Document:

exv10w15

 

Exhibit 10.15

CAPITAL SUPPORT AGREEMENT

This Capital Support Agreement (the “Agreement”) is made and entered into this
12th day of November, 2003 among LOEWS CORPORATION, a Delaware corporation
(“Loews”), CNA FINANCIAL CORPORATION, a Delaware corporation (“CNAF”) and
CONTINENTAL CASUALTY COMPANY, an Illinois insurance company (“CCC”).

WITNESSETH:

WHEREAS, CNAF and its wholly-owned subsidiary, CCC (or certain of its direct or
indirect wholly-owned subsidiaries), plan to enter into various transactions
regarding CNAF and certain portions of CCC’s or such subsidiaries’ business
which are expected to increase CCC’s surplus; and

WHEREAS, Loews owns approximately 90% of the outstanding shares of common stock
of CNAF and, together with CNAF and CCC, will directly and/or indirectly
benefit from such transactions and any related increases in CCC’s surplus; and

WHEREAS, CNAF and CCC have requested Loews, and Loews has agreed, to provide
support to CNAF and CCC by entering into the transactions described in this
Agreement on the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth, CNAF, CCC and Loews hereby agree as follows:

1. CAPITAL SUPPORT. Upon the terms and subject to the conditions of this
Agreement, on the third business day following satisfaction or waiver of all of
the conditions to the obligations of the parties set forth in Section 2 of this
Agreement, or at such other time as Loews, CNAF and CCC may agree (the “Closing
Date” which shall refer to the date of closing for the transactions described
in paragraph A. and B. below, it being understood that such transactions need
not close on the same date) Loews, CNAF and CCC will consummate the following
transactions:

A. Purchase of CNAF Preferred Stock by Loews. CNAF will sell to Loews
and Loews will purchase from CNAF the number of additional newly issued
shares of a new class of CNAF Series I Convertible Participating
Preferred Stock (the “Preferred Stock”), determined by dividing $750
million by the Per Share Purchase Price. The “Per Share Purchase Price”
for the Preferred Stock will be one thousand (1000) times the volume
weighted average of the daily trading prices of CNAF common stock based
on trading between 9:30 a.m. and 4:00 p.m. Eastern Time, as reported by
Bloomberg Financial L.P. for the five trading days from and including
November 17, 2003 through November 21, 2003 (the “Pricing Period”). In
the event that CNAF’s announcement of earnings for the third quarter of
2003 is released on a day following November 12, 2003, the Pricing Period
will be moved forward one business day for each business day that occurs
after November 12, 2003 until such announcement occurs. The Preferred
Stock shall have the designation, powers, preferences and rights and the
qualifications, limitations and restrictions set forth in the certificate
of designation with respect to such series (as validly amended, modified
or supplemented from time to

 

 

time, the “Series I Certificate”) substantially in the form of Exhibit 1
attached hereto and made a part hereof.

Subject to the satisfaction or, to the extent permitted by
applicable law, waiver of the conditions set forth in Section 2 hereof,
at the closing of the transactions contemplated by this Agreement, Loews
shall pay such purchase price, against delivery of a certified copy of
the Series I Certificate or other evidence of the issuance of such shares
reasonably acceptable to Loews, by wire transfer in immediately available
funds and CNAF shall promptly contribute the net proceeds of this
issuance of Preferred Stock as capital to CCC. Any term or provision of
this Agreement to the contrary notwithstanding: (a) the Closing Date for
the transaction described in this paragraph A shall be November 24, 2003,
unless otherwise agreed in writing by Loews and CNAF; and (b) in the
event that CNAF’s announcement of earnings for the third quarter of 2003
is released on a day following November 12, 2003, the Closing Date for
the transaction described in this paragraph A shall be moved forward one
business day for each business day that occurs after November 12, 2003
until such announcement occurs.

B. CCC Guaranty and Surplus Notes. Loews and CCC shall execute a
Guaranty Agreement (the “Guaranty Agreement”) in form and substance
substantially similar to the Form of Guaranty Agreement attached as
Exhibit 2 hereto, including the forms of surplus notes (the “Surplus
Notes”) attached as Exhibits A and B to the Guaranty Agreement.

2. CONDITIONS TO CLOSING.

     A. The obligations of Loews to purchase the Preferred Stock and to execute
and deliver the Guaranty Agreement hereunder and to otherwise consummate the
transactions contemplated by this Agreement, shall be subject to the
satisfaction or, to the extent permitted by applicable law, waiver by Loews of
the following conditions:

i. Representations and Warranties. Each of the representations and
warranties and other statements made by CNAF and CCC in this
Agreement and the documents delivered by them pursuant hereto (the
“Transaction Documents”) are, at the time made and on the Closing
Date, true and correct in all material respects.

ii. Performance of Obligations. CNAF and CCC shall have performed
in all material respects all of their agreements and obligations
hereunder, to the extent effective at or prior to the Closing Date,
under the Transaction Documents.

iii. Officer’s Certificate. CNAF and CCC shall have furnished or
caused to be furnished to Loews a certificate of each such company
(signed by an executive officer thereof) as to the satisfaction of
the conditions applicable to each set forth in this Section 2.A.

iv. Opinion of Counsel. Jonathan D. Kantor, General Counsel of
each of CNAF and CCC, shall have furnished to Loews his written
opinions, dated the Closing Date, in form and substance reasonably
satisfactory to Loews, that:

 

 

a. This Agreement has been duly executed and delivered by
each of CNAF and CCC and constitutes a valid and binding
obligation of each of CNAF and CCC, enforceable against CNAF
and CCC in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy or other
similar laws affecting creditors’ rights generally or
principles of equity.

b. The execution, delivery and performance by each of CNAF
and CCC of this Agreement and by CCC of the Guaranty
Agreement and, when issued, the Surplus Notes and the
consummation by CNAF and CCC of the transactions contemplated
hereby and thereby do not and will not (1) contravene,
conflict with, or result in any violation or breach of any
provision of their respective certificates or articles of
incorporation or bylaws; (2) to his best knowledge,
contravene, conflict with or result in a violation or breach
of any provision of any law, rule, regulation, judgment,
injunction, order or decree applicable to CNAF, or its
subsidiaries, or CCC or its subsidiaries or require any
consent, approval or other action by, filing with or notice
to any governmental authority (including without limitation
any regulatory authority) other than as described herein; (3)
to his best knowledge, other than as described herein require
any consent or other action by, filing with or notice to any
person under, constitute a default under (or an event that,
with or without notice or lapse of time or both, would
constitute a default), or cause or permit the termination,
cancellation, acceleration, triggering or other change of any
right or obligation or the loss of any benefit to which CNAF
or its subsidiaries or CCC or its subsidiaries is entitled
under (A) any provision of any agreement or other instrument
binding upon CNAF or any of its subsidiaries or CCC or its
subsidiaries or (B) any license, franchise, permit,
certificate, approval or other similar authorization held by,
or affecting, or relating to, the assets or business of CNAF
or any of its subsidiaries or CCC or its subsidiaries; or (4)
result in the creation or imposition of any lien or other
encumbrance on any its or its subsidiaries asset, other than
such exceptions in the case of clauses (2), (3) and (4) as
would not, individually or in the aggregate, be reasonably
expected to materially impair or delay CNAF’s or CCC’s
ability to consummate the transactions contemplated by this
Agreement or have a material adverse effect on the business,
financial position, shareholders’ equity or results of
operations of CNAF or CCC and their subsidiaries, taken as a
whole.

c. The issuance of the Preferred Stock by CNAF pursuant to
this Agreement, the issuance by CNAF of the common stock of
CNAF issuable upon conversion of the Preferred Stock and the
issuance by CCC of the Surplus Notes pursuant to the Guaranty
Agreement have been duly authorized.

d. When issued and delivered to Loews by CNAF against payment
therefore as provided herein, the Preferred Stock will be,
and when issued and delivered upon conversion of the
Preferred Stock, the shares of common stock of CNAF issuable
upon conversion thereof will be, duly and validly issued and
fully paid and non-assessable and, to his

 

 

knowledge, will not be subject to the preemptive rights or
other similar rights of any securityholder of CNAF or any
other person.

e. When issued and delivered to Loews by CCC against payment
therefore as provided in the Guaranty Agreement, each of the
Surplus Notes will be duly and validly issued and will be
enforceable against CCC in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting creditors’ rights generally or
principles of equity.

f. None of the offering, issuance or sale of the Preferred
Stock, the common stock of CNAF issuable upon conversion of
the Preferred Stock or the Surplus Notes (or any portion
thereof) to Loews is subject, or to such counsel’s knowledge
will become subject, to the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the
“1933 Act”).

v. Rating Agency Approval. As of the Closing Date, neither Moody’s
Investors Services, Standard & Poor’s nor A.M. Best Company shall
have lowered, or stated its intention to Loews, CNAF or CCC or
publicly to lower, as applicable, any of the corporate, debt or
insurer financial strength ratings of CNAF, CCC or Loews from the
ratings published by such agencies as of the date hereof.

vi. Regulatory Authorities. CCC shall have received the approval
of the Director of the Illinois Department of Insurance and, as
applicable, the other insurance subsidiaries of CNAF shall have
received all necessary approvals of their respective regulators for
the consummation of each of the transactions contemplated by this
Agreement, the Guaranty Agreement and the Surplus Notes.

