-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U60YYhquu0zGDmvZD8S2I5X6QVKb7Bnw4Chi5oq9FeaoRW4u8CQ2b3/awqeuwAnu /eM5vqZOvMVWRI+PXmsVyQ== 0000950144-97-006089.txt : 19970521 0000950144-97-006089.hdr.sgml : 19970521 ACCESSION NUMBER: 0000950144-97-006089 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970519 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RISCORP INC CENTRAL INDEX KEY: 0001003957 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 650335150 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27462 FILM NUMBER: 97610986 BUSINESS ADDRESS: STREET 1: 1390 MAIN ST CITY: SARASOTA STATE: FL ZIP: 34236 BUSINESS PHONE: 9419512022 10-K/A 1 RISCORP, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K/A (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-27462 RISCORP, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Florida 65-0335150 ------------------------------ --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1390 Main Street, Sarasota, Florida 34236-5642 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (941) 951-2022 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which Registered ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 par value ------------------------------------- (Title of Class) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [ ] The aggregate market value of shares of the registrant's common stock held by non-affiliates of the registrant as of May 6, 1997, was $37,368,452. The number of shares of the registrant's common stock issued and outstanding as of May 6, 1997 was 36,077,778, consisting of 11,743,335 shares of Class A Common Stock and 24,334,443 shares of Class B Common Stock. Documents Incorporated by Reference: None 2 RISCORP, INC. ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1996 TABLE OF CONTENTS
Description Page ----------- ---- PART I Item 1. Business Item 2. Properties 15 Item 3. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Financial Data 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III Item 10. Directors and Executive Officers of the Registrant 19 Item 11. Executive Compensation 21 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 27 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 31 Signatures 39
RISCORP (R) is a registered service mark of the Company. The Company has applied for registration of First Call(SM), however no assurance can be given that such application will be granted. 3 Introductory Note: This Form 10-K/A has been filed to correct the filing of the Form 10-K filed on May 13, 1997, which due to a transmission error included Exhibits 11 and 27. These Exhibits should not have been filed and the information contained therein should not be relied upon. This Form 10-K/A does not contain the financial related information, including financial statements, constituting Items 6, 7, 8, 9, and 14(a) 1 and 2 of Form 10-K. RISCORP, Inc. intends to file these Items as soon as possible. PART I ITEM 1. BUSINESS FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K/A contains forward-looking statements, particularly with respect to Risk Factors, Legal Proceedings and the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operation. Additional written or oral forward-looking statements may be made by Riscorp, Inc. (the "Company") from time to time, in the filings with Securities and Exchange Commission or otherwise. Such forward-looking statements are within the meaning of that term in Sections 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Such statements may include, but not be limited to, projections of revenues, income, losses, cash flows, capital expenditures, plans for future operations, financing needs or plans relating to products or services of the Company, estimates concerning the effects of litigation or other disputes, as well as assumptions regarding any of the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Many factors could contribute to such differences and include, among others, the ability of the Company to obtain and retain necessary regulatory approvals, to win acceptance in local markets, to complete acquisitions and to effectively manage such growth, if any; the actual outcome of pending litigation or investigations; the impact on the Company of current and future federal and state regulation of health care reform legislation, including changes in the availability of recoveries from the Florida Special Disability Trust Fund ("SDTF"); changes in the mandated accounting treatment of SDTF recoverables; the failure of the SDTF to pay the Company's reimbursement requests, discontinuation of the SDTF, the Company's limited operating history, and direct loss and claims experience; the lack of a letter rating from A.M. Best Company, Inc. for the Company's subsidiaries; the impact of such ratings; the Company's need for additional capital to meet state regulatory requirements and for other purposes and the ability of the Company to generate sufficient capital in a timely fashion, the possible negative impact on the Company of the termination of quota share or excess of loss reinsurance agreements or the failure of such reinsurers to meet their obligations under such agreements (see "Reinsurance" for information concerning reinsurance); the highly competitive nature of the managed care workers' compensation insurance market; the limited nature of the Company's line of insurance products; the negative impact on the Company if Florida were to permit competition based on price in workers' compensation insurance; general economic conditions in Florida, North Carolina and Alabama, in particular, or the United States generally; the Company's ability to continue and expand its relationships with independent insurance agencies which market its products and the other factors mentioned elsewhere in this report. OVERVIEW The Company and its subsidiaries (collectively, the "Company") offers a full continuum of managed care products and services designed to lower the overall costs of workers' compensation claims, while providing quality, cost-effective care to injured employees. The Company's managed care approach is focused on providing prompt medical intervention, integrating claims management and customer service, and directing care of injured employees through a managed care provider network. In addition, the Company encourages employers to make a strong commitment to the adoption of workplace safety and return-to-work programs designed to reduce the likelihood and cost of employment related injuries and illnesses. As of December 31, 1996, the Company provided managed care workers' compensation services to approximately 33,000 employers, principally in Florida and the southeastern United States. The Company's managed care approach begins with the implementation of its First Call service, an early intervention system which provides employers with a toll-free, 24-hour hotline to report claims and to seek medical attention for injured employees. This service encourages immediate reporting of claims and allows the Company to direct injured workers to appropriate medical providers within the Company's contracted network, creating a cost-effective methodology of dealing with claims promptly after they occur. The Company's case managers monitor each case and use the Company's information systems to apply utilization review and quality assurance techniques to achieve appropriate, quality medical treatment at an affordable price. 4 INDUSTRY Workers' compensation benefits are mandated and regulated by individual states, and most states require employers to provide medical benefits and wage replacement to individuals injured at work, regardless of fault. Virtually all employers in the United States are required either to purchase workers' compensation insurance from a private insurance carrier, a state sponsored assigned risk pool, a self-insured fund (an entity that allows employers to pool their liabilities for obtaining workers' compensation coverage, subject to assessment), or, if permitted by their state, to be self-insured. Workers' compensation laws generally require two kinds of benefits for injured employees: (i) medical benefits that include expenses related to diagnosis and treatment of the injury, as well as rehabilitation, if necessary, and (ii) payments that consist of temporary wage replacement or permanent disability payments. The Company expects that employers will continue to seek and implement strategies and programs to reduce costs of workers' compensation. The Company believes that, unlike the overall health care insurance market, to date there has not been significant penetration of managed care in the workers' compensation industry. The Company believes that traditional insurers have not effectively controlled the cost of workers' compensation insurance because they have focused on claims processing rather than on an integrated approach that applies managed care techniques to control costs through the delivery of quality, appropriate, and timely medical care. THE COMPANY'S MANAGED CARE APPROACH The Company stresses an integrated approach to managed care workers' compensation which involves the employer, employee, and care providers in a cooperative effort that focuses on cost-effective quality care. This approach combines loss prevention to promote safety in the workplace and manage risk; immediate medical intervention to control costs and manage the appropriateness, timeliness, and quality of care for injured workers; comprehensive case and utilization management to minimize litigation; and comprehensive medical care management through a provider network to establish treatment protocols, clinical paths, and outcome measurements. STRATEGY The Company's strategy is to utilize managed care techniques to provide timely, high quality, and cost-effective care to injured employees, thereby lowering overall costs. The Company's strategy includes the following elements: - Provide Prompt Medical Intervention. The Company believes immediate medical intervention is the catalyst for controlling medical costs, promptly returning injured employees to work, and minimizing litigation expenses. To accomplish this, in 1994 the Company created its First Call service, a seven-day-a-week, 24-hour, toll-free injury reporting and medical referral service. Each call is received by a customer service representative, who completes the legally-required notice of injury for the employer and, if the call meets certain criteria, forwards it to a nurse, who immediately directs the injured worker to an appropriate facility or provider for treatment. This process delivers responsive, personalized service that helps control costs by directing care through the provider network selected by the Company; minimizes expensive, unnecessary emergency room visits; with the intent that the injured employee receives the proper care for the injury in a timely manner. The Company believes the significant level of customer participation in First Call reflects a high level of customer satisfaction. As of December 31, 1996, more than 98% of the Company's Florida claims were being reported through First Call. The Company introduced First Call in North Carolina and Oklahoma in February and September 1995, respectively, and in seven additional states in 1996. First Call participation and reporting percentages vary significantly during the first year of implementation due to the need to educate both agents and policyholders. Typically, participation levels off after twelve to eighteen months after initial implementation. - Manage Care, Rather Than Process Claims. Once notified of a workplace injury, the Company's medical case management unit directs high quality, appropriate medical care focused on the ultimate outcome of returning the injured employee to work as soon as possible. The Company's process combines injury prevention, wellness, and early intervention once an injury occurs. The Company manages and coordinates: health care providers through contracted networks, treatment protocols, outcome measurements, and utilization review; employers through workplace safety and return-to-work programs; and injured employees through frequent and early communications, and the timely provision of high-quality medical care. 2 5 - Direct Care Through Integrated Networks of Quality Health Care Providers. The Company believes that directing medical care through a network of credentialed health care providers is a vital part of any comprehensive managed care program. The Company's in-house medical director establishes treatment protocols, clinical paths, and outcome measurements designed to ensure consistency in the treatment of various injuries and illnesses. Although not all states permit the Company to require injured employees to utilize Company-recommended facilities, the Company's easy-to-use claims reporting process is generally successful in directing injured workers to Company-recommended facilities and allows the Company to begin managing care immediately. In addition, treatments are reviewed by the Company's utilization management and assurance personnel in an effort to provide appropriate treatment in a cost-effective manner. This review process is intended to facilitate an accurate diagnosis, establish optimal courses of treatment, and determine when returning to work is appropriate, the ultimate goal of the Company's managed care approach. - Utilize Information Technology to Improve Communications and Service. The Company believes that sophisticated operating and communications systems can proactively meet its customers' needs and promote more efficient management of claims. For example, the Company has established interactive communications links with its larger agencies to facilitate processing applications. The Company's interactive communications systems also extend to its policyholders through on-line access to billing, claims, and other information. These systems are intended to enable the Company to provide a high level of service to claimants, file claims promptly, and address the needs of both its agencies and customers. - Expand Through Internally Generated Growth. During 1996, the Company executed a number of transactions to expand geographically and to build its premium base. The Company is not currently targeting significant new expansions; however, it will examine new opportunies as appropriate, consistent with capital resources. The Company expects internal growth to result from expanding relationships with independent insurance agencies and by enhancing its workers' compensation program through the development of new products and services. OPERATIONS The Company's integrated strategy for quality care and cost control employs an operating process intended to provide the opportunity for immediate medical intervention, integrated claims and medical management. The Company's approach directs care through a managed care provider network that follows common treatment protocols, clinical paths, and outcome measurements. The Company's approach enlists health care providers, employers, and employees in the common goal of rapid return-to-work in as cost-efficient and care-effective manner as possible. Individual components of the process include: Prompt Medical Intervention Managing a claim from the earliest possible time is critical to minimizing its ultimate cost. A 1994 industry study indicates that claims reported between 11 and 20 days after the date of injury cost an average of 29% more than claims reported 1 to 10 days after the date of injury, and that the difference escalated to an average of an additional 48% if the claim was reported more than 30 days after the injury occurred. To provide early intervention in the claims process, the Company encourages prompt notification of all injuries from the employer. To achieve prompt reporting, the Company created its First Call service, a seven day-a-week, 24-hour, toll-free injury reporting and medical referral service, in 1994. As of December 31, 1996, 98% of the Company's Florida claims were being reported through First Call, with over 81% of the Company's Florida claims reported within the first 10 days following the injury. Under First Call, each call is received by a customer service representative who takes basic information needed to fill out the legally-required notice of injury for the insured and immediately updates the Company's claims records. If the call meets certain criteria, the call is then transferred to a nurse, who uses an electronic mapping system to direct the injured worker to an appropriate facility for treatment. The nurse can pinpoint approved providers in the vicinity, provide the party reporting the claim with directions to the facility, and make an appointment for the injured employee to receive care. Employers in Florida are permitted to direct injured employees to a closed panel of physicians. Although workers' compensation laws in other states may not require injured employees to go to facilities recommended by the Company's nurses, through its ease of use, this service is generally successful in directing injured workers to a Company-recommended facility and directing the appropriate level of care. While individuals who need immediate care receive it, this process minimizes expensive, unnecessary emergency room visits. 3 6 In cases of serious or complex injury, the Company provides comprehensive field case management to direct the ongoing medical care of the injured employees, as well as the social and economic issues facing the employees and their families. Integrated Claims Management and Customer Service Once the injured employee's care has been initiated, the claim is managed by the Company's Case Management Unit, a group of interdisciplinary teams that incorporate all facets of claims management. Nurses coordinate and manage medical aspects of the claim, including initial triage procedures to direct the appropriate level of care; authorize additional appointments at appropriate facilities to speed the claimant's recovery; monitor progress against treatment protocols, clinical paths, and outcome measurements; and maintain ongoing communications with the Company's medical director to report any complications or unusual provider treatment patterns. Nurses also coordinate the injured employee's return to light duty work with his employer. Claims Adjusters work closely with the nurses to co-manage each case. The claims adjusters determine whether an injured employee is eligible for benefits and what benefits should apply; conduct ongoing contact with the employee and the employer to assess the employee's progress in conjunction with the field case manager and nurses; help prevent litigation and manage any litigation that may arise; and assess the potential for settlement to close the case faster and less expensively, if appropriate. Field Case Managers work with the claims adjusters and nurses to coordinate light duty and return-to-work programs for injured employees; help manage the social and economic issues arising from serious or complex injury; provide vocational rehabilitation counseling and services; and work closely with injured employees, their families, and their employers to provide a personal level of service. Medical Claims Technicians assist the claims adjusters and the nurses by managing most of the routine administrative aspects of the case. Claims and Medical Assistants provide support to each team. These team members are responsible for data entry, filing, making appointments for the employee at the nurse's direction, and other support functions. Also supporting the teams are the Company's recovery unit, which pursues recovery of funds available to reimburse employers and carriers for medical costs and wage losses exacerbated by prior injuries and pursues subrogation in third-party liability cases; and the Company's medical director for especially complex cases or unusual circumstances. In addition, the Company's loss prevention personnel work with the claims management teams to help investigate the cause of accidents and to help employers follow recommendations designed to prevent similar incidents. The Case Management Unit is authorized and encouraged to expedite management of claims so that injured workers can receive prompt attention and the claims can be resolved as quickly as practicable. One component of this approach is the Company's efforts to manage the cost of the claim and control possible litigation by promptly and courteously resolving inquiries and problems raised by claimants and their families. The Case Management Unit's objectives are to manage the entire claim, not just specific components. This is in contrast to traditional workers' compensation insurance companies, which the Company believes tend to classify claims as either medical only (i.e., not eligible for lost wages benefits) or lost time (i.e., encompasses both medical and lost wages benefits), rather than focus on measurable outcomes such as return to work. The Company believes that under this traditional approach, medical only claims are typically handled by less skilled employees than lost time claims, with an emphasis on paying providers' bills as they are received. One disadvantage is that what starts as a medical only claim (e.g., a pulled back muscle) can turn into a more severe problem (i.e., complications that lead to lost time). Under the Company's team approach, every claim is classified according to medical severity and complexity, regardless of whether it begins as medical only or lost time. 4 7 The Company's Case Management Unit also conducts fee schedule and medical bill reviews to help ensure it has been billed appropriately for the approved services and to prevent over-utilization of medical services. A software program is used to detect variances from agreed-upon fee schedules, unbundling of charges, and unnecessary or unrelated charges. In addition, Case Management Unit nurses review large or complex bills for additional items that do not fall within the Company's payment guidelines. Provider Network The Company believes effective medical management depends largely upon selection of a quality group of health care providers and ongoing oversight by management of this network. In Florida, the Company has established a network of healthcare providers and facilities who have agreed to provide quality patient care in exchange for a negotiated fee structure. Outside Florida, the Company has a contractual relationship with a network consisting of health care providers and facilities who have agreed to provide quality patient care in exchange for a negotiated fee structure. In either case, the networks developed or selected by the Company provide employees with a wide range of physician choices, in order to improve employee satisfaction and to provide an attractive product. Currently, approximately 3,500 physicians, with a wide range of specialties, 146 hospitals and 408 other health care providers participate in the Florida network. The Florida network has received approval from the Agency for Health Care Administration (the "AHCA") to operate as a Workers Compensation Managed Care Arrangements ("WCMCA") in 53 Florida counties accounting for over 99% of the Company's premium distribution. AHCA approval denotes sufficient provider scope, access and capacity to operate in a managed care environment under Florida workers' compensation laws. Outside Florida, approximately 20,100 physicians, 438 hospitals, and 2,487 other health care providers participate in the Company's network. When entering a market, the Company seeks to enter into strategic relationships with existing medical delivery systems as well as to contract directly with individual providers in developing networks. The use of the network is coordinated by the Company's in-house medical director, who establishes treatment protocols, clinical paths, and outcome measurements designed to establish consistency concerning the treatment of various injuries and illnesses. The Company's Case Management Unit also conducts a comprehensive utilization management program to ascertain that appropriate treatment is being delivered, including pre-certification, concurrent review, in-house medical staff review, fee schedule review, and medical bill review. Pre-certification techniques determine the medical necessity and appropriateness of treatment before it is provided to the injured worker. The Company's nurses and its medical director work with the patient's health care providers to develop a treatment plan geared toward maximum medical improvement of the injured employee in the shortest time possible. Once the treatment plan is established, concurrent review is implemented by periodic follow-ups to assess the injured worker's progress. To maintain the continuing quality of the provider network, the Company's medical director performs peer reviews on an ongoing basis, with particular emphasis on cases in which the Case Management Unit has alerted the medical director of complications or significant variations from the agreed-upon treatment plan guidelines. Relationship With Employers The Company encourages employers to make a strong commitment to the adoption of its managed care approach and safety programs, in effect establishing a cooperative effort in both controlling risk and delivering managed care. The Company's underwriting criteria strongly encourage the implementation of return-to-work, light duty, and drug-free workplace policies. The Company works closely with employers to initiate and implement a number of programs designed to decrease the risk of employment related injuries and illnesses. The Company's loss prevention personnel conduct periodic on-site reviews to ascertain compliance with return-to-work, light duty, and drug-free workplace programs, as well as to evaluate overall safety conditions. Although there are some instances in which the Company declines to underwrite a risk, the Company believes that, in many cases, certain questionable risks can be underwritten if the customer makes a strong commitment to the adoption of the Company's safety program and managed care approach. The Company assists customers in designing safety programs and is especially active with programs for its large accounts. In some cases, the Company has requested that a customer employ a full-time safety compliance officer which in some instances has resulted in premium savings. While this has increased the customer's short-term expense, generally the Company and its customers find the extra cost is more than offset by its long-term premium savings. The Company also communicates with employers, and provides interactive, on-line customer access to billing, claims, and other information. The Company also can tailor workers' compensation programs for its customers' specific financial and risk management needs. These custom-designed plans can also include a variety of payment, collateral, and loss control options. 5 8 Litigation Management The Company, through early intervention, seeks to limit the number of disputes with injured employees. The Company believes in the prompt settlement of meritorious claims; however, it will aggressively defend against non-meritorious claims. The current regulatory environment in Florida allows an insurer to settle both indemnity and medical benefits on both past and future claims. The Company attempts to resolve cases prior to litigation and, if litigation ensues, aggressively seeks to settle reasonable claims. As of December 31, 1996, the Company had closed approximately 97% of its pre-1994 reported claims, 92% of its 1994 reported claims, 81% of its 1995 reported claims, and 50% of its 1996 reported claims. PROGRAMS AND PRODUCTS Workers' Compensation Managed Care Products The Company's products and rating plans encompass a variety of options designed to fit the needs of a wide selection of employers. The most basic product is a guaranteed cost contract, where the premium is set in advance and changes are made only when changes occur in policyholder operations or payrolls. The premium for these policies is based on state approved rates, which vary depending upon the type of work performed by each employee and the general business of the insured. Employers large enough to qualify, typically over $5,000 in annual premium, will have their premiums based on their loss experience as determined over a three year period. This loss experience is adjusted by the type of business and associated risks. In Florida, policyholders can also qualify for one or more premium credits (5% and 2%) by agreeing to comply with a drug-free workplace, and/or safe workplace policies. Policyholders who wish to assume a certain amount of financial risk may elect a deductible that makes them responsible for the first portion of any claim ($250 to $75,000). In exchange for the deductible election the employer receives a premium reduction. The Company also offers several loss sensitive plans (retrospective rating plans and dividend plans) which determine the final premium paid for the current policy period based largely on the insured's losses during that same period. For the year ended December 31, 1996, the following were the percentages of the Company's standard premiums in-force attributable to its managed care workers' compensation products: Guaranteed cost (including various modifications) 71% Retrospective rating 22 Dividend plans 2 Deductible plans 5 --- 100% ===
Workers' Compensation Management Services The Company provides fee-based workers' compensation insurance management services to self-insurance funds and governmental risk sharing pools performing all the services of an insurance carrier except assuming the underwriting risk. The Company generally requires that it be given complete managerial control over the self-insurance fund's operations, and that it be entitled to share in cost savings it generates in addition to its base fees. During 1996, the Company converted five self-insurance funds to at-risk business and terminated certain contracts with third parties. As of December 31, 1996, the Company is providing these services to five entities (representing approximately 2,900 employers) with standard premiums in-force under management of approximately $85 million. The largest contracts are North Carolina Commerce Fund (NCCF), Governmental Risk Insurance Trust ("GRIT") in Florida and North Carolina, and The Oklahoma Restaurant Group Self Insurance Association. RISCORP Managed Care Services The Company provides integrated administrative and managed care services for self-insured employers. These services include workers' compensation claims administration, provider networks, medical case management, utilization management, medical bill review, loss prevention programs, occupational health programs, and telephonic reporting and early intervention through First Call. The programs and services can be packaged to receive approval under Florida 6 9 workers' compensation managed care laws. The Company provides such services on a negotiated fee-for-service basis including risk sharing provisions which are based on performance. Typical clients are larger businesses and governmental entities. At December 31, 1996, approximately 30 employers are under managed care contracts with the Company. Workers' Compensation Managed Care Arrangements ("WCMCAs") Prior to 1997, Florida law authorized workers' compensation insurers to offer employers up to a 10% premium discount in exchange for their participation in exclusive panel medical provider programs known as WCMCA's. Effective January 1, 1997, Florida law mandates workers' compensation insurers to provide all medical care through WCMCAs. Under these arrangements, the Company is allowed to direct injured employees to a provider network in which employees must participate or face possible denial of medical cost coverage. WCMCAs have been in place on a voluntary basis in the state of Florida since 1994 and the Company had achieved a high level of voluntary WCMCA participation with over 50% of its premiums joining prior to 1997. The Company currently provides these programs to employers in counties covering approximately 99% of its premium base and awaits approval of expansion filings for the remaining counties. The Company and one of its affiliates have developed a provider network which now covers the entire state of Florida. The network includes over 3,597 physicians and 554 hospital and ancillary facilities. The Company believes its ability to obtain discounted medical fees, manage utilization, and track medical outcomes for providers participating in its network enhances its ability to manage claims. The Company also maintains an arrangement with Humana Health Plans, Inc., ("Humana"), 9 health maintenance organization ("HMO") whereby certain of the Company's medical claim costs are fixed for the first three years of each claim. The agreement provides the Company with access to Humana's health care provider networks in Florida. The agreement commenced July 30, 1995 and was renewed for one year upon its anniversary. Injured individuals are covered for three years following any accident occurring within the policy period of any policy entered into during the term of the agreement. The agreement may be terminated by either party upon 90 days notice. The Company had a similar arrangement with RISCORP Health Plans, Inc. ("RHP"), an affiliated company, until the arrangement was terminated effective May 1, 1996. Injured individuals are covered for three years following any accident occurring within the policy period of any policy entered into during the term of the agreement. To the extent that Humana or RHP is unable to meet its contractural obligations under these arrangements, the Company will be liable for any claims and claim settlement expenses under these ceded arrangements. RECENT JOINT VENTURE AND ACQUISITIONS General The Company has experienced rapid growth in its revenues, the number of its employees, and the scope of its operations. This growth has resulted in, and is expected to continue to create, new and increased responsibilities for management personnel, as well as additional demands on the Company's operating and financial systems. The Company's business and future growth will depend on the efforts of key management personnel and the Company's ability to attract and retain qualified management personnel. The Company's continued growth, if any, also will require it to recruit qualified persons, to enhance its managerial systems for its operations, and to successfully integrate new employees and systems into its existing operations. If the Company is unable to continue to manage growth effectively, the Company's business, financial condition, or results of operations could be materially and adversely affected. See "Business -- Strategy." Future growth of the Company's operations depends, in part, on its ability to expand its continuum of managed care workers' compensation products and other services in markets where it is currently conducting business and to enter markets in additional states. To achieve this, the Company must obtain regulatory approvals, win acceptance in the local market, adapt its procedures to each state's regulatory system (which differs materially from state to state) and expand its network of independent insurance agencies. The time required to obtain regulatory approvals varies from state to state, and there can be no assurance that the Company will obtain such approvals in each state it may seek to enter. See "Business -- Regulation." The Company has pursued, and will continue to pursue, growth opportunities through internal development and acquisitions of complementary enterprises both within Florida and in other states. The Company is unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed. The Company competes for acquisition and expansion opportunities with many entities that have substantially greater resources. In addition, acquisitions may involve difficulties in the retention of personnel, diversion of management's attention, unexpected legal liabilities, and tax and accounting issues. Certain acquisitions made by the Company in 1996 were accomplished in part by the use of the Company's Class A Common Stock. In light of the decline in the price of the Company's stock, the use of such stock for acquisitions is less attractive to the Company as well as to stockholders of possible acquisition candidates. Acquisitions by means of cash will depend upon the Company's capital resources. There can be no assurance that the Company will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into its operations, or expand into new markets. Once integrated, acquisitions may not achieve comparable levels of revenues, profitability, or productivity as the existing business of the Company or otherwise perform as expected. The occurrence of any of these events could have a material adverse effect on the Company's business, financial condition, or results of operations. See "Business -- Strategy." Joint Venture Arrangement with Blue Cross and Blue Shield of Illinois In January 1996, the Company entered into a joint venture arrangement with Health Care Service Corporation, doing business as Blue Cross and Blue Shield of Illinois ("HCSC"), to establish Third Coast Holding Company ("Third Coast"). Third Coast then formed an Illinois domestic stock insurance company (the "Insurance Company") to underwrite and sell managed care workers' compensation insurance in Illinois, as well as a third-party administrator corporation (the "Administrator") to provide administrative services to the Insurance Company and third parties. Under the terms of the arrangement, HCSC and the Company each holds 50% of the outstanding common stock of Third Coast. HCSC contributed $10 million to capitalize the Insurance Company. The Company contributed no financial capital to the venture, but contributed a non-exclusive license for the use of its expertise, systems, and intellectual property to enable the Insurance Company to underwrite and sell workers' compensation insurance in Illinois. In addition, HCSC agreed to initially loan the Insurance Company up to $10 million. To maintain sufficient capitalization levels, HCSC agreed to provide additional surplus loans to the Insurance Company in a maximum aggregate of $20 million, if certain other conditions are met. 7 10 Acquisition of CompSource In March 1996, the Company purchased all of the stock of CompSource, Inc. and Insura, Inc. (collectively, "CompSource") in exchange for approximately $12.2 million in cash and 112,582 shares of the Company's Class A Common Stock. CompSource is a workers' compensation management services company offering its services in North Carolina managing a self-insurance fund with approximately $37 million of standard premiums in-force in March 1996. Cost in excess of net assets of businesses acquired of approximately $12.5 million was recorded as a result of this acquisition. Pursuant to a redemption agreement entered into as part of this transaction, the former shareholders of CompSource elected to have the Company repurchase the 112,582 shares at a purchase price of $18.653 per share in March, 1997 and the Company repurchased all 112,582 shares from the former shareholders for $2.1 million in accordance with the terms of the redemption agreement. Acquisition of Atlas In March 1996, the Company completed its acquisition of Atlas Insurance Company ("Atlas") in Missouri for approximately $5.3 million in cash. Atlas has insurance licenses in 19 states. In addition, the acquisition gives the Company excess and surplus lines licenses in five additional states. Cost in excess of net assets of business acquired of approximately $2.6 million was recorded as a result of this acquisition. Following the acquisition, Atlas was renamed RISCORP National Insurance Company ("RNIC"). Acquisition of NARM In June 1996, RNIC acquired the assets and assumed all of the liabilities of the National Alliance for Risk Management Fund ("NARM"), a North Carolina workers' compensation self-insurance fund with approximately $53 million of standard premiums in-force in June 1996. The acquisition was accomplished by means of a loss portfolio transfer and assumption reinsurance agreement. NARM's assets and liabilities totaled approximately $46.0 million and $44.5 million, respectively, at the date of acquisition. Net assets in excess of cost of business acquired of approximately $1.5 million was recorded as a result of this transaction. Acquisition of OSAA In September 1996, RNIC acquired the assets and assumed all of the claim liabilities of the Occupational Safety Association of Alabama ("OSAA"), an Alabama workers' compensation self-insurance fund with approximately $45 million of standard premiums in-force at the acquisition date. In connection with the initial transfer, the Company assumed net insurance liabilities of $49.7 million and a like amount of investments and other assets. The acquisition was accomplished by means of a loss portfolio transfer and assumption reinsurance agreement whereby OSAA made an initial transfer of certain investment securities. Acquisition of IAA and Risk Inspection In September 1996 the Company acquired all of the stock of Independent Association Administrators, Inc., ("IAA") and Risk Inspection Services and Consulting, Inc., ("Risk Inspection"). IAA, a workers' compensation management services company offering its services in Alabama, was acquired with 790,336 shares of Class A RISCORP common stock (then valued at $10.9 million). Risk Inspection was purchased for approximately $600,000 in cash. Cost in excess of net assets of businesses acquired of approximately $11.4 million was recorded in conjunction with these acquisitions. Pursuant to the acquisition agreement for IAA, if the former IAA shareholders or their successors own all of such Class A Common Stock on September 17, 1998, the Company is obligated to issue additional shares of the Company's Class A Common Stock in an amount sufficient to make the value of all shares of the Company's Class A Common Stock held by the former IAA shareholders equal to an aggregate fair market value of $10.9 million as of that date. However, in no event will the number of additional shares issued to the former IAA shareholders exceed 790,336 shares. 8 11 Acquisition of Virginia Funds In October 1996, RNIC acquired the assets and assumed all of the liabilities of three Virginia self-insurance funds (the "Virginia Funds") consisting of NARM Manufacturers Group Self Insurance Association of Virginia, NARM Services Group Self Insurance Association of Virginia and NARM Mercantile Group Self Insurance Association of Virginia. At the date of acquisition, the Virginia Funds had approximately $5.9 million of standard premiums in-force. Assets acquired and liabilities assumed by RNIC totaled $4.5 million and $4.8 million, respectively, at the date of acquisition. The acquisition was accomplished by means of a loss portfolio transfer and assumption reinsurance agreement. SALES AND MARKETING The Company's workers' compensation products and services are sold exclusively by independent insurance agencies. Currently, the Company has approximately 1,100 agencies in nine states to sell its products, of which approximately 393 are in Florida. These independent agencies are viewed by the Company as important to its success. The Company views its agencies as customers and strives to respond quickly and proactively to agency inquiries. The Company seeks to write all of an agency's workers' compensation business that fits within its underwriting guidelines, and seeks to be the provider of choice for workers' compensation insurance to all of its agencies. Through "The RISCORP Connection," an internet data interchange system, the Company's Florida agents and certain qualifying policyholders are able to communicate with the Company via e-mail and are given system access to perform claims and billing inquiries. The Company also utilizes a number of promotional media, including advertising in publications and at trade fairs, to support the efforts of its independent agencies. The Company's top ten agencies accounted for approximately 22% of the Company's direct premiums earned for the year ended December 31, 1996, with the top independent insurance agency accounting for approximately 6%. The Company provides a number of incentives to its agencies and conducts sales promotions throughout the year. The Company focuses on agencies that write more than $1 million in annual premiums. These agencies are eligible for additional commissions which, depending on premium retention percentages, vest over periods ranging from three to five years providing a continuing commitment to the Company. Agencies writing over $100,000 in annual earned premium are eligible to receive an additional bonus based on the profitability of their book of business. All of the Company's agencies are eligible to receive a quality incentive bonus based on the historical loss results of new accounts which they write with the Company. The Company believes it pays competitive sales commissions. In some states, the Company also administers self-insurance funds where commission rates are set by the fund and typically vary from state to state. These agencies are not obligated to promote the Company's products and services and may sell competitors' insurance products. As a result, the Company's business depends in part on the marketing effort of these agencies and on the Company's ability to continue to offer workers' compensation insurance products and services that meet the requirements of these agencies and their customers. In addition, if the Company expands into additional states, it must establish a network of independent agencies in such states if it is to successfully market its products. Failure of these independent insurance agencies to market the Company's products and services successfully could have a material adverse effect on the Company's business, financial condition, or results of operations. CUSTOMERS The Company insured over 31,000 employers as of December 31, 1996 with an average annual direct premium of approximately $11,400. Approximately 83% of the policies scheduled to expire in 1996 were renewed by the Company's customers, while approximately 88% of the policies scheduled to expire in 1995 were renewed by the Company's customers. The Company generally requests that its agencies target customers who comply with a return-to-work program, a drug-free workplace, who are proactive in seeking to minimize injuries in the workplace, and who are financially strong or, for certain policy types, are willing to provide adequate security for payment. The Company does not target any particular industry and believes that its policies are issued to a diversified mix of employers. Through underwriting selectivity, cooperation with employers in establishing sound safety programs, prompt resolution of claims, and application of managed care techniques, the Company believes it is able to capitalize on the opportunity presented by the large number of employers that have been forced into relatively high cost, state-sponsored risk pools, who are willing to conform to the Company's underwriting standards. However, the Company generally does not insure certain employers which it considers to be high risk, including nuclear facilities operators, asbestos removers, and certain other high-risk employers. 9 12 Additionally, the Company rendered workers' compensation insurance services to five self-insurance funds, representing approximately 2,900 employers. In this capacity, the Company administered standard premiums in-force of approximately $85 million at December 31, 1996. The Company has also developed certain programs and procedures for associations and related employer groups. The Company provides full administration and insurance services for GRIT which provides coverage for over 250 governmental entities in Florida and North Carolina. The Company is also under contract to provide claims, loss prevention, underwriting and marketing services to certain hospitality association sponsored self insurance trusts, including the Oklahoma Restaurant Group Self Insurance Association. Although the Company expanded its operations into additional states in 1996, approximately 67% of its 1996 revenues and 93% of its revenues during 1995 were derived from products and services offered to customers located in Florida. Accordingly, the Company could be materially adversely affected by economic downturns, significant unemployment, and other conditions that may occur from time to time in Florida, which may not significantly affect its more geographically diversified competitors. INFORMATION TECHNOLOGY AND COMMUNICATIONS SYSTEMS The Company uses its information systems as an integral part in providing its managed care products and has made substantial ongoing investment in improving its operating systems. Customer service is enhanced by integrating the information about claims, billing, and claims management in its operating information systems. The Company's claims information systems enable the Company to implement its strategy of early intervention. All of its claims personnel are able to access information allowing a prompt response to claimant inquiries. The systems enable First Call to operate effectively, with important claims information being processed quickly. The systems also enable the Company's independent agencies and underwriting personnel to promptly process applications for workers' compensation insurance. The Company's information systems provide employers and agencies with interactive, on-line access to billing and claims information, as well as enabling the Company to operate an effective utilization review program. The Company adheres to an open architecture philosophy, integrating various systems and hardware platforms to meet its needs. When practicable, the Company purchases commercially available software. When commercial systems do not meet the standards for customer service, the Company's staff of approximately 70 information services personnel build and support the Company's internally developed systems and supplement commercially purchased products. The Company has completed development and is in the process of rolling out new claims processing software which allows claims personnel to gain faster access to key data, maintain better control over follow-ups, and automate current manual administrative functions. In addition, the Company has developed and is in the process of implementing the use of imaging to reduce paper flow, provide faster access to data, and further automate its processes. The Company is also an active participant in the Internet, providing general company information and easy access to agents and clients to claims and billing information. The Company is also developing a new client services system to enhance service levels. EMPLOYEES The Company had approximately 870 full-time employees at December 31, 1996. Of the Company's employees, approximately 180 work in the Company's administrative and financial functions and 690 provide services to the Company's customers. None of the Company's employees is subject to collective bargaining agreements. The Company believes that its employee relations are satisfactory. 10 13 REINSURANCE Through reinsurance, the Company shares the risks and benefits of the workers' compensation insurance that it assumes. The Company has in effect specific "excess of loss" policies under which it pays its reinsurer a percentage of gross premiums earned and the reinsurer agrees to assume all risks relating to claims over $500,000 on a per occurrence basis (for occurrences prior to January 1, 1996, the retention was $350,000 per occurrence). Continental Casualty Co. currently participates in this excess of loss program. Continental Casualty Co. is rated A (Excellent) by A.M. Best. The Company maintains a Quota Share Reinsurance agreement for the workers' compensation insurance it underwrites in Florida with American Re-Insurance Company ("Am Re"), under which the Company cedes to Am Re 50 % of the direct workers' compensation premium written and losses incurred in Florida on and after January 1, 1995. Am Re pays a ceding commission to the Company based on its Florida workers' compensation loss ratio, subject to certain adjustments and limits. Am Re is rated A+ (Superior) by A.M. Best. Effective October 1, 1996, the Company entered into a Quota Share Reinsurance agreement for the workers' compensation insurance it underwrites in RNIC in states other than Florida with three reinsurers: Chartwell Reinsurance Company (rated A by A.M. Best), Trenwick America Reinsurance Corporation (rated A+ by A.M. Best) and Swiss Reinsurance America Corporation (rated A by A.M. Best). The Quota Share Reinsurance agreement provides for the Company to cede to the reinsurers 65% of its direct workers' compensation premiums written and losses incurred on and after October 1, 1996. The reinsurers pay the Company a ceding commission based on RNIC's loss ratio, subject to certain adjustments and limits. The Quota Share Reinsurance agreement was amended effective January 1, 1997 to reduce the ceded percentage to 60%. In 1996, the Company had direct written premiums of $3.9 million and $1.5 million of group health, and property and casualty insurance, respectively. This business is reinsured with reinsurers rated by A.M. Best as A or better. The Company retains a maximum amount of $150,000 per person per year for the group health and $250,000 per occurrence and per risk for the commercial casualty and commercial property. These Quota Share Reinsurance agreements allow the Company to write, within regulatory guidelines, a larger number of policies than it could otherwise. In the event that the Quota Share Reinsurance agreements are terminated for any reason, the Company could be required to increase its capital substantially or reduce its level of workers' compensation premiums, unless it is able to establish another Quota Share Reinsurance arrangement. This could result in material adverse consequences to the Company's business and growth prospects. There is no assurance that Quota Share Reinsurance will continue to be available to the Company for its workers' compensation business. The Company also has excess of loss policies ("Excess Reinsurance") under which a group of reinsurers agrees to pay all claims and claims expenses over a specific dollar amount per incident. The Company regularly performs internal reviews of the financial strength of its reinsurers. However, if a reinsurer is unable to meet any of its obligations to the Company under the reinsurance agreements, the Company would be responsible for the payment of all claims and claim settlement expenses which the Company has ceded to such reinsurer. Any such failure on the part of the Company's reinsurers could have a material adverse effect on the Company's business, financial condition or results of operations. A.M. BEST RATINGS OF INSURANCE SUBSIDIARIES The limited operating history, pending litigation and other factors have affected the ability of the Company's insurance subsidiaries to obtain favorable A.M. Best and comparable ratings. A.M. Best ratings are based on a comparative analysis of the financial condition and operating performance of insurance companies as determined by their publicly available reports and meetings with the entity's officers. A.M. Best ratings are based upon factors of concern to insureds and are not directed toward the protection of investors. Furthermore, A.M. Best ratings are not ratings of the company or any of its securities. In assigning ratings, companies may fall within one of three Best rating groupings: Best Ratings, Financial Performance Ratings or Not Rated. Letter Ratings Letter ratings include Secure Ratings, which consist of Superior (A++, A+), Excellent (A, A-) and Very Good (B++, B+). A.M. Best also provides Vulnerable Ratings, which consist of Fair (B, B-), Marginal (C++, C+), Weak (C, C-), Poor (D), Under Regulatory Supervision (E), In Liquidation (F) and Rating Suspended (S). The Company was assigned an initial A.M. Best Letter Rating of C (Weak) on May 12, 1997. This rating is under review with negative implications pending resolution of certain substantial uncertainties, including various legal issues, any material Form 10-K disclosures, and potential regulatory actions emanating from the ongoing state exams. See "Legal Proceedings" and "Business - Regulation". 11 14 Not Rated Companies not assigned either Best's Ratings or Financial Performance Ratings are assigned to one of several Not Rated (NR) Categories. The NR category identifies the primary reason a rating opinion was not assigned. RNIC (formerly Atlas Insurance Company) had its B+ rating removed and was given an A.M. Best's "Not Rated" classification of NR-2 (Insufficient Operating Experience) following the purchase of Atlas by the Company in March 1996 and the discontinuance of its prior business, which effectively treated RNIC as a start-up operation for rating purposes. COMPETITION The market to provide managed care workers' compensation insurance and services is highly competitive. The Company's competitors include, among others, insurance companies, specialized provider groups, in-house benefits administrators, state insurance pools, and other significant providers of health care and insurance services. A number of the Company's current and potential competitors are significantly larger, with greater financial and operating resources than the Company and can offer their services nationwide. After a period of absence from the market, traditional national insurance companies have re-entered the Florida workers' compensation insurance market, thereby increasing competition in the Company's principal market segment. In addition, the Company faces significant competition in its newer markets, particularly North Carolina, Alabama and Oklahoma. The Company does not offer the full line of insurance products which is offered by some of its competitors. There can be no assurance that the Company will be able to compete effectively in the future. Competitive factors in the workers' compensation insurance field include premium rates (in some states other than Florida), A.M. Best ratings, level of service, level of capitalization, quality of provider network, the ability to reduce loss ratios, and the ability to reduce claims expense. The Company believes that its products are competitively priced with those of its main competitors in the standard market. In addition, the Company believes its premium rates are typically lower than those for customers assigned to the state sponsored risk pools, allowing the Company to provide a viable alternative for employers in such pools. The Company also believes that its level of service and its ability to reduce claims are strong competitive factors that have enabled it to retain existing customers and attract new customers. 12 15 REGULATION General Managed health care programs are subject to various laws and regulations. Both the nature and degree of applicable government regulation vary greatly depending upon the specific activities involved. Generally, parties that actually provide or arrange for the provision of managed care workers' compensation programs, assume financial risk related to the provision of those programs, or undertake direct responsibility for making payment or payment decisions for those services, and are subject to a number of complex regulatory schemes that govern many aspects of their conduct and operations. The managed health care field is a rapidly expanding and changing industry; it is possible that the applicable regulatory frameworks will expand to have an even greater impact upon the conduct and operation of the Company's business. The Company's business is subject to state-by-state regulation of workers' compensation insurance (which in some instances includes rate regulation and mandatory fee schedules) and workers' compensation insurance management services. These regulations are primarily intended to protect covered employees and policyholders, not worker's compensation insurance companies or their shareholders. Under the workers' compensation system, employer insurance or self-funded coverage is governed by individual laws in each of the fifty states and by certain federal laws. Changes in individual state regulation of workers' compensation or managed health care may create a greater or lesser demand for some or all of the Company's services, or require the Company to develop new or modified services in order to meet the needs of the marketplace and compete effectively and may have a material adverse effect on the Company's business, results of operations or financial condition. In addition, many states limit the maximum amount of dividends and other distributions and loans that may be made in any year by insurance companies. This restricts the amount of distributions that may be made by the Company's insurance company subsidiaries. There is no assurance that the Company will seek approvals from state regulatory authorities to pay dividends or make distributions or that, if sought, such approvals will be obtained. This may limit the amount of distributions that may be made by the Company's insurance company subsidiaries and may decrease amounts of capital available to the Company for expansion opportunities and other purposes. In addition, the Company is required to contribute to state-established guaranty funds or associations that pay claims of insolvent insurers. As a result, the Company's financial performance could be materially adversely affected by mandatory assessments from such funds over which the Company has no control. Numerous proposals have been debated in Congress and in several state legislatures and administrative agencies regarding health care legislation intended to control the cost and availability of health care services including managed care programs. It is not possible to determine what health care or managed care reform legislation will be adopted by Congress, any state legislature, or administrative agency or if and when any such reforms will be adopted and implemented. In such event, there can be no assurance that the Company will be able to adjust effectively to any regulatory changes made by future health care reforms and remain profitable. The Company is unable to predict accurately the nature and effect, if any, that the adoption of health care legislation or regulations or changing interpretations at the federal or state level would have upon the Company. Except for certain statutorily prescribed credits, Florida currently does not permit competition on the basis of price in workers' compensation insurance. This approach is followed in relatively few other states. If Florida were to permit premium rates to be established with less regulatory intervention, the Company's business, financial condition, or results of operations could be materially and adversely affected. The Company may from time to time need additional capital surplus to meet certain state regulatory requirements. In particular, the Company anticipates that its insurance subsidiaries will require capital to meet current statutory surplus needs and any additional funding requirements that may arise periodically. From time to time, the Company may be required to increase the capital surplus of its insurance subsidiaries to remain in compliance with state regulatory requirements. The Company expects that additional capital will be required by regulatory authorities for the Company to expand as an insurance carrier into additional states or undertake other contingency plans. If the Company is unable to generate sufficient capital, either internally or from outside sources, it could be required to reduce its growth or to delay or abandon plans to expand into additional states or acquire other Companies, and to undertake contingency plans to preserve or generate capital. Although the Company has met its capital needs in the past, there can be no assurance that capital will continue to be available when needed or, if available, will be on terms acceptable to the Company. The Company's Board of Directors has created a Strategic Alternatives Committee to consider capital needs and to evaluate strategic alternatives. Premium Rate Restrictions State regulations governing the workers' compensation system and insurance business in general impose restrictions and limitations on the Company's business operations that are not imposed on unregulated businesses. Among other matters, state laws regulate not only the kind of workers' compensation benefits that must be paid to injured workers, but also the premium rates that may be charged by the Company to insure employers for those liabilities. As a consequence, the Company's ability to pay insured workers' compensation claims out of the premium revenue generated from the sale of such insurance is dependent on the level of premium rates permitted by state laws. In this regard, it is significant that the state regulatory agency regulating workers' compensation benefits may not be the same agency that regulates workers' compensation insurance premium rates. In October 1996, the Florida Insurance Commissioner ordered workers' compensation providers to reduce rates by an average of 11.2% effective January 1, 1997. In addition, the 10% managed care credit which had been in place on a voluntary basis since 1994 was phased out effective January 1, 1997. As of December 31, 1996, over 50% of the Company's premiums were receiving the 10% managed care credit. The State of North Carolina approved a 13.7% rate decrease effective April 1, 1997, although it is not mandatory for companies to adopt the decrease. The state legislatures and the federal government have considered and continue to consider a number of cost containment and health care reform proposals and managed care reform proposals. 13 16 Financial and Investment Restrictions Insurance company operations are subject to financial restrictions that are not imposed on other businesses. State laws require insurance companies to maintain minimum surplus balances and place limits on the amount of insurance a company may write based on the amount of the company's surplus. These limitations restrict the rate at which the Company's insurance company operations can grow. The Company's 1996 unaudited statutory filings indicate that, as of December 31, 1996, its insurance subsidiaries met applicable state minimum capital and surplus requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". State laws also require insurance companies to establish reserves for payment of policyholder liabilities and impose restrictions on the kinds of assets in which insurance companies may invest. These restrictions may require the Company to invest its insurance subsidiaries' assets more conservatively than if they were not subject to the state law restrictions and may prevent the Company from obtaining as high a return on these assets than it might otherwise be able to realize. Participation in State Guaranty Funds Every state has established one or more insurance guaranty funds or associations that are charged by state law to pay claims of policyholders insured by a company that becomes insolvent. All insurance companies must participate in the guaranty associations in the states where they do business and are assessable for the associations' operating costs, including the cost of paying policyholder claims of an insolvent insurer. The Company's financial performance could be adversely affected by guaranty association assessments as a consequence of the insolvency of other insurers over which the Company has no control. Statutory Accounting and Solvency Regulation State regulation of insurance company financial transactions and financial condition are based on statutory accounting principles ("SAP"). SAP differ in a number of ways from generally accepted accounting principles ("GAAP") which govern the financial reporting of most other businesses. In general, SAP financial statements are more conservative than GAAP financial statements, reflecting lower asset values, higher liability values, and lower equity. State insurance regulators closely monitor the financial condition of insurance companies reflected in SAP financial statements and can impose financial and operating restrictions on an insurance company including: 1) transfer or disposition of assets; 2) withdrawal of funds from bank accounts; 3) extension of credit or making loans; and, 4) investment of funds. The Florida Department of Insurance has completed a financial examination of RISCORP Insurance Company ("RIC"), one of the Company's insurance subsidiaries for 1995 and issued a final examination report for that period. The report identified a number of items discovered upon examination and required a reduction of RIC's statutory surplus as of December 31, 1995 from $31,117,099 to $4,961,478. The report concludes that as of December 31, 1995 RIC failed to meet the minimum capital and surplus requirements by $12,481,345. The report noted that the Company made a capital infusion of $31,100,000 into RIC in 1996. Accordingly, as of December 31, 1996, the surplus of RIC exceeded the minimum capital and surplus requirements. The Florida Department of Insurance and the Missouri Department of Insurance are currently conducting a financial examination of two of the Company's insurance subsidiaries which may result in adjustments to the statutory financial statements of the insurance subsidiaries for 1996. Healthcare and Managed Care Laws and Reform Proposals The Company's medical provider networks are subject to various federal and state laws and regulations, including AHCA qualification requirements for the Company's WCMCA in Florida. There are a number of managed care reform proposals before federal and state law making and regulatory bodies. The Company expects that its business operations and products will be impacted by these. SDTF Florida operates the SDTF that reimburses Florida employers and carriers for excess workers' compensation benefits paid to employees when an employee is injured on the job and the injury to the physically disabled worker merges with, aggravates, or accelerates a preexisting impairment. The SDTF is managed by the State of Florida and is funded through assessments against insurers and self-insurers providing workers' compensation coverage in Florida. The SDTF has not prefunded its claims liability and no reserves currently exist to satisfy future claims. Under Florida law, the SDTF is currently scheduled to expire in the year 2000, unless it is re-created by the Florida legislature. In the event of termination of the SDTF, the Company believes remaining reimbursement obligations of the SDTF would become general obligations of the State of Florida or would otherwise be enforceable, although there is no assurance that a reviewing court would adopt that view. The SDTF is currently undergoing legislative review. Under a recent bill passed by the Florida legislature, and submitted to the Governor, the SDTF law would be amended so that claims arising from accidents occurring on or after January 1, 1998 would not be accepted for reimbursement by the SDTF. The bill states the SDTF will be liable for reimbursement for subsequent injuries that occur prior to January 1, 1998, and that assessments are to continue for funding purposes. In addition, the Florida Department of Insurance is participating with the Florida Legislature in the review of current and proposed statutory accounting treatments of SDTF projected recoveries, and with respect to how an insurer may include such estimated recoveries in its admitted asset and loss reserve calculations in statutory financial statements. Under the bill referred to above, the anticipated SDTF recoveries that an insurer could take into account when computing loss reserves in its statutory financial statements would be limited to recoveries for which a claim has been accepted for payment. Credit for all other anticipated recoveries would be capped at the total SDTF recovery amount used by the insurer in 1996 and this capped amount would be phased out over a five year period, commencing with statutory financial statements filed in the year 2000 (20% per year reduction of 1996 capped amount). While it is not possible to predict the outcome of this or any other legislative or regulatory proposals affecting the SDTF, changes in the SDTF's operations or funding which decrease the availability of recoveries or increase assessments payable by the Company, or the discontinuation of the SDTF, could have a material adverse effect on the Company's business, financial condition, or results of operations. Subject to The legislation set forth above, the SDTF recoverable recorded on the Company's balance sheet is an actuarial estimate of the amount the Company can expect to recover from the SDTF on eligible claims. The Company has a dedicated claims unit that handles the tracking, submission and collection process with the SDTF. In the event that there are adverse developments in SDTF collection experience, the recorded recoverable balance will accordingly be adjusted. With respect to collection patterns, the SDTF reviews reimbursement requests on a claim by claim basis, with actual collection payments tied to the paid loss development over a claim's life. The payments are not made ratably or in any other predictable pattern. A prior actuarial review of the SDTF indicated the average time frame for collection of a claim made to the SDTF is 6 to 8 years. The Company's SDTF recoverable balance has experienced rapid growth since 1992, when it stood at $15 million. Due to this recent growth, the Company is early in the normal collection cycle for the majority its SDTF claims. 14 17 ITEM 2. PROPERTIES The Company owns its headquarters building in Sarasota, Florida, which contains approximately 112,000 square feet of space, as well as an adjacent parking facility. The Company leases an aggregate of approximately 66,000 square feet of space at ten other locations in seven states, including Florida, under terms expiring through January 2002. The Company incurred rent expense of $1.3 million for the year ended December 31, 1996. Additionally, the Company has continuing commitments through July 1998 of approximately $70,000 related to two locations in which offices were closed during 1996. 15 18 ITEM 3. LEGAL PROCEEDINGS On April 2, 1996, the Company and several officers, directors and employees were named as defendants in a purported class action filed in the United States District Court for the Southern District of Florida. The suit claims the Company violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), breached fiduciary duties and was negligent in the Company's acquisition of Commerce Mutual Insurance Company ("CMIC") in 1995. The suit seeks compensatory and punitive damages and equitable relief and treble damages for the RICO counts. The named plaintiffs, Vero Cricket Shop, Inc., Vero Cricket Shop Too, Inc. and Falls Company of Longboat Key, Inc., claim to be former policyholders of CMIC and claim to represent others similarly situated. The Company has moved to dismiss the complaint and to strike the punitive damage claims. The Company intends to vigorously defend this action; however, there can be no assurance that it will prevail in the litigation. Between November 20, 1996 and January 31, 1997, nine shareholder class action lawsuits were filed against the Company and three of its executive officers in the United States District Court for the Middle District of Florida. Each of the lawsuits purports to represent the same class of shareholders, that is, purchasers of the Company's Class A common stock between February 28, 1996 and November 14, 1996. Two non-officer members of the board of directors have been named as defendants in one of the suits. One or more of the Company's underwriters for the Company's initial public offering have been named as defendants in eight of the suits. All the lawsuits allege that the named defendants issued, caused to be issued or participated in the issuance of the Company's Registration Statement and Prospectus of February 28, 1996, and that the Prospectus contained false and misleading statements of material fact and omissions, in violation of sections 11 and 15 of the Securities Act of 1933. Eight of the nine suits also allege that the named defendants engaged in a scheme to defraud purchasers of the Company's stock by purposely or recklessly making false statements of material facts about the Company, its financial situation and its financial prospects, and by omitting material information about those subjects, in violations of the Securities Exchange Act of 1934. One lawsuit alleges violation of section 12(2) of the Securities Act of 1933. The complaints seek unspecified compensatory damages. The Company moved to consolidate the complaints and for the filing of one consolidated complaint. On March 11, 1997, the motion for consolidation was granted and the consolidated complaint was filed on April 10, 1997. The Company intends to vigorously defend these consolidated actions; however, there can be no assurance that it will prevail in the litigation. The Company and a number of officers, directors and employees have been served with subpoenas requesting information for a federal grand jury investigation in the Northern District of Florida. The Company is cooperating in the investigation, which it understands is a broad examination related to political candidates and political campaign contributions. The Company understands that a number of other parties unrelated to the Company also have been served with subpoenas. No provision has been made in the Company's financial statements for the above matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock ($.01 par value) is traded on the NASDAQ Stock Market's National Market under the symbol "RISC". As of December 31, 1996, the number of record holders of Class A Common Stock was 153. Trading of the Company's Class A Common Stock commenced with its initial public offering on February 29, 1996, at a price per share of $19. The following table sets forth the high and low closing sales prices for the Company's common stock for each full quarterly period since the initial public offering.
Per Share Sales Price of Common Stock ------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter First Quater 1996 1996 1996 1996 1997 ------------- -------------- ------------ --------------- ------------ High 21 1/2 23 7/8 19 1/4 18 3/4 4 Low 19 15 10 3/4 3 3/8 1 13/16
On May 6, 1997, the closing sale price of the Company's Class A Common Stock was $3.1875. No dividends have been declared or paid since the Company's initial public offering and it is not anticipated that dividends will be paid in the foreseeable future. 17 20 ITEM 6. SELECTED FINANCIAL DATA. To be filed pursuant to Rule 12b-25 on Form 10K/A. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS. To be filed pursuant to Rule 12b-25 on Form 10K/A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. To be filed pursuant to Rule 12b-25 on Form 10K/A. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. To be filed pursuant to Rule 12b-25 on Form 10K/A. 18 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information as of May 1, 1997, concerning the Company's executive officers, continuing directors, and nominees for director.
Year First Became a Name Position(s) Age Director ---- ----------- --- -------- William D. Griffin Chairman of the Board, Chief Executive 48 1988 Officer and Director James A. Malone President, Chief Operating Officer and 35 1994 Director Steven J. Berling Senior Vice President - Managed Care Services 48 Thomas S. Hall Senior Vice President - Business Development 36 Richard A. Halloy Senior Vice President and Director 35 1996 Fred A. Hunt Senior Vice President - Risk & Insurance 45 Solutions Senior Vice President, General Counsel and 44 Secretary L. Scott Merritt Senior Vice President, Chief Investment 48 1996 Officer, Treasurer and Director Richard B. Franz Senior Vice President and Chief Financial 46 Officer Walter E. Riehemann Vice President, Secretary and Acting 30 General Counsel Seddon Goode, Jr. Director 65 1996 George E. Greene, III Director 61 1995 Walter L. Revell Director and Vice Chairman 62 1995
WILLIAM D. GRIFFIN is the Founder of the Company, and has been its Chairman and Chief Executive Officer since its inception in 1988. Mr. Griffin was a member of the Florida Governor's Task Force on Workers' Compensation in 1988, and served as chairman of the Marketplace, Conduct Standards, and Statistics Committee of the Governor's Oversight Board in 1990. Mr. Griffin also served on the Board of Directors of the Florida Workers' Compensation Joint Underwriting Association, Inc. from 1993 to 1994. JAMES A. MALONE has served as President of the Company since 1993. Mr. Malone joined the Company in 1990 as Vice President of Operations, and was named Senior Vice President and Chief Operating Officer in 1991. Prior to joining the Company, Mr. Malone was Director of Risk Management for Kentucky Fried Chicken, Inc., a subsidiary of PepsiCo, Inc., from April 1990 to November 1990. Mr. Malone served as Manager of Risk Financing for Batus, Inc. from 1988 to 1990. Mr. Malone holds the professional designations of Chartered Property and Casualty Underwriter as well as Associate in Risk Management. STEVEN J. BERLING has served as Senior Vice President and President of the Company's Managed Care Services Group since December, 1995. Mr. Berling was President of the Management Services Division from September, 1994 to December, 1995. Prior to joining RISCORP, Mr. Berling was Vice President at VHA of Florida from June, 1993 to September, 1994. Mr. Berling was Vice President of Administrative Services at Sharp Health Care from 1987 - 1993, where he served in various capacities as a hospital administrator. THOMAS S. HALL has served as Senior Vice President-Corporate Development of the Company since October 1995. Mr. Hall was the Company's Senior Vice President and President of RISCORP U.S. Group from 1992 to 1995. Mr. Hall served as President and Chief Executive Officer of Chautauqua Airlines (d/b/a U. S. Air Express) from 1990 to 1992. 19 22 RICHARD A. HALLOY has served as Senior Vice President, Chief Financial Officer and Director of the Company since June, 1996. Mr. Halloy has served in a number of senior management positions for RISCORP and its affiliates since joining RISCORP in February 1994. Prior to joining the Company, Mr. Halloy was President of Halloy & Company from 1990 until February 1994. Mr. Halloy began his career with Arthur Andersen & Company. FRED A. HUNT has served as Senior Vice President and President of the company's Risk & Insurance Solutions Group since October 1995. Mr. Hunt was the Company's Senior Vice President and President of P&C Services Division from 1994 to 1995. Mr. Hunt served in various capacities with Liberty Mutual Insurance Company from 1973 to 1993, most recently as Vice President and Manager of Underwriting Operations. L. SCOTT MERRITT has served as Senior Vice President and Chief Investment Officer of the Company since January 1995 and as Treasurer and a director since November 1996. Mr. Merritt has been President of his own firm, Merritt & Company in Sarasota, Florida from 1993 to the present. From 1990 to 1993, Mr. Merritt was employed by the Company as investment manager. His previous experience also includes extensive investment and other financial positions with Bay Future, Merrill Lynch and Smith Barney. RICHARD B. FRANZ, II was appointed Senior Vice President and Chief Financial Officer of the Company in May, 1997. Prior to joining the Company, Mr. Franz served as Senior Vice President, Treasurer and Chief Financial Officer of Western Reserve Life Assurance Company (1987 to 1997), and Treasurer and Principal Financial Officer for the IDEX Group of Mutual Funds and the WRL Series Fund (1987 to 1997). His previous experience includes service as Vice President, Controller and Chief Accounting Officer for American Heritage Life Insurance Companies, Inc.; Controller of Harvest Insurance Companies, Inc.; and in various positions with Deloitte & Touche and National Standard Life Insurance Company. WALTER E. RIEHEMANN has served in various capacities with the Company since August 1995, most recently as Vice President, Secretary and Acting General Counsel. Prior to that time, Mr. Riehemann was associated with the law firms of Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia (1993 to 1995), Long, Aldridge & Norman, Atlanta, Georgia (1993), and Jones, Day, Reaves & Pogue, Dallas, Texas (1990 to 1993). SEDDON GOODE, JR. was elected a director of the Company in November 1996. Mr. Goode has served as President and Director of University Research Park, Inc. since 1981. From 1977 to 1984, Mr. Goode served as Chairman of First Charlotte Corporation. From 1968 to 1977, Mr. Goode served as Senior Vice President, Chief Financial Officer and Director of Interstate Securities Corporation. Mr. Goode is also a director of Trion, Inc. GEORGE E. GREENE III was elected a director of the Company in November 1995. Mr. Greene served as Executive Director of No Casinos, Inc., a non-profit organization to keep casino gambling illegal in Florida, in 1994. Mr. Greene is also a private consultant. Mr. Greene served in various management positions with Florida Power Corporation, and other subsidiaries of Florida Progress Corporation from 1962 to 1993, most recently as Senior Vice President of Florida Power Corporation from 1983 to 1993. Mr. Greene retired from Florida Power Corp. on January 1, 1994. WALTER L. REVELL was elected a director of the Company in November 1995 and Vice Chairman of the Board in November 1996. Mr. Revell has been Chairman and Chief Executive Officer of H. J. Ross Associates, Inc., a consulting engineering, architectural and planning firm, since 1991; Chairman and Chief Executive Officer of Revell Investments International, Inc. since 1984 and was President and Chief Executive Officer of Post, Buckley, Schuh & Jernigan, Inc., a consulting engineering, architectural, and planning firm, from 1975 to 1983. Mr. Revell is also a director of St. Joe Corporation and Dycom Industries, Inc. MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES During 1996, the Company's Board of Directors held nine meetings. Each incumbent director attended at least 75% of the total number of Board meetings and meetings of committees of which he is a member. The Company's Board of Directors has a Compensation Committee, an Audit Committee, an Investment Committee, and a Stock Option Committee. The Compensation Committee consists of Messrs. Goode, Greene and Revell. The Compensation Committee recommends to the Board both base salary levels and bonuses and reviews the compensation levels of all executive officers of the Company, except for the CEO, whose employment contract was negotiated prior to the Company's initial public offering. See "Board Compensation Committee Report on Executive Compensation." The Compensation Committee also reviews and makes recommendations with respect to the Company's existing and proposed compensation plans. The Compensation Committee met two times during 1996. The members of the Audit Committee are Messrs. Goode, Greene and Revell. The duties of the Audit Committee, which met four times during 1996, are to recommend to the Board of Directors the selection of independent certified public accountants, to meet with the Company's independent certified public accountants to review the scope and results of the audit, and to consider various accounting and auditing matters related to the Company, including its system of internal controls and financial management practices. The members of the Investment Committee, which met one time during 1996, are Messrs. Greene, Revell, and Merritt. The duties of the Investment Committee are to review and monitor the investment portfolio of the Company. The Company's Stock Option Committee consists of Messrs. Goode, Greene and Revell. The Stock Option Committee is responsible for administering the Company's 1995 Non-qualified Stock Option Plan. The Stock Option Committee met one time in 1996. The Company does not have a nominating committee. This function is performed by the Board of Directors. COMPENSATION OF DIRECTORS Directors who are not employees of the Company are paid $40,000 annually plus $1,000 for each Board meeting attended, and $1,000 for each day of committee meetings attended if such meeting day occurs on a day other than that of a scheduled meeting of the Board of Directors. In addition, the Company reserved 10,000 shares of Common Stock for future issuance upon the exercise of stock options that may be granted to such non-employee directors. During 1996, Messrs. Greene and Revell were granted options to purchase 1,000 shares each of the Company's Class A common stock at an exercise price of $19.000 per share. During 1996, Mr. Goode was granted options to purchase 1,000 shares of the Company's Class A common stock at an exercise price of $4.44 per share. These options vest 25% per year beginning two years from the option grant date. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board of Directors. No director who is an employee of the Company receives separate compensation for services rendered as a director. Compliance with Section 16(a) of the Securities Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who own more than ten percent of the common stock of the Company, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors, and ten percent shareholders are required by the SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such reports received by it, and written representations from certain reporting persons that no SEC Forms 3, 4, or 5 were required to be filed by those persons, the Company believes that during 1996, its officers, directors and ten percent beneficial owners timely complied with all applicable filing requirements, except for the following: Thomas E. Danson, Paul DiFrancesco, Richard A. Halloy and William D. Griffin each filed a Form 4 late. 20 23 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation received by the Company's Chief Executive Officer and the four highest paid executive officers for services rendered to the Company in 1994, 1995 and 1996. SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------------------ Other Securities Name Annual Under- All Other and Compen- lying Compen- Principal sation Options sation Position Year Salary($)(1) Bonus($)(2) ($) (#) ($)(3) - - -------------------------------------------------------------------------------------------------- William D. Griffin 1996 751,416 907,241 18,907(2) - 17,547(5) Chairman and Chief 1995 720,000 5,609,583 46,571(3) - 13,685(5) Executive Officer 1994 720,000 4,173,304 53,838(4) - 16,567(5) James A. Malone 1996 327,500 0 0 0 35,098(6) President and Chief Operating 1995 300,000 255,904 0 150,770 33,876(6) Officer 1994 245,000 317,149 0 929,550 33,906(6) Thomas S. Hall 1996 223,750 44,750 0 20,000 33,291(7) Senior Vice President- 1995 205,000 20,695 0 73,303 34,652(7) Business Development 1994 153,500 278,966 0 132,991 34,000(7) Fred A. Hunt 1996 200,000 20,000 0 20,000 12,573(8) Senior Vice President-Risk 1995 163,165 93,615 0 73,153 4,543(9) Insurance Solutions 1994 101,935 54,290 0 132,991 35,000(10) Steven J. Berling 1996 208,333 52,083 0 20,000 3,831(11) Senior Vice President- 1995 190,306 34,594 0 72,632 734(12) Managed Care Services 1994 54,808 7,811 0 55,381 0
(1) Includes amounts deferred by the executive pursuant to the Company's 401(k) plan and the Company's cafeteria plan. (2) Includes (i) a $4,591 automobile usage allowance and (ii) a $14,316 aircraft usage allowance. For a further description of the terms of Mr. Griffin's employment agreement, see "Employment Agreements." (3) Includes (i) a $13,936 automobile usage allowance and (ii) a $32,635 aircraft usage allowance. (4) Includes (i) a $13,000 automobile usage allowance and (ii) a $40,838 aircraft usage allowance. (5) Includes (i) $9,103, $7,709 and $8,394 cash surrender value of life insurance policies in effect in 1996, 1995 and 1994, respectively and (ii) $7,574, $5,976 and $8,713 in annual fees for a country club membership in 1996, 1995 and 1994, respectively. Also includes $870 group term life insurance premiums in 1996. (6) Includes (i) $30,117, $30,000 and $30,000 in allocations to the participant's account in the Company's defined contribution plan in 1996, 1995 and 1994, respectively and (ii) $4,651, $3,876 and $3,906 in annual fees for country club membership in 1996, 1995 and 1994, respectively. Also includes $330 group term life insurance premiums in 1996. (7) Includes (i) $30,117, $30,000 and $30,000 in allocations to the participant's account in the Company's defined contribution plan in 1996, 1995 and 1994, respectively and (ii) $2,943, $4,652 and $4,000 in annual fees for country club membership in 1996, 1995 and 1994, respectively. Also includes $231 group term life insurance premiums in 1996. (8) Includes (i) $5,988 in allocations to the participant's account in the Company's defined contribution plan, (ii) $6,063 in annual fees for country club membership, and (iii) $522 for group term life insurance premiums. (9) Represents $4,543 in annual fees for country club membership. (10) Relocation Reimbursement. (11) Represents a $3,274 allocation to the participant's account in the Company's defined contribution account and $557 for group term life insurance. (12) Represents annual fees for country club membership. 21 24 OPTION GRANTS IN 1996 No stock options were granted to Mr. Griffin or Mr. Malone in 1996. Messrs. Hall, Hunt and Berling each received options to acquire 20,000 shares of Class A common stock at an exercise price of $4.50 per share during 1996. The options vest at the rate of 25% per year beginning on the second anniversary of the date of grant.
Potential Realizable Value Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term - - --------------------------------------------------------------------------------------------------------- Percent of Number of Total Securities Options/SARs Underlying Granted to Exercise or Options/SARs Employees in Base Expiration Name Granted (#) Fiscal Year Price ($/Sh) Date 5%($) 10%($) - - ---------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) William D. Griffin 0 0 0 N/A 0 0 James a. Malone 0 0 0 N/A 0 0 Thomas S. Hall 20,000 3% $4.50 11/18/2008 $73,800 $207,000 Fred A. Hunt 20,000 3% $4.50 11/18/2008 $73,800 $207,000 Steven J. Berling 20,000 3% $4.50 11/18/2008 $73,800 $207,000
22 25 AGGREGATE OPTION EXERCISES IN 1996 AND DECEMBER 31, 1996 OPTION VALUES The following table shows information concerning options exercised during 1996 and options held by the officers shown in the Summary Compensation Table at the end of 1996.
Number of Value of Securities Unexercised Underlying In-the-Money Unexercised Options at Options at Fiscal Fiscal Year- Year-End(#) End($)(1) Shares Acquired Exercisable(E)/ Exercisable(E)/ Name on Exercise(#) Value Realized($) Unexercisable(U) Unexercisable(U) - - ---- --------------- ----------------- -------------------- ---------------- William D. Griffin 0 0 0 0 James A. Malone 0 0 524,175(E)/ $1,129,795(E)/ 556,145(U) $8,134(U) Thomas S. Hall 0 0 38,766(E)/ $775(E)/ 209,600(U) $2,326(U) Fred A. Hunt 0 0 33,228(E)/ $665(E)/ 192,836(U) $1,994(U) Steven J. Berling 0 0 13,845(E)/ $277(E)/ 134,168(U) $831(U)
(1) Based on the closing market price on December 31, 1996 of $3.63 per share. STOCK OPTION PLAN The Company's Stock Option Plan (the "Option Plan") provides for the grant of stock options to eligible employees and consultants of the Company. The Option Plan is intended to provide participants with an opportunity to increase their stock ownership in the Company and to give them an additional incentive to promote the financial success of the Company. Pursuant to the Option Plan, the Company may grant nonqualified stock options to employees (including officers and directors who are employees) and consultants. William D. Griffin, an officer and director of the Company, is not eligible to participate in the Option Plan. A total of 3,118,832 shares of Class A common stock has been reserved for issuance under the Option Plan. As of December 31, 1996, the Company had granted stock options covering 3,078,779 shares of Class A common stock to various employees (including options to purchase 1,927,542 shares issued to executive officers) at exercise prices ranging from $0.72 to $23.04. Each exercise price was determined to be not less than the fair market value of the Class A common stock on the date of grant, except for grants to James A. Malone to purchase 287,314 shares on October 10, 1994 and 2,604 shares on March 24, 1995. In November 1996, the Stock Option Committee amended the exercise price on all options with an exercise price greater than $4.50 per share to $4.50 per share, the fair market value of the Class A common stock on the date of the amendment. As of December 31, 1996, the exercise prices range from $0.72 to $4.50. The Stock Option Committee is authorized to administer the Option Plan, including selection of employees and consultants of the Company to whom options may be granted. The Stock Option Committee also determines the number of shares, the exercise price, the terms, any conditions on exercise and other terms of each option. There is no limit on the term of the options. Options granted under the Option Plan generally vest over a period of five years. The option price is payable in full upon exercise, and payment may be made in cash, by delivery of shares of Class A common stock (valued at fair market value at the time of exercise), or by such other consideration as the Stock Option Committee may approve at the time of grant. 23 26 The options are non-transferable other than by will or by the laws of descent and distribution and must be exercised by the optionee during the period of his employment with the Company or within a specified period following termination of employment. The Option Plan may be amended at any time by the Board of Directors, although certain amendments require shareholder approval. The Option Plan terminates in November 2005. The Company's board of directors adopted an additional stock option plan in March 1997 (the "1997 Plan"). A total of 750,000 shares of Class A Common Stock has been reserved for issuance under the 1997 Plan. The terms of the 1997 Plan are substantially similar to those of the Option Plan. The 1997 Plan will be submitted to the Company's Shareholders for approval. COMPENSATION ARRANGEMENTS UPON RESIGNATION, RETIREMENT OR OTHER TERMINATION; EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with Messrs. Malone, Hall, Hunt, and Berling, providing for base salaries of $330,000, $225,000, $200,000 and $210,000, respectively. These employment agreements have a term of one year (which automatically renews for successive one year periods unless terminated) and allow the employee to participate in the Company's employee benefit plans. Under the employment agreements, the Company may terminate the employee at any time. If the employee's employment is terminated by the Company for other than "Cause" (as defined in the employment agreements), or the employee voluntarily terminates his employment for "Good Reason" due to a material modification, without the employee's written consent, of his duties, compensation or scope of responsibilities, then the Company must pay the employee an amount equal to one year of the employee's base salary in effect on the effective date of termination, payable without interest in twelve equal monthly installments. During the twelve months, following the date the employee is terminated for other than Cause, the employee may not compete with the Company. If the Company terminates the Employee for other than "Cause" or the Employee voluntarily terminates his employment for Good Reason (a) within 2 years of a "Change of Control" (as defined in the employment agreements) or (b) within 180 days of a "Potential Change of Control" (as defined in the employment agreements), then the Company must pay the Employee an amount equal to three times the employee's base salary in effect on the effective date of termination, payable in a lump sum. In the event the employee is terminated after a change of control, the non-compete period is two years. If the employee voluntarily terminates his employment for other than Good Reason, or his employment terminates due to disability, or if the Company terminates the employee's employment for Cause, then the Company will pay the employee a lump sum payment equal to the portion of his base salary accrued through the date his employment terminates. In accordance with his employment agreement, in effect prior to the Company's initial public offering, Mr. Griffin's compensation includes an annual base salary of $750,000, quarterly incentives of up to $750,000 per year based on premiums written and revenues earned, and an annual bonus to be determined in the discretion of the Board of Directors. This employment agreement will extend until the earlier of the fifth anniversary of a change of control of the Company or Mr. Griffin's 65th birthday. The employment agreement contains a covenant prohibiting competition in the workers' compensation insurance or services fields in the United States which continues for a period of two years after the termination of his employment with the Company. The employment agreement provides that if Mr. Griffin is terminated by the Company after a change of control of the Company, he will be entitled to receive within 14 days of his termination date, a lump sum termination payment equal to his total taxable compensation during the three most recent calendar years, plus an amount equal to his annual salary for the year in which termination occurs, subject to the parachute limitations set forth in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended. In addition, the employment agreement provides for a separate registration rights agreement, which grants to Mr. Griffin certain rights related to shares of the Company's Class B common stock beneficially owned by him. Under the employment agreement, the Company has also granted Mr. Griffin the right to use certain intellectual property owned by the Company bearing the name Griffin or any derivation thereof and the griffin design owned by the Company. 24 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of May 1, 1997 information as to the Company's Common Stock beneficially owned by: (i) each director of the Company, (ii) each executive officer named in the Summary Compensation Table, (iii) all directors and executive officers of the Company as a group, and (iv) any person who is known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock.
