SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
For the fiscal year ended December 31, 1995 File Number 1-9371
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Delaware 51-0283071
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
375 Park Avenue, New York, New York 10152
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Not applicable
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:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of March 1, 1996, 7,056,993 shares of Common Stock were outstanding, and the aggregate market value (based upon the closing price of these shares on the New York Stock Exchange) of the shares of Common Stock of Alleghany Corporation held by non-affiliates was $1,104,422,202.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the indicated part(s) of this Report:
Part
Annual Report to Stockholders of Alleghany I and II
Corporation for the year 1995
Proxy Statement relating to Annual Meeting III
of Stockholders of Alleghany Corporation
to be held on April 26, 1996
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ALLEGHANY CORPORATION
Annual Report on Form 10-K
for the year ended December 31, 1995
Table of Contents
Description Page
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PART I
Item 1. Business 5
Item 2. Properties 55
Item 3. Legal Proceedings 64
Item 4. Submission of Matters to a Vote
of Security Holders 68
Supplemental Executive Officers of Registrant 68
Item
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 70
Item 6. Selected Financial Data 70
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 70
Item 8. Financial Statements and Supple-
mentary Data 70
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 70
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Description Page
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PART III
Item 10. Directors and Executive Officers
of Registrant 71
Item 11. Executive Compensation 71
Item 12. Security Ownership of Certain
Beneficial Owners and Management 71
Item 13. Certain Relationships and Related
Transactions 71
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 72
Signatures 92
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Index to Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
EXHIBITS
PART I
Item 1. Business.
Alleghany Corporation ("Alleghany") was incorporated in 1984 under the laws of the State of Delaware. In December 1986, Alleghany succeeded to the business of its parent company, Alleghany Corporation, a Maryland corporation incorporated in 1929, upon the parent company's liquidation.
Alleghany's principal executive offices are located at 375 Park Avenue, New York, New York 10152 and its telephone number is (212) 752-1356. Alleghany is engaged, through its subsidiaries Chicago Title and Trust Company ("CT&T"), Chicago Title Insurance Company ("CTI"), Security Union Title Insurance Company ("Security Union") and Ticor Title Insurance Company ("Ticor Title") and their subsidiaries, in the sale and underwriting of title insurance and in other real estate-related services businesses, and through CT&T's subsidiary, Alleghany Asset Management, Inc. ("Alleghany Asset Management") and its subsidiaries, in certain other financial services businesses. Alleghany is also engaged, through its subsidiary Underwriters Reinsurance Company ("Underwriters"), in the property and casualty reinsurance and insurance businesses. In addition, Alleghany is engaged, through its subsidiaries World Minerals Inc. ("World Minerals"), Celite Corporation ("Celite"), Harborlite Corporation ("Harborlite") and Europerlite Acquisition Corporation ("Europerlite") and their subsidiaries, in the industrial minerals business. Alleghany conducts a steel fastener importing and distribution business through its Heads and Threads division.
Until October 31, 1994, Alleghany was also engaged, through its subsidiary Sacramento Savings Bank ("Sacramento Savings") in retail banking. On that date, Alleghany completed the sale of Sacramento Savings and an ancillary company to First Interstate Bank of California for a cash purchase price of $331 million. As part of the transaction, Alleghany, through its wholly owned subsidiary Alleghany Properties, Inc. ("API"), purchased real estate and real estate-related assets of Sacramento Savings for a purchase price of about $116 million. Alleghany's intention with respect to such assets, the bulk of which is raw land, is to dispose of them in an orderly fashion, which may take several years. Based on Alleghany's liquidation plan and anticipated higher carrying costs for the real estate and real estate-related assets, Alleghany expects to realize less than $116 million. Accordingly, and in recognition that no general loss reserves of Sacramento Savings were transferred, Alleghany reduced the carrying value of such assets by about $20 million, net of related tax benefits.
During 1994 and early 1995, with temporary borrowings under Alleghany's revolving credit agreement, the proceeds from the sale of Sacramento Savings and cash on hand, Alleghany and its subsidiaries acquired a substantial number of shares of common stock of Santa Fe Pacific Corporation ("Santa Fe"). On September 22, 1995, Santa Fe and Burlington Northern, Inc. merged under a new holding company named Burlington Northern Santa Fe Corporation ("BNSF"). As a result of the merger, 18.06 million shares of Santa Fe beneficially owned by Alleghany were converted into about 7.43 million shares of common stock of BNSF, or about 5.2 percent of the outstanding. BNSF is engaged primarily in rail transportation. BNSF owns the largest railroad network in North America, providing transportation services to shippers throughout the western two-thirds of the United States as well as to Canada and Mexico.
On October 7, 1993, Alleghany acquired approximately 93 percent of the capital stock of the holding company which owns all of the capital stock of Underwriters for a cash purchase price of approximately $201 million. Alleghany acquired its 93 percent interest in the holding company from a holding company formerly owned by The Continental Corporation, Goldman, Sachs & Co. and certain affiliated investment partnerships, and members of Underwriters management. Prior to the acquisition by Alleghany, The Continental Corporation acquired the interests of the Goldman, Sachs entities for cash and the interests of the members of Underwriters management for cash and the remaining 7 percent of the capital stock of the holding company which owns Underwriters. In December 1994, Alleghany contributed approximately 6 million shares of Santa Fe common stock, having an aggregate market value of about $100 million, to the holding company which owns Underwriters, which increased Alleghany's equity interest in the holding company to 96.4 percent as of 1994 year-end. Such shares have subsequently been converted into approximately 2.5 million shares of BNSF common stock. As of 1995 year-end, Alleghany's equity interest in the holding company was 96.8 percent of the outstanding.
In 1995, Alleghany studied a number of potential acquisitions. Alleghany intends to continue to expand its operations through internal growth at its subsidiaries as well as through possible operating-company acquisitions and investments.
Reference is made to Items 7 and 8 of this Report for further information about the business of Alleghany in 1995. The consolidated financial statements of Alleghany, incorporated by reference in Item 8 of this Report, include the accounts of Alleghany and its subsidiaries for all periods presented.
TITLE INSURANCE, REAL ESTATE-RELATED SERVICES AND FINANCIAL SERVICES BUSINESSES
Title Operations
CT&T, headquartered in Chicago, is engaged in the sale and underwriting of title insurance and related services (including abstracting, searches, and escrow, closing and disbursement services) through CTI, Security Union, Ticor Title and their title insurance subsidiaries, collectively known as the CT&T Family of Title Insurers. Organized as an Illinois corporation in 1912, CT&T was acquired, along with CTI, by Alleghany in June 1985. CTI, a Missouri corporation incorporated in 1961, succeeded to businesses conducted by predecessor corporations since 1847, and is headquartered in Chicago. Security Union (acquired in 1987) and Ticor Title (acquired in 1991) were incorporated in California in 1962 and 1965, respectively, but both were a part of business organizations that had succeeded to businesses conducted since around the turn of the century. Security Union and Ticor Title are headquartered in Rosemead, California.
On March 8, 1991, CT&T acquired Ticor Title's immediate parent, Ticor Title Insurance Company of California (which was merged into CTI in September 1992), from Westwood Equities Corporation for a total cash purchase price of $55.6 million and a promissory note in the principal amount of $15 million, subject to adjustment. The principal amount of the promissory note issued by CT&T to Westwood Equities Corporation, which matured on March 31, 1995, was subject to an increase to $20 million or a decrease to zero based on a re-evaluation of the title loss reserves of Ticor Title Insurance Company of California and its subsidiaries as of December 31, 1994. The re-evaluation consisted of a formula-driven projection of ultimate claims payments on policies which existed at the date of acquisition, and was based on actual claims payments through December 31, 1994. Based on the re-evaluation, the principal amount of the promissory note was zero and, accordingly, Alleghany has excluded this note from the determination of the purchase price and from its consolidated financial statements.
The CT&T Family of Title Insurers is the largest title insurance organization in the world, based upon net written premiums in 1994 (the latest full year for which data is available). Each of the principal title insurance subsidiaries -- CTI, Security Union and Ticor Title -- was assigned a claims-paying ability rating of "A" by Standard & Poor's Corporation (an upgrade on October 17, 1995 from "A-") and an "A" by Duff & Phelps Credit Rating Co., confirming the financial strength of the CT&T Family of Title Insurers. The CT&T Family of Title Insurers has approximately 250 full-service offices
and more than 3,500 policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands, Guam and Canada.
As CT&T's title insurance operations have grown, CT&T has sought to improve the effectiveness and efficiency of the company as a whole. In late 1994, CT&T's title insurance operations were realigned to improve CT&T's service to customers at both the local and national levels. The CT&T Family of Title Insurers' nationwide network of branch office and agency operations was restructured into eight geographic areas: the Northeast, Southeast, Great Lakes, Southwest, Chicago Central, Chicago Metro and Pacific Northwest regions, and the Western division.
In 1995, CT&T's title insurance operations launched a program to redesign its internal operations to better focus on customer needs and to achieve greater operational and cost efficiencies. Title plant and production facilities are being consolidated in certain markets to provide greater product consistency, reduce turnaround times, and reduce expenses. Technology investments are being made to streamline workflow processes and secure competitive advantages through automation. New training programs are being developed to help agents and employees sharpen their problem solving abilities and to heighten their responsiveness to customer needs. Implementation of these initiatives, which is expected in 1996, will result in a better, more cost effective alignment of the internal operations of CT&T's title insurance operations with marketplace demands.
General Description of Title Insurance
The CT&T Family of Title Insurers insures a variety of interests in real property. For a one-time premium, purchasers of residential and commercial properties, mortgagees, lessees and others with an interest in real property, purchase insurance policies to insure against loss suffered as a result of encumbrances or other defects in title, as that title is defined in the policy. Prior to the issuance of a policy, a title insurer conducts a title search and examination of the property, a process by which it identifies risks and defines the risks to be assumed by the insurer under the policy.
To conduct a title search and examination, an agent or employee of the CT&T Family of Title Insurers reviews various records providing a history of transfers of interests in the parcel of real estate with respect to which a policy of title insurance is to be issued. These records are maintained by local governmental entities, such as counties and municipalities. Title records, known as title plants, owned by the CT&T Family of
Title Insurers are also used as a reference, allowing complete title searches without resorting to governmental records. The CT&T Family of Title Insurers' title plants consist of compilations of land title and deed information copied from public records dating back many years on properties in various geographical locations. These title plants are updated daily.
Marketing
The CT&T Family of Title Insurers issues title insurance policies directly through its branch office operations as well as through policy-issuing independent agents. The CT&T Family of Title Insurers also issues policies of insurance in situations where the title search and examination process is performed by approved attorneys working as independent contractors.
The primary sources of title insurance business are the major participants in local real estate markets: attorneys, builders, commercial banks, thrift institutions, mortgage banks and real estate brokers. Other significant sources of business are large commercial developers and real estate brokerage firms operating on a national scale.
To meet the needs of national commercial customers, the National Business Unit and National Title Services offices serve as one-stop sources of title services for both single-site and multi-site commercial and industrial real estate ventures. Other business components of the national operations organization include the Unisource unit, a one-stop source for national residential lenders and low liability commercial accounts; and SAFETRANS, which provides one-stop title services to employee relocation firms.
The title insurance business of the CT&T Family of Title Insurers is not dependent on one or a few customers.
Business Conditions; Seasonality
The title insurance industry is highly sensitive to the volume of real estate transactions and to interest rate levels. The title industry was adversely affected by the recession and severely depressed real estate markets in 1990 and 1991. However, interest rates began to drop in 1992 and in 1993 reached new thirty-year lows. Driven by first-time buyers enticed into the market by the low interest rates, home sales increased in those years. Low interest rates also resulted in a high volume of refinancing orders. Beginning in February 1994, a series of increases in short-term interest rates significantly
reduced the volume of real estate transactions and brought to an abrupt end one of the longest refinancing surges in history. The overall industry-wide decline in revenues and volume of orders from 1993 to 1994 was the steepest downturn the industry experienced since it began keeping those statistics in the early 1960's. While total industry-wide results for 1995 have not been tabulated, it appears that the decline from 1994 to 1995 may have been even steeper. This trend began to reverse its course in the second half of 1995 when lower rates, again, prompted an increase in real estate activity.
The business of the CT&T Family of Title Insurers is seasonal, as real estate activity is seasonal. The strongest quarters are typically the third and fourth quarters because there are more home sales and commercial and industrial construction during the summer. Revenues generally are recognized by CT&T at the time of the closing of the real estate transaction with respect to which a title insurance policy is issued; accordingly, there is typically a lag of about two months between the time that a title insurance order is placed, at which time work commences, and the time that CT&T recognizes the revenues associated with the order. Additionally, agency revenues are recognized by CT&T when reported by the agent and typically lag two or three months from the time realized by the agent. The fourth quarter is also aided by a higher level of commercial and industrial transactions, typically representing the desire of commercial entities to complete transactions by year-end. The first quarter is typically the weakest quarter.
Approximately 70 percent of the title revenues of the CT&T Family of Title Insurers in 1995 are estimated to have been generated by residential real estate activity, consisting of resales (50 percent), refinancings (10 percent) and new housing (10 percent). Commercial and industrial real estate activity is estimated to account for the remaining 30 percent of 1995 revenues, attributable to initial sales and resales (24 percent) and refinancings (6 percent).
Underwriting Operations
While most other forms of insurance provide for the assumption of risk of loss arising out of unforeseen future events, title insurance serves to protect the policyholder from the risk of loss from events that predate the issuance of the policy. This distinction underlies the low claims loss experience of title insurers as compared with other insurance underwriters. Realized losses generally result from either judgment errors or mistakes made in the title search and examination process or the escrow process, or from other problems such as fraud or incapacity of persons transferring property rights. Operating expenses, on the other hand, are higher for title insurance companies than for
other companies in the insurance industry. Most title insurers incur considerable costs relating to the personnel required to process forms, search titles, collect information on specific properties and prepare title insurance commitments and policies. Many title insurers also face ongoing costs associated with the establishment, operation and maintenance of title plants, or, in the case of smaller regional title insurers, access to title plants owned by others or employment of abstractors to search public records on behalf of such regional title insurers.
The CT&T Family of Title Insurers' operations facilitate rapid communication between field underwriters and the principal office underwriting staff for dealing with difficult, large or unusual underwriting risks. Authority levels for field underwriters are set based on their skills and experience level. The most experienced field underwriters are required to be involved in the decision to insure difficult, large or unusual risks. Risks with very high potential liability require approval from higher levels of the title insurer's management, which may include, dependent upon the particular risk, the Chief Underwriting Counsel, the General Counsel or senior executive officers of the title insurer.
Geographic concentration of risk is less significant in underwriting title insurance coverage than in casualty insurance lines. The title insurance underwriting process reduces the number of perils which are covered on an actuarial basis to a minimum through reliance on state public records acts. However, maintaining geographic diversity spreads the risk of fraud which may result from regional economic recession, and of claims which are not readily determinable from public records, such as aboriginal title claims of Native Americans.
CTI, Security Union and Ticor Title each have generally restricted the size of any one risk of loss that they will retain to $70 million, $30 million and $50 million, respectively. The title insurers in the CT&T Family of Title Insurers reinsure risks with each other and with other title insurance companies in excess of what they are willing to retain. In addition, the title insurers have purchased reinsurance coverage for individual losses in excess of $12.5 million, subject to certain exclusions. This coverage will pay 90 percent of such losses up to $50 million. However, reinsurance arrangements do not relieve a title insurance company that issues a policy from its legal liability to the holder of the policy and, thus, the risk of nonperformance by the assuming reinsurer is borne by the issuer of the policy.
Losses and Loss Adjustment Expenses
The largest single liability on CT&T's books is its reserve for title insurance claims. Historical experience with respect to payments made under title insurance policies indicates that, for policies issued in a given year, approximately two-thirds of the total projected payments with respect to such policies are made within five years of the issuance of such policies.
Losses are reported to CT&T directly by its insured parties or indirectly through its agents. When a claim is reported, CT&T establishes a "case" reserve, based upon the best estimate of the total amount necessary to settle the claim and to provide for allocated loss adjustment expenses ("LAE"). These reserves are periodically adjusted by CT&T based on its evaluation of subsequent reports regarding the reported claim.
In addition to case reserves, CT&T also maintains incurred but not reported ("IBNR") reserves for losses that are incurred but not yet reported. These reserves are particularly significant in long tail lines of insurance, such as title insurance, for which the claim and the circumstances causing the claim are separated by a long period of time. Unlike most other types of insurance, for title insurance, the event giving rise to a possible future claim, the defect in the title, occurred before issuance of the title insurance policy, but may not be discovered, if ever, until a future date.
CT&T establishes IBNR reserves by using actuarial principles and procedures commonly used in the title insurance industry to estimate the ultimate liability for losses and LAE. The actuarial procedures use historic claims reporting patterns to predict likely future reporting of claims. Projections are analyzed in the context of changing economic conditions, including implicitly recognizing the impact of inflation, business mix, and other contingent variables, and the projections and related reserves are modified when appropriate.
IBNR reserves are also established for very large or unusual claims which might fall outside the normal distribution of expected claims experience. Reserves for these claims are based on an analysis of the experience of both CT&T and the industry, generally.
CT&T's reserves are reviewed monthly by management, and tested semi-annually for adequacy by an independent actuary. CT&T does not discount its reserves for
reported or unreported claims for anticipated investment income. Provisions to reserves are derived directly from premium revenues, based upon anticipated loss ratios. There are inherent uncertainties in estimating reserves primarily due to the long-term nature of most title insurance business. Actual losses and LAE may deviate, perhaps substantially, from reserves on CT&T's financial statements, which could have a material adverse effect on CT&T's financial condition and results of operations. Based on current information, CT&T believes reserves for losses and LAE at December 31, 1995 are adequate.
Real Estate-Related Services
In recent years, mortgage lenders have made significant investments in technology to reduce costs and shorten the time necessary to originate a mortgage loan. Increasingly, they are seeking cost efficiencies by requiring vendors to provide a bundle of services and to deliver them in an electronic format which is compatible with their automated systems. Such services include not only the traditional title insurance and escrow services provided by the CT&T Family of Title Insurers, but new services such as flood certifications, credit information and appraisals.
Two acquisitions were completed in 1995 that expanded CT&T's real estate-related services business and improved its ability to service mortgage lenders. In May 1995, CT&T acquired National Flood Information Services, Inc., a Delaware corporation based in Arlington, Texas ("NFIS"), which has provided flood certification services since 1987. In August 1995, Alleghany acquired Credit Data Reporting Services, Inc., a New York corporation ("CDRS"), in an exchange of stock, and subsequently contributed the stock of CDRS to CT&T. CDRS is headquartered in Kingston, New York and has been in the credit reporting business since 1941.
Federal law requires that lenders check flood maps maintained by the Federal Emergency Management Agency to determine whether a parcel of real property pledged to secure a loan is in a flood hazard zone. Property found to be in a flood hazard zone is required to be covered by flood insurance before it can be used to secure a loan. NFIS has the ability to check the flood zone status of any property located in the United States. NFIS is neither an issuer nor an underwriter of flood insurance policies.
In 1995, Congress instituted a new requirement that lenders monitor the flood zone status of a mortgaged property for the life of the loan. The previous requirement was to check the flood zone status only at the time of loan origination. The new law
created a significant increase in demand for the services of flood zone determination companies. To efficiently handle the increased demand, NFIS recently developed a proprietary system which can determine the flood zone status of many properties on an automated basis.
Mortgage credit reporting is a specialized task in that the secondary market requires the obtaining and merging of credit information from at least two of the three nationally recognized repositories of such information. CDRS has developed a state-of-the art proprietary system which can receive an order; obtain, edit and merge credit information from each of the three national repositories; and report back to the lending institution in a matter of seconds without human intervention. CDRS can also perform the investigative work required to verify items appearing on a borrower's mortgage loan application (e.g., employment, financial assets and disputed credit items).
In addition to these two new businesses, CT&T's National Mortgage Services ("NMS") unit maintains a network of 750 state-licensed contract appraisers covering all 50 states. Through this network, NMS offers a full array of property appraisal products for first and second mortgage residential loans. Property appraisals for commercial properties are also available on a limited basis.
To meet the demands of the marketplace for new real estate-related services, in 1995 CT&T formed a separate business unit, which includes NFIS, CDRS and NMS. This business unit has responsibility for coordinating the production and delivery of flood certifications, credit information and appraisals on a nationwide basis.
Financial Services
CT&T's Financial Services Group was restructured during 1995 under a new CT&T subsidiary, Alleghany Asset Management, a Delaware corporation. The financial services businesses conducted directly by CT&T were transferred to a recently acquired Illinois trust company renamed The Chicago Trust Company ("Chicago Trust"), which became a subsidiary of Alleghany Asset Management. Also transferred to Alleghany Asset Management were Montag & Caldwell, Inc. ("Montag & Caldwell"), an Atlanta-based investment counseling firm acquired in July 1994 in an exchange of stock and subsequently contributed by Alleghany to CT&T, and The Chicago Deferred Exchange Corporation, an Illinois corporation, which facilitates certain tax-deferred property exchanges.
The following are the significant lines of business within the Financial Services Group:
Institutional Investment Management--manages equity, fixed income, and balanced accounts primarily for employee benefit plans, foundations, endowments, corporations, insurance companies and Taft-Hartley plans.
Retirement Trust Resources--administers 401(k) plans, profit sharing plans, matching savings plan and money purchase pensions, and provides consulting services, for mid-sized companies primarily in the Midwest and South.
Personal Trust and Investment Services--provides investment management and trust and estate planning services primarily for accounts in the $250,000 to $50 million range.
Real Estate Trust Services--offers land trusts, which permit real estate to be conveyed to a trustee while reserving to the beneficiaries the full management and control of the property, and facilitates tax-deferred exchanges of income-producing real property.
CT&T Funds--a mutual fund family which offers the following eight no-load, open-end mutual funds:
--Chicago Trust Growth and Income Fund --Montag & Caldwell Growth Fund --Chicago Trust Talon Fund --Montag & Caldwell Balanced Fund --Chicago Trust Bond Fund --Chicago Trust Municipal Bond Fund --Chicago Trust Money Market Fund --Chicago Trust Asset Allocation Fund
While available to the general public, fund marketing is focused on specific niches, including rollover funds from existing clients in the Financial Services Group's 401(k) and pension fund programs, third party distribution channels, and new 401(k) clients.
As of December 31, 1995, Alleghany Asset Management, through its subsidiaries, managed assets totalling about $10.3 billion.
Investment Operations
Investments held by CT&T or any of its subsidiaries must comply with the insurance laws of the state of incorporation of the company holding the investment; relevant states are Illinois, Missouri, California, New York, and Oregon, as applicable. These laws prescribe the kind, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks and real estate mortgages.
CT&T's current investment strategy is to maximize after-tax investment income through a high-quality diversified investment portfolio, consisting primarily of taxable and tax-exempt fixed maturity securities, while maintaining an adequate level of liquidity.
The following table reflects investment results for CT&T for the years ended December 31, 1993, 1994 and 1995 (dollars in thousands):
Investment Results
Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments (1) Income (2) Income (3) Gains Yield (4) Yield (5)
(Losses)
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Year Ended
December 31, 1993 $939,842 $53,630 $37,160 $3,138 5.7% 4.0%
Year Ended
December 31, 1994 $896,509 $51,385 $36,502 ($5,447) 5.7% 4.1%
Year Ended
December 31, 1995 $836,462 $58,385 $41,342 $3,702 7.0% 4.9%
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(1) Average of amortized cost of fixed maturities plus cost of equity securities at beginning and end of period, excluding operating cash.
(2) Excludes realized gains or losses from sale of investments.
(3) Pre-tax investment income less appropriate income taxes.
(4) Pre-tax investment income for the period divided by average investments for the same period.
(5) After-tax investment income for the period divided by average investments for the same period.
The following table summarizes the investments of CT&T, excluding cash, as of December 31, 1995, with all investments carried at market value (dollars in thousands):
Investments
Amortized Cost
or Cost Market Value
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Amount Percentage Amount Percentage
Short-term investments............... $ 88,100 10.88% $ 88,100 10.58%
Corporate bonds...................... 105,423 13.02% 109,092 13.11%
United States government and 201,190 24.87% 208,484 25.05%
government agency bonds.......
Mortgage- and asset-backed 154,064 19.03% 157,324 18.90%
securities.....................
Municipal bonds...................... 215,318 26.60% 218,606 26.26%
Foreign bonds........................ 384 .04% 373 .04%
Redeemable preferred stock........... 6,363 .79% 6,609 .80%
Other preferred stock................ 5,754 .71% 5,623 .68%
Equity securities.................... 32,832 4.06% 38,130 4.58%
Total.......................... $809,428 100.00% $832,341 100.00%
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The following table indicates the composition of the long-term fixed maturity portfolio, including preferred stock, as of December 31, 1995 by the rating system of the National Association of Insurance Commissioners ("NAIC") (dollars in thousands):
Long-Term Fixed Maturity Portfolio by NAIC Rating
Market Value Percentage
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NAIC 1............................... $643,221 91.09%
NAIC 2............................... 45,985 6.51%
NAIC 3............................... 4,588 .65%
NAIC 6............................... 86 .01%
NAIC L & P3 (Preferred stock-
redeemable).................... 6,609 .94%
NAIC A, L & P3 (Preferred
stock-other)................... 5,622 .80%
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Total.......................... $706,111 100.00%
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The following table indicates the composition of the long-term fixed maturity portfolio, including preferred stock, by years until maturity as of December 31, 1995 (dollars in thousands):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
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One year or less*.................... $146,945 20.8%
Over one through five years.......... 284,690 40.3%
Over five through ten years.......... 68,631 9.7%
Over ten years....................... 48,521 6.9%
Mortgage- and asset-backed........... 157,324 22.3%
Total.......................... $706,111 100.0%
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* Included in this category are $5,623 of preferred stock-other and $6,609 of preferred stock-redeemable.
The principal tangible asset of CT&T and its subsidiaries is the investment portfolio. The entire investment portfolio is classified as available for sale. CT&T has a conservative investment philosophy with respect to both asset quality and maturity distribution. CT&T maintains a short-term investment portfolio ranging from approximately $100 million to $150 million, consisting of top rated commercial paper (A-1/ P-1), highest rated bank certificates of deposit, and institutional money market funds. The average maturity period of securities in the short-term portfolio is approximately 30 days. CT&T's long-term portfolio consists of top rated tax-exempt bonds, United States Treasury securities, corporate bonds of United States issuers, mortgage backed securities, and a limited amount of publicly traded common stocks. Average quality of the long-term portfolio is maintained at a Moody's rating of Aa3 or higher, with over 97 percent of all securities rated investment grade by Moody's and less than 1 percent in derivative instruments as of 1995 year-end. The duration of securities in the long-term portfolio is approximately 3.1 years, and is managed within a range of 2.3 to 4.0 years. This relatively short average portfolio maturity is maintained so that
investment income responds to changes in the level of interest rates, offsetting to some degree the cyclicality of title insurance operations.
CT&T does not specifically match particular assets to related liabilities, but instead holds the investment portfolio to a shorter maturity than liabilities. However, asset allocation and bond portfolio maturity are modified periodically based on the market outlook, interest rates and/or title insurance operating conditions.
Competition
The title insurance industry is competitive throughout the United States, with large firms such as CT&T's title insurers competing on a national basis, while smaller firms have significant market shares on a regional basis. During 1995, CTI, Security Union, Ticor Title, First American Title Insurance Company, Commonwealth Land Title Insurance Company, Stewart Title Insurance Co., Fidelity National Title Insurance Co., Lawyers Title Insurance Corporation and Old Republic Title Insurance Group, Inc. together accounted for approximately 85 percent of the revenues generated by title insurance companies. The CT&T Family of Title Insurers also competes with abstractors, attorneys issuing opinions and, in some areas, state land registration systems. Competition in the title insurance industry is primarily on the basis of service. In addition, the financial strength of the insurer has become an increasingly important factor in title insurance purchase decisions, particularly in multi-site transactions and investment decisions regarding real estate-related investment vehicles such as real estate investment trusts and real estate mortgage investment conduits.
Each of the businesses within CT&T's real estate-related services business unit faces significant competition from other real estate service providers. Mortgage lenders may choose to produce these services internally rather than purchase them from outside vendors. Competition is generally on the basis of service, technological capabilities and price.
Alleghany Asset Management and its subsidiaries compete with national, regional and local providers of financial services. Such competition is chiefly on the basis of service and investment performance.
Regulation
Title insurance companies are subject to regulation and supervision by state insurance regulators under the insurance statutes and regulations of states in which they are incorporated. CTI is incorporated in Missouri, Security Union is incorporated in California and has a title insurance subsidiary incorporated in Oregon, and Ticor Title is incorporated in California and has a title insurance subsidiary incorporated in New York. Each of these companies is also regulated in each jurisdiction in which it is authorized to write title insurance. Regulation and supervision vary from state to state, but generally cover such matters as the standards of solvency which must be met and maintained, the nature of limitations on investments, the amount of dividends which may be distributed to a parent corporation, requirements regarding reserves for unearned premiums and losses, the licensing of insurers and their agents, the approval of policy forms and premium rates, periodic examinations of title insurers and annual and other reports required to be filed on the financial condition of title insurance companies.
As insurance holding companies, Alleghany and CT&T are also subject to the insurance regulations of Missouri, California, Oregon and New York. The acquisition of CTI, Security Union and Ticor Title and their respective title insurance subsidiaries by Alleghany and/or CT&T was subject to prior approval from the insurance regulatory authorities in the states in which such title insurance companies are incorporated. Alleghany, CT&T and their other subsidiaries, however, are generally not subject to restrictions on their business activities due to their affiliation with CT&T's title insurance subsidiaries.
While CDRS and NFIS are not subject to direct regulatory supervision, federal and state laws governing real estate settlement practices, credit reporting and flood zone determinations significantly impact their businesses. NMS is a unit within CTI and is therefore subject to supervision by insurance industry regulators.
Acting as fiduciaries, CT&T and Chicago Trust are primarily regulated by the State of Illinois Commissioner of Banks and Trust Companies. Regulation covers such matters as the fiduciary's management capabilities, the investment of funds held for its own account, the soundness of its policies and procedures, the quality of the services it renders to the public and the effect of its trust activities on its financial soundness. Montag & Caldwell is a registered investment advisor and is therefore subject to regulation by the Securities and Exchange Commission, the state of Georgia, its
domiciliary jurisdiction, and all other states in which it is licensed to act in the capacity of investment advisor.
Employees
At December 31, 1995, CT&T and its subsidiaries had approximately 7,553 employees.
PROPERTY AND CASUALTY REINSURANCE AND INSURANCE BUSINESSES
Underwriters, headquartered in Woodland Hills, California, provides reinsurance to property and casualty insurers and reinsurers. Underwriters initially was organized in 1867 as a primary insurer in New York under the name "Buffalo German Insurance Company." By 1970, Underwriters had become principally a reinsurer, and in 1977 it changed its corporate domicile to New Hampshire. Underwriters is licensed in 37 states, Puerto Rico and the District of Columbia, is authorized to engage in business in three additional states and Canada, and has branch offices in Atlanta, Chicago, Houston, New York and Woodland Hills.
In October 1993, Alleghany acquired approximately 93 percent of the holding company which owns Underwriters, and thereafter contributed about $51 million in 1993 and $100 million in 1994 to the capital of Underwriters. The capital contribution in 1994 was in the form of about 6 million shares of Santa Fe common stock, which was subsequently converted into approximately 2.5 million shares of BNSF common stock. As of December 31, 1995, Underwriters' statutory surplus was $458 million. Underwriters' management currently owns about 3.2 percent of the capital stock of the holding company which owns Underwriters.
In 1995, Underwriters was upgraded from "A (Excellent)" to "A+ (Superior)" by A.M. Best Company, Inc., an independent insurance industry rating organization ("Best's"). Best's publications indicate that the higher rating is assigned to companies which Best's believes have achieved superior overall performance and have a very strong ability to meet their obligations over a long period of time. According to Best's, the rating reflects Underwriters' strong operating earnings, solid internal capital generation and forward market momentum.
Additionally, during 1995 Underwriters received an initial claims-paying ability rating of "AA- (Excellent)" from Standard & Poor's. Standard & Poor's publications
indicate that this rating is assigned to companies with strong capacity to meet policyholders obligations under a variety of economic and underwriting conditions.
Alleghany's acquisition of Underwriters was accounted for as a purchase, and therefore, the accounts of Underwriters and its results of operations included in Alleghany's financial statements reflect purchase accounting adjustments and are not comparable to Underwriters' prior reported results.
To capitalize on advantageous market conditions for certain primary insurance business lines and on Underwriters' expertise in specialized coverages, Underwriters established Commercial Underwriters Insurance Company ("CUIC") at the end of 1992. CUIC is a California property and casualty insurance company that focuses on specialized primary commercial insurance, individual commercial excess liability insurance and specialized personal lines liability insurance, including excess private passenger liability and comprehensive personal liability insurance. CUIC conducts its business in California on an admitted basis and in 31 other states, Guam and the District of Columbia on an approved, non-admitted basis. In 1995, CUIC generated $52 million in gross written premiums. Underwriters or CUIC retained $27 million of such amount, constituting 9 percent of Underwriters' consolidated net written premiums in 1995.
To further expand its ability to market specialized primary insurance lines, in 1994, Underwriters acquired an inactive Nebraska insurance company, which was subsequently renamed Underwriters Insurance Company ("UIC"). In connection with the acquisition, Underwriters was indemnified for all losses that occurred prior to the acquisition date. A capital contribution of $100 million was made to UIC, consisting principally of about 5 million shares of Santa Fe common stock, which was subsequently converted to approximately 2.1 million shares of BNSF common stock. UIC's statutory surplus was $112.1 million at 1994 year-end.
UIC has licenses to write primary property and casualty insurance in 33 states and the District of Columbia and will initially focus on primary and umbrella liability policies for medium- to large-sized businesses.
CUIC and UIC are also rated "A+ (Superior)" by Best's.
To capitalize on the considerable expertise of certain individuals in handling specialized classes of primary business, The Underwriting Center, Inc. ("The Underwriting Center") was established in 1995 as a wholly owned subsidiary of the
holding company which owns Underwriters. The focus of The Underwriting Center includes specialized products liability insurance, general liability insurance for certain insureds with significant self-insured retentions, and specialized environmental liability insurance. A subsidiary of The Underwriting Center acts as an agent and underwrites business on behalf of CUIC and, to a lesser extent, non-affiliated insurers. Such subsidiary also expects to underwrite business on behalf of UIC in the future. During 1995, approximately $19.0 million of gross written premium was underwritten by The Underwriting Center. The Underwriting Center has offices in Baltimore, Maryland; Kennesaw and Roswell, Georgia; and New York, New York.
To provide international underwriting opportunities to Underwriters, URC International, Inc., was established at the end of 1995 as a wholly owned subsidiary of the holding company which owns Underwriters.
General Description of Reinsurance
Reinsurance is an agreement between two insurance companies in which one company, the "reinsurer," agrees to indemnify the other company, the "cedent" or "ceding company," for all or part of the insurance risks underwritten by the ceding company. Reinsurance provides ceding companies with three major benefits: it reduces net liability on individual risks, protects against catastrophic losses and helps to maintain acceptable surplus and reserve ratios. Related to the last of these, reinsurance also provides the ceding company with additional underwriting capacity. Ordinarily, a ceding company will enter into a reinsurance agreement only if it will receive credit for the reinsurance ceded on its statutory financial statements; in general, such credit is allowed if the reinsurer meets the licensing and accreditation requirements of the ceding company's domicile, or the reinsurance obligations are appropriately collateralized.
In general, property insurance protects the insured against financial loss arising out of loss of property or its use, caused by an insured peril. Casualty insurance protects the insured against financial loss arising out of its obligation to others for loss or damage to persons or property. While both property and casualty reinsurance involve a high degree of volatility, property losses are generally reported within a relatively short time period after the event; in contrast, there tends to be a greater lag in the reporting and payment of casualty claims. Consequently, the losses associated with property risks are generally known in a shorter time than losses associated with casualty risks.
Underwriters provides reinsurance on both a treaty and facultative basis. Treaty reinsurance is based on a standing arrangement (a "treaty"), usually for a year, between a cedent and reinsurer for the cession and assumption of risks defined in the treaty. Under most treaties, the cedent is obligated to offer and the reinsurer is obligated to accept a specified portion of all such risks originally underwritten by the cedent. Risks are assumed under treaties without having been individually reviewed. Facultative reinsurance is the reinsurance of individual risks. Rather than agreeing to reinsure all or a portion of a class of risk, the reinsurer separately rates and underwrites each individual risk and is free to accept or reject each risk offered by the reinsured. Facultative reinsurance is normally purchased by insurance companies for risks not covered or covered only in part by their reinsurance treaties, and for unusual risks.
Underwriters writes treaty and facultative reinsurance in both of the major forms, pro rata and excess of loss. The pro rata form is an agreement in which the ceding company and reinsurer share the premiums as well as the losses and expenses of a single risk, or an entire group of risks, based upon an established percentage. Under excess of loss reinsurance, the reinsurer agrees to reimburse the ceding company for all losses in excess of a predetermined amount (commonly referred to as the cedent's "retention"), generally up to a predetermined limit. Excess of loss reinsurance is often written in layers or levels, with one reinsurer taking the risk from the cedent's retention level up to an established level, above which the risk is assumed by another reinsurer or reverts to the cedent. Excess of loss reinsurance allows the reinsurer to control better the relationship of the premium charged to the exposures assumed. The reinsurer assuming the risk immediately above the cedent's retention level is said to write "working layer" or "low layer" excess of loss reinsurance. A loss that reaches just beyond the cedent's retention level would create a loss for the lower level reinsurers but not for the reinsurers on higher layers.
Marketing
Underwriters primarily reinsures commercial general, auto and umbrella liability, professional liability, directors and officers' liability, workers' compensation, homeowners, marine and aviation and property clash* and catastrophe risks. Premiums associated with such risks comprised approximately 93 percent of Underwriters gross
written premiums for the year ended December 31, 1995. Underwriters concentrates on coverages requiring specialized underwriting expertise and a high degree of actuarial analysis.
An important element of Underwriters' marketing strategy is to respond quickly to market opportunities (such as increased demand or more favorable pricing) by adjusting the mix of the different lines of property and casualty business it writes. Underwriters writes certain unusual professional, environmental, directors and officers' liability and catastrophe coverages, again in the belief that these coverages offer greater potential for favorable results than more general coverages, based on current premium rates. Underwriters' business is not seasonal.
Underwriters writes 91 percent of its treaty business and 63 percent of its facultative business through reinsurance brokers. The remaining treaty business is principally reinsurance by Underwriters of a significant portion of the primary insurance written by The Underwriting Center. The remainder of its facultative business is written directly with ceding companies. By working primarily through brokers and The Underwriting Center, Underwriters does not need to maintain a large sales organization which, during periods of reduced premium volume, could comprise a significant and nonproductive part of overhead. In addition, Underwriters believes that submissions from the broker market, including certain targeted specialty coverages, are more numerous and diverse than would be available through a salaried sales organization, and Underwriters is able to exercise greater selectivity than would usually be possible in dealing directly with ceding companies.
Reinsurance brokers regularly approach Underwriters for quotations on reinsurance being placed on behalf of the ceding companies. In 1995, Underwriters paid brokers $10.8 million in commissions, which represents 3 percent of its gross written premiums of $385 million. Underwriters' five leading brokers, Holborn Agency, E.W. Blanch Company, Guy Carpenter & Co., AM-RE Brokers, Inc. and AON Reinsurance Agency, Inc., accounted for 35 percent of Underwriters' gross written premiums in 1995. None of the brokers accounted for 10 percent or more of such premiums. The brokers that account for relatively large percentages of gross written premiums tend to vary from year to year. While Underwriters has generally been successful in replacing brokers, there can be no assurance that it will continue to do so in the future. Underwriters does not believe that the loss of any one broker would have a material effect on Underwriters' financial condition or results of operation.
A significant percentage of Underwriters' gross written premiums are generally obtained from a relatively small number of ceding companies. In 1995, approximately 46 percent of gross written premiums were obtained from Underwriters' ten largest ceding companies. None of the ceding companies accounted for 10 percent or more of such premiums. The ceding companies that account for relatively large percentages of gross written premiums tend to vary from year to year. While Underwriters has generally been successful in replacing accounts that have not been renewed, there can be no assurance that it will continue to do so in the future. Underwriters does not believe that the loss of any one ceding company account would have a material effect on Underwriters' financial condition or results of operations.
Underwriting Operations
Underwriters maintains a disciplined underwriting strategy with a focus on generating profitable business rather than on increasing market share. Underwriters has maintained a defensive underwriting posture by withdrawing from lines of business that it considers to offer inadequate contract terms. Underwriters' underwriting discipline is enhanced by its focus on low level attachment points (i.e., dollar-levels at which risk is assumed). Such layers are characterized by greater loss frequency, lower loss severity and quicker loss settlement than layers with higher attachment points. Underwriters believes that these factors result in greater predictability of losses, which improves Underwriters' ability to analyze its exposures and price them appropriately.
Underwriters seeks to serve as lead or co-lead reinsurer on its treaties. As lead or co-lead reinsurer, Underwriters believes that it is able to more effectively influence the pricing and terms of the treaties and achieve better underwriting results. During 1995, Underwriters was a lead or co-lead reinsurer on a majority of its treaty business.
Treaty operations generated approximately $228.6 million or 78 percent
of Underwriters' consolidated net written premiums in 1995. Casualty lines
treaties represented approximately 66 percent of total treaty net written
premiums with the remainder represented by property lines treaties.
Approximately 86 percent of total treaty net written premiums represented treaty
reinsurance written on an excess of loss basis and the balance represented
treaty reinsurance written on a pro rata basis. In 1995, treaty net written
premiums increased 61 percent, or $87 million, from 1994. Underwriters believes
that the increase in such premiums is at least partly attributable to its
increased statutory
surplus level and upgraded Best's rating, which enabled it to attract more desirable reinsurance opportunities.
Underwriters' treaty department generally wrote up to $1.0 million per risk in 1995 on a net basis. In the case of certain clash coverage, Underwriters has written up to $2.5 million on a net basis and in limited circumstances has accepted more. The largest net risk assumed in 1995 was $14.0 million.
Facultative operations generated approximately $36.3 million or 12 percent of Underwriters' consolidated net written premiums in 1995. Casualty risks represented 89 percent of total facultative net written premiums with property risks comprising the remainder. Over 90 percent of total facultative net written premiums represented facultative reinsurance written on an excess of loss basis and the balance represented facultative reinsurance written on a pro rata basis. Facultative net written premiums decreased 19 percent, or $8.3 million, from 1994 due to the continuing soft market for casualty facultative reinsurance and Underwriters' decision to decline unprofitable business.
In 1995, Underwriters offered gross casualty facultative underwriting capacity of $2.5 million, with a net retention of $1.75 million. Underwriters has a $2.0 million gross property facultative underwriting capacity with a net retention of $0.7 million.
Retrocessional Arrangements
A reinsurer often reinsures some of its risk with other reinsurers ("retrocessionaires") pursuant to retrocessional agreements, and pays such retrocessionaires a portion of the premiums it receives. Reinsurance companies enter into retrocessional agreements for the same reasons that primary insurers purchase reinsurance.
Underwriters has retrocessional agreements with a number of domestic and international reinsurance companies. In the event that a retrocessionaire is unable to meet its obligations assumed under a retrocessional agreement, Underwriters remains liable to its ceding companies for the portion reinsured. Consequently, one of the most important factors in Underwriters' selection of retrocessionaires is financial strength.
Underwriters carefully evaluates potential retrocessionaires and, once engaged, monitors the financial condition of such retrocessionaires and takes appropriate actions to
eliminate or minimize bad debt exposure. As a general rule, Underwriters requires that unpaid losses and loss adjustment expenses for non-admitted reinsurers that are not regulated by domestic insurance regulatory authorities be collateralized by letters of credit, funds withheld or pledged trust agreements. Additionally, commutations may be taken to reduce or eliminate exposure when necessary. Underwriters did not experience any significant difficulty with retrocessionaires fulfilling their obligations in 1995, 1994 and 1993. As of December 31, 1995, Underwriters had an allowance for estimated unrecoverable reinsurance of $2.1 million.
Underwriters currently has reinsurance contracts in force which cede to retrocessionaires risks in excess of Underwriters' net risk retention, ceding up to $0.75 million per casualty facultative risk and up to $1.3 million per property facultative risk. Underwriters also has an aggregate reinsurance contract to cover losses up to $50 million, incurred during the period July 1, 1995 through June 30, 1996 in excess of a 72 percent loss and loss adjustment expense ratio. The contract covers essentially all lines of business written by Underwriters; however, property catastrophe losses are subject to a sublimit of $40 million. Also, Underwriters from time to time purchases retrocessional reinsurance in varying amounts for specific assumed treaties.
Underwriters has two reinsurance contracts with a subsidiary of Continental Insurance Group (the "Continental reinsurance contracts") that provide coverage for pre-1987 business up to an aggregate limit of $200 million. Underwriters began receiving quarterly payments under these contracts in 1994 reducing the reinsurance receivable from $200 million to $149.1 million at year-end 1995. Such receivable is secured by a combination of letters of credit and a trust fund dedicated solely to payments under the Continental reinsurance contracts.
As of December 31, 1995, Underwriters had reported reinsurance receivables of $399.8 million through retrocessional agreements, including $149.1 million of reinsurance receivables under the Continental reinsurance contracts. In addition, $106.4 million is due from another reinsurer, which amount is fully secured with a combination of letters of credit and funds withheld.
Outstanding Losses and Loss Adjustment Expenses
In many cases, significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the reinsurer, the insurer's payment of that loss and subsequent payments by the reinsurer. To recognize liabilities
for unpaid losses, insurers and reinsurers establish "reserves," which are balance sheet liabilities representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred, including events which have not been reported to the insurer.
When a claim is reported by the ceding company, Underwriters establishes a "case" reserve for the estimated amount of Underwriters' ultimate payment. Such reserves are based upon the amounts recommended by the ceding company and are supplemented by additional amounts as deemed necessary by Underwriters, after an evaluation of numerous factors including coverage, liability, severity of injury or damage, jurisdiction and ability of the ceding company to evaluate and handle the claim properly. In many cases Underwriters establishes case reserves even when the ceding company believes the reinsurer has no liability. In no instance is the case reserve established by Underwriters less than that suggested by the ceding company. These reserves are periodically adjusted by Underwriters based on its evaluation of subsequent reports from and audits of the ceding company.
Incurred but not reported ("IBNR") reserves are established on an aggregate basis to provide for losses incurred but not yet reported to the reinsurer and to supplement the overall adequacy of reported case reserves and estimated expenses of settling such claims, including legal and other fees and general expenses of administering the claims adjustment process. Underwriters establishes IBNR reserves by using accepted loss reserving standards and principles to estimate the ultimate liability for losses and loss adjustment expenses ("LAE"). The process implicitly recognizes the impact of inflation and other factors that affect claims reporting by taking into account changes in historic loss reporting patterns and perceived probable trends.
Underwriters performs reviews of aggregate loss reserves at least twice each year. Between the semi-annual reviews, Underwriters updates its loss reserves by applying the loss ratios determined in the previous review to earned premiums to date, less incurred losses reported. Underwriters does not discount its reserves for reported or unreported claims for anticipated investment income. There are inherent uncertainties in estimating reserves primarily due to the long-term nature of most reinsurance business, the diversity of development patterns among different lines of business and types of reinsurance, and the necessary reliance on the ceding company for information regarding claims. Actual losses and LAE may deviate, perhaps substantially, from reserves on Underwriters' financial statements, which could have a material adverse effect on Underwriters'
financial condition and results of operations. Based on current information, Underwriters believes reserves for losses and LAE at December 31, 1995 are adequate.
Underwriters' reserve for losses and LAE include amounts for various liability coverages related to asbestos and environmental impairment claims that arose from general liability and certain commercial multiple-peril coverages. Restrictive asbestos and environmental impairment exclusions were introduced in late 1986 on both primary and reinsurance contracts, significantly reducing these exposures for accidents occurring after 1986. Reserves for asbestos and environmental impairment claims cannot be estimated with traditional loss reserving techniques because of uncertainties that are greater than those associated with other types of claims. Factors contributing to those uncertainties include a lack of historical data, the significant period of time that has elapsed between the occurrence of the loss and the reporting of that loss to the ceding company and the reinsurer, uncertainty as to the number and identity of insureds with potential exposure to such risks, unresolved legal issues regarding policy coverage, and the extent and timing of any such contractual liability. Such uncertainties are not likely to be resolved in the near future.
As with all reinsurance claims, Underwriters establishes case reserves for both asbestos and environmental excess of loss reinsurance claims by applying reinsurance contract terms to losses reported by ceding companies, analyzing from the first dollar of loss incurred by the primary insurer. Additionally, ceding companies often report potential losses on a precautionary basis (a "precautionary notice") to protect their rights under reinsurance contracts, which generally call for prompt notice to the reinsurer. Ceding companies, at the time they report such potential losses, advise Underwriters of the ceding companies' current estimate of the extent of such loss. Underwriters reviews each of these precautionary notices and, based upon current information, assesses the likelihood of loss to Underwriters. Such assessment is one of the factors used in determining the adequacy of IBNR reserves.
For asbestos claims, emphasis is placed on a review of precautionary notices with a named insured previously linked to large asbestos exposure (a "target defendant"). If the named insured is a "target defendant," Underwriters considers there is a probability of loss even if the named ceding company has not reported reserves. IBNR reserves are recorded based on this review, as well as the additional subjective consideration of the aggregate reported losses (approximately $4.0 million per year) and paid losses (approximately $2.2 million per year) for the last three years. The per year figures are net of reinsurance, including the Continental reinsurance contracts.
For environmental claims, Underwriters establishes case reserves and reviews precautionary notices as described above. Ultimate environmental claims exposure is especially uncertain because of the problematic apportionment of clean-up costs, the uncertain enforceability of contract exclusions and the lack of specific "target defendants." IBNR reserves are recorded based on Underwriters' assessment of precautionary notices and a review of aggregate reported losses (approximately $4.6 million per year) and paid losses (approximately $0.5 million per year) for the last three years. The per year figures are net of reinsurance, including the Continental reinsurance contracts.
During the three years ended December 31, 1995, the average net loss payment per claim (open and settled) for asbestos and environmental exposures, excluding cessions to the Continental reinsurance contracts, was $25,000 and $18,000, respectively, and the highest paid loss was $1.9 million for an asbestos claim and $0.6 million for an environmental claim, in each case net of ceded reinsurance (excluding cessions to the Continental reinsurance contracts). Most claims paid to date have been paid under contracts with varying levels of retention by the ceding company or insurer. Although the range of losses paid by Underwriters has been wide, most losses paid involve lower dollar amounts.
As of December 31, 1995, Underwriters' case and IBNR reserves (net of reinsurance, including cessions to the Continental reinsurance contracts) totalled about $14.5 million for asbestos-related liabilities, which includes reserves for approximately 833 open claims where cedents have advised Underwriters that they currently expect to recover from Underwriters. As of December 31, 1995, Underwriters' case and IBNR reserves (net of reinsurance, including cessions to the Continental reinsurance contracts) totalled about $19.6 million for environmental impairment claims, which includes reserves for approximately 613 open claims where cedents have advised Underwriters that they currently expect to recover from Underwriters. Additionally, ceding companies have submitted about 1,059 precautionary notices for asbestos-related claims and 7,612 precautionary notices for environmental impairment claims to Underwriters; however, based on information provided by the ceding companies and Underwriters' assessment of such claims, Underwriters does not expect such underlying losses to grow large enough to reach Underwriters' layer of reinsurance coverage.
The reconciliation of the beginning and ending reserves for unpaid losses and LAE related to asbestos and environmental impairment claims for the last three years (net of cessions to the Continental reinsurance contracts, but excluding an additional $35.8
million provision for such claims, discussed in the text following the tables), is shown below (in thousands):
Reconciliation of Asbestos-Related Claims Reserve for Losses and LAE
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 10,136 $ 10,000 $ 9,000
Incurred loss, net of reinsurance......................... 4,358 3,505 4,173
Paid loss, net of reinsurance............................. 0 (3,369) (3,173)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 14,494 10,136 10,000
Reinsurance recoverables, as of December 31............... 23,858 32,487 21,560
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 38,352 $ 42,623 $ 31,560
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 4,494 $ 136 $ 0
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 14,494 $ 10,136 $ 10,000
======== ======== ========
|
Reconciliation of Environmental Impairment Claims Reserve for Losses and LAE
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 16,198 $ 12,879 $ 7,256
Incurred loss, net of reinsurance......................... 3,402 3,074 7,230
Paid loss, net of reinsurance............................. 0 245 (1,607)
-------- -------- --------
Reserve, net of reinsurance recoverables, as
of December 31..................................... 19,600 16,198 12,879
Reinsurance recoverables, as of December 31............... 12,896 17,994 14,803
-------- -------- --------
Reserve, gross of reinsurance recoverables,
as of December 31.................................. $ 32,496 $ 34,192 $ 27,682
======== ======== ========
Type of Reserve, net of reinsurance recoverables:
Case................................................. $ 9,600 $ 6,198 $ 2,879
IBNR................................................. 10,000 10,000 10,000
-------- -------- --------
Total..................................................... $ 19,600 $ 16,198 $ 12,879
======== ======== ========
|
Increases to asbestos-related and environmental impairment claims reserves, if any, would be covered to varying degrees, if at all, by Underwriters' existing reinsurance contracts with its retrocessionaires.
In addition to the case and IBNR reserves for asbestos-related and environmental impairment claims reported in the tables above, Underwriters carried an additional reserve for such exposures in their financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). The amount of such reserve was $32.4 million as of December 31, 1995, compared with $35.8 million as of December 31, 1994. Taking into consideration these additional reserves, Underwriters believes that its total asbestos-related and environmental impairment reserves are a reasonable provision for such claims.
The table below shows changes in historical net loss and LAE reserves for Underwriters for each year since 1985. Reported reserve development is derived primarily from information included in Underwriters' statutory financial statements. The first line of the upper portion of the table shows the net reserves at December 31 of each of the indicated years, representing the estimated amounts of net outstanding losses and LAE for claims arising during that year and in all prior years that are unpaid, including losses that have been incurred but not yet reported to Underwriters. The upper (paid) portion of the table shows the cumulative net amounts paid as of December 31 of successive years with respect to the net reserve liability for each year. The lower (liability re-estimated) portion of the table shows the re-estimated amount of the previously recorded net reserves for each year based on experience as of the end of each succeeding year. The estimate changes as more information becomes known about claims for individual years. In evaluating the information in the table, it should be noted that a reserve amount reported in any period includes the effect of any subsequent change in such reserve amount. For example, if a loss was first reserved in 1987 at $100,000 and was determined in 1990 to be $150,000, the $50,000 deficiency would be included in the Cumulative Redundancy (Deficiency) row shown below for each of the years 1987 through 1989.
Conditions and trends that have affected the development of the net reserve liability in the past may not necessarily occur in the future. Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies based on this table. During the mid-1980's, the reinsurance industry, including Underwriters, experienced substantial underwriting losses. Such losses are reflected in the table, beginning with the comparatively high cumulative deficiencies in the years 1985-86. The $35.8 million reserve strengthening in 1993, along with prior increases to asbestos-related and environmental impairment reserves, was the primary cause of the cumulative reserve deficiencies in the years 1988-92.
Changes in Historical Net Reserves for Losses and LAE
(in millions)
Year Ended December 31,
-------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net liability as of the end
of year*........................... $ 279 $ 359 $ 470 $ 461 $453 $411 $411 $437 $509 $536 $ 628
Cumulative amount of net
liability paid as of:
One year later.................. $ 80 $ 94 $ 116 $ 119 $137 $101 $ 84 $ 98 $112 $102 --
Two years later................. 161 193 208 242 227 173 161 178 189 -- --
Three years later............... 258 277 330 306 285 239 214 236 -- -- --
Four years later................ 341 375 380 348 342 274 254 -- -- -- --
Five years later................ 389 407 416 394 370 294 -- -- -- -- --
Six years later................. 404 423 458 414 384 -- -- -- -- -- --
Seven years later............... 413 460 475 425 -- -- -- -- -- -- --
Eight years later............... 445 471 483 -- -- -- -- -- -- -- --
Nine years later................ 454 475 -- -- -- -- -- -- -- -- --
Ten years later................. 458 -- -- -- -- -- -- -- -- -- --
Net liability re-estimated
as of:
One year later.................. 341 439 481 454 457 414 412 483 516 539 --
Two years later................. 426 449 473 457 460 421 455 487 518 -- --
Three years later............... 432 441 476 462 474 465 460 491 -- -- --
Four years later................ 428 444 478 492 520 472 469 -- -- -- --
Five years later................ 426 445 516 538 528 485 -- -- -- -- --
Six years later................. 427 484 562 548 545 -- -- -- -- -- --
Seven years later............... 454 531 572 568 -- -- -- -- -- -- --
Eight years later............... 495 539 591 -- -- -- -- -- -- -- --
Nine years later................ 498 554 -- -- -- -- -- -- -- -- --
Ten years later................. 511 -- -- -- -- -- -- -- -- -- --
Cumulative Redundancy
(Deficiency)................. $(232) $(195) $(121) $(107) $(92) $(74) $(58) $(54) $ (9) $(3) --
Gross Liability-End of Year $861 $940 $1,014
Reinsurance Recoverable 352 404 386
---- ---- ------
Net Liability - End of Year 509 536 $ 628
==== ==== ======
Gross Re-estimated Liability-Latest 959 953
Re-estimated Recoverable-Latest 441 414
---- ----
Net Re-estimated Liability-Latest $518 $539
==== ====
|
*Amounts for 1985-1986 were determined in accordance with statutory accounting principles.
The reconciliation between the reserves reported in the annual statement filed with state insurance departments in accordance with statutory accounting practices ("SAP") and those reported in Underwriters' consolidated financial statements prepared in accordance with GAAP for the last three years is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE from SAP Basis to GAAP Basis
December 31
--------------------------------------------------
1995 1994 1993
---- ---- ----
Statutory Reserves........................................ $ 596,070 $500,567 $473,625
Additional Mass Action Reserves (1)....................... 32,350 35,750 35,750
Reinsurance Recoverables.................................. 385,580 404,210 351,829
---------- -------- --------
GAAP Reserves............................................. $1,014,000 $940,527 $861,204
========== ======== ========
|
(1) Amount represents additional reserves recorded by Underwriters in 1993 for probable asbestos-related and environmental impairment claims exposure.
The reconciliation of reserves for the last three years on a GAAP basis is shown below (in thousands):
Reconciliation of Reserves for Losses and LAE
1995 1994 1993
---- ---- ----
Reserve, net of reinsurance recoverables,
as of January 1.................................... $ 536,317 $ 509,375 $ 436,601
Incurred Loss, net of reinsurance,
related to:
Current year....................................... 200,543 146,426 143,723
Prior years........................................ 2,565 6,630 46,404
---------- --------- ---------
Total Incurred Loss, net of reinsurance................... 203,108 153,056 190,127
---------- --------- ---------
Paid Loss, net of reinsurance, related to:
Current year....................................... (9,239) (13,826) (19,640)
Prior years........................................ (101,766) (112,288) (97.713)
---------- --------- ---------
Total Paid Loss, net of reinsurance....................... (111,005) (126,114) (117,353)
---------- --------- ---------
Reserve, net of reinsurance recoverables,
as of December 31.................................. 628,420 536,317 509,375
Reinsurance recoverables, as of December 31............... 385,580 404,210 351,829
---------- --------- ---------
Reserve, gross of reinsurance
recoverables, as of December 31.................... $1,014,000 $ 940,527 $ 861,204
========== ========= =========
|
Investment Operations
Underwriters' investments must comply with the insurance laws of New Hampshire, California and Nebraska, the domiciliary states of Underwriters, CUIC and UIC, respectively, and the other states in which they are licensed. These laws prescribe the kind, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject
to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks and real estate mortgages.
Underwriters' investment strategy is to match the average duration of its high-quality diversified fixed maturity portfolio to the average adjusted duration of its liabilities, which approximates 4 years, and to provide sufficient cash flow to meet its obligations while maximizing its after-tax rate of return. The average adjusted duration of liabilities is estimated by adjusting the average duration of liabilities to reflect anticipated cash flows from writings of future business. Securities may be sold to take advantage of investment opportunities created by changing interest rates, prepayments, tax and credit considerations or other factors. The entire fixed maturity portfolio is designed to be able to react to such opportunities or other situations that may otherwise result in a mismatch between the duration of assets and liabilities and as such is classified as available for sale.
The following table reflects investment results for the fixed maturity portfolio of Underwriters for the three months ended December 31, 1993 and the years ended December 31, 1994 and 1995 (dollars in thousands):
Investment Results
Net Net
Pre-Tax After-Tax Pre-Tax After
Average Investment Investment Realized Effective Tax
Period Investments (1) Income (2) Income (3) Losses Yield (4) Yield (5)
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
December 31, 1993 $728,478 $10,390 $ 7,943 $2,381 5.7% 4.4%
Year Ended
December 31, 1994 $748,681 $41,226 $32,465 $6,115 5.5% 4.3%
Year Ended
December 31, 1995 $797,132 $50,173 $36,113 $5,476 5.9% 4.5%
|
(1) Average of amortized cost of fixed maturities at beginning and end of period, excluding operating cash.
(2) After investment expenses, excluding realized gains or losses from sale of investments.
(3) Net pre-tax investment income less appropriate income taxes.
(4) Net pre-tax investment income for the period, annualized for the three months ended December 31, 1993, divided by average investments for the same period.
(5) Net after-tax investment income for the period, annualized for the three months ended December 31, 1993, divided by average investments for the same period.
As of December 31, 1995, the equity portfolio of Underwriters was carried at a market value of approximately $210.4 million with an original cost of approximately $114.7 million, and consisted primarily of approximately 2.5 million shares of BNSF common stock. The cost of equities listed in the table below, $88.9 million, represents the cost paid by Alleghany prior to being contributed to Underwriters. In 1995, Underwriters realized a gain of $0.1 million related to the sale of equity securities and had dividend income of $3.3 million therefrom.
The following table summarizes the investments of Underwriters, excluding cash, as of December 31, 1995, with all investments carried at market value (dollars in thousands):
Investments
Amortized Cost
or Cost Market Value
-----------------------------------------------------------
Amount Percentage Amount Percentage
Short-term investments..................... $126,944 14% $126,944 12%
Corporate bonds............................ 142,171 15 142,658 13
United States government and
government agency bonds............. 38,009 4 38,510 4
Mortgage- and asset-backed
securities.......................... 283,797 30 287,941 27
Foreign bonds.............................. 16,259 2 16,429 1
Redeemable preferred stocks................ 18,773 2 18,679 2
Municipal bonds............................ 222,611 24 222,093 21
Equity securities (1)...................... 88,889 9 210,382 20
-------- ---- ---------- ----
Total............................... $937,453 100% $1,063,636 100%
======== ==== ========== ====
|
(1) Includes 2,474,823 shares of BNSF common stock at the original cost to Alleghany.
The following table indicates the composition of the long-term fixed maturity portfolio by Moody's rating as of December 31, 1995 (dollars in thousands):
Long-Term Fixed Maturity Portfolio by Moody's Rating
Market Value Percentage
------------ ----------
Aaa....................................................... $406,448 56%
Aa........................................................ 135,165 19
A......................................................... 146,535 20
Baa....................................................... 27,924 4
Ba........................................................ 10,238 1
-------- ---
Total............................................ $726,310 100%
======== ===
|
The following table indicates the composition of the long-term fixed maturity portfolio by years until maturity as of December 31, 1995 (dollars in thousands):
Long-Term Fixed Maturity Portfolio by Years Until Maturity
Market Value Percentage
------------ ----------
One year or less.......................................... $ 16,266 2%
Over one through five years............................... 128,178 18
Over five through ten years............................... 153,822 21
Over ten years............................................ 140,103 19
Mortgage- and asset-backed securities..................... 287,941 40
-------- ---
Total............................................ $726,310 100%
======== ===
|
Competition
Competition in the property and casualty reinsurance industry has historically been cyclical in nature. Typically, a cycle begins with attractive premium rates for reinsurance, which cause increased writing by existing reinsurers and the entrance into the market of new reinsurers. Competition within the market continues to grow, resulting in a decrease in premium rates. As the cycle continues, assuming loss experience is consistent, these declining premium rates eventually result in a period of underwriting losses. Such losses in turn cause reinsurers to slow or stop writing reinsurance or to withdraw from the market altogether, which results in decreased competition and a subsequent increase in premium rates. Underwriters believes this competitive cycle, which may affect particular market segments at different times, is a critical factor affecting reinsurance profitability over time. There is no assurance that historical trends in the property and casualty reinsurance industry will continue or that Underwriters will be able to accurately anticipate any such trends.
The property and casualty reinsurance business at times is highly competitive, depending upon the cycle described above. Underwriters competes primarily in the United States reinsurance market with numerous foreign and domestic reinsurers, many of which have greater financial resources than Underwriters. Competition in the types of reinsurance in which Underwriters is engaged is based on many factors, including the perceived overall financial strength of the reinsurer, premiums charged, contract terms and conditions, services offered, speed of claims payment, reputation and experience.
Underwriters' competitors include independent reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain primary insurance companies and domestic, European and Asian underwriting syndicates.
To enhance Underwriters' financial strength, Alleghany, through the holding company which owns Underwriters, contributed a total of approximately $151 million in cash and equity securities to the capital of Underwriters in 1993 and 1994. Underwriters' enhanced financial strength has allowed it to benefit from the continuing trend toward consolidation in the domestic reinsurance market, resulting from the tendency of
reinsurance buyers to purchase coverage from larger and more financially secure reinsurers. According to the Reinsurance Association of America, at December 31, 1995, there were 56 domestic professional reinsurers, and Underwriters was the nation's eleventh-largest in terms of statutory surplus and fourteenth-largest in terms of net premiums written.
The commercial property and casualty insurance industry is highly competitive chiefly on the basis of price and service. CUIC's competitors include other primary insurers and new forms of insurance organizations such as alternative self-insurance mechanisms. Many of CUIC's competitors have considerably greater financial resources, greater experience in the insurance industry and offer a broader line of insurance products than CUIC.
Regulation
Underwriters, CUIC and UIC are subject to regulation and supervision by state insurance regulators under the insurance statutes and regulations of states in which they are incorporated (New Hampshire, California and Nebraska, respectively). In addition, each of these companies is regulated in each jurisdiction in which it conducts business. Among other things, insurance statutes and regulations typically limit the amount of dividends that can be paid without prior regulatory notification and approval, impose restrictions on the amounts and types of investments that may be held, prescribe solvency standards that must be met and maintained, require filing of annual or other reports with respect to financial condition and other matters and provide for periodic examinations of Underwriters, CUIC and UIC.
The terms and conditions of reinsurance agreements generally are not subject to regulation by any governmental authority with respect to rates or policy terms. These agreements contrast with primary insurance policies and agreements, the rates and policy terms of which are generally closely regulated by state insurance departments. As a practical matter, however, the rates charged by primary insurers have an effect on the rates that can be charged by reinsurers.
The Underwriting Center is subject to regulation and supervision by the state insurance regulators in the states in which its subsidiary is licensed as an insurance agency (Maryland, Georgia and New York). Such regulations address the solicitation and effectuation of insurance in such states and impose certain requirements relating to,
among others things, countersignatures, continuing education and maintenance of trust accounts.
As an insurance holding company, Alleghany is also subject to the insurance regulations of New Hampshire, California and Nebraska. Each state required prior regulatory approval of Alleghany's acquisition of Underwriters, CUIC and UIC, respectively. Alleghany and its other subsidiaries, however, are generally not subject to restrictions on their business activities due to their affiliation with Underwriters.
Beginning with the 1994 year end statutory financial statements, the insurance laws of New Hampshire, California and Nebraska imposed risk based capital ("RBC") requirements on property and casualty insurers and reinsurers, based on a model adopted by the National Association of Independent Insurers. The RBC laws, and the instructions thereunder, attempt to measure a property and casualty company's statutory capital and surplus needs, taking into account the risk characteristics of the companies' investments and products. The RBC laws provide for four different levels of regulatory attention, dependent upon the ratio of a company's total adjusted capital to its risk-based capital (the "RBC ratio"), providing regulators with an early warning tool to identify weakly capitalized companies for purposes of initiating further regulatory action. At December 31, 1995, each of Underwriters, CUIC and UIC had RBC ratios well in excess of the first level at which regulatory attention under such laws would be warranted.
Employees
Underwriters employed 193 persons as of December 31, 1995.
INDUSTRIAL MINERALS BUSINESS
On July 31, 1991, a holding company subsidiary of Alleghany acquired all of Manville Corporation's worldwide industrial minerals business, now conducted principally through World Minerals, at a cost of about $144 million, including capitalized expenses. The present chief executive officer of World Minerals currently owns an equity interest, including outstanding options, of about 6.6 percent of World Minerals' immediate parent company.
World Minerals is principally engaged in the production and sale of two industrial minerals, diatomite and perlite:
Diatomite
World Minerals conducts its diatomite business through its Celite subsidiary.
In 1995, World Minerals, through various subsidiaries of Celite, acquired controlling interests in three joint ventures which are engaged in the mining and processing of diatomite in Jilin Province, Peoples Republic of China ("PRC"). Two of the three joint ventures are in the start-up phase of production and the third is under construction.
Celite is believed to be the world's largest producer of filter-aid grade diatomite, which it markets worldwide under the Celite(R) and Kenite(R) brand names; Celite also markets filter-aid grade diatomite in Europe under the Primisil(R) brand name and in Latin America and other areas under the Diactiv(R) brand name. Celite also produces calcium silicate products and magnesium silicate products, which are sold worldwide under the MicroCel(R) and Celkate(R) brand names (except in portions of Europe where calcium silicate products are sold under the Calflo(R) brand name).
Diatomite is a silica-based mineral consisting of the fossilized remains of microscopic freshwater or marine plants. Diatomite's primary applications are in filtration and as a functional filler. Filtration accounts for the majority of the worldwide diatomite market and for over 50 percent of Celite's diatomite sales. Diatomite is used as a filter aid in the production of beer, food, juice, wine, water, sweeteners, fats and oils, pharmaceuticals, chemicals, lubricants and petroleum; it is used as a filler, mainly in paints, and as an anti-block agent in plastic film.
Celite's calcium and magnesium silicate products, which have high surface area and adsorption and absorption capabilities, are used to convert liquid, semi-solid and sticky ingredients into dry, free-flowing powders. Celite's calcium and magnesium silicate products are used in the production of rubber, sweeteners, flavorings and pesticides.
Perlite
World Minerals conducts its perlite business through its Harborlite and Europerlite subsidiaries.
On November 16, 1992, New Harborlite Corporation ("Harborlite"), a newly formed subsidiary of World Minerals, acquired all of the capital stock of Harborlite Corporation ("Old Harborlite"), a privately-owned perlite filter-aid company, for cash and non-voting preferred stock of Harborlite. All of World Minerals' pre-existing perlite operations were transferred to Harborlite, and Old Harborlite was merged into Harborlite, which was then renamed Harborlite Corporation.
On October 31, 1995, World Minerals, through its Europerlite subsidiary, acquired control of all of the capital stock of two privately owned perlite filter aid companies with operations in Italy and Spain, respectively, and a privately owned perlite sales company in Spain.
World Minerals believes that Harborlite and Europerlite are, in the aggregate, the world's largest producer of perlite filter aids and that Harborlite, which is also engaged in the business of selling perlite ore, is the world's largest merchant producer of perlite ore. These products are marketed worldwide under the Harborlite(R) and Europerl(R) brand names.
Perlite is a volcanic rock which contains between 2 percent and 5 percent natural combined water. When heated rapidly, the natural combined water turns explosively to steam and the perlite ore "pops" in a manner similar to popcorn, expanding up to twenty times its original volume and creating a soft material with large surface area and correspondingly low density.
Perlite ore is mined at Harborlite's No Agua, New Mexico mine and is sold to companies that expand it in their own expansion plants and use it primarily in the manufacture of roofing board, formed pipe insulation and acoustical ceiling tile. Perlite ore for filter-aid and certain filler applications is mined at Harborlite's Superior, Arizona mine and is expanded at one of Harborlite's six expansion plants located within the United States. Expanded perlite is also produced at Harborlite's expansion plants in Hessle, United Kingdom and Wissembourg, France and Europerlite's expansion plants in Barcelona, Spain and Milan, Italy, from perlite ore obtained from Harborlite's perlite mine in Dikili, Turkey and from merchant ore producers in Europe. Most of the expanded perlite is used as a filter aid in the brewing, food, wine, sweetener, pharmaceutical, chemical and lubricant industries, or as a filler and insulating medium in various construction applications.
World Minerals directs its business from its world headquarters in Lompoc, California. Its Celite subsidiary also has its world headquarters in Lompoc, California and owns, directly or through wholly owned subsidiaries, diatomite mines and processing plants in Lompoc, California; Quincy, Washington; Murat, France; Alicante, Spain; Arica, Chile; and Guadalajara, Mexico. Celite also owns 48.6 percent of Kisilidjan, h.f., a joint venture with the Government of Iceland which mines and processes diatomite from Lake Myvatn in Iceland and controlling interests in three joint ventures which mine and process diatomite in Jilin Province, PRC.
Harborlite is currently relocating its world headquarters to Houston, Texas and owns a perlite mine and mill in No Agua, New Mexico; Superior, Arizona; and Dikili, Turkey; a perlite loading facility in Antonito, Colorado; and perlite expansion facilities in Escondido, California; Green River, Wyoming; Laporte, Texas; Youngsville, North Carolina; Vicksburg, Michigan; Quincy, Florida; Wissembourg, France; and Hessle, England.
