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SECURITIES AND EXCHANGE COMMISSION
________________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-20995
EXSTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0321240
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2029 Village Lane, Solvang, California 93463-2275
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (805) 688-8013
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
----- -----
The aggregate number of shares of the Registrant's common stock
outstanding, all of which constitute a single class, was 4,961,500 as of
September 30, 1997.
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EXSTAR FINANCIAL CORPORATION
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996.............................. 3
Consolidated Statements of Operations (Unaudited)
for the three months and nine months ended
September 30, 1997 and 1996.................................... 5
Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) for the nine months
ended September 30, 1997....................................... 6
Consolidated Statements of Cash Flows
(Unaudited) for the nine months ended
September 30, 1997 and 1996.................................... 7
Notes to the Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 13
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders............ 19
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 22
SIGNATURE.............................................................. 25
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited) (Audited)
(Dollars in thousands)
<S> <C> <C>
ASSETS
Fixed maturities available for sale, at market
(amortized cost: 1997 - $18,423; 1996 - $39,330) $ 18,286 $ 38,800
Equity securities, at market (cost: 1997 - $1,250;
1996 - $1,250) 1,653 1,531
Mortgage loans - unaffiliated 4,263 4,225
Mortgage loans - affiliated 899 908
Real estate held for investment 4,138 4,255
Real estate held for sale 5,331 6,391
Real estate acquired through foreclosure 238 493
Short-term investments 3,772 4,944
------------ -----------
Total investments 38,580 61,547
Cash and cash equivalents - restricted 378 1,129
Cash and cash equivalents - unrestricted 3,423 1,390
Accounts receivable - affiliated 584 2,443
Reinsurance recoverable
Funds held by reinsured companies 5,036 0
Paid losses and loss adjustment expenses 3,045 1,576
Unpaid losses and loss adjustment expenses 31,148 33,921
Prepaid reinsurance premiums 0 386
Accrued investment income 475 822
Deferred acquisition costs 1,211 307
Property and equipment, net 835 797
Current income taxes 635 0
Deferred income taxes 1,567 1,700
Other assets 2,228 2,136
------------ -----------
Total assets $ 89,145 $108,154
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited) (Audited)
(Dollars in thousands)
<S> <C> <C>
LIABILITIES
Unpaid loss and loss adjustment expenses $ 63,808 $ 86,927
Unearned premium 3,913 1,365
Reinsurance balances payable 820 1,106
------------ -----------
Total policy liabilities and accruals 68,541 89,398
Notes payable 1,082 1,588
Current income taxes 0 375
Accumulated equity in losses of affiliates 2,638 3,020
Other liabilities 1,033 1,247
------------ -----------
Total liabilities 73,294 95,628
============ ===========
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,497,500 shares issued; 4,961,500
shares outstanding in 1997 and 5,497,500 in 1996 55 55
Paid in capital 26,865 26,865
Net unrealized investment gains (losses) 312 (68)
Preferred stock investment - contra equity (12,314) (12,314)
Retained earnings (deficit) 938 (2,012)
Treasury shares at cost (536,000 shares in 1997; 0 in 1996) (5) 0
------------ -----------
Total equity 15,851 12,526
------------ -----------
Total liabilities and stockholders' equity $ 89,145 $ 108,154
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
----------- ------------ ---------- -------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $ 2,174 $ 9,839 $ 6,731 $ 37,742
Premiums ceded (605) (4,269) (1,551) (17,410)
----------- ---------- ---------- -----------
Net premiums earned 1,569 5,570 5,180 20,332
Net investment income - unaffiliated 493 192 1,834 2,258
Net investment income - affiliated 94 32 157 259
Net realized investment losses (141) (133) (171) (229)
Other income 42 31 3,417 122
----------- ---------- ---------- -----------
Total revenue 2,057 5,692 10,417 22,742
----------- ---------- ---------- -----------
EXPENSES
Loss and loss adjustment expense 1,317 5,925 4,078 22,708
Reinsurance ceded (363) (2,562) (931) (10,446)
----------- ---------- ---------- -----------
Net loss and loss adjustment expense 954 3,363 3,147 12,262
Policy acquisition costs amortized 608 1,409 1,194 6,383
Profit sharing - affiliated 0 (35) 0 1,286
Interest expense 37 27 135 48
Other expenses 1,230 1,669 4,351 4,180
----------- ---------- ---------- -----------
Total expenses 2,829 6,433 8,827 24,159
----------- ---------- ---------- -----------
(Loss) income before equity in income
of affiliates and Federal income taxes (772) (741) 1,590 (1,417)
----------- ---------- ---------- -----------
Equity in income of affiliates 194 328 350 1,768
Federal income taxes 500 0 1,010 0
----------- ---------- ---------- -----------
Net (loss) income $ (78) $ (413) $ 2,950 $ 351
=========== ========== ========== ===========
Net (loss) income per common share $ (0.01) $ (0.08) $ 0.57 $ 0.06
=========== ========== ========== ===========
Shares used in computation of net income per
common share (in thousands) 4,962 5,498 5,140 5,498
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net Preferred
Unrealized Stock
Investment Investment Retained Treasury
Common Paid in (Losses) Contra (Deficit) Shares Total
Stock Capital Gains Equity Earnings at Cost Equity
------ ------- ----------- ------------ ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 55 $26,865 $ (68) $ (12,314) $ (2,012) $ 0 $ 12,526
Change in net unrealized
investment (losses) gains
Fixed maturities 391 391
Equity securities 122 122
Deferred tax expense (133) (133)
Purchase of 536,000 shares
of common stock (5) (5)
Net income 2,950 2,950
------- ------- -------- --------- -------- ------ --------
Balance at September 30, 1997 $ 55 $26,865 $ 312 $ (12,314) $ 938 $ (5) $ 15,851
======= ======= ======== ========= ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 7
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1996
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Cash flows (applied to) provided by operating activities:
Premiums collected $ 4,650 $ 9,859
Investment income received 2,620 3,024
Loss and loss adjustment expense paid, net (23,493) (23,527)
Interest paid (135) (48)
Policy acquisition and other expenses paid (6,449) (8,480)
Other 1,948 525
--------- ---------
Cash flows applied to operating activities (20,859) (18,647)
--------- ---------
Cash flows provided by (applied to) investment activities:
Purchase of marketable securities 0 (12,338)
Purchase of property, equipment and real estate (255) (26)
Sale or maturity of marketable securities 20,624 17,898
Sale of property, equipment and real estate 1,281 1,383
Short-term investments, net 1,172 7,321
Mortgage loans funded (208) (295)
Repayment of mortgage loans 172 502
--------- ---------
Net cash provided by investing activities 22,786 14,445
--------- ---------
Cash flows provided by (applied to) financing activities
Issuance of notes payable 315 0
Repayment of notes payable (821) (745)
Transfers (to) from affiliates (38) 2,424
Other (101) 247
Transfers from (to) restricted cash and cash equivalents 751 (376)
--------- ---------
Net cash provided by financing activities 106 1,550
--------- ---------
Net increase (decrease) in unrestricted cash and cash equivalent 2,033 (2,652)
Unrestricted cash and cash equivalents - beginning of period 1,390 4,028
--------- ---------
Unrestricted cash and cash equivalents - end of period $ 3,423 $ 1,376
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of Exstar Financial Corporation and
subsidiaries ("Exstar" if referring to the parent company only, or the
"Company" if referring to Exstar and its direct and indirect subsidiaries)
include the financial statements of Exstar, its direct subsidiary, Alpine
Holdings, Inc., Exstar's indirect subsidiaries, Alpine Insurance Company
("Alpine"), a direct subsidiary of Alpine Holdings, Inc., Alpine Premium
Finance Co., Inc. and Transco Premium Finance Co., Inc., both of which are
direct subsidiaries of Alpine, and the equity in the income and losses of
TCO Holdings, Inc. ("TCO Holdings") and subsidiaries (collectively "TCO"), a
group of companies affiliated with Exstar through common majority ownership.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and accordingly include all normal
recurring adjustments management considers necessary for fair presentation.
These consolidated financial statements should be read in conjunction with
audited financial statements included in the Form 10-K for the year ended
December 31, 1996.
The results of operations for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. EQUITY IN INCOME OF AFFILIATES
Although TCO is not a direct or indirect subsidiary of Exstar, its income or
loss is included in the Company's consolidated financial statements in
accordance with a form of equity accounting.
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the financial position and results of operations of
TCO:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS:
Cash and investments...................... $ 3,336 $ 4,931
Accounts receivable....................... 5,600 4,915
Property and equipment.................... 28 119
Other assets.............................. 734 914
-------- --------
Total assets............................ 9,698 10,879
======== ========
LIABILITIES:
Premiums payable -- affiliated............ 18,943 19,304
Notes payable............................. 2,405 4,581
Due to affiliates......................... 1,066 718
Net unearned commission income............ 0 659
Other liabilities......................... 2,896 3,428
-------- --------
Total liabilities....................... 25,310 28,690
PREFERRED STOCK:
Series A 11.3% cumulative redeemable,
nonvoting, stated value $10,000 per
share, 3,500 shares authorized; issued
and outstanding --1,075 in 1997
and 1996................................ 12,035 12,035
STOCKHOLDER'S EQUITY:
Stockholder's accumulated deficiency...... (27,647) (29,846)
-------- --------
Total liabilities, preferred stock
and stockholder's accumulated deficiency.. $ 9,698 $ 10,879
======== ========
</TABLE>
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<PAGE> 10
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1997 1996
------------ -----------
(Dollars in thousands)
<S> <C> <C>
REVENUES:
Net commissions earned............................ $ 752 $ 5,592
Other revenues.................................... 667 604
------- -------
Total revenues.................................. 1,419 6,196
------- -------
EXPENSES:
Personnel costs................................... 127 2,720
Office and selling expenses....................... 4 1,022
Depreciation...................................... 50 63
Interest.......................................... 253 502
Other expenses.................................... 397 493
------- -------
Total expenses.................................. 831 4,800
------- -------
Income before extraordinary item
and Federal income taxes.................... 588 1,396
Extinguishment of debt -- affiliated.............. 2,028 0
Federal income tax expense...................... 0 25
------- -------
Net income.................................... 2,616 1,371
======= =======
Beginning stockholder's accumulated deficiency...... 29,846 30,900
------- -------
Net income........................................ (2,616) (1,371)
Increase in subscription note receivable.......... 417 629
------- -------
Net change.................................... (2,199) (742)
------- -------
Ending stockholder's accumulated deficiency......... $27,647 $30,158
======= =======
</TABLE>
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EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the computation of the equity in income of affiliates
included in the Statement of Operations:
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-----------------------------
1997 1996
-------------- -------------
(Dollars in thousands)
<S> <S> <S>
Increase in net equity of TCO............... $ (2,199) $ (742)
Reclassifications:
Extinguishment of debt - affiliated....... 2,028 0
Interest on advances...................... (179) (1,026)
--------- --------
Equity in income of affiliates.......... $ (350) $ (1,768)
========= ========
</TABLE>
Accumulated equity in losses of affiliates comprises:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Cumulative adjusted losses................ $ 18,191 $ 18,363
Amounts advanced by and other amounts due
to the Company from TCO................. 15,553 15,343
--------- --------
Accumulated equity in losses
of affiliates....................... $ 2,638 $ 3,020
========= ========
</TABLE>
11
<PAGE> 12
EXSTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding. On April 1, 1997, Exstar acquired 536,000 of its
outstanding shares of common stock from TCO at par value ($0.01 per share).
The weighted average numbers of shares of common stock outstanding for the
nine months ended September 30, 1997 and 1996 were 5,140,000 and 5,498,000,
respectively. There were no common stock equivalents.
4. STATUTORY INFORMATION
The surplus as regards policyholders of Alpine determined in accordance with
statutory accounting practices as of September 30, 1997 and 1996 was
$11,958,000 and $12,044,000, respectively. The net loss of Alpine
determined in accordance with statutory accounting practices for the nine
months ended September 30, 1997 was $2,031,000. The net income of Alpine
determined in accordance with statutory accounting practices for the nine
months ended September 30, 1996 was $2,496,000.
5. ALPINE/TCO SERVICE AGREEMENT
Effective April 1, 1997, Alpine and TCO Holdings entered into a Service
Agreement under which Alpine agreed to pay to TCO Holdings a fee equal to
3.75% of the reinsurance premiums received by Alpine from United Capitol
Insurance Company, an unaffiliated insurer ("UCIC"), pursuant to a quota
share reinsurance agreement between Alpine and UCIC. In return, TCO
Holdings agreed to perform certain services for Alpine in connection with
the structuring and consummation of the reinsurance.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
This discussion should be read in conjunction with management's discussion
and analysis included in the Form 10-K for the year ended December 31, 1996.
The operations and business of Exstar Financial Corporation and its
subsidiaries ("Exstar" if referring to the parent company only, or the
"Company" if referring to Exstar and its subsidiaries) have undergone
fundamental changes since the beginning of 1996. Some of the most important
changes include those described below.
1. At the beginning of 1996, the Company was engaged principally in "direct"
underwriting ("direct" underwriting consists of issuing insurance policies
directly to insureds). Since August 1996 the Company has ceased issuing
direct insurance as a consequence of A.M. Best Company ("Best") rating
downgrades and certain regulatory restrictions relating to the Company's
insurance company subsidiaries.
2. At the beginning of 1996, one of Exstar's insurance company subsidiaries,
Alpine Insurance Company ("Alpine"), had a Best rating of A- (Excellent),
and the other of Exstar's insurance company subsidiaries, Transco
Syndicate #1 Ltd. ("Syndicate"), had a Best rating of B+ (Very Good). In
April 1996 both companies' Best ratings were reduced to C's (Marginal)
(under review). In September 1997, Alpine's rating was increased to C++
and the rating was removed from being under review.
3. At the beginning of 1996, the Company's insurance company subsidiaries
were authorized to operate on a surplus lines basis in approximately 45
states. During the second half of 1996 and the first three quarters of
1997 these authorizations were lost or restricted in twelve jurisdictions,
representing in excess of 80% of the Company's historical premium
revenues, and additionally Alpine was placed under an order ("Illinois
Order") requiring prior approval of all of its significant expenditures
and commitments by the Illinois Department of Insurance ("Illinois DOI").
4. At the beginning of 1996, the Company's insurance business was conducted
through Alpine and Syndicate. Effective December 31, 1996, Syndicate's
operations were merged into Alpine and for the first three quarters of
1997, Alpine was the Company's only significant operating subsidiary.
5. At the beginning of 1996, almost all of the management, underwriting,
claims handling, investment and other functions of the Company were
performed by staff of TCO Insurance Services, Inc., an affiliate under
common control with but not part of the Company, and TCO Insurance
Services, Inc.'s affiliates (collectively "TCO"), and compensation and
general and
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administrative costs associated with that performance were borne directly by
TCO. Since August 1996, most of the compensation expense and general
administrative costs have been borne directly by the Company.
6. Effective as of October 1, 1997, the Company acquired from TCO for a
nominal amount the TCO claims operation, Claims Control Corporation
("CCC"), an Illinois corporation, and CCC became a direct, wholly-owned
subsidiary of Exstar as of that date. Also effective as of October 1, 1997,
the Company acquired from Peter J. O'Shaughnessy the Company's majority
stockholder, for a nominal amount (i) WESTCAP Insurance Services, Inc.
("Westcap"), a surplus lines broker which had no prior operations and (ii)
the insurance brokerage operations previously performed by Exstar E&S
Insurance Services ("Exstar E&S"). Westcap was made a direct, wholly-owned
subsidiary of Exstar as of October 1, 1997, and now performs all of the
Company's insurance brokerage operations.
For more complete descriptions of certain of these and other changes, see
the Company's Form 10-K for the year ended December 31, 1996.
Because of the foregoing and other changes that are continuing in 1997,
differences in the Company's results of operations between 1996 and 1997 are
not necessarily indicative of trends or likely results of operations for 1997
or future periods.
This Form 10-Q 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 Form 10-Q, 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 future results, performance and achievements of the Company to differ
materially from those expressed in such forward looking statements. These
include, without limitation (i) any discontinuation or material adverse change
in the terms and conditions of the Company's and its affiliates' business
arrangements with third parties, including in particular Alpine's casualty
quota share reinsurance agreement ("Quota Share Arrangement") with United
Capitol Insurance Company (together with its affiliates, "UCIC"), which became
effective April 1, 1997, and pursuant to which Alpine assumes a portion of the
business previously placed with UCIC by Exstar E&S and Transre Insurance
Services ("Transre"), a TCO surplus lines broker, and since October 1, 1997,
placed with UCIC by Westcap; (ii) any material adverse changes in UCIC's
financial condition or regulatory authorities; (iii) any material increase in
competition; and (iv) any material adverse changes in the Illinois DOI's
oversight of Alpine.
The Company ceased issuing direct insurance in August 1996. This resulted
in a sharp decline in the Company's earned premium revenue during the second
half of 1996, and has caused a further decline in the Company's earned premium
from direct insurance during 1997. The Company, however, in the second quarter
of 1997 began earning premium revenue through the Quota Share Arrangement with
UCIC which became effective April 1, 1997. The premium assumed by the Company
initially was 30% of the net premiums accruing to UCIC on such business,
including premiums unearned as of April 1, 1997 (in the amount of approximately
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<PAGE> 15
$13.6 million), and premiums on policies issued after such date.
The Company and UCIC have agreed, subject to Illinois DOI approval, to
increase Alpine's participation to 50% on all insurance business placed
with UCIC by Westcap with effective dates of October 1, 1997 or later ("Quota
Share Arrangement Amendment"). In connection with the Quota Share Arrangement
Amendment, the Company agreed to issue UCIC warrants to purchase up to 500,000
shares of Exstar common stock, as more completely described in Part II. OTHER
INFORMATION: Item 5. Other Information.
The Company also is earning investment income on premium assumed by Alpine
under the Quota Share Arrangement. Because most of the premium funds are being
held by UCIC until such time, if any, as underwriting profits on the business
subject to the Quota Share Arrangement become reasonably certain, or regulatory
concerns are satisfied, the Quota Share Arrangement is not benefiting the
Company's cash flow to the same extent it is benefiting the Company's net
income (assuming the Quota Share Arrangement underwriting results are as
profitable as Alpine's underwriting results have been over the last three
years). The Company has discussed with UCIC modifying the Quota Share
Arrangement to allow Alpine to receive some or all of the premium funds that
otherwise are being held by UCIC pursuant to the current terms and conditions
of the Quota Share Arrangement. No commitments have been made regarding the
timing of or terms and conditions relating to any such modification, and the
modification also would have to be submitted for approval to appropriate
regulatory authorities.
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. The Company, however, is incurring and will continue to incur
significant underwriting expenses under the Quota Share Arrangement. Of the
net premium assumed by Alpine, Alpine (i) allows UCIC to retain approximately
30% as a ceding commission and (ii) generally pays 3.75% to TCO Holdings as an
override commission. Additionally, during the second half of 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. Until September 30, 1997, these
expenses were being offset in part by reimbursements from Exstar E&S and
Transre. Effective October 1, 1997, CCC's and Westcap's expenses will be
included in the Company's other expenses, and their revenues will be included
in the Company's other income.
RESULTS OF OPERATIONS
Gross written premiums were $2.2 million for the third quarter of 1997,
compared to a negative $600,000 for the third quarter of 1996 (the 1996 amount
being the result of cancellations following the Company's ceasing issuing
direct insurance in August 1996). Gross written premiums were $9.3 million for
the nine months ended September 30, 1997, compared to $14.1 million for the
nine months ended September 30, 1996. These differences reflect
15
<PAGE> 16
principally $10.8 million of direct premiums written by the Company during the
first quarter of 1996, prior to the full impact of the Best rating downgrades
and regulatory restrictions; and the absence of direct written premiums in 1997
resulting from management's decision to cease writing direct insurance in
August 1996, offset by the Quota Share Arrangement in 1997. Almost all of the
gross written premiums for 1997 are premiums assumed by Alpine as a reinsurer
of UCIC pursuant to the Quota Share Arrangement which became effective April 1,
1997. The Company expects gross written premiums to be in the range of $3.8 to
$4.3 million for the fourth quarter of 1997 as a consequence of (i) the Quota
Share Arrangement Amendment, assuming regulatory approval, increasing Alpine's
participation from 30% to 50% effective October 1, 1997, and (ii) a moderate
increase in gross written premiums subject to the Quota Share Arrangement
resulting primarily from including additional lines of business historically
underwritten by TCO and more competitive pricing on certain classes of business
where management believes underwriting results justify the pricing changes.
Net premiums earned, consisting of premiums earned less premiums ceded
(generally earned ratably over individual policy periods), for the third
quarter of 1997 were $1.6 million, compared to $5.6 million for the third
quarter of 1996. Net premiums earned for the nine months ended September 30,
1997, were $5.2 million, compared to $20.3 million for the nine months ended
September 30, 1996. The decreases directly resulted from the decreases in gross
written premiums. The Company expects net premiums earned may increase
moderately during the remainder of 1997 as a consequence of the Quota Share
Arrangement, the Quota Share Arrangement Amendment (assuming regulatory
approval) and the expected increase in gross written premiums.
Net investment income for the third quarter of 1997 was $600,000. Net
investment income for the nine months ended September 30, 1997, was $2.0
million, compared to $2.5 million for the nine months ended September 30, 1996,
a decrease of 20.9%. The decrease was caused principally by a 33.2% decrease in
average investable assets between the two nine month periods resulting from
negative cash flow from operations, as loss and loss adjustment expense payments
and other expenses have exceeded revenues since the Company ceased issuing
direct insurance in August 1996. The Company expects net investment income to
continue to decline during the remainder of 1997 as prior years' losses and
expenses continue to be paid, though the decline is expected to be offset to
some extent by investment income earned by Alpine on premium assumed by Alpine
under the Quota Share Arrangement.
Other income was minimal for the third quarters of both 1997 and 1996.
Other income was $3.4 million for the nine months ended September 30, 1997,
compared to $100,000 for the nine months ended September 30, 1996. The other
income in 1997, reflecting proceeds less certain related expenses, was
principally a consequence of a one-time settlement of a lawsuit against the
Company's former independent auditors. Other income for the remainder of 1997
is expected to increase somewhat as a consequence of the Company's
acquisitions of CCC and Westcap effective October 1, 1997, but otherwise to
remain dependent principally on various corporate and other transactions which
remain uncertain.
16
<PAGE> 17
Net loss and loss adjustment expense incurred during the third quarter of
1997 totaled $1.0 million, down 71.6% from $3.4 million in the third quarter of
1996. Net loss and loss adjustment expense incurred for the nine months ended
September 30, 1997, was $3.1 million, down 74.3% from $12.3 million for the
nine months ended September 30, 1996. Net loss and loss adjustment expense as
a portion of net premiums earned was 60.8% for the first nine months of 1997
compared to 60.3% for the first nine months of 1996. The decrease in net loss
and loss adjustment expense incurred between the periods resulted from the
decrease in net premiums earned. The Company expects net loss and loss
adjustment expense during the remainder of 1997 to increase in proportion to
the increase in net premiums earned, with the ratio of net loss and loss
adjustment expense to net premiums earned remaining in the 60% range.
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. 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.
The Company's other underwriting expenses for the third quarter of 1997
were $600,000, compared to $1.4 million for the third quarter of 1996. Other
underwriting expenses for the nine months ended September 30, 1997, were $1.2
million, compared to $7.7 million for the nine months ended September 30, 1996.
The ratio of the Company's other underwriting expenses to net premiums earned
was 23.1% for the first nine months of 1997 compared to 37.7% for the first
nine months of 1996. The decrease in other underwriting expenses between the
periods was attributable to (i) the decrease in net premiums earned, (ii)
reduced net expenses resulting from termination of the management
agreements with TCO and (iii) additional reinsurance commissions recognized in
1997 resulting from favorable loss development on certain reinsured lines of
business. The Company expects other underwriting expenses during the remainder
of 1997 to increase in proportion to the increase in net premiums earned, as,
under the Quota Share Arrangement, Alpine (i) allows UCIC to retain a ceding
commission of approximately 30% of the premiums assumed by Alpine and (ii)
generally pays 3.75% of the premiums assumed by Alpine to TCO Holdings as an
override commission.
Other expenses, consisting of professional fees, personnel costs and other
costs, were $1.2 million in the third quarter of 1997, compared to $1.7 million
in the third quarter of 1996. Other expenses were $4.4 million for the nine
months ended September 30, 1997, compared to $4.2 million for the nine months
ended September 30, 1996. The increase was principally due to Alpine's
assuming a portion of the personnel and general and administrative costs
previously borne by TCO, including payment of bonuses to personnel in 1997,
partially offset by a reduction in legal and professional expenses. The
Company anticipates an increase in other expenses during the remainder of 1997
as a consequence of (i) the operating expenses of CCC and Westcap following
their acquisitions effective October 1, 1997 (such expenses not otherwise borne
by the Company averaged approximately $300,000 - $350,000 per month for the
third quarter of 1997), offset by (ii) reduced fees and costs resulting from
settlement of the lawsuit
17
<PAGE> 18
against the Company's former independent auditors and reduced fees resulting
from a decrease in regulatory and operational issues.
Equity in income or losses of affiliates, included in the Company's
results due to the Company's adoption of a form of equity accounting in 1995,
generally reflects TCO's net income or loss for the period after certain
adjustments. Equity in income of affiliates for the third quarter of 1997 was
$200,000, compared to $300,000 for the third quarter of 1996. Equity in income
of affiliates for the nine months ended September 30, 1997, was $400,000,
compared to $1.8 million for the nine months ended September 30, 1996. The
smaller amounts in 1997 reflect the minimal revenues generated by TCO after
Exstar's insurance company subsidiaries ceased issuing direct insurance in
August 1996 and the management agreements with TCO were terminated. The
Company anticipates that equity in income or losses of affiliates during the
remainder of 1997 generally should be minimal, as TCO will have virtually no
revenues and no expenses relating to operations. The Company believes,
however, that additional equity in income of affiliates could be generated if
TCO is successful in settling certain of its existing liabilities (other than
liabilities to the Company) at less than their book values.
Net (loss)income per common share was a loss of $0.01 for the third
quarter of 1997, compared to a loss of $0.08 for the third quarter of 1996. Net
income per common share was $0.57 for the nine months ended September 30, 1997,
compared to $0.06 for the nine months ended September 30, 1996. The increase in
net income per common share between the nine-month periods was almost entirely
a consequence of the settlement of the lawsuit against the Company's former
independent auditors, offset somewhat by the decrease in equity in income of
affiliates. The Company's net income per common share for the three months
ended September 30, 1997, included a non-recurring tax benefit of $0.10 per
share, relating principally to amendments of prior years' Federal tax returns.
Absent this tax benefit, the Company's net income per common share for the
period would have been a loss of $0.11 per share.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and investments totaled $42.4 million compared
to $64.1 million at December 31, 1996. The decrease resulted from net cash
applied to operations of $20.9 million for the first nine months of 1997,
compared to $18.7 million of cash applied to operations for the first nine
months of 1996. The increase in net cash applied to operations in the first
nine months of 1997 resulted principally from a decrease in premium revenues
which was a consequence of the cessation of direct premium writings in 1996,
offset to some extent by a decrease in payments of policy acquisition and other
expenses. The Quota Share Arrangement had no material impact on the Company's
cash flows for either period, as it did not become effective until April 1,
1997, and most of the premium funds are being held by UCIC.
In order to fund the cash applied to operations during the first nine
months of 1997, the Company continued to liquidate investments at more
accelerated rates than historically had been necessary.
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<PAGE> 19
The Company 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), unless the Quota Share Arrangement is modified to allow Alpine
to receive some or all of the premium funds that otherwise would be held by
UCIC pursuant to the current terms and conditions of the Quota Share
Arrangement (no commitments have been made or regulatory approvals sought
regarding any such modification), and the investment income payable to and
earned by 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 the remainder of
1997, to continue to liquidate investments as the Company's principal source of
cash to fund its operations.
To satisfy the Company's cash needs 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. The Company has not
yet determined which courses of actions to pursue, or which would be likely to
be successful, and has not made any commitments with respect to any such or
other courses of action.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The Annual Meeting of Stockholders of the Company was held on
September 16, 1997.
2. At the Annual Meeting, the stockholders voted to elect Steven C. Shinn
and David W. Fleming to the Company's Board of Directors as Class II
directors, casting votes for both as follows:
<TABLE>
<CAPTION>
Authority
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Steven Shinn 4,422,653 --- 9,625 --- ---
David Fleming 4,422,653 --- 9,625 --- ---
Peter O'Shaughnessy and Frank Johnson continue to serve as directors of
the Company following the meeting.
</TABLE>
ITEM 5. OTHER INFORMATION
JBW & CO. LOAN
The Company currently holds a collateralized loan receivable ("JBW & Co.
Loan") in the principal amount of approximately $12.3 million due from JBW &
Co., Inc., a California corporation ("JBW & Co."). Management believes that JBW
& Co. is currently unable to meet its obligations under the JBW & Co. Loan. The
JBW & Co. Loan is collateralized by a pledge by
19
<PAGE> 20
Concord General Corporation, a California corporation affiliated with JBW & Co.
("Concord"), of 81% of the outstanding capital stock of Classic Fire & Marine
Insurance Company, an Indiana insurance company ("Classic"). Management
believes that Classic's value is highly uncertain, given that its most recent
financial statements include certain assets and liabilities the values of which
are questionable.
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 an agreement with JBW & Co., Concord and
Classic ("JBW Agreement"), under which the Company has agreed to give up its
rights with respect to the JBW & Co. Loan in return for Concord's transfer to
the Company of a certain promissory note of Par Mee Development Corporation, an
Ohio corporation unaffiliated with the Company or Concord ("Par Mee Note"). The
Par Mee Note had an outstanding balance (principal and interest) at September
30, 1997, of approximately $2,142,000, and its repayment is secured by a Deed
of Trust and Rent Assignment encumbering certain real estate located in Napa
Valley, California with an appraised value of $9 million as of September 16,
1996. In addition to this real estate security, Concord has agreed that 19.8%
of the outstanding stock of Classic will remain pledged to the Company as
security for the repayment of the Par Mee Note.
