Document:

EXHIBIT 10.50

 

WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY

QUOTA SHARE REINSURANCE CONTRACT

 

EFFECTIVE JANUARY 1, 2001

 

issued to

 

PAULA INSURANCE COMPANY

 

PASADENA, CALIFORNIA

 

(hereinafter called the "Reassured")

 

by

 

EVEREST REINSURANCE COMPANY

 

DELAWARE

 

(hereinafter called the "Reinsurer")

 

 

INDEX

 

	
  ARTICLE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PREAMBLE

  
	
   

  	
   

  	
   

  
	
  I.

  	
   

  	
  BUSINESS COVERED

  
	
   

  	
   

  	
   

  
	
  II.

  	
   

  	
  COMMENCEMENT AND TERMINATION

  
	
   

  	
   

  	
   

  
	
  III.

  	
   

  	
  TERRITORY

  
	
   

  	
   

  	
   

  
	
  IV.

  	
   

  	
  EXCLUSIONS

  
	
   

  	
   

  	
   

  
	
  V.

  	
   

  	
  QUOTA SHARE PARTICIPATION

  
	
   

  	
   

  	
   

  
	
  VI.

  	
   

  	
  PREMIUM

  
	
   

  	
   

  	
   

  
	
  VII.

  	
   

  	
  ORIGINAL
  CONDITIONS

  
	
   

  	
   

  	
   

  
	
  VIII.

  	
   

  	
  CEDING
  COMMISSION

  
	
   

  	
   

  	
   

  
	
  IX.

  	
   

  	
  LOSS AND LOSS SETTLEMENTS

  
	
   

  	
   

  	
   

  
	
  X.

  	
   

  	
  LOSS IN EXCESS OF POLICY LIMITS AND EXTRA
  CONTRACTUAL OBLIGATIONS

  
	
   

  	
   

  	
   

  
	
  XI.

  	
   

  	
  ACCOUNTS AND REPORTS

  
	
   

  	
   

  	
   

  
	
  XII.

  	
   

  	
  ERRORS
  AND OMISSIONS (BRMA 14F)

  
	
   

  	
   

  	
   

  
	
  XIII.

  	
   

  	
  ACCESS
  TO RECORDS (BRMA 1D)

  
	
   

  	
   

  	
   

  
	
  XIV.

  	
   

  	
  ARBITRATION

  
	
   

  	
   

  	
   

  
	
  XV.

  	
   

  	
  TAXES (BRMA 50B)

  
	
   

  	
   

  	
   

  
	
  XVI.

  	
   

  	
  CURRENCY
  (BRMA 12A)

  
	
   

  	
   

  	
   

  
	
  XVII.

  	
   

  	
  INSOLVENCY

  
	
   

  	
   

  	
   

  
	
  XVIII.

  	
   

  	
  OFFSET
  (BRMA 36C)

  
	
   

  	
   

  	
   

  
	
  XIX.

  	
   

  	
  INTERMEDIARY
  (BRMA 23A)

  

 

ATTACHMENTS

 

NUCLEAR INCIDENT EXCLUSION
CLAUSE - LIABILITY - REINSURANCE

USA (BRMA 35A)

NUCLEAR INCIDENT EXCLUSION
CLAUSE - LIABILITY - REINSURANCE

CANADA (BRMA 35D)

NEVADA POLICY RECAP REPORT

 

 

PREAMBLE

 

Whenever the
word "Reassured" is used in this Contract, same shall be held to
include any or all of the affiliated casualty insurance companies, which are or
may hereafter be under common control.

 

ARTICLE
I

 

BUSINESS
COVERED

 

                A.            This
Contract applies to all policies, except as hereinafter excluded, written and
classified by the Reassured as Workers' Compensation and Employer's Liability
becoming effective at and after 12:01 a.m., January 1, 2001, underwritten by
the Reassured for original policyholders with exposures subject to the Workers
Compensation laws of the states of California, Oregon, Arizona, New Mexico,
Alaska, Nevada (as per attached Schedule) and Idaho.

 

                B.            For
the first Contract Year, the Reassured agrees that the total written ground-up
premium for business covered hereunder shall not exceed $120,000,000 or so
deemed. Should this be exceeded, the Reassured shall hold all such Policies
written after this total has been exceeded as net for its own account.

 

                C.            The
term "policies", whenever used hereunder, shall mean all binders,
policies, contracts or certificates of insurance.

 

ARTICLE
II

 

COMMENCEMENT
AND TERMINATION

 

                A.            This
Contract shall incept at 12:01 a.m., Local Standard Time, January 1, 2001 at
the location of the risk, and shall apply to new and renewal policies attaching
on or after January 1, 2001, and shall remain in force for an indefinite
period, but either party shall have the right to cancel on any January 1 by
giving at least ninety (90) days prior written notice by certified or
registered mail. The first Contract Year shall be the period of January 1, 2001
through January 1, 2002 and each such annual period thereafter shall constitute
a separate Contract Year.

 

1

 

                B.            In
the event of the termination of this Contract, at the Reassured's option:

 

1.                                       The
Reinsurers shall remain liable for all cessions in force at termination of this
Contract; however, the liability of the Reinsurers shall cease with respect to
losses occurring subsequent to the first anniversary, natural expiration or
cancellation of each policy ceded, whichever first occurs, but in no event for
any losses occurring more than twelve months after each such termination; and
the Reassured shall continue to pay the reinsurance premium earned on policies
covered hereunder as described in the Accounts and Reports Article; or

 

2.                                       The
Reinsurers shall be relieved of all liability hereunder for any losses
occurring subsequent to termination of this Contract. However, the Reinsurers
shall continue to be liable for their proportionate share of the outstanding
losses (reported or unreported) on policies covered hereunder with a date of
loss prior to termination. The Reassured shall not remit any additional
premium, earned subsequent to termination, on policies covered hereunder. The
Reinsurers shall refund to the Reassured the unearned reinsurance premium
applicable to the unexpired liability (calculated on a pro rata basis) less the
commission allowed by the Reinsurers thereon.

