- - ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-18324
CII Financial, Inc.
(Exact name of registrant as specified in charter)
California 95-4188244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5627 Gibraltar Drive Pleasanton, California 94588
(Address of principal executive offices) (Zip Code)
(510) 416-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of May 1, 1996 there were 100 shares of common stock outstanding.
- - ------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CII FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------------- ---------
ASSETS:
Fixed maturities:
Held to maturity, at amortized cost
<S> <C> <C>
(fair value $60,453 and $63,254) ............................ $ 60,503 $ 62,380
Available for sale, at fair value
(amortized cost $146,747 and $147,633)....................... 148,121 155,404
Equity securities, at fair value (cost $4,482 and $2,722)...... 4,432 2,381
Short-term investments, at cost which
approximates fair value ..................................... 529 548
Relocation mortgage loans to employees......................... 5,161 5,478
-------- --------
Total investments ........................................... 218,746 226,191
Cash and cash equivalents ........................................ 29,376 18,205
Reinsurance recoverables ......................................... 24,866 25,943
Premiums receivable, less allowance
of $1,381 and $1,381 ........................................ 10,927 11,672
Deferred policy acquisition costs ................................ 2,375 1,928
Deferred income tax .............................................. 4,154 4,154
Property and equipment, less accumulated
depreciation of $3,083 and $2,930 ............................. 3,285 3,376
Other assets ..................................................... 6,710 11,682
-------- --------
TOTAL ASSETS .................................................. $300,439 $303,151
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY:
LIABILITIES:
Reserve for losses and loss adjustment expenses .................. $181,413 $180,518
Unearned premiums ................................................ 12,046 9,282
Convertible subordinated debentures .............................. 56,800 56,800
Other liabilities ................................................ 11,659 14,377
------ ------
TOTAL LIABILITIES ............................................. 261,918 260,977
------- -------
SHAREHOLDER'S EQUITY:
Common stock:
No par value; authorized 1,000;
issued and outstanding 100 .................................... 3,604 3,604
Additional paid-in capital........................................ 58,629 58,629
Unrealized gains on securities, net of deferred taxes ............ 2,590 9,142
Accumulated deficit .............................................. (26,302) (29,201)
------- -------
TOTAL SHAREHOLDER'S EQUITY .................................... 38,521 42,174
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .................... $300,439 $303,151
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
CII FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
1996 1995
---------- -------
REVENUES:
<S> <C> <C>
Net earned premiums .............................................. $27,613 $20,284
Investment income and other revenues ............................. 5,241 4,359
------- -------
Total revenues ................................................ 32,854 24,643
------- -------
COSTS AND EXPENSES:
Net loss and loss adjustment expenses ............................ 19,508 11,852
Policy acquisition, general and administrative ................... 9,383 9,169
Interest expense ................................................. 1,065 1,230
------- -------
Total costs and expenses ...................................... 29,956 22,251
------- -------
INCOME BEFORE TAXES AND
DISCONTINUED OPERATIONS ....................................... 2,898 2,392
Federal income tax ............................................... - -
------- -------
INCOME BEFORE DISCONTINUED OPERATIONS ............................ 2,898 2,392
Net operating loss from discontinued operations .................. - 964
-------- -------
NET INCOME ....................................................... $ 2,898 $ 1,428
======= =======
EARNINGS PER SHARE:
Income before discontinued operations:
Primary ....................................................... $28,980.00 $ .33
========== =====
Fully diluted ................................................. $28,980.00 $ .32
========== =====
Discontinued operations:
Primary ....................................................... - ($ .13)
========== ======
Fully diluted ................................................. - ($ .13)
========== ======
Net income:
Primary ....................................................... $28,980.00 $ .20
========== =====
Fully diluted ................................................. $28,980.00 $ .19
========== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
CII FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
1996 1995
---------- -------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES: .................... $ 6,274 $ (3,421)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held to maturity investments ...................... (22,969) (450)
Purchase of available for sale investments .................... (84,291) (13,723)
Disposal of held to maturity investments
upon maturity or call........................................ 24,669 473
Disposal of available for sale investments .................... 88,597 3,150
Purchase of equity investments ................................ (3,785) -
Decrease (increase) in short-term investments ................. 19 (2,411)
Financed premiums receivable ................................. - 2,463
Mortgage loan receipts ........................................ 317 54
Purchase of property and equipment ............................ (62) (247)
------- -------
Net cash provided (used) by investing activities ............ 2,495 (10,691)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock options exercised ..................... - 4
Net transfers from affiliates ................................. 2,402 -
Other ......................................................... - 1
------- -------
Net cash provided by financing activities ................... 2,402 5
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .............................................. 11,171 (14,107)
Cash and cash equivalents, beginning of period ................ 18,205 20,818
------ ------
Cash and cash equivalents, end of period ...................... $ 29,376 $ 6,711
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
CII FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements include the consolidated
accounts of CII Financial, Inc. ("CII", a holding company, together with its
subsidiaries collectively referred to as the "Company"). All material
intercompany balances and transactions have been eliminated. These statements
have been prepared in conformity with the generally accepted accounting
principles used in preparing the Company's annual audited consolidated
financial statements, but do not contain all of the information and
disclosures that would be required in a complete set of audited financial
statements. They should, therefore, be read in conjunction with the Company's
audited consolidated financial statements and notes thereto for the years
ended December 31, 1995 and 1994. In the opinion of management, all
adjustments, consisting only of recurring adjustments necessary for a fair
statement of the results of operations for the three months ended March 31,
1996 have been made.
2. Certain amounts in the accompanying Condensed Consolidated Financial
Statements for prior years have been reclassified to conform to those
classifications used in 1996.
5
<PAGE>
PART I - FINANCIAL INFORMATION
CII FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
The following narrative analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes thereto. Any forward looking information contained in this
narrative analysis of the results of operations should be considered in
connection with certain cautionary statements contained in a Current Report on
Form 8-K dated March 28, 1996, of CII Financial, Inc. which is incorporated
herein and made a part hereof. Such cautionary statements are made pursuant to
the "safe harbor" provision of the Private Securities Litigation Reform Act of
1995 and identify important risk factors that could cause the Company's actual
results to differ from those expressed in any projected, estimated or
forward-looking statements relating to the Company.