Concurrently with the execution of the JBW Agreement, TCO Holdings, Inc.,
a Delaware corporation affiliated with but not part of the Company ("TCO
Holdings") entered into an agreement with the liquidator of Geneva Assurance
Syndicate ("Geneva"), a former Illinois Insurance Exchange syndicate currently
in liquidation ("TCO Holdings Agreement"). Pursuant to the TCO Holdings
Agreement, the liquidator of Geneva has agreed to return to TCO Holdings
preferred stock with an aggregate stated value of approximately $10.8 million.
In exchange, TCO Holdings has agreed to deliver to Geneva a promissory note of
TCO Holdings in the principal amount of $2.5 million, with four percent annual
interest payable on the outstanding principal balance of the note ("TCO
Holdings Note"). The TCO Holdings Note would be repaid out of a portion
(73.33%) of the amounts payable to TCO Holdings by Alpine pursuant to a certain
Service Agreement entered into by Alpine and TCO Holdings (see below), and its
repayment would be guaranteed to the extent of $250,000 per year by Peter J.
O'Shaughnessy, TCO Holdings' sole and Exstar's majority stockholder. As
currently contemplated, the TCO Holdings Note would have an ultimate maturity
date of September 30, 2007.
The consummation of the transactions contemplated by the JBW Agreement and
the TCO Holdings Agreement is subject to the satisfaction of a number of
conditions precedent, including resolution of potential competing claims
against the Par Mee Note and ultimate approval of certain portions of the
transaction by the court overseeing the liquidation of Geneva and various
regulatory authorities. There can be no assurance that all such conditions will
be satisfied, or that the transactions will be consummated at all or on the
terms currently contemplated. If consummated, the transactions are expected to
increase Exstar's stockholders' equity (calculated in accordance with generally
accepted accounting principles) and Alpine's policyholders' surplus (calculated
in accordance with statutory accounting practices) by up to the amount of the
Par Mee Note's balance (approximately $2.1 million at September 30, 1997).
20
<PAGE> 21
Effective April 1, 1997, Alpine and TCO Holdings entered into a Service
Agreement under which Alpine agreed to pay to TCO Holdings a fee equal to 3.75%
of the reinsurance premiums received by Alpine from UCIC pursuant to the Quota
Share Arrangement between Alpine and UCIC. In return, TCO Holdings agreed to
perform certain services for Alpine in connection with the structuring and
consummation of the Quota Share Arrangement. The Service Agreement was approved
by the Illinois DOI.
TCO PAYMENTS UNDER LOAN AGREEMENT
In December 1993, the Company entered into a formal loan agreement ("Loan
Agreement") to loan up to $9 million to TCO. As of December 31, 1996, TCO owed
principal of $2.2 million to Exstar and $2.4 million to Alpine pursuant to the
Loan Agreement. In June 1997, the Exstar Board of Directors approved Exstar's
acceptance of certain business assets of TCO in satisfaction of TCO's
indebtedness under the Loan Agreement. The business assets transferred included
furniture, fixtures and computer hardware and systems of TCO with a book value
of approximately $36,000 and a current appraised value of approximately $2.4
million. In addition, TCO satisfied its payment obligations to the Company in
the first and second quarters of 1997 through the transfer to the Company of
TCO's rights in interest receivable from an unaffiliated insurer under an
insurance Underwriting Management Agreement between TCO and the unaffiliated
insurer dated April 1, 1987. The amounts payable by TCO to the Company under
the Loan Agreement (and, correspondingly, the amounts of receivables
transferred) in the first and second quarters of 1997 were $80,000 and $64,000,
respectively. TCO made no payments to Alpine during the third quarter of 1997
and no resolution has been reached with respect to TCO's debt to Alpine.
EXSTAR ISSUANCE OF WARRANTS
Effective October 1, 1997, Alpine obtained (subject to Illinois DOI
approval) an increase in its participation under the Quota Share Arrangement
from 30% to 50%. In connection with the increase, Exstar issued to Frontier
Insurance Group, Inc., the ultimate parent of UCIC, a warrant to purchase up
to 500,000 shares of Exstar common stock at a purchase price of (i) $3.60 per
share for the first 100,000 shares, and (ii) 115% of the Company's adjusted
December 31, 1997, book value per share for the remaining 400,000 shares
(calculated generally as the Company's December 31, 1997, stockholders' equity
determined in accordance with generally accepted accounting principles, plus
an amount equal to 83.33% of the sum of (a) the Company's accumulated equity
in losses of affiliates not included in the Company's stockholders' equity at
December 31, 1997, and (b) the Company's reserve against its deferred tax asset
at December 31, 1997 -- which amounts totaled approximately $8 million at
September 30, 1997). The rights to purchase the Exstar stock pursuant to the
warrant vest over three years beginning October 1, 1997, with the rights to
purchase the last 400,000 shares being contingent on a number of conditions,
principally including continuation of Alpine's 50% participation under the
Quota Share Arrangement Amendment.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.110 Claim Service Agreement dated as of July 1, 1997 between Claims
Control Corporation and Frontier Pacific Insurance Company.
10.111 Limited Agency Agreement dated as of June 24, 1996 between
Frontier Pacific Insurance Company and Transre Insurance Services
and Exstar E&S Insurance Services.
10.112 Consulting Agreement dated August 6, 1997 between TCO Insurance
Services and Steven C. Shinn.
10.113 Amendment No. 1 to Settlement Agreement dated June 2, 1997
between Central National Insurance Company and Transre Insurance
Services and TCO Holdings, Inc.
10.114 JBW Restructuring Agreement dated as of June 30, 1997, between
Concord General Corporation, JBW & Co., Inc., Classic Fire and
Marine Insurance Company and Alpine Insurance Company and TCO
Holdings, Inc.
10.115 Amendment to Note Secured by Deed of Trust dated as of
December 5, 1996 by Par Mee Development, Inc., and Concord General
Corporation.
10.116 Note Secured by Deed of Trust in the amount of $3,500,000 dated
October 19, 1994 by Par Mee Development, Inc.
10.117 Assignment of Deed of Trust dated October 27, 1994 by American
Canyon Partners.
10.118 Escrow Agreement by and among Concord General Corporation, JBW &
Co., Inc., Classic Fire & Marine Insurance Company, Alpine
Insurance Company, TCO Holdings, Inc., and Katten Muchin & Zavis
10.119 Restructuring Agreement dated as of June 30, 1997, between Mark
Boozell, Director of Insurance of the State of Illinois, as
liquidator of Geneva Assurance Syndicate, Inc. and TCO Holdings,
Inc.
10.120 Form of Promissory Note in the amount of $2,500,000 dated June 30,
1997 by TCO Holdings, Inc. to Geneva Assurance Syndicate, Inc.
10.121 Form of Assignment and Payment Direction dated June 30, 1997 by
TCO Holdings, Inc. to Geneva Assurance Syndicate, Inc., and Alpine
Insurance Company.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
10.122 Service Agreement between TCO Holdings, Inc. and Alpine
Insurance Company.
10.123 Agreement dated as of October 1, 1997 between Exstar Financial
Corporation and Frontier Insurance Group, Inc.
10.124 Form of Warrant of Exstar Financial Corporation to Frontier
Insurance Group, Inc.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized to sign on behalf of the Registrant as
well as in his capacity as Chief Financial Officer.
EXSTAR FINANCIAL CORPORATION
Date: November 11, 1997 By /s / Mark Rosenberg
--------------------------
Mark Rosenberg
Chief Financial Officer
24
<PAGE> 1
EXHIBIT 10.110
CLAIM SERVICE AGREEMENT
This Agreement is entered into effective as of the 1st day of July 1997, by and
between Claims Control Corporation, an Illinois corporation (hereinafter
referred to as "CCC") and Frontier Pacific Insurance Company, a California
insurance company (hereinafter referred to as "FPIC").
This Agreement shall constitute authorization for CCC to investigate and adjust
all claims on behalf of FPIC with respect to Primary Employers Indemnity and
Employers Excess Indemnity insurance produced by Combined Independent Agencies,
Inc., subject to the following terms and conditions:
1. APPLICATION
As respects the Primary Employers Indemnity and Employers Excess Indemnity
insurance produced by Combined Independent Agencies, Inc., claims adjustment
authority shall apply to all claims on FPIC policies which claims are referred
by FPIC to CCC for adjustment.
2. SERVICES
CCC or its appointees shall investigate, reserve, adjust, settle and process,
or oversee the investigation reserving, adjustment, settlement and processing
of, all claims and losses to which this Agreement applies, in accordance with
specified limits of authority, attached to and made a part of this Agreement,
and pursuant to all rules, instructions and procedures hereafter supplied to
CCC by FPIC. Any or all such materials and/or instructional information may be
amended or supplemented by FPIC from time to time either by written or verbal
notice. Additionally, with respect to Primary Employers Indemnity and Employers
Excess Indemnity claims, CCC shall notify reinsurers of individual losses as
required pursuant to applicable reinsurance agreements.
3. INDEPENDENT CONTRACTOR
CCC and its appointees shall perform services pursuant to this Agreement as
independent contractors, and nothing contained herein shall in any way be
construed to constitute an employment relationship between FPIC and CCC, CCC's
employees or CCC's appointees. CCC and its appointees shall provide whatever
staff, office facilities and supplies are necessary for the performance of all
services contemplated by this Agreement to be performed by CCC and its
appointees at their 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
1
<PAGE> 2
to time from FPIC relating to the subject matter of this Agreement. CCC
shall abide by all applicable laws, rules and regulations of all insurance
regulatory authorities.
5. LITIGATION/ADJUSTER ASSIGNMENT
Legal services on claims referred to CCC hereunder 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
referred to CCC hereunder will be provided only by qualified licensed insurance
adjusters who have substantial experience in the handling of claim adjusting of
the type involved, it being understood and agreed that CCC intends to appoint
Anchor Claims Management, Inc., a Texas corporation ("Anchor"), to service
Primary Employers Indemnity claims. Where appropriate, CCC will utilize legal
counsel and, except as aforesaid, claim adjusters selected or authorized by
FPIC.
6. RECORD MAINTENANCE AND REPORTING
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, and
with respect to Primary Employers Indemnity claims CCC shall seek to cause
Anchor to accurately enter and keep all information and all data captured by
Anchor's automated claim system or contained in the claim file. All costs
associated with the maintenance of data by CCC and Anchor will be the
responsibility of CCC and Anchor, respectively. FPIC shall pay for any
additional programming required to generate reports that are not currently
available through CCC's or Anchor's computer system. However, such costs shall
not be incurred without the prior approval of FPIC.
CCC will provide FPIC 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 FPIC may reasonably request.
7. AUDIT
FPIC 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 or
Anchor. CCC agrees that such reviews and audits are intended to take place at
least twice each calendar year, and may, at FPIC's discretion, be conducted
more frequently. CCC shall furnish facilities in its office or seek to cause
Anchor to furnish facilities in its office for such reviews and audits, or
shall forward such files as are requested to a designated FPIC 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 its appointees and that are the result
of CCC's or its appointees'
2
<PAGE> 3
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 that are the result of FPIC'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 FPIC.
9. SUBROGATION
CCC shall have both the obligation and authority to identify and pursue
opportunities for subrogation on all appropriate claims referred to CCC
hereunder in accordance with FPIC's subrogation policies.
10. LOSS AND EXPENSE PAYMENT
Loss and expense payment will emanate from CCC and Anchor in accordance with
the claim accounting system established by FPIC. With respect to loss and
expense payments relating to Primary Employers Indemnity insurance, FPIC shall
prefund a checking account from time to time with amounts sufficient to pay
anticipated immediately payable loss and expense as reasonably requested by
CCC. Such account shall be established under the name "Frontier Pacific Claims
Escrow" at NationsBank of Texas, N.A., or under such other name at such other
bank as may be mutually agreed by FPIC and CCC. CCC and/or Anchor shall be
authorized to make payments from such account, in amounts not to exceed $25,000
per payment, solely for loss and expense relating to Primary Employers
Indemnity claims. CCC and its appointees otherwise shall have check signing
authority only as specifically authorized in writing by FPIC.
CCC shall provide FPIC weekly a list of loss and expense payments, including
claim number, payment amount, payee, date of loss and payment type.
11. REFERRAL TO FPIC
Notwithstanding the authority granted to CCC pursuant to this Agreement, the
following questions or issues must be referred to FPIC 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;
c. Fraud investigations;
3
<PAGE> 4
d. All civil filings against FPIC or its parent;
e. Actual or potential conflicts of interest involving CCC and/or Anchor.
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, FPIC shall retain ultimate authority over the adjusting and
settling of claims and, with respect to any claim or loss of any amount, FPIC
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 including Anchor. CCC shall protect, defend, indemnify and
hold harmless FPIC 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 CCC, its employees, agents and subcontractors including Anchor occurring in
the performance of CCC's obligations under this Agreement.
FPIC 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 or Anchor and acting for it). FPIC shall protect, defend, indemnify and
hold harmless CCC and its appointees from and against any and all claims or
demands (including attorney's fees and/or costs in connection therewith) for
damages, fines or penalties directly or indirectly resulting from any act,
omission or negligence of FPIC, its employees, agents and subcontractors (other
than those who also are agents or subcontractors of CCC or Anchor and acting
for it) occurring in the performance of FPIC's obligation under this Agreement.
14. ADDITIONAL INSURED
During the term of this Agreement and until all of CCC's duties hereunder have
expired, each of CCC and Anchor shall make FPIC an additional named insured
under a fidelity bond in an amount not less than $1,000,000, covering all of
their respective employees, agents, officers and directors for the benefit of
FPIC and CCC shall provide FPIC evidence as may be reasonably requested by FPIC
that such fidelity bonds are in force and shall notify FPIC immediately of any
material change in such fidelity bonds. Further, each of CCC and Anchor shall
carry errors and omissions insurance in the amount of $1,000,000.
4
<PAGE> 5
15. SERVICE FEES
In consideration of CCC's satisfactory performance in servicing claims, as
specified in this Agreement, FPIC shall pay CCC claim service fees based upon
the following, or otherwise as mutually agreed between FPIC and CCC. Service
fees shall be reviewed each July 1 beginning July 1, 1998, during the term of
this Agreement. Changes in fees will be effective only if based on a written
addendum to this Agreement. FPIC shall have no obligation to pay any fees or
costs of Anchor.
a. Fees for all claims other than Primary Employers Indemnity claims:
<TABLE>
<S> <C>
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.............................................. $.315 (or maximum
IRS allowable)
Photos............................................... $3.00 each
Policy / Fee / Paramedic and other reports / Items
necessary to support the development of a claim...... Actual Cost
</TABLE>
b. Fees for Primary Employers Indemnity claims: CCC shall be allowed for
all claims on such insurance a fee equal to 7.5% of the gross written
premium derived from Primary Employers Indemnity coverages produced by
Transre Insurance Services and Exstar E&S Insurance Services, Inc.
(collectively "E&S") for FPIC. Such fee shall be paid to CCC by E&S.
16. TERMINATION
Either party 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, FPIC 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
5
<PAGE> 6
information and data stored in CCC's automated claim system will be printed
and promptly delivered to FPIC in claim file format.
17. BINDING ARBITRATION
In the event of any dispute regarding the interpretation and enforcement of
this Agreement, CCC and FPIC 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, FPIC 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.
CLAIMS CONTROL CORPORATION FRONTIER PACIFIC INSURANCE
COMPANY
By: __________________________ By: __________________________
Its: Vice President Its:
-------------------------- --------------------------
6
<PAGE> 1
EXHIBIT 10.111
LIMITED AGENCY AGREEMENT
This limited agency agreement ("Agreement") is entered into by and between
Frontier Pacific Insurance Company, a California company ("FPIC"), Transre
Insurance Services and Exstar E&S Insurance Services, California corporations
(collectively "E&S").
FPIC AND E&S HEREBY AGREE AS FOLLOWS:
ARTICLE 1 - APPOINTMENT
1.1 FPIC hereby retains E&S to act on behalf of FPIC with the authority and
subject to the terms and conditions hereinafter set forth, and E&S hereby
accepts such retention.
1.2 FPIC's retention of E&S hereby shall not restrict in any manner the right
of FPIC 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 Pacific 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 FPIC
to insurance or assumed facultative reinsurance coverage issued or renewed by
FPIC 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 FPIC 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 FPIC, and FPIC from time to time shall
be entitled to place reasonable restrictions on E&S' authority; provided such
restrictions are in writing.
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 FPIC
and the business to be produced through E&S hereunder.
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3.3 E&S is hereby authorized, subject to underwriting guidelines established
and rates set by FPIC from time to time and applicable law, to accept
applications, to quote, bind and decline coverages and to conduct audits
("underwrite") on behalf of FPIC for the classes and lines of insurance set
forth in the Schedule of Business prepared by FPIC and attached hereto
("Schedule of Business"); provided E&S shall use applications and quote, bind
and decline forms approved by FPIC, and provided additionally E&S shall have no
authority to bind reinsurance or retrocessions on behalf of FPIC. 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 FPIC, 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
to assemble, countersign and issue Policies.
3.5 E&S is hereby authorized, subject to applicable law, Policy provisions and
FPIC'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, to pay the costs of audits, to pay certain claim
management fees and to retain and pay commissions and fees out of such
collected premiums and fees, subject to the provisions of this Agreement.
3.8 E&S shall not authorize any Sub-producer or other person or entity, other
than Combined Independent Agencies, Inc., a Texas subproducer, with respect to
Primary Employers Indemnity and Employers Excess Indemnity insurance, to quote,
bind, or decline coverages or otherwise underwrite on behalf of FPIC without
the prior written consent of FPIC.
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 E&S shall have no authority to obligate FPIC 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 FPIC except for
reckless conduct or willful misconduct
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<PAGE> 3
of FPIC. Additionally, E&S shall be responsible for verifying the proper
licensing of such Sub-producers, and if any liabilities are incurred by FPIC as
the result of E&S' accepting business from unlicensed or improperly licensed
Sub-producers, E&S shall indemnify and hold FPIC harmless from, and reimburse
FPIC 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 FPIC.
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 FPIC 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 FPIC or its designees.
ARTICLE 4 - COMPENSATION
4.1 Except as otherwise specified on the Schedule of Business, FPIC shall allow
E&S a gross commission equal to the following percentages with respect to the
following types of premium of all gross written premium derived from Policies
underwritten or delivered by E&S hereunder: (i) 40% with respect to Primary
Employers Indemnity premium; (ii) initially 37.5% with respect to Employers
Excess Indemnity premium; and (iii) 27.5% with respect to all other premium.
4.2 The percentage with respect to Employers Excess Indemnity premium shall be
adjusted for the results of each "underwriting year" (June 1, 1997, - December
31, 1998, and January 1 - December 31 of each calendar year thereafter) as of
the December 31 which is 36 months after the end of each such underwriting
year, and annually thereafter until all claims relating to the underwriting
year are closed, to the following percentages of Employers Excess Indemnity
gross written premium based on the net case incurred loss ratios of FPIC set
forth opposite such percentages.
<TABLE>
<CAPTION>
Percentage Incurred Loss Ratio Percentage Incurred Loss Ratio
---------- ------------------- ---------- -------------------
<S> <C> <C> <C>
35.5% 44% and Above 38% 35%
36% 43% 38.5% 34%
34.5% 42% 39% 33%
35% 41% 39.5% 32%
35.5% 40% 40.5% 31%
36% 39% 41.5% 30%
36.5% 38% 42.5% 29%
37% 37% 43.5% 28%
37.5% 36% 44.5% 27%
</TABLE>
For purposes of this Article 4, "net case incurred loss ratio" with respect to
any underwriting year shall mean with respect to all Policies incepting during
that underwriting year (i) FPIC's gross loss and related loss adjustment
expense paid, plus case loss and
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related loss adjustment expense outstanding, minus such paid and case loss
and related loss adjustment expense ceded by FPIC to reinsurers pursuant to the
Upper Layer Employees Excess Indemnity Reinsurance Contract 77-0208 effective
June 1, 1997 ("EEI Contract"), divided by (ii) FPIC's gross written premium,
minus the reinsurance premium ceded to the reinsurers pursuant to the EEI
Contract (after adjustment for cancellations, audits and the like). Such
adjusted compensation shall be calculated by FPIC and the calculation sent to
E&S within 15 days following each December 31 commencing with December 31,
2001, and any amount owing shall be settled within 25 days following each such
December 31. 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.
4.3 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.
4.4 If there is not a Sub-producer to receive the designated commission on a
Policy, E&S shall be entitled to retain the commission.
4.5 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 - ACCOUNTING AND RECORDS
5.1 E&S shall provide and maintain in forms reasonably acceptable to FPIC all
books, records, dailies and correspondence with policyholders necessary to
determine the amount of liability of FPIC and the amount of premium therefrom.
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 FPIC. Such records shall be
maintained for five years or for any longer retention period required by law or
FPIC.
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<PAGE> 5
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 FPIC 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 FPIC's
cost, for inspection at any office of FPIC, should such inspection be requested
by insurance department or other governmental authorities.
5.7 E&S shall immediately forward upon request to FPIC or FPIC's agents exact,
as written, copies of all applications, Policies and reports underwritten or
delivered by E&S or its Sub-producers or used by E&S or its Sub-producers
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 FPIC, upon FPIC'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
FPIC properly executed lost policy receipts therefor.
5.9 FPIC shall be entitled to conduct semi-annual 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 FPIC monthly electronic data transfer and bordereaux
providing such policy information in such format as reasonably requested by
FPIC, and shall provide to FPIC monthly by the eighth business day of the
following month accounting bordereaux providing such information in such format
as reasonably requested by FPIC, in respect of Policies issued or delivered by
E&S or its Sub-producers hereunder. FPIC 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 FPIC with any additional information and reports as
reasonably requested by FPIC and necessary to complete FPIC's quarterly and
annual statements filed with regulatory authorities or otherwise satisfy
regulatory requirements.
6.3 E&S shall annually furnish FPIC, 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.
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<PAGE> 6
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 FPIC. 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 FPIC;
(e) EDP hardware, software and programming;
(f) Countersignature fees or commissions;
(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 FPIC shall be responsible for and promptly pay all expenses incurred by
FPIC under this Agreement. This responsibility shall not be altered whether
the expenses are billed to FPIC or E&S. These expenses shall include but not
be limited to:
(a) Salaries, related taxes and benefits of all employees of FPIC;
(b) Transportation, lodging and meals of employees of FPIC;
(c) Board and bureau fees;
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<PAGE> 7
(d) Income and state and local sales taxes, if any, directly applicable
to FPIC's business:
(e) State or guaranty fund assessments;
(f) Losses and loss adjustment expenses incurred by or at the direction
of FPIC;
(g) Reinsurance costs;
(h) Legal and auditing expenses incurred by, on behalf of or at the
direction of FPIC; 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 of a fiduciary and trustee for FPIC. 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
"Frontier Pacific Insurance Company or Transre Insurance Services Premium Trust
Account" in a bank mutually agreed by E&S and FPIC 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 FPIC. 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 FPIC 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 compensation of E&S, Sub-producers, and Claims Control
Corporation, a California claims adjuster, Anchor Claims Management,
Inc., a Texas claims adjuster, and others, generally as described in
Article 4;
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<PAGE> 8
(d) Return of money deposited in error;
(e) Withdrawal of interest due E&S hereunder;
(f) Payments with respect to audits; and
(g) 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 FPIC detailing all premium trust account
transactions, and remit to FPIC 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 FPIC.
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 commissions on Policy cancellations, reductions in
premiums or any other return premiums at the same rate at which such
commissions were originally retained.
8.8 Neither FPIC nor E&S shall offset any balances due under this Agreement
with any amounts due under any other agreement between FPIC 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 FPIC hereunder. If E&S is then in default of any
such payment obligation and has not cured such default within 15 days of FPIC's
notice to E&S thereof, ownership of E&S'records, and use and control of
expirations and contracts with Sub-producers, shall become and remain vested in
FPIC until such time as such payment has been made.
9.2 E&S hereby assigns to FPIC 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. FPIC shall have full
authority to demand and collect such sums if E&S is then in default of any
payment obligation to FPIC hereunder and has not cured such default within 15
days of FPIC's notice to E&S thereof.
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<PAGE> 9
9.3 E&S pledges and grants to FPIC 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. FPIC 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 FPIC
upon demand.
9.4 E&S agrees that this Agreement or a copy hereof may be filed as a financing
statement, if FPIC so elects. E&S further agrees to sign a UCC-1 Form to
secure FPIC's security interest in the expirations and renewals upon reasonable
request by FPIC; provided that upon termination of this Agreement and E&S' not
being in default of any payment obligation to FPIC hereunder, FPIC 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 FPIC and E&S, or between FPIC and
any employees, representatives or Sub-producers retained by E&S. E&S shall
carry out its responsibilities hereunder subject to its own discretion and not
subject to time or manner directions of FPIC.
ARTICLE 11 - ADVERTISING
11.1 Before E&S uses FPIC's name in any form of advertising, a copy of the
proposed advertisement shall be forwarded to FPIC. No such advertisement shall
be used without the prior written permission of FPIC. All agreements with
Sub-producers shall require that before they use FPIC's name in any
advertising, a copy of the proposed advertisements shall be forwarded via E&S
to FPIC, and that no such advertisements shall be used without the prior
permission of FPIC.
11.2 If an advertisement containing FPIC'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.
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<PAGE> 10
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
FPIC, 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 FPIC, E&S shall give 30 days advance
written notice to FPIC, to allow FPIC, 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.
13.2 FPIC shall notify E&S of its decision within 15 days of the receipt of the
notice.
13.3 E&S shall notify FPIC in writing within 15 days if there is a change in:
(a) Ownership of 10 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 FPIC 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 FPIC 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-producers' employees or representatives, arising
under this Agreement.
14.2 FPIC 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
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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 FPIC, including, but not limited to, any negligent
or grossly negligent actions or inactions or willful misconduct or violation of
any statute or regulation by FPIC'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 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 FPIC 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 arise as to the interpretation of this
Agreement, either party may request, in writing, mediation of such differences.
Such mediation shall be conducted pursuant to Commercial Mediation Rules of
the American Arbitration Association. Such mediation shall be conducted in Los
Angeles, California, 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 California shall have exclusive jurisdiction to resolve any such
dispute and that the internal law of California 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 in
this Article 16,
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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) failure to obtain or maintain, or 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
FPIC, at FPIC's expense, all property of FPIC in E&S' control or possession,
including but not limited to, Policies, manuals, forms, unused drafts and all
materials used in servicing of Policies, including computerized and data
processing records. 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 FPIC 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, E&S agrees to protect, defend, and hold FPIC harmless from all persons
and claims whatsoever arising with respect to such policy supplies.
16.3 FPIC 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 FPIC for "cause," any
indebtedness of E&S to FPIC and all premiums in the possession of E&S, or for
the collection of which E&S is responsible, shall become immediately due to
FPIC.
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 of 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, including without limitation the obligation to settle any
adjustments with respect to the Employers Excess Indemnity commission set forth
in Section 4.1, 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 FPIC and E&S relating specifically to the subject matter
hereof.
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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 FPIC.
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 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:
FPIC:
Frontier Pacific Insurance Company
4250 Executive Square, Suite 200
La Jolla, CA 92037
Attention: ___________________
Copy to:
Frontier Insurance Group
195 Lake Louise Marie Road
Rock Hill, NY 12775-8000
Attention: Kevin Jeffrey
E&S:
Transre Insurance Services
c/o Exstar E&S Insurance Services
2029 Village Lane
Solvang CA 93463
Attn: Peter J. O'Shaughnessy
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17.7 This Agreement may be executed in multiple counterparts, each of which and
together shall constitute an original document.
FPIC: E&S:
FRONTIER PACIFIC INSURANCE COMPANY TRANSRE INSURANCE SERVICES
By: By:
----------------------- ----------------------
Date: Date: 9-18-97
---------------------- ---------------------
EXSTAR E&S INSURANCE SERVICES
By:
----------------------
Date: 9-18-97
---------------------
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EXHIBIT 10.112
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into this 6th
day of August 1997, by and between TCO Insurance Services, a California
corporation ("TCO"), and Steven C. Shinn ("Executive").
WHEREAS, TCO and the Executive entered into an Executive Employment
Agreement effective September 1, 1994 ("Employment Agreement");
WHEREAS, the Employment Agreement had an initial term ending August 31,
1996, with two consecutive two-year extensions exercisable, subject to the
terms and conditions of the Employment Agreement, by either TCO or the
Executive;
WHEREAS, since January 1, 1995, the Executive has been employed by Exstar
Financial Corporation, a Delaware corporation under common control with TCO,
and its subsidiary Alpine Insurance Company ("Exstar"), and not by TCO;
WHEREAS, TCO and the Executive desire that each party's obligations with
respect to the other pursuant to the Employment Agreement (except as otherwise
provided in this Agreement) be terminated.
WHEREAS, notwithstanding such termination the Executive has substantial
experience and expertise in TCO's business, and TCO desires to provide for
potential assistance by the Executive in the future; and
WHEREAS, TCO and the Executive desire that the Executive be available to
provide consulting services to TCO in accordance with the terms and conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions contained herein, the parties agree as follows:
1. Consulting Services. Effective as of May 1, 1997, and continuing until
termination of this Agreement ("Consulting Period"), TCO shall retain the
Executive, as an independent contractor, to be available to provide consulting
services to TCO, its parent TCO Holdings, Inc., and their subsidiaries
(collectively "TCO Companies"), and the Executive shall provide consulting
services, as from time to time are reasonably requested by TCO. The consulting
services potentially to be provided by the Executive may include those set
forth below and similar services.
a. If any TCO Company shall become involved in arbitration,
litigation or similar proceedings, the Executive shall participate in
document production, depositions, testimony and other aspects of the
proceedings, if and as from time to time reasonably requested by TCO.
