<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-34829
DELPHI INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
Bermuda (441) 295 3688 98-0206924
(State or other (Registrant's telephone number, (I.R.S. Employer Identification
Jurisdiction of including area code) Number)
incorporation
or organization)
Chevron House, 11 Church Street, Hamilton, Bermuda HM 11
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days:
Yes X No
As of May 12, 2000, the Registrant had 4,079,014 Common Shares outstanding.
<PAGE> 2
DELPHI INTERNATIONAL LTD.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------- --------------------- ----
<S> <C> <C>
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 2000
and 1999 3
Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
</TABLE>
2
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DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED: IN US DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Premiums written $ -- $ --
Premiums ceded -- --
----------- -----------
Premiums earned -- --
Underwriting fees 7,168 8,428
Net investment income 6,669,666 3,334,611
----------- -----------
Total revenues 6,676,834 3,343,039
----------- -----------
LOSSES AND EXPENSES:
Losses and loss expenses incurred 1,182,624 1,226,437
Underwriting and acquisition expenses 811,816 76,193
Interest expense 781,433 688,722
General and administrative expenses 582,865 516,262
----------- -----------
Total losses and expenses 3,358,738 2,507,614
----------- -----------
Net income 3,318,096 835,425
Dividends on Preferred Shares (237,500) (237,500)
----------- -----------
Net income attributable to Common Shares $ 3,080,596 $ 597,925
=========== ===========
Basic and diluted income per Common Share $ 0.76 $ 0.15
Weighted average Common Shares outstanding 4,079,014 4,079,014
Comprehensive income:
Net income $ 3,318,096 $ 835,425
Other comprehensive income (loss):
Change in unrealized losses on fixed maturity
securities net of reclassification adjustments 64,453 (488,596)
----------- -----------
Comprehensive income $ 3,382,549 $ 346,829
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
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DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED: IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Assets:
Investments:
Fixed maturity securities, available for sale $ 91,524,719 $ 84,226,329
Balances with independent investment managers 29,938,148 27,389,096
Equity securities 7,515,900 7,515,900
------------- -------------
128,978,767 119,131,325
Cash and cash equivalents 16,928,764 22,514,299
Funds withheld by ceding reinsurer 13,420,343 13,735,735
Receivable from independent investment managers 228,930 2,536,997
Deferred acquisition costs 972,310 1,087,506
Accrued income 3,133,295 5,599,079
Other assets 129,600 85,307
Assets held for participating shareholder:
Cash and cash equivalents 185,577 125,306
Fixed maturity securities 1,461,057 1,509,842
Other assets 32,583 51,571
------------- -------------
Total assets $ 165,471,226 $ 166,376,967
============= =============
Liabilities:
Reserves for losses and loss expenses $ 110,815,718 $ 112,528,589
Subordinated notes 34,234,983 32,760,750
Other liabilities 3,645,180 7,687,330
Liabilities relating to participating shareholder:
Reserves for losses and loss expenses 1,599,521 1,618,509
Other liabilities 37,257 30,089
------------- -------------
Total liabilities 150,332,659 154,625,267
------------- -------------
Participating Preferred Shareholder's equity:
Participating Preferred Shares, $0.01 par value; 1,000
shares authorized, issued and outstanding 10 10
Additional paid-in capital 990 990
Retained earnings 42,439 38,121
------------- -------------
43,439 39,121
------------- -------------
Shareholders' equity:
Preferred Shares, $0.01 par value; 5,000,000 shares authorized,
100,000 shares issued and outstanding 1,000 1,000
Common Shares, $0.01 par value; 10,000,000 shares
authorized, 4,079,014 shares issued and outstanding 40,790 40,790
Additional paid-in capital 30,863,157 30,863,157
Appropriation for dividend on Preferred Shares 1,187,500 950,000
Accumulated other comprehensive loss (1,482,525) (1,546,978)
Retained deficit (15,514,794) (18,595,390)
------------- -------------
Total shareholders' equity 15,095,128 11,712,579
------------- -------------
Total liabilities and shareholders' equity $ 165,471,226 $ 166,376,967
============= =============
</TABLE>
See notes to consolidated financial statements
4
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DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED: IN US DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 3,318,096 $ 835,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest on subordinated notes 1,474,233 1,350,000
Investment income related to balances with independent investment
managers (3,198,220) (2,704,769)
Amortization on fixed maturity securities (104,818) (22,062)
Changes in assets and liabilities:
Funds withheld by ceding reinsurer 315,393 -
Deferred acquisition costs 115,197 15,104
Accrued income (2,819,644) 15,087
Other assets (44,293) (31,837)
Reserves for losses and loss expenses (1,712,871) (166,457)
Receivable from independent investment managers 2,308,068 21,088,281
Other liabilities (4,042,151) (1,066,069)
------------ -------------
Net cash (used) provided by operating activities (4,391,010) 19,312,703
------------ -------------
Cash flows from investing activities:
Proceeds from sales of fixed maturity securities 155,058 52,450
Withdrawals from balances with independent investment managers 4,649,167 5,447,899
Purchases of investments with independent investment managers (4,000,000) (12,630,000)
Purchases of fixed maturity securities (1,998,750) (2,502,905)
------------ -------------
Net cash used by investing activities (1,194,525) (9,632,556)
------------ -------------
(Decrease) increase in cash and cash equivalents (5,585,535) 9,680,147
Cash and cash equivalents at beginning of period 22,514,299 26,152,550
------------ -------------
Cash and cash equivalents at the end of period $16,928,764 $ 35,832,697
------------ -------------
</TABLE>
See notes to consolidated financial statements
5
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DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein were prepared in conformity with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Such principles were applied on a basis consistent with
those reflected in the Company's report on Form 10-K for the year ended December
31, 1999. The information furnished includes all adjustments and accruals of a
normal recurring nature which are, in the opinion of management, necessary for a
fair presentation of results for the interim periods. Operating results for the
three months ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. Certain
reclassifications have been made in the 1999 financial statements to conform to
the 2000 presentation. For further information refer to the consolidated
financial statements and footnotes thereto included in the Company's report on
Form 10-K for the year ended December 31, 1999. Capitalized terms used herein
without definition have the meanings ascribed to them in the Company's report on
Form 10-K for the year ended December 31, 1999.
NOTE B - INVESTMENTS
At March 31, 2000, the Company had fixed maturity securities available for sale
with a carrying value of $91.5 million and an amortized cost of $93.0 million
and balances with independent investment managers with a carrying value and a
fair value of $29.9 million. At December 31, 1999, the Company had fixed
maturity securities available for sale with a carrying value of $84.2 million
and an amortized cost of $85.8 million and balances with independent investment
managers with a carrying value and a fair value of $27.4 million. During the
three months ended March 31, 2000, the Company elected to receive the $5.3
million dividend due on the preferred securities of the LLC by the receipt of
additional preferred securities of the LLC in lieu of cash. The amounts invested
with independent investment managers are, with certain limited exceptions,
withdrawable at least annually, subject to applicable notice requirements.
NOTE C - CAPITAL SECURITIES AND LOAN FINANCING
Pursuant to the terms of the Subordinated Notes, interest due on such notes of
$1.5 million and $1.4 million for the three months ended March 31, 2000 and
1999, respectively, has been paid by the issuance of additional Subordinated
Notes.
The Company's Series A Preferred Shares (the "Preferred Shares") are entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, a cumulative dividend of 9.5% per annum on the shares' issue
price. The dividend is payable in cash or in additional Preferred Shares issued
and redeemable at $100 per share. No dividend has been declared at March 31,
2000 but a provision for the cumulative dividend at March 31, 2000 has been
recorded as an appropriation of retained deficit.
6
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DELPHI INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - COMPUTATION OF NET INCOME PER COMMON SHARE
Net income per Common Share is computed by dividing net income attributable to
Common Shares by the weighted average number of Common Shares outstanding for
the period:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income attributable to Common Shares $3,080,596 $ 597,925
Denominator:
Weighted average Common Shares outstanding 4,079,014 4,079,014
Net income per Common Share $ 0.76 $ 0.15
</TABLE>
7
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DELPHI INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is an analysis of the results of operations and financial
condition of Delphi International Ltd. (the "Company" which term includes the
Company and its consolidated subsidiaries unless the context indicates
otherwise). This analysis should be read in conjunction with the Consolidated
Financial Statements and related notes included in this document, as well as the
Company's report on Form 10-K for the year ended December 31, 1999. Capitalized
terms used herein without definition have the meanings ascribed to them in the
Company's report on Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
Underwriting Income. The Company did not earn any premium income from
reinsurance contracts during the three months ended March 31, 1999 and 2000. Due
to excess capacity in the global reinsurance markets and the resulting lack of
attractively priced reinsurance programs, the Company did not take on any new
reinsurance business during either period.
Investment Income. Investment income for the quarter ended March 31, 2000 was
$6.7 million as compared with investment income for the period ended March 31,
1999 of $3.3 million. Investment results during these periods are primarily
derived from preferred dividends from the LLC, the assets of which are invested
with independent investment managers, and from investment vehicles of
independent investment managers, which are accounted for under the equity
method, with earnings and losses included in net investment income. Investment
income for the 2000 period reflects strong investment results.
Underwriting and Other Expenses. Losses and loss expenses of $1.2 million
incurred in each of the first quarters of 1999 and 2000 primarily reflect the
increase in discounted values of existing reserves, which accrete over time.
Underwriting and acquisition expenses in the first quarter of 2000 reflect $0.8
million of profit sharing commissions incurred during the quarter under the
Safety National and RSL reinsurance agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liquidity needs at the holding company level include
funding operating expenses and interest payments on the Subordinated Notes. At
the Company's option, the Company may pay interest on the Subordinated Notes in
additional Subordinated Notes in lieu of cash payments during any five-year
period. During the three-month period to March 31, 2000, $1.5 million of
interest due on the Subordinated Notes was paid by the issuance of additional
Subordinated Notes with an aggregate principal amount of $1.5 million. As of
March 31, 2000, the Company had $14.2 million in financial assets at the holding
company level. The Company's other source of liquidity at the holding company
level consists of dividends from Oracle Re. Dividend payments by the Company's
insurance subsidiary to the Company are subject to certain Bermuda regulatory
restrictions as well as contractual restrictions. Under the LOC Agreement,
dividends by Oracle Re in any fiscal year may generally not exceed the greater
of (a) 50% of Oracle Re's statutory net income for the preceding fiscal year and
(b) the lesser of (i) $3,000,000 and (ii) Oracle Re's statutory net income for
the preceding fiscal year.
8
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DELPHI INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal liquidity requirement of the Company's insurance subsidiary,
Oracle Re, in addition to funding operating expenses, is the fulfillment of the
obligations under its reinsurance agreements. The primary source of funding for
these obligations, in addition to operating earnings, is the net cash flow from
the investments included in Oracle Re's investment portfolio. Each of the
Company's reinsurance agreements involved a one-time payment to Oracle Re at
inception and does not provide for ongoing reinsurance premiums.
In addition to Oracle Re's current liquidity requirements, Oracle Re is required
to provide collateral security with respect to letters of credit outstanding
under the LOC Agreement and otherwise. Under the LOC Agreement, the collateral
maintenance requirement is equal to up to 145% of the amount of the outstanding
letters of credit. In the event that sufficient collateral cannot be maintained
relative to these requirements, Oracle Re may be required to negotiate with its
reinsureds to reduce the size of the reinsurance transactions, thereby
decreasing the amounts of letters of credit and related collateral requirements
under the LOC Agreement. Moreover, if Oracle Re were unable to furnish
sufficient collateral or otherwise were to fail to satisfy any covenant or
requirement under the LOC Agreement, it may be required to liquidate all or a
substantial portion of its investment portfolio or otherwise secure its
obligations under its reinsurance agreements, which would likely have a material
adverse effect on the business and operations of the Company.
The Company believes that the sources of funding available at the holding
company and insurance subsidiary levels, respectively, will be adequate to
satisfy on both a short-term and long-term basis the companies' applicable
liquidity requirements.
MARKET RISK
There have been no material changes in the Company's exposure to market risk or
its management of such risk since December 31, 1999.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
In connection with and because it desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
cautions its readers regarding certain forward-looking statements in the
foregoing discussions and elsewhere in this Form 10-Q and in any other statement
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Some forward-looking
statements may be identified by the use of terms such as "expects," "believes,"
"anticipates," "intends," or "judgment." Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. Examples of such
uncertainties and contingencies include changes in global economic and financial
conditions and markets, the Company's investment strategy and implementation
thereof, the performance of the Company's investment portfolio, competitive
conditions in the global reinsurance markets, the ability of the Company to
generate new business opportunities and submissions and changes in insurance or
other laws and regulations or governmental interpretations thereof. These
uncertainties can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update
forward-looking information.
9
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Reinsurance Agreement between Oracle
Reinsurance Company Ltd. and Reliance
Standard Life Insurance Company
10.2 - Reinsurance Agreement between Oracle
Reinsurance Company Ltd. and Safety National
Casualty Corporation
10.3 - Investment Advisory Agreement between
Oracle Reinsurance Company Ltd. and Acorn
Advisory Capital L.P.
