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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 0-20995
EXSTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0321240
(State of Incorporation) (I.R.S. Employer ID No.)
2029 Village Lane, Solvang, California 93463-2275
(Address of principal executive offices) (Zip Code)
(805) 688-8013
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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 No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. .
----
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant, based upon the last reported sale price of
the registrant's Common Stock on July 17, 1996.*/
$1,257,600
The number of shares outstanding of the registrant's Common Stock, par value
$0.01, as of March 31, 1997.
5,497,500
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*/ July 17, 1996 was the last day the Common Stock was traded on the Nasdaq
National Market before it was delisted on July 18, 1996.
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PART I
ITEM 1. BUSINESS
OVERVIEW OF CURRENT BUSINESS OPERATIONS
Exstar Financial Corporation ("Exstar" if referring to the parent
company, or the "Company" if referring to Exstar and its direct and indirect
subsidiaries) is a holding company which indirectly owns Alpine Insurance
Company, an Illinois property and casualty insurance company ("Alpine").
Historically, the Company engaged principally in "direct" underwriting
("direct" underwriting consists of issuing insurance policies directly to the
insureds) of specialty lines of casualty insurance on a surplus lines basis.
The Company conducted insurance through its two insurance company subsidiaries,
Alpine and Transco Syndicate #1 Ltd. ("Syndicate"), a former member of the
Illinois Insurance Exchange ("IIE") which no longer functions as an insurance
company. See "-- Combination of the Syndicate with Alpine." As a result of
events occurring since the end of 1995, however, including A.M. Best Company
("Best") ratings downgrades and regulatory restrictions relating to Exstar's
insurance company subsidiaries, the Company ceased issuing direct insurance in
August 1996, and is not currently issuing insurance policies directly to
insureds. The Company's current business activities, instead, consist of:
acting as a reinsurer (effective as of April 1, 1997) with respect to insurance
policies issued by an insurance company not affiliated with the Company;
handling claims under policies and reinsurance contracts previously issued by
the Company and implementing mid-term adjustments to and cancellations of such
policies; and related management, investment, reporting and accounting
functions.
The Company's future is uncertain. Its organizational structure and
operations have undergone significant changes since the end of 1995. Many of
these changes (including its determination to cease issuing direct insurance)
have been the result of management's efforts to address severe business and
regulatory pressures the Company has faced, and continues to face, in a manner
which takes into account the interests of policyholders, stockholders,
regulators and business partners. Because all issues have not been resolved,
significant changes to the Company's structure and operations are likely to
continue.
Since July 1996, virtually all of the Company's financial
transactions, organizational relationships and business methods (and the
changes in such relationships and methods) have been subject to the review and
approval of the Illinois Department of Insurance ("Illinois DOI"), the
principal regulator of Alpine, pursuant to an order issued by the Illinois DOI
("Illinois Order"). See "-- Regulation -- Illinois Order." The Illinois Order
subjects Alpine and its officers, directors and affiliates to a higher level of
regulatory scrutiny than that to which they previously were subject and to
which most other insurers are subject. No understanding has been reached with
the Illinois DOI as to when the current level of oversight may cease or
diminish. In addition, certain other state insurance regulatory authorities
have acted to withdraw or restrict Alpine's authority to issue policies in
their states. See "-- Regulatory Restrictions."
The Company's operating results and cash flows currently are almost
completely dependent on the operating results and cash flows of Alpine, which,
since April 1996, has had a C (Marginal) rating from Best. See "-- Background
Concerning Changes in Operations -- Best Ratings Downgrades" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" -- Item 7. Management does not believe
Alpine's current C rating will allow Alpine to attract profitable direct
insurance business. In addition, Alpine's policyholders' surplus, at $12.6
million at December 31, 1996, is currently below the minimum policyholders'
surplus (generally $15 million) required for qualification as a surplus lines
insurer in many states, including California and other states which previously
accounted for most of the Company's premium revenue. Accordingly, management
does not intend to issue direct insurance coverages through Alpine, or to
expend substantial resources to eliminate certain of its current regulatory
restrictions, until Alpine is able to obtain a Best
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rating which management believes will allow it to attract a sufficient volume
of profitable direct business and until Alpine's policyholders' surplus has
increased to at least $15 million. Management believes the Company needs a
Best rating of B+ or higher to attract a sufficient volume of profitable
business. Management does not know whether a B+ or better Best rating can be
attained in the near future.
As an alternative to direct insurance, effective as of April 1, 1997,
Alpine entered into a casualty quota share reinsurance agreement ("Quota Share
Arrangement") with United Capitol Insurance Company (together with its
affiliates, "UCIC"), an A- (Excellent) Best rated Wisconsin insurer with 1996
year-end policyholders' surplus of $53.4 million. Pursuant to the Quota Share
Arrangement, UCIC cedes to Alpine, and Alpine assumes, a portion of the
business placed with UCIC by Transre Insurance Services ("Transre") and Exstar
E&S Insurance Services ("E&S"), two entities which are affiliated with, but are
not subsidiaries of, Exstar. Transre and E&S have entered into a Limited
Agency Agreement ("Limited Agency Agreement") with UCIC pursuant to which
Transre and E&S produce for UCIC business of the type previously produced for
the Company by TCO Insurance Services, Inc. ("TCO-IL"). Claims on such
business are handled by Claims Control Corporation ("Claims Control"), another
entity which is affiliated with, but is not a subsidiary of, Exstar. The Quota
Share Arrangement has been approved by the Illinois DOI, but has not been
submitted to or approved by any other state regulatory authorities. Certain
other state regulatory authorities, including some that acted during 1996 to
restrict Alpine's authority to issue direct insurance business in their states,
could seek to assert jurisdiction over and limit or disapprove the Quota Share
Arrangement. Management is currently not able to determine whether any such
efforts will be made, or the extent to which they likely would affect the Quota
Share Arrangement.
Management believes that the Quota Share Arrangement, if it continues
as currently structured, will enable the Company to generate profits from
business placed with UCIC and ceded to Alpine. There can be no assurance,
however, that any such profits will be generated, or that the Quota Share
Arrangement will remain in effect as currently structured, or at all. Should
the Quota Share Arrangement be discontinued or its terms and conditions be
changed in a manner which is materially adverse to the Company, and a
profitable alternative arrangement not be entered into by the Company, the
Company would essentially be operating in "run off," whereby its functions
would be limited to settling outstanding liabilities and liabilities incurred
in the future under existing policies, with little or no current underwriting
revenue. Although the Company would attempt to further reduce costs, it could
experience significant losses under such circumstances. No alternative to the
Quota Share Arrangement is currently under consideration by the Company.
Further information concerning the circumstances surrounding the
changes in the Company's operations, and concerning the Company's current
operational and organizational structure, is set forth in "-- Background
Concerning Changes in Operations" and "-- Current and Future Operations and
Organizational Structure."
FINANCIAL REPORTING; DELISTING OF COMMON STOCK
Exstar's common stock ("Common Stock") currently is not approved for
trading on the Nasdaq National Market ("NNM"). The delisting of the Common
Stock resulted from a series of events relating principally to the Company's
reserves for losses and loss adjustment expenses.
In February 1996, the Company's independent actuaries arrived at a
determination that the Syndicate and Alpine had experienced substantial adverse
loss development during 1995. This adverse loss development was in addition to
adverse loss development experienced by Alpine during 1994 and the Syndicate
during 1993. In order to evaluate the loss data on which the actuarial
determinations were based, the Company hired an independent claims specialist
in February 1996 to conduct a review of its "case" loss reserves (reserves
relating to specific claims). Based on the claims specialist's review of the
Company's claim files, the Company determined that its case loss reserves were
substantially overstated. See "-- Losses and Loss Adjustment Expenses." Alpine
and the Syndicate were unable to provide data concerning the reserve
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overstatements in final form to the actuaries in time for such data to be
considered in the actuaries' certification of Alpine's and the Syndicate's 1995
loss reserves for their 1995 statutory financial statements. Consequently, the
statutory financial statements incorporating the overstated loss reserves
(which subsequently were determined to be overstated by approximately $14.9
million) were provided to the Illinois DOI. Based, in part, on such statutory
statements, the Illinois DOI began an investigation of Alpine, which
investigation ultimately included an independent actuarial review of the
Syndicate's and Alpine's loss and loss adjustment expense reserves.
Because loss reserves are a critical component of the Company's
financial statements (representing the largest liability item in the Company's
financial statements), management determined not to file an annual report on
Form 10-K or quarterly reports on Form 10-Q until issues concerning the
Company's loss reserves, as well as issues raised in connection with the
Illinois DOI's review of Alpine and TCO-IL, were substantially resolved. The
independent actuarial review and recertification of the Company's loss reserves
were not completed until August 1996 and such reserve analysis was not accepted
by the Illinois DOI until December 1996. Accordingly, the Company did not file
its annual report on Form 10-K for the year ended December 31, 1995 ("1995
10-K") or its quarterly reports on Form 10-Q for any quarter of 1996 ("1996
10-Qs"). Due to the Company's failure to file its 1995 10-K and 1996 10-Qs, as
well as the Company's failure to meet certain other NNM criteria for continued
listing, including Exstar's failure to have at least two independent directors
on its board of directors (Exstar currently has only one independent director),
Exstar's Common Stock was delisted from the NNM in July 1996. See "Market for
Registrant's Common Equity and Related Stockholder Matters" -- Item 5.
BACKGROUND CONCERNING CHANGES IN OPERATIONS
Best Ratings Downgrades. In January 1996, Best lowered its rating of
Alpine from A- (Excellent) to B (Adequate) and lowered its rating of Alpine's
then parent company, the Syndicate, from B+ (Very Good) to B (Adequate). Both
ratings were further downgraded in April 1996 to C (Marginal). Best attributed
the ratings downgrades to concerns with respect to the two companies' low
capital and surplus levels relative to their surplus lines peers, poor
underwriting results, high premium growth relative to their capital and surplus
levels, and unfavorable liquidity positions, as well as (with respect to the
April downgrades) Exstar's failure to file its 1995 10-K and the loss reserving
issues related thereto. Best also expressed concern that a lack of management
oversight with respect to claims handling and case reserving practices might
have contributed to the inaccuracy of the Company's loss reserves. At the time
Best reduced Alpine's and the Syndicate's ratings to Cs, it also placed their
ratings under review with developing implications pending its review of
additional loss reserve studies, audited statutory financial statements, the
Company's financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") and the 1995 10-K (or comparable information).
Management believes surplus lines insurers' abilities to generate
premium revenue are dependent, in significant part, on their Best ratings.
Insurance producers are often unwilling or unable (due to the desires of and
requirements applicable to their customers) to place business with insurers
with inadequate Best ratings. Most of the producers that placed business with
the Company prior to the ratings downgrades have been unwilling or unable to
place the same business with the Company since the ratings were downgraded to
Cs. As a result of the ratings downgrades and regulatory restrictions
applicable to the Company (see "-- Regulatory Restrictions"), the Company
ceased issuing direct insurance in August 1996. Management believes efforts to
attract profitable direct business are unlikely to be successful until Alpine's
Best rating is improved to at least B+. In view of the uncertainty with
respect to the Company's future operating prospects and other factors,
management does not know whether a B+ or better Best rating can be attained in
the near future.
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Regulatory Restrictions. In early 1996, management approached the
Illinois DOI to discuss Alpine's loss reserves, its financial condition (as
reflected in the initially filed statutory financial statements incorporating
the overstated loss reserves), its relationship with TCO-IL, including TCO-IL's
inability to pay Alpine amounts owed by TCO-IL following Alpine's Best rating
downgrades and the resulting decline in TCO-IL's revenues. See "-- Background
Concerning Changes in Operations -- Best Ratings Downgrades", "-- Current and
Future Operations and Organizational Structure -- Relationship with TCO" and
"-- Regulation." Based on that discussion and issues concerning Alpine's
statutory financial statements (see "-- Losses and Loss Adjustment Expenses"),
the Illinois DOI commenced an actuarial and financial review of Alpine. In
connection with this review, the Illinois DOI issued the Illinois Order
directing, among other things, that Alpine and its owners, officers, directors
and employees, make no disbursements of any kind (including dividends,
compensation payments or asset transfers or purchases), except for properly
authorized insurance claim payments, without the prior written approval of the
Illinois DOI, and that Alpine enter into no commitments to make any such
disbursements and no transactions with any affiliates without the prior written
approval of the Illinois DOI. The impact of this order has been to subject
virtually all of Alpine's and the Company's transactions, organizational
relationships and business methods to close scrutiny by, and approval of, the
Illinois DOI.
In response to the Syndicate's and Alpine's filings of statutory
financial statements incorporating the overstated loss reserves, the Best
rating downgrades and the Illinois Order, certain other state insurance
regulatory authorities acted to restrict or preclude the Company's issuance of
direct insurance coverages in their states. In June 1996, the California
Department of Insurance withdrew Alpine's authority to conduct surplus lines
business and also denied Alpine's application for a license to conduct admitted
business in California, citing concerns with respect to Alpine's financial
strength and management competency. Historically, California was Alpine's
largest market, accounting for approximately 65% of its 1995 direct written
premium. Because Alpine's policyholders' surplus was deemed insufficient to
meet minimum requirements and because of regulatory concerns relating to
Alpine's financial condition, Alpine also lost its authority to write direct
business in other states, including Idaho, Michigan, New York, Ohio,
Pennsylvania, Texas and Virginia, and had its authority restricted in Florida.
Management believes Alpine's C Best rating, its prior and existing
regulatory issues, its reduced policyholders' surplus level, and its level of
risk based capital (see "-- Regulation") could interfere with any potential
efforts by Alpine to requalify for surplus lines authority in states in which
it has lost such authority, should Alpine seek to requalify, and could result
in the loss of, or restrictions on, Alpine's authority to write direct business
in other states in 1997. These factors also could adversely impact Alpine's
ability to act as a reinsurer of UCIC pursuant to the Quota Share Arrangement,
or of any other insurer (see "-- Current and Future Operations and
Organizational Structure").
CURRENT AND FUTURE OPERATIONS AND ORGANIZATIONAL STRUCTURE
Relationship with UCIC. Following the downgrading of the Company's
Best ratings, management began seeking alternative methods of conducting
business other than its historical practice of writing direct business. As
part of this effort, management engaged in discussions with a number of other
insurance companies, including UCIC. UCIC initially was interested principally
in forming an alliance with Peter J. O'Shaughnessy, Exstar's chief executive
officer and principal stockholder, and employees of the Company's former
underwriting manager, TCO-IL and certain affiliates of TCO-IL, through which
business of the type previously produced by TCO-IL for the Company would be
produced for UCIC. Mr. O'Shaughnessy and other members of Company management
conditioned participation in such an arrangement on UCIC's agreeing to allow
Alpine to participate, as a reinsurer of UCIC, on a significant portion of the
business produced for UCIC. In management's view, this arrangement would allow
the Company to continue to have the opportunity to benefit from business of the
type previously produced
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for it by TCO-IL, which business could not be written directly by Alpine
because of its existing Best rating, regulatory restrictions, policyholders'
surplus and other factors. Management also believed this arrangement would
give the Company access (as a reinsurer of UCIC) to other types of business
written by UCIC but not previously produced by TCO-IL which management believed
could be underwritten profitably. See "-- Lines of Business."
Following these discussions, in June 1996, Transre, a licensed surplus
lines broker, and E&S, a licensed fire and casualty broker, began producing
insurance for UCIC. Gross written premium of approximately $16.1 million was
produced by Transre and E&S pursuant to this arrangement in 1996. Under the
Limited Agency Agreement (which documents the arrangement between Transre and
E&S, on the one hand, and UCIC, on the other), Transre and E&S receive an
aggregate commission of 27.5% of the gross written premium collected by them
and placed with UCIC. Of this 27.5%, 15% to 17.5% of the gross written premium
placed with UCIC is paid to subproducers of Transre and E&S.
Most of the individuals performing services on behalf of Transre and
E&S under the Limited Agency Agreement are employees of Alpine. Pursuant to a
plan filed by Alpine with and approved by the Illinois DOI, Transre and E&S
reimburse Alpine for a portion of the salary and benefit costs associated with
these employees, and a portion of Alpine's general and administrative expenses,
out of the net commissions received from UCIC. Transre and E&S reimbursed to
Alpine $1.2 million of such expenses for 1996. See "-- Expense
Reductions/Reallocations and Staffing Changes." Management believes that this
arrangement is beneficial to the Company in that it allows the Company to share
certain fixed costs with Transre and E&S which otherwise would have been borne
exclusively by the Company, and allows the Company to retain sufficient
staffing and operational capabilities to take advantage of potential business
opportunities to the extent they may arise in the future.
Transre is wholly owned by TCO Holdings, Inc. ("TCO Holdings"), the
parent company of TCO-IL. TCO Holdings, in turn, is wholly owned by Peter J.
O'Shaughnessy, Exstar's principal stockholder and chief executive officer. E&S
is wholly owned directly by Mr. O'Shaughnessy. The Limited Agency Agreement
was entered into with Transre and E&S, rather than TCO-IL or another TCO
Holdings or Exstar subsidiary, because of licensing requirements and certain
conditions to the transaction imposed by UCIC. Transre and E&S have committed,
however, to assign all of their net profits, if any, earned in connection with
the Limited Agency Agreement to Exstar, after satisfaction of certain TCO
Holdings obligations, in partial satisfaction of TCO-IL's liabilities to the
Company. See "-- Relationship with TCO." Although no final understandings
have been reached, management currently anticipates that during the second half
of 1997, the services performed by Transre and E&S on behalf of UCIC will be
terminated and thereafter such services will be performed by a new joint
venture expected to be owned principally by Mr. O'Shaughnessy and UCIC. Based
on conditions imposed by UCIC with respect to the contemplated joint venture,
management believes it is unlikely that any of the profits of this joint
venture would be assigned to the Company.
Also in June 1996, Claims Control began handling claims on behalf of
UCIC with respect to insurance produced by Transre and E&S. Claims Control is
wholly owned by TCO Holdings and, since January 1, 1996, has had its own
employees. Pursuant to a plan filed with the Illinois DOI, Claims Control is
reimbursed by Alpine for the salary and benefit costs related to Claims
Control's employees, as well as Claims Control's general and administrative
costs. See "-- Expense Reductions/Reallocations and Staffing Changes." The
claims handling arrangement was entered into with Claims Control, rather than
TCO-IL or another TCO Holdings or Exstar subsidiary, because of licensing
requirements and certain conditions to the transaction imposed by UCIC.
For such claims handling services, UCIC pays Claims Control at an
hourly rate calculated on a "cost plus" basis with respect to the Claims
Control employees performing services for UCIC. In partial
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satisfaction of TCO-IL's liabilities to Alpine (see "-- Relationship with
TCO"), Claims Control has committed to assign revenues received from UCIC to
Alpine (less any payments made by UCIC with respect to Claims Control costs not
initially borne by Alpine). Management believes this arrangement (like the
allocation between Alpine, Transre and E&S described above) is beneficial to
the Company in allowing the Company to share certain fixed costs with a third
party which otherwise would have been borne exclusively by the Company.
It has not been determined whether, or at what time, Claims Control
will cease making such payments to Alpine. The services performed by Claims
Control on behalf of UCIC may later be terminated and thereafter be performed
by a new joint venture to be owned principally by Mr. O'Shaughnessy and UCIC,
or Claims Control may later become jointly owned by Mr. O'Shaughnessy and UCIC.
Effective April 1, 1997, Alpine and UCIC entered into the Quota Share
Arrangement, under which UCIC has agreed, subject to any changes required by
applicable regulatory authorities, to cede a portion of the business produced
by Transre and E&S on behalf of UCIC to Alpine. The portion assumed by Alpine
initially is 30% of the net premium accruing to UCIC on such business (after
other reinsurance, the premiums for which are currently estimated to represent
approximately 5% of total premium), including premiums unearned as of April 1,
1997 (estimated to be approximately $13.6 million) and premiums on policies
issued after such date. The portion ceded to Alpine may be increased in the
future under specified circumstances, including Alpine's ability to achieve
certain financial thresholds and receipt of required regulatory approvals (the
portion ceded may also be decreased as agreed by the parties and approved by
the Illinois DOI). Alpine allows UCIC a ceding commission of 30% of the
premium ceded in connection with the Quota Share Arrangement. Management
believes that this 30% ceding commission is lower than that typically paid in
similar circumstances by other unaffiliated reinsurers of UCIC, and was agreed
to by UCIC to obtain the production and underwriting services of Transre and
E&S and to enable Alpine to pay an override commission to TCO Holdings.
For TCO Holdings' assistance in negotiating and securing the Quota
Share Arrangement, Alpine intends to pay a commission to TCO Holdings.
Although the precise amount of this commission is subject to approval by the
Illinois DOI and has not been determined, it is expected to be approximately
3-4% of the premium assumed by Alpine under the Quota Share Arrangement. TCO
Holdings intends to use such commission only to pay off or reduce current
obligations of approximately $4.2 million of TCO Holdings or its subsidiaries
to certain third parties, including the holder of certain TCO Holdings
preferred stock (see "-- Investments"), and other obligations for which Mr.
O'Shaughnessy could be deemed to have contingent liability. See "--
Relationship with TCO." It is not currently contemplated that such funds will
be utilized to reduce obligations of TCO Holdings or its subsidiaries to the
Company. The payment of such a commission by Alpine generally, and the
contemplated use of the funds received by TCO Holdings, have been tentatively
agreed to by the Illinois DOI. The period of time over which such commission
will be paid to TCO Holdings has not yet been determined.
To satisfy certain regulatory and statutory accounting requirements
applicable to it, UCIC required the Quota Share Arrangement to be structured on
a "funds held" basis. In this regard, the portion of premium otherwise payable
to Alpine is retained by UCIC until such time as underwriting profit, if any,
on the business is determined. Investment income on the funds so held is
periodically paid to Alpine. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" -- Item 7. The Quota Share Arrangement is terminable by either
party with 90 days' prior written notice.
Relationship with TCO. TCO Holdings and its subsidiaries are
affiliated with Exstar through common controlling ownership by Peter J.
O'Shaughnessy, but are not owned, directly or indirectly, by
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Exstar (TCO Holdings and its subsidiaries are sometimes hereinafter referred to
collectively as "TCO"). Historically, TCO performed certain underwriting,
marketing, claims, management, investment, administrative and related services
for Alpine and the Syndicate pursuant to separate management agreements with
Alpine and the Syndicate. For such services, TCO was paid fees based on
percentages of the revenues, profits and invested assets of the Syndicate and
Alpine.
At the time the Company's Best ratings were downgraded, TCO performed
the foregoing services almost exclusively for the Company; it had no material
production, underwriting or management service relationship with any third
party. Accordingly, TCO's management agreements with the Company were
virtually TCO's only sources of revenue. The Company's inability to directly
write the business previously placed with it by TCO (as a result of the Best
rating downgrades and regulatory issues) left TCO with no immediate market for
the business it produced, and also rendered continuation of the management
agreements, in management's opinion, of little value to the Company. As a
result, the Company's management agreements with TCO were terminated during
1996 and, subject to a final determination, if any, of obligations and rights
between the Company and TCO, TCO relinquished the right to receive any
additional commission, underwriting profit sharing or investment profit sharing
which otherwise could have accrued to TCO pursuant to the management
agreements. Except for the activities of Transre under the Limited Agency
Agreement and the performance of claims services for the Company and UCIC by
Claims Control, the TCO entities have effectively ceased operations. Virtually
all remaining employees of TCO (other than those of Claims Control) have become
employees of the Company. See "-- Expense Reductions/Reallocations and
Staffing Changes."
TCO has incurred significant losses over the past several years in the
performance of services on behalf of the Company, and has had to rely on the
Company for the funding of a significant portion of these losses. As a result,
TCO is currently indebted to the Company for approximately $15.3 million
(including $4.6 million due to the Company pursuant to a loan agreement and
$9.7 million of unpaid balances due to Alpine with respect to insurance
premiums collected by TCO - see "-- Investments -- Loan to TCO"), and has
significant additional debts and obligations to unrelated third parties. TCO
currently has a negative net worth of approximately $30 million. Management,
consequently, believes that TCO will be unable to repay most of its
indebtedness to the Company and the other creditors of TCO. Such indebtedness,
at December 31, 1996, was not reflected as an asset of the Company in its GAAP
financial statements or as an admitted asset of Alpine in Alpine's statutory
financial statements.
In addition to TCO's debt obligations to the Company, TCO has
obligations to the Company under a Master Agreement entered into in December
1992 in connection with the Company's initial public offering ("Master
Agreement"). The Master Agreement gives the Company certain rights with
respect to the TCO operations, including rights of first refusal with respect
to insurance and reinsurance programs developed by TCO and the right to acquire
the TCO operations in the event TCO becomes insolvent, materially breaches the
management agreements or the Master Agreement or fails to meet certain
production and profit-related performance standards. Management believes the
Company's right to acquire the TCO operations has been triggered.
The Company has not elected to exercise such right under the Master
Agreement, or to take formal action against TCO for collection of the debts
owed to the Company by TCO. TCO's "hard" assets and cash flows are very
limited, and are subject to potentially competing claims. Additionally, based
on the Company's efforts to secure alternative arrangements during 1996,
management believes Alpine's reinsurance relationship with UCIC is the best
opportunity reasonably available to the Company under the Company's current
circumstances. Certain conditions imposed by UCIC concerning the party with
which it was willing to contract under the Limited Agency Agreement made it
essential that the underwriting and production services previously performed by
TCO not be performed by an entity
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controlled by Exstar or TCO Holdings, but, rather, be performed principally by
an entity (E&S) directly owned by Mr. O'Shaughnessy. Accordingly, the Company
has not taken action to acquire the TCO operations because, in management's
view, such an acquisition would prevent the Company from deriving benefit from
the relationship with UCIC.
Management believes that certain of TCO's other creditors could
potentially assert claims with respect to the TCO operations that could disrupt
the UCIC relationship. The Company, therefore, has consented to TCO's use of
some of TCO's assets and cash flows to satisfy certain third-party obligations,
including tax obligations, obligations to an unaffiliated insurance company,
obligations owed to the holder of certain TCO Holdings preferred stock, and
obligations under an office lease to which TCO is subject. See "Properties" --
Item 2. It is anticipated that such obligations will be satisfied, in whole or
in part, from (i) a portion of any profits realized by Transre and E&S under
the Limited Agency Agreement, (ii) the override commission paid to TCO Holdings
in connection with the Quota Share Arrangement, and (iii) Exstar Common Stock
owned by TCO. Mr. O'Shaughnessy may have contingent liability with respect to
certain of these TCO obligations, and, consequently, may benefit from their
satisfaction. Other assets and cash flows of TCO will be used to repay debts
owed by TCO to the Company. Such assets and cash flows may include furniture,
fixtures and systems of TCO (independently appraised at approximately $2.4
million), profits of Transre and E&S under the Limited Agency Agreement (see
"-- Relationship with UCIC"), amounts paid to the Company by Claims Control
(see "-- Expense Reductions/Reallocations and Staffing Changes"), and potential
recoveries by TCO from third parties.
Although TCO is not a direct or indirect subsidiary of Exstar, its
income or loss is included in the Company's consolidated GAAP financial
statements in accordance with a form of equity accounting. The Company's
adoption of this form of accounting in 1995 (applied retroactively) was based
on the historical interdependence and common control of the Company and TCO,
including the Company's exertion of significant influence over the operations
of TCO, TCO's limited financial resources and TCO's need for financial support
from the Company. In accordance with this form of equity accounting, the
Company's GAAP net income and stockholders' equity are directly affected by
certain changes in TCO's income and stockholder's equity (i.e., certain losses
and gains of TCO reduce and increase, respectively, the Company's GAAP net
income and stockholders' equity). With respect to the Company's historical
GAAP financial statements, the effect of the adoption of this accounting
treatment was to reduce the Company's total stockholders' equity and net income
from that reported in the Company's consolidated financial statements
previously filed with the Securities and Exchange Commission ("SEC"). For
1992, the effect of this accounting treatment, as a result of TCO's losses, was
to reduce stockholders' equity and net income by $2.5 million. For 1993, the
effect of this accounting treatment, as a result of TCO's losses, was to reduce
stockholders' equity and net income by an additional $11.6 million. For 1994,
the effect of this accounting treatment, as a result of TCO's losses, was to
further reduce the Company's total stockholders' equity and net income by $7.1
million. In 1995 and 1996 TCO was profitable, such that this treatment served
to increase the Company's total stockholders' equity and net income by $1.7
million and $1.1 million, respectively. At December 31, 1996, the cumulative
effect of this accounting treatment was to reduce the Company's total
stockholders' equity by $18.4 million. Under this accounting method, if TCO
were to generate income in the future up to a certain threshold amount
(currently approximately $3 million), the Company's GAAP income and
stockholders' equity would increase by the amount of such income recognized by
TCO even without any repayments of amounts owed by TCO to the Company.
Conversely, unless the cumulative amount of TCO's losses since July 1, 1992
falls below the cumulative amount of TCO's indebtedness to the Company incurred
since July 1, 1992, any repayments of debt by TCO to the Company generally
would not increase the Company's GAAP net income or stockholders' equity. See
Note 11 of Notes to Consolidated Financial Statements.
Because the Company and TCO are affiliated through common controlling
ownership by Mr. O'Shaughnessy, the transactions and relationships between the
Company and TCO and the Company and
9
<PAGE> 10
Mr. O'Shaughnessy present certain conflicts of interest. Notwithstanding these
potential conflicts of interest, management believes that the actions and
inactions of the Company, while they have in some cases benefitted TCO and Mr.
O'Shaughnessy, have been, when taken as a whole, in the best interests of the
Company.
Combination of the Syndicate with Alpine. In late 1996, in view of a
perceived decrease in the benefits associated with IIE membership and in an
effort to reduce the costs involved in the operation of two separate insurance
entities, management determined that it was in the best interests of the
Company to cause the Syndicate to withdraw as a syndicate member of the IIE and
to merge its operations with its wholly-owned subsidiary, Alpine.
Accordingly, effective December 31, 1996, the Syndicate withdrew as a syndicate
member of the IIE, transferred all of its assets (other than the stock of
Alpine) and liabilities to Alpine and changed its name to Alpine Holdings, Inc.
Pursuant to an agreement with the IIE, certain of the Syndicate's assets
transferred to Alpine were placed in trust as security for the payment of
claims of policyholders and other obligations of the Syndicate. The agreement
also provides for continuing IIE Guaranty Fund protection with regard to
policyholders of the Syndicate. As a result of this change, Alpine is the
Company's only licensed insurer and its only significant operating entity.
Alpine Holdings, Inc. conducts no activities other than serving as a direct
holding company for the stock of Alpine. The following chart depicts the
Company's current organizational structure:
Exstar Financial Corporation
|
| 100%
|
Alpine Holdings, Inc.
|
| 100%
|
Alpine Insurance Company
|
| 100%
|
------------------------
| |
| |
Transco Premium Alpine Premium
Finance Co., Inc. Finance Co., Inc.
Expense Reductions/Reallocations and Staffing Changes. Prior to
January 1995, the Company had no compensated employees; employees of TCO
performed all underwriting, claims and other services for the Company pursuant
to management agreements between the Company and TCO. See "-- Current and
Future Operations and Organizational Structure -- Relationship with TCO."
Effective January 1, 1995, certain officers of TCO and Alpine, and certain
individuals providing administrative and support services to such officers,
became fully or partially compensated employees of Exstar. The salary, benefit
costs and other expenses borne by the Company in connection with this
arrangement were approximately $2.1 million in 1995. Following the downgrading
of the Company's Best ratings in 1996, the Company and TCO significantly
reduced their staff and expenses, and most of the remaining employees of TCO
(other than Claims Control employees) became employees of Alpine.
Consequently, the Company
10
<PAGE> 11
became directly responsible for the payment of all salaries and benefits
related to such employees. The claims handling staff, however, became
employees of Claims Control, a TCO Holdings subsidiary, on January 1, 1996.
Claims Control is reimbursed by Alpine for the salary and benefit costs related
to such employees, and Claims Control's general and administrative expenses, in
consideration of Claims Control's continued handling of claims under policies
previously issued by the Company. In addition, Claims Control currently pays
over to Alpine amounts paid to Claims Control by UCIC for handling UCIC claims.
See "-- Current and Future Operations and Organizational Structure --
Relationship with UCIC."
At January 1, 1996, the Company and TCO, together, had 134 employees
and total annualized payroll of approximately $7 million. At August 1, 1996, 85
employees remained (almost all of whom, other than the Claims Control employees,
had become employees of the Company). The pay levels of many of the remaining
employees (principally members of senior and middle management) were reduced.
As a result, total annualized payroll at August 1, 1996 (before reimbursement
from Transre and E&S) was approximately $4.5 million. Other general and
administrative expenses also were reduced substantially from prior levels.
General and administrative expenses following the reductions totaled
approximately $5 million annualized. Because of cost reductions and other
circumstances, individuals no longer employed by the Company include Exstar's
former Chief Financial Officer and its Chief Accounting Officer, four senior
underwriters, the three most senior members of the Company's management
information services department, the former head of the Company's claims
department and the former President of Alpine. As a result of these departures,
the Company's overall level of management experience has significantly
decreased. Depending on the Company's financial condition and prospects,
management expects the Company will need to hire additional personnel during
1997, assuming the Quota Share Arrangement remains in place, to support the
Company's operations.
During 1996, to assist the Company in retaining sufficient staffing
and to offset, in part, salary reductions instituted in 1996, Alpine sought
approval from the Illinois DOI to pay bonuses to its employees. The Illinois
DOI tentatively approved payment of the bonuses, up to a maximum aggregate
amount of $400,000 payable by Alpine, but conditioned payment upon satisfaction
of certain preconditions, including the implementation of the Quota Share
Arrangement (provided that it remained in effect for a period of time
satisfactory to the Illinois DOI). The Company expects ultimately to pay some
or all of the bonus amount during 1997, but management has not determined what
amounts to pay or at what time payments will be made, and any such
determination remains subject to final approval of the Illinois DOI.
In addition to performing services directly for the Company, the
majority of the Company's employees are performing services for Transre and E&S
in connection with the Limited Agency Agreement. In this regard, and in
accordance with a plan filed by Alpine with and approved by the Illinois DOI in
connection with its review of Alpine (see "-- Regulation -- Illinois Order"),
the salaries and benefit costs associated with these employees, as well as
general and administrative costs (including rent, utilities, insurance costs
and licensing fees), are currently being allocated among Alpine, Transre and
E&S. The total amount reimbursed by Transre and E&S to the Company during 1996
(covering the period from the beginning of the allocation on August 1, 1996
through December 31, 1996) was approximately $1.2 million. The amount payable
by Claims Control to the Company for 1996 with respect to revenues received
from UCIC was approximately $4,000. The allocations are based on management's
estimates of the relative amounts of employee time and Company resources
devoted to the operations. For example, the majority of the Company's salary
expense relating to its underwriting department has been allocated to Transre
and E&S, because the underwriting department's principal activities involve
producing new business for UCIC, while the underwriting department's activities
with respect to the Company's prior business are limited. Conversely, salaries
for management, accounting, administration and other departments are allocated
as much as 80% to Alpine.
11
<PAGE> 12
The plan approved by the Illinois DOI anticipates that the allocations
to Alpine will gradually decrease, and the allocations to Transre and E&S will
gradually increase, over time, but no assurances can be given that such
allocations will occur at any particular time, if at all. As circumstances
change, revised allocations are expected to be implemented, subject to approval
by the Illinois DOI.
LINES OF BUSINESS
The Company ceased issuing direct insurance in August 1996, and is not
currently issuing any insurance policies directly to insureds. Its current
business activities consist of: acting as a reinsurer (effective as of April 1,
1997) with respect to insurance policies issued by UCIC; handling claims under
policies and reinsurance contracts previously issued by the Company and
implementing mid-term adjustments to and cancellations of such policies; and
related management, investment, reporting and accounting functions. In lieu of
issuing direct insurance business, effective as of April 1, 1997, Alpine
entered into the Quota Share Arrangement with UCIC. Pursuant to the Quota
Share Arrangement, the Company assumes a portion of the business placed with
UCIC by Transre and E&S. Although such business currently is within the lines
of business from which the Company has historically derived premium revenue,
the Company is exploring the possibility of expanding its reinsurance
relationship with UCIC to include other niche lines of business produced
through Transre and E&S. The business produced through Transre and E&S and
reinsured by the Company under the Quota Share Arrangement is currently being
written on more restrictive policy forms, and with higher pricing, than the
business previously written directly by the Company, which management expects
will improve the Company's loss ratio. See "-- Operating Ratios."
The Company has historically operated in a single industry segment,
property and casualty insurance, and within this segment it concentrated on a
limited number of lines of business. During 1996 and 1995, most of the
Company's premium volume was derived from the direct writing of specialized
liability coverages, consisting principally of products liability coverages and
general liability coverages for contractors, ocean marine coverages, and
architects and engineers coverages. A small additional source of premium
volume was reinsurance assumed through a reinsurance underwriting manager which
is a subsidiary of TCO Holdings. The following table sets forth the sources of
the Company's premium for the years presented:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GROSS WRITTEN PREMIUM
Specialized liability
Contractors . . . . . . . . . . . . $ 8,902 61.9% $32,556 50.6% $28,687 47.1%
Products . . . . . . . . . . . . . 2,253 15.7 12,744 19.8 14,804 24.3
Other . . . . . . . . . . . . . . . 1,951 13.6 8,164 12.7 5,815 9.5
------- ----- ------- ----- ------- -----
Total specialized liability . . . . . 13,106 91.2 53,464 83.1 49,306 80.9
Ocean marine . . . . . . . . . . . . 764 5.3 7,408 11.5 7,308 12.0
Architects and engineers . . . . . . 307 2.1 2,409 3.8 2,983 4.9
------- ----- ------- ----- ------- -----
Total direct written premium . . . . 14,177 98.6 63,281 98.4 59,597 97.8
Reinsurance assumed . . . . . . . . . 196 1.4 1,006 1.6 1,313 2.2
------- ----- ------- ----- ------- -----
Total gross written premium . . . . . $14,373 100.0% $64,287 100.0% $60,910 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Specialized Liability. Specialized liability business accounted for
$13.1 million or 91.2%, and $53.5 million or 83.1%, of the Company's gross
written premium for 1996 and 1995, respectively. General liability insurance
for contractors accounted for approximately 67.9% and 60.9% of the Company's
specialized liability gross written premium in 1996 and 1995, respectively.
Insureds in this
12
<PAGE> 13
group included general contractors and several specialized classifications of
contractors. Products liability insureds consisted generally of manufacturers,
dealers/distributors and, to a lesser degree, others engaged in a wide variety
of businesses including machinery and equipment, auto/vehicle products and
sporting goods. Other specialized liability business written by the Company in
1996 and 1995 included employers liability, premises liability (O,L&T) for
apartments, restaurants and property owners, and some small niche programs.
Most of the Company's specialized liability insurance was written on a
direct basis on an occurrence form (approximately 94% and 92% of all
specialized liability premium in 1996 and 1995, respectively) or a claims-made
form (approximately 6% and 8% of all specialized liability premium in 1996 and
1995, respectively). The Company's specialized liability policies excluded
liability for pollution and punitive damages, had aggregate limits and paid
expenses in addition to policy limits.
Ocean Marine. Ocean marine business accounted for $764,000 or 5.3%,
and $7.4 million or 11.5%, of the Company's gross written premium in 1996 and
1995, respectively. Typical insureds included tugs, barges, crew boats,
builder risks and yachts. Both hull and protection and indemnity coverages
were provided, as was cargo coverage in some instances. The average policy had
a premium of approximately $33,000 and an average deductible of $10,000.
Architects and Engineers Professional Liability. The Company's
architects and engineers professional liability business accounted for
approximately $307,000 or 2.1%, and $2.4 million or 3.8%, of the Company's
gross written premium in 1996 and 1995, respectively. The Company's principal
classifications of insureds were architects, civil engineers, HVAC/mechanical
engineers, electrical engineers, interior designers and land surveyors.
The Company's typical architects and engineers insured was an
architectural firm with annual billings of approximately $301,000 not engaged
in structural or project design work. The average policy had a premium of
approximately $8,100, an average coverage limit of approximately $514,000 and
an average deductible of approximately $8,300.
The architects and engineers insurance was written on a claims-made
policy form pursuant to which claims had to be made to the Company within the
time frame permitted by the policy (generally within the policy period, or any
extended discovery period). Policies had aggregate limits, included expenses
within policy limits and provided extended discovery periods where required by
state insurance laws.
Other. The Company has also written other coverages from time to
time, including premises liability and other classifications.
INVESTMENTS
The Company's investments generally consist of those investments
permitted by the Illinois Insurance Code. Pursuant to an agreement entered
into by the Company in May 1996, Asset Allocation & Management Company, L.L.C.
has been granted investment advisory responsibility over most of the Company's
liquid invested assets.
13
<PAGE> 14
The table below shows the classifications of the Company's investments
at December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Market value Carrying value Percent of total
------------ -------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Fixed maturities:
U.S. government and government agencies and authorities . . $28,054 $28,054 45.58%
State municipalities and political subdivisions . . . . . . 6,881 6,881 11.18
All other corporate bonds . . . . . . . . . . . . . . . . . 3,612 3,612 5.87
Redeemable preferred stock . . . . . . . . . . . . . . 253 253 .41
------- ------- -----
Total fixed maturities . . . . . . . . . . . . . . . . 38,800 38,800 63.04
------- ------- -----
Equity investments:
Common stock . . . . . . . . . . . . . . . . . . . . . . . 375 375 .61
Non-redeemable preferred stock . . . . . . . . . . . . . . 1,156 1,156 1.88
------- ------- -----
Total equity investments . . . . . . . . . . . . . . . 1,531 1,531 2.49
------- ------- -----
Real estate:
Direct investments . . . . . . . . . . . . . . . . . . . . 11,139 18.10
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . 5,133 8.34
------- ------
Total real estate . . . . . . . . . . . . . . . . . . . 16,272 26.44
------- ------
Short-term investments . . . . . . . . . . . . . . . . . . . 4,944 8.03
------- ------
Total investments . . . . . . . . . . . . . . . . . . . . . . $61,547 100.00%
======= ======
</TABLE>
Certain assets shown in the table above are held in trust as security
for the payment of claims of policyholders and other obligations of the
Syndicate. See "-- Regulation -- Combination of the Syndicate with Alpine."
The fixed maturity assets have an average duration of approximately
3.7 years and an average maturity of approximately 4.4 years. The fixed
maturities subject to call at December 31, 1996 had a market value and carrying
value of $5.4 million.
Mortgage Loans. The Company's assets at December 31, 1996, included
16 mortgage loans with a total principal balance outstanding of approximately
$5.3 million. The book value of these loans, net of a $188,000 reserve against
losses and $33,000 of deferred loan origination fees, was $5.1 million. The
reserve against losses for mortgage loans is calculated as the difference
between the mortgage loan including accrued interest and the appraised value of
the property securing the loan.
Of the total portfolio at December 31, 1996, $900,000 or 17.5%,
consisted of six single-family residential construction and permanent loans,
$3.9 million consisted of nine commercial loans, and $300,000 consisted of one
residential tract development loan. The largest of the loans was $1.0 million,
the smallest loan was $37,000 and the average loan was approximately $323,000.
The Company is no longer making or purchasing mortgage loans, except
to facilitate sales of real estate owned or in connection with loan workouts.
Real Estate Owned. The Company had real estate investments totaling
$11.1 million at December 31, 1996. These values were net of a reserve for
losses of $1.7 million. The reserve against
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<PAGE> 15
losses for real estate owned is calculated as the difference between the book
value of the real estate owned and the fair value of the real estate owned.
The properties have combined fair values ("fair value" generally is the
appraised value, less expected costs of sale) of approximately $13.1 million as
of December 31, 1996 based on appraisals conducted during the fourth quarter of
1996. The Company is attempting to liquidate, in an orderly fashion, its owned
real estate portfolio and has no intention of acquiring or holding real estate,
other than possibly the office buildings described below, in the future.
Among the Company's properties are two commercial office buildings
located in Solvang, California, which serve as headquarters for the Company and
which were formerly leased to TCO. The buildings had a combined book value of
$4.3 million and a combined fair value of $5.7 million at December 31, 1996.
The TCO lease was terminated during 1996 after TCO-IL's revenues dropped and
its employees transferred to the Company. The total rent paid by TCO under the
lease was $228,000 in 1996, $584,000 in 1995 and $577,000 in 1994. The Company
currently leases 6,000 square feet of space in one of these buildings to the
YMCA at an annual rent of approximately $54,000 (subject to adjustment) under a
two-year lease, with three one-year renewal options. Except for amounts it
receives under the YMCA lease, the Company is currently bearing all costs
associated with the properties (subject to the cost allocation with Transre and
E&S as described under "-- Current and Future Operations and Organizational
Structure" and "-- Expense Reductions/Reallocations and Staffing Changes").
The Company from time to time solicits offers to purchase these buildings, but
no such offers on terms acceptable to the Company have been received. See
"Properties" -- Item 2.
An additional $800,000 of the $11.1 million total investment in real
estate pertains to interests in a real estate development engaged in developing
a 120-lot residential project in Bakersfield, California. There were 25 lots
remaining with a fair value of $1.0 million as of December 31, 1996.
The Company owns three commercial medical condominium units located in
Solvang, California. As of December 31, 1996, the book value of these units
was $783,000, compared to a $765,000 fair value as of that date.
The Company also owns property acquired for residential development in
1990. The 50-acre tract located in Solvang, California, consists of nine
parcels. Homes have been built on two of the parcels and during 1993 one of
the homes and two of the parcels were sold. During 1994, one of the parcels
was sold and during 1995 the other home was sold. The book value and fair
value of the remaining four parcels were $1.1 million at December 31, 1996.
The Company's remaining owned real estate consists of two properties
acquired in liquidation of secured real estate loans and held for sale; two
purchased residential properties (one of which was acquired from Peter
O'Shaughnessy) located in the Santa Ynez Valley, California, held for sale; and
one 23 acre parcel and one 25 acre parcel which were acquired from Mr.
O'Shaughnessy, held for sale. These properties had a combined book value at
December 31, 1996 of $4.2 million and a combined fair value of $4.4 million as
of that date. See "Certain Relationships and Related Transactions" -- Item 13.
JBW & Co. Loan. In December 1989, the Syndicate made an investment in
the preferred stock of Concord General Corporation, a privately held insurance
holding company ("Concord"). The preferred stock had an 11.3% dividend rate
and a stated value of $10,000 per share. Subsequent to December 31, 1993,
Exstar entered into an agreement to facilitate the restructuring of Concord,
and thereby to enhance the value of certain of the Company's rights with
respect to its investment, by an exchange of the Syndicate's Concord preferred
stock for preferred stock in JBW & Co., Inc. ("JBW & Co."), a Concord
affiliate, effective as of December 31, 1993. The JBW & Co. preferred stock
acquired by the Syndicate had the same stated value, terms and dividends as the
Concord preferred stock. The
15
<PAGE> 16
preferred stock was convertible by the holder into secured debt of JBW upon the
occurrence of specified events.
In August 1995, the Company exercised its right to convert the JBW &
Co. preferred stock to a promissory note. As a result, the Company currently
holds a collateralized loan receivable in the principal amount of $12.3 million
due from JBW & Co. ("JBW & Co. Loan"). The principal amount under the JBW &
Co. Loan bears interest at a simple annual rate of 7% per year. The principal
and interest are due in quarterly installments commencing March 31, 1997, and
ending December 31, 2004. Management believes, based on discussions with
representatives of JBW & Co., that JBW & Co. is insolvent and incapable of
meeting its obligations, including payments on the JBW & Co. Loan.
The JBW & Co. Loan is collateralized by a pledge by Concord of 81% of
the outstanding capital stock of Classic Fire and Marine Insurance Company
("Classic"), an Indiana insurance company affiliated with JBW & Co. and
Concord. Classic is currently under supervision by the Indiana Department of
Insurance. Although Classic reported policyholders' surplus of $12.2 million
at December 31, 1996, management believes that Classic's value is highly
uncertain, given that its most recent financial statements have not been
audited and include assets and liabilities the values of which are not readily
determinable, including among other things the preferred stock of TCO Holdings,
discussed below.
Simultaneously with the Syndicate's original investment in Concord,
Concord made a similar investment in preferred stock of a predecessor of
Exstar. Such preferred stock was later converted into preferred stock of TCO
Holdings, which preferred stock was to have been convertible, upon the
occurrence of specified events, into debt of TCO Holdings. The aggregate
stated value of the TCO Holdings preferred stock was approximately $10.8
million at December 31, 1996. Management believes the TCO Holdings preferred
stock is currently held in a reinsurance trust between Geneva Assurance
Syndicate ("Geneva"), a former IIE syndicate in liquidation, and Classic, and
that the TCO Holdings preferred stock may comprise a substantial portion of
Classic's estimated value. Demand has been made for conversion of the TCO
Holdings preferred stock into debt of TCO Holdings, but the stock has not been
converted and neither Geneva nor Classic has taken further action to cause its
conversion (other than in connection with the overall settlement discussions
described below). If the preferred stock were converted, Peter O'Shaughnessy
and TCO Holdings could be required to pledge assets to secure repayment of the
debt, including Exstar Common Stock held by Mr. O'Shaughnessy and TCO Holdings.
In view of the uncertainty surrounding the Company's ability to
realize value with respect to the JBW & Co. Loan (and the collateral pledged to
secure it), the Company has entered into negotiations with JBW & Co. and
various insurance regulatory authorities with jurisdiction over the parties and
has reached a tentative overall settlement of issues surrounding the JBW & Co.
Loan and the TCO Holdings preferred stock. As currently contemplated, the
settlement would involve a transfer to the Company of a mortgage note in the
principal amount of approximately $2 million (or proceeds thereof) in full
satisfaction of the JBW & Co. Loan. The mortgage note would be secured by real
estate with an appraised value at September 1, 1996 of $9.0 million.
Concurrently with the foregoing transaction, TCO Holdings would
convert the TCO Holdings preferred stock into a TCO Holdings promissory note in
the principal amount of $2.5 million, with four percent annual interest on the
principal balance outstanding, payable from commissions received by TCO
Holdings in connection with the Quota Share Arrangement. See "-- Current and
Future Operations and Organizational Structure." A letter of intent with
respect to the foregoing settlement has been entered into by the parties. The
settlement, however, is contingent upon the execution of formal agreements by
the parties and final approval of the agreements by the applicable insurance
regulatory authorities. There can be no assurance that such approval will be
obtained or that the settlement will be consummated as currently contemplated.
16
<PAGE> 17
The financial impact of the proposed settlement on the Company's GAAP
financial statements will depend on the precise terms and conditions of the
settlement, and consequently has not been determined. The settlement, as
currently contemplated, is expected to increase Alpine's policyholders' surplus
by approximately $2 million.
Loan to TCO. In December 1993, the Company entered into a formal
loan agreement to loan TCO-IL up to $9.0 million to support TCO-IL's operations
("Loan Agreement"). The Loan Agreement requires payment of interest at the
prime rate plus two percent, monthly in arrears. Principal is to be paid
quarterly, if necessary, such that the maximum principal balance outstanding
would not have exceeded $8,550,000 on January 1, 1995, and the maximum principal
balance outstanding would thereafter decline by $450,000 increments on the first
day of each subsequent calendar quarter. Repayment of the remaining principal
balance currently is secured by TCO-IL's pledge of 160,000 of the 536,000 shares
of Exstar Common Stock owned by it. TCO-IL had previously pledged a total of
500,000 shares of Exstar Common Stock owned by it to secure its obligations
under the Loan Agreement. The number of shares pledged was reduced by agreement
of the parties based on TCO-IL's prior satisfaction of payment obligations under
the Loan Agreement.
In February 1995, in connection with Exstar's decision to commence
full or partial compensation of certain TCO and Alpine employees who also are
Exstar employees, including the Chief Executive Officer, the President, and the
former Chief Financial Officer, the Company and TCO entered into an amendment
to the Loan Agreement (i) creating a voting trust with respect to the common
stock of TCO-IL and its affiliate, TCO Insurance Services ("TCO-CA"), with the
outside director(s) of Exstar having the right to vote such shares in the event
TCO-IL fails to make any two consecutive payments due under the Loan Agreement,
and (ii) requiring TCO-IL to provide certain salary expense and transaction
reports relating to TCO to the Company to assist the Company in monitoring
TCO's financial condition.
Payments by TCO were current through December 31, 1996, leaving a
principal balance of $4.6 million of which $2.2 million was payable to Exstar
and $2.4 million was payable to Alpine. The Company believes that TCO may not
currently or in the foreseeable future have the ability to repay all of this
indebtedness, and does not believe that the collateral securing the
indebtedness would satisfy the indebtedness, given the current value of the
Exstar Common Stock. Accordingly, in an effort to help resolve financial
issues between the Company and TCO and to provide the Company assets of value
to the Company's continuing operations, Exstar is considering accepting from
TCO, with respect to the $2.2 million of TCO debt owed to it, a transfer to the
Company of certain computer systems, furniture, fixtures, properties and rights
of TCO. The systems, furniture and fixtures which may be transferred
constitute virtually all of TCO's systems, furniture and fixtures, have a
current book value of approximately $200,000 and were independently appraised
in October 1996 at a total value of approximately $2.4 million. Pursuant to
its rights under the Master Agreement with TCO, Exstar currently has a license
to use the systems that would be transferred to it by TCO. If the exchange is
approved by the Board of Directors (Exstar currently has only one independent
director), it is currently contemplated that it would become effective as of
January 1, 1997. No resolution has been reached with respect to the $2.4
million of debt owed by TCO to Alpine, but a transfer of certain contingent
assets of TCO (including a potential receivable from an unaffiliated insurance
company and certain real property rights) in full or partial satisfaction of
such debt is under consideration by the parties. Any offset or reduction of
the TCO debt to Alpine would require the prior approval of the Illinois DOI.
In accordance with the equity accounting treatment retroactively
adopted by the Company in early 1995, TCO-IL's repayment obligations to the
Company are generally not carried as assets of the Company in its GAAP
consolidated financial statements. TCO's payment of the $2.2 million debt to
Exstar through the transfer of assets would have no impact on the Company's
GAAP net income or stockholders' equity. Neither the note receivable nor any
other amount owed by TCO to Alpine is
17
<PAGE> 18
reflected as an admitted asset of Alpine in its statutory financial statements.
See Note 11 of Notes to Consolidated Financial Statements.
Fixed Maturity Investments. The table below sets forth the composition
of the Company's portfolio of fixed maturity investments by rating at December
31, 1996.
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Percentage of Cumulative
Rating* Carrying value portfolio percentage
- ------------------------------------------------------- -------------- ------------- ----------
<S> <C> <C> <C>
AAA (including U.S. Government obligations) . . . . . . $33,704,000 86.9% 86.9%
AA+ . . . . . . . . . . . . . . . . . . . . . . . . . . 682,000 1.7% 88.6%
AA . . . . . . . . . . . . . . . . . . . . . . . . . . 2,088,000 5.4% 94.0%
A- . . . . . . . . . . . . . . . . . . . . . . . . . . 98,000 .3% 94.3%
BBB+ . . . . . . . . . . . . . . . . . . . . . . . . . 253,000 .6% 94.9%
B . . . . . . . . . . . . . . . . . . . . . . . . . . . 508,000 1.3% 96.2%
Nonrated . . . . . . . . . . . . . . . . . . . . . . . 1,467,000 3.8% 100.0%
--------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $38,800,000 100.0%
=============== =============
</TABLE>
- ------------------
* Ratings are assigned primarily by Standard & Poor's with remaining ratings
assigned by Moody's and converted to the equivalent Standard & Poor's
ratings.
Investment Results. Investment results of the Company for each year
in the three years ended December 31, 1996, are shown in the following table.
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents and invested assets(1) . . . . . . . . . $ 76,454 $90,838 $ 86,309
Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 4,030 $ 4,913 $ 3,933
Average yield on total investments(2) . . . . . . . . . . . . . . . 5.3% 5.4% 4.6%
Net realized investment (losses) gains . . . . . . . . . . . . . . $ (377) $ 389 $ (41)
</TABLE>
- ------------------
(1) Total invested assets on an annual average basis.
(2) Calculated on an annualized basis.
IRS AUDIT
In July 1995, the Internal Revenue Service ("IRS") commenced an audit
of the Company's 1992 Federal corporate income tax return. In connection with
this audit, the IRS reviewed a number of documents concerning the Company,
including certain information relating to the restructuring of the Company's
predecessor holding company system in 1992, which was reported as a tax-free
reorganization of such holding company system. The audit has been completed
and the Company believes no material liability will be asserted against the
Company. In addition, the IRS has commenced an audit of Peter O'Shaughnessy's
1992 Federal income tax return. The results of this audit may have material
adverse consequences on Mr. O'Shaughnessy's financial condition and, among
other things, could result in his selling a significant portion of his Exstar
Common Stock or his pledging of a significant portion of such stock to secure a
loan or loans.
UNDERWRITING AND PRICING/MARKETING AND PRODUCTION
The Company ceased issuing direct insurance in August 1996, and is not
currently issuing any insurance policies directly to insureds. Its business
activities currently consist of: acting as a reinsurer (effective as of April
1, 1997) with respect to insurance policies issued by UCIC; handling claims
under
18
<PAGE> 19
policies and reinsurance contracts previously issued by the Company and
implementing mid-term adjustments to and cancellations of such policies; and
related management, investment, reporting and accounting functions. In lieu of
issuing direct insurance business, effective as of April 1, 1997, Alpine
entered into the Quota Share Arrangement with UCIC. Pursuant to the Quota
Share Arrangement, UCIC cedes to Alpine, and Alpine assumes, a portion of the
business placed with UCIC by Transre and E&S. Transre and E&S have entered into
the Limited Agency Agreement with UCIC pursuant to which Transre and E&S
produce for UCIC business of the type previously produced for the Company by
TCO-IL. See "-- Current and Future Operations and Organizational Structure --
Relationship with UCIC." The parties are also exploring the possibility of
writing certain new coverages.
The Quota Share Arrangement became effective as of April 1, 1997, and
applies to all premiums unearned as of such date on policies produced by
Transre and E&S for UCIC, and all policies produced by Transre and E&S and
placed with UCIC after such date. The continuation of the Quota Share
Arrangement is subject to regulatory approval. Management believes that the
Quota Share Arrangement will give the Company the opportunity to generate
profits from business placed with UCIC and ceded to Alpine.
CLAIMS MANAGEMENT AND ADMINISTRATION
Claims Control, a subsidiary of TCO Holdings, is currently providing
claims management and administrative services to the Company, in exchange for
the reimbursement of certain expenses of Claims Control by Alpine.
Historically, such functions were handled primarily by TCO pursuant to the
management agreements, which were terminated in 1996. See "-- Current and
Future Operations and Organizational Structure -- Relationship with TCO."
REINSURANCE
The Company expects to retain all risk assumed by it under the Quota
Share Arrangement with UCIC, and, thus, has not renewed its existing
reinsurance agreements or entered into new agreements with reinsurers with
respect to such risks. The Company continues to have protection, with respect
to business previously written, under reinsurance agreements entered into in
prior years.
To limit its exposure on large risks and increase capacity, the
Company historically entered into certain reinsurance transactions that ceded a
portion of risks underwritten to other insurance companies. In the event that
any or all of the reinsurers were unable to meet their obligations, the Company
would then be liable for such defaulted amounts. All reinsurance payable to
the Company is due from Underwriters at Lloyd's, London or companies rated at
least A- by Best. At December 31, 1996 the largest single amount recoverable
for paid and unpaid losses was $24.4 million from Signet Star Reinsurance
Company, an insurer with a Best rating of A and $257.6 million of
policyholders' surplus at December 31, 1996.
Although the Company does not write material amounts of business in
the property insurance lines, which are lines that tend to be most susceptible
to catastrophes, the Company does periodically consider the possibility of its
exposure to unusually large or catastrophic events. Management believes the
likelihood to be remote that such an event would occur and the Company's
reinsurers would fail to meet their obligations with respect to such an event
in any material way. With respect to the overall exposure of the Company's
reinsurers to catastrophic risk, management monitors the financial condition of
such reinsurers generally while relying on rating agencies, including Best, to
assess its reinsurers' vulnerabilities to such risk.
Reinsurance for the Company's specialized liability business through
December 31, 1996, is provided by six treaties. The first provides coverage
for 1991 and 1992 by Signet Star Reinsurance
19
<PAGE> 20
Company for losses incurred in excess of $1.0 million per insured, per loss up
to a maximum of $2.0 million per insured, per loss, plus pro rata loss
adjustment expenses. The second provides coverage for 1993, and the third
provides coverage from January through September 1994, for losses incurred in
excess of $1.0 million per insured, per loss up to a maximum of $2.0 million
per insured, per loss, plus pro rata loss adjustment expenses, by Signet Star
Reinsurance Company and Security Reinsurance Company. The fourth provides
coverage from October 1, 1994, through December 31, 1995, for losses incurred
in excess of $500,000 per insured, per loss up to a maximum of $2.0 million per
insured, per loss, plus pro rata loss adjustment expenses by Signet Star
Reinsurance Company and Security Reinsurance Company. The fifth cedes 50% of
the first $500,000 of losses incurred per insured per loss, plus loss
adjustment expenses, for losses occurring under (i) policies issued on or after
April 1, 1995 and (ii) policies issued prior to April 1, 1995, for the
unexpired portion thereof, by Signet Star Reinsurance Company and Reliance
Insurance Company. The sixth provides coverage from January through December,
1996, for losses incurred in excess of $500,000 per insured, per loss up to a
maximum of $2.0 million per insured, per loss, plus pro rata loss adjustment
expenses, by Underwriters Reinsurance Company.
Reinsurance for the Company's architects and engineers professional
liability business through 1995 is provided by treaties principally with
Underwriters at Lloyd's, London. Treaties effective January 1, 1988, through
December 31, 1993 and for 1995, provide coverage for losses incurred, including
loss adjustment expenses, in excess of $250,000 per insured, per loss up to a
maximum of $2.0 million per insured, per loss. The treaty for 1994 provides
coverage for losses incurred, including loss adjustment expenses, in excess of
$250,000 per insured, per loss up to a maximum of $1.0 million per insured, per
loss. Reinsurance for the Company's architects and engineers business in 1996
is provided under the specialized liability treaty described above with
Underwriters Reinsurance Company.
The Company's ocean marine business is reinsured through a series of
annual treaties principally provided by Underwriters at Lloyd's, London. The
current series of treaties expired February 28, 1997, and provided coverage for
losses incurred, including loss adjustment expenses, in excess of $250,000 per
insured, per loss, generally up to a maximum of $1.0 million per insured, per
loss, up to a maximum aggregate limit of liability (excluding reinstatements)
of $10.0 million. The expiring treaties have been extended to July 1997 to
provide run off coverage up to a maximum of $2.0 million per insured, per loss.
Treaties for prior annual periods provide similar coverages, but with reduced
maximum aggregate limits of liability.
The Syndicate and Alpine provided letters of credit which were fully
collateralized by cash and cash equivalents, fixed maturities and short-term
investments in connection with assumed reinsurance agreements totaling
$7,992,000, $8,746,000 and $8,839,000 at December 31, 1996, 1995 and 1994,
respectively.
The following table reflects the effects of reinsurance on the
Company's premiums:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Earned premium:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . $40,058 $64,090 $56,402
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,282) (25,966) (5,203)
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 234 1,025 1,314
------- ------- -------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,010 $39,149 $52,513
======= ======= =======
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Written premium:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . $14,177 $63,281 $59,597
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,563) (36,102) (7,378)
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 196 1,006 1,313
------- ------- -------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,810 $28,185 $53,532
======= ======= =======
</TABLE>
Included in the Company's statements of operations as part of policy
acquisition costs amortized were ceded commission income of $6,670,000,
$11,424,000 and $5,315,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
The following table shows the amount of reinsurance recoverables for
unpaid losses and loss adjustment expenses and for paid losses and loss
adjustment expenses payable by the Company's reinsurers:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . $33,921 $23,164
Receivables for paid losses and loss adjustment expenses . . . . . . . . . . . . 1,576 916
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,497 $24,080
======= =======
</TABLE>
The ceding of liability to a reinsurer does not legally discharge the
ceding insurer from its primary liability for the full amount of the policies
on which it obtains reinsurance, and the ceding insurer will be required to pay
the entire loss if the assuming reinsurer fails to meet its obligations under
the reinsurance agreement. The Company has never had a significant reinsurance
recovery problem, and expects that it will be able to collect the reinsurance
receivables due from its reinsurers.
PREMIUM FINANCE OPERATIONS
The Company's premium finance subsidiaries, Alpine Premium Finance Co.
("APF") and Transco Premium Finance Co. ("TPF"), previously provided premium
financing with respect to risks underwritten by Alpine, the Syndicate, and
other insurers for which TCO provided underwriting or premium collection
services. APF is licensed as a premium finance company in Illinois and TPF is
licensed in California. Services of the premium finance subsidiaries currently
are not being used in connection with the Quota Share Arrangement and it is
uncertain whether these services will be utilized by the Company in the future.
OPERATING RATIOS
The following ratios, which are frequently used in evaluating
operating performance in the insurance industry, are presented on a statutory
and GAAP basis.
Combined ratios. The combined ratio, which reflects underwriting
results but not investment income, is a traditional measure of underwriting
performance of a property and casualty insurer. A statutory combined ratio of
less than 100% generally indicates statutory underwriting profitability
(although, as was the case with the Company in 1994, a company may have a
combined ratio of less than 100% and still incur a statutory underwriting loss
due to the timing of the reporting of commission
21
<PAGE> 22
expense) while a statutory combined ratio in excess of 100% generally indicates
a statutory underwriting loss.
The following table reflects, on a statutory basis, the consolidated
loss and loss adjustment expense ratios, expense ratios and combined ratios of
the Syndicate and Alpine for the years ended December 31, 1996, 1995 and 1994,
and for the property and casualty insurance industry, and the other liability
industry group of the property and casualty industry, for the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Cumulative
Years ended December 31, average
-------------------------------- -------
1996 1995 1994 1994-96
---- ---- ---- -------
<S> <C> <C> <C> <C>
The Company:
Loss and loss adjustment expense ratio . . . . . 60.0% 39.1% 64.6% 54.3%
Expense ratio . . . . . . . . . . . . . . . . . . 63.3% 49.9% 31.7% 40.6%
Combined ratio . . . . . . . . . . . . . . . . . 123.3% 89.0% 96.3% 94.9%
Property and casualty insurance industry(1):
Loss and loss adjustment expense ratio . . . . . n/a 78.9% 81.0% n/a
Expense ratio . . . . . . . . . . . . . . . . . . n/a 26.1% 26.0% n/a
Combined ratio(2) . . . . . . . . . . . . . . . . n/a 106.4% 108.3% n/a
Other liability industry group(1)(3):
Loss and loss adjustment expense ratio . . . . . n/a 115.0% 98.5% n/a
Expense ratio . . . . . . . . . . . . . . . . . . n/a 28.1% 26.6% n/a
Combined ratio(2) . . . . . . . . . . . . . . . . n/a 143.6% 125.5% n/a
</TABLE>
- ------------------
(1) Source: Best's Aggregates & Averages, Property Casualty (1996 edition).
(2) Industry combined ratios include policyholder dividends and, therefore,
exceed the sum of the loss and loss adjustment expense ratio and the
expense ratio.
(3) Represents commercial lines of casualty insurance (excluding medical
malpractice).
The ratios reflected above with respect to 1996 differ from those that
would be calculated on the basis of information in the 1996 annual statement
(statutory financial statement) of Alpine filed with state insurance regulatory
officials, in that the operating results of the Syndicate were not combined
with those of Alpine in Alpine's 1996 annual statement, even though the
Syndicate's operations were combined with those of Alpine effective December
31, 1996. See "-- Current and Future Operations and Organizational Structure
- -- Combination of the Syndicate with Alpine."
The following table reflects, on a GAAP basis, the consolidated loss
and loss adjustment expense ratios, expense ratios and combined ratios of the
Syndicate and Alpine for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Cumulative
Years ended December 31, average
------------------------------------- ---------
1996 1995 1994 1994-1996
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Loss and loss adjustment expense ratio . . 60.4% 40.0% 62.6% 54.3%
Expense ratio . . . . . . . . . . . . . . . 24.4% 29.8% 30.1% 28.9%
Combined ratio . . . . . . . . . . . . . . 84.8% 69.8% 92.7% 83.2%
</TABLE>
The loss and loss adjustment expense ratio is calculated by dividing
incurred losses and loss adjustment expenses (determined on a statutory or GAAP
basis, as the case may be) by earned premium (determined on a statutory or GAAP
basis). The statutory expense ratio is calculated by dividing net incurred
other underwriting expenses by net written premium. The GAAP expense ratio is
calculated by
22
<PAGE> 23
dividing policy acquisition costs amortized by earned premium. The combined
ratio is the sum of the loss and loss adjustment expense ratio plus the expense
ratio on both statutory and GAAP bases.
During 1996, the Company reduced its reserves for losses and loss
adjustment expenses as of December 31, 1995. See "-- Financial Reporting;
Delisting of Common Stock" and "-- Losses and Loss Adjustment Expenses." The
reduction in the reserves (approximately $14.9 million) took effect in 1995 and
reduced the Company's 1995 loss and loss adjustment expense ratio. The
Company's 1995 statutory expense ratio was increased by profit sharing expense
related to the foregoing reduction in reserves. The cessation of the Company's
writing of direct business in 1996 (without a corresponding immediate reduction
in expenses) adversely affected the Company's 1996 statutory expense ratio and
combined ratio.
IRIS Ratios and Risk Based Capital. The National Association of
Insurance Commissioners ("NAIC") utilizes eleven Insurance Regulatory
Information System ("IRIS") ratios and has developed a risk-based capital
formula to assist regulators in evaluating insurer performance and capital
adequacy. Alpine failed certain IRIS ratio tests in 1995 and 1996, and its
policyholders' surplus fell below a regulatorily prescribed early warning level
of risk based capital in 1995 and 1996. See "-- Regulation -- Insurance
Regulatory Information System Tests" and "-- Regulation -- Risk Based Capital."
REGULATION
Exstar's insurance company subsidiary, Alpine, is subject to a
substantial degree of regulation, which generally is designed to protect the
interests of Alpine's policyholders. As an Illinois property and casualty
insurance company, Alpine is subject to the primary regulatory oversight of the
Illinois DOI.
Illinois Order. Alpine is currently subject to the Illinois Order
which limits its and the Company's activities. In May 1996, management
approached the Illinois DOI to discuss Alpine's loss reserves, its financial
condition, its relationship with TCO and TCO's inability to fully pay Alpine
amounts owed. See "-- Current and Future Operations and Organizational
Structure -- Relationship with TCO." Based on that discussion and issues
concerning Alpine's statutory financial statements and its determination of
loss reserves (see "-- Losses and Loss Adjustment Expenses"), the Illinois DOI
commenced an actuarial and financial review of Alpine. In connection with this
review, on July 5, 1996, the Illinois DOI issued an order directing: (i) that
Alpine, including the owners, officers, directors, and employees of Alpine,
shall make no disbursements of any kind, except for properly authorized
insurance claim payments, whether by direct cash transaction, loan offset,
forgiveness of debts, purchase, payment of compensation, dividends of any kind,
or by transfer of securities or assets of any kind, unless prior to such
disbursement Alpine has obtained the written approval of the Illinois DOI; (ii)
that Alpine shall not enter into or agree to enter into any agreement which
commits Alpine to any type of disbursement subject to the foregoing clause (i)
without the prior written approval of the Illinois DOI; (iii) that Alpine is
prohibited from entering into any transactions with any affiliate as defined
under the Illinois Insurance Code without the prior written approval of the
Illinois DOI; and (iv) that Alpine shall demand immediate payment to Alpine of
all Alpine premiums held by any affiliate. The impact of the Illinois Order
has been to subject virtually all of Alpine's and the Company's transactions,
organizational relationships and business methods to close scrutiny by, and
approval of, the Illinois DOI.
Combination of the Syndicate with Alpine. Effective December 31,
1996, the Syndicate withdrew as a syndicate member of the IIE, and concurrently
transferred all of its assets (other than the stock of Alpine) and liabilities
to Alpine. Pursuant to an agreement with the IIE, certain of the Syndicate's
assets transferred to Alpine were placed in trust as security for the payment
of claims of policyholders and other Syndicate obligations, and thus are not
readily available for the satisfaction of other Alpine obligations. Alpine is
subject to certain ongoing reporting and compliance obligations to the IIE with
respect to business formerly conducted by the Syndicate. In addition, $1.0
million of assets of the Syndicate are now held, and will continue to be held
for a period of at least three years, by the IIE Guaranty Fund,
23
<PAGE> 24
Inc., an entity which is intended to provide certain financial protection to
policyholders of insolvent IIE syndicates. Such $1.0 million is included as an
asset of the Company in its GAAP financial statements, and as an asset of
Alpine in its statutory financial statements. Because of syndicate
insolvencies which have occurred and may occur in the future, the Company's
ability to recover in full such $1.0 million may be uncertain.
Dividend Limitations. Alpine is limited in its ability to pay
dividends to shareholders. Alpine is subject to an overall limitation that
dividends and other distributions can be declared and paid only to the extent
of earned, as opposed to contributed, policyholders' surplus. In addition,
Alpine is subject to the provisions of the Illinois Insurance Holding Company
Systems Act, which requires prior notice for the payment of all dividends or
other distributions, and special approval for those which, during any
consecutive 12-month period, exceed the greater of (i) 10% of Alpine's
policyholders' surplus as of the immediately preceding year-end or (ii) its
statutory net income for the immediately preceding year. In addition to the
foregoing limitations, the Illinois Order prohibits Alpine from paying any
dividends without the prior approval of the Illinois DOI. Management expects
that such approval would be unlikely, if requested, in the foreseeable future.
Holding Company System Regulation. Because of its indirect ownership
of Alpine, Exstar is subject to certain provisions of the Illinois Insurance
Holding Company Systems Act, which governs any direct or indirect changes in
control of Alpine and certain affiliated-party transactions involving Alpine or
its assets. No person may acquire, directly or indirectly, 10% or more of the
outstanding voting securities or otherwise acquire control of Alpine, Alpine
Holdings or Exstar, unless the Illinois DOI has approved such acquisition. The
determination of whether to approve any such acquisition is based on a variety
of factors, including an evaluation of the acquirer's financial stability, the
competence of its management and whether competition in Illinois would be
reduced. In addition, certain material transactions involving Alpine and any
affiliate must be disclosed to the Illinois DOI not less than 30 days prior to
the effective date of the transaction (a transaction can be disapproved by the
Illinois DOI within such 30-day period if it does not meet certain standards).
Transactions requiring such approval include, but are not limited to, sales,
purchases or exchanges of assets, loans and extensions of credit, and
investments. Alpine is also required to file periodic and updated statements
reflecting the current status of its holding company system, the existence of
any related- party transactions and certain financial information relating to
any person who directly or indirectly controls (presumed at 10% voting control)
Alpine. In addition to the foregoing, the Illinois Order requires approval of
the Illinois DOI for most transactions and commitments involving Alpine and its
affiliates.
Insurance Guaranty Funds. As an Illinois property and casualty
insurance company, Alpine is subject to the provisions of the Illinois
Insurance Guaranty Fund Act, which provides for the assessment of
member insurance companies based on the amount of direct written premium in
Illinois. The amount and timing of such assessments are beyond the control of
the Company. Although Alpine is no longer writing direct business, it may be
subject to assessments with respect to direct business written in prior years.
National Association of Insurance Commissioners. In addition to
state-imposed insurance laws and regulations, Alpine is subject to the general
statutory accounting practices and reporting formats established by the NAIC.
The NAIC also promulgates model insurance laws and regulations relating to the
financial and operational regulation of insurance companies. These rules and
regulations generally are not directly applicable to an insurance company until
they are adopted by applicable state legislatures and departments of insurance.
NAIC model laws and regulations have become increasingly important in recent
years, due primarily to the NAIC's Financial Regulatory Standards and
Accreditation Program. Under this program, states which have adopted certain
required model laws and regulations and meet various staffing and other
requirements are "accredited" by the NAIC. Such accreditation is the
24
<PAGE> 25
cornerstone of an eventual nationwide regulatory network, and there is a
certain degree of political pressure on individual states to become accredited
by the NAIC. Because the adoption of certain model laws and regulations is a
prerequisite to accreditation, the NAIC's initiatives have taken on a greater
level of practical importance in recent years. Illinois has been accredited by
the NAIC, but the maintenance of its accreditation is contingent upon Illinois'
substantial compliance with various NAIC model laws and regulations.
All states have adopted the NAIC's financial reporting form, which is
typically referred to as the NAIC "annual statement." In this regard, the NAIC
has a substantial degree of practical influence and is able to accomplish
certain quasi-legislative initiatives through amendments to the NAIC annual
statement and applicable accounting practices and procedures. For instance,
the NAIC has required all insurance companies to have an annual statutory
financial audit and actuarial certification as to loss and loss adjustment
expense reserves by including such requirements within the annual statement
instructions.
In reporting in accordance with the NAIC annual statement form,
insurers must comply with statutory accounting practices typically described as
those practices "prescribed" or "permitted" by the insurance company's
domiciliary insurance regulator. With respect to Alpine, "prescribed"
statutory accounting practices are those described under Illinois laws and
regulations of the Illinois DOI. "Permitted" statutory accounting practices
encompass all statutory accounting practices not so prescribed and must be
approved by the appropriate regulatory authority. All practices used by the
Company are "prescribed."
Insurance Regulatory Information System Tests. The NAIC also has
developed IRIS ratios which are designed to provide regulators indications
of potential problems of insurance companies. Alpine failed eight of eleven
IRIS ratio tests for 1995 based on the initial 1995 statutory financial
statements it filed with regulatory authorities (based on which a number of such
regulatory authorities took action restricting Alpine's authority to do business
- - see "-- Background Concerning Changes in Operations -- Regulatory
Restrictions" and "-- Losses and Loss Adjustment Expenses"). Alpine amended its
1995 statutory financial statements to reflect the overstatement in its loss
reserves of approximately $14.9 million, and, based on the amended statements,
it failed four IRIS ratio tests for 1995. Alpine failed only
25
<PAGE> 26
two IRIS ratio tests for 1996 (as a general rule, an insurer may fail up to
three IRIS ratio tests without triggering a higher level of NAIC or regulatory
scrutiny).
The following table sets forth the NAIC's expected normal values for
the IRIS ratios and Alpine's IRIS ratios for 1996 and 1995 (based on its
amended statutory statement).
<TABLE>
<CAPTION>
IRIS Ratios
Unusual Values Equal to or Alpine's Results
-------------------------- ----------------
Over Under 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ratio
Gross premium to surplus . . . . . . . . . . . . . . . . . 900 -- 99 427
Net premium to surplus . . . . . . . . . . . . . . . . . . 300 -- 61 144
Change in net writings . . . . . . . . . . . . . . . . . . 33 -33 -57* -43*
Surplus aid to surplus . . . . . . . . . . . . . . . . . . 15 -- 2 28*
Two-year overall operating ratio . . . . . . . . . . . . . 100 -- 90 96
Investment yield . . . . . . . . . . . . . . . . . . . . . 10 4.5 3.6* 3.0*
Change in surplus . . . . . . . . . . . . . . . . . . . . . 50 -10 -6 -39*
Liabilities to liquid assets . . . . . . . . . . . . . . . 105 -- 99 86
Agents' balances to surplus . . . . . . . . . . . . . . . . 40 -- 0 19
One-year reserve development to surplus . . . . . . . . . . 20 -- 2 2
Two-year reserve development to surplus . . . . . . . . . . 20 -- -44 13
Estimated current reserve deficiency to surplus . . . . . . 25 -- -295 -68
- ------------------
* Indicates results outside the usual range.
</TABLE>
The two IRIS tests failed in 1996 were Change in Net Writings and
Investment Yield. Alpine's Change in Net Writings resulted from a decrease in
premiums written because of the Best rating downgrades, regulatory restrictions
and management's decision to cease writing direct insurance in August 1996.
The Company's insurance company subsidiaries have historically failed the
Investment Yield test principally because of their payments to TCO of portions
of their investment income pursuant to the management agreements. The four
IRIS tests failed in 1995 were Change in Net Writings, Surplus Aid to Surplus,
Investment Yield and Change in Surplus. The Change in Net Writings and Surplus
Aid to Surplus failures were due to significant increases in ceded written
premium in 1995, relating to two reinsurance agreements entered into in 1995
that substantially reduced the Syndicate's and Alpine's net premium. The
Change in Surplus failure resulted principally from a reduction in Alpine's
policyholders' surplus of $10.6 million from nonadmitting (because their
collection was unlikely and they were overdue) $9.4 million of unpaid balances
due to Alpine with respect to insurance premiums collected by TCO and an
additional $1.2 million of amounts due from affiliates.