Amount and Nature of Beneficial Ownership(2) -------------------------------------------- Class A Common Class B Common -------------- -------------- Name and Address of Beneficial Owner(1) Number Percent Number Percent - - --------------------------------------- ------ ------- ------ ------- William D. Griffin(3) -- * 22,176,052 91% James A. Malone(4) 526,389 4% -- * Steven J. Berling(5) 13,938 * -- * Thomas S. Hall(6) 39,027 * -- * Richard A. Halloy(7) 4,488 * -- * Fred A. Hunt(8) 33,451 * -- * L. Scott Merritt(9)(10) 13,938 * 2,158,391 9% George E. Greene, III(11) 200 * -- * Walter L. Revell(12) -- * -- * Seddon Goode, Jr.(13) -- * -- * All directors and officers as a group 631,431 5% 24,334,443 100% (10 persons)(14)
- - --------------- *Less than 1% (1) The business address for Messrs. Griffin, Malone, Merritt, Halloy, Greene, Revell, Goode, Hall, Hunt and Berling is 1390 Main Street, Sarasota, Florida 34236. (2) Beneficial ownership of shares, as determined in accordance with applicable Securities and Exchange Commission Rules, includes shares as to which a person has or shares voting power and/or investment power. The Company has been informed that all shares shown are held of record with sole voting and investment power, except as otherwise indicated. (3) Mr. Griffins shares are Class B common stock and are beneficially owned by Mr. Griffin through one corporation and two limited partnerships. (4) Represents shares of Class A common stock subject to options that are currently exercisable. Mr. Malone also has options to acquire 553,931 additional shares of Class A common stock that are not exercisable within 60 days. (5) Represents shares of Class A common stock subject to options that are currently exercisable. Mr. Berling also has options to acquire 134,075 shares of Class A common stock that are not exercisable within 60 days. (6) Represents shares of Class A common stock subject to options that are currently exercisable. Mr. Hall also has options to acquire 209,339 shares of Class A common stock that are not exercisable within 60 days. 25 28 (7) Represents 1,700 shares of Class A common stock owned directly and 2,788 shares of Class A common stock subject to options that are currently exercisable. Mr. Halloy also has options to acquire 133,363 shares of Class A common stock that are not exercisable within 60 days. (8) Represents shares of Class A common stock subject to options that are currently exercisable. Mr. Hunt also has options to acquire 192,613 shares of Class A common stock that are not exercisable within 60 days. (9) Includes 13,938 shares of Class A common stock subject to options held by Mr. Merritt that are currently exercisable. Mr. Merritt also has options to acquire 89,536 shares of Class A common stock that are not exercisable within 60 days. (10) Mr. Merritt holds 2,158,391 shares of Class B common stock as trustee of certain irrevocable trusts created by Mr. Griffin for the benefit of his children. Mr. Griffin disclaims beneficial ownership of those shares. (11) Mr. Greene owns 200 shares of Class A common stock directly and has options to acquire 8,500 shares of Class A common stock that are not exercisable within 60 days. (12) Mr. Revell has options to acquire 8,500 shares of Class A common stock that are not exercisable within 60 days. (13) Mr. Goode has options to acquire 8,500 shares of Class A common stock that are not exercisable within 60 days. (14) Includes shares subject to options held by all directors and executive officers that are exercisable within 60 days. 26 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the initial public offering of the Company in February, 1996, the Company and its predecessor and subsidiary entities were wholly-owned by William D. Griffin and trusts for the benefit of his children and certain loans and other business transactions between the Company, Mr. Griffin and entities owned or controlled by him were structured for reasons related to family business and estate planning. Mr. Griffin is an officer and a director of all entities. Business transactions with Mr. Griffin or other officers or directors must now be approved by a majority of outside directors and are made on less favorable to the Company than could be obtained from unrelated third parties. Prior to the consummation of the initial public offering, the Company completed a reorganization of its existing corporate structure with the result that RISCORP, Inc. became a holding company with several direct and indirect subsidiaries (the "Reorganization"). Prior to the Reorganization, William D. Griffin was the sole beneficial shareholder of the common stock of the Company. Through a series of transactions that met the requirements of Section 351 of the Internal Revenue Code of 1986, as amended, several entities previously owned by Mr. Griffin became subsidiaries of the Company. In addition, RISCORP of North Carolina ("RONC"), which was owned by three trusts for the benefit of Mr. Griffin's children, became a wholly-owned subsidiary of the Company through a share exchange merger. RONC was an S Corporation prior to the Reorganization and declared in-kind dividends in an amount equal to substantially all of its estimated undistributed S Corporation earnings through the date of the Reorganization, with a value in the amount of $1.4 million. TRANSACTIONS TERMINATED DURING 1996 Loans Made by the Company. The Company was the lender pursuant to five revolving credit agreements, either with William D. Griffin or with certain entities controlled by Mr. Griffin: (i) a $1 million line of credit in favor of Custodial Engineers, Inc. ("CEI"), bearing interest at the prime rate of First Union plus one percent; (ii) a $1.0 million line of credit in favor of CMI Aviation Services, Inc. ("CMI"), bearing interest at the prime rate of First Union plus one percent; (iii) a $200,000 line of credit in favor of Five Points Properties, Inc. ("FPP"), bearing interest at the prime rate of First Union plus one percent; (iv) a $100,000 line of credit in favor of Millennium Health Services Limited ("MHSL"), bearing interest at the prime rate of NationsBank of Florida, N.A. ("NationsBank"); and (v) a $2.0 million line of credit in favor of Mr. Griffin individually, bearing interest at the prime rate of First Union plus one percent. As of December 31, 1995, approximately $0, $833,000, $350,000, $31,000, and $1.3 million, respectively, were outstanding under these lines of credit including accrued interest. On June 30, 1993, the Company loaned FPP $2.5 million with Mr. Griffin acting individually as guarantor. On April 29, 1994, Mr. Griffin assumed the repayment of this debt and FPP was released from any liability thereunder. The loan had a maturity date of February 28, 1997. The aggregate amount outstanding under this loan including accrued interest, as of December 31, 1995, was approximately $2.9 million with interest accruing at the prime rate of First Union plus one percent. On January 24, 1994, NationsBank loaned Mr. Griffin $9.0 million with the Company acting as guarantor. On January 3, 1995, the Company was released as guarantor. On July 1, 1994, the Company loaned RISCORP Health Plans, Inc. ("RHP") $2.0 million. Mr. Griffin owns approximately 95% of the stock of RHP. The loan had a maturity date of July 1, 2001 with interest accruing at prime rate plus 1%. The aggregate principal amount outstanding under this loan as of December 31, 1995, was approximately $2.2 million. On July 3, 1995, RONC loaned $3.1 million to JoFoKe Investments, Inc., a Florida corporation controlled by Mr. Griffin. The loan had a maturity date of June 30, 1996. The aggregate principal amount outstanding under this loan, as of December 31, 1995, was approximately $1.7 million. This loan accrued interest at SouthTrust Bank's prime rate plus 1.5% per annum. 27 30 Mr. Griffin repaid all of the above listed indebtedness in March 1996, with the exception of the loan to RHP, which was repaid in September 1996. The Company does not intend to make loans to Mr. Griffin or other directors or their family members, or entities under their control. Loan Made to the Company. On December 15, 1995, the RISCORP Group Holding Company, Limited Partnership ("RGHLP") loaned $1.0 million to the Company in connection with the acquisition of CompSource, Inc. RGHLP is a limited partnership controlled by Mr. Griffin. The loan accrued interest at LIBOR plus 3% per annum and had a maturity date of April 1, 1996. This loan was repaid in March 1996. Services Provided to the Company. The Company entered into certain lease agreements in 1993 and 1994 with CMI Aviation Services, Inc. ("CMI"), whereby the Company leased two aircraft. In September 1995, the parties terminated one of the lease agreements. The remaining lease required a minimum monthly rental amount of $34,000, on a bare plane basis. This lease was amended in May 1996 due to acquisition of a new plane by CMI. The amended lease provided for a minimum monthly rental amount of $50,000. Effective July 1, 1996, the lease agreement with CMI was amended again to provide that the Company would pay no minimum monthly rental, but would pay $900 per hour for the actual use of the plane. The aggregate amounts paid by the Company to CMI in the fiscal year ending December 31, 1996 was $223,350. Gryphus Development Group ("GDG"), a corporation owned by Mr. Griffin, provides all other services related to the aircraft (e.g., salaries of the pilots and the rest of the flight crews, hangar fees, and other operating costs related to the aircraft). Prior to May 1996, the Company paid GDG $60,000 a month for its services, which the Company believed would be GDG's approximate cost. Due to the acquisition of the new plane by CMI in May 1996, the agreement with GDG was amended to provide for payments of $96,000 per month for the services related to the aircraft. Effective July 1, 1996, the agreement with GDG was amended again to provide that the Company would pay no minimum monthly amount, but would pay $2,500 per hour for the actual services performed by GDG. The arrangements between the Company and CMI and GDG related to the plane lease and the aircraft related services were terminated completely effective March 31, 1996. Prior to September 1996, Mr. Griffin controlled CEI, a building custodial and maintenance service company. The Company has contracted with CEI to provide custodial and maintenance services to the Company's headquarters in Sarasota, Florida. The aggregate amount paid by the Company to CEI in the fiscal year ending December 31, 1996 was $455,851. In September 1996, Mr. Griffin disposed of his entire interest in CEI. The Company previously contracted with GDG to provide facilities services to the Company's Sarasota office, and this contract was terminated in 1996. In 1996, the Company paid approximately $20,000 for such services. On November 1, 1995, the Company entered into six computer equipment and software leases with Gryphus Financial Services, Inc. ("GFS"), a company controlled by Mr. Griffin. Five of the equipment leases are for a term of 36 months and one equipment lease is for a term of 24 months. The aggregate annual payments under the equipment leases during 1996 was approximately $100,000. These leases were sold by GFS to an unrelated financial institution during 1996. Services Provided by the Company. The Company previously provided management, staff, systems, and other support services to MHSL, in which Mr. Griffin held a 95% ownership interest. Under a management agreement and other contractual arrangements, the Company charged approximately $7,500 per month for rendering these services. The contractual arrangements commenced in November 1994. The aggregate amount charged for 1996 was $77,974. In November 1996, Mr. Griffin sold his interest in MHSL and the Company ceased providing any services and support to MHSL. Workers' Compensation Managed Care Arrangement. During 1996, the Company and RHP were parties to a workers' compensation managed care contract under which RHP provided medical services and assumed risk for medical claims under the WCMCA offered by the Company. During 1996, the Company paid RHP approximately $17.0 million under this arrangement. This arrangement was terminated effective as of May 1, 1996 but continues to apply to policies with an inception date before May 1, 1996. 28 31 TRANSACTIONS CONTINUING THROUGH 1996 Services Provided to the Company. In 1994, Mr. Griffin began leasing parking facilities to the Company at its Sarasota office. Lease payments under this arrangement were approximately $24,000 per month. During 1996, the Company paid $317,458 under this lease. In February 1997, the lease agreement was amended to reduce the monthly rental to $16,960 per month. Mango Excess Insurance Agency, Inc., a Florida corporation ("Mango"), a company owned and controlled by Mr. Griffin, acts as a reinsurance broker to the Company in obtaining reinsurance for the Company's insurance subsidiaries, and some of its self-insured clients. The commission payable to Mango and the other terms and conditions of this relationship do not exceed industry standards for such arrangements. In 1996, the Company paid Mango commissions of $0.8 million. Services Provided by the Company. On January 1, 1996, the Company entered into a Bilateral Administrative Services Cost Sharing Agreement with RISCORP Health Plans, Inc. ("RHP"), a company owned and controlled by Mr. Griffin. This agreement is intended to ensure that costs shared by the two companies will be fairly allocated between them. The Company and its affiliates provide facilities, financial, legal, human resource, communications, information systems, marketing, claims, technical and other administrative and management support to RHP. RHP provides certain client services, medical provider management, credentialing and utilization management to the Company for its health indemnity products. The Company has agreed not to compete with RHP in the development or marketing of an HMO or other managed care health plan product and RHP has agreed not to compete with the Company in offering workers' compensation insurance services. The two companies will reimburse one another for the actual costs of providing the personnel services and other support, and sharing the other resources required by the agreement. The agreement is for a term of five years and can be renewed for an additional five year term, but is also terminable at will by 180-days notice by either party. During 1996, the Company received a net amount of $410,158 from RHP under this agreement. Effective as of January 1, 1996, the Company entered into an Administrative Services Cost Sharing Agreement with GDG. This agreement is intended to ensure that costs incurred by the Company on behalf of GDG are reimbursed to the Company. The Company and its affiliates provide facilities, financial, legal, human resource, communications, information systems, marketing, claims, technical and other administrative and management support to GDG. GDG will reimburse the Company for the actual costs of providing the personnel services and other support. The agreement is for a term of five years and can be renewed for an additional five year term, but is also terminable at will by 180-days notice by either party. During 1996, the Company received $86,363 from GDG under this agreement. Strategic Alliance with RHP. The Company and RHP have collaborated in the bidding for participation in Florida's 24-Hour Managed Care Pilot Program. During the period of the pilot program and thereafter, if the venture is successful, the Company and RHP will be joint venturers in a partnership or other contractual arrangement. Under the arrangement, each partner will receive fees based upon the services performed or relative risk assumed by them. Prior to implementation of this program, this arrangement will be reviewed and approved by the Company's outside directors to assure that it is fair to the Company and consistent with the industry standards. Investment Services. The Company provides administrative services to Merritt & Company. During 1996, the Company received approximately $86,276 for those services. The sole shareholder of Merritt & Company is L. Scott Merritt, an officer and Director and the trustee for certain trusts which will own more than 5% of the Class B Common Stock. Mr. Merritt became employed by the Company on January 1, 1995. Merritt & Company continues to provide investment services to two customers of the Company. License Arrangement. RHP pays a fee of 0.5% of all RHP revenues to the Company for the right to use the RISCORP named and related trade designs and logos. During 1996, the Company received $50,826 as a license fee from RHP. 29 32 The Company and RHP share contractual rights to a medical provider network utilized by both the Company and RHP in delivering provider services. In addition, Comprehensive Care Systems, Inc., 100% of the stock of which is owned by Mr. Griffin, also has the right to access provider services under the network upon payment of a commercially reasonable access charge to RHP and the Company, as determined by the outside directors. The contract for the provider network provides that the Company shall continue to have unrestricted access to the network on terms and conditions at least equal to any other use of the network. The cost of developing and maintaining the provider network is prorated between RHP and the Company on a member usage basis. During 1996, RHP paid the Company $139,016 under this arrangement for costs incurred by the Company attributable to RHP. 30 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List the following documents filed as part of this report: 1. All Financial Statements. To be filed pursuant to Rule 12b-25 on Form 10K/A 2. Financial Statment Schedules To be filed pursuant to Rule 12b-25 on Form 10K/A 3. Exhibits Set forth in paragraph (c) below. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the fourth quarter of 1996. (c) Exhibits The following are filed as exhibits to this report:
EXHIBIT # DESCRIPTION ---------- ----------- 3.1 -Amended and Restated Articles of Incorporation.** (Incorporated herein by reference to Exhibit 3.1 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 3.2 -Bylaws.** (Incorporated herein by reference to Exhibit 3.2 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 4.1 -Form of Common Stock Certificate.** (Incorporated herein by reference to Exhibit 4.1 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.1 -$28,000,000 Credit Agreement, dated as of December 16, 1994, by and between First Union National Bank of North Carolina and the Company (f/k/a RISCORP Group Holdings, Inc.), as amended by a First Amendment to Credit Agreement, dated as of December 30, 1994, and as amended by a Second Amendment to Credit Agreement, dated as of June 1, 1995.** (Incorporated herein by reference to Exhibit 10.1 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.2 -Amended and Restated Note Purchase Agreement, dated as of January 1, 1995, by and between American Re-Insurance Company and the Company.** (Incorporated herein by reference to Exhibit 10.2 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.3 -$2,400,000 Term Note, dated November 9, 1994, delivered by RISCORP Acquisition, Inc. to Governmental Risk Insurance Trust.** (Incorporated herein by reference to Exhibit 10.3 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.4 -$2,000,000 Surplus Note, dated July 1, 1994, executed and delivered by RISCORP Health Plans, Inc. to RISCORP Property and Casualty Insurance Company, Inc. (f/k/a Florida Interstate Insurance Company).** (Incorporated herein by reference to Exhibit 10.4 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.5 -Amended and Restated Loan Agreement, dated as of November 1, 1995, by and between JoFoKe Investments, Inc. and RISCORP of North Carolina, Inc.** (Incorporated herein by reference to Exhibit 10.5 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.6 -$100,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among Custodial Engineers, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.6 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.7 -$1,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among CMI Aviation Services, Inc. (f/k/a Cocky McGriffiri, Inc.) as borrower, William D. Griffin, as guarantor, and RISCORP Management Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.7 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.8 -$100,000 Revolving Credit Agreement, dated as of July 1, 1993, by and between Five Points Properties, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.8 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.9 -$100,000 Revolving Credit Agreement, dated as of November 30, 1994, by and between Millennium Health Services, Limited, as borrower, and RISCORP Management Services, Inc., as lender.** (Incorporated herein by reference to Exhibit 10.9 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.10 -$2,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among the Company (f/k/a Petty Cash Properties, Inc.), as borrower, William D. Griffin, as guarantor, and RISCORP Management Services, Inc., as lender. as amended by a Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.10 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.11 -$2,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and between William D. Griffin, as borrower, and RISCORP Management Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.11 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.12 -Loan Agreement, dated as of January 25, 1994, by and among NationsBank of Florida, N.A., William D. Griffin, RISCORP Management Services, Inc., RISCORP of Florida, Inc., Specialized Risk Administrators, Inc., Petty Cash Properties, Inc., Five Points Properties, Inc., and Sarasota International Risk and Insurance Services, Inc., as amended by a Loan Agreement, dated January 3, 1995, by and among NationsBank of Florida, N.A., William D. Griffin and Five Points Properties, Inc.** (Incorporated herein by reference to Exhibit 10.12 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.13 -$2,500,000 Loan Assumption Agreement, dated April 29, 1994, by and among Five Point Properties, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management Services, Inc., as lender.** (Incorporated herein by reference to Exhibit 10.13 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.14 -$2,400,000 Promissory Note, dated November 9, 1994, executed and delivered by RISCORP Acquisitions, Inc. and Self Insurors Service Bureau, Inc. to W. Gerald Fiser, as modified by the Settlement Agreement, dated May 1, 1995, by and among W. Gerald Fiser, Self Insurors Service Bureau, Inc., RISCORP Acquisitions, Inc., and RISCORP Group Holdings, L.P.; Stock Purchase Agreement, dated as of November 4, 1994, by and between RISCORP Acquisitions, Inc., Self Insurors Service Bureau, Inc. and W. Gerald Fiser, Stock Pledge Agreement, dated as of November 9, 1994, by and between RISCORP Acquisitions, Inc., and W. Gerald Fiser, Security Agreement, dated as of November 9, 1994, by and between Self Insurors, Service Bureau, Inc. and W. Gerald Fiser, Guarantee Agreement, dated as of November 9, 1994, by and between RISCORP Group Holdings, L.P., and W. Gerald Fiser, Security Coordinating Agreement, dated November 9, 1994 by and among, W. Gerald Fiser, RISCORP Acquisitions, Inc., RISCORP Group Holdings, L.P., and Self Insurors Service Bureau, Inc.** (Incorporated herein by reference to Exhibit 10.14 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.15 -Form of Agency Agreement by and between the independent insurance agents and the Company's workers' compensation insurance subsidiaries.** (Incorporated herein by reference to Exhibit 10.15 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.16 -Florida Workers' Compensation Managed Care Agreement, dated July 30, 1995, by and among RISCORP Insurance Company, Inc., RISCORP Management Services, Inc., Sarasota International Risk and Insurance Services, Inc., and Humana Medical Plan, Inc.** (Incorporated herein by reference to Exhibit 10.16 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.17 -Florida Workers' Compensation Managed Care Agreement, dated July 30, 1995, by and among RISCORP Property and Casualty Insurance Company, Inc., RISCORP Management Services, Inc., Sarasota International Risk and Insurance Services, Inc., and Humana Medical Plan, Inc.** (Incorporated herein by reference to Exhibit 10.17 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.18 -Florida Workers' Compensation Managed Care Agreement, dated January 1, 1995, by and among RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company, Inc. and RISCORP Health Plans, Inc.** (Incorporated herein by reference to Exhibit 10.18 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.19 -Aircraft Lease, dated February 12, 1993, by and between RISCORP Management Services, Inc. and CMI Aviation Services.** (Incorporated herein by reference to Exhibit 10.19 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.20 -Aircraft Lease, dated December 24, 1994, by and between RISCORP Management Services, Inc. and CMI Aviation Services.** (Incorporated herein by reference to Exhibit 10.20 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.21 -Split Dollar Agreement, dated as of June 1, 1995, by and among RISCORP Management Services, Inc., William D. Griffin, and L. Scott Merritt, as trustee, for payment of premiums for split-dollar life insurance.** (Incorporated herein by reference to Exhibit 10.21 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.22 -Split Dollar Agreement, dated as of July 1, 1994, by and among RISCORP Management Services, Inc., William D. Griffin, and L. Scott Merritt, as trustee for payment of premiums for split-dollar life insurance.'* (Incorporated herein by reference to Exhibit 10.22 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.23 -Pooling Agreement, dated as of January 1, 1995, by and between RISCORP Insurance Company, Inc. and RISCORP Property and Casualty Insurance Company, Inc.** (Incorporated herein by reference to Exhibit 10.23 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.24 -Workers' Compensation Quota Share Re-Insurance Agreement, dated as of December 27, 1994, by and among American Re-Insurance Company, RISCORP Insurance Company, Inc., and RISCORP Property and Casualty Insurance Company, Inc.+ (Incorporated herein by reference to Exhibit 10.24 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.25 -Workers' Compensation Excess of Loss Reinsurance Agreement, dated January 1, 1995, by and among RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company, Inc., Signet Star Reinsurance Company, Republic Western Insurance Company, and TIG Reinsurance Company, as reinsurers.+** (Incorporated herein by reference to Exhibit 10.25 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.26 -Workers' Compensation Excess of Loss Reinsurance Agreement, dated September 29, 1995, by and among RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company, Inc., and Continental Casualty Company, as reinsurers** (Incorporated herein by reference to Exhibit 10.26 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.27 -Aggregate Net Excess of Loss Reinsurance Agreement, dated December 6, 1993, by and between Governmental Risk Insurance Trust and RISCORP Property and Casualty Insurance Company, Inc., as reinsurers** (Incorporated herein by reference to Exhibit 10.27 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.28 -Aggregate Excess of Loss Reinsurance Agreement, effective as of October 1, 1993, by and between RISCORP Property and Casualty Insurance Company, Inc. and Centre Reinsurance Company of New York, as reinsurers** (Incorporated herein by reference to Exhibit 10.28 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.29 -RISCORP, Inc. Stock Option Plan.** (Incorporated herein by reference to Exhibit 10.29 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.30 -Form of RISCORP, Inc. Stock Option Agreement.** (Incorporated herein by reference to Exhibit 10.30 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.31 -Employment and Severance Agreement, dated as of January 1, 1995, by and between RISCORP Management Services, Inc. and William D. Griffin.** (Incorporated herein by reference to Exhibit 10.31 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.32 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services, Inc. and James A- Malone.** (Incorporated herein by reference to Exhibit 10.32 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.33 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services, Inc. and Edward Hammel.** (Incorporated herein by reference to Exhibit 10.33 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.34 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services, Inc. and Thomas Hall.** (Incorporated herein by reference to Exhibit 10.34 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.35 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services, Inc. and Fred Hunt.** (Incorporated herein by reference to Exhibit 10.35 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.36 -Agreement, dated September 16, 1993, by and between RISCORP Insurance Company, Inc. and the Florida Chamber of Commerce, Inc.** (Incorporated herein by reference to Exhibit 10.36 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.37 -$5,000,000 Letter of Credit issued by NationsBank, N.A. in favor of Florida Chamber of Commerce, Inc., currently outstanding in the amount of $3,000,000.** (Incorporated herein by reference to Exhibit 10.37 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.38 -Service Company Agreement, dated July 1, 1995, by and between Governmental Risk Insurance Trust and RISCORP Insurance Services. Inc.** (Incorporated herein by reference to Exhibit 10.38 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.39 -Service Agent Contract of National Alliance for Risk Management Group Self Insurers' Fund, dated as of September 15, 1993, by and between the Trustees of National Alliance for Risk Management Group Self Insurers' Fund and RISCORP of North Carolina, Inc.** (Incorporated herein by reference to Exhibit 10.39 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.40 -Maintenance Service Agreement, dated May 1, 1995, by and between Custodial Engineers, Inc. and RISCORP Property and Casualty Insurance Company, Inc.** (Incorporated herein by reference to Exhibit 10.40 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.41 -Custodial Service Agreement, dated May 1, 1995, by and between Custodial Engineers, Inc. and RISCORP Property and Casualty Insurance Company, Inc. **(Incorporated herein by reference to Exhibit 10.41 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.42 -Parking Lease Agreement, dated February 15, 1994, by and between RISCORP Management Services, Inc. and William D. Griffin.** (Incorporated herein by reference to Exhibit 10.42 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.43 -Lease Nos. GFS 1 186, GFS 1 187, GFS 1 188, Form of GFS 1 189, GFS 1 190, and GFS 1 191, each dated November 1, 1995, by and between Gryphus Financial Services, Inc. and the Company.** (Incorporated herein by reference to Exhibit 10.43 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.44 -Management Agreement of Millennium Health Services, Limited, dated as of November 1, 1994, by and between RISCORP Management Services, Inc. and Millennium Health Services, Limited.** (Incorporated herein by reference to Exhibit 10.44 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.45 -Management Subcontract for Millennium Health Services, Limited, dated as of November 1, 1994, by and between Millennium Health Services, Limited and RISCORP Management Services, Inc.** (Incorporated herein by reference to Exhibit 10.45 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.46 -Management Agreement of Millennium Health Services of Sarasota, Limited, dated as of November 1, 1994, by and between Millennium Health Services, Limited and Millennium Health Services of Sarasota, Limited.** (Incorporated herein by reference to Exhibit 10.46 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.47 -Financial Advisor/Manager Contract, dated September 13, 1993, between Florida Interstate Insurance Co. and Merritt & Company.** (Incorporated herein by reference to Exhibit 10.47 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.48 -Form of Stock Redemption Agreement relating to the acquisition of the stock of CompSource, Inc. and Insura, Inc.** (Incorporated herein by reference to Exhibit 10.48 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.49 -Form of Aircraft and Related Services Agreement between RISCORP Management Services, Inc. and GRYPHUS Development Group dated January 1, 1996.** (Incorporated herein by reference to Exhibit 10.49 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.50 -Form of Restated and Amended Administrative Services Agreement between RISCORP Management Services, Inc., and RISCORP Health Plans, Inc. dated January 1, 1996.** (Incorporated herein by reference to Exhibit 10.50 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.51 -Form of Memorandum of Understanding (concerning RHP's health insurance administrative services) between RISCORP Health Plans, Inc. and RISCORP Management Services, Inc.' dated January 1, 1996.** (Incorporated herein by reference to Exhibit 10.51 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.52 -Form of RISCORP Controlled Affiliate License Agreement between RISCORP, Inc. and RISCORP Management Services, Inc. (as licenser) and RISCORP Health Plans, Inc. (as licensee). (Incorporated herein by reference to Exhibit 10.52 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.53 -Form of Amendment to Florida's Worker's Compensation Managed Care Agreement among RISCORP Property & Casualty Company, RISCORP Insurance Company and RISCORP Health Plans, Inc. dated January 1, 1996.** (Incorporated herein by reference to Exhibit 10.53 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.54 -Form of Acknowledgment of Provider Rights Ownership and Cost Allocation Agreement among RISCORP Management Services, Inc., RISCORP Managed Care Solutions, Inc. and RISCORP Health Plans, Inc. dated January 1, 1996.1* (Incorporated herein by reference to Exhibit 10.54 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.55 -Form of Provider Network Access Agreement among RISCORP Management Services, Inc., RISCORP Health Plans, Inc. and Comprehensive Care Systems, Inc.** (Incorporated herein by reference to Exhibit 10.55 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.56 -Form of Memorandum of Understanding between RISCORP Health Plans, Inc. and RISCORP Insurance Company.** (Incorporated herein by reference to Exhibit 10.56 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.57 -Form of Registration Rights Agreement dated as of February 1, 1996, by and among RISCORP, Inc., RISCORP Management Services, Inc. and William D. Griffin.** (Incorporated herein by reference to Exhibit 10.57 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.58 -Third Amendment to Credit Agreement, dated as of November 30, 1995, by and between RISCORP Group Holdings, Inc. and First Union National Bank of North Carolina.** (Incorporated herein by reference to Exhibit 10.58 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.59 -Consent Agreement and Fourth Amendment to Credit Agreement, dated as of January 2, 1996, by and between RISCORP Group Holdings, Inc. and First Union of North Carolina.** (Incorporated herein by reference to Exhibit 10.59 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
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EXHIBIT # DESCRIPTION ---------- ----------- 10.60 -Form of Bilateral Administrative Services Costs Sharing Agreement by and between RISCORP Management Services, Inc. and RISCORP Health Plans, Inc.** (Incorporated herein by reference to Exhibit 10.60 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.61 -Agreement of Purchase and Sale of Stock, dated as of December 15, 1995, by and among CompSource Acquisition, Inc., James K. Secunda, Bruce A. Flachs, the James K. and Debra W. Secunda Charitable Remainder Unitrust Number One, the James K. and Debra W. Secunda Charitable Remainder Unitrust Number Two and the Bruce Flachs Charitable Remainder Unitrust (more commonly referred to as the CompSource stock purchase agreement).** (Incorporated herein by reference to Exhibit 10.61 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.62 -Agreement of Purchase and Sale of Stock, dated as of January 10, 1996, by and among Atlas Insurance Company, RISCORP of Florida, Inc., Atlas Financial Corporation and Haas Wilkerson-Wohlberg, Inc.** (Incorporated herein by reference to Exhibit 10.62 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.63 -Form of First Amendment to Bilateral Administrative Services Costs Sharing Agreement by and between RISCORP Management Services, Inc. and RISCORP Health Plans, Inc.** (Incorporated herein by reference to Exhibit 10.63 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.64 -Amendment to Agreement of Purchase and Sale of Stock, dated as of December 15, 1995, by and among CompSource Acquisition, Inc., James K. Secunda, Bruce A. Flachs, the James K. and Debra W. Secunda Charitable Remainder Unitrust Number One, the James K. and Debra W. Secunda Charitable Remainder Unitrust Number Two and the Bruce Flachs Charitable Remainder Unitrust (more commonly referred to as the CompSource stock purchase agreement). (Incorporated herein by reference to Exhibit 10.64 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760) 10.65 -Employment Agreement with James A. Malone dated March 25, 1997. 10.66 -Employment Agreement with Thomas S. Hall dated January 6, 1997. 10.67 -Employment Agreement with Steven J. Berling dated January 6, 1997. 10.68 -Employment Agreement with Fred A. Hunt, dated January 6, 1997. 10.69 -Credit Agreement among the Company and Nationsbank N.A. (South) dated October 15, 1996 10.70 -Reinsurance Agreement between RISCORP National Insurance Company and G.J. Sullivan Co. Reinsurance dated February 4, 1997. 10.71 -Underwriting Management Agreement dated September 1, 1996 between RISCORP Management Services and Virginia Survey Company, Inc. 10.72 -Loss Portfolio Transfer Agreement between RISCORP National Insurance Company and Occupational Safety Association of Alabama Workmen's Compensation Fund. 10.73 -Agreement and Plan of Merger by and among RISCORP, Inc., RISCORP-IAA, Inc., Independent Association Administrators Incorporated, and The Stockholders of Independent Association Administrators Incorporated 10.74 -Policy and Loss Portfolio Transfer Assumption Reinsurance Agreement between RISCORP National Insurance Company and National Alliance for Risk Management Group Self-Insurance Fund 10.75 -Stock Purchase Agreement by and Between RISCORP, Inc. and Thomas Albrecht, Peter Norman and Hugh D. Langdale, Jr. 10.76 -Workers Compensation Quota Share Retrocessional Treaty Agreement with Chartwell Reinsurance Company. 10.77 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Mercantile Group Self Insurance Association of Virginia and RISCORP National Insurance Company. 10.78 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Services' Group Self Insurance Association of Virginia and RISCORP National Insurance Company. 10.79 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Manufacturers Group Self Insurance Association of Virginia and RISCORP National Insurance Company. 11 -Statement Re Computation of Per Share Earnings * 21.1 -List of Subsidiaries of the Registrant. ** (Incorporated herein by reference to Exhibit 21.1 to Riscorp's Amendment No. 4 to Form S-1, as of February 28, 1996 Commission File Number 33-99760) 27 -Financial Data Schedule (for SEC use only). * 28.1 -Information from Reports Furnished to State Insurance Regulatory Authorities.** (Incorporated herein by reference to Exhibit 28.1 1.1 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commission File Number 33-99760)
* Filed herewith and to be filed by Amendment ** Previously filed. + Confidential treatment granted pursuant to Rule 406 of the Securities Act of 1933. 38 41 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sarasota, State of Florida, on the 16th day of May, 1997. RISCORP, INC. By: /s/ William D. Griffin ----------------------------------- William D. Griffin Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS FORM 10-K/A REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE - - -------- ----- ---- /s/William D. Griffin Chairman of the Board, Chief May 16, 1997 - - ------------------------- Executive Officer and Director William D. Griffin (principal executive officer) /s/James A. Malone President, Chief Operating Officer May 16, 1997 - - ------------------------- and Director James A. Malone /s/Richard A. Halloy Senior Vice President, May 16, 1997 - - ------------------------- and Director Richard A. Halloy /s/L. Scott Merritt Senior Vice President, Chief May 16, 1997 - - ------------------------- Investment Officer and Treasurer L. Scott Merritt /s/Ramin Taraz Senior Vice President, Finance May 16, 1997 - - ------------------------- and Principal Accounting Officer Ramin Taraz (principal accounting officer) /s/Richard B. Franz, II Senior Vice President, and May 16, 1997 - - ------------------------- Chief Financial Officer Richard B. Franz, II (principal financial officer) /s/Seddon Goode Director May 16, 1997 - - ------------------------- Seddon Goode /s/George E. Greene III Director May 16, 1997 - - ------------------------- George E. Greene III /s/Walter L. Revell Director and Vice Chairman May 16, 1997 - - ------------------------- Walter L. Revell 39 EX-10.65 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.65 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into and is effective as of the 25th day of March, 1997, ("Effective Date"), by and between JAMES A. MALONE (the "Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for itself and on behalf of RISCORP, Inc., a Florida corporation, and its subsidiaries (collectively referred to as "RISCORP"). W I T N E S S E T H: WHEREAS, RISCORP engages in the business of managed care workers compensation insurance and related businesses; and WHEREAS, RISCORP desires to continue to employ the Employee and to enter into an agreement embodying the terms of such employment, and the Employee desires to continue such employment provided certain additional terms and conditions are added to his former employment agreement, and both parties desire to enter into this new employment agreement to include such additional terms and conditions; and WHEREAS, both parties acknowledge the respective advantages, benefits, and other valuable considerations to be realized by then by virtue of such a relationship; THEREFORE, in light of the foregoing and in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. (a) As of the Effective Date, the Employee shall continue to serve as President and Chief Operating Officer. The Employee shall continue to have such duties and responsibilities as are consistent with such position or as may be set forth from time to time by RISCORP in a written job description or list of duties. (b) The Employee, so long as he is employed hereunder, shall devote his full time to the services required of him hereunder, except as otherwise agreed, and for paid personal time of four (4) weeks during the 12-month period following the Effective Date (which shall accrue ratably beginning as of the first day of such 12-month period), to be used for vacation and absences due to sickness, personal injury or other disability. 2. TERM. The term of the Employee's employment under this Agreement shall be for a term of one (1) year from the Effective Date and shall automatically renew thereafter for successive one (1) year periods unless terminated as hereinafter provided (the "Term of this Agreement"). 1 2 3. COMPENSATION. (a) Base Salary. Except as otherwise provided in Section 7 hereof, RISCORP shall pay the Employee as annual base salary during the Term of this Agreement, in equal installments no less frequently than monthly, an amount equal to salary~, which may be increased from time to time by RISCORP during the Term of this Agreement (the "Base Salary"). (b) Bonus. During the Term of this Agreement, the Employee shall be entitled to participate in such bonus plans or programs which cover the Employee as RISCORP may implement from time to time. (c) Options. During the term of this Agreement the employee shall be entitled to continue participating in the RISCORP, Inc. 1995 Non-Qualified Stock Option Plan and any successor option plans or other programs relating to any type of ownership or equivalent interests in RISCORP, Inc., any of its subsidiaries, or any successor entity(ies), which covers other employees of such entities, as RISCORP, Inc. or such other entities may implement from time to time, or which may be substituted for the existing option plan. The Employee's participation shall be in accordance with the terms and conditions of such plan(s). 4. BENEFITS. During the Term of this Agreement, the Employee shall be entitled to participate in or receive benefits under any employee benefit plan (other than any bonus plan that may not be available to RISCORP employees generally), arrangement or perquisite made available by RISCORP now or in the future to its similarly situated executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, arrangements and perquisites. 5. DUTIES OF THE EMPLOYEE. (a) The Employee is employed by RISCORP in an executive or professional capacity, and shall be subject to the direction and control of the Board of Directors of RISCORP, or such officers of RISCORP designated by its Board of Directors from time to time. Subject to such direction and control, the Employee shall provide all of the services generally associated with and inherent in and consistent with any office to which he is appointed by RISCORP. (b) The Employee shall perform such other and further services as may reasonably be required by RISCORP, including carrying out all of the policies and directives of RISCORP. (c) The Employee shall well and faithfully serve RISCORP in the capacities as aforesaid, and shall at all times devote his full time, best efforts, skills, attention and energies to performance of the duties hereunder to the utmost of the Employee's ability, and shall do and 2 3 perform all such services, acts, and things connected therewith as are reasonably required and as RISCORP (through its Board and/or designated officers) shall from time to time direct. The Employee shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on RISCORP or its respective business, or conflict with his services to RISCORP. Nothing contained herein shall be construed to limit or restrict the passive investment or passive business activities of the Employee that do not interfere with his obligations hereunder. 6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood and agreed that the Employee will serve in a fiduciary capacity to RISCORP and, as such, will comply with the standards applicable to fiduciaries, and will also comply with the integrity code and other policies and standards applicable to similarly situated employees of RISCORP. 7. TERMINATION. (a) Either the Employee or RISCORP may at any time terminate the Employee's employment under this Agreement. (b)(1) If the Employee's employment is terminated by RISCORP for other than Cause, as hereinafter defined, or the Employee voluntarily terminates his employment for Good Reason, as hereinafter defined, then RISCORP shall pay to the Employee an amount equal to one (1) year of the Employee's Base Salary ($330,000), or the Employee's Base Salary which is in effect on the effective date of termination, payable without interest in twelve (12) equal monthly installments commencing within thirty (30) days of the date of termination. (b)(2) Notwithstanding anything in subsection (b)(1) to the contrary, if the Employee's employment is terminated within two (2) years following a Change of Control (i) by RISCORP other than for Cause, death or disability, or (ii) by the Employee for Good Reason, then the following shall apply: (i) Within five (5) days of the Employee's termination, the Employee shall be entitled to receive an amount equal to three (3) times his Base Salary. Such total amount shall be paid in a lump sum within such five (5) day period or in equal monthly installments, at the election of the Employee (which shall be made within such five (5) day period). (ii) The Employee shall be entitled to receive outplacement services from Drake, Beam & Morin or a comparable agency acceptable to the Employee until the earlier of twelve (12) months from the date of termination, or until the Employee secures a other employment. (iii) It is the intention of RISCORP and the Employee that no portion to or for the benefit of the Employee under any form of compensation agreement or plan, be deemed to be an "excess parachute payment" as defined in Section 280G of the Internal Revenue 3 4 Code of 1986, as amended (the "Code"). Accordingly, if the payments under this Section 7(b)(2) would create an excess parachute payment, it is agreed that the amounts to be received hereunder and any other payments to or for the benefit of the Employee in the nature of compensation ("Total Payments") shall be reduced to equal one dollar less than the 280G Limit, as hereinafter defined. Within 60 days of the Employee's termination hereunder, the Employee and RISCORP shall obtain the opinion of such legal counsel and/or certified public accountants as the Employee and RISCORP may mutually agree upon, which sets forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the Code and (B) the present value of aggregate Total Payments and (C) the extent, if any, to which the Total Payments must be reduced to avid any excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provisions are repealed without a successor provision, this Subsection (iv) shall be of no further force and effect. (c) If, during the Term of this Agreement a Potential Change of Control, as defined herein, occurs, and the Employee's employment is terminated within a period of 120 days before or after the occurrence of such Potential Change of Control (A) by RISCORP other than for Cause, death or disability, or (B) by the Employee for Good Reason, then for purposes of this Agreement, a Change of Control shall be deemed to have occurred during the term of this Agreement and the termination of the Employee's employment shall be deemed to have occurred following the Change of Control and the Employee shall nonetheless be entitled to the termination benefits provided in Section 7(b)(2) above. (d) Except to the extent the Change of Control and Potential Change of Control provisions set forth above would apply, in the event the Employee voluntarily terminates his employment for other than Good Reason, resigns, dies, or his employment terminates due to disability, or if RISCORP terminates the Employee's employment for Cause, then RISCORP shall pay to the Employee, within thirty (30) days of the date of such termination, a lump sum payment equal to the portion of his Base Salary accrued through the date his employment terminates. (e) It is agreed that upon and after termination of Employee's employment under this Agreement, neither RISCORP nor the Employee will disparage each other, nor will any public announcements, public statements or press releases be issued concerning the departure of the Employee unless such statement is issued jointly and by mutual agreement. (f) For purposes of this Agreement, the term "Cause" means any of the following: (i) the willful failure by the Employee substantially to perform his duties hereunder, the Employee's substantial neglect of his duties hereunder or the material breach of any other provision of this Agreement by the Employee; (ii) any act of fraud, misappropriation, dishonesty or embezzlement, any immoral act, any act of insubordination or similar conduct, as determined by RISCORP; or 4 5 (iii) conviction of the Employee for a felony, any crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the conviction of the Employee for a misdemeanor, excluding traffic violations. (g) For purposes of this Agreement, the term "Change of Control" means any of the following events: (i) a dissolution, liquidation, merger, consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii) sale or transfer (other than as security for corporate obligations) of at least a majority of the assets of RISCORP, Inc. in one or more related transactions; (iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving more than 50% of the issued and outstanding stock (initially determined as of September 30, 1996, and irrespective of whether such percentage change is based on voting or economic interests and irrespective of whether the ownership shift occurs as the result of the issuance of new securities by RISCORP, Inc. or its subsidiaries; provided that sales of the public float stock in the ordinary course shall be disregarded for this purpose) in a single transaction or in a series of related transactions (for this purpose any stock options, {excluding employee stock options granted to existing employees of RISCORP, Inc.}, warrants, debentures or other securities or agreements which are convertible into stock of RISCORP, Inc. or its subsidiaries, and which are issued by RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised on the date of its issuance to the fullest extent possible and for the maximum number of shares permitted thereunder); (iv) any transaction of the kind described in subsection (g)(iii) involving stock (or the stock equivalents described therein) of RISCORP Management Services, Inc., or any insurance company or operating subsidiary of RISCORP, Inc.); or (v) individuals who constitute the Board of Directors of RISCORP, Inc. on December 15, 1996 ("Incumbent Board") have ceased for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to December 15, 1996 whose election or nomination for election by RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of RISCORP in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. (h) For purposes of this Agreement, the term "Good Reason" means material modification of the Employee's compensation or the nature of the Employee's duties or the scope of the Employee's responsibilities are materially modified without the Employees' prior written consent. (i) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary or an affiliate controlled by the same shareholders controlling RISCORP, Inc. enters into an agreement, the consummation of which would result in the occurrence of a Change of Control or (ii) the Board of Directors of RISCORP, Inc. or a subsidiary adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 5 6 (j) For purposes of this Agreement, the term "280G Limit" means the maximum amount which the Employee may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision (currently three times the base amount of the Employee, as defined in Section 280G(b)(3) of the Code). (k) Notwithstanding any provision to the contrary in this Section 7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or 7(c) of this Agreement, and the Employee enters into "Competition with the Company," as defined in Section 8 hereof, at any time within the twenty-four (24) months following such termination, then: (i) RISCORP shall have no further obligation to make installment payments to the Employee if so elected, and (ii) the Employee shall be obligated to repay all amounts received under Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section 7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for the non- competition covenant contained in Section 8(h) of the Agreement and shall not be deemed "parachute payments" within the meaning of Section 280G of the Code. 8. CONFIDENTIALITY AND NON-COMPETITION. In consideration of the Employee's employment with RISCORP, Employee agrees to the following: (a) The Employee will not use or disclose to others at any time, either during or after employment with RISCORP, any Trade Secrets or other Confidential Information, as hereinafter defined, about RISCORP's business or any of RISCORP's proprietary rights, except as required in the ordinary course of performing employment duties of RISCORP. (i) As used in this Agreement, Trade Secrets include, but are not limited to, (A) Trademarks; (B) Trade names; (C) Copyrights; (D) Information services system products, whether they are particular to RISCORP or derivative to licensed products acquired or used by RISCORP; (E) Employee lists; (F) Product and project information; (G) Policyholder, customer and account lists; (H) Agents lists and agreements; (I) Societies and associations lists; (J) Vendor and provider lists or agreements; 6 7 (K) Physician and medical personnel lists, medical facilities lists, medical facilities lists; ambulatory care center lists, clinics or laboratory lists; and (L) Business and marketing plans or reports. (ii) As used in this Agreement, Confidential Information includes, but is not limited to that information designated as confidential, proprietary or privileged in RISCORP'S Integrity Code, confidentiality policies and other human resource materials. (b) Upon termination of his employment, the Employee will deliver to RISCORP all copies of all documents or papers (including diskettes or other medium for electronic storage of information) relating to RISCORP's business or such Trade Secrets or Confidential Information that are in the Employee's possession or under the Employee's control, without making copies or summaries of any such material. (c) Any inventions, proprietary information, or discoveries, whether or not patentable or copyrightable, resulting from any work the Employee does (alone or with others) as an employee of RISCORP shall be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive property. The Employee hereby assigns to RISCORP any rights the Employee may have or acquire in such property and shall sign and deliver at any time any instruments confirming the exclusive ownership by RISCORP. All inventions, proprietary information, or discoveries that belonged to the Employee before being employed by RISCORP, and which the Employee wants to exempt from this Agreement, if any, are listed in an attached schedule. (d) During the Term of this Agreement, the Employee shall not engage in "Competition with the Company", as defined herein. For purposes of this Agreement, "Competition with the Company" means the direct or indirect, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) entering into or engaging in any aspect or form of business, within the State of Florida or in any other state in which RISCORP maintains an office and is then doing business, relating to workers' compensation insurance (either public or private), government fund insurance, or any form of self-insurance (either public or private) or participate in any business that is in competition in any manner whatsoever with the business of RISCORP. During the Employee's employment with RISCORP, the Employee will report in writing to the Vice President of Human Resources the Employee's knowledge, regardless of the manner in which that knowledge is obtained, of the misuse or disclosure of Confidential Information by any other RISCORP employee. 7 8 (e) If the Employee is unsure whether certain information is Confidential Information under the terms of this Agreement, the Employee will request clarification in writing from the Vice President of Human Resources. (f) The Employee acknowledges that upon termination of the Employee's employment with RISCORP, the Employee shall inform any subsequent employers of the existence of all the terms and conditions included in Section 8 of this Agreement. (g) Upon termination of the Employee's employment, the Employee shall not, directly or indirectly, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) solicit or conduct any form of business activity with, whether for present or future monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of this Agreement, "Customer" means any person, entity or groups of persons or entities that in any way broker, purchase or consume any service or product of RISCORP as of the date of the termination of the Employee's employment and within a period of one (1) year prior to said date of termination. (h) Upon termination of the Employee's employment, and for a period of twenty-four (24) continuous months thereafter, the Employee shall not engage in Competition with the Company. (i) The Employee recognizes that RISCORP has made substantial investments of time and money to recruit, hire and train its other employees. Therefore, the Employee shall not, either during the Term of this Agreement and for a period of twelve (12) continuous months after the date of termination of the Employee's employment hereunder, recruit or hire any other employee of RISCORP, or encourage any other employee to terminate his employment with RISCORP. (j) The Employee acknowledges and agrees that if his business activity or association with any partnership or corporation is enjoined in accordance with the time and geographic limitations described above, that it will not affect the public health, safety or welfare of the community covered by the restrictive covenant. This covenant on the part of the Employee shall be construed as an agreement. (k) The existence of any claim or cause of action of the Employee against RISCORP arising out of the other Sections of this Agreement or otherwise shall not constitute a defense to the enforcement by RISCORP of this covenant or be construed as a basis for not enforcing the covenants contained in this Section 8. (l) It is agreed by the parties hereto that if any portion of the above covenant not-to-compete is held to be unreasonable, arbitrary, against public policy, or for any other 8 9 reason unenforceable, the covenant herein shall be considered diminishable both as to time and geographic area; and each month for the specified period shall be deemed a separate period of time, and the covenant not-to-compete shall remain effective so long as the same is not unreasonable, arbitrary or against public policy. The parties hereto agree that in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser period or geographic area which is determined to be reasonable, nonarbitrary and not against public policy shall be enforced against the Employee. (m) The Employee acknowledges that a violation of the terms of this Section 8, including without limitation, a violation of any of Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP, and the remedy at law will be inadequate. Accordingly, the Employee hereby consents to RISCORP's entering of an injunction to enforce this covenant, in addition to any other rights and remedies RISCORP may have, at law or in equity. Further, the Employee hereby waives the necessity of the posting of a bond in the event RISCORP seeks a temporary injunction. (n) In the event that RISCORP, or its successors in interest make application to a court of competent jurisdiction for injunctive relief, the twenty-six (24) month period of time specified in Section 8(h) shall be tolled for a period of time from the commencement of the acts by the Employee which create the claim for injunctive relief, and terminating with the date of final adjudication of the claim for injunctive relief, if granted. (o) It is further agreed that all of the above-described covenants contained in this Section 8 and all provisions relating thereto shall survive the termination of this Agreement. 9. ARBITRATION. The Employee and RISCORP agree that any dispute or disagreement arising under this Agreement, any dispute or disagreement regarding the interpretation or application of the language contained in this Agreement, or any dispute or disagreement concerning the employment relationship between the Employee and RISCORP or the termination thereof, will be subject to final and binding arbitration conducted under the Employment Rules and Procedures of the American Arbitration Association. Whichever party desires to invoke this paragraph must do so by providing written notice by U.S. Mail certified, return receipt requested, to the other party at the last known residential address of the Employee, or at the principal business address of RISCORP, respectively, within thirty (30) days of the occurrence of the incident about which there is a dispute or disagreement, or within thirty (30) days of the termination of employment, whichever is applicable. The parties agree to request a panel of five (5) arbitrators, and to engage in respective strikes until one (1) arbitrator remains. The expenses of the arbitration, including the arbitrator's fee, will be shared equally between the Employee and RISCORP. 10. WAIVER OF BREACH. It is agreed that failure on the part of one party to this Agreement to seek to enforce the Agreement as to a specific breach will not constitute a waiver 9 10 by that party of its or his right to enforce the Agreement as to similar or other breaches of the Agreement thereafter. 11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto. RISCORP shall take whatever additional actions that may be necessary or appropriate to carry out its obligations under this Agreement to permit the Employee to enforce his rights and benefits hereunder, including any actions required under applicable law, obtaining resolutions of its Board of Directors or shareholders authorizing this Agreement, or, where it may be required by any agreements or any other commitments to which RISCORP or its subsidiaries may be a party, gaining any required consent from the other parties thereto. 12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor any of the rights or obligations hereunder may be assigned or delegated by the Employee; provided, however, that this Agreement and all rights and benefits of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, estate, executors, administrators, heirs and beneficiaries. All amounts payable to the Employee under this Agreement if the Employee had lived shall be paid, in the event of the Employee's death, to such beneficiary(ies) as the Employee specifies in writing from time to time, or if none, to the Employee's successor trustee under his revocable living trust agreement, or if such trust is not then existing, then to the personal representative of his estate. If RISCORP sells, assigns or transfers a majority of its business and assets to any person, or if RISCORP merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, or if a Change of Control occurs, then RISCORP shall assign all of its right, title and interest in this Agreement as of the date of such event to the acquiring or successor business entity, and such entity shall assume and perform all of the terms, conditions and provisions imposed by this Agreement upon RISCORP. In case of such assignment by RISCORP and of assumption and agreement by such entity, all further rights as well as all other obligations of RISCORP under this Agreement thenceforth shall cease and terminate and thereafter the expression "RISCORP" wherever used herein shall be deemed to mean such entity. RISCORP will take whatever actions are necessary to assure that such acquiring or successor entity expressly assumes the obligations of RISCORP to Employee under this Agreement and will cause such successor entity to evidence the assumption of such obligations in an agreement satisfactory to the Employee. 13. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 14. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to the employment of the Employee by RISCORP. There are no restrictions, 10 11 agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes and terminates all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of the Employee by RISCORP. 15. NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee to: James A. Malone 625 Freeling Drive Sarasota, FL 34242 If to RISCORP to: RISCORP MANAGEMENT SERVICES, INC. 1390 Main Street Sarasota, Florida 34230 Attention: President or to such other address as the Employee or RISCORP shall designate in writing in accordance with this Section 15, except that notices regarding changes in address shall be effective only upon receipt. 16. HEADINGS. Headings to sections in this Agreement are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida without reference to the principles of conflict of laws. The parties hereto consent to the jurisdiction of the federal and state courts of the State of Florida in connection with any claim or controversy arising out of or connected with this Agreement. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. RISCORP MANAGEMENT SERVICES, INC. By: ---------------------------------- Title: Chairman of the Board and CEO ------------------------------ ------------------------------------- Employee JAMES A. MALONE ------------------------------------- (Print Name) 12 EX-10.66 3 EMPLOYMENT AGREEMENT 1 Exhibit 10.66 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into and is effective as of the 6th day of January, 1997, ("Effective Date"), by and between THOMAS S. HALL (the "Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for itself and on behalf of RISCORP, Inc., a Florida corporation, and its subsidiaries (collectively referred to as "RISCORP"). W I T N E S S E T H: WHEREAS, RISCORP engages in the business of managed care workers compensation insurance and related businesses; and WHEREAS, RISCORP desires to continue to employ the Employee and to enter into an agreement embodying the terms of such employment, and the Employee desires to continue such employment provided certain additional terms and conditions are added to his former employment agreement, and both parties desire to enter into this new employment agreement to include such additional terms and conditions; and WHEREAS, both parties acknowledge the respective advantages, benefits, and other valuable considerations to be realized by then by virtue of such a relationship; THEREFORE, in light of the foregoing and in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. (a) As of the Effective Date, the Employee shall continue to serve as Senior Vice President - Corporate Development. The Employee shall continue to have such duties and responsibilities as are consistent with such position or as may be set forth from time to time by RISCORP in a written job description or list of duties. (b) The Employee, so long as he is employed hereunder, shall devote his full time to the services required of him hereunder, except as otherwise agreed, and for paid personal time of four (4) weeks during the 12-month period following the Effective Date (which shall accrue ratably beginning as of the first day of such 12-month period), to be used for vacation and absences due to sickness, personal injury or other disability. 2. TERM. The term of the Employee's employment under this Agreement shall be for a term of one (1) year from the Effective Date and shall automatically renew thereafter for successive one (1) year periods unless terminated as hereinafter provided (the "Term of this Agreement"). 2 3. COMPENSATION. (a) Base Salary. Except as otherwise provided in Section 7 hereof, RISCORP shall pay the Employee as annual base salary during the Term of this Agreement, in equal installments no less frequently than monthly, an amount equal to $225,000 which may be increased from time to time by RISCORP during the Term of this Agreement (the "Base Salary"). (b) Bonus. During the Term of this Agreement, the Employee shall be entitled to participate in such bonus plans or programs which cover the Employee as RISCORP may implement from time to time. (c) Options. During the term of this Agreement the employee shall be entitled to continue participating in the RISCORP, Inc. 1995 Non-Qualified Stock Option Plan and any successor option plans or other programs relating to any type of ownership or equivalent interests in RISCORP, Inc., any of its subsidiaries, or any successor entity(ies), which covers other employees of such entities, as RISCORP, Inc. or such other entities may implement from time to time, or which may be substituted for the existing option plan. The Employee's participation shall be in accordance with the terms and conditions of such plan(s). 4. BENEFITS. During the Term of this Agreement, the Employee shall be entitled to participate in or receive benefits under any employee benefit plan (other than any bonus plan that may not be available to RISCORP employees generally), arrangement or perquisite made available by RISCORP now or in the future to its similarly situated executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, arrangements and perquisites. 5. DUTIES OF THE EMPLOYEE. (a) The Employee is employed by RISCORP in an executive or professional capacity, and shall be subject to the direction and control of the Board of Directors of RISCORP, or such officers of RISCORP designated by its Board of Directors from time to time. Subject to such direction and control, the Employee shall provide all of the services generally associated with and inherent in and consistent with any office to which he is appointed by RISCORP. (b) The Employee shall perform such other and further services as may reasonably be required by RISCORP, including carrying out all of the policies and directives of RISCORP. (c) The Employee shall well and faithfully serve RISCORP in the capacities as aforesaid, and shall at all times devote his full time, best efforts, skills, attention and energies to performance of the duties hereunder to the utmost of the Employee's ability, and shall do and 2 3 perform all such services, acts, and things connected therewith as are reasonably required and as RISCORP (through its Board and/or designated officers) shall from time to time direct. The Employee shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on RISCORP or its respective business, or conflict with his services to RISCORP. Nothing contained herein shall be construed to limit or restrict the passive investment or passive business activities of the Employee that do not interfere with his obligations hereunder. 6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood and agreed that the Employee will serve in a fiduciary capacity to RISCORP and, as such, will comply with the standards applicable to fiduciaries, and will also comply with the integrity code and other policies and standards applicable to similarly situated employees of RISCORP. 7. TERMINATION. (a) Either the Employee or RISCORP may at any time terminate the Employee's employment under this Agreement. (b)(1) If the Employee's employment is terminated by RISCORP for other than Cause, as hereinafter defined, or the Employee voluntarily terminates his employment for Good Reason, as hereinafter defined, then RISCORP shall pay to the Employee an amount equal to one (1) year of the Employee's Base Salary $225,000 or the Employee's Base Salary which is in effect on the effective date of termination, payable without interest in twelve (12) equal monthly installments commencing within thirty (30) days of the date of termination. (b)(2) Notwithstanding anything in subsection (b)(1) to the contrary, if the Employee's employment is terminated within two (2) years following a Change of Control (i) by RISCORP other than for Cause, death or disability, or (ii) by the Employee for Good Reason, then the following shall apply: (i) Within five (5) days of the Employee's termination, the Employee shall be entitled to receive an amount equal to three (3) times his Base Salary. Such total amount shall be paid in a lump sum within such five (5) day period or in equal monthly installments, at the election of the Employee (which shall be made within such five (5) day period). (ii) The Employee shall be entitled to receive outplacement services from Drake, Beam & Morin or a comparable agency acceptable to the Employee until the earlier of twelve (12) months from the date of termination, or until the Employee secures a other employment. (iii) It is the intention of RISCORP and the Employee that no portion to or for the benefit of the Employee under any form of compensation agreement or plan, be deemed to be an "excess parachute payment" as defined in Section 280G of the Internal Revenue 3 4 Code of 1986, as amended (the "Code"). Accordingly, if the payments under this Section 7(b)(2) would create an excess parachute payment, it is agreed that the amounts to be received hereunder and any other payments to or for the benefit of the Employee in the nature of compensation ("Total Payments") shall be reduced to equal one dollar less than the 280G Limit, as hereinafter defined. Within 60 days of the Employee's termination hereunder, the Employee and RISCORP shall obtain the opinion of such legal counsel and/or certified public accountants as the Employee and RISCORP may mutually agree upon, which sets forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the Code and (B) the present value of aggregate Total Payments and (C) the extent, if any, to which the Total Payments must be reduced to avid any excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provisions are repealed without a successor provision, this Subsection (iv) shall be of no further force and effect. (c) If, during the Term of this Agreement a Potential Change of Control, as defined herein, occurs, and the Employee's employment is terminated within a period of 120 days before or after the occurrence of such Potential Change of Control (A) by RISCORP other than for Cause, death or disability, or (B) by the Employee for Good Reason, then for purposes of this Agreement, a Change of Control shall be deemed to have occurred during the term of this Agreement and the termination of the Employee's employment shall be deemed to have occurred following the Change of Control and the Employee shall nonetheless be entitled to the termination benefits provided in Section 7(b)(2) above. (d) Except to the extent the Change of Control and Potential Change of Control provisions set forth above would apply, in the event the Employee voluntarily terminates his employment for other than Good Reason, resigns, dies, or his employment terminates due to disability, or if RISCORP terminates the Employee's employment for Cause, then RISCORP shall pay to the Employee, within thirty (30) days of the date of such termination, a lump sum payment equal to the portion of his Base Salary accrued through the date his employment terminates. (e) It is agreed that upon and after termination of Employee's employment under this Agreement, neither RISCORP nor the Employee will disparage each other, nor will any public announcements, public statements or press releases be issued concerning the departure of the Employee unless such statement is issued jointly and by mutual agreement. (f) For purposes of this Agreement, the term "Cause" means any of the following: (i) the willful failure by the Employee substantially to perform his duties hereunder, the Employee's substantial neglect of his duties hereunder or the material breach of any other provision of this Agreement by the Employee; (ii) any act of fraud, misappropriation, dishonesty or embezzlement, any immoral act, any act of insubordination or similar conduct, as determined by RISCORP; or 4 5 (iii) conviction of the Employee for a felony, any crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the conviction of the Employee for a misdemeanor, excluding traffic violations. (g) For purposes of this Agreement, the term "Change of Control" means any of the following events: (i) a dissolution, liquidation, merger, consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii) sale or transfer (other than as security for corporate obligations) of at least a majority of the assets of RISCORP, Inc. in one or more related transactions; (iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving more than 50% of the issued and outstanding stock (initially determined as of September 30, 1996, and irrespective of whether such percentage change is based on voting or economic interests and irrespective of whether the ownership shift occurs as the result of the issuance of new securities by RISCORP, Inc. or its subsidiaries; provided that sales of the public float stock in the ordinary course shall be disregarded for this purpose) in a single transaction or in a series of related transactions (for this purpose any stock options, {excluding employee stock options granted to existing employees of RISCORP, Inc.}, warrants, debentures or other securities or agreements which are convertible into stock of RISCORP, Inc. or its subsidiaries, and which are issued by RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised on the date of its issuance to the fullest extent possible and for the maximum number of shares permitted thereunder); (iv) any transaction of the kind described in subsection (g)(iii) involving stock (or the stock equivalents described therein) of RISCORP Management Services, Inc., or any insurance company or operating subsidiary of RISCORP, Inc.); or (v) individuals who constitute the Board of Directors of RISCORP, Inc. on December 15, 1996 ("Incumbent Board") have ceased for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to December 15, 1996 whose election or nomination for election by RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of RISCORP in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. (h) For purposes of this Agreement, the term "Good Reason" means material modification of the Employee's compensation or the nature of the Employee's duties or the scope of the Employee's responsibilities are materially modified without the Employees' prior written consent. (i) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary or an affiliate controlled by the same shareholders controlling RISCORP, Inc. enters into an agreement, the consummation of which would result in the occurrence of a Change of Control or (ii) the Board of Directors of RISCORP, Inc. or a subsidiary adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 5 6 (j) For purposes of this Agreement, the term "280G Limit" means the maximum amount which the Employee may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision (currently three times the base amount of the Employee, as defined in Section 280G(b)(3) of the Code). (k) Notwithstanding any provision to the contrary in this Section 7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or 7(c) of this Agreement, and the Employee enters into "Competition with the Company," as defined in Section 8 hereof, at any time within the twenty-four (24) months following such termination, then: (i) RISCORP shall have no further obligation to make installment payments to the Employee if so elected, and (ii) the Employee shall be obligated to repay all amounts received under Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section 7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for the non- competition covenant contained in Section 8(h) of the Agreement and shall not be deemed "parachute payments" within the meaning of Section 280G of the Code. 8. CONFIDENTIALITY AND NON-COMPETITION. In consideration of the Employee's employment with RISCORP, Employee agrees to the following: (a) The Employee will not use or disclose to others at any time, either during or after employment with RISCORP, any Trade Secrets or other Confidential Information, as hereinafter defined, about RISCORP's business or any of RISCORP's proprietary rights, except as required in the ordinary course of performing employment duties of RISCORP. (i) As used in this Agreement, Trade Secrets include, but are not limited to, (A) Trademarks; (B) Trade names; (C) Copyrights; (D) Information services system products, whether they are particular to RISCORP or derivative to licensed products acquired or used by RISCORP; (E) Employee lists; (F) Product and project information; (G) Policyholder, customer and account lists; (H) Agents lists and agreements; (I) Societies and associations lists; (J) Vendor and provider lists or agreements; 6 7 (K) Physician and medical personnel lists, medical facilities lists, medical facilities lists; ambulatory care center lists, clinics or laboratory lists; and (L) Business and marketing plans or reports. (ii) As used in this Agreement, Confidential Information includes, but is not limited to that information designated as confidential, proprietary or privileged in RISCORP'S Integrity Code, confidentiality policies and other human resource materials. (b) Upon termination of his employment, the Employee will deliver to RISCORP all copies of all documents or papers (including diskettes or other medium for electronic storage of information) relating to RISCORP's business or such Trade Secrets or Confidential Information that are in the Employee's possession or under the Employee's control, without making copies or summaries of any such material. (c) Any inventions, proprietary information, or discoveries, whether or not patentable or copyrightable, resulting from any work the Employee does (alone or with others) as an employee of RISCORP shall be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive property. The Employee hereby assigns to RISCORP any rights the Employee may have or acquire in such property and shall sign and deliver at any time any instruments confirming the exclusive ownership by RISCORP. All inventions, proprietary information, or discoveries that belonged to the Employee before being employed by RISCORP, and which the Employee wants to exempt from this Agreement, if any, are listed in an attached schedule. (d) During the Term of this Agreement, the Employee shall not engage in "Competition with the Company", as defined herein. For purposes of this Agreement, "Competition with the Company" means the direct or indirect, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) entering into or engaging in any aspect or form of business, within the State of Florida or in any other state in which RISCORP maintains an office and is then doing business, relating to workers' compensation insurance (either public or private), government fund insurance, or any form of self-insurance (either public or private) or participate in any business that is in competition in any manner whatsoever with the business of RISCORP. During the Employee's employment with RISCORP, the Employee will report in writing to the Vice President of Human Resources the Employee's knowledge, regardless of the manner in which that knowledge is obtained, of the misuse or disclosure of Confidential Information by any other RISCORP employee. 7 8 (e) If the Employee is unsure whether certain information is Confidential Information under the terms of this Agreement, the Employee will request clarification in writing from the Vice President of Human Resources. (f) The Employee acknowledges that upon termination of the Employee's employment with RISCORP, the Employee shall inform any subsequent employers of the existence of all the terms and conditions included in Section 8 of this Agreement. (g) Upon termination of the Employee's employment, the Employee shall not, directly or indirectly, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) solicit or conduct any form of business activity with, whether for present or future monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of this Agreement, "Customer" means any person, entity or groups of persons or entities that in any way broker, purchase or consume any service or product of RISCORP as of the date of the termination of the Employee's employment and within a period of one (1) year prior to said date of termination. (h) Upon termination of the Employee's employment, and for a period of twenty-four (24) continuous months thereafter, the Employee shall not engage in Competition with the Company. (i) The Employee recognizes that RISCORP has made substantial investments of time and money to recruit, hire and train its other employees. Therefore, the Employee shall not, either during the Term of this Agreement and for a period of twelve (12) continuous months after the date of termination of the Employee's employment hereunder, recruit or hire any other employee of RISCORP, or encourage any other employee to terminate his employment with RISCORP. (j) The Employee acknowledges and agrees that if his business activity or association with any partnership or corporation is enjoined in accordance with the time and geographic limitations described above, that it will not affect the public health, safety or welfare of the community covered by the restrictive covenant. This covenant on the part of the Employee shall be construed as an agreement. (k) The existence of any claim or cause of action of the Employee against RISCORP arising out of the other Sections of this Agreement or otherwise shall not constitute a defense to the enforcement by RISCORP of this covenant or be construed as a basis for not enforcing the covenants contained in this Section 8. (l) It is agreed by the parties hereto that if any portion of the above covenant not-to-compete is held to be unreasonable, arbitrary, against public policy, or for any other 8 9 reason unenforceable, the covenant herein shall be considered diminishable both as to time and geographic area; and each month for the specified period shall be deemed a separate period of time, and the covenant not-to-compete shall remain effective so long as the same is not unreasonable, arbitrary or against public policy. The parties hereto agree that in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser period or geographic area which is determined to be reasonable, nonarbitrary and not against public policy shall be enforced against the Employee. (m) The Employee acknowledges that a violation of the terms of this Section 8, including without limitation, a violation of any of Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP, and the remedy at law will be inadequate. Accordingly, the Employee hereby consents to RISCORP's entering of an injunction to enforce this covenant, in addition to any other rights and remedies RISCORP may have, at law or in equity. Further, the Employee hereby waives the necessity of the posting of a bond in the event RISCORP seeks a temporary injunction. (n) In the event that RISCORP, or its successors in interest make application to a court of competent jurisdiction for injunctive relief, the twenty-six (24) month period of time specified in Section 8(h) shall be tolled for a period of time from the commencement of the acts by the Employee which create the claim for injunctive relief, and terminating with the date of final adjudication of the claim for injunctive relief, if granted. (o) It is further agreed that all of the above-described covenants contained in this Section 8 and all provisions relating thereto shall survive the termination of this Agreement. 9. ARBITRATION. The Employee and RISCORP agree that any dispute or disagreement arising under this Agreement, any dispute or disagreement regarding the interpretation or application of the language contained in this Agreement, or any dispute or disagreement concerning the employment relationship between the Employee and RISCORP or the termination thereof, will be subject to final and binding arbitration conducted under the Employment Rules and Procedures of the American Arbitration Association. Whichever party desires to invoke this paragraph must do so by providing written notice by U.S. Mail certified, return receipt requested, to the other party at the last known residential address of the Employee, or at the principal business address of RISCORP, respectively, within thirty (30) days of the occurrence of the incident about which there is a dispute or disagreement, or within thirty (30) days of the termination of employment, whichever is applicable. The parties agree to request a panel of five (5) arbitrators, and to engage in respective strikes until one (1) arbitrator remains. The expenses of the arbitration, including the arbitrator's fee, will be shared equally between the Employee and RISCORP. 10. WAIVER OF BREACH. It is agreed that failure on the part of one party to this Agreement to seek to enforce the Agreement as to a specific breach will not constitute a waiver 9 10 by that party of its or his right to enforce the Agreement as to similar or other breaches of the Agreement thereafter. 11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto. RISCORP shall take whatever additional actions that may be necessary or appropriate to carry out its obligations under this Agreement to permit the Employee to enforce his rights and benefits hereunder, including any actions required under applicable law, obtaining resolutions of its Board of Directors or shareholders authorizing this Agreement, or, where it may be required by any agreements or any other commitments to which RISCORP or its subsidiaries may be a party, gaining any required consent from the other parties thereto. 12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor any of the rights or obligations hereunder may be assigned or delegated by the Employee; provided, however, that this Agreement and all rights and benefits of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, estate, executors, administrators, heirs and beneficiaries. All amounts payable to the Employee under this Agreement if the Employee had lived shall be paid, in the event of the Employee's death, to such beneficiary(ies) as the Employee specifies in writing from time to time, or if none, to the Employee's successor trustee under his revocable living trust agreement, or if such trust is not then existing, then to the personal representative of his estate. If RISCORP sells, assigns or transfers a majority of its business and assets to any person, or if RISCORP merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, or if a Change of Control occurs, then RISCORP shall assign all of its right, title and interest in this Agreement as of the date of such event to the acquiring or successor business entity, and such entity shall assume and perform all of the terms, conditions and provisions imposed by this Agreement upon RISCORP. In case of such assignment by RISCORP and of assumption and agreement by such entity, all further rights as well as all other obligations of RISCORP under this Agreement thenceforth shall cease and terminate and thereafter the expression "RISCORP" wherever used herein shall be deemed to mean such entity. RISCORP will take whatever actions are necessary to assure that such acquiring or successor entity expressly assumes the obligations of RISCORP to Employee under this Agreement and will cause such successor entity to evidence the assumption of such obligations in an agreement satisfactory to the Employee. 13. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 14. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to the employment of the Employee by RISCORP. There are no restrictions, 10 11 agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes and terminates all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of the Employee by RISCORP. 15. NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee to: Thomas S. Hall 7698 Albert Tillinghast Drive Sarasota, FL 34240 If to RISCORP to: RISCORP MANAGEMENT SERVICES, INC. 1390 Main Street Sarasota, Florida 34230 Attention: President or to such other address as the Employee or RISCORP shall designate in writing in accordance with this Section 15, except that notices regarding changes in address shall be effective only upon receipt. 16. HEADINGS. Headings to sections in this Agreement are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida without reference to the principles of conflict of laws. The parties hereto consent to the jurisdiction of the federal and state courts of the State of Florida in connection with any claim or controversy arising out of or connected with this Agreement. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. RISCORP MANAGEMENT SERVICES, INC. By: ---------------------------------- Title: Chairman of the Board and CEO ------------------------------ ------------------------------------- Employee THOMAS S. HALL ------------------------------------- (Print Name) 12 EX-10.67 4 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.67 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into and is effective as of the 6th day of January, 1997, ("Effective Date"), by and between STEVEN J. BERLING (the "Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for itself and on behalf of RISCORP, Inc., a Florida corporation, and its subsidiaries (collectively referred to as "RISCORP"). W I T N E S S E T H: WHEREAS, RISCORP engages in the business of managed care workers compensation insurance and related businesses; and WHEREAS, RISCORP desires to continue to employ the Employee and to enter into an agreement embodying the terms of such employment, and the Employee desires to continue such employment provided certain additional terms and conditions are added to his former employment agreement, and both parties desire to enter into this new employment agreement to include such additional terms and conditions; and WHEREAS, both parties acknowledge the respective advantages, benefits, and other valuable considerations to be realized by then by virtue of such a relationship; THEREFORE, in light of the foregoing and in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. (a) As of the Effective Date, the Employee shall continue to serve as President Health Services Group. The Employee shall continue to have such duties and responsibilities as are consistent with such position or as may be set forth from time to time by RISCORP in a written job description or list of duties. (b) The Employee, so long as he is employed hereunder, shall devote his full time to the services required of him hereunder, except as otherwise agreed, and for paid personal time of four (4) weeks during the 12-month period following the Effective Date (which shall accrue ratably beginning as of the first day of such 12-month period), to be used for vacation and absences due to sickness, personal injury or other disability. 2. TERM. The term of the Employee's employment under this Agreement shall be for a term of one (1) year from the Effective Date and shall automatically renew thereafter for successive one (1) year periods unless terminated as hereinafter provided (the "Term of this Agreement"). 2 3. COMPENSATION. (a) Base Salary. Except as otherwise provided in Section 7 hereof, RISCORP shall pay the Employee as annual base salary during the Term of this Agreement, in equal installments no less frequently than monthly, an amount equal to salary~, which may be increased from time to time by RISCORP during the Term of this Agreement (the "Base Salary"). (b) Bonus. During the Term of this Agreement, the Employee shall be entitled to participate in such bonus plans or programs which cover the Employee as RISCORP may implement from time to time. (c) Options. During the term of this Agreement the employee shall be entitled to continue participating in the RISCORP, Inc. 1995 Non-Qualified Stock Option Plan and any successor option plans or other programs relating to any type of ownership or equivalent interests in RISCORP, Inc., any of its subsidiaries, or any successor entity(ies), which covers other employees of such entities, as RISCORP, Inc. or such other entities may implement from time to time, or which may be substituted for the existing option plan. The Employee's participation shall be in accordance with the terms and conditions of such plan(s). 4. BENEFITS. During the Term of this Agreement, the Employee shall be entitled to participate in or receive benefits under any employee benefit plan (other than any bonus plan that may not be available to RISCORP employees generally), arrangement or perquisite made available by RISCORP now or in the future to its similarly situated executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, arrangements and perquisites. 5. DUTIES OF THE EMPLOYEE. (a) The Employee is employed by RISCORP in an executive or professional capacity, and shall be subject to the direction and control of the Board of Directors of RISCORP, or such officers of RISCORP designated by its Board of Directors from time to time. Subject to such direction and control, the Employee shall provide all of the services generally associated with and inherent in and consistent with any office to which he is appointed by RISCORP. (b) The Employee shall perform such other and further services as may reasonably be required by RISCORP, including carrying out all of the policies and directives of RISCORP. (c) The Employee shall well and faithfully serve RISCORP in the capacities as aforesaid, and shall at all times devote his full time, best efforts, skills, attention and energies to performance of the duties hereunder to the utmost of the Employee's ability, and shall do and 2 3 perform all such services, acts, and things connected therewith as are reasonably required and as RISCORP (through its Board and/or designated officers) shall from time to time direct. The Employee shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on RISCORP or its respective business, or conflict with his services to RISCORP. Nothing contained herein shall be construed to limit or restrict the passive investment or passive business activities of the Employee that do not interfere with his obligations hereunder. 6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood and agreed that the Employee will serve in a fiduciary capacity to RISCORP and, as such, will comply with the standards applicable to fiduciaries, and will also comply with the integrity code and other policies and standards applicable to similarly situated employees of RISCORP. 