<PAGE> 2
b. The Executive shall assist the TCO Companies in strategic
financial and legal planning, if and as from time to time reasonably
requested by TCO.
c. The Executive shall provide additional similar advice and
consulting relating to the TCO Companies' businesses, if and as from time
to time reasonably requested by TCO.
2. Conditions. The Executive shall perform any consulting services
requested by TCO in accordance with this Agreement in a professional manner.
The Executive, however, shall not be obligated hereunder to provide more than
10 hours of consulting services per calendar month, nor more than 100 hours of
consulting services per calendar year, in each case including travel time
(other than routine travel to and from TCO's offices in Solvang); the
Executive's consulting services hereunder shall be required only during normal
business hours on normal business days; and Solvang, California, shall be the
principal place of performance of the Executive's consulting services
hereunder.
3. Payments During Consulting Period. The Executive shall be due during
the Consulting Period for being available to provide and for providing
consulting services in accordance with this Agreement annual amounts of
$12,681.51, in lump sums as of each April 30, beginning with 1998 and
continuing through 2007. These amounts shall not be payable to the Executive in
cash, but instead shall be paid through offset against two amounts due from the
Executive to TCO with an aggregate balance, including interest accrued, of
$89,069.61 as of April 30, 1997 ("Executive's Debt"). The parties acknowledge
that the 10 annual payments of $12,681.51 are calculated as the amounts needed
to amortize $89,069.61 plus interest at 7% per annum with annual payments in
arrears. Performance by the Executive of his obligations in accordance with
this Agreement shall constitute satisfaction in full of all obligations of the
Executive with respect to the Executive's Debt. For federal income tax
purposes, TCO and the Executive shall treat each of such annual amounts of
$12,681.51, in the year in which it becomes due to the Executive, as earnings
from self-employment and not as employee compensation. TCO, promptly following
execution of this Agreement, shall release all security it holds with respect
to the Executive's Debt.
4. Expenses. Reasonable expenses for food, lodging and travel outside the
Solvang, California, area, and other reasonable expenses consistent with those
historically reimbursed by TCO, incurred by the Executive, in the Executive's
performance pursuant to this Agreement, shall be reimbursed to the Executive by
TCO promptly upon the Executive's submission of reasonable documentation with
respect to such expenses. The Executive shall not incur any expenses in
connection with food, lodging or travel outside the Solvang, California, area
without TCO's prior approval of the trip.
5. Term. Except as hereinafter provided, the term of this Agreement shall
commence as of May 1, 1997, and continue through April 30, 2007. TCO shall be
entitled to terminate this Agreement upon the Executive's death, the
Executive's permanent
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<PAGE> 3
disability as certified by a licensed physician or the Executive's breach of
this Agreement and failure to cure such breach within a reasonable time after
TCO has provided the Executive written notice stating in detail the nature of
such breach, in which case the Executive shall remain liable for the balance
of any of the Executive's Debt remaining unpaid as of such date (prorated with
respect to any partial 12 months since the May 1 most recently preceding the
date of such termination), with such balance being payable in annual
installments of $12,681.51 each April 30 during the remainder of the Consulting
Period, and with any proration being offset against the first of such
installments.
6. Termination of Party's Obligations Under Employment Agreement. The
obligations of each party with respect to the other pursuant to the Employment
Agreement are hereby terminated, except as hereinafter provided.
Notwithstanding the foregoing, TCO's obligation to grant the Executive options
to purchase 126,350 shares of common stock of Exstar, all of which were to have
been granted and vested by July 1, 1997, in accordance with Sections 7 and 10
of the Employment Agreement, shall continue. This termination shall in no way
affect the obligations and rights of Exstar and the Executive with respect to
each other.
7. Miscellaneous. This Agreement shall be subject to the miscellaneous
provisions set forth below.
a. Each party to this Agreement shall perform all further acts and
execute and deliver all documents necessary or appropriate to carry out
the provisions of this Agreement.
b. This Agreement shall supersede all prior agreements among the
parties with respect to the subject matter hereof. The provisions of this
Agreement may be waived, altered, amended or repealed, in whole or in
part, only on the written consent of both parties to this Agreement. No
waiver of any breach of any provision hereunder shall extend to any prior
or subsequent breach or affect in any way any rights arising out of any
prior or subsequent breach.
c. This Agreement shall not be assignable by either party without
the other party's consent. This Agreement shall be binding on, and shall
inure to the benefit of, the parties to it and their respective
successors, assigns, heirs and representatives.
d. Provided it does not deprive either party of any material rights
under this Agreement, each provision of this Agreement shall be separate
and divisible, and if any provision shall be held invalid or
unenforceable, the remaining provisions shall remain in full force and
effect.
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<PAGE> 4
e. All notices or other communications required or permitted under
this Agreement shall be in writing and shall be given by personal
delivery or sent by certified mail, postage prepaid, addressed as follows:
If to TCO: If to the Executive:
---------- ---------------------
TCO Insurance Services Steven C. Shinn
2029 Village Lane 705 Mesa Drive
Solvang CA 93463 Solvang CA 93463
Any party may change its address by giving the other party written notice
of the new address.
f. This Agreement shall be construed in accordance with, and
governed by, the laws of California. Santa Barbara County shall be the
venue for any litigation concerning this Agreement.
g. In the event of any litigation between the parties concerning
breach or alleged breach of this Agreement, its enforcement or
interpretation, the party prevailing shall be entitled to reimbursement
of reasonable attorney's fees and court costs from the other party.
h. Nothing in this Agreement shall confer any rights or remedies on
any third parties, other than the parties' successors, assigns, heirs and
representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
TCO Insurance Services Executive
By: /s/ Peter J. O'Shaughnessy /s/ Steven C. Shinn
------------------------------- -------------------------------
Peter J. O'Shaughnessy Steven C. Shinn
Chairman of the Board
Chief Executive Officer
Date: 8-6-97 Date: 8-6-97
---------------------------- -------------------------
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<PAGE> 1
EXHIBIT 10.113
AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT
This Amendment No. 1 to Settlement Agreement ("Amendment") is entered into
this 2nd day of June 1997, by and between The Central National Insurance
Company Of Omaha, a Nebraska insurance corporation in rehabilitation
("Central"), Transre Insurance Services, a California corporation ("Transre")
and TCO Holdings, Inc., a California corporation ("Holdings").
WHEREAS, on November 9, 1995, the parties entered into a Settlement
Agreement ("Settlement Agreement") pursuant to which they sought to settle
certain matters;
WHEREAS, on November 11, 1996, as a consequence of Transre's apparent
inability to meet its November 15, 1996, payment obligation, the parties
modified the Settlement Agreement ("11/12/96 Modification") to provide for
installment payments of the $366,666 due on or before November 15, 1996;
WHEREAS, Transre now has informed Central that Transre is incapable of
meeting its remaining payment obligations under the Settlement Agreement and
the 11/12/96 Modification, and has proposed an alternative to Central; and
WHEREAS, the parties now wish to amend the Settlement Agreement and
the 11/12/96 Modification as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, and other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. PAYMENTS.
In lieu of the remaining payments due pursuant to the Settlement
Agreement and the 11/12/96 Modification, Transre and/or Holdings
shall cause to be paid to Central the amounts set forth below:
A. $100,000 in cash to be paid to Central within five business
days following the execution of this Amendment; and
B. Subject to final approval by the Illinois Department of
Insurance, and additionally subject to execution of various
settlement and related agreements with other parties not
directly related to this Amendment, $1,550,000 payable from
26.67% of the 3.75% override commission ("Override
Commission") to be paid by Alpine Insurance Company
("Alpine") to Holdings with respect to the quota share
reinsurance between United Capitol Insurance Company and its
affiliates and Alpine, as evidenced by the Casualty Quota
Share Slip attached as Exhibit I hereto (the "Reinsurance
Agreement").
1) Such amounts shall be paid to Central quarterly by the
end of the month following the end of each such quarter.
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<PAGE> 2
2) In the event the experience under the Reinsurance
Agreement in any quarter is such that the maximum
Override Commission is not generated, Central shall be
entitled to receive amounts equal to 26.67% of the
Override Commission which is generated. Except as set
forth in Subsection 1.B.3, such amounts shall be
limited to 26.67% of the premiums actually received by
Alpine by the end of the quarters with respect to which
the payments are payable. If, in any one quarter, the
amount paid to Central is limited, by reason of this
Subsection 1/B.2, to less than 26.67% of 3.75% of the
gross premiums assumed by Alpine in the quarter, the
balance owing to Central shall be carried forward to
successive quarters in which the amounts of premiums
actually received by Alpine under the Reinsurance
Agreement exceed 3.75% of the gross premiums assumed by
Alpine, until the full amount owing has been paid.
3) At such time, if ever, as Holdings shall have met its
obligations to use 73.33% of the 3.75% Override
Commission to satisfy certain of Holdings' obligations
to Geneva Syndicate, Inc., Transre shall cause to be
paid to Central 100% of the 3.75% Override Commission
until Central shall have received a total of $1,550,000
pursuant to this Subsection 1.B.
2. REPORTING
Transre shall prepare for Central a quarterly report on the
business produced under the Reinsurance Agreement, summarizing
premiums assumed by Alpine, Alpine's unearned premiums,
Alpine's return premiums, Alpine's ceding commissions,
Alpine's losses and loss adjustment expenses paid, Alpine's
loss reserves, Alpine's salvage recoveries, and Alpine's
amounts of Override Commissions. This report shall be
delivered to Central by the end of the month following the end
of each quarter. Transre shall honor any reasonable request
by Central to audit, at Central's expense, the books and
records of Transre, Holdings, or Alpine relative to the
Reinsurance Agreement. Transre shall immediately notify
Central should the Reinsurance Agreement be terminated.
3. CONSIDERATION.
Central acknowledges that it believes it likely would not
receive the remaining payments due from Transre in accordance
with the Settlement Agreement and the 11/12/96 Modification,
and that, among other things, Central is entering into this
Amendment in consideration of Transre's agreement to cause its
affiliates to pay to Central the amounts set forth in Section
1 of this Agreement.
4. EFFECT.
This Amendment shall supersede the Settlement Agreement and
the 11/12/96 Modification only as expressly set forth herein,
and only for so long as Central receives an annual average
amount of at least $50,000 (beginning with calendar year 1997)
pursuant to Subsection 1.B of this Agreement. If at the end of
any year (beginning with calendar year 1997) Central has not
received an average annual
- 2 -
<PAGE> 3
amount of at least $50,000 pursuant to Subsection 1.B of this
Agreement, or in the event that the Reinsurance Agreement is
terminated, this Amendment automatically shall terminate and
all of the terms and conditions of the Settlement Agreement
and the 11/12/96 Modification immediately shall be reinstated
as if this Amendment had never been executed; provided,
however that (i) the total amount due Central pursuant to the
Settlement Agreement and the 11/12/96 Modification shall be
reduced by amounts paid pursuant to this Amendment, with the
payments paid pursuant to this Amendment being applied first
to reduce amounts due to Central pursuant to the 11/12/96
Modification, and then successively to reduce amounts due
pursuant to the Settlement Agreement from the earliest amount
due to the latest amount due; and (ii) the periods of any
statutes of limitations applicable to the Settlement Agreement
and the 11/12/96 Modification shall have been tolled while
this Amendment was effective. All other terms and conditions
of the Agreement among the parties, as evidenced by the
Settlement Agreement and the 11/12/96 Modification, shall
remain in full force and effect.
IN WITNESS WHEREOF, the undersigned agree to this Amendment and signify
their acceptances and approvals by signing below this 2nd day of June 1997.
THE CENTRAL NATIONAL INSURANCE
COMPANY OF OMAHA (In Rehabilitation) TRANSRE INSURANCE SERVICES
By: /s/ Houghton Furr,Jr.
--------------------------------- By: /s/ Steven C. Shinn
Houghton Furr, Jr. ------------------------------
Deputy Rehabilitator Steven C. Shinn
TCO HOLDINGS, INC.
BY: /s/ Steven C. Shinn
------------------------------
Steven C. Shinn
Acknowledged:
PETER J. O'SHAUGHNESSY
By: /s/ Peter J. O'Shaughnessy
------------------------------
Date: 2/6/97
------------------------------
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<PAGE> 1
EXHIBIT 10.114
JBW RESTRUCTURING AGREEMENT
This JBW RESTRUCTURING AGREEMENT (this "AGREEMENT"), dated as of June
30, 1997, is among CONCORD GENERAL CORPORATION, a California corporation
("CONCORD"), JBW & CO., INC., a California corporation ("JBW"), CLASSIC FIRE &
MARINE INSURANCE COMPANY, an Indiana insurance corporation ("CLASSIC")
(Concord, JBW and Classic sometimes hereinafter are referred to collectively as
the "JBW PARTIES" and individually as a "JBW PARTY"), ALPINE INSURANCE COMPANY,
an Illinois insurance corporation and successor to Transco Syndicate #1 Ltd.,
an Illinois corporation ("ALPINE"), and TCO HOLDINGS, INC., a Delaware
corporation ("TCO").
R E C I T A L S
A. Concord, JBW and Classic are affiliated through common
controlling ownership by Jeffery W. Beresford- Wood ("BERESFORD-WOOD").
B. Beresford-Wood, Concord, First Horizon Insurance Company, a
Minnesota corporation ("FHIC"), Peter J. O'Shaughnessy ("O'SHAUGHNESSY"),
Exstar Financial Corporation, a Delaware corporation ("OLD EXSTAR"), and Alpine
entered into that certain Stock Purchase Agreement dated as of December 28,
1989, as amended and supplemented by that certain Amendment No. 1 To Stock
Purchase Agreement dated as of June 22, 1990 among Beresford-Wood, Concord,
FHIC, O'Shaughnessy, Old Exstar, Alpine, Horizon Insurance Company, Ltd., a
Bermuda company ("HICL"), and Classic Syndicate, Inc., an Illinois corporation
("CS"), that certain Amendment No. 2 To Stock Purchase Agreement dated as of
December 3, 1990 among Beresford-Wood, Concord, FHIC, O'Shaughnessy, Old
Exstar, Alpine, HICL and CS, that certain Amendment No. 3 To Stock Purchase
Agreement dated as of April 22, 1991 among Beresford-Wood, Concord, FHIC,
O'Shaughnessy, Old Exstar, Alpine, HICL, CS, Classic, Classic Indemnity
Company, a Minnesota corporation ("CIC"), and Transco Holdings, Inc., a
Delaware corporation ("THI"), that certain Amendment No. 4 To Stock Purchase
Agreement dated as of June 6, 1991 among Beresford-Wood, Concord, FHIC,
O'Shaughnessy, Old Exstar, Alpine, HICL, CS, Classic, CIC and THI, a related
letter agreement dated August 26, 1992, and that certain Agreement dated May
31, 1993 among Concord, O'Shaughnessy and TCO, as amended by that certain
Amendment No. 1 To Agreement dated January 17, 1994 among Concord,
O'Shaughnessy and TCO (such Stock Purchase Agreement, as so amended and
supplemented, hereinafter is referred to as the "STOCK PURCHASE AGREEMENT"),
pursuant to which, among other things (i) Alpine acquired certain shares of the
Series A Preferred Stock of Concord (the "CONCORD PREFERRED") and (ii) Concord
and/or its affiliates acquired certain shares of the Series A Preferred Stock
of Old Exstar (the "OLD EXSTAR PREFERRED").
C. On or prior to December 31, 1992, Concord exchanged the Old
Exstar Preferred for 1,075 shares of the Series A Preferred Stock of TCO (the
"TCO PREFERRED"), with a stated value of $10,000 per share and having an annual
dividend rate of 11.3%, payable quarterly.
<PAGE> 2
D. The TCO Preferred is presently held by Classic in a trust,
known as the "Geneva Trust" (the "GENEVA TRUST"), pursuant to an
Asset/Liability Transfer Reinsurance Agreement dated June 30, 1995 between
Classic and Geneva Assurance Syndicate Inc., an Illinois corporation in
liquidation ("GENEVA").
E. Pursuant to that certain Exchange Agreement dated as of
December 31, 1993 (the "EXCHANGE AGREEMENT") among Concord, Alpine and JBW,
Alpine exchanged the Concord Preferred for 1,100 shares of the Series A
Preferred Stock of JBW (the "JBW PREFERRED"), with a stated value of $10,000
per share and having an annual dividend rate of 11.3%, payable quarterly.
F. Subject to the terms and conditions of that certain Secured
Debt Conversion Agreement dated March 25, 1994 with an effective date of
December 31, 1993 (the "CONVERSION AGREEMENT") among Alpine and the JBW
Parties, Alpine was granted the option (the "CONVERSION OPTION") to convert all
or any portion of the JBW Preferred into indebtedness of JBW in a principal
amount equal to the stated value of the JBW Preferred so converted, such
indebtedness to be secured by a pledge of the common stock of Concord or
Classic.
G. Alpine exercised the Conversion Option on or prior to December
31, 1995. As a result, JBW is indebted to Alpine in an aggregate amount of
approximately $13,600,000, which indebtedness is evidenced by that certain
Secured Promissory Note dated December 31, 1995 (the "JBW NOTE") in the
original principal amount of $12,313,625 made by JBW in favor of Alpine.
H. The JBW Note is secured by a pledge of 4,085,000 shares of the
issued and outstanding capital stock of Classic, representing approximately 81%
of such capital stock, pursuant to the terms and conditions of that certain
Pledge Agreement dated as of December 31, 1995 (the "CLASSIC STOCK PLEDGE
AGREEMENT") among Alpine and the JBW Parties.
I. TCO intends to enter into a Restructuring Agreement with the
liquidator of Geneva (the "TCO RESTRUCTURING AGREEMENT"), pursuant to which
TCO, in exchange for the return of the TCO Preferred to TCO, will execute and
deliver to Geneva a $2,500,000 Promissory Note made by TCO in favor of Geneva.
J. The consummation of the transactions described in the TCO
Restructuring Agreement is subject to the approval of the court overseeing the
liquidation of Geneva, which approval would be granted through an order issued
by such court (the "FINAL ORDER").
K. The JBW Parties have (i) informed Alpine that JBW is not
currently willing to meet its obligations under the JBW Note and (ii) requested
that Alpine accept, in exchange for the JBW Note, an assignment by Concord of
its rights under that certain Promissory Note dated October 19, 1994 in the
outstanding principal amount of $1,820,000 made by Par Mee Development
Corporation, an Ohio corporation ("PAR MEE"), held by Concord, as amended by
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<PAGE> 3
that certain Amendment to Note Secured by Deed of Trust dated December 5, 1996
between Par Mee and Concord (such Promissory Note, as amended through the date
hereof, hereinafter is referred to as the "PAR MEE NOTE"). The Par Mee Note is
secured by that certain Deed of Trust and Rent Assignment dated October 19,
1994 (as amended through the date hereof, the "PAR MEE DEED OF TRUST") made by
Par Mee and recorded in the Recorder's Office of Napa County, California on
October 27, 1994 as Document No. 1994 032227, encumbering certain real estate
located in Napa County, California.
L. In order to induce Alpine to accept the assignment by Concord
of its rights under the Par Mee Note in exchange for the JBW Note, Concord has
agreed to pledge 990,000 shares of the issued and outstanding capital stock of
Classic, representing approximately 19.8% of such capital stock, as security
for the repayment of the Par Mee Note.
M. Alpine is willing to exchange the JBW Note for an assignment
by Concord of its rights under the Par Mee Note and the pledge of the capital
stock of Classic described in Recital L above, subject to the terms and
conditions of this Agreement.
N. TCO is willing to enter into the TCO Restructuring Agreement
and this Agreement in reliance upon the representations and warranties made by
the JBW Parties herein.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto hereby agree
as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth above are
acknowledged by the parties hereto to be true and accurate and by this
reference are incorporated into this Agreement.
2. DEFINITIONS. All capitalized terms used but not elsewhere
defined in this Agreement shall have the following meanings:
AMENDED PLEDGE AGREEMENT shall mean an amendment and
restatement of the Classic Stock Pledge Agreement executed by Concord
in favor of Alpine substantially in the form of EXHIBIT 1 attached
hereto.
CENTRAL NATIONAL RESTRUCTURING shall mean the execution of an
agreement by TCO with Central National Insurance Company, a Nebraska
insurance company in rehabilitation ("Central National"), modifying
the terms of a November 9, 1995 Settlement Agreement between Central
National and TCO (as amended).
EFFECTIVE DATE shall mean the date all conditions set forth in
Paragraph 4 of this Amendment have been satisfied.
ESCROW AGENT shall mean the law firm of Katten Muchin & Zavis
of Chicago, Illinois.
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<PAGE> 4
PAR MEE ASSIGNMENT shall mean an assignment by Concord in
favor of Alpine of all of Concord's right, title and interest in and
to the Par Mee Note and the Par Mee Deed of Trust substantially in the
form of EXHIBIT 2 attached hereto.
PRIOR AGREEMENTS shall mean the Stock Purchase Agreement, the
Exchange Agreement, the Conversion Agreement, the JBW Note, the
Classic Stock Pledge Agreement and all other agreements, documents and
instruments executed and delivered pursuant to the terms thereof or
otherwise in connection therewith or related thereto, other than the
Restructuring Documents.
RESTRUCTURING DOCUMENTS shall mean this Agreement, the Amended
Pledge Agreement, the Par Mee Assignment, the Par Mee Note, the Par
Mee Deed of Trust, and all other agreements, documents and instruments
executed and delivered pursuant to the terms of this Agreement or the
Par Mee Assignment.
TERMINATION DATE shall mean September 30, 1997.
3. RESTRUCTURING TRANSACTIONS. Subject to the terms and
conditions of this Agreement, on or before the fifth business day following the
Effective Date:
(a) Concord shall execute and deliver to Alpine the Par
Mee Assignment, thereby assigning to Alpine all of Concord's right,
title and interest in and to the Par Mee Note and the Par Mee Deed of
Trust;
(b) Concord shall execute and deliver to Alpine the
Amended Pledge Agreement;
(c) Concord shall deliver to Alpine the original Par Mee
Note and the original recorded Par Mee Deed of Trust;
(d) Concord shall deliver to Alpine an ALTA mortgagee's
policy of title insurance (ALTA Revised 1987 Form) in favor of Alpine
with respect to the real estate covered by the Par Mee Deed of Trust,
issued by a title company and in an amount satisfactory to Alpine,
showing that Par Mee has good and marketable title to such real
estate, insuring that the Par Mee Deed of Trust constitutes a valid
first priority mortgage lien on such real estate subject to no other
liens of equal or greater priority (other than certain liens in the
aggregate amount of not more than $180,000 recorded in favor of John
A. Lisanti and Timothy Starkweather), insuring over all survey and
other general exceptions contained therein and including such
affirmative endorsements as reasonably may be requested by Alpine;
(e) Concord shall deliver to Alpine original stock
certificates for 990,000 shares of the issued and outstanding common
stock of Classic (representing no less than
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<PAGE> 5
19.8% of the issued and outstanding capital stock of Classic),
accompanied by assignments separate from certificate duly executed in
blank by Concord;
(F) Alpine shall deliver the original JBW Note to
Concord;
(G) Alpine shall deliver to Concord the original stock
certificates representing the shares of common stock of Classic
pledged to Alpine pursuant to the Classic Stock Pledge Agreement;
(H) Each JBW party shall deliver a certificate to Alpine
confirming the satisfaction of the conditions set forth in Paragraph 4
hereof applicable to such JBW Party;
(I) Each of Alpine and TCO shall deliver a certificate to
Concord confirming the satisfaction of the conditions set forth in
Paragraph 4 hereof applicable to Alpine or TCO;
(J) Each JBW Party shall deliver to Alpine such evidence
of such JBW Party's authority to execute and deliver the Restructuring
Documents to be executed and delivered by it as Alpine reasonably may
require, including but not limited to resolutions of the respective
boards of directors of Concord and JBW, certified as true, complete
and correct by the respective secretaries of Concord and JBW; and
(K) Alpine and TCO shall deliver to Concord such
evidence of Alpine's and TCO's authority to execute and deliver the
Restructuring Documents to be executed and delivered by it as Concord
reasonably may require, including but not limited to resolutions of
the respective boards of directors of Alpine and TCO, certified as
true, complete and correct by the respective secretaries of Alpine and
TCO.
The transactions described in this Paragraph 3 hereinafter are referred to as
the "RESTRUCTURING TRANSACTIONS." Each party hereto acknowledges that the
consummation of the Restructuring Transactions will have substantial direct and
indirect benefits to such party and that the commitments of such party under
the Restructuring Documents are made and given at arm's length and in exchange
for fair and reasonable consideration.
Upon the delivery of the documents described above, the party
receiving each such document shall deliver it to the Escrow Agent, to be held
in escrow (the "ESCROW") in accordance with the terms of an escrow agreement
(the "ESCROW AGREEMENT") in a form mutually agreed by the parties and the
Escrow Agent. During the term of the Escrow Agreement, payments required to be
made pursuant to the Par Mee Note shall be made to the Escrow Agent, to be held
pursuant to the terms of the Escrow Agreement. Each document held by the
Escrow Agent shall be delivered to the party entitled to receive it (as
described above) and all payments made pursuant to the Par Mee Note (and any
interest thereon) shall be transferred to Alpine, upon the later of (i) the
expiration of the period during which the Final
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<PAGE> 6
Order may be appealed pursuant to applicable law, if no appeal of such Final
Order is filed during such period, or (ii) if such an appeal is filed, on the
second business day following the date on which the Final Order is upheld by
the court of appeals. If an appeal of the Final Order is filed, and the Final
Order is overturned on appeal, this Agreement shall be deemed null and void ab
initio, the Escrow Agent shall return each document to the party which
delivered it as described above, all payments made pursuant to the Par Mee Note
(and any interest thereon) shall be returned to Concord, and the parties shall
have no further rights or obligations hereunder.
4. CONDITIONS TO EFFECTIVENESS. The obligations of the parties
hereto to consummate the Restructuring Transactions shall be subject to the
satisfaction of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the JBW Parties, Alpine and TCO set forth in the
Restructuring Documents shall be true and correct in all material
respects.
(b) ILLINOIS DEPARTMENT OF INSURANCE APPROVAL. The
approval and/or consent of the Illinois Department of Insurance with
respect to the Restructuring Transactions and the TCO Restructuring
Agreement shall have been obtained.
(c) TCO RESTRUCTURING AGREEMENT. The transactions
contemplated by the TCO Restructuring Agreement shall have been
consummated, or shall be consummated concurrently with the
Restructuring Transactions, in accordance with the terms and
conditions set forth in the TCO Restructuring Agreement.
(d) PAR MEE DUE DILIGENCE. The (i) Par Mee Note and Par
Mee Deed of Trust shall be reasonably satisfactory in form and content
to Alpine and its counsel, (ii) the sum of the outstanding principal
balance of the Par Mee Note and all payments of principal under the
Par Mee Note received by Concord and transferred to the Escrow Agent
pursuant to Section 7 hereof shall not be less than $1,820,000 and no
event of default shall exist thereunder and (iii) real estate
encumbered by the Par Mee Deed of Trust shall be valued at not less
than $3,500,000, as evidenced by an appraisal in form and content and
prepared by an appraiser satisfactory to Alpine.
(e) CLASSIC DUE DILIGENCE. The issued and outstanding
capital stock of Classic subject to the Amended Pledge Agreement shall
have a book value of not less than $2,200,000 based on the most recent
annual or quarterly statutory financial statements of Classic filed
with the Indiana Department of Insurance.
(f) CENTRAL NATIONAL RESTRUCTURING. The Central National
Restructuring shall have been consummated, or shall be consummated
concurrently with the Restructuring Transactions, on terms mutually
acceptable to the parties thereto.
6
<PAGE> 7
(g) CONCORD COVENANTS. Concord shall have complied in
all material respects with the covenants set forth in Section 7
hereof.
In the event the court overseeing the liquidator of Geneva disapproves
the petition of the liquidator of Geneva seeking issuance of the Final Order,
or if the Illinois Department of Insurance disapproves the Restructuring
Transactions or any component of the TCO Restructuring Agreement, this
Agreement shall be deemed null and void ab initio, and the parties shall have
no further rights or obligations hereunder.
Notwithstanding anything herein to the contrary, in the event the
conditions to effectiveness described in Section 4 hereof have not been
satisfied or the Escrow described in Section 3 hereof has not been released on
or before the Termination Date, this Agreement shall be deemed null and void ab
initio on the Termination Date, and all payments made and documents delivered
shall be returned to the party which delivered the same, and the parties shall
have no further rights or obligations hereunder.
5. REPRESENTATIONS AND WARRANTIES OF THE JBW PARTIES. The JBW
Parties jointly and severally represent and warrant to Alpine and TCO that each
JBW Party (i) has full power and authority to execute, deliver and perform its
obligations under this Agreement and the other Restructuring Documents, (ii)
upon the execution and delivery hereof and thereof, this Agreement and the
other Restructuring Documents will be valid, binding and enforceable upon each
JBW Party, to the extent such JBW Party is a party thereto, in accordance with
their respective terms, (iii) the execution and delivery of this Agreement and,
subject to the satisfaction of the conditions set forth in Paragraph 4, the
other Restructuring Documents by the JBW Party, and the performance of its
obligations hereunder and thereunder does not and will not conflict with,
violate or constitute a default under any applicable law, rule, regulation,
judgment, decree or order or any agreement, indenture or instrument to which
such JBW Party is a party or is bound or which is binding upon or applicable to
all or any portion of such JBW Party's property, or require notice to, or
approval or consent by, any regulatory agency, court or other governmental body
which has not been given or obtained, (iv) assuming the satisfaction of the
conditions set forth in Paragraph 4, there is no condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claim or demand pending or, to
the best of such JBW Party's knowledge, threatened, affecting any JBW Party
which could prevent such JBW Party from performing its obligations hereunder or
under any other Restructuring Document within the time limits set forth herein
or therein for such compliance or performance, and no basis for any such matter
exists, (v) no JBW Party or any affiliate thereof, or any person or entity
other than the Geneva Trust and the trustee and beneficiaries thereof, has any
right, title or interest in or to the TCO Preferred, (vi) any and all required
regulatory or court notices and approvals were given and obtained in connection
with all prior transfers of all or any portion of the TCO Preferred, and (vii)
the Indiana Department of Insurance has been informed of the transactions
contemplated by this Agreement, including the pledge by Concord of stock of
Classic, and no other notice to or approval by the Indiana Department of
Insurance is required in connection with such transactions.