 

                C.            If
this Contract is terminated while a loss covered hereunder is in progress, it
is agreed that, subject to the other conditions of this Contract, the
Reinsurers shall indemnify the Reassured as if the entire loss had occurred
during the term of this Contract.

 

                D.            Notwithstanding
any other provision of this Contract, in the event that any policy is required
by statute or departmental regulation or order to be continued in force, the
Reinsurers will continue to remain liable with respect to each such policy
until the Reassured may legally cancel, non-renew or otherwise eliminate
liability under such policy or policies.

 

                E.             Notwithstanding
the above, either the Reassured or the Reinsurers may terminate this Contract
at any time by the giving of 30 days notice in writing to the other party upon
the happening of any one of the following circumstances:

 

1.                                       A
State Insurance Department or other legal authority orders the other party to
cease writing business; or

 

2

 

2.                                       The
other party becomes insolvent or is placed into liquidation or receivership
(whether voluntary or involuntary), or proceedings are instituted against it
for the appointment of a receiver, liquidator, rehabilitator, conservator,
trustee in bankruptcy or other agent known by whatever name, to take possession
of its assets or control of its operations; or

 

3.                                       The
other party's policyholders' surplus as of December 31, 2000 is reduced by more
than 20% during the term of this Contract; or 

 

4.                                       The
other party becomes merged with, acquired or controlled by any company,
corporation or individual(s) not controlling the party's operations at the
inception of this Contract; or

 

5.                                       The
other party's A.M. Best rating is downgraded below B-; or

 

6.                                       The
other party reinsures its entire liability under this Contract without the
other party's prior written consent.

 

In the event
of termination of this Contract under the terms of this paragraph, the
Reinsurers liability shall be terminated in accordance with paragraph B. above.

 

 

ARTICLE
III

 

TERRITORY

 

The
territorial limits of this Contract shall be identical with those of the
Reassured's original policies.

 

ARTICLE
IV

 

EXCLUSIONS

 

                A.            This
Contract shall not cover:

 

1.                                       Business
classified as:

a.                                       Underground
Mining;

b.                                      Railroad
Liability, including operation of any carrier on rails, or Federal Railroad
Act;

c.                                       Aviation,
other than incidental industrial aid;

d.                                      Ocean
Marine, including Protection and Indemnity when covering passenger ships;

 

3

 

e.                                       
USL&H;

f.                                         Kidnap
and Ransom, and Political Risk;

g.                                      SEC
Liability; and

h.                                      
Professional Liability, when written as such.

 

2.                                       Liability
of the Reassured arising by contract, operation of law, or otherwise, from its
participation or membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed; which provides for any assessment of or
payment or assumption by the  Reassured
of part or all of any claim, debt, charge, fee or other obligation of an
insurer, or its successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or in part.

 

3.                                       Reinsurance
Assumed, except internal pooling and reinsurance agreements among the various
companies named as "Reassured".

 

4.                                       Loss
or liability excluded by the provisions of the "Nuclear Incident Exclusion
Clause - Liability - Reinsurance - U.S.A." and "Nuclear Incident
Exclusion Clause - Liability - Reinsurance - Canada" attached to and
forming part of this Contract.

 

5.                                       Business
derived directly or indirectly from any Pool, Association or Syndicate which
maintains its own reinsurance facilities.

 

6.                                       Regarding
interests which at time of loss or damage are on shore, no liability shall
attach hereto for any loss or damage which is occasioned by war,  invasion, hostilities, acts of foreign
enemies, civil war, rebellion, insurrection, military or usurped power, or
martial law or confiscation by order of any government or public authority.

 

This exclusion
shall not, however, apply to interests which at time of loss or damage are
within the territorial limits of the United States of America (comprising the
fifty States of the Union and the District of Columbia and including Bridges
between the U.S.A. and Mexico, provided they are under United States ownership),
Canada, St. Pierre and Miquelon, provided such interests are insured under
policies, endorsements, or binders containing a standard war or hostilities or
warlike operations exclusion clause.

 

4

 

Nevertheless,
this exclusion shall not be construed to apply to riots, strikes, civil
commotion, vandalism, malicious damage, including acts committed by the agent
of any government, party, or faction engaged in war, hostilities, or other
warlike operations, providing such agent is acting secretly and not in
connection with any operation of military or naval armed forces in the country
where the interest insured is situated.

 

 7.                                    Manufacture,
Storage, Distribution, Installation, Transportation or Removal of Asbestos or
Asbestos products unless unknown to the Reassured, and when known by the
Reassured, cancellation shall be effected within the time permitted by
regulating authorities.

 

As respects
Storage, Distribution, Installation, Transportation only, this exclusion shall
not apply to manufactured products containing asbestos as an incidental
ingredient, e.g. brake pads.

 

                B.            If
the Reassured is bound, without the knowledge and contrary to the instructions
of the Reassured's supervisory underwriting personnel, on any business falling
within the scope of one or more of the exclusions set forth in this Article,
the exclusion shall be suspended with respect to such business until 30 days
after an underwriting supervisor of the Reassured acquires knowledge thereof.

 

                C.            Insurance
covering insureds regularly engaged in operations not excluded hereunder, but
whose operations may occasionally include one or more classes excluded above,
shall not be excluded from the coverage afforded by this Contract, provided
said operations are incidental to the main operations of the insured. For other
than USL&H, the Reassured shall be the sole judge of the meaning of the
word "incidental". For USL&H incidental shall be defined as
payroll for USL&H of less than 10% of the total payroll for any one
insured.

 

ARTICLE
V

 

QUOTA
SHARE PARTICIPATION

 

                A.            The
Reassured agrees to cede and Reinsurers agree to accept a 50.0% (being
$125,000) part of a 75.0% Quota Share of $250,000 each and every loss
occurrence. The quota share amount may be adjusted any July 1 or January 1 on a
prospective basis at terms to be agreed, subject to a minimum Reinsurers
participation of 35.0% (being $87,500) part of a 75.0% quota share of $250,000
each and every loss occurrence.

