Document:

exv4w6

 

Exhibit (4.6)

BADGER METER, INC.

NOTE MODIFICATION
AGREEMENT AND AMENDMENT TO LOAN AGREEMENT DATED JUNE 20, 2003
BETWEEN BANK ONE, N.A. AND BADGER METER EMPLOYEE SAVINGS AND STOCK
OWNERSHIP PLAN AND TRUST, DATED JUNE 17, 2004

Note Modification Agreement

This agreement is dated as of June 17, 2004, (the “Agreement Date”), to be effective as of June
17, 2004 (the “Effective Date”), by and between Badger Meter Employee Savings and Stock Ownership
Plan and Trust alone, and its successors (the “Borrower”) and Bank One, NA, with its main office in
Chicago, IL (the “Bank”).

Whereas, the Borrower executed a Promissory Note as evidence of indebtedness in the original face
amount of One Million Two Hundred Eighty-Five Thousand and 00/100 Dollars ($1,285,000.00), dated
June 20, 2003 owing by the Borrower to the Bank, as same may have been amended or modified from the
time to time (the “Note”), which Note has at all times been, and is now, continuously and without
interruption outstanding in favor of the Bank; and,

Whereas, the Borrower has requested and the Bank has agreed that the Note be modified to the
limited extent as hereinafter set forth;

Now therefore, in mutual consideration of the agreements contained herein and for other good and
valuable consideration, the parties agree as follows;

	 	1.  	Accuracy of Recitals. The Borrower acknowledges the accuracy of the Recitals stated
above.
	 
	 	2.  	Modification of Note.

	 	2.1  	From and after the Effective Date, the date in which the entire unpaid
principal balance plus all accrued interest shall be due and payable is hereby
changed from June 20, 2004 to April 30, 2006.

	 	3.  	Ratification of Related Documents and Collateral. The Note shall remain in full force
and effect as it may be modified herein.
	 
	 	4.  	Execution and Delivery of Agreement by the Bank. Neither the Borrower nor the Bank
shall be bound by this agreement until both the Borrower and the Bank have executed this
Agreement.
	 
	 	5.  	Integration, Entire Agreement, Change, Discharge, Termination, or Waiver. The Note as
modified herein (along with the related Loan Agreement dated June 20, 2003, as amended,
between Bank One, N.A. and the Badger Meter Employee Savings and Stock Ownership Plan and
Trust) contain the complete understanding and agreement of the Borrower and the Bank in
respect of the loan and supersede all prior representations, warranties, agreements,
arrangements, understandings, and negotiations. No provision of the Note as modified
herein may be changed, discharged, supplemented, terminated, or waived except in writing
signed by the party against whom it is being enforced.
	 
	 	6.  	Counterpart Execution. This agreement may be executed in multiple counterparts, each
of which, when so executed, shall be deemed an original, but all such counterparts, taken
together, shall constitute one and the same agreement.
	 
	 	7.  	Not a Novation. This agreement is a modification only and not a novation. In addition
to all amounts hereafter due under the Note as modified herein, all accrued interest
evidenced by the Note being modified by this agreement, shall continue to be due and
payable until paid. Except for the above-quoted modification(s), the Note, and all the
terms and conditions thereof, shall be and remain in full force and effect with the changes
herein deemed to be incorporated therein. This agreement is to be considered attached to
the Note and made a part thereof. This agreement shall not release or affect the liability
of any guarantor, surety or endorser of the Note or release of owner of collateral securing
the Note. The validity, priority and enforceability of the Note shall not be impaired
hereby.

References to other agreement shall not affect or impair the absolute and unconditional obligation
of the Borrower to pay the principal and interest on the Note when due. The Bank reserves all
rights against all parties to the Note.

Bank: Bank One, N.A.

By: /s/ Gregory S. Dorf, First Vice President

Borrower: Badger Meter Employee Savings and Stock Ownership Plan and Trust

By: /s/ Michael C. Wieber, Vice President, Marshall & Ilsley Trust Company N.A., Trustee

By: /s/ Lora C. Sykora, Vice President, Marshall & Ilsley Trust Company N.A., Trustee

 

 

Amendment to Loan Agreement dated June 20, 2003

This agreement is dated June 17, 2004, to be effective as of June 17, 2004 by and between Badger
Meter Employee Savings and Stock Ownership Plan and Trust (the “Borrower”) and Bank One, NA, with
its main office in Chicago, IL (the “Bank”), and its successors and assigns.