Alpine's 1995 IRIS ratio results contributed to the regulatory
restrictions imposed on the Company during 1996. Its 1996 IRIS ratio results
are not expected to adversely impact Alpine's ability to act as a reinsurer of
UCIC in 1997.
Risk Based Capital. The NAIC has adopted a risk based capital
formula for property and casualty insurance companies. This formula
calculates a minimum level of capital and surplus which should be maintained by
each insurer, based on underwriting, credit, investment and other business risks
inherent in an individual company's operations. Various states, including
Illinois, have adopted the NAIC's risk based capital model act applicable to
property/casualty insurers. The model act authorizes certain regulatory actions
based on the ratio of a company's "adjusted capital" (generally the insurer's
actual policyholders' surplus) to its "authorized control level" risk based
capital.
26
<PAGE> 27
The following table sets forth the different levels of risk based
capital that may trigger regulatory involvement and the actions that may be
triggered.
<TABLE>
<CAPTION>
LEVEL TRIGGER CORRECTIVE ACTION
- -------------------- ---------------------------------- ----------------------------
<S> <C> <C>
Company Action Level Adjusted capital less than 200% of Submit comprehensive plan to
authorized control level insurance commissioner
Regulatory Action Level Adjusted capital less than 150% of In addition to above, insurer
authorized control level is subject to examination,
analysis and specific
corrective action
Authorized Control Level Adjusted capital less than 100% of In addition to both of above,
authorized control level insurance commissioner may
place insurer under regulatory
control
Mandatory Control Level Adjusted capital less than 70% of Insurer must be placed under
authorized control level regulatory control
</TABLE>
The "comprehensive plan" required at the "company action level" and
certain other levels must: (i) identify the conditions in the insurer that
contribute to the failure to meet the capital requirements; (ii) contain
proposed corrective actions that the insurer intends to make and that would be
expected to result in compliance with capital requirements; (iii) provide
certain projections of the insurer's financial results for the current year and
at least the four succeeding years; (iv) identify key assumptions impacting the
insurer's projections and the sensitivity of the projections to the
assumptions; and (v) identify the quality of, and problems associated with, the
insurer's business, including but not limited to its assets, anticipated
business growth and associated surplus strain, extraordinary exposure to risk,
mix of business, and use of reinsurance in each case.
After adjustment for the overstatement of loss reserves for 1995,
Alpine's adjusted capital amounts at December 31, 1996 and December 31, 1995
were approximately 173% and 170%, respectively, of its authorized control level
risk based capital amounts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" -- Item 7. Alpine's state of domicile, Illinois, did not require
any action to be taken with respect to Alpine's 1995 risk based capital
results, but did require action based on 1996 results. Because Alpine's
December 31, 1996 adjusted capital was less than 200% of its authorized control
level risk based capital, Alpine was required to submit a comprehensive
financial plan to the Illinois DOI. The plan identifies, as the principal
condition that contributed to Alpine's failure to meet the company action level
of risk based capital, the amount of Alpine's net reserves for losses and loss
adjustment expense relative to its policyholders' surplus and contains, as the
proposed corrective actions, principally the changes to the Company's
operations and organizational structure already implemented and consummation of
the Quota Share Arrangement with UCIC. The plan includes projections
indicating that, even if the Quota Share Arrangement were not in effect for
1997, Alpine's adjusted capital at December 31, 1997, and thereafter, is
expected to exceed 200% of its authorized control level risk based capital.
Management anticipates Alpine's comprehensive financial plan ultimately will be
accepted by the Illinois DOI, based on discussions with Illinois DOI
representatives; however, the Illinois DOI has not yet formally responded to
the plan.
State Regulation. A number of states have acted to restrict or
eliminate Alpine's ability to issue direct coverage in such states. On June
24, 1996, the California Department of Insurance withdrew Alpine's
authorization to conduct insurance business and also denied Alpine's
application for a Certificate of Authority to conduct insurance business in
California on an admitted basis, citing concerns with respect to Alpine's
financial strength and management competency. Historically, California has
been Alpine's
27
<PAGE> 28
largest market and, in 1995, California accounted for approximately 65% of
Alpine's direct written premiums. In addition, Alpine lost its authorization
to conduct direct business in Idaho, Michigan, New York, Ohio, Pennsylvania,
Texas and Virginia and had its authority restricted in Florida. As a general
rule, Alpine's inability to issue direct coverage in a state does not render it
unable to provide reinsurance with respect to risks located in the state.
Insurers assuming risk only from other insurers rather than issuing direct
insurance (reinsurers) are subject to a lesser degree of regulatory scrutiny
and compliance obligations outside their states of domicile than insurers
issuing direct insurance. Through regulation of the reserves required to be
maintained in a ceding insurer's statutory financial statements and the
circumstances in which such reserves may be reduced through the cession of
liabilities to a reinsurer, however, states can indirectly influence the
activities of reinsurers. Due, in part, to such reserve requirements, the
Quota Share Arrangement has been structured on a "funds held" basis. See "--
Current and Future Operations and Organizational Structure -- Relationship with
UCIC." In addition, Alpine's prior and existing regulatory issues could lead
regulators to place restrictions on Alpine's ability to act as a reinsurer of
UCIC under the Quota Share Arrangement or of any other insurer.
An insurer's eligibility to write direct insurance on a surplus lines
basis in most jurisdictions is dependent on its compliance with certain
financial standards, including the maintenance of a requisite level of capital
and surplus and the establishment of certain statutory deposits. In recent
years, many jurisdictions, including those in which Alpine has conducted most
of its insurance business, have increased the minimum financial standards
applicable to surplus lines eligibility including adoption of the NAIC's model
surplus lines act which, among other things, establishes a minimum
policyholders' surplus requirement of $15.0 million. This minimum requirement
would preclude the Company from acting as a surplus lines insurer in these
jurisdictions but not preclude it from acting as a reinsurer.
In certain states, insurers such as Alpine which are not authorized to
conduct insurance business in such states, may not be permitted to file certain
pleadings in court until such insurers have posted a bond with the court.
Alpine has been faced with this requirement in two states, but has suffered no
material adverse impact. If the requirement were to be enforced against
Alpine, it could significantly increase Alpine's costs with respect to coverage
lawsuits and other litigation matters, and, thus, adversely affect the Company.
LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company is directly liable for loss and loss adjustment expense
payments under the terms of insurance policies that it has written and pursuant
to reinsurance agreements under which it has assumed insurance business. For
the Company's occurrence policies and occurrence policies reinsured by the
Company, in many cases, several years may elapse between the occurrence of an
insured loss, the reporting of the loss to the Company and the Company's
payment of that loss. For the Company's claims made policies and claims made
policies reinsured by the Company, the occurrence of the loss must be reported
during the policy period or any extended reporting period. The Company
reflects its liability for the ultimate payment of all incurred losses and loss
adjustment expenses by establishing loss and loss adjustment expense reserves,
which are balance sheet liabilities representing estimates of future amounts
needed to pay claims and related expenses with respect to insured events that
have occurred.
When a claim involving a probable loss is reported, the Company
establishes a case reserve for the estimated amount of the Company's ultimate
loss and loss adjustment expense payments. The estimate reflects an informed
judgment based on established reserving practices and the experience and
knowledge of claims personnel regarding the nature and value of the claim as
well as the estimated expense of settling the claim, including legal and other
fees, and general expenses of administering the claims adjustment process.
Management also establishes reserves on an aggregate basis to provide for
losses incurred but not reported ("IBNR reserves"), as well as future
development on losses reported to the Company. The amount of an insurer's
incurred losses in a given period is determined by adding
28
<PAGE> 29
losses and loss adjustment expenses paid during the period to case loss and
loss adjustment expense reserves and IBNR reserves (collectively, "loss
reserves") at the end of the period, then subtracting loss reserves existing at
the beginning of the period.
As part of the reserving process, historical data is reviewed, and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, inflation and economic conditions and
collectibility of deductibles. Reserve amounts are necessarily based on
management's estimates, and as other data become available and are reviewed,
these estimates and judgments are revised, resulting in increases or decreases
to existing reserves. To verify the adequacy of its reserves, the Company
engages independent actuarial consultants to perform periodic case and ultimate
loss reserve analyses.
Estimates for ultimate loss reserves are inherently difficult to
determine because they are attempts to quantify future results based on current
trends. The effort to predict the Company's ultimate losses and loss
adjustment expense has been made more difficult because the Company's recent
business includes a substantial amount of insurance written for subcontractors
and general contractors, most of which are located in California. California
law relating to contractors has changed significantly over the last several
years as a consequence of California legal decisions and newly enacted
legislation. The Company, additionally, significantly modified its policy
forms and underwriting standards relating to its contractor business in each of
1996, 1995 and 1994. Because of the foregoing, the assumptions made and the
trends used by the Company in estimating its reserves for losses and loss
adjustment expenses have been relatively untested by time and actual
development of reserves.
In February 1996, the Company's independent actuaries arrived at a
determination that the Syndicate and Alpine had experienced substantial adverse
loss development during 1995. This adverse loss development was in addition to
adverse loss development experienced by Alpine during 1994 and the Syndicate
during 1993. In order to evaluate the loss data on which the actuarial
determinations were based, the Company hired an independent claims specialist
in February 1996 to conduct a review of its "case" loss reserves (reserves
relating to specific claims). Based on the claims specialist's review of the
Company's claim files, the Company determined that its case loss reserves were
substantially overstated, stemming principally from three inappropriate
reserving practices: (i) claims examiners' establishing initial case reserves
at levels higher than justified by the information received by the Company with
respect to claims, (ii) claims examiners' establishing case reserves without
taking into account deductibles (e.g., a claim may have a likely ultimate loss
amount of $15,000, but the claim may relate to a policy with a $5,000
deductible payable by the insured, in which case the appropriate reserve
generally would be $10,000, assuming the deductible is collectible) and (iii)
claims examiners' not timely reducing case reserves following receipt of
favorable information with respect to claims. Alpine and the Syndicate were
unable to provide data concerning the reserve overstatements in final form to
the actuaries in time for such data to be considered in the actuaries'
certification of Alpine's and the Syndicate's 1995 loss reserves for their
unaudited 1995 statutory financial statements. Consequently, the statutory
financial statements which incorporated the overstated loss reserves were
provided to Best and state regulatory authorities. The overstatement of loss
reserves contributed to the adverse financial results reported by Alpine and
the Syndicate, the Best ratings downgrades and the actions taken against the
Company by state regulatory authorities (see "-- Background Concerning Changes
in Operations").
After discussions with the Illinois DOI in early 1996, the Company
hired another independent actuarial firm to review and recertify the Company's
loss reserves as of December 31, 1995. The recertification was completed in
August 1996 and accepted by the Illinois DOI, following its commissioning of an
additional independent actuarial review confirming the Company's review, in
December 1996. Based upon the recertifications, the Company had an
overstatement, or redundancy, of approximately $14.9 million in its loss
reserves in its initially filed unaudited December 31, 1995
29
<PAGE> 30
statutory statements. In September 1996, Alpine filed amended statutory
statements eliminating substantially all of the redundancy. Because Alpine
also non-admitted a substantial amount of assets in 1995 (principally
receivables from TCO), the net effect to Alpine's surplus was a reduction of
approximately $5 million. Pursuant to an understanding with the IIE, no
amended statements for the Syndicate were prepared or filed.
The following table sets forth a reconciliation of beginning and
ending loss reserves net of reinsurance. Consistent with the Company's
adoption of Statement of Financial Accounting Standards No. 113, Accounting and
Reporting for Reinsurance of Short-Duration and Long- Duration Contracts, the
reserves are presented in the financial statements on a gross basis with
reinsurance recoverable-unpaid losses and loss adjustment expenses presented as
assets. The Company does not discount its loss reserves.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1996 1995 1994
------------------ ------------------- -------------------
Gross Net Gross Net Gross Net
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Reserves for losses and loss adjustment
expenses at beginning of year . . . . $91,984 $68,820 $88,276 $81,197 $70,938 $68,167
------- ------- ------- ------- ------- -------
Incurred losses and loss adjustment
expenses:
Provision for insured events of the
current year . . . . . . . . . . . . 24,122 12,971 38,585 23,545 33,680 32,058
Increase (decrease) in provision for
insured events of prior years . . . 136 (282) (6,162) (7,874) 4,289 792
------- ------- ------- ------- ------- -------
Total incurred losses and loss
adjustment expenses. . . . . . . . . . 24,258 12,689 32,423 15,671 37,969 32,850
------- ------- ------- ------- ------- -------
Payments:
Losses and loss adjustment expenses
attributable to insured events of
the current year . . . . . . . . . . 1,956 1,842 2,578 2,496 2,580 2,554
Losses and loss adjustment expenses
attributable to insured events of
prior years . . . . . . . . . . . . 27,359 26,661 26,137 25,552 18,051 17,266
------- ------- ------- ------- ------- -------
Total payments . . . . . . . . . . . . 29,315 28,503 28,715 28,048 20,631 19,820
------- ------- ------- ------- ------- -------
Reserves for losses and loss adjustment
expenses at end of year . . . . . . . $86,927 $53,006 $91,984 $68,820 $88,276 $81,197
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth a reconciliation from the Company's
GAAP basis reserves to its reserves calculated in accordance with statutory
accounting practices:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
----- ----
(Dollars in thousands)
<S> <C> <C>
Gross unpaid losses and loss adjustment expenses--GAAP . . . . . . . . . . . . . $86,927 $91,984
Reinsurance recoverable-unpaid losses and loss adjustment expense--GAAP . . . . . 33,921 23,164
------- -------
Net reserves for losses and loss adjustment expenses at end of year--GAAP . . . . 53,006 68,820
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 321
------- -------
Net reserves for losses and loss adjustment expenses at end of year--Statutory. . $53,099 $69,141
======= =======
</TABLE>
30
<PAGE> 31
The following table presents the development of unpaid loss and loss
adjustment expense reserves net of reinsurance from 1987 through 1996 for the
Company. The top line of the table shows the estimated reserves for unpaid
losses and loss adjustment expenses net of reinsurance at the balance sheet
date for each of the indicated years. These figures represent the estimated
amount of unpaid losses and loss adjustment expenses for claims arising in all
prior years that were unpaid at the balance sheet date, including losses that
had been incurred but not yet reported. The second line of the table,
"Subsequent commutations and other adjustments not affecting development,"
represents reductions of the reserve credits as a result of commutations of
reinsurance treaties subsequent to the year ended in each column and additions
to reserves as a result of the acquisition of The Erie Syndicate, Inc. in 1989.
These adjustments do not affect development as payments made against these
reserves are classified in the appropriate year. The table also shows the
re-estimated amounts of the previously recorded reserves based on experience as
of the end of each succeeding year. The estimates change as more information
becomes known about the frequency and severity of claims for individual years.
31
<PAGE> 32
The following table presents loss reserves net of reinsurance with
supplemental gross data:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves for losses
and loss adjustment
expenses, as stated..$53,006 $68,820 $81,197 $68,167 $65,297 $69,757 $79,106 $63,932 $41,271 $27,152
Subsequent
commutations
and other
adjustments not
affecting
development.......... 0 0 0 0 562 2,706 6,577 16,163 30,507 24,215
Adjusted loss reserves. 53,006 68,820 81,197 68,167 65,859 72,463 85,683 80,095 71,778 51,367
Paid (cumulative) as
of
1 year later......... 26,809 16,647 17,396 21,180 16,940 22,778 18,559 9,621 3,747
2 years later........ 39,128 26,779 34,330 35,773 38,407 36,542 23,876 11,281
3 years later........ 40,676 39,910 45,133 54,364 49,448 37,742 20,728
4 years later........ 47,072 53,072 62,293 59,895 47,429 29,610
5 years later........ 58,719 69,064 63,266 54,808 36,168
6 years later........ 72,247 68,468 57,659 41,343
7 years later........ 70,774 61,203 43,348
8 years later........ 62,283 45,272
9 years later........ 46,269
Net loss reserves
re-estimated as of
end of year..........
1 year later......... 68,538 73,222 68,959 64,167 70,830 82,144 79,236 66,628 49,743
2 years later........ 71,030 58,984 64,068 70,827 81,111 78,243 67,825 47,618
3 years later........ 58,422 54,087 66,790 78,024 79,666 66,879 48,697
4 years later........ 52,151 63,548 78,383 73,062 66,212 48,261
5 years later........ 62,590 76,440 73,315 63,922 47,904
6 years later........ 75,324 72,638 63,627 47,824
7 years later........ 71,832 62,869 48,442
8 years later........ 62,250 48,594
9 years later........ 47,856
Net cumulative
redundancy
Dollars.............. 282 10,167 9,745 13,708 9,873 10,359 8,263 9,528 3,511
Percentage........... 0.41% 12.52% 14.30% 20.81% 13.62% 12.09% 10.32% 13.27% 6.84%
Gross liability-end of
year................. 86,927 91,984 88,276 70,938 73,586
Reinsurance
recoverable............ 33,921 23,164 7,079 2,771 8,289
------- ------- ------- ------- -------
Net liability-end of
year................... 53,006 68,820 81,197 68,167 65,297
======= ======= ======= ======= =======
Gross re-estimated
liability-latest..... 92,120 84,189 65,591 57,250
Re-estimated
recoverable-latest... 23,582 13,159 7,169 5,099
------- ------- ------- -------
Net re-estimated
liability-latest..... 68,538 71,030 58,422 52,151
======= ======= ======= =======
Gross cumulative
(deficiency)
redundancy...........
Dollars.............. (136) 4,087 5,347 16,336
Percentage........... -0.15% 4.63% 7.54% 22.20%
</TABLE>
The cumulative redundancy or deficiency represents the aggregate
change in the loss reserve estimates over all prior years. The table presents
a run-off of balance sheet reserves rather than accident or policy year loss
development. Therefore, each amount in the table includes the effects of
changes in loss reserves for all prior years. The table generally indicates
that on both gross and net bases, the Company's reserves for losses and loss
adjustment expenses have been subsequently adjusted downward from the reserves
initially established. This is a result of (i) a relatively conservative
approach in
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<PAGE> 33
estimating initial reserves, resulting in part from a statutory requirement
that reserves for most lines of the Company's business be carried at a minimum
of at least 60% of premiums earned for the first three years, in the case of
Alpine, and the first four years, in the case of the Syndicate, and (ii)
somewhat better than anticipated results in settling claims while avoiding
punitive and other extraordinary losses.
COMPETITION
The Company ceased issuing direct insurance in August 1996, and is not
currently issuing any insurance policies directly to insureds. Its current
business activities consist of: acting as a reinsurer (effective as of April 1,
1997) with respect to insurance policies issued by UCIC; handling claims under
policies and reinsurance contracts previously issued by the Company and
implementing mid-term adjustments to and cancellations of such policies; and
related management, investment, reporting and accounting functions. In lieu of
issuing direct insurance business, effective as of April 1, 1997, Alpine
entered into the Quota Share Arrangement with UCIC.
Management believes that competition is increasing in the markets in
which the Company historically has operated, which may hinder the Company's
re-entry into such markets should the Company recommence direct underwriting
operations and may interfere with the Company's ability to generate profits
through the Quota Share Arrangement. Many of the Company's and UCIC's existing
or potential competitors are larger, have higher Best ratings, have
considerably greater financial and other resources and offer a broader line of
insurance products than the Company or UCIC. Should the Company recommence
underwriting operations, it will face competition from other surplus line
insurers, new forms of insurance organizations such as risk retention groups
and, potentially, licensed insurers issuing coverages previously written by the
Company in the surplus lines market. See also "-- Background Concerning
Changes in Operations -- Best Ratings Downgrades."
EMPLOYEES
Prior to January 1995, the Company had no compensated employees;
employees of TCO performed all underwriting, claims and other services for the
Company pursuant to management agreements between the Company and TCO. See "--
Current and Future Operations and Organizational Structure -- Relationship with
TCO." Effective January 1, 1995, certain officers of TCO and Alpine, and
certain individuals providing administrative and support services to such
officers, became fully or partially compensated employees of Exstar. The
salary, benefit costs and other expenses borne by the Company in connection
with this arrangement were approximately $2.1 million in 1995. Following the
downgrading of the Company's Best ratings in 1996, the Company and TCO
significantly reduced their staff and expenses, and most of the remaining
employees of TCO (other than Claims Control employees) became employees of
Alpine. Consequently, the Company became directly responsible for the payment
of all salaries and benefits related to such employees. The claims handling
staff, however, became employees of Claims Control, a TCO Holdings subsidiary,
on January 1, 1996. Claims Control is reimbursed by Alpine for the salary and
benefit costs related to such employees, and Claims Control's general and
administrative expenses, in consideration of Claims Control's continued
handling of claims under policies previously issued by the Company. Claims
Control currently pays over to Alpine amounts paid to Claims Control by UCIC
for handling UCIC claims. See "-- Current and Future Operations and
Organizational Structure -- Relationship with UCIC."
At January 1, 1996, the Company and TCO, together, had 134 employees
and total annualized payroll of approximately $7 million. At August 1, 1996,
85 employees remained (almost all of whom, other than the Claims Control
employees, had become employees of the Company). The pay levels of many of the
remaining employees (principally members of senior and middle management) were
reduced. As a result, total annualized payroll at August 1, 1996 (before
reimbursements from Transre and E&S) was approximately $4.5 million. Other
operating expenses also were reduced substantially from prior
33
<PAGE> 34
levels. General and administrative expenses following the reductions totaled
approximately $5 million annualized. Because of cost reductions and other
opportunities, individuals no longer employed by the Company include Exstar's
former Chief Financial Officer, two senior underwriters, the former head of the
Company's management information services department, the former head of the
Company's claims department and the former President of Alpine. As a result of
these departures, the Company's overall level of management experience has
significantly decreased. Depending on the Company's financial condition and
prospects, management expects the Company will need to hire additional
personnel during 1997, assuming the Quota Share Arrangement remains in place,
to support the Company's operations.
During 1996, to assist the Company in retaining sufficient staffing
and to offset, in part, salary reductions instituted in 1996, Alpine sought
approval from the Illinois DOI to pay bonuses to its employees. The Illinois
DOI tentatively approved payment of the bonuses, up to a maximum aggregate
amount of $400,000 payable by Alpine, but conditioned payment upon several
assumptions and satisfaction of certain conditions, including the
implementation of the Quota Share Arrangement (provided that it remained in
effect for a period of time satisfactory to the Illinois DOI). The Company
ultimately expects to pay some or all of the bonus amount to Alpine employees
during 1997, but is unable to determine what amount will finally be approved by
the Illinois DOI or when, if ever, it will be approved. In addition,
management is considering a reduction in the exercise prices of certain
outstanding options to acquire Exstar Common Stock held by its current
employees. The Common Stock which is the subject of the options is owned by
TCO and is available for purchase upon the exercise of options pursuant to the
TCO Insurance Services 1992 Stock Incentive Plan ("TCO Plan").
In addition to performing services directly for the Company, the
majority of the Company's employees are performing services for Transre and E&S
in connection with the Limited Agency Agreement. In this regard, and in
accordance with a plan filed by Alpine with and approved by the Illinois DOI in
connection with its review of Alpine (see "-- Regulation -- Illinois Order"),
the salaries and benefit costs associated with these employees, as well as
general and administrative costs (including rent, utilities, insurance costs
and licensing fees), are currently being allocated among Alpine, Transre and
E&S. The total amount reimbursed by Transre and E&S to the Company during 1996
(covering the period from the beginning of the allocation on August 1, 1996,
through December 31, 1996) was approximately $1.2 million. The amount payable
by Claims Control to the Company for 1996 with respect to revenues received
from UCIC was approximately $4,000. The allocations are based on management's
estimates of the relative amounts of employee time and Company resources
devoted to the operations. For example, the majority of the Company's salary
expense relating to its underwriting department has been allocated to Transre
and E&S, because the underwriting department's principal activities involve
producing new business for UCIC, while the underwriting department's activities
with respect to the Company's prior business are limited. Conversely, salaries
for management, accounting, administration and other departments are allocated
as much as 80% to Alpine. The plan approved by the Illinois DOI anticipates
that the allocations to Alpine will gradually decrease, and the allocations to
Transre and E&S will gradually increase, over time, but no assurances can be
given that such allocations will occur at any particular time, if at all. As
circumstances change, revised allocations are expected to be implemented,
subject to approval by the Illinois DOI.
ITEM 2. PROPERTIES
The Company generally owns real property only for investment or sale.
The Company's principal real estate investments consist of two office buildings
with a combined book value of approximately $4.3 million. These office
buildings serve as the Company's headquarters, and are located at 2028 Village
Lane (25,000 square feet) and 2029 Village Lane (13,000 square feet), Solvang,
California. The Company currently leases 6,000 square feet of space in one of
these buildings to the YMCA at an annual rent of approximately $54,000 (subject
to adjustment) under a two-year lease, with three one-year renewal options.
The Company from time to time solicits offers to purchase the office
34
<PAGE> 35
buildings and would be willing to sell the properties to a buyer with whom the
Company would enter into a sale-leaseback arrangement if appropriate terms
could be agreed upon. At the present time, the Company has not identified such
a purchaser.
TCO leases office space in Chicago, Illinois. Exstar may be deemed to
be a guarantor of TCO's obligations or otherwise may be deemed to be obligated
under the lease. TCO is currently in default under the lease, and the lessor
has made a demand for payment. Management contemplates that Alpine may assume
the lease with respect to a portion of the property currently leased
(approximately 7,000 square feet of the approximately 16,400 square feet
currently leased), at a reduced rent (approximately $20 per square foot per
year versus the current rate of approximately $38 per square foot per year).
Discussions are currently ongoing with the lessor as to a settlement with
respect to the lease. Assuming that Alpine leases a portion of the premises on
the foregoing terms, the maximum total amount of the remaining obligations
under the lease are estimated to be approximately $1.7 million. It is
contemplated that a settlement may be reached with the lessor under which the
lease obligations are satisfied through the transfer of Exstar Common Stock to
the lessor. Some of the Common Stock would be contributed by TCO, from the
536,000 shares of Common Stock currently owned by it with the remainder, if
any, being contributed by Exstar from its authorized but unissued stock. Some
of the Common Stock owned by TCO is currently pledged to guarantee TCO's
obligations pursuant to the Loan Agreement. See "Business -- Investments --
Loan to TCO"--Item 1. The Company has not yet resolved issues concerning the
use of Exstar Common Stock owned by TCO in connection with the satisfaction of
TCO's obligations. There is also a possibility the Company will be able to
sublet this space to an unaffiliated party or that no settlement will be
reached and the Company will have to locate alternative office space or become
subject to legal proceedings brought by the lessor.
ITEM 3. LEGAL PROCEEDINGS
In July 1995, the Company filed a lawsuit against its former
independent auditors, Coopers & Lybrand, L.L.P. ("C&L"), for damages arising
out of advice and services rendered to the Company by C&L relating to the GAAP
accounting treatment of loans made by the Company to TCO and the JBW & Co.
preferred stock, as well as the withdrawal of C&L's unqualified audit opinion
with respect to the Company's 1993 consolidated GAAP financial statements. See
"Business--Investments -- JBW & Co. Loan" and "Business -- Investments -- Loan
to TCO" -- Item 1. The loans to TCO and the JBW & Co. preferred stock were the
subject of certain changes in GAAP accounting adopted by the Company in early
1995. In January 1997, Exstar and C&L entered into a settlement agreement
relating to this lawsuit. After the payment of legal fees and other fees and
costs associated with the lawsuit and settlement, Exstar expects an increase in
its 1997 pre-tax income and stockholders' equity of approximately $3 million
from this settlement agreement.
In October 1994, as a result of the resignation of C&L and the
withdrawal of their opinion covering the 1993 financial statements, the SEC
notified the Company that it had opened an informal inquiry with respect to
Exstar. The SEC requested Exstar's voluntary cooperation and requested various
information which Exstar provided. In September 1995, the SEC requested that
the Company produce additional documents and that the Company's then Chief
Financial Officer provide testimony. The Company's former Chief Financial
Officer provided such testimony in November 1995 and February 1996. The Company
has not received any additional requests from the SEC.
Exstar's insurance subsidiaries and various of the TCO entities are
subject to routine legal proceedings in connection with their property and
casualty insurance businesses. Neither Exstar nor any of its subsidiaries nor
any of the TCO entities is currently involved in any pending or threatened
legal proceedings which reasonably could be expected to have a material adverse
impact on the Company's financial condition or Consolidated Statement of
Operations.
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<PAGE> 36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders since June of
1995. Exstar currently has only one independent director. The Company's board
of directors currently intends to appoint an additional independent director as
soon as practicable after the filing of the Company's annual report on Form
10-K for the year ended December 31, 1996 ("1996 Form 10-K"), but there can be
no assurance that such a director will be appointed.
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<PAGE> 37
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Exstar's Common Stock had been traded on the NNM under the symbol EXTR
from the date of the Company's initial public offering on December 18, 1992.
On October 12, 1994, the Nasdaq Stock Market, Inc. ("Nasdaq") amended Exstar's
symbol to EXTRE as a result of the withdrawal of C&L's audit report covering
the Company's 1993 consolidated financial statements (which caused the Company
to be in technical non-compliance with Nasdaq requirements). The symbol
reverted to EXTR after the filing of the 1994 Form 10-K and certain related
reports with Nasdaq. However, the symbol was again amended to EXTRE on April
16, 1996, due to the Company's failure to file its 1995 Form 10-K on April 15,
1996. The Company's Common Stock was delisted from the NNM on July 18, 1996
for failure to meet certain of the maintenance criteria required for continued
listing on the NNM, including: (i) the Company's failure to timely file its
1995 Form 10-K; (ii) the Company's failure to maintain on its board of
directors two independent directors; and (iii) the minimum bid price for the
Common Stock being below $1.00 for a substantial period of time.
The Company is considering the possibility of issuing additional
shares of Exstar Common Stock in a private placement or a public offering. The
Company may also register shares of Exstar Common Stock owned by TCO or Peter
O'Shaughnessy for sale or to facilitate obtaining loans for their benefit or
for the benefit of the Company. The Company is also considering a repurchase
of shares of Exstar Common Stock which are currently outstanding. In addition,
the Company believes members of its management and UCIC may purchase shares of
Exstar Common Stock which are currently outstanding, in addition to any Exstar
Common Stock currently owned by them.
The following table sets forth for the periods indicated the range of
high and low closing sale prices for the Common Stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter 1995 . . . . . . . . . . . . . . . 5.00 2.75
Second Quarter 1995 . . . . . . . . . . . . . . . 5.125 2.50
Third Quarter 1995 . . . . . . . . . . . . . . . 3.50 2.50
Fourth Quarter 1995 . . . . . . . . . . . . . . . 3.00 0.875
First Quarter 1996 . . . . . . . . . . . . . . . 2.25 1.03
Second Quarter 1996 . . . . . . . . . . . . . . . 1.25 0.50
Third Quarter 1996 (through July 18, 1996) . . . 1.00 0.625
</TABLE>
On July 17, 1996, the last reported sale price for the Common Stock
was $0.75 share. As of March 31, 1997, there were 51 holders of record of the
Exstar Common Stock, and to the Company's knowledge there were in excess of 500
beneficial owners of the Exstar Common Stock.
Exstar has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. See "Business -- Regulation -- Dividend Limitations" -- Item 1 and
Note 3 of Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Operating data" and "Balance sheet data" for the years ended December
31, 1996, 1995, 1994 and 1993 have been derived from the audited consolidated
financial statements of the Company and its subsidiaries. The selected
consolidated financial data as of, and for the year ended, December 31, 1992,
have been derived from restated, unaudited financial statements of the Company
and its subsidiaries. The statutory operating data
37
<PAGE> 38
are based on statutory accounting practices and were derived from statutory
financial data of the Syndicate and Alpine. The statutory operating data for
the year ended December 31, 1996, differ from data which would be derived from
the 1996 annual statement of Alpine filed with state insurance regulatory
officials in that the operating results of the Syndicate were not combined with
those of Alpine in its 1996 annual statement, even though the Syndicate's
operations were combined with those of Alpine effective December 31, 1996.
These data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere in
this 1996 Form 10-K.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Unaudited)
Operating data: (Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Gross written premium . . . . . . . . . . . . . . . . $14,373 $64,287 $60,910 $47,740 $25,762
Net written premium . . . . . . . . . . . . . . . . . 8,810 28,185 53,532 48,739 24,671
Net earned premium . . . . . . . . . . . . . . . . . 21,010 39,149 52,513 34,037 21,405
Net losses incurred . . . . . . . . . . . . . . . . . 7,737 6,400 25,086 15,709 6,831
Net loss adjustment expenses incurred . . . . . . . . 4,952 9,271 7,764 5,368 6,251
Other underwriting expenses . . . . . . . . . . . . . 6,405 16,897 17,164 10,124 6,778
Reinsurance expense . . . . . . . . . . . . . . . . . -0- -0- 124 3,613 2,174
Net investment income . . . . . . . . . . . . . . . . 4,030 4,913 3,933 3,552 4,211
Net realized investment (losses) gains . . . . . . . (377) 389 (41) (970) (121)
Other income . . . . . . . . . . . . . . . . . . . . 142 385 1,339 1,675 1
Interest expense . . . . . . . . . . . . . . . . . . 220 212 152 225 669
Other expenses . . . . . . . . . . . . . . . . . . . 7,267 6,255 3,068 2,257 1,104
Net (loss) income before provision for income taxes,
minority interest and equity in (losses) income of
affiliates . . . . . . . . . . . . . . . . . . . . (1,776) 5,801 4,386 998 1,689
Provision for income taxes . . . . . . . . . . . . . (1,715) 5,057 1,781 362 341
Minority interest . . . . . . . . . . . . . . . . . . -0- (157) (94) (88) 5
Equity in (income) losses of affiliates . . . . . . . (1,561) (3,829) 5,173 10,746 4,335
Net income (loss) . . . . . . . . . . . . . . . . . 1,500 4,730 (2,474) (10,022) (2,992)
Net income (loss) per common share(1) . . . . . . . . $0.27 $0.86 ($0.45) ($1.83) ($0.78)
Balance sheet data(2):
Cash and cash equivalents and invested assets . . . . $64,066 $88,841 $92,834 $79,784 $80,342
Total assets . . . . . . . . . . . . . . . . . . . . 108,154 142,628 142,203 119,255 117,078
Insurance liabilities . . . . . . . . . . . . . . . . 89,398 125,246 122,777 101,184 94,604
Long-term debt, less current portion . . . . . . . . 1,078 1,484 -0- -0- 425
Total stockholders' equity . . . . . . . . . . . . . 12,526 11,195 5,252 9,490 16,686
Net book value per share . . . . . . . . . . . . . . $2.28 $2.04 $0.96 $1.73 $4.34
Statutory operating data(3):
Net underwriting gain (loss) . . . . . . . . . . . . $2,826 $9,752 $ (421) $(2,378) $(701)
Policyholders' surplus(4) . . . . . . . . . . . . . . 12,596 (7,017) 21,097 20,352 22,185
Loss and loss adjustment expense ratio . . . . . . . 60.0% 39.1% 64.6% 73.4% 60.1%
Expense ratio . . . . . . . . . . . . . . . . . . . . 63.3% 49.9% 31.7% 26.5% 37.5%
Combined ratio . . . . . . . . . . . . . . . . . . . 123.3% 89.0% 96.3% 99.9% 97.6%
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C> <C>
GAAP operating ratios:
Loss and loss adjustment expense ratio . . . . . . . 60.4% 40.0% 62.6% 61.9% 61.1%
Expense ratio . . . . . . . . . . . . . . . . . . . . 24.4% 29.8% 30.1% 28.3% 25.6%
Combined ratio . . . . . . . . . . . . . . . . . . . 84.8% 69.8% 92.7% 90.2% 86.7%
- ------------------
</TABLE>
(1) Shares used in the calculation for 1996, 1995 and 1994 are 5,498,000 shares
outstanding; for 1993, 5,490,000 shares outstanding; for 1992,
3,846,000 shares outstanding.
(2) Information is shown as of the end of each year presented.
(3) In addition to usual differences between statutory accounting practices and
GAAP, a significant portion of profit sharing expense is allocated as a
reduction to investment income for statutory accounting practices.
(4) Policyholders' surplus is reflected as of the end of each year presented on
a consolidated basis after the elimination of the Syndicate's
investment in Alpine. If the Syndicate's investments had not been subject
to certain concentration limits under the IIE regulations, policyholders'
surplus on a consolidated basis as of December 31, 1995 would have been
$6,038,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations and business underwent fundamental changes
during 1996. See "Business -- Overview of Current Business Operations",
"Business -- Financial Reporting; Delisting of Common Stock", "Business --
Background Concerning Changes in Operations", and "Business -- Current and
Future Operations and Organizational Structure" -- Item 1. Because of these
changes and changes that are continuing in 1997, differences in the Company's
results of operations between 1995 and prior years, and its results of
operations for 1996, are not necessarily indicative of trends or likely results
of operations for 1997 or future years. The Company's 1996 Form 10-K contains
certain "forward-looking statements" (within the meaning of the Private
Securities Litigation Reform Act of 1995) that involve substantial risks and
uncertainties. When used in this 1996 Form 10-K, the words "anticipate,"
"believe," "estimate" and "expect" and similar expressions as they relate to
the Company and its management are intended to identify such forward-looking
statements. A number of important factors could cause the actual results,
performance or achievements of the Company for 1997 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, without limitation, the discontinuation or a material adverse
change in the terms and conditions of the Quota Share Arrangement, a material
increase in competition, material changes to UCIC's financial condition or
regulatory authority and material adverse changes in the Illinois DOI's
oversight of Alpine.
The Company's principal sources of revenue historically have been net
premiums earned (net premiums are the balance remaining after deducting from
gross written premiums amounts paid for unaffiliated reinsurance, and they are
generally earned ratably over the policy periods) on insurance policies issued
by the Company's insurance company subsidiaries, income derived from the
Company's invested assets and miscellaneous other income. The Company's
principal costs historically have consisted of reserves for loss and loss
adjustment expenses (reserves for such loss and loss adjustment expenses, which
initially are estimated based on a combination of the Company's historical data
and industry averages, are reflected as expense in the periods in which they
are initially estimated and as the estimates are revised the revisions are
reflected as adjustments to expense in the periods in which the adjustments are
made), commissions and other amounts paid by the Company's insurance company
subsidiaries to TCO in connection with its producing and underwriting insurance
policies issued by the Company's insurance company subsidiaries, and
miscellaneous other expenses.
The Company's net income historically derived from the difference
between these net revenues and net expenses, after adjustment for taxes and
minority interests. In addition, due to the Company's adoption of a form of
equity accounting in 1995 (applied retroactively), the Company's net income
also has included its equity in gains and losses of its affiliates. See
"Business -- Current and Future Operations and Organizational Structure --
Relationship with TCO" -- Item 1 and Note 11 of Notes to Consolidated Financial
Statements.
The Company, because of Best rating downgrades, regulatory
restrictions and other matters affecting its insurance company subsidiaries
(see "Business -- Background Concerning Changes in
39
<PAGE> 40
Operations" -- Item 1), ceased issuing direct insurance in August 1996. This
directly resulted in a sharp decline in the Company's earned premium revenue
during the second half of 1996, and will cause a further decline in the
Company's earned premium from direct insurance during the first half of 1997.
The Company, however, will earn premium revenue through the Quota Share
Arrangement effective April 1, 1997. The portion assumed by the Company
initially will be 30% of the net premium accruing to UCIC on such business,
including premiums unearned as of April 1, 1997 (estimated to be approximately
$13.6 million) and premiums on policies issued after such date. The Company
also will earn investment income on the funds held by UCIC under the Quota
Share Arrangement. Because most of the premium funds will be held by UCIC,
however, the Quota Share Arrangement will not benefit the Company's cash flow
to the same extent it is expected to benefit the Company's net income (assuming
the Quota Share Arrangement underwriting results are as profitable as or more
profitable than TCO's underwriting results have been over the last three
years).
The Company reduced its underwriting expenses during 1996 by
terminating its insurance company subsidiaries' management agreements with TCO,
thereby terminating the Company's obligation to pay commissions and
profit-sharing amounts to TCO (subject to a final determination of obligations
between the parties, if any), and such expenses were virtually eliminated
following the Company's decision to cease issuing new and renewal insurance
policies in August 1996. However, the Company will incur significant
underwriting expenses under the Quota Share Arrangement. Of the net premium
assumed by Alpine, Alpine will (i) allow UCIC to retain 30% as a ceding
commission and (ii) pay approximately 3-4% to TCO Holdings as an override
commission. Additionally, effective August 1, 1996, the Company began assuming
a substantial amount of personnel costs and operating expenses previously borne
by TCO. These expenses, which previously would have been included in the
Company's underwriting expenses, have been included in the Company's other
expenses since August 1, 1996. These expenses are being offset in part by
reimbursements from Transre and E&S. See "Business -- Current and Future
Operations and Organizational Structure" -- Item 1.
Because of the numerous uncertainties facing the Company and the
Company's likelihood of experiencing substantial further changes in its
operations and business during 1997 (see "Business -- Current and Future
Operations and Organizational Structure" -- Item 1), management has made no
effort to anticipate the Company's results in the following discussion beyond
the end of 1997. Management's current expectations, additionally are heavily
dependent on continuation of the Quota Share Arrangement, on UCIC's maintaining
its Best rating and surplus lines authorities, on no material increase in
competition, on the Illinois DOI's continuing to allow Alpine to operate
generally as it currently is operating and on a number of other less material
assumptions and conditions ("Base Conditions").
1996 TO 1995
Gross written premiums were $14.4 million for 1996, a decrease of
77.6% from $64.3 million in 1995. This decrease was due to the Best ratings
downgrades of the Company's insurance company subsidiaries in January and April
1996, and the losses of their authorizations to conduct surplus lines business
in key states, including California, beginning early in the year (see "Business
- -- Regulation" -- Item 1). These developments progressively constricted the
Company's ability to write direct insurance policies during the first half of
1996, and led the Company to cease writing direct insurance policies in August
1996. Effective April 1, 1997, however, Alpine entered into the Quota Share
Arrangement with UCIC, which management expects will enable the Company to
receive premium on business produced for UCIC by Transre and E&S (see "Business
- -- Current and Future Operations and Organizational Structure -- Relationship
with UCIC" -- Item 1). Assuming the Base Conditions, management expects the
Company's gross written premium volume for 1997 to be roughly equal to its
gross written premium volume for 1996.
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<PAGE> 41
Net premiums earned were $21.0 million in 1996, a 46.3% decrease from
$39.1 million in 1995. The decrease directly resulted from the decrease in
gross written premiums, though the percentage decrease in net premiums earned
between the periods was lower because premiums continued to be earned on
previously written insurance after the Company ceased issuing direct insurance
in August 1996. Because of a similar delay in earning previously written
premiums during 1997, management anticipates, assuming the Base Conditions, net
premiums earned in 1997 will continue to decline, perhaps to approximately half
of their 1996 amounts, notwithstanding that gross written premiums for 1997 are
expected to be roughly equal to gross written premiums for 1996.
Net loss and loss adjustment expense incurred during 1996 totaled
$12.7 million, down 19.0% from $15.7 million in 1995. Net loss and loss
adjustment expense as a portion of net premiums earned was 60.4% in 1996
compared to 40.0% in 1995. The decrease in net loss and loss adjustment
expense incurred between the periods resulted principally from the decrease in
net premiums earned. The decrease was relatively smaller than the decrease in
net premiums earned between the periods, however, because of the approximately
$14.9 million reduction in loss and loss adjustment expense reserves at the end
of 1995, which included reductions relating to net premiums earned in prior
years. Management anticipates the Company's 1996 year-end reserves for net
loss and loss adjustment expense may include additional redundancies which have
not yet become actuarially determinable because of changes in reserving
practices implemented by the Company in 1996 and difficulties in determining
the precise impact on the Company's loss and loss adjustment expense reserves
of certain recent California court decisions affecting construction defect
claims. See "Business -- Losses and Loss Adjustment Expenses" -- Item 1.
Management also expects, assuming the Base Conditions, that the Company's loss
ratio on insurance assumed by Alpine pursuant to the Quota Share Arrangement
will be substantially lower than the Company's historical loss ratios as a
consequence of higher pricing and more restrictive policy forms used in
underwriting the insurance assumed by Alpine from UCIC.
Other underwriting expenses historically have consisted of (i) policy
acquisition costs, which equaled a fixed percentage of gross written premiums
less reinsurance commissions, plus (ii) the allocated portion of profit sharing
payments to TCO, which equaled a fixed percentage of underwriting profits
determined on a statutory basis, a fixed percentage of the Syndicate's
investment income and a fixed percentage of certain of Alpine's assets.
Following termination of the management agreements between the Company's
insurance company subsidiaries and TCO in 1996, the fees and commissions that
otherwise would have been paid by the Company to TCO were eliminated and the
Company began to bear directly certain personnel, general and administrative
costs that otherwise would have been borne by TCO. The former are included in
other underwriting expenses while the latter are included in other expenses.
The Company's other underwriting expenses for 1996 were $6.4 million,
a decrease of 62.1% from $16.9 million in 1995. The ratio of the Company's
other underwriting expenses to net premiums earned was 30.5% in 1996 compared
to 43.2% in 1995. The decrease in other underwriting expenses between the
periods was principally attributable to reduced net expenses resulting from
termination of the management agreements with TCO, the Company's earning in
1996 additional commission income under certain reinsurance agreements because
of favorable loss development and the Company's payment in 1995 of profit
sharing of approximately $3.7 million relating to the approximately $14.9
million reduction in loss and loss adjustment expense reserves at the end of
1995. Management anticipates, assuming the Base Conditions, that the ratio of
other underwriting expenses to net premiums earned for 1997 will be about the
same as or somewhat in excess of the 1996 ratio, because of the approximately
33-34% aggregate commissions payable by Alpine in connection with the Quota
Share Arrangement reduced somewhat by anticipated additional reinsurance
commission from potential continuing favorable loss development.
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<PAGE> 42
Net investment income for 1996 was $4.0 million, a decrease of
$900,000, or 18.0%, from $4.9 million in 1995. The decrease between the
periods was caused principally by a 15.8% decrease in average investable assets
from $90.8 million in 1995 to $76.4 million in 1996 and a decline in the
average yield on investable assets to 5.3% in 1996 from 5.4% in 1995.
Management anticipates, assuming the Base Conditions, a continued reduction in
investment income in 1997 as a consequence of loss payments and expenses
reducing the Company's investable assets more quickly than investable assets
increase under the Quota Share Arrangement, though the impact may be partially
offset by rising interest rates and yields on invested assets during the year.
Net realized investment (losses) gains for 1996 were a loss of
$400,000 versus a gain of $400,000 in 1995. The net loss in 1996 was the
result of losses on the sale of an equity security and certain real estate
investments, as well as net increases in real estate valuation reserves. The
Company realized net investment gains of over $700,000 in 1995 on its fixed
maturities portfolio as it benefitted from declining interest rates while
liquidating certain assets. Management expects a possible continuation of
realized investment losses in 1997 as the Company's payments of losses and
expenses require the Company to liquidate investments during a period of
possibly rising interest rates. Management anticipates little, if any, adverse
impact from the Company's continuing liquidation of real estate investments
because of expected stable or somewhat improving conditions in the central
California real estate market.
Other income declined in 1996 to $100,000 from $400,000 in 1995.
Other income consists primarily of contingent commission income from and
interest earned on funds on deposit with an unaffiliated insurance company
which have been assigned to the Company by TCO. The decline in other income in
1996 was due to a reduction in the amount of business placed by TCO over the
last several years with the unaffiliated insurance company and a disagreement
between TCO and the unaffiliated insurance company as to the amounts due to TCO
and assigned to the Company. Additionally, the amount of funds on deposit was
significantly reduced in 1996 compared to 1995. Management expects other
income could be $4 million or more for 1997, principally as a consequence of
settlement of the C&L suit (see "Legal Proceedings" -- Item 3) and resolution
of the disagreement over the payments due from the unaffiliated insurance
company to TCO.
Interest expense in 1996 was approximately $200,000, unchanged from
1995. Management expects this cost to remain relatively unchanged for 1997.
Other expenses, consisting of professional fees, personnel costs and
other costs of Exstar, the Syndicate and Alpine, were $7.3 million in 1996
compared to $6.3 million in 1995. This increase was principally due to (i)
Exstar's incurring additional legal expenses for the lawsuit against the
Company's former auditors (see "Legal Proceedings" -- Item 3), (ii) increases
in legal, audit, actuarial and other fees (including approximately $500,000 of
IIE withdrawal fees) in connection with the Illinois DOI's review of Alpine,
withdrawal of the Syndicate from the IIE and reorganization of the Company's
business and operations during 1996, and (iii) Alpine's assuming a portion of
the personnel, general and administrative costs previously borne by TCO.
Management anticipates a decrease in other expenses for 1997 by approximately
$1 million or more as a consequence of (i) the settlement of the C&L suit, a
decrease in regulatory and operational issues and the gradual shifting of
personnel, general and administrative costs to Transre and E&S in accordance
with the plan submitted by Alpine to the Illinois DOI, offset by (ii) an
increase in overall personnel and general and administrative costs (a) to pay
bonuses for personnel to compensate, in part, for compensation reductions
during 1996, and otherwise to provide incentives to personnel to continue with
the Company and (b) to improve the Company's overall level of management
experience and otherwise replace certain employees and restore certain
operating capabilities lost during 1996. See "Business -- Current and Future
Operations and Organizational Structure -- Expense Reduction/Reallocations and
Staffing Changes" -- Item 1.
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<PAGE> 43
Income tax benefit was $1.7 million in 1996 compared to an expense of
$5.1 million in 1995, principally because of the Company's substantially higher
1995 taxable net income resulting from the $14.9 million reduction in loss
reserves in 1995. The Company had a net pre-tax loss (before minority interest
and equity in gains of affiliates) of $1.8 million in 1996 compared to $5.8
million of pre-tax net income (before minority interest and equity in gains of
affiliates) in 1995. The difference also resulted from application of a $6.6
million valuation reserve against the Company's deferred tax asset in 1995,
compared to a $1.3 million reduction in the reserve in 1996. Assuming the Base
Conditions, management anticipates the Company will incur income tax expense in
1997, but management also believes that because of loss carryforwards from
prior years, the Company's taxable net income in 1997 will be taxed at a lower
rate than otherwise would be applicable, and that the Company may be able to
recognize a substantial additional reduction in the valuation reserve applied
to the deferred tax asset.
Equity in income (losses) of affiliates generally reflects TCO
Holdings' net income or loss for the year after certain adjustments (see Note
11 of Notes to Consolidated Financial Statements). Equity in income of
affiliates was $1.6 million in 1996 compared to $3.8 million in 1995. The
smaller amount in 1996 reflects a reduction in TCO's revenues for 1996
following the Best rating downgrades and regulatory restrictions affecting the
Company's insurance company subsidiaries, and the terminations of the
management agreements between the Syndicate and TCO and Alpine and TCO. It
also reflects reduced profit sharing of $1.3 million paid to TCO-IL in 1996
compared to the $5.2 million paid to TCO-IL in 1995. The difference between
the $1.3 million payment to TCO-IL in 1996 and the $5.2 million payment in 1995
is principally attributable to reductions in net loss and loss adjustment
expenses incurred, due, in significant part, to the $14.9 million reduction in
the Company's loss reserves at December 31, 1995. Notwithstanding TCO's
current financial condition, management anticipates that equity in income of
affiliates could be significant in 1997 principally as a consequence of TCO's
substantially reduced expenses and its possible settlements of liabilities
(other than liabilities to the Company) at less than their book values.
Net income per common share was $0.27 in 1996 compared to $0.86 in
1995. This reflects, overall, the decline in the Company's revenues following
the Best rating downgrades and the regulatory restrictions affecting the
Company's insurance company subsidiaries beginning in early 1996, compared to
the substantial revenues realized from ongoing operations and the income
resulting from the $14.9 million reduction in loss reserves in 1995. The
impact of these items would have been greater if it had not been offset by an
overall swing of $7.7 million in deferred tax expense.
1995 TO 1994
Gross written premiums were $64.3 million for 1995, an increase of
5.5% from $60.9 million in 1994. The specialized liability lines experienced
the largest growth, with a $4.2 million increase in gross written premium,
while ocean marine gross written premiums increased $100,000. Architects and
engineers gross written premiums declined $600,000 reflecting continued severe
competition in key states.
Net written premiums were $28.2 million for 1995, a decrease of 47.3%
from $53.5 million in 1994. The decrease in net written premiums was due to a
significant increase in ceded written premiums. The increase in ceded written
premiums was a consequence of the Company's having purchased two specialized
liability reinsurance treaties since the end of the third quarter of 1994. The
first treaty, effective October 1, 1994, provided coverage for losses in excess
of $500,000 up to $1.0 million on the Company's basic specialized liability
policies. The second treaty, effective April 1, 1995, provided coverage for
50% of losses up to $500,000 for the Company's basic specialized liability
policies written on or after April 1, 1995, and the unexpired portions of the
Company's basic specialized liability policies written prior to April 1, 1995.
43
<PAGE> 44
Net premiums earned were $39.1 million in 1995, a 25.4% decrease from
$52.5 million in 1994. The decrease in net premiums earned was the result of
the two specialized liability reinsurance treaties entered into since the third
quarter of 1994 described above, the effect of which more than offset the
increased gross written premiums.
Net loss and loss adjustment expenses incurred during 1995 totaled
$15.7 million, down 52.3% from $32.9 million in 1994. Net loss and loss
adjustment expense incurred as a portion of net premiums earned was 40.0% in
1995 compared to 62.6% in 1994. The decreases were the result of a decrease in
net premiums earned, as described above, and, more significantly, the reduction
of $14.9 million in loss and loss adjustment expense reserves relating to prior
year overstatements.
Other underwriting expenses were $16.9 million in 1995, a decrease of
1.6% from $17.2 million in 1994. The ratio of the Company's other underwriting
expenses to net premiums earned was 43.2% in 1995 compared to 32.7% in 1994.
The increase in the ratio generally resulted from increased profit sharing of
$3.7 million paid by the Company in 1995 relating to the $14.9 million
reduction in loss and loss adjustment expense reserves due to prior year
overstatements.
Net investment income for 1995 was $4.9 million, an increase of $1.0
million, or 25.6%, from $3.9 million in 1994. The increase was due to a 5.3%
increase in average investable assets from $86.3 million in 1994 to $90.8
million in 1995. In addition, the average yield on investable assets increased
to 5.4% in 1995 from 4.6% in 1994. The increase in the investment yield was
due to an increase in the proportion of the portfolio invested in higher
yielding fixed maturities, a decrease in the proportion of the portfolio
invested in lower yielding cash and cash equivalents, and the Company's
continuing efforts to liquidate non-income producing real estate and
reinvestment of the proceeds into income producing investments.
Net realized investment (losses) gains for 1995 were a gain of
$400,000 versus a $40,000 loss in 1994. The Company realized net investment
gains of over $700,000 in 1995 on its fixed maturities as it took the
opportunity to sell certain instruments at favorable prices caused principally
by declining interest rates. These gains were partially offset by losses in
equity securities and the Company's real estate holdings. The net losses in
1995 in the real estate portfolio were primarily the result of increases in
valuation reserves.
Other income declined in 1995 to $400,000 from $1.3 million in 1994.
The 1995 decline was due to TCO's placing less business with the unaffiliated
insurance company. Additionally, the amount of funds on deposit with the
unaffiliated insurer was significantly reduced in 1995 compared to 1994.
Interest expense increased in 1995 to $200,000 from $150,000 in 1994,
due to additional interest payable related to real estate acquired in 1995.
Other expenses, consisting of personnel and other costs of Exstar, the
Syndicate and Alpine, were $6.3 million in 1995 compared to $3.2 million in
1994. This increase was principally due to Exstar's incurring approximately
$2.1 million of expenses related to certain executive officers and support
staff who were shifted from TCO to become employees of Exstar effective January
1, 1995, a one-time charge of $200,000 representing costs incurred related to
the potential acquisition of a specialty line insurance company which was
terminated during the first quarter of 1995, legal expenses for the lawsuit
against C&L and an increase in legal fees for general corporate matters.
Federal income tax (benefit) expense was an expense of $5.1 million in
1995 compared to an expense of $1.8 million in 1994. The difference primarily
relates to a $6.6 million application of the valuation reserve against the
Company's deferred tax asset in 1995, with no adjustment to the valuation
44
<PAGE> 45
reserve in 1994, offset to some extent by the Company's expensing $8.4 million
of receivables due from TCO and deemed uncollectible.
Equity in income (losses) of affiliates was income of $3.8 million in
1995 compared to a loss of $5.2 million in 1994. The improvement in 1995
related to an increase in TCO's revenues principally as a result of an increase
of $3.7 million in profit sharing commission received from the Company relating
to the $14.9 million reduction in reserves for losses and loss adjustment
expenses, and a decrease in expenses due to general cost cutting by TCO and the
shifting of certain employees from TCO to the Company.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, cash and investments totaled $64.1 million,
compared to $88.8 million at December 31, 1995. At December 31, 1996, the
Company had $33.3 million in cash and investments pledged as collateral for
letters of credit related to reinsurance, on deposit with the various states in
which it has done business, on deposit in the IIE Guaranty Fund, Inc. and held
in trust for the benefit of the Syndicate's policyholders and otherwise to
satisfy the Syndicate's obligations. This $33.3 million amount represents
51.9% of the Company's total cash and investments at December 31, 1996. Funds
held in trust for the benefit of the Syndicate's policyholders may be used by
the Company to satisfy claims of the policyholders and other obligations of the
Syndicate.
The foregoing $33.3 million includes the following at December 31,
1996: $13.3 million of fixed maturities; $500,000 of cash and cash equivalents;
and $3.4 million of short term investments which were required to be maintained
as collateral for letters of credit and to satisfy insurance regulatory
requirements. Also included in the $33.3 million is $15.9 million comprised of
cash and various types of investments held in trust for the benefit of the
Syndicate's policyholders. See "Business -- Regulation -- Combination of the
Syndicate with Alpine" -- Item 1 and Note 4 of Notes to Consolidated Financial
Statements.
At December 31, 1996, $16.3 million, or 15.1% of the Company's total
assets, consisted of real estate mortgages and real estate investments. This
compared to $19.2 million of such investments, comprising 13.4% of the
Company's total assets at December 31, 1995. The Company's intent is to reduce
the real estate mortgages and real estate owned investments in an aggressive
but orderly manner. See "Business -- Investments" -- Item 1.
The decrease in cash and invested assets at December 31, 1996,
compared to December 31, 1995, resulted from cash applied to operations. Cash
applied to operations during 1996 was $24.2 million compared to $14.3 million
for 1995, and cash provided by operations of $17.1 million for 1994. The
increase in cash applied to operations in 1996 resulted principally from a
substantial increase in payments of loss and loss adjustment expenses, while
premium revenues decreased as a consequence of the Best rating downgrades,
regulatory issues affecting the Syndicate and Alpine and the Company's decision
to cease writing direct insurance in August 1996, and the Company's increased
expenses for personnel and general administrative costs assumed by Alpine
effective August 1, 1996. See "Business -- Background Concerning Changes in
Operations" -- Item 1. The increased cash applied to operations in 1995
compared to 1994 resulted principally from an increase in payments of loss and
loss adjustment expenses in 1995, and payments of premiums to reinsurers during
1995 for reinsurance covering policies written in 1995 and 1994.
In order to fund the cash applied to operations during 1996 and 1995,
the Company liquidated investments at more accelerated rates than historically
had been necessary. Net cash inflow from investing activities was $21.0
million in 1996 compared to cash applied to investing activities of $6.2
million in 1995 and $14.9 million in 1994.
45
<PAGE> 46
The total debt obligation of the Company as of December 31, 1996 was
$1.6 million. Of this amount, $500,000 is due during 1997.
Exstar, as a parent company, has relied on advances and tax agreement
payments from its subsidiaries to fund its cash requirements. Exstar's cash
was depleted during 1996 to pay for the suit against C&L. As a consequence of
Exstar's settling the suit in January 1997, Exstar received net cash, after
expenses not paid during 1996, of approximately $3 million. See "Legal
Proceedings" -- Item 3.
The Company currently does not anticipate that it will issue direct
insurance in 1997. Additionally, under the Quota Share Arrangement, most of
the premiums ultimately due to Alpine will be withheld by UCIC for some time
(perhaps several years), and the investment income payable to Alpine initially
will be relatively insignificant. The Company's cash available to fund
operations, consequently, will be very limited.
Management expects the Company will need for at least 1997 to continue
to liquidate investments as the Company's principal source of cash to fund its
operations. Based on historical loss payout patterns and expected operating
costs, management anticipates these liquidations could result in realized
losses on the liquidated investments, particularly if interest rates rise
significantly during 1997. Notwithstanding the foregoing, because the Company
has a substantial portion of its investments in mid-term fixed maturities, and
because management expects the cash required for payments of loss and loss
adjustment expenses to decline during 1997, the realized losses on liquidated
investments are expected to be relatively small (less than $500,000, depending
on interest rate movements).
Management anticipates the Company's financial condition and lack of
revenues will have a relatively minor impact on the Company's currently planned
business operations and regulatory status during 1997. (They will, however,
prevent the Company from pursuing other opportunities, including writing direct
insurance, that it could have pursued if its financial condition were better.)
Under the Quota Share Arrangement, Alpine's participation, and consequently the
amount of premium assumed by Alpine, may be restricted by UCIC to a multiple of
Alpine's policyholders' surplus, but management expects Alpine's policyholders'
surplus to be sufficient so that the limit will not be material during 1997.
See "Business -- Current and Future Operations and Organizational Structure" --
Item 1. Alpine's IRIS ratios and its risk based capital computation may be
adversely impacted by the Company's lack of revenues, but management
anticipates the impact will not be material because Alpine's principal
insurance activity during 1997 is expected to be acting as a reinsurer of UCIC
under the Quota Share Arrangement in accordance with the plan of operation
agreed to between Alpine and the Illinois DOI during 1996. See
"Business--Regulation" -- Item 1.
Management anticipates Exstar will not receive any dividends from
Alpine for the foreseeable future, but that Exstar's cash needs, as a parent
company, may be satisfied during 1997 out of a combination of the cash proceeds
from settlement of the Company's suit against C&L (see "Legal Proceedings" --
Item 3) and cash received from an unaffiliated reinsurer which has been
assigned to Exstar by TCO (see "--1996 to 1995--Other Income"). Exstar does
not plan to pay cash dividends in the foreseeable future.
To satisfy the Company's cash need beyond 1997, the Company is
considering a number of alternatives. Such alternatives currently include (i)
issuing shares of its Common Stock in a private placement or a public offering;
(ii) seeking funding from or engaging in other transactions with UCIC; and
(iii) merging with one or more other insurance operations. Management has not
yet determined which of these or other courses of actions to pursue and has not
made any commitment with respect to any of the foregoing. See "Market for
Registrant's Common Equity and Related Stockholder Matters" -- Item 5.
46
<PAGE> 47
As of December 31, 1996, the Company had no off-balance sheet
obligations or capital commitments that were not reflected in the Company's
financial statements. The Company during 1997 may enter into a settlement
agreement relating to the JBW & Co. Loan. Pursuant to such a settlement, the
amounts paid to TCO Holdings by Alpine in connection with the Quota Share
Arrangement may be used to fund a $2.5 million promissory note payable by TCO
Holdings in satisfaction of TCO's potential obligations relating to the
preferred stock issued by TCO Holdings. See "Business -- Investments -- JBW &
Co. Loan" -- Item 1.
After adjustment for the overstatement of loss reserves for 1995,
Alpine's adjusted capital amounts at December 31, 1996, and December 31, 1995,
were approximately 173% and 170%, respectively, of its authorized control level
risk based capital amounts. Because Alpine's December 31, 1996 adjusted
capital was less than 200% of its authorized control level risk based capital,
Alpine submitted a comprehensive financial plan to the Illinois DOI. The plan
identifies as the principal condition that contributed to Alpine's failure to
meet the company action level of risk based capital, the amount of Alpine's net
reserves for losses and loss adjustment expense relative to policyholders'
surplus, and contains, as the proposed corrective actions, principally the
changes to the Company's operations and organizational structure already
implemented and consummation of the Quota Share Arrangement with UCIC. The
plan includes projections indicating that, even if the Quota Share Arrangement
were not in effect for 1997, Alpine's adjusted capital at December 31, 1997,
and thereafter, is expected to exceed 200% of its authorized control level risk
based capital. Management anticipates Alpine's comprehensive financial plan
ultimately will be accepted by the Illinois DOI, based on discussions with
Illinois DOI representatives; however, the Illinois DOI has not yet formally
responded to the plan.
INFLATION
The Company believes the premium levels established by UCIC take into
account inflationary pressures. The Company believes UCIC, for competitive
reasons, is limited in the extent to which it can increase premiums to account
for anticipated inflation, and actual inflation may be greater than
anticipated. In either event, the Company believes UCIC, rather than its
insureds, may have to absorb inflation costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information in response to this item is incorporated by reference from
Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information concerning changes in and disagreements with the Company's
independent public accountants was contained in the Company's Form 8-K filed
with the SEC dated September 27, 1994 (concerning the resignation of C&L), the
Company's Form 8-K filed with the SEC dated September 30, 1994 (concerning the
Company's engagement of KPMG Peat Marwick LLP as its independent public
accountants), and the Company's 1994 Form 10-K.
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<PAGE> 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
each of the directors and executive officers of the Company as of March 31,
1997:
<TABLE>
<CAPTION>
Name Age Position with Company
- ---------------------- --- -------------------------------------------------------------
<S> <C> <C>
Peter J. O'Shaughnessy 54 Chief Executive Officer, Chairman of the Board and a Director
Steven C. Shinn 49 President and a Director
David W. Fleming 62 Director
Mark Rosenberg 46 Vice President and Chief Financial Officer
Richard G. Kersten 51 Senior Vice President, Secretary and General Counsel
</TABLE>
Mr. O'Shaughnessy has served as the Chief Executive Officer and
Chairman of the Board of the Company (or its predecessor organizations) since
its formation in 1988, and served as its President from 1988 to September 1993.
Mr. O'Shaughnessy has been Chairman of the Board of Alpine, since 1988 and was
an Executive Vice President of Alpine from 1986 to June 1993. Mr.
O'Shaughnessy has served as Chairman of the Board of the Syndicate and was
President of the Syndicate from 1985 to June 1993. He has been Chairman of the
Board and Chief Executive Officer of TCO-CA, a subsidiary of TCO Holdings,
since 1977 and was President of TCO-CA and its predecessors from 1977 to
September 1993. He has also been a director of TCO-IL since 1987. From 1986
to December 1993, Mr. O'Shaughnessy was a member of the Board of Trustees of
the IIE, and a member, as well as chairman, of a number of committees of the
IIE Board.
Mr. Shinn has served as President of the Company since September 1993.
He served as an Executive Vice President of the Company (or its predecessor
organizations) from its formation in 1988 until September 1993. Mr. Shinn has
been a director of the Company (or its predecessor corporations) since its
formation in 1988. Mr. Shinn has been a director of Alpine since 1987. Mr.
Shinn was an executive officer of Alpine from 1987 to June 1993 and has been
its President since September 1996. Mr. Shinn was also an executive officer of
the Syndicate from 1987 to June 1993 and served as its President from September
1996 through December 1996. Mr. Shinn has been an executive officer and
director of TCO-CA since 1987, and was an executive officer and director of
TCO-IL from 1987 to June 1993. Mr. Shinn has served as a director of Advanced
Hardware Architectures, Inc., a designer of computer chips located in Pullman,
Washington, since 1989.
Mr. Fleming has been of counsel to the law firm of Latham & Watkins
since 1992. From 1960 to 1992, he was a senior partner at the law firm of
Fleming and Ingalls in the San Fernando Valley region. Mr. Fleming has been
Vice President of the Los Angeles City Board of Fire Commissioners since 1993
and Chairman of Valley Presbyterian Hospital since 1988. He has been a
director of Valley Industry and Commerce Association ("VICA") for 25 years and
served as VICA's Chairman from 1988 to 1990.
Mr. Rosenberg has served as Chief Financial Officer and Vice President
of the Company since January 1, 1997. From 1988 to 1997, he served as
Controller and Reinsurance Manager of TCO-CA. Mr. Rosenberg has been a
director of Alpine since September 1996.
Mr. Kersten served as a Director of Exstar from its formation in 1988
until 1992, and has served as a director and/or Senior Vice President,
Secretary and General Counsel of Alpine, the Syndicate and TCO since the
inception of these companies.
48
<PAGE> 49
Section 16(a) of the Securities Exchange Act of 1934 ("1934 Act"), as
amended, requires the Company's executive officers, directors and persons who
own greater than ten percent of a registered class of the Company's equity
securities ("Reporting Persons") to file reports of ownership and changes in
ownership with the SEC and any exchange on which the Company's securities may
be listed. Reporting Persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on a
review of the forms it has received and on written representations from certain
Reporting Persons that no such forms were required for them, the Company
believes that during the year ended December 31, 1996, the Reporting Persons
complied with all filing requirements applicable to them, except as described
below.
In 1996, Mr. Shinn inadvertently failed to timely file a report on
Form 5 for 1995. The Form 5, which was required to be filed by February 14,
1996, was filed April 15, 1996.
ITEM 11. EXECUTIVE COMPENSATION
From the date of the Company's initial public offering through the end
of December 1994, neither the Company nor any of its subsidiaries had any
compensated employees. During that period, employees of TCO (including
individuals who were executive officers of the Company) performed all
administrative, management, underwriting, finance, claims, investment and other
services for the Company and its subsidiaries pursuant to the Master Agreement
and the management agreements between TCO-IL and the Company. Under these
management agreements, TCO-IL received commissions based upon fixed percentages
of the gross premium, profit and invested assets of Alpine and the Syndicate;
its compensation was not based on the time devoted, or services provided, to
the Company by TCO personnel. See "Business -- Current and Future Operations
and Organizational Structure -- Relationship with TCO" -- Item 1 for a
description of these agreements. Further, the compensation received by the
Company's executive officers from TCO was not directly related to services
provided by them to the Company or to the results of the Company's operations.
Neither the Company nor any of its subsidiaries paid any salary to the
Company's executive officers in 1994. All such executive officers were
remunerated directly by TCO, in their capacities as employees of TCO.
In early 1995, the Company adopted certain accounting changes which
affected its historical and future consolidated financial statements prepared
in accordance with GAAP. As a result of one of these changes, decreases in
TCO's stockholder's equity are treated as expenses of the Company, even though
TCO is not a subsidiary of the Company. Conversely, certain increases in TCO's
stockholder's equity in any period result in increases in the Company's net
income in such period, provided that the aggregate increase in the Company's
net income as a result of increases in TCO's stockholder's equity does not
exceed the aggregate amount of losses previously recognized by the Company as a
result of TCO's operations. In view of these GAAP accounting changes and the
direct impact that TCO's changes in stockholder's equity have on the Company's
GAAP financial statements, the Company elected to provide the information
required by Item 402 of Regulation S-K with respect to compensation received by
its executive officers from TCO for 1994.
Effective January 1, 1995, the Company's executive officers became
direct employees of the Company, and, as such, began to receive compensation
directly from the Company. Each such individual continued to hold the offices
and directorships he previously held with TCO, and certain of such individuals
continued to receive salaries from TCO until August 1, 1996.
Effective August 1, 1996, portions of the compensation paid to the
Company's executive officers were allocated to and reimbursed to the Company by
Transre and E&S. See "Business -- Current and Future Operations and
Organizational Structure -- Relationship with UCIC" -- Item 1. The Company
directly pays such amounts solely for administrative convenience. The amounts
paid by Transre and E&S are not in any way related to the Company's results or
the time devoted, or services provided, to the
49
<PAGE> 50
Company. Accordingly, such amounts reimbursed by Transre and E&S are not
reflected in the body of the Summary Compensation Table below.
SUMMARY COMPENSATION
The following table provides information concerning the annual and
other compensation for services in all capacities to the Company and TCO (but
not for services to Transre or E&S) for 1996, 1995 and 1994 of those persons
who were at December 31, 1996 (i) the Chief Executive Officer of the Company,
(ii) two executive officers of the Company whose salaries exceeded $100,000 for
1996 and (iii) two executive officers who left the employ of the Company during
1996, for whom, but for that fact, disclosure would have been required
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual -------------
Compensation Awards
------------ -------------
Other Securities
Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (#) ($)
- -------------------------- ---- ----------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. O'Shaughnessy, 1996 665,462(1) -- 33,532(2) -- --
Chairman of the Board, 1995 1,314,052(3) -- 79,569(4) -- --
Chief Executive Officer 1994 1,004,159(5) -- 208,746(6) -- --
Steven C. Shinn, President 1996 207,310(7) -- -- 13,175(8) --
1995 237,522 -- -- 13,175(8) --
1994 200,310(5) -- -- 26,352(8) --
Richard G. Kersten, 1996 129,945(9) -- -- -- --
Senior Vice President, 1995 156,625(5) -- -- -- --
General Counsel and 1994 148,550(5) -- -- -- --
Secretary
Craig L. Rice (10) 1996 100,475 -- -- -- 42,764(11)
1995 194,249 -- -- -- --
1994 190,310(5) -- -- -- --
John T. Clark (12) 1996 105,528(13) -- -- -- --
1995 135,237 -- -- -- --
1994 119,998 -- -- -- --
</TABLE>
- ----------------
(1) Includes $37,505 paid by TCO. The TCO companies are not subsidiaries of
the Company and are directly or indirectly wholly owned by Mr.
O'Shaughnessy. Excludes $123,175 paid by the Company in 1996 but
reimbursed to the Company by Transre and E&S.
(2) This amount is attributable to various services and benefits provided to
Mr. O'Shaughnessy by TCO ($23,818) and by the Company ($9,714).
(3) Includes $592,347 paid by TCO.
(4) This amount is attributable to various services and benefits provided to
Mr. O'Shaughnessy by TCO ($37,569) and by the Company ($42,000).
(5) Paid by TCO.
(6) This amount is attributable to various services and benefits provided to
Mr. O'Shaughnessy by TCO ($195,899) and by the Company ($12,847).
Of the amount paid by TCO, $79,589 is attributable to salaries of certain
individuals for the performance of maintenance services for Mr.
O'Shaughnessy or his family in connection with a venture unrelated to the
Company.
(7) Excludes $20,740 paid by the Company in 1996 but reimbursed to the Company
by Transre and E&S.
50
<PAGE> 51
(8) The indicated number reflects issued and outstanding shares of the
Company's Common Stock which are owned by TCO and which are available for
purchase upon the exercise of options granted under the TCO Plan.
(9) Includes $81,817 paid by TCO. Excludes $12,032 paid by the Company in 1996
but reimbursed to the Company by Transre and E&S.
(10) Employment terminated during 1996. Mr. Rice was the Executive Vice
President, Chief Financial Officer and Treasurer of the Company.
(11) Represents payments made pursuant to a consulting agreement entered into
by the parties in connection with the lawsuit against the Company's
former auditors after Mr. Rice left the employ of the Company. See
"Legal Proceedings" -- Item 3.
(12) Employment terminated during 1996. Mr. Clark was the Senior Vice
President (Regulatory Matters) of the Company.
(13) Excludes $7,804 paid by the Company in 1996 but reimbursed to the
Company by Transre and E&S.
Effective January 1, 1997, the Company reduced the portions of the
salaries of its executive officers paid by the Company. The salaries payable
by the Company currently are: (i) $225,000 for Mr. O'Shaughnessy (plus an
additional $275,000 allocated to and payable by Transre and E&S), (ii) $210,000
for Mr. Shinn (plus an additional $52,500 allocated to and payable by Transre
and E&S); and (iii) $123,353 for Mr. Kersten (plus an additional $30,900
allocated to and payable by Transre and E&S). The foregoing amounts do not
take into account any bonuses, options or other non-salary compensation that
could be paid during the year.
OPTION GRANTS IN 1996
No stock options or stock appreciation rights were granted by the
Company in 1996. TCO granted Mr. Shinn options in 1996 to purchase 13,175
shares of the Company's Common Stock from TCO pursuant to the TCO Plan.
AGGREGATED OPTION EXERCISES AND YEAR-END 1996 OPTION VALUES
No options or stock appreciation rights were exercised by the Named
Officers in 1996. The following table provides information on unexercised
options held by the Named Officers at December 31, 1996. All of such options
were granted pursuant to the TCO Plan.
YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
Numbers of Shares Value of
Underlying Unexercised Unexercised In-the-Money
Options at 12/31/96 Options at 12/31/96
(#) ($)(1)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ------------------------- -------------------------
<S> <C> <C>
Peter J. O'Shaughnessy 0/0 0/0
Steven C. Shinn 75,450/37,725 0/0
Richard C. Kersten 18,323/9,165 0/0
Craig L. Rice 36,646/18,329 0/0
John T. Clark 18,323/9,165 0/0
</TABLE>
- ------------------
(1) There were no "in-the-money" options at December 31, 1996.
EMPLOYMENT AGREEMENT
In 1994, TCO-CA entered into an employment agreement with Mr. Shinn
which initially had a term ending August 31, 1996. Pursuant to the agreement,
Mr. Shinn agreed to serve as President of both TCO-CA and the Company. The
agreement provided for a base monthly salary of $18,750 through August 31,
1995, and a monthly salary of $20,833.33 through August 31, 1996. The
agreement also provided for the granting to Mr. Shinn during the initial term
of the agreement of options to purchase 39,527 shares (including options to
purchase 26,352 shares granted in 1994) of the Exstar Common Stock pursuant to
the TCO Plan. The agreement provided for two consecutive two-year extensions
at the option of TCO or Mr. Shinn. During the extensions, Mr. Shinn's
compensation was to have been $22,916.67
51
<PAGE> 52
per month through August 31, 1997, $25,000 per month from September 1, 1997
through August 31, 1998, $27,083.33 per month from September 1, 1998, through
August 31, 1999, and $29,166.67 from September 1, 1999, through August 31,
2000. During the extensions, Mr. Shinn also was to be granted options to
purchase 13,175 shares of the Company's Common Stock at each of September 1,
1996, and September 1, 1997. The agreement provides that Mr. Shinn may
terminate the agreement without cause upon 180 days' prior written notice, or
upon 30 days' prior written notice in the event that: (i) he is removed from
office, or is not re-elected, as President of the Company, (ii) any person
other than Peter O'Shaughnessy or Mr. Shinn is appointed or elected as Chief
Executive Officer of TCO-CA or the Company, (iii) Mr. O'Shaughnessy is no
longer the controlling stockholder of TCO-CA or the Company, or (iv) TCO-CA or
the Company is insolvent or bankrupt. The agreement further provides that if
Mr. Shinn terminates the agreement for any of the foregoing reasons, or if Mr.
Shinn's employment is terminated by TCO-CA without cause, he is entitled to
receive the salary and stock options he would have received, in the absence of
termination, through the second anniversary of the termination date.
Notwithstanding the terms of the employment agreement, Mr. Shinn agreed to a
reduction of his base monthly salary to $16,666.67 from March 1, 1996, through
July 31, 1996; to $20,833.33 from August 1, 1996, through December 31, 1996;
and to $21,875 from January 1, 1997, through December 31, 1997. While Mr.
Shinn's right to terminate the employment agreement may have been triggered, he
has not elected to exercise such right.
DIRECTOR COMPENSATION
Non-management directors receive $15,000 per year paid in quarterly
installments of $3,750, and $1,000 per day for each day they attend a board
meeting or a committee meeting. Non-employee directors are also eligible to
receive options under the Exstar Financial Corporation 1995 Directors Stock
Option Plan; no options have been granted under this plan. The Company
currently has only one non-employee director.
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<PAGE> 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, certain
information with respect to the beneficial ownership of Exstar Common Stock by
(i) each person known by the Company to own beneficially more than five percent
of the outstanding shares of Common Stock, (ii) each director and nominee, and
(iii) all Company executive officers, directors and nominees as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Beneficially Percent of
Owned(1) Ownership
----------------------------------- ----------------------------- ----------
<S> <C> <C>
Peter J. O'Shaughnessy 3,764,300(2) 68.5%
1460 Calzada Avenue
Santa Ynez, CA 93460
TCO Insurance Services, Inc. 536,000(3) 9.7%
311 South Wacker Drive
Suite 500
Chicago, IL 60606
Mochel Family Limited Partnership (4) 310,500 5.6%
P.O. Box 2526
Avon, CO 81620
Steven C. Shinn 130,625(5) 2.3%
705 Mesa Drive
Solvang, CA 93463
David W. Fleming 10,000 *
c/o Latham & Watkins
10 Universal City Plaza
Suite 2570
Universal City, CA 91608-1002
Richard G. Kersten 18,323(6) *
Mark Rosenberg 916(6) *
All executive officers,
directors and nominees as
a group (5 persons) 3,924,164 69.5%
</TABLE>
- ------------------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes shares owned by TCO-IL, which is controlled by Mr. O'Shaughnessy.
(3) Certain of these shares have been pledged to the Company to secure TCO's
repayment of loans from the Company and its subsidiaries. See "Business --
Current and Future Operations and Organizational Structure -- Relationship
with TCO" -- Item 1.