Europerlite has its world headquarters in Lompoc, California and owns perlite expansion plants in Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining and processing operations in ten countries. In 1995, approximately 37 percent of World Minerals' revenues (equal to 3.7 percent of Alleghany's consolidated revenues from continuing operations) were generated by foreign operations, and an additional 13 percent of World Minerals' revenues were generated by export sales from the United States. While World Minerals believes that the international scope of its operations gives it unique competitive advantages, international operations can be subject to additional risks, such as currency fluctuations, changes in foreign legal requirements and political instability. World Minerals closely monitors its methods of operating in each country and adopts strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency fluctuation by, among other things, having its foreign subsidiaries declare and pay dividends whenever feasible and invoice their export customers in United States dollars or other "hard currencies." World Minerals' foreign operations do not subject Alleghany to a material risk from foreign currency fluctuation.
Celite's largest diatomite mine and plant is located in Lompoc, California. All additional diatomite supplies are currently obtained by Celite from its mines in the state of
Washington, France, Spain, Mexico, Chile, PRC and from the Lake Myvatn mine in Iceland (although environmental regulations and seismic activity may adversely affect future production at Lake Myvatn). Celite believes that its diatomite reserves at each site are generally sufficient to last for at least 20 more years at the current rate of utilization.
Harborlite obtains perlite ore in the United States from its No Agua and Superior mines, and believes that its perlite ore reserves at each site are sufficient to last at least 20 more years at the current rate of utilization. The perlite used by Harborlite and Europerlite for expansion in Europe is obtained from Harborlite's Dikili mine and from third parties in Europe.
Celite's silicate products are produced from purchased magnesium and calcium compounds and internally produced diatomite.
World Minerals experienced no interruption in raw material availability in 1995, and barring unforeseen circumstances anticipates no such interruption in 1996. While there can be no assurance that adequate supplies of all raw materials will be available in the future, Celite, Europerlite and Harborlite believe that they have taken reasonable precautions for the continuous supply of their critical raw materials.
Many of Celite's, Europerlite's and Harborlite's operations use substantial amounts of energy, including electricity, fuel oil, natural gas, and propane. Celite, Europerlite and Harborlite have supply contracts for most of their energy requirements. Most of such contracts are for one year or less. Celite, Europerlite and Harborlite have not experienced any energy shortages and they believe that they have taken reasonable precautions to ensure that their energy needs will be met, barring any unusual or unpredictable developments.
From the time World Minerals began operations in 1991, none of its customers accounted for 10 percent or more of World Minerals' annual sales.
World Minerals presently owns, controls or holds licenses either directly or through its subsidiaries to approximately 25 United States and 41 foreign patents and patent applications. While World Minerals considers all of its patents and licenses to be valuable, World Minerals believes that none of its patents or licenses is by itself material to its business.
World Minerals normally maintains approximately a one- to three-week supply of inventory on certain products due to production lead times. Although diatomite mining activities at Celite's principal mine in Lompoc, California may be suspended during periods of heavy rainfall, World Minerals believes that, because of the stockpiling of ore during dry periods, such suspensions do not materially affect the supply of inventory. Barring unusual circumstances, World Minerals does not experience backlogs of orders. World Minerals' business is not seasonal to any material degree.
Programs instituted by management from 1991 through 1993 have strengthened World Minerals. Financial systems and controls have been upgraded, and the Celite, Harborlite and Europerlite sales forces have been consolidated to improve efficiency and take advantage of synergies. World Minerals acts as the sales agent for both Celite and Harborlite in the United States and procures orders from customers and distributors on their behalf. Celite distributes Harborlite's products in Europe to dealers, distributors and end users on Harborlite's behalf. Europerlite sells its products in Europe to dealers, distributors and end users.
World Minerals has research and development, environmental control and quality control laboratories at its Lompoc production facilities and quality control laboratories at each of its other production facilities. In 1995, World Minerals spent approximately $1.0 million on company-sponsored research and technical services (in addition to amounts spent on engineering and exploration) related to the development and improvement of its products and services.
Competition
World Minerals believes that Celite is the world's largest producer of diatomite. The remainder of the market is shared by Celite's four major competitors: Eagle-Picher Minerals (United States), Grefco (United States), CECA (France) and Showa (Japan), and a number of smaller competitors. Celite's silicates compete with a wide variety of other synthetic mineral products.
World Minerals believes that Harborlite and Europerlite are, in the aggregate, the world's largest producer of perlite filter aids and that Harborlite, which is also engaged in the business of selling perlite ore, is the world's largest merchant producer of perlite ore. Harborlite and Europerlite each have two large competitors in the expanded perlite market, Grefco and CECA, and many smaller competitors.
Competition is principally on the basis of service, product quality and performance, warranty terms, speed and reliability of delivery, availability of the product and price. The filter aid products of Celite, Europerlite and Harborlite also compete with other filter aids, such as cellulose, and other filtration technologies, such as crossflow and centrifugal separation.
Regulation
All of Celite's and Harborlite's domestic operations are subject to a variety of federal, state and local environmental laws and regulations. These laws and regulations establish potential liability for costs incurred in cleaning up waste sites and impose limitations on atmospheric emissions, discharges to domestic waters, and disposal of hazardous materials. Certain state and local jurisdictions have adopted regulations that may be more stringent than corresponding federal regulations. Celite and Harborlite believe that the impact of environmental regulation on their respective operating results has been minimal due to their environmental compliance programs; however, Celite and Harborlite cannot predict the potential future impact of such regulations, given the increasing number and complexity, and changing character, of such regulations.
Moreover, federal and state laws governing disposal of wastes impact customers who must dispose of used filter-aid materials. World Minerals works with its customers to implement disposal strategies to minimize the impact of these disposal regulations.
The domestic mining operations of Celite and Harborlite are subject to regulation by the Mine Safety and Health Administration ("MSHA"). This agency establishes health and safety standards for employee work environments in the mining industry. MSHA promulgates regulations relating to noise, respiratory protection and dust. Celite's and Harborlite's domestic production facilities which are not under the jurisdiction of MSHA are subject to regulation by the Occupational Safety and Health Administration ("OSHA") which establishes regulations regarding, among other things, workplace conditions, and exposure to dust and noise. In addition, certain state agencies exercise concurrent jurisdiction in these areas.
World Minerals maintains a staff of experienced environmental and industrial hygiene professionals who assist plant personnel in complying with environmental, health and safety regulations. This group also performs routine internal audits and reviews of World Minerals' plant facilities worldwide. Due to these programs and responsible
management at the local plant level, compliance with such regulations has been facilitated and the financial impact of such regulations on operating results has been minimal.
Certain products of Celite and Harborlite are subject to the Hazard Communication Standard promulgated by OSHA, which requires Celite and Harborlite, respectively, to disclose the hazards of their products to employees and customers. Celite's diatomite products and certain of Harborlite's products contain varying amounts of crystalline silica, a substance which is among the most common found on earth. In 1987, the International Agency for Research on Cancer ("IARC") issued a report, which was supplemented in 1988, designating crystalline silica as "probably carcinogenic to humans," which is a tentative classification falling between "probably not carcinogenic to humans" and "sufficient evidence of human carcinogenicity." Celite and Harborlite therefore provide required warning labels on their products containing in excess of 0.1 percent respirable crystalline silica, advising customers of the IARC designation and providing recommended safety precautions. Such requirements also mandate that industrial customers who purchase diatomite or perlite for use as a filler in their products label such products to disclose hazards which may result from the inclusion of crystalline silica-based fillers, if such products contain in excess of 0.1 percent of crystalline silica by volume. Therefore, some manufacturers of paint may be considering the use of other fillers in place of Celite's products. However, Celite believes that the loss of these customers would not have a material adverse effect on its operating results. Several states have also enacted or adopted "right to know" laws or regulations, which seek to expand the federal Hazard Communication Standard to include providing notice of hazards to the general public, as well as to employees and customers.
The 1987 IARC designation has been the subject of controversy and continued study. Celite, through the industry-sponsored International Diatomite Producers Association ("IDPA"), has participated in funding several studies to examine in more detail the cancer risk to humans from crystalline silica. One such study, conducted by the University of Washington, found a modest increase in lung cancer deaths in the cohort compared with national rates (indicated by a standardized mortality ratio ("SMR") equal to 1.43). The standardized mortality ratio compares the number of cancer deaths in the cohort with 1, representing the number of cancer deaths in the population at large. The study also found an increase in non-malignant respiratory disease ("NMRD") (SMR equal to 2.59); this finding was expected because the NMRD category included silicosis resulting from exposures in past decades.
After the publication of the Washington study, Celite conducted its own review of the portion of the cohort representing the Lompoc plant and found that more workers in this portion of the cohort may have been exposed to asbestos than originally thought. Since exposure to asbestos has been found to cause lung cancer and respiratory disease, this finding has raised concern that the Washington study may have overstated the adverse health effects of exposure to crystalline silica. IDPA engaged an epidemiologist and an industrial hygienist to examine the cohort to determine whether asbestos exposure was fully accounted for in the Washington study's results. The final IDPA report was issued in December 1994 and found:
"Although asbestos operations were small relative to the diatomaceous earth operations, analyses in this report showed that exposure to asbestos by workers was relatively common. For example, the number of cohort members who were ever definitely, probably or possibly exposed to asbestos was shown to involve approximately 60 percent of the cohort. Even when only men employed in jobs definitely exposed to asbestos for more than [one] year in the period 1950-1977 were considered, more than 8 percent of the cohort had held such jobs."
The asbestos study's authors called for further analyses which fully take into account the results of their study stating "[t]he interpretation of the silica-lung cancer risk relationships based on the [Lompoc] cohort should await the outcome of such analyses."
During 1995, the results of the asbestos study were analyzed by the authors of the Washington study. In a report to the Office of Pollution Prevention and Toxics of the U.S. Environmental Protection Agency by the IDPA reporting on the results of the reanalysis, the IDPA reported:
"The lung cancer SMR for the group with no asbestos exposure was 1.13 (95% CI, 0.73-1.69); for the group with any asbestos exposure it was 1.78 (95% CI, 1.18-2.57). The cross-classified SMR results were numerically unstable because of the small numbers of observed lung cancers.
* * *
"In summary, the additional information gained from an in-depth assessment of possible exposures to asbestos experienced by the cohort has lead to re-analysis of the original study report. Some of the excess lung cancer risk reported
previously (Checkoway et al., 1993) can be attributed to asbestos exposure and the remaining numbers are weaker and lacking in statistical significance."
Certain other cohort mortality studies of workers occupationally exposed to crystalline silica, including a study of gold miners in North Dakota, have found no statistically significant increases in lung cancer compared with national populations. The issue remains subject to considerable debate.
The various agreements covering the purchase of the business of Celite in 1991 provide for the indemnification of the holding company subsidiary of Alleghany which acquired Celite by the various selling Manville entities in respect of any environmental and health claims arising from the operations of the business of Celite prior to its acquisition by the holding company subsidiary.
Employees
As of December 31, 1995, World Minerals had 115 employees, all located in the United States, Celite had a total of about 1,153 employees worldwide, and Harborlite had a total of about 212 employees worldwide. Europerlite had a total of about 71 employees, all located in Europe. Approximately 346 of Celite's employees and 40 of Harborlite's employees in the United States are covered by collective bargaining agreements. All of the collective bargaining agreements covering workers at Celite and Harborlite are in full force and effect.
STEEL FASTENER BUSINESS
The Heads and Threads division of Alleghany, headquartered in Northbrook, Illinois, is believed to be the nation's leading distributor of imported steel fasteners. Heads and Threads imports and sells commercial fasteners - nuts, bolts, screws, washers and other fasteners - for resale to fastener manufacturers and distributors through a network of sales offices and warehouses located in sixteen states. The strength of Heads and Threads lies in its five major warehouses and fourteen regional satellite warehouses, long years of association with suppliers and customers, and ability to control operating costs.
Since Heads and Threads imports virtually all of its fasteners, it is necessary to forecast inventory requirements from six months to a year in advance to allow time for shipments to reach their destinations in the United States. In addition, Heads and Threads'
costs are subject to fluctuations in foreign currency and import duties. Increases in import duties may result from determinations by United States federal agencies that foreign countries are violating United States laws or intellectual property rights, or are following restrictive import policies. Heads and Threads operations do not subject Alleghany to a material risk from fluctuations in foreign currency or import duties.
Regulations implementing the Fastener Quality Act, which are to become effective in 1996, will increase costs.
At December 31, 1995, Heads and Threads had about 165 employees.
Item 2. Properties.
Alleghany's headquarters is located in leased office space of about 11,000 square feet at 375 Park Avenue in New York City.
CT&T and CTI lease about 282,000 square feet for their headquarters operations in the Chicago Title and Trust Center, a 49-story office complex at 171 North Clark Street in Chicago, Illinois.
Ticor Title's and Security Union's headquarters are in company-owned premises of about 180,000 square feet in Rosemead, California. It is anticipated that these headquarters will be moved to a leased location in Pasadena, California in April 1996 as the building in Rosemead, California is currently being marketed for sale. CT&T and its subsidiaries own or lease buildings or office space in approximately 452 locations throughout the United States, primarily for CTI, Security Union and Ticor Title full-service and satellite branch office operations.
Underwriters leases about 29,000 square feet of office space for its headquarters operations in Woodland Hills, California. All of its five branch office locations are also in leased spaces, ranging in size from about 3,000 square feet to 6,700 square feet. CUIC leases about 9,400 square feet of office space. All four of the branch offices of The Underwriting Center are also in leased space, ranging in size from about 1,100 square feet to 4,600 square feet.
World Minerals' headquarters is located in leased premises of approximately 17,300 square feet in Lompoc, California, which it shares with Celite and Europerlite. Harborlite's headquarters is presently relocating to Houston, Texas.
A description of the major plants and properties owned and operated by Celite, Europerlite and Harborlite is set forth below. All of the following properties are owned, with the exception of Plant # 1 at Quincy, Washington, the headquarters offices at Lompoc, California, the Rueil, France and Santiago, Chile offices and the plant at Wissembourg, France, which are leased.
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- CELITE: - ------- Lompoc, CA 961,410 Diatomite filter Production facility; aids, fillers, 17 multi-story production silicates and buildings; 5 one- specialty story warehouse products buildings; 6 one- story laboratory buildings; 4 multi- story bulk handling buildings; 6 one- story office buildings; 2 one-story lunch and locker-room buildings; and 10 one-story shops. Lompoc, CA 17,300 Headquarters 1 one story building; offices 3 units within 1 one-story building. Quincy, WA 60,941 Diatomite filter Production facility; Plant aids and fillers #1-1 multi-story production building and 7 one-story buildings. Plant #2-1 multi- story production building and 6 one- story buildings. |
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- Murat, Department 77,000 Diatomite filter of Cantal, France aids Production facility; 1 one-story manufacturing building; 2 one- story warehouses; and 1 one-story office building. Rueil, France 10,000 Sales and 1 single floor. administrative offices Guadalajara, Mexico 116,610 Diatomite filter Production facility; aids and fillers 2 multi-story production buildings; 2 multi-story pollution-control buildings; and 20 one-story buildings. Mexico City, Mexico 2,700 Offices 1 single floor condominium. Arica, Chile 50,000 Diatomite Production facility; filter aids 1 calcined line; 1 natural line; 1 administration building; 1 laboratory; 1 warehouse building; 1 changing room building; 1 maintenance workshop; and 1 product warehouse. |
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- Santiago, Chile 1,682 Offices 1 single floor in a multi-story, rented office building. Alicante, Spain 69,410 Diatomite filter Production facility; aids and fillers 2 multi-story manufac- turing buildings; 3 one-story ware- houses; 2 one-story office buildings; and 3 miscellaneous buildings. Changbai County, 205,985 Diatomite filter Jilin Province, PRC aids Production facility; 1 multi-story processing facility; 4 one-story warehouse buildings; 1 multi-story office building; and 4 one-story miscellaneous buildings. Linjiang County, 74,665 Diatomite filter Jilin Province, PRC aids Production facility; 1 multi-story production facility; 1 two-story office building; 3 one-story warehouse buildings; and 3 one-story miscellaneous buildings. |
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- Linjiang County, under Diatomite filter Jilin Province, PRC construction aids Production facility. HARBORLITE: - ---------- Antonito, CO 9,780 Warehouse 1 one-story manu- facilities for facturing building perlite ore and warehouse; 1 one- story office building; and 1 one-story ware- house. No Agua, NM 40,550 Perlite ore Production facility; 1 six-story mill building; 1 one- story office and shop building; and 8 miscellaneous one- story buildings. Superior, AZ 6,900 Perlite ore Production facility; 1 one-story warehouse building; and 1 one-story office building. Escondido, CA 8,450 Perlite filter 1 one-story aids warehouse building; and 1 one-story office building. |
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- Green River, WY 17,300 Perlite filter 1 one-story aids warehouse building; and 1 one-story office building. Vicksburg, MI 25,050 Perlite filter 2 one-story aids warehouse buildings; and 1 one-story office building. Youngsville, NC 22,500 Perlite filter 1 one-story warehouse aids building; 1 one-story manufacturing building; and 1 one-story office building. Quincy, FL 18,450 Perlite filter 1 one-story warehouse aids building; 1 one-story manufacturing building; and 1 one-story office building. LaPorte, TX 23,000 Perlite filter 1 one-story aids and expansion warehouse fillers and office building. Wissembourg, France 50,000 Perlite filter 1 multi-story aids and fillers production and ware- house building. |
Location and Approximate Product Nature of Property Square Footage or Use - ------------------ -------------- ------- Hessle, Humberside, United Kingdom 36,700 Perlite filter 1 one-story aids and fillers manufacturing building; and 1 two-story office building. Dikili, Turkey 63,200 Perlite crushing Production facility; mill 1 four-story manu- facturing building; 1 one-story warehouse building; 1 one-story raw material warehouse; 1 one-story office building; and 1 one-story maintenance shop. EUROPERLITE: - ------------ Barcelona, Spain 70,300 Perlite filter aids Production facility; and fillers 1 one-story manufacturing warehouse building; 1 one-story raw material warehouse; and 1 two-story office building. Milan, Italy 68,600 Perlite filter aids Production facility; 1 one-story manufacturing/ warehouse building; 1 one-story raw material warehouse; and 1 two-story office building. |
World Minerals' largest mine is located on Celite-owned property immediately adjacent to the City of Lompoc, California, and is the site of one of the most unusual marine diatomite deposits in the world. The mine celebrated its 100th anniversary of production in 1993 and has been in continuous operation for more than 60 years. Reserves are believed to be sufficient for the operation of the plant for at least 20 more years at the current rate of utilization. The Lompoc production facility has a rated capacity in excess of 200,000 tons annually and currently supplies more than 25 different grades of products to the filtration and filler markets. The facility also houses World Minerals' research and development, and health, safety and environmental departments and Celite's quality control laboratories.
Celite and Harborlite also lease warehouses, office space and other facilities in the United States and abroad. A joint venture between Celite and the Government of Iceland has mining rights to mine diatomaceous earth in sections of Lake Myvatn, Iceland and Celite's joint ventures in PRC have mining rights to mine diatomaceous earth in sections of Jilin Province, PRC.
The operations of Alleghany's Heads and Threads division are conducted in 16 states at 19 locations. There are either warehouses, or combined warehouses and sales offices, at such locations; two locations are owned and the remainder are leased. Heads and Threads' headquarters in Northbrook, Illinois is owned by Alleghany.
API's headquarters is located in leased premises of approximately 3,630 square feet in Sacramento, California. API or its subsidiary owns 38 properties in fee and two additional properties for which foreclosure is probable but has not yet occurred, in California. Such properties are comprised of improved and unimproved commercial land (office, retail and industrial), improved and unimproved commercial and residential lots, and office, retail, commercial and residential buildings. In addition, the following properties are held by joint ventures in dissolution in which API has an interest, but the liquidation of such joint ventures has not yet been completed. API intends to dispose of all of these properties in an orderly fashion, which may take several years.
Location Approximate Acreage Property Type
- -------- ------------------- -------------
Roseville, 15.7 acres Unimproved land
California (commercial/
residential)
Roseville, 112.3 acres Unimproved land
California (commercial/
(subject to a residential)
first deed of
trust)
Folsom, 7.4 acres Unimproved land
California (commercial/
office/retail)
Sacramento, 215.8 acres Unimproved land
California (commercial/
residential)
Sacramento, 136.0 acres Unimproved land
California (commercial/
residential)
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Alleghany also owns one truck terminal property in Ohio which is being held for sale, and which has been leased from time to time on an interim basis.
Item 3. Legal Proceedings.
A. On January 7, 1985, the Federal Trade Commission (the "FTC") filed a complaint alleging that six of the largest title insurance companies, including CTI, Security Union and Ticor Title, violated Section 5 of the Federal Trade Commission Act. The violation was alleged with respect to the companies' participation in title insurance rating bureaus in thirteen states, to the extent those rating bureaus had proposed for state regulatory approval rates relating to title search and examination services and settlement services performed in connection with the issuance of title insurance policies. After proceedings before an administrative law judge and the FTC, the FTC issued an opinion and order dated September 19, 1989, finding a violation of the Federal Trade Commission Act in six states. Subsequent appeals in the United States Court of Appeals for the Third Circuit and the United States Supreme Court resulted in an affirmance of the FTC order as to four states. The FTC issued a modified order dated April 22, 1994, to conform to the results of these appeals. By that order CTI, Security Union and Ticor Title are prohibited in Connecticut, Wisconsin, Arizona and Montana, from discussing, proposing, setting or filing any rates for title search and examination services through a rating bureau, except where such activity is engaged in pursuant to clearly articulated and affirmatively expressed state policy and where such activity is actively supervised by a state regulatory body. CT&T experienced no practical adverse consequences from this order since its title insurance subsidiaries are not engaged in any types of activities proscribed thereby.
Beginning shortly after the filing of the FTC complaint in 1985, a series of private suits brought under Section 1 of the Sherman Act and based on the matters alleged in the FTC proceedings, seeking treble damages and other relief against the same six title insurance companies, were filed in a number of federal district courts. These actions were consolidated in the United States District Court for the Eastern District of Pennsylvania. In June 1986, that Court issued a final judgment approving a class action settlement of the asserted claims, in consideration of the defendant companies providing class members with enhanced title insurance coverage, discounts on future purchases of title insurance, and other benefits. Additional federal and state civil actions subsequently were filed seeking damages and injunctive relief on the basis of the same matters complained of in the suits subject to the class settlement. A number of such later actions were dismissed; however, two such actions are currently pending.
In December 1992, the United States Court of Appeals for the Ninth Circuit reversed the dismissal of damage claims asserted in one such pending case filed in the
United States District Court for the District of Arizona, ruling that the prior class settlement did not bar the assertion of the plaintiffs' damage claims challenging rating bureau activity in Arizona and Wisconsin. The United States Supreme Court granted the title insurers' petition for a writ of certiorari to review the decision of the Court of Appeals on this issue in October 1993, but, after full argument by the parties on the merits of the case, dismissed the writ as improvidently granted. In June 1994, counsel for the plaintiffs and the defendants filed with the District Court in Arizona a definitive written agreement embodying terms for a proposed class action settlement of the asserted claims, which would have become effective upon final approval of the Court. Subsequently, the attorneys for the plaintiffs advised the Court that they were unable to continue to support the settlement as in the best interests of the settlement class; the title insurance companies stated their belief that the settlement agreement was binding upon the plaintiffs and their counsel and that the agreement was in the best interests of the settlement class.
On April 21, 1994, prior to the filing of the settlement agreement with the District Court in Arizona, a separate class action suit seeking treble damages was filed in the United States District Court for the Eastern District of Wisconsin, asserting federal antitrust claims against the same six defendants and a number of additional title insurers arising from Wisconsin rating bureau activity. On October 11, 1994, the Wisconsin suit was transferred to and consolidated with the suit in the United States District Court in Arizona.
The District Court in Arizona did not act upon the settlement agreement and, on March 28, 1995, the Court deferred further action to allow the parties to reach agreement on a global settlement of the foregoing actions. The parties subsequently filed a global settlement with the Court, to which the Court has given its preliminary approval, entering a Preliminary Settlement Order dated June 19, 1995.
Pursuant to the terms of the proposed global settlement, class members will be provided with a number of benefits, including the option to receive cash payments from the title insurance companies named in the Arizona and Wisconsin actions, not to exceed in the aggregate $1,996,613 in Arizona and $2,070,326 in Wisconsin; an increase in the face amount of title insurance policies purchased from the title insurance companies reflecting the impact of inflation since January 1, 1981; and the last $5,000 of future insurance coverage at no cost on any new title insurance policy for property in Arizona or
Wisconsin purchased from any of such title insurance companies within the one-year period following final Court approval of the settlement. The settlement also contemplates that the title insurance companies will pay attorneys' fees of the plaintiffs and the costs of administering the settlement.
In July 1995, pursuant to an order of the Court, notice of the settlement was given to the class by publication. No member of the plaintiff class commented upon or requested to opt out of the settlement, and the period for such comment or request closed on September 15, 1995. The plaintiffs filed for their attorneys' fees and costs on or about September 22, 1995. The Court held a hearing on October 10, 1995, at which the fairness of the settlement was considered and members of the plaintiff class were given an opportunity to be heard. No class member appeared at the hearing. On October 30, 1995, the Court issued an order certifying the plaintiff class for all purposes.
The parties have affirmed to the Court their support of the settlement agreement; however, disputes arose regarding the valuation of the settlement benefits and various matters pertaining to the plaintiffs' petitions for attorneys' fees and costs. The parties have filed briefs with the Court on the areas of disagreement. The defendants have reached an agreement regarding attorneys' fees and costs with the plaintiffs who initiated the Arizona action, and the parties have submitted such agreement for the approval of the Court. The Court has yet to act in this regard. No agreement has been reached with the plaintiffs who initiated the Wisconsin action.
The Stock Purchase Agreement between Alleghany and Lincoln National Corporation, among other parties, dated as of June 18, 1985, provides for the indemnification of Alleghany by Lincoln National Corporation in respect of a portion of any liability resulting from the foregoing FTC and private actions and in respect of certain other pending or potential claims against CT&T and its subsidiaries.
B. The federal tax returns of the Alleghany group for the tax years 1991 and 1992 are being audited by the Internal Revenue Service ("IRS"). By letter dated December 27, 1995, the IRS proposed adjustments to the Alleghany group's federal income tax liability for the 1988, 1991 and 1992 tax years totalling about $6.7 million.
Among the positions taken by the IRS is a proposal to disallow a deduction of approximately $6.2 million in the 1992 tax year, representing the "imputed" interest portion of a payment made by Alleghany to Lincoln National Corporation ("Lincoln") of Lincoln's share of a litigation recovery pursuant to the terms of the agreement between
them relating to Alleghany's acquisition of CT&T in 1985. The proposed adjustment is based on the IRS's position that the statute under which the deduction was claimed is inoperative in the absence of regulations required to be promulgated by the IRS. Independent counsel for Alleghany believes that this position has little merit.
The IRS also proposed to disallow about $3.3 million of bad debt deductions claimed by Ticor Title and its subsidiaries (the "Ticor Group") after CT&T's acquisition of the Ticor Group in 1991. The IRS has taken the position that the Ticor Group failed to demonstrate that the receivables giving rise to the bad debts were not worthless earlier than the period in which the bad debt deductions were claimed. Alleghany does not intend to challenge the position of the IRS with respect to deductions aggregating about $1 million, and is currently evaluating its response with respect to the remainder. To the extent that an adjustment proposed by the IRS in respect of these bad debt deductions is made, the pre-acquisition net operating loss carryforward of the Ticor Group should be increased by an amount which corresponds to the reduction in such bad debt deductions.
In addition, the IRS proposed adjustments increasing taxable income for the 1991 and 1992 tax years by a total of about $7.1 million, as a result of a reallocation of the purchase price among various assets acquired by Alleghany and subsequently contributed to Celite upon its formation. An independent appraiser has been retained to evaluate the original appraisal obtained by Alleghany and the IRS's proposed reallocation.
Alleghany is currently evaluating the legal and factual bases of the proposed adjustments and intends to file a protest with the IRS Appeals Office in New York City.
C. Alleghany's subsidiaries and division are parties to pending litigation and claims in connection with the ordinary course of their businesses. Each such operating unit makes provision on its books, in accordance with generally accepted accounting principles, for estimated losses to be incurred in such litigation and claims, including legal costs. In the opinion of management, such provision is adequate under generally accepted accounting principles as of December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter of 1995.
Supplemental Item. Executive Officers of Registrant.
The name, age, current position, date elected and five-year business history of each executive officer of Alleghany are as follows:
Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
F.M. Kirby 76 Chairman of Chairman of the
the Board Board, Alleghany;
Chairman of the
Board and chief executive
officer, Alleghany, prior
to July 1992.
John J. 64 President, President, chief
Burns, Jr. chief executive officer
executive and chief operating
officer officer, Alleghany
and chief since July 1992;
operating President and
officer chief operating
officer, Alleghany,
prior thereto.
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Current Business Experience
Name Age Position During Last 5 Years
- ---- --- -------- -------------------
David B. 63 Senior Vice Senior Vice
Cuming President President and
and chief chief financial
financial officer, Alleghany.
officer
Robert M. Hart 51 Senior Vice Senior Vice President
President, General and General Counsel
Counsel and since September 1994
Secretary and Secretary since January 1995; Partner,
Donovan Leisure Newton & Irvine, prior thereto.
Peter R. Sismondo 40 Vice President, Vice President,
Controller, Controller, Treasurer,
Treasurer, Assistant Secretary
Assistant and principal
Secretary and accounting officer,
principal Alleghany,
accounting officer since January
1995; Vice President,
Controller, Assistant
Secretary and
principal accounting
officer, Alleghany,
prior thereto.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information required by this Item 5 is incorporated by reference from page 5 of Alleghany's Annual Report to Stockholders for the year 1995, filed as Exhibit 13 hereto.
Item 6. Selected Financial Data.
The information required by this Item 6 is incorporated by reference from page 5 of Alleghany's Annual Report to Stockholders for the year 1995, filed as Exhibit 13 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item 7 is incorporated by reference from pages 1 through 3, from pages 6 through 14, and from pages 16 and 17, of Alleghany's Annual Report to Stockholders for the year 1995, filed as Exhibit 13 hereto.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference from pages 18 through 35 of Alleghany's Annual Report to Stockholders for the year 1995, filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of Registrant.
As permitted by General Instruction G(3), information concerning the executive officers of Alleghany is set forth as a supplemental item included in Part I of this Form 10-K Report under the caption "Executive Officers of Registrant." Information concerning the directors of Alleghany is incorporated by reference from pages 5 through 8 of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996. Information concerning compliance with the reporting requirements under Section 16 of the Securities Exchange Act of 1934, as amended, is incorporated by reference from page 3 of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference from pages 12 through the first two lines of page 26 of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996. The information set forth beginning on page 26 through the first [half of] page 34 of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996, is not "filed" as a part hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 is incorporated by reference from pages 1 through 4, and from pages 10 and 11, of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference from pages 24 and 25 of Alleghany's Proxy Statement, filed or to be filed in connection with its Annual Meeting of Stockholders to be held on April 26, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of Alleghany and subsidiaries, together with the report thereon of KPMG Peat Marwick LLP, independent certified public accountants, are incorporated by reference from the Annual Report to Stockholders for the year 1995 into Item 8 of this Report.
2. Financial Statement Schedules.
The schedules relating to the consolidated financial statements of Alleghany and subsidiaries, together with the report thereon of KPMG Peat Marwick LLP, independent certified public accountants, are detailed in a separate index herein.
3. Exhibits.
The following are filed as exhibits to this Report:
Exhibit Number Description
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany,
as amended by Amendment accepted and received for
filing by the Secretary of State of the State of
Delaware on June 23, 1988, filed as Exhibit 20 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
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3.02 By-Laws of Alleghany as amended April 18, 1995,
filed as Exhibit 3.1 to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated herein by reference .
4.01 Indenture dated as of June 15, 1989 between
Alleghany and Pittsburgh National Bank, as Trustee,
relating to the 6-1/2% Subordinated Exchangeable
Debentures due June 15, 2014 (the "Debentures"),
including the form of Debenture, filed as Exhibit
4.1 to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.02(a) Agreement dated as of December 22, 1993 between
Alleghany and David B. Cuming, filed as Exhibit
10.02(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1993, is
incorporated herein by reference. Agreements dated
as of December 22, 1993 between Alleghany and each
of F.M. Kirby, John J. Burns, Jr., Richard P. Toft,
Theodore E. Somerville, John E. Conway and Peter R.
Sismondo were omitted pursuant to Instruction 2 of
Item 601 of Regulation S-K.
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* Compensatory plan or arrangement.
*10.02(b) Agreement dated as of December 15, 1993 between
CT&T and Richard P. Toft, filed as Exhibit 10.02(b)
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1993, is incorporated
herein by reference.
*10.03 Agreement dated August 18, 1994 between Alleghany
and Theodore E. Somerville, filed as Exhibit 10.03
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1994, is incorporated
herein by reference.
*10.04 Alleghany Corporation Deferred Compensation Plan as
amended and restated as of December 15, 1992, filed
as Exhibit 10.03 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted
on March 16, 1983, filed as Exhibit 10.24 to the
Annual Report on Form 10-K of Alleghany
Corporation, a Maryland corporation and the
predecessor of Alleghany ("Old Alleghany"), for the
year ended December 31, 1982, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
*10.05(b) Description of amendments to the Alleghany 1983
Long-Term Incentive Plan as adopted on December 30,
1986, filed as Exhibit 10.05(b) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
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* Compensatory plan or arrangement.
*10.06 Alleghany 1993 Long-Term Incentive Plan, as amended
and restated effective as of January 1, 1994, filed
as Exhibit 10.06(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.07 Alleghany Supplemental Death Benefit Plan dated as
of May 15, 1985 and effective as of January 1,
1985, filed as Exhibit 10.08 to Old Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1985, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
*10.08(a) Trust Agreement Amendment made as of July 8, 1994
between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated
on March 14, 1995, filed as Exhibit 10.08(c) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by
reference.
*10.09 Alleghany Retirement COLA Plan dated and effective
as of January 1, 1992, as adopted on March 17,
1992, filed as Exhibit 10.7 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
*10.10 Description of Alleghany Group Long Term Disability
Plan effective as of July 1, 1995.
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* Compensatory plan or arrangement.
*10.11 Alleghany Amended and Restated Directors' Stock
Option Plan effective as of April 20, 1993, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan,
effective as of January 16, 1995, filed as Exhibit
10.11 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan
effective July 1, 1990, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, is incorporated herein
by reference (Securities and Exchange Commission
File No. 1-9371).
*10.14(a) Employment Agreement dated as of January 1, 1992,
and Amendment to Employment Agreement dated as of
January 1, 1993, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.12 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by
reference.
*10.14(b) Second Amendment to Employment Agreement dated as
of January 1, 1994, among CT&T, Alleghany and
Richard P. Toft, filed as Exhibit 10.11(b) of
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1993 is incorporated herein by
reference.
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* Compensatory plan or arrangement.
*10.14(c) Third Amendment to Employment Agreement dated as of
October 31, 1994, among CT&T, Alleghany and Richard
P. Toft, filed as Exhibit 10.1 of Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, is incorporated herein by
reference.
*10.15 Split/Owner "Split Dollar" Life Insurance Plan
Assignment dated March 19, 1986 by and between
Richard P. Toft and CT&T, filed as Exhibit 10.10(c)
to Alleghany's Annual Report on Form 10-K for the
year ended December 31, 1991, is incorporated
herein by reference.
*10.16 Description of CT&T Presidents' Plan, adopted and
effective as of July 1, 1985 and as amended as of
January 26, 1993, filed as Exhibit 10.14 to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1992, is incorporated herein by
reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of
1992, adopted and effective as of January 1, 1992,
as amended and restated effective January 1, 1993,
filed as Exhibit 10.15 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
*10.18 Description of CT&T Quality Business Management
Incentive Program for the Presidents of CT&T and
Chicago Title Insurance Company, effective as of
January 1, 1989, as amended as of January 1, 1992,
filed as Exhibit 10.16 to Alleghany's Annual Report
on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
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* Compensatory plan or arrangement.
*10.19 CT&T Excess Benefits Pension Plan, effective
January 1, 1987, as amended by First Amendment to
CT&T Excess Benefits Pension Plan dated May 5,
1994, effective as of January 1, 1994, filed as
Exhibit 10.19 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1994, is
incorporated herein by reference.
*10.20 CT&T Executive Salary Continuation Plan effective
as of January 1, 1979, as adopted on August 23,
1978, filed as Exhibit 10.15 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1990, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
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* Compensatory plan or arrangement.
10.23(a) Stock Purchase Agreement dated as of June 18, 1985
by and among Old Alleghany, Alleghany, Alleghany
Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"),
filed as Exhibit (2)(i) to Old Alleghany's Current
Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock
Purchase Agreement, filed as Exhibit (2)(ii) to Old
Alleghany's Current Report on Form 8-K dated July
11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T
Stock Purchase Agreement, filed as Exhibit 10.12(c)
to Old Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1985, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.24 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed
as Exhibit 10.21 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.25 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between
Alleghany and MSL Industries, Inc., filed as
Exhibit 10.22 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
|
10.26(a) Agreement and Plan of Merger dated as of April 29,
1994 among Montag & Caldwell Associates, Inc.,
Alleghany Acquisition Corporation, Alleghany and
the Shareholders of Montag & Caldwell Associates,
Inc. (the "Montag & Caldwell Acquisition
Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, is incorporated
herein by reference.
10.26(b) List of Contents of Exhibits to the Montag &
Caldwell Acquisition Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, is
incorporated herein by reference.
10.27(a) Stock Purchase Agreement dated as of May 18, 1994
by and between First Interstate Bank of California
and Alleghany (the "Sacramento Savings Stock
Purchase Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, is incorporated herein
by reference.
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed
as Exhibit 10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994,
is incorporated herein by reference.
|
10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
|
10.29 Letter agreement dated January 24, 1995 among
Alleghany, Santa Fe Pacific Corporation and
Burlington Northern Inc., filed as Exhibit 2 to
Amendment No. 3 to Alleghany's Schedule 13D
relating to Santa Fe Pacific Corporation dated
January 24, 1995, is incorporated herein by
reference.
10.30(a) Installment Sales Agreement dated December 8, 1986
by and among Alleghany, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc., filed as Exhibit 10.10 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.30(b) Intercreditor and Collateral Agency Agreement dated
as of August 1, 1990 among Manufacturers Hanover
Trust Company, Barclays Bank PLC and Alleghany
Funding Corporation, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.30(c) Interest Rate and Currency Exchange Agreement dated
as of August 14, 1990 between Barclays Bank PLC and
Alleghany Funding Corporation, and related
Confirmation dated August 13, 1990 between Barclays
Bank PLC and Alleghany Funding Corporation, filed
as Exhibit 10.2 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990,
are incorporated herein by reference (Securities
and Exchange Commission File No. 1-9371).
|
10.30(d) Indenture dated as of August 1, 1990 between
Alleghany Funding Corporation and Manufacturers
Hanover Trust Company, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.31(a) Acquisition Agreement dated as of November 29, 1990
by and between CT&T and Westwood Equities
Corporation (the "Ticor Acquisition Agreement"),
filed as Exhibit (2)(i) to Alleghany's Current
Report on Form 8-K dated December 21, 1990, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.31(b) List of Contents of Schedules to the Ticor
Acquisition Agreement, filed as Exhibit 2(ii) to
Alleghany's Current Report on Form 8-K dated
December 21, 1990, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.31(c) Amendment to the Ticor Acquisition Agreement dated
as of January 9, 1991 by and between CT&T and
Westwood Equities Corporation, filed as Exhibit
(2)(iii) to Alleghany's Current Report on Form 8-K
dated March 21, 1991, is incorporated herein by
reference.
10.31(d) Amended and Restated Credit Agreement dated as of
December 30, 1993 among CT&T, certain commercial
lending institutions and Continental Bank, N.A. as
agent, filed as Exhibit 10.28(d) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by
reference.
|
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate
swap effective May 6, 1991, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991, is incorporated
herein by reference.
10.31(f) Letter Agreement dated December 13, 1994 between
CT&T and Bank of America Illinois (previously known
as Continental Bank) relating to the transfer of
Continental Bank's risk management business to Bank
of America National Trust and Savings Association,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
10.32(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville International, B.V. (the
"Celite Stock Purchase Agreement"), filed as
Exhibit 10.2(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.32(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.33(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
|
10.33(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement,
filed as Exhibit 10.3(b) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
10.34(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville Sales Corporation (the
"Celite Asset Purchase Agreement"), filed as
Exhibit 10.4(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.35(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
|
10.35(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.35(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.36(a) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) Letter Agreement dated January 23, 1992 between
Celite and Bank of America National Trust and
Savings Association relating to an interest rate
swap effective January 16, 1992, filed as Exhibit
10.37 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated
herein by reference.
10.36(d) Letter Agreement dated January 13, 1992 between
Celite and Chemical Bank relating to an interest
rate swap effective January 13, 1992, filed as
Exhibit 10.38 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is
incorporated herein by reference.
|
10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(b) Amendment dated as of March 17, 1992 to the
Standstill Agreement, filed as Exhibit 10.39(f) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17,
1992, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992, is incorporated herein by
reference.
10.38(a) Stock Purchase Agreement dated as of October 31,
1991 among Associated Insurance Companies, Inc.,
Alleghany and The Shelby Insurance Group, Inc. (the
"Shelby Stock Purchase Agreement"), filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991,
is incorporated herein by reference.
10.38(b) List of Contents of Exhibits and Schedules to the
Shelby Stock Purchase Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991, is
incorporated herein by reference.
|
10.39(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs
& Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit
10.3(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(c) Stock Purchase Related Agreement dated as of July
28, 1993 (the "Underwriters Stock Purchase Related
Agreement") among certain persons named therein and
Alleghany, filed as Exhibit 10.3(c) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
10.39(d) List of Exhibits and Schedules to the Underwriters
Stock Purchase Related Agreement, filed as Exhibit
10.3(d) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
|
10.39(f) Amendment to Underwriters Stock Purchase Related
Agreement made as of October 7, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto and
Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
10.39(i) Credit Agreement dated as of November 16, 1992
(the "Underwriters Credit Agreement") among
Underwriters Re Corporation, a predecessor of URC
Holdings Corp., the lenders named therein and The
First National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment Number One to Underwriters Credit
Agreement dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
|
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent
certified public accountants, to the incorporation
by reference of their reports relating to the
financial statements and related schedules of
Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration
No. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
|
28(p) Information from reports furnished to state
insurance regulatory authorities by Underwriters
Reinsurance Company, Commercial Underwriters
Insurance Company, and Underwriters Insurance
Company is filed under cover of Form SE, pursuant
to Rule 311(c) of Regulation S-T.
|
(b) Reports on Form 8-K.
Alleghany did not file any reports on Form 8-K during the fourth quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 22, 1996 By /s/ John J. Burns, Jr.
-------------- ---------------------------
John J. Burns, Jr.
President
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 22, 1996 By /s/ John J. Burns, Jr.
-------------- ---------------------------
John J. Burns, Jr.
President and Director
(principal executive
officer)
Date: March 22, 1996 By /s/ Dan R. Carmichael
-------------- --------------------------
Dan R. Carmichael
Director
Date: March 22, 1996 By /s/ David B. Cuming
-------------- ---------------------------
David B. Cuming
Senior Vice President
(principal financial
officer)
Date: March 22, 1996 By /s/ Allan P. Kirby, Jr.
-------------- ---------------------------
Allan P. Kirby, Jr.
Director
|
Date: March 22, 1996 By /s/ F.M. Kirby
-------------- ---------------------------
F.M. Kirby
Chairman of the Board
and Director
Date: March 22, 1996 By /s/ William K. Lavin
-------------- ---------------------------
William K. Lavin
Director
Date: March 22, 1996 By /s/ Peter R. Sismondo
-------------- ---------------------------
Peter R. Sismondo
Vice President, Controller,
Treasurer and Assistant
Secretary (principal
accounting officer)
Date: March 22, 1996 By /s/ John E. Tobin
-------------- ---------------------------
John E. Tobin
Director
Date: March 22, 1996 By /s/ James F. Will
-------------- ---------------------------
James F. Will
Director
Date: March 22, 1996 By /s/ Paul F. Woodberry
-------------- ---------------------------
Paul F. Woodberry
Director
Date: March 22, 1996 By /s/ S. Arnold Zimmerman
-------------- ---------------------------
S. Arnold Zimmerman
Director
|
ALLEGHANY CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
I SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
III CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
V SUPPLEMENTARY INSURANCE INFORMATION
VI REINSURANCE
X SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted since they are not required, are not applicable, or the required information is set forth in the financial statements or notes thereto.
SCHEDULE I
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(in thousands)
Amount at which
shown in the
Type of Investment Cost Value Balance Sheet
=============================================================================================================================
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities $ 582,170 $ 596,614 $ 596,614
States, municipalities and political subdivisions 437,928 440,698 440,698
Foreign governments 17,896 18,116 18,116
Public utilities 18,856 18,760 18,760
All other corporate bonds 322,376 327,322 327,322
Certificates of deposit 20,587 20,587 20,587
Redeemable preferred stock 30,889 30,911 30,911
---------- ---------- ----------
Total fixed maturities 1,430,702 $1,453,008 1,453,008
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust, and insurance companies 8,909 $ 11,287 $ 11,287
Industrial, miscellaneous, and all other 299,301 626,669 626,669
---------- ---------- ----------
Total equity securities 308,210 $ 637,956 637,956
---------- ========== ----------
Other long-term investments 9,813 9,813
Short-term investments 236,961 236,961
---------- ----------
Total investments $1,985,686 $2,337,738
========== ==========
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SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(in thousands)
1995 1994
=========================
ASSETS
Investment securities
(Cost: 1995 $208,011; 1994 $205,094) $ 410,966 $ 264,433
Cash 832 1,495
Accounts and other receivables, less allowances 19,042 17,190
Property and equipment - at cost, less accumulated depreciation 2,436 2,375
Other assets 33,078 30,352
Investment in consolidated subsidiaries 1,067,229 906,984
-------------------------
$1,533,583 $1,222,829
=========================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Other liabilities $ 88,702 $ 61,242
Net deferred tax liability 105,115 61,671
Long-term debt 19,123 78,723
-------------------------
Total liabilities 212,940 201,636
Commitments and contingent liabilities
Common stockholders' equity 1,320,643 1,021,193
-------------------------
$1,533,583 $1,222,829
=========================
|
See accompanying Notes to Condensed Financial Statements.
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
1995 1994 1993
==================================================
Revenues:
Interest, dividend and other income $ 59,967 $ 62,302 $55,305
Net gain on investment transactions 37,836 23,403 13,376
--------------------------------------------------
Total revenues 97,803 85,705 68,681
--------------------------------------------------
Costs and Expenses:
Interest expense 5,832 7,743 6,401
General and administrative 69,694 71,354 64,888
--------------------------------------------------
Total costs and expenses 75,526 79,097 71,289
--------------------------------------------------
Operating income (loss) 22,277 6,608 (2,608)
Equity in earnings of consolidated subsidiaries 98,799 86,386 92,111
--------------------------------------------------
Earnings from continuing operations, before income taxes 121,076 92,994 89,503
Income taxes 35,776 24,622 8,654
--------------------------------------------------
Earnings from continuing operations 85,300 68,372 80,849
Discontinued operations:
Earnings from discontinued operations, net of tax 0 6,265 16,703
Gain on sale of Sacramento Savings, net of tax 0 62,869 0
--------------------------------------------------
Net earnings $ 85,300 $137,506 $97,552
==================================================
|
See accompanying Notes to Condensed Financial Statements.
SCHEDULE III
ALLEGHANY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
1995 1994 1993
====================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849
Adjustments to reconcile earnings from continuing operations
to cash provided by (used in) continuing operations:
Depreciation and amortization 539 661 731
Net gain on investment transactions (37,836) (23,403) (13,376)
Increase in accounts and other receivables, less allowances (1,852) (773) (5,160)
(Increase) decrease in other assets (2,973) (2,862) 1,573
Increase (decrease) in other liabilities 25,811 (2,927) (20,407)
Equity in net earnings of consolidated subsidiaries (69,859) (63,812) (62,976)
----------------------------------------------------
Net adjustments (86,170) (93,116) (99,615)
----------------------------------------------------
Cash used in continuing operations (870) (24,744) (18,766)
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (92,005) (331,992) (190,482)
Maturities of investments 0 0 160,670
Sales of investments 124,110 135,159 79,103
Capital contributions to consolidated subsidiaries (33,700) (4,320) (55,923)
Capital contributions to discontinued operations 0 (4,000) (1,575)
Cash dividends from consolidated subsidiaries 69,216 73,039 237,482
Purchases of property and equipment (354) (164) (243)
Disposition of property and equipment 1 4 45
Proceeds from sale of Sacramento Savings, net of expenses 0 316,348 0
Purchase of real estate and real estate related assets
related to the sale of Sacramento Savings 0 (116,089) 0
Purchase of Underwriters Re 0 0 (203,865)
----------------------------------------------------
Net cash provided by investing activities 67,268 67,985 25,212
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (129,600) (341,000) 0
Proceeds of long-term debt 70,000 307,000 0
Purchase of treasury shares (7,605) (10,127) (7,897)
Common stock distributions 144 (75) 1,753
----------------------------------------------------
Net cash used in financing activities (67,061) (44,202) (6,144)
----------------------------------------------------
Net (decrease) increase in cash (663) (961) 302
Cash at beginning of year 1,495 2,456 2,154
----------------------------------------------------
CASH AT END OF YEAR $ 832 $ 1,495 $ 2,456
====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,982 $ 7,869 $ 6,401
Income taxes $ 11,979 $ 44,226 $ 46,236
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, Alleghany made a noncash capital contribution to its consolidated
subsidiaries by contributing a newly acquired company with a cost basis of
$4,480.
In 1994, Alleghany made a noncash capital contribution of $76,478 to its
consolidated subsidiaries by contributing investment securities with a cost
basis of $74,213, a newly acquired company with a cost basis of $1,900 and
a partnership interest with a cost basis of $365. The Company contributed
the real estate and real estate related assets of $116,089 purchased in
connection with the sale of Sacramento Savings net of additional reserves
to a consolidated subsidiary. In addition, in connection with dissolving a
previously consolidated subsidiary, the Company relieved said subsidiary of
$34,250 of its long term debt and received from said subsidiary investment
securities with a cost basis of $5,209.
In 1993, Alleghany made a noncash capital contribution of $16,315 to its
consolidated subsidiaries and discontinued operations by contributing a
partnership interest with a cost basis of $2,525 and investment securities
with a cost of $13,790.
See accompanying Notes to Condensed Financial Statements.
SCHEDULE III
ALLEGHANY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
1. INVESTMENT IN CONSOLIDATED SUBSIDIARIES. Reference is made to Notes 2 and 3 of the Notes to Consolidated Financial Statements incorporated herein by reference for information regarding the acquisition of Credit Data Reporting Services, Montag & Caldwell, Inc., and Underwriters Re and the sale of Sacramento Savings Bank.
2. LONG-TERM DEBT. Reference is made to Note 7 of the Notes to Consolidated Financial Statements incorporated herein by reference for information regarding the significant provisions of long-term debt of Alleghany. Included in long-term debt in the accompanying condensed balance sheets is $19,123 in 1995 and 1994 of intercompany notes payable due to Alleghany Funding.
3. INCOME TAXES. Reference is made to Note 8 of the Notes to Consolidated Financial Statements incorporated herein by reference.
4. COMMITMENTS AND CONTINGENCIES. Reference is made to Note 11 of the Notes to Consolidated Financial Statements incorporated herein by reference.
5. STOCKHOLDERS' EQUITY. Reference is made to Note 9 of the Notes to Consolidated Financial Statements incorporated herein by reference with respect to stockholders' equity and surplus available for dividend payments to Alleghany from its subsidiaries.
SCHEDULE V
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
AT DECEMBER 31
--------------------------------------------------
FUTURE
POLICY OTHER
BENEFITS, POLICY
DEFERRED LOSSES, CLAIMS
POLICY CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS
YEAR SEGMENT COST EXPENSES PREMIUMS PAYABLE
====== ============= ==================================================
1995 Title $ 0 $ 529,915 $ 0 $0
==================================================
Property
and casualty
reinsurance $16,951 $1,014,000 $74,561 $0
==================================================
1994 Title $ 0 $ 536,068 $ 0 $0
==================================================
Property
and casualty
reinsurance $11,325 $ 940,527 $52,828 $0
==================================================
1993 Title $ 0 $ 523,123 $ 0 $0
==================================================
Property
and casualty
reinsurance * $10,363 $ 861,204 $49,078 $0
==================================================
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES OF DEFERRED
NET AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
YEAR SEGMENT REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
====== ============= ==============================================================================
1995 Title $ 953,364 $45,361 $ 81,385 $ 0 $ 989,775 $ 0
==============================================================================
Property
and casualty
reinsurance $ 277,507 $50,173 $203,108 $63,617 $ 29,833 $291,995
==============================================================================
1994 Title $1,162,207 $39,850 $ 94,845 $ 0 $1,138,921 $ 0
==============================================================================
Property
and casualty
reinsurance $ 190,279 $41,226 $153,056 $38,883 $ 24,200 $200,596
==============================================================================
1993 Title $1,236,165 $37,736 $121,864 $ 0 $1,177,507 $ 0
==============================================================================
Property
and casualty
reinsurance * $ 32,703 $10,390 $ 25,131 $ 6,020 $ 6,406 $ 36,172
==============================================================================
|
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal subsidiary is Underwriters Reinsurance Company. The acquisition for accounting purposes was effective as of October 1, 1993. Accordingly, results of operations are from October 1, 1993.
SCHEDULE VI
ALLEGHANY CORPORATION AND SUBSIDIARIES
REINSURANCE
THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
YEAR SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
==== ====================== =========================================================================
1995 Title premiums $ 953,364 $ 5,872 $ 2,012 $ 949,504 0.21%
=========================================================================
Property and casualty
reinsurance premiums $ 42,413 $ 85,234 $ 320,328 $ 277,507 115.43%
=========================================================================
1994 Title premiums $1,162,207 $ 5,250 $ 2,771 $1,159,728 0.24%
=========================================================================
Property and casualty
reinsurance premiums $ 8,821 $ 69,299 $ 250,757 $ 190,279 131.78%
=========================================================================
1993 Title premiums $1,236,165 $ 5,547 $ 1,865 $1,232,483 0.15%
=========================================================================
Property and casualty
reinsurance premiums * $ 4,218 $ 9,994 $ 38,479 $ 32,703 117.66%
=========================================================================
|
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal subsidiary is Underwriters Reinsurance Company. The acquisition for accounting purposes was effective as of October 1, 1993. Accordingly, results of operations are from October 1, 1993.
SCHEDULE X
ALLEGHANY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
DISCOUNT,
IF ANY,
RESERVES DEDUCTED CLAIMS AND CLAIM
FOR IN RESERVES ADJUSTMENT EXPENSES
UNPAID FOR UNPAID INCURRED RELATED TO
DEFERRED CLAIMS CLAIMS -------------------
AFFILIATION POLICY AND CLAIM AND CLAIM NET (1) (2)
WITH ACQUISITION ADJUSTMENT ADJUSTMENT UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COST EXPENSES EXPENSES PREMIUMS PREMIUMS INCOME YEAR YEAR
============ ==================================================================================================
1995
Consolidated
property-
casualty
entities $ 16,951 $1,014,000 $0 $74,561 $277,507 $50,173 $199,783 $3,325
===============================================================================================
1994
Consolidated
property-
casualty
entities $ 11,325 $ 940,527 $0 $52,828 $190,279 $41,226 $146,416 $6,630
===============================================================================================
1993
Consolidated
property-
casualty
entities * $ 10,363 $ 861,204 $0 $49,078 $ 32,703 $10,390 $ 25,131 $ 0
===============================================================================================
|
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION POLICY AND CLAIM
WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
============ ====================================
1995
Consolidated
property-
casualty
entities $63,617 $111,005 $291,995
====================================
1994
Consolidated
property-
casualty
entities $38,883 $126,114 $200,596
====================================
1993
Consolidated
property-
casualty
entities * $ 6,020 $ 27,876 $ 36,172
====================================
|
* On October 7, 1993, the Company acquired URC Holdings Corp., whose principal subsidiary is Underwriters Reinsurance Company. The acquisition, for accounting purposes, was effective as of October 1, 1993. Accordingly, results of operations are from October 1, 1993.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alleghany Corporation:
Under date of February 22, 1996, we reported on the consolidated balance sheets of Alleghany Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, changes in common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995 as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for year 1995. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993.
/s/ KPMG Peat Marwick LLP New York, New York February 22, 1996 |
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.01 Restated Certificate of Incorporation of Alleghany, as
amended by Amendment accepted and received for filing
by the Secretary of State of the State of Delaware on
June 23, 1988, filed as Exhibit 20 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
3.02 By-Laws of Alleghany as amended April 18, 1995, filed
as Exhibit 3.1 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, is
incorporated herein by reference .
4.01 Indenture dated as of June 15, 1989 between Alleghany
and Pittsburgh National Bank, as Trustee, relating to
the 6-1/2% Subordinated Exchangeable Debentures due
June 15, 2014 (the "Debentures"), including the form of
Debenture, filed as Exhibit 4.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, is incorporated herein by reference
(Securities and Exchange Commission File No. 1-9371).
*10.01 Description of Alleghany Management Incentive Plan,
filed as Exhibit 10.01 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
|
*10.02(a) Agreement dated as of December 22, 1993 between Alleghany and David B. Cuming, filed as Exhibit 10.02(a) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. Agreements dated as of December 22, 1993 between Alleghany and each of F.M. Kirby, John J. Burns, Jr., Richard P. Toft, Theodore E. Somerville, John E. Conway and Peter R. Sismondo were omitted pursuant to Instruction 2 of Item 601 of Regulation S-K.
*10.02(b) Agreement dated as of December 15, 1993 between CT&T and Richard P. Toft, filed as Exhibit 10.02(b) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference.
*10.03 Agreement dated August 18, 1994 between Alleghany and Theodore E. Somerville, filed as Exhibit 10.03 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference.
*10.04 Alleghany Corporation Deferred Compensation Plan as amended and restated as of December 15, 1992, filed as Exhibit 10.03 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
*10.05(a) Alleghany 1983 Long-Term Incentive Plan as adopted on March 16, 1983, filed as Exhibit 10.24 to the Annual Report on Form 10-K of Alleghany Corporation, a Maryland corporation and the predecessor of Alleghany ("Old Alleghany"), for the year ended December 31, 1982, is incorporated herein by reference (Securities and Exchange Commission File No. 1-9371).
*10.05(b) Description of amendments to the Alleghany 1983 Long-Term Incentive Plan as adopted on December 30, 1986, filed as Exhibit 10.05(b) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1986, is incorporated herein by reference (Securities and Exchange Commission File No. 1-9371).
*10.06 Alleghany 1993 Long-Term Incentive Plan, as amended and restated effective as of January 1, 1994, filed as Exhibit 10.06(b) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference.
*10.07 Alleghany Supplemental Death Benefit Plan dated as of May 15, 1985 and effective as of January 1, 1985, filed as Exhibit 10.08 to Old Alleghany's Annual Report on Form 10-K for the year ended December 31, 1985, is incorporated herein by reference (Securities and Exchange Commission File No. 1-9371).
*10.08(a) Trust Agreement Amendment made as of July 8, 1994 between Alleghany and Chemical Bank.
*10.08(b) Alleghany Retirement Plan, as amended and restated on March 14, 1995, filed as Exhibit 10.08(c) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference.
*10.09 Alleghany Retirement COLA Plan dated and effective as of January 1, 1992, as adopted on March 17, 1992, filed as Exhibit 10.7 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.
*10.10 Description of Alleghany Group Long Term Disability Plan effective as of July 1, 1995.
*10.11 Alleghany Amended and Restated Directors' Stock Option Plan effective as of April 20, 1993, filed as Exhibit 10.1 to Alleghany's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, is incorporated herein by reference.
*10.12 Alleghany Directors' Equity Compensation Plan, effective as of January 16, 1995, filed as Exhibit 10.11 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference.
*10.13 Alleghany Non-Employee Directors' Retirement Plan effective July 1, 1990, filed as Exhibit 10.1 to Alleghany's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, is incorporated herein by reference (Securities and Exchange Commission File No. 1-9371).
*10.14(a) Employment Agreement dated as of January 1, 1992, and Amendment to Employment Agreement dated as of January 1, 1993, among CT&T, Alleghany and Richard P. Toft, filed as Exhibit 10.12 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
*10.14(b) Second Amendment to Employment Agreement dated as of January 1, 1994, among CT&T, Alleghany and Richard P. Toft, filed as Exhibit 10.11(b) of Alleghany's Annual Report on Form 10-K for the year ended December 31, 1993 is incorporated herein by reference.
*10.14(c) Third Amendment to Employment Agreement dated as of October 31, 1994, among CT&T, Alleghany and Richard P. Toft, filed as Exhibit 10.1 of Alleghany's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, is incorporated herein by reference.
*10.15 Split/Owner "Split Dollar" Life Insurance Plan Assignment dated March 19, 1986 by and between Richard P. Toft and CT&T, filed as Exhibit 10.10(c) to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.
*10.16 Description of CT&T Presidents' Plan, adopted and effective as of July 1, 1985 and as amended as of January 26, 1993, filed as Exhibit 10.14 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
*10.17 CT&T Executive Performance Unit Incentive Plan of 1992, adopted and effective as of January 1, 1992, as amended and restated effective January 1, 1993, filed as Exhibit 10.15 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference.
*10.18 Description of CT&T Quality Business Management Incentive Program for the Presidents of CT&T and Chicago Title Insurance Company, effective as of January 1, 1989, as amended as of January 1, 1992, filed as Exhibit 10.16 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference.
*10.19 CT&T Excess Benefits Pension Plan, effective January 1, 1987, as amended by First Amendment to CT&T Excess Benefits Pension Plan dated May 5, 1994, effective as of January 1, 1994, filed as Exhibit 10.19 to Alleghany's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference.
*10.20 CT&T Executive Salary Continuation Plan effective
as of January 1, 1979, as adopted on August 23,
1978, filed as Exhibit 10.15 to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1990, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
*10.21(a) Description of compensatory arrangement between
Alleghany and Paul F. Woodberry, filed as Exhibit
10.21 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated
herein by reference.
*10.21(b) Description of long-term incentive arrangement
between Alleghany and Paul F. Woodberry.
10.22 Revolving Credit Loan Agreement dated as of June
14, 1995 among Alleghany and Chemical Bank, filed
as Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10.23(a) Stock Purchase Agreement dated as of June 18, 1985
by and among Old Alleghany, Alleghany, Alleghany
Capital Corporation and Lincoln National
Corporation (the "CT&T Stock Purchase Agreement"),
filed as Exhibit (2)(i) to Old Alleghany's Current
Report on Form 8-K dated July 11, 1985, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.23(b) List of Contents of Schedules to the CT&T Stock
Purchase Agreement, filed as Exhibit (2)(ii) to Old
Alleghany's Current Report on Form 8-K dated July
11, 1985, is incorporated herein by reference
(Securities and Exchange Commission File No.
1-9371).
|
10.23(c) Amendment No. 1 dated December 20, 1985 to the CT&T
Stock Purchase Agreement, filed as Exhibit 10.12(c)
to Old Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1985, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.24 Distribution Agreement dated as of May 1, 1987
between Alleghany and MSL Industries, Inc., filed
as Exhibit 10.21 to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.25 Amendment to Distribution Agreement dated June 29,
1987, effective as of May 1, 1987, between
Alleghany and MSL Industries, Inc., filed as
Exhibit 10.22 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1987, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.26(a) Agreement and Plan of Merger dated as of April 29,
1994 among Montag & Caldwell Associates, Inc.,
Alleghany Acquisition Corporation, Alleghany and
the Shareholders of Montag & Caldwell Associates,
Inc. (the "Montag & Caldwell Acquisition
Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, is incorporated
herein by reference.
10.26(b) List of Contents of Exhibits to the Montag &
Caldwell Acquisition Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, is
incorporated herein by reference.
-7-
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10.27(a) Stock Purchase Agreement dated as of May 18, 1994
by and between First Interstate Bank of California
and Alleghany (the "Sacramento Savings Stock
Purchase Agreement"), filed as Exhibit 10.1(a) to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, is incorporated herein
by reference.
10.27(b) List of Contents of Exhibits and Schedules to the
Sacramento Savings Stock Purchase Agreement, filed
as Exhibit 10.1(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994,
is incorporated herein by reference.
10.28(a) Note Purchase Agreement dated as of January 15,
1995 by and among Alleghany Properties, Inc.,
Alleghany and Hartford Life Insurance Company
Separate Account CRC (the "Alleghany Properties
Note Purchase Agreement"), filed as Exhibit
10.28(a) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by reference. Agreements dated
as of January 15, 1995 among Alleghany Properties,
Inc., Alleghany and each of Transamerica Life
Insurance & Annuity Company, Transamerica
Occidental Life Insurance Company, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance
Company, The Lincoln National Life Insurance
Company, Knights of Columbus and Woodmen Accident
and Life Company are omitted pursuant to
Instruction 2 of Item 601 of Regulation S-K.
10.28(b) List of Contents of Annexes and Exhibits to the
Alleghany Properties Note Purchase Agreement, filed
as Exhibit 10.28(b) to Alleghany's Annual Report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
-8-
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10.28(c) Amendment to Alleghany Properties Note Purchase
Agreement dated as of June 23, 1995 among
Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement, filed as
Exhibit 10.1 to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.28(d) Amendment No. 2 to Alleghany Properties Note
Purchase Agreement dated as of November 6, 1995
among Alleghany, Alleghany Properties, Inc. and the
Purchasers listed on Annex 1 to the Alleghany
Properties Note Purchase Agreement.
10.29 Letter agreement dated January 24, 1995 among
Alleghany, Santa Fe Pacific Corporation and
Burlington Northern Inc., filed as Exhibit 2 to
Amendment No. 3 to Alleghany's Schedule 13D
relating to Santa Fe Pacific Corporation dated
January 24, 1995, is incorporated herein by
reference.
10.30(a) Installment Sales Agreement dated December 8, 1986
by and among Alleghany, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc., filed as Exhibit 10.10 to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1986, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.30(b) Intercreditor and Collateral Agency Agreement dated
as of August 1, 1990 among Manufacturers Hanover
Trust Company, Barclays Bank PLC and Alleghany
Funding Corporation, filed as Exhibit 10.1 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
-9-
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10.30(c) Interest Rate and Currency Exchange Agreement dated
as of August 14, 1990 between Barclays Bank PLC and
Alleghany Funding Corporation, and related
Confirmation dated August 13, 1990 between Barclays
Bank PLC and Alleghany Funding Corporation, filed as
Exhibit 10.2 to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1990, are
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.30(d) Indenture dated as of August 1, 1990 between
Alleghany Funding Corporation and Manufacturers
Hanover Trust Company, filed as Exhibit 10.3 to
Alleghany's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, is incorporated
herein by reference (Securities and Exchange
Commission File No. 1-9371).
10.31(a) Acquisition Agreement dated as of November 29, 1990
by and between CT&T and Westwood Equities
Corporation (the "Ticor Acquisition Agreement"),
filed as Exhibit (2)(i) to Alleghany's Current
Report on Form 8-K dated December 21, 1990, is
incorporated herein by reference (Securities and
Exchange Commission File No. 1-9371).
10.31(b) List of Contents of Schedules to the Ticor
Acquisition Agreement, filed as Exhibit 2(ii) to
Alleghany's Current Report on Form 8-K dated
December 21, 1990, is incorporated herein by
reference (Securities and Exchange Commission File
No. 1-9371).
10.31(c) Amendment to the Ticor Acquisition Agreement dated
as of January 9, 1991 by and between CT&T and
Westwood Equities Corporation, filed as Exhibit
(2)(iii) to Alleghany's Current Report on Form 8-K
dated March 21, 1991, is incorporated herein by
reference.
-10-
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10.31(d) Amended and Restated Credit Agreement dated as of
December 30, 1993 among CT&T, certain commercial
lending institutions and Continental Bank, N.A. as
agent, filed as Exhibit 10.28(d) to Alleghany's
Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by
reference.
10.31(e) Letter Agreement dated May 2, 1991 between CT&T and
Continental Bank, N.A. relating to an interest rate
swap effective May 6, 1991, filed as Exhibit 10.2
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991, is incorporated
herein by reference.
10.31(f) Letter Agreement dated December 13, 1994 between
CT&T and Bank of America Illinois (previously known
as Continental Bank) relating to the transfer of
Continental Bank's risk management business to Bank
of America National Trust and Savings Association,
filed as Exhibit 10.31(f) to Alleghany's Annual
Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
10.32(a) Stock Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville International, B.V. (the
"Celite Stock Purchase Agreement"), filed as
Exhibit 10.2(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.32(b) List of Contents of Exhibits and Schedules to the
Celite Stock Purchase Agreement, filed as Exhibit
10.2(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
-11-
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10.33(a) Joint Venture Stock Purchase Agreement dated as of
July 1, 1991 among Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Joint Venture Stock Purchase Agreement"),
filed as Exhibit 10.3(a) to Alleghany's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991, is incorporated herein by reference.
10.33(b) List of Contents of Exhibits and Schedules to the
Celite Joint Venture Stock Purchase Agreement, filed
as Exhibit 10.3(b) to Alleghany's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.34(a) Asset Purchase Agreement dated as of July 1, 1991
among Celite Holdings Corporation, Celite
Corporation and Manville Sales Corporation (the
"Celite Asset Purchase Agreement"), filed as Exhibit
10.4(a) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference.
10.34(b) List of Contents of Exhibits and Schedules to the
Celite Asset Purchase Agreement, filed as Exhibit
10.4(b) to Alleghany's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991, is incorporated
herein by reference.
10.34(c) Amendment No. 1 dated as of July 31, 1991 to the
Celite Asset Purchase Agreement, filed as Exhibit
10.32(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.35(a) Acquisition Related Agreement dated as of July 1,
1991, by and between Celite Holdings Corporation,
Celite Corporation and Manville Corporation (the
"Celite Acquisition Related Agreement"), filed as
Exhibit 10.5(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
-12-
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10.35(b) List of Contents of Exhibits to the Celite
Acquisition Related Agreement, filed as Exhibit
10.5(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, is
incorporated herein by reference.
10.35(c) Amendment dated as of July 31, 1991 to Celite
Acquisition Related Agreement, filed as Exhibit
10.33(c) to Alleghany's Annual Report on Form 10-K
for the year ended December 31, 1991, is
incorporated herein by reference.
10.36(a) Amended and Restated Credit Agreement dated as of
March 10, 1995 (the "World Minerals Credit
Agreement") among Mineral Holdings Inc., World
Minerals, the banks named therein, NationsBanks,
N.A. (Carolinas), Bank of America National Trust
and Savings Association and Chemical Bank.
10.36(b) List of Contents of Exhibits and Annexes to World
Minerals Credit Agreement which are not being filed
herewith. Alleghany hereby agrees to furnish to the
Commission supplementally a copy of any omitted
Exhibit or Annex upon request.
10.36(c) Letter Agreement dated January 23, 1992 between
Celite and Bank of America National Trust and
Savings Association relating to an interest rate
swap effective January 16, 1992, filed as Exhibit
10.37 to Alleghany's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated
herein by reference.
10.36(d) Letter Agreement dated January 13, 1992 between
Celite and Chemical Bank relating to an interest
rate swap effective January 13, 1992, filed as
Exhibit 10.38 to Alleghany's Annual Report on Form
10-K for the year ended December 31, 1991, is
incorporated herein by reference.
-13-
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10.37(a) Standstill Agreement dated as of September 24, 1991
between Armco Inc. and Alleghany (the "Standstill
Agreement"), filed as Exhibit 10.39(e) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(b) Amendment dated as of March 17, 1992 to the
Standstill Agreement, filed as Exhibit 10.39(f) to
Alleghany's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by
reference.
10.37(c) Amendment No. 2 dated as of April 24, 1992 to the
Standstill Agreement, as amended as of March 17,
1992, filed as Exhibit 10.1 to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992, is incorporated herein by
reference.
10.38(a) Stock Purchase Agreement dated as of October 31,
1991 among Associated Insurance Companies, Inc.,
Alleghany and The Shelby Insurance Group, Inc. (the
"Shelby Stock Purchase Agreement"), filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991,
is incorporated herein by reference.
10.38(b) List of Contents of Exhibits and Schedules to the
Shelby Stock Purchase Agreement, filed as Exhibit
10.1(b) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991, is
incorporated herein by reference.
10.39(a) Stock Purchase Agreement dated as of July 28, 1993
(the "Underwriters Stock Purchase Agreement") among
Alleghany, The Continental Corporation, Goldman,
Sachs & Co. and certain funds which Goldman, Sachs
& Co. either control or of which they are general
partner, Underwriters Re Holdings Corp. and
Underwriters Re Corporation, filed as Exhibit
10.3(a) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
-14-
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10.39(b) List of Contents of Exhibits and Schedules to the
Underwriters Stock Purchase Agreement, filed as
Exhibit 10.3(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(c) Stock Purchase Related Agreement dated as of July
28, 1993 (the "Underwriters Stock Purchase Related
Agreement") among certain persons named therein and
Alleghany, filed as Exhibit 10.3(c) to Alleghany's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, is incorporated herein by reference.
