-----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, QmH8wzKK+JZ9A6+yu0JLCL59OR2LuzUjqm4KLd2Xn3bCR6u5vl5p2KgNhfBYJzPx 6uuDUz2lKsyk4KPWu44joA== 0001017062-99-000052.txt : 19990115 0001017062-99-000052.hdr.sgml : 19990115 ACCESSION NUMBER: 0001017062-99-000052 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRIS GROUP INC CENTRAL INDEX KEY: 0000798085 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 330097221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12099 FILM NUMBER: 99506532 BUSINESS ADDRESS: STREET 1: 650 TOWN CENTER DR STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145491600 MAIL ADDRESS: STREET 1: 650 TOWN CENTER DRIVE STREET 2: STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626-1925 FORMER COMPANY: FORMER CONFORMED NAME: US FACILITIES CORP DATE OF NAME CHANGE: 19920703 8-K 1 DATE OF REPORT: 12/31/1998 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report December 31, 1998 (Date of earliest event reported) THE CENTRIS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 001-12099 33-0097221 (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation or organization) Number) Identification No.) 650 Town Center Drive, Suite 1600 Costa Mesa, California 92626 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 549-1600 N/A (Former name and former address, if changed since last report) ================================================================================ Item 2. Acquisition or Disposition of Assets. On December 31, 1998, The Centris Group, Inc. (the "Company"), completed the acquisition of 100% of the outstanding shares of common stock of Seaboard Life Insurance Company (USA) ("SLIC (USA)") and VASA North America, Inc. ("VNA") from Seaboard Life Insurance Company, a Canadian federal insurance company ("SLIC (Canada)"), and Seaboard North American Holdings, Inc., a British Columbia corporation ("SNAHI"), (SLIC (Canada) and SNAHI collectively referred to as Sellers), respectively, (the "Acquisition") for $42.7 million, $22.9 million of which was paid to the Sellers at closing and the remaining $19.8 million of which was distributed to ABN AMRO Bank N.V. in payment of an outstanding promissory note issued by VNA. The Acquisition was consummated pursuant to the terms of the Stock Purchase Agreement dated as of August 20, 1998, between SLIC (Canada), SNAHI and Eureko B.V., a company organized under the laws of The Netherlands ("Eureko") (the "Stock Purchase Agreement"). SLIC (Canada) and SNAHI agreed to sell and the Company agreed to buy 100% of the issued and outstanding capital stock of SLIC (USA), an Indiana stock life insurance company and VNA, an Indiana corporation, owned respectively by SLIC (Canada) and SNAHI. The outstanding capital stock of SLIC (USA) consists of 250 shares of common stock ($25,000 per share par value). The outstanding capital stock of VNA consists of 11,258 shares of common stock (no par value). At the time of the closing of the Acquisition VNA had the following subsidiaries: VASA Insurance Group, Inc.; VASA Brougher, Inc.; VASA North Atlantic Insurance Company ("VNAIC") an Indiana stock insurance company, and Select Benefits, Inc. The purchase price for the Acquisition was based on the audited statutory policyholders' surplus of SLIC (USA) and VNAIC as of the Acquisition closing date. The purchase price was reduced by (i) the amount outstanding under a promissory note payable to ABN AMRO Bank N.V., (ii) the amount of goodwill on the books of SLIC (USA) and VNAIC as of the closing date (approximately $2.2 million), and (iii) $2.5 million, and was further adjusted to reflect a mark-to market of the investment portfolios of SLIC (USA) and VNAIC as of the closing date (approximately a $1.8 million upward adjustment). The purchase price is subject to adjustment based upon an audit of the books and records of SLIC (USA) and VNAIC as of the closing date. The purchase price was determined though arms-length negotiation. The Company intends to continue the insurance operations of acquired companies and their subsidiaries. The Company borrowed approximately $42.7 million under the Company's existing credit agreement with Fleet National Bank (the "Credit Agreement") to finance this acquisition. To permit such borrowing, certain provisions of the Credit Agreement were waived and others amended. Specifically, Fleet National Bank waived the covenant contained at Section 7.5(b) of the Credit Agreement on a limited basis to permit the Acquisition as consummated. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired At the time of filing of this report on Form 8-K, it is not practical to provide the financial statements required by Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial statements will be filed within 60 days of this filing by an amendment on Form 8-K/A to this report. (b) Pro Forma Financial Information At the time of filing of this report on Form 8-K, it is not practical to provide the pro forma financial information required by Item 7(b). In accordance with Item 7(b)(2) of Form 8-K, such pro forma financial information will be filed within 60 days of this filing by an amendment on Form 8-K/A to this report. 2 (c) Exhibits Set forth below is a list of exhibits included as part of this Current Report: Exhibit Number Description of Exhibit - -------------- ------------------------------------------------------------- 2.01 Stock Purchase Agreement dated as of August 20, 1998 by and between The Centris Group, Inc., Seaboard Life Insurance Company, Seaboard North American Holdings, Inc. and Eureko B.V. 10.01 Fifth Amendment to the Credit Agreement between The Centris Group, Inc. and Fleet National Bank (the "Credit Agreement") dated as of December 28, 1998. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, The Centris Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: January 14, 1999 THE CENTRIS GROUP, INC. By: /s/ CHARLES M. CAPORALE ------------------------------- Charles M. Caporale Senior Vice President, Chief Financial Officer and Treasurer 4 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------- ---------------------- 2.01 Stock Purchase Agreement dated as of August 20, 1998 by and between The Centris Group, Inc., Seaboard Life Insurance Company, Seaboard North American Holdings, Inc. and Eureko B.V. 10.01 Fifth Amendment to the Credit Agreement between The Centris Group, Inc. and Fleet National Bank (the "Credit Agreement") dated as of December 28, 1998. 5 EX-2.01 2 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT Dated as of August 20, 1998 between THE CENTRIS GROUP, INC., SEABOARD LIFE INSURANCE COMPANY, SEABOARD NORTH AMERICAN HOLDINGS, INC. and EUREKO B.V. relating to the purchase and sale of 100% of the Common Stock of SEABOARD LIFE INSURANCE COMPANY (USA) and VASA NORTH AMERICA, INC. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS....................................................... 1 SECTION 1.1 Definitions..................................................... 1 ARTICLE 2 PURCHASE AND SALE................................................. 6 SECTION 2.1 Purchase and Sale............................................... 6 SECTION 2.2 Closing......................................................... 7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EUREKO.......................... 8 SECTION 3.1 Corporate Existence and Power................................... 8 SECTION 3.2 Corporate Authorization......................................... 8 SECTION 3.3 Governmental Authorization...................................... 9 SECTION 3.4 Non-Contravention............................................... 9 SECTION 3.5 Capitalization.................................................. 9 SECTION 3.6 Ownership of Shares............................................. 10 SECTION 3.7 Subsidiaries.................................................... 10 SECTION 3.8 Financial Statements............................................ 11 SECTION 3.9 Absence of Certain Changes...................................... 11 SECTION 3.10 No Undisclosed Material Liabilities............................ 13 SECTION 3.11 Material Contracts............................................. 13 SECTION 3.12 Litigation..................................................... 15 SECTION 3.13 Compliance with Laws........................................... 15 SECTION 3.14 Properties..................................................... 15 SECTION 3.15 Licenses and Permits; Policies: Regulatory Matters............. 16 SECTION 3.16 ERISA Representations.......................................... 17 SECTION 3.17 Environmental Compliance....................................... 19 SECTION 3.18 Intellectual Property; Software................................ 19 SECTION 3.19 Labor Matters.................................................. 21 SECTION 3.20 Reserves....................................................... 21 SECTION 3.21 Investments.................................................... 22 SECTION 3.22 No Other Representations....................................... 22 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER........................... 22 SECTION 4.1 Corporate Existence and Power................................... 22 SECTION 4.2 Corporate Authorization......................................... 22 SECTION 4.3 Governmental Authorization...................................... 22 SECTION 4.4 Non-Contravention............................................... 23 SECTION 4.5 Financing....................................................... 23 SECTION 4.6 Purchase for Investment......................................... 23 ARTICLE 5 COVENANTS OF THE SELLERS AND EUREKO............................... 23 SECTION 5.1 Conduct of the Companies........................................ 23 SECTION 5.2 Access to Information........................................... 26 SECTION 5.3 Notices of Certain Events....................................... 26 SECTION 5.4 Resignations.................................................... 27 SECTION 5.5 No Solicitation................................................. 27 SECTION 5.6 Certain Other Transactions...................................... 27 SECTION 5.7 Use of Computer Software........................................ 28 SECTION 5.8 Testing and Remediation of Computer Systems..................... 28 SECTION 5.9 Filing of Policy................................................ 28 ARTICLE 6 COVENANTS OF BUYER................................................ 29 i SECTION 6.1 Employees....................................................... 29 SECTION 6.2 Employee Plans and Benefit Arrangements......................... 29 SECTION 6.3 Severance Arrangements.......................................... 29 SECTION 6.4 Repayment of Loan............................................... 30 ARTICLE 7 COVENANTS OF BUYER, EUREKO AND THE SELLERS........................ 30 SECTION 7.1 Reasonable Efforts.............................................. 30 SECTION 7.2 Certain Filings................................................. 31 SECTION 7.3 Public Announcements............................................ 31 SECTION 7.4 Trademarks; Trade Names......................................... 31 SECTION 7.5 Intercompany Accounts........................................... 32 SECTION 7.6 Non-Solicitation of Employees; Non-Competition.................. 33 SECTION 7.7 Post-Closing Access............................................. 34 SECTION 7.8 Supplemental Disclosure......................................... 34 SECTION 7.9 Confidentiality................................................. 34 SECTION 7.10 Management of Certain Business................................. 35 SECTION 7.11 Override Commissions........................................... 40 SECTION 7.12 Directors' and Officers' Insurance............................. 40 ARTICLE 8 TAX MATTERS....................................................... 41 SECTION 8.1 Tax Representations............................................. 41 SECTION 8.2 Tax Covenants................................................... 42 SECTION 8.3 Tax Sharing Agreements.......................................... 43 SECTION 8.4 Return Filings and Payment of Tax............................... 43 SECTION 8.5 Cooperation on Tax Matters...................................... 43 SECTION 8.6 Tax Benefits.................................................... 44 SECTION 8.7 Indemnification by Eureko....................................... 45 SECTION 8.8 Indemnification by Buyer........................................ 46 SECTION 8.9 Survival; Exclusivity........................................... 46 SECTION 8.10 Late Payments.................................................. 46 SECTION 8.11 No Duplicative Payments; Offsets............................... 46 SECTION 8.12 Rule of Construction........................................... 47 ARTICLE 9 CONDITIONS TO CLOSING............................................. 47 SECTION 9.1 Conditions to Obligations of Buyer, Eureko and the Sellers...... 47 SECTION 9.2 Conditions to Obligation of Buyer............................... 47 SECTION 9.3 Conditions to Obligation of Eureko and the Sellers.............. 49 ARTICLE 10 SURVIVAL; INDEMNIFICATION........................................ 50 SECTION 10.1 Survival....................................................... 50 SECTION 10.2 Indemnification................................................ 50 SECTION 10.3 Environmental Indemnity........................................ 51 SECTION 10.4 Procedures; Exclusivity........................................ 52 SECTION 10.5 Limitations on Indemnification Obligations..................... 53 ARTICLE 11 TERMINATION...................................................... 54 SECTION 11.1 Grounds for Termination........................................ 54 SECTION 11.2 Effect of Termination.......................................... 54 ARTICLE 12 MISCELLANEOUS.................................................... 54 SECTION 12.1 Notices........................................................ 54 SECTION 12.2 Amendments and Waivers......................................... 56 SECTION 12.3 Expenses....................................................... 56 SECTION 12.4 Successors and Assigns......................................... 56 SECTION 12.5 Governing Law.................................................. 56 ii SECTION 12.6 Jurisdiction................................................... 56 SECTION 12.7 Counterparts; No Third Party Beneficiaries..................... 57 SECTION 12.8 Entire Agreement............................................... 57 SECTION 12.9 Construction................................................... 57 EXHIBITS A Allocation of Purchase Price B License Agreement SCHEDULES 3.3 Required Insurance Law Approvals 3.4 Consents, etc. 3.7 Subsidiaries 3.9 Certain Changes 3.10 Non-Balance Sheet Liabilities 3.11 Material Contracts 3.12 Litigation 3.13 Non-Compliance With Laws 3.15 Regulatory Matters, etc. 3.16 ERISA/Benefits 3.17 Environmental 3.18 Intellectual Property 3.19 Labor Matters 3.21 Company Investment Assets 4.3 Governmental Authorization 4.4 Non-Contravention 5.1 Conduct of the Companies 5.7 Computer Software 6.3 Severance Arrangements 7.4 Trademarks; Trade names 7.6 Non-Solicitation of Employees 8.1 Tax Representations iii EXHIBIT 2.1 STOCK PURCHASE AGREEMENT AGREEMENT dated as of August 20, 1998 between The Centris Group, Inc., a Delaware corporation ("Buyer"), and Seaboard Life Insurance Company, a Canadian federal insurance company ("SLIC"), Seaboard North American Holdings, Inc., a British Columbia corporation ("SNAHI" and together with SLIC, the "Sellers") and Eureko B.V., a company organized under the laws of The Netherlands ("Eureko"). W I T N E S S E T H: WHEREAS, each of the Sellers is a subsidiary of Eureko; WHEREAS, SLIC is the record and beneficial owner of all of the issued and outstanding shares of common stock, par value $10,000 per share (the "SLIC (USA) Common Stock"), of Seaboard Life Insurance Company (USA), an Indiana stock insurance company ("SLIC (USA)"); WHEREAS, SNAHI is the record and beneficial owner of all of the issued and outstanding shares of common stock, with no par value (the "VNA Common Stock"), of VASA North America, Inc., an Indiana corporation ("VNA" and, together with SLIC (USA), the "Companies"); and WHEREAS, the Sellers desire to sell all of the issued and outstanding shares of SLIC (USA) Common Stock and VNA Common Stock (collectively, the "Shares") to Buyer, and Buyer desires to purchase the Shares from the Sellers, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 Definitions. ----------- (a) The following terms, as used herein, have the following meanings: "ABN AMRO Note" means that certain Promissory Note executed by VNA in favor ------------- of ABN AMRO Bank N.V. on September 30, 1997. "Affiliate" means, with respect to any Person, any other Person directly or --------- indirectly controlling, controlled by, or under common control with such Person; provided that neither of the Companies nor any of their respective Subsidiaries shall be considered an Affiliate of either Seller. "Agreement" means this agreement, including the Schedules and Exhibits --------- hereto. "Balance Sheet Date" means June 30, 1998. ------------------ "Benefit Arrangement" means any employment, severance or similar contract, ------------------- arrangement or policy, or any plan or arrangement (whether or not written) providing for severance benefits, insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights or other forms of incentive compensation or post-retirement insurance, compensation or benefits that (i) is not an Employee Plan, (ii) is entered into or maintained, administered or contributed to, as the case may be, by Sellers or any of their respective ERISA Affiliates and (iii) covers any employee or former employee of any of the Companies or any of their Subsidiaries. "Closing Date" means the date of the Closing. ------------ "Code" means the Internal Revenue Code of 1986, as amended. ---- "Employee Plan" means any "employee benefit plan," as defined in Section ------------- 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained, administered or contributed to by either Seller or any ERISA Affiliate of either Seller and (iii) covers any employee or former employee of either Company or any of their respective Subsidiaries. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Affiliate" of any entity means any other entity which, together with --------------- such entity, would be treated as a single employer under Section 414 of the Code. "GAAP" means U.S. generally accepted accounting principles. ---- "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, ------- as amended. "Insurance Companies" means SLIC (USA) and VASA North Atlantic Insurance ------------------- Company. "Letter of Credit" means a clean, irrevocable letter of credit reasonably ----------------- satisfactory to Buyer issued by a bank that is a member of the Federal Reserve System, and which shall be evergreen, i.e., renewable on an annual basis, and ----- which shall not be cancelable except on ninety (90) days prior notice to and consent of Buyer which shall not be unreasonably withheld. Any such letter of credit shall provide that, as a condition to drawing on such letter, Buyer shall certify to the issuer that (i) the conditions to drawing upon such letter, as set forth in this Agreement, have been satisfied, and (ii) Buyer has provided to Eureko, not later than fifteen (15) business days prior to drawing on such letter, a written notice setting forth in reasonable detail the factual and financial information indicating that such conditions have been satisfied. "Lien" means, with respect to any property or asset, any mortgage, lien, ---- pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under 2 any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "Loss Adjustment Expenses" means all expenses of handling and settling ------------------------ claims directly chargeable to claim files including, but not limited to, outside counsel fees and expenses, court costs and fees, all managed care fees and any other out of pocket expenses incurred by Buyer in handling claims on the Covered Business, but excluding all expenses related to staff employed by Buyer or its Affiliates. In any litigation where VBI is named as a defendant in connection with a claim filed under an insurance policy managed by VBI, the cost of defending VBI (net of actual recoveries from third parties) shall also be considered Loss Adjustment Expenses whether or not the insurance company that issued the policy is also named as a defendant in such litigation. "Losses" means, for the purposes of Section 7.10, all payments with respect ------ to claims under insurance policies, including without limitation consequential, pain and suffering, extra contractual, punitive, exemplary or any other damages paid with respect to such claims, but excluding any such damages to the extent attributable to actions taken by Buyer after the Closing. For the purposes of this definition, (i) the denial of a claim based upon Eureko's refusal to approve payment thereof pursuant to Section 7.10(b)(i) will not be deemed to be an action taken by Buyer, and (ii) the amount of any Losses with respect to any claim shall be offset by the amount of any amounts recovered from third parties (including without limitations errors and omissions insurers) with respect thereto. "Material Adverse Effect" means with respect to either Company or any of ----------------------- their respective Subsidiaries, a material adverse effect on the financial condition, results of operations, business, assets or liabilities of such Companies and their respective Subsidiaries, taken as a whole. With respect to either Buyer or either of the Sellers, "Material Adverse Effect" means a material adverse effect on the ability of such Buyer or Seller to consummate the transactions contemplated hereby. "Multiemployer Plan" means each Employee Plan that is a multiemployer plan, ------------------ as defined in Section 3(37) of ERISA. "Person" means an individual, corporation, partnership, association, trust, ------ limited liability company or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Post-Closing Tax Period" means any Tax period ending after the Closing ----------------------- Date. As to any Tax period of the Companies and their respective Subsidiaries that begins prior to the Closing Date and that does not end on or prior to the Closing Date, such term shall also mean the portion of any such Tax period that begins following the Closing Date as a result of an election by the parties described under the definition "Pre-Closing Tax Period" or that is deemed to begin the day following the Closing Date as a result of the parties hereto treating such Tax period as ending on the Closing Date as described under the definition "Pre-Closing Tax Period." 3 "Pre-Closing Tax Period" means any Tax period ending on or before the ---------------------- Closing Date. As to any Tax period of the Companies and their respective Subsidiaries that begins prior to the Closing Date and that does not end on or prior to the Closing Date, the parties hereto will, to the extent permitted by applicable law, elect with the relevant taxing authority to treat for all purposes the Closing Date as the last day of such taxable period of the Companies and their respective Subsidiaries, and such period ending on the Closing Date as a result of such election shall constitute a "Pre-Closing Tax Period." In any case where a Tax period of the Companies and their respective Subsidiaries that begins prior to the Closing Date and that does not end on the Closing Date, by operation of law or by election of the parties pursuant to applicable law, then for purposes of this Agreement, the parties hereto shall treat such Tax period as ending on the Closing Date and the portion of such Tax period beginning before and deemed to end on the Closing Date shall also constitute a "Pre-Closing Tax Period." For purposes of allocating liabilities for Taxes between a Pre-Closing Tax Period and a Post-Closing Tax Period where the parties have deemed a Tax period to end on the Closing Date, (i) liabilities for non-income Taxes shall be allocated based on the respective number of days in the Pre-Closing Tax Period and Post-Closing Tax Period in comparison to the total number of days in the Tax period and (ii) liabilities for income Taxes shall be allocated as if the Tax period actually terminated on the Closing Date. "SAP" means the statutory accounting principles and practices prescribed or --- permitted by the Insurance Department of the State of Indiana. "Statutory Policyholders' Surplus" means (i) as to SLIC (USA), the amount -------------------------------- that would be included in line 38 of the Liabilities, Surplus and Other Funds page of the NAIC Annual Statement Blank (Life, Accident and Health) (1997 format), and (ii) as to VASA North Atlantic, the amount that would be included in line 25 of the Liabilities, Surplus and Other Funds page of the NAIC Annual Statement Blank (Property and Casualty) (1997 format). "Subsidiary" means, with respect to any Person, any entity of which ---------- securities or other ownership interests having ordinary voting power to elect 50% or more of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "Tax" or "Taxes" means all taxes, charges, fees, levies or other --- ----- assessments, including, without limitation, any net income tax or franchise tax based on net income, any alternative or add-on minimum taxes, any gross income, gross receipts, premium, sales, use, ad valorem, value added, transfer, profits, license, social security, Medicare, payroll, employment, excise, severance, stamp, occupation, property, environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment, together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax (a "Taxing Authority"). "Tax Benefit" means any deduction, credit, amortization, exclusion from ----------- income, loss or other tax attribute. 4 "Uncollectable Receivable" means any statutorily admitted account ------------------------ receivable on the books of the Insurance Companies as of the Closing Date (after giving effect to any changes resulting from the audit contemplated by Section 2.1(c)) that ultimately proves to be uncollectable in whole or in part; provided, that differences between the amounts actually collected and the amounts shown on such books with respect to receivables reflecting estimates of amounts billed to third parties shall not be deemed to be Uncollectable Receivables to the extent that such differences reflect only the differences between such estimated and actual amounts. "VBI" means VASA Brougher, Inc. --- (b) Each of the following terms is defined in the Section set forth opposite such term:
Term Section Acquisition Proposal 5.5 Annual Statements 3.8 Balance Sheets 3.8 Closing 2.2 COBRA 6.3 Company Investment Assets 3.21 Company Securities 3.5 Computer Systems 3.18 Confidential Information 7.9 Conveyance Taxes 8.2 Covered Business 7.10 Damages 10.2 Department 3.8 D&O Insurance 7.12 E&O Insurance 7.12 Environmental Costs 10.3 Environmental Laws 3.17 Excess Amount 7.10 Fully Insured Business 5.6 Hazardous Substances 3.17 Indemnified Party 10.4 Indemnifying Party 10.4 ILA Business 5.6 ILA Reinsurance Transaction 5.6 Intellectual Property 3.18 License Agreement 7.4 Managed Business 7.10 Medicare Supplement Business 7.10 Payoff Amount 6.4 PC Reinsurance Transaction 7.10 Permits 3.15
5 Producer 3.11 Purchase Price 2.1 Quarterly Statements 3.8 Returns 8.1 Run-off Fund 7.10 Run-off PC Business 7.10 Significant Agreements 3.11 Software 3.18 Subsidiary Securities 3.7 Tax Claim 8.7 Tax Indemnified Party 8.2 Tax Indemnifying Party 8.2 Termination Payments 6.3 Third Party Accountant 2.1 Three-Month Treasury Bill Rate 2.1 Transferred Employees 6.1 Trigger Date 7.10 VASA North Atlantic 3.8 Withdrawal Businesses 7.10 Year 2000 Compliant 3.18 Year 2000 Plan 3.18
(c) As used in this Agreement, "knowledge" of the Sellers means the knowledge of the executive officers and the chief legal or compliance officers of Eureko, the Sellers, the Companies and their Subsidiaries after due inquiry. ARTICLE 2 PURCHASE AND SALE ----------------- SECTION 2.1 Purchase and Sale. ----------------- (a) Upon the terms and subject to the conditions of this Agreement, the Sellers agree to sell to Buyer and Buyer agrees to purchase from the Sellers, directly or through one or more Subsidiaries, the Shares at the Closing. The purchase price for the Shares (the "Purchase Price") shall equal: (i) the audited Statutory Policyholders' Surplus of the Insurance Companies as of the Closing Date determined in a manner required in Section 3.8(b)(iv) hereof; (ii) minus the payoff amount of the ABN AMRO Note as of the Closing Date; (iii) plus or minus the amount required to mark-to-market on a U.S. GAAP basis the investments of the Insurance Companies as of the Closing Date; (iv) minus the amount of any goodwill on the books of the Insurance Companies as of the Closing Date; 6 (v) minus $2,500,000. (b) The Purchase Price shall be paid as provided in Section 2.2. The Purchase Price shall be allocable and payable to the Sellers as set forth in Exhibit A hereto. - --------- (c) For the purpose of the Closing, a preliminary determination of the Purchase Price shall be determined not later than ten (10) days prior to the Closing Date on the basis of the books and records of the Companies as of the calendar month end immediately preceding the Closing Date and making the adjustments specified in (a)(ii), (iii) and (iv) above. Such adjustments shall be made as of the calendar month end immediately preceding the Closing Date, with the exception of the adjustment specified in (a)(ii) which shall be made as of the Closing Date. Within forty-five (45) days after the Closing Date, Buyer shall prepare a proposed final Purchase Price determination based upon an audit of the books and records of the Insurance Companies, at Buyer's expense, as of the Closing Date, by a so-called Big 5 auditing firm selected by Buyer, and shall submit the same to Eureko for review and approval. Any additions or reductions to the Purchase Price as a result of such determination shall be paid by Eureko or Buyer, as the case may be, together with interest on the amount thereof at the Three-Month Treasury Bill Rate. The "Three-Month Treasury Bill Rate" means the rate as published in the Wall Street Journal on the Closing Date or such other date as may be noted elsewhere in this Agreement. Such interest shall be calculated on the basis of a year of 365 days and the actual number of days elapsed. (d) If Buyer and Eureko do not agree upon the final Purchase Price calculation, such determination shall be finally resolved and settled by arbitration, administered by Deloitte & Touche LLP (the "Third Party Accountant") the costs and fees of the Third Party Accountant shall be allocated between Buyer and Eureko by the Third Party Accountant based upon the Third Party Accountant's determination of the merits of the respective positions of the parties with respect to the disputed matters. (e) If the closing of the ILA Reinsurance Transaction occurs after the Closing, then not later than seven business days following the closing of the ILA Reinsurance Transaction, Buyer shall deliver to Eureko in immediately available funds by wire transfer to the account of Eureko (designated by Eureko by notice to Buyer not later than two business days prior to such closing) an amount equal to the ceding commission received by SLIC (USA) in such transaction, plus an amount equal to the amount, if any, of credit received by SLIC (USA) for goodwill on its books as an offset against the amount of assets required to be transferred to the reinsurer at the closing of the ILA Reinsurance Transaction. In the event that SLIC (USA) receives any amount in connection with any post-closing adjustment with respect to the ILA Reinsurance Transaction, Buyer shall transfer to Eureko in immediately available funds an amount equal to such amount received by SLIC (USA). In the event that SLIC (USA) is required to pay any amount in connection with any such post-closing adjustment, Eureko shall transfer to Buyer in immediately available funds an amount equal to such amount paid by SLIC (USA). SECTION 2.2 Closing. The Closing (the "Closing") of the purchase and ------- sale of the Shares hereunder shall take place at the offices of Buyer, Bank One Center Tower, 111 Monument Circle, Suite 320, Indianapolis, Indiana 46204-5187, on the last business day of the 7 month in which the conditions set forth in Article 9 have been satisfied, or at such other time or place as Buyer and the Sellers may agree. (a) At the Closing, Buyer shall deliver the preliminary Purchase Price to the Sellers in immediately available funds by wire transfer to the account(s) of the Sellers (designated in writing by the Sellers by notice to Buyer not later than two business days prior to the Closing Date), as allocated as set forth on Exhibit A hereto. - --------- (b) At the Closing, the Sellers shall deliver to Buyer certificates for the Shares, duly endorsed or accompanied by stock powers duly endorsed in blank with all appropriate transfer tax stamps affixed. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EUREKO ---------------------------------------- Eureko represents and warrants to Buyer as of the date hereof and as of the Closing Date (but as of no other dates unless expressly so stated) that: SECTION 3.1 Corporate Existence and Power. Each of the Sellers and ----------------------------- Eureko has been duly incorporated and is validly existing and in good standing under the laws of their respective jurisdiction of incorporation and has all corporate power required to carry on its business as now conducted. Each Company (i) has been duly incorporated and is validly existing and in good standing under the laws of the State of Indiana, (ii) has all corporate power required to carry on its business as now conducted, (iii) has all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted and (iv) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, or is duly licensed to do business as an insurer and is in good standing in each jurisdiction where such licensing is necessary, as the case may be, except for those jurisdictions where failure to be so qualified or licensed, as the case may be, would not, individually or in the aggregate, have a Material Adverse Effect on the Companies. The Sellers have heretofore delivered or made available to Buyer true and complete copies of the certificate of incorporation and bylaws of Eureko, each Seller, each Company and each of their respective Subsidiaries as in effect on the date hereof. Neither of the Companies nor any of their respective Subsidiaries is in violation of any of the provisions of its certificate of incorporation or bylaws. SECTION 3.2 Corporate Authorization. The execution, delivery and, ----------------------- subject to the receipt of the approvals referred to in Section 3.3, performance by the Sellers and Eureko of this Agreement are within the Sellers' and Eureko's respective corporate power and have been duly authorized by all necessary corporate action on the part of the Sellers. This Agreement constitutes a valid and legally binding agreement of Eureko and the Sellers, enforceable against Eureko and the Sellers in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and, in the case of SLIC, the rights of creditors of insurance companies generally and (ii) general principles of equity (regardless of whether considered in a proceeding at law or in equity). 8 SECTION 3.3 Governmental Authorization. The execution, delivery and -------------------------- performance by Eureko and the Sellers of this Agreement require no action by or in respect of, or filing with, any governmental body, agency, or official on the part of Eureko, any of the Sellers, the Companies or their Subsidiaries other than (i) compliance with any applicable requirements of the HSR Act, (ii) approvals or filings under the insurance laws of the jurisdictions set forth on Schedule 3.3, (iii) filings and notices not required to be made or given until after the Closing Date, (iv) filings, at any time, of tax returns, tax reports and tax information statements and (v) any such action or filing as to which the failure to make or obtain would not, individually or in the aggregate, materially impair the ability of the Companies and their Subsidiaries, taken as a whole, to conduct their businesses. SECTION 3.4 Non-Contravention. Except as set forth in Schedule 3.4, the ----------------- execution, delivery and performance by Eureko and the Sellers of this Agreement do not and will not (i) violate the certificate of incorporation or bylaws of Eureko, either Seller, either Company or any Subsidiary of either Company, (ii) assuming compliance with the matters referred to in Section 3.3, violate any applicable law, rule, regulation, judgment, injunction, order or decree, (iii) require any consent or other action by any Person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of any Company or any Subsidiary of any Company or to a loss of any benefit to which any Company or any Subsidiary of any Company is entitled under, any material agreement or other material instrument binding upon any Company or any Subsidiary of any Company or any material license, franchise, permit or other similar authorization held by any Company or any Subsidiary of any Company, (iv) result in the creation or imposition of any material Lien on any asset of any Company or any Subsidiary of any Company or (v) cause or constitute a "distribution date," "flip in event" or comparable event under any stockholder rights plan or comparable plan of any Person the capital stock of which is directly or indirectly beneficially owned by any Company or any Subsidiary of any Company. SECTION 3.5 Capitalization. -------------- (a) The authorized capital stock of SLIC (USA) consists of 1,000 shares of SLIC (USA) Common Stock. As of the date hereof, there are 250 shares of SLIC (USA) Common Stock outstanding. The authorized capital stock of VNA consists of 9,000,000 shares of VNA Common Stock and 1,000,000 shares of VNA Preferred Stock. As of the date hereof, there are 11,258 shares of VNA Common Stock and zero shares of VNA Preferred Stock outstanding. (b) All outstanding shares of capital stock of each Company have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights. Except as set forth in this Section 3.5, there are no outstanding (i) shares of capital stock or voting securities of any Company, (ii) securities of any Company convertible into or exchangeable for shares of capital stock or voting securities of any Company or (iii) options or other rights to acquire from any Company, or other obligation of any Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of any Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the "Company Securities"). There are no outstanding obligations of any Company 9 or any of their respective Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. SECTION 3.6 Ownership of Shares. SNAHI is the record and beneficial ------------------- owner of the VNA Common Stock, free and clear of any Lien and any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of the VNA Common Stock other than pursuant to generally applicable regulatory requirements), and will transfer and deliver to Buyer at the Closing valid title to the VNA Common Stock free and clear of any Lien and any such limitation or restriction. SLIC is the record and beneficial owner of the SLIC (USA) Common Stock, free and clear of any Lien and any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of the SLIC (USA) Common Stock other than pursuant to generally applicable regulatory requirements), and will transfer and deliver to Buyer at the Closing valid title to the SLIC (USA) Common Stock free and clear of any Lien and any such limitation or restriction. SECTION 3.7 Subsidiaries. ------------ (a) Each Subsidiary of each Company has been duly incorporated or organized and is validly existing and in good standing under the laws of its jurisdiction of incorporation and has all power and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Each Subsidiary of each Company is duly qualified to do business as a foreign corporation or organization and is in good standing in each jurisdiction where such qualification is necessary, or is duly licensed to do business as an insurer or an insurance producer and is in good standing in each jurisdiction where such licensing is necessary, as the case may be, except for those jurisdictions where failure to be so qualified or licensed, as the case may be, would not, individually or in the aggregate, have a Material Adverse Effect on the Companies. All Subsidiaries of each Company and their respective jurisdictions of incorporation or organization are identified on Schedule 3.7. (b) All outstanding shares of capital stock of each corporate Subsidiary of each Company have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights. As of the Closing Date, except as disclosed in Schedule 3.7, all of the outstanding capital stock of, and other voting securities or ownership interests in, each corporate Subsidiary of each Company will be owned by one of the Companies, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests other than pursuant to generally applicable regulatory requirements). Except as set forth in Schedule 3.7, there are no outstanding (i) securities of any of the Companies or any of their respective Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any Subsidiary of any Company or (ii) options or other rights to acquire from any of the Companies or any of their respective Subsidiaries, or other obligations of any of the Companies or any of their respective Subsidiaries to issue, any capital stock or other voting securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any Subsidiary of any of the Companies (the items in clauses (i) and (ii) being referred to collectively as the "Subsidiary Securities"). There are no outstanding obligations of any of the Companies or 10 any of their respective Subsidiaries to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities. SECTION 3.8 Financial Statements. -------------------- (a) The audited GAAP consolidated balance sheet of VNA and its Subsidiaries as of December 31, 1996 and December 31, 1997 and as of June 30, 1998 (unaudited) (such balance sheets shall hereinafter be referred to as the "Balance Sheets") and the related statements of income and cash flows for each of the years ended December 31, 1996 and December 31, 1997 and six months ended June 30, 1998 previously delivered to Buyer, including in the notes thereto in the case of the year end financial statements, present fairly, in all material respects, the financial position of VNA as of the dates thereof and the results of operations of VNA for the periods then ended in accordance with GAAP consistently applied. (b) The audited statutory balance sheets of each of SLIC (USA) and VASA North Atlantic Insurance Company, an Indiana stock insurance company ("VASA North Atlantic") as of December 31, 1996 and December 31, 1997, and the related statements of operations and statements of cash flows for the year then ended, and their respective Annual Statements for the fiscal years ended December 31, 1996 and December 31, 1997 (the "Annual Statements") and for the quarters ended March 31, 1998 and June 30, 1998 (the "Quarterly Statements") filed with the Indiana Department of Insurance (the "Department"), copies of which have been delivered to Buyer, (i) fairly present in all material respects their respective statutory financial conditions as of such date and the results of their respective operations for the years then ended in conformity with SAP; (ii) were prepared from the books of account and other financial records of SLIC (USA) and VASA North Atlantic, respectively; (iii) were filed with or submitted to the Department on forms prescribed or permitted by the Department; and (iv) were prepared in accordance with SAP applied on a basis consistent with the past practices of SLIC (USA) and VASA North Atlantic, respectively, and complied on their respective dates of filing or submission in all material respects with the laws of the State of Indiana. The other information contained in the Annual Statements fairly presents in all material respects the information required to be contained therein in conformity with SAP. SECTION 3.9 Absence of Certain Changes. Except as disclosed in Schedule -------------------------- 3.9, during the period from December 31, 1997 to the date hereof, the business of the Companies and their Subsidiaries has been conducted in the ordinary course consistent with past practices (including, without limitation, with regard to underwriting, pricing, actuarial and investment policies generally) and there has not been: (a) any event, occurrence, development or state of circumstances or facts which has had or would reasonably be expected to have a Material Adverse Effect on the Companies, other than those resulting from changes in general economic conditions or changes generally affecting companies engaged in the lines of insurance business in which the Companies and their Subsidiaries engage; (b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of any Company, or any repurchase, redemption or 11 other acquisition by any Company or any Subsidiary of any Company of any outstanding shares of capital stock or other securities of, or other ownership interests in, any Company or any Subsidiary of any Company; (c) any incurrence, assumption or guarantee by any Company or any Subsidiary of any Company of any indebtedness for borrowed money; (d) any transaction or commitment made, or any contract or agreement entered into, by any Company or any Subsidiary of any Company (including the acquisition or disposition of any assets) or any relinquishment by any Company or any Subsidiary of any Company of any contract or other right, other than transactions and commitments in the ordinary course of business consistent with past practices, or any acquisition of assets or incurrence of liabilities by any Company or any Subsidiary of any Company which are not primarily related to the insurance business of the Companies and their Subsidiaries; (e) any change in any method of accounting or accounting practice or policy (including, without limitation, any reserving method, practice or policy) by any Company or any Subsidiary of any Company, except for any such change to conform with SAP or GAAP as a result of a concurrent change in GAAP or SAP; (f) to the extent payable directly or indirectly by any Company or any Subsidiary of any Company, any (i) employment, deferred compensation, severance, retirement or other similar agreement entered into with any director, officer or employee (or any amendment to any such existing agreement), (ii) grant of any severance or termination pay to any director, officer or employee other than in the ordinary course of business, (iii) change in compensation or other benefits payable to any director, officer or employee other than in the ordinary course of business or (iv) loans or advances to any directors, officers or employees, except for ordinary travel and business expenses in the ordinary course of business; (g) any change in any material way by any Company or any Subsidiary of any Company in underwriting practices or standards; (h) any material insurance transaction (other than the transactions contemplated by Section 7.10) by any Company or any Subsidiary of any Company; (i) any significant change by the Company or any Subsidiary of any Company in the compensation structure of, or benefits available to, any significant agent or with respect to agents generally; (j) any lien created or assumed on any of the assets of the Company or any Subsidiary of any Company, which lien relates to liabilities individually or in the aggregate exceeding $100,000; (k) any damage, destruction or loss (whether or not covered by insurance) exceeding $100,000 affecting any of the assets of the Company or any Subsidiary of any Company; 12 (l) any work stoppage, strike, labor difficulty or union organizational campaign (in process or threatened) at or affecting the Company or any Subsidiary of any Company; (m) any sale, transfer or conveyance of any investments or other assets of the Company or any Subsidiary of any Company other than the Brougher Building with an individual book value in excess of $75,000, except in the ordinary course of business and consistent with past practice; (n) any amendment, termination, waiver, disposal or lapse thereof, or other failure to preserve, any material license, permit or other form of authorization of the Company or any Subsidiary of any Company; (o) any expenditure or commitment for additions to property, plant, equipment or other tangible or intangible Assets which exceed $75,000 in the aggregate; and (p) any agreement or commitment (contingent or otherwise) by any Company or any Subsidiary of any Company to do any of the foregoing. SECTION 3.10 No Undisclosed Material Liabilities. There are no ----------------------------------- liabilities of any Company or any Subsidiary of any Company of any kind whatsoever (including any liabilities related to VASA Properties or the Brougher Building), whether accrued, contingent, absolute, determined, determinable or otherwise, other than: (a) liabilities provided for in the Balance Sheets; (b) liabilities disclosed on Schedule 3.10; (c) liabilities incurred since the Balance Sheet Date in the ordinary course of business and in amounts and on terms consistent with past practice; and (d) other undisclosed liabilities that do not have a Material Adverse Effect on the Companies and their Subsidiaries, taken as a whole. SECTION 3.11 Material Contracts. ------------------ (a) Except as disclosed in Schedule 3.11, as of the date hereof neither of the Companies nor any of their Subsidiaries is a party to or bound by: (i) any lease of real property where any of the Companies or their Subsidiaries are tenants (A) providing for annual base rentals of $25,000 or more, (B) expiring after December 31, 1998 or (C) where the Sellers or any of their Affiliates holds an equity interest in such real property; (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets, including any license for Software, that provides for either (A) annual payments by any Company or any Subsidiary of any Company of $25,000 or more or (B) aggregate payments by any Company or any Subsidiary of any Company of $100,000 or more; 13 (iii) any limited partnership, joint venture or other unincorporated business organization or similar arrangement or agreement in which such Company or Subsidiary serves as a general partner or otherwise has unlimited liability, or any other material similar agreement or arrangement); (iv) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (v) any agreement with any unaffiliated third party relating to the indebtedness for borrowed money or any guarantee or similar agreement or arrangement relating thereto; (vi) any license, franchise or similar agreement material to the Companies and their Subsidiaries, taken as a whole; (vii) any agency, dealer, sales representative, marketing or other similar agreement material to the Companies and their Subsidiaries, taken as a whole; (viii) any agreement that restricts or prohibits any Company or any Subsidiary of any Company from competing with any Person in any line of business or from competing in, engaging in or entering into any line of business in any area and which would so restrict or prohibit any Company or any Subsidiary of any Company after the Closing Date; (ix) any reinsurance treaty or any material facultative reinsurance contract (in each case applicable to insurance in force); (x) any significant agreement containing "change in control" or similar provisions relating to change in control of any of the Companies or their Subsidiaries; (xi) any powers of attorney other than those entered into in the ordinary course of business in the surety bond business; (xii) any "stop-loss" agreements, other than those entered into in the ordinary course of business consistent with past practice; (xiii) any agreements (other than insurance policies or other similar agreements issued by any Company or any Subsidiary of any Company in the ordinary course of its business) material to the Companies and their Subsidiaries taken as a whole pursuant to which any Company or any Subsidiary of any Company is obligated to indemnify any other person; (xiv) any agreement with the Sellers or any of their Affiliates; or (xv) any agreement with any broker, reinsurance intermediary, agent, consultant or third-party administrator. (b) The Sellers have heretofore furnished or made available to Buyer complete and correct copies of the contracts, agreements and instruments listed on Schedule 3.11, each as amended or modified to the date hereof (including any waivers with respect thereto) (the 14 "Significant Agreements"). Except as specifically disclosed on Schedule 3.11, and except to the extent not material to the Companies and their Subsidiaries taken as a whole: (i) each of the Significant Agreements is in full force and effect and enforceable in accordance with its terms, subject to (x) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and the rights of creditors of insurance companies generally and (y) general principles of equity (regardless of whether considered in a proceeding at law or in equity); (ii) neither the Sellers, nor any of the Companies nor any of their Subsidiaries has received any notice (written or oral) of cancellation or termination of any of the Significant Agreements; (iii) no Significant Agreement is the subject of, or, to the knowledge of the Sellers, has been threatened to be made the subject of, any arbitration, suit or other legal proceeding; (iv) with respect to any Significant Agreement which by its terms will terminate as of a certain date unless renewed or unless an option to extend such Significant Agreement is exercised, neither the Sellers, nor any of the Companies nor any of their Subsidiaries has received any notice (written or oral), or otherwise has any knowledge, that any such Significant Agreement will not be so renewed or that any such extension option will not be exercised; and (v) there exists no material event of default or occurrence, condition or act on the part of any Company or any Subsidiary of any Company or, to the knowledge of the Sellers on the part of the other parties to the Significant Agreements, which constitutes or would constitute (with notice or lapse of time or both) a material breach of or material default under any of the Significant Agreements. SECTION 3.12 Litigation. Except as disclosed in Schedule 3.12, neither ---------- Company nor any Subsidiary of any Company nor any of their respective properties is subject to any material order, writ, judgment, injunction, decree, determination or award which would prevent or delay the consummation of the transactions contemplated hereby. All pending or, to the knowledge of the Sellers, threatened litigation against any Company or Subsidiary, regardless of damages or relief requested, is set forth on Schedule 3.12. SECTION 3.13 Compliance with Laws. Except as set forth in Schedule -------------------- 3.13, the Companies and their Subsidiaries are and have at all times since January 1, 1993 been in compliance in all respects with all applicable laws, statutes, ordinances, regulations, judgments, decrees and orders of any governmental body, agency or official, whether foreign, Federal, state or local, except for possible noncompliance that would not, individually or in the aggregate, have a Material Adverse Effect on any Company or any Subsidiary. SECTION 3.14 Properties. The Companies and their Subsidiaries have good ---------- title to, or in the case of leased property have valid leasehold interests in, all of their respective property and assets (whether real or personal, tangible or intangible) except for imperfections in title or invalidities in leasehold interests that do not, individually or in the aggregate, materially detract from the value reflected on the Balance Sheets. None of such property or assets is subject to any Liens except: (a) Liens reflected on the Balance Sheets; (b) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Balance Sheets); and 15 (c) Liens which do not, individually or in the aggregate, materially detract from the value reflected on the Balance Sheets or materially interfere with any present or intended use of any material property or assets. SECTION 3.15 Licenses and Permits; Policies: Regulatory Matters. -------------------------------------------------- (a) The Companies and their Subsidiaries hold all licenses, franchises, permits or other similar authorizations (the "Permits") necessary for the ownership and conduct of the respective businesses of the Companies and their Subsidiaries in each of the jurisdictions in which the Companies and their Subsidiaries conduct or operate their respective businesses in the manner now conducted as set forth on Schedule 3.15, and such Permits are in full force and effect except where any failure to hold any Permit or any failure of any Permit to be in full force and effect would not, individually or in the aggregate, materially impair the ability of the Companies and their Subsidiaries, taken as a whole, to conduct their businesses. (b) No material violations exist in respect of any material Permit of the Companies and their Subsidiaries and except as set forth on Schedule 3.15, no proceeding or investigation is pending or, to the knowledge of the Sellers, threatened, that would be reasonably likely to result in the suspension, revocation or material limitation or restriction of any material Permit. Except as set forth on Schedule 3.15, neither of the Companies nor any Company Subsidiary has received notice of any investigation, examination, administrative proceeding, grand jury investigation or other law enforcement or administrative proceeding by any governmental authority involving compliance by the Company or any Company Subsidiary with any law, governmental order or Company Permit, and, to the knowledge of the Company, no such proceeding or investigation is threatened. (c) All insurance policies issued by each Company and each Subsidiary of each Company as now in force are, to the extent required under applicable law, in a form acceptable to applicable regulatory authorities, or have been filed and not objected to by such authorities within the period provided for objection. (d) Each Company and each Subsidiary of each Company has filed all material reports, statements, documents, registrations, filings or submissions required to be filed by such Company or Subsidiary with any applicable Federal, state or local regulatory authorities, including, without limitation, state insurance regulatory authorities. All such reports, statements, documents, registrations, filings and submissions complied in all material respects with applicable law in effect when filed and no material deficiencies have been asserted by any such regulatory authority with respect to such reports, statements, documents, registrations, filings or submissions that have not been satisfied. Such reports, statements, documents, registrations, filings or submissions were in material compliance with applicable law when filed. Since January 1, 1993, except as disclosed in Schedule 3.15, neither the Companies nor any Company Subsidiary has submitted any written response with respect to material comments from any governmental insurance authority concerning such reports, statements, documents, filings, registrations, submissions or reports and no fine or penalty in excess of $2,500 has been imposed on the Companies or any Company Subsidiary by any governmental agency. 16 (e) Except as set forth on Schedule 3.15, all premium rates, rating plans and policy forms established or used by any Company or any Subsidiary of any Company that are required to be filed with or approved by insurance regulatory authorities have been so filed or approved, the premiums charged and policy forms used conform in all material respects to the premiums, rating plans and policy forms so filed or approved and comply in all material respects with the insurance laws applicable thereto and, to the Sellers' knowledge, no such premiums are subject to any review or investigation by any insurance regulatory authority. (f) Except as set forth on Schedule 3.15, to the knowledge of the Sellers, each appointed agent and broker was, at the time of appointment or reappointment with either of the Insurance Companies or any other insurance company for which VBI acts as an underwriter, properly licensed by appropriate regulatory authorities to represent the relevant insurance company. SECTION 3.16 ERISA Representations. --------------------- (a) Schedule 3.16(a) identifies each Employee Plan. The Sellers have furnished or made available to Buyer current copies of the Employee Plans, summary plan descriptions, and, if applicable, related trust agreements, and all amendments thereto together with (i) the most recent annual report prepared in connection with any Employee Plan (Form 5500 including, if applicable, Schedule B thereto) and (ii) the most recent actuarial valuation report prepared in connection with any Employee Plan. (b) All contributions required to be made and all contributions accrued as of the Balance Sheet Date under the terms of any Employee Plan or Benefit Arrangement for which the Companies or any of their Subsidiaries or ERISA Affiliates may have liability have been timely made or have been reflected on the appropriate financial statements. There is no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the Code, with respect to any Employee Plan that is a pension plan subject to Part 3 of Title I of ERISA. The Companies have not incurred, nor reasonably expect to incur prior to the Closing Date (other than a liability for premiums under Section 4007 of ERISA), any liability under Title IV of ERISA that will not be satisfied in full as of the Closing Date. (c) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service. No circumstance has occurred that may result in loss of such qualification or is likely to result in a revocation of any such favorable determination letter. No Employee Plan is a Multiemployer Plan or a multiple employer plan (within the meaning of Section 413(c) of the Code). Each Employee Plan that is not a Multiemployer Plan has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code. (d) Schedule 3.16(d)(i) identifies each Benefit Arrangement. The Sellers have furnished or made available to Buyer current copies or descriptions of each Benefit Arrangement. Each Benefit Arrangement has been maintained in compliance in all material respects with its 17 terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations. (e) Each Employee Plan that is a "group health plan" (as defined in Section 4980B of the Code) has, to the knowledge of the Sellers, been operated in substantial compliance with Section 4980B of the Code at all times. (f) Neither the Companies nor any of their Subsidiaries have any obligations for retiree or former employee health or life benefits under any Employee Plan or Benefit Arrangement except as set forth on Schedule 3.16 or as provided under Section 601 et seq. of ERISA and Section 4980B of the Code. (g) Except as provided for in Section 6.3 of this Agreement or as set forth in Schedule 3.16, the execution and delivery of this Agreement do not, and the performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any of the Companies' Employee Plans or Benefit Arrangements that will or may result in any payment (whether of severance or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee of the Companies or any of their Subsidiaries or ERISA Affiliates. (h) There is no contract, agreement, plan or arrangement covering any employee or former employee of the Companies or any of their Subsidiaries or ERISA Affiliates that, individually or collectively, could give rise as a result of the transactions contemplated by this Agreement to the payment of any amount that would not be deductible pursuant to the terms of Section 162(a)(1) or 280G of the Code. (i) There has been no amendment to, written interpretation or announcement (whether or not written) by the Companies or any of their Subsidiaries or ERISA Affiliates relating to, or change in employee participation or coverage under, any of the Companies' Employee Plans or Benefit Arrangements which would increase the expense of or for such Employee Plans or Benefit Arrangements to the Companies or any of their Subsidiaries materially above the level of the expense incurred in respect thereof for the fiscal quarter ended on the Balance Sheet Date. (j) With respect to a plan or arrangement that is neither a Benefit Arrangement or an Employee Plan on or after the date of this Agreement but was a Benefit Arrangement or an Employee Plan on any prior date, no circumstance has occurred or exists for which Buyer or the Companies or any of their Subsidiaries reasonably may be anticipated to have any liability. (k) Neither any of the Companies nor any of their Subsidiaries or ERISA Affiliates is subject to any agreement pursuant to which Buyer or the Companies or any of their Subsidiaries may be required to indemnify any other party in connection with a liability arising in connection with a Benefit Arrangement or an Employee Plan. 18 SECTION 3.17 Environmental Compliance. Except as set forth in Schedule ------------------------- 3.17 or as would not individually or in the aggregate have a Material Adverse Effect, (a) the Companies and their Subsidiaries are each in compliance, and have at all times been in compliance, with all applicable Environmental Laws; (b) the Companies and their Subsidiaries have all Permits required under any applicable Environmental Laws and are in compliance with their respective requirements; (c) there are no pending or, to the knowledge of Sellers, threatened claims under Environmental Laws against any of the Companies or any of their Subsidiaries; (d) under applicable law, there are no circumstances with respect to any property or operations, or any former properties or former operations, of any of the Companies or their Subsidiaries, or any site where any Hazardous Substances may have been disposed of or released by or on behalf of any of the Companies or any Subsidiary, that are reasonably likely to form the basis of a claim under Environmental Laws against any of the Companies or their Subsidiaries; (e) neither the Companies nor their Subsidiaries have exposed any employee or third party to any Hazardous Substances which has subjected or may subject the Companies or their Subsidiaries to liability under any Environmental Laws; (f) no underground storage tanks or asbestos-containing material have ever been located on properties currently or formerly owned or operated by the Companies or their Subsidiaries; and (g) the Companies and their Subsidiaries have delivered to Buyer copies of all environmental assessments, audits, studies, and other environmental reports in its possession or reasonably available to it relating to the Companies or the Subsidiaries or any of their current or former properties or operations. "Environmental Laws" means any and all foreign, Federal, state or local statutes, laws, regulations, ordinances, rules codes, common law, and all judicial, administrative, and regulatory orders, judgments, decrees, permits, and authorizations relating to the environment, to the effect of the environment on human health or safety or to the use, generation, manufacturing, treatment, disposal, storage, discharge or release of Hazardous Substances into the environment, including without limitation, ambient air, surface water, around water or land, or the remediation thereof. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum and its derivatives and by- products, or any substance having any constituent elements displaying any of the foregoing characteristics, regulated under Environmental Laws. SECTION 3.18 Intellectual Property; Software. ------------------------------- (a) The Companies and their Subsidiaries own or otherwise have rights to use (in each case, free and clear of any material Liens or other material limitations or restrictions) all Intellectual Property used in their respective businesses as currently conducted, and, except as provided in Section 7.4, the consummation of the transactions contemplated hereby will not result in the loss of any such rights (or require the payment of any additional fees or royalties in order to maintain such rights); the use of any Intellectual Property by the Companies and their Subsidiaries does not infringe on or otherwise violate the rights of any Person; and to the Sellers' knowledge no person is challenging, infringing on or otherwise violating any right of any Company or any Subsidiary of any Company with respect to any Intellectual Property owned by and/or licensed to the Companies and their Subsidiaries. For purposes of this Agreement "Intellectual Property" shall mean trademarks, service marks, brand names, certification marks, trade dress, assumed names, trade names and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration 19 or application; inventions, discoveries and ideas, whether patentable or not in any jurisdiction; patents, applications for patents (including, without limitation, divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person; writings and other works, whether copyrightable or not in any jurisdiction; registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights, but shall not include Software. For purposes of this Agreement, "Software" shall mean all computer and telecommunication software including source and object code and documentation and any other media (including, without limitation, manuals, journals and reference books). (b) Except as set forth in Schedule 3.18, the Companies and their Subsidiaries own, or have valid and enforceable licenses or other rights to use (in each case, free and clear of any material Liens or other material limitations or restrictions), all Software used in the conduct of their respective businesses as currently conducted; the use of the Software by the Companies and their Subsidiaries does not infringe on or otherwise violate the rights of any person; and to the Sellers' knowledge no person is challenging, infringing on or otherwise violating any right of any Company or any Subsidiary of any Company with respect to any Software used by the Companies and their Subsidiaries. (c) Except as set forth in Schedule 3.18, the information technology systems of the Companies and their Subsidiaries, including without limitation, their client/server networks, are in good operating condition, with adequate capacity suitable for the conduct of the business as presently conducted and as contemplated for 1998 and 1999. Except as set forth in Schedule 3.18, there are no planned upgrades to or investments in such information technology systems during 1998 or 1999. (d) Attached as Schedule 3.18, is the plan of the Companies and their Subsidiaries designed to ensure that all date-related output, calculations or results before, during or after the calendar year 2000 that are produced or used by any hardware, software, firmware or facilities systems ("Computer Systems") owned or used by either Company or any Subsidiary are Year 2000 Compliant (the "Year 2000 Plan"). For purposes of this section, "Year 2000 Compliant" means: (i) all dates receivable by the Computer Systems, as well as calculations, output and results will (A) include a consistent-length century indicator of at least two base ten digits, and (B) have date elements in interfaces and data storage that will permit specifying the century to eliminate date ambiguity; (ii) when any date data is represented without a century, either in an interface or in data storage, the correct century will be unambiguous for all manipulations involving that data; 20 (iii) data calculations involving either a single century or multiple centuries will neither (A) cause an abnormal ending or operation nor (B) generate incorrect results or results inconsistent with output or results from any other century; (iv) when sorting by date, all records will be sorted in accurate chronological sequence; and when the date is used as a key, records will be read and written in accurate chronological sequence; and (v) leap years will be determined by the following standard: (A) if dividing the year by 4 yields an integer, it is a leap year, except for years ending in 00, but (B) a year ending in 00 is a leap year if dividing it by 400 yields an integer. (e) To the knowledge of Sellers, the Year 2000 Plan, if executed in accordance with the time schedules set forth therein, will result in the Computer Systems being Year 2000 Compliant by December 31, 1998. Except as disclosed therein in Schedule 3.18, the Year 2000 Plan has been implemented in accordance with such time schedules. (f) Neither Eureko nor the Sellers make any representation as to whether any hardware, software, firmware of facilities systems used but not owned by either Company or any Subsidiary are Year 2000 Compliant. SECTION 3.19 Labor Matters. Neither Company nor any Subsidiary of any ------------- Company is a party to any collective bargaining or other labor union contract and no collective bargaining agreement is being negotiated by any Company or any Subsidiary of any Company. Except as set forth in Schedule 3.19, neither Seller has any knowledge of any material activities or proceedings of any labor union to organize any employees of any Company or any Subsidiary of any Company. There is no material labor dispute, strike or work stoppage against any Company or any Subsidiary of any Company pending or, to the Sellers' knowledge, threatened that would have a Material Adverse Effect on the respective business activities of the Companies or any of their Subsidiaries. SECTION 3.20 Reserves. The reserves of SLIC (USA) and VASA North -------- Atlantic are determined in accordance with generally accepted actuarial standards, are fairly stated in accordance with sound actuarial principles, are based on actuarial assumptions approved by the respective appointed actuaries, are reasonable provisions for the unpaid claims obligations under the Companies' insurance policies, and in all material respects meet the requirements of applicable insurance statutes, laws and regulations. The reserves of the Insurance Companies as of December 31, 1997, were examined but not certified by an independent actuary and the reports of such actuary related to such examinations have been made available to Buyer. SECTION 3.21 Investments. Schedule 3.21 describes in reasonable detail ----------- all Company Investment Assets as of the Balance Sheet Date. For purposes of this Agreement, "Company Investment Assets" means any investment assets (whether or not required by GAAP or SAP to be reflected on a balance sheet) beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by any Company or any Subsidiary of any Company, including, without limitation, bonds, notes, debentures, mortgage loans, collateral 21 loans and all other instruments of indebtedness, stocks, partnership or joint venture interests and all other equity interests, certificates issued by or interests in trusts, derivatives and all other assets acquired for investment purposes. SECTION 3.22 No Other Representations. Buyer acknowledges that Eureko ------------------------ and the Sellers make no representations or warranties with respect to (i) any financial projection or forecast relating to the Companies or (ii) any other information provided to Buyer or its representatives, except to the extent set forth as representations and warranties in this Article 3 and the Schedules. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to each of the Sellers and Eureko as of the date hereof and as of the Closing Date (but as of no other dates unless expressly so stated) that: SECTION 4.1 Corporate Existence and Power. Buyer has been duly ----------------------------- incorporated and is validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Buyer has heretofore delivered to the Sellers true and complete copies of its certificate of incorporation and bylaws as in effect on the date hereof. SECTION 4.2 Corporate Authorization. The execution, delivery and, ----------------------- subject to the receipt of the approvals referred to in Section 4.3, performance by Buyer of this Agreement are within the corporate power of Buyer and have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement constitutes a valid and legally binding agreement of Buyer, enforceable against Buyer in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and the rights of creditors of insurance companies generally and (ii) general principles of equity (regardless of whether considered in a proceeding at law or in equity). SECTION 4.3 Governmental Authorization. The execution, delivery and -------------------------- performance by Buyer of this Agreement require no action by or in respect of, or filing with, any governmental body, agency or official on the part of Buyer other than (i) compliance with any applicable requirements of the HSR Act, (ii) approvals or filings under the insurance laws of the jurisdictions set forth in Schedule 4.3, (iii) filings and notices not required to be made or given until after the Closing Date, (iv) filings, at any time, of tax returns, tax reports and tax information statements and (v) any such action or filing as to which the failure to make or obtain would not individually or in the aggregate have a Material Adverse Effect on Buyer. SECTION 4.4 Non-Contravention. Except as set forth in Schedule 4.4, ----------------- the execution, delivery and performance by Buyer of this Agreement do not and will not (i) violate the certificate of incorporation or bylaws of Buyer, (ii) assuming compliance with the matters referred to in Section 4.3, violate any applicable law, rule, regulation, judgment, injunction, order or decree, (iii) require any consent or other action by any Person under, constitute a default 22 under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of Buyer or any of its Subsidiaries or to a loss of any benefit to which Buyer or any of its Subsidiaries is entitled under, any material agreement or other instrument binding upon Buyer or any material license, franchise, permit or other similar authorization held by Buyer or (iv) result in the creation or imposition of any material Lien on any asset of Buyer. SECTION 4.5 Financing. Buyer has, or will have prior to the Closing, --------- sufficient cash, available lines of credit or other sources of immediately available funds to enable it to make payment of the Purchase Price and any other amounts to be paid by it hereunder. SECTION 4.6 Purchase for Investment. Buyer is purchasing the Shares for ----------------------- investment for its own account and not with a view to, or for sale in connection with, any distribution thereof. Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investments in the Shares and is capable of bearing the economic risks of such investment. ARTICLE 5 COVENANTS OF THE SELLERS AND EUREKO ----------------------------------- Each of the Sellers and Eureko agrees that (it being understood that each Seller and Eureko makes only such covenants as may be performed by it or its Subsidiaries): SECTION 5.1 Conduct of the Companies. Except as otherwise expressly ------------------------ provided in this Agreement, during the period from the date hereof to the Closing, the Sellers will cause the Companies and their Subsidiaries to conduct their operations according to their ordinary course of business consistent with past practices, will cause the Companies and their Subsidiaries to use their reasonable best efforts to preserve intact their respective business organizations, generally to keep available the services of their respective officers and employees and generally to maintain existing relationships with agents, licensors, licensees, suppliers, contractors, distributors, customers and others having business relationships with them, and will cause the Companies and their Subsidiaries, to the extent permitted by applicable law, to confer with Buyer on significant operational matters and material decisions affecting the business of the Companies and their Subsidiaries. