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EXHIBIT 5
SALE AGREEMENT
TO
ALPHA/ZFT GENERAL PARTNERSHIP
THIS AGREEMENT, dated as of the 1st day of July, 1998, by and between
SAMSTOCK/SZRT, L.L.C., a Delaware limited liability company, as Seller
(hereinafter referred to as the "Seller"), and ALPHA/ZFT GENERAL PARTNERSHIP,
an Illinois general partnership, as Purchaser (hereinafter referred to as the
"Purchaser"):
W I T N E S S E T H:
WHEREAS, Seller is the owner of at least Five Hundred Seventy-Eight
Thousand Six Hundred Forty-Nine (578,649) shares of common stock (hereinafter
sometimes referred to as the "Subject Shares") of CNA Surety Corporation
(hereinafter referred to as the "Corporation"), a Delaware corporation; and
WHEREAS, Seller, upon the advice and with the consent of ▇▇▇▇▇▇ ▇▇▇▇, the
Grantor, trustee and beneficiary of the ▇▇▇▇▇▇ ▇▇▇▇ Revocable Trust, the sole
member of the Seller, desires to avoid the uncertainties in connection with the
holding of common stock of the Corporation and risk in preservation of the
principal value of common stock of the Corporation, and desires to assure
itself now of the receipt of a certain fixed annual income for the full term of
the natural life of ▇▇▇▇▇▇ ▇▇▇▇; and
WHEREAS, Seller is willing to sell, assign, transfer, convey and set over
the Subject Shares to Purchaser, provided that Purchaser will agree to pay to
Seller a sum certain per annum for the full term of ▇▇▇▇▇▇ ▇▇▇▇'▇ life,
regardless of the value from time to time of the Subject Shares and regardless
of the amount of income therefrom received from time to time by Purchaser; and
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WHEREAS, Purchaser desires to purchase the Subject Shares and is willing
to pay to Seller a sum certain for the full term of ▇▇▇▇▇▇ ▇▇▇▇'▇ life; and
WHEREAS, Seller and Purchaser desire to sell and purchase the Subject
Shares on the terms contained herein, which both parties acknowledge reasonably
reflect the terms on which unrelated parties would enter into such sale and
purchase; and
NOW THEREFORE, it is mutually agreed as follows:
1. Sale. Seller hereby sells, assigns, transfers, conveys and sets over
absolutely to Purchaser Five Hundred Seventy-Eight Thousand Six Hundred
Forty-Nine (578,649) shares of the common stock of the Corporation. Purchaser
agrees to pay Seller the fair market value of the Subject Shares sold
hereunder, as determined for federal estate tax purposes as of the date hereof,
payable as provided in Section 3 hereof.
2. Delivery of Certificate. Seller hereby conveys legal and equitable
title in the Subject Shares to Purchaser, and Seller agrees to provide delivery
of certificates or other materials evidencing the Subject Shares within a
reasonable time hereof, along with executed stock powers or other documents of
transfer so that the Subject Shares can be transferred to Purchaser on the
books of the Corporation.
3. Annuity. (a) Purchaser hereby agrees to pay or to cause to be paid
annually to Seller (or to anyone Seller appoints pursuant to Section 11 hereof)
for and during the full term of the natural life of ▇▇▇▇▇▇ ▇▇▇▇, the Grantor,
trustee and beneficiary of the ▇▇▇▇▇▇ ▇▇▇▇ Revocable Trust, the sole
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member of the Seller, a "sum certain", as defined in subsection 3(b) hereof, in
lawful currency of the United States of America, as provided in Section 6
hereof.
(b) As used herein, the "sum certain" payable annually hereunder shall be
the amount which is equal to the result obtained by dividing the annuity factor
(calculated as provided in subsection 3(d) hereof) into the fair market value
of the Subject Shares being sold hereunder. Said sum certain shall be computed
as shown on Exhibit A, a sample of which is attached hereto and incorporated
herein by this reference.
(c) For purposes of Section 3 hereof, the "fair market value" of the
Subject Shares being sold hereunder shall be the mean between the highest and
lowest quoted selling prices per share of the common stock of the Corporation
on the date hereof multiplied by the number of Subject Shares. Purchaser shall
deliver to Seller within five (5) business days of the date hereof a signed
statement of the fair market value of the Subject Shares being sold hereunder
and the computation of the sum certain described in subsection 3(b) hereof and
as shown on Exhibit A. Seller shall either sign such statement in acceptance
thereof or shall have five (5) business days to object in writing to such
computation, but if Seller does not so object, the sum certain shall be deemed
part of this Agreement.
(d) As provided in Section 25.2512-5(d)(2)(iv) of the Treasury Department
Regulations (referred to herein as the "Regulations"), the annuity factor to be
used hereunder shall be calculated by (i) first, locating in Table S of Section
20.2031-7(d)(6) of the Regulations (referred to herein as "Table S") the
remainder factor for a single life annuity for a person of ▇▇▇▇▇▇ ▇▇▇▇'▇ age as
of the date hereof at the interest rate which is one hundred twenty percent
(120%) of the applicable federal mid-term rate in effect under Section 1274(d)
of the Internal Revenue Code of 1986 (referred to herein as the "Code") for the
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date of execution of this Agreement, (ii) subtracting such remainder factor
from one (1) and (iii) dividing the difference by one hundred twenty percent
(120%) of said applicable federal mid-term rate.