10.39(d) List of Exhibits and Schedules to the Underwriters
Stock Purchase Related Agreement, filed as Exhibit
10.3(d) to Alleghany's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, is
incorporated herein by reference.
10.39(e) Supplement to Underwriters Stock Purchase Related
Agreement dated as of August 12, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(a) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(f) Amendment to Underwriters Stock Purchase Related
Agreement made as of October 7, 1993 among certain
persons named therein and Alleghany, filed as
Exhibit 10.1(b) to Alleghany's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
is incorporated herein by reference.
10.39(g) Amendment No. 1 to Underwriters Stock Purchase
Related Agreement effective as of January 1, 1995
among stockholders named in Schedule 1 thereto
and Alleghany.
10.39(h) Letter amendment dated April 6, 1995 to
Underwriters Stock Purchase Related Agreement, as
supplemented and amended, among certain persons
named therein and Alleghany, filed as Exhibit 10.1
to Alleghany's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated
herein by reference.
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10.39(i) Credit Agreement dated as of November 16, 1992 (the
"Underwriters Credit Agreement") among Underwriters
Re Corporation, a predecessor of URC Holdings
Corp., the lenders named therein and The First
National Bank of Chicago.
10.39(j) List of Contents of Exhibits and Schedules to
Underwriters Credit Agreement which are not being
filed herewith. Alleghany hereby agrees to furnish
to the Commission supplementally a copy of any
Exhibit or Schedule upon request.
10.39(k) Amendment No. One to Underwriters Credit Agreement
dated as of April 23, 1993.
10.39(l) Assignment and Assumption, Waiver and Amendment
Agreement dated as of October 7, 1993 by and among
Underwriters Re Corporation, URC Holdings Corp.,
the undersigned lenders and The First National Bank
of Chicago.
10.39(m) Amendment No. 2 to Underwriters Credit Agreement
dated as of February 1, 1994.
10.39(n) Amendment No. 3 to Underwriters Credit Agreement
dated as of September 29, 1995.
10.40(a) Agreement and Plan of Merger dated as of August 31,
1995, among Credit Data Reporting Services, Inc.,
Credit Data of Hudson Valley Inc., The Juhl
Corporation (collectively, the "Companies"),
Alleghany Acquisition Corporation, Alleghany and
each of the shareholders of the Companies (the
"Credit Data Merger Agreement"), filed as Exhibit
2.1 to Alleghany's Registration Statement on Form
S-3 (Registration No. 62477), is incorporated
herein by reference.
10.40(b) List of Contents of Exhibits to the Credit Data
Merger Agreement, filed as Exhibit 2.2 to
Alleghany's Registration Statement on Form S-3
(Registration No. 62477), is incorporated herein by
reference.
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13 Pages 1 through 3, pages 5 through 14, and pages 16
through 35 of the Annual Report to Stockholders of
Alleghany for the year 1995.
21 List of subsidiaries of Alleghany.
23 Consent of KPMG Peat Marwick LLP, independent
certified public accountants, to the incorporation
by reference of their reports relating to the
financial statements and related schedules of
Alleghany and subsidiaries in Alleghany's
Registration Statements on Form S-8 (Registration
No. 33-27598), Form S-8 (Registration No. 333-323),
Form S-3 (Registration No. 33-55707) and Form S-3
(Registration No. 33-62477).
27 Financial Data Schedule.
28(p) Information from reports furnished to state
insurance regulatory authorities by Underwriters
Reinsurance Company, Commercial Underwriters
Insurance Company, and Underwriters Insurance
Company is filed under cover of Form SE, pursuant
to Rule 311(c) of Regulation S-T.
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Exhibit 10.08(a)
AGREEMENT
BETWEEN
CHEMICAL BANK, AS TRUSTEE
AND
ALLEGHANY CORPORATION
TRUST AGREEMENT AMENDMENT, made as of the 8th day of July, 1994, between ALLEGHANY CORPORATION, a Delaware corporation (the "Company"), and CHEMICAL BANK, a New York banking corporation (the "Trustee").
WHEREAS, the Company and Bankers Trust Company entered into a Trust Agreement, dated January 1, 1989, relating to the Alleghany Corporation Retirement Plan (the "Trust Agreement"), which Trust Agreement reserved to the Company the rights to remove Bankers Trust Company as trustee and to amend in whole or in part any or all of the provisions of the Trust Agreement; and
WHEREAS, the Company has removed Bankers Trust Company as trustee and appointed Chemical Bank, as successor trustee; and
WHEREAS, the Company and Chemical Bank, as successor Trustee, desire to amend and restate the Trust Agreement in its entirety.
NOW, THEREFORE, the Company and the Trustee agree that the Trust Agreement shall be amended and restated to provide as follows:
W I T N E S S E T H:
WHEREAS, the Company has heretofore adopted a retirement plan for the benefit of certain of its employees known as the Alleghany Corporation Retirement Plan (hereinafter the "Plan") which Plan is not intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"), but which is intended to be subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and
WHEREAS, the Plan provides that contributions will be held IN TRUST, by a trustee, for the benefit of those persons participating in the Plan (the "Participants") and their surviving spouses or beneficiaries pursuant to a trust agreement to be entered into between the Company and a trustee; and
WHEREAS, under the Plan a separate account (hereinafter an "Account") is to be maintained by a recordkeeper with respect to each Participant to which contributions of the Company (and the earnings thereon) to provide the retirement benefits of such Participant shall be credited and which Account shall be used by the Trustee solely in satisfaction of the liabilities of the Plan with respect to that Participant and for the payment of a proportionate part of the Trust expenses as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual and independent promises herein, the parties hereto covenant and agree as follows:
ARTICLE I
1.1 The Company hereby establishes with the Trustee a trust (the "Trust") consisting of such sums of money and such property acceptable to the Trustee as shall from time to time be paid or delivered to the Trustee and the earnings and profits thereon. All such money and property, the earnings and profits thereon, all investments made therewith and proceeds thereof, less the payments or other distributions which, at the time of reference, shall have been made by the Trustee, as authorized herein, are referred to herein as the "Fund" and shall be held by the Trustee, IN TRUST, in accordance with the provisions of this Agreement. Except as permitted by ERISA, at no time prior to the satisfaction of all liabilities with respect to the Participants and their beneficiaries under the Plan shall any part of the Fund be used for or diverted to purposes other than for the exclusive benefit of such Participants and beneficiaries.
1.2 Subject to the direction of an investment manger or the Investment Committee provided for in the Plan ("Investment Committee"), the Trustee shall hold, manage, invest and otherwise administer the Fund pursuant to the terms of this Agreement. The Trustee shall not be responsible (i) for contributions required to be made hereunder until actually received by it hereunder or, (ii) to enforce the collection of any contributions. The amount of each contribution by the Company to the Fund shall be determined in the sole discretion of the Company and the Trustee shall have no duty or responsibility with respect thereto.
1.3 KPMG Peat Marwick shall act as the independent consulting actuary and the recordkeeper of the Plan so long as it is serving as the Company's independent consulting actuary, and if the Company replaces or no longer uses said firm as its independent consulting actuary, the Company shall designate a new recordkeeper (KPMG Peat Marwick or any successor thereto being referred to herein as the "Recordkeeper"). The Trustee shall have no responsibility hereunder for the continued retention of the Recordkeeper and/or any responsibility assigned to said Recordkeeper under this Agreement or by the plan administrator of the Plan (the "Plan Administrator") or its performance thereof. The Company agrees to indemnify and hold the Trustee harmless for any losses, damages, liabilities and expenses incurred by the Trustee resulting from any actions or omissions of the Recordkeeper.
The Recordkeeper shall maintain in an equitable manner the Account of each Participant in which it shall keep a separate record of the share of such Participant in the Fund. The Company shall certify to the Recordkeeper at the time of each contribution to the Fund the amount of such contribution being made in respect of each Participant. The Recordkeeper shall be responsible for the maintenance of all tax information with respect to the Fund and each Account and the timely preparation of all tax information and tax returns with respect to the Fund and any distribution therefrom. The Fund shall be revalued by the Trustee as of the last business day of each calendar quarter at current market values, as determined by the Trustee, and at such other times as the Investment Committee shall direct.
ARTICLE II
2.1 All retirement or other benefits payable from the Fund to a Participant (or his beneficiary) shall be paid solely from the Account of such Participant. All expenses of and charges against the Fund shall be apportioned among the Accounts of all Participants in a fair and equitable manner as determined by the Recordkeeper. Any taxes and any and all assessments of any kind whatsoever imposed upon the Fund shall be charged against each Account in the proportion which the taxes or assessments which would be imposed upon such Account if it were the only Account in the Fund bears to the total of the taxes or assessments which would be imposed upon all Accounts if each such Account were the only Account in the Fund.
Each Account shall be administered as a substantially separate and independent share of the Trust hereunder in such manner that each such Account will be treated as a separate trust under Section 663(c) of the Code for purposes of determining the amount of distributable net income allocable to each such share under Section 661 of the Code. Accordingly, the Trustee may not distribute, apportion, or accumulate income, or distribute corpus, to or for one or more of the Participants, unless payment of income, accumulated income, or corpus of the share of one Participant cannot affect the proportionate share of income, accumulated income, or corpus of the shares of the other Participants, or unless substantially proper adjustment shall thereafter be made so that substantially separate and independent shares exist. Nothing provided in this Agreement shall relieve the Company of its obligation to pay the retirement benefits provided under the Plan except to the extent such liabilities are met by application of Fund assets.
2.2 Except for the records dealing solely with the Fund and its investments, which shall be maintained by the Trustee, the Recordkeeper shall maintain all the Participant records contemplated by this Agreement, including the maintenance of the separate Accounts of each Participant under this Agreement. All such records shall be made available promptly on request of the Trustee or the Company. The Trustee has no obligation to review the records of the Recordkeeper.
ARTICLE III
3.1 It shall be the duty of the Trustee to hold the Fund and to perform
with respect thereto the functions of the trustee set forth in this Trust
Agreement, including following instructions of the Plan Administrator of the
Plan (i) to make payments or distributions of retirement benefits, (ii) to apply
for and purchase insurance company contracts, (iii) to pay the premiums and
other charges on such contracts, (iv) to surrender or modify such contracts and
(v) to make distributions of tax payments (as provided in Article VII of the
Plan) directly to Participants (and their beneficiaries) or by depositing the
same for the benefit of such persons with the applicable taxing authority. The
Trustee shall not be responsible in any way for funds (or taxes thereon)
disbursed in accordance with instructions of the Plan Administrator or for the
administration of the Plan. If the Trustee, in accordance with directions of the
Plan
Administrator, purchases any insurance contracts, the Trustee shall not be responsible for the form or terms of such insurance contract, for the selection of the issuer thereof, or for the performance of any duties other than the payment of premiums and signing documents in connection therewith. The Trustee shall be under no duty to enforce payment of any contribution and shall not be responsible for the adequacy of the Fund to pay retirement benefits, to make tax payments or pay any other liabilities under the Plan. The Trustee shall not be obligated to pay interest on any moneys held by or on deposit with it pursuant hereto.
3.2 The Plan Administrator may direct payments to be made to any person, including the Plan Administrator, the Company or to any paying agent designated by the Company, and in such amounts as the Plan Administrator shall direct. The Trustee shall have no responsibility with respect to any payment made, pursuant to such a direction, to the Company, the Plan Administrator, to any paying agent, or to any other person, and any payment so made shall be held in trust by the recipient until disbursed in accordance with the Plan. Each direction of the Plan Administrator shall be in writing and shall be deemed to include a certification that any payment directed thereby is one which the Plan Administrator is authorized to direct, and the Trustee may conclusively rely on such certification without further investigation. Payments by the Trustee may be made by its check to the order of the payee and mailed to the payee at the address last furnished to the Trustee, or if no such address has been so furnished, to the payee in care of the Company.
In the event that any amount shall become payable under the Plan to a person or the executor or administrator of any deceased person and if, after written notice from the Trustee mailed to such person or such executor or administrator he shall not have presented himself to the Trustee within two years after the mailing of such notice, the Trustee shall notify the Plan Administrator, and the Plan Administrator shall instruct the Trustee as to the disposition of such amounts.
ARTICLE IV
4.1 Without in any way limiting the powers and discretion conferred upon it by the other provisions of this Agreement or by law, the Trustee is expressly authorized and empowered:
(a) to invest and reinvest the Fund, subject to instructions of the Investment Committee or an Investment Manager, without distinction between principal and income, at such time or times, in such investments and pursuant to such strategies or courses of action and in such shares or proportions as the Investment Committee or an Investment Manager, in its sole discretion, shall deem advisable;
(b) to retain counsel or an Investment Manger affiliated with the Trustee (if not appointed by the Investment Committee) and other experts;
(c) to employ suitable agents, depositaries and counsel, domestic or
foreign, and to charge their reasonable expenses and compensation against the Fund;
(d) if an Investment Manager has been appointed, the Trustee shall not exercise voting rights. In all other cases, the Trustee shall exercise voting rights;
(e) with respect to any investment, to consent or object to any action or nonaction of any corporation, or of the directors, officers or stockholders of any corporation;
(f) to sell, exchange, convey, transfer or otherwise dispose of any property held by it, by private contract or at public auction, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency or propriety of any such sale or other disposition;
(g) to enter into contracts or to make commitments either alone or in company with others to sell at any future date any property acquired for the Fund or to purchase at any future date any property which it may be authorized to acquire under this Agreement;
(h) to make, execute, acknowledge and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;
(i) to register any investments held in the Fund in its own name or in the name of a nominee and to hold any investment in bearer form, or to combine certificates representing such investments with certificates of the same issue held by the Trustee in other fiduciary capacities, or to deposit or to arrange for the deposit of securities in a qualified central depositary even though, when so deposited, such securities may be merged and held in bulk in the name of the nominee of such depositary with other securities deposited therein by any other person, or to deposit or to arrange for the deposit of any securities issued by the United States Government, or any agency or instrumentality thereof, with a federal reserve bank but the books and records of the Trustee shall at all times show that all such investments are part of the Fund;
(j) to borrow money (subject to the approval of the Investment Committee) from any source as may be necessary or advisable to effectuate the purposes of the Trust on such terms and conditions as the Trustee, in its absolute discretion, may deem advisable;
(k) to deposit any funds of the Trust in interest-bearing accounts maintained or savings certificates issued by the Trustee, in its separate corporate capacity, or any other banking institution affiliated with the Trustee;
(l) to organize corporations under the laws of any state for the purpose of acquiring or holding title to any property for the Fund or to request the Company to appoint another trustee for such purpose; and
(m) to make any distribution or transfer of Fund assets in cash or in
kind as the Plan Administrator may direct the Trustee to so distribute or transfer and, in furtherance thereof, to value such assets, which valuation shall be conclusive and binding on all persons.
(n) to compromise or otherwise adjust all claims in favor of or against the Fund, except that it will not exercise this power without the consent of the Plan Administrator if the claim solely affects an interpretation of a Participant's (or his beneficiary's) rights under the Plan, but the Trustee shall not be required to commence or defend any suit or legal proceeding unless it shall be indemnified by the Company to its reasonable satisfaction against liabilities or expenses it might incur therefrom;
(o) to deposit any property with any protective, reorganization or similar committee; to delegate power thereto and to pay and agree to pay part of its expenses and compensation and any assessments levied with respect to any property so deposited;
(p) generally to do all acts which the Trustee may deem necessary or desirable for the protection of the Trust Fund.
4.2 If an affiliate of the Trustee is acting as Investment Manager with respect to the Trust Fund, in addition to its other investment powers, such Investment Manager is authorized to direct the Trustee to invest in, sell or redeem, shares of mutual funds with respect to which the Trustee or one or more of its affiliates provide services, including investment management services and shareholder servicing.
4.3 The Trustee shall discharge the foregoing powers and discretions in accordance with any funding policy and guidelines established by the Investment Committee from time to time and communicated in writing to the Trustee. The Trustee shall have no responsibility with respect to the formulation of any such funding policy or guidelines embodied in any such direction.
The Investment Committee shall be responsible for determining the diversification policy with respect to the investment of Plan assets, for monitoring adherence to such policy, and for advising the Trustee with respect to its compliance with any investment limitations on employer or other securities or property contained in the Plan or imposed on the Plan by applicable statute.
ARTICLE V
5.1 The expenses incurred by the Trustee in the performance of its duties, including fees for legal services rendered to the Trustee, such compensation to the Trustee as may be agreed upon in writing from time to time between the Company and the Trustee, and all other proper charges and disbursements of the Trustee, shall be paid by the Company, but until paid shall constitute a charge upon the Fund. All taxes and any and all assessments of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect
of the Fund or the income thereof shall be paid from the Fund.
ARTICLE VI
6.1 The Trustee shall keep accurate and detailed accounts of all receipts, disbursements and other transactions hereunder, and all contracts, accounts, books and records relating thereto shall be open to inspection and audit at all reasonable times by any person designated by the Investment Committee or Plan Administrator. Within ninety (90) days following the close of each fiscal year, and within ninety (90) days after the removal or resignation of the Trustee as provided in Article VII hereof, the Trustee shall file with the Company, the Investment Committee and Plan Administrator a written account setting forth all assets of the Fund, and all receipts, disbursements and other transactions effected by it during such fiscal year or during the period from the close of the last fiscal year to the date of such removal or resignation. Upon the expiration of ninety (90) days from the date of filing such annual or other account, the Trustee shall be forever released and discharged from all liability and accountability to anyone with respect to the propriety of its acts and transactions shown in such account, except with respect to any such acts or transactions to which the Company, the Investment Committee or Plan Administrator shall within such ninety day period file with the Trustee written objections. No Participant or other person having an interest in the Fund shall have the right to demand or be entitled to any further or different accounting by the Trustee. The Trustee shall have the right to apply at any time to a court of competent jurisdiction for judicial settlement of any account of the Trustee not previously settled as herein provided or for the determination of any question of construction or for instructions. In any such action or proceeding it shall be necessary to join as parties only the Trustee, the Investment Committee and the Company (although the Trustee may also join such other parties as it may deem appropriate), no Participant or other person having an interest in the Fund shall be entitled to any notice or process, and any judgment or decree entered therein shall upon the conclusion of all appeals and the expiration of the time for taking appeal therefrom, be conclusive upon all persons claiming under this Trust.
ARTICLE VII
7.1 The Trustee may be removed by the Company at any time upon sixty
(60) day's notice in writing to the Trustee. The Trustee may resign at any
time upon sixty (60) days' notice in writing to the Company. Upon such removal
or resignation of the Trustee, the Company shall appoint a successor trustee
who shall have the same powers and duties as those conferred upon the Trustee
hereunder and, upon acceptance of such appointment by the successor trustee,
the Trustee shall assign, transfer and pay over the Fund to such successor
trustee. The Trustee is authorized, however, to reserve such sum of money as it
may deem advisable for payment of its fees and expenses in connection with the
settlement of its account or otherwise, and any balance of such reserve
remaining after the payment of such fees and expenses shall be paid over to the
successor trustee.
7.2 If for any reason the Company cannot or does not act in the event of the resignation or removal of the Trustee, as hereinabove provided, the Trustee may apply to a court of competent jurisdiction for the appointment of a successor trustee or for instructions. Notwithstanding any provision of this Agreement to the contrary, any expenses incurred by the Trustee in connection therewith shall be paid from the Fund as an expense of administration.
7.3 Any action by the Company pursuant to any of the provisions of this Agreement shall be evidenced by a resolution of its Board of Directors certified to the Trustee over the signature of its Secretary or any Assistant Secretary under the corporate seal, and the Trustee shall be fully protected in acting in accordance with such resolution so certified to it. All orders, requests, and instructions of the Investment Committee to the Trustee shall be in writing signed by two members of the Investment Committee or by its Secretary and one member thereof, and the Trustee shall act and shall be fully protected in acting in accordance with such orders, requests, and instructions. The Company shall certify to the Trustee the names and specimen signatures of the members of the Investment Committee and the name and specimen signature of the Plan Administrator. The Company shall promptly give notice to the Trustee of changes in the identity of the Plan Administrator or in the membership of the Investment Committee, and until such notices are received by the Trustee, the Trustee shall be fully protected in assuming that the identity of the Plan Administrator or the membership of the Investment Committee is unchanged and is acting accordingly. The Investment Committee may certify to the Trustee the names of persons authorized to act for it in relation to the Trustees and the Trustee may act upon any certificate, notice or direction purporting to have been signed on behalf of the Investment Committee which the Trustee believes to be genuine and to have been executed by the Investment Committee or by any person whose authority to act for the Investment Committee has been certified to the Trustee by the Investment Committee. The Trustee may rely upon any certificate, notice or direction of the Company which the Trustee believes to be genuine and to have been signed by a duly authorized officer or agent of the Company. Communications from the Company or the Investment Committee or the Plan Administrator to the Trustee shall be sent to the Trustee's office located at 270 Park Avenue, New York, New York 10017 and such communications shall be binding upon the Trust and the Trustee, when received by the Trustee. All orders, requests and instructions of the Plan Administrator shall be in writing and signed by the Plan Administrator, and the Trustee shall act and be fully protected in acting in accordance with such orders, requests and instructions.
7.4 In the event of the termination of the Plan as provided therein, the Trustee shall dispose of the Fund in accordance with the written orders of the Investment Committee or Plan Administrator.
7.5 No insurance company which may issue any contract hereunder shall be deemed to be a party to this Trust Agreement for any purpose, or be responsible for the validity thereof, or be required to look into the terms thereof or question any act of the Trustee hereunder, or be required to see that any action of the Trustee is authorized thereby.
ARTICLE VIII
8.1 The Company reserves the right at any time and from time to time to terminate or amend, in whole or in part, any or all of the provisions of this Agreement by notice thereof in writing delivered to the Trustee, provided that no such amendment which affects the rights, duties or responsibilities of the Trustee may be made without its consent, and provided further that, except as provided under Section 403(c) of ERISA, no instrument of termination or amendment shall authorize or permit, at any time prior to the satisfaction of all liabilities with respect to the Participants and their beneficiaries under the Plan, any part of the corpus or income of the Fund to be used for or diverted to purposes other than for the exclusive benefit of such Participants and their beneficiaries.
8.2 In the event of the termination of the Trust as above provided (or of the Plan), the Trustee shall continue to administer the Fund as hereinabove provided until all of the purposes for which it has been established have been accomplished or dispose of the Fund after the payment of or other provision for all expenses incurred in the administration and termination of the Trust (including any compensation to which the Trustee may be entitled), all in accordance with the written orders of the Investment Committee, the Plan Administrator or any successor thereto. Until the final distribution of such Fund, the Trustee, the Investment Committee, the Plan Administrator or any successor thereto (as the case may be) shall continue to have and may exercise all of the powers and discretions conferred upon them by this Agreement.
ARTICLE IX
9.1 The Trustee shall not be liable for the acts or omissions of the Plan Administrator, Investment Manager or the Investment Committee or be under any obligation to invest or otherwise manage any asset of the Trust which is subject to the management of the Investment Manager or the Investment Committee. Except for its own actions as an investment manager, if any, the Trustee shall not be liable for any investment made pursuant to the direction of the Plan Administrator, Investment Manager or Investment Committee or for the carrying out on the direction of the Investment Manager of any other power granted to the Trustee by Article IV hereof, and the Trustee shall not be liable by reason of its taking any action at the direction of the Plan Administrator, Investment Manager or Investment Committee or refraining from taking any action because of the failure of the Plan Administrator, Investment Manager or Investment Committee to give such direction. The Trustee shall be under no duty to question or make inquiry as to any direction or failure to give direction by the Plan Administrator, Investment Manager or Investment Committee.
In all events the Trustee shall not be liable for incidental, consequential and/or punitive damages.
9.2 In consideration of the Trustee agreeing to enter into this Agreement, the Company hereby agrees to Indemnify and hold harmless the Trustee, individually and as trustee,
and the Trustee's directors, officers, employees, agents and nominees from and against all amounts, including, without limitation, taxes, liabilities, claims, damages, actions, suits or other charges incurred by or assessed against the Trustee, individually or as trustee, or its directors, officers, employees, agents and nominees by reason of its responsibilities under this Agreement as trustee:
(a) arising as a direct or indirect result of any act or omission of any predecessor trustee;
(b) arising as a direct or indirect result of anything done, or alleged to have been done, by or on behalf of the Trustee in reliance upon the directions of the Plan Administration, any Investment Manager, the Investment Committee, the Company or any other fiduciary, or anything omitted from being done, or alleged to have been omitted, in the absence of such directions; or
(c) arising as a direct or indirect result of the failure of the Plan Administrator, Company, Investment Manager, the Investment Committee or any other fiduciary, directly or indirectly, to adequately, carefully and diligently discharge its fiduciary responsibilities with respect to the Plan.
Anything herein to the contrary notwithstanding, the Company shall have no responsibility to the Trustee under this Section, if the Trustee knowingly participated in or knowingly concealed any act or omission of any other fiduciary knowing that such act or omission constituted a breach of its own fiduciary responsibilities. This agreement to indemnify and hold harmless shall be binding upon the successors and assigns of the Company and shall survive the termination of this agreement and the resignation or removal of the Trustee.
ARTICLE X
10.1 To the extent that State law shall not have been preempted by the provisions of ERISA or any other laws of the United States heretofore or hereafter enacted, as the same may be amended from time to time, this Agreement shall be administered, construed and enforced according to the laws of the State of New York.
10.2 The Company shall provide the Trustee with copies of all documents constituting the Plan at the time this Agreement is executed and all other documents amending or supplementing the Plan promptly upon their adoption. The Trustee shall be entitled to rely upon the Company's attention to this obligation and shall be under no duty to inquire of the Company as to the existence of any document not provided by the Company hereunder.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written.
ALLEGHANY CORPORATION
By: /s/ John J. Burns, Jr.
------------------------------------
Title: President
Attest:
/s/ John E. Conway
- ------------------------------------
Secretary
|
CHEMICAL BANK
By: /s/ Catherine M. Casey
------------------------------------
Title: Assistant Secretary
Attest:
/s/ Teresa Marotta
- ------------------------------------
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SCHEDULE A
ERISA ACCOUNTS
- ------------------- ---------------------
NAME OF ACCOUNT TAX I.D. NUMBER
The Custodian is:
-----------------------
The Custodian Account Number is:
------------------------
|
The fiduciaries agree to notify TPG promptly in writing of any change in the above status.
Address: Mail all communications concerning the Account to the client as:
Fiduciaries: The present status of each of the fiduciaries is as follows:
- -------------------------------------------------------------------------------- (1)Name Signature Date - ---------------------- -------------------------------- Legal Residence Citizen or Subject of - -------------------------------------------------------------------------------- (2)Name Signature Date - ---------------------- -------------------------------- Legal Residence Citizen or Subject of - -------------------------------------------------------------------------------- (3)Name Signature Date - ---------------------- -------------------------------- Legal Residence Citizen or Subject of |
Exhibit 10.10
Description of Alleghany
Group Long Term Disability Plan
Effective July 1, 1995, group long term disability insurance was purchased covering officers of Alleghany. Under the terms of the insurance contract, an officer is provided disability protection equal to 60% of base salary or a maximum benefit of $15,000 per month. The maximum payable period of the disability benefits depends on the age of the officer on the date the disability commenced; the maximum is to an officer's 65th birthday, if the disability commenced on or prior to the officer's 62nd birthday, and the minimum is 12 months, if the disability commenced on or after an officer's 69th
birthday.
Exhibit 10.21(b)
Description of Long-Term Incentive Arrangement Between Paul F. Woodberry and Alleghany
Alleghany authorized the grant to Mr. Woodberry of a long-term incentive award equal to 1.5 percent of the proceeds in excess of $90 million from the sale of the real estate assets owned by Alleghany's subsidiary, Alleghany Properties, Inc. ("API"), and API's subsidiary. The payment of such incentive will be made twice a year commencing at the end of the year in which such proceeds exceed $90 million, which was the net book value of such assets at the time API acquired such assets in connection with the sale of Alleghany's former retail banking subsidiary. The incentive will be paid in shares of Alleghany's common stock (valued at the book value per share of common stock as of December 31, 1995) or, at the discretion of the Compensation Committee of Alleghany's Board of Directors, in a combination of common stock and cash in an amount not to exceed one-half of such payout. In the event that Mr. Woodberry is terminated without cause after a change of control of Alleghany or more than 50 percent of the book value of the real estate assets of API has been sold, the incentive shall be paid on the basis of the aggregate of (i) the cash proceeds and book value of non-cash proceeds realized to the date of his termination, plus (ii) the book value or appraised value (depending on the type of asset) of
the real estate assets of API remaining unsold on the date of his termination.
Exhibit 10.28(d)
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT (the "Amendment") dated as of November 6, 1995 among ALLEGHANY CORPORATION, a Delaware Corporation ("Alleghany"), ALLEGHANY PROPERTIES, INC., a Delaware Corporation ("API"), and the Purchasers (the "Purchasers") listed on Annex 1 to the Note Purchase Agreement, as amended (the "Agreement"), dated as of January 15, 1995 among Alleghany, API and the Purchasers.
W I T N E S S E T H:
WHEREAS, Alleghany, API and the Purchasers entered into the Agreement, pursuant to which the Purchasers purchased and API issued and sold $50,000,000 aggregate principal amount of 8.62% Senior Notes due February 23, 2000; and
WHEREAS, Alleghany, API and the Purchasers desire to amend the Agreement as provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Agreement.
Section 2. Amendment of definition of "Downgrade Event". The definition
of "Downgrade Event" is hereby amended by inserting in the last line of clause
(c)(i) of the definition between the words "Moody's" and "and," the following:
", or an Issuer Credit Rating (or a comparable rating) of the Parent of at least
'BBB-' from S&P and a Counterparty Rating (or a comparable rating) of the Parent
of at least 'Baa3' from Moody's."
Section 3. Limitation to Amendment. Except as modified by this Amendment, all of the terms and conditions contained in the Agreement shall remain in full force and effect and are hereby ratified and confirmed.
Section 4. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.
ALLEGHANY CORPORATION
By:/s/ David B. Cuming -------------------------- Name: David B. Cuming Title: Senior Vice President |
ALLEGHANY PROPERTIES, INC.
By:/s/ David B. Cuming -------------------------- Name: David B. Cuming Title: President |
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT CRC
By:/s/ Patrick D. McCabe -------------------------- Name: Patrick D. McCabe Title: Assistant Vice President |
TRANSAMERICA LIFE INSURANCE &
ANNUITY COMPANY
By:/s/ John M. Casparian -------------------------- Name: John M. Casparian Title: Investment Officer |
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
By:/s/ John M. Casparian -------------------------- Name: John M. Casparian Title: Investment Officer |
UNITED OF OMAHA LIFE INSURANCE
COMPANY
By:/s/ Victor N. Hanson -------------------------- Name: Victor N. Hanson Title: First Vice President |
MUTUAL OF OMAHA INSURANCE
COMPANY
By:/s/ Victor N. Hanson -------------------------- Name: Victor N. Hanson Title: First Vice President |
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact, formerly Lincoln
National Investment Management
Company
By:/s/ Timothy L. Powell -------------------------- Name: Timothy L. Powell Title: Second Vice President |
KNIGHTS OF COLUMBUS
By:/s/ Robert J. Lane -------------------------- Name: Robert J. Lane Title: Assistant Supreme Secretary |
WOODMEN ACCIDENT AND LIFE
COMPANY
By:/s/ A.M. McCray -------------------------- Name: A.M. McCray Title: Vice President and Assistant Treasurer |
Exhibit 10.36(a)
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 10, 1995
among
MINERAL HOLDINGS INC.
WORLD MINERALS INC.,
THE BANKS NAMED HEREIN,
NATIONSBANK, N.A. (CAROLINAS),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Co-Agent,
and
CHEMICAL BANK,
as Administrative Agent,
Collateral Agent
and Co-Agent
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS........................................................................ 2
SECTION 1.1. Defined Terms................................................................ 2
SECTION 1.2. Terms Generally............................................................. 19
SECTION 1.3. Accounting Terms, GAAP...................................................... 20
ARTICLE II THE LOANS......................................................................... 20
SECTION 2.1. Term Loans; Conversion of Outstanding
Loans............................................................... 20
SECTION 2.2. Making of Revolving Loans................................................... 21
SECTION 2.3. Notice of Loans............................................................. 22
SECTION 2.4. Interest.................................................................... 23
SECTION 2.5. Alternative Rate of Interest................................................ 24
SECTION 2.6. Interest on Overdue Amounts................................................. 24
SECTION 2.7. Scheduled Amortization of Term Loans........................................ 25
SECTION 2.8. Mandatory Prepayments....................................................... 25
SECTION 2.9. Reduction of Revolving Loan Commitment...................................... 26
SECTION 2.10. Optional Prepayments of Term Loans.......................................... 27
SECTION 2.11. Redeployment Cost........................................................... 27
SECTION 2.12. Conversion and Continuation of
Borrowings.......................................................... 28
SECTION 2.13. Increased Costs............................................................. 29
SECTION 2.14. Change in Legality.......................................................... 31
SECTION 2.15. Pro Rata Treatment.......................................................... 31
SECTION 2.16. Sharing of Setoffs.......................................................... 32
SECTION 2.17. Payments.................................................................... 32
SECTION 2.18. Taxes .................................................................... 33
SECTION 2.19. Fees .................................................................... 35
ARTICLE III LETTERS OF CREDIT................................................................. 36
SECTION 3.1. Issuance of Letters of Credit............................................... 36
SECTION 3.2. Notice .................................................................... 37
SECTION 3.3. Reimbursement; Repayment with Loans......................................... 37
SECTION 3.4. Increased Costs............................................................. 40
SECTION 3.5. Letter of Credit Fees....................................................... 41
ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................... 42
SECTION 4.1. Organization................................................................ 42
SECTION 4.2. Corporate Power and Authority; No
Required Consents or Approvals...................................... 42
SECTION 4.3. Enforceability.............................................................. 43
SECTION 4.4. Financial Statements........................................................ 43
SECTION 4.5. No Material Adverse Change.................................................. 43
SECTION 4.6. Litigation.................................................................. 44
SECTION 4.7. Compliance with Laws........................................................ 44
SECTION 4.8. Employee Benefit Plans...................................................... 44
SECTION 4.9. Taxes .................................................................... 45
SECTION 4.10. Title to Properties......................................................... 45
SECTION 4.11. Business.................................................................... 45
SECTION 4.12. Agreements.................................................................. 46
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Page
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SECTION 4.13. No Material Misstatements................................................... 46
SECTION 4.14. Related Party Transactions.................................................. 46
SECTION 4.15. Labor Matters and Acts of God............................................... 46
SECTION 4.16. Outstanding Debt............................................................ 46
SECTION 4.17. Federal Reserve Regulations................................................. 46
SECTION 4.18. Investment Company Act and Public
Utility Holding Company Act......................................... 46
SECTION 4.19. Security Interests.......................................................... 47
SECTION 4.20. Capital Stock; Subsidiaries................................................. 47
ARTICLE V CONDITIONS TO LENDING................................................................ 49
SECTION 5.1. Loans on the Closing Date................................................... 49
(a) Notes ............................................................................ 49
(b) Corporate Documents.................................................................. 49
(c) Lien Search.......................................................................... 49
(d) No Defaults.......................................................................... 50
(e) Insurance............................................................................ 50
(f) Requisite Approvals.................................................................. 50
(g) Security ............................................................................ 50
(h) Representations and Warranties....................................................... 50
(i) Officer's Certificate................................................................ 50
(k) Legal Matters........................................................................ 51
SECTION 5.2. Revolving Loans Made After Closing Date..................................... 51
(a) Representations and Warranties....................................................... 51
(b) Compliance........................................................................... 51
(c) Notice of Borrowings................................................................. 51
(d) Officer's Certificate............................................................... 51
SECTION 5.3. Letters of Credit Issued After the
Closing Date........................................................ 51
(a) Representations and Warranties....................................................... 51
(b) Compliance........................................................................... 51
(c) Notice ............................................................................ 52
(d) Officer's Certificate................................................................ 52
ARTICLE VI AFFIRMATIVE COVENANTS................................................................ 52
SECTION 6.1. Corporate Existence......................................................... 52
SECTION 6.2. Obligations and Taxes....................................................... 52
SECTION 6.3. Performance Under Agreements................................................ 52
SECTION 6.4. Access to Properties and Inspections........................................ 53
SECTION 6.5. Defense of Claims........................................................... 53
SECTION 6.6. Notices of Litigation or Claims............................................. 53
SECTION 6.7. Notice of Certain Actions................................................... 54
SECTION 6.8. Compliance.................................................................. 54
SECTION 6.9. Further Assurances.......................................................... 54
SECTION 6.10. Business and Properties..................................................... 54
SECTION 6.11. Financial Statements and Reports............................................ 55
SECTION 6.12. Insurance................................................................... 56
SECTION 6.13. Mining Plan................................................................. 57
SECTION 6.14. Interest Rate Hedges........................................................ 57
SECTION 6.15. ERISA .................................................................... 57
SECTION 6.16. Proceeds.................................................................... 58
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Page
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ARTICLE VII NEGATIVE COVENANTS................................................................ 58
SECTION 7.1. Indebtedness................................................................ 58
SECTION 7.2. Negative Pledge............................................................. 59
SECTION 7.3. Restricted Payments......................................................... 60
SECTION 7.4. Investments................................................................. 61
SECTION 7.5. Nature of Business.......................................................... 62
SECTION 7.6. Asset Sales................................................................. 62
SECTION 7.7. Acquisitions................................................................ 62
SECTION 7.8. Transactions With Affiliates................................................ 63
SECTION 7.9. Sale and Leaseback Transactions............................................. 64
SECTION 7.10. Merger or Consolidation..................................................... 64
SECTION 7.11. Interest Coverage........................................................... 64
SECTION 7.12. Debt to Worth............................................................... 64
SECTION 7.13. Net Worth................................................................... 64
SECTION 7.14. Fiscal Year................................................................. 65
ARTICLE VIII EVENTS OF DEFAULT................................................................. 65
SECTION 8.1. Defaults.................................................................... 65
ARTICLE IX THE ADMINISTRATIVE AGENT AND CO-AGENTS............................................ 69
ARTICLE X HOLDINGS GUARANTY................................................................. 71
SECTION 10.1. Holdings Guaranty........................................................... 71
SECTION 10.2. Guarantor's Waivers......................................................... 72
SECTION 10.3. Bankruptcy.................................................................. 73
(a) No Effect on Guaranty............................................................. 73
(b) Filing of Claims.................................................................. 74
SECTION 10.4. Payment .................................................................... 75
ARTICLE XI MISCELLANEOUS..................................................................... 75
SECTION 11.1. Notices .................................................................... 75
SECTION 11.2. Survival of Agreement....................................................... 76
SECTION 11.3. Successors and Assigns; Syndications;
Loan Sales; Participations.......................................... 76
SECTION 11.4. Expenses of the Co-Agents and the Banks..................................... 80
SECTION 11.5. Indemnification............................................................. 81
SECTION 11.6. Governing Law............................................................... 82
SECTION 11.7. Waivers; Amendments......................................................... 83
SECTION 11.8. Severability................................................................ 84
SECTION 11.9. Counterparts................................................................ 84
SECTION 11.10. Headings.................................................................... 84
SECTION 11.11. Obligations of Banks Several................................................ 84
SECTION 11.12. Entire Agreement............................................................ 85
SECTION 11.13. Confidentiality............................................................. 85
SECTION 11.14. Release of Certain Liens.................................................... 85
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EXHIBITS
EXHIBIT A - Form of Alleghany Subordination Agreement EXHIBIT B - Form of Assignment and Acceptance
EXHIBIT C - Celite Guaranty Agreement
EXHIBIT D - Celite Pledge Agreement
EXHIBIT D-1 - Celite Mexico Pledge Agreement
EXHIBIT E - Holdings Pledge Agreement EXHIBIT F - Pledge Agreement EXHIBIT G - Form of Revolving Credit Note EXHIBIT H - Form of Term Loan Note EXHIBIT I - Letter of Credit Application EXHIBIT J - Letter of Credit Application EXHIBIT K - Form of Notice of Borrowing |
ANNEXES
ANNEX I - The Banks
ANNEX II - Financing Documents
ANNEX III - Financials
ANNEX IV - List of Material Subsidiaries
ANNEX V - List of Jurisdictions
-iv-
|
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of March 10, 1995, among MINERAL
HOLDINGS INC., a Delaware corporation
("Holdings"), WORLD MINERALS INC., a Delaware
corporation (the "Borrower"), the BANKS (as
hereinafter defined), NATIONSBANK, N.A.
("CAROLINAS) ("NationsBank"), BANK OF AMERICA
NATIONAL TRUST & SAVINGS ASSOCIATION, a
national banking association ("Bank of
America"), as co-agent, and CHEMICAL BANK, a
New York banking corporation ("Chemical"), as
administrative agent, collateral agent and
co-agent for the Banks.
PREAMBLE
The Borrower, Holdings, the Banks, Bank of America and
|
Chemical are parties to a Credit Agreement dated as of December 20, 1991, as amended through Amendment No. 5 to Credit Agreement dated as of December 20, 1993 (the "Existing Agreement"), pursuant to which the Banks have provided to the Borrower a $70 million senior secured revolving loan facility (the "Existing Facility"). The Borrower, Holdings, the Banks, Bank of America and Chemical wish to amend and restate the Existing Agreement in its entirety in order to, among other things, provide for (a) a senior secured term loan facility in a principal amount of $57,000,000 (the "Term Loan Facility") and (b) a senior secured revolving loan facility in a principal amount of $60,000,000 (the "Revolving Loan Facility"; and the Revolving Loan Facility collectively with the Term Loan Facility, the "Facility") of which up to $20 million will be available for the issuance of letters of credit on behalf of the Borrower and its Subsidiaries (the "Letter of Credit Facility").
On the effective date of this Agreement, all of the loans outstanding under the Existing Agreement will be converted into Term Loans (as defined herein). Thereafter, availability under the Revolving Credit Facility may be utilized by the Borrower for letters of credit, acquisitions and general corporate purposes (including payments permitted pursuant to Section 7.3), in each case subject to the terms and conditions set forth herein.
The obligations of the Borrower, Holdings and Celite under this Agreement and the other Loan Documents are not guaranteed by Alleghany Corporation and no commitments are made by Alleghany Corporation with respect thereto.
IN WITNESS WHEREOF, the parties to this Agreement, intending to be bound hereby, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Agree- ment, the following terms shall have the following respective meanings:
"ABR Loan" shall mean a Loan made in accordance with the provisions of Article II bearing interest at a rate based on the Alternate Base Rate.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent" shall mean Chemical, as administrative agent for the Banks hereunder.
"Administration Fee" shall mean the fee payable by the Borrowers to the Administrative Agent in accordance with Section 2.19(b) hereof.
"Affiliate" shall mean, with respect to any Person, another Person that directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with such Person.
"Aggregate Commitment" at any time shall mean the sum of the Revolving Credit Commitment and the Term Loan Commitment.
"Alleghany" shall mean Alleghany Corporation, a Delaware corporation and, as of the date hereof, holder of a majority of the outstanding capital stock of Holdings.
"Alleghany Subordination Agreement" shall mean a subordination agreement between Alleghany and the Collateral Agent in the form of Exhibit A attached hereto.
"Alternate Base Rate" shall mean, with respect to any ABR Loan made by a Bank, for any day, a variable rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, (b) the fluctuating rate of interest announced from time to time by the Administrative Agent in its principal office in New York City as its prime rate in effect on such day (it being understood that the prime rate is not intended
to represent the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors) and (c) the Base CD Rate in effect on such day plus 1%. If for any reason any Bank shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate or the Base CD Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (a) or (c), or both, of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. For purposes of this Agreement, any change in the Alternate Base Rate shall be effective on the date such change is announced.
"Applicable Law" shall mean all provisions of laws, statutes, ordinances, rules, regulations or orders of any Governmental Authority applicable to the Person in question, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party or by which any of its assets or properties may be bound.
"Assessment Rate" shall mean, for any day, the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Administrative Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such corporation (or such successor) of time deposits made in dollars at the Administrative Agent's domestic offices.
"Asset Sale" shall mean any sale, transfer, lease or other disposition of all or any part of the assets, properties or rights of Holdings, the Borrower or any other Subsidiary, other than (i) a sale, transfer, lease or other disposition solely between two Subsidiaries in accordance with Section 7.8(b), (ii) sales of inventory in the ordinary course of business or (iii) sales or trade ins of property, machinery or equipment which is being replaced in the ordinary course of business or otherwise within one year of sale.
"Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Bank and an assignee in the form of Exhibit B attached hereto.
"Bank" and "Banks" shall mean the financial institutions named in Annex I which have executed and delivered a counterpart of this Agreement, and any assignee of a Bank pursuant to Section 11.3(b).
"Bank of America" shall have the meaning given to such term in the Preamble to this Agreement.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate times (ii) Statutory Reserves and (b) the Assessment Rate.
"Board" shall mean the Board of Governors of the Federal Reserve System of the United States.
"Borrower" shall have the meaning given to such term in the Preamble of this Agreement.
"Business" shall have the meaning given to such term in
Section 4.11 hereof.
"Business Day" shall mean any day (other than a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City except that, if any determination of a "Business Day" shall relate to a Eurodollar Loan, the term "Business Day" shall, in addition, exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"Capital Expenditure" shall mean, with respect to any Person in any period, the sum of all amounts that would, in accordance with GAAP, be included as capital expenditures on a consolidated statement of cash flows of such Person during such period; provided, however, that for the purpose of determining compliance with Section 7.11, "Capital Expenditure" shall not include capital expenditures made to improve or develop property (as opposed to capital expenditures for maintenance or similar ordinary course of business improvements) acquired in an Acquisition permitted under Section 7.7 if, prior to the closing of such Acquisition, (i) the Borrower notifies the Administrative Agent in writing that it has elected to treat certain capital expenditures (the "Acquisition CapEx") relating to such Acquisition as part of the original acquisition or investment cost, (ii) the Borrower provides the Administrative Agent with a reasonably detailed description of the Acquisition CapEx, (iii) if all Acquisition CapEx is included in the "aggregate consideration" for such Acquisition, the Acquisition is permitted under Section 7.7 and (iv) the Borrower represents to the Administrative Agent, on behalf of the Banks, that such Acquisition CapEx will be utilized to refurbish, develop or make similar major improvements on such property rather than to maintain or make minor improvements in the ordinary course of business.
"Capital Lease Obligations" shall mean, with respect to any Person in any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.
"Cash Collateral Account" shall have the meaning given such term in Section 3.3(d) hereof.
"Celite" shall mean Celite Corporation, a Delaware corporation and a wholly-owned subsidiary of the Borrower.
"Celite Guaranty Agreement" shall mean the Amended and Restated Guaranty Agreement dated as of the date hereof and delivered by Celite to the Collateral Agent for the ratable benefit of the Banks, in the form of Exhibit C.
"Celite Pledge Agreement" shall mean (i) the Amended and Restated Pledge Agreement dated as of the date hereof in the form of Exhibit D and (ii) the Pledge Agreement dated as of December 20, 1991, in the form of Exhibit D-1, in each case delivered by Celite to the Collateral Agent for the ratable benefit of the Banks.
"Chemical" shall have the meaning given to such term in the Preamble to this Agreement.
"Closing" shall mean the closing of the transactions contemplated by this Agreement.
"Closing Date" shall mean March 10, 1995, or such other date as the Banks and the Borrower shall agree.
"Co-Agents" shall mean Chemical and Bank of America as co-agents hereunder, severally and not jointly.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations issued thereunder, as now and hereafter in effect, or any successor provision thereto.
"Collateral" shall mean all of the "Collateral" as defined in each of the Financing Documents.
"Collateral Agent" shall mean Chemical, as Collateral Agent for the Banks under the Financing Documents.
"Commitment Fee" shall have the meaning given such term in
Section 2.19(a) hereof.
"Control" shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"Cumulative Net Income" shall mean, at any time, an amount equal to the sum of the Net Income of Holdings and its Subsidiaries, on a consolidated basis, from January 1, 1992, to and including the last day of the last fiscal quarter which has ended prior to or on the date of such calculation.
"Default" shall mean any event which, with (i) the giving of any notice expressly provided for in Article VIII and/or (ii) the passage of any waiting period or cure period expressly provided for therein, would constitute an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Domestic Subsidiaries" shall mean, collectively, those Subsidiaries organized and existing under the laws of the United States or any state of the United States but excluding any branches of such Subsidiaries registered or operating in jurisdictions located outside the United States.
"Drawing" shall mean any payment or disbursement made by the Issuing Bank under a Letter of Credit honoring a demand for payment by a beneficiary of such Letter of Credit.
"EBITDA" shall be calculated on a consolidated basis for Holdings and its Subsidiaries and shall mean, for each Fiscal Year, without duplication, (a) Net Income for such Fiscal Year, plus (b) interest expense deducted in determining such Net Income, plus (c) depreciation expense deducted in determining such Net Income, plus (d) amortization expense deducted in determining such Net Income, plus (e) other non-cash items of expense deducted in determining such Net Income, plus (f) provision for federal, state, local and foreign taxes to the extent deducted in determining such Net Income, less (g) to the extent included in determining such Net Income, income during such period attributable to non-operating gains (including Asset Sales), including extraordinary or unusual gains, gains from discontinuance of operations and other non-recurring gains, plus (h) to the extent deducted in determining such Net Income, losses during such period attributable to any similar non-operating losses, in each case computed in accordance with GAAP.
"Eligible Assignee" means (A) (i) a commercial bank or trust company organized under the laws of the United States or any state thereof; (ii) a saving and loan association or savings bank organized under the laws of the United States or any state thereof; and (iii) a commercial bank or trust company organized under the laws of any other country or a political subdivision
thereof, provided that such bank or trust company is acting through a trust company that is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country and (B) any Bank and any Affiliate of any Bank; provided that no Affiliate of the Borrower shall be an Eligible Assignee; and provided further that such Eligible Assignee must have at the time of determination unimpaired capital and surplus of not less than $100,000,000.
"Environmental Claim" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and nonnegligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in or from property, whether or not owned by Holdings or any Subsidiary, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" at any date shall mean all provisions of Applicable Law concerning the protection of the environment (including, without limitation, soil, the air, surface waters, ground water and land use) together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource Recovery and Recycling Act, the California Water Code and the California Health and Safety Code.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as such Act may from time to time be amended, and final regulations promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including each trade or business (whether or not incorporated)) which together with Holdings or any of its Subsidiaries would be deemed to be a
member of the same "controlled group" within the meaning of Section 414(b) of
the Code, under "common control" within the meaning of Section 414(c) of the
Code or a member of the same "affiliated service group" within the meaning of
Section 414(m) of the Code and the regulations, if any, promulgated under
Section 414(o) of the Code.
"Eurodollar Loan" shall mean a Loan bearing interest at a rate based on the LIBO Rate in accordance with the provisions of Article II.
"Eurodollar Margin" shall have the meaning given to such term in Section 2.4.
"Event of Default" shall mean any of the events set forth in Article VIII hereof.
"Excluded Subsidiary" shall have the meaning given such term in Section 7.7 hereof.
"Existing Agreement" shall have the meaning given to such term in the Preamble to this Agreement.
"Existing Facility" shall have the meaning given to such term in the Preamble of this Agreement.
"Expropriatory Action" shall mean any action or series of actions that is taken, authorized, ratified or condoned by the United States of America or any Governmental Authority or other Person in any country in which a Subsidiary operates, owns or maintains a place of business, or any agency or instrumentality thereof, for the appropriation, confiscation, expropriation or nationalization (by intervention, condemnation or other form of taking), whether with or without compensation and whether under color of law or otherwise, of any ownership interest in the stock of any Subsidiary or ownership interest of any Subsidiary in any asset or property or access thereto.
"Facility" shall have the meaning given to such term in the Preamble to this Agreement.
"Fair Value" of an asset shall mean the consideration obtainable in a sale of such asset in an arm's-length transaction with a Person who is not an Affiliate of the seller.
"Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions
received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.
"Fee Letter" shall mean the letter agreement dated as of the date hereof among the Borrower, Holdings and Chemical, with respect to certain fees and other compensation payable by the Borrower and Holdings to Chemical and the Banks.
"Fees" shall mean any and all fees and compensation payable to the Administrative Agent, the Co-Agents or any Bank hereunder or under any other Loan Document, including, without limitation, any fees payable under the Fee Letter.
"Final Maturity Date" shall mean December 31, 1999.
"Financial Officer" of any Person shall mean its chief financial officer or principal accounting officer.
"Financing Documents" shall mean each of the documents identified on Annex II.
"Fiscal Year" shall mean, with respect to Holdings and its Subsidiaries, each period from January 1 to December 31 of each year.
"Foreign Subsidiaries" shall mean, collectively, those Subsidiaries which are organized or existing under the laws of a jurisdiction located outside of the United States and any branches of Domestic Subsidiaries which are registered or operating in jurisdictions located outside of the United States.
"GAAP" shall mean generally accepted accounting principles in the United States in effect from time to time.
"Governmental Authority" shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States or a foreign jurisdiction.
"Guarantors" shall mean, collectively, Holdings and Celite.
"Guarantor Pledge Agreements" shall mean, collectively, the Holdings Pledge Agreement and the Celite Pledge Agreement.
"Guaranty" shall mean any obligation, contingent or otherwise, of any Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person in any manner, whether directly or indirectly, including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the
payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, (c) to purchase or otherwise pay for merchandise, materials, supplies, services or other property which provides that payment for such merchandise, materials, supplies, services or other property shall be made regardless of whether delivery of such merchandise, materials, supplies, services or other property is ever made or tendered, or (d) to maintain the working capital, equity capital or other financial statement condition of the primary obligor.
"Harborlite Common Stock" shall have the meaning given to such term in Section 4.20(d).
"Harborlite Documents" shall mean the Perlite Business Agreement dated as of October 30, 1992, among Minerals and the other parties thereto, and each other document or agreement attached as an exhibit thereto.
"Harborlite Preferred Stock" shall have the meaning given to such term in Section 4.20(d).
"Hazardous Materials" means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.
"Holdings" shall have the meaning given to such term in the Preamble to this Agreement.
"Holdings Guaranty" shall have the meaning given to such term in Section 10.1.
"Holdings Pledge Agreement" shall mean the Pledge Agreement dated as of December 20, 1991, and delivered by Holdings to the Collateral Agent for the ratable benefit of the Banks, in the form of Exhibit E.
"Indebtedness" of any Person shall mean, without duplication,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments (including any
acknowledgments evidencing payment-in-kind loan transactions), (c) all
obligations of such Person upon which interest charges are customarily paid
(other than trade payables in the ordinary course of business), (d)
reimbursement obligations with respect to letters of credit and similar
instruments, (e) all obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person, (f) all obligations of such Person issued or assumed as
the deferred purchase price of property or services, other than accounts payable incurred and paid on terms customary in the business of such Person (it being understood that the "deferred purchase price" in connection with any purchase of property or assets shall include only that portion of the purchase price which shall be deferred beyond the date on which the purchase is actually consummated), (g) all obligations of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (h) obligations under forward sales, futures, options and other similar hedging arrangements, (i) obligations to purchase or otherwise pay for merchandise, materials, supplies, services or other property which provides that payment for such merchandise, materials, supplies, services or other property shall be made regardless of whether delivery of such merchandise, materials, supplies, services or other property is ever made or tendered, (j) any Guaranty by such Person of an obligation of others and (k) all Capital Lease Obligations of such Person.
"Indemnified Person" shall have the meaning given to such term in Section 11.5.
"Information" shall have the meaning given to such term in Section 11.13.
"Insolvency" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA.
"Intellectual Property" shall have the meaning given to such term in Section 4.10(b) hereof.
"Interest Expense" shall be calculated on a consolidated basis for Holdings and its Subsidiaries and shall mean, for any period, all cash interest expense of such Persons for all Indebtedness outstanding during such period computed in accordance with GAAP.
"Interest Payment Date" shall mean (a) the last day of an Interest Period, (b) in the case of any Eurodollar Loan having an Interest Period of six months, (i) the day which is three months after the first day of such Interest Period and (ii) the last day of such Interest Period and (c) the date of any refinancing or conversion of such Loan with or into a Loan of a different type, the date of prepayment of such Loan and the Final Maturity Date; provided, however, that any Interest Payment Date which is not a Business Day shall be extended to the immediately succeeding Business Day except with respect to a Eurodollar Loan as provided in the definition of Interest Period.
"Interest Period" shall mean, (a) as to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day in the calendar month one month, two months, three months or six months thereafter, as the Borrower may elect and, thereafter, each period commencing on the last day of the immediately preceding Interest Period for such Eurodollar Loan and ending on the numerically corresponding day in the calendar month one month, two months, three months or six months thereafter, as the Borrower may elect and (b) as to any ABR Loan, the period commencing on the date of such Loan and ending on the earliest of (i) the immediately succeeding March 31, June 30, September 30, or December 31 or (ii) the date of any conversion in accordance with Section 2.12 hereof (if after the date of such Loan); provided, however, that (A) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the immediately succeeding Business Day, unless, in the case such Interest Period is applicable to a Eurodollar Loan, such next succeeding Business Day would fall in the immediately succeeding calendar month, in which case such Interest Period shall end on the immediately preceding Business Day and (B) any Interest Period with respect to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.
"Investments" shall have the meaning given such term in
Section 7.4 hereof.
"Issuing Bank" shall mean Chemical or Bank of America.
"LC Fee" shall have the meaning given to such term in Section 3.5.
"Lending Office" shall mean, with respect to any of the Banks, the branch or branches (or Affiliate or Affiliates) from which any such Bank's Eurodollar Loans or ABR Loans, as the case may be, are made or maintained and for the account of which all payments of principal of, and interest on, such Bank's Eurodollar Loans or ABR Loans are made, as provided to the Administrative Agent from time to time in accordance with Section 11.1 hereof.
"Letter of Credit" shall have the meaning given to such term in Section 3.1 hereof.
"Letter of Credit Exposure" shall mean, at any time, the sum of (a) the aggregate undrawn principal amount of all Letters of Credit outstanding at such time, (b) the aggregate principal amount of all Letters of Credit requested by the Borrower prior to such time pursuant to Section 3.2 and not yet issued by the Issuing Bank and (c) the aggregate amount of all
Reimbursement Obligations which have not at such time been converted to ABR Loans.
"Letter of Credit Facility" shall have the meaning given to such term in the Preamble to this Agreement.
"LIBO Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate determined by the Administrative Agent to be the arithmetic average of the rates (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal in principal amount to such Eurodollar Loan made by the Co-Agents and for a maturity comparable to such Interest Period are offered to the principal London offices of the Co-Agents in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest of any kind whatsoever in or on such asset (including the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction), (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call, appreciation right or similar right of a third party with respect to such securities.
"Loan" shall mean any Term Loan or Revolving Loan.
"Loan Documents" shall mean this Agreement, the Financing Documents, the Alleghany Subordination Agreement, any agreement with any Bank in connection with any interest rate, hedge or protection transaction as required by Section 6.14 or any other agreement or certificate delivered by the Borrower or the Guarantors in connection herewith.
"Majority Banks" shall mean, at any time, the Banks holding sixty-six and two-thirds percent (66 2/3%) of the aggregate principal amount of the Loans then outstanding, or if no Loans are then outstanding, Banks having Pro Rata Shares representing sixty-six and two-thirds percent (66 2/3%) of the Aggregate Commitment.
"Mandatory Prepayment" shall have the meaning given to such term in Section 2.8.
"Material Adverse Effect" shall mean (a) a material adverse effect on the business, assets, operations, condition (financial or otherwise) of Holdings and its Subsidiaries, taken as a whole, (b) a material impairment of the ability of either the Borrower or any Guarantor to perform any of its material
obligations under any Loan Document to which it is a party or (c) any material impairment of the security interest of the Banks in the Collateral.
"Material Subsidiary" shall mean each Subsidiary listed on Annex IV.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any Person for any period, the net income of such Person computed in accordance with GAAP.
"Net Proceeds" shall mean, with respect to any Asset Sale, the aggregate consideration received by a Person in connection with such Asset Sale less reasonable costs incurred in respect of such sale (including taxes paid or payable in connection therewith); provided, however, that if the consideration received by any Person in connection with any Asset Sale does not constitute cash or a cash equivalent, the Net Proceeds from such Asset Sale shall be deemed to be an amount equal to the Fair Value of the consideration so received.
"Net Worth" shall be calculated on a consolidated basis for Holdings and its Subsidiaries and shall mean, at any point in time, the net book value of the assets of Holdings and its Subsidiaries, as shown on Holdings' consolidated balance sheet, less the sum of (i) the amount of any write-up effective after September 16, 1991, in the value of any asset above the cost or depreciated cost thereof to Holdings and/or the Subsidiaries and (ii) total liabilities as shown on such balance sheet, in each case computed in accordance with GAAP, provided, however, that Net Worth shall not include any adjustment required by GAAP to give effect to losses or gains arising solely as a result of currency translations.
"Note" shall mean each Revolving Credit Note and Term Loan Note delivered by the Borrower to the Banks in accordance with the terms hereof.
"Obligations" shall mean the due and punctual payment of
principal of and interest on the Loans, the Fees and any Reimbursement
Obligations hereunder and all other obligations of the Borrower or any Guarantor
to the Administrative Agent, the Co-Agents, the Collateral Agent or any Bank
under this Agreement (including, without limitation, all obligations under
Section 2.13 and 3.4), any Note, the Letters of Credit, any other Loan Document
or to any Bank in connection with any interest rate hedge or protection
transaction as required by Section 6.14.
"Organizational Documents" shall mean, with respect to any Person, each instrument or other document that (a) defines the existence of such Person, as filed or recorded with an
applicable Governmental Authority or (b) governs the internal affairs of such Person, in each case as amended, supplemented or restated.
"Other Taxes" shall have the meaning given to such term in
Section 2.18(b).
"Parent Contributions" shall mean cash received by Holdings from its stockholders as a contribution to capital and up to $10 million of any cash received by Holdings from its stockholders as subordinated debt, provided Alleghany has, prior to the issuance of such subordinated debt, executed and delivered the Alleghany Subordination Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Acquisitions" shall have the meaning given such term in Section 7.7 hereof.
"Permitted Indebtedness" shall mean Indebtedness permitted to be incurred under clauses (a) through (j) of Section 7.1 hereof.
"Permitted Investments" shall mean (i) direct obligations of
the United States or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States government, (ii) bankers'
acceptances and certificates of deposit issued by the Administrative Agent, any
Co-Agent, any Bank or any other bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $500,000,000, the short-term
deposit rating of which is given a A1 or P1 rating by Standard & Poor's
Corporation or Moody's Investors Service, Inc., as applicable, (iii) obligations
of the Administrative Agent, any Co-Agent, any Bank or any bank or trust company
or bank holding company described in clause (ii) above, in respect of the
repurchase of obligations of the type described in clause (i) hereof, provided
that such repurchase obligations shall be fully secured by obligations of the
type described in said clause (i) and the possession of such obligations shall
be transferred to, and segregated from other obligations owned by, the
Administrative Agent, any Co-Agent, any Bank or any such Bank's trust company or
bank holding company, (iv) commercial paper given a rating of A1 or P1 by
Standard & Poor's Corporation or Moody's Investors Service, Inc., as applicable,
maturing not more than 270 days from the date of acquisition and (v) securities
issued by money market funds that meet external money market guidelines and have
90% or more of their investments in commercial paper meeting the requirements of
(iv) above or investments of comparable quality.
"Permitted Liens" shall mean Liens permitted in accordance with Section 7.2 hereof.
"Permitted Subsidiary Indebtedness" shall mean, at any time, an aggregate of $10.0 million of Indebtedness incurred by the Foreign Subsidiaries in the ordinary course of business, other than Indebtedness of a Foreign Subsidiary to Holdings, the Borrower or Celite incurred in accordance with the provisions of this Agreement.
"Person" shall mean and include any natural person, company, partnership, joint venture, corporation, business trust, unincorporated organization or Governmental Authority.
"Plan" shall mean any defined benefit pension plan which is subject to the provisions of Title IV of ERISA (or similar legislation in the jurisdiction in which a Subsidiary is organized) and which is maintained for or contributed to on behalf of employees of the Parent or any Subsidiary, as the case may be, or any ERISA Affiliate of the Parent or any Subsidiary.
"Pledge Agreement" shall mean the Amended and Restated Pledge Agreement dated the date hereof between the Borrower and the Banks in the form of Exhibit F attached hereto.
"Pro Rata Share" shall mean, with respect to any Bank at any time, the percentage set forth in Column B of Annex II attached hereto.
"Rate Certificate" shall have the meaning given to such term in Section 2.4(c).
"Register" shall have the meaning given such term in
Section 11.3(d).
"Regulation D" shall mean Regulation D of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.
"Regulation T" shall mean Regulation T of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.
"Reimbursement Obligation" shall mean, as to any Letter of Credit issued hereunder which has been the subject of a Drawing, the obligations of the Borrower to reimburse the Issuing Bank or, if applicable, the Banks for the principal amount of such Drawing, plus accrued interest thereon, as provided in Section 3.3(a) hereof.
"Reorganization" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any reportable event as defined in Section 4043(b) of ERISA, other than a reportable event as to which provision for 30-day notice to the PBGC has been waived under applicable regulations (including subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615).
"Responsible Officer" of any Person shall mean any executive officer or the chief financial officer of such a Person.
"Restricted Payment" shall have the meaning given to such term in Section 7.3 hereof.
"Revolving Credit Commitment" shall mean, at any time, $60,000,000 less any reductions made in accordance with Section 2.9.
"Revolving Credit Note" shall mean each Revolving Credit Note in substantially the form of Exhibit G and delivered by the Borrower to the Banks in accordance with Section 2.2.
"Revolving Loan" shall mean any Loan made by a Bank to the Borrower in accordance with Section 2.2.
"Sale and Leaseback Transaction" shall mean any arrangement whereby a Person sells or transfers real or personal property, and thereafter rents or leases such property to be used for substantially the same purpose or purposes as the property was used prior to such sale or transfer.
"Scheduled Repayment Date" shall have the meaning given to such term in Section 2.7.
"Scheduled Payment" shall have the meaning given to such term in Section 2.7.
"Single Employer Plan" shall mean a Plan described in Section 4001(a)(15) of ERISA.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, established by the Board and any other banking authority to which each of the Co-Agents is subject (a) with respect to the Base CD Rate (as such term is used in the definition of "Alternate Base Rate"), for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements as Eurocurrency Liabilities are from time to time subject without benefit of or credit for proration, exemptions or offsets which may be available from time to time to any Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
"Subsidiary" shall mean, at any time, any Person (other than an Excluded Subsidiary) (a) of which more than 50% of the shares of stock entitled to vote in the election of directors (excluding shares entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned directly or indirectly through one or more Subsidiaries, by Holdings (including, without limitation, the Borrower and Celite) or (b) (i) of which at least 25% of the shares of stock entitled to vote in the election of directors (excluding shares entitled to vote only upon the failure to pay dividends thereon or other contingencies) are at the time owned directly or indirectly through one or more Subsidiaries, by Holdings (including, without limitation, the Borrower and Celite) and (ii) who is under the Control of Holdings.
"Taxes" shall have the meaning given to such term in Section 2.18(a).
"Term Loan" shall mean the Term Loans made by the Banks to the Borrower on the Amendment Closing Date in accordance with Section 2.1.
"Term Loan Commitment" shall mean $57,000,000.
"Term Loan Note" shall mean each Term Loan Note in the form of Exhibit H being delivered by the Borrower to each Bank at the Closing in accordance with Section 2.1.
"Third Party Financing" shall mean any funds which are (a)
obtained from sources other than (i) Parent Contributions or (ii) Loans made
pursuant to this Agreement and (b) used by Holdings or any of its Subsidiaries
to effect a Permitted Acquisition in accordance with the terms and conditions of
Section 7.7 hereof.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the immediately preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it.
"Total Capitalization" shall be calculated on a consolidated basis for Holdings and its Subsidiaries and shall mean, at any time, (i) the sum of (A) capital stock taken at par value, (B) capital surplus and (C) retained earnings at such date less (ii) treasury stock plus (iii) Total Indebtedness, in each case computed in accordance with GAAP.
"Total Indebtedness" shall mean, at any time, the aggregate amount of Indebtedness of Holdings and its Subsidiaries on a consolidated basis, computed in accordance with GAAP.
"Working Capital" shall, unless otherwise provided herein, be calculated on a consolidated basis for Holdings and its Subsidiaries and shall mean, at any time, the excess of the current assets (other than cash and cash equivalents) of Holdings and its Subsidiaries over the current liabilities (other than Indebtedness) of Holdings and the Subsidiaries, in each case computed in accordance with GAAP.
SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation." All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require.
SECTION 1.3. Accounting Terms, GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, consistently applied, and all financial statements or accounting determinations required herein to be prepared or made in accordance with GAAP shall be prepared or made in accordance with GAAP applied on a consistent basis. In the event of any change in GAAP or announcement by the Financial Accounting Standards Board (the "FASB") of the effective date of any change in GAAP, which change could reasonably be expected to materially affect the Borrower's compliance with Sections 7.11 through 7.13 or any definition of a financial term used herein, each of the Borrower and the Administrative Agent shall have the right by written notice to the other to require such other party to negotiate in good faith for a period of thirty (30) days with respect to amending such Sections or definitions appropriately to take account of such change, without liability to either party in the event an agreement is not reached with respect to any such amendment; provided, however, that such 30-day period shall not extend beyond the effective date of any change except to the extent that such effective date was announced by the FASB less than thirty (30) days in advance of such effective date. Notwithstanding the foregoing, all calculations required under Sections 7.11 through 7.13 hereof shall be made in accordance with GAAP in effect as of the Closing Date, unless and until such Sections shall have been modified in accordance with the preceding sentence.
ARTICLE II
THE LOANS
SECTION 2.1. Term Loans; Conversion of Outstanding Loans. (a) Subject to the terms and conditions contained herein, on the Closing Date, all outstanding Loans under the Existing Facility shall be converted, without further action by the Borrower and without penalty for breakage or similar costs, into one Term Loan from each Bank in an aggregate amount equal to such Bank's Pro Rata Share of the lesser of (i) the aggregate amount of Loans outstanding immediately prior to the effectiveness of this Agreement and (ii) the Term Loan Commitment. All Term Loans to be made on the Closing Date shall be Eurodollar Loans with initial Interest Periods of three months. No Term Loans will be made by the Banks after the Closing Date (other than continuations or conversions in the manner provided in Section 2.12).
(b) On the Closing Date, the Borrower shall execute and deliver to each Bank, a Term Loan Note in a principal
amount equal to such Bank's Pro Rata Share of the Term Loan Commitment. Such Term Loan Note shall be dated March 10, 1995, and shall mature on the Final Maturity Date subject to the acceleration provisions contained therein. Each Bank shall record the date and amount of each payment made by the Borrower with respect to such Term Loan Note and each Bank's records shall be conclusive absent manifest error; provided, however, that the failure of any Bank to make such a notation or any error on a Term Loan Note shall not affect the obligation of the Borrower to repay, in accordance with the terms of each Term Loan Note, the Term Loans made by the Banks hereunder.
(c) On the Closing Date, each Bank shall deliver to the Borrower the note or notes delivered by the Borrower to such Bank in connection with the Existing Facility.
SECTION 2.2. Making of Revolving Loans. (a) Subject to the
terms and conditions contained herein, each Bank severally agrees to make
Revolving Loans to the Borrower from time to time during the period from the
date hereof to the Final Maturity Date (or upon the earlier termination of the
Revolving Credit Commitment in accordance with the provisions hereof) in an
amount not to exceed, in the aggregate at any one time outstanding, such Bank's
Pro Rata Share of (i) the Revolving Credit Commitment on such date less (ii) the
Letter of Credit Exposure. Each Loan shall be made to the Borrower by each Bank
in accordance with its Pro Rata Share of the then applicable Revolving Credit
Commitment as provided in clause (c) below. Except as expressly provided in
Section 3.3, Revolving Loans requested hereunder by the Borrower on any date
shall be in a minimum principal amount of $1,000,000 and in integral multiples
of $500,000.
(b) Each Loan shall be either an ABR Loan or a Eurodollar Loan as the Borrower may request in accordance with Section 2.3 hereof. Revolving Loans of more than one type may be outstanding at the same time. Each Bank may, at its option, fulfill its Pro Rata Share with respect to any Eurodollar Loan by causing a Lending Office of such Bank to make such Revolving Loan; provided, however, that any exercise of such option shall not affect the obligation of the Borrower to repay such Revolving Loan in accordance with the terms of this Agreement.
(c) Each Bank shall advance its portion of each Loan hereunder on the proposed date thereof by paying the required amount to the Administrative Agent in New York, New York, in immediately available funds not later than 12:00 noon, New York City time on the date of such Loan. The Administrative Agent shall, by 3:00 p.m., New York City time on such date, credit the amount so received to the general deposit account maintained by the Borrower with the Administrative Agent. If a Loan is not made on any date requested by the Borrower because any condition precedent to such Loan hereunder shall not have been met or for any other reason, the Administrative Agent shall
promptly return to each Bank which has advanced funds to the Administrative Agent any amounts so transferred.
(d) On the Closing Date, the Borrower shall execute and deliver to each Bank, a Revolving Credit Note in a principal amount equal to such Bank's Pro Rata Share of the Revolving Credit Commitment. Each such Revolving Credit Note shall be dated the Closing Date and shall mature on the Final Maturity Date subject to the acceleration provisions contained therein. Each Bank shall record the date and amount of each Revolving Loan made by such Bank to the Borrower hereunder and of each prepayment made by the Borrower with respect to such Revolving Loan and each Bank's records shall be conclusive absent manifest error; provided, however, that the failure of any Bank to make such a notation or any error on a Revolving Credit Note shall not affect the obligation of the Borrower to repay, in accordance with the terms of each Revolving Credit Note, the Revolving Loans made by the Banks hereunder.