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement or as set forth in Schedule 5.1, the Sellers will cause each of the Companies and each Subsidiary of any Company not to, without the prior written consent of Buyer: (a) amend its certificate of incorporation or by-laws; (b) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities or equity equivalents (including, without limitation, stock appreciation rights), or amend any of the terms of any such securities or agreements outstanding as of the date hereof; 23 (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock, or property or any combination thereof) in respect of its capital stock, or redeem, repurchase or otherwise acquire any of its securities; (d) (i) incur any indebtedness for borrowed money or issue any debt securities or, assume, guarantee or endorse the obligations of any other Person; (ii) make any loans, advances or capital contributions to, or investments in, any other Person (other than (A) to wholly owned Subsidiaries of the Companies, (B) investments in the ordinary course of business consistent with past practice, or (C) pursuant to the terms of the agreements listed in Schedule 3.11), in excess of $100,000; (iii) pledge or otherwise encumber shares of its capital stock; (iv) enter into or invest in any derivative financial instruments except in the ordinary course of business consistent with current investment and risk management policies; or (v) mortgage or pledge any of its assets, tangible or intangible, or create or suffer to exist any Lien thereupon; (e) to the extent payable directly or indirectly by any Company or any Subsidiary of any Company, enter into, adopt or (except as may be required by law or the terms of any such arrangement) terminate any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase agreement, pension, retirement, deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer or employee, amend any such arrangement as it relates to such directors, officers or employees or (except for increases in base compensation in the ordinary course of business consistent with past practice) increase in any manner the compensation or benefits of any director, officer or employee or, with respect to any director or officer, pay any benefit not required by any plan or arrangement as in effect as of the date hereof or, with respect to any employee who is not an officer or director, pay any benefit other than in the ordinary course of business consistent with past practice in accordance with plans or arrangements in effect as of the date hereof (including, without limitation, with respect to any such director, officer or employee, the granting of stock options, restricted stock, stock appreciation rights or performance units); provided that Buyer agrees it will not unreasonably withhold its consent, if requested by the Sellers, to transactions proposed under this paragraph (e); (f) acquire, sell, lease or dispose of any assets outside the ordinary course of business or, whether or not in the ordinary course of business, any assets which in the aggregate exceed $25,000 or are material to the Companies and their Subsidiaries, taken as a whole, or enter into any contract, agreement, commitment or transaction with respect thereto outside the ordinary course of business consistent with past practice, except the transactions contemplated by Section 7.10, the sale of the Brougher Building and any transaction or series of transactions effectuated in order to satisfy the condition set forth in Section 9.2(b) hereof; (g) change any of the accounting principles, practices, methods or policies (including, without limitation, any reserving methods, practices or policies) used by it, except as may be required as a result of a change in law, GAAP or SAP; 24 (h) change the method of determining the GAAP reserves for any guaranty fund assessment, second injury fund assessment, special insurance assessment or similar assessment or tax; (i) (i) acquire (by merger, consolidation, or acquisition of stock or assets, but excluding foreclosure) any corporation, partnership or other business organization or division thereof; (ii) authorize any new capital expenditure or expenditures which, individually, is in excess of $25,000 or, in the aggregate, are in excess of $100,000; (iii) settle any litigation for amounts more than $200,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement with respect to any of the foregoing; (j) make any Tax election or settle or compromise any Tax liability, other than in the ordinary course of business or enter into any tax sharing agreements or arrangements with any party; (k) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than (i) the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in the consolidated financial statements (or the notes thereto) of the Companies and their Subsidiaries or incurred in the ordinary course of business consistent with past practice and (ii) the payment of any debt owed by either Company or any Subsidiary thereof to either Company or any Subsidiary thereof; (1) terminate, or in any manner material thereto modify, amend or waive compliance with, any provision of any of the Significant Agreements; (m) change its underwriting standards or practices in any material way; (n) effect any material or unusual insurance transaction other than the transactions contemplated by Section 7.10; (o) significantly change the compensation structure of, or other benefits available to, any of its significant agents or to its agents generally; (p) effect any transactions with the Sellers or any of their Affiliates, other than pursuant to arrangements existing as of the date hereof; (q) enter into any "stop-loss" agreement, other than those entered into in the ordinary course of business consistent with past practice, facultative reinsurance contract or reinsurance treaty, other than the transactions contemplated by Section 7.10; (r) enter into any agency, dealer, sales representative, marketing or other similar agreement material to the Companies and their Subsidiaries, taken as a whole; (s) make an investment in any Company Investment Assets other than in accordance with the Companies' and their Subsidiaries' current investment policies; or 25 (t) take, or agree in writing or otherwise to take, any of the actions described above in this Section 5.1. SECTION 5.2 Access to Information. From the date hereof until the --------------------- Closing Date, subject to any applicable contractual restrictions and applicable legal privileges, and to the extent applicable law would not thereby be violated, the Sellers will (i) give, and will cause the Companies and their Subsidiaries to give, Buyer, its counsel, financial advisors, auditors and other authorized representatives full access, upon reasonable prior notice and during normal business hours, to the offices, properties, books and records of the Companies and each of their Subsidiaries and to the books and records of the Sellers relating to the Companies and their Subsidiaries, (ii) furnish, and will cause the Companies and their Subsidiaries to furnish, to Buyer, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information relating to the Companies or any of their Subsidiaries as such Persons may reasonably request and (iii) instruct the employees, counsel and financial advisors of the Sellers or the Companies or any of their Subsidiaries to cooperate with Buyer in its investigation of the Companies or any of their Subsidiaries; provided that this Section 5.2 shall not obligate the Sellers to provide or make available to Buyer any employee medical records; provided, further, that to the extent contractual restrictions limit the Sellers' ability to take any of the actions set forth in this Section 5.2, the Sellers shall use its best efforts to obtain any necessary contractual consent or accommodate any reasonable request by Buyer with respect to such action by alternative means and provided, further, that to the extent applicable legal privileges or applicable laws limit the Sellers' ability to take any of the actions set forth in this Section 5.2, the Sellers shall use their best efforts to accommodate any reasonable request by Buyer with respect to such action by alternative means. SECTION 5.3 Notices of Certain Events. The Sellers shall promptly notify ------------------------- Buyer of: (a) any notice or other communication received by the Sellers from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication received by the Sellers or the Companies or any Subsidiary of either Company relating to the transactions contemplated by this Agreement and any other significant notices or other communications from any governmental or regulatory agency or authority other than reports or communications regarding consumer complaints received in the ordinary course of business; (c) any actions, suits, claims, investigations or proceedings commenced or, to the Sellers' knowledge threatened against, relating to or involving or otherwise affecting the Sellers, the Companies or any Subsidiaries of any of the Companies that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.12 or that relate to the consummation of the transactions contemplated by this Agreement; and (d) any notice or other communications received by Sellers or the Companies or any Subsidiary of either Company relative to (i) a reduction or threatened reduction to the AM Best 26 rating of either Insurance Company or (ii) a disavowal or threatened disavowal by any reinsurer of coverage under any reinsurance contract. SECTION 5.4 Resignations. The Sellers will deliver to Buyer the ------------ resignations of all directors of the Companies and each Subsidiary of any of the Companies at or prior to the Closing Date. SECTION 5.5 No Solicitation. The Sellers will immediately cease any --------------- existing discussions or negotiations with any third parties conducted prior to the date hereof with respect to any Acquisition Proposal (as defined below). The Sellers shall not, directly or indirectly, through any officer, director, employee, representative or agent or any of the Sellers, any of the Companies or any of their Subsidiaries, (i) solicit, initiate, or encourage any inquiries or proposals that constitute, or would lead to, a proposal or offer for a merger, consolidation, business combination, sale of substantial assets, sale of a substantial percentage of shares of capital stock or similar transactions involving any of the Companies or their Subsidiaries, other than the transactions contemplated by this Agreement (any of the foregoing inquiries or proposals being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or discussions concerning, or provide any nonpublic information to any person or entity relating to, any Acquisition Proposal or (iii) agree to or approve any Acquisition Proposal. The Sellers shall notify Buyer promptly after receipt by the Sellers of any Acquisition Proposal or any request for nonpublic information in connection with an Acquisition Proposal or for access to the properties, books or records of the Companies or any of their Subsidiaries by any person or entity that informs the Sellers that it is considering making, or has made, an Acquisition Proposal. Such notice shall be made orally (and confirmed in writing) and shall indicate the identity of the offeror and the terms and conditions of such proposal, inquiry or contract. SECTION 5.6 Certain Other Transactions. Prior to the Closing Date, -------------------------- Eureko shall cause the ownership of VASA Properties to be transferred or shall cause VASA Properties to be liquidated and all of its liabilities and obligations assigned to an Affiliate of Eureko; in either case with the result that neither any Company nor Subsidiary thereof has an ownership or other economic interest in VASA Properties or in the Brougher Building, or any liability or obligation with respect thereto. Prior to the Closing Date, Sellers shall have caused Lessee's interest in the lease between Thomas Pollard and VBI, as amended through First Amendment to Lease dated June 22, 1998 for residential property at 14403 Misty Pine, Carmel, Indiana to have been transferred or terminated in either case with the result that neither any Company nor Subsidiary thereof has an economic or other interest or obligation for the lease of said property. SECTION 5.7 Use of Computer Software. ------------------------ (a) With respect to all Software that is not owned by either of the Companies or any of their respective Subsidiaries but which is presently used in the operation of the business of any of the Companies or their Subsidiaries, the Sellers shall use their best efforts, prior to Closing, to transfer or procure from the necessary third parties an enforceable license with terms and conditions of like tenor to those that are currently in force. Except as specified on Schedule 5.7, Buyer shall incur all costs and expenses in excess of ongoing royalty obligations incurred in 27 connection with the transfer or license to the Companies and their Subsidiaries of all such Software, including, but not limited to, payment of any transfer or license fees or similar costs. (b) From the date hereof and prior to the Closing, the Sellers agree that, to the extent they develop, acquire or license any Software that is used in the operation of the business of the Companies and their Subsidiaries, any such Software owned exclusively by the Sellers shall be licensed to the Companies and their Subsidiaries prior to the Closing on terms and conditions mutually acceptable to Sellers and Buyer, and any such Software not owned exclusively by the Sellers shall be licensed directly by one or more of the Companies and their Subsidiaries. SECTION 5.8 Testing and Remediation of Computer Systems. During the ------------------------------------------- period commencing on the date hereof and ending on the Closing Date, Eureko shall cause VBI to continue to devote three full-time employees to testing and, if necessary, remediation of the Computer Systems owned or used by either Company or their Subsidiaries in connection with VBI's efforts to ensure that such Computer Systems become Year 2000 Compliant. Such employees shall remain under the direct supervision and control of VBI, but Eureko shall cause VBI to implement any recommendation made by Buyer with respect to the sequencing and timing of the testing, remediation and assessment of such Computer Systems. In addition, Eureko shall cause the Companies and their Subsidiaries to take commercially reasonable steps to assess whether the Computer Systems of third parties who perform insurance management, administrative or other services for any Company or its Subsidiaries with respect to the ILA Business, the Fully Insured Business, the Medicare Supplement Business or the Run-off PC Business are Year 2000 Compliant and, if not, the extent of non-compliance. Eureko shall cause the Companies and their Subsidiaries to use their commercially reasonable efforts to require that the aforementioned third parties with non-compliant Computer Systems cause their Computer Systems to become Year 2000 Compliant. SECTION 5.9 Filing of Policy. During the period prior to the Closing ---------------- Date, the Insurance Companies shall, at Buyer's request, file a provider excess policy, and rates filings related thereto, with the departments of insurance for the states in which the Insurance Companies are licensed. In the event that the transactions contemplated by this Agreement do not occur, at the Buyer's request, the Insurance Companies shall withdraw any policy or rates filings that had previously been made in accordance with this Section 5.9. ARTICLE 6 COVENANTS OF BUYER ------------------ Buyer agrees that: SECTION 6.1 Employees. With respect to each employee of the Companies --------- or any Subsidiary who, as of the Closing Date, is employed by any of the Companies or any of their Subsidiaries (including any such employee absent as of such date from active service for any reason, including but not limited to disability or leave of absence but excluding any terminated employee or part- time or contract employee whether or not receiving severance) ("Transferred Employees"), Buyer shall have no obligation to continue to employ such Transferred Employee as of the Closing Date and shall be entitled to terminate any employee of the Companies or any 28 Subsidiary notwithstanding that such termination will trigger severance or termination payments. Buyer shall have no obligation following the Closing to retain the employment policies, practices and procedures of the Companies and their Subsidiaries, and may require that all Transferred Employees remaining in the employ of Buyer or the Companies and their Subsidiaries serve pursuant to Buyer's employment policies, practices and procedures. SECTION 6.2 Employee Plans and Benefit Arrangements. Buyer shall have --------------------------------------- no obligation to maintain or continue to maintain any or all Employee Plans and Benefit Arrangements covering Transferred Employees or be responsible for any liability to provide benefits under such Employee Plans or Benefit Arrangements that exist on the Closing Date. SECTION 6.3 Severance Arrangements. Not later than September 15, 1998, ---------------------- Buyer shall deliver to Sellers a list of employees of any of the Companies or their Subsidiaries that Buyer does not intend to retain following the Closing and Sellers shall cause the Companies and the relevant Subsidiaries to terminate the employment of all such employees prior to or concurrent with the Closing. Except as noted below and in Section 10.2(b), Eureko shall be responsible and assume all liability for all salary and benefit continuation and/or severance payments (as identified in Schedule 6.3 hereto, "Termination Payments") relating to any such employee that may be payable as a result of any termination of employment of any such employee or the transactions contemplated by this Agreement (including without limitations, the arrangements described in Schedule 3.9(f)), in accordance with the policies, practices and procedures of the Companies regarding such matters as in effect on the date of Closing, and for all notices, payments, fines or assessments due to any government authority pursuant to any applicable statutes, orders, rules or regulations, including but not limited to ERISA and the Worker Adjustment and Retraining Notification Act. Notwithstanding the above, any group health plan coverage to which a Transferred Employee or any employee described in the first sentence of this Section 6.3 may become entitled pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or the terms of any arrangement or agreement to provide Termination Payments shall be provided under plans maintained by Buyer or the Companies or their Subsidiaries. To the extent that any such coverage is provided to any such employee at a cost to the employee that is less than the cost that could be charged under Section 4980B(f)(2)(C)(i) of the Code such difference shall be deemed to be a Termination Payment. Eureko shall only be required to make Termination Payments with respect to up to 100 persons employed by the Companies or any of their Subsidiaries as of the date hereof (including those subject to arrangements described in Schedule 3.9(f)). In the event that fewer than 100 persons are terminated prior to the Closing, and Buyer terminates the employment of any Transferred Employee not later than the second anniversary of the Closing Date, Eureko shall reimburse Buyer within thirty (30) days of demand therefore for all Termination Payments made with respect to such terminated employee. In no event shall (i) Eureko be obligated to make Termination Payments with respect to more than 100 employees (including those subject to arrangements described in Schedule 3.9(f)); or (ii) the amount of Termination Payments payable with respect to any person exceed the amount identified in Schedule 6.3 or in the relevant arrangement described in Schedule 3.9(f)). Eureko shall not establish a liability for the Termination Payments on the books of the Companies or their Subsidiaries except for the Insurance Companies. 29 SECTION 6.4 Repayment of Loan. On the Closing Date, Buyer shall pay all ----------------- outstanding principal and accrued interest under the ABN AMRO Note, plus any indemnification payment required thereunder as a result of prepayment on a day prior to the last "Business Day" of any "Interest Period" (as such terms are defined in the ABN AMRO Note), and provide to Eureko copies of all documentation with respect to such repayment, all such payments referred to collectively as the "Payoff Amount." ARTICLE 7 COVENANTS OF BUYER, EUREKO AND THE SELLERS ------------------------------------------ Buyer and the Sellers agree that (it being understood that each Seller and Eureko makes only such covenants as may be performed by it or its Subsidiaries): SECTION 7.1 Reasonable Efforts. Subject to the terms and conditions of ------------------ this Agreement, Buyer and each Seller will use their reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Buyer and each Seller will promptly, and in any event within thirty (30) days of the date hereof, prepare and file all applications, notices, consents and other documents necessary or advisable to obtain the regulatory approvals specified in Schedule 4.3 and Schedule 3.3, respectively, promptly file all supplements or amendments thereto and use reasonable efforts to obtain the regulatory approvals specified in Schedule 4.3 and Schedule 3.3 as promptly as practicable. Buyer and each Seller will provide each other and their counsel the opportunity to review in advance and comment on all such filings. Buyer and each Seller will keep each other informed of the status of matters relating to obtaining the regulatory approvals specified in Schedule 4.3 and Schedule 3.3. The Sellers and Buyer agree, and the Sellers, prior to the Closing, and Buyer, after the Closing, agree to cause the Companies and each Subsidiary of any of the Companies to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement. SECTION 7.2 Certain Filings. The Sellers and Buyer shall cooperate with --------------- one another (i) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any contracts, in connection with the consummation of the transactions contemplated by this Agreement and (ii) in taking such reasonable actions or making any such filings, furnishing information required in connection therewith and reasonably seeking to obtain in a timely fashion any such actions, consents, approvals or waivers. SECTION 7.3 Public Announcements. The parties agree to consult with -------------------- each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except as may be required by applicable law, will not issue any such press release or make any such public statement prior to such consultation. 30 SECTION 7.4 Trademarks; Trade Names. ----------------------- (a) Prior to the Closing Date, SLIC and SLIC (USA) shall enter into the license agreement attached hereto as Exhibit B (the "License Agreement") with --------- respect to use of "Seaboard." (b) After the Closing, Buyer will not, and will not permit the Companies or any of their Subsidiaries to, use any of the Sellers' other logos, marks or names not specifically licensed or assigned by the License Agreement giving effect to any updates to the schedules thereto as provided therein. (c) On or before the expiration of the term of the License Agreement, Buyer will cause SLIC (USA) to file with the applicable governmental body, agency or official amendments to the Companies' or such Subsidiaries' articles or certificate of incorporation to delete from its name the word "Seaboard Life" and any marks and names derived therefrom and shall do or cause to be done all other acts, including the payment of any fees required in connection therewith, to cause each such amendment to become effective. (d) The Sellers agree to cooperate with Buyer in connection with all regulatory matters relating to the License Agreement. (e) After the Closing, Buyer will cause the Companies and their Subsidiaries to use the marks and names licensed to them pursuant to the License Agreement only in connection with one or more of Buyer's existing names or marks. (f) Notwithstanding any provision in this Agreement or the License Agreement to the contrary, following the Closing, the Companies and their Subsidiaries may continue to use signs, labels, containers, stationery, forms (including policy forms) and other printed material or matter which are included as of the Closing in the assets or inventory of any Company or any Subsidiary of any Company; provided that Buyer shall (i) use its reasonable efforts to deplete the supply of such materials (excluding signs) containing or bearing the trademarks, trade names and service marks listed on a schedule to the License Agreement as soon as practicable in the ordinary course of business, but in no event later than two years after the Closing Date and (ii) as promptly as practicable following the Closing, remove any such signs which contain or bear any of the trademarks, trade names and service marks listed on a schedule to the License Agreement. (g) Buyer shall retain all rights held by the Companies or any Subsidiaries to the names "VASA," "Brougher" and to logos and marks associated therewith, as set forth on Schedule 7.4. SECTION 7.5 Intercompany Accounts. --------------------- (a) All intercompany accounts between either Seller or any Affiliate of either Seller (other than either Company or any Subsidiary of either Company), on the one hand, and either Company or any Subsidiary of either Company, on the other hand, as of the Closing shall be settled (irrespective of the terms of payment of such intercompany accounts) in the manner provided in this Section 7.5. At least five (5) business days prior to the Closing, the Sellers shall 31 prepare and deliver to Buyer a statement setting out in reasonable detail the calculation of all such intercompany account balances based upon the latest available financial information as of such date and, to the extent requested by Buyer, provide Buyer with supporting documentation to verify the underlying intercompany charges and transactions. All such intercompany account balances shall be paid in full in cash prior to the Closing. (b) As promptly as practicable, but no later than thirty (30) days after the Closing Date, the Sellers will cause to be prepared and delivered to Buyer a statement setting out in reasonable detail the calculation of such intercompany account balances as of the Closing Date (giving effect to any settlement under subsection (a) and any other payments in respect thereof). Buyer and the Sellers shall cooperate in the preparation of any such calculation including the provision of supporting documentation to verify the underlying intercompany charges, transaction and payments. If Buyer disagrees with the Sellers' calculation of such intercompany balances, Buyer may, within thirty (30) days after delivery of such statement, deliver a notice to the Sellers disagreeing with such calculation and setting forth Buyer's calculation of such amount. If Buyer and the Sellers are unable to resolve such disagreement within thirty (30) days thereafter, such disagreement shall be resolved by the Third Party Accountant. The net amount of any such intercompany balance shall be paid in cash promptly thereafter, together with interest thereon from and including the Closing Date to but excluding the date of payment at the Three-Month Treasury Bill Rate as of the date of delivery of Sellers' notice as required by this Section 7.5(b). SECTION 7.6 Non-Solicitation of Employees; Non-Competition. ---------------------------------------------- (a) For a period commencing on the date hereof through the third anniversary of the Closing Date, (i) except as set forth on Schedule 7.6, neither the Sellers nor any of their Affiliates shall affirmatively seek to hire any officer or key employee of the Companies or any Subsidiary or Buyer or Buyer's Subsidiaries whose annual base salary as of the date hereof equals or exceeds $60,000 in any capacity whatsoever without the express written consent of Buyer, and (ii) none of Buyer or any of their Affiliates shall affirmatively seek to hire any officer or key employee of the Sellers whose annual base salary as of the date hereof equals or exceeds $60,000 and with whom Buyer had significant contact in connection with the transactions contemplated hereby in any capacity whatsoever without the express written consent of the Sellers. (b) For a period commencing on the date hereof through the third anniversary of the termination of this Agreement pursuant to Section 10.1, none of Buyer or any of its Affiliates shall (x) affirmatively seek to hire in any capacity whatsoever any officer or key employee of the Companies whose annual base salary as of the date hereof equals or exceeds $60,000 and with whom Buyer had significant contact in connection with the transactions contemplated hereby or (y) while any such officer or key employee is employed by the Sellers or any of their Affiliates in a position having greater or substantially the same level of compensation and responsibility as the position with the Companies held by such officer or key employee on the date hereof, hire any such officer or key employee in any capacity whatsoever without, in either case (x) or (y), the express written consent of the Sellers. 32 (c) The Sellers recognize that the provisions of clause (a)(i) of this Section 7.6 are reasonable and necessary for Buyer's protection and Buyer recognizes that the provisions of clause (a)(ii) and paragraph (b) of this Section 7.6 are reasonable and necessary for the Sellers' protection, and the Sellers and Buyer acknowledge that any breach of Section 7.6(a) or (b) will cause irreparable injury to the Sellers or Buyer, as the case may be, which injury will not be reasonably measurable or compensable by money damages. Accordingly, each of the parties hereto agrees that it shall be entitled without posting any bond to an injunction or injunctions to prevent breaches of the provisions of paragraphs (a) and (b) of this Section 7.6 and to enforce specifically the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction in addition to any other remedy to which such party may be entitled at law or equity. (d) Until the third anniversary of the Closing Date, Eureko, Sellers and their Subsidiaries and Affiliates covenant and agree with Buyer that they will not, either directly or indirectly themselves or through a wholly or partially owned Subsidiary, utilize the Seaboard name in any insurance related business in the United States. (e) If any provision of this Section 7.6 is held unenforceable because of the scope or duration of its applicability, the court making such determinations shall have the power to modify such scope or duration and such provisions shall then be applicable in such modified form. SECTION 7.7 Post-Closing Access. From and after the Closing Date, the ------------------- Buyers shall retain the originals of all records of the Companies and their Subsidiaries concerning Taxes. The Sellers shall cause all other books and records of the Companies and their Subsidiaries, whether currently maintained by the Sellers, any Company or any Subsidiary of any Company, or a third party, to be available on the premises of the applicable Company or Subsidiary on the Closing Date. On and after the Closing Date, Buyer will afford promptly to Sellers, Eureko and their agents reasonable access, upon reasonable prior notice and during normal business hours, to its offices, properties, books, records, employees and auditors to the extent reasonably necessary to permit Sellers and Eureko to determine any matter relating to the business of the Companies prior to the Closing Date. Sellers and Eureko may, at their own expense, make such copies of and excerpts from such books and records as it may deem necessary for the preparation of Tax or regulatory reports or other purposes permitted hereby. The Buyer shall maintain all such books and records for the period required by law. SECTION 7.8 Supplemental Disclosure. Each of Eureko and Buyer shall ----------------------- have the continuing obligation promptly to advise the other with respect to (i) any material matter hereafter arising and (ii) any material matter hereafter discovered which, in the case of a matter being disclosed pursuant to clause (i) hereof if existing at the date hereof or, in the case of a matter being disclosed pursuant to clause (ii) hereof, if known at the date hereof would have been required to be set forth or described in the respective Schedules provided by them provided, however, that for the purpose of the rights and obligations of the parties hereunder, any such supplemental or amended disclosure by any party shall not be deemed to have been disclosed as of the date hereof, to constitute part of, or an amendment or supplement to, such party's Schedules or cure any breach or inaccuracy of a representation or warranty unless so agreed to in writing by the other party. If prior to the Closing either Eureko or Buyer becomes aware of a 33 breach or inaccuracy of a representation or warranty made by it herein, such party shall use its best efforts to cure such breach or inaccuracy as promptly as practicable; provided, however, that no such cure will relieve such party of any liability for such breach or inaccuracy. SECTION 7.9 Confidentiality. Between the date of this Agreement and the --------------- Closing Date, Buyer and the Sellers will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer, the Companies and any of the Subsidiaries of any of the Companies to maintain in confidence any written, oral, or other information obtained in confidence from another party or any Company or any Subsidiary of any Company in connection with this Agreement or the transactions contemplated by this Agreement (such information, collectively, "Confidential Information"), unless (a) such Confidential Information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such Confidential Information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such Confidential Information is required by legal proceedings; provided, however, that if, in the course of any legal proceedings, either party is requested or required to disclose Confidential Information, such party will, prior to any disclosure and within five (5) business days, notify the other party in writing and provide the other party with copies of any such written request or demand so that the other party may seek a protective order or other appropriate remedy or waive in writing the provisions of this Section 7.9 to the extent necessary (provided that one or the other be done). If the transactions contemplated by this Agreement are not consummated, each party will return or destroy as much of such written Confidential Information as the other party may reasonably request. SECTION 7.10 Management of Certain Business. ------------------------------ (a) (i) Prior to Closing, the Sellers shall use commercially reasonable efforts to cause the relevant Insurance Company to consummate as soon as possible transactions pursuant to which the following lines of business of the Insurance Companies will be reinsured on a 100% basis or otherwise transferred to another insurance company and administered by such insurance company or a third party administrator: (A) individual life insurance policies and annuity business (the "ILA Business"); (B) fully insured group medical business (the "Fully Insured Business"); (C) Medicare Supplement business (the "Medicare Supplement Business"); and (D) professional liability insurance and non-standard auto insurance business, together with contracts written through the New York Insurance Exchange from 1984 through 1988 (the "Run-off PC Business" and any transaction involving the reinsurance of the Run-off PC Business being referred to herein as the "PC Reinsurance Transaction"). The reinsurer in any such transaction and the terms thereof shall be subject to Buyer's consent. Without limiting the generality of the foregoing, following any transition period called for by the relevant agreements, the reinsurer or the relevant third party administrator shall be responsible for the servicing and handling of all the reinsured or transferred business, and neither of the Insurance Companies shall thereafter have any responsibility for the servicing, handling or management of such policies and contracts. During any aforementioned transition period, SLIC shall continue to provide such management and financial reporting and administrative services as it is currently providing to SLIC (USA) for the ILA Business as Buyer shall request, unless SLIC (USA) has established in-house 34 management and financial reporting and other administrative services or arranges to obtain those services from another party. (ii) As an alternative to reinsuring or otherwise transferring the relevant business, the Sellers may cause the relevant Insurance Company to withdraw from the Fully Insured Business, the non-standard auto insurance business, and/or the Medicare Supplement Business (collectively, the "Withdrawal Businesses"); provided, that neither of the Insurance Companies shall so withdraw in any jurisdiction in which such withdrawal would adversely affect its ability to transact medical stop-loss, group term life, or provider excess insurance. Sellers shall consult with Buyer before taking any action to formally withdraw from doing business in any jurisdiction and shall not take any such action without the prior consent of Buyer, which consent shall not be unreasonably withheld. (iii) In the event that either SLIC (USA) or VASA North Atlantic is unable to reinsure, transfer or withdraw from any of the ILA Business, the Fully Insured Business, the Medicare Supplement Business or the Run-off PC Business prior to Closing, Eureko shall continue to use commercially reasonable efforts, and Buyer shall cause SLIC (USA) and VASA North Atlantic to cooperate with Eureko in such efforts, to arrange the 100% reinsurance or transfer to a third party of the ILA Business or the Run-off PC Business, as applicable, and a withdrawal from, reinsurance of or transfer to another insurance company of the Withdrawal Businesses. If no definitive agreement for the reinsurance or transfer of any of the Withdrawal Businesses has been executed by January 1, 1999, Buyer shall be entitled, at Eureko's expense, to cause the Insurance Companies to withdraw from such Withdrawal Business. Pending the time at which the Insurance Companies have reinsured, transferred or withdrawn from all of the lines of business addressed by this Section 7.10(a), and for the duration of any period during which transitional services are provided to the relevant reinsurer or third party administrator, Buyer shall continue to manage the business lines that have not been reinsured, transferred or withdrawn from on behalf of Eureko and shall be paid a fee by Eureko equal to: (A) direct out-of-pocket costs incurred by Buyer in connection with the management of such business lines (to the extent that such costs exceed (1) reserves specifically established on the books of VASA North Atlantic for such expenses and (2) any payments by the relevant reinsurer with respect to transitional services), plus (B) direct out- of-pocket costs incurred by Buyer to purchase, acquire license or obtain the rights to use Year 2000 Compliant Computer Systems (or portions thereof) and overhead costs for implementation and operation of such Computer Systems (or portions thereof) necessary to manage such business lines that have not been reinsured, transferred or withdrawn from in the event that the Computer Systems (or any portions thereof) of the Companies or their Subsidiaries, or any parties administering any of the aforementioned business lines on behalf of the Insurance Companies, are not Year 2000 Compliant and such non-compliance affects in any material respect the ability of the Buyer to manage such business lines on behalf of Eureko, and plus (C) an allocated management overhead charge (consistent with Buyer's internal methodology related to charging back overhead to its business units) related thereto. Upon consummation of any transaction to reinsure, transfer or withdraw from any of such lines of business, and the expiration of any period during which transitional services are provided to the relevant reinsurer or third party administrator, Eureko shall be relieved of its obligations to pay Buyer management fees relating to such line of business. If following a period of six months after the Closing, Eureko is unable to arrange the reinsurance or transfer of the ILA 35 Business or the Run-off PC Business or if following a period of two years following the Closing Eureko is unable to arrange the reinsurance or transfer of or a withdrawal from the Withdrawal Businesses, Buyer may at its sole option find a third party reinsurer or insurer to assume or take over any of the ILA Business, the Run-off PC Business or the Withdrawal Businesses. Eureko shall reimburse Buyer for Buyer's efforts in connection with any such transaction in accordance with Section 7.10(a)(iii). Regardless of whether any reinsurance transaction or other transfer of business pursuant to this Section 7.10(a)(iii) is arranged by Eureko or by Buyer, it is acknowledged and agreed that all ceding commissions or other concessions payable by the reinsurer shall inure to the benefit of Eureko, and that Eureko shall be responsible for any guarantees, indemnification, financial benefits or concessions given or granted to a third party entering into any of such transactions, subject to the prior consent of Eureko, which shall not unreasonably be withheld. For the avoidance of doubt, it is hereby acknowledged and agreed that Buyer shall neither profit nor incur any loss in connection with any such transaction. (iv) During any time period in which Buyer is managing any business lines pursuant to this Section 7.10(a), Buyer shall use commercially reasonable efforts (and shall be reimbursed in accordance with Section 7.10(a)(iii) for such efforts) to enforce all contractual rights either Insurance Company may have with respect to such business lines. Without limiting the generality of the foregoing, during any such period Buyer shall provide Eureko, upon Eureko's request, with copies of financial and other reports received from third party administrators with respect to such business lines. In addition, during any such period Buyer shall, at Eureko's request and expense, exercise any audit rights with respect to third parties and provide Eureko with copies of the relevant audit reports. (v) Eureko shall bear the credit and collection risk on all reinsurance transactions contemplated by this Section 7.10(a). Accordingly, should any reinsurer of any such business line not be able or willing to fulfill its obligations under the applicable reinsurance arrangement, Eureko or an Affiliate of Eureko shall assume in full the liabilities or obligations of such reinsurer to the relevant Insurance Company. (b) (i) Following the Closing Date, Buyer (through its Affiliates, including the Insurance Companies) shall be responsible pursuant to this Section 7.10(b) for the servicing, management and run-off of the insurance business currently conducted by the Companies and their Subsidiaries other than the ILA Business, the Fully Insured Business, the Medicare Supplement Business and the Run-off PC Business. All business to be managed by Buyer pursuant to this Section 7.10(b) is referred to in this Agreement as the "Managed Business"; provided, that "Managed Business" shall not include any medical stop-loss or group term life insurance policy renewed by or through Buyer or its Affiliates or effective on or after the Closing, regardless of whether such policy is issued by one of the Insurance Companies, but shall include all liabilities attaching to any policy effective prior to the Closing Date. Buyer shall have the right to collect all amounts due with respect to the Managed Business and to pay all amounts owed with respect to the Managed Business. In addition, Buyer shall have the exclusive right but not the obligation to renew the medical stop- loss and group term life business included within the Managed Business. Buyer shall exercise its business judgment in its sole discretion with respect to management of the Managed Business and shall handle such Managed Business consistent with its own customary business practices. All individual claim payments in excess of $200,000 36 shall be subject to prior approval by Eureko, provided that Eureko shall review and approve all such claim payments consistent with Buyer's obligations to process claims in a timely manner as required under applicable state insurance laws, and provided further that Buyer shall provide Eureko written notice of the pendency of such claim and relevant supporting documentation not later than five (5) business days prior to the time at which payment of any such claim would be required. (ii) The Buyer will maintain such records regarding the Managed Business as may be required by law. The Buyer will provide detailed monthly financial reports to Eureko, in a form to be agreed upon by Buyer and Eureko, with respect to the Managed Business. Eureko shall have the right to audit at its expense the records of Buyer relating to the Managed Business up to four times per year for the first year following the Closing and up to two times per year for the next four years thereafter, provided that it shall give reasonable advance notice of such audits and that the audits will be conducted during normal business hours at the convenience of Buyer and at the offices of Buyer as designated by Buyer. (c) (i) Eureko shall be responsible for all loss development on the Managed Business, the Fully Insured Business, the Run-off PC Business and the Medicare Supplement Business (collectively, the "Covered Business"), all parties hereto clearly understanding and agreeing that (A) Buyer shall not have any obligation, liability or exposure, nor shall it suffer any financial loss relating to any adverse loss development on the Covered Business or benefit from any financial gain relating to any favorable loss development on the Covered Business, and (B) Buyer shall not incur any underwriting loss or realize any underwriting gain with respect to the Covered Business. Eureko or an Affiliate of Eureko will provide protection for the Buyer as provided in this Section 7.10(c). In the event that an Affiliate is to provide such protection, Eureko shall so notify Buyer prior to the Closing and the Affiliate shall execute a signature page under which it will become a party to this Agreement solely for the purpose of providing the protection contemplated by this Section 7.10(c). (ii) At the Closing a claims run-off fund (the "Run-off Fund") shall be established in an amount equal to 100% of the net statutory loss and loss adjustment expense reserves on the books of the Insurance Companies on the Closing Date for the Covered Business. The Run-off Fund will be increased or decreased, as appropriate, on a monthly basis by an amount equal to the difference between (A) 80% of the premium collected (net of ceded reinsurance premium paid and refunds of premium) on the Covered Business and (B) Losses and Loss Adjustment Expenses actually paid (net of ceded reinsurance Losses and Loss Adjustment Expenses collected) on the Covered Business. The Run-off Fund will be credited at the end of each month with one half of the imputed investment income on the Run-off Fund, which shall be calculated by averaging the Run-off Fund balances at the beginning and end of such month (exclusive of the interest amount for such month) and multiplying the result by one-twelfth of the Three- Month Treasury Bill Rate at the beginning of each such month. (iii) At the Closing, Eureko or its Affiliate will deliver to Buyer a Letter of Credit to secure its obligations under the arrangement contemplated by this Section 7.10(c). The initial amount of the Letter of Credit will be $5,000,000 if the PC Reinsurance Transaction has been consummated prior to the Closing or $6,000,000 if the PC Reinsurance Transaction has not 37 been consummated. The amount of the Letter of Credit will be adjusted by Eureko or its Affiliate on a monthly basis to equal the greater of: (i) during the first twelve months following the Closing, either $5,000,000 or $6,000,000, depending upon whether or not the PC Reinsurance Transaction has been consummated at the relevant time, and thereafter an amount equal to the total amount of Losses and Loss Adjustment Expenses actually paid (net of reinsurance Losses and Loss Adjustment Expenses collected) during the three months preceding the time at which the amount is being determined under policies included in the Covered Business; or (ii) the amount by which the sum of Losses and Loss Adjustment Expenses actually paid (net of ceded reinsurance Losses and Loss Adjustment Expenses collected) on the Covered Business subsequent to Closing, plus the net statutory loss and loss adjustment expense reserves on the books of the Insurance Companies with respect to the Covered Business at such time, exceed 100% of the net statutory loss and loss adjustment expense reserves on the books of the Insurance Companies on the Closing Date for the Covered Business, plus 80% of premiums collected (net of ceded reinsurance premium paid and refunds of premium) on the Covered Business subsequent to the Closing Date. For the purposes of this Section 7.10(c), the net statutory loss and loss adjustment expense reserves with respect to the Covered Business shall be established in accordance with SAP and generally accepted actuarial standards of practice. These reserves shall be reviewed and approved on a monthly basis and opined upon at the end of each calendar year by the valuation and/or appointed actuary or actuaries of the Insurance Companies at the end of each calendar year. If the amount of the Letter of Credit is less than the amount determined pursuant to this paragraph at the end of any month, then Eureko shall increase the amount of the Letter of Credit to such amount within seven (7) business days of the date upon which Buyer gives notice of such shortfall. If the amount of the Letter of Credit is greater than the amount determined pursuant to this paragraph at the end of any month, then Eureko shall be entitled to reduce the amount of the Letter of Credit to such amount. (iv) In the event that the amount of the Run-off Fund at the end of any month (after taking into account the month-end adjustments contemplated by Section 7.10(c)(ii)) is less than the average monthly amount of Losses and Loss Adjustment Expenses paid (net of ceded reinsurance Losses and Loss Adjustment Expenses collected) during the three-month period ending with such month, Buyer shall be entitled to draw on the Letter of Credit an amount that, taken together with the remaining balance of the Run-off Fund, equals the amount of such three- month average. (v) After the first month end at which no policies included within the Covered Business remain in force (the "Trigger Date"), Buyer shall transfer to Eureko or its Affiliate an amount equal to X% of the excess (if any) of the balance of the Run-off Fund over the net statutory loss and loss adjustment expense reserves on the books of the Insurance Companies (the "Excess Amount") where X is determined, and the appropriate amount is paid, in accordance with the following schedule: three months after the Trigger Date, 25% of the Excess Amount at such time; six months after the Trigger Date, 33% of the Excess Amount at such time; nine months after the Trigger Date, 50% of the Excess Amount at such time; twelve months after the Trigger Date, 100% of the Excess Amount at such time. (vi) In the event that, at any time prior to the termination or expiration of all claims liabilities attached to the Covered Business, Losses or Loss Adjustment Expenses are paid 38 with respect to the Covered Business and the balance of the Run-off Fund is zero and the amount of the Letter of Credit is zero, Eureko shall pay directly to Buyer the amount of such Losses or Loss Adjustment Expenses within seven (7) business days of the date upon which Buyer gives notice. Any amounts remaining in the Run-off Fund following the termination or expiration of all claim liabilities attached to the Covered Business shall be transferred within seven (7) business days to Eureko or its Affiliate. In the event that the final settlement of all such liabilities exceeds the remaining balance of the Run-off Fund and the amount of the Letter of Credit, Eureko or its Affiliate shall reimburse Buyer for the shortfall within seven (7) business days of the date upon which it receives notice and supporting computations with respect to such shortfall from Buyer. (vii) Each month commencing with the first month following the Closing, Buyer shall pay to Eureko an amount equal to (A) 20% of the premium collected (net of ceded reinsurance premium paid and refunds of premium) on the Covered Business, plus (B) reinsurance ceding commission on the Covered Business, plus (C) 5.8% of the premiums collected (net of refund of premium, but prior to reinsurance) with respect to Managed Business written on Standard Security Life Insurance Company of New York paper, minus (D) variable out-of- pocket expenses (i.e., expenses that vary directly with collected premium including but not limited to commissions, premium taxes, and assessments) associated with the Covered Business. Buyer shall provide to Eureko an accounting with respect to such amounts not later than thirty (30) days following the end of each such month together with the accounting required by Section 7.11 and shall pay such amounts by wire transfer of immediately available funds on the date such accounting is transmitted to Eureko. (viii) For the avoidance of doubt, Eureko shall bear the credit and collection risk on all reinsurance in place on the Closing Date with respect to the Covered Business. (d) In the event that a transaction under which the ILA Business will be reinsured and administered as contemplated by Section 7.10(a) (the "ILA Reinsurance Transaction") has not been consummated by December 15, 1998, Eureko shall cause one of its Affiliates to 100% reinsure the ILA Business, which reinsurance shall be effective as of the Closing Date. For the avoidance of doubt, it is hereby acknowledged and agreed that Buyer shall neither profit nor incur any loss in connection with such transaction. (e) SLIC shall continue to provide such management and financial reporting and other administrative services as it is currently providing to SLIC (USA) as the Buyer shall request during a transitional period of up to six months following the Closing Date to enable SLIC (USA) to establish in-house management and financial reporting and other administrative services or arrange to obtain those services from a third party. SECTION 7.11 Override Commissions. Buyer shall pay to Eureko an -------------------- override commission of 3% of all premiums collected on medical stop-loss and group term life insurance policies in force on the Closing Date that are (i) on the books of either of the Insurance Companies or (ii) on the books of another insurance company but were underwritten by VBI, and (iii) renewed by or through any Affiliate of Buyer (including any Affiliate of either of the Companies). Provided that such policies remain in force, Buyer shall pay to Eureko this 3% fee 39 for the 24-month period following the renewal of such policies by or through any Affiliate of Buyer. Buyer shall provide to Eureko an accounting with respect to such override commissions not later than thirty (30) days following the end of each such month and shall pay such commissions by wire transfer of immediately available funds on the date such accounting is transmitted to Eureko. SECTION 7.12 Directors' and Officers' Insurance. Prior to or concurrent ---------------------------------- with the Closing, Eureko shall purchase for a period of six years after the Closing Date an extension of all of the Companies' and their Subsidiaries' current directors' and officers' insurance and indemnification policies which policies shall provide coverage for events occurring prior to the Closing Date (collectively the "D&O Insurance") for all current or former directors, officers or employees of the Companies or their Subsidiaries. Eureko shall purchase similar coverage with respect to professional errors and omissions insurance policies (the "E&O Insurance") for a period of three years after the Closing Date which shall provide coverage for events occurring prior to the Closing Date. ARTICLE 8 TAX MATTERS ----------- SECTION 8.1 Tax Representations. Eureko represents and warrants to ------------------- Buyer as of the date hereof that, except as set forth on Schedule 8.1: (a) all Tax returns, statements, reports, forms and other documentation (collectively, "Returns") required to be filed with any Taxing Authority by or with respect to the Companies or any of their Subsidiaries on or before the Closing Date have been filed or will be timely filed on or before the Closing Date in accordance with all applicable laws, and all such Returns are or will be (if not yet filed) true, correct and complete in all respects; (b) the Companies and their Subsidiaries have timely paid all Taxes shown to be due on such Returns (including subsequent assessments with respect thereto), and no other Taxes are payable by the Companies and their respective Subsidiaries with respect to items or periods covered by such Returns (whether or not shown on or reportable on such Returns); (c) each of the Companies and its respective Subsidiaries has withheld and paid over all Taxes required to have been withheld and paid over, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party; (d) the Companies and their Subsidiaries have made adequate provision on the Balance Sheets, Annual Statements, and Quarterly Statements for all Taxes payable by the Companies and their Subsidiaries for any period for which no Return has yet been filed or for which Returns have been filed but payment of the Tax shown to be due thereon is not yet due (excluding reserves for deferred Taxes), and the amount of liability for unpaid Taxes of the Companies and their respective Subsidiaries for the period beginning June 30, 1998 and ending on the Closing Date shall not exceed the reserves for Taxes (excluding reserves for deferred 40 Taxes) established on the balances sheets of the Companies and their respective Subsidiaries for such period; (e) there is no action, suit, proceeding, investigation, assessment, adjustment, audit or claim now proposed or pending against or with respect to the Companies or their Subsidiaries in respect of any Tax; (f) there are no outstanding waivers or other agreements extending any statutory periods of limitation for the assessment of Taxes of the Companies or their Subsidiaries; (g) SLIC (USA) does not file and is not required to file Returns in any jurisdiction with any other entity on a consolidated, combined, or unitary basis; (h) except with respect to its Subsidiaries, VNA does not file and is not required to file Returns in any other jurisdiction with any other entity on a consolidated, combined, or unitary basis; (i) there are no agreements between the Sellers and the Companies and their Subsidiaries that govern the Companies' or their Subsidiaries' liability for Taxes; (j) neither of the Companies is or has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code and Buyer is not required to withhold tax on the purchase of the Shares by reason of Section 1445 of the Code; and (k) except for the group of which the Companies and their respective Subsidiaries is/are presently members, neither the Companies nor their respective Subsidiaries has ever been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code, other than as a common parent corporation. SECTION 8.2 Tax Covenants. ------------- (a) Except as otherwise required by law, Buyer covenants that it will not cause or permit the Companies, any of their Subsidiaries or any Affiliate of Buyer (i) to take any action on the Closing Date, other than in the ordinary course of business or except as agreed in writing between the parties that could give rise to any Tax liability or loss to the Sellers, (ii) to make any election or deemed election under Section 338 of the Code with respect to the purchase of the Shares pursuant to this Agreement or (iii) to amend any Return or file a claim for refund that results in any increased Tax liability or reduction of any Tax Benefit of the Sellers or their Affiliates in respect of any Pre-Closing Tax Period. (b) Except as otherwise required by law or set forth in section (c) below, the Sellers covenant and agree that neither the Sellers nor their Affiliates shall amend any Return, file any claim for refund, change any method of tax accounting, or make or change any Tax election with respect to any Tax period that results in any increased Tax liability or reduction of Tax Benefits of Buyer, the Companies or any of their Subsidiaries, or any of their Affiliates in respect of any Post-Closing Tax Period. 41 (c) Each party agrees that, as between the Sellers on the one hand and the Buyer on the other hand, the other is to have no liability for any Tax or reduction of Tax Benefits resulting from any action referred to in Sections 8.2(a) or (b), and each party shall indemnify and hold harmless (hereafter, the "Tax Indemnifying Party") the other party and its Affiliates (hereafter, the "Tax Indemnified Party") against any such Tax or reduction in Tax Benefits. Each Tax Indemnified Party shall give prompt notice to the Tax Indemnifying Party of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought under this Section 8.2(c). Failure to give the Tax Indemnifying Party such notice shall not relieve such party of its indemnification obligation pursuant to Sections 8.2(a) and (b) unless and to the extent that the Tax Indemnifying Party and its Affiliates are materially prejudiced as a result thereof. The Tax Indemnifying Party shall be entitled to participate in, and to the extent the matter reasonably can be handled separately from other items not within the scope of this Agreement, shall be entitled to control the defense of any such claim, action or proceeding at its own expense and neither party shall settle any such claim, action or proceeding without the other party's prior written consent, which shall not be unreasonably withheld. (d) Buyer shall promptly pay or cause to be paid to Eureko all refunds of Taxes (including any interest thereon) received by Buyer or any of its Affiliates which are attributable to Taxes paid by or on behalf of Eureko, the Sellers, the Companies or any of their Subsidiaries with respect to any Pre- Closing Tax Period. (e) All transfer, documentary, sales, use, stamp, registration and other such Taxes incurred in connection with this Agreement (collectively, "Conveyance Taxes") shall be paid by the Sellers. The Sellers will, at their own expense, file all necessary Returns with respect to all such Conveyance Taxes, and, to the extent required by applicable law, Buyer will, and will cause its Affiliates to, join in the execution of any such Returns. SECTION 8.3 Tax Sharing Agreements. Prior to the Closing Date, all Tax ----------------------- sharing or allocation agreements between either Seller or any Affiliate of either Seller (other than either Company or any Subsidiary of either Company), on the one hand, and either Company or any Subsidiary of either Company, on the other hand, shall be terminated. After such date, neither the Companies and their Subsidiaries, the Sellers nor any of their Affiliates shall have any further rights or liabilities thereunder. This Agreement shall be the sole Tax sharing agreement relating to the Companies and their Subsidiaries for all Tax periods (or portions thereof) ending on or prior to the Closing Date. SECTION 8.4 Return Filings and Payment of Tax. Buyer shall prepare or --------------------------------- cause to be prepared and file or cause to be filed on a timely basis all Returns with respect to the Companies and their Subsidiaries due after the Closing Date. Buyer shall pay or cause to be paid to the appropriate Taxing Authority the Taxes shown to be due on all Returns required to be filed by it pursuant to this Section 8.4; provided, however, that Eureko shall indemnify Buyer for any Taxes attributable to any Pre-Closing Period that are payable by Buyer under this Section 8.4 and that are not adequately reserved for (excluding reserves for deferred Taxes) on the balance sheets of the Companies and their respective Subsidiaries on the Closing Date. 42 SECTION 8.5 Cooperation on Tax Matters. -------------------------- (a) Buyer shall, and shall cause its Affiliates, the Companies and their Subsidiaries to, and the Sellers shall, and shall cause their Affiliates to, provide any requesting party with such reasonable assistance (including the execution and delivery of such powers of attorney as are reasonably necessary to carry out the intent of this section) and information (including access to books and records) as may reasonably be requested by such party in connection with (i) the preparation of any Return, (ii) the conduct of any proceeding relating to liability for or refunds or adjustments with respect to Taxes, and (iii) any other matter that is a subject of this Article 8. Such cooperation and assistance shall be provided to the requesting party promptly upon its request. (b) Buyer and its Affiliates, on the one hand, and the Sellers and their Affiliates, on the other hand, shall retain or cause to be retained all Returns, schedules, workpapers, and all material records or other documents relating thereto, until the expiration of the statute of limitations (including any waivers or extensions thereof) of the taxable years to which such Returns and other documents relate. Before transferring, discarding or destroying any material records or documents prior to the expiration of the statute of limitations (including any waivers or extensions thereof) of the taxable years to which such records or documents relate, Buyer and its Affiliates, on the one hand, and the Sellers and their Affiliates, on the other, shall provide the other party with reasonable notice and, if such party so requests, the opportunity to take possession of such records and documents solely at its cost and expense. (c) In order to keep all parties informed as to the expiration of the statute of limitations for any period, at least thirty (30) days prior to the end of each calendar year, Buyer shall provide Sellers and Eureko with a schedule setting forth in reasonable detail which Pre-Closing Tax periods remain open with respect to the assessment of Taxes of the Companies and their Subsidiaries as of the date of such notice and a good faith estimate of when such Tax periods are expected to be closed by the expiration of the applicable statutory period of limitations or otherwise, provided, however, that a failure to provide such notice shall not prejudice the right of Buyer to receive indemnification hereunder. SECTION 8.6 Tax Benefits. In the event that any adjustment is made to ------------ the Tax liability of the Companies or their Subsidiaries for any Pre-Closing Tax Period and such adjustment could reasonably be expected to produce a Tax Benefit to Buyer or the Companies or their Subsidiaries for any Post-Closing Tax Period, Buyer shall pay to Eureko the reasonably anticipated net after-Tax value to Buyer or the Companies or their Subsidiaries of such Tax Benefit, discounted at a rate of 7 percent per annum from the anticipated date of realization of such Tax Benefit to the date of payment, as the amount of the Tax Benefit is determined under this section. Following the date of any such adjustment to the Tax liability of the Companies or their Subsidiaries, Eureko shall prepare a statement showing a proposed computation of the anticipated payment by Buyer and shall submit it to Buyer for review. If, within thirty (30) days of Buyer's receipt of the statement, Buyer and Eureko have not agreed on the correct payment due to Eureko hereunder, the dispute shall be submitted to the Third Party Accountant for resolution, and the Third Party Accountant shall resolve the dispute within thirty (30) days of submission. The decision of the Third Party Accountant shall be final, and the costs, expenses, 43 and fees of the Third Party Accountant shall be borne equally by Buyer and Eureko. Buyer shall pay Eureko the amount, if any, determined by the Third Party Accountant within fifteen (15) days of their determination. For purposes of this provision, Buyer, Eureko, and, if necessary, the Third Party Accountant shall make reasonable assumptions regarding the existing and future business and operations of the Companies and their Subsidiaries, the Tax positions of the Companies and their Subsidiaries and Buyer, probable Tax consequences under the Code, and other factors relevant to a reasonable and equitable determination of the anticipated value of any such Tax Benefit, taking into account any special circumstances known to the parties at the time of such determination. SECTION 8.7 Indemnification by Eureko. ------------------------- (a) Eureko hereby indemnifies Buyer and its Affiliates against and agrees to hold them harmless from any (i) Tax of the Companies and their Subsidiaries for any Pre-Closing Tax Period, (ii) liability of the Companies and their Subsidiaries for any Tax of the Sellers or their Affiliates under Treasury regulation section 1.1502-6 or any similar provision of state or local law as a result of the Companies or any of their Subsidiaries being a member of any consolidated, combined, or unitary group of which the Sellers are members and (iii) liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses), arising out of or incident to the imposition, assessment or assertion of any Tax (including those incurred in the contest in good faith of appropriate proceedings relating to the imposition, assessment or assertion of any Tax) described in clauses (i) or (ii) of this paragraph, except to the extent, in any such case, that such Taxes, liabilities, costs, or expenses are adequately reserved for (excluding reserves for deferred Taxes) on the balance sheets of the Companies or their Subsidiaries on the Closing Date. (b) Any payment required of Eureko pursuant to Section 8.7(a) shall be made not later than thirty (30) days after receipt by Eureko of written notice from Buyer stating that an indemnifiable Tax has been paid by Buyer or any of its Affiliates and the amount thereof and of the indemnity payment requested. Failure to give Eureko such written notice shall not relieve Eureko of its indemnification obligation pursuant to Section 8.7(a) unless and to the extent that Eureko is materially prejudiced as a result thereof. (c) Each party shall notify the other, within ten (10) days of receipt thereof, of any claim for Taxes made in writing to such party or its Affiliates by a Taxing Authority (a "Tax Claim") which, if successful, could affect the other party's liability for Taxes. Eureko may, at its own expense, participate in and, upon notice to Buyer, assume the defense of any Tax Claim for which Eureko may be obligated to indemnify Buyer pursuant to Section 8.7(a). If Eureko assumes such defense, Buyer shall have the right (but not the duty) to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by Eureko; provided, however, that to the extent such action reasonably could be expected adversely to affect the Tax liability of Buyer and its Affiliates for any Post-Closing Tax Period, Eureko shall not settle, compromise, or otherwise dispose of any such Tax Claim without Buyer's prior written consent, which shall not be unreasonably withheld. 44 (d) Eureko shall not be liable under Section 8.7(a) for (i) any Tax the payment of which by Buyer was made without Eureko's prior written consent, which shall not be unreasonably withheld, or (ii) any settlements relating to a Tax of the Companies or any of their Subsidiaries for a Pre-Closing Tax Period effected without the consent of Eureko, or resulting from any Tax Claim in which Eureko was not permitted an opportunity to participate, but only to the extent (in the case of both clause (i) and (ii) herein) that Buyer's failure to obtain Eureko's consent or provide Eureko with such an opportunity to participate materially prejudiced Eureko. SECTION 8.8 Indemnification by Buyer. ------------------------ (a) After the Closing Date, Buyer shall indemnify Eureko and the Sellers against and agrees to hold Eureko and the Sellers harmless from any (i) Tax of the Companies and their Subsidiaries for any Post-Closing Tax Period and (ii) liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses), arising out of or incident to the imposition, assessment or assertion of any Tax (including those incurred in the contest in good faith in appropriate proceedings relating to the imposition, assessment or assertion of any Tax) described in clause (i) of this paragraph. (b) Any payment required of Buyer pursuant to Section 8.8(a) shall be made not later than thirty (30) days after receipt by Buyer of written notice from Eureko or the Sellers stating that an indemnifiable Tax has been paid by Eureko or the Sellers and the amount thereof and of the indemnity payment requested. Failure to give Buyer such written notice shall not relieve Buyer of its indemnification obligation pursuant to Section 8.8(a) unless and to the extent that Buyer is materially prejudiced as a result thereof. Buyer shall not be liable under Section 8.8(a) for (i) any Tax the payment of which by Eureko was made without Buyer's prior written consent, which shall not be unreasonably withheld, or (ii) any settlements relating to a Tax of the Companies or any of their Subsidiaries for a Post-Closing Tax Period effected without the consent of Buyer, or resulting from any Tax Claim in which Buyer was not permitted an opportunity to participate, but only to the extent (in the case of both clause (i) and (ii) herein) that Eureko's failure to obtain Buyer's consent or provide Buyer with such an opportunity to participate materially prejudiced Buyer. SECTION 8.9 Survival; Exclusivity. Notwithstanding anything in this --------------------- Agreement to the contrary, (i) this Article 8 shall govern the procedure for all indemnification claims relating to Taxes and (ii) the provisions of this Article 8 shall survive for the full period of all statutes of limitations (giving effect to any waiver, mitigation or extension thereof) for the assessment of Taxes for the Tax period in question, and any claim to be brought under this Article 8 must be brought prior to the expiration of such period. SECTION 8.10 Late Payments. Any payment required to be made by Buyer or ------------- Eureko pursuant to this Article 8 that is not made when due shall bear interest from and including the due date of payment to but excluding the date of payment at a rate per annum equal to the Three-Month Treasury Bill Rate as of the due date of the payment. SECTION 8.11 No Duplicative Payments; Offsets. The Provisions of this -------------------------------- Article 8 shall be interpreted in a manner such that no payment shall be made by any party with respect to 45 the same item more than once. To the extent that any item causes parties to make reciprocal payments in any Tax period, such parties shall be entitled to offset such payments and the party which is obligated to make the greater payment shall pay only the difference between the amount of its original obligation and the amount it would have received had the reciprocal payments been made. SECTION 8.12 Rule of Construction. For purposes of this Article 8, the -------------------- term "Buyer and its Affiliates" shall include the Companies and their Subsidiaries for all Post-Closing Tax Periods. ARTICLE 9 CONDITIONS TO CLOSING --------------------- SECTION 9.1 Conditions to Obligations of Buyer, Eureko and the Sellers. ---------------------------------------------------------- The obligations of Buyer, Eureko and the Sellers to consummate the Closing are subject to the satisfaction of the following conditions: (a) Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated. (b) All other regulatory consents, approvals or clearances necessary for the consummation of the Closing shall have been obtained, and no provision of any applicable law or regulation shall prohibit the consummation of the Closing. (c) All material consents, approvals or waivers of all non-governmental Persons necessary for the consummation of the Closing shall have been obtained. (d) There shall not be in effect any temporary restraining order, preliminary injunction or permanent injunction or other order issued by any court of competent jurisdiction preventing the consummation of the transactions contemplated hereby; provided that the party invoking this condition shall have used its reasonable best efforts to have such order or injunction vacated. SECTION 9.2 Conditions to Obligation of Buyer. The obligations of Buyer --------------------------------- to consummate the Closing are subject to the satisfaction of the following further conditions: (a) Representations, Warranties and Covenants. (i) Eureko and the Sellers shall have performed in all material respects all of their obligations hereunder required to be performed by them on or prior to the Closing Date, including without limitation those set forth in Section 7.10, (ii) the representations and warranties of Eureko contained in this Agreement shall be true at and as of the Closing Date, as if made at and as of such date (without giving effect to any materiality qualifications or materiality exceptions contained therein); provided that this condition (ii) shall be deemed satisfied if any inaccuracies in any such representations and warranties at and as of the Closing Date would not, individually or in the aggregate, have or 46 reasonably be expected to have a Material Adverse Effect on the Companies and their Subsidiaries, taken as a whole, and (iii) Buyer shall have received a certificate signed by the Chief Financial Officer of each Seller to the effect that the foregoing conditions have been satisfied. (b) VASA Properties shall no longer be a Subsidiary of any of the Companies. (c) Standard Security Life Insurance Company of New York shall have provided all required consents, in writing, to the transactions contemplated hereby. (d) Except as disclosed in Schedule 3.9, since the Balance Sheet Date, there shall not have been any event, occurrence, development or state of circumstances or facts which has had or would reasonably be expected to have a Material Adverse Effect on the Companies, other than those resulting from changes in general economic conditions or changes generally affecting companies engaged in the lines of insurance business in which the Companies and their Subsidiaries engage. (e) Buyer shall have received original certificates of good standing for each of the Companies and their corporate Subsidiaries and all other documents it may reasonably request relating to the existence of the Sellers, the Companies and their Subsidiaries and the authority of the Sellers for this Agreement, all in form and substance reasonably satisfactory to Buyer. (f) No governmental or regulatory authority shall have commenced any proceeding seeking a temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the transactions contemplated hereby, other than any such proceeding which, in the reasonable judgment of Buyer, would not be reasonably likely, assuming such consummation occurs, to have a Material Adverse Effect on the Companies and their Subsidiaries, taken as a whole; provided that Buyer shall have used its reasonable best efforts to have such proceeding dismissed or terminated. (g) Buyer shall have received original certificates of license status from the department of insurance for each of the states in which either of the Insurance Companies are authorized to do business as described on Schedule 3.15, which certificates of license status shall be dated no more than sixty (60) days prior to the Closing Date and reasonably satisfactory to Buyer. With respect to any such certificate of license status for either Insurance Company that is dated more than forty-five (45) days prior to the Closing Date, Buyer shall have received a certificate signed by an officer of such Insurance Company to the effect that from the date of this Agreement there has been no adverse action taken or threatened to be taken that would impair the status of the certificate of authority of such Insurance Company or its ability to do business in that state. (h) Buyer shall have received original certificates of license status from the department of insurance and certificates of good standing from the secretary of state for each of the states in which VBI is authorized to do business as described on Schedule 3.15 which certificates shall be reasonably satisfactory to Buyer. The certificates of license status shall be 47 dated no more than sixty (60) days prior to the Closing Date and the certificates of good standing shall be dated no more than thirty (30) days prior to the Closing Date. With respect to any such certificate of license status for VBI that is dated more than forty-five (45) days prior to the Closing Date, Buyer shall have received a certificate signed by an officer of VBI to the effect that from the date of this Agreement there has been no adverse action taken or threatened to be taken that would impair the status of the license of VBI or its ability to do business in that state. (i) Buyer shall have received copies of all communications by or between the Companies and insurance rating agencies for the period commencing January 1, 1998 to the Closing Date. (j) Buyer shall have received delivery of the Letter of Credit in a form and initial amount satisfying the requirements of Section 7.10(c)(iii). (k) Buyer shall have received opinions dated the Closing Date of Sutherland, Asbill & Brennan LLP, counsel to Sellers, or other counsel satisfactory to Buyer, as to matters customarily opined to by counsel for sellers in similar transactions, which opinion shall be reasonably satisfactory in form and substance to Buyer. SECTION 9.3 Conditions to Obligation of Eureko and the Sellers. The -------------------------------------------------- obligation of Eureko and the Sellers to consummate the Closing is subject to the satisfaction of the following further conditions: (a) Representations, Warranties and Covenants. (i) Buyer shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing Date, (ii) the representations and warranties of Buyer contained in this Agreement shall be true at and as of the Closing Date, as if made at and as of such date (without giving effect to any materiality qualifications or materiality exceptions contained therein); provided that this condition (ii) shall be deemed satisfied if any inaccuracies in any such representations and warranties at and as of the Closing Date would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect on Buyer, and (iii) the Sellers shall have received a certificate signed by the Chief Financial Officer of Buyer to the effect that the foregoing conditions have been satisfied. (b) Buyer shall have provided for payment of the ABN AMRO Note in accordance with Section 6.4. (c) Sellers shall have received an original certificate of good standing for Buyer and all other documents they may reasonably request relating to the existence of Buyer and the authority of Buyer for this Agreement, all in form and substance reasonably satisfactory to the Sellers. 48 (d) Sellers shall have received opinions dated the Closing Date of Gibson, Dunn & Crutcher LLP, counsel to Buyer, or other counsel satisfactory to Sellers, as to matters customarily opined to by counsel for buyers in similar transactions, which opinion shall be reasonably satisfactory in form and substance to Sellers. ARTICLE 10 SURVIVAL; INDEMNIFICATION ------------------------- SECTION 10.1 Survival. The covenants, agreements, representations and -------- warranties of the parties hereto contained in this Agreement shall survive until the third anniversary of the Closing Date; provided that the covenants and agreements which, by their terms, are to have effect or be performed after the Closing shall survive in accordance with their terms. SECTION 10.2 Indemnification. --------------- (a) Subject to the limitations set forth in this Article 10, effective at the Closing, Eureko hereby indemnifies Buyer and, effective at the Closing, without duplication, the Companies and their Subsidiaries against, and agrees to hold them harmless from any and all damage (whether consequential, noneconomic, extracontractual, punitive, exemplary or otherwise), judgments, settlements, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by Buyer, any Company or any Subsidiary of any Company arising out of (i) the breach of any representation or warranty in Article 3 of this Agreement (without giving effect to any materiality qualifications or materiality exceptions contained therein, or to the disclosure or exceptions set forth in Schedules 3.13 and 3.15 hereto), (ii) the breach of any covenant or agreement of Eureko or Sellers, (iii) Uncollectible Receivables, in each case which is asserted prior to the third anniversary of the Closing Date, (iv) any misrepresentation or material omission from representations made by any of the Companies or their Subsidiaries, to any third party (other than Buyer or any of its representatives) prior to the Closing Date, regarding the Computer Systems (or any portions thereof) owned or used by any of the Companies or their Subsidiaries as being Year 2000 Compliant or its status in relation to becoming Year 2000 Compliant (without giving effect to any disclosures or exceptions to representations or warranties set forth in Schedule 3.18 hereto), or (v) the conduct of the business of the Companies and their Subsidiaries prior to the Closing Date, including any claims known or unknown but excluding any Damages arising out of actions taken or not taken at the request or direction of Buyer; provided, that if prior to the date of expiration of indemnification a specific state of facts shall have become known which may constitute or give rise to a claim for Damages as to which indemnity may be payable and a indemnified party shall have given notice of such fact to Eureko, then the right to indemnification with respect thereto shall remain in effect until such matter shall have been paid, according to the date on which notice of the applicable claim is given. (b) Subject to the limitations set forth in this Article 10, effective at the Closing, Buyer hereby indemnifies Eureko and the Sellers against and agrees to hold Eureko and the Sellers harmless from any and all Damages incurred or suffered by either Seller or Eureko arising out of (i) the breach of any representation or warranty in Article 4 of this Agreement, (ii) the 49 breach of any covenant or agreement of Buyer, or (iii) any violation by Buyer of any Applicable Law in connection with the identification pursuant to Section 6.3 of employees that Buyer does not wish to retain, in each case which is asserted prior to the third anniversary of the Closing Date; provided, that if prior to the date of expiration of indemnification a specific state of facts shall have become known which may constitute or give rise to a claim for Damages as to which indemnity may be payable and either Seller or Eureko shall have given notice of such fact to Buyer, then the right to indemnification with respect thereto shall remain in effect until such matter shall have been paid, according to the date on which notice of the applicable claim is given. SECTION 10.3 Environmental Indemnity. ----------------------- (a) Subject to the limitations set forth in this Article 10, effective at the Closing, Eureko hereby indemnifies Buyer and, effective at the Closing, without duplication, the Companies and their Subsidiaries against, and agrees to hold them harmless from any and all Environmental Costs (as defined below), arising in any manner in connection with: (i) the presence at or on any property currently or formerly owned or operated by the Companies or their Subsidiaries of any Hazardous Substances or the release, leak, discharge, spill, disposal, migration or emission of Hazardous Substances from any such property; (ii) the failure of the Company to comply with any applicable Environmental Laws prior to the Closing Date; or (iii) the transportation to, disposal at, or migration onto or into adjacent property or any off-site location of any Hazardous Substances from any property currently or formerly owned or operated by the Companies or their Subsidiaries, whether or not the transportation or disposal was conducted in full compliance with Environmental Laws. The obligations in this Section 10.3 shall not be affected by disclosure of any matter on Schedule 3.17 of this Agreement. (b) The obligations of this Section 10.3 shall include the obligation to defend the Buyer, any Company or any Subsidiary of any Company against any claim or demand for Environmental Costs, the obligation to pay and discharge any Environmental Costs imposed on the Buyer, any Company or any Subsidiary of any Company and the obligation to reimburse the Buyer, any Company or any Subsidiary of any Company for any Environmental Costs incurred or suffered, provided in each instance that the claim for Environmental Costs arises in connection with a matter for which the Buyer, any Company or any Subsidiary of any Company are entitled to indemnification under this Agreement. The obligation to reimburse the Buyer, any Company or any Subsidiary of any Company shall also include the costs and expenses (including, without limitation, reasonable attorneys' fees) to establish or enforce the rights of Buyer, any Company or any Subsidiary of any Company or such other persons to indemnification hereunder. (c) "Environmental Costs" shall mean any of the following that arise in any manner regardless of whether based in contract, tort, implied or express warranty, strict liability, Environmental Law or otherwise: all liabilities, losses, judgments, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, reasonable attorneys' fees and fees and disbursements of environmental consultants, all costs related to the performance of any required or necessary assessments, investigations, remediation, response, containment, closure, restoration, repair, cleanup or detoxification of any impacted property, the preparation and implementation of any maintenance, monitoring, closure, 50 remediation, abatement or other plans required by any governmental agency or by Environmental Laws and any other costs recovered or recoverable under any Environmental Law), fines, penalties, or monetary sanctions. Environmental Costs shall include without limitation: (i) damages for personal injury or death, or injury to property or to natural resources; (ii) damage to real property or damage resulting from the loss of the use of all or any part of the property, including but not limited to business loss, and (iii) the cost of any demolition, rebuilding or repair of any property required by Environmental Laws or necessary to restore such property to its condition prior to damage caused by an environmental condition or by the remediation of an environmental condition. (d) The obligations of Eureko to provide indemnification under this Section 10.3 are not subject to the $300,000 "deductible" provided for in Section 10.5(a); accordingly, the Buyer, any Company or any Subsidiary of any Company shall be indemnified for the first dollar of Environmental Costs incurred by the Buyer, any Company or any Subsidiary of any Company. SECTION 10.4 Procedures; Exclusivity. The party seeking indemnification ----------------------- under Sections 10.2 or 10.3 (the "Indemnified Party") agrees to give prompt notice to the party against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought under such Section, provided, however, that the failure to give any such notice shall not prejudice the right of such party to receive indemnification hereunder except to the extent that the Indemnifying Party is actually prejudiced by such failure. The Indemnifying Party may, and at the request of the Indemnified Party shall, participate in or control the defense of any such suit, action or proceeding at its own expense. If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right (but not the duty) to participate in the defense thereof and to employ counsel, at its own expense, separate from counsel employed by the Indemnifying Party. Whether or not the Indemnifying Party chooses to defend or prosecute any claim, all of the parties hereto shall cooperate in the defense or prosecution thereof. The Indemnifying Party shall not be liable under Sections 10.2 or 10.3 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, which consent shall not be unreasonably withheld or delayed. The rights and remedies of the Buyer, Eureko, either Seller, either Company and their Subsidiaries set forth in Section 10.2 shall be the exclusive rights and remedies with respect to any breach of any representation or warranty, anything in this Agreement to the contrary notwithstanding. SECTION 10.5 Limitations on Indemnification Obligations. In addition ------------------------------------------ to any other limitations contained in this Article 10, the indemnification obligations hereunder are subject to, and limited by, the following: (a) Eureko shall be obligated to provide indemnification under Section 10.2 on account of any misrepresentation or breach of warranty (without giving effect to any materiality qualifications or materiality exceptions contained therein, or to the disclosure or exceptions to representations or warranties set forth in Schedules 3.13 and 3.15 hereto) only to the extent that the aggregate dollar amount of Damages with respect to all such misrepresentations and breaches 51 of warranty exceeds $300,000. Notwithstanding the foregoing sentence, Eureko shall be obligated to provide indemnification under Section 10.2 on account of any Damages resulting from or related to disclosures or exceptions to representations or warranties set forth in Schedules 3.13 and 3.15 hereto to the extent that the aggregate amount of such Damages exceeds $150,000. Any Damages included in calculating the $150,000 "deductible" for Damages resulting from or related to disclosures or exceptions to representations or warranties set forth in Schedules 3.13 and 3.15, shall be included on a dollar-for-dollar basis in calculating the $300,000 "deductible" set forth in this section for Damages resulting from any other misrepresentation or breach of warranty. The maximum aggregate liability of Eureko for indemnification for all Damages subject to indemnification under this Article 10 shall be $35,000,000. (b) Each Indemnified Party shall be obligated to use its best efforts to mitigate to the extent reasonably practicable the amount of any Damages for which it is entitled to seek indemnification hereunder. (c) Upon making any indemnification payment, the Indemnifying Party will, to the extent of such payment, be subrogated to all rights of the Indemnified Party against any third party in respect of the Damages to which the payment relates; provided, however, that until the Indemnified Party recovers full payment of its Damages, any and all claims of the Indemnifying Party against any such third party on account of said payment are hereby made expressly subordinated and subjected in right of payment to the Indemnified Party's rights against such third party. Without limiting the generality of any other provision hereof, each such Indemnified Party and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described subrogation and subordination rights. (d) The amount of any Damages sustained by an Indemnified Party and owed by an Indemnifying Party shall be reduced by any amount received by such Indemnified Party with respect thereto under any insurance or reinsurance coverage or from any other party alleged to be responsible therefor. The Indemnified Party shall use its best efforts to collect any amounts available under such insurance or reinsurance coverage and from such other party alleged to have responsibility. If the Indemnified Party receives an amount under insurance or reinsurance coverage or from such other party with respect to Damages sustained at any time subsequent to any indemnification actually paid pursuant to this Article 10, then, subject to the immediately preceding sentence, such Indemnified Party shall promptly reimburse the Indemnifying Party for any such indemnification payment actually made by such Indemnifying Party up to the actual amount of insurance actually received. ARTICLE 11 TERMINATION ----------- SECTION 11.1 Grounds for Termination. This Agreement may be terminated ----------------------- at any time prior to the Closing: (a) by mutual written agreement of the Sellers and Buyer; 52 (b) by Sellers if any of the conditions set forth in Sections 9.1 or 9.3 shall have become incapable of fulfillment, and shall not have been waived by Sellers; (c) by Buyer if any of the conditions set forth in Sections 9.1 or 9.2 shall have become incapable of fulfillment, and shall not have been waived by Buyer; or (d) by either the Sellers, collectively, or Buyer if the Closing shall not have been consummated on or before December 31, 1998, unless the delay is caused by the failure of the party or parties seeking to terminate to fulfill their respective obligations hereunder. The party desiring to terminate this Agreement shall give notice of such termination to the other party. SECTION 11.2 Effect of Termination. If this Agreement is terminated as --------------------- permitted by Section 11.1, termination shall be without liability of either party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement, except as provided in Section 12.3 and except that no such termination shall relieve Buyer of its obligations under Section 7.9; and provided that if such termination shall result from the willful failure of either party to fulfill a condition to the performance of the obligations of the other party or to perform a covenant of this Agreement or from a willful breach by either party to this Agreement, such party shall be fully liable for any and all Damages incurred or suffered by the other party as a result of such failure or breach. The provisions of Section 7.6, this Section 11.2, Section 12.3 and Section 12.5 shall survive any termination hereof pursuant to Section 11.1. ARTICLE 12 MISCELLANEOUS ------------- SECTION 12.1 Notices. All notices, requests and other communications to ------- any party hereunder shall be in writing (including facsimile transmission) and shall be given: if to Buyer, to: The Centris Group, Inc. 650 Town Center Drive, Suite 1600 Costa Mesa, CA 92626 Attention: Jose A. Velasco Fax: (714) 434-0750 53 with copies to: Gibson, Dunn & Crutcher LLP Jamboree Center 4 Park Plaza Irvine, CA 92614-8557 Attention: Robert E. Dean, Esq. Fax: (949) 475-4632 if to the Sellers, to: Seaboard North American Holdings, Inc. Seaboard Life Insurance Company 2165 West Broadway P.O. Box 5900 Vancouver BC Canada V6B 5H6 Attention: Chief Financial Officer Fax: (604) 734-8221 with a copy to: Sutherland, Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: David A. Massey, Esq. Fax: (202) 637-3593 if to Eureko, to: Eureko B.V. Entrada 111, P.O. Box 94215 1090 GE Amsterdam, The Netherlands Attention: Jeff Medlock Fax: 011-31-20-6903481 with a copy to: Sutherland, Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: David A. Massey, Esq. Fax: (202) 637-3593 54 or at such other address to the attention of such other person as Buyer, Eureko or the Sellers may designate by written notice to the other party hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. SECTION 12.2 Amendments and Waivers. ---------------------- (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Other than as provided herein, the rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 12.3 Expenses. Except as otherwise expressly provided herein, -------- all costs and expenses incurred in connection with this Agreement, including all brokers', finders' or similar fees, shall be paid by the party incurring or responsible for incurring such cost or expense. Sellers and Buyer shall split the cost of the filing fees in connection with the filings by any of the parties hereto with the Federal Trade Commission and the Antitrust Division under the HSR Act with respect to the transactions contemplated hereby. SECTION 12.4 Successors and Assigns. The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. SECTION 12.5 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the law of the State of Indiana, without regard to the conflict of laws rules of such state. SECTION 12.6 Jurisdiction. Except as otherwise expressly provided in ------------ this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought only in the United States District Court for the Southern District of Indiana or any Indiana court sitting in Indiana, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or 55 proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in this Section 12.6 shall be deemed effective service of process on such party. SECTION 12.7 Counterparts; No Third Party Beneficiaries. This Agreement ------------------------------------------ may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. SECTION 12.8 Entire Agreement. This Agreement and the License Agreement ---------------- constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. SECTION 12.9 Construction. This Agreement is the result of arms-length ------------ negotiations between the parties hereto and has been prepared jointly by the parties. In applying and interpreting the provisions of this Agreement, there shall be no presumption that the Agreement was prepared by any one party or that the Agreement shall be construed in favor of or against any one party. 