Document:

exv10w3

 

Exhibit 10.3

AGREEMENT

	1.	 	I consent to permit the Company until December 31, 2006 to have the registration statement on
Form S-1 (Registration No. 333-136992) declared effective before it is considered in default
of the registration requirements of Section 5.8(a) of the Securities Purchase Agreement dated
June 29, 2006. This consent shall only be effective if it is agreed to by all the parties to
the Securities Purchase Agreement. If the Company does not have the registration statement
declared effective on or before December 31, 2006, the provisions of the Purchase Agreement
which impose any liquidated damages or other charges or penalties on the Company with respect
to the failure to do so are not waived and all such liquidated damages shall be determined in
strict accordance with the terms of the Purchase Agreement as originally written.

ý Yes, I consent

o No, I do not consent

	2.	 	In the event that parties to the Securities Purchase Agreement do not unanimously agree to
extend the date by which the Company must have the registration statement on Form S-1
(Registration No. 333-136992) declared effective to December 31, 2006, I agree to allow the
Company to satisfy any Default Payments (as defined in the Securities Purchase Agreement) owed
to me through the issuance to me of additional shares of common stock at the rate of one share
of common stock for each dollar of Default Payment owed me. Such shares to be issued by the
15th of the month following the month the Default Payments are earned.

ý
Yes, I agree

o No, I do not agree

 

Signed:
 /s/ David R. Asplund

 

Name:
David R. Asplund

 

Date:
11/3/2006exv10w4

 

Exhibit 10.4

AGREEMENT

	1.	 	I consent to permit the Company until December 31, 2006 to have the registration statement on
Form S-1 (Registration No. 333-136992) declared effective before it is considered in default
of the registration requirements of Section 5.8(a) of the Securities Purchase Agreement dated
June 29, 2006. This consent shall only be effective if it is agreed to by all the parties to
the Securities Purchase Agreement. If the Company does not have the registration statement
declared effective on or before December 31, 2006, the provisions of the Purchase Agreement
which impose any liquidated damages or other charges or penalties on the Company with respect
to the failure to do so are not waived and all such liquidated damages shall be determined in
strict accordance with the terms of the Purchase Agreement as originally written.

ý Yes, I consent

o No, I do not consent

	2.	 	In the event that parties to the Securities Purchase Agreement do not unanimously agree to
extend the date by which the Company must have the registration statement on Form S-1
(Registration No. 333-136992) declared effective to December 31, 2006, I agree to allow the
Company to satisfy any Default Payments (as defined in the Securities Purchase Agreement) owed
to me through the issuance to me of additional shares of common stock at the rate of one share
of common stock for each dollar of Default Payment owed me. Such shares to be issued by the
15th of the month following the month the Default Payments are earned.

ý
Yes, I agree

o No, I do not agree

 

Signed:
/s/ Richard P. Kiphart

 

Name:
Richard P. Kiphart

 

Date:
11/2/2006exv10w5

 

Exhibit 10.5

AGREEMENT

	1.	 	I consent to permit the Company until December 31, 2006 to have the registration statement on
Form S-1 (Registration No. 333-136992) declared effective before it is considered in default
of the registration requirements of Section 5.8(a) of the Securities Purchase Agreement dated
June 29, 2006. This consent shall only be effective if it is agreed to by all the parties to
the Securities Purchase Agreement. If the Company does not have the registration statement
declared effective on or before December 31, 2006, the provisions of the Purchase Agreement
which impose any liquidated damages or other charges or penalties on the Company with respect
to the failure to do so are not waived and all such liquidated damages shall be determined in
strict accordance with the terms of the Purchase Agreement as originally written.

ý Yes, I consent

o No, I do not consent

	2.	 	In the event that parties to the Securities Purchase Agreement do not unanimously agree to
extend the date by which the Company must have the registration statement on Form S-1
(Registration No. 333-136992) declared effective to December 31, 2006, I agree to allow the
Company to satisfy any Default Payments (as defined in the Securities Purchase Agreement) owed
to me through the issuance to me of additional shares of common stock at the rate of one share
of common stock for each dollar of Default Payment owed me. Such shares to be issued by the
15th of the month following the month the Default Payments are earned.

ý
Yes, I agree

o No, I do not agree

 

Signed:
/s/ David W. Valentine

 

Name:
David W. Valentine

 

Date:
11/2/2006exv10w38

 

Exhibit 10.38

SURETY QUOTA SHARE TREATY

(hereinafter referred to as “Agreement”)

Effective: January, 1, 2007

entered into by and between

CONTINENTAL CASUALTY COMPANY

(hereinafter referred to as “Company”)

and

WESTERN SURETY COMPANY

(hereinafter referred to as “Reinsurer”)

Witnesseth:

In consideration of the mutual covenants contained herein, and upon the terms and conditions
hereinafter set forth the Company and the Reinsurer hereby agree as follows:

ARTICLE 1 — BUSINESS COVERED

This Agreement shall cover the Company’s net retained liability on Surety Business written or
renewed, by or on behalf of the Company, during the term of this Agreement, and ceded hereunder.
However, if mutually agreed between the Company and the Reinsurer, the Company may retain a Policy
and not be required to cede such Policy associated with its Surety Business to the Reinsurer under
this Agreement. In the event a Policy is not ceded hereunder, the Policy shall be identified and
the exception documented, in writing, in the underwriting file.