 

                B.            The
Reassured shall retain a minimum of 25.0% of $250,000 each and every loss
occurrence.

 

                C.            The
term "Occurrence" as used hereunder shall be construed to mean any
one Accident or series of Accidents arising out of one event.

 

5

 

                D.            The
Reassured may purchase facultative and excess of loss reinsurance at its
discretion.

 

 

ARTICLE
VI

 

PREMIUM

 

                A.            The
Reassured shall cede to the Reinsurers their proportionate share of the Net
Subject Earned Premium on all policies covered under this Contract, less ceding
commission.

 

                B.            Net
Subject Earned Premium ("NSEP") for policies covered hereunder and as
used hereunder shall mean written premium net of cancellation and returns, less
the unearned portion thereof as of the date of calculation, and less the earned
portion of premiums paid for inuring reinsurance.

 

                C.            The
allowance for inuring excess of loss reinsurance shall be deemed to be 5.0% of
the premium otherwise ceded hereunder at the inception of this Contract and may
be increased  by up to 1.0% for a total
allowance of 6.0%, in the event the specified inuring excess of loss
reinsurance cost is increased at July 1, 2001 or thereafter but during the term
of this Contract. The Reassured is obligated to provide written evidence of the
terms and conditions and the percentage increase in costs of the inuring excess
of loss reinsurance at the time such change occurs.

 

 

ARTICLE
VII

 

ORIGINAL
CONDITIONS

 

                                All amounts ceded hereunder shall be subject
to the same gross rates and to the same clauses, conditions, and modifications
of the Reassured's policies and the Reinsurers shall pay losses as may be paid
thereon and shall follow the settlements of the Reassured, subject always to
the limits, terms and conditions of this Contract.

 

 

ARTICLE
VIII

 

CEDING
COMMISSION

 

                A.            The
Reinsurers shall allow the Reassured a provisional commission of 32.0% of
reinsurance premium ceded hereunder. The Reassured shall allow the Reinsurers
return commission on return premiums at the same rate. It is expressly agreed
that this commission allowance includes provision for all acquisition costs,
premium taxes, boards and bureaus, administrative fees, dividends and for all
other expenses of whatever nature except Allocated Loss Adjustment Expenses.

 

6

 

B.            The provisional commission shall be
adjusted 24 months from inception of the first Contract Year and annually
thereafter until all losses are settled. If this Contract is terminated, the
final Contract period will be from the beginning of the then current Contract
Year through the date of termination.

 

C.            The provisional commission
adjustment shall be calculated as follows for each Contract Year:

 

1.                                       If
the ratio of losses incurred to premiums earned (loss ratio) is 64.0% or
greater, the adjusted commission rate shall be 32.0%.

 

2.                                       If
the loss ratio is below 64.0%, the ceding commission shall be increased by
100.0% of the difference between 64.0% and 63.0% loss ratio. In addition, if
the loss ratio is below 63.0%, the ceding commission shall be increased by
50.0% of the amount the loss ratio is below 63.0%.

 

"Losses
incurred" as used hereunder shall mean ceded losses and loss adjustment
expense paid as of the effective date of calculation, plus the ceded reserves
for losses and loss adjustment expense outstanding as of the same date,
including an allowance for losses and loss adjustment expenses Incurred But Not
Reported ("IBNR"), as respects business subject to this Contract.

 

Losses
incurred including the allowance for "IBNR" shall be calculated
according to the following schedule;

 

	
  Commission
  Adjustment Date

  	
   

  	
  24 Months after inception

  	
   

  	
  36 Months after inception

  	
   

  	
  48 Months after inception

  	
   

  	
  60 Months after inception

  	
   

  	
  72 Months after inception

  	
   

  	
  84 Months after inception

  	
   

  	
  96 Months after inception

  
	
   

  	
   

  	
  (Incurred Losses + LAE) + 22.5% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 10.0% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 5.0% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 3.0% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 2.0% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 1.5% of NSEP

  	
   

  	
  (Incurred Losses + LAE) + 1.0% of NSEP

  

 

Each
calculation of the commission adjustment shall be based on cumulative
transactions hereunder from the beginning of the Contract Year through the date
of calculation. If the adjusted commission is greater than commissions
previously allowed by the Reinsurers, the Reinsurers shall remit the difference
to the Reassured. If the adjusted commission is greater than commissions
previously allowed by the Reinsurers, the Reisurers shall remit the difference
to the Reassured. Payment by either party shall be within 30 days after receipt
and verification of the Reassured's report.

 

7

 

D.            Notwithstanding any other provision
of this Article, ninety-six (96) months or later after the inception of the
Contract Year, the Reassured may request that the Reinsurer set the final
commission level as respects such Contract Year thereby eliminating the need
for commission adjustments until all losses are settled as respects such
Contract Year. The Reinsurer shall be obligated to set the final commission
allowance at the Reassured's request. However, the Reassured does not have to
accept the final commission allowance offered by the Reinsurer and shall have
the option to continue annual adjustments until all losses are finally settled.

 

ARTICLE
IX

 

LOSS
AND LOSS SETTLEMENTS

 

A.            The Reinsurers shall be liable for
their proportionate share of the actual loss incurred by the Reassured under
policies covered hereunder, after deducting all recoveries, all salvage and all
amounts due from any other reinsurance, including facultative, whether
collected or not.

 

Such loss
shall include sums paid in settlement of claims and suits and in satisfaction
of judgments, including prejudgment interest when added to a judgment.

 

B.            Without regard to the limit
contained in ARTICLE V, QUOTA SHARE PARTICIPATION, Reinsurers shall also
be liable, for their proportionate share of all loss adjustment expenses.
Further, Reinsurers shall be liable for one additional per occurrence limit of
any Losses in Excess of Policy Limits and/or any Extra Contractual Obligations,
as further defined in ARTICLE X, LOSS IN EXCESS OF POLICY LIMITS AND EXTRA
CONTRACTUAL OBLIGATIONS, which are incurred by the Reassured. Allocated
Loss Adjustment Expenses shall include but not be limited to : a) expenses
sustained in connection with settlement and litigation of claims and suits,
satisfaction of judgments, resistance to or negotiations concerning a loss, b)
legal expenses and costs incurred in connection with coverage questions
regarding specific claims and legal actions, including declaratory judgment
actions, connected thereto, c) all interest on judgments other than prejudgment
interest when added to a judgment, d) expenses sustained to obtain recoveries,
salvages or other reimbursements, or to secure the reverse or reduction of a
verdict or judgment, and e) per unit claims file fee.

