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EXHIBIT 10.36  

 
 

WORKERS' COMPENSATION
  QUOTA SHARE
  REINSURANCE AGREEMENT    
  

        THIS AGREEMENT made and entered into by and between ZENITH INSURANCE COMPANY, a California corporation, ZNAT INSURANCE COMPANY, a California corporation, and
ZENITH STAR INSURANCE COMPANY, a Texas corporation (hereinafter collectively referred to as the "Company") and ODYSSEY AMERICA REINSURANCE CORPORATION, a Connecticut corporation (hereinafter referred
to as the "Reinsurer"). 

        WITNESSETH:

        The
Reinsurer hereby reinsures the Company to the extent and on the terms and conditions and subject to the exceptions, exclusions and limitations hereinafter set forth and nothing
hereinafter shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third parties or any persons not parties to this Agreement. 

ARTICLE I  

APPLICATION OF AGREEMENT  

        This Agreement applies to all business written by the Company and classified as Workers' Compensation and Employers' Liability, except as excluded under
Article IV herein. 

ARTICLE II  

COVER  

        The Company shall cede to the Reinsurer and the Reinsurer shall accept from the Company a 10% quota share participation of the "net retained insurance liability"
of the Company, on all new and renewal "policies" issued on and after 12:01 A.M., January 1, 2002, except as excluded in Article IV, subject to the limitations set forth in
Article III. 

ARTICLE III  

LIMITS OF COVER  

        As respects "policies" issued by the Company, the Company shall cede to the Reinsurer and the Reinsurer shall accept from the company a 10% quota share
participation of the Company's "net retained insurance liability". 

ARTICLE IV  

EXCLUSIONS  

	1.
	Reinsurance,
except for the intracompany pooling arrangement, and except from companies which have fronted the Company's incidental out-of-state exposure.

	2.
	Risks
involving a nuclear facility or nuclear material, spent fuel or waste as defined in the Nuclear Incident Exclusion Clause, except for the use of radioactive isotopes.

	3.
	Pools,
Associations and Syndicates.

	4.
	Construction
and maintenance of Caisson or Coffer Dams (except earth filled Dams). 

1

 
	5.
	Manufacturing,
packaging, handling or shipping of explosives, explosive substances intended for use as an explosive, ammunition, fuses, arms or fireworks.

	6.
	Manufacturing,
Production and Refining Petroleum or its products.

	7.
	Professional
Sports Teams.

	8.
	Railroad
Operations.

	9.
	Oil
and Gas drilling, refining, production or manufacturing.

	10.
	Underground
Mining.

	11.
	Tunneling
Operations involving tunnels over 100 feet.

	12.
	Wrecking
or Demolition of buildings, structures or vessels over 5 stories in height.

	13.
	Asbestos,
Lead Paint or other toxic substance abatement, when written as such.

	14.
	Maritime
or Jones Act (except for USL&H). 

ARTICLE V  

DEFINITIONS  

	A.
	The
term "net retained insurance liability" as used herein means the remaining portion of the Company's gross liability on the "policies" covered hereunder, including 100% of Loss in
Excess of Policy Limits as defined in Article XIX and 100% of Extra Contractual Obligations as defined in Article XX after deducting all excess of loss reinsurance and all pro rata
reinsurance, other than the quota share reinsurance provided under this Agreement.

	B.
	The
term "occurrence" as used herein means each accident or occurrence or series of accidents or occurrences, arising out of one event.

	C.
	As
respects Occupational or Other Disease under Workers' Compensation and Employers' Liability policies, a loss for the purpose of this Agreement shall be deemed to have occurred at
the date when compensability of the employee commenced, or if such date cannot be definitely determined, the loss as respects such employee affected by the disease, shall be deemed to have occurred at
the date when the claim became known to the Company, but in no event later than the last date of employment during the term of the policy or policies of the Company.

	D.
	In
the event more than one employee of the same insured suffers an Occupational or Other Disease of one specific kind of class during the same policy year, the resulting losses to the
Company shall be
deemed to be from one "occurrence" and the date of such "occurrence" for the purpose of this Agreement shall be the inception date of the last policy issued by the Company to the employer, prior to
the date on which the first such loss occurred, but within the Agreement year. The term "Occupational Disease" shall be as defined by applicable statutes or regulations.

	E.
	The
term "Net written Premium" as used herein means all direct written premium, less premium ceded by the Company for reinsurance which inures to the benefit of this Agreement, less
return premiums and dividends paid on "policies" that are written subject to a loss sensitive dividend plan.

	F.
	The
term "policies" as used herein means each of the Company's binders, policies and contracts providing insurance and reinsurance on the business reinsured under this Agreement.

