultimate
Net Losses under an examination of the Reinsured's financial condition, the
reserves established for Aggregate Ultimate Net Losses as determined by the
regulatory authority shall be deemed by the Reinsured and Reinsurer to be the
Aggregate Ultimate Net Losses for the purposes of determining the sufficiency
of security deposits to be established by the Reinsurer and of funds withheld
from the Reinsurer under this Agreement.
ARTICLE XXIII. ARBITRATION
(a) As a condition precedent to any right of action hereunder, any
dispute arising out of this Agreement shall be submitted to the decision of a
board of arbitration composed of two arbitrators and an umpire, meeting in New
York, New York or such other place as the parties may agree.
(b) The members of the board of arbitration shall be active or
retired disinterested officials of property and casualty insurance or
reinsurance companies other than the parties or their affiliates. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an umpire
before instituting the hearing. If the respondent fails to appoint its
arbitrator within two weeks after being requested to do so by the claimant,
the latter shall also appoint the second arbitrator. If the two arbitrators
fail to agree upon the appointment of an umpire within two weeks after their
nominations, each of them shall name three, of whom the other shall decline
two and the decision shall be made by drawing lots. If either arbiter shall
fail to submit three names to the other within the allowed time, the other
may choose the third arbiter without further consultation with the arbiter
that failed to submit names.
(c) The claimant shall submit its initial statement within twenty
(20) days from appointment of the umpire. The respondent shall submit its
statement within twenty (20) days after receipt of the claimant's statement,
and the claimant may submit a reply statement within ten (10) days after
receipt of the respondent's statement.
(d) The board shall make its decision with regard to the custom
and usage of the insurance and reinsurance business. The board shall issue
its decision in writing upon evidence introduced at a hearing or by other
means of submitting evidence in which strict rules of evidence need not be
followed, but in which cross examination and rebuttal shall be allowed if
requested. The board shall make its decision within forty-five (45) days
following the
16
<PAGE>
termination of the hearings unless the parties consent to an extension. The
majority decision of the board shall be final and binding upon all parties to
the proceeding. Judgment may be entered upon the award of the board in any
court having jurisdiction thereof
(e) Each party shall bear the expense of its own arbitrator and
shall jointly and equally bear with the other party the expense of the
umpire. The remaining costs of the arbitration proceedings shall be allocated
by the board.
(f) This Article shall survive the termination of this Agreement.
ARTICLE XXIV. MISCELLANEOUS
(a) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with the Aggregate Excess of Loss Retrocession Agreement and the
Assignment Agreement of even date herewith, constitute the entire agreement
between the parties pertaining to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations and discussions, whether
oral or written, between the parties hereto. No supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
(b) COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
(c) HEADINGS. The headings of the Articles and the paragraphs
herein are inserted for convenience of reference only, and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
(d) SEVERABILITY. In the event any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of
this Agreement shall not be affected thereby and each term of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
Further, any change to any term or provision of this Agreement required by
any insurance regulator having jurisdiction over any party shall be
incorporated into this Agreement and shall not invalidate the Agreement.
17
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on their behalf by their respective officers hereunto duly
authorized as of the date first written above.
INTER-OCEAN REINSURANCE COMPANY LTD.
By: /s/ Michael P. Sullivan
---------------------------------------------
Name: Michael P. Sullivan
------------------------------------------
Title: Vice President
------------------------------------------
BUSINESS INSURANCE GROUP, INC.,
On behalf of each of the following subsidiaries:
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
By: /s/ Maurice Costa
---------------------------------------------
Name: Maurice Costa
------------------------------------------
Title: President
------------------------------------------
18
<PAGE>
ATTACHMENT A
"AGGREGATE RETENTION" shall mean Aggregate Ultimate Net Losses equal to
$495,000,000 as the sum of the Reinsured's carried loss and ALAE reserves
(including in each case IBNR) as of December 31, 1997, plus Aggregate
Ultimate Net Losses equal to 75.70% multiplied by Subject Net Earned Premium
for the period beginning January 1, 1998 and ending at the Effective Date of
the Agreement, less paid losses and ALAE for Subject Business for all
Accident Years through the Effective Date. The Aggregate Retention shall be
determined in accordance with Statutory Accounting Principles (SAP) and
applied on a basis consistent with past Reinsured practices.