The liability of the Reinsurer shall commence simultaneously with that of the Company. In the
event that a loss covered hereunder involves more than one of the Company’s policies, this
Agreement shall provide coverage for each and every Policy in such loss.

ARTICLE 2 — TERM AND CANCELLATION

This Agreement is effective January 1, 2007 and shall continue in full force and effect through
December 31, 2007, both days inclusive. Upon expiration of this Agreement, the Reinsurer shall
continue to cover all Policies coming within the terms and conditions of this Agreement, until the
natural expiration or anniversary of such Policies.

Notwithstanding the expiration of this Agreement as hereinabove provided, the provisions of this
Agreement shall continue to apply to all unfinished business hereunder and that all obligations and
liabilities incurred by each party hereafter, prior to such expiration, shall be fully performed
and discharged.

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ARTICLE 3 — TERRITORY

This Agreement applies to the territory as in the Company’s original Policies reinsured hereunder.

ARTICLE 4 — ORIGINAL CONDITIONS

All amounts ceded hereunder shall be subject to the same gross rating and to the same clauses,
conditions, exclusions and modifications of the Company’s Policies, subject to the limits, terms
and conditions of this Agreement.

Except as specifically and expressly provided for in the Insolvency Article, the provisions of this
Agreement are intended solely for the benefit of the parties to and executing this Agreement, and
nothing in this Agreement shall in any manner create, or be construed to create, any obligations to
or establish any rights against any party to this Agreement in favor of any third parties or other
persons not parties to and executing this Agreement.

ARTICLE 5 — DEFINITIONS

	A.	 	As respects the use of “Company” within this Agreement, it is understood and agreed that
Company shall mean the insurance companies owned directly or indirectly by CNA Financial
Corporation which are affiliated with, controlled by or under common management of CNA, with
the exception of the life insurance companies and their respective subsidiaries.
	 
	B.	 	The term “Extra Contractual Obligations” as used in this Agreement shall mean those
liabilities not covered under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities arising because of, but
not limited to, the following: failure by the Company to settle within the Policy limit, or by
reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement
or in preparation of the defense or in the trial of any action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such action.
	 
	C.	 	The term(s) “Loss” and “Losses” as used in this Agreement shall mean that amount incurred by
the Company in respect of any settlements, awards, or judgments (including interest where
classified as loss) incurred in connection with any Policy reinsured hereunder after deduction
for all recoveries, salvages, subrogations and other reinsurances, whether said reinsurances
are recovered or not. The Reinsurer and Company agree that the convention to be followed when
determining when a loss is incurred is that the date of notice of the actual event of loss or
default shall be the date the loss is incurred, except that when the date of notice of the
actual event of loss or default occurs after the expiration of a Policy then the date
immediately preceding the date the Policy expires shall be deemed to be the date the loss is
incurred.
	 
	D.	 	The term “Loss Expenses” as used in this Agreement shall mean all expenses incurred by the
Company in the investigation, appraisal, adjustment, litigation and/or defense of claims under
the business reinsured hereunder, including court costs, interest accrued prior to final
judgment if included as expense on reinsured Policies, interest accrued after final judgment,
but excluding internal office expenses, salaries, per diem, and

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		 	other remuneration of regular Company employees unless diverted from their normal duties
to handle such Loss.
	 
	E.	 	The term “Net Premiums Written” as used in this Agreement shall mean the gross written
premiums on Policies written, renewed or assumed during the term of this Agreement on business
the subject of this Agreement, less cancellation and return premiums and less premiums ceded
on all other reinsurance which inures to the benefit of this Agreement on business the subject
of this Agreement.
	 
	F.	 	The term “Net Liability” as used in this Agreement shall mean the remaining portion of the
Company’s gross liability on each Policy reinsured under this Agreement after deduction of all
reinsurance which inures to the benefit of this Agreement.
	 
	G.	 	The term(s) “Policy” and “Policies” as used in this Agreement shall mean the Company’s
binders, riders, policies, endorsements, bonds and contracts providing insurance and
reinsurance on the Surety Business covered under this Agreement.
	 