7. TERMINATION. (a) Either the Employee or RISCORP may at any time terminate the Employee's employment under this Agreement. (b)(1) If the Employee's employment is terminated by RISCORP for other than Cause, as hereinafter defined, or the Employee voluntarily terminates his employment for Good Reason, as hereinafter defined, then RISCORP shall pay to the Employee an amount equal to one (1) year of the Employee's Base Salary (salary~), or the Employee's Base Salary which is in effect on the effective date of termination, payable without interest in twelve (12) equal monthly installments commencing within thirty (30) days of the date of termination. (b)(2) Notwithstanding anything in subsection (b)(1) to the contrary, if the Employee's employment is terminated within two (2) years following a Change of Control (i) by RISCORP other than for Cause, death or disability, or (ii) by the Employee for Good Reason, then the following shall apply: (i) Within five (5) days of the Employee's termination, the Employee shall be entitled to receive an amount equal to three (3) times his Base Salary. Such total amount shall be paid in a lump sum within such five (5) day period or in equal monthly installments, at the election of the Employee (which shall be made within such five (5) day period). (ii) The Employee shall be entitled to receive outplacement services from Drake, Beam & Morin or a comparable agency acceptable to the Employee until the earlier of twelve (12) months from the date of termination, or until the Employee secures a other employment. (iii) It is the intention of RISCORP and the Employee that no portion to or for the benefit of the Employee under any form of compensation agreement or plan, be deemed to be an "excess parachute payment" as defined in Section 280G of the Internal Revenue 3 4 Code of 1986, as amended (the "Code"). Accordingly, if the payments under this Section 7(b)(2) would create an excess parachute payment, it is agreed that the amounts to be received hereunder and any other payments to or for the benefit of the Employee in the nature of compensation ("Total Payments") shall be reduced to equal one dollar less than the 280G Limit, as hereinafter defined. Within 60 days of the Employee's termination hereunder, the Employee and RISCORP shall obtain the opinion of such legal counsel and/or certified public accountants as the Employee and RISCORP may mutually agree upon, which sets forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the Code and (B) the present value of aggregate Total Payments and (C) the extent, if any, to which the Total Payments must be reduced to avid any excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provisions are repealed without a successor provision, this Subsection (iv) shall be of no further force and effect. (c) If, during the Term of this Agreement a Potential Change of Control, as defined herein, occurs, and the Employee's employment is terminated within a period of 120 days before or after the occurrence of such Potential Change of Control (A) by RISCORP other than for Cause, death or disability, or (B) by the Employee for Good Reason, then for purposes of this Agreement, a Change of Control shall be deemed to have occurred during the term of this Agreement and the termination of the Employee's employment shall be deemed to have occurred following the Change of Control and the Employee shall nonetheless be entitled to the termination benefits provided in Section 7(b)(2) above. (d) Except to the extent the Change of Control and Potential Change of Control provisions set forth above would apply, in the event the Employee voluntarily terminates his employment for other than Good Reason, resigns, dies, or his employment terminates due to disability, or if RISCORP terminates the Employee's employment for Cause, then RISCORP shall pay to the Employee, within thirty (30) days of the date of such termination, a lump sum payment equal to the portion of his Base Salary accrued through the date his employment terminates. (e) It is agreed that upon and after termination of Employee's employment under this Agreement, neither RISCORP nor the Employee will disparage each other, nor will any public announcements, public statements or press releases be issued concerning the departure of the Employee unless such statement is issued jointly and by mutual agreement. (f) For purposes of this Agreement, the term "Cause" means any of the following: (i) the willful failure by the Employee substantially to perform his duties hereunder, the Employee's substantial neglect of his duties hereunder or the material breach of any other provision of this Agreement by the Employee; (ii) any act of fraud, misappropriation, dishonesty or embezzlement, any immoral act, any act of insubordination or similar conduct, as determined by RISCORP; or 4 5 (iii) conviction of the Employee for a felony, any crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the conviction of the Employee for a misdemeanor, excluding traffic violations. (g) For purposes of this Agreement, the term "Change of Control" means any of the following events: (i) a dissolution, liquidation, merger, consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii) sale or transfer (other than as security for corporate obligations) of at least a majority of the assets of RISCORP, Inc. in one or more related transactions; (iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving more than 50% of the issued and outstanding stock (initially determined as of September 30, 1996, and irrespective of whether such percentage change is based on voting or economic interests and irrespective of whether the ownership shift occurs as the result of the issuance of new securities by RISCORP, Inc. or its subsidiaries; provided that sales of the public float stock in the ordinary course shall be disregarded for this purpose) in a single transaction or in a series of related transactions (for this purpose any stock options, {excluding employee stock options granted to existing employees of RISCORP, Inc.}, warrants, debentures or other securities or agreements which are convertible into stock of RISCORP, Inc. or its subsidiaries, and which are issued by RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised on the date of its issuance to the fullest extent possible and for the maximum number of shares permitted thereunder); (iv) any transaction of the kind described in subsection (g)(iii) involving stock (or the stock equivalents described therein) of RISCORP Management Services, Inc., or any insurance company or operating subsidiary of RISCORP, Inc.); or (v) individuals who constitute the Board of Directors of RISCORP, Inc. on December 15, 1996 ("Incumbent Board") have ceased for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to December 15, 1996 whose election or nomination for election by RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of RISCORP in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. (h) For purposes of this Agreement, the term "Good Reason" means material modification of the Employee's compensation or the nature of the Employee's duties or the scope of the Employee's responsibilities are materially modified without the Employees' prior written consent. (i) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary or an affiliate controlled by the same shareholders controlling RISCORP, Inc. enters into an agreement, the consummation of which would result in the occurrence of a Change of Control or (ii) the Board of Directors of RISCORP, Inc. or a subsidiary adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 5 6 (j) For purposes of this Agreement, the term "280G Limit" means the maximum amount which the Employee may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision (currently three times the base amount of the Employee, as defined in Section 280G(b)(3) of the Code). (k) Notwithstanding any provision to the contrary in this Section 7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or 7(c) of this Agreement, and the Employee enters into "Competition with the Company," as defined in Section 8 hereof, at any time within the twenty-four (24) months following such termination, then: (i) RISCORP shall have no further obligation to make installment payments to the Employee if so elected, and (ii) the Employee shall be obligated to repay all amounts received under Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section 7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for the non-competition covenant contained in Section 8(h) of the Agreement and shall not be deemed "parachute payments" within the meaning of Section 280G of the Code. 8. CONFIDENTIALITY AND NON-COMPETITION. In consideration of the Employee's employment with RISCORP, Employee agrees to the following: (a) The Employee will not use or disclose to others at any time, either during or after employment with RISCORP, any Trade Secrets or other Confidential Information, as hereinafter defined, about RISCORP's business or any of RISCORP's proprietary rights, except as required in the ordinary course of performing employment duties of RISCORP. (i) As used in this Agreement, Trade Secrets include, but are not limited to, (A) Trademarks; (B) Trade names; (C) Copyrights; (D) Information services system products, whether they are particular to RISCORP or derivative to licensed products acquired or used by RISCORP; (E) Employee lists; (F) Product and project information; (G) Policyholder, customer and account lists; (H) Agents lists and agreements; (I) Societies and associations lists; (J) Vendor and provider lists or agreements; 6 7 (K) Physician and medical personnel lists, medical facilities lists, medical facilities lists; ambulatory care center lists, clinics or laboratory lists; and (L) Business and marketing plans or reports. (ii) As used in this Agreement, Confidential Information includes, but is not limited to that information designated as confidential, proprietary or privileged in RISCORP'S Integrity Code, confidentiality policies and other human resource materials. (b) Upon termination of his employment, the Employee will deliver to RISCORP all copies of all documents or papers (including diskettes or other medium for electronic storage of information) relating to RISCORP's business or such Trade Secrets or Confidential Information that are in the Employee's possession or under the Employee's control, without making copies or summaries of any such material. (c) Any inventions, proprietary information, or discoveries, whether or not patentable or copyrightable, resulting from any work the Employee does (alone or with others) as an employee of RISCORP shall be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive property. The Employee hereby assigns to RISCORP any rights the Employee may have or acquire in such property and shall sign and deliver at any time any instruments confirming the exclusive ownership by RISCORP. All inventions, proprietary information, or discoveries that belonged to the Employee before being employed by RISCORP, and which the Employee wants to exempt from this Agreement, if any, are listed in an attached schedule. (d) During the Term of this Agreement, the Employee shall not engage in "Competition with the Company", as defined herein. For purposes of this Agreement, "Competition with the Company" means the direct or indirect, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) entering into or engaging in any aspect or form of business, within the State of Florida or in any other state in which RISCORP maintains an office and is then doing business, relating to workers' compensation insurance (either public or private), government fund insurance, or any form of self-insurance (either public or private) or participate in any business that is in competition in any manner whatsoever with the business of RISCORP. During the Employee's employment with RISCORP, the Employee will report in writing to the Vice President of Human Resources the Employee's knowledge, regardless of the manner in which that knowledge is obtained, of the misuse or disclosure of Confidential Information by any other RISCORP employee. 7 8 (e) If the Employee is unsure whether certain information is Confidential Information under the terms of this Agreement, the Employee will request clarification in writing from the Vice President of Human Resources. (f) The Employee acknowledges that upon termination of the Employee's employment with RISCORP, the Employee shall inform any subsequent employers of the existence of all the terms and conditions included in Section 8 of this Agreement. (g) Upon termination of the Employee's employment, the Employee shall not, directly or indirectly, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) solicit or conduct any form of business activity with, whether for present or future monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of this Agreement, "Customer" means any person, entity or groups of persons or entities that in any way broker, purchase or consume any service or product of RISCORP as of the date of the termination of the Employee's employment and within a period of one (1) year prior to said date of termination. (h) Upon termination of the Employee's employment, and for a period of twenty-four (24) continuous months thereafter, the Employee shall not engage in Competition with the Company. (i) The Employee recognizes that RISCORP has made substantial investments of time and money to recruit, hire and train its other employees. Therefore, the Employee shall not, either during the Term of this Agreement and for a period of twelve (12) continuous months after the date of termination of the Employee's employment hereunder, recruit or hire any other employee of RISCORP, or encourage any other employee to terminate his employment with RISCORP. (j) The Employee acknowledges and agrees that if his business activity or association with any partnership or corporation is enjoined in accordance with the time and geographic limitations described above, that it will not affect the public health, safety or welfare of the community covered by the restrictive covenant. This covenant on the part of the Employee shall be construed as an agreement. (k) The existence of any claim or cause of action of the Employee against RISCORP arising out of the other Sections of this Agreement or otherwise shall not constitute a defense to the enforcement by RISCORP of this covenant or be construed as a basis for not enforcing the covenants contained in this Section 8. (l) It is agreed by the parties hereto that if any portion of the above covenant not-to-compete is held to be unreasonable, arbitrary, against public policy, or for any other 8 9 reason unenforceable, the covenant herein shall be considered diminishable both as to time and geographic area; and each month for the specified period shall be deemed a separate period of time, and the covenant not-to-compete shall remain effective so long as the same is not unreasonable, arbitrary or against public policy. The parties hereto agree that in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser period or geographic area which is determined to be reasonable, nonarbitrary and not against public policy shall be enforced against the Employee. (m) The Employee acknowledges that a violation of the terms of this Section 8, including without limitation, a violation of any of Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP, and the remedy at law will be inadequate. Accordingly, the Employee hereby consents to RISCORP's entering of an injunction to enforce this covenant, in addition to any other rights and remedies RISCORP may have, at law or in equity. Further, the Employee hereby waives the necessity of the posting of a bond in the event RISCORP seeks a temporary injunction. (n) In the event that RISCORP, or its successors in interest make application to a court of competent jurisdiction for injunctive relief, the twenty-six (24) month period of time specified in Section 8(h) shall be tolled for a period of time from the commencement of the acts by the Employee which create the claim for injunctive relief, and terminating with the date of final adjudication of the claim for injunctive relief, if granted. (o) It is further agreed that all of the above-described covenants contained in this Section 8 and all provisions relating thereto shall survive the termination of this Agreement. 9. ARBITRATION. The Employee and RISCORP agree that any dispute or disagreement arising under this Agreement, any dispute or disagreement regarding the interpretation or application of the language contained in this Agreement, or any dispute or disagreement concerning the employment relationship between the Employee and RISCORP or the termination thereof, will be subject to final and binding arbitration conducted under the Employment Rules and Procedures of the American Arbitration Association. Whichever party desires to invoke this paragraph must do so by providing written notice by U.S. Mail certified, return receipt requested, to the other party at the last known residential address of the Employee, or at the principal business address of RISCORP, respectively, within thirty (30) days of the occurrence of the incident about which there is a dispute or disagreement, or within thirty (30) days of the termination of employment, whichever is applicable. The parties agree to request a panel of five (5) arbitrators, and to engage in respective strikes until one (1) arbitrator remains. The expenses of the arbitration, including the arbitrator's fee, will be shared equally between the Employee and RISCORP. 10. WAIVER OF BREACH. It is agreed that failure on the part of one party to this Agreement to seek to enforce the Agreement as to a specific breach will not constitute a waiver 9 10 by that party of its or his right to enforce the Agreement as to similar or other breaches of the Agreement thereafter. 11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto. RISCORP shall take whatever additional actions that may be necessary or appropriate to carry out its obligations under this Agreement to permit the Employee to enforce his rights and benefits hereunder, including any actions required under applicable law, obtaining resolutions of its Board of Directors or shareholders authorizing this Agreement, or, where it may be required by any agreements or any other commitments to which RISCORP or its subsidiaries may be a party, gaining any required consent from the other parties thereto. 12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor any of the rights or obligations hereunder may be assigned or delegated by the Employee; provided, however, that this Agreement and all rights and benefits of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, estate, executors, administrators, heirs and beneficiaries. All amounts payable to the Employee under this Agreement if the Employee had lived shall be paid, in the event of the Employee's death, to such beneficiary(ies) as the Employee specifies in writing from time to time, or if none, to the Employee's successor trustee under his revocable living trust agreement, or if such trust is not then existing, then to the personal representative of his estate. If RISCORP sells, assigns or transfers a majority of its business and assets to any person, or if RISCORP merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, or if a Change of Control occurs, then RISCORP shall assign all of its right, title and interest in this Agreement as of the date of such event to the acquiring or successor business entity, and such entity shall assume and perform all of the terms, conditions and provisions imposed by this Agreement upon RISCORP. In case of such assignment by RISCORP and of assumption and agreement by such entity, all further rights as well as all other obligations of RISCORP under this Agreement thenceforth shall cease and terminate and thereafter the expression "RISCORP" wherever used herein shall be deemed to mean such entity. RISCORP will take whatever actions are necessary to assure that such acquiring or successor entity expressly assumes the obligations of RISCORP to Employee under this Agreement and will cause such successor entity to evidence the assumption of such obligations in an agreement satisfactory to the Employee. 13. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 14. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to the employment of the Employee by RISCORP. There are no restrictions, 10 11 agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes and terminates all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of the Employee by RISCORP. 15. NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee to: Steven J. Berling 531 Putting Green Longboat Key, FL 34228 If to RISCORP to: RISCORP MANAGEMENT SERVICES, INC. 1390 Main Street Sarasota, Florida 34230 Attention: President or to such other address as the Employee or RISCORP shall designate in writing in accordance with this Section 15, except that notices regarding changes in address shall be effective only upon receipt. 16. HEADINGS. Headings to sections in this Agreement are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida without reference to the principles of conflict of laws. The parties hereto consent to the jurisdiction of the federal and state courts of the State of Florida in connection with any claim or controversy arising out of or connected with this Agreement. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. RISCORP MANAGEMENT SERVICES, INC. By: --------------------------------- Title: Chairman of the Board and CEO ----------------------------- ____________________________________ Employee STEVEN J. BERLING ------------------------------------ (Print Name) 12 EX-10.68 5 EMPLOYMENT AGREEMENT 1 Exhibit 10.68 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into and is effective as of the 6TH day of January, 1997, ("Effective Date"), by and between FRED A. HUNT (the "Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for itself and on behalf of RISCORP, Inc., a Florida corporation, and its subsidiaries (collectively referred to as "RISCORP"). W I T N E S S E T H: WHEREAS, RISCORP engages in the business of managed care workers compensation insurance and related businesses; and WHEREAS, RISCORP desires to continue to employ the Employee and to enter into an agreement embodying the terms of such employment, and the Employee desires to continue such employment provided certain additional terms and conditions are added to his former employment agreement, and both parties desire to enter into this new employment agreement to include such additional terms and conditions; and WHEREAS, both parties acknowledge the respective advantages, benefits, and other valuable considerations to be realized by then by virtue of such a relationship; THEREFORE, in light of the foregoing and in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. (a) As of the Effective Date, the Employee shall continue to serve as Senior Vice President and President Risk & Insurance Solutions Group. The Employee shall continue to have such duties and responsibilities as are consistent with such position or as may be set forth from time to time by RISCORP in a written job description or list of duties. (b) The Employee, so long as he is employed hereunder, shall devote his full time to the services required of him hereunder, except as otherwise agreed, and for paid personal time of four (4) weeks during the 12-month period following the Effective Date (which shall accrue ratably beginning as of the first day of such 12-month period), to be used for vacation and absences due to sickness, personal injury or other disability. 2. TERM. The term of the Employee's employment under this Agreement shall be for a term of one (1) year from the Effective Date and shall automatically renew thereafter for successive one (1) year periods unless terminated as hereinafter provided (the "Term of this Agreement"). 2 3. COMPENSATION. (a) Base Salary. Except as otherwise provided in Section 7 hereof, RISCORP shall pay the Employee as annual base salary during the Term of this Agreement, in equal installments no less frequently than monthly, an amount equal to $200,000, which may be increased from time to time by RISCORP during the Term of this Agreement (the "Base Salary"). (b) Bonus. During the Term of this Agreement, the Employee shall be entitled to participate in such bonus plans or programs which cover the Employee as RISCORP may implement from time to time. (c) Options. During the term of this Agreement the employee shall be entitled to continue participating in the RISCORP, Inc. 1995 Non-Qualified Stock Option Plan and any successor option plans or other programs relating to any type of ownership or equivalent interests in RISCORP, Inc., any of its subsidiaries, or any successor entity(ies), which covers other employees of such entities, as RISCORP, Inc. or such other entities may implement from time to time, or which may be substituted for the existing option plan. The Employee's participation shall be in accordance with the terms and conditions of such plan(s). 4. BENEFITS. During the Term of this Agreement, the Employee shall be entitled to participate in or receive benefits under any employee benefit plan (other than any bonus plan that may not be available to RISCORP employees generally), arrangement or perquisite made available by RISCORP now or in the future to its similarly situated executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, arrangements and perquisites. 5. DUTIES OF THE EMPLOYEE. (a) The Employee is employed by RISCORP in an executive or professional capacity, and shall be subject to the direction and control of the Board of Directors of RISCORP, or such officers of RISCORP designated by its Board of Directors from time to time. Subject to such direction and control, the Employee shall provide all of the services generally associated with and inherent in and consistent with any office to which he is appointed by RISCORP. (b) The Employee shall perform such other and further services as may reasonably be required by RISCORP, including carrying out all of the policies and directives of RISCORP. (c) The Employee shall well and faithfully serve RISCORP in the capacities as aforesaid, and shall at all times devote his full time, best efforts, skills, attention and energies to performance of the duties hereunder to the utmost of the Employee's ability, and shall do and 2 3 perform all such services, acts, and things connected therewith as are reasonably required and as RISCORP (through its Board and/or designated officers) shall from time to time direct. The Employee shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on RISCORP or its respective business, or conflict with his services to RISCORP. Nothing contained herein shall be construed to limit or restrict the passive investment or passive business activities of the Employee that do not interfere with his obligations hereunder. 6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood and agreed that the Employee will serve in a fiduciary capacity to RISCORP and, as such, will comply with the standards applicable to fiduciaries, and will also comply with the integrity code and other policies and standards applicable to similarly situated employees of RISCORP. 7. TERMINATION. (a) Either the Employee or RISCORP may at any time terminate the Employee's employment under this Agreement. (b)(1) If the Employee's employment is terminated by RISCORP for other than Cause, as hereinafter defined, or the Employee voluntarily terminates his employment for Good Reason, as hereinafter defined, then RISCORP shall pay to the Employee an amount equal to one (1) year of the Employee's Base Salary ($200,000), or the Employee's Base Salary which is in effect on the effective date of termination, payable without interest in twelve (12) equal monthly installments commencing within thirty (30) days of the date of termination. (b)(2) Notwithstanding anything in subsection (b)(1) to the contrary, if the Employee's employment is terminated within two (2) years following a Change of Control (i) by RISCORP other than for Cause, death or disability, or (ii) by the Employee for Good Reason, then the following shall apply: (i) Within five (5) days of the Employee's termination, the Employee shall be entitled to receive an amount equal to three (3) times his Base Salary. Such total amount shall be paid in a lump sum within such five (5) day period or in equal monthly installments, at the election of the Employee (which shall be made within such five (5) day period). (ii) The Employee shall be entitled to receive outplacement services from Drake, Beam & Morin or a comparable agency acceptable to the Employee until the earlier of twelve (12) months from the date of termination, or until the Employee secures a other employment. (iii) It is the intention of RISCORP and the Employee that no portion to or for the benefit of the Employee under any form of compensation agreement or plan, be deemed to be an "excess parachute payment" as defined in Section 280G of the Internal Revenue 3 4 Code of 1986, as amended (the "Code"). Accordingly, if the payments under this Section 7(b)(2) would create an excess parachute payment, it is agreed that the amounts to be received hereunder and any other payments to or for the benefit of the Employee in the nature of compensation ("Total Payments") shall be reduced to equal one dollar less than the 280G Limit, as hereinafter defined. Within 60 days of the Employee's termination hereunder, the Employee and RISCORP shall obtain the opinion of such legal counsel and/or certified public accountants as the Employee and RISCORP may mutually agree upon, which sets forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the Code and (B) the present value of aggregate Total Payments and (C) the extent, if any, to which the Total Payments must be reduced to avid any excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provisions are repealed without a successor provision, this Subsection (iv) shall be of no further force and effect. (c) If, during the Term of this Agreement a Potential Change of Control, as defined herein, occurs, and the Employee's employment is terminated within a period of 120 days before or after the occurrence of such Potential Change of Control (A) by RISCORP other than for Cause, death or disability, or (B) by the Employee for Good Reason, then for purposes of this Agreement, a Change of Control shall be deemed to have occurred during the term of this Agreement and the termination of the Employee's employment shall be deemed to have occurred following the Change of Control and the Employee shall nonetheless be entitled to the termination benefits provided in Section 7(b)(2) above. (d) Except to the extent the Change of Control and Potential Change of Control provisions set forth above would apply, in the event the Employee voluntarily terminates his employment for other than Good Reason, resigns, dies, or his employment terminates due to disability, or if RISCORP terminates the Employee's employment for Cause, then RISCORP shall pay to the Employee, within thirty (30) days of the date of such termination, a lump sum payment equal to the portion of his Base Salary accrued through the date his employment terminates. (e) It is agreed that upon and after termination of Employee's employment under this Agreement, neither RISCORP nor the Employee will disparage each other, nor will any public announcements, public statements or press releases be issued concerning the departure of the Employee unless such statement is issued jointly and by mutual agreement. (f) For purposes of this Agreement, the term "Cause" means any of the following: (i) the willful failure by the Employee substantially to perform his duties hereunder, the Employee's substantial neglect of his duties hereunder or the material breach of any other provision of this Agreement by the Employee; (ii) any act of fraud, misappropriation, dishonesty or embezzlement, any immoral act, any act of insubordination or similar conduct, as determined by RISCORP; or 4 5 (iii) conviction of the Employee for a felony, any crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the conviction of the Employee for a misdemeanor, excluding traffic violations. (g) For purposes of this Agreement, the term "Change of Control" means any of the following events: (i) a dissolution, liquidation, merger, consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii) sale or transfer (other than as security for corporate obligations) of at least a majority of the assets of RISCORP, Inc. in one or more related transactions; (iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving more than 50% of the issued and outstanding stock (initially determined as of September 30, 1996, and irrespective of whether such percentage change is based on voting or economic interests and irrespective of whether the ownership shift occurs as the result of the issuance of new securities by RISCORP, Inc. or its subsidiaries; provided that sales of the public float stock in the ordinary course shall be disregarded for this purpose) in a single transaction or in a series of related transactions (for this purpose any stock options, {excluding employee stock options granted to existing employees of RISCORP, Inc.}, warrants, debentures or other securities or agreements which are convertible into stock of RISCORP, Inc. or its subsidiaries, and which are issued by RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised on the date of its issuance to the fullest extent possible and for the maximum number of shares permitted thereunder); (iv) any transaction of the kind described in subsection (g)(iii) involving stock (or the stock equivalents described therein) of RISCORP Management Services, Inc., or any insurance company or operating subsidiary of RISCORP, Inc.); or (v) individuals who constitute the Board of Directors of RISCORP, Inc. on December 15, 1996 ("Incumbent Board") have ceased for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director subsequent to December 15, 1996 whose election or nomination for election by RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters (3/4) of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of RISCORP in which such person is named as a nominee for director without objection to such nomination) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board. (h) For purposes of this Agreement, the term "Good Reason" means material modification of the Employee's compensation or the nature of the Employee's duties or the scope of the Employee's responsibilities are materially modified without the Employees' prior written consent. (i) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary or an affiliate controlled by the same shareholders controlling RISCORP, Inc. enters into an agreement, the consummation of which would result in the occurrence of a Change of Control or (ii) the Board of Directors of RISCORP, Inc. or a subsidiary adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. 5 6 (j) For purposes of this Agreement, the term "280G Limit" means the maximum amount which the Employee may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision (currently three times the base amount of the Employee, as defined in Section 280G(b)(3) of the Code). (k) Notwithstanding any provision to the contrary in this Section 7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or 7(c) of this Agreement, and the Employee enters into "Competition with the Company," as defined in Section 8 hereof, at any time within the twenty-four (24) months following such termination, then: (i) RISCORP shall have no further obligation to make installment payments to the Employee if so elected, and (ii) the Employee shall be obligated to repay all amounts received under Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section 7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for the non- competition covenant contained in Section 8(h) of the Agreement and shall not be deemed "parachute payments" within the meaning of Section 280G of the Code. 8. CONFIDENTIALITY AND NON-COMPETITION. In consideration of the Employee's employment with RISCORP, Employee agrees to the following: (a) The Employee will not use or disclose to others at any time, either during or after employment with RISCORP, any Trade Secrets or other Confidential Information, as hereinafter defined, about RISCORP's business or any of RISCORP's proprietary rights, except as required in the ordinary course of performing employment duties of RISCORP. (i) As used in this Agreement, Trade Secrets include, but are not limited to, (A) Trademarks; (B) Trade names; (C) Copyrights; (D) Information services system products, whether they are particular to RISCORP or derivative to licensed products acquired or used by RISCORP; (E) Employee lists; (F) Product and project information; (G) Policyholder, customer and account lists; (H) Agents lists and agreements; (I) Societies and associations lists; (J) Vendor and provider lists or agreements; 6 7 (K) Physician and medical personnel lists, medical facilities lists, medical facilities lists; ambulatory care center lists, clinics or laboratory lists; and (L) Business and marketing plans or reports. (ii) As used in this Agreement, Confidential Information includes, but is not limited to that information designated as confidential, proprietary or privileged in RISCORP'S Integrity Code, confidentiality policies and other human resource materials. (b) Upon termination of his employment, the Employee will deliver to RISCORP all copies of all documents or papers (including diskettes or other medium for electronic storage of information) relating to RISCORP's business or such Trade Secrets or Confidential Information that are in the Employee's possession or under the Employee's control, without making copies or summaries of any such material. (c) Any inventions, proprietary information, or discoveries, whether or not patentable or copyrightable, resulting from any work the Employee does (alone or with others) as an employee of RISCORP shall be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive property. The Employee hereby assigns to RISCORP any rights the Employee may have or acquire in such property and shall sign and deliver at any time any instruments confirming the exclusive ownership by RISCORP. All inventions, proprietary information, or discoveries that belonged to the Employee before being employed by RISCORP, and which the Employee wants to exempt from this Agreement, if any, are listed in an attached schedule. (d) During the Term of this Agreement, the Employee shall not engage in "Competition with the Company", as defined herein. For purposes of this Agreement, "Competition with the Company" means the direct or indirect, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) entering into or engaging in any aspect or form of business, within the State of Florida or in any other state in which RISCORP maintains an office and is then doing business, relating to workers' compensation insurance (either public or private), government fund insurance, or any form of self-insurance (either public or private) or participate in any business that is in competition in any manner whatsoever with the business of RISCORP. During the Employee's employment with RISCORP, the Employee will report in writing to the Vice President of Human Resources the Employee's knowledge, regardless of the manner in which that knowledge is obtained, of the misuse or disclosure of Confidential Information by any other RISCORP employee. 7 8 (e) If the Employee is unsure whether certain information is Confidential Information under the terms of this Agreement, the Employee will request clarification in writing from the Vice President of Human Resources. (f) The Employee acknowledges that upon termination of the Employee's employment with RISCORP, the Employee shall inform any subsequent employers of the existence of all the terms and conditions included in Section 8 of this Agreement. (g) Upon termination of the Employee's employment, the Employee shall not, directly or indirectly, on the Employee's own behalf or in the service or on behalf of others as principal, partner, officer, director, managerial employee or shareholder (other than as owner of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are traded or quoted on a national securities market) solicit or conduct any form of business activity with, whether for present or future monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of this Agreement, "Customer" means any person, entity or groups of persons or entities that in any way broker, purchase or consume any service or product of RISCORP as of the date of the termination of the Employee's employment and within a period of one (1) year prior to said date of termination. (h) Upon termination of the Employee's employment, and for a period of twenty-four (24) continuous months thereafter, the Employee shall not engage in Competition with the Company. (i) The Employee recognizes that RISCORP has made substantial investments of time and money to recruit, hire and train its other employees. Therefore, the Employee shall not, either during the Term of this Agreement and for a period of twelve (12) continuous months after the date of termination of the Employee's employment hereunder, recruit or hire any other employee of RISCORP, or encourage any other employee to terminate his employment with RISCORP. (j) The Employee acknowledges and agrees that if his business activity or association with any partnership or corporation is enjoined in accordance with the time and geographic limitations described above, that it will not affect the public health, safety or welfare of the community covered by the restrictive covenant. This covenant on the part of the Employee shall be construed as an agreement. (k) The existence of any claim or cause of action of the Employee against RISCORP arising out of the other Sections of this Agreement or otherwise shall not constitute a defense to the enforcement by RISCORP of this covenant or be construed as a basis for not enforcing the covenants contained in this Section 8. (l) It is agreed by the parties hereto that if any portion of the above covenant not-to-compete is held to be unreasonable, arbitrary, against public policy, or for any other 8 9 reason unenforceable, the covenant herein shall be considered diminishable both as to time and geographic area; and each month for the specified period shall be deemed a separate period of time, and the covenant not-to-compete shall remain effective so long as the same is not unreasonable, arbitrary or against public policy. The parties hereto agree that in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser period or geographic area which is determined to be reasonable, nonarbitrary and not against public policy shall be enforced against the Employee. (m) The Employee acknowledges that a violation of the terms of this Section 8, including without limitation, a violation of any of Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP, and the remedy at law will be inadequate. Accordingly, the Employee hereby consents to RISCORP's entering of an injunction to enforce this covenant, in addition to any other rights and remedies RISCORP may have, at law or in equity. Further, the Employee hereby waives the necessity of the posting of a bond in the event RISCORP seeks a temporary injunction. (n) In the event that RISCORP, or its successors in interest make application to a court of competent jurisdiction for injunctive relief, the twenty-six (24) month period of time specified in Section 8(h) shall be tolled for a period of time from the commencement of the acts by the Employee which create the claim for injunctive relief, and terminating with the date of final adjudication of the claim for injunctive relief, if granted. (o) It is further agreed that all of the above-described covenants contained in this Section 8 and all provisions relating thereto shall survive the termination of this Agreement. 9. ARBITRATION. The Employee and RISCORP agree that any dispute or disagreement arising under this Agreement, any dispute or disagreement regarding the interpretation or application of the language contained in this Agreement, or any dispute or disagreement concerning the employment relationship between the Employee and RISCORP or the termination thereof, will be subject to final and binding arbitration conducted under the Employment Rules and Procedures of the American Arbitration Association. Whichever party desires to invoke this paragraph must do so by providing written notice by U.S. Mail certified, return receipt requested, to the other party at the last known residential address of the Employee, or at the principal business address of RISCORP, respectively, within thirty (30) days of the occurrence of the incident about which there is a dispute or disagreement, or within thirty (30) days of the termination of employment, whichever is applicable. The parties agree to request a panel of five (5) arbitrators, and to engage in respective strikes until one (1) arbitrator remains. The expenses of the arbitration, including the arbitrator's fee, will be shared equally between the Employee and RISCORP. 10. WAIVER OF BREACH. It is agreed that failure on the part of one party to this Agreement to seek to enforce the Agreement as to a specific breach will not constitute a waiver 9 10 by that party of its or his right to enforce the Agreement as to similar or other breaches of the Agreement thereafter. 11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto. RISCORP shall take whatever additional actions that may be necessary or appropriate to carry out its obligations under this Agreement to permit the Employee to enforce his rights and benefits hereunder, including any actions required under applicable law, obtaining resolutions of its Board of Directors or shareholders authorizing this Agreement, or, where it may be required by any agreements or any other commitments to which RISCORP or its subsidiaries may be a party, gaining any required consent from the other parties thereto. 12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor any of the rights or obligations hereunder may be assigned or delegated by the Employee; provided, however, that this Agreement and all rights and benefits of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, estate, executors, administrators, heirs and beneficiaries. All amounts payable to the Employee under this Agreement if the Employee had lived shall be paid, in the event of the Employee's death, to such beneficiary(ies) as the Employee specifies in writing from time to time, or if none, to the Employee's successor trustee under his revocable living trust agreement, or if such trust is not then existing, then to the personal representative of his estate. If RISCORP sells, assigns or transfers a majority of its business and assets to any person, or if RISCORP merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, or if a Change of Control occurs, then RISCORP shall assign all of its right, title and interest in this Agreement as of the date of such event to the acquiring or successor business entity, and such entity shall assume and perform all of the terms, conditions and provisions imposed by this Agreement upon RISCORP. In case of such assignment by RISCORP and of assumption and agreement by such entity, all further rights as well as all other obligations of RISCORP under this Agreement thenceforth shall cease and terminate and thereafter the expression "RISCORP" wherever used herein shall be deemed to mean such entity. RISCORP will take whatever actions are necessary to assure that such acquiring or successor entity expressly assumes the obligations of RISCORP to Employee under this Agreement and will cause such successor entity to evidence the assumption of such obligations in an agreement satisfactory to the Employee. 13. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 14. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to the employment of the Employee by RISCORP. There are no restrictions, 10 11 agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes and terminates all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of the Employee by RISCORP. 15. NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee to: Fred A. Hunt 7580 Alister MacKenzie Drive Sarasota, FL 34240 If to RISCORP to: RISCORP MANAGEMENT SERVICES, INC. 1390 Main Street Sarasota, Florida 34230 Attention: President or to such other address as the Employee or RISCORP shall designate in writing in accordance with this Section 15, except that notices regarding changes in address shall be effective only upon receipt. 16. HEADINGS. Headings to sections in this Agreement are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida without reference to the principles of conflict of laws. The parties hereto consent to the jurisdiction of the federal and state courts of the State of Florida in connection with any claim or controversy arising out of or connected with this Agreement. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. RISCORP MANAGEMENT SERVICES, INC. By: ----------------------------------- Title: Chairman of the Board and CEO ------------------------------- ______________________________________ Employee FRED A. HUNT -------------------------------------- (Print Name) EX-10.69 6 CREDIT AGREEMENT 1 EXHIBIT 10.69 [Execution Copy] CREDIT AGREEMENT Dated as of October 15, 1996 among RISCORP, INC., as Borrower, THE SUBSIDIARIES OF THE BORROWER FROM TIME TO TIME PARTY HERETO, as Guarantors, THE SEVERAL LENDERS FROM TIME TO TIME PARTY HERETO AND NATIONSBANK, N.A. (SOUTH), as Agent 2 TABLE OF CONTENTS SECTION 1 DEFINITIONS............................................ 1 1.2 Definitions............................................ 1 1.2 Computation of Time Periods............................ 25 1.3 Accounting Terms....................................... 25 SECTION 2 CREDIT FACILITIES ..................................... 26 2.1 Revolving Loans ....................................... 26 2.2 Term Loan ............................................. 27 2.3 Interest .............................................. 28 2.4 Committed Notes ....................................... 29 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES ........ 29 3.1 Default Rate .......................................... 29 3.2 Extension and Conversion............................... 29 3.3 Prepayments ........................................... 30 3.4 Termination and Reduction of Revolving Committed Amount................................................. 31 3.5 Fees .................................................. 31 3.6 Capital Adequacy ...................................... 32 3.7 Inability To Determine Interest Rate .................. 32 3.8 Illegality ............................................ 32 3.9 Requirements of Law ................................... 33 3.10 Taxes ................................................. 34 3.11 Indemnity ............................................. 36 3.12 Pro Rata Treatment .................................... 37 3.13 Sharing of Payments ................................... 38 3.14 Payments, Computations, Etc. .......................... 38 3.15 Evidence of Debt ...................................... 40 SECTION 4 GUARANTY .............................................. 41 4.1 The Guarantee ......................................... 41 4.2 Obligations Unconditional ............................. 41 4.3 Reinstatement ......................................... 42 4.4 Remedies .............................................. 43 4.5 Rights of Contribution ................................ 43 4.6 Continuing Guarantee .................................. 44 SECTION 5 CONDITIONS ............................................ 44 5.1 Closing Conditions .................................... 44 5.2 Conditions to all Extensions of Credit ................ 45
- i - 3 SECTION 6 REPRESENTATIONS AND WARRANTIES ........................ 46 6.1 Financial Condition ................................... 46 6.2 No Change; Dividends .................................. 47 6.3 Organization; Existence; Compliance with Law .......... 47 6.4 Power; Authorization; Enforceable Obligations ......... 47 6.5 No Legal Bar .......................................... 48 6.6 No Material Litigation ................................ 48 6.7 No Default ............................................ 48 6.8 Ownership of Property; Liens .......................... 48 6.9 No Burdensome Restrictions ............................ 49 6.10 Taxes ................................................. 49 6.11 ERISA ................................................. 49 6.12 Governmental Regulations, Etc. ........................ 50 6.13 Subsidiaries .......................................... 52 6.14 Purpose of Loans ...................................... 52 6.15 Environmental Matters ................................. 52 6.16 Insurance Policies .................................... 53 SECTION 7 AFFIRMATIVE COVENANTS ................................. 53 7.1 Information Covenants ................................. 53 7.2 Preservation of Existence and Franchises .............. 57 7.3 Books and Records ..................................... 57 7.4 Compliance with Law ................................... 57 7.5 Payment of Taxes and Other Indebtedness ............... 57 7.6 Insurance/Reinsurance ................................. 57 7.7 Maintenance of Property ............................... 58 7.8 Performance of Obligations ............................ 58 7.9 Use of Proceeds ....................................... 58 7.10 Audits/Inspections .................................... 58 7.11 Financial Covenants ................................... 58 7.12 Additional Credit Parties ............................. 59 7.13 Ownership of Subsidiaries ............................. 60 7.14 Dividends ............................................. 60 SECTION 8 NEGATIVE COVENANTS .................................... 60 8.1 Indebtedness .......................................... 61 8.2 Liens ................................................. 62 8.3 Nature of Business .................................... 62 8.4 Consolidation, Merger, Sale or Purchase of Assets, etc. .......................................... 62 8.5 Advances, Investments, Loans, etc. .................... 63 8.6 Restricted Payments ................................... 63 8.7 Prepayments of Indebtedness, etc. ..................... 63 8.8 Transactions with Affiliates .......................... 64 8.9 Fiscal Year ........................................... 64 8.10 Limitation on Restrictions on Subsidiary Dividends and Other Distributions, etc. ............. 64 8.11 Issuance of Stock ..................................... 64 8.12 Sale Leasebacks ....................................... 64 8.13 Settlements ........................................... 65 8.14 No Further Negative Pledges ........................... 65 8.15 No Foreign Subsidiaries ............................... 65
- ii - 4 SECTION 9 EVENTS OF DEFAULT ..................................... 65 9.1 Events of Default ..................................... 65 9.2 Acceleration; Remedies ................................ 68 SECTION 10 AGENCY PROVISIONS ..................................... 69 10.1 Appointment ........................................... 69 10.2 Delegation of Duties .................................. 70 10.3 Exculpatory Provisions ................................ 70 10.4 Reliance on Communications ............................ 70 10.5 Notice of Default ..................................... 71 10.6 Non-Reliance on Agent and Other Lenders ............... 71 10.7 Indemnification ....................................... 72 10.8 Agent in its Individual Capacity ...................... 72 10.9 Successor Agent ....................................... 72 SECTION 11 MISCELLANEOUS ......................................... 73 11.1 Notices ............................................... 73 11.2 Right of Set-Off ...................................... 74 11.3 Benefit of Agreement .................................. 74 11.4 No Waiver; Remedies Cumulative ........................ 77 11.5 Payment of Expenses, etc. ............................. 78 11.6 Amendments, Waivers and Consents ...................... 78 11.7 Counterparts .......................................... 79 11.8 Headings .............................................. 79 11.9 Survival .............................................. 79 11.10 Governing Law; Submission to Jurisdiction; Venue ............................................... 79 11.11 Severability .......................................... 80 11.12 Entirety .............................................. 80 11.13 Binding Effect; Termination ........................... 81 11.14 Confidentiality ....................................... 81 11.15 Source of Funds ....................................... 81
SCHEDULES Schedule 1.1A Existing Affiliate Contracts Schedule 1.1B Investments Schedule 1.1C Liens Schedule 2.1(a) Lenders Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.4 Form of Committed Note Schedule 3.2 Form of Notice of Extension/Conversion Schedule 5.1(e) Form of Legal Opinion Schedule 6.1(a) Financial Statement Disclosures Schedule 6.4 Required Consents, Authorizations, Notices and Filings Schedule 6.6 Litigation Schedule 6.13 Subsidiaries Schedule 7.1(c) Form of Officer's Compliance Certificate Schedule 7.12 Form of Joinder Agreement Schedule 8.1 Indebtedness Schedule 11.3(b) Form of Assignment and Acceptance
- iii - 5 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of October 15, 1996 (the "Credit Agreement"), is by and among RISCORP, INC., a Florida corporation (the "Borrower"), the subsidiaries of the Borrower identified on the signature pages hereto and such other subsidiaries as may from time to time become a party hereto (the "Guarantors"), the several lenders identified on the signature pages hereto and such other lenders as may from time to time become a party hereto (the "Lenders") and NATIONSBANK, N.A. (SOUTH), as agent for the Lenders (in such capacity, the "Agent"). W I T N E S S E T H WHEREAS, the Borrower has requested that the Lenders provide a $50,000,000 credit facility for the purposes hereinafter set forth; WHEREAS, the Lenders have agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS 1.1 Definitions. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Actuarial Report" shall mean an actuarial review and valuation statement of an Insurance Subsidiary's loss and loss adjustment expense reserve positions as of December 31 of any fiscal year (or such other date requested by the Agent), with respect to the insurance business in force, and covering such other subjects as are customary in actuarial reviews and reasonably requested by the Agent, prepared by an independent actuarial firm reasonably acceptable to the Agent in accordance with reasonable actuarial assumptions and procedures, not inconsistent with the assumptions and procedures previously employed, and accompanied by a report prepared by such actuarial firm reviewing the adequacy of loss reserves of each Insurance Subsidiary (which firm shall be provided access to or copies of all reserves analyses and valuations relating to the insurance business of each such Insurance Subsidiary) together with its opinion affirming the adequacy of such loss reserves. -1- 6 "Additional Credit Party" means each Person that becomes a Guarantor after the Closing Date by execution of a Joinder Agreement. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding five percent (5%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agency Services Address" means NationsBank, N.A., NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency Services, or such other address as may be identified by written notice from the Agent to the Borrower. "Agent" shall have the meaning assigned to such term in the heading hereof, together with any successors or assigns. "Agent's Fee Letter" means that certain letter agreement, dated as of October 11, 1996, between the Agent and the Borrower, as amended, modified, supplemented or replaced from time to time. "Agent's Fees" shall have the meaning assigned to such term in Section 3.5(b). "Annual Statement" means, with respect to any Insurance Subsidiary, such Insurance Subsidiary's annual statement to the insurance regulatory authorities of its domiciliary state, as the same may be amended from time to time. "Applicable Percentage" means, for purposes of calculating the applicable interest rate for any day for any Eurodollar Loan, the appropriate applicable percentage corresponding to the Consolidated Funded Debt Coverage Ratio in effect as of the most recent Calculation Date: -2- 7
========================================================================= Applicable Consolidated Percentage Funded Debt for Coverage Eurodollar Pricing Level Ratio Loans - - ------------------------------------------------------------------------- I Greater than 1.75% 1.75 - - ------------------------------------------------------------------------- II Greater than 1.50% 1.25 but less than or equal to 1.75 - - ------------------------------------------------------------------------- III Greater than 1.25% 1.00 but less than or equal to 1.25 - - ------------------------------------------------------------------------- IV Greater than 1.00% 0.75 but less than or equal to 1.00 - - ------------------------------------------------------------------------- V Less than or 0.75% equal to 0.75 =========================================================================
The Applicable Percentages shall be determined and adjusted quarterly on the date (each a "Calculation Date") five Business Days after the date by which the Borrower is required to provide the officer's certificate in accordance with the provisions of Section 7.1(c); provided, however that (i) the initial Applicable Percentages shall be based on Pricing Level II (as shown above) and shall remain at Pricing Level II until the first Calculation Date subsequent to the Closing Date and, thereafter, the Pricing Level shall be determined by the then current Consolidated Funded Debt Coverage Ratio, and (ii) if the Borrower fails to provide the officer's certificate to the Agency Services Address as required by Section 7.1(c), the Applicable Percentage from such Calculation Date shall be based on Pricing Level I until such time as an appropriate officer's certificate is provided, whereupon the Pricing Level shall be determined by the then current Consolidated Funded Debt Coverage Ratio. Each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Percentages shall be applicable to all existing Loans as well as any new Loans made or issued. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bankruptcy Event" means, with to any Person, the occurrence of any of the following with respect to such -3- 8 Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Base Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. "Borrower" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. -4- 9 "Borrower's Obligations" means, without duplication, (i) all of the obligations of the Borrower to the Lenders and the Agent, whenever arising, under this Credit Agreement, the Notes or any of the other Credit Documents and (ii) all liabilities and obligations, whenever arising, owing from the Borrower to any Lender, or any Affiliate of a Lender, arising under any Hedging Agreement. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or Sarasota, Florida are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England, Charlotte, North Carolina and New York, New York. "Calculation Date" has the meaning set forth in the definition of Applicable Percentage. "Capital Lease" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Change of Control" means the occurrence of any of the following events: (i) William D. Griffin shall fail to have beneficial ownership, directly or indirectly, of at least 51% of the of the combined voting power of all Voting Stock of the Borrower, (ii) excluding William D. Griffin, any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, control over, Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 35% or more of the combined voting power of all Voting Stock of the Borrower, (iii) the shareholders of the Borrower shall approve any plan or proposal for the liquidation or dissolution of the Borrower, or (iv) during any period of up to 24 consecutive months, commencing after the Closing Date, individuals who at the beginning of such 24 month period were directors of the Borrower (together with any new director whose election by the Borrower's Board of Directors or whose nomination for election by the Borrower's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Borrower then in office. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. -5- 10 "Closing Date" means the date hereof. "Code" means the Internal Revenue Code of 1986, as amended, and any successor thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Commitment" means with respect to each Lender, the Revolving Commitment of such Lender and the Term Loan Commitment of such Lender. "Commitment Percentage" means, for any Lender, the percentage identified as its Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Committed Note" means a promissory note of the Borrower in favor of a Lender delivered pursuant to Section 2.4 and evidencing the Loans of such Lender, as such promissory note may be amended, modified, restated or replaced from time to time. "Consolidated Capital Expenditures" means, for any period, all capital expenditures of the Borrower and its Subsidiaries, as determined in accordance with GAAP. "Consolidated Capitalization" means, at any time, the sum of (i) Consolidated Net Worth at such time plus (ii) Consolidated Funded Indebtedness at such time. "Consolidated Cash Restricted Payments" means, for any period, all cash Restricted Payments made by the Borrower and any of its Subsidiaries (other than any such Restricted Payments made to the Borrower or a Subsidiary) for such period. "Consolidated EBITDA" means, for any period, the sum of (a) Consolidated Net Income for such period plus (b) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (i) Consolidated Interest Expense for such period, (ii) Consolidated Tax Expense for such period, (iii) consolidated depreciation and amortization expense of the Borrower and its Subsidiaries for such period and (iv) all other non-cash expenses of the Borrower and its Subsidiaries for such period less (c) to the extent included in Consolidated Net Income, amortization of negative goodwill, all as determined in accordance with GAAP. "Consolidated Current Maturities Coverage Ratio" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (a) (i) Consolidated EBITDA for the four-quarter period ended as of such date minus (ii) Consolidated Capital Expenditures for the four-quarter period ended as of such date -6- 11 minus (iii) Consolidated Tax Expense for the four-quarter period ended as of such date minus (iv) Consolidated Cash Restricted Payments for the four-quarter period ended as of such date minus (v) all non-cash gains and other items taken into account in determining Consolidated EBITDA for the four-quarter period ended as of such date to (b) Consolidated Scheduled Funded Indebtedness Payments as of such date. "Consolidated Funded Debt Coverage Ratio" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (i) Consolidated Funded Indebtedness as of such date to (ii) Consolidated EBITDA for the four fiscal-quarter period ended as of such date. "Consolidated Funded Indebtedness" means, at any time, the outstanding principal amount of all Funded Indebtedness, without duplication, of the Borrower and its Subsidiaries at such time. "Consolidated Interest Expense" means, for any period, all interest expense of the Borrower and its Subsidiaries for such period, as determined in accordance with GAAP. "Consolidated Leverage Ratio" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (i) Consolidated Funded Indebtedness as of such date to (ii) Consolidated Capitalization as of such date. "Consolidated Net Income" means, for any period, net income after taxes for such period for the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date, total shareholders' equity of the Borrower and its Subsidiaries as of such date, as determined in accordance with GAAP, excluding the effect of FASB 115. "Consolidated Net Written Premiums" means, as of the last day of any fiscal year, with respect to the Insurance Subsidiaries, the sum of the total amount of premiums written after deducting or adding premiums on business ceded to or assumed from others (as shown on line 32, column 4, Part 2B of page 9 of the Annual Statement for such date) by the Insurance Subsidiaries on a consolidated basis in accordance with SAP. "Consolidated Net Written Premiums to Statutory Surplus Ratio" means, as of the last day of any fiscal year, the ratio of (i) Consolidated Net Written Premiums as of such date to (ii) Consolidated Statutory Surplus as of such date. "Consolidated Scheduled Funded Indebtedness Payments" means, as of the last day of any fiscal quarter of the Borrower, the scheduled payments of principal on Funded Indebtedness for the Borrower and its Subsidiaries for the -7- 12 twelve month period ending on such date. With respect to the Revolving Loans, Consolidated Scheduled Funded Indebtedness Payments shall be deemed to be (i) as of the last day of any fiscal quarter ending on or before September 30, 1997, one fifth (1/5) of the average daily outstanding principal balance on the Revolving Loans during the immediately preceding fiscal quarter and (ii) as of the last day of any fiscal quarter ending after October 1, 1997 and on or before the Conversion Date, one-quarter (1/4) of the average daily outstanding principal balance on the Revolving Loans during the immediately preceding fiscal quarter. "Consolidated Statutory Surplus" means, as of any date, with respect to the Insurance Subsidiaries, the aggregate amount (without duplication) of policyholders' surplus (as shown on line 25 in column 1 on page 3 of such Person's most recent SAP Statement) of the Insurance Subsidiaries on a consolidated basis in accordance with SAP, or an amount determined in a consistent manner for any date other than one as of which a SAP Statement is prepared. "Consolidated Tax Expense" means, for any period, all income tax expense of the Borrower and its Subsidiaries for such period, as determined in accordance with GAAP. "Conversion Date" means September 30, 1998. "Credit Documents" means a collective reference to this Credit Agreement, the Notes, each Joinder Agreement, the Agent's Fee Letter, and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto. "Credit Party" means any of the Borrower and the Guarantors. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Delivered Annual Statements" means (i) with respect to RISCORP Insurance, that certain Annual Statement, as filed with the appropriate Governmental Authorities of its state of domicile, for the fiscal year ending December 31, 1995, (ii) with respect to RISCORP Property, those certain Annual Statements, as filed with the appropriate Governmental Authorities of its state of domicile, for the fiscal years ending December 31, 1995 and December 31, 1994 and (iii) with respect to RISCORP National Insurance, those certain Annual Statements, as filed with the appropriate Governmental Authorities of its state of domicile, for the fiscal years ending December 31, 1995, December 31, 1994 and December 31, 1993. -8- 13 "Dollars" and "$" means dollars in lawful currency of the United States of America. "Environmental Laws" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower and which is treated as a single employer under Sections 414(b), (c), (m), or (o) of the Code. "Eurodollar Loan" means any Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate determined pursuant to the following formula: Eurodollar Rate = Interbank Offered Rate ----------------------------------- 1 Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" means for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as such regulation may be amended from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar -9- 14 Loans is determined), whether or not Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" means such term as defined in Section 9.1. "Existing Affiliate Contracts" means those certain agreements identified on Schedule 1.1A attached hereto, as such agreements exist as of the Closing Date. "Fees" means all fees payable pursuant to Section 3.5. "Federal Funds Rate" means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) 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 by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (A) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day and (B) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent. "Funded Indebtedness" means, with respect to any Person, without duplication, (i) all Indebtedness of such Person for borrowed money, (ii) all purchase money Indebtedness of such Person, including without limitation the principal portion of all obligations of such Person under Capital Leases, (iii) all Guaranty Obligations of such Person with respect to Funded Indebtedness of another Person, (iv) the maximum available amount of all standby letters of credit or acceptances issued or created for the account of such Person, (v) all Funded Indebtedness of another Person secured by a Lien on any Property of such Person, whether or not such Funded Indebtedness has been assumed, and (vi) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP. The Funded Indebtedness of any Person shall include the Funded Indebtedness of any partnership or joint venture in which such Person is, a general partner or joint venturer. -10- 15 "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3 hereof. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantor" means each of those Persons identified as a "Guarantor" on the signature pages hereto, and each Additional Credit Party which may hereafter execute a Joinder Agreement, together with their successors and permitted assigns. "Guaranty Obligations" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any Property constituting security therefor, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "Hedging Agreements" means any interest rate protection agreement between the Borrower and any Lender, or any Affiliate of a Lender, entered into in order to manage existing or anticipated interest rate risks associated with the obligations of the Borrower to the Lenders and the Agent under this Credit Agreement, the Notes or any of the other Credit Documents. "Home Office Building" means, collectively, (i) the office building occupied by the Borrower and its Subsidiaries, (ii) the realty upon which such building is located, at 1390 Main Street, Sarasota, Florida, and (iii) the parking area dedicated to such office building, all of which is owned by RISCORP Insurance. -11- 16 "Indebtedness" of any Person means (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (iii) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (v) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (v) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (vi) all Indebtedness 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, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (vii) all Guaranty Obligations of such Person, (viii) the principal portion of all obligations of such Person under Capital Leases, (ix) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements (including, but not limited to, the Hedging Agreements) (it being understood that the amount of Indebtedness under any agreement described in this subclause (ix), as of any date, shall be deemed to be equal to the termination value payable by such Person if such agreement were terminated on such date), (x) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), and (xi) the principal balance outstanding under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP; provided that Indebtedness shall not include (i) obligations with respect to insurance policies, annuities, guaranteed investment contracts and similar products underwritten by, or Reinsurance Agreements or Retrocession Agreements (including, without limitation, cut-through endorsements related thereto) entered into by, any Insurance Subsidiary in the ordinary course of its business and (ii) obligations with respect to Surplus Relief Reinsurance ceded by the Borrower or any Insurance Subsidiary. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. -12- 17 "Insurance Subsidiary" means RISCORP Insurance, RISCORP Property, RISCORP National Insurance and all other Wholly Owned Subsidiaries of the Borrower licensed to engage in the business of property and casualty insurance. "Interbank Offered Rate" means, for the Interest Period for each Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the rate of interest, determined by the Agent on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), appearing on Telerate Page 3750 (or, if, for any reason, Telerate Page 3750 is not available, the Reuters Screen LIBO Page) as of approximately 11:00 A.M. (London time) two (2) Business Days before the first day of such Interest Period. As used herein, "Telerate Page 3750" means the display designated as page 3750 by Dow Jones Telerate, Inc. (or such other page as may replace such page on that service for the purpose of displaying the British Bankers Association London interbank offered rates) and "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Intercompany Indebtedness" means any Indebtedness of a Credit Party which (i) is owing to any other Credit Party and (ii) by its terms is specifically subordinated in right of payment to the prior payment of the obligations of the Credit Parties under this Credit Agreement and the other Credit Documents on terms and conditions reasonably satisfactory to the Required Lenders. "Interest Payment Date" means, (i) as to any Base Rate Loan, the last day of each March, June, September and December, the date of repayment of principal of such Loan, the Conversion Date and the Termination Date and (ii) as to any Eurodollar Loan, the last day of each Interest Period for such Loan, the date of repayment of principal of such Loan, the Conversion Date and on the Termination Date, and in addition where the applicable Interest Period is more than 3 months, then also on the date 3 months from the beginning of the Interest Period, and each 3 months thereafter. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day, except that in the case of Eurodollar Loans where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day. "Interest Period" means, as to any Eurodollar Loan, a period of one, two or three month's duration, as the Borrower may elect, commencing in each case, on the date of the -13- 18 borrowing (including conversions, extensions and renewals); provided, however, (A) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that in the case of Eurodollar Loans where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (B) with respect to any Revolving Loan, no Interest Period shall extend beyond the Conversion Date, (C) with respect to the Term Loan, no Interest Period shall extend beyond the Termination Date, (D) with regard to any Eurodollar Loan constituting a portion of the Term Loan, no Interest Period shall extend beyond any principal amortization payment date unless the portion of the Term Loan comprised of Base Rate Loans together with the portion of the Term Loan comprised of Eurodollar Loans with Interest Periods expiring prior to the date such principal amortization payment is due, is at least equal to the amount of such principal amortization payment due on such date, and (E) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last day of such calendar month. "Investment", in any Person, means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of, or equity interest in, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any Guaranty Obligation incurred for the benefit of such Person. "Investment Grade Securities" means (i) U.S. Government Obligations; (ii) any certificate of deposit, maturing not more than 365 days after the date of acquisition, issued by, or time deposit of, a commercial banking institution that has combined capital and surplus of not less than $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which any investment there is made, of A (or higher) according to Standard & Poor's Corporation ("S&P") or Moody's Investors Services, Inc. ("Moody's"), or Al (or higher) by IBCA Ltd., or if none of S&P, Moody's and IBCA Ltd. shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (iii) commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) with a rating, at the time as of which any investment therein is made, of A1 (or higher) according to S&P or "P-1" (or higher) according to Moody's, or if neither of S&P and Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (iv) any bankers' acceptances or any money market deposit accounts, in each case, issued or offered by any commercial bank having capital and surplus in excess of $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which -14- 19 any investment there is made, of "A" (or higher) according to S&P or Moodys or "A1" (or higher) by IBCA Ltd., or if none of S&P, Moody's and IBCA Ltd. shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (v) any other debt securities or debt instruments with a rating of BBB- or higher by S&P, Baa-3 or higher by Moody's, Class (2) or higher by NAIC or the equivalent of such rating by S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (vi) preferred stock with a rating of BBB- or higher by S&P, Baa-3 or higher by Moody's, Class (2) or higher by NAIC or the equivalent of such rating by S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency, provided that such preferred stock is mandatorily redeemable and required to be treated as a debt instrument in accordance with GAAP and (vii) any fund investing exclusively in investments of the types described in clauses (i) through (vi) above. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation evidenced by such depository receipt. "IRIS Tests" shall mean the ratios and other financial measurements developed by the NAIC under its Insurance Regulatory Information System or, in lieu thereof, any successor thereto, replacement thereof, substitute therefor or other substantially 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. "Joinder Agreement" means a Joinder Agreement substantially in the form of Schedule 7.12 hereto, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 7.12. -15- 20 Lenders" means each of the Persons identified as a "Lender" on the signature pages hereto, and each Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan" or "Loans" means the Revolving Loans and/or the Term Loan (or a portion of any Revolving Loan or Term Loan bearing interest at the Base Rate or the Eurodollar Rate and referred to as a Base Rate Loan or a Eurodollar Loan), individually or collectively, as appropriate. "Management Agreements" means, collectively, (i) that certain Management Agreement, dated as of January 1, 1995, by and between RISCORP Insurance and the Borrower, (ii) that certain Management Agreement, dated as of January 1, 1995, by and between RISCORP Property and the Borrower, (iii) that certain Management and Services Agreement, dated as of June 13, 1996, by and between RISCORP National Insurance and the Borrower, and (iv) any agreements assigning the rights and/or obligations of the Borrower under the Management Agreements to RISCORP Management, each as may be amended or modified from time to time hereafter by the parties thereto. "Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Borrower or any of its Subsidiaries, (ii) the ability of any Credit Party to perform any material obligation under the Credit Documents to which it is a party or (iii) the material rights and remedies of the Lenders under the Credit Documents. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA. -16- 21 "Multiple Employer Plan" means a Plan which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate and at least one employer other than the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate are contributing sponsors. "NAIC" means the National Association of Insurance Commissioners and any successor thereof. "NationsBank" means NationsBank, N.A. (South) and its successors. "Non-Excluded Taxes" means such term as is defined in Section 3.10. "Non-Guarantor Subsidiary" means any Non-Insurance Subsidiary which is not a Guarantor. "Non-Insurance Subsidiary" means any Subsidiary of the Borrower which is not an Insurance Subsidiary. "Note" or "Notes" means any Committed Note. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Schedule 2.1(b)(i), as required by Section 2.1(b)(i) or Section 2.2(b). "Notice of Extension/Conversion" means the written notice of extension or conversion in substantially the form of Schedule 3.2, as required by Section 3.2. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Investments" means any of the following: (i) cash; (ii) Investment Grade Securities; (iii) Investments in non-Investment Grade Securities so long as (a) the fair saleable value of All non-Investment Grade Securities held by the Insurance Subsidiaries does not exceed 10% of the consolidated Total Invested Assets of the Insurance Subsidiaries and (b) the fair saleable value of all non-Investment Grade Securities held by the Borrower and its Subsidiaries (including Insurance Subsidiaries) does not exceed 10% of the aggregate fair saleable value of all securities held by the Borrower and its Subsidiaries (including the Insurance Subsidiaries) on a consolidated basis; (iv) advances or loans to directors, officers, employees, agents, customers of suppliers (A) made in the ordinary course of business and consistent with the past -17- 22 practices of the Credit Parties or (B) to the extent not permitted by the foregoing subclause (A), that do not exceed $2,000,000 in the aggregate at any one time outstanding; (v) Investments in any Credit Party; (vi) Intercompany Indebtedness permitted by Section 8.1(c); (vii) Investments in a Non-Guarantor Subsidiary, provided that such Investments do not exceed $500,000 in the aggregate at any one time outstanding; (viii) accounts receivable created, acquired or made by the Borrower or any of its Subsidiaries in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (ix) Investments consisting of stock, obligations, securities or other property received by the Borrower or any of its Subsidiaries in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors; (x) repurchase agreements entered into by a Person with a commercial banking institution (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $100,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations; (xi) the Home Office Building; (xii) Investments of the Borrower in any Insurance Subsidiary, provided that no Default or Event of Default exists hereunder or would occur as a result thereof; (xiii) other Investments existing as of the Closing Date and set forth in Schedule 1.1B; (xiv) Guaranty Obligations permitted by Section 8.1; (xv) acquisitions permitted by Section 8.4(d); and (xvi) transactions permitted by Section 8.8. "Permitted Liens" means: (i) Liens in favor of the Agent on behalf of the Lenders; (ii) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate -18- 23 reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (iv) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by the Borrower and its Subsidiaries in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (v) Liens in connection with attachments or judgments (including judgment or appeal bonds) provided that the judgments secured shall, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 30 days after the expiration of any such stay; (vi) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (vii) Liens on Property securing purchase money Indebtedness (including Capital Leases) to the extent permitted under Section 8.1(f)(i), provided that (i) the Indebtedness secured by such Liens does not exceed the purchase price of the assets financed and (ii) any such Lien attaches to such Property concurrently with or within 90 days after the acquisition thereof; (viii) Liens arising under escrows, trusts, custodianships, separate accounts, funds withheld procedures, and similar deposits, arrangements or agreements established with respect to insurance policies, annuities, guaranteed investment contracts and similar products underwritten by, or Reinsurance Agreements entered into by, the Borrower or any Insurance Subsidiary in the ordinary course of business; (ix) deposits with insurance regulatory authorities; (x) Liens on assets at the time such assets are acquired by the Borrower or any Subsidiary; provided that such Liens are not created in contemplation of such acquisition; -19- 24 (xi) normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; and (xii) Liens existing as of the Closing Date and set forth on Schedule 1.1C; provided that no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date. "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by NationsBank as its prime rate in effect at its principal office in Charlotte, North Carolina, with each change in the Prime Rate being effective on the date such change is publicly announced as effective (it being understood and agreed that the Prime Rate is a reference rate used by NationsBank in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit by NationsBank to any debtor). "Pro Forma Basis" means, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Agent and the Lenders have received the officer's certificate in accordance with the provisions of Section 7.1(c). As used herein, "transaction" means (i) any incurrence, assumption or retirement of Indebtedness as referred to in Section 8.1(f)(i), (ii) any acquisition of capital stock or securities or any purchase, lease or other acquisition of Property as referred to in Section 8.4(d), (iii) any Restricted Payment as referred to in Section 8.6(d) or (iv) any settlement as referred to in Section 8.13. With respect to any transaction of the type described in clause (i) above regarding Indebtedness which has a floating or formula rate, the implied rate of interest for such Indebtedness for the applicable period for purposes of this definition shall be determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination. -20- 25 Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Quarterly Statement" means, with respect to any Insurance Subsidiary, such Insurance Subsidiary's quarterly statement to the insurance regulatory authorities of its domiciliary state, as the same may be amended from time to time. "Register" shall have the meaning given such term in Section 11.3(c). "Regulation G, T, U, or X" means Regulation G, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Reinsurance Agreements" shall mean any agreement, contract, treaty, certificate or other arrangement whereby an Insurance Subsidiary agrees to transfer, cede or retrocede to another insurer or reinsurer all or part of the liability assumed by such an Insurance Subsidiary under a policy or policies of insurance issued by such an Insurance Subsidiary. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Materials of Environmental Concern). "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the post-event notice requirement is waived under subsections .13, .14, .18, .19, or .20 of PBGC Reg. Section 2615. "Required Lenders" means, at any time, Lenders which are then in compliance with their obligations hereunder (as determined by the Agent) and holding in the aggregate at least 51% of (i) the Revolving Commitments or (ii) if the Revolving Commitments have been terminated, the outstanding Loans. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property is subject. "Restricted Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding, (ii) any redemption, retirement, -21- 26 sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding and (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding. "Retrocession Agreement" means any agreement, contract, treaty or other arrangement (other than Surplus Relief Reinsurance) whereby any insurer cedes or assumes reinsurance to or from other insurers. "Revolving Commitment" means, with respect to each Lender, the commitment of such Lender in an aggregate principal amount at any time outstanding of up to such Lender's Commitment Percentage of the Revolving Committed Amount, to make Revolving Loans in accordance with the provisions of Section 2.1(a). "Revolving Committed Amount" shall have the meaning assigned to such term in Section 2.1(a). "Revolving Loans" shall have the meaning assigned to such term in Section 2.1(a). "RISCORP Insurance" means RISCORP Insurance Company, a Florida stock insurance company. "RISCORP Management" means RISCORP Management Services, Inc., a Florida corporation. "RISCORP National Insurance" means RISCORP National Insurance Company (f/k/a Atlas Insurance Company), a Missouri corporation. "RISCORP Property" means RISCORP Property & Casualty Insurance Company, a Florida corporation. "Risk Based Capital Act" means the Risk Based Capital Model Act and the rules, regulations and procedures prescribed from time to time by the NAIC with respect thereto, in each case as amended, modified or supplemented from time to time by the NAIC. "SAP" means, with respect to any Insurance Subsidiary, the accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) in the jurisdiction of domicile of such insurance company for the preparation of Annual Statements, Quarterly Statements and other financial reports by insurance corporations of the same type as such Insurance Subsidiary, as applied on a consistent basis and subject to the terms of Section 1.3 hereof. -22- 27 "SAP Statement" means an Annual Statement or a Quarterly Statement. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. Solvent" or "Solvency" means, with respect to any Person as of a particular date, that on such date (i) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (ii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature in their ordinary course, (iii) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (iv) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (v) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Subordinated Debt Agreement" shall mean that certain Note Purchase Agreement, dated as of January 1, 1995 (as amended by that certain Consent, Waiver and First Amendment to Amended and Restated Note Purchase Agreement, dated as of February 26, 1996, and as further amended by that certain Second Amendment to Amended and Restated Note Purchase Agreement, dated as October 15, 1996) between the Borrower and American Re-Insurance Company, providing for the incurrence by the Borrower of the Subordinated Debt, as may be hereafter amended, supplemented, renewed or replaced from time to time as permitted by Section 8.7(a) hereof. "Subordinated Indebtedness" shall mean the indebtedness owed by the Borrower to American Re-Insurance Company, pursuant to the Subordinated Debt Agreement. "Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the -23- 28 happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time. "Surplus Relief Reinsurance" means any transaction in which any Insurance Subsidiary cedes business under a Reinsurance Agreement that would be considered a "financing type" Reinsurance Agreement as determined by the independent certified public accountants of the Borrower in accordance with principles published by the Financial Accounting Standards Board (including, but not limited to FASB 113 and EITF #93-6). "Term Loan" shall have the meaning assigned to such term in Section 2.2(a). "Term Loan Commitment" means, with respect to each Lender, the commitment of such Lender to make its portion of the Term Loan in a principal amount equal to such Lender's Commitment Percentage of the Term Loan Committed Amount. "Term Loan Committed Amount" shall have the meaning assigned to such term in Section 2.2(a). "Termination Date" means September 30, 2001. "Termination Event" means (i) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; or (vi) the complete or partial withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer Plan. "Total Invested Assets" means, with respect to any Insurance Subsidiary, the amount set forth on line 8(a) in column 1 on page 2 of such Insurance Subsidiary's most recent SAP Statement. "Unused Fee" shall have the meaning assigned to such term in Section 3.5(a). -24- 29 "Unused Fee Calculation Period" shall have the meaning assigned to such term in Section 3.5(a). "Unused Revolving Committed Amount" means, for any period, the amount by which (a) the then applicable Revolving Committed Amount exceeds (b) the daily average sum for such period of the outstanding aggregate principal amount of all Revolving Loans. "Voting Stock" means, with respect to any Person, capital stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of whose Voting Stock or other equity interests is at the time owned by such Person directly or indirectly through other Wholly Owned Subsidiaries. 1.2 Computation of Time Periods. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 Accounting Terms. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, (i) with respect to the Borrower and its consolidated Subsidiaries, in accordance with GAAP applied on a consistent basis and (ii) with respect to the Insurance Subsidiaries, in accordance with SAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP or SAP, as appropriate, applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 6.1 hereof (or, prior to the delivery of the first financial statements pursuant to Section 6.1 hereof, consistent with the financial statements as at December 31, 1995); provided, however, if (a) a Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP, SAP or the rules promulgated with respect thereto or (b) the Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by such Borrower to the Lenders as to which no such objection shall have been made. -25- 30 (b) All references to line items in any column and on any page of an Insurance Subsidiary's SAP Statement are deemed to be references to the equivalent item in the event that the form of such Person's SAP Statement is amended. SECTION 2 CREDIT FACILITIES 2.1 Revolving Loans. (a) Revolving Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrower such Lender's Commitment Percentage of revolving credit loans requested by the Borrower in Dollars ("Revolving Loans") from time to time from the Closing Date until the Conversion Date, or such earlier date as the Revolving Commitments shall have been terminated as provided herein for the purposes hereinafter set forth; provided, however, that the sum of the aggregate principal amount of outstanding Revolving Loans shall not exceed FIFTY MILLION DOLLARS ($50,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4, the "Revolving Committed Amount"); provided, further, (i) with regard to each Lender individually, such Lender's outstanding Revolving Loans shall not exceed such Lender's Commitment Percentage of the Revolving Committed Amount, and (ii) with regard to the Lenders collectively, the aggregate principal amount of outstanding Revolving Loans shall not exceed the Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof; provided, however, that, prior to the Conversion Date, no more than 8 Eurodollar Loans shall be outstanding hereunder at any time. For purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period. Revolving Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. (b) Revolving Loan Borrowings. (i) Notice of Borrowing. The Borrower shall request a Revolving Loan borrowing by written notice (or telephone notice promptly confirmed in writing) to the Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested borrowing in the case of Base Rate Loans, -26- 31 and on the third Business Day prior to the date of the requested borrowing in the case of Eurodollar Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) whether the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a Eurodollar Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for a Base Rate Loan hereunder. The Agent shall give notice to each affected Lender promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each such Lender's share of any borrowing to be made pursuant thereto. (ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is a Revolving Loan shall be in a minimum aggregate principal amount of $1,000,000 and integral multiples of $100,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). (iii) Advances. Each Lender will make its Commitment Percentage of each Revolving Loan borrowing available to the Agent for the account of the Borrower as specified in Section 3.14(a), or in such other manner as the Agent may specify in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent. (c) Repayment. The principal amount of all Revolving Loans shall be due and payable in full on the Conversion Date. 2.2 Term Loan. (a) Term Commitment. Subject to and upon the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make available to the Borrower on the Conversion Date such Lender's Commitment Percentage of a term loan in Dollars (the "Term Loan") in the aggregate principal amount equal to the outstanding principal balance on the Revolving -27- 32 Loans as of such date (the "Term Loan Committed Amount"). The Term Loan may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request; provided, however, that, on and after the Conversion Date, no more than 3 Eurodollar Loans shall be outstanding hereunder at any time. For purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period. Amounts repaid on the Term Loan may not be reborrowed. (b) Borrowing Procedures. The Borrower shall submit an appropriate Notice of Borrowing to the Agent not later than 11:00 A.M. (Charlotte, N.C. time) on the Conversion Date, with respect to the portion of the Term Loan initially consisting of a Base Rate Loan, or on the third Business Day prior to the Conversion Date, with respect to the portion of the Term Loan initially consisting of one or more Eurodollar Loans, which Notice of Borrowing shall be irrevocable and shall specify (i) that the funding of a Term Loan is requested and (ii) whether the funding of the Term Loan shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to deliver such Notice of Borrowing to the Agent by 11:00 A.M. (Charlotte, N.C. time) on the third Business Day prior to the Conversion Date, then the full amount of the Term Loan shall be disbursed on the Conversion Date as a Base Rate Loan. Each Lender shall make its Commitment Percentage of the Term Loan available to the Agent for the account of the Borrower at the office of the Agent specified in Section 11.1, or at such other office as the Agent may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the Conversion Date in Dollars and in funds immediately available to the Agent. (c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is part of the Term Loan shall be in an aggregate principal amount that is not less than $1,000,000 and integral multiples of $100,000 (or the then remaining principal balance of the Term Loan, if less). (d) Repayment of Term Loan. The principal amount of the Term Loan shall be repaid in twelve (12) equal and consecutive quarterly installments, such installments being (i) in an amount equal to one-twelfth (1/12) of the outstanding balance of the Term Loan as of the Conversion Date and (ii) due and payable as of the last day of each March, June, September and December (beginning on December 31, 1998 and ending on the Termination Date). 