The profitability of CII Financial, Inc. and its subsidiaries
(collectively, the "Company") is affected by many factors, including, among
others, the severity and frequency of claims, state regulation of premium rates
and benefits payable for injuries and losses, general business conditions, and
competition. The historical information presented may not necessarily be
comparable to, or indicative of, future results of operations of the Company.
Current and prior financial information related to InteLock Technologies, which
was effectively disposed of in June 1996, is now being shown as a discontinued
operation. InteLock Technologies was an 80% owned subsidiary engaged in the
electronic door lock manufacturing business.
Total revenues of the Company for the three months ended March 31, 1996
increased by $8,211,000 or 33.3% to $32,854,000 compared to $24,643,000 for the
three months ended March 31, 1995. The increase in revenues was primarily due to
an increase in net earned premiums of $7,329,000 which was a result of an
increase in business written. Investment income and other revenues increased by
$882,000 due to an increase in the investment yield along with some net
investment gains and were partially offset by a reduction in other non-core
insurance operations.
Net earned premiums increased 36.1% to $27,613,000 for the three months
ended March 31, 1996, compared to $20,284,000 for the corresponding period of
the preceding year. The increase in net earned premiums was all due to an
increase in business written in California as business written in other states
was essentially unchanged. While price competition continues to remain high,
direct written premiums in California for the three months ended March 31, 1996
increased 47.9% to $27,703,000 compared to $18,737,000 for the comparable prior
year period. Direct written premiums in Colorado and other states for the three
months ended March 31, 1996 were $3,852,000 compared to $3,882,000 for the
comparable prior year period.
For the three months ended March 31, 1996, premiums in force have
increased by $13,576,000 compared to an increase of $1,212,000 for the
corresponding period of the preceding year. Premiums in force at March 31, 1996
were $117,347,000 compared to $95,303,000 for the prior preceding period. The
number of policies in force also increased in the three months ended March 31,
1996 by 1,094 or 12.3% compared to an increase of 210 for the comparable prior
year period.
The Company is in the process of establishing a service office in the
State of Texas and anticipates that it will commence writing workers'
compensation there in the second quarter of this year. The Company is also
investigating writing workers' compensation in other states.
6
<PAGE>
CII FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS (Continued)
Investment income and other revenues increased 20.2% to $5,241,000 for
the three months ended March 31, 1996 from $4,359,000 for the corresponding
prior year period. The increase was primarily due to an increase in net realized
gains and partially to an increase in net investment income due to higher
interest rates. The average yield in the Company's investment portfolio,
excluding realized and unrealized gains, was 7.0% for the three months ended
March 31, 1996 compared to an average yield of 6.4% for the comparable prior
year period. The increase in the average yield was aided by a partial
restructuring of the investment portfolio in the fourth quarter of 1995. Further
restructuring of the investment portfolio in the first quarter of 1996 resulted
in an increase in net realized gains.
The following table shows a comparison of the insurance subsidiaries'
GAAP operating ratios for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995 Difference
----- ----- ----------
<S> <C> <C> <C>
Loss and Loss Adjustment Expenses............... 70.65% 58.43% 12.22%
Underwriting Expenses........................... 33.68 47.30 (13.62)
------ ------ -----
Total Combined............................. 104.33% 105.73% ( 1.40)%
====== ====== ======
</TABLE>
The increase in the loss and loss adjustment expense ratio is primarily
attributable to a higher loss ratio for the current accident year. The higher
loss ratio was impacted by the effects of the reduction in premium rates from
the competitive open rating environment. The incurred losses for the current
accident year were partially offset by favorable loss development on prior
accident years totaling $3,991,000 compared to favorable loss development of
$4,450,000 for the comparable prior year period. The loss and loss adjustment
expense ratio for the three months ended March 31, 1996 reflects the Company's
current projection of the ultimate costs of claims occurring in the current as
well as prior accident years and is within the range of reserves recommended by
the Company's independent consulting actuary.
The decrease in the underwriting expense ratio was principally due to
higher earned premiums. The commission expense ratio (including allowances to
agents) for the three months ended March 31, 1996 decreased 2.9 percentage
points to 12.3% compared to the comparable prior year period. The decrease in
the commission ratio was due to the elimination of higher commission marketing
plans in place prior to the open rating environment.
For the three months ended March 31, 1996 and 1995, there was no net
tax provision because of tax exempt interest income, utilization of loss
carryforwards and other tax credits. The deferred tax assets for the net loss
carryforwards and other temporary differences have been evaluated to determine
its probability of being realized in the future. Such evaluation considered,
among other factors, the probability of future profitability and the
establishment and reversal of permanent and temporary differences. As a result,
a valuation allowance has been established for the majority of the deferred tax
assets.
The Company had net income for the three months ended March 31, 1996 of
$2,898,000 compared to net income of $1,428,000 for the corresponding period in
the prior year.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This item is not applicable to this filing.
PART II - OTHER INFORMATION
CII FINANCIAL, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
This item is not applicable to this filing
Item 3. Defaults Upon Senior Securities
This item is not applicable to this filing
Item 4. Submission of Matters to a Vote of Security Holders
This item is not applicable to this filing
Item 5. Other Information
None
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Pledge Agreement between CII Financial, Inc., a
California corporation, in favor of Bank of America
National Trust and Savings Association, as agent
(together with any successor(s) thereto in such
capacity)
(10.2) Pledge Agreement between California Indemnity Insurance
Company, a California corporation, in favor of Bank of
America National Trust and Savings Association, as
agent (together with any successor(s) thereto in such
capacity)
(27) Financial Data Schedule
(b) Reports on Form 8-K
On February 14, 1996, the Company filed a Report on
Form 8-K regarding a change in certifying accountants.
