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HomeMy WebLinkAboutItem #04 Approval of Agreements Related to City Worker's Compensation Program center of <.;0001., ~ Meeting Date: May 20, 2008 Item # Y Contact Name: Contact Number: James Carnicella 1032 Reviewed By: Department Director: City Manager: Mk- ------- Subject: Approval of Agreements Related to City Worker's Compensation Program Background Summary: The workers compensation company PMA requires that the City post a $200,000 assurance with respect to claims paid by PMA for the City in advance of any monthly invoice. The funds provided by the City would be drawn on by PMA should the City default and fail to make timely payment of the PMA monthly invoice. PMA has agreed to accept a $200,000 Letter of Credit as the required assurance. The Letter of Credit has previously been issued by Colonial Bank on behalf of the City and an account has been opened at Colonial Bank into which the City has deposited $200,000 as collateral for the issuance of the Letter of Credit. PMA and Colonial Bank have both required that certain additional documents be executed in connection with this arrangement. Colonial Bank has required that the City sign an Application for Irrevocable Standby Letter of Credit and an Irrevocable Standby Letter of Credit Reimbursement Agreement. PMA has required that the City execute a Deductible Reimbursement Agreement. The essence of the Colonial Bank agreement is that Colonial Bank can draw on the City's account in the event it is required to make payments to PMA under the Letter of Credit. The City musty maintain that account as long as the Letter of Credit is in place. The essence of the PMA agreement is that PMA can draw on the Letter of Credit if the City fails to make timely payment of its invoices. PMA also has the right to increase the amount of Collateral required. The City must maintain the Letter of Credit in favor of PMA as long as it has exposure to PMA under the workers compensation program. Issue: Should the City Commission authorize the providing of a Letter of Credit to PMA in connection with the City's workers compensation program and authorize the execution of the necessary documents in connection therewith? Recommendations Staff recommends that the City Commission authorize the submission to Colonial Bank of the Application for Irrevocable Standby Letter of Credit and authorize the Mayor and City Clerk to execute the Irrevocable Standby Letter of Credit Reimbursement Agreement with Colonial Bank and the Deductible Reimbursement Agreement with PMA. Attachments: 1. Application for Irrevocable Standby Letter of Credit 2. Irrevocable Standby Letter of Credit Reimbursement Agreement. 3. Deductible Reimbursement Agreement. Financial Impact: $200,000 from the worker's compensation budget was used to fund the account at Colonial Bank which is security for the Letter of Credit. Type of Item: o Public Hearing o Ordinance First Reading o Ordinance First Reading o Resolution xxxD Commission Approval o Discussion & Direction For Clerk's Deaf Use: o Consent Agenda o Public Hearing o Regular Agenda o Original Document/Contract Attached for Execution by City Clerk o Original Document/Contract Held by Department for Execution Reviewed by City Attorney Reviewed by Finance Dept. Reviewed by ( ) Paul E. Rosenthal Wand Horton D N/A D N/A D N/A C COWNIAL BANKNA To: Application for Irrevocable Standby Letter of Credit Beneficiary Information Please issue an irrevocable standby letter of credit "Credit" in favor of Beneficiary: Name(s): PMA INSURANCE COMPANY AND/OR PM INDEMNITY COMPANY, AND/OR MANUFACTURERS ALLIANCE INS. CO "Beneficiary" Mailing Address: City: BLUE BELL Physical Address: City: Contact Name: Phone #: Zip Code: 19422-2328 State: PA Zip Code: State: Fax #: Awlicant Information Name(s): City of Ocoee, a Floirida municipal corporation "Applicant" whether one or more than one Address: 150 N. Lakeshore Drive City: Ocoee State: FL Zip Code: 34781 Tax ID: Contact Name: Amount Requested: Wanda Horton $200,000.00 Phone #: 407-905-3100 Expiration Date: October 1, 2008 May be extended pursuant to terms of Credit Certification and Signatures WHEREAS, Applicant does hereby request Colonial Bank, N.A. (hereinafter referred to as "Colonial") to issue a credit on its behalf; and WHEREAS, Colonial is willing to issue such Credit upon the terms and conditions set forth herein: NOW, THEREFORE, BE IT KNOWN HEREBY, that in consideration of the promises and premises herein contained, the parties hereto agree as follows: 1. The Applicant hereby applies for and authorizes Colonial to issue its irrevocable standby letter of credit in the amount set forth above in favor of the Beneficiary for the account of the Applicant, available by sight draft drawn by the Beneficiary and presented to Colonial by the close of Colonial's business day at the Colonial branch where presented on the expiration date set forth above. 2. The sight draft and the original letter of credit must be presented to Colonial and accompanied by Beneficiary's signed and dated statement containing the certifications set forth in the Letter of Credit. Applicant has approved the following form Letter of Credit to be issued: (check one) o A. Colonial standard form Letter of Credit; [gI B. Form of Letter of Credit is attached hereto. Any form so provided will be subject Created (07/07) to review and revision by Colonial. Page 2 Certification and Signatures (Continued) 3. In consideration of the issuance of the Credit, Applicant (jointly and severally) agrees to pay Colonial on demand an annual fee of r8J 1.00% of the maximum amount available to be drawn under the Letter of Credit, or D $ Such fee shall be due on the date hereof and as set forth in the terms of the Irrevocable Standby Letter of Credit Reimbursement Agreement during the extension of the Letter of Credit. In addition, Applicant shall pay to Colonial any and all charges and expenses paid or incurred by Colonial in connection with the Letter of Credit, including the costs of complying with any applicable governmental regulations and interest when chargeable. All fees shall be non-refundable and fully earned by Colonial at the time they become due and payable. Additionally, Colonial will charge a fee of the greater of $250.00 or Y4% of the draw amount for each draw on the Letter of Credit. 