	G.
	The
term "Agreement Year" as used herein shall be each 12 month period beginning with January 1, 2002. 

2

 
ARTICLE VI  

LOSSES AND LOSS ADJUSTMENT EXPENSES  

	A.
	Subject
to the provisions of Article III, the Reinsurer, in proportion to its participation, shall pay to the Company a pro rata share of sums actually paid by the Company in
settlement of losses under its "policies" including amounts paid for managed care arrangements, such as network access fees, bill repricing services and other usual and customary managed care
facilities

	B.
	Subject
to the provisions of Article III, the Reinsurer shall bear in proportion to its participation, expenses incurred by the Company in the investigation, adjustment and
litigation of all claims under its policies, including in the case of field claim adjusters or staff attorneys time spent by any adjuster or staff attorney which is definitively allocated to a
specific claim.

	C.
	The
Reinsurer shall benefit pro rata in all salvages, discounts and other recoveries.

	D.
	The
Company has the obligation to investigate and, to the extent that may be required by the "policies" reinsured hereunder, defend any claim affecting this reinsurance and to pursue
such claim to final determination. 

ARTICLE VII  

PREMIUM  

        The Company shall pay to the Reinsurer for the reinsurance provided under this Agreement 10% of the "Net Written Premium" of the company for the new and renewal
business covered hereunder. 

ARTICLE VIII  

CEDING COMMISSION  

	A.
	For
each "Agreement Year" of this Agreement, the Reinsurer shall allow the Company a provisional commission on all premiums ceded to the Reinsurer hereunder equal to the Company's
estimated "Actual Expenses" plus an override to the Company of 2.5%. For the first "Agreement Year", the Company's estimated "Actual Expenses" shall be provisionally set at 40%. The Company's
estimated "Actual Expenses" for subsequent "Agreement Years" will be mutually agreed by the parties on or before each January 1. 

The
Company shall allow the Reinsurer return commission on all return premiums ceded hereunder at the same provisional rate, or the adjusted commission rate as determined under this Agreement, as
applicable. 

	B.
	For
each "Agreement Year" the "Actual Expenses" commission rate shall be calculated as follows and the rate shall be applied to premiums earned for the "Agreement Year" under
consideration: 

"Actual
Expenses" shall be determined with reference to the Calendar Year Expense ratios set forth in the "Statement of Operations of the Workers' Compensation Operations and Expenses of Zenith
Insurance Company and its Affiliated Property and Casualty Insurers." The Statement of Operations and Expenses is the monthly report prepared by the company under Generally Accepted Accounting
Principles (GAAP) and used for management reporting purposes. The Statement of Operations and Expenses is to be reconciled to Zenith's externally reported Workers' Compensation results. The Calendar
Year Expense ratio shall be, after giving effect to the adjustments set forth below, the ratio of Total Expenses at the end of the second page of the Statement of Operations and Expenses. 

3

 

Adjustments:

	1.
	The
Statement of Operations and Expense shall be adjusted to remove any transactions associated with this agreement

	2.
	The
Statement of Operations and Expense shall be adjusted to remove any expenses or expense credits associated with a transaction that originally occurred prior to the date of this
agreement. 

"Actual
expenses" for an "Agreement Year" shall be computed by multiplying the Average Expense Ratio for the "Agreement Year" by the Earned Premium for the "Agreement Year". The Average Expense Ratio
is the simple average of the Calendar Year expense ratios corresponding to the "Agreement Year" and the Calendar year immediately following the "Agreement Year". 

For
each "Agreement Year" the "Actual Expenses" to the Company shall be adjusted in accordance with the provisions set forth herein. The Company shall calculate and report the adjusted "Actual
Expenses" within 60 days following 24 months from the inception of each "Agreement Year" and within 60 days after the end of each subsequent 12 month period until all
premiums under policies allocated to each "Agreement Year" have been earned. 

If
the adjusted "Actual Expenses" on premiums earned for the "Agreement Year" is less than the "Actual Expenses" previously allowed by the Reinsurer on premiums earned for the same period, the Company
shall remit the difference to the Reinsurer with its report. If the adjusted "Actual Expenses"
on premiums earned for the "Agreement Year" is greater than "Actual Expenses" previously allowed by the Reinsurer on premiums earned for the same period, the Reinsurer shall remit the difference to
the Company as promptly as possible after receipt and verification of the Company's report. 

	C.
	The
override commission rate allowed to the Company shall be adjusted periodically in accordance with the provisions set forth herein. The first adjustment period shall be comprised of
"policies" allocated to the first three "Agreement Years" of this Agreement. However, if this Agreement is terminated, the adjustment period shall be comprised of policies allocated to "Agreement
Years" from the beginning of the then current adjustment period through the effective date of termination. 

The
adjusted override commission rate shall be calculated as follows and be applied to premiums earned for the period under consideration: 

	1.
	If
the ratio of the sum of losses incurred and "Actual Expenses" to premiums earned is 101.5% or greater, the adjusted override rate shall be 1%;

	2.
	If
the ratio of the sum of losses incurred and "Actual Expenses" to premiums earned is less than 101.5% but not less than 100%, the adjusted override rate shall be 1% plus 100% of the
difference in percentage points between 101.5% and the actual ratio of the sum of losses incurred and "Actual Expenses" to premiums earned;

	3.
	If
the ratio of the sum of losses incurred and "Actual Expenses" to premiums earned is less than 100% but not less than 90%, the adjusted override rate shall be 2.5% plus 25% of the
difference in percentage points between 90% and the actual ratio of the sum of losses incurred and "Actual Expenses" to premiums earned;

	4.
	If
the ratio of the sum of losses incurred and "Actual Expenses" to premiums earned is less than 90%, the adjusted override rate shall be 5%. 