 

C.            All loss settlements made by the
Reassured, within the terms and conditions of this Contract, shall be unconditionally
binding upon the Reinsurers, and the Reinsurers agree to pay or allow, as the
case may be, their share of each such settlement in accordance with this
Contract.

 

8

 

ARTICLE
X

 

LOSS
IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

 

A.            Reinsurers shall protect the
Reassured for their proportionate share of Loss In Excess of Policy Limits
and/or Extra Contractual Obligations in accordance with the provisions of ARTICLE
V, QUOTA SHARE PARTICIPATION, of this Contract, subject to a limit not to
exceed one additional per occurrence limit.

 

B.            "Loss in Excess of Policy
Limits" (XPL) means any amount paid or payable by the Reassured in
connection with loss in excess of the limit of the subject original Policy,
such loss in excess of the limit having been incurred because of failure by it
to settle within the Policy limit or by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement or in the preparation
of the defense or in the trial of any action against its insured or in the
preparation or prosecution of an appeal consequent upon such action.

 

C.            "Extra Contractual
Obligations" (ECO) means those liabilities not covered under any other
provision of this Contract 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 Reassured 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 or
prosecution of an appeal consequent upon such action.

 

D.            A Loss in Excess of Policy Limits
and/or an Extra Contractual Obligation shall be deemed to have occurred on the
same date as the loss covered under the Reassured's original Policy and shall
constitute part of the original loss.

 

E.             However, this Article shall not apply
where the Loss in Excess of Policy Limits and/or Extra Contractual Obligation
has been incurred due to fraud and/or criminal act(s) by a member of the Board
of Directors or a corporate officer of the Reassured 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.

 

F.             Recoveries, whether collectible or
not, including any retentions and/or deductibles, from any other form of
insurance or reinsurance which protects the Reassured against any loss or
liability covered under this Article shall inure to the benefit of the
Reinsurers and shall be deducted from the total amount of any Loss in Excess of
Policy Limits and/or Extra Contractual Obligation in determining the amount of
Loss in Excess of Policy Limits and/or Extra Contractual Obligation which shall
be included in the calculation of Loss under this Contract.

 

G.            The Reassured shall be indemnified
in accordance with this Article to the extent permitted by applicable law.

 

9

 

ARTICLE XI

 

ACCOUNTS AND REPORTS

 

A.        Within
sixty (60) days after the end of each month, the Reassured shall furnish the
Reinsurers with a report summarizing:

 

1.         Net
Subject Earned Premium for the month;

 

2.         Unearned
Premium Reserves;

 

3.         Premium
written for the month (including Reassured's estimated annual premium);

 

4.         Net
Premium ceded less commission;

 

5.                           Loss
and Loss Adjustment Expense paid during the month (less any applicable salvage
and subrogation recoveries);

 

6.         Loss
and Loss Adjustment Expense Reserves.

 

The positive balance of (4) less (5) shall be
remitted by the Reassured with its report. Any balance shown to be due the
Reassured shall be remitted by the Reinsurer as soon as practicable, but no
later than 15 days after receipt of the Reassured's report.

 

B.        In
addition, the Reassured shall furnish the Reinsurers an annual statement
showing the total reserves for outstanding losses including loss adjustment
expense and such other information as may be required by the Reinsurers for
completion of their NAIC annual statements.

 

C.        Should
payment due from the Reinsurers exceed $100,000 as respects any one loss, the
Reassured may give the Reinsurers notice of payment made or its intention to
make payment on a certain date. If the Reassured has paid the loss, payment
shall be made by the Reinsurers immediately.

 

D.        If
the Reassured intends to pay the loss by a certain date and has submitted a
satisfactory proof of loss or similar document, payment shall be due from the
Reinsurers twenty–four (24) hours prior to that date, provided the
Reinsurers have a period of five (5) working days after receipt of said notice
to dispatch the payment. Cash loss amounts specifically remitted by the
Reinsurers as set forth hereunder shall be credited to their next monthly
account.

 

E.         The
Reassured shall remit individual reports for claims reserved at $100,000 or
above and all claims involving a fatality, amputation, spinal cord damage,
brain damage, blindness, extensive burns or multiple fractures regardless of
liability or loss reserve amount.

 

10

 

ARTICLE XII

 

ERRORS AND OMISSIONS
(BRMA 14F)

 

Inadvertent delays, errors or omissions made in connection with this
Contract or any transaction hereunder shall not relieve either party from any
liability which would have attached had such delay, error or omission not
occurred, provided always that such error or omission is rectified as soon as
possible after discovery.

 

ARTICLE XIII

 

ACCESS TO RECORDS
(BRMA 1D)

 

The Reinsurers or their designated representatives shall have access at
any reasonable time to all records of the Reassured which pertain in any way to
this reinsurance.

 

ARTICLE XIV

 

ARBITRATION

 

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

 

B.        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 within 30 days
after being requested to do so by the other party, the latter, after 10 days
notice by certified or registered mail of its intention to do so, may appoint
the second arbitrator.

 

C.        If
the two arbitrators are unable to agree upon the third arbitrator within 30
days of their appointment, the third arbitrator shall be selected by the
American Arbitration Association.

 

D.        All
arbitrators shall be disinterested active or former executives of insurance or
reinsurance companies or Underwriters at Lloyd's, London with expertise or
experience in the area being arbitrated.

 

E.         Within
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.

 

11

 

F.         The
panel shall be relieved of all judicial formality and shall not be bound by the
strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in Los Angeles, California, but the venue may be
changed when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of California. 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.