	H.	 	The term “Surety Business” as used in this Agreement means the issuance, writing or
underwriting of policies or licenses with respect to the following: (i) bonds required by
statutes or ordinances guaranteeing the payment of certain taxes and fees and providing
consumer protection as a condition to granting licenses to engage in various trades or
professions, (ii) bonds required by statutes, courts or legal documents for the protection of
those on whose behalf a fiduciary acts, (iii) bonds required by statutes or ordinances to
guarantee the lawful and faithful performance of the duties of office by public officials,
(iv) bonds required by statutes to protect against improper actions by notaries public, and
(v) bonds which secure the payment and/or performance of an obligation under a written
contract; but it shall not include, without limitation, financial guaranty bonds and the
issuance, writing or underwriting of bonds and licenses which cover Losses arising from
employee dishonesty.

ARTICLE 6 — PREMIUM

As outlined in the Reports and Remittances Article the Company shall pay to the Reinsurer 100% of
the Company’s Net Premiums Written on its Net Liability on the business covered hereunder, less the
ceding commission.

ARTICLE 7 — CEDING COMMISSION

The Reinsurer agrees to allow the Company a commission allowance per calendar quarter of (a)
$50,000 plus (b) 25% of Net Premiums Written ceded under this Agreement. Return commission shall
be allowed on return premiums at the same rate.

Such commission allowance shall be the sole provision for all commissions, brokerages, taxes,
board, exchange or bureau assessments, and for all other expenses of whatever nature, excepting
loss expenses.

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ARTICLE 8 — LOSS SETTLEMENTS & NOTICES

The Company or its designated representative shall adjust, settle, or compromise all losses
hereunder. All such adjustments, settlements, and compromises, including ex-gratia payments, shall
be paid by the Company or its designated representative, and the Reinsurer shall benefit from all
salvage and subrogation. All salvages, recoveries or payments recovered or received subsequent to
loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid
settlement and all necessary adjustments shall be made by the parties hereto.

When so requested, the Company or its designated representative shall afford the Reinsurer an
opportunity to be associated with the Company or its designated representatives, at the expense of
the Reinsurer, in the defense or control of any claim or suit or proceeding involving this
reinsurance and the Company or its designated representative and the Reinsurer shall cooperate in
every respect in the defense of such suit or claim or proceeding.

The Reinsurer shall be liable for its proportionate share of all Losses covered under this
Agreement. The Company or its designated representative shall advise the Reinsurer of all Losses
that may result in a claim under this Agreement and of all subsequent developments which may
materially affect the position of the Reinsurer. Any Loss settlement made by the Company, whether
under strict Policy conditions or by way of compromise, shall be unconditionally binding upon the
Reinsurer in proportion to its participation.

In addition, the Reinsurer shall also be liable for its proportionate share of all Loss Expenses as
respects Losses covered under this Agreement. However, in the event a verdict or judgment is
reduced by an appeal or a settlement, subsequent to the entry of the judgment, resulting in an
ultimate saving on such verdict or judgment, or a judgment is reversed outright, the expense
incurred in securing such final reduction or reversal shall be prorated between the Reinsurer and
the Company in the proportion that each benefits from such reduction or reversal, and the expenses
incurred up to the time of the original verdict or judgment shall be pro rated in proportion to
each party’s interest in such verdict.

In addition, the Reinsurer shall also be liable for its proportionate share of all legal expenses
and other costs incurred in connection with coverage questions and legal actions connected thereto
arising under the business covered by this Agreement. The Reinsurer’s proportionate share of these
costs and expenses shall be the same as the Reinsurer’s percentage of participation in this
Agreement.

Nothing in this Agreement shall be construed as meaning that Losses are not recoverable hereunder
until the actual Loss of the Company has been ascertained.

ARTICLE 9 — EXCESS OF ORIGINAL POLICY LIMITS

This Agreement shall protect the Company as provided in Article 1 — Business Covered in connection
with Loss in excess of the limit of the original Policy, such Loss in excess of the limit having
been incurred because of failure by the Company to settle within the Policy limit or by reason of
alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the, trial of any action against its insured or reinsured or in
the preparation of prosecution of an appeal consequent upon such action.

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However, this Article shall not apply where the Loss has been incurred due to fraud by a member of
the Board of Directors or a corporate officer of the Company acting individually or collectively or
in collusion with any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.

For the purpose of this Article, the word “Loss” shall mean any amounts for which the Company would
have been contractually liable to pay had it not been for the limit of the original Policy. The
date on which any Excess of Original Policy Limit Loss is incurred by the Company shall be deemed,
in all circumstances, to be the date of the original Loss.

ARTICLE 10 — EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall protect the Company as provided in Article 1 — Business Covered where the
Loss includes any Extra Contractual Obligations.

The date on which any Extra Contractual Obligation Loss is incurred by the Company shall be deemed,
in all circumstances, to be the date of the original Loss.

However, this Article shall not apply where the Loss has been incurred due to fraud by a member of
the Board of Directors or a corporate officer of the Company acting individually or collectively or
in collusion with any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any Loss covered hereunder.