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<PAGE> 8
6. REPRESENTATIONS AND WARRANTIES OF ALPINE AND TCO. Alpine and
TCO jointly and severally represent and warrant to the JBW Parties that each of
them (i) has full power and authority to execute, deliver and perform its
obligations under this Agreement and, subject to the satisfaction of the
conditions set forth in Paragraph 4, the other Restructuring Documents, (ii)
upon the execution and delivery hereof and thereof, this Agreement and the
other Restructuring Documents will be valid, binding and enforceable upon
Alpine and TCO, to the extent it is a party thereto, in accordance with their
respective terms, (iii) the execution and delivery of this Agreement and,
subject to the satisfaction of the conditions set forth in Paragraph 4, the
other Restructuring Documents, by Alpine and TCO, and the performance of their
obligations hereunder and thereunder, does not and will not conflict with,
violate or constitute a default under any applicable law, rule, regulation,
judgment, decree or order or any agreement, indenture or instrument to which
Alpine or TCO is a party or is bound or which is binding upon or applicable to
all or any portion of Alpine's property, or require notice to, or approval or
consent by, any regulatory agency, court or other governmental body, except as
referenced in Paragraph 4 hereof, and (iv) assuming the satisfaction of the
conditions set forth in Paragraph 4, there is no condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claim or demand pending or, to
the best of Alpine's or TCO's knowledge, threatened, affecting Alpine or TCO
which could prevent Alpine or TCO from performing its obligations hereunder or
under any other Restructuring Document within the time limits set forth herein
or therein for such compliance or performance, and no basis for any such matter
exists.
7. COVENANTS OF CONCORD. From and after the execution of this
Agreement, Concord shall not cause or permit the Par Mee Note or the Par Mee
Deed of Trust, or any rights relating thereto, to be transferred, cancelled or
modified in any manner without the prior written consent of Alpine. Any funds
received by Concord or any of its affiliates pursuant to the Par Mee Note after
the execution of this Agreement shall be held by Concord or any such affiliate
as a fiduciary for the benefit of Alpine, and Concord shall cause any and all
such funds to be delivered to the Escrow Agent within two business days
following receipt of the funds by Concord or any of its affiliates, to be held
in accordance with an Escrow Agreement in a form agreed by the parties and the
Escrow Agent. Any such funds shall be released to the party entitled to
receive payments under the Par Mee Note on the terms described in Section 3
hereof.
8. GENERAL RELEASES.
(a) BERESFORD-WOOD AND JBW PARTIES. In consideration of
the consummation of the Restructuring Transactions, from and after the
Effective Date, each JBW Party, Beresford-Wood and their affiliates,
and its, his and their respective successors and assigns, irrevocably
shall be deemed to have released and forever discharged Alpine,
O'Shaughnessy, TCO and their respective affiliates, subsidiaries,
predecessors, successors, assigns, employees, directors, officers,
agents, servants and attorneys (each, for purposes of this CLAUSE (A),
a "RELEASED PERSON") of and from all damages, losses, claims, demands,
liabilities, obligations, actions and causes of action whatsoever
which Beresford-Wood or any such JBW Party or any of its affiliates
may
8
<PAGE> 9
now have or claim to have against any Released Person on account of or
in any way touching, concerning, arising out of or founded upon the
Prior Agreements, whether presently known or unknown, and of every
nature and extent whatsoever. This agreement and covenant on the part
of Beresford-Wood and the JBW Parties (i) is contractual, and not a
mere recital, and the parties hereto acknowledge and agree that no
liability is admitted on the part of any party in connection with the
Prior Agreements and (ii) shall inure to the benefit of and be
enforceable by each Released Person.
(b) ALPINE, TCO AND O'SHAUGHNESSY. In consideration of
the consummation of the Restructuring Transactions, from and after the
Effective Date, Alpine, TCO and O'Shaughnessy and their affiliates,
and its, his and their respective successors and assigns, each
irrevocably shall be deemed to have released and forever discharged
Beresford-Wood and the JBW Parties and their respective affiliates,
predecessors, subsidiaries, successors, assigns, employees, directors,
officers, agents, servants and attorneys (each, for purposes of this
CLAUSE (B), a "RELEASED PERSON") of and from all damages, losses,
claims, demands, liabilities, obligations, actions and causes of
action whatsoever which Alpine, TCO, O'Shaughnessy or any of their
affiliates may now have or claim to have against any Released Person
on account of or in any way touching, concerning, arising out of or
founded upon the Prior Agreements, whether presently known or unknown,
of every nature and extent whatsoever. This agreement and covenant on
the part of Alpine, TCO and O'Shaughnessy (i) is contractual, and not
a mere recital, and the parties hereto acknowledge and agree that no
liability is admitted on the part of any party in connection with the
Prior Agreements and (ii) shall inure to the benefit of and be
enforceable by each Released Person.
9. COSTS AND EXPENSES. Each party hereto shall bear all of its
own fees and expenses in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the Restructuring
Transactions.
10. FURTHER ASSURANCES; COOPERATION. Prior to the Termination
Date, each party hereto will do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
agreements, documents and instruments as reasonably may be requested by any
other party hereto in order to effectuate fully the intent of this Agreement.
Each party hereto agrees to cooperate with the other parties hereto in
obtaining the approvals and consents referred to in Paragraph 4 hereof,
including the execution of such documents, the making of such disclosures, the
furnishing of such financial information and the taking of all such other
actions as reasonably may be necessary to obtain such approvals and consents.
11. SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any party or circumstance shall be held to be
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the validity, legality and enforceability of the remaining terms
and provisions of this Agreement shall not in any way be affected or impaired
9
<PAGE> 10
thereby, and the affected term or provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.
12. BINDING EFFECT; GOVERNING LAW. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, legal representatives, successors
and assigns, provided that no party hereto may assign its rights or delegate
its duties hereunder without the prior written consent of all other parties
hereto. This Agreement shall be construed in accordance with the laws of the
State of Illinois without regard to conflicts of law principles.
13. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
documents to be executed and delivered pursuant to the terms hereof constitute
the entire agreement among the parties hereto with respect to the Restructuring
Transactions and supersede any other written or oral agreements relating to the
Restructuring Transactions. No provision of this Agreement or the other
Restructuring Documents may be amended, modified or waived except with the
prior written consent of the party against whom enforcement of the applicable
amendment, modification or waiver is sought.
14. CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Agreement or any of the provisions hereof.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
16. SUBMISSION. Submission of this Agreement by any party hereto
to any other parties hereto, or their respective counsel, agents or
representatives, for examination and/or execution shall not constitute an offer
by the submitting party to agree to the terms hereof or in any manner bind the
submitting party unless and until this Agreement shall have been fully executed
and delivered by each party hereto.
[remainder of this page intentionally left blank]
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement at Chicago, Illinois as of the day and year first above written.
CONCORD GENERAL CORPORATION
By: /s/ Brian Bethke
--------------------------------
Name: Brian Bethke
---------------------------
Title: CEO
---------------------------
JBW & CO., INC.
By: /s/ Thomas Thie
--------------------------------
Name: Thomas Thie
---------------------------
Title: President
---------------------------
CLASSIC FIRE & MARINE INSURANCE
COMPANY
By: /s/ James A. Ryan
--------------------------------
Name: James A. Ryan
---------------------------
Title: President
---------------------------
TCO HOLDINGS, INC.
By: /s/ Steven C. Shinn
--------------------------------
Name: Steven C. Shinn
---------------------------
Title: President
---------------------------
ALPINE INSURANCE COMPANY
By: /s/ Steven C. Shinn
--------------------------------
Name: Steven C. Shinn
---------------------------
Title: President
---------------------------
With respect to Section 8 hereof only:
_____________________________________
JEFFERY W. BERESFORD-WOOD,
individually
/s/ Peter J. O'Shaughnessy
-------------------------------------
PETER J. O'SHAUGHNESSY, individually
11
<PAGE> 12
Exhibit 1 - AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (this "PLEDGE AGREEMENT"),
dated as of June 30, 1997, is among CONCORD GENERAL CORPORATION, a California
corporation ("PLEDGOR"), and ALPINE INSURANCE COMPANY, an Illinois insurance
corporation and successor to Transco Syndicate #1 Ltd., an Illinois corporation
("PLEDGEE").
R E C I T A L S
A. Pledgor, Pledgee and Jeffery W. Beresford-Wood
("BERESFORD-WOOD") entered into that certain Pledge Agreement dated as of
December 31, 1995 (the "ORIGINAL PLEDGE AGREEMENT") pursuant to which Pledgor
pledged to Pledgee, as security for the repayment of the JBW Note (as
hereinafter defined), 81% of the issued and outstanding shares of capital stock
of Classic Fire & Marine Insurance Company, an Indiana insurance corporation
wholly owned by Pledgor ("CLASSIC").
B. Pledgor, Pledgee, JBW & Co., Inc., a California corporation,
Classic, and TCO Holdings, Inc., a Delaware corporation ("TCO"), have entered
into that certain JBW Restructuring Agreement of even date herewith (the "JBW
RESTRUCTURING AGREEMENT"). Capitalized terms used but not elsewhere defined
herein shall have the respective meanings ascribed to such terms in the JBW
Restructuring Agreement.
C. Pursuant and subject to the terms and conditions of the JBW
Restructuring Agreement, Pledgee has agreed to exchange the JBW Note for the
Par Mee Assignment.
D. One of the conditions precedent to the obligations of Pledgee
and TCO under the JBW Restructuring Agreement is that Pledgor shall have
executed and delivered this Pledge Agreement to Pledgee.
NOW, THEREFORE, in order to induce Pledgee and TCO to execute and
deliver the JBW Restructuring Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
Pledgor, Pledgee and Beresford-Wood hereby amend and restate the Original
Pledge Agreement in its entirety as follows:
1. RECITALS; DEFINITIONS. The Recitals set forth above are
acknowledged by the parties hereto to be true and accurate and by this
reference are incorporated into this Pledge Agreement. The following terms
shall have the following meanings in this Pledge Agreement:
Collateral: the Securities and all dividends, distributions,
other amounts, additional securities of Classic or any successor in
interest to Classic and other property to which Pledgor or any
successor in interest to Pledgor (with or without additional
consideration) is or becomes entitled by virtue of the ownership by
such person of any of the Securities or as the result of any Classic
corporate reorganization, merger, consolidation, stock split, stock
dividend, conversion, preemptive right or otherwise, and the proceeds
thereof.
<PAGE> 13
Event of Default: if (i)(A) the Par Mee Note matures and
remains unpaid or if any breach of or default by Par Mee under the Par
Mee Note or the Par Mee Deed of Trust occurs and the Par Mee Note is
accelerated, and (B) the amounts received by Pledgee (after deduction
of all costs and expenses, including without limitation reasonable
attorneys' fees and expenses, incurred by Pledgee in connection with
its exercise of remedies under the Par Mee Note and the Par Mee Deed
of Trust) within 180 days after Pledgee commences a collection action
or a foreclosure or sale remedy under the Par Mee Note or Par Mee Deed
of Trust does not equal or exceed the Note Amount, or (ii) any breach
or violation by Pledgor of its obligations under this Pledge Agreement
occurs.
Note Amount: the amount of all principal, accrued and unpaid
interest, penalties, charges and fees due under the Par Mee Note at
the earlier of the maturity or acceleration thereof, under the terms
of the Par Mee Note in effect on the date hereof.
Obligations: (i) any and all indebtedness, due or to become
due, now existing or hereafter arising, of Par Mee under the Par Mee
Note and the Par Mee Deed of Trust, (ii) the performance of the
covenants of Par Mee under the Par Mee Note and the Par Mee Deed of
Trust and (iii) the performance of the covenants of Pledgor contained
in this Pledge Agreement.
Securities: the capital stock of Classic and any warrants,
options or other rights to acquire capital stock of Classic described
on Exhibit A attached hereto, and duly executed assignments separate
from certificate satisfactory to Pledgee attached thereto.
2. PLEDGE OF COLLATERAL. To secure the Obligations, Pledgor
hereby pledges, assigns and grants to Pledgee a valid and perfected first lien
in (i) the Securities and (ii) all other items of Collateral now owned or
hereafter acquired by Pledgor. Upon the execution hereof, Pledgee shall return
to Pledgor the certificates representing shares of stock of Classic now held by
Pledgee which are not being pledged hereunder.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants to Pledgee that (i) the Securities represent
and at all times in the future will represent at least 19.8% of the issued and
outstanding capital stock and warrants, options and other rights to purchase
capital stock of Classic, (ii) Pledgor is the legal and beneficial owner of the
Securities, (iii) the Securities are validly issued, fully paid and
non-assessable and are registered in the name of Pledgor, (iv) none of the
Securities is subject to any lien of any kind whatsoever of equal or greater
priority to the lien on the Securities granted to Pledgee hereby, (v) no
authorization, approval or other action by, or notice to or filing with, any
governmental body or other person which has not already been obtained is
required for the pledge by Pledgor of the Securities pursuant to the terms of
this Pledge Agreement and (vi) until all of the Obligations have been paid and
performed in full, Pledgor: (A) will not create or permit to exist
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<PAGE> 14
any lien upon or with respect to the Collateral of equal or greater priority to
the lien thereon granted to Pledgee by this Pledge Agreement, (B) will not
sell, transfer, convey, assign, or otherwise divest Pledgor's interest in the
Collateral, or any part thereof, to any other person or entity and (C) Pledgor
will not permit Classic to issue any additional capital stock or options,
warrants or other rights to acquire capital stock.
4. STOCK SPLITS, STOCK DIVIDENDS.
4.1 ADDITIONAL SECURITIES. Pledgor agrees that in the
event that Pledgor, by virtue of the ownership by Pledgor of the
Collateral, now is, or hereafter becomes, entitled (with or without
additional consideration) to other or additional securities as the
result of any Classic corporate reorganization, merger, consolidation,
stock split, stock dividend, conversion or preemptive right or
otherwise, Pledgor shall:
4.1.1 DELIVERY. Cause the issuer of such additional
securities to deliver to Pledgee the certificates and other
documents, if any, evidencing the ownership by Pledgor of such
additional securities and hereby authorizes and empowers
Pledgee to demand the same from such issuer, and agrees if
such certificates and other documents are delivered to
Pledgor, to take possession thereof in trust for Pledgee;
4.1.2 ASSIGNMENT SEPARATE FROM CERTIFICATE. Deliver
to Pledgee an assignment separate from certificate with
respect to such securities, executed in blank by Pledgor; and
4.1.3 REPRESENTATIONS AND WARRANTIES. Deliver to
Pledgee a certificate, executed by Pledgor and dated the date
of such pledge, as to the truth and correctness on such date
of the representations and warranties set forth in Section 3
hereof; and
4.1.4 ADDITIONAL DOCUMENTS. Deliver to Pledgee such
other certificates, forms and other instruments as Pledgee
reasonably may request in connection with the pledge of such
additional securities to Pledgee.
4.2 ADDITIONAL COLLATERAL. Pledgor agrees that such
additional securities shall constitute a portion of the Securities and
be subject to this Pledge Agreement in the same manner and to the same
extent as the Securities pledged hereby to Pledgee on the date hereof.
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<PAGE> 15
5. VOTING POWER; DISTRIBUTIONS. Unless and until an Event of
Default shall have occurred, and until the consent of governmental authority or
regulatory agency referred to in Section 6.10 hereof is obtained, Pledgor shall
be entitled to exercise all voting powers in all corporate matters pertaining
to the Collateral or otherwise, for any purpose not inconsistent with, or in
violation of, any of the Restructuring Documents. Unless and until all of the
Obligations have been performed and paid in full, Pledgor shall not be entitled
to receive any dividends or distributions with respect to any portion of the
Collateral. If any such dividends or distributions are received by Pledgor in
violation of the terms of this Section 5, such dividends or distributions shall
be (i) held in trust by Pledgor on behalf of Pledgee, (ii) turned over to
Pledgee by Pledgor immediately upon receipt thereof and (iii) deemed to
constitute a portion of the Collateral pledged by Pledgor to Pledgee hereunder.
6. DEFAULT AND REMEDIES.
6.1 REMEDIES. If an Event of Default shall occur and be
continuing, Pledgee, at its option, may:
6.1.1 REGISTRATION. Subject to Section 6.10 below,
cause the Collateral to be registered in its name or in the
name of its nominee;
6.1.2 VOTING POWER. Subject to Section 6.10 below,
exercise all voting powers pertaining to the Collateral and
otherwise act with respect thereto as though Pledgee were the
owner thereof;
6.1.3 DISTRIBUTIONS. Receive all distributions of
any kind whatsoever on all or any part of the Collateral;
6.1.4 COLLECTION; CONVERSION. Subject to Section
6.10 below, exercise any and all rights of collection,
conversion or exchange, and any and all other rights,
privileges, options or powers of Pledgor pertaining or
relating to the Collateral;
6.1.5 SALE OF COLLATERAL. Subject to Section 6.10
below and to any applicable state or federal securities and
insurance laws, sell, assign and deliver the whole, or from
time to time, any part of the Collateral at any broker's board
or at any private sale or at public auction, with or without
demand for performance or advertisement of the time or place
of sale or adjournment thereof or otherwise, and free from any
right of redemption (all of which hereby expressly are waived
by Pledgor) for cash, for credit or for other property, for
immediate or future delivery, and for such price and on such
terms as Pledgee in its sole discretion may determine; and
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<PAGE> 16
6.1.6 OTHER REMEDIES. Subject to Section 6.10
below, exercise any other remedy specifically granted under
this Pledge Agreement or now or hereafter existing in equity,
or at law, by virtue of statute or otherwise.
With respect to the actions described in each of subsections 6.1.2 and
6.1.4 above, subject to Section 6.10 below, Pledgor hereby irrevocably
constitutes and appoints Pledgee its proxy and attorney-in-fact with
full power of substitution and acknowledges that the constitution and
appointment of such proxy and attorney-in-fact are coupled with an
interest and are irrevocable until all of the Obligations are paid and
performed in full.
6.3 AGREEMENT TO SELL COLLATERAL. For the purposes of
this Section 6, an agreement to sell all or any part of the Collateral
shall be treated as a sale thereof and Pledgee shall be free to carry
out such sale pursuant to such agreement, and Pledgor shall not be
entitled to the return of any of the same subject thereto,
notwithstanding the fact that after Pledgee shall have entered into
such an agreement, all Events of Default may have been remedied or all
of the Obligations may have been paid and performed in full.
6.4 PLEDGEE MAY BID. At any sale made pursuant to
Section 6.1 above, subject to Section 6.10 below, Pledgee may bid for
and purchase, free from any right of equity or redemption on the part
of Pledgor (the same hereby being waived and released by Pledgor), any
part or all of the Collateral that is offered for sale, and Pledgee,
upon compliance with the terms of sale, may hold, retain and dispose
of such Collateral without further accountability therefor.
6.5 PROCEEDS OF SALE. The proceeds of any sale of the
whole or any part of the Collateral and any other monies at the time
held by Pledgee under the provisions of this Pledge Agreement (i)
shall be applied first to the reimbursement to Pledgee of all costs
and expenses, including without limitation reasonable attorneys' fees
and expenses, incurred by Pledgee in connection with its exercise of
remedies under the Par Mee Note and the Par Mee Deed of Trust and this
Pledge Agreement, (ii) then, shall be retained by Pledgee until
Pledgee has received an amount equal to the Note Amount either from
such proceeds or as a result of Pledgee's exercise of remedies under
the Par Mee Note and the Par Mee Deed of Trust and (iii) any remainder
shall be paid over to Pledgor. Once Pledgee has received an amount
equal to the sum of the amounts described in clauses (i) and (ii)
above, Pledgee shall reassign to Pledgor any and all remaining rights
it may have in and to the Par Mee Note and the Par Mee Deed of Trust.
6.6 NO DUTY OF PLEDGEE. Pledgee shall not have any duty
to exercise any of the rights, privileges, options or powers or to
sell or otherwise realize upon any of the Collateral, as hereinbefore
authorized, and Pledgee shall not be responsible for any failure to do
so or delay in so doing.
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<PAGE> 17
6.7 EFFECT OF SALE. Any sale of all or any portion of
the Collateral pursuant to Section 6.1 above shall operate to divest
all right, title and interest of Pledgor to the Collateral which is
the subject of any such sale.
6.8 SECURITIES ACT. Pledgor acknowledges that Pledgee
may be unable to effect a public or other sale of all or a part of the
Collateral by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, or by reason of limitations and
restrictions under applicable state insurance laws, or that Pledgee
may be able to do so only after delay or subject to statutory or
regulatory restrictions which might adversely affect the value that
might be realized upon the sale of the Collateral. Accordingly,
Pledgor agrees that Pledgee, without the necessity of attempting to
cause any registration of the Collateral to be effected under the
Securities Act of 1933, as amended, may sell the Collateral or any
part thereof in one or more private sales to a restricted group of
purchasers who may be required to agree, among other things, that they
are acquiring the Collateral for their own account, for investment
purposes only, and not with a view toward the distribution or resale
thereof. Pledgor agrees that any such private sale may be at prices
or on terms less favorable to the owner of the Collateral sold than
would be the case if such Collateral was sold at public sale or
without statutory or regulatory restrictions, and that any such
private sale shall not be deemed not to have been made in a
commercially reasonable manner by virtue of such sale having been a
private sale.
6.9 NOTICE. Pledgee shall give not less than 10 business
days' prior written notice to Pledgor of any sale pursuant to this
Section 6 at the address of Pledgor set forth on Exhibit B hereto.
Pledgor hereby agrees that such notice is commercially reasonable.
6.10 GOVERNMENTAL AND REGULATORY RESTRICTIONS.
Notwithstanding any of the provisions of this Pledge Agreement to the
contrary, the control over the Securities and any other Collateral
pledged by Pledgor to Pledgee pursuant to the terms of this Pledge
Agreement, and the exercise of all voting rights relating thereto,
shall remain with Pledgor until any required consent of all
governmental authorities and regulatory agencies to the transfer of
such control to Pledgee or its nominees, successors or assigns shall
have been obtained. Pledgor shall cooperate and cause its affiliates
to cooperate in any and all efforts by Pledgee to obtain such
consents.
7. PLEDGEE'S OBLIGATIONS, CUSTODIAL AGREEMENT, PERFORMANCE
RIGHTS, PLEDGE DOES NOT MAKE PLEDGEE A SHAREHOLDER. Pledgee shall not have any
duty to protect, preserve or enforce rights against the Collateral other than a
duty of reasonable custodial care of any such Collateral in its possession, it
being understood that Pledgee shall (i) have no responsibility for (A)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to the Collateral, whether or not
Pledgee has or is deemed to have knowledge of such matters, (B) taking any
necessary steps to preserve rights against any
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<PAGE> 18
parties with respect to the Collateral or (C) making any capital contributions
or other payments on behalf of Pledgor and (ii) not be deemed to be a
shareholder of Classic unless Pledgee purchases or otherwise retains the
applicable portion of the Collateral in connection with a foreclosure.
8. TERMINATION OF PLEDGE AGREEMENT. Upon the payment and
performance in full of all of the Obligations, Pledgee shall deliver to Pledgor
the Collateral in its possession and this Pledge Agreement thereupon shall
terminate.
9. MISCELLANEOUS.
9.1 EXERCISE OF RIGHTS. Pledgor unconditionally agrees that
if an Event of Default has occurred and is continuing, Pledgee may
exercise its rights and remedies hereunder prior to, concurrently
with, or subsequent to the exercise by Pledgee of its rights and
remedies against Par Mee under the Par Mee Note, the Par Mee Deed of
Trust or otherwise. The obligations of Pledgor under this Pledge
Agreement shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be released or
discharged or in any way affected by:
9.1.1 AMENDMENTS. Any amendment or modification of
or supplement to the Par Mee Note or the Par Mee Deed of
Trust;
9.1.2 EXERCISE OR NON-EXERCISE OF RIGHTS. Any
exercise or non-exercise of any right or remedy under the Par
Mee Note or the Par Mee Deed of Trust, or the granting of any
postponements or extensions for time of payment or other
indulgences to Pledgor or any other person, or the settlement
or adjustment of any claim or the release or discharge or
substitution of any person primarily or secondarily liable
with respect to the Par Mee Note or the Par Mee Deed of Trust;
9.1.3 BANKRUPTCY. The institution of any
bankruptcy, insolvency, reorganization, debt arrangement,
readjustment, composition, receivership or liquidation
proceedings by or against Pledgor, Par Mee or any other
person; or
9.1.4 OTHER DEFENSES. Any other circumstance which
otherwise might constitute a defense to, or a discharge of,
Pledgor with respect to the Obligations, other than rights
granted to Pledgor under this Pledge Agreement or the JBW
Restructuring Agreement.
Notwithstanding the foregoing, no amendment to or modification or
extension of the Par Mee Note or Par Mee Deed of Trust agreed to by Par Mee and
Pledgee shall increase the Obligations otherwise secured hereby, nor shall the
Obligations secured hereby with respect to
7
<PAGE> 19
indebtedness under the Par Mee Note be deemed to exceed any settlement or
compromise amount voluntarily agreed to by Par Mee and Pledgee pursuant to
clause 9.1.2 above.
9.2 RIGHTS CUMULATIVE. Each and every right, remedy and
power granted to Pledgee hereunder shall be cumulative and in addition
to any other right, remedy or power specifically granted herein or now
or hereafter existing in equity, at law, by virtue of statute or
otherwise and may be exercised by Pledgee, from time to time,
concurrently or independently and as often and in such order as
Pledgee may deem expedient. Any failure or delay on the part of
Pledgee in exercising any such right, remedy or power, or abandonment
or discontinuance of steps to enforce the same, shall not operate as a
waiver thereof or affect the right of Pledgee thereafter to exercise
the same, and any single or partial exercise of any such right, remedy
or power shall not preclude any other or further exercise thereof or
the exercise of any other right, remedy or power, and no such failure,
delay, abandonment or single or partial exercise of rights of Pledgee
hereunder shall be deemed to establish a custom or course of dealing
or performance among the parties hereto.
9.3 MODIFICATION. Any modification or waiver of any
provision of this Pledge Agreement, or any consent to any departure by
Pledgor therefrom, shall not be effective in any event unless the same
is in writing and signed by Pledgee and then such modification, waiver
or consent shall be effective only in the specific instance and for
the specific purpose given. Any notice to or demand on any Pledgor in
any event not specifically required of Pledgee hereunder shall not
entitle Pledgor to any other or further notice or demand in the same,
similar or other circumstances unless specifically required hereunder.
9.4 FURTHER ASSURANCES. Pledgor agrees that at any time,
and from time to time, after the execution and delivery of this Pledge
Agreement, Pledgor, upon the request of Pledgee, promptly will execute
and deliver such further documents and do such further acts and things
as Pledgee reasonably may request in order to effect fully the
purposes of this Pledge Agreement and to subject to the security
interest created hereby any Collateral intended by the provisions
hereof to be covered hereby.
9.5 PRESERVATION OF COLLATERAL. Pledgor agrees that it
will warrant, preserve, maintain and defend, at the expense of
Pledgor, the right, title and interest of Pledgee in and to the
Collateral and all right, title and interest represented thereby
against all claims, charges and demands of all persons whomsoever.
9.6 GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS. FOR THE
PURPOSES OF THIS SECTION 9.6, THIS PLEDGE AGREEMENT
8
<PAGE> 20
SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ILLINOIS.
9.7 SEVERABILITY. In the event that any provision of
this Pledge Agreement is deemed to be invalid by reason of the
operation of any law or by reason of the interpretation placed thereon
by any governmental body, this Pledge Agreement shall be construed as
not containing such provision and any and all other provisions hereof
which otherwise are lawful and valid shall remain in full force and
effect.
9.8 SUCCESSORS AND ASSIGNS. This Pledge Agreement shall
inure to the benefit of the successors and assigns of Pledgee and
shall be binding upon the successors and assigns of Pledgor.
9.9 COUNTERPARTS. This Pledge Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an
original, but all of which when taken together shall be deemed to be
one and the same instrument.
9.10 NOTATION ON BOOKS. Concurrently with the execution
and delivery hereof, Pledgor shall cause Classic to register in its
corporate books the security interests in and the pledge of the
Collateral effected hereby.
10. GOVERNMENTAL APPROVALS. Any provision herein to the contrary
notwithstanding, no action shall be taken hereunder by Pledgee unless and until
all applicable requirements (if any) of all applicable insurance laws and
regulations have been satisfied fully with respect thereto and Pledgee has
obtained any consents, approvals and authorizations that are required to be
obtained from any governmental authority or regulatory agency in connection
therewith. The parties hereto intend that the powers of Pledgee under this
Pledge Agreement, in all relevant aspects, shall be subject to and governed by
the applicable statutory requirements and rules and regulations of all
governmental authorities and regulatory agencies. Upon and during the
continuation of an Event of Default, Pledgor agrees to take any action that
Pledgee may request in order to obtain and enjoy the full rights and benefits
granted to Pledgee by this Pledge Agreement including, specifically, at
Pledgor's sole cost and expense, the use of Pledgor's best efforts to assist in
obtaining approval by any governmental authority or regulatory agency for any
action or transaction contemplated by this Pledge Agreement that then is
required by law.
[remainder of this page intentionally left blank]
9
<PAGE> 21
IN WITNESS WHEREOF, Pledgor and Pledgee have caused this Pledge
Agreement to be executed as of the date first above written.