On March 5, 1996, the Company filed a Report on Form
8-K regarding a notice sent to registered holders to
delist the 7 1/2% convertible subordinated Debentures.
On March 28, 1996, the Company filed a Report on Form
8-K regarding the disclosure of certain cautionary
statements pursuant to the "safe harbor" provision of
the Private Securities Litigation Reform Act of 1995.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CII FINANCIAL, INC.
May 14, 1996 /s/ Kathleen M. Marlon
Date Kathleen M. Marlon
Chief Executive Officer
May 14, 1996 /s/ John F. Okita
Date John F. Okita
Chief Financial Officer
10
<PAGE>
EXHIBIT 10.1
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of April 11,
1996, made by CII FINANCIAL, INC., a California corporation (the "Pledgor"), in
favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent
(together with any successor(s) thereto in such capacity, the "Agent") for each
of the Lender Parties (as defined below).
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among Sierra Health Services,
Inc., a Nevada corporation (the "Company"), the several financial institutions
as are, or may from time to time become, parties thereto (individually a
"Lender" and collectively the "Lenders") and the Agent, the Lenders have
extended Commitments to make Loans to the Company; and
WHEREAS, as a condition precedent to the making of the initial Loans
under the Credit Agreement, the Pledgor is required to execute and deliver this
Pledge Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery
and performance of this Pledge Agreement; and
WHEREAS, the Pledgor is a direct wholly-owned subsidiary of the Company
and it is in the best interests of the Pledgor to execute this Pledge Agreement
inasmuch as the Pledgor will derive substantial direct and indirect benefits
from the Loans made from time to time to the Company by the Lenders pursuant to
the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders to make Loans to the
Company pursuant to the Credit Agreement, the Pledgor agrees, for the benefit of
each Lender Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Company" is defined in the first recital.
"Credit Agreement" is defined in the first recital.
<PAGE>
"Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.
"Lender" is defined in the first recital.
"Lender Party" means, as the context may require, any Lender or the
Agent and each of its respective successors, transferees and assigns.
"Lenders" is defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Property" means all Pledged Shares and all other pledged
shares of capital stock, all other securities, all assignments of any amounts
due or to become due, all other instruments which are now being delivered by the
Pledgor to the Agent or may from time to time hereafter be delivered by the
Pledgor to the Agent for the purpose of pledge under this Pledge Agreement or
any other Loan Document, and all proceeds of any of the foregoing.
"Pledged Shares" means, collectively, all shares of capital stock of
each now existing or hereafter created or acquired Subsidiary of the Company
(but excluding, subject to Section 8.16 of the Credit Agreement, Excluded
Subsidiaries), including, without limitations, the shares of capital stock
identified in Attachment 1 hereto which are delivered by the Pledgor to the
Agent as Pledged Property hereunder.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"U.C.C." means the Uniform Commercial Code as in effect in the
State of California.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined
herein or the context otherwise requires, terms for which meanings are
provided in the U.C.C. are used in this Pledge Agreement, including
its preamble and recitals, with such meanings.
-2-
<PAGE>
ARTICLE II
PLEDGE
SECTION 2.1. Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, mortgages and delivers to the Agent, for its benefit and the
ratable benefit of each of the Lender Parties, and hereby grants to the Agent,
for its benefit and the ratable benefit of the Lender Parties, a continuing
security interest in, all of the following property (the "Collateral"):
(a) all Pledged Shares, including without limitation those
identified in Attachment 1 hereto;
(b) all other Pledged Property, whether now or hereafter
delivered to the Agent in connection with this Pledge Agreement;
(c) all Dividends, Distributions, interest, and other
payments and rights with respect to any Pledged Property; and
(d) all proceeds of any of the foregoing.
SECTION 2.2. Security for Obligations. This Pledge Agreement secures
the payment in full of all Obligations of the Company and/or any Pledgor
Subsidiary now or hereafter existing under the Credit Agreement, the Notes and
each other Loan Document to which the Company and/or any Pledgor Subsidiary is
or may become a party, whether for principal, interest, costs, fees, expenses,
or otherwise, (all such obligations of the Company and/or any Pledgor Subsidiary
being the "Secured Obligations").
SECTION 2.3. Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Collateral, including all Pledged
Shares, shall be delivered to and held by or on behalf of the Agent pursuant
hereto, shall be in suitable form for transfer by delivery, and shall be
accompanied by all necessary instruments of transfer or assignment, duly
executed in blank.
SECTION 2.4. Dividends on Pledged Shares. In the event that any
Dividend is to be paid on any Pledged Share during the continuation of an Event
of Default, then any such Dividend or payment shall be paid directly to the
Agent.
SECTION 2.5. Continuing Security Interest; Transfer of Note.
This Pledge Agreement shall create a continuing security interest in
the Collateral and shall
(a) remain in full force and effect until payment in full
of all Secured Obligations and the termination of all
Commitments,
(b) be binding upon the Pledgor and its successors,
transferees and assigns, and
(c) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each other Lender Party.