4. Nothing herein shall obligate Colonial to issue the Letter of Credit until such time as the obligations of Applicant with respect to the Letter of Credit have been underwritten and approved by Colonial in accordance with its practices and procedures. APPLICANT HAS READ AND AGREES TO BE BOUND BY THE TERMS OF THIS APPLICATION FOR LEITER OF CREDIT. (SEAL) Date Applicant Signature (SEAL) Applicant Signature Bank Information (For Internal Use Only) Application Officer Name: Phone #: Alternate Branch Contact: Region #: Collateral Code: Call Code: Authorized Customer Contact: Officer #: Fax #: Branch #: Risk Rating: Purpose Code: Phone #: Persons empowered to make decisions regarding Letter of Credit Fees: How Paid: D Check D Debit Customer Acct #: D Debit Customer Acct #: Auto Renewals: Date of Letter of Credit: Standby Letter of Credit #: Amount: $ Expiration Date: May be extended pursuant to terms of Credit To Be Completed by Letter of Credit Department Only Created (07/07) Page 3 IRREVOCABLE STANDBY LETTER OF CREDIT REIMBURSEMENT AGREEMENT Borrower: City of Ocoee 150 N. Lakeshore Drive Ocoee, FL 34781 Lender: COLONIAL BANK, .NA. Beneficiary: PMA Insurance Company, and/or PM Indemnity Company, and/or Manufacturers Alliance Ins. Co., Blue Bell, P A 19422-2328 Requested LC Amount: $200,000.00 Requested Issue Date: March 14, 2008 Requested Expiration Date: October 1, 2008 Subject to extension under terms of Letter of Credit THIS IRREVOCABLE STANDBY LETTER OF CREDIT REIMBURSEMENT AGREEMENT (the "Reimbursement Agreement") dated as of March 14,2008 is made by and between Borrower and Lender subject to the following terms and conditions. In consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agrees as follows: 1. Application. Borrower has requested Lender to issue a Letter of Credit as set forth in the Application for Irrevocable Standby Letter of Credit submitted by Borrower to Lender. 2. Approval of Form. Lender has agreed to issue the Letter of Credit in accordance with Borrower's request, Borrower has reviewed, approved and agreed to the Letter of Credit to be issued by Lender. Borrower agrees that Lender shall not be responsible for the inclusion or absence of any terms or conditions in the Letter of Credit. 3. Drafts. Borrower authorizes Lender to accept, honor, or pay (as applicable) any draft or other document which on its face appears otherwise in order and is signed, issued, or presented by any party or under the name of any party (a) purporting to act with authority (actual or apparent) on behalf of the Beneficiary in whose name the Letter of Credit requires a draft must be drawn, issued or presented; or (b) posing as such Beneficiary (a "Draft"). Lender shall not be responsible for, nor shall Lender be under any obligation to verify (a) the truth, accuracy, or existence of any facts or information contained in any statement or document required to be presented with any draft drawn hereunder; or (b) the genuineness or authenticity of any such document or statement; or (c) the genuineness of any signature appearing on any such document or statement; or (d) whether any individual signing such document or statement is authorized to sign on behalf of the person or entity that is purporting to execute such document or statement. 4. Reimbursement of Drafts. Borrower promises to pay to the order of Lender in cash or immediately available funds, upon demand, the amount of any Draft drawn under or purporting to be drawn under the Letter of Credit, such payment to be made immediately upon ORLA_1042363.2 Page 1 of7 demand by Lender. Such payment to Lender will be made by Borrower at Lender's Sunrise office at 1580 Sawgrass Corporate Parkway, Suite 310, or any branch location of Lender, in lawful currency of the United States of America. Borrower directs that such reimbursement to Lender shall be paid by deducting the amount of any such Draft from the Collateral, as defined in paragraph 7 below, such reimbursement to be made contemporaneous with the payment of the Draft. S. Interest. A Draft paid by Lender shall bear interest from the date of payment of such draft at the Interest Rate until such time as the Lender is reimbursed for such Draft. In addition to the Reimbursement obligation set forth in paragraph 4, Borrower shall pay to Lender on demand interest on any Draft, together with interest on any and all amounts not paid when due or payable hereunder, at a rate per annwn equal to the Interest Rate. For the purposes ofthis Agreement, "Interest Rate" is defined as 6. Fees. Borrower shall pay to Lender annually a fee of IRI 1.00% of the maximwn amount available to be drawn under the Letter of Credit. Such fee shall be due on the date hereof and on the anniversary thereof during the extension of the Letter of Credit. In addition, Borrower shall pay to Lender any and all charges and expenses paid or incurred by the Lender in connection with the Letter of Credit, including the costs of complying with any applicable governmental regulations and interest when chargeable. All fees shall be nonrefundable and fully earned by the Lender at the time they become due and payable, Additionally, the Lender will charge a fee of the greater of $250.00 or 1/4% of the draw amount for each draw on the Letter of Credit. Borrower shall also pay any fees, costs, and/or taxes due or that may come due as a result of the payment of any draw or the extension of any credit that maybe made hereunder. The Borrower further agrees that the Lender may debit all such amounts from the Collateral. If after the date of this Credit, there is any imposition of, or any increase in, any reserve requirement on or with respect to this Credit, Borrower shall immediately pay the Lender upon demand such amount(s) as the Lender shall reasonably determine will compensate it for the increased cost or reduced return incurred or suffered by the Lender resulting from the imposition or increase in reserve requirement. 