ARTICLE 11 — REPORTS AND REMITTANCES

	A.	 	Within 30 calendar days following the end of each calendar quarter, the Company or its
representatives shall report to the Reinsurer:

	 	1.	 	Net Premium Written accounted for during the quarter;
	 
	 	2.	 	The ceding commission applicable to the above as provided for in this
Agreement;
	 
	 	3.	 	Losses and Loss Expenses paid during the quarter, less inuring reinsurance;
	 
	 	4.	 	Subrogation, salvage, or other recoveries credited during the quarter;
	 
	 	5.	 	Outstanding loss reserves.

	 	 	The positive balance of (1) less (2) less (3) plus (4) shall be remitted by the Company to
the Reinsurer within 15 calendar days after the date of such report. Any balance shown to
be due the Company shall be remitted by the Reinsurer within 15 calendar days after receipt
of such report.
	 
	B.	 	Annually the Company or its representatives shall furnish the Reinsurer with such information
as the Reinsurer may require to complete its Annual Convention Statement.
	 
	C.	 	The Reinsurer shall maintain the required reserves as to the Reinsurer’s portion of claims
and Losses hereunder. In the event the Company is required to provide collateral for Losses
that the Reinsurer is liable for hereunder, upon mutual consent, the Reinsurer shall provide
funding for such collateral in a manner acceptable to both parties. All interest earned on
such funding provided by the Reinsurer shall first be credited to the Company up to the actual
cost of establishing the collateral mechanism, after which all interest shall be credited to
the Reinsurer on a quarterly basis. Upon final payment of all claims or balances associated
with such Loss or at such time as all claims associated

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	 	 	with such Loss are closed by the Company, any funding balance shall be returned promptly to
the Reinsurer.

ARTICLE 12 — OFFSET

For settlement purposes only, the Company or the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this Agreement. The party
asserting the right of offset may exercise such right any time whether the balances due are on
account of premiums or Losses. In the instance of insolvency of the Company, applicable state law
shall apply.

ARTICLE 13 — CURRENCY

Whenever the word “Dollars” or the “$” sign appears in this Agreement, they shall be construed to
mean United States Dollars and all transactions under this Agreement shall be in United States
Dollars.

Amounts paid or received by the Company in any other currency shall be converted to United States
Dollars at the rate of exchange at the date such transaction is entered on the books of the
Company.

ARTICLE 14 — ACCESS TO RECORDS

Subject to the provisions of the Confidentiality Article and provided the Company receives prior
notice, the Reinsurer, or its duly accredited representatives, shall have access to the
non-privileged books and records (“records”) of the Company on matters reasonably relating to this
reinsurance. Access shall be allowed during normal business hours, at the location where such
records are kept in the usual course of business. Upon the Reinsurer’s request and at the
Reinsurer’s expense, the Company may provide copies of the whole or part of such records.

The Reinsurer shall be permitted access to records only on the condition that either (a) there are
no balances payable hereunder by the Reinsurer that are overdue or (b) the Reinsurer has funded all
balances due hereunder in an interest bearing trust fund or with a Letter of Credit as hereinafter
provided.

Should the Reinsurer choose option (b) of the foregoing paragraph, the Reinsurer agrees to provide
the Company a Trust Agreement established at J.P. Morgan Chase Co. of New York, New York, or at a
mutually agreed successor Trustee, or a clean, irrevocable, and evergreen Letter of Credit, issued
by J.P. Morgan Chase Co. of New York, New York, or by a mutually agreed bank, of which the Company
shall be the beneficiary, which shall secure in full all balances due from the Reinsurer to the
Company with respect to this Contract. Such Trust Agreement and/or Letter of Credit shall be
established under the laws of the state of New York and shall meet all requirements of the state
regulatory authorities applicable to the Company. The Reinsurer is responsible for all costs
associated with providing such Trust Agreement and/or Letter of Credit as required under this
Article.

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ARTICLE 15 — ERRORS AND OMISSIONS

Any inadvertent delay, omission or error shall not be held to relieve either party hereto from any
liability which would attach to it hereunder if such delay, omission, or error had not been made,
provided such omission or error is rectified as soon as possible after discovery.

ARTICLE 16 — TAXES

The Company shall be liable for all premium taxes on business covered hereunder. If the Reinsurer
is obligated to pay any premium taxes on this business, then the Company shall reimburse the
Reinsurer, however, the Company shall not be required to pay taxes twice on the same premium.

ARTICLE 17 — INSOLVENCY

(This Article shall apply severally to each reinsured company referenced within the definition of
“Company” in the Preamble to this Agreement. Further, this Article and the laws of the domiciliary
state shall apply in the event of the insolvency of any company intended to be covered hereunder.
In the event of a conflict between any provision of this Article and the laws of the domiciliary
state of any company intended to be covered hereunder, that domiciliary state’s laws shall
prevail.)