10.4 - Second Amendment to the Letter of Credit
Agreement, dated as of March 31, 2000, among
Oracle Reinsurance Company Ltd., the various
financial institutions parties thereto and
Bank of America, National Association
(formerly known as Bank of America National
Trust and Savings Association) as letter of
credit administrator and as agent, The Bank
of New York, as co-agent, Deutsche Bank AG,
as co-agent, Dresdner Bank AG, New York
Branch as co-agent and Fleet National Bank,
as co-agent
11 - Computation of Earnings Per Common Share
(incorporated herein by reference to Note D
to the Consolidated Financial Statements
included elsewhere herein)
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 28,
2000 which restated the Company's Consolidated
Statements of Income for each of the first three
quarters of 1999.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELPHI INTERNATIONAL LTD. (Registrant)
/s/ COLIN O'CONNOR
Colin O'Connor
President and Chief Executive Officer
(Principal Executive Officer)
/s/ DAVID EZEKIEL
David Ezekiel
Vice President and Director
(Principal Accounting and Financial Officer)
Date: May 12, 2000
11
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EXHIBIT 10.1
REINSURANCE AGREEMENT
between
RELIANCE STANDARD LIFE INSURANCE COMPANY
and
ORACLE REINSURANCE COMPANY LTD.
This Agreement is made and entered into on the 27 day of January, 1998
by and between Reliance Standard Life Insurance Company, a corporation duly
organized under the insurance laws of the State of Illinois (hereinafter
referred to as "Ceding Company"), and Oracle Reinsurance Company Ltd., a
corporation duly organized under the insurance laws of Bermuda (hereinafter
referred to as "Reinsurer").
WHEREAS, the parties desire to provide for the reinsurance on a quota
share basis by the Reinsurer of a portion of Ceding Company's liabilities under
group long-term disability claims incurred prior to January 1, 1996 and
outstanding as of the Effective Date, as defined below, on the terms more
specifically provided below;
NOW, THEREFORE, the parties agree as follows:
I. APPROVAL
This Agreement shall have no force or effect until it shall have been
approved or deemed approved by the Director of Insurance of the State of
Illinois as and in the manner required by the Illinois Insurance Code and the
regulations thereunder (collectively, the "Illinois Laws").
II. REINSURANCE
The reinsurance provided for hereunder shall become effective as of
12:01 a.m. on January 1, 1998 (the "Effective Date").
III. BUSINESS COVERED
Ceding Company agrees to cede, and Reinsurer agrees to accept as
indemnity reinsurance, 19.88437% (the "Reinsured Percentage", as amended) of
Ceding Company's liabilities with respect to claims incurred under Ceding
Company's group long-term disability policies prior to January 1, 1996 which are
open and outstanding as of the Effective Date (the "Reinsured Claims"). This
Agreement shall not, however, relate in any way to liabilities with respect to
Reinsured Claims which are the subject of reinsurance cessions effected by
Ceding Company prior to the Effective Date, and such liabilities shall be
disregarded for purposes of applying all of the provisions of this Agreement.
<PAGE> 2
IV. REINSURANCE PREMIUM
Ceding Company shall pay to Reinsurer, within ten (10) days of receipt
of the approval referenced in Section I hereof, or upon such other date to which
Ceding Company and Reinsurer mutually agree, an initial reinsurance premium
which shall be equal to the Reinsured Percentage of Ceding Company's aggregate
statutory reserves with respect to the Reinsured Claims, as required by
applicable regulatory authorities (the "Reinsured Claim Reserves"), determined
as of the Effective Date, less the sum of an initial ceding commission equal to
$4,833,950.00 and federal excise tax in the amount equal to 1% of the Reinsured
Claim Reserves, together with interest on the amount of the Reinsured Claim
Reserves for the period beginning on the Effective Date and ending on the date
of such payment at the rate of six percent (6%) per annum.
V. REPORTS AND RECONCILIATION
A. Quarterly Reports and Payments
Ceding Company will furnish to Reinsurer within thirty (30)
days after the close of each calendar quarter during which this Agreement is in
effect, commencing with the calendar quarter ending on March 31, 1998, on forms
mutually acceptable to Ceding Company and to Reinsurer, the following
information relating to the Reinsured Claims with respect to such quarter:
1. total benefit amounts paid with respect to Reinsured
Claims;
2. the amount of the expense allowance, which for
purposes hereof shall equal three percent (3%) of benefits paid with
respect to the Reinsured Claims during the applicable calendar quarter;
3. the total amount of the Covered Claim Expenses (as
defined in Section VI hereof) incurred by Ceding Company during such
calendar quarter; and
4. the total amount of the Reinsured Claim Reserves as
of the end of such calendar quarter.
Reinsurer shall remit to Ceding Company, in cash, the Reinsured
Percentage multiplied by the sum of (a) the amount described in clause 1 above,
(b) the amount described in clause 2 above and (c) the amount described in
clause 3 above, all as reflected in each such report, within ten (10) days of
receipt of such report.
B. Annual Investment Return Commission
1. Ceding Company shall be entitled to share, on an
annual basis, in a portion of the Investment Return of Reinsurer on the
reserves maintained by Reinsurer with
2
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respect to the Reinsured Claims (the "Reinsurer's Reserves"). The
amount of such portion shall be equal to the lesser of (a) the product
of (i) seventy percent (70%) of the amount by which the Investment
Return for the applicable calendar year, expressed as a percentage,
exceeds six percent (6%), multiplied by (ii) the Average Reserves or
(b) two percent (2%) of the Average Reserves for such calendar year, as
increased, in either case, by any Carryover Amount existing as of the
end of such calendar year.
For purposes of the preceding paragraph and the formula contained
therein:
"Investment Return" shall mean the Reinsurer's net investment income
earned after investment expenses plus realized gains and losses divided
by the product of (i) one-half (1/2) and (ii) the sum of the
Reinsurer's total invested assets as of the first day of the applicable
calendar year and the Reinsurer's total invested assets as of the last
day of such calendar year. For purposes of the Investment Return
Commission calculation in 1998, the year of the inception of this
Agreement, and the year of termination of this Agreement, the
Investment Return shall be calculated based upon the dates the
Agreement was in force on an annualized basis.
"Average Reserves" shall mean the product of (a) one-half (1/2) and (b)
the sum of the Reinsurer's Reserves as of the first day of the
applicable calendar year and the Reinsurer's Reserves as of the last
day of such calendar year.
"Carryover Amount" shall mean, as to each calendar year beginning with
calendar year 1999, the cumulative sum of any amounts in the preceding
calendar years by which the amount obtained pursuant to clause (b) of
such formula exceeded the amount obtained pursuant to clause (a) of
such formula, and which amounts have not already been applied so as to
increase the amount payable pursuant to such formula.
2. Reinsurer will furnish to Ceding Company within
fifteen (15) days after the close of each calendar year during which
this Agreement is in effect, commencing with the calendar year ending
on December 31, 1998, on forms mutually acceptable to Ceding Company
and to Reinsurer, reports setting forth the amounts of the Investment
Return and the Average Reserves for such calendar year, along with the
amounts of any Carryover Amount existing as of the end of such calendar
year, including, in each case, supporting calculations. Each payment
due pursuant to this Section shall be made by Reinsurer to Ceding
Company within ten (10) days of its receipt of the calculation thereof
from Ceding Company.
VI. CLAIMS
All settlements made by Ceding Company with respect to the Reinsured
Claims shall under all circumstances be binding upon Reinsurer. Reinsurer shall
pay the Reinsured Percentage of the Covered Claim Expenses, net of any portion
thereof for which Ceding Company is entitled to be reimbursed from any third
party reinsurer, relating to any contest or compromise of a Reinsured
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Claim, and Reinsurer shall share in the total amount of savings in the same
proportion. "Covered Claim Expenses" shall include costs of investigation, legal
fees, court costs, interest charges, and extracontractual payments or damages
not resulting from the negligence or willful misconduct of Ceding Company, if
any, relating to the Reinsured Claims. Compensation of salaried officers and
employees shall not be considered Covered Claim Expenses.
VII. LETTERS OF CREDIT
A. Reinsurer agrees to maintain, at all times during which any
liabilities or obligations to Ceding Company under this Agreement remain
outstanding, one or more letters of credit from a financial institution or
institutions acceptable to Ceding Company, the terms of which letters of credit
shall comply with all provisions of the Illinois Laws as may be necessary in
order for Ceding Company to receive a reduction from the Reinsured Claim
Reserves in the full amount of the reinsurance ceded hereunder. Reinsurer shall
cause the terms of such letters of credit to be amended as may be necessary to
assure continued compliance with the Illinois Laws in the event of any changes
or modifications that may occur thereto from time to time, except to the extent
that such changes or modifications, by their terms, do not apply to letters of
credit issued prior to the effective date of such changes. The amount of such
letter of credit shall at all times be at least equal to the Reinsured
Percentage of the claim reserves that would be required to be held by Ceding
Company if not for the reinsurance cession provided for in this Agreement.
B. Reinsurer and Ceding Company agree that, notwithstanding any
other provisions in this Agreement, the letter(s) of credit provided by
Reinsurer pursuant to the provisions of Section VII(A), (i) may be drawn upon by
Ceding Company at any time, (ii) shall remain under the exclusive control of
Ceding Company and (iii) may be utilized by Ceding Company or its successors in
interest only for one or more of the following reasons:
1. To reimburse Ceding Company for Reinsurer's share of
premiums returned to the owners of policies reinsured under this
Agreement on account of cancellations of such policies.
2. To reimburse Ceding Company for Reinsurer's share of
surrenders and benefits or losses paid by Ceding Company under the
terms and provisions of the policies reinsured under this Agreement.
3. To fund an account with Ceding Company in an amount
at least equal to the deduction, for reinsurance ceded, from Ceding
Company's liabilities for the Reinsured Claims. This amount shall
include, but not be limited to, amounts for policy reserves, claims and
losses incurred (including losses incurred but not reported) and
unearned premium reserves. Ceding Company shall be liable to Reinsurer
for interest at a rate equal to a base rate, as determined from time to
time by Bank of America, plus three percent (3%), on all amounts in
such account for the period beginning when they are obtained pursuant
to the letter of credit until the time they actually become due to
Ceding Company
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under this Agreement.
4. To pay any other amounts Ceding Company claims are
due under this Agreement. Ceding Company shall return to Reinsurer any
amounts drawn down in excess of the actual amounts required for such
amounts or any amounts that are subsequently determined not to be due.
5. To pay existing liabilities between Ceding Company
and Reinsurer upon a termination of this Agreement pursuant to Section
XIII hereof.
The foregoing provisions of this Section VII(B) shall be applied
without diminution because of insolvency on the part of Ceding Company or
Reinsurer.
VIII. INSPECTION
Each party hereto shall allow the other party to inspect, at all
reasonable times, all of its books and records with respect to all transactions
under or relating to this Agreement. Each party shall hold in confidence the
results of such inspection.
IX. ERRORS AND OMISSIONS
If any failure of either party hereto to comply with any provision of
this Agreement is shown to have been unintentional, and if such party promptly
takes appropriate steps to cure such failure, such party shall not be deemed by
reason of such failure to be in breach of its obligations under this Agreement.
The failure of either party to make any remittance to the other required by this
Agreement shall not be deemed to be a breach of this Agreement if cured within
five (5) business days after written notice of the party to receive such
remittance that such remittance is due and unpaid, unless such notice is the
third or greater such notice given in any one calendar year. Such notice will be
effective upon receipt.
X. INSOLVENCY
The reinsurance provided under this Agreement shall be payable by
Reinsurer on the basis of the liability of Ceding Company with respect to the
Reinsured Claims without diminution because of the insolvency of Ceding Company.
In the event of the insolvency of Ceding Company, payments by Reinsurer shall be
made directly to Ceding Company or its liquidator, receiver or statutory
successor.
In such event, the liquidator, receiver, or statutory successor of
Ceding Company shall give written notice of the pendency of a Reinsured Claim
against Ceding Company on the Reinsured Policy within a reasonable time after
such Reinsured Claim is filed in the insolvency proceeding. During the pendency
of any such claim, Reinsurer may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated any
defenses which Reinsurer considers available to Ceding Company or its
liquidator, receiver, or
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statutory successor. The expense thus incurred by Reinsurer shall be chargeable
against Ceding Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to Ceding Company solely as
a result of the defense undertaken by Reinsurer.
XI. ARBITRATION
In the event of any dispute arising under this Agreement either party
hereto may elect that such dispute be resolved by arbitration. In order to make
such an election, such party must select an arbitrator and give written notice
to the other party of its election and of the name and address of the arbitrator
so selected. Within twenty (20) days after receiving that notice, the other
party shall select an arbitrator and give the first party notice of the name and
address of said arbitrator. If the other party fails to notify the first party
of the name and address of an arbitrator within such 20-day period, the
arbitrator selected by the first party shall serve as sole arbitrator. Within
twenty (20) days thereafter the two arbitrators so selected shall select a third
arbitrator. Should the two arbitrators be unable to agree upon a choice of the
third within such time period, each shall provide the name of an acceptable
third arbitrator and lots shall be drawn to select the third.
The arbitrators shall conduct any arbitration under this Agreement in
accordance with the rules of the American Arbitration Association. Each party
shall submit its case to the arbitrators within thirty (30) days after the third
arbitrator is chosen. The Court of Arbitrators will be held in Philadelphia, PA.