7. Collateral. Borrower has established the following Account with the Lender: Account # (the "Borrower's Account"). To secure the payment and performance of Borrower's obligations and duties described in this Agreement, all monies in the Borrower's Account shall constitute the collateral provided by Borrower (the "Collateral"). Borrower agrees to maintain a cash balance in the Borrower's Account in the amount of the Letter of Credit. The Lender is expressly authorized to decline a request from Borrower to close Borrower's Account or withdraw monies from the Borrower's Account if such closing or withdrawal would result in the Borrower's Account having a balance less than the amount of the outstanding amount of the Letter of Credit. Borrower shall not be required to provide the Lender with any additional collateral and no other accounts which Borrower may from time to time have with the Lender shall constitute or be part of the Collateral under this Agreement or subject to set off by Lender or applied against any liability or obligation of Borrower hereunder. Page 2 of7 ORLA_1042363.2 8. INTENTIONALLY DELETED. 9. Default. An "Event of Default" shall occur hereunder if anyone or more of the following events shall occur; (a) If Borrower shall fall to make any payment required to be paid to Lender hereunder as and when such payment is due; or (b) Any involuntary petition is filed against Borrower under any bankruptcy, reorganization, arrangements, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect and such petition remains undismissed for a period of thirty (30) days or Borrower approves, consents, or acquiesces thereto; or (c) If Borrower makes an assignment for the benefit of creditors or files a voluntary petition seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency or readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereunder in effect; or (d) Borrower shall fail to perform or observe any agreement or undertaking contained in the Letter of Credit Application or this Reimbursement Agreement including, but not limited to, the agreement of Borrower to provide Lender with collateral as set forth in Paragraph 7 above. 10. Rights and Remedies of Lender. Upon the happening of anyone or more of the Events of Default referred to above in Paragraph 9, then, at the Lender's option, Lender shall be entitled to exercise one or more of the following remedies without notice or demand except as may be required by applicable law and not subject to waiver by Borrower: i. To declare the full amount of the Lender's obligation under the Letter of Credit, as well as any and all other amounts payable hereunder to Lender shall, to the extent not heretofore paid to Lender hereunder, thereupon become immediately due and payable from Borrower to Lender in full; ii. To require Borrower to deposit with Lender the full amount of any monies capable of being drawn under the Letter of Credit, except to the extent that such monies have previously been provided to the Lender and are on deposit in Borrower's Account. 111. To collect the outstanding obligations of Borrower. Lender's rights are cumulative and may be exercised together, separately, and in any order. Lender's remedies under this paragraph are in addition to those available at common law except to the extent limited by this Agreement. In addition, Lender shall be entitled to collect the costs and expenses, including reasonable attorneys' fees, incurred in enforcing any collection of or any rights under this Agreement. 11. Governing Law. That, except as otherwise provided herein or to the extent otherwise specifically provided on the Letter of Credit Application, this Credit shall be governed by the Alabama Uniform Commercial Code and by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. In the event of any conflict between the Alabama Uniform Commercial Code and the Uniform Customs and Practice, the Alabama Uniform Commercial Code shall govern. 12. Responsibilities and Liabilities. Neither Lender nor any of Lender's correspondents shall be responsible for, and Borrower's obligation to reimburse Lender shall not be affected by any change of circumstances or conditions or action of any person related to the Page 3 of7 ORLA_1042363.2 Letter of Credit or this Agreement including without limitation: (a) the validity, accuracy, sufficiency or genuineness of drafts, documents, certificates, statements or endorsements thereon, even if such drafts, documents, certificates, statements or endorsements thereon prove, in fact, to be in any respect invalid, insufficient, fraudulent or forged; (b) any breach of any agreement between Borrower and the Beneficiary of the Letter of Credit or any other party, even if Lender has received notice of same; (c) any failure of any draft to bear any reference or adequate reference to the Letter of Credit; (d) any act or omission by Lender in connection with the Letter of Credit or related drafts and documents if done in good faith; (e) any omissions, interruptions, errors, mis-deliveries or delays in the transmission or delivery of any documents, message or communication by mail, cable, telegram or other media in