"Losses
Incurred" as used herein shall mean ceded losses (net of salvages, subrogations, and inuring reinsurance) and allocated loss adjustment expenses paid by the Reinsurer under the Agreement as of
the effective date of calculation, plus the reserves for ceded losses and allocated 

4

 

loss adjustment expense outstanding (including a reserve for incurred but not reported loss and allocated loss adjustment expenses) as of the same date, all as respects policies allocated to the
adjustment period under consideration. 

"Premiums
Earned" as used herein shall mean ceded net written premiums, less the unearned portion thereof as of the effective date of calculation, all as respects policies allocated to the adjustment
period under consideration. 

The
Company shall calculate and report the adjusted override commission within 60 days following 24 months from the inception of the adjustment period and within 60 days after the
end of each subsequent 12 month period until all losses under policies allocated to the adjustment period have been settled or the adjustment period has been subject to a mutually agreed
commutation. 

The
first such calculation shall be based on cumulative transactions hereunder applicable to the first "Agreement Year" within the adjustment period. The second such calculation shall be based on
cumulative transactions hereunder applicable to the first and second "Agreement Years" within the adjustment period. 

All
subsequent calculations for each adjustment period shall be based on cumulative transactions hereunder applicable to the three "Agreement Years" that comprise each adjustment period. 

If
the adjusted override commission on premiums earned for the adjustment period is less than the override commission previously allowed by the Reinsurer on premiums earned for the same period, the
Company shall remit the difference to the Reinsurer with its report. If the adjusted override commission on premiums earned for the adjustment period is greater than the override commission previously
allowed by the Reinsurer on premiums earned for the same period, the Reinsurer shall remit the difference to the Company as promptly as possible after receipt and verification of the Company's report. 

5

   ARTICLE IX  

REPORTS AND REMITTANCES  

	A.
	Within
thirty (30) days after the end of each month, the Company shall report to the Reinsurer:

	1.
	Ceded
"net written premium" for the month;

	2.
	Provisional
commission on (1) above;

	3.
	Ceded
loss and allocated loss adjustment expense paid during the month;

	4.
	Ceded
unearned premiums and ceded outstanding loss reserves as of the end of the month. 

The
positive balance of (1) less (2) less (3) shall be remitted by the Company within forty-five (45) days after the end of the month of account. Any balance
shown to be due the Company shall be remitted by the Reinsurer within forty-five (45) days after the end of the month of account. 

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

ARTICLE X  

WARRANTY  

        As respects the first "Agreement Year" the Company warrants to the Reinsurer that the Company has purchased (or is in the process of purchasing) excess of loss
reinsurance, effective January 1, 2002, excess of $750,000 per occurrence for its Workers' Compensation business, with limits and general terms as set forth on Exhibit A to this
agreement, and said reinsurance shall inure to the benefit of this agreement. The Company shall notify the Reinsurer of any changes to its reinsurance coverage as soon as reasonably possible after
receiving advices thereof. The Company retention and inuring reinsurance for each subsequent "Agreement Year" will be mutually agreed by the parties on or before each January 1. 

ARTICLE XI  

INSOLVENCY  

        In the event of the insolvency of the company, this reinsurance shall be payable directly to the Company, 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 Company without diminution because of the insolvency of the company or because the
liquidator, receiver, conservator or statutory successor of the company 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 company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pending of such
claim the Reinsurer may investigate such claim and interpose, at its own expenses, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the
Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the company 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 Company solely as a result of the defense undertaken by the Reinsurer. 

6

 

ARTICLE XII  

ACCESS TO RECORDS  

        The Company shall place at the disposal of the reinsurer and the Reinsurer shall have the right to inspect, through its authorized representatives, at all
reasonable times during the currency of this Agreement and thereafter, the books, records and papers of the Company pertaining to the reinsurance provided hereunder and all claims made in connection
therewith. 

ARTICLE XIII  

RESERVES AND TAXES  

	A.
	The
Reinsurer shall maintain legal reserves with respect to unearned premiums and claims hereunder.

	B.
	The
Company will be liable for all taxes on premiums reported to the Reinsurer hereunder. 

ARTICLE XIV  

OFFSET  

        Each party hereto has the right, which may be exercised at any time, to offset any amounts, whether on account of premiums or losses or otherwise, due from such
party to another party under this Agreement or any other reinsurance agreement heretofore or hereafter entered into between them, against any amounts, whether on account of premiums or losses or
otherwise due from the latter party to the former party. The party asserting the right of offset may exercise this right, whether as assuming or ceding insurer or in both roles in the relevant
agreement or agreements. 