The arbitrators shall be active or retired and disinterested officers
of life or health insurance companies other than the two parties to this
Agreement or any of their affiliates and shall be familiar with the reinsurance
business. The arbitrators shall base their decision on the terms and conditions
of this Agreement and, as necessary, on the generally accepted customs and
practices of the life and health insurance and life and health reinsurance
industry rather than solely on a strict interpretation of applicable law. They
shall decide by a majority of votes, and their written decision shall be binding
upon the parties and shall not be subject to appeal. The cost of arbitration,
including the fees of the arbitrators, shall be borne by the losing party unless
the arbitrators shall decide otherwise.
The parties intend this Section XI to be enforceable in accordance with
the Federal Arbitration Act, including any amendments thereto which are
subsequently adopted. In the event that either party refuses to submit to
arbitration as required by this Section XI, the other party may request a United
States Federal District Court to compel arbitration in accordance with the
Federal Arbitration Act. Both parties consent to the jurisdiction of any such
court to enforce this Article and to confirm and enforce the performance of any
award of the arbitrators.
XII. NO THIRD PARTY BENEFICIARIES
This Agreement is solely between Ceding Company and Reinsurer.
Performance of the respective obligations of each party under this Agreement
shall be rendered solely to the other party. In no event shall any policyholder
or insured of Ceding Company, any beneficiary of such
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policyholder or insured or any other person or entity (other than Ceding Company
and Reinsurer) have any rights under this Agreement and Ceding Company shall
remain solely liable to such policyholder, insured or beneficiary of such
insured. Without limiting the generality of the foregoing, Reinsurer shall have
no direct or indirect obligation to insureds, claimants or beneficiaries under
the Reinsured Claims or the policies under which such claims arose.
XIII. TERMINATION
A. This Agreement shall terminate upon the first to occur of any
of the following events:
1. At such time as all of Ceding Company's liabilities
and obligations with respect to the Reinsured Claims have been
satisfied or expired in their entirety, and Reinsurer has paid to
Ceding Company in full all amounts owing to Ceding Company under the
provisions of this Agreement.
2. At any time, by mutual written consent of the
parties.
3. Upon the delivery to Reinsurer of an election in
writing by Ceding Company, in the event that an event constituting a
Change of Control (as defined below) occurs with respect to Reinsurer.
4. Upon the delivery to Reinsurer of an election in
writing by Ceding Company, thirty (30) or less days prior to the
scheduled expiration of one or more of the letters of credit required
to be maintained by Reinsurer pursuant to Section VII hereof if, at
such time Reinsurer has not provided assurance acceptable to Ceding
Company, in its sole discretion, that such letter or letters of credit
will be renewed for an additional term of not less than one (1) year or
replaced with one or more letters of credit meeting the requirements of
Section VII hereof and having a term or terms of no less than one (1)
year.
For purposes of Section XIII(A)(3), a "Change of Control" shall be
deemed to have occurred (1) if individuals who, as of the effective date of this
Plan, constitute the Board of Directors of Reinsurer's parent company, Delphi
International Ltd. (the "Board of Directors" generally and as of the date of
this Agreement the "Incumbent Board"), cease for any reason to continue to
constitute at least a majority of the directors constituting the Board of
Directors, provided that any person becoming a director subsequent to the date
of this Agreement whose election, or nomination for election by International's
shareholders, was approved by a vote of at least three-quarters (3/4) of the
then directors who are members of the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is (A) in
connection with the acquisition by a third person, including a "group" as such
term is used in Section 13(d)(3) of the Securities and Exchange Act of 1934, as
amended (the "1934 Act"), of beneficial ownership, directly or indirectly, of
20% or more of the combined voting securities ordinarily having the right to
vote for the election of directors of International(unless such acquisition of
beneficial ownership was approved by a majority of the Board of Directors who
are
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members of the Incumbent Board), or (B) in connection with an actual or
threatened election contest relating to the election of the directors of
International, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act) shall be, for purposes of this Plan, considered
as though such person were a member of the Incumbent Board; or (2) if the
stockholders of International approve a merger, consolidation, recapitalization
or reorganization of International, reverse split of any class of voting
securities of International, or an acquisition of securities or assets by
International, or the sale or disposition by International of all or
substantially all of International's assets, or if any such transaction is
consummated without stockholder approval, other than any such transaction in
which the holders of outstanding International voting securities immediately
prior to the transaction receive, with respect to such International voting
securities, voting securities of the surviving or transferee entity representing
more than 60 percent of the total voting power outstanding immediately after
such transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction;
or (3) if the stockholders of International approve a plan of complete
liquidation of International.
B. In the event of any termination of this Agreement pursuant to
subsections 2, 3 or 4 of Section XIII(A), Reinsurer shall pay to Ceding Company,
no later than the effective date of such termination, the full amount of the
reserves required to be maintained by Ceding Company with respect to the portion
of the Reinsured Claim Reserves ceded pursuant to this Agreement, along with all
other amounts owing to Ceding Company under the provisions of this Agreement, as
of such effective date.
XIV. SETOFFS
Ceding Company and Reinsurer may setoff any balance due and payable by
it to the other party against any balance due and payable from such other party.
XV. CURRENCY
All amounts as to which payments are provided for hereunder shall be
paid in U.S. dollars.
XVI. NOTICES
Any notice, report, statement, or other communication provided for or
appropriate under this Agreement shall be in writing and be given by personal
delivery, by a nationally recognized overnight delivery service, or by first
class United States mail, postage prepaid, as follows:
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To Reinsurer:
Oracle Reinsurance Company Ltd.
Clarendon House
11 Church Street
Hamilton, Bermuda
Attention: Colin O'Connor
To Ceding Company:
Reliance Standard Life Insurance Company
2501 Parkway
Philadelphia, Pennsylvania 19130
Attention: Wayne Benseler
Either party may change its address for purposes of receipt of any such
communication by giving ten (10) days notice of such change to the other party
in the manner above prescribed.
XVII. GOVERNING LAW
This Agreement shall be deemed to have been made under and shall be
governed by the laws, regulations and decisions of the State of Illinois in all
respects, including matters of construction, validity, and performance, without
giving effect to principles of conflicts of laws.
XVIII. POLICY FORMS
Reinsurer acknowledges receipt from Ceding Company of specimen forms of
the insurance policies under which the Reinsured Claims have been incurred.
XIX. ENTIRE AGREEMENT; AMENDMENTS
This Agreement constitutes the entire agreement of the parties hereto
with respect to the Reinsured Claims and there are no understandings between the
parties other than as expressed in this Agreement. Any amendment, change or
modification to this Agreement shall be null and void unless the same is made by
a written amendment to this Agreement signed by both parties hereto.
XX. EXPENSES
Except as may be otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each of the parties hereto shall pay its own costs and expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
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XXI. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
XXII. ASSIGNMENT; BINDING EFFECT
Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by any
of the parties hereto without the prior written consent of the other party, and
any such assignment that is attempted without such consent shall be null and
void. Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the parties and their respective
successors and permitted assigns.
XXIII. INVALID PROVISIONS
If any provision of this Agreement is held to be illegal,
invalid, or enforceable under any present or future law, and if the rights or
obligations of the parties hereto under this Agreement will not be materially
and adversely affected thereby, (a) such provision shall be fully severable; (b)
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and (c) the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom.
XXIV. WAIVER
Any term or condition of this Agreement may be waived in
writing at any time by the party that is entitled to the benefit thereof. A
waiver on one occasion shall not be deemed to be a waiver of the same or any
other breach or nonfulfillment on a future occasion. All remedies, either under
the terms of this Agreement, or by law or otherwise afforded, shall be
cumulative and not alternative, except as otherwise provided by law.
XXV. JURISDICTION; DESIGNATED ATTORNEY
In the event of the failure of Reinsurer to perform its
obligations under the terms of this Agreement, Reinsurer, at the request of
Ceding Company, shall (i) submit to the jurisdiction of any court of competent
jurisdiction in any state of the United States, (ii) comply with all
requirements necessary to give such court jurisdiction, and (iii) shall abide by
the final decision of the court or of any appellate court in the event of an
appeal. Reinsurer hereby designates the Illinois Director of Insurance (or an
attorney designated by such Director) as Reinsurer's true and lawful attorney
upon whom may be served any lawful process in any action, suit, or proceeding
instituted by or on behalf of the Ceding Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
Attest: RELIANCE STANDARD LIFE INSURANCE COMPANY
______________________ By: ___________________________________
Name: Title:
Attest: ORACLE REINSURANCE COMPANY LTD.
______________________ By: ___________________________________
Name: Title:
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<PAGE> 1
EXHIBIT 10.2
CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
SAFETY NATIONAL CASUALTY CORPORATION
St. Louis, Missouri
(hereinafter referred to as the "Reinsured")
and
ORACLE REINSURANCE COMPANY LTD.
Hamilton, Bermuda
(hereinafter referred to as the "Reinsurer")
PREAMBLE
In consideration of the mutual covenants hereinafter contained and upon
the terms and conditions hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
BUSINESS COVERED
This Agreement shall cover business classified by the Reinsured as
Specific and/or Aggregate Excess Workers' Compensation and Casualty Business,
and shall apply to the Reinsured's Net Losses occurring prior to January 1, 1997
for Policies effective on or before December 31, 1996.
ARTICLE II
TERM & CANCELLATION
1. This Agreement shall become effective at 12:01 A.M. Local Standard Time,
January 27, 1998, and shall apply to all Losses Occurring prior to January 1,
1997.
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2. This Agreement shall terminate upon the first to occur of any of the
following events:
a.) At such time as all of the Reinsured's liabilities and
obligations with respect to the reinsured claims have been
satisfied in their entirety, and the Reinsurer has paid to the
Reinsured in full all amounts owing to the Reinsured under the
provisions of this Agreement.
b.) At any time, by mutual written consent of the parties.
c.) The Reinsured shall have the right to terminate this Agreement
immediately by giving the Reinsurer notice:
(1) If the performance of the whole or any part of this
Agreement is prohibited or rendered impossible de
jure or de facto in particular and without prejudice
to the generality of the preceding words in
consequence of any law or regulations which is or
shall be in force in any country or territory or if
any law or regulations shall prevent directly or
indirectly the remittance of any or all or any part
of the balance or payments due to or from either
party.
(2) If the Reinsurer at any time shall:
(a) Become insolvent, or
(b) Suffer any impairment of capital, or
(c) File a petition in bankruptcy, or
(d) Go into liquidation or rehabilitation, or
(e) Have a receiver appointed, or
(3) In the event of the severance or obstruction of free
and unfettered communication and/or normal commercial
and/or financial intercourse between the United
States of America and the country in which the
Reinsurer is incorporated or has its principal office
as a result of war, currency regulations, or any
circumstances arising out of political, financial or
economic emergency.
d.) Upon the election in writing by the Reinsured, in the event
that any event constituting a Change of Control occurs with
respect to the Reinsurer.
e.) Upon the election in writing by the Reinsured, thirty (30) or
less days prior to the scheduled expiration of one or more of
the letters of credit required to be maintained by the
Reinsured pursuant to Article XXII hereof if, at such time the
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<PAGE> 3
Reinsurer has not provided assurance acceptable to the
Reinsured, in its sole discretion, that such letter or letters
of credit will be renewed for an additional term of not less
than one (1) year or replaced with one or more letters of
credit meeting the requirements of Article XXII hereof and
having a term or terms of not less than one (1) year.
For purposes of Section 2(d) of this Article, a "Change of Control"
shall be deemed to have occurred (1) if individuals who, as of the
effective date of this Plan, constitute the Board of Directors of
Reinsurer (the "Board of Directors" generally and as of the date of
this Agreement the "Incumbent Board") cease for any reason to continue
at least a majority of the directors constituting the Board of
Directors, provided that any person becoming a director subsequent to
the date of this Agreement whose election, or nomination for election
by Reinsurer's shareholders, was approved by a vote of at least
three-quarters (3/4) of the then directors who are members of the
Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is (A) in connection with the
acquisition by a third person, including a "group" as such term is used
in Section 13(d) (3) of the Securities and Exchange Act of 1934, as
amended (the "1934 Act"), of beneficial ownership, directly or
indirectly, of 20% or more of the combined voting securities ordinarily
having the right to vote for the election of directors of Reinsurer
(unless such acquisition of beneficial ownership was approved by a
majority of the Board of Directors who are members of the Incumbent
Board), or (B) in connection with an actual or threatened election
contest relating to the election of the directors of Reinsurer, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
1934 Act) shall be, for purposes of this Plan, considered as though
such person were a member of the Incumbent Board; or (2) if the
stockholders of Reinsurer approve a merger, consolidation,
recapitalization or reorganization of Reinsurer, reverse split of any
class voting securities of Reinsurer, or an acquisition of securities
or assets by Reinsurer, or the sale or disposition by Reinsurer of all
or substantially all of Reinsurer's assets, or if any such transaction
is consummated without stockholder approval, other than any such
transaction in which the holders of outstanding Reinsurer voting
securities immediately prior to the transaction receive, with respect
to such Reinsurer voting securities, voting securities of the surviving
or transferee entity representing more than 60 percent of the total
voting power outstanding immediately after such transaction, with the
voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or (3)
if the stockholders of Reinsurer approve a plan of complete liquidation
of Reinsurer.