     B. The obligations of CNAF and CCC hereunder to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction or, to the extent permitted by applicable law, waiver by CNAF and
CCC of the following conditions:

i. Representations and Warranties. All representations and
warranties and other statements of Loews herein are, at the time
made and on the respective Closing Dates, true and correct in all
material respects.

ii. Regulatory Authorities. The insurance subsidiaries of CNAF
shall have received the approval of their respective regulators for
the filings and exemptions shown on Exhibit 3.

iii. Rating Agencies. At the Closing Date, neither Moody’s
Investors Services, Standard & Poor’s nor A.M. Best Company shall
have lowered, or stated its intention to Loews, CNAF or CCC or
publicly to lower, as applicable, any of the corporate, debt or
insurer financial strength ratings of CNAF or CCC from the ratings
published by such agencies as of the date.

3. REPRESENTATIONS AND WARRANTIES.

 

 

     A. Loews hereby represents and warrants to CNAF and CCC as follows:

i. Authority. Loews is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby, including the execution and delivery on the
Closing Date of the Guaranty Agreement and, if required by the
terms thereof, to consummate the transactions contemplated thereby,
including the purchase of the Surplus Notes.

ii. Due Authorization. The execution and delivery by Loews of this
Agreement, and the consummation by it of the transactions hereby,
including the execution and delivery on the Closing Date of the
Guaranty Agreement and, if required by the terms thereof, the
consummation of the transactions contemplated thereby, including
the purchase of the Surplus Notes, have been duly authorized by all
necessary corporate action on the part of Loews.

iii. Enforcement. This Agreement has been duly executed and
delivered by Loews and constitutes a valid and binding obligation
of Loews enforceable against Loews in accordance with its terms,
except as the enforceability hereof may be limited by bankruptcy or
other similar laws affecting creditors’ rights generally or
principles of equity. When executed and delivered by Loews, the
Guaranty Agreement, the Surplus Notes and each of the other
Transaction Documents will constitute a valid and binding
obligation of Loews enforceable against Loews in accordance with
its terms, except as the enforceability thereof may be limited by
bankruptcy or other similar laws affecting creditors’ rights
generally or principles of equity.

iv. Regulatory Approvals. No authorization, approval, consent or
order of, or registration or filing with, any court or other
governmental body having jurisdiction over Loews is required on the
part of Loews for the execution and delivery of this Agreement or
the Guaranty Agreement or the consummation by Loews of the
transactions contemplated hereby or thereby.

v. Investment Intent. The Preferred Stock is being acquired, and,
if purchased by Loews pursuant to the Guaranty Agreement, the
Surplus Notes will be acquired by Loews for investment for its own
account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the
federal or state securities laws.

vi. Accredited Investor. Loews is an “accredited investor” within
the meaning of Regulation 501(a) under the Securities Act, can bear
the economic risk of its investment in the Preferred Stock and the
Surplus Notes and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and
risks of the investment in the Preferred Stock and the Surplus
Notes.

vii. Information. Loews has had a reasonable opportunity to ask
questions and receive answers concerning CNAF and CCC and their
financial and business affairs.

 

 

     B. CNAF hereby represents and warrants to Loews as follows:

i. Authority. CNAF is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby.

ii. Due Authorization. The execution and delivery by CNAF of this
Agreement, and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of CNAF.

iii. Enforcement. This Agreement has been and, when executed, the
other Transaction Documents to which CNAF is a signatory will be,
duly executed and delivered by CNAF and constitutes or will
constitute valid and binding obligations of CNAF enforceable
against CNAF in accordance with their respective terms, except as
the enforceability hereof or thereof may be limited by bankruptcy
or other similar laws affecting creditors’ rights generally or
principles of equity.

iv. Non-Contravention. The execution, delivery and performance by
CNAF of this Agreement and the consummation by CNAF of the
transactions contemplated hereby do not and will not (1)
contravene, conflict with, or result in any violation or breach of
any provision of CNAF’s certificate of incorporation or bylaws; (2)
contravene, conflict with or result in a violation or breach of any
provision of any law, rule, regulation, judgment, injunction, order
or decree applicable to CNAF or its subsidiaries, or require any
consent, approval or other action by, filing with or notice to any
governmental authority (including without limitation any regulatory
authority) other than as described herein; (3) other than as
described herein require any consent or other action by, filing
with or notice to any person under, constitute a default under (or
an event that, with or without notice or lapse of time or both,
would constitute a default), or cause or permit the termination,
cancellation, acceleration, triggering or other change of any right
or obligation or the loss of any benefit to which CNAF or any of
its subsidiaries is entitled under (A) any provision of any
agreement or other instrument binding upon CNAF or any of its
subsidiaries or (B) any license, franchise, permit, certificate,
approval or other similar authorization held by, or affecting, or
relating to, the assets or business of CNAF or any of its
subsidiaries; or (4) result in the creation or imposition of any
lien or other encumbrance on any its or its subsidiaries asset,
other than such exceptions in the case of clauses (2), (3) and (4)
as would not, individually or in the aggregate, be reasonably
expected to materially impair or delay CNA’s ability to consummate
the transactions contemplated by this Agreement or have a material
adverse effect on the business, financial position, shareholders’
equity or results of operations of CNAF and its subsidiaries, taken
as a whole.

v. Absence of Certain Changes. Since November 12, 2003, there has
been no material adverse change in the condition (financial or
other), earnings, business, prospects or properties of CNAF.

 

 

vi. Preferred Stock Validly Issued. The Preferred Stock, when
issued, delivered and paid for on the Closing Date, and the common
stock of CNAF issuable upon conversion of the Preferred Stock, when
issued and delivered upon conversion of the Preferred Stock, will
be duly and validly issued and outstanding, fully paid and
nonassessable and free and clear of any liens or other encumbrance
(other than any liens or encumbrances that may be created as a
result of Loews’ ownership of the Preferred Stock or CNAF common
stock) and not subject to preemptive or other similar rights.

vii. No Registration Required. Neither CNAF nor to its knowledge
any person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Preferred
Stock to Loews or the issuance to Loews of the shares of common
stock of CNAF issuable upon conversion thereof or the purchase by
Loews of the Surplus Notes (or any portion thereof) from Loews if
required pursuant to Section 1 hereof, to the registration
requirements of Section 5 of the 1933 Act, and CNAF has no reason
to believe that the offering, issuance or sale of the Preferred
Stock to Loews or the issuance to Loews of the shares of common
stock of CNAF issuable upon conversion thereof or the purchase by
Loews of the Surplus Notes (or any portion thereof) from Loews if
required pursuant to Section 1 hereof is or will become subject to
the registration requirements of Section 5 of the 1933 Act.

     C. CCC hereby represents and warrants to Loews as follows:

i. Authority. CCC is an insurance company duly organized, validly
existing and authorized to transact its business under the laws of
the State of Illinois and has all requisite corporate power and
authority to execute and deliver this Agreement, the Guaranty
Agreement and the Surplus Notes, if required to do so under the
terms and conditions of the Guaranty Agreement, and to perform its
obligations and otherwise consummate the transactions contemplated
hereby and thereby.

ii. Due Authorization. The execution and delivery by CCC of this
Agreement, and the consummation by it of the transactions hereby,
including the execution and delivery on the Closing Date of the
Guaranty Agreement and, if required by the terms thereof, the
consummation of the transactions contemplated thereby, including
the execution and delivery of the Surplus Notes, have been duly
authorized by all necessary corporate action on the part of CCC.

iii. Enforcement. This Agreement has been duly executed and
delivered by CCC and constitutes a valid and binding obligation of
CCC enforceable against CCC in accordance with its terms, except as
the enforceability hereof may be limited by bankruptcy or other
similar laws affecting creditors’ rights generally or principles
of equity. When executed and delivered by CCC, the Guaranty
Agreement, the Surplus Notes and each of the other Transaction
Documents will constitute a valid and binding obligation of CCC
enforceable against CCC in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy or other
similar laws affecting creditors’ rights generally or principles
of equity.