(e) During the period from the date hereof to the Final Maturity Date, the Borrower may borrow, pay, prepay and reborrow Revolving Loans hereunder subject to the terms and conditions of this Agreement (including the provisions regarding prepayment set forth in Sections 2.9 and 2.11 hereof).
SECTION 2.3. Notice of Loans. (a) In order to request a Revolving Loan hereunder, the Borrower shall, except as otherwise expressly provided in Section 3.3, give the Administrative Agent irrevocable written, telegraphic or telex notice (i) not later than 12:00 noon, New York City time, one Business Day before such Revolving Loan is to be made if such Revolving Loan is to be an ABR Loan and (ii) not later than 10:00 a.m., New York City time, three Business Days before such Revolving Loan is to be made if such Revolving Loan is to be a Eurodollar Loan. Such notice shall specify (A) whether the Revolving Loan then being requested is to be an ABR Loan or a Eurodollar Loan, (B) the date of the proposed borrowing and amount thereof and (C) if such Revolving Loan is to be a Eurodollar Loan, the Interest Period with respect thereto. If no election as to the type of Revolving Loan is specified in such notice, the Revolving Loan shall be an ABR Loan. If no Interest Period with respect to any Eurodollar Loan is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. A notice requesting a Eurodollar Loan may condition such request upon an Adjusted LIBO Rate being less than a specified rate. If the Administrative Agent determines that the Adjusted LIBO Rate will exceed the maximum specified by the Borrower, the Administrative Agent shall promptly notify the Borrower and such request shall be deemed a request for an ABR Loan.
(b) The Borrower may continue any Eurodollar Loan or convert all or any part of any ABR Loan or Eurodollar Loan
into a Loan of a different type, in each case in accordance with Section 2.12 hereof and subject to the limitations set forth therein.
(c) The Borrower shall not request from the Administrative Agent more than 6 new Eurodollar Loans or conversions to Eurodollar Loans from ABR Loans in any one calendar month.
SECTION 2.4. Interest. (a) In the case of an ABR Loan, interest shall be payable at a variable rate per annum (calculated on the basis of the actual number of days elapsed over a year of 360 days during any period that the Alternative Base Rate is determined based upon the Base CD Rate or the Federal Funds Effective Rate and, at all other times, 365 or 366 days, as the case may be) equal to the Alternate Base Rate. Interest will be payable on each ABR Loan on each applicable Interest Payment Date.
(b) Subject to Section 2.4(c) below, in the case of a Eurodollar Loan, interest shall be payable at a variable rate per annum (calculated on the basis of the actual number of days elapsed over a year of 360 days) equal to the Adjusted LIBO Rate, plus the Eurodollar Margin determined in accordance with Section 2.4(c). Interest will be payable on each Eurodollar Loan on each applicable Interest Payment Date. The Administrative Agent shall determine the applicable Adjusted LIBO Rate for each Interest Period as soon as practicable after 10:00 a.m., New York City time, two Business Days prior to the commencement of such Interest Period and shall notify the Borrower of the Adjusted LIBO Rate so determined. Such determination shall be conclusive absent manifest error.
(c) The Eurodollar Margin for the period commencing on January 17, 1995, and ending on March 31, 1995, shall be .625%. Within 60 days (75 days in the case of the fourth fiscal quarter of each Fiscal Year) after the end of each fiscal quarter of each Fiscal Year prior to the Final Maturity Date commencing on the fiscal quarter ending December 31, 1994, the Borrower shall deliver to the Administrative Agent a certificate (a "Rate Certificate") setting forth the Borrower's calculation, certified as to accuracy by a Financial Officer of the Borrower, of the ratio of Total Indebtedness as of the last day of such fiscal quarter to EBITDA for the four-fiscal-quarter period ending on such fiscal quarter (the "Cash Flow Ratio"). If the Administrative Agent determines that the Rate Certificate is accurate, then the Eurodollar Margin shall be the rate (the "Eurodollar Margin") set forth in the table below opposite the applicable range for such Cash Flow Ratio:
Cash Flow Ratio Eurodollar Margin --------------- ----------------- Greater than 2.25x .75% 1.5x to 2.25x .625% Less than 1.5x .50% |
Any change in the Eurodollar Margin following the delivery of a Rate Certificate in accordance with this Section 2.4(c) shall become effective with respect to all Eurodollar Loans and Letters of Credit outstanding hereunder on the first day of the fiscal quarter immediately following the fiscal quarter in which the Rate Certificate is delivered.
SECTION 2.5. Alternative Rate of Interest. In the event, and
on each occasion, that on the date two Business Days prior to the commencement
of any Interest Period for any Eurodollar Loan, any Bank shall have determined
(which determination shall be conclusive and binding upon the Borrower) that
dollar deposits in the unpaid principal amount of such Eurodollar Loan are not
generally available in the London interbank market, or that the rate at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to such Bank of making or maintaining the principal amount of such
Eurodollar Loan during such Interest Period, such Bank shall promptly give
written, telegraphic or telex notice of such determination to the Borrower and
the other Banks. In such event the Borrower and the Bank giving notice may agree
on a substitute rate of interest. For one Business Day after receipt of such
notice, the Borrower shall have the right to withdraw its request pursuant to
Section 2.2 for a Eurodollar Loan by written, telegraphic or telex notice to the
Administrative Agent. If the Borrower and the Bank giving notice have not agreed
on a substitute rate of interest, any request by the Borrower to make, convert
to or maintain a Eurodollar Loan pursuant to Section 2.2 (unless withdrawn as
provided above) or 2.12, as applicable, shall be deemed a request for an ABR
Loan in respect of any Bank giving such notice. After such notice shall have
been given and until the circumstances giving rise to such notice no longer
exist or until the Borrower and any Bank giving notice agree on a substitute
rate of interest, each request for a Eurodollar Loan shall be deemed to be a
request for an ABR Loan in respect of any Bank giving such notice. Each
determination by a Bank hereunder shall be conclusive absent manifest error. Any
Bank giving notice as described above shall notify the Borrower at such time as
the circumstances giving rise to such notice no longer exist.
SECTION 2.6. Interest on Overdue Amounts. If the Borrower defaults in the payment of the principal of or interest on any Loan or any other amount due hereunder, the Borrower shall, on demand from time to time, pay interest to the extent permitted by law on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (calculated on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the Alternate Base Rate plus two percent (2%) per annum.
SECTION 2.7. Scheduled Amortization of Term Loans. (a) On the last Business Day of each month set forth below (each, a "Scheduled Repayment Date"), the Borrower shall pay to the Administrative Agent, for the account of the Banks, for application against the aggregate amount of Term Loans outstanding, the principal amount (each, a "Scheduled Payment") set forth opposite such Scheduled Repayment Date in the table below:
Scheduled Scheduled Repayment Date Payment -------------- ------- June, 1995 $1 million December, 1995 4 million June, 1996 5 million December, 1996 5 million June, 1997 6 million December, 1997 6 million June, 1998 7 million December, 1998 7 million June, 1999 8 million December, 1999 8 million |
(b) Any payment made in accordance with clause (a) above shall (i) be applied by the Banks to reduce the aggregate amount of the Term Loans outstanding under the Facility on the date of such payment and shall be applied first to ABR Loans and thereafter to outstanding Eurodollar Loans in the order of expiration of their respective Interest Periods, (ii) include (and may be increased by) accrued but unpaid interest on the principal amount of the Term Loans being repaid on such date and any other required charges due to the Banks under Section 2.11 and (iii) be distributed ratably to the Banks in accordance with their respective Pro Rata Shares.
SECTION 2.8. Mandatory Prepayments. (a) In connection with the consummation of any Asset Sale, the Borrower shall prepay Loans by making a payment to the Administrative Agent, on behalf of the Banks, in an amount equal to 100% of the Net Proceeds of such Asset Sale; provided, however, that the Borrower will be entitled to retain during each Fiscal Year for its own use, the first $1,000,000, on a cumulative basis, of the Net Proceeds from Asset Sales occurring during such Fiscal Year. Any prepayment under this Section 2.8 shall be made on the (i) the thirtieth day following the consummation of such Asset Sale or (ii) if the cash consideration in such sale is to be received in installments, upon the earlier of the receipt of such cash consideration or the date when such cash consideration or portion thereof is due.
(b) Any payment by the Borrower in accordance with
clause (a) above (each, a "Mandatory Prepayment") shall be applied ratably to
all remaining Scheduled Payments and shall be applied first to ABR Loans and
thereafter to outstanding Eurodollar Loans in the order of expiration of their
respective Interest Periods. Each Mandatory Prepayment must be accompanied by
(i) accrued interest and any other required charges on the amount prepaid
(including any payments required by Section 2.11 hereof) and (ii) a certificate
of a Financial Officer of the Borrower setting forth the calculation of such
Mandatory Prepayment. Mandatory Prepayments shall be distributed ratably to the
Banks in accordance with their respective Pro Rata Shares.
SECTION 2.9. Reduction of Revolving Loan Commitment. (a) Upon at least two Business Days prior written, telegraphic or telex notice to the Administrative Agent and subject to the limitations set forth in paragraph (d) below, the Borrower may at any time permanently terminate, or from time to time permanently reduce, the Revolving Credit Commitment in effect at such time. Each such reduction of the Revolving Credit Commitment shall be in a minimum principal amount of $1,000,000 or an integral multiple thereof and shall reduce, on a dollar for dollar basis, the aggregate Revolving Credit Commitment of the Banks in effect on such date.
(b) If on any date that the Revolving Credit
Commitment is reduced in accordance with paragraph (a) above the sum of (i) the
aggregate amount of Revolving Credit Loans outstanding under the Facility plus
(ii) the aggregate amount of the Letter of Credit Exposure at such time exceeds
the Revolving Credit Commitment as so reduced, then simultaneously with, and as
a condition to such reduction, the Borrower shall prepay Revolving Loans by
making a payment to the Administrative Agent, on behalf of the Banks, in an
amount equal to such excess so that, after giving effect to such payment, the
aggregate outstanding principal amount of all Revolving Loans plus the aggregate
amount of the Letter of Credit Exposure at such time does not exceed the
Revolving Credit Commitment as so reduced.
(c) Any reduction of the Revolving Credit Commitment in accordance with clause (a) above shall be accompanied (i) by payment of the accrued Commitment Fee on the amount of the reduction, (ii) in the event that the Revolving Credit Commitment is being terminated, by payment to the Administrative Agent in accordance with Section 3.3(d) hereof and for the benefit of the Banks, of an amount equal to the aggregate Letter of Credit Exposure and (iii) include any other required charges on the amount prepaid (including any payments required by Section 2.11 hereof).
(d) All amounts paid by the Borrower under this
Section 2.9 shall be made ratably to each Bank in accordance with its respective
Pro Rata Share.
SECTION 2.10. Optional Prepayments of Term Loans. (a) The Borrower shall have the right at any time and from time to time to prepay the Term Loans, in whole or in part, without premium or penalty, upon at least one Business Day's prior written, telegraphic or telex notice to the Administrative Agent; provided, however, that (A) any partial prepayment shall be in a minimum principal amount of $500,000 or an integral multiple thereof, (B) all prepayments shall be made ratably to the Banks in accordance with their respective Pro Rata Shares, (C) all prepayments shall be accompanied by interest accrued to the date of prepayment on the principal amount of the Term Loans being prepaid, and (D) all prepayments shall be applied (i) to prepay the next two Scheduled Payments in order of maturity and (ii) ratably against all remaining Scheduled Payments.
(b) Each notice of prepayment shall specify the prepayment date and the principal amount of the Term Loans to be prepaid, shall be irrevocable and shall commit the Borrower to prepay the Term Loans by the amount stated therein.
(c) Subject to the limitations set forth in clause
(a) above, if on the date of any such payment, the Term Loans include both ABR
Loans and/or Eurodollar Loans, the notice given to the Administrative Agent
shall specify the extent to which such payment is to be applied against such ABR
Loans and/or Eurodollar Loans. If on the date of any such payment the Term Loans
include more than one Eurodollar Loan, such notice shall specify the Eurodollar
Loans against which such payment is to be applied. To the extent not otherwise
specified, each such payment shall be applied first against any outstanding ABR
Loans and next, after all such ABR Loans have been repaid, to any Eurodollar
Loans in order of expiration of their respective Interest Periods.
SECTION 2.11. Redeployment Cost. The Borrower shall reimburse each Bank for any loss incurred or to be incurred by it in the redeployment of the funds released as a result of (A) any Scheduled Payment applied to any Eurodollar Loan pursuant to Section 2.7 hereof on any date prior to the last day of the Interest Period applicable to such Loan, (B) any prepayment or payment of any Eurodollar Loan pursuant to Section 2.8 hereof in whole or in part on a date prior to the last day of an Interest Period for such Eurodollar Loan, (C) any prepayment or payment of any Eurodollar Loan by reason of acceleration of the indebtedness due hereunder on the occurrence of an Event of Default as set forth in Article VIII hereof, (D) any failure or refusal of the Borrower to accept (or to meet the conditions precedent for) any Eurodollar Loan as to which notice was given by the Borrower hereunder, (E) repayment of any Revolving Loans which are Eurodollar Loans in connection with a reduction of the Revolving Credit Commitment in accordance with Section 2.9 or (F) automatic conversions pursuant to Section 2.12. Such loss shall be the difference, reasonably determined by such Bank, between the cost
of obtaining the funds for the Loan being prepaid or refused and any lesser
amount realized by such Bank in redeploying such funds during the period from
the date of prepayment or refusal to the end of the Interest Period of the
Eurodollar Loan being repaid or the Interest Period specified in the notice
given by the Borrower, as the case may be; provided, however, that such loss
shall not include any loss, damage or expense resulting from the failure of any
Person to whom any such funds are loaned to timely and duly repay the same, or
from any other default or nonperformance of such Person's obligations. Upon the
occurrence of any event set forth in clauses (A) through (F) above, the
Administrative Agent shall deliver to the Borrower a certificate setting forth
any amount or amounts which each Bank is entitled to receive pursuant to this
Section 2.11 and reasonable supporting calculations therefor. Such certificate
shall be conclusive absent manifest error. Within 20 days after receipt, the
Borrower shall pay the Administrative Agent, on behalf of the Banks, all amounts
set forth therein. Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.11
shall survive the payment in full of principal and interest hereunder.
SECTION 2.12. Conversion and Continuation of Borrowings. The Borrower shall have the right, at any time, with at least three Business Days' prior irrevocable written, telegraphic or telex notice to the Administrative Agent, (a) to continue any Loan or portion thereof into a subsequent Interest Period, or (b) to convert any type of Loan or portion thereof into a Loan of a different type, subject to the following:
(i) no Default shall have occurred and be continuing at the time of such continuation or conversion and, with respect to Eurodollar Loans, no notice described in Section 2.5 or 2.14 (which shall not have been rescinded) shall have been given by the Bank from which the Eurodollar Loan is requested;
(ii) each conversion shall be effected by the Banks applying the proceeds of the new Loan to the Loan (or portion thereof) being converted;
(iii) if the new Loan made in respect of the conversion shall be a Eurodollar Loan, the first Interest Period with respect thereto shall commence on the date of conversion;
(iv) each request for a Eurodollar Loan, conversion or for a continuation thereof which shall fail to state the applicable Interest Period shall be for one month's duration;
(v) no more than a total of 6 new Eurodollar Loans or conversions to Eurodollar Loans from ABR Loans
may be requested from the Banks by all of the Borrower in any one calendar month; and
(vi) each request for conversion of an ABR Loan to a Eurodollar Loan hereunder shall be in the principal amount of at least $500,000.
In the event that the Borrower shall not give notice to continue any Eurodollar Loan, such Loan (unless repaid) shall automatically become an ABR Loan at the expiration of the then current Interest Period. The Borrower may condition any request to any Bank for conversion to or maintenance of a Eurodollar Loan upon a maximum Adjusted LIBO Rate; provided, however, that if such Bank determines that the Adjusted LIBO Rate will exceed such maximum specified by the Borrower, such Bank shall so notify the Borrower and such request shall be deemed a request for an ABR Loan.
SECTION 2.13. Increased Costs. (a) Subject to compliance with subsections (d) and (e) below, if after the date of this Agreement any change in Applicable Law or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Loan or any other fees or amounts payable hereunder (other than Taxes), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank or shall impose on such Bank or the London interbank market any other condition affecting this Agreement or the Eurodollar Loans, and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof, by an amount deemed by such Bank to be material, then (to the extent the amount is not included in the computation of the Adjusted LIBO Rate) the Borrower shall pay to such Bank, upon such Bank's demand, such additional amount or amounts as will compensate such Bank for such additional costs or reduction.
(b) Subject to compliance with subsections (d) and
(e) below, if any Bank shall have determined that the adoption after the date
hereof of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any Lending Office of such Bank) or any
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital or on the capital of such Bank's holding company, if any, as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank or such Bank's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies and the policies of such Bank's holding company with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Borrower of a written request therefor, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank or such Bank's holding company for any such reduction suffered.
(c) A certificate of each Bank setting forth such amount or amounts and the basis for determination from time to time of such amount or amounts as shall be necessary to compensate such Bank or its holding company as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay each Bank the amount shown as due on any such certificate delivered by it within 10 days after their receipt of the same.
(d) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Bank's right to demand compensation with respect
to such period, except that no Bank shall be entitled to compensation under this
Section 2.13 for any costs incurred or reduction suffered with respect to any
date unless such Bank shall have notified the Borrower that it will demand
compensation for such costs or reductions not more than nine months after the
later of (i) such date and (ii) the date on which such Bank shall have become
aware of such costs or reductions. The protection of this Section 2.13 shall be
available to each Bank regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Any Bank claiming any additional amounts payable pursuant to this Section 2.13 shall use reasonable efforts (consistent with legal and regulatory restrictions and such Bank's internal policies) to file any certificate or document requested by the Borrower or change its applicable Lending Office to another of its offices, branches or Affiliates, if the making of such filing or change of Lending Office would avoid the need for or reduce the amount of any such additional amount attributable to the Loans and would not, in the sole determination of such Bank, result in any unreimbursed loss, cost or expense or otherwise be disadvantageous to such Bank.
(f) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 2.13 shall survive the payment in full of principal and interest
hereunder.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Bank to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby then, by written notice to the Borrower and to the other Banks, (i) such Bank may require payment (together with accrued interest to the date of payment) of all outstanding Eurodollar Loans due to it hereunder, whereupon all such Eurodollar Loans then outstanding shall be automatically converted to an ABR Loan, subject to Sections 2.11 and 2.12, as of the effective date of such notice as provided in paragraph (b) below, (ii) the obligation of such Bank to continue or convert to Eurodollar Loans shall terminate immediately and (iii) each subsequent request to such Bank for a Eurodollar Loan shall be deemed to be a request for an ABR Loan. Any Bank giving such notice shall (A) use reasonable efforts (consistent with legal and regulatory restrictions and such Bank's internal policies) to change its applicable Lending Office to another of its offices, branches or Affiliates, if such change of Lending Office would permit such Bank to make Eurodollar Loans and would not, in the sole determination of such Bank, result in any unreimbursed loss, cost or expense or otherwise be disadvantageous to such Bank and (B) notify the Administrative Agent and the Borrower at such time as the circumstances giving rise to its notice shall cease to exist. If the Borrower shall be prohibited from incurring, continuing or converting to a Eurodollar Loan from any Bank, Eurodollar Loans shall be made, continued or converted by the other Banks pro rata in accordance with their respective Pro Rata Share of the Aggregate Commitment.
(b) For purposes of Section 2.14(a)(i), a notice to the Borrower by any Bank shall be effective, if lawful, and if any Eurodollar Loans shall then be outstanding, on the last day of the then current Interest Period or, if there is more than one current Interest Period, on the last day of each such Interest Period, respectively; otherwise, such notice shall be effective on the date of receipt by the Borrower.
SECTION 2.15. Pro Rata Treatment. Except as required under
Section 2.14, each Loan, each payment or prepayment of principal of any Loan,
each payment of interest on any Loan and each conversion of any Loan or
continuation of any Loan as a Loan of any type shall be allocated pro rata among
each Bank in accordance with its respective Pro Rata Share. Each Bank agrees
that in computing such Bank's portion of any Loan or any payment, prepayment,
interest payment, conversion or continuation with
respect thereto, the Administrative Agent may, in its sole discretion, round the dollar amount of such Bank's pro rata portion to the next higher or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. (a) Each Bank agrees that
if, through the exercise of a right of banker's lien, set-off or counterclaim
against the Borrower, the unpaid portion of the Loans made by it is
proportionately less than the unpaid portion of the Loans made by any other Bank
(i) it shall simultaneously purchase from such other Bank a participation in the
Loans made by such other Bank, so that the aggregate unpaid principal amount of
all Loans and participations in Loans made by each Bank shall be in the same
proportion to the aggregate unpaid principal amounts of all Loans then
outstanding as the principal amount of such Loans made by it prior to such
exercise of banker's lien, set-off or counterclaim and (ii) such other
adjustments shall be made from time to time as shall be equitable to ensure that
all the Banks share such payment pro rata; provided, however, that if any such
purchase or purchases shall be made pursuant to clause (i) above and the payment
giving rise thereto shall be recovered, such purchase or purchases shall be
rescinded to the extent of such recovery and the purchase price or prices
restored without interest.
(b) If an Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and other Loan Documents held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Bank under this Section 2.16(b) are in addition to other rights and remedies (including other rights of set-off) which such Bank may have.
SECTION 2.17. Payments. (a) The Borrower shall make each payment in respect of the principal of or accrued interest on any Loan, Fee, Reimbursement Obligation, LC Fee or other amount due to the Administrative Agent, any Co-Agent or any Bank under this Agreement or any other Loan Document, not later than 1:00 p.m, New York City time, on the day when due, to the Administrative Agent at its offices at 270 Park Avenue, New York, New York 10017, for the account of such Bank. All payments hereunder shall be made in United States Dollars in federal or other immediately available funds.
(b) This transaction is an international loan transaction in which the specification of Dollars is of the
essence, and Dollars shall be the currency of account and of payment in all events. The payment obligations of the Borrower shall not be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to Dollars under normal banking procedures shall not yield the amount of Dollars due hereunder. In the event that any payment made in a currency other than Dollars, whether pursuant to a judgment or otherwise, upon conversion shall not yield such amount of Dollars, each Bank shall be entitled to demand immediate payment of, and shall have a separate cause of action for, such Dollar deficiency.
(c) Whenever any payment (including principal of or interest on any Loan or any Fee or other amount) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of such interest, Fee or other amount, if applicable; provided, however, that, in the case of any Eurodollar Loan, if such next succeeding Business Day would fall in the next calendar month, such payment shall be made on the first preceding Business Day.
SECTION 2.18. Taxes. (a) Subject to compliance with Section 2.18(f), any and all payments by the Borrower in respect of principal or accrued interest on any Loan, Fee, Reimbursement Obligation or other amount due to the Administrative Agent, any Co-Agent or any Bank under this Agreement or by a Guarantor pursuant to the Holdings Guaranty or the Celite Guaranty Agreement shall be made, in accordance with Section 2.17, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto so long as the recipient thereof is a corporation created or organized under the laws of the United States or any State or is otherwise a resident of the United States (and is taxed as such on such income) for purposes of the Code (excluding taxes imposed on the Administrative Agent's or any Bank's overall net income and franchise taxes imposed on the Administrative Agent or any Bank by the jurisdiction of such Bank's Lending Office or any political subdivision thereof), including withholding taxes relating to United States income taxes or any jurisdiction under the laws of which the Borrower is organized or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to herein as "Taxes"). Subject to Section 2.18(f), if the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Banks or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.18) such Bank or the Administrative Agent (as the
case may be) shall receive an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) Subject to compliance with Section 2.18(f), the Borrower will indemnify each Bank and the Administrative Agent for the full amount of Taxes (including any Taxes or Other Taxes imposed by any jurisdiction or amounts payable under this Section 2.18) paid by such Bank or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days following the date any Bank or the Administrative Agent, as the case may be, makes written demand therefor. If any Bank or the Administrative Agent receives a refund (or a credit against its taxes due) directly attributable to any Taxes or Other Taxes for which such Bank or the Administrative Agent has received payment hereunder (or which were paid directly by the Borrower), it shall repay such refund to the Borrower without interest promptly after the responsible account officer of such Bank or the Administrative Agent has notice that such refund was so received.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Borrower in respect of any payment to any Bank or the Administrative Agent, the Borrower will furnish to the Administrative Agent, at its address set forth in Section 10.1, the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 2.18 shall survive the payment in full of principal and interest
hereunder.
(f) Each Bank which is organized under the laws of a jurisdiction outside the United States shall deliver to the Borrower and the Administrative Agent, on or before the next date of any payment by the Borrower hereunder, such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form 4224 and any other certificate or statement or exemption required by Treasury Regulation Section 1.1441-1(a) or
Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Bank establishing that such payment is (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Bank of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under the Notes are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or from any Bank or assignee organized under the laws of a jurisdiction outside the United States.
(g) Any Bank claiming any additional amounts in respect of Taxes payable pursuant to this Section 2.18 shall use reasonable efforts (consistent with legal and regulatory restrictions and such Bank's internal policies) to file any certificate or document requested by the Borrower or to change its applicable Lending Office to another of its offices, branches or Affiliates, if the making of such a filing or change of Lending Office would avoid the need for or reduce the amount of any such Taxes attributable to the Loans and would not, in the sole determination of such Bank, result in any unreimbursed loss, cost or expense or otherwise be disadvantageous to such Bank.
SECTION 2.19. Fees. (a) The Borrower agrees to pay to each Bank a commitment fee (the "Commitment Fee") from March 10, 1995, to the Final Maturity Date, calculated at the rate of 1/4 of 1 percent (.25%) per annum on the average daily unused amount of such Bank's Pro Rata Share of the Revolving Credit Commitment (less the Letter of Credit Exposure, if any) during the period for which payment is made. The Commitment Fee shall be payable (i) quarterly on the last Business Day of each March, June, September and December of each Fiscal Year and (ii) on any date that the Revolving Credit Commitment is terminated or reduced as provided herein.
(b) The Borrower shall pay to the Administrative Agent an annual administration fee as specified in the Fee Letter.
(c) All Fees shall be paid on the date due, in immediately available funds, to the Administrative Agent for the account of the applicable Bank. Once paid no Fee shall be refundable under any circumstances.
(d) All Fees shall be calculated on the basis of the actual number of days elapsed over a year of 360 days.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.1. Issuance of Letters of Credit. (a) Subject to the terms and conditions contained herein, the Issuing Bank shall from time to time issue, on behalf of the Borrower and its Subsidiaries, letters of credit (each, a "Letter of Credit") to (i) insurance carriers, (ii) Governmental Authorities in connection with reclamation plans implemented by the Borrower and its Subsidiaries, (iii) trade creditors to support purchases and sale of materials and inventory and (iv) other Persons with whom the Borrower and its Subsidiaries have business dealings for requirements which arise in the ordinary course of business. The aggregate Letter of Credit Exposure on any date shall not exceed the lesser of (A) $20,000,000 and (B) the Revolving Credit Commitment less the sum of (x) the amount of all Revolving Loans then outstanding (or requested in accordance with Section 2.2 hereof) under the Facility plus (y) the Letter of Credit Exposure on such date. The aggregate Letter of Credit Exposure for Letters of Credit issued to Governmental Authorities to satisfy or secure obligations of the Borrower and its Subsidiaries with respect to workers' compensation laws shall not exceed $5,000,000 at any time. Each letter of credit issued under the Existing Facility and listed on Schedule 3.1 which is outstanding on the Closing Date shall constitute a "Letter of Credit" for all purposes under this Agreement.
(b) Each Letter of Credit shall be issued pursuant to and in accordance with a letter of credit application in substantially the form attached hereto as Exhibit I or Exhibit J or such other application as shall be acceptable to the Issuing Bank. Each Letter of Credit shall be issued in a minimum principal amount of $5,000, and shall permit drawings upon the presentation of one or more sight drafts; provided, however, that no more than thirty (30) Letters of Credit shall be outstanding at any time. Each Letter of Credit shall have an expiry which shall be a Business Day and (i) at least two Business Days prior to the Final Maturity Date and (ii) no later than the first anniversary of the date such Letter of Credit is issued.
(c) Immediately upon issuance by the Issuing Bank of a Letter of Credit in accordance herewith, each other Bank shall be deemed to have irrevocably and unconditionally purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation in such Letter of Credit, including all obligations of the Borrower with respect thereto and any security therefor or guaranty pertaining thereto, in an amount equal to the product of (i) the Pro Rata Share of such Bank and (ii) the stated amount of such Letter of Credit. Each issuance of a Letter of Credit by the Issuing Bank shall be deemed to utilize the Revolving Credit Commitment of each Bank (other than the Issuing Bank) by an amount equal to the amount of
such participation and to utilize the Revolving Credit Commitment of the Issuing Bank by an amount equal to the stated amount of such Letter of Credit less the aggregate amount of all participations therein.
SECTION 3.2. Notice. The Borrower shall give the Issuing Bank irrevocable written, telegraphic or telex notice not later than 12:00 noon, New York time, at least three Business Days prior to the date of requested issuance of any Letter of Credit under this Agreement. Such notice shall refer to this Agreement and shall include (i) a properly completed letter of credit application on an appropriate form and (ii) a form of notice with respect to such Letter of Credit including (A) the date of issuance (which shall be a Business Day) (B) the principal amount, (C) the name and address of the beneficiary, (D) whether multiple drawings should be permitted, (E) the form of the draft and any other documents required to be presented at the time of any drawing (such notice to attach copies of such documents) and (F) the expiry date. Each notice pursuant to this Section 3.2 shall include a representation by the Borrower, in form satisfactory to the Issuing Bank, as to the purpose of the issuance thereof. The Issuing Bank shall promptly advise the Banks of any notice given hereunder.
SECTION 3.3. Reimbursement; Repayment with Loans. (a) In the event of a Drawing on any Letter of Credit, the Issuing Bank shall give prompt telephonic, telecopied or telex notice to the Borrower and the other Banks of the amount of such Drawing. If the Issuing Bank shall pay any Drawing under a Letter of Credit, then the Borrower shall without further notice reimburse the Issuing Bank (or the Issuing Bank shall set-off from the general account of the Borrower) an amount equal to the amount so drawn, within one Business Day after the date of such Drawing (but in any event before the Final Maturity Date), together with interest on such amount at a rate per annum (calculated on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the Alternate Base Rate. If the Issuing Bank shall pay any Drawing under a Letter of Credit, then the Borrower's failure to pay such Reimbursement Obligation as provided above shall be deemed to constitute a request by the Borrower for an ABR Loan in accordance with Section 2.2, to be made on the third Business Day following such Drawing in an amount equal to the Reimbursement Obligation on the date such ABR Loan is to be made and the Issuing Bank shall so notify the other Banks of such request for an ABR Loan. The proceeds of such ABR Loan shall be applied by the Administrative Agent to pay the Reimbursement Obligation to the Issuing Bank. If at the time of the making of such ABR Loan, the conditions to such Loan set forth in Section 5.3 have not been met, such ABR Loan shall still be made by the Banks but shall be due and payable in full on the date such ABR Loan is made.
(b) The obligations of the Borrower under this
Section 3.3 shall be absolute, unconditional and irrevocable and shall be
satisfied strictly in accordance with the terms of this Agreement and the
applicable Letter of Credit irrespective of:
(i) the lack of validity or enforceability, in whole or in part, of any Letter of Credit;
(ii) the existence of any claim, set- off, defense or other right which the Borrower, any Subsidiary of the Borrower or any other Person may at any time have against the beneficiary under such Letter of Credit, the Issuing Bank or any Bank (other than the defense of payment in accordance with the terms of this Agreement and the applicable Letter of Credit or a defense based on the gross negligence or willful misconduct of the Issuing Bank) or any other Person in connection with this Agreement or any other transaction;
(iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; provided, however, that payment by the Issuing Bank under such Letter of Credit against presentation of such draft or document shall not have constituted gross negligence or willful misconduct of the Issuing Bank;
(iv) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document which does not comply with terms of such Letter of Credit; provided, however, that payment by the Issuing Bank under such Letter of Credit against presentation of such draft or document shall not have constituted gross negligence or willful misconduct of the Issuing Bank; and
(v) any other circumstance or event whatsoever, whether or not similar to any of the foregoing; provided, however, that such other circumstance or event shall not have been the result of gross negligence or willful misconduct of the Issuing Bank.
It is understood and agreed that in making any payment under a Letter of Credit
(x) the Issuing Bank's exclusive reliance on the documents presented to it under
such Letter of Credit as to any and all matters set forth therein, including,
without limitation, reliance on the amount of any draft presented under such
Letter of Credit, whether or not the amount due to the beneficiary
equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement proves to be inaccurate or untrue in any respect whatsoever, and (y) any non-compliance in any immaterial respect of the documents presented under a Letter of Credit with the terms thereof shall, in each case, not be deemed willful misconduct or gross negligence of the Issuing Bank.
(c) If the Issuing Bank shall pay any Drawing on a Letter of Credit and shall not have received, for any reason, payment of the Reimbursement Obligation (whether from the Borrower or through an ABR Loan) by 12:00 noon, New York time, on the third Business Day following such Drawing, then the Issuing Bank shall promptly so notify, by telephonic or telex notice, each Bank of such failure to receive payment of the Reimbursement Obligation and each Bank shall pay to the Issuing Bank in New York, New York, in immediately available funds, not later than 3:00 p.m., New York time on the immediately succeeding Business Day, such Bank's Pro Rata Share of the Reimbursement Obligation and the Issuing Bank shall assign to each such Bank its Pro Rata Share of such Reimbursement Obligation. Notwithstanding anything contained in this Agreement to the contrary, each Bank's obligation to make payments to the Issuing Bank under this Section 3.3 shall be unconditional and shall survive the termination of this Agreement.
(d) If on the date of termination of this Agreement in accordance with Section 2.9 or Section 8.1 hereof, any Letter of Credit shall be outstanding, then on the date of such termination and as a condition thereto, the Borrower shall deposit in an interest-bearing account of the Collateral Agent, for the benefit of the Banks (the "Cash Collateral Account") an amount equal to the aggregate Letter of Credit Exposure existing on such date plus any LC Fees payable to the last expiry date of any Letter of Credit issued hereunder. If the Issuing Bank shall pay any Drawing after the date of termination of this Agreement, the Administrative Agent shall make a payment to each Bank out of the Cash Collateral Account in an amount equal to such Bank's Pro Rata Share of the aggregate amount of such Drawing. Any amounts deposited by the Borrower pursuant to this clause (d) (other than amounts representing fees or expenses due hereunder) shall be returned with any interest actually earned to the Borrower, to the extent such funds have not been used to pay Reimbursement Obligations, on the Business Day following the latest expiry date of any Letter of Credit issued hereunder.
(e) If on any date on which the Revolving Credit Committee is reduced in accordance with Section 2.9, the aggregate Letter of Credit Exposure exceeds the Revolving Credit
Commitment in effect after giving effect to such reduction, then on such date the Borrower shall deposit in the Cash Collateral Account an amount equal to the amount by which the Letter of Credit Exposure then exceeds the Revolving Credit Commitment in effect after giving effect to such reduction.
SECTION 3.4. Increased Costs. (a) Subject to compliance with subsections (d) and (e) below, any other provision herein, if after the date of this Agreement any change in Applicable Law or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) (i) shall change the basis of taxation of payments to any Bank of the LC Fee or any other amounts payable hereunder in respect of the Letters of Credit except to the extent converted to Loans (other than Taxes imposed on the overall net income of such Bank by the jurisdiction in which such Bank has its principal office or by any political subdivision or taxing authority therein), or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement with respect to its obligations under this Article III or the Letters of Credit or shall impose on such Bank any other condition affecting this Agreement with respect to the obligations of such Bank under this Article III or the Letters of Credit, and the result of any of the foregoing shall be to increase the cost to such Bank of issuing or participating in any Letters of Credit or to reduce the amount of any sum received or receivable by such Bank hereunder in respect thereof, by any amount reasonably deemed by such Bank to be material, then the Borrower will pay such Bank, upon demand, such additional amount or amounts as will compensate such Bank for such additional costs incurred or reduction suffered.
(b) Subject to compliance with subsections (d) and
(e) below, if any Bank shall determine that the adoption after the date hereof
of any law, rule, regulation, agreement or guideline regarding capital adequacy,
or any change in any of the foregoing or in the interpretation or administration
of any of the foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Bank (or any Lending Office of such Bank) or such Bank's
holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Bank's capital or on the capital of such Bank's holding
company, if any, as a consequence of its obligations with respect to this
Article III or any Letter of Credit to a level below that which such Bank or
such Bank's holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies and the policies of
such Bank's holding company with respect to capital adequacy) by an amount
deemed by such Bank to be
material, then from time to time, after submission by such Bank to the Borrower of a written request therefor, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank or such Bank's holding company for any such reduction suffered.
(c) A certificate of any Bank setting forth such amount or amounts and the basis for determination from time to time of such amount or amounts as shall be necessary to compensate such Bank or its holding company as specified in paragraph (a) or (b) above, as the case may be shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same.
(d) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Bank's right to demand compensation with respect
to such period, except that no Bank shall be entitled to compensation under this
Section 3.4 for any costs incurred or reduction suffered with respect to any
date unless such Bank shall have notified the Borrower that it will demand
compensation for such costs or reductions not more than nine months after the
later of (i) such date and (ii) the date on which such Bank shall have become
aware of such costs or reductions. The protection of this Section 3.4 shall be
available to any Bank regardless of any possible contention of the invalidity or
inapplicability of any law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Any Bank claiming any additional amounts payable pursuant to this Section 3.4 shall use reasonable efforts (consistent with legal and regulatory restrictions and such Bank's internal policies) to file any certificate or document requested by the Borrower or change its applicable Lending Office to another of its offices, branches or Affiliates, if the making of such filing or change of Lending Office would avoid the need for or reduce the amount of any such additional amount attributable to the Loans and would not, in the sole determination of such Bank, result in any unreimbursed loss, cost or expense or otherwise be disadvantageous to such Bank.
(f) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 3.4 shall survive the payment in full of principal and interest
hereunder.
SECTION 3.5. Letter of Credit Fees. (a) The Borrower agrees to pay each Bank a letter of credit fee (the "LC Fee"), on the last Business Day of each March, June, September and
December, equal to such Bank's Pro Rata Share of the then applicable Eurodollar Margin (determined in accordance with Section 2.4(c)) per annum of the average daily Letter of Credit Exposure existing from time to time during the fiscal quarter ending on such date of payment. In addition, the Borrower agrees to pay to the Issuing Bank, on demand, the customary documentation fees for each Letter of Credit issued by the Issuing Bank (including reasonable fees of counsel). LC Fees shall be calculated on the basis of the actual number of days elapsed over a year of 360 days.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of Holdings and the Borrower, jointly and severally, represent and warrant to each of the Banks that:
SECTION 4.1. Organization. Each of Holdings and each of its Subsidiaries is a company duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, has all requisite power and authority to own its property and assets and to carry on its business as currently conducted and is qualified to do business in each jurisdiction in which the nature of the business conducted or the property owned or leased by it requires such qualification except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.
SECTION 4.2. Corporate Power and Authority; No Required Consents or Approvals. (a) The Borrower and each Guarantor has the power to execute, deliver and perform its obligations under each Loan Document to which it is a party, to borrow hereunder (if applicable), to grant Liens pursuant to the Financing Documents to which it is a party and to deliver any Notes to be delivered by it hereunder.
(b) The execution, delivery and performance by the Borrower and each Guarantor of each Loan Document to which it is a party, the borrowings to be made hereunder by the Borrower, the grant by each of the Borrower and each Guarantor of Liens pursuant to the Financing Documents to which it is a party and the execution and delivery of the Notes by the Borrower have been duly authorized by all required company and stockholder action of such Person and will not (i) violate any provision of Applicable Law, any Organizational Document, or any indenture or other material agreement or instrument to which the Borrower or any Guarantor is a party, or by which the Borrower or any Guarantor or any of their respective properties are or may be bound, (ii) conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, material agreement or instrument to which the Borrower
or any Guarantor is a party, or by which the Borrower or any Guarantor or any of their respective properties are or may be bound or (iii) result in the creation or imposition of any Lien (other than a Permitted Lien) upon any property of the Borrower or any Guarantor.
(c) No registration with or consent or approval of, or other action by, any Governmental Authority is or will be required in connection with the execution, delivery and performance by any Guarantor or the Borrower of any Loan Document to which it is a party, any borrowings hereunder (if applicable) or the grant of Liens by any Guarantor or the Borrower pursuant to the Financing Documents to which it is a party.
SECTION 4.3. Enforceability. Each Loan Document has been duly executed and delivered by the Borrower or Guarantor party thereto and constitutes the legal, valid and binding obligation of the Borrower or such Guarantor enforceable in accordance with its terms, subject as to matters of law to any exceptions set forth in the legal opinions delivered pursuant to Section 5.1(m) of this Agreement
SECTION 4.4. Financial Statements; No Undisclosed Liabilities.
(a) Except as set forth on Schedule 4.4(a), the audited consolidated financial
statements of Holdings and its Subsidiaries for the Fiscal Year ended December
31, 1993 (the "Audited Financial Statements"), (i) fairly present in all
material respects the financial position of Holdings and its Subsidiaries at the
dates thereof and their respective results of operations for the periods covered
therein in accordance with GAAP (except as set forth in the notes to such
financial statements) and (ii) disclose all material liabilities, including
contingent and/or unmatured liabilities, of Holdings and its Subsidiaries as of
the dates thereof, which are required to be disclosed thereon in accordance with
GAAP.
(b) Except as set forth on Schedule 4.4(b), neither Holdings nor any Subsidiary has any obligations or liabilities, contingent, unmatured or otherwise, which are material to Holdings and the Subsidiaries considered as a whole and which have not been disclosed in the unaudited consolidated financial statements of Holdings and its subsidiaries for the nine-month period ending September 30, 1994 (the "Unaudited Financial Statements"; and the Unaudited Financial Statements collectively with the Audited Financial Statements, the "Financial Statements").
SECTION 4.5. No Material Adverse Change. As of the date hereof, there has been no material adverse change in the business, assets, operations or condition (financial or otherwise) of Holdings and the Subsidiaries taken as a whole since September 30, 1994.
SECTION 4.6. Litigation. To the knowledge of Holdings and its Subsidiaries, there are no actions, suits or proceedings at law or in equity instituted or threatened against or directly affecting Holdings or any such Subsidiary or any of their respective businesses, properties or rights which, if adversely determined, would result in a Material Adverse Effect.
SECTION 4.7. Compliance with Laws. Neither Holdings nor any of its Subsidiaries is in violation of, or in default with respect to, any Applicable Law (including, without limitation, any Environmental Law), other than any such violations or defaults which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.8. Employee Benefit Plans. Holdings, each of its Domestic Subsidiaries, each Plan and each "employee benefit plan" (within the meaning of Section 3(3) of ERISA) maintained by Holdings or any of its Domestic Subsidiaries is in compliance in all material respects with all provisions of ERISA (or similar legislation in the jurisdiction in which a Domestic Subsidiary is organized) which are applicable thereto. No Reportable Event within the preceding six years has occurred with respect to any Single Employer Plan as to which Holdings or any of its Domestic Subsidiaries was required to file a report with the PBGC. No Single Employer Plan has any material unfunded liability that subjects such Plan to additional funding requirements under Section 412(l) of the Code. No Single Employer Plan has an accumulated or waived funding deficiency or an extension of amortization periods for unfunded liability as reflected in its funding standard account within the meaning of Section 412 of the Code. Neither Holdings, any of its Domestic Subsidiaries nor any ERISA Affiliate thereof has incurred any material liability to or on account of a Plan pursuant to Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any liability under any of the foregoing Sections on account of the termination of participation in or contributions to any Plan. No proceedings have been instituted to terminate any Plan in other than a "standard termination" under Section 4041(b) of ERISA. No condition exists which presents a material risk to Holdings or any of its Domestic Subsidiaries of incurring a material liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code. No Lien imposed under the Code or ERISA on the assets of Holdings or any of its Domestic Subsidiaries exists or is likely to arise on account of any Plan. Except as set forth on Schedule 4.8, Holdings and each of its Domestic Subsidiaries may terminate contributions to any other employee benefit plans maintained by it without incurring any material liability to any Person interested therein (other than claims for benefits incurred or payable under the terms of such plans in the ordinary course of business and plans maintained pursuant to collective bargaining agreements).
SECTION 4.9. Taxes. Each of Holdings and each of its Subsidiaries has filed or caused to be filed all federal, state, local and foreign tax returns which, to its best knowledge, are required to be filed by it, and have paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments the validity of which it is contesting in good faith by appropriate proceedings and with respect to which adequate accounting reserves have been set aside to the extent required by GAAP.
SECTION 4.10. Title to Properties. (a) Except as set forth on Schedule 4.10(a), Holdings or a Subsidiary has good title, of a quality commensurate with prudent standards of business practice, to all of the properties and assets purported to be owned by them (excluding unpatented mining claims), including all properties reflected on the Financial Statements (including real property, tangible and intangible personal property, minerals, whether or not extracted from the ground, and other mineral rights), except properties and assets disposed of from the date of the most recent Financial Statement through the Closing Date in the ordinary course of business. No Lien exists with respect to any such assets or properties other than Permitted Liens.
(b) Holdings and its Subsidiaries, own, or are licensed to use, all trademarks, tradenames, patents, patent applications, copyrights, technology, know-how, processes and other intellectual and proprietary rights (collectively, the "Intellectual Property") necessary for the conduct of their respective businesses, except where the failure to own or license such Intellectual Property would not have a Material Adverse Effect. Schedule 4.10(b) attached hereto contains a list of all patents, patent applications, trademark and service mark registrations and applications therefor, and copyright registrations and applications therefor, purported to be owned by Holdings. Except as set forth on Schedule 4.10(b), no claim has been asserted and is pending by any Person with respect to the use by Holdings or any of its Subsidiaries of any such Intellectual Property, or challenging or questioning the validity or effectiveness of any such Intellectual Property which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.
SECTION 4.11. Business. Except as set forth on Schedule 4.11 attached hereto, Holdings and its Subsidiaries have engaged (and are currently engaged) only in the mining, processing and sale of diatomite, perlite and other industrial minerals, the manufacture and sale of silicates and other filtration products for industrial and retail applications and the provision of related services (the "Business").
SECTION 4.12. Agreements. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument the breach of which would result in a Material Adverse Effect.
SECTION 4.13. No Material Misstatements. No information, report, financial statement, exhibit or schedule contained in or attached to the Loan Documents or set forth on Schedule 4.13 contains any misstatement of material fact or omits to state any material fact necessary to make such statements, in light of the circumstances under which they were made, not misleading.
SECTION 4.14. Related Party Transactions. The terms of any transactions between Holdings and any of its Subsidiaries, on the one hand, and any Affiliate of Alleghany which is not a Subsidiary, on the other hand, were not materially less favorable to Holdings and its Subsidiaries than terms obtainable in a comparable arm's-length transaction between non-affiliated parties (it being understood that such transactions have not been submitted for competitive bids by unrelated Persons).
SECTION 4.15. Labor Matters and Acts of God. Neither Holdings nor any of its Subsidiaries has been affected by any fire, explosion, accident, strike, lockout or other labor dispute since September 30, 1994, which has had a Material Adverse Effect.
SECTION 4.16. Outstanding Debt. Neither Holdings nor any of its Subsidiaries has outstanding Indebtedness, directly or indirectly, except Permitted Indebtedness. There does not exist, and, after giving effect to the transactions contemplated by the Loan Documents, there will not exist, any material default under any instrument or agreement relating to or evidencing any direct or indirect Indebtedness of Holdings or any of its Subsidiaries (or any event which, with only the giving of notice or the passage of time or both, would result in such a breach or default).
SECTION 4.17. Federal Reserve Regulations. The making of the Loans hereunder to the Borrower, the use by the Borrower of the proceeds thereof as contemplated hereby and the security arrangements contemplated hereby and by the Financing Documents, will not violate or be inconsistent with any of the provisions of Regulation G, Regulation T, Regulation U or Regulation X.
SECTION 4.18. Investment Company Act and Public Utility Holding Company Act. Neither Holdings nor any of its Subsidiaries is an "investment company" or Affiliate of an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or is a
"holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended.
SECTION 4.19. Security Interests. The provisions of each Collateral Agreement to which the Borrower or any Guarantor is a party is effective to create in favor of the Collateral Agent, on behalf of the Banks, a valid, binding and perfected security interest in and Lien on all right, title and interest of the Borrower and such Guarantor in all of the Collateral. Upon the delivery of the shares of capital stock to be pledged, such security interests and Liens shall have first priority for all purposes over any other Lien (other than Permitted Liens with higher priority under Applicable Law) on the Collateral.
SECTION 4.20. Capital Stock; Subsidiaries. (a) The authorized capital stock of Holdings consists of 200,000 shares of Common Stock, $1.00 par value, and 1,700 shares of Preferred Stock, $1.00 par value, of which 80,000 shares of Common Stock are validly issued, fully paid and nonassessable and are outstanding and owned beneficially and of record in the amounts and by the Persons set forth on Schedule 4.20 hereto. Except for the option held by William J. Woods, Jr., a copy of which has been previously delivered to the Administrative Agent, no Person holds any option, warrant, stock subscription or other right to acquire any capital stock of Holdings and no securities convertible into or exercisable or exchangeable for any capital stock of Holdings have been authorized or issued.
(b) The authorized capital of the Borrower consists of 1,000 shares of common stock, par value $1.00 per share (the "Borrower Common Stock") all of which shares are validly issued, fully paid and nonassessable and are outstanding. All of the shares of Borrower Common Stock are owned beneficially and of record by Holdings and pledged to the Collateral Agent for the benefit of the Banks as provided in the Holdings Pledge Agreement. No Person holds any option, warrant, stock subscription or other right to acquire any capital stock of the Borrower and no securities convertible into or exercisable or exchangeable for any capital stock of the Borrower have been authorized or issued. Except for the pledge provided for in the Holdings Pledge Agreement, no Person has any Lien against any capital stock of the Borrower.
(c) The authorized capital of Celite consists of 1,000 shares of common stock, par value $1.00 per share (the "Celite Common Stock") all of which shares are validly issued, fully paid and nonassessable and are outstanding. All of the shares of Celite Common Stock are owned beneficially and of record by the Borrower and pledged to the Collateral Agent for the benefit of the Banks as provided in the Pledge Agreement. No Person holds any option, warrant, stock subscription or other right to acquire any capital stock of Celite and no securities convertible into or exercisable or exchangeable for any capital
stock of Celite have been authorized or issued. Except for the pledge provided for in the Pledge Agreement and as set forth on Schedule 4.20, no Person has any Lien against any capital stock of Celite.
(d) The authorized capital stock of Harborlite consists of 1,000,000 shares of Common Stock, $1.00 par value (the "Harborlite Common Stock"), and 40,000 shares of Preferred Stock, $1.00 par value, (the "Harborlite Preferred Stock"). 88,551.69 shares of Harborlite Common Stock and 25,871.47 shares of Harborlite Preferred Stock are validly issued and outstanding, fully paid and nonassessable and owned beneficially and of record by the Borrower and pledged to the Collateral Agent for the benefit of the Banks as provided in the Pledge Agreement. Schedule 4.20 sets forth a list of each Person holding any option, warrant, stock subscription or other right to acquire any capital stock of Harborlite and any securities convertible into or exercisable or exchangeable for any capital stock of Harborlite. Except for the pledge provided for in the Pledge Agreement and the Liens granted in the Harborlite Documents, no Person has any Lien against any capital stock of Harborlite.
(e) The authorized capital of each Subsidiary (other than the Borrower, Celite and Harborlite) is set forth opposite such Subsidiary's name on Schedule 4.20 attached hereto. All of the shares listed on Schedule 4.20 are validly issued, fully paid and nonassessable and are outstanding and owned beneficially and of record in the amounts and by the Persons set forth thereon and 65% of such shares have been pledged to the Collateral Agent for the benefit of the Banks as provided in the Celite Pledge Agreement. No person holds any option, warrant, stock subscription or other right to acquire any capital stock of any Subsidiary and no securities convertible into or exercisable or exchangeable for any capital stock of such Subsidiary have been authorized or issued. Except for the pledge provided for in the Celite Pledge Agreement, no Person has any Lien against any capital stock of any Subsidiary.
(f) Schedule 4.20 attached hereto sets forth a correct and complete list of each Person (other than the Subsidiaries) in whom the Borrower or any Subsidiary presently owns, directly or indirectly, any ownership interest (other than securities representing less than 10% of the aggregate ownership interest of Persons making periodic reports under the Securities Exchange Act of 1934, as amended, or similar foreign laws). Except as set forth on Schedule 4.20, Holdings and/or a Subsidiary has the absolute right and power to sell, assign, convey and transfer any right or benefit incident to the ownership thereof.
(g) Annex IV attached hereto sets forth a list of each Subsidiary which is material to Holdings and its Subsidiaries viewed on a consolidated basis.
ARTICLE V
CONDITIONS TO LENDING
SECTION 5.1. Loans on the Closing Date. The obligations of the Banks to make Loans hereunder and the obligations of the Issuing Bank to issue Letters of Credit hereunder, in each case on the Closing Date, are subject to the satisfaction of the following conditions:
(a) Notes. The Administrative Agent shall have
received duly executed Notes from the Borrower complying with the provisions of
Section 2.1(b) and Section 2.2(d).
(b) Corporate Documents. The Administrative Agent shall have received (i) a copy of each Organizational Document of Holdings, the Borrower and Celite, including all amendments thereto, certified, as of a recent date by an appropriate public official of its jurisdiction of incorporation and a certificate as to the good standing and charter documents from such public official as of a recent date, (ii) a certificate of the Secretary or Assistant Secretary of each Guarantor and the Borrower dated the Closing Date and certifying (A) that attached thereto is a correct and complete copy of the by-laws of such Person as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a correct and complete copy of resolutions duly adopted by the Board of Directors of such Person, authorizing the execution, delivery and performance of the Loan Documents, the borrowings hereunder (if applicable), the granting of Liens pursuant to the Financing Documents and the other transactions contemplated hereby, (C) that the certificate of incorporation of such Person has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer of such Person executing any Loan Document or any other document delivered in connection herewith, (iii) a certificate of another officer of such Person as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above, (iv) a certificate from the Secretary of State of each state in the United States in which such Person conducts material business or owns material assets, as to the qualification of such Person to do business and its good standing in such state, and (v) such other documents as the Administrative Agent, or O'Sullivan Graev & Karabell, LLP, counsel to the Banks, may reasonably request.
(c) Lien Search. The Collateral Agent shall have received and be reasonably satisfied with the results of a search of the Uniform Commercial Code filings made with respect to each Guarantor and the Borrower in the jurisdictions listed on Annex
V, which shall not have disclosed any prior Lien or security interest in the Collateral, other than (A) Permitted Liens and (B) any Liens being released contemporaneously with the Closing.
(d) No Defaults. The Borrower and each Guarantor shall be in compliance with the terms and provisions set forth in each Loan Document to which it is a party, and at the time of and immediately after the consummation of the transactions contemplated hereby, no Event of Default or Default shall have occurred and be continuing.
(e) Insurance. Holdings and its Subsidiaries shall have delivered to the Administrative Agent certificates of insurance complying with Section 6.12.
(f) Requisite Approvals. Holdings and its Subsidiaries shall have obtained all required governmental and other consents, licenses, permits and approvals relating to the transactions contemplated hereby and the other Loan Documents, including all necessary permits and licenses to operate the Business in the manner such Business has previously been conducted, except for any consent, license, permit or approval the failure of which to obtain would not reasonably be expected to have a Material Adverse Effect.
(g) Security. The Financing Documents shall be in full force and effect and no default or event of default shall have occurred and be continuing thereunder. Each Guarantor and the Borrower shall have delivered to the Collateral Agent all certificates representing shares of capital stock of any Subsidiary to be pledged to the Collateral Agent on behalf of the Bank in connection with the transactions contemplated by this Agreement, accompanied by blank undated stock powers and duly executed for transfer.
(h) Representations and Warranties. The representations and warranties of Holdings and the Borrower contained herein, in any other Loan Document and in any certificate or other instrument delivered pursuant to this Agreement or any Loan Document shall be correct in all material respects as though made on and as of such date.
(i) Officer's Certificate. The Administrative Agent shall have received certificates signed by a Responsible Officer of Holdings and the Borrower confirming the satisfaction of the conditions precedent set forth herein on and as of the Closing Date.
(j) Fees and Expenses. All fees and other consideration owing by Holdings or any of its Subsidiaries to the Banks under the terms of the Fee Letter, this Agreement, the other Loan Documents, or any other document executed in connection herewith shall have been paid in full.
(k) Legal Matters. All matters relating to this Agreement, the other Loan Documents and the transactions contemplated hereby and thereby shall be satisfactory to the Co-Agents and O'Sullivan Graev & Karabell, LLP, counsel to the Banks. The Administrative Agent shall have received a legal opinion from Orrick Herrington & Sutcliffe, satisfactory in form and substance to O'Sullivan Graev & Karabell, LLP, counsel to the Banks.
SECTION 5.2. Revolving Loans Made After Closing Date. The obligation of the Banks to make Revolving Loans to the Borrower hereunder from time to time after the Closing Date are subject to the following conditions:
(a) Representations and Warranties. Each of the representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.17, 4.18 and 4.19 shall be correct and complete as of the date of such Revolving Loan.
(b) Compliance. The Borrower and each Guarantor shall be in compliance in all material respects with the terms and provisions set forth in each Loan Document to which it is a party, and at the time of and immediately following the consummation of such Revolving Loan or Revolving Loans, no Default or Event of Default shall have occurred and be continuing.
(c) Notice of Borrowings. The Borrower shall have provided (i) a notice of borrowing to the Administrative Agent in substantially the form of Exhibit K and (ii) all other documents reasonably requested by the Banks related to the making of Revolving Loans hereunder.
(d) Officer's Certificate. The Administrative Agent shall have received a certificate executed by a Responsible Officer of Holdings and the Borrower certifying as to the matters set forth in clauses (a) and (b) above.
SECTION 5.3. Letters of Credit Issued After the Closing Date. The obligation of the Issuing Bank to issue Letters of Credit hereunder from time to time after the Closing Date are subject to the following conditions:
(a) Representations and Warranties. Each of the representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.17, 4.18 and 4.19 shall be correct and complete as of the date of issuance of such Letter of Credit.
(b) Compliance. The Borrower and each Guarantor shall be in compliance in all material respects with the terms and provisions set forth in each Loan Document to which it is a party, and at the time of and immediately following the issuance
of such Letter of Credit, no Default or Event of Default shall have occurred and be continuing.
(c) Notice. The Borrower shall have provided the notice required by Section 3.2 hereof.
(d) Officer's Certificate. The Administrative Agent shall have received a certificate executed by a Responsible Officer of Holdings and each Borrower certifying as to the matters set forth in clauses (a) and (b) above.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each of the Borrower and each Guarantor, jointly and severally, covenants and agrees with each Bank that, so long as this Agreement shall remain in effect or any Obligation is outstanding, without the written consent of the Majority Banks, it will, and it will cause each Subsidiary to:
SECTION 6.1. Corporate Existence. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence and any necessary state or foreign qualifications (other than any qualifications the absence of which, in the aggregate, would not result in a Material Adverse Effect).
SECTION 6.2. Obligations and Taxes. Pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all taxes, assessments and governmental charges or levies lawfully imposed upon it or upon its income or profits or in respect of its property, (ii) all mineral and other royalties, (iii) all lawful claims for labor, materials and supplies, (iv) all required payments under any Permitted Indebtedness and (v) all other Obligations; provided, however, that it shall not be required to pay or discharge or to cause to be paid or discharged any such amount so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and, if required by GAAP, appropriate reserves or accruals have been made with respect thereto.
SECTION 6.3. Performance Under Agreements. Perform its obligations under this Agreement, each Collateral Agreement, Loan Document and each other material indenture, agreement or other instrument to which it is a party; provided, however, that it shall not be required to so perform its obligations under any such other material indenture, agreement or other instrument to the extent it shall reasonably believe in good faith that such performance is not required and, if required by GAAP, appropriate reserves or accruals have been made with respect thereto.
SECTION 6.4. Access to Properties and Inspections. Maintain financial records in accordance with reasonable and prudent accounting practices and controls sufficient to prepare the financial statements required by Section 6.11 and, upon reasonable written notice, at all reasonable times and as often as any Bank may reasonably request, permit any authorized representative of any Bank to visit and inspect its properties and records during normal business hours, and to make extracts from such records and permit any authorized representative of any Bank to discuss its affairs, finances and condition with such officers and, with the consent of an Executive Officer (which consent shall not be unreasonably withheld), with its independent public accountants, in each case as any Bank shall deem appropriate.
SECTION 6.5. Defense of Claims. Use reasonable commercial efforts to vigorously defend itself and its properties from and against any lawsuits or claims which could reasonably be expected to result in a Material Adverse Effect unless the Borrower reasonably believes it has no good faith defense to any such lawsuit or claim.
SECTION 6.6. Notices of Litigation or Claims. Promptly upon obtaining notice of the commencement thereof, provide the Administrative Agent with written notice of any of the following events which could reasonably be expected to have a Material Adverse Effect:
(a) the issuance by any court or Governmental Authority of any injunction, order or decision involving Holdings or any Subsidiary or any of their respective properties;
(b) the filing or commencement of any action, suit or proceeding against or affecting Holdings or any Subsidiary or any of their respective properties whether at law or in equity or by or before any court or any federal, state, municipal, foreign or other Governmental Authority;
(c) any imposition by any Governmental Authority of a Lien which is not a Permitted Lien;
(d) any claim, demand or action impairing title to any of the properties or assets of Holdings or any Subsidiary; and
(e) any other adverse action by or notice from a Governmental Authority with respect to Holdings or any Subsidiary or any of their respective properties (including any such action under any Environmental Law).
SECTION 6.7. Notice of Certain Actions. Furnish as promptly as
possible after obtaining knowledge of the occurrence thereof, written notice of
(a) any Default hereunder, (b) any default by Holdings or any Subsidiary under
any other material agreement or instrument evidencing Indebtedness, (c) any
development in the business or affairs of Holdings or any Subsidiary which is
likely, in the reasonable judgment of Holdings, to have a Material Adverse
Effect or (d) the sale by Alleghany of any capital stock of Holdings, in each
case specifying, as applicable, (i) the nature and extent thereof, (ii) any
rights of any other parties thereto with respect to termination, acceleration or
similar provisions and (iii) any corrective action taken or proposed to be taken
with respect thereto.
SECTION 6.8. Compliance. Comply with all Applicable Laws (including ERISA and Environmental Laws), and maintain all required clearances, consents, permits and governmental approvals, if the failure to comply with such Applicable Laws or failure to maintain such clearances, consents, permits and governmental approvals could reasonably be expected to result in a Material Adverse Effect.
SECTION 6.9. Further Assurances. Duly execute and deliver, or cause to be duly executed and delivered, at its own cost and expense, such further documents as may be necessary or proper in the reasonable judgment of the Administrative Agent to carry out the provisions and purposes of this Agreement and the other Loan Documents and to maintain and preserve the perfection and priority of the Liens granted pursuant to the Financing Documents.
SECTION 6.10. Business and Properties. (a) At all times do or cause to be done all things necessary to (i) preserve, renew and keep in full force and effect the rights, licenses, permits, franchises and mining concessions necessary to, or used or useful in the conduct of, its Business; provided, however, that Holdings and the Subsidiaries will not be required to preserve, renew or maintain any right, license, permit or franchise if the Board of Directors of the Borrower shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and (ii) keep its properties used or useful in the conduct of its business in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto, all as in the judgment of Holdings or such Subsidiary may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 6.10 shall prevent Holdings and any Subsidiary from discontinuing the operation or maintenance of any of its properties if such discontinuance is, in the judgment of
the Board of Directors of Borrower, desirable in the conduct of the business of such Person.
(b) As promptly as possible after obtaining knowledge
of the occurrence thereof, furnish written notice to the Collateral Agent of the
institution of any proceeding for the condemnation or other taking of any
material property of Holdings or its Subsidiaries. An award, proceeds or other
amounts paid or payable as a result of, in connection with or in any way related
to a condemnation or taking of, or exercise by any Governmental Authority of
eminent domain over, any property of Holdings or its Subsidiaries shall be paid,
promptly upon receipt, to the Collateral Agent and disbursed in accordance with
Section 6.14(c) of this Agreement as if such proceeds were insurance proceeds.
SECTION 6.11. Financial Statements and Reports. Furnish to the Administrative Agent:
(a) within 120 days after the end of each Fiscal Year (commencing with the Fiscal Year ending December 31, 1994), consolidated and consolidating balance sheets, income statements, cash flow statements and comparisons to budget showing their financial condition as of the close of such Fiscal Year and the results of their operations during such year of Holdings and the Subsidiaries, the consolidated financial statements to be audited by independent accountants of nationally recognized standing and prepared in accordance with GAAP;
(b) within 120 days after the end of each Fiscal Year, current and projected annual and cumulative budgets, operating plans and financial projections for Holdings and the Subsidiaries on a consolidated and consolidating basis, for such Fiscal Year and the next four succeeding Fiscal Years;
(c) within 60 days after the end of the first three fiscal quarters of each Fiscal Year, commencing March 31, 1995, the unaudited consolidating and consolidated balance sheets, income statements and cash flow statements (along with comparisons to budget), showing the financial condition and results of operations of Holdings and the Subsidiaries, as at the end of each such quarter and for the then elapsed portion of the fiscal year, in each case prepared in accordance with GAAP;
(d) concurrently with the financial statements delivered pursuant to Section 6.11(a) and (c), certificates of a Financial Officer of Holdings and concurrently with the financial statements delivered pursuant to Section 6.11(a) certificates of
the independent auditors of Holdings, certifying that no Default or Event of Default has occurred or, if such a Default or Event of Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto;
(e) concurrently with the statements delivered pursuant to Section 6.11(a) and (c), a report, in form and substance satisfactory to the Banks, describing (i) the compliance activities of Holdings or any Subsidiary undertaken with respect to applicable Environmental Law and (ii) describing any material notice, charge or complaint received by Holdings or any Subsidiary from any Governmental Authority with respect to any Environmental Law;
(f) concurrently with the statements delivered pursuant to Section 6.11(a) and (c), certificates of a Financial Officer of Holdings, certifying for the fiscal period then ended and as of the last day of such fiscal period compliance with the covenants set forth in Sections 7.11, 7.12 and 7.13 hereof, in each case showing the calculation thereof; and
(g) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of Holdings and the Subsidiaries as any Bank may reasonably request.
Each consolidated financial statement delivered in accordance with this Agreement shall be accompanied by a certificate of a Financial Officer of Holdings, (and, in the case of year-end financial statements and reports, the independent auditors of Holdings) certifying that such statement fairly presents in all material respects the consolidated financial position and results of operations of Holdings and each Subsidiary at the dates thereof and for the periods then ended and has been prepared in accordance with GAAP, subject to normal year-end adjustments, as appropriate.
SECTION 6.12. Insurance. (a) Maintain insurance (including, without limitation, business interruption insurance) on the business and properties of Holdings and each Subsidiary to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses, provided that primary insurance coverages for property and general liability will at all times be provided by insurance carriers rated at least A+, A1 or A by Standard & Poor's Corporation, Moody's Investors Services or A.M. Best, respectively.
(b) Maintain in full force and effect workers' compensation insurance (with respect to the Domestic Subsidiaries only) and public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with, the use of any properties owned, occupied or controlled by Holdings or any Subsidiary, in each case as such Person shall deem reasonably necessary.
(c) Each insurance policy required under Section 6.12(a) shall contain endorsements in form satisfactory to the Collateral Agent providing, among other things, that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of Holdings or any Subsidiary which might otherwise result in forfeiture of such insurance and that the insurer waives all rights of set-off, counterclaim, deduction or subrogation against Holdings or any Subsidiary.
SECTION 6.13. Mining Plan. Prepare and deliver to the Banks
(a) on each anniversary of the Closing Date, an annual calculation of minable
reserves for the Lompoc, California, Zacoalco, Mexico, Quincy, Washington,
Alicante, Spain, Murat, France and No Aqua, New Mexico mining properties
together with a detailed five-year mine plan for such reserves and a conceptual
mine plan for recovery of such reserves for an additional five year period and
(b) within 12 months of any Permitted Acquisition which involves material mining
properties, the mine plans described in clause (a) above prepared with respect
to such acquired mining properties.
SECTION 6.14. Interest Rate Hedges. From and after the date hereof, maintain hedging or interest rate protection agreements acceptable to the Majority Banks. Prior to entering into any such arrangement, the Borrower shall (a) notify the Banks of all material terms thereof, (b) provide the Banks time to prepare bids on such hedging and/or interest rate protection arrangements and (c) consider in good faith the terms of a Bank's bid, if any; provided, however, that, in connection with any such hedging or interest rate protection agreement, the Borrower shall only be required to provide each Bank with one opportunity to bid on such hedge or interest rate protection arrangement.
SECTION 6.15. ERISA. (a) Comply in all material respects with the provisions of ERISA (or other similar legislation in the jurisdiction in which such Subsidiary is organized) applicable to the Plans or any "employee benefit plan" (within the meaning of Section 3(3) of ERISA) maintained by Holdings or any Subsidiary and (b) furnish to each Bank, as soon as possible, and in any event within 30 days after any Responsible Officer of Holdings or any Subsidiary knows or has reason to know of the following events: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution
of proceedings or the taking of any other action by the PBGC, the Borrower or any ERISA Affiliate, or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan, a certificate of a Financial Officer of the Borrower setting forth the details thereof and the action that Holdings or such ERISA Affiliate proposes to take with respect thereto.
SECTION 6.16. Proceeds. Use the proceeds of the Loans solely for the purposes set forth in the Preamble to this Agreement.
ARTICLE VII
NEGATIVE COVENANTS
Each of the Borrower and each Guarantor jointly and severally covenants and agrees with each Bank that, so long as this Agreement shall remain in effect or any Obligation is outstanding, without the written consent of the Majority Banks, it will not, and will not permit any Subsidiary to:
SECTION 7.1. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except:
(a) Indebtedness under this Agreement and the other Loan Documents;
(b) Indebtedness between or among Holdings and the Subsidiaries which (i) in each instance is unsecured and (ii) if the issuer of such Indebtedness is the Borrower or Celite, such Indebtedness is subordinate in all respects to the payment in full of all Obligations under the Facility;
(c) any obligations in respect of forward sales contracts, commodities futures, options or similar hedging arrangements regarding commodities entered into with the written consent of the Majority Banks;
(d) any Letter of Credit issued hereunder;
(e) endorsements for collection or deposit in the ordinary course of business;
(f) purchase money security interests created in the ordinary course and not to exceed $5,000,000 at any time outstanding;
(g) the Permitted Subsidiary Indebtedness;
(h) Indebtedness to Alleghany (i) not to exceed $10 million and (ii) which is subordinated in all respects to the payment in full of the Obligations of the Guarantors and the Borrowers to the Banks in accordance with the Alleghany Subordination Agreement;
(i) Indebtedness of the Borrower arising in connection with (i) the guaranty by the Borrower of certain obligations of Harborlite Corporation, a California corporation ("Old Harborlite"), which were guaranteed by the stockholders of Old Harborlite prior to the closing under the Harborlite Documents or (ii) the Borrower's indemnification under the Harborlite Documents of the stockholders of Old Harborlite from and against certain liabilities of Old Harborlite which were guaranteed by such stockholders; and
(j) Indebtedness arising under one or more carnets obtained in the ordinary course of business.
SECTION 7.2. Negative Pledge. Incur, create, assume or suffer or permit to exist any Lien on any property or assets (including the capital stock of any Subsidiary) or on any income or rights in respect of any thereof, except:
(a) Liens granted to the Collateral Agent in favor of the Banks pursuant to this Agreement, the Financing Documents, or any other Loan Document;
(b) Liens incurred and arising out of surety bonds, appeal bonds, statutory obligations, bids, performance and return of money and similar obligations and pledges or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance, old age pensions and other social security benefits;
(c) Liens imposed by law, including carriers', warehousemen's, mechanics', materialmen's and vendors' Liens incurred in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings and as to which it shall have set aside adequate reserves in accordance with GAAP;
(d) Liens securing the payment of Taxes, assessments and governmental charges or levies, either not yet delinquent or being contested in good faith by appropriate legal or administrative proceedings and as to which it shall have set aside adequate reserves in accordance with GAAP;
(e) zoning restrictions, easements, licenses, reservations, provisions, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title which do not in the aggregate impair the use of any parcel of property material to the operation of the business of Holdings or any Subsidiary or the value of such property for the purpose of the business of Holdings or any Subsidiary (it being understood that the existing conditions set forth on Schedule 4.10(a) constitute Permitted Liens hereunder);
(f) Liens constituting purchase money security interests permitted by Section 7.1(f) hereof;
(g) Liens described on Schedule 7.2 attached hereto;
(h) Liens on the capital stock of Harborlite arising under the New Harborlite Corporation Shareholders Agreement dated November 13, 1992, among Robert W. Blunt, David W. Blunt, William G. Blunt, Dorothy L. Blunt Residential Trust U/T/A dated April 13, 1990, Susan B. Blunt, Harborlite and the Borrower;
(i) extensions and renewals of Liens permitted hereunder; provided, however, that the Indebtedness secured thereby is not increased and the Lien does not encumber any property not encumbered by the Lien so extended or renewed; and
(j) Liens on assets acquired in an Acquisition permitted under Section 7.7.