19
<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE -
LIABILITY - REINSURANCE - NO. 1B
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers
or reinsurer formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (now, renewal and
replacement) of the classes specified in Clause II of this paragraph (2) from
the time specified in Clause III in this paragraph (2) shall be deemed to
include the following provision (specified as the Limited Exclusion
Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage,
to ( INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
( bodily injury or property damage
with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada,
or would be an insured under any such policy for its termination
upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the Limited
Exclusion Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage, to ( INJURY SICKNESS, DISEASE, DEATH
( OR DESTRUCTION
( Bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
<PAGE>
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is required
to maintain financial protection pursuant to the Atomic Energy
Act of 1954, or any law amendatory thereof, or (2) the insured
is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of
America, or any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
to ( IMMEDIATE MEDICAL OR SURGICAL to expenses incurred with
( RELIEF, respect first aid,
to ( BODILY INJURY, SICKNESS, resulting from the hazardous
( DISEASE OR DEATH properties of bodily injury,
nuclear material and arising out of the operation of nuclear facility
by any person or organization.
III. Under any Liability Coverage, to ( INJURY, SICKNESS, DISEASE, DEATH
( OR DESTRUCTION bodily injury or
( property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by,
or operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
(bodily injury or property damage
arises out of the furnishing by an insured of services,
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United
States of America, its territories, or possessions or Canada,
this exclusion (c) applies only to
(INJURY TO OR DESTRUCTION OF PROPERTY AT SUCH NUCLEAR FACILITY.
(property damage to such nuclear facility and any property
(thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIALS" means source material, special nuclear
material or byproduct material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," "BYPRODUCT MATERIAL" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing byproduct material other than
the tailings or wastes produced by the extraction or concentration
of uranium or thorium from any ore processed primarily for its source
material content and (2) resulting from the operation by any person or
organization of any nuclear facility included within the definition of
nuclear facility under paragraph (a) or (b) thereof; "NUCLEAR
FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste,
<PAGE>
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used
to sustain nuclear fission in a self-supporting chain reaction or
to contain a critical mass of fissionable material;
WITH RESPECT TO INJURY TO OR DESTRUCTION OF PROPERTY, THE WORD
"INJURY" OR "DESTRUCTION" INCLUDES ALL FORMS OF RADIOACTIVE
CONTAMINATION OF PROPERTY "Property damage" includes all forms of
radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on or
after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision
by the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Reassured in Canada
and that with respect to such policies this Clause shall be deemed to include
the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
- -------------------------------------------------------------------------------
* NOTE: The words printed in italics in the Limited Exclusion Provision
and in the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE - REINSURANCE - NO. 2
(1) This Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of covering
Atomic or Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause, this Reinsurance does not cover any loss or liability accruing
to the Reassured, directly or indirectly and whether as Insurer or Reinsurer,
from any insurance against Physical Damage (including business interruption
or consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on the
site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material,"
and for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability
by radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance
on property which is on the same site as a nuclear reactor power
plant or other nuclear installation and which normally would be
insured therewith except that this paragraph (3) shall not operate:
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
(5) It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear exposure is
not considered by the Reassured to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954 or by any law amendatory thereof.
(7) Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
NOTE.--Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that:
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions of
this Clause until expiry date or 31st December 1960 whichever first
occurs whereupon all the provisions of this Clause shall apply,
(b) With respect to any risk located in Canada policies issued by
the Reassured on or before 31st December 1958 shall be free from
the application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
<PAGE>
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of
insurers formed for the purpose of covering nuclear energy risks or
as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operations of Nuclear Incident
Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 -
Boiler and Machinery and paragraph (1) of this clause, it is
understood and agreed that for all purposes as respects the
reinsurance assumed by the Reinsurer from the Reassured, all original
insurance policies or contracts of the Reassured (new, renewal and
replacement) shall be deemed to include the applicable existing
Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the
time and any subsequent revisions thereto as agreed upon and approved
by the Insurance Industry and/or a qualified Advisory or Rating
Bureau.