CONCORD GENERAL CORPORATION
By:
-----------------------------------
Name:
----------------------------------
Title:
----------------------------
ALPINE INSURANCE COMPANY
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------
Acknowledged and Consented to:
-----------------------------------------
Jeffery W. Beresford-Wood, individually
CLASSIC ACKNOWLEDGMENT
Classic hereby (i) acknowledges receipt of a copy of this Pledge
Agreement, (ii) acknowledges the pledge of 19.8% of the issued and outstanding
capital stock of Classic pursuant to the terms of this Pledge Agreement and
(iii) confirms to Pledgee that the transfer books of Classic indicate that the
Securities are registered in the name of Pledgor and that a pledge of such
Securities has been registered in the name of Pledgee as of the date of this
Pledge Agreement, subject to no adverse claims about which Classic has a duty
to inquire under Section 8-403(4) of the Uniform Commercial Code.
CLASSIC FIRE & MARINE INSURANCE
COMPANY
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------
10
<PAGE> 22
EXHIBIT 10.114 (1A)
EXHIBIT 1.A
-----------
Description of Securities
-------------------------
Description
Pledgor of Stock
- ------- -----------
Concord General 990,000 shares of
Corporation, a the Common Stock
California corporation of Classic Fire &
Marine Insurance
Company, an Indiana
insurance company
<PAGE> 23
EXHIBIT 1.B
-----------
Address of Pledgor for Notice Purposes
--------------------------------------
Concord General Corporation
1450 C Enea Circle
Suite 500
Concord, California 94520
<PAGE> 24
EXHIBIT 2 - ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (the "Agreement") is made and entered into
effective the 30th day of June, 1997, by and between Alpine Insurance Company,
an Illinois insurance company ("Alpine") and Concord General Corporation, a
California corporation ("Concord"), with respect to the following recitals of
fact:
A. On or about October 19 1997, Par Mee Development Corporation (also
known as Par Mee Development, Inc.) ("Par Mee") as Maker, executed and
delivered to American Canyon Partners, a California general partnership
("ACP") a Note secured by Deed of Trust in the original principal amount of
$3,500,000.00 (the "Note"). A full, true and correct copy of the note is
attached hereto as Exhibit "A", and by this reference incorporated herein as
though fully set forth.
B. The Note was secured by a Deed of Trust and Rent Assignment in favor
of ACP dated October 19, 1994 and recorded in the Official Records of Napa
County, California as Instrument No. 94-032227 on or about October 27, 1994
(the "Deed of Trust"). A full, true and correct copy of the Deed of Trust is
attached hereto as Exhibit "B", and by this reference incorporated herein as
though fully set forth.
C. On or about March 6, 1995, ACP executed an Assignment of Deed of Trust
whereby ACP assigned to Concord all of ACP's beneficial interest under the
Deed of Trust together with the Note and all money due and to become due on
the Note with interest, and all rights accrued or to accrue (the "ACP
Assignment"). A full, true and correct copy of the ACP Assignment is attached
hereto as Exhibit "C", and by this reference incorporated herein as though
fully set forth.
D. On or about December 5, 1996, Par Mee and Concord entered into a
written Amendment to Note Secured by Deed of Trust whereby they agreed to
amend the Note (the "Amendment to Note"). A full, true and correct copy of the
Amendment to Note is attached hereto as Exhibit "D", and by this reference
incorporated herein as though fully set forth.
E. Concord wishes to assign to Alpine, and Alpine wishes to accept the
assignment of, the Note, as amended by the Amendment to Note, and the Deed of
Trust.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
conditions set forth herein and for other valuable consideration, receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1
<PAGE> 25
1. Incorporation of Recitals
The foregoing recitals are expressly made a part of this Agreement.
2. Assignment by Concord
Concord does hereby sell, assign and transfer to Alpine all of its right,
title and interest in the Note, as amended by the Amendment to Note, including
its right to receive payments of principal, interest, late fees and all other
sums due from Par Mee under the Note as amended by the Amendment to Note. Upon
execution of this Agreement, Concord shall deliver to Alpine the original of
the Note, the Amendment to Note and the Deed of Trust.
3. Acceptance by Alpine
Alpine hereby accepts the assignment made in paragraph 2 above on the
terms and conditions set forth in this Agreement. The Note and Deed of Trust,
and all rights thereunder, are assignable by Alpine.
4. Representations and Warranties
4.1 Concord's Representations and Warranties
Concord represents and warrants to Alpine that:
4.1.1 Concord is a corporation duly organized, validly existing, and in
good standing under the laws of the State of California. Concord has the power
to sell, transfer and assign the Note, as amended by the Amendment to Note,
and the Deed of Trust and to enter into this Agreement. The sale, transfer and
assignment of the Note and the Deed of Trust have been duly authorized by the
necessary corporate action of Concord and constitute the legal, valid and
binding obligations of Concord, enforceable in accordance with the terms of
this Agreement. Concord has obtained any and all necessary consents of third
parties required of it to accomplish such sale, transfer and assignment. The
individual or individuals executing this Agreement and any and all documents
executed pursuant to this Agreement on behalf of Concord are authorized to do
so.
4.1.2 Concord is the true and lawful owner of the Note, as amended by
the Amendment to Note, and the Deed of Trust. Concord has not previously sold,
assigned, transferred, encumbered or hypothecated to any third party any
interest in or to the Note, as amended by the Amendment to Note, or the Deed
of Trust, save and except those interests which are shown on the face of the
Note.
2
<PAGE> 26
4.1.3 There is no default or breach existing under the Note, the
Amendment to Note and/or the Deed of Trust and no event that, with notice and
the expiration of any applicable grace or cure period, would constitute such a
default or breach.
4.1.4 There is no valid offset, defense or counterclaim to the
obligations of Par Mee under the Note, the Amendment to Note and/or the Deed
of Trust.
4.1.5 There is no action, suit or proceeding pending or threatened
against or affecting Concord before any court, arbitrator or administrative
body or agency that affects the validity or enforceability of the Note, the
Amendment to Note or the Deed of Trust or that might result in any adverse
change in the value of the Note or the Deed of Trust.
4.1.6 The Note has not been modified or amended except by the Amendment
to Note.
4.1.7 The original Note, Amendment to Note and the Deed of Trust
delivered to Alpine concurrently with the execution of this Agreement are
full, true, correct and genuine.
4.1.8 Since the date of the ACP Assignment, Concord has not received any
payments from Par Mee pursuant to the Note, whether as principal, interest or
otherwise, except those payments that are disclosed in writing to Alpine at
the time of execution of this Agreement.
4.1.9 The total outstanding balance due on the Note as of June 30, 1997,
exclusive of any amount due to John A. Lisanti and/or Timothy Starkweather, or
their assignees, is $2,141,563.14, representing $1,820,000.00 in principal,
$85,864.11 in accrued and unpaid interest, and $235,699.03 in late fees and
other charges.
4.1.10 Concord was a general partner of ACP. Concord has acquired all of
the other partnership interests in ACP, and ACP has ceased to exist. No person
or entity other than Concord owns any interest in the Note and/or the Deed of
Trust save and except for those interests that are shown on the face of the
Note.
5. Indemnification
Concord shall indemnify, defend and hold Alpine and Alpine's employees,
officers, directors, agents and attorneys free and harmless from and against
any and all losses, liabilities, costs and expenses (including reasonable
attorney's fees), judgments, damages, claims, counterclaims, demands, actions,
settlement amounts or proceedings arising out of or connected with the breach
of any representation or warranty set forth in this Agreement.
3
<PAGE> 27
6. Assignment of Deed of Trust
Concurrently with execution of this Agreement, Concord shall execute and
deliver to Alpine an Assignment of Deed of Trust in the form of Exhibit "E"
attached hereto, in recordable form.
7. Estoppel Certificate
Concord shall obtain and deliver to Alpine an Estoppel Certificate from
Par Mee substantially in the form attached hereto as Exhibit "F".
8. Attorney's Fees
If any action or proceeding is brought to construe or enforce any of the
terms or conditions of this Agreement or any of the documents to be executed
pursuant to this Agreement or the rights of the parties thereunder, the
prevailing party in such action or proceeding shall be entitled to recover all
court costs and reasonable attorney's fees incurred by it, including costs and
reasonable attorney's fees incurred in enforcing any judgment obtained by the
prevailing party.
9. Administrative Provisions
9.1 This Agreement shall inure to the benefit of and shall be binding
upon the respective successors and assigns of the parties hereto.
9.2 In the event any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
9.3 This Agreement may be amended or any of its terms modified only by a
written amendment authorized and executed by all parties hereto.
9.4 This Agreement is made in and shall be governed by and construed in
accordance with the laws of the State of California.
DATED:
--------------------------.
CONCORD GENERAL CORPORATION,
a California corporation,
By:
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
4
<PAGE> 28
DATED:
----------------------------------.
ALPINE INSURANCE COMPANY,
an Illinois insurance company,
By:
----------------------------
Name:
-----------------------
Title:
----------------------
5
<PAGE> 1
EXHIBIT 10.115
AMENDMENT TO NOTE SECURED BY DEED OF TRUST
This Amendment is made as of the 5th day of December, 1996, and amends
the Note Secured by Deed of Trust ("Note") executed by Par Mee Development Inc.
("Borrower") in the principal amount of $3,500,000.00 payable to American
Canyon Partners as partially assigned to Concord General Corporation
("Lender").
WHEREAS, under the terms of the Note as assigned to Lender, Borrower owes
the sum of $3,320,000.00 to Lender, which amount was due and payable in full
on or before October 27, 1996; and
WHEREAS, Borrower has requested an extension of the final due date of all
amounts due under said Note, as assigned, as Borrower is currently unable to
repay the note in full; and
WHEREAS, Lender is willing to extend the final due date of all amounts due
under said Note under certain conditions as set forth below:
NOW, THEREFORE, it is hereby agreed by Borrower and Lender that the Note
be amended in accordance with the following terms and conditions:
1. Borrower shall make a payment in the amount of $1,500,000.00 no later
than 1:00 p.m. PST on December 11, 1996. Such payment shall be wired into
Lender's banking account as described below:
Wells Fargo Bank
Concord, California Branch
Routing Number 121000248
Account Number 4175-121037
Borrower shall request that Borrower's bank forward a letter to Lender
confirming the above transfer of funds as soon as reasonably possible.
2. Borrower shall pay the remaining balance of $1,820,000.00 as follows:
a. If the entire remaining balance of $1,820,000.00 is paid in full on
or before December 31, 1996, Lender shall not apply the late fee as
described in the Note and no interest shall be applied.
<PAGE> 2
b. If the remaining balance is paid in full after December 31, 1996 but
on or before January 31, 1997, then the late fee as provided in the Note in
the amount of $132,800 shall be added to the principal amount due but no
interest shall be applied
c. If the remaining principal balance plus the late fee is paid after
January 31, 1997 but on or before February 28, 1997, interest shall be
applied at a rate of 7% which shall have accrued monthly on the
$1,820,000.00 beginning as of October 27, 1996.
d. Interest on the unpaid balance shall continue to accrue each month at a
rate of 7% on the remaining principal balance until all remaining amounts
due hereunder have been paid or until October 31, 1997 (the final due
date), whichever occurs first.
e. In addition, a 1% penalty shall be charged on the entire unpaid amount due,
including the principal, accrued interest and the late charge, as of
February 28, 1997 and on the last day of each month thereafter until all
amounts due hereunder have been paid or until October 31, 1997, whichever
occurs first.
f. Should Borrower fail to pay all amounts due hereunder on or before October
31, 1997, then as of November 1, 1997, Lender may exercise its right under
the Deed of Trust by which the Note is secured and demand that the Trustee
under such Deed of Trust exercise its power of sale and initiate
foreclosure proceedings on the property described in the Deed of Trust.
At no time prior to November 1, 1997 shall Lender request such foreclosure
proceedings be initiated.
3. Should Borrower fail to make the required $1,500,000.00 payment on or
before December 11, 1997, then this Amendment shall be deemed null and
void and Lender shall have the option of pursuing its remedies in
accordance with the Note and the Deed of Trust by which it is secured.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first written above and do certify that the statements made herein are
correct.
BORROWER: LENDER:
/s/ William E. Parker /s/ Brian D. Bethke
- ----------------------------------- ----------------------------------------
William E. Parker, President Brian D. Bethke, Chief Executive Officer
Par Mee Development, Inc. Concord General Corporation
<PAGE> 1
EXHIBIT 10.116
Escrow No.: 207114-DM
DO NOT DESTROY THIS NOTE: When paid, this note with Deed of
Trust securing same, must be surrendered to Trustee for
cancellation before reconveyance will be made.
NOTE SECURED BY DEED OF TRUST
NON-INTEREST BEARING NOTE
$3,500,000.00 San Rafael, California, Oct. 19, 1994
FOR VALUE RECEIVED, On or before OCTOBER 27TH, 1996, the undersigned
(MAKER) promise to pay to American Canyon Partners, a California General
Partnership (PAYEE) or order, at such a place as designated by PAYEE, the sum
of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100----$3,500,000.00---DOLLARS.
LATE CHARGE: In the event that payment is not made of the principal balance in
a timely manner, the penalty shall be equal to 47% the balance unpaid.
IN THE EVENT OF SALE OR TRANSFER OF ALL OR ANY PORTION OF THE PROPERTY
DESCRIBED IN THE DEED OF TRUST GIVEN TO SECURE THE PAYMENT OF THIS NOTE, ALL
SUMS REMAINING UNPAID SHALL BECOME IMMEDIATELY DUE AND PAYABLE AT THE ELECTION
OF THE PAYEE HEREIN, AND NOTICE OF SUCH ELECTION IS HEREBY WAIVED.
Principal payable in lawful money of the United States. If action be instituted
on this note I promise to pay such sum as the Court may fix as attorney's fees.
This note is secured by Deed of Trust to CONSOLIDATED TITLE SERVICES, a
California Corporation, as Trustee.
PAR MEE DEVELOPMENT INC.
BY: /s/ William E. Parker
------------------------------
WILLIAM E. PARKER, President
AMERICAN CANYON PARTNERS, a California general partnership hereby assigns,
grants and transfers to John A. Lisanti as to $120,000.00 and Timothy
Starkweather as to $60,000.00 the beneficial interest under that certain
Note and deed of trust concurrently herewith.
/s/ [Signature]
- ----------------------------------------
American Canyon Partners
<PAGE> 1
EXHIBIT 10.117
RECORDING REQUESTED BY
CONCORD GENERAL CORPORATION
1450-C Enea Circle, Suite 500
Concord, California 94520
AFTER RECORDING MAIL TO [SEAL]
Julie A. Garrison, Esq.
Concord General Corporation
1450 C Enea Circle, Suite 500
Concord, California 94520
- --------------------------------SPACE ABOVE THIS LINE FOR RECORDER'S USE-------
ASSIGNMENT OF DEED OF TRUST
- --------------------------------------------------------------------------------
AMERICAN CANYON PARTNERS, a California General Partnership (ASSIGNOR) FOR
VALUE RECEIVED, do hereby grant, assign, and transfer to CONCORD GENERAL
CORPORATION, a California corporation (ASSIGNEE) all beneficial interest under
that certain deed of trust dated October 19, 1994, executed by PAR MEE
DEVELOPMENT CORPORATION, an Ohio corporation, (TRUSTOR), to CONSOLIDATED TITLE
SERVICES, a California corporation, (TRUSTEE), and recorded as Instrument No.
1994-032227, on October 27, 1994, in Book -----------, Page----------, Official
Records in the office of the County Recorder of Napa County, California,
together with the note or notes as therein described or referred to, the money
due and to become due thereon with interest, and all rights accrued or to
accrue.
Dated: October 27, 1994 AMERICAN CANYON PARTNERS
By: /s/ Robert J. Mitchell By: /s/ E. G. Craig
------------------------------- -------------------------------
By: /s/ Julie A. Garrison By: /s/ Dianna M. Almini
------------------------------- -------------------------------
Julie A. Garrison
Concord General Corporation
State of California )
--------------
County of Contra Costa )
-------------
On March 6, 1995 before me, Nancy Baughman, Notary Public----------------------
----------------------------------------------------
NAME, TITLE OF OFFICER (E.G., JANE DOE, NOTARY PUBLIC)
personally appeared E.G. Craig, Dianna Almini, and Julie A. Garrison----------
------------------------------------------------------------
NAME(S) of SIGNER(S)
personally known to me
(or proved to me on the basis of satisfactory evidence) to be the persons
whose names are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacities and that by their
signatures on the instrument the persons, or the entity upon behalf of which
the persons acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Nancy Baughman [SEAL]
- ----------------------------------------
Signature of Notary
- --------------------------------------------------------------------------------
<PAGE> 2
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT END OF DOCUMENT
================================================================================
State of California
------------------------
County of Contra Costa
------------------------
On March 14, 1995 before me, Nancy Baughman, Notary Public
-------------- ---------------------------------------------------
Name and Title Of Officer (e.g., "Jane Doe, Notary Public")
personally appeared Robert J. Mitchell ---------------------------------------
----------------------------------------------------------,
Name(s) of Signer(s)
proved to me on the basis of satisfactory evidence to
be the person whose name is subscribed to
the within instrument and acknowledged to me
that he executed the same in his authorized
capacity, and that by his signatures on the
instrument the persons, or the entity upon
behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Nancy Baughman
-----------------------------------------------
Signature of Notary Public
- ---------------------------------OPTIONAL---------------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Assignment of Deed of Trust
------------------------------------------------------
Document Date: 10/27/94 Number of Pages: 1 page
-------------------------------------- --------
Signer(s) Other Than Named Above: E.G. Craig; Dianna Almini; Julie A. Garrison
----------------------------------------------
CAPACITY(IES) CLAIMED BY SIGNER(S) |
|
Signer's Name:________________________ | Signer's Name:________________________
|
[ ] Individual | [ ] Individual
[ ] Corporate Officer | [ ] Corporate Officer
Title(s): | Title(s):
[ ] Partner -- [ ] Limited [ ] General | [ ] Partner -- [ ] Limited [ ] General
[ ] Attorney-in-Fact | [ ] Attorney-in-Fact
[ ] Trustee | [ ] Trustee
[ ] Guardian or Conservator | [ ] Guardian or Conservator
[ ] Other:____________ | [ ] Other:____________
|
|
------------------ | ------------------
|
Signer Is Representing: | Signer Is Representing:
|
|
-------------------- | --------------------
|
-------------------- | --------------------
================================================================================
<PAGE> 3
EXHIBIT "A"
The land referred to herein is situated in the State of California, County of
Napa, and is described as follows:
PARCEL ONE:
Commencing at the point formed by the intersection of the Northerly line of
the County Road commonly known as "The American Canyon Road", with the
dividing line between the Subdivision of the Bella Vista Ranch, Napa County,
Cal., as per map filed December 13, 1984 in the office of the County Recorder
of said Napa County, and the tract of land formerly known as the Sarah A.
Hobbs Ranch, said dividing line being the Easterly line of the Subdivision of
the Bella Vista Ranch; running thence along said dividing line, North 10 degree
37' West 1443 feet to a fence corner at the Southwesterly corner of the 151.70
acre tract of land formerly of Mrs. Christina Fluor; thence along a fence line
marking the Southerly and Easterly boundaries of said 151.70 acre tract, North
85 degree 45' East 1001 feet, North 10 degree 41' West 1012 feet, North 60
degree 29' East 1128 feet, North 15 degree 17' West 708 feet and North 19
degree 25' East 1723 feet to a fence corner on the fence marking the Southerly
boundary of the 90 acre tract of land now or formerly of Matilde Cantoni;
thence along the fence line marking the Southerly boundary of said 90 acre
tract South 72 degree 19' East 1623 feet to a large oak tree: thence along the
fence marking the boundaries of said 90 acre tract and the 850 acre tract of
land now or formerly of Edward Francis Scally, South 64 degree 24' East 1464
feet to a fence corner; thence along the fence marking the boundaries of said
850 acre tract and the lands of the Security First National Bank of Los
Angeles, as Trustee, under the Last Will and Testament of Edward Maro Wilson,
deceased, as distributed under the Decree of Distribution and Order Amending
same, certified copies of which are of record in Volume 128 of Deeds, at page
326, and Volume 127 of Deeds, at page 489, said Napa County Records, South
17 degree 22' West 4213 feet to a large stone; thence along a fence South
84 degree 24' West 308 feet to a fence angle; thence along a fence South
12 degree 41' West 392 feet to a fence corner on the Northerly line of the
aforesaid American Canyon Road; thence along the Northerly line of said road,
South 73 degree 42' West 108 feet, North 80 degree 12' West 437 feet, North
85 degrees 31' West 824 feet, South 88 degree 59' West 1520 feet and North
62 degree 26' West 281 feet, more or less, to the point of commencement.
CONTINUED.
<PAGE> 4
Order No.: 103292 -MN
Legal Description
(continued)
Being a portion of Sections 19, 20, 29 and 30, Township 4 North, Range 3 West,
Mount Diablo Meridian.
EXCEPTING THEREFROM, the parcels described as follows:
a) The parcel of land described in the Deed from Joaquin B. Avilla, Jr., and
wife to L. Basil Hewetson, et ux, dated May 18, 1948 and recorded in Book 290
at page 450 of Official Records of Napa County.
b) The parcel of land described in the Deed from Joaquin B. Avilla, Jr., et
ux, to Reba Delphine Palm, M.D. dated June 24, 1948 and recorded in Book 292
at page 167 of Official Records of Napa County.
c) The parcel of land described in the Deed from Joaquin B. Avilla, Jr., et
ux, to the County of Napa, dated May 11, 1962 and recorded in Book 651 at page
954 of Official Records of Napa County.
Also Excepting Therefrom Parcels "A" and "X", as shown on Map No. 3978
entitled, a Parcel Map of a Portion of the Lands of Mary C. Avilla 681 O.R.
171, Being a portion of Sections 19, 20, 29 & 30, T4N, M.D.B. & M.", filed
December 10, 1986 in Book 15 of Parcel Maps at pages 23-24 in the office of
the County Recorder of said Napa County.
APN: O59-040-044
PARCEL TWO:
Parcels "A" and "X" on Map No. 3978 entitled, "Parcel map of a Portion of the
Lands of Mary C. Avilla 681 O.R. 171, Being a portion of Sections 19, 20, 29 &
30, T4N, R34, M.D.B. & M.", filed December 10, 1986 in Book 15 of Parcel Maps
at pages 23-24 in the office of the County Recorder of said Napa County.
APN: 059-040-041
CONTINUED
<PAGE> 5
Order No.: 103292 -MN
Legal Description
(continued)
PARCEL THREE:
Commencing at a point, hereinafter called Point "A", in the center of a private
driveway which bears South 89 degree 38' 55" West. 276.00 feet and North 2
degree 23' 04" West, 464.94 feet from a rebar monument at the Southwest corner
of Parcel X" as it is shown on the map of record in Book 15 of Parcel Maps, at
page 24, Napa County Records; thence, following a fence, South 84 degrees 19'
25" West, 256.69 feet to a fence corner; thence North 2 degree 25' 26" West,
243.68 feet to a fence corner; thence North 45 degree 25' 45" East. 390.14
feet; thence, following a fence, South 48 degree 39' 01" East, 343.30 feet to a
fence corner; thence, following a fence, South 3 degree 16' 15" East. 237.28
feet to a fence corner; thence, following a fence, South 84 degrees 19' 25"
west, 284.84 feet to the point of commencement, consisting of approximately
Four (4) acres of land including all buildings and improvements located
thereon.
APN: 059-040-043
PARCEL FOUR:
As an appurtenance to Parcel Three above. An exclusive easement for roadway and
utility purposes, 25.00 feet in width, lying 12.5 feet on each side of the
following described centerline:
Commencing at the aforementioned Point "A" in the center of a private driveway
and following said road, South 2 degree 23' 04" East, 464.94 feet to the
Northerly line of American Canyon Road at a point which is South 89 degree 38'
55" West, 276.00 feet from a rebar monument at the Southwest corner of the
aforementioned Parcel "X", there terminating.
<PAGE> 6
ALL-PURPOSE ACKNOWLEDGMENT
State of California )
County of Marin )
On 10/26/94 before me, D. McInnis
-------- --------------------------------------------------
Name and Title of Officer (i.e., Your Name, Notary
Public)
personally appeared William E. Parker
------------------------------
Name(s) of Document Signer(s)
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the persons(s) whose names(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ D. McInnis
----------------------------------
Signature of Notary [NOTARY SEAL]
(Affix seal in the above blank space)
<PAGE> 1
EXHIBIT 10.118
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as
of the 30th day of June, 1997, by and among Concord General Corporation, a
California corporation ("Concord"), JBW & Co., Inc., a California corporation
("JBW"), Classic Fire & Marine Insurance Company, an Indiana insurance
corporation ("Classic") (Concord, JBW and Classic sometimes hereinafter are
referred to collectively as the "JBW Parties"), Alpine Insurance Company, an
Illinois insurance corporation ("Alpine"), TCO Holdings, Inc., a Delaware
corporation ("TCO") and Katten Muchin & Zavis ("Escrow Agent").
RECITALS
WHEREAS, the JBW Parties, Alpine and TCO have entered into that
certain JBW Restructuring Agreement (the "JBW Agreement"), dated June 30, 1997,
pursuant to which Alpine will transfer to the JBW Parties that certain Secured
Promissory Note dated December 31, 1995 (the "JBW Note"), currently held by
Alpine, in exchange for an assignment by Concord of its rights under that
certain promissory note dated October 19, 1994 made by Par Mee Development
Corporation (the "Par Mee Note");
WHEREAS, pursuant to the terms of the JBW Agreement, the parties are
required to deposit in escrow certain payments made pursuant to the Par Mee
Note (the "Escrowed Funds"), which Escrowed Funds shall remain in escrow for
the periods described in Sections 3, 4 and 7 of the JBW Agreement; and
WHEREAS, the JBW Parties, Alpine and TCO wish to retain the services
of Escrow Agent in connection with the escrow, and Escrow Agent is willing to
accept such engagement, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants of the
parties set forth herein and in the JBW Agreement, the parties hereto agree as
follows:
1. Definition of Terms. Terms not otherwise defined herein shall have the
meaning ascribed to such terms in the JBW Agreement.
2. Purpose of Agreement. The JBW Parties, Alpine and TCO represent that the
JBW Agreement has been executed, and covenant that the Escrowed Funds have been
or will be deposited with the Escrow Agent pursuant to Sections 3 and 7 of the
JBW Agreement.
3. Appointment and Acceptance of Escrow Agent. The JBW Parties, Alpine and
TCO hereby nominate and appoint the law firm of Katten Muchin & Zavis ("KMZ")
as Escrow Agent to hold and disburse any Escrowed Funds delivered to it
hereunder. KMZ hereby accepts such appointment upon the terms and conditions
hereinafter set forth.
4. Deposit of Escrowed Funds. Throughout the term of this Agreement, any
payments received by any party pursuant to the Par Mee Note shall be delivered
to the Escrow Agent for deposit in escrow pursuant to the provisions of this
Agreement. Such delivery shall be made in a form and to an account
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<PAGE> 2
specified by the Escrow Agent. The Escrow Agent shall accept delivery of the
Escrowed Funds and hold the Escrowed Funds until such funds are distributed in
accordance with the terms hereof.
5. Purchase Agreement Not Limited by this Agreement. This Agreement and the
deposit of the Escrowed Funds with the Escrow Agent are without prejudice to,
and are not in limitation of, any rights or obligations of the JBW Parties,
Alpine or TCO in respect of any of the covenants, representations or warranties
of such parties contained in the JBW Agreement.
6. Maintenance of Escrowed Funds. Escrow Agent shall deposit the Escrowed
Funds in an interest-bearing account with a federally insured institution. The
interest earned on such Escrowed Funds shall be distributed at the same time as
the Escrowed Funds are delivered pursuant to Section 7 or 8 hereof.
7. Release of Escrowed Funds. The Escrowed Funds (including any interest
earned thereon) shall be released to Alpine, upon written notice by Alpine to
Escrow Agent, on the closing of the transactions described in the JBW
Agreement. If notice of such closing has not been received by Escrow Agent by
November 15, 1997 (or such later date of which Alpine and Concord jointly
notify Escrow Agent in writing), Escrow Agent shall release the Escrowed Funds
(including any interest earned thereon) to Concord on the following business
day. Such Escrowed Funds and any interest thereon shall be transferred by
Escrow Agent to an account designated in writing by the party entitled thereto.
8. No Encumbrance. Except as expressly provided herein or in the JBW
Agreement, no Escrowed Funds, or any beneficial interest therein, may be
pledged, assigned or transferred (including by operation of law) by any party
to this Agreement or may be taken or reached by any legal or equitable process
in satisfaction of any debt or other liability of any party to this Agreement
prior to the release or return of the Escrowed Funds by the Escrow Agent
pursuant to this Agreement.
9. Termination of Escrow. This Agreement and the duties of Escrow Agent
hereunder shall terminate upon the release or return of all property held by
Escrow Agent under and pursuant to this Agreement.
10. Escrow Agent's Liability. Escrow Agent undertakes to perform only such
duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against Escrow
Agent. Escrow Agent may act upon any instrument, certificate, opinion or other
writing believed by it in good faith and without gross negligence to be
genuine, and shall not be liable in connection with the performance by it of
its duties pursuant to the provisions of this Agreement, except for its own bad
faith, gross negligence or wilful misconduct.
11. Escrow Agent's Fees and Expenses. All fees, costs and expenses associated
with the performance by Escrow Agent of its duties hereunder shall be payable
solely by Alpine.
12. Resignation of Escrow Agent. The Escrow Agent may resign at any time upon
thirty (30) days' prior written notice to the other parties to this Agreement.
In the event of Escrow Agent's resignation, Alpine shall name a successor
escrow agent which is acceptable to the other parties to this Agreement, such
approval of a successor escrow agent not to be unreasonably withheld. Such
successor escrow agent shall accept its appointment as such by executing and
delivering to the parties to this Agreement an appropriate instrument of
acceptance, and thereupon the resignation of Escrow Agent shall become
effective and such successor escrow agent, without any further act or
instrument, shall become the Escrow Agent and be vested with all of the rights
and obligations of its predecessor, as if originally
- 2 -
<PAGE> 3
named as Escrow Agent herein. The predecessor Escrow Agent agrees that on
request of the other parties to this Agreement or the successor escrow agent,
it shall execute and deliver an instrument to pay over to the successor escrow
agent the Escrowed Funds and all interest thereon which are held pursuant to
this Agreement.