Notwithstanding anything herein to the contrary, neither the Borrower nor any Guarantor shall create, incur, assume, or suffer or permit to exist any Lien on the capital stock of any Subsidiary, or any part thereof or interest therein, except Liens granted pursuant to the Financing Documents.
SECTION 7.3. Restricted Payments. Declare or pay any dividends (other than dividends payable solely in shares of its capital stock) or make any other distribution to any security holder, whether in cash, property, securities or a combination thereof, or directly or indirectly redeem, repurchase, retire or otherwise acquire for a consideration, any shares of any class of its respective capital stock or other ownership interest or set apart any sum for the aforesaid purposes (any such dividend, distribution, redemption, purchase, retirement or acquisition being referred to herein as a "Restricted Payment") except as follows:
(a) (i) Each Subsidiary shall be authorized to distribute to Celite, the Borrower or Holdings and Holdings shall be authorized to distribute to Alleghany such funds as shall be required to pay the obligations of such Person for reasonable federal, state, local and foreign income tax purposes in accordance with the Tax Sharing Agreement dated as of January 1, 1994, between Alleghany and Holdings and (ii) each Subsidiary shall be authorized to make dividends or distributions from time to time to Celite, the Borrower or Holdings; and
(b) The Borrower and Harborlite shall be permitted to redeem or repurchase the preferred stock and earn out units issued to the former stockholders of Old Harborlite provided that such redemption or repurchase does not involve aggregate consideration in excess of $25 million.
Any Restricted Payment permitted pursuant to this Section 7.3 may be made in the form of a dividend or distribution as the Person making such Restricted Payment shall determine. The making of any loan to an Affiliate, or the repayment of any Indebtedness to an Affiliate shall be a Restricted Payment for the purposes hereof.
SECTION 7.4. Investments. Purchase, directly or beneficially, any stock, other securities or evidences of Indebtedness of, or make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in any other Person, including any Excluded Subsidiary (any such transaction, an "Investment") other than Permitted Investments and Investments (a) by Holdings in the Borrower, (b) by the Borrower in Celite, (c) by Holdings, the Borrower or Celite in any other Subsidiary provided such Investment is in the form of equity or subordinated debt, and, if such Subsidiary is a newly-formed Subsidiary and is material to Holdings and the Subsidiaries viewed on a consolidated basis, the stock of such Subsidiary is first pledged to the Collateral Agent for the benefit of the Banks in a manner acceptable to the Collateral Agent and counsel to the Banks (which pledge shall be for 100% of such stock if the new Subsidiary is a Domestic Subsidiary owned directly by Holdings, the Borrower or Celite and 65% of such stock if the new Subsidiary is a Foreign Subsidiary owned directly by Holdings, the Borrower or Celite), (d) as permitted in accordance with Section 7.7 hereof, (e) by Holdings, the Borrower or Celite in any other Subsidiary resulting from the delivery of goods or the provision of services in the ordinary course of business and (f) by any Subsidiary (other than the Borrower or Celite) in any other Subsidiary; provided, however, that in no event shall any Investment be made if any Default or Event of Default shall have occurred and be continuing.
SECTION 7.5. Nature of Business. (a) Effect any material change in its business or create any new business or subsidiary (including any Excluded Subsidiary) which does not involve filtration, fillers, diatomite, perlite and/or other industrial minerals, and related materials and services.
(b) Engage or invest in any business relating to the recycling of spent filter cake at locations other than Celite's existing facilities without (i) providing an environmental assessment, in form and substance satisfactory to the Majority Banks, of such proposed activity and (ii) receiving written acknowledgement from the Majority Banks of their receipt and satisfaction with such report.
(c) Engage in any business involving the disposal in landfills or other means of permanent storage of spent filter cake without (i) providing an environmental assessment, in form and substance satisfactory to the Majority Banks, of such proposed disposal activities and (ii) receiving written acknowledgment from the Majority Banks of their receipt and satisfaction with such report.
SECTION 7.6. Asset Sales. Make any Asset Sale, unless (a) such Asset Sale is for consideration reasonably believed to be at least equal to the Fair Value of the assets being sold and the Borrower complies with the provisions of Section 2.8 in respect of Mandatory Prepayments or (b) the Borrower obtains the written consent of the Majority Banks.
SECTION 7.7. Acquisitions. Acquire all or a substantial part of the assets or stock of any other Person (an "Acquisition"), unless:
(a) no Default or Event of Default (i) has occurred and is continuing or (ii) will occur after giving effect to such Acquisition;
(b) if the Acquisition involves aggregate consideration exceeding $25 million, the Majority Banks give prior written approval to make such Acquisition;
(c) no Third Party Financing is used to effect such Acquisition;
(d) Holdings shall use its best efforts provide to the Banks at least 15 days prior to the consummation of such Acquisition (i) an income statement covering the twelve month period ending on the last day of the most recently completed fiscal quarter for which financials were last provided with pro forma adjustments to reflect the consummation, on the first day of such period, of such Acquisition (including the incurrence of any related Loans under this Agreement) and (ii) a balance sheet as of the last day of the most recently completed fiscal quarter
for which financials were last provided, with pro forma adjustments to reflect the consummation of such Acquisition (including the incurrence of any related Loans under this Agreement);
(e) the pro forma financial statements provided pursuant to subsection (e) above shall show that the financial covenants set forth in Sections 7.11, 7.12 and 7.13 shall have been satisfied on such pro forma basis; and
(f) the Borrower shall have taken all steps necessary to pledge as security for the Facility any capital stock acquired in any Acquisition in a form satisfactory to the Collateral Agent;
provided, however, that Holdings or any Subsidiary may effect an Acquisition
using Third Party Financing if (i) no Default or Event of Default (A) has
occurred and is continuing or (B) will occur as a result of such Acquisition,
(ii) 50% of the aggregate consideration involved in such acquisition is provided
as an equity contribution; (iii) the Borrower shall have (A) notified the Banks
of all material terms of such proposed Acquisition, given the Banks reasonable
time to prepare bids on providing such additional debt financing and (C)
considered in good faith the terms of a Bank's bid, if any, (iv) the Borrower
shall have created a special purpose subsidiary (an "Excluded Subsidiary") to
effect such Acquisition and recourse under such Third Party Financing shall be
limited to the assets or capital stock of such Excluded Subsidiary, (v) no
Guaranty or other commitment with respect to such Excluded Subsidiary shall be
entered into by Holdings, the Borrower or any Subsidiary, and (vi) if required
under Section 7.4, the Administrative Agent, on behalf of the Banks, shall have
received documentation in form and substance acceptable to the Collateral Agent,
to pledge as security for the Facility the capital stock of such Excluded
Subsidiary, provided, however, that (x) in the case of an Excluded Subsidiary
organized in a jurisdiction other than in the United States, the Borrower shall
pledge to the Collateral Agent, for the benefit of the Banks, an amount equal to
65% of the outstanding capital stock of such Excluded Subsidiary and (y) any
pledge under this Section 7.7 may be subordinate to such Third Party Financing.
Any Acquisition permitted under this Section 7.7 is herein referred to as a "Permitted Acquisition."
SECTION 7.8. Transactions With Affiliates. (a) Except as permitted by Section 7.4, enter into any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate (including an Excluded Subsidiary but excluding Holdings or any of its Subsidiaries), except (i) in the ordinary course of business and upon terms which are not less favorable and reasonable than those obtainable in an arm's-length transaction with a Person who is
not an Affiliate or (ii) any management agreement, entered into in the ordinary course of the Borrower's business, pursuant to which the Borrower provides reasonable management services to any Affiliate in which Holdings or one of its Subsidiaries owns a material amount of capital stock.
(b) Enter into any transaction providing for the purchase, sale, lease or exchange of any property or the rendering of any service involving Holdings, Celite or the Borrower, on the one hand, and any other Subsidiary on the other hand, except in the ordinary course of business and upon terms which are not less favorable to Holdings, the Borrower or Celite than those obtainable in an arm's-length transaction with a Person who is not an Affiliate of Holdings.
SECTION 7.9. Sale and Leaseback Transactions. Enter into any Sale and Leaseback Transaction.
SECTION 7.10. Merger or Consolidation. Merge into or consolidate or combine with any other Person; provided, however, that this provision shall not prohibit the merger or consolidation of a wholly owned Subsidiary (other than Celite or the Borrower) with or into the Borrower, Celite or another wholly owned Subsidiary which is not an Excluded Subsidiary or as otherwise permitted in accordance with Section 7.7 hereof if (i) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing and (ii) the Borrower shall deliver a certificate of a Financial Officer and an opinion of counsel satisfactory in form and substance to the Banks to the effect that such transaction complies with clause (i) above.
SECTION 7.11. Interest Coverage. Permit the ratio of (a) EBITDA for any Fiscal Year less actual Capital Expenditures for such Fiscal Year to (b) Interest Expense for such Fiscal Year to be less than 2.25x.
SECTION 7.12. Debt to Worth. Permit the ratio of Total Indebtedness to Total Capitalization to exceed at any time the following percentages at any time during the periods set forth below:
Period Ratio
------ -----
On or prior to
December 31, 1996 46%
After December 31, 1996 42%
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SECTION 7.13. Net Worth. Permit Net Worth to be less than (a)
at any time prior to December 31, 1996, the sum of (i) $80,000,000 plus (ii) 50%
of Cumulative Net Income to the last day of the fiscal quarter then ended and
(b) at any time after
December 31, 1996, the sum of (i) $90,000,000 plus (ii) 50% of Cumulative Net Income to the last day of the fiscal quarter then ended.
SECTION 7.14. Fiscal Year. Effect any change in the Fiscal Year without obtaining the prior written approval of the Banks and making any necessary amendments to the provisions of this Agreement.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Defaults. In case of the happening of any of the following events (each, an "Event of Default"):
(a) the Borrower shall fail to make any payment on principal of any Loan when and as the same shall become due and payable including at the due date thereof, by acceleration or otherwise, including any Mandatory Prepayment required by Section 2.8; or
(b) the Borrower shall fail to pay any interest or Fee due hereunder or in connection herewith when and as the same shall become due and payable, whether at the due date thereof, by acceleration or otherwise, and such failure shall continue for more than two Business Days following the date such payment was due; or
(c) the Borrower shall fail to pay any Reimbursement Obligation when and as the same shall become due or payable; or
(d) default shall be made in the due observance or performance of any restrictive covenant or agreement contained in Article VII of this Agreement or any obligation of the Borrowers pursuant to Sections 6.1, 6.6, 6.7 or 6.12; or
(e) default shall be made in the due observance or performance of any other covenant or agreement to be observed or performed under this Agreement or in any other Loan Document, and such default shall continue unremedied for 30 days after written notice thereof to the Borrower by the Administrative Agent; or
(f) any representation or warranty contained in this Agreement or in any other Loan Document or in any report, certificate, financial statement or other instrument furnished pursuant to this Agreement shall prove to have been false or misleading in any material respect when made or furnished; or
(g) Holdings or any Material Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code or any other federal, state or foreign
bankruptcy, insolvency or similar law, (ii) consent to the institution of, or
fail to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator or similar official for any such
Person or for any substantial part of its property or assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors,
(vi) fail generally to pay its debts as they become due or (vii) take any
corporate or stockholder action in furtherance of any of the foregoing; or
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of Holdings or any Material Subsidiary or of any substantial part of the property or assets thereof, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for any such Person or for any substantial part of its property or (iii) the winding-up or liquidation of any such Person, and such proceeding, petition or order shall continue unstayed and in effect for a period of 60 consecutive days; or
(i) a final judgment for the payment of money in an amount in excess of $5,000,000 shall be rendered by a court or other tribunal against Holdings or any Subsidiary and shall remain undischarged for a period of 60 consecutive days during which execution of any such judgment shall not have been effectively stayed, bonded or vacated; or
(j) any event shall occur or fail to occur if the effect of such occurrence or failure is to accelerate the maturity of Indebtedness for borrowed money aggregating $2,500,000 of Holdings or any Subsidiary (other than any Loan or Letter of Credit Exposure hereunder) or to permit the holder thereof (or a trustee on behalf of such holder) to cause such Indebtedness to become due prior to the stated maturity thereof and such occurrence or failure shall not have been remedied within any applicable period of grace, or any such Indebtedness shall not be paid when due, whether by acceleration or otherwise; or
(k) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) Holdings or any Subsidiary or any ERISA Affiliate thereof shall, or is, in the reasonable opinion of the Majority Banks, likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, has any reasonable likelihood of subjecting Holdings or any Subsidiary to any tax, penalty or other liabilities which, if the then present value thereof (estimated in good faith by such Person) were deducted from the then total assets of such Person, could reasonably be determined to have a Material Adverse Effect; or
(l) any of the other Loan Documents shall cease to be in full force and effect, enforceable in accordance with its terms or any security interest purported to be created by the Financing Documents shall cease to be a valid and perfected first priority security interest or first priority Lien, as applicable, subject to any Permitted Liens or Holdings, Celite or any Borrower shall assert the invalidity of any such security interest or Lien; or
(m) any event of default shall have occurred and shall be continuing under any other Loan Document; or
(n) any Expropriatory Action shall have been taken by any Person against assets or capital stock of Holdings or any Subsidiary having a Fair Value in excess of $5,000,000; provided, however, that the Borrower will be permitted to cure such default within 30 days of the occurrence thereof, by making a payment with respect to then outstanding Loans to the Administrative Agent, on behalf of the Banks, in an amount equal to the Fair Value of the assets subject to such Expropriatory Action (which repayment shall be treated as a Mandatory Prepayment in accordance with Section 2.8 to prepay Term Loans outstanding hereunder); or
(o) Holdings shall cease to be the record and beneficial owner of all of the outstanding shares of the capital stock of the Borrower or the Borrower shall cease to be the record and beneficial owner of all of the outstanding shares of the capital stock of Celite; or
(p) Holdings shall cease to own beneficially, directly or indirectly, all of the outstanding capital stock of each other Subsidiary; provided, however, that management or employees of Holdings or the Subsidiaries shall be permitted to hold the minimum number of shares of any Subsidiary, not to exceed 1% of its shares, which under Applicable Law must be held by more than one shareholder, or by directors, of such Subsidiary; or
(q) Alleghany shall cease to own of record and beneficially 80% of the outstanding capital stock of Holdings; provided, however, that Alleghany may sell outstanding capital stock of Holdings if (i) such sale of stock is for cash consideration at least equal to the Fair Value of the stock being sold, (ii) the proceeds of such sale are contributed to Holdings as a Parent Contribution and designated to (A) fund Capital Expenditures, (B) fund Permitted Acquisitions in accordance with Section 7.7 hereof or (C) prepay Loans outstanding hereunder in accordance with Section 2.9 hereof and (iii) after giving effect to such sale Alleghany owns of record and beneficially at least 60% of the outstanding capital stock of Holdings;
then, and in any such event (other than an event described in paragraph (g) or
(h) above), and at any time thereafter during the continuance of such event, the
Administrative Agent shall, upon the written request of the Majority Banks, by
written or telegraphic notice to the Borrower, take any of the following actions
at the same or different times: (iv) terminate forthwith the Revolving Credit
Commitment of the Banks under the Facility, (v) declare any Notes then
outstanding to be forthwith due and payable, whereupon the entire unpaid
principal of such Notes, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of Holdings and the Borrower accrued
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Borrower, anything contained herein or in any Note to the contrary
notwithstanding, and (vi) refuse to issue any additional Letters of Credit and
demand that the Borrowers provide to the Collateral Agent cash collateral in an
amount equal to the Letter of Credit Exposure, such collateral to be deposited
in the Cash Collateral Account to be held by the Collateral Agent for the
benefit of the Banks; and in any event described in paragraph (g) or (h) above,
the Revolving Credit Commitment of the Banks under the Facility shall
automatically terminate (together with all obligations to issue Letters of
Credit) and any Notes shall automatically become due and payable and the
Borrower shall be obligated to provide cash collateral to the Administrative
Agent as described in clause (iii), all without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the Parent
and Borrower, anything contained herein or in any Note to the contrary
notwithstanding.
ARTICLE IX
THE ADMINISTRATIVE AGENT AND CO-AGENTS
In order to expedite the various transactions contemplated by this Agreement, Chemical is hereby appointed to act as Administrative Agent, Collateral Agent and Co-Agent and Bank of America is hereby appointed to act as Co-Agent. Each Bank hereby irrevocably authorizes and directs the Administrative Agent and the Collateral Agent, respectively, to take such action on behalf of such Bank under the terms and provisions of this Agreement and the Loan Documents and to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent and the Collateral Agent, respectively, by the terms and provisions hereof and thereof, together with such powers as are reasonably incidental thereto. Nothing in this Agreement shall be construed as imposing any duty or obligation on any Co-Agent in its capacity as Co-Agent.
The Administrative Agent is hereby expressly authorized on behalf of the Banks, without hereby limiting any implied authority, (a) to receive on behalf of each Bank any payment of principal of or interest on the Notes outstanding hereunder and all other amounts accrued hereunder paid to the Administrative Agent, and promptly to distribute to each Bank its proper share of all payments so received, (b) to give notice within a reasonable time on behalf of each of the Banks to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge, and (c) to distribute promptly to each Bank copies of all notices, agreements and other material as provided for in this Agreement as received by the Administrative Agent.
The Collateral Agent is hereby expressly authorized on behalf of the Banks, without hereby limiting any implied authority, (a) to receive and hold on behalf of the Banks any instrument or certificate which constitutes Collateral, (b) to give notice within a reasonable time on behalf of each of the Banks to the Guarantor or the Borrowers of any event of default specified in any Collateral Agreement of which the Collateral Agent has actual knowledge and (c) to take any and all action on behalf of the Banks permitted under the terms of any Collateral Agreement. The Collateral Agent may, in its discretion and without the consent of the Banks, appoint sub-agents to act as the Collateral Agent in any jurisdiction or with respect to any Collateral.
Neither the Administrative Agent, the Collateral Agent, the Co-Agents, nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them hereunder except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of
any document delivered in connection herewith or be required to ascertain or to make any inquiry concerning the performance or observance by Holdings or any Borrower of any of the terms, conditions, covenants or agreements of this Agreement or any other Loan Document. The Administrative Agent, the Collateral Agent and the Co-Agents shall not be responsible to the Banks for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement, the Financing Documents, the Notes or any other instrument or agreement to which reference is made herein. The Administrative Agent, the Collateral Agent and the Co-Agents may deem and treat the payee of any Note as the owner thereof for all purposes hereof until it shall have received from the payee of such Note notice, given as provided herein, of the transfer thereof. The Administrative Agent, the Collateral Agent and the Co-Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Majority Banks, and, except as otherwise specifically provided herein, such instructions and any action taken or failure to act pursuant thereto shall be binding on all the Banks. Each of the Administrative Agent, the Collateral Agent and the Co-Agents shall, in the absence of knowledge to the contrary, be entitled to rely on any paper or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper Person or Persons. None of the Administrative Agent, the Collateral Agent, the Co-Agents, the Banks or any of their respective directors, officers, employees or agents shall have any responsibility to Holdings, any Borrower, or any other Person on account of the failure or delay in performance or breach by any other Bank of any of its obligations hereunder or to any other Bank on account of the failure of or delay in performance or breach by such other Bank, Holdings, or such Borrower, or any other Person of any of their respective obligations hereunder or in connection herewith. The Administrative Agent, the Collateral Agent and the Co-Agents may execute any and all their respective duties hereunder by or through agents or employees and shall be entitled to advice of legal counsel selected by the Administrative Agent with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel.
Each of the Administrative Agent, the Collateral Agent, the Co-Agents and their respective Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower and its Affiliates as if it were not the Administrative Agent, the Collateral Agent, a Co-Agent, or such an Affiliate.
Each Bank agrees (i) to reimburse each of the Administrative Agent, the Collateral Agent and the Co-Agents in the amount of such Bank's Pro Rata Share of any expenses incurred for the benefit of the Banks by such Administrative Agent,
Collateral Agent or Co-Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Banks, not reimbursed by the Borrower or the Guarantors and (ii) to indemnify and hold harmless the Administrative Agent, the Collateral Agent, the Co-Agents and any of their respective directors, officers, employees or agents, on demand, in the amount of such Bank's Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in such capacity or in any way relating to or arising out of this Agreement, any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent not reimbursed by the Borrower or the Guarantors; provided, however, that no Bank shall be liable to the Administrative Agent, the Collateral Agent or any Co-Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent, the Collateral Agent or such Co-Agent, as the case may be, or of any of the directors, officers, employees or agents of such Person.
Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent, the Collateral Agent, any Co-Agent or any other Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents and to make Loans as contemplated hereby. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Collateral Agent, any Co-Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder.
ARTICLE X
HOLDINGS GUARANTY
SECTION 10.1. Holdings Guaranty. Holdings hereby absolutely, unconditionally and irrevocably guarantees to the Banks and their successors and assigns, as primary obligor and not merely as surety, the full and punctual payment and performance of all Obligations of the Borrower to the Banks, when and as due, whether at maturity, by acceleration, or upon a date fixed for prepayment or mandatory prepayment (the "Holdings Guaranty"). The liability of Holdings hereunder is as a guarantor of payment and performance, and not merely of collectability, and is not conditioned or contingent upon the
enforceability of the Loan Documents or any other instruments relating to the
creation or performance of the Obligations or the pursuit by the Co-Agents or
the Banks of any remedies which they now have or may hereafter have under any
Loan Document, at law, in equity or otherwise. Neither the Administrative Agent,
Collateral Agent, Co-Agents nor the Banks need inquire into the power of the
Borrower or the authority its officers or agents acting or purporting to act on
its behalf. Nothing contained in this Article X shall prevent the Administrative
Agent, Collateral Agent, Co-Agents or the Banks from suing on the Notes or from
exercising any rights available to them hereunder, under any of the Loan
Documents or under applicable law, and the exercise of any of such rights shall
not constitute a legal or equitable discharge of Holdings. Holdings shall
continue to be liable under this Guaranty and the provisions hereof shall remain
in full force and effect notwithstanding the occurrence of any or all of the
following, none of which shall require notice to Holdings: (a) any modification,
agreement, stipulation or course of dealing between the Borrower and any
Co-Agent, any Bank, the Collateral Agent or the Administrative Agent with
respect to the Obligations or any other matter relating to the Loan Documents,
including, without limitation, any alteration, compromise, acceleration,
extension or change in the time or manner for the payment or performance of any
Obligations, any increase or reduction in the rate of interest charged on funds
borrowed pursuant to the Loan Documents; (b) any waiver of or failure to enforce
any of the terms, covenants or conditions contained in the Loan Documents; (c)
any waiver of any right or remedy against the Borrower or against any other
Person, including, without limitation, any other guarantor, with respect to all
or any portion of the Borrower's or such other Person's liability for or with
respect to the Obligations; (d) the addition or substitution of one or more
guarantors of any or all of the Borrower's Obligations under the Loan Documents;
(e) the subordination of any rights with respect to any security given for the
Borrower's Obligations or the acceptance of any additional or substituted
security therefor; or (f) the foreclosure of any Lien with respect to any or all
of the real or personal property now or hereafter securing any of the
Obligations, whether by exercise of a power of sale contained therein, by an
action for judicial foreclosure or by acceptance of a deed in lieu of
foreclosure. As security for the performance of its obligation under this
Article X, Holdings shall execute and deliver to the Collateral Agent on behalf
of the Banks the Holdings Security Agreement and the Holdings Pledge Agreement.
SECTION 10.2. Guarantor's Waivers. Holdings hereby irrevocably waives and relinquishes, and agrees not to assert or take advantage of, to the maximum extent permitted by law in each jurisdiction in which the enforcement of such waiver is sought, any and all rights, remedies and defenses accorded by Applicable Law to guarantors or sureties. In addition to, not in limitation of the immediately preceding sentence, Holdings hereby expressly
waives and relinquishes, and agrees not to assert or take advantage of, to the maximum extent permitted by law in each jurisdiction in which the enforcement of such waiver is sought, the following rights, remedies and defenses: (a) notice of acceptance of this Guaranty; (b) notice of the existence, creation, incurrence, renewal, extension, modification or accrual of any Obligations of the Borrower to the Co-Agents, Administrative Agent, Collateral Agent or the Banks; (c) notice of any action on the part of the Borrower, the Co-Agents, Administrative Agent, Collateral Agent, the Banks or any creditor of the Borrower or Holding, or on the part of any other Person whomsoever relating to the Obligations or the Loan Documents, including, without limitation, notice of enforcement of any right or remedy with respect thereto, except as otherwise expressly set forth herein; (d) any statute of limitations affecting Holding's liability hereunder or the enforcement thereof; (e) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any Person or the failure of the Co-Agents, the Collateral Agent, the Administrative Agent or the Banks to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any Person; (f) the right to require the Co-Agents, the Collateral Agent, the Administrative Agent or the Banks to proceed against the Borrower or any other Person (including, without limitation, any other guarantor), or to proceed against or exhaust any security or collateral held by the Collateral Agent or the Banks at any time, or to enforce any other right or pursue any other remedy, and Holdings expressly agrees that the Co-Agents, the Collateral Agent, the Administrative Agent or the Banks may enforce this Guaranty without the necessity of resorting to or exhausting any security or collateral and without the necessity of proceeding against the Borrower or any other Person; (g) any defense based upon an election of remedies by the Co-Agents, the Collateral Agent, the Administrative Agent or the Banks; (h) any other defense based upon destruction or diminution of Holding's rights against the Borrower or the Borrower's assets, whether or not hypothecated as security; and (i) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal. Holding's sole right with respect to any foreclosure of real or personal property collateral or security for any of the Obligations shall be to bid at the sale thereof in accordance with applicable law. The Banks may also bid at any such sale, and in the event such collateral is sold to any Banks in whole or in partial satisfaction of the Obligations, Holdings shall have no further right or interest with respect thereto, including, without limitation, any right of redemption, whether arising under law or in equity.
SECTION 10.3. Bankruptcy. (a) No Effect on Guaranty. The obligations of Holdings under this Guaranty shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation, or arrangement of the Borrower, or by any defense or decision of any court or administrative body resulting from any such proceeding. Any interest on the Obligations which accrues after the commencement of any such proceeding (or, if interest on any portion of the Obligations ceases to accrue by operation of law by reason of the commencement of such proceeding, such interest as would have accrued on any such portion of the Obligations if such proceeding had not been commenced) shall be included in the Obligations for the purposes hereof, Holdings expressly agreeing that its liability pursuant to this Guaranty shall be determined without regard to any rule of law or order arising out of such proceeding which may relieve the Borrower of liability for any portion of the Obligations. Holdings will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors, or similar Person, to pay the Banks, or to allow the claim of the Banks with respect to, any such interest accruing after the date on which such proceeding is commenced. In the event that all or any portion of the Obligations are paid or performed by the Borrower, the obligations of Holdings hereunder shall continue and remain in full force and effect in the event that all or any part of such payment or performance is avoided or recovered directly or indirectly from the Banks as a preference, fraudulent transfer or otherwise.
(b) Filing of Claims. In any bankruptcy or other proceeding involving the Borrower in which the filing of claims is required or permitted by law, Holdings shall file all claims that it may have against the Borrower relating to any Indebtedness of the Borrower to Holdings, and will assign to the Collateral Agent on behalf of the Banks all rights of Holdings thereunder. If Holdings does not file any such claim, the Collateral Agent, as attorney-in-fact for Holdings, is hereby authorized to do so in the name of Holdings, or, in the Collateral Agent's discretion, to assign the claim to a nominee and to cause a proof of claim to be filed in the name of the Collateral Agent's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. The Collateral Agent or its nominee shall have the sole right to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In any such case, whether in administration, bankruptcy or otherwise, the Person authorized to pay such claim shall pay to the Collateral Agent, on behalf of the Banks, the amount payable on such claim and, to the full extent necessary for that purpose, Holdings hereby assigns to the Collateral Agent, on behalf of the Banks, all of Holding's rights to any such payments or distributions to which Holdings would otherwise be entitled; provided, however, that Holding's obligations hereunder shall not be satisfied except to the extent that the Collateral Agent receives cash by reason of any such payment or distribution. If the Collateral Agent receives anything hereunder other than cash,
the same shall be held as additional collateral for amounts due under this Guaranty.
SECTION 10.4. Payment. In furtherance of the provisions of this Article and not in limitation of any other right which the Administrative Agent, the Collateral Agent, any Co-Agent or any Bank may have at law or in equity against Holdings by virtue of this Guaranty or otherwise, upon the failure of the Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, upon a date fixed for prepayment or mandatory prepayment or otherwise, Holdings hereby promises to, and will, upon receipt of a written or telexed demand by the Administrative Agent, forthwith pay, or cause to be paid, to the Collateral Agent for distribution to the Banks, in cash, the amount of such unpaid Obligation.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, demands and requests of any kind to be delivered to any party hereto in connection with this Agreement shall be deemed to have been duly given and received if delivered personally or if sent by nationally-recognized overnight courier, by telecopier or by first class, registered or certified mail, return receipt requested, to such party at its address as follows:
(a) if to the Borrower, to:
World Minerals Inc.
137 West Central Avenue
Lompoc, California 93436
Attention: Mr. John F. Liechty,
Vice President, Finance
Telephone: (805) 737-2424
Telecopier: (805) 737-2497
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with a copy to:
World Minerals Inc.
137 West Central Avenue
Lompoc, California 93436
Attention: Marc E. Fleischman, Esq.
Vice President and
General Counsel
Telephone: (805) 737-2470
Telecopier: (805) 737-2497
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(b) if to Chemical, as Administrative Agent and Co-Agent, to:
Chemical Bank
270 Park Avenue
New York, New York 10172
Attention: Theodore L. Parker,
Vice President
Telephone: (212) 270-7834
Telecopier: (212) 270-2555
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(c) if to Bank of America, as Co-Agent, or any other Bank, at its address set forth on Annex II attached hereto.
Any such notice, demand or request so delivered shall be deemed to have been received (i) on the day of actual delivery in the case of personal delivery or telecopier delivery, (ii) on the next business day after the date when sent in the case of delivery by nationally-recognized overnight courier, or (iii) on the fifth business day after the date of deposit in the U.S. mail in the case of mailing. Any party hereto may from time to time by notice in writing served upon the other as aforesaid designate a different mailing address or a different person to which all such notices, demands or requests thereafter are to be addressed.
SECTION 11.2. Survival of Agreement. All representations and warranties made by the Borrower or any Guarantor herein and in the other Loan Documents and in any certificate or other instrument prepared or delivered pursuant to this Agreement or any other Loan Document (i) shall be considered to have been relied upon by the Administrative Agent, the Co-Agent and the Banks and (ii) shall survive the making of Loans by the Banks and the execution and delivery to the Banks of the Notes evidencing such Loans and all covenants and agreements made by the Borrower or any Guarantor herein or in any other Loan Document and continue in full force and effect as long as any principal of or accrued interest on any Loan, any Fee, any Reimbursement Obligation, any LC Fee or any other amount payable under or in connection with this Agreement or any other Loan Document is outstanding and unpaid.
SECTION 11.3. Successors and Assigns; Syndications; Loan Sales; Participations. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower, any Guarantor the Administrative Agent, the Collateral Agent, the Co-Agents or the Banks that are contained in this Agreement or any other Loan Document shall bind and inure to the benefit of their respective successors and assigns. In connection with any syndication, the Borrower agrees to assist the Co-Agents actively in their syndication efforts by providing
to the Co-Agents and any potential participants direct contact with senior management and representatives of Holdings and its Subsidiaries and all information reasonably requested by the CoAgents and such participants, including financial forecasts in a format acceptable to a bank syndication.
(b) Each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Aggregate Commitment, the Loans at the time owing to it and Notes held by it and its rights, titles and interests under the other Loan Documents); provided, however, that (i) except in the case of an assignment to a Bank or an Affiliate of a Bank, the written consent of the Borrower to such assignment shall have been given (which consent shall not be unreasonably withheld), (ii) such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement (other than any rights or obligations relating to the Letters of Credit), (iii) except in the case of an assignment to a Bank or an Affiliate of a Bank, the Pro Rata Share of the Aggregate Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 and the Pro Rata Share of the Aggregate Commitment of such Bank remaining after such assignment shall not be less than $5,000,000 or shall be zero, (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with the Notes subject to such assignment and a processing and recordation fee of $2,000, in addition, the assignee shall also execute and deliver to the Collateral Agent a counterpart to the Collateral Agent Agreement and (v) such assignment shall not result in any increased costs which must be paid by the Borrower. Upon acceptance and recording pursuant to paragraph (e) of this Section 11.3, from and after the effective date specified in each Assignment and Acceptance (which effective date shall be at least five Business Days after the execution thereof, unless the Administrative Agent shall otherwise agree) (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, become and have the rights and obligations of a Bank under this Agreement and (B) the assigning Bank thereunder shall, to the extent of the interest assigned pursuant to such assignment, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.13 and 3.4 as well as to any fees or other amounts accrued to its account but unpaid on such date.
(c) By executing and delivering an Assignment and Acceptance, the assigning Bank thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and the other
parties hereto as follows: (i) such assigning Bank warrants that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim and that its Pro Rata Share of the Aggregate Commitment and
the total outstanding balance of its Loans, in each case without giving effect
to assignments thereof which have not become effective, are as set forth in such
Assignment and Acceptance, (ii) except as set forth in clause (i) above, such
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Documents or any other instrument or document furnished pursuant hereto, or
to the financial condition of any Guarantor or the Borrower, or the performance
or observance by any Guarantor or the Borrower of any of its obligations under
this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, (iii) such assignee represents and warrants that it
is legally authorized to execute and deliver the Assignment and Acceptance, (iv)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant to
Section 6.11 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, any Co-Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Administrative Agent and the Collateral Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent and Collateral Agent, respectively, by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all the obligations which by the terms of this Agreement are required to
be performed by it as a Bank. Effective upon the assignment of an interest
hereunder, Annex I hereto shall be amended by the Administrative Agent to
reflect such assignment.
(d) The Administrative Agent shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks, and the commitments of, and principal amount of the Loans owing to, each Bank pursuant to the terms thereof from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error, and Holdings and the Borrower, the Administrative Agent, the Co-Agents and the Banks may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, the Co-Agents and any Bank, at any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Bank and a permitted assignee together with the Notes subject to such assignment, the processing and recordation fee referred to in paragraph (b) above and the written consent of the Borrower to such assignment if required pursuant to paragraph (b) above, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks, the Co-Agents and the Borrower. Within five Business Days after receipt of notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for the surrendered Notes, new Notes under the Facility to the order of such assignee in a principal amount equal to the principal amount of the Aggregate Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained any portion of a Aggregate Commitment, new Notes under the Facility to the order of such assigning Bank in a principal amount equal to the principal amount of Loans retained by it. Such new Notes shall be in the aggregate principal amount equal to the aggregate principal amount of such surrendered Notes; such new Notes shall be dated the date of the surrendered Notes which they replace and shall otherwise be in substantially the form of Exhibit G and Exhibit H, as applicable. Canceled Notes shall be returned to the applicable Borrower.
(f) Each Bank may without the consent of the Borrower
or any Guarantor or the Administrative Agent or CoAgents sell participations to
one or more banks or other entities in all or a portion of its rights and
obligations under this Agreement (including all or a portion of the Loans owing
to it and the Notes held by it); provided, however, that (i) such Bank's
obligations under this Agreement (including its Pro Rata Share of the Aggregate
Commitment) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost and yield protection provisions contained in Sections 2.11, 2.13,
2.18 and 3.4 to the same extent that the Bank from which such participating bank
or other entity acquired its participation would be entitled to the benefit of
such cost protection provisions (but shall not, in the aggregate, be entitled to
receive payments under such Sections in amounts in excess of the payments which
would have been made to the selling Bank had such participations not been sold)
and (iv) the Borrowers, the Administrative Agent, the Co-Agents and the other
Banks shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the obligations of Holdings or the Borrower relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers with respect to reducing any Fees payable hereunder or reduce the amount of principal of or decrease the rate at which interest is payable on the Loans, or the dates fixed for payments of principal of or interest on the Loans and changing or extending the Aggregate Commitment).
(g) Any Bank or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 11.3, disclose to the assignee or participant or proposed assignee or participant any information relating to Holdings and any Subsidiary furnished to such Bank by or on behalf of Holdings and such Subsidiary; provided, however, that, prior to any such disclosure of information designated by Holdings or any Subsidiary as confidential, each such assignee or participant or proposed assignee or proposed participant shall execute an agreement whereby such Person shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information and to use such information solely for purposes related to this Agreement.
(h) Any Bank may at any time assign all or any portion of its rights under this Agreement and the Notes issued to such Bank hereunder to a Federal Reserve Bank; provided, however, that no such assignment shall release a Bank from any of its obligations hereunder.
(i) Neither the Borrower nor any Guarantor shall assign or delegate any of its rights or duties hereunder without the prior written consent of all of the Banks.
SECTION 11.4. Expenses of the Co-Agents and the Banks. The Borrower agrees to pay all out-of-pocket expenses reasonably incurred by the Administrative Agent associated with the arrangement of the credit facilities hereunder (including printing, duplicating, mailing, advertising and similar expenses), the preparation, execution and delivery of this Agreement and the other Loan Documents (whether or not the transactions hereby contemplated shall be consummated) or reasonably incurred by the Administrative Agent, any Co-Agent or any Bank in connection with the enforcement or protection of its rights under this Agreement, any other Loan Document or the Loans made and Letters of Credit issued hereunder, including, but not limited to, the fees and disbursements of O'Sullivan Graev & Karabell, LLP, special counsel for the Administrative Agent, the Co-Agents and the Banks, and in connection with such enforcement or protection, the reasonable fees and disbursements of other counsel (including in-house counsel) for the Banks. All amounts
due under this Section 11.4 shall be payable on demand of any Bank therefor.
SECTION 11.5. Indemnification. (a) General. The Borrower hereby agrees to indemnify and hold harmless the Administrative Agent, the Co-Agents, the Banks and each of their respective officers, directors, employees, counsel and agents (each, an "Indemnified Person") from and against any and all losses, claims, damages and liabilities to which any Indemnified Person may become subject (excluding any losses, claims, damages and liabilities arising from gross negligence, willful misconduct, fraud or breach of fiduciary duty owed to third parties on the part of such Indemnified Person or arising from any assertion, putative or otherwise, as to the legal capacity or authority of any Indemnified Person to execute and deliver this Agreement or in respect of any law governing the corporate powers of any Indemnified Person to perform its obligations hereunder) arising out of this Agreement, any other Loan Document, the Facility or any Loans, Letters of Credit or other financial accommodations thereunder, the use of the proceeds of any such Loans, Letters of Credit or financial accommodations, the breach of any representation or covenant contained herein or in any other Loan Document, any act or omission by the Administrative Agent or the Co-Agents in connection herewith or with any of the foregoing (including any claim asserted in any litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnified Person is a party thereto), and to reimburse each Indemnified Person, upon written demand, for all legal and other expenses incurred in connection with investigating or defending any of the foregoing. The foregoing indemnity obligation shall not, as to any Indemnified Person, apply to any loss, claim, damage or liability (i) incurred by any Indemnified Person against any other Indemnified Person hereunder, (ii) arising from the breach by any Indemnified Person of any of its obligations to Holdings or the Borrower hereunder or (iii) arising out of any commitment made by any Indemnified Person which would be breached by performance of such Indemnified Person's obligations hereunder. Each Indemnified Person will provide prompt written notice to the Borrower of its assertion of any claim or the commencement of any legal action or proceeding against such Indemnified Person related to the Facility or the transactions contemplated hereby.
(b) Environmental Indemnity. The Borrower hereby agrees to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable fees and expenses of counsel and the allocated cost of internal counsel), which may be incurred by or asserted against an Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim
arising out of or related to any property subject to a Mortgage in favor of the Collateral Agent or any Bank. No action taken by legal counsel chosen by the Collateral Agent or any Bank in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall vitiate or any way impair the Borrower's obligation and duties hereunder to indemnify and hold harmless the Indemnified Persons. In no event shall site visit, observation, or testing by the Collateral Agent or any Bank be a representation that Hazardous Materials are or are not present in, on, or under the site, or that there has been or shall be compliance with any law, regulation, or ordinance pertaining to Hazardous Materials or any other Applicable Law. Neither the Borrower nor any Guarantor nor any other party is entitled to rely on any site visit, observation, or testing by the Collateral Agent or any Bank. Except as may be required by Applicable Law, neither the Collateral Agent nor any Bank owes any duty of care to protect Holdings or any Subsidiary or any other party against, or to inform Holdings or any Subsidiary or any other party of, any Hazardous Materials or any other adverse condition affecting any site or property. Except as may be required by Applicable Law, neither the Collateral Agent nor any Bank shall be obligated to disclose to Holdings or any Subsidiary or any other party any report or findings made as a result of, or in connection with, any site visit, observation, or testing by the Collateral Agent or any Bank.
(c) The provisions of this Section 11.5 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, the Co-Agents or any Bank. All amounts due under this Section 11.5 shall be payable on written demand therefor.
SECTION 11.6. Governing Law. (a) This Agreement and the Notes shall be construed in accordance with and governed by the laws of the State of New York.
(b) For all purposes of this Agreement or any other Loan Document, and for all purposes of any suit or proceeding arising out of or relating to the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment, the Borrower, each Guarantor, Chemical, Bank of America and each Bank hereby submits to the personal jurisdiction of the courts of the State of New York and the federal courts of the United States sitting in New York City, and any appellate court from any such state or federal court, and hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in
such New York court or, to the extent permitted by law, in such federal court. The Borrower, each Guarantor, Chemical, Bank of America and each Bank hereby agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Bank or the Borrower may otherwise have to bring any action or proceeding relating to this Agreement or any related matter against the Borrower or its properties in the case of the Banks, or against any Bank, Chemical or Bank of America, or their respective properties in the case of the Borrower, in the courts of any jurisdiction.
(c) The Borrower, each Guarantor, Chemical, Bank of America and each Bank hereby irrevocably and unconditionally waive, to the fullest extent it may legally and effectively do so, (i) any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any related matter in any New York State or federal court located in New York and (ii) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) The Borrower, Chemical, Bank of America and each Bank hereby irrevocably consent to service of process by registered United States mail, return receipt requested, as provided in Section 11.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 11.7. Waivers; Amendments. (a) No failure or delay of any Bank in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Banks hereunder are cumulative and not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. Each Bank shall be bound by any amendment, modification, waiver or consent authorized as provided herein, whether or not the Note issued to such Bank shall have been marked to indicate such amendment, modification, waiver or consent.
(b) No Loan Document nor any provision thereof, nor any provision of any Loan, may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Majority Banks; provided, however, that no such agreement shall (i) except for a waiver of a Mandatory Prepayment under Section 2.8, change the principal amount of, or extend or advance the maturity of or any date for the payment of any Note or any Fee or Reimbursement Obligation or waive or excuse any such payment or any part thereof, or change the rate of interest on any Note, without the written consent of each Bank affected thereby, (ii) amend or modify the provisions of this Section 11.7 or Article VIII or the definitions of "Interest Period" and "Majority Banks", without the written consent of each Bank, or (iii) release any material part of the Collateral (except as expressly permitted by the applicable Financing Agreement) without the written consent of each Bank; and provided, further, however, that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, Collateral Agent or the Co-Agents under this Agreement or any other Loan Document without the written consent of such Administrative Agent, Collateral Agent and CoAgents, respectively.
SECTION 11.8. Severability. In the event any one or more of the provisions contained in this Agreement or in any Note or other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 11.9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective when copies hereof which, when taken together, bear the signatures of each of the parties hereto shall be delivered or mailed to the Administrative Agent, the Collateral Agent, the Co-Agents, Holdings and the Borrower.
SECTION 11.10. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
SECTION 11.11. Obligations of Banks Several. The rights and obligations of the Banks under this Agreement and the other Loan Documents are several and not joint. Nothing contained in this Agreement or any other Loan Document and no
action taken by any Bank or the Borrower pursuant hereto or thereto shall be deemed to constitute the Banks as a partnership, association, joint venture or other entity.
SECTION 11.12. Entire Agreement. This Agreement, together with the agreements and documents referred to herein and the Fee Letters contain the entire agreement of the parties and supersedes any and all prior agreements among the parties with respect to the subject matter hereof.
SECTION 11.13. Confidentiality. (a) Each Bank agrees to keep
confidential (and to cause its respective officers, directors, employees,
agents, representatives and Affiliates to keep confidential) the Information (as
defined below), except that any Bank shall be permitted to disclose Information:
(i) to such of its officers, directors, employees, agents, representatives and
Affiliates (including outside counsel) as need to know such Information; (ii) to
the extent required by applicable laws and regulations or by any subpoena or
similar legal process, or requested by any bank regulatory authority (provided
that such Bank shall, except for Information requested by any such bank
regulatory authority, promptly notify Borrower (to the extent practicable and
lawful, notice shall be given to the Borrower before such disclosure is made so
as to permit Borrower to seek a protective order) of the circumstances and
content of each such disclosure and shall request confidential treatment of any
Information so disclosed); (iii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Agreement, (B)
becomes available to such Bank on a non-confidential basis from a source other
than the Borrower or its Affiliates or (C) was available to such Bank on a
non-confidential basis prior to its disclosure to such Bank by the Borrower or
its Affiliates; or (iv) to the extent the Borrower shall have consented to such
disclosure in writing. As used in this Section 11.13, as to any Bank,
"Information" shall mean any financial statements, materials, documents and
other information that the Borrower or any of its Affiliates may have furnished
or may hereafter furnish to the Administrative Agent or any Bank in connection
with this Agreement or any other materials prepared by any such person from any
of the foregoing.
SECTION 11.14. Release of Certain Liens. The Collateral Agent, on behalf of the Banks, shall execute and deliver to the Borrower any documents or instruments reasonably required to release any Lien which was created for the benefit of the Banks in connection with the Existing Facility but which covers assets which are no longer Collateral for purposes of this Agreement and the other Loan Documents.
* * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written.
MINERALS HOLDINGS INC.
By: /s/ William J. Woods, Jr.
----------------------------------
Name: William J. Woods, Jr.
Title: Chairman, President and
Chief Executive Officer
|
WORLD MINERALS INC.
By: /s/ John F. Liechty
----------------------------------
Name: John F. Liechty
Title: Vice President, Finance
and Chief Financial Officer
|
CHEMICAL BANK,
individually and as
Administrative Agent and
Co-Agent
By: /s/ John F. Gehebe ---------------------------------- Name: JOHN F. GEHEBE Title: ASSISTANT VICE PRESIDENT |
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
individually and as Co-Agent
By: /s/ Adam N. Balbach ---------------------------------- Name: ADAM N. BALBACH Title: VICE PRESIDENT |
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ Margaret K. Vandenberg ---------------------------------- Name: Margaret K. Vandenberg Title: Senior Vice President |
Exhibit 10.36(b)
List of Contents of Exhibits and Annexes
to the World Minerals Credit Agreement
Exhibits
--------
Exhibit A Form of Alleghany Subordination Agreement
Exhibit B Form of Assignment and Acceptance
Exhibit C Celite Guaranty Agreement
Exhibit D Celite Pledge Agreement
Exhibit D-1 Celite Mexico Pledge Agreement
Exhibit E Holdings Pledge Agreement
Exhibit F Pledge Agreement
Exhibit G Form of Revolving Credit Note
Exhibit H Form of Term Loan Note
Exhibit I Letter of Credit Application
Exhibit J Letter of Credit Application
Exhibit K Form of Notice of Borrowing
Annexes
-------
Annex I The Banks
Annex II Financing Documents
Annex III Financials
Annex IV List of Material Subsidiaries
Annex V List of Jurisdictions
|
Exhibit 10.39(g)
AMENDMENT NO. 1
TO
STOCK PURCHASE RELATED AGREEMENT
AMENDMENT NO. 1 TO STOCK PURCHASE RELATED AGREEMENT, effective as of January 1, 1995, among the stockholders named in Schedule 1 hereto (each, a "Stockholder," together the "Stockholders"), and ALLEGHANY CORPORATION, a Delaware corporation ("Alleghany").
W I T N E S S E T H:
WHEREAS, Alleghany and the Stockholders other than Harry Petru, Jr., Edward D. Santos, Thomas A. Dean and William C. Leone, Jr. are parties to the Stock Purchase Related Agreement dated as of July 28, 1993, as supplemented by the Supplement to Stock Purchase Agreement dated as of August 12, 1993 (collectively, the "Stock Purchase Related Agreement");
WHEREAS, the parties hereto desire to add Harry Petru, Jr., Edward D. Santos, Thomas A. Dean and William C. Leone, Jr. as "Stockholder" parties to the Stock Purchase Related Agreement; and
WHEREAS, the parties hereto desire to amend the Stock Purchase Related Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements and provisions contained herein, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Stock Purchase Related Agreement.
Section 2. Additional Parties to Stock Purchase Related Agreement. Each of Harry Petru, Jr., Edward D. Santos, Thomas A. Dean and William C. Leone, Jr. is hereby added as a "Stockholder" party to the Stock Purchase Related Agreement as amended hereby, upon such Stockholder's execution of a counterpart hereof.
Section 3. Amendments to Stock Purchase Related Agreement. The Stock Purchase Related Agreement is hereby amended as follows:
(i) Section 1(d)(vi) of the Stock Purchase Related Agreement is hereby amended to read in its entirety as follows:
(vi) lapse if not exercised prior to the earliest of (A) the expiration of the option, (B) the termination of employment for any reason whatsoever and the subsequent completion of a tender offer for the Common Stock by Alleghany, or (C) two years after termination of employment for any reason whatsoever.
(ii) Section 1(d)(vii) of the Stock Purchase Related Agreement is hereby deleted.
(iii) Section 5(b) of the Stock Purchase Related Agreement is hereby amended to read in its entirety as follows:
(b) Eligible Shares. "Eligible Shares" shall mean 100% of the shares of Common Stock owned by each Stockholder on the Closing Date, as set forth on Schedule 5 hereto (referred to herein as the "Post-Closing Ownership"), on a cumulative basis on the fourth anniversary of the Closing, with 25% of such Post-Closing Ownership becoming eligible on each of the first four anniversaries of the Closing.
(iv) Section 6 of the Stock Purchase Related Agreement is hereby amended to read in its entirety as follows:
Section 6. Purchase of Common Stock Upon Termination of Employment.
(a) Purchase of Common Stock. Upon the termination of
employment with NHC or any of its subsidiaries of any
Stockholder who holds at the time of termination shares of
Common Stock which were owned by such Stockholder on the
Closing Date (the "Repurchase Shares"), prior to an Initial
Public Offering (as defined below) or a Sale (as defined in
Section 7 hereof), Alleghany shall purchase from such
Stockholder or the Permitted Transferees (as defined in Section
10 hereof) of such Stockholder (the "Selling Person"), and such
Selling Person shall sell to Alleghany, all of the Repurchase
Shares held by such Selling Person at a price per share of
Common Stock (the "Repurchase Price") equal to the fully
diluted book value of the Common Stock, determined in
accordance with generally accepted accounting principles as at
the end of the calendar quarter immediately preceding
such termination, as determined by NHC and as reported upon by the independent public accountants of NHC, provided, however, that if employment of such Stockholder was terminated by NHC without Cause (as defined below) or terminated as a result of death or permanent disability, the Repurchase Price shall equal the Adjusted Book Value of the Common Stock, as at the end of the calendar quarter immediately preceding such termination, as determined by NHC and as reported upon by the independent public accountants of NHC. Non-employee directors shall be subject, in respect of any Repurchase Shares held by them, to the same terms and conditions set forth in this Section 6 with respect to the Stockholders.
(b) Certain Definitions. The term "Initial Public
Offering" shall mean the sale by Alleghany, of shares of Common
Stock equal to 20% or more of the then outstanding shares of
Common Stock in a public offering pursuant to a registration
statement under the Securities Act or a public distribution of
shares of Common Stock by Alleghany to its stockholders. The
term "Cause" shall mean (i) material breach of the
Stockholder's Employment Agreement (as defined in Section 17
hereof), (ii) dishonesty of the Stockholder detrimental to the
best interests of NHC or any of its subsidiaries or affiliates
or conviction of the Stockholder of a crime which constitutes a
felony, (iii) any material act or omission by the Stockholder
involving willful malfeasance or gross negligence in the
performance of his duties with NHC or its subsidiaries, and
(iv) continued inattention and neglect by the Stockholder of
his duties with NHC or its subsidiaries (other than inattention
or neglect resulting from illness or disability of the
Stockholder) which inattention and neglect does not cease
within fifteen days after written notice thereof specifying the
details of such conduct is given by the Board of Directors of
NHC to the Stockholder. The Stockholder shall be entitled to
only one such fifteen day notice and right to cure.
(c) Notice. No later than thirty days following the termination of employment of such Stockholder, Alleghany shall send to such Selling Person written notice with respect to its purchase of all Repurchase Shares held by such Selling Person.
(d) Payment. Alleghany shall cause NHC to determine the Repurchase Price, which shall be reported upon by the independent public accountants of NHC, and Alleghany shall send written notice of said determination to such Selling Person. The closing of the purchase shall take place at the principal office of Alleghany on the fifteenth day after delivery by Alleghany of its notice pursuant to paragraph (c) above. Delivery of the stock certificates covering the Repurchase Shares shall be made by such Selling Person on the closing date against payment in the manner set forth below. The stock certificates, when delivered to Alleghany, shall be endorsed in blank or accompanied by stock powers executed in blank. Payment therefor shall be made in full in cash (or by wire transfer or certified or official bank check) at the closing.
(v) Section 10(a) of the Stock Purchase Related Agreement is hereby amended to read in its entirety as follows:
(a) a transfer made to Alleghany or any Stockholder;
(vi) Section 12 of the Stock Purchase Related Agreement is hereby amended to read in its entirety as follows:
Section 12. Put Option. (a) Each Stockholder shall have the right commencing the year following the tenth anniversary of the Closing and each year thereafter as herein provided to require Alleghany to repurchase all, or any part, of the Eligible Shares held by such Stockholder at a price per share of Common Stock (the "Put Option Price") equal to the fully diluted book value per share of Common Stock, determined in accordance with generally accepted accounting principles as of the end of the year immediately preceding the exercise of such right by a Stockholder, as determined by NHC and as reported upon by the independent public accountants of NHC. Each Stockholder wishing to exercise his rights under this Section 12 shall send to Alleghany written notice of his intention to exercise his rights no later than sixty (60) days following the delivery to such Stockholder of the audited financial statements of NHC (the "Audited Financial Statements") for the end of the year preceding such notice.
(b) Commencing the year following the tenth anniversary
of the Closing and each year thereafter, Alleghany shall cause
NHC to determine the Put Option Price, which shall be reported
upon by the independent public accountants of NHC, and
Alleghany shall send written notice of said determination to
each Stockholder together with the Audited Financial
Statements. The closing of the purchase shall take place at the
principal office of Alleghany on the fifteenth day after
delivery of a Stockholder's notice as provided in Section
12(a). Delivery of the stock certificates covering the Eligible
Shares held by such Stockholder and any transferees of such
Stockholder, shall be made by such Stockholder and any
transferees of such Stockholder on the closing date against
payment in the manner set forth below. The stock certificates,
when delivered to Alleghany, shall be endorsed in blank or
accompanied by stock powers executed in blank. Payment therefor
shall be made at the closing in full in cash (or by wire
transfer or certified or official bank check).
(vii) A new Section 36 is hereby added to the Stock Purchase Related Agreement to read in its entirety as follows:
Section 36. Change in Control. (a) In the event of a
Change in Control, all of the options then held by any of the
Stockholders, whether or not then exercisable, shall be
immediately exercisable, and each Stockholder shall have the
right to require Alleghany to repurchase all, or any part, of
(i) the shares of Common Stock issued upon such exercise of
options held by such Stockholder at a price per share equal to
the Adjusted Book Value per share of the Common Stock; or (ii)
the options then held by such Stockholder at a price per
underlying share equal to the Adjusted Book Value per share of
the Common Stock less the Option Price per share, as defined in
the 1993 Plan and as set forth in the relevant Option Agreement
evidencing the options. For purposes of this Section 36,
"Adjusted Book Value" shall mean the higher of (x) Adjusted
Book Value as at the end of the calendar quarter immediately
preceding such Change in Control, or (y) eighty-five percent
(85%) of Adjusted Book Value as at the end of the year
immediately preceding such Change in Control, in each case as
determined by NHC and as reported upon by the independent
public accountants of NHC. A "Change in Control" shall be
deemed to have occurred if (x) any person or group (within the
meaning of Rule 13d-5 of the Securities and Exchange Commission as in effect on January 1, 1995) other than Alleghany or any affiliate of Alleghany shall own, beneficially or of record, shares representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of NHC; (y) any person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Commission as in effect on January 1, 1995) other than the principal stockholders of Alleghany identified in Alleghany's proxy statement dated March 27, 1995, or any of the respective children, spouses or issue thereof or any entity beneficially owned by one or more of them, shall own, beneficially or of record, shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Alleghany; or (z) a majority of the seats (other than vacant seats) on the board of directors of Alleghany shall at any time be occupied by persons who were neither nominated or appointed by a majority of the directors of Alleghany who were in office as of January 1, 1995 nor who were nominated or appointed by directors so nominated.
(b) Each Stockholder wishing to exercise his rights under this Section 36 shall send to Alleghany written notice of his intention no later than fifteen (15) days following the effective date of such Change in Control. The closing of the purchase shall take place at the principal office of Alleghany on the tenth day after delivery of a Stockholder's notice as provided herein. Stock certificates representing shares of Common Stock held by such Stockholder endorsed in blank or accompanied by stock powers executed in blank, and/or an assignment of the Option Agreement, as defined in the 1993 Plan, shall be delivered by such Stockholder on the closing date against payment in full in cash (by wire transfer or certified or official bank check).
(viii) A new Section 37 is hereby added to the Stock Purchase Related Agreement to read in its entirety as follows:
Section 37. Cash-out Transactions. Alleghany hereby agrees that so long as the Stockholders hold exercisable options or Common Stock issued upon exercise of options, Alleghany as a stockholder of NHC will not approve any sale,
merger or other corporate transaction involving NHC in which
such exercisable options or Common Stock would be converted
into the right to receive cash or securities (other than
exercisable options or Common Stock of a successor to NHC
representing the same ownership interests theretofore
represented by such exercisable options or Common Stock) (a
"Cash-out Transaction"), unless: (a) the Stockholders would
receive in the Cash-out Transaction a consideration per share
of Common Stock issued upon exercise of options or issuable
upon exercise of exercisable options with a value equal to or
greater than the Adjusted Book Value per share of Common Stock,
or (b) Stockholders holding shares of Common Stock issued upon
exercise of options or issuable upon exercise of exercisable
options representing more than two-thirds of all such shares
shall have approved the Cash-out Transaction. For purposes of
this Section 37, "Adjusted Book Value" shall mean the higher of
(x) Adjusted Book Value as at the end of the calendar quarter
immediately preceding such Cash-out Transaction, or (y)
eighty-five percent (85%) of Adjusted Book Value as at the end
of the year immediately preceding such Cash-out Transaction, in
each case as determined by NHC and as reported upon by the
independent public accountants of NHC.
(ix) A new Section 38 is hereby added to the Stock Purchase Related Agreement to read in its entirety as follows:
Section 38. Conflicts. In the event of any conflict or inconsistency between the provisions of the Stock Purchase Related Agreement as amended hereby and the 1993 Plan or a Stockholders Nonstatutory Stock Option Agreement entered into by NHC and a Stockholder upon the issuance of Options pursuant to the 1993 Plan, the provisions of the Stock Purchase Related Agreement as amended hereby shall be controlling, and NHC shall be entitled to rely on the provisions of the Stock Purchase Related Agreement as amended hereby unless otherwise instructed in a writing signed by Alleghany and the affected Stockholder.
Section 4. Counterparts. This Amendment No. 1 may be executed in one or more counterparts, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment No. 1 as of the date first written above.
ALLEGHANY CORPORATION
By:/s/ David B. Cuming
-----------------------------
Name: David B. Cuming
Attest: Title: Senior Vice
President
By:/s/Robert M. Hart
------------------------------
Name: Robert M. Hart
Title: Senior Vice President,
General Counsel and
Secretary
|
STOCKHOLDERS
/s/ Steven H. Newman -------------------------------- Steven H. Newman /s/ Dennis E. Arnold -------------------------------- Dennis E. Arnold /s/ Russell T. John -------------------------------- Russell T. John /s/ F. Paul Japp -------------------------------- F. Paul Japp /s/ Stephen C. Kolakowski -------------------------------- Stephen C. Kolakowski |
/s/ Mark A. Bennett -------------------------------- Mark A. Bennett /s/ Theodore A. Blundell -------------------------------- Theodore A. Blundell /s/ Denise A. Coleman -------------------------------- Denise A. Coleman /s/ Pamela Taylor -------------------------------- Pamela Taylor /s/ Todd J. Hess -------------------------------- Todd J. Hess /s/ Judy Mann -------------------------------- Judy Mann /s/ Nancy Moore -------------------------------- Nancy Moore /s/ Harry Petru, Jr. -------------------------------- Harry Petru, Jr. /s/ Edward D. Santos -------------------------------- Edward D. Santos /s/ Thomas A. Dean -------------------------------- Thomas A. Dean /s/ William C. Leone, Jr. -------------------------------- William C. Leone, Jr. |
Schedule 1 List of Stockholders
Steven H. Newman
Dennis E. Arnold
Russell T. John
F. Paul Japp
Stephen C. Kolakowski
Mark A. Bennett
Theodore A. Blundell
Denise A. Coleman
Pamela Taylor
Todd J. Hess
Judy Mann
Nancy Moore
Harry Petru, Jr.
Edward D. Santos
Thomas A. Dean
William C. Leone, Jr.
Exhibit 10.39(i)
EXECUTION COPY
$100,000,000
CREDIT AGREEMENT
DATED AS OF NOVEMBER 16, 1992
AMONG
UNDERWRITERS RE CORPORATION,
THE LENDERS NAMED HEREIN
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2. Ratable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3. Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4. Commitment Fee; Reductions in Aggregate
Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5. Minimum Amount of Each Advance . . . . . . . . . . . . . . . . . . . . . . . 19
2.6. Optional Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7. Mandatory Commitment Reductions . . . . . . . . . . . . . . . . . . . . . . . 19
2.8. Method of Selecting Types and Interest Periods for
New Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9. Conversion and Continuation of Outstanding
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10. Interest Rate, Changes etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.11. Rates Applicable After Default . . . . . . . . . . . . . . . . . . . . . . . . 22
2.12. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.13. Notes; Telephonic Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.14. Interest Payment Dates; Interest and Fee Basis . . . . . . . . . . . . . . . . 23
2.15. Notification of Advances, Interest Rates,
Prepayments and Commitment Reductions . . . . . . . . . . . . . . . . . . . 23
2.16. Lending Installations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.17. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . 24
2.18. Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.19. Agent's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III
CHANGE IN CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2. Changes in Capital Adequacy Regulations . . . . . . . . . . . . . . . . . . . . 26
3.3. Availability of Types of Advances . . . . . . . . . . . . . . . . . . . . . . . 26
3.4. Funding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.5. Lender Statements; Survival of Indemnity . . . . . . . . . . . . . . . . . . . 27
3.6. Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1. Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2. Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
|
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1. Corporate Existence and Standing . . . . . . . . . . . . . . . . . . . . . . . 31
5.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3. Compliance with Laws and Contracts . . . . . . . . . . . . . . . . . . . . . . 31
5.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.8. Litigation and Third Party Obligations . . . . . . . . . . . . . . . . . . . . 33
5.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.11. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.13. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.14. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.15. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.16. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.17. Stock of the Borrower, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.19. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.20. Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.21. Employee Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.22. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.23. Insurance Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.24. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.25. Corporate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.26. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.27. A.M. Best Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.1. Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3. Notice of Default and Other Matters . . . . . . . . . . . . . . . . . . . . . . 41
6.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6. Corporate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.10. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.14. Sale of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.15. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.16. Investments and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 45
|
6.17. Third Party Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.18. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.19. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.20. Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.21. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.22. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.23. Financial Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.24. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.25. Agreements as to Prohibited Acts . . . . . . . . . . . . . . . . . . . . . . . 50
6.26. Change in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . 50
6.27. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.28. Borrower Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.28.1. Minimum Tangible Net Worth . . . . . . . . . . . . . . . . . . . . 50
6.28.2. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . 51
6.29. Insurance Company Financial Covenants . . . . . . . . . . . . . . . . . . . . 51
6.29.1. Surplus as Regards Policyholders . . . . . . . . . . . . . . . . . . 51
6.29.2. Operating Leverage . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.29.3. Statutory Income . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.30. Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.31. Reports to NAIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.32. Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.33. Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.34. CUIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VII
DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 56
8.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3. Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.1. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.2. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.3. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5. Several Obligations; Benefits of this Agreement . . . . . . . . . . . . . . . 58
9.6. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.7. Numbers of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.8. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.9. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.10. Nonliability of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.11. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.12. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
|
9.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.15. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE X
THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.4. No Responsibility for Loans, Recitals, etc. . . . . . . . . . . . . . . . . . 62
10.5. Action on Instructions of Lenders . . . . . . . . . . . . . . . . . . . . . . 62
10.6. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . 62
10.7. Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . . . . . . 63
10.8. Agent's Reimbursement and Indemnification . . . . . . . . . . . . . . . . . . 63
10.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.10. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.11. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XI
SETOFF; RATABLE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.1. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.2. Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . 65
12.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.2. Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.2.1. Permitted Participants; Effect. . . . . . . . . . . . . . . . . . 65
12.2.2. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.2.3. Benefit of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.3. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.3.1. Permitted Assignments . . . . . . . . . . . . . . . . . . . . . . . 66
12.3.2. Effect; Effective Date . . . . . . . . . . . . . . . . . . . . . . 67
12.4. Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . 67
12.5. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XIII
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.1. Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.2. Change of Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE XIV
COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
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EXHIBITS - -------- Exhibit A -- Form of Note Exhibit B -- Form of Pledge Agreement Exhibit C -- Form of Security Agreement Exhibit D-1 -- Form of Opinion of Arnold & Porter Exhibit D-2 -- Form of Opinion of Roussos, Hage & Hodes Exhibit E -- Form of Letter of KPMG Peat Marwick Exhibit F -- Form of Compliance Certificate Exhibit G -- Form of Assignment Agreement SCHEDULES - --------- Schedule 5.3 -- Required Consents Schedule 5.4 -- Governmental Consents Schedule 5.8 -- Litigation and Third Party Obligations Schedule 5.9 -- Subsidiaries Schedule 5.17 -- Capitalization Schedule 5.19 -- Indebtedness Schedule 5.23 -- Insurance Licenses and Business Schedule 5.24 -- Environmental Schedule 6.16 -- Investments Schedule 6.18 -- Liens |
CREDIT AGREEMENT
This Agreement, dated as of November 16, 1992, is among Underwriters Re Corporation, a Delaware corporation, the Lenders and The First National Bank of Chicago, as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Accounts" means all present and future rights of the Borrower and each of the Subsidiaries to payment for goods sold or leased or for services rendered, whether or not they have been earned by performance.
"Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership.
"Acquisition Corp." means Underwriters Re Acquisition Corp., a Delaware corporation.
"Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made on the same Borrowing Date by the Lenders to the Borrower of the same Type and, in the case of Eurodollar Advances, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person for the purposes of this definition if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in
its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all the Lenders hereunder.
"Agreement" means this credit agreement, as it may be amended, supplemented or modified and in effect from time to time.
"Agreement Accounting Principles" means United States generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.5.
"Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (a) the Corporate Base Rate for such day and (b) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Annual Statement" means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing annual statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.
"Applicable ABR Margin" means, subject to the last sentence of this definition, the applicable of the following percentages in effect with respect to such periods as the Leverage Ratio of the Borrower shall fall within the indicated ranges:
Leverage Ratio Applicable ABR Margin
- -------------------------------------- ---------------------
Greater than
or Equal to But less than
- ------------ -------------
.35:1.0 -------- .50%
.30:1.0 .35:1.0 .25%
- ------- .30:1.0 0%
|
The Leverage Ratio shall be calculated by the Borrower as of the end of each of its fiscal quarters commencing March 31, 1994 and shall be reported to the Agent pursuant to a certificate executed by the chief financial officer of the Borrower and delivered in accordance with Section 6.1 in connection with the delivery by the Borrower of its financial statements. The Applicable ABR Margin shall be adjusted, if necessary, quarterly as of the tenth day after the required delivery date for each of the certificate and the financial statements provided for above; provided, that if such certificate and financial statements are not delivered by such
tenth day, then the Applicable ABR Margin shall be equal to .50% for the relevant quarter. Until adjusted as described above after March 31, 1994, the Applicable ABR Margin shall be equal to .50%.
"Applicable Eurodollar Margin" means, subject to the last sentence of this definition, the applicable of the following percentages in effect with respect to such periods as the Leverage Ratio of the Borrower shall fall within the indicated ranges:
Applicable
Leverage Ratio Eurodollar Margin
- -------------------------------------- -----------------
Greater than
or Equal to But less than
- ------------ -------------
.35:1.0 -------- 1.75%
.30:1.0 .35:1.0 1.50%
- ------- .30:1.0 1.25%
|
The Leverage Ratio shall be calculated by the Borrower as of the end of each of its fiscal quarters commencing March 31, 1994 and shall be reported to the Agent pursuant to a certificate executed by the chief financial officer of the Borrower and delivered in accordance with Section 6.1 in connection with the delivery by the Borrower of its financial statements. The Applicable Eurodollar Margin shall be adjusted, if necessary, quarterly as of the tenth day after the required delivery date for each of the certificate and the financial statements provided for above; provided, that if such certificate and financial statements are not delivered by such tenth day, then the Applicable Eurodollar Margin shall be equal to 1.75% for the relevant quarter. Until adjusted as described above after March 31, 1994, the Applicable Eurodollar Margin shall be equal to 1.75%. The Applicable Eurodollar Margin for any Interest Period shall be that in effect on the first day of such Interest Period and shall not change during such Interest Period.
"Article" means an article of this Agreement unless another document is specifically referenced.
"Asset Disposition" means the disposition whether by sale, merger or otherwise of any of the stock of any of Borrower's Subsidiaries, constituting at least 10% of the Consolidated Tangible Net Worth of the Borrower.
"Asset Valuation Reserve" means, with respect to any Person, such Person's asset valuation reserve, computed in accordance with SAP.
"Authorized Officer" means any of the chief executive officer or chief financial officer of the Borrower, acting singly.
"Available Cash" means, at any time of determination, the sum of (a) the Borrower's cash and Investments described in Section
6.16(a)(i) - (iv) plus (b) to the extent the Borrower could then satisfy the conditions for borrowing such amounts, the excess of the then Aggregate Commitment over the aggregate outstanding principal amount of the Loans.
"Bankruptcy Code" means Title 11, United States Code, sections 1 et seq., as the same may be amended from time to time, and any successor thereto or replacement therefor which may be hereafter enacted.
"Borrower" means Underwriters Re Corporation, a Delaware corporation, and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (a) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (b) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures
for any purchase or other acquisition for value of any asset that is classified
on a consolidated balance sheet of the Borrower with the Subsidiaries prepared
in accordance with Agreement Accounting Principles as a fixed or capital asset
excluding (a) the cost of assets acquired under Capitalized Lease Obligations,
(b) expenditures of insurance proceeds to rebuild or replace any asset after a
casualty loss and (c) leasehold improvement expenditures for which the Borrower
or a Subsidiary is reimbursed promptly by the lessor.
"Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.
"CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 USC Sections 9601 et. seq.), as amended by the Superfund Amendments and Reauthorization Act.
"Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act) of 20% or more of the outstanding shares of voting stock of the Borrower or Acquisition Corp. (other than pursuant to (a) an Initial Public Offering, all or a portion of the proceeds of which are applied to reduce the Aggregate Commitment pursuant to Section 2.7(a)(ii) or (b) a merger or consolidation permitted under Section 6.12).
"Closing Date" means the date of the initial Advance hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.
"Collateral" means, collectively, the real and personal property of the Borrower which is pledged, assigned or mortgaged to the Agent for the benefit of the Lenders pursuant to the Loan Documents.
"Combined Statutory Basis" means, with respect to any two or more of the Insurance Subsidiaries at any time, the financial results achieved by combining the then most recent Annual Statements or Quarterly Statements of such Insurance Subsidiaries (or any one or more parts thereof), after eliminating therefrom the amount and the effect (including, without limitation, any effect on Surplus as Regards Policyholders) of any investments, liabilities, expenses, income or other items appearing in such Annual Statements or Quarterly Statements which may have arisen out of any one or more transactions by and among any of such Insurance Subsidiaries.
"Commitment" means, for each Lender, the obligation of such Lender to make Loans to the Borrower in an aggregate amount at any one time outstanding not exceeding the amount set forth opposite its signature below, as such amount may be modified or reduced from time to time pursuant to the terms hereof.
"Condemnation" is defined in Section 7.8.
"Consolidated" or "consolidated", when used in connection with any calculation, means a calculation to be determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with Agreement Accounting Principles.
"Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. The Corporate Base Rate is a reference rate and does not necessarily represent the lowest or best rate of interest actually charged to any customer. First Chicago may make commercial loans or other loans at rates of interest at, above, or below the Corporate Base Rate.
"CUIC" means Commercial Underwriters Insurance Company, a California insurance corporation and a wholly owned subsidiary of URC.
"Default" means an event described in Article VII.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at a Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Eurodollar Interest Period, the rate determined by the Agent to be the arithmetic average of the rates reported to the Agent by each Reference Bank as the rate at which deposits in U.S. dollars are offered by such Reference Banks to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Eurodollar Interest Period, in the approximate amount of such Reference Bank's relevant Eurodollar Loan and having a maturity approximately equal to such Eurodollar Interest Period. If any Reference Bank fails to provide such quotation to the Agent, then the Agent shall determine the Eurodollar Base Rate on the basis of the quotations of the remaining Reference Bank(s).