Whereas, the Borrower and the Bank entered into a Loan Agreement dated June 20, 2003, as amended
(if applicable) (the “Credit Agreement”); and

Whereas, the Borrower has requested and the Bank has agreed to amend the Credit Agreement as set
forth below;

Now, therefore, in mutual consideration of the agreements contained herein and for other good and
valuable consideration, the parties agree as follows:

	 	1.  	Defined Terms. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.
	 
	 	2.  	Modification of Credit Agreement. The Credit Agreement is hereby amended as
follows:

	 	2.1  	Section 1.13 of the Credit Agreement captioned “Termination Date” and
Section 2.1 of the Credit Agreement captioned “Stock Acquisition Loan” are hereby
amended by deleting the date “June 20, 2004” contained therein and replacing it with
“April 30, 2006.”

	 	3.  	Ratification. The Borrower confirms that the Credit Agreement remains in full
force and effect, other than as specifically modified herein.
	 
	 	4.  	Execution and Delivery. This agreement shall become effective only after it is
fully executed by the Borrower, Badger Meter, Inc., and the Bank, and the Bank shall
have received from the Borrower the following documents: Note Modification Agreement.
	 
	 	5.  	Acknowledgements of Borrower. The Borrower, the Bank, and Badger Meter, Inc.
acknowledge and agree that this agreement is limited to the terms outlined above, and
shall not be construed as an agreement to change any other terms or provisions of the
Credit Agreement. This agreement shall not establish a course of dealing or be
construed as evidence of any willingness on the Bank’s part to grant other or future
agreements, should any be requested.
	 
	 	6.  	Not a Novation. This agreement is a modification only and not a novation.
Except for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages, deeds of
trust, pledge agreements, assignments, guarantees, instruments or documents executed in
connection with the Credit Agreement, and all the terms and conditions thereof, shall be
and remain in full force and effect with the changes herein deemed to be incorporated
therein. This agreement is to be considered attached to the Credit Agreement and made a
part thereof. This agreement shall not release or affect the liability of any guarantor
of any promissory note or credit facility executed in reference to the Credit Agreement
or release any owner of collateral granted as security for the Credit Agreement. The
validity, priority and enforceability of the Credit Agreement shall not be impaired
hereby. To the extent that any provision of this agreement conflicts with any term or
condition set forth in the Credit Agreement, or any document executed in conjunction
therewith, the provisions of this agreement shall supersede and control. The Borrower
and the Bank, respectfully, each expressly reserves all rights against all parties to
the Credit Agreement.

Bank: Bank One, N.A.

By: /s/ Gregory S. Dorf, First Vice President

Borrower: Badger Meter Employee Savings and Stock Ownership Plan and Trust

By: /s/ Michael C. Wieber, Vice President, Marshall & Ilsley Trust Company N.A., Trustee

By: /s/ Lora C. Sykora, Vice President, Marshall & Ilsley Trust Company N.A., Trustee

The undersigned, Badger Meter, Inc., is signing below to acknowledge, ratify and reaffirm the
representations, warranties and covenants set forth in Sections 3, 5 and 7 of the Loan Agreement
dated June 20, 2003.

Badger Meter, Inc.

By: /s/ Richard Johnson, CFO & Treasurer<PAGE>
                                                                 EXHIBIT 10 (07)

                            SURETY QUOTA SHARE TREATY
                    (hereinafter referred to as "Agreement")

                           EFFECTIVE: JANUARY, 1, 2005

                           entered into by and between

                          CONTINENTAL CASUALTY COMPANY
                     (hereinafter referred to as "Company")

                                       and

                             WESTERN SURETY COMPANY
                    (hereinafter referred to as "Reinsurer")

Witnesseth:

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

ARTICLE 1 - BUSINESS COVERED

The Company agrees to cede and the Reinsurer agrees to accept a 100% quota share
of the Company's net retained liability on Surety Business written or renewed,
by or on behalf of the Company, during the term of this Agreement, subject to
the following terms and conditions. The liability of the Reinsurer shall
commence simultaneously with that of the Company.

In the event that a loss covered hereunder involves more than one of the
Company's policies, this Agreement shall provide coverage for each and every
Policy in such loss.

ARTICLE 2 - TERM AND CANCELLATION

This Agreement is effective January 1, 2005 and shall continue in full force and
effect through December 31, 2005, both days inclusive. Upon expiration of this
Agreement, the Reinsurer shall continue to cover all Policies coming within the
terms and conditions of this Agreement, until the natural expiration or
anniversary of such Policies.