connection with the Letter of Credit; (f) any act, error, default, omission or failure in business of the Beneficiary, any correspondent or any other party, or any other act or omission beyond Lender's control; (g) any acceptance or payment of overdrafts or irregular drafts or extensions of time limits or other changes or variations in, the Letter of Credit if assented to, orally or in writing, by Borrower; Borrower shall be conclusively deemed to have waived any right to object to such variation unless within three days of receipt of such irregular drafts or documents or notice of such variation, Borrower files written notice with Lender; (h) any delay by any party in giving, or failing to give notice of any default under any agreement involving Lender; (i) failure by Lender to perfect any interest in or exercise any right with respect to the Collateral; and, (j) any amendments to which Borrower has assented. 13. Limited Liability. Lender shall not be responsible to Borrower for, and Lender's right to reimbursement and other payments hereunder shall not be impaired by any act or omission for which an issuer of a letter of credit is relieved of responsibility under the Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500, as most recently published by the International Chamber of Commerce (the "UCP") or other applicable law. In addition, Borrower acknowledges that it has reviewed and agreed to the proposed language of the Letter of Credit and that Lender shall not be responsible for the inclusion or absence of any terms or conditions in that document. Lender shall not be liable for any special, indirect, or consequential damages, unless there is clear and convincing evidence that such damages resulted from Lender's bad faith. 14. Miscellaneous Provisions. The following miscellaneous provisions are a part of this Agreement: (a) INTENTIONALLY DELETED. (b) Amendments. This Agreement, together with the Letter of Credit Application, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. (c) Financial Statements. As long as there are any obligations extending under this Agreement, Borrower agrees to: (a) provide a current financial statement in a form acceptable to Lender within thirty (30) days of the anniversary date of Borrower's financial statement; and (b) from time to time such further information regarding the business, affairs, and Page 4 of7 ORLA_1042363.2 financial condition of Borrower or the Collateral as Lender may reasonably require. All financial statements delivered hereunder shall be on the basis of generally accepted accounting principles and practices. (d) Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. (e) Commercial Purposes. This Agreement is being executed for commercial, which include agricultural, purposes. (f) INTENTIONALLY DELETED. (g) Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. (h) Severability. If a court of competent jurisdiction fmd any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. (i) Time is of the Essence. Time is of the essence in the performance of this Agreement. G) Waiver By Borrower. Borrower waives presentment, demand for payment, notice of dishonor and protest and further waives any right (if any) to require Lender to proceed against anyone else before proceeding against Borrower. (k) WAIVE JURY. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY. (1) Indemnity. To the extent permitted by law, Borrower agrees to defend, indemnify and save Lender harmless from and against all loss, damage, cost, charge, expense and attorneys' fees arising from or in any way connected with this Letter of Credit. This indemnification shall include, but shall, to the extent permitted by law, not be limited to, all loss, damage, cost, charge, expense and/or attorneys' fees incurred by the Lender in any suit or court action seeking a court order or injunction prohibiting Lender from paying under the Letter of Page 5 of7 ORLA_1042363.2 Credit even though Borrower may be a party seeking such court order or Injunction. The indemnification contained in this paragraph shall not include any loss, damage, cost, charge, expense and/or attorneys' fees incurred by Lender as a result of Lender's negligence. (m) INTENTIONALLY DELETED. (n) Assigns. The Letter of Credit Application and this Reimbursement Agreement (a) shall be binding upon and shall apply to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns, (b) shall become effective upon its receipt by Lender, (c) shall govern the obligations of Borrower to Lender with respect to any Credit which Lender may determine, at its sole discretion, to issue hereunder, and (d) shall be governed and construed in accordance with the laws of the State of Alabama. Notwithstanding the foregoing, in no event shall Borrower assign its responsibilities and obligations under this Agreement. (0) Independent Obligation. Borrower understands that the Lender's obligation to the Beneficiary under the Letter of Credit is independent of any agreement or relationship between the Borrower and Lender, that the Borrower will not have the right to instruct the Lender to refuse or fail to pay any draft drawn under the Letter of Credit, and that if the Lender pays any such draft the Borrower will remain obligated to the Lender hereunder. (P) Non-Waiver. The Lender shall not be deemed to have waived or modified any of the Lender's rights hereunder, by course of conduct or otherwise, or under any other writing signed by the Borrower unless such waiver or modification shall be in writing and signed by an officer of the Lender and then such waiver or modification shall be effective only for the period and under the terms and conditions as are specifically set forth therein. No delay or omission on the part of the Lender in exercising any right shall operate as a waiver or modification of such right or any other right. No waiver of any Event of Default on one occasion shall operate as a waiver of any other Event of Default or of the same Event of Default on a future or different occasion. All of the Lender's rights and remedies, whether evidenced hereby or by any other writing, shall be cumulative and may be exercised from time to time, singularly, concurrently, or successively. If any paragraph or any part of the Letter of Credit Application or this Reimbursement Agreement shall be construed to be illegal or invalid, such paragraph or part thereof shall be considered separately from the remainder hereof and shall have no effect on the validity or legality of the remainder of the Letter of Credit Application or this Reimbursement Agreement. 