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar Base Rate applicable to such Interest Period, divided by (ii) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (b) the Applicable Eurodollar Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Exchange Act" means the Securities Exchange Act of 1934, as the same may be amended from time to time, and any successor thereto or replacement thereof which may be hereafter enacted.
"Facility Termination Date" means December 31, 1998.
"Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion.
"Financial Statements" shall have the meaning set forth in Section 5.5.
"Financial Undertaking" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any sale and leaseback transactions which do not create a liability on the
consolidated balance sheet of such Person and its Subsidiaries, (c) any
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, interest rate exchange agreements,
forward currency exchange agreements, interest rate cap or collar protection
agreements, forward rate currency or interest rate options or (d) any other
similar transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person and its Subsidiaries.
"First Chicago" means The First National Bank of Chicago in its individual capacity and its successors.
"Fiscal Year" means the twelve-month accounting period commencing on January 1 and ending on the last day of December of each year.
"Floating Rate" means, for any day, with respect to any Revolving Credit Advance, a rate per annum equal to (a) the Alternate Base Rate for such day plus (b) the Applicable ABR Margin, in each case changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating Rate.
"Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any board of insurance, insurance department or insurance commissioner.
"Indebtedness" of a Person means such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or other instruments, (e) Capitalized Lease Obligations, (f) net liabilities under interest rate swap, exchange or cap agreements, and (g) Third Party Obligations and (h) obligations for which such Person is obligated pursuant to a Letter of Credit.
"Initial Public Offering" means the first offering after the date hereof of shares of the Borrower's or Acquisition Corp.'s common stock, or options, warrants or securities convertible into or exchangeable for, or rights to acquire, shares of such common stock, which is registered pursuant to an effective registration statement filed by the Borrower or Acquisition Corp. under the Securities Act (other than (a) a registration statement filed on Form S-4 (or any successor form thereto) or (b) a registration statement filed on Form S-8 (or any successor form thereto), or any other applicable form with respect to the issuance of shares of such common stock, or options, warrants or securities convertible into or exchangeable for, or rights to acquire, such shares of common stock, issued or to be issued or granted to directors, officers or employees of Acquisition Corp., the Borrower and its Subsidiaries).
"Insurance Subsidiary" means any Subsidiary which is engaged in the property and casualty insurance or reinsurance business.
"Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day; provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade or extensions of credit pursuant to the existing agreements referenced in the preceding parenthetical), deposit account or contribution of capital by such Person to any other Person or any investment in, or Acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person.
"IRIS Tests" means the ratios and other financial measurements developed by NAIC under its Insurance Regulatory Information System or, in lieu thereof, any substitute therefor or other system or other similar guidelines intended to measure the financial performance of companies in the property and casualty insurance industry, as the same shall be in effect from time to time.
"Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender (or its head office) or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable.
"Leverage Ratio" means, with respect to the Borrower on a consolidated basis with the Subsidiaries, at any time, the ratio of (a) the Borrower's Consolidated Indebtedness to (b) the sum of (i) the Borrower's Consolidated Indebtedness, plus (ii) the Borrower's Consolidated Tangible Net Worth; provided, that for the purposes of determining this ratio, Consolidated Indebtedness shall not include Indebtedness arising from Letters of Credit permitted by Section 6.21.
"License" means any license, certificate of authority, permit or other authorization which is required to be obtained from any Governmental Authority in connection with the operation, ownership or transaction of insurance business.
"Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any Advance.
"Loan Documents" means this Agreement, the Notes, the Security Documents and the Rate Swap Agreements.
"Managers" means URC Risk Managers, Inc., a Delaware corporation and a Wholly-Owned Subsidiary of the Borrower.
"Margin Stock" has the meaning assigned to such term under Regulation U.
"Material Adverse Effect" means a material adverse effect on (a) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, or (b) the ability of the Borrower to perform its obligations under any of the Loan Documents.
"Material Document Effect" means a material adverse effect on the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.
"NAIC" means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities.
"Net Available Proceeds" means (a) with respect to any Asset
Disposition, the sum of cash or readily marketable cash equivalents received
(including by way of a cash generating sale or discounting of a note or
receivable, but excluding any other consideration received in the form of
assumption by the acquiring Person of debt or other obligations relating to the
properties or assets so disposed of or received in any other non-cash form)
therefrom, whether at the time of such disposition or subsequent thereto, or
(b) with respect to any sale or issuance of any debt or equity securities of
Acquisition Corp., the Borrower or any Subsidiary, cash or readily marketable
cash equivalents received (but excluding any other non-cash form) therefrom,
whether at the time of such disposition or subsequent thereto, net, in either
case, of all legal, title and recording tax expenses, commissions and other
fees and all costs and expenses incurred and all federal, state, local and
other taxes required to be accrued as a liability as a consequence of such
transactions.
"Net Written Premium" means, with respect to any Insurance Subsidiary, the net written premiums thereof for the relevant period ("Underwriting and Investment" statement, page 8, part 2B, column 4, line 32).
"Note" means a promissory note in the form of Exhibit A hereto, with appropriate insertions, duly executed and delivered to the Agent by the Borrower and payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under any of the Loan Documents, including without limitation, any Rate Hedging Obligations owed to any Lender.
"Offering Documents" means (a) the Confidential Offering Memorandum dated September 21, 1992 relating to the Borrower distributed to prospective lenders in connection with this Agreement and (b) the Borrower's Prospectus dated July 25, 1991 pertaining to the Senior Notes.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last Business Day of each March, June, September and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Person" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.
"Pledge Agreement" means that certain Stock Pledge Agreement, substantially in the form of Exhibit B hereto, dated as of the date hereof, duly executed and delivered by the Borrower in favor of the Agent and the Lenders, as the same may be amended, supplemented, or otherwise modified from time to time.
"Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.
"pro-rata" means, when used with respect to a Lender, and any described aggregate or total amount, an amount equal to such Lender's pro-rata share or portion based on its percentage of the Aggregate Commitment or if the Aggregate Commitment has been terminated, its percentage of the aggregate principal amount of outstanding Advances.
"Quarterly Statement" means the quarterly statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by NAIC to be used for filing quarterly statutory financial statements and shall contain the type of information recommended by NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.
"Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing.
"Rate Swap Agreements" means interest rate swap, exchange, cap, hedging or similar interest rate protection agreements entered into by the Borrower with a Lender in respect of any portion of the Obligations.
"Reference Banks" means First Chicago and The Bank of New York.
"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation G" means Regulation G of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.
"Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors applicable to member banks of the Federal Reserve System.
"Rentals" of a Person means the aggregate fixed amounts payable by such Person under any lease of Property having an original term (including any required renewals or any renewals at the option of the lessor or lessee) of one year or more but does not include any amounts payable under Capitalized Leases of such Person.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of
the notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 66 2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66 2/3% of the aggregate unpaid principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves)
which is imposed under Regulation D on eurocurrency liabilities (in the case of Eurodollar Advances).
"SAP" means, with respect to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) as of the date hereof in the jurisdiction of incorporation of such Insurance Subsidiary for the preparation of annual statements and other financial reports by insurance companies of the same type as such Insurance Subsidiary.
"Section" means a numbered section of this Agreement, unless another document is specifically referenced.
"Secured Obligations" means, collectively, (a) the Obligations and (b) all Rate Hedging Obligations owing to one or more Lenders.
"Securities Act" means the Securities Act of 1933, as the same may be amended from time to time, and any successor thereto or replacement thereof which may be hereafter enacted.
"Security Agreement" means the Security Agreement, substantially in the form of Exhibit C hereto, dated as of the date hereto, duly executed and delivered by the Borrower in favor of the Agent and the Lenders, as the same may be amended, supplemented or otherwise modified from time to time.
"Security Documents" means the Security Agreement, the Pledge Agreement and such other agreements and amendments thereto as the Borrower may from time to time enter into with the Agent or the Lenders to secure the Obligations.
"Senior Notes" means those certain 15% Senior Notes Due 1997 issued by the Borrower on December 30, 1987.
"Shareholders Agreement" means that certain Shareholders Agreement, dated as of December 29, 1987, among the shareholders named therein and Acquisition Corp., as amended, modified or supplemented from time to time.
"Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.
"Solvent" means, when used with respect to a Person, that (a) the fair saleable value of the assets of such Person is in excess of the total amount of the present value of its liabilities (including for purposes of this definition all liabilities (including loss reserves as determined by the Borrower), whether or not reflected on a balance sheet prepared in accordance with Agreement Accounting Principles, and whether direct or indirect, fixed or contingent, secured or unsecured, disputed or undisputed), (b) such Person is able to pay its debts or obligations in the
ordinary course as they mature and (c) such Person does not have unreasonably small capital to carry out its business as conducted and as proposed to be conducted. "Solvency" shall have a correlative meaning.
"Statutory Income" means the pre-tax statutory income of the Borrower's Consolidated Insurance Subsidiaries (excluding capital gains and losses, but adjusting the amount of investment income derived from tax-exempt securities by dividing the nominal amount of such tax-exempt investment income by a fraction equal to 1 minus the Borrower's marginal tax rate).
"Subordinated Indebtedness" of a Person means any Indebtedness for borrowed money of such Person the payment of which is subordinated to payment of the Secured Obligations to the written satisfaction of the Required Lenders.
"Subsidiary" of a Person means (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Substantial Portion" means Property of the Borrower and its Subsidiaries having a fair market value in excess of $15,000,000.
"Surplus as Regards Policyholders" means, with respect to any Insurance Subsidiary at any time, the "capital stock" of such Insurance Subsidiary at such time, as determined in accordance with SAP ("Liabilities, Surplus and Other Funds" statement, Line 26 of the Annual Statement).
"Tangible Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its consolidated Subsidiaries determined in accordance with Agreement Accounting Principles, excluding the impact of unrealized gains and losses on investments in debt securities reported as a separate component of shareholder equity, less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (a) all write-ups (other than (i) write-ups resulting from foreign currency translations or (ii) write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to December 31, 1991 in the book value of any asset owned by the Borrower or a consolidated Subsidiary, and (b) all unamortized debt discount and expense (other than deferred expenses related to the transactions contemplated by this
Agreement), unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible items.
"Tax Sharing Agreements" means the agreements referenced in Section 4.1(l), as in effect on the date hereof and as such agreements may be hereafter amended, subject to compliance with the terms hereof.
"Third Party Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon (except to the extent arising solely by operation of law or regulation without independent action by such Person), the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract or application for a Letter of Credit but excluding any insurance contracts, reinsurance contracts or other similar arrangements entered into by an Insurance Subsidiary in the ordinary course of its business.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate Advance or Eurodollar Advance.
"UCC" means the Illinois Uniform Commercial Code as amended or modified and in effect from time to time.
"URC" means Underwriters Reinsurance Company, a New Hampshire insurance company and a Wholly-Owned Subsidiary of the Borrower.
"Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans.
"Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. References herein to particular columns, lines or sections of any Person's Annual Statement shall be deemed, where appropriate, to be references to the corresponding column, line or section of such Person's Quarterly Statement, or if no such corresponding column, line or section exists or if any report form changes, then to the corresponding item referenced thereby. Each accounting term used herein which is not otherwise defined herein shall be defined in accordance with Agreement Accounting Principles unless otherwise specified.
ARTICLE II
THE CREDITS
2.1. Advances. (a) From and including the date hereof to but not including the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment existing at such time. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Advances at any time prior to the Facility Termination Date.
(b) The Borrower hereby agrees that if at any time, as a
result of reductions in the Aggregate Commitment pursuant to Section 2.4,
Section 2.7 or otherwise, the aggregate balance of the Loans exceeds the
Aggregate Commitment, the Borrower shall repay immediately its then outstanding
Loans in such amount as may be necessary to eliminate such excess. The
Borrower further agrees that at the time of any reduction in the Aggregate
Commitment pursuant to Section 2.7(a)(i) or (ii), it shall prepay the Loans in
an amount equal to the full amount of such reduction. Following the prepayment
referenced in the preceding sentence and subject to the terms of this
Agreement, the Borrower shall be permitted to reborrow amounts hereunder up to
the full amount of the reduced Aggregate Commitment.
(c) The Borrower's obligation to pay the principal of, and interest on, the Loans shall be evidenced by the Notes. Although the Notes shall be dated the date of the initial Advance, interest in respect thereof shall be payable only for the periods during which the Loans evidenced thereby are outstanding and, although the stated amount of each Note shall be equal to the applicable Lender's Commitment, each Note shall be enforceable, with respect to the Borrower's obligation to pay the principal amount thereof, only to the extent of the unpaid principal amount of the Loan at the time evidenced thereby.
(d) Each Loan included in an Advance shall mature, and the principal amount thereof and the unpaid accrued interest thereon shall be due and payable, on the Facility Termination Date.
2.2. Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment.
2.3. Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.8 and 2.9.
2.4. Commitment Fee; Reductions in Aggregate Commitment. (a) The Borrower agrees to pay to the Agent for the ratable account of each Lender a commitment fee of .375% per annum on the daily unborrowed portion of such Lender's Commitment from the date hereof to and including the Facility Termination Date, payable in arrears on each Payment Date hereafter and on the Facility Termination Date. All accrued commitment fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder.
(b) The Borrower may, at its sole discretion, permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders, in a minimum amount of $3,000,000 or any integral multiple of $1,000,000 in excess thereof, upon at least three (3) Business Days' prior written notice to the Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. Such reductions shall be in addition to reductions occurring pursuant to Section 2.4(c) or Section 2.7.
(c) On each date specified below, the Aggregate
Commitment shall be permanently reduced, ratably among the Lenders, by an
amount equal to the amount determined by multiplying the Aggregate Commitment
as of the Closing Date by the percentage specified below opposite such date.
Such reductions in the Aggregate Commitment shall occur regardless of any other
reductions which may have already occurred pursuant to Section 2.4(b) or
Section 2.7(a).
Date Reduction Percentage ---- -------------------- 3/31/93 2.5 % 6/30/93 2.5 % 9/30/93 2.5 % 12/31/93 2.5 % 3/31/94 3.75 % 6/30/94 3.75 % 9/30/94 3.75 % 12/31/94 3.75 % |
3/31/95 4.375 % 6/30/95 4.375 % 9/30/95 4.375 % 12/31/95 4.375 % 3/31/96 4.375 % 6/30/96 4.375 % 9/30/96 4.375 % 12/31/96 4.375 % 3/31/97 5.0 % 6/30/97 5.0 % 9/30/97 5.0 % 12/31/97 5.0 % 3/31/98 5.0 % 6/30/98 5.0 % 9/30/98 5.0 % 12/31/98 5.0 % |
Concurrently with such reduction the Borrower shall make such payments as are required by Section 2.1(b).
2.5. Minimum Amount of Each Advance. Each Advance shall be in the minimum amount of $3,000,000 (and in multiples of $1,000,000 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment.
2.6. Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $3,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon notice to the Agent received not later than 10:00 a.m. (Chicago time) on the date of such prepayment. A Eurodollar Rate Advance may not be paid prior to the last day of the applicable Interest Period.
2.7. Mandatory Commitment Reductions. (a) In addition to the Aggregate Commitment reductions required pursuant to Section 2.4(c):
(i) concurrently with the receipt thereof by the Borrower or any Subsidiary (or, in the case of a prepayment of Eurodollar Loans, on the last day of the current Interest Period for such Eurodollar Loans), the Aggregate Commitment shall be automatically and permanently reduced by an amount equal to 100% of the Net Available Proceeds realized upon any Asset Disposition;
(ii) concurrently with the receipt thereof by Acquisition Corp., the Borrower or any Subsidiary (or, in the case of a prepayment of Eurodollar Loans, on the last day of the current Interest Period for such Eurodollar Loans), the Aggregate Commitment shall be automatically and permanently reduced by an amount equal to 100% of the Net Available Proceeds realized upon the sale by Acquisition Corp., the Borrower or such
Subsidiary of any equity, securities or the issuance by any such Person of any Subordinated Indebtedness, provided, however , that:
(A) if the Initial Public Offering occurs on or prior to June 30, 1993, then the Borrower may elect to contribute up to 80% of the Net Available Proceeds thereof to the surplus of URC;
(B) if the Initial Public Offering occurs after June 30, 1993 and on or prior to June 30, 1994, then the Borrower may elect to contribute up to 50% of the Net Available Proceeds thereof to the surplus of URC;
(C) if the Initial Public Offering occurs after June 30, 1994 and on or prior to June 30, 1995, then the Borrower may elect to contribute up to 25% of the Net Available Proceeds thereof to the surplus of URC; and
(D) no reduction in the Aggregate Commitment shall occur with respect to the portion of the Initial Public Offering Net Available Proceeds which are contributed to the surplus of URC as permitted by (A) - (C) above within five (5) Business Days after receipt by the Borrower or Acquisition Corp., as applicable, of such proceeds. If such proceeds are not so contributed in their entirety within such time period, then the Aggregate Commitment shall be reduced by the amount of any uncontributed portion thereof on the sixth Business Day following receipt of such proceeds; and
(iii) at the election of the Required Lenders, the Aggregate Commitment shall be reduced to zero (A) following the publication of any A.M. Best rating of any Insurance Subsidiary evidencing a decline therein or (B) in the event that URC is no longer rated by A.M. Best.
(b) Any reduction in the Aggregate Commitment pursuant to this Section or otherwise shall ratably reduce the Commitment of each Lender in proportion to each Lender's Commitment.
2.8. Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 11:00 a.m. (Chicago time) at least one (1) Business Day before the Borrowing Date of each Floating Rate Advance and three (3) Business Days before the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest
Period applicable thereto; provided, however, that at no time shall
there be more than two Interest Periods relating to outstanding
Eurodollar Advances; provided, further, that the Borrower may not
specify an Interest Period with respect to any Eurodollar Advance that
would require the Borrower to make payments to the Lenders pursuant to
Section 3.4 because of a reduction in the Aggregate Commitment
required under Section 2.4(c) prior to the end of such Interest
Period.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address.
2.9. Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.6, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided, that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least one (1) Business Day, in the case of a conversion into a Floating Rate Advance, or three (3) Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to be converted or continued; and
(iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto; provided, further, that the Borrower may not specify an Interest Period with respect to any Eurodollar Advance that would require the Borrower to make payments to the Lenders pursuant to Section 3.4 because of a reduction in the Aggregate Commitment required under Section 2.4(c) prior to the end of such Interest Period.
2.10. Interest Rate, Changes etc.. Each Floating Rate Advance shall bear interest at the Floating Rate from and including the date of such Advance to (but not including) the date on which such Floating Rate Advance is paid or converted to a Eurodollar Advance. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate or the Applicable Margin, as applicable. Each Eurodollar Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. No Interest Period may end after the Facility Termination Date. The Borrower shall select Interest Periods so that it is not necessary to repay any portion of a Eurodollar Advance prior to the last day of the applicable Interest Period in order to make a mandatory repayment required pursuant to Section 2.1(b).
2.11. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.9 or 2.18, no Advance may be made as, converted into or continued as a Eurodollar Advance (except with the consent of the Required Lenders) when any Default or Unmatured Default has occurred and is continuing. During the continuance of a Default, the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that all outstanding Advances shall bear interest at the Alternate Base Rate plus 3% per annum.
2.12. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder.
2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Note; provided, however, that the failure to so record shall not affect the Borrower's obligations under such Note. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error.
2.14. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof upon which a Floating Rate Advance is then outstanding, on any date on which such Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable in arrears on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on all Loans and commitment fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.
2.15. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice,
Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. Each Reference Bank agrees to furnish timely information for the purpose of determining the Eurodollar Rate.
2.16. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made.
2.17. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (a) in the case of a Lender, the proceeds of a Loan or (b) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (a) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (b) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan.
2.18. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event
requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.
2.19. Agent's Fees. The Borrower shall pay to the Agent those fees, in addition to the commitment fees referenced in Section 2.4(a), in the amounts and at the times separately agreed to between the Agent and the Borrower.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1. Yield Protection. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith,
(a) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder, or
(b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or
(c) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans, or requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by such Lender,
then, within 15 days of the Borrower's receipt of a demand by such Lender which is accompanied by the written statement referenced in Section 3.5, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans and its Commitment.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change (as hereinafter defined), then, within 15 days of the Borrower's receipt of a demand by such Lender which is accompanied by the written statement referenced in Section 3.5, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (a) any change after the date of this Agreement in the Risk-Based Capital Guidelines (as hereinafter defined) or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (a) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (b) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (a) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (b) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Advances of the affected Type to be repaid.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made, or an existing Advance is not converted into or continued as a Eurodollar Advance, on the date specified by the Borrower for any reason other than default by the Lenders, then the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance and will pay over to such Lender any amounts so indemnified within fifteen days of the Borrower's receipt of a demand by such Lender which is accompanied by the written statement referenced in Section 3.5.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender, as determined in its sole discretion. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Section 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand within fifteen days after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement.
3.6. Net Payments. All payments by the Borrower under this Agreement and the Notes shall be made without setoff or counterclaim and in such amounts as may be necessary in order that all payments (after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, other than any tax on or measured by the income of a Lender pursuant to the income and franchise tax laws of the United States of America or the jurisdiction where such Lender's principal or lending offices are located (collectively, the "Taxes")) shall not be less than the amounts otherwise specified to be paid under this Agreement and the Notes. A certificate as to any additional amounts payable to any Lender under this Section 3.6 submitted to the Borrower by such
Lender shall show in reasonable detail the amount payable and the calculations used to determine in good faith such amount and shall, absent manifest error, be final, conclusive and binding upon all parties thereto. With respect to each deduction or withholding for or on account of any Taxes, the Borrower shall promptly furnish to such Lender such certificates, receipts and other documents as may be reasonably required in the judgment of such Lender to establish any tax credit to which such Lender may be entitled.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advances. The Lenders shall not be required to make the initial Advance hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders:
(a) Copies of the certificate of incorporation of the Borrower and URC, together with all amendments, and a certificate of good standing, both certified as of a date not earlier than ten (10) days before the Closing Date by the appropriate governmental officer in their respective jurisdictions of incorporation and certificates of good standing regarding both such Persons from the State of California.
(b) Copies, certified as of the Closing Date by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents.
(c) An incumbency certificate, executed as of the Closing Date by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower.
(d) A certificate, dated the initial Borrowing Date, signed by an Authorized Officer of the Borrower to the effect that: (i) on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing; (ii) no injunction or temporary restraining order which would prohibit the making of the Loans or the consummation of any of the transactions contemplated by any of the Loan Documents or other litigation which could reasonably be expected to have a Material Adverse Effect or a Material Document Effect is pending or, to the best of such Person's knowledge, threatened; (iii) all orders, consents, approvals, licenses, authorizations, or validations of, or filings, recordings or registrations with, or exemptions by, any governmental or public
body or authority, or any subdivision thereof, required in connection with the Agreement or the other Loan Documents have been or, prior to the time required, will have been, obtained, given, filed or taken and are or will be in full force and effect (or the Borrower has obtained effective judicial relief with respect to the application thereof) and that all applicable waiting periods have expired; (iv) since December 31, 1991, no event or change has occurred that has caused or evidences a Material Adverse Effect; (v) such Authorized Officer has no reason to believe that the Borrower will not be Solvent both immediately before and after the delivery of the Loan Documents; and (vi) each of the representations and warranties contained in Article V are true and correct in all material respects on and as of such initial Borrowing Date (except for changes in the Schedules reflecting transactions permitted by this Agreement).
(e) A written opinion of (i) Messrs. Arnold & Porter, the
Borrower's counsel, addressed to the Agent and the Lenders in substantially the
form of Exhibit D-1 hereto, (ii) Roussos, Hage & Hodes Professional
Association, the Borrower's New Hampshire insurance counsel, addressed to the
Agent and the Lenders in substantially the form of Exhibit D-2 hereto, and
(iii) such other local counsel as the Agent may request, in each case with such
changes as may be satisfactory to the Agent.
(f) Notes payable to the order of each of the Lenders.
(g) Executed originals of the Agreement and each of the Loan Documents, which shall be in full force and effect, together with all schedules, exhibits, certificates, instruments, opinions, documents and financial statements required to be delivered pursuant hereto and thereto.
(h) Executed copy of the Pledge Agreement, together with the stock certificate(s) representing all of the outstanding shares of capital stock of URC and Managers and stock powers with respect thereto executed in blank.
(i) Written money transfer instructions addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested.
(j) An executed copy of the insurance certificate described in Section 5.25.
(k) Evidence of the contemporaneous (i) repayment in full of all of the Senior Notes and (ii) satisfaction of each of the conditions precedent to the satisfaction and discharge of the Indenture relating to the Senior Notes.
(l) A copy of each tax sharing agreement to which Acquisition Corp., the Borrower or any of the Borrower's Subsidiaries is a party.
(m) A copy of the reserve analysis report dated May 1992 prepared by KPMG Peat Marwick and a summary dated September 17, 1992 prepared by the Borrower of the December 31, 1991 reserve analysis report prepared by Milliman & Robertson.
(n) A signed letter from KPMG Peat Marwick in substantially the form of Exhibit E hereto.
(o) Copies of searches of financing statements filed under the Uniform Commercial Code, together with tax lien and judgment searches with respect to the assets of the Borrower and URC, in both cases in such jurisdictions as the Agent may request.
(p) Proof that the appropriate financing statements covering the Collateral including, without limitation, such fixture filings as the Agent may request, have been executed and delivered by the Borrower and filed or recorded in such jurisdictions as the Agent shall have specified or other arrangements with respect to filing or recording satisfactory to the Agent have been made.
(q) Receipt of any required New Hampshire insurance commission approvals and all other required regulatory approvals.
(r) Evidence satisfactory to the Agent of the contemporaneous termination of the Borrower's obligations in respect of its $25,000,000 line of credit with Chemical Bank, N.A.
(s) Such other documents as any Lender or its counsel may have reasonably requested.
4.2. Each Advance. The Lenders shall not be required to make any Advance, unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true and correct in all material respects as of such Borrowing Date except for changes in the Schedules hereto reflecting transactions permitted by this Agreement.
(iii) All legal matters incident to the making of such Advance shall be reasonably satisfactory to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender may require a duly completed compliance
certificate in substantially the form of Exhibit F hereto as a condition to making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. Each of the Borrower and each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation and is duly authorized to conduct its business in each jurisdiction in which its business is conducted or proposed to be conducted.
5.2. Authorization and Validity. The Borrower has all requisite power and authority (corporate and otherwise) and legal right (a) to execute and deliver (or file, as the case may be) each of the Loan Documents and to perform its obligations thereunder and (b) to assign, pledge and grant a pledge of and security interest in the Collateral which it owns in the manner and for the purpose contemplated in any of the Loan Documents to which it is a party. The execution and delivery (or filing, as the case may be) by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by all necessary corporate proceedings and the Loan Documents constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.
5.3. Compliance with Laws and Contracts. The Borrower and each Subsidiary has complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective properties. Neither the execution and delivery by the Borrower of the Loan Documents, the application of the proceeds of the Loans, the consummation of any transaction contemplated in the Loan Documents, nor compliance with the provisions of the Loan Documents will, or at the relevant time did, (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any Subsidiary or the Borrower's or any Subsidiary's charter, articles or certificate of incorporation or by-laws, or (b) violate the provisions of or require the approval or consent of any party to any indenture, instrument or agreement to which the Borrower or any Subsidiary is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a
default thereunder, or result in the creation or imposition of any Lien (other than Liens permitted by, and created under, the Loan Documents) in, of or on the property of the Borrower or any Subsidiary pursuant to the terms of any such indenture, instrument or agreement, or (c) require any consent of the stockholders of any Person, except for approvals or consents which will be obtained on or before the initial Advance and disclosed on Schedule 5.3.
5.4. Governmental Consents. Except as set forth on Schedule 5.4, no order, consent, approval, qualification, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of, any court, governmental or public body or authority, or any subdivision thereof, any securities exchange or other Person is or at the relevant time was required to authorize, or is or at the relevant time was required in connection with the execution, delivery, consummation or performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents, the application of the proceeds of the Loans or the consummation of any transaction contemplated in the Loan Documents. Neither the Borrower nor any Subsidiary is in default under or in violation of any foreign, federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree or award binding upon or applicable to the Borrower or such Subsidiary, in each case the consequences of which default or violation could have a Material Adverse Effect or a Material Document Effect.
5.5. Financial Statements. The Borrower has heretofore furnished to each of the Lenders (a) the December 31, 1991 audited consolidated financial statements of the Borrower and its Subsidiaries, (b) the unaudited consolidated financial statements of the Borrower and its Subsidiaries through June 30, 1992, (c) the December 31, 1991 Annual Statement of URC and (d) the June 30, 1992 Quarterly Statement of URC (the "Financial Statements"). Each of the Financial Statements was prepared in accordance with Agreement Accounting Principles or SAP, as applicable, in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries (or the financial conditions and operations of URC, as applicable) at such dates and the consolidated results of their operations for the respective periods then ended (except, in the case of such unaudited statements, for normal year-end audit adjustments).
5.6. Material Adverse Change. No material adverse change in the business, properties, financial condition, prospects or results of operations of the Borrower and the Subsidiaries, taken as a whole, has occurred since December 31, 1991.
5.7. Taxes. Each of the Borrower, the Subsidiaries and Acquisition Corp. have filed or caused to be filed all United States federal and applicable state tax returns and all other tax returns which are required to be filed and have paid all taxes due
pursuant to said returns or pursuant to any assessment received by the Borrower, any Subsidiary or Acquisition Corp., except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and to which no Lien exists. Acquisition Corp., the Borrower and URC are, and since at least January 1, 1989 have been, entitled to join in the filing of a consolidated federal income tax return, having properly made all elections required for such consolidation and having timely filed the first consolidated return for such consolidated group. No United States income tax returns of the Borrower or Acquisition Corp. on a consolidated basis have been audited or are currently under audit by the Internal Revenue Service. No tax liens have been filed and no claims are being asserted with respect to any such taxes which would have a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower and the Subsidiaries in respect of any taxes or other governmental charges are in accordance with Agreement Accounting Principles.
5.8. Litigation and Third Party Obligations. There is no litigation, arbitration, proceeding, inquiry or governmental investigation (a "Proceeding") pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any Subsidiary or any of their respective properties which may reasonably be expected to have a Material Adverse Effect or a Material Document Effect or which would be expected to prevent, enjoin or unduly delay the making of the Advances under this Agreement. There is no Proceeding pending or, to the knowledge or Borrower, threatened on the date hereof, except as disclosed on Schedule 5.8. Neither the Borrower nor any Subsidiary has any material Third Party Obligations except as set forth on Schedule 5.8.
5.9. Subsidiaries. Schedule 5.9 hereto contains an accurate list of all of the existing Subsidiaries as of the date of this Agreement, setting forth their respective jurisdictions of incorporation and the percentage of their capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of the Subsidiaries have been duly authorized and issued and are fully paid and non-assessable and, in the case of the shares owned by the Borrower, are owned by the Borrower free and clear of all Liens, other than the Liens created by the Loan Documents. No authorized but unissued or treasury shares of capital stock of any Subsidiary are subject to any option, warrant, right to call or commitment of any kind or character.
5.10. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $1,000,000. Neither the Borrower nor any other member of the Controlled Group maintains, or is liable in respect of, any Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan.
5.11. Defaults. No Default or Unmatured Default has occurred and is continuing.
5.12. Federal Reserve Regulations. Neither the Borrower nor any Subsidiary is engaged, directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purpose of purchasing or carrying Margin Stock. No part of the proceeds of any Loan will be used in a manner which would violate, or result in a violation of, Regulation G, Regulation T, Regulation U or Regulation X. Neither the making of any Advance hereunder nor the use of the proceeds thereof will violate or be inconsistent with the provisions of any of Regulation G, Regulation T, Regulation U or Regulation X. Following the application of the proceeds of the initial Advance, less than 25% of the value (as determined by any reasonable method) of the assets of the Borrower and the Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder taken as a whole have been, and will continue to be, represented by Margin Stock.
5.13. Investment Company. Neither the Borrower nor any Subsidiary is, or after giving effect to any Advance will be, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
5.14. Certain Fees. No broker's or finder's fee or commission was, is or will be payable by the Borrower or any Subsidiary with respect to any of the transactions contemplated by this Agreement. The Borrower hereby agrees to indemnify the Agent and the Lenders against and agrees that it will hold each of them harmless from any claim, demand or liability for broker's or finder's fees or commissions alleged to have been incurred by the Borrower in connection with any of the transactions contemplated by this Agreement and any expenses (including, without limitation, attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) arising in connection with any such claim, demand or liability. No other similar fee or commissions will be payable by the Borrower or any Subsidiary for any other services rendered to the Borrower or any Subsidiary ancillary to any of the transactions contemplated by this Agreement.
5.15. Solvency. As of the Closing Date, after giving effect to the consummation of the transactions contemplated by the Loan Documents and the payment of all fees, costs and expenses payable by the Borrower with respect to the transactions contemplated by the Loan Documents, the Borrower was Solvent.
5.16. Ownership of Properties. Each of the Borrower and the Subsidiaries have a subsisting leasehold interest in, or good and marketable title, free of all Liens, other than those permitted by Section 6.18 or by any of the Loan Documents, to all of the Property and assets reflected in the Financial Statements as being owned by it, except for assets sold, transferred or otherwise disposed of in the ordinary course of business since the date thereof. To the knowledge of the Borrower, there are no actual, threatened or alleged defaults with respect to any leases of real property under which the Borrower or any Subsidiary is lessee or lessor which would have a Material Adverse Effect.
5.17. Stock of the Borrower, etc. The capitalization of the Borrower is as set forth on Schedule 5.17. All shares of capital stock of the Borrower have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth on Schedule 5.17, no authorized but unissued or treasury shares of capital stock of the Borrower are subject to any option, warrant, right to call or commitment of any kind or character. The Borrower does not have any outstanding stock or securities convertible into or exchangeable for any shares of its capital stock, or any right issued to any Person (either preemptive or otherwise) to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to any of its capital stock or any stock or securities convertible into or exchangeable for any of its capital stock other than as expressly set forth in the certificate of incorporation of the Borrower. Neither the Borrower nor any Subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any convertible securities, rights or options of the type described in the preceding sentence except as otherwise set forth on Schedule 5.17.
5.18. Security. The provisions of the Security Agreement are effective to create and give the Agent, for the benefit of the Lenders, as security for the repayment of the obligations secured thereby, a legal, valid, perfected and enforceable Lien (which priority is subject only to prior Liens permitted by such agreements) upon all right, title and interest of the Borrower in any and all of the Collateral described therein. The Pledge Agreement is effective to create and give the Agent, for the benefit of the Lenders, as security for the repayment of the obligations secured thereby, a legal, valid, perfected and enforceable first priority Lien upon and security interest in the capital stock pledged thereby.
5.19. Indebtedness. Attached hereto as Schedule 5.19 is a complete and correct list of all Indebtedness of the Borrower and the Subsidiaries outstanding on the date of this Agreement (other than Indebtedness in a principal amount not exceeding $1,000,000 for a single item of Indebtedness and $5,000,000 in the aggregate
for all such Indebtedness listed), showing the aggregate principal amount which was outstanding on such date after giving effect to the making of the Loans. The Borrower has delivered or caused to be delivered to the Agent a true and complete copy of the form of each instrument evidencing any Indebtedness listed on Schedule 5.19 and of each document pursuant to which any of such Indebtedness was issued.
5.20. Retirement Benefits. The present value of the expected cost of post-retirement medical and insurance benefits payable by the Borrower and the Subsidiaries to its employees, as estimated by the Borrower in accordance with procedures and assumptions deemed reasonable by the Agent, does not exceed $500,000.
5.21. Employee Controversies. There are no strikes, work stoppages or controversies pending or threatened between the Borrower or any Subsidiary and any of its employees, other than employee grievances arising in the ordinary course of business, which, in the aggregate, are not material to the financial condition, results of operations or business of the Borrower and the Subsidiaries taken as a whole.
5.22. Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which would have a Material Adverse Effect or a Material Document Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or a Material Document Effect.
5.23. Insurance Licenses. Schedule 5.23 attached hereto lists all of the jurisdictions in which any Insurance Subsidiary holds active Licenses and is authorized to transact property and casualty insurance business. No such License is the subject of a proceeding for suspension or revocation, there is no sustainable basis for such suspension or revocation, and to the Borrower's knowledge no such suspension or revocation has been threatened by any Governmental Authority. Schedule 5.23 also indicates the line or lines of insurance in which each such Insurance Subsidiary is permitted to engage with respect to each License therein listed.
5.24. Hazardous Materials. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations with respect to, or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment. To the best of the Borrower's knowledge and after undertaking due inquiry, (a) neither the Borrower nor any Subsidiary has caused or permitted any
toxic or hazardous waste or product to be disposed of, either on or under real property legally or beneficially owned or operated by the Borrower or any Subsidiary sufficient to cause or give rise to a reasonable likelihood of a Material Adverse Effect; (b) no such real property has ever been used as a dump site or long-term storage site for any toxic or hazardous waste or product sufficient to cause or give rise to a reasonable likelihood of a Material Adverse Effect; (c) the failure, if any, of the Borrower or any Subsidiary, in connection with the operation of their business, to obtain or be in compliance with any permit, certificate, license, approval and other authorization, or to file any notification or report relating to chemical substances, air emissions, effluent discharges and storage, treatment, transport and disposal has not had, nor is there a reasonable likelihood that it will have, a Material Adverse Effect; (d) the Borrower and the Subsidiaries have no liabilities with respect to toxic or hazardous waste or product arising from or relating to property owned or occupied or actions taken by such Persons, and no facts or circumstances exist which could give rise to liabilities with respect to toxic or hazardous waste or product, which, in either case, have or could have any reasonable likelihood of a Material Adverse Effect; and (e) (i) except as disclosed on Schedule 5.24, the Borrower and the Subsidiaries have no liabilities arising from or relating to property owned or occupied or actions taken by such Persons, exceeding $100,000 with respect to toxic or hazardous waste or product and no facts or circumstances exist which could give rise to such liabilities with respect to toxic or hazardous waste product, and (ii) none of the matters disclosed on Schedule 5.24, have or could have any reasonable likelihood of a Material Adverse Effect.
5.25. Corporate Insurance. The certificate signed by the President or Chief Financial Officer of the Borrower, that attests to the existence and adequacy of, and summarizes, the property and casualty insurance program carried by the Borrower and that has been furnished by the Borrower to the Agent and the Lenders, is complete and accurate. This summary includes the insurer's or insurers' name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also includes similar information, and describes any reserves, relating to any self-insurance program that is in effect.
5.26. Disclosure. Neither (a) taken as a whole, the information, exhibits or reports relating to the Borrower, its Subsidiaries or Acquisition Corp. (including, without limitation, the Offering Documents) furnished by the Borrower or any Subsidiary to the Agent or to any Lender in connection with the negotiation of the Loan Documents nor (b) taken as a whole, the information regarding the Borrower set forth in the representations and warranties of the Borrower contained in this Agreement, the other Loan Documents or any other certificate furnished to the Agent or the Lenders pursuant to the Loan Documents by or on behalf of the Borrower for use in connection with the transactions contemplated
by this Agreement, in light of the information requested by such representations and warranties, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances and as of the time in which the same were furnished or made. The pro forma financial information contained in such materials is based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made and under the circumstances such materials were prepared. There is no fact known to the Borrower (other than matters of a general economic nature) that has had or may reasonably be expected to have a Material Adverse Effect or a Material Document Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated by this Agreement.
5.27. A.M. Best Rating. URC's A.M. Best & Co. rating as of the date of this Agreement is "A-(Excellent)".
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles and SAP, as applicable, and furnish to the Lenders:
(a) Within 90 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in generally accepted principles of accounting and required or approved by the Borrower's independent certified public accountants) audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by (i) any management letter prepared by said accountants, (ii) a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof, (iii) if then deliverable in accordance with said
accountants' internal policies and procedures, a letter from said accountants addressed to the Lenders substantially in the form of Exhibit E with respect to such financial statements (or in such other form as shall then comply with such policies and procedures) and (iv) a copy of a written reconciliation between SAP and Agreement Accounting Principles with respect to such financial statements if provided to the insurance regulatory authority in the state of domicile of any Insurance Subsidiary.
(b) Within 45 days after the close of the first three quarterly periods of each of its fiscal years, for itself and the Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer.
(c) Upon the earlier of (i) fifteen (15) days after the regulatory filing date or (ii) 75 days after the close of each Fiscal Year of each Insurance Subsidiary, copies of the Annual Statement of each of the Insurance Subsidiaries, certified by the president, secretary and treasurer and the actuary for each such Insurance Subsidiary and prepared on the NAIC annual statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein and to be certified by independent certified public accountants reasonably acceptable to the Agent if so required by any Governmental Authority.
(d) Upon the earlier of (i) five (5) days after the regulatory filing date or (ii) 60 days after the close of each of the first three fiscal quarters of each Fiscal Year of each Insurance Subsidiary, copies of the Quarterly Statement of each of the Insurance Subsidiaries, certified by the president, secretary and treasurer of each such Insurance Subsidiary and prepared on the NAIC quarterly statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied through the period reflected therein.
(e) Promptly upon receipt thereof, copies of the IRIS reports from NAIC to each Insurance Subsidiary with respect to such Insurance Subsidiary's results relative to NAIC ranges for each of the IRIS Tests, together with (i) a written statement from the chief financial officer of each such Insurance Subsidiary explaining the nature and status of, and reasons for, any such results outside ranges and describing the action which such Insurance Subsidiary proposes to take with respect thereto, and (ii) all correspondence from each Insurance Subsidiary to the
insurance commissioner in such Insurance Subsidiary's jurisdiction of incorporation in respect of such IRIS reports.
(f) Promptly and in any event within ten days after learning thereof, notification of any changes after the date hereof in the rating given by A.M. Best & Co. in respect of any Insurance Subsidiary.
(g) Concurrently with the first meeting of the Borrower's Board of Directors in each year, but in any event within 90 days after the beginning of each fiscal year of the Borrower, a copy of the plan and forecast (including a projected consolidated and consolidating balance sheet, income statement and funds flow statement) of the Borrower for such fiscal year.
(h) Together with the financial statements required by Sections 6.1(a) and (b), a compliance certificate in substantially the form of Exhibit F hereto signed by its chief financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof.
(i) By May 15 of each calendar year, (i) a certificate from a qualified actuary, the form of which certificate shall be in compliance with all applicable insurance laws and regulations and all applicable published actuarial standards, attesting to the amount and the adequacy of the reserves of each Insurance Subsidiary and (ii) a report from an independent qualified actuary, which actuary shall be reasonably acceptable to the Agent, attesting to the adequacy of the reserves of each Insurance Subsidiary or, if such actuary deems such reserves to be inadequate, stating a recommended amount for such reserves.
(j) Within 270 days after the close of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA.
(k) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto.
(l) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, and (ii) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower
or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect.
(m) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished.
(n) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission, the National Association of Securities Dealers, any securities exchange, the NAIC or any insurance commission or department or analogous Governmental Authority (including, without limitation, any filing made by the Borrower or any Subsidiary pursuant to any insurance holding company act or related rules or regulations).
(o) Such other information (including, without limitation, the annual Best's Advance Report Service report prepared with respect to each Insurance Subsidiary rated by A.M. Best & Co. and non-financial information) as the Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances to refinance the Senior Notes and to meet the working capital needs of the Borrower and its Subsidiaries. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U).
6.3. Notice of Default and Other Matters. The Borrower will, and
will cause each Subsidiary to, give prompt notice in writing to the Lenders of
(a) the occurrence of any Default or Unmatured Default, together with a written
explanation of the nature and status thereof, (b) the occurrence of any other
development, financial or otherwise, relating to the Borrower or any of its
Subsidiaries or Acquisition Corp. which could reasonably be expected to have a
Material Adverse Effect or a Material Document Effect, (c) the receipt of any
notice from any Governmental Authority of the expiration without renewal,
revocation or suspension of, or the institution of any proceedings to revoke or
suspend, any License now or hereafter held by any Insurance Subsidiary which is
required to conduct insurance business in compliance with all applicable laws
and regulations, (d) the receipt of any notice from any Governmental Authority
of the institution of any disciplinary proceedings against or in respect of any
Insurance Subsidiary, or the issuance of any order, the taking of any action or
any request for an extraordinary audit for cause by any Governmental Authority
which, if adversely determined, could have a Material Adverse Effect or a
Material Document Effect or (e) any judicial or administrative order limiting
or controlling the insurance business of any Insurance Subsidiary (and not the
insurance industry generally) which has been issued or adopted and
which has had, or is reasonably expected to have, a material adverse effect on the operations of the insurance businesses conducted by the Insurance Subsidiaries, taken as a whole.
6.4. Conduct of Business. The Borrower will, and will cause each Subsidiary to, (a) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted (or, in the case of Managers and CUIC, as such business is presently intended to be conducted), (b) do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted and (c) do all things necessary to renew, extend and continue in effect all Licenses which may at any time and from time to time be necessary for any Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; provided, however, that (i) any Insurance Subsidiary may withdraw from one or more states (other than the state of its domicile) as an admitted insurer, and (ii) any Subsidiary that is not actively engaged in business may be dissolved, if, in any such case, such withdrawal or dissolution is determined by the Borrower's Board of Directors to be in the best interests of the Borrower and would not have a Material Adverse Effect.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves (determined in accordance with Agreement Accounting Principles) have been set aside.
6.6. Corporate Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject. The Borrower shall cause URC to timely file any reports with respect to the execution and consummation of this Agreement and the other Loan Documents that may be required pursuant to Section 401-B of the New Hampshire Insurance Code or otherwise.
6.8. Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working
order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to, permit the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. The Borrower will keep or cause to be kept, and cause each Subsidiary to keep or cause to be kept, appropriate records and books of account in which complete entries are to be made reflecting its and their business and financial transactions, such entries to be made in accordance with Agreement Accounting Principles or SAP, as applicable, consistently applied.
6.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except that
(a) any Subsidiary may declare and pay dividends to the Borrower or to a
Wholly-Owned Subsidiary and (b) so long as no Default or Unmatured Default
shall have occurred and be continuing either before or after giving effect
thereto, (i) if the Initial Public Offering has not occurred, the Borrower may
declare and pay dividends in any calendar year in an amount not exceeding the
amount set forth below opposite such calendar year:
Year Amount ---- ------ 1993 $1,000,000 1994 $1,250,000 1995 $1,500,000 1996 $1,750,000 1997 $2,000,000 1998 $2,250,000 |
and (ii) if the Initial Public Offering has occurred, the Borrower may declare and pay dividends in each twelve (12) month period next succeeding the date such offering is consummated in an aggregate amount not to exceed:
If, after giving effect to the reduction in Aggregate Commitment resulting from the Initial Public Offering and all prior reductions, the Aggregate Commitment is between: Amount ----------------------------------- ------ |
$80,000,001 and $100,000,000 Amount permitted by
(i) above
$50,000,001 and $80,000,000 $ 6,000,000
$25,000,001 and $50,000,000 $ 7,500,000
$0 and $25,000,000 $10,000,000
|
; provided, however, that with respect to both (i) and (ii) above, (A) in no event may any dividend be declared in an amount which exceeds 50% of the Borrower's Available Cash at the time of declaration, (B) dividends may be declared no more than once a quarter and (C) dividends may be declared in any quarter only after the Borrower has delivered the compliance certificate required by Section 6.1(h) with respect to the next preceding quarter.
6.11. Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) The Loans.
(b) Indebtedness existing on the date hereof and described in Schedule 5.19 hereto.
(c) Indebtedness in respect of Third Party Obligations permitted by Section 6.17 or Letters of Credit permitted by Section 6.21.
(d) Indebtedness owed (i) by the Borrower to any Wholly-Owned Subsidiary or (ii) by any Subsidiary to the Borrower or any Wholly-Owned Subsidiary, but in the case of (ii), only to the extent such Indebtedness is an Investment permitted by Section 6.16(a).
(e) Upon the delivery of a certificate of the Borrower's chief financial officer to the Agent and the Lenders evidencing a Leverage Ratio not greater than .30 to 1 and for so long as the Leverage Ratio remains less than or equal to .30 to 1, such additional unsecured Indebtedness as (i) would not cause the Leverage Ratio, after giving effect to the incurrence of such Indebtedness, to exceed .30 to 1, (ii) has a maturity no earlier than the Facility Termination Date and does not otherwise require principal payments or prepayments prior to such date and (iii) is otherwise on terms satisfactory to the Required Lenders.
(f) Unsecured Subordinated Indebtedness with an aggregate principal amount outstanding of not more than $25,000,000, issued on terms and conditions satisfactory to the Required Lenders, with the proceeds of such Indebtedness to be
applied to reduce the Aggregate Commitment in accordance with Section 2.7(a)(ii).
6.12. Merger. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except that
(a) the Borrower may enter into any merger or consolidation, so long as (i) the
surviving corporation is organized under the laws of any state of the United
States and assumes the Obligations of the Borrower by written instrument
acceptable in form and substance to the Required Lenders, (ii) no Default or
Unmatured Default has occurred and is continuing or would occur after giving
effect thereto and (iii) the Required Lenders have given their prior written
consent to such transaction, such consent not to unreasonably be withheld, (b)
a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary and (c)
so long as the condition set forth in Section 6.12(a)(ii) is satisfied,
Acquisition Corp. may merge into the Borrower.
6.13. Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person except for (a) sales of Investments in the ordinary course of business and (b) leases, sales or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of as permitted by this Section 6.13(b) during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries.
6.14. Sale of Accounts. The Borrower will not, nor will it permit any Subsidiary to, sell or otherwise dispose of any notes receivable or accounts receivable, with or without recourse.
6.15. Sale and Leaseback. The Borrower will not, nor will it permit any Subsidiary to, sell or transfer any of its Property in order to concurrently or subsequently lease as lessee such or similar Property.
6.16. Investments and Acquisitions.
(a) The Borrower will not, nor will it permit any Subsidiary which is not an Insurance Subsidiary to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisitions of any Person, except:
(i) Short-term obligations of, or fully guaranteed by, the United States of America.
(ii) Commercial paper rated A-l or better by Standard and Poor's Corporation or P-l or better by Moody's Investors Service, Inc.
(iii) Demand deposit accounts maintained in the ordinary course of business.
(iv) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000.
(v) Investments in existence on the date hereof and described on Schedule 6.16 hereto.
(vi) Investments of up to $5,000,000 in the aggregate in one or more Subsidiaries of the Borrower to be formed for the purpose of engaging in the insurance or reinsurance business. Such Investments may be made only in Wholly-Owned Subsidiaries all of the stock of which is either (i) pledged to the Agent for the benefit of the Lenders to secure the Obligations on the terms set forth in the Pledge Agreement or (ii) wholly owned by a Subsidiary all of whose stock is so pledged; provided, that up to $1,000,000 in the aggregate of such Investments may be made by the Borrower (either directly or by any of its Wholly-Owned Subsidiaries) in Subsidiaries which are not Wholly-Owned Subsidiaries.
(vii) Up to $5,000,000 in the aggregate at any time outstanding of other Investments rated A or better by Standard and Poor's Corporation or A2 or better by Moody's Investors Services, Inc.
(viii) Investments in URC consisting of the proceeds of a public offering of the equity securities of the Borrower or Acquisition Corp., but only to the extent that such proceeds are not required by the terms hereof to be used to repay the Obligations.
(b) The Borrower will not permit URC or any other Subsidiary to make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except:
(i) Cash and Cash Equivalents.
(ii) Investments in bonds rated BBB or better by Standard and Poor's Corporation or Baa-2 or better by Moody's Investors Services, Inc.
(iii) Investments in mortgages, private placements and other investment assets (including preferred stock) of a
quality acceptable to the insurance commissioner in the respective domiciliary state of URC or such Insurance Subsidiary; provided, that such Investments do not exceed, in the aggregate at any one time outstanding, the difference between (A) 10% of the combined Investments of URC and the other Insurance Subsidiaries and (B) the aggregate Investments made by the Borrower's Wholly-Owned Subsidiaries pursuant to the proviso to Section 6.16(a)(vi).
(iv) Existing Investments in Subsidiaries (other than CUIC) and other Investments in existence on the date hereof and described in Schedule 6.16 hereto.
(v) Investments of up to $15,000,000 in the aggregate in CUIC plus, so long as no Default or Unmatured Default is then pending, additional investments of up to $5,000,000 in the aggregate required for CUIC to qualify for an insurance license in any state.
(vi) Investments consisting of loans and advances to employees of the Borrower's Subsidiaries in connection with relocation expenses not to exceed $500,000 in the aggregate at any one time outstanding.
(c) The Borrower will not permit any Insurance Subsidiary to acquire any book of business or become directly or indirectly liable in respect of any policy of insurance unless such Insurance Subsidiary has first engaged in its customary underwriting procedures with respect to such book of business or policy. The foregoing shall not restrict the ability of any Insurance Subsidiary to acquire renewal rights with respect to a book of business.
6.17. Third Party Obligations. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Third Party Obligation (including, without limitation, any Third Party Obligation with respect to the obligations of a Subsidiary), except (a) by endorsement of instruments for deposit or collection in the ordinary course of business, (b) obligations in respect of Letters of Credit permitted by Section 6.21 and (c) Third Party Obligations in existence on the date hereof and described on Schedule 5.8 hereto.
6.18. Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books.
(b) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books.
(c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation.
(d) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries.
(e) Liens existing on the date hereof and described in Schedule 6.18 hereto.
(f) Liens in favor of the Agent or the Lenders granted pursuant to any Security Document.
(g) Deposits made by any Insurance Subsidiary with the insurance regulatory authority in its jurisdiction of incorporation or other statutory liens or liens or claims imposed or required by applicable insurance law or regulation against the assets of any Insurance Subsidiary, in each case in favor of all policyholders of such Insurance Subsidiary and in the ordinary course of such Insurance Subsidiary's business.
(h) Rights of third parties with respect to amounts deposited with or for the benefit of an Insurance Subsidiary in trust to secure obligations owed to an Insurance Subsidiary under contracts of reinsurance entered into in the ordinary course of such Insurance Subsidiary's business.
6.19. Capital Expenditures. The Borrower will not, nor will it permit any Subsidiary to, incur, or be committed to incur, on a cumulative basis, Capital Expenditures in excess of (a) $2,000,000 in the aggregate in calendar years 1993 and 1994 for the Borrower and its Subsidiaries and (b) $1,000,000 in the aggregate for the Borrower and its Subsidiaries in each calendar year thereafter.
6.20. Rentals. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist obligations for Rentals in excess of $2,000,000 during any one fiscal year on a non-cumulative basis in the aggregate for the Borrower and its Subsidiaries.
6.21. Letters of Credit. The Borrower will not, nor will it permit any Subsidiary to, apply for or become liable upon any Letter of Credit, except for Letters of Credit (a) in respect of which an Insurance Subsidiary (and not the Borrower) is liable and (b) which are provided by an Insurance Subsidiary in the ordinary course of the insurance or reinsurance business of such Insurance Subsidiary and which do not secure obligations other than obligations of such Insurance Subsidiary arising under contracts of insurance or reinsurance.
6.22. Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction.
6.23. Financial Undertakings. The Borrower will not, and will not permit any Subsidiary to, enter into or remain liable upon any Financial Undertaking, except Rate Hedging Obligations entered into with Lenders in respect of the Obligations.
6.24. Environmental Matters. (a) If the Borrower or any Subsidiary receives notice of any of the following: (i) the issuance of a complaint, notice or citation alleging a violation of any environmental law or regulation by the Borrower or any Subsidiary; (ii) the issuance of an administrative or judicial complaint or order against the Borrower or any Subsidiary requiring that action be taken to respond to or clean up a "release" of "hazardous substances" (as those terms are defined in CERCLA) into the environment; or (iii) a notice alleging that the Borrower or any Subsidiary may be liable or responsible for costs associated with a response to or cleanup of a "release" of "hazardous substances" (as those terms are defined in CERCLA); and if, based upon information reasonably available at the time of receipt, the Borrower or any Subsidiary expects that any such complaint, notice, citation or order is reasonably likely to result in the payment of fines, compliance costs or cleanup costs by the Borrower or any Subsidiary in excess of an aggregate of $100,000, then the Borrower shall provide the Agent with a copy of such notice within thirty (30) days of receipt thereof by the Borrower or its Subsidiary. In addition, if at any time subsequent to any such notice, any information subsequently becomes available to the Borrower or any Subsidiary which leads the Borrower to expect that any such complaint, notice, or citation is reasonably likely to result in the payment of fines, compliance costs or clean-up costs by the Borrower or any Subsidiary in excess of an aggregate of $100,000, then the Borrower shall provide the Agent with a copy of such notice and a summary of such information within ten (10) days after receipt of such information by the Borrower or any Subsidiary.
(b) Within ten days after the Borrower or any Subsidiary has learned of the proposal, enactment or promulgation of any federal, state or local environmental law or regulation which has a reasonable likelihood of having a Material Adverse Effect, the Borrower shall provide the Agent with written notice thereof.
6.25. Agreements as to Prohibited Acts. The Borrower shall not agree or in any manner commit itself to take or fail to take any action which, if taken or not taken, as applicable, would constitute a breach of this Agreement.
6.26. Change in Corporate Structure. Except as may be required by law or as otherwise expressly permitted hereunder, the Borrower shall not, nor shall it permit any Subsidiary to, permit any amendment or modification to be made to its certificate or articles of incorporation or by-laws.
6.27. Inconsistent Agreements. The Borrower shall not, nor shall it permit any Subsidiary to, enter into any indenture, agreement, instrument or other arrangement which, (a) directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence of the Obligations or the granting of Liens to secure the Obligations, or (b) contains any provision which would be violated or breached by the making of Advances or by the performance by the Borrower of any of its obligations under any Loan Document.
6.28. Borrower Financial Covenants. Subject to normal year-end and closing audit adjustments for calculations or determinations made in accordance with Agreement Accounting Principles prior to the end of a Fiscal Year, the Borrower, on a consolidated basis with the Subsidiaries shall:
6.28.1. Minimum Tangible Net Worth. At all times after the date hereof, determined as at the end of each calendar quarter (commencing March 31, 1993) maintain a Consolidated Tangible Net Worth equal to or greater than (a) the average of the Borrower's Consolidated Tangible Net Worth as at the last day of each of the four next preceding calendar quarters, plus (b) 5% of the average amount determined pursuant to clause (a); provided, that (i) for the purposes of this Section 6.28.1, the amount of the Borrower's "deferred tax" asset will not be included in the determination of Consolidated Tangible Net Worth, (ii) for all purposes of determining compliance with this covenant, increases in Consolidated Tangible Net Worth resulting from the sale by the Borrower or its Subsidiaries of equity securities (or receipt of capital contributions without the issuance of equity securities) shall be excluded, although investment earnings on such sale proceeds and capital contributions will be given effect and (iii) the amount of Consolidated Tangible Net Worth required to be maintained shall be adjusted to reflect any changes in the manner
of computing same arising out of changes in Agreement Accounting Principles after the date hereof.
6.28.2. Fixed Charge Coverage Ratio. As of the end of each fiscal quarter, maintain a ratio of (a) net income from operations (as reported on Line 14 of the Statement of Income, computed for the four-quarter period then ended for the Insurance Subsidiaries on a consolidated basis, determined in accordance with SAP, to (b) the sum of (i) if positive, (A) the aggregate principal amount of Loans outstanding as of the end of such fiscal quarter minus (B) $100,000,000 minus the aggregate amount of all reductions in the Aggregate Commitment which have occurred on or prior to the end of such fiscal quarter or which are scheduled to occur during the next succeeding four quarters pursuant to Section 2.4(c), plus (ii) the aggregate interest expense (calculated using the outstanding principal amount of the Loans or other Indebtedness as of the date of determination and at the interest rate applicable thereto on the last Business Day of the relevant period of calculation), computed for the four-quarter period next succeeding the date of calculation) for the Borrower, determined in accordance with Agreement Accounting Principles, plus (iii) the aggregate consolidated income taxes paid or payable by the Borrower, computed for the four-quarter period then ended, determined in accordance with Agreement Accounting Principles, of at least 1.5 to 1.
6.29. Insurance Company Financial Covenants. Subject to normal year-end and closing audit adjustments for calculations or determinations made in accordance with SAP prior to the end of a Fiscal Year, the Borrower shall cause its Consolidated Insurance Subsidiaries to:
6.29.1. Surplus as Regards Policyholders. Commencing March 31, 1993 and determined as at the end of each calendar quarter (commencing as of such date), at all times after the date hereof, maintain an aggregate Surplus as Regards Policyholders (including any Asset Valuation Reserve) of at least $170,000,000 plus the amount of any contributions to the surplus thereof after the date hereof.
6.29.2. Operating Leverage. Commencing March 31, 1993 and determined as at the end of each calendar quarter (commencing as of such date), at all times after the date hereof, maintain a ratio for the four calendar quarters then ended of (a) Net Written Premiums to (b) aggregate Surplus as Regards Policyholders of less than or equal to 1.5 to 1.
6.29.3. Statutory Income. As of the end of each Fiscal Year set forth below, maintain consolidated Statutory Income of at least the corresponding amount set forth below for such fiscal year:
Fiscal Year Statutory Income ----------- ---------------- 1992 $30,000,000 1993 $30,000,000 1994 $30,000,000 1995 $35,000,000 1996 $35,000,000 1997 $40,000,000 1998 $40,000,000 |
6.30. Tax Consolidation. The Borrower will not and will not permit any of its Subsidiaries to file or consent to the filing of any consolidated income tax return with any Person (other than any of its Subsidiaries), except as required by law. The Borrower will not amend any Tax Sharing Agreement without the prior written consent of the Required Lenders except as required by applicable law.
6.31. Reports to NAIC. Concurrently with the delivery to the Lenders of each financial statement required by Section 6.1(c), the Borrower will deliver a copy thereof to: Securities Valuation Offices, National Association of Insurance Commissioners, 67 Wall Street, New York, New York 10005.
6.32. Additional Collateral. Upon the request of the Agent following the Borrower's acquisition of any surplus note or debenture or material leasehold interest or other real property, the Borrower will execute and deliver to the Agent such documents as the Agent may reasonably request to subject such property to a Lien in favor of the Agent and the Lenders securing the Obligations.
6.33. Multiemployer Plan. Neither the Borrower nor any member of the Controlled Group shall maintain or become obligated in respect of a Multiemployer Plan.
6.34. CUIC. The Borrower will cause CUIC to remain a Wholly-Owned Subsidiary of the Borrower.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute a Default:
7.1. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this
Agreement or any other Loan Document shall be false or misleading in any material respect on the date as of which made.
7.2. Nonpayment of principal of any Note when due, or nonpayment of interest upon any Note or of any commitment fee or other obligations under any of the Loan Documents within five (5) days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2 or 6.3(a) or any of Sections 6.10 through 6.24 or Sections 6.26
through 6.30.
7.4. The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within twenty (20) days after written notice from the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any Indebtedness for money borrowed aggregating in excess of $1,000,000 when due (taking into account any applicable grace period); or the default by the Borrower or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as now
or hereafter in effect, (ii) make an assignment for the benefit of creditors,
(iii) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it or
any Substantial Portion of its Property, (iv) institute any proceeding seeking
an order for relief under the Federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it as bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (v) take any corporate action to authorize or effect any of the foregoing
actions set forth in this Section 7.6, (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7 or (vii) not pay, or admit in
writing its inability to pay, its debts generally as they become due.
7.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days.
7.8. Any court or Governmental Authority shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days (or in the case of judgments or orders entered against an Insurance Subsidiary arising from insurance or reinsurance contracts, 180 days, so long as no action has been taken to execute upon such judgment or order against the assets of such Insurance Subsidiary) to pay, bond or otherwise discharge any single judgment or order entered against the Borrower or any of its Subsidiaries for the payment of money in excess of $500,000 (or multiple judgments or orders for the payment of an aggregate amount in excess of $1,000,000), which is not stayed on appeal or otherwise being appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $500,000 or any Reportable Event shall occur in connection with any Plan.
7.11. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by the Borrower or any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect.
7.12. Any Change in Control shall occur.
7.13. The occurrence of any "default", as defined in any Loan Document (other than this Agreement or the Notes) or Rate Swap Agreement or the breach of any of the terms or provisions of any Loan Document (other than this Agreement or the Notes) or Rate Swap Agreement, which default or breach continues beyond any period of grace therein provided.
7.14. Any Security Document shall for any reason fail to create a valid and perfected first priority security interest in any collateral purported to be covered thereby, except as permitted by the terms of such Security Document, or any Security Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Security Document.
7.15. The Borrower or any Insurance Subsidiary fails to comply with any insurance law, rule or regulation non-compliance with which could have a Material Adverse Effect or a Material Document Effect or shall become subject to any order, including without limitation, any conservation, liquidation or cease and desist order, directive or mandate issued by any Governmental Authority which is not stayed within ten (10) days.
7.16. Any member of the Borrower's management sells any capital stock of Acquisition Corp. or, following or in connection with any merger of Acquisition Corp. into the Borrower, the Borrower, unless (a) such sale is a put or call pursuant to the terms of the Shareholders Agreement, (b) such sale complies with both Rule 144 under the Securities Act and Section 2.1 of the Shareholders Agreement or (c) such sale, viewed in light of all sales of Acquisition Corp.'s capital stock after the date hereof, does not result in a proportionately greater disposition of such capital stock held by management and their permitted assigns and transferees than the disposition by non-management holders on the date hereof and their permitted assigns and transferees.
7.17. Any License of any Insurance Subsidiary held by such Insurance Subsidiary on the date hereof or acquired by such Insurance Subsidiary thereafter, the loss of which would have, in the reasonable judgment of the Required Lenders, a Material Adverse Effect or a Material Document Effect, (a) shall be revoked by the state which shall have issued such License, or any action (administrative or judicial) to revoke such License shall have been commenced against such Insurance Subsidiary and shall not have been dismissed within 30 days of the commencement thereof, (b) shall be suspended by such state for a period in excess of 30 days or (c) shall not be reissued or renewed by such state upon the expiration thereof following application for such reissuance or renewal by such Insurance Subsidiary.
7.18. Any Insurance Subsidiary shall be fined in an amount in excess of $250,000 in any single instance by, or at the request of any state insurance regulatory agency as a result of the violation by such Insurance Subsidiary of such state's applicable insurance laws or the regulations promulgated in connection therewith; provided, however, that the imposition of any such fine shall not constitute a Default if (a) the Agent receives notice of such fine within five (5) Business Days of its imposition, and (b) (i) the Borrower provides the Agent within five (5) Business Days of the imposition of such fine with evidence reasonably satisfactory to
the Agent that the cause of such fine has been corrected or (ii) neither such fine nor the circumstances leading to its imposition would have a Material Adverse Effect or Material Document Effect.
7.19. Any report required pursuant to Section 6.1(i)(ii) shall indicate that the actual total reserves of any Insurance Subsidiary as of the next preceding December 31 are less than 95% of the reserves for such Insurance Subsidiary recommended by such report and such Insurance Subsidiary shall not have increased its reserves to at least 95% of the recommended reserve level within forty-five (45) days after the date of such report.
7.20. Acquisition Corp. engages in any business activities other than acting as the holding company of the Borrower and performing reasonably related functions.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. If any other Default occurs and shall be continuing, the Required Lenders, or the Agent with the consent of the Required Lenders may, or at the direction of the Required Lenders, the Agent shall, by written notice to the Borrower, terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives.
If, within fourteen (14) days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been obtained or
entered, the Lenders (in their sole discretion) shall so direct, the Agent
shall, by notice to the Borrower, rescind and annul such acceleration and/or
termination; provided, that the Obligations may thereafter be accelerated
pursuant to Section 8.1 for so long as the Default giving rise to such rescinded
or annulled acceleration shall be continuing.
8.2. Waivers and Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby:
(a) Extend the final maturity of any Loan or Note or reduce the principal amount thereof, or increase or reduce the rate or extend the time of payment of interest or fees thereon.
(b) Reduce the percentage specified in the definition of Required Lenders.
(c) Reduce the amount or extend the payment date for, the mandatory payments required under Section 2.1(b), increase the amount of the Commitment of any Lender hereunder, increase at any time the Aggregate Commitment above that amount specified in Section 2.4 or permit the Borrower to assign its rights under this Agreement.
(d) Extend the Facility Termination Date.
(e) Amend this Section 8.2.
(f) Release any guarantor of any Advance or all or any material portion of the Collateral (as defined in the Security Documents, respectively).
No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall
be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated.
9.2. Taxes. Any taxes (excluding federal, state and local income taxes on the overall net income of any Lender) or other similar assessments or charges payable or ruled payable by any governmental authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any.
9.3. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.
9.4. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter thereof.
9.5. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns.
9.6. Expenses; Indemnification. The Borrower shall reimburse the Agent for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, or administration of the Loan Documents. The Borrower also agrees to reimburse the Agent and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent and the Lenders, which attorneys may be employees of the Agent or the Lenders) paid or incurred by the Agent or any Lender in connection with the
collection and enforcement of the Loan Documents. Expenses being reimbursed by
the Borrower under this Section 9.6 include, without limitation, the cost and
expense of obtaining an appraisal of each parcel of real property or interest
in real property described in any mortgage or leasehold mortgage from time to
time executed by the Borrower in favor of the Agent, which appraisal shall be
in conformity with the applicable requirements of any law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, including, without limitation,
the provisions of Title XI of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended, reformed or otherwise modified from time
to time, and any rules promulgated to implement such provisions. The Borrower
further agrees to indemnify the Agent and each Lender, its directors, officers,
employees, attorneys and agents against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all
expenses of litigation or preparation therefor whether or not the Agent or any
Lender is a party thereto) which any of them may pay or incur arising out of or
relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Loan hereunder; provided, however, that no
Lender shall have the right to be indemnified hereunder for its own gross
negligence or willful misconduct. The obligations of the Borrower under this
Section 9.6 shall survive the termination of this Agreement and the payment of
the other Obligations.
9.7. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders.
9.8. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with (a) SAP in the case of determination applicable to the insurance operations of the Insurance Subsidiaries and (b) in the case of other determinations, Agreement Accounting Principles.
9.9. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable.
9.10. Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent
nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower shall rely entirely upon its own judgment with respect to its business, and any review, inspection or supervision of, or information supplied to the Borrower by the Agent or the Lenders is for the protection of the Agent and the Lenders and neither the Borrower nor any other Person is entitled to rely thereon. The Borrower (a) agrees that neither the Agent nor any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Agent, or such Lender, final and not subject to review on appeal, that such losses were the result of acts or omissions on the part of the Agent or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law and (b) to the extent permitted by law waives, releases and agrees not to sue upon any claim against the Agent or any Lender (whether sounding in tort, contract or otherwise) except a claim based upon gross negligence, willful misconduct or knowing violations of law. Whether or not such damages are related to a claim that is subject to the waiver effected above and whether or not such waiver is effective, neither the Agent nor any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages suffered by the Borrower in connection with, arising out of, or in any way related to the transactions contemplated or the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Agent or such Lender, as the case may be, final and not subject to review on appeal, that such damages were the result of acts or omissions on the part of the Agent or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law.
9.11. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.12. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND, TO THE EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
9.13. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.14. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (a) to other Lenders and their respective Affiliates, (b) to agents of and legal counsel, accountants, and other professional advisors to that Lender, (c) to regulatory officials, (d) as requested pursuant to or as required by law, regulation, or legal process, (e) in connection with any legal proceeding to which that Lender is a party, or (f) permitted by Section 12.4.
9.15. Disclosure. The Borrower and each Lender hereby (a) acknowledge and agree that First Chicago and/or its Affiliates from time to time may hold other investments in, make other loans to or have other relationships with the Continental Corporation and Goldman Sachs & Co., and (b) subject to the Agent's obligations to the Lenders set forth in Article X, waive any liability of First Chicago or such Affiliate to the Borrower or any Lender, respectively, arising out of or resulting from such investments, loans or relationships other than liabilities arising out of the gross negligence or willful misconduct of First Chicago or its Affiliates.
ARTICLE X
THE AGENT
10.1. Appointment. The First National Bank of Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the agent of such Lender pursuant hereto and to such other agreements, including with respect to all collateral. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary
relationship in respect of the Borrower or any Lender by reason of this Agreement.
10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; or (d) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith.
10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders (or all of the Lenders, where applicable), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (a) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents, (b)
for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (c) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of this
Agreement.
10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender.
10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.
10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, and the Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after the retiring Agent's giving notice of resignation, then the retiring Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. Such successor Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default or Unmatured Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for
its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be set off is to be applied to Indebtedness of the Borrower to a Lender, other than Indebtedness evidenced by any of the Notes held by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (a) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (b) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (b) of this Section, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note (other than any Federal Reserve Bank) agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, or releases any substantial portion of the Collateral securing any such Loan.
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant which has been identified to the Borrower by written notice shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents; provided, that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents in an amount equal to or greater than $5,000,000 or, in the case of purchases pursuant to Section 11.2, such amount as is required thereby. Such assignment shall be substantially in the form of Exhibit G hereto or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or Lending Installation or an Affiliate thereof; provided, that the Borrower's consent need not be obtained for any assignment while a Default has occurred and is continuing. Such consent shall not be unreasonably withheld.
12.3.2. Effect; Effective Date. Upon the (a) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit A to Exhibit G hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (b) payment of a $2,500 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, each dated the Closing Date, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment.
12.4. Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the Borrower and its Subsidiaries.
12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.18.
ARTICLE XIII
NOTICES
13.1. Giving Notice. Except as otherwise permitted by Section 2.13 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received, and any notice, if
transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes).