-3-
<PAGE>
Without limiting the foregoing clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any Note or Loan held by it to any other Person
or entity in accordance with the provisions of Section 11.08 of the Credit
Agreement, and such other Person or entity shall thereupon become vested with
all the rights and benefits in respect thereof granted to such Lender under any
Loan Document (including this Pledge Agreement) or otherwise, subject, however,
to any contrary provisions in such assignment or transfer, and to the provisions
of Section 11.08 of the Credit Agreement. Upon the payment in full of all
Secured Obligations and the termination of all Commitments, the security
interest granted herein shall terminate and all rights to the Collateral shall
revert to the Pledgor. Upon any such termination, the Agent will, at the
Pledgor's sole expense, deliver to the Pledgor, without any representations,
warranties or recourse of any kind whatsoever, all certificates and instruments
representing or evidencing all Pledged Shares, together with all other
Collateral held by the Agent hereunder, and execute and deliver to the Pledgor
such documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 2.6. Security Interest Absolute. All rights of the
Agent and the security interests granted to the Agent hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and
unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Lender Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Company and/or any Pledgor
Subsidiary or any other Person under the provisions of the
Credit Agreement, any Note, any other Loan Document or
otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Obligations of
the Company and/or any Pledgor Subsidiary,
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations or any other
extension, compromise or renewal of any Obligation of the Company
and/or any Pledgor Subsidiary or any other Obligor,
(d) any reduction, limitation, impairment or termination of
any Obligations of the Company and/or any Pledgor Subsidiary for any
reason, including any claim of waiver, release, surrender, alteration
or compromise, and shall not be subject to (and the Pledgor hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Obligations of the
Company and/or any Pledgor Subsidiary,
-4-
<PAGE>
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or non-
perfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Obligations, or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Company
and/or any Pledgor Subsidiary, any surety or any guarantor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Warranties, etc. The Pledgor represents and warrants unto
each Lender Party, as at the date of each pledge and delivery hereunder
(including each pledge and delivery of Pledged Shares) by the Pledgor to the
Agent of any Collateral, as set forth in this Article.
SECTION 3.1.1. Organization, etc. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.01 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.2. Due Authorization, Non-Contravention, etc. The Pledgor
makes and affirms the representations and warranties as to itself set forth in
Section 6.02 of the Credit Agreement which are hereby incorporated herein by
reference and made a part hereof.
SECTION 3.1.3. Validity, etc. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.04 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.4. Ownership, No Liens, etc. The Pledgor makes and affirms
the representations and warranties as to itself set forth in Section 6.09 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.5. Valid Security Interest. The Pledgor makes and affirms
the representations and warranties as to itself set forth in Section 6.14(a) of
the Credit Agreement which are hereby incorporated herein by reference and made
a part hereof.
SECTION 3.1.6. As to Pledged Shares. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.10 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.7. Authorization, Approval, etc. The Pledgor makes
and affirms the representations and warranties as to itself set forth
-5-
<PAGE>
in Section 6.03 of the Credit Agreement which are hereby incorporated herein by
reference and made a part hereof.
SECTION 3.1.8. Compliance with Laws. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.07(a) of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
ARTICLE IV
COVENANTS
SECTION 4.1. Protect Collateral. Except as authorized in the Credit
Agreement, the Pledgor will not sell, assign, transfer, pledge, or encumber in
any other manner the Collateral (except in favor of the Agent hereunder). The
Pledgor will warrant and defend the right and title herein granted unto the
Agent in and to the Collateral (and all right, title, and interest represented
by the Collateral) against the claims and demands of all Persons whomsoever.
SECTION 4.2. Further Assurances. Pledgor affirms the covenants
as to itself set forth in Section 7.13 of the Credit Agreement, which
covenants are incorporated herein by reference and made a part hereof.
SECTION 4.3. Stock Powers, etc. The Pledgor agrees that all Pledged
Shares (and all other shares of capital stock constituting Collateral) delivered
by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly
executed undated blank stock powers, or other equivalent instruments of transfer
acceptable to the Agent. The Pledgor will, from time to time upon the request of
the Agent, promptly deliver to the Agent such stock powers, instruments, and
similar documents, satisfactory in form and substance to the Agent, with respect
to the Collateral as the Agent may reasonably request and will, from time to
time upon the request of the Agent after the occurrence of any Event of Default,
promptly transfer any Pledged Shares or other shares of common stock
constituting Collateral into the name of any nominee designated by the Agent,
subject to compliance with Applicable Regulatory Requirements.
SECTION 4.4. Continuous Pledge. The Pledgor will, at all times, keep
pledged to the Agent pursuant hereto all Pledged Shares and all other shares of
capital stock constituting Collateral, all Dividends and Distributions with
respect thereto, and all other Collateral and other securities, instruments,
proceeds, and rights from time to time received by or distributable to the
Pledgor in respect of any Collateral.
SECTION 4.5. Voting Rights; Dividends, etc. The Pledgor agrees:
(a) after any Default or an Event of Default shall have
occurred and be continuing, promptly upon receipt thereof by the
Pledgor and without any request therefor by the Agent, to deliver
(properly endorsed where required hereby or requested by the Agent) to
the Agent all Dividends, Distributions, all interest, all principal,
all other cash payments, and all proceeds of the Collateral, all of
which shall be held by the Agent as additional Collateral for use in
accordance with Section 6.3; and
-6-
<PAGE>
(b) after any Event of Default shall have occurred and be
continuing and the Agent has notified the Pledgor of the Agent's
intention to exercise its voting power under this Section 4.5(b)
(i) the Agent may, subject to Applicable Regulatory
Requirements, exercise (to the exclusion of the Pledgor) the
voting power and all other incidental rights of ownership with
respect to any Pledged Shares or other shares of capital stock
constituting Collateral and the Pledgor hereby grants the
Agent an irrevocable proxy, exercisable only under such
circumstances, to vote the Pledged Shares and such other
Collateral; and
(ii) promptly to deliver to the Agent such additional
proxies and other documents as may be necessary to allow the
Agent to exercise such voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by the Pledgor but which the
Pledgor is then obligated to deliver to the Agent, shall, until delivery to the
Agent, be held by the Pledgor separate and apart from its other property in
trust for the Agent. The Agent agrees that unless an Event of Default shall have
occurred and be continuing and the Agent shall have given the notice referred to
in Section 4.5(b) and complied with Applicable Regulatory Requirements, the
Pledgor shall have the exclusive voting power with respect to any shares of
capital stock (including any of the Pledged Shares) constituting Collateral and
the Agent shall, upon the written request of the Pledgor, promptly deliver such
proxies and other documents, if any, as shall be reasonably requested by the
Pledgor which are necessary to allow the Pledgor to exercise voting power with
respect to any such share of capital stock (including any of the Pledged Shares)
constituting Collateral; provided, however, that no vote shall be cast, or
consent, waiver, or ratification given, or action taken by the Pledgor that
would impair any Collateral or be inconsistent with or violate any provision of
the Credit Agreement or any other Loan Document (including this Pledge
Agreement).