(4) Based on Schedule 13D filed with the SEC dated November 21, 1996.
(5) Includes 84,225 shares issuable upon the exercise of vested options.
(6) Represents shares issuable upon the exercise of vested options.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1995, TCO acquired from Mr. O'Shaughnessy, its sole
stockholder, a five acre parcel of real estate in satisfaction of amounts
advanced to Mr. O'Shaughnessy during the second quarter of 1995. The purchase
price, $285,000, was equal to Mr. O'Shaughnessy's basis in the property. The
appraised value of the parcel as of the date of transfer was $325,000.
53
<PAGE> 54
During July 1995, the Company acquired from Mr. O'Shaughnessy eight
parcels ranging in size from 20 to 28 acres for which the off-site improvements
had been completed. The property was acquired subject to a first trust deed to
an unrelated financial institution in the amount of $595,000. Also during July
1995, the Company acquired from Mr. O'Shaughnessy an eight acre residential
property with a house and other improvements. This property was acquired
subject to existing indebtednesses of $1,126,000 and $644,000 to unrelated
financial institutions, secured by first and second trust deeds, respectively.
The purchase prices, as approved by the disinterested members of the Company's
board of directors, were equal to Mr. O'Shaughnessy's costs in the properties,
which were $1,114,000 in the case of the eight parcels (compared to an
appraised value as of the date of transfer of $1,045,000) and $2,125,000 in the
case of the residential property (compared to an appraised value as of the date
of transfer of $2.8 million). If the properties are sold for less than the
Company's costs, Mr. O'Shaughnessy has agreed to reimburse the Company for the
differences. If the properties are sold at amounts less than their appraised
values as of the dates they were acquired by the Company but more than their
costs, any excess of proceeds (less costs to carry and sell the properties)
over their costs will be paid to Mr. O'Shaughnessy. If the properties are sold
for more than their appraised values as of the dates they were acquired by the
Company, the excess over appraised values will be shared between the Company
and Mr. O'Shaughnessy. During 1996, the Company sold six of the eight parcels
for net proceeds of $623,000. As of December 31, 1996, Mr. O'Shaughnessy would
have a liability to the Company of $213,000 based on such sales, though his
ultimate liability, if any, will not be determined or payable until all of the
properties have been sold. At December 31, 1996 the appraised values of the
remaining parcels and the eight acre residential property totaled $2.7 million.
These properties are included in real estate held for sale. Effective July
1995, the Company leased the eight acre residential property to Mr.
O'Shaughnessy, which lease was terminated effective June 30, 1996. Rental
income with respect to the eight acre residential property from Mr.
O'Shaughnessy included in the income statements for the years ended December
31, 1996 and 1995 was $42,000 in each year. The rent for 1996 was settled
though accruing an amount due from TCO, and TCO's adding the accrued amount to
Mr. O'Shaughnessy's loan. The 1995 rent was treated as income to Mr.
O'Shaughnessy with the Company recording compensation expense offset by rental
income. Effective July 1996, the Company leased a different residential
property included in real estate held for sale to Mr. O'Shaughnessy. Rental
income from Mr. O'Shaughnessy on this property included in the income statement
for the year ended December 31, 1996 was approximately $19,000, which amount
was paid in cash by Mr. O'Shaughnessy.
During each of 1995 and 1996, in consideration of TCO's meeting its
repayment obligations under the Loan Agreement, Exstar released 170,000 of the
shares of Exstar Common Stock then pledged to secure TCO s obligations under the
Loan Agreement. As of December 31, 1996, 160,000 shares of Exstar Common Stock
owned by TCO were still pledged under the Loan Agreement.
The Master Agreement sets forth a number of rights and
responsibilities between the Company and TCO and covers, among other things,
the circumstances under which Exstar has the option to acquire certain TCO
operations. Under the terms of the Master Agreement, Exstar has the option to
acquire these operations in the event that, among other things, TCO-IL becomes
insolvent or unable to continue operations. The purchase price, based on
formulas defined in the Master Agreement, is to be equal to the sum of a
multiple of the operations' then book value, plus a multiple of the operations'
then revenues unrelated to the Company, net of certain expenses. Management
believes the Company's right to acquire the TCO operations has been triggered,
but has not elected to exercise such right.
Since the end of 1995, the Company believes it has had a number of
rights and remedies it could potentially assert against or with respect to TCO
under the Master Agreement, the management agreements, the Loan Agreement and a
lease between the Syndicate and TCO-CA. Among other things, the Company (i)
could have asserted its right to acquire TCO or TCO's operations or otherwise
asserted its remedies under the Master Agreement, (ii) could have, because
TCO's financial condition apparently
54
<PAGE> 55
breached certain financial covenants of the Loan Agreement, asserted its right
to accelerate TCO's loan payments or otherwise asserted its remedies under the
Loan Agreement, and (iii) could have asserted its rights under the lease to
require that TCO-CA continue as lessee or pay damages. Additionally, the
Company believes TCO failed to pay the Syndicate and Alpine $9.7 million of
agents' balances due in accordance with the terms and conditions of the
management agreements. As a result, the Company could have sought to assert
its remedies, including retaining ownership of TCO's renewals, under the
management agreements.
The Company determined to forego asserting the foregoing or other
rights it could have asserted under the Master Agreement, the management
agreements, the Loan Agreement, the lease or otherwise. In lieu thereof, the
Company agreed to termination of the management agreements, subject to a final
determination of obligations and liabilities between the Company and TCO, and
to the termination of the lease. The management agreement between Alpine and
TCO was terminated effective July 31, 1996. The management agreement between
TCO and the Syndicate was terminated effective December 31, 1996 (except with
respect to the profit sharing provision which was terminated effective
September 30, 1996).
Additionally, in lieu thereof, the Company agreed to allow certain
assets of TCO to be used by Transre and Claims Control, which are subsidiaries
of TCO Holdings, and E&S, a company wholly owned by Peter O'Shaughnessy. The
assets are being used to produce insurance and handle claims for UCIC, which
agreed, effective April 1, 1997, to cede to Alpine as a reinsurer a portion of
such insurance. See "Business -- Current and Future Operations and
Organizational Structure -- Relationship with UCIC." -- Item 1.
The Company has consented to TCO's use of certain of TCO's assets and
cash flows, that the Company otherwise might have attempted to claim for
itself, to satisfy obligations to third parties, including tax obligations,
obligations to an unaffiliated insurance company, obligations owed to the holder
of the TCO Holdings preferred stock (see Notes 12 and 16 of the Notes to
Consolidated Financial Statements), and obligations under an office lease to
which TCO is subject. It is anticipated that such obligations will be
satisfied, in whole or in part, from (i) a portion of any profits realized by
Transre and E&S under the Limited Agency Agreement, (ii) the override commission
paid to TCO Holdings in connection with the Quota Share Arrangement, and (iii)
Exstar Common Stock owned by TCO. Mr. O'Shaughnessy may have contingent
liability with respect to certain of these TCO obligations, and, consequently,
may benefit from their satisfaction through the use of such assets and cash
flows.
Pursuant to the respective management agreements between the Syndicate
and TCO and Alpine and TCO, commissions and fees, including profit sharing,
credited by the Syndicate and Alpine to TCO totaled $5,582,000, $24,672,000 and
$18,956,000 in 1996, 1995 and 1994, respectively. The management agreements
were terminated in 1996.
During 1987, the Syndicate and Alpine issued a policy to provide
stop-loss coverage on business written by an unaffiliated insurer and produced
by TCO. As consideration, the Syndicate and Alpine are entitled to 2.5% of the
unaffiliated insurer's written premium on the business. Total written premium
subject to the stop-loss coverage was $345,000, $1,320,000 and $2,253,000 in
1996, 1995 and 1994, respectively. Both the Syndicate and Alpine have
furnished the unaffiliated insurer with letters of credit fully collateralized
by fixed maturity investments, certificates of deposit and other short-term
investments in the amount of $7,900,000 as of December 31, 1996, 1995 and 1994,
to provide security for their and TCO's performance in connection with this
arrangement. Since July 1, 1992, as consideration for the letters of credit
provided by the Syndicate and Alpine, Exstar has been receiving the interest
earned on funds on deposit with the unaffiliated insurance company. As
additional consideration, TCO has assigned to Exstar any contingent amounts
from the unaffiliated insurance company up to $1.0 million per year.
55
<PAGE> 56
Exstar did not receive any amounts under this arrangement in 1996 or 1995.
Exstar received $1.3 million in 1994 under this arrangement.
The Company owns two office buildings in Solvang, California. The
Company, until June 1996, leased the two office buildings to TCO. The rental
income from TCO included in the income statements for the years ended December
31, 1996, 1995, and 1994 was $228,000, $584,000 and $577,000, respectively.
In connection with the Quota Share Arrangement, Alpine has agreed to
pay UCIC a ceding commission of 30% of the premium assumed by Alpine. This
ceding commission is to compensate UCIC for expenses incurred by UCIC generally
in obtaining the insurance which is subject to the Quota Share Arrangement.
UCIC pays Transre and E&S a fee of 27.5% of the premium produced by them
pursuant to the Limited Agency Agreement. The ceding commission paid by
Alpine, consequently, may indirectly benefit Transre and E&S, as well as the
employees of Alpine whose compensation is paid in part by reimbursements to
Alpine from Transre and E&S. See "Business -- Current and Future Operations
and Organizational Structure -- Relationship with UCIC" and "Business --
Current and Future Operations and Organizational Structure -- Expense
Reductions/Reallocations and Staffing Changes" -- Item 1.
The Syndicate contracted under an underwriting management agreement
with Camelback Reinsurance Underwriters, Inc., a subsidiary of TCO Holdings
("Camelback"), to assume premiums on various treaties for which Camelback was
the underwriting manager. The Syndicate's total premiums assumed pursuant to
those treaties were $147,000, $1,150,000 and $1,257,000 in 1996, 1995 and 1994,
respectively. The contract was terminated during 1996.
The Syndicate and Alpine derived premiums on insurance produced for
them by Trinity E&S Insurance Services, a subsidiary of TCO Holdings
("Trinity"). The gross premiums derived by the Syndicate and Alpine from
Trinity were $1,575,000, $5,726,000 and $4,452,000 in 1996, 1995 and 1994,
respectively.
During 1991, the Company made construction loans to Trinity for
construction of a new office building. The outstanding loan balances at
December 31, 1996 and 1995, were $1,096,000 and $1,105,000, respectively.
56
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements of the Company and the
related report of independent public accountants are filed as
part of this Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996
and 1995
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. The following financial statement schedules of the Company and
the related report of independent public accountants are filed
as part of this Form 10-K:
Schedule II -- Condensed Financial Information of
Registrant (Parent Only)
Schedule IV -- Reinsurance
Schedule VI -- Supplemental Information Concerning
Property--Casualty Insurance Operations
All other financial schedules are omitted because such schedules
are not required or the information required has been presented
in the aforementioned financial statements.
3. The following exhibits are filed with this Report or incorporated
by reference as set forth below.
<TABLE>
<CAPTION>
Exhibit
Number
----------
<S> <C>
*2.1 Plan and Agreement of Merger, executed on October 20, 1992.
*3.1 Restated Certificate of Incorporation of Registrant.
*3.2 Bylaws of Registrant.
*4.1 Specimen stock certificate representing the Common Stock.
*10.1 Exstar Financial Corporation 1992 Stock Incentive Plan.
*10.2 TCO Insurance Services 1992 Stock Incentive Plan, effective July 1, 1992.
*10.6 Master Agreement between TCO Insurance Services, Inc. and Registrant.
*10.7 Loan and Security Agreement, dated as of December 30, 1988, by and between Registrant,
Peter J. O'Shaughnessy and Boulevard Bank National Association.
*10.8 Agreement and Amendment of Loan and Security Agreement, Term Note and Related Loan
Documents, dated as of September 30, 1989, by and between Boulevard Bank National
Association, Registrant and Peter J. O'Shaughnessy.
*10.9 Second Amendment of Loan and Security Agreement and Waiver Agreement, dated as of
September 30, 1991, by and between Boulevard Bank National Association, Registrant and
Peter J. O'Shaughnessy.
*10.10 Letter Agreement, dated September 14, 1992, by and between Boulevard Bank National
Association, Registrant and Peter J. O'Shaughnessy, regarding restructuring of loans.
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit
Number
-----------
<S> <C>
*10.11 Interests and Liabilities Contract to Property and Casualty Stop Loss Reinsurance
Agreement between United National Insurance Company, Diamond State Insurance Company,
and Hallmark Insurance Company, Inc., and Transco Syndicate #1 Ltd., The Erie Syndicate,
Inc., and IMI Insurance Company.
*10.12 Amendment, effective April 1, 1987, to Property and Casualty Stop Loss Reinsurance
Agreement between United National Insurance Company, Diamond State Insurance Company,
and Hallmark Insurance Company, Inc. and Transco Syndicate #1 Ltd., The Erie Syndicate,
Inc., and IMI Insurance Company.
*10.15 Excess of Loss Reinsurance Cover Note, effective January 1, 1992, issued by Carvill
America, Inc. to Alpine Insurance Company.
*10.16 Marine Excess of Loss Reinsurance Cover Notes, effective February 1, 1992, issued by
Intere Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
*10.17 Stock Purchase Agreement, dated as of October 30, 1989, by and among Registrant and all
of the stockholders of The Erie Syndicate, Inc.
*10.18 Stock Purchase Agreement, dated as of December 28, 1989, by and among Jeffery W.
Beresford-Wood, Concord General Corporation, First Horizon Insurance Company, Peter J.
O'Shaughnessy, Registrant and Transco Syndicate #1 Ltd.
*10.19 Amendment No. 1, dated as of June 22, 1990, to the Stock Purchase Agreement dated as of
December 28, 1989, by and among Jeffery W. Beresford-Wood, Concord General Corporation,
First Horizon Insurance Company, Peter J. O'Shaughnessy, Registrant and Transco
Syndicate #1 Ltd.
*10.20 Amendment No. 2, dated as of December 3, 1990, to the Stock Purchase Agreement dated as
of December 28, 1989, by and among Jeffery W. Beresford-Wood, Concord General
Corporation, First Horizon Insurance Company, Peter J. O'Shaughnessy, Registrant and
Transco Syndicate #1 Ltd.
*10.21 Amendment No. 3, dated as of April 22, 1991, to the Stock Purchase Agreement dated as of
December 28, 1989, by and among Jeffery W. Beresford-Wood, Concord General Corporation,
First Horizon Insurance Company, Peter J. O'Shaughnessy, Registrant and Transco
Syndicate #1, Ltd.
*10.22 Letter Agreement, dated August 26, 1992, between Registrant and Concord General
Corporation, regarding certain transactions in connection with the Registrant's
Company's public offering.
*10.23 Tax Allocation Agreement, dated January 1, 1988, by and among Registrant and each of its
then affiliates.
*10.24 Supplemental Tax Agreement between Registrant and TCO Insurance Services, Inc.
**10.25 Endorsement No. 3 Commuting Casualty Excess of Loss Reinsurance Agreement, effective
January 1, 1991, issued by Alexander Reinsurance Intermediaries, Inc. to Transco
Syndicate #1 Ltd. and/or Alpine Insurance Company.
**10.26 Casualty Excess of Loss Cover Note, effective January 1, 1993, issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
**10.27 Semi-Automatic Facultative Casualty Excess of Loss Cover Note, effective January 1,
1993, issued by Alexander Reinsurance Intermediaries, Inc. to Transco Syndicate #1
and/or Alpine Insurance Company.
**10.28 Casualty Excess of Loss Cover Note, effective January 1, 1991, issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit
Number
-----------
<S> <C>
**10.29 Automatic Facultative Casualty Excess of Loss Cover Note, effective January 1, 1991,
issued by Alexander Reinsurance Intermediaries, Inc. to Transco Syndicate #1 and/or
Alpine Insurance Company.
***10.30 Management and Underwriting Agency Agreement between Transco Syndicate #1, Ltd. and TCO
Insurance Services, Inc. dated June 29, 1993.
***10.31 Management Agreement between Alpine Insurance Company and TCO Insurance Services, Inc.
dated June 29, 1993.
***10.32 Servicing Agreement between TCO Insurance Services, Inc. and TCO Insurance Services
dated July 1, 1993.
***10.33 Servicing Agreement between TCO Insurance Services, Inc. and TCO Insurance Services
dated July 1, 1993.
****10.34 Management and Servicing Agreement between Alpine Insurance Company and TCO Insurance
Services, Inc. dated as of December 31, 1993.
****10.35 Agreement between Transco Syndicate #1 Ltd. and United National Insurance Company,
Diamond State Insurance Company and Hallmark Insurance Company, Inc. dated January 21,
1994.
****10.36 Commercial Real Property Lease by and between Transco Syndicate #1 Ltd. and TCO
Insurance Services dated January 1, 1994.
****10.37 Casualty Excess of Loss Cover Note, effective January 1, 1991, issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
****10.38 Casualty Excess of Loss Cover Note, effective January 1, 1992, issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
****10.39 Casualty Excess of Loss Cover Note, effective January 1, 1993, issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance
Company.
****10.40 Semi-Automatic Facultative Casualty Excess of Loss Agreement effective January 1, 1994,
issued by Alexander Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or
Alpine Insurance Company.
****10.41 Marine Excess of Loss Cover Notes, effective February 1, 1993, issued by Intere
Intermediaries, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company and/or
Affiliated Companies of TCO Insurance Services, Inc.
****10.42 Loan Agreement among TCO Insurance Services, Inc., TCO Insurance Services, Exstar
Financial Corporation, Transco Syndicate #1 Ltd. and Alpine Insurance Company dated as
of December 30, 1993.
****10.43 First Amended and Restated Loan Agreement among TCO Insurance Services, Inc., TCO
Insurance Services, Registrant, Transco Syndicate #1 Ltd. and Alpine Insurance Company
dated March 25, 1994.
****10.44 Guaranty of JBW & Co., Inc. to Registrant, Alpine Insurance Company and Transco
Syndicate #1 Ltd. dated December 30, 1993.
****10.45 Security Agreement between Registrant, Alpine Insurance Company and Transco Syndicate #1
Ltd. and JBW & Co., Inc. dated December 30, 1993.
****10.46 Guaranty of Jeffery W. Beresford-Wood to Registrant, Alpine Insurance Company and
Transco Syndicate #1 Ltd. dated December 30, 1993.
****10.47 Indemnification Agreement between Peter J. O'Shaughnessy, Jeffery W. Beresford-Wood and
JBW & Co., Inc. dated December 30, 1993.
****10.48 Revolving Credit Note in the amount of $1,494,380 issued by TCO Insurance Services, Inc.
to Registrant dated December 30, 1993.
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit
Number
-----------
<S> <C>
****10.49 Revolving Credit Note in the amount of $5,005,620 issued by TCO Insurance Services, Inc.
to Transco Syndicate #1 Ltd. dated December 30, 1993.
****10.50 Secured Debt Conversion Agreement between Transco Syndicate #1 Ltd., Concord General
Corporation and JBW & Co., Inc. dated December 31, 1993.
****10.51 Exchange Agreement between Concord General Corporation and Transco Syndicate #1 Ltd.
dated March 25, 1994.
****10.52 Backup Pledge Agreement among TCO Insurance Services, Inc., Exstar Financial
Corporation, Transco Syndicate #1 Ltd. and Alpine Insurance Company dated as of
December 30, 1993.
*****10.53 Letter Agreement between Scudder, Stevens & Clark, Inc. and Exstar Financial Corporation
dated as of March 1, 1994.
******10.54 Revolving Credit Note in the amount of $1,400,000 issued by TCO Insurance Services, Inc.
to Alpine Insurance Company dated May 1, 1994.
******10.55 Reformed First Amended and Restated Loan Agreement effective December 30, 1993, by and
among TCO Insurance Services, Inc., TCO Insurance Services, Exstar Financial
Corporation, Transco Syndicate #1 Ltd., and Alpine Insurance Company dated June 30,
1994.
******10.56 Letter Agreement between Alpine Insurance Company and TCO Insurance Services, Inc. re:
Management and Servicing Agreement of December 31, 1993, Financial Investment Management
Fee dated July 1, 1994.
*******10.57 Lease of 311 South Wacker Drive, Suite 500, Chicago, Illinois, effective August 8, 1990,
between Wacker Drive Limited Partnership and TCO Insurance Services.
*******10.58 First Amendment to Lease, effective September 1, 1993, between Wacker Drive Limited
Partnership and TCO Insurance Services, Inc.
*******10.59 Executive Employment Agreement, effective September 1, 1994, between TCO Insurance
Services and Steven C. Shinn.
*******10.60 Multiple Advance Note of April 1, 1992, in the principal face amount of $4,500,000
between TCO Insurance Services, Inc. as beneficiary and Peter J. O'Shaughnessy as
debtor.
*******10.61 Revolving Credit Note in the amount of $1,400,000 issued by TCO Insurance Services, Inc.
to the Company dated December 4, 1994.
*******10.62 Revolving Credit Note in the amount of $1,500,000 issued by TCO Insurance Services, Inc.
to the Company dated December 21, 1994.
*******10.63 Casualty Quota Share Reinsurance Agreement, effective July 1, 1994, between Alpine
Insurance Company and Transco Syndicate #1 Ltd.
*******10.64 Casualty Excess of Loss Cover Note, effective January 1, 1994, issued by Carvill America
to Alpine Insurance Company.
*******10.65 Memorandum of Reinsurance, effective May 1, 1993, issued by Sedgwick Payne Co. to Alpine
Insurance Company.
*******10.66 Semi-Automatic Facultative Casualty Excess of Loss Cover Note, effective January 1,
1994, issued by Alexander Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd.
and/or Alpine Insurance Company.
*******10.67 Endorsement No. 2 to the Reinsurance Cover Note No. CH0323-94, effective September 30,
1994, issued by Alexander Reinsurance Intermediaries, Inc. to Transco Syndicate #1 Ltd.
and/or Alpine Insurance Company.
*******10.68 Semi-Automatic Facultative Casualty First Excess of Loss Cover Note, effective
October 1, 1994, issued by Alexander Reinsurance Intermediaries, Inc. to Transco
Syndicate #1 Ltd and/or Alpine Insurance Company.
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
Number
-----------
<S> <C>
*******10.69 Semi-Automatic Facultative Casualty Second Excess of Loss Cover Note, effective
October 1, 1994, issued by Alexander Reinsurance Intermediaries, Inc. to Transco
Syndicate #1 Ltd. and/or Alpine Insurance Company.
*******10.70 Letter of TCO Insurance Services, Inc. to Alpine Insurance Company of September 29,
1994, re: Management and Servicing Agreement of December 31, 1993, Financial Investment
Management Fee.
10.71 Upper Layer Employers Excess Indemnity Cover Note No. 94-200 effective August 1, 1994,
issued by Combined Intermediaries of America, Inc. to Transco Syndicate, Inc. and Alpine
Insurance Company.
10.72 Upper Layer Employers Excess Indemnity Cover Note No. 94-201 effective August 1, 1994,
issued by Combined Intermediaries of America, Inc. to Transco Syndicate, Inc. and Alpine
Insurance Company.
10.73 Primary Employers Indemnity Cover Note No. 94-202 effective August 1, 1994, issued by
Combined Intermediaries of America, Inc. to Transco Syndicate, Inc. and Alpine Insurance
Company.
10.74 Reinsurance Confirmation of Casualty Excess of Loss Reinsurance Agreement effective
May 1, 1995 between Alpine Insurance Company, TCO Insurance Services, Inc. and Trinity
MGA Insurance Services, Inc.
10.75 Reinsurance Cover Note No. 95/0640/IL effective January 1, 1995 issued by Carvill
America to Alpine Insurance Company.
10.76 Commutation Agreement and Release between Transco Syndicate #1, Ltd., Alpine Insurance
Company and ReCapital Reinsurance Corporation effective April 15, 1995.
10.77 Secured Promissory Note dated December 31, 1995 by JBW & Co., Inc., Concord General
Corporation and Jeffery Beresford-Wood.
10.78 Pledge Agreement dated December 31, 1995 by and between Transco Syndicate #1 Ltd. and
JBW & Co., Inc., Concord General Corporation and Jeffery W. Beresford-Wood.
10.79 First Excess of Loss Cover Note No. SF961000 effective January 1, 1996 issued by Intere
Intermediaries to Alpine Insurance Company and Transco Syndicate #1.
10.80 Second Casualty Excess of Loss Cover Note No. SF961001 effective January 1, 1996 issued
by Intere Intermediaries to Alpine Insurance Company, Transco Syndicate #1.
10.81 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover Note (Treaty No.
MA960269) issued by Minet Re North America to Transco Syndicate No. 1 and/or Alpine
Insurance Co. effective March 1, 1996.
10.82 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover Note (Treaty No.
MA960270) issued by Minet Re North America to Transco Syndicate No. 1 and/or Alpine
Insurance Co. effective March 1, 1996.
10.83 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover Note (Treaty No.
MA960406) issued by Minet Re North America to Transco Syndicate No. 1 and/or Alpine
Insurance Co. effective March 1, 1996.
10.84 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover Note (Treaty No.
MA960475) issued by Minet Re North America to Transco Syndicate No. 1 and/or Alpine
Insurance Co. effective March 1, 1996.
10.85 Endorsement No. 2 to Marine Excess of Loss Reinsurance Cover Note (Treaty No. MA962045)
issued by Minet Re North America, Inc. to Transco Syndicate No. 1 and/or Alpine
Insurance Co. effective March 1, 1996.
10.86 Marine Excess of Loss Reinsurance Cover Note No. MA962045 issued by Minet Re North
America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company effective
March 1, 1996.
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
Number
------------
<S> <C>
10.87 Marine Excess of Loss Reinsurance Cover Note No. MA960475 issued by Minet Re North
America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company effective
March 1, 1996.
10.88 Marine Excess of Loss Reinsurance Cover Note No. MA960406 issued by Minet Re North
America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company effective
March 1, 1996.
10.89 Marine Excess of Loss Reinsurance Cover Note No. MA960269 issued by Minet Re North
America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company effective
March 1, 1996.
10.90 Marine Excess of Loss Reinsurance Cover Note No. MA960270 issued by Minet Re North
America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine Insurance Company effective
March 1, 1996.
10.91 Casualty Quota Share Cover Note No. CH 0333-95 issued by Alexander Reinsurance
Intermediaries, Inc. to Transco Syndicate #1, Ltd, Alpine Insurance Company effective
April 1, 1995.
10.92 Investment Advisory Agreement dated May 21, 1996 by and between Asset Allocation &
Management Company, L.L.C. and Alpine Insurance Company.
10.93 Claim Service Agreement dated June 15, 1996 by and between Claims Control Corporation
and United Capitol Insurance Company.
10.94 Termination Endorsement effective July 1, 1996 to Management and Servicing Agreement, as
amended and with an original effective date of December 31, 1993 between Alpine
Insurance Company and TCO Insurance Services, Inc.
10.95 Termination Endorsement effective December 31, 1996 to Management and Servicing
Agreement, as amended and with an original effective date of July 1, 1993 between
Transco Syndicate #1, Ltd. and TCO Insurance Services, Inc.
10.96 Lease dated September 18, 1996 by and between Transco Syndicate #1 Ltd. and Channel
Islands YMCA.
10.97 Limited Agency Agreement by and between Olympic Underwriting Managers, Inc., Transre
Insurance Services and Exstar E&S Insurance Services effective June 24, 1996.
10.98 Consulting Agreement between Alpine Insurance Company and Craig Rice dated October 10,
1996.
10.99 Withdrawal Agreement effective December 31, 1996 between Illinois Insurance Exchange,
Illinois Insurance Exchange Immediate Access Security Association, Illinois Insurance
Exchange Guaranty Fund, Inc., Transco Syndicate #1 Ltd. and Alpine Insurance Company.
10.100 Commutation Agreement and Release between Alpine Insurance Company and Transco Syndicate
#1 Ltd. effective December 31, 1996.
10.101 Assignment and Assumption Agreement between Alpine Insurance Company and Transco
Syndicate #1 Ltd. dated December 31, 1996.
10.102 Trust Agreement dated January 9, 1997 between Alpine Insurance Company and LaSalle
National Bank.
10.103 Casualty Quota Share Slip between United Capitol Insurance Company and Alpine Insurance
Company dated March 27, 1997.
*******11.1 Computation of Earnings Per Share.
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit
Number
----------
<S> <C>
*******16.1 Letter re Change in Certifying Accountant, dated September 22, 1994, of Coopers &
Lybrand L.L.P., filed with the Securities and Exchange Commission as an exhibit to the
Company's Form 8-K, dated September 27, 1994.
********27 Financial Data Schedule
</TABLE>
- ------------------
* Previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1, as amended, File No. 33-54320 and
incorporated herein by reference.
** Previously filed with the SEC as an Exhibit to the Company's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1992.
*** Previously filed with the SEC as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1993.
**** Previously filed with the SEC as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
***** Previously filed with the SEC as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994.
****** Previously filed with the SEC as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1994.
******* Previously filed with the SEC as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
******** To be filed by amendment.
(b) Reports filed on Form 8-K:
No reports on Form 8-K were filed with the SEC during 1995 and 1996
63
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
April, 1997.
EXSTAR FINANCIAL CORPORATION
By: /s/ Steven C. Shinn
------------------------
Steven C. Shinn
President and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chief Executive Officer,
Chairman of the Board, and a Director
/s/ Peter J. O'Shaughnessy (Principal Executive Officer) April 30 , 1997
- ---------------------------------- ---------
Peter J. O'Shaughnessy
/s/ Steven C. Shinn President and a Director April 30 , 1997
- ---------------------------------- ---------
Steven C. Shinn
Principal Financial Officer and Principal
/s/ Mark Rosenberg Accounting Officer April 30 , 1997
- ---------------------------------- --------
Mark Rosenberg
/s/ David W. Fleming Director April 30 , 1997
- ---------------------------------- --------
David W. Fleming
</TABLE>
<PAGE> 65
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements for Cash Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Financial Statement Schedules
Schedule II - Condensed Financial Information of Registrant (Parent Only) . . . . . . . . . . . . . . . . . . S-1
Schedule IV - Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Schedule VI - Supplemental Information Concerning Property--Casualty Insurance Operations . . . . . . . . . . S-6
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Exstar Financial Corporation:
We have audited the consolidated financial statements of Exstar Financial
Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exstar Financial
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
(signed) KPMG PEAT MARWICK LLP
Los Angeles, California
April 14, 1997
F-2
<PAGE> 67
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Investments:
Fixed maturities available for sale:
Bonds, at market
(amortized cost--1996, $39,080; 1995, $48,910) (See Note 4) $38,547 $49,198
Redeemable preferred stocks, at market
(amortized cost--1996, $250; 1995, $1,203) 253 1,150
Equity securities available for sale:
Preferred stocks, at market
(cost--1996, $1,000; 1995, $1,000) (See Note 4) 1,156 1,076
Common stocks, at market
(cost--1996, $250; 1995, $672) 375 542
Mortgage loans--unaffiliated (See Note 4) 4,225 4,360
Mortgage loans--affiliated (See Note 4) 908 1,013
Real estate held for investment (See Note 4) 4,255 4,426
Real estate held for sale (See Note 4) 6,391 8,590
Real estate acquired through foreclosure (See Note 4) 493 779
Short-term investments (See Note 4) 4,944 12,651
-------- --------
Total investments 61,547 83,785
Cash and cash equivalents--restricted 1,129 1,028
Cash and cash equivalents--unrestricted 1,390 4,028
Accounts receivable--affiliated 2,443 6,881
Reinsurance recoverable:
Paid loss and loss adjustment expenses 1,576 916
Unpaid loss and loss adjustment expenses 33,921 23,164
Prepaid reinsurance premiums 386 14,106
Accrued investment income 822 1,200
Deferred acquisition costs 307 4,513
Property and equipment 797 975
Deferred income taxes 1,700 -0-
Other assets 2,136 2,032
-------- --------
Total assets $108,154 $142,628
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 68
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---------- --------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Policy liabilities and accruals:
Unpaid losses and loss adjustment expenses $86,927 $91,984
Unearned premiums 1,365 27,284
Reinsurance balances payable 1,106 5,978
-------- --------
Total policy liabilities and accruals 89,398 125,246
Notes payable 1,588 2,346
Current income taxes 375 150
Accumulated equity in losses of affiliates 3,020 2,715
Other liabilities 1,247 976
-------- --------
Total liabilities 95,628 131,433
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized;
issued and outstanding: 1996 and 1995, 5,497,500 shares 55 55
Paid in capital 26,865 26,865
Net unrealized investment (losses) gains (68) 101
Collateral loan--contra equity (12,314) (12,314)
Retained deficit (2,012) (3,512)
-------- --------
Total equity 12,526 11,195
-------- --------
Total liabilities and stockholders' equity $108,154 $142,628
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 69
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1996 1995 1994
-------------- ---------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Revenue:
Premiums earned $40,292 $65,115 $57,716
Premiums ceded (19,282) (25,966) (5,203)
------- ------- -------
Net premiums earned 21,010 39,149 52,513
Net investment income--unaffiliated 3,737 4,329 3,362
Net investment income--affiliated 293 584 571
Net realized investment (losses) gains (377) 389 (41)
Other income 142 385 1,339
------- ------- -------
Total revenue 24,805 44,836 57,744
------- ------- -------
Losses and expenses:
Loss and loss adjustment expense 24,258 32,423 37,969
Reinsurance ceded (11,569) (16,752) (5,119)
------- ------- -------
Net loss and loss adjustment expense 12,689 15,671 32,850
Policy acquisition costs amortized 5,119 11,655 15,800
Profit sharing--affiliated 1,286 5,242 1,364
Interest expense 220 212 152
Other expenses 7,267 6,255 3,192
------- ------- -------
Total expenses 26,581 39,035 53,358
------- ------- -------
(Loss) income before Federal income taxes, minority interest and
equity in income (losses) of affiliates (1,776) 5,801 4,386
------- ------- -------
Federal income tax (benefit) expense:
Current (275) (1,211) 1,642
Deferred (1,440) 6,268 139
------- ------- -------
Total Federal income tax (benefit) expense (1,715) 5,057 1,781
------- ------- -------
Minority interest -0- 157 94
Equity in income (losses) of affiliates 1,561 3,829 (5,173)
------- ------- -------
Net income (loss) $1,500 $4,730 $(2,474)
======= ======= =======
Net income (loss) per common share $0.27 $0.86 $(0.45)
======= ======= =======
Shares used in computation of net income (loss) per common share
(in thousands) 5,498 5,498 5,498
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 70
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Preferred
Unrealized Collateral Stock
Investment Loan Investment Retained
Common Paid in (Losses) Contra Contra (Deficit) Total
Stock Capital Gains Equity Equity Earnings Equity
------ ------- ---------- --------- ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 55 $26,865 $(662) $-0- $(11,000) $(5,768) $9,490
Cumulative effect on net
unrealized investment losses at January 1,
1994, from adopting SFAS 115 234 234
Change in net unrealized
investment (losses) gains
Fixed maturities (3,088) (3,088)
Equity securities 79 79
Deferred tax benefit 1,011 1,011
Net loss (2,474) (2,474)
----- ------ -------- ------- -------- ------- -------
Balance at December 31, 1994 55 26,865 (2,426) -0- (11,000) (8,242) 5,252
Conversion of preferred stock
plus cumulative dividends to
collateral loan (12,314) 11,000 (1,314)
Change in net unrealized
investment (losses) gains
Fixed maturities 3,207 3,207
Equity securities 411 411
Deferred tax expense (1,091) (1,091)
Net income 4,730 4,730
----- ------ -------- ------- -------- ------- -------
Balance at December 31, 1995 55 26,865 101 (12,314) -0- (3,512) 11,195
Change in net unrealized
investment (losses) gains
Fixed maturities (764) (764)
Equity securities 335 335
Deferred tax benefit 260 260
Net income 1,500 1,500
----- ------- -------- -------- -------- ------- -------
Balance at December 31, 1996 $55 $26,865 $(68) $(12,314) $-0- $(2,012) $12,526
===== ======= ======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 71
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
1996 1995 1994
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
(Decrease) increase in unrestricted cash and cash equivalents:
Cash flows (applied to) provided by operating activities:
Premiums received $8,378 $28,778 $50,773
Investment income received--unaffiliated 4,320 4,339 3,262
Investment income received--affiliated 449 713 782
Losses and loss adjustment expenses paid (28,502) (28,049) (19,819)
Interest paid (220) (134) (152)
Policy acquisition and other expenses paid--unaffiliated (6,392) (2,715) (817)
Policy acquisition and other expenses paid--affiliated (2,199) (16,531) (18,795)
Taxes recovered (paid)--unaffiliated 500 (766) (283)
Other (520) 111 2,183
------ ------- -------
Net cash (applied to) provided by operating activities (24,186) (14,254) 17,134
------ ------- -------
Cash flows provided by (applied to) investing activities:
Purchase of fixed maturities--unaffiliated (12,789) (63,199) (22,756)
Purchase or property, equipment and real estate (29) (4,440) (1,028)
Sale of fixed maturities 21,081 53,497 2,456
Maturity and calls of fixed maturities 2,379 8,762 2,349
Sale of equity securities 255 10 326
Short term investments, net 7,707 (7,103) (437)
Sale of property, equipment and real estate 2,255 4,936 2,626
Mortgage loans funded--unaffiliated (524) (100) (376)
Repayments of mortgage loans--unaffiliated 691 1,042 1,445
Repayments of mortgage loans--affiliated 9 368 451
------ ------- -------
Net cash provided by (applied to) investing activities 21,035 (6,227) (14,944)
------ ------- -------
Cash flows provided by (applied to) financing activities:
Issuance of notes payable -0- 2,593 8
Repayment of notes payable (758) (411) (913)
Transfers from affiliates 1,866 3,550 4,252
Transfers to affiliates -0- -0- (4,300)
Other (494) 696 (244)
Transfers (to) from restricted cash and cash equivalents (101) 933 3,087
------ ------- -------
Net cash provided by (applied to) financing activities 513 7,361 1,890
------ ------- -------
Net (decrease) increase in unrestricted cash and cash equivalents (2,638) (13,120) 4,080
Unrestricted cash and cash equivalents at beginning of period 4,028 17,148 13,068
------ ------- -------
Unrestricted cash and cash equivalents at end of period $1,390 $4,028 $17,148
====== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 72
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash (applied to)
provided by operating activities:
Cash flows (applied to) provided by operating activities:
Net income (loss) $1,500 $4,730 $(2,474)
Net realized investment losses (gains) 377 (389) 41
Non-cash charges (credits) included in net income:
Amortization and depreciation 690 737 755
Deferred federal income taxes (1,440) 6,268 139
Equity in (income) losses of affiliates (1,561) (3,829) 5,173
Change in:
Deferred acquisition costs 4,206 2,818 (398)
Accounts receivable 3,779 1,375 (2,851)
Accrued investment income--unaffiliated 377 (189) (290)
Accrued investment income--affiliated -0- -0- 55
Prepaid expenses 260 (80) 953
Unpaid loss and loss adjustment expenses (15,814) (12,377) 13,031
Reinsurance balances, net 8,848 (10,546) (1,115)
Accrued expenses 286 189 (345)
Unearned premium (25,919) (828) 3,194
Federal income taxes payable 225 (1,977) 1,360
Minority interest -0- (156) (94)
-------- -------- -------
Net cash (applied to) provided by operating activities $(24,186) $(14,254) $17,134
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 73
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 -- BUSINESS AND ORGANIZATION
Exstar Financial Corporation ("Exstar" if referring to the parent
company, or the "Company" if referring to Exstar and its direct and indirect
subsidiaries) is a holding company historically engaged principally in the
"direct" underwriting ("direct" underwriting consists of issuing insurance
policies directly to insureds) of specialty lines of casualty insurance on a
surplus lines basis. The Company conducted its insurance business through its
two insurance company subsidiaries--Alpine Insurance Company ("Alpine"), an
Illinois domiciled insurance company and Transco Syndicate #1 Ltd.
("Syndicate"), a former member of the Illinois Insurance Exchange ("IIE") and
the direct parent company of Alpine. Effective December 31, 1996, the assets
(other than the stock of Alpine) and liabilities of the Syndicate were
transferred to Alpine. The Syndicate then withdrew as a syndicate member of
the IIE and changed its name to Alpine Holdings, Inc. As a result of events
occurring since the end of 1995, including A.M. Best Company ("Best") ratings
downgrades and regulatory restrictions relating to Exstar's subsidiaries, the
Company ceased issuing direct insurance in August 1996. The Company's current
business activities, instead, consist of: acting as a reinsurer (effective as
of April 1, 1997) with respect to insurance policies issued by an insurance
company not affiliated with the Company; handling claims under policies and
reinsurance contracts previously issued by the Company and implementing
mid-term adjustments to and cancellations of such policies; and related
management, investment, reporting and accounting functions.
TCO Holdings, Inc. ("TCO Holdings"), a Delaware corporation, and its
current and former subsidiaries (collectively referred to as "TCO") are owned
by Exstar's majority stockholder. TCO Holdings significant wholly owned
subsidiaries include: (i) TCO Insurance Services, Inc. ("TCO-IL"), an Illinois
corporation that historically performed certain marketing, underwriting,
claims, management, investment and general administrative functions for the
Company pursuant to management agreements with the Syndicate and Alpine and a
master agreement with the Company; (ii) TCO Insurance Services ("TCO-CA"), a
California corporation which historically performed certain administrative
services for TCO-IL pursuant to a servicing agreement; (iii) Claims Control
Corporation ("Claims Control"), a licensed California claims adjuster which
began direct operations in January 1996 (which operations were previously
performed by TCO-IL and TCO-CA); and (iv) Transre Insurance Services
("Transre"), a licensed California surplus lines broker.
Since July 1996, virtually all of the Company's transactions,
organizational relationships and business methods (and the changes in such
relationships and methods) have been subject to the close scrutiny by, and
approval of, the State of Illinois Department of Insurance ("Illinois DOI"), the
principal regulator of Alpine, pursuant to an order issued by the Illinois DOI
("Illinois Order"). The Illinois Order directs: (i) that Alpine, including the
owners, officers, directors, and employees of Alpine, shall make no
disbursements of any kind, except for properly authorized insurance claim
payments, whether by direct cash transaction, loan offset, forgiveness of debts,
purchase, payment of compensation, dividends of any kind, or by transfer of
securities or assets of any kind, unless prior to such disbursement Alpine has
obtained the written approval of the Illinois DOI; (ii) that Alpine shall not
enter into or agree to enter into any agreement which commits Alpine to any type
of disbursement subject to the foregoing clause (i) without the prior written
approval of the Illinois DOI; (iii) that Alpine is prohibited from entering into
any transactions with any affiliate as defined under the Illinois Insurance Code
without the prior written approval of the Illinois DOI; and (iv) that Alpine
shall demand immediate payment to Alpine of all Alpine premiums held by any
affiliate. The Illinois Order subjects Alpine and its officers, directors and
affiliates to a higher level of regulatory scrutiny than that to which it has
previously been subject and to which most other insurers are subject. No
understanding has been reached with the Illinois DOI as to when its current
level of oversight may cease or diminish.
2 -- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the financial statements
of Exstar, its subsidiaries, and its real estate joint ventures in which it had
a controlling financial interest. All significant inter-company accounts and
transactions have been eliminated. These statements have been prepared on a
generally accepted accounting principles ("GAAP") basis.
F-9
<PAGE> 74
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents: Cash equivalents consist principally of
investments in certificates of deposit, U.S. Treasury instruments, and
commercial paper with a maturity of three months or less at the time of
acquisition.
Investments: Investments in all fixed maturity and equity securities
are classified into one of three categories: held-to-maturity, trading or
available-for-sale. Classification of investments is based upon management's
current intent. Fixed maturity securities which management has a positive
intent and ability to hold until maturity are classified as securities
held-to-maturity and are carried at amortized cost. Unrealized gains and
losses on securities held-to-maturity are not reflected in the consolidated
financial statements. Fixed maturity and equity securities that are purchased
for short-term resale are classified as trading securities. Trading securities
are carried at market value, with unrealized gains and losses included in
earnings. All other fixed maturity and equity securities not included in the
above two categories are classified as securities available-for-sale.
Securities available-for-sale are carried at market value, with unrealized
gains and losses, net of applicable income taxes, reported as a separate
component of stockholders' equity. At December 31, 1996 and 1995, the Company
did not have any investments categorized as held-to-maturity or trading
securities.
The Company's carrying values for investments in the
available-for-sale category are reduced to the estimated realizable value of
such investments if declines in the market value of such investments are deemed
other than temporary. Such reductions in carrying value are recognized as
realized losses and charged to income. Premiums and discounts on fixed
maturity securities are amortized over the lives of the securities as
adjustments to yield using the effective interest method. Realized gains and
losses on disposition of investments are included in net income. The costs of
investments sold are determined by specific identification of the investments
sold.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan
("SFAS 114"), which was issued by the Financial Accounting Standards Board in
May 1993. SFAS 114 was amended by Statement of Financial Accounting Standards
No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures ("SFAS 118"), which was issued in October 1994. The adoption
of SFAS 114, as amended by SFAS 118, had no impact on the Company's earnings or
on its financial position.
Mortgage loans are carried at the aggregate of unpaid balances net of
unamortized loan origination fees and allowance for loan losses. Loan
origination fees in excess of the actual costs of originating the loans are
amortized over the lives of the loans. Real estate held for sale is carried
at the lower of cost or fair value. Real estate held for investment generates
investment income and is carried at cost less accumulated depreciation. Real
estate acquired through foreclosure is recorded at fair value at the date of
foreclosure and subsequently adjusted through a valuation allowance for any
decrease in fair value. Short-term investments, consisting primarily of U.S.
Treasury obligations and commercial paper with maturities of less than one year
but more than three months, are carried at cost which approximates market
value. Realized investment gains and losses are included in income based upon
specific identification of the investments sold. Reserves for impaired
investments, including mortgage loans and real estate, are charged to earnings
as realized losses when the declines in value of the investments below carrying
values or declines in value of the underlying collateral are considered to be
other than temporary. Investment income is recorded when earned.
Fair Value of Financial Instruments: The fair values of financial
instruments presented in the applicable notes to the financial statements are
estimates of the fair values at the specific point in time using available
market information and appropriate valuation methodologies. These estimates
are subjective and involve significant judgment in the interpretation of
current market information. Therefore, the fair value estimates of financial
instruments are not necessarily indicative of the amount the Company might
receive in actual market transactions.
Premium Revenue Recognition: Premiums written, net of reinsurance
premiums ceded, are recognized as income over the policy periods on a pro-rata
basis as the coverages are provided. Accordingly, the unearned
F-10
<PAGE> 75
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
premium reserve represents the portion of premiums written that is applicable
to the unexpired terms of policies in force.
Reinsurance: Reinsurance recoverable represents the estimated portion
of unpaid losses and loss adjustment expenses that will be recovered from
reinsurers. Prepaid reinsurance represents the portion of premiums ceded to
reinsurers applicable to the unexpired terms of the reinsurance contracts. The
excess of amounts paid for retroactive reinsurance contracts over the estimated
amounts recoverable from the reinsurers is expensed as incurred. Reinsurance
deposits represent the estimated amounts recoverable from the reinsurer for
such contracts at the respective balance sheet dates. Any change in the
estimated recoverable is charged to income in the period of the change.
Deferred Acquisition Costs: Acquisition costs, consisting principally
of affiliated commission expense net of commission income earned from ceding
reinsurance, are deferred and amortized over the period in which the related
premiums are earned. Commission income earned from ceding business to other
insurance carriers generally is not specified in treaties with the reinsurers
but is assumed based on the Company's policy issuance costs. Commission income
booked in this manner is offset by a corresponding increase to premiums ceded,
such that the premiums ceded less commission income is in accordance with
premiums ceded as specified in the reinsurance treaties. Deferred acquisition
costs are reviewed for recoverability from future income, including investment
income, and those costs which are deemed not recoverable are expensed in the
year in which the determination is made. No such costs have been deemed
unrecoverable during the years ended December 31, 1996, 1995 and 1994.
Unpaid Losses and Loss Adjustment Expenses: The liability for unpaid
losses and loss adjustment expenses represents case basis estimates of reported
losses and loss adjustment expenses and estimates based on past experience of
unreported losses and loss adjustment expenses. Management believes that the
reserves for unpaid losses and loss adjustment expenses at December 31, 1996
are adequate to cover the net cost of losses and loss adjustment expenses
incurred to date; however, the liability is by necessity based on estimates,
and accordingly, there can be no assurance that the ultimate liability will not
differ from such estimates.
Depreciation and Amortization: Depreciation of property and equipment
and real estate held for investment is computed primarily on the straight-line
method over the estimated useful lives of the assets, as follows:
Estimated useful
life (years)
----------------
Buildings . . . . . . . . . . . . . . . 30
Equipment . . . . . . . . . . . . . . . 5 to 8
Furniture and fixtures . . . . . . . . 5 to 8
Leasehold improvements . . . . . . . . 3 to 10
Computer software costs . . . . . . . . 5
Expenditures for improvements are capitalized. Upon sale or
retirement, the cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss, if any, is reflected
in income. Expenditures for maintenance and repairs are charged to expense as
incurred.
Intangible Assets: Acquisition costs in excess of the fair value of
the net assets acquired are amortized on a straight-line basis over 10 years.
Other intangible assets, including covenant not to compete agreements, are
amortized on a straight-line basis over the terms of the agreements.
F-11
<PAGE> 76
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity in losses or gains of affiliates: Although TCO is not a direct
or indirect subsidiary of Exstar, its income or loss is included in the
Company's consolidated GAAP financial statements in accordance with a form of
equity accounting adopted in 1995 (applied retroactively). See Note 11.
Income Taxes: Deferred income taxes are recognized for the
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the years in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Net Income (Loss) per Common Share: Net income (loss) per common
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock and common stock equivalents outstanding. For the
years ended December 31, 1996, 1995, and 1994, the weighted average number of
shares of common stock outstanding was 5,498,000. There were no common stock
equivalents.
Use of Estimates: Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. As further
discussed in the notes, significant estimates and assumptions affect unpaid
losses and loss adjustment expenses and the related reinsurance recoverables,
allowances for real estate and mortgage loans, other-than-temporary declines in
values for fixed maturities, the valuation allowance for deferred income taxes
and the calculation of fair value disclosures for certain financial
instruments.
Reclassifications: Certain reclassifications have been made to the
1994 balances to conform to the 1996 and 1995 presentation.
3 -- STATUTORY INFORMATION
Statutory Accounting Practices: All states have adopted the National
Association of Insurance Commissioners ("NAIC") financial reporting form, which
is typically referred to as the NAIC "annual statement." In reporting in
accordance with this form, insurers must comply with what are generally
referred to as "prescribed" or "permitted" practices. "Prescribed" statutory
accounting practices include state laws, regulations and general administrative
rules of both the Illinois DOI in the case of Alpine and the IIE in the case of
the Syndicate (prior to its withdrawal from the IIE on December 31, 1996).
"Permitted" statutory accounting practices encompass all statutory accounting
practices not so prescribed and must be approved by the appropriate regulatory
authority.
The surplus as regards policyholders of Alpine determined in
accordance with statutory accounting practices as of December 31, 1996 and 1995
was $12,596,000 and $12,284,000, respectively. The net income (loss) of Alpine
determined in accordance with statutory accounting practices for the years
ended December 31, 1996, 1995, and 1994 was $4,899,000, $3,666,000, and
$(2,508,000), respectively.
Effective December 31, 1996, the assets and liabilities of the
Syndicate were transferred to Alpine. The surplus as regards policyholders of
the Syndicate immediately prior to the transfer (including the stock of Alpine)
would have been $4,698,000, had the Syndicate's investments not been subject to
certain concentration limits under the IIE regulations. The surplus as regards
policyholders of the Syndicate as of December 31, 1995 was $(20,454,000). If
the Syndicate's investments had not been subject to certain concentration
limits under the IIE regulations, the Syndicate's policyholders' surplus as of
December 31, 1995 would have been $753,000. The net income of the Syndicate
determined in accordance with statutory accounting practices for the years
ended December 31, 1995 and 1994 was $5,552,000 and $3,207,000, respectively.
The NAIC has adopted a risk based capital formula for property and
casualty insurance companies. This formula calculates a minimum level of
capital and surplus which should be maintained by each insurer, based on
F-12
<PAGE> 77
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
underwriting, credit, investment and other business risks inherent in an
individual company's operations. Various states, including Illinois, have
adopted the NAIC's risk based capital model act applicable to property/casualty
insurers. The model act authorizes certain regulatory actions based on the
ratio of a company's "adjusted capital" (generally the insurer's actual
policyholders' surplus) to its "authorized control level" risk based capital.
The following table sets forth the different levels of risk based
capital that may trigger regulatory involvement and the actions that may be
triggered.
<TABLE>
<CAPTION>
LEVEL TRIGGER CORRECTIVE ACTION
------------------------- ---------------------------------- --------------------------------
<S> <C> <C>
Company Action Level Adjusted capital less than 200% of Submit comprehensive plan to
authorized control level insurance commissioner
Regulatory Action Level Adjusted capital less than 150% of In addition to above, insurer
authorized control level is subject to examination,
analysis and specific
corrective action
Authorized Control Level Adjusted capital less than 100% of In addition to both of above,
authorized control level insurance commissioner may
place insurer under regulatory
control
Mandatory Control Level Adjusted capital less than 70% of Insurer must be placed under
authorized control level regulatory control
</TABLE>
The "comprehensive plan" required at the "company action level" and
certain other levels must: (i) identify the conditions in the insurer that
contribute to the failure to meet the capital requirements; (ii) contain
proposed corrective actions that the insurer intends to make and that would be
expected to result in compliance with capital requirements; (iii) provide
certain projections of the insurer's financial results for the current year and
at least the four succeeding years; (iv) identify key assumptions impacting the
insurer's projections and the sensitivity of the projections to the
assumptions; and (v) identify the quality of, and problems associated with, the
insurer's business, including but not limited to its assets, anticipated
business growth and associated surplus strain, extraordinary exposure to risk,
mix of business, and use of reinsurance in each case.
Alpine's adjusted capital amounts at December 31, 1996 and 1995 were
approximately 173% and 170%, respectively, of its authorized control level risk
based capital amounts. Alpine's state of domicile, Illinois, did not require
any action to be taken with respect to Alpine's 1995 risk based capital
results, but did require action based on 1996 results. Because Alpine's
December 31, 1996 adjusted capital was less than 200% of its authorized control
level risk based capital, Alpine submitted a comprehensive plan to the Illinois
DOI. The Illinois DOI has not yet formally responded to the plan.
Dividend Restrictions: Alpine is limited in its ability to pay
dividends to its shareholder. Alpine is subject to an overall limitation that
dividends and other distributions can be declared and paid only to the extent
of earned, as opposed to contributed, policyholders' surplus as determined
under statutory accounting practices. In addition, Alpine is subject to the
provisions of the Illinois Insurance Holding Company Systems Act, which
requires prior notice for the payment of all dividends or other distributions,
and special approval for those which, during any consecutive 12-month period,
exceed the greater of (i) 10% of Alpine s policyholders' surplus as determined
under statutory accounting practices as of the immediately preceding year-end
or (ii) its statutory net income as determined under statutory accounting
practices for the immediately preceding year. Alpine is unable to pay a
dividend in 1997 without the prior approval of the Illinois DOI, as Alpine has
no earned surplus and is prohibited from declaring dividends by the Illinois
DOI without prior approval, pursuant to the Illinois Order. See Note 1.
F-13
<PAGE> 78
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 -- RESTRICTED ASSETS
Exstar has cash and investments on deposit with the various states in
which it does business, pledged as collateral for letters of credit related to
reinsurance, on deposit in the IIE Guaranty Fund and held in trust for the
benefit of the Syndicate's policyholders. At December 31, 1996, the restricted
assets comprised:
<TABLE>
<CAPTION>
Collateral for Held in trust On deposit in
letters of for Syndicate Guaranty On deposit
credit policyholders Fund with states Total
-------------- -------------- ------------- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed maturities . . . . . . . . $6,742 $3,332 $910 $5,692 $16,676
Equity securities . . . . . . . . -0- 1,156 -0- -0- 1,156
Mortgage loans . . . . . . . . . -0- 3,707 -0- -0- 3,707
Real estate . . . . . . . . . . . -0- 5,943 -0- -0- 5,943
Cash and cash equivalents . . . . -0- 611 140 378 1,129
Short-term investments . . . . . 3,445 1,200 -0- -0- 4,645
------- ------- ------ ------ -------
TOTAL . . . . . . . . . . . . . . $10,187 $15,949 $1,050 $6,070 $33,256
======= ======= ====== ====== =======
</TABLE>
Effective December 31, 1996, in connection with the Syndicate's
withdrawal from the IIE, and the transfer of all of the Syndicate's assets
(other than the stock of Alpine) and liabilities to Alpine, and pursuant to an
agreement with the IIE, certain of the Syndicate's assets transferred to Alpine
were placed in trust as security for the payment of claims of policyholders and
other obligations of the Syndicate. In accordance with the withdrawal
agreement with the IIE, Alpine is obligated to maintain a certain amount of its
assets in the IIE Guaranty Fund, Inc. for the protection of IIE insureds. The
funding requirement of the IIE Guaranty Fund, Inc. is $1,000,000. At December
31, 1996 Alpine maintained a conforming balance of $1,050,000.
F-14
<PAGE> 79
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 -- INVESTMENTS
As of December 31, 1996 and 1995, investments comprised:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized Fair Carrying
Cost (1) gains losses value (2) value
-------- ---------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1996:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies . . . . $17,902 $6 $153 $17,755 $17,755
Obligations of states,
municipalities
and political subdivisions . . . 7,015 12 146 6,881 6,881
Other bonds . . . . . . . . . . . . 124 -0- 1 123 123
Loan-backed securities . . . . . . 14,039 22 273 13,788 13,788
Redeemable preferred stock . . . . 250 3 -0- 253 253
------- ---- ---- ------- -------
Total fixed maturities . . . . . 39,330 43 573 38,800 38,800
------- ==== ==== ------- -------
Equity securities:
Common stocks . . . . . . . . . . .
Industrial, miscellaneous and all
other . . . . . . . . . . . . . 250 125 -0- 375 375
Non-redeemable preferred stock . . 1,000 156 -0- 1,156 1,156
------- ---- ---- ------- -------
Total equity securities . . . . . 1,250 $281 $-0- 1,531 1,531
------- ==== ==== ------- -------
Mortgage loans on real estate:
Unaffiliated . . . . . . . . . . . 4,225 4,214 4,225
Affiliated . . . . . . . . . . . . 908 890 908
------- ------- -------
Total mortgage loans on real
estate . . . . . . . . . . . . 5,133 5,104 5,133
------- ------- -------
Real estate:
Held for investment . . . . . . . . 4,255 5,735 4,255
Held for sale (3) . . . . . . . . . 6,391 6,829 6,391
Acquired through foreclosure . . . 493 500 493
------- ------- -------
Total real estate . . . . . . . . 11,139 13,064 11,139
------- ------- -------
Short-term investments . . . . . . . 4,944 4,944 4,944
------- ------- -------
Total investments . . . . . . . . $61,796 $63,443 $61,547
======= ======= =======
</TABLE>
F-15
<PAGE> 80
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized Fair Carrying
Cost (1) gains losses value (2) value
-------- ---------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1995:
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies . . . . . . $31,364 $174 $8 $31,530 $31,530
Obligations of states, municipalities
and political subdivisions . . . . . 5,068 50 55 5,063 5,063
Other bonds . . . . . . . . . . . . . . 321 2 -0- 323 323
Loan-backed securities . . . . . . . . 12,157 147 22 12,282 12,282
Redeemable preferred stock . . . . . . 1,203 -0- 53 1,150 1,150
------- ---- ---- ------- -------
Total fixed maturities . . . . . . . 50,113 373 138 50,348 50,348
------- ==== ==== ------- -------
Equity securities:
Common stocks . . . . . . . . . . . . .
Banks, trust and insurance
companies . . . . . . . . . . . . . 150 -0- 66 84 84
Industrial, miscellaneous and all
other . . . . . . . . . . . . . . . 522 64 128 458 458
Non-redeemable preferred stock . . . . 1,000 76 -0- 1,076 1,076
------- ---- ---- ------- -------
Total equity securities . . . . . . . 1,672 $140 $194 1,618 1,618
------- ==== ==== ------- -------
Mortgage loans on real estate:
Unaffiliated . . . . . . . . . . . . . 4,360 4,317 4,360
Affiliated . . . . . . . . . . . . . . 1,013 1,085 1,013
------- ------- -------
Total mortgage loans on real
estate . . . . . . . . . . . . . . 5,373 5,402 5,373
------- ------- -------
Real estate:
Held for investment . . . . . . . . . . 4,426 5,828 4,426
Held for sale (3) . . . . . . . . . . . 8,590 9,219 8,590
Acquired through foreclosure . . . . . 779 786 779
------- ------- -------
Total real estate . . . . . . . . . . 13,795 15,833 13,795
------- ------- -------
Short-term investments . . . . . . . . . 12,651 12,651 12,651
------- ------- -------
Total investments . . . . . . . . . . $83,604 $85,852 $83,785
======= ======= =======
</TABLE>
- ------------------
(1) Original cost of equity securities; original cost of fixed maturities
reduced for repayments and adjusted for amortization of premiums and
accrual of discounts for fixed maturities; amortization and accretion of
loan-backed securities adjusted for principal paydowns and changes in
expected maturities; principal balance outstanding reduced for valuation
allowances for mortgage loans on real estate; original cost reduced for
depreciation for real estate held for investment; lower of original cost or
fair value for real estate held for sale; and fair value at date of
foreclosure adjusted for any subsequent decline in value, if any, for real
estate acquired through foreclosure.
F-16
<PAGE> 81
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate the value:
Fixed maturities--For bonds, loan-backed securities and redeemable
preferred stocks fair value equals quoted market price.
Equity Securities--For non-redeemable preferred and common stocks
fair value equals quoted market price, if available. If quoted
market value is not available, fair value is estimated using quoted
market prices for similar securities.
Mortgage loans--The fair value is estimated by discounting future cash
flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings for the same maturities.
Real estate--The fair value of real estate is based on the appraised
value as determined by an independent appraiser reduced for the
estimated cost to sell. The appraisal process involves estimates
which are subjective. The actual sales price in a market transaction
may vary from the appraised value.
Short-term investments--For short-term investments, the carrying
amount is a reasonable estimate of the fair value. No fair values
were company determined.
(3) Real estate held for sale includes property acquired from the majority
stockholder. See Note 15.
THE SCHEDULE OF MATURITIES AT DECEMBER 31, 1996, IS AS FOLLOWS:
<TABLE>
<CAPTION>
Estimated fair
Amortized cost value
-------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . . $5,246 $5,234
Due after one year through five years . . . . . . . . . . 13,605 13,482
Due after five years through ten years . . . . . . . . . 984 985
Due after ten years . . . . . . . . . . . . . . . . . . . 5,456 5,311
Loan-backed securities . . . . . . . . . . . . . . . . . 14,039 13,788
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $39,330 $38,800
======= =======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE LOANS ON REAL ESTATE-UNAFFILIATED COMPRISED:
1996 1995
------- -------
(Dollars in thousands)
<S> <C> <C>
Residential . . . . . . . . . . . . . . . . . . . . . . . $1,234 $1,015
Commercial . . . . . . . . . . . . . . . . . . . . . . . 3,024 3,204
Construction . . . . . . . . . . . . . . . . . . . . . . -0- 203
------- -------
4,258 4,422
Allowance for loan losses . . . . . . . . . . . . . . . . -0- (35)
Deferred loan origination fees . . . . . . . . . . . . . (33) (27)
------- -------
$4,225 $4,360
====== ======
</TABLE>
During 1995, one loan with an aggregate principal balance of $203,000
at December 31, 1995, was restructured. The loan was extended at the same
interest rate. Management believes that adequate provision has been made
through the allowance for loan losses.
At December 31, 1996 and 1995, commitments to fund mortgage loans
totaled $69,000 and $81,000, respectively.
F-17
<PAGE> 82
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The rate of interest charged on mortgage loans ranged from 5% to 10%
during 1996 and 1995 and the loans had original terms from 1 to 30 years.
During 1995, one loan was transferred to real estate owned as part of
the purchase price of acquiring the property. One loan was extended at the
same interest rate.
<TABLE>
<CAPTION>
MORTGAGE LOANS ON REAL ESTATE--AFFILIATED COMPRISED:
1996 1995
------ ------
(Dollars in thousands)
<S> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,096 $1,105
------ ------
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . (188) (84)
Deferred loan origination fees . . . . . . . . . . . . . . . . . . . . . . -0- (8)
------ ------
$ 908 $1,013
====== ======
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE HELD FOR INVESTMENT COMPRISED:
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . $ 6,227 $ 6,227
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (1,972) (1,801)
-------- --------
$ 4,255 $ 4,426
======== ========
REAL ESTATE HELD FOR SALE COMPRISED:
<CAPTION>
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . $ 927 $ 1,057
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . 3,899 3,899
Residential real estate development . . . . . . . . . . . . . . . . . . 3,414 5,558
-------- --------
8,240 10,514
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . -0- (49)
Real estate valuation allowance . . . . . . . . . . . . . . . . . . . . ( 1,849) (1,875)
-------- --------
$ 6,391 $ 8,590
======== ========
REAL ESTATE ACQUIRED THROUGH FORECLOSURE COMPRISED:
<CAPTION>
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . $ -0- $ 254
Residential real estate development . . . . . . . . . . . . . . . . . . 665 665
-------- --------
665 919
Real estate valuation allowance . . . . . . . . . . . . . . . . . . . . (172) (140)
-------- --------
$ 493 $ 779
======== ========
</TABLE>
During 1996, one property acquired through foreclosure was sold. At
December 31, 1996, there remained two residential lots being developed with a
total fair value of $500,000.
F-18
<PAGE> 83
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real estate held for sale and real estate acquired through foreclosure
amounting to $5,084,000 was non-income producing at December 31, 1996. Two
lots and an eight acre improved residential property held for sale at December
31, 1996 were purchased from Exstar's majority stockholder. See Note 15.
INVESTMENTS OTHER THAN U.S. GOVERNMENT SECURITIES HAVING A CARRYING
VALUE IN EXCESS OF 10% OF STOCKHOLDERS' EQUITY AT DECEMBER 31, 1996, COMPRISED:
<TABLE>
<CAPTION>
Carrying Value
----------------------
(Dollars in thousands)
<S> <C>
Fixed maturities
Gardena, CA Financing Agency $1,442
Real estate--held for investment
Office building--Solvang, California 2,803
Office building--Solvang, California 1,452
Real estate--held for sale
Single family residence--Santa Ynez, California 2,125
Single family residence--Santa Ynez, California 1,370
</TABLE>
<TABLE>
<CAPTION>
NET INVESTMENT INCOME--UNAFFILIATED COMPRISED:
For the years ended December 31,
-------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
(Dollars in thousands)
Fixed maturities:
Bonds $2,639 $2,686 $1,887
Redeemable preferred stocks 53 267 319
Mortgage loans 382 361 398
Real estate held for investment 9 69 89
Real estate held for sale 55 37 67
Real estate acquired through foreclosure -0- -0- 9
Cash and short-term investments 817 1,325 854
------ ------ ------
3,955 4,745 3,623
Investment expense (218) (416) (261)
------ ------ ------
Net investment income-unaffiliated $3,737 $4,329 $3,362
====== ====== ======
</TABLE>
F-19
<PAGE> 84
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NET INVESTMENT INCOME--AFFILIATED COMPRISED:
For the years ended December 31,
--------------------------------------------
1996 1995 1994
------------ ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . $69 $114 $150
Real estate held for investment . . . . . . . . . . . . . . . 323 584 577
Real estate held for sale . . . . . . . . . . . . . . . . . . 61 42 -0-
----------- ----------- ----------
453 740 727
Investment expense . . . . . . . . . . . . . . . . . . . . . (160) (156) (156)
----------- ----------- ----------
Net investment income--affiliated . . . . . . . . . . . . . . $293 $584 $571
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NET REALIZED INVESTMENT GAINS (LOSSES) COMPRISED:
For the years ended December 31,
------------------------------------------------------
1996 1995 1994
------------------------------- -------- --------
Net Net Net
Gross Gross Realized Realized Realized
Realized Realized Gains Gains Gains
Gains Losses (Losses) (Losses) (Losses)
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds . . . . . . . . . . . . . . . . . . . . . . . . $126 $(35) $91 $764 $(66)
Redeemable preferred stock . . . . . . . . . . . . . 15 -0- 15 (22) (7)
-------- -------- -------- -------- --------
141 (35) 106 742 (73)
-------- -------- -------- -------- --------
Equity securities:
Preferred stock . . . . . . . . . . . . . . . . . . . -0- -0- -0- -0- 175
Common stock . . . . . . . . . . . . . . . . . . . . -0- (166) (166) (212) (62)
-------- -------- -------- -------- --------
-0- (166) (166) (212) 113
-------- -------- -------- -------- --------
Mortgage loans: . . . . . . . . . . . . . . . . . . . . -0- (64) (64) 105 (4)
-------- -------- -------- -------- --------
Real estate:
Held for investment . . . . . . . . . . . . . . . . . -0- (16) (16) 292 -0-
Held for sale . . . . . . . . . . . . . . . . . . . . 186 (415) (229) (506) (51)
Acquired through foreclosure . . . . . . . . . . . . -0- (8) (8) (32) (26)
-------- -------- -------- -------- --------
186 (439) (253) (246) (77)
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $327 $(704) $(377) $389 $(41)
======== ======== ======== ======== ========
</TABLE>
Gross realized gains on sale of fixed maturities were $126,000,
$968,000 and $15,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Gross realized losses on sale of fixed maturities were $35,000,
$226,000 and $71,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Gross realized gains on sale of equity securities were $-0-,
$-0- and $175,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Gross realized losses on sale of equity securities were
$166,000, $212,000 and $62,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
F-20
<PAGE> 85
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHANGE IN NET UNREALIZED INVESTMENT (LOSSES) GAINS COMPRISED:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Fixed maturities:
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (820) $ 2,637 $ (2,349)
Redeemable preferred stocks . . . . . . . . . . . . . . . . 56 570 (505)
Equity securities:
Non-redeemable preferred stocks . . . . . . . . . . . . . . 80 112 96
Common stocks . . . . . . . . . . . . . . . . . . . . . . . 255 299 (17)
------- -------- --------
(429) 3,618 (2,775)
Deferred tax benefit (expense)--fixed maturities . . . . . 260 (1,091) 1,011
------- -------- --------
$ (169) $ 2,527 $ (1,764)
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF VALUATION ACCOUNT ACTIVITY:
Real estate
Real estate acquired Mortgage
held for through loans on
sale foreclosure real estate
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . . . . . . . . . $ 1,478 $ 145 $ 625
Increases (decreases) in reserves charged to costs and
expenses . . . . . . . . . . . . . . . . . . . . . . . . . 820 22 (66)
Disposal of properties . . . . . . . . . . . . . . . . . . . (423) (27) (440)
------- ------- -------
Balance at December 31, 1995 . . . . . . . . . . . . . . . . 1,875 140 119
Increases in reserves charged to costs and expenses . . . . . 330 32 69
Disposal of properties . . . . . . . . . . . . . . . . . . . (356) -0- -0-
------- ------- -------
Balance at December 31, 1996 . . . . . . . . . . . . . . . . $ 1,849 $ 172 $ 188
======= ======= =======
</TABLE>
6 -- INVESTMENT IN JOINT VENTURES AND MINORITY INTEREST
Exstar has invested in residential real estate under development
through various partnerships. The partnerships are included in the
consolidated financial statements, which results in a minority interest for the
unaffiliated partners' interests. The partnerships were liquidated in 1996.
The amount of joint venture real estate investments included in the Company's
consolidated financial statements principally as a component of real estate
held for sale is $1,522,000 at December 31, 1995. The amounts included in net
realized investment gains (losses) from the joint ventures comprise:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1996 1995 1994
--------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . $ -0- $ 2,139 $ 764
Cost of sales and other costs . . . . . . . . . . . . . . . . -0- 2,186 815
--------- --------- --------
Net realized investment losses from joint venture . . . . $ -0- $ (47) $ (51)
========= ========= ========
</TABLE>
F-21
<PAGE> 86
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 -- SIGNIFICANT GROUP CONCENTRATIONS OF INVESTMENTS AND CREDIT RISK
Mortgage Loans. The Company has mortgage loans on property located
principally in central California. Construction loans constitute $-0- and
$203,000 of the portfolio at December 31, 1996 and 1995, respectively.
Residential and commercial loans constituted $5,354,000 and $5,240,000 of the
portfolio at December 31, 1996 and 1995, respectively. While it is Exstar's
policy to limit loans to 80% of appraised value and management believes that
except for geographic concentration there is no concentration of borrowers in a
single economic sector, realization of the full loan value in the event of
default by the borrower is substantially contingent on the real estate market.
Real Estate Investments. The Company had investments in real estate
totaling $11,139,000 and $13,795,000 as of December 31, 1996 and 1995,
respectively. The real estate is located principally in Central California.
Realization of the carrying value is dependent on the real estate market.
8 -- LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid losses and loss adjustment expenses is based
upon the accumulation of individual case estimates for losses reported prior to
the close of the accounting period plus estimates, based on experience and
industry data, for unreported losses and loss adjustment expenses.
There is a high level of uncertainty inherent in the evaluation of the
required loss and loss adjustment expense reserves for the Company. The
long-tailed nature of other liability claims exacerbates that uncertainty.
Management has selected target loss and loss expense ratios that it believes are
reasonable and reflective of anticipated ultimate experience. The ultimate
costs of claims are dependent upon future events, the outcomes of which are
affected by many factors. Company claim reserving procedures and settlement
philosophy, current and perceived social and economic inflation, current and
future court rulings and jury attitudes, improvements in medical technology, and
many other economic, scientific, legal, political, and social factors all can
have significant effects on the ultimate cost of claims. Changes in Company
operations and management philosophy also may cause actual developments to vary
from the past. Since the emergence and disposition of claims are subject to
uncertainties, the net amounts that will ultimately be paid to settle the
liability may vary from the estimated amounts provided for in the accompanying
consolidated financial statements. Any adjustments to reserves are reflected in
the operating results of the periods in which they are made.
Estimates for ultimate loss reserves are inherently difficult to
determine, because they are attempts to quantify future results based on current
trends. The effort to predict the Company's ultimate losses and loss adjustment
expense has been made more difficult because the Company's recent business
includes a substantial amount of insurance written for subcontractors and
general contractors, most of which are located in California. California law
relating to contractors has changed significantly over the last several years as
a consequence of California legal decisions and newly enacted legislation. The
Company, additionally, significantly modified its policy forms and underwriting
standards relating to its contractor business in each of 1996, 1995 and 1994.
Because of the foregoing, the assumptions made and the trends used by the
Company in estimating its reserves for losses and loss adjustment expenses have
been relatively untested by time and actual development of reserves.
F-22
<PAGE> 87
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the liability for unpaid losses and loss adjustment
expenses comprised:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . $91,984 $88,276 $70,938
Less reinsurance recoverable . . . . . . . . . . . . . . . . . 23,164 7,079 2,771
------- ------- -------
Net balance at January 1 . . . . . . . . . . . . . . . . . . . . 68,820 81,197 68,167
------- ------- -------
Incurred related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . 12,971 23,545 32,058
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . (282) (8,253) 792
Provision for commutations . . . . . . . . . . . . . . . . . . -0- 379 -0-
------- ------- -------
Total incurred . . . . . . . . . . . . . . . . . . . . . . . . . 12,689 15,671 32,850
------- ------- -------
Paid related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 2,496 2,554
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . 26,661 25,552 17,266
------- ------- -------
Total paid . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,503 28,048 19,820
------- ------- -------
Net balance at December 31 . . . . . . . . . . . . . . . . . . . 53,006 68,820 81,197
Plus reinsurance recoverable . . . . . . . . . . . . . . . . . 33,921 23,164 7,079
------- ------- -------
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . $86,927 $91,984 $88,276
======= ======= =======
</TABLE>
The favorable development on prior years in 1995 relates to the
Company's determination that its case loss reserves were substantially
overstated, stemming principally from three inappropriate reserving practices:
(i) claims examiners' establishing initial case reserves at levels higher than
justified by the information received by the Company with respect to claims,
(ii) claims examiners' establishing case reserves without taking into account
deductibles (e.g., a claim may have a likely ultimate loss amount of $15,000,
but the claim may relate to a policy with a $5,000 deductible payable by the
insured, in which case the appropriate reserve, generally, would be $10,000,
assuming the deductible is collectible) and (iii) claims examiners' not timely
reducing case reserves following receipt of favorable information with respect
to claims.
F-23
<PAGE> 88
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9 -- NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes collateralized by real property:
Note payable with principal and interest at 10% due on sale of
real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0- $ 109
Note payable with principal due on sale of real property, with interest
payable monthly at prime plus 3.0%(1) . . . . . . . . . . . . . . . . . . . -0- 595
Note payable due October 1, 2017, with principal and interest due monthly at
(six month secondary market CD plus 2.75%) 8.375% at December 31, 1996,
collateralized by real property with a fair value of $2,350,000 as of
December 31, 1996(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098 1,118
Note payable with interest due monthly at (prime rate plus 2.75%) 11.0% at
December 31, 1996, principal due in monthly installments of $3,333, a
principal installment of $100,000 due March 31, 1997, and the balance due
September 30, 1997, collateralized by real property with a fair value of
$2,350,000 as of December 31, 1996(1) . . . . . . . . . . . . . . . . . . . 490 524
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,588 $2,346
- ------------------ ====== ======
</TABLE>
(1) These notes were assumed in connection with transactions with the majority
stockholder. See Note 15.
The carrying values of the notes payable approximate their fair values
at December 31, 1996 and 1995.
These notes payable mature as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
DECEMBER 31,
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,588
========
</TABLE>
F-24
<PAGE> 89
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10 -- FEDERAL INCOME TAXES
The Company's effective tax rate differs from the statutory federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book (loss) income before federal income tax, minority
interest and equity in losses of affiliates . . . . . . . . $(1,776) $5,801 $4,386
============ ========== ==========
Tax at statutory federal income tax rate . . . . . . . . . . (604) 1,972 1,491
Increase (decrease) resulting from:
Dividends received deduction and tax exempt interest . . . (16) (303) (569)
Amortization of cost in excess of net assets acquired . . . 38 38 39
Reclassifications reflected in equity in losses of
affiliates . . . . . . . . . . . . . . . . . . . . . . . . 172 708 649
Prior year provision to return difference . . . . . . . . . -0- (1,361) -0-
Accounts receivable write-off . . . . . . . . . . . . . . . -0- (2,898) -0-
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (50) 296 34
(Decrease) increase in valuation allowance . . . . . . . . (1,255) 6,605 137
------------ ---------- ----------
Total federal income tax (benefit) expense . . . . . . $(1,715) $5,057 $1,781
============ ========== ==========
</TABLE>
The deferred federal income tax asset (net of a valuation allowance)
and liability have been netted to reflect the tax impact of temporary
differences. The components of the net deferred federal income tax asset are
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
(DOLLARS IN THOUSANDS)
ASSETS:
<S> <C> <C>
Differences between financial and tax basis of assets . . . . . . . . . . . $ 748 $1,178
Discounting of unpaid losses and loss adjustment expenses for
tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,142 5,740
Nondeductible portion of unearned premium . . . . . . . . . . . . . . . . . 67 896
Unrealized investment losses-fixed maturities . . . . . . . . . . . . . . . 180 -0-
Alternative minimum tax credit carryforward . . . . . . . . . . . . . . . . 259 482
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . 2,231 260
Income reported in different periods for financial reporting purposes and
tax purposes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 180
---------- --------
Gross deferred tax asset before valuation allowance . . . . . . . . . 7,643 8,736
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,619) (6,874)
---------- --------
Total deferred federal income tax asset . . . . . . . . . . . . . . . 2,024 1,862
---------- --------
LIABILITIES:
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . 104 1,535
Unrealized investment gains - fixed maturities . . . . . . . . . . . . . . -0- 79
Income reported in different periods for financial reporting purposes and
tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 248
---------- --------
Total deferred federal income tax liabilities . . . . . . . . . . . . . . 324 1,862
---------- --------
Net deferred federal income tax asset . . . . . . . . . . . . . . . . . . $1,700 $ -0-
========== ========
</TABLE>
F-25
<PAGE> 90
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized.
Consideration must be given to those items of taxable income available to offset
the future deductible amounts represented in the deferred asset. The sources of
taxable income available include amounts from the reversal of temporary
differences, and the balance through future taxable income. The future
deductibles will reverse over an estimated 10-year period during which the
Company must have sufficient taxable income to offset them. Based on projections
and historical information, and since the equity in the losses of affiliates
does not impact taxable income, such taxable income should be generated in the
carry forward period. It is the opinion of management that it is more likely
than not that the Company will not generate sufficient ordinary taxable income
to offset the future ordinary deductibles and, therefore, a valuation reserve is
required for the ordinary income portion of the asset. It is also the opinion
of management that it is more likely than not that the Company will not generate
sufficient capital gain income to offset future capital loss deductibles
associated with equity securities and, therefore, a valuation allowance has been
established for the capital gain asset.