3. In the event of any termination of this Agreement pursuant to
subsections b, c, d or e of Section 2 of this Article, the Reinsurer shall pay
to the Reinsured, no later than the effective date of such termination, the full
amount of the reserves required to be maintained by Reinsured, along with all
other amounts owing to Reinsured under the provisions of this Agreement, as of
such effective date.
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4. This Agreement shall have no force or effect until it shall have been
approved or deemed approved by the Director of Insurance of the State of
Missouri as and in the manner required by the Missouri Insurance Code and the
regulations thereunder (collectively, the "Missouri Laws"). In addition,
pursuant to the Missouri Laws, the termination or cancellation of this Agreement
is subject to the prior regulatory approval of the Director of Insurance of the
State of Missouri.
ARTICLE III
RETENTION AND LIMIT
1. The Reinsurer shall not be liable for any loss under Specific and/or
Aggregate Excess Workers' Compensation Policies until the Net Loss of the
Reinsured exceeds $590,900,000 in excess of various self-insured retentions, and
then the Reinsurer shall be liable for the amount of Net Loss sustained by the
Reinsured in excess of $590,900,000, but the Reinsurer's liability shall not
exceed $185,100,000.
2. The Reinsurer shall not be liable for any loss under Casualty Business
Policies until the Net Loss of the Reinsured exceeds $80,000,000, and then the
Reinsurer shall be liable for the amount of Net Loss sustained by the Reinsured
in excess of $80,000,000, but the Reinsurer's liability shall not exceed
$5,000,000.
ARTICLE IV
PREMIUM
The net funds due shall be $64,190,000, consisting of a gross
reinsurance premium of $81,000,000 netted against $16,000,000 Advance
Underwriting Cash Flow Profit Commission and $810,000 of Federal Excise Tax. The
net funds due shall be remitted within thirty (30) days of the execution of this
Agreement.
ARTICLE V
REPORTS & REMITTANCES
1. The Reinsured shall report to the Reinsurer in a form mutually
acceptable, within thirty (30) days after the end of each calendar quarter the
amount of Losses Paid by the Reinsured during the quarter. The Reinsured shall
also furnish such other information as may be required by the Reinsurer for the
completion of the Reinsurer's quarterly and annual statements and internal
records. The Reinsurer shall furnish quarterly unaudited financial statements
and annual audited financial statements to the Reinsured.
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2. The Reinsurer shall remit to the Reinsured within forty-five (45) days
after the end of each calendar year the amount of Losses Paid by the Reinsured
which are in excess of the Reinsured's retention as identified in Article III of
this Agreement.
3. The Reinsured's Losses Paid through December 31, 1996 are $214,092,382
on Specific and/or Aggregate Excess Workers' Compensation Policies and
$63,934,116 on Casualty Business Policies.
ARTICLE VI
PROFIT COMMISSIONS
An Investment Profit Commission and an Underwriting Profit Commission
shall be calculated annually by the Reinsured during the term of the Agreement.
1. Investment Profit Commission:
a.) The Reinsured shall be entitled to share, on an annual basis,
in a portion of the Investment Return of the Reinsurer on the
assets maintained by Reinsurer with respect to this Agreement.
The amount of such portion shall be equal to the product of
(i) seventy percent (70%) of the first three percent (3%) of
the amount by which the Investment Return for the applicable
calendar year, expressed as a percentage, exceeds five percent
(5%), multiplied by (ii) the Cash Balance at the beginning of
the period. Such product shall be increased by any Shortfall
existing as of the beginning of such calendar year.
For the purposes of the preceding paragraph and the formula contained
therein:
"Investment Return" shall mean the Reinsurer's net investment income
earned after investment expenses plus realized gains and losses divided by the
product of (i) one-half (1/2) and (ii) the sum of the Reinsurer's total
invested assets as of the first day of the applicable calendar year and the
Reinsurer's total invested assets as of the last day of such calendar year. For
purposes of the Investment Profit Commission calculation in 1998, the year of
the inception of this Agreement, and the year of termination of this Agreement,
the Investment Return shall be calculated based upon the dates the Agreement was
in force on an annualized basis.
"Cash Balance" shall mean gross premiums received less Advance
Underwriting Profit Commission paid, less actual cumulative losses paid by the
Reinsurer and cumulative investment profit commission paid plus cumulative
investment income earned.
"Shortfall" shall mean, as to each calendar year, the cumulative sum of
any amounts in the preceding calendar years by which the amount obtained
pursuant to section a) above is not sufficient to generate profits up to the
maximum percentage specified.
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b.) The Reinsurer will furnish to the Reinsured within fifteen
(15) days after the close of each calendar year during which
this Agreement is in effect, on forms mutually acceptable to
the Reinsured and to the Reinsurer, reports setting forth the
amounts of the Investment Return and the Cash Balance for such
calendar year, along with the amounts of any cumulative
Shortfall carried over to such calendar year.
c.) The Investment Profit Commission shall be made annually within
sixty (60) days after year end beginning as of December 31,
1998. The final Investment Profit Commission calculation shall
be made as of December 31, 2034. Payments of any positive
Investment Profit Commission shall be made within thirty (30)
days after the calculation of such Investment Profit
Commission.
2. Underwriting Cash Flow Profit Commission:
The Underwriting Cash Flow Profit as of the close of the applicable
calendar year shall be calculated by the Reinsured as follows in the first year:
a.) The gross premium received,
b.) Less losses paid in the applicable year by the Reinsurer,
c.) The result of a.) less b.) above shall be multiplied by a 5%
growth rate.
For all subsequent years, the Underwriting Cash Flow Profit shall by
calculated by the Reinsured as follows:
d.) The prior year's calculated Underwriting Cash Flow Profit,
e.) Less losses paid by the Reinsurer for the year ended December
31,
f.) The result of d.) less e.) shall be multiplied by a 5% growth
rate.
g.) For purposes of the calculation of the Underwriting Cash Flow
Profit, actual losses paid shall include remittances made
within forty-five (45) days after the end of the calendar
year.
The Reinsurer shall pay to the Reinsured an Underwriting Cash Flow
Profit Commission equal to 1.35% of any positive Underwriting Cash Flow Profit,
calculated as described above, and shall be calculated annually within sixty
(60) days of the close of the applicable calendar year. Payments shall be made
within thirty (30) days after the calculation of such Underwriting Cash Flow
Profit. The initial calculation shall be made as of December 31, 1998 and the
final calculation shall be made as of December 31, 2034.
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3. Advance Underwriting Cash Flow Profit Commission:
At inception of this Agreement, the Reinsurer shall advance the
Reinsured $16 million of Underwriting Cash Flow Profit Commission to be held as
collateral against non-performance under the Agreement. This advance commission
shall be used to pay Underwriting Cash Flow Profit Commissions earned under the
Agreement. In the event the Underwriting Cash Flow Profit Commissions earned do
not reduce the Advance Underwriting Cash Flow Profit to zero, the Reinsured
shall retain such advance until all losses are paid under this Agreement.
ARTICLE VII
NET RETAINED LINES
This Agreement applies to that portion of any insurance or reinsurance
which the Reinsured retains net for its own account, and shall include
reinsurance which the Reinsured has commuted with former Reinsurers, and
reinsurance deemed uncollectible by the Reinsured due to the insolvency of such
other Reinsurers or otherwise. In calculating the amount of any loss hereunder
and also in computing the amount or amounts in excess of which this Agreement
attaches, only loss or losses in respect of that portion of any insurance or
reinsurance which the Reinsured retains net for its own account, commuted with
former Reinsurers, or deemed uncollectible by the Reinsured due to the
insolvency of such other Reinsurers or otherwise shall be included.
ARTICLE VIII
NET LOSS
1. The term "Net Loss(es)" shall mean the actual loss incurred by the
Reinsured under Policies covered hereunder. Such loss shall include sums paid in
settlement of claims and suits and in satisfaction of judgments, including
prejudgment interest when added to a judgment. Such loss also shall include any
allocated loss adjustment expenses incurred by the Reinsured with respect to
Casualty Business. Allocated loss adjustment expenses shall include without
limitation:
a) expenses sustained in connection with settlement and
litigation of claims and suits, satisfaction of judgments,
defense of or negotiations concerning a loss (which shall
include the pro rata share of the Reinsured's outside
employees according to the time occupied in adjusting such
loss and the salaries and expenses of the Reinsured's
employees while diverted from their normal duties to the
service of field adjustment but shall not include any salaries
of officers nor normal overhead salaries and expenses of the
Reinsured),
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<PAGE> 8
b) legal expenses and costs incurred in connection with coverage
questions and legal actions, including declaratory judgment
actions, connected thereto, and
c) any interest on judgments other than prejudgment interest when
added to a judgment.
2. All salvages, recoveries, payments and reversals or reductions of
verdicts or judgments (net of the cost of obtaining such salvage, recovery,
payment or reversal or reduction of a verdict or judgment) whether recovered,
received or obtained prior to or subsequent to loss settlement under this
Agreement, including amounts recoverable under other reinsurance whether
collected or not, shall be applied as if recovered, received or obtained prior
to the aforesaid settlement and shall be deducted from the actual losses
sustained to arrive at the amount of the net loss. Nothing in this Article shall
be construed to mean losses are not recoverable until the net loss to the
Reinsured finally has been ascertained.
3. The Reinsurer shall be subrogated, as respects any loss for which the
Reinsurer shall actually pay or become liable, but only to the extent of the
amount of payment by or the amount of liability to the Reinsurer, to all the
rights of the Reinsured against any person or other entity who may be legally
responsible for damages as a result of said loss. Should the Reinsured elect not
to enforce such rights, the Reinsurer are hereby authorized and empowered to
bring any appropriate action in the name of the Reinsured or its policyholders,
or otherwise to enforce such rights. The Reinsurer shall promptly remit to the
Reinsured the amount of any judgment awarded in such an action in excess of the
amount of payment by, or the amount of liability to, the Reinsurer hereunder.
ARTICLE IX
DEFINITIONS
1. Casualty Business
The term "Casualty Business" shall include but is not limited to:
Primary and Excess Automobile and General Liability, Umbrella
Liability, Medical Payments, Uninsured Motorists, No Fault Automobile
Programs, and the foregoing coverages under Multiple Peril and similar
types of Policies.
2. Loss(es) Paid
The term "Loss(es) Paid" shall mean actual payments to claimants under
Policies covered hereunder.
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3. Loss Occurrence
The term "Loss Occurrence" as used herein shall be construed to mean
any one accident, disaster, casualty or occurrence, or series of
accidents, disasters, casualties or occurrences arising out of or
caused by any event.
However, the Reinsurer agrees to follow the fortunes of the Reinsured
and recognize any definition of occurrence or accident imposed upon the
Reinsured by any workers' compensation board or other board, court or
tribunal, having competent jurisdiction.
If any of this Article is held to be invalid under the laws of any
state, that provision shall be deemed to comply with the minimum
requirements of such law, giving due consideration to the original
intentions of the parties. But this shall not affect the validity or
enforceability of the original provisions in any other jurisdiction.
4. Loss(es) Occurring
The term "Loss(es) Occurring" shall be defined as in the original
Specific and/or Aggregate Excess Workers' Compensation and/or Casualty
Business Policy.
5. Net Loss
The term "Net Loss" shall have the meaning set forth in Article VIII
above.
6. Policy
The term "Policy" or "Policies" shall mean any and all Specific and/or
Aggregate Excess Workers' Compensation, and/or Employers Liability,
and/or Casualty Business binders, certificates, Policies and contracts
of insurance, issued or held bound, provisionally or otherwise, by the
Reinsured and effective on or before December 31, 1996.
7. Specific and/or Aggregate Excess Workers' Compensation
The term "Specific and/or Aggregate Excess Workers' Compensation" shall
mean the insurance afforded under the Policies which the Reinsured
identifies as Excess Workers' Compensation and/or Employers Liability.
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<PAGE> 10
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS
1. This Agreement shall indemnify the Reinsured within the limits hereof,
where the net loss includes any extra contractual obligations. "Extra
Contractual Obligations" (ECO) are defined as those liabilities not covered
under any other provision of this Agreement and which arise from the handling of
any claim on business covered hereunder, such liabilities arising because of,
but not limited to, the following: failure by the Reinsured to settle within the
Policy limit, or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its insured or reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
2. The date on which an Extra Contractual Obligation is incurred by the
Reinsured shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss occurrence.
3. However, this Article shall not apply where the loss has been incurred
due to the fraud of a member of the Board of Directors or a corporate officer of
the Reinsured 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.
4. If any of this Article is held to be invalid under the laws of any
state, that provision shall be deemed to comply with the minimum requirements of
such law, giving due consideration to the original intentions of the parties.
But this shall not affect the validity or enforceability of the original
provisions in any other jurisdiction.
ARTICLE XI
LOSS IN EXCESS OF POLICY LIMITS
1. This Agreement shall indemnify the Reinsured within the limits hereof
in connection with Net Loss in excess of the limit of its original Policy, such
loss in excess of the limit having been incurred because of failure by it to
settle within the Policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial of any action against its insured or reinsured or in
the preparation or prosecution of any appeal consequent upon such action.
2. However, this Article shall not apply where the loss has been incurred
due to the fraud of a member of the Board of Directors or a corporate officer of
the Reinsured 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.
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3. For the purpose of this Article, the word "loss" shall mean any amounts
for which the Reinsured would have been contractually liable to pay had it not
been for the limit of the original Policy.