This reinsurance shall be payable by the Reinsurer on the basis of the liability of the Company
under Policy or Policies reinsured without diminution, because of the insolvency of the Company, to
the Company or its liquidator, receiver, or statutory successor.

In the event of insolvency of the Company, the liquidator or receiver or statutory successor of the
Company shall give written notice to the Reinsurer of the pendency of a claim filed against the
Company on the Policy or Policies reinsured within a reasonable time after such claim is filed in
the insolvency proceeding. During the pendency of such claim the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses which it may deem available to the Company or its liquidator or receiver or
statutory successor. The expenses thus incurred by the Reinsurer shall be chargeable, subject to
court approval, against the Company as part of the expense of liquidation to the extent of a
proportionate share of the benefits, which may accrue to the Company solely as a result of the
defense so undertaken by the Reinsurer.

Should the Company go into liquidation or should a receiver be appointed, the Reinsurer shall be
entitled to deduct from any sums which may be or may become due to the Company any sums which are
due to the Reinsurer by the Company and which are payable at a fixed or stated date under this
Agreement, to the full extent permitted under the laws of the insolvent party’s state of domicile.

It is further understood and agreed that, in the event of the insolvency of the Company, the
reinsurance under this Agreement shall be payable directly by the Reinsurer to the Company or to
its liquidator, receiver or statutory successor except a) where this Agreement specifically
provides another payee or such reinsurance in the event of the insolvency of the Company or b)
where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy

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obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies
and in substitution for the obligations of the Company to such payees.

In no event shall anyone other than the parties to this Agreement or, in the event of the Company’s
insolvency, its liquidator, receiver, or statutory successor, have any rights under this Agreement.

ARTICLE 18 — AMENDMENTS

This Agreement may be altered or amended in any of its terms and conditions by written mutual
consent of the Company and the Reinsurer. Such written mutual consent shall then constitute a part
of this Agreement.

ARTICLE 19 — ARBITRATION

As a condition precedent to any right of action hereunder, any dispute arising out of the
interpretation, performance or breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting
arbitration shall be in writing and sent certified mail, return receipt requested.

One arbitrator shall be chosen by each party and the two arbitrators shall, before instituting the
hearing, choose an impartial third arbitrator who shall preside at the hearing. If either party
fails to appoint its arbitrator with thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified mail of its intention to do so, may
appoint the second arbitrator.

If the two arbitrators are unable to agree upon the third arbitrator within thirty (30) days of
their appointment each of them shall name two, of whom the other shall decline one and the decision
shall be made by drawing lots. All arbitrators shall be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd’s London, not under the
control of either party to this Agreement.

Within thirty (30) days after notice of appointment of all arbitrators, the panel shall meet and
determine timely periods for briefs, discovery procedures and schedules for hearings. The panel
shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure
and evidence. Arbitration shall take place in Chicago, Illinois. Insofar as the arbitration panel
looks to substantive law, it shall consider the law of the State of Illinois. The decision of any
two arbitrators when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.

The panel shall make its decision considering the custom and practice of the applicable insurance
and reinsurance business as promptly as possible following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction thereof.

Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the
other party the expense of the third arbitrator and of the arbitration. The panel is prohibited
from awarding punitive, exemplary or treble damages, of whatever nature, in connection with any
arbitration proceeding concerning this Agreement.

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ARTICLE 20 — CHOICE OF LAW

This Agreement, including all matters relating to formation, validity and performance thereof,
shall be interpreted in accordance with the law of the State of Illinois.

ARTICLE 21 — NOTICES

Any notice relating to this Agreement shall be in writing and shall be sufficiently given if
delivered by certified mail to the Company at the following address:

Continental Casualty Company

333 S. Wabash

Attn: The Chief Financial Officer

Chicago, IL 60604

and to the Reinsurer at the following address:

Western Surety Company

Attn: Chief Executive Officer

Sioux Falls, South Dakota 57117-5077

ARTICLE 22 — ENTIRE AGREEMENT 

This Agreement, and that certain Services and Indemnity Agreement between the parties dated January
1, 2007, represent the entire agreement and understanding among the parties. No other oral or
written agreements or contracts relating to the risks reinsured hereunder currently exist and/or
are contemplated between the parties.

ARTICLE 23 — FUNDING OF RESERVES

(This Article applies to the Reinsurer who does not qualify for credit by any state or any other
governmental authority having jurisdiction over the Company’s loss reserves and/or to the Reinsurer
to which the provisions of the Contingent Collateral Article apply.)