<PAGE>
Reinsurance Assignment Agreement
REINSURANCE ASSIGNMENT AGREEMENT
REINSURANCE ASSIGNMENT AGREEMENT, dated as of September 3, 1998 (this
"Assignment Agreement") between Inter-Ocean Reinsurance Company Ltd., a
Bermuda insurance company (the "Assignor"), and BUSINESS INSURANCE GROUP,
INC., ACTING SOLELY on behalf of its subsidiaries CALIFORNIA COMPENSATION
INSURANCE COMPANY, BUSINESS INSURANCE COMPANY, COMBINED BENEFITS INSURANCE
COMPANY, COMMERCIAL COMPENSATION INSURANCE COMPANY, (collectively the
"Assignee").
WHEREAS the Assignee and the Assignor are parties to an Aggregate Excess
of Loss Reinsurance Agreement (the "Original Contract"), dated as of
September 3, 1998, a copy of which is attached hereto as Appendix A, whereby
the Assignor has undertaken to make certain payments to the Assignee as
described in the Original Contract;
WHEREAS, the Assignor and American Re-Insurance Company ("American Re")
have entered into a retrocessional contract of reinsurance (the "Retrocession
Agreement"), a copy of which is attached hereto as Appendix B, whereby
American Re has undertaken to indemnify, in whole or in part, the Assignor
for amounts due by the Assignor to the Assignee pursuant to the Original
Contract;
WHEREAS, to secure the payment of all obligations of Assignor now or
hereafter existing under the Original Contract, the Assignor wishes to assign
to the Assignee the Assignor's rights of recovery from American Re under the
Retrocession Agreement dated the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Assignor and the Assignee agree as follows:
1. ASSIGNMENT. The Assignor hereby assigns to the Assignee all of the
Assignor's right, title and interest in and to any and all payments by
American Re under the Retrocession Agreement (the "Payments") as security for
the payment of all obligations of Assignor now or hereafter existing under
the Original Contract (the "Assignment"). As of the date hereof, the
Assignment vests and thereafter at all times will vest in the Assignee full
right and title in and to any of the Payments by American Re purported to be
conveyed hereby and such conveyance of the right, title and interest in and
to such Payments will constitute a valid assignment of such Payments
enforceable against the Assignor and all successors, assigns and creditors of
the Assignor.
2. ACCEPTANCE. Assignee hereby accepts the Assignment.
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<PAGE>
Reinsurance Assignment Agreement
3. APPOINTMENT OF BUSINESS INSURANCE GROUP, INC. AS AGENT. BUSINESS
INSURANCE GROUP, INC. is appointed agent to act on behalf of each and every
company herein collectively referred to as "Assignee" and the Assignor and
American Re are entitled to rely upon the instructions of BUSINESS INSURANCE
GROUP, INC. pertaining to all matters governed by this Assignment Agreement.
4. ASSIGNOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Assignor shall remain liable under the Original
Contract to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Assignment Agreement had
not been executed, (b) the exercise by the Assignee of any of the rights
hereunder shall not release the Assignor from any of its duties or
obligations under the Original Contract, and (c) the Assignee shall not have
any obligation or liability under the Original Contract by reason of this
Assignment Agreement, nor shall the Assignee be obligated to perform any of
the obligations or duties of the Assignor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
5. REASSIGNMENT. All of the Assignor's right, title and interest in
and to the Payments conveyed hereby to the Assignee may be reconveyed by the
Assignee upon written notice of assignment to the Assignor and American Re.
6. APPOINTMENT. The Assignee and its agents and representatives are
hereby irrevocably constituted and designated as the Assignor's
attorney-in-fact, which irrevocable power of attorney, coupled with an
interest, (a) to endorse or sign any of the Assignor's name to remittances,
invoices, assignments, checks, drafts, notices or other instruments in
respect of the Payments, (b) to notify American Re to make the Payments
directly to the Assignee pursuant to this Assignment Agreement; provided
that, Assignee shall simultaneously notify Assignor of its notification to
American Re to make payment hereunder, (c) to bring suit and to settle or
compromise such Payments as the Assignee may, in its sole discretion, deem
appropriate, and (d) to initiate and prosecute or defend, as the case maybe,
arbitration proceedings under the Retrocession Agreement.