In view of the unfavorable events which had occurred (including Best
rating downgrades and regulatory uncertainties), management believed that the
future revenues of the Company were sufficiently uncertain as to require an
increase in the valuation allowance against its deferred federal income tax
asset for the year ended December 31, 1995. Accordingly, the valuation
allowance was increased by $6.6 million for the year ended December 31, 1995.
Based on events occurring in 1996, including the reorganization of the
Company's operations and the relationship with UCIC (including the prospective
Quota Share Arrangement), management reassessed the future revenues of the
Company, and decreased the valuation allowance by $1.3 million at December 31,
1996.
11 -- EQUITY ACCOUNTING
To provide TCO with funding needed to support its operations, the
Company entered into a loan agreement with TCO-IL in December 1993, under which
the Company agreed to loan TCO-IL up to $9.0 million ("Loan Agreement"). In
addition, funding was provided by certain unpaid balances due to Alpine with
respect to insurance premiums collected by TCO.
During 1994, the Company re-evaluated the appropriate accounting
treatment for such loans under GAAP. The Company determined that any increase
or decrease in TCO's stockholder's equity after June 30, 1992 (other than
decreases in equity resulting from depreciation of assets that would not be
replaced by TCO)--adjusted for (i) any intercompany gains or losses, including
gains on sale of Exstar shares owned by TCO to independent parties which were
reclassified to paid in capital, (ii) the reclassification of dividends received
and accrued on the JBW & Co. preferred stock (see also Note 12), and (iii) the
reclassification of the interest paid by TCO under the Loan Agreement--should be
treated as an increase or decrease, respectively, in the net income of the
Company in the period in which such increase or decrease in stockholder's equity
was recorded by TCO. This determination was based on the historical
interdependence and common control of the Company and TCO, including the
Company's exertion of significant influence over the operations of TCO, TCO's
limited financial resources and TCO's historical and anticipated continuing
need for financial support from the Company.
In particular, under this accounting treatment, the Company's net
income in any period generally is reduced by (i) if cumulative decreases in
TCO's stockholder's equity since July 1, 1992, are greater than cumulative
amounts due from TCO to the Company since July 1, 1992, any decrease in TCO's
stockholder's equity in the period (other than decreases in equity resulting
from depreciation on assets that will not be replaced by TCO), adjusted as
described above, or (ii) if cumulative amounts due from TCO to the Company
since July 1, 1992 are greater than cumulative decreases in TCO's stockholder's
equity since July 1, 1992, any increase in amounts due from TCO to the Company
during the period (including increases in amounts due under the Loan Agreement
and other amounts due to the Company from TCO). Conversely, in the event that
TCO's revenues exceed its costs in any such period, the Company's net income in
that period generally is increased by the amount of TCO's profits in such
period (excluding any gains from the sale by TCO of assets that will not be
replaced by TCO), provided that the aggregate increase in the Company's net
income as a result of profits of TCO may not exceed the aggregate amount of
losses previously recognized by the Company as a result of TCO's operations. As
the Company receives cash from TCO-IL in the form of interest and/or principal
payments on TCO's indebtedness to the Company, the Company's cash flow will be
benefited, but such payments will affect the Company's net income only to the
extent they represent TCO's profits in the period such payments are received.
F-26
<PAGE> 91
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the financial position and results of
operations of TCO Holdings, Inc. and its subsidiaries:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995
------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,931 $3,432
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,915 13,688
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 119 1,210
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914 1,757
-------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,879 20,087
======== =======
LIABILITIES:
Premiums payable -- affiliated . . . . . . . . . . . . . . . . . . . . . . 19,304 23,966
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,581 6,056
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718 2,148
Net unearned commission income . . . . . . . . . . . . . . . . . . . . . . 659 3,786
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,428 2,996
-------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,690 38,952
-------- -------
PREFERRED STOCK:
Series A 11.3% cumulative redeemable, nonvoting, stated value $10,000
per share, 3,500 shares authorized; Issued and outstanding - 1,075 . . . 12,035 12,035
-------- -------
STOCKHOLDER'S EQUITY:
Stockholder's accumulated deficiency . . . . . . . . . . . . . . . . . . . (29,846) (30,900)
-------- -------
Total liabilities, preferred stock, and stockholder's accumulated
deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,879 $20,087
======== =======
</TABLE>
F-27
<PAGE> 92
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
REVENUES:
Net commissions earned . . . . . . . . . . . . . . . . . . $6,647 $14,473 $10,122
Other revenues . . . . . . . . . . . . . . . . . . . . . . 1,166 2,106 4,437
------ ------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . 7,813 16,579 14,559
------ ------- -------
EXPENSES:
Personnel costs . . . . . . . . . . . . . . . . . . . . . . 2,751 8,105 9,898
Office and selling expenses . . . . . . . . . . . . . . . . 1,116 3,007 3,502
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 84 929 2,211
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 647 1,246 1,372
Other expenses . . . . . . . . . . . . . . . . . . . . . . 1,498 1,031 1,801
------- ------- -------
Total expenses . . . . . . . . . . . . . . . . . . . . . 6,096 14,318 18,784
------- ------- -------
Income (loss) before Federal income taxes, minority
interest, and equity in income of affiliates . . . . . 1,717 2,261 (4,225)
Federal income tax expense . . . . . . . . . . . . . . . 25 26 -0-
Minority interest . . . . . . . . . . . . . . . . . . . . . -0- (39) -0-
Equity in income of affiliates . . . . . . . . . . . . . . 85 -0- -0-
------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . . 1,777 2,196 (4,225)
======= ======= =======
Beginning stockholder's accumulated deficiency . . . . . . . 30,900 32,011 26,003
------- ------- -------
Net (income) loss . . . . . . . . . . . . . . . . . . . . . (1,777) (2,196) 4,225
Dividends paid . . . . . . . . . . . . . . . . . . . . . . -0- 1,215 1,215
Increase (decrease) in subscription note receivable . . . . 723 (130) 568
------- ------- -------
Net change . . . . . . . . . . . . . . . . . . . . . . (1,054) (1,111) 6,008
------- ------- -------
Ending stockholder's accumulated deficiency . . . . . . . . . $29,846 $30,900 $32,011
======= ======= =======
</TABLE>
Commission income, net of related commissions paid to brokers, is earned ratably
over the period of the underlying policies. Loans to TCO Holdings' stockholder
in the amounts $5,432,000, $4,708,000 and $4,838,000 as of December 31, 1996,
1995 and 1994, respectively, have been added to the stockholder's accumulated
deficiency similar to the treatment of an unpaid capital subscription note
receivable. All other accounting policies are consistent with those of the
Company.
F-28
<PAGE> 93
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the computation of the equity in (income)
losses of affiliates included in the Statement of Operations:
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
1996 1995 1994
------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C>
(Increase) decrease in net equity of TCO Holdings and
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . $(1,054) $(1,111) $6,008
Asset adjustments:
Depreciation . . . . . . . . . . . . . . . . . . . . . . -0- (637) (1,904)
Gain on sale of assets . . . . . . . . . . . . . . . . . -0- -0- 2,976
------- ------- ------
(1,054) (1,748) 7,080
Reclassifications:
Interest on advances . . . . . . . . . . . . . . . . . . (507) (838) (664)
Dividend on preferred stock--contra equity . . . . . . . -0- (1,243) (1,243)
------- ------- ------
Equity in (income) losses of affiliates . . . . . . . . $(1,561) $(3,829) $5,173
======= ======= ======
Accumulated equity in losses of affiliates comprises:
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
--------- --------
(Dollars in thousands)
<S> <C> <C>
Cumulative adjusted losses . . . . . . . . . . . . . . . . . . . . . . . . $18,363 $19,417
Amounts advanced by and other amounts due to the Company from
TCO Holdings, Inc. and its subsidiaries . . . . . . . . . . . . . . . . . 15,343 16,702
------- -------
Accumulated equity in losses of affiliates . . . . . . . . . . . . . . $ 3,020 $ 2,715
======= =======
</TABLE>
12 -- COLLATERAL LOAN - CONTRA EQUITY
In December 1989 and February 1990, the Syndicate made separate
investments totalling $15 million in the preferred stock of Concord General
Corporation ("Concord"), a privately held insurance holding company located in
Concord, California. Simultaneously with the issuance of the Concord preferred
stock, a subsidiary of Concord made a similar investment of $15 million in the
preferred stock of a predecessor of Exstar which then owned the Syndicate ("Old
Exstar"). The Concord preferred stock and the Old Exstar preferred stock had
similar rights, preferences and dividend rates. In 1991, $4 million of the
Concord preferred stock held by the Syndicate was redeemed, and $4.25 million
of the Old Exstar preferred stock held by the Concord affiliate was redeemed.
As part of the restructuring of the Company's holding company in
connection with the Company's initial public offering in December 1992
("Company IPO"), the Concord affiliate agreed to exchange its remaining Old
Exstar preferred stock for similar preferred stock issued by TCO Holdings.
Subsequently, effective in December 1993, the Company entered into an agreement
exchanging the Concord preferred stock for preferred stock of JBW & Co., Inc.,
a Concord affiliate ("JBW & Co."). The JBW & Co. preferred stock had the same
stated value, rights, preferences and dividend rate as the previous Concord
preferred stock, and additionally the Syndicate obtained the right to convert
the JBW & Co. preferred stock into secured debt.
During 1994, the Company determined that, due to the economic
interdependence of the Company and Concord attributable to the outstanding
preferred stock held by each organization, Old Exstar's use of the proceeds of
the preferred stock and the ongoing relationships among Exstar, TCO, Concord
and JBW & Co., the preferred stock transactions were more in the nature of
capital transactions than investment transactions. Therefore, the Company
determined that it should change the accounting treatment for the JBW & Co.
preferred stock. Specifically, the Company established a "contra-equity"
account in the amount of the stated value of the JBW &
F-29
<PAGE> 94
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Co. preferred stock, accounting for it in a manner similar to the accounting for
an unpaid capital subscription note receivable, thereby reducing the Company's
stockholders' equity by the full $11 million stated value of the preferred
stock. Although the dividends received on the preferred stock have been
reclassified in the income statement to equity in gains and losses of
affiliates, the reclassification of the preferred stock has had no effect on net
income.
Effective December 31, 1995, the Company converted the JBW & Co.
preferred stock to a promissory note which, however, does not change the
investment's contra-equity treatment. As a result, the Company currently holds
a collateralized loan receivable in the principal amount of $12.3 million due
from JBW & Co. ("JBW & Co. Loan"). The JBW & Co. Loan is collateralized by a
pledge by Concord of 81% of the outstanding capital stock of Classic Fire and
Marine Insurance Company ("Classic"), an Indiana insurance company affiliated
with JBW & Co. and Concord. Classic's unaudited policyholders' surplus at
December 31, 1996, was reported at $12.2 million.
Notwithstanding the current accounting treatment for the investment,
the Company has determined that, in the event the economic interdependence of
Concord and the Company were eliminated (e.g. through the redemption or sale of
either the TCO Holdings preferred stock or the JBW & Co. Loan for cash or other
assets whose realization is not ultimately dependent upon Exstar, Concord or an
affiliate of either), the Company's stockholders' equity would increase by an
amount which is dependent on, among other things, the consideration received.
See also Note 16.
13 -- REINSURANCE
To limit its exposure on large risks and increase capacity, the Company
historically entered into certain reinsurance transactions that ceded a portion
of risks underwritten to other insurance companies. In the event that any or
all of the reinsurers were unable to meet their obligations, the Company would
then be liable for such defaulted amounts. All reinsurance payable to the
Company is due from Underwriters at Lloyd's, London or companies rated at least
A- by Best. At December 31, 1996 the largest single amount recoverable for paid
and unpaid losses was $24.4 million from Signet Star Reinsurance Company, an
insurer with a Best rating of A at December 31, 1996.
Although the Company does not write material amounts of business in the
property insurance lines, which are lines that tend to be most susceptible to
catastrophes, the Company does periodically consider the possibility of its
exposure to unusually large or catastrophic events. Management believes the
likelihood to be remote that such an event would occur and the Company's
reinsurers would fail to meet their obligations with respect to such an event in
any material way. With respect to the overall exposure of the Company's
reinsurers to catastrophic risk, management monitors the financial condition of
such reinsurers generally while relying on rating agencies, including Best, to
assess its reinsurers' vulnerabilities to such risk.
Reinsurance for the Company's specialized liability business through
December 31, 1996, is provided by six treaties. The first provides coverage
for 1991 and 1992 by Signet Star Reinsurance Company for losses incurred in
excess of $1.0 million per insured, per loss up to a maximum of $2.0 million
per insured, per loss, plus pro rata loss adjustment expenses. The second
provides coverage for 1993, and the third provides coverage from January
through September 1994, for losses incurred in excess of $1.0 million per
insured, per loss up to a maximum of $2.0 million per insured, per loss, plus
pro rata loss adjustment expenses, by Signet Star Reinsurance Company and
Security Reinsurance Company. The fourth provides coverage from October 1,
1994, through December 31, 1995, for losses incurred in excess of $500,000 per
insured, per loss up to a maximum of $2.0 million per insured, per loss, plus
pro rata loss adjustment expenses by Signet Star Reinsurance Company and
Security Reinsurance Company. The fifth cedes 50% of the first $500,000 of
losses incurred per insured per loss, plus loss adjustment expenses, for losses
occurring under (i) policies issued on or after April 1, 1995 and (ii) policies
issued prior to April 1, 1995, for the unexpired portion thereof, by Signet
Star Reinsurance Company and Reliance Insurance Company. The sixth provides
coverage from January through December, 1996, for losses incurred in excess of
F-30
<PAGE> 95
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$500,000 per insured, per loss up to a maximum of $2.0 million per insured, per
loss, plus pro rata loss adjustment expenses, by Underwriters Reinsurance
Company.
Reinsurance for the Company's architects and engineers professional
liability business through 1995 is provided by treaties principally with
Underwriters at Lloyd's, London. Treaties effective January 1, 1988, through
December 31, 1993 and for 1995 provide coverage for losses incurred, including
loss adjustment expenses, in excess of $250,000 per insured, per loss up to a
maximum of $2.0 million per insured, per loss. The treaty for 1994 provides
coverage for losses incurred, including loss adjustment expenses, in excess of
$250,000 per insured, per loss up to a maximum of $1.0 million per insured, per
loss. Reinsurance for the Company s architects and engineers business in 1996
is provided under the specialized liability treaty described above with
Underwriters Reinsurance Company.
The Company's ocean marine business is reinsured through a series of
annual treaties principally provided by Underwriters at Lloyd's, London. The
current series of treaties expired February 28, 1997, and provided coverage for
losses incurred, including loss adjustment expenses, in excess of $250,000 per
insured, per loss, generally up to a maximum of $1.0 million per insured, per
loss, up to a maximum aggregate limit of liability (excluding reinstatements) of
$10.0 million. The expiring treaties have been extended to July, 1997 to
provide run off coverage up to a maximum of $2.0 million per insured, per loss.
Treaties for prior annual periods provide similar coverages, but with reduced
maximum aggregate limits of liability.
The Syndicate and Alpine provided letters of credit which are fully
collateralized by cash and cash equivalents, fixed maturities and short-term
investments in connection with assumed reinsurance agreements totaling
$7,992,000, $8,746,000 and $8,839,000 at December 31, 1996, 1995 and 1994,
respectively.
The following table reflects the effects of reinsurance on the
Company's premiums:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
-------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Earned premium:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . $40,058 $64,090 $56,402
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,282) (25,966) (5,203)
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 234 1,025 1,314
-------- -------- -------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,010 $39,149 $52,513
======== ======== =======
Written premium:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . $14,177 $63,281 $59,597
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,563) (36,102) (7,378)
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 196 1,006 1,313
-------- -------- -------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,810 $28,185 $53,532
======== ======== =======
</TABLE>
Included in Statements of Operations as part of policy acquisition
costs amortized were ceded commission income of $6,670,000, $11,424,000 and
$5,315,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-31
<PAGE> 96
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14 -- STOCK OPTION PLAN
Exstar has adopted a stock incentive plan to enable officers,
directors, key employees, and independent contractors of Exstar, its
subsidiaries and its affiliates to participate in Exstar's future and enable
Exstar to attract and retain these persons by offering them a proprietary
interest in Exstar. The plan provides for the issuance of up to 400,000 shares
pursuant to the grant or exercise of stock options, stock appreciation rights,
restricted stock, deferred stock, or combinations thereof.
No stock options, stock appreciation rights, restricted stock, or
deferred stock have been granted under the Plan.
15 -- RELATED PARTIES
The following are in addition to other transactions described elsewhere
in the Notes.
In June 1995, TCO acquired from its sole stockholder a five acre parcel
of real estate in satisfaction of amounts advanced to the stockholder during the
second quarter of 1995. The purchase price, $285,000, was equal to the sellers
basis in the property. The appraised value of the parcel as of the date of
transfer was $325,000.
During July 1995, the Company acquired from its majority stockholder 8
parcels ranging in size from 20 to 28 acres for which the off-site improvements
had been completed. The property was acquired subject to a first trust deed to
an unrelated financial institution in the amount of $595,000. Also during July
1995, the Company acquired from the majority stockholder an 8 acre residential
property with a house and other improvements. This property was acquired
subject to existing indebtednesses of $1,126,000 and $644,000 to unrelated
financial institutions, secured by first and second trust deeds, respectively.
The purchase prices, as approved by the disinterested members of the Company's
board of directors, were equal to the stockholder's costs in the properties,
which were $1,114,000 in the case of the 8 parcels (compared to an appraised
value as of the date of transfer of $1,045,000) and $2,125,000 in the case of
the residential property (compared to an appraised value as of the date of
transfer of $2.8 million). If the properties are sold for less than the
Company s costs, the stockholder has agreed to reimburse the Company for the
differences. If the properties are sold at amounts less than their appraised
values as of the dates they were acquired by the Company but more than their
costs, any excess of proceeds (less costs to carry and sell the properties)
over their costs will be paid to the stockholder. If the properties are sold
for more than their appraised values as of the dates they were acquired by the
Company, the excess over appraised values will be shared between the Company
and the stockholder. During 1996, the Company sold six of the eight parcels for
net proceeds of $623,000. As of December 31, 1996, the majority stockholder
would have a liability to the Company of $213,000 based on such sales, though
his ultimate liability, if any, will not be determined or payable until all of
the properties have been sold. At December 31, 1996 the appraised values of
the remaining parcels and the eight acre residential property totaled $2.7
million. These properties are included in real estate held for sale. Effective
July 1995 the Company leased the 8 acre residential property to the majority
stockholder, which lease was terminated effective June 30, 1996. Rental income
with respect to the 8-acre residential property from the majority stockholder
included in the income statements for the years ended December 31, 1996 and
1995 was $42,000 in each year. The rent for 1996 was settled through accruing
an amount due from TCO, and TCO's adding the accrued amount to the majority
stockholder's loan. The 1995 rent was treated as income to the majority
stockholder with the Company recording compensation expense offset by rental
income. Effective July 1996, the Company leased a different residential
property included in real estate held for sale to the majority stockholder.
Rental income from the majority stockholder on this property included in the
income statement for the year ended December 31, 1996 was approximately $19,000
which amount was paid in cash by the majority stockholder.
Pursuant to the respective management agreements between the Syndicate
and TCO and Alpine and TCO, commissions and fees, including profit sharing,
credited by the Syndicate and Alpine to TCO totaled $5,582,000, $24,672,000 and
$18,956,000 in 1996, 1995 and 1994, respectively. The management agreements
were terminated in 1996.
F-32
<PAGE> 97
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with terminating the management agreements between Alpine
and TCO and the Syndicate and TCO, most of the remaining TCO employees (other
than Claims Control employees) became employees of Alpine. Consequently, the
Company became directly responsible for the payment of all salaries and benefits
related to such employees. The claims handling staff became employees of Claims
Control effective January 1, 1996. Claims Control is reimbursed by Alpine for
the salary and benefit costs related to such employees.
In addition to performing services directly for the Company, the
majority of the Company's employees are performing services for Transre and
Exstar E&S Insurance Services ("E&S"), an insurance broker owned directly by
Exstar's majority shareholder, in connection with a Limited Agency Agreement
("Limited Agency Agreement") with United Capitol Insurance Company ("UCIC"). In
accordance with a plan filed by Alpine with and approved by the Illinois DOI in
connection with its review of Alpine, the salaries and benefit costs associated
with these employees, as well as general and administrative costs (including
rent, utilities, insurance costs and licensing fees), are currently being
allocated among Alpine, Transre and E&S. The allocations are based on
management s estimates of the relative amounts of employee time and Company
resources devoted to the operations. The total amount reimbursed by Transre and
E&S to the Company during 1996 was $1.2 million.
The Company has consented to TCO's use of certain of TCO's assets and
cash flows, that the Company otherwise might have attempted to claim for itself,
to satisfy obligations to third parties, including tax obligations, obligations
to an unaffiliated insurance company and obligations owed to the holder of the
TCO Holdings preferred stock (see Notes 12 and 16), and obligations under an
office lease to which TCO is subject. It is anticipated that such obligations
will be satisfied, in whole or in part, from (i) a portion of any profits
realized by Transre or E&S from their producing insurance for UCIC pursuant to
the Quota Share Arrangement (as defined below), (ii) a commission of
approximately three to four percent paid to TCO Holdings in connection with the
Quota Share Arrangement (as defined below), and (iii) Exstar Common Stock owned
by TCO. Exstar s majority stockholder may have contingent liability with respect
to certain of these obligations, and consequently may benefit from their
satisfaction through the use of such assets and cash flows.
During 1987, the Syndicate and Alpine issued a policy to provide
stop-loss coverage on business written by an unaffiliated insurer and produced
by TCO. As consideration, the Syndicate and Alpine are entitled to 2.5% of the
unaffiliated insurer s written premium on the business. Total written premium
subject to the stop-loss coverage was $345,000, $1,320,000 and $2,253,000 in
1996, 1995 and 1994, respectively. Both the Syndicate and Alpine have furnished
the unaffiliated insurer with letters of credit fully collateralized by fixed
maturity investments, certificates of deposit and other short-term investments
in the amount of $7,900,000 as of December 31, 1996, 1995 and 1994 to provide
security for their and TCO's performance in connection with this arrangement.
Since July 1, 1992, as consideration for the letters of credit provided by the
Syndicate and Alpine, Exstar has been receiving the interest earned on funds on
deposit with the unaffiliated insurance company. As additional consideration,
TCO has assigned to Exstar any contingent amounts from the unaffiliated
insurance company up to $1,000,000 per year. Exstar did not receive any amounts
under this arrangement in 1996 or 1995. Exstar received $1,300,000 in 1994
under this arrangement.
The Company owns two office buildings in Solvang, California. The
Company, until June 1996, leased the two office buildings to TCO. The rental
income from TCO included in the statements of operations for the years ended
December 31, 1996, 1995, and 1994 was $228,000, $584,000 and $577,000,
respectively.
Effective June 1996, Transre and E&S entered into a Limited Agency
Agreement with an underwriting manager which is a wholly-owned subsidiary of an
insurer not affiliated with the Company, UCIC, pursuant to which Transre and E&S
produce for UCIC business of the type previously produced for the Company by
TCO. UCIC is a Wisconsin domiciled insurance company. In lieu of issuing
direct insurance, effective April 1, 1997, Alpine entered into a casualty quota
share reinsurance agreement ("Quota Share Arrangement") with UCIC pursuant to
which Alpine assumes a portion of the business placed with UCIC by Transre and
E&S.
F-33
<PAGE> 98
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Quota Share Arrangement, Alpine has agreed to
pay UCIC a ceding commission of 30% of the premium assumed by Alpine. This
ceding commission is to compensate UCIC for expenses incurred by UCIC generally
in obtaining the insurance which is subject to the Quota Share Arrangement. UCIC
pays Transre and E&S a fee of 27.5% of the premium produced by them pursuant to
the Limited Agency Agreement.
During the second quarter 1995, the Company negotiated the settlement
of certain amounts due from a minority shareholder of an affiliate related to a
real estate development mortgage loan. Through the settlement, the Company
obtained a five year note from the minority shareholder in the amount of $45,000
which approximated the book value of the mortgage loan after a previously
established reserve for estimated loan losses. Additionally, the Company
realized a loss for interest previously accrued. Principal and interest
forgiven totaled approximately $55,000.
The Syndicate entered into an underwriting management agreement with
Camelback Reinsurance Underwriters, Inc. ("Camelback"), to assume premiums on
various treaties for which Camelback was the underwriting manager. Camelback,
an Arizona corporation majority owned by TCO Holdings, is a reinsurance
underwriting manager from which the Company historically assumed business. The
Syndicate's total premiums assumed pursuant to those treaties were $147,000,
$1,150,000 and $1,257,000 in 1996, 1995 and 1994, respectively.
The Syndicate and Alpine derived premiums on insurance produced for
them by Trinity E&S Insurance Services ("Trinity"). Trinity, a California
corporation majority owned by TCO Holdings, is a surplus lines brokerage company
which historically produced business for the Company. The gross premiums
derived by the Syndicate and Alpine from Trinity were $1,575,000, $5,726,000 and
$4,452,000 in 1996, 1995 and 1994, respectively.
During 1991, the Company made construction loans to Trinity for
construction of a new office building. The outstanding loan balances at
December 31, 1996 and 1995, were $1,096,000 and $1,105,000, respectively.
16 -- CONTINGENCIES AND COMMITMENTS
TCO has incurred significant losses over the past several years in the
performance of services on behalf of the Company, and has had to rely on the
Company for the funding of a significant portion of these losses. As a result,
TCO is currently indebted to the Company for $15.3 million (including $4.6
million due to the Company pursuant to the Loan Agreement and $9.7 million due
to Alpine as certain unpaid balances with respect to insurance premiums unpaid
by TCO), and has significant additional debts and obligations to unrelated third
parties. TCO currently has a negative net worth of approximately $30 million.
Management, consequently, believes that TCO will be unable to repay the majority
of this indebtedness to the Company or the other creditors of TCO. The foregoing
amounts due from TCO are not reflected as assets of the Company at December 31,
1996, and the nonpayment of such amounts would have no impact on the Company's
net income or stockholders' equity.
In view of uncertainty surrounding the Company s ability to realize
value with respect to the JBW & Co. Loan and the collateral pledged to secure
it, the Company has entered into negotiations with JBW & Co. and various
insurance regulatory authorities with jurisdiction over the parties and has
reached a tentative overall settlement of issues surrounding the JBW & Co. Loan
and the TCO Holdings preferred stock. As currently contemplated, the settlement
would involve a transfer to the Company of a mortgage note in the principal
amount of approximately $2 million (or proceeds thereof) in full satisfaction of
the JBW & Co. Loan. The mortgage note would be secured by real estate with an
appraised value at September 1, 1996 of $9.0 million.
Concurrently with the foregoing transaction, TCO Holdings would convert
the TCO Holdings preferred stock into a TCO Holdings promissory note in the
principal amount of $2.5 million, with four percent annual interest on the
principal balance outstanding, payable solely from commissions received by TCO
Holdings in
F-34
<PAGE> 99
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
connection with the Quota Share Arrangement. See Note 15. A letter of intent
with respect to the foregoing settlement has been entered into by the parties.
The settlement, however, is contingent upon the execution of formal agreements
by the parties and final approval of the agreements by the applicable insurance
regulatory authorities.
TCO leases office space in Chicago, Illinois. TCO is currently in
default under the lease, and the lessor has made a demand for payment.
Liabilities relating to this lease have been accrued on the Company's books in
the amount of $260,000 and on TCO's books in the amount of $1.1 million.
Exstar's insurance subsidiaries are involved in various pending or
threatened legal proceedings arising from the normal course of the insurance
business. In some instances, these proceedings include claims for relief in
unspecified amounts in addition to amounts for alleged extra-contractual
liability or requests for equitable relief. Management believes these
proceedings ultimately will be resolved without materially affecting the
consolidated financial position of the Company.
17 -- SUBSEQUENT EVENTS
In July 1995, the Company filed a lawsuit against its former
independent auditors, Coopers & Lybrand, L.L.P. ("C&L"), for damages arising out
of advice and services rendered to the Company. In January 1997, the Company and
C&L entered into a settlement agreement relating to this lawsuit. The cash
relating to this settlement was received by the Company in February 1997. After
the payment of legal fees and other fees and costs associated with the lawsuit
and settlement (including $664,000 of such fees and costs expensed in 1996),
Exstar expects an increase in its 1997 pre-tax income and stockholders' equity
of approximately $3 million from this settlement agreement.
F-35
<PAGE> 100
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY)
EXSTAR FINANCIAL CORPORATION (PARENT ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------- --------
(Dollars in thousands,
except per share data)
<S> <C> <C>
ASSETS:
Investments:
Mortgage loans--affiliated $ 689 $ 103
Mortgage loans--unaffiliated -0- 321
Real estate held for sale 3,441 2,966
Cash and cash equivalents--unrestricted 95 -0-
---------- ---------
Total investments 4,225 3,390
Investment in and advances to subsidiaries 11,301 11,841
Other assets 2,671 1,370
---------- ---------
Total assets $ 18,197 $ 16,601
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Current income taxes and other liabilities $ 1,063 $ 674
Notes payable 1,588 2,017
Accumulated equity in losses of affiliates 3,020 2,715
---------- ---------
Total liabilities 5,671 5,406
---------- ---------
Common stock, $.01 par value, 30,000,000 shares authorized; issued and
outstanding: 1996 and 1995, 5,497,500 shares 55 55
Paid in capital 26,865 26,865
Net unrealized investment (losses) gains (68) 101
Preferred stock investment--contra equity (12,314) (12,314)
Retained deficit (2,012) (3,512)
---------- ---------
Total equity 12,526 11,195
---------- ---------
Total liabilities and stockholders' equity $ 18,197 $ 16,601
========== =========
</TABLE>
S-1
<PAGE> 101
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY)
EXSTAR FINANCIAL CORPORATION (PARENT ONLY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C>
Revenue:
Net investment income--unaffiliated $ 12 $ 16 $ 86
Net investment income--affiliated 333 451 47
Net realized investment (losses) gains (526) 272 (74)
Other income 143 317 1,326
-------- -------- --------
Total (loss) revenue (38) 1,056 1,385
-------- -------- --------
Expenses:
Other expenses 3,202 4,233 2,046
Interest expense 123 131 40
-------- -------- --------
Total expenses 3,325 4,364 2,086
-------- -------- --------
Loss before federal income taxes, equity in net income of
subsidiaries and equity in net income (losses) of
affiliates (3,363) (3,308) (701)
Federal income tax (benefit) expense (1,715) 5,057 (196)
Equity in net income of subsidiaries 1,587 9,266 3,204
Equity in net income (losses) of affiliates 1,561 3,829 (5,173)
-------- -------- --------
Net income (loss) $ 1,500 $ 4,730 $ (2,474)
======== ======== ========
Net income (loss) per common share $ 0.27 $ 0.86 $ (0.45)
======== ======== ========
Shares used in computation of net income (loss)
per common share (in thousands) 5,498 5,498 5,498
======== ======== ========
</TABLE>
S-2
<PAGE> 102
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY)
EXSTAR FINANCIAL CORPORATION (PARENT ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Unrestricted Cash and Cash Equivalents: (Dollars in thousands)
Cash flows (applied to) provided by operating activities:
Investment income received--affiliated $ 324 $ 548 $ 144
Investment income received--unaffiliated -0- -0- 6
Other income 143 317 1,326
Interest paid (123) (131) (40)
Other expenses paid (2,696) (3,863) (1,898)
Taxes recovered (paid) 500 (500) 1,556
------- -------- --------
Net cash (applied to) provided by operating activities (1,852) (3,629) 1,094
------- -------- --------
Cash flows (applied to) provided by investing activities:
Purchase of property, equipment and real estate (18) (2,243) (139)
Proceeds from sale of property, equipment and real estate -0- -0- 35
Short-term investments, net -0- -0- 461
Mortgage loans funded--affiliated (265) (2) (66)
Repayments of mortgage loans--affiliated -0- -0- 2
------- -------- --------
Net cash (applied to) provided by investing activities (283) (2,245) 293
------- -------- --------
Cash flows provided by (applied to) financing activities
Issuance of notes payable -0- 2,011 -0-
Repayment of notes payable (430) -0- (539)
Transfers from (to) affiliates 2,563 2,999 (787)
Other 97 (69) (49)
------- -------- --------
Net cash provided by (applied to) financing activities 2,230 4,941 (1,375)
------- -------- --------
Net increase (decrease) in unrestricted cash and cash equivalents 95 (933) 12
Unrestricted cash and cash equivalents at beginning of year -0- 933 921
------- -------- --------
Unrestricted cash and cash equivalents at end of year $ 95 $ -0- $ 933
======= ======== ========
</TABLE>
S-3
<PAGE> 103
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY)
EXSTAR FINANCIAL CORPORATION (PARENT ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of Net Income (Loss) to Net Cash (Applied
to) Provided by Operating Activities:
Cash Flows (applied to) provided by operating
activities:
Net income (loss) $ 1,500 $ 4,730 $ (2,474)
Net realized investment losses (gains) 526 (272) 74
Non-cash charges (credits) included in net income:
Amortization and depreciation 122 123 106
Equity in net income of subsidiaries (3,027) (2,732) (3,204)
Equity in net (income) losses of affiliates (1,561) (3,829) 5,173
Change in:
Accrued investment income--affiliated (21) 81 97
Accrued investment income--unaffiliated -0- -0- (80)
Prepaid expenses 278 (84) 217
Accrued expenses 106 331 (175)
Federal income taxes payable 225 (1,977) 1,360
---------- --------- --------
Net cash (applied to) provided by operating activities $ (1,852) $ (3,629) $ 1,094
========== ========= ========
</TABLE>
S-4
<PAGE> 104
SCHEDULE IV
EXSTAR FINANCIAL CORPORATION
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column E
- ---------------------------------------------------------------------------------------------------------------
Percentage of
Ceded to Assumed from other amount assumed
Gross amount other companies companies Net amount to net
===============================================================================================================
<S> <C> <C> <C> <C> <C>
1996
----
Accident and
health insurance 2,171 1,722 449 0%
Property and
liability insurance 37,887 17,560 234 20,561 1.1%
- ---------------------------------------------------------------------------------------------------------------
Total Premiums 40,058 19,282 234 21,010 1.1%
- ---------------------------------------------------------------------------------------------------------------
1995
----
Accident and
health insurance 2,472 2,015 457 0%
Property and
liability insurance 61,618 23,951 1,025 38,692 2.6%
- ---------------------------------------------------------------------------------------------------------------
Total Premiums 64,090 25,966 1,025 39,149 2.6%
- ---------------------------------------------------------------------------------------------------------------
1994
----
Accident and
health insurance 28 28 0%
Property and
liability insurance 56,374 5,203 1,314 52,485 2.5%
- ---------------------------------------------------------------------------------------------------------------
Total Premiums 56,402 5,203 1,314 52,513 2.5%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
S-5
<PAGE> 105
SCHEDULE VI
EXSTAR FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY--CASUALTY INSURANCE OPERATIONS
AS OF AND FOR THE YEARS ENDED DECEMBER
31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H
- --------------------------------------------------------------------------------------------------
Claims and
Claim
Adjustment
Expenses
Incurred
Net Reserve --------
for Unpaid Related to
Deferred Claims and Discount ----------
Policy Claim if any Net Net Net (1) (2)
Affirmations Acquisition Adjustment Deducted in Unearned Earned Investment Current Prior
with Registrant Costs Expenses Column C Premiums Premiums Income Year Years
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated
property
casualty
entities
Dec. 31, 1996 307 53,006 -0- 979 21,010 4,030 12,971 (282)
Dec. 31, 1995 4,513 68,820 -0- 13,178 39,149 4,913 23,545 (7,874)
Dec. 31, 1994 7,331 81,197 -0- 24,141 52,513 3,933 32,058 792
- --------------------------------------------------------------------------------------------------
<CAPTION>
Column I Column J Column K
- ------------------------------------------
Amortization Net Paid
of Deferred Claims and
Policy Claim Net
Acquisition Adjustment Premiums
Costs Expenses Written
- ------------------------------------------
<S> <C> <C>
5,119 28,502 8,810
11,655 28,049 28,185
15,800 19,819 53,532
- ------------------------------------------
</TABLE>
<PAGE> 106
EXHIBIT INDEX
Exhibit
Number
10.71 Upper Layer Employers Excess Indemnity Cover Note No. 94-200 effective
August 1, 1994, issued by Combined Intermediaries of America, Inc. to
Transco Syndicate, Inc. and Alpine Insurance Company.
10.72 Upper Layer Employers Excess Indemnity Cover Note No. 94-201 effective
August 1, 1994, issued by Combined Intermediaries of America, Inc. to
Transco Syndicate, Inc. and Alpine Insurance Company.
10.73 Primary Employers Indemnity Cover Note No. 94-202 effective August 1,
1994, issued by Combined Intermediaries of America, Inc. to Transco
Syndicate, Inc. and Alpine Insurance Company.
10.74 Reinsurance Confirmation of Casualty Excess of Loss Reinsurance
Agreement effective May 1, 1995 between Alpine Insurance Company, TCO
Insurance Services, Inc. and Trinity MGA Insurance Services, Inc.
10.75 Reinsurance Cover Note No. 95/0640/IL effective January 1, 1995 issued
by Carvill America to Alpine Insurance Company.
10.76 Commutation Agreement and Release between Transco Syndicate #1, Ltd.,
Alpine Insurance Company and ReCapital Reinsurance Corporation effective
April 15, 1995.
10.77 Secured Promissory Note dated December 31, 1995 by JBW & Co., Inc.,
Concord General Corporation and Jeffery Beresford-Wood.
10.78 Pledge Agreement dated December 31, 1995 by and between Transco
Syndicate #1 Ltd. and JBW & Co., Inc., Concord General Corporation and
Jeffery W. Beresford-Wood.
10.79 First Excess of Loss Cover Note No. SF961000 effective January 1, 1996
issued by Intere Intermediaries to Alpine Insurance Company and Transco
Syndicate #1.
10.80 Second Casualty Excess of Loss Cover Note No. SF961001 effective January
1, 1996 issued by Intere Intermediaries to Alpine Insurance Company,
Transco Syndicate #1.
10.81 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover
Note (Treaty No. MA960269) issued by Minet Re North America to Transco
Syndicate No. 1 and/or Alpine Insurance Co. effective March 1, 1996.
10.82 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover
Note (Treaty No. MA960270) issued by Minet Re North America to Transco
Syndicate No. 1 and/or Alpine Insurance Co. effective March 1, 1996.
10.83 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover
Note (Treaty No. MA960406) issued by Minet Re North America to Transco
Syndicate No. 1 and/or Alpine Insurance Co. effective March 1, 1996.
10.84 Endorsement No. 1 to Marine Account Excess of Loss Reinsurance Cover
Note (Treaty No. MA960475) issued by Minet Re North America to Transco
Syndicate No. 1 and/or Alpine Insurance Co. effective March 1, 1996.
10.85 Endorsement No. 2 to Marine Excess of Loss Reinsurance Cover Note
(Treaty No. MA962045) issued by Minet Re North America, Inc. to Transco
Syndicate No. 1 and/or Alpine Insurance Co. effective March 1, 1996.
10.86 Marine Excess of Loss Reinsurance Cover Note No. MA962045 issued by
Minet Re North America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine
Insurance Company effective March 1, 1996.
10.87 Marine Excess of Loss Reinsurance Cover Note No. MA960475 issued by
Minet Re North America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine
Insurance Company effective March 1, 1996.
10.88 Marine Excess of Loss Reinsurance Cover Note No. MA960406 issued by
Minet Re North America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine
Insurance Company effective March 1, 1996.
10.89 Marine Excess of Loss Reinsurance Cover Note No. MA960269 issued by
Minet Re North America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine
Insurance Company effective March 1, 1996.
10.90 Marine Excess of Loss Reinsurance Cover Note No. MA960270 issued by
Minet Re North America, Inc. to Transco Syndicate #1 Ltd. and/or Alpine
Insurance Company effective March 1, 1996.
10.91 Casualty Quota Share Cover Note No. CH 0333-95 issued by Alexander
Reinsurance Intermediaries, Inc. to Transco Syndicate #1, Ltd, Alpine
Insurance Company effective April 1, 1995.
10.92 Investment Advisory Agreement dated May 21, 1996 by and between Asset
Allocation & Management Company, L.L.C. and Alpine Insurance Company.
<PAGE> 107
10.93 Claim Service Agreement dated June 15, 1996 by and between Claims
Control Corporation and United Capitol Insurance Company.
10.94 Termination Endorsement effective July 1, 1996 to Management and
Servicing Agreement, as amended and with an original effective date of
December 31, 1993 between Alpine Insurance Company and TCO Insurance
Services, Inc.
10.95 Termination Endorsement effective December 31, 1996 to
Management and Servicing Agreement, as amended and with an original
effective date of July 1, 1993 between Transco Syndicate #1, Ltd. and
TCO Insurance Services, Inc.
10.96 Lease dated September 18, 1996 by and between Transco Syndicate #1 Ltd.
and Channel Islands YMCA.
10.97 Limited Agency Agreement by and between Olympic Underwriting
Managers, Inc., Transre Insurance Services and Exstar E&S Insurance
Services effective June 24, 1996.
10.9 Consulting Agreement between Alpine Insurance Company and Craig Rice
dated October 10, 1996.
10.99 Withdrawal Agreement effective December 31, 1996 between Illinois
Insurance Exchange, Illinois Insurance Exchange Immediate Access
Security Association, Illinois Insurance Exchange Guaranty Fund, Inc.,
Transco Syndicate #1 Ltd. and Alpine Insurance Company.
10.100 Commutation Agreement and Release between Alpine Insurance Company and
Transco Syndicate #1 Ltd. effective December 31, 1996.
10.101 Assignment and Assumption Agreement between Alpine Insurance Company
and Transco Syndicate #1 Ltd. dated December 31, 1996.
10.102 Trust Agreement dated January 9, 1997 between Alpine Insurance Company
and LaSalle National Bank.
10.103 Casualty Quota Share Slip between United Capitol Insurance Company and
Alpine Insurance Company dated March 27, 1997.
<PAGE> 1
EXHIBIT 10.71
COVER NOTE NO.: 94-200
(REVISED)
Mr. Steve Shinn
President
Exstar Financial Corporation
2029 Village Lane
Solvang, California 93463
IN ACCORDANCE WITH YOUR INSTRUCTIONS, WE ARE
PLEASED TO ADVISE THAT WE HAVE EFFECTED
THE FOLLOWING REINSURANCE FOR YOUR ACCOUNT
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE, INC.
CHICAGO, ILLINOIS
(HEREINAFTER CALLED THE "COMPANY")
UPPER LAYER EMPLOYERS EXCESS INDEMNITY
POLICY COVERAGES AND BUSINESS COVERED:
All business pre-underwritten by Combined Independent Agencies Inc. (with the
Company reviewing terms and conditions and retaining the sole right to accept or
reject each individual risk) and classified by the Company as Upper Layer EEI as
respects Accidental Death and Dismemberment, Accident Medical Expense, Temporary
Disability, Permanent Total Disability, OD/CT, Legal Liability, Punitive Damages
and Defense Costs.
TERM AND CANCELLATION:
Continuous Agreement effective August 1, 1994, subject to (90) days prior
written notice of cancellation by either party at any anniversary, 1st
anniversary being January 1, 1996.
Risks attaching basis. Reinsurers to remain liable to natural expiration plus
ninety (90) days odd time. At the sole option of the Company, however, the
Company may terminate this Agreement on a cut-off basis in which event losses
occurring after the termination date will be the responsibility of the Company.
Maximum policy period 18 months plus odd time.
TERRITORY:
Business domiciled in the United States of America, as per the Company's
original policies.
PAGE 1
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 2
COVER NOTE NO.: 94-200
(REVISED)
CARVE OUT REINSURANCE:
It is understood and agreed the reinsurance provided hereunder is non-concurrent
with the policies issued by the Company. Reinsurance provided herein shall cover
Accidental Death and Dismemberment, Medical Expense, Temporary Disability and
Permanent Total Disability. Medical Expense and Disability payments shall also
be covered for OD/CT (per person basis only).
In the event of a loss in which reinsured and unreinsured coverages are both
involved, the reinsured loss under this Agreement shall be deemed to be paid
first. Unreinsured payments made shall be deemed to be merely policy advances
until such time as the reinsured limit or losses covered by the reinsurance are
exhausted.
SUM INSURED:
Policies will be issued with limits ranging from $1,000,000 per Loss per
Occurrence to $20,000,000 per Loss per Occurrence.
UNDERLYING LIMIT:
Upper Layer Employer's Excess Indemnity policies shall be issued by the Company
at attachment points of no less than $50,000 per occurrence. This underlying
limit (insured or self-insured) may be depleted by payments made by the insured
and/or underlying carrier(s), for Accidental Death and Dismemberment, Accident
Medical Expense, Temporary Disability, Permanent Total Disability, OD/CT, Legal
Liability, Punitive Damages and Defense Costs.
REINSURANCE LIMIT:
Layer A.
1. For Death, Dismemberment and Permanent Total Disability, the Carve-Out shall
pay the lesser of:
a. $250,000 any one employee; per occurrence, or,
b. The Loss.
Permanent Total Disability as used above means disablement which entirely
prevents the affected Employee from attending to the material duties of his
occupation, lasts 12 calendar months or more and is determined by competent
medical authority to be permanent, total and continuous.
2. For Medical Expenses and payments made under Temporary Disability, the
Carve-Out shall pay the lesser of:
PAGE 2
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 3
COVER NOTE NO.: 94-200
(REVISED)
a. $250,000 any one employee, per Occurrence; or,
b. The actual payments under the Policy for Medical Expense and Disability
payments.
3. In the event of an Occurrence including 1 and 2 above, the Carve-Out shall
pay the lesser of:
a. $250,000 any one employee, per Occurrence; or,
b. The Loss.
Layer B.
In the event of a loss exceeding $250,000 of Carve-Out Reinsurance covered under
combined reinsurance Layers A and B., Layer B shall provide 100% of the
difference between the limits provided under Layer B and the limits provided
under Layer A, it being fully understood and agreed the maximum coverage for
Layer A and B combined shall never exceed the lesser of $2,000,000 maximum any
one employee per occurrence of the Loss.
1. For Death, Dismemberment and Permanent Total Disability, the Carve-Out shall
pay the lesser of:
a. $2,000,000 maximum any one employee, per Occurrence; or,
b. The Loss; or,
c. Death The Sum Insured
Permanent Total Disability The Sum Insured
Loss of Both Hands or Feet The Sum Insured
Loss of Either Sight of One or Both Eyes The Sum Insured
Quadriplegia, Paraplegia, Homoplegia The Sum Insured
Loss of One Hand or Foot 50% of The Sum Insured
Loss of Speech or Hearing 50% of The Sum Insured
Loss of Thumb and Index Finger of Same Hand 50% of The Sum Insured
Loss of Thumb or Finger 25% of The Sum Insured
For purposes of this Section 1c), total and irrevocable loss of use
shall be deemed to be "loss" as used above.
Permanent Total Disability as used above means disablement which entirely
prevents the affected Employee from attending to the material duties of
his occupation lasts 12 calendar months or more and is determined by
competent medical authority to be permanent, total and continuous.
PAGE 3
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 4
COVER NOTE NO.: 94-200
(REVISED)
In the event an employee suffers more than one of the above scheduled losses
as the result of the same occurrence, only one, the highest, shall be paid.
2. For Medical Expense and payments made under Temporary Disability, The Carve
Out shall pay the lesser of:
a. $2,000,000 Maximum any one employee per Occurrence; or,
b. The actual payments under the Policy for Medical Expense and Disability
payments.
3. In the event of an Occurrence including 1. and 2. above, the Carve-Out shall
pay the lesser of:
a. $2,000,000 Maximum any one employee per Occurrence; or,
b. The Loss, or,
c. The Sum Insured.
PREMIUM:
The Company shall hereby pay reinsurers (for 100% of the carve-out) a
provisional premium equal to the percentage as described below of the Actual
Premium written or charged by the Company for the limits reinsured hereunder.
Layer A: 6.5%
Layer B: 10.0%
1 year rating block with annual adjustments. Policy Year Accounting.
ACCOUNTING:
The Reinsurer understands and agrees that the Company shall have the option of
internally "grossing up" the premium ceded to the Reinsurer to allow for
acquisition and other costs on the business subject to this Agreement. However,
nothing contained in this Article shall diminish the amounts due to the
Reinsurer as calculated under the appropriate Articles of this Agreement.
COMMISSION:
None.
PAGE 4
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 5
COVER NOTE NO.: 94-200
(REVISED)
ACCOUNTS AND REMITTANCES:
The Company shall render to Reinsurers quarterly accounts within sixty (60) days
after the close of each calendar quarter. Account settlements or remittances
shall be paid within seventy-five (75) days after the close of each calendar
quarter.
PROFIT COMMISSION:
There shall be paid to the Company a profit commission amounting to 25% of the
net profit (calculated as Income less Outgo) to be calculated and paid
provisionally at January 1, 1997 and annually thereafter until all claims and
all declarations have expired. There shall be no profit commission unless the
premium ceded to the reinsurer meets or exceeds $1,25O,000 for the initial
period, and each Underwriting Account Year thereafter.
INCOME OUTGO
1. Net Premium to Reinsurers i.e. 1. Losses (including expenses
Gross Premiums less Return paid less Salvage and
Premiums, Commissions, Brokerage Recoveries).
and Taxes. 2. Reserve for Outstanding Losses and
Taxes.
3. Reinsurer Management expenses
calculated at 10% of gross carve-
out premium.
A) The difference between Income and Outgo shall constitute the net profit, or
loss, as the case may be.
B) In the event of any Underwriting Account Year showing a deficit to
Reinsurers, it is agreed that such deficit shall be carried forward to
the profit commission statement for 3 years; provided, however, that if
the premium ceded to the Reinsurers does not meet $1,250,000 for such
Underwriting Account Year under consideration, then such deficit shall
not be carried forward to the profit commission statements (calculation).
EXCLUSIONS:
This Agreement shall not apply to:
1. Business accepted by the Company as reinsurance from other insurers or
reinsurers.
2. Business written on a co-surety or co-indemnity basis not controlled by the
Company;
3. Any claim covered by Employers Liability Insurance.
PAGE 5
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 6
COVER NOTE. NO.: 94-200
(REVISED)
4. Any extra or non-contractual damages (ECO) or legal fees and expenses
attendant to the defense thereof, unless the Reinsurer is counseled and
concurs in writing with the position taken by the Company.
5. Loss in excess of policy limits.
6. Any loss or liability accruing to the Company directly or indirectly from
any insurance written by or through any pool or association including pools
or associations in which membership by the Company is required by statutes
or regulations.
7. Any liability of the Company arising from its participation or membership in
any insolvency fund.
8. Loss or damage caused by or resulting from war, invasion, hostilities, act
or foreign enemies, civil war, insurrection, military or usurped power,
martial law or confiscation by order of any government or public authority,
but not excluding loss or damage which would be covered under a standard
form or policy containing a standard War Exclusion Clause.
9. Nuclear Incident Exclusion Clause - Liability - Reinsurance.
10. Commercial airline accounts as respects flight crew employees. This
exclusion does not pertain to industrial aid aircraft.
11. Professional sports teams.
GENERAL CONDITIONS:
Ultimate Net Loss Clause.
Loss and Loss Settlement Clause.
Non-Admitted Reinsurers Clause (as required by the Company).
Errors and Omissions Clause.
Access to Records Clause.
Insolvency Clause.
Arbitration Clause.
Service of Suit Clause (as applicable).
Combined Intermediaries Intermediary Clause.
3 Year Sunset and Commutation Policy Clauses.
WORDING:
To be agreed between the Company and the Reinsurer.
PAGE 6
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 7
COVER NOTE NO.: 94-200
(REVISED)
ORDER HEREON:
Layer A 100% of the Carve-Out.
Layer B 50% of the Carve-Out.
EFFECTED WITH:
IOA on behalf of the Associated Accident and Health Reinsurance Underwriters
Group
PLEASE READ THIS DOCUMENT VERY CAREFULLY. THIS IF CONFIRMATION AND EVIDENCE THAT
REINSURANCE HAS BEEN EFFECTED IN ACCORDANCE WITH THIS COVER NOTE WITH REINSURERS
AS INDICATED. REINSURERS PARTICIPATING ON THIS REINSURANCE HAVE BEEN REVIEWED
AND HAVE BEEN ACKNOWLEDGED AND APPROVED AS QUALIFIED REINSURANCE SECURITY BY
YOUR COMPANY. ANY DISCREPANCIES, INACCURACIES OR NECESSARY CHANGES MUST BE
CORRECTED AT ONCE. IF INCORRECT, PLEASE RETURN THIS COVER NOTE IMMEDIATELY. IF
CORRECT, PLEASE SIGN AND RETURN THIS COVER NOTE.
Sincerely,
COMBINED INTERMEDIARIES OF AMERICA, INC.
ALAN G. HARDIN, JR.
- -----------------------------------------------
Alan G. Hardin, Jr.
President
Acknowledged [sig] Date: 10-5-1994
--------------------------------------
Alpine Insurance Company
Acknowledged [sig] Date: 10-6-1994
--------------------------------------
TCO Insurance Services for and behalf
of Transco Syndicate, Inc.
PAGE 7
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 1
EXHIBIT 10.72
COVER NOTE NO.: 94 201
(REVISED)
Mr. Steve Shinn
President
Exstar Financial Corporation
2029 Village Lane
Solvang, California 93463
IN ACCORDANCE WITH YOUR INSTRUCTIONS, WE ARE
PLEASED TO ADVISE THAT WE HAVE EFFECTED
THE FOLLOWING REINSURANCE FOR YOUR ACCOUNT
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE, INC.
CHICAGO, ILLINOIS
(HEREINAFTER CALLED THE "COMPANY")
UPPER LAYER EMPLOYERS EXCESS INDEMNITY
FIRST EXCESS OF LOSS
BUSINESS COVERED:
All business pre-underwritten by Combined Independent Agencies, Inc. (with the
Company reviewing terms and conditions and retaining the sole right to accept or
reject each individual risk) and classified by the Company as Employers Excess
Indemnity as respects Bodily Injury by Accident and Occupational Disease or
Cumulative Trauma, as covered by the Company's policies.
TERM AND CANCELLATION:
Continuous Agreement effective August 1, 1994, subject to (90) days prior
written notice of cancellation by either party at any anniversary, 1st
anniversary being December 31, 1995.
Risks attaching basis. Reinsurers to remain liable to natural expiration plus
ninety (90) days odd time. At the sole option of the Company, however, the
Company may terminate this Agreement on a cut-off basis in which event losses
occurring after the termination date will be the responsibility of the Company.
TERRITORY:
Risks located within the United States of America and its territories, as per
the Company's original policies.
PAGE 1
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 2
COVER NOTE NO.: 94-201
(REVISED)
RETENTION:
$250,000 each and every employee per Loss. This retention may be reinsured by
affiliated insurance companies and carve-out reinsurance.
REINSURANCE LIMIT:
$1,750,000 each and every employee per Loss in excess of $250,000 each and every
employee per Loss.
PREMIUM:
The Company shall hereby pay reinsurers a provisional premium equal to 30% of
the Actual GNWPI (less commission of 32.5%) of the Company for the limits
reinsured hereunder, subject to the minimum rates shown in Pricing Guidelines
attached.
1 year rating block with annual adjustments. Calendar Year Accounting.
ACCOUNTING:
The Company may internally gross up premium ceded for acquisition costs for
business ceded under this Treaty.
ACCOUNTS AND REMITTANCES:
The Company shall render to Reinsurers quarterly accounts within sixty (60) days
after the close of each calendar quarter. Account settlements or remittances
shall be paid within seventy-five (75) days after the close of each calendar
quarter.
PROFIT COMMISSION:
There shall be paid to the Company a profit commission amounting to 25% of the
net profit (calculated as Income less Outgo) to be calculated and paid
provisionally at January 1, 1997 and annually thereafter until all claims and
all declarations have expired.
INCOME OUTGO
1. Net Premium to Reinsurers i.e. Gross 1. Losses (including expenses paid
Premiums less Return Premiums, less Salvage and Recoveries).
Commissions, Brokerage and Taxes. 2. Reserve for Outstanding Losses
including IBNR as reported by
the company.
3. Reinsurer Management expenses
calculated at 10% of net premium
(defined as 1 in Income).
PAGE 2
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 3
COVER NOTE NO.: 94-201
(REVISED)
A) The difference between Income and Outgo shall constitute the net profit, or
loss, as the case may be.
B) In the event of any Calendar Account Year showing a deficit to Reinsurers,
it is agreed that such deficit shall be carried forward to the profit
commission statement for 3 years.
EXCLUSIONS:
This Agreement shall not apply to:
1. Business accepted by the Company as reinsurance from other insurers or
reinsurers.
2. Business written on a co-surety or co-indemnity basis not controlled by the
Company;
3. Any loss or liability accruing to the Company directly or indirectly from
any insurance written by or through any pool or association including
pools or associations in which membership by the Company is required by
statutes or regulations.
4. Any liability of the Company arising from its participation or membership in
any insolvency fund.
5. Loss resulting from an employee's participation in a riot or act of civil
disturbance; an assault or felony; a war, declared or undeclared; any act of
war; or service in the military of any country or any civilian non-combatant
unit serving with such forces.
6. Nuclear Incident Exclusion Clause - Liability - Reinsurance.
GENERAL CONDITIONS:
Follow the Fortunes
ECO/XPL 100%
Ultimate Net Loss Clause
Loss Adjustment Expenses Clause
Loss and Loss Settlement Clause.
Non-Admitted Reinsurers Clause (as required by the Company).
Errors and Omissions Clause.
Access to Records Clause.
Insolvency Clause.
Arbitration Clause.
Service of Suit Clause (as applicable).
Combined Intermediaries Intermediary Clause.
U.S. Currency Clause.
PAGE 3
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 4
COVER NOTE NO.: 94-201
(REVISED)
WORDING:
To be provided by the Company.
ORDER HEREON:
50% of $1,750,000 each and every employee per Loss.
EFFECTED WITH:
Sphere Drake Insurance Company, p.l.c. Underwriters for in Bermuda by Sphere
Drake Underwriting Management (Bermuda) Limited
PLEASE READ THIS DOCUMENT VERY CAREFULLY. THIS IF CONFIRMATION AND EVIDENCE THAT
REINSURANCE HAS BEEN EFFECTED IN ACCORDANCE WITH THIS COVER NOTE WITH REINSURERS
AS INDICATED. REINSURERS PARTICIPATING ON THIS REINSURANCE HAVE BEEN REVIEWED
AND HAVE BEEN ACKNOWLEDGED AND APPROVED AS QUALIFIED REINSURANCE SECURITY BY
YOUR COMPANY. ANY DISCREPANCIES, INACCURACIES OR NECESSARY CHANGES MUST BE
CORRECTED AT ONCE. IF INCORRECT, PLEASE RETURN THIS COVER NOTE IMMEDIATELY. IF
CORRECT, PLEASE SIGN AND RETURN THIS COVER NOTE.
Sincerely,
COMBINED INTERMEDIARIES OF AMERICA, INC.
[sig]
- ----------------------------
Alan G. Hardin, Jr.
President
Acknowledged: Date: 10-03, 1994
--------------------------------- -----------
Alpine Insurance Company
Acknowledged: Date: 10-06, 1994
--------------------------------- -----------
TCO Insurance Services For and on
Behalf of Transco Syndicate, Inc.
PAGE 4
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 1
EXHIBIT 10.73
COVER NOTE NO.: 94-202
(REVISED)
Mr. Steve Shinn
President
Exstar Financial Corporation
2029 Village Lane
Solvang, California 93463
IN ACCORDANCE WITH YOUR INSTRUCTIONS, WE ARE
PLEASED TO ADVISE THAT WE HAVE EFFECTED
THE FOLLOWING REINSURANCE FOR YOUR ACCOUNT
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE, INC.
CHICAGO, ILLINOIS
(HEREINAFTER CALLED THE "COMPANY")
PRIMARY EMPLOYERS INDEMNITY
QUOTA SHARE AGREEMENT
POLICY COVERAGES AND BUSINESS COVERED:
All business pre-underwritten by Combined Independent Agencies, Inc. (with the
Company reviewing terms and conditions and retaining the sole right to accept or
reject each individual risk) and classified by the Company as Lower Layer EEI as
respects Accidental Death and Dismemberment, Accident Medical Expense, Temporary
Disability, Permanent Total Disability, OD/CT, Legal Liability, Punitive Damages
and Defense Costs.
TERM AND CANCELLATION:
Continuous Agreement effective August 1, 1994, subject to ninety (90) days prior
written notice of cancellation by either party at any anniversary, first
anniversary being January 1, 1996.
Risks attaching basis. Reinsurers to remain liable to natural expiration plus
ninety (90) days odd time. At the sole option of the Company, however, the
Company may terminate this Agreement on a cut-off basis in which event losses
occurring after the termination date will be the responsibility of the Company.
TERRITORY:
Business domiciled in the United States of America, as per the Company's
original policies.
PAGE 1
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 2
COVER NOTE NO.: 94-202
(REVISED)
CARVE OUT REINSURANCE:
It is understood and agreed the reinsurance provided hereunder is non-concurrent
with the policies issued by the Company. Reinsurance provided herein shall cover
Accidental Death and Dismemberment, Accident Medical Expense, Temporary
Disability and Permanent Total Disability.
In the event of a loss in which reinsured and unreinsured coverages are both
involved, the reinsured loss shall be deemed to be paid first. Unreinsured
payments made shall be deemed to be merely policy advances until such time as
the reinsured limit or losses covered by the reinsurance are exhausted.
LIMIT AND RETENTION:
100% of $500,000 each and every loss occurrence, any one person subject to the
carve out. The Company shall retain 100% of the difference between the policy
conditions and the carve-out reinsurance.
PREMIUM:
The Company shall hereby pay reinsurers a provisional premium equal to 53.125%
of the Actual Premium written or charged by the Company for the limits reinsured
hereunder, subject to the minimum rates shown in Exhibits I and II attached.
1 year rating block with annual adjustments. Policy Year Accounting.
ACCOUNTING:
The reinsurer understands and agrees that the Company shall have the option of
internally "grossing up" the premium ceded to the Reinsurer to allow for
acquisition and other costs on the business subject to this Agreement. However,
nothing contained in this Article shall diminish the amounts due to the
Reinsurer as calculated under the appropriate Articles of this Agreement.
COMMISSION:
None.
ACCOUNTS AND REMITTANCES:
The Company shall render to Reinsurers quarterly accounts within sixty (60) days
after the close of each calendar quarter. Account settlements or remittances
shall be paid within seventy-five (75) days after the close of each calendar
quarter.
PAGE 2
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 3
COVER NOTE NO.: 94-202
(REVISED)
PROFIT COMMISSION:
There shall be paid to the Company a profit commission amounting to 25% of the
net profit (calculated as Income less Outgo) to be calculated provisionally at
30th April, 1996 and annually thereafter until all claims and all declarations
have expired.
INCOME OUTGO
1. Net Premium to Reinsurers i.e. 1. Losses (including expenses paid
Gross Premiums less Return less Salvage and Recoveries).
Premiums, Commissions, Brokerage 2. Reserve for Outstanding Losses
and Taxes. 3. Reinsurer Management expenses
calculated at 10% of net premium
(defined as 1 in Income).
A) The difference between Income and Outgo shall constitute the net profit, or
loss, as the case may be.
B) In the event of any Underwriting Account Year showing a deficit to
Reinsurers, it is agreed that such deficit shall be carried forward to the
profit commission statement for 3 years.
EXCLUSIONS:
This Agreement shall not apply to:
1. Business accepted by the Company as reinsurance from other insurers or
reinsurers.
2. Business written on a co-surety or co-indemnity basis not controlled by the
Company;
3. Cumulative Trauma Injury and Occupational Disease.
4. Any claim covered by Employers Liability Insurance.
5. Any extra or non-contractual damages (ECO) or legal fees and expenses
attendant to the defense thereof, unless the Reinsurer is counseled and
concurs in writing with the position taken by the Company.
6. Loss in excess of policy limits.
PAGE 3
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 4
COVER NOTE NO.: 94-202
(REVISED)
7. Any loss or liability accruing to the Company directly or indirectly from
any insurance written by or through any pool or association including pools
or associations in which membership by the Company is required by statutes
or regulations.
8. Any liability of the Company arising from its participation or membership in
any insolvency fund.
9. Loss or damage caused by or resulting from war, invasion, hostilities, act
or foreign enemies, civil war, insurrection, military or usurped power,
martial law or confiscation by order of any government or public authority,
but not excluding loss or damage which would be covered under a standard
form or policy containing a standard War Exclusion Clause.
10. Nuclear Incident Exclusion Clause - Liability - Reinsurance.
11. Commercial airline accounts as respects flight crew employees. This
exclusion does not pertain to industrial and aircraft.
12. Professional sports teams.
GENERAL CONDITIONS:
Ultimate Net Loss Clause
Loss Adjustment Expenses Clause (LAE to be 7.5% of gross premium plus legal).
Loss and Loss Settlement Clause.
Non-Admitted Reinsurers Clause (as required by the Company).
Errors and Omissions Clause.
Access to Records Clause.
Insolvency Clause.
Arbitration Clause.
Service of Suit Clause (as applicable).
Combined Intermediaries Intermediary Clause.
WORDING:
To be agreed between the Company and the Reinsurer.
ORDER HEREON:
100% of $500,000 each and every loss occurrence, any one person, carve-out only.
PAGE 4
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 5
COVER NOTE NO.: 94-202
(REVISED)
EFFECTED WITH:
IOA Re on behalf of Associated Accident and Health Reinsurance Underwriters
Group
PLEASE READ THIS DOCUMENT VERY CAREFULLY. THIS IS CONFIRMATION AND EVIDENCE THAT
REINSURANCE HAS BEEN EFFECTED IN ACCORDANCE WITH THIS COVER NOTE WITH REINSURERS
AS INDICATED. REINSURERS PARTICIPATING ON THIS REINSURANCE HAVE BEEN REVIEWED
AND HAVE BEEN ACKNOWLEDGED AND APPROVED AS QUALIFIED REINSURANCE SECURITY BY
YOUR COMPANY. ANY DISCREPANCIES, INACCURACIES OR NECESSARY CHANGES MUST BE
CORRECTED AT ONCE. IF INCORRECT, PLEASE RETURN THIS COVER NOTE IMMEDIATELY. IF
CORRECT, PLEASE SIGN AND RETURN THIS COVER NOTE.
Sincerely,
COMBINED INTERMEDIARIES OF AMERICA, INC.
Alan G. Hardin, Jr.
- ------------------------------
Alan G. Hardin, Jr.
President
Acknowledged: [SIG] Date: Oct 3, 1994
------------------------------- ------------
Alpine Insurance Company
Acknowledged: [SIG] Date: 10 6, 1994
------------------------------- ----------
TCO Insurance Services for and
on behalf of Transco Syndicate,
Inc.
PAGE 5
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 6
COVER NOTE NO.: 94-202
EXHIBIT I
LOWER LAYER EMPLOYERS EXCESS INDEMNITY
CSL SCHEDULE
$1,000 DEDUCTIBLE
Limit AAA AA A B C/SR
----- --- -- - - ----
$ 25,000 6.82 7.91 21.24 24.64 33.19
$ 50,000 10.24 11.88 31.89 37.00 49.83
$100,000 15.90 18.47 49.60 57.49 77.45
$150,000 20.29 23.53 63.19 73.31 98.74
$200,000 22.28 25.84 69.39 80.50 108.43
$250,000 24.68 28.63 76.87 89.17 120.11
$500,000 28.43 32.76 84.30 97.16 137.96
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 7
COVER NOTE NO.: 94-202
EXHIBIT II
ADDITIONAL PREMIUM FOR HIGHER ACCIDENT
WEEKLY INDEMNITY LIMITS
(To be Added to Base Rates)
AAA/AA A B C/SR
------ - - ----
350 .85 .90 .95 1.13
400 1.42 1.47 1.52 1.70
500 1.72 1.77 1.82 2.00
600 1.97 2.02 2.07 2.25
700 2.22 2.27 2.32 2.50
800 2.47 2.52 2.57 2.75
900 2.72 2.77 2.82 3.00
1,000 2.97 3.02 3.07 3.25
DEBITS/CREDITS
Deductibles $0 +65% $100 +50%
$250 +20% $500 +10%
$2,000 -8% $5,000 -15%
$10,000 -20% $15,000 -25%
Increased Deductible credits are determined by first
calculating the premium for the deductible and subtracting it
from the total charge.
Extended Benefits All base rates are for 52 weeks and 75% of weekly wage.
104 weeks + 10% 156 weeks + 17%
Full EEII benefit period with 3 year sunset/commutation +25%
From 75% to 100% of weekly wage +5%
Group Discount (Based on number of employees at inception of the policy)
26-50 15% 51-100 25%
101-250 35% 251-1000 40%
1001+ 42.5%
Underwriting +Unlimited
-30%
-15% for deletion of legal liability, punitive damages and
defense costs
COMBINED INTERMEDIARIES OF AMERICA, INC.
<PAGE> 1
EXHIBIT 10.74
- --------------------------------------------------------------------------------
ALPINE INSURANCE COMPANY
CHICAGO, ILLINOIS
REINSURANCE CONFIRMATION
CEDENT: Alpine Insurance Company, Chicago, Illinois, in respect of
business written by TCO Insurance Services Inc./Trinity MGA
Insurance Services, Inc., Bermuda Dunes, California (hereinafter
called the "Company").
TYPE OF Casualty Excess of Loss Reinsurance Agreement.
CONTRACT:
CLASS OF New and renewal business classified by the company as General
BUSINESS: Liability, Non-Owned Automobile Liability, Employers Liability,
and Liquor Liability.
ACCOUNT BASIS: Underwriting Year (risks attaching).
COVER: $750,000 excess of $250,000 each Policy, each Loss Occurrence.
TERM: Effective 12:01 a.m., Pacific Standard Time, May 1, 1995;
expires 12:01 a.m., Pacific Standard Time, May 1, 1996.
Runoff to natural expiration or anniversary, not to exceed 12
months plus up to 6 months oddtime, not to exceed 18 months in
all. However, Company has option for cutoff, with return of
unearned premium portfolio.
TERRITORY: Losses arising from insureds domiciled or with operations in
California.
EXCLUSIONS: Attached.
PREMIUM: Adjustable at 17.5% of NWPI. NWPI defined as original gross
premium less acquisition costs, which are not to exceed 30%.
PROFIT 33.33% after 10% RHOE. The first calculation shall be 12 months
COMMISSION: following the end of the first Agreement Year and annually
thereafter until all losses are settled and final. Unlimited
deficit carry forward.
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 REINSURANCE SERVICES
APRIL 21, 1995 PAGE 1
<PAGE> 2
IBNR factors as follows:
First Adjustment 60%
Second Adjustment 40%
Third Adjustment 25%
All Adjustments Thereafter 0%
IBNR Factors are to be applied to the earned reinsurance
premium.
Payment Schedule:
First Adjustment: 25% of Profit Commission due.
Second Adjustment: 50% of Profit Commission due, less previous
payments.
Third Adjustment: 75% of Profit Commission due, less previous
payments.
Fourth and Subsequent Adjustments: 100% of Profit Commission
due, less previous payments.
REPORTS: Quarterly reports, bordereau and remittance within 60 days.
GENERAL
CONDITIONS: Subject to the following:
Definitions.
Loss Occurrence Definition.
Net Retained Lines.
Ultimate Net Loss (LAE pro rata in addition to limit).
Other Reinsurance.
Notice of Loss and Loss Settlements.
Salvage and Subrogation.
Liability to Reinsurers/Follow the fortunes.
Commutation - at Company's option
Extra Contractual Obligations (80% coverage within
treaty limits).
Loss in Excess of Policy Limits (80% coverage).
Original Conditions.
Insolvency.
Service of Suit.
Accounting.
Other Terms and Conditions.
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 REINSURANCE SERVICES
APRIL 21, 1995 PAGE 2
<PAGE> 3
Subject to the following BRMA Clauses:
BRMA 1C -Access to Records
BRMA 6J -Arbitration
BRMA 12A -Currency
BRMA 14C -Errors and Omissions
BRMA 23A -Intermediary (E. W. Blanch Co.)
BRMA 32A -Net Retained Lines
BRMA 36C -Offset
BRMA 50A -Taxes
BRMA 55C -Unauthorized Reinsurance
INFORMATION: Estimated GNWPI, 5/1/95 - 5/1/96: $4,250,000.
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 REINSURANCE SERVICES
APRIL 21, 1995 PAGE 3
<PAGE> 4
EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Assumed treaty reinsurance.
2. Pollution liability, as excluded in Subject Policies.
3. Aircraft or airports as respects coverage for all liability arising out
of ownership, maintenance or use of any aircraft or flight operations,
except for:
a. Industrial aid, pleasure or business craft when written as incidental
to the original policy;
b. Landing strips without towers or aircraft servicing.
4. Known aircraft mechanical or structural products pertaining to the
airworthiness of any aircraft.
5. Products recall expenses, warranty liability or tampering liability
when written as such.
6. Operations of railroads and subways, provided, however, this exclusion
shall not apply to risks operating exclusively within the insureds
premises and which are incidental to the overall operations of the
insured.
7. An oil refinery's actual operations.
8. Asbestos liability, as excluded in Subject Policies.
9. Financial guarantee and insolvency.
10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability - Reinsurance" attached to and forming part of this Contract.
11. Disposal of hazardous chemicals or hazardous waste including
transporters, contractors or waste site operators, provided, however,
that this exclusion shall not apply to risks classified by the Company
as "residential waste haulers".
12. Manufacture, handling, storage or transportation of any explosive
substance intended for use as an explosive ("explosive substance" being
defined as any substance manufactured for the express purpose of
exploding as differentiated from other commodities used industrially and
which are only fortuitously explosive, such as gasoline, fuel gasses and
dyestuffs).
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 Reinsurance Services
April 21, 1995 Page 4
<PAGE> 5
13. Health hazard liability on tobacco products manufacturers.
14. Motor vehicle racing, unless incidental to the insured's primary operation.
15. Fidelity or crime coverage for financial institutions.
16. Medical Malpractice or other areas of professional liability (other than
Medical Malpractice) unless the professional exposure is considered to be
incidental (it being understood that this exclusion shall not apply to
druggists, pharmacists, morticians, cemeteries, health studios and reducing
salons liability).
17. Political risk or credit insurance.
18. Underground mine operations.
19. SEC liability.
20. All liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund ("insolvency fund" being defined to
include any guaranty fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company of
part or all of any claim, debt, charge, fee or other obligation of an
insurer, or its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise deemed unable to
meet any claim, debt, charge, fee or other obligation in whole or in part.
21. Pools and associations, being liability assumed by the Company, directly or
indirectly as a participant in or assuming member of reinsurer of any pool
or association.
22. Workers' Compensation (including occupational disease) and Employers
Liability insurances unless included in a package or umbrella policy. This
exclusion shall not apply to contingent Employers Liability ("Stop Gap")
coverage that may be attached to Comprehensive General Liability policies in
the State of Washington.
23. Circuses and power-driven amusement devices.
24. Fire, police or salvage equipment unless written as a minor part of a fleet
of other vehicles which are or otherwise excluded (it being understood that
the term "salvage equipment" applies to equipment working in conjunction
with fire departments and assigned to answer emergency alarms.
25. Long-haul trucking (generally being understood as regular operations to
locations more than 300 miles from the insured's base or bases or
operations).
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 Reinsurance Services
April 21, 1995 Page 5
<PAGE> 6
26. Ocean Marine business and all forms of legal liability arising out of
the operation or navigation of ships or vessels, provided, however,
this exclusion shall not apply to business classified by the Company as
Inland Marine.
27. Loss caused directly or indirectly by war, whether or not declared,
civil war, insurrection, rebellion or revolution or any act or
condition incident to the foregoing.
28. Agricultural spraying and exterminators.
B. The exclusions enumerated above, other than 1,2,8,9,10,13,19,20 and 21
shall not apply when the items or activities enumerated are merely
incidental to the main operations of the insured or when the insured's
services are sub-contracted for on a limited time basis to perform services
for an excluded entity provided such main operations are covered by Subject
Policies and are not themselves excluded from the scope of the Contract.
The Company shall be the sole judge of what is "incidental" for purposes of
this Article.
C. Should the Company, by reason of an inadvertent act, error or omission, be
bound to afford coverage excluded hereunder, the Reinsurer shall waive the
exclusions. The duration of said waiver shall not extend beyond the time
that notice of such coverage has been received by the responsible
underwriting authorities of the Company (being defined as the Senior Vice
Presidents, Underwriting, or their equivalents) plus the minimum time
period required thereafter for the Company to terminate such coverage.
D. The Company may submit to the Reinsurer, for special acceptance hereunder,
business not covered by this Contract. If such business is specially
accepted by the Reinsurer, it will be subject to the terms of this
Contract, except as this Contract's terms are modified by the special
acceptance. Any special acceptance business covered under the reinsurance
agreement that is replaced by this Contract, if any, shall be automatically
covered hereunder. Further, should any subscribing reinsurer become a party
to this Contract subsequent to the acceptance of any business not normally
covered hereunder, said subscribing reinsurer(s) automatically shall accept
such business as being part of this Contract.
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
ALPINE INS/TRINITY MGA IS CASUALTY XOL-4799 Reinsurance Services
April 21, 1995 Page 6
<PAGE> 7
April 21, 1995
E. W. Blanch Co., Inc.
One Liberty Place
1650 Market Street, Suite 2700
Philadelphia, PA 19103-7301
PLACEMENT CONFIRMATION LETTER
Alpine Insurance Company
Casualty Excess of Loss
Effective: May 1,1995
This confirms that Alpine Insurance Company accepts the Terms and Conditions
outlined in E. W. Blanch Co. Reinsurance Confirmation of April 21, 1995.
In addition, this confirms that Alpine Insurance Company has authorized and
directed E. W. Blanch Co. to place the subject business with those reinsurers
listed in E. W. Blanch Co. Reinsurance Confirmation of April 21, 1995.
Sincerely,
Alpine Insurance Company
By: [SIG]
--------------------------------
Title: Sr. V.P./Secretary/General Counsel
-----------------------------------
Date: April 26, 1995
--------------
<PAGE> 1
EXHIBIT 10.75
[CARVILL AMERICA LETTERHEAD]
6 February 1995
Carvill America
Prudential Plaza
180 North Stetson Avenue
Suite 5100
Chicago, Illinois 60601
REINSURANCE COVER NOTE: 95/0640/IL
This is to certify that, in accordance with your instructions, we have effected
the following placement. Please examine this Cover Note carefully and advise us
immediately if it is in any way incorrect or does not otherwise meet your
requirements.
REASSURED: ALPINE INSURANCE COMPANY, Chicago, Illinois and its
subsidiary, affiliated or associated companies, in
respect of business administered and serviced by TCO
Insurance Services Inc. of Chicago, Illinois.
PERIOD: Contract from 1st January 1995 to 31st December 1995,
both days inclusive, in respect of claims made on risks
attaching during the period hereof.
At the termination hereof, in force business shall run
off until expiration, cancellation or next premium
anniversary of such business, whichever occurs first,
but not to exceed 12 months plus "odd time", not to
exceed 18 months in all, from the date of Termination.
The foregoing shall not apply however to:
a) policies providing "discovery period" coverage -
then run off shall be until the natural expiration
of such coverage period except where governed by
state regulations in which case the coverage
period shall be contained to the number of years
required by such regulations.
b) policies the Reassured is unable to cancel or non
renew by virtue of state regulations - then
coverage shall be afforded hereunder until the
first opportunity the Reassured is permitted to
cancel or non renew such policies. If such
coverage is granted under the renewal of this
contract, then these policies will attach to the
renewal contract at their next premium anniversary
date after 31st December 1995.
TYPE: EXCESS OF LOSS REINSURANCE TREATY
CLASS: Architects and Engineers Professional Liability
Policies underwritten and declared by TCO Insurance
Services Inc. of Chicago, Illinois, (the "Manager").
<PAGE> 2
[CARVILL AMERICA LETTERHEAD]
LIMITS: To pay up to US$1,750,000 Ultimate Net Loss, each and
every loss, each insured.
EXCESS OF
US $250,000 Ultimate Net Loss, each and every loss,
each insured.
Subject to an aggregate limit of liability to
Reinsurers hereon for contract period equivalent to:
130% of the sum of:
1. The Subject Gross Net Written Premium Income
derived from limits up to $1,000,000 and,
2. The Original Gross Written Premium derived from
limits greater than $1,000,000 up to $2,000,000.