ARTICLE V
THE AGENT
SECTION 5.1. Agent Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:
(a) after the occurrence and continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (a) above; and
-7-
<PAGE>
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
Any attempt by the Agent or any of the Lender Parties to exercise any voting
control or otherwise control any Subsidiary subject to regulation by state
insurance regulatory authorities shall be in accordance with Applicable
Regulatory Requirements.
SECTION 5.2. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 6.4.
SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent
hereunder are solely to protect its interest (on behalf of the Lender Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Pledged Property, whether or not the Agent has or is deemed to
have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Agent is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, the Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral, if it
takes such action for that purpose as the Pledgor reasonably requests in writing
at times other than upon the occurrence and during the continuance of any Event
of Default, but failure of the Agent to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall
have occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the
U.C.C. applies to the affected Collateral) and also may, without
-8-
<PAGE>
notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall
be required by law, at least ten days' prior notice to the Pledgor of
the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) The Agent may
(i) transfer all or any part of the Collateral into
the name of the Agent or its nominee, with or without
disclosing that such Collateral is subject to the lien and
security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Agent of any amount due or
to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings in
the Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
and
(vi) execute (in the name, place and stead of the
Pledgor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
(c) Any transfer of, or exercise of control with respect
to, the Collateral by the Agent shall be subject to Applicable
Regulatory Requirements.
SECTION 6.2. Compliance with Restrictions. The Pledgor agrees that in
any sale of any of the Collateral whenever an Event of Default shall have
occurred and be continuing, the Agent is hereby authorized to comply with any
limitation or restriction in connection with such sale as it may be advised by
counsel is necessary in order to avoid any violation of applicable law
(including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to
-9-
<PAGE>
the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental regulatory
authority or official, and the Pledgor further agrees that such compliance shall
not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall the Agent be liable nor accountable to
the Pledgor for any discount allowed by the reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.
SECTION 6.3. Application of Proceeds. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent as additional collateral security for, or then or at any time
thereafter be applied (after payment of any amounts payable to the Agent
pursuant to Section 10.07 of the Credit Agreement and Section 6.4) in whole or
in part by the Agent against, all or any part of the Secured Obligations in such
order as the Agent shall elect.
Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations, and the
termination of all Commitments, shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 6.4. Indemnity and Expenses. The Pledgor hereby agrees to and
affirms its obligations under Sections 10.07 and 11.05 of the Credit Agreement
which are incorporated herein by reference and made a part hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom shall in any event be effective unless the same shall be given, made or
entered into in accordance with Section 11.01 of the Credit Agreement, which
Section is incorporated herein by reference and made a part hereof.
SECTION 7.3. Protection of Collateral. The Agent may from time to time,
at its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and the Agent may
from time to time take any other action which the Agent reasonably deems
necessary for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
SECTION 7.4. Notices. All notices and other communications
provided for hereunder shall be delivered in accordance with Section
-10-
<PAGE>
11.02 of the Credit Agreement, which Section is incorporated herein by reference
and made a part hereof.
SECTION 7.5. Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not
affect the construction of this Pledge Agreement.
SECTION 7.6. Severability. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. Sections
11.15 and 11.17 of the Credit Agreement are incorporated by reference
herein and made a part hereof.
SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LEGAL
ACTION, PROCEEDING OR LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE AGENT, THE LENDER PARTIES OR THE PLEDGOR MAY BE BROUGHT AND MAINTAINED IN
THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BY THE EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT,
THE PLEDGOR HEREBY CONSENTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE AGENT, THE LENDER PARTIES AND
THE PLEDGOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY ANY MEANS
PERMITTED BY CALIFORNIA LAW INCLUDING BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. THE AGENT, THE
LENDER PARTIES AND THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE AGENT, THE LENDER PARTIES AND THE
PLEDGOR HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
THEM OR THEIR PROPERTY, THE AGENT, THE LENDER PARTIES AND THE PLEDGOR HEREBY
IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THEIR OBLIGATIONS UNDER THIS
PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 7.9. Waiver of Jury Trial. THE PLEDGOR, THE LENDER PARTIES AND
THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE
AGREEMENT, THE OTHER LOAN DOCUMENTS, ANY COURSE
-11-
<PAGE>
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE PLEDGOR, THE LENDER PARTIES OR THE AGENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PLEDGOR, THE LENDER PARTIES AND THE AGENT
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE 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 PLEDGE
AGREEMENT, OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE PLEDGOR
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENT AND THE LENDER PARTIES ENTERING INTO THIS PLEDGE AGREEMENT AND EACH SUCH
OTHER LOAN DOCUMENT.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
CII FINANCIAL, INC.
By: /S/ LEE SPITLER
Title: President
Address: 5627 Gibraltar Drive
Pleasanton, CA 94566-9025
Facsimile No.: 510/416-0771
Attention: Lee Spitler, President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By /S/ RUTH Z. EDWARDS
Title: Vice President
Address: Agency Management Services
#5596
1455 Market Street
12th Floor
San Francisco, CA
94103
Facsimile No.: (415) 622-4894
Attention: Vice President
-13-
<PAGE>
ATTACHMENT 1
to
Pledge Agreement
Pledged Shares
Common Stock
Authorized Outstanding % of Shares
Shares Shares Pledged
100%
-14-
<PAGE>
EXHIBIT 10.2
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of April 11,
1996, made by CALIFORNIA INDEMNITY INSURANCE COMPANY, a California corporation
(the "Pledgor"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as agent (together with any successor(s) thereto in such capacity,
the "Agent") for each of the Lender Parties (as defined below).