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

ARTICLE 3 - TERRITORY

This agreement applies to the territory as in the Company's original Policies
reinsured hereunder.

<PAGE>

ARTICLE 4 - ORIGINAL CONDITIONS

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

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

ARTICLE 5 - DEFINITIONS

A.         As respects the use of "Company" within this Agreement, it is
           understood and agreed that Company shall mean the insurance companies
           owned directly or indirectly by CNA Financial Corporation which are
           affiliated with, controlled by or under common management of CNA,
           with the exception of the life insurance companies and RVI Guarantee
           Company Limited and their respective subsidiaries.

B.         The term "Extra Contractual Obligations" as used in this Agreement
           shall mean those liabilities not covered under any other provision of
           this Agreement and which arise from the handling of any claim on
           business covered hereunder, such liabilities arising because of, but
           not limited to, the following: failure by the Company to settle
           within the Policy limit, or by reason of alleged or actual
           negligence, fraud or bad faith in rejecting an offer of settlement or
           in preparation of the defense or in the trial of any action against
           its insured or reinsured or in the preparation or prosecution of an
           appeal consequent upon such action.

C.         The term(s) "Loss" and "Losses" as used in this Agreement shall mean
           that amount incurred by the Company in respect of any settlements,
           awards, or judgments (including interest where classified as loss)
           incurred in connection with any Policy reinsured hereunder after
           deduction for all recoveries, salvages, subrogations and other
           reinsurances, whether said reinsurances are recovered or not. The
           Reinsurer and Company agree that the convention to be followed when
           determining when a loss is incurred is that the date of notice of the
           actual event of loss or default shall be the date the loss is
           incurred, except that when the date of notice of the actual event of
           loss or default occurs after the expiration of a Policy then the date
           immediately preceding the date the Policy expires shall be deemed to
           be the date the loss is incurred.

D.         The term "Loss Expenses" as used in this Agreement shall mean all
           expenses incurred by the Company in the investigation, appraisal,
           adjustment, litigation and/or defense of claims under the business
           reinsured hereunder, including court costs, interest accrued prior to
           final judgment if included as expense on reinsured Policies, interest
           accrued after final judgment, but excluding internal office expenses,
           salaries, per diem, and other remuneration of regular Company
           employees unless diverted from their normal duties to handle such
           Loss.

E.         The term "Net Premiums Written" as used in this Agreement shall mean
           the gross written premiums on Policies written, renewed or assumed
           during the term of this

<PAGE>

           Agreement on business the subject of this Agreement, less
           cancellation and return premiums and less premiums ceded
           on all other reinsurance which inures to the benefit of this
           Agreement on business the subject of this Agreement.

F.         The term "Net Liability" as used in this Agreement shall mean the
           remaining portion of the Company's gross liability on each Policy
           reinsured under this Agreement after deduction of all reinsurance
           which inures to the benefit of this Agreement.

G.         The term(s) "Policy" and "Policies" as used in this Agreement shall
           mean the Company's binders, riders, policies, endorsements, bonds and
           contracts providing insurance and reinsurance on the Surety Business
           covered under this Agreement.

H.         The term "Surety Business" as used in this Agreement means the
           issuance, writing or underwriting of policies or licenses with
           respect to the following: (i) bonds required by statutes or
           ordinances guaranteeing the payment of certain taxes and fees and
           providing consumer protection as a condition to granting licenses to
           engage in various trades or professions, (ii) bonds required by
           statutes, courts or legal documents for the protection of those on
           whose behalf a fiduciary acts, (iii) bonds required by statutes or
           ordinances to guarantee the lawful and faithful performance of the
           duties of office by public officials, (iv) bonds required by statutes
           to protect against improper actions by notaries public, and (v) bonds
           which secure the payment and/or performance of an obligation under a
           written contract; but it shall not include, without limitation,
           financial guaranty bonds and the issuance, writing or underwriting of
           bonds and licenses which cover Losses arising from employee
           dishonesty.

ARTICLE 6 - PREMIUM

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

ARTICLE 7 - CEDING COMMISSION

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

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

ARTICLE 8 - LOSS SETTLEMENTS & NOTICES

The Company or its designated representative shall adjust, settle, or compromise
all losses hereunder. All such adjustments, settlements, and compromises,
including ex-gratia payments, shall be paid by the Company or its designated
representative, and the Reinsurer shall benefit from all salvage and
subrogation. All salvages, recoveries or payments recovered or received

<PAGE>

subsequent to loss settlement hereunder shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments shall
be made by the parties hereto.