 

 

iv. Non-Contravention. The execution, delivery and performance by
CCC of this Agreement and the consummation by CCC of the
transactions contemplated hereby, including the execution and
delivery on the Closing Date of the Guaranty Agreement and, if
required by the terms thereof, the consummation of the transactions
contemplated thereby, including the execution and delivery of the
Surplus Notes, do not and will not (1) contravene, conflict with,
or result in any violation or breach of any provision of its
articles of incorporation or bylaws; (2) contravene, conflict with
or result in a violation or breach of any provision of any law,
rule, regulation, judgment, injunction, order or decree applicable
to CCC or its subsidiaries, or require any consent, approval or
other action by, filing with or notice to any governmental
authority (including without limitation any regulatory authority)
other than as described herein; (3) other than as described herein
require any consent or other action by, filing with or notice to
any person under, constitute a default under (or an event that,
with or without notice or lapse of time or both, would constitute a
default), or cause or permit the termination, cancellation,
acceleration, triggering or other change of any right or obligation
or the loss of any benefit to which CCC or any of its subsidiaries
is entitled under (A) any provision of any agreement or other
instrument binding upon CCC or any of its subsidiaries or (B) any
license, franchise, permit, certificate, approval or other similar
authorization held by, or affecting, or relating to, the assets or
business of CCC or any of its subsidiaries; or (4) result in the
creation or imposition of any lien or other encumbrance on any its
or its subsidiaries assets, other than such exceptions in the case
of clauses (2), (3) and (4) as would not, individually or in the
aggregate, be reasonably expected to materially impair or delay its
ability to consummate the transactions contemplated by this
Agreement or have a material adverse effect on the business,
financial position, shareholders’ equity or results of operations
of CCC and its subsidiaries, taken as a whole.

v. Absence of Certain Changes. Since November 12, 2003, there has
been no material adverse change in the condition (financial or
other), earnings, business, prospects or properties of CCC.

vi. Surplus Notes Validly Issued. The Surplus Notes, when issued
by CCC, delivered and paid for pursuant to the terms and subject to
the conditions in this Agreement and the Guaranty Agreement, will
be duly and validly issued and free and clear of any liens or other
encumbrance (other than any liens or encumbrances that may be
created as a result of Loews’ ownership of the Surplus Notes) and
not subject to preemptive or other similar rights.

vii. No Registration Required. Neither CCC nor to its knowledge
any person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Surplus
Notes to Loews to the registration requirements of Section 5 of the
1933 Act, and CCC has no reason to believe that the offering,
issuance or sale of the Surplus Notes to Loews is or will become
subject to the registration requirements of Section 5 of the 1933
Act.

4. CNAF PURCHASE OF CCC SURPLUS NOTES FROM LOEWS.

	 
	A.	 	CNAF agrees that promptly after receiving any net proceeds
from an offering or sale of its equity securities after the date
hereof to anyone other than Loews,

 

 

	 	 	CNAF shall utilize such net proceeds to purchase from Loews, at par,
any then outstanding Surplus Notes (including any accrued but unpaid
interest thereon), without recourse. If the total net proceeds from
any such offering are less than the outstanding principal of and
accrued but unpaid interest on the Surplus Notes at that time, then
CNAF will utilize all such proceeds to purchase a pro rata portion of
the principal and accrued but unpaid interest on the outstanding
Surplus Notes. At the time of any such sale of Surplus Notes, Loews
will deliver the applicable Surplus Notes to CNAF against payment
therefor, together with such documents of assignment or other
instruments as CNAF may reasonably request to evidence such purchase
and sale. CCC hereby consents to any sale of the Surplus Notes
hereunder and will cooperate with CNAF and Loews in connection
therewith, including by executing and delivering such new or
replacement Surplus Notes as CNAF or Loews may reasonably request.
	 
	B.	 	Not more than once in every six-month period during which
any Surplus Notes remain outstanding, Loews may make written demand
that CNAF purchase from Loews, at par, said Surplus Note(s)
(including any accrued but unpaid interest thereon), in full or in
part, without recourse, whereupon CNAF must proceed with such
purchase on said terms unless upon such demand CNAF reasonably
concludes that such purchase(s) would directly or indirectly cause
a material adverse change in the financial position of CNAF and so
notifies Loews in writing within a reasonable time after such
demand is received. In the event of any such purchase of Surplus
Notes, Loews will deliver the applicable Surplus Note(s) to CNAF
against payment therefor, together with such documents of
assignment or other instruments as CNAF may reasonably request to
evidence such purchase and sale. CCC hereby consents to any such
purchase of the Surplus Notes hereunder and will cooperate with
CNAF and Loews in connection therewith, including by executing and
delivering such new or replacement Surplus Notes as CNAF or Loews
may reasonably request.

5. DEALINGS WITH REGULATORS. Each of CNAF and CCC shall use its reasonable
good faith efforts to obtain all required regulatory approvals required to
consummate the transactions contemplated hereby and by the Guaranty Agreement
and the Surplus Notes, including, for so long as any Surplus Note remains
outstanding or any amount remains unpaid thereunder, the approval of the
Director of the Illinois Department of Insurance of the payment by CCC of
accrued and unpaid interest on and principal of the Surplus Notes (including
any required prepayments) on the dates and as otherwise provided in the Surplus
Notes and in the event that any such approval has not been obtained for any
such payment at or prior to the relevant payment date, to continue to use its
reasonable good faith efforts to obtain such approval promptly thereafter.

6. COVENANTS. The parties hereto covenant and agree as follows:

     A. The resolution embodied in the Series I Certificate shall be presented
to the Board of Directors of CNAF (and/or a properly authorized committee
thereof) for adoption, upon which adoption the Series I Certificate shall be
filed with the Secretary of State of Delaware, and its terms shall become
effective, and Loews shall receive a copy of the Series I Certificate certified
by the Secretary of the State of Delaware.

     B. Loews and CNAF shall each use its reasonable best efforts to cause a
Conversion (as that term is defined in the Series I Certificate) of the
Preferred Stock to occur within such

 

time after filing of the Series I Certificate with the Secretary of State of
Delaware as Loews and CNAF reasonably deem appropriate.

6. AMENDMENT. No term or provision of this Agreement shall be amended,
modified, altered, waived, supplemented or terminated except in a writing
signed by the parties hereto.

7. NOTICE. Any notice, request, instruction, correspondence or other document
to be given hereunder by any party to another (herein collectively called
“Notice”) shall be in writing and delivered personally, sent via nationally
recognized express delivery service, mailed by certified mail, postage prepaid
and return receipt requested or sent by confirmed telecopier as follows:

	 	 	 	 	 
	
	 	 	 	 
	To Loews:	 	Loews Corporation
	 	 	667 Madison Avenue
	 	 	New York, NY 10021
	

	 	Attn:
	 	Corporate Secretary
	 
	 	 	 	 
	To CNAF:	 	CNA Financial Corporation
	 	 	CNA Plaza
	 	 	Chicago, Illinois 60685
	

	 	Attn:
	 	Jonathan D. Kantor
	

	 	 	 	Senior Vice President, General Counsel
and Secretary
	 
	 	 	 	 
	To CCC:	 	Continental Casualty Company
	 	 	CNA Plaza
	 	 	Chicago, Illinois 60685
	

	 	Attn:
	 	Jonathan D. Kantor
	

	 	 	 	Senior Vice President, General Counsel
and Secretary

Notice given by personal delivery, express delivery service or mail shall be
effective upon actual receipt. Notice given by confirmed telecopier shall be
effective upon actual receipt if received during the recipient’s normal
business hours, or at the beginning of the recipient’s next business day after
receipt if not received during the recipient’s normal business hours. All
Notices by confirmed telecopier shall be confirmed promptly after transmission
in a writing sent by personal delivery, nationally recognized express delivery
service or certified mail. Any party may change any address to which Notice is
to be given to it by giving notice as provided above of such change of address.

8. MISCELLANEOUS. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. This Agreement shall be binding upon each
of the parties hereto and inure to the benefit of and be enforceable by the
relevant party hereto and its respective successors and assigns. This
Agreement, together with the other Transaction Documents, embodies the entire
agreement and understanding among Loews, CNAF and CCC and supersedes all prior
agreements and understandings relating to the subject matter hereof. The
headings in this Agreement are for purposes of reference only, and shall not
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

 

 

SIGNATURE PAGE TO FOLLOW

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

LOEWS CORPORATION

By: /s/ PETER W. KEEGAN

Name: Peter W. Keegan

Title: SVP and CFO

Attest:

By: /s/ KENNETH ZINGHINI

Name: Kenneth Zinghini

Title: Asst. Secretary

CNA FINANCIAL CORPORATION

By: /s/ ROBERT V. DEUTSCH

Name: Robert V. Deutsch

Title: Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Attest:

By: /s/ DAVID B. LEHMAN

Name: David B. Lehman

Title: Asst. Secretary

CONTINENTAL CASUALTY COMPANY

By: /s/ ROBERT V. DEUTSCH

Name: Robert V. Deutsch

Title: Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Attest:

By: /s/ DAVID B. LEHMAN

Name: David B. Lehman

Title: Asst. Secretary

 

 

EXHIBIT 2

GUARANTY AGREEMENT

     This Guaranty Agreement (the “Guaranty”) is made this 24th day of
November, 2003 between LOEWS CORPORATION, a Delaware corporation (“Guarantor”),
and CONTINENTAL CASUALTY COMPANY, an Illinois insurance company (“Company”).