ARTICLE XV  

COMMENCEMENT AND TERMINATION  

	A.
	This
Agreement shall take effect as of 12:01 A.M., January 1, 2002 and is entered into for an unlimited period but either party may terminate this Agreement at
December 31, 2004 or any subsequent December 31 thereafter, by giving not less than 90 days notice in writing by certified letter.

	B.
	Unless
the Company elects to reassume the ceded unearned premium in force on the effective date of termination, and so notifies the Reinsurer prior to the effective date of
termination, reinsurance hereunder on business in force on the effective date of termination shall remain in full force and effect until expiration, cancellation, or next premium anniversary of such
business, whichever first occurs, but in no event beyond 12 months following the effective date of termination. 

ARTICLE XVI  

ERRORS AND OMISSIONS  

        The Reinsurer shall not be relieved of liability because of an error or accidental omission of the Company in reporting any claim or loss or any business
reinsured under this Agreement, provided that
the error or omission is rectified promptly after discovery. The Reinsurer shall be obligated only for the return of the premium paid for business reported but not reinsured under this Agreement. 

7

 

ARTICLE XVII  

SPECIAL ACCEPTANCES  

        Business not within the terms of this Agreement may be submitted to the Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be subject to
all of the terms of this Agreement except as modified by the special acceptance. 

ARTICLE XVIII  

ARBITRATION  

        All unresolved differences of opinion between the Company and the Reinsurer relating to this Agreement, including its formation and validity, shall be submitted
to arbitration consisting of one arbitrator chosen by the Company, one arbitrator chosen by the Reinsurer, and a third arbitrator chosen by the first two arbitrators. 

        The
party demanding arbitration shall communicate its demand for arbitration to the other party by registered or certified mail, identifying the nature of the dispute and the name of its
arbitrator, and the other party shall then be bound to name its arbitrator within 30 days after receipt of the demand. 

        Failure
or refusal of the other party to so name its arbitrator shall empower the demanding party to name the second arbitrator. If the first two arbitrators are unable to agree upon a
third arbitrator after the second arbitrator is named, each arbitrator shall name three candidates, two of whom shall be declined by the other arbitrator, and the choice shall be made between the two
remaining candidates
by drawing lots. The arbitrators shall be impartial and shall be active or retired officers of property or casualty insurance or reinsurance companies. 

        The
arbitrators shall adopt their own rules and procedures and are relieved from judicial formalities. In addition to considering the rules of law and the customs and practices of the
insurance and reinsurance business, the arbitrators shall make their award with a view to effecting the intent of this Agreement. 

        The
decision of the majority of the arbitrators shall be in writing and shall be final and binding upon the parties. 

        Each
party shall bear the cost of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and other costs of the arbitration. In
the event both arbitrators are chosen by one party, the fees of all arbitrators shall be equally divided between the parties. 

        The
arbitration shall be held at the times and places agreed upon by the arbitrators. 

ARTICLE XIX  

LOSS IN EXCESS OF POLICY LIMITS  

	A.
	The
Reinsurer shall be liable for its proportion of any loss in excess of the limit of the Company's 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 fraud or alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the
defense of in the trial of any action against its Insured or Reinsured or in the preparation or prosecution of an appeal consequent upon such action.

	B.
	However,
this Article shall not apply where the loss has been incurred due to the fraud of a member of the Board of Directors, a corporate officer, an employee or an agent of the
Company acting individually or collectively or in collusion with any individual or corporation or any other 

8

 

organization
or party involved in the presentation, defense or settlement of any claim covered hereunder. 

	C.
	For
the purposes 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.

	D.
	The
liability of the Reinsurer with respect to the sum actually paid by the Company in settlement of losses under its policies and loss in excess of policy limits shall not exceed the
Reinsurer's limit of liability as set forth in Article III—Limits of Cover.

	E.
	Recoveries
from any form of insurance or reinsurance which protect the Company against claims which are the subject matter of this Article will inure to the benefit of the Reinsurer
and shall be first deducted to arrive at the amount of the Company's "net retained insurance liability". 

ARTICLE XX  

EXTRA CONTRACTUAL OBLIGATIONS  

	A.
	This
Agreement shall protect the Company, within the limits hereof, where the "net retained insurance liability" includes any extra contractual obligations. "Extra contractual
obligations" are defined as those liability 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 fraud or alleged or actual negligence or bad faith in rejecting
an offer 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.

	B.
	Any
extra contractual obligation incurred by the Company shall be deemed in all circumstances to be one loss, with the same date of loss as the original accident, casualty, disaster or
loss occurrence.

	C.
	However,
coverage hereunder as respects extra contractual obligations shall not apply where the loss has been incurred due to the fraud of a member of the Board of Directors, a
corporate officer, an employee or an agent 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.

	D.
	Recoveries
from any form of insurance or reinsurance which protect the Company against claims which are the subject matter of this Article will inured to the benefit of the Reinsurer
and shall be first deducted to arrive at the amount of the Company's net retained insurance liability. 

ARTICLE XXI  

SPECIAL DEPOSIT  

        The Reinsurer acknowledges that they are subject to the special deposit requirements applicable to California workers' compensation insurers and reinsurers, as
contained in California Insurance Code Sections 11690 et.seq. and regulations adopted thereunder. The reports furnished by the Company pursuant to Article IX shall contain sufficient data
regarding California losses to enable the Reinsurer to file the Special Schedule P with the California Insurance Department. 