 

G.        The
panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business within 60 days following the
termination of the hearings. Judgment upon the award may be entered in any
court having jurisdiction thereof.

 

H.        If
more than one Reinsurer is involved in arbitration where there are common
questions of law or fact and a possibility of conflicting awards or
inconsistent results, all such Reinsurers shall constitute and act as one party
for purposes of this Article and communications shall be made by the Reassured
to each of the Reinsurers constituting the one party; provided, however, that
nothing therein shall impair the rights of such Reinsurers to assert several,
rather than joint defenses or claims, nor be construed as changing the
liability of the Reinsurers under the terms of this Contract from several to
joint.

 

I.          Each
party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorney fees, to the extent
permitted by law

 

ARTICLE XV

 

TAXES (BRMA 50B)

 

In consideration of the terms under which this Contract is issued, the
Reassured will not claim a deduction in respect of the premium hereon when
making tax returns, other than income or profits tax returns, to any state or
territory of the United States of America or the District of Columbia.

 

ARTICLE XVI

 

CURRENCY
(BRMA 12A)

 

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

 

B.        Amounts
paid or received by the Reassured 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 Reassured.

 

12

 

ARTICLE
XVII

 

INSOLVENCY

 

                A.            In
the event of the insolvency of one or more of the reinsured companies, this
reinsurance shall be payable directly to the Reassured or to its liquidator,
receiver, conservator or statutory successor immediately upon demand, with
reasonable provision for verification on the basis of the liability of the
Reassured without diminution because of the insolvency of the Reassured or
because the liquidator, receiver, conservator or statutory successor of the
Reassured has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of
the Reassured shall give written notice to the Reinsurers of the pendency of a
claim against the Reassured indicating the policy or bond reinsured which claim
would involve a possible liability on the part of the Reinsurers within a
reasonable time after such claim is filed in the conservation or liquidation
proceeding or in the receivership, and that during the pendency of such claim,
the Reinsurers may investigate such claim and interpose, at its own expense, in
the proceeding where such claim is to be adjudicated, any defense or defenses
that it may deem available to the Reassured or its liquidator, receiver,
conservator or statutory successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to the approval of the Court, against the
Reassured as part of the expense of conservation or liquidation to the extent
of a pro rata share of the benefit which may accrue to the Reassured solely as
a result of the defense undertaken by the Reinsurers.

 

                B.            Where
two or more Reinsurers are involved in the same claim and a majority in interest
elect to interpose defense to such claim, the expense shall be apportioned in
accordance with the terms of this Contract as though such expense had been
incurred by the Reassured.

 

                C.            It
is further understood and agreed that, in the event of the insolvency of one or
more of the reinsured companies, the reinsurance under this Contract shall be
payable directly by the Reinsurers to the Reassured or to its liquidator,
receiver or statutory successor, except as provided by Section 4118(a) of the
New York Insurance law or except (1) where this Contract specifically provides
another payee of such reinsurance in the event of the insolvency of the
Reassured or (2) where the Reinsurers with the consent of the direct insured or
insureds has assumed such policy obligations of the Reassured as direct
obligations of the Reinsurers to the payees under such policies and in
substitution for the obligations of the Reassured to such payees.

 

                D.            It
is agreed by the parties that all amounts owing under this Contract were
incurred and owing on the inception date of this Contract, notwithstanding that
the due date for payment is any date subsequent to the inception date.

 

13

 

ARTICLE
XVIII

 

OFFSET
(BRMA36C)

 

                The Reassured and the Reinsurers shall have
the right to offset any balance or amounts due from one party to the other
under the terms of this Contract. The party asserting the right of offset may
exercise such right any time whether the balances due are on account of premiums
or losses or otherwise.

 

 

ARTICLE
XIX

 

INTERMEDIARY
(BRMA 23A)

 

                Towers Perrin Reinsurance is hereby
recognized as the Intermediary negotiating this Contract for all business
hereunder. All communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss adjustment expense,
salvages and loss settlements) relating thereto shall be transmitted to the
Reassured or the Reinsurers through Towers Perrin Reinsurance, Mellon Bank
Center, 1735 Market Street, Philadelphia, Pennsylvania, 19103-7501. Payments by
the Reassured to the Intermediary shall be deemed to constitute payment to the
Reinsurers. Payments by the Reinsurers to the Intermediary shall be deemed to
constitute payment to the Reassured only to the extent that such payments are
actually received by the Reassured.

 

14

 

                Signed in Liberty Corner, New Jersey, this
11th day of July, 2001,

 

 

	
   

  	
  EVEREST
  REINSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
  BY

  	
  
  /s/ Frederick J. Ruck

  

  
	
   

  	
  TITLE

  	
  
  V.P.

  

  
				

 

 

                and signed in Pasadena, California, this 27th
day of August, 2001.

 

	
   

  	
  PAULA
  INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
  BY

  	
  /s/ James A.
  Nicholson

  
	
   

  	
  TITLE

  	
  Sr. V.P.
  C.F.O.

  
				

 

15

NUCLEAR
INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE U.S.A. (BRMA 35A)

 

1.                                       This
reinsurance does not cover any loss or liability accruing to the Reassured as a
member of, or subscriber to, any association of insurers or reinsurers formed
for the purpose of covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber or association.

 

2.                                       Without
in any way restricting the operation of paragraph 1 of this Clause, it is
understood and agreed that for all purposes of this reinsurance all the
original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph 2 from the time specified in
Clause III in this paragraph 2 shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):

 

Limited Exclusion Provision*

 

I.                                         It
is agreed that the policy does not apply under any liability coverage, to (injury, sickness, disease, death or destruction)
(bodily injury or property damage)
with respect to which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.

 

II.                                     Family
Automobile Policies (liability only), Special Automobile Policies (private
passenger automobiles, liability only), Farmers Comprehensive Personal
Liability Policies (liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated above, such as
the Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.