2.3 Interest. Subject to the provisions of Section 3.1, all Loans shall bear interest at a per annum rate equal to: -28- 33 (a) Base Rate Loans. During such periods as Loans shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Base Rate; (b) Eurodollar Loans. During such periods as Loans shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Eurodollar Rate plus the Applicable Percentage. Interest on Loans shall be payable in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). 2.4 Committed Notes. The Loans made by each Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in an original principal amount equal to such Lender's Commitment Percentage of the Revolving Committed Amount and in substantially the form of Schedule 2.4. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES 3.1 Default Rate. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 3% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then 3% greater than the Base Rate). 3.2 Extension and Conversion. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans only on the last day of the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in such minimum amounts as provided in, with respect to Revolving Loans, Section 2.1(b)(ii) or, with respect to the Term Loan, 2.2(c), (iv) prior to the Conversion Date, no more than 8 Eurodollar Loans shall be outstanding hereunder at any time and, on and after the Conversion Date, no more than 3 Eurodollar Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the -29- 34 same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period), and (v) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephone notice promptly confirmed in writing) to the Agent prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (ii), (iii), (iv), (v) and (vi) of Section 5.2. In the event the Borrower fails to request extension or conversion of any Eurodollar Loan in accordance with this Section, or any such conversion or extension is not permitted or required by this Section, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 Prepayments. (a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time, subject to Section 3.11, but otherwise without premium or penalty; provided, however, that (i) Eurodollar Loans may only be prepaid on three Business Days' prior written notice to the Agent and specifying the applicable Loans to be prepaid; (ii) any prepayment of Eurodollar Loans will be subject to Section 3.11; and (iii) each such partial prepayment of Loans shall be in a minimum principal amount of $1,000,000. Subject to the foregoing terms, amounts prepaid under this Section 3.3(a) shall be applied as the Borrower may elect. (b) Mandatory Prepayments. If at any time, the sum of the aggregate principal amount of outstanding Revolving Loans shall exceed the Revolving Committed Amount, the Borrower promises to prepay immediately the outstanding principal balance on the Revolving Loans in an amount sufficient to eliminate such excess. (c) General. All prepayments made pursuant to this Section 3.3 shall (i) be subject to Section 3.11 and (ii) unless the Borrower shall specify otherwise, be applied first to Base Rate Loans, if any, and then to Eurodollar Loans in -30- 35 direct order of Interest Period maturities. All prepayments of the Term Loan pursuant to this Section 3.3 shall be applied to principal installments thereof in inverse order of maturity. Amount prepaid on the Revolving Loans may be reborrowed in accordance with the provisions hereof. Amounts prepaid on the Term Loan may not be reborrowed. 3.4 Termination and Reduction of Revolving Committed Amount. (a) Voluntary Reductions. The Borrower may from time to time permanently reduce or terminate the Revolving Committed Amount in whole or in part (in minimum aggregate amounts of $3,000,000 or in integral multiples of $1,000,000 in excess thereof (or, if less, the full remaining amount of the then applicable Revolving Committed Amount)) upon five Business Days' prior written notice to the Agent; provided, however, no such termination or reduction shall be made which would cause the aggregate principal amount of outstanding Revolving Loans to exceed the Revolving Committed Amount unless, concurrently with such termination or reduction, the Revolving Loans are repaid to the extent necessary to eliminate such excess. The Commitments of the Lenders shall automatically terminate on (i) with respect to the Revolving Commitments, the Conversion Date and (ii) with respect to the Term Loan Commitments, the Termination Date. The Agent shall promptly notify each affected Lender of receipt by the Agent of any notice from the Borrower pursuant to this Section 3.4(a). (b) Termination. The Revolving Commitments of the Lenders shall automatically terminate on the Conversion Date. (c) General. The Borrower shall pay to the Agent for the account of the Lenders in accordance with the terms of Section 3.5(a), on the date of each termination or reduction of the Revolving Committed Amount, the Unused Fee accrued through the date of such termination or reduction on the amount of the Revolving Committed Amount so terminated or reduced. 3.5 Fees. (a) Unused Fee. In consideration of the Revolving Commitments of the Lenders hereunder, the Borrower agrees to pay to the Agent for the account of each Lender a fee (the "Unused Feel") on the Unused Revolving Committed Amount computed at a per annum rate of 0.25% for each day during the applicable Unused Fee Calculation Period (hereinafter defined). The Unused Fee shall commence to accrue on the Closing Date and shall be due and payable in arrears on the last business day of each March, June, September and December (and any date that the Revolving Committed Amount is reduced as provided in Section 3.4 (a) and the Conversion Date) for the immediately preceding quarter (or portion thereof) (each such quarter or portion thereof for which the Unused Fee is payable hereunder being, herein referred to as an "Unused Fee Calculation Period"), beginning with the first of such dates to occur after the Closing Date. -31- 36 (b) Administrative Fees. The Borrower agrees to pay to the Agent, for its own account, the fees referred to in the Agent's Fee Letter (collectively, the "Agent's Fees"). 3.6 Capital Adequacy. If any Lender has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, upon notice from such Lender to the Borrower, the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 Inability To Determine Interest Rate. If prior to the first day of any Interest Period, the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (a) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans and (b) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as Base Rate Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Base Rate Loans to Eurodollar Loans. 3.8 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such Lender shall promptly give written notice of such circumstances to the Borrower and the Agent (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or maintain Eurodollar Loans, such Lender shall then have a commitment -32- 37 only to make a Base Rate Loan when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 3.11. 3.9 Requirements of Law. If, after the date hereof, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Lender, or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date (or, if later, the date on which such Lender becomes a Lender): (a) shall subject such Lender to any tax of any kind whatsoever with respect to any Eurodollar Loans made by it or its obligation to make Eurodollar Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for (i) Non-Excluded Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any failure of such Lender to comply with its obligations under Section 3.10(b)) and (ii) changes in taxes measured by or imposed upon the overall net income, or franchise tax (imposed in lieu of such net income tax), of such Lender or its applicable lending office, branch, or any affiliate thereof)); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on such Lender any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Borrower from such Lender, through the Agent, in accordance herewith, the Borrower shall be obligated to promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduce any amount receivable, provided that, in any such case, the Borrower may elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving the Agent at least one Business Day's notice of such -33- 38 election, in which case the Borrower shall promptly pay to such Lender, upon demand, without duplication, such amounts, if any, as may be required pursuant to Section 3.11. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the Borrower, through the Agent, certifying (x) that one of the events described in this paragraph (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Lender and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Agent, to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10 Taxes. (a) Except as provided below in this subsection, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and -34- 39 withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible thereafter the Borrower shall send to the Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (X) (i) on or before the date of any payment by the Borrower under this Credit Agreement or Notes to such Lender, deliver to the Borrower and the Agent (A) two (2) duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, certifying that it is entitled to receive payments under this Credit Agreement and any Notes without deduction or withholding of any United States federal income taxes and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, certifying that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Borrower and the Agent two (2) further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrower or the Agent; or (Y) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code,(i) represent to the Borrower (for the benefit of the Borrower and the Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (ii) agree to furnish to the Borrower on or before the date of any payment by the Borrower, with a copy to the Agent two (2) accurate and complete original signed copies of -35- 40 Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Internal Revenue Code with respect to payments to be made under this Credit Agreement and any Notes (and to deliver to the Borrower and the Agent two (2) further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrower or the Agent for filing and completing such forms), and (iii) agree, to the extent legally entitled to do so, upon reasonable request by the Borrower, to provide to the Borrower (for the benefit of the Borrower and the Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Credit Agreement and any Notes; unless in any such case any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder 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 so advises the Borrower and the Agent. Each Person that shall become a Lender or a participant of a Lender pursuant to subsection 11.3 shall, upon the effectiveness of the related transfer, be required to provide all of the forms certifications and statements required pursuant to this subsection, provided that in the case of a participant of a Lender the obligations of such participant of a Lender pursuant to this subsection (b) shall be determined as if the participant of a Lender were a Lender except that such participant of a Lender shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. (c) In connection with this transaction there may or may not be due certain documentary stamp taxes and/or intangible taxes imposed by the State of Florida (the "Florida Taxes"). In addition to (and not in limitation of) the indemnification with respect to tax liabilities set forth above, the Borrower agrees to indemnify the Agent and each Lender, their directors, officers, agents and employees from and against any and all liability, damage, loss, cost, expense or reasonable attorney fees which may accrue to or be sustained by the Agent, a Lender or their directors, officers, agents or employees on account of or arising from any claim or action raised by, filed or brought by or in the name of any Florida governmental or administrative department with respect to nonpayment of the Florida Taxes against the Agent, a Lender, or any of their directors, officers, agents or employees. 3.11 Indemnity. The Borrower promises to indemnify each Lender and to hold each Lender harmless from an loss -36- 41 which such Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to Eurodollar Loans, such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Loans provided for herein (excluding, however, the Applicable Percentage included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.11 shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.12 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) Loans. Each Revolving Loan, each payment or prepayment of principal of any Revolving Loan, each payment of interest on the Revolving Loans, each payment of Unused Fees, each reduction of the Revolving Committed Amount and each conversion or extension of any Revolving Loan, shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Loans. (b) Advances. Unless the Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its ratable share of such borrowing available to the Agent, the Agent may assume that such Lender is making such amount available to the Agent, and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Agent by such Lender within the time period specified therefor hereunder, such Lender shall pay to the Agent, on demand, such amount with interest thereon at a rate equal to the Federal Funds Rate for the period until such Lender makes such amount immediately available to the Agent. A certificate of the Agent submitted to any Lender with respect to any amounts owing under this -37- 42 subsection shall be conclusive in the absence of manifest error. 3.13 Sharing of Payments. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Loans and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Agent shall fail to remit to the Agent or any other Lender an amount payable by such Lender or the Agent to the Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.13 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.13 to share in the benefits of any recovery on such secured claim. 3.14 Payments, Computations, Etc. (a) Except as otherwise specifically provided herein, all payments hereunder shall be made to the Agent in dollars in immediately available funds, without offset, deduction counterclaim or withholding of any find, at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M. (Charlotte, -38- 43 North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Agent (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Agent the Loans, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Agent shall distribute such payment to the Lenders in such manner as the Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.12 (a)). The Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans which (unless the Base Rate is determined by reference to the Federal Funds Rate) shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Agent or any Lender on account of the Borrower's Obligations or any other amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys, fees) of the Agent in connection with enforcing the rights of the Lenders under the Credit Documents; SECOND, to payment of any fees owed to the Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys, fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise -39- 44 with respect to the Borrower's Obligations owing to such Lender; FOURTH, to the payment of all of the Borrower's obligations consisting of accrued fees and interest, FIFTH, to the payment of the outstanding principal amount of the Borrower's Obligations; SIXTH, to all other Borrower's obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; and (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above. 3.15 Evidence of Debt. (a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Agent shall maintain the Register pursuant to Section 11.3 (c) hereof, and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent with the entries of the Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation -40- 45 of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof. SECTION 4 GUARANTY 4.1 The Guarantee. Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Hedging Agreement and the Agent as hereinafter provided the prompt payment of the Borrower's obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Borrower's Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the Guarantors will jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Borrower's Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents or Hedging Agreements, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 4.2 Obligations Unconditional. The obligations of the Guarantors under Section 4.1 hereof are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents or Hedging Agreements, or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee of or security for any of the Borrower's Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Borrower's Obligations for amounts paid under this Guaranty until such time as the Lenders (and any Affiliates of Lenders entering into Hedging Agreements) have been paid in full, all Commitments under the Credit Agreement have been terminated and no Person or Governmental Authority shall -41- 46 have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents or Hedging Agreements. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Borrower's Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be done or omitted; (iii) the maturity of any of the Borrower's Obligations shall be accelerated, or any of the Borrower's Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents, any Hedging Agreements or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be waived or any other guarantee of any of the Borrower's Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Borrower's Obligations shall fail to attach or be perfected; or (v) any of the Borrower's Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents, any Hedging Agreements or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements or against any other Person under any other guarantee of, or security for, any of the Borrower's Obligations. 4.3 Reinstatement. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Borrower's obligations is rescinded or must be otherwise restored by any holder of any of the Borrower's obligations, whether as a result of any proceedings in bankruptcy -42- 47 or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.4 Remedies. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and. the Agent and the Lenders, on the other hand, the Borrower's Obligations may be declared to be forthwith due and payable as provided in Section 9.2 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Borrower's Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Borrower's Obligations being deemed to have become automatically due and payable), the Borrower's Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of said Section 4.1. 4.5 Rights of Contribution. The Guarantors hereby agree, as among themselves, that if any Guarantor shall become an Excess Funding Guarantor (as defined below), each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 4.5), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section 4.5 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 4, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations arising under the other provisions of this Section 4 (hereafter, the "Guaranteed Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata Share of the Guaranteed obligations; (ii) "Excess Payment" shall mean, in respect of any Guaranteed Obligations, the Amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed obligations; and (iii) "Pro Rata Share", for the purposes of this Section 4.5, shall mean, for any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the aggregate present fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (b) -43- 48 the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section 4.5 such subsequent Guarantor shall be deemed to have been a Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Guarantor as of the date such Guarantor became a Guarantor shall be deemed true as of the Closing Date). 4.6 Continuing Guarantee. The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Borrower's obligations whenever arising. SECTION 5 CONDITIONS 5.1 Closing Conditions. The obligation of the Lenders to enter into this Credit Agreement and to make the initial Loans, whichever shall occur first, shall be subject to satisfaction of the following conditions (in form and substance acceptable to the Lenders): (a) The Agent shall have received original counterparts of this Credit Agreement executed by each. of the parties hereto; (b) The Agent shall have received an appropriate original Committed Note for each Lender, executed by the Borrower; (c) The Agent shall have received all documents it may reasonably request relating to the existence and good standing of each of the Credit Parties, the corporate or other necessary authority for and the validity of the Credit Documents, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Agent; (d) The Agent shall have received a certificate executed by the chief financial officer of the Borrower as of the Closing Date stating that immediately after giving effect to this Credit Agreement and the other Credit Documents, (i) the Borrower on a consolidated basis is Solvent (ii) no Default or Event of Default exists and (iii) the representations and warranties set forth in Section 6 are true and correct in all material respects; (e) The Agent shall have received a legal opinion of Holland & Knight, counsel for the Credit Parties, dated as of -44- 49 the Closing Date and substantially in the form of Schedule 5.1(e) (f) No material adverse change shall have occurred since December 31, 1995 in the condition (financial or otherwise), business, management or prospects of the Borrower and its Subsidiaries taken as a whole; (g) The Agent shall have received copies of insurance policies or certificates of insurance of the Credit Parties evidencing liability and casualty insurance meeting the requirements of the Credit Documents; (h) The Agent shall have received a copy, certified by an officer of the Borrower as true and complete, of the Subordinated Debt Agreement, together with any amendments thereto; (i) The Agent shall have received, for its own account and for the accounts of the Lenders, all fees and expenses required by this Credit Agreement or any other Credit Document to be paid on or before the Closing Date; and (j) The Agent shall have received such other documents, agreements or information which may be reasonably requested by the Agent. 5.2 Conditions to all Extensions of Credit. The obligations of each Lender to make, convert or extend any Loan (including the initial Loans) are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1: (i) The Borrower shall have delivered, an appropriate Notice of Borrowing or Notice of Extension/Conversion; (ii) The representations and warranties set forth in Section 6 shall be, subject to the limitations set forth therein, true and correct in all material respects as of such date (except for those which expressly relate to an earlier date); (iii) There shall not have been commenced against the Borrower or any Guarantor an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded; (iv) No Default or Event of Default shall exist and be continuing either prior to or after giving effect thereto; -45- 50 (v) No material adverse change shall have occurred since December 31, 1995 in the condition (financial or otherwise), business, management or prospects of the Borrower and its Subsidiaries taken as a whole; and (vi) Immediately after giving effect to the making of such Loan (and the application of the proceeds thereof), the sum of the aggregate principal amount of outstanding Revolving Loans shall not exceed the Revolving Committed Amount. The delivery of each Notice of Borrowing and each Notice of Extension/Conversion shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (ii), (iii), (iv), (v) and (vi) above. SECTION 6 REPRESENTATIONS AND WARRANTIES The Credit Parties hereby represent to the Agent and each Lender that: 6.1 Financial Condition. (a) The audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as of December 31, 1995 and the audited consolidated statements of earnings and statements of cash flows for the years ended December 31, 1995 and December 31, 1994 have heretofore been furnished to each Lender. Such financial statements (including the notes thereto)(i) have been audited by KPMG Peat Marwick, (ii) have been prepared in accordance with GAAP consistently, applied throughout the periods covered thereby and (iii) present fairly (on the basis disclosed in the footnotes to such financial statements) the consolidated financial condition, results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such date and for such periods. The unaudited interim balance sheets of the Borrower and its consolidated Subsidiaries as at the end of, and the related unaudited interim statements of earnings and of cash flows for, each fiscal quarterly period ended after December 31, 1995 and prior to the Closing Date have heretofore been furnished to each Lender. Such interim financial statements for each such quarterly period, (i) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (ii) present fairly (on the basis disclosed in the footnotes to such financial statements) the consolidated financial condition, results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such date and for such periods. During the period from December 31, 1995 to and including the Closing Date, except as disclosed on Schedule 6.1(a), there has been no sale, transfer or other disposition by the Borrower or any of its Subsidiaries of any material part of the business or property of the Borrower and its consolidated Subsidiaries, taken as a whole, and no purchase or other acquisition by, any of them of any business or property (including any capital stock of any other person) material in relation to the consolidated financial -46- 51 condition of the Borrower and its consolidated Subsidiaries, taken as a whole, in each case, which, is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date. (b) The Delivered Annual Statements, including, without limitation, the provisions made therein for reserves, policy and contract claims, copies of which have heretofore been delivered to each Lender, have been prepared in accordance with SAP applied on a consistent basis (except as otherwise disclosed to the Lenders). The Quarterly Statements of each of the Insurance Subsidiaries, including, without limitation, the provisions made therein for reserves, policy and contract claims, as filed with the appropriate Governmental Authorities of its state of domicile, for the fiscal quarters ending March 31, 1996 and June 30, 1996, copies of which have heretofore been delivered to each Lender, have been prepared in accordance with SAP applied on a consistent basis (except as otherwise disclosed to the Lenders). All SAP Statements which have heretofore been delivered to the Lenders fairly present the financial condition, the results of operations, changes in equity and changes in financial position of the Insurance Subsidiaries as of and for the respective dates and period indicated therein. 6.2 No Change; Dividends. Since December 31, 1995, (a) there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries which has had or would be reasonably expected to have a Material Adverse Effect and (b) except as permitted under this Credit Agreement, no dividends or other distributions have been declared, paid or made upon the capital stock or other equity interest in the Borrower or any of its Subsidiaries nor, except to the extent permitted under this Credit Agreement, has any of the capital stock or other equity interest in the Borrower or any of its Subsidiaries been redeemed, retired, purchased or otherwise acquired for value by such Person. 6.3 Organization; Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is a corporation duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, and (d) is in compliance with all material Requirements of Law. 6.4 Power; Authorization; Enforceable Obligations. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party, and in the case of the Borrower, to borrow hereunder, and has taken all necessary corporate action to authorize the borrowings on the terms and -47- 52 conditions of this Credit Agreement and to authorize the execution, delivery and performance of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Credit Documents to which such Credit Party is a party, except for consents, authorizations, notices and filings described in Schedule 6.4, all of which have been obtained or made or have the status described in such Schedule 6.4. This Credit Agreement has been, and each other Credit Document to which any Credit Party is a party will be, duly executed and delivered on behalf of the Credit Parties. This Credit Agreement constitutes, and each other Credit Document to which any Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 No Legal Bar. The execution, delivery and performance of the Credit Documents by the Credit Parties, the borrowings hereunder and the use of the proceeds thereof (a) will not violate any Requirement of Law or contractual obligation of the Borrower or any of its Subsidiaries in any respect that would reasonably be expected to have a Material Adverse Effect, (b) will not violate any provision of the Subordinated Debt Agreement, (c) will not result in, or require, the creation or imposition of any Lien on any of the properties or revenues of any of the Borrower or any of its Subsidiaries pursuant to any such Requirement of Law or contractual obligation, and (d) will not violate or conflict with any provision of any Credit Party's articles of incorporation or by-laws. 6.6 No Material Litigation. Except as disclosed and described in Schedule 6.6 attached hereto, no litigation investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Credit Parties, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues which (a) relates to any of the Credit Documents or any of the transactions contemplated hereby or thereby or (b) would be reasonably expected to have a Material Adverse Effect. 6.7 No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of their contractual obligations in any respect which would be reasonably expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 6.8 Ownership of Property: Liens. Each of the Borrower and its Subsidiaries has good record and marketable title in fee simple -48- 53 to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien, except for Permitted Liens. 6.9 No Burdensome Restrictions. Except as previously disclosed in writing to the Lenders on or prior to the Closing Date, no Requirement of Law or contractual obligation of the Borrower or any of its Subsidiaries would be reasonably expected to have a Material Adverse Effect. 6.10 Taxes. Each of the Borrower and its Subsidiaries has filed or caused to be filed all United States federal income tax returns and all other material tax returns which, to the best knowledge of the Credit Parties, are required to be filed and has paid (a) all taxes shown to be due and payable on said returns or (b) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i), taxes, fees or other charges with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect or (ii) taxes, fees or other charges the amount or validity of which are currently being contested and with respect to which reserves in conformity with GAAP have been provided on the books of such Person), and no tax Lien has been filed, and, to the best knowledge of the Credit Parties, no claim is being asserted, with respect to any such tax, fee or other charge. 6.11 ERISA. Except as would not result in a Material Adverse Effect: (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no Termination Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any Termination Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" under all Single Employer Plans (determined within the meaning of Section 401(a)(2) of the Code, utilizing the actuarial assumptions used to fund such Plans), whether or not vested, did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the current value of the assets of all such Plans. -49- 54 (c) Neither the Borrower, any of the Subsidiaries of the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower, any of the Subsidiaries of the Borrower nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if the Borrower, any of the Subsidiaries of the Borrower or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. Neither the Borrower, any of the Subsidiaries of the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject the Borrower, any of the Subsidiaries of the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower, any of the Subsidiaries of the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability. (e) The present value (determined using actuarial and other assumptions which are reasonable with respect to the benefits provided and the employees participating) of the liability of the Borrower, each Subsidiary of the Borrower and each ERISA Affiliate for post-retirement welfare benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA), net of all assets under all such Plans allocable to such benefits, are reflected on the Financial Statements in accordance with FAS 106. 6.12 Governmental Regulations, Etc. (a) No part of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Agent, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within -50- 55 the meaning of Regulation T. "Margin stock" within the meanings of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation G, T, U or X. (b) Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, neither the Borrower nor any of its Subsidiaries (other than RISCORP Asset management, Inc.) is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) The Insurance Subsidiaries have filed all reports, statements, documents, registrations, filings, or submissions required to be filed with any Governmental Authority with respect to which the failure to so file will individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), operations, business, assets, liabilities or prospects of any Insurance Subsidiary, or except as otherwise agreed to by the applicable Governmental Authority. All such filings complied with applicable law in all material respects when filed, and no material deficiencies have been asserted by any Governmental Authority with respect to such filings or submissions. (d) No director, executive officer or principal shareholder of the Borrower or any of its Subsidiaries is a director, executive officer or principal shareholder of any Lender. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to any Lender) have the respective meanings assigned thereto in Regulation 0 issued by the Board of Governors of the Federal Reserve System. (e) Each of the Borrower and its Subsidiaries has obtained all material licenses, permits, franchises or other governmental authorizations necessary to the ownership of its respective Property and to the conduct of its business. (f) Neither the Borrower nor any of its Subsidiaries is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, count or an other Jurisdiction or -51- 56 of any agency thereof (including without limitation, environmental laws and regulations), which violation could reasonably be expected to have a Material Adverse Effect. (g) Each of the Borrower and its Subsidiaries is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions. 6.13 Subsidiaries. Schedule 6.13 sets forth all the Subsidiaries of the Borrower at the Closing Date, the jurisdiction of their incorporation and the direct or indirect ownership interest of the Borrower therein. 6.14 Purpose of Loans. The proceeds of the Revolving Loans hereunder shall be used solely by the Borrower for the working capital and general corporate purposes of the Borrower and its Wholly Owned Subsidiaries (other than RISCORP Asset Management, Inc.). The proceeds of the Term Loan shall be used solely by the Borrower to repay in full the Revolving Loans. 6.15 Environmental Matters. (a) Each of the facilities and properties owned, leased or operated by the Borrower or any of its Subsidiaries (the "Properties") and all operations at the Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower or any of its Subsidiaries (the "Businesses"), and there are no conditions relating to the Businesses or Properties that could give rise to liability under any applicable Environmental Laws. (b) None of the Properties contains, or has previously contained, any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws. (c) Neither the Borrower nor any of its Subsidiaries has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Businesses, nor does the Borrower or any of its Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf of -52- 57 the Borrower or any of its Subsidiaries in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which the Borrower or any of its Subsidiaries is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Borrower or any of its Subsidiaries, the Properties or the Businesses. (f) There has been no release or, threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations (including, without limitation, disposal) of the Borrower or any of its Subsidiaries in connection with the Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 6.16 Insurance Policies. All insurance policies or contracts, including, without limitation, annuities issued or assumed by the Insurance Subsidiaries and now in force, are, to the extent required under applicable law, on forms approved by the insurance regulatory authority of the state or jurisdiction where issued or have been filed with and not objected to by such authority within the period provided for objection except where the issuance of such policies or contracts without such approval or expiration of the period for objection will not, individually or in the aggregate, have a Material Adverse Effect. All policy or annuity dividends and benefits payable by the Insurance Subsidiaries have in all material respects been paid in accordance with the terms of the policies and annuities under which they arose, except for such dividends or other benefits for which such Insurance Subsidiary reasonably believes there is a reasonable basis to contest payment. SECTION 7 AFFIRMATIVE COVENANTS Each Credit Party hereby covenants and agrees that so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 7.1 Information Covenants. The Borrower will furnish, or cause to be furnished, to the Agent: (a) Annual Financial Statements. (i) As soon as available, and in any event within 120 days after the close of each fiscal year of the Borrower and -53- 58 its Subsidiaries, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal year, together with related consolidated statements of operations, retained earnings, changes in stockholders' equity and cash flows for such fiscal year, setting forth in comparative form consolidated figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited by independent certified public accountants of recognized national standing reasonably acceptable to the Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified as to the status of the Borrower and its Subsidiaries as a going concern. (ii) As soon as available, and in any event within 120 days (or, if later, as required by applicable law) after the close of each fiscal year of an Insurance Subsidiary, the most recent SAP Statement of such Insurance Subsidiary, as audited in accordance with applicable law and accompanied by a certificate of a knowledgeable officer of such Insurance Subsidiary to the effect that such SAP Statement fairly presents in all material respects the financial condition of such Insurance Subsidiary and has been prepared in accordance with SAP. (b) Quarterly Financial Statements. (i) As soon as available, and in any event within 45 days after the close of each fiscal quarter of the Borrower and its Subsidiaries (other than the fourth fiscal quarter, in which case 120 days after the end thereof) a consolidated and consolidating balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal quarter, together with related consolidated statements of operations, retained earnings and cash flows for such fiscal quarter in each case setting forth in comparative form consolidated figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Agent, and accompanied by a certificate of the chief financial officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments. (ii) As soon as available, and in any event within 45 days after the close of each fiscal quarter of an Insurance Subsidiary (other than the fourth fiscal quarter, in which case 120 days after the end thereof), the most recent SAP Statement of such Insurance Subsidiary, in each case -54- 59 accompanied by a certificate of a knowledgeable officer of such Insurance Subsidiary to the effect that such SAP Statement fairly presents in all material respects the financial condition of such Insurance Subsidiary and has been prepared in accordance with SAP. (c) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of the chief financial officer of the Borrower; substantially in the form of Schedule 7.1(c), (i) demonstrating compliance with the financial covenants contained in Section 7.11 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto. (d) Actuarial Report. Within the period for delivery of the annual financial statements provided in Section 7.1(a)(ii), an Actuarial Report prepared by an independent actuary reasonably acceptable to the Agent and certified as to such Insurance Subsidiary's reserve position as of such fiscal year end by such independent actuary. (e) IRIS Test Results. As soon as received after the end of each Fiscal Year of each Insurance Subsidiary, a copy of the final report to such Insurance Subsidiary from the NAIC as to such Insurance Subsidiary's status under the IRIS Tests. (f) Auditor's Reports. Promptly upon receipt thereof, a copy of any other report or "management letter" submitted by independent accountants to the Borrower or any of its Subsidiaries in connection with any annual, interim or special audit of the books of such Person. (g) Reports. Promptly upon transmission or receipt thereof, (a) copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as the Borrower or any of its Subsidiaries shall send to its shareholders or to a holder of any Indebtedness owed by the Borrower or any of its Subsidiaries in its capacity as such a holder, (b) copies of any reports on examination or similar reports, financial examination reports or market conduct examination reports by a Governmental Authority with respect to any Insurance Subsidiary relating to such Insurance Subsidiary's insurance business, (c) copies of all Insurance Holding Company Systems Act filings and (d) upon the request of the Agent, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any -55- 60 successor agencies or authorities concerning environmental, health or safety matters. (h) Notices. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent immediately of (a) the occurrence of an event or condition consisting of a Default or Event of Default, specifying the nature and existence thereof and what action the Credit Parties propose to take with respect thereto, and (b) the occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (i) the pendency or commencement of any litigation, arbitral or governmental proceeding against such Person which if adversely determined is likely to have a Material Adverse Effect, (ii) the institution of any proceedings against such Person with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any federal, state or local law, rule or regulation, including but not limited to, Environmental Laws, the violation of which would likely have a Material Adverse Effect, or (iii) any notice or determination concerning the imposition of any withdrawal liability by a Multiemployer Plan against such Person or any ERISA Affiliate, the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA or the termination of any Plan. (i) ERISA. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent promptly (and in any event within five business days) of: (i) of any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, a Termination Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the Borrower, any of the Subsidiaries of the Borrower or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) any change in the funding status of any Plan that could have a Material Adverse Effect; together, with a description of any such event or condition or a copy of any such notice and a statement by the chief financial officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the Borrower shall furnish the Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of -56- 61 each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year, (within the meaning of Section 3(39) of ERISA). (j) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower or any of its Subsidiaries as the Agent or the Required Lenders may reasonably request. 7.2 Preservation of Existence and Franchises. The Borrower will, and will cause each of its Subsidiaries to, do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority, except (a) as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted by Section 8.4(a), Section 8.4(b) or Section 8.4(c) or (b) as would not, in the reasonable opinion of the Agent, result in a Material Adverse Effect. 7.3 Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP and, with respect to any Insurance Subsidiary, SAP (including the establishment and maintenance of appropriate reserves). 7.4 Compliance with Law. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its property if noncompliance with any such law, rule, regulation, order or restriction would have a Material Adverse Effect. 7.5 Payment of Taxes and Other Indebtedness. Except as otherwise provided pursuant to the terms of the definition of "Permitted Liens" set forth in Section 1.1, the Borrower will, and will cause each of its Subsidiaries to, pay and discharge (i) all taxes, assessments and governmental charges for levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (ii) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (iii) except as prohibited hereunder, all of its other Indebtedness as it shall become due. 7.6 Insurance/Reinsurance. (a) The Borrower will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks -57- 62 and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice. (b) The Borrower will cause each of its Insurance Subsidiaries to maintain, at all time and in accordance with normal industry practice, Reinsurance Agreements that are with reinsurers rated "A-" or better by A.M. Best & Company, Inc., provided that up to $3,000,000 in Reinsurance Agreements may be with reinsurers that are rated less than "A-" but no worse than "B" by A.M. Best & Company, Inc. 7.7 maintenance of Property. The Borrower will, and will cause each of its Subsidiaries to, maintain and preserve its properties and equipment material to the conduct of its business in good repair, working order and condition, normal wear and tear and casualty and condemnation excepted, and will make, or cause to be made, in such properties and equipment from time to time all repairs, renewals, replacements, extensions, additions, betterments and improvements thereto as may be needed or proper, to the extent and in the manner customary for companies in similar businesses. 7.8 Performance of Obligations. The Borrower will, and will cause each of its Subsidiaries to, perform in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments (including, without limitation, the Subordinated Debt Agreement) to which it is a party or by which it is bound. 7.9 Use of Proceeds. The Borrower will use the proceeds of the Loans solely for the purposes set forth in Section 6.14. 7.10 Audits/Inspections. Upon reasonable notice and during normal business hours, the Borrower will, and will cause each of its Subsidiaries to, permit representatives appointed by the Agent, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect its property, including its books and records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of such Person, all (unless an Event of Default shall have occurred and be continuing) at the Lenders' sole cost and expense. 7.11 Financial Covenants. (a) Consolidated Leverage Ratio. As of the last day of each fiscal quarter, the Borrower shall cause the Consolidated Leverage Ratio to be no greater than 0.45 to 1.00. (b) Consolidated Current Maturities Coverage Ratio. The Borrower shall cause the Consolidated Current Maturities -58- 63 Coverage Ratio as of the last day of each fiscal quarter to be at least:
Period Ratio ------ ----- Each fiscal quarter end occurring from the Closing Date through and including September 30, 1997 1.2 to 1.0 Each fiscal quarter end occurring from October 1, 1997 through and including September 30, 1998 1.5 to 1.0 Each fiscal quarter end occurring from October 1, 1998 and thereafter 1.2 to 1.0
(c) Consolidated Net Written Premiums to Statutory Surplus Ratio. The Borrower shall cause the Consolidated Net Written Premiums to Statutory Surplus Ratio to be no greater than 3.0 to 1.0 as of the last day of each fiscal year of its Insurance Subsidiaries. (d) Risk Based Capital. (i) The Borrower shall cause each Insurance Subsidiary to maintain a ratio, as of the last day of each fiscal year, of (A) Total Adjusted Capital (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) to (B) the Company Action Level RBC (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) of at least one hundred twenty-five percent (125%). (ii) Notwithstanding the subsection (i) hereof, the Borrower shall cause those Insurance Subsidiaries representing 75%, in the aggregate, of Consolidated Net Written Premiums to maintain a consolidated ratio, as of the last day of each fiscal year, of (A) Total Adjusted Capital (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) to (B) the Company Action Level RBC (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) of at least one hundred fifty-percent (150%). 7.12 Additional Credit Parties. At any time that the Non-Guarantor Subsidiaries shall at any time have total assets equal to or greater than $500,000, in any instance, or $2,000,000, collectively, then the Borrower will promptly notify the Agent -59- 64 thereof, and promptly cause one or more Non-Guarantor Subsidiaries to become a "Guarantor" hereunder by (A) execution of a Joinder Agreement in substantially the same form as Schedule 7.12 attached hereto; (B) delivery of such other documentation as the Agent may reasonably request, including, without limitation, certified resolutions and other organizational and authorizing documents of such Person and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above), all in form, content and scope reasonably satisfactory to the Agent, such that immediately after the joinder of such Subsidiary or Subsidiaries, the remaining Non-Guarantor Subsidiaries shall not have total assets equal to or greater than $500,000, in any instance, or $2,000,000, collectively. 7.13 Ownership of Subsidiaries. Except to the extent otherwise provided in Section 8.4 (b) and Section 8.11, the Borrower shall, directly or indirectly, own at all times 100% of the capital stock of each of its Subsidiaries. 7.14 Dividends. The Borrower shall (a) cause each of its Subsidiaries from time to time to pay cash dividends or make other distributions or payments in cash (directly or, through other Subsidiaries of the Borrower, indirectly) to the Borrower in amounts that, taken together, are sufficient to permit the Borrower to (i) pay all principal of and any accrued interest in respect of the Loans and all other indebtedness or obligations of any and every kind owing by the Borrower to the Agent and/or any of the Lenders hereunder as the same shall become due and payable (whether at stated maturity, by mandatory prepayment, by acceleration or otherwise) and (ii) pay for all capital expenditures made by the Borrower, (b) cause each of its Insurance Subsidiaries to make payments in accordance with the terms of the Management Agreements, and (c) cause each of its Insurance Subsidiaries to request on a timely basis regulatory approval to the extent necessary for such Subsidiary to pay such dividends or make such distributions or payments. SECTION 8 NEGATIVE COVENANTS Each Credit Party hereby covenants and agrees that, so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: -60- 65 8.1 Indebtedness. The Borrower will not, nor will it permit any of its Subsidiaries to, contract, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness arising under this Credit Agreement and the other Credit Documents; (b) Indebtedness of the Borrower and any of its Subsidiaries set forth in Schedule 8.1 (and renewals, refinancings and extensions thereof on terms, and conditions no less favorable to such Person than such existing Indebtedness); (c) Intercompany Indebtedness incurred in the ordinary course of business and consistent with the past practices of the Credit Parties or for cash management purposes; (d) obligations of the Borrower in respect of any interest rate protection agreement or foreign currency exchange agreement (including, but not limited to, the Hedging Agreements) entered into in order to manage existing or anticipated interest rate or exchange rate risks and not for speculative purposes; provided that, so long as any Subordinated Indebtedness shall remain outstanding, Indebtedness permitted under this Section 8.1(d) may only be incurred to the extent allowed under Section 8.8(a)(i)(C) of the Subordinated Debt Agreement; (e) Subordinated Indebtedness; and (f) in addition to the Indebtedness otherwise permitted by this Section 8.1, (i) other Indebtedness hereafter incurred by the Borrower provided that (A) the loan documentation with respect to such Indebtedness shall not contain covenants or default provisions relating to the Borrower that are more restrictive than the covenants and default provisions contained in the Credit Documents, (B) on the date of incurrence of such Indebtedness after giving effect on a Pro Forma Basis to the incurrence of such Indebtedness and to the concurrent retirement of any other Indebtedness, if any, of the Borrower or any of its Subsidiaries, no Default or Event of Default would exist hereunder and (C) so long as any Subordinated Indebtedness shall remain outstanding, Indebtedness permitted under subsection (f)(i) may only be incurred to the extent allowed under Section 8.8 (b) of the Subordinated Debt Agreement; and (ii) Guaranty obligations of any Subsidiary of the Borrower that is a Guarantor with respect to any Indebtedness of the Borrower permitted under this Section 8.1(f). -61- 66 8.2 Liens. The Borrower will not, nor will it permit any of its Subsidiaries to, contract, create, incur, assume or permit to exist any Lien with respect to any of their Property, whether now owned or after acquired, except for Permitted Liens. 8.3 Nature of Business. The Borrower will, and will cause its Subsidiaries to, remain principally engaged in the property and casualty insurance business and such business activities incidental or related thereto and will not engage in (i) writing lines of insurance for which it does not currently hold all necessary licenses or (ii) any line of business in which they are not currently engaged to such an extent that the business of the Borrower and its Subsidiaries taken as a whole would be fundamentally different in nature from the business of the Borrower and its Subsidiaries on the Closing Date. 8.4 Consolidation, Merger, Sale or Purchase of Assets, etc. The Borrower will not, nor will it permit any of its Subsidiaries to: (a) except in connection with a disposition of assets permitted by the terms of subsection (c) below, dissolve, liquidate or wind up their affairs; (b) enter into any transaction of merger or consolidation; provided, however, that, so long as no Default or Event of Default would be directly or indirectly caused as a result thereof, (i) the Borrower may merge or consolidate with any of its Subsidiaries provided that the Borrower is the surviving corporation; (ii) any Subsidiary of the Borrower may merge or consolidate with any other Subsidiary of the Borrower, provided after giving effect to such merger or consolidation, no Default or Event of Default would exist hereunder; (c) sell, lease, transfer or otherwise dispose of any Property other than (i) the sale of assets pursuant to Reinsurance Agreements entered into in the ordinary course of business, (ii) the sale or disposition of machinery and equipment no longer used or useful in the conduct of such Person's business, and (iii) the sale of assets to the Borrower or any Subsidiary of the Borrower, provided that after giving effect to such sale or other disposition, no Default or Event of Default would exist hereunder; (d) except as otherwise permitted by Section 8.4(b), acquire all or any portion of the capital stock or securities of any other Person or purchase, lease or otherwise acquire (in a single transaction or a series of related transactions) all or any substantial part of the Property of any other Person, unless (i) such Person is engaged in a business or businesses substantially similar to any business currently conducted by the Borrower or any of its Subsidiaries, (ii) such acquisition is approved by the board of directors of such Person, (iii) after giving effect on a Pro Forma Basis to any such acquisition:(including but not limited to any -62- 67 Indebtedness to be incurred or assumed by the Borrower or any of its Subsidiaries in connection therewith), no Default or Event of Default would exist hereunder and (iv) so long as any Subordinated Indebtedness shall remain outstanding, acquisitions permitted under this Section 8.4(d) may only be undertaken to the extent allowed under Section 8.11 of the Subordinated Debt Agreement. 8.5 Advances, Investments, Loans, etc.. The Borrower will not, nor will it permit any of its Subsidiaries to, acquire, make or permit to exist any Investments other than Permitted Investments. 8.6 Restricted Payments. The Borrower will not, nor will it permit any of its Subsidiaries to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (a) to make dividends payable solely in the same class of capital stock of such Person, (b) to make dividends or other distributions payable to the Borrower (directly or indirectly through Subsidiaries of the Borrower), (c) the Subsidiaries of RISCORP Management may make dividends or other distributions payable to RISCORP Management (directly or indirectly through Subsidiaries of RISCORP Management) and (d) the Borrower may make Restricted Payments if (i) the Subordinated Indebtedness shall have been repaid in full, (ii) the Subordinated Debt Agreement shall have been terminated and (iii) after giving effect on a Pro Forma Basis to such Restricted Payment (including but not limited to any Indebtedness to be incurred or assumed by the Borrower or any of its Subsidiaries in connection therewith), no Default or Event of Default would exist hereunder. 8.7 Prepayments of Indebtedness, etc.. The Borrower will not, nor will it permit any of its Subsidiaries to, (i) after the issuance thereof,amend or modify (or permit the amendment or modification of) any of the terms of any Indebtedness (including, without limitation, the Subordinated Indebtedness) if such amendment or modification would add or change any terms in a manner adverse to the issuer of such Indebtedness, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto or change any subordination provision thereof, or (ii) (A) if any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, make (or give any notice with respect thereto) any voluntary or optional payment, any prepayment or any redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any other Indebtedness (other than Subordinated Indebtedness) or (B) make (or give any notice with respect thereto) any voluntary or optional payment, any prepayment or any redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due); refund; refinance or exchange of any Subordinated Indebtedness, provided that the Borrower may use cash proceeds -63- 68 received from the issuance of common stock to prepay the Subordinated indebtedness or (C) amend, modify or change its articles of incorporation (or corporate charter or other similar organizational document) or bylaws (or other similar document where such change would have a Material Adverse Effect. 8.8 Transactions with Affiliates. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any transaction (or series of related transactions) directly or indirectly with or for the benefit of any Affiliate of the Borrower (other than a Subsidiary) or any officer or director of any Affiliate unless (a) such transaction (or series of related transactions) is in the ordinary course of business on terms that are no less favorable to the Borrower or such Subsidiary, as the case may be, than the Borrower or any such Subsidiary would obtain in a comparable transaction (or series of related transactions) with a Person not an Affiliate, (b) such transaction (or series of related transactions) is approved by the Board of Director's of the Borrower, and (c) with respect to any transaction (or series of related transactions) involving aggregate payments or commitments in excess of $7,000,000, the Borrower receives an opinion from a nationally recognized investment banking firm, or other nationally or regionally recognized appraisal firm, that such transaction (or series of "related transactions) is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view. The restrictions contained in the foregoing sentence shall not apply to any payments made under the Existing Affiliate Contracts. 8.9 Fiscal Year. The Borrower will not, nor will it permit any of its Subsidiaries to, change its fiscal year. 8.10 Limitation on Restrictions on Subsidiary Dividends and other Distributions, etc.. The Borrower will not, nor will it permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Person to (a) pay dividends or make any other distribution on any of such Person's capital stock, (b) subject to subordination provisions, pay any Indebtedness owed to the Borrower or any other Credit Party, (c) make loans or advances to any other Credit Party or (d) transfer any of its Property to any other Credit Party, except for encumbrances or restrictions existing under or by reason of (i) customary non-assignment provisions in any lease governing a leasehold interest, (ii) the Subordinated Debt Agreement, as in existence on the date hereof, and (iii) this Credit Agreement and the other Credit Documents. 8.11 Issuance of Stock. The Borrower will not, nor will it permit any of its Subsidiaries to, issue, sell or otherwise dispose of any shares of capital stock of any Subsidiary of the Borrower (including by way of sales of treasury, stock) or any options or warrants to purchase, or securities convertible into, capital stock of any Subsidiary of a Borrower. 8.12 Sale Leasebacks. The Borrower will not, nor will it permit any of its Subsidiaries to, directly or indirectly, become. -64- 69 or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed), whether now owned or hereafter acquired, (i) which such Person has sold or transferred or is to sell or transfer to any other Person other than a Credit Party or (ii) which such Person intends to use for substantially the same purpose as any other Property which has been sold or is to be sold or transferred by such Person to any other Person in connection with such lease. 8.13 Settlements. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any binding settlement agreement with respect to any litigation, investigation or proceeding, whether pending or threatened, by or against the Borrower or any of its Subsidiaries, unless after giving effect on a Pro Forma Basis to any such settlement (including but not limited to any payment made or any Indebtedness to be incurred or assumed by the Borrower or any of its Subsidiaries in connection therewith), no Default or Event of Default would exist hereunder. 8.14 No Further Negative Pledges. Except with respect to prohibitions against other encumbrances on specific Property encumbered to secure payment of particular Indebtedness (which Indebtedness relates solely to such specific Property, and improvements and accretions thereto and is otherwise permitted hereby), the Borrower will not, nor will it permit any of its Subsidiaries to, enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation. 8.15 No Foreign Subsidiaries. Neither the Borrower nor any of its Subsidiaries will create, acquire or permit to exist any direct or indirect Subsidiary of such Person which is not incorporated or organized under the laws of any State of the United States or the District of Columbia. SECTION 9 EVENTS OF DEFAULT 9.1 Events of Default. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans, or (ii) default, and such defaults shall continue for five (5) or more Business Days, in the payment when due of any interest on the Loans or of any -65- 70 Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) Representations Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant here to or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (c) Covenants. Any Credit Party shall (i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.9, 7.11, 7.12 or 8.1 through 8.15, inclusive, or (ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c) (i) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 45 days after the earlier of a responsible officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (d) Other Credit Documents. (i) Any Credit Party shall default in the due performance or observance of any term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted by Section 8.4 (a), Section 8.4 (b) or Section 8.4 (c), any Credit Document shall fail to be in. full force and effect or to give the Agent and/or the Lenders the Liens, rights, powers and privileges purported to be,created thereby; or (e) Guaranties. Except as the result of or in connection with a Dissolution, merger or disposition of a Subsidiary permitted by Section 8.4 (a), Section 8.4 (b) or Section 8.4(c), the guaranty given by any Guarantor hereunder (including any Additional Credit Party) or any provision thereof shall cease to be in full force and effect, or any Guarantor (including any Additional Credit Party) hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty or -66- 71 (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to the Borrower or any of its Subsidiaries; or (g) Insurance Regulatory Orders. There shall occur any seizure, vesting, or intervention by or under the authority of any Governmental Authority by which (i) the management of any Insurance Subsidiary is displaced, or (ii) the authority of any Insurance Subsidiary is displaced, or is curtailed, in any materially adverse manner; or (h) Defaults under Other Agreements. (i) The Borrower or any of its Subsidiaries shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) of any obligation or condition of the Subordinated Debt Agreement; or (ii) The Borrower or any of its Subsidiaries shall default., in any materially adverse manner, in the performance or observance (beyond the applicable grace period with respect thereto, if any) of any obligation or condition of any contract or lease; or (iii) With respect to any Indebtedness (other than Indebtedness outstanding under this Credit Agreement) in excess of $1,000,000 in the aggregate for the Borrower and its Subsidiaries taken as a whole, (A) the Borrower or any of its Subsidiaries shall (1) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Indebtedness, or (2) the occurrence and continuance of a default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (i) Subordinated Indebtedness. (i) The violation by any party to the Subordinated Debt Agreement of any provision of Section 10 thereof, or the ceasing of such agreement to be in full force and effect; or -67- 72 (ii) The Borrower shall make any payments of principal in respect of the Subordinated Indebtedness prior to the repayment in full of the Loans, other than as permitted under Section 8.7; or (j) Judgments. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving an aggregate liability in excess of $2,000,000 (or, if less and so long as the Subordinated Indebtedness shall remain outstanding, the aggregate amount of judgment liabilities permitted under Section 11.1(j) of the Subordinated Debt Agreement) and any such judgments or decrees shall not (i) have been vacated, discharged or stayed or bonded pending appeal within 45 days from the entry therefor (ii) have been paid or fully covered by insurance provided by a carrier who has acknowledged coverage; or (k) ERISA. Any of the following events or conditions, if such event or condition could have a Material Adverse Effect: (1) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate in favor of the PBGC or a Plan; (2) a Termination Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (3) a Termination Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in (i) the termination of such Plan for purposes of Title IV of ERISA, or (ii) the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency or (within the meaning of Section 4245 of ERISA) such Plan; or (4) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (1) Ownership. There shall occur a Change of Control. 9.2 Acceleration; Remedies. Upon the occurrence of an Event of Default, and at any time thereafter unless and until such Event of Default has been waived by the Required Lenders or cured to the -68- 73 satisfaction of the Required Lenders (pursuant to the voting procedures in Section 11.6), the Agent shall, upon the request and direction of the Required Lenders, by written notice to the Credit Parties take any of the following actions: (i) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (ii) Acceleration. Declare the unpaid principal of and any accrued interest in respect of all Loans and any and all other indebtedness or obligations of any and every kind owing by the Borrower to the Agent and/or any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. (iii) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans all accrued interest in respect thereof, all accrued and unpaid fees and other indebtedness or obligations owing to the Agent and/or any of the Lenders hereunder automatically shall immediately become due and payable without the giving of any notice or other action by the Agent or the Lenders. SECTION 10 AGENCY PROVISIONS 10.1 Appointment. Each Lender hereby designates and appoints NationsBank, N.A. (South) as administrative agent (in such capacity as Agent hereunder, the "Agent") of such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby authorizes the Agent as the agent for such Lender, to take such action on its behalf under the provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein And therein, or any fiduciary relationship with any Lender, and no implied covenants, obligations or liabilities functions, responsibilities, duties, shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Agent. The provisions of this Section are solely for the benefit of the Agent and the Lenders and none of the, Credit Parties shall have any rights as a third party beneficiary of the provisions hereof. In -69- 74 performing its functions and duties under this Credit Agreement and the other Credit Documents, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Credit Party or any of their respective Affiliates. 10.2 Delegation of Duties. The Agent may execute any of their respective duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. The Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any of the Credit Parties contained herein or in any of the other Credit Documents or in any certificate, report, document, financial statement or other written or oral statement referred to or provided for in, or received by the Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for any failure of any Credit Party to perform its obligations hereunder or thereunder. The Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by the Borrower or any Credit Party in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to the Lenders or by or on behalf of the Credit Parties to the Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of the Credit Parties or any of their respective Affiliates. 10.4 Reliance on Communications. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Credit Parties, independent accountants and other experts -70- 75 selected by the Agent with reasonable care). The Agent may deem and treat the Lenders as the owner of their respective interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent in accordance with Section 11.3(b) hereof. The Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns). 10.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender or a Credit Party referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders. 10.6 Non-Reliance on Agent an Lenders. Each Lender expressly acknowledges that each of the Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates has not made any representations or warranties to it and that no act by the Agent or any affiliate thereof hereinafter taken, including any review of the affairs of any Credit Party or any of their respective Affiliates, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the other Credit Parties or their respective Affiliates and made its own decision to make its Loans hereunder and enter into this Credit Agreement. Each Lender also represents 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 analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the Parties and their respective Affiliates. Except for -71- 76 notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of the Borrower, the other Credit Parties or any of their respective Affiliates which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitments (or if the Commitments have expired or been terminated, in accordance with the respective principal amounts of outstanding Loans of the Lenders), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the final payment of all of the obligations of the Borrower hereunder and under the other Credit Documents) be imposed on, incurred by or asserted against the Agent in its capacity as such in any way relating to or arising out of this Credit Agreement or the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of 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 Agent. If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the repayment of the Loans and other obligations under the Credit Documents and the termination of the Commitments hereunder. 10.8 Agent in its Individual Capacity. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, its Subsidiaries or their respective Affiliates as though the Agent were not the Agent hereunder. With respect to the Loans made by and all obligations of the Borrower hereunder and under the other Credit Documents, the Agent shall have the same rights and powers under, this Credit Agreement as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 10.9 Successor Agent. The Agent may, at any time resign upon 20 days' written notice to the Lenders, and be removed with or without cause by the Required Lenders upon 30 days written notice to the Agent. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no -72- 77 successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the notice of resignation or notice of removal, as appropriate, then the retiring Agent shall select a successor Agent provided such successor is a Lender hereunder or a commercial bank organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $400,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Credit Agreement. SECTION 11 MISCELLANEOUS 11.1 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Agent, set forth below, and, in the case of the Lenders, set forth on Schedule 2.1(a), or at such other address as such party may specify by written notice to the other parties hereto: if to the Borrower or the Guarantors: RISCORP, Inc. 1390 Main Street Sarasota, Florida 34236-5642 Attn: Chief Financial Officer Telephone: (941) 951-2022 Telecopy: (941) 951-1495 with a copy to: Brown, Clark & Walters Sarasota City Center, Suite 1100 1819 Main Street Sarasota, Florida 34236 Attn: Daryl Brown, Esq. Telephone: (941) 957-3800 Telecopy: (941) 957-3888 -73- 78 if to the Agent: NationsBank, N.A. (South) Independence center, 15th Floor NCl-001-15-04 101 N. Tryon Street Charlotte, North Carolina 28255 Attn: Agency Services Telephone: (704) 386-8958 Telecopy: (704) 386-9923 with a copy to: NationsBank, N.A. (South) 1605 Main Street, Suite 101 FL4-237-01-04 Sarasota, Florida 34236-5847 Attn: Mark A. McDonell Telephone: (941) 952-2741 Telecopy: (941) 952-2853 11.2 Right of Set-Off. In Addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Person to such Lender hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether such Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. Any Person purchasing a. participation in the Loans and Commitments hereunder pursuant to Section 3.13 or Section 11.3(d) may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder. 11.3 Benefit of Agreement. (a) Generally This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; Provided that none of the Credit Parties may assign or transfer any of its interests without prior written consent of the Lenders; provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in -74- 79 this Section 11.3, Provided however that nothing herein shall prevent or prohibit any Lender from (i) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (ii) granting assignments or selling participations in such Lender's Loans and/or Commitments hereunder to its parent company and/or to any Affiliate or Subsidiary of such Lender. (b) Assignments. Each Lender may assign all or a portion of its rights and obligations hereunder, pursuant to an assignment agreement substantially in the form of Schedule 11.3(b), to (i) any Lender or any Affiliate or Subsidiary of a Lender, or (ii) any other commercial bank, financial institution or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) reasonably acceptable to the Agent and, so long as no Default or Event of Default has occurred and is continuing, the Borrower; Provided that (i) any such assignment (other than any assignment to an existing Lender) shall be in a minimum aggregate amount of $5,000,000 (or, if less, the remaining amount of the Commitment being assigned by such Lender) of the Commitments and in integral multiples of $1,000,000 above such amount and (ii) each such assignment shall be of a constant, not varying, percentage of all such Lender's rights and obligations under this Credit Agreement. Any assignment hereunder shall be effective upon delivery by the assigning Lender to the Agent of written notice of the assignment together with a transfer fee of $3,500 payable to the Agent for its own account from and after the later of W the effective date specified in the applicable assignment agreement and (ii) the date of recording of such assignment in the Register pursuant to the terms of subsection (c) below. The assigning Lender will give prompt notice to the Agent and the Borrower of any such assignment. Upon the effectiveness of any such assignment (and after notice to, and (to the extent required pursuant to the terms hereof), with the consent of, the Borrower as provided herein), the assignee shall become a "Lender" for all purposes of this Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Loans and Commitment components being assigned. Along such lines the Borrower agrees that upon notice of any such assignment and surrender of the appropriate Note or Notes, it will promptly provide to the assigning Lender and to the assignee separate promissory notes in the amount of their respective interests substantially in the form of the original Note (but with notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof). By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender 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 Lender, warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of an adverse -75- 80 claim; (ii) except as set forth in clause (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of any Credit Party or any of their respective Affiliates or the performance or observance by any Credit Party of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (iv) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (v) such assignee will independently and without reliance upon the Agent, such assigning Lender 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 Credit Agreement and the other Credit Documents; (vi) such assignee appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Agent by the terms hereof or thereof, 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 Credit Agreement and the other Credit Documents are required to be performed by it as a Lender. Notwithstanding the provisions of Section 11.5, each assigning Lender shall pay any and all fees and expenses incurred in connection with any assignments made by it pursuant to this Section 11.3(b). (c) Maintenance of Register. The Agent shall maintain at one of its offices in Charlotte, North Carolina a copy of each Lender assignment agreement delivered to it in accordance with the terms of subsection (b) above and a register for the recordation of the identity of the principal amount, type and Interest Period of each Loan outstanding hereunder, the names, addresses and the Commitments of the Lenders pursuant to the terms hereof from time to time (the "Register"). The Agent will make reasonable efforts to maintain the accuracy of the Register and to promptly update the Register from time to time as necessary. The entries in the Register shall be conclusive in the absence of manifest error and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower -76- 81 and each Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Participations. Each Lender may sell, transfer, grant or assign participations in all or any part of such Lender's interests and obligations hereunder; provided that (i) such selling Lender shall remain a "Lender" for all purposes under this Credit Agreement (such selling Lender's obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal" of or rate of interest on or Fees in respect of any Loans in which the participant is participating, (B) postpone the date fixed for any payment of principal (including extension of the Conversion Date, the Termination Date or the date of any mandatory prepayment), interest or Fees in which the participant is participating, or (C) except as expressly provided in the Credit Documents, release any Guarantor from its guaranty obligations hereunder, and (iii) sub-participations by the participant (except to an affiliate, parent company or affiliate of a parent company of the participant) shall be prohibited. In the case of any such participation, the participant shall not have any rights under this Credit Agreement or the other Credit Documents (the participant's rights against the selling Lender in respect of such participation to be those set forth in the participation agreement with such Lender creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided, however, that such participant shall be entitled to receive additional amounts under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a Lender. 11.4 No Waiver; Remedies Cumulative. No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive, of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or: any other Credit, Party to any other, or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. -77- 82 11.5 Payment of Expenses, etc. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses (A) of the Agent in connection with the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC, special counsel to the Agent) and any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and (B) of the Agent and the Lenders in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Agent and each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of (A) any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding or (B) the presence or Release of any Materials of Environmental Concern at, under or from any Property owned, operated or leased by the Borrower or any of its Subsidiaries, or the failure by the Borrower or any of its Subsidiaries to comply with any Environmental Law (but excluding, in the case of either of clause (A) or (B) above, any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 11.6 Amendments, Waivers and Consents. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in Writing entered into by, or approved in writing by, the Required Lenders and the Borrower, provided that no such amendment, change, waiver, discharge or termination shall, without the consent of each Lender: (i) extend the final maturity of any Loan, or any portion thereof; -78- 83 (ii) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) on any Loan or fees hereunder; (iii) reduce the principal amount on any Loan, or increase the Commitments of the Lenders over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default or of a mandatory reduction in the total commitments shall not constitute a change in the terms of any Commitment of any Lender); (iv) except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted by Section 8.4(a), Section 8.4(b) or Section 8.4(c), release all or substantially all of the Guarantors from the guaranty obligations hereunder; (v) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.10, 3.11, 3.12, 3.13, 5.1, 5.2, 9.1(a), 11.2., 11.3, 11.5 or 11.9; (vi) reduce any percentage specified in, or otherwise modify, the definition of "Required Lenders;" or (vii) consent to the assignment or transfer by the Borrower (or any Guarantor) of any of its rights and obligations under (or in respect of) the Credit Documents to which it is a party. No provision of Section 10 may be amended without the consent of the Agent. 11.7 Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 11.8 Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 Survival. All indemnities set forth herein, including, without limitation, in Section 3.9, 3.11, 10.7 or 11.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the repayment of the Loans and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Notes and the making of the Loans hereunder. 11.10 Governing Law; Submission to Jurisdiction; Venue. -79- 84 (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of Florida in Sarasota County, or of the United, States for the Middle District of Florida, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.11 Severability. if any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 Entirety. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. -80- 85 11.13 Binding Effect; Termination. (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Agent, and the Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding and until all of the Commitments hereunder shall have expired or been terminated. 11.14 Confidentiality. The Agent and the Lenders agree to keep confidential (and to cause their respective affiliates, officers, directors, employees, agents and representatives to keep confidential) all information, materials and documents furnished to the Agent or any such Lender by or on behalf of any Credit Party (whether before or after the Closing Date) which relates to the Borrower or any of its Subsidiaries (the "Information"). Notwithstanding the foregoing, the Agent and each Lender shall be permitted to disclose Information (i) to its affiliates, officers, directors, employees, agents and representatives in connection with its participation in any of the transactions evidenced by this Credit Agreement or any other Credit Documents or the administration of this Credit Agreement or any other Credit Documents; (ii) to the extent required by applicable laws and regulations or by any subpoena or similar legal process, or requested by any Governmental Authority; (iii) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Credit Agreement or any agreement entered into pursuant to clause (iv) below, (B) becomes available to the Agent or such Lender on a non-confidential basis from a source other than o Credit Party or (C) was available to the Agent or such Lender on o non-confidential basis prior to its disclosure to the Agent or such Lender by a Credit Party; (iv) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first specifically agrees in a writing furnished to and for the benefit of the Credit Parties to be bound by the terms of this Section 11.14; or (v) to the extent that the Borrower shall have consented in writing to such disclosure. Nothing set forth in this Section 11.14 shall obligate the Agent or any Lender to return any materials furnished by the Credit Parties. 11.15 Source of Funds. Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate. account maintained by such Lender in -81- 86 which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of, such purchase (and, for purposes of this subsection (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); or (c) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.15, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11.16 Conflict. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. (Signature Page to Follow] -82- 87 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: RISCORP, INC., a Florida corporation By: /s/ Anthony Tang -------------------------------- Name: Anthony Tang Title: Vice President of Treasury S-1 88 GUARANTORS: RISCORP ACQUISITION, INC., a Florida corporation RISCORP OF FLORIDA, INC., a Florida corporation RISCORP SERVICES, INC., a Florida corporation RISCORP MANAGEMENT SERVICES, INC., a Florida corporation RISCORP WEST, INC., an Oklahoma corporation RISCORP OF VIRGINIA, INC., a Virginia corporation RISCORP OF NORTH CAROLINA, INC., a North Carolina corporation RISCORP INSURANCE SERVICES, INC., a Florida corporation RISCORP MANAGED CARE SERVICES, INC., a Florida corporation RISCORP OF ILLINOIS, INC., an Illinois corporation SARASOTA INTERNATIONAL RISK AND INSURANCE SERVICES, INC., a Florida corporation SARASOTA CLAIMS AND INSURANCE SERVICES CORPORATION, a Florida corporation COMPSOURCE ACQUISITION, INC., a Florida corporation COMPSOURCE, INC., a North Carolina corporation INDEPENDENT ASSOCIATION ADMINISTRATORS INCORPORATED, a Florida corporation By: /s/ Anthony Tang --------------------------------------- Name: Anthony Tang Title: Vice President of Treasury of each of the above Guarantors S-2 89 LENDERS: NATIONSBANK, N.A. (SOUTH), individually in its capacity as a Lender and in its capacity as Agent By /s/ Mark A. McDonell ----------------------------------------- Name: Mark A. McDonell Title: Senior Vice President SOUTHTRUST BANK OF ASSOCIATION By Anthony D. Nigro ---------------------------------------- Name: Anthony D. Nigro Title: Assistant Vice President S-3 EX-10.70 7 REINSURANCE AGREEMENT 1 EXHIBIT 10.70 [G.J. SULLIVAN CO. REINSURANCE LETTERHEAD] February 4, 1997 Mr. Stephen C. Rece Senior Vice President RISCORP 1390 Main Street, 7th Floor Sarasota, Florida 34236 Re: RISCORP NATIONAL INSURANCE COMPANY WORKERS' COMPENSATION QUOTA SHARE OCTOBER 1, 1996 REINSURANCE AGREEMENT Dear Steve: Enclosed are two sets of our final Covernote on the captioned reinsurance which amends the following items from the original version you received: 1. Reinsurance Coverage: Paragraph C -We amended the treatment of UEP at 12/31/96, so that it will be reassumed by RNIC at 12:01 a.m. January 1, 1997 at 65% and simultaneously receded to the Reinsurer at 60%. Also, we went ahead and noted the 60% cession from January 1, 1997 - June 30, 1997. Should the percentage of cession change at July 1, 1997 or October 1, 1997, we'll need to transfer the UEP at the end of the quarter to the new cession percentage. 2. Other Provisions: The Alternate Payee Article has been renamed Additional Reinsured Article. In view of Missouri Insolvency Law, Chartwell's legal staff felt the Additional Reinsured language more clearly puts the issuer of the Assumption Liability Endorsements (ALEs) in the Company's place in the event RNIC became insolvent. 3. General Conditions: We've added an Interlocking Clause which is applicable only in the event you choose to run-off the liability from one Agreement Year and have a separate treaty for new and renewal business the following year. Under this scenario, should multiple policies from different Agreement Years be involved in one occurrence, you would pro rate both policies' involvement in the occurrence to determine the percentage each claim bears to meeting the $500,000 occurrence limit under the Quota Share. This obviously does not apply if you roll the inforce business into the next Agreement Year. 2 Please give Laura Hewitt or me a call if you have any questions regarding these changes. Otherwise, please send back to our office the RNIC Covernotes issued earlier (dated December 18, 1996, and December 23, 1996) so that there's less chance for confusion We ask that you please sign both copies of this Covernote and return one copy to our office, retaining the other for your records. A copy of the contract wording is currently being reviewed and should be out to you in the next week. Best Regards, /s/ William M. Allen --------------------- William M. Allen Senior Vice President WMAfjw Enc. 2 3 [G.J.SULLIVAN CO. REINSURANCE LETTERHEAD] RISCORP NATIONAL INSURANCE COMPANY 1390 Main Street Cover Note: R403940196 Sarasota, Florida 34236 January 29, 1997 WORKERS COMPENSATION QUOTA SHARE We hereby confirm that, in accordance with your instructions, we have effected the following reinsurance. Please examine this Cover Note (and any attachments thereto) carefully and advise us immediately if you have any problems or questions with regard to the Terms or Security. CEDING COMPANY: RISCORP NATIONAL INSURANCE COMPANY, as managed by RISCORP and it's subsidiaries or branch offices (hereinafter referred to as the Company). CONTRACT: WORKERS COMPENSATION QUOTA SHARE COMMENCEMENT AND TERMINATION: A. This treaty shall become effective at 12:01 AM, local standard time, October 1, 1996, as respects inforce, new and renewal business, and shall remain inforce for an unlimited period thereafter, subject to termination at December 31, 1997, or any December 31 thereafter by either party giving the other party ninety (90) days advance written notice by registered mail. B. In the event of the termination of this Contract, at the Company's option: 1. The Reinsurer shall remain liable in respect of all business inforce at the date of termination until the first anniversary of each policy following the effective date of termination, such run-off period not to 4 exceed 12 months following the date of termination plus odd time, not to exceed 15 months in all; or 2. The Reinsurer shall be relieved of all liability hereunder for losses occurring subsequent to the date of termination of this Contract. The Reinsurer shall refund to the Company the unearned reinsurance premium applicable to the unexpired liability less the ceding commission allowed by the Reinsurer. BUSINESS COVERED: To cover all business written and/or assumed by RISCORP NATIONAL INSURANCE COMPANY, as underwritten and managed by RISCORP (and its subsidiaries and/or branch offices) and classified as: Workers Compensation and Employers Liability business domiciled in states other than Florida. TERRITORY: This applies to losses occurring within the United States of America, its territories and possessions, per the territorial limits of the Company's policies. EXCLUSIONS: per the attached COVERAGE: The Company shall cede to the Reinsurer and the Reinsurer shall accept from the Company a quota share participation of the net retained liability of the Company, as respects inforce, new and renewal policies becoming effective October 1, 1996 and during the term of this contract. Such quota share participation of the Company's net retained liability shall be subject to the provisions set forth below: A. As respects Workers Compensation and Employers' Liability business: It is understood and agreed that the Reinsurer's limit of liability shall not exceed its pro rate share of $500,000 (100%) per occurrence. An 2 5 "occurrence" shall mean each loss, accident or occurrence or series of losses, accidents or occurrences arising out of one event, except as modified by Coverage B below with respect to Occupational and Other Disease and Cumulative Trauma which shall be defined by applicable statutes and regulations. B. As respects Occupational or Other Disease or Cumulative Trauma under Workers' Compensation and Employers Liability business: It is understood and agreed that the Reinsurer's limit of liability shall not exceed its pro rate share of $500,000 (100%) per occurrence. However, as respects Occupational Disease or Cumulative Trauma under -- Workers' Compensation and Employers' Liability policies, a loss for the purpose of this Contract shall be deemed to be (Occupational Disease or Cumulative Trauma) sustained by each employee which shall be deemed to have occurred at the date upon which the employee is last exposed to at work conditions allegedly causing such occupational disease. Notwithstanding the provisions in paragraphs A and B above, the maximum liability of the Reinsurer shall not exceed a 105% pure loss and loss adjustment expense ratio for each year in which this Contract remains inforce (determined by dividing all applicable loss and loss adjustment expense by applicable Gross Subject Earned Premium). C. The Company shall retain a minimum of thirty five percent (35%) of the Liability hereunder, however, the Company shall have the option to purchase underlying protection on its net account. It is the intention, however, for the Company to retain 35% of this Contract for the period October 1, 1996 through December 31, 1996. However, the attendant 65% cession of Unearned Premium at December 31, 1996 shall 3 6 be reassumed by the Company at 12:01 am January 1, 1997 and shall be simultaneously receded at 60% to the Reinsurer. The percentage of cession for January 1, 1997 through June 30, 1997 shall be 60%. The Company shall have the option to adjust the percentage of cession in advance quarterly at/for July 1, 1997 and/or October 1, 1997, based on surplus needs, and such adjustment shall not be greater than 15%+/- (of 100%) in any one quarter. PREMIUM: The Company shall cede to the Reinsurer its proportionate share of the gross subject written premium on all policies inforce, written or renewed during the term of this contract. "Gross subject written premium" as used in this Contract shall mean the net standard premium written by the Company times applicable premium volume discounts, times FILED deviations and/or scheduled rating (net after premiums paid for inuring reinsurance), less return premiums and cancellations on the business subject to this Contract. CEDING COMMISSION: Provisional Commission 33% Commission Slide 78% or higher 27% Minimum 76% or higher but not exceeding 78% 29% less a 1% decrease for each 1% increase in the Reinsurer's loss ratio down to a 27% commission at A 78% loss ratio. 70% or higher but not exceeding 76% 32% less a .50% decrease for each 1% increase in the 4 7 Reinsurer's loss ratio down to a 29% commission at a 76% loss ratio. 62% or higher but not exceeding 70% 40% less a 1% decrease for each 1% increase in the Reinsurer's loss ratio down to a 32% commission at 70% loss ratio. 62% or lower but not less than 50% 40% plus .75% increase for each 1% decrease in the Reinsurer's loss ratio to a maximum commission of 49% at a loss ratio of 50%. 50% or lower 49% Maximum The ultimate commission shall be adjusted annually and the loss will include a factor for IBNR and loss development. Downward commission adjustments to be calculated and paid semi-annually. The first upward adjustment will occur 36 months after the end of each agreement year and annually thereafter. It is noted and agreed that the cost of RMLs and assessments to be paid by the Company are to be included in the Ceding Commission paid by Reinsurers. REPORTS AND REMITTANCES: The Company shall REMIT monthly reports to the Reinsurer detailing by year ceded, billed written premiums, earned premiums, unearned PREMIUM, paid loss and loss adjustment expense, outstanding loss and loss adjustment expense, due within 60 days following the close of the month. Payment due either party is due 60 days following the close of the month. 5 8 LOSS AND LOSS ADJUSTMENT EXPENSE: Allocated Loss Adjustment Expense to be included in the limit. OTHER PROVISIONS: Additional Reinsured Article (in the event any Assumption Liability Endorsements are used). The net retention of the Company to be indemnified on those policies with Assumption Liability Endorsements by the Reinsurer issuing the actual ALE paper, however the ceded liability on those policies shall be shared proportionately by Reinsurers hereunder in the event of the Company's insolvency. It is noted that Reinsurers hereunder agree to proportionately pay any RML or assessment for which the Additional Reinsured becomes liable to pay as a result of issuing ALEs. GENERAL CONDITIONS: The Company shall be the sole judge of what constitutes one occurrence, or one insured or contract of insurance or reinsurance. All business declared hereunder, subject to the same terms, conditions, warranties, clauses, etc., as contained in the Company's original policies and Reinsurers to pay as may be paid by the Company. Access to Records Article Arbitration Article Errors and Omissions Article Extra Contractual Obligations and Loss in Excess of Policy Limits Article Federal Excise Tax (as applicable) Insolvency Article Interlocking Article (only applies if the Company chooses run-off.) Letters of Credit Article (as applicable) Reserves and Taxes Offset Article (This contract only version.) Service of Suit Article (as applicable) Underlying Recoveries Article G.J. Sullivan Intermediary Article WORDING: To be agreed. 6 9