13. Successors. The obligations imposed and the rights conferred by this
Agreement shall be binding upon and inure to the benefit of the respective
heirs (including estates), successors and assigns of the parties hereto.
14. 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.
15. Entire Agreement. This Agreement and the documents referenced herein
contain the entire agreement between the parties hereto with respect to the
transactions contemplated herein. Notwithstanding the foregoing, this
Agreement shall not supersede, amend or in any way affect the JBW Agreement or
any other document relating to the transaction governed thereunder.
16. Amendment. Except as otherwise set forth herein, this Agreement cannot be
terminated, altered or amended except pursuant to an instrument in writing
signed by all of the parties to this Agreement.
17. Enforceability. If any provision of the Agreement shall be held invalid
or unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Agreement, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were amended to the
minimum extent necessary to render it valid and fully enforceable under
applicable law.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
19. Notices. Any directions, notices or other communication required to be
sent or given hereunder by any of the parties shall in every case be in writing
and shall be deemed properly served if (a) delivered personally, (b) sent by
registered or certified mail, in all such cases with first class postage
prepaid, return receipt requested, (c) delivered by a recognized overnight
courier service, or (d) sent by facsimile transmission to the parties at the
addresses or facsimile numbers set forth in the JBW Agreement, or at such other
addresses as are furnished in writing in the manner described therein, and if
to the Escrow Agent addressed to: Katten Muchin & Zavis, 525 W. Monroe Street,
Suite 1600, Chicago, Illinois 60661, Attention: Ms. Beth Deverman. Date of
service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) one day after the date of deposit with the overnight
courier if sent by overnight courier or (z) upon receipt of confirmation of
receipt of transmission by facsimile.
20. Section Headings. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
CONCORD GENERAL CORPORATION
By: /s/ Bruce A. Ricci
--------------------------------
Name: Bruce A. Ricci
-----------------------------------
Title:
--------------------------------
JBW & CO., INC.
By: /s/ Thomas Thie
--------------------------------
Name: Thomas Thie
-----------------------------------
Title: President
--------------------------------
TCO HOLDINGS, INC.
By: /s/ Richard G. Kersten
--------------------------------
Name: Richard G. Kersten
-----------------------------------
Title: Secretary/General Counsel
--------------------------------
ALPINE INSURANCE COMPANY
By: /s/ Richard G. Kersten
--------------------------------
Name: Richard G. Kersten
-----------------------------------
Title: Secretary/General Counsel
--------------------------------
KATTEN MUCHIN & ZAVIS
By: /s/ Lori Meehan, Partner
--------------------------------
Name: Lori Meehan
-----------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.119
RESTRUCTURING AGREEMENT
This Restructuring Agreement ("AGREEMENT") is made and entered into as
of the 30th day of June, 1997, by and between MARK BOOZELL, DIRECTOR OF
INSURANCE OF THE STATE OF ILLINOIS (the "DIRECTOR"), in his capacity as
liquidator of the estate of GENEVA ASSURANCE SYNDICATE, INC. in Liquidation, an
Illinois corporation ("GENEVA"), and TCO HOLDINGS, INC., a Delaware corporation
("TCO").
R E C I T A L S
A. Geneva formerly operated as a syndicate on the Illinois
Insurance Exchange.
B. On July 11, 1996, an Agreed Order of Liquidation with a
Finding of Insolvency was entered by the court (the "Liquidation Court") in the
action titled In the matter of the Liquidation of Geneva Assurance Syndicate,
Inc., Case No. 96 CH 5093 (the "Liquidation Order").
C. The Liquidation Order vested the Director, as Liquidator, with
title to all property, assets, contracts and rights of action owned by Geneva,
and authorized the Director, as Liquidator, to deal with the property, assets,
business and affairs of Geneva, and to sue and defend for Geneva, or for the
benefit of Geneva's policyholders and creditors, in his name as Director, or in
the name of Geneva.
D. The Liquidation Order also vested the Director, as Liquidator,
with all rights, title and interest in all funds recoverable under treaties and
agreements of reinsurance previously entered into by Geneva.
E. Subject to the approval of the Liquidation Court, the
Director, as Liquidator, may sell or otherwise dispose of the real and personal
property of Geneva.
F. The Director and TCO believe that, prior to the entry of the
Liquidation Order, certain assets formerly held by Geneva were transferred to a
trust, known as the "Geneva Trust," in connection with the Asset/Liability
Transfer Reinsurance Agreement dated June 30, 1995 (the "June 30, 1995
Agreement).
G. The Director and TCO believe that the assets transferred to
the Geneva Trust include 10,750 shares of Series A Preferred Stock of TCO, with
a stated value of $10,000 per share and an annual dividend rate of 11.3% (the
"TCO Preferred").
H. Within five (5) business days of the approval by the
Liquidation Court of the commutation of the June 30, 1995 Agreement, the
Director and TCO anticipate that the TCO Preferred will be returned to Geneva
from the Geneva Trust.
<PAGE> 2
I. The Director wishes to transfer the TCO Preferred to TCO in
return for a $2,500,000 Promissory Note of TCO in favor of Geneva, in the form
of Exhibit 1 hereto (the "TCO Note"), a guaranty of Peter J. O'Shaughnessy, the
sole shareholder of TCO ("O'Shaughnessy"), in the form of Exhibit 2 hereto (the
"PJO Guaranty"), and the Assignment and Payment Direction, in the form of
Exhibit 3 hereto (the "Assignment and Payment Direction").
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto hereby agree
as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth above are
acknowledged by the parties hereto to be true and accurate and by this
reference are incorporated into this Agreement.
2. DEFINITIONS. All capitalized terms used but not elsewhere
defined in this Agreement shall have the following meanings:
EFFECTIVE DATE shall mean the date all conditions set forth in
Paragraph 4 of this Agreement have been satisfied.
JBW RESTRUCTURING shall mean a transaction whereby Alpine
Insurance Company, an Illinois insurance corporation ("Alpine"),
relinquishes its rights under a certain promissory note of JBW & Co.,
Inc., a California corporation, in return for the transfer to Alpine
of a certain mortgage note of Par Mee Development Corporation by
Concord General Corporation, a California corporation ("Concord"), on
terms and conditions mutually acceptable to Alpine and Concord.
CENTRAL NATIONAL RESTRUCTURING shall mean the execution of an
agreement by TCO with Central National Insurance Company, a Nebraska
insurance company in rehabilitation ("Central National") modifying the
terms of a November 9, 1995 Settlement Agreement between Central
National and TCO (as amended).
RESTRUCTURING DOCUMENTS shall mean this Agreement, the TCO
Note and the PJO Guaranty.
KNOWLEDGE shall be deemed to include the knowledge of the
Director in his capacity as liquidator of Geneva and the knowledge of
the personnel at the Office of the Special Deputy Receiver responsible
for overseeing the liquidation of Geneva.
ESCROW AGENT shall mean the law firm of Shefsky & Froelich
Ltd., of Chicago, Illinois.
PREFERRED STOCK AGREEMENTS shall mean the Stock Purchase
Agreement dated as of December 28, 1989 among Jeffery W.
Beresford-Wood ("Beresford-Wood"), Concord,
2
<PAGE> 3
First Horizon Insurance Company ("FHIC"), Exstar Financial Corporation
("Old Exstar"), Alpine and O'Shaughnessy, Amendment No. 1 to Stock
Purchase Agreement dated as of June 22, 1990 among Beresford-Wood,
Concord, FHIC, O'Shaughnessy, Alpine, Horizon Insurance Company, Ltd
("HICL"), and Classic Syndicate, Inc. ("CS"), Amendment No. 2 to
Stock Purchase Agreement dated as of December 3, 1990 among
Beresford-Wood, Concord, FHIC, O'Shaughnessy, Old Exstar, Alpine, HICL
and CS, Amendment No. 3 to Stock Purchase Agreement dated as of April
22, 1991 among Beresford-Wood, Concord, FHIC, O'Shaughnessy, Old
Exstar, Alpine, HICL, CS, Classic Fire & Marine Insurance Company
("Classic"), Classic Indemnity Company ("CIC"), and Transco Holdings,
Inc. ("THI"), Amendment No. 4 to Stock Purchase Agreement dated as of
June 6, 1991 among Beresford-Wood, Concord, FHIC, O'Shaughnessy, Old
Exstar, Alpine, HICL, CS, Classic, CIC and THI, a related letter
agreement dated August 26, 1992, and that certain Agreement dated May
31, 1993 among Concord, O'Shaughnessy and TCO, as amended by that
certain Amendment No. 1 to Agreement dated January 17, 1994 among
Concord, O'Shaughnessy and TCO.
3. RESTRUCTURING TRANSACTIONS. Subject to the terms and
conditions of this Agreement, on the fifth business day following the Effective
Date:
(a) TCO shall execute and deliver the TCO Note to Geneva;
(b) TCO shall deliver the PJO Guaranty to Geneva, duly
executed by O'Shaughnessy;
(c) TCO shall execute and deliver the Assignment and
Payment Direction to Geneva;
(d) The Director shall deliver to TCO, duly endorsed for
transfer to TCO, the original certificates evidencing the TCO
Preferred;
(e) Each party to this Agreement shall be deemed to have
released the other party from all liabilities described in Paragraph 7
of this Agreement; and
(f) Each party shall deliver to the other a certificate
confirming the satisfaction of the conditions set forth in Paragraph 4
applicable to such party, and such evidence of such party's authority
to execute and deliver the Restructuring Documents to be executed and
delivered by such party as the other party may reasonably require.
The transactions described in this Paragraph 3 hereinafter are referred to as
the "Restructuring Transactions." Each party hereto acknowledges that the
consummation of the Restructuring Transactions will have substantial direct and
indirect benefits to such party and that the commitments of such party under
the Restructuring Documents are made and given at arm's length and in exchange
for fair and reasonable consideration.
3
<PAGE> 4
Upon the delivery of the documents described in clauses (a), (b), (c), (d) and
(f) above, the party receiving each such document shall deliver it to the
Escrow Agent, to be held in accordance with the terms of an Escrow Agreement in
a form mutually agreed by the parties and the Escrow Agent. During the term of
the Escrow Agreement, payments required to be made pursuant to the TCO Note
shall be made to the Escrow Agent, to be held pursuant to the terms of the
Escrow Agreement. Each document held by the Escrow Agent shall be delivered to
the party entitled to receive it (as described above) and all payments made
pursuant to the TCO Note (and any interest thereon) shall be transferred to
Geneva, upon the later of (i) the expiration of the period during which the
final order described in Section 4(d)(i) may be appealed pursuant to applicable
law, if no appeal is filed during such period, or (ii) if such an appeal is
filed, on the second business day following the date on which the final order
of the Liquidation Court is upheld by the court of appeals. If an appeal is
filed, and the final order of the Liquidation Court is overturned on appeal,
this Agreement shall be deemed null and void ab initio, the Escrow Agent shall
return each document to the party which delivered the document pursuant to
clauses (a), (b), (c), (d) and (f) above, all payments made pursuant to the TCO
Note (and any interest thereon) shall be returned to TCO, and the parties shall
have no further rights or obligations hereunder.
4. CONDITIONS TO EFFECTIVENESS. The obligations of the parties
hereto to consummate the Restructuring Transactions shall be subject to the
satisfaction of all of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of TCO and the Director set forth in the Restructuring
Documents shall be true and correct in all material respects.
(B) JBW RESTRUCTURING. The JBW Restructuring shall have
been consummated, or shall be consummated concurrently with the
Restructuring Transactions, on terms mutually acceptable to the
parties thereto.
(C) CENTRAL NATIONAL RESTRUCTURING. The Central National
Restructuring shall have been consummated, or shall be consummated
concurrently with the Restructuring Transactions, on terms mutually
acceptable to the parties thereto.
(D) APPROVALS. The following approvals or consents shall
have been obtained:
(i) the Liquidation Court shall have entered a final
order approving the commutation of the June 30, 1995 Agreement
and approving this Agreement; and
(ii) the Illinois Department of Insurance shall not
have disapproved the Service Agreement between TCO and Alpine
referenced in the TCO Note, on or before the date of entry of
the final order referenced in clause (i) above.
In the event that the Liquidation Court disapproves the petition of
the Director seeking approval of the commutation of the June 30, 1995 Agreement
and of this Agreement, or if the
4
<PAGE> 5
Illinois Department of Insurance disapproves the Service Agreement between TCO
and Alpine, this Agreement shall be deemed null and void ab initio, and the
parties shall have no rights or obligations hereunder.
5. REPRESENTATIONS AND WARRANTIES OF THE DIRECTOR. The Director
represents and warrants to TCO on behalf of Geneva that (i) to his knowledge,
the Geneva Trust is the current beneficial and record owner and holder of the
TCO Preferred, (ii) to his knowledge, immediately prior to the transfer by
Geneva of the TCO Preferred to TCO, Geneva will own the TCO Preferred, free and
clear of any liens, charges or encumbrances whatsoever, (iii) subject to the
approval of the Liquidation Court, the Director has full power and authority to
execute, deliver and perform his obligations under this Agreement, and this
Agreement will be valid, binding and enforceable upon the Director, in
accordance with its terms, and (iv) to his knowledge, assuming the satisfaction
of the conditions set forth in Paragraph 4, there is no condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claim or demand pending or
threatened, affecting Geneva or the Director, which could prevent the Director
from performing his obligations hereunder within the time limits set forth
herein for compliance or performance, and no basis for any such matter exists.
6. REPRESENTATIONS AND WARRANTIES OF TCO. TCO represents and
warrants to Geneva that (i) TCO has full power and authority to execute and
deliver this Agreement and, subject to the satisfaction of the conditions set
forth in Paragraph 4, to perform its obligations under this Agreement, (ii)
upon the execution and delivery of this Agreement, and, subject to the
satisfaction of the conditions set forth in Paragraph 4, this Agreement is and
the other Restructuring Documents to which TCO is a party will be valid,
binding and enforceable upon TCO, in accordance with their respective terms,
(iv) the execution and delivery of this Agreement and, subject to the
satisfaction of the conditions set forth in Paragraph 4, the execution and
delivery of the other Restructuring Documents to which TCO is a party, and the
consummation of the Restructuring Transactions, does not and will not conflict
with, violate or constitute a default under any applicable law, rule,
regulation, judgment, decree or order or any agreement, indenture or instrument
to which TCO is a party or is bound or which is binding upon or applicable to
all or any portion of TCO's property and (v) assuming the satisfaction of the
conditions set forth in Paragraph 4, there is no condition, event or
circumstance existing, or any litigation, arbitration, governmental or
administrative proceeding, action, examination, claim or demand pending or, to
TCO's knowledge, threatened, affecting TCO which could prevent TCO from
performing its obligations hereunder within the time limits set forth herein
for compliance or performance, and no basis for any such matter exists.
7. RELEASES.
(A) GENEVA. In consideration of the consummation of the
Restructuring Transactions, from and after the Effective Date, Geneva
and the Director irrevocably shall be deemed to have released and
forever discharged TCO, the entities listed in Exhibit 4 hereto and
all of their respective employees, directors and officers (in their
capacities as such) (each, for purposes of this clause (a), a
"Released Person") of and from all contract
5
<PAGE> 6
claims, damages, losses, liabilities, obligations, actions and causes
of action, whether presently known or unknown, which Geneva or the
Director may now have or claim to have against any Released Person
pursuant to any of the Preferred Stock Agreements (other than claims
for fraud against a Released Person). This agreement and covenant on
the part of Geneva and the Director (i) is contractual, and not a mere
recital, and the parties hereto acknowledge and agree that no
liability is admitted on the part of any party in connection with the
Preferred Stock Agreements and (ii) shall inure to the benefit of and
be enforceable by each Released Person.
(B) TCO. In consideration of the consummation of the
Restructuring Transactions, from and after the Effective Date, TCO
irrevocably shall be deemed to have released and forever discharged
the Director and Geneva, and their respective employees, directors and
officers (in their capacities as such) (each, for purposes of this
clause (b), a "Released Person") of and from all contract claims,
damages, losses, liabilities, obligations, actions and causes of
action, whether presently known or unknown, which TCO may now have or
claim to have against any Released Person pursuant to any of the
Preferred Stock Agreements (other than claims for fraud against a
Released Person). This agreement and covenant on the part of TCO (i)
is contractual, and not a mere recital, and the parties hereto
acknowledge and agree that no liability is admitted on the part of any
party in connection with the Preferred Stock Agreements and (ii) shall
inure to the benefit of and be enforceable by each Released Person.
8. COSTS AND EXPENSES. Each party hereto shall bear all of its
own fees and expenses in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the Restructuring
Transactions.
9. FURTHER ASSURANCES; COOPERATION. Prior to the Termination
Date, each party hereto will do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
agreements, documents and instruments as reasonably may be requested by the
other party hereto in order to effectuate fully the intent of this Agreement.
Each party hereto agrees to cooperate with the other party hereto in obtaining
the approvals and consents referred to in Paragraph 4(d) hereof, including the
execution of such documents, the making of such disclosures, the furnishing of
such financial information and the taking of all such other actions as
reasonably may be necessary to obtain such approvals and consents, and will not
take any action which would interfere with or prevent the consummation of the
transactions described herein.
10. SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any party or circumstance shall be held to be
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the validity, legality and enforceability of the remaining terms
and provisions of this Agreement shall not in any way be affected or impaired
thereby, and the affected term or provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.
6
<PAGE> 7
11. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
provided that no party hereto may assign or delegate its duties or obligations
hereunder without the prior written consent of all other parties hereto.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall any provision of this Agreement inure to the benefit of JBW & Co.,
Inc., a California corporation, any of its affiliates or their respective
employees, directors and officers (in their capacities as such) or Jeffery W.
Beresford-Wood.
12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
documents to be executed and delivered pursuant to the terms hereof constitute
the entire agreement among the parties hereto with respect to the Restructuring
Transactions and supersedes any other written or oral agreements relating to
the Restructuring Transactions. No provision of this Agreement or the other
Restructuring Documents may be amended, modified or waived except with the
prior written consent of the party against whom enforcement of the applicable
amendment, modification or waiver is sought.
13. CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Agreement or any of the provisions hereof.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
15. SUBMISSION. Submission of this Agreement by any party hereto
to the other party hereto, or its counsel, agents or representatives, for
examination and/or execution shall not constitute an offer by the submitting
party to agree to the terms hereof or in any manner bind the submitting party
unless and until this Agreement shall have been fully executed and delivered by
each party hereto.
16. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL. THE VALIDITY
OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE
RIGHTS OF THE PARTIES HERETO, SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. TO THE MAXIMUM EXTENT
PERMITTED BY LAW, THE PARTIES HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND DETERMINED ONLY IN
THE STATE COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS. TO THE
MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHT
THEY MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.
7
<PAGE> 8
TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HEREBY
EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT,
OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES WITH RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE
PARTIES HEREBY AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR
PROCEEDING SHALL BE DECIDED BY A COURT WITHOUT A JURY AND THAT ANY PARTY MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF THEIR RIGHTS TO TRIAL
BY JURY.
[remainder of this page intentionally left blank]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement at Chicago, Illinois as of the day and year first above written.
TCO HOLDINGS, INC.
By: /s/ Steven Shinn
-----------------------------------
Name: Steven Shinn
-------------------------------
Title: President
--------------------------------
MARK BOOZELL, DIRECTOR OF
INSURANCE OF THE STATE OF ILLINOIS,
IN HIS CAPACITY AS LIQUIDATOR OF
GENEVA ASSURANCE SYNDICATE, INC. IN
LIQUIDATION
By:
-----------------------------------
Name:
-------------------------------
Title:
--------------------------------
9
<PAGE> 10
EXHIBIT 1
GUARANTY
This GUARANTY (this "Guaranty"), dated June 30, 1997, is made BY PETER J.
O'SHAUGHNESSY, an individual ("Guarantor"), with a mailing address of 1460
Calzada Avenue, Santa Ynez, California 93460, to and for the benefit of Geneva
Assurance Syndicate, Inc., in Liquidation ("Geneva"), with a mailing address of
222 Merchandise Mart Plaza, Suite 1450, Chicago, Illinois 60654.
RECITALS
A. Guarantor is the owner of all of the issued and outstanding capital
stock of TCO Holdings, Inc., a Delaware corporation ("TCO").
B. Pursuant to the terms of that certain Restructuring Agreement dated as
of June ____, 1997, between TCO and the Liquidator of Geneva, TCO has agreed to
acquire certain TCO Preferred Stock from Geneva, and in consideration therefor
TCO has executed and delivered to Geneva its Promissory Note of even date
herewith in the original principal amount of $2,500,000 (the "TCO Note").
C. As an inducement to Geneva to convey the TCO Preferred Stock to TCO,
Guarantor has agreed to guaranty the payment of the TCO Note in accordance
with the terms and provisions set forth below.
D. Geneva is unwilling to convey the TCO Preferred Stock to TCO in return
for the TCO Note, unless Guarantor guarantees the payment of all obligations
under the TCO Note in accordance with the terms and provisions of this Guaranty.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Guarantor hereby agrees as
follows:
1. Guaranty of Payment. Guarantor hereby unconditionally and irrevocably
guarantees to Geneva (i) that Geneva will receive an amount not less than
$250,000 in any calendar year (commencing with the 1998 calendar year) on
account of the obligation evidenced by the TCO Note; and (ii) the payment in
full of all unpaid principal on the TCO Note, all attorney's fees and costs
under the TCO Note, and all accrued and unpaid interest thereupon by the
Maturity Date (as defined in the TCO Note). This Guaranty is a present and
continuing guaranty of payment and not of collectibility, and Geneva shall not
be required to prosecute collection, enforcement or other remedies against TCO
or any other person before calling on Guarantor for payment.
2. Continuing Guaranty. Guarantor agrees that the obligations of Guarantor
pursuant to this Guaranty shall remain in full force and effect without regard
to, and shall not be released, discharged or affected in any way, including,
but not necessarily limited to, any of the following circumstances or
conditions:
<PAGE> 11
(a) the failure of Alpine Insurance Company ("ALPINE") to pay to or as
directed by TCO any amounts payable by Alpine to TCO pursuant to the terms
of that certain Service Agreement between TCO and Alpine effective as of
April 1, 1997 (the "TCO SERVICE AGREEMENT");
(b) the failure of amounts payable by Alpine to TCO pursuant to the TCO
Service Agreement to be in excess of $250,000 per year (commencing with the
1998 calendar year);
(c) termination, amendment, modification or other change in the TCO
Service Agreement or the Quota Share Arrangement effective April 1, 1997
between Alpine and United Capitol Insurance Company and its affiliates; and
(d) any involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment, assignment for the benefit of creditors, composition,
receivership, liquidation, marshaling of assets and liabilities or similar
events or proceedings with respect to TCO or its property or creditors, or
any action taken by any trustee or receiver or by any court in any such
proceeding.
3. Primary Obligation. This Guaranty is a primary and original obligation
of Guarantor, is not merely the creation of a surety relationship, and is an
absolute, unconditional, and continuing guaranty of payment and performance
which shall remain in full force and effect without respect to future changes
in conditions, including any change of law or any invalidity with respect to
the issuance of any instrument, writing or agreement relating to the TCO Note.
Guarantor consents and agrees that Geneva shall be under no obligation to
marshal any assets of TCO in favor of Guarantor, or against or in payment of
any or all of the obligations hereunder.
4. Waivers.
(a) Guarantor hereby waives: (1) notice of acceptance hereof; (2) notice
of any loans or other financial accommodations made or extended to TCO; (3)
notice of any adverse change in the financial condition of TCO or of any other
fact that might increase Guarantor's risk hereunder; (4) notice of presentment
for payment, demand, protest, and notice thereof as to the TCO Note; (5)
notice of any event of default by TCO under the TCO Note; and (6) all other
notices (except if such notice is specifically required to be given to
Guarantor hereunder) and demands to which Guarantor might otherwise be
entitled.
(b) Guarantor hereby waives the right by statute or otherwise to require
Geneva to institute suit against TCO or to exhaust any rights and remedies
which Geneva has or may have against TCO, provided, however, that nothing
herein contained shall prevent Geneva from suing on the TCO Note, or from
exercising any other rights thereunder. Guarantor further waives any defense
arising by reason of any disability or other defense of TCO or by reason of
the cessation from any cause whatsoever of the liability of TCO in respect
thereof. Guarantor consents to any and all forbearances and extensions of the
time of payment of the
2
<PAGE> 12
Note, and to any and all changes in the terms, covenants and conditions
thereof hereafter made or granted.
(c) Guarantor hereby waives: (1) any rights to assert any defense (legal
or equitable), set-off counterclaim, or claim which Guarantor may now or
at any time hereafter have against TCO or any other party liable to
Geneva; and (2) any defense, set-off, counterclaim, or claim, of any kind
or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity, or enforceability of the TCO Note.
Guarantor agrees that this Guaranty shall not be discharged, limited,
impaired or affected by any proceedings with respect to the voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all the assets, the marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, imposition or readjustment of, or
other similar proceedings affecting TCO.
5. Representations and Warranties. Guarantor agrees that the following
shall constitute representations and warranties of Guarantor.
(a) Guarantor is not in default under any agreement to which he is a
party, the effect of which will materially impair performance by Guarantor
of his obligations pursuant to and as contemplated by the terms of this
Guaranty, and neither the execution and delivery of this Guaranty nor
compliance with the terms and provisions of law or any presently existing
regulation, order, writ, injunction or decree of any court or
governmental department, commission, board, bureau, agency or
instrumentality, will conflict or will be inconsistent with, or will
result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, instrument, document, agreement or contract of any kind
which creates, represents, evidences or provides for any lien, charge or
encumbrance upon any of the property or assets of Guarantor, or any other
indenture, mortgage, deed of trust, instrument, document, agreement or
contract of any kind of which Guarantor is a party or by which he may be
bound, or in the event of any such conflict, the required consent or waiver
of the other party or parties thereto has been validly granted, is in full
force and effect and is valid and sufficient therefor.
(b) Except as disclosed on page 18 of the Form 10-K of Exstar Financial
Corporation for the year ended December 31, 1996, there are no actions,
suits or proceedings pending or threatened against Guarantor before any
court or any governmental administrative, regulatory, adjudicatory or
arbitrational body or agency of any kind which will materially adversely
affect performance by Guarantor of his obligations pursuant to and as
contemplated by the terms and provisions of this Guaranty.
(c) Guarantor is currently informed of the financial condition of TCO
and of all other circumstances which a diligent inquiry would reveal and
which would bear upon the risk of nonpayment of the TCO Note. Guarantor
will continue to keep informed of the financial
3
<PAGE> 13
condition of TCO and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the TCO Note.
6. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Guaranty:
(a) Death, adjudicated mental incompetency, bankruptcy or insolvency of
Guarantor.
No other event, including any event of default under the TCO Note, shall
constitute an Event of Default under the Guaranty. At the sole election of
Geneva, upon the occurrence of an Event of Default and upon delivery of
written notice to Guarantor without further notice or demand, the unpaid
principal balance of the TCO Note, all accrued and unpaid interest thereon, and
any other amounts due thereunder, shall be and become immediately due and
payable in full by Guarantor. Failure to exercise this option shall not
constitute a waiver of the right to exercise same in the event of any
subsequent Event of Default.
7. Notices. Any notice, request or demand that Geneva or Guarantor may
desire or be required to give to the other shall be in writing and shall be
mailed or delivered to the intended recipient thereof at its address
hereinabove set forth with respect to Geneva and at the address following
Guarantor's signature with respect to Guarantor, or at such other address as
such intended recipient may, from time to time, by notice in writing,
designate to the sender pursuant hereto. Any such notice shall be deemed to
have been delivered two (2) business days after mailing by United States
certified mail, return receipt requested, or when delivered in person. Except
as otherwise specifically required herein, notice of the exercise of any right
or option granted to Geneva by this Guaranty is not required to be given.
8. Cumulative Remedies. No remedy under this Guaranty is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative
and in addition to any and every other remedy given hereunder and those
provided by law or in equity. No delay or omission by Geneva to exercise any
right under this Guaranty shall impair any such right or be construed to be a
waiver thereof. No failure on the part of Geneva to exercise, and no delay in
exercising any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right.
9. Interpretation and Severability of Provisions. The headings of
sections and paragraphs in this Guaranty are for convenience of reference only
and shall not be construed in any way to limit or define the content, scope or
intent of the provisions hereof. As used in this Guaranty, the singular shall
include the plural, and masculine, feminine and neuter pronouns shall be fully
interchangeable, where the context so requires. Whenever the words "including",
"include or includes" are used in this Guaranty, they should be interpreted in
a non-exclusive manner as though the words "without limitation," immediately
followed the same. Wherever possible, each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law.
4
<PAGE> 14
If any provision of this Guaranty is prohibited or unenforceable under
applicable law, such provision shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
10. Entire Agreement, Amendments. This Guaranty constitutes the entire
agreement between Guarantor and Geneva pertaining to the subject matter
contained herein, and may not be altered, amended, or modified, nor may any
provision hereof be waived or noncompliance therewith consented to, except by
means of a writing executed by Guarantor and by Geneva. Any such alteration,
amendment, modification, waiver, or consent shall be effective only to the
extent specified therein and for the specific purpose for which it is given. No
course of dealing and no delay or waiver of any right or default under this
Guaranty shall be deemed a waiver of any other similar or dissimilar right or
default or otherwise prejudice the rights and remedies hereunder.
11. Successors and Assigns. The death of Guarantor shall not terminate
this Guaranty. This Guaranty shall be binding upon Guarantor's, heirs,
executors, administrators, representatives, successors, and assigns and shall
inure to the benefit of the successors and assigns of Geneva.
12. Separate Property. Any married individual who signs this Guaranty in
his individual capacity hereby expressly agrees that recourse may be had
against his separate property for all obligations under the TCO Note.
13. Choice of Law and Venue. THE VALIDITY OF THIS GUARANTY, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF GUARANTOR AND
GENEVA SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
GUARANTY SHALL BE TRIED AND DETERMINED ONLY IN THE STATE COURTS LOCATED IN
THE COUNTY OF COOK, STATE OF ILLINOIS. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.
14. Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
GUARANTOR AND GENEVA HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY
ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH
RESPECT TO THIS GUARANTY, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE DEALINGS OF GUARANTOR OR GENEVA WITH RESPECT TO THIS
GUARANTY, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR
5
<PAGE> 15
OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND GENEVA HEREBY
AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING
SHALL BE DECIDED BY A COURT WITHOUT A JURY AND THAT GENEVA MAY FILE A COPY OF
THIS GUARANTY WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE
CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty on the date first
above written.
/s/ Peter J. O'Shaghnessy
-----------------------------------
PETER J. O'SHAGHNESSY, individually
6
<PAGE> 16
STATE OF ILLINOIS )
) SS.
COUNTY OF____________)
I, _________________________, a notary public in and for said County, in
the State aforesaid, DO HEREBY CERTIFY that PETER J. O'SHAUGHNESSY, who is
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as his free and voluntary act
for the uses and purposes therein set forth
GIVEN under my hand and notarial seal this _____ day of June, 1997.
----------------------------------
NOTARY PUBLIC
My Commission Expires:
------------
7
<PAGE> 17
EXHIBIT 4
Exstar Financial Corporation
Delaware
Transco Holdings, Inc.
Delaware
Transco Syndicate #1 (now Alpine Holdings, Inc.)
Illinois
Alpine Insurance Company
Illinois
TCO Holdings, Inc.
Delaware
<PAGE> 1
EXHIBIT 10.120
PROMISSORY NOTE
$2,500,000.00
CHICAGO, ILLINOIS JUNE 30, 1997
FOR VALUE RECEIVED, the undersigned, TCO HOLDINGS, INC., a Delaware
corporation ("MAKER"), hereby promises to pay to the order of Geneva Assurance
Syndicate, Inc., in Liquidation ("Payee" or "Geneva") as set forth more fully
below, by no later than June 30, 2007, the principal sum of TWO MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00), such payments to be made
to Payee at the Office of the Special Deputy Receiver, 222 Merchandise Mart
Plaza, Suite 1450, Chicago, Illinois 60654, or at such other place as Payee
may direct. This Note shall bear interest at the rate of four percent (4%) per
annum, beginning on November 1, 1997.
Interest on this Note shall be computed on the basis of a year consisting
of 365 days.
Payments of principal and interest under this Note, if not sooner declared
to be due in accordance with the terms hereof, shall be due and payable as
follows:
(a) Maker shall pay or cause to be paid to Payee 73.33% of the amounts to
be paid by Alpine Insurance Company, an Illinois insurance company ("ALPINE"),
to Maker pursuant to that certain Service Agreement as of April 1, 1997
between Maker and Alpine (the "Service Agreement"), with respect to which
certain payments have been assigned to Payee pursuant to the certain
Assignment And Payment Direction as of June 30, 1997, between Maker and Payee
("Geneva Assignment") The Service Agreement and Geneva Assignment are
attached, respectively, as Exhibits A and B, and incorporated herein as though
fully set forth.
(b) the unpaid principal balance of this Note, if any, together with all
accrued and unpaid interest thereon, and any costs and attorneys' fees as set
forth below, shall be due and payable in full in no event later than June 30,
2007, the maturity date ("Maturity Date").
Maker shall have the right to prepay the amounts due hereunder, in whole
or in part, at any time without premium or penalty.
All payments will be first applied to accrued interest, second to costs
and/or attorneys' fees, and third to principal under the Note.
All payments of principal and interest hereunder shall be paid in
currency which, at the time or times of payment, is the legal tender for
public and private debts in the United States of America. Payments made in
funds not available until collected shall continue to bear interest until
collected. If any payment hereunder becomes due and payable on a Saturday,
Sunday or
<PAGE> 2
legal holiday under the laws of the State of Illinois, the due date thereof
shall be extended to the next succeeding business day.
The occurrence of any one or more of the following events shall constitute
an "EVENT OF DEFAULT" under this Note:
(a) if Maker receives payment from Alpine under the Service Agreement
and fails to transfer an appropriate portion (73.33%) of such payment to
Payee within three (3) business days of receipt thereof; or
(b) if Payee shall have received from Maker, any guarantor of this Note
or any other source, an amount less than $250,000 in any calendar year on
account of the indebtedness evidenced by this Note, commencing with the
1998 calendar year;
(c) termination of the Service Agreement or the Quota Share Arrangement
described therein;
(d) the Maker shall (i) file, or consent, by answer or otherwise, to the
filing against the undersigned of a petition for relief or reorganization
or arrangement or any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (ii) make an assignment for the benefit of
creditors, (iii) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers for itself or for any
substantial part of its property, (iv) be adjudicated insolvent, or (v)
take action for the purposes of any of the foregoing; or
(e) if any court of competent jurisdiction shall enter an order
appointing, without the consent of the undersigned, a custodian, receiver,
trustee or other officer with similar powers with respect to the
undersigned or with respect to any substantial part of the property of the
undersigned, or if an order for relief shall be entered in any case or
proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding up or liquidation of the Maker's
property, or if any petition for any such relief shall be filed against
the Maker and such petition shall not be dismissed within sixty (60) days.
At the election of the holder hereof, upon the occurrence of an Event of
Default and upon delivery of written notice to Maker and each guarantor of
this Note, without further notice or demand, the unpaid principal balance of
this Note, all accrued and unpaid interest thereon, and any other amounts due
hereunder, shall be and become immediately due and payable in full. Failure to
exercise this option shall not constitute a waiver of the right to exercise
the same in the event of any subsequent Event of Default, and such failure
shall not be deemed to establish a custom or course of dealing or performance
between Maker and Payee.
The Maker hereby waives presentment for payment, demand, notice of
non-payment, notice of dishonor, protest of any dishonor, notice of protest
and protest of this Note. The Maker hereby consents to every extension of
time, renewal, waiver or modification that may be granted by any holder hereof
with respect to the payment or other provisions of this Note or any
<PAGE> 3
part hereof, with or without substitution, and agrees that additional makers
or guarantors or endorsers may become parties hereto without notice to the
undersigned, and without affecting the liability of the undersigned hereunder.
If any attorney is engaged to collect all or any portion of the
liabilities of the Maker hereunder or to represent Payee or any holder hereof
in any bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Note, then the Maker shall
be liable to Payee or any holder hereof for all reasonable attorneys' fees,
costs and expenses in connection therewith, in addition to all other amounts
due hereunder.
No delay or omission on the part of Payee in exercising any rights or
remedies contained herein shall operate as a waiver of such right or remedy or
of any other right or remedy, and no singular or partial exercise of any right
or remedy shall preclude any other further exercise thereof, or the exercise
of any other right or remedy. A waiver of any right or remedy on any one
occasion shall not be construed as a bar or waiver of any right or remedy on
future occasions, and no delay, omission, waiver or partial exercise shall be
deemed to establish a custom or course of dealing or performance between the
parties hereto.
This Note has been made and delivered at Chicago, Illinois and all funds
disbursed to or for the benefit of Maker have been disbursed in Chicago,
Illinois.
This Note may not be changed or amended orally, but only by an instrument
in writing signed by the party against whom enforcement of the change or
amendment is sought.
This Note shall be binding upon Maker and upon Maker's successors and
assigns, and shall inure to the benefit of the successors and assigns of
Payee.
In the event that any provision hereof shall be deemed to be invalid by
reason of the operation of any law, or by reason of the interpretation placed
thereon by any court or any governmental authority, this Note shall be
construed as not containing such provision, the invalidity of such provision
shall not affect the validity of any other provisions hereof and any and all
other provisions hereof which otherwise are lawful and valid shall remain in
full force and effect.
Time for the performance of Maker's obligations under this Note is of
the essence.
THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF MAKER AND GENEVA SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. TO THE MAXIMUM
EXTENT PERMITTED BY LAW, MAKER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND DETERMINED ONLY IN THE
STATE COURTS LOCATED IN THE COUNTY OF
<PAGE> 4
COOK, STATE OF ILLINOIS. TO THE MAXIMUM EXTENT PERMITTED BY LAW, MAKER HEREBY
EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO THE VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, MAKER AND GENEVA HEREBY EXPRESSLY
WAIVE ANY RIGHT TO TRAIL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND,
OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN ANY WAY
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF MAKER OR GENEVA
WITH RESPECT TO THIS NOTE, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, MAKER AND GENEVA
HEREBY AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR
PROCEEDING SHALL BE DECIDED BY A COURT WITHOUT A JURY AND THAT GENEVA MAY FILE
A COPY OF THIS NOTE WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE
CONSENT OF MAKER TO THE WAIVER OF ITS RIGHT TO TRAIL BY JURY.
IN WITNESS WHEREOF, this Note has been executed and delivered by Maker on
the date first set forth above.
TCO HOLDINGS, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.121
ASSIGNMENT AND PAYMENT DIRECTION
June 30, 1997
Geneva Assurance Syndicate, Inc.,
in Liquidation
222 Merchandise Mart Plaza, Suite 1450
Chicago, Illinois 60654
Alpine Insurance Company
2029 Village Lane
Solvang, California 93464
Re: Assignment of Income Stream and Payment Direction
Ladies and Gentlemen:
Reference is made to (i) that certain Promissory Note dated June 30, 1997
(the "TCO Note") in the original principal amount of $2,500,000 made by the
undersigned, TCO Holdings, Inc., an Illinois corporation ("TCO"), payable to
Geneva Assurance Syndicate, Inc., in Liquidation ("Geneva") and (ii) the
Service Agreement effective as of April 1, 1997 (the "Service Agreement")
between Alpine Insurance Company, an Illinois corporation ("Alpine"), and the
undersigned.
TCO hereby assigns to Geneva, and authorizes and directs Alpine to pay to
Geneva, 73.33% of the amounts payable to TCO by Alpine from time to time under
the Service Agreement, until all unpaid principal under the TCO Note and all
accrued and unpaid interest thereon is paid in full.
The foregoing assignment, authorization and direction by TCO may not be
revoked or rescinded without the prior written consent of Geneva.
TCO HOLDINGS, INC.
By: /s/ Steven C. Shinn
---------------------------
Name: Steven C. Shinn
---------------------------
Title: President
---------------------------
<PAGE> 1
EXHIBIT 10.122
SERVICE AGREEMENT
This SERVICE AGREEMENT (this "Agreement") is made and entered into
effective as of the 1st day of April, 1997 by and between Alpine Insurance
Company, an Illinois insurance company ("Alpine"), and TCO Holdings, Inc., a
Delaware corporation ("TCO").
WHEREAS, Alpine wishes to enter into a quota share arrangement (the "Quota
Share Arrangement") with United Capitol Insurance Company, a Wisconsin property
and casualty insurance company ("UCIC"), pursuant to which UCIC would cede to
Alpine a quota share portion of risks placed with UCIC by Transre Insurance
Services, a California corporation ("Transre"), and Exstar E&S Insurance
Services, a California corporation ("E&S"); and
WHEREAS, Alpine wishes to engage TCO to provide certain services to Alpine
in connection with such Quota Share Arrangement, and TCO wishes to perform such
services, on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. SERVICES AND OBLIGATIONS. During the term of this Agreement,
subject to the overall direction of Alpine and the terms and conditions of this
Agreement and any applicable laws and administrative regulations, TCO hereby
agrees to perform the following services on behalf of Alpine:
(a) Assist in the negotiation and placement of the Quota Share
Arrangement between Alpine and UCIC.
(b) Advise Alpine and provide expertise in structuring and formalizing
the Quota Share Arrangement, including the preparation of a formal
reinsurance treaty between Alpine and UCIC.
(c) Assist Alpine on an ongoing basis in the administration and
management of the Quota Share Arrangement.
Nothing in this Agreement shall be construed to give TCO authority to bind
Alpine to perform any acts pursuant to the Quota Share Arrangement.
SECTION 2. COMPENSATION. Throughout the term of this Agreement, Alpine
shall pay to TCO, as compensation for TCO's services hereunder, an amount equal
to 3.75% of the gross premiums assumed by Alpine pursuant to the Quota Share
Arrangement, on the following conditions:
(a) Payment of such compensation shall be made to TCO on a quarterly
basis, within 30 days following the end of each calendar quarter, with
respect to premiums assumed by Alpine under the Quota Share Arrangement in
such quarter;
<PAGE> 2
(b) Alpine shall not be required, in any one quarter, to pay to TCO an
amount that exceeds the cash amount of the premiums actually received by
Alpine from UCIC for that quarter. If, in any one quarter, the
compensation paid to TCO is limited, by reason of this paragraph, to an
amount less than 3.75% of the gross premiums assumed by Alpine in the
quarter, the balance owing to TCO shall be carried forward to successive
quarters in which the amount of premiums actually received by Alpine from
UCIC exceeds 3.75% of the gross premiums assumed. Any outstanding balance
shall continue to be carried forward to successive quarters until the full
amount owing has been paid; and
(c) The maximum aggregate amount that Alpine shall be required to pay
to TCO as compensation for TCO's services under this Agreement shall be
$4,500,000.
SECTION 3. ASSIGNMENT OF RIGHTS. TCO's right to receive payments
hereunder may be assigned at any time upon written notice by TCO to Alpine, and
Alpine shall act in accordance with any such written notice of assignment.
SECTION 4. EFFECTIVE DATE. The effective date of this Agreement shall be
deemed to be April 1, 1997, but this Agreement shall have no force or effect
until the earlier to occur of:
(a) affirmative approval of this Agreement by the Director of Insurance
of the State of Illinois (the "Director"); or
(b) the expiration of 30 days from the date this Agreement is filed
with the Director for approval.
SECTION 5. TERM AND TERMINATION. This Agreement shall remain in full
force and effect until such time as both Alpine and TCO mutually consent to
termination of the Agreement or until such time as Alpine has paid to TCO
$4,500,000, the maximum aggregate amount of compensation required under the
terms of this Agreement.
SECTION 6. NO WAIVER OF RIGHTS. The parties agree that no indulgence or
acceptance of any delinquent or partial payment or performance by either Alpine
or TCO, or ratification after the fact of any violation or breach of any
provision of this Agreement by Alpine or TCO, shall be construed as a waiver of
any of their rights hereunder.
SECTION 7. ENTIRE AGREEMENT. This Agreement represents the entire
agreement between Alpine and TCO with respect to the subject matter hereof, and
shall not be modified or affected by any offer, proposal, statement or
representation, oral or written, made by or for either party in connection with
the negotiation of the terms hereof.
SECTION 8. NOTICE. Any notice provided hereunder shall be in writing and
shall be deemed sufficiently given on the date of service, if served
personally, or on the third business day after mailing if mailed by certified
or registered mail, postage prepaid, or sent by some other means at least as
fast and reliable as certified or registered mail, or on the first business
<PAGE> 3
day after placement with a reputable overnight delivery service, addressed as
follows (or to such other address as Alpine or TCO may give the other in the
manner herein provided for the giving of notice):
If to Alpine:
Alpine Insurance Company
2029 Village Lane
P.O. Box 678
Solvang, California 93463
Attention: Steven C. Shinn
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Lori L. Meehan
If to TCO:
TCO Holdings, Inc.
2029 Village Lane
P.O. Box 678
Solvang, California 93463
Attention: Steven C. Shinn
SECTION 9. SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of Alpine, TCO, and their respective successors and
assigns.
SECTION 10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be considered an original, but all of which,
together, shall be considered one and the same agreement.
SECTION 11. INVALID OR UNENFORCEABLE PROVISIONS. 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 the invalid or unenforceable provision had been revised to the
minimum extent necessary to render it enforceable under applicable law.
SECTION 12. CAPTIONS. The captions of the various sections of this
Agreement shall not be deemed to be a part of this Agreement and shall not be
construed in any way to limit the content thereof, but are inserted herein only
for reference and the convenience of the parties.
<PAGE> 4
SECTION 13. CONTROLLING LAW. This Agreement shall be interpreted in all
respects in accordance with the laws of the State of Illinois, without regard
to principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
1st day of April, 1997.
ALPINE INSURANCE COMPANY
By:
--------------------------------------
Steven C. Shinn
Its: President
TCO HOLDINGS, INC.
By:
--------------------------------------
Its:
--------------------------------------
<PAGE> 1
EXHIBIT 10.123
AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 1st day of
October, 1997, by and between Exstar Financial Corporation, a Delaware
corporation ("Exstar"), and Frontier Insurance Group, Inc., a Delaware
corporation ("Frontier").
R E C I T A L S
WHEREAS, Alpine Insurance Company, an Illinois insurance company
("Alpine"), is a wholly owned indirect subsidiary of Exstar, and United Capitol
Insurance Company, a Wisconsin insurance company ("UCIC"), Frontier Pacific
Insurance Company, a California insurance company ("FPIC") and Frontier
Insurance Company, a New York insurance Company ("FIC"), are wholly owned
direct or indirect subsidiaries of Frontier (UCIC, FPIC and FIC being sometimes
referred to herein collectively as "Frontier Subsidiaries" or each individually
as a "Frontier Subsidiary"); and
WHEREAS, Alpine and UCIC are parties to a casualty quota share reinsurance
arrangement ("UCIC Quota Share Arrangement"), under which UCIC cedes to Alpine,
and Alpine assumes, a 30% quota share of the insurance business produced for
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; and
WHEREAS, Alpine and FPIC have entered into a reinsurance arrangement
(subject to the receipt of regulatory approvals) effective April 1, 1997 ("FPIC
Quota Share Arrangement" and, together with the UCIC Quota Share Arrangement,
the "Quota Share Arrangements"), under which FPIC cedes to Alpine, and Alpine
assumes, a 50% quota share of the insurance business produced for FPIC by
Transre and E&S in the State of Texas and a 30% quota share of the insurance
business produced for FPIC by Transre and E&S in all other states: and
WHEREAS, Exstar and Frontier wish to cause the Quota Share Arrangements to
be amended, to increase the percentage of the business to be assumed by Alpine,
and to set forth other terms and conditions of the relationships among Frontier
and its affiliates, on the one hand, and Exstar and its affiliates, on the
other hand.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENT OF QUOTA SHARE ARRANGEMENTS. Exstar hereby agrees to cause
Alpine, and Frontier hereby agrees to cause UCIC and FPIC, to amend the Quota
Share Arrangements such that the percentage of the business assumed by Alpine
and ceded by each of UCIC and FPIC is 50% of the net premium written by UCIC
and FPIC on business which is the subject of the Quota Share Arrangements
(after other reinsurance agreed to by the parties).
-1-
<PAGE> 2
Such change shall be effective as of October 1, 1997 and shall continue
thereafter for the term of the Quota Share Arrangements with respect to all
policies subject to the Quota Share Arrangements which are issued or renewed on
or after October 1, 1997. The parties further agree to cause their respective
subsidiaries to amend the Quota Share Arrangements such that:
a. The Quota Share Arrangements include insurance policies
(issued on or after October 1, 1997) which are produced for any
Frontier Subsidiary by Trinity E&S Insurance Services, Inc., a
California corporation ("Trinity");
b. The term of each Quota Share Arrangement extends through and
including December 31, 1999, and automatically renews for successive
one year periods thereafter, unless one party notifies the other in
writing, at least one hundred twenty (120) days prior to December
31, 1999 or any subsequent December 31 of the term of the Quota
Share Arrangement, of its intent not to renew the Quota Share
Arrangement; and
c. Notwithstanding the provisions of subparagraph b. above, a Quota
Share Arrangement may be terminated at any time upon mutual consent
of the parties thereto or by one party upon thirty (30) days' prior
written notice to the other party thereto, as follows:
(i) by the Frontier Subsidiary which is a party to the
Quota Share Arrangement, in the event that any person or
entity other than Peter O'Shaughnessy (or an entity majority
owned by Peter O'Shaughnessy) becomes the owner, directly or
indirectly, of more than 25% of the issued and outstanding
voting stock of Exstar or Alpine (provided, however, that
temporary ownership of more than 25% of the stock of Exstar or
Alpine by the underwriter of a public or private offering of
such stock shall not constitute cause for termination of a
Quota Share Arrangement under this subparagraph (i));
(ii) by the Frontier Subsidiary which is a party to the
Quota Share Arrangement, in the event Peter O'Shaughnessy
ceases to be actively involved in the management of Exstar or
Alpine;
(iii) by Alpine, in the event Peter Foley ceases to be
actively involved in the management of Frontier;
(iv) by the Frontier Subsidiary which is a party to the
Quota Share Arrangement, in the event the policyholders'
surplus of Alpine as of the last day of any calendar quarter
of the term of the Quota Share Arrangements falls below $10
million, and is not increased to $10 million or more within
ninety (90) days thereafter;
-2-
<PAGE> 3
(v) by Alpine, in the event the A.M. Best Company rating of the
Frontier Subsidiary which is a party to the Quota Share
Arrangement falls below A- and is not raised to A- or higher
within ninety (90) days; or
(vi) by either party, in the event of the commencement of any
proceeding in bankruptcy, receivership, dissolution,
liquidation or rehabilitation by or against the other party or
the other party's direct or indirect corporate parent, and, if
such proceeding is involuntarily commenced, such proceeding is
not dismissed within sixty (60) days.
2. CHANGE IN UNDERWRITING AND CLAIMS MANAGEMENT ARRANGEMENTS. Frontier
and Exstar will take any and all actions necessary to cause their respective
subsidiaries and affiliates to do the following:
a. Effective as of October 1, 1997, a Limited Agency Agreement
substantially in the form attached hereto as Exhibit A will
be entered into between UCIC and WESTCAP Insurance Services, Inc.
("Westcap"), a California corporation which became wholly owned by
Exstar effective as of October 1, 1997, under which Westcap will
agree to produce business for UCIC of the type previously produced
for UCIC by Transre and E&S and will provide services to UCIC with
respect to the business previously produced for UCIC by Transre and
E&S;
b. Effective as of October 1, 1997, a Limited Agency Agreement
substantially in the form attached hereto as Exhibit A will
be entered into between FPIC and Westcap, under which Westcap will
agree to produce business for FPIC of the type previously produced
for FPIC by Transre and E&S and will provide services to FPIC with
respect to the business previously produced for FPIC by Transre and
E&S;
c. The Limited Agency Agreement dated October 9, 1996 by and among
Olympic Underwriting Managers, Inc., Transre and E&S, and the
Limited Agency Agreement effective as of June 24, 1996 by and among
FPIC, Transre and E&S, will be terminated effective as of September
30, 1997, all duties thereunder having been transferred to and
assumed by Westcap as described in subparagraphs a. and b. above;
d. Effective as of October 1, 1997, a Limited Agency Agreement
substantially in the form attached hereto as Exhibit A (but
including a commission payable to Trinity of 25% of the gross premium
produced by Trinity with respect to each policy with an original
premium of less than $15,000, and 22.5% of the gross premium produced
by Trinity with respect to each policy with an original premium of
$15,000 or more, in lieu of the 27.5% commission referenced in
Exhibit A) will be entered into between Trinity and one or more
Frontier Subsidiaries, under
-3-
<PAGE> 4
which Trinity will agree to produce business for such entities
and provide services to such entities with respect to the business
produced;
e. The Quota Share Arrangements will be amended such that, from and after
October 1, 1997, the business which is the subject of the Quota
Share Arrangements is that produced by Westcap for UCIC and FPIC under
the Limited Agency Agreements described in subparagraphs
a. and b. above; and
f. The Claim Service Agreement between Claims Control Corporation
("CCC"), an Illinois corporation which became a wholly owned
subsidiary of Exstar effective as of October 1, 1997, and UCIC
dated as of June 15, 1996 will remain in effect between CCC and UCIC,
and the Claim Service Agreement between CCC and FPIC dated as of July
1, 1997 will remain in effect between CCC and FPIC.
3. Issuance of Warrants to Frontier. In consideration of the changes
described in Sections 1 and 2 of this Agreement, Exstar will issue a warrant to
Frontier to acquire up to a total of 500,000 shares of Exstar common stock,
substantially in accordance with the terms and conditions of the form of
Warrant attached hereto as Exhibit B. Such warrant will be executed by Exstar
and delivered to Frontier concurrently with the execution of this Agreement.
4. Business Written by Other Frontier Affiliates. In the event that, on
or after October 1, 1997, Westcap produces architects and engineers
professional liability insurance business or other insurance business agreed to
by the parties which is to be written on an "admitted" basis, Frontier will
cause FIC or another Frontier affiliate licensed to do business on an
"admitted" basis, and Exstar will cause Westcap, to enter into a Limited Agency
Agreement substantially in the form of Exhibit A hereto, under which Westcap
will place such business with FIC or the other Frontier affiliate. In such
event, if requested by Exstar, Frontier and Exstar will also cause FIC (or the
other Frontier affiliate) and Alpine to enter into an arrangement similar to
the Quota Share Arrangements with respect to the business placed by Westcap
with FIC (or the other Frontier affiliate), under which Alpine will assume a
50% quota share percentage of the business written. In addition, at the
request of Exstar, Frontier and Exstar will cause FIC (or the other Frontier
affiliate) and CCC to enter into a Claim Service Agreement substantially in the
form in effect between CCC and UCIC, under which CCC will perform claim
management services with respect to the business produced by Westcap for FIC
(or the other Frontier affiliate).
5. Direct Writing by Alpine. In the event that Alpine writes direct
insurance business at any time during which a Quota Share Arrangement is in
effect, if requested by Frontier, Exstar and Frontier will cause Alpine and an
insurer affiliated with Frontier to enter into a quota share reinsurance treaty
substantially similar to the Quota Share Arrangements ("Alpine Quota Share
Arrangement") under which Alpine cedes to such Frontier affiliate a quota share
percentage of the direct business written by Alpine which is identical to the
percentage then being assumed by Alpine under the Quota Share Arrangements.
The term of the Alpine Quota Share Arrangement will be the same as that of the
Quota Share Arrangements (i.e., the
-4-
<PAGE> 5
period from April 1, 1997 through the date of termination of a Quota Share
Arrangement), subject to events of earlier termination as reasonably agreed by
the parties.
6. Right of First Refusal. In the event of any proposed issuance,
sale or transfer of shares of voting stock of Exstar, Alpine, or Alpine
Holdings, Inc., an Illinois corporation ("Holdings"), by Peter O'Shaughnessy,
Exstar, Alpine or Holdings (each, a "Seller"), or any proposed merger of
Exstar, Alpine or Holdings, which, to the knowledge of such Seller or merging
party, will result in a single person or entity or group of affiliated persons
or entities (other than Peter O'Shaughnessy (or an entity majority owned by
him) or Frontier (or an entity majority owned by it)) owning more than 20% of
the issued and outstanding voting stock of Exstar, Alpine or Holdings (any such
sale, transfer, issuance of shares or merger being hereinafter referred to as a
"Transaction"), Exstar shall provide at least thirty (30) days' prior written
notice of such proposed Transaction (and the terms and conditions thereof) to
Frontier. If, within the thirty (30) day period following the delivery of such
notice to Frontier, Frontier agrees, in writing, to consummate the Transaction
with Peter O'Shaughnessy, Exstar, Holdings or Alpine, as the case may be, in
lieu of the proposed purchaser, on the same terms and conditions as the
proposed purchaser (except as otherwise provided below), Peter O'Shaughnessy,
Exstar, Holdings or Alpine, as the case may be, will consummate the Transaction
with Frontier. The closing of such a Transaction with Frontier shall occur on
the later of (i) fifteen (15) days following receipt of Frontier's agreement to
consummate the Transaction, or (ii) five (5) days following the receipt of any
and all necessary regulatory approvals relating to the Transaction.
7. Regulatory Approvals. In the event that any of the actions
contemplated by this Agreement require the approval of insurance regulatory
officials, the parties hereto will, and will cause their subsidiaries to, act
in good faith in an effort to obtain all such required approvals. None of the
actions described in this Agreement are required to be taken unless or until
any and all such regulatory approvals are obtained. When all regulatory
approvals are obtained, the effective date of the changes or actions described
herein shall be October 1, 1997 or such other date as is expressly stated
herein.
8. Funds Withheld Arrangement. Pursuant to the Quota Share Arrangements,
funds that would otherwise be paid to Alpine by a Frontier Subsidiary as
reinsurance premium are withheld by the Frontier Subsidiary to allow the
Frontier Subsidiary to take statutory financial statement "credit" for
reinsurance with Alpine. Frontier and Exstar agree to work together, in good
faith, in an effort to devise and implement an alternative arrangement,
mutually acceptable to the parties hereto, whereby funds payable to Alpine will
not be withheld.
9. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Illinois, without regard to principles
of conflicts of law.
10. Notices. Any notice provided hereunder shall be in writing and shall
be deemed sufficiently given on the date of service, if served personally, or
on the third business day after mailing if mailed by certified or registered
mail, postage prepaid, or sent by some other means at least as fast and
reliable as certified or registered mail, or on the first business day after
-5-
<PAGE> 6
placement with a reputable overnight delivery service, addressed as follows (or
to such other address as any party may give the other in the manner herein
provided for the giving of notice):
If to Frontier:
Frontier Insurance Group, Inc.
195 Lake Louise Marie Road
Rock Hill, New York 12775-8000
Attention: Peter Foley, Executive Vice President
If to Exstar:
Exstar Financial Corporation
2029 Village Lane
P.O. Box 678
Solvang, CA 93463
Attention: Steven Shinn, President
11. Counterparts. The Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other.
12. 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 the invalid or
unenforceable provision had been revised to the minimum extent necessary to
render it enforceable under applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
Frontier Insurance Group, Inc. Exstar Financial Corporation
By: By:
------------------------------ ----------------------------
Its: Its:
----------------------------- ---------------------------
-------------------------------
Peter J. O'Shaughnessy, only with
respect to the provisions of Section 6
hereof applicable to the proposed sale
of Exstar stock by him
-6-
<PAGE> 1
EXHIBIT 10.124
This Warrant and the Common Stock issuable upon exercise hereof have not been
registered or qualified for sale under the Securities Act of 1933, as amended,
or any state securities laws and may not be offered, sold or transferred in the
absence of such registration or an exemption therefrom under such Act and
applicable state securities laws. In addition, transfer of this Warrant is
prohibited without the consent of the Corporation, as set forth in subparagraph
e of paragraph 11 hereof.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
EXSTAR FINANCIAL CORPORATION
VOID AFTER DECEMBER 31, 2003
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth, FRONTIER INSURANCE GROUP, INC., a Delaware corporation,
or its registered assigns (the "Holder"), is entitled to purchase from EXSTAR
FINANCIAL CORPORATION, a Delaware corporation (the "Corporation"), as of the
times set forth in this Warrant, the Number of Warrant Shares (as hereinafter
defined), as applicable, of Common Stock, subject to the provisions and
adjustments and on the terms and conditions hereinafter set forth, at the
Purchase Price (as hereinafter defined) payable in cash or by check.