        The
Reinsurer agrees to furnish the Company with a copy of the required filing as well as documentation evidencing either the posting of the required surety bond or establishment of a
Department approved trust account. 

9

 

        IN
WITNESS WHERE, the parties have caused this Agreement to be executed in duplicate, this 28th day of December, 2001. 

	 	 	ZENITH INSURANCE COMPANY
	

 	
 	

By:	

/s/  STANLEY R. ZAX      
Chairman of the Board and President
	

	
 	

 	

 
	 	 	ODYSSEY AMERICA REINSURANCE CORPORATION
	

 	
 	

By:	

/s/  JAMES E. MIGLIORINI      
Executive Vice President

10

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Exhibit 10.46 

BLoan
No.: 

 
  PROMISSORY NOTE SECURED BY DEEDS OF TRUST    
  

	$50,000,000.00	 	April 18, 2001	 	Las Vegas, Nevada

"Revolving Line Maturity Date": April 18, 2002 (subject to extension as provided in Section 5) 

        1.    FOR
VALUE RECEIVED, PERMA-BILT, a Nevada corporation ("Borrower"), promises to pay to the order of BANK OF
AMERICA NATIONAL ASSOCIATION (the "Bank") at Bank's Headquarters in Las Vegas, Nevada, or at such other place as Bank from time to time may designate,
the principal sum of Fifty Million and no/100 Dollars ($50,000,000.00) (the "Maximum RLC Loan Amount"), or so much of that sum as may be advanced under
this promissory note ("Note"), plus interest as specified in this Note. This Note evidences a construction revolving line of credit loan
("Revolving Line") from Bank to Borrower. 

        2.    This
Note is or is to be secured by one or more Construction Deed(s) of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing now or hereafter
entered into by Borrower as "Trustee" and referencing this Note (collectively, the "Deed of Trust") covering certain real and personal property, as
therein described (the "Property"). It may also be secured by other collateral. This Note and the Deed of Trust are two of several Loan Documents, as
defined and designated in a Master Revolving Line of Credit Construction Loan Agreement ("Loan Agreement") between Bank and
Borrower of even date herewith, Some or all of the Loan Documents, including the Loan Agreement, contain provisions for the acceleration of the maturity of this Note. 

        3.    Except
as provided in Exhibit A attached hereto, the principal sum outstanding from time to time shall bear interest at Bank's Reference Rate plus one half of one
percentage points (0-50%). As used here, "Reference Rate" means the per annum rate of interest publicly announced from time to time by Bank
as its Reference Rate. The Reference Rate is set by Bank based on various factors, including Bank's costs and desired return, general economic conditions and other factors, and is used as a reference
point for pricing loans. Bank may price loans at, above or below the Reference Rate. Any change in the Bank's Reference Rate shall take effect at the opening of business on the day specified in the
public announcement of a change in Bank's Reference Rate. The rate of interest determined under this paragraph 3 which is based on the Reference Rate shall be referred to as the
"Reference-Based Rate." 

        4.    Interest
shall be payable on the 1st day of each month in arrears commencing on the 1st day of the first full calendar month following the date hereof. Interest shall be
calculated on the basis of a 360-day year and actual days elapsed, which results in more interest than if a 365-day year were used. 

        5.    All
principal and accrued and unpaid interest shall be due and payable no later than April 18, 2002, unless the Revolving Line Maturity Date is extended as
provided in Section 1.17 of the Loan Agreement. 

        6.    Bank
shall not be required to make any advance if that would cause the outstanding principal of this Note to exceed the Maximum RLC Loan Amount. 

        7.    Except
as provided in Exhibit A attached hereto, Borrower may prepay some or all of the principal under this Note, without penalty or premium. 

        8      If
Borrower fails to make any payment required hereunder within fifteen (15) days after it becomes due and payable, a late charge of five percent (5.0%) of each
overdue payment may be charged for the purpose of defraying the expenses incident to handling said delinquent payments and as an inducement to Borrower to make timely payment. Acceptance of a
scheduled payment fifteen (15) days after its due date shall not waive any appropriate late charge, nor shall it constitute a waiver of any event of default under any Loan Document. 

	 	 	/s/  D.S.      
 Initials

 

          9.      Upon
the occurrence and during the continuance of any Event of Default hereunder, the outstanding principal balance of this Note will, at the option of Bank, bear
interest at an annual rate of three percent (3.0%) in excess of the Reference-Based Rate then in effect (the "Default Rate"). 

          10.    From
and after maturity of this Note, whether by acceleration or otherwise, all sums then due and payable under this Note, including all principal and all accrued and
unpaid interest. shall bear interest until paid in full at the Default Rate. 