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

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

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

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

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

ARTICLE 9 - EXCESS OF ORIGINAL POLICY LIMITS

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

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

For the purpose of this Article, the word "Loss" shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original Policy.

<PAGE>

The date on which any Excess of Original Policy Limit Loss is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
Loss.

ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS

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

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

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

ARTICLE 11 - REPORTS AND REMITTANCES

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

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

           The positive balance of (1) less (2) less (3) plus (4) shall be
           remitted by the Company to the Reinsurer within 15 calendar days
           after the date of such report. Any balance shown to be due the
           Company shall be remitted by the Reinsurer within 15 calendar days
           after receipt of such report.

B.         Annually the Company or its representatives shall furnish the
           Reinsurer with such information as the Reinsurer may require to
           complete its Annual Convention Statement.

C.         The Reinsurer shall maintain the required reserves as to the
           Reinsurer's portion of claims and Losses hereunder.

ARTICLE 12 - OFFSET

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

<PAGE>

ARTICLE 13 - CURRENCY

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

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

ARTICLE 14 - ACCESS TO RECORDS

The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including but not limited to Company files concerning premium, underwriting,
claims, Losses or legal proceedings which involve or may involve the Reinsurer
and the Reinsurer may make copies of any records pertaining thereto, at its own
cost. This right of inspection, audit and information shall survive termination
of this Agreement and shall run to the natural expiry of all liabilities under
the Policies reinsured.

ARTICLE 15 - ERRORS AND OMISSIONS

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

ARTICLE 16 - TAXES

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

ARTICLE 17 - INSOLVENCY

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

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

<PAGE>
liquidation to the extent of a proportionate share of the benefits, which may
accrue to the Company solely as a result of the defense so undertaken by the
Reinsurer.

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

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

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

ARTICLE 18 - AMENDMENTS

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

ARTICLE 19 - ARBITRATION

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

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

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

Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings. The panel shall be relieved of all judicial
formality and shall not be bound by the strict rules of

<PAGE>
procedure and evidence. Arbitration shall take place in Chicago, Illinois.
Insofar as the arbitration panel looks to substantive law, it shall consider the
law of the State of Illinois. The decision of any two arbitrators when rendered
in writing shall be final and binding. The panel is empowered to grant interim
relief as it may deem appropriate.

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

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

ARTICLE 20 - CHOICE OF LAW

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

ARTICLE 21 - NOTICES

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

         Continental Casualty Company
         CNA Plaza
         Attn:  The Chief Financial Officer
         Chicago, IL  60685

and to the Reinsurer at the following address:

         Western Surety Company
         Attn:  Chief Executive Officer
         Sioux Falls, South Dakota  57117-5077

ARTICLE 22 - ENTIRE AGREEMENT

This Agreement, and that certain Services and Indemnity Agreement between the
parties dated January 1, 2005, represent the entire agreement and understanding
among the parties. No other oral or written agreements or contracts relating to
the risks reinsured hereunder currently exist and/or are contemplated between
the parties.

<PAGE>

ARTICLE 23 - FUNDING OF RESERVES

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

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

B.         When funding by a Letter of Credit, the Reinsurer agrees to apply for
           and secure timely delivery to the Company of a clean, irrevocable and
           unconditional Letter of Credit issued by a bank consented to by the
           Company with such consent not being unreasonably withheld, and
           containing provisions acceptable to the insurance regulatory
           authorities having jurisdiction over the Company's reserves in an
           amount equal to the Reinsurer's Obligations. Such Letter of Credit
           shall be issued for a period of not less than one year, and shall be
           automatically extended for one year from its date of expiration or
           any future expiration date unless 60 calendar days (90 calendar days
           where required by insurance regulatory authorities) prior to any
           expiration date the issuing bank shall notify the Company by
           certified or registered mail that the issuing bank elects not to
           consider the Letter of Credit extended for any additional period.