56 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE CENTRIS GROUP, INC. By: /s/ DAVID L. CARGILE ------------------------------------------------------ Name: David L. Cargile Title: Chairman, President and Chief Executive Officer SEABOARD LIFE INSURANCE COMPANY By: /s/ ROBERT T. SMITH ------------------------------------------------------ Name: Robert T. Smith Title: President and Chief Executive Officer By: /s/ MICHAEL L. STICKNEY ------------------------------------------------- Name: Michael L. Stickney Title: Executive Vice President SEABOARD NORTH AMERICAN HOLDINGS, INC. By: /s/ ROBERT T. SMITH ------------------------------------------------- Name: Robert T. Smith Title: President and Chief Executive Officer By: /s/ MICHAEL L. STICKNEY ------------------------------------------------- Name: Michael L. Stickney Title: Vice President and Chief Financial Officer EUREKO B.V. By: /s/ JEFF MEDLOCK ------------------------------------------------- Name: Jeff Medlock Title: Managing Director 57 By its execution below, Eureko Reinsurance, S.A. ("Eureko Re"), agrees to be, and shall become, a party to the Stock Purchase Agreement dated as of August 20, 1998, between The Centris Group, Inc. ("Centris"), Seaboard Life Insurance Company, Seaboard North American Holdings, Inc., and Eureko B.V.("Eureko") (the "Stock Purchase Agreement"), solely for the purposes of providing the protections to Centris contemplated by Section 7.10(c) of the Stock Purchase Agreement. By its execution below, Eureko confirms that (i) it will establish, maintain and replenish the Letter of Credit contemplated by Section 7.10(c) in accordance with the terms of such Section, and (ii) it will not be released from any obligation under Section 7.10(c) solely by virtue of Eureko Re becoming a party to the Stock Purchase Agreement; provided, that any payment by Eureko Re pursuant to Section 7.10(c) shall be an offset against any liability of Eureko thereunder. IN WITNESS WHEREOF, Eureko Re and Eureko have caused their respective authorized officers to duly execute this instrument as of the 31st day of December, 1998. EUREKO REINSURANCE, S.A. By: /s/ KELD BOECK --------------------------- Name: Keld Boeck Title: Managing Director EUREKO B.V. By: /s/ JEFF MEDLOCK --------------------------- Name: Jeff Medlock Title: Managing Director 58 EXHIBIT A ALLOCATION OF PURCHASE PRICE SLIC (USA) - ---------- The portion of the purchase price allocable to the SLIC (USA) stock being purchased by Buyer shall be determined as follows: (i) the audited Statutory Policyholders' Surplus of SLIC (USA) as of the Closing Date; (ii) plus or minus the amount required to mark-to-market on a U.S. GAAP basis the investments of SLIC (USA) as of the Closing Date; (iii) minus the amount of any goodwill on the books of SLIC (USA) as of the Closing Date; (iv) minus $2,500,000. VNA - --- The portion of the purchase price allocable to the VNA stock being purchased by Buyer shall be determined as follows: (i) the audited Statutory Policyholders' Surplus of VASA North Atlantic as of the Closing Date; (ii) minus the payoff amount of the ABN AMRO Note as of the Closing Date; (iii) plus or minus the amount required to mark-to-market on a U.S. GAAP basis the investments of VASA North Atlantic as of the Closing Date; (iv) minus the amount of any goodwill on the books of VASA North Atlantic as of the Closing Date. EXHIBIT B LICENSE AGREEMENT THIS LICENSE AGREEMENT (this "Agreement") is made and entered into as of _______ __, 1998 by and between Seaboard Life Insurance Company, a Canadian federal insurance company ("Licensor") and Seaboard Life Insurance Company (USA), an Indiana stock insurance company ("Licensee"). RECITALS: WHEREAS, Licensor has adopted, used and is now using the term "Seaboard Life" as a service mark and trade name, and the logo shown in Appendix A hereto (the "Seaboard Logo") as a service mark, in connection with its insurance business; WHEREAS, as contemplated by a Stock Purchase Agreement dated as of ____________, 1998 (the "Stock Purchase Agreement"), by and among [_________________] ("Buyer"), Licensor, Seaboard North American Holdings, Inc., a British Columbia corporation and Eureko, B.V., a company organized under the laws of the Netherlands, Licensor is to sell all of the issued and outstanding shares of Licensee common stock to Buyer (the "Transactions"); and WHEREAS, Licensee desires to continue to use the term "Seaboard Life" and the Seaboard Logo in connection with its business, for a limited period of time after the consummation of the Transactions (the "Effective Time"); NOW, THEREFORE, in consideration of the mutual and several promises and undertakings contained in the Stock Purchase Agreement and herein, and for other good and valuable consideration, Licensor and Licensee agree as follows: Section 1. Grant of License. Licensor grants to Licensee a royalty- free exclusive, nontransferable license to continue to use the term "Seaboard Life" as a service mark and trade name, and the Seaboard Logo as a service mark, in connection with Licensee's business in the United States (the "Licensed Territory") for a period of two (2) years after the Effective Time (the "License"). Section 2. Validity of the Service Mark and Trade Name. (a) Licensee acknowledges and stipulates that the term "Seaboard Life" is a valid and enforceable service mark and trade name, and the Seaboard Logo is a valid and enforceable service mark, both owned exclusively by Licensor in the Licensed Territory and that, pursuant to such ownership, Licensor has the exclusive ownership to use, and license others to use, the term and logo as indication of source, origin, sponsorship, affiliation, or endorsement for any insurance services. (b) Licensee agrees never to contend otherwise, or to permit any of its affiliates to contend otherwise, in legal proceedings or in any other circumstances. Further, Licensee acknowledges and agrees that the use of the term "Seaboard Life" and the Seaboard Logo by Licensee's affiliates pursuant to this agreement shall not create any right of service mark or trade name ownership for Licensee in the term or logo. Section 3. Quality Standard. The License granted herein is contingent upon Licensee rendering the insurance services in connection with the term "Seaboard Life" to be of at least the same quality as the services being rendered by it during the twelve (12) months immediately prior to the Effective Time. Should Licensor determine that Licensee is not providing the same quality of service as was rendered by it during the twelve (12) months immediately prior to the Effective Date, said lack of quality service shall be considered a default hereunder and Licensee shall have thirty (30) days to cure said default. Failure to cure said default within thirty (30) days shall be grounds for revocation of the license on ten (10) days written notice. Such revocation shall not relieve Licensee or any of its affiliates of liability for damages suffered by Licensor, its subsidiaries, or affiliates as a consequence of such failure. Section 4. Quality-Control Inspection. Licensee agrees to allow Licensor's authorized agents and nominees, on reasonable notice, to periodically inspect the operations of Licensee, including its business records and advertising materials, throughout the term of the License, to ascertain whether the quality of the insurance services rendered by Licensee in connection with the term "Seaboard Life" at least equals the quality of the services being rendered by Licensee during the twelve (12) months immediately prior to the Effective Time. Section 5. Receivership; Bankruptcy. In the event of receivership or bankruptcy of Licensee, the License granted herein shall terminate immediately. Section 6. Post Termination Restraint of Use. Upon termination of the License, by any means or for any reason, Licensee agrees to promptly discontinue using the term "Seaboard Life" and the Seaboard Logo, as well as any terms or designs confusingly similar to "Seaboard Life" or the Seaboard Logo, in or as a service mark, trade name, corporate name, or advertising slogan for insurance or any other type of business, throughout the world, for so long as Licensor or its successor, subsidiaries or assigns still are using the term or logo in or as a service mark, trade name, corporate name, or advertising slogan anywhere in the world. This means, among other things, that Licensee shall see to it that its corporate name is officially changed no later than two (2) years after the Effective Time to names that do not include the word "Seaboard Life". Section 7. Non-Agency between the Parties. The parties intend that Licensee shall not be deemed an agent, partner, joint venturer, servant, or employee of Licensor as a result of, or in any transaction relating to, this agreement, and Licensee agrees not to represent or contend otherwise or to allow any of its affiliates to do so; this is intended to mean, among other things, that Licensee shall in no way purport to pledge Licensor's credit or incur any obligation on behalf of Licensor. 2 Section 8. Amendments. This Agreement may not be modified, changed, discharged or terminated, except by an instrument in writing signed by an authorized officer of each of the parties hereto. Section 9. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all, of the parties hereto. Section 10. No Third-Party Beneficiaries. Nothing in this Agreement is intended or shall be construed to give any person, other than the parties hereto, their successors and permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Section 11. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, permitted assigns and legal representatives. Except as otherwise provided herein, neither this Agreement, nor any right hereunder, may be assigned by Licensee in whole or in part without the written consent of Licensor. Section 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. LICENSOR SEABOARD LIFE INSURANCE COMPANY By:_____________________________________ Name: Title: LICENSEE SEABOARD LIFE INSURANCE COMPANY (USA) By:_____________________________________ Name: Title: 3 Schedule 3.3 Governmental Authorization -------------------------- None 1 Schedule 3.4 Non-Contravention ----------------- Execution of this Agreement will not violate the Articles or Certificate of Incorporation or the By-Laws of the Companies or their Subsidiaries. However, it has been the past practice of the Companies and their Subsidiaries to obtain approval by resolution from the Board of Directors before entering into such an agreement. Each of the following contracts contains a "change of control" provision. (In case of a change of control of the Insurance Companies, the contract will be canceled or terminated. However, a change of control does not result in a default of the Insurance Companies.) Employment Agreement between Norm Torrison and VASA Brougher, Inc. dated March 1, 1996 Letter of Understanding regarding Independent Agency Agreement between VASA Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the other hand, dated June 8, 1998 VASA North Atlantic Insurance Company 80/20 Quota Share Reinsurance Agreement effective January 1, 1994, reinsured with Transatlantic Re VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective April 1, 1991, reinsured with Skandia American and Transamerica VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss Reinsurance Agreement effective April 1, 1991, reinsured with Cologne Life Re, Re Capital, Skandia American and Transamerica VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American, Cologne Life Re and Transamerica VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American and Transamerica VASA North Atlantic Insurance Company $500,000, Excess $500,000, Excess of Loss Reinsurance Agreement effective April 1, 1990 reinsured with Skandia American, Cologne Life Re, Re Capital and Transamerica 2 VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American and Re Capital VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American and Transamerica VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American, Cologne Life Re, Re Capital and Transamerica VASA North Atlantic Insurance Company $150,000 Excess $100,000, Excess of Loss Reinsurance Agreement effective March 1, 1988, reinsured with Re Capital VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1988, reinsured with Transamerica VASA North Atlantic Insurance Company $200,000 Excess $50,000, Excess of Loss Reinsurance Agreement effective March 1, 1987, reinsured with Re Capital (only 75% placed on this layer) VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1987, reinsured with Clarendon National and The New York Insurance Exchange (only 75% placed on this layer) VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement effective October 1, 1993, reinsured with WASA International, Chartwell Re, Cologne Life Re, Cignet Re, Trenwick Re and Transatlantic Re 3 Schedule 3.7 Subsidiaries ------------ 3.7(a) Jurisdiction of Incorporation Select Benefits, Inc. Indiana VASA North America, Inc. Indiana VASA Insurance Group, Inc. Indiana VASA Brougher, Inc. Indiana VASA North Atlantic Insurance Company Indiana Seaboard Life Insurance Company (USA) Indiana VASA Properties Indiana General Partnership (VASA Brougher, Inc. and VASA North America, Inc. are the general partners) Brougher Syndicate, Inc. and North Atlantic Treaty Managers, Inc. were merged into VASA Insurance Group, Inc. in the State of Indiana on June 2, 1992; however, the State of New York has not yet recognized these transactions. For federal income tax purposes, the mergers have been recognized and have not been challenged since 1992. 3.7(b) None. 4 Schedule 3.9 Absence of Certain Changes -------------------------- 3.9(a) For any event, occurrence, development or state of circumstances or facts which has had or would reasonably be expected to have a Material Adverse Effect on the Companies, other than those resulting from changes in general economic conditions or changes affecting generally the lines of insurance business in which the Companies and their Subsidiaries engage, since December 31, 1997, see Schedules 3.12, 3.13 and 3.15. 3.9(b) No exceptions. 3.9(c) No exceptions. 3.9(d) The following are transactions, commitments, contracts or agreements entered into, by any Company or any Subsidiary, other than transactions and commitments in the ordinary course of business consistent with past practices, since December 31, 1997: 1) Sale of Real Estate - VASA Properties entered into a Real Estate ------------------- Purchase and Sale Agreement ("REPSA") with Kite Capital, LLC ("Kite") for the sale of certain parcels of real property including other related property ("Properties") set forth on Exhibit A to that Agreement. The purchase price for the Properties is $9,500,000 payable at the closing. At this time, the closing is expected to occur on September 15, 1998. 2) Early Possession Agreement - VASA Properties and Kite have entered -------------------------- into an Early Possession Agreement whereby Kite may occupy portions of the Brougher Building. Under this Agreement, the rental of portions of the Brougher Building will be at $11.50 per rentable square foot per year. For purposes of that Agreement, a rentable square foot will be a useable square foot multiplied by 1.15 as a load factor. This Early Possession arrangement will end on the closing which is anticipated to occur on September 15, 1998. 3) Sublease - Under the REPSA, VASA Brougher, Inc. ("VASA Brougher, -------- Inc.") will sublease and occupy portions of the Brougher Building. This sublease will commence upon the closing. The base rent will be equal to the base rent under the master lease between Kite or its assigns as landlord and Eli Lilly and Company as tenant (not to be more than $12.00 per sq. ft.) plus pro rata expenses for taxes, common area maintenance, insurance and other customary expenses associated with the building. The term of this sublease ends on January 31, 1999. 4) Sale of Certain Fixed Assets - In anticipation of the sale of the ---------------------------- Properties, the Companies and their Subsidiaries have been disposing of certain excess fixed assets, such as excess fitness equipment, file cabinets, and office furniture. To date, the proceeds of the largest individual sale item (video conferencing equipment) were $15,000. 5 3.9(e) In the fall of 1997, Seaboard Life Insurance Company (USA) and VASA North Atlantic Insurance Company changed their Indiana tax elections from premium tax to gross receipts tax to be effective January 1, 1998. 3.9(f) The following are employment or other forms of agreement: 1) Senior Management Incentive to Stay Bonus. Each eligible member of ----------------------------------------- the Senior Management Group (Arlene Cayetano, Patti Freeman Dorson, Roelof Konterman, Kevin Robbins, Patty Smith, and John Storm) has been granted an incentive to stay bonus payment equal to six (6) months salary, payable upon the earlier of the following events: (i) three months following completion of the sale of the Companies and their Subsidiaries; (ii) termination of efforts to sell the Companies and their Subsidiaries; or (iii) termination of employment. The incentive to stay bonus is in addition to, and not in lieu of, any severance benefits payable and shall be paid by Eureko. In addition to the stay bonus payment, Kevin Robbins was granted a six- month termination period during which full salary and benefits would continue in the event of job termination. This benefit is payable in the event of job termination where notice of termination is given to Mr. Robbins within one year following the earlier of the following contingent events: (i) completion of the sale of the Companies and their Subsidiaries; (ii) termination of efforts to sell the Companies and their Subsidiaries; or (iii) termination of employment For purposes of this termination period, the six-month period commences on the first day following termination of active work status. 2) Middle Management/Operations Arrangement. Twenty members of middle ---------------------------------------- management or operations staff have been offered an arrangement whereby the individual will receive a lump sum payment equal to three (3) months of his or her then-current base salary if the individual's employment is involuntarily terminated 6 through no fault of the individual following and within three (3) months after the closing date of the sale of the Companies and their Subsidiaries. These individuals include: Kirk Boller, Gordon Bruder, Pat Calvin, Brenda Cook, Ken Drake, Cheryl Goode, Ted Harpeneau, Patty Herbertz, Debbie Hunter, Mike Kennelly, Dorrie Keyes, Bob Mallison, Dan Markovich, Mike Mathias, Tim Plunkett, Sandy Pritchard, Patsy Schwab, Marsha Warren, Andy Weissert and Rick Zeller. For individuals eligible for this arrangement and severance benefits, severance benefits payable will be reduced by the amount of benefits payable by Eureko under this arrangement. 3) Customary Severance Arrangement. VASA Insurance Group, Inc. ------------------------------- adopted an Employees' Severance Plan effective January 1, 1993. This Employees' Severance Plan provided the following severance benefits: If an Employee's employment with the Employer is terminated, the Employer, in its sole discretion, shall determine whether or not to provide severance benefits to the Employee, and, if the Employer decides to pay severance benefits to an Employee, it, in its sole discretion, shall determine the amount and the timing of such payment. This Plan shall not be construed as providing a guarantee or expectation of severance benefits, but only a means for providing severance benefits in those cases for which the Employer determines severance benefits are appropriate. The Employees' Severance Plan was either never communicated or communicated to only a small number of employees. Rather, the historical custom and practice of the Companies and their Subsidiaries has been, as a general rule, to pay a severance benefit to employees whose employment has been terminated or whose position has been eliminated through no fault of their own in accordance with the following formulae: A. Employees Below Vice President Level ------------------------------------ An amount equal to: (1) Two (2) months of then-current base salary; (2) Two (2) months of continuation of core medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); and (3) One (1) week per year of service. B. Employees Vice President Level and Above ---------------------------------------- An amount equal to: 7 (1) Six (6) months of then-current base salary; (2) Six (6) months of continuation of core medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); and The Companies and their Subsidiaries will adopt an amended and restated Employees' Severance Plan with terms consistent with their historical custom and practice. 4) Specific Arrangements Currently in Place ---------------------------------------- A. VNAIC Professional Liability Severance and Bonus ------------------------------------------------ One employee, Kathryn McGlothlin, had been granted the following arrangement when the Companies de-emphasized the professional liability lines of business prior to December 31, 1997: An amount equal to: (1) Two (2) months of then-current base salary; (2) Two (2) months of continuation of core medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); (3) One (1) week per year of service; (4) Twenty-five percent (25%) of then-current base salary; and (5) The remaining unpaid balance of the employee's Claims Incentive Plan. In addition, the Company agreed to give Ms. McGlothlin ninety (90) days notice of the termination of her employment. Any benefits payable under the Employees' Severance Plan will be reduced by the benefits payable under Ms. McGlothlin's arrangement. B. Facilities Employees Impacted by Sale of Real Estate ---------------------------------------------------- Two employees, Pete Drummond and Gina Bennett, employed in the Facilities Engineering Department had been granted the following arrangement in conjunction with the prospective sale of the properties currently owned by the Companies and their Subsidiaries prior to December 31, 1997: An amount equal to: (1) Two (2) months of then-current base salary; 8 (2) Two (2) months of continuation of core medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); and (3) One (1) week per year of service. Any benefits payable under the Employees' Severance Plan will be reduced by the benefits payable under this prior arrangement. C. Notice of Termination --------------------- Jack Hewett has an Employment Agreement that terminates in August 1998. In lieu of extending that agreement, Mr. Hewett and VASA Brougher, Inc. agreed that he will continue upon its termination as an at-will employee. In addition, VASA Brougher, Inc. agreed that it will give Mr. Hewett six (6) months prior written notice of any elimination of his position or termination of his employment and he will give the company thirty (30) days prior notice if he should choose to resign. Norm Torrison's employment is governed by an Employment Agreement. Under that Agreement, VASA Brougher, Inc. agreed to give Mr. Torrison ninety (90) days notice of termination and Norm Torrison agreed to give VASA Brougher, Inc. thirty (30) days prior notice if he should choose to terminate the Agreement. The terms of the employment agreement will govern termination of employment and no benefits shall be payable under the Employees' Severance Plan. D. Stay On Incentive ----------------- One employee, Tamara Jayne, was granted a stay on incentive payable in three intervals during 1998. One payment remains payable under this arrangement: $3,333.00 by December 1, 1998 which shall be payable by Eureko and shall not be payable under the Employees' Severance Plan. 3.9(g) Stop Loss. The following changes have been made to the underwriting practices or policies of VASA Brougher, Inc. on the stop loss business it underwrites for several carriers, including but not limited to Seaboard Life Insurance Company (USA), since December 31, 1997: 1) Claims Experience - VASA Brougher, Inc. will request the final ----------------- three months of claims experience on renewal cases. Initial renewal quotes will be based upon nine months of claims experience. Aggregate experience rates on renewals will be based on a rolling 12 months. Underwriters will review this information and re-rate the case if necessary. Only cases through third party administrators approved by VASA Brougher, 9 Inc. as "Renewal Only" administrators will be re-rated. Cases sold through "Active" or "Approved" third party administrators will not be re-rated but the final three months of claims experience will be reviewed by the underwriter. If an underwriter sees a problem developing with an administrator's pattern of claim paying, a meeting will be held to discuss the possibility of re-rating the administrator's cases. 2) TPA Approvals - VASA Brougher, Inc. implemented a new third party ------------- administrator approval process. VASA Brougher, Inc. has also implemented a review process of all third party administrators currently approved by VASA Brougher, Inc. VASA Brougher, Inc. is in the process of discontinuing business relationships with TPAs which do not have philosophies consistent with VASA Brougher, Inc.'s underwriting and general business philosophies. 3) Rate Loads and Industry Types - VASA Brougher, Inc. adopted ----------------------------- Industry Guidelines. Manual rate loads were implemented for certain industry groups. The following industries will be loaded 10%: trucking, auto dealers, insurance groups, Indian tribes, health industry, municipalities, school districts, and miscellaneous manufacturing groups. The underwriting guidelines suggest that municipalities be given a minimum of a $10,000 specific retention depending on the state regulations. The following industries are considered ineligible risks: associations, multiple employer trusts and employee leasing companies. The Industry Guidelines also suggest that certain industries should be reviewed and given special attention including state availability and possible financial considerations including: municipalities, religious groups, Taft-Hartley groups, railroads, seasonal groups, mining & logging, and agricultural groups. 4) Changes In Laws - VASA Brougher, Inc. implemented changes to its --------------- underwriting guidelines and rates to consider amendments made to an insured employer's plan document to comply with the Health Insurance Portability and Accountability Act of 1996 and the Mental Nervous Parity Act. 5) 90% Aggregate Attachment Point - VASA Brougher, Inc. implemented a ------------------------------ procedure to set the employer's minimum aggregate attachment point as set forth on the Schedule page using 90% of the number of eligible employees times factors times the number of contract months (usually 12). This procedure was implemented to make a uniform adjustment for employers with declining enrollment. 6) Massachusetts Surcharge - VASA Brougher, Inc. agreed to consider ----------------------- the Massachusetts Uncompensated Care Pool Surcharge of 5.06% a covered expense under the stop loss policy through September 1, 1998 provided an insured employer's plan also considers the surcharge a covered expense under the self-funded plan. VASA Brougher, 10 Inc. will review this matter in September 1998 after the Massachusetts Division of Health Care Finance and Policy has determined the surcharge for the next year. 7) Block Takeovers - VASA Brougher, Inc. has underwritten and taken --------------- over 2-3 blocks of stop loss insurance coverage written through various TPAs. Through some of these block take overs, VASA Brougher, Inc., through its carriers, assumed the risk mid-contract. 3.9(g) Fully Insured. The following changes have been made to the underwriting guidelines for Seaboard Life Insurance Company (USA)'s fully-insured Navigator product since December 31, 1997: 1) Changes in Laws - Corporate Benefits Services of America, Inc. --------------- ("CBSA") is the administrator of the Navigator book of business on behalf of Seaboard Life Insurance Company (USA) pursuant to the Underwriting Administration Agreement. CBSA implemented changes to its underwriting guidelines for this product to comply with the Health Insurance Portability and Accountability Act of 1996 and the Mental Health Parity Act. 2) Rate Changes - Corporate Benefit Services of America, Inc. ------------ ("CBSA") manages and administers Seaboard Life Insurance Company (USA's) Navigator fully-insured One Life and Met products in the States of Indiana, Ohio, Mississippi, Louisiana and Iowa (MET only). Anticipating that Westport would become the successor carrier for the One Life and MET products, First Excess and Reinsurance Corporation, an affiliate of Westport, entered into the Fully-Insured Medical Quota Share Reinsurance Contract with Seaboard (USA) effective September 1, 1997. Accordingly, Westport reviewed Seaboard (USA) premium rates and produced a March 2, 1998 memorandum recommending premium rate increased to CBSA for Seaboard (USA's) approval for the One Life and MET product in the States of Indiana, Ohio, Mississippi, Louisiana and Iowa. At this time, Seaboard (USA) is working to determine what rate changes have been made. 3.9(h) The following are material transactions (other than the transactions contemplated by the ILA Reinsurance Transaction) by any Company or any Subsidiary of any Company, since December 31, 1997: 1) Insurance Coverages - The Companies renewed their errors and ------------------- omissions insurance policy effective June 27, 1998. This policy provides coverage to the Companies and their Subsidiaries. The insurance carrier on this coverage was changed this year to Reliance Insurance Company. This coverage was renewed with the same limit of $5,000,000. The premium for this one year policy is $248,000. The Companies also purchased Employment Practices Liability insurance coverage through Reliance Insurance Company effective June 27, 1998 with a $5,000,000 limit. This policy provides coverage to the Companies and their Subsidiaries. The premium for this one year policy is $50,000. 11 VASA North America, Inc. has renewed its commercial insurance package with the Chubb Group of Companies to be effective on August 7, 1998. This policy provides coverage to VASA North America, Inc. and its Subsidiaries. Seaboard Life Insurance Company (USA) is only provided workers' compensation coverage under this package. This package includes property, commercial general liability, umbrella, workers' compensation, business automobile, boiler and machinery and electronic data processing insurance coverages. The limits on this policy are $10,000,000. The premium for this one year policy is $89,314. 2) Reinsurance - Effective January 1, 1998, VASA North Atlantic Insurance ----------- Company and Seaboard Life Insurance Company (USA) entered into a Mega Medical Quota Share and Stop Loss Reinsurance Agreement for Aggregate and/or Specific Stop Loss (Excess) Insurance for Self-Insured Group Medical Benefits Programs and Community Health Plans, including partially Self- Funded Programs and Medical Conversion Insurance written in conjunction therewith, as well as any Quota Share Reinsurance assumed on this same business. In addition, liabilities from work-related injuries (when applicable) and reinsurance assumed on Fully Insured Medical Insurance from the First Dakota Indemnity Company were included in this Agreement. 3) The following are the material contracts entered or to be entered into after December 31, 1997. Producer Agreement between VASA Brougher, Inc. and Corporate Benefit Services of America, Inc. (Still in draft form though services being performed are consistent with terms.) Administrative Services Agreement between Seaboard Life Insurance Company (USA) and HealthPlan Services, Inc. (Still in draft form.) Early Possession Agreement between VASA Properties and Eli Lilly and Company dated July 22, 1998 Real Estate Purchase and Sale Agreement between VASA Properties and Kite Capital, LLC dated June 23, 1998 Draft Post Closing Possession Agreement between VASA Properties and Eli Lilly and Company Demolition Agreement between VASA Brougher, Inc. and Jordan Demolition Corporation dated August 5, 1998 Assumption Agreement between Seaboard Life Insurance Company (USA) and ReliaStar Life Insurance Company dated June 24, 1998 12 Letter Agreement between Jack Hewett and VASA Brougher, Inc. dated June 8, 1998 Letter of Understanding regarding Independent Agency Agreement between VASA Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the other hand, dated June 8, 1998 Letter of Understanding regarding terms of employment between Fred Snively and VASA Brougher, Inc. (Draft dated July 16, 1998) VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) (the "Companies") Mega Medical 50/50 Quota Share Reinsurance Agreement effective January 1, 1998, reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada. Section B of the Agreement would provide aggregate coverage equal to 5% gross net written premium for the Companies' retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective January 1, 1998, reinsured with Sun Life of Canada and Transatlantic Re Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance Agreement effective July 1, 1998, reinsured with Sun Life of Canada, Everest Re, Phoenix Home Life, Reliance National and Transatlantic Re Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 (Excess of $50,000) effective May 1, 1998, from First Dakota Indemnity Company effective January 1, 1998 and in turn reinsures through a Mega Medical 50/50 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Constitution Re and Section B of the Agreement which provides aggregate coverage equal to 5% gross net written premium for the Seaboard Life Insurance Company (USA)'s retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and through a $4,000,000 Excess $1,000,000 Excess Cessions Reinsurance Agreement reinsured with Transatlantic Re and Sun Life of Canada (listed above) VASA North Atlantic Insurance Company Assumes 80% Quota Share effective January 1, 1998 from Standard Security Life Insurance Company of New York and in turn reinsures through Mega Medical 50/50 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Constitution Re and Section B of the Agreement which provides aggregate coverage equal to 5% gross net written premium for the VASA North Atlantic Insurance Company's retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and through a $4,000,000 Excess $1,000,000 Excess Cessions 13 Reinsurance Agreement reinsured with Transatlantic Re and Sun Life of Canada (listed above) 3.9(i) The following are significant changes by the Company or any Subsidiary of any Company in the compensation structure of, or benefits available to, any significant agent or with respect to agents generally, since December 31, 1997: Independent Agency Agreement - On June 8, 1998, Steve Butz ("Butz") and ---------------------------- Greg Edwards ("Edwards") executed a Letter of Understanding ("Letter") relating to an Independent Agency Agreement to be entered into with VASA Brougher, Inc. Under the terms of the Letter, Butz and Edwards ceased employment with VASA Brougher, Inc. as of July 1, 1998 and established their own agency, Phase II Marketing, LLC. 3.9(j) No exceptions. 3.9(k) No exceptions. 3.9(l) No exceptions. 3.9(m) The following are any sales, transfers or conveyances of any investments or other assets of any Company or any Subsidiary of any Company with an individual book value in excess of $75,000, except in the ordinary course of business and consistent with past practices, since December 31, 1997: Sale of Real Estate - VASA Properties entered into a Real Estate ------------------- Purchase and Sale Agreement with Kite for the sale of certain parcels of certain Properties set forth on Exhibit A of the Agreement. The purchase price for the Properties is $9,500,000 payable at the closing. At this time, the closing is expected to occur on September 15, 1998. See (d) above. 3.9(n) For any amendment, termination, waiver, disposal or lapse thereof, or other failure to preserve, any material license, permit or other form of authorization of the Company or any Subsidiary of any Company, since December 31, 1997, see Schedule 3.15. 3.9(o) The following are any expenditures or commitments for additions to property, plant, equipment or other tangible or intangible Assets which exceed $75,000 in the aggregate, since December 31, 1997: Expenditures Related To Properties - In the aggregate, expenditures ---------------------------------- related to the Companies properties may exceed $75,000- The Companies and/or their Subsidiaries have already spent $21,000 for Patriot Engineering and Environmental, LLC to abate above group storage tanks and asbestos-containing materials at 108 E. McCarty Street, Indianapolis, Indiana (Warehouse) and 751 S. Meridian Street, Indianapolis, Indiana (Circle City Glass) properties. Additional monies will be spent for Patriot to excavate the 14 north point of the 525 S. Meridian Street, Indianapolis, Indiana property for the possible existence of one or more underground storage tanks during the week of July 27, 1998. At this time, the Companies and their Subsidiaries are reviewing proposals for the demolition of two structures located at 751 S. Meridian Street (Circle City Glass). The proposals project the cost of demolition to be approximately $50,000. 3.9(p) None except as may have otherwise been noted in this Section 3.9. 15 Schedule 3.10 No Undisclosed Material Liabilities ----------------------------------- (b) There are no material liabilities to be disclosed beyond those otherwise referred to in Section 3.10. 16 Schedule 3.11 Material Contracts ------------------ [The contracts that have change of control provisions are marked with asterisks.] 1. Operational Agreements ---------------------- Underwriting Services Agreement between VASA Brougher, Inc. and Healthcare Management Administrators, Inc. dated September 12, 1995 Underwriting Services Agreement between VASA Brougher, Inc. and Midwest Security Administrators, Inc. dated January 1, 1995 Underwriting Services Agreement between VASA Brougher, Inc. and Medical Benefit Administrators dated September 1, 1994 Underwriting Services Agreement between VASA Brougher, Inc. and Business Administrators & Consultants, Inc. dated January 1, 1995 (Authority has been withdrawn but Agreement has not been terminated.) Underwriting Services Agreement between VASA Brougher, Inc. and Cottingham & Butler, Inc. dated January 1, 1995 (Authority has been withdrawn but Agreement has not been terminated.) Underwriting Services Agreement between VASA Brougher, Inc. and Brokerage Concepts, Inc. dated January 1, 1993 Underwriting Services Agreement between VASA Brougher, Inc. and Boon-Chapman Benefit Administrators, Inc. dated January 16, 1996 Underwriting Services Agreement between VASA Brougher, Inc. and Greentree Administrators, Inc. dated January 16, 1996 Underwriting Services Agreement between VASA Brougher, Inc. and Robey-Barber Insurance Services Corporation dated March 14, 1995 Underwriting Services Agreement between VASA Brougher, Inc. and Self-Funded Plans, Inc. dated January 1, 1994 (Authority has been withdrawn but Agreement has not been terminated.) Underwriting Services Agreement between VASA Brougher, Inc. and Corporate Benefit Services of America, Inc. dated June 1, 1994 Producer Agreement between VASA Brougher, Inc. and Corporate Benefit Services of America, Inc. (Still in draft form though services being performed are consistent with terms.) 17 The following third party administrators perform services contemplated by an Underwriting Services Agreement and are compensated accordingly, but have not executed a written agreement: HRM (new cases only), Advanced Insurance Administrators and Minton Financial Underwriting Services Agreement between Seaboard Life Insurance Company (USA) and ABI Administrative Services Corporation d/b/a Corporate Benefit Services of America, Inc. dated May 1, 1995 Trust Agreement between Seaboard Life Insurance Company (USA) and Banc One dated March 15, 1995 Seaboard Multiple Employer Trust - Declaration of Trust by Settlor dated June 1, 1981 Seaboard Life Insurance Company (USA) Multiple Employer Trust - Declaration of Trust by Settlor dated June 24, 1994 Fully Insured Medical Multiple Employer Trust Agreement dated August 1, 1997 Policyholders: Wholesale Trade HealthPlan Services Trust of Indiana; Manufacturing HealthPlan Services Trust of Indiana; Transportation, Communication and Public Utilities HealthPlan Services Trust of Indiana; Finance, Insurance and Real Estate HealthPlan Services Trust of Indiana; Contract Construction HealthPlan Services Trust of Indiana; Retail Trade HealthPlan Services Trust of Indiana, and Service HealthPlan Services Trust of Indiana Underwriting Administration Agreement between VASA Brougher, Inc. (f/k/a Brougher Insurance Management Services, Inc.) and Seaboard Life Insurance Company (USA) (f/k/a VASA Life Insurance Company) dated May 1, 1991, as amended Binder Agreement and Cover Note Nos. 975700001 and 975700002 between Certain Underwriters at Lloyd's, London and VASA Brougher, Inc. dated February 20, 1997 Agreement between Seaboard Life Insurance Company (USA) and Celtic Life Insurance Company for a Medical Expense Conversion Program dated July 1, 1997 Underwriting Administration Agreement between VASA Brougher, Inc. and VASA North Atlantic Insurance Company dated January 1, 1995, as amended Underwriting Administration Agreement between VASA Brougher, Inc. and Standard Security Life Insurance Company dated January 1, 1992, as amended WASA Life Mutual Insurance Company Limited's Guaranty in favor of Standard Security Life Insurance Company of New York date June 14, 1990 Group General Agent Contract between Brougher Insurance Management Services, Inc. and Kansas City Life Insurance Company dated January 15, 1990 18 Administrative Services Agreement between Seaboard Life Insurance Company (USA) and HealthPlan Services, Inc. (Still in draft form.) Service Agreement between Seaboard Life Insurance Company and Seaboard Life Insurance Company (USA) dated as of November 10, 1993 Hardware Lease Agreement between VASA North America, Inc. and Amplicon Financial dated March 19, 1997 Master Lease Agreement between VASA Brougher, Inc. and Sun Microsystems Finance dated July 31, 1996 Agreement between Indiana Bell Telephone Company, Inc. and Brougher Insurance Group, Inc. dated December 18, 1990 Product Agreement between AT&T and Brougher Insurance Group, Inc. dated August 28, 1989 Early Possession Agreement between VASA Properties and Eli Lilly and Company dated July 22, 1998 Real Estate Purchase and Sale Agreement between VASA Properties and Kite Capital, LLC dated June 23, 1998 Draft Post Closing Possession Agreement between VASA Properties and Eli Lilly and Company Demolition Agreement between VASA Brougher, Inc. and Jordan Demolition Corporation dated August 5, 1998. Assumption Agreement between Seaboard Life Insurance Company (USA) and ReliaStar Life Insurance Company dated June 24, 1998 Producer Agreement between Seaboard Life Insurance Company (USA) and Avalon Benefit Services, Inc. dated June 1, 1994 Administrative Services Agreement between Seaboard Life Insurance Company (USA) and Avalon Benefit Services, Inc., dated June 1, 1994, as amended Administrative Service Agreement between Seaboard Life Insurance Company (USA) and Key Benefit Administrators, Inc. dated December 1, 1994 Underwriting Administration Agreement between Seaboard Life Insurance Company (USA) and Olympic Health Management Systems, Inc. dated August 1, 1994 Producer Agreement between Seaboard Life Insurance Company (USA) and Key Senior Benefits, Inc. dated December 1, 1994 19 Service Agreement between VASA Brougher, Inc. d/b/a VASA Care and Matria Healthcare, Inc. dated November 12, 1996, as amended Agreement for Case Management and Utilization Review Services between VASA Brougher, Inc. and American Health Holding, Inc. dated June 1, 1996, as amended Software License between VASA North America, Inc. and Wheatly Insurance Systems, Inc. dated July 9, 1993 Maintenance Agreement between VASA North America, Inc. and Wheatly Insurance Systems, Inc. dated July 9, 1993 Non-Exclusive License Agreement between Lawson Associates, Inc. and VASA North America, Inc. dated September 5, 1990 Contract for Events and Activities between VASA Brougher, Inc. and Newport Hospitality, Inc. dated November 19, 1997 PAL SERVICE License Agreement between VASA Brougher, Inc. and Pictorial, Inc. dated May 22, 1996 AppointPAK License Agreement between VASA Brougher, Inc. and Pictorial, Inc. dated August 23, 1995 License Agreement between VASA Brougher, Inc. and NILS Publishing, Inc. for INSOURCE Services WASA Properties I, L.P., an Indiana Limited Partnership, Limited Partnership Agreement between North Atlantic Casualty and Surety Insurance Company, Inc. and WASA Capital Holdings, Inc. dated July 2, 1990, as amended Promissory Note between VASA Properties and The Manufacturers Life Insurance Company dated April 8, 1994 Real Estate Mortgage and Security Agreement between VASA Properties and The Manufacturers Life Insurance Company dated April 8, 1994 Lease between Eli Lilly and Company and North Atlantic Casualty and Surety Insurance Company dated April 10, 1989, as amended Term Note between VASA North America, Inc. and ABN AMRO Bank N. V. dated September 30, 1997 *Employment Agreement between Norm Torrison and VASA Brougher, Inc. dated March 1, 1996 20 Letter of Assignment regarding employment of Roelof Konterman between AVCB Diensten B.V., VASA Brougher, Inc. and Roelof Konterman dated April 18, 1997 Letter Agreement between Jack Hewett and VASA Brougher, Inc. dated June 8, 1998 *Letter of Understanding regarding Independent Agency Agreement between VASA Brougher, Inc., on the one hand, and Greg Edwards and Steve Butz, on the other hand, dated June 8, 1998 Letter of Understanding regarding terms of employment between Fred Snively and VASA Brougher, Inc. (Draft dated July 16, 1998) Promissory Note between VASA Insurance Group, Inc. and VASA North Atlantic Insurance Company dated December 31, 1997 Promissory Note between VASA North America, Inc. and VASA North Atlantic Insurance Company dated December 31, 1997 Administrative and Technical Services Agreement between VASA North Atlantic Insurance Company and Seaboard Life Insurance Company dated January 2, 1996 Cost Sharing Agreement between VASA North America, Inc. and Eureko B.V. dated January 1, 1992, as amended Tax Allocation Agreement between VASA North America, Inc. and its affiliates dated January 1, 1997 Health Care Policy Consulting Retainer (no formal written agreement) between VASA Brougher, Inc. and Health Policy and Strategy Associates effective June 1994. Federal Affairs Consulting and Lobbying Retainer (no formal written agreement) between VASA Brougher, Inc. and Sagamore Associates effective October 1994. Service Agreement between Policy Management Systems Corporation and VASA North Atlantic Insurance Company dated December 15, 1995. 2. Medical Excess Risk Reinsurance ------------------------------- Sun Medical Reinsurance Facility Retrocession Agreement between Seaboard Life Insurance Company (USA) and Sun Life Assurance of Canada dated January 1, 1992, as amended Medical Stop Loss 90/10 Quota Share Reinsurance Agreement between Seaboard Life Insurance Company (USA) and Eureko Re dated January 1, 1996 VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) (the "Companies") Mega Medical 50/50 Quota Share Reinsurance Agreement effective January 1, 21 1998, reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada. Section B of the Agreement would provide aggregate coverage equal to 5% gross net written premium for the Companies' retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada. VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective January 1, 1998, reinsured with Sun Life of Canada and Transatlantic Re. VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) Mega Medical 60/40 Quota Share Reinsurance Agreement effective January 1, 1997, reinsured with Transatlantic Re, Sun Life of Canada and Eureko Re. VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective January 1, 1997, reinsured with American United Life, Manulife Reinsurance Corp. and Mercantile & General. VASA North Atlantic Insurance Company Mega Medical 65/35 Quota Share Reinsurance Agreement effective January 1, 1996, reinsured with Eureko Re and Seaboard Life Insurance Company (USA) VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $900,000 Excess of $100,000, Excess Reinsurance Agreement effective January 1, 1996, reinsured with Transatlantic Re, Anthem Life Insurance Company and Sun Life of Canada VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective January 1, 1996, reinsured with American United Life, Manulife Reinsurance Corp. and Mercantile & General. VASA North Atlantic Insurance Company Mega Medical 65/35 Quota Share Reinsurance Agreement effective January 1, 1995, reinsured with Eureko Re, Seaboard Life Insurance Company (USA) and Transatlantic Re VASA North Atlantic Insurance Company and Seaboard Life Insurance Company (USA) $4,000,000 Excess $1,000,000, Excess Cessions Reinsurance Agreement effective January 1, 1995, reinsured with American United Life, Manulife Reinsurance Corp. and Mercantile & General. 3. Lawyers Professional Liability Reinsurance ------------------------------------------ *VASA North Atlantic Insurance Company 80/20 Quota Share Reinsurance Agreement effective January 1, 1994, reinsured with Transatlantic Re 22 VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement effective January 1, 1993, reinsured with Transatlantic Re VASA North Atlantic Insurance Company $250,000 Excess of $250,000, Underlying Excess of Loss Reinsurance Agreement effective January 1, 1993, reinsured with Cologne Life Re, Chartwell, Security Re and Transatlantic Re VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement effective January 1, 1992, reinsured with Transatlantic Re VASA North Atlantic Insurance Company $300,000 Excess of $300,000, Underlying Excess of Loss Reinsurance Agreement effective January 1, 1992, reinsured with Chartwell, Cologne Life Re, Hansa Re, Transatlantic Re and Lloyd's London VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement effective November 1, 1990 through December 31, 1991, reinsured with Transatlantic Re VASA North Atlantic Insurance Company $300,000 Excess of $300,000, Underlying Excess of Loss Reinsurance Agreement effective November 1, 1990 through December 31, 1991, reinsured with Chartwell, Cologne Life Re, St. Paul Re, Hansa Re, Transatlantic Re and Lloyd's London VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement effective November 1, 1989, reinsured with Transatlantic Re VASA North Atlantic Insurance Company $250,000 Excess of $250,000, Underlying Excess of Loss Reinsurance Agreement effective November 1, 1989, reinsured with American Continental, Colonial Insurance Co., Dai Tokyo Ins. Co., Hansa Re, Lloyd's London, Transatlantic Re, Royal Reinsurance Co., Sphere Drake, The Toa Re Insurance Co. and Harleysville 4. Dental Professional Liability Reinsurance ----------------------------------------- *VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective April 1, 1991, reinsured with Skandia American and Transamerica *VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss Reinsurance Agreement effective April 1, 1991, reinsured with Cologne Life Re, Re Capital, Skandia American and Transamerica *VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American, Cologne Life Re and Transamerica 23 *VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective April 1, 1990, reinsured with Skandia American and Transamerica *VASA North Atlantic Insurance Company $500,000, Excess $500,000, Excess of Loss Reinsurance Agreement effective April 1, 1990 reinsured with Skandia American, Cologne Life Re, Re Capital and Transamerica *VASA North Atlantic Insurance Company $150,000 Excess $150,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American and Re Capital *VASA North Atlantic Insurance Company $250,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American and Transamerica *VASA North Atlantic Insurance Company $500,000 Excess $500,000, Excess of Loss Reinsurance Agreement effective March 1, 1989 through March 31, 1990, reinsured with Skandia American, Cologne Life Re, Re Capital and Transamerica *VASA North Atlantic Insurance Company $150,000 Excess $100,000, Excess of Loss Reinsurance Agreement effective March 1, 1988, reinsured with Re Capital *VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1988, reinsured with Transamerica *VASA North Atlantic Insurance Company $200,000 Excess $50,000, Excess of Loss Reinsurance Agreement effective March 1, 1987, reinsured with Re Capital (only 75% placed on this layer) *VASA North Atlantic Insurance Company $750,000 Excess $250,000, Excess of Loss Reinsurance Agreement effective March 1, 1987, reinsured with Clarendon National and The New York Insurance Exchange (only 75% placed on this layer) 5. Non-Standard Auto Reinsurance ----------------------------- *VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement effective October 1, 1993, reinsured with WASA International, Chartwell Re, Cologne Life Re, Cignet Re, Trenwick Re and Transatlantic Re VASA North Atlantic Insurance Company 60/40 Quota Share Reinsurance Agreement effective July 1, 1992 through October 1, 1993, reinsured with Constitution Re, Transatlantic Re and WASA International 24 VASA North Atlantic Insurance Company 50/50 Quota Share Reinsurance Agreement effective July 1, 1991, reinsured with Constitution Re 6. Fully Insured Medical Programs Reinsurance ------------------------------------------ Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance Agreement effective July 1, 1998, reinsured with Sun Life of Canada, Everest Re, Phoenix Home Life, Reliance National and Transatlantic Re Seaboard Life Insurance Company (USA) 90/10 Quota Share Reinsurance Agreement effective July 1, 1997, reinsured with Sun Life of Canada, Phoenix Home Life, Reliance National and RSP Seaboard Life Insurance Company (USA) 77/23 Quota Share Reinsurance Agreement effective May 1, 1997, through September 1, 1998 reinsured with Sun Life of Canada, Transatlantic Re, and Eureko Re Seaboard Life Insurance Company (USA) 80/20 Quota Share Reinsurance Agreement effective December 1, 1995 through May 1, 1997, reinsured with Sun Life of Canada, Transatlantic Re, and Mercantile and General Seaboard Life Insurance Company (USA) 100% Quota Share Reinsurance Agreement effective September 1, 1997 through December 31, 1998, reinsured with First Excess and Reinsurance Corporation Seaboard Life Insurance Company (USA) 77/23 Quota Share Reinsurance Agreement effective May 1, 1997 through September 1, 1997, reinsured with Sun Life of Canada, Transatlantic Re and Eureko Re Seaboard Life Insurance Company (USA) 80/20 Quota Share Reinsurance Agreement effective May 1, 1996, reinsured with Mercantile and General, Sun Life of Canada, Eureko Re and Transatlantic Re Seaboard Life Insurance Company (USA) 70/30 Quota Share Reinsurance Agreement effective May 1, 1995, reinsured with Mercantile and General, Sun Life of Canada and Transatlantic Re 7. Group Life and AD&D Reinsurance ------------------------------- Seaboard Life Insurance Company (USA) Group Life Excess of Loss Reinsurance Agreement Excess of $75,000, effective May 1, 1997, reinsured with Munich American Re Seaboard Life Insurance Company (USA) AD&D 100% Quota Share Reinsurance Agreement effective May 1, 1997, reinsured with Munich American Re Seaboard Life Insurance Company (USA) Group Life Excess of Loss Reinsurance Agreement Excess of $75,000, effective April 1, 1996 to May 1, 1997, reinsured with Lincoln National 25 Seaboard Life Insurance Company (USA) AD&D 50/50 Quota Share Reinsurance Agreement effective April 1, 1996 to May 1, 1997, reinsured with Lincoln National 8. Facultative Reinsurance ----------------------- Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 from First Dakota Indemnity Company effective January 1, 1997 and in turn reinsures through a Mega Medical 60/40 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Eureko Re (listed above) and through a $4,000,000 Excess $1,000,000 Excess Cessions Reinsurance Agreement reinsured with American United Life, Manulife Reinsurance Corp. and Mercantile & General (listed above) Seaboard Life Insurance Company (USA) Assumes Excess of $25,000 (Excess of $50,000) effective May 1, 1998, from First Dakota Indemnity Company effective January 1, 1998 and in turn reinsures through a Mega Medical 50/50 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Constitution Re and Section B of the Agreement which provides aggregate coverage equal to 5% gross net written premium for the Seaboard Life Insurance Company (USA)'s retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and through a $4,000,000 Excess $1,000,000 Excess Cessions Reinsurance Agreement reinsured with Transatlantic Re and Sun Life of Canada (listed above) 9. Assumed Reinsurance Treaty -------------------------- VASA North Atlantic Insurance Company Assumes 80% Quota Share effective January 1, 1998 from Standard Security Life Insurance Company of New York and in turn reinsures through Mega Medical 50/50 Quota Share Reinsurance Agreement with Transatlantic Re, Sun Life of Canada and Constitution Re and Section B of the Agreement which provides aggregate coverage equal to 5% gross net written premium for the VASA North Atlantic Insurance Company's retention (being $500,000) attaching at a 72.5% loss ratio reinsured with Constitution Re, Transatlantic Re and Sun Life of Canada (listed above) and through a $4,000,000 Excess $1,000,000 Excess Cessions Reinsurance Agreement reinsured with Transatlantic Re and Sun Life of Canada (listed above) 26 Schedule 3.12 Litigation ---------- POTENTIAL LITIGATION -------------------- 1. Insured: Joe's Ready Mix Claimant: Sarah Bartels Carrier: VASA North Atlantic Insurance Company TPA: Medical Benefit Administrators, Inc. SUMMARY: VASA Brougher, Inc. ("VBI") became aware of adverse claims that were not disclosed during the initial underwriting process and prior to the date the policy was bound. VBI withdrew the FORCE quote and declined to issue a new quote. VBI has since been advised that the Insured was not able to renew coverage with the prior carrier and was uninsured for a short period of time. Ms. Bartels gave birth to one premature twin in January of 1997 at 24 weeks gestation. The second twin was fully-developed and was born in April. A portion of Ms. Bartels' claims for the premature infant fall into this gap in coverage. STATUS: VBI advised counsel for Joe's Ready Mix that no stop loss coverage was formally offered to Joe's Ready Mix, Inc. by VBI and that neither VBI nor VNAIC have any liability for any claims incurred by Joe's Ready Mix or Sarah Bartels. VBI put its E&O carrier on notice of a potential claim. VBI received a letter from the attorney representing Joe's Ready Mix dated July 8, 1998 advising that depositions would soon be taken to explore the full extent of communications between the TPA and VBI. Joe's Ready Mix filed a Petition in the District Court in Sioux County against the TPA and Jim Norland. Counsel also asks if VBI would be willing to participate early on in formal face to face discussions to resolve this matter. VBI declined to participate in the meeting. 2. Insured: NEA Alaska Health Plan Trust Claim: Aggregate Carrier: Standard Security Life Ins. Co. of New York TPA: Employee Security, Inc. SUMMARY: TPA submitted an aggregate stop loss claim request in the amount of $541,418.46 under the stop loss contract. The aggregate claim request submitted contained charges incurred only by Anchorage Education Association members and calculated the "true" aggregate attachment point considering only the funding factors and eligibility data of Anchorage Education Association members. It is VBI's position that it issued one policy with only one aggregate excess benefit to the NEA Alaska Health Plan Trust which was inclusive of both Anchorage and Juneau Education 27 Association Members. It is the Trust's opinion that VBI issued: (1) two separate stop loss policies to the Anchorage and Juneau Education Associations; or (2) one stop loss policy to the trust with a separate aggregate excess benefit for each association. STATUS: VBI issued a conditional reimbursement advance in the amount of $270,709.23. VBI audited the claim and a determination was made that the aggregate claim due was only $39,925.24. VBI requested a refund from NEA Alaska for $230,783.99. NEA Alaska retained legal counsel to pursue this matter. Legal counsel for the Trust has made an offer to settle this matter and has demanded the return of all premium paid or payment of the aggregate claim request. VBI responded to the Trust's settlement offer by offering to settle this matter for payment of 50% of the refund due or $115,392. NEA Alaska rejected VBI's counter offer and restated their original settlement offer. VBI will respond by offering to settle for payment of $57,696. VBI put its E&O carrier on notice of this possible claim. 3. Insured: Kansas Schools - including South Central and Smoky Hill Carrier: Seaboard Life Insurance Company (USA) TPA: Harden & Associates SUMMARY: On January 26, 1998, VBI and Seaboard (USA) paid Smoky Hill approximately $487,486.69 of a $830,895.76 aggregate stop loss claim request. On February 3, 1998, VBI and Seaboard Life Insurance Company (USA) ("Seaboard (USA)") advised South Central that no aggregate claim payment was due even though South Central had filed a $281,129.07 aggregate claim request. Shortly thereafter, VBI and Seaboard (USA) received complaints from the Kansas Department of Insurance (the "Department") related to VBI's aggregate claim determinations. At issue is VBI's and Seaboard (USA)'s determination that Smoky Hill and South Central paid claims outside the terms and conditions of their respective plan documents. Generally, the plan documents state that "no claim will be paid unless it is submitted within ninety (90) days of the date the claim is incurred unless not reasonably possible". The aggregate audit and information provided to VBI indicates that Smoky Hill paid $323,443.09 in claims even though the participant claims were not submitted to the Plan within ninety (90) days of being incurred. Similarly, it appears that South Central paid approximately $1,406,324.94 in claims despite the ninety (90) day requirement. The Department reported that Smoky Hill and South Central paid the claims at issue because the Department instructed them to do so. The Department also suggested that Smoky Hill and South Central are likely to become insolvent. STATUS: Seaboard (USA)'s legal counsel visited with the Kansas Department of Insurance to discuss this matter. VBI and Seaboard (USA) retained local counsel in Kansas City, Missouri to represent VBI and Seaboard (USA) in this matter. During 28 this meeting, the Department advised VBI and Seaboard (USA) that Seaboard (USA) should pay the claims at issue because, in their opinion, the ninety (90) day requirement: (1) does not act as a claims bar; (2) has not been enforced by any other carrier; (3) the stop loss policy does not exclude such claims; (4) the pool may not have such a provision in its plan under Kansas law and Seaboard (USA) violated this law; and (5) any reason is reasonable for not submitting claims within ninety (90) days. The Department also stated that VBI and Seaboard (USA) will pay the claims at issue or be subject to regulatory and/or other various sanctions. At the meeting, VBI and Seaboard (USA) adamantly disagreed with the opinion and allegations being made by the Department. Seaboard (USA) again advised the Department that Seaboard (USA) is ready and willing to review any information and/or documentation that Smoky Hill or South Central may believe supports the reimbursement of the claims at issue. VBI and Seaboard (USA) advised the Department that Smoky Hill, South Central and Harden have not provided VBI and Seaboard (USA) with any documentation and/or information that supports the claims. VBI and Seaboard (USA) also stated that the Department instruction to Smoky Hill and South Central to pay the claims does not make Seaboard (USA) liable for the claims under the terms and conditions of the stop loss policy. At the request of the Department, VBI and Seaboard (USA) provided the Department with a written response to the opinion of and allegations made by the Department in a letter dated February 27, 1998. In that letter, VBI refuted the Department's opinions and allegations and provided its reasoning. Once again, VBI and Seaboard (USA) expressed their willingness to review any information and/or documentation that Smoky Hill or South Central may believe supports the payment of the claims at issue. On March 6, 1998, the Department responded to VBI's February 27, 1998 letter, writing to the legal counsel for VBI/Seaboard (USA) and alleging that Seaboard (USA) had violated Kansas' Unfair Claim Settlement Practices Act. In that letter, the Department directs Seaboard (USA) to pay the claims at issue or be subject to administrative action and a market conduct investigation of all of Seaboard (USA)'s Kansas health claims to determine if VBI or Seaboard (USA) has violated Kansas law when adjudicating other health claims. VBI/Seaboard (USA) prepared a timely written response. The Kansas Department did not wait for VBI's response before it initiated a market conduct investigation. Seaboard (USA) counsel and claim auditors visited the offices of the pools as well as the TPA's office to obtain the previously-requested information and determine whether additional expenses were eligible for reimbursement. Following these reviews, it was determined that a large portion of the denied expenses were eligible for reimbursement and have been processed accordingly. On May 7, 1998, VBI received the draft report of the target market conduct examination conducted by the Kansas Department. The findings were not material, the courtesy and cooperation 29 of Seaboard (USA) was noted and no fines or penalties were recommended. Seaboard (USA) accepted the report as drafted. South Central filed a lawsuit against VBI and Seaboard (USA) (refer to the Litigation section of this Schedule). VBI/Seaboard (USA) put their E&O carrier on notice of a possible claim by Smoky Hill. 4. Insured: Kansas Municipal Employee Health Insurance Group (KMEHIG) Carrier: Seaboard Life Insurance Company (USA) TPA: Century Health Solutions SUMMARY: In January 1998, the Department received a complaint from KMEHIG regarding VBI and Seaboard (USA). KMEHIG has alleged the following: A. MedPlans 2000 (the former TPA), as an agent of Seaboard (USA), misrepresented Seaboard (USA)'s aggregate accommodation product thereby denying KMEHIG the opportunity to submit incurred claims for consideration during the January 1, 1997 through December 31, 1997 policy period. B. VBI and Seaboard (USA) did not promptly process and pay accommodation payment requests and claims thereby denying KMEHIG the opportunity to fund for pending claims during the January 1, 1997 through December 31, 1997 policy period; and C. The VBI underwriter on this case did not provide KMEHIG with a timely renewal proposal and subsequently on January 16, 1998 either rescinded coverage or withdrew an offer of coverage with a proposed effective date of January 1, 1998 to avoid paying claims. STATUS: Seaboard (USA)'s legal counsel also discussed this case with the Kansas Insurance Department during his visit. On February 12, 1998, VBI and Seaboard (USA) addressed many of the allegations set forth in KMEHIG's January 21, 1998 letter to the Department. Following some discussion, the Department requested that VBI and Seaboard (USA) provide the Department with a written response to KMEHIG's allegations. The Department expressed serious concern regarding the allegation of misrepresentation and VBI's withdrawal of the offer of coverage. VBI/Seaboard (USA) prepared and submitted a written response to the Department's inquiry. VBI and Seaboard (USA) received a letter from an attorney representing KMEHIG on June 23, 1998 demanding $209,328. VBI and Seaboard (USA) have retained an attorney to assist in responding to this letter. VBI put its E&O carrier on notice of this possible claim. 5. Former Employee: Mike Brown 30 SUMMARY: Mike Brown, a former regional sales representative for VBI, retained an attorney and has threatened to sue VBI for age and disability discrimination. Mr. Brown's employment was terminated for failure to achieve certain sales targets. Mr. Brown advised that a severance package of $40,000 would be acceptable. VBI declined this offer and advised it would be willing to pay Mr. Brown $1,500 in settlement of this matter. Mr. Brown rejected VBI's offer but advised he would agree to settle for $10,000.00. Counsel for VBI is reviewing this offer. LITIGATION ---------- 1. Richard Karam v. VASA North Atlantic Insurance Company ------------------------------------------------------ Court: District Court of Oklahoma County, State of Oklahoma Case No.: CJ 93 5774-63 Date Filed: July 27, 1993 Carrier: VASA North Atlantic Insurance Company Insured: Richard S. Karam; Karam & Smith Prayer: Unspecified actual damages; punitive damages of two times actual damages Type of Coverage: Professional liability SUMMARY: Plaintiff alleges VASA North Atlantic Insurance Company ("VASA North Atlantic") breached its contract and breached the duty of good faith and fair dealing in failing to accept coverage and defend/indemnify the insured in the underlying professional liability suit against Mr. Karam. STATUS: In the underlying suit, Mr. Karam is named as a defendant in a federal RICO suit in his capacities as stockholder and officer of one of the business entities involved and not in his capacity as a lawyer. VASA North Atlantic filed an Answer and Counterclaim for Rescission and a Motion to Transfer the Case to the Original Judge. The basis for the Counterclaim is that Mr. Karam should have advised the VASA North Atlantic underwriters that he had been sued for racketeering, fraud, etc. and that out of that litigation a legal malpractice claim might arise. This case is currently in the discovery stage. This claim was reported to VASA North Atlantic's E&O carrier. 2. Alexis Herman, Secretary of U.S. Department of Labor v. John J. Wolfe, et ------------------------------------------------------------------------- al. - --- Court: United States District Court Northern District of Illinois Eastern Division Date Filed: August 6, 1996 Carrier: Standard Security Life Insurance Company of New York 31 Insured: International Professional Craft and Maintenance Employee Association Trust Type of Coverage: Stop loss SUMMARY: Suit was filed by Robert B. Reich, then Secretary of the U.S. Department of Labor, against the International Professional Craft and Maintenance Employee Association Trust ("IPCMEAT") requesting the removal of the former trustees and management of the Trust. On August 23, 1996, the Court entered an Agreed Preliminary Injunctive Order freezing the assets of the Trust and appointing an Independent Fiduciary to oversee the Trust. The Independent Fiduciary filed motions with the Court that were granted that terminated the IPCMEAT as of September 30, 1996 and placed the Trust in liquidation. VBI believes there were individuals covered under the IPCMEAT in most of the 50 states. The Illinois Department of Insurance is advised of the status of this matter and has apprised other insurance departments of this situation. Pleadings in the liquidation proceedings indicate that the named fiduciary, Betty Cordial, believes that there are approximately $3.5 million in outstanding participant claims. On behalf of Standard Security Life Insurance Company of New York ("Standard Security"), VBI paid $419,000 in claims under the stop loss policy prior to the termination date of the policy. The policy lapsed for non-payment of premium effective May 31, 1996. DOL investigators have visited the offices of VBI two times to review files in this matter. On both occasions, the investigators confirmed that neither VBI nor Standard Security is targeted or implicated in this matter. The investigators reported that the DOL was pursuing criminal charges against the trustees of IPCMEAT. STATUS: VBI reported this as a possible claim to its E&O carrier. On November 11, 1997, VBI and Standard Security legal counsel met with the independent fiduciary and various others who had been dealing with the trust liquidation. VBI and Standard Security counsel were advised that the independent fiduciary was going to file a claim under the stop loss policy for $3,248,384.19. Subsequently, VBI received 4 boxes of claim documentation. On December 16, 1997, VBI and Standard Security counsel met in VBI's offices to discuss the matter and establish the positions and defenses of VBI and Standard Security. VBI's claim auditor has determined that less than $1,000 is eligible for reimbursement under the stop loss policy based upon the documentation submitted to date. The parties negotiated a mutual tolling agreement with the named fiduciary so that neither claims filed by the fiduciary nor defenses asserted by VBI and Standard Security will be time-barred. Counsel for VBI is currently in the process of setting up a meeting with the Independent Fiduciary to discuss the claims reviewed by VBI and our claim determination. No actual case reserves are set for this claim, but this claim is included in the calculation of IBNR. 3. Crete Carrier Corporation, et al. v. Seaboard Life Insurance Company --------------------------------------------------------------------- (USA), and Cottingham & Butler, Inc. - ------------------------------------- Court: United States District Court for the District of Nebraska Case No. 4:97CV3065 32 Date Filed: February 19, 1997 Prayer: $689,583.78 plus attorney fees Carrier: Seaboard Life Insurance Company (USA) Coverage: Stop loss SUMMARY: Seaboard (USA) rescinded the 1996 stop loss policy issued to Crete Carrier upon determining there were several large claims that were not disclosed at the time of underwriting. Seaboard (USA) filed a Counterclaim against Crete Carrier Corporation requesting reimbursement of $258,213.59 in claims already paid. Claims submitted to VBI under the stop loss policy included claims that were incurred prior to and after the effective date of Seaboard (USA)'s contract. Blue Cross/Blue Shield of Nebraska was the prior carrier for the 1995 calendar year and handled the claim processing for Crete Carrier under its plan during the 1996 calendar year. Several large claims incurred in 1995 were not paid until 1996. STATUS: This case is currently in the discovery stage. On October 1, 1997, Seaboard (USA) filed a Motion for Leave to Add Party which included a Third- Party Complaint against Blue Cross/Blue Shield of Nebraska. Cottingham & Butler also filed a Third Party Complaint against Blue Cross/Blue Shield. Seaboard (USA)'s attorney advised that he believes upon completion of depositions, all parties will be in a position to assess the merits of their respective cases. VBI/Seaboard (USA)'s E&O carrier has been put on notice of this claim. The parties are working with the Magistrate to schedule a settlement conference. No actual case reserves are set for this claim, but this claim is included in the calculation of IBNR. 4. Sugar Cane Health Care Trust v. Seaboard Life Insurance Company, Benefit ------------------------------------------------------------------------ Resources, Inc., et al. - ----------------------- Court: 16th Judicial District Court Parish of Iberia, Louisiana Case No.: 86918-D Date Filed: July 22, 1997 Prayer: Claim paid, interest statutory penalties and attorney fees Carrier: Seaboard Life Insurance Company (USA) Coverage: Stop loss SUMMARY: This involves a stop loss policy sold by Benefit Resources, Inc., a managing general underwriter owned by Myron McClenney. The complaint alleges that Seaboard Life Insurance Company of Vancouver B.C., Canada ("Seaboard") refused to reimburse a $678,810.20 aggregate claim due to the Sugar Cane Health Care Trust under its Seaboard (USA) stop loss policy. An aggregate claim was submitted and an audit was conducted. The results of the audit showed that no aggregate claim was due. The complaint names Seaboard; however, the carrier on the risk for the policy issued to the Sugar Cane Health Care Trust is Seaboard (USA). 33 STATUS: Ms. Karim-Bondy, a lawyer for Seaboard, retained counsel to represent Seaboard and Seaboard (USA) in this matter. This case is being handled in Canada. Seaboard (USA)'s E&O carrier has been notified of this claim. Seaboard (USA) is working with Ms. Karim-Bondy to keep the E&O carrier updated. Reserves in the amount of $170,000 will be booked to the US Group line (MET Stop Loss) at the end of August. 5. Richelle Spitzer v. VASA North Atlantic Insurance Company --------------------------------------------------------- Court: Superior Court, State of Washington, County of Spokane Case No.: 97-2064460 Date Filed: September 8, 1997 Prayer: All special, general, punitive damages caused by Plaintiff attorney fees, treble damages and interest. Carrier: VASA North Atlantic Insurance Company Coverage: Non-standard automobile SUMMARY: Ms. Spitzer was involved in an automobile accident with an uninsured motorist in September of 1993. Ms. Spitzer alleges that she sustained physical and physiological injuries. She filed a claim for uninsured motorists benefits under her VASA North Atlantic automobile insurance policy. The complaint contains allegations of bad faith in the processing of the claim and unsatisfactory handling of the insured's personal injury claim. The insured had $25,000 uninsured motorist coverage. The case was settled in arbitration for $42,500.00. The demand for damages is for the amount of $33,132.59. Plaintiff feels she should have also been offered compensation and the costs of litigation or arbitration. STATUS: This claim is being handled by VASA North Atlantic's managing general agent in Washington. This case is currently in the discovery stage. This matter has been reported to VASA North Atlantic's E&O insurance carrier. 6. Alan and Elizabeth Triplett v. Seaboard Life Insurance Company (USA), --------------------------------------------------------------------- Corporate Benefit Services of America, Inc., et al. - --------------------------------------------------- Court: Circuit Court of Itawamba County, Mississippi Civil Action No.: CI 97-099 (R)I Date Filed: August 28, 1997 Prayer: Compensatory damages and punitive damages 5% of the net worth of the defendant and interest and costs Carrier: Seaboard Life Insurance Company (USA) TPA for Carrier: Corporate Benefit Services of America, Inc. Coverage: Fully-insured medical (Navigator) SUMMARY: Ms. Triplett was insured under a fully-insured group medical policy sold to Triplett Electric, her husband's employer. Claims incurred by Mrs. Triplett were denied by 34 Corporate Benefit Services of America, Inc. ("CBSA"), on behalf of Seaboard (USA), as relating to a pre-existing condition. Seaboard (USA) will pay for the defense of CBSA pursuant to the Underwriting Administration Agreement between the parties. Ms. Triplett also filed a complaint with the Mississippi Insurance Department. STATUS: Seaboard (USA)'s counsel called Ms. Triplett's attorney prior to retaining a local attorney to represent Seaboard (USA) and offered to settle this matter by paying Ms. Triplett's denied claims then totaling approximately $678.00. Ms. Triplett's counsel would not talk about settlement. This case is currently in the discovery stage. Seaboard (USA)'s E&O carrier has been advised of this matter and has retained its own counsel to monitor this matter. No actual case reserves are set for this claim, but this claim is included in the calculation of IBNR. 7. Mercy Healthcare Arizona, d/b/a St. Joseph's Hospital and Medical Center v. --------------------------------------------------------------------------- San Carlos Apache Tribe, Corporate Benefit Services of America, et al, v. VASA - ------------------------------------------------------------------------------ North Atlantic Insurance Company - -------------------------------- Court: San Carlos Apache Tribal Court Date Filed: August 7, 1997 Case No.: 97-101 Prayer: Tribe requests judgment event that the Tribe is under the Plan for retention including against VASA in the determined to be liable any amount over the attorney fees. $15,000 Carrier: VASA North Atlantic Insurance Company Coverage: Stop loss SUMMARY: CBSA, as third party administrator for the Tribe, denied coverage to Leonard Gonzales and his family. Mr. Gonzales' daughter incurred charges from St. Joseph shortly after her birth. The providers are seeking payment of their bills from the plan. Claims requested by providers total approximately $608,204. The Tribe filed a third party complaint against VASA North Atlantic requesting that in the event judgment is rendered against the self-funded plan maintained by the Tribe, the court find the stop loss carrier liable for all claims over the $15,000 stop loss specific retention. STATUS: VASA North Atlantic responded to the complaint. The plaintiffs and the tribe have been arguing in federal court about whether jurisdiction properly rests in the federal court or in tribal court. The federal court issued a memorandum indicating that they believe the tribal court can exercise jurisdiction and the federal court should relinquish its jurisdiction. Plaintiffs filed a notice of appeal to the Ninth Circuit Court of Appeals regarding the order granting jurisdiction to the tribal court. Plaintiffs also filed a Motion to Stay the Tribal Court action pending resolution of the appeal. Our E&O carrier is on notice of this claim. 35 8. School Nine Development Corp., LLC v. VASA Brougher, Inc. --------------------------------------------------------- Court: United States District Court Southern District of Indiana Cause No.: IP97-0333-C (M/S) Date Filed: February 12, 1997 SUMMARY: Plaintiff, owned by the Jeff Brougher family, seeks to use the name "Brougher International Building" as the name of the old school/office building they are renovating. VBI denied plaintiff's request to use the name and advised that VBI owns the rights to the name "Brougher". STATUS: A settlement conference was held by the Magistrate Judge and the parties agreed that the Brougher family could use the name on a plaque on the building only. It cannot be used for any business or in the address of the company. The Brougher family agreed to pay a fine to VBI for each violation if the name is used for any other purpose without permission from VBI; however, the Brougher family recently reneged on the settlement agreement prior to its execution. VBI filed a motion to have another settlement conference. 9. David Hooten v. Seaboard Life Insurance Company (USA), Robey-Barber ------------------------------------------------------------------- Insurance Services Corporation and Pearce & Company Insurance Brokerage, Inc. - ----------------------------------------------------------------------------- Court: United States District Court, Middle District of Georgia, Columbus Division Case No.: 4:98-CV-103(JRE) Prayer: Actual damages in the amount of $31,468.15, attorney fees Carrier: Seaboard Life Insurance Company (USA) Coverage: Stop loss SUMMARY: The stop loss policy issued to Joe Hooten, Inc. was terminated June 1, 1997 for non-payment of premium. The policy was originally issued with a policy period of August 1, 1996 to August 1, 1997. The group changed its plan funding to a fully-insured plan. Plaintiff's son was hospitalized July 29-31, 1997. The TPA denied the claim under the employer's plan. No stop loss claim was submitted to VBI. STATUS: This case, originally filed in state court, was dismissed and refiled in federal court. VBI, Robey-Barber and Pearce and Company were all present at a meeting that was held in Atlanta in July. The purpose of the meeting was to try to determine the events and facts in this case. The results of the meeting revealed that the agent presented the stop loss policy to the insured. The parties will try to locate the agent and meet again to discuss this matter in more detail with the agent also present. Seaboard (USA) filed an Answer to Plaintiff's Complaint, Interrogatories and Request to Produce Documents to Plaintiff and a Motion to Dismiss. VBI/Seaboard (USA)'s E&O carrier has been put on notice of this claim. 