OR
$6,000,000, whichever the greater, for the contract
period.
PREMIUM: A) Applicable to the Gross Net Written Premium
derived from limits up to $1,000,000.
Provisional Premium payable to Reinsurers within
45 days after the close of each calendar quarter
at the Provisional Rate of 12.5% of the Subject
Gross Net Written Premium Income.
Final Adjusted Premium hereunder to be the amount
arrived at by adding 110% of the Incurred Loss
Cost up to the first $750,000 of Ultimate Net Loss
hereunder (including Loss Adjustment Expenses
and/or any Judgement in Excess of Policy Limits
awards and/or Extra-Contractual Obligations
awards) for the period to an amount equal to 8% of
the subject Gross Net Written Premium Income for
the period. The premium adjustment for the period
to be calculated at 31st December, 1996 and
annually thereafter until all liability hereunder
has been exhausted.
However the final premium developed as above shall
not exceed a maximum rate of 32.4% of the subject
Gross Net Written Premium Income for the contract
period.
Subject Gross Net Written Premium Income to be the
Reassured's original gross premium for limits of
up to US$1,000,000.
<PAGE> 3
[CARVILL AMERICA LETTERHEAD]
B) Applicable to the Original Gross Written Premium
derived from Limits greater than $1,000,000 up to
$2,000,000.
Original Net Premium for policies issued with
limits greater than $1,000,000. Written Premium
Basis. To be not less than 35% of Premium deriving
from underlying $1,000,000 limits.
Reassured to submit Quarterly Premium Accounts and
settlement within 45 days of the close of each
quarter.
Original Net Premium = Original Gross Premium Less
30% Ceding Commission. (Any amendments thereto to
be agreed by Underwriters).
DEDUCTIONS: A) 1% Federal Excise Tax where applicable.
B) 1% Federal Excise Tax where applicable.
GENERAL: Ultimate Net Loss Clause, including costs, and/or
CONDITIONS Extra-Contractual Obligations, and/or awards in excess
of original policy limits. Such awards shall be fully
covered hereunder in addition to the limit hereof, but
not exceeding one further limit of US$1,750,000.
It is further understood that for the purpose of
calculating any recoveries hereunder, the Ultimate Net
Loss may include the original policy deductible until
such deductible is paid to the Reassured by the
original insured, when the Ultimate Net Loss shall be
reduced to the benefit of Reinsurers hereon.
Net Retained Lines Clause.
Reassured may purchase Reinsurance protection in
respect of the underlying, which will be disregarded
for the purposes of this contract.
Notice of Loss and Loss Settlements Clause.
Extra-Contractual Obligations Clause.
Excess of Original Policy Limits Clause.
Off Set Clause (Reinsurance). (This Contract only.)
Insolvency Clause.
Inspection Clause.
Arbitration Clause.
Service of Suit Clause - NMA 1998.
<PAGE> 4
[CARVILL AMERICA LETTERHEAD]
Nuclear Incident Exclusion Clause - Liability -
Reinsurance - U.S.A. Commutation clause, at Reassured's
option, 12 months after expiry of contract period, or
at any time thereafter. Basis and wording to be agreed
by Underwriters.
Exclusion of Seepage and Pollution - each original
policy to contain a Seepage and Pollution Exclusion to
be agreed by Underwriters. Subject to the limits
hereof, Reinsurers to follow any liability of the
Reassured arising from the interpretation of said
policy exclusion.
Excluding all Firms with rateable billings excess
US$7,500,000 unless specially agreed by Underwriters.
Carvill America Intermediary Clause. All Reinsurers
hereon must comply with Section 173.1 of The Illinois
Insurance Code entitled "Credit For Reinsurance".
Several Liability Notice
The subscribing reinsurers' obligations under contracts
of reinsurance to which they subscribe are several and
not joint and are limited solely to the extent of their
individual subscriptions. The subscribing reinsurers
are not responsible for the subscription of any
co-subscribing reinsurer who for any reason does not
satisfy all or part of its obligations. - Ref. LSW 1001
(Reinsurance).
WORDING: Wording and Exclusions to be agreed by Underwriters.
HEREON: 100% of the above LIMIT and PREMIUM.
EFFECTED WITH: LLOYD'S UNDERWRITERS
London, England.
CARVILL AMERICA
William Shackleton
Senior Vice President
Accepted By: [sig]
-----------------------------
Dated: February 7, 1995
------------------------------
<PAGE> 5
[CARVILL AMERICA LETTERHEAD]
MEMORANDUM OF INTENT
ATTACHING TO ALPINE INSURANCE CO ARCHITECTS AND ENGINEERS
EXCESS OF LOSS
REINSURANCE TREATY
950640IL In the event that TCO Insurance Services Inc. of
Chicago, Illinois (the Manager) wishes to utilise an
additional Issuing Carrier, subject to the approval of
such additional carrier by the Leading Underwriter
only, TCO Insurance Services Inc. will have the option
to adopt the following procedure:
The "Reassured" hereon will be amended to read as
follows:
Reassured: Alpine Insurance Company, Chicago, Illinois
and its subsidiary, affiliated or associated companies,
and XYZ Ins Co, in respect of business administered and
serviced by TCO Insurance Services Inc.
The inclusion of any additional carrier to be agreed by
Underwriters. Approval of all necessary wording
establishing the contractual relationship between the
additional carrier and TCO Insurance Services Inc. also
to be agreed by Underwriters prior to the inclusion of
said additional carrier.
INFORMATION: The agreement previously granted by Reinsurers hereon
(as per Memorandum dated 13th June 1991) is maintained
subject to the application of the above Memorandum of
Intent.
<PAGE> 1
EXHIBIT 10.76
COMMUTATION AGREEMENT AND RELEASE
between
TRANSCO SYNDICATE #1, LTD.,
ALPINE INSURANCE COMPANY
and their subsidiary, affiliated or associated companies
(hereinafter collectively referred to as the "Company")
and
RE CAPITAL REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Reinsurer")
This Commutation Agreement and Release is entered into by and between the
Company and ZRC and shall be effective April 15, 1995 ("the Commutation Date").
WHEREAS, the Company and the Reinsurer entered into Casualty Excess of
Loss Agreements effective for the periods (i) commencing 12:01 A.M., January 1,
1991 and ending Midnight, December 31, 1991; (ii) commencing 12:01 A.M., January
1, 1992 and ending Midnight, December 31, 1992; and (iii) commencing 12:01 A.M.,
January 1, 1993 and ending Midnight, December 31, 1993 (collectively referred to
as the "Contracts"); and
WHEREAS, pursuant to the Contracts, the Reinsurer was obligated to
reinsure certain risks insured by the Company in consideration of payment of
premium; and
WHEREAS, the Reinsurer and Zurich Reinsurance Centre, Inc. ("ZRC")
entered into an Asset Transfer and Assumption Agreement dated as of April 26,
1995, pursuant to which the Reinsurer assigned and transferred, and ZRC accepted
and assumed, all the rights and obligations of the Reinsurer under and pursuant
to the Contracts; and
WHEREAS, the Reinsurer and the Company desire as of the Commutation
Date to fully and finally settle and commute all obligations and liabilities
known and unknown between them under the Contracts with a Release being given
by the Company to the Reinsurer:
<PAGE> 2
NOW, THEREFORE, IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO THAT:
1. The Reinsurer shall pay to the Company ONE MILLION, EIGHT HUNDRED
NINETY, FOUR HUNDRED TWENTY-TWO ($1,890,422.00) DOLLARS (the
"Commutation Payment") within ten (10) working days from the date the
Reinsurer receives a duly executed original copy of this Commutation
Agreement and Release from the Company.
2. The Company shall accept the sum set forth in Paragraph 1 above as the
total amount due in full and final settlement of any and all amounts
due from the Reinsurer to the Company under the Contracts heretofore
entered into between the parties and the parties agree that no further
adjustments of any kind shall be required to be made pursuant to the
Contracts, including, without limitation, Article XI (Commutation)
thereof.
3. Subject only to receipt of the Commutation Payment, the Company hereby
releases and discharges the Reinsurer, its past, present and future
directors, officers, employees, consultants, attorneys, agents,
administrators, successors, assigns and receivers from any and all
past, present and future claims, causes of action, liabilities and
obligations arising under or related, directly or indirectly, to the
Contracts or the administration thereof, whether known or unknown,
reported or unreported, and whether currently existing or arising in
the future, including but not limited to: any and all past present and
future payment obligations, adjustments, setoffs, actions, omissions,
causes of action, suits, debts, sums of money, accounts, demands,
covenants, controversies, bonds, bills, promises, damages, judgments,
claims, costs, expenses, losses, representations and warranties
whatsoever; it being the intention of the parties that this
commutation and release shall operate as a full and final settlement
of the Reinsurer's past, current and future liabilities to the Company
in respect of the Contracts. The Company acknowledges the
aforementioned payment as a complete accord, satisfaction, settlement
and commutation of all the Reinsurer's liabilities and obligations
under the Contracts and agrees to indemnify and hold the Reinsurer
harmless from and against any and all liabilities, costs, damages and
expenses, including without limitation, attorney's fees, incurred in
connection with any and all claims or actions against the Company or
the Reinsurer, or either of their successors or assigns, arising under
or related to the said reinsurance agreement.
4. Effective on the same date on which the Company shall release and
discharge the Reinsurer as provided in Paragraph 3 of this Commutation
and Release Agreement, the Reinsurer shall release and discharge the
Company, its past, present and future directors, officers, employees,
consultants, attorneys, agents, administrators, successors, assigns
and receivers from any and all past, present and future claims,
causes of action, liabilities and obligations arising under or
<PAGE> 3
related directly or indirectly to the Contracts, other than any
liabilities or obligations under or pursuant to this Commutation
Agreement and Release, whether known or unknown, reported or
unreported, and whether currently existing or arising in the future,
including but not limited to: any and all past, present and future
payment obligations, adjustments, setoffs, actions, omissions, causes
of action, suits, debts, sums of money, accounts, demands. covenants,
controversies, bonds bills, promises, damages, judgments, claims,
costs, expenses, losses, representations and warranties whatsoever; it
being the intention of the parties that this commutation and release
shall operate as a full and final settlement of the Company's past,
current and future liabilities to the Reinsurer under said Contracts.
5. The rights, duties and obligations set forth herein shall inure to the
benefit of and be binding upon any and all predecessors, successors,
affiliates, officers, directors, employees, parents, subsidiaries,
stockholders, receivers and assigns of the parties hereto.
6. The parties hereto expressly warrant and represent that the execution
of this Commutation and Release Agreement is fully authorized by each
of them; that the person or persons executing this document have the
necessary and appropriate authority to do so; that there are no
pending agreements, transactions, or negotiations to which any of them
are a party that would render this Agreement or any part hereof void,
voidable, or unenforceable.
7. This Agreement contains the entire agreement between the parties as
respects its subject matter. All prior discussions and agreements
between the parties concerning the subject matter herein are merged
into this Agreement. This Commutation Agreement and Release shall
neither be modified or amended, nor any of its provisions waived
except by a written agreement signed by the parties hereto.
8. The parties acknowledge that they may hereafter discover facts
different from or in addition to those now known or believed to be
true regarding the subject matter of this Commutation and agree that
this Commutation shall remain in full force and effect,
notwithstanding the existence of any such different or additional
facts.
9. This Commutation Agreement and Release shall be interpreted and
governed by the laws of the State of New York without consideration as
to its conflict of law principles.
10. In the event of a material breach of this Commutation Agreement and
Release (including without limitation, failure of consideration), the
non-breaching party shall have all rights and remedies available at
common law. In such event, the non-breaching party shall have the
right to exercise any of the following remedies:
<PAGE> 4
(a) The right to bring suit on the Commutation Agreement and Release
and the right to reasonable attorneys' fees, costs and interest; or
(b) The right to deem the Commutation Agreement and Release null and
void and to enforce the original Contracts as if this Agreement did not
exist.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Commutation Agreement
and Release to be executed in duplicate by their duly authorized
representatives.
ZURICH REINSURANCE CENTRE, INC. on behalf of
RE CAPITAL REINSURANCE CORPORATION
BY: [sig]
------------------------
TITLE: Senior Vice President
------------------------
DATE: June 19, 1995
------------------------
WITNESS:
-----------------------
TRANSCO SYNDICATE #1, LTD.
BY: [sig]
------------------------
TITLE: Secretary/General Counsel
------------------------
DATE: June 20, 1995
------------------------
WITNESS: [sig]
-----------------------
ALPINE INSURANCE COMPANY
BY: [sig]
------------------------
TITLE: Secretary/General Counsel
------------------------
DATE: June 20, 1995
------------------------
WITNESS: [sig]
-----------------------
<PAGE> 1
EXHIBIT 10.77
SECURED PROMISSORY NOTE
$12,313,625 December 31, 1995
Concord, California
This Secured Promissory Note ("Note") is made as of the date stated
above by JBW & Co., Inc., a California corporation with its principal business
office at 1450-C Enea Circle #690, Concord, California 94524-4064 ("Maker"), to
the order or assigns of Transco Syndicate #1 Ltd., an Illinois corporation with
its principal business office at 311 South Wacker Drive, Suite 500, Chicago,
Illinois 60606 ("Transco").
I
PAYMENT
For value received, Maker promises to pay to the order or assigns of
Transco, at Transco's office at the address stated above or such other place as
Transco may from time to time designate in writing to Maker, the principal sum
of TWELVE MILLION THREE HUNDRED THIRTEEN THOUSAND SIX HUNDRED TWENTY FIVE
DOLLARS ($12,313,625) (the "Principal Amount"). The Principal Amount shall be
payable in installments, with interest thereon, as follows:
1.1 NINE YEAR REPAYMENT OF PRINCIPAL. From the date of execution
of this Note until the entire Principal Amount has been paid, the Principal
Amount shall bear interest at a simple annual rate of seven percent (7%) per
annum. Beginning on January 1, 1996, the Principal Amount shall be amortized
and paid over a nine (9) year period (unless the Principal Amount and accrued
but unpaid interest become payable sooner as provided herein), and shall be
payable, together with interest, in quarterly installments on each March 31,
June 30, September 30, and December 31 of each consecutive year until December
31, 2004, at which time all remaining principal and any accrued but unpaid
interest shall become payable in full. To the extent there is a default in any
installment payment of principal and interest during the 1996 calendar year,
such default shall not be considered an "Event of Default" as defined in this
Note.
1.2 EIGHT YEAR REPAYMENT OF PRINCIPAL. Beginning on January 1,
1997, the remaining Principal Amount and any accrued but unpaid interest (which
shall then become the Principal Amount) shall be amortized and paid over an
eight (8) year period (unless the such amounts become payable sooner as
provided herein), and shall be payable, together with interest at a simple
annual rate of seven percent (7%) per annum, in quarterly installments on each
March 31, June 30, September 30, and December 31 of each consecutive year until
December 31, 2004, at which time all remaining principal and any accrued but
unpaid interest shall become payable in full.
<PAGE> 2
1.3 APPLICABLE CURRENCY. (a) All amounts set forth herein are
stated in United States Dollars. All principal and interest payments hereunder
shall be paid in lawful money of the United States, or in securities listed on a
national securities exchange or quoted in the automated quotation system of the
National Association of Securities Dealers, Inc. with a fair market value on
the date of payment equal to 105% of the amount of the payment required to be
made by Maker on such date, or Maker may make such payments by conveying free
and clear title (CTLA title insurable) to that certain improved real property
described as 3192 17 Mile Drive, Pebble Beach, California and being Monterey
County Assessor's Parcel No. 008-453-009, County of Monterey, State of
California. (b) If securities are used for such principal and interest
payments, then such securities must be unrestricted and freely tradeable in
accordance with all applicable federal and state securities laws, and may not
(together with any other securities previously transferred to Transco in
payment of Maker's obligations hereunder) represent more than 15% of the
outstanding equity interests in any single entity or group of affiliated
entities. In the event that, within two business days following receipt of
such securities from Maker, Transco sells any or all of such securities through
the exchange or quotation system on which they are listed and receives through
such sale an amount less than the payment required under this Note (determined
pro rata on the basis of the number of securities sold), Maker shall pay the
deficit to Transco in cash within one business day following receipt of notice
of such deficit from Transco. (c) If the real property is used for such
principal and interest payments, the equivalent amount of cash of such payments
shall be deemed to be $12,313,625 unless the then current appraisals (i.e., as
of the date of transfer/payment) shows a fair market value less than
$11,500,000. Any remaining principal and accrued but unpaid interest and any
amount by which the fair market value of the real property is less than
$11,500,000 following application of the real property as payment shall be paid
to Maker in the form of the money of the United States, listed securities as
defined herein, or a combination thereof. (d) All payments shall first be
applied to interest then due, with the remainder to principal.
1.4 OPTIONAL PRE-PAYMENTS. Maker may prepay the indebtedness
evidenced by this Note, in whole or in part, without premium or penalty, at
any time or from time to time, upon thirty (30) days' prior notice to Transco.
Any prepayments shall be applied first to accrued but unpaid interest due
hereunder, and second to the outstanding Principal Amount hereof. Any partial
prepayment shall not postpone the due date of any subsequent installments of
principal and interest, or change the amount of any such installment, unless
Transco shall otherwise agree in writing.
II
SECURITY, DEFAULTS AND REMEDIES
2.1 SECURITY FOR PAYMENT. As security for Maker's obligations
under this Note, Jeffery Beresford-Wood, an individual ("Beresford-Wood"), as
ultimate owner of Maker and Concord General Corporation, a California
corporation ("Concord"), is concurrently causing Concord to initially pledge to
Transco a minimum of 81% of the
2
<PAGE> 3
outstanding stock of Classic Fire & Marine Insurance Company, an Indiana
insurance corporation which is the wholly owned subsidiary of Concord ("CF&M").
Such pledge shall be made in accordance with the terms of a pledge agreement
in the form attached hereto as Exhibit A (the "Pledge Agreement") which shall
be executed by JBW, Beresford-Wood and Concord and delivered to Transco
concurrently with Maker's execution of this Note. As additional security for
Maker's performance under this Note, Beresford-Wood and Concord shall guarantee
Maker's obligations hereunder as described in Section 2.2 below.
2.2 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Note: (A) Any payment due under
this Note after January 1, 1997 which is not paid on the date the same becomes
due and Maker, Beresford-Wood or Concord has not cured such late payment within
sixty (60) days following receipt of notice of non-payment from Transco; (B)
Maker commences any case, proceeding or other action (i) under any existing or
future law relating to bankruptcy, insolvency or reorganization seeking to have
an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, winding-up, liquidation or
other relief with respect to it, or (ii) seeking appointment of a receiver,
trustee or custodian for it or for all or any substantial part of its
properties or assets; (C) Commencement against Maker of any case, proceeding or
other action of a nature referred to in clause (B) above which (i) results in
the entry of an order for relief, or an adjudication or appointment described
in Clause (B) above, or (ii) remains undismissed, undischarged, unstayed or
unbonded for a period of 60 days following its initiation; (D) Beresford-Wood
or Concord Commences any case, proceeding or other action (i) under any
existing or future law relating to bankruptcy, insolvency or reorganization
seeking to have an order for relief entered with respect to him or it, or
seeking to adjudicate him or it a bankrupt or insolvent, or seeking
reorganization, winding-up, liquidation or other relief with respect to him or
it, or (ii) seeking appointment of a receiver, trustee or custodian for him or
it or for all or any substantial part of his or its properties or assets; (E)
Commencement against Beresford-Wood or Concord of any case, proceeding or
other action of a nature referred to in clause (D) above which (i) results in
the entry of an order for relief, or an adjudication or appointment described
in clause (D) above, or (ii) remains undismissed, undischarged, unstayed or
unbonded for a period of 60 days following its initiation; or (F) Pledgors
refuse to pledge additional assets to maintain the required value of the
Collateral hereunder under circumstances where Pledgors do have such additional
assets readily available.
Upon the occurrence of an Event of Default as described in clause (A), (D),
(E), or (F) of this Section 2.2, and which is not cured within sixty (60) days
following receipt of notice of such Event of Default, the entire unpaid
Principal Amount under this Note, together with interest accrued thereon, shall
become immediately due and payable without notice or demand. Upon the
occurrence of an Event of Default as described in clause (B) or (C) of this
Section 2.2, Beresford-Wood and Concord shall be jointly and severally
obligated to make all payments of principal and interest as described in
Article I hereof in the place of Maker and shall assume all other obligations
of Maker hereunder. The failure of Maker,
3
<PAGE> 4
Beresford-Wood or Concord to maintain the required value of pledged assets
following their initial pledge of CF&M Stock and/or Concord Stock under the
Pledge Agreement shall not constitute an Event of Default.
2.3 Default Interest Rate. Following an Event of Default as described in
clause (A), (D), (E), or (F) of the foregoing Section 2.2, and which is not
cured within sixty (60) days following receipt of notice of such Event of
Default from Transco, interest shall accrue on the unpaid principal balance
hereunder at a rate equal to nine percent (9%) per annum.
III
OTHER MATTERS
3.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission (with a copy also sent by another means herein provided
for), sent by certified, registered or express mail, postage prepaid or sent by
reputable air or overnight courier. Any such notice shall be deemed given when
so delivered personally or sent by facsimile transmission (with issuance by the
transmitting machine of a confirmation of successful transmission) or, if
mailed, five days after the date of deposit in the United States mail, or, if
sent by courier, two days after the date of deposit with such courier, address
as follows:
if to Maker (iii) if to Concord:
JBW & Co., Inc. Concord General Corporation
1450-C Enea Circle #690 1450-C Enea Circle #690
Concord, CA 94524-4064 Concord, CA 94524-4064
Facsimile: (510) 680-1404 Facsimile: (510) 680-1404
Attention: Brian Bethke Attention: Brian Bethke
(ii) if to Beresford-Wood: (iv) if to Transco:
Jeffery Beresford-Wood Transco Syndicate #1 Ltd.
1450-C Enea Circle #690 311 South Wacker Drive, Suite 500
Concord, CA 94524-4064 Chicago, IL 60606
Facsimile: (510) 680-1404 Facsimile: (312) 347-1403
Attention: John T. Clark
3.2 Governing Law. This Note and the rights and duties of Maker, Concord
and Beresford-Wood and of the holder and any endorsers hereof shall be governed
by the internal laws of the State of Illinois without regard to principles of
conflicts of law.
4
<PAGE> 5
3.3 Authority. Maker, Concord and Beresford-Wood represent and warrant
that they have full power and authority to execute and deliver this Note and
that the indebtedness evidenced hereby constitutes their valid and binding
obligation, strictly enforceable in accordance with its terms.
3.4 Attorneys' Fees. If any attorney is engaged (a) to collect the
indebtedness evidenced hereby, whether or not legal proceedings are thereafter
instituted by Transco; (b) to represent Transco in any bankruptcy,
reorganization, receivership, or other proceedings affecting creditor's rights
and involving a claim under this Note; (c) to protect the lien under the Pledge
Agreement; or (d) to represent Transco in any other proceedings whatsoever in
connection with the obligations of Maker, Concord or Beresford-Wood hereunder,
then Maker, Concord and Beresford-Wood shall pay to Transco all reasonable
attorneys' fees and expenses incurred in connection therewith, in addition to
all other amounts due hereunder.
3.5 Nature of Remedies. Transco's remedies under this Note and under the
Pledge Agreement shall be cumulative and concurrent and may be pursued
singly, successively, or together against Maker, Concord, Beresford-Wood and
any security described in the Pledge Agreement or any portion or combination
thereof, and Transco may resort to every other right or remedy available at law
or in equity without first exhausting the rights and remedies contained herein,
all in Transco's sole discretion. Transco shall not by any other omission or
act be deemed to waive any of its rights or remedies hereunder unless such
waiver is in writing and signed by Transco, and then only to the extent
specifically set forth therein. A waiver in connection with one event shall
not be construed as continuing or as a bar to or as a waiver of any right or
remedy in connection with a subsequent event.
3.6 Waivers, Consents, Etc. Maker, Concord and Beresford-Wood agree
to, (a) waive presentment and demand for payment, notices of nonpayment and of
dishonor, protest of dishonor, and notice of protest; (b) waive all notices in
connection with the delivery and acceptance hereof and, except as expressly
provided to the contrary herein or in the Pledge Agreement, all other notices in
connection with the performance, default, or enforcement of the payment hereof
or hereunder; (c) waive any and all lack of diligence and delays in the
enforcement of the payment hereof; and (d) consent to any and all extensions of
time, renewals, waivers, or modifications that may be granted by Transco with
respect to the payment or other provisions hereof, and to the release of any
security at any time given for the payment hereof, or any part thereof, with or
without substitution, and to the release of any person or entity liable for the
payment hereof.
3.7 Successors. This Note shall inure to the benefit of Transco and its
successors and assigns and shall be binding upon Maker, Concord, Beresford-Wood
and their successors and assigns. Without limiting the generality of the
foregoing, Transco, or its successor or assigns, may from time to time and
without notice to Maker, Concord or Beresford-Wood, assign any or all of its
rights under this Note without in any way affecting or diminishing the
obligations of Maker, Concord or Beresford-Wood hereunder.
5
<PAGE> 6
IN WITNESS WHEREOF, Maker, Concord and Beresford-Wood have caused this
Note to be executed as of the date first written above.
JBW & Co., Inc.
By: Thomas Thie
-----------------------------
Its: President
-----------------------------
Concord General Corporation
By: Ben D. Bett
-----------------------------
Its: C.E.O.
-----------------------------
Jeffery Beresford-Wood
-----------------------------
Jeffery Beresford-Wood
6
<PAGE> 1
EXHIBIT 10.78
PLEDGE AGREEMENT
This AGREEMENT is made as of December 31, 1995, by and between on the one
hand TRANSCO SYNDICATE #1 LTD., an Illinois corporation, of 311 South Wacker
Drive, Suite 500, Chicago, Illinois 60606, (hereinafter "Transco" or
"Pledgee"); and on the other hand JBW & Co. Inc., a California corporation
("JBW"), Concord General Corporation, a California corporation ("Concord"), and
Jeffery W. Beresford-Wood, an individual ("Beresford-Wood"), all in care of
Concord General Corporation, P.O. Box 4064, Concord, California, 94524-4064
(hereinafter collectively referred to as "Pledgors").
Recitals
At the time of the execution of this Agreement, JBW is indebted to Pledgee
in the amount of Twelve Million, Three Hundred Thirteen Thousand, Six Hundred
Twenty Five Dollars ($12,313,625) as a result of Pledgee's exercise of a
conversion option under a Secured Debt Conversion Agreement among Transco, JBW,
Concord, and Beresford-Wood, effective December 31, 1993, under which 1,100
shares of Series A Preferred Stock of JBW owned by Transco, whose stated value
is $10,000.00 per share, were converted to debt of JBW. The debt is evidenced
by the Promissory Note (the "Note") of JBW dated December 31, 1995.
Pursuant to the Note, Beresford-Wood, the ultimate owner of JBW, and
majority owner of Concord, a corporation wholly owned by Beresford-Wood, have
agreed to initially pledge to Transco a minimum of 81% of the outstanding shares
of common stock of Classic Fire & Marine Insurance Company ("CF&M"), an Indiana
insurance corporation wholly owned by Concord (the "CF&M Stock"), and other
assets as necessary to secure the obligations of JBW, Beresford-Wood and Concord
under the Note.
It is therefore agreed:
Pledge
1. (a) As security for the obligations of Pledgors under the Note,
Beresford-Wood and Concord hereby pledge, assign and grant to Transco a valid
and perfected first lien on the CF&M Stock and any other assets pledged by JBW,
Concord and/or Beresford-Wood hereunder. The CF&M Stock, together with any
and all other assets pledged by JBW, Concord and/or Beresford-Wood hereunder,
are hereinafter referred to collectively as the "Collateral." Concurrently with
its execution of this Agreement, Concord shall deliver to Transco the
certificates representing the Collateral, together with assignments separate
from certificate therefor, duly endorsed by Concord. At all times during which
any obligation to Transco under the Note remains unsatisfied, Pledgors agree
to pledge as security for the Note assets which they have available to give
sufficient value so as to maintain a value equal to at least 125% of the
outstanding principal balance owed under the Note. "Value" of the Collateral
shall be determined by combining Securities Valuation Office ("SVO") determined
value of any insurance company stock pledged as Collateral hereunder, together
with the SVO determined value of any non-
1
<PAGE> 2
insurance company stock pledged as Collateral hereunder, which shall be equal
to at least 125% of the outstanding principal balance owed under the Note.
(b) JBW, Beresford-Wood and Concord shall be entitled to
exchange items of Collateral for other Collateral reasonably acceptable to
Transco, provided that, as of the date of each such exchange, the value of the
replacement Collateral, as determined in Section 1.(a) above, is at least equal
to the value of the replaced Collateral.
(c) At all times during which any obligation to Transco under
the Note remains unsatisfied, Concord and Beresford-Wood agree to deliver to
Transco audited financial statements for the period ending the previous
December 31st (i) for CF&M by the following June 1st as long as CF&M Stock is
pledged; and (ii) for Concord by the following June 30th as long as any Concord
Stock is pledged. The initial delivery of such statements will be June 1, 1996
for the December 31, 1995 audited financial statements of CF&M.
Voting Rights
2. During the term of this pledge, and as long as JBW, Concord and
Beresford-Wood are not in default in the performance of any of the terms of
this Pledge Agreement or in the payment of the principal or interest or other
amounts due under the Note, Concord shall have the right to vote the CF&M Stock
and shall have the right to vote any other pledged shares owned by them on all
corporate questions.
Representations
3. Pledgors warrant and represent that there are no restrictions
on the transfer of any of the pledged shares of CF&M Stock, other than as may
appear on the faces of the certificates, and that Pledgors have the right to
transfer the CF&M Stock free of any encumbrances and without obtaining the
consents of the other shareholders or any other person, except as set forth in
the Indiana Insurance Code Holding Company Act. The Pledgors jointly and
severally further warrant and represent as follows:
(a) Concord is the sole, direct, legal and beneficial owner of the
Collateral, pledged hereunder and that it has been duly authorized
and is fully paid and nonassessable and is free and clear of any
lien thereon or affecting title thereto except for the security
interest created by this Pledge Agreement.
(b) The Pledgors have full power and authority to enter into this
Pledge Agreement, and this Pledge Agreement is binding upon them in
accordance with its terms.
(c) There are no restrictions upon the transfer of the Collateral,
nor will there be any such restriction on any other collateral
subsequently pledged hereunder, except as provided by (i) any law
applicable to the sale of securities generally or (ii) the Indiana
Insurance Holding Company Act.
2
<PAGE> 3
(d) No consent, approval, order, or authorization of, or
registration, qualification, designation or filing with, any
federal, regional, state or local governmental authority of the
United States on the part of Pledgors is required in connection with
the pledge of Collateral or consummation of the transactions
contemplated hereunder, except for filings/regulatory approvals,
if any, required pursuant to applicable federal and state insurance
and securities laws, which filings will be made within the required
statutory period.
(e) Pledgors, and each of them, specifically represent and warrant
to Pledgee that the pledge of the Collateral set forth herein shall
not constitute a fraudulent conveyance or a voidable preference
under any state and/or federal law, or any other impermissible
course of conduct, and that Pledgors and their successors and
assigns jointly and severally agree to indemnify and hold Pledgee
harmless from any and all costs, reasonable attorneys' fees and
expenses, and any judgment against Pledgee based upon fraudulent
conveyances or voidable preferences.
Warrants and Rights
4. Pledgors agree that they will not (i) sell, assign or otherwise
dispose of, or grant any option with respect to, the Collateral or any other
collateral pledged hereunder without the prior written consent of the Pledgee,
or (ii) create or permit to exist any lien upon or with respect to the
Collateral or any other collateral pledged hereunder, except for the security
interest granted hereunder.
Perfection of Security Interest in Collateral
5. Pledgors shall take all steps reasonably requested by the Pledgee to
perfect the Pledgee's first lien and security interest in the Collateral to be
delivered to Pledgee pursuant to this Agreement, including, but not limited to,
the execution and delivery of such financing statements as the Pledgee may
request.
Event of Default
6. The occurrence of an Event of Default under the Note or the untruth
or material inaccuracy of any warranty or representation made by any Pledgor
hereunder, shall constitute an Event of Default hereunder.
Remedies Upon Default
7. (a) If an Event of Default allowing foreclosure upon the Collateral
shall occur, Pledgee shall have, in addition to any other rights given under
this Pledge Agreement or by law, all of the rights and remedies with respect to
the pledged Collateral of a secured party under the Uniform Commercial Codes as
in effect in the States of California and Illinois. If the proceeds of any
sale of Collateral under applicable Uniform Commercial Code provisions are
insufficient to
3
<PAGE> 4
cover the principal and interest of the Note plus expenses of the sale,
Pledgors, and each of them, shall remain liable to Pledgee for any deficiency,
in accordance with the provisions set forth in the applicable Commercial Code
Sections.
(b) Upon the occurrence of any default of an Event of Default
allowing foreclosure upon the Collateral, Pledgors agree to use their best
efforts to obtain or to assist Pledgee in obtaining any required regulatory
approval for acquisition of title to all or any of the Collateral pursuant to
this Section 7, including any required request for approval to the Indiana
Department of Insurance.
INDEMNIFICATIONS
8. Pledgors agree to indemnify, defend and hold Pledgee harmless from
any claims, actions, causes of action, liabilities, obligations, losses, or
damages asserted against Pledgee based on or arising out of any acts,
omissions, facts, events, incidents, accident, mismanagement, breach of
fiduciary duty, negligence, or intentional conduct that occur or take place
relating to the collateral pledged hereunder prior to the completion of any
foreclosure proceedings under this Pledge Agreement, other than claims for
benefits under insurance policies issued in the normal course of the business
of CF&M.
IN WITNESS WHEREOF, Pledgors and Pledgees have caused this Pledge
Agreement to be executed as of the date first written above.
PLEDGOR: PLEDGEE:
JBW & CO., INC. TRANSRE SYNDICATE #1 LTD.
A CALIFORNIA CORPORATION AN ILLINOIS CORPORATION
BY: THOMAS THIE BY: [SIG]
--------------------------- ---------------------------------
TITLE: PRESIDENT TITLE: SECRETARY/GENERAL COUNSEL
---------------------- -----------------------------
CONCORD GENERAL CORPORATION
A CALIFORNIA CORPORATION
BY: BEN D. BETT
------------------------
TITLE: C.E.O.
---------------------
JEFFERY W. BERESFORD-WOOD
- ---------------------------
JEFFERY W. BERESFORD-WOOD
an individual
<PAGE> 1
EXHIBIT 10.79
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000 DATE: March 13, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
PERIOD: Continuous Agreement effective from 12:01 a.m., Central
Time, January 1,1996, (warranting no known or reported
losses through January 29, 1996) covering subject
policies written or renewed at or after that time. This
Agreement is subject to cancellation at any January 1,
by any party by giving to the others ninety (90) days
prior written notice of cancellation by certified or
registered mail.
Any such cancellation will be on a "run off" basis or
"cut off" basis, at the REINSURED's option. On a "run
off" basis the REINSURER will remain liable for losses
and allocated loss adjustment expenses on all subject
policies that have expired at the time and date of
cancellation, and all subject policies that are
unexpired at the time and date of cancellation
(including the unexpired portions of such subject
policies) until natural expiration, cancellation or
first anniversary of such policies, whichever occurs
first, but not to exceed twelve (12) months, plus odd
time, to a maximum of eighteen (18) months in all from
the date of cancellation.
On a "cut off" basis the REINSURED will reassume the
net ceded unearned subject premium relating to
unexpired subject policies, and all liability for
losses and allocated loss adjustment expenses relating
thereto (determined as pro rata portions of the total
liability for losses and allocated loss adjustment
expenses relating to such unexpired subject policies,
calculated on the basis of the number of days remaining
in the policy periods divided by the total number of
days in the policy periods), but the REINSURER will
remain liable for losses and allocated loss adjustment
expenses on all expired subject policies and the
balance of the total liability relating to unexpired
subject policies.
Page 1 of 8
<PAGE> 2
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
PERIOD:
(Cont'd.) This Agreement is on a Underwriting Year of Account
basis. The first Underwriting Year of Account is the
period beginning January 1, 1996, through and including
December 31, 1996. Each Underwriting Year of Account
consists of twelve (12) consecutive months beginning
January 1 and ending December 31.
SPECIAL
TERMINATION: Any party may terminate this Agreement at any time with
respect to the affected party or parties by giving it
or them fifteen (15) days prior written notice of
termination by certified or registered mail upon the
happening of any one of the following events of special
termination:
1. The state of domicile of the affected party, or
the Illinois Insurance Exchange in the case of
Transco Syndicate, has ordered the affected party
to cease writing new or renewal business;
2. The affected party has become insolvent or has
been placed into liquidation or receivership
(whether voluntary or involuntary), or there have
been instituted against it proceedings for the
appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy
or other agent known by whatever name, to take
possession of its assets or control of the
affected party's operations;
3. The policyholders' surplus of the affected party
has been reduced by the greater of (i) 35% of the
affected party's policyholders' surplus as of
December 31, 1995, or (ii) 35% of the affected
party's policyholders, surplus as of the most
recent anniversary of this Agreement, provided
that the affected party receives such notice
within fifteen (15) days following the terminating
party's gaining knowledge of such happening;
4. The affected party has become merged with,
acquired or controlled by any entity or individual
not controlling the party's operations previously,
provided that the affected party receives such
notice within fifteen (15) days following the
terminating party's gaining knowledge of such
happening;
Page 2 of 8
<PAGE> 3
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
SPECIAL
TERMINATION: 5. If the affected party is Alpine Insurance Company,
its Best rating has dropped below B, if the
affected party is Transco Syndicate, its Best
rating has dropped below B or if the affected
party is the REINSURER, its Best rating has
dropped below A, provided that the affected party
receives such notice within fifteen (15) days
following the terminating party's gaining
knowledge of such happening;
6. The affected party (i) has failed to make any
payment when due under this Agreement and (ii)
also has failed to make such payment within five
(5) days of written demand therefor by certified
or registered mail after the payment has become
overdue.
Any such special termination will be on a run off or
cut off basis, upon mutual consent of both parties.
TYPE: FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
CLASS: All business underwritten or managed by TCO Insurance
Services, Inc. of Chicago, IL, and any successor and/or
their subsidiary, affiliated and associated entities,
and classified by the REINSURED as Primary General
Liability, Primary Products Liability/Completed
Operations, Architects and Engineers Professional
Liability and Following Form Excess Liability.
"Subject Policies" are defined as all policies,
contracts and binders (including endorsements and
modifications thereto) on such business attaching
during the term of this Agreement with limits up to
$1,000,000, including "Subject Policy Premiums" for
the first $1,000,000 from policy limits excess
$1,000,000.
EXCLUSIONS: Per attached list.
TERRITORIAL
SCOPE: Per subject policies.
Page 3 of 8
<PAGE> 4
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
LIMIT: $500,000 each and every loss occurrence or claim made,
each and every subject policy, in excess of $500,000
each and every loss occurrence or claim made, each and
every subject policy. Allocated loss adjustment
expenses pro rata in addition to the limit, unless such
expenses are inclusive in the subject policy limit.
The REINSURER's aggregate limit of liability (including
liability for losses, allocated loss adjustment
expenses and ECO and XPL) for each Underwriting Year of
Account is 175% of the net ceded premium actually
received by the REINSURER with respect to that
Underwriting Year of Account.
PREMIUM
& CEDING
COMMISSION: Net provisional deposit premium will be 12.0% of the
subject premium payable in quarterly installments in
arrears, payable as follows: One-half of 12.0% applied
to one-quarter of the then estimated subject premium
for the year ($300,000 for the first calendar quarter
of 1996) will be paid to the REINSURER by the REINSURED
by the last day of each quarter (03/31, 06/30, 09/30
and 12/31), and the balance of the net provisional
premium (calculated as 12.0% applied to the actual
subject premium for the quarter) will be paid within
forty-five (45) days following the end of each such
quarter.
The net provisional premium for each Underwriting Year
of Account will be adjusted within 60 days following
each December 31 beginning with the December 31 which
is the first anniversary of the last day of such
Underwriting Year of Account.
Subject to a minimum net rate of 4.0%, and a maximum
net rate of 20.%, the net ultimate premium for this
agreement shall be determined in accordance with the
following formula:
MINIMUM NET RATE (4.0%) + 110% (LOSSES AND LOSS
ADJUSTMENT EXPENSES INCURRED EXCLUDING IBNR)
Page 4 of 8
<PAGE> 5
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
PREMIUM
& CEDING
COMMISSION: Subject premium is defined as the gross original
(Cont'd.) premium from subject policies plus or minus premium
actually collected for audits, extensions, extended
reporting periods, cancellations, reductions and
endorsements, less gross cost of inuring reinsurance.
The net ultimate premium with respect to each
underwriting year of account shall first be adjusted
within 60 days following the end of such Underwriting
Year of Account and annually thereafter within 60 days
of the end of each succeeding Underwriting Year of
Account, with balances to follow immediately.
Downward adjustments shall not be permitted until 24
months after all subject policies within an
Underwriting Year of Account have expired.
The REINSURED will gross up the net provisional
premium, and the net ultimate premium, for acquisition
cost, to reflect a 30% ceding commission.
REPORTS: 1. Premium reports will be provided by the REINSURED
to the REINSURER quarterly within forty-five (45)
days following the end of each calendar quarter.
The format is to be agreed.
2. Loss reports will be provided by the REINSURED to
the REINSURER quarterly within forty-five (45)
days following the end of each calendar quarter.
The format is to be agreed. Individual reported
losses will be reported by the REINSURED to the
REINSURER promptly once total case loss reserves
(excluding IBNR) per policy, net of deductibles
and self-insured retentions, exceed $250,000 from
the ground up, and in all cases of serious injury
which, regardless of liability or coverage, are
likely to involve this reinsurance, including, but
not limited to, the following:
Page 5 of 8
<PAGE> 6
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
REPORTS:
(Cont'd.) a. Fatalities,
b. Paraplegia,
c. Quadriplegia,
d. Severe burns resulting in disfigurement or
scarring,
e. Serious brain injuries (seizure, coma or
physical/mental impairment),
f. Amputation of any extremity or multiple
fractures,
g. Total or partial blindness in one or both
eyes, or
h. Severe injury to a major organ (e.g., heart,
lung).
3. Each party will provide the other parties annually
any information required and reasonably requested
by the other parties for annual statement
purposes.
ESTIMATED
SUBJECT
PREMIUM: The subject premium initially is estimated to be
$20,000,000 per year. The REINSURED may revise the
estimated subject premium in good faith at the
beginning of any calendar quarter, subject to agreement
by the REINSURER, which agreement shall not be
unreasonably withheld.
ORIGINAL
CONDITIONS: All reinsurance under this Agreement will be subject to
the same rates, terms, conditions, waivers and
interpretations, and to the same modifications,
alterations and cancellations, as the respective
subject policies of the REINSURED. This Agreement will
not in any manner create any obligations or establish
any rights against the REINSURER or the REINSURED in
favor of any third parties or any persons not parties
to this Agreement.
OFFSET: The parties (and their subsidiaries, affiliates
and associated entities) will be entitled to offset any
balances for amounts due one party or another under
this Agreement. In the event of the insolvency of any
party, offset is to be allowed only in accordance with
applicable law.
Page 6 of 8
<PAGE> 7
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
RISK TRANSFER: If the REINSURED's auditors in good faith determine and
advise the parties in writing by certified or
registered mail that this Agreement does not accomplish
"risk transfer" pursuant to FASB 113 and NAIC
Accounting Practices and Procedures Manual Chapter 22,
the REINSURER will amend the terms of this Agreement
effective from inception, such amended terms to be
reasonably acceptable to the REINSURED, to accomplish
such "risk transfer."
GENERAL
CONDITIONS: Loss Adjustment Expenses Pro Rata in addition to Loss
(unless part of the subject policy).
Excess of Original Policy Limits Clause (80% basis).
Extra Contractual Obligations Clause (80% basis).
ECO/XPL - One Additional Limit Clause
Ultimate Net Loss Clause.
Net Retained Lines Clause.
Definition of Loss Occurrence Clause.
Notice of Loss Clause.
Loss Funding Clause.
Federal Excise Tax Clause.
Errors and Omissions Clause.
Insolvency Clause.
Service of Suit Clause.
Offset Clause.
Currency Clause.
Access to Records Clause.
Arbitration Clause.
Intere Intermediary Clause.
WORDING: To be agreed.
Page 7 of 8
<PAGE> 8
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961000
DATE: March 13, 1996
REINSURERS: THROUGH INTERE - SAN FRANCISCO
Underwriters Reinsurance Company 100.00%
------
TOTAL PLACEMENT: 100.00%
We will periodically provide a list of those companies with which Intere
Intermediaries is affiliated, which may be parties to this placement. This list
is available on request.
For and on behalf of:
INTERE INTERMEDIARIES
[sig]
-----------------------------
Chairman
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
[sig] May 31, 1996
- --------------------------------------- -------------------------
Authorized Signature Date
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security are not in accordance with your order or
requirements.
Page 8 of 8
<PAGE> 9
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: This Agreement does not cover:
1. Assumed treaty reinsurance;
2. Pollution Liability;
3. Aircraft or airports as respects coverage for all
liability arising out of ownership, maintenance or
use of any aircraft or flight operations except
for industrial aid, pleasure or business craft
when written as incidental to the subject policy;
4. Products Liability as -respects:
a. Manufacture, sale or distribution of aircraft
or aircraft parts pertaining to essential
instrumentation, mechanical or structural
components relating thereto;
b. Manufacture or wholesale distribution of
pharmaceuticals pertaining to ethical drugs;
and
c. Manufacture of automobiles and motorcycles with
projected receipts in excess of $5,000,000, but
not excluding manufacture of kit cars, whether
assembled or not, component parts or
subassemblies.
5. Products Recall and Products Integrity business;
6. General Operations of railroads, but not excluding
spurs and side tracks;
7. Oil refinery's operations;
8. Asbestos liability;
9. Financial guarantee and insolvency;
Page 1 of 6
<PAGE> 10
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: 10. Loss or liability excluded by the provisions of
(Cont'd.) the "Nuclear Incident Exclusion Clause - Liability
- Reinsurance (USA)" and the Nuclear Incident
Exclusion Clause - Liability - (Canada)";
11. Disposal of hazardous chemicals or hazardous waste
including transporters, contractors or waste site
operators, but not excluding residential waste
haulers;
12. Manufacturing, handling, storing or transporting
of any explosive substance intended for use as an
explosive (explosive substance being defined as
any substance manufactured for the express purpose
of exploding as differentiated from other
commodities used industrially and which are only
fortuitously explosive such as gasoline,
fertilizers, fuel gases and dyestuffs);
13. Any risk engaged in the production, packaging,
distribution, promotion or sale (except retail
sale) of tobacco or tobacco products, insofar as
injury arises out of the alleged hazardous
properties of tobacco;
14. Motor vehicle racing, when written as such;
15. Fidelity or crime coverage for financial
institutions;
16. Medical Malpractice, unless the professional
exposure is considered to be incidental (it being
understood that this exclusion does not apply to
druggists, pharmacists, morticians, cemeteries,
health studios and reducing salons liability);
17. Professional Liability for accountants, insurance
agents and brokers, security guards and real
estate agents;
18. Political risk or credit insurance;
19. Underground mining operations;
20. SEC liability;
Page 2 of 6
<PAGE> 11
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: 21. All liability of a REINSURED arising by contract,
(Cont'd.) operation of law, or otherwise from its
participation or memberships, whether voluntary or
involuntary, in any insolvency fund ("insolvency
fund" being defined to include any guaranty fund,
insolvency fund, plan, pool, association, fund, or
other arrangement, however denominated,
established or governed, which provides for any
claim, debt, charge, fee or other obligation of an
insurer, or its successor or assigns which has
been declared by any competent authority to be
insolvent or which is otherwise deemed unable to
meet any claim, debt, charge, fee or other
obligation in whole or in part);
22. Any loss or liability accruing to a REINSURED
directly or indirectly from any insurance written
by or through any pools and associations in which
membership by the REINSURED is required by law,
but not excluding liability assumed by a REINSURED
directly as a syndicate member of the Illinois
Insurance Exchange as a participant on a line slip
policy;
23. Workers' compensation (including occupational
disease) and employers' liability insurances, but
not excluding contingent Employers' Liability
("stop gap") coverage that may be attached to
Comprehensive General Liability policies in the
states of Washington, Wyoming, North Dakota or
Ohio;
24. Circuses and power driven amusement devices;
25. Fire, police or salvage equipment, unless written
as a minor part of a fleet of other vehicles which
are not otherwise excluded (it being understood
that the term "salvage equipment" applies to
equipment working in conjunction with fire
departments and assigned to answer emergency
alarms);
26. Long-haul trucking (generally being understood as
regular operations to locations more than 200
miles from the insured's base or bases of
operations), when the principal operation of the
insured;
Page 3 of 6
<PAGE> 12
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: 27. Ocean Marine business and all forms of legal
(Cont'd.) liability arising out of the operation or
navigation of ships or vessels;
28. Agricultural spraying;
29. Exterminators;
30. Retroactive liability and all back dates in excess
of 30 days, but not excluding retroactive
liability on claims made policies;
31. Primary automobile liability to include non-owned
and hired;
32. Municipalities and governmental agencies;
33. Liquor liability, except when written in the
states of California and Nevada;
34. Construction of tunnels, dams, subways, and
nuclear power plants;
35. Ship builders and ship repair (a ship being
defined as over 100 feet in length);
36. Environmental impairment liability;
37. Boiler and Machinery liability;
38. Kidnap and ransom;
39. Ocean Marine, Admiralty Jones Act, and FELA,
except incidental Jones Act as related to the use
of watercraft 50 feet or less in length, and FELA
as related to the existence and use of railroad
side tracks;
40. Electric utilities, but not excluding course of
construction risks;
41. Umbrella Liability;
Page 4 of 6
<PAGE> 13
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: 42. Any loss of damage occasioned by war, Hostilities, acts
(cont'd.) of foreign enemies, civil war, rebellion, insurrection,
military or usurped power, martial law or confiscation of
any government or public authority;
43. Manufacture or storage of liquefied petroleum gas ("LPG"),
but not excluding storage of petroleum or LPG on a local
basis;
44. Punitive damages;
45. Subsidence and movement; or
46. Manufacturing or distribution of animal feed.
The exclusions enumerated above (other than the exclusions
enumerated in paragraphs 1, 2, 9, 10, 21 and 27) do not apply
when the items or activities enumerated are merely incidental
to the main operations of the insured or when the insured's
services are subcontracted for a limited-time basis to perform
services for an excluded entity, provided such main operations
are covered by the subject policies and are not themselves
excluded from the scope of the Agreement. The REINSURED will be
the sole judge of what is "incidental" for purposes of this
Agreement.
Should a REINSURED, by reason of an inadvertent act, error or
omission, be bound to afford coverage excluded hereunder, the
REINSURER will waive the exclusions with the exception of the
exclusions enumerated in paragraphs 1, 2, 9, 10, 21 and 27. The
duration of such waiver will not extend beyond the time that
notice of such coverage has been received by the responsible
underwriting authorities of the REINSURED (being defined as the
Senior Vice President of Underwriting or their equivalents)
plus the minimum time period required thereafter for the
REINSURED to terminate such coverage.
With respects to any exclusion included on a REINSURED's
subject policy, the liability for which is intended to be
excluded hereby, the REINSURER will follow the REINSURED's
fortunes.
Page 5 of 6
<PAGE> 14
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
FIRST CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
EXCLUSIONS: The REINSURED may submit to the REINSURER, for special
(Cont'd.) acceptance hereunder, business not covered by the Agreement. If
such business is specially accepted by the REINSURER, it will
be subject to the terms of the Agreement, except as this
Agreement's terms are modified by the special acceptance.
Should any reinsurer become a party to this Agreement
subsequent to the acceptance of any business not normally
covered hereunder, such reinsurer automatically will accept
such business as being a part of this Agreement.
Page 6 of 6
<PAGE> 1
EXHIBIT 10.80
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001 DATE: March 13, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: JANUARY 1, 1996
PERIOD: Continuous Agreement effective from 12:01 a.m., Central Time,
January 1, 1996, (warranting no known or reported losses through
January 29, 1996) covering subject policies written or renewed
at or after that time. This Agreement is subject to
cancellation at any January 1, by any party by giving to the
others ninety (90) days prior written notice of cancellation by
certified or registered mail.
Any such cancellation will be on a "run off" basis or "cut
off" basis, at the REINSURED's option. On a "run off" basis
the REINSURER will remain liable for losses and allocated loss
adjustment expenses on all subject policies that have expired
at the time and date of cancellation, and all subject policies
that are unexpired at the time and date of cancellation
(including the unexpired portions of such subject policies)
until natural expiration, cancellation or first anniversary of
such policies, whichever occurs first, but not to exceed twelve
(12) months, plus odd time, to a maximum of eighteen (18)
months in all from the date of cancellation.
On a "cut off" basis the REINSURED will reassume the net ceded
unearned subject premium relating to unexpired subject
policies, and all liability for losses and allocated loss
adjustment expenses relating thereto (determined as pro rata
portions of the total liability for losses and allocated loss
adjustment expenses relating to such unexpired subject
policies, calculated on the basis of the number of days
remaining in the policy periods divided by the total number of
days in the policy periods), but the REINSURER will remain
liable for losses and allocated loss adjustment expenses on all
expired subject policies and the balance of the total liability
relating to unexpired subject policies.
Page 1 of 8
<PAGE> 2
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
PERIOD: This Agreement is on a Underwriting Year of Account basis. The
(Cont'd.) first Underwriting Year of Account is the period beginning
January 1, 1996, through and including December 31, 1996. Each
Underwriting Year of Account consists of twelve (12)
consecutive months beginning January 1 and ending December 31.
SPECIAL
TERMINATION: Any party may terminate this Agreement at any time with
respect to the affected party or parties by giving it or them
fifteen (15) days prior written notice of termination by
certified or registered mail upon the happening of any of the
following events of special termination:
1. The state of domicile of the affected party, or the
Illinois Insurance Exchange in the case of Transco
Syndicate, has ordered the affected party to cease writing
new or renewal business;
2. The affected party has become insolvent or has been placed
into liquidation or receivership (whether voluntary or
involuntary), or there have been instituted against it
proceedings for the appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy of other
agent known by whatever name, to take possession of its
assets or control of the affected party's operations;
3. The policyholders' surplus of the affected party has been
reduced by the greater of (i) 35% of the affected party's
policyholders' surplus as of December 31, 1995, or (ii)
35% of the affected party's policyholders' surplus as of
the most recent anniversary of this Agreement, provided
that the affected party receives such notice within
fifteen (15) days following the terminating party's
gaining knowledge of such happening;
4. The affected party has become merged with, acquired or
controlled by any entity or individual not controlling the
party's operations previously, provided that the affected
party receives such notice within fifteen (15) days
following the terminating party's gaining knowledge of
such happening;
Page 2 of 8
<PAGE> 3
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
SPECIAL
TERMINATION: 5. If the affected party is Alpine Insurance Company, its
(Cont'd.) Best rating has dropped below B, if the affected party is
Transco Syndicate, its Best rating has dropped below B or
if the affected party is the REINSURER, its Best rating
has dropped below A, provided that the affected party
receives such notice within fifteen (15) days following
the terminating party's gaining knowledge of such
happening;
6. The affected party (i) has failed to make any payment when
due under this Agreement and (ii) also has failed to make
such payment within five (5) days of written demand
therefor by certified or registered mail after the
payment has become overdue.
Any such special termination will be on a run off or cut off
basis, upon mutual consent of both parties.
TYPE: SECOND CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
CLASS: All business underwritten or managed by TCO Insurance Services,
Inc. of Chicago, IL, and any successor and/or their subsidiary,
affiliated and associated entities, and classified by the
REINSURED as Primary General Liability, Primary Products
Liability/Completed Operations, Architects and Engineers
Professional Liability and Following Form Excess Liability.
"Subject policies" are defined as all policies, contracts and
binders (including endorsements and modifications thereto) on
such business attaching during the term of this Agreement with
limits in excess of $1,000,000.
EXCLUSIONS: Per attached list.
TERRITORIAL
SCOPE: Per subject policies.
Page 3 of 8
<PAGE> 4
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
LIMIT: $1,000,000 each and every loss occurrence or claim made, each
and every subject policy, in excess of $1,000,000 each and
every loss occurrence or claim made each and every subject
policy. Allocated loss adjustment expenses pro rata in addition
to the limit, unless such expenses are inclusive in the subject
policy limit.
The REINSURER's aggregate limit of liability (including
liability for losses, allocated loss adjustment expenses and
ECO and XPL) for each Underwriting Year of Account is 300% of
the net ceded premium actually received by the REINSURER
with respect to that Underwriting Year of Account.
PREMIUM
& CEDING
COMMISSION: Ceded premium will be 26.39% of gross net written subject
premium (defined as total gross written premium, including
additions or subtractions of premium actually collected from
audits, extensions, extended reporting periods, cancellations,
reductions and endorsements, on all subject policies, less the
gross cost of reinsurance covering limits above $2,000,000 on
all subject policies), less a ceding commission of 30% in
allowance for the REINSURED's acquisition costs.
Reinsurance premium payable as follows: one-half of the net
ceded rate, 18.47% (26.39% gross less 30% cede), applied to
one-quarter of the then estimated subject premium for the year
($23,088 for the first calendar quarter of 1996) will be paid
to the REINSURER by the REINSURED by the last day of each
quarter (3/31, 6/30, 9/30 and 12/31); and the balance of the
net ceded rate applied to the actual subject premium for the
quarter will be paid within forty-five (45) days following the
end of each such quarter.
The ceded premium for each Underwriting Year of Account will be
adjusted within 60 days following each December 31 beginning
with December 31 which is the first anniversary of the last day
of such Underwriting Year of Account.
Page 4 of 8
<PAGE> 5
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
PREMIUM
& CEDING
COMMISSION: The above ceded premium percentage is "blended", based upon
(Cont'd.) rate guidelines for each class code as a percentage of the
applicable $1,000,000 excess $1,000,000 policy limit on file
with the REINSURED.
REPORTS: 1. Premium reports will be provided by the REINSURED to the
REINSURER quarterly within forty-five (45) days following
the end of each calendar quarter. The format is to be
agreed.
2. Loss reports will be provided by the REINSURED to the
REINSURER quarterly within forty-five (45) days following
the end of each calendar quarter. The format is to be
agreed. Individual reported losses will be reported by the
REINSURED to the REINSURER promptly once total case loss
reserves (excluding IBNR) per policy, net of deductibles
and self-insured retentions, exceed $250,000 from the
ground up, and in all cases of serious injury which,
regardless of liability or coverage, are likely to involve
this reinsurance, including, but not limited to the
following:
a. Fatalities.
b. Paraplegia,
c. Quadriplegia,
d. Severe burns resulting in disfigurement or scarring,
e. Serious brain injuries (seizure, coma or
physical/mental impairment),
f. Amputation of any extremity or multiple fractures,
g. Total or partial blindness in one or both eyes, or
h. Severe injury to a major organ (e.g., heart, lung).
3. Each party will provide the other parties annually any
information required and reasonably requested by the other
parties for annual statement purposes.
Page 5 of 8
<PAGE> 6
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
ESTIMATED
SUBJECT
PREMIUM: The subject premium initially is estimated to be $1,000,000
per year. The REINSURED may revise the estimated subject
premium in good faith at the beginning of any calendar quarter,
subject to agreement by the REINSURER, which agreement shall
not be unreasonably withheld.
ORIGINAL
CONDITIONS: All reinsurance under this Agreement will be subject to the
same rates, terms, conditions, waivers and interpretations,
and to the same modifications, alterations and cancellations,
as the respective subject policies of the REINSURED. This
Agreement will not in any manner create any obligations or
establish any rights against the REINSURER or the REINSURED
in favor of any third parties or any persons not parties to
this Agreement.
OFFSET: The parties (and their subsidiaries, affiliated and associated
entities) will be entitled to offset any balances for amounts
due one party or another under this Agreement. In the event of
the insolvency of any party, offset is to be allowed only in
accordance with applicable law.
RISK TRANSFER: If the REINSURED's auditors in good faith determine and advise
the parties in writing by certified or registered mail that
this Agreement does not accomplish "risk transfer" pursuant to
FASB 113 and NAIC Accounting Practices and Procedures Manual
Chapter 22, the REINSURER will amend the terms of this
Agreement effective from inception, such amended terms to be
reasonably acceptable to the REINSURED, to accomplish such
"risk transfer".
GENERAL
CONDITIONS: Loss Adjustment Expenses Pro Rata in addition to Loss (unless
part of the subject policy).
Excess of Original Policy Limits Clause (80% basis).
Extra Contractual Obligations Clause (80% basis).
ECO/XPL - One Additional Limit Clause.
Ultimate Net Loss Clause.
Net Retained Lines Clause.
Definition of Loss Occurrence Clause.
Page 6 of 8
<PAGE> 7
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
GENERAL
CONDITIONS: Notice of Loss Clause.
(Cont'd.) Loss Funding Clause.
Federal Excise Tax Clause.
Errors and Omissions Clause.
Insolvency Clause.
Service of Suit Clause.
Offset Clause.
Currency Clause.
Access to Records Clause.
Arbitration Clause.
Intere Intermediary Clause.
WORDING: To be agreed.
REINSURERS: THROUGH INTERE - SAN FRANCISCO
Underwriters Reinsurance Company 100.00%
TOTAL PLACEMENT: 100.00%
We will periodically provide a list of those companies with which Intere
Intermediaries is affiliated, which may be parties to this placement. This
list is available on request.
Page 7 of 8
<PAGE> 8
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: SF961001
DATE: March 13, 1996
For and on behalf of:
INTERE INTERMEDIARIES
[SIG]
---------------------------------
Chairman
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
[SIG] May 31, 1996
- --------------------------------- ---------------------------------
Authorized Signature Date
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security are not in accordance with your order or
requirements.
Page 8 of 8
<PAGE> 9
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: This Agreement does not cover:
1. Assumed treaty reinsurance;
2. Pollution Liability
3. Aircraft or airports as respects coverage for all
liability arising out of ownership, maintenance or use of
any aircraft or flight operations except for industrial
aid, pleasure or business craft when written as incidental
to the subject policy;
4. Products Liability as-respects:
a. Manufacture, sale or distribution of aircraft or
aircraft parts pertaining to essential
instrumentation, mechanical or structural components
relating thereto;
b. Manufacture or wholesale distribution of
pharmaceuticals pertaining to ethical drugs; and
c. Manufacture of automobiles and motorcycles with
projected receipts in excess of $5,000,000, but not
excluding manufacture of kit cars, whether assembled
or not, component parts or subassemblies.
5. Products Recall and Products Integrity business;
6. General Operations of railroads, but not excluding spurs
and side tracks;
7. Oil refinery's operations;
8. Asbestos liability;
9. Financial guarantee and insolvency;
Page 1 of 6
<PAGE> 10
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: 10. Loss or liability excluded by the provisions of the
(Cont'd.) "Nuclear Incident Exclusion Clause - Liability -
Reinsurance (USA)" and the Nuclear Incident Exclusion
Clause - Liability - (Canada)";
11. Disposal of hazardous chemicals or hazardous waste
including transporters, contractors or waste site
operators, but not excluding residential waste haulers;
12. Manufacturing, handling, storing or transporting of any
explosive substance intended for use as an explosive
(explosive substance being defined as any substance
manufactured for the express purpose of exploding as
differentiated from other commodities used industrially
and which are only fortuitously explosive such as
gasoline, fertilizers, fuel gases and dyestuffs);
13. Any risk engaged in the production, packaging,
distribution, promotion or sale (except retail sale) of
tobacco or tobacco products, insofar as injury arises out
of the alleged hazardous properties of tobacco;
14. Motor vehicle racing, when written as such;
15. Fidelity or crime coverage for financial institutions;
16. Medical Malpractice, unless the professional exposure is
considered to be incidental (it being understood that this
exclusion does not apply to druggists, pharmacists,
morticians, cemeteries, health studios and reducing
salons liability);
17. Professional Liability for accountants, insurance agents
and brokers, security guards and real estate agents;
18. Political risk or credit insurance;
19. Underground mining operations;
20. SEC liability;
Page 2 of 6
<PAGE> 11
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: 21. All liability of a REINSURED arising by contract,
(Cont'd.) operation of law, or otherwise from its participation or
memberships, whether voluntary or involuntary, in any
insolvency fund ("insolvency fund" being defined to
include any guaranty fund, insolvency fund, plan, pool,
association, fund, or other arrangement, however
denominated, established or governed, which provides for
any claim, debt, charge, fee or other obligation of an
insurer, or its successor or assigns which has been
declared by any competent authority to be insolvent or
which is otherwise deemed unable to meet any claim,
debt, charge, fee or other obligation in whole or in part);
22. Any loss or liability accruing to a REINSURED directly or
indirectly from any insurance written by or through any
pools and associations in which membership by the REINSURED
is required by law, but not excluding liability assumed by
a REINSURED directly as a syndicate member of the Illinois
Insurance Exchange as a participant on a line slip policy;
23. Workers' compensation (including occupational disease) and
employers' liability insurances, but not excluding
contingent Employers' Liability ("stop gap") coverage that
may be attached to Comprehensive General Liability policies
in the states of Washington, Wyoming, North Dakota or Ohio;
24. Circuses and power driven amusement devices;
25. Fire, police or salvage equipment, unless written as a
minor part of a fleet of other vehicles which are not
otherwise excluded (it being understood that the term
"salvage equipment" applies to equipment working in
conjunction with fire departments and assigned to answer
emergency alarms);
26. Long-haul trucking (generally being understood as regular
operations to locations more than 200 miles from the
insured's base or bases of operations), when the principal
operation of the insured;
Page 3 of 6
<PAGE> 12
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: 27. Ocean Marine business and all forms of legal liability
(Cont'd.) arising out of the operation or navigation of ships or
vessels;
28. Agricultural spraying;
29. Exterminators;
30. Retroactive liability and all back dates in excess of 30
days, but not excluding retroactive liability on claims
made policies;
31. Primary automobile liability to include non-owned and
hired;
32. Municipalities and governmental agencies;
33. Liquor liability, except when written in the states of
California and Nevada;
34. Construction of tunnels, dams, subways, and nuclear power
plants;
35. Ship builders and ship repair (a ship being defined as
over 100 feet in length);
36. Environmental impairment liability;
37. Boiler and Machinery liability;
38. Kidnap and ransom;
39. Ocean Marine, Admiralty Jones Act, and FELA, except
incidental Jones Act as related to the use of watercraft
50 feet or less in length, and FELA as related to the
existence and use of railroad side tracks;
40. Electric utilities, but not excluding course of
construction risks;
41. Umbrella Liability;
Page 4 of 6
<PAGE> 13
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: 42. Any loss of damage occasioned by war, Hostilities, acts of
(Cont'd.) foreign enemies, civil war, rebellion, insurrection,
military or usurped power, martial law or confiscation of
any government or public authority;
43. Manufacture or storage of liquefied petroleum gas ("LPG"),
but not excluding storage of petroleum or LPG on a local
basis;
44. Punitive damages;
45. Subsidence and movement; or
46. Manufacturing or distribution of animal feed.
The exclusions enumerated above (other than the exclusions
enumerated in paragraphs 1, 2, 9, 10, 21 and 27) do not apply
when the items or activities enumerated are merely incidental
to the main operations of the insured or when the insured's
services are subcontracted for a limited-time basis to perform
services for an excluded entity, provided such main operations
are covered by the subject policies and are not themselves
excluded from the scope of the Agreement. The REINSURED will
be the sole judge of what is "incidental" for purposes of this
Agreement.
Should a REINSURED, by reason of an inadvertent act, error or
omission, be bound to afford coverage excluded hereunder, the
REINSURER will waive the exclusions with the exception of the
exclusions enumerated in paragraphs 1, 2, 9, 10, 21 and 27. The
duration of such waiver will not extend beyond the time that
notice of such coverage has been received by the responsible
underwriting authorities of the REINSURED (being defined as the
Senior Vice President of Underwriting or their equivalents)
plus the minimum time period required thereafter for
the REINSURED to terminate such coverage.
With respects to any exclusion included on a REINSURED's
subject policy, the liability for which is intended to be
excluded hereby, the REINSURER will follow the REINSURED's
fortunes.
Page 5 of 6
<PAGE> 14
[INTERE RFC LETTERHEAD]
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE #1
Second Casualty Excess of Loss Reinsurance Agreement
Effective: January 1, 1996
EXCLUSIONS: The REINSURED may submit to the REINSURER, for special
(Cont'd,) acceptance hereunder, business not covered by the Agreement. If
such business is specially accepted by the REINSURER, it will
be subject to the terms of the Agreement, except as this
Agreement's terms are modified by the special acceptance.
Should any reinsurer become a party to this Agreement
subsequent to the acceptance of any business not normally
covered hereunder, such reinsurer automatically will accept
such business as being a part of this Agreement.
Page 6 of 6
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.81
ENDORSEMENT NO. 1
to REINSURANCE COVER NOTE
Treaty No.: MA960269
TRANSCO SYNDICATE NO. 1 (NAIC AA. 9993112) AND/OR
ALPINE INSURANCE CO. (NAIC 30902), ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED
BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO, ILLINOIS.
Marine Account Excess of Loss Reinsurance
US$250,000 E&E.L. Excess of US$250,000 E.&E.L.
L.O.D. 12 MONTHS AT MARCH 1, 1996 L.S.T.
It is hereby noted and agreed that with effect from inception the Reinsured is
amended to read as follows:
REINSURED: TRANSCO SYNDICATE NO. 1 (N.A.I.C. AA. 9993112) AND/OR
ALPINE INSURANCE COMPANY (N.A.I.C. 30902) AND/OR
UNITED CAPITOL INSURANCE COMPANY (N.A.I.C. 39330)
AND/OR FRONTIER INSURANCE COMPANY (N.A.I.C. 34266)
AND/OR FRONTIER PACIFIC INSURANCE COMPANY (N.A.I.C.
42250) ON BUSINESS ADMINISTERED, UNDERWRITTEN OR
SERVICED BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO,
ILLINOIS.
All other terms, clauses and conditions remain unaltered.
We will periodically provide a list of those companies with which Minet Re
North America, Inc. is affiliated, which may be parties to this placement. This
list is available on request.
FOR AND ON BEHALF OF:
MINET RE NORTH AMERICA
/s/ Roger Roberts DATE: 10/23/96
- ------------------------------ -------------
Senior Vice President
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE NO. 1 LTD.
[SIG] DATE: 10/23/96
- ------------------------------ -------------
Authorized Signature
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security used are not in accordance with your order
or requirements.
Page 1 of 1
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.82
ENDORSEMENT NO. 1
to REINSURANCE COVER NOTE
Treaty No.: MA960270
TRANSCO SYNDICATE NO. 1 (NAICAA. 9993112) AND/OR
ALPINE INSURANCE CO. (NAIC 30902), ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED
BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO, ILLINOIS.
Marine Account Excess of Loss Reinsurance
US$500,000 E&E.L. Excess of US$500,000 E.& E.L.
L.O.D. 12 MONTHS AT MARCH 1, 1996 L.S.T.
It is hereby noted and agreed that with effect from inception the Reinsured is
amended to read as follows:
REINSURED: TRANSCO SYNDICATE NO. 1 (N.A.I.C.AA.9993112)AND/OR
ALPINE INSURANCE COMPANY (N.A.I.C. 30902) AND/OR
UNITED CAPITOL INSURANCE COMPANY (N.A.I.C. 39330)
AND/OR FRONTIER INSURANCE COMPANY (N.A.I.C. 34266)
AND/OR FRONTIER PACIFIC INSURANCE COMPANY (N.A.I.C.
42250) ON BUSINESS ADMINISTERED, UNDERWRITTEN OR
SERVICED BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO.
ILLINOIS.
All other terms, clauses and conditions remain unaltered.
We will periodically provide a list of those companies with which Minet Re
North America, Inc. is affiliated, which may be parties to this placement. This
list is available on request.
FOR AND ON BEHALF OF:
MINET RE NORTH AMERICA
/s/ Roger Roberts DATE: 10/23/96
- ----------------------------- -----------------------
Senior Vice President
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE NO. 1 LTD.
[SIG] DATE: 10/23/96
- ----------------------------- -----------------------
Authorized Signature
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security used are not in accordance with your
order or requirements.
Page 1 of 1
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.83
ENDORSEMENT NO. 1
to REINSURANCE COVER NOTE
Treaty No.: MA960406
TRANSCO SYNDICATE NO. 1 (NAIC AA. 9993112) AND/OR
ALPINE INSURANCE CO. (NAIC 30902), ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED
BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO, ILLINOIS.
Marine Account Excess of Loss Reinsurance
US$2,500,000 E&E.L. Excess of US$1,000,000 E.& E.L.
L.O.D. 12 MONTHS AT MARCH 1, 1996 L.S.T.
It is hereby noted and agreed that with effect from inception the Reinsured is
amended to read as follows:
REINSURED: TRANSCO SYNDICATE NO. 1 (N.A.I.C. AA. 9993112) AND/OR
ALPINE INSURANCE COMPANY (N.A.I.C. 30902) AND/OR
UNITED CAPITOL INSURANCE COMPANY (N.A.I.C. 39330)
AND/OR FRONTIER INSURANCE COMPANY (N.A.I.C. 34266)
AND/OR FRONTIER PACIFIC INSURANCE COMPANY (N.A.I.C.
42250) ON BUSINESS ADMINISTERED, UNDERWRITTEN OR
SERVICED BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO,
ILLINOIS.
All other terms, clauses and conditions remain unaltered.
We will periodically provide a list of those companies with which Minet Re
North America, Inc. is affiliated, which may be parties to this placement.
This list is available on request.
FOR AND ON BEHALF OF:
MINET RE NORTH AMERICA
/s/ Roger Roberts DATE: 10/23/96
- ----------------------------- ------------
Senior Vice President
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE NO. 1 LTD.
[SIG] DATE: 10/23/96
- ----------------------------- ------------
Authorized Signature
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security used are not in accordance with your order
or requirements.
Page 1 of 1
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.84
ENDORSEMENT NO. 1
to REINSURANCE COVER NOTE
Treaty No.: MA960475
TRANSCO SYNDICATE NO. 1 (NAIC AA. 9993112) AND/OR
ALPINE INSURANCE CO. (NAIC 30902), ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED
BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO, ILLINOIS.
Marine Account Excess of Loss Reinsurance
US$2,500,000 E&E.L. Excess of US$3,500,000 E.& E.L.
L.O.D. 12 MONTHS AT MARCH 1, 1996 L.S.T.
It is hereby noted and agreed that with effect from inception the Reinsured is
amended to read as follows:
REINSURED: TRANSCO SYNDICATE NO. 1 (N.A.I.C. AA. 9993112) AND/OR
ALPINE INSURANCE COMPANY (N.A.I.C. 30902) AND/OR
UNITED CAPITOL INSURANCE COMPANY (N.A.I.C. 39330)
AND/OR FRONTIER INSURANCE COMPANY (N.A.I.C. 34266)
AND/OR FRONTIER PACIFIC INSURANCE COMPANY (N.A.I.C.
42250) ON BUSINESS ADMINISTERED, UNDERWRITTEN OR
SERVICED BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO,
ILLINOIS.
All other terms, clauses and conditions remain unaltered.
We will periodically provide a list of those companies with which Minet Re
North America, Inc. is affiliated, which may be parties to this placement. This
list is available on request.
FOR AND ON BEHALF OF:
MINET RE NORTH AMERICA, INC.
/s/ Roger Roberts DATE: 10/23/96
- ------------------------------ ------------
Senior Vice President
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE NO. 1 LTD.
[SIG] DATE: 10/23/96
- ------------------------------ ------------
Authorized Signature
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security used are not in accordance with your order
or requirements.
Page 1 of 1
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.85
ENDORSEMENT NO. 2
to REINSURANCE COVER NOTE
Treaty No.: MA962045
TRANSCO SYNDICATE NO. 1 (NAICAA. 9993112) AND/OR
ALPINE INSURANCE CO. (NAIC 30902), ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED
BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO, ILLINOIS.
Marine Account Excess of Loss Reinsurance
US$4,000,000 E&E.L. Excess of US$6,000,000 E.& E.L.
L.O.D. 12 MONTHS AT MARCH 1, 1996 L.S.T.
It is hereby noted and agreed that with effect from inception the Reinsured is
amended to read as follows:
REINSURED: TRANSCO SYNDICATE NO. 1 (N.A.I.C. AA. 9993112) AND/OR
ALPINE INSURANCE COMPANY (N.A.I.C. 30902) AND/OR
UNITED CAPITOL INSURANCE COMPANY (N.A.I.C. 39330)
AND/OR FRONTIER INSURANCE COMPANY (N.A.I.C. 34266)
AND/OR FRONTIER PACIFIC INSURANCE COMPANY (N.A.I.C.
42250) ON BUSINESS ADMINISTERED, UNDERWRITTEN OR
SERVICED BY T.C.O. INSURANCE SERVICES INC. OF CHICAGO,
ILLINOIS.
All other terms, clauses and conditions remain unaltered.
We will periodically provide a list of those companies with which Minet Re
North America, Inc. is affiliated, which may be parties to this placement.
This list is available on request.
FOR AND ON BEHALF OF:
MINET RE NORTH AMERICA
/s/ Roger Roberts DATE: 10/23/96
- ------------------------------ -------------
Senior Vice President
AGREED TO:
ALPINE INSURANCE COMPANY
TRANSCO SYNDICATE NO. 1 LTD.
[SIG] DATE: 10/23/96
- ------------------------------ -------------
Authorized Signature
Please examine this document carefully and advise us immediately if any of the
Terms and Conditions or the security used are not in accordance with your
order or requirements.
Page 1 of 1
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.86
COVER NOTE NO.: MA962045 DATE: April 25, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
REINSURED: TRANSCO SYNDICATE #1 LTD. AND/OR ALPINE
INSURANCE COMPANY, ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED BY
TCO INSURANCE SERVICES, INC. OF CHICAGO, ILLINOIS.
TYPE: MARINE EXCESS OF LOSS REINSURANCE.
INTEREST: All business written by the Reinsured and allocated to
their Marine Account.
Excluding:
1. Rejection Risks
2. Rig Business
3. Proportional and Non-Proportional Treaty Business written
as such.
Fishing vessels limited to U.S. $75,000 any one vessel or so
deemed.
PERIOD: Losses occurring during the period 12 months at March 1,
1996, Local Standard Time at place where the loss occurs.
LIMIT: This Reinsurance is to indemnify the Reinsured for all losses
in excess of an Ultimate Net Loss of U.S.$6,00O,000 or
equivalent in other currencies each and every loss and/or
occurrence and/or series of losses arising out of one event.
Policy for up to a further U.S.$4,000,000 or equivalent in
other currencies each and every loss and/or occurrence and/or
series of losses arising out of one event.
REINSTATEMENT: One full reinstatement at 100% additional premium, pro rata as
to amount only.
Page 1 of 11
DL:yd
<PAGE> 2
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
MINIMUM AND DEPOSIT
PREMIUM: Minimum and Deposit: USD130,000 payable quarterly in
advance.
Adjustable at 1.85% Net Premium Income accounted
for during the period hereon, all years of account
The Reinsured shall have the option of internally
"grossing up" their premium ceded to reinsurers to
allow for acquisition costs and other costs on the
business subject to this agreement.
GENERAL CONDITIONS: Full Wording as Joint Excess of Loss Committee Clauses,
(EXEL 1/1/90), with additional clauses, deletions,
endorsements, special conditions and warranties (at no
additional premium) as follows:
War Included.
Extra-Contractual Obligations Included.
Aggregate Voyage Extension Clause (Cargo) Excluded.
Non-Marine Liability Exclusion Clause 10.1.87 shall
apply to this contract in respect
of original policies attaching between March 1st, 1987
and December 31st, 1990 both days inclusive.
Liability Exclusion Clause "B" 12/1/90 shall apply to
this contract in respect of original policies
attaching on or after January 1, 1991 (as attached).
Institute Radioactive Contamination Exclusion
Clause October 1st, 1990.
In respect of Section L of the Schedule
Arbitration to be held in Chicago, Illinois and
to apply the laws of Illinois as the proper law
of this Agreement. The Appointer shall be the
American Arbitration Association.
Plus the following additional clauses as more full
described in the attached schedules:
Page 2 of 11
DL:yd
<PAGE> 3
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
GENERAL CONDITIONS
CONTINUED:
Net Retained Lines Clause.
Taxes Clause.
Federal Excise Tax Clause.
Insolvency Clause.
Letters of Credit Evergreen Clause excluding Incurred but
not reported in respect of unadmitted reinsurers.
Service of Suit Clause.
Intermediary Clause L.P.O. 223/226 Minet Re North America,
Inc.