15. Definitions. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Page 6 of7 ORLA_1042363.2 Agreement. The word "Agreement" or "Reimbursement Agreement" means this Irrevocable Standby Letter of Credit Reimbursement Agreement, as this Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Agreement from time to time. Collateral.. The word "Collateral" means the Collateral set forth in this Agreement in the section entitled "Collateral". Default. The word "Default" means the Default set forth in this Agreement in the section titled "Events of Default". Lender. The word "Lender" means Colonial Bank, N.A., its successors and assigns. Letter of Credit. The words "Letter or Credit" means a letter of credit issued by Lender on behalf of Borrower and in favor of Beneficiary pursuant to this Agreement. IN WITNESS HEREOF, Borrower acknowledges having read all the provisions of this Agreement and agrees to be bound by its terms. ATTEST: CITY OF OCOEE, FLORIDA By: Beth Eikenberry, City Clerk S. Scott Vandergrift, Mayor (SEAL) FOR USE AND RELIANCE ONLY BY THE CITY OF OCOEE, FLORIDA; APPROVED AS TO FORM AND LEGALITY this day of ,2008. APPROVED BY THE OCOEE CITY COMMISSION AT A MEETING HELD ON , 2008 UNDER AGENDA ITEM NO. FOLEY & LARDNER LLP By: City Attorney Page 7 of7 ORLA_1042363.2 DEDUCTIBLE REIMBURSEMENT AND SECURITY AGREEMENT Letter of Credit This Agreement ("Agreement"), effective October 1, 2007, is by and between City of Ocoee (the "Insured") and Pennsylvania Manufacturers' Association Insurance Company, Manufacturers Alliance Insurance Company, and/or Pennsylvania Manufacturers Indemnity Company (collectively referred to as the "Company"). The Insured shall also be defmed to include each and every named insured under the Policy (hereinafter defined) at any and all times. BACKGROUND WHEREAS, the Company and the Insured are parties to the Policy; and WHEREAS, the Insured has and will have a continuing obligation to cooperate with the Company, to pay losses within deductibles and to pay additional premiums pursuant to the terms and conditions of the Policy; and WHEREAS, the Insured has agreed to provide the Company with liens on and security interests in the Collateral (hereinafter defined) to secure the Obligations (hereinafter defined) and has agreed to provide such additional Collateral as the Company may require to secure future Obligations. NOW THEREFORE, incorporating the Background herein and intending to be legally bound, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1 - Definitions For purposes of this Agreement, the following terms shall have the meanings set forth below: A. "Collateral" means, collectively, any cash as collateral together with any letters of credit obtained by the Insured in accordance with Section 2 hereof for the benefit of the Company and any other forms of security given to the Company by the Insured to secure the payment of the Obligations together with the proceeds and products thereof. B. "Obligations" means all payments which the Insured is required to make to the Company or any other party under or in connection with the Policy, this Agreement or any other document, which amount shall include, without limitation, as of the date of calculation, actual amounts paid by the Company pursuant to the Policy and not reimbursed, amounts payable by the Company pursuant to the Policy, amounts which the Company anticipates or estimates it will owe to third parties pursuant to the Policy and any premiums or other amounts which the Insured is obligated to payor reimburse the Company under the Policy, this Agreement or any other document. C. "Policy" means the insurance policy or policies (either in the singular or plural) issued by Company to the Insured. These policies shall be identified and set forth in Schedule A, which may be determined or amended at the sole discretion of Company at any time, together with all extension or renewals thereof or endorsements thereto. Revised October 2006 Section 2 - Collateral; Security Interest; Determination of Obligations A. In order to secure the due and punctual payment and performance of the Obligations, the Insured shall obtain and deliver to the Company within fifteen (15) Business Day(s) of the date of the commencement of the Policy, at the Insured's own expense, a letter(s) of credit identifying the Company as the sole beneficiary thereof and in an amount equal to $200,000 which shall be applicable to the Policy. Such letter(s) of credit shall be irrevocable, unconditional, clean, and without any reference to this Agreement or any other agreement and shall be in form and substance acceptable to the Company. Such letter of credit shall also be issued by a financial institution acceptable to the Company and shall provide that it will automatically renew for successive one-year periods, unless the issuing bank shall give to the Company not less than sixty (60) days written notice prior to the expiration date set forth in the letter of credit or any anniversary of such expiration date. The adequacy of the letter(s) of credit