7. SATISFACTION OF OBLIGATIONS. American Re is directed to make all
payments due under the Retrocession Agreement to BUSINESS INSURANCE GROUP,
INC. as agent for the Assignee. Payments to BUSINESS INSURANCE GROUP, INC.
pursuant this Assignment Agreement constitute appropriate payment to each and
every company herein collectively referred to as "Assignee".
8. NOTICE TO AMERICAN RE. By executing the "Acknowledgment and
Consent" on the signature page hereof, American Re accepts notification of
this Assignment Agreement and consents to the terms and conditions hereof.
9. JURISDICTION. Without limiting Section 10 hereof, in relation to any
legal action or proceedings arising out of or in connection with this
Assignment Agreement each party irrevocably submits to the jurisdiction of
the courts of the State of New York and the United
2 of 6
<PAGE>
Reinsurance Assignment Agreement
States District Court located in the Borough of Manhattan in New York City
and waives any objection to proceedings in any such court on the grounds of
venue or on the grounds that the proceedings have been brought in an
inconvenient forum. The provision for choice of forum in this Assignment
Agreement is being made pursuant to Section 5-1402 of the General Obligations
Law of the State of New York.
10. ARBITRATION CLAUSE. Any and all disputes and disagreements arising
out of or relating to this Agreement shall be submitted for resolution to an
independent arbitrator, mutually agreed to by the Assignee and the Assignor,
upon the written request of the Assignee or the Assignor. If the parties are
unable to mutually agree upon an arbitrator within ten (10) calendar days
after delivery of a written request for arbitration, the Assignee and the
Assignor shall each nominate three individuals of whom the other party shall
decline two of the three individuals nominated by the other, and the list of
the remaining two nominees shall be submitted to a court of competent
jurisdiction and the court shall select the third arbitrator from among the
names submitted. If a party fails to nominate three individuals within thirty
(30) calendar days after being requested to do so, the other party shall also
appoint the second arbitrator and the two arbitrators shall select the third
arbitrator. If the two arbitrators fail to agree upon the appointment of a
third arbitrator within thirty (30) calendar days after their nominations,
each of them shall name three (3), of whom the other shall decline two (2)
and the decision shall be made by drawing lots.
The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies who have never
been affiliated with the Assignor or Assignee, respectively. SUCH ARBITRATION
PROCEEDING SHALL BE HELD IN NEW YORK, NEW YORK UNLESS OTHERWISE AGREED BY THE
PARTIES HERETO.
Each party shall submit its case to the arbitrator(s) within thirty (30)
calendar days after the date of appointment of the arbitrator(s). The
arbitrator(s) shall make its determination with regard to the custom and
usage of the insurance and reinsurance business and render a written decision
solely as to the issue presented in the notice of arbitration within sixty
(60) calendar days after such submission. The majority decision of the
arbitrators shall be final and binding in all respects upon all parties
hereto. Judgment upon any award may only be entered in a Federal court of
competent jurisdiction located in the City, County and State of New York;
PROVIDED, HOWEVER, that if such judgment cannot be entered in such a Federal
court expeditiously, such judgment only then may be entered in a state court
of competent jurisdiction located in the City, County and State of New York.
Arbitration hereunder shall take place in New York unless the Assignee and
the Assignor agree otherwise. Except as otherwise provided herein, the
Assignee and the Assignor shall jointly and equally bear the costs, fees,
disbursements and other expenses of the arbitrator.
It is agreed that the jurisdiction of the arbitrators to make or render any
decision or award shall be limited by the limit of liability expressly set
forth in the Original Contract and in the Retrocession Agreement, and that
the arbitrators shall have no jurisdiction to make any decision or render any
award exceeding such expressly stated limits of liability, nor do they have
the
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jurisdiction to authorize any punitive, exemplary or consequential damage awards
between the parties hereto.
11. COUNTERPARTS. This Assignment Agreement may be executed in
counterpart, each of which shall be an original, but both of which shall
constitute one instrument.