 

III.                                 The
inception dates and thereafter of all original policies as described in II
above, whether new, renewal or replacement, being policies which either

 

(a)                                  become
effective on or after 1st May, 1960, or

 

(b)                                 become
effective before that date and contain the Limited Exclusion Provision set out
above;

 

provided this
paragraph 2 shall not be applicable to Family Automobile Policies, Special
Automobile Policies, or policies or combination policies of a similar nature,
issued by the Reassured on New York risks, until 90 days following approval of
the Limited Exclusion Provision by the Governmental Authority having
jurisdiction thereof.

 

3.                                       Except
for those classes of policies specified in Clause II of paragraph 2 and without
in any way restricting the operation of paragraph 1 of this Clause, it is
understood and agreed that for all purposes of this reinsurance the original
liability policies of the Reassured (new, renewal and replacement) affording
the following coverages;

 

Owners,
Landlords and Tenants Liability, Contractual Liability, Elevator Liability,
Owners or Contractors (including railroad), Protective Liability, Manufacturers
and Contractors Liability, Product Liability, Professional and Malpractice
Liability, Storekeepers Liability, Garage Liability, Automobile Liability
(including Massachusetts Motor Vehicle or Garage Liability)

 

shall be deemed to include,
with respect to such coverages, from the time specified in Clause V of this
paragraph 3, the following provision (specified as the Broad Exclusion
Provision);

 

Broad Exclusion Provision*

 

It is agreed that the policy
does not apply:

 

I.                                         Under
any Liability Coverage, to (injury,
sickness, disease, death or destruction) (bodily injury or property damage)

 

(a)                                  with
respect to which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or

 

(b)                                 resulting
from the hazardous properties of nuclear material and with respect to which (1)
any person or organization is required to maintain financial protection
pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency thereof, under any
agreement entered into by the United States of America, or any agency thereof,
with any person or organization.

 

II.                                     Under
any Medical Payments Coverage, or under any Supplementary Payments Provision
relating to (immediate medical or surgical
relief) (first aid) to
expenses incurred with respect to (bodily
injury, sickness, disease or death) (bodily injury) resulting from the hazardous properties of
nuclear material and arising out of the operation of a nuclear facility by any
person or organization.

 

1

 

III.                                 Under
any Liability Coverage, to (injury,
sickness, disease, death or destruction) (bodily injury or property damage) resulting from the
hazardous properties of nuclear material, if

 

(a)                                  the
nuclear material (1) is at any nuclear facility owned by, or operated by or on
behalf of, an insured, or (2) has been discharged or dispersed therefrom:

 

(b)                                 the
nuclear material is contained in spent fuel or waste at any time possessed,
handled, used, processed, stored, transported or disposed of by or on behalf of
an insured; or

 

(c)                                  the
(injury, sickness, disease, death or
destruction) (bodily injury or
property damage) arises out of the furnishing by an insured of
services, materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility, but if
such facility is located within the United States of America, its territories,
or possessions or Canada, this exclusion (c) applies only to (injury to or destruction of property of such nuclear
facility) (property damage to
such nuclear facility and any property thereat).

 

IV.                                 As
used in this endorsement:

 

"Hazardous
properties" include radioactive, toxic or explosive properties;
"nuclear material" means source material, special nuclear material or
byproduct material; "source material", "special nuclear
material", and "byproduct material" have the meanings given them
in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
fuel" means any fuel element or fuel component, solid or liquid, which has
been used or exposed to radiation in a nuclear reactor; "waste" means
any waste material (1) containing byproduct material other than tailings or
wastes produced by the extraction or concentration of uranium or thorium from
any ore processed primarily for its source material content, and (2) resulting
from the operation by any person or organization of any nuclear facility
included under the first two paragraphs of the definition of nuclear facility;
"nuclear facility" means:

 

(a)                                  any
nuclear reactor,

 

(b)                                 any
equipment or device designed or used for (1) separating the isotopes of uranium
or plutonium, (2) processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,

 

(c)                                  any
equipment or device used for the processing, fabricating or alloying of special
nuclear material if at any time the total amount of such material in the
custody of the insured at the premises where such equipment or device is
located consists of or contains more than 25 grams of plutonium or uranium 233
or any combination thereof, or more than 250 grams of uranium 235,

 

(d)                                 any
structure, basin, excavation, premises or place prepared or used for the
storage or disposal of waste,

 

and includes the site on which
any of the foregoing is located, all operations conducted on such site and all
premises used for such operations; "nuclear reactor" means any
apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction or to contain a critical mass of fissionable material;

 

(With respect to injury to or destruction of property,
the word "injury" or "destruction")

("property damage" includes all forms of
radioactive contamination of property.)

(Includes all forms of radioactive contamination of
property.)

 

V.                                     The
inception dates and thereafter of all original policies affording coverages
specified in this paragraph 3, whether new, renewal or replacement, being
policies which become effective on or after 1st May, 1960, provided this
paragraph 3 shall not be applicable to:

 

(i)                                     Garage
and Automobile Policies issued by the Reassured on New York risks, or

 

(ii)                                  statutory
liability insurance required under Chapter 90, General Laws of Massachusetts,

 

until 90 days
following approval of the Broad Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

 

4.             Without in any way restricting the operation of
paragraph 1 of this Clause, it is understood and agreed that paragraphs 2 and 3
above are not applicable to original liability policies of the Reassured in
Canada and that with respect to such policies this Clause shall be deemed to
include the Nuclear Energy Liability Exclusion Provisions adopted by the
Canadian Underwriters' Association or the Independent Insurance Conference of
Canada.

 

*NOTE:  The words printed in italics in the Limited
Exclusion Provision and in the Broad Exclusion Provision shall apply only in
relation to the original liability policies which include a Limited Exclusion
Provision or a Broad Exclusion Provision containing those words.

 

2

 

NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
- REINSURANCE

CANADA (BRMA 35D)

 

I.              This Agreement does not cover any loss or liability
accruing to the Reassured as a member of, or subscriber to, any association of
insurers or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.