C.         The Reinsurer and Company agree that the Letters of Credit, or other
           method of funding, provided by the Reinsurer pursuant to the
           provisions of this Article may be drawn upon at any time,
           notwithstanding any other provision of this Agreement, and be
           utilized by the Company or any successor, by operation of law, of the
           Company including, without limitation, any liquidator, rehabilitator,
           receiver or conservator of the Company for the following purposes:

           1.         to reimburse the Company for the Reinsurer's Obligations,
                      the payment of which is due under the terms of this
                      Agreement and which has not been otherwise paid;

           2.         to make refund of any sum which is in excess of the actual
                      amount required to pay the Reinsurer's Obligations under
                      this Agreement;

           3.         to fund an account with the Company for the Reinsurer's
                      Obligations. Such cash deposit shall be held in an
                      interest bearing account separate from the Company's other
                      assets, and interest thereon not in excess of the prime
                      rate shall accrue to the benefit of the Reinsurer;

<PAGE>

           4.         to pay the Reinsurer's share of any other amounts the
                      Company claims are due under this Agreement.

D.         In the event the amount drawn by the Company on any Letter of Credit,
           or other method of funding, is in excess of the actual amount
           required for in Paragraphs C.1. or C.3. above, or in the case of
           Paragraph C.4. above, the actual amount determined to be due, the
           Company shall promptly return to the Reinsurer the excess amount so
           drawn. All of the foregoing shall be applied without diminution
           because of insolvency on the part of the Company or the Reinsurer.

E.         The issuing bank shall have no responsibility whatsoever in
           connection with the propriety of withdrawals made by the Company or
           the disposition of funds withdrawn, except to ensure that withdrawals
           are made only upon the order of properly authorized representatives
           of the Company.

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

           1.         If the statement shows that the Reinsurer's Obligations
                      exceed the balance of the Letter of Credit as of the
                      statement date, the Reinsurer shall, within 15 calendar
                      days after receipt of notice of such excess, secure
                      delivery to the Company of an amendment to the Letter of
                      Credit increasing the amount of credit by the amount of
                      such difference. Should another method of funding be used,
                      the Reinsurer shall, within the time period outlined
                      above, increase such funding by the amount of such
                      difference.

           2.         If, however, the statement shows that the Reinsurer's
                      Obligations are less than the balance of the Letter of
                      Credit as of the statement date, the Company shall, within
                      15 calendar days after receipt of written request from the
                      Reinsurer, release such excess credit by agreeing to
                      secure an amendment to the Letter of Credit reducing the
                      amount of credit available by the amount of such excess
                      credit. Should another method of funding be used, the
                      Company shall, within the time period outlined above,
                      decrease such funding by the amount of such excess.

           3.         If the Reinsurer does not agree with the statement of the
                      Reinsurer's Obligations as furnished by the Company, a
                      mutually agreed upon independent national actuarial firm
                      shall be engaged to evaluate the Reinsurer's Obligations
                      covered under this Agreement and such evaluation shall be
                      binding upon the parties hereof. Such cost shall be shared
                      equally between the Company and the Reinsurer. If the
                      parties fail to agree on the selection of an independent
                      national actuarial firm, each of the parties shall name
                      two, of whom the other shall decline one, and the final
                      decision shall be made by drawing lots. As respects the
                      terms of this paragraph, any actuarial firm selected by
                      drawing lots shall be disinterested in the outcome of the
                      calculation and the employee of same engaged to evaluate
                      the Reinsurer's Obligations hereunder shall not be under
                      the influence of either party hereto and shall be a Fellow
                      of the Casualty Actuarial Society. It is agreed by the
                      parties hereto that the Arbitration Article of this
                      Agreement shall not apply to the resolution of disputes
                      arising under the terms of this paragraph. The evaluation
                      by the independent national actuarial firm shall be
                      binding on the Company and the Reinsurer.
<PAGE>

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

ARTICLE 24 - CONTINGENT COLLATERAL

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

(This Article shall not apply to Lloyd's Syndicates who have satisfied their
funding obligations to the Credit for Reinsurance Trust Fund (CRTF); however, in
the instance where such funding requirements are reduced below 100%, then the
provisions of this Article shall apply to any Lloyd's Syndicate and funding
shall be required for the difference between 100% of the Reinsurer's Collateral
funded to the CRTF.) (This Article shall not apply to the Reinsurer who has
already fully funded reserves, under this Agreement, as per the provisions of
the Funding of Reserves Article.)