	A.	 	As regards policies issued by the Company coming within the scope of this Agreement, the
Company agrees that when it shall file with the insurance regulatory authority or set up on
its books reserves for unearned premium and losses covered hereunder which it shall be
required by law to set up, it shall forward to the Reinsurer a statement showing the
proportion of such reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees
to fund such reserves in respect of unearned premium, known outstanding losses that have been
reported to the Reinsurer and loss expense relating thereto, losses and loss expenses paid by
the Company but not recovered from the Reinsurer, plus reserves for losses and loss expenses
incurred but not reported, as shown in the statement prepared by the Company (hereinafter
referred to as “Reinsurer’s Obligations”) by cash advances, Trust Agreement or a Letter of
Credit. The Reinsurer shall have the option of determining the method of funding provided it
is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s
reserves and provided that the issuing bank (i) is approved by the NAIC Securities Valuation
Office for Letters of Credit and (ii) if applicable, has been

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	 	 	assigned a Credit Rating by the LACE Financial Corporation of “C” or above for both Letters of
Credit and Trust Agreements.
	 
	B.	 	When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely
delivery to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a
bank consented to by the Company with such consent not being unreasonably withheld, and
containing provisions acceptable to the insurance regulatory authorities having jurisdiction
over the Company’s reserves in an amount equal to the Reinsurer’s Obligations. Such Letter of
Credit shall be issued for a period of not less than one year, and shall be automatically
extended for one year from its date of expiration or any future expiration date unless 60
calendar days (90 calendar days where required by insurance regulatory authorities) prior to
any expiration date the issuing bank shall notify the Company by certified or registered mail
that the issuing bank elects not to consider the Letter of Credit extended for any additional
period. At any time subsequent to the issuance of the Letter of Credit or establishment of
the Trust Agreement, the Company may withdraw its consent to the use of an issuing bank, with
such withdrawal right to be exercised in the Company’s reasonable discretion, and the
Reinsurer shall move the collateral to another Company-approved issuing bank in accordance
with the provisions of paragraph A.
	 
	C.	 	The Reinsurer and Company agree that the Letters of Credit, or other method of funding,
provided by the Reinsurer pursuant to the provisions of this Article may be drawn upon at any
time, notwithstanding any other provision of this Agreement, and be utilized by the Company or
any successor, by operation of law, of the Company including, without limitation, any
liquidator, rehabilitator, receiver or conservator of the Company for the following purposes:

	 	1.	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due
under the terms of this Agreement and which has not been otherwise paid;
	 
	 	2.	 	to make refund of any sum which is in excess of the actual amount required to pay the
Reinsurer’s Obligations under this Agreement;
	 
	 	3.	 	to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit
shall be held in an interest bearing account separate from the Company’s other assets, and
interest thereon not in excess of the prime rate shall accrue to the benefit of the
Reinsurer;
	 
	 	4.	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under this
Agreement.

	D.	 	In the event the amount drawn by the Company on any Letter of Credit, or other method of
funding, is in excess of the actual amount required for in Paragraphs C.1. or C.3. above, or
in the case of Paragraph C.4. above, the actual amount determined to be due, the Company shall
promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be
applied without diminution because of insolvency on the part of the Company or the Reinsurer.
	 
	E.	 	The issuing bank shall have no responsibility whatsoever in connection with the propriety of
withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized representatives of the
Company.

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	F.	 	At quarterly intervals, or less frequently as agreed but never less frequently than annually,
the Company shall prepare a specific statement of the Reinsurer’s Obligations, for the sole
purpose of amending the Letter of Credit or other method of funding, in the following manner:

	 	1.	 	If the statement shows that the Reinsurer’s Obligations exceed the balance of the
Letter of Credit as of the statement date, the Reinsurer shall, within 15 calendar days
after receipt of notice of such excess, secure delivery to the Company of an amendment to
the Letter of Credit increasing the amount of credit by the amount of such difference.
Should another method of funding be used, the Reinsurer shall, within the time period
outlined above, increase such funding by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Reinsurer’s Obligations are less than the
balance of the Letter of Credit as of the statement date, the Company shall, within 15
calendar days after receipt of written request from the Reinsurer, release such excess
credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit. Should another method of funding be
used, the Company shall, within the time period outlined above, decrease such funding by
the amount of such excess.
	 
	 	3.	 	If the Reinsurer does not agree with the statement of the Reinsurer’s Obligations as
furnished by the Company, a mutually agreed upon independent national actuarial firm shall
be engaged to evaluate the Reinsurer’s Obligations covered under this Agreement and such
evaluation shall be binding upon the parties hereof. Such cost shall be shared equally
between the Company and the Reinsurer. If the parties fail to agree on the selection of an
independent national actuarial firm, each of the parties shall name two, of whom the other
shall decline one, and the final decision shall be made by drawing lots. As respects the
terms of this paragraph, any actuarial firm selected by drawing lots shall be disinterested
in the outcome of the calculation and the employee of same engaged to evaluate the
Reinsurer’s Obligations hereunder shall not be under the influence of either party hereto
and shall be a Fellow of the Casualty Actuarial Society. It is agreed by the parties
hereto that the Arbitration Article of this Agreement shall not apply to the resolution of
disputes arising under the terms of this paragraph. The evaluation by the independent
national actuarial firm shall be binding on the Company and the Reinsurer.