ARTICLE XII
TERRITORY
This Agreement shall apply to losses occurring within the territorial
limits of the Reinsured's original insurances.
ARTICLE XIII
CURRENCY
Whenever the word "Dollars" or the "$" sign appears in this Agreement,
they shall be construed to mean United States Dollars and all transactions under
this Agreement shall be in United States Dollars.
Amounts paid or received by the Reinsured in any other currency shall
be converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Reinsured.
ARTICLE XIV
TAXES
The Reinsurer shall reimburse the Reinsured one percent (1%) of the
premium hereon, or in the alternative, to deduct one percent (1%) or such other
rate that may be in effect from time to time for the purpose of paying the
Federal Excise Tax to the extent such premium is subject to Federal Excise Tax.
ARTICLE XV
REMITTANCE
1. Unpaid loss payments, premium payments and profit commissions due
hereunder shall be subject to interest, calculated by multiplying the unpaid
amount by the U.S. Prime Rate as published in the Wall Street Journal Eastern
Edition on the date upon which the unpaid loss payments, premium payment or
profit commissions begins to accrue interest as set forth below, the product of
which shall be multiplied by 1/365 for each day that interest accrues.
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<PAGE> 12
2. Unpaid loss payments due hereunder shall accrue interest from sixty
(60) days subsequent to the sending (whether by mail, telecopy, or otherwise) by
the Reinsured the Reinsured's quarterly report to the Reinsurer, until such time
as the Reinsured receives the loss payment.
Notwithstanding the foregoing, no unpaid loss payment, premium payment or profit
commission due hereunder shall accrue interest:
a.) during any period(s) between the receipt by the Reinsured of a
Reinsurer's specific written request for additional,
substantive information regarding the loss for which claim is
being made and the sending (whether by mail, telecopy or
otherwise) by the Reinsured of a written response thereto,
except that, if the Reinsured receives such a request for
additional information more than thirty (30) days subsequent
to its sending of the original proof of loss or a response to
a Reinsurer's specific request for additional information,
this Subparagraph a. shall not apply as respects such
period(s).
b.) during any period(s) between the receipt by the Reinsured of a
specific written request by the Reinsurer for additional,
substantive information regarding the premium payment or
profit commissions and the sending (whether by mail, telecopy,
or otherwise) by the Reinsured of a written response thereto.
If, however, either party receives such a request for
additional information from the payor more than thirty (30)
days subsequent to its sending of the billing of premium or
profit commissions or a response to the other party's specific
request for additional information, this Subparagraph b. shall
not apply as respects such period(s). Furthermore, if either
party receives such a request for additional information from
the payee more than thirty (30) days subsequent to its sending
of the premium payment or profit commissions calculation or a
response to the other party's specific request for additional
information, this Subparagraph b. shall not apply as respects
such period(s).
c.) during any period(s) in which the unpaid loss payments,
premium payment or profit commissions due hereunder is in
dispute. For the purpose of this Subparagraph c., a loss,
premium payment or profit commissions shall be deemed in
dispute if litigation or arbitration proceedings concerning
the loss, premium payment or profit commissions have been
initiated, or as respects loss, the Reinsurer has issued a
formal written notification denying the validity of coverage.
Nothing in this Subparagraph c. shall in any way preclude or
restrict the awarding of interest in any litigation or
arbitration proceeding.
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<PAGE> 13
3. Premium payments shall accrue interest from sixty (60) days from the
due date specified in this Agreement until such time as the Reinsurer receives
the premium payment. Profit commissions shall accrue interest from one hundred
and twenty (120) days from the end of the last Agreement year to which they
apply until such time as the Reinsured receives the profit commission payment.
4. If the interest due from one party to the other as respects any one
payment is less than one thousand dollars ($1,000), such interest shall be
waived.
5. Nothing in this Article shall in any way alter, amend or modify any
provision of any other Article pertaining to the obligation to pay losses or
premiums, it being the intent of this Article only to establish the period
during which interest shall automatically accrue on unpaid loss, premium
payments or profit commissions due hereunder.
ARTICLE XVI
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made in connection with this
Agreement shall not relieve either party from any liability which would have
attached had such delays, errors or omissions not occurred, provided always that
such delays, errors or omissions shall be rectified as soon as possible after
discovery.
ARTICLE XVII
COMMUTATION
The Reinsured may at any time request that this Agreement be
commuted. In such event, the Reinsurer and the Reinsured shall review such
losses and shall attempt to reach a settlement by mutual agreement. If the
Reinsurer and the Reinsured cannot reach a settlement by mutual agreement, then
the Reinsurer and the Reinsured shall mutually appoint an independent actuary
(F.S.A./F.C.A.S.; or A.S.A./A.C.A.S.) who shall investigate, determine and
capitalize the present value of such losses, and the payment by the Reinsurer of
its proportion of the amount so ascertained to be the capitalized value of such
loss or losses shall constitute a complete and final release of the Reinsurer in
respect of such loss or losses.
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<PAGE> 14
ARTICLE XVIII
INSPECTION
Upon reasonable notice being given to the Reinsured, the Reinsured
shall place at the disposal of the Reinsurer at the Reinsured's office where
such records are maintained, 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
Reinsured pertaining to the reinsurance provided hereunder and all claims made
in connection therewith.
ARTICLE XIX
OFFSET
Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from each party to the other
party hereto under this Agreement.
ARTICLE XX
ARBITRATION
Any dispute or other matter in question between the Reinsured and the
Reinsurer arising out of or relating to the formation, interpretation,
performance, or breach of this Agreement, whether such dispute arises before or
after termination of this Agreement, shall be settled by arbitration.
Arbitration shall be initiated by the delivery of a written notice of demand for
arbitration by one party to the other within a reasonable time after the dispute
has arisen. Those Reinsurers involved in the dispute or other matter in
controversy shall be considered as one party for the purpose of allocating the
cost of arbitration. However, in the event of the insolvency of any party
hereto, offset shall only be allowed in accordance with the statutes and/or
regulations of the state or other jurisdiction having control over the
insolvency.
Each party shall appoint an individual as arbitrator and the two so
appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within thirty (30) days, the other party may
appoint the second arbitrator. If the two arbitrators do not agree on a third
arbitrator within ten (10) days of their appointment, each of the arbitrators
shall nominate three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third arbitrator shall then
be chosen from the remaining two nominations by drawing lots. The arbitrators
shall be active or retired officers of insurance or reinsurance companies; the
arbitrators shall not have a personal or financial interest in the result of the
arbitration.
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<PAGE> 15
The arbitration hearings shall be held in the city in which the
Reinsured's Head Office is located or such other place as may be mutually
agreed. Each party shall submit its case to the arbitrators within thirty (30)
days of the selection of the third arbitrator or within such longer period as
may be agreed by the arbitrators. The arbitrators shall not be obliged to follow
judicial formalities or the rules of evidence except to the extent required by
governing law, that is, the state law of the situs of the arbitration as herein
agreed; they shall make their decisions according to the practice of the
reinsurance business. The decision by a majority of the arbitrators shall be
rendered within sixty (60) days from the conclusion of the arbitration hearings
and such decision shall be final and binding on both parties. Such decision
shall be a condition precedent to any right of legal action arising out of the
arbitrated dispute which either party may have against the other. Judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
Each party shall pay the fee and expenses of its own arbitrator and
one-half of the fee and expenses of the third arbitrator. All other expenses of
the arbitration shall be equally divided between the parties.
ARTICLE XXI
SERVICE OF SUIT
It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Reinsured, will submit to the jurisdiction of a Court of
competent jurisdiction within the United States. Nothing in this Article
constitutes or should be understood to constitute a waiver of the Reinsurer's
rights to commence an action in any Court of competent jurisdiction in the
United States, to remove an action to a United States District Court, or to seek
a transfer of a case to another Court as permitted by the laws of the United
States or of any State in the United States. It is further agreed that service
of process in such suit may be made upon Baker & McKenzie, 805 Third Avenue, New
York, New York, 10022, and that in any suit instituted against any one of them
upon this Agreement, the Reinsurer will abide by the final decision of such
Court or of any Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request of
the Reinsured to give a written undertaking to the Reinsured that they will
enter a general appearance upon the Reinsurer's behalf in the event such a suit
shall be instituted.
Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute,
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<PAGE> 16
or his successor or successors in office as his true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Reinsured or any beneficiary hereunder arising
out of this Agreement, and hereby designates the above named as the person to
whom the said officer is authorized to mail such process or a true copy thereof.
ARTICLE XXII
LOSS RESERVES
1. If a jurisdiction of the United States will not permit the Reinsured in
the statements required to be filed with its regulatory authority(ies), to
receive full credit as admitted reinsurance for any Reinsurer's share of
obligations, the Reinsured shall forward to such Reinsurer a statement of the
Reinsurer's share of such obligations. Upon receipt of such statement the
Reinsurer shall promptly apply for, and provide the Reinsured with, a "clean,"
unconditional and irrevocable Letter of Credit, in the amount specified in the
statement submitted, with terms and bank acceptable to the regulatory
authority(ies) having jurisdiction over the Reinsured.
2. "Obligations," as used in this Article, shall mean any amounts due
under this Agreement, including but not limited to, the sum of losses paid and
allocated loss adjustment expenses paid by the Reinsured but not yet recovered
from the Reinsurer plus reserves for reported losses, losses incurred but not
reported, allocated loss adjustment expenses, and premiums unearned, if any,
plus Investment Profit Commission and Underwriting Cash Flow Profit Commission.
3. The Reinsurer hereby agrees that the Letter of Credit will provide for
automatic extension of the Letter of Credit without amendment for one year from
the date of expiration of said Letter or any future expiration date unless
thirty (30) days prior to any expiration the issuing bank shall notify the
Reinsured by registered mail that the issuing bank elects not to consider the
Letter of Credit renewed for any additional period. An issuing bank, not a
"qualified bank" as defined by Regulation No. 133 promulgated by the Insurance
Department of the State of New York, shall provide sixty (60) days notice to the
Reinsured prior to any expiration.
4. Notwithstanding any other provision of the Agreement, the Reinsured or
any successor by operation of law of the Reinsured including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Reinsured may draw upon such credit, without diminution because of the
insolvency of any party hereto, at any time and undertakes to use and apply such
credit for one or more of the following purposes only:
a.) To pay the Reinsurer's share or to reimburse the Reinsured for
the Reinsurer's share of any obligations, as stipulated in the
statement submitted by the Reinsured to the Reinsurer which is
due to the Reinsured and not otherwise paid by the Reinsurer.
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<PAGE> 17
b.) In the event the Reinsured has received effective notice of
non-renewal of the Letter of Credit and the Reinsurer's
liability remains unliquidated and undischarged thirty (30)
days prior to the expiry date of the Letter of Credit, to
withdraw the balance of the Letter of Credit and place such
sums in an interest bearing trust account to secure the
continuing liabilities of the Reinsurer under this Agreement
until a renewal Letter of Credit acceptable to the regulatory
authority(ies) having jurisdiction over the Reinsured, or a
substitute in lieu thereof acceptable to the regulatory
authority(ies) having jurisdiction over the Reinsured, has
been received by the Reinsured. The Reinsured shall provide to
the Reinsurer payment of any interest thereon accruing from
such account.
c.) To make refund of any sum which is in excess of the actual
amount required for Sections a. and b. of this Paragraph.
5. At annual intervals or more frequently as determined by the Reinsured,
but never more frequently than quarterly, the Reinsured shall prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of Reinsurer's
share of any obligations. If the statement shows that the Reinsurer's share of
obligations exceeds the balance of credit as of the statement date, the
Reinsurer shall, within thirty (30) days after receipt of notice of such excess,
secure delivery to the Reinsured of an amendment of the Letter of Credit
increasing the amount of credit by the amount of such difference. If the
statement shows, however, that Reinsurer's share of obligations is less than the
balance of credit as of the statement date, the Reinsured shall, within thirty
(30) days after receipt of written request from the Reinsured, release such
excess credit by agreeing to secure an amendment to the Letter of Credit
reducing the amount of credit available by the amount of such excess credit.
6. The bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Reinsured or the disposition of funds
withdrawn, except to assure that withdrawals are made only upon the order of
properly authorized representatives of the Reinsured. The Reinsured shall incur
no obligation to the bank in acting upon the credit, other than as appears in
the express terms thereof.
7. All expenses incurred in the establishment or maintenance of such
Letter of Credit shall be for the account of the Reinsurer.
ARTICLE XXIII
INSOLVENCY
In the event of the insolvency of the Reinsured, this reinsurance shall
be payable directly to the Reinsured, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the
Reinsured without diminution because of the insolvency of the Reinsured or
because the liquidator, receiver, conservator or statutory successor of the
Reinsured has failed to
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<PAGE> 18
pay all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Reinsured shall give written
notice to the Reinsurer of the pendency of a claim against the Reinsured
indicating the Policy insured 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 pendency of such claim, the Reinsurer may investigate such claim and
interpose, at their own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that they may deem available to the
Reinsured 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 Reinsured 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 Reinsured solely as a result of the defense undertaken
by the Reinsurer.
ARTICLE XXIV
NOTICES
Any notice, report, statement, or other communication provided for or
appropriate under this Agreement shall be in writing and be given by personal
delivery, by a nationally recognized overnight delivery service, or by first
class United States mail, postage prepaid, as follows:
To Reinsurer:
Oracle Reinsurance Company Ltd.