1. Definitions. In addition to the terms defined elsewhere in this
Warrant, the following terms have the following respective meanings:
"Change in Control" shall mean the ownership, direct or indirect, of more
than 25% of the voting stock of the Corporation or Alpine by a person or entity
other than Peter J. O'Shaughnessy.
"Claim Service Agreement" shall mean any agreement between Claims Control
Corporation ("CCC") and an insurance company affiliated with Frontier Insurance
Group, Inc. (a "Frontier Insurer") under which CCC provides claims management
services to the Frontier Insurer with respect to business placed with the
Frontier Insurer by Westcap Insurance Services, Inc. or any of its
predecessors, successors, assigns or affiliates, including Trinity E & S
Insurance Services, Inc. (together, "Westcap") or otherwise.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
<PAGE> 2
"Common Stock" as used herein shall mean the Common Stock of the
Corporation, $0.01 par value per share.
"Expiration Date" shall mean December 31, 2003, as set forth in
subparagraph d of paragraph 2 hereof.
"Forfeiture Event" shall mean the failure of a Limited Agency Agreement or
a Quota Share Arrangement to continue in effect on terms substantially similar
to those terms in effect as of October 1, 1997 (including a decrease in the
quota share percentage of business being assumed by Alpine Insurance Company,
an Illinois insurance company ("Alpine"), under a Quota Share Arrangement to
less than fifty percent (50%)), except where such failure is caused by (a) a
Change in Control of the Corporation or Alpine, or (b) a reduction in the quota
share percentage of business being assumed by Alpine as a result of a
regulatory action or restriction imposed on Alpine.
"Group A Warrant Shares" shall mean those shares of Common Stock becoming
eligible for purchase under the terms of this Warrant on October 1, 1997.
"Group B Warrant Shares" shall mean those shares of Common Stock becoming
eligible for purchase under the terms of this Warrant on or after October 1,
1998.
"Limited Agency Agreement" shall mean an agreement between a Frontier
Insurer and Westcap, under which Westcap produces insurance business on behalf
of the Frontier Insurer.
"Market Price" shall mean with respect to any security on any day (a) the
average of the closing prices of such security's sales on all recognized
securities exchanges on which such security may at the time be listed, or (b)
if there has been no sale on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or (c) if on any day such security is not so listed, the average of the
representative bid and asked prices reported through the automated quotation
system of the National Association of Securities Dealers, Inc. ("NASDAQ") as of
4:00 P.M., New York time, or (d) if on any day such security is not reported on
NASDAQ, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization; in each such case
averaged over a period of sixty (60) consecutive business days ending on the
day prior to the day as of which "Market Price" is being determined. If at any
time such security is not listed on any securities exchange or reported on
NASDAQ or the over-the-counter market, the "Market Price" will be the fair
value thereof determined in good faith by the Board of Directors of the
Corporation.
"Number of Warrant Shares" shall mean, at the time of any determination
thereof (a) if no adjustments have theretofore been made pursuant to the
provisions of paragraph 4 hereof, that portion of the Original Number of
Warrant Shares available for purchase pursuant to paragraph 2 hereof on any
given date and (b) if any one or more such adjustments have been so made, the
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<PAGE> 3
amount to which the Original Number of Warrant Shares shall have been
so adjusted pursuant to the terms of this Warrant, in each case reduced
appropriately by the Number of Warrant Shares theretofore purchased pursuant to
the exercise of the Warrants.
"Original Number of Warrant Shares" shall mean 500,000 fully paid and
non-assessable shares of Common Stock of the Corporation, 100,000 of which
shall constitute Group A Warrant Shares and the remaining 400,000 of which
shall constitute Group B Warrant Shares.
"Person" shall mean any natural person, corporation, firm, joint venture,
partnership, trust, unincorporated organization, government or any department,
political subdivision or agency of a government.
"Price Adjustment" shall mean seven million five hundred thousand dollars
($7,500,000) less 83 1/3% of the amount of either of the following, if any,
which is included in (or increases) the Corporation's Stockholders' Equity: (a)
a decrease below $3.7 million in the difference between the Corporation's
equity in the losses of its affiliates and the amount of such losses funded on
or before December 31, 1997, or (b) a decrease below $5.3 million in the
Corporation's reserve against its deferred tax asset.
"Purchase Price" shall mean, (a) three dollars and sixty cents ($3.60)
with respect to each Group A Warrant Share purchasable and (b) with respect to
each Group B Warrant Share purchasable, an amount equal to the quotient derived
by dividing (i) one hundred fifteen percent (115%) of the sum of (A) the
Stockholders' Equity of the Corporation and (B) the Price Adjustment, by (ii)
the total number of outstanding shares of all classes of the Corporation's
stock as of December 31, 1997 (the "Group B Purchase Price").
"Qualified Plan" shall mean any employee stock bonus arrangement or an
employee stock incentive or ownership plan approved by the Board of Directors
of the Corporation, pursuant to which directors, officers or employees of the
Corporation or any of its subsidiaries may be issued shares of Common Stock or
rights to purchase securities that may become convertible into, exercisable for
or exchangeable for shares of Common Stock.
"Quota Share Arrangement" shall mean a quota share reinsurance arrangement
between Alpine and a Frontier Insurer under which the Frontier Insurer cedes to
Alpine, and Alpine assumes, a quota share portion of business placed with the
Frontier Insurer by Westcap.
"Restricted Stock" shall mean the shares of Common Stock issued upon the
exercise of any Warrant and evidenced by a certificate required to bear the
legend specified in subparagraph b of paragraph 11 hereof.
"Securities Act" shall mean the Securities Act of 1933, or any successor
federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
-3-
<PAGE> 4
"Stockholders' Equity" shall mean the stockholders' equity of the
Corporation on December 31, 1997, as reflected in its financial statements
prepared in accordance with generally accepted accounting principles for the
calendar year ending December 31, 1997, as audited by the Corporation's
regularly engaged certified public accountants.
"Underwriters' Securities" shall mean Warrants, Common Stock and other
securities issued on exercise of Warrants which, in each case, have not
previously been sold in a transaction registered under the Securities Act or in
brokers' transactions made in accordance with Rule 144 under the Securities
Act.
"Warrant Shares" shall mean shares of Common Stock purchased or
purchasable by the Holder upon the exercise hereof.
"Warrant" or "Warrants" as used herein shall mean this Warrant and any
other Warrants issued pursuant to the terms and provisions of paragraphs 13, 14
or 15 hereof.
2. Exercise of Warrant.
(a) Timing and Number of Shares. This Warrant entitles the Holder to
purchase up to an aggregate of five hundred thousand (500,000) shares of
Common Stock, as such number may be adjusted in accordance with the terms
of this Warrant. The Holder may exercise its purchase rights with respect
to such Warrant Shares only in accordance with the following schedule: on
and after October 1, 1997, the Holder may exercise its right to purchase
up to twenty percent (20%) of the Number of Warrant Shares (consisting of
all of the Group A Warrant Shares); on and after October 1, 1998, the
Holder may exercise its right to purchase up to an additional twenty
percent (20%) of the Number of Warrant Shares; on and after October 1,
1999, the Holder may exercise its right to purchase up to an additional
twenty-five percent (25%) of the Number of Warrant Shares; and on and
after October 1, 2000, the Holder may exercise its right to purchase up to
an additional thirty-five percent (35%) of the Number of Warrant Shares;
provided, however, that no purchase rights may be exercised after the
Expiration Date; provided further, that no such purchase rights shall
become exercisable following the occurrence of a Forfeiture Event except
as set forth in subparagraph f below; and provided further, that in no
event shall such purchase rights be exercisable until the Holder has
obtained any and all necessary regulatory approvals for the acquisition of
shares of Common Stock of the Corporation from the Department of Insurance
of the State of Illinois or such other state regulatory bodies as may be
applicable.
(b) Mechanics. The purchase rights represented by this
Warrant are exercisable by the Holder by the surrender of this Warrant and
the delivery of the Notice of Exercise attached hereto, completed and
executed on behalf of the Holder, to the office of the Corporation (or
such other office or agency of the Corporation as it may designate by
notice in writing to the Holder at the address of the Holder appearing on
-4-
<PAGE> 5
the books of the Corporation), upon payment in cash or by check made
payable to the Corporation of the Purchase Price of the shares to be
purchased.
(c) Certificates. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the Person entitled to
receive the shares of Common Stock issuable upon such exercise shall be
treated for all purposes as the holder of record of such shares as of the
close of business on such date. As promptly as possible on or after such
date and in any event within three (3) business days thereafter, the
Corporation shall issue and deliver to the Person or Persons entitled to
receive the same a certificate or certificates, in the name of the Holder
or such other names as are designated by the Holder, representing the
total number of shares issuable upon such exercise.
(d) Partial Exercise and Expiration Date. In the event that this
Warrant is exercised with respect to fewer than all of the shares of
Common Stock to which it relates, the Corporation will execute and deliver
a new Warrant of like tenor exercisable for the balance of shares for
which this Warrant may then be exercised; provided, however, that this
Warrant and all rights and options hereunder shall expire at the close of
business on December 31, 2003.
(e) Forfeiture of Purchase Rights. If at any time a Forfeiture Event
shall occur, the Holder or his, her or its assigns shall forfeit any and
all purchase rights with respect to which this Warrant has not yet become
exercisable as of the date of the Forfeiture Event.
(f) Acceleration of Purchase Rights. Notwithstanding anything herein
to the contrary, in the event of a Change in Control, or in the event that
a Quota Share Arrangement or Limited Agency Agreement is terminated by the
Corporation or any of its affiliates other than as a result of the failure
by an affiliate of Frontier Insurance Group, Inc. to perform its duties or
comply with its obligations thereunder, all purchase rights with respect
to any outstanding Warrant Shares shall become exerciseable, whether or
not such purchase rights have otherwise become exerciseable pursuant to
the schedule set forth in paragraph a above, and the Holder shall be
entitled to exercise such rights within sixty (60) days of such
termination.
3. Reservation of Common Stock. The Corporation covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Corporation will at all times have authorized, and in
reserve, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Protection Against Dilution. The Purchase Price and the Number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as follows:
-5-
<PAGE> 6
(a) Changes in Common Stock. In case after the effective date
hereof the Corporation shall:
(i) pay a dividend in Common Stock, or
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Number of Warrant Shares shall be adjusted to that Number of
Warrant Shares determined by multiplying the Number of Warrant Shares
which could be purchased hereunder immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock of the Corporation immediately after
such event, and (ii) the denominator of which shall be the total number of
outstanding shares of Common Stock of the Corporation immediately prior to
such event. In the event of such an adjustment, the Purchase Price for
each Warrant Share shall be adjusted to the Purchase Price determined by
multiplying the applicable Purchase Price in effect immediately prior to
the event by a fraction (i) the numerator of which shall be the total
number of outstanding shares of Common Stock of the Corporation
immediately prior to the event, and (ii) the denominator of which shall be
the total number of outstanding shares of Common Stock of the Corporation
immediately after the event.
(b) Common Stock Distribution. In case after the effective date
hereof the Corporation shall issue or otherwise sell or distribute
additional shares of Common Stock for a consideration per share less than
the Group A Purchase Price or Group B Purchase Price in effect immediately
prior to the time of such issue or sale (any such event being herein
called a "Common Stock Distribution"), then, effective upon such Common
Stock Distribution, the following adjustments shall be made:
(i) If the additional shares of Common Stock are issued for a
consideration per share less than the Group A Purchase Price in
effect immediately prior to the time of such issue or sale, the
Number of Group A Warrant Shares shall be adjusted by multiplying the
Number of Group A Warrant Shares subject to purchase upon exercise of
this Warrant immediately before such Common Stock Distribution by a
fraction, the numerator of which shall be the sum of (A) the total
number of shares of Common Stock outstanding immediately prior to
such Common Stock Distribution, plus (B) the number of shares of
Common Stock issued in such Common Stock Distribution and the
denominator of which shall be an amount equal to the sum of (Z) the
number of shares of Common Stock outstanding immediately prior to
such Common Stock Distribution, plus (Y) the number of shares of
Common Stock which the
-6-
<PAGE> 7
aggregate consideration, if any, received by the Company for
such Common Stock Distribution would buy at the Group A Purchase
Price thereof, as of the date immediately prior to such Common Stock
Distribution; provided, however, that shares of Common Stock issued
or sold (or deemed issued or sold) without consideration shall be
deemed to have been issued or sold for $.01 per share. In the event
of any such adjustment, the Group A Purchase Price shall be adjusted
to a number determined by dividing the Group A Purchase Price
immediately prior to such Common Stock Distribution by the fraction
used for purposes of the aforementioned adjustment; and
(ii) If the additional shares of Common Stock are issued for a
consideration per share less than the Group B Purchase Price in
effect immediately prior to the time of such issue or sale, the
Number of Group B Warrant Shares shall be adjusted by multiplying the
Number of Group B Warrant Shares subject to purchase upon exercise of
this Warrant immediately before such Common Stock Distribution by a
fraction, the numerator of which shall be the sum of (A) the total
number of shares of Common Stock outstanding immediately prior to
such Common Stock Distribution, plus (B) the number of shares of
Common Stock issued in such Common Stock Distribution, and the
denominator of which shall be an amount equal to the sum of (Z) the
number of shares of Common Stock outstanding immediately prior to
such Common Stock Distribution, plus (Y) the number of shares of
Common Stock which the aggregate consideration, if any, received by
the Company for such Common Stock Distribution would buy at the Group
B Purchase Price thereof, as of the date immediately prior to such
Common Stock Distribution; provided, however, that shares of Common
Stock issued or sold (or deemed issued or sold) without consideration
shall be deemed to have been issued or sold for $.01 per share. In
the event of any such adjustment, the Group B Purchase Price shall be
adjusted to a number determined by dividing the Group B Purchase
Price immediately prior to such Common Stock Distribution by the
fraction used for purposes of the aforementioned adjustment.
(c) Certificate. Whenever the Number of Warrant Shares purchasable
shall be required to be adjusted pursuant to this paragraph 4, the
Corporation shall promptly prepare a certificate signed by the President
or a Vice President of the Corporation setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment,
the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the
Corporation made any determination hereunder), and shall promptly cause a
copy of such certificate to be mailed (by first class mail postage
prepaid) to the Holder.
(d) Definition of Common Stock. For purposes of this paragraph 4
only, the term "Common Stock" shall include shares of common stock of the
Corporation and all shares of Common Stock issuable pursuant to warrants,
options and convertible securities
-7-
<PAGE> 8
issued by the Corporation with respect to its Common Stock, except such
Common Stock, warrants, options and convertible securities issued (i)
pursuant to a Qualified Plan, (ii) in connection with a merger,
consolidation or sale as set forth in paragraph 5 hereof, (iii) in
connection with the acquisition by the Corporation or its subsidiaries of
another entity or (iv) in connection with any settlement relating to
property leased by the Corporation or any of its affiliates at 311 South
Wacker Drive, Chicago, Illinois.
(e) Adjustment for Expired Options and Convertible Securities. Upon
the expiration of any option or the termination of any right to convert or
exchange any convertible securities without the exercise of such option or
right, the applicable Purchase Price then in effect and the Number of
Warrant Shares acquirable hereunder shall be adjusted to the applicable
Purchase Price and the Number of Warrant Shares in effect at the time of
such expiration or termination had such option or convertible securities,
to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(f) Calculation of Consideration Received. If any Common Stock,
options, warrants or convertible securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Corporation therefor.
In case any Common Stock, options, warrants or convertible securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
determined in good faith by the Corporation's Board of Directors.
5. Mergers, Consolidations, Sales. In the case of any consolidation or
merger of the Corporation with another entity, or the sale of all or
substantially all of its assets to another entity, or any reorganization or
reclassification of the Common Stock or other equity securities of the
Corporation (except a subdivision or combination of the Common Stock, provision
for which is made in paragraph 4), then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate provision
shall be made whereby the Holder shall thereafter have the right to receive
upon the basis and upon the terms and conditions specified herein and in lieu
of the shares of Common Stock immediately theretofore purchasable hereunder,
such shares of stock, securities or assets as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification) be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore so purchasable hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the Holder to the end that the provisions hereof (including, but not limited
to, provisions for adjustment of the Number of Warrant Shares) shall thereafter
be applicable as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon exercise of this Warrant. The
Corporation shall not effect any such consolidation, merger or sale, unless
prior to or simultaneously with the consummation thereof, the successor entity
(if other than the Corporation) resulting from such consolidation or merger or
the entity purchasing such assets
-8-
<PAGE> 9
shall assume by written instrument executed and mailed or delivered to the
Holder, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to receive.
6. Dissolution or Liquidation. In the event of any proposed distribution
of the assets of the Corporation in dissolution or liquidation (except under
circumstances when the foregoing paragraph 5 shall be applicable) the
Corporation shall mail notice thereof to the Holder and shall make no
distribution to stockholders until the expiration of 30 days from the date of
mailing of the aforesaid notice and, in any such case, the Holder may exercise
its Warrants within 30 days from the date of mailing such notice and all rights
herein granted not so exercised within such 30 day period shall thereafter
become null and void.
7. Notice of Special Dividends. If the Board of Directors of the
Corporation shall declare any dividend or other distribution on its Common
Stock except out of surplus or net profits legally available therefor
(determined in accordance with generally accepted accounting principles,
consistently applied) or by way of a stock dividend payable on its Common
Stock, the Corporation shall mail notice thereof to the Holder not less than 30
days prior to the record date fixed for determining stockholders entitled to
participate in such dividend or other distribution and the Holder shall not
participate in such dividend or other distribution or be entitled to any rights
on account or as a result thereof unless and to the extent that the Warrants
are exercised prior to such record date.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this paragraph, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Corporation
shall, upon the exercise of this Warrant for the largest number of whole shares
then called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Corporation) over the proportional
part of the applicable Purchase Price represented by such fractional share.
9. Fully Paid Stock; Taxes. The Corporation covenants and agrees that
the shares of stock represented by each and every certificate for its Common
Stock to be delivered on the exercise of the conversion rights herein provided
for shall, at the time of such delivery, be validly issued and outstanding and
be fully paid and nonassessable. The Corporation will not be required to pay
any transfer tax payable because shares of Common Stock or a new Warrant are to
be registered in a name other than that of the initial Holder, and the
Corporation will not be required to issue any shares of Common Stock or to
issue a new Warrant registered in a name other than that of the initial Holder
until (i) the Corporation receives either (A) evidence that any applicable
transfer taxes have been paid or (B) funds with which to pay those taxes or
(ii) it has been established to the Corporation's satisfaction that no such tax
is due.
10. Closing of Transfer Books. The stock transfer books of the
Corporation for its Common Stock shall not be closed in any manner which
interferes with the exercise of any
-9-
<PAGE> 10
Warrant.
11. Restrictions on Transferability of Warrants and Common Stock;
Compliance with Laws. This Warrant and the Common Stock issued upon the
exercise hereof shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to ensure compliance with
state insurance laws and the provisions of the Securities Act in respect of the
transfer of any Warrant or any such Common Stock.
(a) Insurance Laws. Prior to exercising its rights under this
Warrant or effecting any transfer of this Warrant or the Common Stock
issued upon exercise hereof, the Holder or the proposed assignee of this
Warrant or the Common Stock must obtain from applicable state insurance
regulatory bodies any and all approvals of such transfer required under
applicable state insurance laws and regulations.
(b) Restrictive Legends. Unless otherwise permitted by the
provisions of this subparagraph b, each Warrant shall bear on the face
thereof a legend substantially in the form of the notice endorsed on the
first page of this Warrant.
Each certificate for shares of Common Stock initially issued upon the
exercise of any Warrant and each certificate for shares of Common Stock
issued to a subsequent transferee of such certificate shall, unless
otherwise permitted by the provisions of this subparagraph b, bear on the
face thereof a legend reading substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any state
securities laws and may not be offered, sold or transferred in the
absence of such registration or an exemption therefrom under such Act
and applicable state securities laws, and are transferable only upon
the conditions specified in the Warrant pursuant to which such shares
were issued."
In the event that a registration statement covering the Warrant, the
unissued Warrant Shares or the Restricted Stock shall become effective
under the Securities Act or in the event that the Corporation shall
receive an opinion of counsel satisfactory to it that, in the opinion of
such counsel, any such legend is not, or is no longer, necessary or
required (including, but not limited to, because of the availability of
the exemption afforded by Rule 144 of the General Rules and Regulations of
the Commission), the Corporation shall, or shall instruct its transfer
agents and registrars to (i) remove the applicable legend from the Warrant
or the certificates evidencing the Restricted Stock or issue new warrants
or certificates without such legend in lieu thereof and (ii) refrain from
including the applicable legend on certificates evidencing Warrant Shares
issued subsequent to the effective date of the registration statement or
the receipt of an opinion of counsel.
-10-
<PAGE> 11
(c) Notice of Proposed Transfer; Registration or Approval Not
Required. The holder of any Restricted Stock, by acceptance thereof,
agrees to give prior written notice to the Corporation of such holder's
intention to transfer such Restricted Stock (or any portion thereof),
describing briefly the manner and circumstances of the proposed transfer.
If the Restricted Stock has not been registered pursuant to paragraph 12
hereof or if no approval of the proposed transfer has been obtained from
any state insurance regulatory body, the Corporation shall, promptly after
receiving such written notice, present copies thereof to counsel for the
Corporation and to counsel designated by such holder, who may be an
employee of such holder. If in the opinion of each such counsel the
proposed transfer may be effected without registration, qualification or
regulatory approval under any federal or state law, the Corporation, as
promptly as practicable, shall notify such holder of such opinion and of
the terms and conditions, if any, to be observed, whereupon such holder
shall be entitled to transfer such Restricted Stock in accordance with the
terms of the notice delivered to such holder by the Corporation. If
either of such counsel is unable to render such an opinion (in which case
such counsel shall set forth in writing the basis for the legal
conclusions in this regard) the proposed transfer described in the written
notice given pursuant to this subparagraph may not be effected, and the
Corporation shall promptly so notify such holder and thereafter such
holder shall not be entitled to effect such transfer until receipt of a
subsequent notice from the Corporation pursuant to the immediately
preceding sentence.
(d) Restrictions on Resale of Warrant Shares. All Warrant Shares
obtained upon exercise of this Warrant shall be restricted from resale by
the holder of such shares for a period of one hundred eighty (180) days
following the exercise of this Warrant, or such other period of time as
may be prescribed by applicable state or federal securities laws and
regulations.
(e) Assignment of Warrant. This Warrant is not assignable except
with the express written consent of the Corporation and upon such terms and
conditions as the Corporation shall specify. Any authorized assignee
takes this Warrant subject to all of the rights and obligations of the
Holder specified herein, including, but not limited to, the forfeiture
obligations set forth in paragraph 2(e) hereof.
12. Registration Under the Securities Act. If, at any time the
Corporation files a registration statement (other than on Form S-4, Form S-8,
or any successor form) under the Securities Act with the Commission, the
Corporation will give all the holders of Underwriters' Securities (the
"Eligible Holders") at least fifteen (15) days' prior written notice of the
Corporation's intention to file such a registration statement. If requested by
any Eligible Holder in writing within five (5) days after receipt of such
notice, the Corporation will, at the Corporation's sole expense (other than the
fees and disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Underwriters' Securities sold by
the Eligible Holders), include the shares of Common Stock which are, or which
shall be issuable on exercise of, Underwriters' Securities (hereinafter
"Registrable Securities") specified in the Eligible Holder's request in the
securities which are the subject of
-11-
<PAGE> 12
the registration statement, except that if the managing underwriter of that
offering advises the Corporation in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Corporation will include in such
registration (a) first, the securities the Corporation proposes to sell and (b)
second, the Registrable Securities requested to be included in such
registration, pro rata among the Eligible Holders and any other Persons holding
similar registration rights requesting registration on the basis of the number
of such shares held by each such holder. Each holder of Registrable Securities
being included in a registration statement being filed by the Corporation under
this paragraph 12 will (a) comply with reasonable requests by the managing
underwriter to assure that Registrable Securities which are the subject of the
registration statement will be delivered at the closing of the offering, and
(b) execute an underwriting agreement containing usual and customary terms
applicable to similarly situated selling shareholders.
13. Partial Exercise and Partial Assignment. If this Warrant is exercised
in part only, the Holder shall be entitled to receive a new Warrant covering
the number of shares in respect of which this Warrant shall not have been
exercised as provided in paragraph 2 hereof. If this Warrant is partially
assigned, this Warrant shall be surrendered at the principal office of the
Corporation, and thereupon a new Warrant shall be issued to the Holder covering
the number of shares not assigned. The assignee of such partial assignment of
this Warrant shall also be entitled to receive a new Warrant covering the
number of shares so assigned.
14. Warrant Denominations. Warrants are issuable or transferable in such
denomination as the Holder may request, and the Warrants of each denomination
are interchangeable upon surrender thereof at the office of the Corporation for
Warrants of other denominations, but aggregating the same number of shares as
the Warrants so surrendered. All Warrants will be dated the same date as this
Warrant.
15. Lost, Stolen, Destroyed or Mutilated Warrants. In case any Warrant
shall be mutilated, lost, stolen or destroyed, the Corporation shall issue a
new Warrant of like date, tenor and denomination and deliver the same in
exchange and substitution for and upon surrender and cancellation of any
mutilated Warrant, or in lieu of any Warrant lost, stolen or destroyed, upon
receipt of evidence satisfactory to the Corporation of the loss, theft or
destruction of such Warrant, and upon receipt of indemnity satisfactory to the
Corporation.
16. Warrant Holder Not Shareholder. This Warrant does not confer upon the
Holder any right to vote or to consent as a stockholder of the Corporation, as
such, in respect of any matters whatsoever, or any other rights or liabilities
as a shareholder, prior to the exercise hereof as hereinbefore provided.
17. Amendments. This Warrant may be amended only upon the written consent
of the Corporation and the Holder.
18. Severability. Should any part of this Warrant for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion
-12-
<PAGE> 13
shall remain in full force and effect as if this Warrant had been executed
with the invalid portion thereof eliminated, and it is hereby declared the
intention of the parties hereto that they would have executed and accepted the
remaining portion of this Warrant without including therein any such part,
parts or portion which may, for any reason, be hereafter declared invalid.
19. Notices. Any notices, consents or other communications required or
permitted to be given under the terms of this Warrant must be in writing and
will be deemed to have been delivered (a) upon receipt, when delivered
personally; (b) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (c) three days after being
sent by U.S. certified mail, return receipt requested, or (d) one (1) day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Corporation:
Exstar Financial Corporation
2029 Village Lane
Solvang, California 93463
Telephone: (805) 688-4995
Facsimile: (805) 688-8542
Attention: Steven Shinn, President
With copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Attention: Beth Deverman
If to the Holder of this Warrant, to it at the address set
forth below such Holder's signature on the signature page hereof.
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
20. Governing Law. This Warrant shall be governed by, and construed
under, the laws of the State of Illinois relating to contracts and instruments
executed and to be performed entirely in such state.
21. Paragraph Headings. The paragraph headings in this Warrant are for
convenience
-13-
<PAGE> 14
only, are not part of this Warrant and are not intended to affect the meaning
or interpretation of any of the terms of this Warrant.
22. Effective Date. The effective date of this Warrant is October 1,
1997. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding any
other provisions hereof, the provisions of paragraph 12 shall continue in full
force and effect after such Expiration Date as to any Warrant Shares issued
upon the exercise of this Warrant.
IN WITNESS WHEREOF, EXSTAR FINANCIAL CORPORATION has caused this Warrant
to be signed by its President and this Warrant to be dated as of October ___,
1997.
EXSTAR FINANCIAL CORPORATION
By:
-------------------------------
Steven Shinn, President
-14-
<PAGE> 15
NOTICE OF EXERCISE
To: Exstar Financial Corporation (the "Corporation")
The undersigned irrevocably elects to purchase ______ shares of Common
Stock of the Corporation by exercising the Warrant to which this form is
attached and tenders payment of the full Purchase Price with respect to such
shares of Common Stock. The undersigned requests that the certificates
representing the shares of Common Stock of the Corporation as to which the
Warrant is being exercised be registered as follows:
Name:
----------------------------------------------------------------------
Social Security or Employer Identification Number:
--------------------------
Address:
--------------------------------------------------------------------
Deliver to:
----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
If the number of shares of Common Stock of the Corporation as to which
the Warrant is being exercised are fewer than all the shares of Common Stock of
the Corporation to which the Warrant relates, please issue a new Warrant for
the balance of such shares of Common Stock registered in the name of the
undersigned and deliver it to the undersigned at the following address:
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
Date: Signature
-------- --------------------------------------------------
(Signature of Owner)
(Signature must conform with the name of the
Holder as specified on the face of the Warrant)
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1,000
<DEBT-HELD-FOR-SALE> 18,286
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,653
<MORTGAGE> 5,162
<REAL-ESTATE> 9,707
<TOTAL-INVEST> 38,580
<CASH> 3,801
<RECOVER-REINSURE> 3,045
<DEFERRED-ACQUISITION> 1,211
<TOTAL-ASSETS> 89,145
<POLICY-LOSSES> 63,808
<UNEARNED-PREMIUMS> 3,913
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,082
0
0
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5,180
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</TABLE>