13.2. Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action.
[signature pages to follow]
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written.
Commitments UNDERWRITERS RE CORPORATION
-----------
By: /s/ Peter A. Bengelsdorf
---------------------------------
Print Name: Peter A. Bengelsdorf
-------------------------
Title: Vice President and
Chief Financial Officer
------------------------------
22801 Ventura Boulevard
Woodland Hills, California 91364
Attention: Peter A. Bengelsdorf
Telephone: (818) 225-1000
Telecopy: (818) 225-8219
$14,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Print Name: Marcia Saper
--------------------------
Title: Vice President
------------------------------
One First National Plaza
Chicago, Illinois 60670
Attention: Marcia Saper
Telephone: (312) 732-4754
Telecopy: (312) 732-4033
$13,000,000 THE BANK OF NEW YORK
By: /s/ W. Michael George
---------------------------------
Print Name: W. Michael George
-------------------------
Title: Vice President
------------------------------
One Wall Street
Seventeenth Floor
New York, New York 10286
Attention: Stratton R. Heath
Telephone: (212) 635-6466
Telecopy: (212) 809-9520
|
$13,000,000 CIBC, INC.
By: /s/ Gail M. Golightly
----------------------------------
Print Name: Gail M. Golightly
--------------------------
Title: Vice President
-------------------------------
425 Lexington Avenue
Sixth Floor
New York, New York 10017
Attention: Stephen D. Reynolds
Telephone: (212) 856-3566
Telecopy: (212) 856-3599
$13,000,000 CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Jacques Mounier
----------------------------------
Print Name: Jacques Mounier
--------------------------
Title: Senior Vice President-Treasurer
-------------------------------
1301 Avenue of the Americas
Seventeenth Floor
New York, New York 10019
Attention: Susan A. Maros
Telephone: (212) 261-7407
Telecopy: (212) 261-3401
$13,000,000 FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Anne P. Benson
----------------------------------
Print Name: Anne P. Benson
--------------------------
Title: Vice President
-------------------------------
One First Union Center
TW-19
Charlotte, North Carolina
28288-0735
Attention: Anne Benson
Telephone: (704) 374-6619
Telecopy: (704) 374-4092
|
$13,000,000 MELLON BANK, N.A.
By: /s/ W. Scott Sanford
---------------------------------
Print Name: W. Scott Sanford
-------------------------
Title: Senior Vice President
------------------------------
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Attention: W. Scott Sanford
Telephone: (412) 234-3098
Telecopy: (412) 234-9047
$12,000,000 SANWA BANK CALIFORNIA
By: /s/ John C. Hyche
---------------------------------
Print Name: John C. Hyche
-------------------------
Title: Vice President
------------------------------
Insurance and Financial Services
601 South Figueroa Street
Los Angeles, California 90017
Attention: John C. Hyche
Telephone: (213) 896-7543
Telecopy: (213) 896-7282
|
$ 9,000,000 UNION BANK, N.A.
By: /s/ Richard H. Palmer
---------------------------------
Print Name: Richard H. Palmer
-------------------------
Title: Vice President
------------------------------
By: /s/ Patricia C. Rohling
---------------------------------
Print Name: Patricia C. Rohling
-------------------------
Title: Vice President and Manager
------------------------------
Thirteenth Floor
445 South Figueroa Street
Los Angeles, California 90017
Attention: Richard Palmer
Telephone: (213) 236-5596
Telecopy: (213) 629-5328
-----------
$100,000,000
-----------
|
Exhibit 10.39(j)
List of Contents of Exhibits and
Schedules to Underwriters Credit Agreement
Exhibits
--------
Exhibit A Form of Note
Exhibit B Form of Pledge Agreement
Exhibit C Form of Security Agreement
Exhibit D-1 Form of Opinion of Arnold & Porter
Exhibit D-2 Form of Opinion of Roussos, Hage & Hodes
Exhibit E Form of Letter of KPMG Peat Marwick
Exhibit F Form of Compliance Certificate
Exhibit G Form of Assignment Agreement
Schedules
---------
Schedule 5.3 Required Consents
Schedule 5.4 Governmental Consents
Schedule 5.8 Litigation and Third Party Obligations
Schedule 5.9 Subsidiaries
Schedule 5.17 Capitalization
Schedule 5.19 Indebtedness
Schedule 5.23 Insurance Licenses and Business
Schedule 5.24 Environmental
Schedule 6.16 Investments
Schedule 6.18 Liens
|
Exhibit 10.39(k)
AMENDMENT NUMBER ONE
DATED AS OF APRIL 23, 1993
TO
CREDIT AGREEMENT
DATED AS OF NOVEMBER 16, 1992
This Amendment to the Credit Agreement described below is entered into as of April 23, 1993.
1. Preliminary Statement. Reference is made to a Credit Agreement dated as of November 16, 1992 (which, as it may be amended, extended or supplemented from time to time, is herein called the "Credit Agreement") among Underwriters Re Corporation (the "Borrower"), the lenders which are a party thereto (the "Lenders") and The First National Bank of Chicago, as agent for the Lenders (the "Agent").
2. Amendments. The Borrower, the Required Lenders and the Agent hereby amend the Credit Agreement as follows:
In Section 2.7(a)(ii)(A) and (B) the date "June 30, 1993" is hereby deleted and the date "September 30, 1993" is hereby inserted in lieu thereof.
3. Representations. In order to induce the Lenders to enter into this Amendment the Borrower represents and warrants that:
A. The representations and warranties set forth in
Section 5 of the Credit Agreement, as hereby amended, are true,
correct and complete on the date hereof as if made on and as of the
date hereof and that there exists no Default or Unmatured Default on
the date hereof;
B. The execution and delivery by the Borrower of this Amendment have been duly authorized by proper corporate proceedings and this Amendment, and the Credit Agreement, as amended by this Amendment, constitute valid and binding obligations of the Borrower; and
C. Neither the execution and delivery by the Borrower of this Amendment, the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or the Borrower's articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower is a party or is subject, or by which it or its property, is bound, or conflict with or constitute a default thereunder.
4. Closing Conditions. This Amendment shall be effective upon receipt by the Agent from the Required Lenders and the Borrower of executed counterparts of this Amendment or of telex or telecopied confirmation of their execution and mailing of this Amendment.
5. Definitions. Unless the context shall otherwise require, all terms used herein which are defined in the Credit Agreement shall have the meanings assigned to them therein.
6. Counterparts. This Amendment may be executed by the parties hereto individually, or in any combinations of the parties hereto in several counterparts, all of which taken together shall constitute one and the same amendment.
7. Ratification. Except as expressly amended hereby, all of the representations, warranties, provisions, covenants, terms and conditions of the Credit Agreement shall remain unaltered and in full force and effect and, as amended hereby, the Credit Agreement is in all respects agreed to, ratified and confirmed by the Borrower and the Lenders.
8. Effective Date. Upon satisfaction of all conditions contained in Paragraph 4 above, this Amendment shall be effective as of April 23, 1993 (the "Effective Date").
9. Expenses. The Borrower shall pay all expenses of the Agent (including reasonable charges for in-house counsel) incurred by the Agent in the preparation of this Amendment.
10. Reference to and Effect on the Loan Documents. Upon the effectiveness of this Amendment, each reference in the Credit Agreement and the other Loan Documents to "this Credit Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the Notes and the other Loan Documents to the "Agreement," "thereunder," "thereof," or words of like import referring to the Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby.
UNDERWRITERS RE CORPORATION
By:/s/ Peter Bengelsdorf
-------------------------------------------
Its: Vice President
------------------------------------------
|
THE FIRST NATIONAL BANK OF CHICAGO
Individually and as Agent
By:/s/ Marcia Saper
-------------------------------------------
Its: Vice President
------------------------------------------
|
BANK OF NEW YORK
By:/s/ Indecipherable on behalf of
Bank of New York
-------------------------------------------
Its: Senior Vice President
------------------------------------------
|
CIBC, INC.
By:/s/ Stephen D. Reynolds
-------------------------------------------
Its: Vice President
------------------------------------------
|
CREDIT LYONNAIS
By:/s/ Jacques Mounier
-------------------------------------------
Its:Sr. V.P. Treasurer Deputy General Mgr.
------------------------------------------
|
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:/s/ Robert Monk
-------------------------------------------
Its: Assistant Vice President
------------------------------------------
|
MELLON BANK, N.A.
By:/s/ W.S. Sanford
-------------------------------------------
Its: Senior Vice President
------------------------------------------
|
SANWA BANK CALIFORNIA
By:/s/ John Hyche
-------------------------------------------
Its: Vice President
------------------------------------------
|
UNION BANK, N.A.
By:/s/Robert Dawson P.C. Rohling
-------------------------------------------
Its: Vice President Vice President
------------------------------------------
|
Exhibit 10.39(l)
ASSIGNMENT AND ASSUMPTION, WAIVER AND AMENDMENT AGREEMENT
This Assignment and Assumption, Waiver and Amendment Agreement (this "Amendment Agreement") is entered into as of October 7, 1993 by and among Underwriters Re Corporation (the "Old Borrower"), URC Holdings Corp. (the "Borrower"), the undersigned lenders (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Old Borrower, the Lenders and the Agent are parties to that certain Credit Agreement dated as of November 16, 1992 (the "Credit Agreement");
WHEREAS, Alleghany Corporation, The Continental Corporation ("Continental"), Goldman, Sachs & Co. and certain funds which Goldman, Sachs & Co. either control or of which they are general partner, Underwriters Re Holdings Corp. ("Holdings") and the Old Borrower have entered into that certain Stock Purchase Agreement dated as of July 28, 1993 (the "Purchase Agreement"), pursuant to which the Old Borrower (a) is concurrently transferring all of the assets and liabilities of the Old Borrower, including without limitation certain of the issued and outstanding capital stock of each of Underwriters Reinsurance Company ("URC") and URC Risk Managers, Inc. ("Managers"), to the Borrower and its Subsidiaries and (b) will subsequently sell all of the issued and outstanding capital stock of the Borrower owned by it to Alleghany; and
WHEREAS, Continental, Holdings, the Old Borrower and the individuals listed therein (the "Management Stockholders") have entered into that certain Management Stock Purchase Agreement dated as of July 28, 1993 and supplemented as of August 12, 1993 (the "Management Purchase Agreement" and, together with the Purchase Agreement and the other agreements and instruments executed and delivered in connection with the Purchase Agreement and the Management Purchase Agreement, the "Acquisition Documents"), pursuant to which the Management Stockholders will acquire certain shares of the Borrower in exchange for shares of Holdings owned by them and to be owned by them upon the exercise of certain outstanding stock options;
WHEREAS, in connection with the consummation of the transactions contemplated by the Acquisition Documents (the "Acquisition"), (a) the Old Borrower desires to assign its obligations under the Credit Agreement to the Borrower and the Borrower desires to assume such obligations, (b) the Lenders agree to consent to such assignment and assumption and (b) the Borrower, the Lenders and the Agent desire to amend the Credit Agreement as herein set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement, as amended hereby.
2. Assignment and Assumption by the Borrower and Release of the Old Borrower.
Subject to the terms and conditions of this Amendment Agreement, each party
hereto agrees that effective as of the Effective Time (as hereinafter defined),
(a) the Old Borrower hereby transfers, assigns and delegates to the Borrower,
and the Borrower hereby assumes and undertakes, absolutely and unconditionally,
from the Old Borrower, all of the Old Borrower's rights, benefits, obligations,
liabilities, duties and indemnities arising under the Credit Agreement and the
other Loan Documents, whether actual or contingent, including without
limitation, all Obligations which may have accrued and not been discharged prior
to the effectiveness of this Amendment Agreement, (b) the Borrower shall be the
"Borrower" under the Credit Agreement and all related documents and agreements
and shall be bound by the terms of the Credit Agreement and each such document
and agreement as if the Borrower were an original signatory party thereto and
(c) the Old Borrower shall be released from any and all obligations of any
nature whatsoever in respect of the Loan Documents and the Obligations.
3. Waivers. Each Lender hereby waives the default by the Old Borrower in the observance of Sections 6.16(a), 6.22, 6.25, 6.26, 6.27, 6.30 and 7.12 of the Credit Agreement to the extent that such default is exclusively the result of the Acquisition.
4. Amendments to Credit Agreement.
4.1 Article I of the Credit Agreement is hereby amended by (a) deleting the reference to "Underwriters Re Corporation" in the definition of "Borrower" and replacing it with a reference to "URC Holdings Corp.", (b) deleting the reference to "Underwriters Re Acquisition Corp." in the definition of "Acquisition Corp." and replacing it with a reference to "Continental Holding Corporation (formerly Underwriters Re Holdings Corp. and formerly Underwriters Re Acquisition Corp.)", (c) deleting the references to "as of the date hereof" in the definitions of "Pledge Agreement" and "Security Agreement" and replacing them with references to "October 7, 1993", (d) deleting the references to "Acquisition Corp." in the definitions of "Change in Control", "Initial Public Offering" and "Net Available Proceeds", (e) adding the following language to the definition of "Tangible Net Worth" following the reference to "Agreement Accounting Principles": "(as modified by interpretations of the FASB Emerging Issues Task Force regarding multi-year funded
reinsurance contracts)", (f) deleting the definition of "Unfunded Liabilities" in its entirety and replacing it with the following:
"Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations.
(g) adding the following language to the definition of "Agreement Accounting Principles": "and for all financial information and determinations given or made after June 30, 1993, as modified by interpretations of the FASB Emerging Issues Task Force regarding multi-year funded reinsurance contracts", (h) adding the following language to the definition of "Loan Documents": "and that certain Assignment and Assumption, Waiver and Amendment Agreement dated as of October 7, 1993 among the Old Borrower, the Borrower, the Lender and the Agent" and (i) adding the following definitions:
"Alleghany" means Alleghany Corporation, a Delaware corporation.
"Alleghany Tax Sharing Agreements" means, collectively, that certain
Agreement dated as of October 7, 1993 between Alleghany and the Borrower,
that certain Tax Sharing Agreement dated as of October 7, 1993 among the
Borrower, URC and CUIC and that certain Agreement dated as of October 7, 1993
between the Borrower and Managers, as each is in effect on such date,
together with any other agreements entered into pursuant to the proviso to
Section 6.30, as any such agreement may be hereafter amended, subject to
compliance with the terms hereof.
"Consolidated Person" means, for the taxable year of reference of Alleghany, each Person which has joined or which is required to join in the filing of a consolidated federal income tax return with Alleghany.
"Continental" means The Continental Corporation, a New York corporation.
"Continental Tax Sharing Agreement" means that certain Tax Sharing Agreement dated as of October 7, 1993 among Continental, Acquisition Corp., the Old Borrower, the Borrower, Managers, URC and CUIC, as in effect on such date and as such agreement may be hereafter amended, subject to compliance with the terms hereof."
"Old Borrower" means Continental Subsidiary Corporation, a Delaware corporation (formerly, Underwriters Re Corporation).
4.2 Article II of the Credit Agreement is hereby amended by deleting the references to "Acquisition Corp." in Section 2.7(a)(ii).
4.3 Article V of the Credit Agreement is hereby amended by (a) deleting
Section 5.7 in its entirety and replacing it with the following:
5.7 Taxes. Except as set forth on Schedule 5.7 hereto, each of the Borrower and the Subsidiaries has filed or caused to be filed all United States federal and applicable state tax returns and all other tax returns which are required to be filed by it, each of Alleghany and each other Consolidated Person has filed or caused to be filed all United States federal and material applicable state tax returns which are required to be filed by it and each of the Borrower, the Subsidiaries, Alleghany and each other Consolidated Person has paid all taxes due pursuant to said returns or pursuant to any assessment received by such Person, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. From and after the day after the effective date of Alleghany's acquisition of certain shares of the Borrower's common stock, each of the Borrower and each Subsidiary shall join in the filing of a consolidated federal income tax return with Alleghany. No tax liens have been filed and no claims are being asserted with respect to any taxes for which any Consolidated Person may be liable which would have a Material Adverse Effect. The charges, accruals and reserves (a) on the books of the Borrower and the Subsidiaries in respect of any taxes or other governmental charges and (b) on the books of Alleghany and each other Consolidated Person in respect of any taxes or other governmental charges owing with respect to any tax year beginning after December 31, 1992 are in accordance with Agreement Accounting Principles.
(b) deleting Section 5.10 in its entirety and replacing it with the following:
5.10. ERISA. The Unfunded Liabilities of all Single Employer Plans maintained by the Borrower or any of its Subsidiaries do not in the aggregate exceed $1,000,000, and the Unfunded Liabilities of all Single Employer Plans maintained by the other members of the Controlled Group do not in the aggregate exceed an amount which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any other member of the Controlled Group
maintains, or is obligated to contribute to, any Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan maintained by the Borrower or any of its Subsidiaries, no Reportable Event has occurred with respect to any Plan maintained by any other member of the Controlled Group that could reasonably be expected to have a Material Adverse Effect, neither the Borrower nor any Subsidiary has withdrawn from any Multiemployer Plan or initiated steps to do so, no other member of the Controlled Group has withdrawn from any Multiemployer Plan resulting in any withdrawal liability that could reasonably be expected to have a Material Adverse Effect or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan other than the Acquisition Corp. retirement plan.
and (c) adding the following at the end of clause (b) of Section 5.26:
nor (c) taken as a whole, the information regarding the Borrower and Alleghany furnished by the Borrower to the Agent or to any Lender in connection with the transactions contemplated by that certain Stock Purchase Agreement dated as of July 28, 1993 among Alleghany, Continental, Goldman, Sachs & Co. and certain funds which Goldman, Sachs & Co. either control or of which they are general partner, Acquisition Corp. and Underwriters Re Corporation,
4.4 Article VI of the Credit Agreement is hereby amended as follows:
(a) Section 6.1 is hereby amended by (i) adding the following language at the end of paragraph (k):
and as soon as possible and in any event with ten (10) days after learning thereof, notification of any Lien imposed by the PBGC or the IRS on the assets of any member of the Controlled Group in respect of any Plan maintained by any such member (or any other employee pension benefit plan as to which any such member may be liable) which relates to liabilities in excess of ten percent (10%) of the net worth (determined according to generally accepted accounting principles and without reduction for any reserve for such liabilities) of Alleghany and its Subsidiaries.
and (ii) adding paragraph (p) as follows:
(p) Promptly and in any event within ten (10) days after learning thereof, notification of (i) any tax assessment, demand or notice of deficiency received by the Borrower, any Subsidiary, Alleghany or any other Consolidated Person or (ii)
the filing of any tax Lien or commencement of any judicial proceeding against any such Person, if any such assessment, demand, notice, Lien or judicial proceeding relates to tax liabilities in excess of ten percent (10%) of the net worth (determined according to generally accepted accounting principles and without reduction for any reserve for such liabilities) of Alleghany and its Subsidiaries.
(b) Section 6.3 is hereby amended by deleting the reference to "Acquisition Corp." in clause (b) thereof and replacing it with a reference to "Alleghany".
(c) Section 6.11 is hereby amended by adding paragraph (g) as follows:
(g) Indebtedness with a principal amount not to exceed $3,593,136 evidenced by that certain Loan Agreement dated as of October 7, 1993 between Continental and the Borrower unless and until any amount of the Indebtedness described in clause (ix) of Section 6.16(a) has been forgiven by the Borrower or has been subject to any default by any obligor thereunder.
(d) Section 6.12 is hereby amended by inserting the word "and" before clause
(b) and deleting the remainder of the paragraph following clause (b).
(e) Section 6.16 is hereby amended by (i) deleting the words "or Acquisition
Corp." from clause (viii) of Section 6.16(a), (ii) adding the following to
Section 6.16(a):
(ix) Up to $3,593,136 of loans by the Borrower to its stockholders in accordance with Section 24(a) of that certain Stock Purchase Related Agreement dated as of July 28, 1993 among the stockholders listed therein and Alleghany.
(iii) adding the words "but not including any securities of CUIC" to the end of the parenthetical in clause (iii) of Section 6.16(b), and (iv) adding the words "so long as CUIC remains a Wholly-Owned Subsidiary of the Borrower" to the end of clause (v) of Section 6.16(b).
(f) Section 6.30 is hereby amended by deleting Section 6.30 in its entirety and replacing it with the following:
6.30. Tax Consolidation. The Borrower will not and will not permit any of its Subsidiaries to file or consent to the filing of any consolidated income tax return with any Person (other than the affiliated group of which Acquisition Corp. or Continental is the common parent for any taxable year that includes any part of the 1993 calendar year or any of the Borrower's Subsidiaries, Alleghany or any other Consolidated Person), except as required by law. The Borrower will not and
will not permit any of its Subsidiaries to (a) amend either the Continental Tax Sharing Agreement or any of the Alleghany Tax Sharing Agreements or (b) enter into a tax sharing agreement with any other Person without the prior written consent of the Required Lenders except as required by applicable law; provided, that the Borrower shall enter into a tax sharing agreement with any newly acquired or created Subsidiary which contains substantially the same terms and provisions as the tax sharing agreement between the Borrower and Alleghany which is then in effect.
4.5 Article VII of the Credit Agreement is hereby amended by (a) deleting
Section 7.10 in its entirety and replacing it with the following:
7.10. (a) The Unfunded Liabilities of all Single Employer Plans maintained by the Borrower and its Subsidiaries shall exceed in the aggregate $1,000,000 or a Reportable Event shall occur in connection with any Plan maintained by the Borrower or any of its Subsidiaries, (b) the Unfunded Liabilities of all Single Employer Plans maintained by other members of the Controlled Group shall exceed an amount which could reasonably be expected to have a Material Adverse Effect or any Reportable Event shall occur in connection with any Plan maintained by other members of the Controlled Group which could reasonably be expected to have a Material Adverse Effect or (c) any Lien shall be imposed by the PBGC or the IRS against any assets of the Borrower or any of its Subsidiaries with respect to a Plan maintained by any other member of the Controlled Group (or any other employee pension benefit plan as to which any such member may be liable).
(b) deleting Section 7.16 in its entirety and replacing it with the following:
7.16. At any time any two or more of the following individuals shall for any reason cease to be actively and on a full-time basis involved in the business of the Borrower: Steven H. Newman, Peter A. Bengelsdorf, Russell T. John, James P. Rapp and Dennis E. Arnold.
and (c) deleting Section 7.20 in its entirety and replacing it with the following:
7.20. The Borrower, any of its Subsidiaries, Alleghany or any other Consolidated Person shall receive any tax assessment, demand or notice of deficiency or have any tax Liens filed or any judicial proceeding relating to any tax matter commenced against it which, in any such case, could reasonably be expected to have a Material Adverse Effect or any tax Lien shall be filed against the Borrower or any
Subsidiary relating to the tax liabilities of any other Person.
4.6 The schedules to the Credit Agreement are hereby amended by (a) deleting
Schedules 5.3, 5.4, 5.8, 5.9, 5.17, 5.19 and 5.23 in their entirety and
replacing them with Schedules 5.3, 5.4, 5.8, 5.9, 5.17, 5.19 and 5.23 hereto and
(b) adding Schedule 5.7 hereto.
5. Conditions Precedent.
5.1 This Amendment Agreement shall become effective when the Borrower has furnished, or caused to be furnished, to the Agent, with sufficient copies for each Lender, each of the following (the "Effective Time"):
(a) Copies of the certificate of incorporation of the Borrower, a certificate of good standing regarding the Borrower from the States of California and Delaware and a certificate of compliance from the state of domicile of each Insurance Subsidiary, in each case certified by the appropriate governmental officer as of a date not earlier than ten (10) days before the date hereof.
(b) Copies, certified as of the date hereof by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of this Amendment Agreement and the other documents executed by it in connection herewith (collectively, the "Amendment Documents").
(c) An incumbency certificate, executed as of the date hereof by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Amendment Documents and to make borrowings under the Credit Agreement, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower.
(d) A certificate, dated as of the date hereof, signed by an Authorized Officer of the Borrower to the effect that: (i) after giving effect to the Amendment Documents, no Default or Unmatured Default has occurred and is continuing; (ii) no injunction or temporary restraining order which would prohibit the consummation of any of the transactions contemplated by any of the Amendment Documents or other litigation which could reasonably be expected to have a Material Adverse Effect or a Material Document Effect is pending or, to the best of such Person's knowledge, threatened; (iii) all orders, consents, approvals, licenses, authorizations or validations of, or filings, recordings or registrations with, or exemptions by, any governmental or public body or authority, or any subdivision thereof, required in connection with any of the Amendment Documents have been or, prior
to the time required, will have been, obtained, given, filed or taken and are or will be in full force and effect (or the applicable Person has obtained effective judicial relief with respect to the application thereof) and all applicable waiting periods have expired; (iv) since December 31, 1992, no event or change has occurred that has caused or evidences a Material Adverse Effect; and (v) after giving effect to the Amendment Documents, each of the representations and warranties contained in Article V of the Credit Agreement is true and correct in all material respects on and as of the date hereof.
(e) A written opinion of (i) Messrs. Arnold & Porter, the Borrower's counsel, (ii) Roussos, Hage & Hodes Professional Association, the Borrower's New Hampshire insurance counsel, (iii) Messrs. Buchalter, Nemer, Fields & Younger, the Borrower's California insurance counsel, and (iv) such other local counsel as the Agent may request, in each case addressed to and in form and substance acceptable to the Agent and the Lenders.
(f) Executed copy of this Amendment Agreement.
(g) Notes executed by the Borrower and payable to the order of each of the Lenders.
(h) Executed copy of the Pledge Agreement dated as of the date hereof between the Borrower and the Agent, together with the stock certificates representing all of the outstanding shares of capital stock of URC and Managers and stock powers with respect thereto executed in blank.
(i) Executed copy of the Security Agreement dated as of the date hereof between the Borrower and the Agent.
(j) Proof that the appropriate financing statements covering the Collateral including, without limitation, such fixture filings as the Agent may request, have been executed and delivered by the Borrower and filed or recorded in such jurisdictions as the Agent shall have specified or other arrangements with respect to filing or recording satisfactory to the Agent have been made.
(k) Written money transfer instructions addressed to the Agent and signed by an Authorized Officer of the Borrower, together with such other related money transfer authorizations as the Agent may have reasonably requested.
(l) An executed copy of the insurance certificate described in Section 5.25 of the Credit Agreement showing the Borrower as the insured party.
(m) A copy of the Continental Tax Sharing Agreement.
(n) Receipt of any required New Hampshire and California insurance commission approvals and all other required regulatory approvals.
(o) Evidence of the payment of all fees to the Agent and the Lenders required in connection with the execution and delivery of this Amendment Agreement.
(p) Executed copy of an acknowledgement by Continental of the assignment under the Security Agreement by the Borrower to the Lenders of the indemnities under the Acquisition Documents.
(q) Such other documents as the Agent or any Lender may have reasonably requested.
5.2 Notwithstanding the satisfaction of Section 5.1 hereof, as of 11:59 p.m. on October 8, 1993, this Amendment Agreement shall be deemed to be null and void and shall cease to be effective, the Credit Agreement and the other Loan Documents as in effect prior to the effectiveness of this Amendment Agreement shall be reinstated and the Old Borrower shall be deemed to have reassumed all of the Obligations and shall be and remain liable in respect thereof as if this Amendment Agreement had never become effective, unless the Borrower shall have furnished, or caused to be furnished, to the Agent by such date, with sufficient copies for each Lender, each of the following:
(a) A certificate, dated as of the date on which the transactions contemplated by the Acquisition Documents have been consummated, signed by an Authorized Officer of the Borrower, to the effect that: (i) each of the transactions contemplated by the Acquisition Documents has been consummated substantially in accordance with the terms of the Acquisition Documents without any waiver thereof not consented to by the Agent; (ii) after giving effect to the consummation of the Acquisition, no Default or Unmatured Default has occurred and is continuing; (iii) all orders, consents, approvals, licenses, authorizations or validations of, or filings, recordings or registrations with, or exemptions by, any governmental or public body or authority, or any subdivision thereof, required in connection with any of the Acquisition Documents have been or, prior to the time required, will have been obtained, given, filed or taken and are or will be in full force and effect (or the applicable Person has obtained effective judicial relief with respect to the application thereof) and all applicable waiting periods have expired; and (iv) after giving effect to the consummation of the Acquisition, each of the representations and warranties contained in Article V of the Credit Agreement is true and correct in all material respects as of such date.
(b) Confirmation that the Agent and the Lenders may rely upon each of the opinions delivered pursuant to the Acquisition Documents.
(c) A copy of the Purchase Agreement, the Management Purchase Agreement and the other Acquisition Documents.
(d) A copy of the Alleghany Tax Sharing Agreements, in form and substance satisfactory to the Agent and the Lenders.
(e) Confirmation that Alleghany has contributed at least $10,000,000 in cash to the capital of the Borrower in exchange for additional shares of stock of the Borrower.
(f) Such other documents as the Agent or any Lender may have reasonably requested.
6. Reference to and Effect on the Credit Agreement.
6.1 Upon the effectiveness of Section 5.1 hereof (and subject to Section 5.2 hereof), on or after the date hereof each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Credit Agreement as amended hereby.
6.2 Except as specifically amended and waived above, all of the terms, conditions and covenants of the Credit Agreement and the other Loan Documents shall remain unaltered and in full force and effect (other than with respect to the Old Borrower) and shall be binding upon the Borrower in all respects and are hereby ratified and confirmed.
6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not, except as expressly provided herein, operate as a waiver of (a) any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default under the Credit Agreement.
7. Costs and Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment Agreement, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto.
8. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9. Execution in Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment Agreement shall become effective as of the date first above written, subject to the provisions of Section 5.2 hereof; provided, that all of the conditions precedent set forth in Section 5.1 of this Amendment Agreement are satisfied and the Agent has received counterparts of this Amendment Agreement duly executed by the Old Borrower, the Borrower and each Lender.
[signature pages to follow]
IN WITNESS WHEREOF, the Old Borrower, the Borrower, the Agent and the Lenders have executed this Amendment Agreement as of the date first above written.
UNDERWRITERS RE CORPORATION
By: /s/ Peter A. Bengelsdorf
---------------------------------
Title: Vice President
-----------------------------
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URC HOLDINGS CORP.
By: /s/ Peter A. Bengelsdorf
---------------------------------
Title: Vice President
-----------------------------
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THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
-----------------------------
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THE BANK OF NEW YORK
By: /s/ Stratton R. Heath
---------------------------------
Title: Assistant Vice President
-----------------------------
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CIBC, INC.
By: /s/ Stephen D. Reynolds
---------------------------------
Title: Vice President
-----------------------------
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CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Jacques Mounier
---------------------------------
Title: Senior Vice President
-----------------------------
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FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ John E. Guenther
---------------------------------
Title: Corporate Banking Officer
-----------------------------
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MELLON BANK, N.A.
By: /s/ Tim Marchando
---------------------------------
Title: Officer
-----------------------------
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SANWA BANK CALIFORNIA
By: /s/ R. H. Palmer
---------------------------------
Title: Vice President
-----------------------------
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UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
-----------------------------
By: /s/ Indecipherable on behalf
of Union Bank
---------------------------------
Title: Vice President
-----------------------------
|
Exhibit 10.39(m)
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement (this "Amendment Agreement") is entered into as of February 1, 1994 by and among URC Holdings Corp. (the "Borrower"), the undersigned lenders (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, Underwriters Re Corporation (the "Old Borrower"), the Lenders and the Agent entered into that certain Credit Agreement dated as of November 16, 1992 (as assigned by the Old Borrower to the Borrower and as amended pursuant to that certain Assignment and Assumption, Waiver and Amendment Agreement dated as of October 7, 1993 among the Old Borrower, the Borrower, the Lenders and the Agent, the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to further amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement, as amended hereby.
2. Amendments to Credit Agreement.
2.1 Article I of the Credit Agreement is hereby amended by (a) deleting the definition of "Applicable ABR Margin", (b) amending the definition of "Applicable Eurodollar Margin" by (i) deleting the chart therein and replacing it with the following:
Applicable
Leverage Ratio Eurodollar Margin
- --------------------------------------- -----------------
Greater than
or Equal to But less than
- ----------- -------------
.20:1.0 ------- 1.00%
.10:1.0 .20:1.0 .75%
- ------- .10:1.0 .50%
|
and (ii) deleting the references to "1.75%" in the paragraph following such chart and replacing them with "1.00%", and (c) deleting the definition of "Floating Rate" in its entirety and replacing it with the following:
"Floating Rate" means, for any day, with respect to any Revolving Credit Advance, a rate per annum equal to the Alternate Base Rate for such day.
and (d) adding the definitions of "Cash Equivalents" and "Statutory Surplus" as follows:
"Cash Equivalents" means those Investments described in clauses (i) through (iv) of Section 6.16(a) hereof.
"Statutory Surplus" means the aggregate surplus of the Borrower's Consolidated Insurance Subsidiaries, as determined in accordance with SAP ("Liabilities, Surplus and Other Funds" statement, line 26 of the Annual Statement).
2.2 Article IV of the Credit Agreement is hereby amended as follows:
(a) Sections 6.28.1 and 6.28.2 are hereby deleted in their entirety and replaced with the following:
6.28.1. Minimum Tangible Net Worth. At all times after the date hereof (commencing on December 31, 1993), determined as at the end of each calendar quarter, maintain a Consolidated Tangible Net Worth equal to or greater than $150,000,000; provided, that (a) for the purposes of this Section 6.28.1, (i) the amount of the Borrower's "deferred tax" asset will not be included in the determination of Consolidated Tangible Net Worth and (ii) the difference between the "carrying value" of the consolidated invested assets of the Insurance Subsidiaries (as determined according to Agreement Accounting Principles) and the value of such assets determined according to SAP (which difference as of September 30, 1993 was equal to $42,166,503) will not be included in the determination of Consolidated Tangible Net Worth, and (b) the amount of Consolidated Tangible Net Worth required to be maintained shall be adjusted to reflect any changes in the manner of computing same arising out of changes in Agreement Accounting Principles after the date hereof.
6.28.2. Fixed Charge Coverage Ratio. As of the end of each fiscal quarter, maintain (a) a ratio of (i) Statutory Income computed for the four-quarter period then ended, to (ii) the sum of (A) if positive, (1) the aggregate principal amount of Loans outstanding as of the end of such fiscal quarter minus (2) $100,000,000 minus the aggregate amount of all reductions in the Aggregate Commitment which have occurred on or prior to the end of such fiscal quarter or which are scheduled to occur during the next succeeding four quarters pursuant to Section 2.4(c), plus (B) the aggregate interest expense of the Borrower (calculated using the outstanding principal amount of the Loans or other Indebtedness as of the date of determination and at the interest rate applicable thereto on the last Business Day of the relevant period of calculation), computed for the four-quarter period next succeeding the date of calculation, determined in accordance
with Agreement Accounting Principles, plus (C) the aggregate consolidated income taxes paid or payable by the Borrower, computed for the four-quarter period then ended, determined in accordance with Agreement Accounting Principles, of at least 1.5 to 1 and (b) a ratio of (i) the sum of (A) 10% of Statutory Surplus as of the end of such fiscal quarter plus (B) the Borrower's cash and Cash Equivalents to (ii) the amount determined pursuant to clause (a)(ii) above, of at least 1.0 to 1.
(b) Section 6.29.2 is hereby amended by deleting the words "1.5 to 1" and replacing them with the words "2.0 to 1".
3. Representations and Warranties of the Borrower.
3.1 The Borrower represents and warrants that the execution, delivery and performance by the Borrower of this Amendment Agreement have been duly authorized by all necessary corporate action and that this Amendment Agreement is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as the enforcement thereof may be subject to (a) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law).
3.2 The Borrower hereby certifies that each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment Agreement, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Credit Agreement as amended hereby.
4.2 Except as specifically amended and waived above, all of the terms, conditions and covenants of the Credit Agreement and the other Loan Documents shall remain unaltered and in full force and effect and shall be binding upon the Borrower in all respects and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of (a) any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default under the Credit Agreement.
5. Costs and Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment Agreement, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto.
6. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
7. Execution in Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment Agreement shall become effective as of the date first above written; provided, that the Agent has received counterparts of this Amendment Agreement duly executed by the Borrower and each Lender.
[signature pages to follow]
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed this Amendment Agreement as of the date first above written.
URC HOLDINGS CORP.
By: /s/ Peter Bengelsdorf
---------------------------------
Title: Chief Financial Officer
------------------------------
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THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
------------------------------
|
THE BANK OF NEW YORK
By: /s/ Stratton R. Heath
---------------------------------
Title: Assistant Vice President
------------------------------
|
CIBC, INC.
By: /s/ Stephen D. Reynolds
---------------------------------
Title: Vice President
------------------------------
|
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Vice President
------------------------------
|
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
MELLON BANK, N.A.
By: /s/ Tim Marchando
---------------------------------
Title: Officer
------------------------------
|
SANWA BANK CALIFORNIA
By: /s/ R. H. Palmer
---------------------------------
Title: Vice President
------------------------------
|
UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
------------------------------
|
Exhibit 10.39(n)
AMENDMENT NO. 3 TO CREDIT AGREEMENT
This Amendment No. 3 to Credit Agreement (this "Amendment Agreement") is entered into as of September 29, 1995 by and among URC Holdings Corp. (the "Borrower"), the undersigned lenders (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, Underwriters Re Corporation (the "Old Borrower"), the Lenders and the Agent entered into that certain Credit Agreement dated as of November 16, 1992 (as assigned by the Old Borrower to the Borrower and as amended pursuant to that certain Assignment and Assumption, Waiver and Amendment Agreement dated as of October 7, 1993 among the Old Borrower, the Borrower, the Lenders and the Agent and as further amended pursuant to that certain Amendment No. 2 to Credit Agreement dated as of February 1, 1994, the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to further amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement, as amended hereby.
2. Amendment to Credit Agreement. Section 6.17 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (b) thereof and inserting a comma in its place and (ii) adding the following to the end of such section:
"and (d) by the extension of guaranties in the ordinary course of business to insureds of the obligations of insurers under insurance policies"
3. Consent. Notwithstanding Section 6.19 of the Credit Agreement to the contrary, the Borrower may purchase a parcel of real estate in New York, New York in 1995 or 1996 so long as the purchase price for such real estate does not exceed $1,800,000.
4. Representations and Warranties of the Borrower.
4.1 The Borrower represents and warrants that the execution, delivery and performance by the Borrower of this Amendment Agreement have been duly authorized by all necessary corporate action and that this Amendment Agreement is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be subject to
(a) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and (b) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
4.2 The Borrower hereby certifies that each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof.
5. Reference to and Effect on the Credit Agreement.
5.1 Upon the effectiveness of this Amendment Agreement, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Credit Agreement as amended hereby.
5.2 Except as specifically amended above, all of the terms, conditions and covenants of the Credit Agreement and the other Loan Documents shall remain unaltered and in full force and effect and shall be binding upon the Borrower in all respects and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of (a) any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default under the Credit Agreement.
6. Costs and Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment Agreement, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto.
7. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
8. Execution in Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment Agreement shall become effective as of the date first above written; provided, that the Agent has received counterparts of this
Amendment Agreement duly executed by the Borrower and the Required Lenders.
[signature pages to follow]
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have executed this Amendment Agreement as of the date first above written.
URC HOLDINGS CORP.
By: /s/ Stephen C. Kolakowski
---------------------------------
Title: Senior Vice President, CFO
and Treasurer
-----------------------------
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THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Marcia Saper
---------------------------------
Title: Vice President
-----------------------------
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THE BANK OF NEW YORK
By: /s/ Christine M. Gerrich
---------------------------------
Title: Vice President
-----------------------------
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CREDIT LYONNAIS, SAN FRANCISCO BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Vice President & Manager
-----------------------------
|
CREDIT LYONNAIS, CAYMAN ISLANDS BRANCH
By: /s/ William J. Fischer
---------------------------------
Title: Authorized Signatory
-----------------------------
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FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Jim F. Redman
---------------------------------
Title: Senior Vice President
-----------------------------
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MELLON BANK, N.A.
By: /s/ Richard A. Spelke
---------------------------------
Title: First Vice President
-----------------------------
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SANWA BANK CALIFORNIA
By: /s/ John Hyche
---------------------------------
Title: Vice President
-----------------------------
|
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ James H. Steane
---------------------------------
Title: Senior Vice President
-----------------------------
|
UNION BANK, N.A.
By: /s/ Robert C. Dawson
---------------------------------
Title: Vice President
-----------------------------
By: /s/ P.C. Rohling
---------------------------------
Title: Vice President
-----------------------------
|
EXHIBIT 13
TO OUR STOCKHOLDERS
In 1995 Alleghany Corporation's net earnings were $85.3 million, or $12.07 per share, compared with $137.5 million, or $19.72 per share, in 1994. Net earnings from continuing operations were $85.3 million, or $12.07 per share, in 1995, compared with $68.4 million, or $9.80 per share, in 1994. Financial highlights of both years are summarized in the first table on page 4 of this report.
Net earnings in 1995 included $23.6 million, or $3.33 per share, representing net gains in connection with Alleghany's redemption in the fourth quarter of its 6-1/2% Subordinated Exchangeable Debentures due 2014, and the disposition of common shares of American Express Company into which such Debentures were exchangeable. Net earnings in 1994 included $69.1 million, or $9.92 per share, representing the gain on the sale of Alleghany's retail banking subsidiary, Sacramento Savings Bank, for $331 million in cash (net of transaction-related expenses, taxes and provisions related to real estate assets retained by Alleghany), and Sacramento Savings' earnings prior to the sale.
Alleghany's principal operating unit, Chicago Title and Trust Company, recorded pre-tax earnings in 1995 of $46.2 million. This represents a 30 percent drop from 1994, reflecting a severe decline in real estate markets caused by sharp increases in interest rates that began in February 1994. The increase in interest rates in 1994 ended one of the longest refinancing surges in history and precipitated in 1995 one of the strongest downturns in year-to-year title industry revenue and orders since the industry began keeping those statistics. While Chicago Title moved to bring its costs into line with reduced revenues, its efforts were insufficient to avert a pre-tax loss of $12 million in the first quarter of 1995. The real estate market in general began to improve in the second quarter of 1995 and continued to improve thereafter with declining interest rates. Nevertheless, some geographic areas, notably Southern California, have not improved as strongly as other regions. A commendable effort by Chicago Title to reduce expenses, including salary cuts and salary increase deferrals for highly compensated employees in 1995, together with strong levels of investment income and exceptional performance by Chicago Title's financial services businesses, enabled Chicago Title to end the year with a satisfactory level of earnings. Although market conditions have in general rebounded, Chicago Title remains committed to reducing its permanent overhead expenses in order to assure its ability to respond profitably to changing market conditions and competitive challenges.
[GRAPH -- SEE EDGAR APPENDIX]
STOCKHOLDERS' EQUITY PER SHARE
(in dollars) - Adjusted for 2% stock dividends
'95 $186.12 '94 144.97 '93 132.82 '92 114.80 '91 104.62 '90 93.75 '89 85.07 '88 75.19 '87 68.94 '86 65.23 |
During the fourth quarter of 1995, the claims-paying ability rating of each of Chicago Title's principal title insurance subsidiaries - Chicago Title Insurance Company, Security Union Title Insurance Company and Ticor Title Insurance Company - was raised from "A-" to "A" by Standard & Poor's Corporation. These companies also maintained their "A" rating by Duff & Phelps Credit Rating Co.
During 1995, Chicago Title restructured its financial services businesses under a new Chicago Title subsidiary named Alleghany Asset Management, Inc., in order to foster the independent development of this fast growing part of its business. In this connection, the financial services businesses formerly conducted directly by Chicago Title were transferred to a recently acquired
trust company renamed The Chicago Trust Company. Alleghany Asset Management and its subsidiaries, including The Chicago Trust Company and Montag & Caldwell, Inc. (which was acquired in July 1994), comprise Chicago Title's Financial Services Group. The Financial Services Group contributed pre-tax earnings of $11.5 million to Chicago Title in 1995, an increase of 40 percent over 1994, and ended the year with approximately $10.3 billion of assets under management.
[GRAPH -- SEE EDGAR APPENDIX]
YEAR-END CLOSING STOCK PRICES
(in dollars) '95 $198.00 '94 149.02 '93 137.92 '92 126.03 '91 102.55 '90 77.09 '89 81.25 '88 61.81 '87 61.88 '86 56.48 |
Alleghany's other major operating businesses - Underwriters Reinsurance Company and World Minerals Inc. - recorded significantly higher pre-tax earnings for 1995 than in the prior year. Underwriters contributed pre-tax earnings of $24.8 million in 1995, almost three times its 1994 pre-tax earnings, reflecting increased business and an absence of significant catastrophe losses. Underwriters' enhanced financial strength as a result of capital contributions by Alleghany in 1994 helped to attract additional business and aided in the improvement of Underwriters' rating by A.M. Best Company, Inc. from "A (Excellent)" to "A+ (Superior)." As of December 31, 1995, Underwriters' statutory surplus was $458 million, making Underwriters the eleventh largest domestic professional reinsurer in terms of statutory surplus at 1995 year-end, according to the Reinsurance Association of America.
World Minerals contributed pre-tax earnings of $26.1 million in 1995, representing an increase of more than 40 percent from its 1994 pre-tax earnings. World Minerals' improved results in 1995 reflect strong economic activity in the markets it serves, as well as the benefits of price increases, strategic acquisitions and capital spending, in addition to ongoing management attention to improving production efficiency, customer service and cost reductions.
The comparative contributions to Alleghany's earnings from continuing operations before income taxes made by these operating units and by Alleghany's parent-company operations were as follows (in millions):
- --------------------------------------------------------------------------------
Year Ended Quarter Ended
December 31 December 31
- --------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------
Chicago Title $ 46.2 $65.7 $22.3 $16.1
Underwriters 24.9 8.6 4.1 5.7
World Minerals 26.1 18.2 7.3 5.2
Parent company 23.9 0.5 32.7 (7.9)
- --------------------------------------------------------------------------------
Earnings from
continuing
operations, before
income taxes $121.1 $93.0 $66.4 $19.1
================================================================================
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On September 22, 1995, Santa Fe Pacific Corporation and Burlington Northern Inc. merged under a new holding company named Burlington Northern Santa Fe Corporation. As a result of the merger, 18.06 million shares of Santa Fe Pacific Corporation beneficially owned by Alleghany were converted into about 7.43 million shares of BNSF, or about 5.2 percent of BNSF's outstanding common stock. As of March 1, 1996, such 7.43 million shares had an aggregate market value of approximately $593.6 million, or $79.875 per BNSF share. The aggregate cost of such shares was approximately $253.7 million, or $34.15 per BNSF share.
After twenty-five years of dedicated service as a director of Alleghany, S. Arnold Zimmerman has decided to retire from the Board of Directors when his term expires at the 1996 Annual Meeting. We extend our sincere thanks to Arnold for his contributions to Alleghany over the years and our best wishes for his future endeavors.
Alleghany common stockholders' equity per share was $186.12 at 1995 year-end, an increase of 28.4 percent over common stockholders' equity per share at 1994 year-end of $144.97, after adjustment to reflect the 2 percent dividend paid in common stock in 1995.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Standing, John J. Burns, Jr., President.
Seated, F.M. Kirby, Chairman of the Board.
Overall, we feel the year 1995, while not without its challenges, was a very satisfactory one for Alleghany Corporation.
Yours sincerely,
/s/ John J. Burns, Jr. /s/ F.M. Kirby
-------------------- ---------------------
President Chairman of the Board
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March 19, 1996
Alleghany Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(in thousands, except share and per share amounts)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
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Operating Data
Revenues from continuing operations $1,784,810 $1,827,105 $1,698,147 $1,548,820 $1,144,794
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Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849 $ 44,366 $ 8,100
Earnings from discontinued operations -- 69,134 16,703 20,255 55,873
Cumulative effect of accounting change -- -- -- 8,216 --
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 85,300 $ 137,506 $ 97,552 $ 72,837 $ 63,973
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Earnings per share of common stock:*
Continuing operations $ 12.07 $ 9.80 $ 11.68 $ 6.40 $ 1.17
Discontinued operations -- 9.92 2.41 2.92 8.07
Cumulative effect of accounting change -- -- -- 1.19 --
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 12.07 $ 19.72 $ 14.09 $ 10.51 $ 9.24
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Average number of shares of common stock* 7,069,226 6,971,446 6,924,900 6,927,625 6,919,747
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December 31
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
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Balance Sheet
Total assets $4,122,514 $3,587,891 $3,469,123 $2,226,637 $2,018,474
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Long-term debt $ 331,689 $ 335,073 $ 405,303 $ 352,075 $ 357,431
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Common stockholders' equity $1,320,643 $1,021,193 $ 915,734 $ 796,268 $ 724,184
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Common stockholders' equity per share
of common stock* $ 186.12 $ 144.97 $ 132.82 $ 114.80 $ 104.62
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The Company acquired Ticor Title Insurance Company of California on March 8, 1991, most of the businesses of World Minerals Inc. on July 31, 1991, and Underwriters Reinsurance Company on October 7, 1993. The Company sold The Shelby Insurance Company on December 31, 1991 and Sacramento Savings Bank on October 31, 1994; accordingly, the operations of Shelby and Sacramento Savings have been classified as discontinued operations.
* Restated to reflect subsequent common stock dividends.
DIVIDENDS, MARKET PRICES AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1995, there were approximately 2,300 holders of record of
Alleghany common stock. The following table indicates quarterly high and low
prices of the common stock in 1995 and 1994 on the New York Stock Exchange.
Alleghany's ticker symbol is Y.
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Quarter Ended High Low High Low
- --------------------------------------------------------------------------------
March 31 $158 $146 1/8 $146 1/2 $136 3/4
June 30 159 3/4 154 3/4 150 138 1/2
September 30 172 1/2 158 1/4 152 141
December 31 199 1/2 171 3/4 152 7/8 142 1/2
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In each of 1994, 1995 and 1996, Alleghany's Board of Directors declared, as Alleghany's dividend on its common stock for that year, a stock dividend consisting of one share of Alleghany common stock for every fifty shares outstanding. The 1994 and 1995 stock dividends were paid in April of each of those years.
Alleghany's ability to pay cash dividends is restricted by the terms of a revolving credit loan agreement. At December 31, 1995, this agreement permitted the payment of dividends aggregating approximately $135 million. At that date about $1.172 billion of Alleghany's consolidated common stockholders' equity of $1.320 billion was unavailable for dividends or advances to Alleghany from its subsidiaries, due to limitations imposed by statutes and agreements with lenders to which those subsidiaries are subject.
CHICAGO TITLE AND TRUST COMPANY
Headquartered in Chicago, CT&T, through its subsidiaries, is engaged in the sale and underwriting of title insurance, and in the real estate-related services and financial services businesses. The CT&T Family of Title Insurers, consisting of Chicago Title Insurance Company, Security Union Title Insurance Company and Ticor Title Insurance Company and their respective subsidiaries, is the largest title insurance organization in the world, with approximately 250 full-service offices, 7,500 employees and more than 3,500 policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands, Guam and Canada.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Chicago Title and Trust Company's headquarters (center) stands out prominently
in one of its major market areas, downtown Chicago.
CT&T contributed pre-tax earnings of $46.2 million on revenues of $1.17 billion in 1995, a 30 percent drop in pre-tax earnings from 1994's pre-tax earnings of $65.7 million on revenues of $1.35 billion. 1994 was the second best year in CT&T's history, although 26 percent less than 1993's record pre-tax earnings of $88.6 million on record revenues of $1.44 billion.
In the first quarter of 1994, CT&T contributed pre-tax earnings of $23.3 million, the best first quarter results in its history, reflecting record levels of home mortgage refinancings. Then, beginning in February 1994, the Federal Reserve Board implemented a series of increases in short-term interest rates in an effort to forestall inflation, resulting in a significant reduction in the volume of real estate transactions and bringing to an abrupt end one of the longest refinancing surges in history. Based on branch office operations, it is estimated that refinancings accounted for about 10 percent of title revenues in 1995, 13 percent of title revenues in 1994 (mostly in the first quarter), and 26 percent in 1993. The overall industry-wide decline in revenues and volume of orders from 1993 to 1994 was the steepest downturn the industry experienced since it began keeping those statistics in the early 1960's. While total industry-wide results for 1995 have not been tabulated, it appears that the decline from 1994 to 1995 may have been even steeper. Real estate market conditions started improving in the second quarter of 1995 and continued to show improvement throughout the year, but have not yet returned to 1993 levels, and some areas, notably Southern California, have not improved as strongly as other regions.
While CT&T responded quickly in 1994 and 1995 to bring costs into line with its declining revenues, including reduction of staff, deferral of pay increases and pay cuts for highly compensated employees, such actions were insufficient to avoid a pre-tax loss in the
first quarter of 1995 of $12 million. CT&T has continued its efforts to reduce costs, including further staff cuts, consolidation of operations and re-engineering of various of its operations. The benefits of expense reductions in 1995 were offset somewhat by severance benefits of $2.6 million paid to terminated employees.
Agency revenues are recognized by CT&T when reported by the agent and typically lag two or three months from the time realized by the agent, as compared with branch office operations, which are recognized upon receipt of payment or the closing of the real estate transaction. Thus, CT&T started to recognize increased agency revenues in the fourth quarter of 1995 reflecting improved conditions prevailing in the third quarter of 1995. Similarly, CT&T's 1994 revenues included a larger contribution from its agency operations than in prior years, reflecting the carryforward from 1993.
In 1995, CT&T's title insurance operations launched a program to redesign its internal operations to better focus on customer needs and to achieve greater operational and cost efficiencies. Title plant and production facilities are being consolidated in certain markets to provide greater product consistency, reduce turnaround times and reduce expenses. Technology investments are being made to streamline workflow and to secure competitive advantages
through automation. New training programs are being developed to help agents and employees sharpen their problem solving abilities and to heighten their responsiveness to customer needs. Implementation of these initiatives, which is expected in 1996, will result in a better, more cost effective alignment of the internal operations of CT&T's title insurance operations with marketplace demands.
Investment income totalled $58.4 million in 1995, compared with $51.4 million in 1994 and $53.6 million in 1993, reflecting higher short-term interest rates in 1995. CT&T also recorded a pre-tax gain of $3.7 million on investment transactions in 1995, compared with a pre-tax loss of $5.4 million in 1994 and a pre-tax gain of $7.1 million in 1993.
The financial strength of title insurers has become an increasingly important factor in title insurance purchase decisions, particularly in multi-site transactions and in investment decisions regarding real estate-related investment vehicles such as real estate investment trusts and real estate mortgage investment conduits. CT&T's principal title insurance subsidiaries each carries a claims-paying ability rating of "A" (an upgrade as of October 1995 from "A-") from Standard & Poor's Corporation and a rating of "A" from Duff & Phelps Credit Rating Co.
Real Estate-Related Services
Beginning in 1994, CT&T restructured its national operations organization to address the increasing importance of national residential lenders and regional and national players in the commercial market. In recent years, mortgage lenders have made significant investments in technology to drive down costs and to shorten the time necessary to originate a mortgage loan. Increasingly, they are seeking cost efficiencies by requiring vendors to provide a bundle of services and to deliver them in an electronic format which is compatible with their automated systems. Such services include not only the traditional title insurance and escrow services provided by CT&T, but new services such as flood certifications, credit information and appraisals.
Two acquisitions were completed in 1995 that expanded CT&T's real estate-related services business and improved its ability to service mortgage lenders. In May 1995, CT&T acquired National Flood Information Services, Inc. NFIS is based in Arlington, Texas and has provided flood certification services since 1987. In August 1995, Alleghany acquired Credit Data Reporting Services, Inc. in an exchange of stock, and subsequently contributed the stock of CDRS to CT&T. CDRS is headquartered in Kingston, New York and has been in the credit reporting business since 1941.
Federal law requires that lenders check flood maps maintained by the Federal Emergency Management Agency to determine whether a parcel of real property pledged to secure a loan is in a flood hazard zone. NFIS has the ability to check the flood zone status of any property located in the United States. In 1995, Congress instituted a new requirement that lenders monitor the flood zone status of a mortgaged property for the life of the loan, significantly increasing the demand for the services of flood zone determination companies. To efficiently handle the increased demand, NFIS recently developed a proprietary system which can determine the flood zone status of many properties on an automated basis.
[DIAGRAM -- SEE EDGAR APPENDIX]
PROPERTY TRANSACTION
Qualification
Credit Report
Appraisal
Flood Certification
Title Search
Escrow
Insurance
Closing
Diagram Caption:
Chicago Title and Trust is now able to provide under one roof a range of real
estate transaction services that previously required customers to deal with a
number of independent agencies.
Mortgage credit reporting is a specialized task in that the secondary market requires the obtaining and merging of credit information from at least two of the three nationally recognized repositories of such information. CDRS has developed a state-of-the-art proprietary system which can receive an order; obtain, edit and merge credit information from each of the three national repositories; and report back to the lending institution in a matter of seconds without human intervention. CDRS can also perform the investigative work required to verify items appearing on a borrower's mortgage loan application (e.g., employment, financial assets and disputed credit items).
In addition to these two new businesses, CT&T's National Mortgage Services unit maintains a network of 750 state-licensed contract appraisers covering all 50 states. Through this network, NMS offers a full array of property appraisal products for first and second mortgage residential loans. Property appraisals for commercial properties are also available on a limited basis.
To meet the demands of the marketplace for new real estate-related services, in 1995 CT&T formed a separate business unit, which includes NFIS, CDRS and NMS. This business unit has responsibility for coordinating the production and delivery of flood certifications, credit information and appraisals on a nationwide basis.
Financial Services
CT&T's Financial Services Group was restructured during 1995 under a new CT&T
subsidiary named Alleghany Asset Management, Inc. The financial services
businesses conducted directly by CT&T were transferred to a recently acquired
Illinois trust company renamed The Chicago Trust Company, which became a
subsidiary of Alleghany Asset Management. Also transferred to Alleghany Asset
Management were Montag & Caldwell,
Inc., an Atlanta-based investment counseling firm acquired in July 1994, and The Chicago Deferred Exchange Corporation, which facilitates certain tax- deferred property exchanges.
The following are the significant lines of business within the Financial Services Group:
Institutional Investment Management - manages equity, fixed income, and balanced accounts primarily for employee benefit plans, foundations, endowments, corporations, insurance companies and Taft-Hartley plans.
Retirement Trust Resources - administers 401(k) plans, profit sharing plans, matching savings plans and money purchase pensions, and provides consulting services, for mid-sized companies primarily in the Midwest and South.
Personal Trust and Investment Services - provides investment management and trust and estate planning services primarily for accounts in the $250,000 to $50 million range.
Real Estate Trust Services - offers land trusts, which permit real estate to be conveyed to a trustee while reserving to the beneficiaries the full management and control of the property. This group also facilitates tax-deferred exchanges of income-producing real property.
[DIAGRAM -- SEE EDGAR APPENDIX]
Chicago Title and Trust Company
Financial Services:
Alleghany Asset Management, Inc.
The Chicago Trust Company
Montag & Caldwell
Chicago Deferred Exchange Corporation
Title Operations:
Chicago Title
Ticor Title
Security Union
CT&T Funds - a mutual fund family which offers the following eight no-load, open-end mutual funds to the general public:
- - Chicago Trust Growth and Income Fund
- - Montag & Caldwell Growth Fund
- - Chicago Trust Talon Fund
- - Montag & Caldwell Balanced Fund
- - Chicago Trust Bond Fund
- - Chicago Trust Municipal Bond Fund
- - Chicago Trust Money Market Fund
- - Chicago Trust Asset Allocation Fund
CT&T's Financial Services Group, which includes Montag & Caldwell results commencing August 1994, posted pre-tax earnings of $11.5 million on revenues of $42.9 million in 1995, compared with pre-tax earnings of $8.2 million on revenues of $31.7 million in 1994, and pre-tax earnings of $7.6 million on revenues of $26.5 million in 1993. As of December 31, 1995, Alleghany Asset Management, through its subsidiaries, managed approximately $10.3 billion in assets.
UNDERWRITERS REINSURANCE COMPANY
Underwriters, headquartered in Woodland Hills, California, provides reinsurance to property and casualty insurers and reinsurers. Although it writes many lines of business, Underwriters concentrates on coverages requiring specialized underwriting expertise and a high degree of actuarial analysis. Underwriters is licensed in 37 states, Puerto Rico and the District of Columbia, is authorized to engage in business in three additional states and Canada, and has branch offices in Atlanta, Chicago, Houston, New York and Woodland Hills.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
Transportation by air, land and sea is a major market for Underwriters.
Underwriters also provides coverages for professionals, municipalities and
manufacturers of consumer products.
Underwriters contributed pre-tax earnings of $24.8 million on revenues of $322.2 million in 1995 compared with $8.6 million on revenues of $225.4 million in 1994. After its acquisition by Alleghany on October 7, 1993, Underwriters contributed pre-tax earnings of $3.0 million on revenues of $40.7 million in the remaining three months of 1993. Underwriters' results in 1995 reflect increased business, including a 61 percent, or $87 million, increase in treaty net written premiums from 1994, without a proportional increase in operating expenses, and an absence of significant catastrophe losses. Underwriters believes the increase in premiums is at least partly attributable to the increase in its surplus level and upgraded rating, as described below, enabling it to attract a broader range of reinsurance opportunities. Investment income totalled $50.2 million in 1995, compared with $41.2 million in 1994 and $10.4 million for the three months ended December 31, 1993, reflecting an increase in invested assets. The 1994 results reflect a charge (before reinsurance recoveries and taxes) of about $5.0 million for estimated losses associated with the earthquake in Northridge, California in January of that year. In addition, Underwriters recorded pre-tax losses of $5.5 million on investment transactions during 1995, compared with $6.1 million for 1994 and $2.4 million for the three months ended December 31, 1993. Most of the losses in 1995 and 1994 were due to portfolio restructurings to respond to changes in interest rates and the writedown in the fourth quarter of 1995 of the carrying value of an investment which was downgraded.
To enhance Underwriters' financial strength, Alleghany, through the holding company which owns Underwriters, contributed to the capital of Underwriters approximately $51 million in cash and shares of Armco Inc. common stock in 1993 and $100 million in shares of Santa Fe Pacific Corporation common stock in 1994 (now Burlington Northern Santa Fe Corporation). As of December 31, 1995, Underwriters' statutory surplus was $458 million, making Underwriters the eleventh largest domestic professional reinsurer in terms of statutory surplus at 1995 year-end, according to the Reinsurance Association of America.
In 1995, in recognition of Underwriters' enhanced financial strength and consistent performance, A.M. Best Company, Inc. upgraded Underwriters' rating from "A (Excellent)" to "A+ (Superior)." Underwriters also
received an initial claims-paying ability rating of "AA- (Excellent)" from Standard & Poor's in 1995.
Underwriters' enhanced financial strength has allowed it to benefit from the continuing trend toward consolidation in the domestic reinsurance market, resulting from the tendency of reinsurance buyers to purchase coverage from larger and more financially secure reinsurers.
Underwriters provides reinsurance coverages on both a treaty basis (pursuant to a standing agreement with a reinsured to reinsure a specified amount of all risks originally underwritten by the reinsured) and a facultative basis (pursuant to a contract issued to cover specific risks). Treaty operations, conducted primarily by headquarters staff, represented 83 percent of 1995 net reinsurance premiums written; facultative underwriting, most of which was done at the branch offices, accounted for the balance.
Underwriters writes a significant portion of its reinsurance business through brokers and the remainder of its business directly with reinsureds. As a result, Underwriters does not need to maintain a large sales organization which, during periods of reduced premium volume, could comprise a significant and non-productive part of overhead. In addition, Underwriters believes that submissions from the broker market, particularly certain targeted specialty coverages, are more numerous and diverse than would be available through a salaried sales organization, and Underwriters is able to exercise greater selectivity than would usually be possible in dealing directly with reinsureds.
Underwriters maintains a disciplined underwriting strategy with a focus on generating profitable business rather than on increasing market share. An important element of this strategy is to respond quickly to market opportunities (such as increased demand or more favorable pricing) by adjusting the mix of the different lines of property and casualty business it writes. Underwriters writes certain unusual professional, environmental, directors and officers' liability and catastrophe coverages, again in the belief that these coverages offer greater potential for favorable results than more general coverages, based upon current premium rates. Underwriters has maintained a defensive underwriting posture by withdrawing from certain other lines of business that it considers offer inadequate contract terms.
To capitalize on advantageous market conditions for certain primary insurance business lines and on Underwriters' expertise in specialized coverages, Underwriters established Commercial Underwriters Insurance Company in late 1992, and acquired Underwriters Insurance Company in late 1994. Commercial Underwriters is a property and casualty insurance company that focuses on specialized primary insurance lines in California on an admitted basis and in other states on an approved non-admitted basis. Underwriters Insurance is a property and casualty insurance company licensed in 33 states and the District of Columbia that will initially focus on primary and umbrella liability policies for medium- to large-sized businesses. Commercial Underwriters and Underwriters Insurance are also rated "A+ (Superior)" by Best's.
[GRAPH -- SEE EDGAR APPENDIX]
REVENUES AND PRE-TAX EARNINGS ($ in millions)
Year Revenues Pre-tax Earnings - ---- -------- ---------------- '95 $322.2 24.8 '94 225.4 8.6 '93 (results for three months) 40.7 3.0 |
[GRAPH -- SEE EDGAR APPENDIX]
POLICY HOLDER SURPLUS ($ in millions)
'95 $458.0 '94 361.0 '93 250.0 |
To capitalize on the considerable expertise of certain individuals in handling specialized classes of primary business, Underwriters established The Underwriting Center, Inc. in 1995. The Underwriting Center will underwrite business on behalf of Commercial Underwriters, Underwriters Insurance and, to a lesser extent, non-affiliated insurers. Underwriters will reinsure a significant portion of the primary insurance written by The Underwriting Center.
Property and casualty reinsurance comprised about 28 percent and 63 percent, respectively, of Underwriters' net premiums written in 1995, with primary property and casualty insurance comprising the remainder.
WORLD MINERALS INC.
World Minerals, headquartered in Lompoc, California, conducts a worldwide
industrial minerals business through its subsidiaries, Celite Corporation,
Harborlite Corporation and Europerlite Acquisition Corporation.
World Minerals contributed pre-tax earnings of $26.1 million on revenues of $178.7 million in 1995, compared with $18.2 million on revenues of $162.6 million in 1994 and $8.2 million on revenues of $149.5 million in 1993. The increase in revenues in 1995 was due to strong economic activity in markets served by World Minerals, the benefits of price increases, and strategic acquisitions, which accounted for just over one-half of such revenue increase. Pre-tax earnings in 1995 were favorably impacted not only by higher sales, but also by improved production efficiencies and other cost reduction measures at most locations.
[PHOTO -- SEE EDGAR APPENDIX]
Photo Caption:
World Minerals' surface-mining operation at Lompoc, California, is the
world's largest diatomite mine.
In contrast to 1993, which was characterized by sluggish demand in virtually all market sectors, 1994 and 1995 were periods of resurgent economic activity in the United States, Europe and Latin America. This occurred at a time when World Minerals was positioned to take advantage of economic growth as a result of programs instituted by management from 1991 through 1993 that strengthened the organization. Financial systems and controls have been upgraded, and the Celite, Harborlite and Europerlite sales forces have been consolidated to improve efficiency and to take advantage of synergies.
Celite is believed to be the world's largest producer of filter-aid grade diatomite, a silica-based mineral consisting of the fossilized remains of microscopic freshwater or marine plants. Diatomite is used as a filter aid in the production of beer, food, juice, wine, water, sweeteners, fats and oils, pharmaceuticals, chemicals, lubricants and petroleum; it is used as a filler, mainly in paints, and as an anti-block agent in plastic film.
Celite is also a producer of calcium and magnesium silicate products, which are used to convert liquid, semi-solid and sticky ingredients into dry, free-flowing powders in the production of rubber, sweeteners, flavorings and pesticides.
World Minerals believes that Harborlite and Europerlite together constitute the world's largest producer
of perlite filter aids and that Harborlite, which is also engaged in the business of selling perlite ore, is the world's largest merchant producer of perlite ore, a volcanic rock containing a small amount of water that causes the ore to "pop" when heated, expanding it up to twenty times its original volume. Harborlite sells perlite ore to companies that expand it for use primarily in the manufacture of roofing board, formed pipe insulation, acoustical ceiling tile and filter aids. Harborlite and Europerlite also expand perlite in their own expansion plants in the United States and Europe. Most of this expanded perlite is sold as a filter aid to companies in the brewing, food, wine, sweetener, pharmaceutical, chemical and lubricant industries, or as a filler and insulating medium to companies in the construction industry.
World Minerals enhanced its position in the diatomaceous earth mining business during 1995 through the strategic investment by Celite in mining, processing and distribution facilities in China and South Korea. Its China operations consist of controlling interests through various subsidiaries of Celite in three joint ventures which are engaged in the mining and processing of diatomite in Jilin Province, China. Two of the joint ventures are in the start-up phase of production and the third is under construction; World Minerals does not expect them to add significantly to revenues in 1996.
During 1995, World Minerals' position in the perlite business was enhanced by the acquisition by Harborlite of perlite ore reserves in Dikili, Turkey, the construction of a new expansion plant in Youngsville, North Carolina, and the acquisition by Europerlite of perlite expansion plants in Barcelona, Spain and Milan, Italy.
World Minerals conducts its business on a worldwide basis, with mining or processing operations in ten countries. While World Minerals believes that the international scope of its operations gives it unique competitive advantages, international operations can be subject to additional risks, such as currency fluctuations, changes in foreign legal requirements and political instability. World Minerals closely monitors its methods of operating in each country and adopts strategies responsive to changing economic and political environments.
World Minerals minimizes its exposure to the risk of foreign currency fluctuation by, among other things, having its foreign subsidiaries declare and pay dividends whenever feasible and invoice their export customers in United States dollars or other "hard currencies."
[GRAPH -- SEE EDGAR APPENDIX]
REVENUES ($ in millions)
'95 $178.7 '94 162.6 '93 149.5 '92 141.1 '91 (results for five months) 53.0 |
[GRAPH -- SEE EDGAR APPENDIX]
PRE-TAX EARNINGS ($ in millions)
'95 $26.1 '94 18.2 '93 8.2 '92 11.6 '91 (results for five months) 6.1 |
During 1995, World Minerals' largest domestic customer began installing centrifuges in its breweries, which will decrease its use of diatomite as a filter aid for the brewing of beer. Many beer producers in the United States use centrifuges in the filtration of beer. World Minerals believes that new business opportunities and new product applications will more than offset this expected future loss of business.
HEADS AND THREADS
The Heads and Threads division of Alleghany, headquartered in Northbrook,
Illinois, is believed to be the nation's leading distributor of imported steel
fasteners. Nuts, bolts, screws, washers and other fasteners are imported and
resold to fastener manufacturers and distributors through a network of sales
offices and warehouses located in sixteen states. The strength of Heads and
Threads lies in its five major warehouses and fourteen regional satellite
warehouses, and its long years of association with suppliers and customers.
Heads and Threads has been consistently profitable since its acquisition by Alleghany in 1974, despite the cyclical nature of its business and changing market conditions. Its earnings contribution to Alleghany increased in each of the years 1993 and 1994, with the latter year being the highest since 1979. The contribution in 1995 was lower than 1994's record level due to LIFO inventory adjustments and, to a lesser extent, lower sales.
Since Heads and Threads imports virtually all of its fasteners, its costs are subject to fluctuations in foreign currency and import duties. Costs will also be impacted by regulations implementing the Fastener Quality Act, which are to become effective in 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION
Alleghany became the second largest shareholder of Burlington Northern Santa Fe Corporation on September 22, 1995, when the merger of Burlington Northern Inc. and Santa Fe Pacific Corporation became effective. Alleghany currently owns approximately 7.43 million common shares of BNSF.
Because of its end-to-end nature, the merger that created BNSF provides shippers with extended single-line service, while creating new market opportunities for their products. BNSF's diverse product mix, extensive geographic coverage and cost-saving opportunities ensure that it is well-positioned to meet the needs of shippers who require greater transportation value.
BNSF, which employs about 45,000 people, owns the largest rail network in North America, providing transportation services to shippers throughout the western two-thirds of the United States as well as to Canada and Mexico.
[MAP -- SEE EDGAR APPENDIX]
BNSF has a strong portfolio with a diversified, balanced traffic mix. About 25 percent of its combined revenues are derived from transporting coal. In 1995, a record 204 million tons of coal were carried, most of it low-sulphur coal from the Powder River Basin of Wyoming and Montana. Another 25 percent of revenues come from intermodal shipments. More than 2.5 million trailers and containers, another record, were moved in 1995. About 15 percent of revenues are derived from transporting agricultural commodities, primarily corn, wheat and soybeans, and in 1995, a record 663,000 carloads were moved. Shipment of automobiles, foods, beverages, forest products, chemicals, minerals and metals accounted for the remaining 35 percent of revenues.
For 1995, BNSF generated $1.576 billion in combined operating income, excluding unusual items, 32 percent better than 1994. The combined operating ratio, a standard measure used by railroads of operating expenses divided by revenues, improved 3.8 points to 80.7 in 1995.
In 1996, BNSF expects to have a capital program approaching $1.7 billion to support its efforts to increase revenues and reduce operating costs. Of this, about $1.1 billion will be spent to maintain and upgrade the BNSF franchise, and more than $500 million is slated for capacity expansion projects at key locations across the network.
A copy of the Burlington Northern Santa Fe Corporation 1995 Annual Report may be obtained free of charge by written request to the Secretary of Alleghany Corporation, 375 Park Avenue, New York, NY 10152.
FINANCIAL CONDITION
In recent years, Alleghany has followed a policy of maintaining a relatively liquid financial condition, in the form of cash, marketable securities, available credit lines and minimal amounts of debt at the parent company. This has permitted Alleghany to expand its operations through internal growth at its subsidiaries and through acquisitions or substantial investments in well-managed operating companies.