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among Sierra Health Services,
Inc., a Nevada corporation (the "Company"), the several financial institutions
as are, or may from time to time become, parties thereto (individually a
"Lender" and collectively the "Lenders") and the Agent, the Lenders have
extended Commitments to make Loans to the Company; and
WHEREAS, as a condition precedent to the making of the initial Loans
under the Credit Agreement, the Pledgor is required to execute and deliver this
Pledge Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery
and performance of this Pledge Agreement; and
WHEREAS, the Pledgor is an indirect wholly-owned subsidiary of the
Company and it is in the best interests of the Pledgor to execute this Pledge
Agreement inasmuch as the Pledgor will derive substantial direct and indirect
benefits from the Loans made from time to time to the Company by the Lenders
pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders to make Loans to the
Company pursuant to the Credit Agreement, the Pledgor agrees, for the benefit of
each Lender Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Pledge Agreement, including
its preamble and recitals, shall have the following meanings (such definitions
to be equally applicable to the singular and plural forms thereof):
"Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Company" is defined in the first recital.
<PAGE>
"Credit Agreement" is defined in the first recital.
"Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.
"Lender" is defined in the first recital.
"Lender Party" means, as the context may require, any Lender or the
Agent and each of its respective successors, transferees and assigns.
"Lenders" is defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Property" means all Pledged Shares and all other pledged
shares of capital stock, all other securities, all assignments of any amounts
due or to become due, all other instruments which are now being delivered by the
Pledgor to the Agent or may from time to time hereafter be delivered by the
Pledgor to the Agent for the purpose of pledge under this Pledge Agreement or
any other Loan Document, and all proceeds of any of the foregoing.
"Pledged Shares" means, collectively, all shares of capital stock of
each now existing or hereafter created or acquired Subsidiary of the Company
(but excluding, subject to Section 8.16 of the Credit Agreement, Excluded
Subsidiaries), including, without limitations, the shares of capital stock
identified in Attachment 1 hereto which are delivered by the Pledgor to the
Agent as Pledged Property hereunder.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"U.C.C." means the Uniform Commercial Code as in effect in the
State of California.
SECTION 1.1. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.2. U.C.C. Definitions. Unless otherwise defined
herein or the context otherwise requires, terms for which meanings are
provided in the U.C.C. are used in this Pledge Agreement, including
its preamble and recitals, with such meanings.
-2-
<PAGE>
ARTICLE II
PLEDGE
SECTION 2.1. Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, mortgages and delivers to the Agent, for its benefit and the
ratable benefit of each of the Lender Parties, and hereby grants to the Agent,
for its benefit and the ratable benefit of the Lender Parties, a continuing
security interest in, all of the following property (the "Collateral"):
(a) all Pledged Shares, including without limitation those
identified in Attachment 1 hereto;
(b) all other Pledged Property, whether now or hereafter
delivered to the Agent in connection with this Pledge Agreement;
(c) all Dividends, Distributions, interest, and other
payments and rights with respect to any Pledged Property; and
(d) all proceeds of any of the foregoing.
SECTION 2.2. Security for Obligations. This Pledge Agreement secures
the payment in full of all Obligations of the Company and/or any Pledgor
Subsidiary now or hereafter existing under the Credit Agreement, the Notes and
each other Loan Document to which the Company and/or any Pledgor Subsidiary is
or may become a party, whether for principal, interest, costs, fees, expenses,
or otherwise, (all such obligations of the Company and/or any Pledgor Subsidiary
being the "Secured Obligations").
SECTION 2.3. Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Collateral, including all Pledged
Shares, shall be delivered to and held by or on behalf of the Agent pursuant
hereto, shall be in suitable form for transfer by delivery, and shall be
accompanied by all necessary instruments of transfer or assignment, duly
executed in blank.
SECTION 2.4. Dividends on Pledged Shares. In the event that any
Dividend is to be paid on any Pledged Share during the continuation of an Event
of Default, then any such Dividend or payment shall be paid directly to the
Agent.
SECTION 2.5. Continuing Security Interest; Transfer of Note.
This Pledge Agreement shall create a continuing security interest in
the Collateral and shall
(a) remain in full force and effect until payment in full
of all Secured Obligations and the termination of all
Commitments,
(b) be binding upon the Pledgor and its successors,
transferees and assigns, and
(c) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each other Lender Party.
-3-
<PAGE>
Without limiting the foregoing clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any Note or Loan held by it to any other Person
or entity in accordance with the provisions of Section 11.08 of the Credit
Agreement, and such other Person or entity shall thereupon become vested with
all the rights and benefits in respect thereof granted to such Lender under any
Loan Document (including this Pledge Agreement) or otherwise, subject, however,
to any contrary provisions in such assignment or transfer, and to the provisions
of Section 11.08 of the Credit Agreement. Upon the payment in full of all
Secured Obligations and the termination of all Commitments, the security
interest granted herein shall terminate and all rights to the Collateral shall
revert to the Pledgor. Upon any such termination, the Agent will, at the
Pledgor's sole expense, deliver to the Pledgor, without any representations,
warranties or recourse of any kind whatsoever, all certificates and instruments
representing or evidencing all Pledged Shares, together with all other
Collateral held by the Agent hereunder, and execute and deliver to the Pledgor
such documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 2.6. Security Interest Absolute. All rights of the
Agent and the security interests granted to the Agent hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and
unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Lender Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Company and/or any Pledgor
Subsidiary or any other Person under the provisions of the
Credit Agreement, any Note, any other Loan Document or
otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Obligations of
the Company and/or any Pledgor Subsidiary,
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations or any other
extension, compromise or renewal of any Obligation of the Company
and/or any Pledgor Subsidiary or any other Obligor,
(d) any reduction, limitation, impairment or termination of
any Obligations of the Company and/or any Pledgor Subsidiary for any
reason, including any claim of waiver, release, surrender, alteration
or compromise, and shall not be subject to (and the Pledgor hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Obligations of the
Company and/or any Pledgor Subsidiary,
-4-
<PAGE>
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or non-
perfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Obligations, or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Company
and/or any Pledgor Subsidiary, any surety or any guarantor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Warranties, etc. The Pledgor represents and warrants unto
each Lender Party, as at the date of each pledge and delivery hereunder
(including each pledge and delivery of Pledged Shares) by the Pledgor to the
Agent of any Collateral, as set forth in this Article.