EFFECTED WITH: 1995 Participation Best's Rating ------------- ------------- Chartwell Reinsurance Corporation 50% A/VII Swiss Reinsurance America Corporation 25% A/Xlg Trenwick America Reinsurance Corporation 25% A+/VIII --- Total 100% of cessions hereunder
G.J. SULLIVAN CO. /s/ William M. Allen ------------------------------- William M. Allen Senior Vice President 7 10 G.J. Sullivan Co. as "Reinsurance Intermediary" does, by your authorized signature hereto, have your acknowledged authorization to place reinsurance in accordance with the terms of this Cover Note. Final determination of each reinsurer, whether for financial reasons or otherwise, rests solely with the Ceding Insurer, who does hereby release the Intermediary from responsibility with regard to the acceptance of such reinsurer(s). Please indicate your acceptance and approval by signing and returning a copy of this Cover Note to G.J. Sullivan Co. ACCEPTED & APPROVED: /s/ DATE: 2/5/97 ------------------------------------------------ ---------------- 8 11 EXCLUSIONS ATTACHING TO AND FORMING PART OF THE RISCORP NATIONAL INSURANCE COMPANY AS MANAGED BY RISCORP WORKERS COMPENSATION QUOTA SHARE COVER NOTE #R403940196 - OCTOBER 1, 1996 A. All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency Fund" includes any guaranty fund, insolvency fund, plan, pool,association, fund or other arrangement; howsoever denominated, established or governed; which provides for any assessment of or payment or assumption by the Company or part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. B. Roofing (all kinds). C. Asbestos or PCB Handling. D. Wrecking or demolition of buildings, structures or vessels, but not to exclude the wrecking or demolition of buildings not exceeding FIVE stories in height. E. Underwater work. F. Explosives manufacturing, handling or transporting. G. Caisson or cofferdam work. H. Professional athletic teams. 9 12 I. Offshore Drilling. J. Iron or Steel erecting operations. K. Manufacturing production and refining of petroleum and its products. L. Electrical power line construction and/or maintenance. M. Risks involving nuclear facility or nuclear material, spent fuel or waste as defined in the Nuclear Incident Exclusion Clause except for the use of radioactive isotopes. N. Operations where the governing classifications are railroad class codes. O. Tunneling operations involving tunnels over 100 feet in length (auguring shall not be considered tunneling). P. Pools, Associations and Syndicates. Q. Financial Guarantee. Except for exposures, coverages or charges enumerated under paragraph A, P & Q, if the Company is inadvertently bound or unknowingly exposed (due to error, automatic provisions of policy coverage, or as imposed by law) on a risk otherwise excluded herein, such risk shall be covered until the Company receives knowledge thereof, and pending cancellation of such risk, for a period of ten days in addition to the time permitted for cancellation in the original policy, such total not exceeding 70 days in all. Special acceptances agreed by the Excess Reinsurer (X $500,000) shall be automatically accepted hereunder. 10 EX-10.71 8 UNDERWRITING AGREEMENT 1 Exhibit 10.71 UNDERWRITING MANAGEMENT AGREEMENT - VSCI1996-8 This Agreement, entered into on the 1st day of September, 1996 (the "Agreement") by and between Virginia Surety Company, Inc., an Illinois corporation ("Company") and RISCORP Management Services, Inc., a Florida corporation ("Agent"). PREAMBLES WHEREAS, the Company desires to appoint Agent as its agent for performing responsibilities set forth in this Agreement; and WHEREAS, the Agent desires to perform such responsibilities; NOW, THEREFORE, the Company and Agent, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged, agree as follows: 1. APPOINTMENT, 1.1 APPOINTMENT. The Company does hereby nominate, constitute and appoint Agent as its agent for (i) the soliciting, issuing, underwriting and servicing of the Company's insurance policies classified in the schedule attached hereto as Exhibit A (such insurance and any policies, contracts, binders, endorsements, certificates or agreements of insurance, individually and collectively, will be referred to as "Policy" or "Policies" hereunder) and (ii) for the servicing of the Quota Share Reinsurance Agreement (Quota Share), attached to this Agreement, between the Company and its Quota Share Reinsurer. 1.2 AUTHORITY. Agent is authorized to: 1.2.1 Issue Policies subject to (i) the scope and limits granted in the schedule attached hereto as Exhibit A; (ii) the terms and conditions (including exclusions) of any Policies issued, underwritten, or serviced pursuant to this Agreement; (iii) the execution of the Quota Share between the Company and its Quota Share Reinsurer before binding any Policies (iv) the terms and 1 2 conditions of the Quota Share; (v) applicable state insurance laws, rules, and regulations; (vi) the underwriting policies, rules and guidelines of the Company as set forth in Exhibit B hereto or as otherwise provided from time to time by the Company; (vii) the Company's ultimate right to veto the underwriting and issuing of any Policy by Agent; (viii) the Company's ultimate right to cancel any Policy subject to applicable governmental regulatory requirements for cancellation and non-renewal; (ix) the Company's ultimate right to veto the appointment by Agent of any agent or broker, and the ultimate power of the Company to cancel any such agency pursuant to Section 1.2.7; (xi) the Company's right to approve all advertising with respect to the Policies in which Company's name is used. 1.2.2 Collect, account and receipt for and pay premiums on Policies Agent writes on behalf of Company in accordance with Sections 1.2.3, 4 And 7, and, as full compensation, to retain commissions out of premiums so collected in amounts as specified in the schedule attached hereto as Exhibit A. Agent agrees that all premiums, including return premiums received by Agent, are Company's property. 1.2.3 Hold all premiums, including return premiums received by Agent in a fiduciary capacity for Company in accordance with Section 4.1.14. 1.2.4 Exercise Agent's authority through authorized employees of Agent or its affiliates. 1.2.5 Represent other companies. 1.2.6 Exercise exclusive and independent control of Agent's time and conduct. 1.2.7 Appoint agents and producers after assuring that the agent or producer is lawfully licensed to transact the type of insurance for which he is appointed and is not serving on 2 3 Company's or Agent's Board of Directors. 1.2.8 Terminate agents and producers. 1.3 PERFORMANCE. Agent hereby accepts the foregoing appointment and agrees faithfully to perform the duties thereof in a professional manner as an agent of the Company and to obey promptly such reasonable instructions as it may receive from time to time from the Company in accordance with this Agreement. 1.4 FAILURE OF PERFORMANCE. If the Agent materially breaches this Agreement, the Company may, as one remedy but not as an exclusive remedy, require its own employees or designated representatives to carry out the Agent's duties hereunder. Agent shall reimburse the Company for the Company's reasonable expenses, including salaries, incurred for having its employees or representatives perform such duties, or, at the Company's option, shall pay such employees or representatives directly. Such reimbursement or direct payments shall be made by Agent within five (5) days after the Agent's receipt of invoices of such expenses. For purposes of this Agreement a material breach shall not have occurred until Agent has received written notice of the grounds of the breach and has failed to cure the breach within thirty (30) days after receiving written notice. 2. TERRITORY. Agent's authority to solicit, issue, underwrite or service Policies extends only to insureds or prospective insureds located in the states specified in Exhibit A hereto, subject to the applicable licensing authority of the Company, the Company having made and received approval of all necessary regulatory filings and to Agent's obtaining licenses wherever required for activities conducted by Agent pursuant to this Agreement. Agent hereby agrees to obtain such licenses and the Company at its sole discretion may revoke Agent's authority as regards any particular insured or 3 4 prospective insured. 3. REPRESENTATIONS AND WARRANTIES. 3.1 REPRESENTATIONS AND WARRANTIES OF AGENT. On the date hereof, during the term of this Agreement, and for any period described in Section 10.5.1, Agent hereby represents and warrants to Company as follows: 3.1.1 LAWS AND LICENSES. Agent has and will comply with all applicable laws, rules and regulations (including but not limited to providing current copies of agent's or broker's license to be maintained in Company's records, request of and proof of agent or broker background reports and Company appointment of all agents where applicable) and shall, whenever necessary, obtain and maintain at its own expense all licenses required for it to perform this Agreement. 3.1.2 NO BREACH. This Agreement is a valid and binding obligation of Agent. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein, will not breach or conflict with Agent's by-laws or Articles of Incorporation, or with any agreement, covenant, or understanding (oral or written) to which Agent is bound, and will not adversely affect the application for issuance or the validity of any license of the Agent. 3.1.3 STATUS. Agent is a duly organized and validly existing corporation in the State of Florida. 3.1.4 AUTHORIZATION. The execution, delivery, and performance of this Agreement by Agent has been duly and properly authorized by it. 3.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. On the date hereof, during the term of this Agreement, and for any period described in Section 10.5, Company hereby represents and warrants to Agent as follows: 4 5 3.2.1 LAWS AND LICENSES. Company has and will comply with all applicable laws, rules and regulations and shall, whenever necessary, obtain and maintain at its own expense all licenses required for it to perform this agreement. 3.2.2 NO BREACH. This Agreement is a valid and binding obligation of Company. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein, will not breach or conflict with Company's by-laws or Articles of Incorporation, or with any agreement, covenant, or understanding (oral or written) to which Company is bound, and will not adversely affect the application for issuance or the validity of any license of the Company. 3.2.3 STATUS. Company is a duly organized and validly existing corporation in the State of Illinois. 3.2.4 AUTHORIZATION. The execution, delivery, and performance of this Agreement by Company has been duly and properly authorized by it. 4. DUTIES AND RESPONSIBILITIES. 4.1 GENERAL. Subject to the Company's supervision and instructions, Agent agrees to perform the following duties and services in addition to those otherwise enumerated in this Agreement: 4.1.1 Agent acknowledges that Company intends for each Policy issued hereunder to be reinsured under the Quota Share. Company hereby approves payment of reinsurance premiums to and collections from the Quota Share pursuant to its terms and conditions. 4.1.2 Solicit, underwrite, issue, secure proper countersignatures when required by applicable laws and service Policies on behalf of the Company. 4.1.3 Cancel Policies issued or underwritten by Agent 5 6 in accordance with the terms of the Policies and applicable state regulations. 4.1.4 Issue Policies only on forms approved by the Company and filed with and approved by regulatory authorities wherever such filing and approval is required, unless such forms are modified with the prior written consent of the Company. 4.1.5 Investigate and settle claims as provided in Section 5 below and establish reserves for such claims. 4.1.6 Maintain at Agent's expense data processing systems and equipment, an office or offices and a staff of employees sufficient in number and qualifications to perform the duties set forth in this Agreement. 4.1.7 Underwrite and issue policies in accordance with the premium rates and underwriting criteria and guidelines as defined in Exhibit B hereto (or as may be modified from time to time as agreed upon by Company and agent). 4.1.8 Perform Agent is responsibilities under Section 7 of this agreement. 4.1.9 Pay to Company a policy-issuing fee of 6% of gross net written premiums, as defined in the schedule attached hereto as Exhibit A, on all Policies issued under the terms hereof processed in accordance with Section 7.1. The policy-issuing fee is subject to a minimum monthly payment of $5,000 and minimum annual payment of $120,000. The minimum annual policy-issuing fee will be balanced against the actual annual policy-issuing fee received by the Company forty five (45) days after expiration of this Agreement. Any additional amounts due the Company shall be remitted sixty days after the expiration of this Agreement. In addition, the Agent shall reimburse the Company for all taxes, fees, assessments and residual market loads of any kind imposed upon Company pursuant to any law or regulation as a result of the 6 7 policies issued under the terms of this Agreement. Taxes, fees, assessments and residual market loads will be adjusted annually utilizing December 31st figures until all applicable taxes, fees, assessments or residual market loads have been paid by the Company. 4.1.10 Pay to Company any fines imposed by regulatory authorities, taxation authorities, their agents for data collection and advisory organizations providing loss cost and policy forms due to late filing or poor quality of data provided by Agent in accordance with Section 7.3.2. 4.1.11 Pay to Company any fines imposed by regulatory authorities upon Company due to the use of unapproved forms or rates by Agent or due to other market conduct violations caused by Agent's conduct. 4.1.12 Maintain separately for Company and each other insurer with which Agent does business, complete and current records and accounts, including underwriting files, which Agent shall retain in accordance with Section 8 and any applicable laws. 4.1.13 Refund within sixty (60) days of the end of each calendar month, return commissions on Policy cancellations or premium reduction, in each case at the same rate at which such commissions were originally retained. 4.1.14 Hold all monies, including premiums, return premiums and reinsurance monies received by Agent, in a fiduciary capacity for Company. Except as otherwise authorized by this Agreement, Agent shall maintain such monies in a separate and segregated bank account in a bank that is a member of the Federal Reserve System and is insured by the Federal Deposit Insurance Corporation. This account shall not be used for any purpose other than payments to or on behalf of Company. Any investment income produced from this bank account shall vest and become the property of Agent. 7 8 4.1.15 Comply with all regulatory requirements including, but not limited to, the cancellation, nonrenewal, or conditional renewal of policies. 4.1.16 Return upon demand after termination of this Agreement, all unused Policies, forms, and other property furnished to Agent by Company. Such items remain the property of Company. Agent shall fully cooperate with and assist Company in recovering such items from third parties, if any. 5. CLAIM SETTLEMENT AUTHORITY 5.1 CLAIMS. Agent shall investigate, negotiate and settle all policy claims or losses on behalf of the Company; however, agent shall obtain the prior approval of the Company before settling any policy claim or loss which is in excess of One Hundred Thousand Dollars ($100,000.00) gross incurred loss. Agent shall determine coverage for claims, however, agent shall obtain the prior written approval of the Company for the handling of claims in which the Company is named as a defendant or claims in which the agent seeks declaratory relief on behalf of the Company. All claims or losses shall be reported in monthly statements pursuant to Section 7 below. In addition, upon receiving notice or knowledge of any Policy claim or loss in excess of One Hundred Thousand Dollars ($100,000) gross incurred loss; or any loss regardless of incurred dollar amount involving the following: amputation of a major extremity, brain or spinal cord injury, multiple deaths, permanent total disability as defined in the Workers' Compensation act of the applicable State, any second or third degree burn of 50% or more of the body, reopening of any case in which further award might involve liability of the Quota Share, bad faith claims or suits, demands in excess of policy limits, actual or alleged violation of law by the Agent or litigation naming Company as a defendant; Agent shall immediately notify the Company in writing of 8 9 such claim or loss, provide the amount of the reserve for such claim as established by Agent, the facts and circumstance of the claim, the Agent's analysis of the insured's liability for the claim, the Agent's analysis of damages resulting from the claim, the Agent's analysis of the applicability of coverage for the claim, and such other information and records concerning such claim or loss as the Company requests. 5.2 LEGAL COUNSEL AND ALLOCATED CLAIM COST. Whenever Agent shall deem it prudent to engage legal counsel or loss adjusters to protect the Company's interest regarding claims or losses, such services shall be provided only by qualified attorneys-at-law and/or licensed loss adjusters selected by Agent, who have substantial experience in the handling of claims litigation of the type involved. Any provision hereof to the contrary notwithstanding, it is agreed that, with respect to any claim or loss of any amount, Agent shall promptly furnish Company, or its designee, any additional claim or loss information requested by the Company with respect to a claim or loss pertaining to any policy covered by this agreement, and it is further agreed with respect to any claim or loss of any amount as follows: a) The Company may defend or assign an attorney of its own choice to defend or be associated in the defense of any claim or loss reported to the Company and, in the event an attorney has already been employed by Agent, the service of such attorney which has already been employed by Agent shall be terminated by Agent forthwith and the Agent shall waive any conflict of interest that may have been created by such attorney's employment by Agent. 9 10 b) in the event that the Company is named as a defendant in any lawsuit, Agent shall as soon as it has notice or knowledge of such lawsuit, immediately give written notice thereof to the Company accompanied by a copy of the complaint and any court papers related to such lawsuit. 5.3 Unallocated costs, no reimbursement shall be paid by the Company to Agent for the salaries, office expenses or other expenses incurred by or on behalf of the Agent (including overhead) in the handling of the Company's claims or losses. No reimbursement shall be paid by the Company to the Agent for fees to attorneys, experts and service providers who are employees of, or on permanent retainers to the Agent, unless Company gives its prior approval for any such reimbursement. 5.4 Claim fund. Agent agrees to monitor a claims paying checking account ("Account"), established and funded by the Quota Share Reinsurer, from which it will pay on behalf of Company all claims and allocated claim costs under the Policies. Agent agrees to ensure the minimum balance in the Account as per the Quota Share is maintained. 6. EXPENSES. 6.1 Agent shall pay from its own monies (and not seek reimbursement from Company for) all commissions to any agents, subagents, brokers and sub-producers, all inspection fees, expenses of examinations of Agent and other governmental expenses in connection therewith, all refunds of unearned commissions owed to Company on canceled policies, all costs to print and inventory Policy forms, all costs to service claims as stated in Section 5.3 above and all unallocated costs to collect premiums in regard to Policies issued, underwritten or serviced pursuant to this Agreement. 6.2 In the event Company is notified by a regulatory 10 11 authority of the need of or an independent actuarial, accounting and/or legal opinion not originally contemplated by this Agreement, Company shall notify Agent who will in turn reimburse any expense incurred by Company. 7. ACCOUNTING AND REPORTING PROCEDURES. Agent shall: 7.1 Within thirty (30) days after the end of each month, remit to Company the policy-issuing fee in accordance with Section 4.1.9. on all Policies issued under the terms of this Agreement. Agent may not offset balances due to Company hereunder against balances due Agent under any other contract with Company.; 7.2 On behalf of the Company supply accounting, underwriting and claim bordereaux and pay the reinsurance premium to and make collections from the Quota Share pursuant to its terms and conditions; 7.3 With regard to business placed by Agent with Company hereunder, furnish to Company in hard copy form: 7.3.1 Within thirty (30) days after the end of each month, a bank statement and bank reconciliation report for the claims paying checking account described in Section 5.4 and a report of written, collected, earned and unearned premiums; losses and loss adjustment expenses paid and outstanding; loss and loss adjustment expenses incurred; commissions earned by Agent; Quota Share earned and unearned premiums, commissions and losses (including losses and loss adjustment expenses paid and outstanding, loss and loss adjustment expenses incurred) ceded; and such other information as may be reasonably requested by Company, which information Company shall maintain on file and shall make available to insurance regulatory authorities for review; 7.3.2 provide detail and summary reports, in a electronic or printed medium, as are required to meet all reporting 11 12 requirements of state regulatory or taxation authorities, their agents for data collection, and advisory organizations providing loss cost and policy forms including but not limited to: a. within (30) thirty days of the close of the calendar quarter direct premiums (written and earned); inforce premiums; policy counts (written and inforce); direct losses and loss adjustment expenses including salvage and subrogation (paid and reserve); number of claims open, closed with payment and closed without payment; as prescribed by state regulatory authorities. B. within (30) thirty days of the close of the quarter the direct written premium, loss and loss adjustment expense including salvage and subrogation (paid and reserved) transaction data as prescribed by advisory organizations providing loss cost and policy forms. C. the reports of direct premiums (written and earned), losses and loss adjustment expenses including salvage and subrogation (paid and reserved) (30) thirty days prior to the prescribed deadline as required by state regulatory data collection agents including but not limited to financial calls, unit statistical data, summary statistical data and detail claim information for National Council on Compensation Insurance (NCCI), Insurance Services Office (ISO) and National Association of Independent Insurers (NAII), 7.4 By the first business day of February of each year, the Agent shall provide the Company with any information the Company may require in order to complete its statutory financial statements. 8. BOOKS AND RECORDS. Agent shall at its own expense keep such books and records as 12 13 may be required by law, rulings, or orders of the insurance departments of the states having jurisdiction over Agent or Agent's business or over any Policies or the Quota Share connected with this Agreement and also as reasonably requested by the Company, and shall make such books and records available for examination, audit, and copying by the insurance departments of such states and by the Company, or by their authorized representatives. The Company and the Quota Share Reinsurer shall have the right to examine and review at any reasonable time all books, records, files and papers, including, but not by way of limitation, claim files and underwriting files, maintained and kept by Agent, which relate to this Agreement, the Policies, or the Quota Share. Agent shall institute and maintain retention and disposal systems for claim files and underwriting files in accordance with procedures and requirements as prescribed by law. All books and records of the Agent shall be maintained at the principal place of business of Agent and shall be complete, accurate, and up-to-date, and shall reflect all monies paid or received by Agent and all transactions of Agent pursuant to this Agreement. Anything to the contrary notwithstanding, all of the books, records, files and papers maintained and kept by Agent relating to underwriting and claims matters involving this Agreement or the Policies, shall be and remain the sole and exclusive property of the Company except that upon termination of this Agreement, all right, title and interest in and to all Policy renewals or expirations and all records with respect to renewals or expirations shall automatically and irrevocably transfer to the vest in Agent. 9. Indemnification. Agent shall indemnify and hold harmless Company from and against all losses, damages, costs, expenses, claims or liabilities of any description suffered by the Company with respect 13 14 to the Agent or any Policies issued or underwritten by Agent, including, without limitation, any attorney's fees, in connection with or arising out of (i) any allegations, whether or not such allegations are groundless, that the Agent has not complied with any laws, rules, or regulations to which it is subject, (ii) any breach of any warranty or representation of Agent made in this Agreement or any other breach of this Agreement by Agent, or (iii) any alleged misconduct, negligence, misrepresentation, or other acts or failures to act of the Agent or of it officers, directors, employees, agents, subproducers or independent contractors. 10. TERMINATION OF AGREEMENT, 10.1 Except as specified in sections 10.2 - 10.4 of this Agreement, this Agreement shall terminate on September 1, 1997. 10.2 This Agreement may be terminated immediately by Company upon giving written notice to Agent in the event of: 10.2.1 The misappropriation by Agent of any of Company's funds or property; 10.2.2 The fraud, gross negligence or willful misconduct of Agent; 10.2.3 An assignment by Agent for the benefit of creditors; the dissolution or liquidation of Agent; the appointment of a receiver or liquidator for a substantial part of Agent's property; the institution of bankruptcy, insolvency or similar proceedings by or against Agent; 10.2.4 Material breach by Agent of any provision of this Agreement which Agent has failed to cure within thirty (30) days after receiving written notice for the grounds of the material breach of this Agreement; 10.2.5 Termination of the Quota Share for any reason; 10.2.6 If any law or regulation of the federal, state or local government of any jurisdiction in which Agent is doing 14 15 business shall render illegal or invalid any transaction contemplated by this Agreement, any term of this Agreement or the Quota Share, the Agreement may be terminated insofar as it applies to such jurisdiction by the Company giving notice to Agent to such effect or by Agent giving notice to the Company to such effect. 10.2.7 Change in ownership of ten percent (10%) or more of the outstanding voting stock of Agent, sale, merger or transfer of Agent or change of any principal officer or director of Agent. Company acknowledges and accepts that Agent's parent anticipates a public offering to occur during the first quarter of 1996. 10.2.8 Termination of Wexford Underwriting Managers, Inc. involvement with Agent's worker's compensation business. 10.3 This Agreement may be terminated by either party by giving at least ninety (90) days written notice of termination to the other party. 10.4 This Agreement may be terminated at any time by mutual written agreement. 10.5 Upon termination of this Agreement: 10.5.1 If at any time the Company sends notice of termination to Agent as provided in Section 10.2 above or the Agreement is otherwise terminated as provided herein, Agent shall not, with respect to this Agreement, solicit, underwrite, quote, bind or issue any Policies or renew any existing Policies for which the inception date or renewal date falls after the effective date of termination of this Agreement, nor shall Agent cancel and rewrite any existing Policies to provide for inception or anniversary dates prior to the effective date of termination of this Agreement. Anniversary dates of Policies shall be regarded as renewal dates for this purpose, and Agent shall terminate any such Policies on its next anniversary date after the effective date of 15 16 termination of this Agreement unless instructed otherwise by the Company in writing. Upon termination of this Agreement, the authority of Agent to underwrite or issue Policies on behalf of the Company shall also terminate. 10.5.2 Unless otherwise indicated by this Agreement or Company otherwise notifies Agent in writing, Agent's duties and responsibilities under this Agreement shall survive termination of this Agreement until such time as all Policies issued, underwritten or serviced by Agent pursuant to this Agreement have expired and the Quota Share has expired, and all known losses thereunder have been paid or settled, have runoff or otherwise have been disposed of in the judgement of the Company, and all incurred but not reported loss reserves have been reduced to zero, and any amounts owed to the Company by others or under the Quota Share in regard to any claims have been collected by the Company. The only compensation Agent shall receive for its performance of its duties hereunder (both during and after the term of this Agreement) is set forth in the Commissions section of Exhibit A. 10.5.3 Agent shall, unless notified in writing to the contrary by Company: a. Continue to represent Company for the purpose of servicing Policies placed by Agent with Company which are in force on, or renewed at Company's election, or as required by law, after the date of termination of this Agreement and continue to receive its normal compensation for such services. B. Issue and countersign appropriate endorsements on contracts of insurance in force, provided that without prior written approval of Company, such endorsement shall not increase 16 17 or extend Company's liability or extend the term of any Policy. C. Collect and receipt for premiums and retain commissions out of premiums collected as full compensation. 10.6 Any notice issued pursuant to this Section shall be effective on the day after it is received by Agent. 11. SUSPENSION OF AGENT'S AUTHORITY. 11.1 Company may, in lieu of terminating this Agreement, by notice to Agent, immediately suspend Agent's authority to bind new or renewal business and/or change any existing insurance policy during the pendency of any of the following events: 11.1.1 Agent is delinquent in payment of any monies due Company; or 11.1.2 Any dispute exists between Agent and Company regarding the existence of any of the events listed in Section 10.2 11.1.3 The Quota Share is not executed between Company and its Quota Share reinsurer. 11.2 Such suspension shall remain in effect until such delinquency is cured or dispute is resolved and Agent receives written notification from Company to that effect. If such delinquency is not cured within fifteen (15) days from the date of receipt of written notification by Agent of such delinquency, Company may exercise its right to terminate this Agreement under Section 10.2 11.3 Unless otherwise notified in writing to the contrary by Company, Agent's obligation under this Agreement shall continue during the suspension of Agent's authority under this Agreement. 11.4 Any notice of suspension issued pursuant to this Section shall be effective immediately. 17 18 12. TRUST AGREEMENT. On or before September 10, 1996, the Agent, the Company and a qualified financial institution acting as trustee thereunder shall enter into a trust deposit agreement under which the Agent shall create a trust account f or the benefit of the Company and shall deposit the sum of One Million Five Hundred Thousand Dollars ($1,500,000) into the trust account. Trust account means the funds and other assets held by the trustee from time to time under the trust deposit agreement. The trust deposit agreement shall comply with, and the financial institution acting as trustee thereunder shall be qualified to act as trustee pursuant to, the applicable laws and regulations of Illinois and New York, and those of each other applicable jurisdiction. Assets deposited in the trust account shall consist only of (i) cash (United States legal tender), (ii) direct obligations of the United States or of any agency or instrumentality of the United States, or in certificates of deposit issued by a financial institution organized under the laws of the United States or any state to the extent guaranteed or insured as to the payment of principal and interest, or to the payment of principal only, by the United States or an agency or instrumentality of the United States, provided such obligation or certificate of deposit shall have a maturity date of ten years or less from the date of purchase; and (iii) other investments for which the Company shall first have given its written consent (which may be given subject to conditions) from among those which are eligible investments for the Company pursuant to both Article viii of the Illinois Insurance Code and Paragraphs (1), (2), (3), (8) and (10) of subsection (a) of Section 1404 of the New York Insurance Law; provided that such investments are issued by an institution that is not the parent, parent subsidiary, or affiliate of either the Company or the Agent. 18 19 Notwithstanding any other provisions of this Agreement, the Company or its successors interest may draw upon the Trust Fund at any time without diminution because of insolvency of the Company or of the Reinsurer for one or more of the following purposes only: A. To reimburse the Company for unearned premium on policies on account of cancellations of such policies. B. Upon 30 days notice to Agent, to pay or to reimburse the Company for any loss which has not been otherwise paid. C. To pay any other amounts the Company claims are due under this Agreement. The issuing bank will have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. When all known loss reserves have been settled or closed and incurred but not reported loss reserves are reduced to zero, the Company and the Agent will mutually agree to terminate the Trust Agreement in its entirety. 13. MISCELLANEOUS. 13.1 This Agreement may be revised by mutual agreement of agent and Company and such revision shall be evidenced by a written agreement duly executed by authorized representatives of Agent and Company, which specifies the effective date thereof. 13.2 Agent shall not commit Company to any expenses or obligations not specifically provided for herein without the prior written permission of Company. 13.3 Company shall have the right to oversee and supervise the operation of this Agreement, including but not limited to the right at all reasonable times, to have access to and to copy at Company's expense Agent's books and records as they relate to this Agreement, 19 20 which rights shall survive the termination or expiration of this Agreement. The director or commissioner of insurance of any state where Agent issues policies on behalf of Company shall have at all reasonable times the right of access to all books and records and bank account of Agent in a form usable by such official. 13.4 Any provision of this Agreement which conflicts with applicable law or regulation will be amended to the minimum extent necessary to effectuate compliance with such law or regulation. 13.5 Agent shall not have authority to represent Company on any exclusive basis with respect to any policy form, line, class or subclass of business, unless otherwise authorized in writing by Company. 13.6 Agent shall not have authority to negotiate, place, bind, cancel or amend reinsurance on behalf of Company. 13.7 The Company is responsible for all filings and reporting requirements to state insurance regulatory, taxation authorities and advisory organizations subject to the provisions set forth in Section 4. 13.8 Failure of either party to enforce compliance with any term or condition of this Agreement shall not constitute a waiver of such term or condition. No waiver of any breach or default hereunder shall be valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 13.9 This Agreement shall be construed in accordance with the laws of the state of Illinois. 13.10 If any dispute arises between the Company and Agent with reference to the interpretation, performance, or breach of this Agreement (whether the dispute arises before or after termination of this Agreement) such dispute, if not resolved by the parties, must be submitted to nonbinding mediation. If such 20 21 dispute is not resolved by nonbinding mediation within sixty (60) days it will then be submitted to final and binding arbitration. Arbitration shall be initiated by the delivery of written request of either party sent certified or registered mail. The arbitration hearings will be held in the city of the Company's home office or a location agreed upon by the parties to this Agreement. The members of the board of arbitration shall be active or retired disinterested officials of insurance or reinsurance companies or Underwriters at Lloyd's London not under the control or management of either party to this agreement and will not have personal or financial interests in the result of the arbitration. Each party shall appoint its arbitrator, and the two arbitrators shall choose an umpire before instituting the hearing. If either party fails for any reason to appoint an arbitrator within thirty (30) days after receipt of written notice from the other party requesting to do so, the requesting party may appoint both arbitrators. If the two arbitrators fail to agree in the selection of an umpire within thirty (30) days of their appointment, each arbitrator will nominate three individuals, of whom the other will decline two. The final decision will be made by drawing lots. The claimant shall submit its initial brief within forty-five (45) days from appointment of the umpire. The respondent shall submit its brief within forty-five (45) days thereafter, and the claimant may submit a reply brief within thirty (30) days after filing of the respondent's brief. The arbitrators will not be obliged to follow judicial formalities or the rules of evidence except to the extent required by the law of the State of Illinois. Further, the arbitrators will interpret this Agreement as an honorable engagement rather than merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance 21 22 businesses. The board shall issue its decision in writing based upon a hearing in which evidence may be introduced without following strict rules of evidence but in which cross-examination and rebuttal shall be allowed. The board shall make its decision within sixty (60) days following the termination of the hearings unless the parties consent to an extension. The majority decision of the board shall be final and binding upon all parties to the proceeding. Judgement may be entered upon the award of the board in any court having jurisdiction. Punitive damages will not be awarded, the arbitrators may, however, at their discretion award such other costs and expenses as they deem appropriate, including but not limited to attorneys' fees, to the extent permitted by law. Punitive damages will be deemed to include that portion of any award that is awarded as a multiple of compensatory damages, including an award of double or treble damages. The Company and Agent will bear the expense of their own arbitrator and will jointly and equally bear with the other party the cost of the umpire and arbitration if such arbitration arises out of any action by Agent in accordance with and upon the express written direction of the Company in connection with this Agreement. 13.11 This Agreement may not be directly or indirectly assigned by either party in whole or in part, nor may Agent appoint a sub managing general agent. 13.12 During the term of this Agreement, Agent shall obtain and maintain in full force and effect, at its expense, and if available, fidelity insurance, errors and omissions insurance, directors and officers insurance, and general liability insurance in such amounts and on such terms as are reasonably acceptable to the Company. Agent shall furnish the Company with copies of the 22 23 certificates of insurance for such insurance, and shall not cancel or amend any such insurance without the Company's prior written consent. 13.13 Any notice or other communications required or permitted hereunder shall be sufficiently given if sent by certified or registered mail, postage prepaid, if to Agent, addressed to RISCORP Management Services, Inc., 1390 Main Street, Sarasota, Florida, Attention: Stephen C. Rece, Senior Vice President and if to Company addressed to Virginia Surety Company, Inc., 123 North Wacker Drive, Chicago, Illinois 60606, Attention: Wayne J. Baliga, Vice President, or such other address as notified by either party to the other. 13.14 Agent is an independent contractor, not an employee of Company, and nothing in this Agreement shall be construed to create an employer/employee relationship between Company and Agent. 13.15 The Agent acknowledges and agrees that it will benefit from this Agreement and that a breach by it of the covenants contained in Sections 1, 2, 4, 5 or 10.5.1 herein would cause the Company irreparable damages that could not adequately be compensated for only by monetary compensation. Accordingly, it is understood and agreed that in the event of any such breach or threatened breach, the Company may apply to a court of competent jurisdiction for, and shall be entitled to, injunctive relief from such court, without the requirement of posting a bond, or proof of damages, designed to cure existing breaches and to prevent a future occurrence or threatened future occurrence of like breaches on the part of the Agent. It is further understood and agreed that the remedies and recourses herein provided shall be in addition to, and not in lieu of any other remedy or recourse which is available to the Company either at law or in equity in the absence of this Paragraph including without limitation the right to damages. 23 24 13.16 The Company nor the Agent shall not disclose material details of this Agreement and the Policies without the prior consent of the other party. However, this restriction will not apply to disclosures made by the Company or The Agent to its agents, producers, shareholders, policyholders, auditors, accountants, arbitrators, legal counsel, or other third parties as required in the ordinary course of business, or to disclosures required by arbitration panels, governmental agencies, regulatory authorities, or courts of law. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. RISCORP MANAGEMENT SERVICES, INC. By:/s/ ----------------------------- Title: Senior Vice President ------------------------ Date: 10/18/96 ------------------------ VIRGINIA SURETY COMPANY, INC. By:/s/ Wayne J. Baliga ----------------------------- Title: Vice President ------------------------ Date: 9/25/96 ------------------------ 24 25 EXHIBIT A SCHEDULE OF AUTHORITY Agent is only authorized to accept or bind business, as defined in the Classification Section below, subject to the Amounts and stipulation indicated below. Amounts in excess of the authorized limits or classifications must be referred to Company for review and approval prior to binding. GROSS NET WRITTEN PREMIUM LIMIT --a maximum of $30,000,000 unless Agent obtains the prior written consent of the Company. Gross Net Written Premium shall mean gross written premium of the Company less returned premium and dividends paid on policies that are written subject to a loss sensitive dividend plan. For business that is written subject to an installment billing plan, the premiums shall be considered written thirty (30) days after the day which they became due to the Company. POLICY-TERM--not more than one year. POLICY LIMITS AND COVERAGE CLASSIFICATIONS COVERAGE LIMIT Workers Compensation Statutory Employers Liability Coverages $1,500,000 No other classes of insurance may be written on Company's insurance policies. EXCLUDED CLASSES OF BUSINESS agent shall not issue policies which are excluded under the terms and conditions of the Quota Share. COMMISSIONS--the Company will allow the Agent a commission equal to the commissions provided for in the Quota Share and from such commissions, Agent shall pay to the Company the policy issuing fee provided for in Section 4.1.9 of the Underwriting Management Agreement between Company and Agent. TERRITORIAL LIMITATIONS-- Agent shall not issue any policy in 26 any jurisdiction other than the States of Alabama, Georgia, Oklahoma, North Carolina, Louisiana, Tennessee, Maryland and Virginia. Agent may issue the Company's policies to ancillary business operations located in other states provided the primary business operation (at least 60% of account premium) is located in the states listed above or is insured by RISCORP Property and Casualty Insurance Company, Riscorp Insurance Company and RISCORP National Insurance Company. It is further understood that Agent shall not compete on existing, renewal or prospective accounts written by Muirfield Underwriters, Ltd., GAN National Insurance Company and Catholic Mutual Group (list of CMG prospective and existing accounts per attached letter dated October 18, 1995). Nothing is this Agreement or Exhibit shall be construed to prohibit Agent from soliciting, issuing, underwriting and servicing any insurance policies for any policyholder of the above mentioned companies after the termination of this Agreement. RATES AND UNDERWRITING- - Agent shall not issue any policy that does not meet the rate and underwriting guidelines set forth in Exhibit B to the Underwriting Management Agreement between Company and Agent, as amended from time to time by Company, and incorporated herein by reference, unless such policy is referred to Company for review and approval prior to binding. EX-10.72 9 LOSS PORTFOLIO TRANSFER AGREEMENT 1 EXHIBIT 10.72 LOSS PORTFOLIO TRANSFER AGREEMENT between OCCUPATIONAL SAFETY ASSOCIATION OF ALABAMA WORKMEN'S COMPENSATION FUND (Hereinafter referred to as the "Fund") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Insurer") 2 LOSS PORTFOLIO TRANSFER AGREEMENT TABLE OF CONTENTS ARTICLE 1 - EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 - TRANSFER OF COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 3 - PAYMENT OF PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 5 - NOTICE OF TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 7 - ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 8 - DIRECT SUIT AGAINST THE INSURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 9 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 11 - REGULATORY COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 13 - DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 15 - ERRORS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 16 - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 17 - HONORABLE UNDERTAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 18 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 D. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 E. Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 F. Non-waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 G. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 H. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3 LOSS PORTFOLIO TRANSFER AGREEMENT (Hereinafter referred to as the "Agreement") between OCCUPATIONAL SAFETY ASSOCIATION OF ALABAMA WORKMEN'S COMPENSATION FUND (Hereinafter referred to as "Fund") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Insurer") ARTICLE 1 - EFFECTIVE DATE This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time, September 1, 1996 (the "Effective Date"). ARTICLE 2 - TRANSFER OF COVERAGE Upon the Effective Date, the Fund shall transfer to the Insurer (i) the Contracts of Coverage (as defined below) and the liability to pay all losses, including loss adjustment expenses, covered by said Contracts of Coverage issued by the Fund prior to the Effective Date hereof, to all members, including all existing and incurred but not reported ("IBNR") claims covered by the Contracts of Coverage and claims in litigation upon the Effective Date (hereinafter "Transferred Claims") subject to the terms and conditions contained herein; and (ii) all rights the Fund may have now or in the future under or with respect to the Contracts of Coverage, including, without limitation, the right to collect and adjust premiums, adjust and settle claims, deny coverage, rescind Contracts of Coverage, etc. Once said transfer occurs, Insurer shall be bound by all the terms and conditions of the Fund's Contracts of Coverage as if they had been issued by the Insurer. The term "Contracts of Coverage" shall mean all binders, contracts, certificates and other obligations, whether oral or written, of workers' compensation coverage issued by the Fund to its member employers. Nothing contained herein shall alter or diminish the rights, responsibilities or liability of any service provider which is not a party hereto, except where such rights, responsibilities or liabilities are altered or diminished pursuant to the terms of an agreement between the Fund and such service provider or pursuant to an agreement between the Insurer and the service provider. ARTICLE 3 - PAYMENT OF PREMIUM In consideration for the Insurer's acceptance of the Contracts of Coverage and attendant liabilities described above, the Fund shall pay a premium (the "Premium") to the Insurer in accordance with the following terms and conditions: 4 A. Upon the Effective Date, the Fund shall transfer to the Insurer cash and investment securities in an amount equal to the sum of the following: 1. The aggregate amount of escrow deposits held by the Fund on that date. The escrow deposits are transferred to the Insurer pursuant to Article V(H)5. of the Bylaws of the Fund, which authorizes the board to use the Trustees Fund for any purpose it deems appropriate. By execution of this Agreement, the Trustees of the Fund represent that they are authorized to transfer the escrow deposits in the manner described herein. Upon transfer, the escrow deposits will be held as premium deposits by Insurer as a guarantee of payment of monthly premiums. Such deposits which are attributable to members who elect not to accept the transfer of their coverage to the Insurer shall be refunded to such members following a final premium audit. 2. The amount of reserves for losses, including losses incurred but not yet reported, provided for in the Fund's management report as of July 31, 1996. B. Within one hundred twenty days following the Effective Date, a final actuarial opinion and audit of the Fund shall be conducted by an auditing and an accounting firm which are acceptable to both the Fund and the Insurer. Such audit and actuarial opinion shall establish the appropriate level of loss reserves indicated for the Transferred Claims. Within thirty days of completion of the audit and actuarial opinion, the Fund shall transfer to the Insurer investment securities and cash equal to the amount of indicated reserves, less the amount transferred pursuant to subsection 2 above. In the event that the amount of loss reserves transferred on the Effective Date exceeds the reserves indicated by the final audit, the Insurer shall transfer back to the Fund the difference. The remaining assets of the Fund shall be distributed to its members or be used to pay the Fund's outstanding liabilities and obligations not transferred to Insurer hereunder, which shall be limited to liabilities unrelated to claims under Contracts of Coverage or the extra-contractual obligations described in Article 10. C. Prior to the Effective Date, the Fund shall deliver to the Insurer a schedule of the specific investments and assets which will comprise the initial transfer described in section A above. Within ninety days following the Effective Date, the Fund shall deliver to the Insurer a schedule of the specific investments and assets which will comprise any supplemental transfer which may be required pursuant to section B above. All investments shall be listed on such schedules at cost and at fair market value. D. The Fund currently carries a deferred tax asset which will be realized after the Effective Date. Said asset shall remain with the Fund, and shall constitute part of the remaining assets and liabilities which will be used to discharge the Fund's liabilities not transferred to the Insurer hereunder, which shall be limited to liabilities unrelated to claims under Contracts of Coverage or the extra-contractual obligations described in Article 10. E. With regard to each payment to the Insurer described above, the Fund shall cooperate in the utmost good faith with the Insurer to determine the correct amount of such payment and shall expeditiously execute all documents necessary to effectuate the required transfers. From the Effective Date until the completion of all of the transactions contemplated 2 5 hereby, the Fund shall take all reasonable actions to protect and preserve its assets and investments and to otherwise conduct its business to avoid potential harm to the Insurer. ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS A. The parties hereto agree to act in good faith and cooperate with each other in effecting the transfers provided for in this Agreement. The parties shall take all actions necessary to assist each other in obtaining all necessary regulatory approvals or responding to information requests of those regulatory authorities asserting jurisdiction over the transactions herein described. B. Upon demand by, and in accordance with instructions of, the Insurer, the Fund shall deliver originals or copies of all records and claim files pertaining to the Transferred Claims and all other files and records incidental to the Transferred Claims as are necessary for the Insurer to perform its obligations under this Agreement. The Insurer shall retain all coverage records, claim files, and other documents received by it from the Fund as required by applicable law. Upon reasonable notice, each of the Insurer and the Fund will be entitled to reasonable access to the books and records of the other party at any reasonable time, but only to the extent such materials pertain to the business assumed and reinsured under this Agreement. Each party will pay its own expenses associated with any such review of the books and records. The Fund will retain as its property its original corporate records, including, without limitation, articles of incorporation, bylaws, minute books, and certificate of authority; provided, however, that the Fund shall provide the Insurer with copies of all such documents upon the effective date hereof. C. Whenever the Fund receives any payments or communications, including notices of claims and proofs of loss, pertaining to the Transferred Claims, it will forward such payments and communications promptly to the Insurer. ARTICLE 5 - NOTICE OF TRANSFER Within ten days prior to the Effective Date, the Fund shall deliver or cause its agents to deliver to the named insureds under the Contracts of Coverage an appropriate notice of transfer substantially in the form attached hereto. Such notice shall be sent to each member by certified mail and to each agent of record by regular mail. Each notice shall indicate in conspicuous print that: (1) failing to respond will result in the Contract of Coverage being transferred to the Insurer; (2) as of a date certain, all payments, claims and other communications relating to the Contracts of Coverage should be sent to Insurer, not the Fund; and (3) in the event that a member chooses not to accept the transfer, the member will receive a notice of cancellation providing the insured with sixty days to secure replacement coverage, and will receive a refund of unearned premium and the balance of the member's escrow deposit, following a final premium audit, and without penalty. The notice shall permit at least fifteen days to respond thereto. The Insurer will take all other necessary actions to effect the transfer of the Transferred Claims. The Fund will cooperate fully with the Insurer in implementing such transfer and providing notice thereof, including, without limitation, executing any document reasonably necessary to evidence the completion of the transactions contemplated by this Agreement. 3 6 ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS A. From and after the Effective Date, the Insurer will be solely liable for the payment of Transferred Claims transferred to the Insurer including, without limitation, the defense, adjustment, settlement, and payment of all losses and expenses arising under or relating to the Transferred Claims. However, the Insurer shall not be responsible for the administration of claims filed prior to the Effective Date, which administration shall be the responsibility of those service providers who are currently obligated therefor. Such claims shall be administered as if the Agreement had not been entered into. Subject to the foregoing, the Fund hereby grants and assigns to the Insurer full authority to administer such losses, claims, expenses, defenses, adjustments, settlements, and payments, and such matters will be under the Insurer's control and within its discretion. The Insurer will bear all expenses and costs incurred by it in connection with the administration and disposition of such losses, claims, expenses, defenses, adjustments, settlements, and payments. B. The Fund will cause all information and notices regarding the Transferred Claims actually received by the Fund after the Effective Date to be promptly reported to the Insurer or the Insurer's designated representative. The Fund also will undertake any reasonable arrangements deemed necessary by the Insurer to ensure that all notices received by the Fund after the Effective Date in connection with the Transferred Claims are promptly delivered to the Insurer. C. All losses and similar items regarding the Transferred Claims that the Insurer determines to be payable will be paid directly and promptly by the Insurer. ARTICLE 7 - ASSESSMENTS In the event that an assessment is made against any present or former members of the Fund pursuant to Alabama law, the Insurer agrees to pay the full assessment on behalf of said members. By this undertaking, the Insurer and the Fund expressly intend to benefit as third party beneficiaries all present and former members of the Fund, and the Insurer agrees to be subject to suit by any member as set out in Article 8. ARTICLE 8 - DIRECT SUIT AGAINST THE INSURER The Insurer hereby covenants and agrees that it may be sued for its actions after the Effective Date, in its own name, by insureds under the Contracts of Coverage. ARTICLE 9 - INDEMNIFICATION The Insurer agrees to defend, protect, indemnify and hold harmless the Fund and its successors or assigns, against any liability, claim, loss or damage, including punitive damages, arising under or out of any of the Transferred Claims reinsured hereunder or the transactions contemplated by this Agreement. 4 7 ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS The Insurer shall also be responsible for any Extra Contractual Obligation losses assessed against the Fund or the Insurer. Such losses are defined as those liabilities (whether they constitute compensatory, incidental, exemplary or punitive damages) not covered under any other provision of this Agreement and which arise from the handling of any Transferred Claim, such liabilities arising out of, but not limited to, the following: failure to settle within the coverage limit or by reason of alleged or actual negligence, coverage denial, fraud or bad faith in rejecting an offer of settlement, in the preparation of the defense or in the trial of any action against an insured or in the preparation or prosecution of an appeal consequent upon such action. Notwithstanding the foregoing, the Insurer shall not be liable for any loss resulting from a claim relating to the payment of dividends, or claims arising from the membership relationship of members to the Fund, except claims arising under the Contracts of Coverage. Nothing contained herein shall alter or diminish the rights, responsibilities or liability of any service provider which is not a party hereto, except where such rights, responsibilities or liabilities are altered or diminished pursuant to the terms of an agreement between the Fund and such service provider or pursuant to an agreement between the Insurer and the service provider. ARTICLE 11 - REGULATORY COMPLIANCE The Fund and the Insurer have filed a Plan of Assumption and all documents pertaining thereto with the Department of Industrial Relations of the State of Alabama, which has concluded that no regulatory approval is required for the transaction contemplated by this Agreement. Additionally, the Fund and the Insurer have consulted with the Department of Insurance of the State of Alabama, which has indicated that it has no regulatory jurisdiction over the transactions contemplated by the Agreement. However, in the event that any regulatory agency or other governmental body undertakes to review said transaction, the Fund and the Insurer shall cooperate in good faith in that review process and take all steps necessary to satisfy the regulatory agency involved. ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES A. In the event of the payment of any loss by the Insurer under this Agreement, the Insurer shall be subrogated, to the extent of such payment, to all of the rights of the Fund against any person or entity legally responsible for the loss. The Insurer is hereby authorized and empowered to bring any appropriate action in its own name or in the name of the Fund to enforce such rights. B. Any payments received by or due to the Fund from any reinsurer of the Fund which is payable on a Transferred Claim shall become the property of and be paid to the Insurer. If any payment is received by the Fund which is to be credited to the Insurer under or with respect to any of the Transferred Claims, the Fund will immediately endorse (without warranty or recourse) and deliver to the Insurer such checks, drafts, or money intended as such payment, and until delivery of such items to the Insurer, the Fund will treat any such checks, drafts, or money as the property of the Insurer held for the account of the Insurer. The Insurer and the Fund will each use all commercially reasonable efforts to cause the transfer and 5 8 assignment (as of the Effective Date) to the Insurer of all of the Fund's rights, interests, and obligations under the Fund's reinsurance agreements, if any, covering the risks, liabilities, and obligations of the Fund under or with respect to the Transferred Claims, including, without limitation, obtaining any necessary consents or approvals to such transfer and assignment by the reinsurers under any such reinsurance agreements effective as of the Effective Date. Any failure to receive the consents referred to herein will not relieve or diminish in any manner the Insurer's obligations under this Agreement. ARTICLE 13 - DIVIDENDS The Fund has declared and anticipates paying a dividend to its members in the ordinary course of its business due to favorable loss and expense development through December 31, 1995. The declaration of this dividend was approved by the Department of Industrial Relations of the State of Alabama in a letter dated December 22, 1995. The payment of the Dividend, whether occurring before or after the Effective Date, shall be considered a payment in the normal course of the Fund's business, and shall not effect this Agreement other than to reduce the assets of the Fund available for distribution to the members. The Fund is solely responsible for the payment of the dividend, and shall hold the Insurer harmless from any claim that a dividend was wrongfully paid or not paid or was paid in an incorrect amount or was otherwise improper. The Fund anticipates that there will be an additional dividend paid based upon the Fund's 1996 operations. All Fund members in good standing on the Effective Date will share in said dividend in accordance with the provisions of section 3(B) hereof. ARTICLE 14 - TERMINATION OF THE FUND The Fund and the Insurer contemplate that once the Contracts of Coverage and the Premium are transferred, and the other business of the Fund is completed, the Fund will be terminated. Upon such termination, the Fund shall distribute to its members the remaining assets of the Fund. The Insurer does not assume any obligation under the provisions of the Fund's Bylaws, and the obligation to distribute the surplus of the Fund to its members remains solely the Fund's obligation. ARTICLE 15 - ERRORS OR OMISSIONS Inadvertent delays, errors, or omissions made in connection with this Agreement or any transaction hereunder will not relieve either party from any liability that would otherwise have attached had such delay, error, or omission not occurred. Regardless, the responsible party will rectify each such delay, error, or omission as promptly as practicable after discovery. ARTICLE 16 - ARBITRATION A. Any dispute or other matter in question between the Fund and the Insurer arising out of or relating to the formation, interpretation, performance, or breach of this Agreement, whether such dispute arises before or after termination of this Agreement, shall be settled by arbitration if the parties are unable to resolve the dispute through negotiation. Arbitration shall 6 9 be initiated by the delivery of a written notice of demand for arbitration by one party to the other. B. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint a third arbitrator. If either party refuses or neglects to appoint an arbitrator within sixty days of receipt of a written notice of demand for arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty days of their appointment, each of the arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots. The arbitrators shall be active or former officers of insurance or reinsurance companies or fund administrators of self-insurers. The arbitrators shall not have a personal or financial interest in the result of the arbitration. C. The arbitration hearings shall be held in Montgomery, Alabama, or such other place as may be mutually agreed. Each party shall submit its case to the arbitrators within sixty days of the selection of the third arbitrator or within such longer period as may be agreed by the arbitrators. The arbitrators shall not be obliged to follow judicial formalities or the rules of evidence except to the extent required by governing law, that is, the state law of the situs of the arbitration as herein agreed; they shall make their decisions according to the practice of the reinsurance business. The decision rendered by a majority of the arbitrators shall be final and binding on both parties. Such decision shall be a condition precedent to any right of legal action arising out of the arbitrated dispute which either party may have against the other. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. D. Each party shall pay the fee and expenses of its own arbitrator and attorneys and one-half of the fees and expenses of the third arbitrator. All other expenses of the arbitration shall be equally divided between the parties. E. Except as provided above, arbitration shall be based, insofar as applicable, upon the Commercial Arbitration Rules of the American Arbitration Association. ARTICLE 17 - HONORABLE UNDERTAKING This Agreement shall be construed as an honorable undertaking between the parties hereto not to be defeated by technical legal constructions, it being the intention of this Agreement that the fortunes of the Insurer shall in all cases follow the fortunes of the Fund. ARTICLE 18 - GENERAL PROVISIONS A. Successors and Assigns. This Agreement shall inure to the benefit of and bind the Fund and its successors and assigns and the Insurer and its successors and assigns. Neither this Agreement nor any right hereunder nor any part hereof may be assigned by any party hereto without the prior written consent of the other party hereto. Prior to any such assignment, the consent of all necessary regulatory authorities must be obtained. 7 10 B. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Alabama (without giving effect to principles of conflicts of laws) applicable to a contract executed and to be performed in such state. C. Entire Agreement. This Agreement supersedes all prior discussions and agreements between, and contains the sole and entire agreement between the Fund and the Insurer with respect to the subject matter hereof. D. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. E. Headings, etc. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender will be deemed to include each other gender, (b) words using the singular or plural number will also include the plural or singular number, respectively, (c) the terms "hereof," "herein," "hereby," and derivative or similar words will refer to this entire Agreement, and (d) the conjunction "or" will denote any one or more, or any combination or all, of the specified items or matters involved in the respective list. F. Non-waiver. The failure of either party hereto at any time to enforce any provision of this Agreement shall not be construed as a waiver of that provision and shall not effect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms. G. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligations of any party under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. H. Notices. Any notice or communication given pursuant to this Agreement must be in writing and will be deemed to have been duly given if mailed (by registered or certified mail, postage prepaid, return receipt requested), or if transmitted by facsimile, or if delivered by courier, as follows: To the Fund: Occupational Safety Association of Alabama Workmen's Compensation Fund c/o Webb & Eley 8 11 Post Office Box 238 Montgomery, Alabama 36101-0238 Attention: James N. Webb Phone Number: (334) 262-1850 To the Insurer: RISCORP National Insurance Company 1390 Main Street Sarasota, Florida 34237 Attention: James A. Malone Phone Number: (941) 951-2022 All notices and other communications required or permitted under this Agreement that are addressed as provided in this paragraph will, whether sent by mail, facsimile, or courier, be deemed given upon the first business day after actual delivery to the party to whom such notice or other communication is sent (as evidenced by the return receipt or shipping invoice signed by a representative of such party or by the facsimile confirmation). Any party from time to time may change its address for the purpose of notices to that party by giving a similar notice specifying a new address, but no such notice will be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives this 26th day of August, 1996. ATTEST: OCCUPATIONAL SAFETY ASSOCIATION OF ALABAMA WORKMEN'S COMPENSATION FUND BY: Charles G. Lawson - - ------------------------------ ------------------------------------ Name: Charles G. Lawson ----------------------------------- Title: Chairman of Board of Trustees ---------------------------------- ATTEST: RISCORP NATIONAL INSURANCE COMPANY James A. Malone - - ------------------------------ ------------------------------------- Name: James A. Malone ----------------------------------- Title: President ---------------------------------- 9 12 PLAN OF ASSUMPTION The Occupational Safety Association of Alabama Workmen's Compensation Fund ("the Fund"), organized under the laws of the state of Alabama, will transfer its contracts of workers' compensation coverage ("Contracts"), assets, and liabilities on September 1, 1996 ("Effective Date") pursuant to a Loss Portfolio Transfer Agreement with RISCORP National Insurance Company ("RISCORP"), under the following plan and procedure: 1. RISCORP will insure all Contracts of the Fund in effect as of the Effective Date under the same terms and conditions through the current policy year. 2. RISCORP will assume all liability for any potential assessments for the current Fund year, any prior year, and any contingent liability related thereto. 3. A final actuarial opinion and Fund audit will be completed for the period January 1, 1996 through Effective Date, in order to determine a final balance sheet for the Fund as of the Effective Date. Independent auditors and actuaries selected must be mutually agreeable to the Fund and to RISCORP. 4. The Fund will transfer a corresponding amount of cash and cash equivalents in investment securities to RISCORP to cover the reserves for losses and escrow deposits. 5. Any prior year dividend approved by the Department of Industrial Relations shall be distributed to members after the 1995 final premium audit and escrow account adjustments have been completed. These dividends will not be a part of the Loss Portfolio Transfer Agreement. 6. The Fund will distribute the remaining assets or surplus as determined by the actuarial report to its members, and terminate the Fund in accordance with the bylaws. 7. RISCORP shall assume responsibility for any existing service contracts and/or third party agreements. 8. This plan of assumption has been approved by the board of trustees of the Fund in accordance with its bylaws. 9. Attached hereto and made a part hereof is a copy of a Fairness Opinion by Sterling Capital Advisors, a nationally recognized group of Financial Advisors. RISCORP NATIONAL INSURANCE OCCUPATIONAL SAFETY ASSOCIATION COMPANY OF ALABAMA WORKMEN'S COMPENSATION FUND BY: James A. Malone BY: Charles G. Lawson ----------------------- ----------------------------- Its President Its Chairman of Board ------------------ ------------------------ EX-10.73 10 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 10.73 AGREEMENT AND PLAN OF MERGER by and among RISCORP, INC., RISCORP-IAA, INC., INDEPENDENT ASSOCIATION ADMINISTRATORS INCORPORATED, and THE STOCKHOLDERS OF INDEPENDENT ASSOCIATION ADMINISTRATORS INCORPORATED 2 TABLE OF CONTENTS
Page No. -------- ARTICLE I DEFINITIONS ARTICLE 11 THE MERGER Section 2.1 Effective Time of the Merger ......................................... -7- Section 2.2 Closing .............................................................. -7- Section 2.3 Effects of the Merger ................................................ -7- Section 2.4 Directors and Officers of the Surviving Corporation .................. -8- ARTICLE III CONVERSION OF SECURITIES Section 3.1 Conversion of Capital Stock .......................................... -8- Section 3.2 Exchange of Certificates ............................................. -9- Section 3.3 Further Assurances ................................................... -10- Section 3.4 Stock Price Guarantee ................................................ -10- ARTICLE IV REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE STOCKHOLDERS Section 4.1 Representations and Warranties ....................................... -12- Section 4.2 Agreement to Vote Shares and Retain Ownership ........................ -13- ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 5.1 Organization ......................................................... -14- Section 5.2 Capitalization ....................................................... -14- Section 5.3 Authority ............................................................ -14- Section 5.4 Consents and Approvals; No Violations ................................ -15- Section 5.5 Financial Statements ................................................. -15- Section 5.6 Absence of Certain Changes ........................................... -16- Section 5.7 No Undisclosed Liabilities ........................................... -18- Section 5.8 Employee Benefits .................................................... -18- Section 5.9 Other Benefit Plans .................................................. -20- Section 5.10 Litigation ........................................................... -20- Section 5.11 Compliance with Applicable Law ....................................... -21- Section 5.12 Vote Required ........................................................ -21- Section 5.13 Tax Returns and Audits ............................................... -21- Section 5.14 Material Contracts ................................................... -22- Section 5.15 Real Property and Leases ............................................. -24-
-i- 3 wSection 5.16 Tangible Personal Property ........................................... -24- Section 5.17 Environmental and Employee Safety Matters ............................ -25- Section 5.18 Intellectual Property ................................................ -25- Section 5.19 Insurance Policies ................................................... -27- Section 5.20 Errors and Omissions ................................................. -27- Section 5.21 Brokers' Fees ........................................................ -28- Section 5.22 No Misrepresentations ................................................ -28- ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO Section 6.1 Organization ......................................................... -28- Section 6.2 Capitalization ....................................................... -28- Section 6.3 Authority ............................................................ -28- Section 6.4 Consents and Approvals; No Violations ................................ -29- Section 6.5 SEC Reports .......................................................... -29- Section 6.6 Absence of Certain Changes ........................................... -29- ARTICLE VII COVENANTS Section 7.1 Best Efforts; Further Assurances; Cooperation ........................ -29- Section 7.2 Notices and Consents ................................................. -30- Section 7.3 Operation of Business ................................................ -30- Section 7.4 Full Access .......................................................... -31- Section 7.5 Notice of Developments ............................................... -31- Section 7.6 Exclusivity .......................................................... -31- Section 7.7 Insurance and Indemnification ........................................ -32- Section 7.8 Public Announcements ................................................. -32- Section 7.9 Expenses ............................................................. -32- Section 7.10 Antitrust Challenges ................................................. -32- ARTICLE VIII CONDITIONS Section 8.1 Conditions to Obligations of Each Party .............................. -33- Section 8.2 Conditions to Obligations of the Parent and Newco .................... -33- Section 8.3 Conditions to Obligations of the Company ............................. -36- ARTICLE IX REMEDIES FOR BREACHES OF THIS AGREEMENT Section 9.1 Survival of Representations, Warranties, and Covenants ............... -37- Section 9.2 Indemnification ...................................................... -38- Section 9.3 Manner of Indemnification ............................................ -38- Section 9.4 Certain Limitations .................................................. -39- Section 9.5 Notices .............................................................. -39-
-ii- 4 Section 9.6 Expenses ............................................................. -39- Section 9.7 Other Remedies ....................................................... -39- ARTICLE X ESTABLISHMENT OF ESCROW Section 10.1 Creation ............................................................. -40- Section 10.2 Disbursement for Claims .............................................. -40- Section 10.3 Dividends on Escrow Shares; Voting of Escrow Shares .................. -40- ARTICLE XI TERMINATION AND ABANDONMENT Section 11.1 Termination and Abandonment .......................................... -40- Section 11.2 Specific Performance ................................................. -42- Section 11.3 Rights and Obligations upon Termination............................... -42- Section 11.4 Expenses ............................................................. -42- Section 11.5 Effect of Termination ................................................ -43- ARTICLE XII MISCELLANEOUS Section 12.1 Extension; Waiver .................................................... -43- Section 12.2 Notices .............................................................. -43- Section 12.3 Table of Contents; Headings .......................................... -45- Section 12.4 Variation and Amendment .............................................. -45- Section 12.5 Severability ......................................................... -45- Section 12.6 Waiver ............................................................... -45- Section 12.7 No Third Party Beneficiaries; Assignment ............................. -46- Section 12.8 Time of the Essence; Computation of Time ............................. -46- Section 12.9 Counterparts ......................................................... -46- Section 12.10 Governing Law ........................................................ -46- Section 12.11 Entire Agreement ..................................................... -47-
-iii- 5 EXHIBIT A - Stockholders of Company, Inc. and Conversion of Shares EXHIBIT B - Escrow Agreement EXHIBIT C - Registration Rights Agreement EXHIBIT D - Articles of Merger EXHIBIT E - Company Financial Statements -iv- 6 AGREEMENT AND PLAN OF MERGER This is an Agreement and Plan of Merger, dated September _, 1996 (this "Agreement"), by and among RISCORP, Inc., a Florida corporation (the "Parent"), RISCORPIAA, Inc., an Alabama corporation and a wholly-owned subsidiary of the Parent ("Newco"), Independent Association Administrators Incorporated, an Alabama corporation (the "Company"), Thomas Albrecht and Peter Norman, individually and as the solo stockholders of the Company (the "Stockholders"). BACKGROUND. The Parent, Newco and the Company deem it advisable and in the best interests of their respective stockholders to consummate the business combination transaction provided for herein, in which Newco will merge with and into the Company and the Company will become a wholly-owned subsidiary of the Parent (the "Merger"). For federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the internal Revenue Code of 1986, as amended (the "Code"). THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS "Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Affiliated Group" means any affiliated group within the meaning of Code Sec. 1504(a) or any similar group defined under a similar provision of state, local, or foreign law. "Agreement" has the meaning set forth in the preamble above. "Ancillary Agreements" means the Escrow Agreement and the Registration Rights Agreement. "Articles of Merger" has the meaning set forth in Section 2.1 below. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. 7 "Certificates" has the meaning set forth in Section 3.2(a) below. "Closing" has the meaning set forth in Section 2.2 below. "Closing Date" has the meaning set forth in Section 2.2 below. "Code" has the meaning set forth in the Background section above. "Company" has the meaning set forth in the preamble above. "Company Common Stock" means the Common Stock, par value $1.00 per share, of the Company. "Company Financial Statements" has the meaning set forth in Section 5.5 below. "Company Permits" has the meaning set forth in Section 5.12 below. "Competing Transaction" shall mean any of the following involving the Company: (i) any merger, consolidation, share exchange, business combination, or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more of the assets of the Company, taken as a whole, in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 15% or more of the outstanding shares of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith; (iv) any person having acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) having been formed which beneficially owns or has the right to acquire beneficial ownership of, 15% or more of the then outstanding shares of capital stock of the Company; or (v) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. "Confidential information" means any information concerning the business and affairs of the Company prior to Closing or the Parent subsequent to Closing that is not already generally available to the public. "Confidentiality Agreement" means that certain letter confidentiality agreement between the Parent and the Company dated February 2, 1995. "Constituent Corporations" has the meaning set forth in Section 2.3 below. "Controlled Group of Corporations" has the meaning set forth in Code Sec. 1563. "Conversion Number" has the meaning set forth in Section 3.1(c) below. -2- 8 "Effective Time" has the meaning set forth in Section 2.1 below. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement that is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement that is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement that is an Employee Pension Benefit Plan (including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or material fringe benefit plan or program, or (e) bonus, stock option, severance or termination pay, stock purchase, stock appreciation right, restricted stock, phantom stock or other employee benefit plan, program, agreement or arrangement. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(l). "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water , ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means SouthTrust Bank of Alabama, N.A. "Escrow Agreement" means the Escrow Agreement in the form attached hereto as Exhibit B. "Escrow Fund" means the Escrow Shares, together with certain dividends and distributions thereon as provided in the Escrow Agreement. "Escrow Shares" means the shares of Parent Class A Common Stock deposited into the Escrow Fund by the Parent. With respect to each Stockholder, the Escrow Shares attributable to such Stockholder shall be a number of shares of Parent Class A Common Stock equal to five percent of the number of shares of Parent Class A Common Stock into which such Stockholder's shares of Company Common Stock are converted pursuant to the Merger, rounded down to the nearest whole share. -3- 9 "Event of Indemnity" has the meaning set forth in Section 9.2 below "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Price" means the arithmetic average of the closing prices for Parent Class A Common Stock on Nasdaq for the 15 trading days immediately prior to the third trading day immediately preceding the date of this Agreement. "Exhibits" means the Exhibits to this Agreement. "Fiduciary" has the meaning set forth in ERISA Sec. 3(21). "CAAP" means United States generally accepted accounting principles as in effect from time to time. "Governmental Entity" means any court, arbitral tribunal, administrative agency or commission, or other governmental or other regulatory authority or agency. "Hazardous Material" has the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 USC Section 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. The term "Hazardous Material" also means any material that contains asberros, radon, polychlorinated biphenyl PCB's, methylenechloride, trichloroethylene, trans-dichloroethylene, dioxins, dibenzofurans Urea formaldehyde foam insulation, explosive or radioactive material, or motor FUEL OR other petroleum hydrocarbons. "HSRA" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifying Stockholders" has the meaning set forth in Section 9.3 below. "Indemnity Period" has the meaning set forth in Section 9.4 below. "Intellectual Property" means (a) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in. connection therewith, (c) copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations and renewals in connection therewith, (e) trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, -4- 10 manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) computer software (including data and related documentation), (g) all other proprietary rights in any of the foregoing, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. "Loss" means all claims, judgments, damages, penalties, fines, costs, amounts paid in settlement, liabilities (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), obligations, taxes, losses, expenses, and fees, including (without limitation) all attorneys' fees and expenses, court costs, and fees and expenses of expert witnesses, suffered or incurred by a party to this Agreement arising from a breach by another party of a representation, warranty, covenant or agreement set forth in this Agreement. "Material" and "Material Adverse Effect" means any event, change or effect on or with respect to an entity (or group of entities taken as a whole) which is materially adverse to the consolidated condition (financial or otherwise), properties, assets (including intangible assets), liabilities (including contingent liabilities), business, results of operations or prospects of such entity (or, if with respect thereto, of such group of entities taken as a whole). "Material Contract" has the meaning set forth in Section 5.15 below. "Merger" has the meaning set forth in the Background section above. "Merger Consideration" means the shares of Parent Class A Common Stock and cash in lieu of fractional shares to be issued to the holders of Company Common Stock in connection with the Merger. "Most Recent Financial Statements" has the meaning set forth in Section 5.5 below. "Most Recent Fiscal Month End" has the meaning set forth in Section 5.5 below. "Most Recent Fiscal Year End" has the meaning set forth in Section 5.5 below. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Nasdaq" means the Nasdaq Stock Market's National Market. "Newco" has the meaning set forth in the preamble above. "Newco Common Stock" means the common stock, par value $.01 per share, of Newco. -5- 11 "Notice of Claim" has the meaning set forth in Section 9.3 below. "Parent" has the meaning set forth in the preamble above. "Parent Class A Common Stock" means the Class A Common Stock, par value $.01 per share, of the Parent. "Parent Class B Common Stock" means the Class B Common Stock, par value $.01 per share, of the Parent. "Parent Preferred Stock" means the preferred stock of the Parent. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity. "Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975. "Registration Rights Agreement" means the Registration Rights Agreement in the form attached hereto as Exhibit C. "Reportable Event" has the meaning set forth in ERISA Sec. 4043. "Schedules" means the schedules to this Agreement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanics", materialmens', and similar liens arising by operation of law, (b)liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. -6- 12 "Stockholder(s)" has the meaning set forth in the preamble hereof. "Subsidiary" means any corporation or other entity with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surviving Corporation" has the meaning set forth in Section 2.3 below. "Target Acquisition Price" means $ 10,900,000. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Opinion" has the meaning set forth in Section 8.10 below. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Voting Debt" means any bonds, debentures, notes, or other indebtedness having the right to vote (or are convertible into securities having the right to vote). ARTICLE 11 THE MERGER SECTION 2.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this Agreement, the Surviving Corporation shall duly prepare, execute and acknowledge Articles of Merger in substantially the form attached hereto as Exhibit D (the "Articles of Merger"), and thereafter deliver the Articles of Merger to the Secretary of State of the State of Alabama, for filing in accordance with applicable law, as soon as practicable on or after the Closing Date (as hereinafter defined). The Merger shall become effective upon the filing of the Articles of Merger by the Secretary of State of Alabama or at such time thereafter as is provided in the Articles of Merger (the "Effective Time"). SECTION 2.2 CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at 10:00 a.m. Eastern Time on a date to be jointly specified by the Parent and Company, which shall be not later than five business days after satisfaction of the latest to occur of the conditions set forth in Article VIII (the "Closing -7- 13 Date"), at the offices of Rushton, Stakely, Johnston & Garrett, P.A., 184 Commerce Street, Montgomery, Alabama 36104, unless another date or place is agreed to in writing by the parties hereto. SECTION 2.3 EFFECTS OF THE MERGER. At the Effective Time (a) the separate existence of Newco shall cease and Newco shall be merged with and into the Company (Newco and the Company are sometimes referred to herein as the "Constituent Corporations" and the Company is sometimes referred to herein as the "Surviving Corporation"), (b) the Articles of Incorporation of the Company in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation, and (c) the Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation. At and after the Effective Time, the Surviving Corporation shall possess all the assets, rights, and privileges, and shall be subject to all the restrictions and liabilities of each of the Constituent Corporations, all as provided under applicable Alabama law. SECTION 2.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors and officers of the Surviving Corporation, from and after the Effective Time, shall be the current directors and officers of the Company until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and Bylaws. ARTICLE III CONVERSION OF SECURITIES SECTION 3.