          11.    If
any of the following "Events of Default" occur, any obligation of the holder to make advances under this Note shall
terminate, and at the holder's option, exercisable in its sole discretion, all sums of principal and interest under this Note shall become immediately due and payable without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character (unless otherwise required by any Loan Document); 

          (a)    Borrower
fails to perform any obligation under this Note to pay principal or interest when due; or 

          (b)  Borrower
fails to perform any other obligation under this Note to pay money when due, or 

          (c)    Under
any of the Loan Documents, an Event of Default (as defined in that document) occurs, except as provided in Section 12 below. 

          12.    It
shall be an "Event of Default" under this Note it Borrower becomes the subject of any bankruptcy or other voluntary
or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships ("Insolvency Proceeding"). If that happens, any
obligation of the holder to make advances under this Note and the Loan Agreement shall terminate, and all sums of principal and interest under
this Note shall automatically become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands
of any kind or character. 

          13.    All
amounts payable under this Note are payable in lawful money of the United States during normal business hours on a Banking Day, as defined below. Checks constitute
payment only when collected. 

          14.    If
any lawsuit or arbitration is commenced which arises out of or relates to this Note or the Loan Documents, the prevailing party shall be entitled to recover from
each other party such sums as the court or arbitrator may adjudge to be reasonable attorneys' fees in the action or arbitration, in addition to costs and expenses otherwise allowed by law. In all
other situations, including any matter arising out of or relating to any Insolvency Proceeding, Borrower agrees to pay all of Bank's costs and expenses, including attorneys' fees, which may be
incurred in enforcing or protecting Bank's rights or interests. From the time(s) incurred until paid in full to Bank, all such sums shall bear interest at the Default Rate. 

          15.    Whenever
Borrower is obligated to pay or reimburse Bank for any attorneys' fees, these fees shall include the allocated costs for services of in-house
counsel. 

          16.    This
Note is governed by the laws of the State of Nevada, without regard to the choice of law rules of that State. 

          17.    Borrower
agrees that the holder of this Note may accept additional or substitute security for this Note, or release any security or any party liable for this Note, or
extend or renew this Note, all without notice to Borrower and without affecting the liability of Borrower. 

          18.    If
Bank delays in exercising or fails to exercise any of its rights under this Note, that delay or failure shall not constitute a waiver of any of Bank's rights, or of
any breach, default or failure of condition of or under this Note. No waiver by Bank of any of its rights, or of any such breach, default or failure of conditions shall be effective, unless the waiver
is expressly stated in a writing signed by Bank. All of Bank's remedies in connection with this Note or under applicable law shall be cumulative, and Bank's exercise of any one or more of those
remedies shall not constitute an election of remedies. 

	 	 	/s/  D.S.      
 Initials

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          19.    This Note inures to and binds the heirs, legal representatives, successors and assigns of Borrower and Bank; provided, however, that Borrower may not assign this
Note
or any Loan funds, or assign or delegate any of its rights or obligations, without the prior written consent of Bank in each instance. Bank in its sole discretion may transfer this Note, and may sell
or assign participations or other interests in all or part of the RLC, on the terms and subject to the conditions of the Loan Documents, all without notice to or the consent of Borrower. Also without
notice to or the consent of Borrower, Bank may disclose to any actual or prospective purchaser of any securities issued or to be issued by Bank, and to any actual or prospective purchaser or assignee
of any participation or other interest in this Note, the RLC or any other loans made by Bank to Borrower (whether evidenced by this Note or otherwise), any financial or other information, data or
material in Bank's possession relating to Borrower, the RLC or the Property, including any improvements on it. If Bank so requests, Borrower shall sign and deliver a new note to be issued in exchange
for this Note. 

          20.    As
used in this Note, the terms "Bank," "holder" and "holder of this Note" are interchangeable. As used in this Note, the word "include(s)" means "include(s), without
limitation," and the word "including" means "including, but not limited to. 

          21.    The
terms and provisions of Exhibit A attached to this Note are incorporated herein by this reference. 

          22.    Borrower
has caused this Note to be executed by its officers, who were duly authorized and directed to do so by a resolution of its Board of Directors which was duly
passed and adopted by the requisite number of members of the Board at a meeting which was duly called, noticed and held. 

	Borrower:	 	Mail Address:
	

Perma-Bilt, a Nevada corporation	
 	

 
	

 	
 	

 	
 	

7150 Pollock Drive, Suite 104

Las Vegas, Nevada 89119
	

By:	
 	

/s/ Daniel Schwartz
 Daniel Schwartz, President	
 	

 

	 	 	 
	 	 	/s/  D.S.      
 Initials

3

 

Borrower: PERMA-BILT, a Nevada corporation 

Loan
No.: 

 
 

EXHIBIT A
  INTEREST RATES    
  

        I.    Available Interest Rates    

        1.l    On
and subject to the terms and conditions of the Note and this Exhibit A, Borrower may choose to have all or a portion of the Loan bear interest at the Offshore
Rate plus three and one-quarter percent (3.25%) per year (the "Offshore Alternative"). 

The
terms used above are defined in Article II of this Exhibit A. Each rate (a "Contract Rate") may be fixed by agreement between Borrower and Bank as to a given principal amount (the
"Rate Portion") during a given period of time (the "Rate Period"). 