4. Automatic Readjustment of Value. Purchaser and Seller intend that the
sale, transfer, assignment and delivery of Seller's interest in the Subject
Shares hereunder to the Purchaser shall be made for their full fair market
value and the annuity payments to be paid by the Purchaser to the Seller shall
be full and fair consideration for the within transaction. In the event that
the fair market value of the Subject Shares or the sum certain shall be finally
determined (such event hereinafter referred to as "Final Determination"), for
any reason whatsoever, by a final order of any court of competent jurisdiction
or by a final decision of any administrative agency of the United States of
America (from which order or decision no appeal is taken), to be greater or
less than the fair market value as determined in accordance with this Agreement,
then the annual annuity payments shall be recomputed using the value
established by such Final Determination. With respect to each annuity payment
actually made prior to the date of said Final Determination (the "Final
Determination Date"), if the fair market value of the Subject Shares or the
sum certain is increased the Purchaser agrees to pay to the Seller, and if the
fair market value of the Subject Shares or the sum certain is decreased the
Seller agrees to pay to the Purchaser, an amount equal to the difference
between each annuity payment actually made and the annuity payment which would
have been paid had this newly determined value been used as the fair market
value of the Subject Shares or the sum certain on the date of execution of this
Agreement. In either event, said difference shall be payable within one
hundred eighty (180) days from the Final Determination Date with interest
accruing at the Contract Interest Rate (as defined in Section 5 hereof) from
the date such prior annuity payment was actually made (referred to herein as
a "Start Date") until such additional amount is paid. The failure of Purchaser
to pay in full, within two (2) years of the Final Determination Date, any such
additional amount, plus interest thereon, due to Seller shall constitute a
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"Default" hereunder and the second anniversary of the Final Determination Date
shall be a "Default Date" hereunder. All annuity payments after the Final
Determination Date shall be made as if the newly determined value had been the
fair market value of the Subject Shares or the sum certain on the date of this
Agreement.
5. Contract Interest Rate. As used herein, the Contract Interest Rate is
one hundred twenty percent (120%) of the rate listed below in subparagraph (a),
(b) or (c), compounded semi-annually, which shall result in the maximum accrued
interest when the amount due is paid:
(a) the applicable federal mid-term rate in effect under Section
1274(d) of the Code for the date of execution of this
Agreement;
(b) the highest applicable federal rate in effect under Section
1274(d) of the Code for the applicable Start Date; or
(c) for each month for which interest is payable, the applicable
federal short-term rate in effect under Section 1274(d) of the
Code for such month; provided, however, that if interest shall
be payable with respect to any complete calendar year, then the
blended annual rate, calculated pursuant to the provisions of
Revenue Ruling 86-17, 1986-1 Cumulative Bulletin 377, shall be
substituted for the twelve (12) separate monthly rates for that
year.
6. Payment of Annuity. Each annual annuity payment shall be due and
payable on the anniversary date of this Agreement, with the first such
installment due and payable on the anniversary of this Agreement in the year
following the year of execution of this Agreement and the last such installment
due and payable on the anniversary of this Agreement in the year in which the
death of ▇▇▇▇▇▇ ▇▇▇▇ shall occur but only if ▇▇▇▇▇▇ ▇▇▇▇ shall be alive on such
anniversary date, it being distinctly understood that such payments are to be
made only for and during the natural life of ▇▇▇▇▇▇ ▇▇▇▇ without regard to
whether the aggregate amount paid be more or less than the present fair market
value of the
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Subject Shares transferred by Seller hereunder, and that no annuity payments
shall be due and payable hereunder after the death of ▇▇▇▇▇▇ ▇▇▇▇.
7. Failure to Make Payment; Events of Default. Interest on an annuity
payment not made in full by Purchaser hereunder when due shall be accrued at
the Contract Interest Rate, from the date such annuity payment is due (referred
to herein as a "Start Date") until paid, and each such unpaid payment or
portion thereof shall constitute a liability of Purchaser immediately due and
payable in addition to its obligation to make the regular annual payments
solely during the life of ▇▇▇▇▇▇ ▇▇▇▇ pursuant to Section 6 hereof. Any
failure to make an annuity payment, or portion thereof, within two (2) years of
the date when such annuity payment is due shall constitute a "Default"
hereunder and the second anniversary of the date when such annuity payment is
due shall be a "Default Date" hereunder. Additionally, an arrearage for at
least one (1) year of any portion or all of two (2) annuity payments shall
constitute a "Default" hereunder and the first date on which there shall be two
(2) annuity payments, or portions thereof, in arrears for at least one (1) year
shall be a "Default Date" hereunder.