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by virtue of the Merger and without any further action on the part of any holder of shares of Company Common Stock and without any further action on the part of any holder of shares of Newco Common Stock: (a) Common Stock of Newco. Each issued and outstanding share of Newco Common Stock shall be converted into and become one fully paid and nonassessable share of common stock, par value $1.00 per share, of the Surviving Corporation. (b) Cancellation of Treasury Stock. Any shares of Company Common Stock that are owned by the Company as treasury stock shall be cancelled and retired and shall cease to exist, and no stock of the Parent or other consideration shall be delivered in exchange therefor. All shares of Parent Class A Common Stock, if any, owned by the Company shall remain unaffected by the Merger. (c) Conversion Ratio for Company Common Stock. Subject to Sections 3.2(a) and 3.2(e), each outstanding share of Company Common Stock (other than shares to be cancelled in accordance with Section 3.1(b)) shall be converted into the right -8- 14 to receive a number of shares of Parent Class A Common Stock (the "Conversion Number") equal to (i) the Target Acquisition Price divided by the Exchange Price, divided by (ii) the total number of issued and outstanding shares of Company Common Stock. (d) Cancellation of the Company Common Stock. All shares of Company Common Stock, when converted in accordance with Section 3.1(c), shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Parent Class A Common Stock and any cash in lieu of fractional shares of Parent Class A Common Stock to be issued or paid in consideration therefor upon the surrender of such certificate in accordance with Section 3.2, without interest. SECTION 3.2 EXCHANGE OF CERTIFICATES. (a) Exchange Procedures. On the Closing Date, each Stockholder shall deliver or cause to be delivered certificates representing the shares of Company Common Stock (the "Certificates") owned by him, as described in Exhibit A, accompanied by stock powers duly signed in blank, with signatures guaranteed by a bank, trust company or member of the New York Stock Exchange and with all revenue stamps necessary to transfer such shares and the certificates representing such shares affixed and cancelled and all taxes on such transfer, if any, fully paid, all at the Stockholder's expense. The Stockholders shall also deliver or cause to be delivered duly executed copies of the Escrow Agreement and separate stock transfer powers executed in blank with respect to the certificates representing Escrow Shares. Each Stockholder shall be required to cure any deficiencies with respect to the endorsement of his Certificates or with respect to the stock powers accompanying such Certificates. In exchange for the Certificates, the Parent shall cause to be issued and delivered to the Stockholders, on or promptly after the Closing Date, the certificates representing the number of shares of Parent Class A Common Stock into which each such Stockholders' shares of Company Common Stock have been converted pursuant to the Merger, less the Escrow Shares attributable to each Stockholder, and shall deliver to the Escrow Agent the Escrow Shares. Until surrendered as contemplated by this Section 3.2, each Certificate shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender the certificates representing shares of Parent Class A Common Stock and cash in lieu of any fractional shares of Parent Class A Common Stock as contemplated by this Section 3.2. (b) No Further Ownership Rights in Company Common Stock. All shares of Parent Class A Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof (including any cash paid pursuant to Section 3.2(b) or 3.2(d)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the -9- 15 Company on such shares of Company Common Stock in accordance with the terms of this Agreement and which remain unpaid at the Effective Time, and there shall be no further registrations of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article Ill. (c) No Fractional Shares. No certificate or scrip representing fractional shares of Parent Class A Common Stock shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to enjoy any other rights of a stockholder of the Parent. In lieu of a certificate or scrip representing a fractional share of Parent Class A Common Stock, the Parent shall pay to each holder that surrenders a Certificate in accordance with this Section 3.2 and that would otherwise be entitled, given the Conversion Number, to receive a fractional share of Parent Class A Common Stock, an amount equal to such fraction multiplied by the Exchange Price. (d) Adjustments Because of Changes in Parent Class A Common Stock. If, between the date of this Agreement and the Effective Time, the outstanding Parent Class A Common Stock shall be changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or a pro rata stock dividend thereon shall be distributed as of a date prior to the Effective Time, or declared with a record date prior to the Effective Time and a distribution date after the Effective Time, the Conversion Number shall be appropriately adjusted. SECTION 3.3 FURTHER ASSURANCES. If at any time after the Effective Time any further assignments or assurances are necessary or desirable to vest or to perfect or confirm of record in the Surviving Corporation the title to any property or rights of either of the Constituent Corporations, or otherwise to carry out the provisions of this Agreement, the officers and directors of the Surviving Corporation are hereby authorized and empowered on behalf of the respective Constituent Corporations, in the name of and on behalf of the appropriate Constituent Corporation, to execute and deliver any and all things necessary or proper to vest or to perfect or confirm title to such property or rights in the Surviving Corporation, and otherwise to carry out the purposes and provisions of this Agreement. SECTION 3.4 STOCK PRICE GUARANTEE. In addition to the Merger Consideration, the Parent shall deliver to the Stockholders, if entitled thereto under the terms and conditions contained herein, additional shares of Parent Class A Common Stock as provided below: (a) Applicability. The Parent's obligation to issue Parent Class A Common Stock pursuant to this Section shall apply only to the Stockholders, with respect to the following shares of Parent Class A Common Stock issued in the Merger (the "Guarantee Shares"): -10- 16 (i) As to each Stockholder, the shares of Parent Class A Common Stock acquired in the Merger and continuously held by such Stockholder from the Effective Time of the Merger to the date that is two years from the Closing Date (the "Measurement Date"); and (ii) As to each Stockholder, shares of Parent Class A Common Stock held by any of the following transferees of such Stockholder (each a "Permitted Transferee"), only to the extent such shares of Parent Class A Common Stock were acquired by a Stockholder in the Merger, transferred to such Permitted Transferee by such Stockholder, and continuously held by the combination of such Permitted Transferee and the Stockholder from whom such Permitted Transferee obtained such shares, from the Effective Time of the Merger to the Measurement Date: (1) a Stockholder's spouse, children (including adoptive children), grandchildren, parents or siblings or a trust for the exclusive benefit of any of them (each a "Family Member" of a Stockholder); (2) a bank, financial institution or other lender acting as pledgee in connection with a bona fide pledge of Shares by a Stockholder; (3) a grantor trust established by a Stockholder for the exclusive benefit of a charitable institution that is exempt from tax pursuant to Section 501 (c)(3) of the Internal Revenue Code of 1986, as amended; (4) a corporation, partnership, limited liability company, business trust or other entity owned entirely by a Stockholder and/or such Stockholder's Family Members; (5) the estate of a Stockholder or any Family Member, or the executor, administrator or personal representative of the estate of a Family Member; and (6) the guardian, conservator, or custodian of a Stockholder or any Family Member adjudged disabled by a court of competent jurisdiction. (b) Guarantee. The Parent hereby guarantees that, if the closing price of Parent Class A Common Stock as reported in the Wall Street Journal on the Measurement Date (the "Measurement Price") is less than the Exchange Price, the Parent shall issue to each Stockholder, upon the written request of such Stockholder delivered to the Parent within 45 days after the Measurement Date, a number of additional shares of Parent Class A Common Stock having a value (based on the Measurement Price) equal to the difference between the Exchange Price and the Measurement Price multiplied by the number of Guarantee Shares held by such Stockholder and such Stockholder's Permitted Transferees, and cash in lieu of any fractional shares based on the Exchange Price. -11- 17 (c) Notice of Guarantee. Upon receipt of the notice described in Section 3.4(b) above, and prior to the issuance of Guarantee Shares to any Stockholder, the Parent shall be entitled to receive from such Stockholder such documents, certificates and other evidence as may be reasonably requested by the Parent to evidence the fact that the shares purported to be Guarantee Shares satisfy the requirements set forth in Section 3.4(a) above. (d) Adjustments to Exchange Price. For purposes of computing the difference between the Exchange Price and the Measurement Price under Section 3.4(b) hereof, the Exchange Price shall be appropriately adjusted to reflect any adjustment to the outstanding Parent Class A Common Stock by reason of any reclassification, recapitalization, split-up, combination, exchange of shares, pro rata stock dividend, or similar transaction occurring after the Effective Time of the Merger. (e) Certain Limitations. The Parent's obligation to issue additional shares of Parent Class A Common Stock pursuant to this Section 3.4 is subject to the following limitations: (i) As to each Stockholder, the maximum number of shares that may be issued pursuant to this Section 3.4 is a number of shares equal to the total number of shares of Parent Class A Common Stock (including Escrow Shares) issued to such Stockholder in the Merger. (ii) The Parent shall not be obligated to issue any additional shares of Parent Class A Common Stock to a Stockholder under this Section 3.4 if the value of additional shares of Parent Class A Common Stock plus cash in lieu of fractional shares otherwise deliverable to such Stockholder, computed pursuant to Section 3.4(b), is less than $1,000.00. (iii) The rights granted to the Stockholders under this Section 3.4 are personal to each Stockholder and are not transferable or assignable. The Parent shall I have no obligation hereunder to issue additional shares of Parent Class A Common Stock other than to a Stockholder. ARTICLE IV REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE STOCKHOLDERS SECTION 4.1 REPRESENTATIONS AND WARRANTIES. Each Stockholder severally represents, warrants and agrees as follows: (a) Such Stockholder is at the date hereof the lawful owner of the shares of Company Common Stock shown opposite his name in Exhibit A and will on the Closing Date be the lawful owner of all such shares, in each case free and clear of all liens, -12- 18 encumbrances and claims of every kind other than the obligations of such Stockholder under this Agreement. All such shares of Company Common Stock have been validly issued and are outstanding, fully paid and not liable to any further call or assessment. To the best knowledge of such Stockholder, Exhibit A includes a complete and accurate list of all the Stockholders of the Company, and the shares of the Company owned by each. Such Stockholder has full legal right, power and authority to enter into this Agreement, to make the representations, warranties and agreements contained herein, to cause the transactions contemplated hereby to be consummated, and to assign, transfer, and deliver his shares of Company Common Stock to the Parent in connection with the consummation of the Merger, and has obtained any requisite approval of any Governmental Entity having jurisdiction respecting such Stockholder for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; and the delivery of such shares to the Parent pursuant to the provisions of this Agreement will transfer valid title thereto, free and clear of all liens, encumbrances, and claims of every kind. (b) Such Stockholder has been given access to the business premises of the Company, the Parent and its respective Subsidiaries, their business, corporate, and financial books and records for the purposes of examining the foregoing, questioning their respective directors and officers, and making all other investigations such Stockholder considered appropriate to determine or verify the business or condition (financial or otherwise) of the Company, the Parent and its respective Subsidiaries to evaluate the transactions contemplated by this Agreement. (c) The Parent has furnished to such Stockholder copies of its prospectus dated February 28, 1996 and its quarterly reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, and such Stockholder had the opportunity to request additional information concerning the business and affairs of the Parent and the Company. (d) Such Stockholder has been permitted to ask questions of, and to receive answers from officers of the Parent and the Company concerning the business and financial condition of the Parent and the Company, the terms of the Parent Class A Common Stock to be issued to the Stockholders and the other provisions of the Merger, and to obtain all additional information such Stockholder considered necessary to verify the accuracy of the information received. (e) Such Stockholder is acquiring shares of Parent Class A Common Stock in connection with the transactions contemplated hereby solely for his own account, as principal, for investment purposes and not with a view to, or for resale in connection with, any distribution or underwriting of any of such stock, except through underwriters pursuant to an offering registered under the Securities Act and except as permitted by SEC Rule 144. (f) Such Stockholder understands that the shares of Parent Class A Common Stock to be acquired in connection with the Merger have not been registered under either the Securities Act or any state securities law, that such Stockholder must hold -13- 19 such stock indefinitely unless it is subsequently registered under those laws or transferred in reliance on an opinion of counsel satisfactory to the Parent and its counsel that registration under those laws is not required, and that the certificates representing such stock and any securities issued in exchange for or in substitution therefor will bear a legend restricting transfer of the securities. (g) Except as permitted by applicable SEC rules or by the Registration Rights Agreement, such Stockholder shall not sell, transfer, pledge or otherwise dispose of any shares of Parent Class A Common Stock acquired pursuant to the Merger unless the shares are registered under the Securities Act and under every applicable state securities law or unless such Stockholder furnishes an opinion of counsel satisfactory to the Parent and its counsel that registration under those laws is not required. (h) Such Stockholder is an Accredited Investor. SECTION 4.2 AGREEMENT TO VOTE SHARES AND RETAIN OWNERSHIP. Each Stockholder hereby agrees to vote all shares of Company Common Stock held or otherwise controlled by such Stockholder in favor of the Merger at the Stockholders' Meeting (as hereinafter defined). Each Stockholder further agrees not to transfer any of such Stockholder's shares of Company Common Stock until such time as this Agreement is terminated or the Merger is consummated, except to an entity controlled by such Stockholder and with the prior written consent of the Parent. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company and the Stockholders jointly and severally represent, warrant and agree as follows: SECTION 5.1 ORGANIZATION. The Company is a corporation organized, validly existing, and in active status under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority and all necessary governmental approvals to own, lease, and operate its properties and to carry on its business as now being conducted. Schedule 5.1 sets forth for the Company (a) its name and jurisdiction of incorporation, (b) the number of shares of authorized capital stock of each class of its capital stock, (c) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, (d) the number of shares of its capital stock held in treasury, and (e) its directors and officers. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased, or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and be in good standing would not have a Material Adverse Effect on the Company taken as a whole. -14- 20 SECTION 5.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists solely of 1,000 shares of Company Common Stock of which, as of the date hereof, 1,000 shares of Company Common Stock are issued and outstanding. The issued and outstanding shares of Company Common Stock are registered in the names and in the respective amounts shown on Exhibit A hereto. All the outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and nonassessable and free of any preemptive or similar rights in respect thereof, and no shares are held in the treasury of the Company. As of the date hereof, no Voting Debt of the Company is issued or outstanding. As of the date hereof, there are no existing options, warrants, puts, calls, subscriptions or other rights or other agreements or commitments of any character relating to the issued or unissued capital stock or Voting Debt of the Company, or obligating the Company to issue, transfer, or sell or cause to be issued, transferred, or sold, any shares of capital stock or Voting Debt of, or other equity interests in, the Company, or securities convertible into or exchangeable for such shares or equity interests or obligating the Company to grant, extend, or enter into any such option, warrant, call, subscription or other right, agreement or commitment. As of the date hereof, there are no outstanding contractual obligations of the Company to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company. All of the outstanding shares of Company Common Stock were issued pursuant to available exemptions under federal and state securities laws. The Company does not have any Subsidiaries or own any shares of stock of any other corporation. SECTION 5.3 AUTHORITY. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby (subject to the approval and adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock). The execution, delivery, and performance of this Agreement and the consummation of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the votes entitled to be cast by the Stockholders). This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of the Parent and Newco, respectively, constitutes a valid and binding obligation of the Company, enforceable against the Company and the Stockholders in accordance with its terms. SECTION 5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. To the Knowledge of the Company and the Stockholders, and except as set forth in Schedule 5.4, neither the execution, delivery, or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby nor compliance by the Company with any of the provisions hereof will (a) conflict with or result in any breach of any provision of the Articles of incorporation or the Bylaws of the Company, (b) require any filing with, or permit, authorization, consent, or approval of, any Governmental Entity, -15- 21 (c) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation, or acceleration) under, any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement, or other instrument or obligation to which the Company is a party or by which any of them or any of their properties or assets may be bound, or (d) violate any order, writ, injunction, decree, ruling statute, rule, or regulation applicable to the Company, or any of its properties or assets. SECTION 5.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit E are the following financial statements (collectively the "Company Financial Statements"): (i) audited consolidated and unaudited consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended December 31, 1992, December 31, 1993, December 31, 1994, and December 31, 1995, (the "Most Recent Fiscal Year End") for the Company; and (ii) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the six months elided June 30, 1996, and the management financial statements of the Company dated August 31, 1996 (the "Most Recent Fiscal Month End") for the Company, provided, however, that the Most Recent Financial Statements are subject to normal year end adjustments and lack footnotes and other presentation items. The Company Financial Statements (including the Notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods, are correct and complete, and are consistent with the books and records of the Company (which books and records are correct and complete). At the Most Recent Fiscal Month End, Company owned all assets shown on the Most Recent Financial Statements, subject to no Security Interests, liens, charges, mortgages, or other encumbrances except as noted therein. To the Knowledge of the Company and the Stockholders, all liabilities of the Company are reflected on the books and records of Company. SECTION 5.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 5.6, since the Most Recent Fiscal Year End, no event has occurred which had or could have a Material Adverse Effect on the Company. Without limiting the generality of the foregoing, since that date: (i) the Company has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) the Company has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving payment by the Company of more than $10,000.00 or outside the Ordinary Course of Business; -16- 22 (iii) no party (including the Company) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $10,000.00, to which the Company is a party or by which any of them is bound; (iv) the Company has not imposed or granted any Security Interest upon any of its assets, tangible or intangible; (v) the Company has not made any capital expenditure (or series of related capital expenditures) either involving more than $10,000.00, or outside the Ordinary Course of Business; (vi) the Company has not made ANY capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $10,000.00, or outside the Ordinary Course of Business; (vii) the Company has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $ 1 0,000.00, singly or $50,000.00, in the aggregate; (viii) the Company has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (ix) the Company has not cancelled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $10,000.00, or outside the Ordinary Course of Business; (x) the Company has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) there has been no change made or authorized in the charter or bylaws of the Company; (xii) the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xiii) the Company has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock other than dividends paid to the Stockholders in the Ordinary Course of Business; -17- 23 (xiv) the Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property; (xv) the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvi) the Company has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xvii) the Company has not granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (xviii) the Company has not adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xix) the Company has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; (xx) the Company has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; (xxi) the Company has not received any notice of termination of any contract, lease or other agreement or suffered any damage, destruction or loss (whether or not covered by insurance) which, in any case or in the aggregate, has had a Material Adverse Effect on the assets, operations or prospects of the Company; (xxii) the Company has not encountered any labor union organizing activity, had any actual or threatened employee strikes, work stoppages, slow-downs or lockouts, or had any material change in its relations with its employees, agents, customers or suppliers; (xxiii) the Company has not instituted, settled or agreed to settle any litigation, action or proceeding before any court or governmental body relating to the Company or its properties; (xxiv) the Company has not entered into any transaction, contract or commitment other than in the Ordinary Course of Business or paid or agreed to pay any legal, accounting, brokerage, finder's fee, taxes or other finder's fee, taxes or other expenses -18- 24 in connection with, or incurred any severance pay obligations by reason of, this Agreement or the transactions contemplated hereby; (xxv) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Company; and (xxvi) the Company has not committed to any of the foregoing. SECTION 5.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Company Financial Statements or in the Schedules to this Agreement, the Company has no outstanding indebtedness, guaranties, or matter of suretyship, is not a party to any mortgage, deed of trust, indenture, loan or credit agreement, or similar instrument or agreement, and is not subject to any claims or liabilities, accrued, absolute, contingent or otherwise, other than trade or business obligations incurred in the ordinary course of business since the date of the Company Financial Statements, in amounts usual and normal both individually and in the aggregate for its business. SECTION 5.8 EMPLOYEE BENEFITS. (a) Schedule 5.8 lists each Employee Benefit Plan that the Company maintains or to which the Company contributes. (i) To the Knowledge of the Company and the Stockholders, each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. (iii) All contributions (including all employer contributions and employee salary reduction contributions) that are due have been paid to each such Employee Benefit Plan that is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date that are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. -19- 25 (iv) Each such Employee Benefit Plan that is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401 (a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. (v) The market value of assets under each such Employee Benefit Plan that is an Employee Pension Benefit Plan equals or exceeds the present value of all vested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (vi) The Company has delivered to the Parent correct and complete copies of the plan documents and summary plan descriptions, the three most recent Form 5500 Annual Reports, and all related trust agreements, insurance contracts, and other funding agreements that implement each such Employee Benefit Plan. (vii) There are no pending or, to the Knowledge of the Company or the Stockholders, threatened or expected claims by or on behalf of any such Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits). (b) To the Knowledge of the Company and the Stockholders, with respect to each Employee Benefit Plan that the Company maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute: (i) No such Employee Benefit Plan that is an Employee Pension Benefit Plan has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan has been instituted or, to the Knowledge of the Company or the Stockholders, threatened. (ii) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No Fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Company threatened. The Company does not have any Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation. (iii) The Company has not incurred or has any reason to expect that the Company shall incur, any Liability to the PBGC (other than PBGC premium payments) -20- 26 or otherwise under Title IV of ERISA or under the Code with respect to any such Employee Benefit Plan that is an Employee Pension Benefit Plan. (iv) No such Employee Benefit Plan that is an Employee Pension Benefit Plan has incurred any "accumulated funding deficiency" (as defined in ERISA Sec. 302 and Code Sec. 412), whether or not waived, as of the last day of the most recent fiscal year of each such Employee Pension Benefit Plan ended prior to the Closing Date. (c) The Company does not contribute to and has never contributed to, or ever has been required to contribute to any Multiemployer Plan and does not have liability (including withdrawal Liability) under any Multiemployer Plan. (d) The Company does not maintain or contribute, or ever has maintained or contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B). SECTION 5.9 OTHER BENEFIT PLANS. Except as set forth in Schedule 5.9 and except as provided for in this Agreement, as of the date of this Agreement the Company is not a party to any oral or written (a) consulting agreement not terminable on 60 days or less notice involving the payment of more than $10,000.00 per annum, (b) union or collective bargaining agreement, (c) agreement with any executive officer or other key employee of the Company the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement, or agreement with respect to any executive officer of the Company providing any term of employment or compensation guarantee extending for a period longer than one year and for the payment of in excess of $10,000.00 per annum, or (d) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan, or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. SECTION 5.10 LITIGATION. Schedule 5. 10 sets forth each instance in which the Company (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of the Company, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits proceedings, hearings, and investigations set forth in Schedule 5.10 could have a Material Adverse Effect upon the business, financial condition, operations, results of operations, or future prospects of the Company. The Company does not have any reason to believe that any other such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Company. -21- 27 SECTION 5.11 COMPLIANCE WITH APPLICABLE LAW. To the Knowledge of the Company and the Stockholders, the Company holds all permits, licenses, variances, exemptions, orders, and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders, and approvals that would not, individually or in the aggregate, have a Material Adverse Effect on the Company taken as a whole. To the Knowledge of the Company and the Stockholders, the Company is in compliance with the terms of the Company Permits, except where the failure so to comply would not have a Material Adverse Effect on the Company. To the Knowledge of the Company and the Stockholders, and except as disclosed in Schedule 5.11, the business of the Company is not being conducted in violation of any law, ordinance, or regulation of any Governmental Entity, except for possible violations that individually or in the aggregate do not, and, insofar as reasonably can be foreseen, in the future will not, have a Material Adverse Effect on the Company. To the Knowledge of the Company and the Stockholders, and except as set forth in Schedule 5. 1 1, no investigation or review by any Governmental Entity with respect to tile Company is pending or, to the best knowledge of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, in the future will not have a Material Adverse Effect on the Company. SECTION 5.12 VOTE REQUIRED. The affirmative vote of Stockholders having a majority of the votes entitled to be cast by the outstanding shares of Company Common Stock is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated hereby. SECTION 5.13 TAX RETURNS AND AUDITS. (a) The Company has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects (based upon advice from the Company's accountants). All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. (b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) The Company does not expect any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Company either (i) claimed or raised by any authority in writing or (ii) as to which the Company has Knowledge based upon personal contact with -22- 28 any agent of such authority. Schedule 5.13 lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 1991, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Company has delivered to the Parent correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company since December 31, 1991. (d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has not filed a consent under Code Sec. 341(f) concerning collapsible corporations. The Company has not made any payments, is not obligated to make any payments, or is not a party to any agreement that under certain circumstances could obligate it to make any payments not deductible under Code Sec. 280G. The Company has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is not a party to any Tax allocation or sharing agreement. The Company (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) or (B) has any liability for the Taxes of any Person (other than any of the Company ) under United States Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (f) The unpaid Taxes of the Company (A) did not, as of December 31, 1995, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Company's balance sheet as of June 30, 1996 (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. SECTION 5.14 MATERIAL CONTRACTS. Schedule 5.14 lists the following contracts and other agreements to which the Company is a party (each a "Material Contract"): (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $10,000.00 per year; (b) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services (including insurance, reinsurance and other risk-sharing agreements), the performance of which shall extend over a period of more than one year, result in a Material loss to the Company, or involve consideration in excess of $10,000.00; -23- 29 (c) any agreement concerning a partnership or joint venture; (d) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $10,000.00 or under which it has imposed a Security Interest on any of its assets, tangible or intangibleI (e) any agreement concerning confidentiality or noncompetition; (f) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or arrangement for the benefit of any current or former directors, officers, and employees; (g) any collective bargaining agreement; (h) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $30,000.00 or providing severance benefits; (i) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (j) any agreement under which the consequences of a default or termination could have a Material Adverse Effect on the Company; or (k) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $10,000.00. The Company has delivered to the Parent a correct and complete copy of each written agreement listed in Schedule 5.14 (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Schedule 5.14. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement shall continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the Merger, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under any such agreement; and (C) no party has repudiated any provision of any such agreement. SECTION 5.15 REAL PROPERTY AND LEASES. (a) The Company does not own any real property. Schedule 5.15 lists all parcels of real property leased by the Company. To the Knowledge of the Company and the Stockholders, with respect to each parcel of leased real property, the lease or sublease is legal, valid, binding, and enforceable, and in full force and effect. All facilities owned or leased have received all approvals of applicable -24- 30 Governmental Entities (including licenses and permits) required in connection with the operation thereof. (b) Company has delivered to Parent a true and complete copy of every lease under which Company is a tenant or subtenant (and for each sublease, true and complete copies of all leases to which the sublease is subject, and each such Lease is described on Schedule 5.15. (C) Each lease is in full force and effect and has not been assigned, modified, supplemented, or amended except as described on Schedule 5.15, and neither Company nor, to the best of Company's knowledge, the landlord or sublandlord under any lease is in default under any of the leases, and no circumstances or state of facts presently exists that, with the giving of notice or passage of time, or both, would permit the landlord or sublandlord under any lease to terminate any such lease. (d) Each lease sets forth the entire agreement between the landlord or sublandlord and Target, and there are no amendments, oral or written, except as set forth on Schedule 5.15, and no landlord has the presently exercisable right to cancel or terminate any lease. (e) There are no outstanding or unsatisfied obligations of Company to perform any leasehold improvement or other work or to reimburse or pay for any such work under any of the leases. (f) There are no outstanding or unsatisfied obligations of Company for any leasing commissions under any of the leases. (g) Company has (without exception) a good , marketable, and insurable leasehold estate to all Real Property that it leases, free and clear of all Security Interests. SECTION 5.16 TANGIBLE PERSONAL PROPERTY. (a) Ownership. Except as set forth in the Company Financial Statements, Company is the sole lawful and beneficial owner of its tangible personal property, other than tangible personal property that Company has the right to use in its business pursuant to valid and enforceable contracts, free and clear of all Security Interests, and it has good and marketable title to all such property. (b) Depreciation Schedule. Schedule 5.16 is Company's depreciation schedule, and such schedule sets forth all material tangible personal property existing on the date hereof. (c) No Removal of Property. Company has not removed or permitted the removal of any tangible personal property from its business premises since the Most Recent Financial Statement except in the Ordinary Course of Business. -25- 31 SECTION 5.17 ENVIRONMENTAL AND EMPLOYEE SAFETY MATTERS. (a) The Company has complied with all Environmental, Health, and Safety Laws, and no action, suit, proceedings, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure so to comply. Without limiting the generality of the preceding sentence, the Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations that are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables that are contained in, all Environmental, Health, and Safety Laws. (b) The Company does not have any liability (and the Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form the Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Company giving rise to any Liability) for damage to any site, location, or body of water (Surface or subsurface), for any illness of or, personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (c) All properties and equipment used in the business of the Company have been free of Hazardous Materials. SECTION 5.18 INTELLECTUAL PROPERTY. (a) The Company owns or has the right to use pursuant to license, sublicense, agreement, or permission, all Intellectual Property necessary for or used in the operation of the business of the Company as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Company immediately prior to the Effective Time shall remain owned or available for use by the Surviving Corporation on identical terms and conditions as of the Effective Time. The Company has taken all necessary and desirable action to maintain and protect each item of Intellectual Property that it owns or uses. (b) The Company has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Company has never received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that any of the Company must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of the Company, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Company. -26- 32 (c) Schedule 5.18(a) identifies each trademark, copyright and patent registration that has been issued to the Company with respect to any of its Intellectual Property, identifies each pending trademark, copyright or patent application or application for registration that the Company has made with respect to any of its Intellectual Property. Schedule 5.18(b) identifies each trade name, trademark and service mark (whether or not registered), used by the Company. Schedule 5.18(c) identifies each license, agreement, or other permission that any of the Company has granted to any third party with respect to any of its intellectual Property (together with any exceptions). The Company has delivered to the Parent correct and complete copies of all such patents, registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Parent correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. (d) As to each item of Intellectual Property required to be identified in Schedule 5.18: (i) the Company possesses all right, title, and interest in and to the item, free and clear of any Security Interest, or other restriction other than a license; (ii) other than those items required to be identified in Schedule 5.18(c), the Company possesses all right, title, and interest in and to the item, free and clear of any license; (iii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (iv) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Company, is threatened that challenges the legality, validity, enforceability, use, or ownership of the item; and (v) the Company has never agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (e) Schedule 5.18(d) identifies each item of intellectual Property that any third party owns and that the Company uses pursuant to license, sublicense, agreement, or permission (other than commercially available software for personal computers). The Company has delivered to the Parent correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of intellectual Property required to be identified in Schedule 5.18; (i) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect; -27- 33 (ii) the license, sublicense, agreement, or permission shall continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the Merger; (iii) no party to the license, sublicense, agreement, or permission is in breach or default, and no event has occurred that with notice or default or permit termination, modification, or acceleration thereunder; (iv) no party to the license, sublicense, agreement, or permission has repudiated any provision thereof; (v) with respect to each sublicense, the representations and warranties set forth in clauses (i) through (iv) above are true and correct with respect to the underlying license; (vi) the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Company, is threatened that challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; and (viii)the Company has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (f) To the Knowledge of the Company, the Surviving Corporation shall not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of its businesses as presently conducted and as presently proposed to be conducted. SECTION 5.19 INSURANCE POLICIES. Schedule 5.19 sets forth a complete and correct list and summary description of all insurance policies held by the Company with respect to their respective businesses, and true and complete copies of such policies have been delivered to the Parent. The Company has complied with all the provisions of such policies, and the policies are in full force and effect. SECTION 5.20 ERRORS AND OMISSIONS. Except as disclosed on Schedule 5.20, the Company has not incurred any liability or taken or failed to take any action that will result in a liability (whether reported or unreported, absolute or contingent, liquidated or unliquidated, due or to become due, or known or unknown) for errors or omissions in the conduct of the business of the Company, except such liabilities as are covered by insurance. Of those matters described on Schedule 5.20, the Company has received no notice of any -28- 34 activity of any kind with respect to the prosecution of any of such claims for a period of at least two years prior to and through the date hereof. SECTION 5.21 BROKERS' FEES. The Company has no liability or obligation to pay any fees, commissions, or other compensation to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. SECTION 5.22 NO MISREPRESENTATIONS. None of the representations and warranties of the Company set forth in this Agreement or in the attached Exhibits and Schedules, notwithstanding any investigation thereof by the Parent, contains or will contain any untrue statement of a material fact, or omits or will omit the statement of any material fact necessary to render the same not misleading, either at the date hereof or at the Closing Date. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO The Parent and Newco represent and warrant to the Company and the Majority Stockholders as follows: SECTION 6.1 ORGANIZATION. Each of the Parent and Newco is a corporation organized, validly existing, and in active status under the laws of the jurisdiction of its incorporation. SECTION 6.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of the Parent consists solely of 100,000,000 shares of Parent Class A Common Stock, 100,000,000 shares of Parent Class B Common Stock and 10,000,000 shares of Parent Preferred Stock. As of the date hereof, 1 1,047,582 shares of Parent Class A Common Stock, 24,334,443 shares of Parent Class B Common Stock, and no shares of Parent Preferred Stock were issued and outstanding. As of the date hereof, the authorized capital stock of Newco consists of 10,000 shares of Newco Common Stock, 1,000 shares of which are issued and outstanding and are owned by the Parent. SECTION 6.3 AUTHORITY. The Parent and Newco have the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement, and the consummation of the Merger and the other transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of the Parent and Newco and no other corporate proceeding on the part of the Parent or Newco is necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by the Parent and Newco, as the case may be, and, assuming this Agreement constitutes a valid and binding obligation of the Company and the -29- 35 Stockholders, constitutes a valid and binding obligation of each of the Parent and Newco, as the case may be, enforceable against them in accordance with its terms. SECTION 6.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in Schedule 6.4, neither the execution, delivery, or performance of this Agreement by the Parent and Newco, nor the consummation by the Parent and Newco of the transactions contemplated hereby, nor compliance by the Parent and Newco with any of the provisions hereof, will (a) conflict with or result in any breach of any provision of the respective articles or certificate of incorporation or bylaws of the Parent and Newco, (b) require any filing with, or permit, authorization, consent, or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents, or approvals or to make such filings would not have a Material Adverse Effect on the Parent taken as a whole), (c) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration) under, any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement, or other instrument or obligation to which the Parent is a party or by which it or any of its properties or assets may be bound, or (d) violate any order, writ, injunction, decree, statute, rule, or regulation applicable to the Parent, or any of its properties or assets, except in the case of (c) and (d) for violations, breaches, or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on the Parent. SECTION 6.5 SEC REPORTS. The Parent has filed with the SEC and has heretofore made available to the Company, true and complete copies of, all forms, reports, schedules, statements, and other documents required to be filed by it since January 1, 1996 under the Exchange Act or the Securities Act. SECTION 6.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Parent SEC Documents or Schedule 6.6, since December 31, 1995, there have been no events, changes, or effects having, individually or in the aggregate, a Material Adverse Effect on the Parent taken as a whole. ARTICLE VII COVENANTS SECTION 7.1 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the other provisions in this Agreement, the parties hereto shall each use all reasonable efforts to perform their respective obligations herein and to take, or cause to be taken or do, or cause to be done, all things necessary, proper or advisable under applicable law to satisfy all conditions to the obligations of the parties under this Agreement and to cause the Merger and the other transactions contemplated by this Agreement to be carried out promptly in accordance with the terms hereof and shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees -30- 36 in connection with any steps required to be taken as part of their respective obligations under this Agreement. SECTION 7.2 NOTICES AND CONSENTS. The Company will give any notices to third parties, and will use all reasonable efforts to obtain any third party consents, that the Parent may request in connection with the matters referred to in Section 5.4 above. SECTION 7.3 OPERATION OF BUSINESS. The Company will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Company will not, without the written consent of the Parent: (a) authorize or effect any change in its charter or bylaws; (b) grant any options, warrants, or other rights to purchase or obtain any of its capital stock or issue, sell, or otherwise dispose of any of its capital stock; (c) declare, set aside, or pay any dividend or distribution with respect to its capital stock (whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of its capital stock, except that Company may pay policyholder dividends in the Ordinary Course of Business; (d) issue any note, bond, or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation outside the Ordinary Course of Business; (e) impose any Security Interest upon any of its assets outside the Ordinary Course of Business; (f) make any capital investment in, make any loan to, or acquire the securities or assets of, any other Person outside the Ordinary Course of Business; (g) make any change in employment terms for any of its directors, officers, or employees outside the Ordinary Course of Business; (h) sell, lease, transfer, or dispose of any of its properties or assets, waive or release any rights or cancel, compromise, release, or assign any indebtedness owed to it or any claims held by it, except in the Ordinary Course of Business but in no event shall any such sale, lease, transfer, disposition, waiver, release, cancellation, compromise, or assignment exceed $10,000.00; (i) fail to perform in all material respects its obligations under Material Contracts (except those being contested in good faith) or enter into, assume, or amend any -31- 37 contract or commitment that would be a Material Contract other than contracts to provide services entered into in the ordinary and usual course of business; (j) permit any insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated or any of the coverage thereunder to lapse, unless the Company makes reasonable efforts to obtain simultaneously with such termination or cancellation replacement policies providing substantially the same coverage on commercially reasonable terms and, if so available, such policies are in full force and effect; (k) enter into any union, collective bargaining, or similar agreement; or (1) enter into any agreement to do any of the things described in clauses (a) through (k) above. SECTION 7.4 FULL ACCESS. The Company will permit representatives of the Parent to have full access to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to the Company. The Parent will treat and hold as such any Confidential Information it receives from the Company in the course of the reviews contemplated by this Section, will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, agrees to return to the Company all tangible embodiments (and all copies) thereof that are in its possession. The Company will request its auditing firm to permit the Parent and its representatives, including its auditing firm, to review the work papers of the auditing firm of the Company relating to their examination of the Company Financial Statements. No investigation by or on behalf of the Parent heretofore or hereafter made shall affect the representations and warranties of the Company or the Stockholders. SECTION 7.5 NOTICE OF DEVELOPMENTS. Each party will give prompt written notice to the others of any adverse development causing a Material breach of any of its own representations and warranties in Articles IV, V and VI above. No disclosure by any party pursuant to this Section, however, shall be deemed to amend or supplement the Schedules to this Agreement or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. SECTION 7.6 EXCLUSIVITY. From the date hereof until the Effective Time or until this Agreement is terminated as provided in Article XI, the Company shall not, directly or indirectly, through any officer, director, agent, stockholder (including the Stockholders) or otherwise, initiate, solicit or knowingly encourage (including by way of furnishing nonpublic information or assistance), or take any other action to facilitate knowingly, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, directly or indirectly, any Competing Transaction, or enter into or maintain or continue discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction or authorize or permit any of the officers, directors or employees of the Company or any -32- 38 investment banker, financial advisor, attorney, accountant or other representative retained by the Company to take any such action, and the Company shall notify the Parent thereof orally (within one business day) and in writing (as promptly as practicable) of all of the relevant details relating to all inquiries and proposals which it or any such officer, director, employee, investment banker, financial advisor, attorney, accountant or other representative may receive relating to any of such matters and if such inquiry or proposal is in writing, the Company shall deliver to the Parent a copy of such inquiry or proposal. SECTION 7.7 INSURANCE AND INDEMNIFICATION. The Company, as the Surviving Corporation in the Merger, will observe any indemnification provisions now existing in the Articles of Incorporation or Bylaws of the Company for the benefit of any individual who served as a director or officer of the Company at any time prior to the Effective Time. SECTION 7.8 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements regarding any aspect of this Agreement or the Merger to the financial community, government agencies, employees or the general public shall be mutually agreed upon in advance unless the Parent is advised by counsel that any such announcement or other disclosure not mutually agreed upon in advance is required to be made by law or applicable Nasdaq rules. SECTION 7.9 EXPENSES. Except as otherwise provided in this Agreement, whether or not the Merger is consummated, all costs and expenses (including any brokerage commissions or any finder's or investment banker's fees and including attorneys' and accountants' fees) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that the Parent and the Company shall share equally the costs of any required filings with federal and state regulatory authorities. SECTION 7.10 ANTITRUST CHALLENGES. The Company and the Parent have not made a filing pursuant to the HSRA because the size of the transaction contemplated by this Agreement is less than $15,000,000.00. In the event a suit is instituted challenging the Merger as violative of the antitrust laws, each of the Parent and the Company will use all reasonable efforts to defend against such suit. The Parent and the Company will use all reasonable efforts to take such action as may be required by any federal or state court of the United States, in any suit brought by a private party or Governmental Entity challenging the Merger as violative of the antitrust laws, in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order which has the effect of preventing the consummation of the Merger; however, the Parent shall not be required to agree to any divestiture by the Parent or the Company, of any shares of capital stock or of any business, properties or assets of the Parent or the Company, or to the imposition of any material limitation on the ability of the Parent to conduct such business or to own or exercise control of such stock, business, properties or assets. -33- 39 ARTICLE VILL CONDITIONS SECTION 8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of the Company, the Parent and Newco to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions: (a) Company Stockholder Approval. The Stockholders shall have approved and adopted this Agreement and the Merger in the manner required by the Company's Articles of Incorporation, Bylaws, and applicable law. (b) Tax Effect of Merger. The Company and the Parent shall each have received a written opinion of Holland & Knight, in form reasonably satisfactory to the Company and the Parent (the "Tax Opinion"), to the effect that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Code. In connection with the Tax Opinion, Holland & Knight shall be entitled to make such factual assumptions as it deems necessary, and such factual assumptions shall be confirmed by certificates executed by each Stockholder and by responsible officers of the Company and the Parent. Holland & Knight may also rely on all representations, warranties, covenants and agreements of the parties contained in this Agreement or any Schedule hereto. SECTION 8.2 CONDITIONS TO OBLIGATIONS OF THE PARENT AND NEWCO. Consummation of the Merger is subject to the fulfillment to the satisfaction of the Parent, prior to or at the Closing, of each of the following conditions: (a) Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any Governmental Entity (other than the filing of the Articles of Merger with the Secretary of State of Alabama) which are required for or in connection with the execution and delivery of this Agreement by the Company and the Stockholders and the consummation by the Company and the Stockholders of the transactions contemplated hereby shall have been obtained or made. (b) Injunction, etc. The consummation of the Merger will not violate the provisions of any injunction, order, judgment, decree, law or regulation applicable or effective with respect to the Company, the Parent, Newco or their respective officers and directors. No suit or proceeding shall have been instituted by any person, or, to the knowledge of the Parent, shall have been threatened by any Governmental Entity, which seeks (i) to prohibit, restrict or delay consummation of the Merger or to limit in any material respect the right of the Parent to control any material aspect of the business of the Parent or the Surviving Corporation after the Effective Time, or (ii) to subject the Parent or the Company or their respective directors or officers to material liability on the ground that it or they have breached any law or regulation or otherwise acted improperly in relation to the transactions contemplated by this Agreement; however, in the case of (ii) above, the Parent shall have made a good faith determination that a substantial basis exists which -34- 40 would support a finding of such liability against the officers and directors of the Company or the Parent. (c) Representations and Warranties. The representations and warranties of the Company and the Stockholders contained in this Agreement shall have been true and correct in all respects at the date hereof and shall also be true and correct in all respects at and as of the Effective Time, except for changes contemplated in this Agreement, with the same force and effect as if made at and as of the Effective Time, except in either case as such representations and warranties by their terms relate only to periods of time prior to the Effective Time, and except as set forth in the Schedules, and the Company and the Stockholders shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Effective Time. (d) Certificate. The Company shall have delivered to the Parent a certificate, dated as of the Closing Date, of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that (i) they are familiar with the provisions of this Agreement and (ii) to the best of their Knowledge the conditions specified in Section 8.2(c) have been satisfied. Such certificate shall also specify the number of issued and outstanding shares of the Company Common Stock and shall certify that to the best of their Knowledge there has been no violation by the Company of Sections 7.4 or 7.6 hereof. (e) Opinion and Confirmation of the Company's Counsel. The Parent and Newco shall have received an opinion or opinions, dated as of the Closing Date, of Rushton, Stakely, Johnston & Garrett, counsel to the Stockholders, in form and substance and with such exceptions and limitations as shall be reasonably satisfactory to the Parent, substantially to the effect that: (i) The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Alabama, and has the corporate power and authority to own its properties and assets and to conduct its business as it is presently conducted. (ii) The authorized capital stock of the Company consists of 1,000 shares of Company Common Stock. As of the date of such opinion, there are 1,000 shares of Company Common Stock issued and outstanding. The issued and outstanding shares of Company Common Stock are duly authorized, validly issued, and fully paid and non-assessable, were issued pursuant to available exemptions under federal and state securities laws, and are held by the Stockholders in the amounts set forth on Exhibit A to this Agreement. To the Knowledge of such counsel, the Company has no commitments to issue or sell any shares of its capital stock or any securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire from the Company, any shares of its capital stock, and no securities or obligations evidencing any such rights are outstanding. -35- 41 (iii) The Company and each of the Stockholders each has the power and authority to execute and deliver this Agreement and the Ancillary Agreements to be executed by them, and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly adopted by the Board of Directors of the Company and by the Stockholders. This Agreement and the Ancillary Agreements have been duly executed and delivered by the Company and the Stockholders and are valid and binding agreements of the Company and the Stockholders, enforceable in accordance with their respective terms, subject to: (i) bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights generally; and (ii) general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law. (iv) Neither the execution or delivery by the Company of this Agreement nor the performance of its obligations hereunder will (with the passage of time or the giving of notice or both): (i) constitute a violation of, constitute a default or require any payment under, permit a termination of, or result in the creation or imposition of any security interest, lien or other encumbrance or adverse claim against, or upon any of the property of, the Company under (1) any term or provision of the Articles of Incorporation or Bylaws of the Company, (11) any Material Contract, (111) any permit, judgment, decree or order of any Governmental Entity that is listed on Schedule 5.4 or that is known to such counsel or (IV) any applicable law that in the experience of such counsel is normally applicable to transactions of the kind contemplated by this Agreement; or (ii) create or cause the acceleration of the maturity of, any indebtedness, obligation, or liability of the Company that is listed on Schedule 5.15 or that is known to such counsel. (v) Except for the filing of the Articles of Merger with the Secretary of State of Alabama, each consent, authorization, order and approval of, and filing and registration with, any Governmental Entity required to be made or obtained by the Company for the execution and delivery of this Agreement and the other documents and agreements contemplated hereby and the consummation of the transactions contemplated by this Agreement have been made or obtained. (vi) Upon the filing of the Articles of Merger with the Secretary of State of Alabama, the Merger shall become effective in accordance with Alabama law. (f) Certain Antitrust Matters. No proceeding shall be pending or threatened with respect to the transactions hereunder and no order, decree or judgment shall have been entered or issued, which, in any such case, would require any divestiture by the Parent or the Company of any shares of capital stock or of any business, properties or assets of the Parent or the Company, or the imposition of any material limitation on the ability of the Parent to conduct its business or to own or exercise control of such stock, business, properties or assets. -36- 42 (g) Appraisal Rights. Appraisal rights under Alabama law shall not have been perfected by any holders of the outstanding shares of Company Common Stock. (h) Due Diligence Review. The Parent shall be fully satisfied in its sole discretion with the results of its review of, and its other due diligence investigations with respect to, the business, operations, affairs, prospects, properties, assets, existing and potential liabilities, obligations, and condition (financial or otherwise) of the Company. (i) Employment Agreements. The Parent shall have executed employment agreements with each of the Stockholders on terms consistent with the Parent's standard executive employment agreement. (j) Agreement with Ray Smith. The Parent shall have executed a mutually acceptable agreement with Ray Smith that contains a non-competition clause acceptable to the Parent. (k) Articles of Merger. Company shall execute and deliver to Parent Articles of Merger in form and substance reasonably acceptable to Parent for filing with the Secretary of State of Alabama. (1) Estoppel Certificates. Company shall deliver to Parent an estoppel certificate of each lessor under each lease of Real Property in form and substance satisfactory to Parent which describes in the property leased, the monthly or annual rental, the remaining term of the lease, certifying that there is not a default under the lease, and confirming that the lease will continue in full force and effect after the Closing. (m) 401 K Plan. Company shall have terminated its existing 401(k) benefit plan. (n) Additional Certificates, etc. The Company, and the Stockholders shall have furnished to the Parent such additional certificates, opinions, and other documents as the Parent may have reasonably requested as to any of the conditions set forth in Sections 8.1 and 8.2. SECTION 8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. Consummation of the Merger is subject to the fulfillment to the satisfaction of the Company, prior to or at the Effective Time, of each of the following conditions: (a) Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any Governmental Entity, (other than the filing of the Articles of Merger with the Secretary of State of Alabama) which are required for or in connection with the execution and delivery of this Agreement by the Parent and Newco and the consummation by the Parent and Newco of the transactions contemplated hereby shall have been obtained or made. -37- 43 (b) Injunction, etc. The consummation of the Merger will not violate the provisions of any injunction, order, judgment, decree, law, or regulation applicable or effective with respect to the Company or its officers or directors. (c) Representations and Warranties. The representations and warranties of the Parent and Newco contained in this Agreement shall have been true and correct in all respects at the date hereof and shall also be true and correct in all respects at and as of the Effective Time, except for changes contemplated in this Agreement, with the same force and effect as if made at and as of the Effective Time or except as such representations and warranties by their terms relate only to periods of time prior to the Effective Time or except where the failure of any representation or warranty to be correct would not have a Material Adverse Effect on the ability of the Parent to consummate the Merger or would not have a Material Adverse Effect on the Parent, and the Parent shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Effective Time. (d) Parent Shares. The shares of Parent Class A Common Stock issued to the Stockholders pursuant to the Merger shall, upon consummation of the Merger, be validly authorized and issued, fully paid, and nonassessable. (e) Certificate. The Parent shall have delivered to the Company a certificate, dated as of the Effective Time, of the Chief Executive Officer or a senior executive officer of the Parent to the effect that (i) he is familiar with the provisions of this Agreement and (ii) to the best of his Knowledge the conditions specified in Section 8.3(c) have been satisfied. (f) Execution of Registration Rights Agreement. The Parent shall have executed and delivered to the Stockholders the Registration Rights Agreement. (g) Additional Certificates, etc. The Parent shall have furnished to the Company such additional certificates, opinions, and other documents as the Company may have reasonably requested as to any of the conditions set forth in Sections 8.1 and 8.3. ARTICLE IX REMEDIES FOR BREACHES OF THIS AGREEMENT SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. The representations, warranties, covenants, indemnification provisions, and agreements of the Parties made or set forth in this Agreement (including the Exhibits and Schedules hereto), as the same may be modified in any certificate delivered by the Stockholders or any of them at Closing and approved by the Parent or in any certificate or document delivered pursuant hereto, shall survive the execution and delivery of this Agreement, the Closing Date, the -38- 44 consummation of the Merger, and any investigation made by the parties and shall continue in full force and effect thereafter for the period provided in this Article IX. SECTION 9.2 INDEMNIFICATION. (a) Subject to Section 9.4, the Stockholders shall, jointly and severally, indemnify and hold harmless each Constituent Corporation and the Parent from and against any Loss that the Constituent Corporations and the Parent, or any of them or their successors and assigns, for any cause at any time may sustain or incur as a result of any misrepresentation or breach of any warranty, covenant, agreement or obligation made by the Company or the Stockholders under this Agreement, any Ancillary Agreement, or in any Schedule, Exhibit, certificate or other instrument pursuant hereto, or for any and all Tax liability that is assessed against the Company with respect to any matter that arises prior to the Effective Time (in each case, an "Event of Indemnity"). (b) The Constituent Corporations and Parent agree that they will not seek indemnification against the Stockholders pursuant to this Agreement until the aggregate amount of Losses suffered by the Constituent Corporations and the Parent exceed $50,000.00. SECTION 9.3 MANNER OF INDEMNIFICATION. Upon the occurrence of an Event of Indemnity, the Parent may, at or at any time after such occurrence, notify the Stockholder(s) from whom indemnification is sought (the "Indemnifying Stockholders") and Escrow Agent thereof, stating specifically the obligation(s) with respect to which the claim is made, the facts giving rise to and alleged basis for such claim, and the amount of the Loss incurred or that may be incurred by reason thereof (a "Notice of Claim"). If the Parent makes a demand for indemnification with respect to an Event of Indemnity for which more than one Indemnifying Stockholder would be liable under this Agreement, it shall make such demand against the Indemnifying Stockholders that would be liable for said Event of Indemnity. Within 30 days after the mailing of such notice, the Indemnifying Stockholders shall, subject to Section 9.4, either (a) notify the Escrow Agent and the Parent that they accept the amount of such indemnification claim as set forth in the Notice of Claim, in whole or in part, and instruct the Escrow Agent to charge such accepted amount against the Stockholders pro rata under the Escrow Agreement, or (b) notify the Escrow Agent and the Parent that they deny or dispute the alleged occurrence of such Event of Indemnity as asserted in the Notice of Claim by the Parent. If such Event of Indemnity relates to a claim by a person or persons other than the Parent or a Constituent Corporation, and the amount of such claim is fully covered by the foregoing indemnity, as limited by Section 9.4 hereof, the Indemnifying Stockholders or any of them may elect, within said 30-day period, to defend against such claim at their expense, in lieu of the Parent or a Constituent Corporation assuming such defense. If the Indemnifying Stockholders or any of them elect to assume such defense, they shall retain counsel reasonably satisfactory to the Parent. -39- 45 If within said 30-day period, none Of the Indemnifying Stockholders has, with respect to an Event of Indemnity, taken the action required to be taken within said period, the amount set forth in the Parent's Notice of Claim with respect to such Event of Indemnity shall be deemed to have been accepted by the Stockholders under this Section 9.3 and shall be charged against the Stockholders as settled Losses of the Parent pro rata under the Escrow Agreement. SECTION 9.4 CERTAIN LIMITATIONS. Except in the case of fraud or willful concealment, the liability of the Stockholders hereunder shall be limited as follows: (a) All liability of the Stockholders under this Article IX shall cease three years after the Closing Date. However, the liabilities of the Stockholders hereunder shall continue indefinitely with respect to the occurrence of Events of Indemnity with respect which the Parent shall have mailed notice prior to the expiration of the Indemnity Period or with respect to which there has been any willful concealment by the Stockholders, or either of them, either before or after the date hereof. (b) The liability of any particular Stockholder with respect to any Loss shall be limited to such Stockholder's pro rata share of the Target Acquisition Price. SECTION 9.5 NOTICES. The Parent will endeavor to notify the Stockholders and the Escrow Agent promptly upon the receipt by a responsible officer of the Parent of knowledge of a state of facts that if not corrected, would in its judgment constitute an Event of Indemnity hereunder. However, in no event shall the Parent's failure to notify the Stockholders under this Section 9.5 bar its right to indemnity pursuant to Section 9.2. SECTION 9.6 EXPENSES. Any expenses in connection with a claim of Loss hereunder, including without limitation, investigation or audit expenses, attorneys' fees, or court costs, shall be borne by the prevailing party in any dispute; however, upon assumption of the defense of a claim hereunder and the admission by the assuming Stockholder of liability (subject to Section 9.4) for the Loss, a Stockholder will not be liable to the Parent for any legal or other costs and expenses subsequently incurred by the Parent in connection with the defense. SECTION 9.7 OTHER REMEDIES. Except for non-monetary equitable relief, from and after the Closing, the rights set forth in this Article IX shall be the Parent's sole and exclusive remedy against the Stockholders for any misrepresentations and any and all breaches of the warranties, covenants, agreements and obligations contained in or arising out of Article V of this Agreement. To the extent monetary damages are sought, Parent's remedies under this Article IX shall be obtained first against the Escrow Fund, and thereafter against the Stockholders individually. Nothing herein shall prevent the Parent from asserting or recovering upon a claim based upon allegations of fraud or other willful breach of an obligation of or with respect to the Stockholders or the Constituent Corporations in connection with this Agreement or for breach of any of the covenants that by their terms -40- 46 continue in effect after the Closing Date. In the event that any such claim for fraud or willful breach is asserted, the prevailing party's attorneys fees and costs shall be paid by the non-prevailing party. ARTICLE X ESTABLISHMENT OF ESCROW SECTION 10.1 CREATION. The Escrow Shares, together with stock powers executed in blank by each of the Stockholders, shall be delivered by the Parent to the Escrow Agent. The fees payable to the Escrow Agent for maintaining the Escrow Fund shall be paid by the Parent. The Escrow Shares shall be maintained by the Escrow Agent for a period beginning at the Effective Time and ending two years thereafter and shall be available to satisfy the indemnification rights of the Parent and the Surviving Corporation set forth in Article IX, pursuant to the terms of the Escrow Agreement. SECTION 10.2 DISBURSEMENT FOR CLAIMS. Disbursements from the Escrow Fund shall be made at the expiration of the Escrow Agreement, subject to the retention of Escrow Shares as to which claims have not been settled, all in accordance with the terms of the Escrow Agreement. SECTION 10.3 DIVIDENDS ON ESCROW SHARES; VOTING OF ESCROW SHARES. The Stockholders shall retain all ordinary dividends and voting rights concerning the Escrow Shares, in accordance with the Escrow Agreement. ARTICLE XI TERMINATION AND ABANDONMENT SECTION 11.1 TERMINATION AND ABANDONMENT. This Agreement and the Merger may be terminated and abandoned at any time prior to the Effective Time: (a) By mutual action of the Board of Directors of the Parent and the Company, whether before or after any action by the Stockholders. (b) By the Parent: (i) if any event shall have occurred as a result of which any condition set forth in Section 8.2 is no longer capable of being satisfied; or (ii) if there has been a breach by the Company of any representation or warranty contained in this Agreement that would have or would be reasonably likely to have a Material Adverse Effect on the Company, or there has been a Material breach of any of the covenants or agreements set forth in this Agreement on the part of the Company, -41- 47 which breach is not curable, or, if curable, is not cured within 30 days after written notice of such breach is given by the Parent to the Company. (c) By the Parent if: (i) The Company (or its Board of Directors) shall have authorized, recommended, proposed or publicly announced its intention to enter into a Competing Transaction which has not been consented to in writing by the Parent; (ii) The Board of Directors of the Company shall have withdrawn or materially modified its authorization, approval or recommendation to the holders of the Company Common Stock with respect to the Merger or this Agreement in a manner adverse to the Parent or shall have failed to make such favorable recommendation; or (iii) Any person, entity or "group" (as that term is used in Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) (other than the Parent or any of its affiliates) shall have (A) commenced or publicly proposed to commence a tender offer or exchange offer for at least 15 percent of the then total outstanding Company Common Stock, (B) acquired more than 15 percent of the then total outstanding Company Common Stock, or (C) solicited and received proxies or consents sufficient to permit it to elect directors nominated by it to a majority of the members of the Company's Board of Directors or to block approval of the Merger and the transactions contemplated by this Agreement by the holders of Company Common Stock. (d) By the Company: (i) if any event shall have occurred as a result of which any condition set forth in Section 8.3 is no longer capable of being satisfied. (ii) if there has been a breach by the Parent or Newco of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Material Adverse Effect on the ability of the Parent or Newco to consummate the Merger, or there has been a Material breach of any of the covenants or agreements set forth in this Agreement on the part of the Parent or Newco, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Company to the Parent. (e) By the Parent or the Company if there shall have occurred (i) any general suspension of, or limitation on, trading in securities generally on Nasdaq continuing for a period of 15 days, or (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States continuing for a period of 15 days. (f) By either the Parent or the Company if (i) any event shall have occurred as a result of which any condition set forth in Section 8.1 is no longer capable of being -42- 48 satisfied or (ii) the Merger shall not have been consummated by November 1, 1996; however, the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner which proximately contributed to the failure of any such condition to be satisfied or the failure to consummate the Merger. SECTION 11.2 SPECIFIC PERFORMANCE. The parties acknowledge that the rights of each party to consummate the transactions contemplated hereby are special, unique, and of extraordinary character, and that, in the event that any party violates or fails and refuses to perform any covenant made by it herein the other parties will be without adequate remedy at law. Each party agrees, therefore, that, in the event that it violates or fails and refuses to perform any covenant made by it herein, the other parties so long as it or they are not in breach hereof, may, in addition to any remedies at law, institute and prosecute an action in a court of competent jurisdiction to enforce specific performance of such covenant or seek any other equitable relief. SECTION 11.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement is terminated and abandoned as provided herein, each party will redeliver all documents, work papers, and other materials of any party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same, except to the extent previously delivered to third parties in connection with the transactions contemplated hereby, and all information received by any party hereto with respect to the business of any other party shall not at any time be used for the advantage of, or disclosed to third parties by, such party to the detriment of the party furnishing such information; however, this Section 11.3 shall not apply to any documents, work papers, material, or information which is a matter of public knowledge or which heretofore has been or hereafter is published in any publication for public distribution or filed as public information with any Governmental Entity. The Parent shall continue to be bound by the provisions of the Confidentiality Agreement following termination of this Agreement. SECTION 11.4 EXPENSES. The Company and the Parent each acknowledge that the other has spent, and will be required to spend, substantial time and effort in examining the business, properties, affairs, financial condition and prospects of the other and their respective Subsidiaries, and has incurred, and will continue to incur, substantial fees and expenses in connection with such examination, the preparation and negotiation of this Agreement and the accomplishment of the transactions contemplated hereunder, and will be unable to evaluate similar transactions with other parties due to the limited number of personnel available for such purpose and the constraints of time. Therefore, the Company and the Parent agree as follows: (a) Expenses. If the Parent terminates this Agreement pursuant to Section 11.1(b) by reason of the failure to meet the condition of Section 8.2 due to the Company's knowing and intentional or grossly negligent misrepresentation or knowing and intentional or grossly negligent breach of warranty or breach of any covenant or agreement, or pursuant to Section 11.1(c), then the Company shall pay the Expenses to the Parent on demand, in -43- 49 same day funds. If the Company terminates this Agreement pursuant to Section 11.1(d) by reason of the failure to meet the condition of Section 8.3 due to the Parent's knowing and intentional or grossly negligent misrepresentation or knowing and intentional or grossly negligent breach of warranty or breach of any covenant or agreement, then the Parent shall pay the Expenses to the Company on demand, in same day funds. For purposes of this Section 11.4, "Expenses" shall include all reasonable out-of-pocket expenses and fees (including, without limitation, fees and expenses payable to all investment banking firms and their respective agents and counsel, and all fees of counsel, accountants- experts and consultants to the Parent and the Company, respectively) actually incurred by the Parent or the Company or on their behalf in connection with the Merger and all transactions contemplated by this Agreement. (b) Payment. Any payment required pursuant to this Section 11.4 shall be made as promptly as practicable, but in no event later than five business days after termination of this Agreement and shall be made by wire transfer of immediately available funds to an account designated by the Parent. If either party is entitled to the Expenses, the other party shall also pay to the other interest at the rate of 8 1/2% per year on any amounts that are not paid when due, plus all costs and expenses in connection with or arising out of the enforcement of the obligation to pay the Expenses or such interest. (c) Effect of Payment. Except as provided in Section 11.5, upon payment of the Expenses this Agreement shall terminate with no further liability of the Company or the Parent at law or equity resulting therefrom. SECTION 11.5 EFFECT OF TERMINATION. In the event of a termination and abandonment of this Agreement pursuant to Section 11.1 above, this Agreement shall forthwith become void and have no further effect, without any liability on the part of any party hereto or its respective officers, directors or stockholders, other than the provisions of Section 7.5, 7.9, 7.10, 11.3, 11.4 and this Section 11.5. Notwithstanding the foregoing, nothing contained in this Section 11.5 shall relieve any party from liability for any breach of this Agreement, and any such termination shall be without prejudice to the rights of any party hereto arising out of the willful breach by any other party of any covenant or agreement contained in this Agreement. ARTICLE XII MISCELLANEOUS SECTION 12.1 EXTENSION; WAIVER. At any time prior to the Effective Time, the Parent and the Company may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto by the other, and (iii) waive compliance with any of the agreements by the other or conditions to such party's obligations contained herein. Any agreement on the part -44- 50 of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. SECTION 12.2 NOTICES. Every notice, consent, demand, approval, and request required or permitted by this Agreement will be valid only if it is in writing, delivered personally or by telecopy, commercial courier, or first class, postage prepaid certified United States mail, and addressed by the sender to the party who is the intended recipient at its address set forth below or to the address most recently designated to the other party by notice given in accordance with this Section. A validly given notice, consent, demand, approval, or request will be effective on the earlier of its receipt, if delivered personally, by telecopy, or by commercial courier, or the third day after it is postmarked by the United States Postal Service, if it is delivered by United States mail. (a) If to the Parent or Newco, to RISCORP, Inc. 1390 Main Street Sarasota Florida 34236 Attention: Gregory M. Marks, General Counsel Telecopy No.: (941) 362-6122 with a copy to Michael L. Jamieson, Esq. Holland & Knight 400 N. Ashley Street, Suite 2050 Tampa, FL 33602 Telecopy No.: (813) 229-0134 (b) If to the Company, to Independent Association Administrators Incorporated 4137 Carmichael Road, Suite 330 Montgomery, Alabama 36106 Attention: ---------------------------------- Telecopy No.: (334) 270-9449 -45- 51 with a copy to: Thomas G. Mancuso, Esq. Rushton, Stakely, Johnston & Garrett 184 Commerce Street Montgomery, Alabama 36104 Telecopy No.: (334) 262-6277 (C) if to the Stockholders,to Thomas Albrecht 1410 Meriweather Road Montgomery, Alabama 36116 Telecopy No.: ------------------------------------------ Peter Norman Post Office Box 195 Fort Deposit, Alabama 36032 Telecopy No.: ------------------------------------------ SECTION 12.3 TABLE OF CONTENTS; HEADINGS. The Table of Contents and headings contained herein are for convenience of reference only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof. SECTION 12.4 VARIATION AND AMENDMENT. Before or after the approval of this Agreement by the Stockholders, this Agreement may be varied or amended at any time without action by the Stockholders by action of the respective Boards of Directors of the Company and Newco; however, any variance or amendment made after approval of the Merger by the Stockholders that (i) reduces the Merger Consideration or changes the form of the Merger Consideration or (ii) changes any of the terms and conditions of this Agreement if such change would adversely affect the Stockholders shall be subject to the further approval of the Stockholders. Any variation, modification or amendment to this Agreement must be made in writing and executed by each of the parties hereto. SECTION 12.5 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party hereto. Upon any such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto will -46- 52 negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. SECTION 12.6 WAIVER. The failure of any party hereto at any time or times to require performance of any provision hereof shall in no manner affect the right to enforce the same. No waiver by any party of any condition, or the breach of any term, provision, warranty, representation, agreement or covenant contained in this Agreement or the other agreements contemplated hereby, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, warranty, representation, agreement or covenant herein or therein contained. SECTION 12.7 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT. This Agreement shall inure to the benefit of the parties and their respective successors and permitted assignees. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity, including, without limitation, employees not a party to this Agreement. Except for assignments to wholly-owned Subsidiaries (direct or indirect) of the Parent, in which event the Parent shall remain liable for the performance of this Agreement, no transfer or assignment (including by operation of law) of this Agreement or of any rights or obligations under this Agreement may be made by any party without the prior written consent of the other parties and any attempted transfer or assignment without that required consent shall be void. No transfer or assignment by a party of its rights under this Agreement shall relieve it of any of its obiligations to the other parties under this Agreement. SECTION 12.8 TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the essence of each and every provision of this Agreement. Whenever the last day for the exercise of any right or the discharge of any duty under this Agreement shall fall upon Saturday, Sunday or a public or legal holiday, the party having such right or duty shall have until 5:00 p.m. Eastern time on the next succeeding regular business day to exercise such right or to discharge such duty. SECTION 12.9 COUNTERPARTS. This Agreement may be executed by each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signatures of all of the parties. This Agreement may be executed in two or more counterparts, each of which shall be an original, and each of which shall constitute one and the same agreement. Any party may deliver an executed copy of this Agreement and of any documents contemplated hereby by facsimile transmission to another party and such delivery shall have the same force and effect as any other delivery of a manually signed copy of this Agreement or of such other documents. SECTION 12.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to the conflicts of law principles thereof. -47- 53 SECTION 12.11 ENTIRE AGREEMENT. This Agreement (with its Exhibits and Schedules) contains, and is intended as, a complete statement of all the terms of the arrangements among the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters and cannot be changed or terminated orally. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first written above. RISCORP, INC. By: /s/ ----------------------------------------- Title: Senior VP ----------------------------------------- RISCORP-IAA, INC. By: /s/ ----------------------------------------- Title Senior V ----------------------------------------- INDEPENDENT ASSOCIATION ADMINISTRATORS INCORPORATED By:/s/ ----------------------------------------- Title: ----------------------------------------- -48- 54 THE STOCKHOLDERS /s/ Thomas Albrecht -------------------------------------------- Thomas Albrecht /s/ Peter Norman -------------------------------------------- Peter Norman EX-10.74 11 POLICY AND LOSS PORTFOLIO 1 EXHIBIT 10.74 POLICY AND LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT between NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND (Hereinafter referred to as "Fund") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Reinsurer") 2 POLICY AND LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT (Hereinafter referred to as the "Agreement") between NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND (Hereinafter referred to as "Fund") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Reinsurer") ARTICLE 1 - BUSINESS COVERED A. The Reinsurer assumes by assumption reinsurance the Policies and the liability to pay all losses, including loss adjustment expenses, covered by Policies issued by the Fund prior to June 14, 1996, to all policyholders, including all existing and incurred but not reported ("IBNR") claims covered by the Policies (hereinafter "Reinsured Claims"), subject to the terms and conditions contained herein. B. The term "Policies" shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance issued by the Fund to its member employers. It is understood and agreed that the Reinsurer is bound by all the terms and conditions of the Fund's Policies as if the Policies had been issued by the Reinsurer. C. The Fund hereby transfers to the Reinsurer all rights the Fund may have now or in the future under or with respect to the Policies, including, without limitation, the right to collect and adjust premiums, adjust and settle claims, deny coverage, rescind policies, etc. ARTICLE 2 - EFFECTIVE DATE This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time, June 14, 1996. ARTICLE 3 - REINSURANCE PREMIUM The Fund shall pay a premium equal to the sum of all of its assets as of the Effective Date (as listed on Schedule A attached hereto) to the Reinsurer in accordance with the following terms and conditions. However, Reinsurer acknowledges that policyholders of the Fund have the right under North Carolina law not to accept the transfer of their Policies and/or obligations under the policies to the Reinsurer, and that the reinsurance premium payable 3 hereunder will be affected by the number of policyholders who do not accept the transfer. Prior to the Effective Date, the Fund shall deliver to the Reinsurer a schedule of the specific investments and assets which the Fund will use to pay the premium. All investments shall be listed on the schedule at fair market value. As of the Effective Date, the Fund shall transfer all scheduled investments and assets to the Reinsurer and shall execute all documents necessary to effectuate such transfer. ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS A. The parties hereto agree to act in good faith and cooperate with each other in effecting the assumption of the Reinsured Claims provided for in this Agreement. The parties shall take all actions necessary to assist each other in obtaining all regulatory approvals or responding to information requests of those insurance regulatory authorities asserting jurisdiction over the transactions herein described. B. Upon demand by, and in accordance with instructions of the Reinsurer, the Fund shall deliver originals or copies of all policy records and claim files pertaining to the Reinsured Claims and all other files and records incidental to the Reinsured Claims as are necessary for the Reinsurer to perform its obligations under this Agreement. The Reinsurer shall retain all policy records, claim files, and other documents received by it from the Fund as required by applicable law. Upon reasonable notice, each of the Reinsurer and the Fund will be entitled to reasonable access to the books and records of the other party at any reasonable time, but only to the extent such materials pertain to the business assumed and reinsured under this Agreement. Each party will pay its own expenses associated with any such review of the books and records. The Fund will retain as its property its original corporate records, including, without limitation, articles of incorporation, bylaws, minute books, and certificate of authority; provided, however, that the Fund shall provide the Reinsurer with copies of all such documents upon the effective date hereof C. Whenever the Fund receives any payments or communications, including notices of claims and proofs of loss, pertaining to the Reinsured Claims, it will forward such payments and communications promptly to the Reinsurer. ARTICLE 5 - NOTICE OF ASSUMPTION As soon as practicable after the Effective Date, the Fund will deliver or cause its agents to deliver to the named insureds under the Policies an appropriate notice of transfer/assumption substantially in the form attached hereto. The Reinsurer will take all other necessary actions to assume the Reinsured Claims. The Fund will cooperate fully with the Reinsurer in implementing such assumption, including, without limitation, executing any document reasonably necessary to evidence the completion of the transactions contemplated by this Agreement. ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS A. From and after the Effective Date, the Reinsurer will be solely liable for the administration and disposition of all aspects of the Reinsured Claims assumed by the Reinsurer 2 4 including, without limitation, the defense, adjustment, settlement, and payment of all losses and expenses arising under or relating to the Reinsured Claims. The Fund hereby grants and assigns to the Reinsurer full authority to administer such losses, claims, expenses, defenses, adjustments, settlements, and payments, and such matters will be under the Reinsurer's control and within its discretion. The Reinsurer will bear all expenses and costs incurred by it in connection with the administration and disposition of such losses, claims, expenses, defenses, adjustments, settlements, and payments. B. The Fund will cause all information and notices regarding the Reinsured Claims actually received by the Fund after the Effective Date to be promptly reported to the Reinsurers or the Reinsurer's designated representative. The Fund also will undertake any reasonable arrangements deemed necessary by the Reinsurer to ensure that all notices received by the Fund after the Effective Date in connection with the Reinsured Claims are promptly delivered to the Reinsurer. C. All losses and similar items regarding the Reinsured Claims that the Reinsurer determines to be payable will be paid directly and promptly by the Reinsurer. ARTICLE 7 - ASSESSMENTS In the event that an assessment is made against any present or former policyholders of the Fund pursuant to the North Carolina General Statutes, the Reinsurer agrees to pay the full assessment on behalf of said policyholders. By this undertaking, the Reinsurer and the Fund expressly intend to benefit as third party beneficiaries all present and former policyholders of the Fund, and the Reinsurer agrees to be subject to suit by any policyholder as set out in Article 8. ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER The Reinsurer hereby covenants and agrees that it may be sued for its actions after the Effective Date, in its own name, by insureds under the Policies. ARTICLE 9 - INDEMNIFICATION The Reinsurer agrees to defend, protect, indemnify and hold harmless the Fund and its successors or assigns, against any liability, claim, loss or damage, including punitive damages, arising under or out of any of the Reinsured Claims reinsured hereunder or the transactions contemplated by this Agreement. ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS The Reinsurer shall also be responsible for any Extra Contractual Obligation losses assessed against the Fund or the Reinsurer. Such losses are defined as those liabilities (whether they constitute compensatory, incidental, exemplary or punitive damages not covered under any other provision of this Agreement and which arise from the handling of any Reinsured Claim, such liabilities arising out of, but not limited to, the following: failure to settle within 3 5 the policy limit or by reason of alleged or actual negligence, coverage denial, fraud or bad check in rejecting an offer of settlement, in the preparation of the defense or in the trial of any action against an insured or in the preparation or prosecution of an appeal consequent upon such action. ARTICLE 11 - REQUIRED REGULATORY APPROVAL This Agreement remains subject to the approval of the North Carolina Department of Insurance. The Fund and the Reinsurer shall take all steps necessary to obtain requisite regulatory approval of this Agreement and the transaction described herein. ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES A. In the event of the payment of any loss by the Reinsurer under this Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to all of the rights of the Fund against any person or entity legally responsible for the loss. The Reinsurer is hereby authorized and empowered to bring any appropriate action in its own name or in the name of the Fund to enforce such rights. B. Any payments received by or due to the Fund from any reinsurer of the Fund which is payable on a Reinsured Claim shall become the property of and paid to the Reinsurer. If any payment is received by the Fund which is to be credited to the Reinsurer under or with respect to any of the Reinsured Claims, the Fund will immediately endorse (without warranty or recourse) and deliver to the Reinsurer such checks, drafts, or money intended as such payment, and until delivery of such items to the Reinsurer, the Fund will treat any such checks, drafts, or money as the property of the Reinsurer held for the account of the Reinsurer. The Reinsurer and the Fund will each use all commercially reasonable efforts to cause the transfer and assignment (as of the Effective Date) to the Reinsurer of all of the Fund's rights, interests, and obligations under the Fund's reinsurance agreements, if any, covering the risks, liabilities, and obligations of the Fund under or with respect to the Reinsured Claims, including, without limitation, obtaining any necessary consents or approvals to such transfer and assignment by the reinsurers under any such reinsurance agreements effective as of the Effective Date. Any failure to receive the consents referred to herein will not relieve or diminish in any manner the Reinsurer's obligations under this Agreement. C. The Reinsurer shall be authorized and entitled to file and pursue the collection of claims against the State of North Carolina, Second Injury Fund, arising out of or resulting from Reinsured Claims (hereinafter "SIF Claims"); to pursue the collection of SIF Claims filed by the Fund prior to the Effective Date; and to collect, receive, and retain any monies paid in settlement or satisfaction of any SIF Claims filed by either the Reinsurer or the Fund. ARTICLE 13 - ERRORS OR OMISSIONS Inadvertent delays, errors, or omissions made in connection with this Agreement or any transaction hereunder will not relieve either party from any liability that would otherwise have attached had such delay, error, or omission not occurred. Regardless, the responsible party will rectify each such delay, error, or omission as promptly as practicable after discovery. 4 6 ARTICLE 14 - ARBITRATION A. Any dispute or other matter in question between the Fund and the Reinsurer arising out of or relating to the formation, interpretation, performance, or breach of this Agreement, whether such dispute arises before or after termination of this Agreement, shall be settled by arbitration if the parties are unable to resolve the dispute through negotiation. Arbitration shall be initiated by the delivery of a written notice of demand for arbitration by one party to the other. B. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint a third arbitrator. If either party refuses or neglects to appoint an arbitrator within sixty (60) days of receipt of a written notice of demand for arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty (60) days of their appointment, each of the arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots. The arbitrators shall be active or former officers of insurance or reinsurance companies; the arbitrators shall not have a personal or financial interest in the result of the arbitration. C. The arbitration hearings shall be held in Charlotte, North Carolina, or such other place as may be mutually agreed. Each party shall submit its case to the arbitrators within sixty (60) days of the selection of the third arbitrator or within such longer period as may be agreed by the arbitrators. The arbitrators shall not be obliged to follow judicial formalities or the rules of evidence except to the extent required by governing law, that is, the state law of the situs of the arbitration as herein agreed; they shall make their decisions according to the practice of the reinsurance business. The decision rendered by a majority of the arbitrators shall be final and binding on both parties. Such decision shall be a condition precedent to any right of legal action arising out of the arbitrated dispute which either party may have against the other. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. D. Each party shall pay the fee and expenses of its own arbitrator and attorneys and one-half of the fees and expenses of the third arbitrator. All other expenses of the arbitration shall be equally divided between the parties. E. Except as provided above, arbitration shall be based, insofar as applicable, upon the Commercial Arbitration Rules of the American Arbitration Association. ARTICLE 15 - HONORABLE UNDERTAKING This Agreement shall be construed as an honorable undertaking between the parties hereto not to be defeated by technical legal constructions, it being the intention of this Agreement that the fortunes of the Reinsurer shall in all cases follow the fortunes of the Fund. 5 7 ARTICLE 16 - TAX NEUTRALITY The parties to the Agreement contemplate that as a result of or concurrent with the transfer of assets and liabilities contemplated hereby, the Fund shall become entitled to a refund of certain taxes, and that the Reinsurer shall sustain a corresponding tax liability. Accordingly, and in order to render the transaction tax-neutral as to such refund, the Fund hereby disavows any right to collect any tax refund to which it currently is or may become entitled, and assigns its rights to any such tax refund to the Reinsurer. ARTICLE 17 - GENERAL PROVISIONS A. Successors and Assigns. This Agreement shall inure to the benefit of and bind the Fund and its successors and assigns and the Reinsurer and its successors and assigns. Neither this Agreement nor any right hereunder nor any part hereof may be assigned by any party hereto without the prior written consent of the other party hereto. Prior to any such assignment, the consent of all necessary regulatory authorities must be obtained. B. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of North Carolina (without giving effect to principles of conflicts of laws) applicable to a contract executed and to be performed in such state. C. Entire Agreement. This Agreement supersedes all prior discussions and agreements between, and contains the sole and entire agreement between the Fund and the Reinsurer with respect to the subject matter hereof. D. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. E. Headings, etc. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender will be deemed to include each other gender, (b) words using the singular or plural number will also include the plural or singular number, respectively, (c) the terms "hereof," "herein," "hereby," and derivative or similar words will refer to this entire Agreement, and (d) the conjunction "or" will denote any one or more, or any combination or all, of the specified items or matters involved in the respective list. F. Non-waiver. The failure of either party hereto at any time to enforce any provision of this Agreement shall not be construed as a waiver of that provision and shall not effect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms. G. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligations of any party under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, 6 8 invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. H. Notices. Any notice or communication given pursuant to this Agreement must be in writing and will be deemed to have been duly given if mailed (by registered or certified mail, postage prepaid, return receipt requested), or if transmitted by facsimile, or if delivered by courier, as follows: To the Fund: National Alliance for Risk Management c/o William D. Gardner President & CEO Arrowspace Group, LTD. 3796 Vest Mill Road Winston Salem, North Carolina 27103 Phone Number: (910) 765-5454 To the Reinsurer: RISCORP National Insurance Company 1390 Main Street Sarasota, Florida 34237 Attention: James A. Malone Phone Number: (941) 951-2022 All notices and other communications required or permitted under this Agreement that are addressed as provided in this paragraph will, whether sent by mail, facsimile, or courier, be deemed given upon the first business day after actual delivery to the party to whom such notice or other communication is sent (as evidenced by the return receipt or shipping invoice signed by a representative of such party or by the facsimile confirmation). Any party from time to time may change its address for the purpose of notices to that party by giving a similar notice specifying a new address, but no such notice will be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof. 7 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives this 14th day of June, 1996. ATTEST: NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND By: /s/ William D. Gardner - - -------------------------------- ----------------------------------- Name: WILLIAM D. GARDNER --------------------------------- Title: CHAIRMAN OF TRUSTEES -------------------------------- ATTEST: RISCORP NATIONAL INSURANCE COMPANY By: /s/ Edward Hammel - - -------------------------------- ----------------------------------- Name: EDWARD HAMMEL --------------------------------- Title: Vice President and Treasurer -------------------------------- 8 10 NOTICE OF TRANSFER IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY. Dissolution of NARM The Trustees of the National Alliance for Risk Management Group Self-Insurers' Fund (NARM Fund) have determined that it would be in the best interest of the policyholders to transfer all assets and liabilities to RISCORP National Insurance Company (RISCORP National), effective June 14, 1996. After the effective date of this transfer, the warm Fund will be terminated. As a member (policyholder) of the NARM Fund, you will neither have any claim against, or equity in the NARM Fund once it is dissolved. Transfer of Workers' Compensation Policy and Coverage RISCORP National Insurance Company has agreed to replace us as your insurer under your policy of workers' compensation coverage. RISCORP National Insurance Company's North Carolina office is located at 5832 Farm Pond Lane, Suite 300, Charlotte, NC 28212. Included with this "Notice of Transfer" are the audited balance sheets prepared under generally accepted accounting principles for the NARM Fund as of December 31, 1994 and December 31, 1995, and Management's Discussion and Analysis for the corresponding period, RISCORP National Insurance Company's Statutory Quarterly Balance Sheet as of March 31, 1996, the plan of capitalization for RISCORP National Insurance Company, and an explanation of the reason for the transfer. You may obtain additional information concerning RISCORP National Insurance Company by contacting: Commissioner James E. Long Department of Insurance 430 N. Salisbury St. Raleigh, NC 27603 (919) 733-5633, Extension 243 RISCORP National Insurance Company is licensed to write this coverage in North Carolina. The Commissioner of Insurance in North Carolina has reviewed the effect of the transaction, and has approved the transaction. Your Rights You may choose to consent to or reject the transfer of your policy and/or the obligations under your policy to RISCORP National Insurance Company. If you want your policy transferred, notify us in writing by signing and returning the enclosed Response Letter in the pre-addressed, postage-paid envelope, or by writing to us at: NARM P.O. Box 25700 Charlotte, NC 28229 or; Fax: (704) 531-2845 11 Payment of your premium to RISCORP National Insurance Company will also constitute acceptance of the transaction. If you reject the transfer, your policy will be cancelled and you will have 30 days, until July 18, 1996, to place your coverage with another insurer without penalty. If we do not receive a written rejection, and if you do not pay premiums when due, your workers' compensation coverage will be terminated in accordance with North Carolina law governing cancellation or non-renewal for non-payment of premiums when due. Effect of Transfer If you accept this transfer, RISCORP National Insurance Company will be your insurer. It will have direct responsibility to you for the payment of all claims, benefits, and for all other policy obligations. If you accept this transfer, you should make all premium payments and claims submissions to RISCORP National Insurance Company, and direct all questions to RISCORP National Insurance Company. If you have any further questions about this agreement, you may contact RISCORP National Insurance Company. Sincerely, - - ---------------------------------- ---------------------------------- Bruce A. Flachs William D. Gardner RISCORP National Insurance Company Chairman of the Board of Trustees 5932 Farm Pond Lane NARM Suite 300 P.O. Box 25700 Charlotte, NC 28212 Charlotte, NC 28229 (800) 200-2667 For your convenience, we have enclosed a pre-addressed postage-paid envelope and response letter. Please take time now to read the enclosed notice and complete and return the response letter to us. 12 EXPLANATION OF THE REASON FOR THE TRANSFER In October of 1993, the Trustees of the National Alliance for Risk Management (NARM), established a group self-insurance fund for it's members. At that time, the fund filled an important need in the marketplace, as many of the association's members had no other cost-effective alternative to meet their need for workers' compensation insurance. Many of the insurance carriers had severely limited their writings in North Carolina leaving few options for many North Carolina businesses. The NARM group self-insurers' fund, with RISCORP as it's service company, performed admirably in 1994 and 1995 -- with healthy growth and strong underwriting performance. At the end of 1995, the NARM Fund provided insurance to over 2,200 North Carolina businesses. The marketplace in North Carolina has changed dramatically over the past six months. Overall improvement in the workers' compensation line performance has attracted traditional insurance companies back into the North Carolina marketplace. These companies are aggressively marketing fully-insured products to the full spectrum of North Carolina businesses. Many of the NARM members that had so few options for their workers' compensation in 1993, are finding a range of cost-effective alternatives in the form of fully-insured products available in the market. Although most of the members are extremely pleased with the level of claims, loss prevention, and customer service offered by RISCORP, the elimination of joint and several liability is a key consideration in their purchasing decision. As some businesses elect to move to fully-insured Products, there is some risk that the overall health of the NARM Fund could deteriorate exposing the remaining members to more significant risk of eventual fund assessment. In order to anticipate the needs of their members in a changing market, the trustees of the NARM Fund have decided to develop a method of providing a fully-insured product to the NARM members while allowing the members to keep their existing service relationships intact. The trustees have agreed to transfer the assets and liabilities of the NARM Fund to RISCORP National Insurance Company for the purpose of eliminating any potential for assessment of its members. Assessment could occur if the NARM Fund claim liabilities exceeded its available assets due to unfavorable loss experience, poor investment performance or the inability of the Fund members to pay premiums due. By transferring the assets and liabilities of the NARM Fund to RISCORP National Insurance Company you will receive a fully-insured workers' compensation policy without the future potential of assessment for the period of time your coverage was with the NARM Fund. 13 PLAN OF CAPITALIZATION As a result of a successful initial public offering of its common shares, RISCORP. Inc., the ultimate parent of RISCORP National Insurance Company, raised $126.5 million on February 28, 1996. RISCORP, Inc. currently with a market capitalization in excess of $800 million, will contribute the necessary capital to RISCORP National Insurance Company to be in compliance with requirements set by the Department of Insurance for the State of North Carolina as set forth below: - $9 million capital transfer from RISCORP, Inc. to RISCORP National Insurance Company on June 17, 1996. - $2.8 million capital transfers from RISCORP, Inc. to RISCORP National Insurance Company on July 1, 1996, August 1, 1996, and September 1, 1996, or the next business day thereafter. Currently RISCORP National Insurance Company has statutory surplus of approximately $8.4 million as of the effective date of this transfer. This plan of capitalization will result in RISCORP National Insurance Company having a statutory surplus of approximately $25.8 million on September 1, 1996. 14 NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND Balance Sheets December 31, 1995 and 1994