shall be reevaluated by the Company at its discretion to be adjusted to reflect the amount of the Obligations as determined in the sole discretion of the Company. The Company may use or apply any letter of credit, and/or any replacements, to pay any of the Obligations in default to the Company or to any affiliate of the Company. Without limiting the Company's rights to draw down on any existing letter of credit, not later than thirty (30) days prior to the termination or expiration of any letter of credit, the Insured will provide to the Company a replacement letter of credit in the amount equal to (i) the face amount of such existing letter of credit if a new amount is not requested by the Company or (ii) the amount requested by the Company. Such replacement letter of credit shall be effective immediately upon the expiration of the existing letter of credit. B. The Insured hereby grants to the Company a continuing security interest in and general lien upon the Insured's right, title, and interest in (i) the Escrow Account; (ii) the income and profits therefrom, and (iii) all property of the Insured presently or hereinafter contained in the Escrow Account, or in the actual or constructive possession of the Company in any capacity whatsoever, including, without limitation, any and all securities and certificates of deposit and any funds contained in custodial or other accounts in the actual or constructive possession of the Company and the proceeds of, and income from the foregoing. All income and profits from the foregoing will accrue to the benefit of the Company. If the Insured has granted any security interest(s) to the Company in any or all of the Collateral prior to the date of this Agreement, this Agreement shall be deemed to be a reaffirmation of the previously granted security interest(s) and an amendment and restatement of any previously executed agreement(s). It is the intention of the Insured and the Company that all existing security interests will remain continuously intact and perfected. C. At any time during the term of this Agreement, the Company may, but is not obligated to, review and recompute the amount of the Obligations. Promptly following any such recomputation, the Company shall notify the Insured of the amount of the Obligations. The Company's determination of the Obligations shall be conclusive and binding upon the Insured. D. Should Company's review and recomputation reveal an increase in the Obligations, then not later than five (5) Business Days following its receipt of written notice from the Company, the Insured shall provide the Company with additional Collateral in type and amount satisfactory to the Company, in its discretion, to secure the increased amount of the Obligations. E. The Insured, and not the Company, shall be responsible for the payment of all premium taxes and/or assessments of any kind including any fines or penalties that have been or may be imposed as a result of the non-payment of premium taxes and/or assessments applicable to the Policy. 2 Section 3 - Escrow Account A. To secure, among other things, payment of the deductible amounts set forth in the Policy as well as other amounts that may become due thereunder, the Insured shall, prior to the inception date of the Policy, tender to the Company the amount of $20,000 for deposit in the Escrow Account, which shall be established by and for the benefit of the Company and which shall be applicable to the Policy. The amount of funds required to be deposited in the Escrow Account represents an estimate by the Company of the average paid losses expected to arise under the Policy during a particular time period. At any time during the term of this Agreement, the Company may, in its sole discretion, redetermine the amount that should be held in the Escrow Account and the Insured shall, within five (5) business days of receipt of such redetermined amount, tender to the Company in immediately available funds for deposit in the Escrow Account an amount equal to such redetermined amount of anticipated paid losses less any balance presently on hand in the Escrow Account. The Insured agrees to execute any and all documents deemed necessary by the Company to establish and maintain the Escrow Account, including, without limitation, agreements with the financial institution at which the Escrow Account will be located. B. In addition to the funding requirement set forth in Paragraph 3A hereof, in the event that any claim payment made or to be made by the Company under the Policy exceeds 50% of the amount initially deposited in the Escrow Account pursuant to Paragraph 3A hereof or is equal to or greater than $12,500.,the Insured shall tender to the Company for deposit in the Escrow Account an amount equal to such claim payment, within five (5) business days of receipt by the Insured of a request for such payment. C. The Company is hereby given sole and exclusive authority to withdraw and/ or transfer funds from the Escrow Account and to apply such funds to payment of the deductible amounts as claims are received. Section 4 - Representations and Warranties The Insured represents and warrants to the Company, which representations and warranties shall be continuing representations and warranties until all of the Obligations are indefeasibly satisfied in full, and covenants with the Company that the Insured has the right to grant the security interests created by this Agreement. The security interests granted and reaffirmed by this Agreement constitute first priority perfected security interests in the Escrow Account. The Insured covenants to keep the Escrow Account free from any lien, encumbrance, security interest or claim of any person or entity other than the liens and encumbrances of the Company. Section 5 - Covenants The Insured hereby covenants and agrees that for as long as any Obligations are outstanding: A. The Insured shall immediately notify the Company of (i) any significant adverse change in its business or [mandaI condition; (ii) the occurrence of any Event of Default under this Agreement; (iii) any claims or alleged claims of third parties to the Collateral and/or the Escrow Account; and (iv) the institution of any litigation, arbitration, governmental investigation, or administrative proceedings against or affecting the Collateral or Escrow Account. B. The Insured shall not assign or permit the involuntary transfer or disposition of Collateral or make or attempt to make any withdrawal from any account containing the Collateral or any interest therein without the written consent of the Company. 