SECTION 3.1.1. Organization, etc. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.01 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.2. Due Authorization, Non-Contravention, etc. The Pledgor
makes and affirms the representations and warranties as to itself set forth in
Section 6.02 of the Credit Agreement which are hereby incorporated herein by
reference and made a part hereof.
SECTION 3.1.3. Validity, etc. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.04 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.4. Ownership, No Liens, etc. The Pledgor makes and affirms
the representations and warranties as to itself set forth in Section 6.09 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.5. Valid Security Interest. The Pledgor makes and affirms
the representations and warranties as to itself set forth in Section 6.14(a) of
the Credit Agreement which are hereby incorporated herein by reference and made
a part hereof.
SECTION 3.1.6. As to Pledged Shares. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.10 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.7. Authorization, Approval, etc. The Pledgor makes
and affirms the representations and warranties as to itself set forth
-5-
<PAGE>
in Section 6.03 of the Credit Agreement which are hereby incorporated herein by
reference and made a part hereof.
SECTION 3.1.8. Compliance with Laws. The Pledgor makes and affirms the
representations and warranties as to itself set forth in Section 6.07(a) of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
ARTICLE IV
COVENANTS
SECTION 4.1. Protect Collateral. Except as authorized in the Credit
Agreement, the Pledgor will not sell, assign, transfer, pledge, or encumber in
any other manner the Collateral (except in favor of the Agent hereunder). The
Pledgor will warrant and defend the right and title herein granted unto the
Agent in and to the Collateral (and all right, title, and interest represented
by the Collateral) against the claims and demands of all Persons whomsoever.
SECTION 4.2. Further Assurances. Pledgor affirms the covenants
as to itself set forth in Section 7.13 of the Credit Agreement, which
covenants are incorporated herein by reference and made a part hereof.
SECTION 4.3. Stock Powers, etc. The Pledgor agrees that all Pledged
Shares (and all other shares of capital stock constituting Collateral) delivered
by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly
executed undated blank stock powers, or other equivalent instruments of transfer
acceptable to the Agent. The Pledgor will, from time to time upon the request of
the Agent, promptly deliver to the Agent such stock powers, instruments, and
similar documents, satisfactory in form and substance to the Agent, with respect
to the Collateral as the Agent may reasonably request and will, from time to
time upon the request of the Agent after the occurrence of any Event of Default,
promptly transfer any Pledged Shares or other shares of common stock
constituting Collateral into the name of any nominee designated by the Agent,
subject to compliance with Applicable Regulatory Requirements.
SECTION 4.4. Continuous Pledge. The Pledgor will, at all times, keep
pledged to the Agent pursuant hereto all Pledged Shares and all other shares of
capital stock constituting Collateral, all Dividends and Distributions with
respect thereto, and all other Collateral and other securities, instruments,
proceeds, and rights from time to time received by or distributable to the
Pledgor in respect of any Collateral.
SECTION 4.5. Voting Rights; Dividends, etc. The Pledgor agrees:
(a) after any Default or an Event of Default shall have
occurred and be continuing, promptly upon receipt thereof by the
Pledgor and without any request therefor by the Agent, to deliver
(properly endorsed where required hereby or requested by the Agent) to
the Agent all Dividends, Distributions, all interest, all principal,
all other cash payments, and all proceeds of the Collateral, all of
which shall be held by the Agent as additional Collateral for use in
accordance with Section 6.3; and
-6-
<PAGE>
(b) after any Event of Default shall have occurred and be
continuing and the Agent has notified the Pledgor of the Agent's
intention to exercise its voting power under this Section 4.5(b)
(i) the Agent may, subject to Applicable Regulatory
Requirements, exercise (to the exclusion of the Pledgor) the
voting power and all other incidental rights of ownership with
respect to any Pledged Shares or other shares of capital stock
constituting Collateral and the Pledgor hereby grants the
Agent an irrevocable proxy, exercisable only under such
circumstances, to vote the Pledged Shares and such other
Collateral; and
(ii) promptly to deliver to the Agent such additional
proxies and other documents as may be necessary to allow the
Agent to exercise such voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by the Pledgor but which the
Pledgor is then obligated to deliver to the Agent, shall, until delivery to the
Agent, be held by the Pledgor separate and apart from its other property in
trust for the Agent. The Agent agrees that unless an Event of Default shall have
occurred and be continuing and the Agent shall have given the notice referred to
in Section 4.5(b) and complied with Applicable Regulatory Requirements, the
Pledgor shall have the exclusive voting power with respect to any shares of
capital stock (including any of the Pledged Shares) constituting Collateral and
the Agent shall, upon the written request of the Pledgor, promptly deliver such
proxies and other documents, if any, as shall be reasonably requested by the
Pledgor which are necessary to allow the Pledgor to exercise voting power with
respect to any such share of capital stock (including any of the Pledged Shares)
constituting Collateral; provided, however, that no vote shall be cast, or
consent, waiver, or ratification given, or action taken by the Pledgor that
would impair any Collateral or be inconsistent with or violate any provision of
the Credit Agreement or any other Loan Document (including this Pledge
Agreement).
ARTICLE V
THE AGENT
SECTION 5.1. Agent Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:
(a) after the occurrence and continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (a) above; and
-7-
<PAGE>
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
Any attempt by the Agent or any of the Lender Parties to exercise any voting
control or otherwise control any Subsidiary subject to regulation by state
insurance regulatory authorities shall be in accordance with Applicable
Regulatory Requirements.
SECTION 5.2. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 6.4.
SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent
hereunder are solely to protect its interest (on behalf of the Lender Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Pledged Property, whether or not the Agent has or is deemed to
have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Agent is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, the Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral, if it
takes such action for that purpose as the Pledgor reasonably requests in writing
at times other than upon the occurrence and during the continuance of any Event
of Default, but failure of the Agent to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall
have occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the
U.C.C. applies to the affected Collateral) and also may, without
-8-
<PAGE>
notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall
be required by law, at least ten days' prior notice to the Pledgor of
the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) The Agent may
(i) transfer all or any part of the Collateral into
the name of the Agent or its nominee, with or without
disclosing that such Collateral is subject to the lien and
security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Agent of any amount due or
to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings in
the Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
and
(vi) execute (in the name, place and stead of the
Pledgor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
(c) Any transfer of, or exercise of control with respect
to, the Collateral by the Agent shall be subject to Applicable
Regulatory Requirements.