On November 6, 1995, Alleghany redeemed its $59.6 million aggregate principal amount of 6-1/2% Subordinated Exchangeable Debentures due 2014 and disposed of common shares of American Express Company into which such Debentures were exchangeable, resulting in net gains to Alleghany of $23.6 million.
During 1994 and early 1995, with temporary borrowings under Alleghany's revolving credit agreement, the proceeds from the sale of Sacramento Savings Bank, as described below, and cash on hand, Alleghany and its subsidiaries acquired about 18.06 million shares, or 11.8 percent of the outstanding common stock of Santa Fe Pacific Corporation ("Santa Fe"). On September 22, 1995, Santa Fe and Burlington Northern Inc. merged under a new holding company named Burlington Northern Santa Fe Corporation ("BNSF"). As a result of the merger, 18.06 million shares of Santa Fe beneficially owned by Alleghany were converted into about 7.43 million shares of BNSF, or about 5.2 percent of BNSF's outstanding common stock. As of March 1, 1996, such 7.43 million shares had an aggregate market value of approximately $593.6 million, or $79.875 per BNSF share. The aggregate cost of such shares was approximately $253.7 million, or $34.15 per BNSF share.
As of March 1, 1996, Alleghany and its subsidiaries owned about 5.64 million shares of Armco Inc., or about 5.3 percent of Armco's outstanding common stock.
Alleghany has declared stock dividends in lieu of cash dividends every year since 1987, which have helped to conserve Alleghany's financial strength and, in particular, the liquid assets available to finance internal growth and operating company acquisitions and investments. On April 26, 1996, Alleghany will pay to stockholders of record on April 1, as its dividend on its common stock for 1996, a dividend of one share of Alleghany common stock for every 50 shares outstanding.
In addition to its liquid financial assets, Alleghany has a revolving credit agreement with a bank which provides a commitment for revolving credit loans in an aggregate principal amount of $200 million. Borrowings have been repaid promptly in order to keep the facility available for future acquisitions. No amounts were outstanding under this facility at 1995 or 1994 year-end. This agreement was renewed in June 1995 and will mature in July 2000.
Alleghany has announced that it may purchase shares of its common stock in open market transactions from time to time. In 1995, Alleghany purchased an aggregate of 44,523 shares of its common stock for about $7.6 million, at an average cost of about $171 per share. In 1994, Alleghany purchased an aggregate of 69,509 shares of its common stock for about $10.1 million, at an average cost of about $146 per share.
At December 31, 1995, about $148 million of the equity of Alleghany's subsidiaries was available for dividends or advances to Alleghany. CT&T's availability of funds for dividends, however, may be further restricted by limitations imposed by statutes to which its subsidiaries are subject. At that date about $1.172 billion of Alleghany's equity of $1.320 billion was unavailable for dividends or advances to Alleghany from its subsidiaries, due to limitations imposed by statutes and agreements with lenders to which those subsidiaries are subject. These limitations have not affected Alleghany's ability to meet its obligations.
CT&T
Financial strength is also a high priority of Alleghany's subsidiaries, whose assets stand behind their financial commitments to their customers and vendors. The financial strength of CT&T is illustrated by the following statistics from its insurance regulatory filings. CT&T's combined statutory premium reserves increased to $377.4 million in 1995 from $376.0 million in 1994. Incurred claims were $75.2 million in 1995, representing a decline of 7.0 percent from the preceding year. CT&T's combined surplus as regards policyholders was $159.6 million in 1995, an increase of $2.9 million from $156.7 million in 1994. Combined cash and marketable securities were $568.8 million in 1995, representing a decrease of about $51.3 million from 1994 levels.
CT&T paid cash dividends to Alleghany totalling $29.5 million in 1995 and $66.5 million in 1994.
Title insurance loss reserves at 1995 year-end totalled $529.9 million (based on generally accepted accounting principles), the highest level ever and eight times the estimated amount of claims then in process. In this regard, CT&T is reviewing its reserves to determine whether they should be reduced. Any reduction in reserves would result in an increase in CT&T's net earnings.
At December 31, 1995, CT&T's investment portfolio had a market value of $832.3 million and consisted primarily of short and intermediate maturity investment grade rated debt securities. Modest investment is made in preferred stocks, convertible and lower quality bonds, and publicly traded equity securities, including 82,286 shares of BNSF common stock with a market value of $6.6 million at March 1, 1996. A relatively short average portfolio maturity is maintained so that investment income responds to changes in the level of interest rates,
offsetting to some degree the cyclicality of title insurance operations. Overall portfolio quality is maintained at a Moody's rating of Aa3 or higher, with over 97 percent of all securities rated investment grade by Moody's and less than one percent in derivative instruments as of 1995 year-end.
As of December 31, 1995, $50 million was outstanding under a loan agreement among CT&T and several banks. The loan calls for annual principal payments, with final maturity in December 2000.
Underwriters
In October 1993, Alleghany acquired Underwriters for a purchase price of about
$201 million in cash. After the acquisition, Alleghany, through the holding
company which owns Underwriters, contributed to the capital of Underwriters
approximately $51 million in cash and shares of Armco common stock in 1993 and
$100 million in shares of Santa Fe common stock in 1994 (now BNSF). As of
December 31, 1995, Underwriters' statutory surplus was $458 million.
At December 31, 1995, Underwriters' investment portfolio had a market value of $1.1 billion and consisted primarily of high quality fixed-maturity securities and about 2.5 million shares of BNSF common stock with a market value of $197.5 million at March 1, 1996.
Over 98 percent of Underwriters' portfolio of long-term fixed-maturity securities was rated investment grade by Moody's as of December 31, 1995. Underwriters' portfolio contains no investments of a derivative nature.
During 1995, Underwriters decreased its long-term indebtedness under a credit agreement with several banks from $66 million to $50 million. The principal amount outstanding is required to be reduced periodically, with final maturity in December 1998.
World Minerals
In March 1995, World Minerals amended its credit facility with three banks to
increase the combined borrowing and letter of credit limit from $64 million to
$117 million, to lower the effective borrowing rate, and to incorporate less
stringent debt covenant requirements. As of December 31, 1995, $88 million of
indebtedness and $6.2 million of letters of credit were outstanding. The
principal amount outstanding is required to be reduced periodically, with final
maturity in December 1999.
During 1995, Alleghany, through the holding company which owns World Minerals, contributed $30 million to the capital of World Minerals. Aided by such contribution, World Minerals, through its subsidiary Celite, made strategic investments in diatomaceous earth mining and processing facilities in China and, through its subsidiary Europerlite, acquired perlite expansion plants in Spain and Italy.
API
On October 31, 1994, Alleghany completed the sale of Sacramento Savings Bank
("Sacramento Savings") and an ancillary company to First Interstate Bank of
California for $331 million in cash.
As part of the sale of Sacramento Savings, Alleghany, through its wholly owned subsidiary Alleghany Properties, Inc. ("API"), purchased real estate and real estate-related assets of Sacramento Savings for about $116 million. Alleghany's intention with respect to such assets, the bulk of which is raw land, is to dispose of them in an orderly fashion, which may take several years. Accordingly, and in recognition that no general loss reserves of Sacramento Savings were transferred, Alleghany reduced the carrying value of such assets by about $20 million, net of related tax benefits. API is Alleghany's only subsidiary holding substantial passive real estate investments.
On February 23, 1995, API issued $50 million aggregate principal amount of 8.62 percent senior notes due 2000 (the "Notes"). The Notes will be repaid in five equal annual principal amortization payments beginning on the first anniversary of the issuance of the Notes. A portion of the proceeds from the sale of the Notes was used to pay a dividend of $37 million to Alleghany and to repay outstanding indebtedness of a subsidiary of API in the amount of $8 million; the balance was used for API's working capital. On February 23, 1996, API made its first principal payment on the Notes, including interest accrued thereon, in the amount of $12.2 million.
As of December 31, 1995, API held 57 loans and properties having a total book value of approximately $80.1 million, as compared to 89 loans and properties having a total book value of approximately $90.1 million as of October 31, 1994 (the date the assets were purchased by API).
Heads and Threads
Heads and Threads has a credit facility with a bank providing for letters of
credit totalling up to $25 million.
Alleghany management believes that Alleghany and its subsidiaries have and will have adequate internally generated funds, cash resources and unused credit facilities to provide for the currently foreseeable needs of its and their businesses. Alleghany and its subsidiaries have no material commitments for capital expenditures.
Alleghany Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
- --------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) 1995 1994
- --------------------------------------------------------------------------------------------------------
Assets
Available for sale securities
Fixed maturities (amortized cost: 1995 $1,677,476; 1994 $1,655,437) $1,699,782 $1,578,514
Equity securities (cost: 1995 $308,210; 1994 $262,292) 637,956 357,220
- --------------------------------------------------------------------------------------------------------
2,337,738 1,935,734
- --------------------------------------------------------------------------------------------------------
Cash 178,068 107,942
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 301,290 211,451
Title records and indexes 155,170 156,293
Property and equipment - at cost, less accumulated depreciation and amortization 272,289 202,918
Reinsurance receivable 399,783 422,683
Net deferred tax asset -- 99,362
Other assets 386,640 359,972
- --------------------------------------------------------------------------------------------------------
$4,122,514 $3,587,891
========================================================================================================
Liabilities and Common Stockholders' Equity
Title losses and other claims 530,986 537,073
Property and casualty losses and loss adjustment expenses 1,014,000 940,527
Other liabilities 538,750 436,180
Long-term debt of parent company -- 59,600
Long-term debt of subsidiaries 331,689 275,473
Net deferred tax liability 21,659 --
Trust and escrow deposits secured by pledged assets 364,787 317,845
- --------------------------------------------------------------------------------------------------------
Total liabilities 2,801,871 2,566,698
Commitments and contingent liabilities
Common stockholders' equity
(common shares authorized: 1995 and 1994 - 22,000,000;
common shares issued and outstanding: 1995 - 7,095,646; 1994 - 7,044,407) 1,320,643 1,021,193
- --------------------------------------------------------------------------------------------------------
$4,122,514 $3,587,891
========================================================================================================
|
See accompanying Notes to Consolidated Financial Statements.
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
Revenues
Title premiums, escrow and trust fees $1,110,540 $1,306,708 $1,379,463
Net reinsurance premiums earned 277,507 190,279 32,703
Interest, dividend and other income 183,516 158,950 122,009
Net mineral and filtration sales 177,185 162,427 148,719
Net gain on investment transactions 36,062 8,741 15,253
- ------------------------------------------------------------------------------------------------------
Total revenues 1,784,810 1,827,105 1,698,147
- ------------------------------------------------------------------------------------------------------
Costs and expenses
Salaries, commissions and other employee benefits 859,839 982,324 973,172
Administrative, selling and other operating expenses 350,341 339,078 330,441
Provisions for title losses and other claims 87,076 98,185 126,329
Property and casualty loss and loss adjustment expenses 203,108 153,056 25,131
Cost of mineral and filtration sales 113,149 109,433 107,846
Interest expense 28,982 29,285 28,828
Corporate administration 21,239 22,750 16,897
- ------------------------------------------------------------------------------------------------------
Total costs and expenses 1,663,734 1,734,111 1,608,644
- ------------------------------------------------------------------------------------------------------
Earnings from continuing operations, before income taxes 121,076 92,994 89,503
Income taxes 35,776 24,622 8,654
- ------------------------------------------------------------------------------------------------------
Earnings from continuing operations 85,300 68,372 80,849
Discontinued operations
Earnings from discontinued operations, net of tax -- 6,265 16,703
Gain on sale of Sacramento Savings, net of tax -- 62,869 --
- ------------------------------------------------------------------------------------------------------
Net earnings $ 85,300 $ 137,506 $ 97,552
- ------------------------------------------------------------------------------------------------------
Earnings per share of common stock:*
Continuing operations $ 12.07 $ 9.80 $ 11.68
Discontinued operations -- 0.90 2.41
Gain on sale of Sacramento Savings -- 9.02 --
- ------------------------------------------------------------------------------------------------------
Net earnings $ 12.07 $ 19.72 $ 14.09
- ------------------------------------------------------------------------------------------------------
|
*Restated to reflect subsequent common stock dividends. See accompanying Notes to Consolidated Financial Statements.
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized
Appreciation Total
(Depreciation) Cumulative Common
Common Contributed of Treasury Retained Translation Stockholders'
(in thousands, except share amounts) Stock Capital Securities Stock Earnings Gain (Loss) Equity
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 $6,638 $433,272 $ 1,146 $ (8,382) $364,385 $ (791) $ 796,268
(7,044,020 shares of common
stock issued; 107,954 in treasury)*
Add (deduct):
Net earnings -- -- -- -- 97,552 -- 97,552
Purchase of treasury shares -- -- -- (7,897) -- -- (7,897)
Performance share plan distributions -- 322 -- 966 -- -- 1,288
Common stock dividend 130 17,450 -- -- (17,716) -- (136)
Stock purchase plan distributions -- 51 -- 550 -- -- 601
Cumulative translation loss -- -- -- -- -- (2,042) (2,042)
Change in unrealized appreciation of
investments, net** -- -- 30,100 -- -- -- 30,100
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 6,768 451,095 31,246 (14,763) 444,221 (2,833) 915,734
(7,040,926 shares of common
stock issued; 146,601 in treasury)*
Add (deduct):
Shares issued in pooling 212 850 -- -- 838 -- 1,900
Net earnings -- -- -- -- 137,506 -- 137,506
Purchase of treasury shares -- -- -- (10,127) -- -- (10,127)
Performance share plan distributions -- 24 -- 620 -- -- 644
Common stock dividend -- 4,601 -- 13,834 (18,556) -- (121)
Stock purchase plan distributions -- 12 -- 34 -- -- 46
Cumulative translation loss -- -- -- -- -- (4,849) (4,849)
Change in unrealized appreciation of
investments, net -- -- (19,540) -- -- -- (19,540)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,980 456,582 11,706 (10,402) 564,009 (7,682) 1,021,193
(7,119,890 shares of common
stock issued; 75,483 in treasury)*
Add (deduct):
Shares issued in pooling 79 4,401 -- -- -- -- 4,480
Net earnings -- -- -- -- 85,300 -- 85,300
Purchase of treasury shares -- -- -- (7,605) -- -- (7,605)
Performance share plan distributions -- 260 -- 2,279 -- -- 2,539
Common stock dividend 100 16,400 -- 5,318 (21,939) -- (121)
Stock purchase plan distributions -- 29 -- 236 -- -- 265
Cumulative translation loss -- -- -- -- -- (2,536) (2,536)
Change in unrealized appreciation of
investments, net -- -- 217,128 -- -- -- 217,128
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $7,159 $477,672 $228,834 $(10,174) $627,370 $ (10,218) $1,320,643
(7,159,256 shares of common
stock issued; 63,610 in treasury)
===============================================================================================================================
|
*Adjusted to reflect subsequent common stock dividends.
**Includes the effect of the adoption of FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," of $30,249, net.
See accompanying Notes to Consolidated Financial Statements.
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------- (in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- Cash flows from operating activities Earnings from continuing operations $ 85,300 $ 68,372 $ 80,849 Adjustments to reconcile earnings from continuing operations to cash provided by (used in) continuing operations: Depreciation and amortization 44,148 44,778 38,916 Net gain on investment transactions (36,062) (8,741) (15,253) Other charges to continuing operations, net 1,836 6,827 5,582 Increase in funds held, accounts and other receivables (89,839) (29,193) (3,644) Decrease (increase) in reinsurance receivable 22,900 (68,780) 9,614 (Decrease) increase in title losses and other claims (6,087) 3,883 20,738 Increase (decrease) in property and casualty loss and loss adjustment expenses 73,473 79,323 (10,040) Increase (decrease) in other assets 75,210 (11,428) 1,202 Increase in other liabilities 1,011 5,527 29,198 Increase (decrease) in trust and escrow deposits 46,942 (35,169) 40,237 - ---------------------------------------------------------------------------------------------------------- Net adjustments 133,532 (12,973) 116,550 - ---------------------------------------------------------------------------------------------------------- Cash provided by continuing operations 218,832 55,399 197,399 Cash provided by discontinued operations -- 5,502 6,095 - ---------------------------------------------------------------------------------------------------------- Cash provided by operations 218,832 60,901 203,494 - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities Purchase of investments (718,751) (929,961) (1,531,866) Maturities of investments 208,809 139,156 326,283 Sales of investments 468,683 634,385 1,201,956 Purchases of property and equipment (41,469) (30,541) (38,249) Disposition of property and equipment 5,727 4,397 2,023 Net sales (purchases) of title records and indexes 1,123 (1,172) 4,390 Proceeds from sale of Sacramento Savings, net of expenses -- 316,348 -- Purchase of real estate and real estate related assets -- (116,089) -- Net assets acquired in pooling 4,480 1,900 -- Purchase of mining operations and other acquisitions (82,043) -- -- Purchase of Underwriters Re -- -- (203,865) Cash of purchased subsidiaries 15,580 -- 10,159 - ---------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities $ (137,861) $ 18,423 $ (229,169) - ---------------------------------------------------------------------------------------------------------- |
Alleghany Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Years Ended December 31,
- --------------------------------------------------------------------------------------------- (in thousands) 1995 1994 1993 - --------------------------------------------------------------------------------------------- Cash flows from financing activities Principal payments on long-term debt $(167,274) $(379,818) $ (33,081) Proceeds of long-term debt 163,890 309,472 1,050 Purchase of treasury shares (7,605) (10,127) (7,897) Common stock distributions 144 (75) 1,753 - --------------------------------------------------------------------------------------------- Net cash used in financing activities (10,845) (80,548) (38,175) - --------------------------------------------------------------------------------------------- Net increase (decrease) in cash 70,126 (1,224) (63,850) Cash at beginning of year 107,942 109,166 173,016 - --------------------------------------------------------------------------------------------- Cash at end of year $ 178,068 $ 107,942 $ 109,166 ============================================================================================= Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 26,943 $ 28,038 $ 28,139 Income taxes $ 19,161 $ 49,526 $ 55,539 - --------------------------------------------------------------------------------------------- |
See accompanying Notes to Consolidated Financial Statements.
Alleghany Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles
a. Principles of Financial Statement Presentation.
Alleghany Corporation, a Delaware corporation ("Alleghany" or together with its subsidiaries, the "Company") owns Chicago Title and Trust Company ("CT&T") whose principal subsidiaries are Chicago Title Insurance Company ("CTI"), Security Union Title Insurance Company ("Security Union"), Ticor Title Insurance Company ("Ticor Title"), and Alleghany Asset Management, Inc.; Alleghany Funding Corporation ("AFC"); World Minerals Inc. ("World Minerals"); URC Holdings Corp. ("Underwriters Re") whose principal subsidiaries are Underwriters Reinsurance Company ("Underwriters Reinsurance"), Commercial Underwriters Insurance Company ("CUIC") and Underwriters Insurance Company ("UIC"); and Alleghany Properties Inc. ("API"). Sacramento Savings Bank ("Sacramento Savings") was sold on October 31, 1994, and accordingly its operations are shown as discontinued operations for all periods presented. See Note 3.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of Alleghany and its subsidiaries. All significant intercompany items have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include those associated with estimating title insurance loss reserves which involve interpretations of varying real estate laws and inherent uncertainties primarily due to the long-term nature of the business. Estimates and assumptions associated with property and casualty loss reserves include inherent uncertainties primarily due to the long-term nature of most reinsurance business, the diversity of development patterns among different lines of business and types of reinsurance, and the necessary reliance on the ceding company for information regarding claims. Actual results could differ from those estimates.
b. Investments.
Marketable investment securities at December 31, 1995 and 1994 consist of U.S. Treasury securities, obligations of U.S. government agencies, municipal obligations, mortgage-backed securities, corporate debt securities, certificates of deposit, and equity securities. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. Under Statement No. 115, the Company classifies its debt and marketable equity securities into one of three categories: trading, available for sale, or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held to maturity securities are those fixed maturity securities which the Company has the ability and intent to hold until maturity. Securities held for indefinite periods of time which may not be held to maturity are classified as available for sale.
All securities are classified as available for sale securities and recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the fair value of an available for sale security below cost that is deemed other than temporary is charged to earnings.
Realized gains and losses on investments are determined on the specific identification method.
c. Property and Equipment.
Depreciation of buildings and equipment and amortization of leasehold improvements are principally calculated using the straight-line method over the estimated useful lives of the respective assets or the life of the lease, whichever is less.
d. Title Records and Indexes.
Title records and indexes are recorded at cost. The cost is not being amortized and, in management's opinion, has not diminished in value. Costs of maintaining title records and indexes are expensed in the year incurred.
e. Title Losses and Other Claims.
Liabilities for title losses and other claims are estimated based on the title insurance subsidiaries' experience. These amounts include both case-basis evaluations and formula calculations and represent the estimated net cost of all unpaid losses. In management's opinion, reserves for title losses and other claims are adequate.
f. Property and Casualty Losses and Loss Adjustment Expenses.
The liability for outstanding losses and loss adjustment expenses includes estimated provisions for all reported and unreported claims incurred and is reduced by allowances for salvage and subrogation. In management's opinion, reserves for property and casualty losses and loss adjustment expenses are adequate.
g. Revenue Recognition.
Title insurance premiums are recognized as revenues principally at the time of the real estate closing. Escrow and trust fees are recognized principally when billed.
Property and casualty insurance premiums are reflected in income generally on a daily pro rata basis for facultative business and as reported by the ceding company for treaty business.
h. Post-employment Benefits.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post-employment Benefits." Statement No. 112 requires accrual of a liability representing the cost of certain benefits earned by employees over their employment period. Statement No. 112 applies to vested benefits provided to former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement. The adoption of Statement No. 112 had an insignificant impact on the Company's financial position and results of operations.
i. Derivative Financial Instruments.
In October 1994, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments." This Statement amends Statement of Financial Accounting Standards No. 105, "Disclosure of Information about Financial Instruments with Off-Balance-Sheet-Risk and Financial Instruments with Concentrations of Credit Risk" and Statement of Financial Accounting Standards No. 107,"Disclosure about Fair Value of Financial Instruments" and provides specific disclosure requirements for derivative financial instruments. Statement No. 119 is effective for financial statements issued for fiscal years ending after December 15, 1994. This Statement applies to interest rate swap agreements ("swaps") entered into by the Company. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into interest rate swaps for purposes of converting variable interest rate exposure to a fixed rate and to match interest expense with interest income. Interest rate swaps are accounted for as a hedge of the obligation. Interest expense is recorded using the revised interest rate.
j. Income Taxes.
The Company files a consolidated federal income tax return with its domestic subsidiaries. The Company follows the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
k. Funds Held, Accounts, and Other Receivables
Funds held, accounts, and other receivables consists of funds held under reinsurance contracts and accounts and other receivables, net of allowances.
l. Acquisition Costs.
Acquisition costs related to unearned property and casualty reinsurance premiums are deferred by major underwriting lines and amortized over the period in which the premiums are earned. The method followed in computing the deferred acquisition costs consists of deferring only those variable acquisition costs, such as commissions and brokerage fees, which relate directly to the production of business, and limiting the amount of those costs deferred to their net realizable value after allowing for anticipated investment income.
m. Reinsurance.
Underwriters Re follows the provisions of Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance for Short-Duration and Long-Duration Contracts." Reinsurance receivables (including amounts related to claims incurred but not reported) and prepaid reinsurance premiums are reported as assets. Reinsurance contracts that do not result in a reasonable possibility that the reinsurer may realize a significant loss from the insurance risk assumed and that do not provide for the transfer of significant insurance risk generally do not meet the conditions for reinsurance accounting and are accounted for as deposits.
n. Cash.
For purposes of the consolidated statements of cash flows, cash includes only funds on deposit which are available for immediate withdrawal.
o. Net Earnings Per Share of Common Stock.
Net earnings per share of common stock are based on the average number of shares of Alleghany common stock outstanding during the years ended December 31, 1995, 1994, and 1993, respectively, as adjusted for stock dividends. The average number of shares of common stock outstanding, as adjusted for stock dividends, was 7,069,226 in 1995, 6,971,446 in 1994, and 6,924,900 in 1993.
p. Recent Accounting Pronouncements.
In March 1995, the FASB issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement No. 121 provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Statement No. 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995. Management is currently reviewing the impact of Statement No. 121, however, management does not expect it to have a material impact on the Company's financial position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Statement No. 123 establishes accounting and reporting standards for stock-based employee compensation plans. This statement allows companies to choose between the "fair value based method of accounting" as defined in this statement and the "intrinsic value based method of accounting" as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Statement No. 123 is effective for fiscal years beginning after December 15, 1995, though it may be adopted earlier. The Company intends to continue to follow the accounting guidance provided by APB 25 as permitted in its 1996 consolidated financial statements.
2. Acquisitions
a. 1995 Acquisitions
CT&T acquired National Flood Information Services, Inc., a provider of flood certification services, for $12 million and accounted for the acquisition by the purchase method of accounting.
Alleghany acquired Credit Data Reporting Services, Inc. ("Credit Data"), a mortgage credit reporting business, by an exchange of stock whereby the Company issued 78,972 shares of its common stock. Alleghany subsequently contributed the stock of Credit Data to CT&T. The acquisition of Credit Data was accounted for as a pooling of interests.
World Minerals acquired several mining related operations at a total cost of approximately $70 million. These acquisitions consisted primarily of perlite expansion plants in Spain and Italy, mining, processing and distribution facilities in China and South Korea, and perlite ore reserves in Turkey. All acquisitions were accounted for by the purchase method of accounting.
The aggregate effect of these transactions was immaterial to the Company's 1995 financial position and results of operations. Therefore, prior period financial information was not restated and proforma financial information is not presented.
b. 1994 Acquisitions
The Company acquired Montag & Caldwell, Inc., a privately held investment counseling firm, in an exchange of stock whereby the Company issued 212,757 shares of its common stock. Montag & Caldwell, Inc. was subsequently contributed to CT&T. The acquisition was accounted for as a pooling of interests; the consolidated financial statements of Alleghany for prior periods were not restated because the effect was immaterial.
Underwriters Reinsurance acquired an inactive insurance company for $10 million, which represented the approximate carrying value of its investment portfolio and other intangible assets, with licenses to write primary property and casualty insurance in 31 states and the District of Columbia. The company was renamed Underwriters Insurance Company. A capital contribution of $100 million, consisting principally of five million shares of Santa Fe common stock was made to UIC. UIC's statutory surplus was $112.1 million at 1994 year end.
c. 1993 Acquisition
On October 7, 1993, the Company acquired approximately 93% of the capital stock of a new holding company which owned all of the capital stock of Underwriters Reinsurance, a New Hampshire corporation headquartered in California, which provides reinsurance to property and casualty insurers and reinsurers. Underwriters Reinsurance also owned a recently formed property and casualty insurance subsidiary, Commercial Underwriters Insurance Company, which concentrates on specialized insurance lines. The purchase price was approximately $204 million, including capitalized costs.
The acquisition of Underwriters Reinsurance was effective for accounting purposes as of October 1, 1993, and has been accounted for by the purchase method of accounting. Accordingly, the accounts of Underwriters Reinsurance, after adjustment to reflect fair values assigned to assets and liabilities, have been included in the consolidated financial statements of the Company after the effective date of the acquisition.
3. Sale of Sacramento Savings
On October 31, 1994, Alleghany sold its wholly owned retail banking subsidiary, Sacramento Savings and an ancillary company, to First Interstate Bank of California for a cash purchase price of approximately $331 million. The operations of Sacramento Savings and the ancillary company are presented as discontinued operations in the accompanying consolidated financial statements. Alleghany Financial Inc. ("AFI"), the holding company of Sacramento Savings and ancillary companies, was dissolved prior to the sale.
Net proceeds from the sale were used to repay borrowings under Alleghany's revolving credit loan agreement which had been drawn on to purchase investment securities and to repay an AFI note payable.
Condensed information relating to discontinued operations is as follows (in thousands):
- ------------------------------------------------------------
1994 1993
- ------------------------------------------------------------
Revenues $150,277 $210,305
============================================================
Pre-tax earnings from
discontinued operations $ 11,305 $ 29,624
Income taxes 5,040 12,921
- ------------------------------------------------------------
Earnings from discontinued
operations, net 6,265 16,703
Gain on sale of Sacramento
Savings, net of tax of $31,946 62,869 --
- ------------------------------------------------------------
Earnings from discontinued
operations $ 69,134 $ 16,703
============================================================
|
Additionally, as part of the transaction, the Company purchased real estate and real estate related assets for about $116 million. These assets were contributed to a newly formed subsidiary, API. The Company intends to dispose of the assets in an orderly fashion, which may take several years. Based on the Company's liquidation plan and anticipated higher carrying costs for the real estate and real estate related assets, the Company expects to realize less than $116 million. Accordingly, and in recognition that no general loss reserves of Sacramento Savings were transferred to the Company, the carrying value of the assets was reduced by about $20 million, net of tax. This charge is reflected in the gain on sale of Sacramento Savings.
The original reserve of $30 million ($20 million on an after tax basis) has since been partially utilized and $25 million remains at December 31, 1995.
4. Investments
Available for sale securities at December 31, 1995 and 1994 are summarized as follows (in thousands):
- ------------------------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
Consolidated or Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
Fixed maturities:
U.S. Government,
government agency
and municipal
obligations $1,019,799 $ 20,865 $(3,352) $1,037,312
Certificates of deposit 20,587 -- -- 20,587
Commercial paper 70,315 -- -- 70,315
Bonds, notes and other 566,775 6,690 (1,897) 571,568
- ------------------------------------------------------------------------------------------------
1,677,476 27,555 (5,249) 1,699,782
Equity securities 308,210 331,825 (2,079) 637,956
- ------------------------------------------------------------------------------------------------
$1,985,686 $ 359,380 $(7,328) $2,337,738
================================================================================================
Industry Segment
- ------------------------------------------------------------------------------------------------
Title, trust and escrow $ 809,426 $ 26,017 $(3,102) $ 832,341
Property and casualty
reinsurance 937,453 129,899 (3,716) 1,063,636
Mining and filtration 6,961 -- -- 6,961
Corporate activities 231,846 203,464 (510) 434,800
- ------------------------------------------------------------------------------------------------
$1,985,686 $ 359,380 $(7,328) $2,337,738
================================================================================================
- ------------------------------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
Consolidated or Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
Fixed maturities:
U.S. Government,
government agency
and municipal
obligations $ 1,063,523 $ 1,238 $(58,340) $1,006,421
Certificates of deposit 64,832 -- -- 64,832
Commercial paper 42,250 -- -- 42,250
Bonds, notes and other 484,832 302 (20,123) 465,011
- ------------------------------------------------------------------------------------------------
1,655,437 1,540 (78,463) 1,578,514
Equity securities 262,292 96,502 (1,574) 357,220
- ------------------------------------------------------------------------------------------------
$ 1,917,729 $ 98,042 $(80,037) $1,935,734
================================================================================================
Industry Segment
- ------------------------------------------------------------------------------------------------
Title, trust and escrow $ 863,494 $ 6,106 $(21,034) $ 848,566
Property and casualty
reinsurance 838,490 32,422 (58,829) 812,083
Mining and filtration 468 -- -- 468
Corporate activities 215,277 59,514 (174) 274,617
- ------------------------------------------------------------------------------------------------
$ 1,917,729 $ 98,042 $(80,037) $1,935,734
================================================================================================
|
The amortized cost and estimated fair value of fixed maturities at December 31, 1995, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
- -------------------------------------------------------------------
Amortized Fair
Cost Value
- -------------------------------------------------------------------
Fixed maturities:
Due in one year or less $ 429,714 $ 430,572
Due after one year through five years 407,471 412,868
Due after five years through ten years 220,097 222,453
Due after ten years 182,333 188,624
Mortgage-backed securities 437,861 445,265
- -------------------------------------------------------------------
$1,677,476 $1,699,782
===================================================================
|
The proceeds from sales of available for sale securities were $469 million, $634 million, and $1.2 billion, which included the proceeds from sales of fixed maturities of $382 million, $476 million, and $792 million in 1995, 1994, and 1993, respectively.
Gross realized gains and gross realized losses of available for sale securities were $42.6 million and $6.6 million, $24.3 million and $15.6 million, and $22.8 million and $7.5 million, respectively, in 1995, 1994, and 1993.
These amounts include gross realized gains and gross realized losses on sales of fixed maturities of $1.7 million and $6.3 million, $0.9 million and $10.7 million, and $3.4 million and $2.6 million, respectively, in 1995, 1994, and 1993.
During 1995, 1994 and 1993, Alleghany had fixed maturity and equity investments that were trading below cost. The Company determined that these declines were other than temporary and, accordingly, recorded a loss provision of approximately $2.3 million, $3.1 million and $4.6 million, respectively, for these investments.
The Company owned 7,429,000 shares of Burlington Northern Santa Fe Corporation at December 31, 1995 with a cost basis of $254 million and a fair value of $579 million.
At December 31, 1995 and 1994, investments totalling approximately $377 million and $376 million, respectively, were pledged principally to secure unearned title insurance premium liabilities computed under statutory insurance regulations, as required by law.
At December 31, 1995 and 1994, investments totalling approximately $25 million and $19 million, respectively, were on deposit with various states or governmental departments to comply with property and casualty insurance laws.
Assets pledged to secure trust and escrow deposits at December 31, 1995 and 1994, carried at fair value, were as follows (in thousands):
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
Cash $122,893 $ 60,445
U.S. Government and municipal obligations 218,116 196,538
Certificates of deposit 16,405 59,522
Commercial paper 30,000 --
Equity securities 10,209 9,520
Other 224 --
- ---------------------------------------------------------------
$397,847 $326,025
===============================================================
|
Additionally, Alleghany's title insurance subsidiaries administer escrow deposits generally related to customers' real estate transactions. The funds are not considered assets and liabilities of the Company and, accordingly, amounts aggregating approximately $1,215 million and $832 million are excluded from the accompanying consolidated balance sheets at December 31, 1995 and 1994, respectively.
5. Reinsurance
In the ordinary course of business, Underwriters Reinsurance assumes and cedes reinsurance for purposes of risk diversification and limiting maximum loss exposure of catastrophic events. If such assuming reinsurers are unable to meet the obligations assumed under these agreements, Underwriters Reinsurance would remain liable. Reinsurance receivable at December 31, 1995 and 1994 consist of the following (in thousands):
- ------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------
Reinsurance recoverable on paid losses $ 14,203 $ 18,473
- ------------------------------------------------------------------
Ceded outstanding losses and loss
adjustment expenses $385,580 $404,210
==================================================================
|
For the years ended December 31, 1995 and 1994 and the three months ended December 31, 1993, Underwriters Reinsurance ceded losses and loss adjustment expenses of $49.5 million, $51.4 million and $19.6 million, respectively.
The following table indicates premiums assumed and ceded for the years ended December 31, 1995 and 1994 and the three months ended December 31, 1993 (in thousands):
- ------------------------------------------------
Written Earned
- ------------------------------------------------
1995
- ------------------------------------------------
Premiums assumed $330,435 $320,328
Premiums ceded $ 92,478 $ 85,234
================================================
1994
- ------------------------------------------------
Premiums assumed $254,832 $250,757
Premiums ceded $ 64,493 $ 69,299
================================================
1993
- ------------------------------------------------
Premiums assumed $ 36,435 $ 38,479
Premiums ceded $ 6,166 $ 9,994
================================================
|
Effective January 1, 1988, Underwriters Reinsurance, on behalf of Underwriters Re, purchased for $57.5 million two excess of loss reinsurance contracts ("the reinsurance contracts") from Continental Re. Under the reinsurance contracts, Continental Re assumes the risk of losses incurred by Underwriters Re to the extent that Underwriters Re's net ultimate incurred losses, including unrecoverable reinsurance, for pre-1987 business exceeds the aggregate deductible as defined, subject to a limit of $200 million. The limit was fully utilized prior to October 1993. During 1995 and 1994, approximately $39 million and $12 million, respectively, were received under these reinsurance contracts and the remaining $149 million is included in the reinsurance receivable balance as of December 31, 1995.
Loss reserves ceded under the reinsurance contracts must be secured by a trust fund or other acceptable security. As of December 31, 1995 and 1994, loss reserves ceded are secured by $179.2 million and $151.7 million, respectively, deposited in a trust fund and letters of credit totalling $133.3 million and $155.4 million, respectively.
6. Liability for Unpaid Claims and Claim Adjustment Expenses
Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows:
- --------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------
Title Losses
- --------------------------------------------------------------------------
Balance at January 1 $536,068 $532,123 $511,455
Less reinsurance recoverables -- -- --
- --------------------------------------------------------------------------
Net balance at January 1 536,068 532,123 511,455
- --------------------------------------------------------------------------
Incurred related to:
Current year 81,385 94,845 121,864
Prior years -- -- --
- --------------------------------------------------------------------------
Total incurred 81,385 94,845 121,864
- --------------------------------------------------------------------------
Paid related to:
Current year 2,829 3,105 2,866
Prior years 84,709 87,795 98,330
- --------------------------------------------------------------------------
Total paid 87,538 90,900 101,196
- --------------------------------------------------------------------------
Net balance at December 31 529,915 536,068 532,123
Plus reinsurance recoverables -- -- --
- --------------------------------------------------------------------------
Balance at December 31 $529,915 $536,068 $532,123
==========================================================================
|
The above reserves for title losses excludes trust and escrow reserves of $1.1 million, $1.0 million, and $1.1 million, in 1995, 1994, and 1993, respectively.
- ----------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------
Property and Casualty Losses
and Loss Adjustment Expenses
- ----------------------------------------------------------------------
Balance at January 1, 1995
and 1994 and October 1, 1993 $ 940,527 $861,204 $871,244
Less reinsurance recoverables 404,210 351,829 359,124
- ----------------------------------------------------------------------
Net balance at January 1, 1995
and 1994 and October 1, 1993 536,317 509,375 512,120
- ----------------------------------------------------------------------
Incurred related to:
Current year 199,783 146,426 23,826
Prior years 3,325 6,630 1,305
- ----------------------------------------------------------------------
Total incurred 203,108 153,056 25,131
- ----------------------------------------------------------------------
Paid related to:
Current year 9,239 13,826 3,056
Prior years 101,766 112,288 24,820
- ----------------------------------------------------------------------
Total paid 111,005 126,114 27,876
- ----------------------------------------------------------------------
Net balance at December 31 628,420 536,317 509,375
Plus reinsurance recoverables 385,580 404,210 351,829
- ----------------------------------------------------------------------
Balance at December 31 $1,014,000 $940,527 $861,204
======================================================================
|
Underwriters' reserve for unpaid losses and loss adjustment expenses includes $103.2 million and $112.6 million gross reserves and $66.5 and $62.1 million net reserves at December 31, 1995 and 1994, respectively, for various liability coverages related to asbestos and environmental impairment claims that arose from general liability and certain commercial multiple-peril coverages. Restrictive asbestos and environmental impairment exclusions were introduced in late 1986 on both primary and reinsurance contracts, significantly reducing these exposures for accidents occurring after 1986. Reserves for asbestos and environmental impairment claims cannot be estimated with traditional loss reserving techniques because of uncertainties that are greater than those associated with other types of claims. Factors contributing to those uncertainties include a lack of historical data, the significant periods of time that often elapse between the occurrence of an insured loss and the reporting of that loss to the ceding company and the reinsurer, uncertainty as to the number and identity of insureds with potential exposure to such risks, unresolved legal issues regarding policy coverage, and the extent and timing of any such contractual liability. Such uncertainties are not likely to be resolved in the near future, and therefore management believes it is not possible at this time to determine the ultimate losses in this area or develop a meaningful range of such losses.
For both asbestos and environmental excess of loss reinsurance claims, Underwriters Reinsurance establishes case reserves by applying reinsurance contract terms to losses reported by ceding companies, analyzing from the first dollar of loss incurred by the primary insurer. In establishing the liability for claims for asbestos related liability and for environmental impairment claims, management considers facts currently known and the current state of the law and coverage litigation. Additionally, ceding companies often report potential losses on a precautionary basis to protect their rights under the reinsurance arrangement, which generally call for prompt notice to the reinsurer. Ceding companies, at the time they report such potential losses, advise Underwriters Reinsurance of the ceding companies' current estimate of the extent of such loss. Underwriters Reinsurance's claims department reviews each of the precautionary claims notices and, based upon current information, assesses the likelihood of loss to Underwriters Reinsurance. Such assessment is one of the factors used in determining the adequacy of the recorded asbestos and environmental reserves.
7. Long-Term Debt
Long-term debt at December 31, 1995 and 1994 is summarized as follows (in thousands):
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
Alleghany
Debentures at 6.5%, due 2014, exchangeable for
common shares of American Express at an
exchange rate of 22.8833 common shares per
$1,000 principal amount of debentures $ -- $ 59,600
API
Senior notes at 8.62%, due 2000 50,000 --
AFC
Notes payable at 4.1% to 7.1% due 1999 80,000 80,000
CT&T
Bank borrowings at 6.3% to 8.7%,
due through 2000 50,000 60,500
Other loans payable at 5.0% to 10.0%,
due through 1997 4,970 3,826
Capital lease obligations at 10.5% to 12.0%,
less amounts representing interest of $11
in 1995 and $18 in 1994, due through 1996 73 115
Underwriters Re
Notes payable at 4.5% to 7.5%,
due through 1998 50,000 66,000
World Minerals
Notes payable at 8.2% to 8.3%,
due through 1998 88,000 57,000
Harborlite redeemable preferred stock 7,825 7,643
Term Loan at 12.1%, due 1997 102 --
Capital lease obligations at 8.2%, less
amounts representing interest of $29
in 1995 and $43 in 1994, due through 1998 719 389
- ---------------------------------------------------------------------------
$331,689 $335,073
===========================================================================
|
Under the terms of a revolving credit loan agreement dated June 14, 1995, with a bank, Alleghany may borrow up to $200 million until July 2000. At Alleghany's option, borrowings bear interest at a rate based on the purchase of negotiable certificates of deposit, prevailing rates for dollar deposits in the London interbank market or the greatest of the Federal funds rate, the bank's prime rate or a specified certificate of deposit rate. No amounts were outstanding under this agreement or a prior similar agreement at December 31, 1995 or 1994. A commitment fee of 1/4 of 1% per annum of the unused commitment is charged. The revolving credit agreement, among other things, requires Alleghany to maintain tangible net worth not less than $750 million, limits the amount of certain other indebtedness and contains restrictions with respect to mortgaging or pledging any of Alleghany's assets and consolidation or merger with any other corporation.
In November 1995, the Company redeemed its exchangeable debentures at a redemption price of 102.6 percent of principal. Proceeds from the sale of American Express common shares were used to redeem the exchangeable debentures.
In February 1995, API issued $50 million of senior notes. Proceeds were used to repay short term borrowings and to make a dividend to Alleghany. The senior notes will be repaid in five equal annual installments beginning in 1996.
AFC notes are primarily secured by a $91.5 million installment note receivable. AFC has entered into a related interest rate swap agreement with a notional amount of $88 million for the purpose of matching interest expense with interest income. This swap is pay variable, receive variable. Alleghany pays a variable rate equal to the one month commercial paper rate plus 0.125% and receives a variable rate equal to the three month LIBOR rate plus 0.85%. The swap matures on January 20, 1999. AFC is exposed to credit risk in the unlikely event of nonperformance by the swap counter party.
On March 28, 1991, CT&T borrowed $42 million, without recourse to Alleghany, to repay bridge financing used for the Ticor Title acquisition. On May 2, 1991, CT&T entered into a swap agreement with a notional amount of $42 million for the purpose of converting variable interest rate exposure to a fixed rate. The notional amount was reset on December 31, 1995 at $21 million. This swap is pay fixed, receive variable. The fixed rate is 8.10% and the variable rate is equal to the three month LIBOR rate. The swap matures on December 31, 1997. CT&T is exposed to credit risk in the unlikely event of nonperformance by the swap counter party.
Under the terms of the bank loan agreement, CT&T is required to maintain certain financial ratios and balances and is limited on the amount of additional indebtedness or future mergers and acquisitions except as permitted by the agreements. The agreements also contain restrictions with respect to the mortgaging or pledging of assets.
On November 16, 1992, Underwriters Re entered into a six-year, $100 million reducing revolving bank credit agreement ("the credit agreement") without recourse to Alleghany. Under the terms of the credit agreement, Underwriters Re may borrow up to the maximum commitment available, which is reduced quarterly. Underwriters Re is required to make principal payments so the total loan balance is no greater than the maximum commitment available. In addition to the mandatory payments, Underwriters Re may permanently reduce the aggregate commitment in whole or in part at its sole discretion. At December 31, 1995 and 1994, the maximum commitment available was $57.5 million and $75.0 million, respectively. Amounts borrowed bear interest at either the LIBOR rate plus 1.75% or the higher of (a) the Corporate Base Rate of the bank or (b) the Federal funds effective rate plus 0.5%. The credit agreement also contains covenants relating to, among other things, restrictions on debt, mergers, acquisitions, dispositions of assets, capital expenditures, paying dividends, liens and investments. Additionally, the credit agreement requires
Underwriters Re to maintain certain financial ratios and minimum levels of consolidated tangible net worth, statutory surplus and pre-tax statutory income. The credit agreement is secured primarily by a pledge of the capital stock of Underwriters Reinsurance.
On December 20, 1991, World Minerals entered into a bank loan agreement, providing for borrowings of up to $70 million, pursuant to which it borrowed $50 million, without recourse to Alleghany. The loan proceeds were used to repay part of an acquisition-related advance from Alleghany. On March 10, 1995, the bank loan agreement was renegotiated to provide borrowing up to $117 million. During 1995, World Minerals borrowed an additional $31 million to fund a number of small acquisitions and joint ventures. In January 1992, World Minerals entered into two interest rate swap agreements each with a notional amount of $30 million. These swaps mature on January 15, 1997 and January 15, 1999. These swaps were entered into for the purpose of converting variable interest rate exposure to a fixed rate. One such swap was entered into as a condition of a related variable rate loan agreement which required that hedging or interest rate protection agreements be maintained with respect to not less than 50% of the variable rate borrowing commitment. World Minerals is exposed to credit risk in the unlikely event of nonperformance by the swap counterparty.
Regarding the Company's interest rate swaps, there were no deferred gains or losses related to terminated interest rate swap contracts as of the end of the last three fiscal years. The impact of Alleghany's hedging activities has been to increase the weighted average borrowing rates by 0.48%, 0.86%, and 0.97%, and to increase reported interest expense by $1.6 million, $3.2 million, and $3.7 million for the years ending 1995, 1994, and 1993, respectively.
Scheduled aggregate annual maturities of long-term debt for each of the next five years and thereafter are as follows (in thousands):
- --------------------------
1996 $ 44,016
1997 53,665
1998 54,089
1999 151,927
2000 19,917
Thereafter 8,075
- --------------------------
$331,689
==========================
|
8. Income Taxes
Income tax expense (benefit) from continuing operations consists of the following (in thousands):
- ------------------------------------------------------
Federal State Foreign Total
- ------------------------------------------------------
1995
- ------------------------------------------------------
Current $27,380 $2,636 $4,938 $34,954
Deferred 43 600 179 822
- ------------------------------------------------------
$27,423 $3,236 $5,117 $35,776
======================================================
1994
- ------------------------------------------------------
Current $11,719 $ 837 $3,665 $16,221
Deferred 7,846 572 (17) 8,401
- ------------------------------------------------------
$19,565 $1,409 $3,648 $24,622
======================================================
1993
- ------------------------------------------------------
Current $14,365 $1,091 $2,306 $17,762
Deferred (9,158) (105) 155 (9,108)
- ------------------------------------------------------
$ 5,207 $ 986 $2,461 $ 8,654
======================================================
|
Pre-tax earnings from continuing operations includes $16.1 million, $11.5 million, and $7.3 million from foreign operations in 1995, 1994, and 1993, respectively.
The difference between the federal income tax rate and the effective income tax rate on continuing operations is as follows:
- ------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
Federal income tax rate 35.0 % 35.0 % 35.0 %
Goodwill amortization 1.6 2.0 1.3
Income subject to dividends-received
deduction (0.9) (1.6) (0.5)
State taxes, net of federal tax benefit 0.7 0.9 0.2
Tax-exempt interest income (6.3) (8.8) (4.0)
Reversal of previously accrued
tax expenses -- -- (22.3)
Other, net (0.6) (1.0) --
- -----------------------------------------------------------------------
29.5 % 26.5 % 9.7 %
=======================================================================
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are as follows (in thousands):
- ---------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------
Deferred tax assets
Title losses, trust, and other claim reserves $ 167,472 $ 165,362
Property and casualty loss reserves 55,150 52,375
Net operating loss and alternative
minimum tax carryforwards 7,566 8,184
Reserves for impaired assets 23,522 29,846
Expenses deducted for tax purposes
when paid 34,502 35,794
Other 7,966 6,976
- ---------------------------------------------------------------------------
296,178 298,537
- ---------------------------------------------------------------------------
Valuation allowance 3,840 4,360
- ---------------------------------------------------------------------------
Total deferred tax assets 292,338 294,177
- ---------------------------------------------------------------------------
Deferred tax liabilities
Unearned premium reserves (81,398) (77,948)
Deferred revenues and gains (160,398) (51,594)
Title plant (29,085) (29,085)
Tax over book depreciation (23,155) (20,389)
Other (19,963) (15,799)
- ---------------------------------------------------------------------------
Total deferred tax liabilities (313,997) (194,815)
- ---------------------------------------------------------------------------
Net deferred tax (liability) asset $ (21,659) $ 99,362
- ---------------------------------------------------------------------------
|
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. At December 31, 1995 and 1994, the Company has established a valuation allowance of $3.8 million and $4.4 million, respectively, for certain deferred state tax assets which it believes will not be realized.
The amount of operating loss and tax credit carryforwards available to offset future federal taxable income is approximately $21.6 million, expiring through 2005. The Company utilized approximately $1.8 million and $76.6 million, respectively, of operating loss and tax credit carryforwards during 1995 and 1994.
The Internal Revenue Service has examined Alleghany's federal income tax returns for 1991 and 1992 and has asserted federal income tax deficiencies. Management is contesting such proposed deficiencies and believes that any such proposed deficiencies will be resolved for amounts, net of existing reserves, that are not material to the Company's financial position or results of operations.
The Internal Revenue Service asserted substantial federal income tax deficiencies for the years 1984 and 1985. During 1993, the issues were settled resulting in a credit to earnings for previously accrued tax expenses of $20 million. Tax years 1984 and 1985 are now closed.
9. Stockholders' Equity
The total number of shares of all classes of capital stock which Alleghany has authority to issue is 30,000,000, of which 8,000,000 shares are preferred stock, par value of $1.00, and 22,000,000 shares are common stock, par value of $1.00.
Stockholder's equity and surplus of CT&T, CTI, Security Union and Ticor Title are restricted by borrowing agreements and statutory limitations as to payment of dividends. At December 31, 1995 approximately $146.4 million was available from CT&T for dividends to Alleghany. CT&T's availability of funds for dividends, however, may be further restricted by limitations imposed by statutes to which its subsidiaries are subject. CT&T's statutory surplus at December 31, 1995 and 1994 was $160 million and $157 million, respectively, and statutory net income for the years ended December 31, 1995, 1994, and 1993 was $45 million, $51 million, and $71 million, respectively.
Stockholders' equity and surplus of Underwriters Re is also restricted by borrowing agreements and statutory limitations as to payment of dividends. At December 31, 1995 approximately $1.5 million was available for dividends to Alleghany. Underwriters Reinsurance statutory surplus at December 31, 1995 and 1994 was $458 million and $361 million, respectively, and statutory net income for the years ended December 31, 1995 and 1994 and the three months ended December 31, 1993 was $23 million and $24 million and $12 million, respectively.
Stockholders' equity of World Minerals is restricted by a borrowing agreement as to payment of dividends. At December 31, 1995, substantially all of World Minerals stockholders' equity was restricted as to dividend payment to Alleghany.
Additionally, payments of dividends (other than stock dividends) by Alleghany to its stockholders are limited by the terms of the revolving credit loan agreement which stipulates that Alleghany can pay dividends up to the sum of cumulative net earnings after 1994, proceeds from the issuance of stock after 1994 and $50 million, provided that Alleghany maintains certain financial ratios as defined in the agreement. At December 31, 1995 approximately $135 million of capital was available for dividends.
In April 1993, stockholders of Alleghany approved a Long-Term Incentive Plan effective as of January 1, 1993. The incentive plan replaces the 1983 Long-Term Incentive Plan which terminated by its terms on December 31, 1992. The incentive plan is substantially similar to the 1983 Long-Term Incentive Plan. A maximum of 300,000 shares of Alleghany common stock can be paid to participants under the incentive plan through December 31,
2002 (subject to anti-dilution and other adjustments). The incentive plan permits Alleghany to provide incentive compensation of the types commonly known as restricted stock, stock options, stock appreciation rights, performance shares, performance units, and phantom stock, as well as other types of incentive compensation. Awards may include, but are not limited to, cash and/or shares of Alleghany's common stock, rights to receive cash and/or shares of common stock and options to purchase shares of common stock including options intended to qualify as incentive stock options under the Internal Revenue Code and options not intended to qualify. The number of performance shares awarded under the incentive plan and its predecessor to employees of the Company were 30,997 in 1995, 43,202 in 1994, and 15,283 in 1993 (as adjusted for stock dividends).
Under the incentive plans, participants are entitled, at the end of a four-year award period, to the fair value of an equal number of shares of Alleghany's common stock (adjusted for anti-dilution from date of award), based on market value on the payment date and normally payable half in cash and half in stock, provided defined levels of performance are achieved. As of December 31, 1995 (for all award periods through the award period 1995), approximately 273,000 performance shares were granted, of which 129,000 have been paid out, none have expired, and 144,000 have not matured. The amounts charged to the Company's earnings with respect to the plans were $6.2 million in 1995, $4.5 million in 1994, and $3.3 million in 1993.
In April 1994, stockholders of Alleghany approved an amended and restated stock option plan effective in April 1993 under which options to purchase a maximum of 75,000 shares (subject to anti-dilution and other adjustments) of Alleghany's common stock are awarded to non-employee directors. The plan replaces the Directors' Stock Option Plan which terminated in April 1993. The stock option plan provides for the automatic grant of non-qualified stock options to purchase 1,000 shares of common stock in each year after 1987 to each non-employee director. Options to purchase 7,000 shares at the then fair market value of $155.25 were granted in 1995. Options to purchase 7,000 shares at the then fair market value of $141.75 were granted in 1994. Through December 31, 1995, pursuant to the plans and as adjusted for stock dividends, 62,000 options were granted, 13,000 options have been exercised, and 49,000 options remain outstanding. Alleghany has reserved 74,000 shares (as adjusted for stock dividends) at December 31, 1995 for the satisfaction of exercises of options.
The Board of Directors has authorized the purchase from time to time of additional shares of common stock for the treasury. During 1995, 1994, and 1993, Alleghany repurchased 44,523 shares, 69,509 shares, and 55,200 shares of its common stock at a cost of $7.6 million, $10.1 million, and $7.9 million, respectively.
10. Employee Benefit Plans
The Company has several noncontributory defined benefit pension plans covering substantially all of its employees. The defined benefits are based on years of service and the employee's average compensation generally during the last five years of employment. The Company's funding policy is to contribute annually the amount necessary to satisfy the Internal Revenue Service's funding standards. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. CT&T is a qualified trust company and, as such, serves as trustee for the assets of certain of the pension plans.
The following tables set forth the defined benefit plans' funded status at December 31, 1995 and 1994 (in millions except percentages):
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefit obligation $126.7 $107.6
================================================================================
Accumulated benefit obligation $134.2 $114.6
================================================================================
Projected benefit obligation $155.9 $130.6
Plan assets at fair value 130.9 114.4
- --------------------------------------------------------------------------------
Projected benefit obligation,
more than plan assets (25.0) (16.2)
Unrecognized net loss 42.4 26.5
Unrecognized prior service cost 5.4 6.1
Unrecognized net asset (4.1) (4.5)
- --------------------------------------------------------------------------------
Pension asset recognized in
the balance sheet $ 18.7 $ 11.9
================================================================================
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Net pension cost included the following
expense (income) components
Service cost - benefits earned
during the year $ 5.6 $ 7.9 $ 6.7
Interest cost on projected
benefit obligation 11.2 10.9 9.9
Actual return on plan assets (18.0) 1.9 (7.2)
Net amortization and deferral 7.4 (8.9) (1.5)
================================================================================
Net periodic pension cost included
in costs and expenses $ 6.2 $11.8 $ 7.9
================================================================================
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Assumptions used in computing
the funded status of the plans
are as follows
Range of rates for increases in
compensation levels 4.5%-5.0% 4.5%-5.0%
Range of weighted average
discount rates 6.5%-7.8% 8.0%-8.8%
Range of expected long-term
rates of return 4.0%-9.0% 4.0%-9.0%
================================================================================
|
The Company provides supplemental retirement benefits through deferred compensation programs and profit sharing plans for certain of its officers and employees for which earnings were charged $8.2 million in 1995, $12.5 million in 1994, and $17.3 million in 1993.
The Company also provides certain healthcare and life insurance benefits for retired employees. The cost of these benefits is accrued during the period that employees render service. The accrued postretirement benefit obligation was $33.4 million and $31.5 million at December 31, 1995 and 1994, respectively. The postretirement healthcare and life insurance costs recognized were $3.2 million, $3.1 million, and $3.0 million for 1995, 1994, and 1993, respectively.
11. Commitments and Contingencies
The Company leases certain facilities, furniture and equipment under long-term lease agreements. In addition, certain land, office space and equipment are leased under noncancelable operating leases which expire at various dates through 2012. Rent expense was $69.1 million in 1995, $66.5 million in 1994, and $65.7 million in 1993.
The aggregate minimum payments under operating leases with initial or remaining terms of more than one year are $43.6 million, $36.2 million, $30.4 million, $24.7 million, $19.6 million, and $131.0 million in 1996, 1997, 1998, 1999, 2000, and thereafter, respectively.
The Company's subsidiaries and division are parties to pending litigation and claims in connection with the ordinary course of their businesses. Each such operating unit makes provisions for estimated losses to be incurred in such litigation and claims, including legal costs. In the opinion of management, based in part on advice of counsel, such provision is adequate.
12. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows (in thousands):
- ----------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------
Calculated Calculated
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------
Assets
Investments $2,337,738 $2,337,738 $1,935,734 $1,935,734
Notes receivable $ 91,536 $ 91,536 $ 91,536 $ 91,536
Liabilities
Long-term debt $ 331,689 $ 334,317 $ 335,073 $ 334,819
==================================================================================
|
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value:
Investments: The fair value of fixed maturities and equity securities are based upon quoted market prices. The fair value of short term investments approximates amortized cost.
Notes receivable: The carrying amount approximates fair value because interest rates approximate market rates.
Long-term debt: The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. The fair value includes the effects of the interest rate swaps.
13. Segments of Business
Information concerning the Company's continuing operations by industry segment as of and for the years ended December 31, 1995, 1994, and 1993, respectively, is summarized as follows (in thousands):
- -----------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------
Revenues
Title, trust and escrow $1,172,627 $1,352,646 $1,440,151
Property and casualty
reinsurance* 322,204 225,390 40,712
Mining and filtration 178,686 162,636 149,545
Corporate activities 111,293 86,433 67,739
- -----------------------------------------------------------------------
Total $1,784,810 $1,827,105 $1,698,147
=======================================================================
Earnings from continuing
operations, before
income taxes
Title, trust and escrow $ 52,660 $ 72,510 $ 98,171
Property and casualty
reinsurance* 28,998 12,504 4,058
Mining and filtration 31,407 23,539 13,745
Corporate activities 58,232 36,476 19,527
- -----------------------------------------------------------------------
171,297 145,029 135,501
Interest expense 28,982 29,285 29,101
Corporate administration 21,239 22,750 16,897
- -----------------------------------------------------------------------
Total $ 121,076 $ 92,994 $ 89,503
=======================================================================
Identifiable assets at
December 31
Title, trust and escrow $1,402,217 $1,407,840 $1,515,746
Property and casualty
reinsurance 1,750,008 1,510,335 1,339,824
Mining and filtration 315,074 215,204 208,377
Corporate activities 655,215 454,512 405,176
- -----------------------------------------------------------------------
Total $4,122,514 $3,587,891 $3,469,123
=======================================================================
Capital expenditures
Title, trust and escrow $ 17,045 $ 19,427 $ 12,350
Property and casualty
reinsurance* 1,292 1,396 199
Mining and filtration 22,749 9,501 25,457
Corporate activities 383 217 243
- -----------------------------------------------------------------------
Total $ 41,469 $ 30,541 $ 38,249
=======================================================================
Depreciation and
amortization
Title, trust and escrow $ 24,825 $ 25,540 $ 29,161
Property and casualty
reinsurance* 7,180 8,916 2,201
Mining and filtration 11,590 9,657 6,823
Corporate activities 553 665 731
- -----------------------------------------------------------------------
Total $ 44,148 $ 44,778 $ 38,916
=======================================================================
|
* Includes results of operations from October 1, 1993.
14. Quarterly Results of Operations (unaudited)
Selected quarterly financial data for 1995 and 1994 are presented below (in thousands, except per share amounts):
- --------------------------------------------------------------------------------------------
Quarter Ended
--------------------------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31
- --------------------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------------------
Revenues from
continuing operations $397,052 $415,176 $447,890 $524,692
- --------------------------------------------------------------------------------------------
Net earnings from
continuing operations $ 793 $ 17,189 $ 23,417 $ 43,901
- --------------------------------------------------------------------------------------------
Net earnings per share
of common stock* $ 0.11 $ 2.44 $ 3.31 $ 6.18
- --------------------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------------------
Revenues from
continuing operations $479,983 $468,170 $447,642 $431,310
- --------------------------------------------------------------------------------------------
Earnings from
continuing operations $ 16,989 $ 16,330 $ 21,195 $ 13,858
Earnings from
discontinued operations 2,950 2,275 1,040 --
Gain on sale of
Sacramento Savings, net -- 16,800 -- 46,069
- --------------------------------------------------------------------------------------------
Net earnings $ 19,939 $ 35,405 $ 22,235 $ 59,927
- --------------------------------------------------------------------------------------------
Net earnings per share of
common stock:*
Continuing operations $ 2.46 $ 2.37 $ 2.98 $ 1.96
Discontinued operations .43 .33 .16 --
Gain on sale of
Sacramento Savings, net -- 2.44 -- 6.53
- --------------------------------------------------------------------------------------------
Net earnings $ 2.89 $ 5.14 $ 3.14 $ 8.49
============================================================================================
|
* Restated to reflect subsequent stock dividends.
The $16.8 million gain on the sale of Sacramento Savings recognized in the second quarter of 1994 represents a tax benefit which reflected the excess of the Company's tax basis in Sacramento Savings over its book basis.
The sum of four quarters of the net earnings per share for 1995 and 1994 presented above do not agree to the total net earnings per share for 1995 and 1994. This difference is due to the distribution of 78,972 shares and 212,757 shares of Alleghany common stock in August 1995 and July 1994 in connection with the acquisition of Credit Data and Montag & Caldwell, Inc., respectively.
15. Other Information
a. Other assets shown in the consolidated balance sheets at December 31, 1995 and 1994 include goodwill, net of accumulated amortization, as follows (in thousands):
- ----------------------------------------------------
Amortization
1995 1994 Period
- ----------------------------------------------------
CT&T $ 72,832 $ 55,770 5-40 years
Underwriters Re 49,113 51,880 20 years
World Minerals 28,139 16,784 40 years
- ----------------------------------------------------
$150,084 $124,434
- ----------------------------------------------------
|
Goodwill is reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of the asset may not be recoverable.
In addition, other assets shown at December 31, 1995 and 1994 includes $17.0 million and $11.3 million, respectively, of deferred acquisition costs. Amortization of deferred acquisition costs included in the 1995, 1994 and 1993 statement of earnings were $63.6 million, $38.9 million and $6.0 million, respectively.
b. Other liabilities shown in the consolidated balance sheets include the following amounts at December 31, 1995 and 1994 (in millions):
- ----------------------------------------------------
1995 1994
- ----------------------------------------------------
Accounts payable $76.6 $88.5
Unearned premiums $74.6 $52.8
Reinsurance payable $23.4 $25.5
Funds held for
reinsurers $95.9 $45.4
- ----------------------------------------------------
|
c. Property and equipment, net of accumulated depreciation and amortization at December 31, 1995 and 1994, is as follows (in thousands):
- --------------------------------------------------------------------
Depreciation
1995 1994 Period
- --------------------------------------------------------------------
Land $ 26,608 $ 21,403 --
Buildings and
improvements 90,162 62,349 30-40 years
Furniture and equipment 194,598 163,862 3-20 years
Ore reserves 25,696 10,148 30 years
Leasehold improvements 24,407 25,122 Various
- --------------------------------------------------------------------
361,471 282,884
Less: Accumulated
depreciation
and amortization (89,182) (79,966)
- --------------------------------------------------------------------
$272,289 $202,918
- --------------------------------------------------------------------
|
Alleghany Corporation and Subsidiaries
INDEPENDENT AUDITORS' REPORT
KPMG LOGO
Certified Public Accountants
345 Park Avenue
New York, NY 10154
The Board of Directors and Stockholders
Alleghany Corporation:
We have audited the accompanying consolidated balance sheets of Alleghany Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, changes in common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements, appearing on pages 18 through 34, are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alleghany Corporation and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993.
/s/ KPMG Peat Marwick LLP
----------------------------------------
KPMG Peat Marwick LLP
February 22, 1996
|
Member firm of
Klynveld Peat Marwick Goerdeler
Appendix
Page Narrative Description of Graphic or Image Material
- ---- --------------------------------------------------
1 A table of stockholders' equity per share for the years 1986-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
2 A table of year-end closing stock prices for the years 1986-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
3 A photograph of John J. Burns, Jr., President and F.M. Kirby,
Chairman, appears in the paper format version.
6 A photograph of Chicago Title's headquarters appears in the paper
format version.
8 A list of the services provided by Chicago Title with respect to a
property transaction appears in the electronic format version,
replacing a diagram that appears in the paper format version.
9 A list of the business units comprising the financial
services and title operations of Chicago Title
appears in the electronic format version, replacing a
diagram that appears in the paper format version.
10 A photograph including an airplane and a truck appears in the paper
format version.
11 A table of Underwriters' revenues and pre-tax
earnings for the years 1993-95 appears in the
electronic format version, replacing a bar graph that
appears in the paper format version.
11 A table of Underwriters' policy holder surplus for the years 1993-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
12 A photograph of World Minerals' diatomite mine appears in the
paper format.
|
Page Narrative Description of Graphic or Image Material
- ---- --------------------------------------------------
13 A table of World Minerals' revenues for the years 1991-95 appears
in the electronic format version, replacing a bar graph that appears in
the paper format version.
13 A table of World Minerals' pre-tax earnings for the years 1991-95
appears in the electronic format version, replacing a bar graph that
appears in the paper format version.
14 A map illustrating the principal routes of Burlington Northern Santa
Fe appears in the paper format.
|
Exhibit 21
SUBSIDIARIES OF ALLEGHANY
Chicago Title and Trust Company (Illinois)
Chicago Title Insurance Company (Missouri)
Alexander Title Agency, Inc. (Virginia)
CATCO, Inc. (Oklahoma - 50%)
Chicago Title Company (California)
Tri-Safe, Inc. (California - 25%)
Chicago Title Company of Alameda County
(California - 80%)
Chicago Title Insurance Company of Puerto Rico
(Puerto Rico - 99.2%)
Creative Land Services, Inc. (Minnesota)
CTOA, Inc. (Texas)
Johnson County Title Company (Kansas)
Liberty Title Company (Minnesota)
Liberty Escrow Services Company (Minnesota)
McHenry County Title Company (Illinois)
Meade Title Agency, Inc. (Ohio)
Service Title of Virginia, Inc. (Virginia - 30%)
Joint Title Plants and Associations
CTP, Inc. (Florida - 16%)
Dallas Seven Index, Inc. (Texas - 14%)
SKLD, Inc. (Colorado - 12.91%)
Title Data, Inc. (Texas - 6.25%)
Diversified Information Services Corporation (Arizona)
Spring Services Corporation (California)
Spring Services Texas, Inc. (Texas)
TPO, Inc. (Oklahoma)
Title and Trust Company (Idaho)
The Title Guarantee Company (Maryland)
Maryland Escrow, Inc. (Maryland)
Baton Rouge Title Company, Inc. (Louisiana)
The Title Company of Canada, Ltd.
Heritage American Insurance Services, Inc. (California)
Alleghany Properties, Inc. (Delaware)
Sacramento Properties Holdings, Inc. (California)
Superior California Insurance Agency (California)
Alleghany Funding Corporation (Delaware)
Alleghany Capital Corporation (Delaware)
Mineral Holdings Inc. (Delaware - 93.8%)
World Minerals Inc. (Delaware)
Advanced Minerals Corporation (Delaware)
Celite Corporation (Delaware)
Celite Europe Corporation (Delaware)
Celite France, S.A. (France)
Celite Italiana S.r.L. (Italy)
Celite Hispanica, S.A. (Spain)
Celite (U.K.) Limited (United Kingdom)
Celite Canada Inc. (Canada)
Celite Island, h.f. (Iceland)
Kisilidjan, h.f. (Iceland - 48.56%)
Celite Mexico S.A. de C.V. (Mexico)
Almeria, S.A. de C.V. (Mexico)
Diatomita San Nicolas, S.A. de C.V. (Mexico)
Celite Pacific Limited (Hong Kong)
Celite China Inc. (Delaware)
Linjiang Celite Diatomite Company Ltd.
(China 70%)
Celite Jilin, Inc. (Delaware) Changbai Celite Diatomite Company Limited
(China 65%)
Celite Minerals China Corporation (Delaware) Linjiang Lin-Lin Celite Diatomite Company Limited (China 70%) Celite Chile S.A. (Chile) Celite Korea Ltd. (South Korea) Celite do Brasil Ltda. (Brazil) Harborlite Corporation (Delaware) Perlite, Inc. (Delaware) Harborlite (U.K.) Limited (United Kingdom) Harborlite France (France) Harborlite Europe B.V. (Amsterdam, the Netherlands) Harborlite Aegean Endustri Mineralleri-Sanai, a.s.
(Turkey)
Europerlite Acquisition Corp. (Delaware)
Europerlita Espanola, S.A. (Spain)
Europerlita, S.A. (Spain)
Europerlite Italiana, S.p.A. (Italy)
Bibb Steel and Supply Company (Delaware)
MSL Property Holdings, Inc. (Delaware)
MSL Capital Recovery Corp. (Delaware)
J & E Corporation (Tennessee)
URC Holdings Corp. (Delaware - 96.8%)
Underwriters Reinsurance Company (New Hampshire)
Commercial Underwriters Insurance Company (California)
Underwriters Insurance Company (Nebraska)
URC Risk Managers, Inc. (Delaware)
The Underwriting Center, Inc. (Delaware)
The Underwriting Center of Georgia, Inc. (Georgia)
URC International, Inc. (Barbados)
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Alleghany Corporation:
We consent to incorporation by reference in the Registration Statements No. 33-27598 on Form S-8, No. 333-323 on Form S-8, No. 33-62477 on Form S-3, and No. 33-55707 on Form S-3 of our reports dated February 22, 1996 relating to the financial statements and related schedules of Alleghany Corporation and subsidiaries, which appear in, or are incorporated by reference in this Annual Report on Form 10-K of Alleghany Corporation for the fiscal year ended December 31, 1995. Our reports refer to the adoption of the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. We also consent to the reference to our Firm in Registration Statements No. 33-27598 and No. 333-323 and under the heading "Experts" in Registration Statements No. 33-55707 and No. 33-62477.
/s/ KPMG Peat Marwick LLP New York, New York March 22, 1996 |
| ARTICLE 7 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | JAN 01 1995 |
| PERIOD END | DEC 31 1995 |
| DEBT HELD FOR SALE | 1,699,782 |
| DEBT CARRYING VALUE | 0 |
| DEBT MARKET VALUE | 0 |
| EQUITIES | 637,956 |
| MORTGAGE | 0 |
| REAL ESTATE | 0 |
| TOTAL INVEST | 2,337,738 |
| CASH | 178,068 |
| RECOVER REINSURE | 0 |
| DEFERRED ACQUISITION | 0 |
| TOTAL ASSETS | 4,122,514 |
| POLICY LOSSES | 1,544,986 |
| UNEARNED PREMIUMS | 0 |
| POLICY OTHER | 0 |
| POLICY HOLDER FUNDS | 0 |
| NOTES PAYABLE | 331,689 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 1,320,643 |
| TOTAL LIABILITY AND EQUITY | 4,122,514 |
| PREMIUMS | 1,388,047 |
| INVESTMENT INCOME | 183,516 |
| INVESTMENT GAINS | 36,062 |
| OTHER INCOME | 177,185 |
| BENEFITS | 290,184 |
| UNDERWRITING AMORTIZATION | 0 |
| UNDERWRITING OTHER | 0 |
| INCOME PRETAX | 121,076 |
| INCOME TAX | 35,776 |
| INCOME CONTINUING | 85,300 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 85,300 |
| EPS PRIMARY | 12.07 |
| EPS DILUTED | 12.07 |
| RESERVE OPEN | 536,317 |
| PROVISION CURRENT | 199,783 |
| PROVISION PRIOR | 3,325 |
| PAYMENTS CURRENT | 9,239 |
| PAYMENTS PRIOR | 101,766 |
| RESERVE CLOSE | 628,420 |
| CUMULATIVE DEFICIENCY | 3,000 |