WITNESSETH:

     WHEREAS, the Company is a wholly-owned subsidiary of CNA Financial
Corporation, a Delaware corporation, (“CNAF”) and Guarantor owns approximately
90% of the outstanding shares of common stock of CNAF; and

     WHEREAS, the Company and certain of its subsidiaries (“Subsidiaries”) are
engaged in the businesses of selling financial protection to individuals
through term life insurance, universal life insurance, annuities and other
products (the “Life Business”) and providing group life and group health
insurance and related services to employers, affinity groups and other entities
that purchase insurance as a group (the “Group Business”); and

     WHEREAS, Company and the Subsidiaries plan to dispose of, through one or
more sales of assets or Subsidiary stock or through a reinsurance transaction
or other transfer or disposition, all or portions of the Group Business (any
such transaction being a “Group Transaction”) and the Life Business (any such
transaction being a “Life Transaction” and together with the Group Transaction,
the “Transactions”); and

     WHEREAS, if consummated, the Transactions will each generate proceeds for
the Company and are expected to increase the Company’s surplus and Guarantor,
CNAF and the Company will directly and/or indirectly benefit therefrom; and

     WHEREAS, CNAF and the Company have requested Guarantor, and Guarantor has
agreed, to provide support to CNAF and the Company and in furtherance thereof
have entered into a Capital Support Agreement dated November 12th, 2003 among
Guarantor, CNAF and the Company (the “Capital Support Agreement”) pursuant to
which, among other things, Guarantor agreed to provide the financial
accommodations set forth in this Guaranty, on the terms and subject to the
conditions set forth herein and therein.

     NOW THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, Guarantor and the Company hereby agree as
follows:

     1. GUARANTY.

     a. Agreement to Purchase Surplus Notes of the Company. If a Group Trigger
(as defined below) occurs on or prior to February 26, 2004 (the “Trigger
Date”), then on February 27, 2004 or such earlier date as may be agreed upon
between the Company and the Guarantor (the “Purchase Date”) Guarantor shall
purchase a Group Surplus Note (as defined below) from the Company. If a Life
Trigger (as defined below) occurs on or prior to February 26, 2004, then on the
Purchase Date Guarantor shall purchase a Life Surplus Note (as defined below)
from the Company.

 

 

     i. “Group Trigger” means that as of the close of business on the
Trigger Date, either a) a Group Transaction has not occurred or b) if a
Group Transaction has occurred and the amount by which the Company’s
statutory surplus has increased as a result of the Group Transaction is
less than $200 million. Such determination shall be made based upon the
Company’s underlying statutory equity, adjusted for unamortized goodwill,
of CNA Group Life Assurance Company, a subsidiary of the Company, as
reflected in its third quarter 2003 statutory financial statement filed
with its domiciliary regulator (the amount by which such increase is less
than $200 million is the “Group Amount”).

     ii. “Life Trigger” means that as of the close of business on the
Trigger Date, either a) a Life Transaction has not occurred or b) if a
Life Transaction has occurred, and the amount by which the Company’s
statutory surplus has increased as a result of the Life Transaction is
less than $300MM (the amount by which such increase is less than $300
million is the “Life Amount”).

     b. Amount and Form of Surplus Note(s).

     i. If a Group Trigger occurs, then on the Purchase Date Guarantor
will purchase from the Company, and the Company will execute and deliver
to Guarantor against payment therefore, a surplus note in the form and
having the terms set forth in the form of Group Surplus Note attached as
Exhibit A hereto (the “Group Surplus Note”). The original principal
amount of the Group Surplus Note shall be the lesser of a) $200 million
or b) the Group Amount .

     ii. If a Life Trigger occurs, then on the Purchase Date Guarantor
will purchase from the Company, and the Company will execute and deliver
to Guarantor against payment therefore, a surplus note in the form and
having the terms set forth in the form of Life Surplus Note attached as
Exhibit B hereto (the “Life Surplus Note”). The original principal
amount of the Life Surplus Note shall be the lesser of a) $300 million or
b) the Life Amount.

     2. DEMANDS AND NOTICE. Promptly following the occurrence of either a Group
Trigger or a Life Trigger, but in no event later than the Trigger Date, the
Company shall make a demand upon Guarantor (a “Demand”). A Demand shall be in
a writing signed by the Company’s Chief Financial Officer and shall reasonably
and briefly specify the nature of the event and the calculation of the original
principal amount of the Group Surplus Note and/or the Life Surplus Note to be
purchased by Guarantor, with a specific statement that the Company is calling
upon Guarantor to perform under this Guaranty. A Demand satisfying the
foregoing requirements shall be deemed sufficient notice to Guarantor that it
must perform under this Guaranty.

     3. REPRESENTATIONS AND WARRANTIES. Guarantor’s obligation to purchase a
Group Surplus Note or a Life Surplus Note hereunder shall be subject to the
condition that the representations and warranties made by the Company and CNAF
in the Capital Support Agreement shall be true and correct in all material
respects on the date the Demand is delivered to Guarantor hereunder as if made
on and as of such date and CNAF and CCC shall have performed in all material
respects all of their agreements and obligations hereunder and under the
Capital Support Agreement.

 

 

     4. ENFORCEMENT. If Guarantor fails to purchase the Group Surplus Note if
required under the Group Trigger or the Life Surplus Note if required under the
Life Trigger, the Company may take whatever action at law or in equity to
protect and enforce its rights or remedies, including without limitation
specific performance of any covenant, agreement, or other provision contained
in this Guaranty. No right or remedy contained in this Guaranty and conferred
upon the Company is intended to be exclusive of any other right or remedy
contained in this Guaranty, and every such right or remedy shall be cumulative
and shall be in addition to every other such right or remedy contained in this
Guaranty and in any such instrument or document, now or hereafter executed in
connection with this Guaranty, or now or hereafter existing at law or in equity
or by statute, or otherwise. No course of dealing between the Company and
Guarantor or any failure or delay on the part of the Company in exercising any
rights or remedies under this Guaranty shall operate as a waiver of any rights
or remedies of the Company, and no single or partial exercise of any rights or
remedies under this Guaranty shall operate as a waiver or preclude the exercise
of any other rights or remedies under this Guaranty.

     5. NOTICE. Any Demand, notice, request, instruction, correspondence or
other document to be given hereunder by any party to another (herein
collectively called “Notice”) shall be in writing and delivered personally,
sent via nationally recognized express delivery service, mailed by certified
mail, postage prepaid and return receipt requested or sent by confirmed
telecopier as follows:

	 	 	 	 	 
	To Guarantor:	 	Loews Corporation
	 	 	667 Madison Avenue
	 	 	New York, NY 10021
	

	 	Attn:
	 	Corporate Secretary
	 
	 	 	 	 
	To Company:	 	Continental Casualty Company
	 	 	CNA Plaza
	 	 	Chicago, Illinois 60685
	

	 	Attn:
	 	Jonathan D. Kantor
	

	 	 	 	Senior Vice President, General Counsel
and Secretary

Notice given by personal delivery, express delivery service or mail shall be
effective upon actual receipt. Notice given by confirmed telecopier shall be
effective upon actual receipt if received during the recipient’s normal
business hours, or at the beginning of the recipient’s next business day after
receipt if not received during the recipient’s normal business hours. All
Notices by confirmed telecopier shall be confirmed promptly after transmission
in a writing sent by personal delivery, nationally recognized express delivery
service or certified mail. Any party may change any address to which Notice is
to be given to it by giving notice as provided above of such change of address.

     6. MISCELLANEOUS. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. This Guaranty shall be binding upon
Guarantor and inure to the benefit of and be enforceable by Company and its
respective successors and assigns. This Guaranty embodies the entire agreement
and understanding between Guarantor and Company and supersedes all prior

 

 

agreements and understandings relating to the subject matter hereof. The
headings in this Guaranty are for purposes of reference only, and shall not
affect the meaning hereof. This Guaranty may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. No term or provision of this Guaranty shall
be amended, modified, altered, waived, supplemented or terminated except in a
writing by the parties hereto.

     IN WITNESS WHEREOF the parties hereto have caused this Guaranty to be
executed as of the day and year first above written.