36 10. South Central Kansas Health Insurance Group v. VASA Brougher, Inc., ------------------------------------------------------------------- Seaboard Life Ins. Co. (USA), Harden & Company Insurance Services, Inc., South - ------------------------------------------------------------------------------ Central Kansas Education Service Center, Unified School District No. 628, and - ----------------------------------------------------------------------------- Patricia Stephens, Ph.D. - ------------------------ Court: The Eighteenth Judicial District, District Court, Sedgwick County, Kansas, Civil Dept. Case Number: 98 C1280 Date Filed: May 8, 1998 Prayer: $1,075,000 plus attorney fees and costs. Carrier: Seaboard Life Insurance Company (USA) Coverage: Stop loss The complaint alleges that the premiums set for participants in the pool were inadequate to pay the losses incurred, and the specific deductibles set on the stop loss policy were set too high to generate excess loss reimbursements. Specifically as regards VBI/Seaboard (USA), the complaint alleges that the Vice President of Actuarial for VBI certified that the rates and factors calculated for the South Central group were not inadequate. VBI and Seaboard (USA) have notified their E&O carrier of this matter. (See discussion above under Potential Litigation in this Schedule.) VBI will file a Motion to Dismiss. 11. Vicky Hamilton v. Shauna Freeman and VASA North Atlantic Insurance Company -------------------------------------------------------------------------- Court: Commonwealth of Kentucky, Boone Circuit Court Case No.: 97-CI-236 Date Filed: July 10, 1998 Carrier: VASA North Atlantic Insurance Company Insured: Vicky Hamilton Prayer: $25,000 Type of Coverage: Non-standard automobile SUMMARY: Ms. Freeman operated her vehicle in a reckless and negligent manner so as to strike the vehicle occupied by Ms. Hamilton. Ms. Freeman was uninsured. Plaintiff alleges that VASA North Atlantic is responsible for her uninsured motorists claim in the amount of policy limits of $25,000. Ms. Freeman alleges she suffered permanent physical injuries, medical expenses totaling $1,000 and pain and suffering. STATUS: VASA North Atlantic was served with the Complaint on July 31, 1998. Counsel for VASA North Atlantic will retain local counsel in the State of Kentucky to represent VASA North Atlantic in this matter. 37 Schedule 3.13 Compliance With Laws -------------------- 3.13 1) Possible Limitations VASA North Atlantic Insurance Company has been contacted by the following states regarding its losses and its plan of operation going forward: Minnesota: Originally contacted by letter from the Minnesota Department of Commerce dated June 30, 1997. Most recent communication was a telephone conversation with Ms. Jill Rickheim of the Minnesota Department of Commerce on June 26, 1998. A memorandum by Andrew M. Weissert of VASA North Atlantic Insurance Company memorializing that conversation has been provided to Buyer. North Carolina: Originally contacted by letter from the North Carolina Department of Insurance dated July 9, 1998. Most recent communication was a telephone conversation between Mr. Larry Boykin, of the North Carolina Department of Insurance and Andrew M. Weissert of VASA North Atlantic Insurance Company on August 19, 1998. Mr. Weissert informed Mr. Boykin that VASA North Atlantic Insurance Company projected roughly $800,000 in premium would be written by it in North Carolina in 1998. However, VASA North Atlantic Insurance Company was for sale. Mr. Boykin responded that no limitations would be placed on VASA North Atlantic Insurance Company at this time and to please notify the North Carolina Department of Insurance when the sale was closed. 2) Filing of Reports VASA North Atlantic Insurance Company has not yet filed the necessary forms with the Insurance Services Office regarding its 1996 book of business in the State of Texas. The Insurance Services Office is under contract with the Texas Department of Insurance to collect this information. VASA North Atlantic Insurance Company is working with the Insurance Services Office to receive an exemption due to the diminishing book of business written in Texas as a result of the de-emphasis by VASA North Atlantic Insurance Company in the Lawyers Professional Liability line of business. The last communication with the Insurance Services office was a letter from VASA North Atlantic Insurance Company dated August 7, 1998, in which it formally requested the exemption. Should VASA North Atlantic Insurance Company not receive the exemption, a fine of less than $5,000 may be forthcoming. 38 VASA North Atlantic Insurance Company paid a $5,000 fine to the Commonwealth of Kentucky in 1996 for the late filing of a fraud plan. VASA North Atlantic Insurance Company paid a $4,538.00 fine to the Colorado Department of Insurance in 1994. VASA North Atlantic Insurance Company paid a $2,864.07 fine to the Georgia Municipal Association in 1994. VASA North Atlantic Insurance Company paid a $3,269.80 fine to the Georgia Department of Insurance in 1994. VASA North Atlantic Insurance Company paid a $9,000 fine to the Arizona Department of Insurance in 1995 as the result of a market conduct examination. 3) Rates and Policies Seaboard Life Insurance Company (USA) has de-emphasized its Medicare supplement line of business. Its Medicare supplement policies and related forms, while in compliance at the time of filing and approval, have not been updated since 1996. The insurance regulators in the states of Mississippi and Ohio have expressed concern regarding or made inquiry as to the forms and/or rates of the Seaboard Life Insurance Company (USA) Navigator Multiple Employer Trust and/or One Life Discretionary Group Fully Insured Health Policy (ies). These policies are administered by Corporate Benefit Services of America ("CBSA") on behalf of Seaboard Life Insurance Company (USA). Each issue raised is currently being reviewed by Seaboard Life Insurance Company (USA) and appropriate action has been or will be taken. (See below for details). Specific issues that may have a material impact upon the ability of the Companies to conduct business are as follows: (A) As a result of consumer complaints, Seaboard Life Insurance Company (USA) became aware that CBSA imposed rate increases for its One Life and MET products in the State of Mississippi without Seaboard (USA's) prior approval. As a result of the complaints, the Mississippi Department of Insurance advised Seaboard (USA) that its rate increases were in excess of a cap established by the Department in Bulletin 94-1. While investigating the matter, the Department's actuary inquired whether Seaboard (USA) had filed rate changes with the Department for prior approval. In an effort to resolve this mater, Seaboard (USA) has retained legal counsel in the State of Mississippi. On June 30, 1998, Seaboard (USA), through its legal counsel, filed an actuarial memorandum and rates related to the rate increase. The 39 Department later found the actuarial memorandum and rate filing to be incomplete and requested experience information which supported the filing. On August 5, 1998, Seaboard (USA), through its legal counsel, filed experience information with the Department. At this time, the actuarial memorandum and rates are pending review and approval. In response to the Department's inquiry, Seaboard (USA) is in the process of advising the Department regarding: (1) how CBSA implemented any premium credits or refunds related to the unauthorized rate increases; (2) how the unauthorized rate increases occurred; and (3) how Seaboard (USA) will insure that no future unauthorized rate increased will occur. (B) In July 1997, the Ohio General Assembly enacted HB374 which made a number of HIPAA-related changes to Ohio insurance laws. The provisions of HB374 immediately became effective on July 1, 1997. At that time, it was the intention of Seaboard Life Insurance Company (USA) to stop marketing the Navigator One Life Discretionary Group health product effective July 1, 1997. CBSA elected to seek another carrier for both the Navigator One Life Discretionary Group and the Multiple Employer Trust health products and Seaboard Life Insurance Company (USA) agreed to continue the products until CBSA's successor carrier could obtain form and rate approvals in the various states. In December 1997, the Ohio Department of Insurance wrote all accident and health carriers doing business in the State of Ohio and requested written responses explaining if and/or why policy forms had not been submitted to the Department for purposes of compliance with HB374 and threatening carriers with fines and/or penalties for noncompliance. On December 26, 1997, Seaboard Life Insurance Company (USA) advised the Department that policy/certificate form amendments would be filed within the following few weeks and subsequently filed its policy/certificate form amendments as well as standard/basic plans for both the Multiple Employer Trust and One Life Discretionary Group health products. The policy/certificate form amendments and the standard/basic plans were disapproved by the Department in February 1998. The reason for the disapproval of the MET form amendments was that: (1) the first phrase in the Continuation provision of Form SL- MET-SCL (9/97)OH needed to be revised; (2) the word "not" was inadvertently omitted from the first line of item 2 in the Conversation Privilege provision; (3) item 5 of the When Coverage Ends provision of Form SL-MET-HIPPA (10/97) was inconsistent with ORC 3923.381 related to continuation of coverage for reservists and item 8 of the same provision was not a permissible reason for non-renewal pursuant to ORC 3923.571(B). These same objections were applicable to Form SL-MET-C(OH-B/S)1/98. The reason for that disapproval of the One Life form amendments was that item 5 of the When Coverage Ends provision of Form SL-ONE-SCL(12/97) was not a permissible reason for non-renewal pursuant to ORC 3923.571(B). At that 40 time, the Department advised Seaboard (USA) that neither the MET nor the One Life form amendments would not be approved without the filing and approval of related rates, actuarial memorandum and a Flesch score certification as required by ORC 3902.04(D). Finally, the Department advised Seaboard (USA) that it must satisfy its conversion requirements on an individual policy contract basis and not on a group basis. Seaboard (USA) has addressed the issues raised by the Department in its February 1998 disapproval and Seaboard (USA) has refiled the One Life and MET policy/certificate form amendments, the standard/basis plans, rates and related information with the Department on August 18, 1998. At this time, the August 18, 1998 filing is pending review and approval. While compliant amended forms are not available to be issued and delivered, CBSA has administratively applied the terms of the draft policy/certificate form amendments and the products have been administered in a manner that is consistent with Ohio law. Seaboard Life Insurance Company (USA) has, however, been writing Multiple Employer Trust and One Life Discretionary Group health business in the State of Ohio since July 1997 without the availability of standard/basic plans for "federally eligible individuals." CBSA ceased soliciting, issuing and delivering new One Life Discretionary Group coverage through Seaboard Life Insurance Company (USA) in the State of Ohio for effective dates on or after August 1, 1998. C. In May of 1994, the Florida Department of Insurance requested, pursuant to Informational Bulletin 94-023, a list of all of VASA North Atlantic Insurance Company's policy forms to be marketed after July 1, 1994 and other certain information. In response to their request, VASA North Atlantic Insurance Company provided certain information related to forms to be marketed after July 1, 1994, including form numbers. On June 22, 1994, the Department wrote VASA North Atlantic Insurance Company and stated "experience on policies sold on or after July 1, 1994 are subject to the requirements of Rule Chapter 4-149.001 through 4-149.006." The Department also stated that "we expect that rate filings will follow in a timely manner" as well as requested that VASA North Atlantic Insurance Company "demonstrate that these forms will meet the new loss ratio requirements." The VASA North Atlantic Insurance Company compliance files indicate that its last rate filing was in 1990 and suggests that there has been no further correspondence with the Department regarding their June 22, 1994 letter. D. Seaboard Life Insurance Company (USA) is currently reviewing the Navigator One Life and Met products for appropriate actions to be taken. Various internal and external operational issues may exist, including but not limited to the following: 41 In late 1995, Seaboard Life Insurance Company (USA) began to issue, through Corporate Benefit Services of America, Inc. ("CBSA"), its Navigator One Life and MET policy/certificate forms after the Louisiana Department of Insurance had not responded to its filing (dated: September 26, 1995) within the 30-day deemer provision. The 30-day deemer provision was exercised because CBSA had been authorized to begin marketing in the State of Louisiana. Shortly thereafter, the Department responded by disapproving the One Life and Met policy/certificate forms. While disapproved, CBSA continued to solicit coverage. Following changes to policy/certificate forms, the forms were ultimately approved for issue and delivery in the State of Louisiana in February 1997. Those forms have been forwarded to CBSA for issue and delivery. At that time, the Department was aware of the policy/certificate forms being issued and delivered although not approved and no action was taken. During 1995 and 1996, CBSA solicited and issued coverage through the One Life or MET products to a number of Illinois residents despite Seaboard Life Insurance Company (USA's) lack of authority to transact accident and/or health insurance business in the State of Illinois. This matter was resolved by another carrier assuming this coverage. Through its Illinois legal counsel, Seaboard (USA) revealed to the Department in January 1997 that health insurance coverage was inadvertently provided to Illinois residents. No action was taken. In 1996, CBSA began marketing fully-insured group health insurance coverage through Seaboard Life Insurance Company (USA) to Iowa employers. At the time, CBSA was authorized to enter Iowa, it was agreed that CBSA would provide such coverage through Seaboard (USA's) matrix policy form. In January 1998, VASA Brougher, Inc. determined that CBSA has been providing coverage to Iowa employers through the Navigator MET product. The Navigator MET product may not conform, in every respect, to Iowa state insurance laws and regulations. At this time, Seaboard (USA) is preparing policy/certificate form amendments for the State of Iowa. CBSA has reported that there may be lack of affinity between the individuals receiving coverage under the Navigator One Life Trust despite the Trust's contemplation of each insured being a member of a "Participant's group, as described in the PARTICIPANTS ADDENDUM." Most states do not allow groups to be formed solely for the purposes of obtaining group insurance. This fact and the passage of HIPAA raise the issue whether the Navigator One Life product could be viewed as individual coverage. The One Life product was not designed to be compliant with the requirements of individual products. CBSA has 42 stopped soliciting, issuing or delivering new One Life coverage through Seaboard (USA) in the States of Indiana, Ohio, Mississippi, and Louisiana effective August 1, 1998. Seaboard (USA) has not yet received approval of its most recent Navigator policy/certificate form amendments for its MET and One Life products in the State of Louisiana. The policy/certificate form amendments were filed in June 1998. At this time, the policy/certificate form amendments are pending review and approval with the Louisiana Department of Insurance. CBSA has been provided with the "draft" policy/certificate form amendments for administrative purposes. CBSA has stopped soliciting, issuing and delivering any new One Life coverage in the State of Louisiana. 3.15(d) In late 1993 and throughout 1994, in response to various routine regulatory financial filings, state analysts inquired about the capital and surplus, losses and three-year business plan of VASA North Atlantic Insurance Company and satisfactory responses were provided by VASA North Atlantic Insurance Company. VASA North Atlantic Insurance Company is late in submitting its 1998 NAII Data Call, due June 15, 1998, relating to its property and casualty lines. An extension to answer was requested on July 24, 1998. VASA North Atlantic Insurance Company is in the process of contracting with outside system resources so that it may answer the Data Call. 6) Tax returns not filed but which will be filed by Closing. Income or Franchise Tax Returns yet to be Filed (All in Process with Ernst & Young) 1995 - ---- VASA North Atlantic Insurance Company California Mississippi VASA Brougher, Inc. Arkansas Louisiana Michigan Pennsylvania South Carolina Select Benefits, Inc. Arizona Oregon Pennsylvania 43 South Carolina Utah 1996 & 1997 - ----------- VASA North Atlantic Insurance Company Alabama California Florida Illinois Indiana - Part of Consolidated VASA North America Mississippi Nebraska Tennessee VASA Brougher, Inc. Alabama Arizona Arkansas California Colorado Georgia Illinois Indiana - Part of Consolidated VASA North America Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Missouri Montana North Carolina Oklahoma Pennsylvania South Carolina Utah 44 1996 & 1997 - ----------- Select Benefits, Inc. Arizona Oregon Pennsylvania South Carolina Utah 45 Schedule 3.15 Licenses and Permits; Policies; Regulatory Matters -------------------------------------------------- 3.15(a) Licenses, Franchises, Permits or other similar authorizations VASA Brougher, Inc. Third Party Administrator License by state: Illinois, Indiana, Iowa, Kentucky, Minnesota, Nevada, Oklahoma, Oregon, Tennessee, Texas, Wisconsin Agent, Agency or Broker License by state: Alaska, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wyoming Managing General Agent License or Appointment by state: Arizona, Colorado, Florida, Illinois, Idaho, Kentucky, Michigan, Missouri, Montana, New Jersey, Virginia, Washington, Wisconsin In the following states where a non-resident corporation cannot be licensed as an agent, a sales representative and/or underwriter is licensed: Alabama, Georgia, Massachusetts, New Mexico, North Carolina, Ohio, Vermont and West Virginia VASA North Atlantic Insurance Company Certificate of Authority by state: Alabama, Arizona, Arkansas, Colorado, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming Surplus Lines Authority by state: Alaska, Hawaii, Kansas, Louisiana, Michigan Seaboard Life Insurance Company (USA) Certificate of Authority by state: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming 46 3.15(b) & (e) 1) Possible Limitations VASA North Atlantic Insurance Company has been contacted by the following states regarding its losses and its plan of operation going forward: Minnesota: Originally contacted by letter from the Minnesota Department of Commerce dated June 30, 1997. Most recent communication was a telephone conversation with Ms. Jill Rickheim of the Minnesota Department of Commerce on June 26, 1998. A memorandum by Andrew M. Weissert of VASA North Atlantic Insurance Company memorializing that conversation has been provided to Buyer. North Carolina: Originally contacted by letter from the North Carolina Department of Insurance dated July 9, 1998. Most recent communication was a telephone conversation between Mr. Larry Boykin, of the North Carolina Department of Insurance and Andrew M. Weissert of VASA North Atlantic Insurance Company on August 19, 1998. Mr. Weissert informed Mr. Boykin that VASA North Atlantic Insurance Company projected roughly $800,000 in premium would be written by it in North Carolina in 1998. However, VASA North Atlantic Insurance Company was for sale. Mr. Boykin responded that no limitations would be placed on VASA North Atlantic Insurance Company at this time and to please notify the North Carolina Department of Insurance when the sale was closed. 2) Filing of Reports VASA North Atlantic Insurance Company has not yet filed the necessary forms with the Insurance Services Office regarding its 1996 book of business in the State of Texas. The Insurance Services Office is under contract with the Texas Department of Insurance to collect this information. VASA North Atlantic Insurance Company is working with the Insurance Services Office to receive an exemption due to the diminishing book of business written in Texas as a result of the de-emphasis by VASA North Atlantic Insurance Company in the Lawyers Professional Liability line of business. The last communication with the Insurance Services office was a letter from VASA North Atlantic Insurance Company dated August 7, 1998, in which it formally requested the exemption. Should VASA North Atlantic Insurance Company not receive the exemption, a fine of less than $5,000 may be forthcoming. VASA North Atlantic Insurance Company paid a $5,000 fine to the Commonwealth of Kentucky in 1996 for the late filing of a fraud plan. 47 VASA North Atlantic Insurance Company paid a $4,538.00 fine to the Colorado Department of Insurance in 1994. VASA North Atlantic Insurance Company paid a $2,864.07 fine to the Georgia Municipal Association in 1994. VASA North Atlantic Insurance Company paid a $3,269.80 fine to the Georgia Department of Insurance in 1994. VASA North Atlantic Insurance Company paid a $9,000 fine to the Arizona Department of Insurance in 1995 as the result of a market conduct examination. 3) Rates and Policies Seaboard Life Insurance Company (USA) has de-emphasized its Medicare supplement line of business. Its Medicare supplement policies and related forms, while in compliance at the time of filing and approval, have not been updated since 1996. The insurance regulators in the states of Mississippi and Ohio have expressed concern regarding or made inquiry as to the forms and/or rates of the Seaboard Life Insurance Company (USA) Navigator Multiple Employer Trust and/or One Life Discretionary Group Fully Insured Health Policy (ies). These policies are administered by Corporate Benefit Services of America ("CBSA") on behalf of Seaboard Life Insurance Company (USA). Each issue raised is currently being reviewed by Seaboard Life Insurance Company (USA) and appropriate action has been or will be taken. (See below for details). Specific issues that may have a material impact upon the ability of the Companies to conduct business are as follows: (A) As a result of consumer complaints, Seaboard Life Insurance Company (USA) became aware that CBSA imposed rate increases for its One Life and MET products in the State of Mississippi without Seaboard (USA's) prior approval. As a result of the complaints, the Mississippi Department of Insurance advised Seaboard (USA) that its rate increases were in excess of a cap established by the Department in Bulletin 94-1. While investigating the matter, the Department's actuary inquired whether Seaboard (USA) had filed rate changes with the Department for prior approval. In an effort to resolve this mater, Seaboard (USA) has retained legal counsel in the State of Mississippi. On June 30, 1998, Seaboard (USA), through its legal counsel, filed an actuarial memorandum and rates related to the rate increase. The Department later found the actuarial memorandum and rate filing to be incomplete and requested experience information which supported the filing. On August 5, 1998, Seaboard 48 (USA), through its legal counsel, filed experience information with the Department. At this time, the actuarial memorandum and rates are pending review and approval. In response to the Department's inquiry, Seaboard (USA) is in the process of advising the Department regarding: (1) how CBSA implemented any premium credits or refunds related to the unauthorized rate increases; (2) how the unauthorized rate increases occurred; and (3) how Seaboard (USA) will insure that no future unauthorized rate increased will occur. (B) In July 1997, the Ohio General Assembly enacted HB374 which made a number of HIPAA-related changes to Ohio insurance laws. The provisions of HB374 immediately became effective on July 1, 1997. At that time, it was the intention of Seaboard Life Insurance Company (USA) to stop marketing the Navigator One Life Discretionary Group health product effective July 1, 1997. CBSA elected to seek another carrier for both the Navigator One Life Discretionary Group and the Multiple Employer Trust health products and Seaboard Life Insurance Company (USA) agreed to continue the products until CBSA's successor carrier could obtain form and rate approvals in the various states. In December 1997, the Ohio Department of Insurance wrote all accident and health carriers doing business in the State of Ohio and requested written responses explaining if and/or why policy forms had not been submitted to the Department for purposes of compliance with HB374 and threatening carriers with fines and/or penalties for noncompliance. On December 26, 1997, Seaboard Life Insurance Company (USA) advised the Department that policy/certificate form amendments would be filed within the following few weeks and subsequently filed its policy/certificate form amendments as well as standard/basic plans for both the Multiple Employer Trust and One Life Discretionary Group health products. The policy/certificate form amendments and the standard/basic plans were disapproved by the Department in February 1998. The reason for the disapproval of the MET form amendments was that: (1) the first phrase in the Continuation provision of Form SL- MET-SCL (9/97)OH needed to be revised; (2) the word "not" was inadvertently omitted from the first line of item 2 in the Conversation Privilege provision; (3) item 5 of the When Coverage Ends provision of Form SL-MET-HIPPA (10/97) was inconsistent with ORC 3923.381 related to continuation of coverage for reservists and item 8 of the same provision was not a permissible reason for non-renewal pursuant to ORC 3923.571(B). These same objections were applicable to Form SL-MET-C(OH-B/S)1/98. The reason for that disapproval of the One Life form amendments was that item 5 of the When Coverage Ends provision of Form SL-ONE-SCL(12/97) was not a permissible reason for non-renewal pursuant to ORC 3923.571(B). At that time, the Department advised Seaboard (USA) that neither the MET nor the One Life form amendments would not be approved without the filing and 49 approval of related rates, actuarial memorandum and a Flesch score certification as required by ORC 3902.04(D). Finally, the Department advised Seaboard (USA) that it must satisfy its conversion requirements on an individual policy contract basis and not on a group basis. Seaboard (USA) has addressed the issues raised by the Department in its February 1998 disapproval and Seaboard (USA) has refiled the One Life and MET policy/certificate form amendments, the standard/basis plans, rates and related information with the Department on August 18, 1998. At this time, the August 18, 1998 filing is pending review and approval. While compliant amended forms are not available to be issued and delivered, CBSA has administratively applied the terms of the draft policy/certificate form amendments and the products have been administered in a manner that is consistent with Ohio law. Seaboard Life Insurance Company (USA) has, however, been writing Multiple Employer Trust and One Life Discretionary Group health business in the State of Ohio since July 1997 without the availability of standard/basic plans for "federally eligible individuals." CBSA ceased soliciting, issuing and delivering new One Life Discretionary Group coverage through Seaboard Life Insurance Company (USA) in the State of Ohio for effective dates on or after August 1, 1998. C. In May of 1994, the Florida Department of Insurance requested, pursuant to Informational Bulletin 94-023, a list of all of VASA North Atlantic Insurance Company's policy forms to be marketed after July 1, 1994 and other certain information. In response to their request, VASA North Atlantic Insurance Company provided certain information related to forms to be marketed after July 1, 1994, including form numbers. On June 22, 1994, the Department wrote VASA North Atlantic Insurance Company and stated "experience on policies sold on or after July 1, 1994 are subject to the requirements of Rule Chapter 4-149.001 through 4-149.006." The Department also stated that "we expect that rate filings will follow in a timely manner" as well as requested that VASA North Atlantic Insurance Company "demonstrate that these forms will meet the new loss ratio requirements." The VASA North Atlantic Insurance Company compliance files indicate that its last rate filing was in 1990 and suggests that there has been no further correspondence with the Department regarding their June 22, 1994 letter. D. Seaboard Life Insurance Company (USA) is currently reviewing the Navigator One Life and Met products for appropriate actions to be taken. Various internal and external operational issues may exist, including but not limited to the following: 50 In late 1995, Seaboard Life Insurance Company (USA) began to issue, through Corporate Benefit Services of America, Inc. ("CBSA"), its Navigator One Life and MET policy/certificate forms after the Louisiana Department of Insurance had not responded to its filing (dated: September 26, 1995) within the 30-day deemer provision. The 30-day deemer provision was exercised because CBSA had been authorized to begin marketing in the State of Louisiana. Shortly thereafter, the Department responded by disapproving the One Life and Met policy/certificate forms. While disapproved, CBSA continued to solicit coverage. Following changes to policy/certificate forms, the forms were ultimately approved for issue and delivery in the State of Louisiana in February 1997. Those forms have been forwarded to CBSA for issue and delivery. At that time, the Department was aware of the policy/certificate forms being issued and delivered although not approved and no action was taken. During 1995 and 1996, CBSA solicited and issued coverage through the One Life or MET products to a number of Illinois residents despite Seaboard Life Insurance Company (USA's) lack of authority to transact accident and/or health insurance business in the State of Illinois. This matter was resolved by another carrier assuming this coverage. Through its Illinois legal counsel, Seaboard (USA) revealed to the Department in January 1997 that health insurance coverage was inadvertently provided to Illinois residents. No action was taken. In 1996, CBSA began marketing fully-insured group health insurance coverage through Seaboard Life Insurance Company (USA) to Iowa employers. At the time, CBSA was authorized to enter Iowa, it was agreed that CBSA would provide such coverage through Seaboard (USA's) matrix policy form. In January 1998, VASA Brougher, Inc. determined that CBSA has been providing coverage to Iowa employers through the Navigator MET product. The Navigator MET product may not conform, in every respect, to Iowa state insurance laws and regulations. At this time, Seaboard (USA) is preparing policy/certificate form amendments for the State of Iowa. CBSA has reported that there may be lack of affinity between the individuals receiving coverage under the Navigator One Life Trust despite the Trust's contemplation of each insured being a member of a "Participant's group, as described in the PARTICIPANTS ADDENDUM." Most states do not allow groups to be formed solely for the purposes of obtaining group insurance. This fact and the passage of HIPAA raise the issue whether the Navigator One Life product could be viewed as individual coverage. The One Life product was not designed to be compliant with the requirements of individual products. CBSA has 51 stopped soliciting, issuing or delivering new One Life coverage through Seaboard (USA) in the States of Indiana, Ohio, Mississippi, and Louisiana effective August 1, 1998. Seaboard (USA) has not yet received approval of its most recent Navigator policy/certificate form amendments for its MET and One Life products in the State of Louisiana. The policy/certificate form amendments were filed in June 1998. At this time, the policy/certificate form amendments are pending review and approval with the Louisiana Department of Insurance. CBSA has been provided with the "draft" policy/certificate form amendments for administrative purposes. CBSA has stopped soliciting, issuing and delivering any new One Life coverage in the State of Louisiana. 3.15(d) In late 1993 and throughout 1994, in response to various routine regulatory financial filings, state analysts inquired about the capital and surplus, losses and three-year business plan of VASA North Atlantic Insurance Company and satisfactory responses were provided by VASA North Atlantic Insurance Company. VASA North Atlantic Insurance Company is late in submitting its 1998 NAII Data Call, due June 15, 1998, relating to its property and casualty lines. An extension to answer was requested on July 24, 1998. VASA North Atlantic Insurance Company is in the process of contracting with outside system resources so that it may answer the Data Call. 52 Schedule 3.16 ERISA Representations --------------------- (a) Employee Plans -------------- VASA North America, Inc. Welfare Benefit Plan VASA North America, Inc. 401(k) Profit Sharing Plan VASA North America, Inc. Group Term Life Insurance Policy VASA North America, Inc. Flexible Benefits Plan (d)(i) Benefit Arrangements [Note: Certain benefit-related payments made -------------------- from the VEBA trust are being reviewed by management and the welfare benefit plan trustees. However, there is no material non-compliance involved.] Company Paid Holidays Educational Assistance Plan Employee Assistance Program Employees' Severance Plan Flexible Work Scheduling Floating Holidays Free Parking Illness Allowance Long Term Disability Management Incentive Plan Personal Time Short Term Disability Staff Incentive Plan Travel Insurance Vacation Voluntary Term Life Insurance Wellness Assessment/Fitness Facility Workers Compensation Coverage (f) Retiree or Former Employee Health or Life Benefits -------------------------------------------------- Neither the Companies nor any of the Subsidiaries have any obligations for retiree or former employee health or life benefits under any Employee Plan or Benefit Arrangement except as provided under Section 601 et seq. of ERISA and Section 4980B of the Code. (g) Execution and Delivery of Agreement Constitute Event That Results in -------------------------------------------------------------------- Payment, Acceleration, Forgiveness of Indebtedness, Vesting, Distribution, - -------------------------------------------------------------------------- Increase in Benefits or Obligation to Fund Benefits - --------------------------------------------------- 53 If the VASA North America, Inc. 401(k) Profit Sharing Plan is terminated or partially terminated, participants' matching contributions or profit sharing contributions will immediately become 100% vested by operation of law. 54 Schedule 3.17 Environmental Compliance ------------------------ (a) The Companies and their Subsidiaries believe that they have been and are in compliance with all applicable Environmental Laws. However, asbestos- containing materials and above ground storage tanks were discovered on properties currently and formerly owned or operated by the Companies and their Subsidiaries. Actions have been taken to abate asbestos-containing materials and remove and dispose of the above ground storage tanks. The Companies and their Subsidiaries will be investigating the possible existence of one or more underground storage tanks at the 525 S. Meridian Street, Indianapolis, Indiana property. (b) The Companies and their Subsidiaries believe that they have all Permits required under any applicable Environmental Laws and that they are in compliance with their respective requirements. However, asbestos-containing materials and above ground storage tanks were discovered on properties currently and formerly owned or operated by the Companies and their Subsidiaries. Actions have been taken to abate asbestos-containing materials and remove and dispose of the above ground storage tanks. The Companies and their Subsidiaries will be investigating the possible existence of one or more underground storage tanks at the 525 S. Meridian Street, Indianapolis, Indiana property. (c) No exceptions. (d) The Companies and their Subsidiaries do not believe that there have been or are circumstances, where any Hazardous Substances may have been disposed of or released by or on behalf of any of the Companies or any Subsidiary, that are reasonably likely to form the basis of a claim under Environmental Laws against any of the Companies or their Subsidiaries. However, asbestos-containing materials and above ground storage tanks were discovered on properties currently and formerly owned or operated by the Companies and their Subsidiaries. Actions have been taken to abate asbestos-containing materials and remove and dispose of the above ground storage tanks. The Companies and their Subsidiaries will be investigating the possible existence of one or more underground storage tanks at the 525 S. Meridian Street, Indianapolis, Indiana property. (e) The Companies and their Subsidiaries do not believe that they have exposed any employee or third party to any Hazardous Substances which has subjected or may subject the Companies or their Subsidiaries to liability under any Environmental Laws. However, asbestos-containing materials and above ground storage tanks were discovered on properties currently and formerly owned or operated by the Companies and their Subsidiaries. Actions have been taken to abate asbestos-containing materials and remove and dispose of the above ground storage tanks. The Companies and their Subsidiaries will be investigating the possible existence of one or more underground storage tanks at the 525 S. Meridian Street, Indianapolis, Indiana property. 55 Schedule 3.18 Intellectual Property; Software ------------------------------- 1) The ULTRAPLUS system becomes the property of a third party on January 1, 2000. 2) No data-related output, calculations or results before, during or after calendar year 2000 that are produced or used by any hardware, software, firmware or facilities systems owned or used by the Company or any subsidiary are Year 2000 compliant. The Company is currently working on compliance and is seeking compliance from third party vendors; however, that task is not yet complete. See Attachment 1 for the Year 2000 Plan. 56 Schedule 3.18 Attachment 1 SCHEDULE 3.18 VASA Brougher Year 2000 Report John Storm Vice President, Information Systems VASA Brougher Year 2000 Report VASA Brougher's Year 2000 project began in 1996 with the initiation of a project to rewrite the Benefits Plus System (BPS). The BPS system is the primary software system used by VASA Brougher for underwriting, policy management, premium accounting, and claims for the excess loss and group life products. The Year 2000 project is designed to minimize the costs and potential business disruption associated with the potential problems of non-compliant systems. The project has three objectives: Ensure that all application programs are Year 2000 compliant. Ensure that all hardware and systems software are Year 2000 compliant. Ensure that plans are in place to monitor Year 2000 compliance and effect timely response where necessary. VASA Brougher is fortunate in having a relatively modern information system architecture and application systems. VASA operates a client server computing environment. Software applications actually run on intelligent workstations or clients. The client machines are responsible for edit, computation, and presentation logic. The data used by the software application resides on a central server. Client machines make requests to the central server for data. [FLOWCHART OF NETWORK INTERACTION APPEARS HERE] Application Software - -------------------- The primary system supporting VASA Brougher, the Benefits Plus System (BPS), was rewritten and released in July 1997. The enhancements to this system included Year 2000 compliance. A more rigorous test plan to ensure that the system is completely Year 2000 compliant is scheduled for the fourth quarter of 1998. The other primary applications used by the company are the financial applications (general ledger and accounts payable) purchased from Lawson Software. These applications are considered compliant as reported by the vendor. One system not compliant is our field underwriting system known as FORCE. This system is approximately five years old and was written in COBOL for the Microsoft DOS environment. Although it was a major improvement over our existing capabilities, it is quite antiquated by today's standards. Since this system was in need of major revisions, the approach chosen to secure Year 2000 compliance was to rewrite the system. A new Windows 95 version of this software is currently under development and will be released in October 1998. The Wheatley Insurance System or WINS application is used to support the runoff property and casualty lines of business and is not Year 2000 compliant. At the end of July 1998 the system is providing support for approximately 82 professional liability claims with an outstanding reserve balance of $6.1 million. The system is supported under maintenance by the original vendor and a Year 2000 compliant release is currently available. Our current plan calls for not upgrading this system and eventually retiring it as the outstanding number of claims continues to decline. The other primary area of concern regarding Year 2000 compliance is with small limited use purchased applications. Applications including licensing software, fixed assets, payroll, and informational resources like compliance documentation are included in this category. These applications have been inventoried and are being reviewed as part of the project plan. Upgrading to compliant versions will be decided on a case by case basis. A document identifying these software applications, the number of licenses held by the company, and the Year 2000 compliance status is attached as an appendix to this document. System Software - --------------- The network operating system used by VASA Brougher, Novell 4.1.1, is considered compliant by the vendor. Several outstanding issues, however, remain. An older version of Novell, version 3.12, remains in place to support the current network fax capability. New software and hardware were purchased and installed which will allow for the eventual replacement of the older network but additional testing must be completed. Although the new fax software allows for the elimination of the Novell 3.12 network, it will require a software patch to be Year 2000 compliant. The patch will be available by the end of the fourth quarter. Once testing is complete, a configuration change must be made to every desktop personal computer to allow for compliant network fax services. After all personal computers are changed, the older Novell network may be removed. Additionally, a utility used on our local area networks which allows output from the Lawson financial systems, which operate on a UNIX platform, to print to any network printer must be updated for Year 2000 compliance. Novell has not released an updated version of the software yet. Network hardware and software components associated with the conversion of our internal electronic mail software from DaVinci to Groupwise will be eliminated once the Windows 95 project is complete. Since Groupwise is Internet compliant we will be able to eliminate the SLICBAT machine used as an electronic bulletin board system to allow producers to transfer files supporting fully insured medical, Medicare and medical supplement, and dental product information. Equipment supporting the DaVinci mail system and the bridge between the old and new electronic mail systems will also be removed at the completion of the Windows 95 project. An update of the number of employees who have been converted to Windows 95 is attached as an appendix to this report. The database sever operating system (SUN Solaris) was upgraded to version 2.5.1 in August 1999. This upgrade required an earlier upgrade to our ORACLE database software to release 7.3.4. Based on information provided by ORACLE and SUN on the Year 2000 sections of their corporate web sites, these release levels are considered Year 2000 compliant. There are two outstanding issues related to these systems. SUN has not yet released an upgraded version of a utility used to manage the disks on the SUN server. A C language compiler which is used by the Lawson software packages must also be upgraded to meet all compliance issues. This software will be ordered in August and should be installed by the end of September after a series of compatibility tests. The WINS property and casualty system mentioned earlier operates on an IBM AS400 system. The OS400 operating system currently in production is not compliant, but will not be upgraded since we anticipate that the system will not be in production once the remaining professional liability claims have been processed. Another important software application used by VASA Brougher is the Business Objects ad hoc query tool. This tool is used by technical and business users to develop reports from the data in the company's production databases. The current version of this tool is not Year 2000 compliant. The software is supported by a maintenance contract through the vendor and a compliant release of the software package is now available. Plans are currently being developed to upgrade to a compliant release by the end of the fourth quarter of 1998. To decrease the effort involved in this upgrade, a project is currently underway to eliminate Business Objects reports from our routine accounting close as well as our claim and commission processes. This project will result in the development of three separate applications which will increase automation of these functions. Besides improving the actual business processes, this project will eliminate over 100 Business Object reports which would have had to be recreated as part of the upgrade to a compliant version. Hardware - -------- VASA Brougher has approximately 160 personal computers assigned to employees or serving some function in the normal production environment. Of that number, 30 machines currently assigned in the production areas are COMPAQ M series machines which are not Year 2000 compliant or capable of being brought into compliance. Most other personal computers require a flash ROM upgrade to be brought into compliance. This task is being performed in association with the Windows 95 upgrade project. VASA's primary production network and database servers are Year 2000 compliant. An inventory of personal computers is attached as an appendix to this document. VASA Brougher uses a CUBIX telecommunications server using Novell's Netware Connect and remote control software from Reachout to allow external producers to access internal systems or employees to access and control their assigned personal computers. The CUBIX solution is not Year 2000 compliant and would require approximately $32,000 to be brought into compliance and provide current capacity levels. This project has been placed on holding pending a review of the corporate direction in remote computing. Summary - ------- In summary, VASA Brougher's Year 2000 project began in 1996 and if executed in accordance with the time schedules set forth herein and in the attached Year 2000 update, will result in the computer systems being Year 2000 compliant by December 31, 1998. The main production system used by VASA Brougher was rewritten to include Year 2000 compliance as well as many other features and was installed in July 1997. Also in 1997, a Year 2000 compliant version of the financial accounting systems was installed. An inventory of small specialized applications was completed in 1997. A copy of the list of software packages is included in the appendix to this document. In 1998 the ORACLE database software as well as database server operating system were upgrade to compliant versions. The primary data analysis and report generating tool, Business Objects, will also be upgraded in 1998. Plans call for retiring the WINS property and casualty system and the AS400 platform prior to the end of 1998. Finally, a new release of FORCE will be released in October 1998 to make this system compliant. VASA Brougher does use over 30 personal computers which are not Year 2000 compliant and are incapable of becoming compliant. The company's telecommunications server which allows access to internal systems by both producers and employees is not compliant. Estimates have been obtained to determine the cost of making this equipment compliant, but efforts have been placed on hold pending a review of the company's telecommunications strategy. Summary - ------- ________________________________________________________________________________ | Application | Year 2000 | Date | Notes | | | Compliant | Compliant | | ________________________________________________________________________________ |Benefits Plus System| No |December 1998 | Additional testing to be | | | | | completed by December | | | | | 1998 | ________________________________________________________________________________ |Lawson Financials | No |September 1998 | New C Compiler required. | ________________________________________________________________________________ |WINS P&C System | No | | System will be retired | | | | | after remaining | | | | | professional liability | | | | | claims are processed | ________________________________________________________________________________ |FORCE Field | No |October 1998 | New Windows release | |Underwriting | | | scheduled for | | | | | October 1998 | ________________________________________________________________________________ ________________________________________________________________________________ | System Software | Year 2000 | Date | Notes | | | Compliant | Compliant | | ________________________________________________________________________________ |Novell 4.11 | Yes | 1996 | | ________________________________________________________________________________ |SUN Solaris (UNIX) | Yes | 1998 | Upgraded to 2.5.1 | ________________________________________________________________________________ |ORACLE Database | Yes | 1998 | Upgraded to 7.3.4 | ________________________________________________________________________________ |Business Objects | No |December 1998 | Compliant release | | | | | available from vendor. | | | | | Scheduled implementation | | | | | 4th Qtr 1998 | ________________________________________________________________________________ Appendix Inventory Of Purchased PC Software PC Hardware Inventory Windows 95/Groupwise Conversion Project Letter Used to Report To Third Parties on Year 2000 Compliance Corporate Network Diagram Software Inventory
- ------------------------------------------------------------------------------------------------------------------------------------ Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K? - ------------------------------------------------------------------------------------------------------------------------------------ 123 for DOS 3.1 lotus \apps\lotus\123.exe C 2 X + 123 for Windows 4.01 & 5.0 lotus \apps\123w\123w.exe & licenser C 2 X + ABC Flowcharter 4.0 micrografx \apps\abc\ABCFlow C 9 X 6.0 upgrade Adobe Acrobat 3.01 adobe -local 1 + Adobe Illustrator 7.0 adobe -local 1 + Adobe Pagemaker 6.0 adobe -local 6 + Adobe Photoshop 4.01 adobe -local 1 + Arcserve 6.1 cheyenne Pluto N 500 + Arts & Letters 3.1 arts-letters -local C 8 + Big Red Self Test \apps\cbts\stsdemo & stsware n 10 n/a BNA - Fixed Assets 91.1 bna \apps\farn\FA.exe & fixasset C 1 X +Nel tzel Business Objects 3.0 businessobjects \apps\obj31\OBJECTS. N 53 X 4.05 upgr ClickArt no version Cds n/a Codewright 5.0b premia \apps\develop\cw16\CW.exe N 5 X + Crystal Reports 6.0 patches CT Advantage 3.11 \apps\cta + DBA Prep 1.0 docsoftware -local 1 n/a EM320 2.50-WS15 emdcs -local N 50 X + Erwin 3.5 logicworks -local N 5 X + Faxserve 5.0 Cheyenne Mars 4th qtr 1998 File in Time 1.00 TimeValue 1 Dnetzel FireWall 1 3.0a Checkpoint upgrade Freedom 2.01 \apps\freedom & f 1 + Frontpage 98 microsoft 1 + Ghost 5.0d ghost N 175 + Grammatik 2.0 KRussell n/a Groupwise 5.2 novell 150 + Gupta 5.1 centurasoft \apps\develop\gupta C 15 +T plunkett HelpStar 4.0 helpstar \apps\hsw C 8 4.2 Insource 2.13 nils + Lawson 2.2.8 lawson \apps\desktop.22\apps\lawtools C 20 + Maplinx 5.0 imsisoft -local 1 + McAfee Virus Scan 3.0 nai 2 + Med Spell no version \users\vshowall 1 n/a MicroFocus Cohol 4.0 Comes from Lawson 1 upgrade Microlink 4.2 \apps\mlink\S2000.exe 2 No - Bank? Monarch 3.03 datawatch -local (Kirk Boller) 1 +
- ------------------------------------------------------------------------------------------------------------------------------------ Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K? - ------------------------------------------------------------------------------------------------------------------------------------ MS DOS 6.22 microsoft -local N + MS Office 4.3 microsoft \apps\msoffice & msapps N 173 X + MS Project 4.0 microsoft \apps\winproj N 14 X patch MS Windows 3.11 microsoft \apps\win31 & \apps\wintest patch MS Windows 95 4.3 microsoft -local + MS Windows NT 4.0 microsoft -local 1 + Netscape 3.04 -local + NetViz 2.5a netviz \apps\netviz25 C 1 + Norton Antivirus 2.0 symantec \apps\nav 50 X 4.0 NetWare 4.11 & 3.12 novell C 250 +patches NetWare Client 2.20 novell n/a n/a +patches NetWare Connect view 2 novell n/a n/a +patches NetWare Unix Prt Srvs 2.1 novell n/a n/a patches Nov CBT - Intro to NW n/a novell \apps\cbts\novcbt\netintro C 1 Yes - - n/a Nov CBT - Net Tech n/a novell \apps\cbts\novcbt\nettech C 1 " - - n/a Nov CBT - Intro to 4 n/a novell \apps\cbts\novcbt\int40 C 1 " - - n/a Nov CBT - 4 Admin n/a novell \apps\cbts\novcbt\na40 C 1 " - - n/a Oracle 7.3.4 oracle \apps\orawin, orawin95 & oratest C 100 + Ora CBT - Intro to SQL n/a oracle \apps\cbts\ora_cbt\sql1cbt\sql1cbt C 1 Yes - - n/a Ora CBT - PL/SQL n/a oracle \apps\cbts\ora_cbt\plsql1cbt\plsql1cbt C 1 Yes - - n/a Ora CBT - SQL Forms n/a oracle \apps\cbts\ora_cbt\form1cbt\form1cbt C 1 Yes - - n/a Ora CBT - Data Models n/a oracle \apps\cbts\ora_cbt\dmcbt\dm1cbt C 1 Yes - - n/a Ora CBT - Func Models n/a oracle \apps\cbts\ora_cbt\fm1cbt\fm1cbt C 1 Yes - - n/a Ora CBT - Architecture n/a oracle \apps\cbts\ora_cbt\arch1cbt\arch1cbt C 1 Yes - - n/a Ora CBT - Admin I n/a oracle \apps\cbts\ora_cbt\dba1cbt\dba1cbt C 1 Yes - - n/a Ora CBT - Admin II n/a oracle \apps\cbts\ora_cbt\dba2cbt\dba2cbt C 1 Yes - - n/a pcAnywhere 8.0 symantec \apps\winsw X upgrading Perform Pro 3.0 Shari Terry - only needed to print 2 Not but ok Pictorial - AppointPak June "98" pictorial \apps\apak 10 X + Pictorial - Lic Tracker Feb. "98" pictorial \apps\ltplus 10 X + Pictorial - PAL June "98" pictorial \apps\pelwin 1 X + ProComm 2.0 \apps\procomm 2 upgrade PPT Plus 97.1 Decision Info Sys \apps\tax 1 + PVCS 5.3 Intersolv \apps\develop\intrsolv + Reachout 4.0 stac -local 7.0 upgrade RIA Group Dneitzel CDS of Tax forms, regs etc. Dneitzel Service Call 9.03 \apps\srvcall 1 upgrade SofTrack 3.1b on \apps\softrack + Solaris 2.5.1 sunsolve + Solaris - Adminsuite sunsolve +
- ------------------------------------------------------------------------------------------------------------------------------------ Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K? - ------------------------------------------------------------------------------------------------------------------------------------ Solaris - CDE 1.0.2 sunsolve + Solaris - DiskSuite 4.0 sunsolve 102580-17 Sparc C Compiler 4.0 sunsolve upgrade 4.2 SPF/SE 4.0 -local 1 + SOL Studio 2.0.4 evenlus 6 + Tax2220 "97" edition TimeValue 1 + TaxInterest 97.3 TimeValue 1 + Tillinghast Health Maps Brnallison -local (Brnallison) uses Lotus 5.0 + Tvalue 91.3 TimeValue \apps\tvalue3 1 + Turbo Tax 8.0 Intuit \apps\tax (DNeitzel) 1 Dneitzel UCR (Medicode) 1.1 \apps\ucr + Ultipro 2.0a \apps\ultipro 1 3rd qtr 98 UniVision Dorris platinum galileo + Visual Basic 5.8 microsoft 6 + Westcorp 5.2 + Software...........................................I...L...L...E...G...I...B...L...E................................................ DaVinci shiell 3.50 on \apps\email\EMAIL.WIN self 250 replacing FACSys 3.30 weltec replacing IQuest iquest.net -local replacing Quarterdeck -local replacing RAM Doubter -local 130 replacing Reslia (Visual) \apps\develop\reslia42 replacing ROBOT AS/400 replacing Rumba walldata \apps\rumba, rumbapcs & pcs replacing Screen I/O replacing Westmate 5.2 westgroup \appa\westmate 1 replacing WINS wheatleyinsurance AS/400 replacing Software...........................................I...L...L...E...G...I...B...L...E................................................ 1099-PC 1996 \apps\fax\1099\1099PC 1 last used '96 Carbon Copy 6.1 microcomm local - CC.exe N 1 not used/7.0 Detrina Winfax no version symantec -local free with modem n/a 45 not used Employee Appraiser c:\eap (CWhite/JRedenz) not used Exceed hummingbird -not in use N n/a not used FoxPro microsoft Multimedia kiosk not used FXTools Multimedia kiosk not used Goldmine 12 not used Knowledge Piont jobdescriptions c:\perfnow (CWhite) not used PC Tools 7.1 -diskettes 1 not used Pictorial-Lic Tracker Feb."98" pictorial \apps\ltplus 1 not used SQLBase centurasoft NOT IN USE not used
- ------------------------------------------------------------------------------------------------------------------------------------ Product Version Web Page Location & Executable Type # SofTrack Word Group Y2K? - ------------------------------------------------------------------------------------------------------------------------------------ Simple Records Mgr c:\simple (CHamilton) not used Soft Ice numega -local not used Timeline (PCalvin) not used Travel Planner c:\tpr (KManney) not used URM /apps/urm not used - ------------------------------------------------------------------------------------------------------------------------------------
+ - Vendor certified Year 2000 compliant DNeitzel - He takes care of ordering his tax software upgrades so he is going to get certification info. n/a - not applicable, not date related not used - software we are keeping in case we need to licenses but we no longer use replacing - software that will be eliminated before the year 2000 INFORMATION SYSTEMS DEPARTMENT - -------------------------------------------------------------------------------- TO: Dorrie Keyes FROM: Robert McDaniel DATE: August 17, 1998 RE: CPU Inventory (Revised) The table below shows the status of our CPU equipment by model number ================================================================================ 33M 6 2 3 1 5 Faci, SAA, Email/Cyc. 50M 3 0 1 2 1 Westcorp, 66M 56 14 10 32 24 2-Ikon, 2led, XL450 7 1 3 3 4 XL466 17 6 1 10 7 Auto PC, Fac. XL566 3 3 0 0 0 XL590 1 1 0 0 0 XL5133 10 8 0 2 0 Deskpro 2000 3 2 1 0 0 Deskpro 4000 2 1 1 0 0 Manager Console Leased DP 2000 133 29 29 0 0 0 Leased DP 2000 166 73 62 11 0 0 Totals 210 129 31 50 41 - --------------------------------------------------------------------------------
We have 117 employees and 5 temporaries at this time. VASA Brougher, Inc. Windows 95 Conversions As of 8/17/1998 To Be installed - -------------------------------------------------------------------------------- 1 MKTG HAYNES SUSAN COMPAQ XL 466 RO 2.1 OPRMG ALVIS KEVIN COMPAQ XL 5133 - BANK 2.1 OPRMG HUNTER DEBBIE COMPAQ DESKPRO BANK 2.1 OPRMG WARD DOROTHY COMPAQ DESKPRO BANK 8 UW ANDERSON TERRY COMPAQ DESKPRO 8 UW ANSHUTZ SUSAN COMPAQ DESKPRO 8 UW ATWOOD SHARON COMPAQ XL 5133 - 8 UW BRIDGEFORTH JACKIE COMPAQ DESKPRO 8 UW BRUMBAUGH BARBARA COMPAQ DESKPRO 8 UW CUTLER JOEL COMPAQ DESKPRO 8 UW ELLIOTT CAROLYN COMPAQ DESKPRO 8 UW GOODE CHERYL COMPAQ XL 5133 - 8 UW HENN BOBBIE COMPAQ DESKPRO 8 UW HERBERTZ PATTY COMPAQ XL 5133 - 8 UW JOHNSON DONNA COMPAQ DESKPRO 8 UW KENNELLY MIKE COMPAQ XL 5133 - 8 UW KRAFT HENRY COMPAQ DESKPRO 8 UW LEWIS TONI COMPAQ DESKPRO 8 UW MADDEN BETH COMPAQ DESKPRO 8 UW MARKOVICH DAN COMPAQ DESKPRO 8 UW MARTIN DELMA COMPAQ 66M 8 UW MATHIAS MIKE COMPAQ XL 5133 - 8 UW NICHOLS DEBBIE COMPAQ DESKPRO 8 UW PAPP SANDRA COMPAQ DESKPRO 8 UW PRITCHARD SANDY COMPAQ XL 5133 - 8 UW SMITH MICHELLE COMPAQ DESKPRO 8 UW SPAULDING GREG COMPAQ DESKPRO 8 UW TAYLOR JOEY COMPAQ DESKPRO 8 UW VOILES LISA COMPAQ DESKPRO 8 UW WORMAN BRENDA COMPAQ 66M 9 OPRMG ADAMS TERRI COMPAQ 66M 9 OPRMG BENNETT GINA COMPAQ 66M 9 OPRMG BURRIS LEIGH ANN COMPAQ 66M 9 OPRMG FOXWORTHY DENISE COMPAQ DESKPRO 9 OPRMG GUILDNER MARTY COMPAQ DESKPRO 9 OPRMG HAMILTON CAROL COMPAQ DESKPRO 9 OPRMG JONES VICKY COMPAQ DESKPRO 9 OPRMG KELLY BARRI COMPAQ DESKPRO 9 OPRMG MAZZA-DAMERY BECKY COMPAQ DESKPRO BANK 9 OPRMG MORRIS LOIS COMPAQ DESKPRO 9 OPRMG NISHIYAMA HEATHER COMPAQ DESKPRO 9 OPRMG ROBERTS DONNA COMPAQ DESKPRO 9 OPRMG WALLACE AMY COMPAQ DESKPRO 9 OPRMG WHITAKER BETTY COMPAQ DESKPRO 9 OPRMG WILLIAMS CHARLOTTE COMPAQ DESKPRO 10 MEDMG MCGLOTHLIN MARY COMPAQ 66M 10 RUNOF MCGLOTHLIN KATHRYN COMPAQ 66M 10 MEDMG NOWAK MARTINA COMPAQ 66M 10 MEDMG SHOWALTER VERA COMPAQ 66M 11 IKON BASS TAMARA COMPAQ 66M Page 1 11 IKON CAIN BILLY COMPAQ 66M 11 IKON CONSOLE IBM 8870-861 11 IKON CONSOLE IBM 8870-861 11 IKON HOLIDAY CANDIS COMPAQ 66M 11 IKON KELLY BARB COMPAQ 66M 11 IKON SMITH JENNI COMPAQ 66M 11 IKON MCCARTHY TAMMY COMPAQ 66M 12 UW UW1 COMPAQ DESKPRO 12 UW UW2 COMPAQ DESKPRO 12 UW UW3 COMPAQ DESKPRO 12 UW UW4 COMPAQ DESKPRO 13 BALES MILLER SALLY COMPAQ DESKPRO Home 16 HRES PAYROLL COMPAQ 66M 16 CLMS TEMP TGREEN COMPAQ DESKPRO 16 CLMS TEMP CWARD COMPAQ DESKPRO 16 CLMS TEMP MMCNEIL COMPAQ 66M 16 MEDMG TEMP BUENING MARGARET COMPAQ 66M 16 CLMS TEMP DJOHNS (DLAMB) COMPAQ DESKPRO 16 MEDMG TEMP SAGAR JEANNE COMPAQ 66M REMAINING 69 95 Installation completed ACTRL CURRAN JOHN COMPAQ ACTRL GRINDSTAFF MARSHA COMPAQ ACTRL MALLISON BOB COMPAQ ACTRL ROBBINS KEVIN COMPAQ ACTRL STAMPLFLI ERIC COMPAQ AUDIT BOLLER KIRK COMPAQ AUDIT GEMINDEN KATHY COMPAQ AUDIT LAMB DENISE COMPAQ AUDIT LAW KT COMPAQ AUDIT NORDHOFF JUDY COMPAQ CLMS BREWER DAVE COMPAQ CLMS DAVIS DARLENE COMPAQ CLMS GILES PATTY COMPAQ CLMS GRISMORE DEBBIE COMPAQ CLMS JOINES-MCVEY BARBARA COMPAQ CLMS MCKINNEY JULIE COMPAQ CLMS NEVIN JEANETTE COMPAQ CLMS PHELPS CONNIE COMPAQ CLMS SCHWAB PATSY COMPAQ CLMS URBINE DENISE COMPAQ CLMS WARREN MARSHA COMPAQ COMPL MCCARTY MARK COMPAQ COMPL RUSSELL KIM COMPAQ CORP KONTERMAN ROELOF COMPAQ CORP PINKSTON CYNTHIA COMPAQ HRES COOK BRENDA COMPAQ HRES JAYNE TAMARA COMPAQ INSYS COOK KATHY COMPAQ INSYS CRISMORE JASON COMPAQ Page 2 VASA Brougher, Inc. Windows 95 Conversions As of 8/17/998 INSYS DESK FRONT COMPAQ INSYS GENTRY JAN COMPAQ INSYS KEYES DORRIE COMPAQ INSYS KONERMAN WENDY COMPAQ INSYS MCDANIEL BOB COMPAQ INSYS MELLUCK KIM COMPAQ INSYS PLUNKETT TIM COMPAQ INSYS REDDING PAT COMPAQ INSYS STORM JOHN COMPAQ INSYS TERRY SHARI COMPAQ INSYS TRANO LINDA COMPAQ INSYS WEST TOM COMPAQ LEGAL APOLSKIS MIKE COMPAQ LEGAL DORSON PATTI COMPAQ LEGAL REED CATHY COMPAQ LEGAL SCOTT AMY COMPAQ LEGAL STEPHENSON JENNIFER COMPAQ MEDMG BURKHART MARKAY COMPAQ MKTG LEININGER PAUL COMPAQ MKTG NICKEL SCOTT COMPAQ MKTG OLES KELLY COMPAQ OPRMG BRUDER GORDON COMPAQ Page 3 [LOGO OF VASA BROUGHER] Re: Year 2000 Compliance Update Date: August 18, 1998 To Whom It May Concern: Over the past several years the Information Systems Department of VASA North America has been working to identify and resolve any issues related to potential Year 2000 issues. This review has included the Group US Health business of both VASA North Atlantic and Seaboard Life Insurance Company USA as well as the group's managing general underwriter VASA Brougher. Listed below are the Year 2000 issues we have identified, the status, and, if necessary, the continued action plan. It is the intent of VASA North America to have all associated companies Year 2000 compliant except where specifically noted due to business runoff considerations. If you have any questions regarding the following breakdown please feel free to contact us at any time. - -------------------------------------------------------------------------------- | Hardware | | | | | -------- | | | | | | | | | - -------------------------------------------------------------------------------- |Network Servers | | | | | Main Novell Servers | Patch | Compliant | 6/98 | | E-Mail (DaVinci) | Remove | Not Compliant | | | Telecommunications | Replace | Not Compliant | On Hold| | Internet Firewall | Patch | Compliant | 6/98 | | Fax | Replace | Not Compliant | 12/98 | | SAA Gateway | Remove | Not Compliant | 12/99 | | Back Up | Patch | Compliant | 6/98 | |UNIX Servers | | | | | ULTRA 5000 (ORACLE Server) | Patch | Compliant | 8/98 | | ULTRA 2 (Development/Test)| | Compliant | | | SPARC 20 (EPM) | | Compliant | | | SPARC 10 (Extra Disk) | | Compliant | | | SPARC 5 (CBT Courses) | | Compliant | | |AS400 Model F35 | Remove | Not Compliant | 12/99 | |(WINS P & C System) | | | | |Network Clients | | | | | Compaq Deskpro 2000 | Patch | In Progress | 12/98 | | Compaq XL | Patch | In Progress | 12/98 | | Compaq M Series M66 & M50 | Replace Or New Use | Not Compliant | 6/98 | |HUBS & Routers | | Compliant | | |Laptop Computers | Patch | In Progress | 06/99 | - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------- ^^ILLEGIBLE HEADING^^ - ----------------------------------------------------------------------------------------- Operating Systems Novell Netware 4.11 Patch Compliant 6/98 Solaris 2.51 Patch Compliant 8/98 OS400 Remove Not Compliant 12/99 Windows NT 4.0 Firewall Compliant Windows 95 Compliant Other System Software ORACLE Version 7.3.4 Compliant Business Objects Upgrade Required Not Compliant 12/98 PVCS Version Control Compliant Network FAX Software Compliant Soft Track Licensing Software Compliant Areserve Back Up Software Upgraded Compliant 6/98 Custom Developed Benefits Plus System (Stoploss) Additional Testing Required Not Compliant 12/98 ULTRAPLUS Compliant FORCE (Field Underwriting) Upgrade Project Not Compliant 10/98 Purchased Packages Lawson Financials Compliant WINS Property & Casualty Remove Not Compliant 12/99 ELectronic Banking Under Review End User Applications Microsoft Office Compliant Electronic Mail (Groupwise) Compliant Misc Under Review Not Compliant 12/98 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- ^^ILLEGIBLE HEADING^^ - ----------------------------------------------------------------------------------------- Telecommunications Centigram (Voice Mail) Upgrade Required Not Compliant 06/99 Conveyant Console Compliant Centigram Phone System Compliant Office Equipment Fax Machines Compliant Copiers Compliant Mail & Postage Systems Compliant - -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- |^^Illegible Heading^^ | | | | | - -------------------------------------------------------------------------------- | Climate Controls | | Compliant | | | Elevators | | Compliant | | | Security Systems | | Compliant | | - -------------------------------------------------------------------------------- The Audit Department of VASA North America is providing copies of the Year 2000 readiness kit developed by the Information Systems Audit and Control Association to approved producers as part of regular quarterly audits. The Audit Department is also requesting that each of our clients return a Year 2000 questionnaire as part of regularly scheduled audits. Information prepared by: John Storm Vice President, Information Systems (317) 238-5670 jstorm@mail.vasabrougher.com Monday, August 17, 1998 12:00:43 AM Page: 1 of 1 Logical Network Configuration x.x = 192.15 [Diagram of Logical Network Configuration] Diagram: Top Schedule 3.19 Labor Matters ------------- Neither Seller has any knowledge of any material activities or proceedings of any labor union to organize any employees of any Company or any Subsidiary of any Company. Schedule 3.21 Company Investment Assets ------------------------- See Attachment 1 for spreadsheets detailing investment assets. Schedule 3.21 Attachment 1 VASA NORTH ATLANTIC INSURANCE COMPANY PORTFOLIO LIST Updated: Jul/08/1998 as at Jun/30/1998
PROJECTED SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME BONDS 064159AA4 BANK OF NOVA SCOTIA USP May/O1/2003 6.88 1,000,000.00 1,018,902.00 102.8200 1,028,200.00 68,750.00 125425A02 CIBC CAPITAL FUNDING USP Dec/17/2002 6.25 1,000,000.00 998,513.00 100.8900 1,008,500.00 62,500.00 313648MD9 FEDERAL NATIONA.MORTGAGE A Oct/04/2000 6.27 750,000.00 754,400.25 101.2900 759,675.00 47,175.00 345397RW5 FORD MOTOR CREDIT Apr/28/2003 6.13 1,000,000.00 998,092.77 100.1300 1,001,300.00 61,250.00 456141D57 IN TRANS TIN AUTHHWY REV SER Jun/01/2003 5.15 520,000.00 517,830.04 104.6200 544,024.00 26,780.00 617446A-12 MORGAN STANLEY GROUP, INC. Oct/15/2001 8.88 450,000.00 457,443.45 103.2700 487,215.00 39,937.50 (Held to Maturity) 664257AC8 NORTHEAST MD WASTE DSP AUTH Jul/01/2005 5.90 645,000.00 656,286.85 103.5900 700,405.50 38,055.00 683234GW2 PROVINCE OF ONTARIO JSP Oct/17/2001 8.00 2,000,000.00 2,092,582.00 103.1400 2,122,800.00 160,000.00 694032AY6 SBC COMMUNICATIONS Aug/15/2006 6.88 1,200,000.00 1,252,131.60 104.8300 1,257,960.00 82,500.00 69418MAY6 NM PAC DUNLOP LTD Dec/07/2000 6.13 700,000.00 700,000.00 100.5400 703,780.00 42,875.00 793753D55 SAN MARCOS PUBLIC FACILITY AU Mar/01/2014 1,990,000.00 894,353.76 47.6200 947,638.00 822567AC7 SHELL CANADA LTD Jan/14/2001 8.89 1,000,000.00 1,371,802.00 106.9900 1,059,900.00 88,750.00 835615CV4 SOUTH BEND IN SEW WKS Dec/01/2004 5.23 500,000.00 497,400.50 102.9700 514,850.00 26,000.00 89233PFA9 TOYOTA MOTOR COMPANY Oct/06/2000 5.13 500,000.00 491,371.00 100.2700 501,350.00 25,500.00 912810C36 GOVERNMENT OF USA Nov/15/2008 8.75 1,000,000.00 1,169,551.00 114.1250 141,260.00 87,500.00 912827G55 GOVERNMENT OF USA Aug/15/2002 6.33 160,000.00 157,923.66 103.0000 134,800.00 10,200.00 (Held to Maturity) 912827J37 GOVERNMENT OF USA Jan/15/2000 6.33 1,000,000.00 997,932.00 100.2500 1,012,500.00 63,750.00 912827L83 GOVERNMENT OF USA Aug/15/2003 5.73 2,200,000.00 2,182,598.00 100.0310 2,222,632.00 126,500.00 912827M25 GOVERNMENT OF USA Aug/31/1998 4.75 300,000.00 299,626.20 99.9375 299,812.50 14,250.00 912827XB7 GOVERNMENT OF USA Feb/15/1999 8.83 750,000.00 763,233.00 102.0310 765,232.50 66,562.60 (Held to Maturity) C15390D18 GOVERNMENT OF CANADA Jul/21/2005 6.38 4,500,000.00 4,423,797.00 103.4000 4,653,010.00 286,875.00 ------------- ------------- ------------- ------------ BONDS 23,165,000.00 22,395,775.06 22,907,274.50 1,425,710.00 ------------- ------------- ------------- ------------
VASA NORTH ATLANTIC INSURANCE COMPANY PORTFOLIO LIST Updated: Jul/08/1998 as at Jun/30/1998
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME MBS/CMO 31359DJN4 FEDERAL NATIONAL MORTAGE A Ccl/25/2019 11.00 515,000.00 530,877.45 94.3125 485,709.38 56,650.00 ------------- ------------- ------------- ------------ 515,000.00 530,877.45 485,709.38 56,650.00 ------------- ------------- ------------- ------------ MBS/CMO SHORT TERM NEK8C509C CERTIFICATE OF DEPOSIT NEVADA Aug/12/1998 5.13 200,000.00 200,000.00 100.0000 200,000.00 200,000.00 ------------- ------------- ------------- ------------ SHORT TERM 200,000.00 200,000.00 200,000.00 11,250.00 ------------- ------------- ------------- ------------ ============= ============= ============= ============ Grand Total 23,880,000.00 23,126,652.51 23,592,981.88 1,492,610.00 ============= ============= ============= ============
Maturity
VNA U.S. GAAP Dec 31 Dec 31 June 30 June 30 1997 1997 1998 1998 Maturity Date Book Market Book Market HELD TO MATURITY 912827-L4-2 1996 3,192,256 3,196,992 - - One or less 3,192,256 3,196,992 - - 912827-XE-7 1999 772,043 776,018 763,233 765,233 617446-AH-2 2001 458,483 488,610 457,443 487,215 912827-G5-5 2002 157,755 164,101 157,929 164,800 After one thru five 1,383,281 1,428,729 1,378,605 1,417,248 31358T-NY-1 2002 130,865 153 - - Mortgage-backed securities 130,865 153 - - TOTAL 4,711,402 4,625,874 1,378,605 1,417,248 ========= ========= ========= ========= AVAILABLE FOR SALE - ------------------ 912827-M2-5 1998 298,818 298,314 299,626 299,813 One or less 298,818 298,314 299,626 299,813 313648-MD-9 2000 755,198 759,000 754,400 759,675 912827-J3-7 2000 997,610 1,014,380 997,932 1,012,500 69418N-AY-6 2000 700,000 697,130 700,000 703,780 89233P-FA-9 2000 489,910 434,750 491,371 501,350 313393-KB-5 2001 1,000,000 997,180 - - 683234-GW-2 2001 2,105,220 2,124,700 2,092,582 2,122,800 822567-AC-7 2001 1,084,780 1,075,600 1,071,802 1,069,900 125425-AC-2 2002 998,320 999,100 998,513 1,008,900 After one thru five 8,131,038 8,151,840 7,106,600 7,178,905 912827-L8-3 2003 485,525 500,155 2,182,598 2,222,682 455141-DS-7 2003 517,707 543,036 517,830 544,024 064159-AA-4 2003 1,020,390 1,022,510 1,018,902 1,028,200 345397-RW-5 2003 - - 998,093 1,001,300 836615-CV-4 2004 497,290 512,650 497,401 514,850 C15390-DT-8 2005 4,420,485 4,594,950 4,423,797 4,653,000 664257-AK-8 2005 656,655 689,312 656,287 700,406 694032-AZ-6 2006 - - 1,252,132 1,257,960 28421E-AN-1 2006 1,322,813 1,293,221 - - Page 1
Maturity After five thru ten 8,920,865 9,155,834 11,547,039 11,922,422 912810-CE-6 2008 1,175,270 1,137,810 1,169,551 1,141,250 455280-NP-8 2010 995,460 1,110,200 - - 798753-DS-5 2014 871,739 895,301 894,354 947,638 798753-DU-0 2014 431,613 443,289 - - Over ten 3,474,082 3,586,600 2,063,905 2,088,888 31359D-JN-4 531,626 479,753 530,877 485,709 Mortgage-backed securities 2019 531,626 479,753 530,877 485,709 TOTAL 21,356,429 21,672,341 21,548,047 21,975,738 ============================================== Page 2 Unreal Gains Continuity of Unrealized Appreciation of Investments (VNAIC) Balance at January 1, 1996 Consisting of Bonds (1,576,970) Equities (901,318) Deferred Tax 842,618 (1,635,670) Balance at December 31, 1996 Consisting of Bonds (1,218,880) Equities - Deferred Tax 414,419 (804,461) Balance at December 31, 1997 Consisting of Bonds 315,912 Equities - Deferred Tax (107,410) 208,502 Balance at June 30, 1998 Consisting of Bonds 427,689 Equities - Deferred Tax (145,414) 282,275 Page 1 U.S. BALANCE SHEETS FOR JUNE 1998 (Unaudited) STATUTORY CDN GAAP ADJUST- SLIC/VNA SLIC(USA) VNAT ILA MENTS GROUP ASSETS BONDS 96,498 22,927 57,206 154 52,373 STOCKS 4,992 - - (1,384) 3,538 MORTGAGES 22,160 - 22,160 - - REAL ESTATE - - - 8,744 8,744 POLICY LOANS 4,894 - 4,894 - - CASH/SHORT TERM 3,122 6,639 2,735 (3,303) 3,723 ACCRUED INTEREST 1,974 435 1,334 (440) 635 OUTSTANDING PREM 12,464 - - (1,831) 10,633 DUE FROM REINSURERS 9,403 15,491 - (24,894) - OTHER ASSETS 42,961 (6,556) - (10,183) 26,222 GOODWILL 2,224 - 2,221 5,567 5,567 TOTAL ASSETS 200,622 38,936 100,555 (27,570) 111,435 LIABILITIES POLICY RESERVES 100,845 56 100,280 - 621 UNPAID & UNREPORTED CLAIMS 19,510 12,354 256 - 31,608 POLICYHOLDER FUNDS 17 - 17 201 201 DUE TO REINSURERS 36,813 845 - (37,659) - TAXES PAYABLE (1,176) 364 - 352 (460) DEBT - - - 25,319 25,319 OTHER LIABILITIES 22,514 2,306 - 2,199 27,019 TOTAL LIABILITIES 178,523 15,925 100,553 (9,587) 84,308 CAPITAL & SURPLUS COMMON STOCK 2,500 2,660 - - 5,160 PAID IN CAPITAL 23,961 24,057 - - 48,018 RETAINED EARNINGS (4,362) (3,706) - (17,983) (26,051) TOTAL 22,099 23,011 - (17,983) 27,127 TOTAL LIABILITIES, CAPITAL & SURPLUS 200,622 38,936 100,553 (27,570) 111,435 3,122 cash/st Page 1 U.S. BALANCE SHEETS FOR JUNE 1998
(Unaudited) CDN GAAP SLIC/VNA SLIC(USA) VNA ILA GROUP ASSETS BONDS 96,498 23,081 67,206 52,373 STOCKS 3,538 - - 3,538 MORTGAGES 22,160 - 22,160 - REAL ESTATE - 8,744 - 8,744 POLICY LOANS 4,894 - 4,894 - CASH/SHORT TERM 3,122 3,336 2,735 3,723 ACCRUED INTEREST 1,969 - 1,334 635 OUTSTANDING PREM 9,550 1,083 - 10,633 DUE FROM REINSURERS - - - - OTHER ASSETS 7,329 18,893 - 26,222 GOODWILL 2,822 5,567 2,822 5,567 TOTAL ASSETS 151,882 60,704 101,151 111,435 LIABILITIES POLICY RESERVES 98,240 56 97,675 621 UNPAID & UNREPORTED CLAIMS 19,510 12,354 256 31,608 POLICYHOLDER FUNDS 218 - 17 201 DUE TO REINSURERS - - - - TAXES PAYABLE (651) 191 - (460) DEBT - 25,319 - 25,319 OTHER LIABILITIES 7,575 19,444 - 27,019 TOTAL LIABILITIES 124,092 57,334 97,948 84,308 CAPITAL & SURPLUS COMMON STOCK 2,500 2,660 - 5,160 PAID IN CAPITAL 23,961 24,057 - 48,018 RETAINED EARNINGS 529 (23,377) 3,203 (26,051) TOTAL 26,990 3,340 3,203 27,127 TOTAL LIABILITIES, CAPITAL & SURPLUS 151,882 60,704 101,151 111,435
Page 2 SEABOARD LIFE INSURANCE COMPANY (USA) PORTFOLIO LIST as at Jun/30/1998
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME 031920AC1 ARCO CHEMICAL CO Nov/01/2000 9.90 1,000,000.00 1,000,000.00 ILA 108.3900 1,083,900.00 99,000.00 002041QF4 AMERICAN TELEPHONE & TELEGR Aug/13/1999 6.57 2,000,000.00 2,029,334.00 ILA 100.7500 2,075,000.00 131,400.00 01310Q553 ALBERTSONS INC Mar/24/2000 6.11 1,000,000.00 1,000,000.00 ILA 100.4300 1,004,300.00 61,100.00 039483AD4 ARCHER DANIELS MIDLAND CO Mar/01/2000 1,000,000.00 703,564.00 ILA 79.6800 796,800.00 046003EP0 ASSOCIATES CORP OF N. AMERIC Mar/30/2000 5.25 2,000,000.00 1,995,820.00 ILA 99.0000 1,980,200.00 105,000.00 064139AB2 BANK OF NOVA SCOTIA Sep/15/2008 6.25 3,000,000.00 2,749,392.00 ILA 99.9600 2,998,500.00 187,500.00 097023AV9 BOEING CO Jun/15/2003 6.35 1,000,000.00 998,740.00 ILA 102.2700 1,022,100.00 63,500.00 125425AC2 CIBC CAPITAL FUNDING USP Dec/17/2002 6.25 3,000,000.00 2,995,539.00 ILA 100.8900 3,026,700.00 187,500.00 126410BQ1 C S X TRANSPORTATION Mar/01/2006 8.41 539,786.54 546,178.69 ILA 112.6600 608,123.52 45,396.05 313400AV5 FEDERAL HOME LOAN MORTGAG Mar/15/2009 9.88 10,163.00 10,102.77 GRP 100.0000 70,163.00 1,003.60 313400W90 FEDERAL HOME LOAN MORTGAG Nov/18/2004 8.53 2,000,000.00 1,994,772.00 GRP 103.9379 2,078,760.00 170,600.00 341081DA2 FLORIDA POWER & LIGHT Dec/01/2012 7.88 750,000.00 765,861.75 ILA 104.0900 780,675.00 59,062.50 341029BX1 FLORIDA POWER CORP Jul/01/2003 6.00 1,000,000.00 1,000,000.00 ILA 100.0800 1,000,800.00 60,000.00 345370BK5 FORD MOTOR COMPANY Nov/15/1999 7.50 1,700,000.00 1,703,833.50 ILA 102.1500 1,736,550.20 127,500.00 345397RW5 FORD MOTOR CREDIT Apr/28/2003 6.13 1,000,000.00 998,092.77 ILA 100.1300 1,001,300.20 61,250.00 369628IL0 GENERAL ELECTRIC CAPITAL COR Apr/15/2000 6.00 2,000,000.00 2,027,934.00 ILA 101.8400 2,036,600.30 137,500.00 370424BB2 GENERAL MOTORS ACCEPTANCE Oct/15/2005 6.63 1,000,000.00 995,484.00 ILA 101.6900 1,016,900.00 66,250.00 459208AV3 IMPERIAL OIL LTD. Aug/20/2001 8.30 2,000,000.00 2,079,670.00 ILA 106.5100 2,130,900.00 166,000.00 459200AK7 IBM CORP Jun/15/2000 6.38 1,000,000.00 1,002,700.00 ILA 101.0000 1,010,000.00 63,750.00 462470AV7 IOWA ILLINOIS GAS & ELECTRIC Oct/15/1998 5.05 2,000,000.00 1,995,610.00 ILA 99.7100 1,994,200.00 101,000.00 47655PAJ2 JERSEY CENTRAL POWER & LIGHT Jan/23/2007 7.90 1,000,000.00 1,000,000.00 ILA 110.6700 1,106,700.00 79,000.00
SEABOARD LIFE INSURANCE COMPANY (USA) PORTFOLIO LIST Updated Jul/10/1998 as at Jun/30/1998
PROJECTED SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME 563459CV5 PROVINCE OF MANITOBA Dec/15/2000 9.00 3,000,000.00 3,153,245.00 ILA 106.8800 3,206,400.00 270,000.00 63100RA11 NARRAGANSETT ELECTRIC CO Jun/30/2008 6.65 1,000,000.00 1,008,871.00 ILA 103.8100 1,035,400.00 66,500.00 644239BG9 NEW ENGLAND TELEPHONE Oct/01/1998 5.05 2,000,000.00 1,999,540.00 ILA 99.7600 1,995,200.00 101,000.00 683234GW2 PROVINCE OF ONTARIO USA Oct/17/2001 8.00 3,000,000.00 3,138,873.00 ILA 106.1400 3,184,200.00 240,000.00 694032AZ6 SBC COMMUNICATIONS Aug/15/2006 6.88 1,000,000.00 1,878,197.40 ILA 104.8300 1,886,940.00 123,750.00 70870RAP7 PENNSYLVANIA ELECTRIC COMP Mar/06/2000 6.15 1,000,000.00 1,000,913.00 ILA 100.4600 1,004,600.00 61,500.00 8036554K9 PROVINCE OF SASKATCHEWAN Jul/15/2004 8.00 3,000,000.00 2,968,455.00 ILA 110.1800 3,305,400.00 240,000.00 822587AC7 SHELL CANADA LTD Jan/14/2001 8.69 3,000,000.00 3,120,516.00 ILA 106.9900 3,209,700.00 266,250.00 879811881 TEMPLE INLAND MIN Dec/01/2006 8.38 1,000,000.00 1,000,318.00 ILA 115.1900 1,151,900.00 83,000.00 881685AM3 TEXACO CAPITAL INC Dec/15/1999 9.00 1,000,000.00 1,028,680.00 ILA 104.3800 1,043,800.00 90,000.00 906518800 UNION ELECTRIC CO Dec/15/2004 7.38 1,000,000.00 1,028,506.00 ILA 107.4300 1,074,300.00 73,750.00 9128 ODW5 GOVERNMENT OF USA May/15/2016 7.25 2,750,000.00 2,671,253.71 ILA 117.0010 3,208,352.50 199,375.00 912827J37 GOVERNMENT OF USA Jan/15/2000 6.38 7,000,000.00 6,999,053.59 GRP 101.2500 7,087,500.00 146,250.00 912827J70 GOVERNMENT OF USA Feb/15/2003 6.25 3,600,000.00 3,400,821.14 GRP 102.8750 3,703,500.00 225,000.00 912837M25 GOVERNMENT OF USA Aug/31/1998 4.75 8,000,000.00 7,999,152.00 GRP 99.9575 7,995,000.00 380,000.00 912827MAA GOVERNMENT OF USA Oct/31/1998 4.75 3,500,000.00 3,493,544.50 GRP 99.7812 3,492,345.50 166,250.00 912827W73 GOVERNMENT OF USA Feb/15/1999 5.00 5,000,000.00 4,967,892.00 GRP 99.7187 4,985,940.00 250,000.00 912827YE6 GOVERNMENT OF USA Nov/15/1999 7.88 220,000.00 219,688.70 GRP 103.0629 226,738.60 17,325.00 94066VAL/ WASHINGTON WATER POWER CO Jul/08/2005 6.39 1,500,000.00 1,500,000.00 ILA 101.5800 1,523,700.00 95,850.00 999961564 FIRST FEDERAL OF MICHIGAN Feb/26/2005 1,000,000.00 576,153.00 ILA 67.1700 671,700.00 C15120000 GOVERNMENT OF CANADA Jul/21/2000 6.38 6,000,000.00 6,942,540.00 ILA 103.4000 6,204,000.00 382,500.00 ------------- ------------- ------------- ---------- BONDS 85,369,949.54 88,707,841.62 91,643,288.12 67,524,214 ------------- ------------- ------------- ----------
COMMON STK SEABOARD LIFE INSURANCE COMPANY (USA) PORTFOLIO LIST Updated Jul/10/1998 as at Jun/30/1998
PROJECTED SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME 001957109 AT&T CORP 2,330.00 95,067.01 57.1250 133,101.25 0195 2102 ALLIED SIGNAL INC. 1,800.00 57,516.53 44.3750 79,875.00 026874107 AMERICAN INTERNATIONAL GROUP 1,450.00 98,704.79 146.0000 211,700.00 046055108 ASSOCIATES FIRST CAP CORP 576.00 25,454.25 76.9380 44,316.29 066050105 BANKAMERICA CORP. 1,840.00 78,883.13 86.5000 159,160.00 079860102 BELLSOUTH CORPORATION 2,500.00 98,829.00 67.1250 147,812.50 110122108 BRISTOL MYERS 1,550.00 120,993.00 114.9380 178,153.90 172758108 CISCO SYS INC. 1,885.00 74,614.53 92.0625 173,537.81 173034109 CITICORP 1,065.00 97,317.82 149.2500 158,951.25 204912109 COMPUTER ASSOCIATES INTL INC. 1,100.00 64,897.25 55.5630 61,119.30 263534109 DUPONT (EI) 1,290.00 85,240.10 74.6875 96,346.87 291011104 EMERSON ELECTRIC COMPANY 1,300.00 59,417.51 60.3750 78,487.50 392290101 EXXON CORP 2,195.00 95,030.05 71.3760 156,668.12 314101101 FEDERATED DEPT STORES INC. 2,000.00 68,671.45 53.8125 107,625.30 345370100 FORD MOTOR COMPANY 2,200.00 46,370.85 59.0000 129,800.00 369604103 GENERAL ELECTRIC CO 1,975.00 89,531.47 90.8750 179,478.12 375766102 GILLETTE COMPANY 2,600.00 95,347.72 53.8750 147,875.00 437076102 HOME DEPOT INC 1,720.00 95,187.55 83.0625 142,867.50 458170100 INTEL CORPORATION 695.00 45,156.34 74.1250 51,516.87 459200101 INTERNATIONAL BUSINESS MACHIN 1,200.00 75,425.80 114.8130 137,775.60 460146103 INTERNATIONAL PAPER 1,475.00 63,880.73 43.0000 63,425.00 478170104 JOHNSON & JOHNSON 1,800.00 90,134.88 74.0000 133,200.00 580135101 MCDONALDS CORPORATION 2,000.00 96,408.29 69.0000 138,000.00 585509102 MELLON BANK CORP FINA 1,250.00 91,090.63 69.6875 87,102.38
SEABOARD LIFE INSURANCE COMPANY (USA) PORTFOLIO LIST as at Jun/30/1998
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED ANNUAL CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE INCOME 589331107 MERCK & CO INC. 1,600.00 111,551.36 133.7600 214,000.00 594918104 MICROSOFT CORP 1,990.00 113,923.96 108.3750 215,666.25 607069102 MOBIL CORP. 2,000.00 118,040.44 76.6250 163,250.00 629140104 NIPSCO NDS INC. 4,805.00 93,369.21 28.0000 134,540.00 658585109 NATIONSBANK CORP 1,535.00 95,262.10 76.6875 117,715.31 713448108 PEPSICO INCORPORATED 2,700.00 69,647.46 41.1875 111,206.25 718154107 PHILIP MORRIS 2,245.00 69,622.54 39.3750 88,396.87 742718109 PROCTER AND GAMBLE CO. 1,800.00 83,736.00 91.0625 163,912.50 78387G108 SBC COMMUNICATIONS INC 725.00 29,224.75 40.0000 29,000.00 803111103 SARA LEE CORP CONS ST 1,340.00 78,584.76 55.9380 74,956.92 881694103 TEXACO INC. 2,000.00 96,996.48 59.6875 119,375.00 894190107 TRAVELERS GROUP INC 1,770.00 95,133.08 60.6250 107,306.25 913097102 UNITED TECHNOLOGIES CORP. 1,470.00 90,352.50 92.5000 135,975.00 931142103 WAL-MART STORES INC 1,580.00 63,196.00 60.7500 95,985.00 934480107 WARNER LAMBERT CO. HEA 2,065.00 127.971.10 69.3250 142,565.62 ------------ ------------ ------------ COMMON STK 69,411.00 3,243,782.67 4,921,753.23 ------------ ------------ ------------ MBS / CMO 060492AA3 BANK OF AMERICA Mar/25/2007 8.38 10,780.02 11,548.92 100.0000 10,780.32 902.83 060492AB1 BANK OF AMERICA Mar/25/2008 9.00 8,234.09 9,999.55 100.0000 8,234.39 741.07 3129066E6 FEDERAL HOME LOAN MORTGAG Jul/15/2020 8.00 701,472.80 716,394.93 100.3125 703,664.90 56,117.82 3129003K6 FEDERAL HOME LOAN MORTGAG Mar/15/2019 7.50 492,935.20 491,270.94 99.8125 492,000.97 36,939.39 3129014W7 FEDERAL HOME LOAN MORTGAG Jul/15/2007 6.50 2,000,000.00 1,996,872.50 100.7187 2,014,376.00 130,000.00 313313DC5 FEDERAL HOME LOAN MORTGAG Aug/15/2006 6.00 1,000,000.00 1,006,429.00 100.1406 1,001,406.00 60,000.00
SEABOARD LIFE INSURANCE COMPANY (USA) PORTFOLIO LIST Updated Jul/10/1998 as at Jun/30/1998
SECURITY MATURITY COUPON PAR/SHARE BOOK MARKET MARKET PROJECTED CUSIP NAME DATE RATE VALUE VALUE PRICE VALUE ANNUAL INCOME 313OVIIDJ FEDERAL HOME LOAN MORTGAG Jun/15/2013 11.50 2,414.85 2,420.18 GRP 100.0000 2,414.85 277.71 313OWLIW0 FEDERAL HOME LOAN MORTGAG Nov/15/2009 11.50 19,250.20 19,287.22 GRP 100.0000 19,258.20 2,213.77 313591IW1 FEDERAL NATIONAL MORTGAGE A Sep/25/2006 5.80 2,000,000.00 2,005,272.00 ILA 99.2500 1,995,000.00 116,000.00 31359GHN9 FEDERAL NATIONAL MORTGAGE A Dec/25/2006 6.50 719,287.71 724,797.64 ILA 99.4062 715,076.94 46,753.70 31362NBQ3 FEDERAL NATIONAL MORTGAGE A Sep/25/2005 10.00 45,600.60 45,600.39 GRP 104.8594 47,816.52 4,550.06 3622015J0 GOVERNMENT NATIONAL MORTG Mar/15/2021 9.00 134,509.40 136,363.61 GRP 106.8063 143.799.02 12,105.85 617909AD8 MORGAN STANLEY MORTGAGE TR Sep/20/2018 8.43 598,661.55 621,785.55 ILA 103.9375 622,233.85 50,437.24 ------------- ------------- -------------- ------------ MBS/CMO 7,733,136.42 7,590,045.43 7,773,993.36 517,079.43 ------------- ------------- -------------- ------------ ============= ============= ============== ============ Grand Total 17,172,496.96 99,541,669.62 104,346,034.71 6,269,191.58 ============= ============= ============== ============