12. OTHER AGREEMENTS. Assignor and Assignee, on behalf of themselves and
their respective heirs, representatives, successors and assigns shall execute,
acknowledge or verify, and deliver any and all agreements, documents,
instruments, reports or filings, and take any and all other actions, which from
time to time may be reasonably requested by any other party to this Assignment
Agreement to carry out the purposes and intent of this Assignment Agreement.
13. ENTIRE AGREEMENT. This Assignment Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, written or oral, among the
parties with respect to the matters which are the subject hereof.
14. AMENDMENT. Any term of this Assignment Agreement may be amended or
modified in whole or in part and the observance of any term of this Assignment
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by an instrument in writing and signed by
the party against whom such amendment or waiver is sought to be enforced.
15. RETROCESSION AGREEMENT AND ORIGINAL CONTRACT. The Retrocession
Agreement shall not be amended, modified or terminated by the Assignor without
the prior written consent of the Assignee. Notwithstanding Section 6 of this
Assignment Agreement, the Assignee agrees not to consent to the amendment,
modification or termination of the Original Contract without the prior written
consent of the Assignor.
16. THIRD PARTIES. Except as otherwise expressly provided herein, the
terms and conditions of this Assignment Agreement shall inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns. Nothing in the Assignment Agreement, express or implied, is intended to
confer upon any person or entity other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Assignment Agreement, except as may be
expressly provided in this Assignment Agreement.
17. INVALIDITY. If any provisions of this Assignment Agreement as applied
to any party or to any circumstance shall be adjudged by a court to be invalid
or unenforceable, the same shall in no way affect any other provision of this
Assignment Agreement, the application of such provision in any other
circumstances or the validity or enforceability of this Assignment Agreement.
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18. CONFIDENTIALITY. Each party agrees to keep the terms of this
Assignment Agreement confidential and not to divulge any of the same to any
third party; provided that nothing herein shall limit the disclosure of any such
information, (a) to the extent required by statute, rule, regulation, financial
reporting standards applicable to either party or by judicial process, (b) to
the extent requested by any regulatory agency having jurisdiction over either
party or (c) to the extent deemed appropriate by either party in any reports
required to be filed under securities or banking laws.
20. TERMINATION. This Assignment Agreement shall terminate upon the
termination of all obligations of Assignor under the Original Contract.
21. FILINGS. The Assignor hereby consents to any filings or other steps
reasonably taken to implement or perfect any charge or security interest of the
Assignee to effectuate and secure this Assignment Agreement.
[THIS SPACE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be duly executed as of the date first above written.
INTER-OCEAN REINSURANCE COMPANY LTD.
By: /s/ Michael P. Sullivan
------------------------------------
Name: Michael P. Sullivan
----------------------------------
Title: Vice President
---------------------------------
BUSINESS INSURANCE GROUP, INC.
on behalf of its subsidiaries
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
By: /s/ Maurice Costa
------------------------------------
Name: Maurice Costa
----------------------------------
Title: President
---------------------------------
ACKNOWLEDGMENT AND CONSENT
AMERICAN RE-INSURANCE COMPANY
By: /s/ Jeffrey Smith
------------------------------------
Name: Jeffrey Smith
----------------------------------
Title: Senior Vice President
---------------------------------
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To the Board of Directors of
Superior National Insurance Group, Inc.:
We consent to the incorporation by reference in this Form 8-K of Superior
National Insurance Group, Inc. of our report, dated June 19, 1998 (August 24,
1998 as to Note 16), on our audit of the combined financial statements of the
Insurance Operations of Business Insurance Group, Inc. appearing in Amendment
No. 3 to Registration Statement No. 333-58579 on Form S-3.
/s/ Deloitte & Touche LLP
San Francisco, California
December 23, 1998
<PAGE>
Superior National Insurance Group, Inc. Announces Completion of
Business Insurance Group, Inc. Acquisition
CALABASAS, Calif.--Dec. 10, 1998--Superior National Group, Inc.