 

II.            Without in any way restricting the operation of paragraph
1 of this clause, it is agreed that for all purposes of this Agreement all the
original liability contracts of the Reassured, whether new, renewal or
replacement, of the following classes, namely:

 

Personal
Liability

Farmers'
Liability

Storekeepers'
Liability

 

which become effective on or
after 31st December 1984, shall be deemed to include, from their inception
dates and thereafter, the following provision:

 

Limited Exclusion Provision

 

This Policy
does not apply to bodily injury or property damage with respect to which the
Insured is also insured under a contract of nuclear energy liability insurance
(whether the Insured is unnamed in such contract and whether or not it is
legally enforceable by the Insured) issued by the Nuclear Insurance Association
of Canada or any other group or pool of insurers or would be an Insured under
any such policy but for its termination upon exhaustion of its limits of
liability.

 

With respect to property, loss
of use of such property shall be deemed to be property damage.

 

III.           Without in any way restricting the operation of paragraph
1 of this clause, it is agreed that for all purposes of this Agreement all the
original liability contracts of the Reassured, whether new, renewal or
replacement, of any class whatsoever (other than Personal Liability, Farmers'
Liability, Storekeepers' Liability or Automobile Liability contracts), which
become effective on or after 31st December 1984, shall be deemed to include
from their inception dates and thereafter, the following provision:

 

Broad Exclusion Provision

 

It is agreed that this Policy
does not apply:

 

A.                                   To
liability imposed by or arising under the Nuclear Liability Act; nor

 

B.                                     To
bodily injury or property damage with respect to which an Insured under this
policy is also insured under a contract of nuclear energy liability insurance
(whether the Insured is unnamed in such contract and whether or not it is
legally enforceable by the Insured) issued by the Nuclear Insurance Association
of Canada or any other insurer or group or pool of insurers or would be an
Insured under any such policy but for its termination upon exhaustion of its limit
of liability; nor

C.                                     To
bodily injury or property damage resulting directly or indirectly from the
nuclear energy hazard arising from:

 

1.                                       the
ownership, maintenance, operation or use of a nuclear facility by or on behalf
of an Insured.

 

1

 

2.                                       the
furnishing by an insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance, operation or use of
any nuclear facility; and

 

3.                                       the
possession, consumption, use, handling, disposal or transportation of fissionable
substances, or of other radioactive material (except radioactive isotopes, away
from a nuclear facility, which have reached the final stage of fabrication so
as to be useable for any scientific, medical, agricultural, commercial or
industrial purpose) used, distributed, handled or sold by an insured.

 

As used in this Policy:

 

I.          The term "nuclear
energy hazard" means the radioactive, toxic, explosive or other hazardous
properties of radioactive material.

 

II.                         The term
"radioactive material" means uranium, thorium, plutonium, neptunium,
their respective derivatives and compounds, radioactive isotopes of other
elements and any other substances that the Atomic Energy Control Board may, by
regulation, designate as being prescribed substances capable of releasing
atomic energy, or as being requisite for the production, use or application of
atomic energy.

 

III.       The
term "nuclear facility" means:

 

A.                       Any
apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction or to contain a critical mass of plutonium, thorium and uranium
or any one or more of them;

 

B.                         Any
equipment or device designed or used for (1) separating the isotopes of
plutonium, thorium and uranium or any one or more of them, (2) processing or
utilizing spent fuel, or (3) handling, processing or packaging waste;

 

C.                         Any
equipment or device used for the processing, fabricating or alloying of
plutonium, thorium or uranium enriched in the isotope uranium 233 or in the
isotope uranium 235, or any one or more of them if at any time the total amount
of such material in the custody of the Insured at the premises where such
equipment or device is located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more than 250 grams of
uranium 235;

 

D.                        Any
structure, basin, excavation, premises or place prepared or used for the
storage or disposal of waste radioactive material;

 

and includes the site on which
any of the foregoing is located, together with all operations conducted thereon
and all premises used for such operations.

 

IV.                     The term
"fissionable substance" means any prescribed substance that is, or
from which can be obtained, a substance capable of releasing atomic energy by
nuclear fission.

 

V.        With respect to
property, loss of use of such property shall be deemed to be property damage.

 

2

 

	
  PAGE 1

  	
   

  	
  WORKERS COMP
  POLICIES

  	
   

  	
  DATE –
  4/16/01

  
	
  PROG NAME –
  WCB037

  	
   

  	
  PAULA
  INSURANCE COMPANY – NEVADA

  	
   

  	
  REPT  #-613

  

 

SELECTION:     NEVADA
2001 POLICY YEAR

 

	
   

  	
   

  	
   

  	
   

  	
  EFFECTIVE
  DATES

  	
   

  	
   

  	
   

  	
   

  
	
  INSUREDS

  NAME OR DBA

  	
   

  	
  POLICY

  NUMBER

  	
   

  	
  FROM

  	
   

  	
  TO

  	
   

  	
  CANC.

  DATE

  	
   

  	
  BUSN

  CODE

  
	
  MED MART BRANDEN

  	
   

  	
  2700101

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2709

  
	
  REMCON CONSTRUCT

  	
   

  	
  2700106

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  CLEAR SPAN TENTS

  	
   

  	
  2700112

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  KYOTO BOWL CORP

  	
   

  	
  2700113

  	
   

  	
  1/06/01

  	
   

  	
  1/06/02

  	
   

  	
   

  	
   

  	
  2706

  
	
  THOMAS BOBRICK

  	
   

  	
  2700115

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  ERBACON, INC.