(1) All Common Stocks Allocated To Group. ILA - Individual Life GRP - Group Business Schedule 4.3 Governmental Authorization -------------------------- (ii) Approvals or filings under the insurance laws: Indiana as respects to the Holding Company Act and such other ------- jurisdictions where SLIC (USA) or VASA North Atlantic are licensed that may required preapproval of the transaction, from which exemptions are not available. Schedule 4.4 Non-Contravention ----------------- (i) (ii) (iii) (a) approval of Fleet National Bank pursuant to a Credit Agreement dated as of December 20, 1994 between Fleet National Bank (formerly known as Shawmut Bank Connecticut, N.A.) and The Centris Group, Inc. (formerly known as US Facilities Corporation), as amended through Second Amendment dated July 1, 1992. (b) pursuant to the terms of Management Agreement No. 1 between US Benefits Insurance Services Inc. and The Continental Insurance Company, Buyer will need the consent of The Continental Insurance Company in order to provide the management services to SLIC (USA) and VASA North Atlantic specified in Section 7.10(c) hereof. Schedule 5.1 Conduct of the Companies ------------------------ 5.1(q) Group term life insurance - Certain terms and death benefit amounts require facultative reinsurance placement. Such facultative reinsurance coverage is entered into in the ordinary course of business consistent with past practice. Schedule 5.7 Use of Computer Software ------------------------ None Schedule 6.3 Severance Formula ----------------- See Schedule 3.9(f)(3). Schedule 7.4 Trademarks; Trade Names ----------------------- Registration Number 1370515 for the service mark "BROUGHER" as set forth on the Attachment 1 to this Schedule 7.4 The designs for "VASA" on the Attachment 2 to this Schedule 7.4. On January 21, 1997, VASA North America, Inc. and Visa International entered into a Settlement Agreement which outlines Visa International's agreement to VASA North America, Inc.'s future use and registration of "VASA". Registration Number 2034389 for the service mark "NAVIGATOR" as set forth on the Attachment 3 to this Schedule 7.4 Schedule 7.4 Attachment 1 3171-12763 Exhibit "A" ----------- ASSIGNMENT ---------- Brougher Agency, Inc., an Indiana corporation, the record title owner of the Service Mark BROUGHER and the U.S. registration 1,370,515 issued November 12, 1985 thereof, hereby assigns, sells, and sets over unto VASA Brougher, Inc., an Indiana corporation, residing at 525 South Meridian Street, Indianapolis, Indiana 46206, and having a postal address of P.O. Box 6033, Indianapolis, Indiana 46206-6033, all right, title and interest in and to the mark, the federal registration 1,370,515 thereof, and the goodwill represented thereby. BROUGHER AGENCY, INC. By /s/ JOHN B. BRIDGE ------------------------------------ John B. Bridge ------------------------------------ Title Vice President --------------------------------- Date: January 20, 1992 --------------------------------- IN THE UNITED STATES PATENT AND TRADEMARK OFFICE Combined Declaration Under Sections 8 and 15 of the Trademark Act of 1946 Mark: BROUGHER Registration No. 1,370,515 Registered: November 12, 1985 Class: 36 (U.S. Class 102) Our File No. 3171-12763 John B. Bridge declares that he is an officer of VASA Brougher, Inc.; that -------------- said corporation owns United States Service Mark Registration No. 1,370,515, issued November 12, 1985, as shown by the records of the Patent and Trademark Office; that the mark shown therein has been in continuous use in interstate commerce for five consecutive years from the date of registration to the present on or in connection with each of the following services recited in the registration, namely, Insurance Agency and Underwriting Services; that the mark is still in use in interstate commerce, as evidenced by the accompanying specimen(s) showing the mark as currently used; that there has been no final decision adverse to the registrant's claim of ownership of said mark or to its right to register the same or maintain it on the Register, and that there is no proceeding involving any of said rights pending and not disposed of either in the Patent and Trademark Office or in the Courts. The registrant hereby appoints William R. Coffey, Jerry E. Hyland, Richard D. Conard, James A. Coles, Richard A. Rezek, Steven R. Lammert, David R. Melton, Perry Palan and Mark M. Newman, all attorneys at law, whose business address is BARNES & THORNBURG, 1313 Merchants Bank Building, 11 South Meridian Street, Indianapolis, Indiana 46204 (Telephone 317-231-7280), its attorneys to file this declaration, with full power of substitution and revocation, and to transact all business in the Patent and Trademark Office in connection therewith. He further declares that all statements made herein of his own knowledge are true and that all statements made on information and belief are believed to be true; and further that these statements are made with the knowledge that willful false statements and the like so made are punishable by fine or imprisonment, or both, under Section 1001 of Title 18 of United States Code and that such willful false statements may jeopardize the validity of the application or document or any registration resulting therefrom. Declared at Indianapolis, Indiana, this 22nd day of October, 1991. ---- ------- VASA Brougher, Inc. By: /s/ JOHN B. BRIDGE ------------------------------------ John B. Bridge --------------------------------------- (Typed Name) Title: Vice President --------------------------------- [SEAL OF THE UNITED STATES OF AMERICA APPEARS HERE] No. 1370515 THE UNITED STATES OF AMERICA CERTIFICATE OF REGISTRATION This is to certify that the records of the Patent and Trademark Office show that an application was filed in said Office for registration of the Mark shown herein, a copy of said Mark and pertinent data from the Application being annexed hereto and made a part hereof, And there having been due compliance with the requirements of the law and with the regulations prescribed by the Commissioner of Patents and Trademarks, Upon examination, it appeared that the applicant was entitled to have said Mark registered under the Trademark Act of 1946, and the said Mark has been duly registered this day in the Patent and Trademark Office on the PRINCIPAL REGISTER to the registrant named herein. This registration shall remain in force for Twenty Years unless sooner terminated as provided by law. [SEAL OF PATENT AND In Testimony Whereof I have hereunto set TRADEMARK OFFICE my hand and caused the seal of the Patent APPEARS HERE] and Trademark Office to be affixed this twelfth day of November, 1985. /s/ ^^ILLEGIBLE SIGNATURE^^ Commissioner of Patents and Trademarks Int. Cl.: 36 Prior U.S. Cl.: 102 Reg.No. 1,370,515 United States Patent and Trademark Office Registered Nov. 12, 1985 ________________________________________________________________________________ SERVICE MARK PRINCIPAL REGISTER [SERVICE MARK OF BROUGHER APPEARS HERE] BROUGHER AGENCY, INC. (INDIANA COR- FIRST USE 12-31-1972; IN COMMERCE PORATION 12-31-1972. P.O. BOX BAI 2528 U.S. 31 SOUTH SEC. 2(F). GREENWOOD, IN 46142 SER. NO. 485,256, FILED 6-15-1984. FOR: INSURANCE AGENCY AND UNDER- WRITING SERVICES, IN CLASS 36 (U.S. CL. MARGERY A. TIERNEY, EXAMINING ATTOR- 102) NEY Schedule 7.4 Attachment 2 Exhibit "A" ----------- [LOGO OF VASA APPEARS HERE] [LOGO OF VASA BROUGHER APPEARS HERE] [LOGO OF VASA NORTH AMERICA APPEARS HERE] [LOGO OF VASA NORTH ATLANTIC APPEARS HERE] [LETTERHEAD OF HELLER EHRMAN WHITE & McAULIFFE APPEARS HERE] January 21, 1997 RECEIVED JAN 27 1997 VIA FACSIMILE BARNES & THORNBURG AND U.S. MAIL Jerry E. Hyland, Esq. Barnes & Thornburg 11 South Meridian Street Indianapolis, IN 46204 Re: Visa International v. Vasa North America Trademark: VASA Opposition No. 88,565 Your File: 7953-22203 Our File: 13118-0873 Dear Jerry: The terms below have been revised per our conversation of January 13, 1997 and this letter shall now finalize our agreement with respect to Vasa North America Inc.'s use and registration of the mark VASA. Vasa will abandon its applications for Serial Nos. 74/171,423 and 74/171,503 for the word mark VASA, and VASA in stylized lettering as it appears on Exhibit A (the "Old Applications"), will not knowingly use VASA as a word mark or as it appears on Exhibit A, and will not file any application anywhere in the world therefor or for any mark likely to be confused therewith; provided, however, Vasa may use and file an application in the U.S. Patent and Trademark Office for VASA in highly stylized lettering as it appears on Exhibit B (the "New Appliction"). Vasa will not list travel insurance services on the New Application, will not knowingly use, and will not seek to register VASA in any form anywhere in the world in connection with any financial service. Vasa may use and file VASABROUGHER without restriction. When Visa receives evidence that application Serial Nos. 74/171,423 and 74/171,503 have been abandoned by the Patent and Trademark Office, it will file a withdrawal of Notice of Opposition. Vasa hereby consents to additional extensions to the discovery period until such time as the above-referenced applications have been abandoned. Jerry E. Hyland, Esq. Barnes & Thornburg January 21, 1997 Page 2 Please sign below to indicate your agreement to the terms of this letter agreement. Very truly yours, /s/ BETH M. GOLDMAN Beth M. Goldman PMG/kw Enclosure cc: James Y. Leong, Esq. AGREED TO AND ACCEPTED: Vasa North America, Inc. By: /s/ ROBERT SMITH -------------------------------- Name: ROBERT SMITH ------------------------------ Title: ACTING PRESIDENT ----------------------------- 1/5/1 DIALOG(R)File 226:TRADEMARKSCAN(R)-US FED (c) 1996 Thomson & Thomson. All rts. reserv. 04171423 VASA INTL CLASS: 36 (Insurance & Financial Services) U.S. CLASS: 102 (Financial & Insurance Services) STATUS: Pending-Published for Opposition; Request For Extension of Time To File Opposition; Intent to Use - Application; Intent To Use - Current GOODS/SERVICES: INSURANCE SERVICES; NAMELY, UNDERWRITING PROFESSIONAL LIABILITY INSURANCE, MEDICAL STOP LOSS INSURANCE, AND GROUP LIFE INSURANCE, AND INSURANCE PREMIUM FINANCING SERVICES SERIAL NO.: 74-171,423 FILED: May 30, 1991 PUBLISHED: April 7, 1992 ORIGINAL APPLICANT: VASA NORTH AMERICA, INC. (Indiana Corporation), POST OFFICE BOX 6056, 525 SOUTH MERIDIAN STREET, INDIANAPOLIS, IN (Indiana), 462066056, USA (United States of America) OPPOSITION ACTION: 88565 Filed: August 4, 1992 Outcome: SUSPENDED Date of Outcome: August 10, 1995 Opposing TM: VISA Opposing SN: 73-099,033 Opposing RN: 1,071,114 Opposer: VISA INTERNATIONAL SERVICE ASSOCIATION FILING CORRESPONDENT: JERRY E. HYLAND, BARNES & THORNBURG, 1313 MERCHANTS BANK BUILDING, 11 SOUTH MERIDIAN STREET, INDIANAPOLIS, INDIANA 46204 2/5/1 DIALOG(R)File 226:TRADEMARKSCAN(R)-US FED (c) 1996 Thomson & Thomson. All rts. reserv. 04171503 * TRADEMARK IMAGE AVAILABLE * VASA Stylized Letters INTL CLASS: 36 (Insurance & Financial Services) U.S. CLASS: 102 (Financial & Insurance Services) STATUS: Pending-Published for Opposition; Request For Extension [LOGO of Time To File Opposition; Intent to Use - Application; Intent OF VASA] To Use - Current GOODS/SERVICES: INSURANCE SERVICES; NAMELY, UNDERWRITING PROFESSIONAL LIABILITY INSURANCE, MEDICAL STOP LOSS INSURANCE, AND GROUP LIFE INSURANCE, AND INSURANCE PREMIUM FINANCING SERVICES SERIAL NO.: 74-171,503 FILED: May 30, 1991 PUBLISHED: May 19, 1992 ORIGINAL APPLICANT: VASA NORTH AMERICA, INC. (Indiana Corporation), POST OFFICE BOX 6056, 525 SOUTH MERIDIAN STREET, INDIANAPOLIS, IN (Indiana), 462066056, USA (United States of America) OPPOSITION ACTION: 88565 Filed: August 4, 1992 Outcome: SUSPENDED Date of Outcome: August 10, 1995 Opposing TM: VISA Opposing SN: 73-099,033 Opposing RN: 1,071,114 Opposer: VISA INTERNATIONAL SERVICE ASSOCIATION FILING CORRESPONDENT: JERRY E. HYLAND, BARNES & THORNBURG, 1313 MERCHANTS BANK BUILDING, 11 SOUTH MERIDIAN STREET, INDIANAPOLIS, INDIANA 46204 EXHIBIT B [LOGO OF VASA] RECEIVED UNITED STATES DEPARTMENT OF COMMERCE APR 17 1997 Patent and Trademark Office BARNES & THORNBURG Trademark Trial and Appeal Board 2900 Crystal Drive Arlington, Virginia 22202-3513 By Baez Opposition No. 88,565 Visa International Service Association v. Vasa North America, Inc. MAILED APR 14 1997 PAT. & T.M. OFFICE On February 24, 1997, applicant filed abandonments of its application Serial Nos. 74/171,423 and 74/171,503. Trademark Rule 2.135 provides that if, in an inter partes proceeding, the applicant files an abandonment without the written consent of every adverse party to the proceeding, judgment shall be entered against applicant. In view thereof, and because opposer's written consent to the abandonments is not of record, judgment is hereby entered against applicant, the opposition is sustained and registration to applicant is refused. Opposition No. 88,565 Copies of the abandonments are forwarded herewith to opposer. /s/ R. L. SIMMS R. L. Simms /s/ R. F. CISSEL R. F. Cissel /s/ E. W. HANAK E. W. Hanak Administrative Trademark Judges, Trademark Trial and Appeal Board 2 Schedule 7.4 Attachment 3 Exhibit "A" ----------- [LOGO AND SEAL OF THE UNITED STATES OF AMERICA APPEARS HERE] CERTIFICATE OF REGISTRATION PRINCIPAL REGISTER The Mark shown in this certificate has been registered in the United States Patent and Trademark Office to the named registrant. The records of the United States Patent and Trademark Office show that an application for registration of the Mark shown in this Certificate was filed in the Office; that the application was examined and determined to be in compliance with the requirements of the law and with the regulations prescribed by the Commissioner of Patents and Trademarks, and that the Applicant is entitled to registration of the Mark under the Trademark Act of 1946, as Amended. A copy of the Mark and pertinent data from the application are a part of this certificate. This registration shall remain in force for TEN (10) years, unless terminated earlier as provided by law, and subject to compliance with the provisions of Section 8 of the Trademark Act of 1946, as Amended. [SEAL OF U.S. PATENT AND TRADEMARK OFFICE /s/ BRUCE LEHMAN APPEARS HERE] Commissioner of Patents and Trademarks Maintenance Requirements Section 8: This registration will be cancelled after six (6) years by the Commissioner of Patents and Trademarks, UNLESS, before the end of the sixth year following the date of registration shown on this certificate, the registrant files in the U.S. Patent and Trademark Office an affidavit of continued use as required by Section 8 of the Trademark Act of 1946, 15 U.S.C. (S) 1058, as Amended. It is recommended that the Registrant contact the Patent and Trademark Office approximately five years after the date shown on this registration to determine the requirements and fees for filing a Section 8 affidavit that are in effect at that time. Currently, a fee of $100, and a specimen showing how the mark is used in commerce, is required for each international class of goods and/or services identified in the certificate of registration and must be enclosed with the affidavit. Section 9: This registration will expire by law after ten (10) years, UNLESS, before the end of the tenth year following the date of registration shown on this certificate, the registrant files in the U.S. Patent and Trademark Office an application for renewal of the registration as required by Section 9 of the Trademark Act of 1946, 15 U.S.C. (S) 1059, as Amended. It is recommended that the Registrant contact the Patent and Trademark Office approximately nine years after the date shown on this registration to determine the requirements and fees for filing a Section 9 application for renewal that are in effect at that time. Currently, a fee of $300, and a specimen showing how the mark is used in commerce, is required for each international class of goods and/or services identified in the certificate of registration and must be enclosed with the affidavit. Int. Cl.: 36 Prior U.S. Cls.: 100, 101, and 102 Reg. No. 2,034,389 United States Patent and Trademark Office Registered Jan. 28, 1997 ________________________________________________________________________________ SERVICE MARK PRINCIPAL REGISTER NAVIGATOR SEABOARD LIFE INSURANCE COMPANY HEALTH INSURANCE, IN CLASS 36 (U.S. CLS. (USA) (INDIANA CORPORATION) 100, 101 AND 102). 525 SOUTH MERIDIAN STREET FIRST USE 5-10-1995; IN COMMERCE P.O. BOX 6047 5-10-1995. INDIANAPOLIS, IN 462066047 SN 74-661,697, FILED 4-17-1995. FOR: INSURANCE SERVICES, NAMELY UN- DERWRITING AND ADMINISTERING GROUP ALAN ATCHISON, EXAMINING ATTORNEY Schedule 7.6 Non-Solicitation of Employees ----------------------------- Roelof Konterman, President of VASA North America, Inc., is serving at the request of Eureko B.V., as a participant in its Management Exchange Programme. Mr. Konterman is an employee of AVCB Diensten B.V. and will return to that company at the conclusion of his tenure with VASA North America, Inc. Schedule 8.1 Tax Representations ------------------- Tax Returns Yet To Be Filed But Which Will Be Filed By Closing Income or Franchise Tax Returns yet to be Filed (All in Process with Ernst & Young) 1995 - ---- VASA North Atlantic Insurance Company California Mississippi VASA Brougher, Inc. Arkansas Louisiana Michigan Pennsylvania South Carolina Select Benefits, Inc. Arizona Oregon Pennsylvania South Carolina Utah 1996 & 1997 - ----------- VASA North Atlantic Insurance Company Alabama California Florida Illinois Indiana - Part of Consolidated VASA North America Mississippi Nebraska Tennessee VASA Brougher, Inc. Alabama Arizona Arkansas California Colorado Georgia Illinois Indiana - Part of Consolidated VASA North America Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Missouri Montana North Carolina Oklahoma Pennsylvania South Carolina Utah 1996 & 1997 - ----------- Select Benefits, Inc. Arizona Oregon Pennsylvania South Carolina Utah EX-10.01 3 FIFTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.01 FIFTH AMENDMENT TO THE CREDIT AGREEMENT (AMENDING AND RESTATING THE CREDIT AGREEMENT) This FIFTH AMENDMENT dated as of December 28, 1998 (this "Fifth Amendment") is between THE CENTRIS GROUP, INC., formerly known as US Facilities Corporation (the "Borrower"), and FLEET NATIONAL BANK, a national banking association formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank"). PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit Agreement dated as of December 20, 1994, which agreement was amended by a First Amendment to the Credit Agreement dated as of March 29, 1996, a Second Amendment to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated as of September 30, 1998 and a Fourth Amendment to the Credit Agreement (Amending and Restating the Credit Agreement) dated October 26, 1998 (as so amended, the "Existing Credit Agreement"). The Borrower has requested the Bank to further amend the Existing Credit Agreement to increase the Bank's Commitment to enable the Borrower to make certain acquisitions and the Bank has agreed to such request upon certain terms and conditions. The parties therefore wish to amend and restate the Existing Credit Agreement to reflect their understandings. Accordingly, the Borrower and the Bank agree as follows: Section 1. Amendment and Restatement of the Existing Credit Agreement. ---------------------------------------------------------- The Existing Credit Agreement, including, without limitation, the schedules and exhibits thereto, is hereby amended and restated in its entirety to read as set forth in Exhibit A to Fifth Amendment attached hereto (as so amended and ---------------------------- restated hereby, the "Credit Agreement"). Such amendment and restatement shall be effective as of the date hereof, subject to the satisfaction of the conditions precedent set forth in Section 2 of this Fifth Amendment. Section 2. Conditions Precedent. The effectiveness of this Fifth -------------------- Amendment is hereby subject to the satisfaction on a date to be mutually agreed upon, but not later than January 31, 1999 (the "Amendment Closing Date"), of the following conditions in a manner acceptable to the Bank and its counsel: (a) the execution and delivery to the Bank by the Borrower of this Fifth Amendment; (b) the execution and delivery to the Bank of a Revolving Note for the account of the Bank in the amount of its Commitment in exchange for the promissory note issued under the Existing Credit Agreement; (c) receipt by the Bank of a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Closing Date, attesting on behalf of the Borrower to all corporate action taken by the Borrower, including resolutions of its Board of Directors authorizing the execution, delivery and performance of this Fifth Amendment, the Revolving Note and each other document to be delivered pursuant to this Fifth Amendment; (d) receipt by the Bank of a certificate of a Senior Officer of the Borrower, dated the Closing Date, stating that: (i) the representations and warranties contained in Article 5 of the Credit Agreement are correct on and as of the date of such certificate as though made on and as of such date (or, if such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (ii) no Event of Default or Default has occurred and is continuing or would result from the signing of the Fifth Amendment to the Credit Agreement or the transactions contemplated thereby; and (iii) there has been no material adverse change in the financial condition, operations, Properties, business or business prospects of the Borrower and its Subsidiaries, since the date of the last audited financial statements furnished to the Bank; (e) receipt by the Bank of a certificate of a Senior Officer of the Borrower, dated the Closing Date, substantially in the form of Exhibit B to ------------ Fifth Amendment, which certificate shall include information required to --------------- establish that the Borrower will be in compliance with the covenants set forth in the Credit Agreement, after giving effect to the transactions contemplated herein; (f) receipt by the Bank of a certificate of good standing for the Borrower as of a recent date by the Secretary of State of its jurisdiction of incorporation and each state where the Borrower, by the nature of its business, is required to qualify to do business, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole; (g) receipt by the Bank of a certificate of good standing for USBENEFITS as of a recent date by the Secretary of State of its jurisdiction of incorporation and, if different, its principal place of business; (h) receipt by the Bank of a certificate or similar instrument as of a recent date from the appropriate tax authority in the State of California and Delaware as to the payment by the Borrower of all taxes owed; -2- (i) receipt by the Bank of a certificate of authority as of a recent date from the Insurance Commissioner of Massachusetts certifying that USF RE is duly licensed and in good standing with such Insurance Commissioner; (j) receipt by the Bank of a certificate of good standing for each of VASA North America, Inc. ("VASA North America"), VASA North Atlantic Insurance Company ("VASA North Atlantic") and Seaboard Life Insurance Company (USA) ("Seaboard") as of a recent date from the Secretary of the State of its jurisdiction of incorporation, and, if different, its principal place of business; (k) receipt by the Bank of a certificate of authority as of a recent date from the Insurance Commissioner of Indiana certifying that VASA North Atlantic and Seaboard are duly licensed and in good standing with such Insurance Commissioner; (l) receipt by the Bank of a copy of the Certificate of Incorporation for each of VASA North America, VASA North Atlantic and Seaboard and all amendments and other corporate documents relating thereto, certified as of a recent date by the Secretary of the State of its jurisdiction of incorporation; (m) receipt by the Bank of a certificate of a Senior Officer, Secretary or Assistant Secretary of each of VASA North America, VASA North Atlantic and Seaboard stating that (i) no action has been taken to amend the certificate of incorporation since the date of certification by the Secretary of the State, (ii) the certificate of incorporation is in full force and effect as of the Closing Date, and (iii) attached are true, correct and complete copies of the bylaws of the company; (n) receipt by the Bank of a favorable opinion of R.W. Loeb, Professional Law Corporation, California counsel to the Borrower, dated the Closing Date, in substantially the form set forth in Exhibit C to Fifth Amendment ---------------------------- hereto; (o) receipt by the Bank of a favorable opinion of Anderson & Kreiger, Massachusetts insurance counsel to the Borrower, dated the Closing Date, in substantially the form set forth in Exhibit D to Fifth Amendment hereto; ---------------------------- (p) receipt by the Bank of a duly executed Acknowledgment and Ratification of the Pledge Agreement, dated the Closing Date, in substantially the form set forth in Exhibit E to Fifth Amendment hereto; ---------------------------- (q) receipt by the Bank of a copy of each consent, license, approval and notice required in connection with the execution, delivery, performance, validity and enforceability of this Fifth Amendment, the Revolving Note, the Pledge Agreements, the Acquisition Agreements and each other document and instrument required to be delivered in connection herewith, if any; -3- (r) the provision of all information, documents, certificates and opinions of counsel relating to the Borrower and its Subsidiaries, as the Bank may reasonably request, all in form and substance satisfactory to the Bank and its special counsel; (s) payment to the Bank of an up-front fee of $75,000; and (t) payment to Day, Berry & Howard LLP, special counsel to the Bank, of its legal fees and disbursements. Section 3. Representations and Warranties of the Borrower. The Borrower ---------------------------------------------- represents as follows: (a) The execution, delivery and performance by the Borrower of this Fifth Amendment have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of its shareholders; (ii) violate any provisions of its articles of incorporation or by-laws; (iii) violate any provision of any law, rule, regulation (including without limitation, Regulation U and X), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any Subsidiary; (iv) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower or any Subsidiary is a party or by which it or its Properties may be bound; or (v) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower. (b) No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person, including without limitation, the California, Indiana or Massachusetts Insurance Commissioner, is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, this Fifth Amendment except for such approvals as have been obtained and are in full force and effect. (c) This Fifth Amendment constitutes the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. (d) No actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) are pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any Subsidiary would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or, to the knowledge of the Borrower, -4- prospects of the Borrower and its Subsidiaries taken as a whole or the ability of the Borrower to perform its obligations under the Existing Credit Agreement, as amended by this Fifth Amendment. (e) No information, exhibit or report furnished in writing by or on behalf of the Borrower or any officer or director of the Borrower to the Bank in connection with the negotiation of, or pursuant to the terms of, this Fifth Amendment contained when made any material misstatement of fact or omitted to state a material fact necessary to make the statements contained therein not misleading. Section 4. Effect on the Existing Credit Agreement. The execution, --------------------------------------- delivery and effectiveness of this Fifth Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Bank under the Existing Credit Agreement, nor constitute a waiver of any provision of the Existing Credit Agreement. Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on ------------------------- demand all costs and expenses of the Bank in connection with the preparation, execution and delivery of this Fifth Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities hereunder and thereunder. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Fifth Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. Section 6. Execution in Counterparts. This Fifth Amendment may be ------------------------- executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Section 7. Integration. This Fifth Amendment to the Credit Agreement, ----------- together with Exhibit A to Fifth Amendment, as well as the schedules and ---------------------------- exhibits thereto and hereto, including the Revolving Note, the Pledge Agreements and the Acknowledgment and Ratification of the Pledge Agreement, comprise the entire agreement between the parties hereto relating to the transactions contemplated hereby and thereby, and supersede any and all prior oral or written statements or agreements with respect to the loan and pledge transaction between the parties hereto. Section 8. Governing Law. This Fifth Amendment shall be governed by, and ------------- construed in accordance with, the laws of the State of Connecticut. -5- Section 9. Defined Terms. Until this Fifth Amendment shall become ------------- effective, capitalized terms used herein which are not expressly defined herein shall have the meanings ascribed to them in the Existing Credit Agreement. [REMAINDER OF PAGE INTENTIONALLY BLANK] -6- IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE CENTRIS GROUP, INC. By /s/ Charles M. Caporale -------------------------------- Name: CHARLES M. CAPORALE Title: Senior Vice President, Chief Financial Officer and Treasurer FLEET NATIONAL BANK By /s/ David A. Albanesi -------------------------------- Name: David A. Albanesi Title: Vice President -7- EXHIBIT A TO FIFTH AMENDMENT ---------------------------- CREDIT AGREEMENT dated as of December 20, 1994 between THE CENTRIS GROUP, INC. and FLEET NATIONAL BANK AMENDED AND RESTATED AS OF DECEMBER 28, 1998 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS............................................................ 1 Section 1.1. Definitions........................................................................ 1 ----------- Section 1.2. Accounting Terms................................................................... 13 ---------------- Section 1.3. Rounding........................................................................... 14 -------- Section 1.4. Exhibits and Schedules............................................................. 14 ---------------------- Section 1.5. References to "Borrower and its Subsidiaries"...................................... 14 --------------------------------------------- Section 1.6. Miscellaneous Terms................................................................ 14 ------------------- ARTICLE 2. THE CREDIT............................................................................... 14 Section 2.1. The Revolving Loans................................................................ 14 ------------------- Section 2.2. The Revolving Note................................................................. 15 ------------------ Section 2.3. Procedure for Borrowing............................................................ 15 ----------------------- Section 2.4. Termination or Optional Reduction of Commitment.................................... 16 ----------------------------------------------- Section 2.5. Mandatory Reduction of Commitment.................................................. 17 --------------------------------- Section 2.6. Maturity of Revolving Loans........................................................ 17 --------------------------- Section 2.7. Optional Prepayments............................................................... 17 -------------------- Section 2.8. Interest on the Revolving Loans.................................................... 18 ------------------------------- Section 2.9. Fees............................................................................... 18 ---- Section 2.10. Payments Generally................................................................. 19 ------------------ Section 2.11. Capital Adequacy................................................................... 19 ---------------- Section 2.12. Increased Costs.................................................................... 20 --------------- Section 2.13. Illegality......................................................................... 20 ---------- Section 2.14. Payments to be Free of Deductions.................................................. 21 --------------------------------- Section 2.15. Computations....................................................................... 21 ------------ Section 2.16. Obligations Absolute............................................................... 22 -------------------- ARTICLE 3. SECURITY................................................................................. 22 Section 3.1. Pledge Agreement................................................................... 22 ---------------- Section 3.2. Further Assurances................................................................. 22 ------------------ ARTICLE 4. CONDITIONS PRECEDENT..................................................................... 23 Section 4.1. Documentary Conditions Precedent................................................... 23 -------------------------------- Section 4.2. Additional Conditions Precedent to Each Loan....................................... 24 -------------------------------------------- Section 4.3. Deemed Representations............................................................. 26 ---------------------- ARTICLE 5. REPRESENTATIONS AND WARRANTIES........................................................... 26 Section 5.1. Incorporation, Good Standing and Due Qualification................................. 26 -------------------------------------------------- Section 5.2. Corporate Power and Authority; No Conflicts........................................ 27 ------------------------------------------- Section 5.3. Legally Enforceable Agreements..................................................... 27 ------------------------------
Section 5.4. Litigation......................................................................... 27 ---------- Section 5.5. Financial Statements............................................................... 27 -------------------- Section 5.6. Ownership and Liens................................................................ 28 -------------------- Section 5.7. Taxes.............................................................................. 28 ----- Section 5.8. ERISA.............................................................................. 28 ----- Section 5.9. Subsidiaries and Ownership of Stock................................................ 29 ----------------------------------- Section 5.10. Credit Arrangements................................................................ 30 ------------------- Section 5.11. Operation of Business.............................................................. 30 --------------------- Section 5.12. No Default on Outstanding Judgments or Orders...................................... 30 --------------------------------------------- Section 5.13. No Defaults on Other Agreements.................................................... 30 ------------------------------- Section 5.14. Governmental Regulation............................................................ 31 ----------------------- Section 5.15. Consents and Approvals............................................................. 31 ---------------------- Section 5.16. Partnerships....................................................................... 31 ------------ Section 5.17. Environmental Protection........................................................... 31 ------------------------ Section 5.18. Copyrights, Patents, Trademarks, Etc............................................... 32 ------------------------------------- Section 5.19. Compliance with Laws............................................................... 32 -------------------- Section 5.20. Events of Default.................................................................. 32 ----------------- Section 5.21. Use of Proceeds.................................................................... 32 --------------- Section 5.22. Continental Agreements............................................................. 32 ---------------------- ARTICLE 6. AFFIRMATIVE COVENANTS.................................................................... 33 Section 6.1. Maintenance of Existence and Domicile of Insurance Subsidiaries.................... 33 --------------------------------------------------------------- Section 6.2. Conduct of Business................................................................ 33 ------------------- Section 6.3. Maintenance of Properties.......................................................... 33 ------------------------- Section 6.4. Maintenance of Records............................................................. 33 ---------------------- Section 6.5. Maintenance of Insurance........................................................... 33 ------------------------ Section 6.6. Compliance with Laws............................................................... 33 -------------------- Section 6.7. Right of Inspection................................................................ 34 ------------------- Section 6.8. Reporting Requirements............................................................. 34 ---------------------- (a) Annual GAAP Statements............................................................. 34 ---------------------- (b) Annual SAP Financial Statements.................................................... 35 ------------------------------- (c) Quarterly GAAP Statements.......................................................... 35 ------------------------- (d) Quarterly SAP Statements........................................................... 36 ------------------------ (e) Annual/Quarterly Reports........................................................... 36 ------------------------ (f) Annual Forecasts................................................................... 36 ---------------- (g) Management Letters................................................................. 36 ------------------ (h) SEC Filings........................................................................ 36 ----------- (i) Notice of Litigation............................................................... 36 -------------------- (j) Notices of Default................................................................. 37 ------------------ (k) Actuarial Report Confirming Reserves............................................... 37 ------------------------------------ (l) Other Filings...................................................................... 37 ------------- (m) Notice of Transactions............................................................. 37 ---------------------- (n) Additional Information............................................................. 38 ----------------------
Section 6.9. Certificates....................................................................... 38 ------------ (a) Officers' Certificate.............................................................. 38 --------------------- (b) Accountant's Certificate........................................................... 38 ------------------------ Section 6.10. Further Assurances................................................................. 38 ------------------ Section 6.11. Compliance with Agreements......................................................... 39 -------------------------- Section 6.12. Use of Proceeds.................................................................... 39 --------------- Section 6.13. Continental Agreements............................................................. 39 ---------------------- ARTICLE 7. NEGATIVE COVENANTS....................................................................... 39 Section 7.1. Debt............................................................................... 39 ---- Section 7.2. Guaranties, Etc.................................................................... 39 --------------- Section 7.3. Liens.............................................................................. 40 ----- Section 7.4. Investments........................................................................ 40 ----------- Section 7.5. Mergers and Consolidations and Acquisitions of Assets.............................. 40 ----------------------------------------------------- Section 7.6. Sale of Assets..................................................................... 41 -------------- Section 7.7. Stock of Subsidiaries, Etc......................................................... 41 -------------------------- Section 7.8. Transactions with Affiliates....................................................... 41 ---------------------------- Section 7.9. Capital Expenditures............................................................... 41 -------------------- Section 7.10. Minimum Statutory Surplus.......................................................... 41 ------------------------- Section 7.11. Minimum Consolidated GAAP Net Worth................................................ 42 ----------------------------------- Section 7.12. Maximum Premiums to Surplus........................................................ 42 --------------------------- Section 7.13. [Reserved]......................................................................... 42 Section 7.14. Minimum Interest Coverage.......................................................... 42 ------------------------- Section 7.15. Minimum Fixed Charge Coverage...................................................... 43 ----------------------------- Section 7.16. Minimum Debt Service Coverage...................................................... 43 ----------------------------- Section 7.17. Distributions...................................................................... 43 ------------- Section 7.18. Risk-Based Capital Ratio........................................................... 43 ------------------------ Section 7.19. Minimum A.M.Best Rating............................................................ 43 ----------------------- Section 7.20. Continental Agreements............................................................. 44 ---------------------- Section 7.21. Debt to Capital Ratio.............................................................. 44 --------------------- ARTICLE 8. EVENTS OF DEFAULT........................................................................ 44 Section 8.1. Events of Default.................................................................. 44 ----------------- Section 8.2. Remedies........................................................................... 47 -------- ARTICLE 9. MISCELLANEOUS............................................................................ 47 Section 9.1. Amendments and Waivers............................................................. 47 ---------------------- Section 9.2. Usury.............................................................................. 47 ----- Section 9.3. Expenses; Indemnities.............................................................. 47 --------------------- Section 9.4. Term; Survival..................................................................... 49 -------------- Section 9.5. Assignment; Participations......................................................... 49 -------------------------- Section 9.6. Notices............................................................................ 50 ------- Section 9.7. Setoff............................................................................. 50 ------
Section 9.8. Jurisdiction; Immunities........................................................... 50 ------------------------ Section 9.9. Table of Contents; Headings........................................................ 51 --------------------------- Section 9.10. Severability....................................................................... 51 ------------ Section 9.11. Counterparts....................................................................... 51 ------------ Section 9.12. Integration........................................................................ 51 ----------- Section 9.13. Governing Law...................................................................... 51 ------------- Section 9.14. Confidentiality.................................................................... 51 --------------- Section 9.15. Authorization of Third Parties to Deliver Opinions, Etc............................ 52 ------------------------------------------------------- Section 9.16. Borrower's Waivers................................................................. 52 ------------------ Section 9.17. State of Making and Substantial Performance........................................ 52 -------------------------------------------
Schedule 1.1 Commitments and Lending Offices Schedule 5.4 Litigation Schedule 5.6 Liens Schedule 5.9 Subsidiaries Schedule 5.10 Credit Arrangements Schedule 5.15 Consents and Approvals Schedule 5.16 Partnerships Schedule 7.2 Guaranties Exhibit A Revolving Note Exhibit B Notice of Borrowing Exhibit C Officer's Certificate Exhibit D Form of Opinion of California Counsel to Borrower Exhibit E Form of Opinion of Massachusetts Insurance Counsel to Borrower Exhibit F Pledge Agreement (with respect to USF RE) Exhibit G Form of Subordinated Debt Provisions Exhibit H-1 Form of Opinion of California Counsel to the Borrower Exhibit H-2 Form of Opinion of Indiana Counsel to the Borrower Exhibit I-1 Pledge Agreement (with respect to Seaboard) Exhibit I-2 Pledge Agreement (with respect to VASA North Atlantic) Exhibit J Form of Guaranty Agreement CREDIT AGREEMENT dated as of December 20, 1994 between THE CENTRIS GROUP, INC., a Delaware corporation formerly known as US Facilities Corporation (the "Borrower"), and FLEET NATIONAL BANK, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank"). The Borrower desires that the Bank extend credit as provided herein, and the Bank is prepared to extend such credit. Accordingly, the Borrower and the Bank agree as follows: ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. Section 1.1. Definitions. As used in this Agreement, the following ----------- terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "Acquisition" means the acquisition by the Borrower of all of the capital stock of each of VASA North America and Seaboard. "Acquisition Agreements" means the agreements setting forth the terms and conditions of the Acquisition. "Acquisition Pro-Formas" means financial projections, prepared by the Borrower on a GAAP and SAP basis, showing the consolidated and consolidating balance sheets and statements of operations of Borrower and its Subsidiaries giving effect to the Acquisition. "Affiliate" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any -------- ---- event: (i) any Person which owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person; and (ii) each corporate officer at or above the level of senior vice president of the Person and each director of the Person shall be deemed to be an Affiliate of the Person; provided, however, that each director and officer of the Bank shall -------- ------- constitute an Affiliate of the Bank. "Agreement" means this Credit Agreement, as amended or supplemented from time to time. References to Articles, Sections, Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. -1- "A.M. Best Rating" means the most recent rating announced by A.M. Best (or any successor thereto) or, if such rating is no longer announced by A.M. Best (or its successor), the most recent rating announced by another rating agency selected by the Bank. "Applicable Interest Rate" means for any Revolving Loan, the Base Rate, CD Rate, or Eurodollar Rate for such Revolving Loan, plus in each case the Applicable Margin. "Applicable Margin" means: (a) with respect to Base Rate Loans, the rate per annum for each rating level period set forth in the schedule below: Applicable Margin ----------------- Level I Period 0.50% Level II Period 0.25% (b) with respect to CD Rate Loans, the rate per annum for each rating level period set forth in the schedule below: Applicable Margin ----------------- Level I Period 2.125% Level II Period 1.875% (c) with respect to Eurodollar Rate Loans, the rate per annum for each rating level period set forth in the schedule below: Applicable Margin ----------------- Level I Period .875% Level II Period .75% Notwithstanding the foregoing, the Applicable Margin with respect to Eurodollar Rate Loans shall increase on January 31, 1999 to (i) 1.125% with respect to the Level I Period and (ii) 1% with respect to the Level II Period, if by that date, (i) the Borrower has not entered into a purchase agreement for the sale of all of the stock of USF RE or (ii) the Commitment has not been permanently reduced to $50,000,000. -2- Any change in the Applicable Margin by reason of a change in the A.M. Best Rating shall become effective on the date of announcement or publication by the rating agency of a change in such rating or, in the absence of such announcement or publication, on the effective date of such changed rating. "Assessment Rate" means, at any time, the average of the rates (rounded upwards, if necessary, to the nearest 1/100 of 1%) then charged by the Federal Deposit Insurance Corporation (or any successor) to the Bank for deposit insurance for Dollar time deposits with the Bank as determined by the Bank. "Available Dividends" at the end of any fiscal quarter means the portion of Statutory Surplus of any Insurance Subsidiary that is permitted by the laws and regulations applicable to such Insurance Subsidiary to be distributed to shareholders. "Base Rate" means, for any Interest Period or any other period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the highest of (a) the rate of interest announced publicly by the Bank in Hartford, Connecticut, from time to time, as the Bank's base rate or prime rate, which does not necessarily represent the lowest or best rate being charged to any customer, or (b) 1/2 of 1% per annum above the Federal Funds Effective Rate. "Base Rate Loan" means a Revolving Loan which bears interest at the Base Rate, plus the Applicable Margin. "Borrowing" means a borrowing consisting of a Revolving Loan from the Bank under this Agreement. "Business Day" means any day (other than a Saturday, Sunday or legal holiday) on which commercial banks are not authorized or required to close in Connecticut or California, except that, with respect to Borrowings, notices, determinations and payments with respect to Eurodollar Rate Loans, such day shall be a "Business Day" only if it is also a day for trading by and between banks in the London interbank Eurodollar market. "Capital Expenditures" means, for any period, the Dollar amount of gross expenditures (including payments in respect of Capital Lease Obligations) made for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) incurred during such period, all as determined in accordance with GAAP. "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Capital Lease Obligation" means the obligation of the lessee under a Capital Lease. The amount of a Capital Lease Obligation at any date is the amount at which the lessee's liability -3- under the related Capital Lease would be required to be shown on its balance sheet at such date in accordance with GAAP. "CD Rate" means for the Interest Period for each CD Rate Loan comprising part of the same Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Bank to be equal to the sum of: (a) (x) the rate determined by the Bank to be its rate at or before 11:00 a.m. (Connecticut time) one Business Day before the first day of such Interest Period for the purchase at face value of certificates of deposit of the Bank in the approximate amount of the relevant CD Rate Loan and having a maturity approximately equal to such CD Interest Period, divided by (y) one (1) minus the Reserve Requirement for each such CD Rate Loan for such Interest Period, plus (b) the Assessment Rate in effect at the commencement of such Interest Period. "CD Rate Loan" means a Revolving Loan which bears interest at the CD Rate, plus the Applicable Margin. "Closing Date" means December 20, 1994. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means the commitment of the Bank to make Revolving Loans hereunder as set forth in Schedule 1.1, as the same may be reduced from time to ------------ time pursuant to Sections 2.4 and 2.5. "Commitment Period" means the period from and including the date hereof to but not including the Revolving Loan Termination Date or such earlier date as the Commitment shall terminate as provided herein. "Consolidated GAAP Net Worth" means the sum of (a) the capital stock and additional paid-in capital of the Borrower and its Subsidiaries on a consolidated basis, plus (without duplication) (b) the amount of retained earnings (or, in the case of a deficit, minus the deficit), minus (c) treasury stock, plus or minus (d) any other account which is customarily added or deducted in determining shareholders' equity, all of which shall be determined on a consolidated basis in accordance with GAAP. "Continental Agreements" means, collectively, (a) that certain Quota Share Retrocession Agreement between The Continental Insurance Company (formerly Harbor Insurance Company) and USF RE Insurance Company (formerly Massachusetts Plate Glass Insurance Company) dated May 21, 1986, as amended through Amendment No. 10 effective as of January 1, 1995, (b) that certain Management Agreement No. 1 between USBENEFITS Insurance Services, Inc. and The Continental Insurance Company effective as of January 1, 1993, and the addenda thereto; and (c) that certain Management Agreement No. 2 between USBENEFITS Insurance Services, Inc. and The Continental Assurance Company effective as of January 1, 1997. -4- "Debt" means, with respect to any Person: (a) indebtedness of such Person for borrowed money; (b) indebtedness for the deferred purchase price of Property or services (except trade payables in the ordinary course of business); (c) Unfunded Vested Liabilities of such Person (if such Person is not the Borrower, determined in a manner analogous to that of determining Unfunded Vested Liabilities of the Borrower); (d) the face amount of any outstanding letters of credit issued for the account of such Person; (e) obligations arising under acceptance facilities; (f) guaranties, endorsements (other than for collection in the ordinary course of business) and other contingent obligations to purchase or to provide funds for payment of the obligations of another Person, to supply funds to invest in any Person to cause such Person to maintain a minimum working capital or net worth or otherwise assure the creditors of such Person against loss; (g) obligations secured by any Lien on Property of such Person; and (h) Capital Lease Obligations. "Debt Service Coverage Ratio" at the end of any fiscal quarter means for each Insurance Subsidiary, the ratio of (a) the sum of (i) Available Dividends, plus (ii) total taxes paid by such Insurance Subsidiary to the Borrower pursuant to any intercorporate tax sharing agreement for the immediately preceding four fiscal quarters (ending on such date), plus (iii) the consolidating income before provision for income taxes of the Borrower and all Subsidiaries, except the Insurance Subsidiaries (determined in accordance with GAAP and eliminating intercompany balances and transactions, as applicable) for the immediately preceding four fiscal quarters (ending on such date), minus (iv) total taxes (determined in accordance with GAAP) paid by the Borrower on a consolidated basis for the immediately preceding four fiscal quarters (ending on such date), minus (v) Distributions by the Borrower for the immediately preceding four fiscal quarters (ending on such date) to (b) the sum of (i) total Interest Expense of the Borrower and its Subsidiaries on a consolidated basis for the immediately succeeding four fiscal quarters (beginning on such date), plus (ii) scheduled reductions of the Commitment for the immediately succeeding four fiscal quarters (beginning on such date). For purposes of clause (b) above, Interest Expense shall be calculated on the assumption that Base Rate Loans for the full amount of the Commitment will be outstanding for the succeeding four fiscal quarters and the A.M. Best Rating of all Insurance Subsidiaries on the date of the certification required by Section 6.9(a) with respect to the fiscal quarter being tested will remain in effect for the succeeding four fiscal quarters. "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. "Default Rate" means a rate per annum equal at all times to the lesser of 2% per annum above the Base Rate in effect from time to time or the highest rate permitted by law. "Distributions" means (a) dividends or other distributions in respect of capital stock of a Person (except distributions in such stock) and (b) the redemption or acquisition of such stock or of warrants, rights or other options to purchase such stock (except when solely in exchange for such stock) unless made, contemporaneously, from the net proceeds of a sale of such stock; in -5- either case valued at the greater of book or fair market value of the Property being dividended, distributed or otherwise transferred as a Distribution. "Dollars" and the sign "$" mean lawful money of the United States of America. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower or is under common control (within the meaning of Section 414(c) of the Code) with the Borrower. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Rate Loan comprising part of the same Borrowing, an interest rate per annum equal to (x) the rate quoted by the Bank at which deposits in Dollars are offered by prime commercial banks to prime commercial banks in the London interbank Eurodollar market two Business Days before the first day of such Interest Period for a period equal to such Interest Period and in an amount equal to the Borrowing, divided by (y) one (1) minus the Reserve Requirement for each such Eurodollar Rate Loan for such Interest Period. "Eurodollar Rate Loan" means a Revolving Loan which bears interest at the Eurodollar Rate, plus the Applicable Margin. ---- "Event of Default" has the meaning given such term in Section 8.1. "Federal Funds Effective Rate" at any time means a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three (3) Federal Funds brokers of recognized standing selected by the Agent. "Financing Statements" means the UCC-1 financing statements signed by the Borrower, VASA Insurance Group and VASA Brougher, in connection with the security interests granted to the Bank pursuant to the Pledge Agreements. "Fixed Charges" means, for any period, the sum of (a) the Interest Expense, plus (b) rental payments (other than the interest component of rental payments under Capital Leases included in Interest Expense) under all leases of the Borrower and its Subsidiaries, plus (c) principal payments of Debt owed by the Borrower during such period. -6- "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 5.5 (except for changes concurred in by the Borrower's independent public accountants). "GAAP EBIT" means, with respect to any Person, for any period, earnings of such Person before interest and taxes and shall equal the sum of (a) net income for such period, plus (b) Interest Expense for such period, plus (c) income tax expense deducted in determining net income for such period, all of which shall be determined in accordance with GAAP. "Guaranty Agreement" shall mean the Guaranty Agreement in the form of Exhibit J hereto, duly executed by VASA North America, VASA Brougher and VASA Insurance Group and delivered to the Bank in connection with the Acquisition. "Indiana Insurance Code" means Title 27 of the Indiana Code. "Insurance Commissioner" means with respect to any Insurance Subsidiary, the head of any insurance regulatory authority and/or such insurance regulatory authority in the relevant place of domicile of such Subsidiary at the relevant time. "Insurance Subsidiary" means USF RE (until a USF RE Sale), VASA North Atlantic, (upon consummation of the Acquisition), Seaboard (upon consummation of the Acquisition), USFIC (until a USF RE Sale) and any other insurance company Subsidiaries of the Borrower hereafter owned or acquired. "Interest Expense" means, for any period, the consolidated interest expense, including the interest portion of rental payments under Capital Leases, of the Borrower and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Interest Period" means (a) for each Eurodollar Rate Loan comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Loan or on the last day of the preceding Interest Period, as the case may be, and ending on the numerically corresponding day of the last month of the period selected by the Borrower pursuant to the following provisions: the duration of each Eurodollar Rate Loan Interest Period shall be one, two, three or six months, in each case as the Borrower may select, upon notice received by the Bank not later than 11:00 a.m. (Connecticut time) on the third Business Day prior to the first day of such Interest Period; (b) for each CD Rate Loan comprising part of the same Borrowing, the period commencing on the date of such CD Rate Loan or on the last day of the preceding Interest Period, as the case may be, and ending on the last day of the period selected by the Borrower pursuant to the following provisions: the duration of each CD Rate Loan shall be 30, 60, 90 or 180 days, in each case as the Borrower may select, upon notice received by the Bank not later than 11:00 a.m. (Connecticut time) on the first Business Day prior to the first day of such Interest Period; and (c) for each Base Rate Loan comprising part of the same Borrowing, -7- the period commencing on the date of such Base Rate Loan or on the last day of the preceding Interest Period, as the case may be, pursuant to notice received by the Bank not later than 11:00 a.m. (Connecticut time) on any Business Day selected by the Borrower as the first day of such Interest Period, and ending on the 90th day after the date of such Base Rate Loan or the last day of the preceding Interest Period, as the case may be; provided, however, that: -------- ------- (i) all Eurodollar Rate Loans or CD Rate Loans comprising part of the same Borrowing shall be of the same duration; (ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iii) no Interest Period for any Revolving Loan shall extend beyond the Revolving Loan Termination Date. "Investment" means, with respect to any Person, any investment by or of such Person, whether by means of purchase or other acquisition of capital stock or other Securities of any other Person or by means of loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures made in the ordinary course of business), capital contribution or other debt or equity participation or interest, in any other Person, including any partnership and joint venture interests of such Person in any other Person. "Investment Grade Securities" means any Securities having a fixed maturity which have a rating by the NAIC of 1 or 2 or, if the NAIC rating categories in effect on the Closing Date change, such other rating or ratings of such Securities determined by the NAIC to be symbolic of investment grade quality. "Lending Office" means, for each type of Revolving Loan, the lending office of the Bank (or of an affiliate of the Bank) designated as such for such type of Revolving Loan on Schedule 1.1 or such other office of the Bank (or of ------------ an affiliate of the Bank) as the Bank may from time to time specify to the Borrower as the office through which its Revolving Loans of such type are to be made and maintained. "Level I Period" shall mean any period during which the Level II Period does not apply and the A.M. Best Rating of USF RE is below "A", except that upon the sale by the Borrower of all of the stock of USF RE, the Level I Period shall mean any period during which the consolidated Debt of the Borrower and its Subsidiaries is greater than or equal to 30% of its Total Capitalization. -8- "Level II Period" shall mean any period during which (a) no Event of Default has occurred and is continuing and (b) the A.M. Best Rating of USF RE is at or above "A", except that upon the sale of all of the stock of USF RE by the Borrower, the Level II Period shall mean any period during which (a) no Event of Default has occurred and is continuing and (b) the consolidated Debt of the Borrower and its Subsidiaries is less than 30% of its Total Capitalization. "Lien" means any lien (statutory or otherwise), security interest, mortgage, deed of trust, priority, pledge, charge, conditional sale, title retention agreement, financing lease or other encumbrance or similar right of others, or any agreement to give any of the foregoing. "Massachusetts Insurance Code" means chapter 175 of the General Laws of Massachusetts. "Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "NAIC" means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing substantially similar advisory, coordination or other like functions among insurance departments, insurance commissions and similar governmental authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such governmental authorities. "Net Available Proceeds" means with respect to a USF RE Sale, the sum of cash or readily marketable cash equivalents received therefrom, whether at the time of such disposition or subsequent thereto, net of all reasonable legal expenses, commissions and other fees and costs and expenses reasonably incurred in connection with the sale. "Net Premiums Written" of any Insurance Subsidiary for any period means the net premiums of such Insurance Subsidiary of the Borrower. On the annual SAP Financial Statements form for each Insurance Subsidiary for the year ended December 31, 1993, the net premiums appears on line 32, column (1) on page 7 thereof. "Notice of Borrowing" means the certificate, in the form of Exhibit B --------- hereto, to be delivered by the Borrower to the Bank pursuant to Sections 2.3 and 4.2(e) and shall include any accompanying certifications or documents. "Obligations" means all indebtedness, obligations and liabilities of the Borrower and its Subsidiaries, if any, to the Bank under this Agreement, the Revolving Note or the Pledge Agreements. -9- "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Pledge Agreements" mean collectively the Seaboard Pledge Agreement, USF RE Pledge Agreement and the VASA North Atlantic Pledge Agreement. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code for which there is no applicable statutory or regulatory exemption (including a class exemption or an individual exemption). "Property" means any interest of any kind in property or assets, whether real, personal or mixed, and whether tangible or intangible. "Regulations D, X and U" means Regulations D, X and U of the Board of Governors of the Federal Reserve System, as amended or supplemented from time to time. "Regulatory Change" means any change after the date of this Agreement in United States federal, state or foreign laws or regulations (including Regulation D and the laws or regulations which designate any assessment rate relating to certificates of deposit or otherwise (including the "Assessment Rate" if applicable to any Revolving Loan)) or the adoption or making after such date of any orders, rulings, interpretations, directives, guidelines or requests applying to a class of banks including the Bank, of or under any United States federal, state, or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA as to which events the PBGC by regulation has not waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum -------- funding standard of Section 412 of the Code or Section 302 of ERISA shall be a Reportable Event regardless of any waivers given under Section 412(d) of the Code. "Reserve Requirement" means for any Eurodollar Rate Loans for any quarterly period (or, as the case may be, shorter period) as to which interest is payable hereunder, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such period under Regulation D by member banks of the -10- Federal Reserve System in Boston, Massachusetts with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D) or, in the case of CD Rate Loans, nonpersonal Dollar time deposits in an amount of $100,000 or more. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against: (i) any category of liabilities which includes deposits by references to which the Eurodollar Rate or CD Rate for Eurodollar Rate Loans or CD Loans (as the case may be) is to be determined as provided in the definition of "Eurodollar Rate" or "CD Rate", as applicable, in this Article 1, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans or CD Rate Loans (as the case may be). "Revolving Loans" means any loan made by the Bank pursuant to Section 2.1. Each Revolving Loan shall be a Base Rate Loan, a Eurodollar Rate Loan or a CD Rate Loan. "Revolving Loan Termination Date" means October 26, 2003. If such date is not a Business Day, the Revolving Loan Termination Date shall be the next preceding Business Day. "Revolving Note" means a promissory note of the Borrower, in the form of Exhibit A hereto, evidencing the Revolving Loans made by the Bank hereunder. --------- "Risk-Based Capital Ratio" of any Person means, as at any date of determination, the ratio of "Total Adjusted Capital" of such Person as at such date to "Authorized Control Level RBC" of such Person as at such date, as such terms are defined by the NAIC Risk-Based Capital (RBC) for Insurers Model Act, as amended from time to time. "SAP" means the statutory accounting practices permitted or prescribed by the Insurance Commissioner for the preparation of annual statements and other financial reports by insurance corporations of the same type as the Insurance Subsidiary. "SAP Financial Statements" means the financial statements which have been submitted or are required to be submitted to the Insurance Commissioner. "Seaboard" means Seaboard Life Insurance Company (USA), an Indiana corporation, its successors and assigns. "Seaboard Pledge Agreement" means the Pledge Agreement in the form of Exhibit I-1 hereto, duly executed by the Borrower and delivered to the Bank in - ----------- connection with the Acquisition. "Securities" means any capital stock, share, voting trust certificate, bonds, debentures, notes or other evidences of indebtedness, limited partnership interests, or any warrant, option or other right to purchase or acquire any of the foregoing. -11- "Select Benefits" means Select Benefits, Inc., an Indiana corporation, its successor and assigns. "Senior Officer" means the (a) chief executive officer, (b) chief financial officer, or (c) president of the Person designated. "Statutory Net Income" means, for any period the net income of each Insurance Subsidiary of the Borrower that appears, or should appear, on the SAP Financial Statements. On the respective annual SAP Financial Statements form for each Insurance Subsidiary for the year ended December 31, 1993, the net income amount appears on line 16, column (1) on page 4 thereof. "Statutory Surplus" of any Insurance Subsidiary means, for any period, the surplus of such Insurance Subsidiary that appears, or should appear, on the SAP Financial Statements of such Insurance Subsidiary on the annual SAP Financial Statements form prescribed for each Insurance Subsidiary for the year ended December 31, 1993, such amount appears on line 45, column (1) on page 3 thereof. "Subordinated Debt" means unsecured Debt which does not permit any payment or prepayment of the principal amount thereof prior to the payment in full of the Obligations, but permits payment of interest on the principal amount thereof so long as no Default or Event of Default has occurred and is continuing under this Agreement and contains in the instrument evidencing such Debt or in the agreement under which it is issued (which agreement shall be binding on all holders of such Debt) subordination provisions substantially in the form of Exhibit G hereto (without limitation as to further, not inconsistent, - --------- provisions, if so desired.) "Subsidiary" means with respect to any Person, any corporation, partnership or joint venture whether now existing or hereafter organized or acquired: (i) in the case of a corporation, of which a majority of the securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by such Person and/or one or more Subsidiaries of such Person or (ii) in the case of a partnership or joint venture, in which such Person is a general partner or joint venturer or of which a majority of the partnership or other ownership interests are at the time owned by such Person and/or one or more of its Subsidiaries. Unless the context otherwise requires, references in this Agreement to "Subsidiary" or "Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries of the Borrower or of a Subsidiary of the Borrower and upon consummation of the Acquisition shall include VASA North America, VASA North Atlantic, VASA Insurance Group, VASA Brougher, Select Benefits and Seaboard. "Total Capitalization" means the sum of the Debt of the Borrower and its Subsidiaries plus the Consolidated GAAP Net Worth of the Borrower and its Subsidiaries. -12- "Total Invested Assets" means, as at any date of determination, the aggregate value of all Insurance Subsidiaries' portfolios of stocks, bonds, mortgage loans, real estate, policy loans and other assets classified as invested assets under and valued in accordance with SAP as at such date. "Unfunded Vested Liabilities" means, with respect to any Plan, the amount (if any) by which the present value of all vested benefits under the Plan exceeds the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA for calculating the potential liability of the Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA. "USBENEFITS" means USBENEFITS Insurance Services, Inc., a California corporation, formerly known as USB Insurance Services, Inc., its successors and assigns. "USFIC" means USF Insurance Company, a Pennsylvania corporation, its successors and assigns. "USF RE" means USF RE INSURANCE COMPANY, a Massachusetts corporation, its successors and assigns. "USF RE Pledge Agreement" means the Pledge Agreement in the form of Exhibit F-1 hereto, duly executed by the Borrower. "USF RE Sale" means the sale of 100% of the capital stock or substantially all of the assets of USF RE by the Borrower. "VASA Brougher" means VASA Brougher, Inc., an Indiana corporation, its successors and assigns. "VASA Insurance Group" means VASA Insurance Group, Inc., an Indiana corporation, its successors and assigns. "VASA North America means VASA North America, Inc., an Indiana corporation, its successors and assigns. "VASA North Atlantic" means VASA North Atlantic Insurance Company, an Indiana corporation, its successors and assigns. "VASA North Atlantic Pledge Agreement" means the Pledge Agreement in the form of Exhibit I-2 hereto, duly executed by VASA Brougher and VASA ----------- Insurance Group delivered to the Bank in connection with the Acquisition. Section 1.2. Accounting Terms. All accounting terms not specifically ---------------- defined herein shall be construed in accordance with GAAP, applied on a consistent basis, and all financial data -13- required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a consistent basis; except as otherwise specifically prescribed ------ herein. In the event that GAAP changes during the term of this Agreement such that the financial covenants contained in Article 7 would then be calculated in a different manner or with different components (a) the Borrower and the Bank agree to enter into good faith negotiations to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating the Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) the Borrower shall be deemed to be in compliance with the financial covenants contained in such Sections during the 60 days following any such change in GAAP if and to the extent that the Borrower would have been in compliance therewith under GAAP as in effect immediately prior to such change; provided, however, if an amendment shall not -------- ------- be agreed upon within 60 days or such longer period as shall be agreed to by the Bank, for purposes of determining compliance with such covenants until such amendment shall be agreed upon, such terms shall be construed in accordance with GAAP as in effect on the Closing Date applied on a basis consistent with the application used in preparing the financial statements for the year ended December 31, 1993 but assuming that SFAS No. 115 had been adopted by the Borrower for such year. Section 1.3. Rounding. Any financial ratios required to be maintained by -------- Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. Section 1.4. Exhibits and Schedules. All Exhibits and Schedules to this ---------------------- Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. Section 1.5. References to "Borrower and its Subsidiaries". Any reference --------------------------------------------- herein to "Borrower and its Subsidiaries" or the like shall refer solely to Borrower during such times, if any, as Borrower shall have no Subsidiaries. Section 1.6. Miscellaneous Terms. The term "or" is disjunctive; the term ------------------- "and" is conjunctive. The term "shall" is mandatory, the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. ARTICLE 2. THE CREDIT. Section 2.1. The Revolving Loans. (a) Subject to the terms and conditions ------------------- of this Agreement, the Bank agrees to make revolving loans to the Borrower (hereinafter collectively -14- referred to as "Revolving Loans") from time to time from and including the date hereof until the earlier of the Revolving Loan Termination Date or the termination of the Commitment of the Bank, up to, but not exceeding in the aggregate principal amount at any one time outstanding, the amount of SEVENTY- FIVE MILLION AND NO/100 DOLLARS ($75,000,000.00). The Commitment is subject to mandatory reduction as set forth in Section 2.5. (b) Each Borrowing under this Section 2.1 of (i) a Base Rate Loan shall be in the principal amount of not less than $500,000 or any greater amount which is an integral multiple thereof (ii) a Eurodollar Rate Loan shall be in the principal amount of not less than $1,000,000 or any greater amount which is an integral multiple thereof; or (iii) a CD Rate Loan shall be in the principal amount of not less than $1,000,000 or any greater amount which is an integral multiple thereof. During the Commitment Period and subject to the foregoing limitations, the Borrower may borrow, repay and reborrow Revolving Loans, all in accordance with the terms and conditions of this Agreement. Section 2.2. The Revolving Note. ------------------ (a) The Revolving Loans of the Bank shall be evidenced by a single promissory note in favor of the Bank in the form of Exhibit A and duly completed --------- and executed by the Borrower. (b) The Bank is authorized to record and, prior to any transfer of the Revolving Note, endorse on a schedule forming a part thereof appropriate notations evidencing the date, the type, the amount and the maturity of each Revolving Loan made by it which is evidenced by such Revolving Note and the date and amount of each payment of principal made by the Borrower with respect thereto; provided, that failure to make any such endorsement or notation shall -------- not affect the Obligations of the Borrower hereunder or under the Revolving Note. The Bank is hereby irrevocably authorized by the Borrower to so endorse the Revolving Note and to attach to and make a part of the Revolving Note a continuation of any such schedule as and when required. The Bank may, at its option, record and maintain such information in its internal records rather than on such schedule. Section 2.3. Procedure for Borrowing. ----------------------- (a) The Borrower shall give the Bank a Notice of Borrowing, in the form of Exhibit B hereto, prior to 11:00 a.m. (Connecticut time), on the date at least - --------- one (1) Business Day before a Borrowing of a Base Rate Loan, at least three (3) Business Days before a Borrowing of a Eurodollar Rate Loan, and at least one (1) Business Day before a Borrowing of a CD Rate Loan, specifying: (i) the date of such Borrowing, which shall be a Business Day, (ii) the principal amount of such Borrowing, -15- (iii) whether the Revolving Loan comprising such Borrowing is to be a Base Rate Loan, a Eurodollar Rate Loan or a CD Rate Loan, and (iv) if a Eurodollar Rate Loan, the Interest Period with respect to such Borrowing. (b) No Notice of Borrowing shall be revocable by the Borrower. (c) It is understood that if the Borrower elects an Interest Period with respect to a CD Rate Loan of 180 days or with respect to a Eurodollar Rate Loan of six months, the CD Rate or Eurodollar Rate quoted to the Borrower one or two Business Days preceding the first day of the Interest Period, as the case may be, will be based on Bank's good faith estimate of its costs of funding such Revolving Loan and that the actual interest rate for the Interest Period for such Revolving Loan may vary from that quoted to reflect the Banks' actual costs of funding on the date of the Revolving Loan. (d) There shall be no more than four (4) Interest Periods relating to Eurodollar Rate Loans or CD Rate Loans or any combination thereof outstanding at any time. (e) If the Bank makes a new Revolving Loan hereunder on a day on which the Borrower is to repay an outstanding Revolving Loan from the Bank, the Bank shall apply the proceeds of its new Revolving Loan to make such repayment and only an amount equal to the excess (if any) of the amount being borrowed over the amount being repaid shall be made available by the Bank to the Borrower. (f) Notwithstanding anything to the contrary herein contained, if, upon the expiration of any Interest Period applicable to any Borrowing of Revolving Loans, the Borrower shall fail to give a new Notice of Borrowing as set forth in this Section 2.3, the Borrower shall be deemed to have given a new Notice of Borrowing of Base Rate Loans in principal amount equal to the outstanding principal amount of such Revolving Loans, and the proceeds of the new Borrowing shall be applied directly to repay such outstanding principal amount on the day of such Borrowing. Section 2.4. Termination or Optional Reduction of Commitment. The ----------------------------------------------- Commitment with respect to Revolving Loans shall terminate on the Revolving Loan Termination Date. Any Revolving Loans outstanding on the Revolving Loan Termination Date (together with accrued interest thereon) shall be due and payable on the Revolving Loan Termination Date (or such earlier date as provided herein). No termination of the Commitment hereunder shall relieve the Borrower of any of its outstanding Obligations to the Bank hereunder or otherwise. The Borrower shall have the right, upon prior written notice of at least five (5) Business Days to the Bank, to terminate or, from time to time, reduce the Commitment, provided that (i) any such reduction of the Commitment shall be -------- accompanied by the prepayment of the Revolving Note, together with accrued interest thereon to the date of such prepayment and any amount due -16- pursuant to Section 2.7, to the extent, if any, that the aggregate unpaid principal amount thereof then outstanding exceeds the Commitment as then reduced and (ii) any such termination of the Commitment to make Revolving Loans shall be accompanied by prepayment in full of the unpaid principal amount of the Revolving Note together with accrued interest thereon to the date of such prepayment and any amount due pursuant to Section 2.7. Any such partial reduction of the Commitment shall be in an aggregate principal amount of $500,000 or any whole multiple thereof and shall reduce permanently the Commitment then in effect hereunder. Section 2.5. Mandatory Reduction of Commitment. --------------------------------- (a) The Commitment of the Bank to make Revolving Loans shall be automatically and permanently reduced in the amount of $25,000,000 on the earlier to occur of (i) the receipt by the Borrower or any Subsidiary of the Net Available Proceeds realized upon the USF RE Sale or (ii) June 30, 1999. (b) Commencing September 30, 2000 and continuing on each succeeding December 31, March 31, June 30 and September 30 thereafter until the Revolving Loan Termination Date, the Commitment of the Bank to make Revolving Loans shall be automatically and permanently reduced by $2,500,000 except that on the Revolving Loan Termination Date, the Commitment shall be automatically and permanently reduced to zero. (c) On the effective date of each reduction of the Commitment of the Bank pursuant to Section 2.5(a) the Borrower shall repay such principal amount (together with accrued interest thereon and any amount due pursuant to Section 2.7(b)) of outstanding Revolving Loans, if any, as may be necessary so that after such repayment, the aggregate unpaid principal amount of the Revolving Loans does not exceed the Commitment as then reduced. Section 2.6. Maturity of Revolving Loans. Each Revolving Loan shall --------------------------- mature, and the principal amount thereof shall be due and payable, on the Revolving Loan Termination Date. Section 2.7. Optional Prepayments. -------------------- (a) The Borrower may, upon at least one (1) Business Day's notice to the Bank, prepay the Base Rate Loans, without premium or penalty, in whole at any time or from time to time in part by paying the principal amount being prepaid together with accrued interest thereon to the date of prepayment. (b) The Borrower may, upon at least three (3) Business Days' notice to the Bank, prepay the Eurodollar Rate Loans or the CD Rate Loans, in whole at any time or from time to time in part, by paying the principal amount being prepaid together with (i) accrued interest thereon to the date of prepayment and (ii) if such prepayment occurs on a date that is not the last day of the Interest Period applicable to such Revolving Loan, any amounts required to compensate the Bank for any reasonable losses, costs or expenses (excluding any losses of -17- anticipated profit), as certified by the Bank (such certification setting forth the basis for such compensation), which the Bank may reasonably incur as a result of such prepayment, including without limitation, any loss, cost or expense incurred by reason of funds liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain such Eurodollar Rate Loan or CD Rate Loan and any administrative costs, expenses or charges of the Bank as a result thereof. Section 2.8. Interest on the Revolving Loans. ------------------------------- (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Base Rate Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day, plus the Applicable Margin. Interest shall be payable on the last day of the Interest Period applicable thereto. Such interest shall accrue from and including the date of such Borrowing to but excluding the date of any repayment thereof and shall be computed on the basis of a fraction, the numerator of which is the actual number of days elapsed from the date of Borrowing and the denominator of which is three hundred sixty (360). Overdue principal of and, to the extent permitted by law, overdue interest on the Base Rate Loans shall bear interest for each day until paid at a rate per annum equal to the Default Rate. (b) Each Eurodollar Rate Loan shall bear interest on the unpaid principal amount thereof, for each day from the date such Eurodollar Rate Loan is made until it becomes due, at a rate per annum equal to the Eurodollar Rate for the relevant Interest Period, plus the Applicable Margin. Interest shall be payable on the last day of the Interest Period applicable thereto; provided, -------- that if such Interest Period is longer than ninety (90) days, interest shall be payable every 90 days and on the last day of such Interest Period. Such interest shall accrue from and including the date of such Borrowing to but excluding the date of any repayment thereof and shall be computed on the basis of a fraction, the numerator of which is the actual number of days elapsed from the date of Borrowing and the denominator of which is three hundred sixty (360). Overdue principal of and, to the extent permitted by law, overdue interest on the Eurodollar Rate Loans shall bear interest for each day until paid at a rate per annum equal to the Default Rate. (c) Each CD Rate Loan shall bear interest on the unpaid principal amount thereof, for each day from the date such CD Rate Loan is made until it becomes due, at a rate per annum equal to the CD Rate for the relevant Interest Period, plus the Applicable Margin. Interest shall be payable on the last day of the Interest Period applicable thereto. Such interest shall accrue from and including the date of such Borrowing to but excluding the date of any repayment thereof and shall be computed on the basis of a fraction, the numerator of which is the actual number of days elapsed from the date of Borrowing and the denominator of which is 360. Overdue principal of and, to the extent permitted by law, overdue interest on CD Rate Loans shall bear interest for each day until paid at a rate per annum equal to the Default Rate. Section 2.9. Fees. The Borrower shall pay to the Bank a stand-by ---- commitment fee for the Commitment Period, payable in arrears, on the average daily unused portion of the Bank's -18- Commitment with respect to the Revolving Loans, which stand-by commitment fee shall be payable quarterly on the first Business Day of January, April, July and October of each year. Such fee shall be payable at the rate of 1/4 of 1% per annum for the period from the Closing Date and thereafter. The fee required by this Section shall not be refundable. Section 2.10. Payments Generally. All payments under this Agreement shall ------------------ be made in Dollars in immediately available funds not later than 1:00 p.m. (Connecticut time) on the due date (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day) to the Bank at its address set forth on the signature pages hereof or at such other address as it may hereafter designate by notice to the Borrower for the account of the Lending Office of the Bank specified by the Bank on Schedule -------- 1.1 hereto. The Borrower shall, at the time of making each payment under this - ---------- Agreement, specify to the Bank the principal or other amount payable by the Borrower under this Agreement to which such payment is to be applied (and in the event that it fails to so specify, or if a Default or Event of Default has occurred and is continuing, the Bank may apply such payment as it may elect in its sole discretion). If the due date of any payment under this Agreement would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day and such extension of time shall in such case be included in the computation of such payment; provided that, if such -------- extension would cause the last day of an Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. Section 2.11. Capital Adequacy. If after the date hereof, either (i) the ---------------- introduction of, or any change in, or in the interpretation or enforcement of, any law, regulation, order, ruling, interpretation, directive, guideline or request or (ii) the compliance with any order, ruling, interpretation, directive, guideline or request from any central bank or other governmental authority (whether or not having the force of law) issued, announced, published, promulgated or made after the date hereof (including, in any event, any law, regulation, order, ruling, interpretation, directive, guideline or request contemplated by the report dated July, 1988 entitled "International Convergence of Capital Measurement and Capital Standards" issued by the Basle Committee on Banking Regulation and Supervisory Practices) affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and the Bank reasonably determines that the amount of such required or expected capital is increased by or based upon the existence of the Bank's Revolving Loans hereunder or the Bank's commitment to lend hereunder, then, upon demand by the Bank, the Borrower shall be liable for, and shall pay to the Bank, within thirty (30) days following demand from