Liability of the Reinsurer.
LSW 1001 (Reinsurance) - Several Liability Notice.
THROUGH J.H. MINET REINSURANCE BROKERS LIMITED
REINSURERS:
Underwriting Members of Lloyd's London (See attached schedule) 65.289%
* Threadneedle Insurance Company Limited London 9.917%
*# WASA International (UK) Insurance Co. Ltd, London 3.306%
* General Accident Reinsurance Company Ltd. "X" Account
Perth, Scotland 6.612%
* Atlas Assurance Company Limited
"T" Account, London 6.612%
* Commercial Union Assurance Company plc
London 8.264%
------
100.00%
* No U.S. Federal Excise Tax to be deducted.
# Excluding Letters of Credit/Outstanding Claim Advances.
DL:yd
Page 3 of 11
<PAGE> 4
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
---------------------------
Senior Vice President
TRANSCO SYNDICATE #1 LTD
[SIG]
- ------------------------
Authorized Signature
5/13/96
- ------------------------
Date
ALPINE INSURANCE COMPANY
[SIG]
- ------------------------
Authorized Signature
5/13/96
- ------------------------
Date
Please examine this document carefully and advise us immediately if any of the
details or the security used are not in accordance with your order or
requirements.
Page 4 of 11
DL:yd
<PAGE> 5
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
LLOYD'S PARTICIPANTS
PSEUDONYM SYNDICATE PERCENTAGE
MLM 1221 9.917%
STN 566 9.917%
BHB 1215 9.917%
TPJ 744 6.612%
DEH 1009 6.612%
SES 588 6.337%
MEB 1209 0.275%
WHS 2 6.612%
BER 536 3.306%
WEH 362 2.479%
TWP 1121 3.305%
-------
TOTAL 65.289% Of Order
Page 5 of 11
DL:yd
<PAGE> 6
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
Liability of the Reinsurer
The liability of the Reinsurer shall follow that of the Reinsured in every case
and shall be subject in all respects to the general and special stipulations
clause, waivers and modifications of the Reinsured's policy.
No error or omission in reporting any risk reinsured hereunder shall
invalidate the liability of the Reinsurer but the reporting of reinsurance not
authorized by this Agreement or by special acceptance hereunder shall not bind
the Reinsurer, except for the return of premiums paid therefore.
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under contracts of reinsurance to
which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW 1001 (Reinsurance)
DL:yd
Page 6 of 11
<PAGE> 7
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
TAXES CLAUSE
The Reinsured agrees not to claim any deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to
the appropriate tax authorities.
INSOLVENCY CLAUSE
This Reinsurance shall be payable by the Reinsurer on the basis of the
liability of the Reinsured under contract or contracts reinsured without
diminution because of the insolvency of the Reinsured.
It is further agreed and understood and in the event of insolvency of
the Reinsured, the liquidator or receiver or statutory successor of the
Reinsured shall give written notice to the Reinsurers of the pendency of a
claim against the insolvent Reinsured on the policy or policies Reinsured
within a reasonable time after such claim is filed in the insolvency
proceeding, that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at their own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which they may
deem available to the Reinsured or its liquidator or receiver or statutory
successor that the expense thus incurred by the Reinsurer shall be chargeable
subject to court approval against the insolvent Reinsured as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Reinsured solely as a result of the defense undertaken
by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of the reinsurance Agreement
as though such expense had been incurred by the Reinsured.
DL:yd
Page 7 of 11
<PAGE> 8
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
FEDERAL EXCISE TAX CLAUSE
(Applicable to those reinsurers, excepting Underwriters at Lloyd's, London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America).
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the applicable percentage of the premium payable hereon (as imposed under
the Internal Revenue Code) to the extent such premium is subject to the Federal
Excise Tax.
In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the aforesaid percentage from the return premium payable hereon and the
Company or its agent should take steps to recover the tax from the United
States Government.
LETTER OF CREDIT CLAUSE
(This clause is only applicable to those Reinsurers who cannot qualify for
Credit by the State having jurisdiction over the Reinsured's Loss Reserves).
As regards policies issued by the Reinsured coming within the scope of this
Agreement, the Reinsured agrees that when it shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them. The Reinsurer hereby agrees that they will apply for and secure delivery
to the Reinsured a clean irrevocable Letter of Credit issued by the designated
bank in an amount equal to the Reinsurers proportion of said loss reserves.
Under no circumstances shall any amount relating to reserves in respect of
Incurred but not reported losses be included in the amount of the Letter of
Credit.
DL:yd
Page 8 of 11
<PAGE> 9
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
The Reinsured undertakes to use and apply any amount which it may draw upon
such credit pursuant to the terms of the Contract under which the Letter of
Credit is held, and for the following purposes only:
a) To pay Reinsurer's share or to reimburse the Reinsured for the Reinsurer's
share of any liability for loss reinsured by the Agreement.
b) To make refund of any sum which is in excess of the actual amounts required
to pay Reinsurer's share of any liability reinsured by this Agreement.
c) To obtain a cash deposit of Reinsurer's share of loss reserves if the
Company has received effective notice of non-renewal of the Letter of
Credit and the Reinsurer's liability remain unliquidfied and undischarged
thirty (30) days prior to the expiry date of the Letter of Credit.
The designated bank shall have no responsibility whatsoever in connecting with
the property of withdrawals made by the Reinsured or the disposition of
funds withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Reinsured.
Page 9 of ll
DL:yd
<PAGE> 10
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
SERVICE OF SUIT CLAUSE
(This Article only applies to reinsurers who are not domiciled in the USA and
are not authorized in any State where authorization is required by insurance
regulatory authorities in order for the Company to take credit for this
reinsurance).
In the event of the failure of the Reinsurer hereon to pay any amount claimed
to be due hereunder, the Reinsurer hereon, at the request of the Company, will
submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any State in the United
States.
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829, and in any suit instituted
against it, under this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
Page 10 of 11
DL:yd
<PAGE> 11
[INTERE RFC LETTERHEAD]
MA962045
APRIL 25, 1996
NET RETAINED LINES CLAUSE
This Agreement applies only to that portion of any insurance or reinsurances
covered by this Agreement which the Reinsured retains net for its own account,
and in calculating the amount of any loss hereunder and also in computing the
amount or amounts in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurances or reinsurances which the
Reinsured retains net for its own account shall be included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reinsured to collect from any other reinsurers, whether
specific or general, any amounts which may become due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
MINET RE NORTH AMERICA
Minet Re North America, Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss adjustment, expenses, salvages and loss
settlements) relating thereto shall be transmitted to the REINSURED or the
SUBSCRIBING REINSURER, through Minet Re North America, Inc., 199 Water Street,
New York, NY 10038. Payments by the REINSURED to the Intermediary shall be
deemed to constitute payment to the SUBSCRIBING REINSURER. Payments by the
SUBSCRIBING REINSURER to the Intermediary shall be deemed only to constitute
payment to the REINSURED to the extent that such payments are actually received
by the REINSURED.
Page 11 of 11
DL:yd
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.87
COVER NOTE NO.: MA960475 DATE: April 25, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
REINSURED: TRANSCO SYNDICATE #l LTD. AND/OR ALPINE
INSURANCE COMPANY ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR
SERVICED BY TCO INSURANCE SERVICES, INC.
OF CHICAGO, ILLINOIS.
TYPE: MARINE EXCESS OF LOSS REINSURANCE.
INTEREST: All business written by the Reinsured and allocated
to their Marine Account.
Excluding:
1. Rejection Risks;
2. Rig Business;
3. Proportional and Non-Proportional Treaty Business
written as such.
Fishing vessels limited to U.S.$75,000 any one vessel
or so deemed.
PERIOD: Losses occurring during the period 12 months at
March 1, 1996, Local Standard Time at place where
the loss occurs.
LIMIT: This Reinsurance is to indemnify the Reinsured for all
losses in excess of an Ultimate Net Loss of
U.S.$3,500,000 or equivalent in other currencies each
and every loss and/or occurrence and/or series of
losses arising out of one event.
Policy for up to a further U.S.$2,500,000 or
equivalent in other currencies each and every loss
and/or occurrence and/or series of losses arising out of
one event.
REINSTATEMENT: One Full Reinstatement, at 100% Additional Premium.
Page 1 of 11
DL:yd
<PAGE> 2
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
MINIMUM AND DEPOSIT
PREMIUM: U.S.$95,000 payable half yearly in advance.
Adjustable at 1.35% of the reinsured's applicable Net
Premium Income.
The Reinsured shall have the option of internally
"grossing up" their premium ceded to reinsurers to
allow for acquisition costs and other costs on the
business subject to this agreement.
GENERAL CONDITIONS: Full Wording as Joint Excess of Loss Committee Clauses,
(EXEL 1/1/90), with additional clauses, deletions,
endorsements, special conditions and warranties (at no
additional premium) as follows:
War Included.
Extra-Contractual Obligations Included.
Aggregate Voyage Extensive Clause (Cargo) Excluded.
Non-Marine Liability Exclusion Clause 10.1.87 shall apply
to this contract in respect of original policies
attaching between March 1st, 1987 and December 31st,
1990 both days inclusive. Liability Exclusion Clause "B"
12/1/90 shall apply to this contract in respect of
original policies attaching on or after January 1, 1991
(as attached).
Institute Radioactive Contamination Exclusion Clause
October 1st, 1990.
In respect of Section L of the Schedule
Arbitration to be held in Chicago, Illinois and to apply
the laws of Illinois as the proper law of this Agreement.
The Appointer shall be the American Arbitration
Association.
Plus the following additional clauses as more full
described in the attached schedules:
DL:yd
Page 2 of 11
<PAGE> 3
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
GENERAL CONDITIONS
CONTINUED: Net Retained Lines Clause.
Taxes Clause.
Federal Excise Tax Clause.
Insolvency Clause.
Letters of Credit Evergreen Clause excluding Incurred
but not reported in respect of unadmitted reinsurers.
Service of Suit Clause.
Intermediary Clause L.P.O. 223/226 Minet Re North
America, Inc.
Liability of the Reinsurer.
LSW 1001 (Reinsurance) - Several Liability Notice.
THROUGH J.H. MINET REINSURANCE BROKERS LIMITED
REINSURERS:
Underwriting Members of Lloyd's London (See attached schedule) 80.067%
* Threadneedle Insurance Company Limited London 9.967%
*# WASA International (UK) Insurance Co. Ltd, London 3.321%
General Accident Reinsurance Company Ltd. "X" Account 6.645%
Perth, Scotland -------
100.00%
* No U.S. Federal Excise Tax to be deducted.
# Excluding Letters of Credit/Outstanding Claim Advances.
Page 3 of 11
DL:yd
<PAGE> 4
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
---------------------------
Senior Vice President
TRANSCO SYNDICATE #1 LTD.
[SIG]
- ------------------------
Authorized Signature
5/13/96
- ------------------------
Date
ALPINE INSURANCE COMPANY
[SIG]
- ------------------------
Authorized Signature
5/13/96
- ------------------------
Date
Please examine this document carefully and advise us immediately if any of the
details or the security used are not in accordance with your order or
requirements.
Page 4 of 11
DL:yd
<PAGE> 5
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
LLOYD'S PARTICIPANTS
PSEUDONYM SYNDICATE PERCENTAGE
MLM 1221 9.967%
STN 566 9.967%
BHB 1215 9.967%
SES 588 9.552%
MEB 1209 0.415%
TPJ 744 6.645%
HAY 1084 6.645%
WTK 457 6.645%
DEH 1009 6.645%
MED 609 1.993%
TJP 500 1.661%
TWP 1121 6.644%
WEH 362 3.321%
------
TOTAL 80.067% OF ORDER
Page 5 of 11
DL:yd
<PAGE> 6
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
LIABILITY OF THE REINSURER
The liability of the Reinsurer shall follow that of the Reinsured in every case
and shall be subject in all respects to the general and special stipulations,
clause, waivers and modifications of the Reinsured's policy.
No error or omission in reporting any risk reinsured hereunder shall invalidate
the liability of the Reinsurer but the reporting of reinsurance not authorized
by this Agreement or by special acceptance hereunder shall not bind the
Reinsurer, except for the return of premiums paid therefore.
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW 1001 (Reinsurance)
Page 6 0f ll
DL:yd
<PAGE> 7
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
TAXES CLAUSE
The Reinsured agrees not to claim any deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to
the appropriate tax authorities.
INSOLVENCY CLAUSE
This Reinsurance shall be payable by the Reinsurer on the basis of the
liability of the Reinsured under contract or contracts reinsured without
diminution because of the insolvency of the Reinsured.
It is further agreed and understood and in the event of insolvency of the
Reinsured, the liquidator or receiver or statutory successor of the Reinsured
shall give written notice to the Reinsurers of the pendency of a claim against
the insolvent Reinsured on the policy or policies Reinsured within a reasonable
time after such claim is filed in the insolvency proceeding, that during the
pendency of such claim the Reinsurer may investigate such claim and interpose,
at their own expense, in the proceeding where such claim is to be adjudicated
any defense or defenses which they may deem available to the Reinsured or its
liquidator or receiver or statutory successor that the expense thus incurred by
the Reinsurer shall be chargeable subject to court approval against the
insolvent Reinsured as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Reinsured solely as
a result of the defense undertaken by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of the reinsurance Agreement
as though such expense had been incurred by the Reinsured.
Page 7 of 11
DL:yd
<PAGE> 8
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
FEDERAL EXCISE TAX CLAUSE
(Applicable to those reinsurers, excepting Underwriters at Lloyd's, London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America).
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the applicable percentage of the premium payable hereon (as imposed under
the Internal Revenue Code) to the extent such premium is subject to the Federal
Excise Tax.
In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the aforesaid percentage from the return premium payable hereon and the
Company or its agent should take steps to recover the tax from the United
States Government.
LETTER OF CREDIT CLAUSE
(This clause is only applicable to those Reinsurers who cannot qualify for
Credit by the State having jurisdiction over the Reinsured's Loss Reserves).
As regards policies issued by the Reinsured coming within the scope of
this Agreement, the Reinsured agrees that when it shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them. The Reinsurer hereby agrees that they will apply for and secure delivery
to the Reinsured a clean irrevocable Letter of Credit issued by the designated
bank in an amount equal to the Reinsurers proportion of said loss reserves.
Under no circumstances shall any amount relating to reserves in respect
of Incurred but not reported losses be included in the amount of the Letter of
Credit.
Page 8 of 11
DL:yd
<PAGE> 9
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
The Reinsured undertakes to use and apply any amount which it may draw upon
such credit pursuant to the terms of the Contract under which the Letter of
Credit is held, and for the following purposes only:
a) To pay Reinsurer's share or to reimburse the Reinsured for the Reinsurer's
share of any liability for loss reinsured by the Agreement.
b) To make refund of any sum which is in excess of the actual amounts required
to pay Reinsurer's share of any liability reinsured by this Agreement.
c) To obtain a cash deposit of Reinsurer's share of loss reserves if the
Company has received effective notice of non-renewal of the Letter of
Credit and the Reinsurer's liability remain unliquified and undischarged
thirty (30) days prior to the expiry date of the Letter of Credit.
The designated bank shall have no responsibility whatsoever in connecting
with the property of withdrawals made by the Reinsured or the disposition
of funds withdrawn, except to see that withdrawals are made only upon the
order of properly authorized representatives of the Reinsured.
Page 9 of 11
DL:yd
<PAGE> 10
[INTERE RFC LETTERHEAD]
MA960475
APRIL 25, 1996
SERVICE OF SUIT CLAUSE
(This Article only applies to reinsurers who are not domiciled in the USA and
are not authorized in any State where authorization is required by insurance
regulatory authorities in order for the Company to take credit for this
reinsurance).
In the event of the failure of the Reinsurer hereon to pay any amount claimed
to be due hereunder, the Reinsurer hereon, at the request of the Company, will
submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any State in the United
States.
Service of process in such suit may be made upon Messrs. Mendes and
Mount, 750 Seventh Avenue, New York, New York 10019-6829, and in any suit
instituted against it, under this Agreement, the Reinsurer will abide by the
final decision of such court or of any appellate court in the event of an
appeal.
The above-named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefore, the Reinsurer
hereon hereby designates the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the statute, or his
successor or successors in office, as its true and lawful attorney upon whom
may be served any lawful process in any action, suit or proceeding instituted
by or on behalf of the Company or any beneficiary hereunder arising out of this
Agreement, and hereby designates the above named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.
Page 10 of 11
DL:yd
<PAGE> 11
[INTERE RFC LETTERHEAD]
MA960475
April 25, 1996
NET RETAINED LINES CLAUSE
This Agreement applies only to that portion of any insurance or reinsurances
covered by this Agreement which the Reinsured retains net for its own
account, and in calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this Agreement attaches,
only loss or losses in respect of that portion of any insurances or
reinsurances which the Reinsured retains net for its own account shall be
included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason
of the inability of the Reinsured to collect from any other reinsurers, whether
specific or general, any amounts which may become due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
MINET RE NORTH AMERICA
Minet Re North America, Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment, expenses,
salvages and loss settlements) relating thereto shall be transmitted to the
REINSURED or the SUBSCRIBING REINSURER, through Minet Re North America, Inc.,
199 Water Street, New York, NY 10038. Payments by the REINSURED to the
Intermediary shall be deemed to constitute payment to the SUBSCRIBING
REINSURER. Payments by the SUBSCRIBING REINSURER to the Intermediary shall be
deemed only to constitute payment to the REINSURED to the extent that such
payments are actually received by the REINSURED.
DL:yd Page 11 of 11
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.88
COVER NOTE NO.: MA960406 DATE: APRIL 25, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
REINSURED: TRANSCO SYNDICATE #1 LTD. AND/OR ALPINE
INSURANCE COMPANY ON BUSINESS
ADMINISTERED, UNDERWRITTEN OR SERVICED BY TCO
INSURANCE SERVICES, INC. OF CHICAGO,
ILLINOIS.
TYPE: MARINE EXCESS OF LOSS REINSURANCE.
INTEREST: All business written by the Reinsured and
allocated to their Marine Account.
Excluding:
1. Rejection Risks;
2. Rig Business;
3. Proportional and Non-Proportional
Treaty Business written as such.
Fishing vessels limited to U.S.$75,000 any
one vessel or so deemed.
PERIOD Losses occurring during the period 12
months at March 1, 1996, Local Standard
Time at place where the loss occurs.
LIMIT: This Reinsurance is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of U.S.$1,000,000 or
equivalent in other currencies each and every
loss and/or occurrence and/or series of
losses arising out of one event.
Policy for up to a further U.S.$2,500,000 or
equivalent in other currencies each and every
loss and/or occurrence and/or series of
losses arising out of one event.
REINSTATEMENT: One Full Reinstatement, at 100% Additional
Premium.
DL:yd Page 1 of 11
<PAGE> 2
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
MINIMUM AND DEPOSIT
PREMIUM: U.S.$170,000 payable half yearly in
advance.
Adjustable at 2.50% of the reinsured's
applicable Net Premium Income.
The Reinsured shall have the option of
internally "grossing up" their premium
ceded to reinsurers to allow for acquisition
costs and other costs on the business subject
to this agreement.
GENERAL CONDITIONS: Full Wording as Joint Excess of Loss
Committee Clauses, (EXEL 1/1/90), with
additional clauses, deletions, endorsements,
special conditions and warranties (at no
additional premium) as follows:
War Included.
Extra-Contractual Obligations Included.
Aggregate Voyage Extension Clause (Cargo)
Excluded.
Non-Marine Liability Exclusion Clause 10.1.87
shall apply to this contract in respect of
original policies attaching between March 1st,
1987 and December 31st, 1990 both days
inclusive. Liability Exclusion Clause "B"
12/1/90 shall apply to this contract in
respect of original policies attaching on or
after January 1, 1991 (as attached).
Institute Radioactive Contamination Exclusion
Clause October 1st, 1990).).
In respect of Section L of the Schedule
Arbitration to be held in Chicago,
Illinois and to apply the laws of Illinois as
the proper law of this Agreement. The
Appointer shall be the American Arbitration
Association.
Plus the following additional clauses as more
full described in the attached
schedules:
DL:yd Page 2 of 11
<PAGE> 3
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
GENERAL CONDITIONS
CONTINUED:
Net Retained Lines Clause.
Taxes Clause.
Federal Excise Tax Clause.
Insolvency Clause.
Letters of Credit Evergreen Clause excluding
Incurred but not
reported in respect of unadmitted reinsurers.
Service of Suit Clause.
Intermediary Clause L.P.O. 223/226 Minet Re
North America, Inc.
Liability of the Reinsurer.
LSW 1001 (Reinsurance)
THROUGH J.H. MINET REINSURANCE BROKERS LIMITED
REINSURERS:
Underwriting Members of Lloyd's London 79.167%
(See attached schedule)
* Threadneedle Insurance Company Limited London 10.417%
*# WASA International (UK) Insurance Co. Ltd. London 3.472%
* General Accident Reinsurance Company Ltd. "X" Account
Perth, Scotland 6.944%
-------
100.00%
* No U.S. Federal Excise Tax to be deducted.
# Excluding Letters of Credit/Outstanding Claim Advances.
DL:yd Page 3 of 11
<PAGE> 4
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
---------------------------------
Senior Vice President
TRANSCO SYNDICATE #1 LTD.
[ ? SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
ALPINE INSURANCE COMPANY
[ ? SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
Please examine this document carefully and advise us immediately if any of the
details or the security used are not in accordance with your order or
requirements.
DL:yd Page 4 of 11
<PAGE> 5
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
LLOYD'S PARTICIPANTS
--------------------
PSEUDONYM SYNDICATE PERCENTAGE
--------- --------- ----------
MLM 1221 10.418%
STN 566 10.417%
BHB 1215 10.417%
SES 588 6.656%
MEB 1209 0.289%
TPJ 744 6.944%
HAY 1084 6.944%
WTK 457 6.944%
DEH 1009 4.167%
MED 609 3.472%
TJP 500 3.472%
TWP 1121 6.944%
WEH 362 2.083%
-------
TOTAL 79.167% OF ORDER
DL:yd Page 5 of 11
<PAGE> 6
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
LIABILITY OF THE REINSURER
The liability of the Reinsurer shall follow that of the Reinsured in every case
and shall be subject in all respects to the general and special stipulations,
clause, waivers and modifications of the Reinsured's policy.
No error or omission in reporting any risk reinsured hereunder shall invalidate
the liability of the Reinsurer but the reporting of reinsurance not
authorized by this Agreement or by special acceptance hereunder shall not bind
the Reinsurer, except for the return of premiums paid therefore.
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co - subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW 1001 (Reinsurance)
DL:yd Page 6 of 11
<PAGE> 7
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
TAXES CLAUSE
The Reinsured agrees not to claim any deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to
the appropriate tax authorities.
INSOLVENCY CLAUSE
This Reinsurance shall be payable by the Reinsurer on the basis of the
liability of the Reinsured under contract or contracts reinsured without
diminution because of the insolvency of the Reinsured.
It is further agreed and understood and in the event of insolvency of the
Reinsured, the liquidator or receiver or statutory successor of the Reinsured
shall give written notice to the Reinsurers of the pendency of a claim against
the insolvent Reinsured on the policy or policies Reinsured within a reasonable
time after such claim is filed in the insolvency proceeding, that during the
pendency of such claim the Reinsurer may investigate such claim and interpose,
at their own expense, in the proceeding where such claim is to be adjudicated
any defense or defenses which they may deem available to the Reinsured or its
liquidator or receiver or statutory successor that the expense thus incurred by
the Reinsurer shall be chargeable subject to court approval against the
insolvent Reinsured as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Reinsured solely as
a result of the defense undertaken by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of the reinsurance Agreement as though
such expense had been incurred by the Reinsured.
DL:yd Page 7 of 11
<PAGE> 8
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
FEDERAL EXCISE TAX CLAUSE
(Applicable to those reinsurers, excepting Underwriters at Lloyd's, London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America).
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the applicable percentage of the premium payable hereon (as imposed
under the Internal Revenue Code) to the extent such premium is subject to the
Federal Excise Tax.
In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the aforesaid percentage from the return premium payable hereon and the
Company or its agent should take steps to recover the tax from the United
States Government.
LETTER OF CREDIT CLAUSE
(This clause is only applicable to those Reinsurers who cannot qualify for
Credit by the State having jurisdiction over the Reinsured's Loss Reserves).
As regards policies issued by the Reinsured coming within the scope of this
Agreement, the Reinsured agrees that when it shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them. The Reinsurer hereby agrees that they will apply for and secure delivery
to the Reinsured a clean irrevocable Letter of Credit issued by the designated
bank in an amount equal to the Reinsurers proportion of said loss reserves.
Under no circumstances shall any amount relating to reserves in respect of
Incurred but not reported losses be included in the amount of the Letter of
Credit.
DL:yd Page 8 of 11
<PAGE> 9
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
The Reinsured undertakes to use and apply any amount which it may draw upon
such credit pursuant to the terms of the Contract under which the Letter of
Credit is held, and for the following purposes only:
a) To pay Reinsurer's share or to reimburse the Reinsured for the Reinsurer's
share of any liability for loss reinsured by the Agreement.
b) To make refund of any sum which is in excess of the actual amounts required
to pay Reinsurer's share of any liability reinsured by this Agreement.
c) To obtain a cash deposit of Reinsurer's share of loss reserves if the
Company has received effective notice of non-renewal of the Letter of
Credit and the Reinsurer's liability remain unliquidfied and undischarged
thirty (30) days prior to the expiry date of the Letter of Credit.
The designated bank shall have no responsibility whatsoever in connecting with
the property of withdrawals made by the Reinsured or the disposition of
funds withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Reinsured.
DL:yd Page 9 of 11
<PAGE> 10
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
SERVICE OF SUIT CLAUSE
(This Article only applies to reinsurers who are not domiciled in the USA and
are not authorized in any State where authorization is required by insurance
regulatory authorities in order for the Company to take credit for this
reinsurance).
In the event of the failure of the Reinsurer hereon to pay any amount claimed
to be due hereunder, the Reinsurer hereon, at the request of the Company,
will submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any State in the United
States.
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829, and in any suit instituted
against it, under this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
DL:yd Page 10 of 11
<PAGE> 11
[INTERE RFC LETTERHEAD]
MA960406
APRIL 25, 1996
NET RETAINED LINES CLAUSE
This Agreement applies only to that portion of any insurance or reinsurances
covered by this Agreement which the Reinsured retains net for its own account,
and in calculating the amount of any loss hereunder and also in computing the
amount or amounts in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurances or reinsurances which the
Reinsured retains net for its own account shall be included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reinsured to collect from any other reinsurers, whether
specific or general, any amounts which may become due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
MINET RE NORTH AMERICA
Minet Re North America, Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss adjustment, expenses, salvages and loss
settlements) relating thereto shall be transmitted to the REINSURED or the
SUBSCRIBING REINSURER, through Minet Re North America, Inc. 199 Water Street,
New York, NY 10038. Payments by the REINSURED to the Intermediary shall be
deemed to constitute payment to the SUBSCRIBING REINSURER. Payments by the
SUBSCRIBING REINSURER to the Intermediary shall be deemed only to constitute
payment to the REINSURED to the extent that such payments are actually received
by the REINSURED.
DL:yd Page 11 of 11
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.89
COVER NOTE NO.: MA960269 DATE: APRIL 25, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
REINSURED: TRANSCO SYNDICATE #1 LTD. AND/OR ALPINE
INSURANCE COMPANY ON BUSINESS ADMINISTERED,
UNDERWRITTEN OR SERVICED BY TCO INSURANCE
SERVICES, INC. OF CHICAGO, ILLINOIS.
TYPE: MARINE EXCESS OF LOSS REINSURANCE.
INTEREST: All business written by the Reinsured and
allocated to their Marine Account.
Excluding:
1. Rejection Risks;
2. Rig Business;
3. Proportional and Non-Proportional Treaty
Business written as such.
Fishing vessels limited to U.S.$75,000 any
one vessel or so deemed.
PERIOD: Losses occurring during the period 12 months
at March 1, 1996, Local Standard Time at
place where the loss occurs.
LIMIT: This Reinsurance is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of U.S.$250,000 or
equivalent in other currencies each and every
loss and/or occurrence and/or series of
losses arising out of one event.
Policy for up to a further U.S.$250,000 or
equivalent in other currencies each and
every loss and/or occurrence and/or series
of losses arising out of one event, which in
turn excess of US$250,000 in the aggregate
otherwise recoverable.
REINSTATEMENT: Two Full Reinstatements, at 100% Additional
Premium.
DL:YD Page 1 of 11
<PAGE> 2
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
MINIMUM AND DEPOSIT
PREMIUM: U.S.$167,500 payable half yearly in advance.
Adjustable at 2.40% of the reinsured's
applicable Net Premium Income.
The Reinsured shall have the option of
internally "grossing up" their premium
ceded to reinsurers to allow for acquisition
costs and other costs on the business subject
to this agreement.
GENERAL CONDITIONS: Full Wording as Joint Excess of Loss
Committee Clauses, (EXEL 1/1/90), with
additional clauses, deletions,
endorsements, special conditions and
warranties (at no additional premium) as
follows:
War Included.
Extra-Contractual Obligations Included.
Aggregate Voyage Extension Clause (Cargo)
Excluded.
Non-Marine Liability Exclusion Clause 10.1.87
shall apply to this contract in respect of
original policies attaching between March
1st, 1987 and December 31st, 1990 both days
inclusive. Liability Exclusion Clause "B"
12/1/90 shall apply to this contract in
respect of original policies attaching on or
after January 1, 1991 (as attached).
Institute Radioactive Contamination Exclusion
Clause October 1st, 1990).
In respect of Section L of the Schedule
Arbitration to be held in Chicago,
Illinois and to apply the laws of Illinois as
the proper law of this Agreement. The
Appointer shall be the American Arbitration
Association.
Plus the following additional clauses as more
full described in the attached
schedules:
DL:yd Page 2 of 11
<PAGE> 3
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
GENERAL CONDITIONS
CONTINUED:
Net Retained Lines Clause.
Taxes Clause.
Federal Excise Tax Clause.
Insolvency Clause.
Letters of Credit Evergreen Clause excluding
Incurred but not
reported in respect of unadmitted reinsurers.
Service of Suit Clause.
Intermediary Clause L.P.O. 223/226 Minet Re
North America, Inc.
Liability of the Reinsurer.
LSW 1001 (Reinsurance)
THROUGH J.H. MINET REINSURANCE BROKERS LIMITED
REINSURERS:
Underwriting Members of Lloyd's London 77.779%
(See attached schedule)
* Threadneedle Insurance Company Limited London 13.333%
*# WASA International (UK) Insurance Co. Ltd, London 4.444%
* General Accident Reinsurance Company Ltd. "X" Account
Perth, Scotland 4.444%
-------
100.00%
* No U.S. Federal Excise Tax to be deducted.
# Excluding Letters of Credit/Outstanding Claim Advances.
DL:yd Page 3 of 11
<PAGE> 4
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
---------------------------------
Senior Vice President
TRANSCO SYNDICATE #1 LTD.
[SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
ALPINE INSURANCE COMPANY
[SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
Please examine this document carefully and advise us immediately if any of the
details or the security used are not in accordance with your order or
requirements.
DL:yd Page 4 of 11
<PAGE> 5
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
LLOYD'S PARTICIPANTS
--------------------
PSEUDONYM SYNDICATE PERCENTAGE
--------- --------- ----------
TPJ 744 17.779%
STN 566 17.779%
BHB 1215 17.778%
TWP 1121 6.667%
HAY 1084 4.444%
DEH 1009 4.444%
TJP 500 4.444%
MED 609 4.444%
-------
TOTAL 77.779% OF ORDER
DL:yd Page 5 of ll
<PAGE> 6
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
Liability of the Reinsurer
The liability of the Reinsurer shall follow that of the Reinsured in every case
and shall be subject in all respects to the general and special stipulations,
clause, waivers and modifications of the Reinsured's policy.
No error or omissions in reporting any risk reinsured hereunder shall
invalidate the liability of the Reinsurer but the reporting of reinsurance not
authorized by this Agreement or by special acceptance hereunder shall not bind
the Reinsurer, except for the return of premiums paid therefore.
Several Liability Notice
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subsribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW 1001 (Reinsurance)
DL:yd Page 6 of 11
<PAGE> 7
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
TAXES CLAUSE
The Reinsured agrees not to claim any deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to
the appropriate tax authorities.
INSOLVENCY CLAUSE
This Reinsurance shall be payable by the Reinsurer on the basis of the
liability of the Reinsured under contract or contracts reinsured without
diminution because of the insolvency of the Reinsured.
It is further agreed and understood and in the event of insolvency of the
Reinsured, the liquidator or receiver or statutory successor of the Reinsured
shall give written notice to the Reinsurers of the pendency of a claim against
the insolvent Reinsured on the policy or policies Reinsured within a reasonable
time after such claim is filed in the insolvency proceeding, that during the
pendency of such claim the Reinsurer may investigate such claim and interpose,
at their own expense, in the proceeding where such claim is to be adjudicated
any defense or defenses which they may deem available to the Reinsured or its
liquidator or receiver or statutory successor that the expense thus incurred by
the Reinsurer shall be chargeable subject to court approval against the
insolvent Reinsured as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Reinsured solely as a
result of the defense undertaken by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of the reinsurance Agreement as though
such expense had been incurred by the Reinsured.
DL:yd Page 7 of 11
<PAGE> 8
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
FEDERAL EXCISE TAX CLAUSE
(Applicable to those reinsurers, excepting Underwriters at Lloyd's, London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America).
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the applicable percentage of the premium payable hereon (as imposed
under the Internal Revenue Code) to the extent such premium is subject to the
Federal Excise Tax.
In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the aforesaid percentage from the return premium payable hereon and the
Company or its agent should take steps to recover the tax from the United
States Government.
LETTER OF CREDIT CLAUSE
(This clause is only applicable to those Reinsurers who cannot qualify for
Credit by the State having jurisdiction over the Reinsured's Loss Reserves).
As regards policies issued by the Reinsured coming within the scope of this
Agreement, the Reinsured agrees that when it shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them. The Reinsurer hereby agrees that they will apply for and secure delivery
to the Reinsured a clean irrevocable Letter of Credit issued by the designated
bank in an amount equal to the Reinsurers proportion of said loss reserves.
Under no circumstances shall any amount relating to reserves in respect of
Incurred but not reported losses be included in the amount of the Letter of
Credit.
DL:yd Page 8 of 11
<PAGE> 9
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
The Reinsured undertakes to use and apply any amount which it may draw upon
such credit pursuant to the terms of the Contract under which the Letter of
Credit is held, and for the following purposes only:
a) To pay Reinsurer's share or to reimburse the Reinsured for the Reinsurer's
share of any liability for loss reinsured by the Agreement.
b) To make refund of any sum which is in excess of the actual amounts required
to pay Reinsurer's share of any liability reinsured by this Agreement.
c) To obtain a cash deposit of Reinsurer's share of loss reserves if the
Company has received effective notice of non-renewal of the Letter of Credit
and the Reinsurer's liability remain unliquidfied and undischarged
thirty (30) days prior to the expiry date of the Letter of Credit.
The designated bank shall have no responsibility whatsoever in connecting with
the property of withdrawals made by the Reinsured or the disposition of
funds withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Reinsured.
DL:yd Page 9 of 11
<PAGE> 10
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
SERVICE OF SUIT CLAUSE
(This Article only applies to reinsurers who are not domiciled in the USA and
are not authorized in any State where authorization is required by insurance
regulatory authorities in order for the Company to take credit for this
reinsurance).
In the event of the failure of the Reinsurer hereon to pay any amount claimed
to be due hereunder, the Reinsurer hereon, at the request of the Company, will
submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any State in the United
States.
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829, and in any suit instituted
against it, under this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
DL:yd Page 10 of 11
<PAGE> 11
[INTERE RFC LETTERHEAD]
MA960269
APRIL 25, 1996
NET RETAINED LINES CLAUSE
This Agreement applies only to that portion of any insurance or reinsurances
covered by this Agreement which the Reinsured retains net for its own
account, and in calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this Agreement attaches,
only loss or losses in respect of that portion of any insurances or
reinsurances which the Reinsured retains net for its own account shall be
included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reinsured to collect from any other reinsurers, whether
specific or general, any amounts which may become due from them, whether
such inability arises from the insolvency of such other reinsurers or
otherwise.
MINET RE NORTH AMERICA
Minet Re North America Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss adjustment, expenses, salvages and loss
settlements) relating thereto shall be transmitted to the REINSURED or the
SUBSCRIBING REINSURER, through Minet Re North America, Inc., 199 Water Street,
New York, NY 10038. Payments by the REINSURED to the Intermediary shall be
deemed to constitute payment to the SUBSCRIBING REINSURER. Payments by the
SUBSCRIBING REINSURER to the Intermediary shall be deemed only to constitute
payment to the REINSURED to the extent that such payments are actually received
by the REINSURED.
DL:yd Page 11 of 11
<PAGE> 1
[INTERE RFC LETTERHEAD]
EXHIBIT 10.90
COVER NOTE NO.: MA960270 DATE: APRIL 25, 1996
MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:
REINSURED: TRANSCO SYNDICATE #1 LTD. AND/OR ALPINE
INSURANCE COMPANY ON BUSINESS ADMINISTERED,
UNDERWRITTEN OR SERVICED BY TCO INSURANCE
SERVICES, INC. OF CHICAGO, ILLINOIS.
TYPE: MARINE EXCESS OF LOSS REINSURANCE.
INTEREST: All business written by the Reinsured and
allocated to their Marine Account.
Excluding:
1. Rejection Risks;
2. Rig Business;
3. Proportional and Non-Proportional Treaty
Business written as such.
Fishing vessels limited to U.S.$75,000 any one
vessel or so deemed.
PERIOD: Losses occurring during the period 12 months
at March 1, 1996, Local Standard Time at
place where the loss occurs.
LIMIT: This Reinsurance is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of U.S.$500,000 or
equivalent in other currencies each and every
loss and/or occurrence and/or series of
losses arising out of one event.
Policy for up to a further U.S.$500,000 or
equivalent in other currencies each and
every loss and/or occurrence and/or series of
losses arising out of one event.
REINSTATEMENT: Two Full Reinstatements at 100% Additional
Premium.
Page 1 of 11
<PAGE> 2
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
MINIMUM AND DEPOSIT
PREMIUM: U.S.$100,000 payable half yearly in advance.
Adjustable at 1.50% of the Reinsured's
applicable Net Premium Income.
The Reinsured shall have the option of
internally "grossing up" their premium
ceded to reinsurers to allow for acquisition
costs and other costs on the business subject
to this agreement.
GENERAL CONDITIONS: Full Wording as Joint Excess of Loss
Committee Clauses, (EXEL 1/1/90), with
additional clauses, deletions, endorsements,
special conditions and warranties (at no
additional premium) as follows:
War Included.
Extra-Contractual Obligations Included.
Aggregate Voyage Extension Clause (Cargo)
Excluded. Non-Marine Liability Exclusion
Clause 10.1.87 shall apply to this contract
in respect of original policies attaching
between March 1st, 1987 and December 31st,
1990 both days inclusive. Liability Exclusion
Clause "B" 12/1/90 shall apply to this
contract in respect of original policies
attaching on or after January 1, 1991 (as
attached). Institute Radioactive
Contamination Exclusion Clause October 1st,
1990.
In respect of Section L of the Schedule
Arbitration to be held in Chicago,
Illinois and to apply the laws of Illinois as
the proper law of this Agreement. The
Appointer shall be the American Arbitration
Association.
Plus the following additional clauses as more
full described in the attached
schedules:
Page 2 of 11
<PAGE> 3
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
GENERAL CONDITIONS
CONTINUED:
Net Retained Lines Clause.
Taxes Clause.
Federal Excise Tax Clause.
Insolvency Clause.
Letters of Credit Evergreen Clause excluding
Incurred but not
reported in respect of unadmitted reinsurers.
Service of Suit Clause.
Intermediary Clause L.P.O. 223/226 Minet Re
North America, Inc.
Liability of the Reinsurer.
LSW 1001 (Reinsurance) - Several Liability
Notice.
THROUGH J.H. MINET REINSURANCE BROKERS LIMITED
REINSURERS:
Underwriting Members of Lloyd's London 77.779%
(See attached schedule)
* Threadneedle Insurance Company Limited London 13.333%
*# WASA International (UK) Insurance Co. Ltd, London 4.444%
* General Accident Reinsurance Company Ltd. "X" Account
Perth, Scotland 4.444%
-------
100.00%
* No U.S. Federal Excise Tax to be deducted.
# Excluding Letters of Credit/Outstanding Claim Advances.
Page 3 of 11
<PAGE> 4
[INTERE RFC LETTERHEAD]
MA960270
April 25, 1996
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
---------------------------------
Senior Vice President
TRANSCO SYNDICATE #1 LTD.
[SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
ALPINE INSURANCE COMPANY
[SIG]
- -----------------------------
Authorized Signature
5/13/96
- -----------------------------
Date
Please examine this document carefully and advise us immediately if any of the
details or the security used are not in accordance with your order or
requirements.
Page 4 of 11
<PAGE> 5
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
LLOYD'S PARTICIPANTS
--------------------
PSEUDONYM SYNDICATE PERCENTAGE
--------- --------- ----------
BHB 1215 17.779%
STN 566 13.334%
TPJ 744 13.334%
HAY 1084 8.889%
TWP 1121 6.667%
WTK 457 4.444%
DEH 1009 4.444%
MED 609 4.444%
TJP 500 4.444%
-------
TOTAL 77.779% OF ORDER
Page 5 of 11
<PAGE> 6
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
Liability of the Reinsurer
The liability of the Reinsurer shall follow that of the Reinsured in every case
and shall be subject in all respects to the general and special stipulations,
clause, waivers and modifications of the Reinsured's policy.
No error or omissions in reporting any risk reinsured hereunder shall
invalidate the liability of the Reinsurer but the reporting of reinsurance not
authorized by this Agreement or by special acceptance hereunder shall not bind
the Reinsurer, except for the return of premiums paid therefore.
Several Liability Notice
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subsribing reinsurer who for any
reason does not satisfy all or part of its obligations.
LSW 1001 (Reinsurance)
Page 6 of 11
<PAGE> 7
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
TAXES CLAUSE
The Reinsured agrees not to claim any deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to
the appropriate tax authorities.
INSOLVENCY CLAUSE
This Reinsurance shall be payable by the Reinsurer on the basis of the
liability of the Reinsured under contract or contracts reinsured without
diminution because of the insolvency of the Reinsured.
It is further agreed and understood and in the event of insolvency of the
Reinsured, the liquidator or receiver or statutory successor of the
Reinsured shall give written notice to the Reinsurers of the pendency of a
claim against the insolvent Reinsured on the policy or policies Reinsured
within a reasonable time after such claim is filed in the insolvency
proceeding, that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at their own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which they may
deem available to the Reinsured or its liquidator or receiver or statutory
successor that the expense thus incurred by the Reinsurer shall be chargeable
subject to court approval against the insolvent Reinsured as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Reinsured solely as a result of the defense undertaken
by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of the reinsurance Agreement as though
such expense had been incurred by the Reinsured.
Page 7 of 11
<PAGE> 8
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
FEDERAL EXCISE TAX CLAUSE
(Applicable to those reinsurers, excepting Underwriters at Lloyd's, London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America).
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the applicable percentage of the premium payable hereon (as imposed under
the Internal Revenue Code) to the extent such premium is subject to the Federal
Excise Tax.
In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the aforesaid percentage from the return premium payable hereon and the
Company or its agent should take steps to recover the tax from the United
States Government.
LETTER OF CREDIT CLAUSE
(This clause is only applicable to those Reinsurers who cannot qualify for
Credit by the State having jurisdiction over the Reinsured's Loss
Reserves).
As regards policies issued by the Reinsured coming within the scope of this
Agreement, the Reinsured agrees that when it shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder which
it shall be required to set up by law it will forward to the Reinsurer a
statement showing the proportion of such loss reserves which is applicable to
them. The Reinsurer hereby agrees that they will apply for and secure delivery
to the Reinsured a clean irrevocable Letter of Credit issued by the designated
bank in an amount equal to the Reinsurers proportion of said loss reserves.
Under no circumstances shall any amount relating to reserves in respect of
Incurred but not reported losses be included in the amount of the Letter of
Credit.
Page 8 of 11
<PAGE> 9
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
The Reinsured undertakes to use and apply any amount which it may draw upon
such credit pursuant to the terms of the Contract under which the Letter of
Credit is held, and for the following purposes only:
a) To pay Reinsurer's share or to reimburse the Reinsured for the
Reinsurer's share of any liability for loss reinsured by the Agreement.
b) To make refund of any sum which is in excess of the actual amounts
required to pay Reinsurer's share of any liability reinsured by this
Agreement.
c) To obtain a cash deposit of Reinsurer's share of loss reserves if the
Company has received effective notice of non-renewal of the Letter of Credit
and the Reinsurer's liability remain unliquidfied and undischarged
thirty (30) days prior to the expiry date of the Letter of Credit.
The designated bank shall have no responsibility whatsoever in connecting
with the property of withdrawals made by the Reinsured or the disposition of
funds withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Reinsured.
Page 9 of 11
<PAGE> 10
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
SERVICE OF SUIT CLAUSE
(This Article only applies to reinsurers who are not domiciled in the USA and
are not authorized in any State where authorization is required by insurance
regulatory authorities in order for the Company to take credit for this
reinsurance).
In the event of the failure of the Reinsurer hereon to pay any amount claimed
to be due hereunder, the Reinsurer hereon, at the request of the Company,
will submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any State in the United
States.
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829, and in any suit instituted
against it, under this Agreement, the Reinsurer will abide by the final
decision of such court or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall
be instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof
Page 10 of 11
<PAGE> 11
[INTERE RFC LETTERHEAD]
MA960270
APRIL 25, 1996
NET RETAINED LINES CLAUSE
This Agreement applies only to that portion of any insurance or reinsurances
covered by this Agreement which the Reinsured retains net for its own account,
and in calculating the amount of any loss hereunder and also in computing the
amount or amounts in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurances or reinsurances which the
Reinsured retains net for its own account shall be included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reinsured to collect from any other reinsurers, whether
specific or general, any amounts which may become due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
MINET RE NORTH AMERICA
Minet Re North America, Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss adjustment, expenses, salvages and loss
settlements) relating thereto shall be transmitted to the REINSURED or the
SUBSCRIBING REINSURER, through Minet Re North America, Inc., 199 Water Street,
New York, NY 10038. Payments by the REINSURED to the Intermediary shall be
deemed to constitute payment to the SUBSCRIBING REINSURER. Payments by the
SUBSCRIBING REINSURER to the Intermediary shall be deemed only to constitute
payment to the REINSURED to the extent that such payments are actually
received by the REINSURED.
Page 11 of 11
<PAGE> 1
EXHIBIT 10.91
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
We hereby confirm that per your authorization the following reinsurance has
been effected. Please examine this document carefully. Immediate notification
must be given of any discrepancies, inaccuracies or necessary changes. The
Agreement will be issued by Alexander Reinsurance Intermediaries, Inc.
establishing Terms and Conditions. This Cover Note shall be superseded by
the Agreement when signed by you and the Reinsurers.
- -------------------------------------------------------------------------------
REINSURED: Transco Syndicate #1, Ltd., Alpine Insurance Company, Chicago,
Illinois, and/or, as agreed by Reinsurers, any of their
subsidiary, affiliated or associated companies. (Such entities
are herein referred to as the Reinsured.)
TYPE: Casualty Quota Share
BUSINESS
COVERED: Business underwritten or managed by TCO Insurance Services, Inc.
of Chicago, Illinois, and classified by the Reinsured as
Primary General Liability, Primary Products Liability/Completed
Operations and Following Form Excess Liability.
TERM: Continuous agreement effective April 1, 1995, covering policies
in force as of April 1, 1995 and policies written or renewed on
or after that date, as respects losses occurring on or after
that date or claims made on claims made policies on or after
that date. The agreement may be terminated by either party at
any December 31 upon 60 days prior written notice by certified
or registered mail. The first "underwriting year" is nine
months, from April 1, 1995 through December 31, 1995. Each
subsequent "underwriting year" is twelve months, from January 1
through December 31.
Unearned premium reserve for subject policies in force at April
1, 1995 shall be ceded as soon as practicable after inception
hereof.
Upon termination of this agreement, the Reinsurer shall remain
liable for losses occurring or claims made under policies in
force until expiration, but in no event longer than 12 months
plus odd time, to a maximum of 18 months in all.
Page 1 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 2
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
By giving the Reinsurer 30 days notice prior to any 12/31, the
Reinsured shall have the option to relieve the Reinsurer of the
unexpired liability under subject policies in force at
termination and to reassume the ceded unearned premium reserve.
SPECIAL
TERMINATION: Any party hereto may terminate this agreement at any time with
respect to the affected party or parties by giving 15 days
notice in writing to such affected party or parties upon the
happening of any one of the following circumstances:
1. a. The state of domicile of the affected party or the
Illinois Insurance Exchange (in the case of Transco
Syndicate #1, Ltd.) orders the affected party to
cease writing business, or
b. The affected party has become insolvent or has been
placed into liquidation or receivership (whether
voluntary or involuntary), or there has been instituted
against it proceedings for the appointment of a
receiver, liquidator, rehabilitator, conservator, or
trustee in bankruptcy, or other agent known by whatever
name, to take possession of its assets or control of
its operations, or
c. The policyholders' surplus of the affected party has
been reduced by whichever is greater, either 50% of the
amount of surplus at the inception of this Agreement or
50% of the amount at the latest anniversary, or
d. The affected party has become merged with, acquired or
controlled by any company, corporation, or
individual(s) not controlling the party's operations
previously, or
e. The affected party has reinsured its entire liability
under the Agreement without the terminating party's
prior written consent.
2. The Reinsurer may terminate this agreement at any time
on 15 days notice in writing with respect to Alpine
Insurance Company if its Best's rating drops below A-
or with respect to Transco Syndicate # 1, Ltd., if its
Best's rating drops below B+.
Page 2 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 3
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
3. The Reinsured may terminate this agreement at any time
on 15 days notice in writing with respect to any
Reinsurer whose Best's rating drops below A-.
4. This agreement is also subject to the loan between
Signet Star Holdings and Exstar Financial Corporation.
If terms of this loan cannot be agreed by December 31,
1995, this agreement may be terminated by the
Reinsured upon 15 days notice in writing as of December
31, 1995.
In the event of such termination, the liability of the
Reinsurer shall be terminated in accordance with the cut-off or
run-off termination provisions of this agreement.
It shall be understood that policies attaching prior to the
cancellation of this agreement for the items mentioned in this
termination section shall be considered bound into this
agreement.
COMMUTATION: The parties may agree to commute this agreement at any time
upon terms to be mutually agreed.
TERRITORY: Per original policies.
LIMIT: 50% Quota Share, subject to a maximum cession of $250,000
(being 50% of $500,000) each and every policy, each and every
loss occurrence or claim made, each insured. Allocated loss
adjustment expense pro rata in addition to the limit unless
such expenses are inclusive in the primary policy limit.
The Agreement is subject to an aggregate limit for each
underwriting year equal to 129.63% of ceded "net net" earned
premium. Subject to the annualized premium cession cap of
$25,000,000, and upon mutual agreement of the parties, the Quota
Share percentage may prospectively be revised either upwards or
downwards from 50% within the last quarter of the first
underwriting year (i.e., October 1 through December 31, 1995)
and the fourth quarter of subsequent "underwriting years."
However, prior to the Reinsured ceding any business at a revised
percentage, the Reinsurer must agree on such revision which
shall apply only to those months remaining in the underwriting
year.
Page 3 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 4
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
PREMIUM: Pro rata of "net net" unearned premium portfolio for subject
policies in force at April 1, 1995 and of original "net net"
written premium income.
"Net net" is defined as the gross original premium plus
additional premium for extended reporting periods, less returned
premium for cancellations and reductions, less premiums ceded
for inuring reinsurances. Of the resulting amount, 70% of this
"gross net unearned premium portfolio" for in-force business and
70% of the "original gross net written premium" for new and
renewal business will be paid to the reinsurers on a provisional
basis as "net net" premium.
The maximum premium cession under this agreement is limited to
$25,000,000 (on an annualized basis) for each underwriting
year.
PREMIUM
ADJUSTMENT: The "net net" earned premium (i.e., the provisional 70%)
adjustment shall be made based upon gross net earned premium
(i.e., before 70%) adjusted in accordance with the following
scale applicable to each underwriting year:
Maximum
Additional: 11.0% of gross net earned premium due at a 77%
loss ratio, sliding .50 for 1.0 to
Additional 7.0% of gross earned net premium due
at a 69% loss ratio, sliding 1.75 for 1.0
to
Provisional: No additional premium due at a 65% loss ratio,
sliding 1.0 for .75 to
Reduction of 4.0% of gross net earned premium
paid at a 62% loss ratio, sliding .60 for 1.0 to
Reduction of 10.0% of gross net earned premium
paid at a 52% loss ratio, sliding 1.0 for 1.0
to
Maximum
Reduction: 15.0% of gross net premium paid at a 47% loss
ratio
Such adjustments to be made quarterly, 45 days following the
end of the underwriting year. For the first underwriting year,
the first upward adjustment shall be made on February 15, 1996
and annually thereafter until all losses are
Page 4 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 5
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
settled. However, no premiums are to be returned to the
Reinsured until 60 months after inception of each underwriting
year (except the first underwriting year, which is 54 months,
i.e., January 1, 2000). Case reserves must be mutually agreed.
To determine the "loss ratio" for purposes of adjustment to the
above scale, the numerator includes ceded paid and unpaid
losses, allocated loss adjustment expenses and ECO and XPL; the
denominator is the gross net earned premium for the
underwriting year.
REPORTS &
REMITTANCES: Monthly within 30 days, the Reinsured will provide a premium
bordereau listing the policy number, the name of the insured,
location (city and state), policy limit, policy type, effective
date, description of exposure, gross receipts, total gross
written premium, quota share net net premium ceded, and
retroactive dates on all claims made policies. Audits,
extensions, cancellations and other endorsement changes will be
presented with this bordereau disclosing the type of
endorsement, the cancellation dates where applicable and the
premium generated.
In addition, the Reinsured will furnish a loss bordereau
monthly within 30 days to include the following: Losses Paid,
Loss Adjustment Expenses Paid, Salvages/Recoveries, Total
Outstanding Reserve.
Within 30 days after the end of each calendar quarter, a
summary account will be due showing the gross net written
premium and net net ceded written premium. Remittances shall be
rendered 30 days following each calendar quarter via wire
transfer.
Accounts to allocate Premium, paid Losses, Unearned Premium
Reserve and Outstanding Losses to each underwriting year.
Annually, any information the Reinsurer may require to complete
its annual convention statement.
For accounting purposes, the Reinsured shall have the option of
internally "grossing up" premium ceded to the Reinsurer to
allow for acquisition costs and other costs on the business
subject to this agreement.
NOTICE OF LOSS: The Reinsured will advise the Reinsurer promptly of all claims
hereunder and of any subsequent developments pertaining thereto
which are reserved net of
Page 5 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 6
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
policy deductible for loss and/or loss adjustment expenses at
$250,000 or more from the ground up.
"Claims Injury Criteria" Notwithstanding the above, the
Reinsured shall promptly advise the Reinsurer of all bodily
injury losses involving the following major injuries:
Fatality
Spinal cord injuries (quadriplegia, paraplegia)
Brain damage (seizure, coma or physical/mental impairment)
Severe burn injuries resulting in disfigurement or scarring
Total or partial blindness in one or both eyes
Amputation of a limb or multiple fractures
Major organ (such as heart, lungs)
EXCLUSIONS: Per attached Exclusion List.
OTHER
REINSURANCE: The Reinsured maintains semiautomatic reinsurance agreements
for $1,500,000 excess $500,000 UNL for each and every loss
occurrence, each and every claim made, each insured. It is the
intent of the parties that the business that is subject
hereunder is substantially the same business that is subject to
such semiautomatic reinsurance agreements.
ORIGINAL
CONDITIONS: All reinsurances falling under this Agreement shall be subject
to the same rates, terms, conditions and waivers, and to the
same modifications, alterations and cancellations as the
respective policies, contracts and binders of the Reinsured.
This Agreement shall not in any manner create any obligations
or establish any rights against the Reinsurer or the Reinsured
in favor of any third parties or any persons not parties to this
Agreement.
OFFSET: The Reinsured and the Reinsurer (and their subsidiary,
affiliated or associated Companies) may offset any balance for
amount due one party to the other under this Agreement. However,
in the event of the insolvency of any party hereto, Offset
shall only be allowed in accordance with applicable law.
Page 6 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 7
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
GENERAL
CONDITIONS: Definition of Occurrence and Claims Made
Net Retained Liability
Loss and Loss Adjustment Expenses
Salvage and Subrogation
Errors and Omissions
Currency
Access to Records
Taxes
Federal Excise Tax
Arbitration
Service of Suit
Funding of Loss and Unearned Premium Reserves
Insolvency
Extra Contractual Obligations Clause - (80% to be included in
the limit)
Excess of Policy Limits Clause -(80% to be included in the
limit)
For ECO and XPL - one additional limit allowed for 80% of total
ECO and
XPL losses not covered under ECO and XPL Clauses
Alexander Reinsurance Intermediaries, Inc. Intermediary Clause
Page 7 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 8
ALEXANDER REINSURANCE INTERMEDIARIES, INC. CASUALTY QUOTA SHARE
TWO PRUDENTIAL PLAZA COVER NOTE NO.: CH 0333-95
180 N. STETSON AVENUE
CHICAGO, ILLINOIS 60601-6714
TELEPHONE: 312-565-6300
TCO INSURANCE SERVICES, INC.
CHICAGO, ILLINOIS
REINSURERS EFFECTIVE APRIL 1, 1995
REINSURED WITH PERCENTAGE
Signet Star Reinsurance Company 80.00%
Reliance Reinsurance Corp. on behalf of
Reliance Insurance Company 20.00%
------
TOTAL PLACEMENT 100.00%
Alexander Reinsurance Transco Syndicate #1, Ltd.
Intermediaries, Inc. Alpine Insurance Company
Daniel M. Collins 8/7/95 Richard G. Kersten 8/8/95
- ---------------------- ------------- ---------------------- -------------
Daniel M. Collins Date Richard G. Kersten Date
Senior Vice President Secy/Sr. V.P./Gen. Counsel
Alpine Insurance Company
Margaret A. O'Brien 8/7/95 Richard G. Kersten 8/8/95
- ---------------------- ------------- ---------------------- -------------
Margaret A. O'Brien, CPCU Date Richard G. Kersten Date
Assistant Vice President Secy/Sr. V.P./Gen. Counsel
Transco Syndicate #1, Ltd.
Page 8 of 8
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 9
ALEXANDER REINSURANCE INTERMEDIARIES, INC. TRANSCO SYNDICATE #1, LTD.
TWO PRUDENTIAL PLAZA ALPINE INSURANCE COMPANY
180 N. STETSON AVENUE CASUALTY QUOTA SHARE
CHICAGO, ILLINOIS 60601-6714 CH 0333-95
TELEPHONE: 312-565-6300
EXCLUSIONS
1. Assumed reinsurance;
2. Pollution liability as excluded in the Subject Policies;
3. Aircraft or airports as respects coverage for all liability arising out
of ownership, maintenance, or use of any aircraft or flight operations
except for industrial aid, pleasure, or business craft when written as
incidental to the original policy;
4. Products Liability as respects the manufacture, sale or distribution of
aircraft or aircraft parts, pertaining to essential instrumentation,
mechanical or structural components relating thereto.
5. Products recall insurance, warranty liability or tampering liability.
6. Operations of railroads and subways, provided, however, this exclusion
shall not apply to risks operating exclusively within the insured's
premises and which are incidental to the overall operations of the
insured;
7. An oil refinery's operations;
8. Asbestos liability, as excluded in the Subject Policies;
9. Financial guarantee and insolvency;
10. Loss or liability excluded by the provisions of the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance USA and Canada";
11. Disposal of hazardous chemicals or hazardous waste including
transporters, contractors, or waste site operators, provided, however,
this exclusion shall not apply to risks classified by the Companies
as residential waste haulers;
12. Manufacture, handling, storage, or transportation of any explosive
substance intended for use as an explosive (explosive substance being
defined as any substance manufactured for the express purpose of
exploding as differentiated from other commodities used industrially
and which are only fortuitously explosive such as gasoline, fuel
gases, and dyestuffs);
13. Any risk engaged in the production, packaging, distribution, promotion
or sale (except retail sale) of tobacco or tobacco products, insofar
as injury arises out of the alleged hazardous properties of tobacco;
Page 1 of 4
8/7/95 Alexander Reinsurance Intermediaries, Inc.
<PAGE> 10
ALEXANDER REINSURANCE INTERMEDIARIES, INC. TRANSCO SYNDICATE #1, LTD.
TWO PRUDENTIAL PLAZA ALPINE INSURANCE COMPANY
180 N. STETSON AVENUE CASUALTY QUOTA SHARE
CHICAGO, ILLINOIS 60601-6714 CH 0333-95
TELEPHONE: 312-565-6300
EXCLUSIONS
14. Motor vehicle racing, when written as such;
15. Fidelity or crime coverage for financial institutions;
16. Medical Malpractice, unless the professional exposure is considered to
be incidental (it being understood that this exclusion shall not apply
to druggists, pharmacists, morticians, cemeteries, health studios, and
reducing salons liability);
17. Professional Liability for accountants, lawyers, architects and
engineers, insurance agents and brokers, security guards and real estate
agents;
18. Political risk or credit insurance;
19. Underground mine operations;
20. SEC liability;
21. All liability of the Companies arising by contract, operation of law, or
otherwise from their participation or membership, whether voluntary or
involuntary, in any insolvency fund ("insolvency fund" being defined to
include any guaranty fund, insolvency fund, plan, pool, association
fund, or other arrangement, howsoever denominated, established or
governed, which provides for any assessment of, payment by, or
assumption by the Companies of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns,
which has been declared by any competent authority to be insolvent, or
which is otherwise deemed unable to meet any claim, debt, charge, fee,
or other obligation in whole or in part);
22. Pools and associations, being liability assumed by the Companies,
directly or indirectly, as a participant in or assuming member or
reinsurer of any pool or association, provided, however, this exclusion
shall not exclude liability assumed by a Company as syndicate member of
the Illinois Insurance Exchange as a participant on a line slip policy;
23. Workers' compensation (including occupational disease) and employers'
liability insurances. This exclusion shall not apply to Contingent
Employers' Liability ("stop gap") coverage that may be attached to
Comprehensive General Liability policies in the states of Washington,
Wyoming, North Dakota and Ohio;
24. Circuses and power-driven amusement devices;
Page 2 of 4
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 11
ALEXANDER REINSURANCE INTERMEDIARIES, INC. TRANSCO SYNDICATE #1, LTD.
TWO PRUDENTIAL PLAZA ALPINE INSURANCE COMPANY
180 N. STETSON AVENUE CASUALTY QUOTA SHARE
CHICAGO, ILLINOIS 60601-6714 CH 0333-95
TELEPHONE: 312-565-6300
EXCLUSIONS
25. Fire, police, or salvage equipment, unless written as a minor part of a
fleet of other vehicles which are not otherwise excluded (it being
understood that the term "salvage equipment" applies to equipment
working in conjunction with fire departments and assigned to answer
emergency alarms);
26. Long-haul trucking (generally being understood as regular operations to
locations more than 200 miles from the insured's base or bases of
operations);
27. Ocean Marine business and all forms of legal liability arising out of
the operation or navigation of ships or vessels;
28. Agricultural spraying;
29. All exterminators;
30. Retroactive liability and all back dates in excess of 30 days;
31. Primary automobile liability to include non-owned and hired;
32. Municipalities and governmental agencies;
33. Liquor liability, except when written in the states of California and
Nevada;
34. Construction of tunnels, dams, subways, and nuclear power plants;
35. Ship builders and ship repair. Definition of a ship being over 100 feet
in length;
36. Environmental impairment liability;
37. Boiler and Machinery liability;
38. Kidnap and ransom;
39. Ocean Marine, Admiralty Jones Act, and FELA, except incidental Jones Act
as related to the use of watercraft 50 feet or less in length, and FELA
as related to the existence and use of railroad side tracks;
40. Electric utilities;
41. Insureds with projected receipts in excess of $40 million at the
inception or anniversary of the policy;
Page 3 of 4
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 12
ALEXANDER REINSURANCE INTERMEDIARIES, INC. TRANSCO SYNDICATE #1, LTD.
TWO PRUDENTIAL PLAZA ALPINE INSURANCE COMPANY
180 N. STETSON AVENUE CASUALTY QUOTA SHARE
CHICAGO, ILLINOIS 60601-6714 CH 0333-95
TELEPHONE: 312-565-6300
EXCLUSIONS
42. Umbrella Liability.
The exclusions enumerated above (other than the exclusions enumerated in
paragraphs 1, 2, 9, 10, 21, and 27) shall not apply when the items or
activities enumerated are merely incidental to the main operations of the
insured or when the insured's services are subcontracted for on a limited-time
basis to perform services for an excluded entity, provided such main operations
are covered by the Subject Policies and are not themselves excluded from the
scope of this Agreement. The Company shall be the sole judge of what is
"incidental" for purposes of this Article.
Should the Company, by reason of an inadvertent act, error, or omission, be
bound to afford coverage excluded hereunder, the Reinsurer shall waive the
exclusions with the exception of the exclusions enumerated in paragraphs 1, 2,
9, 10, 21, and 27. The duration of said waiver shall not extend beyond the
time that notice of such coverage has been received by the responsible
underwriting authorities of the Company (being defined as the Senior Vice
Presidents of Underwriting or their equivalents) plus the minimum time period
required thereafter for the Company to terminate such coverage.
The Company may submit to the Reinsurer, for special acceptance hereunder,
business not covered by this Agreement. If such business is specially accepted
by the Reinsurer, it will be subject to the terms of this Agreement, except as
this Agreement's terms are modified by the special acceptance. Any special
acceptance business covered under the reinsurance agreement that is replaced by
this Agreement, if any, shall be automatically covered hereunder. Further,
should any Reinsurer(s) become a party to this Agreement subsequent to the
acceptance of any business not normally covered hereunder, said Reinsurer(s)
automatically shall accept such business as being a part of this Agreement.
Page 4 of 4
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 13
[ALEXANDER RE LETTERHEAD]
REINSURANCE SECURITY
Alexander Reinsurance Intermediaries, Inc. recognizes the importance to our
clients of having reinsurers which are properly managed and financially sound.
Our objective is to utilize reinsurers, which based upon information available
to us, appear to provide sufficient security to meet the obligations of the
reinsurance contracts written for our clients.
Our review of reinsurers is based on objective and subjective criteria.
Subsidiaries of an insurance parent are also evaluated on the financial
strength of the parent company. Our analysis generally includes, (but is not
limited to):
1. Audited financials, 10K (as applicable), Annual Report and
Management's Discussion and Analysis of financial condition and
results of operations.
2. Annual Statement review includes Policyholder Surplus level,
writings to surplus, lines of business, assumed and ceded
business (per Schedule F), loss development and investment
portfolio analysis.
3. Review of independent rating agency information.
4. Actuarial opinion.
5. NAIC test results.
6. State insurance department examinations.
7. Historical relationship of reinsurer and or affiliates.
Underwriting managers are reviewed as separate entities. Each relationship
requires an agreement between the reinsurer and the underwriting manager.
These agreements are obtained and reviewed in addition to the background
information of the principals of the organization, experience, and financials
of the management company where provided by the managers.
<PAGE> 14
Foreign markets used in connection with correspondent brokers in the London
market are subject to review by the correspondent and additionally reviewed and
evaluated by the Alexander Reinsurance Intermediaries, Inc. Security Committee.
Financial records are maintained for the markets. Additionally, the Security
Committee considers the experience and reputation of the company's management,
its sources of business, underwriting philosophy, and its record of performance
in good times and bad.
The Security function is a continual process that requires us to monitor the
financial condition of the markets as well as the state of the marketplace.
Upon completion of the placement and again at each anniversary date, we request
that the client review all security. As reinsurance intermediaries, we cannot
guarantee the security of any reinsurer but hope that our analysis, judgement
and professionalism will mitigate potential credit risks.
November 1, 1994
[ALEXANDER RE LOGO] ALEXANDER REINSURANCE INTERMEDIARIES, INC.
<PAGE> 15
[INTERE RFC LETTERHEAD]
COVER NOTE NO.: MA962045 DATE: JUNE 5, 1996
ENDORSEMENT NO.: 1
TRANSCO SYNDICATE #1 LTD. AND/OR
ALPINE INSURANCE COMPANY ON BUSINESS ADMINISTERED,
UNDERWRITTEN OR SERVICED BY T.C.O. INSURANCE SERVICES, INC.
MARINE EXCESS OF LOSS REINSURANCE
$4,000,000 XS $6,000,000
EFFECTIVE MARCH 1, 1996
It is hereby noted and agreed that with effect from inception, the Minimum and
Deposit Premium Clause should read as follows:
Minimum and Deposit: USD130,000 payable half yearly in advance.
Adjustable at 1.85% Net Premium Income accounted for during the period hereon,
all years of account.
The Reinsured shall have the option of internally "grossing up" their premium
ceded to reinsurers to allow for acquisition costs and other costs on the
business subject to this agreement.
All other terms, clauses and conditions remain unaltered.
For and on behalf of:
MINET RE NORTH AMERICA, INC.
Doing business as
INTERE INTERMEDIARIES, INC.
Roger Roberts
----------------------------------
Senior Vice President
ALPINE INSURANCE CO. ON BUSINESS ADMINISTERED, UNDERWRITTEN OR SERVICED BY
T.C.O. INSURANCE SERVICES,INC.
Scott Thompson
- --------------------------
Authorized Signature
JUN 20 1996
- --------------------------
DATE
Page 1 of 1
DL:yd
2045-end
<PAGE> 1
EXHIBIT 10.92
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, dated as of the 21st day of May, 1996 by and between
Asset Allocation & Management Company, L.L.C., an Illinois corporation having
its principal place of business at Thirty North LaSalle Street, 36th Floor,
Chicago, Illinois 60602 (herein "AAM"), and Alpine Insurance Company, having
its principal place of business at 311 South Wacker Drive, Suite 500, Chicago,
Illinois 60606 (herein "Client").
In consideration of the promises set forth in this Agreement, AAM and
Client agree as follows:
1. Subject to the terms set forth herein, Client hereby designates and
appoints AAM as its investment adviser for a three (3) year term. As
investment adviser, AAM shall act with respect to the assets of Client
only with prior approval of Client, except where specific investment
parameters are set by Client in writing in advance, and which may be
changed by Client from time to time. The initial Statement of
Investment Policy Objective and Guidelines are attached hereto as
Exhibit A and made a part hereof.
2. For its investment advisory services, AAM shall be compensated in
accordance with its schedule of fees current from time to time. If this
Agreement is terminated by either party other than on the last day of
the quarter, the advisory fee for such quarter shall be based on
the ratio that the number of days that have expired in such quarter
bears to ninety (90) days. AAM hereby agrees to fix the current Fee
Schedule for the three year term commencing on the effective date of
this Agreement as indicated above, which is attached hereto as Exhibit
B and made a part hereof.
3. This Agreement may be terminated at any time by either party upon 60
days prior written notice to the other party, but in no event shall this
Agreement continue for a period exceeding three (3) years from the date
first stated above.
4. Except for negligence or malfeasance, or violation of applicable law,
neither AAM nor any of its employees or partners (or any officers,
directors or employees of its partners) shall be liable hereunder for
any action performed or omitted to be performed or for any errors or
judgments in connection with AAM's services rendered under this
Agreement. The federal securities laws impose liabilities under certain
circumstances on persons who act in good faith, and therefore, nothing
<PAGE> 2
herein shall in any way constitute a waiver or limitation of any rights
which Client may have under any federal securities laws.
5. This Agreement and the rights and obligations hereunder shall not be
subject to assignment as that term is defined in the Investment
Advisers Act of 1940, by AAM except with the prior written consent of
Client.
6. AAM, a partnership, shall notify Client of any change subsequent to the
date of this Agreement in the membership of the partnership. Such
notification shall be made in writing within 20 business days after such
change.
7. Client represents that, (a) the executions of and performance
contemplated under this Agreement do not and will not violate or abridge
any obligation or duty of Client, (b) this Agreement has been authorized
by appropriate action and when executed and delivered will be binding
upon Client in accordance with its terms, and (c) Client will deliver to
AAM such evidence of such authority as AAM may reasonably require,
either by way of a certified resolution or otherwise.
8. Without the express prior written consent of AAM, Client shall not
directly or indirectly employ or solicit for employment any employee of
AAM during the term of this Agreement and for a period of 12 months
after termination of the Agreement. Without the express written consent
of Client, AAM shall not directly or indirectly employ or solicit for
employment any employee of Client during the terms of this Agreement and
for a period of 12 months after termination.
9. Client warrants that the following are empowered to approve
recommendations made on behalf of Client by AAM:
John T. Clark President
----------------------------------------------------------------------
NAME: TITLE
David A. Gay Vice President-Investments
----------------------------------------------------------------------
NAME: TITLE
Steven C. Shinn Director
----------------------------------------------------------------------
NAME: TITLE
Richard G. Kersten Secretary/Treasurer
----------------------------------------------------------------------
NAME: TITLE
2
<PAGE> 3
10. Client and AAM acknowledge and understand that Client shall have
ultimate control and responsibility of the functions that Client has
delegated to AAM herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year above written.
AAM: ASSET ALLOCATION & MANAGEMENT COMPANY, L.L.C.
By: [SIG]
--------------------------------------------
CLIENT: ALPINE INSURANCE COMPANY
By: [SIG]
--------------------------------------------
3
<PAGE> 4
STATEMENT OF INVESTMENT POLICY
OBJECTIVES AND GUIDELINES
I. POLICY AND PHILOSOPHY
The Investment Policy of Alpine Insurance Company and Transco Syndicate
#1 Ltd. is to optimize the after tax return on investable assets;
maintain necessary liquidity to support operational needs, and preserve
principal in order to maintain the surplus position.
The Company will utilize an investment advisor to provide relative value
analysis and to make the purchases and sales of securities. The
Investment Committee is responsible for the continual monitoring of the
investment advisors and adherence to this policy. A bank will act as
custodian to hold the invested assets for the Company.
II. LEGAL LIMITATIONS
The Company's funds are to be invested within the parameters defined by
the Illinois Insurance Code. NAIC Risk Based Capital Regulations and
Model Laws will be monitored as adopted. FASB Rulings will also be
monitored and acted upon where appropriate (i.e. FASB 115). All
securities will be registered with the securities valuation office of
the NAIC.
III. OBJECTIVES
The primary investment management objectives are as follows:
- Accumulation and preservation of capital.
- Optimize, within accepted risk levels, after tax returns.
- Assure proper levels of liquidity.
- Provide an acceptable and stable level of current income.
- Closely match investment maturities with company liabilities.
- Have a quality portfolio which will help attain the highest
possible A.M. Best rating.
1
EXHIBIT A
<PAGE> 5
STATEMENT OF INVESTMENT POLICY
OBJECTIVES AND GUIDELINES
------------------------------
IV. OPERATING PARAMETERS
--------------------
A. Maximum holdings will be as follows:
<TABLE>
<CAPTION>
MAXIMUM %
SECURITY TYPE OF PORTFOLIO PER ISSUE
- ------------- ------------ ---------
<S> <C> <C>
Governments No Limit 5.00%
Agencies Other Than "Full Faith" 60% 3.00%
Mortgage Backed Securities
Collatralized Mortgage
Obligations 50%
Agency Backed 3.00%
AAA Non-Agency 2.50%
AA Non-Agency 2.00%
Asset Backed Securities 35%
Corporate Bonds 40%
AAA Corporate Bonds 2.00%
AA Corporate Bonds 1.75%
A Corporate Bonds 1.50%
BBB Corporate Bonds 1.00%
Municipal Bond 60%
Pre Refunded Municipal Bonds 3.00%
AAA Municipal Bonds 2.50%
AA Municipal Bonds 2.00%
A Municipal Bonds 1.75%
BBB Municipal Bonds 1.00%
Sinking Fund Preferred Stock 20%
AAA Sinking Fund Preferred Stock 1.75%
AA Sinking Fund Preferred Stock 1.50%
A Sinking Fund Preferred Stock 1.25%
BBB Sinking Fund Preferred Stock .50%
</TABLE>
2
EXHIBIT A
<PAGE> 6
EXSTAR FINANCIAL GROUP
STATEMENT OF INVESTMENT POLICY
OBJECTIVES AND GUIDELINES
--------------------------------------
<TABLE>
<CAPTION>
MAXIMUM %
SECURITY TYPE OF PORTFOLIO PER ISSUE
- ------------- ------------ ---------
<S> <C> <C>
Common Stocks Expressed as a percent of 5.00%*
surplus adjusted for the
volatility of a particular
Program.
Convertible Securities 5.00%*
</TABLE>
B. Quality
Purchases will be limited to issues rated Baa3/BBB- or better
with a weighted average quality for the portfolio of AA. If an
issue in the core fixed income portfolio falls below investment
grade, Management will be contacted in order to determine
whether issue should continue to be held in the portfolio.
Convertible Securities will have a weighted average quality of
BBB- or better.
C. Maturities
Individual maturities (and in the case of mortgage-backed
securities, and sinking fund preferred stocks the expected
average lives) will not exceed 15 years. The average
maturity/expected average life of the portfolio dedicated to
reserves will be in the 2.75-3.25 year range with a
corresponding average duration of approximately 2.75.
D. Equities
Equity Exposure will be viewed within the context of the
company's ability to absorb the implicit volatility of such a
program. The purchase of common stock shall be limited to
actively traded issues on leading stock exchanges or on the
National Over-the-Counter Market.
3
EXHIBIT A
<PAGE> 7
EXSTAR FINANCIAL GROUP
STATEMENT OF INVESTMENT POLICY
OBJECTIVES AND GUIDELINES
--------------------------------------
E. Convertible Securities
Maintaining a Moody's Baa3 or equivalent average weighted
quality rating (other rating agency) on the overall convertible
securities program. No more than 25% of this allocation will be
in Ba rated securities and no securities below this rating will
be purchased. The Convertible Securities program operates on a
discretionary basis so as to optimize total return results.
F. Foreign Securities may be utilized as a means of further
diversifying the portfolio. Allocations to this sector will be
limited to 5% of the portfolio.
G. Prohibited Securities and Transactions
The following securities are not permissible investments:
Interest only securities, interest rate swaps and short sales.
4
EXHIBIT A
<PAGE> 8
ASSET ALLOCATION & MANAGEMENT COMPANY
ANNUAL FEE SCHEDULE
----------------------------------------
$25,000 on first $10 million market value, plus
$550 per million market value on assets $10 million to $100 million, plus
$750 per million flat fee on assets over $100 million.
Optional
$60 fee per SVO filing.
* Fees are exclusive of reasonable travel and lodging expenses for
client meetings. Expenses will be billed to and payable by the
client as incurred.
EXHIBIT B
<PAGE> 1
EXHIBIT 10.93
CLAIM SERVICE AGREEMENT
This Agreement is entered into this 15th day of June, 1996, by and between
Claims Control Corporation, hereinafter referred to as "CCC," and United
Capitol Insurance Company, hereinafter referred to as "UCIC."
This Agreement shall constitute authorization for CCC to investigate and adjust
all claims on behalf of UCIC, subject to the following terms and conditions:
1. APPLICATION
Claim adjustment authority shall apply to all claims UCIC policies which are
referred by UCIC to CCC for adjustment.
2. SERVICES
CCC shall investigate, reserve, adjust, settle and process all claims and
losses to which this Agreement applies, in accordance with specified limits of
authority, attached hereto and made a part of this Agreement, and pursuant to
all rules, instructions and procedures hereafter supplied to CCC by UCIC. Any
or all such materials and/or instructional information may be amended or
supplemented by UCIC from time to time either by written or verbal notice.
3. INDEPENDENT CONTRACTOR
CCC shall perform these services as an independent contractor, and nothing
contained herein shall in any way be construed to constitute an employment
relationship between UCIC and either CCC or CCC's employees. CCC shall provide
whatever staff, office facilities and supplies necessary for the performance of
all services contemplated by this Agreement at its own expense.
4. DILIGENCE
CCC shall perform its duties hereunder faithfully and to the best of its
knowledge, skill and judgment, and shall comply with such reasonable
instructions as it may receive from time to time from UCIC relating to the
subject matter of this Agreement. CCC shall abide by all applicable laws, rules
and regualtions of all insurance regulatory authorities.
5. LITIGATION/ADJUSTER ASSIGNMENT
Legal services on claims will be provided only by qualified attorneys-at-law
who have substantial experience in the handling of claim litigation of the type
involved. Outside adjuster services on claims will be provided only by
qualified licensed insurance adjusters who have substantial experience in the
handling of claim adjusting of the type
-1-
<PAGE> 2
involved. Where possible, CCC will utilize legal counsel and claim adjusters
selected or authorized by UCIC.