	G.	 	The Reinsurer shall be responsible for all costs and fees associated with the establishment
and maintenance of any cash advance, Letter of Credit and/or Trust Agreement mandated by the
provisions of this Article.

ARTICLE 24 — CONTINGENT COLLATERAL

(This Article shall apply only to a Reinsurer with an A.M. Best insurance financial strength rating
of “A” or below or a Standard & Poor’s insurer financial strength rating of “A” or below at the
effective date of this Agreement.)

(This Article shall not apply to Lloyd’s Syndicates who have satisfied their funding obligations to
the Credit for Reinsurance Trust Fund (CRTF); however, in the instance where such funding
requirements are reduced below 100%, then the provisions of this Article shall apply to any

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Lloyd’s Syndicate and funding shall be required for the difference between 100% of the Reinsurer’s
Collateral funded to the CRTF.)

(This Article shall not apply to the Reinsurer who has already fully funded reserves, under this
Agreement, per the provisions of the Funding of Reserves Article or Reports and Remittances
Article.)

At any time subsequent to the inception of this Agreement, in the event that the Reinsurer:

	1.	 	has been assigned an A.M. Best’s insurer financial strength rating below “A-” or a Standard &
Poor’s insurer financial strength rating below “A-” (a Standard & Poor’s Insurance Solvency
International rating of less than “BBB” shall apply as respects alien Reinsurers other than
Underwriting Members of Lloyd’s, London, and a Lloyd’s Syndicate Assessment (LSA) rating of
less than three shall apply as respects Underwriting Members of Lloyd’s London); or
	 
	2.	 	has suffered a surplus as regards policyholders loss of more than 25% (twenty-five percent)
from either the inception of this Agreement or the date of the filing of the Reinsurer’s most
recent financial statement with the authorities having jurisdiction over the Reinsurer,
	 
	3.	 	ceases writing new or renewal assumed reinsurance business,

the Company may require that the Reinsurer provide Letters of Credit and/or establish a Trust
Agreement, at the Reinsurer’s own expense, to collateralize the sum of the following under this
Agreement, as reported by the Company (hereinafter the “Reinsurer’s Collateral”):

	a.	 	the amount of loss and loss expense paid by the Company but not recovered from the Reinsurer;
	 
	b.	 	reserves for loss and loss expense reported and outstanding;
	 
	c.	 	reserves for loss and loss expense incurred but not reported; and
	 
	d.	 	if applicable, unearned premium.

Such Reinsurer’s Collateral shall be established by the Reinsurer within ten business days of
receipt by the Reinsurer of the Company’s written notice requesting the establishment of such
Reinsurer’s Collateral, and the notice shall be sent by the Company, to the Reinsurer, via
certified mail or internationally recognized overnight courier service. The Reinsurer’s Collateral
shall be established and maintained in accordance with the provisions of the Funding of Reserves
Article stated in this Agreement. If a Trust Agreement is established, the Reinsurer shall select
the trustee bank with the consent of the Company, with such consent not to be unreasonably
withheld.

If the Reinsurer does not agree with the statement of the Reinsurer’s Collateral as furnished by
the Company, a mutually agreed upon independent national actuarial firm shall be engaged to
evaluate the Reinsurer’s Collateral. During such period of evaluation, the Reinsurer’s obligation
to provide Reinsurer’s Collateral remains unchanged. Such cost shall be shared equally between the
Company and the Reinsurer. If the parties fail to agree on the selection of an independent
national actuarial firm, each of the parties shall name two, of whom the other shall decline one,
and the final decision shall be made by drawing lots. As respects the terms of this paragraph, any
actuarial firm selected by drawing lots shall be disinterested in the outcome of

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the calculation
and the employee of same engaged to evaluate the Reinsurer’s Collateral
hereunder shall not be under the influence of either party hereto and shall be a Fellow of the
Casualty Actuarial Society. It is agreed by the parties hereto that the Arbitration Article of
this Agreement shall not apply to the resolution of disputes arising under the terms of this
paragraph. The evaluation by the independent national actuarial firm shall be binding on the
Company and the Reinsurer with respect to the amount of the Reinsurer’s Collateral.

The Reinsurer shall bear all costs associated with establishing and maintaining the Letters of
Credit and/or Trust Agreements as described in this Article.

The failure of the Company to enforce any provision of this Article shall not constitute a waiver
by the Company of any such provision, irrespective of how long such failure continues. The past
waiver of any provision of this Article, by the Company, shall not constitute a course of conduct
or a waiver of the Company’s rights in the future with respect to that same provision.