time to time by the Bank, additional amounts sufficient to compensate the Bank in the light of such circumstances for the effects of such law, regulation, order, ruling, interpretation, directive, guideline or request, to the extent that the Bank reasonably determines such increase in capital to be allocable to the existence of the Bank's Revolving Loans hereunder or of the Bank's commitment to lend hereunder. A certificate substantiating such amounts and identifying the event giving rise thereto, submitted to the Borrower by the Bank, shall be conclusive, absent manifest error. The Bank shall promptly notify the Borrower of any event of which it has -19- knowledge occurring after the date of this Agreement which will entitle the Bank to compensation pursuant to this Section, and the Bank shall take any reasonable action available to it consistent with its internal policy and legal and regulatory restrictions (including the designation of a different Lending Office, if any) that will avoid the need for, or reduce the amount of, such compensation and will not in the reasonable judgment of the Bank be otherwise disadvantageous to the Bank. Section 2.12. Increased Costs. If after the date hereof, due to either (i) --------------- the introduction of or any change in or in the interpretation or enforcement of, any law, regulation, order, ruling, directive, guideline or request, or (ii) the compliance with any order, ruling, directive, guideline or request from any central bank or other governmental authority (whether or not having the force of law) issued, announced, published, promulgated or made after the date hereof, there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Loans, then the Borrower shall be liable for, and shall from time to time, within thirty (30) days following a demand by the Bank, pay to the Bank for the account of the Bank additional amounts sufficient to compensate the Bank for such increased cost; provided, -------- however, that before making any such demand, the Bank agrees to use reasonable - ------- efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office if the making of such a designation would allow the Bank or its Lending Office to continue to perform its obligations to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans and would not, in the reasonable judgment of the Bank, be otherwise disadvantageous to the Bank. A certificate substantiating the amount of such increased cost, submitted to the Borrower by the Bank, shall be conclusive, absent manifest error. Section 2.13. Illegality. Notwithstanding any other provision of this ---------- Agreement, if after the date hereof the introduction of, or any change in or in the interpretation or enforcement of, any law, regulation, order, ruling, directive, guideline or request shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for the Bank or its Lending Office to perform its obligations hereunder to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then, on notice thereof by the Bank to the Borrower, (i) the obligation of the Bank to make Eurodollar Rate Loans shall terminate (and the Bank shall make all of its Revolving Loans as Base Rate Loans or CD Rate Loans notwithstanding any election by the Borrower to have the Bank make Eurodollar Rate Loans) and (ii) if legally permissible, at the end of the current Interest Period for such Eurodollar Rate Loans, otherwise five Business Days after such notice and demand, all Eurodollar Rate Loans of the Bank then outstanding will automatically convert into Base Rate Loans; provided, however, that before making any such demand, the Bank -------- ------- agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office if the making of such a designation would allow the Bank or its Lending Office to continue to perform its obligations to make Eurodollar Rate Loans and would not, in the judgment of the Bank, be otherwise disadvantageous to the Bank. A certificate describing such introduction or change in or in the interpretation or enforcement of such law, -20- regulation, order, ruling, directive, guideline or request, submitted to the Borrower by the Bank, shall be conclusive evidence of such introduction, change, interpretation or enforcement, absent manifest error. The Bank and the Borrower agree to negotiate in good faith in order to agree upon a mutually acceptable mechanism to provide that Eurodollar Rate Loans made by the Bank as to which the foregoing conditions occur shall convert into Base Rate Loans. Section 2.14. Payments to be Free of Deductions. All payments by the --------------------------------- Borrower under this Agreement shall be made without setoff or counterclaim and free and clear of, and without deduction for, any taxes (other than any taxes imposed on or measured by the gross income or profits of the Bank), levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any country or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder, it will pay to the Bank, on the date on which such amount becomes due and payable hereunder and in Dollars, such additional amount as shall be necessary to enable the Bank to receive the same net amount which it would have received on such due date had no such obligation been imposed upon the Borrower. If the Bank is at any time, or any permitted assignee of the Bank hereunder (an "Assignee"), is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof, the Bank or the Assignee shall deliver to the Borrower on the date it becomes a party to this Agreement, and at such other times as may be necessary in the determination of the Borrower in its reasonable discretion, such certificates, documents or other evidence, properly completed and duly executed by the Bank or the Assignee (including, without limitation, Internal Revenue Service Form 1001 or Form 4224 or any other certificate or statement of exemption required by Treasury Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that the Bank or the Assignee is not subject to deduction or withholding of United States Federal Income Tax under Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under any comparable provisions of any successor statute) with respect to any payments to the Bank or the Assignee of principal, interest, fees or other amounts payable hereunder. Borrower shall not be required to pay any additional amount to the Bank or any Assignee under this Section 2.14 if the Bank or such Assignee shall have failed to satisfy the requirements of the immediately preceding sentence; provided that if the Bank or any Assignee shall have satisfied such -------- requirements on the date it became a party to this Agreement, nothing in this Section 2.14 shall relieve Borrower of its obligation to pay any additional amounts pursuant to this Section 2.14 in the event that, as a result of any change in applicable law, the Bank or such Assignee is no longer properly entitled to deliver certificates, documents or other evidence at a subsequent date establishing the fact that the Bank or the Assignee is not subject to withholding as described in the immediately preceding sentence. Section 2.15. Computations. All computations of interest and like payments ------------ hereunder on the Revolving Loans shall, in the absence of clearly demonstrable error, be considered correct and binding on the Borrower and the Bank, unless within thirty (30) Business Days after receipt -21- of any notice by the Bank of such outstanding amount, the Borrower notifies the Bank to the contrary. Section 2.16. Obligations Absolute. The Obligations of the Borrower -------------------- to make payments under this Agreement shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, and irrespective of, the following circumstances: (a) any lack of validity or enforceability of all or any portion of this Agreement or any other agreement or any instrument relating hereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower; (c) the existence of any claim, setoff, defense or other right that the Borrower may have; or (d) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower. ARTICLE 3. SECURITY. Section 3.1. Pledge Agreement. In order to secure payment when due of the ---------------- principal and interest under the Revolving Note and the other Obligations under this Agreement, the Borrower agrees to deliver to the Bank on the Closing Date the following: (a) the Pledge Agreement; (b) stock certificates representing all of the outstanding capital stock of USF RE (with stock powers signed in blank); and (c) the Financing Statements. Section 3.2. Further Assurances. At any time following the delivery of the ------------------ Pledge Agreements to the Bank, at the request of the Bank, the Borrower will execute any certificate, instrument, statement or document and will procure any such certificate, instrument, statement or document (and pay all connected costs) which the Bank reasonably deems necessary to preserve the security interests of the Bank contemplated hereby. -22- ARTICLE 4. CONDITIONS PRECEDENT. Section 4.1. Documentary Conditions Precedent. The Commitment of the Bank -------------------------------- to make Revolving Loans under this Agreement is subject to the condition precedent that the Borrower shall have delivered the following, in form and substance satisfactory to the Bank: (a) a Revolving Note for the account of the Bank duly executed by the Borrower; (b) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Closing Date, attesting on behalf of the Borrower to all corporate action taken by the Borrower, including resolutions of its Board of Directors authorizing the execution, delivery and performance of this Agreement, the Revolving Note, the Pledge Agreement and each other document to be delivered pursuant to this Agreement, and attesting to the names and true signatures of the officers of the Borrower authorized to sign this Agreement, the Revolving Note, the Pledge Agreement and the other documents to be delivered by the Borrower under this Agreement; (c) a certificate of a Senior Officer of the Borrower, dated the Closing Date, certifying on behalf of the Borrower that (i) the representations and warranties in Article 5 are true, complete and correct in all material respects on such date as though made on and as of such date, (ii) no event has occurred and is continuing which constitutes a Default or Event of Default, (iii) the Borrower has performed and complied with all agreements and conditions contained in this Agreement which are required to be performed or complied with by the Borrower at or before the Closing Date, and (iv) there has been no material adverse change in the financial condition, operations, Properties, business, or as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, if any, taken as a whole, since September 30, 1997; (d) a certificate of a Senior Officer of the Borrower, substantially in the form of Exhibit C, which certificate shall include information required --------- to establish that the Borrower will be in compliance with the covenants set forth in this Agreement, after giving effect to the transactions contemplated herein; (e) a certificate of good standing for the Borrower as of a recent date by the Secretary of State of its jurisdiction of incorporation and each state where the Borrower, by the nature of its business, is required to qualify to do business, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole; (f) a certificate of good standing for USBENEFITS as of a recent date by the Secretary of State of its jurisdiction of incorporation and, if different, its principal place of business; -23- (g) a certificate or similar instrument from the appropriate tax authority in the State of California as to the payment by the Borrower of all taxes owed; (h) a certificate of authority from each Insurance Commissioner certifying that USF RE is duly licensed and in good standing with each Insurance Commissioner; (i) a favorable opinion of R.W. Loeb, Professional Law Corporation, California counsel to the Borrower, dated the Closing Date, in substantially the form set forth in Exhibit D hereto; ------- (j) a favorable opinion of Anderson & Kreiger, Massachusetts insurance counsel to the Borrower, dated the Closing Date, in substantially the form set forth in Exhibit E hereto; (k) a Pledge Agreement in substantially the form set forth in Exhibit F, duly executed by the Borrower; (l) evidence that each consent, license, approval and notice required in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the Pledge Agreement, and each other document and instrument required to be delivered in connection herewith, shall have been received or given and such consents, licenses, approvals and notices shall be in full force and effect; (m) all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Bank and the Bank shall have received any and all other information and documents with respect to the Borrower which it may reasonably request; (n) payment to the Bank of the closing fee in the amount of $187,500.00; and (o) payment to Day, Berry & Howard LLP, special counsel to the Bank, of its legal fees and disbursements (with appropriate detail) in accordance with the letter between the Borrower and the Bank dated November 4, 1994. Section 4.2. Additional Conditions Precedent to Each Loan. The obligation -------------------------------------------- of the Bank to make the Revolving Loans pursuant to a Borrowing (including the initial Borrowing), unless waived by the Bank, shall be subject to the further conditions precedent that on the date of such Revolving Loan: (a) the representations and warranties contained in Article 5 of this Agreement are true and correct in all material respects on and as of the date of such Revolving Loan as -24- though made on and as of such date (or, if such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (b) the Borrower has performed and complied with and is in compliance with all agreements and conditions contained in this Agreement which are required to be performed or complied with by the Borrower; (c) there does not exist any Default or Event of Default under this Agreement; (d) there has been no material adverse change in the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, if any, taken as a whole, since the date of the last Borrowing under this Agreement (or if no Borrowing has occurred, since the date of this Agreement); (e) the Bank shall have received a Notice of Borrowing in the form of Exhibit B, except to the extent otherwise provided in Section 2.3(f); (f) With respect only to the initial Borrowing that would result in outstanding Revolving Loans exceeding fifty million dollars ($50,000,000), (i) the Borrower shall have contemporaneously consummated the Acquisition, (ii) the Bank shall have received a favorable opinion of R.W. Loeb, Professional Law Corporation, California counsel to the Borrower, dated the date of such initial Borrowing, in the form of Exhibit H-1 hereto, (iii) the Bank shall have received a favorable opinion of Baker & Daniels, Indiana counsel to the Borrower, dated the date of such initial Borrowing, in form of Exhibit H-2 hereto, (iv) the Bank shall have received the Guaranty Agreement duly executed by VASA North America, VASA Brougher and VASA Insurance Group, dated the date of such initial Borrowing, (v) the Bank shall have received the Seaboard Pledge Agreement duly executed by the Borrower, dated the date of such initial Borrowing, together with appropriate stock certificates, undated stock powers executed in blank and Uniform Commercial Code financing statements relating thereto, (vi) the Bank shall have received the VASA North Atlantic Pledge Agreement duly executed by VASA Brougher and VASA Insurance Group, dated the date of such initial Borrowing, together with appropriate stock certificates, undated stock powers executed in blank and Uniform Commercial Code financing statements relating thereto, (vii) the Bank shall have received a certificate of a Senior Officer of the Borrower, dated the date of such initial Borrowing, certifying on behalf of the Borrower that attached thereto are true, correct and complete copies of the Acquisition Pro-Formas and the Acquisition Agreement (and all amendments thereto) as in effect on the date of such initial Borrowing, (viii) the Bank shall have received a certificate of a Senior Officer of the Borrower certifying that upon the consummation of the Acquisition, (a) the representations and warranties contained in Article 5 of the Credit Agreement are true and correct in all material respects on and as of the date of the initial Borrowing, (b) the Borrower has performed and complied with and is in compliance with all agreements and conditions contained in the Credit Agreement which are -25- required to be performed or complied with by the Borrower, (c) there does not exist any Default or Event of Default under the Credit Agreement and (d) there has been no material adverse change in the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, since the Amendment Closing Date, (ix) the Bank shall have received a certificate of a Senior Officer or Secretary of the Borrower dated the date of such initial Borrowing, certifying on behalf of the Borrower that the certificate of incorporation and bylaws of each of VASA North America, VASA North Atlantic and Seaboard delivered to the Bank in connection with the Fifth Amendment to the Credit Agreement have not been amended and are in full force and effect, (x) the Bank shall have received a certificate of good standing with respect to each of VASA Brougher and VASA Insurance Group as of a recent date of such initial Borrowing from the Secretary of the State of its jurisdiction of incorporation, and if different, its principal place of business, (xi) the Bank shall have received a copy of the Certificate of Incorporation for each of VASA Brougher and VASA Insurance Group and all amendments and other corporate documents relating thereto, certified as of a recent date by the Secretary of the State of its jurisdiction of incorporation, (xii) the Bank shall have received a copy of each consent, license approval and notice required in connection with the execution, delivery, performance, validity and enforceability of the Acquisition Agreements and the Pledge Agreements and (xiii) the Bank shall have received such other documents, certificates and opinions as the Bank or its special counsel may reasonably request. Section 4.3. Deemed Representations. Each Notice of Borrowing hereunder ---------------------- and acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty that the statements contained in Section 4.2(a) are true and correct both on the date of such Notice of Borrowing and, unless the Borrower otherwise notifies the Bank prior to such Borrowing, as of the date of such Borrowing. ARTICLE 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants the following: Section 5.1. Incorporation, Good Standing and Due Qualification. The -------------------------------------------------- Borrower is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of incorporation, has the power and authority to own its assets and to transact the business in which it is now engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole. The Borrower has all requisite power and authority to execute and deliver and to perform all of its obligations under this Agreement, the Revolving Note and the Pledge Agreements and the other writings contemplated hereby. -26- Section 5.2. Corporate Power and Authority; No Conflicts. The execution, ------------------------------------------- delivery and performance by the Borrower of this Agreement, the Revolving Note and the Pledge Agreements have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of its shareholders; (b) violate any provisions of its articles of incorporation or by- laws; (c) violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation (including without limitation, Regulation U and X), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any Subsidiary; (d) result in a breach of or constitute a default or require any consent under any indenture, mortgage or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower or any Subsidiary is a party or by which it or its Properties may be bound; or (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower, except as created by the Pledge Agreements. Section 5.3. Legally Enforceable Agreements. This Agreement, the Revolving ------------------------------ Note and the Pledge Agreements constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. Section 5.4. Litigation. Except as disclosed on Schedule 5.4, there are no ---------- ------------ actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) pending or, as far as the Borrower can reasonably foresee, threatened against or affecting the Borrower or any Subsidiary, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any Subsidiary would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 5.5. Financial Statements. (a) The consolidated balance sheets of -------------------- the Borrower and its Subsidiaries as of December 31, 1996 and December 31, 1997 and the related consolidated statements of income, stockholders' equity, and cash flows of the Borrower and its Subsidiaries for the fiscal years then ended, and the accompanying footnotes, together with the opinion thereon of KPMG Peat Marwick, independent certified public accountants, and the unaudited interim consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 1998 and the related consolidated statements of income, stockholders' equity and cash flows for the nine-month period then ended, copies of which have been furnished to the Bank, fairly present the financial condition of the Borrower and its Subsidiaries, taken as a whole, as at such dates and the results of the operations of the Borrower and its Subsidiaries, taken as a whole, for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year-end adjustments in the case of the interim financial statements). There are no liabilities of the Borrower or any Subsidiary, fixed or contingent, -27- which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since September 30, 1998 and other than this Agreement and the Revolving Note. No written information, exhibit or report furnished by the Borrower to the Bank in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state any fact necessary to make the statements contained therein not materially misleading. Since September 30, 1998, no event or circumstance has occurred that would materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements. (b) The Acquisition Pro-Formas have been prepared in good faith and on reasonable assumptions. Section 5.6. Ownership and Liens. Each of the Borrower and its ------------------- Subsidiaries has good and valid title to, or valid leasehold interests in, its material Properties and assets, real and personal, including the material Properties and assets, and leasehold interests reflected in the financial statements referred to in Section 5.5 (other than any Properties or assets disposed of in the ordinary course of business), and none of the material Properties and assets owned by the Borrower or its Subsidiaries, and none of its leasehold interests is subject to any Lien, except as disclosed in such financial statements or in Schedule 5.6, or as may be permitted hereunder. ------------ Section 5.7. Taxes. Each of the Borrower and its Subsidiaries has filed ----- all federal and state tax returns and all other material local tax returns required to be filed, has paid all due and payable taxes, assessments and governmental charges and levies, including interest and penalties, imposed upon it or upon its Properties, and has made adequate provision for the payment of such taxes, assessments and other charges accruing but not yet due and payable, except with respect to taxes which are being contested in good faith by the Borrower or its Subsidiaries and for which the Borrower or its Subsidiaries has established and maintains adequate reserves for payment. To the best knowledge of Borrower, there is no tax assessment contemplated or proposed by any governmental agency against Borrower or any of its Subsidiaries that would materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements, other than, as of each date subsequent to the Closing Date, such contemplated or proposed tax assessments with respect to which (i) Borrower has promptly notified Bank in writing of its knowledge and (ii) Borrower or the appropriate Subsidiary of Borrower has in good faith commenced, and thereafter diligently pursued, appropriate proceedings in opposition to such assessment. Section 5.8. ERISA. Each of the Borrower and its Subsidiaries is in ----- compliance in all material respects with all applicable provisions of ERISA. Within the three-year period prior to the date hereof, neither a Reportable Event nor a Prohibited Transaction has occurred with -28- respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstance exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any ERISA Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; each of the Borrower and its ERISA Affiliates has met its minimum funding requirements under ERISA with respect to all of its Plans and there are no Unfunded Vested Liabilities and neither the Borrower nor any ERISA Affiliate has incurred any material liability to the PBGC under ERISA other than for premium payments incurred in the normal course of operating the Plans. Section 5.9. Subsidiaries and Ownership of Stock. ----------------------------------- (a) Schedule 5.9 correctly sets forth the names of all Subsidiaries of ------------ the Borrower. All of the outstanding shares of capital stock, or all of the units of equity interest, as the case may be, of each Subsidiary are owned of record and beneficially by the Borrower or a Subsidiary of the Borrower, as disclosed on said Schedule; there are no outstanding options, warrants or other rights to purchase capital stock of any such Subsidiary; and all such shares or equity interests so owned are duly authorized, validly issued, fully paid, non-assessable, and were issued in compliance with all applicable state and federal securities and other laws, and are free and clear of all Liens, except as may be permitted hereunder and except for restrictions imposed upon the sale of stock of the Insurance Subsidiaries of the Borrower by the Insurance Commissioner or other insurance regulatory authorities. (b) Each Subsidiary of the Borrower, VASA North Atlantic and Seaboard is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the power and authority to own its assets and to transact the business in which it is now engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified would not materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower, its Subsidiaries, VASA North Atlantic and Seaboard, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements. (c) Each Subsidiary of Borrower, VASA North Atlantic and Seaboard is in compliance with all laws and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, and permits from, and each Subsidiary, VASA North Atlantic and Seaboard, has accomplished all filings, registrations, and qualifications with, or obtained exemptions from any of the foregoing from, any governmental or public agency that are necessary for the transaction of its business, except where the failure to be in such compliance, obtain such authorizations, consents, approvals, orders, licenses, and permits, accomplish such filings, registrations, and qualifications, or obtain such exemptions, -29- would not materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 5.10. Credit Arrangements. Section 5.10 is a complete and correct ------------------- ------------ list of all credit agreements, indentures, guaranties, Capital Leases, mortgages, and other instruments, agreements and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Borrower or any of its Subsidiaries is in any manner directly or contingently obligated, other than trade payables in the ordinary course of business; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are therein set forth and are correctly stated as of the date hereof, and all Liens given or agreed to be given as security therefor are therein set forth and are correctly described or indicated in such Schedule. Section 5.11. Operation of Business. Each of the Borrower and its --------------------- Subsidiaries possesses all licenses, permits and franchises, or rights thereto, necessary to conduct its business as now conducted and as presently proposed to be conducted, the absence of which would have a material adverse effect on the financial condition, operations, Properties or business of the Borrower and its Subsidiaries, taken as a whole, and neither the Borrower nor any of its Subsidiaries is in violation in any material respect of any valid rights of others with respect to any of the foregoing. Section 5.12. No Default on Outstanding Judgments or Orders. Each of the --------------------------------------------- Borrower and its Subsidiaries has satisfied all material judgments and neither the Borrower nor any Subsidiary is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign, which would, in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 5.13. No Defaults on Other Agreements. Neither the Borrower nor any ------------------------------- of its Subsidiaries is a party to any indenture, mortgage or loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction which would have a material adverse effect on the business, Properties, assets, operations, financial condition or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Neither the Borrower nor any of its Subsidiaries is in default in any material respect in the performance, observance or fulfillment of any of the -30- obligations, covenants or conditions contained in any agreement or instrument material to its business to which it is a party. Section 5.14. Governmental Regulation. Neither the Borrower nor any of ----------------------- its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. Section 5.15. Consents and Approvals. No authorization, consent, ---------------------- approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person, including without limitation, any Insurance Commissioner, is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, this Agreement, the Revolving Note, the Pledge Agreements or the Acquisition Agreements, except the consents, approvals or other similar actions listed on Schedule 5.15 ------------- attached hereto. Schedule 5.15 describes those consents, approvals or other ------------- similar actions which have been duly and properly obtained or which may have to be obtained by the Bank in order to enforce its rights under this Agreement, the Revolving Note or the Pledge Agreements. Except as disclosed on said Schedule, such consents, approvals or other similar actions have been obtained and have not been modified, amended, rescinded or revoked, and are in full force and effect. Section 5.16. Partnerships. Except as set forth in Schedule 5.16, ------------ ------------- neither the Borrower nor any of its Subsidiaries is a partner in any partnership. Section 5.17. Environmental Protection. Each of Borrower and its ------------------------ Subsidiaries has obtained all material permits, licenses and other authorizations which are required under all environmental laws, including laws relating 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, except to the extent failure to have any such permit, license or authorization would not reasonably be expected to have a material adverse effect on the business, financial condition, operations, Properties or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole. Each of the Borrower and its Subsidiaries is in compliance with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the environmental laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply would not reasonably be expected to have a material adverse effect on the business, financial condition, operations, Properties or, as far as -31- the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. None of the Properties of the Borrower or its Subsidiaries, either owned or leased, have been included or, as far as the Borrower can reasonably foresee, proposed for inclusion on the National Priorities List adopted pursuant to the Comprehensive Environmental Response Compensation and Liability Act, as amended, or on any similar list or inventory of sites requiring response or cleanup actions adopted by any other federal, state or local agency. Section 5.18. Copyrights, Patents, Trademarks, Etc. Each of the ------------------------------------ Borrower and its Subsidiaries is duly licensed or otherwise entitled to use all patents, trademarks, service marks, trade names, and copyrighted materials which are used in the operation of its business as presently conducted, except where the failure to be so licensed or entitled would not have a materially adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole. No claim is pending or, as far as the Borrower can reasonably foresee, threatened against the Borrower or any of its Subsidiaries contesting the use of any such patents, trademarks, service marks, trade names or copyrighted materials, nor does the Borrower know of any valid basis for any such claims, other than claims which, if adversely determined, would not have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 5.19. Compliance with Laws. Neither the Borrower nor any of its -------------------- Subsidiaries is in violation of any laws, ordinances, rules or regulations, applicable to it, of any federal, state or municipal governmental authorities, instrumentalities or agencies, including without limitation, the United States Occupational Safety and Health Act of 1970, as amended, except where such violation would not have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 5.20. Events of Default. No Default or Event of Default has ----------------- occurred and is continuing. Section 5.21. Use of Proceeds. The Borrower shall use the proceeds of --------------- the Revolving Loans for general corporate purposes, including stock buybacks and acquisition financing and shall use the proceeds of the Revolving Loans in excess of fifty million dollars ($50,000,000) only for the Acquisition. Section 5.22. Continental Agreements. The Continental Agreements are in ---------------------- full force and effect, no default exists under the Continental Agreements and no event has occurred and no -32- condition exists which, with the giving of notice or the lapse of time or both, will constitute a default under the Continental Agreements. ARTICLE 6. AFFIRMATIVE COVENANTS During the term of this Agreement, and until performance, payment and/or satisfaction in full of the Obligations, the Borrower covenants and agrees that it shall, and shall cause each of its Subsidiaries to, unless the Bank otherwise consents in writing: Section 6.1. Maintenance of Existence and Domicile of Insurance -------------------------------------------------- Subsidiaries. Preserve and maintain its corporate existence and good standing in - ------------ the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required from time to time, except where failure to be so qualified would not have a material adverse effect on the business, financial condition, operations, Properties or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole; and preserve and maintain the domicile of each of its Insurance Subsidiaries as in effect on the date hereof. Section 6.2. Conduct of Business. Continue to engage in a business of ------------------- the same general type as conducted by it on the date of this Agreement. Section 6.3. Maintenance of Properties. Maintain, keep and preserve all ------------------------- of its material Properties (tangible and intangible), necessary or useful in the conduct of its business, in good working order and condition, ordinary wear and tear excepted, except that the failure to maintain, preserve and protect a ------ particular item of depreciable Property that is not of significant value, either intrinsically or to the operations of Borrower and its Subsidiaries, taken as a whole, shall not constitute a violation of this covenant. Section 6.4. Maintenance of Records. Keep accurate and complete records ---------------------- and books of account, in which complete entries will be made in accordance with GAAP and SAP, reflecting all financial transactions of the Borrower and its Subsidiaries. Section 6.5. Maintenance of Insurance. Maintain insurance (subject to ------------------------ customary deductibles and retentions) with financially sound and reputable insurance companies, in such amounts and with such coverages (including without limitation public liability insurance, fire, hazard and extended coverage insurance on all of its assets, necessary workers' compensation insurance and all other coverages as are consistent with industry practice) as are maintained by companies of established reputation engaged in similar businesses and similarly situated. Section 6.6. Compliance with Laws. Comply in all respects with all -------------------- applicable laws, rules, regulations and orders, except where the failure to so comply would not have a material adverse effect on the business, financial condition, operations, Properties or, as far as the -33- Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries taken as whole or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Such compliance shall include, without limitation, paying all taxes, assessments and governmental charges imposed upon it or upon its Property (and all penalties and other costs, if any, related thereto), unless contested in good faith by appropriate proceedings and for which adequate reserves have been set aside. Section 6.7. Right of Inspection. From time to time upon prior notice ------------------- and in accordance with customary standards and practices within the banking industry (including, without limitation, upon any Event of Default or whenever the Bank may have reasonable cause to believe that an Event of Default has occurred), the Borrower shall permit the Bank or any agent or representative thereof, to examine and make copies and abstracts from the records and books of account of, and visit the Properties of, the Borrower and its Subsidiaries to discuss the affairs, finances and accounts of the Borrower and any such Subsidiaries with any of their respective officers and directors and the Borrower's independent accountants, and to make such verification concerning the Borrower and its Subsidiaries as may be reasonable under the circumstances, and upon reasonable request, furnish promptly to the Bank true copies of all financial information made available to Senior Officers of Borrower and its Subsidiaries; provided, that the Bank shall use reasonable efforts to not -------- materially interfere with the business of the Borrower and its Subsidiaries and to treat as confidential any and all information obtained pursuant to this Section 6.7, except to the extent disclosure is required by any law, regulation, order, ruling, directive, guideline or request from any central bank or other government authority (whether or not having the force of law). Section 6.8. Reporting Requirements. The Borrower shall, and shall ---------------------- cause each of its Subsidiaries, as applicable, to, furnish to the Bank: (a) Annual GAAP Statements. Within ninety (90) days following the end ---------------------- of Borrower's fiscal year (or such earlier date as the Borrower's Form 10-K is filed with the Securities and Exchange Commission) copies of: (i) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the close of such fiscal year, and (ii) the consolidated and consolidating statements of income and consolidated statements of stockholders' equity and cash flows, in each case of the Borrower and its Subsidiaries for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with GAAP, all in reasonable detail and accompanied by an opinion thereon of KPMG Peat Marwick or other firm of independent public accountants of recognized national standing selected by the Borrower and reasonably acceptable to the Bank, to the effect that the consolidated financial statements have been prepared in -34- accordance with GAAP (except for changes in application in which such accountants concur) and present fairly in all material respects in accordance with GAAP the financial condition of the Borrower and its Subsidiaries as of the end of such fiscal year and the results of its operations for the fiscal year then ended and that the examination of such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary under the circumstances. (b) Annual SAP Financial Statements. As soon as available, and in any ------------------------------- event within sixty (60) and one hundred and fifty (150) days, respectively, following the end of each Insurance Subsidiary's fiscal year (or such earlier date as such are filed with the applicable insurance regulatory authority), copies of the unaudited (if required to be filed with a regulatory authority) and audited SAP Financial Statements for such Insurance Subsidiary, in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with SAP, all in reasonable detail and accompanied by an opinion thereon of KPMG Peat Marwick or other firm of independent public accountants of recognized national standing selected by the Borrower and reasonably acceptable to the Bank, to the effect that the financial statements have been prepared in accordance with SAP (except for changes in application in which such accountants concur) and present fairly in all material respects in accordance with SAP the financial condition of such Insurance Subsidiary as of the end of such fiscal year and the results of its operations for the fiscal year then ended and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary under the circumstances. (c) Quarterly GAAP Statements. As soon as available, and in any event ------------------------- within forty-five (45) days after the end of each quarterly fiscal period of the Borrower (other than the fourth fiscal quarter of any fiscal year), copies of: (i) the consolidated and consolidating balance sheets of Borrower and its Subsidiaries as at the end of such fiscal quarter, and (ii) the consolidated and consolidating statements of income and consolidated statements of stockholders' equity and cash flows, in each case of Borrower and its Subsidiaries for such fiscal quarter and the portion of such fiscal year ended with such fiscal quarter, in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with GAAP all in reasonable detail and certified as presenting fairly in accordance with GAAP the financial condition of the Borrower and -35- its Subsidiaries as of the end of such period and the results of operations for such period by a Senior Officer of such company, subject only to normal year-end accruals and audit adjustments and the absence of footnotes. (d) Quarterly SAP Statements. As soon as available, and in any event ------------------------ within the time period required by the applicable regulatory authority, copies of the unaudited SAP Financial Statements for each quarterly fiscal period of each Insurance Subsidiary, in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with SAP, all in reasonable detail and certified as presenting fairly in accordance with SAP the financial condition of such Insurance Subsidiary as of the end of such period and results of operations for such period by a Senior Officer of such Insurance Subsidiary, subject to normal year-end accruals and audit adjustments. (e) Annual/Quarterly Reports. Concurrently with the delivery of the ------------------------ financial statements required pursuant to subsections (a), (b), (c) and (d) of this Section, copies of all reports required to be filed with the Insurance Commissioner in connection with the filing of such financial statements. (f) Annual Forecasts. On or before March 1 of each year, a forecast ---------------- of the consolidated operations of the Borrower and its Subsidiaries and of the Statutory Surplus of each Insurance Subsidiary in each case in form satisfactory to the Bank, for the current fiscal year, together with a certificate of a Senior Officer that such forecasts have been prepared in good faith and on reasonable assumptions. (g) Management Letters. Promptly upon receipt thereof, copies of any ------------------ reports or management letters relating to the internal financial controls and procedures delivered to the Borrower or any of its Subsidiaries by any independent certified public accountant in connection with examination of the financial statements of the Borrower or any such Subsidiary. (h) SEC Filings. Promptly after the same are available, copies of ----------- each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the Securities and Exchange Commission under Sections 13 and 15(d) of the Securities and Exchange Act of 1934. (i) Notice of Litigation. Promptly after the commencement thereof, -------------------- notice of any action, suit and proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, against the Borrower or any of its Subsidiaries (A) not arising out of an insurance policy issued by the Borrower or any of its Subsidiaries, which, if determined adversely to the Borrower or such Subsidiary, would have a material adverse effect on the financial condition, operations, -36- Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements, (B) arising out of an insurance policy issued by any of the Subsidiaries of the Borrower, which demands relief, net of reinsurance obtained by the Borrower or its Subsidiaries with respect to such insurance policy, which, if determined adversely to the Borrower or such Subsidiary would have a material adverse effect on the financial condition, operations, Properties, business or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements, or (C) commenced by any creditor or lessor under any written credit agreement with respect to borrowed money or material lease which asserts a default thereunder on the part of the Borrower or any of its Subsidiaries. (j) Notices of Default. As soon as practicable and in any event ------------------ within fifteen (15) days after the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Borrower with respect thereto. (k) Actuarial Report Confirming Reserves. As soon as available, and ------------------------------------ in any event within ninety (90) days after the close of each fiscal year of the Borrower, a report confirming the adequacy of the SAP reserves of each Insurance Subsidiary from an actuarial firm of recognized national standing or the actuarial division of an accounting firm of recognized national standing acceptable to the Bank. (l) Other Filings. Promptly upon the filing thereof, copies of any ------------- reports or other communications required to be filed with the Insurance Commissioner in connection with the pledge by the Borrower of the Pledged Collateral (as defined in and pursuant to the Pledge Agreements); and at any time upon the reasonable request of the Bank, permit the Bank the opportunity to review copies of all reports, including annual reports, and notices which the Borrower or any Subsidiary files with or receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon as practicable and in any event within fifteen (15) days after the Borrower or any if its Subsidiaries knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC or the Borrower or any such Subsidiary has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, the Borrower will deliver to the Bank a certificate of a Senior Officer of the Borrower setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action the Borrower proposes to take with respect thereto. (m) Notice of Transactions. Promptly after knowledge thereof, written ---------------------- notice of the Borrower's decision (i) to not consummate either the acquisition of all of the stock of VASA North America or Seaboard or (ii) to not consummate the USF RE Sale. -37- (n) Additional Information. Such additional information as the Bank ---------------------- may reasonably request concerning the Borrower and its Subsidiaries and for that purpose all pertinent books, documents and vouchers relating to its business, affairs and Properties, including investments as shall from time to time be designated by the Bank. Section 6.9. Certificates. ------------ (a) Officers' Certificate. Simultaneously with each delivery of --------------------- financial statements pursuant to Section 6.8(a) and 6.8(c), the Borrower shall deliver to the Bank a certificate of its Chief Financial Officer which will (i) certify on behalf of the Borrower that such officer has reviewed the Agreement and the condition and transactions of the Borrower and its Subsidiaries for the period covered by such financial statements, and state that to the best of his knowledge the Borrower has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement, the Revolving Note and the Pledge Agreements, and no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) include information (with detailed calculations in the form set out in Exhibit C) required to establish whether the Borrower --------- was in compliance with the covenants set forth in this Agreement during the period covered by the financial statements then being delivered. (b) Accountant's Certificate. Simultaneously with each delivery of ------------------------ financial statements pursuant to Section 6.8(a), the Borrower will deliver to the Bank a certificate of the independent certified public accountants who certify such statements, stating whether, in the course of their audit of the financial statements, they obtained any knowledge of a condition or event which constitutes a Default or Event of Default and the nature thereof. Section 6.10. Further Assurances. The Borrower shall take all such ------------------ further actions and execute and file or record, at its own cost and expense, all such further documents and instruments as the Bank may at any time reasonably determine may be necessary or advisable; and shall do, execute, acknowledge, deliver, record, file, re-file, record, register and re-register any and all such further acts, deeds, conveyances, estoppel certificates, transfers, certificates, assurances and other instruments as the Bank may reasonably require from time to time in order to carry out more effectively the purposes of this Agreement, the Revolving Note and the Pledge Agreements. -38- Section 6.11. Compliance with Agreements. Promptly and fully comply -------------------------- with all contractual obligations under all agreements, mortgages, indentures, leases and/or instruments to which any one or more of the Borrower and its Subsidiaries is a party, whether such agreements, mortgages, indentures, leases or instruments are with the Bank or another Person, except where such failure to so comply would not have a material adverse effect on the business, financial condition, operations, Properties or, as far as the Borrower can reasonably foresee, prospects of the Borrower and its Subsidiaries taken as whole or the ability of the Borrower to carry out its obligations under this Agreement, the Revolving Note or the Pledge Agreements. Section 6.12. Use of Proceeds. Use the proceeds of the Revolving Loans --------------- only for the purposes described in Section 5.21. Section 6.13. Continental Agreements. The Borrower shall keep, observe ---------------------- and perform, or cause to be kept, observed and performed, prior to the expiration of the applicable grace period, if any, all of the terms, covenants, provisions and agreements of the Continental Agreements to be kept, observed and performed by USBENEFITS or USF RE thereunder. ARTICLE 7. NEGATIVE COVENANTS. During the term of this Agreement, and until performance, payment and/or satisfaction in full of the Obligations, the Borrower covenants and agrees that Borrower shall not, and shall not permit its Subsidiaries to, unless the Bank otherwise consents in writing: Section 7.1. Debt. Create, incur, assume or suffer to exist any Debt, ---- except: (a) Debt of the Borrower under this Agreement and the Revolving Note; (b) Debt permitted under Section 7.2 hereof; (c) Subordinated Debt of the Borrower; and (d) Debt of USF RE in connection with reimbursement agreements for letters of credit collateralizing reinsurance obligations of USF RE, provided the aggregate amount of such Debt does not exceed $1,000,000. Section 7.2. Guaranties, Etc. Assume, guarantee, endorse or otherwise --------------- be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, or to supply or advance any funds, or an agreement to cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any Person against loss) for the obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and except as disclosed on Schedule 7.2 hereof. ------------ -39- Section 7.3. Liens. Create, incur, assume or suffer to exist any Lien, ----- upon or with respect to any of its Properties, now owned or hereafter acquired, except: (a) Liens for taxes or assessments or other government charges or levies if not yet due and payable or if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; (b) Liens imposed by law, such as mechanic's, materialmen's, landlord's, warehousemen's and carrier's Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than forty-five 45 days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (c) Liens under workers' compensation, unemployment insurance, social security or similar legislation (other than ERISA); (d) judgment and other similar Liens arising in connection with court proceedings; provided that the execution or other enforcement of such -------- Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (e) easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the Property or assets encumbered thereby in the normal course of its business or materially impair the value of the Property subject thereto; (f) Liens referred to in Schedule 5.6; and (g) Liens consisting of pledges or deposits of Property to secure performance in connection with operating leases made in the ordinary course of business to which Borrower or a Subsidiary is a party as lessee, provided the aggregate value of all such pledges and deposits -------- in connection with any such lease does not at any time exceed 15% of the annual fixed rentals payable under such lease. Section 7.4. Investments. Permit the total consolidated Investment in ----------- Investment Grade Securities of all Insurance Subsidiaries of the Borrower, as of the end of any fiscal quarter, to be less than ninety-five percent (95%) of the aggregate amount of Total Invested Assets. Section 7.5. Mergers and Consolidations and Acquisitions of Assets. ----------------------------------------------------- Merge or consolidate with any Person (whether or not Borrower or any Subsidiary is the surviving entity), or acquire all or substantially all of the assets or any of the capital stock of any Person; provided -------- -40- that any Subsidiary (other than any Insurance Subsidiary) may merge into the Borrower or any other Subsidiary, and the Borrower may merge with or acquire the assets of another Person if (a) after giving effect to such transaction, (i) the Borrower is the corporation which survives such merger or acquisition, and (ii) no Default or Event of Default would exist, and (b) the aggregate purchase price and other consideration paid or payable by the Borrower for all such mergers and/or acquisitions shall not exceed $15,000,000 in the aggregate during the term of this Agreement. Section 7.6. Sale of Assets. Sell, lease or otherwise dispose of all or -------------- substantially all of its assets, including through any reinsurance arrangements, except in the ordinary course of business; provided, however, the Borrower may -------- ------- complete the USF RE Sale if (i) no Default or Event of Default exists at the time of such USF RE Sale or would result therefrom and ii) the Borrower complies with the requirements of Section 2.5 and all other provisions of this Agreement. Section 7.7. Stock of Subsidiaries, Etc. Pledge, assign, hypothecate, -------------------------- transfer, convey, sell or otherwise dispose of, encumber or grant any security interest in, or deliver to any other Person, any shares of capital stock of its Subsidiaries, or permit any such Subsidiaries to issue any additional shares of its capital stock to any Person other than the Borrower or any Subsidiaries, except (i) directors' qualifying shares, (ii) pursuant to the Pledge Agreements and (iii) pursuant to Section 7.6. Section 7.8. Transactions with Affiliates. Enter into any transaction ---------------------------- of any kind with any Affiliate of the Borrower, or any Person that owns or holds 5% or more of the outstanding common stock of the Borrower, other than (a) transactions between or among Borrower and its wholly owned Subsidiaries or between or among its wholly owned Subsidiaries or (b) transactions on terms at least as favorable to the Borrower or its Subsidiaries as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power. Section 7.9. Capital Expenditures. Make or permit to be made any -------------------- Capital Expenditure in any fiscal year, or commit to make any Capital Expenditure in any fiscal year, which when added to the aggregate Capital Expenditures of the Borrower and its Subsidiaries theretofore made or committed to be made in that fiscal year, would exceed $2,500,000. The Bank agrees to consider any request of the Borrower to modify this covenant to the extent necessary to permit it to buy or construct a building for its offices, it being understood, however, that while the Bank shall be under no obligation whatsoever to grant any such request, the Bank shall not unreasonably deny same. Section 7.10. Minimum Statutory Surplus. (a) As of the end of any ------------------------- fiscal quarter prior to the USF RE Sale, permit Statutory Surplus of USF RE to be less than an amount equal to the -41- sum of (i) $80,000,000 plus (ii) 75% of any positive Statutory Net Income, after dividends to the Borrower, for each fiscal quarter following the fiscal quarter ending December 31, 1995, plus (iii) any contributions to surplus made by the Borrower to USF RE, from Revolving Loans or otherwise, during each fiscal quarter following the fiscal quarter ending December 31, 1995. (b) Upon consummation of the Acquisition, as of the end of any fiscal quarter, permit the combined Statutory Surplus of VASA North Atlantic and Seaboard to be less than an amount equal to the sum of (i) $42,500,000 plus (ii) 75% of any positive Statutory Net Income of VASA North Atlantic and Seaboard, after dividends to the Borrower, for each fiscal quarter following the fiscal quarter ending June 30, 1999, plus (iii) any contributions to surplus made by the Borrower to VASA North Atlantic or Seaboard, as applicable, from Revolving Loans or otherwise, during each fiscal quarter following the fiscal quarter ending June 30, 1999. Section 7.11. Minimum Consolidated GAAP Net Worth. As of the end of any ----------------------------------- fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and its Subsidiaries to be less than an amount equal to the sum of (a) $100,000,000, plus (b) 50% of cumulative positive net income (as determined in accordance with GAAP) for each fiscal quarter following the fiscal quarter ending June 30, 1998, plus (c) the amount of paid-in capital resulting from any issuance by the Borrower of its capital stock after December 28, 1998. Section 7.12. Maximum Premiums to Surplus. As of the end of each fiscal --------------------------- quarter, permit the ratio of combined Net Premiums Written of all of the Insurance Subsidiaries of the Borrower for the immediately preceding four fiscal quarters (ending on such date) to combined Statutory Surplus of such Insurance Subsidiary at the end of such fiscal quarter to be greater than the following: 3.0 to 1 at the end of the first fiscal quarter of each year and 2.0 to 1 at the end of the second, third and fourth fiscal quarters of each fiscal year. Section 7.13. [Reserved] Section 7.14. Minimum Interest Coverage. As of the end of each fiscal ------------------------- quarter during the periods set forth below, for each Insurance Subsidiary, permit the ratio of (a) the sum of (i) Available Dividends, minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters (ending on such date), plus (ii) an amount equal to the aggregate consolidating GAAP EBIT of the Borrower and all Subsidiaries (eliminating intercompany balances and transactions, as applicable), except the Insurance Subsidiaries, for the immediately preceding four fiscal quarters (ending on such date) to (b) Interest Expense for the immediately succeeding four fiscal quarters (beginning on such date) to be less than (i) 2.0 to 1 for the fiscal year ending December 31, 1995, and (ii) 3.0 to 1 for each fiscal year thereafter. For purposes of clause (b) above, Interest Expense shall be calculated on the assumption that Base Rate Loans for the full amount of the Commitment will be outstanding for the succeeding four fiscal quarters and the A.M. Best Rating of all Insurance Subsidiaries on the date of the certification required by Section 6.9(a) with respect to the fiscal quarter being tested will remain in effect for the succeeding four fiscal quarters. -42- Section 7.15. Minimum Fixed Charge Coverage. As of the end of each ----------------------------- fiscal quarter during the periods set forth below, for each Insurance Subsidiary, permit the ratio of (a) the sum of (i) Available Dividends, minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters (ending on such date), plus (ii) an amount equal to the aggregate consolidating GAAP EBIT of the Borrower and all Subsidiaries (eliminating intercompany balances and transactions, as applicable), except Insurance Subsidiaries, for the immediately preceding four fiscal quarters (ending on such date) to (b) Fixed Charges for the immediately succeeding four fiscal quarters (beginning on such date) to be less than (i) 1.5 to 1 for the fiscal year ending December 31, 1995, and (ii) 1.7 to 1 for each fiscal year thereafter. For purposes of clause (b) above, Interest Expense shall be calculated on the assumption that Base Rate Loans for the full amount of the Commitment will be outstanding for the succeeding four fiscal quarters and the A.M. Best Rating of all Insurance Subsidiaries on the date of the certification required by Section 6.9(a) with respect to the fiscal quarter being tested will remain in effect for the succeeding four fiscal quarters. Section 7.16. Minimum Debt Service Coverage. As of the end of each ----------------------------- fiscal quarter, permit the Debt Service Coverage Ratio for each Insurance Subsidiary for the immediately preceding four fiscal quarters (ending on such date) to be less than 1.5 to 1.0. Section 7.17. Distributions. In any fiscal year make any Distributions ------------- from net income of the Borrower (as determined in accordance with GAAP), other than Distributions from time to time up to an aggregate amount not to exceed 33- 1/3% of consolidated positive net income of the Borrower and its Subsidiaries (determined in accordance with GAAP) for such fiscal year. Section 7.18. Risk-Based Capital Ratio. As at any date, permit the ------------------------ Risk-Based Capital Ratio of the Insurance Subsidiaries, on a combined basis, as at such date to be less than 200%. In the event of any change after the date of this Agreement in the NAIC Risk-Based Capital (RBC) for Insurers Model Act or NAIC's interpretations thereof affecting the calculation of the Risk-Based Capital Ratio, (a) the Borrower and the Bank agree to enter into good faith negotiations to amend this Agreement in such respects as are necessary to conform this Section 7.18 as a measurement of the sufficiency of the Insurance Subsidiaries' risk-based capital to substantially the same measurement as was effective prior to such change and (b) the Borrower shall be deemed to be in compliance with this Section 7.18 during the 60 days following any such change if and to the extent that the Insurance Subsidiaries on a combined basis would have been in compliance therewith under said Act and interpretations as in effect immediately prior to such change; provided, however, if an amendment shall not be agreed upon within 60 days or such longer period as shall be agreed to by the Bank, for purposes of determining compliance with this Section 7.18 until such amendment shall be agreed upon, compliance shall be determined in accordance with said Act and interpretations as in effect on the Closing Date. Section 7.19. Minimum A.M.Best Rating. Permit the A.M. Best Rating of ----------------------- USF RE (until the USF RE Sale), VASA North Atlantic (upon consummation of the Acquisition) or Seaboard (upon consummation of the Acquisition) to be less than "A-" at any time. -43- Section 7.20. Continental Agreements. Permit the cancellation, ---------------------- surrender, termination, amendment or modification of the Continental Agreements or the expiration of the Continental Agreements unless, on or before the expiration date thereof, a replacement agreement is entered into by the Borrower and/or its Subsidiaries in form and content satisfactory to the Bank in the exercise of the Bank's reasonable discretion. Section 7.21. Debt to Capital Ratio. Permit the consolidated Debt of --------------------- the Borrower and its Subsidiaries to exceed 45% of Total Capitalization during the period December 28, 1998 to and including June 30, 1999 or 35% of Total Capitalization after June 30, 1999. ARTICLE 8. EVENTS OF DEFAULT.ARTICLE 8. Section 8.1. Events of Default. Any of the following events shall be an ----------------- "Event of Default": (a) the Borrower shall fail to pay any principal amount when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, or Borrower shall fail to pay any premium or interest, or any fees or other amounts payable hereunder, within five days after the date due; (b) any written statement, representation or warranty made by the Borrower in this Agreement, or the Revolving Note or the Pledge Agreements, or which is contained in any certificate, document, financial or other written statement furnished at any time under or in connection with this Agreement, the Revolving Note or the Pledge Agreements shall prove to have been incorrect in any material respect on or as of the date made; (c) the Borrower shall (i) fail to perform or observe any term, covenant, or agreement contained in Section 5.21, Section 6.8(i) or Article 7; or (ii) fail to perform or observe any term, covenant, or agreement on its part to be performed or observed (other than the obligations specifically referred to elsewhere in this Section 8.1) in this Agreement (including without limitation any such term, covenant or agreement contained in Article 6 hereof), the Pledge Agreements or the Revolving Note and such failure shall continue unremedied for 30 consecutive days. The Bank shall use reasonable efforts to give the Borrower notice of any Default or Event of Default under this Section 8.1(c); provided, however, that failure to give any such notice shall -------- ------- not impair or otherwise adversely affect the Bank's rights and remedies hereunder; (d) the Borrower or any Subsidiary shall (i) fail to pay any indebtedness, including but not limited to indebtedness for borrowed money (other than the payment Obligations described in (a) above), of the Borrower or such Subsidiary, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required -44- prepayment, acceleration, demand or otherwise); or (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed and such failure continues after any applicable notice and grace period, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of the maturity of such indebtedness, or (iii) any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; provided, however, -------- ------- that it shall not be a Default or Event of Default under this Section 8.1(d) unless the aggregate principal amount of all such indebtedness as described in clauses (i) through (iii) above shall exceed $500,000; (e) the Borrower or any Subsidiary (i) shall generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors or petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding shall have been commenced against it in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed for a period of sixty (60) days or more; or (v) shall be the subject of any proceeding under which its assets may be subject to seizure, forfeiture or divestiture (other than a proceeding in respect of a Lien permitted under Section 7.3(a)); or (vi) by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its Property; or (vii) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; (f) (A) Any Insurance Commissioner or any other head of any insurance regulatory authority and/or such insurance regulatory authority shall apply for an order pursuant to any section of the applicable insurance code directing the rehabilitation, conservation or liquidation of any Insurance Subsidiary, and any such application shall not be dismissed or otherwise terminated during a period of 60 consecutive days, or a court of competent jurisdiction shall enter an order granting the relief sought; or (B) any Insurance Commissioner or any other head of any insurance regulatory authority and/or such insurance regulatory authority shall file a complaint or petition pursuant to any applicable insurance code seeking the dissolution of any Insurance Subsidiary, and such complaint or petition is not dismissed or otherwise terminated for a period of 60 consecutive days, or a court of competent jurisdiction shall order the dissolution of any Insurance Subsidiary; -45- (g) one or more judgments, decrees or orders for the payment of money in excess of $500,000 in the aggregate shall have been rendered against the Borrower or any of its Subsidiaries (excluding judgments which are covered by insurance other than self-insurance and excluding judgments rendered against any Insurance Subsidiary which judgments have been both (i) rendered in the ordinary course of business in connection with its insurance and reinsurance obligations, and (ii) adequately reserved against) and such judgments, decrees or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (h) any of the following events shall occur or exist with respect to the Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any Reportable Event shall occur with respect to any Plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan (other than in a "standard termination" referred to in Section 4041 of ERISA); (iv) any event or circumstance exists which would constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer any Plan, or the institution by the PBGC of any such proceedings; (v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other such events or conditions, if any, would in the reasonable opinion of the Bank subject the Borrower to any tax, penalty or other liability to a Plan, Multiemployer Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate exceed or may exceed $250,000; (i) this Agreement, the Revolving Note or the Pledge Agreements shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Borrower or the Borrower shall deny it has any further liability or obligation hereunder; (j) any event occurs which gives the holder or holders of any Subordinated Debt (or an agent or trustee on its or their behalf) the right to declare such indebtedness due before the date on which it otherwise would become due, or the right to require the issuer thereof to redeem or purchase, or offer to redeem or purchase, all or any portions of any Subordinated Debt; (k) any determination is made by a court of competent jurisdiction that payment of principal or interest or both shall be made to the holder of any Subordinated Debt which would not be permitted by this Agreement or that any obligation with respect to Subordinated Debt is not subordinated in accordance with its terms to the Obligations; or -46- (l) the Borrower shall be in default under either of the Pledge Agreements. Section 8.2. Remedies. Without limiting any other rights or remedies of -------- the Bank provided for elsewhere in this Agreement, the Revolving Note or the Pledge Agreements, or by applicable law, or in equity, or otherwise, if any Event of Default shall occur and be continuing, the Bank may by notice to the Borrower, (i) declare the Commitment to be terminated, whereupon the same shall forthwith terminate, (ii) declare all amounts owing under this Agreement and the Revolving Note (whether or not such Obligations be contingent or unmatured) to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that, in the case of an Event of Default referred to in Section 8.1(e) and Section 8.1(f) above with respect to the Borrower, the Commitment shall be immediately terminated, and all such amounts shall be immediately due and payable without notice, presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. NOTWITHSTANDING THE FOREGOING, THE BANK SHALL NOT SELL, VOTE OR IN ANY MANNER EXERCISE CONTROL OVER THE PLEDGED COLLATERAL (AS DEFINED IN EACH OF THE PLEDGE AGREEMENTS) OF THE BORROWER WITHOUT OBTAINING, TO THE EXTENT REQUIRED BY LAW, THE PRIOR APPROVAL (INCLUDING ANY HEARING REQUIRED BY LAW) OF THE MASSACHUSETTS DIVISION OF INSURANCE OR INDIANA DEPARTMENT OF INSURANCE. ARTICLE 9. MISCELLANEOUS9. Section 9.1. Amendments and Waivers. Amendments and Waivers. No ---------------------- amendment or waiver of any provision of this Agreement, the Revolving Note or the Pledge Agreements nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 9.2. Usury. Anything herein to the contrary notwithstanding, ----- the Obligations of the Borrower with respect to this Agreement and the Revolving Note shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to the Bank limiting rates of interest which may be charged or collected by the Bank. Section 9.3. Expenses; Indemnities. --------------------- (a) Unless otherwise agreed in writing, the Borrower shall reimburse the Bank on demand for all reasonable costs, expenses and charges (including without limitation, reasonable -47- fees and charges of Day, Berry & Howard LLP (with appropriate detail) in accordance with the letter between the Borrower and the Bank dated November 4, 1994) incurred by the Bank in connection with the preparation, filing and recording of this Agreement, the Revolving Note or the Pledge Agreements. The Borrower further agrees to pay the Bank on demand for all reasonable costs, expenses and charges (including without limitation, reasonable fees and charges of external legal counsel for the Bank and costs allocated by the Bank's internal legal department) incurred by the Bank in connection with the performance, modification and amendment of this Agreement, the Revolving Note or the Pledge Agreements provided, however, that Borrower shall not be liable for -------- ------- any such costs allocated by the Bank's internal legal department arising prior to the date of the first Borrowing pursuant to a Notice of Borrowing. The Borrower further agrees to pay on demand all reasonable costs and expenses (including reasonable counsel fees and expenses), if any, in connection with the enforcement, including without limitation, the enforcement of judgments (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Revolving Note or the Pledge Agreements or any other document to be delivered under this Agreement. Until paid, the amount of any cost, expense or charge shall constitute, together with all accrued interest thereon, part of the Obligations. (b) The Borrower hereby agrees to indemnify the Bank upon demand at any time, against any and all losses, costs or expenses which the Bank may at any time or from time to time sustain or incur as a consequence of (i) any failure by the Borrower to pay, punctually on the due date thereof, any amount payable by the Borrower to the Bank or (ii) the acceleration, in accordance with the terms of this Agreement, of the time of payment of any of the Obligations of the Borrower. Such losses, costs or expenses may include, without limitation, (i) any costs incurred by the Bank in carrying funds to cover any overdue principal, overdue interest, or any other overdue sums payable by the Borrower to the Bank or (ii) any losses incurred or sustained by the Bank in liquidating or reemploying funds acquired by the Bank from third parties, except to the extent caused by the Bank's gross negligence or willful misconduct. (c) The Borrower agrees to indemnify the Bank and its directors, officers, employees, agents and Affiliates from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, costs or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to any transaction contemplated by this Agreement or the Pledge Agreements, any actions or omissions of the Borrower or any Subsidiary or any of their respective directors, officers, employees or agents in connection with this Agreement, or any actual or proposed use by the Borrower or any Subsidiary of the proceeds of the Revolving Loans, including without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). -48- (d) The Borrower agrees to indemnify the Bank and its directors, officers, employees, agents and Affiliates from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, costs or expenses (including without limitation, reasonable fees and disbursements of counsel, engineers or similar professionals) which may be incurred by or asserted against the Bank or any such party in connection with or arising out of or relating to (i) the Bank's compliance with any environmental law with respect to the Properties or operations of the Borrower or its Subsidiaries, (ii) any natural resource damages, governmental fines or penalties or other amounts mandated by any governmental authority, court order, demand or decree in connection with the disposal by the Borrower or its Subsidiaries either on-site or off-site (including leakage or seepage from any such site including third party treatment facilities) of pollutants, contaminants or hazardous wastes and (iii) any personal injury or property damage to third parties resulting from such pollutants, contaminants or hazardous wastes. Section 9.4. Term; Survival. This Agreement shall continue in full -------------- force and effect as long as any Obligations are owing by the Borrower to the Bank. No termination of this Agreement shall in any way affect or impair the rights and obligations of the parties hereto relating to any transactions or events prior to such termination date, and all warranties and representations of the Borrower shall survive such termination. All representations and warranties made hereunder and in any document, certificate, or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement, the Revolving Note or the Pledge Agreements. The obligations of the Borrower under Sections 2.11, 2.12 and 9.3 shall survive the repayment of the Revolving Loans and the termination of the Commitment. Section 9.5. Assignment; Participations. This Agreement shall be -------------------------- binding upon, and shall inure to the benefit of, the Borrower, the Bank and their respective successors and assigns, except that the Borrower may not assign or transfer its rights or obligations hereunder. Subject to the consent of any Insurance Commissioner, if required, the Bank may sell participations in, or upon ten (10) days' notice to the Borrower may assign all or any part of, any Revolving Loan to another lender, in which event (a) in the case of an assignment, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were the Bank hereunder; and (b) in the case of a participation, the participant shall have no rights under this Agreement, the Revolving Note or the Pledge Agreements. The agreement executed by the Bank in favor of the participant shall not give the participant the right to require the Bank to take or omit to take any action hereunder except action directly relating to (i) the extension of a regularly scheduled payment date with respect to any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (ii) the reduction of the principal amount allocated to such participant or (iii) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the participant is entitled to receive under its agreement with the Bank. The Bank may furnish any information concerning the Borrower in the possession of the Bank from time to time to assignees and participants (including prospective assignees and participants); provided that the Bank shall require any such -------- -49- prospective assignee or such participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. Section 9.6. Notices. All notices, requests, demands and other ------- communications provided for herein shall be in writing and shall be (i) hand delivered; (ii) sent by certified, registered or express United States mail, return receipt requested, or reputable next-day courier service; or (iii) given by telex, telecopy, telegraph or similar means of electronic communication. All such communications shall be effective upon the receipt thereof. Notices shall be addressed to the Borrower and the Bank at their respective addresses set forth on the signature pages of this Agreement, or to such other address as the Borrower or the Bank shall theretofore have transmitted to the other party in writing by any of the means specified in this Section. Section 9.7. Setoff. The Borrower agrees that, in addition to (and ------ without limitation of) any right of setoff, banker's lien or counterclaim the Bank may otherwise have, the Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final, and regardless of whether such balances are then due to the Borrower) held by it for the account of the Borrower at any of the Bank's offices, in Dollars or in any other currency, against any amount payable by the Borrower under this Agreement, the Revolving Note or the Pledge Agreements which is not paid when due, taking into account any applicable grace period, in which case it shall promptly notify the Borrower thereof; provided that the Bank's failure to give such notice shall -------- not affect the validity thereof. Section 9.8. Jurisdiction; Immunities. ------------------------ (a) The Borrower hereby irrevocably submits to the jurisdiction of any Connecticut State or United States Federal court sitting in Connecticut over any action or proceeding arising out of or relating to this Agreement, the Revolving Note or the Pledge Agreements, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Connecticut State or Federal court. The Borrower irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 9.6. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Borrower further waives any objection to venue in such State and any objection to an action or proceeding in such State on the basis of forum non conveniens. The Borrower further agrees that any action or proceeding brought against the Bank shall be brought only in Connecticut State or United States Federal courts sitting in Connecticut. (b) Nothing in this Section shall affect the right of the Bank to serve legal process in any other manner permitted by law or affect the right of the Bank to bring any action or proceeding against the Borrower or its Property in the courts of any other jurisdictions. -50- Section 9.9. Table of Contents; Headings. Any table of contents and --------------------------- the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 9.10. Severability. The provisions of this Agreement are ------------ intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. Section 9.11. Counterparts. This Agreement may be executed in any ------------ number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. Section 9.12. Integration. This Agreement, the Revolving Note and the ----------- Pledge Agreements set forth the entire agreement between the parties hereto relating to the transactions contemplated hereby and thereby and supersede any prior oral or written statements or agreements with respect to such transactions. Section 9.13. Governing Law. This Agreement shall be governed by, and ------------- interpreted and construed in accordance with, the laws of the State of Connecticut except to the extent that the remedies under the Pledge Agreements in respect of the Pledged Collateral are governed by the laws of the State of California, the Commonwealth of Massachusetts or the State of Indiana. Section 9.14. Confidentiality. Subject to the following sentence, the --------------- Bank and any assignee of the Bank becoming a party to this Agreement agrees to use its best efforts, consistent with its normal operating procedures, to retain in confidence and not disclose without the prior written consent of the Borrower any written information about the Borrower and its Subsidiaries obtained pursuant to the requirements of this Agreement and identified in writing by the Borrower as "non-public," except as permitted under Section 9.5 of this Agreement. Notwithstanding the foregoing, the Bank (A) may disclose or otherwise use such information to the extent that such information is required in any application, report, statement or testimony submitted to any governmental agency having or claiming to have jurisdiction over the Bank, (B) may disclose or otherwise use such information to the extent that such information is required in response to any summons or subpoena or in connection with any litigation relating to the Revolving Loans, (C) may disclose or otherwise use such information to the extent that such information is reasonably believed by the Bank (after notification to the Borrower, unless such notification is prohibited by law) to be required in order to comply with any law, order, regulation, or ruling applicable to the Bank, and (D) may disclose or otherwise use such information to the extent that such information becomes publicly available. -51- Section 9.15. Authorization of Third Parties to Deliver Opinions, Etc. ------------------------------------------------------- The Borrower hereby authorizes and directs each Person whose preparation or delivery to the Bank of any opinion, report or other information is a condition or covenant under this Agreement (including under Articles 5, 6 and 7) to so prepare or deliver such opinion, report or other information for the benefit of the Bank. The Borrower agrees to confirm such authorizations and directions provided for in this Section 9.15 from time to time as may be requested by the Bank. Section 9.16. Borrower's Waivers. THE BORROWER ACKNOWLEDGES THAT IT HAS ------------------ BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT AND THAT IT MAKES THE FOLLOWING WAIVERS KNOWINGLY AND VOLUNTARILY: (a) THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE REVOLVING NOTE, THE PLEDGE AGREEMENTS OR ANY OF THE BORROWER'S DOCUMENTS RELATED THERETO AND THE ENFORCEMENT OF ANY OF THE BANK'S RIGHTS AND REMEDIES. (b) THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS AGREEMENT IS DELIVERED AS PART OF A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND DEFINED IN CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES AND VOLUNTARILY AND KNOWINGLY WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON IT UNDER CHAPTER 903a OF SAID STATUTES (OR ANY OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO ANY NOTICE OR HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY USE. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THE REVOLVING LOANS. Section 9.17. State of Making and Substantial Performance. The parties ------------------------------------------- hereto agree that this Agreement is being made and is to be substantially performed in the State of Connecticut. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -52- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. THE CENTRIS GROUP, INC. By:___________________ Print Name: Print Title: Address for Notices: 650 Town Center Drive Suite 1600 Costa Mesa, CA 92626 Attn: Charles M. Caporale, Senior Vice President, Chief Financial Officer and Treasurer and Jose A. Velasco Senior Vice President, General Counsel and Secretary Telecopier No.: (714) 434-0750 With a copy to: Rodney W. Loeb, Esq. R.W. Loeb, Professional Law Corporation 865 South Figueroa Street Suite 2500 Los Angeles, CA 90017-2567 Telecopier No.: (213) 892-1066 -53- FLEET NATIONAL BANK By:_________________________ Name: Title: Address for Notices: Financial Institutions Group 777 Main Street, MSN 250 Hartford, CT 06115 Attn: David A. Albanesi Telecopier No.: (860) 986-1264 With a copy to: Richard C. MacKenzie, Esq. Day, Berry & Howard LLP CityPlace I Hartford, CT 06103-3499 Telecopier No.: (860) 275-0343 -54- SCHEDULE 1.1 COMMITMENTS AND LENDING OFFICES ------------------------------- Percentage Name and Address of Type of of Bank Commitment Commitments Loans ---------------- ---------- ----------- ------- Fleet National Bank, Revolving Loans 100% Base Rate 777 Main Street $75,000,000 Eurodollar Rate Hartford, Connecticut 06115 CD Rate SCHEDULE 5.4 LITIGATION ---------- There are no actions, suits, proceedings or investigations which are required to be reported or disclosed pursuant to Section 5.4 of Exhibit A to the Fifth Amendment to the Credit Agreement. SCHEDULE 5.6 LIENS ----- There are no liens required to be reported pursuant to Section 5.6 of Exhibit A to the Fifth Amendment to the Credit Agreement.