Clarendon House
11 Church Street
Hamilton, Bermuda
Attention:
To Reinsured:
Safety National Casualty Corporation
2043 Woodlands Parkway
Suite 200
St. Louis, MO 63146
Attention:
Either party may change its address for purposes of receipt of any such
communication by giving ten (10) days notice of such change to the other party
in the manner above prescribed.
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ARTICLE XXV
GOVERNING LAW
This Agreement shall be deemed to have been made under and shall be
governed by the laws, regulations and decisions of the State of Missouri in all
respects, including matters of construction, validity, and performance, without
giving effect to principles of conflicts of laws.
ARTICLE XXVI
AMENDMENTS
This Agreement constitutes the entire agreement of the parties hereto
with respect to the business covered and there are no understandings between the
parties other than as expressed in this Agreement. Any amendment, change or
modification to this Agreement shall be null and void unless the same is made by
a written amendment to this Agreement signed by both parties hereto.
ARTICLE XXVII
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon the successors and permitted
assigns of the respective parties hereto.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
Attest: SAFETY NATIONAL CASUALTY CORPORATION
By:
- ----------------------------- ------------------------------
Name:
Title:
Attest: ORACLE REINSURANCE COMPANY LTD.
By:
- ----------------------------- ------------------------------
Name:
Title:
19
<PAGE> 1
EXHIBIT 10.3
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 27th day of January, 1998, by and between
ORACLE REINSURANCE COMPANY LTD., a Bermuda composite insurer (the "Company"),
and ACORN ADVISORY CAPITAL L.P., a Delaware limited partnership (the "Investment
Advisor").
WITNESSETH
WHEREAS, the Company desires to retain the Investment Advisor to render
investment management services to the Company, and the Investment Advisor is
willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT OF INVESTMENT ADVISOR
The Company hereby appoints the Investment Advisor to act as investment
manager to exercise exclusively investment decision-making authority on behalf
of the Company, for the period and on the terms set forth in this Agreement. The
Investment Advisor accepts such appointment and agrees to render the services
set forth herein for the compensation provided herein.
2. DUTIES OF INVESTMENT ADVISOR
The Investment Advisor shall invest and manage the assets (including
cash) of the Company through investments made directly by the Investment Advisor
and/or through the allocation of the Company's assets by the Investment Advisor
among a number of money managers (the "Money Managers"). The Investment Advisor
and such Money Managers shall have discretion to employ various trading
strategies and techniques, through discretionary account management or in
investment vehicles managed by such Money Managers.
In connection with its obligations hereunder and without limiting the
generality of the foregoing, the Investment Advisor will have the authority for
and in the name of the Company, to:
(a) subject to Section 4 hereof, purchase, sell (including
short sales) and trade in, on margin or otherwise, listed and unlisted
U.S. and non-U.S. capital stock, warrants, bonds, notes, debentures,
government obligations, partnership interests and similar financial
instruments, repurchase and resale agreements, futures and forward
contracts, commodities, currencies, options, swap agreements and other
securities of whatever kind or nature (collectively, "Securities");
(b) purchase, hold, sell, transfer, exchange, mortgage,
pledge, hypothecate and otherwise act to acquire and dispose of and
exercise all rights, powers, privileges, and other incidents of
ownership or possession with respect to Securities held or owned by the
Company;
<PAGE> 2
(c) purchase Securities for investment and to make such
representations to the seller of such Securities, and to other persons,
that the Investment Advisor may deem proper in such circumstances,
including the representation that such Securities are purchased by the
Company for investment and not with a view to their sale or other
disposition;
(d) borrow or raise monies from time to time without limit as
to amount or manner and time of repayment, and to issue, accept,
endorse and execute promissory notes or other evidences of
indebtedness, and to secure the payment of any such borrowings, and of
the interest thereon, by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the properties of the
Company whether at the time owned or thereafter required;
(e) lend any of the properties which are from time to time
owned or held by the Company;
(f) issue orders and directions to any bank at which the
Company maintains a general account with respect to the disposition and
application of monies or Securities of the Company from time to time
held by such bank;
(g) open, maintain, conduct and close accounts, including
margin accounts, with any broker, dealer or investment concern, to
issue orders and directions to any broker, dealer or investment concern
at which the Company maintains an account with respect to the
disposition and application of monies or Securities of the Company from
time to time held by such broker, dealer or investment concern, and to
incur on behalf of the Company, brokerage commissions which may be in
excess of the lowest rates available and which are paid to brokers who
execute transactions for the account of the Company and who provide
brokerage services (e.g., research ideas, investment strategies and
clearance settlement and custodial services), provided that in
employing such brokers, the "best execution" is obtained, taking into
account the research and execution capabilities of the brokers and
their financial stability and reputation, and the Investment Advisor
does not pay a rate of commissions in excess of what is competitively
available from comparable brokerage firms;
(h) select the Money Managers who will be used to invest the
assets of the Company, and determine the amount of the Company's assets
to be allocated to each Money Manager, it being understood that the
Investment Advisor itself shall not be considered a Money Manager
hereunder; and
(i) negotiate on behalf of the Company the compensation to be
paid to each Money manager on a case by case basis, with such
compensation being based on the assets of the Company allocated to such
Money Manager and/or a percentage of profits earned, to enter into
investment management agreements or similar arrangements and to agree
to indemnification provisions in such investment management or other
similar agreements (the form of which will be subject to approval by
the Board of Directors of the Company) with such Money Managers on
behalf of the Company and to delegate to such Money Managers
<PAGE> 3
the authority of the Investment Advisor to invest and manage the
Company's assets as described herein.
3. INVESTMENT ADVISOR PERFORMANCE
The Investment Advisor shall use its best judgment in the performance
of its duties under this Agreement, and in doing so, it shall act in conformity
with the Memorandum of Association of the Company.
4. LIMITATIONS ON INVESTMENT ADVISOR ACTIVITIES
Notwithstanding anything in this Agreement to the contrary, the
Investment Advisor hereby agrees that:
(a) it will perform its duties hereunder in such a manner that
the Company will be treated as an investor or trader in securities for
its own account and not as a dealer in securities. For this purpose,
"dealer" means a merchant of securities who in the ordinary course of
business is engaged as a merchant in purchasing securities and selling
them to customers with a view to the gains and profits that may be
derived therefrom:
(b) it will not invest any of the Company's assets in any
entity that is treated for U.S. federal income tax purposes both (i) as
a partnership or trust, and (ii) as being engaged in a trade or
business within the United States within the meaning of Section 864(b)
of the Internal Revenue Code of 1986, as amended; and
(c) if it delegates any of its responsibilities hereunder to
any other person (including any Money Manager), it will require any
such person to agree to comply with the provisions of this Section 4.
5. REPORTS
The Investment Advisor shall render to the Company such periodic or
special reports as may reasonably be requested by the Company.
6. REMUNERATION
(a) For the services provided pursuant to this Agreement, the
Company shall pay to the Investment Advisor as full compensation
therefor a quarterly fee, payable at the beginning of each calendar
quarter, equal to 0.125% of the Company's assets managed by the
Investment Advisor as of the first business day of each such quarter
(it being understood that the fee payable in respect of the period
between the date hereof and the end of the current calendar quarter
shall be pro rated on the basis of the number of days during such
period). The Investment Advisor's fee shall be paid to the Investment
Advisor within 10 days of the computation of the Company's assets
managed by the Investment Advisor.
(b) In the event that any Money Manager is affiliated with the
Investment Advisor, any compensation received by the Investment Advisor
or its affiliates in connection with
<PAGE> 4
amounts invested with such affiliated Money Manager shall be waived or
paid over by the Investment Advisor to the Company. For purposes of
this paragraph, "affiliated with" shall mean, with respect to one
entity, an entity which either controls, is controlled by or is under
common control with such entity.
(c) The Investment Advisor hereby waives its remuneration for
a period of two years from the date of this Agreement. The Investment
Advisor has the right to defer payment of its remuneration until such
time as the Investment Advisor notifies the Company to make payment.
The amount of the fees which the Investment Advisor elects to defer
will be invested by the Company in the same manner as the Company's
other assets. Thus, the investment Advisor will effectively participate
in the investment performance of the Company to the extent it elects to
defer its fees.
7. EXPENSES
(a) During the term of this Agreement, except as provided in
Section 7(b), the Investment Advisor shall bear its own expenses in
connection with its activities under this Agreement (including without
limitation the compensation of all its partners and employees, rent and
utility expenses associated with its facilities and costs and expenses
incurred by it in conjunction with the identification, selection and
monitoring of the Money Managers).
(b) The Company will pay any brokerage commissions, custodial
fees and other expenses in connection with the investments made on
behalf of the Company, any fees payable to the Investment Advisor and
any fees, costs and expenses payable to the Money Managers. The Company
shall also bear full responsibility for, other operations and expenses
not related to functions assumed by the Investment Advisor hereunder.
8. LIABILITY AND INDEMNIFICATION OF INVESTMENT ADVISOR
(a) Neither the Investment Advisor nor any of its employees,
agents and other representatives, nor its general partner and limited
partners, nor any of their officers, directors, shareholders,
employees, agents and other representatives (each an "Indemnified
Person") shall be liable to the Company (i) for mistakes of judgment or
for action or inaction or for all costs, expenses or losses due to such
mistakes, action or inaction so long as said person acted honestly and
in good faith and reasonably believed that his conduct was in the best
interest of the Company, or (ii) for its costs, expenses or losses due
to the negligence, dishonesty or bad faith of any broker or agent of
the Company selected, engaged or retained by the Investment Advisor or
an Indemnified Person, provided that the Indemnified Person exercised
reasonable care in selecting, engaging or retaining such broker or
agent. The Indemnified Person may consult with counsel and accountants
in respect of Company affairs and be fully protected and justified in
any action or inaction which is taken in accordance with the advice or
opinion of such counsel or accountants, provided that they shall have
been selected with reasonable care. Notwithstanding any of the
foregoing to the contrary, the provisions of this Section 8(a) shall
not be construed to relieve (or attempt to relieve) the Indemnified
Person of any liability, to the extent (but only to the extent) that
such liability
<PAGE> 5
may not be waived, modified or limited under applicable law, but shall
be construed so as to effectuate the provisions of this Section 8(a) to
the fullest extent permitted by law.
(b) The Company shall indemnify and hold harmless each
Indemnified Person, in the absence of bad faith, willful misconduct or
gross negligence, for all costs, losses, damages, expenses,
liabilities, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees incurred by the
Indemnified Person as the result of any action, suit or proceeding
against the Indemnified Person) incurred in connection with or arising
out of, directly or indirectly, the performance by the Investment
Advisor of its obligations and duties under this Agreement. The Company
shall advance to any Indemnified Person reasonable attorney's fees and
other costs and expenses incurred in connection with the defense of any
action or proceeding arising out of such conduct. In the event that
such an advance is made by the Company, the Indemnified Person shall
agree to reimburse the Company for such fees, costs and expenses to the
extent that he, she or it was not entitled to indemnification under
this Section 8.
9. TERM AND TERMINATION
This Agreement shall become effective on the date hereof and shall
remain in full force and effect until December 31, 1998 and shall thereafter be
automatically renewed for successive two-year terms, unless terminated with 60
days' written notice given by the Company or the Investment Advisor prior to the
end of the term then in effect. This Agreement shall not be modified except in
writing, nor assigned by either party without the consent of the other party.
10. INDEPENDENT CONTRACTOR STATUS
The Investment Advisor shall for all purposes herein be deemed to be an
independent contractor and shall have no authority except as otherwise expressly
provided herein, to act for or represent the Company in any way or otherwise be
deemed to be an agent of the Company.
11. NON-EXCLUSIVITY
Nothing in this Agreement shall limit or restrict the right of the
Investment Advisor, its employees or its general or limited partners, or any of
their shareholders, directors, officers, employees, agents or other
representatives to engage in any other business or to devote his, her or its
time and attention in part to any other business. The Investment Advisor, its
employees, its general or limited partners, or any of their shareholders,
directors, officers, employees, agents or other representatives may render
services similar to those described in this Agreement for other individuals or
entities, and shall not, by reason of engaging in other businesses or rendering
services for others, be deemed to be acting in conflict with the interests of
the Company. The Investment Advisor, its employees or its general or limited
partners (and their respective shareholders, directors, officers and employees)
may be, directly or indirectly, shareholders of the Company, but shall not be
deemed thereby to have interests which are in conflict with the interests of the
Company.
12. NOTICES
<PAGE> 6
Notices of any kind to be given to the Investment Advisor by the
Company shall be in writing and shall be duly given if mailed or delivered to
the Investment Advisor at 650 Madison Avenue, Suite 2600, New York, New York
10022, Attention: Robert Rosenkranz, or at such other address or to such other
individuals as shall be specified by the Investment Advisor to the Company in
accordance with this paragraph 12. Notices of any kind to be given to the
Company by the Investment Advisor shall be in writing and shall be duly given if
mailed or delivered to the Company at Chevron House, Church Street, Hamilton HM
11 Bermuda, Attention: Secretary, or at such other address or to such other
individual as shall be specified by the Company to the Investment Advisor in
accordance with this paragraph 12.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the conflict of laws
provisions thereof.