(Nasdaq:SNTL) announced the completion of its previously announced
acquisition of Business Insurance Group, Inc. from Foundation Health Systems,
Inc. (NYSE:FHS) for $285 million. The sale includes California Compensation
Insurance Company, California's largest private workers' compensation
insurance carrier, Business Insurance Company, which offers workers'
compensation coverage in 12 states outside of California, and Combined
Benefits Insurance Company, which is licensed in California for both workers'
compensation and accident and health insurance. SNTL will complete the
acquisition of New York-domiciled Commercial Compensation Insurance Company
upon receipt of New York approval, which is expected shortly. In connection
with acquisition of Commercial Compensation Insurance Company SNTL has placed
approximately $6.8 million in an escrow account, which will be released to
FHS upon receipt of regulatory approval and completion of the sale.
As previously announced, SNTL plans to transfer the business and employees
of Business Insurance Company ("BICO") to an affiliate, and then sell BICO to
Zurich Centre Group, LLC ("Zurich"), a subsidiary of the Zurich Insurance Group,
upon receipt of required regulatory approval. The sale of BICO to Zurich is
expected to occur in the near future.
William L. Gentz, SNTL President and Chief Executive Officer, stated,
"The combined Superior National and Business Insurance Group operations are
now a reality, something both parties have worked hard to achieve over the
past seven months. Our new organization is the largest private workers'
compensation writer in California, and the ninth largest writer of workers'
compensation insurance in the nation. The assets of our new group are
expected to exceed $1.6 billion, written premiums during 1999 should be over
$750 million, and policyholders' surplus exceeds $360 million. Superior
National is now responsible for the workers' compensation insurance needs of
nearly 55,000 policyholders, and for the care, safety, and health of more
than one million working people."
Prior to the acquisition of Business Insurance Group, Superior National
Insurance Group was the parent company of Superior National Insurance Company
and Superior Pacific Casualty Company, specialty workers' compensation
insurers operating in California through branch offices located in
Sacramento, Pleasanton, Fresno, Calabasas, Woodland Hills, Irvine, San Diego,
and in Phoenix, Arizona. The Superior National group of companies now also
includes California Compensation Insurance Company, founded in 1932 and the
largest private sector workers' compensation insurance company in California,
and Combined Benefits Insurance Company, a specialist in 24-hour cover
workers' compensation and accident and health insurance products. Upon
receipt of New York regulatory approval, Commercial Compensation Insurance
Company will be acquired from FHS as well, enhancing SNTL's ability to
underwrite workers' compensation insurance across the nation.
This release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934.
--30--
CONTACT: Superior National Insurance Group, Inc., Calabasas
J. Chris Seaman, 828/878-2240
<PAGE>
Superior National Insurance Group, Inc. Announces
Completion of Sale of Business Insurance Company to Centre
Solutions and Completion of Acquisition of
Commercial Compensation Insurance Company
CALABASAS, Calif. --Dec. 18, 1998--Superior National Insurance Group,
Inc. (Nasdaq:SNTL) announced the completion of the previously announced sale of
Business Insurance Company to Centre Solutions Holdings (Delaware) Limited, and
completion of the previously announced acquisition of Commercial Compensation
Insurance Company ("CCIC") from Foundation Health Corporation. SNTL received
regulatory approval for the CCIC acquisition on December 16, 1998, completing
SNTL's acquisition of Business Insurance Group, Inc. ("BIG") and BIG's insurance
subsidiaries.
Prior to the acquisition of Business Insurance Group on December 10, 1998,
Superior National Insurance Group was the parent company of Superior National
Insurance Company and Superior Pacific Casualty Company, specialty workers'
compensation insurers operating in California through branch offices located in
Sacramento, Pleasanton, Fresno, Calabasas, Woodland Hills, Irvine, San Diego,
and in Phoenix, Arizona. The Superior National group of companies now also
includes California Compensation Insurance Company, founded in 1932 and the
largest private sector workers' compensation insurance company in California,
Combined Benefits Insurance Company, a specialist in 24-hour cover workers'
compensation and accident and health insurance products, and Commercial
Compensation Insurance Company, a widely-licensed insurance company that will
replace BICO as Superior National's vehicle for underwriting workers'
compensation insurance outside of California.
--30--
CONTACT: Superior National Insurance Group Inc., Calabasas
J. Chris Seaman, Chief Financial Officer, 818/878-2240