State of Number of Percent Name Incorporation Shares Owned Owner Owned ---- ------------- ------------ ----- ----- USF RE INSURANCE COMPANY Massachusetts 50,000 Borrower 100% US Holding, Inc. Delaware 1,000 USF RE 100% USF Insurance Company Pennsylvania 150,000 US Holdings 100% USFBenefits Insurance Service, Inc. California 1,000 Borrower 100% US Health Management Corporation California 1,000 Borrower 100% US MedCare Review, Inc. Illinois 1,000 Interra, Inc. 100% Interra, Inc. Indiana 1,000 Interra, Inc. 100% Interra Reinsurance Group, Inc. Indiana 3,000 Interra, Inc. 100% Centris Risk Management, Inc. Indiana 1,000 Interra, Inc. 100% *Seaboard Life Insurance Company (USA) Indiana 250 Borrower 100% *VASA North America, Inc. ("VNA") Indiana 11,258 Borrower 100% *VASA North Atlantic Insurance Company Indiana 1,000 VASA Ins. 94% Group 64 VASA Ins. 6% Brougher *VASA Insurance Group, Inc. Indiana 3,353,295 VNA 100% *VASA Brougher, Inc. Indiana 1,000 VSA Ins. 100% Group *Select Benefits, Inc. Indiana 510 VASA Ins. 100% Group
SCHEDULE 5.10 CREDIT ARRANGEMENTS ------------------- In the normal course of USF RE INSURANCE COMPANY's ("USF RE") reinsurance business, companies that cede insurance to USF RE sometimes ask USF RE to secure its potential liabilities with either letters of credit or "funds held" or a "trust" into which USF RE deposits some of its portfolio securities in trust for the ceding companies. In some cases, especially in jurisdictions where USF RE is not an admitted carrier, such an arrangement is necessary so that the ceding company can take credit for its ceded reinsurance liabilities on its annual statement. Such liabilities to ceding companies, which are not considered to be contingent liabilities, are stated in USF RE's regular financial statements, and are included in the consolidated financing statements of the Borrower. The aggregate amount of USF RE's assets which are held under these types of arrangements as of September 30, 1998 is $29,461,000. Other than as described hereinabove, there are no other credit arrangements required to be reported pursuant to Section 5.10 of Exhibit A to the Fifth Amendment to the Credit Agreement. SCHEDULE 5.15 CONSENTS AND APPROVALS ---------------------- Apart from the approval obtained from the Division of Insurance of the Commonwealth of Massachusetts and the Department of Insurance of the State of Indiana, no other consents or approvals are required in connection with the execution, delivery and performance by Borrower with respect to the Credit Agreement, the Revolving Note, the Pledge Agreements or the Acknowledgment and Ratification of the Pledge Agreement. SCHEDULE 5.16 PARTNERSHIPS ------------ As part of its investment portfolio, during the fourth quarter of 1989 USF RE INSURANCE COMPANY acquired 2.448 limited partnership units of Financial Securities Fund, L.P. The partnership has sold all of its assets and is currently in liquidation, which is scheduled to be completed by year-end 1998. The collection of certain contingent assets held by the partnership may subsequently produce a payment of an immaterial amount to USF RE INSURANCE COMPANY. SCHEDULE 7.2 GUARANTIES ---------- There are no assumptions, guarantees, endorsements, other contingent responsibilities or liabilities for obligations of any person which are required to be reported or disclosed pursuant to Section 7.2 of Exhibit A to the Fifth Amendment to the Credit Agreement. EXHIBIT A REVOLVING NOTE $75,000,000 Hartford, Connecticut ___________, 1998 THE CENTRIS GROUP, INC., formerly known as US Facilities Corporation (the "Borrower"), for value received, hereby unconditionally promises to pay to the order of FLEET NATIONAL BANK, a national banking association, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank") at its office located at 777 Main Street, Hartford, Connecticut 06115, for the account of the appropriate Lending Office of the Bank, the principal sum of SEVENTY-FIVE MILLION AND NO/100 Dollars ($75,000,000) or, if less, the unpaid principal amount loaned by the Bank to the Borrower pursuant to the Agreement referred to below, in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in said Agreement. The Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, at said principal office for the account of said Lending Office, in like money, at the rates of interest, on the date(s) and in the manner provided in said Agreement; and to pay interest on any overdue principal and interest at the Default Rate. The date, type, amount and maturity date of each Revolving Loan made by the Bank to the Borrower under the Agreement referred to below, and each payment of principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Revolving Note (or, at the discretion of the Bank, at any other time), endorsed by the Bank on the schedule attached hereto or any continuation thereof or otherwise recorded and maintained in its internal records. This is the Revolving Note referred to in that certain Credit Agreement (as amended from time to time, the "Agreement") dated as of December 20, 1994 and amended and restated by the Fifth Amendment to the Credit Agreement dated as of December 28, 1998 between the Borrower and the Bank and evidences the Revolving Loans made by the Bank thereunder and is secured by the Pledge Agreements as set forth in the Agreement and is entitled to the benefits thereof. All terms not defined herein shall have the meanings given to them in the Agreement. The Agreement provides for the acceleration of the maturity of this Revolving Note upon the occurrence of certain Events of Default and for prepayments on the terms and conditions specified therein. The Borrower waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Revolving Note. No waiver of any right or remedy under this Revolving Note shall in any event be effective unless the same shall be in writing and signed by the Bank and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. In accordance with the provisions of the Agreement, the Borrower shall reimburse the Bank on demand for all reasonable costs, expenses and charges (including without limitation, reasonable fees and charges of external legal counsel for the Bank and costs allocated by the Bank's internal legal department) incurred by the Bank in connection with the preparation, performance or enforcement of this Revolving Note. This Revolving Note shall be binding on the Borrower and its permitted successors and assigns and shall inure to the benefit of the Bank and its permitted successors and assigns, provided that the Borrower may not delegate -------- any obligations hereunder without the prior written consent of the Bank. This Revolving Note shall be governed by, and interpreted and construed in accordance with, the laws of the State of Connecticut. THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THE REVOLVING LOANS EVIDENCED HEREBY ARE PART OF A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND DEFINED IN CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON IT UNDER CHAPTER 903a OF SAID STATUTES (OR ANY OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO ANY NOTICE OR HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY USE. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THE REVOLVING LOANS. IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to be duly executed as of the day and year first above written. THE CENTRIS GROUP, INC. By:_______________________________ Print Name: Print Title: -2- Schedule to ----------- Revolving Note -------------- REVOLVING LOANS AND PAYMENTS ---------------------------- Amount and Payments Unpaid Type of Maturity Principal/ Principal Notation Date Loan Date Interest Balance By - ---- ---------- -------- ---------- --------- -------- ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ ______ _________ ________ __________ _________ ________ EXHIBIT B Notice of Borrowing ------------------- _________, 19__ Fleet National Bank 777 Main Street Hartford, Connecticut 06115 Attention: Financial Institutions Group Re: Credit Agreement dated as of December 20, 1994 (as amended, the "Agreement") between The Centris Group, Inc., formerly known as US Facilities Corporation (the "Borrower"), and Fleet National Bank, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut Ladies and Gentlemen: Pursuant to Section 2.3 of the Agreement, the undersigned Borrower hereby gives you irrevocable notice that the Borrower requests a Revolving Loan under the Agreement, and in that connection Borrower sets forth below the information relating to such Revolving Loan: Borrowing Date: ___________ Aggregate Principal Amount: ___________ Type of Loan (Base Rate, Eurodollar, or CD Rate): ___________ Interest Period: ___________ As required by Section 4.2 of the Agreement, the undersigned officer on behalf of the Borrower hereby certifies that: (a) the representations and warranties contained in Article 5 of the Agreement are true and correct in all material respects on and as of the date hereof (or, if such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (b) the Borrower has performed and complied with and is in compliance with all of the terms, covenants and conditions of the Agreement; (c) there does not exist any Default or Event of Default under the Agreement; and (d) each of the other conditions precedent set forth in Section 4.2 have been satisfied and complied with. All capitalized terms used in this notice not otherwise defined herein shall have the same meaning as assigned to them in the Agreement. THE CENTRIS GROUP, INC. By:__________________________ Print Name: Print Title: -2- EXHIBIT C OFFICER'S CERTIFICATE THE CENTRIS GROUP, INC. ______ __, 199_ Pursuant to Section 6.9(a) of the Credit Agreement dated as of December 20, 1994 (as amended, the "Credit Agreement") between The Centris Group, Inc., formerly known as US Facilities Corporation (the "Borrower"), and Fleet National Bank, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank"), I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that: 1. I am the duly elected, qualified and acting Chief Financial Officer of the Borrower; and 2. Attached hereto as Attachment 1 is a true and correct copy of the consolidated and consolidating SAP and GAAP financial statements of the Borrower and its Subsidiaries as of the close of the fiscal [YEAR/QUARTER] ending __________, 199_; and 3. I have reviewed the Credit Agreement and the condition and transactions of the Borrower and its Subsidiaries for the fiscal [YEAR/QUARTER] ending _____, 199_, and to the best of my knowledge the Borrower has observed and performed all of its covenants and other agreements, and satisfied every condition contained in the Credit Agreement and the Revolving Note, and I have not obtained knowledge of any condition or event which constitutes a Default or an Event of Default, except as set forth on Attachment 2 attached hereto; and 4. Attached hereto as Attachment 3 is true and correct information (with detailed calculations) establishing that the Borrower was in compliance with the covenants set forth in the Credit Agreement during the fiscal [YEAR/QUARTER] ending __________ ___, 199_. Except as otherwise defined herein, terms used herein shall have the meanings set forth in the Credit Agreement, pursuant to which this certificate is delivered. IN WITNESS WHEREOF, I have signed this certificate as of the date hereof on behalf of _______________. By:________________________________ Print Name: Title: Chief Financial Officer -2- ATTACHMENT 1 to Officer's Certificate Financial Statements -------------------- for the period ending _____________ __, 199_ ATTACHMENT 2 to Officer's Certificate Defaults and Events of Default ------------------------------ Note: If a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action proposed to be taken by the Borrower with respect thereto as required. ATTACHMENT 3 to Officer's Certificate Page 1 of 6 Computations and Information Showing Compliance with Sections 7.9 to 7.16, 7.18, 7.19 and 7.21 of the Credit Agreement Except as otherwise defined herein, terms used herein shall have the meanings set forth in the Credit Agreement. SECTION 7.9. CAPITAL EXPENDITURES -------------------- 1. Aggregate Capital Expenditures actually made, or committed to be made, during the fiscal year beginning [FILL IN DATE OF START OF FISCAL YEAR] = ---------------- 2. Line 1 does not exceed $2,500,000. SECTION 7.10(A). MINIMUM STATUTORY SURPLUS ------------------------- 1. Statutory Surplus of USF RE as of the fiscal quarter ending ____ __, 199__ (prior to the USF RE Sale) = ---------------- 2. Positive Statutory Net Income for each fiscal quarter following the fiscal quarter ended December 31, 1995 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of positive Statutory Net Income for each of the quarters set forth in Line 2 above = ---------------- 2b. 75% of line 2a = ---------------- 3. Contributions to surplus made by Borrower to USF RE during each fiscal quarter following the fiscal quarter ended December 31, 1995 were: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 3a. The sum of the contributions for each of the quarters set forth in line 3 above = ---------------- 4. The sum of $80,000,000 and line 2b and line 3a = ---------------- 5. Line 1 is not less than line 4. ATTACHMENT 3 to Officer's Certificate Page 2 of 6 SECTION 7.10(B). 1. Combined Statutory Surplus of VASA North Atlantic and Seaboard as of the fiscal quarter ending ____ __, 199__ = ---------------- 2. Positive Statutory Net Income for each fiscal quarter following the fiscal quarter ended June 30, 1999 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of positive Statutory Net Income for each of the quarters set forth in Line 2 above = ---------------- 2b. 75% of line 2a = ---------------- 3. Contributions to surplus made by Borrower to VASA North Atlantic and Seaboard during each fiscal quarter following the fiscal quarter ended June 30, 1999 were: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 3a. The sum of the contributions for each of the quarters set forth in line 3 above = ---------------- 4. The sum of $42,500,000 and line 2b and line 3a = ---------------- 5. Line 1 is not less than line 4.
ATTACHMENT 3 to Officer's Certificate Page 3 of 6 SECTION 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH ----------------------------------- 1. Consolidated GAAP Net Worth as of the fiscal quarter ending ______________, 199__. = ---------------- 2. Consolidated positive net income (as determined in accordance with GAAP) for each fiscal quarter following the fiscal quarter ended June 30, 1998 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of the positive net income for each of the quarters set forth in Line 2 above = ---------------- 2b. 50% of line 2a = ---------------- 3. Paid-in capital resulting from any issuance by the Borrower of its capital stock = ---------------- 4. The sum of $100,000,000 and line 2b and line 3 = ---------------- 5. Line 1 is not less than line 4.
SECTION 7.12. MAXIMUM PREMIUMS TO SURPLUS --------------------------- 1. Aggregate Net Premiums Written by all Insurance Subsidiaries of the Borrower for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 2. Combined Statutory Surplus of all Insurance Subsidiaries of the Borrower at the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ---------------- 3. The ratio of line 1 to line 2 = ---------------- 4. The ratio in line 3 is not greater than 3.0 to 1 at the end of the first fiscal quarter of each year and 2.0 to 1 at the end of the second, third and fourth fiscal quarters of each fiscal year.
SECTION 7.13. [Reserved.] ATTACHMENT 3 to Officer's Certificate Page 4 of 6 SECTION 7.14. MINIMUM INTEREST COVERAGE. ------------------------- For each Insurance Subsidiary: 1. Available Dividends minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ---------------- 2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). = ---------------- 3. The sum of line 1 and line 2 = ---------------- 4. Interest Expense for the immediately following four fiscal quarters (beginning on [FILL IN BEGINNING DATE FOR FOLLOWING FOUR FISCAL QUARTERS]) = ---------------- 5. The ratio of line 3 to line 4 = ---------------- 6. The ratio in line 5 is not less than 2.0 to 1.0 for the fiscal year ending December 31, 1995 (3.0 to 1.0 for each fiscal year thereafter).
SECTION 7.15. MINIMUM FIXED CHARGE COVERAGE. ----------------------------- For each Insurance Subsidiary: 1. Available Dividends minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ---------------- 2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 3. The sum of line 1 and line 2 = ---------------- 4. Fixed Charges for the immediately succeeding four fiscal quarters (beginning on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 5. The ratio of line 3 to line 4 = ---------------- 6. The ratio in line 5 is not less than 1.5 to 1.0 for the fiscal year ending December 31, 1995 (1.7 to 1.0 for each fiscal year thereafter).
ATTACHMENT 3 to Officer's Certificate Page 5 of 6 SECTION 7.16. MINIMUM DEBT SERVICE COVERAGE. ----------------------------- For each Insurance Subsidiary: 1. Available Dividends of such Insurance Subsidiary as of the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ---------------- 2. Total taxes paid by such Insurance Subsidiary to the Borrower pursuant to any intercorporate tax-sharing agreement for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 3. Consolidating income before taxes of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 4. Total taxes (based on GAAP) paid by the Borrower on a consolidated basis for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ---------------- 5. Distributions by Borrower for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). = ---------------- 6. The sum of line 1, line 2 and line 3 minus line 4 and line 5 = ---------------- 7. Total Interest Expense of the Borrower and its Subsidiaries on a consolidated basis for the immediately succeeding four fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF THE NEXT SUCCEEDING QUARTER]) = ---------------- 8. Total mandatory reductions of Commitment for the succeeding four fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF THE NEXT SUCCEEDING QUARTER]). = ---------------- 9. The sum of line 7 and line 8 = ---------------- 10. The ratio of line 6 to line 9 = ---------------- 11. The ratio in line 10 is not less than 1.5 to 1.0. SECTION 7.18. RISK-BASED CAPITAL RATIO. ------------------------ 1. The combined Risk-Based Capital Ratio of the Insurance Subsidiaries of the Borrower as of the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ---------------- 2. The ratio in line 1 is not less than 200%
ATTACHMENT 3 to Officer's Certificate Page 6 of 6 SECTION 7.19. MINIMUM CREDIT RATINGS. ---------------------- 1. The A.M. Best Rating of USF RE (until the USF RE Sale) = ---------------- 2. The A.M. Best Rating of VASA North Atlantic = ---------------- 3. The A.M. Best Rating of Seaboard. = ---------------- 4. The ratings in lines 1, 2 and 3 are not less than "A-". SECTION 7.21. DEBT TO CAPITAL RATIO. --------------------- 1. From the period of December 28, 1998 to June 30, 1999, a. For the fiscal quarter ended [______], consolidated Debt of the Borrower and its Subsidiaries = ---------------- b. For the fiscal quarter ended [______], consolidated GAAP Net Worth = ---------------- c. Sum of lines a and b. = ---------------- d. 45% of line c = ---------------- e. Line a does not exceed line d. 2. After June 30, 1999, a. For the fiscal quarter ended [______], consolidated Debt of the Borrower and its Subsidiaries = ---------------- b. For the fiscal quarter ended [______], consolidated GAAP Net Worth = ---------------- c. Sum of lines a and b. = ---------------- d. 35% of line c. = ---------------- e. Line a does not exceed line d. EXHIBIT D (Description of Opinion of California Counsel to Borrower) The opinion of R.W. Loeb, Professional Law Corporation, counsel to the Borrower, which is called for by Section 4.1(i) of the Agreement, shall be dated the Closing Date and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The Borrower, and each of its Subsidiaries (excluding USF RE INSURANCE COMPANY), is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (a) to own its assets and to transact the business in which it is now engaged and (b) with respect to the Borrower (i) to enter into and perform the Credit Agreement and the Pledge Agreement, (ii) to issue and deliver the Revolving Note, (iii) to execute and deliver the documents and certificates delivered in connection with the Credit Agreement, the Revolving Note and the Pledge Agreement and (iv) to carry out the transactions contemplated by the Credit Agreement, the Revolving Note and the Pledge Agreement. 2. The Borrower and each of its Subsidiaries are each duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under the Credit Agreement, the Pledge Agreement or the Revolving Note. The Borrower is the record and beneficial owner of all of the issued and outstanding shares of capital stock of USF RE INSURANCE COMPANY, USBENEFITS Insurance Services, Inc. and the other Subsidiaries, free and clear of any Lien, and all such shares have been duly issued and are fully paid and non-assessable. The certificates and/or other instruments or writings pledged to you and being delivered to you pursuant to the Pledge Agreement represent all of the issued and outstanding shares of capital stock of USF RE INSURANCE COMPANY. 3. The Credit Agreement, the Pledge Agreement and the Revolving Note have been duly executed and delivered by duly authorized officers of the Borrower and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. 4. The execution, delivery and performance by the Borrower of the Credit Agreement, the Pledge Agreement and the Revolving Note have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of the shareholders of the Borrower; (b) violate any provisions of the articles of incorporation or by-laws of the Borrower; (c) violate any provision of any law, rule or regulation (including without limitation, Regulation U and X of the Board of Governors of the Federal Reserve System) or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries; (d) result in a breach of or constitute a default or require any consent under any loan or credit agreement or any other agreement, mortgage, indenture, lease or instrument known to us, after due inquiry, to which the Borrower or any Subsidiary is a party or by which the Properties of the Borrower or any of its Subsidiaries may be bound or affected; or (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries, except as created by the Pledge Agreement. 5. To the best of our knowledge, based on our inquiry of the President of the Borrower and our knowledge of those matters as to which this firm has been engaged by the Borrower for legal consultation or representation, except as described in Schedule 5.4 to the Credit Agreement, there are no actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) pending or threatened against or affecting the Borrower or any of its Subsidiaries, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any of its Subsidiaries would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under the Credit Agreement, the Pledge Agreement or the Revolving Note. 6. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated by the Credit Agreement. 7. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act, rule, regulation or otherwise, including without limitation the California Insurance Holding Company System Regulatory Act, as amended (the "Act") and the California Insurance Code (the "Code"), is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, the Credit Agreement, the Pledge Agreement or the Revolving Note, except the authorizations, consents, approvals, orders, licenses or permits described in Schedule 5.15 of the Credit Agreement which have been obtained and are in full force and effect. -2- 8. The utilization by the Borrower of the proceeds of a Borrowing to contribute to the statutory surplus of USF RE INSURANCE COMPANY does not require the further approval, consent or authorization of, or any registration or filing, with the California Department of Insurance whether under the Act, the Code or otherwise. 9. The Pledge Agreement creates for the benefit of the holder of the Revolving Note a valid security interest in the Pledged Collateral (as defined in the Pledge Agreement) by such Holder, such security interest will be duly perfected and no other action is necessary to effect or preserve such security interest (assuming the Pledged Shares are at all times in your possession) except that it may be advisable to file duly executed financing statements in the forms attached as Schedule A hereto in the jurisdiction in which the Borrower's chief executive office is located and thereafter to file continuation statements for such financing statements within six months prior to the expiration of five years following the date of original filing. The opinions expressed herein are limited to the laws of the State of California and the federal laws of the United States of America. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. -3- EXHIBIT E (Description of Opinion of Massachusetts Insurance Counsel to Borrower) The opinion of Palmer & Dodge, Massachusetts insurance counsel to the Borrower, which is called for by Section 4.1(k) of the Agreement, shall be dated the Closing Date and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement, the Pledge Agreement and the Revolving Note do not and will not violate any provision of any law, rule or regulation or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries. 2. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act, rule, regulation or otherwise, including without limitation the [MASSACHUSETTS INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE MASSACHUSETTS HOLDING COMPANY ACT (THE "ACT")], is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, the Credit Agreement, the Pledge Agreement or the Revolving Note. 3. The utilization by the Borrower of the proceeds of a Borrowing to contribute to the statutory surplus of USF RE INSURANCE COMPANY does not require the prior approval, consent or authorization of, or any registration or filing, with the Massachusetts Department of Insurance whether under the Code, the Act or otherwise. 4. USF RE INSURANCE COMPANY is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own its assets and to transact the business in which it is now engaged. The opinions expressed herein are limited to the laws of the Commonwealth of Massachusetts. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. EXHIBIT F PLEDGE AGREEMENT ---------------- This PLEDGE AGREEMENT, dated as of December 20, 1994, is between US FACILITIES CORPORATION, a Delaware corporation ("Pledgor"), and SHAWMUT BANK CONNECTICUT, N.A., a national banking association ("Pledgee"). RECITALS: --------- 1. Pledgor owns, on and as of the date on which this Pledge Agreement is executed and delivered, 100% of the issued and outstanding shares of the capital stock of USF RE INSURANCE COMPANY, a Massachusetts corporation, all of which shares (including any certificates and/or other tangible evidences thereof) are more specifically described in Attachment A hereto. ------------ 2. Pursuant to the Credit Agreement dated as of December 20, 1994 between Pledgor and Pledgee (said Credit Agreement as currently in effect and as from time to time amended, modified or supplemented being herein called the "Financing Agreement"), Pledgee has agreed to make certain revolving loans to Pledgor subject to certain conditions. 3. Pledgee is willing to extend such financing, but only on the condition, among others, that Pledgor shall first have executed and delivered to Pledgee this Pledge Agreement. NOW, THEREFORE, in consideration of such financing and for other good and valuable consideration, receipt of which is hereby acknowledged, Pledgor and Pledgee agree as follows: 1. Pledge and Delivery. (a) To secure the prompt and complete payment and ------------------- performance when due of the Obligations (as defined in Section 1(b) hereof), Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants Pledgee a continuing security interest in, all of the following property and rights and interests in property (all such property, rights and interests being hereinafter collectively called the "Pledged Collateral"): (i) all issued and outstanding shares of the capital stock of USF RE INSURANCE COMPANY described in Attachment A hereto, and any additional shares of ------------ the capital stock of any class or series of USF RE INSURANCE COMPANY which Pledgor may at any time and from time to time hereafter purchase or otherwise acquire, together with the certificates and/or other instruments or writings representing them (such shares, certificates and other writings being hereinafter collectively called the "Pledged Shares"); (ii) (A) all shares and other securities and all warrants, rights and options to acquire Pledged Shares (such shares, securities, warrants, rights and options together with the certificates and/or other instruments or writings representing them being hereinafter collectively called the "Additional Pledged Securities") and (B) all money and other property, at any time and from time to time received or receivable by or distributed or distributable to Pledgor from the issuer of any or all of the Pledged Shares in exchange or substitution for or otherwise in respect of any or all of the Pledged Shares or earlier-issued Additional Pledged Securities (whether in the ordinary course of such issuer's business or representing or resulting from cash or stock dividends, stock splits or reclassifications, the recapitalization, reorganization, merger, consolidation, disposition of assets, liquidation or dissolution of such issuer, the exercise by Pledgor of warrants, rights or options, or any other action or cause); and (iii) all proceeds of any or all of the foregoing. (b) As used herein, the term "Obligations" shall mean all indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee (whether directly as principal or maker or indirectly as guarantor, surety, endorser or otherwise), now or hereafter existing, due or to become due, howsoever incurred, arising or evidenced, whether of principal or interest or payment or performance under the Financing Agreement. (c) Prior to or simultaneously with the execution and delivery hereof by Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written receipt to Pledgor shall acknowledge its prior receipt of, the certificate(s) and/or other instruments and documents evidencing all of the Pledged Shares, Additional Pledged Securities and all other items of the Pledged Collateral then owned by Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee any and all of the Pledged Shares, Additional Pledged Securities and other Pledged Collateral (including any and all certificates and/or other instruments or documents representing each item thereof) which it acquires in any way at any time after such execution and delivery. Upon delivery to Pledgee, each item of the Pledged Collateral shall be accompanied by, as appropriate, (i) undated, duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or documents as Pledgee shall reasonably request. 2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor --------------------------------------------------- represents and warrants that: (i) Pledgor has the right, power and authority to execute, deliver and perform this Pledge Agreement and to pledge, assign, deliver, transfer and grant a security interest in the Pledged Collateral; (ii) this Pledge Agreement constitutes the legal, valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and subject to the availability of equitable remedies and any limitation that may restrict Pledgee from selling, voting or exercising control over USF RE INSURANCE COMPANY without obtaining approval of the Insurance Commissioner; (iii) Pledgor has good title to all of the Pledged Shares and is the legal record and beneficial owner of each of the Pledged Shares (and will have good title to and be the legal record and beneficial owner of each other item of Pledged Collateral, including any Additional Pledged Securities), free and clear of all encumbrances except Pledgee's security interest hereunder; (iv) each of the Pledged Shares and Additional Pledged -2- Securities is, or will be when acquired by Pledgor and pledged hereunder, duly and validly issued and fully paid and non-assessable, and there are no restrictions on the transfer of any thereof other than such restrictions as appear on the certificates or other instruments or writings representing them, or as are referred to in clause (ii) above or otherwise may be imposed under applicable law; (v) no action other than the delivery of each item of the Pledged Collateral to, and its continued possession by, Pledgee or any of its agents or nominees is necessary to maintain a perfected, first-priority security interest in such item in favor of Pledgee; and (vi) no authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Pledgor of this Agreement or for the validity or enforceability hereof except as are referred to in clause (ii) above. (b) Pledgor covenants and agrees that it will at its expense (i) defend both its own rights and interests and Pledgee's rights and security interest in and to the Pledged Collateral against the claims and demands of all other persons and (ii) execute and deliver to Pledgee such further conveyances, agreements, assignments, instruments and other writings, and take such further action, as Pledgee may request in order to obtain the full benefit of this Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies granted to Pledgee hereunder. Pledgor further covenants and agrees that until all Obligations have been satisfied and this Pledge Agreement has been terminated, Pledgor will not without Pledgee's prior written consent sell, assign, transfer, exchange or otherwise temporarily or permanently dispose of any item of the Pledged Collateral, or offer or contract to do so, and will not without such consent create, incur, assume or permit to exist any security interest, pledge, claim or other charge or encumbrance on or with respect to any such item other than the security interest granted to Pledgee hereunder. 3. Names in which Pledged Shares and Additional Pledged Securities --------------------------------------------------------------- May Be Registered. Subject to any required approval of the California Insurance - ----------------- Department or the Massachusetts Division of Insurance, at any time and from time to time during the term of this Pledge Agreement, whether or not a Pledgor Default (as defined in Section 9 hereof) is then continuing, Pledgee shall be entitled to hold any or all of the Pledged Shares and Additional Pledged Securities in its own name, the name(s) of one or more of its nominees or the name of Pledgor endorsed or assigned in blank or in favor of Pledgee. With respect to any of the Pledged Shares and/or Additional Pledged Securities which Pledgee wishes to hold in its own name or the name of any nominee in accordance with this Section 3, Pledgee (acting in its own name and capacity or as Pledgor's attorney-in-fact pursuant to the power of attorney granted to Pledgee in Section 5 hereof) may have such Pledged Shares and Additional Pledged Securities registered accordingly on the books of the issuer(s) thereof, and Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect such transfer and registration. 4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default ----------------------------- shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Shares and Additional Pledged Securities for -3- any purpose not inconsistent with (A) the provisions of this Pledge Agreement and the Financing Agreement and applicable insurance and other law and (B) the preservation of the value of and Pledgee's security interest in the Pledged Collateral; (ii) Pledgor shall be entitled to receive and retain all cash dividends, interest and other cash distributions payable in respect of the Pledged Collateral to the extent that such distributions are charged to, and as of the date of payment thereof do not exceed, the retained earnings of the issuer or other person making such distribution and do not exceed any limitations imposed by the California Insurance Holding Company System Regulatory Act, the California Insurance Code or the Massachusetts Insurance Code; and (iii) If any or all of the Pledged Shares and Additional Pledged Securities shall have been registered in the name(s) of Pledgee and/or any of its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so executed and delivered, all such proxies, limited powers of attorney, dividend orders and such other instruments and writings as Pledgor may reasonably request to enable it, subject to the provisions of Section 4(b) hereof, to exercise the rights and powers and to receive the distributions to which it is entitled under the provisions of paragraphs (i) and (ii) of this Section 4(a). (b) Upon the occurrence and during the continuance of a Pledgor Default, all rights of Pledgor to exercise the voting and consensual rights and powers described in paragraph (i) of Section 4(a) hereof and to receive the dividends, interest and other cash distributions described in paragraph (ii) of such Section shall cease, and all such rights shall thereupon become vested in Pledgee; provided, however, that Pledgor may thereafter continue to exercise any -------- ------- and all such voting and consensual rights and powers until such time as Pledgee shall notify Pledgor in writing that Pledgee intends to assume and exercise the same; and provided further that Pledgee shall not sell, vote or in any manner exercise control over USF RE Insurance Company without obtaining, to the extent required by law, including the provisions of Section 1215.2 of the California Insurance Code, the prior approval (including any hearing required by law) of the Massachusetts Division of Insurance and the California Department of Insurance. (c) Upon the occurrence and during the continuance of a Pledgor Default and subject to compliance with any applicable rules and regulations of the Massachusetts Division of Insurance and the California Department of Insurance, including the provisions of Section 1215.2 of the California Insurance Code, Pledgee may, in its own name and capacity or as Pledgor's attorney-in-fact, collect, receive, endorse and deposit all Additional Pledged Securities, money, cash proceeds, instruments and any and all other property which is or may at any time become payable in respect of any or all of the Pledged Collateral and which Pledgee is or may become entitled to receive under subsection (a) or (b) of this Section 4. All such property so received by Pledgee may be retained by Pledgee as additional Pledged Collateral, and (i) all money and other cash proceeds so received may be applied by Pledgee to payment of the Obligations in such order as Pledgee may elect, whether or not a Pledgor Default shall then be continuing, and (ii) during the continuance of a Pledgor Default, all other property so received may be sold or otherwise disposed of by Pledgee as -4- provided in Section 10 hereof and the proceeds thereof applied as also provided in such Section. Any and all money and other property received by Pledgor contrary to the provisions of this Section 4 shall be held by Pledgor in trust for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and property and shall promptly be delivered to Pledgee in exactly the form received by Pledgor, except for any necessary endorsements. 5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby ----------------------------------------------- appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's place and stead, in Pledgor's name or its own name and at Pledgor's expense, to execute, endorse and deliver any and all agreements, assignments, pledges, instruments and any other writings, and to take any and all other actions, which Pledgee may deem necessary or desirable to carry out the terms and effect the purposes of this Pledge Agreement and to exercise fully its rights and remedies hereunder. Pledgee may delegate any or all of such power to any of its officers, directors, employees, agents, nominees, shareholders and other representatives (hereinafter collectively called "Representatives") and to have any such Representative(s) exercise any such delegated power as substitute(s) for Pledgee. Pledgor hereby ratifies all that Pledgee and all such Representatives shall lawfully do or cause to be done under this power of attorney, which power is coupled with an interest and shall be irrevocable until all Obligations have been satisfied and this Pledge Agreement has been terminated. 6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any --------------------------------------- time fail to perform or comply with any of its covenants and agreements hereunder, Pledgee may (but shall not be required or obligated to) take such action, in its own name and capacity or as Pledgor's attorney-in-fact, as Pledgee shall deem necessary or desirable to effect such performance or compliance. 7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to ------------------------------------- have used reasonable care in the custody and preservation of the Pledged Collateral in its possession to the extent it accords such Pledged Collateral treatment which is substantially equal to that which Pledgee accords its own property of like kind; provided, however, that Pledgee shall have no obligation, -------- ------- regardless of whether it takes any such action with respect to its own property, (i) to ascertain or take action with respect to calls, tenders, conversions, exchanges, maturities or other matters involving or affecting any item(s) of such Pledged Collateral (whether or not Pledgee has actual or constructive knowledge of any such matters), unless reasonably requested by Pledgor to do so, or (ii) to take action to preserve rights against prior or other parties. 8. Limitation of Pledgee's Liability; Reimbursement of Expenses and ---------------------------------------------------------------- Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to - --------------- take, or refrain from taking, any action with respect to the Pledged Collateral or Pledgor's rights and interests therein except with respect to (i) the preservation and return of the Pledged Collateral in its possession as and to the extent provided, respectively, in Sections 7 and 14 hereof and (ii) the execution and delivery to Pledgor of certain instruments and other writings as and when required under Section 4(a)(iii) hereof and other limitations imposed by law. Pledgor further agrees that neither Pledgee nor any of its Representatives shall have any liability to Pledgor, or to any person claiming rights against Pledgee by, through or under Pledgor, in any way arising out of or in connection with Pledgee's or any such -5- Representative's administration of this Pledge Agreement or its exercise of any of its rights, power and remedies hereunder except for (i) Pledgee's or any such Representative's failure to take as and when required any of the actions referenced in the first sentence of this Section 8(a) or to account to Pledgor for those amounts of money and other property -- and only for those amounts -- which it actually receives in connection with such administration or exercise and which it is required to pay over to Pledgor or apply to the Obligations under any other provision hereof, (ii) its failure to exercise reasonable care as and to the extent required in Section 7 hereof or (iii) its negligence or willful misconduct. (b) Pledgor shall pay or reimburse Pledgee on demand for all costs and expenses (including without limitation reasonable attorneys' fees and legal expenses) paid or incurred by Pledgee in connection with (i) the administration and any amendment of this Pledge Agreement, (ii) the custody or preservation of the Pledged Collateral and any authorized collection from, disposition of or other realization on any item(s) thereof, and (iii) the exercise and enforcement of any of Pledgee's rights, powers and remedies hereunder, including without limitation its right to perform Pledgor's covenants and agreements hereunder to the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend and hold harmless Pledgee, its Representatives, successors and assigns from and against any and all liabilities, claims, actions, losses, damages, taxes, penalties, fines, costs and expenses (including reasonable attorneys' fees and legal expenses) which in any way arise out of or in connection with any of the actions or matters with respect to which Pledgor has a payment or reimbursement obligation under this Section; provided, however, that Pledgor shall have no -------- ------- obligation to indemnify Pledgee or any such Representative, successor or assign against any liabilities, claims, etc. resulting from such party's negligence or willful misconduct or its failure to exercise reasonable care as and to the extent required in Section 7 hereof. Until any reimbursement of costs or expenses or any indemnity payment required under this Section is received by Pledgee in cash or immediately available funds, the amount thereof shall bear interest at the rate specified in the Financing Agreement for delinquent payments, and such amount and such interest shall constitute part of the Obligations secured by the Pledged Collateral. 9. Pledgor Defaults. The following shall constitute a "Pledgor ---------------- Default": (i) Pledgor fails to make payment when due or demanded, as applicable, on or with respect to any indebtedness, obligation or liability which is then part of the Obligations, or fails to perform or comply with any of its covenants or agreements hereunder; (ii) any representation or warranty made by Pledgor herein or in any statement, report or certificate furnished to Pledgee by Pledgor hereunder proves to have been false or misleading in any material respect; or (iii) an "Event of Default" occurs under the Financing Agreement. 10. Remedies. (a) If a Pledgor Default has occurred and is continuing, -------- Pledgee may at any time and from time to time exercise any and all rights and remedies available to it (i) hereunder and under the Financing Agreement and any other agreement or instrument then in effect between Pledgor and Pledgee and relating to the Obligations, including without limitation those rights and remedies set out in subsections (b) through (f) of this Section 10, and (ii) as a secured party under the Uniform Commercial Code as then in effect in the State of Connecticut (the "Code") and under -6- any other applicable law or rule of law or equity. Should Pledgee elect to proceed by action at law or in equity to foreclose its security interest in and sell any or all of the Pledged Collateral, Pledgor waives (to the extent permitted by law) any rights it may then have in connection therewith to require Pledgee to post bonds, sureties or collateral security or to demand possession of any such Pledged Collateral pending judgment therein. (b) If a Pledgor default has occurred and is continuing, to the extent permitted by the Insurance Commissioner and by applicable federal and state securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or, from time to time any part, of the Pledged Collateral at public or private sale, over the counter or at any broker's board or securities exchange, for cash, on credit or in exchange for other property, for immediate or future delivery, without advertisement or notice (except as provided in this subsection), and for such price and on such terms as Pledgee deems appropriate, provided only that -------- all aspects of any such disposition are commercially reasonable within the requirements of Section 42a-9-504 of the Code, as defined and supplemented by the standards and agreements set forth herein. Pledgor agrees that to the extent notice of the time and place of any such public sale, or of the time after which Pledgee intends to make any such private sale or other disposition, is required under the Code, such notice shall be deemed commercially reasonable if transmitted by any of the means described in the Financing Agreement not less than 15 days prior thereto. Pledgee shall not be obligated to effect any sale of any or all of the Pledged Collateral, whether or not notice thereof has been given, and may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may be held without further notice at the time and place to which it was so adjourned. (c) At any such private or public sale, to the extent permitted by the Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the Pledged Collateral then being sold and may pay the price thereof by credit against the Obligations then outstanding. Any purchaser of any item(s) of the Pledged Collateral (including Pledgee) shall take such item(s) free from any right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by the Code and other applicable law, all rights of redemption and/or to any stay, exemption or appraisal which Pledgor now has or may hereafter acquire. (d) Pledgor agrees and acknowledges that requiring the issuer(s) of the securities included in the Pledged Collateral to register such securities under applicable provisions of federal and state securities laws would not be practicable and therefore could not be deemed commercially reasonable. Pledgor further agrees and acknowledges that in order to comply with applicable federal and state securities laws without effecting such registration, Pledgee may be required: (i) to sell or otherwise dispose of any or all of the Pledged Collateral at one or more private rather than public sales and (ii) to limit the prospective purchasers at such sale(s) to persons who will represent and agree that they are purchasing the securities they intend to acquire for their own account for investment and not with a view to the distribution or sale thereof, and who will be compelled to accept stringent restrictions on their ability to dispose of such securities. Accordingly, Pledgor agrees that: (i) Pledgee shall not incur any liability to Pledgor by reason of the fact that the price obtained for any or all the Pledged Collateral at such private sale(s) to investors restricted as -7- provided above may be less than the price which might be obtained therefor at a public sale or unrestricted private sale and (iii) any and all private sales shall be deemed commercially reasonable even if (A) the amount received is less than the then-outstanding amount of the Obligations and/or (B) even if Pledgee accepts the first offer received or does not offer all or any part of the Pledged Collateral to more than one prospective purchaser, unless the sale in question is conducted in bad faith or in a manner manifestly unreasonable for sales of that type. (e) In case of any sale by the Pledgee of any item(s) of the Pledged Collateral on credit or for future delivery, such item(s) may be retained by the Pledgee until the selling price is paid by the purchaser(s) thereof, but the Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for such item(s). In case of any such failure, such item(s) may be sold again upon notice, to the extent required by law, as provided in subsection (b) of this Section 10. (f) The proceeds of the sale or other disposition of the Pledged Collateral shall be applied first, to that part of the Obligations consisting of Pledgee's reasonable expenses (including without limitation reasonable attorneys' fees and legal expenses) in preparing for disposition and disposing of the Pledged Collateral and, to the extent not previously reimbursed by Pledgor, in administering this Pledge Agreement and exercising and enforcing its rights, powers and remedies hereunder, and second, to the satisfaction of the then outstanding amount of Pledgor's indebtedness under the Financing Agreement and of all other Obligations then remaining unpaid. Pledgee shall account to Pledgor for any surplus and Pledgor shall be liable to Pledgee for any deficiency. 11. Amendments, Etc. No provision of this Pledge Agreement may be --------------- amended, modified, supplemented or waived, and no consent to any departure therefrom by Pledgor may be given, except by a writing duly executed and delivered by the parties hereto, and any such amendment, modification, supplement or waiver shall be effective only as and to the extent provided therein. 12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and ------------------------------------------ remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement and under any other agreements, instruments and other writings now or hereafter existing between Pledgor and Pledgee and relating to the Obligations, and (ii) under the Code and other applicable law, are cumulative and except as otherwise provided by law or in such agreements may be exercised concurrently or in any order of succession. Pledgee's failure to exercise or delay in exercising any of such rights, powers and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee's single or partial exercise of any such right, power or remedy preclude its other or further exercise thereof, or the exercise of any other right, power or remedy. Pledgee's cure of any Pledgor Default shall not constitute a waiver thereof, and its waiver of one Pledgor Default shall not constitute a waiver of any subsequent Pledgor Default. 13. Pledgor's Waivers. Pledgor agrees that until the Obligations are ----------------- paid in full, Pledgee's security interest in the Pledged Collateral shall be absolute and unconditional regardless -8- of the existence or occurrence of, and expressly waives any defense or discharge which might otherwise arise from, any of the following: (i) any lack of validity or enforceability of this Pledge Agreement, the Financing Agreement or any other agreement or instrument relating hereto or thereto or otherwise relating to the Obligations; (ii) any change in the time, manner or place of payment of, or in any other terms of, any or all of the Obligations, or any other amendment or waiver of, or any consent to departure from, this Pledge Agreement or the Financing Agreement or any other agreement, instrument or other writing now or hereafter existing between Pledgor and Pledgee and relating to the Obligations; (iii) any exchange, release or non-perfection of any other collateral, or any release, amendment or waiver of, or consent to departure from any guaranty, for any or all of the Obligations; (iv) Pledgee's resort, during the continuation of a Pledgor Default, to any or all of the Pledged Collateral for payment of all or part of the Obligations prior to proceeding against any other collateral or any other party primarily or secondarily liable for payment thereof; or (v) to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the Obligations or this Pledge Agreement. 14. Termination; Release of Pledged Collateral. This Agreement and the ------------------------------------------ security interest granted hereunder shall terminate on the date on which all Obligations have been fully satisfied. Pledgee shall thereupon reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor or such person(s) as Pledgor shall designate, against due execution and delivery by Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form and substance, such items of the Pledged Collateral (if any) as are then held by Pledgee or its Representatives, together with appropriate instruments of reassignment and release. Any such reassignment shall be without recourse to or warranty by Pledgee or any such Representative and at the expense of Pledgor. 15. Notices. All notices, requests, directions, consents, waivers and ------- other communications hereunder shall be in writing and shall be transmitted by the means and to the addresses from time to time specified in the Financing Agreement. 16. Binding Agreement; Assignment. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Pledgor shall not assign or otherwise -------- ------- transfer any of its obligations, rights or interests hereunder without the prior written consent of Pledgee. -9- 17. Governing Law; Severability. This Agreement shall be governed by --------------------------- and construed in accordance with the laws of the State of Connecticut, except to the extent that the remedies hereunder in respect of the Pledged Collateral are governed by the laws of the State of California and the Commonwealth of Massachusetts. Wherever possible each provision of this Pledge Agreement shall be construed in such manner as to be valid and enforceable under applicable law, but if any provision hereof shall be deemed invalid or unenforceable to any extent in any jurisdiction, such provision shall be ineffective only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remainder of such provision or any of the other provisions hereof, and any such invalidity or unenforceability in one jurisdiction shall not render such provision ineffective in any other jurisdiction. 18. Titles; Defined Terms; Counterparts. Section titles are for ----------------------------------- convenience only and shall not define, limit, amplify, supplement or otherwise modify or affect the substance or intent of this Pledge Agreement or any provision hereof. Initial capitalized terms not defined herein shall have the meanings ascribed to them in the Financing Agreement. This Pledge Agreement may be executed in two or more counterparts, each of which shall when executed by both parties be deemed to be an original but all of which together shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge Agreement to be duly executed by its respective authorized officer as of the date first above written. US FACILITIES CORPORATION By:_____________________ Print Name: Print Title: SHAWMUT BANK CONNECTICUT, N.A. By:_____________________ Print Name: Print Title: -11- ATTACHMENT A ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK ---------------- Name No. of Shares - ---- ------------- USF RE INSURANCE COMPANY 50,000 EXHIBIT G FORM OF SUBORDINATED DEBT PROVISIONS The holder hereof by acceptance of this instrument agrees that the indebtedness evidenced by this instrument, and any renewals or extensions hereof, shall at all times and in all respects be subordinate and junior in right of payment to (i) the indebtedness of the Borrower evidenced by the Revolving Note dated December 28, 1998 of the Borrower in the aggregate principal amount of $75,000,000 issued under and pursuant to the Borrower's Credit Agreement dated December 20, 1994, as amended, (ii) any other indebtedness for money borrowed of the Borrower not expressed in the agreement or other instrument which created such indebtedness to be subordinated or junior to any other indebtedness of the Borrower and (iii) any and all extensions or renewals of any such indebtedness in whole or in part. The indebtedness described in the preceding clauses (i), (ii), and (iii) is hereinafter sometimes referred to as "Superior Indebtedness". Without limiting the effect of the foregoing, the holder hereof agrees as follows: (1) in the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization, arrangement or other similar proceedings in connection therewith, relative to the Borrower or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding-up of the Borrower, whether or not involving insolvency or bankruptcy, then the holders of Superior Indebtedness shall be entitled to receive payment in full of all principal, premium and interest on all Superior Indebtedness before the holders of these Subordinated Notes are entitled to receive any payment on account of principal, premium or interest on these Subordinated Notes, and to that end (but subject to the power of a court of competent jurisdiction to make other equitable provisions reflecting the rights conferred in these Subordinated Notes upon the Superior Indebtedness and the holders thereof with respect to the subordinated indebtedness represented by these Subordinated Notes and the holders thereof by a lawful plan of reorganization under applicable bankruptcy law) the holders of Superior Indebtedness shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of these Subordinated Notes, except securities which are subordinate and junior in right of payment to the payment of all Superior Indebtedness then outstanding; (2) in the event that any of these Subordinated Notes or portion thereof shall become due and payable before their expressed maturity for any reason other than the mere passage of time (under circumstances when the provisions of the foregoing paragraph (1) or the following paragraph (3) shall not be applicable), the holders of the Superior Indebtedness outstanding at the time such Subordinated Notes so become due and payable because of such reason shall be entitled to receive payment in full of all principal, premium and interest on all Superior Indebtedness before the holders of these Subordinated Notes are entitled to receive any payment on account of the principal, premium or interest on the Subordinated Notes; provided, that nothing herein shall prevent the holder of any Subordinated Note from seeking any remedy allowed at law or at equity so long as any judgment or decree obtained thereby makes provision for enforcing this clause; (3) in the event that any default shall occur and be continuing with respect to any Superior Indebtedness permitting the holders of such Superior Indebtedness to accelerate the maturity thereof, no payment or prepayment of any principal, premium or interest on account of and no repurchase, redemption or other retirement (whether at the option of the holder or otherwise) of these Subordinated Notes shall be made during the continuance of such default; and (4) in the event that, notwithstanding the foregoing paragraphs (1), (2) and (3), any payment or distribution of assets of the Borrower of any kind or character (whether in cash, property or securities) which is prohibited by any one or more of such paragraphs shall be received by the holders of these Subordinated Notes before all Superior Indebtedness is paid in full, or provision made for such payment in accordance with its terms, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Superior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Superior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Superior Indebtedness remaining unpaid to the extent necessary to pay such Superior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Superior Indebtedness. The Borrower agrees that if any default shall occur with respect to any Superior Indebtedness permitting the holders of such Superior Indebtedness to accelerate the maturity thereof, the Borrower will give prompt notice in writing of such happening to all known holders of Superior Indebtedness and shall certify to each such holder the names of the holders of the two largest principal amounts of the Subordinated Notes outstanding [or "the name of the Trustee" in the case of subordinated debt issued under a trust indenture] and the names of the holders of the two largest principal amounts of each other outstanding series of subordinated debt of the Borrower. The Borrower, forthwith upon receipt of any notice with respect to a claimed default on Superior Indebtedness received by it pursuant to this Section, shall send a copy thereof by registered mail or by telegram to each holder of a Subordinated Note at the time outstanding [or "to the Trustee" in the case of subordinated debt issued under a trust indenture]. The Borrower agrees, for the benefit of the holders of Superior Indebtedness, that in the event that any of these Subordinated Notes or portion thereof shall become due and payable before their expressed maturity for any reason other than the mere passage of time (a) the Borrower will -2- give prompt notice in writing of such happening to all known holders of Superior Indebtedness and (b) any and all Superior Indebtedness shall forthwith become immediately due and payable upon demand by the holder thereof, regardless of the expressed maturity thereof. No present or future holder of Superior Indebtedness shall be prejudiced in its right to enforce subordination of the Subordinated Notes by any act or failure to act on the part of the Borrower. The provisions of this Section are solely for the purpose of defining the relative rights of the holders of Superior Indebtedness on the one hand and the holders of the Subordinated Notes on the other hand, and nothing herein shall impair as between the Borrower and the holder of any Subordinated Note the obligation of the Borrower, which is unconditional and absolute, to pay to the holders thereof the principal, premium, if any, and interest thereon in accordance with its terms, nor shall anything herein prevent the holder of a Subordinated Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder, subject to the rights, if any, under this Section of holders of Superior Indebtedness to receive cash, property or securities, otherwise payable or deliverable to holders of the Subordinated Notes. -3- EXHIBIT H-1 (Description of Opinion of California Counsel to the Borrower) The opinion of R.W. Loeb, Professional Law Corporation, counsel to the Borrower which is called for by Section 4.2(f) of the Credit Agreement, shall be dated the date of the initial Borrowing that would result in outstanding Revolving Loans exceeding fifty million dollars of the Bank's Commitment and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The Borrower, and each of its Subsidiaries, is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (a) to own its assets and to transact the business in which it is now engaged, (b) with respect to the Borrower (i) to enter into and perform the Seaboard Pledge Agreement, (ii) to execute and deliver the documents and certificates delivered in connection with the Fifth Amendment and the Seaboard Pledge Agreement and (iii) to carry out the transactions contemplated by the Fifth Amendment and the Seaboard Pledge Agreement and (c) with respect to VASA Brougher, VASA Insurance Group and VASA North America (i) to enter into and perform the VASA North Atlantic Pledge Agreement and the Guaranty Agreement, as applicable, (ii) to execute and deliver the documents and certificates delivered in connection with the Fifth Amendment, the VASA North Atlantic Pledge Agreement and the Guaranty Agreement, as applicable and (iii) to carry out the transactions contemplated by the Fifth Amendment, the VASA North Atlantic Pledge Agreement and the Guaranty Agreement, as applicable. 2. The Borrower and each of its Subsidiaries are each duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower, VASA Brougher, VASA Insurance Group and VASA North America, as applicable, to perform its obligations under the Fifth Amendment, the Seaboard Pledge Agreement, the VASA North Atlantic Pledge Agreement and the Guaranty Agreement. The Borrower is the record and beneficial owner of all of the issued and outstanding shares of capital stock of VASA North America and Seaboard, free and clear of any Lien, and all such shares have been duly issued and are fully paid and non-assessable. Together, VASA Brougher and VASA Insurance Group are the record and beneficial owners of all of the issued and outstanding shares of capital stock of VASA North Atlantic, free and clear of any Lien, and all such shares have been duly issued and are fully paid and non-assessable. The certificates and/or other instruments or writings pledged to you and delivered to you pursuant to the Seaboard Pledge Agreement and the VASA North Atlantic Pledge Agreement represent all of the issued and outstanding shares of capital stock of Seaboard and VASA North Atlantic. 3. Except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity (a) the Seaboard Pledge Agreement has been duly executed and delivered by duly authorized officers of the Borrower and constitutes the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its respective terms, (b) the VASA North Atlantic Pledge Agreement has been duly executed and delivered by duly authorized officers of VASA Brougher and VASA Insurance Group, and constitutes the legal, valid and binding obligations of VASA Brogher and VASA Insurance Group enforceable against such party in accordance with its respective terms and (c) the Guaranty Agreement has been duly executed and delivered by duly authorized officers of VASA Insurance Group, VASA Brougher and VASA North America, and constitutes the legal, valid and binding obligations of VASA Insurance Group and VASA North America enforceable against such party in accordance with its respective terms. 4. The execution, delivery and performance by the Borrower of the Seaboard Pledge Agreement, by VASA Brougher and VASA Insurance Group of the VASA North Atlantic Pledge Agreement and the Guaranty Agreement and by VASA North America of the Guaranty Agreement, has each been duly authorized by all necessary corporate action and does not and will not: (a) require any consent or approval of the shareholders of such party; (b) violate any provisions of the articles of incorporation or by-laws of such party; (c) violate any provision of any law, rule or regulation (including without limitation, Regulation U and X of the Board of Governors of the Federal Reserve System) or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries; (d) result in a breach of or constitute a default or require any consent under any loan or credit agreement or any other agreement, mortgage, indenture, lease or instrument known to us, after due inquiry, to which the Borrower or any Subsidiary is a party or by which the Properties of the Borrower or any of its Subsidiaries may be bound or affected; or (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries, except as created by the Seaboard Pledge Agreement and the VASA North Atlantic Pledge Agreement. 5. To the best of our knowledge, based on our inquiry of the President of the Borrower and our knowledge of those matters as to which this firm has been engaged by the Borrower for legal consultation or representation, there are no actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) pending or threatened against or affecting the Borrower or any of its Subsidiaries, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any of its Subsidiaries would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower or any of its Subsidiaries to perform its obligations under the Fifth Amendment, the Revolving Note, the Pledge Agreements or the Guaranty Agreement. -2- 6. The Seaboard Pledge Agreement and the VASA North Atlantic Pledge Agreement create for the benefit of the holder of the Revolving Note a valid security interest in the Pledged Collateral (as defined in each of the Seaboard Pledge Agreement and VASA North Atlantic Pledge Agreement) by such Holder, such security interest has been duly perfected and no other action is necessary to effect or preserve such security interest (assuming the Pledged Shares are at all times in your possession) except that it may be advisable to file duly executed continuation statements with respect to financing statements filed in the jurisdiction in which the Borrower's chief executive office is located within six months prior to the expiration of five years following the date of original filing. 7. The Acquisition has been duly consummated and the Acquisition Agreements (i) have been duly authorized and validly executed and delivered by duly authorized officers of the Borrower, (ii) constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity and (iii) do not require any authorizations, consents or shareholder approvals, except the authorizations, consents or approvals which have been obtained and are in full force and effect. The Acquisition does not require the authorization, consent, approval, order, license or permit from, or filing registration or qualification with, or exemption by any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act rule, regulation or otherwise, or in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of the Acquisition Agreements except those which have been obtained and are in full force and effect. The opinions expressed herein are limited to the laws of the State of California and the federal laws of the United States of America. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. -3- EXHIBIT H-2 (Description of Opinion of Indiana Insurance Counsel to Borrower) The opinion of Baker & Daniels, Indiana insurance counsel to the Borrower, which is called for by Section 4.2(f) of the Credit Amendment, shall be dated the date of the initial Borrowing that would result in outstanding Revolving Loans exceeding fifty million dollars of the Bank's Commitment and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The execution, delivery and performance by the Borrower of the Fifth Amendment, the Revolving Note and the Seaboard Pledge Agreement and by the parties to the VASA North Atlantic Pledge Agreement and the Guaranty Agreement did not, do not and will not violate any provision of any law, rule or regulation or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries. 2. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act, rule, regulation or otherwise, including without limitation the [INDIANA INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE INDIANA INSURANCE HOLDING COMPANY SYSTEM REGULATION (THE "REGULATION")], is required to authorize, or is required in connection with the execution, delivery and performance by the parties to (other than the Bank) of, or the legality, validity, binding effect or enforceability of, the Fifth Amendment, the Revolving Note, the Seaboard Pledge Agreement, the VASA North Atlantic Pledge Agreement and the Guaranty Agreement. 3. Each of VASA North America, VASA North Atlantic, VASA Brougher, VASA Insurance Group and Seaboard is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own its assets and to transact the business in which it is now engaged. The opinions expressed herein are limited to the laws of the State of Indiana. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. EXHIBIT I-1 PLEDGE AGREEMENT (with respect to Seaboard) PLEDGE AGREEMENT ---------------- This PLEDGE AGREEMENT, dated as of ___________, 1998, is between THE CENTRIS GROUP, INC., a Delaware corporation ("Pledgor"), and FLEET NATIONAL BANK, a national banking association ("Pledgee"). RECITALS: -------- 1. Pledgor owns, on and as of the date on which this Pledge Agreement is executed and delivered, 100% of the issued and outstanding shares of the capital stock of Seaboard Life Insurance Company (USA) ("Seaboard"), an Indiana corporations, all of which shares (including any certificates and/or other tangible evidences thereof) are more specifically described in Attachment A ------------ hereto. 2. Pursuant to the Credit Agreement dated as of December 20, 1994 between Pledgor and Pledgee, as amended by a First Amendment dated as of March 29, 1996, a Second Amendment to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated September 30, 1998, a Fourth Amendment to the Credit Agreement (Amending and Restating the Credit Agreement) dated as of October 26, 1998 and a Fifth Amendment to the Credit Agreement dated as of December 28, 1998 (said Credit Agreement as currently in effect and as from time to time amended, modified or supplemented being herein called the "Financing Agreement"), Pledgee has agreed to make certain revolving loans to Pledgor subject to certain conditions. 3. Pledgee is willing to extend such financing, but only on the condition, among others, that Pledgor shall first have executed and delivered to Pledgee this Pledge Agreement. NOW, THEREFORE, in consideration of such financing and for other good and valuable consideration, receipt of which is hereby acknowledged, Pledgor and Pledgee agree as follows: 1. Pledge and Delivery. (a) To secure the prompt and complete payment ------------------- and performance when due of the Obligations (as defined in Section 1(b) hereof), Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants Pledgee a continuing security interest in, all of the following property and rights and interests in property (all such property, rights and interests being hereinafter collectively called the "Pledged Collateral"): (i) all issued and outstanding shares of the capital stock of each of Seaboard described in Attachment A hereto, and any additional shares ------------ of the capital stock of any class or series of Seaboard which Pledgor may at any time and from time to time hereafter purchase or otherwise acquire, together with the certificates and/or other instruments or writings representing them (such shares, certificates and other writings being hereinafter collectively called the "Pledged Shares"); (ii) (A) all shares and other securities and all warrants, rights and options to acquire Pledged Shares (such shares, securities, warrants, rights and options together with the certificates and/or other instruments or writings representing them being hereinafter collectively called the "Additional Pledged Securities") and (B) all money and other property, at any time and from time to time received or receivable by or distributed or distributable to Pledgor from the issuer of any or all of the Pledged Shares in exchange or substitution for or otherwise in respect of any or all of the Pledged Shares or earlier-issued Additional Pledged Securities (whether in the ordinary course of such issuer's business or representing or resulting from cash or stock dividends, stock splits or reclassifications, the recapitalization, reorganization, merger, consolidation, disposition of assets, liquidation or dissolution of such issuer, the exercise by Pledgor of warrants, rights or options, or any other action or cause); and (iii) all proceeds of any or all of the foregoing. (b) As used herein, the term "Obligations" shall mean all indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee (whether directly as principal or maker or indirectly as guarantor, surety, endorser or otherwise), now or hereafter existing, due or to become due, howsoever incurred, arising or evidenced, whether of principal or interest or payment or performance under the Financing Agreement. (c) Prior to or simultaneously with the execution and delivery hereof by Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written receipt to Pledgor shall acknowledge its prior receipt of, the certificate(s) and/or other instruments and documents evidencing all of the Pledged Shares, Additional Pledged Securities and all other items of the Pledged Collateral then owned by Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee any and all of the Pledged Shares, Additional Pledged Securities and other Pledged Collateral (including any and all certificates and/or other instruments or documents representing each item thereof) which it acquires in any way at any time after such execution and delivery. Upon delivery to Pledgee, each item of the Pledged Collateral shall be accompanied by, as appropriate, (i) undated, duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or documents as Pledgee shall reasonably request. 2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor --------------------------------------------------- represents and warrants that: (i) Pledgor has the right, power and authority to execute, deliver and perform this Pledge Agreement and to pledge, assign, deliver, transfer and grant a security interest in the Pledged Collateral; (ii) this Pledge Agreement constitutes the legal, valid and binding obligation of Pledgor, -2- enforceable against Pledgor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and subject to the availability of equitable remedies and any limitation that may restrict Pledgee from selling, voting or exercising control over Seaboard without obtaining approval of the Insurance Commissioner; (iii) Pledgor has good title to all of the Pledged Shares and is the legal record and beneficial owner of each of the Pledged Shares (and will have good title to and be the legal record and beneficial owner of each other item of Pledged Collateral, including any Additional Pledged Securities), free and clear of all encumbrances except Pledgee's security interest hereunder; (iv) each of the Pledged Shares and Additional Pledged Securities is, or will be when acquired by Pledgor and pledged hereunder, duly and validly issued and fully paid and non-assessable, and there are no restrictions on the transfer of any thereof other than such restrictions as appear on the certificates or other instruments or writings representing them, or as are referred to in clause (ii) above or otherwise may be imposed under applicable law; (v) no action other than the delivery of each item of the Pledged Collateral to, and its continued possession by, Pledgee or any of its agents or nominees is necessary to maintain a perfected, first- priority security interest in such item in favor of Pledgee; and (vi) no authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Pledgor of this Agreement or for the validity or enforceability hereof except as are referred to in clause (ii) above. (b) Pledgor covenants and agrees that it will at its expense (i) defend both its own rights and interests and Pledgee's rights and security interest in and to the Pledged Collateral against the claims and demands of all other persons and (ii) execute and deliver to Pledgee such further conveyances, agreements, assignments, instruments and other writings, and take such further action, as Pledgee may request in order to obtain the full benefit of this Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies granted to Pledgee hereunder. Pledgor further covenants and agrees that until all Obligations have been satisfied and this Pledge Agreement has been terminated, Pledgor will not without Pledgee's prior written consent sell, assign, transfer, exchange or otherwise temporarily or permanently dispose of any item of the Pledged Collateral, or offer or contract to do so, and will not without such consent create, incur, assume or permit to exist any security interest, pledge, claim or other charge or encumbrance on or with respect to any such item other than the security interest granted to Pledgee hereunder. 3. Names in which Pledged Shares and Additional Pledged Securities May ------------------------------------------------------------------- Be Registered. Subject to any required approval of the Indiana Department of - ------------- Insurance, at any time and from time to time during the term of this Pledge Agreement, whether or not a Pledgor Default (as defined in Section 9 hereof) is then continuing, Pledgee shall be entitled to hold any or all of the Pledged Shares and Additional Pledged Securities in its own name, the name(s) of one or more of its nominees or the name of Pledgor endorsed or assigned in blank or in favor of Pledgee. With respect to any of the Pledged Shares and/or Additional Pledged Securities which Pledgee wishes to hold in its own name or the name of any nominee in accordance with this Section 3, Pledgee (acting in its own name and capacity or as Pledgor's attorney-in-fact pursuant to the power of attorney granted to Pledgee in Section 5 hereof) may have such Pledged Shares and Additional Pledged -3- Securities registered accordingly on the books of the issuer(s) thereof, and Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect such transfer and registration. 4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default ----------------------------- shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Shares and Additional Pledged Securities for any purpose not inconsistent with (A) the provisions of this Pledge Agreement and the Financing Agreement and applicable insurance and other law and (B) the preservation of the value of and Pledgee's security interest in the Pledged Collateral; (ii) Pledgor shall be entitled to receive and retain all cash dividends, interest and other cash distributions payable in respect of the Pledged Collateral to the extent that such distributions are charged to, and as of the date of payment thereof do not exceed, the retained earnings of the issuer or other person making such distribution and do not exceed any limitations imposed by the Indiana Insurance Holding Company System Regulation or the Indiana Insurance Code; and (iii) If any or all of the Pledged Shares and Additional Pledged Securities shall have been registered in the name(s) of Pledgee and/or any of its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so executed and delivered, all such proxies, limited powers of attorney, dividend orders and such other instruments and writings as Pledgor may reasonably request to enable it, subject to the provisions of Section 4(b) hereof, to exercise the rights and powers and to receive the distributions to which it is entitled under the provisions of paragraphs (i) and (ii) of this Section 4(a). (b) Upon the occurrence and during the continuance of a Pledgor Default, all rights of Pledgor to exercise the voting and consensual rights and powers described in paragraph (i) of Section 4(a) hereof and to receive the dividends, interest and other cash distributions described in paragraph (ii) of such Section shall cease, and all such rights shall thereupon become vested in Pledgee; provided, however, that Pledgor may thereafter continue to exercise any -------- ------- and all such voting and consensual rights and powers until such time as Pledgee shall notify Pledgor in writing that Pledgee intends to assume and exercise the same; and provided further that Pledgee shall not sell, vote or in any manner -------- ------- exercise control over Seaboard without obtaining, to the extent required by law and the prior approval (including any hearing required by law) of the Indiana Department of Insurance. (c) Upon the occurrence and during the continuance of a Pledgor Default and subject to compliance with any applicable rules and regulations of the Indiana Division of Insurance, Pledgee may, in its own name and capacity or as Pledgor's attorney-in-fact, collect, receive, endorse and deposit all Additional Pledged Securities, money, cash proceeds, instruments and any and all other property which is or may at any time become payable in respect of any or all of the Pledged -4- Collateral and which Pledgee is or may become entitled to receive under subsection (a) or (b) of this Section 4. All such property so received by Pledgee may be retained by Pledgee as additional Pledged Collateral, and (i) all money and other cash proceeds so received may be applied by Pledgee to payment of the Obligations in such order as Pledgee may elect, whether or not a Pledgor Default shall then be continuing, and (ii) during the continuance of a Pledgor Default, all other property so received may be sold or otherwise disposed of by Pledgee as provided in Section 10 hereof and the proceeds thereof applied as also provided in such Section. Any and all money and other property received by Pledgor contrary to the provisions of this Section 4 shall be held by Pledgor in trust for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and property and shall promptly be delivered to Pledgee in exactly the form received by Pledgor, except for any necessary endorsements. 5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby ----------------------------------------------- appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's place and stead, in Pledgor's name or its own name and at Pledgor's expense, to execute, endorse and deliver any and all agreements, assignments, pledges, instruments and any other writings, and to take any and all other actions, which Pledgee may deem necessary or desirable to carry out the terms and effect the purposes of this Pledge Agreement and to exercise fully its rights and remedies hereunder. Pledgee may delegate any or all of such power to any of its officers, directors, employees, agents, nominees, shareholders and other representatives (hereinafter collectively called "Representatives") and to have any such Representative(s) exercise any such delegated power as substitute(s) for Pledgee. Pledgor hereby ratifies all that Pledgee and all such Representatives shall lawfully do or cause to be done under this power of attorney, which power is coupled with an interest and shall be irrevocable until all Obligations have been satisfied and this Pledge Agreement has been terminated. 6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any --------------------------------------- time fail to perform or comply with any of its covenants and agreements hereunder, Pledgee may (but shall not be required or obligated to) take such action, in its own name and capacity or as Pledgor's attorney-in-fact, as Pledgee shall deem necessary or desirable to effect such performance or compliance. 7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to ------------------------------------- have used reasonable care in the custody and preservation of the Pledged Collateral in its possession to the extent it accords such Pledged Collateral treatment which is substantially equal to that which Pledgee accords its own property of like kind; provided, however, that Pledgee shall have no obligation, -------- ------- regardless of whether it takes any such action with respect to its own property, (i) to ascertain or take action with respect to calls, tenders, conversions, exchanges, maturities or other matters involving or affecting any item(s) of such Pledged Collateral (whether or not Pledgee has actual or constructive knowledge of any such matters), unless reasonably requested by Pledgor to do so, or (ii) to take action to preserve rights against prior or other parties. 8. Limitation of Pledgee's Liability; Reimbursement of Expenses and ---------------------------------------------------------------- Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to - --------------- take, or refrain from taking, any action with respect to the Pledged Collateral or Pledgor's rights and interests therein except with respect -5- to (i) the preservation and return of the Pledged Collateral in its possession as and to the extent provided, respectively, in Sections 7 and 14 hereof and (ii) the execution and delivery to Pledgor of certain instruments and other writings as and when required under Section 4(a)(iii) hereof and other limitations imposed by law. Pledgor further agrees that neither Pledgee nor any of its Representatives shall have any liability to Pledgor, or to any person claiming rights against Pledgee by, through or under Pledgor, in any way arising out of or in connection with Pledgee's or any such Representative's administration of this Pledge Agreement or its exercise of any of its rights, power and remedies hereunder except for (i) Pledgee's or any such Representative's failure to take as and when required any of the actions referenced in the first sentence of this Section 8(a) or to account to Pledgor for those amounts of money and other property -- and only for those amounts -- which it actually receives in connection with such administration or exercise and which it is required to pay over to Pledgor or apply to the Obligations under any other provision hereof, (ii) its failure to exercise reasonable care as and to the extent required in Section 7 hereof or (iii) its negligence or willful misconduct. (b) Pledgor shall pay or reimburse Pledgee on demand for all costs and expenses (including without limitation reasonable attorneys' fees and legal expenses) paid or incurred by Pledgee in connection with (i) the administration and any amendment of this Pledge Agreement, (ii) the custody or preservation of the Pledged Collateral and any authorized collection from, disposition of or other realization on any item(s) thereof, and (iii) the exercise and enforcement of any of Pledgee's rights, powers and remedies hereunder, including without limitation its right to perform Pledgor's covenants and agreements hereunder to the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend and hold harmless Pledgee, its Representatives, successors and assigns from and against any and all liabilities, claims, actions, losses, damages, taxes, penalties, fines, costs and expenses (including reasonable attorneys' fees and legal expenses) which in any way arise out of or in connection with any of the actions or matters with respect to which Pledgor has a payment or reimbursement obligation under this Section; provided, however, that Pledgor shall have no -------- ------- obligation to indemnify Pledgee or any such Representative, successor or assign against any liabilities, claims, etc. resulting from such party's negligence or willful misconduct or its failure to exercise reasonable care as and to the extent required in Section 7 hereof. Until any reimbursement of costs or expenses or any indemnity payment required under this Section is received by Pledgee in cash or immediately available funds, the amount thereof shall bear interest at the rate specified in the Financing Agreement for delinquent payments, and such amount and such interest shall constitute part of the Obligations secured by the Pledged Collateral. 