6. RECORD MAINTENANCE
CCC shall accurately enter and keep current all information and all data
captured by CCC's automated claim system or contained in the claim file.
All costs associated with the maintenance of data will be the responsibility of
CCC. UCIC shall pay for any additional programming required to generate reports
that are not currently available through CCC's computer system. However, CCC
shall not incur such costs without the prior approval of UCIC.
CCC will provide UCIC with a monthly list of reported claims, including related
policy numbers, dates of loss, report dates, incurred and payment transactions
and such other reports and information as UCIC may reasonably request.
7. AUDIT
UCIC shall have the right to review and audit any or all claim files to which
this Agreement applies, whether open or closed, that are handled by CCC. Such
reviews and audits will take place not less than twice each calendar year, but
may, at UCIC's discretion, be conducted more frequently. CCC shall furnish
facilities in their office for such reviews and audits, or shall forward such
files that are requested to a designated UCIC office for review.
8. FINES AND PENALTIES
Payment of all penalties and fines assessed by a Department of Insurance, or
other applicable insurance regulatory authorities, that pertain to files handled
under this Agreement by CCC and are the result of CCC's failure to comply with
the requirements of any "Unfair Claims Settlement Practices" regulations or
other applicable laws and regulations, shall be the responsibility of CCC.
Payment of all penalties and fines assessed by a Department of Insurance, or
other applicable insurance regulatory authorities, that pertain to files handled
under this Agreement by CCC and are the result of UCIC's failure to comply with
the requirements of any "Unfair Claims Settlement Practices" regulations or
other applicable laws and regulations, shall be the responsibility of UCIC.
9. SUBROGATION
CCC shall have both the obligation and authority to identify and pursue
opportunities for subrogation on all appropriate claims in accordance with
UCIC's subrogation policies.
-2-
<PAGE> 3
10. LOSS AND EXPENSE PAYMENT
Loss and expense payment will emanate from CCC in accordance with the claim
accounting system established by UCIC.
CCC shall have check signing authority only as specifically authorized in
writing by UCIC.
CCC shall provide a list of payments, including claim number, payment amount,
payee, date of loss and payment type within two (2) working days of request by
UCIC.
11. REFERRAL TO UCIC
Notwithstanding the authority granted to CCC pursuant to this Agreement, the
following questions or issues must be referred to UCIC for prior approval before
further action or final settlement:
a. Catastrophic claims (head trauma; brain damage; spinal injuries resulting in
paraplegia, quadriplegia, or paralysis; burns in excess of 35% of body);
b. Reinsurance reportable claims (claims with a combined loss and expense
incurred and incurred in excess of $750,000);
c. Fraud investigations where fraud related expense is likely to exceed
$10,000;
d. All civil filings against UCIC or its parent;
e. Actual or potential conflicts of interest of CCC.
12. ULTIMATE AUTHORITY
Notwithstanding, any other provision of this Agreement, UCIC shall retain and
have ultimate control and responsibility of the functions delegated to CCC
pursuant to this Agreement. Moreover, notwithstanding any other provision of
this Agreement, UCIC shall retain ultimate authority over the adjusting and
settling of claims and, with respect to any claim or loss of any amount, UCIC
may, at any time prior to the final settlement of such claim or loss, take over
the entire defense and control of such claim or loss.
13. HOLD HARMLESS
CCC shall be responsible for the acts and omissions of its employees, agents,
and subcontractors. CCC shall protect, defend, indemnify and hold harmless UCIC
from and against any and all claims and demands (including attorneys' fees
and/or costs in connection therewith) for damages, fines or penalties directly
or indirectly resulting from any act, omission, or negligence of CCC occurring
in the performance of its obligations under this Agreement.
-3-
<PAGE> 4
UCIC shall be responsible for the acts and omissions of its employees, agents,
and subcontractors (other than those who also are agents or subcontractors of
CCC). UCIC shall protect, defend, indemnify and hold harmless CCC from and
against any and all claims or demands (including attorneys' fees and/or costs
in connection therewith) for damages, fines or penalties directly, or
indirectly, resulting from any act, omission, or negligence of UCIC occurring
in the performance of its obligation under this Agreement.
14. ADDITIONAL INSURED
During the term of this Agreement and until all CCC's duties hereunder have
expired, CCC shall make UCIC an additional named insured under a Fidelity Bond
in an amount not less than $1,000,000, covering all employees, agents,
officers, and directors of CCC to the exclusive benefit of UCIC, and provide
UCIC at all times, with evidence that such Fidelity Bond is in force, with a
copy thereof. Further, CCC shall carry Errors and Omissions insurance in the
amount of $1,000,000.
15. SERVICE FEES
In consideration of CCC's satisfactory performance in processing claims, as
specified in this Agreement, UCIC shall pay CCC a per claim service fee based
upon the following fee schedule or as mutually agreed upon between UCIC and
CCC. Service fees are reviewed annually from the inception of this Agreement.
Changes in fees will be effective only based on an written addendum to this
Agreement.
Claim Manager/Examiner..................................$74.00/Hr.
Supervising Claim Manager (all supervisory/management)..$83.00/Hr.
Claims Deductible Processor.............................$50.00/Hr.
Clerical (including transcription)......................38% of total hours
billed for Claim
Manager/Examiner and
Supervising Claim
Manager
Travel..................................................Actual Expense
Mileage.................................................$ .31 (or IRS allowable)
Photos..................................................$3.00 each
Police/Fire/Indexes Bureau/Paramedic Reports and
other reports/items necessary to support the
development of a claim..................................Actual Cost
-4-
<PAGE> 5
16. TERMINATION
Either CCC or UCIC may terminate this Agreement at any time with not less than
sixty (60) days prior written notice to the other party, stating the date as of
which such termination shall be effective.
Upon termination of this Agreement, UCIC shall have the option of assuming
control and handling of all open, pending claims or continuing CCC
administration, at the agreed upon fee schedule, until claim resolution. Upon
termination of this Agreement, all files and all information and data stored in
CCC's automated claim system will be printed and promptly delivered to UCIC in
claim file format.
17. BINDING ARBITRATION
In the event of any dispute regarding the interpretation and enforcement of
this Agreement, CCC and UCIC shall seek remedy via binding arbitration, subject
to the rules and regulations of the American Arbitration Association.
Arbitration fees and costs of the prevailing party shall be borne by the
non-prevailing party.
18. ASSIGNMENT
Neither party to this Agreement may assign this Agreement without the express,
prior written permission of the other party.
19. OWNERSHIP OF ACCOUNTS AND RECORDS
Notwithstanding any other provision of this Agreement, UCIC shall own and have
custody of its general corporate accounts and records.
20. TERM
The term of this Agreement shall commence on the date first stated above and
shall remain in full force and effect for five (5) years, unless earlier
terminated as provided in Section 16 hereof.
Date: June 15, 1996
CLAIMS CONTROL CORPORATION UNITED CAPITOL INSURANCE COMPANY
a California corporation a Wisconsin corporation
By: [SIG] By: [SIG]
--------------------------- -------------------------
Its: Secretary/General Counsel Its: President
-------------------------- ------------------------
-5-
<PAGE> 6
SCHEDULE OF LIMITS OF AUTHORITY RECORDS
---------------------------------------
FILE SET UP
- ----------
Notice of new losses will be supplied to United Capitol Insurance Company
("UCIC") by monthly Bordeaux. Loss information will consist of the file number,
policy number, name of insured, date of loss, claimant name, loss reserve and
expense reserve.
REPORTING TO COMPANY
- --------------------
- - Pertinent parts of file
- - Files with loss reserves in excess of $25,000
- - All claims involving catastrophic injury
- - All losses reported to reinsurers
- - Fraud investigations where expense exceeds $10,000
- - Any civil filings against UCIC
- - Claims when coverage is being denied
ASSIGNMENT OF ADJUSTERS/ATTORNEYS
- ---------------------------------
UCIC will authorize the use of defense counsel except for those geographic
areas that have less than two case assignments per calendar year. Claims
Control Corporation is granted the authority to make assignments to Independent
Adjusters without prior approval by UCIC.
RESERVE AUTHORITY
- -----------------
Claims Control Corporation shall not set any claim or claim expense reserve
exceeding the sum of $25,000 with UCIC's prior approval.
SETTLEMENT AUTHORITY
- --------------------
Claims Control Corporation shall not pay or commit UCIC to pay a claim over the
sum of $25,000 net of reinsurance, without UCIC's prior approval.
COVERAGE/DECLINATION AUTHORITY
- ------------------------------
Claims Control Corporation shall have the authority to issue reservation of
rights letters without the prior approval of UCIC. Claims Control Corporation
shall also have the authority without the prior approval of UCIC to decline
coverage where such declination of coverage involves the interpretation of
policy wording. All other declinations of coverage must have the prior written
approval of UCIC.
<PAGE> 7
CLAIMS PAYMENTS
- ---------------
All payment vouchers or checks for payment of claims exceeding the sum of
$25,000 shall be signed by at least one officer of UCIC, and such signature
shall be deemed to be approved by UCIC of such claim payment.
CLAIM LISTING
- -------------
- - Separate register
- - Insured, claimant, loss + expense reserves
- - Open/closed status, reserves and payments
<PAGE> 1
EXHIBIT 10.94
TERMINATION ENDORSEMENT
TO
MANAGEMENT AND SERVICING AGREEMENT
The undersigned hereby mutually terminate that certain Management and
Servicing Agreement, as amended and with an original effective date of
December 1, 1993. The effective date of such termination shall be July 1, 1996.
Alpine Insurance Company TCO Insurance Services, Inc.
By: [SIG] By: [SIG]
-------------------------- --------------------------
<PAGE> 1
EXHIBIT 10.95
TERMINATION ENDORSEMENT
TO
MANAGEMENT AND SERVICING AGREEMENT
The undersigned hereby mutually terminate that certain Management and
Servicing Agreement, as amended and with an original effective date of July
1, 1993. The effective date of such termination shall be December 31, 1996;
provided, however, that the provisions of said agreement providing for an
investment management fee and an underwriting contingent profit commission
shall have an effective date of termination of September 30, 1996.
Transco Syndicate #1, Ltd. TCO Insurance Services, Inc.
By: By:
------------------------------ -----------------------------
<PAGE> 1
EXHIBIT 10.96
LEASE
This Lease is made and entered into as of the 18 day of September 1996, by
and between TRANSCO SYNDICATE #1 LTD, an Illinois corporation, hereinafter
referred to as "Landlord," and CHANNEL ISLANDS YMCA, a not-for-profit
corporation, hereinafter referred to as "Tenant." For and in consideration of
the rental and of the covenants and agreements, hereinafter set forth to be
kept and performed by the Tenant, Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the premises herein described for the term, at the
rental and subject to and upon all of the terms, covenants and agreements
hereinafter set forth.
1. DESCRIPTION OF PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
upon the terms and conditions herein set forth, 6,012 square feet of the
easterly ground floor of the commercial building known as 2028 Village Lane,
City of Solvang, County of Santa Barbara, State of California (hereinafter "the
Premises"). Tenant's Premises of Landlord's building is outlined on a floor
plan of the Premises which is attached hereto as Exhibit "A" and incorporated
herein.
2. TERM:
The term of this Lease shall be for twenty four (24) full calendar months,
commencing on November 1, 1996, and herein called the "term". As used in this
Lease, the term "Lease Term" shall mean the term of this Lease as specified in
this paragraph and any extensions thereof. Tenant shall have access to the
Premises, without charge of rent, to install equipment and complete
modifications approved by Landlord, commencing on October 1, 1996.
3. RENT:
Tenant agrees to pay to Landlord as rent in lawful money of the United
States without deduction or offset at such place or places as may be designated
from time to time by the Landlord the following:
A. Rent. Lessee agrees to pay Lessor at rent without abatement, offset or
deduction, the sum of Four Thousand Five Hundred Nine Dollars ($4,509.) in
advance, beginning on November 1, 1996, and Four Thousand Five Hundred Nine
Dollars ($4,509.) on the first day of each and every succeeding calendar month
through the first twelve (12) months of one Lease Term. Beginning with the
thirteenth (13th) month of the Lease Term and continuing through the twenty
fourth (24th) month of the Lease Term, Lessee agrees to pay Lessor as rent
without abatement, offset of deduction the sum of
<PAGE> 2
Four Thousand Eight Hundred Nine and Sixty Cents ($4,809.60) in advance,
beginning on the first day of said thirteenth (13th) month and continuing at
such rate on the first day of each of each and every succeeding calendar month
through the twenty fourth (24th) month of the Lease Term. Rent for any
fractional month at the beginning or end of the term shall be prorated on the
basis of a thirty-day month.
(i) A service charge equal to ten percent (10%) of the total outstanding
balance will be added to all accounts for which any payment required by Tenant
to pay under this Lease has not been received in Landlord's accounting office
on or before the tenth (10th) of the month.
4. OPTION TO EXTEND - RENEWAL TERM:
Provided Tenant is not in default under the terms of this Lease, and
provided Landlord nor one of its related affiliates desires to retake, occupy
and use the Premises for their own occupancy and use (which shall be determined
in Landlord's sole discretion and upon written notice given to Tenant on or
before May 1, 1998). Tenant shall have the option to renew this Lease for three
(3) additional periods of twelve (12) months each upon the same terms and
conditions as provided herein and upon giving written notice of exercise of its
option to renew at least sixty (60) days prior to the end of the original Lease
Term. The fixed rent for each such twelve (12) month renewal Lease Term shall
be increased in the amount of five cents ($.05) per square foot (being a
$300.60 per month increase), which shall then be added to the ending monthly
rental sum of the expiring Lease Term.
A. As used herein, the term "related affiliate(s)" shall mean any entity,
company, corporation, or business under at least twenty percent (20%) common
control or ownership by the same person, corporation, partnership, or entity as
controlling Lordlord (including multi-tier control).
5. SECURITY DEPOSIT:
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord as a security deposit the sum of ($1,000.). Said sum shall be
held by Landlord as a security deposit for the faithful performance by Tenant
of all the terms, covenants, and conditions of this Lease. If Tenant defaults
with respect to any provisions of this Lease, including but not limited to this
provision relating to the payment of rent, Landlord, may (but shall not be
required to) use, apply or retain all or any part of the security deposit for
the payment of any amount due and payable under this Lease, for the payment of
any other amount which Landlord may spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of the security deposit is so used
or applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount, and Tenant's failure to restore the security
deposit shall be a material breach of this Lease. Landlord shall not be
2
<PAGE> 3
required to keep the security deposit separate from its general funds, and
Tenant shall not be entitled to interest on such deposit. Provided that Tenant
is not in default hereunder, upon the expiration of the Lease term and after
Tenant has vacated the Premises, Landlord shall return the security deposit,
less any sums Landlord is entitled to keep, to Tenant (or at Landlord's option,
to the last assignee of Tenant's interest hereunder). In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
deposit to Landlord's successor in interest whereupon Tenant agrees to release
Landlord from liability for the return of such deposit or the accounting
therefor.
6. TAXES:
A. Personal Property Taxes. Tenant shall pay, prior to delinquency, all
taxes assessed against and levied upon fixtures, furnishings, equipment and all
other personal property of Tenant contained in the Premises, and when possible,
Tenant shall cause said fixtures, furnishings, equipment and other personal
property to be assessed and billed separately from the real property of
Landlord. In the event any or all of Tenant's fixtures, furnishings, equipment
and other personal property are assessed and taxed with Landlord's real
property, then Tenant shall pay to Landlord its share of such taxes, as
additional rent, in accordance with the provisions of Paragraph 3. For the
purpose of determining said amount, figures supplied by the County Assessor as
to the amount so assessed shall be conclusive. Tenant shall comply with the
provisions of any law, ordinance or rule of taxing authorities which requires
Tenant to file a report of Tenant's property located in the Premises.
B. Real Property Taxes. Landlord shall be responsible for all real
property taxes (as hereinafter defined) levied or assessed against the Premises
during the term of this Lease.
For the purpose of this Lease, "real property taxes" means and includes
without limitation all taxes, assessments (including, but not limited to,
assessments for public improvements or benefits), taxes based on vehicles
utilizing parking areas, taxes based or measured by the rent paid, payable or
received under this Lease, taxes on the value of the Premises, environmental
surcharges, and all other governmental impositions and charges of every kind and
nature whatsoever, whether or not customary or within the contemplation of the
parties hereto and regardless of whether the same shall be extraordinary or
ordinary, general or special, unforeseen or foreseen, or similar or dissimilar
to any of the foregoing which, at any time during the Lease term, shall be
applicable to, assessed, levied or imposed upon the Premises or Unit or become
due and payable and a lien or charge upon the Premises or Unit or any part
thereof, under or by virtue of any present or future laws, statutes, ordinances,
regulations, or other requirements of any governmental authority whatsoever.
The term "environmental surcharges" shall mean and include any and all
expenses, taxes, charges or penalties imposed by the Federal Department of
Energy, the Federal Environmental Protection Agency, the Federal Clean Air Act,
or any regulations promulgated thereunder or any other local, state of federal
governmental agency or entity now or hereafter vested with
3
<PAGE> 4
the power to impose taxes, assessments or other types of surcharges as a means
of controlling or abating environmental pollution or the use of energy. The term
"real property taxes" shall not include any federal, state or local income,
estate or inheritance tax imposed on Tenant.
7. USE OF PREMISES:
A. Use. The Premises shall be used and occupied by Tenant solely for the
use of YMCA business offices and for YMCA activities, and for no other purpose
without the prior written consent of Landlord. Tenant covenants and agrees that
it will continuously and uninterruptedly, from and after taking possession of
the Premises, operate and conduct on the Premises only those uses which it is
permitted to operate under the provisions of this Lease.
B. Suitability. Tenant acknowledges that neither Landlord nor Landlord's
agents have made any representation or warranty with respect to the Premises or
the building or the real property or with respect to the suitability of the
same Tenant's uses, including without limitation any representation concerning
the number or identity of other tenants or prospective tenants in the building,
nor has Landlord agreed to undertake any modification, alteration or
improvement to the Premises except as provided in this Lease. The taking of
possession of the Premises by Tenant shall conclusively establish that the
Premises and building were at such time in good order, condition and repair and
that Landlord's work with respect to the Premises has been completed.
C. Prohibited Uses; Compliance with Laws.
(i) Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything which will in any way increase the existing
rate of or otherwise affect any fire or other insurance covering the Premises
or the building, or any of its contents, whether the insurance is maintained by
Landlord, Tenant or other tenants, or cause a cancellation of any such
insurance policy. Tenant shall not sell or permit to be kept, used or sold in
or about the Premises any articles which may be prohibited by a standard form
of fire insurance policy. In the event any costs of any such insurance are
increased as a result of Tenant's failure to comply with the provisions of this
Lease, Tenant shall pay to Landlord, as additional rent, said increased costs,
plus interest from the date of expenditure, at the highest rate then permitted
under California law, within ten (10) days after Landlord gives Tenant written
notice of said increase.
(ii) Tenant shall not (a) do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of this building or annoy them; (b) use or allow the use
of the Premises for any unlawful or objectionable purpose; (c) cause, maintain
or permit any nuisance in, or about the Premises or the building; (d) commit or
suffer to be committed any waste in or upon the Premises; (e) place or operate,
or permit to be placed or operated, electronic games or amusement devices on
the Premises or (f) perform or carry
4
<PAGE> 5
on any practice which may cause damage or deface the Premises or any part of
the building.
(iii) Tenant shall not use the Premises or permit anything to be
done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all permit and licensing ordinances and regulations applicable to Tenant's
use of the Premises and with all other laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any fire rating bureau or
other similar body relating to or affecting the condition, use or occupancy of
the Premises. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between Landlord and Tenant.
(iv) In the event Tenant is unable to obtain the appropriate licenses,
permits, zoning variances, or any other governmental approvals to utilize the
property for its intended uses under this Lease, Tenant, at its option, may
immediately terminate this Lease without penalty.
8. UTILLTIES:
A. Monthly Charge. Tenant agrees to pay Landlord as additional rent for all
gas, electricity, water, and normal trash removal supplied to the Premises by
Landlord the sum of thirty-two cents ($.32) per square foot per month (being
$1,923.84 per month) under the same terms and conditions set forth in Paragraph
3. for the basic rent. Tenant shall pay prior to delinquency, all charges
(including all taxes thereon) for telephone and janitorial services and any
other utilities not specifically otherwise provided for herein, materials, and
services supplied to the Premises during the Lease Term and shall hold Landlord
harmless from any liability therefrom. Landlord shall not be liable for any
damages which may result from any failure or interruption of any utility
service being furnished to the Premises unless such failure is caused by
Landlord, and no such failure or interruption shall entitle Tenant to
terminate this Lease or to any abatement of rent.
5
<PAGE> 6
B. Provision for Cost of Living Utility Increase. The minimum monthly
charge of thirty-two (.32) cents per square foot per month for certain
utilities supplied to the Premises as provided for by Subparagraph A of this
Paragraph 8 shall be adjusted annually commencing the first month of the second
year of the Lease Term hereof, and annually thereafter each year Tenant
occupies the Premises: Prior to the applicable adjustment date, the parties
shall ascertain from the official Consumers' Price Index (All Items) for all
urban consumers (1982-84 = 100 Base) as published by the Bureau of Labor
Statistics, United States Department of Labor for the Los Angeles-Long
Beach-Anaheim area (the "Index"). The Index figure for the month of the
commencement day shall be the Initial Base Period Index. The minimum monthly
utility charge payable by Tenant commencing on said adjustment date shall be
determined by multiplying the initial minimum monthly utility charge of
$1,923.84 set forth in Paragraph 8.A. above by a fraction, the numerator of
which shall be the Index figure for the month of the adjustment date as
hereinabove provided and the denominator of which shall be the Initial Base
Period Index. The monthly minimum utility charge as established in Paragraph
8.A above shall be adjusted accordingly.
If the Index shall no longer be published, then appropriate reference
figures for the Base Period and the Comparison Period shall be derived from any
successor or comparable index mutually agreed by the parties to be
authoritative, and if the parties are unable to agree, then the substituted
Index shall be selected by the then presiding Judge of the Superior Court for
the County of Santa Barbara, California, upon the application of either party.
In any event, the base used by any new Index or as revised on the existing
Index base shall be reconciled to the 1982-84 Index.
9. COMMON AREA OPERATION:
A. Common Area Definition and Use. The term "common area" as used herein
shall mean all areas and facilities in the building and on the real property,
including, without limitation, driveways, sidewalks, landscaped areas, and
service areas. Landlord hereby grants to Tenant, its subtenants, licensees,
invitees, customers and employees, the nonexclusive right to use the common
area in common with Landlord, other tenants and their respective subtenants,
licensees, invitees, customers, and employees, subject to the provisions of
this Lease and to such rules and regulations pertaining to the use of the
common area as Landlord shall make from time to time. Landlord expressly
reserves the right to alter any part of the common area at its sole discretion.
B. Maintenance. Landlord shall operate, manage and maintain the common
area in a reasonably commercial condition. The manner in which the common area
shall be maintained and the expenditures thereof shall be at the sole
discretion of Landlord.
C. Parking Areas. Tenant shall have 21 parking spaces located on
Landlord's real property as set forth in Exhibit "B" attached hereto and made a
6
<PAGE> 7
part hereof. Such designated parking spaces shall be the sole parking spaces on
Landlord's real property to be used by Tenant, its officers, directors,
employees, members, invitees, and guests. Landlord reserves the right to
promulgate such reasonable rules and regulations relating to the use of the
parking areas as Landlord may deem appropriate for the best interest of the
tenants of the building. Landlord shall have the right to temporarily close all
or any portion of the parking area for purposes of normal maintenance and
repairs. The parking area shall not be used for any purpose other than the
parking of motor vehicles during business hours and the ingress and egress of
pedestrians and motor vehicles. No overnight parking use of vehicles shall be
made by Tenant except for official YMCA owned vehicles.
10. MAINTENANCE AND REPAIRS:
A. Landlord's Obligations. Subject to the provisions of Paragraph 16,
Landlord, at its sole cost and expense, shall maintain, in a good state of
repair, the surface and structural parts of the roof, exterior walls (excluding
the interior of all walls and the exterior and interior of all windows, doors,
plate glass and show cases), all sewer, water, electric, gas lines and other
utility lines of any nature which lie under, within the walls, in the ceiling,
or on the roof of the Premises (excluding any such lines which have been
installed by Tenant), and foundations of the Premises and building, provided
however that in the event any maintenance and repairs are made necessary by the
wrongful act or omission of Tenant or its employees, agents, members or
invitees, Tenant shall pay to Landlord within ten (10) days after written
demand, as additional rent, the actual cost of such maintenance and repairs
plus interest from the date of expenditure at the highest rate then permitted
under California law. Landlord shall have no obligation to make repairs under
this Paragraph until a reasonable time after Tenant has notified Landlord in
writing of the need for such repair and maintenance.
B. Tenant's Obligations. Except as otherwise provided in this Lease,
Tenant, at Tenant's sole cost and expense, shall maintain the Premises and
appurtenances and every part thereof (excepting only those items which Landlord
is specifically obligated to maintain or repair pursuant to Paragraphs 9.A and
10.A) in good order, condition and repair including without limitation, all
interior walls, partitions and floors, floor coverings, interior surfaces of
the ceilings, doors, windows, plate glass, show cases, all electrical, plumbing
and lighting systems and equipment, including all heating, refrigeration and
evaporative cooling equipment, and any fixtures, signs and equipment installed
by or at the expense of Tenant.
Tenant shall maintain and repair the heating, ventilation and air
conditioning systems and equipment that service the Premises, but shall
coordinate any such maintenance and repair with Landlord (with ultimate control
thereof being within Landlord's sole discretion).
Should Tenant fail to make repairs required by Tenant hereunder within
five (5) days after notice is given by Landlord, Landlord, in addition to all
other remedies
7
<PAGE> 8
available hereunder or by law and without waiving any alternative remedies, may
make the repairs, and in that event, Tenant shall reimburse Landlord, as
additional rent, for the cost of such maintenance or repairs, plus interest at
the highest rate then permitted by California law, within ten (10) days after
written demand by Landlord.
11. ALTERATIONS:
A. Alterations by Tenant. Tenant shall not make, or suffer to be made, any
alterations, improvements or additions (collectively "alterations"), in, on,
about or to the Premises or any part thereof, without the prior written consent
of Landlord and without a valid building permit issued by the appropriate
governmental authority. As a condition to giving such consent, Landlord may
impose such requirements as Landlord in its sole discretion deems necessary,
including without limitation requirements that (i) Tenant agree to remove any
such alterations at the termination of this Lease' and to restore the Premises
to their prior condition; and (ii) Tenant secure a completion and lien
indemnity bond satisfactory to Landlord for said work; and (iii) Landlord may
approve the contractor for such alterations and limit the times during which
the alteration work may be done. Unless Landlord requires that Tenant remove
any such alteration, the alteration, except movable furniture and trade fixture
not affixed to the Premises, shall become the property of Landlord upon
installation and shall remain upon and be surrendered with the Premises at the
termination of this Lease. By execution of this Lease, Landlord hereby approves
those building alteration plans proposed by Evan Jones dated 9-17, 1996.
Tenant shall not permit any mechanic's or materialmen's liens to be placed
on the Premises and shall indemnify, defend and hold Landlord harmless against
any liens, claims, demands, encumbrances or judgments relating to any labor or
services performed or materials furnished for such alternations to the
Premises.
Tenant shall also give Landlord written notice five (5) days prior to
commencement of services or receipt of material for such alterations and shall
permit Landlord to post a notice of nonresponsibility in accordance with the
statutory requirement of California Civil Code Section 3095 or any amendment
thereof.
B. Tenant's Personal Property. Tenant shall install in the Premises such
trade fixtures, signs and equipment as Tenant deems desirable. All articles of
personal property and all business and trade fixtures, machinery and equipment,
furniture and movable partitions owned or installed by Tenant in or on the
Premises shall be and remain the property of Tenant, and may be removed by
Tenant at any time during the Lease term provided Tenant is not in default
hereunder, and provided further that Tenant shall repair damage caused by such
installation, use or removal. If Tenant fails to remove all of its effects from
the Premises upon termination of this Lease, Landlord may, at its option,
remove the same in any manner that Landlord shall choose, and store said
effects without liability to Tenant for loss thereof. Tenant agrees to pay
Landlord within ten (10) days after written demand, as additional rent, any and
all expenses incurred in such removal, including court costs and attorney's fees
and storage charges on such effects for
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<PAGE> 9
any length of time that the same shall be in Landlord's possession, plus
interest from the date of expenditure at the highest rate then permitted by
California law. Landlord may, at its option and without notice, sell any or all
of said effects, at private sale and without legal process, for such price as
Landlord may obtain and apply the proceeds of such sale to (i) any amount due
under this Lease from Tenant to Landlord and (ii) the expense incident to the
removal and sale of said effects.
12. LANDLORD'S ENTRY:
Tenant shall allow Landlord or Landlord's agents, representatives,
employees or contractors, to enter upon the Premises at reasonable times to
inspect the Premises, to perform required maintenance and repair, to make such
additions or alterations to the Premises as Landlord deems necessary or
desirable, and to show the Premises to prospective purchasers or tenants and
post "for sale" and "for lease" signs. Landlord may, in connection with any
such alterations, additions, or repairs, erect scaffolding, post relevant
notices, and place movable equipment without any obligation to reduce Tenant's
rent for the Premises during such period, provided that Tenant's entrance to
the Premises shall not be blocked thereby and that the authorized uses of the
Premises by Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's authorized uses of the Premises by, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Landlord shall have the right to use any and
all means which Landlord may deem proper to open said doors in any emergency in
order to obtain entry to the Premises, and any entry to the Premises by
Landlord shall not under any circumstances to construed or deemed to be a
forcible or unlawful entry into, or detainer of, the Premises, or an eviction
of Tenant from the Premises or any portion thereof.
13. LIENS:
Tenant shall keep the Premises and the building free from any liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant and shall indemnify, hold harmless and defend Landlord from any claims,
liens, attachments, encumbrances and litigation arising out of any work
performed or materials furnished by or at the direction of Tenant relating to
the Premises. In the event that Tenant shall not, within twenty (20) days
following the imposition of any such lien, cause such lien to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other remedies provided herein and by law, the right but not the
obligation to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien or filing of a
bond in favor of any lien claimant. All such claims paid by Landlord and all
expenses incurred by it in connection therewith, including attorney's fees and
costs, shall be payable to Landlord by Tenant as additional rent, with ten (10)
days after written demand, with interest from the date of expenditures at the
highest rate then permitted by California law. Landlord shall have the right at
all times to post and keep posted on the Premises any notices of
nonresponsibility or other.
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notices permitted or required by law, or which Landlord shall deem proper, for
the protection of Landlord and the Premises from mechanics' and materialmen's
liens.
14. INDEMNITY:
Tenant shall indemnify, defend and hold Landlord harmless from and against
any and all claims (i) arising out of Tenant's use of the Premises or the
common area or the conduct of its business; or (ii) arising out of any
activity, work or thing done, permitted or suffered by Tenant in or about the
Premises or the common area, (iii) arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease; (iv) arising from any act or negligence of Tenant, or any of its
officers, directors, members, invitees, agents, contractors, or employees; or
(v) arising out of Tenant's sharing the Premises with any other tenants,
sublessee or partners. Tenant shall further indemnify and hold Landlord
harmless from and against any and all costs, attorneys' fees, expenses and
liabilities incurred in connection with such claim or any action or proceeding
brought thereon. In case any action or proceeding is brought against Landlord
by reason of any such claim, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant
shall not be liable for damage or injury occasioned by the sole negligence or
willful misconduct of Landlord and its designated agents or employees, unless
the same are covered by insurance Tenant is required to provide.
15. INSURANCE:
A. Liability Insurance. Tenant shall, at Tenant's sole cost and expense,
but for the mutual benefit of Landlord and Tenant, maintain throughout the
Lease term comprehensive public liability insurance against claims for personal
injury, death or property damage occurring in or about the Premises, including,
without limitation, sidewalks directly adjacent to the Premises and such other
areas as Tenant, its officers, directors, members, agents, employees,
contractors, and invitees shall have the right to use pursuant to this Lease.
Such insurance shall have combined single limit of not less than $1,000,000 for
liability coverage and $50,000 for property damage coverage and shall name
Landlord (and such other persons or entities as Landlord may designate) as an
additional insured. Such insurance shall also insure performance of the
indemnity agreement contained in Paragraph 14. of this Lease. Such liability
insurance shall be primary and not contributing to any insurance available to
Landlord, and Landlord's insurance (if any) shall be in excess thereto.
B. Fire and Extended Coverage: Landlord shall maintain during the Lease
term, fire, extended coverage, special extended insurance, including vandalism
and malicious mischief coverage, earthquake and "difference in conditions"
insurance, in an amount equal to the full replacement cost of the building,
exclusive of Tenant's fixtures, furnishings, equipment and other personal
property. Tenant shall have no interest in or any right to the proceeds of any
insurance procured by Landlord on the building, the Premises or real property.
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C. Form Policies. The policies required by Paragraph 15.A shall be in a
form reasonably satisfactory to Landlord, with an A.M. Best "A" rated or better
insurer and a certificate as to such insurance shall be delivered to Landlord.
Tenant shall have the right to provide the insurance coverage that it is
obligated to provide in a blanket policy, provided such blanket policy
expressly affords coverage to the Premises and to Tenant and Landlord as
required by this Lease. Tenant shall obtain a written obligation on the part of
any insurance company providing such insurance to notify Landlord in writing of
any delinquency in premium payments and, at least ten (10) days prior thereto,
of any cancellation of any such policy. Tenant agrees that if Tenant does not
take out such insurance or keep the same in full force and effect, Landlord may
take out the necessary insurance and pay the premiums therefor, and Tenant
shall repay to Landlord, as additional rent and within ten (10) days after
written demand, the amount so paid plus interest from the date of expenditure
at the highest rate then permitted by California law.
D. Waiver of Subrogation. Landlord and Tenant each hereby waive any and
all rights of recovery against the other or against the officers, employees,
agents and representatives of the other, on account of loss or damage
occasioned to such waiving party or its property or the property of others
under its control to the extent that such loss or damage is insured against
under any fire and extended coverage insurance policy which either may have in
force at the time of such loss or damage.
E. Plate Glass Insurance. Tenant, at its sole cost, shall be responsible
for the maintenance, repair, and replacement of all plate glass in or enclosing
the Premises and shall procure insurance on such plate glass.
16. EMINENT DOMAIN:
In the event the leased Premises or any part thereof be appropriated or
taken under the power of eminent domain, this Lease shall terminate as to the
part taken as of the date of taking actual possession thereof. Any award shall
be paid and belong to Landlord except any award for the taking of or damage to
the fixtures and equipment of Tenant. Landlord shall be entitled to the entire
award for the real property, including Tenant's leasehold interest therein.
Tenant shall be entitled to any award to which it is otherwise entitled which
shall not reduce the award to Landlord.
In the event the portion of the leased Premises remaining after such
taking is not reasonably adequate for the operation of the business of Tenant,
Tenant may, at its option, terminate this Lease as of the date of the taking of
actual possession by the condemning authority by giving written notice thereof
to Landlord with ten (10) days after such taking of possession. In the event
Tenant may not or does not terminate this Lease as hereinbefore provided, then
the minimum rent payable under the terms of this Lease shall be reduced from and
after the date of taking of possession in the proportion that the floor area
taken bears to the floor area of the leased Premises immediately prior to such
taking.
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17. ASSIGNMENT AND SUBLETTING:
Landlord's Consent Required. Tenant shall not assign all or any part of
its interest in this Lease, sublet all or any part of the Premises, transfer
any interest of Tenant therein or permit any use of the Premises by another
party (any and all such acts being collectively referred to herein as a
"transfer") without the prior written consent of Landlord, and attempt to do so
without such consent being first had and obtained shall be wholly void and
shall constitute a breach of this Lease. Landlord shall not unreasonably
withhold its consent to a transfer provided that the provisions of this
Paragraph 17 are met.
18. DEFAULT. REMEDIES:
A. Events of Default. The occurrence of any of the following events
("Event of Defaults") shall constitute a material default and breach of this
Lease by Tenant:
(i) Any failure by Tenant to pay the rent, additional rent, or any
other monetary sums required to be paid hereunder within ten (10) days after
the same shall have become due;
(ii) The abandonment or vacation of the Premises by Tenant;
(iii) A failure by Tenant to observe and perform any other provisions
of this Lease to be observed or performed by Tenant, where such failure
continues for ten (10) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within said ten (10) day period, Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion.
B. Remedies. Should Tenant at any time be in default hereunder with
respect to any rental payments or other charges payable to Landlord hereunder
or should Tenant be in default in the performance of any other of its promises,
covenants or agreements herein contained and should such default continue for
three (3) days after written notice thereof from Landlord to Tenant specifying
the particulars of such default, or should Tenant vacate or abandon the demised
Premises, then in any of such events and in addition to any or all other rights
or remedies of Landlord hereunder and/or by the law provided at the option of
Landlord, Landlord may declare the term hereof ended and reenter the demised
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim thereon or thereunder.
Nothing herein shall affect the rights of the parties under statutory
provisions, Section 1951.2 ofthe California Civil Code is incorporated herein
by reference and as may be amended from time to time, relating to actions for
unlawful detainer,
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forcible entry, and forcible detainer; provided, however, after Landlord obtains
possession of the property under a judgment for restitution or forfeiture of
Tenant's interest, Landlord will no longer be entitled to treat this Lease as
continuing in effect unless Tenant obtains relief from the forfeiture or a
restitution to its former state under the statutory provisions applicable. The
bringing of any action described in this subparagraph shall not affect
Landlord's right to bring a separate action for relief on termination, for
liquidated damages, or in equity; but Landlord shall recover no damages in the
subsequent action for any detriment for which a claim for damages was made and
determined on the merits in the action.
In the event of any entry or taking possession of the demised Premises by
Landlord under this Paragraph 18, Landlord shall have the right, but not the
obligation, to remove therefrom all or any part of the personal property
located therein and may place the same in storage at a public warehouse at the
expense and risk of the owner or owners thereof.
The remedies given to Landlord herein shall be cumulative and in addition
and supplemental to all other rights or remedies which Landlord may have under
the laws then in force.
19. ATTORNEY'S FEES; COSTS OF SUIT:
If either Tenant or Landlord brings any action for any relief against
the other, declaratory or otherwise, arising out of this Lease, including any
suit by Landlord for the recovery of rent or possession of the Premises, the
losing party shall pay to the successful party a reasonable sum for attorney's
fees which shall be deemed to have accrued on the commencement of such action
and shall be paid whether or not such action is prosecuted to judgement. Should
Landlord, without fault on Landlord's part, be made a party of any litigation
concerning this Lease, Tenant shall indemnify, defend and hold Landlord harmless
from all liability or claims of liability, including damages, costs and
reasonable attorney's fees, incurred by Landlord in connection with such
litigation.
20. SURRENDER OF PREMISES:
On expiration of the Lease term, or on sooner termination of the Lease,
Tenant shall surrender the Premises to Landlord in the same condition as
received, ordinary wear and tear excepted, and shall remove from the Premises
all of tenant's personal property and trade fixtures and such alterations,
additions and improvements as Landlord has indicated to Tenant must be removed
or restored, as the case may be. If the Premises are not so surrendered, Tenant
shall indemnify, defend and hold Landlord harmless from and against loss or
liability resulting from Tenant's delay, including without limitation any
claims made by any succeeding Tenant or losses to Landlord for lost rental
opportunities. Termination of this Lease shall not release Tenant from the
payment of any obligation or sum that accrued prior to said termination. The
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation
thereof, shall not work a merger, and shall, at the
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option of the Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to it
of any or all such subleases or subtenancies.
21. SIGNS; USE OF BUILDING NAME:
A. Exterior Signs. Tenant shall not inscribe, paint, affix, place or
permit to be placed any new projecting sign, marquee, awning, advertisement,
sign, notice of placard on the exterior or roof of the Premises or upon or
about the entrance doors, windows, sidewalk or areas adjacent to the Premises
without Landlord's prior written consent, except that Tenant shall be allowed
to place on the exterior of the Premises a new sign which has been approved by
the City of Solvang or allowed by the sign ordinance of the City of Solvang,
provided, however, the location of such sign shall be mutually agreed upon
between Landlord and Tenant. Landlord reserves the right, in Landlold's sole
discretion, to place and locate on the roof, exterior sidewalls and rear wall
of the Premises or any portion of the building which is not leased to Tenant,
such notices, signs, marquees and advertisements as Landlord may deem
appropriate in the operation of Landlord's affairs. Landlord shall fully
cooperate with Tenant and/or any appropriate governmental authorities in
securing necessary and reasonable signage for Tenant's use of the Premises and
Landlord shall not arbitrarily, unreasonably or untimely withhold consent to
signage consistent with Tenant's needs and Landlord's development of the land.
22. RIGHTS RESERVED BY LANDLORD:
In addition and without limiting all other rights granted hereunder,
Landlord specifically reserves the right from time to time (i) to make changes
to, eliminate or add to the building, the common area and other improvements
located in or about the Premises, and (ii) to effect any other tenancies in the
building and grant anyone the exclusive right to conduct any particular
business or enterprise, other than Tenant's business as of the commencement
date, in the building or on the real property, except that no removal of
Tenant's designated parking spaces shall be allowed.
23. GENERAL PROVISIONS:
A. Captions; Exhibits, Defined Terms.
(i) The captions of the sections and paragraphs of this Lease are
for convenience only and shall not be deemed to be relevant in resolving any
questions of interpretation or construction of any section of this Lease.
(ii) Exhibits attached hereto, and addendums and schedules
initialed by the parties, are deemed by attachment to constitute part of this
Lease and are incorporated herein.
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(iii) The words "Landlord" as "Tenants" as used herein shall
include the plural as well as the singular. Words used in neuter gender include
the masculine and feminine and words in the masculine and feminine gender
include the neuter. The term "Landlord" shall mean only the owner or owners at
the time in question of the fee title or of the tenant's interest in a ground
lease covering the Premises.
B. Entire Agreement. This instrument, along with any exhibits and
attachments hereto, constitutes the entire agreement between Landlord and Tenant
relative to the Premises and their agreement to lease the Premises, and this
Lease, the exhibits and attachments may be altered, amended or revoked only by
an instrument in writing signed by both Landlord and Tenant. Landlord and
Tenant agree hereby that all prior or contemporaneous oral agreements between
and among themselves and their agents or representatives relative to the leasing
of the Premises are merged in or revoked by this Lease.
C. Sevarability. If any term or provision of this Lease is, to any
extent, determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law; provided, however, that if Tenant's
obligation to pay the rent (or other sums required to be paid by Tenant
hereunder) is determined to be invalid or unenforceable, then this Lease at the
option of Landlord shall terminate.
D. Time; Joint and Several Liability. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by
either party, if such party shall be deemed to be joint and several, and all
rights and remedies of the parties shall be cumulative and nonexclusive of any
other remedy at law or in equity.
E. Binding Effect; Choice of Law. The parties hereto agree that all
provisions hereof are to be construed as both covenants and conditions as
though the words importing such covenants and conditions were used in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to Paragraph 16, all of the
provisions hereof shall bind and inure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns;
provided, however, that the obligations contained in this Lease to be performed
by Landlord shall be binding on Landlord's successors and assigns only during
their respective periods of ownership. This Lease shall be governed by the laws
of the State of California.
F. Waiver. No covenant, term or condition or the breach thereof shall
be deemed waived, except by written consent of the party against whom the waiver
is claimed, and any waiver of the breach of any covenant, term or condition
shall not be deemed to be a waiver of any preceding or succeeding breach of the
same or any other
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covenant, term or condition. Acceptance by Landlord of any performance by Tenant
after the time the same shall have become due shall not constitute a waiver by
Landlord of the breach or default or any covenant, term or condition unless
otherwise expressly agreed to in writing by Landlord.
G. Interest on Past Due Obligations. Except as expressly herein
provided, any amount due to Landlord not paid when due shall bear interest from
the date due at the highest rate then permitted under California law.
Payment on such interest shall not excuse or cure any default by Tenant under
this Lease.
H. Notices. All notices or demands of any kind required or desired to be
given by Landlord or Tenant hereunder shall be in writing and shall be deemed
delivered upon personal delivery or forty-eight (48) hours after depositing the
notice or demand in the United States mail, certified, or registered postage
prepaid, addressed to Landlord or Tenant at the respective addresses set forth
as follows:
To LANDLORD:
TRANSCO SYNDICATE #1 LTD.
an Illinois corporation
P.O. Box 350
2029 Village Lane
Solvang, CA 93463
To TENANT:
CHANNEL ISLANDS YMCA
a not-for-profit corporation
Attn: Chief Financial Officer
36 Hitchcock Way
Santa Barbara, CA 93105
I. Corporate Authority - Warranty. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents or
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the board
of directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant sha1l, within thirty (30)
days after execution of this Lease, deliver to Landlord a certified copy of a
resolution of the board of directors of said corporation authorizing or
ratifying the execution of this Lease. Tenant shall execute any warranty of
lease that is requested/required by Landlord.
J. Contaminants. Tenant warrants that it shall not make any use of the
Premises which may cause contamination of the soil, sub-soil or ground water.
Tenant
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shall not keep, or cause to be kept in, on or around the Premises any substance
controlled by any government or quasi-governmental regulatory agency unless
Tenant stores and handles said substance in strict compliance with any and all
applicable laws, rules and regulations. Tenant will remove said substances in
the legally prescribed manner when Tenant's occupancy is terminated. Tenant
shall not do, bring or keep anything in, on or around the Premises which will
cause a cancellation of any insurance covering the Premises.
K. Execution and Delivery of Lease. Tenant's signature on this Lease
constitutes an offer which shall not be deemed accepted by Landlord until
Landlord has executed this Lease and delivered an executed copy to Tenant.
L. General Interpretation. The terms of this Lease have been negotiated
by the parties hereto and the language used in this Lease shall be deemed to be
the language chosen by the parties hereto to express their mutual intent. This
Lease shall be construed without regard to any presumption or rule requiring
construction against the party causing such instrument of any portion thereof
to be drafted, or in favor of the party receiving a particular benefit under
the Lease. No rule of strict construction will be applied against any person.
M. Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
Tenant's payment of rent and other monetary sums due under this Lease and
performance of its covenants and conditions under this Lease, Tenant shall and
may peacefully and quietly have, hold and enjoy the Premises for the Lease
Term, subject however to the terms of this Lease. Landlord represents that, as
of the execution of this Lease, there are no ground leases, mortgages or deeds
of trust or other liens against the subject real property of Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
respective dates shown below:
LANDLORD: TENANT:
TRANSCO SYNDICATE #1 LTD. CHANNEL ISLANDS YMCA
an Illinois corporation a not-for-profit corporation
By: [SIG] By: William G. Campbell
------------------------ -------------------------
William G. Campbell
Title: Secretary/General Counsel Title: Vice President
Dated: Sept. 11, 1996 Dated: Sept. 19, 1996
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EXHIBIT 10.97
LIMITED AGENCY AGREEMENT
This limited agency agreement ("Agreement") is entered into by and
between Olympic Underwriting Managers, Inc., a Delaware corporation
("Olympic"), Transre Insurance Services and Exstar E&S Insurance Services,
California corporations (collectively "E&S").
OLYMPIC AND E&S HEREBY AGREE AS FOLLOWS:
ARTICLE 1 - APPOINTMENT
1.1 Olympic hereby retains E&S to act on behalf of Olympic with the authority
and subject to the terms and conditions hereinafter set forth, and E&S hereby
accepts such retention.
1.2 Olympic's retention of E&S hereby shall not restrict in any manner the
right of Olympic or any insurer or insurers represented by Olympic (such
insurer or insurers jointly with Olympic hereinafter are referred to as
"Olympic/Insurer") to retain other producers.
ARTICLE 2 - DEFINITIONS
2.1 "Sub-producer" shall mean any insurance broker, insurance agent or other
person or entity properly licensed to produce insurance and through which
Policies may be produced.
2.2 "Effective Date" shall mean 12:01 a.m. (local Eastern time), June 24,
1996.
2.3 "Policy" shall mean any policy, contract, coverage slip, endorsement,
binder, certificate, proposal for insurance or other document which binds
Olympic/Insurer to insurance or assumed facultative reinsurance coverage issued
or renewed by Olympic/Insurer on or after the Effective Date through E&S and
shall also include any rewrite, renewal or extension (whether before or after
termination of this Agreement) through E&S required by law.
ARTICLE 3 - AUTHORITY OF E&S
3.1 E&S is hereby authorized and assumes the duty to act on behalf of
Olympic/Insurer as a fire and casualty broker-agent, surplus lines broker and
special lines surplus lines broker. All actions and inactions of E&S under this
authorization shall be subject to the ultimate authority of Olympic/Insurer,
and Olympic/Insurer from time to time shall be entitled to place reasonable
restrictions on E&S' authority; provided such restrictions are in writing.
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3.2 E&S is hereby authorized, subject to Article 11 requiring prior written
permission and applicable law, to advertise and solicit with respect to
Olympic/Insurer and the business to be produced through E&S hereunder.
3.3 E&S is hereby authorized, subject to underwriting guidelines established
and rates set by Olympic/Insurer from time to time and applicable law, to
accept applications, to quote, bind and decline coverages and to conduct audits
("underwrite") on behalf of Olympic/Insurer for all classes or lines of
insurance set forth in the Schedule of Business prepared by Olympic/Insurer and
attached hereto ("Schedule of Business"); provided E&S shall use applications
and quote, bind and decline forms approved by Olympic/Insurer, and provided
additionally E&S shall have no authority to bind reinsurance or retrocessions
on behalf of Olympic/Insurer. The Schedule of Business shall provide the
authority of E&S with regard to, but not limited to, underwriting guidelines,
the types of risks which may be written, the basis of the rates to be charged,
maximum limits of liability, applicable exclusions territorial limitations,
Policy cancellation provisions, maximum Policy periods and maximum annual
premium volume. The Schedule of Business may be amended from time to time as
deemed appropriate by Olympic/Insurer, provided such amendments are in writing.
3.4 E&S is hereby authorized, subject to applicable law, to print, maintain,
execute and issue surplus line broker's certificates, to deliver Policies and
(except in California and other states with similar laws until such time, if
ever, as the laws in such states are appropriately amended) to assemble,
countersign and issue Policies.
3.5 E&S is hereby authorized, subject to applicable law, Policy provisions
and Olympic/Insurer's ultimate authority, to cancel and renew Policies
underwritten or delivered by E&S hereunder.
3.6 E&S shall be responsible to the insured while this Agreement continues in
effect for the renewal or non-renewal of any Policy underwritten or delivered
by E&S hereunder and shall timely communicate any renewal quote or notice of
non-renewal to the insured to preclude the extension of coverage beyond the
expiration date of the Policy.
3.7 E&S is hereby authorized, subject to the applicable provisions of this
Agreement, to receive and receipt for premiums and fees, to pay return
premiums, to pay adjustments and to retain and pay commissions out of such
collected premiums, subject to the provisions of this Agreement.
3.8 E&S shall not authorize any Sub-producer or other person or entity to
quote, bind, or decline coverages or otherwise underwrite on behalf of
Olympic/Insurer without the prior written consent of Olympic/Insurer.
3.9 The original sources of some or all business under this Agreement shall
be Sub-producers retained by E&S. E&S is hereby authorized to retain and to
enter into agreements with such Sub-producers with respect to the business
hereunder; provided
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E&S shall have no authority to obligate Olympic/Insurer in any manner to such
Sub-producers and all agreements with such Sub-producers shall provide that the
sub-producers shall have no claims or causes of action against Olympic/Insurer
except for reckless conduct or willful misconduct of Olympic/Insurer.
Additionally, E&S shall be responsible for verifying the proper licensing of
such Sub-producers, and if any liabilities are incurred by Olympic/Insurer as
the result of E&S' accepting business from unlicensed or improperly licensed
Sub-producers, E&S shall indemnify and hold Olympic/Insurer harmless from, and
reimburse Olympic/Insurer for, any and all such liabilities, including but not
limited to fines, court costs and expenses, legal fees and travel expenses.
3.10 E&S may accept premium financed by premium finance companies, upon terms
and conditions approved in writing by Olympic/Insurer.
3.11 E&S shall not process, adjust, settle or pay any claims under Policies
underwritten or delivered by E&S pursuant to this Agreement, nor shall E&S
commit Olympic/Insurer to pay any Policy claim. Should E&S become aware, or
have delivered to E&S, any notice of claim or claim, E&S promptly shall forward
such notice or claim to Olympic/Insurer or its designee.
ARTICLE 4 - COMPENSATION
4.1 Except as otherwise specified on the Schedule of Business, Olympic shall
allow E&S a gross commission of 27.5% of all gross written premium derived from
Policies underwritten or delivered by E&S hereunder. The commission arrangement
shall be reviewed semiannually as of January 1 and July 1 of each year and
shall be subject to adjustment as agreed by the parties.
4.2 Out of such gross commission. E&S shall allow for all commissions due to
Sub-producers and others with respect to Policies underwritten or delivered by
E&S hereunder.
4.3 If there is not a Sub-producer to receive the designated commission on a
Policy, E&S shall be entitled retain the commission.
4.4 E&S also shall be entitled to retain all policy and other fees charged by
E&S with respect to business produced hereunder to the extent such fees are
permitted E&S by law.
ARTICLE 5 - ACCOUNTTNG, RECORDS AND EDP
5.1 E&S shall provide and maintain in forms reasonably acceptable to
Olympic/Insurer all books, records, dailies and correspondence with
policyholders necessary to determine the amount liability of Olympic/Insurer
and the amount of premium therefrom.
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5.2 The omission of any item from any statement, or report applicable to the
business hereunder shall not affect the responsibility of either party to
account for and pay all amounts due the other party hereunder, nor shall it
prejudice the rights of either party to collect all such amounts due from the
other party.
5.3 E&S shall prepare separate, itemized, invoices and/or monthly statements
for each Sub-producer on the business produced by the Sub-producers hereunder,
and furnish the Sub-producers IRS Forms 1099 each year if and when required.
5.4 All of E&S records applicable to the business hereunder shall be kept in
such manner and form as are generally recognized as acceptable in the insurance
industry or as reasonably may be required by Olympic/Insurer. Such records
shall be maintained for five years or for any longer retention period required
by law or Olympic/Insurer.
5.5 All records in E&S' possession or control and applicable to the business
hereunder shall be made available upon prior written request for inspection,
copying and/or audit at reasonable times by Olympic/Insurer or its agents.
5.6 All records in E&S' possession or control and applicable to the business
hereunder shall be made available, upon prior written request and at
Olympic/Insurer's cost, for inspection at any office of Olympic/Insurer, should
such inspection be requested by insurance department or other governmental
authorities.
5.7 E&S shall immediately forward upon request to Olympic/Insurer or
Olympic/Insurer's agents exact, as written, copies of all applications,
Policies and reports underwritten or delivered by E&S or used by E&S hereunder,
including all other evidence of insurance written, modified or terminated.
5.8 E&S shall be solely responsible for and shall keep accurate records of
all policy supplies assigned to E&S and shall account to Olympic/Insurer, upon
Olympic/Insurer's request, for all outstanding and unused policy supplies. If
canceled or terminated policy supplies are unavailable, E&S shall forward or
cause to be forwarded to Olympic/Insurer properly executed lost policy receipts
therefor.
5.9 Olympic/Insurer shall purchase as reasonably requested by E&S and
necessitated by law a server and related EDP hardware and software to be
maintained by Olympic/Insurer at a site reasonably acceptable to E&S for the
purpose of efficient data collection and document production. Additionally,
Olympic/Insurer may install to the extent reasonable and in compliance with law
EDP and transmission equipment in the offices of E&S and connect into the EDP
equipment of E&S; provided the allocation of expense between Olympic/Insurer
and E&S arising from any such installation and connection shall be negotiated
prior to such installation and connection.
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5.10 Olympic/Insurer shall be entitled to conduct semi-annually examinations
of E&S' operations. Such examinations shall be conducted in reasonable manners
and may cover such matters as required or permitted by law.
ARTICLE 6 - E&S' REPORTS
6.1 E&S shall provide to Olympic/Insurer weekly and monthly electronic data
transfer and bordereaux providing such policy information in such format as
reasonably requested by Olympic/lnsurer, and shall provide to Olympic/Insurer
monthly by the eighth business day of the following month accounting bordereaux
providing such information in such format as reasonably requested by
Olympic/Insurer, in respect of Policies issued or delivered by E&S hereunder.
Olympic/Insurer may alter the information required to be included in and the
formats of such reports from time to time; provided any such alteration does
not unreasonably burden E&S.
6.2 E&S shall furnish Olympic/Insurer with any additional information and
reports as reasonably requested by Olympic/Insurer and necessary to complete
Olympic/Insurer's quarterly and annual statements filed with regulatory
authorities or otherwise satisfy regulatory requirements.
6.3 E&S shallannually furnish Olympic/lnsurer, within 90 days following the
end of E&S' fiscal year, current (audited, if available) financial statements of
E&S. These financial statements shall include, but not be limited to, profit
and loss, balance sheet and cash flow statements.
ARTICLE 7 - EXPENSES
7.1 E&S shall be responsible for and promptly pay all expenses attributable
to producing and servicing business under this Agreement, except as specified in
Section 7.2. This responsibility shall not be altered whether the expenses are
billed to E&S or Olympic/Insurer. These expenses shall include, but not be
limited to:
(a) Salaries, related taxes and benefits of all employees of E&S;
(b) Transportation, lodging and meals of employees of E&S;
(c) Postage and other delivery charges;
(d) Advertising not specifically agreed to by Olympic/Insurer;
(e) EDP hardware, software and programming, except as provided in
Section 5.9;
(f) Countersignature fees or commissions:
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(g) License and appointment fees for agents, brokers and others;
(h) Income and state and local sales taxes, if any, directly applicable
to E&S' business;
(i) Taxes on surplus lines premium, and policy fees if necessary in
respect of Policies underwritten or delivered by E&S hereunder;
(j) Costs of office space, facilities, equipment and occupancy used by
E&S;
(k) Legal and auditing expenses incurred by E&S in the normal conduct
of its business; and
(l) Such other expenses as are customarily borne by insurance producers.
7.2 Olympic/Insurer shall be responsible for and promptly pay all expenses
incurred by Olympic/Insurer under this Agreement. This responsibility shall not
be altered whether the expenses are billed to Olympic/Insurer or E&S. These
expenses shall include but not be limited to:
(a) Salaries, related taxes and benefits of all employees of
Olympic/Insurer.
(b) Transportation, lodging and meals of employees of Olympic/Insurer;
(c) Board and bureau fees;
(d) Income and state and local sales taxes, if any, directly
applicable to Olympic/Insurer's business;
(e) State or guaranty fund assessments;
(f) Losses and loss adjustment expenses incurred by or at the
direction of Olympic/Insurer;
(g) Reinsurance costs;
(h) Legal and auditing expenses incurred by, on behalf of or at the
direction of Olympic/Insurer; and
(i) Such other expenses as are customarily borne by insurance
companies.
ARTICLE 8 - HANDLING OF FUNDS
8.1 E&S shall accept and maintain at all times all premium collected and
other funds relating to the business underwritten by E&S under this Agreement
in the capacity
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of a fiduciary and trustee for Olympic/Insurer. The privilege of retaining
commissions shall not be construed as changing the fiduciary capacity.
8.2 E&S shall establish and maintain a premium trust account designated
Transre Insurance Services Premium Trust Account-Olympic or Transre Insurance
Services Premium Trust Account - [insurer's name] in a bank mutually agreed by
E&S and Olympic/Insurer and shall deposit into such premium trust account all
premiums collected by E&S hereunder. E&S shall have the right to transfer
funds held in such premium trust account to successor banks with the prior
written consent of Olympic. Such banks shall be members of the Federal Reserve
System whose deposits are insured by the Federal Deposit Insurance
Corporation. E&S shall be entitled to retain any interest earned on funds
deposited in such premium trust accounts.
8.3 E&S shall maintain signature authority on such premium trust accounts
and may use any and all premium and other funds collected by E&S under this
Agreement for the following purposes:
(a) Payments of amounts due Olympic/Insurer pursuant to this
Agreement;
(b) Return of unearned premiums arising due to cancellation or
endorsement of Policies underwritten or delivered by E&S;
(c) Payment of E&S', Sub-producers' and others' compensations as
described in Article 4;
(d) Return of money deposited in error;
(e) Withdrawal of interest due E&S hereunder, and
(f) Making of investments authorized by law.
8.4 E&S shall not commingle any funds in such premium trust accounts with
funds in E&S' corporate accounts or other funds held by E&S in any other
capacity.
8.5 E&S shall render accounts to Olympic/Insurer detailing all premium
trust account transactions, and remit to Olympic all funds due under this
Agreement by the end of the month following the month during which E&S
collected such funds for the account of Olympic/Insurer.
8.6 Neither party shall be liable for any loss which occurs by reason of the
default or failure of the bank in which an account is carried.
8.7 E&S shall refund commission on Policy cancellations, reductions in
premiums or any other return premiums at the same rate at which such
commissions were originally retained.
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8.8 Neither Olympic/Insurer nor E&S shall offset any balances due under
this Agreement with any amounts due under any other agreement between
Olympic/Insurer and/or its affiliates and E&S and/or its affiliates.
ARTICLE 9 - OWNERSHIP OF BOOKS AND RECORDS
9.1 Upon termination of this Agreement, E&S' records and the exclusive use
and control of expirations of business produced by Sub-producers retained by
E&S and contracts with such Sub-producers shall remain the sole property of E&S
and be left in E&S' undisputed possession, provided E&S is not then in default
of any payment obligation to Olympic/Insurer hereunder. If E&S is then in
default of any such payment obligation and has not cured such default within 15
days of Olympic/Insurer's notice to E&S thereof, ownership of the records, use
and control of expirations and contracts with Sub-producers shall become and
remain vested in Olympic/Insurer until such time as such payment has been made.
9.2 E&S hereby assigns to Olympic/Insurer as security for the payment
obligations of E&S under this Agreement all sums due or to become due to E&S
from any insureds whose Policies were underwritten by E&S hereunder.
Olympic Insurer shall have full authority to demand and collect such sums if
E&S is then in default of any payment obligation to Olympic/Insurer hereunder
and has not cured such default within 15 days of Olympic/Insurer's notice to
E&S thereof.
9.3 E&S pledges and grants to Olympic/Insurer to further secure the payment
obligations of E&S hereunder all of E&S' records of expirations of Policies,
including, but not limited to, the ownership and use of such expirations.
Olympic/Insurer shall have the rights of the holder of a security interest
granted by law, including, but not limited to, the rights of foreclosure to
effectuate such security interest, and E&S hereby agrees peaceably to
surrender possession of such records to Olympic/Insurer upon demand.
9.4 E&S agrees that this Agreement or a copy hereof may be filed as a
financing statement, if Olympic/Insurer so elects. E&S further agrees to sign
a UCC-1 Form to secure Olympic/Insurer's security interest in the expirations
and renewals upon reasonable request by Olympic/Insurer; provided that upon
termination of this Agreement and E&S not being in default of any payment
obligation to Olympic/Insurer hereunder, Olympic/Insurer immediately shall
cancel or terminate such filing.
ARTICLE 10 - INDEPENDENT CONTRACTOR RELATIONSHIP
10.1 Nothing contained in this Agreement shall be construed to create the
relationship of employer and employee between Olympic/Insurer and E&S, or
between Olympic/Insurer and any employees, representatives or Sub-producers
retained by E&S. E&S shall carry out its responsibilities hereunder subject to
is own discretion and not subject to time or manner directions of
Olympic/Insurer.
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ARTICLE 11 - ADVERTISING
11.1 Before E&S uses Olympic/Insurer name in any form of advertising, a copy
of the proposed advertisement shall be forwarded to Olympic/Insurer. No such
or advertisement shall be used without the prior written permission of
Olympic/Insurer. All agreements with Sub-producers shall require that before
they use Olympic/Insurer's name in any advertising, a copy of the proposed
advertisements shall be forwarded to Olympic/Insurer, and that no such
advertisements shall be used without the prior permission of Olympic/Insurer.
11.2 If an advertisement containing Olympic/Insurer's name is used by E&S or
Sub-producers retained by E&S, E&S shall maintain a copy of the advertisement
and full details concerning where, when and how it was used, and comply with
all legal requirements regarding content, review and approval of advertising
and maintenance of records. E&S, however, shall not be required to maintain
records of the names and addressees of recipients of any direct mailing or
advertising but shall only record the geographical area in which such mailing
or advertising was used except to the extent retention of such information is
required by law.
ARTICLE 12 - E&S' LICENSING
12.1 E&S has and shall maintain current licenses and authorities as required
by law for the conduct of its business pursuant to this Agreement.
12.2 E&S shall be responsible for verifying that all Sub-producers retained
by E&S maintain appropriate licenses and authorities as required by law for
conduct of their businesses.
12.3 E&S shall maintain in force agreements, in form reasonably satisfactory
to Olympic/Insurer, with Sub-producers retained by E&S hereunder.
ARTICLE 13 - E&S' SALE OR TRANSFER
13.1 In the event a majority interest in E&S is to be sold or transferred or
E&S is to merge or be consolidated with another firm not under common control,
controlling or controlled by E&S or Olympic/Insurer, E&S shall give 30 days
advance written notice to Olympic/Insurer, to allow Olympic/Insurer, at its
election:
(a) To consent to assignment of this Agreement to the successor;
(b) To enter into a new agreement with the successor; or
(c) To terminate this Agreement.
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13.2 Olympic/Insurer shall notify E&S of its decision within 15 days
of the receipt of the notice.
13.3 E&S shall notify Olympic/Insurer in writing within 15 days if
there is a change in:
(a) Ownership of ten percent or more of the outstanding
voting stock of E&S; or
(b) The president of E&S.
ARTICLE 14 - INDEMNITY AGREEMENT
- --------------------------------
14.1 E&S shall indemnify and hold Olympic/Insurer harmless from any
and all claims, causes of action, damages, judgments, fines, penalties and
expenses (including, but not limited to, attorney's fees and costs of court)
which may be made against Olympic/Insurer by anyone, including any governmental
agency or regulatory authority, and which arise, either directly or indirectly,
principally out of any negligent or grossly negligent actions or inactions or
willful misconduct or violation of any statute or regulation by E&S
including, but not limited to any negligent or grossly negligent actions or
inactions or willful misconduct or violation of any statute or regulation by
any Sub-producer retained by E&S or any of E&S' or such Sub-procuders'
employees or representatives arising under this Agreement.
14.2 Olympic shall indemnify and hold E&S harmless from any and all
claims, causes of action, damages, judgments, fines, penalties and expenses
(including, but not limited to, attorney's fees and costs of court) which may
be made against E&S and which arise, either directly or indirectly, principally
out of any negligent or grossly negligent actions or inactions or willful
misconduct or violation of any statute or regulation by Olympic, including, but
not limited to, any negligent or grossly negligent actions or inactions or
willful misconduct or violation of any statute or regulation by Olympic's
employees or representatives arising under this Agreement.
14.3 If any person seeks indemnity hereunder ("Indemnified Person"),
the Indemnified Person shall give the indemnifying party ("Indemnifying Party")
prompt written notice of the claim, cause of action, damage, judgment, fine,
penalty and expense against which indemnification is sought, including copies
of all documents and information reasonably relating thereto. The Indemnifying
Party promptly shall commence defending the Indemnified Person through
competent attorneys reasonably satisfactory to the Indemnified Person. The
Indemnified Person shall cooperate with the Indemnifying Party in such defense,
but the ultimate decision whether to defend or settle shall be made by the
Indemnified Person.
14.4 If either party shall institute any lawsuit to enforce the
obligations assumed by the other party under this Agreement, the prevailing
party shall be entitled to recover
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from the other party all costs, expenses, judgments and attorney's fees
incurred by the prevailing party in connection with the lawsuit.
14.5 E&S has and shall maintain E&O insurance with an insurer
reasonably acceptable to Olympic/Insurer and providing coverage of the greater
of (i) the minimum required by law or (ii) $1,000,000.
ARTICLE 15 - MEDIATION AND VENUE
15.1 If irreconcilable differences of opinion arise as to the
interpretation of this Agreement, either party may request, in writing,
mediation of such difference of opinion. Such mediation shall be conducted
pursuant to Commercial Mediation Rules of the American Arbitration
Association. Such mediation shall be conducted in Chicago, Illinois, and
concluded within 30 days after notice of mediation. The costs of the parties
incurred in the mediation shall be allocated by the mediator pursuant to the
equities of the parties with respect to the matters mediated.
15.2 If any dispute cannot be resolved by mediation, the parties
agree that the courts of Illinois shall have exclusive jurisdiction to resolve
any such dispute and that the internal law of Delaware will apply to the
interpretation and enforcement of the dispute.
ARTICLE 16 - TERMINATION
- ------------------------
16.1 This Agreement shall be terminable by either party (i) upon 15
days' prior written notice to the other party for "cause" (defined, as
hereinafter used, as the other party's permanent legal or physical inability to
perform its obligations hereunder, the other party's conviction of a felony
or the other party's "Material Breach" of this Agreement and failure to cure
such Material Breach within the applicable cure period); and (ii) upon 90
days prior written notice to the other party as of the end of any calendar
quarter. A "Material Breach" shall consist of (a) failure by a party to pay
any amount due hereunder when due, which is not paid within 15 days following
the other party's written demand for such payment, or (b) the failure to obtain
or maintain, or the termination or suspension of, a license, permit or other
authority necessary for a party to conduct its business as contemplated
hereunder which is not cured within 30 days.
16.2 Upon termination, E&S promptly shall deliver or cause to be
delivered to Olympic/Insurer, at Olympic's expense, all property of
Olympic/Insurer in E&S' control or possession, including but not limited to,
EDP equipment owned by Olympic/Insurer, Policies, manuals, forms, unused drafts
and all materials used in servicing of Policies, including computerized and
data processing records and the physical equipment required for the processing
of those records and data. If E&S fails to deliver such property within 15 days
after the termination of this Agreement, E&S shall bear all reasonable
expenses which Olympic/Insurer may expend or cause to be expended in obtaining
such items. If policy supplies cannot be accounted for by E&S or have been
destroyed, lost or mislaid,
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E&S agrees to protect, defend, and hold Olympic/Insurer harmless from all
persons and claims whatsoever arising with respect to such policy supplies.
16.3 Olympic/Insurer may, for "cause," in its sole discretion,
suspend any and all of E&S' authority pursuant to this Agreement. Such
suspension shall be effective upon written notification to E&S setting forth
the nature of the for "cause" determination in reasonable detail.
16.4 In the event of termination of this Agreement by Olympic for
"cause," any indebtedness of E&S to Olympic/Insurer and all premiums in the
possession of E&S, or for the collection of which E&S is responsible, shall
become immediately due to Olympic/Insurer.
16.5 The failure of either party to declare promptly a default or
breach of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any such terms and conditions, nor stop either party
from thereafter demanding full and complete compliance herewith.
16.6 Notwithstanding the termination of this Agreement, the
provisions of this Agreement shall continue to apply to all unfinished business
to the end that all obligations and liabilities incurred by each party as a
result of this Agreement shall be fully performed and discharged.
ARTICLE 17 - MISCELLANEOUS
- --------------------------
17.1 This Agreement supersedes all previous agreements, if any,
whether written or oral, between Olympic/Insurer and E&S relating specifically
to the subject matter hereof.
17.2 E&S shall not assign its rights and obligations under this
Agreement in whole or in part without the prior written approval of Olympic.
17.3 Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and plural
and any term stated in either the masculine, the feminine or the neuter gender,
shall include the masculine, the feminine and the neuter gender. All captions
and section headings are intended to be for purposes of reference only and do
not affect the substance of the sections to which they refer.
17.4 Each party hereto agrees to perform any further acts and
execute and deliver any further documents which may be reasonably necessary to
carry out the provisions of this Agreement.
17.5 In the event that any of the provisions, or portions thereof,
of this Agreement are held to be illegal, invalid or unenforceable by any court
of competent
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jurisdiction, the validity and enforceability of the remaining provisions, or
portions thereof, shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
17.6 Any and all notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when deposited in the
United States Postal Service, Certified Mail, Return Receipt Requested, or
faxed with confirmation by phone to a vice president or more senior officer of
the recipient, to the parties' addresses as provided below or such other
addresses provided by the parties:
OLYMPIC:
Olympic Underwriting Managers, Inc.
400 Perimeter Center Terrace, Suite 345
Atlanta GA 30346
Attn: James Satterfield
E&S:
Transre Insurance Services
c/o Exstar E&S Insurance Services
2029 Village Lane
Solvang CA 93463
Attn: Peter J. O'Shaughnessy
17.7 This Agreement may be executed in multiple counterparts, each of which
and together shall constitute an original document.
OLYMPIC: E&S:
Olympic Underwriting Managers, Inc. Transre Insurance Services
By: [SIG] By: [SIG]
--------------------------------- -----------------------------
Date: 10/9/96 Date: 10/9/96
------------------------------- --------------------------
Exstar E&S Insurance Services
By: [SIG]
----------------------------
Date: 10/9/96
--------------------------
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EXHIBIT 10.98
CONSULTING AGREEMENT
ALPINE INSURANCE COMPANY ("COMPANY") and CRAIG L. RICE ("RICE") hereby
enter into an agreement for consulting services to be provided by Rice to the
Company as follows:
1. SERVICES TO BE PROVIDED: Rice agrees to provide financial consulting
services to the Company in connection with the Exstar vs. Coopers & Lybrand
litigation on an independent contractor basis. The parties agree that any
consulting services performed by Rice under this Agreement need not be, and are
not expected to be, performed on Company premises or in the presence and/or
under the supervision, direction and control of any Company employee. Rice
understands and agrees that a substantial portion of his services will be
performed in Los Angeles, California. At other times, he may work out of his
personal office; however, the Company agrees to arrange for access to all
documents, records, etc. as necessary in connection with the performance of the
financial consulting services, as well as reasonable and necessary support
services. Further, it is the mutual understanding, expectation, intent and
agreement of the parties that Rice will determine the method, details, and means
of performing the consulting services under this Agreement, subject to the
requirement that he reasonably cooperate with the Company and agents for the
Company and exercise his best good faith efforts in performing the financial
consulting services.
2. TERM OF AGREEMENT: The term of this Agreement will be four consecutive
30-day periods, commencing on the date the Agreement is signed by the parties.
3. COMPENSATION: The Company agrees to pay to Rice $250 per hour for
financial consulting services provided to the Company, which will include, among
other things, deposition and trial preparation time. In addition, Rice will be
paid $250 per hour for travel time required in the performance of services in
connection with this Agreement, including travel time to and from deposition
and/or trial appearances.
4. GUARANTEED MINIMUM HOURS: The Company agrees to pay Rice for a minimum
of 40 hours per 30-day period, averaged over the term of the Agreement, and Rice
agrees to be available to the Company a maximum of 50 hours per 30-day period
during the term of the Agreement. Time spent travelling shall not be included in
the 40 hour minimum and 50 hour maximum periods, but time spent preparing for
depositions and trial shall be included in the 40 hour minimum and 50 hour
maximum periods. Additional hours over the 50 hour maximum per 30-day period may
be requested by the Company on an as-needed basis; performed by Rice at his
option; paid at $250 per hour; and not included in the 40 hour averaged minimum
per 30-day period. The Company will provide Rice with notice of its
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anticipated needs a week in advance so that he can make necessary travel and
scheduling arrangements. It is understood and agreed that Rice will not be
available the dates of October 22, 1996 through November 8, 1996, inclusive.
5. ADVANCE: Pending approval of the Agreement by the Illinois
Department of Insurance and prior to the commencement of services to be
provided by Rice under the Agreement, the Company shall advance a
non-refundable payment of $10,000 to Rice which will be applied to the first 40
hours of consulting and travel time required in connection with the services to
be provided by Rice under this Agreement. If Mr. Rice is required to travel to
the Los Angeles area for deposition preparation, the Company assures him that
he will have at least two full days of work when he arrives.
If the $10,000 advance is depleted prior to approval of the
Agreement by the Illinois Department of Insurance, Rice will not be obligated
to perform any additional services under this Agreement in the absence of an
additional non-refundable advance payment for services in a sum of at least
$5,000.
6. BILLING: Rice will provide the Company with confidential monthly
billing statements itemizing the hours worked, including travel time, and costs
incurred. Costs will be itemized, with attached receipts. Payment of all
monthly bills will be due within 21 days of the date the Company receives the
statement.
7. COST: The Company will reimburse Rice, without prior approval
required by the Company except as set forth below, for all reasonable and
necessary costs incurred in performing the services required under the
Agreement. Costs shall include, but not be limited to, the following:
Telephone charges--actual cost;
Copying charges--actual cost;
FAX transmittals--actual cost;
Postage, including Federal Express charges--actual cost;
Travel expenses, including airfare and ground
transportation--actual cost;
Food in connection with reasonable and necessary
travel--actual cost;
Auto mileage--$.30 per mile.
Any expenditure of $1,000 or more shall require pre-approval by the
Company.
All travel and lodging arrangements and reservations shall be made
through the Company, including travel and lodging for deposition and/or trial
appearances, and will be billed directly to the Company.
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8. GOOD FAITH CONSULTING SERVICES: Rice agrees to cooperate in
scheduling his appearance for deposition and/or trial in accordance with the
law, with or without a subpoena. He further agrees to cooperate with the
Company and its agents in good faith in regard to his consulting services.
9. APPROVAL OF CONTRACT BY THE ILLINOIS DEPARTMENT OF INSURANCE:
The Company agrees to exercise its best good faith efforts to obtain approval
of the Agreement signed by the parties, by the Illinois Department of Insurance
as soon as possible. Further, the Company will provide proof of submission of
the signed Agreement for approval to the Illinois Department of Insurance
promptly, but not later than October 15, 1996.
10. TERMINATION OF AGREEMENT: This Agreement shall terminate
automatically on the occurrence of any of the following events:
A. Bankruptcy or insolvency of either party;
B. Sale or dissolution of business by either party;
C. Death or incapacity of Rice rendering him unable to
perform the services under this Agreement;
D. The expiration of the term of the Agreement.
11. ASSIGNMENT OF AGREMENT: Neither this Agreement nor any of the
duties or obligations under this Agreement may be assigned by either party
without the prior written consent of the other, and such consent will not be
unreasonably withheld.
12. RELATIONSHIP OF PARTIES. The parties intend that Rice, in
performing services herein specified, shall act as an independent contractor and
shall control the manner in which his services are performed. Rice is not to
be considered as an agent of the Company. The Company shall not supply
equipment or working space for Rice. So far as applicable to the performance
of work required by this Agreement, Rice shall be responsible, at his sole
cost and expense, for any and all liability for federal, state and local taxes,
social security and/or unemployment compensation. Rice will not be entitled to
any employment benefits from the Company under the terms of and for the
duration of this Agreement.
13. COUNTERPARTS: This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all which together shall
constitute one and the same instrument.
14. ENTIRE AGREEMENT: This Agreement constitutes the full
understanding and the sole and entire agreement between the parties regarding
the terms and conditions of the consulting arrangement being entered into
between the parties and supersedes and replaces
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regarding the terms and conditions of the consulting arrangement being entered
into between the parties and supersedes and replaces any and all earlier
discussions, promises, statements, and agreements, whether oral or written,
whether express or implied, regarding those terms and conditions. The parties
to this Agreement acknowledge that no representation, inducements, promises, or
agreements, orally or otherwise, have been made between the parties hereto
relating to the subject matter of this Agreement which are not expressed
herein. In addition, no modification or amendment of, or addition, deletion or
change to this Agreement shall be valid, binding or enforceable for any purpose
unless made in writing and signed by both parties.
15. ARBITRATION: Any dispute relating to or arising out of this
Agreement or its validity, or any act/omission which allegedly has or would
violate any provision of this Agreement shall be submitted to binding
arbitration in accordance with the rules of the American Arbitration
Association ("AAA"), which shall be the exclusive remedy for such claim or
dispute. All costs of arbitration and attorneys' fees shall be awarded to the
prevailing party against the non-prevailing party. The arbitration award will
be binding and conclusive on the parties and may be enforced in a court of
competent jurisdiction.
16. LAW GOVERNING: This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
The signatures below reflect the intent of the Company and Rice to be
bound by all the terms of this Agreement.
DATED: 10/10/96 ALPINE INSURANCE COMPANY
--------
By_______________________________________
DATED: _________ _______________________________________
CRAIG L. RICE
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EXHIBIT 10.99
WITHDRAWAL AGREEMENT
THIS WITHDRAWAL AGREEMENT (this "Agreement") is made and entered into this
___th day of January, 1997, by and among the ILLINOIS INSURANCE EXCHANGE (the
"IIE"), the ILLINOIS INSURANCE EXCHANGE IMMEDIATE ACCESS SECURITY ASSOCIATION
(the "IASA"), the ILLINOIS INSURANCE EXCHANGE GUARANTY FUND, INC. (the
"Guaranty Fund"), TRANSCO SYNDICATE #1 LTD. (the "Syndicate"), and ALPINE
INSURANCE COMPANY ("Alpine").