8. Remedy in Event of Default. Purchaser agrees that, in the event of a
Default, in addition to any amounts due prior to the Default Date with respect
to such Default plus interest on such amounts, "the anticipated aggregate of
annuity payments" shall be due and payable on demand. For purposes of this
Agreement, the phrase "the anticipated aggregate of annuity payments" shall
mean the present worth of Seller receiving an annual annuity equal to the sum
certain for the full term of ▇▇▇▇▇▇ ▇▇▇▇'▇ anticipated life as of such Default
Date, such worth to be determined by multiplying the sum certain by the annuity
factor of a single life annuity for a person of ▇▇▇▇▇▇ ▇▇▇▇'▇ age as of such
Default Date. Said annuity factor shall be calculated as provided in
subsection 3(d) hereof except that such Default Date shall be substituted for
the date of this Agreement in said calculation. The anticipated
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aggregate of annuity payments shall accrue interest at the Contract Interest
Rate from the Default Date (also referred to herein as a "Start Date") until
paid.
9. Absence of Collateral. Purchaser and Seller understand that, in the
event of a Default, the remedy described above in Section 8 shall constitute
the sole and exclusive remedy available to Seller. Accordingly, Purchaser and
Seller expressly agree that neither such Section 8 nor any other provision of
this Agreement shall create a security interest in the Subject Shares or in any
other assets of Purchaser now owned or hereafter acquired, and further that no
restriction shall be imposed hereby upon the alienation of the Subject Shares
or other assets by Purchaser. Purchaser agrees not to take any actions that
will impair or otherwise inhibit the Purchaser's payment of other liabilities.
10. Age. ▇▇▇▇▇▇ ▇▇▇▇ was born on September 28, 1941, and, based upon his
age as of his birthday nearest to the date of this Agreement, is considered to
be the age of fifty-seven (57) years for purposes hereof. Seller agrees to
furnish to Purchaser proof of ▇▇▇▇▇▇ ▇▇▇▇'▇ age before payment of the first
annuity payment if Purchaser so requests in writing.
11. Appointment of Other Payees. Seller shall have the right to appoint,
at any time and from time to time, any other payee to be the recipient of all
or any one or more annual annuity payments by notifying Purchaser in writing of
the recipient so appointed and any such notification shall, to the extent it
shall be inconsistent with any prior notification, modify and supersede any
prior notification. If any such payee shall die or otherwise cease to exist
before the death of ▇▇▇▇▇▇ ▇▇▇▇, the interest of such payee shall revert to
Seller.
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12. Construction. The parties agree that all matters pertaining to the
validity, construction and effect of this Agreement shall be determined in
accordance with the laws of the State of Illinois. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their permitted
successors and assigns hereunder.
13. Notice. All notices, statements, requests and demands given to or
made upon Seller or Purchaser in accordance with the provisions of this
Agreement shall be deemed to have been given or made: (i) if mailed, two
business days after deposit in the mail, postage prepaid; (ii) in the case of
delivery via messenger or nationally recognized courier service, on the date
actually delivered; or (iii) in the case of notice via telecopy, on the date
transmitted, in any case to the last known addresses of the parties or such
other addresses at which the parties shall from time to time notify one
another.
14. Counterparts. This Agreement may be executed in any number of
counterpart copies, each of which shall be deemed an original for all purposes,
but all of which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above written.
SAMSTOCK/SZRT, L.L.C.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Vice President
ALPHA/ZFT GENERAL PARTNERSHIP
By: ALPHABET PARTNERS
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Trustee,
General Partner
By: ZFT PARTNERSHIP
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Trustee,
General Partner
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ACKNOWLEDGMENT AND CONSENT
The undersigned, ▇▇▇▇▇▇ ▇▇▇▇, both individually and as the Grantor,
trustee and beneficiary of the ▇▇▇▇▇▇ ▇▇▇▇ Revocable Trust, the sole member of
SAMSTOCK/SZRT, L.L.C., hereby acknowledges that he is aware of, and consents to
the execution of, this Agreement, with payment provisions based on his life
expectancy.
/s/ ▇▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇, both individually and
as Grantor, trustee and beneficiary
of the ▇▇▇▇▇▇ ▇▇▇▇ Revocable Trust,
the sole member of SAMSTOCK/SZRT,
L.L.C.
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EXHIBIT A TO
SALE AGREEMENT
(a) Highest quoted selling price per share $15.0625
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(b) Lowest quoted selling price per share $14.625
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(1) Mean between (a) and (b) = Value per share $14.84375
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(2) Multiplied by number of shares x 578,649
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(3) Equals Fair Market Value $8,589,321.09
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(4) Annuity factor 10.4071
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(5) Annual Annuity Payment of "sum certain" is equal to the Fair Market Value
divided by the Annuity Factor:
Fair Market Value
______________________________ = $8,589,321.09/ 10.4071 = $825,332.81
Annuity Factor
IN WITNESS WHEREOF, the parties agree to the fair market value per share
and such computations of the Annual Annuity Payment as set forth above and have
hereunto set their hands and seals.
Date: July 1, 1998 SAMSTOCK/SZRT, L.L.C.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Vice President
Date: July 1, 1998 ALPHA/ZFT GENERAL PARTNERSHIP
By: ALPHABET PARTNERS
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Trustee,
General Partner
By: ZFT PARTNERSHIP
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Trustee,
General Partner
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