Assets 1995 1994 ------ ---- ---- Debt Securities - available-for-Sale $26,514,356 $ 8,312,162 Debt Securities - held-to-maturity 600,000 450,000 ----------- ----------- Total investments 27,114,356 8,762,182 Cash and cash equivalents 1,704,747 4,289,979 Premiums receivable, less allowance for uncollectible accounts of $548,276 in 1995 and $197,273 in 1994 4,299,509 2,348,525 Accrued investment income 403,336 143,751 Reinsurance balances Loss and loss adjustment expenses receivable 4,809,510 4,448,257 Prepaid reinsurance premiums 87,973 162,469 Federal income taxes receivable 0 142,750 Deferred policy acquisition costs 1,040,279 840,970 Deferred income taxes 1,736,336 864,174 Other assets 93,676 106,692 ----------- ----------- Total assets $41,069,722 $22,109,729 =========== =========== Liabilities and Members' Equity Loss and loss adjustment expense reserves 29,282,180 14,824,372 Unearned premium 6,874,712 5,480,404 Accrued premium taxes 1,054,063 697,980 Accrued commissions 358,430 306,669 Accrued fees - management company 1,046,382 417,982 Federal income taxes payable 346,481 0 Accrued expenses and other liabilities 328,400 287,720 ----------- ----------- Total liabilities 39,290,648 21,995,127 Commitments and contingencies Members' equity Retained earnings 1,540,142 165,400 Not unrealized gain (loss) on available-for-sale debt securities 238,932 50,798 ----------- ----------- Total members' equity 1,779,074 114,602 ----------- ----------- Total liabilities and members' equity $41,069,722 $22,109,729 =========== =========== Reconciliation to Statutory Members' Deficit: Members' equity (deficit) ---------------- Members' equity as reported in the above GAAP Balance Sheet $ 1,779,074 Non-admitted assets (287,699) (1,736,336) Deferred policy acquisition costs (1,040,279) Securities valuation adjustment (362,019) ----------- Statutory members' deficit as reported to state regulatory authorities (unaudited) $(1,647,259) ===========
15 NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 1995 National Alliance for Risk Management Group Self Insurers' Fund (NARM) provides workers' compensation and employers' liability coverage pursuant to Chapter 97 of the North Carolina General Statutes. NARM began operations on October 1, 1993. NARM's surplus may, at the discretion of the its Board of Trustees and upon approval by the North Carolina Department of Insurance, be distributed to its members. Members may also be assessed to cover NARMs deficit should such a deficit exist. ASSETS At December 31, 1995, total assets were $41,069,722. Investments increased from $8,762,162 at December 31, 1994 to $27,114,356 at December 31,1995, an increase of 209%. The significant Increase reflects the continued growth in premium revenue generated by the fund during 1995. The Fund invests primarily in securities of the U.S. Government; state, local and municipal governments; and high-quality corporate bonds. The mix of the investment portfolio at December 31, 1995 and 1994 was as follows:
1995 1994 ---- ---- U.S. Treasury Securities/Obligations of the U.S. Government 19.9% 13.05% State and municipal obligations 39.3% 86.95% Corporate Securities 40.8% --
Cash and cash equivalents at December 31, 1995 and 1994 were $1,704,747 and $4,289,979, respectively. Premiums and agent's balances in the course of collection increased from at December 31, 1994 to $4,299,509 at December 31, 1995, an increase of 83% Allowance for uncollectible accounts at December 31, 1994 and 1995 consists of $197,273 and $543,276, respectively. Also included in total assets at December 31, 1995 is a reinsurance receivable balance of $4,609,510. This amount represents the amounts to be reimbursed to NARM for payments in excess of the specific reinsurance retention limit. The deferred income taxes were $1,735,336 and $364.174 at December 31, 1995 and 1994, respectively. The fluctuation in deferred income taxes represents a 101% increase and is reflective of the Fund's increase in loss and loss adjustment exepense reserves due to the growth in levels of premiums written. LIABILITIES The reserves for losses and loss adjustment expenses were $29,282,180 and $14,824,372 at December 31, 1995 and 1994, respectively. The increase in reserves for loss and loss adjustment expenses represents a 97.5% increase over the prior year and is reflective of the continued growth in the fund's premium base. Reserves for loss and loss adjustment expenses as undiscounted which represents a conservative approach for financial statement reporting purposes. Accrued fees - management company were $1,046,382 and $417,982 at December 31, 1995 and 1994, respectively. The increase in accrued fees - management company is due to a 1995 bonus payable to the management company for NARM profitability. Unearned premiums at December 31, 1995 amounted to $6,874.712. This represented an increase of $1,414,308 or 25.9% over the prior year-end balance of $5,460,404. The substantial increase in unearned 16 premiums as well as all other accrued expense/liability accounts from December 31, 1994 to December 31, 1995 again is reflective of the fund's continued growth. MEMBER'S EQUITY At December 31, 1995 NARM had member's equity of $1,779,074 versus $114,602 at December 31, 1994. Net Income Net income for the year ended December 3l, 1995 was $1,374,742. Premiums earned for the year were $34,972,245 versus $18,688,366 in the prior year, an increase of $16,283,879 or 87%. Net investment income increased from $277,533 at December 31, 1994 to $1,090,685 at December 31, 1995, an increase of nearly 393%. This reflects the significant growth in the fund's investment portfolio during 1995. Other income consists primarily of earned expense constants. Underwriting expenses at December 31, 1995 and 1994 consisted of losses and loss expenses incurred and other underwriting expenses of $23,598,055 and $10,919,132, respectively. For the year ended December 31, 1994, loss and loss adjustment expenses were $13,341,053 and other underwriting expenses amounted to $5,585,832. Federal income taxes incurred for the year ended December 3l, 1995 were $1,535,131. As with the asset and liability growth, the substantial increases in both revenues and expenses reflects the continued growth of the fund's premium base. CASH FLOW/LIQUIDITY The cash cash equivalents were $1,704,747 and $4,289,979 at December 31, 1995 and 1994, respectively. The change in cash and cash equivalents represents a 60% decrease over the prior year and is reflective of management's policy to maximize investment return. SUBSEQUENT EVENT The NARM Trustees discussed and filed with the Department of Insurance a plan of dissolution of the Fund and a policy and loss portfolio transfer assumption reinsurance agreement, which has been approved by the Department of Insurance. 17 STATEMENT AS OF MARCH 31, 1996 OF THE RISCORP NATIONAL INSURANCE COMPANY ANALYSIS OF ASSETS
1 2 3 Non-Ledger Including Assets Not Admitted Excess of Market Including Excess of Ledger Assets (or Amortized) Book Over Market (or Over Book Values Amortized) Values ---------------------------------------------------------- 1. Bonds 3,387,579 2. Stocks: 2.1 Preferred stocks 151,253 6,753 2.2 Common stocks 45,425 3,700 3. Mortgage loans on real estate a. First liens b. Other than first liens 4. Real estate: 4.1 Properties occupied by the company (less......$0) encumbrances) 4.2 Other properties (less.......$0 encumbrances) 5. Collateral loans 6.1 Cash on hand and on deposit: a. Cash in company's office b. Cash on deposit 5,184,549 6.2 Short-term investments 200,000 7. Other invested assets 8. Aggregate write-ins for invested assets 0 0 0 8A. Subtotals, cash and invested assets (Lines 1 through 8) 8,968,806 3,700 6,753 9. Agents' balances or uncollected premiums (net as to concessions and dividends): 9.1 Premiums and agents' balances in course of collection (after deducting ceded reinsurance balances payable of $133,445) 219,980 6,330 9.2 Premiums, agents' balances and installments booked but deferred and not yet due (after deducting ceded reinsurance balances payable of $0) (Including $0 earned but unbilled premiums) 9.3 Accrued retrospective premiums (after deducting ceded reinsurance balances payable of $0_) 10. Funds held by or deposited with reinsured companies 11. Bills receivable, taken for premiums 12. Reinsurance recoverables on loss and loss adjustment expense payments 17,823 13. Federal income tax recoverable 14. Electronic data processing equipment 23,099 15. Interest, dividends and real estate income due and accrued 53,011 16. Receivable from parent, subsidiaries and affiliates 17. Equities and deposits in pools and associations 18. Accounts receivable relating to uninsured accident and health plans 19. Other assets: 19.1 Equipment, furniture and supplies 5,000 5,000 19.2 Bills receivable, not taken for premiums 19.3 Loans on personal security, endorsed or not 20. Aggregate write-ins for other than invested assets 0 0 0 21. TOTALS (Lines 8A through 20) 9,234,709 55,711 18,083 DETAILS OF WRITE-INS 0801. 0802. 0803. 0898. Summary of remaining write-ins for Line 8 from overflow page 0 0 0 0899. TOTALS (Lines 0801 thru 0803 plus 0898)(Line 8 above) 0 0 0 2001. 2002. 2003. 2098. Summary of remaining write-ins for Line 20 from overflow page 0 0 0 2099. TOTALS (Lines 2001 thru 2003 plus 2098)(Line 20 above) 0 0 0 4 5 Previous Year Ending Net Admitted Assets December 31, 1995 (Cols. 1+2-3) ------------------------------------------ 1. Bonds 3,387,579 3,408,743 2. Stocks: 2.1 Preferred stocks 144,500 173,875 2.2 Common stocks 49,125 43,125 3. Mortgage loans on real estate a. First liens 0 b. Other than first liens 0 4. Real estate: 4.1 Properties occupied by the company (less......$0) encumbrances) 0 4.2 Other properties (less....$0 encumbrances) 0 5. Collateral loans 0 6.1 Cash on hand and on deposit: a. Cash in company's office 0 b. Cash on deposit 5,184,549 241,355 6.2 Short-term investments 200,000 238,368 7. Other invested assets 0 8. Aggregate write-ins for invested assets 0 0 8A. Subtotals, cash and invested assets (Lines 1 through 8) (a)8,965,753 4,171,466 9. Agents' balances or uncollected premiums (net as to concessions and dividends): 9.1 Premiums and agents' balances in course of collection (after deducting ceded reinsurance balances payable of $133,445) 213,643 242,541 9.2 Premiums, agents' balances and installments booked but deferred and not yet due (after deducting ceded reinsurance balances payable of ......................$0) (Including...............$0 earned but unbilled premiums) 0 66,591 9.3 Accrued retrospective premiums (after deducting ceded reinsurance balances payable of .........$0) (Including...........$0) 0 10. Funds held by or deposited with reinsured companies 0 11. Bills receivable, taken for premiums 0 12. Reinsurance recoverables on loss and loss adjustment expense payments 17,823 61,830 13. Federal income tax recoverable 0 14. Electronic data processing equipment 23,099 26,783 15. Interest, dividends and real estate income due and accrued 53,011 65,084 16. Receivable from parent, subsidiaries and affiliates 0 17. Equities and deposits in pools and associations 0 18. Accounts receivable relating to uninsured accident and health plans 0 19. Other assets: 19.1 Equipment, furniture and supplies xx xx 19.2 Bills receivable, not taken for premiums xx xx 19.3 Loans on personal security, endorsed or not xx xx 20. Aggregate write-ins for other than invested assets 0 0 21. TOTALS (Lines 8A through 20) 9,273,336 4,534,295 DETAILS OF WRITE-INS 0801. 0 0802. 0 0803. 0 0898. Summary of remaining write-ins for Line 8 from overflow page 0 0 0899. TOTALS (Lines 0801 thru 0803 plus 0898)(Line 8 above) 0 0 2001. 0 2002. 0 2003. 0 2098. Summary of remaining write-ins for Line 20 from overflow page 0 0 2099. TOTALS (Lines 2001 thru 2003 plus 2098)(Line 20 above) 0 0
(a) Includes $0 investments in parent, subsidiaries, and affiliates. 18 STATEMENT AS OF MARCH 31, 1996 OF THE RISCORP NATIONAL INSURANCE COMPANY LIABILITIES, SURPLUS AND OTHER FUNDS
1 2 Current Previous Year Ending Period December 31, 1995 1. Losses (current accident year $63,454) 525,657 723,819 1a. Reinsurance payable on paid loss and loss adjustment expenses 2. Loss adjustment expenses 130,823 170,828 3. Contingent commissions and other similar charges 4. Other expenses (excluding taxes, licenses and fees) 25,175 25,175 5. Taxes, licenses and fees (excluding federal and foreign income taxes) 33,485 40,664 6. Federal and foreign income taxes (excluding deferred taxes) 7. Borrowed money 8. Interest, including $0 on borrowed money 9. Unearned premiums (after deducting ceded reinsurance unearned premiums 910,575 1,011,872 10. Dividends declared and unpaid: a. Stockholders b. Policyholders 11. Funds held by company under reinsurance treaties 76,464 12. Amounts withheld or retained by company for account of others 13. Provision for reinsurance 14. Excess of statutory reserves over statement reserves 15,000 15,000 15. Net adjustments in assets and liabilities due to foreign exchange rates 16. Drafts outstanding 1,310 8,790 17. Payable to parent, subsidiaries and affiliates 18. Payable for securities 19. Liability for amounts held under uninsured accident and health plans 20. Aggregate write-ins for liabilities 1,375 410 21. Total liabilities (Lines 1 through 20) 1,544,702 2,073,024 22. Aggregate write-ins for special surplus funds 0 0 23A. Common capital stock 700,000 700,000 23B. Preferred capital stock 500,000 500,000 23C. Aggregate write-ins for other than special surplus funds 0 0 24A. Surplus notes 24B. Gross paid in and contributed surplus 6,150,000 1,150,000 24C. Unassigned funds (surplus) 273,535 211,271 24D. Less treasury stock, at cost (1) 0 shares common (value included in Line 23A.............$0) (2) 0 shares preferred (value included in Line 23B..........$0) 25. Surplus as regards policyholders (Lines 22 ro 24C, less 24D) 7,523,635 2,561,271 26. TOTALS 9,273,336 4,634,295 DETAILS OF WRITE-INS 2001. Miscellaneous Liabilities 1,976 410 2002. 2003. 2098. Summary of retaining write-ins for Line 20 from overflow page 0 0 2099. TOTALS (Lines 2001 thru 2003 plus 2098) (Line 20 above) 1,976 410 2201. 2202. 2203. 2298. Summary of remaining write-ins for Line 22 from overflow page 0 0 2299. TOTALS (Lines 2201 thru 2203 plus 2298) (Line 22 above) 0 0 23001. 23002. 23003. 23098. Summary of remaining write-ins for Line 23C from overflow page 0 0 23099. TOTALS (Lines 23001 thru 23098) (Line 23C above) 0 0
19 June 14, 1996 RESPONSE LETTER _____ Yes, I accept the transfer of my policy, and/or the obligations under my policy, from National Alliance for Risk Management Group Self-Insurers' Fund (NARM) to RISCORP National Insurance Company. _____ No, I reject the proposed transfer of my policy, and/or the obligations under my policy, from National Alliance for Risk Management Group Self-Insurer's Fund (NARM) to RISCORP National Insurance Company, and will place my workers' compensation coverage with another insurance carrier by July 18, 1996. - - ---------------------- -------------------------------------------------------- Date Signature Name: --------------------------------------------------------------------------- Street Address: ----------------------------------------------------------------- City/State/Zip: ----------------------------------------------------------------- 20 NOTICE OF TRANSFER IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY. Dissolution of NARM Your company is a former member of the National Alliance for Risk Management Group Self-Insurance Fund (NARM Fund), but you no longer have an active policy. The Trustees of the NARM Fund have determined that it would be in the best interest of the present as well as past policyholders to transfer all assets and liabilities to RISCORP National Insurance Company effective June 14, 1996 through an Assumption Reinsurance Agreement. After the effective date of this transfer, the NARM Fund will be terminated. As a former member (policyholder) of the NARM Fund, you will neither have any claim against, or equity in the NARM Fund. RISCORP National Insurance Company is licensed to write this coverage in North Carolina. The Commissioner of Insurance in North Carolina has reviewed the effect of the transaction, and has approved the transaction. Claims previously filed with the NARM Fund will be administered by RISCORP National Insurance Company. If you have questions or desire more information regarding claims filed with the NARM Fund or the effects of this transaction, you may contact RISCORP National Insurance Company at the address below, or you may obtain additional information concerning RISCORP National Insurance Company by contacting: Commissioner James E. Long Department of Insurance 430 N. Salisbury St. Raleigh, NC 27603 (919) 733-5633, Extension 243 Sincerely, - - ---------------------------------- ---------------------------------- Bruce A. Flachs William D. Gardner RISCORP National Insurance Company chairman of the board of trustees 5832 FARM POND LANE NARM Suite 300 P.O. Box 25700 Charlotte, NC 28212 Charlotte, NC 28229 21 NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP SELF-INSURERS' FUND Balance Sheet June 15,1996
Assets June 15, 1996 ------ ------------- Debt Securities - available-for-sale 34,140,538 Debt Securities - held-to-maturity 600,000 ---------- Total investments 34,740,538 Cash and equivalents 2,014,722 Premiums receivable, less allowance for uncollectible accounts of $781,014 5,144,556 Accrued investment income 581,814 Reinsurance balances: Loss and loss adjustment expense reserves 4,307,427 Deferred policy acquisition costs 1,040,279 Deferred income taxes 2,481,347 Other assets 51,073 ---------- TOTAL ASSETS 50,361,756 ========== LIABILITIES AND MEMBERS' EQUITY Loss and loss adjustment expenses 40,112,056 Unearned premium 5,208,748 Accrued premium taxes 714,131 Accrued commissions 121,562 Accrued fees - management company 914,886 Accrued Reinsurance Payable 577,247 Current income taxes payable 1,307,939 Accrued expense and other liabilities 43,771 ---------- 49,000,340 Members' equity: Retained earnings 1,583,082 Net unrealized gain(loss) on available-for-sale debt securities (221,666) ---------- Total members' equity 1,361,416 ---------- TOTAL LIABILITIES AND MEMBERS' EQUITY 50,361,756 ==========
NOTE: Statements reflect investments as of May 31, 1996, as no information was available for the one-half period ended June 15, 1996. All information is preliminary and for internal use by the Department of Insurance only. EX-10.75 12 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.75 STOCK PURCHASE AGREEMENT BY AND BETWEEN RISCORP, INC., and THOMAS ALBRECHT PETER NORMAN HUGH D. LANGDALE, JR. 2 TABLE OF CONTENTS
Page No. -------- ARTICLE I DEFINITIONS ARTICLE II PURCHASE AND SALE OF COMPANY SHARES Section 2.1 Basic Transaction...........................................-6- Section 2.2 Purchase Price..............................................-6- Section 2.3 The Closing.................................................-6- Section 2.4 Deliveries at the Closing...................................-7- ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION Section 3.1 Representations and Warranties of the Sellers...............-7- Section 3.2 Representations and Warranties of the Buyer.................-8- ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY Section 4.1 Organization................................................-9- Section 4.2 Capitalization..............................................-9- Section 4.3 Financial Statements........................................-9- Section 4.4 Absence of Certain Changes.................................-10- Section 4.5 No Undisclosed Liabilities.................................-12- Section 4.6 Employee Benefits..........................................-13- Section 4.7 Other Benefit Plans........................................-14- Section 4.8 Litigation.................................................-15- Section 4.9 Compliance with Applicable Law.............................-15- Section 4.10 Vote Required..............................................-15- Section 4.11 Tax Returns and Audits.....................................-16- Section 4.12 Material Contracts.........................................-17- Section 4.13 Real Property and Leases...................................-18- Section 4.14 Tangible Personal Property.................................-18- Section 4.15 Environmental and Employee Safety Matters..................-19- Section 4.16 Intellectual Property......................................-19- Section 4.17 Insurance Policies.........................................-22- Section 4.18 Errors and Omissions.......................................-22- Section 4.19 Brokers' Fees..............................................-22- Section 4.20 No Misrepresentations......................................-22-
-i- 3 ARTICLE V COVENANTS Section 5.1 Best Efforts; Further Assurances; Cooperation.............-22- Section 5.2 Notices and Consents......................................-22- Section 5.3 Operation of Business.....................................-22- Section 5.4 Full Access...............................................-24- Section 5.5 Notice of Developments....................................-24- Section 5.6 Exclusivity...............................................-24- Section 5.7 Insurance and Indemnification.............................-24- Section 5.8 Public Announcements......................................-25- Section 5.9 Expenses..................................................-25- Section 5.10 Antitrust Challenges......................................-25- ARTICLE VI CONDITIONS Section 6.1 Conditions to Obligations of the Buyer....................-25- Section 6.2 Conditions to Obligations of the Sellers..................-28- ARTICLE VII REMEDIES FOR BREACHES OF THIS AGREEMENT Section 7.1 Survival of Representations, Warranties, and Covenants....-29- Section 7.2 Indemnification...........................................-29- Section 7.3 Manner of Indemnification.................................-30- Section 7.4 Certain Limitations. .....................................-30- Section 7.5 Notices...................................................-31- Section 7.6 Expenses..................................................-31- Section 7.7 Other Remedies............................................-31- ..........................................................................-31- ARTICLE VIII ESTABLISHMENT OF ESCROW Section 8.1 Creation..................................................-31- Section 8.2 Disbursement for Claims...................................-31- ARTICLE IX TERMINATION AND ABANDONMENT Section 9.1 Termination and Abandonment...............................-32- Section 9.2 Specific Performance......................................-33- Section 9.3 Rights and Obligations upon Termination...................-33- Section 9.4 Expenses..................................................-33- Section 9.5 Effect of Termination.....................................-34- ARTICLE X MISCELLANEOUS Section 10.1 Extension; Waiver.........................................-35- Section 10.2 Notices...................................................-35-
-ii- 4 Section 10.3 Table of Contents; Headings...............................-36- Section 10.4 Severability..............................................-36- Section 10.5 Waiver....................................................-36- Section 10.6 No Third Party Beneficiaries; Assignment..................-36- Section 10.7 Time of the Essence; Computation of Time..................-37- Section 10.8 Counterparts..............................................-37- Section 10.9 Governing Law.............................................-37- Section 10.10 Entire Agreement..........................................-37-
-iii- 5 EXHIBIT A - Ownership of Company Shares EXHIBIT B - Company Financial Statements EXHIBIT C - Escrow Agreement -iv- 6 STOCK PURCHASE AGREEMENT This is a Stock Purchase Agreement, dated September 17, 1996 (this "Agreement"), by and between RISCORP, Inc., a Florida corporation (the "Buyer"), and Thomas Albrecht, Peter Norman and Hugh D. Langdale, Jr. (individually, a "Seller" and collectively, the "Sellers"). BACKGROUND. The Sellers in the aggregate own all of the outstanding capital stock of Risk Inspection Services and Consulting, Inc. an Alabama corporation (the "Company"). This Agreement contemplates a transaction in which the Buyer will purchase from the Sellers and the Sellers will sell to the Buyer all of the outstanding capital stock of the Company in return for cash. THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS "Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act. "Affiliated Group" means any affiliated group within the meaning of Code Sec. 1504(a) or any similar group defined under a similar provision of state, local, or foreign law. "Agreement" has the meaning set forth in the preamble above. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyer" has the meaning set forth in the preamble hereof. "Closing" has the meaning set forth in Section 2.3 below. "Closing Date" has the meaning set forth in Section 2.3 below. "Code" has the meaning set forth in the Background section above. "Company" has the meaning set forth in the preamble above. 7 "Company Common Stock" means the Common Stock, par value $1.00 per share, of the Company. "Company Financial Statements" has the meaning set forth in Section 5.5 below. "Company Permits" has the meaning set forth in Section 5.12 below. "Company Shares" means the shares of stock of the Company that are owned by the Sellers as set forth in Exhibit "A" attached hereto. "Competing Transaction" shall mean any of the following involving the Company: (i) any merger, consolidation, share exchange, business combination, or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more of the assets of the Company, taken as a whole, in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 15% or more of the outstanding shares of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith; (iv) any person having acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) having been formed which beneficially owns or has the right to acquire beneficial ownership of, 15% or more of the then outstanding shares of capital stock of the Company; or (v) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. "Confidential Information" means any information concerning the business and affairs of the Company prior to Closing or the Buyer subsequent to Closing that is not already generally available to the public. "Confidentiality Agreement" means that certain letter confidentiality agreement between the Buyer and the Company dated June 3, 1996. "Controlled Group of Corporations" has the meaning set forth in Code Sec. 1563. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement that is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement that is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement that is an Employee Pension Benefit Plan (including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or material fringe benefit plan or program, or (e) bonus, stock option, severance or termination pay, stock purchase, stock appreciation right, restricted stock, phantom stock or other employee benefit plan, program, agreement or arrangement. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). -2- 8 "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(l). "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means SouthTrust Bank of Alabama, N.A. "Escrow Agreement" means the Escrow Agreement in the form attached hereto as Exhibit C "Escrow Fund" means $30,000.00 in cash of the Purchase Price that shall be delivered to Escrow Agent by Buyer. "Event of Indemnity" has the meaning set forth in Section 7.2 below. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exhibits" means the Exhibits to this Agreement. "Fiduciary" has the meaning set forth in ERISA Sec. 3(21). "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Governmental Entity" means any court, arbitral tribunal, administrative agency or commission, or other governmental or other regulatory authority or agency. "Hazardous Material" has the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 USC Section 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. The term "Hazardous Material" also means, any material that contains asbestos, radon, polychlorinated biphenyl, PCB's, methylene -3- 9 chloride, trichloroethylene, trans-dichloroethylene, dioxins, dibenzofurans, urea formaldehyde foam insulation, explosive or radioactive material, or motor fuel or other petroleum hydrocarbons. "HSRA" means the Hart-Scott-Rodino AntiTrust-Improvements Act of 1976, as amended. "Indemnifying Sellers" has the meaning set forth in Section 7.3 below. "Indemnity Period" has the meaning set forth in Section 7.4 below. "Intellectual Property" means (a) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) computer software (including data and related documentation), (g) all other proprietary rights in any of the foregoing, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. "Loss" means all claims, judgments, damages, penalties, fines, costs, amounts paid in settlement, liabilities (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), obligations, taxes, losses, expenses, and fees, including (without limitation) all attorneys' fees and expenses, court costs, and fees and expenses of expert witnesses, suffered or incurred by a party to this Agreement arising from a breach by another party of a representation, warranty, covenant or agreement set forth in this Agreement. "Material" and "Material Adverse Effect" means any event, change or effect on or with respect to an entity (or group of entities taken as a whole) which is materially adverse to the consolidated condition (financial or otherwise), properties, assets (including intangible assets), liabilities (including contingent liabilities), business, results of operations or prospects of such entity (or, if with respect thereto, of such group of entities taken as a whole). "Material Contract" has the meaning set forth in Section 4.12 below. -4- 10 "Most Recent Financial Statements" has the meaning set forth in Section 4.3 below. "Most Recent Fiscal Month End" has the meaning set forth in Section 4.3 below. "Most Recent Fiscal Year End" has the meaning set forth in Section 4.3 below. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Nasdaq" means the Nasdaq Stock Market's National Market. "Notice of Claim" has the meaning set forth in Section 7.3 below. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity. "Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975. "Purchase Price" means $600,000.00. "Reportable Event" has the meaning set forth in ERISA Sec. 4043. "Schedules" means the schedules to this Agreement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanics, materialmens', and similar liens arising by operation of law, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller(s)" has the meaning set forth in the preamble hereof. -5- 11 "Subsidiary" means any corporation or other entity with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Voting Debt" means any bonds, debentures, notes, or other indebtedness having the right to vote (or are convertible into securities having the right to vote). ARTICLE II PURCHASE AND SALE OF COMPANY SHARES SECTION 2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from each of the Sellers, and each of the Sellers agrees to sell to the Buyer, all of his or its Company Shares for the consideration specified below in this Section 2.2. SECTION 2.2 PURCHASE PRICE. The Buyer agrees to pay to the Sellers at the Closing $600,000.00 (the "Purchase Price") by delivery of cash in the amount of the Purchase Price payable by wire transfer or delivery of other immediately available funds. The Purchase Price shall be allocated among the Sellers in proportion to their respective holdings of the Company Shares as set forth in Exhibit A attached hereto. SECTION 2.3 THE CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Holland & Knight in Tampa, Florida, commencing at 9:00 a.m. local time on the next business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself) or such other date as the Buyer and the Sellers may mutually determine (the "Closing Date"); provided, however, that the Closing Date shall be no earlier than September 17, 1996. -6- 12 SECTION 2.4 DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will deliver to the Buyer the various certificates, instruments, and documents referred to in Section 6.1 below, (ii) the Buyer will deliver to the Sellers the various certificates, instruments, and documents referred to in Section 6.2 below, (iii) each of the Sellers will deliver to the Buyer stock certificates representing all of his or Company Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) the Buyer will deliver to each of the Sellers the consideration specified in Section 2.2 above. ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers represents and warrants to the Buyer that the statements contained in this Section 3.1 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.1) with respect to himself, except as set forth in Schedule 3.1 attached hereto. (a) Each Seller has full power and authority to execute and deliver this Agreement and to perform his or its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Sellers, enforceable in accordance with its terms and conditions. No Seller needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (b) Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling charge, or other restriction of any government, governmental agency, or court order to which any Seller is subject or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, crate in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any Seller is a party or by which he is bound or to which any of his assets is subject. (c) No Seller has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated. (d) Each Seller holds of records and owns beneficially the number of Company Shares set forth next to his or its name in Exhibit A, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warranties, purchase rights, contracts, commitments, equities, claims, and demands. No Seller is a party to any option, warranty, purchase right, or other contract -7- 13 or commitment that could require such Seller to sell, transfer, or otherwise dispose of any capital stock of the Company (other than this Agreement). No Seller is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Company. SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants to the Sellers that the statements contained in this Section 3.2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.2). (a) The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. (d) The Buyer has no liability or obligation to pay any fees or commissions to any broker, trader, or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated. ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY The Sellers represent and warrant to the Buyer that the statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article IV). -8- 14 SECTION 4.1 ORGANIZATION. The Company is a corporation organized, validly existing, and in active status under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority and all necessary governmental approvals to own, lease, and operate its properties and to carry on its business as now being conducted. Schedule 4.1 sets forth for the Company (a) its name and jurisdiction of incorporation, (b) the number of shares of authorized capital stock of each class of its capital stock, (c) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, (d) the number of shares of its capital stock held in treasury, and (e) its directors and officers. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased, or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and be in good standing would not have a Material Adverse Effect on the Company taken as a whole. SECTION 4.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists solely of 3,000 shares of Company Common Stock of which, as of the date hereof, 3,000 shares of Company Common Stock are issued and outstanding. The issued and outstanding shares of Company Common Stock are registered in the names and in the respective amounts shown on Exhibit A hereto. All the outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and nonassessable and free of any preemptive or similar rights in respect thereof, and no shares are held in the treasury of the Company. As of the date hereof, no Voting Debt of the Company is issued or outstanding. As of the date hereof, there are no existing options, warrants, puts, calls, subscriptions or other rights or other agreements or commitments of any character relating to the issued or unissued capital stock or Voting Debt of the Company, or obligating the Company to issue, transfer, or sell or cause to be issued, transferred, or sold, any shares of capital stock or Voting Debt of, or other equity interests in, the Company, or securities convertible into or exchangeable for such shares or equity interests or obligating the Company to grant, extend, or enter into any such option, warrant, call, subscription or other right, agreement or commitment. As of the date hereof, there are no outstanding contractual obligations of the Company to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company. All of the outstanding shares of Company Common Stock were issued pursuant to available exemptions under federal and state securities laws. The Company does not have any Subsidiaries or own any shares of stock of any other corporation. SECTION 4.3 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the following financial statements (collectively the "Company Financial Statements"): (i) audited consolidated and unaudited consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal year ended December 31, 1995, (the "Most Recent Fiscal Year End") for the Company; and (ii) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the six months ended June 30, 1996, and as of the management financial statements dated August 31, 1996 (the "Most Recent Fiscal Month End") for the Company, provided, however, that the Most Recent Financial Statements are subject to -9- 15 normal year end adjustments and lack footnotes and other presentation items. The Company Financial Statements (including the Notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods, are correct and complete, and are consistent with the books and records of the Company (which books and records are correct and complete). At the Most Recent Fiscal Month End, Company owned all assets shown on the Most Recent Financial Statements, subject to no Security Interests, liens, charges, mortgages, or other encumbrances except as noted therein. To the Knowledge of the Sellers, all liabilities of the Company are reflected on the books and records of Company. SECTION 4.4 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 4.4, since the Most Recent Fiscal Year End, no event has occurred which had or could have a Material Adverse Effect on the Company. Without limiting the generality of the foregoing, since that date: (i) the Company has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) the Company has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving payment by the Company of more than $10,000.00 or outside the Ordinary Course of Business; (iii) no party (including the Company) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $10,000.00, to which the Company is a party or by which any of them is bound; (iv) the Company has not imposed or granted any Security Interest upon any of its assets, tangible or intangible; (v) the Company has not made any capital expenditure (or series of related capital expenditures) either involving more than $10,000.00, or outside the Ordinary Course of Business; (vi) the Company has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $10,000.00, or outside the Ordinary Course of Business; (vii) the Company has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or -10- 16 capitalized lease obligation either involving more than $10,000.00, singly or $50,000.00, in the aggregate; (viii) the Company has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (ix) the Company has not cancelled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $10,000.00, or outside the Ordinary Course of Business; (x) the Company has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) there has been no change made or authorized in the charter or bylaws of the Company; (xii) the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xiii) the Company has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock other than dividends paid to policyholders in the Ordinary Course of Business; (xiv) the Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property; (xv) the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvi) the Company has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xvii) the Company has not granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (xviii) the Company has not adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); -11- 17 (xix) the Company has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; (xx) the Company has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; (xxi) the Company has not received any notice of termination of any contract, lease or other agreement or suffered any damage, destruction or loss (whether or not covered by insurance) which, in any case or in the aggregate, has had a Material Adverse Effect on the assets, operations or prospects of the Company; (xxii) the Company has not encountered any labor union organizing activity, had any actual or threatened employee strikes, work stoppages, slow-downs or lockouts, or had any material change in its relations with its employees, agents, customers or suppliers; (xxiii) the Company has not instituted, settled or agreed to settle any litigation, action or proceeding before any court or governmental body relating to the Company or its properties; (xxiv) the Company has not entered into any transaction, contract or commitment other than in the Ordinary Course of Business or paid or agreed to pay any legal, accounting, brokerage, finder's fee, taxes or other finder's fee, taxes or other expenses in connection with, or incurred any severance pay obligations by reason of, this Agreement or the transactions contemplated hereby; (xxv) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Company; and (xxvi) the Company has not committed to any of the foregoing. SECTION 4.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Company Financial Statements or in the Schedules to this Agreement, the Company has no outstanding indebtedness, guaranties, or matter of suretyship, is not a party to any mortgage, deed of trust, indenture, loan or credit agreement, or similar instrument or agreement, and is not subject to any claims or liabilities, accrued, absolute, contingent or otherwise, other than trade or business obligations incurred in the ordinary course of business since the date of the Company Financial Statements, in amounts usual and normal both individually and in the aggregate for its business. -12- 18 SECTION 4.6 EMPLOYEE BENEFITS. (a) Schedule 4.6 lists each Employee Benefit Plan that the Company maintains or to which the Company contributes. (i) To the knowledge of the Sellers, each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. (iii) All contributions (including all employer contributions and employee salary reduction contributions) that are due have been paid to each such Employee Benefit Plan that is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date that are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. (iv) Each such Employee Benefit Plan that is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. (v) The market value of assets under each such Employee Benefit Plan that is an Employee Pension Benefit Plan equals or exceeds the present value of all vested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (vi) The Company has delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements that implement each such Employee Benefit Plan. (vii) There are no pending or, to the knowledge of the Sellers, threatened or expected claims by or on behalf of any such Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits). -13- 19 (b) To the Knowledge of the Sellers, with respect to each Employee Benefit Plan that the Company maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute: (i) No such Employee Benefit Plan that is an Employee Pension Benefit Plan has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan has been instituted or, to the Knowledge of the Sellers, threatened. (ii) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No Fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Sellers threatened. The Sellers do not have any Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation. (iii) The Company has not incurred or has any reason to expect that the Company shall incur, any Liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA or under the Code with respect to any such Employee Benefit Plan that is an Employee Pension Benefit Plan. (iv) No such Employee Benefit Plan that is an Employee Pension Benefit Plan has incurred any "accumulated funding deficiency" (as defined in ERISA Sec. 302 and Code Sec. 412), whether or not waived, as of the last day of the most recent fiscal year of each such Employee Pension Benefit Plan ended prior to the Closing Date. (c) The Company does not contribute to and has never contributed to, or ever has been required to contribute to any Multiemployer Plan and does not have liability (including withdrawal Liability) under any Multiemployer Plan. (d) The Company does not maintain or contribute, or ever has maintained or contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B). SECTION 4.7 OTHER BENEFIT PLANS. Except as set forth in Schedule 4.7 and except as provided for in this Agreement, as of the date of this Agreement the Company is not a party to any oral or written (e) consulting agreement not terminable on 60 days or less notice involving the payment of more than $10,000.00 per annum, (f) union or collective bargaining agreement, (g) agreement with any executive officer or other key employee of the Company the benefits of -14- 20 which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement, or agreement with respect to any executive officer of the Company providing any term of employment or compensation guarantee extending for a period longer than one year and for the payment of in excess of $10,000.00 per annum, or (h) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan, or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. SECTION 4.8 LITIGATION. Schedule 4.8 sets forth each instance in which the Company (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of the Sellers, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits proceedings, hearings, and investigations set forth in Schedule 4.8 could have a Material Adverse Effect upon the business, financial condition, operations, results of operations, or future prospects of the Company. The Sellers do not have any reason to believe that any other such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Company. SECTION 4.9 COMPLIANCE WITH APPLICABLE LAW. To the knowledge of the Seller's, the Company holds all permits, licenses, variances, exemptions, orders, and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders, and approvals that would not, individually or in the aggregate, have a Material Adverse Effect on the Company taken as a whole. To the knowledge of the Sellers, the Company is in compliance with the terms of the Company Permits, except where the failure so to comply would not have a Material Adverse Effect on the Company. To the knowledge of the Sellers, and except as disclosed in Schedule Section 4.9, the business of the Company is not being conducted in violation of any law, ordinance, or regulation of any Governmental Entity, except for possible violations that individually or in the aggregate do not, and, insofar as reasonably can be foreseen, in the future will not, have a Material Adverse Effect on the Company. To the knowledge of the Sellers, and except as set forth in Schedule 4.9, no investigation or review by any Governmental Entity with respect to the Company is pending or, to the best knowledge of the Sellers, threatened, nor has any Governmental Entity indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, in the future will not have a Material Adverse Effect on the Company. SECTION 4.10 VOTE REQUIRED. The affirmative vote of Sellers is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated hereby. -15- 21 SECTION 4.11 TAX RETURNS AND AUDITS. (a) The Company has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects (based upon advice from Company's accountants). All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. (b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) The Company does not expect any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Company either (i) claimed or raised by any authority in writing or (ii) as to which the Sellers have Knowledge based upon personal contact with any agent of such authority. Schedule 4.11 lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 1995, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Company has delivered to the Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company since December 31, 1995. (d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has not filed a consent under Code Sec. 341(f) concerning collapsible corporations. The Company has not made any payments, is not obligated to make any payments, or is not a party to any agreement that under certain circumstances could obligate it to make any payments not deductible under Code Sec. 280G. The Company has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is not a party to any Tax allocation or sharing agreement. The Company (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) or (B) has any liability for the Taxes of any Person (other than any of the Company) under United States Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (f) The unpaid Taxes of the Company (A) did not, as of December 31, 1995, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to -16- 22 reflect timing differences between book and Tax income) set forth on the face of the Company's balance sheet as of June 30, 1996 (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. SECTION 4.12 MATERIAL CONTRACTS. Schedule 4.12 lists the following contracts and other agreements to which the Company is a party (each a "Material Contract"): (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $10,000.00 per year; (b) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services (including insurance, reinsurance and other risk-sharing agreements), the performance of which shall extend over a period of more than one year, result in a Material loss to the Company, or involve consideration in excess of $10,000.00; (c) any agreement concerning a partnership or joint venture; (d) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $10,000.00 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (e) any agreement concerning confidentiality or noncompetition; (f) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or arrangement for the benefit of any current or former directors, officers, and employees; (g) any collective bargaining agreement; (h) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $30,000.00 or providing severance benefits; (i) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (j) any agreement under which the consequences of a default or termination could have a Material Adverse Effect on the Company; or (k) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $10,000.00. -17- 23 The Company has delivered to the Buyer a correct and complete copy of each written agreement listed in Schedule 4.12 (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Schedule 4.12. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement shall continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under any such agreement; and (C) no party has repudiated any provision of any such agreement. SECTION 4.13 REAL PROPERTY AND LEASES. (a) The Company does not own any real property. Schedule 4.13 lists all parcels of real property leased by the Company. To the knowledge of the Sellers, with respect to each parcel of leased real property, the lease or sublease is legal, valid, binding, and enforceable, and in full force and effect. All facilities owned or leased have received all approvals of applicable Governmental Entities (including licenses and permits) required in connection with the operation thereof. (b) Company has delivered to Buyer a true and complete copy of every lease under which Company is a tenant or subtenant (and for each sublease, true and complete copies of all leases to which the sublease is subject, and each such Lease is described on Schedule 4.13. (c) Each lease is in full force and effect and has not been assigned, modified, supplemented, or amended except as described on Schedule 4.13, and neither Company nor, to the best of Seller's knowledge, the landlord or sublandlord under any lease is in default under any of the leases, and no circumstances or state of facts presently exists that, with the giving of notice or passage of time, or both, would permit the landlord or sublandlord under any lease to terminate any such lease. (d) Each lease sets forth the entire agreement between the landlord or sublandlord and Target, and there are no amendments, oral or written, except as set forth on Schedule 4.13, and no landlord has the presently exercisable right to cancel or terminate any lease. (e) There are no outstanding or unsatisfied obligations of Company to perform any leasehold improvement or other work or to reimburse or pay for any such work under any of the leases. (f) There are no outstanding or unsatisfied obligations of Company for any leasing commissions under any of the leases. (g) Company has (without exception) a good, marketable, and insurable leasehold estate to all Real Property that it leases, free and clear of all Security Interests. -18- 24 SECTION 4.14 TANGIBLE PERSONAL PROPERTY. (a) Ownership. Except as set forth in the Company Financial Statements, Company is the sole lawful and beneficial owner of its tangible personal property, other than tangible personal property that Company has the right to use in its business pursuant to valid and enforceable contracts, free and clear of all Security Interests, and it has good and marketable title to all such property. (b) Depreciation Schedule. Schedule 4.14 is Company's depreciation schedule, and such schedule sets forth all material tangible personal property existing on the date hereof. (c) No Removal of Property. Company has not removed or permitted the removal of any tangible personal property from its business premises since the Most Recent Financial Statement, except in the Ordinary Course of Business. SECTION 4.15 ENVIRONMENTAL AND EMPLOYEE SAFETY MATTERS. (a) The Company has complied with all Environmental, Health, and Safety Laws, and no action, suit, proceedings, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against it alleging any failure so to comply. Without limiting the generality of the preceding sentence, the Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations that are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables that are contained in, all Environmental, Health, and Safety Laws. (b) The Company does not have any liability (and the Company has not handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form the Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Company giving rise to any Liability) for damage to any site, location, or body of water (surface or subsurface), for any illness of or, personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (c) All properties and equipment used in the business of the Company have been free of Hazardous Materials. SECTION 4.16 INTELLECTUAL PROPERTY. (a) The Company owns or has the right to use pursuant to license, sublicense, agreement, or permission, all Intellectual Property necessary for or used in the operation of the business of the Company as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Company immediately prior to the -19- 25 Closing Date shall remain owned or available for use by the Company on identical terms and conditions as of the Closing Date. The Company has taken all necessary and desirable action to maintain and protect each item of Intellectual Property that it owns or uses. (b) The Company has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Company has never received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that any of the Company must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of the Sellers, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Company. (c) Schedule 4.16(a) identifies each trademark, copyright and patent registration that has been issued to the Company with respect to any of its Intellectual Property, identifies each pending trademark, copyright or patent application or application for registration that the Company has made with respect to any of its Intellectual Property. Schedule 4.16(b) identifies each trade name, trademark and service mark (whether or not registered), used by the Company. Schedule 4.16(c) identifies each license, agreement, or other permission that any of the Company has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Company has delivered to the Buyer correct and complete copies of all such patents, registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. (d) As to each item of Intellectual Property required to be identified in Schedule 4.16: (i) the Company possesses all right, title, and interest in and to the item, free and clear of any Security Interest, or other restriction other than a license; (ii) other than those items required to be identified in Schedule 4.16(c), the Company possesses all right, title, and interest in and to the item, free and clear of any license; (iii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (iv) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Company, is threatened that challenges the legality, validity, enforceability, use, or ownership of the item; and -20- 26 (v) the Company has never agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (e) Schedule 4.16(d) identifies each item of Intellectual Property that any third party owns and that the Company uses pursuant to license, sublicense, agreement, or permission (other than commercially available software for personal computers). The Company has delivered to the Buyer correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Schedule 4.16; (i) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect; (ii) the license, sublicense, agreement, or permission shall continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement; (iii) no party to the license, sublicense, agreement, or permission is in breach or default, and no event has occurred that with notice or default or permit termination, modification, or acceleration thereunder; (iv) no party to the license, sublicense, agreement, or permission has repudiated any provision thereof; (v) with respect to each sublicense, the representations and warranties set forth in clauses (i) through (iv) above are true and correct with respect to the underlying license; (vi) the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Sellers, is threatened that challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; and (viii) the Company has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (f) To the Knowledge of the Sellers, the Company shall not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of its businesses as presently conducted and as presently proposed to be conducted. -21- 27 SECTION 4.17 INSURANCE POLICIES. Schedule 4.17 sets forth a complete and correct list and summary description of all insurance policies held by the Company with respect to their respective businesses, and true and complete copies of such policies have been delivered to the Buyer. The Company has complied with all the provisions of such policies, and the policies are in full force and effect. SECTION 4.18 ERRORS AND OMISSIONS. Except as disclosed on Schedule 4.18, the Company has not incurred any liability or taken or failed to take any action that will result in a liability (whether reported or unreported, absolute or contingent, liquidated or unliquidated, due or to become due, or known or unknown) for errors or omissions in the conduct of the business of the Company, except such liabilities as are covered by insurance. Of those matters described on Schedule 4.18, the Company has received no notice of any activity of any kind with respect to the prosecution of any of such claims for a period of at least two years prior to and through the date hereof. SECTION 4.19 BROKERS' FEES. The Company has no liability or obligation to pay any fees, commissions, or other compensation to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. SECTION 4.20 NO MISREPRESENTATIONS. None of the representations and warranties of the Sellers set forth in this Agreement or in the attached Exhibits and Schedules, notwithstanding any investigation thereof by the Buyer, contains or will contain any untrue statement of a material fact, or omits or will omit the statement of any material fact necessary to render the same not misleading, either at the date hereof or at the Closing Date. ARTICLE V COVENANTS SECTION 5.1 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the other provisions in this Agreement, the parties hereto shall each use all reasonable efforts to perform their respective obligations herein and to take, or cause to be taken or do, or cause to be done, all things necessary, proper or advisable under applicable law to satisfy all conditions to the obligations of the parties under this Agreement and to cause the transactions contemplated by this Agreement to be carried out promptly in accordance with the terms hereof and shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken as part of their respective obligations under this Agreement. SECTION 5.2 NOTICES AND CONSENTS. The Sellers will cause the Company will give any notices to third parties, and will use all reasonable efforts to obtain any third party consents, that the Buyer may request in connection with the matters referred to in Section 4.3 above. SECTION 5.3 OPERATION OF BUSINESS. The Sellers will not cause or permit the Company to engage in any practice, take any action, or enter into any transaction outside the Ordinary -22- 28 Course of Business. Without limiting the generality of the foregoing, the Sellers will not cause or permit the Company to, without the written consent of the Buyer: (a) authorize or effect any change in its charter or bylaws; (b) grant any options, warrants, or other rights to purchase or obtain any of its capital stock or issue, sell, or otherwise dispose of any of its capital stock; (c) declare, set aside, or pay any dividend or distribution with respect to its capital stock (whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of its capital stock, except that Company may pay policyholder dividends in the Ordinary Course of Business; (d) issue any note, bond, or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation outside the Ordinary Course of Business; (e) impose any Security Interest upon any of its assets outside the Ordinary Course of Business; (f) make any capital investment in, make any loan to, or acquire the securities or assets of, any other Person outside the Ordinary Course of Business; (g) make any change in employment terms for any of its directors, officers, or employees outside the Ordinary Course of Business; (h) sell, lease, transfer, or dispose of any of its properties or assets, waive or release any rights or cancel, compromise, release, or assign any indebtedness owed to it or any claims held by it, except in the Ordinary Course of Business but in no event shall any such sale, lease, transfer, disposition, waiver, release, cancellation, compromise, or assignment exceed $10,000.00; (i) fail to perform in all material respects its obligations under Material Contracts (except those being contested in good faith) or enter into, assume, or amend any contract or commitment that would be a Material Contract other than contracts to provide services entered into in the ordinary and usual course of business; (j) permit any insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated or any of the coverage thereunder to lapse, unless the Company makes reasonable efforts to obtain simultaneously with such termination or cancellation replacement policies providing substantially the same coverage on commercially reasonable terms and, if so available, such policies are in full force and effect; (k) enter into any union, collective bargaining, or similar agreement; or -23- 29 (1) enter into any agreement to do any of the things described in clauses (a) through (k) above. SECTION 5.4 FULL ACCESS. The Sellers will cause the Company to permit representatives of the Buyer to have full access to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to the Company. The Buyer will treat and hold as such any Confidential Information it receives from the Company in the course of the reviews contemplated by this Section, will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, agrees to return to the Company all tangible embodiments (and all copies) thereof that are in its possession. The Sellers will cause the Company to request its auditing firm to permit the Buyer and its representatives, including its auditing firm, to review the work papers of the auditing firm of the Company relating to their examination of the Company Financial Statements. No investigation by or on behalf of the Buyer heretofore or hereafter made shall affect the representations and warranties of the Sellers. SECTION 5.5 NOTICE OF DEVELOPMENTS. Each party will give prompt written notice to the others of any adverse development causing a Material breach of any of its own representations and warranties in Articles III and IV above. No disclosure by any party pursuant to this Section, however, shall be deemed to amend or supplement the Schedules to this Agreement or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. SECTION 5.6 EXCLUSIVITY. From the date hereof until the Closing Date or until this Agreement. is terminated as provided in Article IX, the Sellers shall not, directly or indirectly, through any officer, director, agent, stockholder or otherwise, initiate, solicit or knowingly encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate knowingly, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, directly or indirectly, any Competing Transaction, or enter into or maintain or continue discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction or authorize or permit any of the officers, directors or employees of the Company or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company or the Sellers to take any such action, and the Sellers shall notify the Buyer thereof orally (within one business day) and in writing (as promptly as practicable) of all of the relevant details relating to all inquiries and proposals which it or any such officer, director, employee, investment banker, financial advisor, attorney, accountant or other representative may receive relating to any of such matters and if such inquiry or proposal is in writing, the Sellers shall deliver to the Buyer a copy of such inquiry or proposal. SECTION 5.7 INSURANCE AND INDEMNIFICATION. The Seller will cause the Company to observe any indemnification provisions now existing in the Articles of Incorporation or Bylaws of the Company for the benefit of any individual who served as a director or officer of the Company at any time prior to the Closing Date. -24- 30 SECTION 5.8 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements regarding any aspect of this Agreement to the financial community, government agencies, employees or the general public shall be mutually agreed upon in advance unless the Buyer is advised by counsel that any such announcement or other disclosure not mutually agreed upon in advance is required to be made by law or applicable Nasdaq rules. SECTION 5.9 EXPENSES. Except as otherwise provided in this Agreement, whether or not the transaction contemplated by this Agreement is consummated, all costs and expenses (including any brokerage commissions or any finder's or investment banker's fees and including attorneys' and accountants' fees) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that the Buyer and the Sellers shall share equally the costs of any required filings with federal and state regulatory authorities. SECTION 5.10 ANTITRUST CHALLENGES. The Sellers and the Buyer have not made a filing pursuant to the HSRA because the size of the transactions contemplated by this Agreement is less than $15,000,000.00. In the event a suit is instituted challenging the transaction contemplated by this Agreement as violative of the antitrust laws, each of the Buyer and the Sellers will use all reasonable efforts to defend against such suit. The Buyer and the Sellers will use all reasonable efforts to take such action as may be required by any federal or state court of the United States, in any suit brought by a private party or Governmental Entity challenging the transaction contemplated by this Agreement as violative of the antitrust laws, in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order which has the effect of preventing the consummation of the transaction contemplated by this Agreement; however, the Buyer shall not be required to agree to any divestiture by the Buyer or the Company, of any shares of capital stock or of any business, properties or assets of the Buyer or the Company, or to the imposition of any material limitation on the ability of the Buyer to conduct such business or to own or exercise control of such stock, business, properties or assets. ARTICLE VI CONDITIONS SECTION 6.1 CONDITIONS TO OBLIGATIONS OF THE BUYER. Consummation of the transactions contemplated this Agreement is subject to the fulfillment to the satisfaction of the Buyer, prior to or at the Closing, of each of the following conditions: (a) Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any Governmental Entity which are required for or in connection with the execution and delivery of this Agreement by the Sellers and the consummation by the Sellers of the transactions contemplated hereby shall have been obtained or made. -25- 31 (b) Injunction, etc. The consummation of the transactions contemplated by this Agreement will not violate the provisions of any injunction, order, judgment, decree, law or regulation applicable or effective with respect to the Sellers, the Company, the Buyer, or their respective officers and directors. No suit or proceeding shall have been instituted by any person, or, to the knowledge of the Buyer, shall have been threatened by any Governmental Entity, which seeks (i) to prohibit, restrict or delay consummation of the transactions contemplated by this Agreement or to limit in any material respect the right of the Buyer to control any material aspect of the business of the Buyer or the Company after the Closing Date, or (ii) to subject the Buyer or the Company or their respective directors or officers to material liability on the ground that it or they have breached any law or regulation or otherwise acted improperly in relation to the transactions contemplated by this Agreement; however, in the case of (ii) above, the Buyer shall have made a good faith determination that a substantial basis exists which would support a finding of such liability against the officers and directors of the Company or the Buyer. (c) Representations and Warranties. The representations and warranties of the Sellers contained in this Agreement shall have been true and correct in all respects at the date hereof and shall also be true and correct in all respects at and as of the Closing Date, except for changes contemplated in this Agreement, with the same force and effect as if made at and as of the Closing Date, except in either case as such representations and warranties by their terms relate only to periods of time prior to the Closing Date, and except as set forth in the disclosure schedules delivered by the Sellers to the Buyer pursuant to this Agreement (the "Disclosure Schedule"), and the Sellers shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date. (d) Certificate. The Sellers shall have delivered to the Buyer a certificate, dated as of the Closing Date, to the effect that (i) they are familiar with the provisions of this Agreement and (ii) to the best of their Knowledge the conditions specified in Section 6.1 have been satisfied. Such certificate shall also specify the number of issued and outstanding shares of the Company Common Stock and shall certify that to the best of their Knowledge there has been no violation by the Company of Sections 5.4 or 5.8 hereof. (e) Opinion and Confirmation of Seller's Counsel. The Buyer shall have received an opinion or opinions, dated, as of the Closing Date, of Rushton, Stakely, Johnston & Garrett, counsel to the Sellers, in form and substance and with such exceptions and limitations as shall be reasonably satisfactory to the Buyer, substantially to the effect that: (i) The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Alabama, and has the corporate power and authority to own its properties and assets and to conduct its business as it is presently conducted. -26- 32 (ii) The authorized capital stock of the Company consists of 3,000 shares of Company Common Stock. As of the date of such opinion, there are 3,000 shares of Company Common Stock issued and outstanding. The issued and outstanding shares of Company Common Stock are duly authorized, validly issued, and fully paid and nonassessable, were issued pursuant to available exemptions under federal and state securities laws, and are held by the Sellers in the amounts set forth on Exhibit A to this Agreement. To the Knowledge of such counsel, the Company has no commitments to issue or sell any shares of its capital stock or any securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire from the Company, any shares of its capital stock, and no securities or obligations evidencing any such rights are outstanding. (iii) Each Seller has the power and authority to execute and deliver this Agreement and the Escrow Agreement to be executed by them, and to consummate the transactions contemplated hereby and thereby. This Agreement and the Escrow Agreement have been duly executed and delivered by the Sellers and are valid and binding agreements of the Sellers, enforceable in accordance with their respective terms, subject to: (i) bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights generally; and (ii) general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law. (iv) Neither the execution or delivery by the Sellers of this Agreement nor the performance of its obligations hereunder will (with the passage of time or the giving of notice or both): (i) constitute a violation of, constitute a default or require any payment under, permit a termination of, or result in the creation or imposition of any security interest, lien or other encumbrance or adverse claim against, or upon any of the property of, the Company under (I) any term or provision of the Articles of Incorporation or Bylaws of the Company, (II) any Material Contract, (III) any permit, judgment, decree or order of any Governmental Entity that is applicable to the business of the Company or that is known to such counsel or (IV) any applicable law that in the experience of such counsel is normally applicable to transactions of the kind contemplated by this Agreement; or (ii) create or cause the acceleration of the maturity of, any indebtedness, obligation, or liability of the Company that is listed on Schedule 4.14 or that is known to such counsel. (v) Each consent, authorization, order and approval of, and filing and registration with, any Governmental Entity required to be made or obtained by the Company for the execution and delivery of this Agreement and the other documents and agreements contemplated hereby and the consummation of the transactions contemplated by this Agreement have been made or obtained. (f) Certain Antitrust Matters. No proceeding shall be pending or threatened with respect to the transactions hereunder and no order, decree or judgment shall have been entered or issued, which, in any such case, would require any divestiture by the Buyer or the Company of any shares of capital stock or of any business, properties or assets of the Buyer or -27- 33 the Company, or the imposition of any material limitation on the ability of the Buyer to conduct its business or to own or exercise control of such stock, business, properties or assets. (g) Due Diligence Review. The Buyer shall be fully satisfied in its sole discretion with the results of its review of, and its other due diligence investigations with respect to, the business, operations, affairs, prospects, properties, assets, existing and potential liabilities, obligations, and condition (financial or otherwise) of the Company. (h) Estoppel Certificates. Seller shall deliver to Buyer an estoppel certificate of each lessor under each lease of Real Property in form and substance satisfactory to Buyer which describes in the property leased, the monthly or annual rental, the remaining term of the lease, certifying that there is not a default under the lease, and confirming that the lease will continue in full force and effect after the Closing. (i) 401(k) Plan. Company shall have terminated its existing 401(k) benefit plan. (j) Company Shares. Each Seller shall deliver to Buyer stock certificates representing all of its Company Shares, endorsed in blank or accompanied by duly executed assignment documents. (k) Additional Certificates, etc. The Sellers shall have furnished to the Buyer such additional certificates, opinions, and other documents as the Buyer may have reasonably requested as to any of the conditions set forth in Section 6.1. SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE SELLERS. Consummation of the transactions contemplated by this Agreement is subject to the fulfillment to the satisfaction of the Buyer, prior to or at the Closing Date, of each of the following conditions: (a) Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any Governmental Entity, which are required for or in connection with the execution and delivery of this Agreement by the Buyer and the consummation by the Buyer of the transactions contemplated hereby shall have been obtained or made. (b) Injunction, etc. The consummation of the transactions contemplated hereby will not violate the provisions of any injunction, order, judgment, decree, law, or regulation applicable or effective with respect to the Company or its officers or directors. (c) Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement shall have been true and correct in all respects at the date hereof and shall also be true and correct in all respects at and as of the Closing Date, except for changes contemplated in this Agreement, with the same force and effect as if made at and as of the Closing Date or except as such representations and warranties by their terms relate only to -28- 34 periods of time prior to the Closing Date or except where the failure of any representation or warranty to be correct would not have a Material Adverse Effect on the ability of the Buyer to consummate the transaction contemplated hereby or would not have a Material Adverse Effect on the Buyer, and the Buyer shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date. (d) Certificate. The Buyer shall have delivered to the Sellers a certificate, dated as of the Closing Date, of the Chief Executive Officer or a senior executive officer of the Buyer to the effect that (i) he is familiar with the provisions of this Agreement and (ii) to the best of his Knowledge the conditions specified in Section 6.2 have been satisfied. (e) Purchase Price. The Buyer shall pay the Purchase Price to the Sellers less the amount that is being deposited in the Escrow fund. (e) Additional Certificates, etc. The Buyer shall have furnished to the Sellers such additional certificates, opinions, and other documents as the Sellers may have reasonably requested as to any of the conditions set forth in Section 6.2. ARTICLE VII REMEDIES FOR BREACHES OF THIS AGREEMENT SECTION 7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. The representations, warranties, covenants, indemnification provisions, and agreements of the Parties made or set forth in this Agreement (including the Exhibits and Schedules hereto), as the same may be modified in any certificate delivered by the Sellers or any of them at Closing and approved by the Buyer or in any certificate or document delivered pursuant hereto, shall survive the execution and delivery of this Agreement, the Closing Date, the consummation of the transactions contemplated hereby, and any investigation made by the parties and shall continue in full force and effect thereafter for the period provided in this Article VII. SECTION 7.2 INDEMNIFICATION. (a) Subject to Section 7.4 the Sellers shall, jointly and severally, indemnify and hold harmless the Buyer from and against any Loss that the Buyer, or its successors and assigns, for any cause at any time may sustain or incur as a result of any misrepresentation or breach of any warranty, covenant, agreement or obligation made by the Sellers under this Agreement, any Ancillary Agreement, or in any Schedule, Exhibit, certificate or other instrument pursuant hereto, or for any and all tax liability that is assessed against the Company with respect to any matter that arises prior to the Closing Date (in each case, an "Event of Indemnity"). -29- 35 (b) Buyer agrees that it will not seek indemnification against Sellers pursuant to this Agreement until the aggregate amount of Losses suffered by Buyer exceeds $10,000.00. SECTION 7.3 MANNER OF INDEMNIFICATION. Upon the occurrence of an Event of Indemnity, the Buyer may, at or at any time after such occurrence, notify the Seller(s) from whom indemnification is sought (the "Indemnifying Sellers") and Escrow Agent thereof, stating specifically the obligation(s) with respect to which the claim is made, the facts giving rise to and alleged basis for such claim, and the amount of the Loss incurred or that may be incurred by reason thereof (a "Notice of Claim"). If the Buyer makes a demand for indemnification with respect to an Event of Indemnity for which more than one Indemnifying Seller would be liable under this Agreement, it shall make such demand against the Indemnifying Sellers that would be liable for said Event of Indemnity. Within 30 days after the mailing of such notice, the Indemnifying Sellers shall, subject to Section 7.4, either (a) notify the Buyer and Escrow Agent that they accept the amount of such indemnification claim as set forth in the Notice of Claim, in whole or in part, and instruct the Escrow Agent to charge such accepted amount against the Sellers pro rata under the Escrow Agreement, or (b) deny or dispute the alleged occurrence of such Event of Indemnity as asserted in the Notice of Claim by the Buyer. If such Event of Indemnity relates to a claim by a person or persons other than the Buyer, and the amount of such claim is fully covered by the foregoing indemnity, as limited by Section 7.4 hereof, the Indemnifying Sellers or any of them may elect, within said 30-day period, to defend against such claim at their expense, in lieu of the Buyer assuming such defense. If the Indemnifying Sellers or any of them elect to assume such defense, they shall retain counsel reasonably satisfactory to the Buyer. If the Loss incurred relates to the failure of a Seller to collect any note or account receivable and if any Indemnifying Sellers pay in full the unpaid balance thereof to the Buyer, the Buyer will cause the Company to assign said note or account without recourse to the Sellers paying same. If within said 30-day period, none of the Indemnifying Sellers has, with respect to an Event of Indemnity, taken the action required to be taken within said period, the amount set forth in Buyer's Notice of Claim with respect to such Event of Indemnity shall be deemed to be charged against the Sellers as Settled Losses of the Buyer pro rata under the Escrow Agreement. SECTION 7.4 CERTAIN LIMITATIONS. Except in the case of fraud or willful concealment, the liability of the Sellers hereunder shall be limited as follows: (a) All liability of the Sellers under this Article VII shall cease three years after the Closing Date. However, the liabilities of the Sellers hereunder shall continue indefinitely with respect to the occurrence of Events of Indemnity with respect which the Buyer shall have mailed notice prior to the expiration of the Indemnity Period or with respect to which there has been any willful concealment by the Sellers, or either of them, either before or after the date hereof. (b) The liability of any particular Seller with respect to any Loss shall be limited to such Seller's pro rata share of the Purchase Price. -30- 36 SECTION 7.5 NOTICES. The Buyer will endeavor to notify the Sellers and the Escrow Agent promptly upon the receipt by a responsible officer of the Buyer of knowledge of a state of facts that if not corrected, would in its judgment constitute an Event of Indemnity hereunder. However, in no event shall the Buyer's failure to notify the Sellers under this Section 7.5 bar its right to indemnity pursuant to Section 7.2. SECTION 7.6 EXPENSES. Any expenses in connection with a claim of Loss hereunder, including without limitation, investigation or audit expenses, attorneys' fees, or court costs, shall be borne by the prevailing party in any dispute; however, upon assumption of the defense of a claim hereunder and the admission by the assuming Seller of liability (subject to Section 7.4) for the Loss, a Seller will not be liable to the Buyer for any legal or other costs and expenses subsequently incurred by the Buyer in connection with the defense. SECTION 7.7 OTHER REMEDIES. Except for non-monetary equitable relief, from and after the Closing, the rights set forth in this Article VII shall be the Buyer's sole and exclusive remedy against the Sellers for any misrepresentations and any and all breaches of the warranties, covenants, agreements and obligations contained in or arising out of Article IV of this Agreement. Nothing herein shall prevent the Buyer from asserting or recovering upon a claim based upon allegations of fraud or other willful breach of an obligation of or with respect to the Sellers in connection with this Agreement or for breach of any of the covenants that by their terms continue in effect after the Closing Date. In the event that any such claim for fraud or willful breach is asserted, the prevailing party's attorneys fees and costs shall be paid by the non-prevailing party. ARTICLE VIII ESTABLISHMENT OF ESCROW SECTION 8.1 CREATION. The Escrow Fund, shall be delivered by the Buyer to the Escrow Agent. The fees payable to the Escrow Agent for maintaining the Escrow Fund shall be paid by the Buyer. The Escrow Fund shall be maintained by the Escrow Agent for a period beginning at the Closing Date and ending two years thereafter, and shall be available to satisfy the indemnification rights of the Buyer forth in Article VII, pursuant to the terms of the Escrow Agreement. SECTION 8.2 DISBURSEMENT FOR CLAIMS. Disbursements from the Escrow Fund shall be made at the expiration of the Escrow Agreement, subject to the retention of all or any part of the Escrow Fund as to which claims have not been settled, all in accordance with the terms of the Escrow Agreement. -31- 37 ARTICLE AX TERMINATION AND ABANDONMENT SECTION 9.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated and abandoned at any time prior to the Closing Date: (a) By mutual action of the Board of Directors of the Buyer and the Sellers. (b) By the Buyer: (i) if any event shall have occurred as a result of which any condition set forth in Section 6.1 is no longer capable of being satisfied; or (ii) if there has been a breach by the Sellers of any representation or warranty contained in this Agreement that would have or would be reasonably likely to have a Material Adverse Effect on the Company or the Sellers, or there has been a Material breach of any of the covenants or agreements set forth in this Agreement on the part of the Sellers, which breach is not curable, or, if curable, is not cured within 30 days after written notice of such breach is given by the Buyer to the Sellers. (c) By the Buyer if (i) The Company (or its Board of Directors) or the Sellers shall have authorized, recommended, proposed or publicly announced its intention to enter into a Competing Transaction which has not been consented to in writing by the Buyer; (ii) Any person, entity or "group" (as that term is used in Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) (other than the Buyer or any of its affiliates) shall have (A) commenced or publicly proposed to commence a tender offer or exchange offer for at least 15 percent of the then total outstanding Company Common Stock, (B) acquired more than 15 percent of the then total outstanding Company Common Stock, or (C) solicited and received proxies or consents sufficient to permit it to elect directors nominated by it to a majority of the members of the Company's Board of Directors or to block approval of the transactions contemplated by this Agreement by the Sellers. (d) By the Sellers: (i) if any event shall have occurred as a result of which any condition set forth in Section 6.2 is no longer capable of being satisfied. (ii) if there has been a breach by the Buyer of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Material Adverse Effect on the ability of the Buyer to consummate the transactions contemplated hereby, or there has been a Material breach of any of the covenants or agreements -32- 38 set forth in this Agreement on the part of the Buyer, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Sellers to the Buyer. (e) By the Buyer or the Sellers if there shall have occurred (i) any general suspension of, or limitation on, trading in securities generally on Nasdaq continuing for a period of 15 days, or (h) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States continuing for a period of 15 days. (f) By either the Buyer or the Sellers if the transactions contemplated hereby shall not have been consummated by November 1, 1996; however, the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner which proximately contributed to the failure of any such condition to be satisfied or the failure to consummate the transactions contemplated hereby. SECTION 9.2 SPECIFIC PERFORMANCE. The parties acknowledge that the rights of each party to consummate the transactions contemplated hereby are special, unique, and of extraordinary character, and that, in the event that any party violates or fails and refuses to perform any covenant made by it herein, the other parties will be without adequate remedy at law. Each party agrees, therefore, that, in the event that it violates or fails and refuses to perform any covenant made by it herein, the other parties so long as it or they are not in breach hereof, may, in addition to any remedies at law, institute and prosecute an action in a court of competent jurisdiction to enforce specific performance of such covenant or seek any other equitable relief. SECTION 9.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement is terminated and abandoned as provided herein, each party will redeliver all documents, work papers, and other materials of any party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same, except to the extent previously delivered to third parties in connection with the transactions contemplated hereby, and all information received by any party hereto with respect to the business of any other party shall not at any time be used for the advantage of, or disclosed to third parties by, such party to the detriment of the party furnishing such information; however, this Section 9.3 shall not apply to any documents, work papers, material, or information which is a matter of public knowledge or which heretofore has been or hereafter is published in any publication for public distribution or filed as public information with any Governmental Entity. The Buyer shall continue to be bound by the provisions of the Confidentiality Agreement following termination of this Agreement. SECTION 9.4 EXPENSES. The Sellers and the Buyer each acknowledge that the other spent, and will be required to spend, substantial time and effort in examining the business, properties, affairs, financial condition and prospects of the other and their respective Subsidiaries, and has incurred, and will continue to incur, substantial fees and expenses in connection with such examination, the preparation and negotiation of this Agreement and the -33- 39 accomplishment of the transactions contemplated hereunder, and will be unable to evaluate similar transactions with other parties due to the limited number of personnel available for such purpose and the constraints of time. Therefore, the Sellers and the Buyer agree as follows: (a) Expenses. If the Buyer terminates this Agreement pursuant to Section 9.1(b) by reason of the failure to meet the condition of Section 6.1 due to the Seller's knowing and intentional or grossly negligent misrepresentation or knowing and intentional or grossly negligent breach of warranty or breach of any covenant or agreement, or pursuant to Section 9.1(c), then the Sellers shall pay the Expenses to the Buyer on demand, in same day funds. If the Sellers terminates this Agreement pursuant to Section 9.1(d) by reason of the failure to meet the condition of Section 6.2 due to the Buyer's knowing and intentional or grossly negligent misrepresentation or knowing and intentional or grossly negligent breach of warranty or breach of any covenant or agreement, then the Buyer shall pay the Expenses to the Sellers on demand, in same day funds. For purposes of this Section 9.4, "Expenses" shall include all reasonable out-of-pocket expenses and fees (including, without limitation, fees and expenses payable to all investment banking firms and their respective agents and counsel, and all fees of counsel, accountants, experts and consultants to the Buyer and the Sellers, respectively) actually incurred by the Buyer or the Sellers or on their behalf in connection with the transactions contemplated by this Agreement. (b) Payment. Any payment required pursuant to this Section 9.4 shall be made as promptly as practicable, but in no event later than five business days after termination of this Agreement and shall be made by wire transfer of immediately available funds to an account designated by the Buyer. If either party is entitled to the Expenses, the other party shall also pay to the other interest at the rate of 8 1/2% per year on any amounts that are not paid when due, plus all costs and expenses in connection with or arising out of the enforcement of the obligation to pay the Expenses or such interest. (c) Effect of Payment. Except as provided in Section 9.5, upon payment of the Expenses this Agreement shall terminate with no further liability of the Sellers or the Buyer at law or equity resulting therefrom. SECTION 9.5 EFFECT OF TERMINATION. In the event of a termination and abandonment of this Agreement pursuant to Section 9.1 above, this Agreement shall forthwith become void and have no further effect, without any liability on the part of any party hereto or its respective officers, directors or stockholders, other than the provisions of Section 5.9, 5.10, 5.11, 9.3, 9.4 and this Section 9.5. Notwithstanding the foregoing, nothing contained in this Section 9.5 shall relieve any party from liability for any breach of this Agreement, and any such termination shall be without prejudice to the rights of any party hereto arising out of the willful breach by any other party of any covenant or agreement contained in this Agreement. ARTICLE X MISCELLANEOUS -34- 40 SECTION 10.1 EXTENSION; WAIVER. At any time prior to the Closing Date, the Buyer and the Sellers may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto by the other, and (iii) waive compliance with any of the agreements by the other or conditions to such party's obligations contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. SECTION 10.2 NOTICES. Every notice, consent, demand, approval, and request required or permitted by this Agreement will be valid only if it is in writing, delivered personally or by telecopy, commercial courier, or first class, postage prepaid certified United States mail, and addressed by the sender to the party who is the intended recipient at its address set forth below or to the address most recently designated to the other party by notice given in accordance with this Section. A validly given notice, consent, demand, approval, or request will be effective on the earlier of its receipt, if delivered personally, by telecopy, or by commercial courier, or the third day after it is postmarked by the United States Postal Service, if it is delivered by United States mail. (a) If to the Buyer, to RISCORP, Inc. 1390 Main Street Sarasota, Florida 34236 Attention: Gregory M. Marks, General Counsel Telecopy No.: (941) 362-6122 with a copy to Michael L. Jamieson, Esq. Holland & Knight 400 N. Ashley Street, Suite 2050 Tampa, FL 33602 Telecopy No.: (813) 229-0134 (b) If to the Sellers, to each of: Peter D. Norman Thomas K. Albrecht Hugh D. Langdale, Jr. P.O. Box 195 1410 Meriweather Rd. 124 Countryplace Dr. Fort Deposit, AL 36032 Montgomery, AL 36116 Deatsville, AL 36022 Attention: --------------------- Telecopy No.: ------------------ -35- 41 with a copy to: Thomas G. Mancuso, Esq. Rushton, Stakely, Johnston & Garrett 184 Commerce Street Montgomery, Alabama 36104 Telecopy No.: (334) 262-6277 with an additional copy to: Jackson M. Payne, Esq. Leitman, Siegal & Payne, P.C. 400 Land Title Building 600 North 20th Street Birmingham, Alabama 35203 Telecopy No.: (205) 323-2197 SECTION 10.3 TABLE OF CONTENTS; HEADINGS. The Table of Contents and headings contained herein are for convenience of reference only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof. SECTION 10.4 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party hereto. Upon any such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. SECTION 10.5 WAIVER. The failure of any party hereto at any time or times to require performance of any provision hereof shall in no manner affect the right to enforce the same. No waiver by any party of any condition, or the breach of any term, provision, warranty, representation, agreement or covenant contained in this Agreement or the other agreements contemplated hereby, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, warranty, representation, agreement or covenant herein or therein contained. SECTION 10.6 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT. This Agreement shall inure to the benefit of the parties and their respective successors and permitted assignees. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any -36- 42 person or entity, including, without limitation, employees not a party to this Agreement. Except for assignments to wholly-owned Subsidiaries (direct or indirect) of the Buyer, in which event the Buyer shall remain liable for the performance of this Agreement, no transfer or assignment (including by operation of law) of this Agreement or of any rights or obligations under this Agreement may be made by any party without the prior written consent of the other parties and any attempted transfer or assignment without that required consent shall be void. No transfer or assignment by a party of its rights under this Agreement shall relieve it of any of its obligations to the other parties under this Agreement. SECTION 10.7 TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the essence of each and every provision of this Agreement. Whenever the last day for the exercise of any right or the discharge of any duty under this Agreement shall fall upon Saturday, Sunday or a public or legal holiday, the party having such right or duty shall have until 5:00 p.m. Eastern time on the next succeeding regular business day to exercise such right or to discharge such duty. SECTION 10.8 COUNTERPARTS. This Agreement may be executed by each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signatures of all of the parties. This Agreement may be executed in two or more counterparts, each of which shall be an original, and each of which shall constitute one and the same agreement. Any party may deliver an executed copy of this Agreement and of any documents contemplated hereby by facsimile transmission to another party and such delivery shall have the same force and effect as any other delivery of a manually signed copy of this Agreement or of such other documents. SECTION 10.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to the conflicts of law principles thereof. SECTION 10.10 ENTIRE AGREEMENT. This Agreement (with its Exhibits and Schedules) contains, and is intended as, a complete statement of all the terms of the arrangements among the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters and cannot be changed or terminated orally. -37- 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first written above. RISCORP, INC. By: /s/ --------------------------------- Title: Senior Vice President ------------------------------ /s/ Thomas K. Albrecht ------------------------------------ Thomas Albrecht /s/ Peter Norman ------------------------------------ Peter Norman /s/ Hugh D. Langdale, Jr. ------------------------------------ Hugh D. Langdale, Jr. -38- EX-10.76 13 WORKERS COMPENSATION QUOTA 1 EXHIBIT 10.76 CHARTWELL REINSURANCE COMPANY WORKERS COMPENSATION QUOTA SHARE RETROCESSIONAL TREATY AGREEMENT EFFECTIVE: September 1, 1995 TABLE OF CONTENTS