9. Pledgor Defaults. The following shall constitute a "Pledgor ---------------- Default": (i) Pledgor fails to make payment when due or demanded, as applicable, on or with respect to any indebtedness, obligation or liability which is then part of the Obligations, or fails to perform or comply with any of its covenants or agreements hereunder; (ii) any representation or warranty made by Pledgor herein or in any statement, report or certificate furnished to Pledgee by Pledgor hereunder proves to have been false or misleading in any material respect; or (iii) an "Event of Default" occurs under the Financing Agreement. -6- 10. Remedies. (a) If a Pledgor Default has occurred and is continuing, -------- Pledgee may at any time and from time to time exercise any and all rights and remedies available to it (i) hereunder and under the Financing Agreement and any other agreement or instrument then in effect between Pledgor and Pledgee and relating to the Obligations, including without limitation those rights and remedies set out in subsections (b) through (f) of this Section 10, and (ii) as a secured party under the Uniform Commercial Code as then in effect in the State of Connecticut (the "Code") and under any other applicable law or rule of law or equity. Should Pledgee elect to proceed by action at law or in equity to foreclose its security interest in and sell any or all of the Pledged Collateral, Pledgor waives (to the extent permitted by law) any rights it may then have in connection therewith to require Pledgee to post bonds, sureties or collateral security or to demand possession of any such Pledged Collateral pending judgment therein. (b) If a Pledgor default has occurred and is continuing, to the extent permitted by the Insurance Commissioner and by applicable federal and state securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or, from time to time any part, of the Pledged Collateral at public or private sale, over the counter or at any broker's board or securities exchange, for cash, on credit or in exchange for other property, for immediate or future delivery, without advertisement or notice (except as provided in this subsection), and for such price and on such terms as Pledgee deems appropriate, provided only that -------- all aspects of any such disposition are commercially reasonable within the requirements of Section 42a-9-504 of the Code, as defined and supplemented by the standards and agreements set forth herein. Pledgor agrees that to the extent notice of the time and place of any such public sale, or of the time after which Pledgee intends to make any such private sale or other disposition, is required under the Code, such notice shall be deemed commercially reasonable if transmitted by any of the means described in the Financing Agreement not less than 15 days prior thereto. Pledgee shall not be obligated to effect any sale of any or all of the Pledged Collateral, whether or not notice thereof has been given, and may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may be held without further notice at the time and place to which it was so adjourned. (c) At any such private or public sale, to the extent permitted by the Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the Pledged Collateral then being sold and may pay the price thereof by credit against the Obligations then outstanding. Any purchaser of any item(s) of the Pledged Collateral (including Pledgee) shall take such item(s) free from any right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by the Code and other applicable law, all rights of redemption and/or to any stay, exemption or appraisal which Pledgor now has or may hereafter acquire. (d) Pledgor agrees and acknowledges that requiring the issuer(s) of the securities included in the Pledged Collateral to register such securities under applicable provisions of federal and state securities laws would not be practicable and therefore could not be deemed commercially reasonable. Pledgor further agrees and acknowledges that in order to comply with applicable federal and state securities laws without effecting such registration, Pledgee may be required: (i) to sell or otherwise dispose of any or all of the Pledged Collateral at one or more private rather than public -7- sales and (ii) to limit the prospective purchasers at such sale(s) to persons who will represent and agree that they are purchasing the securities they intend to acquire for their own account for investment and not with a view to the distribution or sale thereof, and who will be compelled to accept stringent restrictions on their ability to dispose of such securities. Accordingly, Pledgor agrees that: (i) Pledgee shall not incur any liability to Pledgor by reason of the fact that the price obtained for any or all the Pledged Collateral at such private sale(s) to investors restricted as provided above may be less than the price which might be obtained therefor at a public sale or unrestricted private sale and (iii) any and all private sales shall be deemed commercially reasonable even if (A) the amount received is less than the then-outstanding amount of the Obligations and/or (B) even if Pledgee accepts the first offer received or does not offer all or any part of the Pledged Collateral to more than one prospective purchaser, unless the sale in question is conducted in bad faith or in a manner manifestly unreasonable for sales of that type. (e) In case of any sale by the Pledgee of any item(s) of the Pledged Collateral on credit or for future delivery, such item(s) may be retained by the Pledgee until the selling price is paid by the purchaser(s) thereof, but the Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for such item(s). In case of any such failure, such item(s) may be sold again upon notice, to the extent required by law, as provided in subsection (b) of this Section 10. (f) The proceeds of the sale or other disposition of the Pledged Collateral shall be applied first, to that part of the Obligations consisting of Pledgee's reasonable expenses (including without limitation reasonable attorneys' fees and legal expenses) in preparing for disposition and disposing of the Pledged Collateral and, to the extent not previously reimbursed by Pledgor, in administering this Pledge Agreement and exercising and enforcing its rights, powers and remedies hereunder, and second, to the satisfaction of the then outstanding amount of Pledgor's indebtedness under the Financing Agreement and of all other Obligations then remaining unpaid. Pledgee shall account to Pledgor for any surplus and Pledgor shall be liable to Pledgee for any deficiency. 11. Amendments, Etc. No provision of this Pledge Agreement may be --------------- amended, modified, supplemented or waived, and no consent to any departure therefrom by Pledgor may be given, except by a writing duly executed and delivered by the parties hereto, and any such amendment, modification, supplement or waiver shall be effective only as and to the extent provided therein. 12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and ------------------------------------------ remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement and under any other agreements, instruments and other writings now or hereafter existing between Pledgor and Pledgee and relating to the Obligations, and (ii) under the Code and other applicable law, are cumulative and except as otherwise provided by law or in such agreements may be exercised concurrently or in any order of succession. Pledgee's failure to exercise or delay in exercising any of such rights, powers and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee's single or partial exercise of any such right, power or remedy preclude its other or further exercise thereof, or the exercise of any other right, power or remedy. Pledgee's cure of any Pledgor Default shall not -8- constitute a waiver thereof, and its waiver of one Pledgor Default shall not constitute a waiver of any subsequent Pledgor Default. 13. Pledgor's Waivers. Pledgor agrees that until the Obligations are ----------------- paid in full, Pledgee's security interest in the Pledged Collateral shall be absolute and unconditional regardless of the existence or occurrence of, and expressly waives any defense or discharge which might otherwise arise from, any of the following: (i) any lack of validity or enforceability of this Pledge Agreement, the Financing Agreement or any other agreement or instrument relating hereto or thereto or otherwise relating to the Obligations; (ii) any change in the time, manner or place of payment of, or in any other terms of, any or all of the Obligations, or any other amendment or waiver of, or any consent to departure from, this Pledge Agreement or the Financing Agreement or any other agreement, instrument or other writing now or hereafter existing between Pledgor and Pledgee and relating to the Obligations; (iii) any exchange, release or non-perfection of any other collateral, or any release, amendment or waiver of, or consent to departure from any guaranty, for any or all of the Obligations; (iv) Pledgee's resort, during the continuation of a Pledgor Default, to any or all of the Pledged Collateral for payment of all or part of the Obligations prior to proceeding against any other collateral or any other party primarily or secondarily liable for payment thereof; or (v) to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the Obligations or this Pledge Agreement. 14. Termination; Release of Pledged Collateral. This Agreement and the ------------------------------------------ security interest granted hereunder shall terminate on the date on which all Obligations have been fully satisfied. Pledgee shall thereupon reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor or such person(s) as Pledgor shall designate, against due execution and delivery by Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form and substance, such items of the Pledged Collateral (if any) as are then held by Pledgee or its Representatives, together with appropriate instruments of reassignment and release. Any such reassignment shall be without recourse to or warranty by Pledgee or any such Representative and at the expense of Pledgor. 15. Notices. All notices, requests, directions, consents, waivers and ------- other communications hereunder shall be in writing and shall be transmitted by the means and to the addresses from time to time specified in the Financing Agreement. -9- 16. Binding Agreement; Assignment. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Pledgor shall not assign or otherwise -------- ------- transfer any of its obligations, rights or interests hereunder without the prior written consent of Pledgee. 17. Governing Law; Severability. This Agreement shall be governed by --------------------------- and construed in accordance with the laws of the State of Connecticut, except to the extent that the remedies hereunder in respect of the Pledged Collateral are governed by the laws of the State of Indiana. Wherever possible each provision of this Pledge Agreement shall be construed in such manner as to be valid and enforceable under applicable law, but if any provision hereof shall be deemed invalid or unenforceable to any extent in any jurisdiction, such provision shall be ineffective only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remainder of such provision or any of the other provisions hereof, and any such invalidity or unenforceability in one jurisdiction shall not render such provision ineffective in any other jurisdiction. 18. Titles; Defined Terms; Counterparts. Section titles are for ----------------------------------- convenience only and shall not define, limit, amplify, supplement or otherwise modify or affect the substance or intent of this Pledge Agreement or any provision hereof. Initial capitalized terms not defined herein shall have the meanings ascribed to them in the Financing Agreement. This Pledge Agreement may be executed in two or more counterparts, each of which shall when executed by both parties be deemed to be an original but all of which together shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge Agreement to be duly executed by its respective authorized officer as of the date first above written. THE CENTRIS GROUP, INC. By:____________________ Print Name: Print Title: FLEET NATIONAL BANK By:____________________ Print Name: Print Title: -11- ATTACHMENT A ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK Name No. of Shares - ---- ------------- Seaboard Life Insurance Company (USA) 250 EXHIBIT I-2 PLEDGE AGREEMENT (with respect to VASA North Atlantic) PLEDGE AGREEMENT ---------------- This PLEDGE AGREEMENT, dated as of ___________, 1998, is among VASA Insurance Group, Inc., VASA Brougher, Inc., Indiana corporations (individually and collectively, "Pledgor"), and FLEET NATIONAL BANK, a national banking association ("Pledgee"). RECITALS: --------- 1. Pledgor owns, on and as of the date on which this Pledge Agreement is executed and delivered, 100% of the issued and outstanding shares of the capital stock of VASA North Atlantic Insurance Company ("VASA"), an Indiana corporation, all of which shares (including any certificates and/or other tangible evidences thereof) are more specifically described in Attachment A ------------ hereto. 2. Pursuant to the Credit Agreement dated as of December 20, 1994 between The Centris Group, Inc. ("Centris") and Pledgee, as amended by a First Amendment dated as of March 29, 1996, a Second Amendment to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated September 30, 1998, a Fourth Amendment to the Credit Agreement (Amending and Restating the Credit Agreement) dated as of October 26, 1998 and a Fifth Amendment to the Credit Agreement dated as of December 28, 1998 (said Credit Agreement as currently in effect and as from time to time amended, modified or supplemented being herein called the "Financing Agreement"), Pledgee has agreed to make certain revolving loans to Centris subject to certain conditions. 3. Pledgee is willing to extend such financing, but only on the condition, among others, that Pledgor shall first have executed and delivered to Pledgee this Pledge Agreement. As Subsidiaries of Centris, Pledgor acknowledges that it will benefit from the existence of the Financing Agreement and therefore is willing to enter into this Agreement. NOW, THEREFORE, in consideration of such financing and for other good and valuable consideration, receipt of which is hereby acknowledged, Pledgor and Pledgee agree as follows: 1. Pledge and Delivery. (a) To secure the prompt and complete payment and ------------------- performance when due of the Obligations (as defined in Section 1(b) hereof), Pledgor hereby pledges, assigns, delivers and transfers to Pledgee, and grants Pledgee a continuing security interest in, all of the following property and rights and interests in property (all such property, rights and interests being hereinafter collectively called the "Pledged Collateral"): (i) all issued and outstanding shares of the capital stock of VASA described in Attachment A hereto, and any additional shares of the capital stock ------------ of any class or series of VASA which Pledgor may at any time and from time to time hereafter purchase or otherwise acquire, together with the certificates and/or other instruments or writings representing them (such shares, certificates and other writings being hereinafter collectively called the "Pledged Shares"); (ii) (A) all shares and other securities and all warrants, rights and options to acquire Pledged Shares (such shares, securities, warrants, rights and options together with the certificates and/or other instruments or writings representing them being hereinafter collectively called the "Additional Pledged Securities") and (B) all money and other property, at any time and from time to time received or receivable by or distributed or distributable to Pledgor from the issuer of any or all of the Pledged Shares in exchange or substitution for or otherwise in respect of any or all of the Pledged Shares or earlier-issued Additional Pledged Securities (whether in the ordinary course of such issuer's business or representing or resulting from cash or stock dividends, stock splits or reclassifications, the recapitalization, reorganization, merger, consolidation, disposition of assets, liquidation or dissolution of such issuer, the exercise by Pledgor of warrants, rights or options, or any other action or cause); and (iii) all proceeds of any or all of the foregoing. (b) As used herein, the term "Obligations" shall mean all indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee (whether directly as principal or maker or indirectly as guarantor, surety, endorser or otherwise), now or hereafter existing, due or to become due, howsoever incurred, arising or evidenced, whether of principal or interest or payment or performance including without limitation, arising under the Guaranty Agreement, and all Obligations of Pledgor now or hereafter existing under this Agreement. (c) Prior to or simultaneously with the execution and delivery hereof by Pledgee, Pledgor shall have delivered to Pledgee, and Pledgee by written receipt to Pledgor shall acknowledge its prior receipt of, the certificate(s) and/or other instruments and documents evidencing all of the Pledged Shares, Additional Pledged Securities and all other items of the Pledged Collateral then owned by Pledgor. Pledgor agrees that it shall immediately deliver to Pledgee any and all of the Pledged Shares, Additional Pledged Securities and other Pledged Collateral (including any and all certificates and/or other instruments or documents representing each item thereof) which it acquires in any way at any time after such execution and delivery. Upon delivery to Pledgee, each item of the Pledged Collateral shall be accompanied by, as appropriate, (i) undated, duly executed stock powers endorsed by Pledgor either in blank or to Pledgee in a manner which Pledgee deems satisfactory, and/or (ii) such other instruments or documents as Pledgee shall reasonably request. -2- 2. Pledgor's Representations, Warranties and Covenants. (a) Pledgor --------------------------------------------------- represents and warrants that: (i) Pledgor has the right, power and authority to execute, deliver and perform this Pledge Agreement and to pledge, assign, deliver, transfer and grant a security interest in the Pledged Collateral; (ii) this Pledge Agreement constitutes the legal, valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and subject to the availability of equitable remedies and any limitation that may restrict Pledgee from selling, voting or exercising control over VASA without obtaining approval of the Insurance Commissioner; (iii) Pledgor has good title to all of the Pledged Shares and is the legal record and beneficial owner of each of the Pledged Shares (and will have good title to and be the legal record and beneficial owner of each other item of Pledged Collateral, including any Additional Pledged Securities), free and clear of all encumbrances except Pledgee's security interest hereunder; (iv) each of the Pledged Shares and Additional Pledged Securities is, or will be when acquired by Pledgor and pledged hereunder, duly and validly issued and fully paid and non-assessable, and there are no restrictions on the transfer of any thereof other than such restrictions as appear on the certificates or other instruments or writings representing them, or as are referred to in clause (ii) above or otherwise may be imposed under applicable law; (v) no action other than the delivery of each item of the Pledged Collateral to, and its continued possession by, Pledgee or any of its agents or nominees is necessary to maintain a perfected, first- priority security interest in such item in favor of Pledgee; and (vi) no authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Pledgor of this Agreement or for the validity or enforceability hereof except as are referred to in clause (ii) above. (b) Pledgor covenants and agrees that it will at its expense (i) defend both its own rights and interests and Pledgee's rights and security interest in and to the Pledged Collateral against the claims and demands of all other persons and (ii) execute and deliver to Pledgee such further conveyances, agreements, assignments, instruments and other writings, and take such further action, as Pledgee may request in order to obtain the full benefit of this Pledge Agreement, the Pledged Collateral, and the rights, powers and remedies granted to Pledgee hereunder. Pledgor further covenants and agrees that until all Obligations have been satisfied and this Pledge Agreement has been terminated, Pledgor will not without Pledgee's prior written consent sell, assign, transfer, exchange or otherwise temporarily or permanently dispose of any item of the Pledged Collateral, or offer or contract to do so, and will not without such consent create, incur, assume or permit to exist any security interest, pledge, claim or other charge or encumbrance on or with respect to any such item other than the security interest granted to Pledgee hereunder. 3. Names in which Pledged Shares and Additional Pledged Securities May Be ---------------------------------------------------------------------- Registered. Subject to any required approval of the Indiana Department of - ---------- Insurance, at any time and from time to time during the term of this Pledge Agreement, whether or not a Pledgor Default (as defined in Section 9 hereof) is then continuing, Pledgee shall be entitled to hold any or all of the Pledged Shares and Additional Pledged Securities in its own name, the name(s) of one or more of its nominees or the name of Pledgor endorsed or assigned in blank or in favor of Pledgee. With -3- respect to any of the Pledged Shares and/or Additional Pledged Securities which Pledgee wishes to hold in its own name or the name of any nominee in accordance with this Section 3, Pledgee (acting in its own name and capacity or as Pledgor's attorney-in-fact pursuant to the power of attorney granted to Pledgee in Section 5 hereof) may have such Pledged Shares and Additional Pledged Securities registered accordingly on the books of the issuer(s) thereof, and Pledgor shall cooperate fully with Pledgee in causing such issuer(s) to effect such transfer and registration. 4. Voting Rights; Dividends, Etc. (a) So long as no Pledgor Default ------------------------------ shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Shares and Additional Pledged Securities for any purpose not inconsistent with (A) the provisions of this Pledge Agreement and the Financing Agreement and applicable insurance and other law and (B) the preservation of the value of and Pledgee's security interest in the Pledged Collateral; (ii) Pledgor shall be entitled to receive and retain all cash dividends, interest and other cash distributions payable in respect of the Pledged Collateral to the extent that such distributions are charged to, and as of the date of payment thereof do not exceed, the retained earnings of the issuer or other person making such distribution and do not exceed any limitations imposed by the Indiana Insurance Holding Company System Regulation or the Indiana Insurance Code; and (iii) If any or all of the Pledged Shares and Additional Pledged Securities shall have been registered in the name(s) of Pledgee and/or any of its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so executed and delivered, all such proxies, limited powers of attorney, dividend orders and such other instruments and writings as Pledgor may reasonably request to enable it, subject to the provisions of Section 4(b) hereof, to exercise the rights and powers and to receive the distributions to which it is entitled under the provisions of paragraphs (i) and (ii) of this Section 4(a). (b) Upon the occurrence and during the continuance of a Pledgor Default, all rights of Pledgor to exercise the voting and consensual rights and powers described in paragraph (i) of Section 4(a) hereof and to receive the dividends, interest and other cash distributions described in paragraph (ii) of such Section shall cease, and all such rights shall thereupon become vested in Pledgee; provided, however, that Pledgor may thereafter continue to exercise any -------- ------- and all such voting and consensual rights and powers until such time as Pledgee shall notify Pledgor in writing that Pledgee intends to assume and exercise the same; and provided further that Pledgee shall not sell, vote or in any manner -------- ------- exercise control over VASA without obtaining, to the extent required by law and the prior approval (including any hearing required by law) of the Indiana Department of Insurance. -4- (c) Upon the occurrence and during the continuance of a Pledgor Default and subject to compliance with any applicable rules and regulations of the Indiana Division of Insurance, Pledgee may, in its own name and capacity or as Pledgor's attorney-in-fact, collect, receive, endorse and deposit all Additional Pledged Securities, money, cash proceeds, instruments and any and all other property which is or may at any time become payable in respect of any or all of the Pledged Collateral and which Pledgee is or may become entitled to receive under subsection (a) or (b) of this Section 4. All such property so received by Pledgee may be retained by Pledgee as additional Pledged Collateral, and (i) all money and other cash proceeds so received may be applied by Pledgee to payment of the Obligations in such order as Pledgee may elect, whether or not a Pledgor Default shall then be continuing, and (ii) during the continuance of a Pledgor Default, all other property so received may be sold or otherwise disposed of by Pledgee as provided in Section 10 hereof and the proceeds thereof applied as also provided in such Section. Any and all money and other property received by Pledgor contrary to the provisions of this Section 4 shall be held by Pledgor in trust for Pledgee, shall be segregated by Pledgor from Pledgor's other funds and property and shall promptly be delivered to Pledgee in exactly the form received by Pledgor, except for any necessary endorsements. 5. Pledgee Appointed as Pledgor's Attorney-in-Fact. Pledgor hereby ----------------------------------------------- appoints Pledgee as Pledgor's attorney-in-fact with full power in Pledgor's place and stead, in Pledgor's name or its own name and at Pledgor's expense, to execute, endorse and deliver any and all agreements, assignments, pledges, instruments and any other writings, and to take any and all other actions, which Pledgee may deem necessary or desirable to carry out the terms and effect the purposes of this Pledge Agreement and to exercise fully its rights and remedies hereunder. Pledgee may delegate any or all of such power to any of its officers, directors, employees, agents, nominees, shareholders and other representatives (hereinafter collectively called "Representatives") and to have any such Representative(s) exercise any such delegated power as substitute(s) for Pledgee. Pledgor hereby ratifies all that Pledgee and all such Representatives shall lawfully do or cause to be done under this power of attorney, which power is coupled with an interest and shall be irrevocable until all Obligations have been satisfied and this Pledge Agreement has been terminated. 6. Pledgee's Rights to Perform for Pledgor. If Pledgor shall at any time --------------------------------------- fail to perform or comply with any of its covenants and agreements hereunder, Pledgee may (but shall not be required or obligated to) take such action, in its own name and capacity or as Pledgor's attorney-in-fact, as Pledgee shall deem necessary or desirable to effect such performance or compliance. 7. Reasonable Care of Pledged Collateral. Pledgee shall be deemed to have ------------------------------------- used reasonable care in the custody and preservation of the Pledged Collateral in its possession to the extent it accords such Pledged Collateral treatment which is substantially equal to that which Pledgee accords its own property of like kind; provided, however, that Pledgee shall have no obligation, regardless -------- ------- of whether it takes any such action with respect to its own property, (i) to ascertain or take action with respect to calls, tenders, conversions, exchanges, maturities or other matters involving or affecting any item(s) of such Pledged Collateral (whether or not Pledgee has -5- actual or constructive knowledge of any such matters), unless reasonably requested by Pledgor to do so, or (ii) to take action to preserve rights against prior or other parties. 8. Limitation of Pledgee's Liability; Reimbursement of Expenses and ---------------------------------------------------------------- Indemnification. (a) Pledgor agrees that Pledgee shall have no obligation to - --------------- take, or refrain from taking, any action with respect to the Pledged Collateral or Pledgor's rights and interests therein except with respect to (i) the preservation and return of the Pledged Collateral in its possession as and to the extent provided, respectively, in Sections 7 and 14 hereof and (ii) the execution and delivery to Pledgor of certain instruments and other writings as and when required under Section 4(a)(iii) hereof and other limitations imposed by law. Pledgor further agrees that neither Pledgee nor any of its Representatives shall have any liability to Pledgor, or to any person claiming rights against Pledgee by, through or under Pledgor, in any way arising out of or in connection with Pledgee's or any such Representative's administration of this Pledge Agreement or its exercise of any of its rights, power and remedies hereunder except for (i) Pledgee's or any such Representative's failure to take as and when required any of the actions referenced in the first sentence of this Section 8(a) or to account to Pledgor for those amounts of money and other property -- and only for those amounts -- which it actually receives in connection with such administration or exercise and which it is required to pay over to Pledgor or apply to the Obligations under any other provision hereof, (ii) its failure to exercise reasonable care as and to the extent required in Section 7 hereof or (iii) its negligence or willful misconduct. (b) Pledgor shall pay or reimburse Pledgee on demand for all costs and expenses (including without limitation reasonable attorneys' fees and legal expenses) paid or incurred by Pledgee in connection with (i) the administration and any amendment of this Pledge Agreement, (ii) the custody or preservation of the Pledged Collateral and any authorized collection from, disposition of or other realization on any item(s) thereof, and (iii) the exercise and enforcement of any of Pledgee's rights, powers and remedies hereunder, including without limitation its right to perform Pledgor's covenants and agreements hereunder to the extent Pledgor fails to do so. Pledgor further agrees to indemnify, defend and hold harmless Pledgee, its Representatives, successors and assigns from and against any and all liabilities, claims, actions, losses, damages, taxes, penalties, fines, costs and expenses (including reasonable attorneys' fees and legal expenses) which in any way arise out of or in connection with any of the actions or matters with respect to which Pledgor has a payment or reimbursement obligation under this Section; provided, however, that Pledgor shall have no -------- ------- obligation to indemnify Pledgee or any such Representative, successor or assign against any liabilities, claims, etc. resulting from such party's negligence or willful misconduct or its failure to exercise reasonable care as and to the extent required in Section 7 hereof. Until any reimbursement of costs or expenses or any indemnity payment required under this Section is received by Pledgee in cash or immediately available funds, the amount thereof shall bear interest at the rate specified in the Financing Agreement for delinquent payments, and such amount and such interest shall constitute part of the Obligations secured by the Pledged Collateral. 9. Pledgor Defaults. The following shall constitute a "Pledgor Default": ---------------- (i) Pledgor fails to make payment when due or demanded, as applicable, on or with respect to any indebtedness, -6- obligation or liability which is then part of the Obligations, or fails to perform or comply with any of its covenants or agreements hereunder; (ii) any representation or warranty made by Pledgor herein or in any statement, report or certificate furnished to Pledgee by Pledgor hereunder proves to have been false or misleading in any material respect; or (iii) an "Event of Default" occurs under the Financing Agreement. 10. Remedies. (a) If a Pledgor Default has occurred and is continuing, -------- Pledgee may at any time and from time to time exercise any and all rights and remedies available to it (i) hereunder and under the Financing Agreement and any other agreement or instrument then in effect between Pledgor and Pledgee and relating to the Obligations, including without limitation those rights and remedies set out in subsections (b) through (f) of this Section 10, and (ii) as a secured party under the Uniform Commercial Code as then in effect in the State of Connecticut (the "Code") and under any other applicable law or rule of law or equity. Should Pledgee elect to proceed by action at law or in equity to foreclose its security interest in and sell any or all of the Pledged Collateral, Pledgor waives (to the extent permitted by law) any rights it may then have in connection therewith to require Pledgee to post bonds, sureties or collateral security or to demand possession of any such Pledged Collateral pending judgment therein. (b) If a Pledgor default has occurred and is continuing, to the extent permitted by the Insurance Commissioner and by applicable federal and state securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or, from time to time any part, of the Pledged Collateral at public or private sale, over the counter or at any broker's board or securities exchange, for cash, on credit or in exchange for other property, for immediate or future delivery, without advertisement or notice (except as provided in this subsection), and for such price and on such terms as Pledgee deems appropriate, provided only that -------- all aspects of any such disposition are commercially reasonable within the requirements of Section 42a-9-504 of the Code, as defined and supplemented by the standards and agreements set forth herein. Pledgor agrees that to the extent notice of the time and place of any such public sale, or of the time after which Pledgee intends to make any such private sale or other disposition, is required under the Code, such notice shall be deemed commercially reasonable if transmitted by any of the means described in the Financing Agreement not less than 15 days prior thereto. Pledgee shall not be obligated to effect any sale of any or all of the Pledged Collateral, whether or not notice thereof has been given, and may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may be held without further notice at the time and place to which it was so adjourned. (c) At any such private or public sale, to the extent permitted by the Insurance Commissioner, Pledgee shall be entitled to bid for and/or purchase the Pledged Collateral then being sold and may pay the price thereof by credit against the Obligations then outstanding. Any purchaser of any item(s) of the Pledged Collateral (including Pledgee) shall take such item(s) free from any right or claim of Pledgor, and Pledgor hereby waives, to the extent permitted by the Code and other applicable law, all rights of redemption and/or to any stay, exemption or appraisal which Pledgor now has or may hereafter acquire. -7- (d) Pledgor agrees and acknowledges that requiring the issuer(s) of the securities included in the Pledged Collateral to register such securities under applicable provisions of federal and state securities laws would not be practicable and therefore could not be deemed commercially reasonable. Pledgor further agrees and acknowledges that in order to comply with applicable federal and state securities laws without effecting such registration, Pledgee may be required: (i) to sell or otherwise dispose of any or all of the Pledged Collateral at one or more private rather than public sales and (ii) to limit the prospective purchasers at such sale(s) to persons who will represent and agree that they are purchasing the securities they intend to acquire for their own account for investment and not with a view to the distribution or sale thereof, and who will be compelled to accept stringent restrictions on their ability to dispose of such securities. Accordingly, Pledgor agrees that: (i) Pledgee shall not incur any liability to Pledgor by reason of the fact that the price obtained for any or all the Pledged Collateral at such private sale(s) to investors restricted as provided above may be less than the price which might be obtained therefor at a public sale or unrestricted private sale and (iii) any and all private sales shall be deemed commercially reasonable even if (A) the amount received is less than the then-outstanding amount of the Obligations and/or (B) even if Pledgee accepts the first offer received or does not offer all or any part of the Pledged Collateral to more than one prospective purchaser, unless the sale in question is conducted in bad faith or in a manner manifestly unreasonable for sales of that type. (e) In case of any sale by the Pledgee of any item(s) of the Pledged Collateral on credit or for future delivery, such item(s) may be retained by the Pledgee until the selling price is paid by the purchaser(s) thereof, but the Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for such item(s). In case of any such failure, such item(s) may be sold again upon notice, to the extent required by law, as provided in subsection (b) of this Section 10. (f) The proceeds of the sale or other disposition of the Pledged Collateral shall be applied first, to that part of the Obligations consisting of Pledgee's reasonable expenses (including without limitation reasonable attorneys' fees and legal expenses) in preparing for disposition and disposing of the Pledged Collateral and, to the extent not previously reimbursed by Pledgor, in administering this Pledge Agreement and exercising and enforcing its rights, powers and remedies hereunder, and second, to the satisfaction of the then outstanding amount of Pledgor's indebtedness under the Financing Agreement and of all other Obligations then remaining unpaid. Pledgee shall account to Pledgor for any surplus and Pledgor shall be liable to Pledgee for any deficiency. 11. Amendments, Etc. No provision of this Pledge Agreement may be ---------------- amended, modified, supplemented or waived, and no consent to any departure therefrom by Pledgor may be given, except by a writing duly executed and delivered by the parties hereto, and any such amendment, modification, supplement or waiver shall be effective only as and to the extent provided therein. 12. Cumulative Remedies; No Waivers by Pledgee. All rights, powers and ------------------------------------------ remedies of Pledgee (i) under this Pledge Agreement and the Financing Agreement and under any other agreements, instruments and other writings now or hereafter existing between Pledgor and Pledgee -8- and relating to the Obligations, and (ii) under the Code and other applicable law, are cumulative and except as otherwise provided by law or in such agreements may be exercised concurrently or in any order of succession. Pledgee's failure to exercise or delay in exercising any of such rights, powers and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee's single or partial exercise of any such right, power or remedy preclude its other or further exercise thereof, or the exercise of any other right, power or remedy. Pledgee's cure of any Pledgor Default shall not constitute a waiver thereof, and its waiver of one Pledgor Default shall not constitute a waiver of any subsequent Pledgor Default. 13. Pledgor's Waivers. Pledgor agrees that until the Obligations are paid ----------------- in full, Pledgee's security interest in the Pledged Collateral shall be absolute and unconditional regardless of the existence or occurrence of, and expressly waives any defense or discharge which might otherwise arise from, any of the following: (i) any lack of validity or enforceability of this Pledge Agreement, the Financing Agreement or any other agreement or instrument relating hereto or thereto or otherwise relating to the Obligations; (ii) any change in the time, manner or place of payment of, or in any other terms of, any or all of the Obligations, or any other amendment or waiver of, or any consent to departure from, this Pledge Agreement or the Financing Agreement or any other agreement, instrument or other writing now or hereafter existing between Pledgor and Pledgee and relating to the Obligations; (iii) any exchange, release or non-perfection of any other collateral, or any release, amendment or waiver of, or consent to departure from any guaranty, for any or all of the Obligations; (iv) Pledgee's resort, during the continuation of a Pledgor Default, to any or all of the Pledged Collateral for payment of all or part of the Obligations prior to proceeding against any other collateral or any other party primarily or secondarily liable for payment thereof; or (v) to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the Obligations or this Pledge Agreement. 14. Termination; Release of Pledged Collateral. This Agreement and the ------------------------------------------ security interest granted hereunder shall terminate on the date on which all Obligations have been fully satisfied. Pledgee shall thereupon reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor or such person(s) as Pledgor shall designate, against due execution and delivery by Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form and substance, such items of the Pledged Collateral (if any) as are then held by Pledgee or its Representatives, together with appropriate instruments of reassignment and release. Any such reassignment shall be without recourse to or warranty by Pledgee or any such Representative and at the expense of Pledgor. -9- 15. Notices. All notices, requests, directions, consents, waivers and ------- other communications hereunder shall be in writing and shall be transmitted by the means and to the addresses from time to time specified in the Financing Agreement. 16. Binding Agreement; Assignment. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that Pledgor shall not assign or otherwise -------- ------- transfer any of its obligations, rights or interests hereunder without the prior written consent of Pledgee. 17. Governing Law; Severability. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of Connecticut, except to the extent that the remedies hereunder in respect of the Pledged Collateral are governed by the laws of the State of Indiana. Wherever possible each provision of this Pledge Agreement shall be construed in such manner as to be valid and enforceable under applicable law, but if any provision hereof shall be deemed invalid or unenforceable to any extent in any jurisdiction, such provision shall be ineffective only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remainder of such provision or any of the other provisions hereof, and any such invalidity or unenforceability in one jurisdiction shall not render such provision ineffective in any other jurisdiction. 18. Titles; Defined Terms; Counterparts. Section titles are for ----------------------------------- convenience only and shall not define, limit, amplify, supplement or otherwise modify or affect the substance or intent of this Pledge Agreement or any provision hereof. Initial capitalized terms not defined herein shall have the meanings ascribed to them in the Financing Agreement. This Pledge Agreement may be executed in two or more counterparts, each of which shall when executed by both parties be deemed to be an original but all of which together shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge Agreement to be duly executed by its respective authorized officer as of the date first above written. VASA INSURANCE GROUP, INC. By:__________________________ Print Name: Print Title: VASA BROUGHER, INC. By:__________________________ Print Name: Print Title: FLEET NATIONAL BANK By:__________________________ Print Name: Print Title: -11- ATTACHMENT A ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK ---------------- Name No. of Shares - ---- ------------- VASA North Atlantic Insurance Company 1,064 EXHIBIT J GUARANTY AGREEMENT ------------------ THIS GUARANTY AGREEMENT ("Guaranty") is dated as of December __, 1998, by each of the corporations that is a signatory hereto (each "Guarantor") for the benefit of FLEET NATIONAL BANK, a national banking association ("Bank"). WHEREAS, pursuant to the Credit Agreement dated as of December 20, 1994 between The Centris Group, Inc. ("Borrower") and Bank, as amended by a First Amendment dated as of March 29, 1996, a Second Amendment to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the Credit Agreement dated September 30, 1998, a Fourth Amendment to the Credit Agreement (Amending and Restating the Credit Agreement) dated as of October 26, 1998 and a Fifth Amendment to the Credit Agreement dated as of December 28, 1998 (said Credit Agreement as currently in effect and as from time to time amended, modified or supplemented, the "Credit Agreement" and together with all documents and instruments executed or to be executed in connection therewith, being herein collectively called the "Loan Documents"), Bank has agreed to make certain revolving loans to Borrower subject to certain conditions. WHEREAS, Bank will extend credit to Borrower only if each Guarantor unconditionally guarantees payment of the indebtedness and obligations of Borrower to the Bank, as set forth herein, and a condition precedent to the granting of any credit by Bank under the Loan Documents is the execution and delivery of this Agreement by each Guarantor; WHEREAS, each Guarantor is a wholly-owned subsidiary of Borrower, or a corporation controlled by such a subsidiary of Borrower, and has received, and will receive, material and substantial, direct or indirect benefit from the extension of credit by Bank to Borrower; NOW, THEREFORE, as an inducement to Bank to extend credit to Borrower, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, each Guarantor hereby agrees as follows: Article I --------- Nature and Scope of Guaranty ---------------------------- Section l.0l. Guaranty of Obligation. Each Guarantor hereby irrevocably ------------- ---------------------- and unconditionally guarantees to Bank and its respective successors and assigns the due and punctual payment of the "Guaranteed Debt" (hereinafter defined). Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Debt as primary obligor. Section 1.02. Definition of Guaranteed Debt. As used herein, the term ------------- ----------------------------- "Guaranteed Debt" means: (a) All principal, interest, attorneys' fees, commitment fees, liabilities for costs and expenses and other indebtedness, obligations and liabilities of Borrower to Bank at any time created, now or hereafter existing, due or to become due, howsoever incurred, arising or evidenced, whether of principal or interest or payment or performance, including without limitation any of the foregoing arising in connection with the Loan Documents, or any amendments thereto or substitutions therefor, under any documents and instruments executed in connection therewith, and under any renewals, extensions, amendments, restatements, supplements, modifications, or increases thereof or of any promissory notes executed in connection therewith; and (b) All costs, expenses and fees, including but not limited to court costs and attorneys' fees, arising in connection with the collection of any or all amounts, indebtedness, obligations and liabilities of Borrower to Bank described in Section l.02(a) above. Section 1.03. Indebtedness Not Reduced by Offset. The Guaranteed Debt, ------------- ----------------------------------- and the liabilities and obligations of each Guarantor to Bank hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Bank, or against payment of the Guaranteed Debt, whether such offset, claim or defense arises in connection with the Guaranteed Debt (or the transactions creating the Guaranteed Debt) or otherwise; provided, however, nothing in this Agreement shall be construed as a waiver by any Guarantor of any rights or claims which such Guarantor may have against Bank under this Agreement or otherwise, but any recovery upon such rights and claims shall be had from Bank separately. Without limiting the foregoing or each Guarantor's liability hereunder, to the extent that Bank advances funds or extends credit to Borrower, and does not receive payments or benefits thereon in the amounts and at the times required or provided by applicable agreements or laws, each Guarantor, subject to the terms and conditions hereof, is absolutely liable to make such payments to (and confer such benefits on) Bank, on a timely basis. Section 1.04. "Borrower" to Include New Corporations and Partnerships. ------------- ------------------------------------------------------- The term "Borrower" as used herein shall include any new or successor corporation or partnership technically formed as a result of any merger, consolidation, or reorganization of Borrower permitted by the Loan Documents. Section 1.05. Payment by Each Guarantor. If all or any part of the ------------- ------------------------- Guaranteed Debt shall not be punctually paid when due, whether upon demand or at maturity or earlier by acceleration or otherwise, each Guarantor shall, subject to the terms and conditions hereof, immediately upon demand by Bank, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate or acceleration or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Debt to Bank at Bank's principal office. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Debt, and may be made from time to time with respect to the same or different items of Guaranteed Debt. Such demand shall be deemed made, given and received in accordance with Section 4.04 hereof. ------------ -2- Section 1.06. No Duty to Pursue Others. It shall not be necessary for ------------- ------------------------- Bank (and each Guarantor hereby waives any rights which such Guarantor may have to require Bank) in order to enforce payment by such Guarantor, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Guaranteed Debt or any other Person, (ii) enforce Bank's rights against any security which shall ever have been given to secure the Guaranteed Debt, (iii) enforce Bank's rights against any other Guarantor or other guarantors, if any, of the Guaranteed Debt, (iv) join Borrower or others, if any, liable on the Guaranteed Debt in any action seeking to enforce this Agreement, (v) exhaust any remedies available to Bank against any security which shall ever have been given to secure the Guaranteed Debt, or (vi) resort to any other means of obtaining payment of the Guaranteed Debt. Bank shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Debt. Section 1.07 Waiver of Notices etc. Each Guarantor hereby waives notice ------------ --------------------- of (i) any loans or advances made by Bank to Borrower, (ii) acceptance of this Agreement, (iii) any amendment or extension of any instrument or document pertaining to all or any part of the Guaranteed Debt, (iv) the execution and delivery by Borrower or Bank of any loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents in connection therewith, (v) the occurrence of any breach by Borrower of any agreement among Borrower and Bank, (vi) the transfer or disposition of the Guaranteed Debt, or any part thereof, by Bank, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Debt, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Bank, and, generally, all demands and notices of every kind in connection with this Agreement, any documents or agreements evidencing, securing or relating to any of the Guaranteed Debt and the obligations hereby guaranteed other than demands and notices specifically required by this Agreement. Section l.08. Nature of Guaranty. This Agreement is an irrevocable, ------------- ------------------ absolute, guaranty of payment and not a guaranty of collection. This Agreement may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Debt arising or created after any attempted revocation by any Guarantor. The fact that at any time or from time to time the Guaranteed Debt may be increased, reduced or paid in full shall not release, discharge or reduce the obligation of each Guarantor with respect to Guaranteed Debt thereafter incurred (or other Guaranteed Debt thereafter arising). This Agreement may be enforced by the Bank (and any subsequent holder of the Guaranteed Debt) and shall not be discharged by the assignment or negotiation of all or part of the Guaranteed Debt. Section l.09. Payment of Expenses. In the event that any Guarantor ------------- ------------------- should breach or fail to timely perform any provisions of this Agreement, each Guarantor shall, immediately upon demand by Bank, pay to Bank all costs and expenses (including court costs and reasonable attorneys' fees) incurred by Bank in the enforcement hereof or the preservation of Bank's rights hereunder. The covenant contained in this Section l.09 shall survive the payment of the ------------ Guaranteed Debt. -3- Section 1.10. Effect of Bankruptcy. In the event that, pursuant to any ------------- -------------------- insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Bank must rescind or restore any payment, or any part thereof, received by Bank in satisfaction of the Guaranteed Debt, as set forth herein, any prior release or discharge from the terms of this Agreement given to any Guarantor by Bank shall be without effect, and this Agreement shall remain in full force and effect. It is the intention of Borrower and each Guarantor that each Guarantor's obligations hereunder shall not be discharged except by such Guarantor's performance of such obligations and then only to the extent of such performance or by the indefeasible payment in full of the Guaranteed Debt in cash. Article II ---------- Events and Circumstances Not Reducing or Discharging ---------------------------------------------------- Each Guarantor's Obligations ---------------------------- Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor's obligations under this Agreement shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following: Section 2.01. Modifications, etc. Any renewal, extension, increase, ------------- ------------------ modification, alteration or rearrangement of all or any part of the Guaranteed Debt or any loan agreement, security agreement, collateral document or other document, instrument, contract or understanding among any of Borrower, Bank, or any other parties, pertaining to the Guaranteed Debt; Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance ------------- --------------- or compromise that might be granted or given by Bank to Borrower or any Guarantor; Section 2.03. Condition of Borrower or Any Guarantor. The insolvency, ------------- -------------------------------------- bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower or any other party at any time liable for the payment of all or part of the Guaranteed Debt; or any dissolution of Borrower or any Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or any Guarantor, or any changes in the shareholders, partners or members of Borrower or any Guarantor; or any reorganization of Borrower or any Guarantor; Section 2.04. Invalidity of Guaranteed Debt. The invalidity, illegality ------------- ----------------------------- or unenforceability of all or any part of the Guaranteed Debt, or any document or agreement executed in connection with the Guaranteed Debt, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Debt, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the officers or representatives executing the documents creating the Guaranteed Debt acted in excess of their authority, (iv) the Guaranteed Debt violates applicable usury laws, (v) Borrower has valid defenses, claims or offsets -4- (whether at law, in equity or by agreement) which render the Guaranteed Debt wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Debt (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Debt or executed in connection with the Guaranteed Debt, or given to secure the repayment of the Guaranteed Debt) is illegal, uncollectible or unenforceable, or (vii) the documents or instruments pertaining to the Guaranteed Debt have been forged or otherwise are irregular or not genuine or authentic; Section 2.05. Release of Obligors. Any full or partial release of the ------------- ------------------- liability of Borrower on the Guaranteed Debt or any part thereof, or of any co-guarantors, or any other Person (as defined in the Credit Agreements) now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Debt or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Debt in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to perform the Guaranteed Debt, or that Bank will look to other parties to perform the Guaranteed Debt; Section 2.06. Other Security. The taking or accepting of any other ------------- -------------- security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Debt; Section 2.07. Release of Collateral etc. Any release, surrender, ------------- ------------------------- exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Debt; Section 2.08. Care and Diligence. The failure of Bank or any other ------------- ------------------ party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security; Section 2.09. Status of Liens. The fact that any collateral, security, ------------- --------------- security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Debt shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Agreement in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Debt; Section 2.10. Offset. The Guaranteed Debt, and the liabilities and ------------- ------ obligations of each Guarantor to Bank hereunder, shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Bank against Borrower, or any other party, or against payment of the Guaranteed Debt, whether such right of offset, claim or defense -5- arises in connection with the Guaranteed Debt (or the transactions creating the Guaranteed Debt) or otherwise, subject to the provision of Section 1.03 hereof; ------- ---- Section 2.11. Merger. The reorganization, merger or consolidation of ------------- ------ Borrower into or with any other corporation, partnership or other entity; Section 2.12. Preference. Any payment by Borrower to Bank is held to ------------- ---------- constitute a preference under bankruptcy laws, or for any reason Bank is required to refund such payment or pay such amount to Borrower or someone else; or Section 2.13. Other Actions Taken or Omitted. Any other action taken or ------------- ------------------------------ omitted to be taken with respect to, the Guaranteed Debt, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Debt pursuant to the terms hereof; it is the unambiguous and unequivocal intention of such Guarantor that, such Guarantor shall be obligated to pay the Guaranteed Debt when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Guaranteed Debt. Article III ----------- Representations, Warranties and Covenants ----------------------------------------- To induce Bank to extend credit to Borrower, each Guarantor represents, warrants and covenants to Bank that: Section 3.01. Benefit. Each Guarantor has received, or will receive, ------------- ------- material and substantial, direct or indirect benefit from the making of this Agreement and the Guaranteed Debt; Section 3.02. Familiarity and Reliance. Each Guarantor is familiar ------------- ------------------------ with, and has independently reviewed books and records regarding, the financial condition of Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Guaranteed Debt; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Agreement; Section 3.03. No Representation by Bank. Neither Bank nor any other ------------- ------------------------- party has made any representation, warranty or statement to any Guarantor in order to induce such Guarantor to execute this Agreement; Section 3.04. Solvency, etc. On the date hereof and after giving effect ------------- ------------- to all the transactions contemplated hereby, (i) the assets of each Guarantor, at a fair valuation, will exceed its liabilities, including contingent liabilities, (ii) the remaining capital of each Guarantor will not be unreasonably -6- small to conduct its business, and (iii) each Guarantor will not have incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this Section 3.04, "debt" means any liability on ------------ a claim, and "claim" means (i) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured; Section 3.05. Binding Obligation. This Agreement constitutes the valid ------------- ------------------ and binding legal obligation of each Guarantor, enforceable in accordance with its terms and the execution and delivery will not conflict with or result in a breach of or constitute a default under any instrument to which such Guarantor is a party or by which such Guarantor or such Guarantor's property is bound, or violate any applicable provision of law or any judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental agency or authority; Section 3.06. Obstacles to Guaranty. The execution, delivery and ------------- --------------------- performance by each Guarantor of this Agreement will not conflict with or result in any breach of any provision of, or constitute a default under, or breach of any provision of, or result in the imposition of any lien or charge upon any asset of such Guarantor, or result in the acceleration of any obligation under the terms of any agreement or document binding upon such Guarantor. No consent of any party, and no approval or authorization of any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, other than any approval, authorization or consent which has as of the date hereof been obtained; Section 3.07. Survival. All representations and warranties made by each ------------- -------- Guarantor herein shall survive the execution hereof; and Section 3.08. Litigation. There is no suit, action or proceeding ------------- ---------- pending or, to the knowledge of any Guarantor, threatened against or affecting such Guarantor, before or by any court, administrative agency or other governmental authority; Article IV ---------- Miscellaneous ------------- Section 4.01. Waiver of Subrogation. Until the payment and performance ------------- --------------------- in full of all of the Guaranteed Debt, each Guarantor hereby irrevocably waives any claim or other rights which it may now have or hereafter acquire against Borrower or any other Guarantor that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under this Agreement or any other Loan Documents, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of Bank against Borrower or any Guarantor or any collateral which Bank now has or -7- hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including without limitation, the right to take or receive from Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentences and the Guaranteed Debt shall not have been paid in full, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, Bank, and shall forthwith be paid to Bank and applied upon the Guaranteed Debt, whether matured or unmatured, in accordance with the terms of the other Loan Documents. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Section 4.01 is knowingly made in contemplation of such ------------ benefits. Section 4.02. Subordination. All debt and other liabilities of Borrower ------------- ------------- to each Guarantor are expressly subordinate and junior to the Guaranteed Debt. Section 4.03. Waiver. No failure to exercise, and no delay in ------------- ------ exercising, on the part of Bank, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Bank hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Agreement, nor consent to departure therefrom, shall be effective unless in writing signed by the applicable Guarantor and Bank, and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Section 4.04. Notices. Any notices or other communications required or ------------- ------- permitted to be given by this Agreement shall be in writing and shall be deemed to have been given three (3) days after deposit in the mail, designated as certified mail, return receipt requested, post-prepaid, or one (1) day after being entrusted to a reputable commercial overnight delivery service, or upon transmission of a telecopy addressed to the party to which such notice is directed at its address determined as provided in this Section 4.04. All notices ------------- and other communications under this Agreement shall be given to the parties hereto at the following addresses: Guarantors: VASA Insurance Group, Inc. 525 South Meridian Street Indianapolis, IN 46225-1122 Attn.: ___________ Telecopy No.: (___) _________ VASA Brougher, Inc. 525 South Meridian Street -8- Indianapolis, IN 46225-1122 Attn.: ___________ Telecopy No.: (___) _________ VASA North America, Inc. 525 South Meridian Street Indianapolis, IN 46225-1122 Attn.: ___________ Telecopy No.: (___) _________ Bank: Fleet National Bank 777 Main Street Hartford, Connecticut 06115 Attention: David Albanesi Telecopy: (860) 986-2688 Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day it is personally delivered as aforesaid or, if mailed, on the day it is mailed as aforesaid, or, if transmitted by telecopy, on the day that such notice is transmitted as aforesaid. Any party may change its address for purposes of this Agreement by giving notice of such change to the other party pursuant to this Section 4.04. ------- ---- Section 4.05. Governing Law. This Agreement has been prepared, and is ------------ ------------- intended to be performed in the State of Connecticut, and the substantive laws of such state shall govern the validity, construction, enforcement and interpretation of this Agreement. For purposes of this Agreement and the resolution of disputes hereunder, each Guarantor hereby irrevocably submits and consents to, and waives any objection to, the non-exclusive jurisdiction of any state court of the State of Connecticut and of any United States Federal court sitting in Connecticut. Section 4.06. Invalid Provisions. If any provision of this Agreement is ------------ ------------------ held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement, unless such continued effectiveness of this Agreement, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. Section 4.07. Entirety and Amendments. This Agreement embodies the ------------ ----------------------- entire agreement between the parties and supersedes all prior agreements and understandings, if any, relating to the -9- subject matter hereof, and this Agreement may be amended only by an instrument in writing executed by an authorized officer of the party against whom such amendment is sought to be enforced. Section 4.08. Parties Bound Assignment. This Agreement shall be binding ------------ ------------------------ upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Bank, assign any of its rights, powers, duties or obligations hereunder. Section 4.09. Headings. Section headings are for convenience of ------------ -------- reference only and shall in no way affect the interpretation of this Agreement. Section 4.10. Multiple Counterparts. This Agreement may be executed in ------------ --------------------- any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 4.11. Rights and Remedies. If any Guarantor becomes liable for ------------ ------------------- any indebtedness owing by Borrower to Bank, by endorsement or otherwise, other than under this Agreement, such liability shall not be in any manner impaired or affected hereby and the rights of Bank hereunder shall be cumulative of any and all other rights that Bank may ever have against such Guarantor. The exercise by Bank of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. Section 4.12. Waiver of Acceptance. Each Guarantor hereby waives any ------------ -------------------- legal requirement that Bank accept this Guaranty in order to enforce such Guarantor's promises made herein. SECTION 4.13. ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL ------------ ---------------- AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 4.14. WAIVER OF JURY. EACH GUARANTOR IRREVOCABLY WAIVES TRIAL ------------ -------------- BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS CONTEMPLATED BY THIS GUARANTY OR ANY AGREEMENT, INSTRUMENT OR WRITING RELATED THERETO AND THE ENFORCEMENT OF ANY OF BANK'S RIGHTS AND REMEDIES. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- EXECUTED as of the day and year first above written. VASA INSURANCE GROUP, INC. By:______________________________ Name: Title: VASA BROUGHER, INC. By:______________________________ Name: Title: VASA NORTH AMERICA, INC. By:______________________________ Name: Title: Acceptance by: FLEET NATIONAL BANK By:______________________________ Name: Title: -11- EXHIBIT B TO FIFTH AMENDMENT ---------------------------- OFFICER'S CERTIFICATE THE CENTRIS GROUP, INC. ______ __, 199_ Pursuant to Section 2(e) of the Fifth Amendment dated as of December 28, 1998 between The Centris Group, Inc., formerly known as US Facilities Corporation (the "Borrower") and Fleet National Bank, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the "Bank"), I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that: 1. I am the duly elected, qualified and acting Chief Financial Officer of the Borrower; and 2. Attached hereto as Attachment 1 is a true and correct copy of the consolidated and consolidating SAP and GAAP financial statements of the Borrower and its Subsidiaries as of the close of the fiscal [YEAR/QUARTER] ending __________, 199_; and 3. I have reviewed the Fifth Amendment and the Credit Agreement and the condition and transactions of the Borrower and its Subsidiaries for the fiscal [YEAR/QUARTER] ending _____, 199_, and to the best of my knowledge the Borrower has observed and performed all of its covenants and other agreements, and satisfied every condition contained in the Fifth Amendment, Credit Agreement and the Revolving Note, and I have not obtained knowledge of any condition or event which constitutes a Default or an Event of Default, except as set forth on Attachment 2 attached hereto; and 4. Attached hereto as Attachment 3 is true and correct information (with detailed calculations) establishing that the Borrower was in compliance with the covenants set forth in the Credit Agreement during the fiscal [YEAR/QUARTER] ending __________ ___, 199_. Except as otherwise defined herein, terms used herein shall have the meanings set forth in the Credit Agreement, pursuant to which this certificate is delivered. IN WITNESS WHEREOF, I have signed this certificate as of the date hereof on behalf of _____________. By:________________________________ Print Name: Title: Chief Financial Officer -2- ATTACHMENT 1 to Officer's Certificate Financial Statements -------------------- for the period ending _____________ __, 199_ ATTACHMENT 2 to Officer's Certificate Defaults and Events of Default ------------------------------ Note: If a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action proposed to be taken by the Borrower with respect thereto as required. ATTACHMENT 3 to Officer's Certificate Page 1 of 6 Computations and Information Showing Compliance with Sections 7.9 to 7.16, 7.18, 7.19 and 7.21 of the Credit Agreement Except as otherwise defined herein, terms used herein shall have the meanings set forth in the Credit Agreement. SECTION 7.9. CAPITAL EXPENDITURES -------------------- 1. Aggregate Capital Expenditures actually made, or committed to be made, during the fiscal year beginning [FILL IN DATE OF START OF FISCAL YEAR] = ________________ 2. Line 1 does not exceed $2,500,000. SECTION 7.10(A). MINIMUM STATUTORY SURPLUS ------------------------- 1. Statutory Surplus of USF RE as of the fiscal quarter ending ____ __, 199__ (prior to the USF RE Sale) = ________________ 2. Positive Statutory Net Income for each fiscal quarter following the fiscal quarter ended December 31, 1995 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of positive Statutory Net Income for each of the quarters set forth in Line 2 above = ________________ 2b. 75% of line 2a = ________________ 3. Contributions to surplus made by Borrower to USF RE during each fiscal quarter following the fiscal quarter ended December 31, 1995 were: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 3a. The sum of the contributions for each of the quarters set forth in line 3 above = ________________ 4. The sum of $80,000,000 and line 2b and line 3a = ________________ 5. Line 1 is not less than line 4.
ATTACHMENT 3 to Officer's Certificate Page 2 of 6 1. Combined Statutory Surplus of VASA North Atlantic and Seaboard as of the fiscal quarter ending ____ __, 199__ = ________________ 2. Positive Statutory Net Income for each fiscal quarter following the fiscal quarter ended June 30, 1999 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of positive Statutory Net Income for each of the quarters set forth in Line 2 above = ________________ 2b. 75% of line 2a = ________________ 3. Contributions to surplus made by Borrower to VASA North Atlantic and Seaboard during each fiscal quarter following the fiscal quarter ended June 30, 1999 were: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 3a. The sum of the contributions for each of the quarters set forth in line 3 above = ________________ 4. The sum of $42,500,000 and line 2b and line 3a = ________________ 5. Line 1 is not less than line 4. SECTION 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH ----------------------------------- 1. Consolidated GAAP Net Worth as of the fiscal quarter ending ______________, 199__. = ________________ 2. Consolidated positive net income (as determined in accordance with GAAP) for each fiscal quarter following the fiscal quarter ended June 30, 1998 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of the positive net income for each of the quarters set forth in Line 2 above = ________________ 2b. 50% of line 2a = ________________ 3. Paid-in capital resulting from any issuance by the Borrower of its capital stock = ________________ 4. The sum of $100,000,000 and line 2b and line 3 = ________________
ATTACHMENT 3 to Officer's Certificate Page 3 of 6 5. Line 1 is not less than line 4. SECTION 7.12. MAXIMUM PREMIUMS TO SURPLUS --------------------------- 1. Aggregate Net Premiums Written by all Insurance Subsidiaries of the Borrower for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) = ________________ 2. Combined Statutory Surplus of all Insurance Subsidiaries of the Borrower at the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ________________ 3. The ratio of line 1 to line 2 = ________________ 4. The ratio in line 3 is not greater than 3.0 to 1 at the end of the first fiscal quarter of each year and 2.0 to 1 at the end of the second, third and fourth fiscal quarters of each fiscal year. SECTION 7.13. [Reserved.] SECTION 7.14. MINIMUM INTEREST COVERAGE. ------------------------- For each Insurance Subsidiary: 1. Available Dividends minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] = ________________ 2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). = ________________ 3. The sum of line 1 and line 2 = ________________ 4. Interest Expense for the immediately following four fiscal quarters (beginning on [FILL IN BEGINNING DATE FOR FOLLOWING FOUR FISCAL QUARTERS]) = ________________ 5. The ratio of line 3 to line 4 = ________________ 6. The ratio in line 5 is not less than 2.0 to 1.0 for the fiscal year ending December 31, 1995 (3.0 to 1.0 for each fiscal year thereafter).
ATTACHMENT 3 to Officer's Certificate Page 4 of 6 SECTION 7.15. MINIMUM FIXED CHARGE COVERAGE. ----------------------------- For each Insurance Subsidiary: 1. Available Dividends minus dividends paid by such Insurance Subsidiary to the Borrower for the immediately preceding four fiscal quarters ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =____________ 2. Consolidating GAAP EBIT of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________ 3. The sum of line 1 and line 2 =____________ 4. Fixed Charges for the immediately succeeding four fiscal quarters (beginning on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________ 5. The ratio of line 3 to line 4 =____________ 6. The ratio in line 5 is not less than 1.5 to 1.0 for the fiscal year ending December 31, 1995 (1.7 to 1.0 for each fiscal year thereafter). ATTACHMENT 3 to Officer's Certificate Page 5 of 6 SECTION 7.16. MINIMUM DEBT SERVICE COVERAGE. ----------------------------- For each Insurance Subsidiary 1. Available Dividends of such Insurance Subsidiary as of the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =____________ 2. Total taxes paid by such Insurance Subsidiary to the Borrower pursuant to any intercorporate tax-sharing agreement for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________ 3. Consolidating income before taxes of the Borrower and Subsidiaries (except Insurance Subsidiaries) for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________ 4. Total taxes (based on GAAP) paid by the Borrower on a consolidated basis for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]) =____________ 5. Distributions by Borrower for the immediately preceding four fiscal quarters (ending on [FILL IN ENDING DATE FOR FISCAL QUARTER]). =____________ 6. The sum of line 1, line 2 and line 3 minus line 4 and line 5 =____________ 7. Total Interest Expense of the Borrower and its Subsidiaries on a consolidated basis for the immediately succeeding four fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF THE NEXT SUCCEEDING QUARTER]) =____________ 8. Total mandatory reductions of Commitment for the succeeding four fiscal quarters (beginning on [FILL IN THE BEGINNING DATE OF THE NEXT SUCCEEDING QUARTER]). =____________ 9. The sum of line 7 and line 8 =____________ 10. The ratio of line 6 to line 9 =____________ 11. The ratio in line 10 is not less than 1.5 to 1.0. SECTION 7.18. RISK-BASED CAPITAL RATIO. ------------------------ 1. The combined Risk-Based Capital Ratio of the Insurance Subsidiaries of the Borrower as of the end of the fiscal quarter ending on [FILL IN ENDING DATE FOR FISCAL QUARTER] =____________ 2. The ratio in line 1 is not less than 200% ATTACHMENT 3 to Officer's Certificate Page 6 of 6 SECTION 7.19. MINIMUM CREDIT RATINGS. ---------------------- 1. The A.M. Best Rating of USF RE (until the USF RE Sale) =____________ 2. The A.M. Best Rating of VASA North Atlantic =____________ 3. The A.M. Best Rating of Seaboard. =____________ 4. The ratings in lines 1, 2 and 3 are not less than "A-". SECTION 7.21. DEBT TO CAPITAL RATIO. --------------------- 1. From the period of December 28, 1998 to June 30, 1999, a. For the fiscal quarter ended [_____________], consolidated Debt of the Borrower and its Subsidiaries =____________ b. For the fiscal quarter ended [_____________], consolidated GAAP Net Worth =____________ c. Sum of lines a and b. =____________ d. 45% of line c =____________ e. Line a does not exceed line d. 2. After June 30, 1999, a. For the fiscal quarter ended [_____________], consolidated Debt of the Borrower and its Subsidiaries =____________ b. For the fiscal quarter ended [_____________], consolidated GAAP Net Worth =____________ c. Sum of lines a and b. =____________ d. 35% of line c. =____________ e. Line a does not exceed line d. EXHIBIT C TO FIFTH AMENDMENT ---------------------------- (Description of Opinion of California Counsel to Borrower) The opinion of R.W. Loeb, Professional Law Corporation, counsel to the Borrower, which is called for by Section 2(l) of the Fifth Amendment, shall be dated the Closing Date and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The Borrower, and each of its Subsidiaries, is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (a) to own its assets and to transact the business in which it is now engaged and (b) with respect to the Borrower (i) to enter into and perform the Fifth Amendment, (ii) to issue and deliver the Revolving Note, (iii) to enter into and perform the Pledge Agreements, (iv) to execute and deliver the documents and certificates delivered in connection with the Fifth Amendment, the Revolving Note, the Pledge Agreements, the Acknowledgment and Ratification of the Pledge Agreement and (iv) to carry out the transactions contemplated by the Fifth Amendment, the Revolving Note, Pledge Agreements and the Acknowledgment and Ratification of the Pledge Agreement. 2. The Borrower and each of its Subsidiaries are each duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under the Fifth Amendment, the Revolving Note, the Pledge Agreements and the Acknowledgment and Ratification of the Pledge Agreement. The Borrower is the record and beneficial owner of all of the issued and outstanding shares of capital stock of USF RE INSURANCE COMPANY, USBENEFITS Insurance Services, Inc. and the other Subsidiaries, free and clear of any Lien, and all such shares have been duly issued and are fully paid and non-assessable. The certificates and/or other instruments or writings pledged to you and delivered to you pursuant to the USF RE Pledge Agreement represent all of the issued and outstanding shares of capital stock of USF RE INSURANCE COMPANY. 3. The Fifth Amendment, the Revolving Note, the USF RE Pledge Agreement and the Acknowledgment and Ratification of the Pledge Agreement have been duly executed and delivered by duly authorized officers of the Borrower and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. 4. The execution, delivery and performance by the Borrower of the Fifth Amendment, the Revolving Note, the USF RE Pledge Agreement and the Acknowledgment and Ratification of the Pledge Agreement have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of the shareholders of the Borrower; (b) violate any provisions of the articles of incorporation or by-laws of the Borrower; (c) violate any provision of any law, rule or regulation (including without limitation, Regulation U and X of the Board of Governors of the Federal Reserve System) or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries; (d) result in a breach of or constitute a default or require any consent under any loan or credit agreement or any other agreement, mortgage, indenture, lease or instrument known to us, after due inquiry, to which the Borrower or any Subsidiary is a party or by which the Properties of the Borrower or any of its Subsidiaries may be bound or affected; or (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries, except as created by the Pledge Agreements. 5. To the best of our knowledge, based on our inquiry of the President of the Borrower and our knowledge of those matters as to which this firm has been engaged by the Borrower for legal consultation or representation, except as described in Schedule 5.4 to the Credit Agreement, there are no actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) pending or threatened against or affecting the Borrower or any of its Subsidiaries, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any of its Subsidiaries would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or prospects of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under the Fifth Amendment, the Revolving Note, the Pledge Agreements or the Acknowledgment and Ratification of the Pledge Agreement. 6. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated by the Fifth Amendment. 7. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act, rule, regulation or otherwise, is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, the Fifth Amendment, the Revolving Note, the Pledge Agreements or the Acknowledgment and Ratification of the Pledge Agreement, except the authorizations, consents, approvals, orders, licenses or -2- permits described in Schedule 5.15 of the Credit Agreement which have been obtained and are in full force and effect. 8. The USF RE Pledge Agreement created for the benefit of the holder of the Revolving Note a valid security interest in the Pledged Collateral (as defined in the USF RE Pledge Agreement) by such Holder, such security interest has been duly perfected and no other action is necessary to effect or preserve such security interest (assuming the Pledged Shares are at all times in your possession) except that it may be advisable to file duly executed continuation statements with respect to financing statements filed in the jurisdiction in which the Borrower's chief executive office is located within six months prior to the expiration of five years following the date of original filing. The opinions expressed herein are limited to the laws of the State of California and the federal laws of the United States of America. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. -3- EXHIBIT D TO FIFTH AMENDMENT ---------------------------- (Description of Opinion of Massachusetts Insurance Counsel to Borrower) The opinion of Anderson & Kreiger, Massachusetts insurance counsel to the Borrower, which is called for by Section 2(m) of the Fifth Amendment, shall be dated the Closing Date and addressed to the Bank, and shall be in form and substance satisfactory to the Bank, and shall be to the effect that: 1. The execution, delivery and performance by the Borrower of the Fifth Amendment, the Revolving Note, the USF RE Pledge Agreement and the Acknowledgment and Ratification of the Pledge Agreement do not and will not violate any provision of any law, rule or regulation or, to our knowledge, after due inquiry, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any of its Subsidiaries. 2. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person under any law, act, rule, regulation or otherwise, including without limitation the [MASSACHUSETTS INSURANCE CODE (THE "CODE")] or [ANY APPLICABLE MASSACHUSETTS HOLDING COMPANY ACT (THE "ACT")], is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, the Fifth Amendment, the Revolving Note, the USF RE Pledge Agreement or the Acknowledgment and Ratification of the Pledge Agreement. 3. USF RE INSURANCE COMPANY is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own its assets and to transact the business in which it is now engaged. The opinions expressed herein are limited to the laws of the Commonwealth of Massachusetts. The opinions expressed herein are solely for your benefit and may not be relied upon by any other person or entity without our consent. EXHIBIT E TO FIFTH AMENDMENT ---------------------------- ACKNOWLEDGMENT AND RATIFICATION OF THE PLEDGE AGREEMENT Reference is made to that certain Pledge Agreement dated as of December 20, 1994 between The Centris Group Inc., formerly known as US Facilities Corporation, a Delaware corporation ("Pledgor"), and Fleet National Bank, a national banking association formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut ("Pledgee"). 1. To secure the prompt and complete payment and performance when due of the Obligations (as defined below), Pledgor pledged, assigned, delivered and ----- transferred to Pledgee, and granted Pledgee a continuing security interest in, all of the following property and rights and interest in property (all such property, rights and interests being hereinafter collectively called the "Pledged Collateral"): (i) all issued and outstanding shares of the capital stock of USF RE INSURANCE COMPANY, and any additional shares of the capital stock of any class or series of USF RE INSURANCE COMPANY which Pledgor may at any time and from time to time purchase or otherwise acquire, together with the certificates and/or other instruments or writings representing them (such shares, certificates and other writings being hereinafter collectively called the "Pledged Shares"); (ii) (A) all shares and other securities and all warrants, rights and options to acquire Pledged Shares (such shares, securities, warrants, rights and options together with the certificates and/or other instruments or writings representing them being hereinafter collectively called the "Additional Pledged Securities") and (B) all money and other property, at any time and from time to time received or receivable by or distributed or distributable to Pledgor from the issuer of any or all of the Pledged Shares in exchange or substitution for or otherwise in respect of any or all of the Pledged Shares or earlier-issued Additional Pledged Securities (whether in the ordinary course of such issuer's business or representing or resulting from cash or stock dividends, stock splits or reclassifications, the recapitalization, reorganization, merger, consolidation, disposition of assets, liquidation or dissolution of such issuer, the exercise by Pledgor of warrants, rights or options, or any other action or cause); and (iii) all proceeds of any or all of the foregoing. 2. Under the Pledge Agreement, the term "Obligations" means all indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee (whether directly as principal or maker or indirectly as guarantor, surety, endorser or otherwise), now or hereafter existing, due or to become due, howsoever incurred, arising or evidenced, whether of principal or interest or payment or performance under the Credit Agreement dated as of December 20, 1994 between Pledgor and Pledgee (said Credit Agreement as currently in effect and as from time to time amended, modified or supplemented). 3. Pledgor and Pledgee have amended and restated such Credit Agreement pursuant to the Fifth Amendment to the Credit Agreement dated December 28, 1998 between Pledgor and Pledgee (the "Fifth Amendment") which, among other things, increases the Bank's Commitment to $75,000,000. 4. Pledgee has requested that Pledgor acknowledge that the Pledge Agreement applies to the Credit Agreement as amended and restated by the Fifth Amendment. 5. Accordingly, Pledgor acknowledges, ratifies and confirms the following: A. The term "Obligations" referred to in the Pledge Agreement includes all indebtedness, liabilities and obligations of any kind of Pledgor to Pledgee arising under the Credit Agreement as amended by the Fifth Amendment; B. The Pledge Agreement remains in full force and effect; and C. Pledgor hereby ratifies and confirms Pledgor's pledge, assignment, delivery and transfer to Pledgee and grant to Pledgee of a continuing security interest in the Pledged Collateral. This Acknowledgment and Ratification of the Pledge Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Acknowledgment and Ratification by signing any such counterpart. All capitalized terms used herein, but not defined herein shall have the meanings described to them in the Pledge Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -2- IN WITNESS WHEREOF, the undersigned has caused this Acknowledgment and Ratification of the Pledge Agreement to be executed by its duly authorized officer as of the date hereof. Dated: __________, 1998 THE CENTRIS GROUP, INC. _________________________ Name: Title: ACCEPTED BY: FLEET NATIONAL BANK _________________________ Name: Title: -3- -----END PRIVACY-ENHANCED MESSAGE-----