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

1.     has been assigned an A.M. Best's insurer financial strength rating below
       "A-" or a Standard & Poor's insurer financial strength rating below "A-"
       (a Standard & Poor's Insurance Solvency International rating of less than
       "BBB" shall apply as respects alien Reinsurers other than Underwriting
       Members of Lloyd's, London, and a Lloyd's Syndicate Assessment (LSA)
       rating of less than three shall apply as respects Underwriting Members of
       Lloyd's London); or

2.     has suffered a surplus as regards policyholders loss of more than 25%
       (twenty-five percent) from either the inception of this Agreement or the
       date of the filing of the Reinsurer's most recent financial statement
       with the authorities having jurisdiction over the Reinsurer,

3.     ceases writing new or renewal assumed reinsurance business,

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

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

Such Reinsurer's Collateral shall be established by the Reinsurer within ten
business days of receipt by the Reinsurer of the Company's written notice
requesting the establishment of such Reinsurer's Collateral, and the notice
shall be sent by the Company, to the Reinsurer, via certified mail or
internationally recognized overnight courier service. The Reinsurer's Collateral
shall be established and maintained in accordance with the provisions of the
Funding of

<PAGE>
Reserves Article stated in this Agreement. If a Trust Agreement is established,
the Reinsurer shall select the trustee bank with the consent of the Company,
with such consent not to be unreasonably withheld.

If the Reinsurer does not agree with the statement of the Reinsurer's Collateral
as furnished by the Company, a mutually agreed upon independent national
actuarial firm shall be engaged to evaluate the Reinsurer's Collateral and such
evaluation shall be binding upon the parties hereof. Such cost shall be shared
equally between the Company and the Reinsurer. If the parties fail to agree on
the selection of an independent national actuarial firm, each of the parties
shall name two, of whom the other shall decline one, and the final decision
shall be made by drawing lots. As respects the terms of this paragraph, any
actuarial firm selected by drawing lots shall be disinterested in the outcome of
the calculation and the employee of same engaged to evaluate the Reinsurer's
Collateral hereunder shall not be under the influence of either party hereto and
shall be a Fellow of the Casualty Actuarial Society. It is agreed by the parties
hereto that the Arbitration Article of this Agreement shall not apply to the
resolution of disputes arising under the terms of this paragraph. The evaluation
by the independent national actuarial firm shall be binding on the Company and
the Reinsurer.

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

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

ARTICLE 25 - SERVICE OF SUIT

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

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

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

<PAGE>

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

ARTICLE 26 - SEVERABILITY

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

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

ARTICLE 27 - HONORABLE UNDERTAKING

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

ARTICLE 28 - SPECIAL PROVISION

At any time subsequent to the inception of this Agreement:

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

B.   should the Company or the Reinsurer become subject to restrictions imposed
     by the United States government, so that receipt or payment of funds or any
     other contemplated transaction under this Agreement would be prohibited by
     United States of America statute, regulation and/or other applicable law,

the Company or the Reinsurer must immediately notify the other party of same in
writing via certified, registered, or internationally recognized overnight
courier service, and the obligation to pay or receive funds or otherwise perform
under this Agreement shall be suspended until such

<PAGE>
time as the Company or the Reinsurer are authorized by applicable law,
regulation, or license to perform under this Agreement.

ARTICLE 29 - CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information and data
provided to it by the Company, whether directly or through an authorized agent,
in connection with the placement, execution, or performance of this Agreement
(hereinafter called the "Confidential Information") are proprietary and
confidential to the Company. Confidential Information shall not include
documents, information or data that the Reinsurer can show: (i) is publicly
known or has become publicly known through no unauthorized act of the Reinsurer,
(ii) has been rightfully received from a third person without obligation of
confidentiality, or (iii) was known by the Reinsurer prior to the placement of
this Agreement without an obligation of confidentiality.

The Reinsurer agrees not to disclose any Confidential Information; however, the
Reinsurer may disclose such Confidential Information, in the ordinary course of
business, to its employees, attorneys, intermediaries used for purchase of any
retrocessional covers that protect the Reinsurer's liability under this
Agreement, retrocessionaires, auditors or accountants, as the Reinsurer deems
necessary and the Reinsurer shall verbally advise such entities of the
obligations contained in this Article and shall be bound by the provisions of
this Article, or regulatory agencies, arbitration panels or courts of law.

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

on this                       day of                                 2004

CONTINENTAL CASUALTY COMPANY

By:
   --------------------------------

Name:
   --------------------------------

Title:
   --------------------------------

Attested by:
            -----------------------

<PAGE>

and on this                   day of                                    2004

WESTERN SURETY COMPANY

By:
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Name:
     ---------------------------------------------------------------------------

Title:
     ---------------------------------------------------------------------------

Attested by:
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