LOEWS CORPORATION

By: /s/ PETER W. KEEGAN

Name: Peter W. Keegan

Title: SVP and CFO

Attest:

By: /s/ KENNETH ZINGHINI

Name: Kenneth Zinghini

Title: Asst. Secretary

CONTINENTAL CASUALTY COMPANY

By: /s/ ROBERT V. DEUTSCH

Name: Robert V. Deutsch

Title: Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Attest:

By: /s/ MARY RIBIKAWSKIS

Name: Mary Ribikawskis

Title: Assistant Vice President and Assistant Secretary

 

 

CONTINENTAL CASUALTY COMPANY

LIFE SURPLUS NOTE

			
	February 25, 2004
	 	$300,000,000.00

Continental Casualty Company, an Illinois insurance company, (the “Company”),
for value received, promises to pay to the order of Loews Corporation or its
registered assigns (the “Noteholder”) on demand as provided herein the
principal amount of THREE HUNDRED MILLION DOLLARS ($300,000,000.00), and to pay
interest on the outstanding principal balance of this Surplus Note at the rate
equal to the one-year London Inter-Bank Offering Rate as quoted on Bloomberg
Financial L.P. (“LIBOR”) on the Purchase Date, as that term is defined in that
certain Guaranty Agreement between Loews Corporation and the Company dated
November 12, 2003 (the “Guaranty”) plus 350 basis points. The outstanding
principal balance of this Surplus Note, together with any interest due thereon,
shall not be considered as a legal liability on the statutory financial
statements of the Company or be the basis of any offset unless and until the
Director of the Illinois Department of Insurance (the “Director”) approves such
payment.

1. Term. This Surplus Note shall have a term of twenty (20) years (“Term”).
At the end of the Term, this Surplus Note shall be due and payable in full by
the Company to the Noteholder, unless earlier paid and satisfied in full.

2. Interest Rate Reset. The interest rate payable on this Surplus Note as
described above shall be reset at the first anniversary of the Purchase Date,
and at each subsequent anniversary thereafter for as long as this Surplus Note
is outstanding to a rate equal to the then one-year LIBOR plus 350 basis
points.

3. Payments. All payments or prepayments of principal or interest on this
Surplus Note by the Company may be made only with the prior written approval of
the Director.

a. Application of Payments. Any payments made on account of this Surplus
Note shall be applied first to accrued and unpaid interest, and second to
the unpaid principal hereof.

b. Interest Payments. Subject to the prior written approval of the
Director, payments of interest on this Surplus Note shall be made
semi-annually on April 1st and October 1st each year, commencing on
October 1, 2004 (each a “Scheduled Payment Date”). If a Scheduled
Payment Date is not a day on which both the Company and nationally
chartered United States banks are open for business, interest shall be
paid on the next business day and shall include accrued and unpaid
interest through such date. Interest on this Surplus Note shall be
calculated on the basis of a 360-day year consisting of twelve 30-day
months.

c. Principal Payments.

i. Prepayment at Company’s Option. Subject to the prior written
approval of the Director, the Company may prepay this Surplus Note
in whole or part at any time and from time to time without premium
or penalty and with accrued and unpaid interest through the date of
prepayment.

 

 

ii. Mandatory Prepayment upon Certain Events. Subject to the prior
written approval of the Director, following the consummation of a
Life Transaction, the Company shall prepay the lesser of (x) the
outstanding principal of and accrued and unpaid interest on this
Surplus Note and (y) an amount equal to the increase in the
Company’s statutory surplus as a result of the Life Transaction.
“Life Transaction” means the disposition, through one or more sales
of assets or subsidiary stock or through a reinsurance transaction
or other transfer or disposition, of all or portions of the
businesses of selling financial protection to individuals through
term life insurance, universal life insurance, annuities and other
products. The Company shall give the Noteholder prior written
notice of the closing of the Group Transaction. See Attachment A
for an example of the methodology of the mandatory prepayment.

4. Method of Payment. All payments of principal or interest shall be made by
the Company to the Noteholder without presentment of this Surplus Note or
endorsement of such payment at the address specified by the Noteholder for
payment. Payments of principal or interest on this Surplus Note shall be made,
in accordance with the foregoing and subject to applicable laws and
regulations, to the holder of this Surplus Note at the principal corporate
office of such holder or such other place, which shall be reasonably acceptable
to the Company, as the Noteholder shall designate in writing to the Company.
Payments under this Surplus Note shall be made in immediately available funds
in lawful money of the United States.

5. Ranking of Note. The Company shall not issue any securities which are
senior to or pari passu with this Surplus Note [other than a surplus note
issued to Noteholder on the same date hereof relating to the Company’s or its
subsidiaries’ group business]. By acceptance of this Surplus Note, the
Noteholder expressly agrees that the payment of principal and interest by the
Company is expressly subordinated to claims of creditors of Company under ILL.
REV. STAT. ch. 215 Section 5/205, which provides that surplus notes are at the
eighth priority. The obligations of the Company under this Surplus Note are
not subject either to offset by the Noteholder or to recoupment with respect to
any liability or obligation owed to the Company by the Noteholder.

6. Governing Law. This Surplus Note and the Director’s exercise of regulatory
authority, including approval of payments under this Surplus Note, shall be
governed by, and construed in accordance with, the laws of the State of
Illinois.

7. Transfer Restrictions. No transfer of this Surplus Note other than a
transfer in whole or in part to a subsidiary of the Noteholder shall be valid
for any purpose until all transfer restrictions have been satisfied and such
transfer shall have been recorded in the books of the Company.

TRANSFER RESTRICTIONS

THE COMPANY HAS OFFERED AND SOLD THIS SURPLUS NOTE PURSUANT TO EXEMPTIONS FROM
REGISTRATIONS UNDER THE FEDERAL AND STATE SECURITIES LAWS. A HOLDER OF THIS
SURPLUS NOTE MAY NOT SELL OR OTHERWISE TRANSFER THIS SURPLUS NOTE UNLESS THE
OFFER AND SALE IS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE APPLICABLE
FEDERAL AND STATE SECURITIES LAWS. THE COMPANY MAY REQUIRE AN OPINION OF
COUNSEL ACCEPTABLE TO THE

 

 

COMPANY THAT ANY SALE OR OTHER TRANSFER OF THIS SURPLUS NOTE SHALL NOT VIOLATE
THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS.

8. Notices. Notice shall mean any written document which is originally
executed and is sent by United States mail, nationally recognized express or
messenger delivery service or telecopy confirmed by telephone, and a Notice
shall be deemed to be given upon its receipt by the addressee (in the case of a
telecopy, upon telephonic confirmation following such receipt).

9. Integration. This Surplus Note including the Schedule shall constitute the
entire agreement between the Company and the Noteholder relating to the subject
matter hereof. It supersedes all prior discussions and other written materials
between the Company and the Noteholder with respect to the subject matter
hereof.

10. Miscellaneous. The rights, privileges, duties and obligations under this
Surplus Note shall be binding on any transferees, successors and assignees.
This Surplus Note embodies the entire agreement and understanding between the
Company and the Noteholder and supersedes all prior agreements and
understandings relating to the subject matter hereof. The headings in this
Surplus Note are for purposes of reference only, and shall not affect the
meaning hereof.

SIGNATURE PAGE FOLLOWS.

 

 

IN WITNESS WHEREOF, the Company has caused this Surplus Note to be duly
executed under seal by its officers duly authorized thereunto.

CONTINENTAL CASUALTY COMPANY

	 	 	 
	By:  /s/JONATHAN D. KANTOR          
	Name:

	 	Jonathan D. Kantor
	Title:

	 	Executive Vice President, General
Counsel and Secretary
	 
	 	 
	Attest:
	 	 
	 
	 	 
	By:  /s/MARY A. RIBIKAWSKIS         
	Name:

	 	Mary A. Ribikawskis
	Title:

	 	Assistant Vice President and
Assistant Secretary

 

 

Life Surplus Note Schedule

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Amount of	 	Unpaid	 	 
	 	 	Amount of	 	Date	 	Principal	 	Principal	 	Notation
	Date	 	Principal	 	Repaid	 	Repayment	 	Balance	 	Made By
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Attachment A

Mandatory Principal Prepayment Example

Assume that the Life Surplus Notes are funded at $300 million on February 15,
2004. On August 11, 2004, the Life Transaction occurs and is completed in the
form of a reinsurance transaction. Assume that on August 16, 2004 (the
mandatory prepayment date), the amount of accrued and unpaid interest owed by
the Company to the Noteholder is $9,050,000. Also, assume that the Director of
the Illinois Department of Insurance consents to the payment of each of the
amounts upon the closing of the Life Transaction and that there are no tax
consequences from the Life Transaction.

1. The ceding commission and the related increase in surplus to the Company
from the Life Transaction is $500 million. The Company will owe the Noteholder
$309,050,000 which is the entire principal balance along with all accrued and
unpaid interest.

2. The ceding commission and the related increase in surplus to the Company
from the Life Transaction is $200,000,000. The Company will owe the Noteholder
$200,000,000 which represents $9,050,000 in accrued and unpaid interest and a
reduction in outstanding principal of $190,950,000.