ARTICLE SUBJECT PAGE(S) ------- ------- ------- Preamble 1 1 Application of Agreement 1 2 Cover 1-2 3 Commencement and Termination 2-3 4 Exclusions 3-4 5 Territory 4 6 Definitions 5-6 7 Reinsurance Premium and Commissions 6-7 8 Profit Commission 7 9 Reports and Remittances 7 10 Other Reinsurance 8 11 Losses and Loss Adjustment Expenses 8-9 12 Extra Contractual Obligations 9-10 13 Excess Limits Liability 10 14 Insolvency 10-11 15 Offset 11 16 Currency 11 17 Errors and Omissions 11 18 Salvage and Subrogation 12 19 Amendments 12 20 Access to Records 12 21 Arbitration 12-14 22 Reserves and Taxes 14 23 Commutation 14 24 Headings 14 25 Loss Funding 14-15 26 Intermediary 15
2 WORKERS COMPENSATION QUOTA SHARE RETROCESSIONAL TREATY AGREEMENT This Agreement is made and entered into by and between CHARTWELL REINSURANCE COMPANY, (hereinafter referred to as the "Retrocedant") in respect of original business underwritten by RISCORP Management Services (hereinafter referred to as the "Underwriting Manager") on behalf of VIRGINIA SURETY COMPANY INC. (hereinafter referred to as the "Original Company"), and RISCORP INSURANCE COMPANY, Sarasota, Florida (hereinafter referred to as the "Retrocessionaire"). WITNESSETH: The Retrocessionaire hereby reinsures the Retrocedant to the extent and on the terms and conditions and subject to the exceptions, exclusions and limitations hereinafter set forth and nothing hereinafter shall in any manner create any obligations or establish any rights against the Retrocessionaire in favor of any third parties or any persons not parties to this Agreement. ARTICLE I APPLICATION OF AGREEMENT A. This Agreement applies only to Workers Compensation and Employers Liability insurance business, except as excluded under Article 4 of this Agreement, which is produced, underwritten, issued and serviced on behalf of the Original Company by RISCORP Management Services, Inc., Sarasota, Florida (hereinafter referred to as the "Underwriting Manager") pursuant to Underwriting Management Agreement No. VSC 1995-4 (hereinafter referred to as the "Underwriting Management Agreement") between the Original Company and the Underwriting Manager, and reinsured by the Retrocedant. B. The Original Company has agreed to keep a copy of the Underwriting Management Agreement (or successor agreement) on file with the Retrocedant and Retrocessionaire, and the Original Company shall provide written notice to and obtain the prior approval of the Retrocedant and Retrocessionaire of any change in the Underwriting Management Agreement no later than 45 days prior to the intended date of implementation. ARTICLE 2 COVER A. The Retrocedant is obligated, to cede to the Retrocessionaire, and the Retrocessionaire is obligated to accept as reinsurance from the Retrocedant (in respect of the Original Quota Reinsurance Agreement, hereinafter referred to as 1 3 the "Original Reinsurance Agreement", between Virginia Surety Company and Chartwell Reinsurance Company), 50% of the liability hereunder as respects original policies ceded under the Original Reinsurance Agreement. B. The Retrocessionaire agrees to pay all losses and loss adjustment expense in respect to the business retained by the Retrocedant in excess of a pure loss ratio of 105%, calculated by dividing Paid Loss and Loss Adjustment Expense by Gross Net Earned Premium. C. The Retrocessionaire agrees to pay to the Retrocedant 100% of all ceding commission costs greater than 30% under the Original Reinsurance Agreement. Ceding Commission items shall include agent's commissions, taxes, assessments, residual market loads, etal. plus 6% of all premiums ceded under the Original Reinsurance Agreement which the Retrocedant is obligated to pay to the Original Company. D. The Retrocessionaire's liability will begin obligatorily and simultaneously with that of the Retrocedant and all reinsurance ceded hereunder will be subject to the same terms, rates, conditions, interpretations, waivers, modifications, alterations and cancellations as the respective policies of the Original Company insofar as they relate to the business in the Original Reinsurance Agreement and covered hereunder. The liability of the Retrocessionaire will extend to any policy coverage required of the Retrocedant by any legislative, regulatory or judicial body or arbitration proceedings ARTICLE 3 COMMENCEMENT AND TERMINATION A. This Agreement shall take effect as of 12:01 A.M. Standard Time (as defined in the Original Company's policies), September 1, 1995 and will remain in force and effect for one year, expiring at 12:01 A.M. Standard Time, September 1, 1996 unless terminated before that as hereinafter provided. B. Either party may terminate this Agreement at any time by giving at least 90 days notice in writing, stating therein the date on which termination shall become effective. During any such period of notice, the Retrocessionaire will remain bound by the terms of the Agreement. In the event of termination prior to the end of a calendar month, the last partial month shall be added to the last complete month and considered one month for the purposes of this Agreement. C. Upon the expiration or termination of this Agreement, the Retrocessionaire will remain liable for all policies in force under the Original Reinsurance Agreement until their natural expiration or renewal dates, whichever comes first. Alternatively, at the expiration or termination of the Agreement the Original 2 4 Company may elect to terminate the Retrocedant's liability on a cut-off basis as of the date of expiration or termination, and termination hereunder shall follow the Original Reinsurance Agreement in like manner. If cut-off basis is elected, the Retrocessionaire will have no further liability hereunder for losses occurring subsequent to the expiration or termination of this Agreement, in consideration of which the Retrocessionaire shall return to the Retrocedant the unearned premium (calculated on the monthly pro rata basis) as of the expiration or termination date, less commission previously allowed thereon. D. Every notice of termination shall be given by certified letter addressed to the intended recipient as set forth in the Preamble of this Agreement. In determining whether the requisite number of days' notice has been given in any case, the date of termination shall be counted but the date of mailing shall not. E. Notwithstanding the expiration or termination of this Agreement as herein above provided, the provisions of this Agreement shall continue to apply to all unfinished business hereunder to the end that all obligations and liabilities incurred by each party hereunder prior to such expiration or termination shall be fully performed and discharged. ARTICLE 4 EXCLUSIONS A. The reinsurance provided under this Agreement is subject to the exclusions set forth below and shall not cover said excluded risks, hazards and coverages unless individually submitted by the Retrocedant to the Retrocessionaire for inclusion hereunder, and, if specially accepted by the Retrocessionaire, such business shall then be covered under the terms of this Agreement, except as such terms shall be modified by such acceptance. B. The reinsurance provided under this Agreement does not apply to: 1. All reinsurance assumed by the Retrocedant except for that reinsurance assumed under the Original Agreement. 2. Risks involving a nuclear facility or nuclear material, spent fuel or waste as defined in the Nuclear Incident Exclusion Clause, except for the use of radioactive isotopes. 3. Liability of the Original Company arising by contract from its voluntary participation or membership in any insolvency fund. "Insolvency Fund" includes any guarantee fund, insolvency fund, plan, pool, association, fund or other facility which provides for the assessment of, payment by, or assumption by the Retrocedant of a part or the whole of any claim, debt, 3 5 charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared insolvent by any authority having jurisdiction. This exclusion shall not apply to assessments arising by operations of law or involuntary membership or participation in any insolvency fund. 4. Business voluntarily derived from any Pool, Association, including Joint Underwriting Association, Syndicate, Exchange, Plan, Fund, or any other facility directly as a member, subscriber, or participant, or indirectly by way of reinsurance. This exclusion shall not apply to Worker's Compensation assigned risks which may be currently or subsequently covered hereunder or any involuntary assessments from any Pool Association, Joint Underwriting Association, Syndicate, Exchange, Plan or Fund. 5. Construction and maintenance of Caisson or Coffer Dams (except earth filled Dams). 6. Manufacturing, packing, handling or shipping of explosives, explosive substances intended for use as an explosive, ammunition, fuses, arms or fireworks. 7. Manufacturing, Production and Refining Petroleum or its products. 8. Professional Sports Teams. 9. Railroad Operations. 10. Oil and Gas drilling, refining, production or manufacturing. 11. Underground Mining. 12. Tunneling Operations involving tunnels over 100 feet. 13. Wrecking or Demolition of buildings, structures or vessels over 5 stories in height. 14. Asbestos, Lead Paint or other toxic substance abatement, when written as such. 15. Maritime or Jones Act (except for USL&H) ARTICLE 5 TERRITORY This Agreement covers original policies wherever issued in the United States of America, and reinsured under the Original Reinsurance Agreement by the Retrocedant. 4 6 ARTICLE 6 DEFINITIONS A. "Policy" or "policies" means all original policies, contracts, binders, certificates or agreements of insurance whether written or oral, issued by the Original Company and reinsured 100% by the Retrocedant. B. "Gross Net Written Premium" means the Gross Net Written Premium assumed by the Retrocedant under the Original Agreement, being Gross Written Premium less return premiums and dividends paid on policies that are written subject to a loss sensitive dividend plan. (For original business that is written subject to an installment billing plan, the premium shall be considered written thirty (30) days after the day which they became due to the original Company.) Additionally, the Retrocedant's proportionate share of reinsurance premium due for the Reinsurance protection excess of $500,000 each loss (as detailed under Article 10 - OTHER REINSURANCE) shall be deducted from the Retrocedant's retained Gross Net Written Premium. "Gross Net Earned Premium" means the Earned portion of the Gross Net Written Premium as defined above, calculated by applying the incoming Unearned Premium if any at the beginning of the period plus the Gross Net Written Premium less the Unearned if any at the end of the Agreement. C. "Loss" means the amount paid by the Retrocedant or for which the Retrocedant has become liable to pay under the Original Reinsurance Agreement and in turn covered under this retrocession (including, but not limited to, amounts in settlement of claims and suits and in satisfaction of judgments, and interest accrued prior to final judgment if such interest is included as part of loss under the policies). All salvages and subrogations will be deducted from the amount of loss. Loss will not include loss expense unless loss expense is included within the limit of liability of policies reinsured under the Original Reinsurance Agreement. D. "Loss expense" means all expenses incurred by the Retrocedant as respects the investigation, appraisal, adjustment, settlement, litigation, appeal, and/or defense of claims under the policies reinsured under the Original Agreement (including, but not limited to, attorneys' fees; court costs; interest accrued prior to final judgment if it is included as part of loss expense under the policies; interest accrued after final judgment; and salaries and expenses of employees of the Original Company who have been diverted from their normal and customary duties and assigned to the field adjustment of losses under this Agreement). Loss expense will also include coverage dispute expense and monitoring expense. The Retrocessionaire will bear its proportionate share of all loss expense in addition to its liability hereunder unless such loss expense is included as part of loss under the policies 5 7 and will benefit accordingly in all salvages, subrogation, discounts, and other recoveries. Loss expense excludes unallocated loss expense, (i.e. internal office expenses, salaries, per diem, and other remuneration of Original Company employees who have not been diverted from their normal and customary duties and assigned to the field adjustment of losses under this Agreement). E. "Coverage dispute expense" means all expenses (including, but not limited to, attorneys' fees, arbitration costs, and court costs) the Original Company has paid, or has become liable to pay, in connection with any coverage disputes regarding the policies reinsured under the Original Agreement, including, but not limited to, declaratory judgment actions and arbitration proceedings brought to determine the defense and/or indemnification obligations attributable to such policies. Coverage dispute expense will be deemed to have been incurred by the Original Company on the date the loss was suffered, or allegedly suffered, under the policy. F. "Monitoring expense" means all expenses the Original Company has paid in connection with claims under this Agreement, including, but not limited to, attorneys' fees and all other legal expenses, when such expenses were incurred by directly assisting in the handling of claims or by acting in a supervisory, reviewing, or advisory capacity. Monitoring expense will be deemed to have been incurred by the Original Company on the date the loss was suffered, or allegedly suffered, under the policy. ARTICLE 7 REINSURANCE PREMIUM AND COMMISSION A. The Retrocedant, either directly or through the Underwriting Manager, will remit to the Retrocessionaire its proportionate share of the Gross Net Written Premium on all policies inforce, written or renewed under the Original Reinsurance Agreement with an effective date on or after the inception of this Agreement, for sections A-C as described in Article 2-Cover. B. The Retrocessionaire shall allow the Retrocedant a commission equal to 30% of all Gross Net Written Premiums ceded hereunder (before cost of inuring Excess of Loss Reinsurance). Such commission shall include reimbursement for acquisition costs, premium taxes and fees. Assessments and residual market loads shall be paid for the 100% portfolio of business by the Retrocessionaire to the Retrocedant separately and in addition to commission for reimbursement to the Original Company as detailed in Paragraph C of Article 2-Cover. The Retrocedant shall allow the same 30% return commission on return premiums. C. It is understood that the amount of the commission in excess of the 30% allowance paid to the Retrocedant for reimbursement to the Original Company, pursuant to 6 8 Article 7(B), will be adjusted annually, utilizing the December 31 figures, based on the figures provided by the Original Company. ARTICLE 8 PROFIT COMMISSION The Retrocedant shall pay the Retrocessionaire a profit commission (as respects the Retrocedant's retained 50% portion after cession hereunder) equal to 75% of the Retrocedant's profit (being gross net earned premium, as defined in Article 6, Paragraph B, less ceding commission less incurred losses and loss adjustment expense) less 6% of Gross Net Earned Premium for the Retrocedant's reinsurance management expenses. The profit commission calculation shall take place 48 months after the inception of this Agreement, (being September 1, 1999) and shall be recalculated and adjusted annually thereafter until all losses are settled. ARTICLE 9 REPORTS AND REMITTANCES. A. Within 30 days after the end of each month, the Retrocedant, either directly or through the Underwriting Manager, will furnish the Retrocessionaire with a report summarizing the following information for business transacted during the month: 1. Gross Net Written Premium; less 2. Commission allowance to the Retrocedant; less 3. Paid losses and loss expense; less 4. Amounts paid in respect of extra contractual obligations and/or excess limits liability; plus 5. Monies recovered; 6. Balance (items 1-2-3-4+5 above) due to the Retrocessionaire (or, if negative balance, to the Retrocedant). B. Amounts due the Retrocessionaire will be remitted with the report. Amounts due the Retrocedant will be remitted within 10 days following the Retrocessionaire's receipt and verification of the report. C. In addition, the Retrocedant, either directly or through the Underwriting Manager, will furnish the Retrocessionaire a monthly statement showing the unearned premium, the total reserves for outstanding losses including loss adjustment expense and such other information as may be required by the Retrocessionaire for completion of its NAIC annual statements. 7 9 ARTICLE 10 OTHER REINSURANCE A. Excess of Loss Reinsurance Coverage for 100% of loss excess of $500,000 each and every occurrence is deemed to be in place and shall inure to the benefit of both the Retrocedant and Retrocessionaire. Premium for such cover shall be paid by the Retrocedant and Retrocessionaire in proportion to their interests, being 50% each. This Excess of Loss Reinsurance Coverage shall be liable for 100% of the amount by which such 100% subject loss exceeds $500,000, but the liability shall not exceed statutory limits for Workers' Compensation or $2,000,000 for Employers' Liability as respects any one occurrence. In the event this Excess of Loss Reinsurance Coverage is not kept in place, the Retrocessionaire shall assume 100% of all losses in excess of $500,000 from the Retrocedant including any differences in conditions which might fall outside this contract excess $500,000. B. "Occurrence" as used in the Excess of Loss Reinsurance Agreement, unless otherwise defined in the original policies reinsured thereunder, will mean each and every accident, disaster, occurrence or casualty or series of accidents, disasters, occurrences or casualties arising out of one event. Occupational disease sustained by each employee shall be deemed to be one separate occurrence and the occurrence shall be deemed to take place on the date upon which the employee is last exposed to work conditions allegedly causing such occupational disease. ARTICLE 11 LOSSES AND LOSS ADJUSTMENT EXPENSES A. The Retrocessionaire shall pay to the Retrocedant, either directly or through the Underwriting Manager, its proportionate share of all loss and loss expense (including coverage dispute expense and monitoring expense), as defined in Article 6 of this Agreement. B. The Retrocessionaire agrees to abide by all disposition of claims, including exgratia settlements, directed by the Retrocedant and/or the Original Company and/or the Underwriting Manager as the Original Company's agent, or as directed or amended by enactment or interpretation by any legislative, regulatory, or judicial body, provided that: (i) the Original Company and/or the Underwriting Manager, as applicable, shall settle all claims in accordance with the underlying policies and applicable law, and (ii) the Original Company and/or the Underwriting Manager shall comply with all provisions of this Article. C. The Retrocedant, either directly or through the Underwriting Manager as its agent, shall report promptly to the Retrocessionaire, as in the Original Reinsurance 8 10 Agreement, each claim or loss for which the Retrocedant's estimated amount of gross loss exceeds $100,000 or more. D. When so requested, and as applicable, the Retrocedant will afford the Retrocessionaire, at its own expense, an opportunity to be associated with the Retrocedant in the defense of any claim, suit, or proceeding involving this Agreement, and the Retrocedant and the Retrocessionaire will cooperate in every respect in such defense. E. The Retrocessionaire shall benefit pro rata in all salvages, discounts and other recoveries. ARTICLE 12 EXTRA CONTRACTUAL OBLIGATIONS A. This Agreement will cover 100% of any extra contractual obligations, as defined in this Article, and is intended to follow that contained in the Original Reinsurance Agreement. B. "Extra contractual obligations" are defined as those liabilities not covered under any other provision of this Agreement which arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Original Company to settle within the policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action. C. The date on which an extra contractual obligation is incurred by the Original Company shall be deemed, in all circumstances, to be the date of the original accident, casualty, disaster or loss occurrence. D. However, this Article shall not apply where the loss has been incurred due to the fraud of a member of the Board of Directors or a corporate officer of the Original Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. E. Recoveries from any form of insurance or reinsurance which protects the Original Company against claims the subject matter of this Article will inure to the benefit of the Retrocedant under the Original Reinsurance Agreement, and the Retrocessionaire under this Agreement and shall be deducted to arrive at the amount of the Retrocessionaire's liability under this Article. 9 11 F. Should any Extra Contractual Obligations arise between the Original Company and the Retrocedant, any such liabilities shall be shared proportionately between the Retrocedant and Retrocessionaire. ARTICLE 13 EXCESS LIMITS LIABILITY A. In the event a third party claimant is awarded an amount in excess of the Original Company's policy limit and as a result of the Original Company's alleged or actual tortious conduct in the handling of the investigation, defense or settlement of the claim made against the Original Company's insured an action is taken by the insured or assignee and a judgment rendered against the Original Company for an amount in excess of the Original Company's policy limit, 100% of only that portion of the award made to the third party claimant which is in excess of the Original Company's policy limit shall be added to the amount of the Original Company's policy limit and the sum thereof shall be considered one loss under the Original Reinsurance Agreement and under this Agreement, subject to the provision in (B) below and other provisions, exclusions and limitations set forth in this Agreement. B. Recoveries from any form of insurance or reinsurance which protects the Original Company against claims the subject matter of this Article will inure to the benefit of the Retrocedant under the Original Reinsurance Agreement and the Retrocessionaire under this Agreement, and shall be deducted to arrive at the amount of the Retrocessionaire's liability under this Article. ARTICLE 14 INSOLVENCY In the event of the insolvency of the Retrocedant and the appointment of a conservator, liquidator, receiver or statutory successor, the reinsurance provided by this Agreement shall be payable by the Retrocessionaire directly to the Retrocedant or its liquidator, receiver or statutory successor on the basis of the liability of the Retrocedant under the contract or contracts reinsured. Subject to the right of offset and the verification of coverage, the Retrocessionaire shall pay its share of the loss without diminution because of the insolvency of the Retrocedant. The liquidator, receiver or statutory successor of the Retrocedant shall give the Retrocessionaire written notice of the pendency of each claim against the Retrocedant on a policy or bond reinsured within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of such claim, the Retrocessionaire may, at its own expense, investigate such claim and interpose in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Retrocedant, its liquidator, receiver or statutory successor. Subject to court approval, any expense thus incurred by the Retrocessionaire shall be chargeable 10 12 against the Retrocedant as part of the expense of liquidation to the extent of such proportionate share of the benefit as shall accrue to the Retrocedant solely as a result of the defense undertaken by the Retrocessionaire. The reinsurance shall be payable as set forth above except where this Agreement specifically provides for the payment of reinsurance proceeds to another party in the event of the insolvency of the Retrocedant. ARTICLE 15 OFFSET Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any balance or balances whether on account of premiums or on account of losses or otherwise, due from such party to the other (or, if more than one, any other) party hereto under this Agreement or under any other reinsurance agreement heretofore or hereafter entered into by and between them, and may offset the same against any balance or balances due or to become due to the former from the latter under the same or any other reinsurance agreement between them; and the party asserting the right of offset shall have and may exercise such right whether the balance or balances due or to become due to such party from the other are on account of premiums or on account of losses or otherwise and regardless of the capacity, whether as assuming insurer or as ceding insurer, in which each party acted under the agreement or, if more than one, the different agreements involved, provided, however, that, in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the laws of the insolvent party's state of domicile. ARTICLE 16 CURRENCY All payments made by either party hereunder will be in United States Dollars. ARTICLE 17 ERRORS AND OMISSIONS Inadvertent delays, errors, or omissions made in connection with this Agreement or any transaction hereunder will not relieve either party from any liability that would have attached had such delay, error, or omission not occurred; but the liability of the Retrocessionaire under this Agreement shall in no event be extended to cover any risks, perils or classes of insurance generally or specifically excluded therein. 11 13 ARTICLE 18 SALVAGE AND SUBROGATION The Retrocessionaire will be credited with its proportionate share of any salvage or subrogation recoveries (i.e. as under the Original Reinsurance Agreement, reimbursement obtained or recovery made by the Original Company, less the actual cost, excluding salaries of officials and employees of the Original Company, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving policies reinsured under the Original Agreement and in turn hereunder. If the recovery expense exceeds the amount recovered, the amount recovered (if any) will be applied to the reimbursement of recovery expense and the remaining expense will be borne by the Retrocessionaire. ARTICLE 19 ARBITRATION This Agreement may be altered or amended in any of its terms and conditions by mutual consent of the Retrocedant and the Retrocessionaire by addenda hereto or by an exchange of letters requesting acceptance of revised pages or special acceptances. Such addenda or letters will then constitute a part of this Agreement. ARTICLE 20 ACCESS TO RECORDS The Retrocedant, either directly or through the Underwriting Manager, shall place at the disposal of the Retrocessionaire and the Retrocessionaire shall have the right to inspect, through its authorized representatives, at all reasonable times during the currency of this Agreement and thereafter, the books, records and papers of the Retrocedant and the Underwriting Manager pertaining to the reinsurance provided hereunder and all claims made in connection therewith. ARTICLE 21 ARBITRATION A. If any dispute arises between the Retrocedant and Retrocessionaire with reference to the interpretation, performance, or breach of this Agreement (whether the dispute arises before or after termination of this Agreement), such dispute, if not resolved by the parties must be submitted to non binding mediation. If such dispute is not resolved by non binding mediation within sixty (60) days it will then be submitted to final and binding arbitration. 12 14 B. As a condition precedent to any right of action hereunder, any dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire, meeting in Stamford, Connecticut unless otherwise agreed. C. The members of the board of arbitration shall be active or retired disinterested officials of insurance or reinsurance companies. Each party shall appoint its arbitrator and the two arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within four weeks after being requested to do so by the claimant, the latter shall also appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within four weeks after their nominations, each of them shall name three, of whom the other shall decline two and the decision shall be made by drawing lots. The arbitrators will not be obliged to follow judicial formalities or rules of evidence except to the extent required by the law of the state of Minnesota. D. The claimant shall submit its initial brief within 20 days from appointment of the umpire. The respondent shall submit its brief within 20 days after receipt of the claimant's brief and the claimant may submit a reply brief within 10 days after receipt of the respondent's brief E. The board shall make its decision with regard to the custom and usage of the insurance and reinsurance business. The board shall issue its decision in writing based upon a hearing in which evidence may be introduced without following strict rules of evidence but in which cross examination and rebuttal shall be allowed. The board shall make its decision within 60 days following the termination of the hearings unless the parties consent to an extension. The majority decision of the board shall be final and binding upon all parties to the proceeding. Judgment may be entered upon the award of the board in any court having jurisdiction thereof. F. Each party shall bear the expense of their own arbitrator and will jointly and equally bear with the other party the cost of the umpire and arbitration. Additionally, the Retrocessionaire agrees to hold harmless and fully indemnify the Retrocedant as respects its obligation to the Original Company in respect to all costs and expenses, of whatsoever nature incurred or suffered by the Retrocedant in the event arbitration proceedings are initiated between the Retrocedant and the Original Company and/or its Underwriting Manager. The Retrocessionaire agrees to hold harmless and fully indemnify the Retrocedant in respect to all costs and expenses, of whatsover nature incurred or suffered by the Retrocedant in the event of arbitration proceeds are initiated between the Original Company and the Underwriting Manager and/or between the Original Company and the Retrocedant. G. It is agreed that the jurisdiction of the arbitrators to make or render any decision or award shall be limited by the limit of liability expressly herein before set forth, and 13 15 that the arbitrators shall have no jurisdiction to make any decision or render any award exceeding such expressly stated limit of liability of the Retrocessionaire under Article 2-Cover, nor do they have the jurisdiction to authorize any punitive, exemplary or consequential damage awards between the parties hereto. ARTICLE 22 RESERVES AND TAXES A. The Retrocessionaire shall maintain legal reserves with respect to unearned premiums and claims hereunder. B. The Retrocedant will be liable for all taxes on premiums reported to the Retrocessionaire hereunder and will reimburse the Retrocessionaire for such premium taxes where the Retrocessionaire is required to pay the same directly to the taxing authority. ARTICLE 23 COMMUTATION To be agreed. ARTICLE 24 HEADINGS The Article headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. ARTICLE 25 LOSS FUNDING (To apply in the event the Retrocessionaire does not maintain its Admitted Security status in Minnesota by keeping $50,000,000 in policyholders' surplus and in such event that the Retrocessionaire does not provide a funds withheld alternative arrangement agreed by the Retrocedant.) With respect to losses, funding will be in accordance with the attached Loss Funding Clause unless the requirements of regulatory authorities in the jurisdiction involved are not met by this Clause, in which event the Retrocessionaire will fund in accordance with the requirements of such regulatory authorities. 14 16 ARTICLE 26 INTERMEDIARY G.J. Sullivan Company is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications relating thereto shall be transmitted to the Company and the Reinsurer through G.J. Sullivan Company, 800 West Sixth Street, Los Angeles, California 90017, except those relating to payments hereunder. All payments, and all correspondence relating to payments hereunder, shall be transmitted directly between the Company and the Reinsurer. LOSS FUNDING (This clause is only applicable to those Retrocessionaire's who cannot qualify for credit by the regulatory authorities having jurisdiction over the Retrocedant's loss reserves.) As regards policies or bonds issued by the Retrocedant coming within the scope of this Agreement, the Retrocedant agrees that, when it shall file with the Insurance Department or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Retrocessionaire a statement showing the proportion of such loss reserves which is applicable to them. The Retrocessionaire hereby agrees that it will apply for and secure delivery to the Retrocedant of a clean, irrevocable and unconditional Letter of Credit, issued by a bank chosen by the Retrocessionaire and acceptable to the appropriate insurance authorities, in an amount equal to the Retrocessionaire's proportion of reserves in respect of known outstanding losses that have been reported to the Retrocessionaire and allocated loss expenses relating thereto as shown in the statement prepared by the Retrocedant. Under no circumstances shall any amount relating to reserves in respect of Incurred But Not Reported losses or any application thereto be included in the amount of the Letter of Credit. The Letter of Credit shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless thirty (30) days prior to any expiration date the issuing bank shall notify the Retrocedant by registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period. Notwithstanding any other provision of this Agreement, the Retrocedant or its successors in interest may draw upon such credit at any time without diminution because of the insolvency of the Retrocedant or of the Retrocessionaire for one or more of the following purposes only: (a) To pay the Retrocessionaire's share or to reimburse the Retrocedant for the Retrocessionaire's share of any loss reinsured by this Agreement, the payment of which has been agreed by the Retrocessionaire and which has not been otherwise paid. 15 17 (b) To make refund of any sum which is in excess of the actual amount required to pay the Retrocessionaire's share of any liability reinsured by this Agreement. (c) In the event of expiration of the Letter of Credit as provided for above, to establish deposit of the Retrocessionaire's share of known and reported outstanding losses and allocated expenses relating thereto under this Agreement. Such cash deposit shall be held in an interest bearing account separate from the Retrocedant's other assets, and interest thereon shall accrue to the benefit of the Retrocessionaire. The bank chosen for the issuance of the Letter of Credit shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Retrocedant or the disposition of funds withdrawn, except to ensure that withdrawals are made only under the order of properly authorized representatives of the Retrocedant. At annual intervals, or more frequently as agreed but never more frequently than quarterly, the Retrocedant shall prepare a specific statement, for the sole purpose of amending the Letter of Credit, of the Retrocessionaire's share of known and reported outstanding losses and allocated expenses relating thereto. If the statement shows that Retrocessionaire's share of such losses and allocated loss expenses exceeds the balance of credit as of the statement date, the Retrocessionaire shall, within thirty (30) days after receipt of notice of such excess, secure delivery to the Retrocedant of an amendment of the Letter of Credit increasing the amount of credit by the amount of such difference. If, however, the statement shows that Retrocessionaire's share of known and reported outstanding losses plus allocated loss expenses relating thereto is less than the balance of credit as of the statement date, the Retrocedant shall, within thirty (30) days after receipt of written request from the Retrocessionaire, release such excess credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of credit available by the amount of such excess credit. 16 18 IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed in duplicate this 10th day of May, 1996, Stamford, Connecticut. ACCEPTED: CHARTWELL REINSURANCE COMPANY - - ----------------------------- /s/ Allison H. Gooden - - ----------------------------- Attested by: IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed in duplicate this 21st day of May, 1996, Sarasota, Florida. RISCORP INSURANCE COMPANY ------------------------- ------------------------- Attested by: EX-10.77 14 LOSS PORTFOLIO TRANSFER ASSUMPTION 1 EXHIBIT 10.77 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT BETWEEN NARM MERCANTILE GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA HEREINAFTER REFERRED TO AS THE "GSIA" AND RISCORP NATIONAL INSURANCE COMPANY HEREINAFTER REFERRED TO AS THE "REINSURER" 2 LOSS PORTFOLI0 TRANSFER ASSUMPTION REINSURANCE AGREEMENT TABLE OF CONTENTS ARTICLE I - BUSINESS COVERED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2 - EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 - REINSURANCE PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 5 - NOTICE OF ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 7 - ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 9 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 10 - OTHER OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 11 - REQUIRED REGULATORY APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 13 - ERRORS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 14 - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 15 - HONORABLE UNDERTAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 16 - TAX NEUTRALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 17 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 C. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 D. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 E. Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 F. Non-waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 G. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 H. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1 3 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT (Hereinafter referred to as the "Agreement") between NARM MERCANTILE GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA (Hereinafter referred to as the "GSIA") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Reinsurer") ARTICLE 1 - BUSINESS COVERED A. The Reinsurer assumes by assumption reinsurance the Policies and the liability to pay all losses, including loss adjustment expenses, covered by Policies issued by the GSIA prior to October 1, 1996, to all policyholders, including all existing and incurred but not reported ("IBNR") claims covered by the Policies (hereinafter "Reinsured Claims"), subject to the terms and conditions contained herein. B. The term "Policies" shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance issued by the GSIA to its member employers. It is understood and agreed that the Reinsurer is bound by all the terms and conditions of the GSIA's Policies as if the Policies had been issued by the Reinsurer. C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have now or in the future under or with respect to the Policies, including, without limitation, the right to collect and adjust premiums, adjust and settle claims, deny coverage, rescind policies, etc. ARTICLE 2 - EFFECTIVE DATE This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time, October 1, 1996. ARTICLE 3 - REINSURANCE PREMIUM The GSIA shall pay a premium equal to the sum of all of its assets as of the Effective Date in accordance with the following terms and conditions. 2 4 However, Reinsurer acknowledges that policyholders of the GSIA have the right under Virginia law not to accept the transfer of their Policies to the Reinsurer, and that the reinsurance premium payable hereunder will be affected by the number of policyholders who do not accept the transfer. Prior to the Effective Date, the GSIA shall deliver to the Reinsurer a schedule of the specific investments and assets which the GSIA will use to pay the premium. All investments shall be listed on the schedule at fair market value. As of the Effective Date, the GSIA shall transfer all scheduled investments and assets to the Reinsurer and shall execute all documents necessary to effectuate such transfer. ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS A. The parties hereto agree to act in good faith and cooperate with each other in effecting the assumption of the Reinsured Claims provided for in this Agreement. The parties shall take all actions necessary to assist each other in obtaining all regulatory approvals or responding to information requests of those insurance regulatory authorities asserting jurisdiction over the transactions herein described. B. Upon demand by, and in accordance with instructions of the Reinsurer, the GSIA shall deliver originals or copies of all policy records and claims files pertaining to the Reinsured Claims and all other files and records incidental to the Reinsured Claims as are necessary for the Reinsurer to perform its obligations under this Agreement. The Reinsurer shall retain all policy records, claim files, and other documents received by it from the GSIA as required by applicable law. Upon reasonable notice, each of the Reinsurer and the GSIA will be entitled to reasonable access to the books and records of the other party at any reasonable time, but only to the extent such materials pertain to the business assumed and reinsured under this Agreement. Each party will pay its own expenses associated with any such review of the books and records. The GSIA will retain as its property all its original corporate records, including, without limitation, articles of incorporation, bylaws, minute books, and certificate of authority; provided, however, that the GSIA shall provide the Reinsurer with copies of all such documents upon the effective date hereof. C. Whenever the GSIA receives any payments or communications, including notices of claims and proofs of loss, pertaining to the Reinsured Claims, it will forward such payments and communications promptly to the Reinsurer. ARTICLE 5 - NOTICE OF ASSUMPTION As soon as practicable after the Effective Date, the GSIA will issue and deliver or cause its agents to deliver to the named insureds under the Policies an appropriate notice of transfer/assumption substantially in the form attached hereto. The Reinsurer will take all other necessary actions to assume the Reinsured Claims. The GSIA will cooperate fully with the Reinsurer in implementing such assumption, including, without limitation, 3 5 executing any document reasonably necessary to evidence the completion of the transactions contemplated by the Agreement. ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS A. From and after the Effective Date, the Reinsurer will be solely liable for the administration and disposition of all aspects of the Reinsured Claims assumed by the Reinsurer including, without limitation, the defense, adjustment, settlement, and payment of all losses and expenses arising under or relating to the Reinsured Claims. The GSIA hereby grants and assigns to the Reinsurer full authority to administer such losses, claims, expenses, defenses, adjustments, settlements, and payments, and such matters will be under the Reinsurer's control and within its discretion. The Reinsurer will bear all expenses and costs incurred by it in connection with the administration and disposition of such losses, claims, expenses, defenses, adjustments, settlements, and payments. B. The GSIA will cause all information and notices regarding the Reinsured Claims actually received by the GSIA after the Effective Date to be promptly reported to the Reinsurer or the Reinsurer's designated representative. The GSIA also will undertake any reasonable arrangements deemed necessary by the Reinsurer to ensure that all notices received by the GSIA after the Effective Date in connection with the Reinsured Claims are promptly delivered to the Reinsurer. C. All losses and similar items regarding the Reinsured Claims that the Reinsurer determines to be payable will be paid directly and promptly by the Reinsurer. ARTICLE 7 - ASSESSMENTS In the event that an assessment is made against any present or former policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer agrees to pay the full assessment on behalf of said policyholders. By this undertaking, the Reinsurer and the GSIA expressly intend to benefit as third party beneficiaries all present and former policyholders of the GSIA, and the Reinsurer agrees to be subject to suit by any policyholder as set out in Article 8. ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER The Reinsurer hereby covenants and agrees that it may be sued for its actions after the Effective Date, in its own name, by insured under the Policies. ARTICLE 9 - INDEMNIFICATION The Reinsurer agrees to defend, protect, indemnify and hold harmless the GSIA and its successors or assigns, against any liability, claim, loss or damage, including punitive damages, arising under or out of any of the Reinsured Claims reinsured hereunder or the transactions contemplated by this Agreement. 4 6 ARTICLE 10 - OTHER OBLIGATIONS The Reinsurer shall also be responsible for any losses assessed against the GSIA or the Reinsurer. Such losses are defined as those liabilities (whether they constitute compensatory, incidental, exemplary or punitive damages) not covered under any other provision of this Agreement. ARTICLE 11 - REQUIRED REGULATORY APPROVAL This Agreement remains subject to the approval of the Virginia Bureau of Insurance. The GSIA and the Reinsurer shall take all steps necessary to obtain requisite regulatory approval of this Agreement and the transaction described herein. ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES A. In the event of the payment of any loss by the Reinsurer under this Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to all of the rights of the GSIA against any person or entity legally responsible for the loss. The Reinsurer is hereby authorized and empowered to bring any appropriate action in its own name or in the name of the GSIA to enforce such rights. B. Any payments received by or due to the GSIA from any reinsurer of the GSIA which is payable on a Reinsured Claim shall become the property of and paid to the Reinsurer. If any payment is received by the GSIA which is to be credited to the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA will immediately endorse (without warranty or recourse) and deliver to the Reinsurer such checks, drafts, or money intended as such payment, and until delivery of such items to the Reinsurer, the GSIA will treat any such checks, drafts, or money as the property of the Reinsurer held for the account of the Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable efforts to cause the transfer and assignment (as of the Effective Date) to the Reinsurer of all of the GSIA's rights, interests, and obligations under the GSIA's reinsurance agreements, if any, covering the risks, liabilities, and obligations of the GSIA under or with respect to the Reinsured Claims, including, without limitation, obtaining any necessary consents or approvals to such transfer and assignment by the reinsurers under any such reinsurance agreements effective as of the Effective Date. Any failure to receive the consents referred to herein will not relieve or diminish in any manner the Reinsurer's obligations under this Agreement. C. The Reinsurer shall be authorized and entitled to file and pursue the collection of claims against the State of Virginia, Second Injury Fund, arising out of or resulting from Reinsured Claims (hereinafter "SIF Claims") to pursue the collection of SIF Claims filed by the GSIA prior to the Effective Date; and to collect, receive, and retain any monies 5 7 paid in settlement of satisfaction of any SIF Claims filed by either the Reinsurer or the GSIA. ARTICLE 13 - ERRORS OR OMISSIONS Inadvertent delays, errors, or omissions made in connection with this Agreement or any transaction hereunder will not relieve either party from any liability that would otherwise have attached had such delay, error, or omission not occurred. Regardless, the responsible party will rectify each such delay, error, or omission as promptly as practicable after discovery. ARTICLE 14 - ARBITRATION A. Any dispute or other matter in question between the GSIA and the Reinsurer arising out of or relating to the formation, interpretation, performance, or breach of this Agreement, whether such dispute arises before or after termination of this Agreement, shall be settled by arbitration if the parties are unable to resolve the dispute through negotiation. Arbitration shall be initiated by the delivery of a written notice of demand for arbitration by one party to the other. B. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint a third arbitrator. If either party refuses or neglects to appoint an arbitrator within sixty (60) days of receipt of a written notice of demand for arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty (60) days of their appointment, each of the arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots. The arbitrators shall be active or former officers of insurance or reinsurance companies; the arbitrators shall not have a personal or financial interest in the result of arbitration. C. The arbitration hearings shall be held in Richmond, Virginia, or such other place as may be mutually agreed. Each party shall submit its case to the arbitrators within sixty (60) days of the selection of the third arbitrator or within such longer period as may be agreed by the arbitrators. The arbitrators shall not be obliged to follow judicial formalities or the rules of evidence except to the extent required by governing law, that is, the state law of the situs of the arbitration as herein agreed; they shall make their decisions according to the practice of the reinsurance business. The decision rendered by a majority of the arbitrators shall be final and binding on both parties. Such decision shall be a condition precedent to any right of legal action arising out of the arbitrated dispute which either party may have against the other. Judgement upon the award rendered may be entered in any court having jurisdiction thereof. 6 8 D. Each party shall pay the fee and expenses of its own arbitrator and attorneys and one-half of the fees and expenses of the third arbitrator. All other expenses of the arbitration shall be equally divided between the parties. E. Except as provided above, arbitration shall be based, insofar as applicable, upon the Commercial Arbitration Rules of the American Arbitration Association. ARTICLE 15 - HONORABLE UNDERTAKING This Agreement shall be construed as an honorable undertaking between the parties hereto not to be defeated by technical legal constructions, it being the intention of this Agreement that the fortunes of the Reinsurer shall in all cases follow the fortunes of the GSIA. ARTICLE 16 - TAX NEUTRALITY The parties to the Agreement contemplate that as a result of or concurrent with the transfer of assets and liabilities contemplated hereby, the GSIA shall become entitled to a refund of certain taxes, and that the Reinsurer shall sustain a corresponding tax liability. Accordingly, and in order to render the transaction tax-neutral as to such refund, the GSIA hereby disavows any right to collect any tax refund to which it currently is or may become entitled, and assigns its rights to any such tax refund to the Reinsurer. ARTICLE 17 - GENERAL PROVISIONS A. Successors and Assigns. This Agreement shall inure to the benefit of and bind the GSIA and its successors and assigns and the Reinsurer and its successors and assigns. Neither this Agreement nor any right hereunder nor any part hereof may be assigned by any party hereto without the prior written consent of the other party hereto. Prior to any such assignment, the consent of all necessary regulatory authorities must be obtained. B. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Virginia (without giving effect to principles of conflicts of laws) applicable to a contract executed and to be performed in such state. C. Entire Agreement This Agreement supersedes all prior discussions and agreements between, and contains the sole and entire agreement between the GSIA and the Reinsurer with respect to the subject matter hereof. D. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 7 9 E. Headings, etc. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender will be deemed to include each other gender, (b) words using the singular or plural number will also include the plural or singular number, respectively, (c) the terns "hereof" "herein," "hereby," and derivative or similar words will refer to this entire Agreement, and (d) the conjunction "of"will denote any one or more, or any combination or all, of the specified items or matter involved in the respective list. F. Non-waiver. The failure of either party hereto at any time to enforce any provision of this Agreement shall not be construed as a waiver of that provision and shall not effect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms. G. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligation of any party under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision or by its severance added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. H. Notices. Any notice or communication given pursuant to this Agreement must be in writing and will be deemed to have been duly given if mailed (by registered or certified mail, postage prepaid, return receipt requested), or if transmitted by facsimile, or if delivered by courier, as follows: To the GSIA: NARM Mercantile Group Self Insurance Association of Virginia 6800 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Mr. Gurney Cowling, Jr., Chairman of the Board (804) 673-6116 or (800) 355-3596 To the Reinsurer: RISCORP National Insurance Company 600 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Stephen Ficarra, Vice President (804) 673-6116 or (800) 355-3596 8 10 All notices and other communications required or permitted under this Agreement that are addressed as provided in this paragraph will, whether sent by mail, facsimile, or courier, be deemed given upon the first business day after actual delivery to the party to whom such notice or other communication is sent (as evidenced by the return receipt or shipping invoice signed by a representative of such party or by the facsimile confirmation). Any party from time to time may change its address for the purpose of notices to that party by giving a similar notice specifying a new address, but no such notice will be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives this 27 day of September, 1996. ATTEST: NARM Mercantile Group Self Insurance Association of Virginia Josephine A. Stephens By: /s/ Gordey Cowring, Jr. - - ----------------------------------- ---------------------------------------- NAME: GORDEY COWRING, JR. -------------------------------------- Title: CHAIRMAN OF THE BOARD ------------------------------------- ATTEST: RISCORP National Insurance Company /s/ Lisa A. Hanewick BY: /s/ James A. Malone - - ----------------------------------- ---------------------------------------- Name: James A. Malone -------------------------------------- Title: President ------------------------------------- 9 EX-10.78 15 LOSS PORTFOLIO TRANSFER ASSUMPTION 1 EXHIBIT 10.78 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT BETWEEN NARM SERVICES' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA HEREINAFTER REFERRED TO AS THE "GSIA" AND RISCORP NATIONAL INSURANCE COMPANY HEREINAFTER REFERRED TO AS THE "REINSURER" 2 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT
TABLE OF CONTENTS ARTICLE 1 - BUSINESS COVERED ............................................. 2 ARTICLE 2 - EFFECTIVE DATE ............................................... 2 ARTICLE 3 - REINSURANCE PREMIUM .......................................... 2 ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS ............. 3 ARTICLE 5 - NOTICE OF ASSUMPTION ......................................... 3 ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS ............................ 4 ARTICLE 7 - ASSESSMENTS .................................................. 4 ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER ............................ 4 ARTICLE 9 - INDEMNIFICATION .............................................. 4 ARTICLE 10 - OTHER OBLIGATIONS ............................................ 5 ARTICLE 11 - REQUIRED REGULATORY APPROVAL ................................. 5 ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES ...................... 5 ARTICLE 13 - ERRORS OR OMISSIONS .......................................... 6 ARTICLE 14 - ARBITRATION .................................................. 6 ARTICLE 15 - HONORABLE UNDERTAKING ........................................ 7 ARTICLE 16 - TAX NEUTRALITY ............................................... 7 ARTICLE 17 - GENERAL PROVISIONS ........................................... 7 A. Successors and Assigns .................................... 7 B. Governing Law ............................................. 7 C. Entire Agreement .......................................... 7 D. Counterparts .............................................. 7 E. Headings, etc.............................................. 8 F. Non-waiver ................................................ 8 G. Severability .............................................. 8 H. Notices ................................................... 8
1 3 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT (Hereinafter referred to as the "Agreement") between NARM SERVICES' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA (Hereinafter referred to as the "GSIA") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Reinsurer") ARTICLE I - BUSINESS COVERED A. The Reinsurer assumes by assumption reinsurance the Policies and the liability to pay all losses, including loss adjustment expenses, covered by Policies issued by the GSIA prior to October 1, 1996, to all policyholders, including all existing and incurred but not reported ("IBNR") claims covered by the Policies (hereinafter "Reinsured Claims"), subject to the terms and conditions contained herein. B. The term "Policies" shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance issued by the GSIA to its member employers. It is understood and agreed that the Reinsurer is bound by all the terms and conditions of the GSIA's Policies as if the Policies had been issued by the Reinsurer. C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have now or in the future under or with respect to the Policies, including, without limitation, the right to collect and adjust premiums, adjust and settle claims, deny coverage, rescind policies, etc. ARTICLE 2 - EFFECTIVE DATE This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time, October 1, 1996. ARTICLE 3 - REINSURANCE PREMIUM The GSIA shall pay a premium equal to the sum of all of its assets as of the Effective Date to the Reinsurer in accordance with the following terms and conditions. 2 4 However, Reinsurer acknowledges that policyholders of the GSIA have the right under Virginia law not to accept the transfer of their Policies to the Reinsurer, and that the reinsurance premium payable hereunder will be affected by the number of policyholders who do not accept the transfer. Prior to the Effective Date, the GSIA shall deliver to the Reinsurer a schedule of the specific investments and assets which the GSIA will use to pay the premium. All investments shall be listed on the schedule at fair market value. As of the Effective Date, the GSIA shall transfer all scheduled investments and assets to the Reinsurer and shall execute all documents necessary to effectuate such transfer. ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS A. The parties hereto agree to act in good faith and cooperate with each other in effecting the assumption of the Reinsured Claims provided for in this Agreement. The parties shall take all actions necessary to assist each other in obtaining all regulatory approvals or responding to information requests of those insurance regulatory authorities asserting jurisdiction over the transactions herein described. B. Upon demand by, and in accordance with instructions of the Reinsurer, the GSIA shall deliver originals or copies of all policy records and claims files pertaining to the Reinsured Claims and all other files and records incidental to the Reinsured Claims as are necessary for the Reinsurer to perform its obligations under this Agreement. The Reinsurer shall retain all policy records, claim files, and other documents received by it from the GSIA as required by applicable law. Upon reasonable notice, each of the Reinsurer and the GSIA will be entitled to reasonable access to the books and records of the other party at any reasonable time, but only to the extent such materials pertain to the business assumed and reinsured under this Agreement. Each party will pay its own expenses associated with any such review of the books and records. The GSIA will retain as its property all its original corporate records, including, without limitation, articles of incorporation, bylaws, minute books, and certificate of authority; provided, however, that the GSIA shall provide the Reinsurer with copies of all such documents upon the effective date hereof. C. Whenever the GSIA receives any payments or communications, including notices of claims and proofs of loss, pertaining to the Reinsured Claims, it will forward such payments and communications promptly to the Reinsurer. ARTICLE 5 - NOTICE OF ASSUMPTION As soon as practicable after the Effective Date, the GSIA will issue and deliver or cause its agents to deliver to the named insureds under the Policies an appropriate notice of transfer/assumption substantially in the form attached hereto. The Reinsurer will take all other necessary actions to assume the Reinsured Claims. The GSIA will cooperate fully with the Reinsurer in implementing such assumption, including, without limitation, 3 5 executing any document reasonably necessary to evidence the completion of the transactions contemplated by the Agreement. ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS A. From and after the Effective Date, the Reinsurer will be solely liable for the administration and disposition of all aspects of the Reinsured Claims assumed by the Reinsurer including, without limitation, the defense, adjustment, settlement, and payment of all losses and expenses arising under or relating to the Reinsured Claims. The GSIA hereby grants and assigns to the Reinsurer full authority to administer such losses, claims, expenses, defenses, adjustments, settlements, and payments, and such matters will be under the Reinsurer's control and within its discretion. The Reinsurer will bear all expenses and costs incurred by it in connection with the administration and disposition of such losses, claims, expenses, defenses, adjustments, settlements, and payments. B. The GSIA will cause all information and notices regarding the Reinsured Claims actually received by the GSIA after the Effective Date to be promptly reported to the Reinsurer or the Reinsurer's designated representative. The GSIA also will undertake any reasonable arrangements deemed necessary by the Reinsurer to ensure that all notices received by the GSIA after the Effective Date in connection with the Reinsured Claims are promptly delivered to the Reinsurer. C. All losses and similar items regarding the Reinsured Claims that the Reinsurer determines to be payable will be paid directly and promptly by the Reinsurer. ARTICLE 7 - ASSESSMENTS In the event that an assessment is made against any present or former policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer agrees to pay the full assessment on behalf of said policyholders. By this undertaking, the Reinsurer and the GSIA expressly intend to benefit as third party beneficiaries all present and former policyholders of the GSIA, and the Reinsurer agrees to be subject to suit by any policyholder as set out in Article 8. ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER The Reinsurer hereby covenants and agrees that it may be sued for its actions after the Effective Date, in its own name, by insured under the Policies. ARTICLE 9 - INDEMNIFICATION The Reinsurer agrees to defend, protect, indemnify and hold harmless the GSIA and its successors or assigns, against any liability, claim, loss or damage, including punitive damages, arising under or out of any of the Reinsured Claims reinsured hereunder or the transactions contemplated by this Agreement. 4 6 ARTICLE 10 - OTHER OBLIGATIONS The Reinsurer shall also be responsible for any losses assessed against the GSIA or the Reinsurer. Such losses are defined as those liabilities (whether they constitute compensatory, incidental, exemplary or punitive damages) not covered under any other provision of this Agreement. ARTICLE 11 - REQUIRED REGULATORY APPROVAL This Agreement remains subject to the approval of the Virginia Bureau of Insurance. The GSIA and the Reinsurer shall take all steps necessary to obtain requisite regulatory approval of this Agreement and the transaction described herein. ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES A. In the event of the payment of any loss by the Reinsurer under this Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to all of the rights of the GSIA against any person or entity legally responsible for the loss. The Reinsurer is hereby authorized and empowered to bring any appropriate action in its own name or in the name of the GSIA to enforce such rights. B. Any payments received by or due to the GSIA from any reinsurer of the GSIA which is payable on a Reinsured Claim shall become the property of and paid to the Reinsurer. If any payment is received by the GSIA which is to be credited to the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA will immediately endorse (without warranty or recourse) and deliver to the Reinsurer such checks, drafts, or money intended as such payment, and until delivery of such items to the Reinsurer, the GSIA will treat any such checks, drafts, or money as the property of the Reinsurer held for the account of the Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable efforts to cause the transfer and assignment (as of the Effective Date) to the Reinsurer of all of the GSIA's rights, interests, and obligations under the GSIA's reinsurance agreements, if any, covering the risks, liabilities, and obligations of the GSIA under or with respect to the Reinsured Claims, including, without limitation, obtaining any necessary consents or approvals to such transfer and assignment by the reinsurers under any such reinsurance agreements effective as of the Effective Date. Any failure to receive the consents referred to herein will not relieve or diminish in any manner the Reinsurer's obligations under this Agreement. C. The Reinsurer shall be authorized and entitled to file and pursue the collection of claims against the State of Virginia, Second Injury Fund, arising out of or resulting from Reinsured Claims(hereinafter "SIF Claims); to pursue the collection of SIF Claims filed by the GSIA prior to the Effective Date; and to collect, receive, and retain any monies 5 7 paid in settlement of satisfaction of any SIF Claims filed by either the Reinsurer or the GSIA. ARTICLE 13 - ERRORS OR OMISSIONS Inadvertent delays, errors, or omissions made in connection with this Agreement or any transaction hereunder will not relieve either party from any liability that would otherwise have attached had such delay, error, or omission not occurred. Regardless, the responsible party will rectify each such delay, error, or omission as promptly as practicable after discovery. ARTICLE 14 - ARBITRATION A. Any dispute or other matter in question between the GSIA and the Reinsurer arising out of or relating to the formation, interpretation, performance, or breach of this Agreement, whether such dispute arises before or after termination of this Agreement, shall be settled by arbitration if the parties are unable to resolve the dispute through negotiation. Arbitration shall be initiated by the delivery of a written notice of demand for arbitration by one party to the other. B. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint a third arbitrator. If either party refuses or neglects to appoint an arbitrator within sixty (60) days of receipt of a written notice of demand for arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty (60) days of their appointment, each of the arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots. The arbitrators shall be active or former officers of insurance or reinsurance companies; the arbitrators shall not have a personal or financial interest in the result of arbitration. C. The arbitration hearings shall be held in Richmond, Virginia, or such other place as may be mutually agreed. Each party shall submit its case to the arbitrators within sixty (60) days of the selection of the third arbitrator or within such longer period as may be agreed by the arbitrators. The arbitrators shall not be obliged to follow judicial formalities or the rules of evidence except to the extent required by governing law, that is, the state law of the situs of the arbitration as herein agreed; they shall make their decisions according to the practice of the reinsurance business. The decision rendered by a majority of the arbitrators shall be final and binding on both parties. Such decision shall be a condition precedent to my right of legal action arising out of the arbitrated dispute which either party may have against the other. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. 6 8 D. Each party shall pay the fee and expenses of its own arbitrator and attorneys and one-half of the fees and expenses of the third arbitrator. All other expenses of the arbitration shall be equally divided between the parties. E. Except as provided above, arbitration shall be based, insofar as applicable, upon the Commercial Arbitration Rules of the American Arbitration Association. ARTICLE 15 - HONORABLE UNDERTAKING This Agreement shall be construed as an honorable undertaking between the parties hereto not to be defeated by technical legal constructions, it being the intention of this Agreement that the fortunes of the Reinsurer shall in all cases follow the fortunes of the GSIA. ARTICLE 16 - TAX NEUTRALITY The parties to the Agreement contemplate that as a result of or concurrent with the transfer of assets and liabilities contemplated hereby, the GSIA shall become entitled to a refund of certain taxes, and that the Reinsurer shall sustain a corresponding tax liability. Accordingly, and in order to render the transaction tax-neutral as to such refund, the GSIA hereby disavows any right to collect any tax refund to which it currently is or may become entitled, and assigns its rights to any such tax refund to the Reinsurer. ARTICLE 17 - GENERAL PROVISIONS A. Successors and Assigns. This Agreement shall inure to the benefit of and bind the GSIA and its successors and assigns and the Reinsurer and its successors and assigns. Neither this Agreement nor any right hereunder nor any part hereof may be assigned by any party hereto without the prior written consent of the other party hereto. Prior to any such assignment, the consent of all necessary regulatory authorities must be obtained. B. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Virginia (without giving effect to principles of conflicts of laws) applicable to a contract executed and to be performed in such state. C. Entire Agreement. This Agreement supersedes all prior discussions and agreements between, and contains the sole and entire agreement between the GSIA and the Reinsurer with respect to the subject matter hereof D. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 7 9 E. Headings, etc. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender will be deemed to include each other gender, (b) words using the singular or plural number will also include the plural or singular number, respectively, (c) the terms "hereof," "herein," "hereby," and derivative or similar words will refer to this entire Agreement, and (d) the conjunction "or" will denote any one or more, or any combination or all, of the specified items or matter involved in the respective list. F. Non-waiver. The failure of either party hereto at any time to enforce any provision of this Agreement shall not be construed as a waiver of that provision and shall not effect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms. G. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligation of any party under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision or by its severance added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. H. Notices. Any notice or communication given pursuant to this Agreement must be in writing and will be deemed to have been duly given if mailed (by registered or certified mail, postage prepaid, return receipt requested), or if transmitted by facsimile, or if delivered by courier, as follows: To the GSIA: NARM Services' Group Self Insurance Association of Virginia 6800 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Mr. Kenneth M. Zenzel., Chairman of the Board (804) 673-6116 or (800) 355-3596 To the Reinsurer: RISCORP National Insurance Company 6800 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Stephen Ficarra, Vice President (804) 673-6116 or (800) 355-3596 8 10 All notices and other communications required or permitted under this Agreement that are addressed as provided in this paragraph will, whether sent by mail, facsimile, or courier, be deemed given upon the first business day after actual delivery to the party to whom such notice or other communication is sent (as evidenced by the return receipt or shipping invoice signed by a representative of such party or by the facsimile confirmation). Any party from time to time may change its address for the purpose of notices to that party by giving a similar notice specifying a new address, but no such notice will be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives this 26th day of September, 1996. ATTEST: NARM Services' Group Self Insurance Association of Virginia /s/ Heather W. Giroux By: Kenneth M. Zenzel - - ------------------------ ----------------------------- Name: Kenneth M. Zenzel -------------------------- Title: Chairman of the Board ------------------------ ATTEST: RISCORP National Insurance Company /s/ Lisa A. Hanewier By: /s/ James A. Malone - - ------------------------ ----------------------------- Name: James A. Malone --------------------------- Title: President ------------------------- 9 EX-10.79 16 LOSS PORTFOLIO TRANSFER ASSUMPTION 1 EXHIBIT 10.79 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT between NARM Manufacturers' Group Self Insurance Association of Virginia Hereinafter referred to as the "GSIA"" and RISCORP National Insurance Company Hereinafter referred to as the "Reinsurer" 2 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT
TABLE OF CONTENTS ARTICLE 1 - BUSINESS COVERED ............................................................ 2 ARTICLE 2 - EFFECTIVE DATE .............................................................. 2 ARTICLE 3 - REINSURANCE PREMIUM ......................................................... 2 ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS ............................ 3 ARTICLE 5 - NOTICE OF ASSUMPTION ........................................................ 3 ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS ........................................... 4 ARTICLE 7 - ASSESSMENTS ................................................................. 4 ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER ........................................... 4 ARTICLE 9 - INDEMNIFICATION ............................................................. 4 ARTICLE 10 - OTHER OBLIGATIONS ........................................................... 5 ARTICLE 11 - REQUIRED REGULATORY APPROVAL ................................................ 5 ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES ..................................... 5 ARTICLE 13 - ERRORS OR OMISSIONS ......................................................... 6 ARTICLE 14 - ARBITRATION ................................................................. 6 ARTICLE 15 - HONORABLE UNDERTAKING ....................................................... 7 ARTICLE 16 - TAX NEUTRALITY .............................................................. 7 ARTICLE 17 - GENERAL PROVISIONS .......................................................... 7 A. Successor and Assigns .................................................... 7 B. Governing Law ............................................................ 7 C. Entire Agreement ......................................................... 7 D. Counterparts.............................................................. 7 E. Headings, etc ............................................................ 8 F. Non-waiver ............................................................... 8 G. Severability ............................................................. 8 H. Notices .................................................................. 8
1 3 LOSS PORTFOLIO TRANSFER ASSUMPTION REINSURANCE AGREEMENT (Hereinafter referred to as the "Agreement") between NARM MANUFACTURERS' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA (Hereinafter referred to as the "GSIA") and RISCORP NATIONAL INSURANCE COMPANY (Hereinafter referred to as the "Reinsurer") ARTICLE 1 - BUSINESS COVERED A. The Reinsurer assumes by assumption reinsurance the Policies and the liability to pay all losses, including loss adjustment expenses, covered by Policies issued by the GSIA prior to October 1, 1996, to all policyholders, including all existing and incurred but not reported ("IBNR") claims covered by the Policies (hereinafter "Reinsured Claims"), subject to the terms and conditions contained herein. B. The term "Policies" shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance issued by the GSIA to its member employers. It is understood and agreed that the Reinsurer is bound by all the terms and conditions of the GSIA's Policies as if the Policies had been issued by the Reinsurer. C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have now or in the future under or with respect to the Policies, including, without limitation, the right to collect and adjust premiums, adjust and settle claims, deny coverage, rescind policies, etc. ARTICLE 2 - EFFECTIVE DATE This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time, October 1, 1996. ARTICLE 3 - REINSURANCE PREMIUM The GSIA shall pay a premium equal to the sum of all of its assets as of the Effective Date to the Reinsurer in accordance with the following terms and conditions. 2 4 executing any document reasonably necessary to evidence the completion of the transactions contemplated by the Agreement. ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS A. From and after the Effective Date, the Reinsurer will be solely liable for the administration and disposition of all aspects of the Reinsured Claims assumed by the Reinsurer including, without limitation, the defense, adjustment, settlement, and payment of all losses and expenses arising under or relating to the Reinsured Claims. The GSIA hereby grants and assigns to the Reinsurer full authority to administer such losses, claims, expenses, defenses, adjustments, settlements, and payments, and such matters will be under the Reinsurer's control and within its discretion. The Reinsurer will bear all expenses and costs incurred by it in connection with the administration and disposition of such losses, claims, expenses, defenses, adjustments, settlements, and payments. B. The GSIA will cause all information and notices regarding the Reinsured Claims actually received by the GSIA after the Effective Date to be promptly reported to the Reinsurer or the Reinsurer's designated representative. The GSIA also will undertake any reasonable arrangements deemed necessary by the Reinsurer to ensure that all notices received by the GSIA after the Effective Date in connection with the Reinsured Claims are promptly delivered to the Reinsurer. C. All losses and similar items regarding the Reinsured Claims that the Reinsurer determines to be payable will be paid directly and promptly by the Reinsurer. ARTICLE 7 - ASSESSMENTS In the event that an assessment is made against any present or former policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer agrees to pay the full assessment on behalf of said policyholders. By this undertaking, the Reinsurer and the GSIA expressly intend to benefit as third party beneficiaries all present and former policyholders of the GSIA, and the Reinsurer agrees to be subject to suit by any policyholder as set out in Article 8. ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER The Reinsurer hereby covenants and agrees that it may be sued for its actions after the Effective Date, in its own name, by insured under the Policies. ARTICLE 9 - INDEMNIFICATION The Reinsurer agrees to defend, protect, indemnify and hold harmless the GSIA and its successors or assigns, against any liability, claim, loss or damage, including punitive damages, arising under or out of any of the Reinsured Claims reinsured hereunder or the transactions contemplated by this Agreement. 4 5 ARTICLE 10 OTHER OBLIGATIONS The Reinsurer shall also be responsible for any losses assessed against the GSIA or The Reinsurer. Such losses are defined as those liabilities (whether they constitute compensatory, incidental, exemplary or punitive damages) not covered under any other provision of this Agreement. ARTICLE 11 - REQUIRED REGULATORY APPROVAL This Agreement remains subject to the approval of the Virginia Bureau of Insurance. The GSIA and the Reinsurer shall take all steps necessary to obtain requisite regulatory approval of this Agreement and the transaction described herein. ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES A. In the event of the payment of any loss by the Reinsurer under this Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to all of the rights of the GSIA against any person or entity legally responsible for the loss. The Reinsurer is hereby authorized and empowered to bring any appropriate action in its own name or in the name of the GSIA to enforce such rights. B. Any payments received by or due to the GSIA from any reinsurer of the GSIA which is payable on a Reinsured Claim shall become the property of and paid to the Reinsurer. If any payment is received by the GSIA which is to be credited to the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA will immediately endorse (without warranty or recourse) and deliver to the Reinsurer such checks, drafts, or money intended as such payment, and until delivery of such items to the Reinsurer, the GSIA will treat any such checks, drafts, or money as the property of the Reinsurer held for the account of the Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable efforts to cause the transfer and assignment (as of the Effective Date) to the Reinsurer of all of the GSIA's rights, interests, and obligations under the GSIA's reinsurance agreements, if any, covering the risks, liabilities, and obligations of the GSIA under or with respect to the Reinsured Claims, including, without limitation, obtaining any necessary consents or approvals to such transfer and assignment by the reinsurers under any such reinsurance agreements effective as of the Effective Date. Any failure to receive the consents referred to herein will not relieve or diminish in any manner the Reinsurer's obligations under this Agreement. C. The Reinsurer shall be authorized and entitled to file and pursue the collection of claims against the State of Virginia, Second Injury Fund, arising out of or resulting from Reinsured Claims (hereinafter "SIF Claims"); to pursue the collection of SIF Claims filed by the GSIA prior to the Effective Date; and to collect, receive, and retain any monies 5 6 paid in settlement of satisfaction of any SIF Claims filed by either the Reinsurer or the GSIA. ARTICLE 13- ERRORS OR OMISSIONS Inadvertent delays, errors, or omissions made in correction with this Agreement or any transaction hereunder will not relieve either party from any liability that would otherwise have attached had such delay, error, or omission not occurred. Regardless, the responsible party will rectify each such delay, error, or omission as promptly as practicable after discovery. ARTICLE 14 - ARBITRATION A. Any dispute or other matter in question between the GSIA and the Reinsurer arising out of or relating to the formation, interpretation, performance, or breach of this Agreement, whether such dispute arises before or after termination of this Agreement, shall be settled by arbitration if the parties are unable to resolve the dispute through negotiation. Arbitration shall be initiated by the delivery of a written notice of demand for arbitration by one party to the other. B. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint a third arbitrator. If either party refuses or neglects to appoint an arbitrator within sixty (60) days of receipt of a written notice of demand for arbitration, the other party may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty (60) days of their appointment, each of the arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The third arbitrator shall then be chosen from the remaining two nominations by drawing lots. The arbitrators shall be active or former officers of insurance or reinsurance companies; the arbitrators shall not have a personal or financial interest in the result of arbitration. C. The arbitrate on hearings shall be held in Richmond, Virginia, or such other place as may be mutually agreed. Each party shall submit its case to the arbitrators within sixty (60) days of the selection of the third arbitrator or within such longer period as may be agreed by the arbitrators. The arbitrators shall not be obliged to follow judicial formalities or the rules of evidence except to the extent required by governing law, that is, the state law of the situs of the arbitration as herein agreed; they shall make their decisions according to the practice of the reinsurance business. The decision rendered by a majority of the arbitrators shall be final and binding on both parties. Such decision shall be a condition precedent to any right of legal action arising out of the arbitrated dispute which either party may have against the other. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. 6 7 D. Each party shall pay the fee and expenses of its own arbitrator and attorneys and one-half of the fees and expenses of the third arbitrator. All other expenses of the arbitration shall be equally divided between the parties. E. Except as provided above, arbitration shall be based, insofar as applicable, upon the Commercial Arbitration Rules of the American Arbitration Association. ARTICLE 15 - HONORABLE UNDERTAKING This Agreement shall be construed as an honorable undertaking between the parties hereto not to be defeated by technical legal constructions, it being the intention of this Agreement that the fortunes of the Reinsurer shall in all cases follow the fortunes of the GSIA. ARTICLE 16 - TAX NEUTRALITY The parties to the Agreement contemplate that as a result of or concurrent with the transfer of assets and liabilities contemplated hereby, the GSIA shall become entitled to a refund of certain taxes, and that the Reinsurer shall sustain a corresponding tax liability. Accordingly, and in order to render the transaction tax-neutral as to such refund, the GSIA hereby disavows any right to collect any tax refund to which it currently is or may become entitled, and assigns its rights to any such tax refund to the Reinsurer. ARTICLE 17 - GENERAL PROVISIONS A. Successors and Assigns. This Agreement shall inure to the benefit of and bind the GSIA and its successors and assigns and the Reinsurer and its successors and assigns. Neither this Agreement nor any right hereunder nor any part hereof may be assigned by any party hereto without the prior written consent of the other party hereto. Prior to any such assignment, the consent of all necessary regulatory authorities must be obtained. B. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Virginia (without giving effect to principles of conflicts of laws) applicable to a contract executed and to be performed in such state. C. Entire Agreement. This Agreement supersedes all prior discussions and agreements between, and contains the sole and entire agreement between the GSIA and the Reinsurer with respect to the subject matter hereof. D. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 7 8 E. Headings, etc. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender will be deemed to include each other gender, (b) words using the singular or plural number will also include the plural or singular number, respectively, (c) the terns "hereof," "herein," "hereby," and derivative or similar words will refer to this entire Agreement, and (d) the conjunction "or" will denote any one or more, or any combination or all, of the specified items or matter involved in the respective list. F. Non-waiver. The failure of either party hereto at any time to enforce any provision of this Agreement shall not be construed as a waiver of that provision and shall not effect the right of either party thereafter to enforce each and every provision of this Agreement in accordance with its terms. G. Severabilty. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligation of any party under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision or by its severance added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. H. Notice. Any notice or communication given pursuant to this Agreement must be in writing and will be deemed to have been duly given if mailed (by registered or certified mail, postage prepaid, return receipt requested), or if transmitted by facsimile, or if delivered by courier, as follows: To the GSIA: NARM Manufacturers' Group Self Insurance Association of Virginia 6800 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Ms. Kamini Pahuja, Chairperson of the Board (804) 673-6116 or (800) 355-3596 To the Reinsurer: RISCORP National Insurance Company 6800 Paragon Place, Suite 200 Richmond, VA 23230 Attention: Stephen Ficarra, Vice President (804) 673-6116 or (800-) 355-3596 8 9 All notices and other communications required or permitted under this Agreement that are addressed as provided in this paragraph will, whether sent by mail, facsimile, or courier, be deemed given upon the first business day after actual delivery to the party to whom such notice or other communication is sent (as evidenced by the return receipt or shipping invoice signed by a representative of such party or by the facsimile confirmation). Any party from time to time may change its address for the purpose of notices to that party by giving a similar notice specifying a new address, but no such notice will be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives this __ day ______ of 1996. ATTEST: NARM Manufacturers' Group Self Insurance Association of Virginia By:/s/Kamani Pahuja - - ---------------------------- -------------------------------------- Name:Kamani Pahuja ------------------------------------ Title:Chairperson of the Board ----------------------------------- ATTEST: RISCORP National Insurance Company /s/ By:/s/James A. Malone - - ---------------------------- -------------------------------------- Name:James A. Malone ------------------------------------ Title:President ----------------------------------- 9 EX-11 17 RISCORP SUBSIDIARIES 1 EXHBIT 11 RISCORP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS THIS EXHIBIT TO BE FILED BY AMENDMENT. THE EXHIBIT 11 PREVIOUSLY FILED WAS FILED DUE TO A TRANSMISSION ERROR AND THE INFORMATION CONTAINED THEREIN SHOULD NOT BE RELIED UPON. EX-27 18 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE TO BE FILED BY AMENDMENT. THE SCHEDULE PREVIOUSLY FILED WAS FILED DUE TO A TRANSMISSION ERROR AND THE INFORMATION CONTAINED THEREIN SHOULD NOT BE RELIED UPON. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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