SECTION 6.2. Compliance with Restrictions. The Pledgor agrees that in
any sale of any of the Collateral whenever an Event of Default shall have
occurred and be continuing, the Agent is hereby authorized to comply with any
limitation or restriction in connection with such sale as it may be advised by
counsel is necessary in order to avoid any violation of applicable law
(including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to
-9-
<PAGE>
the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental regulatory
authority or official, and the Pledgor further agrees that such compliance shall
not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall the Agent be liable nor accountable to
the Pledgor for any discount allowed by the reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.
SECTION 6.3. Application of Proceeds. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent as additional collateral security for, or then or at any time
thereafter be applied (after payment of any amounts payable to the Agent
pursuant to Section 10.07 of the Credit Agreement and Section 6.4) in whole or
in part by the Agent against, all or any part of the Secured Obligations in such
order as the Agent shall elect.
Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations, and the
termination of all Commitments, shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 6.4. Indemnity and Expenses. The Pledgor hereby agrees to and
affirms its obligations under Sections 10.07 and 11.05 of the Credit Agreement
which are incorporated herein by reference and made a part hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom shall in any event be effective unless the same shall be given, made or
entered into in accordance with Section 11.01 of the Credit Agreement, which
Section is incorporated herein by reference and made a part hereof.
SECTION 7.3. Protection of Collateral. The Agent may from time to time,
at its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and the Agent may
from time to time take any other action which the Agent reasonably deems
necessary for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
SECTION 7.4. Notices. All notices and other communications
provided for hereunder shall be delivered in accordance with Section
-10-
<PAGE>
11.02 of the Credit Agreement, which Section is incorporated herein by reference
and made a part hereof.
SECTION 7.5. Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not
affect the construction of this Pledge Agreement.
SECTION 7.6. Severability. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. Sections
11.15 and 11.17 of the Credit Agreement are incorporated by reference
herein and made a part hereof.
SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LEGAL
ACTION, PROCEEDING OR LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE AGENT, THE LENDER PARTIES OR THE PLEDGOR MAY BE BROUGHT AND MAINTAINED IN
THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BY THE EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT,
THE PLEDGOR HEREBY CONSENTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE AGENT, THE LENDER PARTIES AND
THE PLEDGOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY ANY MEANS
PERMITTED BY CALIFORNIA LAW INCLUDING BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. THE AGENT, THE
LENDER PARTIES AND THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE AGENT, THE LENDER PARTIES AND THE
PLEDGOR HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
THEM OR THEIR PROPERTY, THE AGENT, THE LENDER PARTIES AND THE PLEDGOR HEREBY
IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THEIR OBLIGATIONS UNDER THIS
PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 7.9. Waiver of Jury Trial. THE PLEDGOR, THE LENDER PARTIES AND
THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE
AGREEMENT, THE OTHER LOAN DOCUMENTS, ANY COURSE
-11-
<PAGE>
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE PLEDGOR, THE LENDER PARTIES OR THE AGENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PLEDGOR, THE LENDER PARTIES AND THE AGENT
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE 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 PLEDGE
AGREEMENT, OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE PLEDGOR
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENT AND THE LENDER PARTIES ENTERING INTO THIS PLEDGE AGREEMENT AND EACH SUCH
OTHER LOAN DOCUMENT.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
CALIFORNIA INDEMNITY INSURANCE COMPANY
By: /S/ LEE SPITLER
Title: President
Address: 5627 Gibraltar Drive
Pleasanton, CA 94566-9025
Facsimile No.: 510/416-0771
Attention: Lee Spitler, President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By /S/ RUTH Z. EDWARDS
Title: Vice President
Address: Agency Management Services #5596
1455 Market Street
12th Floor
San Francisco, CA
94103
Facsimile No.: (415) 622-4894
Attention: Vice President
-13-
<PAGE>
ATTACHMENT 1
to
Pledge Agreement
Pledged Shares
Common Stock
Authorized Outstanding % of Shares
Shares Shares Pledged
100%
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CII FINANCIAL, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 148,121,000
<DEBT-CARRYING-VALUE> 60,503,000
<DEBT-MARKET-VALUE> 60,453,000
<EQUITIES> 4,432,000
<MORTGAGE> 5,161,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 218,746,000
<CASH> 29,376,000
<RECOVER-REINSURE> 348,000
<DEFERRED-ACQUISITION> 2,375,000
<TOTAL-ASSETS> 300,439,000
<POLICY-LOSSES> 181,413,000
<UNEARNED-PREMIUMS> 12,046
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 56,800,000
0
0
<COMMON> 3,604,000
<OTHER-SE> 34,917,000
<TOTAL-LIABILITY-AND-EQUITY> 300,439,000
27,613,000
<INVESTMENT-INCOME> 3,998,000
<INVESTMENT-GAINS> 1,243,000
<OTHER-INCOME> 0
<BENEFITS> 19,508,000
<UNDERWRITING-AMORTIZATION> 6,093,000
<UNDERWRITING-OTHER> 3,290,000
<INCOME-PRETAX> 2,898,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,898,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,898,000
<EPS-PRIMARY> 29,980.00
<EPS-DILUTED> 29,980.00
<RESERVE-OPEN> 154,647,000
<PROVISION-CURRENT> 23,500,000
<PROVISION-PRIOR> (3,991,000)
<PAYMENTS-CURRENT> 2,153,000
<PAYMENTS-PRIOR> 15,179,000
<RESERVE-CLOSE> 156,824,000
<CUMULATIVE-DEFICIENCY> 3,991,000
</TABLE>