Assume that the Life Surplus Notes are funded at $300 million on February 15,
2004. On August 11, 2004, a portion of the Life Transaction occurs and is
completed in the form of a reinsurance transaction. Assume that on August 16,
2004 (the first mandatory prepayment date), the amount of accrued and unpaid
interest owed by the Company to the Noteholder is $9,050,000. Also assume that
the ceding commission and the related increase in surplus to the Company from
the first Life Transaction is $200,000,000. The Company will owe the
Noteholder $200,000,000 which represents $9,050,000 in accrued and unpaid
interest and a reduction in outstanding principal of $190,950,000 with a
remaining outstanding principal balance of $109,050,000. Assume further that
the remainder of the Life Transaction occurs in the form of a sale of the
businesses on February 10, 2005 and the second repayment date is February 15,
2005. On February 15, 2005, the amount of accrued and unpaid interest from
August 16, 2004 is $3,253,325. Also, assume that the Director of the Illinois
Department of Insurance consents to the payment of each of the amounts upon the
closing of the Life Transactions and that there are no tax consequences from
the Life Transaction.

1. The sale of the businesses in the second Life Transaction is $300 million.
The Company will pay the Noteholder $112,303,325 which represents $109,050,000
in outstanding principal and $3,253,325 in accrued and unpaid interest.

2. The sale of the businesses in the second Life Transaction is $50,000,000.
The Company will pay the Noteholder $50,000,000 which represents a payment of
$46,746,675 of the outstanding principal and $3,253,325 in accrued and unpaid
interest. The outstanding principal balance after the second mandatory
prepayment date will be $62,303,325.

 

 

CONTINENTAL CASUALTY COMPANY

GROUP SURPLUS NOTE

			
	February 25, 2004
	 	$45,600,000

Continental Casualty Company, an Illinois insurance company, (the “Company”),
for value received, promises to pay to the order of Loews Corporation or its
registered assigns (the “Noteholder”) on demand as provided herein the
principal amount of FORTY-FIVE MILLION SIX HUNDRED THOUSAND DOLLARS
($45,600,000.00), and to pay interest on the outstanding principal balance of
this Surplus Note at a rate equal to the one-year London Inter-Bank Offering
Rate as quoted on Bloomberg Financial L.P. (“LIBOR”) on the Purchase Date, as
that term is defined in that certain Guaranty Agreement between Loews
Corporation and the Company dated November 12, 2003 (the “Guaranty”) plus 350
basis points, all subject to the terms and conditions specified herein. The
outstanding principal balance of this Surplus Note, together with any interest
due thereon, shall not be considered as a legal liability on the statutory
financial statements of the Company or be the basis of any offset unless and
until the Director of the Illinois Department of Insurance (the “Director”)
approves such payment.

1. Term. This Surplus Note shall have a term of twenty (20) years (“Term”).
At the end of the Term, this Surplus Note shall be due and payable in full by
the Company to the Noteholder, unless earlier paid and satisfied in full.

2. Interest Rate Reset. The interest rate payable on this Surplus Note as
described above shall be reset at the first anniversary of the Purchase Date,
and at each subsequent anniversary thereafter for as long as this Surplus Note
is outstanding to a rate equal to the then one-year LIBOR plus 350 basis
points.

3. Payments. All payments or prepayments of principal or interest on this
Surplus Note by the Company may be made only with the prior written approval of
the Director.

a. Application of Payments. Any payments made on account of this Surplus
Note shall be applied first to accrued and unpaid interest, and second to
the unpaid principal hereof.

b. Interest Payments. Subject to the prior written approval of the
Director, payments of interest on this Surplus Note shall be made
semi-annually on April 1st and October 1st in each year, commencing on
October 1, 2004 (each a “Scheduled Payment Date”). If a Scheduled
Payment Date is not a day on which both the Company and nationally
chartered United States banks are open for business, interest shall be
paid on the next business day and shall include accrued and unpaid
interest through such date. Interest on this Surplus Note shall be
calculated on the basis of a 360-day year consisting of twelve 30-day
months.

c. Principal Payments.

i. Prepayment at Company’s Option. Subject to the prior written
approval of the Director, the Company may prepay this Surplus Note
in whole or part at any time and from time to time without premium
or penalty and with accrued and unpaid interest through the date of
prepayment.

 

 

ii. Mandatory Prepayment upon Certain Events. Subject to the prior
written approval of the Director, following the consummation of a
Group Transaction, the Company shall prepay the lesser of (x) the
outstanding principal of and accrued and unpaid interest on this
Surplus Note and (y) an amount equal to the increase in the
Company’s statutory surplus as a result of the Group Transaction.
Such determination shall be made based upon the Company’s
underlying statutory equity, adjusted for unamortized goodwill, of
CNA Group Life Assurance Company, a subsidiary of the Company, as
reflected in its third quarter 2003 statutory financial statement
filed with its domiciliary regulator. “Group Transaction” means
the disposition, through one or more sales of assets or subsidiary
stock or through a reinsurance transaction or other transfer or
disposition, of all or portions of the businesses of providing
group life and group health insurance and related services to
employers, affinity groups and other entities that purchase
insurance as a group. The Company shall give the Noteholder prior
written notice of the closing of the Group Transaction. See
Attachment A for an example of the methodology of the mandatory
prepayment.

4. Method of Payment. All payments of principal or interest shall be made by
the Company to the Noteholder without presentment of this Surplus Note or
endorsement of such payment at the address specified by the Noteholder for
payment. Payments of principal or interest on this Surplus Note shall be made,
in accordance with the foregoing and subject to applicable laws and
regulations, to the holder of this Surplus Note at the principal corporate
office of such holder or such other place, which shall be reasonably acceptable
to the Company, as the Noteholder shall designate in writing to the Company.
Payments under this Surplus Note shall be made in immediately available funds
in lawful money of the United States.

5. Ranking of Note. The Company shall not issue any securities which are
senior to or pari passu with this Surplus Note [other than a surplus note
issued to Noteholder on the same date hereof relating to the Company’s or its
subsidiaries’ life business]. By acceptance of this Surplus Note, the
Noteholder expressly agrees that the payment of principal and interest by the
Company is expressly subordinated to claims of creditors of Company under ILL.
REV. STAT. ch. 215 Section 5/205, which provides that surplus notes are at the
eighth priority. The obligations of the Company under this Surplus Note are
not subject either to offset by the Noteholder or to recoupment with respect to
any liability or obligation owed to the Company by the Noteholder.

6. Governing Law. This Surplus Note and the Director’s exercise of regulatory
authority, including approval of payments under this Surplus Note, shall be
governed by, and construed in accordance with, the laws of the State of
Illinois.

7. Transfer Restrictions. No transfer of this Surplus Note other than a
transfer in whole or in part to a subsidiary of the Noteholder shall be valid
for any purpose until all transfer restrictions have been satisfied and such
transfer shall have been recorded in the books of the Company.

TRANSFER RESTRICTIONS

THE COMPANY HAS OFFERED AND SOLD THIS SURPLUS NOTE PURSUANT TO EXEMPTIONS FROM
REGISTRATIONS UNDER THE FEDERAL AND STATE SECURITIES LAWS. A HOLDER OF THIS
SURPLUS NOTE MAY NOT SELL OR OTHERWISE TRANSFER THIS SURPLUS NOTE UNLESS THE
OFFER AND SALE IS REGISTERED OR EXEMPT

 

 

FROM REGISTRATION UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE
COMPANY MAY REQUIRE AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT ANY
SALE OR OTHER TRANSFER OF THIS SURPLUS NOTE SHALL NOT VIOLATE THE APPLICABLE
FEDERAL AND STATE SECURITIES LAWS.

8. Notice. Notice shall mean any written document which is originally executed
and is sent by United States mail, nationally recognized express or messenger
delivery service or telecopy confirmed by telephone, and a Notice shall be
deemed to be given upon its receipt by the addressee (in the case of a
telecopy, upon telephonic confirmation following such receipt).

9. Integration. This Surplus Note including the Schedule shall constitute the
entire agreement between the Company and the Noteholder relating to the subject
matter hereof. It supersedes all prior discussions and other written materials
between the Company and the Noteholder with respect to the subject matter
hereof.

10. Miscellaneous. The rights, privileges, duties and obligations under this
Surplus Note shall be binding on any transferees, successors and assignees.
This Surplus Note embodies the entire agreement and understanding between the
Company and the Noteholder and supersedes all prior agreements and
understandings relating to the subject matter hereof. The headings in this
Surplus Note are for purposes of reference only, and shall not affect the
meaning hereof.

SIGNATURE PAGE FOLLOWS.

 

 

IN WITNESS WHEREOF, the Company has caused this Surplus Note to be duly
executed under seal by its officers duly authorized thereunto.