ARTICLE 25 — SERVICE OF SUIT

(This Article applies only if the Reinsurer is domiciled outside the United States of America
and/or unauthorized in any state, territory, or district of the United States of America that has
jurisdiction over the Company and in which a subject suit has been instituted. This Article is not
intended to conflict with or override the parties’ obligation to arbitrate their disputes in
accordance with the Arbitration Article.)

In the event of the failure of any Reinsurer hereon to pay any amount claimed to be due hereunder,
such Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of
competent jurisdiction within the United States and shall comply with all requirements necessary to
give that court jurisdiction. Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States District Court, or to
seek a transfer of a case to another court as permitted by the laws of the United States or of any
state in the United States. Service of process in such suit may be made upon Mendes and Mount, 750
Seventh Avenue, New York, New York 10019-6829. In any suit instituted against it upon this
Agreement, the Reinsurer shall abide by the final decision of such court or of any appellate court
in the event of any appeal.

The above-named are authorized and directed to accept service of process on behalf of the Reinsurer
in any such suit and/or upon the request of Company to give a written undertaking to the Company
that they shall enter a general appearance upon the Reinsurer’s behalf in the event such a suit
shall be instituted.

Further, pursuant to any statute of any state, territory or district of the United States which
makes provision therefor, the Reinsurer hereon hereby designates the Superintendent, Commissioner
or Director of Insurance or other officer specified for that purpose in the statute, or the
successor or successors in office, as its true and lawful attorney upon whom may be served any
lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any
beneficiary hereunder, arising out of this Agreement, and hereby designates the above-named as the
person to whom the said officer is authorized to mail such process or a true copy thereof.

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ARTICLE 26 — SEVERABILITY

If any law or regulation of any Federal, State or Local Government of the United States of America,
or the ruling officials having supervision over insurance companies, should render illegal this
Agreement, or any portion thereof, as to risks or properties located in the jurisdiction of such
authority, either the Company or the Reinsurer may upon written notice to the other suspend,
abrogate, or amend this Agreement insofar as it relates to risks or properties located within such
jurisdiction to such extent as may be necessary to comply with such law, regulations, or ruling.

Such illegality, suspension, abrogation, or amendment of a portion of this Agreement shall in no
way affect any other portion thereof.

ARTICLE 27 — HONORABLE UNDERTAKING

The purposes of this Agreement are not to be defeated by narrow or technical legal interpretations
of its provisions. The Agreement shall be construed as an honorable undertaking and should be
interpreted for the purpose of giving effect to the real intentions of the parties hereto.

ARTICLE 28 — SPECIAL PROVISION

At any time subsequent to the inception of this Agreement:

	A.	 	should the ownership, control or management of the Company or the Reinsurer be altered or
changed, in whole or in part, in such a way that receipt or payment of funds or any other
contemplated transaction under this Agreement would be prohibited by United States of America
statute, regulation and/or other applicable law, or
	 
	B.	 	should the Company or the Reinsurer become subject to restrictions imposed by the United
States government, so that receipt or payment of funds or any other contemplated transaction
under this Agreement would be prohibited by United States of America statute, regulation
and/or other applicable law,

the Company or the Reinsurer must immediately notify the other party of same in writing via
certified, registered, or internationally recognized overnight courier service, and the obligation
to pay or receive funds or otherwise perform under this Agreement shall be suspended until such
time as the Company or the Reinsurer are authorized by applicable law, regulation, or license to
perform under this Agreement.

ARTICLE 29 — CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information and data provided to it by the
Company, whether directly or through an authorized agent, in connection with the placement,
execution, or performance of this Agreement (hereinafter called the “Confidential Information”) are
proprietary and confidential to the Company. Confidential Information shall not include documents,
information or data that the Reinsurer can show: (i) is publicly known or has become publicly known
through no unauthorized act of the Reinsurer, (ii) has been rightfully

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received from a third person without obligation of confidentiality, or (iii) was known by the
Reinsurer prior to the placement of this Agreement without an obligation of confidentiality.

The Reinsurer agrees not to disclose any Confidential Information; however, the Reinsurer may
disclose such Confidential Information, in the ordinary course of business, to its employees,
attorneys, intermediaries used for purchase of any retrocessional covers that protect the
Reinsurer’s liability under this Agreement, retrocessionaires, auditors or accountants, as the
Reinsurer deems necessary and the Reinsurer shall verbally advise such entities of the obligations
contained in this Article and shall be bound by the provisions of this Article, or regulatory
agencies, arbitration panels or courts of law. This Article shall not preclude the
disclosure of information which is required to be disclosed in financial statements and reports
filed by either the Company or Reinsurer.

IN WITNESS WHEREOF the parties acknowledge that no intermediary is involved in or brought about
this transaction and the parties hereto, by their authorized representatives, have executed this
Agreement:

on this       day of                2006

CONTINENTAL CASUALTY COMPANY

By: 

Title: 

Attested: 

and on this       day of                2006

WESTERN SURETY COMPANY

By: 

Title: 

Attested by: 

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