  	
   

  	
  2700116

  	
   

  	
  1/22/01

  	
   

  	
  1/22/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  ROMAN MARBLE COMP

  	
   

  	
  2700120

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  CISCOS TACOS

  	
   

  	
  2700121

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2706

  
	
  SOUTHWEST ENTERPR

  	
   

  	
  2700123

  	
   

  	
  2/01/01

  	
   

  	
  2/01/02

  	
   

  	
   

  	
   

  	
  2702

  
	
  NEVADA CATTLEMEN

  	
   

  	
  2700125

  	
   

  	
  1/01/01

  	
   

  	
  1/01/02

  	
   

  	
   

  	
   

  	
  2700

  
												

 

	
  INSUREDS

  NAME OR DBA

  	
   

  	
  EXP

  MD%

  	
   

  	
  TOTAL $ 

  RESERVES

  	
   

  	
  TOTAL $ 

  PAID

  	
   

  	
  LOSS

  RATIO

  	
   

  	
  ESTIMATED

  ANN. PREM

  	
   

  	
  DIVIDENDS

  PAID

  
	
  MED MART BRANDEN

  	
   

  	
  83

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  10,605.00

  	
   

  	
  .00

  
	
  REMCON CONSTRUCT

  	
   

  	
  110

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  17,312.00

  	
   

  	
  .00

  
	
  CLEAR SPAN TENTS

  	
   

  	
  122

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  27,345.00

  	
   

  	
  .00

  
	
  KYOTO BOWL CORP

  	
   

  	
  104

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  6,892.00

  	
   

  	
  .00

  
	
  THOMAS BOBRICK

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  3,299.00

  	
   

  	
  .00

  
	
  ERBACON, I NC.

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  595.00

  	
   

  	
  .00

  
	
  ROMAN MARBLE COMP

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  1,247.00

  	
   

  	
  .00

  
	
  CISCOS TACOS

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  991.00

  	
   

  	
  .00

  
	
  SOUTHWEST ENTERPR

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  2,622.00

  	
   

  	
  .00

  
	
  NEVADA CATTLEMEN

  	
   

  	
  100

  	
   

  	
  0

  	
   

  	
  .00

  	
   

  	
  .0

  	
   

  	
  619.00

  	
   

  	
  .00

  

 

 

ENDORSEMENT NO. 1

 

EFFECTIVE JULY 1, 2001

 

to

 

WORKERS' COMPENSATION AND EMPLOYER'S
LIABILITY

QUOTA SHARE REINSURANCE CONTRACT

 

EFFECTIVE JANUARY 1, 2001

 

issued to

 

PAULA INSURANCE COMPANY

 

PASADENA, CALIFORNIA

 

by

 

EVEREST REINSURANCE COMPANY

 

DELAWARE

 

 

 

 

It is
understood and agreed that effective July 1, 2001 at 12:01 a.m., this Contract
is amended as follows:

 

ARTICLE V, QUOTA
SHARE PARTICIPATION, 
Paragraph A., is amended to read,

 

A. 
The Reassured agrees to cede and Reinsurers agree to accept a 30.00% (being
$75,000) part of a 75.00% quota share of $250,000 each and every loss
occurrence. The quota share amount may be adjusted at any July 1 or January 1
on a prospective basis at terms to be agreed, subject to a minimum Reinsurers'
participation of 30.00% (being $75,000) and a maximum of 50.00% (being
$125,000) part of a 75.00% quota share of $250,000 each and every loss
occurrence.

 

All other terms and conditions remain
unchanged.

 

 

1

Signed in Liberty Corner, New Jersey, this 28th day of November,
2001,

 

 

	
  EVEREST
  REINSURANCE COMPANY

  
	
   

  
	
  BY

  	
  /s/
  Frederick J. Ruck

  
	
   

  	
   

  
	
  TITLE

  	
  V.P.

  

 

 

and signed in Pasadena, California, this 10th day of December, 2001.

 

 

	
  PAULA
  INSURANCE COMPANY

  
	
   

  
	
  BY

  	
  /s/ James A.
  Nicholson

  
	
   

  	
   

  
	
  TITLE

  	
  Sr.
  V.P./C.F.O.

  

 

 

ENDORSEMENT NO. 1

 

EFFECTIVE JULY 1, 2001

 

to

 

WORKERS' COMPENSATION AND EMPLOYERS LIABILITY

QUOTA SHARE REINSURANCE CONTRACT

 

EFFECTIVE JANUARY 1, 2001

 

issued to

 

PAULA INSURANCE COMPANY

 

PASADENA, CALIFORNIA

 

 

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EXHIBIT 4.5  

 
 

Specimen of Common Stock    
  

FORM OF STOCK CERTIFICATE  

INCORPORATED UNDER THE LAWS OF THE STATE 

NEVADA

	NUMBER	 	SHARES

HERBST GAMING, INC.  

Capitalization 2,500 Shares Common Stock No Par Value 

        THIS CERTIFIES THAT ____________________________________________________________ IS THE

REGISTERED HOLDER OF ____________________________________________________________ SHARES 

TRANSFERABLE
ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. 

        IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS
AND ITS CORPORATE SEAL TO BE HEREUNTO AFFIXED. 

        THIS ________________________ DAY                    OF
________________ A.D. ________________ 

	    	 	 	 	 
	
 SECRETARY	 	HERBST GAMING, INC.

CORPORATE

SEAL

1997

NEVADA	 	
 PRESIDENT

	[Back of Certificate]	 	 	 	 	 	 
	

 	
 	

"The sale, assignment, transfer, pledge or other disposition of this security is ineffective unless approved in advance by the Nevada gaming commission. If at any time such commission finds that an owner of this security is unsuitable to continue to
have an involvement in gaming in such state, such owner must dispose of such security as provided by the laws of the State of Nevada and the regulations of the Nevada gaming commission thereunder. Such laws and regulations restrict the right under
certain circumstances: (a) To pay or receive any dividend or interest upon any such security; (b) to exercise, directly or through any trustee or nominee, any voting right conferred by such security; (c) to receive any remuneration in any form from
the corporation, for services rendered or otherwise"
	

 	
 	
FOR VALUE RECEIVED,	
 	

 	
 	

HEREBY SELL, ASSIGN
	 	 	 	 	
	 	AND TRANSFER
	 	 	UNTO ____________________________________________________________

____________________________________________________________ SHARES

REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT

____________________________________________________________ ATTORNEY

TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
	

 	
 	

    DATED ____________________________________

                        IN PRESENCE OF
	

 	
 	

____________________________________              ____________________________________

QuickLinks

Specimen of Common Stock

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