        II.    Interest Rate Definitions    

        2.1    Offshore Alternative    

        (a)  With
respect to a given Rate Period and Rate Portion where interest is calculated based on the Offshore Alternative. "Offshore Rate" means the per annum rate of
interest, rounded upward, if necessary to the nearest 1/100th of one percent, determined by the following formula: 

	Offshore Rate	 	=	 	IBOR Rate
 (1.0 - Reserve Percentage)

All
figures used in this calculation shall be determined by Bank as of the day when Bank delivers the binding rate quote to Borrower. 

        (b)  For
purposes of this formula, the following definitions shall apply: 

	(i)
	"IBOR
Rate" means the per annum rate of interest, rounded upward, if necessary, to the nearest 1/16th of one percent (0.0625%), at which Bank's Grand
Cayman branch. Grand Cayman, British West Indies, would offer U.S. dollar deposits in amounts and for periods comparable to those of the applicable Rate Portion and Rate Period to major banks in the
offshore U.S. dollar inter-bank market.

	(ii)
	"Reserve
Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal
Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D. The Reserve Percentage shall be expressed in decimal form and rounded upward, if necessary, to the
nearest 1/100th of one percent, and shall include marginal, emergency, supplemental, special and other reserve percentages, 

        (c)  Borrower
may elect an Offshore Alternative no later than 9:30 a.m., San Francisco time, on any Banking Day. In Bank's sole discretion, the applicable Rate Period
may begin on the day of Borrower's rate election or up to the second Banking Day thereafter. 

        (d)  From
time to time, Bank in its sole discretion may determine that: 

	(i)
	It
is illegal for Bank to offer the Offshore Alternative, or to obtain funds in the offshore U.S. Dollar inter-bank market in amounts and
for periods comparable to those of the requested Rate Portion and Rate Period (an "Offshore Illegality"); or 

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	(ii)
	U.S.
dollar deposits are not available in the offshore U.S. dollar inter-bank market in amounts and for periods comparable to those of the
requested Rate Portion and Rate Period; or

	(iii)
	The
Offshore Alternative does not accurately reflect the costs associated with the requested Rate Portion and Rate Period. 

In
any such event, Bank shall have no obligation to honor Borrower's election of an Offshore Alternative for any new Rate Portion and Rate Period. If Bank in its sole discretion should determine that
any Offshore Illegality has occurred and is continuing, any existing Rate Portion bearing interest at the Offshore Alternative shall automatically bear interest at the Reference-based Rate until
Borrower makes a valid election of a new Contract Rate and a new Rate Period for that portion. Borrower shall not be obligated to pay any Offshore Prepayment Premium (as defined in Section 4.1)
if any existing Rate Period is interrupted because of an Offshore Illegality. No validly existing Rate Period or Rate Portion shall be affected by the occurrence of any event or condition described in
clauses (ii) or (iii) above. 

        Election of Contract Rates

        2.2    Requests for Contract Rate Quotes    

        From
time to time, Borrower may request Bank to quote a given Contract Rate. Such a request may be made by Borrower in writing or by a telephone call to a Bank officer in the unit
specified in Section 1 of the Note as the place where payments are to be made. 

        2.3    Contract Rate Election Procedures    

        In
response to Borrower's request, Bank shall provide an indicative rate quote for a given Offshore Alternative. Based on such information, Borrower may elect that Offshore Alternative
within the time specified above, together with the associated Rate Period and Rate Portion; provided, however, that Borrower may not select a Rate Period for the Offshore Alternative that extends
beyond the Revolving Line Maturity Date. Such an election by Borrower shall be irrevocable, whether it is made in writing or by telephone. 

        2.4    Confirmation of Contract Rate Elections    

        If
Bank so chooses, it may confirm any election by Borrower of a Contract Rate in the form of a Contract Rate Notice. Borrower shall acknowledge all Contract Rate Notices in writing in
the form used by Bank within any time periods specified by Bank. Bank shall have no obligation to provide any Contract Rate Notice to Borrower. If Bank fails to send or Borrower fails to acknowledge
any such notice, that shall not affect any Contract Rate or Rate Period placed in effect or the effectiveness of any act performed by Bank in response to a telephonic interest rate election by
Borrower. 

        2.5    Effect of Nonelection    

        If
Borrower does riot specify a Contact Rate for any portion of the Loan, or if for any Such portion a Contract Rate cannot be selected or maintained (for example, because the minimum
portion size requirement has not been met), that portion shall bear interest at the Reference-based Rate until Borrower makes a valid election of a different interest rate. After any Rate Period
expires, the applicable Rate Portion shall bear interest at the Reference-based Rate until Borrower makes a valid election of a new Contract Rate and a new Rate Period for that portion. 

        2.6    Effect of Default    

        Notwithstanding
any provision of the Loan Documents, the entire Loan shall bear interest at the Default Rate if it applies under the terms of the Note. At any time when the Default Rate
is inapplicable, but an Event of Default has occurred and is continuing, all existing Contract Rates, Rate 

5

 

Portions and Rate Periods shall remain unchanged if they were validly placed in effect, and the balance, if any, of the Loan principal shall bear interest at the Reference-based Rate. Borrower may
not select any Contract Rate at any time when an Event of Default has occurred and is continuing. 