14. CONFIDENTIALITY
All investment advice furnished by the Investment Advisor to the
Company shall be treated as confidential and shall not be disclosed to third
parties by the Company except as required by law.
15. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date hereinabove written.
ORACLE REINSURANCE COMPANY LTD.
By ________________________________
Name:
Title:
ACORN ADVISORY CAPITAL L.P.
By ________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT
THIS SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT, dated as of
March 31, 2000 (the "Amendment"), amends the Letter of Credit Agreement, dated
as of January 27, 1998 (as heretofore amended, the "Credit Agreement"), among
Oracle Reinsurance Company, Ltd., a Bermuda insurance company (the "Company"),
the various financial institutions parties thereto (collectively, the "Banks")
and Bank of America, National Association (formerly known as Bank of America
National Trust and Savings Association), as letter of credit administrator and
as agent (the "Agent"), The Bank of New York, as co-agent, Deutsche Bank AG, as
co-agent, Dresdner Bank AG, New York Branch as co-agent and Fleet National Bank,
as co-agent. Terms defined in the Credit Agreement are, unless otherwise defined
herein or the context otherwise requires, used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement,
which provides for the Bank to extend certain credit facilities to the Company
from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective as of the date hereof, the Credit
Agreement shall be amended in accordance with Sections 1.1 through 1.10 below.
1.1 Adjusted Asset Value. The definition of "Adjusted Asset Value" in
Section 1.1 is amended to state in its entirety as follows:
Adjusted Asset Value means, without duplication, on any date an amount
equal to the sum of (i) the Fair Market Value of the Investments Pledged by the
Parent or the Company listed in column (a) below multiplied by the factor
specified in column (b) below and (ii) the Fair Market Value of the Investments
Pledged by the Subsidiary Pledgor listed in column (a) below multiplied by the
factor specified in column (b) below multiplied by the Subsidiary Pledgor
Factor:
<PAGE> 2
(a) Type of Pledged Investment (b) Multiplication Factor
- ------------------------------ -------------------------
(i) Cash and Cash Equivalents 1.500
(or the Borrowing Base Factor
then applicable, if less)
(ii) Money Market Mutual Fund Shares 1.470
(or .980 times the Borrowing
Base Factor then applicable,
if such product is less)
(iii) Commercial Paper rated at 1.470
least "A-1" by S&P or "P-1" by Moody's (or .980 times the Borrowing
Base Factor then applicable,
if such product is less)
(iv) Commercial Paper rated "A-2" by 1.425
S&P or "P-2" by Moody's (or .950 times the Borrowing
Base Factor then applicable,
if such product is less)
(v) U.S. Government Mutual Fund Shares 1.425
(or .950 times the Borrowing
Base Factor then applicable,
if such product is less)
(vi) Securities issued or directly 1.450
and fully guaranteed or insured by (or .967 times the Borrowing
the United States of America or any Base Factor then applicable,
agency or instrumentality thereof if such product is less)
(provided that the full faith and
credit of the United States of
America is pledged in support thereof)
(vii) Industry Bonds rated at least 1.400
"AA-" by S&P or "Aa3" by Moody's (or .933 times the Borrowing
Base Factor then applicable,
if such product is less)
(viii) Industry Bonds rated at least 1.380
"A-" (but not higher than "A+") (or .920 times the Borrowing
by S&P or "A3" (but not higher than Base Factor then applicable,
"A1") by Moody's if such product is less)
(ix) Industry Bonds rated at least 1.350
"BBB-" (but not higher than "BBB+") by (or .900 times the Borrowing
S&P or "Baa3" (but not higher than Base Factor then applicable,
"Baa1") by Moody's if such product is less)
(x) Industry Bonds rated at least 1.050
"BB-" (but not higher than "BB+") (or .700 times the Borrowing
by S&P or "Ba3" (but not Base Factor then applicable,
higher than "Ba1") by Moody's if such product is less)
(xi) Industry Bonds rated at least 0.825
"B-" (but not higher than "B+") by (or .550 times the Borrowing
S&P or "B3'" (but not higher Base Factor then applicable,
than "B1") by Moody's if such product is less)
(xii) ABS rated "AAA" by S&P or 1.425
"Aaa" by Moody's (or .950 times the Borrowing
Base Factor then applicable,
if such product is less)
(xiii) MBS (Agency Pass-Throughs 1.350
and Agency CMOs) rated at least (or .900 times the Borrowing
"A" by S&P or "A2" by Moody's Base Factor then applicable,
if such product is less)
(xiv) MBS (Non-Agency CMOs) 1.275
rated at least "A" by S&P (or .850 times the Borrowing
or "A2" by Moody's Base Factor then applicable,
if such product is less)
(xv) Equity Mutual Fund Shares, 1.200
Foreign Equity Mutual Fund Shares, (or .800 times the Borrowing
Bond Mutual Fund Shares and Base Factor then applicable,
High Yield Mutual Fund Shares if such product is less)
2
<PAGE> 3
(a) Type of Pledged Investment (b) Multiplication Factor
- ------------------------------ -------------------------
(xvi) Fund Investments, Managed Accounts, 1.000
Structured Notes and Investment Subsidiaries, the
stock of which is Pledged
Notwithstanding the foregoing, if the total Fair Market Value of any of
the following categories of Pledged Investments exceeds the applicable
percentage of the total Fair Market Value of all Pledged Investments, as set
forth in the table below, the total Fair Market Value of such category shall be
reduced, for the purpose only of the Adjusted Asset Value determination, by the
amount of such excess (with such reduction to be applied as determined by the
Company in any manner consistent with this Agreement):
<TABLE>
<CAPTION>
Type of Percentage of
Pledged Total Fair
Investment Market Value
- ---------- ------------
<S> <C>
I. INDUSTRY BONDS/ HIGH YIELD MUTUAL FUND SHARES
Industry Bonds and High Yield Mutual Fund Shares described in 45%
clauses (viii), (ix), (x), (xi) and (xv) above
Industry Bonds of any single issue described in clauses (vii), (viii) 7.5%
and (ix) above and High Yield Mutual Fund Shares and Bond
Mutual Fund Shares described in clause (xv) above of a particular
portfolio manager
Industry Bonds and High Yield Mutual Fund Shares described in 15%
clauses (x),(xi) and (xv) above
Industry Bonds of any single issue, issuer or Industry described in 3%
clauses (x) and (xi) above
Industry Bonds in any one Industry 10%
Industry Bonds in any three Industries 15%
Industry Bonds in any eight Industries 75%
II. ABS/MBS INVESTMENTS
ABS and MBS Investments described in clauses (xii), (xiii) and 30%
(xiv) above
MBS Investments secured by Commercial Mortgages described in 10%
clauses (xiii) and (xiv) above
MBS Investments described in clause (xiv) above 15%
ABS and MBS Investments of any single issue described in clauses 7.5%
(xii) and (xiii) above
MBS Investments of any single issuer described in clause (xiv) 7.5%
above
MBS Investments of any single issue described in clause (xiv) 5%
above
</TABLE>
3
<PAGE> 4
III. EQUITY MUTUAL FUND SHARES/FOREIGN EQUITY MUTUAL FUND
SHARES
<TABLE>
<CAPTION>
<S> <C>
Equity Mutual Fund Shares and Foreign Equity Mutual Fund 25%
Shares described in clause (xv) above
Foreign Equity Mutual Fund Shares described in clause (xv) above 20%
Equity Mutual Fund Shares described in clause (xv) above of a 7.5%
particular portfolio manager
</TABLE>
Notwithstanding the foregoing, to the extent that the Fair
Market Value of Pledged Fund Investments described in clause (xvi)
above which pursue the same Strategy or group of Strategies exceeds the
maximum Fair Market Value contained in any of the following Strategy
concentration limits, the total Fair Market Value of such Pledged Fund
Investments shall without duplication be reduced, for purposes only of
determining the Adjusted Asset Value, by the amount of such excess: (i)
the Fair Market Value of the Pledged Fund Investments which pursue the
same Strategy in excess of 25% of the Fair Market Value of all Pledged
Investments; (ii) the Fair Market Value of the Pledged Fund Investments
in the Sector Long/Short, Statistical Arbitrage, Fixed Income
Arbitrage, and Convertible Securities Arbitrage and Other Strategies in
excess of 40% of the Fair Market Value of all Pledged Investments; and
(iii) the Fair Market Value of the Pledged Fund Investments which
pursue the four Strategies having the largest Fair Market Value of the
Pledged Fund Investment in excess of 80% of the Fair Market Value of
all Pledged Investments. Any such reduction shall be applied as
determined by the Company in any manner consistent with this Agreement.
Notwithstanding the foregoing, the Pledged MBS Investments
described in clauses (xiii) and (xiv) above shall be limited to TACs,
PACs and Sequentials, as defined by Bloomberg and shall not include
IO's, IOettes, PO's, Subordinated Z's and Support Tranches, as defined
by Bloomberg. The weighted average duration of such Pledged MBS
Investments shall be less than or equal to seven years. The maximum
weighted average life of any single Pledged MBS Investment shall not
exceed twelve years. To the extent the Pledged MBS Investments
described in clauses (xiii) and (xiv) above violate the restrictions
set forth in this paragraph, the Fair Market Value of such Pledged MBS
Investments shall be excluded for the purposes of determining the
Adjusted Asset Value; provided, however, that if one or more Pledged
MBS Investments can be excluded for such purposes and thereby permit
compliance with the aforementioned weighted average duration
requirement to be satisfied, only the Pledged MBS Investments having
the lowest aggregate Fair Market Value whose exclusion will result in
compliance shall be excluded for the purposes of determining the
Adjusted Asset Value.
1.2 Cash Equivalents. The definition of "Cash Equivalents" in
Section 1.1 of the Credit Agreement is amended to state in its entirety
as follows:
"Cash Equivalents means (a) securities with maturities of six
(6) months or less from the date of acquisition issued or fully
guaranteed or insured by the United States Government or any agency
thereof, (b) certificates of deposit, Eurodollar time deposits,
4
<PAGE> 5
overnight bank deposits, bankers' acceptances and repurchase agreements
of any Bank or any other financial institution whose unsecured
long-term debt obligations are rated at least BBB- by S&P's or Baa3 by
Moody's having maturities of six months or less from the date of
acquisition, and (c) with respect to the Company, amounts owed by any
Fund to the Company (i) arising in connection with the Company's
redemption of all or any part of the related Fund Investment and (ii)
as reflected on the Company's balance sheet (net of any related
reserve) determined pursuant to GAAP."
1.3 Change of Control. The definition of "Change of Control" in Section
1.1 of the Credit Agreement is amended to state in its entirety as follows:
(a) with respect to the Company, the failure by the Parent to own,
beneficially and of record, 100% of each class of common stock of the Company;
(b) with respect to the Subsidiary Pledgor, the failure by the Company
and a Related Party to own, beneficially and of record, 100% of each class of
membership interests of the Subsidiary Pledgor;
(c) Robert Rosenkranz or any other Standby Purchaser shall sell,
transfer or otherwise dispose of any shares of common stock of the Parent, if
upon such disposition the value of the stock held by Robert Rosenkranz and the
other Standby Purchasers in the aggregate shall be less than $5,000,000;
(d) any Person shall own greater voting power in the Parent than Robert
Rosenkranz and members of management of the Parent; or
(e) Robert Rosenkranz, an entity directly or indirectly beneficially
owned by Robert Rosenkranz and, if applicable, one or more Related Parties of
the Company, or a Related Party of the Company shall cease to act as investment
advisor to the Company or the Subsidiary Pledgor.
1.4 Fair Market Value. The definition of "Fair Market Value" in Section
1.1 of the Credit Agreement is amended to state in its entirety as follows:
"Fair Market Value shall mean (a) with respect to any publicly-traded
security (other than those set forth in clause (b)) the closing price
for such security on the largest exchange on which such security is
traded (or if not traded on an exchange, then the average of the
closing bid and ask prices quoted over-the-counter) on the date of the
determination (as such prices are reported in The Wall Street Journal
(Midwest Edition) or if not so reported, in any nationally recognized
financial journal or newspaper), (b) with respect to any Fund
Investment, other than a Managed Account, on any date of calculation,
the amount that would be received with respect thereto if the entire
amount of the applicable capital or other similar account relating
thereto were withdrawn on
5
<PAGE> 6
such date (regardless of whether a contractual right exists to make any
withdrawal on such date), (c) with respect to Cash and Cash Equivalents, the
amounts thereof, (d) with respect to Bond Mutual Fund Shares, U.S. Equity Mutual
Fund Shares, Foreign Equity Mutual Fund Shares, High Yield Mutual Fund Shares,
Money Market Mutual Fund Shares and U.S. Government Mutual Fund Shares, the
closing net asset value per share provided by the issuer of the applicable
shares on the date of determination and (e) with respect to any Investment
(other than those forth in clauses (a), (b), and (d)), the price for such
Investment on the date of calculation obtained from a generally recognized
source approved by the Agent or the most recent bid quotation from such approved
source (or, if no generally recognized source exists as to a particular
Investment, any other source specified by the Company to which the Agent does
not reasonably object). The Fair Market Value of a Managed Account shall equal
the sum of the value of the different kinds of Investments held therein less the
amount of any Indebtedness secured by the assets of, or otherwise financing
assets in, any Managed Account. The Fair Market Value of any Structured Note
shall equal the sum of the value of the different kinds of Investments held by
the issuers of such Structured Notes. The Fair Market Value of an Investment
Subsidiary shall equal the Fair Market Value of the Managed Accounts, Cash
Equivalents and Cash held by it.