3 Section 6 - Custody and Preservation of Collateral; Waiver The Insured shall take steps necessary to preserve the rights of the Company in the Collateral and Escrow Account by actions of third parties. Notwithstanding anything herein or within the Policy, the Insured hereby waives any and all liabilities, responsibilities, or requirements that the Company sell or dispose of all or part of the Collateral at any particular time regardless of whether any Event of Default has occurred or the value of the Collateral has changed or the Insured has requested such sale or disposition. Section 7 - Events of Default The occurrence of anyone of the following shall constitute an event of default ("Event of Default") under this Agreement: A. A breach by the Insured of any term, obligation, prOVISIOn, covenant, representation, or warranty arising under (i) this Agreement, the Policy, or any other document executed in connection herewith or therewith, including, without limitation, failure to pay any Obligations or other amount when due and failure to provide the Collateral to the Company on the date required; (ii) any present or future agreement or instrument with or in favor of the Company, including, without limitation, any custodial agreement pertaining to any account containing Collateral. B. (i) The Insured commences or is involuntarily placed into any bankruptcy, reorganization, debt arrangement, or other case or proceeding pursuant to the United States Bankruptcy Code; (ii) participates in any dissolution, consolidation, merger, or liquidation proceeding; (iii) makes a general assignment for the benefit of creditors; (iv) becomes insolvent or generally does not pay its debts when due, or (v) has suspended transaction of its usual business. C. Any statement, representation or warranty made in or pursuant to this Agreement or the Policy to induce the Company to enter into this Agreement or Policy, which at the sole discretion of the Company, be determined to be untrue or misleading in any material respect; or D. The Insured transfers or sells all or substantially all of its assets, without the prior written consent of the Company. Section 8 - Remedies A. Upon and following an Event of Default, the Company may (at its option), exercise any and all rights and remedies it has at law as well as under this Agreement including, without limitation, the right to accelerate and declare all of the Obligations immediately due and owing, with or without demand. The Company may also, at its option, (i) unilaterally cancel the Deductible Endorsement(s) previously issued to the Insured under the Policy and upon such cancellation the payment terms provided in the Deductible Endorsement(s) shall be null and void and of no effect; (ii) issue to the Insured (to which the Insured confirms it has freely accepted and approved without dispute) a retrospective rating endorsement to the Policy which retrospective rating endorsement will be in the form of and have the parameters set forth in Schedule B attached hereto; and/ or (iii) terminate the Policy. Upon and following an Event of Default, at the Company's option, the Insured shall be obligated to immediately pay to the Company all premiums as set forth in the Policy subject to the retrospective rating endorsement, if any, with the additional understanding that physical final audits on the Policy may change the final premium and/ or retrospective premium adjustments. B. Upon and following an Event of Default, the Company shall have the right, without notice to the Insured, and is specifically authorized hereby (i) to draw down on any letter of credit provided hereunder and/ or (ii) to set-off against and/ or withdraw from the Escrow Account 4 and any other account containing Collateral and apply to the then unpaid balance of the Obligations any items or funds of the Insured held by the Company or by a third party for the benefit of the Company. C. If, after receipt of any payment of all or any part of the Obligations, the Company is compelled or agrees, for settlement purposes, to surrender such payment to any person or entity for any reason, then this Agreement shall continue in full force and effect or be reinstated, as the case may be. The provisions of this Section shall survive the termination of this Agreement and shall be and remain effective notwithstanding the payment of the Obligations, the cancellation of this Agreement, the release of any security interest, lien or encumbrance securing the Obligations or any other action which the Company may have taken in reliance upon its receipt of such payment. Section 9 - Termination A. Unless otherwise provided, this Agreement shall terminate only upon the Company's determination that the Insured has paid in full the Obligations. B. Cancellation or non-renewal of any or all of the Policy by either the Insured or the Company will not terminate this Agreement nor the obligations of the Insured under this Agreement. Section 10 - Miscellaneous A. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. The Insured agrees and does not dispute that legal venue may be proper in Montgomery County, Pennsylvania. B. The illegality, unenforceability or inconsistency of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality, enforceability or consistency of the remaining provisions of this Agreement or any instrument or agreement required hereunder. The Insured agrees that in the event of any inconsistency or ambiguity herein, or in the Policy, then this Agreement or Policy shall not be construed against anyone party. C. The rights, powers and remedies of the Company provided in this Agreement are cumulative and concurrent, and are not exclusive of any right, power or remedy available to the Company. No failure or delay on the part of the Company in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. D. Notices and communications under this Agreement shall be in writing and shall be given by (i) hand-delivery, (ii) first class mail (postage prepaid), or (iii) reliable overnight commercial courier (charges prepaid), to the addresses set forth on the signature pages of this Agreement. E. In the event that the Insured consists of more than one person or entity, the Obligations of each such person or entity shall be joint and several and the word "Insured" means each of them, any of them and/ or all of them. F. The Insured shall promptly pay (or reimburse, as the Company may elect) all costs and expenses (including but not limited to legal expenses) which the Company has incurred or may hereafter incur in connection with the enforcement of this Agreement, including but not limited to the collection of the Obligations. The Insured's reimbursement obligations under this paragraph shall survive any termination of this Agreement. 5 G. This Agreement and the documents executed in connection herewith constitute the sole agreement of the parties with respect to the subject matter hereof and thereof and supersede all oral negotiations and prior writings with respect to the subject matter hereof and thereof. No amendment of this Agreement, and no waiver of anyone or more of the provisions hereof shall be effective unless set forth in writing and signed by the parties hereto. H. This Agreement (i) shall be binding upon the Insured and the Company and, where applicable, their respective heirs, executors, administrators, successors and permitted assigns, and (ii) shall inure to the benefit of the Insured and the Company and, where applicable, their respective heirs, executors, administrators, successors and permitted assigns; provided, however, that the Insured may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Company and any such assignment or attempted assignment by the Insured shall be void and of no effect with respect to the Company. I. This Agreement may be executed in one or more counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. J. The Insured irrevocably appoints each and every owner, partner and/ or officer of the Insured as its attorneys upon whom may be served, by regular or certified mail at the address set forth in this Agreement, any notice, process or pleading in any action or proceeding against it arising out of or in connection with this Agreement or Policy. The Insured agrees that any action brought by the Insured shall be commenced and maintained only in the Court of Common Pleas of Montgomery County, Pennsylvania. K. THE INSURED AND THE COMPANY ACKNOWLEDGE AND AGREE THAT (i) ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE INSURED OR THE COMPANY OR ANY SUCCESSOR OR ASSIGN OF THE INSURED OR THE COMPANY, ON OR WITH RESPECT TO THIS AGREEMENT, THE COLLATERAL OR' THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (ii) EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES, AND (ill) THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE COMPANY WOULD NOT ENTER INTO THIS AGREEMENT IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS AGREEMENT. 6 IN WITNESS WHEREOF, the undersigned have executed this Agreement by their respective, duly authorized officers as of the date set forth herein. (PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY) (MANUFACTURERS ALLIANCE INSURANCE COMPANY) (PENNSYLVANIA MANUFACTUERS INDEMNITY COMPANY) By: Name: Title: Address: ATTEST By: Name: Title: Date: Date: ATTEST By: x By: x Name: Name: Title: Title: Address: Date: Date: Vice President 380 Sentry Parkway Blue Bell, PA 19422 7 SCHEDULE A - Insurance Policies Coverae:e Policv Number Policv Period Workers' Compensation and Employers Liability Commercial General Liability 200775-87-75-45-4 10/01/07 to 10/01/08 10/01/07 to 10/01/08 200775-87 -7 5-45-4 SCHEDULE B - PARAMETERS OF RETROSPECTIVE RATING ENDORSEMENT Parameters: 6. Tax Multiplier* 7. 100% Estimated Standard Premium Level 350,000 1.10 .365 1.60 .333 1.070 677,460 1. Loss Limitation 2. Loss Conversion Factor 3. Minimum 4. Maximum 5. Basic* ALAE defined the same as the deductible endorsement. Yes Term of YEARS: One *Weighted Average Factor The Insured understands and agrees that the choice of any plan other than Fixed Cost or Level Dividend will result in an adjustment of the Standard Premium based upon incurred losses relating to the policy period. Rating plan calculations are subject to multiple, annual adjustments and can result in additional or return billings. The Insured, pursuant to the policy or policies described in Schedule A above, hereby acknowledges and agrees that any advance premiums paid are merely an estimate of the ultimate premium payable by the Insured to the Company. The Insured further understands and agrees that the ultimate premium payable will be determined by the Company based upon its calculation of incurred losses, which include Allocated Loss Adjustment Expenses as well as audited payrolls and classifications relating to the period the policy or policies were in effect. 8