CONTINENTAL CASUALTY COMPANY

	 	 	 
	By:
 /s/JONATHAN D. KANTOR          
	Name:

	 	Jonathan D. Kantor
	Title:

	 	Executive Vice President, General
Counsel and Secretary
	 
	 	 
	Attest:
	 	 
	 
	 	 
	By: /s/MARY A. RIBIKAWSKIS          
	Name:

	 	Mary A. Ribikawskis
	Title:

	 	Assistant Vice President and
Assistant Secretary

 

 

Group Surplus Note Schedule

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Amount of	 	Unpaid	 	 
	 	 	Amount of	 	Date	 	Principal	 	Principal	 	Notation
	Date	 	Principal	 	Repaid	 	Repayment	 	Balance	 	Made By
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Attachment A

Mandatory Principal Prepayment Example

Assume that the Group Surplus Notes are funded at $200,000,000 on February 15,
2004. Further assume that the Company’s underlying statutory equity, adjusted
for unamortized goodwill, of CNA Group Life Assurance Company (GLA), a
subsidiary of the Company, as reflected in its third quarter 2003 statutory
financial statement filed with its domiciliary regulator is $500,000,000. On
August 11, 2004, the Group Transaction occurs and is completed in the form of a
sale of GLA. Assume that on August 16, 2004 (the mandatory prepayment date),
the amount of accrued and unpaid interest owed by the Company to the Noteholder
is $6,033,333.33. Also, assume that the Director of the Illinois Department of
Insurance consents to the payment of each of the amounts upon the closing of
the Group Transaction.

     1. GLA is sold for $1,000,000,000 and the related increase in surplus to the
Company from the Group Transaction is $500,000,000. The Company will owe the
Noteholder $206,033,333.33 which is the entire principal balance along with all
accrued and unpaid interest.

     2. GLA is sold for $510,000,000 and the related increase in surplus to the
Company from the Group Transaction is $10,000,000. The Company will owe the
Noteholder $10,000,000 which represents $6,033,333.33 in accrued and unpaid
interest and a reduction in outstanding principal of $3,966,666.67 with a
remaining outstanding principal balance of $196,033,333.33.

 

 

EXHIBIT 3

Form D Filings

3 PROPOSED REINSURANCE AGREEMENTS TO “DEPOOL” CURRENT CIC POOL STRUCTURE:

	1.	 	CANCELLATION, COMMUTATION & RELEASE AGREEMENT TO AMENDED AND RESTATED INTERCOMPANY POOLING AGREEMENT ORIGINALLY EFFECTIVE JANUARY 1,
2001 BY AND BETWEEN THE CONTINENTAL INSURANCE COMPANY AND ITS UNITED STATES AFFILIATES
	 
	2.	 	SEPARATE (RETRO) REINSURANCE CONTRACTS BETWEEN THE CONTINENTAL INSURANCE COMPANY(REINSURER) AND EACH OF THE FORMER POOL MEMBERS
LISTED IN AGREEMENT NO.1
	 
	3.	 	SEPARATE (PROSPECTIVE) 100% QUOTA SHARE TREATY BETWEEN THE CONTINENTAL INSURANCE COMPANY(REINSURER) AND EACH OF THE FORMER POOL
MEMBERS LISTED IN AGREEMENT NO. 1

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	STATE DOI	 	SUBMISSION DATE	 	STATUS	 	APPROVAL DATE	 	AMENDED SUBMISSION DATE
	
 
	CA
	 	 	09.08.2003	 	 	PENDING	 	 	11.10.2003	 	 	 	 	 
	
 
	DE
	 	 	09.18.2003	 	 	PENDING	 	 	11.10.2003	 	 	 	 	 
	
 
	MA
	 	 	09.18.2003	 	 	PENDING	 	 	11.11.2003	 	 	 	 	 
	
 
	NH
	 	 	09.11.2003	 	 	PENDING	 	 	11.11.2003	 	 	 	 	 
	
 
	NJ
	 	 	09.18.2003	 	 	PENDING	 	 	11.10.2003	 	 	 	 	 
	
 
	OH
	 	 	09.18.2003	 	 	PENDING	 	 	11.07.2003	 	 	 	 	 
	
 

100% QUOTA SHARE TREATY BETWEEN THE CIC (REINSURED) AND CCC (REINSURER) — FUNDS HELD BASIS

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	AMENDED SUBMISSION	 	 	 	 
	STATE DOI	 	SUBMISSION DATE	 	STATUS	 	APPROVAL DATE	 	DATE	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	10.17.2003 -	 	 	 	 
	 
	 	 	 	 	 	 	 	Submitted updated	 	 	 	 
	 
	 	 	 	 	 	 	 	pro forma financial	 	 	 	 
	 
	 	 	 	 	 	 	 	statements and	 	 	 	 
	CA
	 	09.08.2003	 	PENDING	 	11.10.2003	 	updated agreement	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	10.17.2003 -	 	 	 	 
	 
	 	 	 	 	 	 	 	Submitted Amendment	 	 	 	 
	 
	 	 	 	 	 	 	 	No. 1 to Form D	 	 	 	 
	 
	 	 	 	 	 	 	 	with updated pro	 	 	 	 
	 
	 	 	 	 	 	 	 	forma financial	 	 	 	 
	 
	 	 	 	 	 	 	 	statements and	 	 	 	 
	IL
	 	09.18.2003	 	PENDING	 	10.23.2003	 	updated agreement	 	 	 	 
	
 
	 
	 	 	 	 	 	 	 	10.17.2003 -	 	 	 	 
	 
	 	 	 	 	 	 	 	Submitted Amendment	 	 	 	 
	 
	 	 	 	 	 	 	 	No. 1 to Form D	 	 	 	 
	 
	 	 	 	 	 	 	 	with updated pro	 	 	 	 
	 
	 	 	 	 	 	 	 	forma financial	 	 	 	 
	 
	 	 	 	 	 	 	 	statements and	 	 	 	 
	NH
	 	09.11.2003	 	PENDING	 	11.11.2003	 	updated agreement	 	 	 	 
	
 

Form A Exemptions

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	FOLLOW-UP FILED
	DOMESTIC	 	ORIGINAL	 	 	 	 	 	[IMPLEMENTATION DATE REVISED
	INSURERS	 	FILE DATE	 	STATUS	 	APPROVAL DATE	 	DATE REVISED TO 4th QTR]
	
 
	CA
	 	08.21.2003	 	PENDING	 	10.29.2003	 	09.26.2003
	
 
	CT
	 	08.21.2003	 	APPROVED	 	09.02.2003	 	09.26.2003
	
 
	DE
	 	08.21.2003	 	PENDING	 	11.10.2003	 	09.26.2003
	
 
	HI
	 	08.21.2003	 	APPROVED	 	09.12.2003	 	09.26.2003
	
 
	IL
	 	08.21.2003	 	APPROVED	 	09.12.2003	 	09.26.2003
	
 
	IN
	 	08.21.2003	 	APPROVED	 	08.28.2003	 	09.26.2003
	
 
	MA
	 	08.21.2003	 	APPROVED	 	10.09.2003	 	09.26.2003
	
 
	NH
	 	08.21.2003	 	PENDING	 	11.11.2003	 	09.26.2003
	
 
	NJ
	 	08.21.2003	 	PENDING	 	 	 	09.26.2003
	
 
	NY
	 	08.21.2003	 	APPROVED	 	09.04.2003	 	09.26.2003
	
 
	OH
	 	08.21.2003	 	PENDING	 	11.07.2003	 	09.26.2003
	
 
	PA
	 	08.21.2003	 	APPROVED	 	09.11.2003	 	09.26.2003
	
 
	SC
	 	08.21.2003	 	APPROVED	 	10.20.2003	 	09.26.2003
	
 
	SD
	 	08.21.2003	 	APPROVED	 	08.26.2003	 	09.26.2003
	
 
	TX
	 	08.21.2003	 	APPROVED	 	09.11.2003	 	09.26.2003exv10w5

 

EXHIBIT 10.5

INCENTIVE STOCK OPTION AGREEMENT

     AGREEMENT made as of the           DAY OF
                                        200         , between SOUTHWEST
BANCORPORATION OF TEXAS, INC., a Texas corporation (the “Company”) and
                                        (“Employee”).

     To carry out the purposes of the SOUTHWEST BANCORPORATION OF TEXAS, INC.
1996 STOCK OPTION PLAN (the “Plan”), by affording Employee the opportunity to
purchase shares of common stock of the Company (“Stock”), and in consideration
of the mutual agreements and other matters set forth herein and in the Plan,
the
Company and Employee hereby agree as follows:

     1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee the
right and option (“Option”) to purchase all or any part of an aggregate of
          shares of Stock, on the terms and conditions set forth herein and in
the Plan, which Plan is incorporated herein by reference as a part of the
Agreement. This Option is intended to be treated as an incentive stock option
within the meaning of section 422 (b) of the Internal Revenue Code of 1986, as
amended (the “Code”).

     2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $          per share.