        2.7    Minimum Rate Portion Sizes and Number    

        For
each Contact Rate, Borrower may select Rate Portions of $1,000,000.00 or more. Borrower may have no more than five (5) different Rate Portions bearing interest as the Offshore
Alternative. 

        2.8    Durations of Rate Periods    

        Borrower
may only select Rate Periods between 15 and 180 days, but not extending beyond the Revolving Line Maturity Date. The last day of a Rate Period for an Offshore Alternative
shall be determined by Bank in accordance with the practices of the offshore U.S. dollar inter-bank market. 

	 	2.9    Authorized Persons	 	/s/  D.S.      
 Initials

        Borrower hereby designates 1. Daniel Schwartz or 2. Robert M. Beville or 3. Craig Hardy as being authorized to make interest rate
elections on Borrower's behalf in writing or by telephone. Bank shall be entitled to rely on telephonic or written directions from such persons until this authorization is revoked by Borrower in
writing. 

        III.    Definitions    

        All
capitalized terms used in this Exhibit A without definition shall have the meanings given them in the Note. Except for purposes of the Offshore Alternative, "Banking Day"
means a day other than a Saturday or Sunday, on which banks are open for business in New York, New York and Bank is open for business in San Francisco, California. For purposes of the Offshore
Alternative, "Banking Day" means a day other than a Saturday or Sunday, on which banks arc open for business in London, England and New York, New York and Bank is open for business in San Francisco,
California. 

        IV.    Prepayment Penalties    

        4.1  Each
prepayment of all or part of a Rate Portion bearing interest at the Offshore Alternative, whether voluntary, by reason of acceleration, a credit bid at foreclosure
or otherwise, shall be accompanied by all interest accrued on the prepaid principal amount, plus a premium ("Offshore Prepayment Premium") calculated as provided below. Bank shall submit a certificate
to Borrower setting forth its determination of any Offshore Prepayment Premium, which shall be conclusive and binding in the absence of manifest error. Bank reserves the right to provide interim
calculations of such Offshore Prepayment Premium in any notice of default or notice of sale for information purposes but the exact amount of such Offshore Prepayment Premium shall be calculated only
upon the actual prepayment of such Rate Portion as aforesaid. 

The
Offshore Prepayment Premium for the Offshore Alternative shall be the sum of: 

	(i)
	$250;
and

	(ii)
	the
amount, if any, by which X exceeds Y, where: 

        (A)  X
equals the additional interest that would have accrued on the principal amount prepaid at the Offshore Rate without any spread, if that amount had remained outstanding
until the last day of the applicable Rate Period, and 

        (B)  Y
equals the interest that Bank could recover by placing the prepaid funds on deposit in the offshore dollar market for a period beginning on the day of the prepayment
and ending on the last day of the applicable Rate Period, or for a comparable period for which an appropriate rate quote may be obtained; and 

6

 

        (C)  an
amount equal to all costs and expenses which Bank reasonably expects to incur in liquidation and reinvest of the prepaid funds. 

        4.2  Intentionally
Omitted. 

        4.3  In
the event at any time the holder accelerates the maturity of this Note (because of a default hereunder or under the Loan Agreement, Deed of Trust or any other
instrument securing this Note), any amount applied to the principal sum hereof as a result of said acceleration, whether or not there is a sale under the Deed of Trust, shall be deemed a prepayment of
principal and the prepayment penalties (if any) under subsections 4.1 and 4.2 above will apply. Borrower acknowledges that prepayment of the Loan may result in Bank's incurring additional costs,
expenses and liabilities. Borrower therefore agrees to pay the prepayment premiums described above, and further agrees that the prepayment premiums represent a reasonable estimate of the prepayment
costs, expenses and liabilities of Bank. By its signature below, Borrower acknowledges that it is a knowledgeable real estate developer or investor and fully understands the effect of the waiver
contained herein. Borrower agrees that Bank's willingness to offer the Offshore Alternative to Borrower is sufficient and independent consideration for this waiver, and Borrower understands that Bank
would not offer such rates to Borrower absent this waiver. 

        4.4  Borrower
shall give Bank irrevocable written notice of Borrower's intention to make any prepayment, specifying the date and amount of the prepayment. The notice must be
received by Bank at least five (5) Banking Days in advance of the prepayment, Borrower understands that Bank my incur costs and expenses, suffer losses or make payments in reliance upon
Borrower's delivery to Bank of such a written notice of prepayment. If Borrower subsequently fails to make the prepayment as specified in such notice and as required hereunder, then, upon demand by
Bank. Borrower shall pay or reimburse Bank for all such costs, expenses, losses and payments. All prepayments shall be applied to the most remote installment of principal due. 

7

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PROMISSORY NOTE SECURED BY DEEDS OF TRUST

EXHIBIT A INTEREST RATES

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