WHEREAS, the IIE is an Illinois not-for-profit corporation which operates
as an insurance exchange pursuant to Article V 1/2 (215 ILCS 5/107.01 et seq.)
of the Illinois Insurance Code (the "Code");
WHEREAS, the IASA is an Illinois not-for-profit corporation created
pursuant to Section 107.26 of the Code;
WHEREAS, the Guaranty Fund is an Illinois not-for-profit corporation
created pursuant to Section 15.A.1. of the IIE Regulations (the "Regulations");
WHEREAS, the Syndicate, an Illinois business corporation, is a syndicate
on the IIE;
WHEREAS, Alpine, an Illinois stock property and casualty insurance
corporation, is a wholly owned subsidiary and reinsured of the Syndicate;
WHEREAS, in May of 1996, the Syndicate notified the IIE of its intent to
voluntarily withdraw from the IIE and cease operating as a syndicate on the
IIE; and
WHEREAS, this Agreement sets forth the terms of the Syndicate's voluntary
withdrawal and plan for securing its claims and obligations, pursuant to
Section 23 of the Regulations.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto hereby agree
as follows:
ARTICLE 1
WITHDRAWAL OF THE SYNDICATE FROM THE IIE
1.1 Withdrawal. Subject to the Syndicate being in compliance with and not
in breach of any provisions of this Agreement, the IIE hereby grants the
Syndicate's petition to withdraw as a syndicate on the IIE effective as of the
Effective Date (as defined in Section 2.1 below) in accordance with the terms
and conditions of this Agreement, but the Syndicate or Alpine, as its
successor, shall continue to be subject to the provisions of Sections 13, 15
and 22 of the Regulations. In this regard, the IIE, the IASA or the Guaranty
Fund, as applicable, shall
<PAGE> 2
promptly notify Alpine of the receipt of any claim in connection with a policy
issued by the Syndicate. Alpine shall have the right and duty to defend or
settle, as it deems appropriate, any such claim against the IIE, the IASA or
the Guaranty Fund, in accordance with the provisions of Section 22 of the
Regulations. On and after the date hereof, the IIE shall promptly report to
Alpine all claims made under policies issued by the Syndicate with respect to
which the IIE receives notice. On the date hereof, the Syndicate shall (i)
transfer all of its rights, assets, liabilities and obligations to Alpine,
effective as of the Effective Date (as further described in Section 3.1 below),
(ii) change its corporate name to a name not including any reference to
"Syndicate", "Exchange", or "Illinois Insurance Exchange"; and (iii) make any
amendments to its Articles of Incorporation necessary to eliminate any
corporate power as a syndicate member of the IIE and as an entity having any
authority to engage in the business of insurance in Illinois or any other
jurisdiction. On and after the date hereof, the Syndicate shall conduct no
further activity as an insurance entity.
1.2 Withdrawal of the Syndicate. The Syndicate, as an independent entity,
shall not engage in the underwriting of new or renewal insurance or reinsurance
business on or after the date of this Agreement so long as this Agreement
remains in effect and shall not engage in any other activity that would
constitute doing the business of insurance. Subject to the terms and
conditions of this Agreement and in accordance with the provisions of Section
23 of the Regulations, the Syndicate shall withdraw as an active syndicate of
the IIE, effective as of the Effective Date. After the Effective Date, Alpine
shall be obligated, in the Syndicate's place, for all claims, loss adjustment
expenses, return premiums or any other matters arising from policies written or
reinsurance agreements entered into by the Syndicate while a member of the IIE,
in accordance with the terms and provisions of this Agreement.
ARTICLE 2
EFFECTIVE DATE
2.1 Effective Date. Subject to the terms and conditions hereof, the
Effective Date of the transaction contemplated by this Agreement shall be
December 31, 1996.
ARTICLE 3
SYNDICATE LIABILITIES
3.1 Commutation and Transfer of Assets and Liabilities. Effective as of
the Effective Date, the Syndicate shall transfer to Alpine, and Alpine shall
assume and accept, all of the rights, assets, liabilities and obligations of
the Syndicate, including the liabilities and obligations of the Syndicate to
its policyholders and reinsureds, subject to the terms and conditions of this
Agreement. The transfer of rights, assets, liabilities and obligations of the
Syndicate to Alpine (the "Assignment and Assumption") will be consummated in
accordance with an Assignment and
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Assumption Agreement in the form attached hereto as Exhibit A. Effective
immediately prior to the Assignment and Assumption, the reinsurance agreement
between Alpine and the Syndicate, effective July 1, 1994, under which the
Syndicate has assumed certain liabilities of Alpine under insurance contracts
issued by Alpine (the "Alpine Treaty") will be commuted in accordance with a
Commutation Agreement substantially in the form attached hereto as Exhibit B
(the "Commutation Agreement"). In connection with such commutation, the
Syndicate will transfer to Alpine the assets listed on Schedule 3.1 hereto, in
consideration of (i) Alpine's reassumption of the loss, loss adjustment expense
and unearned premium reserves (calculated as of September 30, 1996) relating to
business ceded under the Alpine Treaty, and (ii) amounts due and not yet paid
by the Syndicate to Alpine under the Alpine Treaty. The IIE's execution of
this Agreement shall be an acknowledgment of its approval of the Commutation
Agreement. With respect to the assets listed on Schedule 3.1 which are held in
the Syndicate's IASA Custodial Account, the IIE and the IASA shall take any and
all actions necessary to release and transfer such assets to Alpine on the date
hereof.
3.2 Trust Fund.
(A) Establishment. In order to ensure the satisfaction of the
obligations of the Syndicate and of Alpine to the Syndicate's creditors,
policyholders and reinsureds, Alpine shall, on the date hereof, establish
a trust fund with LaSalle National Bank or such other bank as is mutually
agreed to by the parties for the payment of claims under insurance
policies issued and reinsurance agreements entered into by the Syndicate
and for all other obligations of the Syndicate on the terms described in
Section 3.2(D) hereof (the "Trust Fund"). The Trust Fund shall be funded
and administered, and a successor trustee may be appointed, in accordance
with the terms of a Trust Agreement substantially in the form attached
hereto as Exhibit C (the "Trust Agreement"). The Trust Fund shall be
established solely for the benefit of the Syndicate's policyholders,
reinsureds and other creditors. On the date hereof, all assets owned by
the Syndicate immediately prior to the Assignment and Assumption (other
than the assets listed on Schedule 3.1) including all assets released
from the Syndicate's IASA Custodial Account as described in Section 4.1
hereof and not otherwise utilized for the payment of withdrawal fees owed
to the IIE (as described in Section 5.1 hereof), but not including assets
held in the Syndicate's Guaranty Fund Custodial Account or the stock of
Alpine, shall be deposited into the Trust Fund. Upon the execution
hereof, Alpine will provide the IIE with a schedule (to be known as
Schedule 3.2(A)) of the assets to be deposited in the Trust Fund.
Promptly after the date hereof, Alpine shall provide to the IIE an
original copy of the bank records verifying such deposits.
(B) Additional Deposits. On and after the date hereof, Alpine shall
collect and remit to the trustee of the Trust Fund, promptly upon receipt
and in the form received by Alpine: (1) 65% of all premiums, audit
premiums or other consideration with respect to insurance policies issued
and reinsurance assumed by the Syndicate; (2) any monies, credits,
setoffs, allowances or commutation settlements received by Alpine from
reinsurers with respect to reinsurance ceded by the Syndicate or with
respect to Syndicate
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insurance business, other than reinsurance retroceded by the Syndicate
with respect to risks assumed from Alpine under the Alpine Treaty
("Retrocession Amounts"), which Retrocession Amounts will be paid
directly to Alpine from and after the effective date of the commutation
of the Alpine Treaty; (3) all salvage and subrogation or any other
recoveries arising from any policies issued and reinsurance agreements
entered into by the Syndicate; and (4) any other assets received by
Alpine which would have been payable to the Syndicate had the Assignment
and Assumption not occurred. In the event that Alpine enters into a
commutation agreement with respect to insurance business ceded by the
Syndicate, Alpine promptly shall provide to the IIE either a copy of such
commutation agreement or a summary providing pertinent information with
respect to the commutation, at Alpine's option.
(C) Reports. Alpine (or, with respect to subpart (1) below, the
trustee) shall provide to the IIE the following reports:
(1) A monthly report prepared by the trustee with respect to
the Trust Fund in the form that typically is prepared by the
trustee with respect to trusts of this type which, to Alpine's
knowledge, will show remittances to and disbursements from the
Trust Fund together with a list of all assets in the Trust Fund and
the market value of each asset, as of the end of each month,
commencing in the month in which the Trust Fund is created. The
market value of any real estate or mortgages held in the Trust Fund
shall be determined on the basis of an appraisal conducted by an
M.A.I. certified appraiser (a "Qualified Appraiser") within the 24
month period prior to the preparation of the report;
(2) On or before March 31 of each year, an annual actuarial
valuation as of December 31 of the prior year, conducted by an
actuary who is either a member or fellow of the Casualty Actuarial
Society or the American Academy of Actuaries ("Qualified Actuary"),
that sets forth the undiscounted value of unpaid losses and
allocated loss adjustment expenses with respect to policies issued
and reinsurance assumed by the Syndicate less the amount of
reinsurance ceded by the Syndicate (or with respect to Syndicate
insurance business) to unaffiliated reinsurers rated B+ (Very Good)
or better by A.M. Best (the "Reserve Value"); and
(3) On or before March 31 of each year, an annual verified
report by the president of Alpine or such other officer as is
agreed by the IIE certifying that all disbursements and remittances
have been made from and to the Trust Fund during the year ending
the preceding December 31, only in accordance with the terms of
this Agreement, and which categorizes the amount of disbursements
made from the Trust Fund by "loss", "loss adjustment expense",
"approved expense" and "other", and which categorizes the amount of
remittances made to the Trust Fund in accordance with the
categories set forth in Section 3.2(B) above.
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Except as stated above in Section 3.2(C)(3), the IIE shall not have
the right to challenge the results or procedures used to generate such
reports, or the individuals or entities which generate such reports.
Nevertheless, the IIE shall have the right to ask questions of the
trustee and the Qualified Actuary, each of whom shall be instructed by
Alpine to respond as appropriate. Additionally, the IIE shall have the
right to audit the Trust Fund, following reasonable notice to Alpine, at
the IIE's sole expense. Notwithstanding the foregoing, in the event such
an audit by the IIE reveals material deviations from Alpine's obligations
pursuant to this Agreement, following Alpine's unsuccessful challenge of
such audit results, Alpine shall reimburse the IIE for all of its audit
expenses and the IIE shall retain all rights and remedies otherwise
granted to the IIE under this Agreement.
(D) Withdrawal of Assets. Alpine shall be permitted to make
withdrawals from the Trust Fund in accordance with the Trust Agreement,
and to liquidate assets held therein, for the purpose of paying (1)
losses and allocated loss adjustment expenses under insurance and
reinsurance policies and contracts issued by the Syndicate; (2)
reinsurance premiums owed to unaffiliated reinsurers under reinsurance
contracts entered into with respect to policies and contracts issued by
the Syndicate, if, at the time the relevant reinsurance contract was
entered into, the reinsurers were rated B+ or better by A.M. Best; (3)
return premiums owed with respect to policies and contracts issued by the
Syndicate; (4) trustee fees and Trust Fund expenses (but only from
investment income); (5) withdrawal fees as described in Article 5 hereof;
(6) unallocated loss adjustment expenses relating to losses under
insurance and reinsurance policies issued by the Syndicate, as approved
in advance by the IIE, which approval shall not be unreasonably withheld;
and (7) other bona fide obligations of the Syndicate, as approved in
advance by the IIE, which approval shall not be unreasonably withheld.
Neither the Syndicate nor Alpine is currently aware of any existing
liability of the Syndicate which is not reflected in the financial
information attached hereto as Exhibit D. Alpine shall also have:
(i) the right and obligation to "purchase" real
estate assets out of the Trust Fund, for cash, at the fair
market value thereof (determined in accordance with a "willing
buyer/willing seller" appraisal conducted by a Qualified
Appraiser not more than 24 months prior to the purchase), for
the purpose of paying any obligation described in Section
3.2(D) above, on an "as needed basis", as determined in the
reasonable judgment of Alpine;
(ii) the right and obligation to "purchase" mortgage
assets out of the Trust Fund, for cash, for an amount equal to
the lesser of (y) the outstanding principal balance of the
mortgage note, or (z) 80% of the fair market value (determined
in accordance with an appraisal conducted by a Qualified
Appraiser not more than 24 months prior to the purchase) of
the real estate to which the mortgage pertains, for the
purpose of paying any
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<PAGE> 6
obligation described in Section 3.2(D) above, on an "as needed
basis", as determined in the reasonable judgment of Alpine;
(iii) the right to sell or otherwise liquidate (or cause the trustee
of the Trust Fund to sell or liquidate) assets in the Trust
Fund at any time through sale or transfer on arms length
terms to a person or entity not affiliated with Alpine or the
Syndicate, provided that the proceeds of such sale or
liquidation are deposited in the Trust Fund; provided,
however, that (x) any such sale to a current or former
syndicate of the IIE or any affiliate thereof shall not be
consummated without the prior written approval of the IIE,
which approval shall not be unreasonably withheld, and (y)
Alpine shall provide 10 days' prior written notice to the IIE
of any sale, liquidation or compromise of any asset which
currently constitutes an "affiliated" investment of or
obligation to the Syndicate or a "non-admitted" asset of the
Syndicate;
(iv) notwithstanding the provisions of subparagraph (iii) above,
the right to sell to any person or entity or otherwise
liquidate (or cause the trustee of the Trust Fund to sell or
liquidate) the collateralized note of JBW & Co., Inc. now
held by the Syndicate for aggregate proceeds of $2,000,000 or
more, or, with the consent of the IIE, for a lesser amount,
which consent shall not be unreasonably withheld; and
(v) the right to withdraw all assets held in the Trust Fund upon
the termination of the Trust Fund as described in Section
3.2(E) hereof.
Other than the foregoing or as otherwise specifically set forth herein,
Alpine shall make no withdrawals from the Trust Fund without the prior
written consent of the IIE.
(E) Termination of Trust Fund. At the election of Alpine, the Trust
Fund shall be terminated, and all remaining assets therein shall
immediately be transferred to Alpine, in the event that (i) an actuarial
valuation by a Qualified Actuary results in a determination that the
Reserve Value under policies issued or reinsurance assumed by the
Syndicate is less than $2,000,000, and the policyholders' surplus of
Alpine as of the date of Alpine's most recent certified audit on file
with the Illinois Department of Insurance (the "Department") is greater
than $10,000,000 (taking into account the value of the admitted assets in
the Trust Fund and all liabilities of the Syndicate); or (ii) the IIE and
the Guaranty Fund are dissolved or cease operations or the authority of
the IIE or the Guaranty Fund is terminated and termination of the Trust
Fund is approved or consented to by the Department. The termination of
the Trust Fund shall not extinguish any other obligation of the parties
hereunder except for the reporting obligations set forth in Subsection
(C) hereof and shall not terminate the obligation of Alpine to pay any
and all claims under the policies issued or reinsurance assumed by the
Syndicate.
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3.3 Claims Handling. During the period of runoff of the Syndicate's
insurance liabilities, and until all such claims and liabilities have been
settled and paid, Alpine shall assume all responsibility for the handling of
insurance claims relating to the Syndicate's policyholders and reinsureds,
including, but not limited to, pursuing all rights of salvage, subrogation, and
handling reinsurance notification and premium and reinsurance collections.
ARTICLE 4
FUNDS HELD BY THE IIE, IASA AND GUARANTY FUND
4.1 IASA Account. On or prior to the date hereof, the IIE and IASA shall
take any and all necessary actions to cause the closure of the Syndicate's IASA
Custodial Account and shall release to the Trust Fund (or, with respect to the
assets listed on Schedule 3.1 hereto, to Alpine) all funds and assets then held
in the Syndicate's IASA Custodial Account and all funds held on behalf of the
Syndicate in the IIE's claims paying account. On and after the date hereof,
neither the Syndicate nor Alpine shall have any further obligation to or with
respect to the IASA.
4.2 Guaranty Fund.
(A) Guaranty Fund Account. The Syndicate currently maintains in
its Guaranty Fund Custodial Account assets having a market value of
$1,000,000 or more. All interest or other income accrued or paid with
respect to the Guaranty Fund Custodial Account shall inure to the benefit
of Alpine. For as long as the Guaranty Fund Custodial Account contains
cash or marketable assets with a market value of $1,000,000 or more less
any amounts previously withdrawn by the Guaranty Fund, Alpine shall be
permitted to withdraw at any time and from time to time all interest or
other income earned with respect to assets in its Guaranty Fund Custodial
Account. Alpine agrees to maintain this Account with cash or marketable
assets with a market value of no less than $1,000,000 less any amounts
previously withdrawn by the Guaranty Fund, for the period of time
required under this Agreement and the Regulations in effect on the date
of this Agreement with respect to withdrawing syndicates. The
Syndicate's Guaranty Fund Custodial Account will continue to be available
to the Guaranty Fund for a period of three (3) years from the date hereof
(unless sooner released by resolution of the IIE Board of Trustees), to
the extent provided in the Regulations in effect on the date of this
Agreement. The Syndicate's Guaranty Fund Custodial Account shall be
available for insolvencies determined prior to the date hereof or
insolvencies determined within the three (3) year period following the
date hereof, but only for losses arising on or before the date hereof.
The Syndicate's Guaranty Fund Custodial Account shall be available for
multiple insolvencies, but for any one insolvency, only to the extent of
no more than the lesser of (i) $500,000 or (ii) a proportional share of
the Guaranty Fund's obligations determined by dividing the estimated
Guaranty Fund's aggregate obligations by the number of syndicates whose
custodial accounts are then available (including successors of withdrawn
syndicates). Except as set forth herein, neither the Syndicate nor
Alpine
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<PAGE> 8
shall have any further obligation to or with respect to the Guaranty
Fund. Neither the Guaranty Fund nor the IIE shall withdraw or use assets
held in the Syndicate's Guaranty Fund Custodial Account for any purpose
other than as specifically permitted in this Agreement or as permitted
under the terms of Section 15 of the Regulations as in effect on the date
hereof. Notwithstanding anything herein to the contrary, in the event
that the Regulations of the IIE relating to the maintenance of a Guaranty
Fund Custodial Account by syndicate members of the IIE, or the
Regulations relating to the continued maintenance of such accounts by
syndicates which have withdrawn from the IIE, are revoked or revised in a
manner which decreases the amount of assets required to be maintained,
the exposure to claims to which such assets are subject, or the period of
time during which such assets must be maintained in the Guaranty Fund
Custodial Account, such changes shall be deemed to apply to the Syndicate
(and Alpine) to the same extent as other syndicate members of the IIE.
(B) Release of Guaranty Fund Account. At the next meeting of the
IIE Board of Trustees following the execution of this Agreement, the
Board shall adopt a standing resolution (a copy of which will be provided
to Alpine promptly following adoption), which resolution shall not
subsequently be amended or withdrawn, authorizing the release to Alpine,
on the third annual anniversary of the date hereof, of all amounts
remaining in the Syndicate's Guaranty Fund Custodial Account and not
already finally determined to be available for insolvencies pursuant to
the provisions of Section 4.2(A) hereof. In the event that a court of
competent jurisdiction shall determine that any of the amounts released
under this Section 4.2(B) should not have been released, Alpine shall
indemnify the IIE, IASA or Guaranty Fund (as applicable) up to the amount
determined to have been improperly released and shall reimburse the IIE,
the IASA and the Guaranty Fund for all reasonable attorneys' fees and
costs incurred by them in seeking to recover such amounts from Alpine, in
the event that Alpine fails to pay such amounts within 15 days following
written demand therefor by the IIE. In the event of any judicial
proceeding seeking a determination that the Syndicate's Guaranty Fund
Custodial Account was improperly released, the IIE, IASA or Guaranty Fund
(as applicable) promptly shall provide notice thereof (and of any
proposed settlement thereof) to Alpine, and Alpine shall have the right
to defend the IIE, IASA and Guaranty Fund (as applicable) and to agree to
any settlement thereof which would be payable by Alpine pursuant to this
indemnification.
(C) Continuing Protection by the Guaranty Fund. In the event that
the Trust Fund has not previously been terminated by Alpine, and all
funds and assets held in the Trust Fund, plus an amount equal to the
policyholders' surplus of Alpine as reflected in its September 30, 1996
quarterly financial statement as filed with the Department, have been
expended in satisfaction of liabilities and obligations of the Syndicate
as described in this Agreement, the Guaranty Fund will, at that time,
provide protection to policyholders and reinsureds under policies and
reinsurance contracts issued by the Syndicate in the same manner as if
the Syndicate had not withdrawn from the IIE. In such a circumstance,
Alpine will thereafter be responsible only for the satisfaction of
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<PAGE> 9
liabilities and obligations of the Syndicate in excess of those for which
Guaranty Fund protection is available. If the Trust Fund is terminated,
Alpine will be responsible for the satisfaction of all liabilities and
obligations of the Syndicate, including obligations under policies and
reinsurance contracts issued by the Syndicate. In the event that Alpine
becomes insolvent, the Guaranty Fund will provide protection to
policyholders and reinsureds under policies and reinsurance contracts
issued by the Syndicate in the same manner as if the Syndicate had not
withdrawn from the IIE. The exhaustion of all assets held in the Trust
Fund through payments made in satisfaction of obligations of the
Syndicate shall not be deemed to constitute a termination of the Trust
Fund.
4.3 Other Funds, Assets, Assessments and Fees. Except as otherwise agreed
in writing by the Syndicate and the IIE, the IIE, IASA and Guaranty Fund hereby
waive any right to recover from the Syndicate or Alpine any special
assessments, penalties or fees incurred by the Syndicate prior to, on or
subsequent to the date hereof.
4.4 Geneva v. MESA Litigation Refunds. In the event that a refund is
paid, or a credit against future assessments is granted by the IIE, with
respect to funds contributed by syndicates for the payment of claims which were
the subject of the Geneva v. MESA litigation, Alpine shall be entitled to
receive a pro rata portion of any such refund, or to receive, in cash or as a
credit against subsequent withdrawal fees owed (as described in Section 5.1
hereof), a pro rata portion of the amount of credits granted, which corresponds
to the amount contributed to the payment of such claims by the Syndicate, as
described in the IIE Board resolution attached hereto as Exhibit E. Any such
cash refund shall be deposited into the Trust Fund.
ARTICLE 5
WITHDRAWAL FEE
5.1 Withdrawal Fee. The amount of the withdrawal fee pursuant to Section
23.B. of the Regulations is $496,437.39, and such withdrawal fee shall be
payable by the Syndicate or Alpine, by corporate check or by transfer from the
Trust Fund, to the IIE as follows:
(A) $165,479.13 shall be paid upon the execution of this
Agreement, through withdrawal from the Syndicate's IASA
Custodial Account (which withdrawal right is hereby granted by
the IIE and the IASA);
(B) $165,479.13 shall be paid on the first annual anniversary of
the date of execution of this Agreement; and
(C) $165,479.13 shall be paid on the second annual anniversary of
the date of execution of this Agreement.
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Such amounts payable by the Syndicate or Alpine shall be used by the IIE only
as provided in Section 23.B. of the Regulations as in effect on the date hereof
and not as part of a capitalization of or investment in any other entity.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SYNDICATE AND ALPINE
6.1 Representations and Warranties. In order to induce the IIE, IASA and
Guaranty Fund to enter into this Agreement and to perform their respective
obligations hereunder, and acknowledging that the IIE, IASA and Guaranty Fund
will have relied on the representations and warranties made by the Syndicate
and Alpine in entering into this Agreement, the Syndicate and Alpine represent
and warrant as follows:
(A) Organization. The Syndicate is a corporation duly organized,
existing and in good standing under the laws of the State of Illinois.
Alpine is an insurance corporation duly organized and existing under the
laws of the State of Illinois.
(B) Due Authorization; Execution and Delivery. The Syndicate and
Alpine have the corporate power and authority to enter into and perform
their obligations under this Agreement. The Syndicate and Alpine have
taken all requisite corporate action to authorize the execution, delivery
and performance of this Agreement. This Agreement is enforceable against
the Syndicate and Alpine in accordance with its terms, except to the
extent that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally, and by general principles of equity including the
exercise of judicial discretion in connection therewith.
(C) No Conflicts. Except as provided elsewhere in this Agreement,
the execution and delivery of this Agreement and the performance by the
Syndicate and Alpine of their respective obligations hereunder will not
conflict with, or result in a breach of, or constitute a default under,
or result in the creation or imposition of any lien or charge under, any
material agreement or instrument to which the Syndicate or Alpine is a
party or by which the Syndicate or Alpine may be bound, nor, to the
Syndicate's or Alpine's knowledge, will any such action violate any
statute, law, rule or regulation or any order, judgment, injunction or
decree of any court or governmental authority binding upon or affecting
the Syndicate or Alpine.
(D) Approvals and Filings. Except as provided elsewhere in this
Agreement, to the Syndicate's or Alpine's knowledge, no approval,
certification, authorization, consent, license, clearance or order of,
declaration or notification to, or filing or registration with, any
governmental, regulatory or other authority, body or entity, or
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court, is required to be obtained or made by either party hereto for the
consummation of the transaction contemplated by this Agreement.
(E) Miscellaneous. To the Syndicate's knowledge: (i) all policies
written by the Syndicate have been reported to the IIE and all policies
bound at the IIE actually have been issued; (ii) all known reported
losses have been disclosed to the IIE, and all such losses and the
current reserves for those losses as of September 30, 1996 are shown in
Schedule 6.1(E)(ii) attached hereto; (iii) the Syndicate has not entered
into any agreements whereby it has assumed liabilities by reinsurance or
otherwise that have not been disclosed in writing to the IIE; (iv) the
Syndicate has not facultatively ceded any insurance liabilities other
than those that have been disclosed in writing to the IIE; (v) none of
the executive officers of the Syndicate nor its claims manager has actual
knowledge of any circumstances that are likely to result in liability
against the Syndicate or the IIE for bad faith claims handling or
punitive damages; (vi) the Syndicate has no actual or potential material
insurance claims that would not be reinsured by one or more of its
reinsurance agreements because of late notice or any breach of condition;
and (vii) the data, statistics, information and records provided to the
IIE by the Syndicate were true, correct and complete in all material
respects at the time provided.
(F) Payments under Alpine Treaty. No payments have been made by the
Syndicate to Alpine pursuant to the Alpine Treaty after September 30,
1996.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE IIE,
IASA AND GUARANTY FUND
7.1 Representations and Warranties. In order to induce the Syndicate and
Alpine to enter into this Agreement and to perform their obligations hereunder,
and acknowledging that the Syndicate and Alpine will have relied on the
representations and warranties made by the IIE, IASA and Guaranty Fund in
entering into this Agreement, the IIE, IASA and Guaranty Fund represent and
warrant to the Syndicate and Alpine as follows:
(A) Organization. The IIE is a not-for-profit corporation duly
organized, validly existing and in good standing pursuant to the laws of
the State of Illinois. The IASA and the Guaranty Fund are not-for-profit
corporations duly organized, validly existing and in good standing under
the laws of the State of Illinois.
(B) Due Authorization; Execution and Delivery. Each of the IIE,
IASA and Guaranty Fund has the power and authority to enter into and
perform its obligations under this Agreement. Each of the IIE, IASA and
Guaranty Fund has taken all requisite corporate action to authorize the
execution, delivery and performance of this Agreement. This Agreement is
enforceable against the IIE, IASA and Guaranty Fund in accordance with
its terms, except to the extent that such enforceability may be limited
by
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<PAGE> 12
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general principles of
equity including the exercise of judicial discretion in connection
therewith.
(C) No Conflicts. Except as provided elsewhere in this Agreement,
the execution and delivery of this Agreement and the performance by the
IIE, IASA and Guaranty Fund of their obligations hereunder will not
conflict with, or result in a breach of, or constitute a default under,
or result in the creation or imposition of any lien or charge under, any
agreement or instrument to which the IIE, IASA or Guaranty Fund is a
party or by which the IIE, IASA or Guaranty Fund may be bound, nor will
any such action violate any statute, law, rule or regulation or any
order, judgment, injunction or decree of any court or governmental
authority binding upon or affecting the IIE, IASA or Guaranty Fund.
(D) Approvals and Filings. Except as provided elsewhere in this
Agreement, to the IIE's, IASA's and Guaranty Fund's knowledge, no
approval, certification, authorization, consent, license, clearance or
order of, declaration or notification to, or filing or registration with,
any governmental, regulatory or other authority, body or entity, or
court, is required to be obtained or made by any party hereto for the
consummation of the transaction contemplated by this Agreement.
(E) Other Funds. None of the IIE, IASA or Guaranty Fund holds any
funds of the Syndicate pursuant to Article V 1/2 of the Illinois
Insurance Code or the Regulations, other than those specified herein.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Survival. The foregoing representations and warranties of the
Syndicate, Alpine the IIE, the IASA and the Guaranty Fund in Articles 6 and 7
of this Agreement, in other Articles or Sections of this Agreement, and in any
document delivered to the other parties pursuant to the terms and conditions of
this Agreement shall be deemed made upon the signing of this Agreement and
shall be fully effective and enforceable without time limit.
ARTICLE 9
CONDITIONS TO THE IIE'S, IASA'S AND GUARANTY FUND'S
OBLIGATIONS
9.1 Conditions to IIE, IASA and Guaranty Fund Obligations. The
obligations of the IIE, IASA and Guaranty Fund to consummate the transaction
contemplated by this Agreement
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shall be subject to the satisfaction of each of the following conditions,
unless otherwise waived in writing by the IIE, IASA and Guaranty Fund, as
applicable:
(A) Assignment and Assumption. The Department shall have approved
the Assignment and Assumption, and, if necessary, this Agreement and the
Trust Agreement, or the applicable notice period with respect to the
Assignment and Assumption shall have expired. Copies of any required
approval received from the Department shall be provided by the Syndicate
or Alpine to the IIE upon the execution hereof.
(B) Trust Fund. The IIE shall have received a fully executed copy
of the Trust Agreement, and evidence that Alpine shall have funded the
Trust Fund in accordance with the provisions of Section 3.2(A) above.
(C) Guaranty Fund Custodial Account Funding. The Syndicate shall
have sent a letter by certified U.S. mail to the custodian bank (and
provided a copy to the IIE) stating that unless the custodian bank
receives a certified resolution from the IIE with different instructions,
the custodian shall not distribute to the Syndicate, for a period of
three (3) years from the date hereof, assets or investment income if
immediately thereafter the Guaranty Fund Custodial Account, account
number 46-6857-70-3 at LaSalle National Bank in Chicago, Illinois would
have assets with an aggregate fair market value of less than $1,000,000
less any amounts previously withdrawn by the Guaranty Fund pursuant to
Section 4.2(A) hereof. Except as otherwise specified in this Agreement,
the minimum required balance (except in the case of a reduced required
balance resulting from the withdrawal of funds by the Guaranty Fund) can
only be reduced pursuant to a certified resolution from the IIE Board of
Trustees, any successor thereto or any other body authorized to reduce
such required balance.
(D) Withdrawal Fee. The IIE shall have received from the Syndicate
the first installment of the withdrawal fee, as described in Section 5.1
above.
(E) Representations and Warranties Certificate. The representations
and warranties of the Syndicate and Alpine set forth in Article 6 of this
Agreement shall be true and complete in all material respects, and the
Syndicate and Alpine shall have materially performed and complied with
all of their obligations, covenants, conditions and agreements under this
Agreement to be performed or complied with by them on or prior to the
date hereof. Upon the execution hereof, the Syndicate and Alpine each
shall deliver to the IIE a certificate duly executed by its President,
dated as of the date hereof, certifying that, to his knowledge: (i) the
representations and warranties of each of the Syndicate and Alpine set
forth in Article 6 of this Agreement are true and complete in all
material respects as of the date hereof; and (ii) each of the Syndicate
and Alpine, respectively, has fully performed and complied with, in all
material respects, all obligations, covenants, conditions and agreements
required by this Agreement to be performed or complied with by it on or
prior to the execution hereof.
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(F) Resolutions. Upon the execution hereof, each of the Syndicate
and Alpine shall deliver to the IIE copies of each resolution adopted by
the Syndicate's and Alpine's respective directors approving and adopting
this Agreement, and approving and authorizing the consummation of the
transaction contemplated hereby, accompanied by a certificate of the
respective Secretaries of the Syndicate and Alpine, dated as of the date
hereof and certifying: (i) the date and manner of adoption of each such
resolution; and (ii) that each such resolution is then in full force and
effect, without amendment.
(G) Resignation. On or before the date hereof, John T. Clark shall
tender his resignation from his position as trustee on the IIE Board of
Trustees.
ARTICLE 10
CONDITIONS TO THE SYNDICATE'S AND ALPINE'S OBLIGATION
10.1 Conditions to Syndicate and Alpine Obligations. The obligation of
the Syndicate and Alpine to consummate the transaction contemplated by this
Agreement shall be subject to the satisfaction of each of the following
conditions, unless otherwise waived in writing by the Syndicate:
(A) Assignment and Assumption. The Department shall have approved
the Assignment and Assumption, and, if necessary, this Agreement and the
Trust Agreement, or the applicable notice period with respect to the
Assignment and Assumption shall have expired.
(B) Trust Fund. The Syndicate or Alpine shall have received an
executed acknowledgement of the IIE with respect to the Trust Agreement
described in Section 3.2 above.
(C) IASA Account. The IIE shall have provided the Syndicate or
Alpine with a resolution of the IIE's Board of Trustees, certified by the
Secretary of the IIE, reducing the required balance of the Syndicate's
IASA Custodial Account to zero and directing disbursement of the assets
in the Account as per Section 4.1 hereof. The IIE, the IASA and the
Guaranty Fund hereby covenant and agree to take any and all other or
additional actions as may be necessary to cause the release of the
Syndicate's IASA Custodial Account as described in Section 4.1 hereof.
(D) Representations and Warranties Certificate. The representations
and warranties of the IIE, IASA and Guaranty Fund set forth in Article 7
of this Agreement shall be true and complete in all material respects,
and the IIE, IASA and Guaranty Fund shall have materially performed or
complied with all of their respective obligations, covenants, agreements
and conditions under this Agreement to be performed or complied with by
them on or prior to the date hereof. Upon the execution hereof, the IIE,
IASA
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<PAGE> 15
and Guaranty Fund each shall deliver to the Syndicate or Alpine a
certificate duly executed by its Chief Executive Officer or other
authorized officer, dated as of the date hereof, certifying that, to his
knowledge: (i) the representations and warranties of each of the IIE,
IASA and Guaranty Fund, respectively, set forth in Article 7 of this
Agreement are true and complete in all material respects as of the date
hereof; and (ii) each of the IIE, IASA and Guaranty Fund, respectively,
has fully performed and complied with, in all material respects, all
obligations, covenants, agreements and conditions required by this
Agreement to be performed or complied with by it on or prior to the
execution hereof.
(F) Resolutions. Upon the execution hereof, each of the IIE, IASA
and Guaranty Fund shall deliver to the Syndicate and Alpine copies of
each resolution adopted by the IIE's, IASA's and Guaranty Fund's
respective directors approving and adopting this Agreement, and approving
and authorizing the consummation of the transaction contemplated hereby,
accompanied by a certificate of the respective Secretaries of the IIE,
IASA and Guaranty Fund, dated as of the date hereof and certifying: (i)
the date and manner of adoption of each such resolution; and (ii) that
each such resolution is then in full force and effect, without amendment.
ARTICLE 11
RELEASES
11.1 Syndicate Release. The Syndicate, for itself and its affiliates,
officers, directors, employees, shareholders, attorneys, agents, predecessors,
successors, heirs, executors, administrators, parents and subsidiaries, past
and present, and assigns (collectively, the "Syndicate Releasing Parties"),
fully and forever remise, release and discharge the IIE, IASA and Guaranty
Fund, and all of their respective affiliates, officers, trustees, directors,
employees, shareholders, attorneys, agents, predecessors, successors, heirs,
executors, administrators, parents and subsidiaries, past and present, and
assigns (collectively, the "IIE Released Parties"), of and from any and all
manner of action or actions, cause or causes of actions, suits, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
agreements, understandings, promises, claims, debts, proceedings, causes of
action, controversies, costs, expenses, damages, and demands whatsoever
(including, but not limited to, any claims that the Syndicate may have against
the IIE, IASA or Guaranty Fund), of any kind or nature, in law, equity or
otherwise, whether known or unknown, matured or unmatured, suspected or
unsuspected (collectively, "Claims"), which any of the Syndicate Releasing
Parties has had, now has or hereafter can, shall or may have against the IIE
Released Parties or any of them, for or by reason of or arising out of or in
any way related to the activities of the IIE Released Parties while the
Syndicate was a syndicate on the IIE. Notwithstanding the foregoing, the
Syndicate Releasing Parties expressly do not remise, release or discharge, and
expressly retain, all Claims they now have or hereafter can, shall or may have
against the IIE or the Guaranty Fund, for or
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<PAGE> 16
by reason of or arising out of or in any way related to (1) a breach of
obligations arising from this Agreement, or (2) any and all continuing
obligations of the IIE or the Guaranty Fund with respect to all contracts of
insurance or reinsurance entered into by the Syndicate while it was a syndicate
on the IIE. In addition, the foregoing release shall not affect the rights of
any Syndicate Releasing Party to indemnification, reimbursement or financial
protection with respect to claims against such person arising out of his
current or former status as a member of the IIE Board of Trustees, in
accordance with the By-laws of the IIE or any applicable insurance coverage.
11.2 IIE, IASA and Guaranty Fund Release. The IIE, IASA and Guaranty
Fund, for themselves and their respective affiliates, officers, trustees,
directors, employees, attorneys, agents, predecessors, successors, heirs,
executors, administrators, parents and subsidiaries, past and present, and
assigns (collectively, the "IIE Releasing Parties"), fully and forever remise,
release and discharge the Syndicate and all of its affiliates, officers,
directors, employees, shareholders, attorneys, agents, predecessors,
successors, heirs, executors, administrators, parents and subsidiaries, past
and present, and assigns (collectively, the "Syndicate Released Parties"), of
and from any and all manner of action or actions, cause or causes of actions,
suits, dues, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, agreements, understandings, promises, claims, debts,
proceedings, causes of action, controversies, costs, expenses, damages, and
demands whatsoever (including, but not limited to, any claims that the IIE,
IASA or Guaranty Fund may have against the Syndicate), of any kind or nature,
in law, equity or otherwise, whether known or unknown, matured or unmatured,
suspected or unsuspected, which any of the IIE Releasing Parties has had, now
has or hereafter can, shall or may have against the Syndicate Released Parties
or any of them, for or by reason of or arising out of or in any way related to
the business engaged in by or the activities of the Syndicate while a syndicate
on the IIE. Notwithstanding the foregoing, the IIE Releasing Parties expressly
do not remise, release or discharge, and expressly retain, all Claims they now
may have or hereafter can, shall or may have against the Syndicate or Alpine,
for or by reason of or arising out of or in any way related to (1) a breach of
obligations arising from this Agreement, or (2) any and all continuing
obligations of the Syndicate or Alpine with respect to all contracts of
insurance or reinsurance entered into by the Syndicate while it was a syndicate
on the IIE.
11.3 Full Release. Except as noted above, these releases are intended to
be effective as full and final accords, satisfactions and general releases of
all past, present and future liabilities and obligations owed by each party to
the others.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. Each party hereto (the "Indemnifying Party") shall
indemnify and defend the other parties and their shareholders, trustees,
officers, directors, employees, attorneys, agents, representatives, successors
and assigns (collectively, the "Indemnified Parties")
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<PAGE> 17
and hold the Indemnified Parties harmless from and against any and all loss,
cost, damage, liability or expense (including, but not limited to, reasonable
attorneys' fees ) suffered or incurred by the Indemnified Parties as a result
of the Indemnifying Party's breach of any representation, warranty, covenant or
agreement contained herein. The Indemnified Parties shall promptly notify the
Indemnifying Party of any claim as to which recovery may be sought against the
Indemnifying Party under this Section 12.1. Any notice given pursuant to this
Section 12.1 shall contain a detailed statement of the nature and basis of the
claim, the identity of the claimant, the demand and relief sought or requested
by the claimant, and shall be accompanied by copies of all materials in the
possession of the Indemnified Parties which reasonably relate to such claim.
Subject to the foregoing provisions of this Section 12.1, the right to
indemnification hereunder shall be affected by failure of the Indemnified
Parties to give such notice and related materials or delay by the Indemnified
Parties in giving such notice or related materials only to the extent that the
rights and remedies of the Indemnifying Party shall have been prejudiced as a
result of the failure to give, or delay in giving, such notice or related
materials.
ARTICLE 13
MISCELLANEOUS
13.1 Further Assurances. From time to time on and after the date hereof,
each of the parties hereto shall use its reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper and advisable to consummate and make effective as promptly as
practicable the transaction contemplated by this Agreement, in accordance with
the terms and conditions hereof, including, but not limited to: (a) using
reasonable efforts to remove any legal impediment to the consummation or
effectiveness of such transaction; and (b) the execution and delivery of all
such agreements, assignments and further instruments of transfer and conveyance
necessary, proper and advisable to consummate and make effective the
transaction contemplated by this Agreement in accordance with the terms and
conditions hereof.
13.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
13.3 Remedies. In the event of any breach of the obligations imposed by
this Agreement, the parties hereto shall have all rights and remedies available
to them at law or in equity. In the event of any litigation among the parties
hereto concerning the construction, breach or enforcement of any of the
obligations of the parties hereunder, the prevailing party shall be entitled to
recover attorneys' fees and other out-of-pocket costs incurred in investigating
and prosecution or defending such litigation; provided, however, that in the
event that there shall be more than one prevailing party, such fees and costs
shall be awarded in such a manner as the
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<PAGE> 18
court shall determine to be most consistent with the relative merits and amount
of the prevailing claims.
13.4 Exhibits and Schedules. Each of the exhibits and schedules referred
to in or and attached to this Agreement is incorporated herein and made a part
hereof by reference with the same effect as if set forth herein at length.
13.5 Successors. The rights, duties and obligations set forth herein
shall inure to the benefit of and be binding upon the parties hereto and their
successors and assigns.
13.6 Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were amended and reformed so as to make it valid and
enforceable to the maximum extent permitted under law and within the general
intent of the original provision.
13.7 Headings. Section headings are included in this Agreement for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
13.8 Entire Agreement and Amendments. This Agreement, and the exhibits
and schedules referred to in or attached to this Agreement, constitute the
entire agreement of the parties with respect to the subject matter hereof, and
unless otherwise stated herein, supersede any previous agreements, whether oral
or written, regarding the subject matter hereof. This Agreement may be amended
only by a written instrument signed by the parties hereto.
13.9 Assignment. Except for the assignment to Alpine of the rights and
obligations of the Syndicate, this Agreement and the rights and obligations of
the parties hereunder shall not be assignable by any party hereto without the
prior written consent of all of the other parties.
13.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to principles
of conflicts of law.
13.11 Waiver. No restriction, condition, obligation or provision
contained in this Agreement shall be deemed to have been abrogated or waived by
reason of any failure to enforce the same, irrespective of the number of
violations or breaches thereof that may occur.
13.12 Notices or Other Communications. Any notice or other communication
required to be sent to any party hereto pursuant to this Agreement shall be
sent by facsimile transmission to be followed by U.S. Postal Service Express
Mail, Next Day Service, overnight courier, or by personal delivery, as follows:
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<PAGE> 19
(A) To the IIE, IASA or Guaranty Fund:
311 South Wacker Drive, Suite 400
Chicago, Illinois 60606
Attn: Gerald F. Murray, Esq.
(B) To the Syndicate or Alpine:
Alpine Insurance Company
c/o Exstar Financial Corporation
2029 Village Lane
Solvang, California 93463
Attn: Steven C. Shinn
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attn: Lori L. Meehan, Esq.
13.13 No Third Party Beneficiaries. No person or entity other than the
parties hereto and their successors shall have any right to enforce or seek
enforcement of this Agreement.
13.14 Recitals. The recitals and prefatory phrases and paragraphs set
forth above are incorporated in full in this Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives as of the date
first above indicated.
ILLINOIS INSURANCE EXCHANGE
By:________________________________
Name:______________________________
Its:_______________________________
ILLINOIS INSURANCE EXCHANGE
IMMEDIATE ACCESS SECURITY ASSOCIATION
By:________________________________
Name:______________________________
Its:_______________________________
ILLINOIS INSURANCE EXCHANGE
GUARANTY FUND, INC.
By:________________________________
Name:______________________________
Its:_______________________________
TRANSCO SYNDICATE #1 LTD.
By:________________________________
Name:______________________________
Its:_______________________________
ALPINE INSURANCE COMPANY
By:________________________________
Name:______________________________
Its:_______________________________
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<PAGE> 1
EXHIBIT 10.100
COMMUTATION AGREEMENT AND RELEASE
between
ALPINE INSURANCE COMPANY
Chicago, Illinois
(hereinafter referred to as the "Company")
and
TRANSCO SYNDICATE #1 LTD.
Chicago, Illinois
(hereinafter referred to as the "Reinsurer")
This Commutation Agreement and Release is entered into by and between the
Company and Reinsurer and shall be effective December 31, 1996 ("the
Commutation Date").
WHEREAS, the Company and the Reinsurer entered into a Casualty Quota Share
Reinsurance Agreement effective from the period commencing 12:01 A.M., July 1,
1994, (the "Contract"); and
WHEREAS, pursuant to the Contract, the Reinsurer was obligated to
reinsure certain risks insured by the Company in consideration of payment of
premium; and
WHEREAS, the Reinsurer and the Company desire as of the Commutation Date
to fully and finally settle and commute all obligations and liabilities, known
and unknown, between them under the Contract, with a release being given by the
Company to the Reinsurer:
NOW, THEREFORE, IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO THAT:
1. In consideration of the commutation of its liabilities and
obligations under the Contract, the Reinsurer shall transfer,
deliver and convey to the Company all of the Reinsurer's right,
title and interest in and to the assets listed on Schedule A hereto
(the "Commutation Payment") within ten (10) working days from the
date the Reinsurer receives a duly executed original copy of this
Commutation Agreement and Release from the Company.
2. The Company shall accept the assets set forth in Paragraph 1
above as the total amount due in full and final settlement of any
and all amounts due from the Reinsurer to the Company under the
Contract heretofore entered
<PAGE> 2
into between the parties and the parties agree that no further
adjustments of any kind shall be required to be made pursuant to
the Contract, including, without limitation any wording concerning
commutation set forth therein.
3. Subject only to receipt of the Commutation Payment, the
Company hereby releases and discharges the Reinsurer, its past,
present and future directors, officers, employees, consultants,
attorneys, agents, administrators, successors, assigns and receivers
from any and all past, present and future claims, causes of action,
liabilities and obligations arising under or related, directly or
indirectly, to the Contract or the administration thereof, whether
known or unknown, reported or unreported, and whether currently
existing or arising in the future, including but not limited to: any
and all past present and future payment obligations, adjustments,
setoffs, actions, omissions, causes of action, suits, debts, sums of
money, account, demands, covenants, controversies, bonds, bills,
promises, damages, judgments, claims, costs, expenses, losses,
representations, and warranties whatsoever; it being the intention
of the parties that this commutation and release shall operate as a
full and final settlement of the Reinsurer's past, current and
future liabilities to the Company in respect of the Contract. The
Company acknowledges the aforementioned payment as a complete
accord, satisfaction, settlement and commutation of all the
Reinsurer's liabilities and obligations under the Contract and
agrees to indemnify and hold the Reinsurer harmless from and against
any and all liabilities, costs, damages and expenses, including
without limitation, attorney's fees, incurred in connection with any
and all claims or actions against the Company or the Reinsurer, or
either of their successors or assigns, arising under or related to
the said reinsurance agreement.
4. Effective on the same date on which the Company shall
release and discharge the Reinsurer as provided in Paragraph 3 of
this Commutation Agreement and Release, the Reinsurer shall release
and discharge the Company, its past, present and future directors,
officers, employees, consultants, attorneys, agents,
administrators, successors, assigns and receivers from any and all
past, present and future claims, causes of action, liabilities and
obligations arising under or related directly or indirectly to the
Contract, other than any liabilities or obligations under or
pursuant to this Commutation Agreement and Release, whether known or
unknown, reported or unreported, and whether currently existing or
arising in the future, including but not limited to: any and all
past, present and future payment obligations, adjustments, setoffs,
actions, omissions, causes of action, suits, debts, sums of money,
accounts, demands, covenants, controversies, bonds, bills, promises,
damages, judgments, claims, costs, expenses, losses, representations
and warranties whatsoever; it being the intention of the parties
that this commutation and release shall operate as a
2
<PAGE> 3
full and final settlement of the Company's past, current and future
liabilities to the Reinsurer under said Contract.
5. The rights, duties and obligations set forth herein shall inure to
the benefit of and be binding upon any and all successors and
assigns of the parties hereto.
6. Each of the parties hereto expressly warrants and represents
that the execution of this Commutation and Release Agreement is
fully authorized by such party; that the person or persons executing
this document on behalf of such party have the necessary and
appropriate authority to do so; and that there are no pending
agreements, transactions, or negotiations to which such party is a
party that would render this Commutation Agreement and Release or
any part hereof void, voidable, or unenforceable.
7. Each of the parties hereby expressly warrants and represents
that no commission is due or payable to any party as a result of the
negotiation or execution of this Commutation Agreement and Release.
8. This Agreement contains the entire agreement between the
parties as respects its subject matter. All prior discussions and
agreements between the parties concerning the subject matter herein
are merged into this Commutation Agreement and Release. This
Commutation Agreement and Release shall neither be modified nor
amended, nor any of its provisions waived, except by a written
agreement signed by the parties hereto.
9. The parties acknowledge that they may hereafter discover
facts different from or in addition to those now known or believed
to be true regarding the subject matter of this Commutation
Agreement and Release and agree that this Commutation Agreement and
Release shall remain in full force and effect, notwithstanding the
existence of any such different or additional facts.
10. This Commutation Agreement and Release shall be interpreted
and governed by the laws of the State of Illinois without
consideration as to its conflict of law principals.
11. In the event of a material breach of this Commutation
Agreement and Release (including without limitation, failure of
consideration), the non-breaching party shall have all rights and
remedies available at common law. In such event, the non-breaching
party shall have the right to exercise any of the following
remedies:
3
<PAGE> 4
(a) The right to bring suit on this Commutation Agreement and
Release and the right to reasonable attorneys' fees, costs and
interest; or
(b) The right to deem this Commutation Agreement and Release
null and void and to enforce the original Contract as if this
Commutation Agreement and Release did not exist.
IN WITNESS WHEREOF, the parties hereto have caused this Commutation Agreement
and Release to be executed in duplicate by their duly authorized
representatives.
ALPINE INSURANCE COMPANY
BY: [SIG]
----------------------------
TITLE: President
DATE: January 9, 1997
WITNESS: [SIG]
-----------------------
TRANSCO SYNDICATE #1 LTD.
BY: [SIG]
----------------------------
TITLE: President
DATE: January 9, 1997
WITNESS: [SIG]
-----------------------
4
<PAGE> 1
EXHIBIT 10.101
ASSIGNMENT AND ASSUMPTION AGREEMENT
BETWEEN
ALPINE INSURANCE COMPANY
AND
TRANSCO SYNDICATE #1 LTD.
This Assignment and Assumption Agreement ("Agreement") is made and entered
into as of the 31st day of December, 1996, by and between Alpine Insurance
Company, an Illinois insurance corporation ("Alpine"), and Transco Syndicate #1
Ltd., an Illinois business corporation ("Syndicate").
WHEREAS, the Syndicate is a syndicate member of the Illinois Insurance
Exchange ("IIE") which has notified the IIE of its intent to withdraw as a
syndicate on the IIE; and
WHEREAS, as a condition to such withdrawal, the Syndicate has agreed to
assign all of its liabilities and obligations to its wholly owned subsidiary,
Alpine, in consideration of the transfer to Alpine of all of the rights and
assets of the Syndicate (other than the stock of Alpine); and
WHEREAS, Alpine is willing to assume all of the Syndicate's liabilities
and obligations in return for all of the rights and assets of the Syndicate
(other than the stock of Alpine).
NOW, THEREFORE, in consideration of the foregoing premises, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Alpine and the Syndicate agree as follows:
1. Assignment of Assets. The Syndicate does hereby assign, transfer,
grant and convey to Alpine all of the Syndicate's right, title and interest in
and to the assets and properties of the Syndicate of every kind, character and
description, whether tangible or intangible, whether real, personal, or mixed,
and wherever located, other than the stock of Alpine (the "Assets"), including
but not limited to the following:
(a) All lands, leaseholds and other real estate interests;
(b) All cash, securities, notes, and other investments of any kind, and
interests therein;
(c) Contract rights of any kind, including, without limitation, rights
arising under all reinsurance agreements, all producer and management
contracts, all leases, all license agreements, all employment agreements and
all restrictive covenants and obligations of present and former officers and
employees or any other person; and
(d) All accounts receivable and receivables of any other kind.
<PAGE> 2
2. Acknowledgment of Receipt. Alpine hereby accepts and acknowledges
receipt of the Assets.
3. Assumption of Liabilities. In consideration of the receipt of the
Assets, Alpine hereby assumes all of the obligations, liabilities and
responsibilities of the Syndicate, including, without limitation, all
obligations under insurance policies issued and reinsurance contracts entered
into by the Syndicate. As security for these obligations, liabilities and
responsibilities, Alpine agrees to deposit the Assets in a Trust Fund pursuant
to a Trust Agreement substantially in the form attached hereto.
4. Further Instruments. Alpine and the Syndicate hereby agree and
covenant to execute and deliver all such other and further instruments of
assignment, transfer, grant, conveyance and assumption and to do all such other
acts and things as may be necessary more fully to transfer and assign to Alpine
title to the Assets.
5. Restrictions on Transfer. If the transfer of any Asset purportedly
transferred pursuant to Section 1 hereof would breach or cause a default under
an existing obligation of Alpine or the Syndicate, the effective date of such
transfer shall be delayed until such time as the breach or default can be cured
or is waived. Upon such cure or waiver, the transfer of the relevant Assets
shall be valid and enforceable as of the effective date of this Agreement (or
such later date as is required in connection with the cure or waiver of the
breach of or default under the obligation in question or as otherwise required
by law). Both parties hereto represent that they have no knowledge of any
breach or default that may be caused by the transfer contemplated hereby.
6. Effective Date. This Agreement shall become effective on December 31,
1996, subject to the receipt of approval of the Illinois Department of
Insurance.
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<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Assignment and
Assumption Agreement as of the date first written above.
ALPINE INSURANCE COMPANY TRANSCO SYNDICATE #1 LTD.
By:___________________________ By:___________________________
Its:_________________________ Its:________________________
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<PAGE> 1
TRUST AGREEMENT EXHIBIT 10.102
THIS TRUST AGREEMENT (this "Agreement") is made and entered into as of
January 9, 1997 by and between Alpine Insurance Company, an Illinois insurance
corporation ("Grantor"), and LaSalle National Bank ("Trustee"). Grantor and
Trustee are hereinafter each sometimes referred to individually as a "Party"
and collectively as the "Parties."
WHEREAS, Grantor; Grantor's 100% parent corporation, Transco Syndicate #1
Ltd. (the "Syndicate"); the Illinois Insurance Exchange, an Illinois
not-for-profit corporation operating as an insurance exchange pursuant to
Article V 1/2 of the Illinois Insurance Code (the "IIE"); the Illinois
Insurance Exchange Immediate Access Security Association, an Illinois
not-for-profit corporation created pursuant to Section 107.26 of the Illinois
Insurance Code (the "IASA"); and the Illinois Insurance Exchange Guaranty Fund,
Inc., an Illinois not-for-profit corporation created pursuant to Section
15.A.1. of the IIE Regulations (the "Guaranty Fund"); have entered into a
Withdrawal Agreement dated January 9, 1997 (the "Withdrawal Agreement")
attached hereto as Appendix A, pursuant to which the Syndicate has agreed to
withdraw as an active syndicate on the IIE;
WHEREAS, pursuant to the terms of the Withdrawal Agreement, the Syndicate
will transfer all of its rights, assets, liabilities and obligations to
Grantor, and Grantor will assume and accept all such rights, assets,
liabilities and obligations (the "Assignment and Assumption");
WHEREAS, pursuant to the terms of the Withdrawal Agreement, Grantor has
agreed to establish a trust fund (the "Trust Fund") for the payment of
obligations of the Syndicate;
WHEREAS, Trustee has agreed to act as Trustee hereunder, and to hold
certain assets in trust in the Trust Fund for the benefit of the Beneficiaries
(as defined in Section 1 below); and
WHEREAS, this Agreement is made for the purpose of setting forth the
duties and powers of Trustee with respect to the Trust Fund.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the Parties hereby agree as
follows:
Section 1. Beneficiaries.
(A) The Trust Fund shall be established in order to ensure the
satisfaction of the obligations of the Grantor (i) to the Syndicate's
policyholders and reinsureds, (ii) to Claimants (as defined in Section 12
below) under policies issued and reinsurance agreements entered into by the
Syndicate (the "Beneficiaries"), and (iii) to other bona fide creditors of the
Syndicate. In the event that the Guaranty Fund or the IASA is required,
pursuant to a final non-appealable order of a court of competent jurisdiction
or a settlement agreement consented to by such a court, to pay a claim under a
policy issued or reinsurance agreement entered into by the Syndicate, the
Guaranty Fund and the IASA shall be Beneficiaries of the Trust Fund solely to
<PAGE> 2
the extent of the losses, costs and expenses incurred by either such entity in
connection with such a claim; provided, however, that the Guaranty Fund and the
IASA shall not be Beneficiaries of the Trust Fund, and shall not be entitled to
any of the assets therein, in the event that the subject losses, cost or
expenses were incurred under the circumstances described in the first sentence
of Section 4.2(C) of the Withdrawal Agreement.
(B) The Beneficiaries shall have no right to cause any Assets (as defined
in Section 2(B) below) or Investment Income (as defined in Section 4(B) below)
to be withdrawn or distributed from the Trust Fund, such right being expressly
reserved hereunder to Grantor or to any liquidator, conservator or
rehabilitator appointed to liquidate or manage the affairs of Grantor in
accordance with this Agreement.
(C) Grantor shall be deemed a Beneficiary of the Trust Fund to the extent
of the Assets and Investment Income which the Grantor is permitted to withdraw
in accordance with the terms of the Withdrawal Agreement.
Section 2. Deposit of Assets to the Trust Fund.
(A) Grantor shall establish the Trust Fund and Trustee shall administer
the Trust Fund in its name as Trustee for the Beneficiaries. The Trust Fund
shall be subject to withdrawal solely as provided herein.
(B) Grantor shall transfer to Trustee, for deposit to the Trust Fund, the
assets listed in Exhibit A hereto, and may transfer to Trustee, for deposit to
the Trust Fund, such other assets as it from time to time may desire or as may
be required by the Withdrawal Agreement (each such asset actually received in
the Trust Fund is herein referred to individually as an "Asset" and
collectively as the "Assets"). Trustee shall have no responsibility whatsoever
for assuring that Grantor has complied with the terms of the Withdrawal
Agreement.
Section 3. Withdrawal of Assets from the Trust Fund.
(A) Grantor shall have the right, at any time and from time to time, to
withdraw from the Trust Fund, upon one (1) Business Day's written notice to
Trustee with a copy to the IIE in the form of Exhibit B (the "Withdrawal
Notice"), such Assets as are specified in such Withdrawal Notice. The
Withdrawal Notice must be executed on behalf of Grantor by Steven C. Shinn or
Mark Rosenberg, or any other person subsequently designated in writing by
Grantor; and may designate a third party (the "Designee") to whom Assets
specified therein shall be delivered. Grantor need present no statement or
document in addition to a Withdrawal Notice in order to withdraw any Assets,
nor is such right of withdrawal or any other provision of this Agreement
subject to any conditions or qualifications not contained in this Agreement.
(B) Upon receipt of a Withdrawal Notice, Trustee shall immediately take
any and all action necessary to transfer the Assets specified in such
Withdrawal Notice and shall deliver such Assets as soon as reasonably possible,
but in no event later than five (5) Business Days, to or for the account of
Grantor or such Designee as specified in such Withdrawal Notice.
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(C) Subject to Sections 1, 3, 5 and 11 of this Agreement, in the absence
of a Withdrawal Notice, Trustee shall allow no substitution or withdrawal of
any Asset from the Trust Fund.
(D) Trustee shall have no responsibility whatsoever to determine that any
Assets withdrawn from the Trust Fund pursuant to this Section 3 will be used
and applied in the manner contemplated by Section 4 of this Agreement.
Section 4. Application of Assets. Grantor hereby covenants to the IIE
that Grantor shall use and apply any withdrawn Assets, without diminution
because of the conservation, rehabilitation or insolvency of the Grantor, only
for the purposes described in Sections 3.2(D) and 3.2(E) of the Withdrawal
Agreement.
Section 5. Redemption, Investment and Substitution of Assets.
(A) Trustee shall surrender for payment all maturing Assets and all Assets
called for redemption and shall deposit the principal amount of the proceeds of
any such payment to the Trust Fund. The principal amount of such proceeds
shall be invested in accordance with Section 5(B) of this Agreement.
(B) From time to time, at the written order and direction of Grantor,
Trustee shall invest the proceeds of all matured Assets or Assets called for
redemption only in Eligible Securities (as defined in Section 12 hereof) or
hold all or any portion of the proceeds in cash. If no such order or direction
from Grantor is received by Trustee within five (5) days following written
notice to Grantor by Trustee that proceeds of a matured or redeemed Asset have
been received, Trustee shall invest such proceeds in U.S. treasury bills with a
maturity of no more than ninety (90) days.
(C) From time to time, Grantor may direct Trustee to substitute Eligible
Securities for Assets held in the Trust Fund at such time, provided such
substitute securities are equal in market value to the Assets substituted. One
(1) Business Day's notice shall be given to Trustee by Grantor with a copy to
the IIE prior to any substitution. Trustee shall have no responsibility
whatsoever to determine the value of such substituted securities or that such
substituted securities constitute Eligible Securities.
(D) All investments and substitutions of securities referred to in
Sections 5(B) and (C) shall be in compliance with the definition of "Eligible
Securities" in Section 12 of this Agreement and as set forth in Exhibit C
hereto. Trustee shall have no responsibility whatsoever to determine that any
Assets in the Trust Fund are or continue to be Eligible Securities. Any
instruction or order concerning such investments or substitutions of securities
shall be referred to herein as an "Investment Order." Trustee shall execute or
arrange for the execution of Investment Orders and shall settle or arrange for
the settlement of securities transactions, and Trustee shall promptly notify
Grantor if Trustee is unable to do so.
(E) Subject to the order and direction of Grantor, Trustee shall not be
prohibited from investing in any mutual fund or other obligation for which
Trustee or any of its Affiliates may receive compensation.
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(F) Any loss incurred from any investment pursuant the terms of this
Section 5 shall be borne exclusively by the Trust Fund. Trustee shall not be
liable for any loss due to changes in market rates or penalties for early
redemption.
Section 6. Investment Income. All Investment Income received with respect
to Assets in the Trust Fund shall be deposited by Trustee, subject to deduction
of Trustee's compensation and expenses as provided in Section 9 of this
Agreement, in the Trust Fund. When deposited in the Trust Fund, such
Investment Income shall be considered Assets in the Trust Fund, to be invested
according to the provisions of Section 5 above.
Section 7. Right to Vote Assets. Trustee shall forward to Grantor (i) all
annual and interim stockholder or debtholder reports received with respect to
Assets in the Trust Fund, (ii) all proxies and proxy materials relating to the
Assets in the Trust Fund pursuant to Trustee's regular policies, and (iii) all
tender or redemption offers relating to the Assets held in the Trust. Grantor
shall have the full and unqualified right to vote any Assets in the Trust Fund.
Section 8. Additional Rights and Duties of Trustee.
(A) Trustee shall notify Grantor in writing within five (5) Business Days
following each deposit to, or withdrawal from, the Trust Fund.
(B) Trustee may deposit any Assets in the Trust Fund pursuant to a
book-entry account maintained at the Federal Reserve Bank of Chicago or in
depositories such as the Depository Trust Company. Assets may be held in the
name of a nominee maintained by Trustee or by any such depository.
(C) Trustee shall accept and open all mail directed to Grantor or the
Beneficiaries in care of Trustee.
(D) Trustee shall furnish to Grantor and to the IIE a statement of all
Assets in the Trust Fund, the market value of each Asset, and all transactions
occurring with respect to the Trust Fund in the prior calendar month, upon the
inception of the Trust Fund and at the end of each calendar month thereafter.
The market value of any repurchase agreement, real estate or mortgage Assets
held in the Trust Fund shall be determined on the basis of an appraisal which
has been provided to Trustee by Grantor and which has been conducted by an
M.A.I. certified appraiser within the 24 month period prior to the statement
date. If such an appraisal has not been furnished to the Trustee by Grantor,
the foregoing Assets shall be valued at cost provided that the Trustee has been
given such information.
(E) Upon the request of Grantor or the IIE, Trustee shall promptly permit
Grantor, the IIE or their respective agents, employees or independent auditors
to examine, audit, excerpt, transcribe and copy, during Trustee's normal
business hours, any books, documents, papers and records relating to the Trust
Fund or the Assets.
(F) Trustee is authorized to follow and rely upon all instructions given
by officers named in incumbency certificates furnished to Trustee from time to
time by Grantor, and by attorneys-in-fact acting under written authority
furnished to Trustee by Grantor, including,
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without limitation, instructions given by letter, facsimile transmission or
electronic media, if Trustee believes such instructions to be genuine and to
have been signed, sent or presented by the proper party or parties. Trustee
shall not incur any liability to anyone resulting from actions taken by Trustee
in reliance in good faith on such instructions. Trustee shall not incur any
liability in executing instructions (i) from any officer of Grantor named in an
incumbency certificate delivered hereunder prior to receipt by Trustee of a
more current certificate, or (ii) from an attorney-in-fact prior to receipt by
Trustee of notice of the revocation of the written authority of the
attorney-in-fact.
(G) The duties and obligations of Trustee shall only be such as are
specifically set forth in this Agreement, as it may from time to time be
amended. Trustee shall only be liable for its own negligence, willful
misconduct or lack of good faith.
(H) No provision of this Agreement shall require Trustee to take any
action which, in Trustee's reasonable judgment or upon advice of counsel, would
result in any violation of this Agreement or any provision of law.
Section 9. Trustee's Compensation, Expenses and Indemnification. Grantor
shall pay Trustee, as compensation for its services under this Agreement, a fee
computed at rates determined by Trustee from time to time and agreed to in
writing by Grantor. The current fee schedule is attached hereto as Exhibit F.
Grantor shall pay or reimburse Trustee for all of Trustee's expenses and
disbursements in connection with its duties under this Agreement (including
reasonable attorneys' fees and expenses), except any such expense or
disbursement as may arise from Trustee's negligence, willful misconduct or lack
of good faith. Trustee shall be entitled to deduct its compensation and
expenses from payments of Investment Income with respect to the Assets held in
the Trust Fund as provided in Section 6 of this Agreement. To the extent that
Trustee's compensation and expenses are not covered by such income, Grantor
shall pay such deficiency to Trustee from funds other than Assets in the Trust
Fund. Grantor also hereby indemnifies Trustee for, and holds it harmless
against, any loss, liability, costs or expenses (including reasonable
attorneys' fees and expenses) incurred or made without negligence, willful
misconduct or lack of good faith on the part of Trustee, arising out of or in
connection with the performance of its obligations in accordance with the
provisions of this Agreement, including any loss, liability, costs or expenses
arising out of or in connection with the status of Trustee and its nominee as
the holder of record of the Assets. No such reimbursement or indemnification
payments shall be made from Assets in the Trust Fund. Grantor hereby
acknowledges that the foregoing indemnities shall survive the resignation of
Trustee or the termination of this Agreement.
Section 10. Resignation or Termination of Trustee.
(A) Trustee may resign or be terminated at any time by the giving of not
less than thirty (30) days' written notice thereof to the other Party and to
the IIE, such resignation or termination to become effective on the acceptance
of appointment by a successor trustee and the transfer to such successor
trustee of all Assets and Investment Income in the Trust Fund in accordance
with Section 10(B).
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(B) Upon receipt of Trustee's notice of resignation or delivery of
Grantor's notice of termination, Grantor shall appoint a successor trustee and
shall so notify the IIE. Any successor trustee shall be qualified to administer
trusts under the Illinois Corporate Fiduciary Act (205 ILCS 620/1-1 et seq.)
and shall not be a Parent, Subsidiary or Affiliate of Grantor. Upon the
acceptance of the appointment as trustee hereunder by a successor trustee and
the transfer to such successor trustee of all Assets and Investment Income in
the Trust Fund, the resignation of Trustee shall become effective. Thereupon,
such successor trustee shall succeed to and become vested with all the rights,
powers, privileges and duties of Trustee, and Trustee shall be discharged from
any future duties and obligations under this Agreement, but Trustee shall
continue after its resignation to be entitled to the benefits of the
indemnities provided herein for Trustee.
Section 11. Termination of the Trust Fund.
(A) The Trust Fund and this Agreement, except for the indemnities provided
herein, may be terminated only after (i) Grantor has given Trustee written
notice of its intention to terminate the Trust Fund in the form of Exhibit D
(the "Notice of Intention"), and (ii) Trustee has given Grantor and the IIE the
written notice specified in Section 11(B). The Notice of Intention shall
specify the date on which Grantor intends the Trust Fund to terminate (the
"Proposed Date").
(B) Within ten (10) Business Days following receipt by Trustee of the
Notice of Intention, Trustee shall give written notification in the form of
Exhibit E (the "Termination Notice") to Grantor and the IIE of the date (the
"Termination Date") on which the Trust Fund shall terminate. The Termination
Date shall be (i) the Proposed Date (or if not a Business Day, the next
Business Day thereafter), if the Proposed Date is at least thirty (30) days but
no more than forty-five (45) days subsequent to the date the Termination Notice
is given; (ii) thirty (30) days subsequent to the date the Termination Notice
is given (or if not a Business Day, the next Business Day thereafter), if the
Proposed Date is fewer than 30 days subsequent to the date the Termination
Notice is given; or (iii) forty-five (45) days subsequent to the date the
Termination Notice is given (or if not a Business Day, the next Business Day
thereafter), if the Proposed Date is more than forty-five (45) days subsequent
to the date the Termination Notice is given.
(C) On the Termination Date, Trustee shall transfer to Grantor any Assets
and Investment Income remaining in the Trust Fund, at which time all liability
of Trustee with respect to such Assets and Investment Income shall cease.
Section 12. Definitions. Except as the context shall otherwise require,
the following terms shall have the following meanings for all purposes of this
Agreement (the definitions to be applicable to both the singular and the plural
forms of each term defined if both such forms of such term are used in this
Agreement):
The term "Affiliate" with respect to any corporation shall mean a
corporation which directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, such
corporation. The term "control" (including with related terms "controlled by"
and "under common control with") shall mean the ownership, directly or
indirectly, of more than fifty percent (50%) of the voting stock of a
corporation.
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The term "Business Day" shall mean any day on which the offices of Trustee
in Chicago, Illinois are open for business.
The term "Claimant" shall mean any Person suffering injury or damage for
which a Person insured under a policy issued or reinsurance agreement entered
into by the Syndicate is legally liable.
The term "Eligible Securities" shall mean and include only those
investments or categories of investments described in Exhibit C hereto;
provided, however, that no such securities shall have been issued by a Parent,
Subsidiary or Affiliate of Grantor.
The term "Person" shall mean and include any individual, corporation,
limited liability company, partnership, association, trust, unincorporated
organization or government or political subdivision thereof.
The term "Parent" shall mean a Person that, directly or indirectly,
controls another Person.
The term "Subsidiary" shall mean a Person controlled, directly or
indirectly, by another Person.
Section 13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
Section 14. Remedies. Except as otherwise provided in this Agreement,
upon the occurrence of a breach by any Party, the affected Party shall be
entitled to any and all rights and remedies which it may have at law or in
equity, including, but not limited to, the equitable remedies of specific
performance and injunctive relief. If a Party is successful in litigation
brought to enforce any rights hereunder, it shall be entitled to recover
reasonable attorneys' fees and costs attributable thereto.
Section 15. Exhibits. Each of the exhibits referred to in or and attached
to this Agreement is incorporated herein and made a part hereof by reference
with the same effect as if set forth herein at length.
Section 16. Successors. The rights, duties and obligations set forth
herein shall inure to the benefit of and be binding upon the Parties and their
successors and assigns.
Section 17. Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision were amended and reformed so as to make it
valid and enforceable to the maximum extent permitted under law and within the
general intent of the original provision.
Section 18. Headings. Section headings are included in this Agreement for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
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<PAGE> 8
Section 19. Entire Agreement and Amendments. This Agreement, and the
Withdrawal Agreement and exhibits referred to in or attached to this Agreement,
constitute the entire agreement of the Parties with respect to the subject
matter hereof, and unless otherwise stated herein, supersede any previous
agreements, whether oral or written, regarding the subject matter hereof. This
Agreement may be amended only by a written instrument signed by the Parties.
Section 20. Assignment. This Agreement and the rights and obligations of
the Parties hereunder shall not be assignable without the prior written consent
of all of the Parties.
Section 21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to principles of conflicts of law.
Section 22. Waiver. No restriction, condition, obligation or provision
contained in this Agreement shall be deemed to have been abrogated or waived by
reason of any failure to enforce the same, irrespective of the number of
violations or breaches thereof that may occur.
Section 23. Notices. Any notice which a Party may desire or be required
to give to another Party shall be in writing, addressed to the Party at its
address set forth below or at such other location as such Party may have
designated by notice in writing in accordance herewith, and shall be deemed
given on the earlier of: (a) actual receipt, if and when personally delivered
or received by facsimile; (b) the Business Day after being placed for delivery
by a nationally recognized overnight courier; or (c) on the third (3rd)
Business Day after being deposited in the United States registered or certified
mail, postage prepaid, return receipt requested:
(A) To Grantor: Alpine Insurance Company
2029 Village Lane
P.O. Box 678
Solvang, California 93463
Attn: Steven C. Shinn
Telephone: (805) 686-7175
Facsimile: (805) 688-8542
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attn: Lori L. Meehan, Esq.
Telephone: (312) 902-5485
Facsimile: (312) 902-1061
(B) To Trustee: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Corporate Trust Department
Diane Swanson
Telephone: (312) 904-2936
Facsimile: (312) 904-2236
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(C) To the IIE: Illinois Insurance Exchange
311 South Wacker Drive
Suite 400
Chicago, Illinois 60606
Attn: Gerald F. Murray, Esq.
Telephone:(312) 408-8000
Facsimile:(312) 408-8044
with a copy to: Alpine Insurance Company
2029 Village Lane
P.O. Box 678
Solvang, California 93463
Attn: Steven C. Shinn
Section 24. Third Party Beneficiaries. The IIE shall be a third party
beneficiary of this Agreement. Other than the IIE, no Person other than the
Parties and their successors shall have any right to enforce or seek
enforcement of this Agreement.
Section 25. Recitals. The recitals and prefatory phrases and paragraphs
set forth above are incorporated in full in this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above
written.
ALPINE INSURANCE COMPANY
By:_____________________________________________
Steven C. Shinn, President
LASALLE NATIONAL BANK
By:_____________________________________________
Diane Swanson, Assistant Vice President
Acknowledged and Accepted:
ILLINOIS INSURANCE EXCHANGE
By:__________________________________
Name:________________________________
Its:_________________________________
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<PAGE> 11
Exhibit A to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
List of Assets Deposited to the Trust Fund
The list of assets is attached hereto.
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Exhibit B to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
Withdrawal Notice
In accordance with Section 3 of the Trust Agreement dated January 9,
1997 by and between Alpine Insurance Company and LaSalle National Bank,
and in compliance with the provisions of the Trust Agreement, please
transfer the following Assets to the following account or Designee:
Assets Grantor Account or Designee to Receive Assets
ALPINE INSURANCE COMPANY
By:____________________________________
Name:__________________________________
Its:___________________________________
<PAGE> 13
Exhibit C to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
List of Eligible Investments
Investments described in Sections 125.1a through and
including Section 125.14a, and publicly traded
investments described in Section 125.15b, of the
Illinois Insurance Code. The above sections of the
Illinois Insurance Code are attached hereto. Within
the foregoing parameters, the Trustee may invest in
any mutual fund or money market or other instrument
for which the Trustee or any of its affiliates may
receive compensation.
<PAGE> 14
Exhibit D to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
Notice of Intention
In accordance with Section 11(A) of the Trust Agreement dated
January 9, 1997 by and between Alpine Insurance Company and LaSalle
National Bank, this letter shall constitute written notice of Grantor's
intention to terminate the Trust Fund (the "Notice of Intention," as
defined in such Trust Agreement). Grantor intends the Trust Fund to
terminate on [DATE].
ALPINE INSURANCE COMPANY
By:____________________________
Name:__________________________
Its:___________________________
<PAGE> 15
Exhibit E to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
Termination Notice
In accordance with Section 11(B) of the Trust Agreement dated
January 9, 1997 by and between Alpine Insurance Company and LaSalle
National Bank, this letter shall constitute the Termination Notice, as
such term is defined in such Trust Agreement. Please be advised that the
date on which the Trust Fund shall terminate (the "Termination Date," as
defined in such Trust Agreement) shall be [DATE].
LASALLE NATIONAL BANK
By:__________________________
Name:________________________
Its:_________________________
<PAGE> 16
Exhibit F to Trust Agreement dated January 9, 1997 by and between
ALPINE INSURANCE COMPANY
and
LASALLE NATIONAL BANK
Fee Schedule
The fee schedule is attached hereto.
<PAGE> 1
EXHIBIT 10.103
CASUALTY QUOTA SHARE SLIP
REINSURED: United Capitol Insurance Company
REINSURER: Alpine Insurance Company
BUSINESS COVERED: All policies, contracts and binders of insurance produced
and serviced by Transre Insurance Services and Exstar E&S Insurance Services
(Subject Policies).
RETENTION AND LIMIT: 30% quota share percentage of the liability of Company,
from Subject Policies, net of any inuring reinsurance ceded to insurers not
affiliated with the Company. Continuous from 12:01 a.m., New York local time,
April 1, 1997, for Subject Policies in force or incepting on or after that
date, until terminated.
TERRITORY: The United States, its territories and possessions and Canada,
including loss from incidental exposures outside these territories, but the
liability of Reinsurer hereunder shall be the same as that provided in the
territorial limits of Company's Subject Policies.
EXCLUSIONS: Subject to the exclusions contained in Company's Subject Policies
and any endorsements or amendments thereto. Company may submit to Reinsurer,
for special acceptance hereunder, business not covered.
PREMIUM: 30% quota share of the Subject Gross Written Premium. "Subject Gross
Written Premium" shall mean the Company's gross premium written derived from
Subject Policies, less cancellation and return premiums, and less premium ceded
for inuring reinsurance, to insurers not affiliated with the Company.
CEDING COMMISSION: 30% of the Subject Gross Written Premium assumed by
Reinsurer hereunder plus, any taxes, boards, assessments, bureau fees and other
charges.
REPORTS AND REMITTANCES: Reports within 30 days after the last day of each
calendar quarter summarizing premiums ceded, return premiums, ceding
commission, losses and loss adjustment expenses paid and salvage recovered
with respect to Subject Policies. Remittances on a funds withheld basis.
GENERAL CONDITIONS: NET RETAINED LIABILITY
LOSS, LOSS ADJUSTMENT EXPENSES AND SALVAGE
EXTRA CONTRACTUAL OBLIGATIONS
JUDGMENTS IN EXCESS OF POLICY LIMITS
CURRENCY
TAXES
ORIGINAL CONDITIONS
ERRORS OR OMISSIONS
<PAGE> 2
INSPECTION
INSOLVENCY
ARBITRATION
OCCURRENCE AND CLAIMS MADE
UNAUTHORIZED REINSURANCE
SERVICE OF SUIT
OFFSET
COMMENCEMENT AND TERMINATION
CHOICE OF LAW
ENTIRE AGREEMENT
IN ACCEPTANCE HEREOF, by the duly authorized representatives of the parties,
as of the effective date.
UNITED CAPITOL INSURANCE COMPANY ALPINE INSURANCE COMPANY
By: Harry W. Rhulen By: Steven C. Shinn
--------------------------- ---------------------------
Harry W. Rhulen Steven C. Shinn
Its: CEO Its: President
--------------------------- ----------------------------
Date: 3/27/97 Date: 3/27/97
-------------------------- --------------------------