     3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principal executive office addressed to the attention of its Chief
Operating Officer or Controller, at any time and from time to time after the
date of grant hereof, but, except as otherwise provided below, this Option
shall
not be exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:

	 	 	 	 	 
	 	 	PERCENTAGE OF SHARES
	NUMBER OF FULL YEARS
	 	THAT MAY BE PURCHASED

	Less than 2 years
	 	 	0	 
	2 years
	 	 	40	%
	3 years
	 	 	60	%
	4 years
	 	 	80	%
	5 years or more
	 	 	100	%

     This option may be exercised only while Employee remains an employee of
the
Company and will terminate and cease to be exercisable upon Employee’s
termination of employment with the Company, except that:

     a) Death. If Employee dies while in the employ of the Company, the
Option shall become fully vested and the Employee’s estate, or the person
who acquires this Option by will or the laws of descent and distribution
or
otherwise by reason of the death of Employee, may exercise this Option in
full at any time during the period of one year following the date of
Employee’s death.

     b) Voluntary Termination. If Employee’s employment with the Company
terminates for any reason other than death, disability, retirement,
termination for cause, or involuntary termination (other than for cause),
this Option may be exercised by Employee at any time during the period of
30 days following the last day for which Employee receives any earnings
from the Company that are reportable on Employee’s Form W-2, or by
Employee’s estate (or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the death of
Employee) during a period of three months following Employee’s death if
Employee dies during such 30-day period, but in each case only as to the
number of shares Employee was

 

 

entitled to purchase hereunder upon exercise of this Option as of the date
Employee’s employment so terminates. The Committee appointed by the Board
of Directors of the Company to administer the Plan (the “Committee”) may,
in its sole discretion, advise Employee in writing, prior to a voluntary
termination of Employee’s employment, that such termination will be
treated
for purposes of this Section as an involuntary termination for a reason
other than cause. As used in this Section, the term “cause” shall mean
Employee’s gross negligence or willful misconduct in performance of the
duties of Employee’s employment, Employee’s loss of bond coverage,
Employee’s final conviction of a felony, or of a misdemeanor involving
moral turpitude.

     c) Involuntary Termination (other than for cause). If Employee’s
employment with the Company terminates for any reason other than death,
disability, retirement, voluntary termination, or termination for cause,
this Option may be exercised by Employee at any time during the period of
three months following the last day for which Employee receives any
earnings from the Company that are reportable on Employee’s Form W-2, or
by
Employee’s estate (or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the death of
Employee) during a period of three months following Employee’s death if
Employee dies during such three-month period, but in each case only as to
the number of shares Employee was entitled to purchase hereunder upon
exercise of this Option as of the date Employee’s employment so
terminates.

     d) Termination for cause. If Employee’s employment with the Company
terminates for cause, this Option will be immediately forfeited as of the
date of the event that resulted with the Employee being terminated for
cause.

     e) Disability. If Employee’s employment with the Company terminates
due to a disability, the Option shall become fully vested and the Option
may be exercised by Employee in full at any time during the period of one
year following the Employee’s termination due to disability, or, if
Employee dies during such one-year period, by Employee’s estate (or the
person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Employee) during the
greater of the following periods: (1) the remainder of such one-year
period
or (2) a period of three months following the Employee’s death. As used in
this Section, the term “disability” shall mean any physical or mental
impairment which is determined to make the individual eligible to receive
a
disability benefit in accordance with the provisions of the Company’s
insured long term disability plan, if applicable to such Employee, by the
insurance carrier underwriting such plan.

     f) Retirement. Except as provided below, if Employee’s employment with
the Company terminates due to Employee’s retirement (as defined below),
the
Option may be exercised by Employee at any time during the period of one
year following Employee’s date of retirement, or, if Employee dies during
such one-year period, by Employee’s estate (or the person who acquires
this
Option by will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during the greater of the following
periods: (1) the remainder of such one-year period or (2) a period of
three
months following the Employee’s death. If Employee has completed five
years
of vesting service under the Southwest Bank of Texas 401(k) Savings Plan
(the “401(k) Plan”) on the date of the Employee’s retirement, the Option
shall become fully vested and be exercisable in full. If Employee has not
completed five years of vesting service under the 401(k) Plan on the date
of Employee’s retirement, the Option shall continue to vest for a period
of
three years following Employee’s retirement, at the end of which time any
remaining unvested portion of the Option shall become fully vested. Any
portion of the Option that becomes vested pursuant to the preceding
sentence, shall be treated as a nonqualified stock option and must be
exercised by Employee during the period of one year following the date the
Option became vested, or, if Employee dies during such one-year period, by
Employee’s estate (or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the death of
Employee) during the greater of the following periods: (1) the remainder
of
such one-year period or (2) a period of three months following Employee’s
death. As used in this Section, the term “retirement” shall mean any
termination of Employee’s employment relationship with

 

 

Company, other than termination for cause, that occurs on or after the
Employee attains age 65. The Committee shall determine, in its sole
discretion, whether an Employee’s termination of employment with the
Company is due to retirement.

THE EMPLOYEE IS HEREBY NOTIFIED THAT THE OPTION MAY BE TAXED AS IF IT
WERE A NONQUALIFIED STOCK OPTION RATHER THAN AN INCENTIVE STOCK OPTION
TO THE EXTENT THAT HE EXERCISES THE OPTION ON OR AFTER THREE MONTHS
AFTER HIS TERMINATION OF EMPLOYMENT WITH THE COMPANY AND ALL
AFFILIATES FOR ANY REASON OTHER THAN DEATH OR DISABILITY. THE EMPLOYEE
IS ADVISED TO CONSULT WITH HIS TAX CONSULTANTS IF HE WISHES TO
EXERCISE HIS OPTION LATER THAN THIS DATE.

     This Option shall not be exercisable in any event after the expiration of
ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise
(a)
in cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company mature shares of Stock having a fair
market value equal to the purchase price, or (c) any combination of cash or
Stock. No fraction of a share of stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the purchase
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Employee, Employee (or the person
permitted to exercise this Option in the event of Employee’s death) shall not
be
or have any of the rights or privileges of a shareholder of the Company with
respect to shares acquirable upon an exercise of the Option. For purposes of
this paragraph, the phrase “mature shares” shall mean shares of Company Stock
for which the holder has good title, free and clear of all liens and
encumbrances and which the holder either (i) has held for at least six months
or
(ii) has purchased on the open market.

     4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of the Option results
in
compensation income to Employee for federal or state income tax purposes,
Employee shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
to meet its obligation under applicable tax laws or regulations, and, if
Employee fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Employee any tax required to
be
withheld by reason of such resulting compensation income. Upon an exercise of
the Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable
to
Employee upon such exercise.

     5. STATUS OF STOCK. The Company intends to register for issuance under the
Securities Act of 1933, as amended (the “Act”) the shares of Stock acquirable
upon exercise of the Option, and to keep such registration effective throughout
the period this Option is exercisable. In the absence of such effective
registration or an available exemption from registration under the Act,
issuance
of shares of Stock acquirable upon exercise of this Option will be delayed
until
registration of such shares is effective or an exemption from registration
under
the Act is available. The Company intends to use its best efforts to ensure
that
no such delay will occur. In the event exemption from registration under the
Act
is available upon an exercise of the Option, Employee (or the person permitted
to exercise this Option in the event of Employee’s death or incapacity), if
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.

     Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the shares of Stock purchased under this Option on the

 

 

stock transfer records of the Company if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of any
applicable securities law and (iii) that the Company may give related
instructions to its transfer agent, if any, to stop registration of the
transfer
of the shares of Stock purchased under this Option.

THE EMPLOYEE IS ALSO HEREBY NOTIFIED THAT IF HE DISPOSES OF STOCK
TRANSFERRED TO HIM UPON HIS EXERCISE OF THIS OPTION WITHIN TWO YEARS
AFTER THE DATE OF THE GRANTING OF THE OPTION OR WITHIN ONE YEAR AFTER
THE TRANSFER OF THE STOCK TO HIM, ALL OR A PORTION OF HIS OPTION WILL
BE TAXED AS IF IT WERE A NONQUALIFIED STOCK OPTION RATHER THAN AN
INCENTIVE STOCK OPTION.

     6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall
be considered to be in the employment of the Company as long as Employee
remains
an employee of either the Company, a parent or subsidiary corporation (as
defined in section 424 of the Code) of the Company, or a corporation or a
parent
or subsidiary of such corporation assuming or substituting a new option for
this
Option. Any question as to whether and when there has been a termination of
such
employment, and the cause of such termination, shall be determined by the
Committee, and its determination shall be final.

     7. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming
under
Employee.

     8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.

	 	 	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 

	 	 	 	 	 
	 	SOUTHWEST BANCORPORATION OF TEXAS, INC.

 	 
	 	By:  	 	 
	 	 	Paul B. Murphy, Jr. 	 
	 	 	President & Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	 	 
	 	  	
 	 
	 	 	EMPLOYEE

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