1.5 Interim Borrowing Base. The definition of "Interim Borrowing Base"
in Section 1.1 of the Credit Agreement is amended to state in its entirety as
follows:
Interim Borrowing Base means, on any date, an amount equal to the
result of (a) the Adjusted Asset Value divided by (b) the Borrowing
Base Factor; provided, however, that for the purpose of the calculation
of the Interim Borrowing Base only, the assets described in clause
(xvi) of the definition of "Adjusted Asset Value" shall be divided by
1.35 instead of by the Borrowing Base Factor.
1.6 Additional Definitions. The following definitions are added to
Section 1.1 of the Credit Agreement in proper alphabetical order:
ABS means any fixed-income instrument that entitles the holder of, or
beneficial owner under, the instrument to the whole or any part of the
rights or entitlements of a holder of a receivable or other asset and
any other rights or entitlements in respect of a pool of receivables or
other assets or any money payable by obligors under those receivables
or other assets (whether or not the money is payable to the holder of,
or beneficial owner under, the instrument on the same terms and
conditions as under the receivables or other assets) in relation to
receivables or other assets; provided however, such receivables or
assets shall be limited to automobile loans, credit card receivables
and home equity loans.
Bond Mutual Fund Shares means shares (including shares held in a
brokerage account) in an open-end diversified investment
6
<PAGE> 7
company registered under the Investment Company Act of 1940, as
amended, the investment objective of which is to invest its assets in
investment grade debt securities more than 50% of which are issued by
companies organized in the United States and none of the assets for any
such company are Emerging Market Securities.
Commercial Mortgage means a mortgage related to properties utilized to
conduct business operations rather than residential properties.
Emerging Market Securities means securities issued by entities
organized in nations not named by Morningstar Inc. on its list of
developed markets, as in effect from time to time. The Company agrees
to give prompt written notice to the Agent in the event that this
definition requires it to take into account, for purposes of any
calculation under this Agreement, any addition to, or subtraction from,
Morningstar Inc.'s list of developed markets that is made subsequent to
the date of this Agreement.
Foreign Equity Mutual Fund Shares means shares (including shares held
in a brokerage account) in an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended, the
investment objective of which is to invest its assets primarily in
equity securities issued by companies organized in or outside the
United States (including Emerging Market Securities); provided that
Emerging Market Securities shall not constitute more than 35% of any
such investment company's asset portfolio determined based on the
complete statement of net assets most recently made publicly available
by the Company.
High Yield Mutual Fund Shares means shares (including shares held in a
brokerage account) in an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended, the
investment objective of which is to invest primarily in non-investment
grade bonds issued by companies organized in the United States.
Industry means any sector described on Schedule 1.1C hereto.
Industry Bonds means bonds issued by corporations; provided however
that Emerging Market Securities shall not be Industry Bonds.
MBS (Agency Pass-Through) means any instrument, issued by the Federal
National Mortgage Association, the Government National
7
<PAGE> 8
Mortgage Association or the Federal Home Loan Mortgage Corporation,
that entitles the holder of, or beneficial owner under, the instrument
to the whole or any part of the rights or entitlements of a mortgagee
and any other rights or entitlements in respect of a pool of mortgages
or any money payable by mortgagors under those mortgages in relation to
real estate mortgages, and the money payable to the holder of, or
beneficial owner under, the instrument is based on actual or scheduled
payments on the underlying mortgages.
MBS (Agency CMOs) means collateralized mortgage obligations or real
estate mortgage investment conduit pass through securities, in any case
issued by the Federal National Mortgage Association, the Government
National Mortgage Association or the Federal Home Loan Mortgage
Corporation.
MBS (Non-Agency CMOs) means collateralized mortgage obligations or real
estate mortgage investment conduit pass through securities, not issued
by the Federal National Mortgage Association, the Government National
Mortgage Association or the Federal Home Loan Mortgage Corporation.
Money Market Mutual Fund Shares means shares (including shares held in
a brokerage account) in an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended, the
investment objective of which is to invest in Cash, Cash Equivalents
(other than the amounts referenced in clause (d) of the definition
thereof) and similar instruments and which seeks to maintain a constant
net asset value of $1.00 per share.
Subsidiary Pledgor Factor means the fraction (expressed as a decimal)
of all classes of membership interests of the Subsidiary Pledgor owned
by the Company.
U.S. Equity Mutual Fund Shares means shares (including shares held in a
brokerage account) in an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended, the
investment objective of which is to invest its assets in equity
securities more than 50% of which are issued by companies organized in
the United States and not more than 25% of which assets for any such
company, determined based on the complete statement of net assets most
recently made publicly available by the Company, are Emerging Market
Securities.
8
<PAGE> 9
U.S. Government Mutual Fund Shares means shares (including shares held
in a brokerage account) in an open-end diversified investment company
registered under the Investment Company Act of 1940, the investment
objective of which is to invest primarily in fixed income securities
issued or guaranteed by the United States, its agencies and
instrumentalities.
1.7 Investments Available for Withdrawal. Section 7.13 of the Credit
Agreement is hereby amended to state in its entirety as follows:
"7.13 Investments Available for Withdrawal. The Company shall not
permit the aggregate Fair Market Value of all Investments Pledged by the
Company, the Parent and the Subsidiary Pledgor and Investments made by a Pledged
Investment Subsidiary on any day which are available for withdrawal, sale or use
by the Parent, the Company, the Subsidiary Pledgor or the Pledged Investment
Subsidiary, as the case may be, (i) on at least a quarterly basis to be less
than 65% of the aggregate Fair Market Value of all Investments Pledged by the
Company, the Parent and the Subsidiary Pledgor or owned by a Pledged Investment
Subsidiary on such day, and (ii) on an immediate basis to be less than 4% of the
aggregate Fair Market Value of all Investments Pledged by the Company, the
Parent and the Subsidiary Pledgor and Investments owned by a Pledged Investment
Subsidiary on such day; provided, however, that if said Investments are less
than said 65% limit solely because of appreciation, the Company shall not be in
violation of this Section 7.13 if (i) all Investments thereafter Pledged by the
Company, the Parent or the Subsidiary Pledgor to the Agent or made by a Pledged
Investment Subsidiary are subject to withdrawal on at least a quarterly basis
until the Company, the Parent, the Subsidiary Pledgor and the Pledged Investment
Subsidiary shall be in compliance with such limit, (ii) no Investments so
Pledged subject to such quarterly or more frequent withdrawal are withdrawn or
have been withdrawn during the quarter in which the limit was exceeded until the
Company, Parent, the Subsidiary Pledgor and Investment Subsidiary are in
compliance and (iii) the Company, the Parent and the Subsidiary Pledgor shall be
in compliance with such limit at the end of each fiscal year. For the purpose of
this covenant, all Investments held by issuers of Structured Notes shall be
treated as if held by the Company."
1.8 Deletion of Section 7.14 and Section 7.15. Sections 7.14 and 7.15
of the Credit Agreement are hereby deleted in their entirety.
1.9 Schedule 1.1B, Exhibit A and Exhibit B. Schedule 1.1B, Exhibit A and
Exhibit B of the Credit Agreement are hereby amended and restated in their
entirety to read as set forth on Schedule 1.1B, Exhibit A and Exhibit B hereof,
respectively.
1.10 Addition of Schedule 1.1C. Schedule 1.1C attached hereto is added
as Schedule 1.1C to the Credit Agreement.
9
<PAGE> 10
SECTION 2 CONDITIONS PRECEDENT. This Amendment shall become effective as
of the date hereof when each of the conditions precedent set forth in this
Section 2 shall have been satisfied, and notice thereof shall have been given by
the Agent to the Company and the Banks.
2.1 Receipt of Documents. The Agent shall have received all of the
following documents duly executed, dated the date hereof or such other date as
shall be acceptable to the Agent, and in form and substance satisfactory to the
Agent:
(a) Amendment. This Amendment, duly executed by the Company, the Agent
and the Required Banks.
(b) Secretary's Certificate. A certificate of the Secretary or an
Assistant Secretary of the Company, as to (i) resolutions of the executive
committee of the Company then in full force and effect authorizing the
execution, delivery and performance of this Amendment and each other document
described herein, and (ii) the incumbency and signatures of those officers of
the Company authorized to act with respect to this Amendment and each other
document described herein.
(c) Opinion of Counsel. An opinion, addressed to the Agent and the
Banks, from Conyers Dill & Pearman, counsel to the Company in form satisfactory
to the Agent.
(d) Consent. A consent of the Parent and the Subsidiary Pledgor in the
form attached hereto.
(e) Fees. Evidence of payment by the Company of all fees payable under
the letter agreement between the Company and the Agent dated as of March 16,
2000.
2.2 Compliance with Warranties, No Default, etc. Both before and after
giving effect to the effectiveness of this Amendment, the following statements
by the Company shall be true and correct (and the Company, by its execution of
this Amendment, hereby represents and warrants to the Agent and each Bank that
such statements are true and correct as at such times):
(a) the representations and warranties set forth in Article V of the
Credit Agreement, as hereby amended, shall be true and correct with the same
effect as if then made (unless stated to relate solely to an earlier date, in
which case such representations and warranties shall be true and correct as of
such earlier date); and
(b) no Event of Default or Unmatured Event of Default shall have then
occurred and be continuing.
2.3 Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by or on behalf of the Company or the Subsidiary Pledgor shall
be satisfactory in form and substance to the Agent and its counsel; and the
Agent and its counsel shall have received all
10
<PAGE> 11
information, approvals, opinions, documents or instruments as the Agent or its
counsel may reasonably request.
SECTION 3 REPRESENTATIONS AND WARRANTIES. To induce the Banks and the
Agent to enter into this Amendment, the Company hereby represents and warrants
to the Agent and each Bank as follows:
3.1 Due Authorization, Non-Contravention, etc. The execution, delivery
and performance by the Borrower of this Amendment are within the Company's
powers, as applicable, have been duly authorized by all necessary action, and do
not
(a) contravene the Company's Organization Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or
affecting the Company; or
(c) result in, or require the creation or imposition of, any
Lien on any of the Company's properties except for the benefit of the
Agent and the Banks.
3.2 Government Approval, Regulation, etc. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or other Person is required for the due execution, delivery
or performance by the Company of this Amendment.
3.3 Validity, etc. This Amendment constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with their
respective terms.
SECTION 4 MISCELLANEOUS.
4.1 Continuing Effectiveness, etc. This Amendment shall be deemed to be
an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, shall remain in full force and effect and is hereby ratified, approved
and confirmed in each and every respect. After the effectiveness of this
Amendment in accordance with its terms, all references to the Credit Agreement
in the Loan Documents or in any other document, instrument, agreement or writing
shall be deemed to refer to the Credit Agreement as amended hereby.
4.2 Payment of Costs and Expenses. The Company agrees to pay on demand
all reasonable expenses of the Agent (including the reasonable fees and
out-of-pocket expenses of counsel to the Agent) in connection with the
negotiation, preparation, execution and delivery of this Amendment.
4.3 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such provision and such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
11
<PAGE> 12
provisions of this Amendment or affecting the validity or enforceability of
such provision in any
other jurisdiction.
4.4 Headings. The various headings of this Amendment are inserted for
convenience only and shall not affect the meaning or interpretation of this
Amendment or any provisions hereof.
4.5 Execution in Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
4.6 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
4.7 Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ORACLE REINSURANCE COMPANY, LTD.
By:
-------------------------------
Title:
-------------------------------
S-1
<PAGE> 14
BANK OF AMERICA, National Association,
as Agent, L/C Administrator, Fronting
Bank and a Bank
By:
-------------------------------
Title:
-------------------------------
S-2
<PAGE> 15
THE BANK OF NEW YORK, as Co-Agent and as a
Bank
By:
-------------------------------
Title:
-------------------------------
S-3
<PAGE> 16
DEUTSCHE BANK AG, New York and/or Cayman
Islands Branches, as Co-Agent and as a Bank
By:
-------------------------------
Title:
-------------------------------
By:
-------------------------------
Title:
-------------------------------
S-4
<PAGE> 17
DRESDNER BANK AG, New York Branch and
Grand Cayman Branch, as Co-Agent and as a Bank
By:
-------------------------------
Title:
-------------------------------
By:
-------------------------------
Title:
-------------------------------
S-5
<PAGE> 18
FLEET NATIONAL BANK, as Co-Agent and as a
Bank
By:
-------------------------------
Title:
-------------------------------
S-6
<PAGE> 19
THE BANK OF BERMUDA LTD., as a Bank
By:
-------------------------------
Title:
-------------------------------
S-7
<PAGE> 20
AGREEMENT AND CONSENT
The undersigned hereby agree and consent to the terms and provisions of
the foregoing Second Amendment to Credit Agreement, and agree that the Loan
Documents executed by the undersigned shall remain in full force and effect
notwithstanding the provisions of the foregoing Second Amendment to Credit
Agreement.
Dated: March , 2000
DELPHI INTERNATIONAL LTD.
By:
-------------------------------
Title:
-------------------------------
INMAN PARTNERS LLC
By: Chestnut Investors II,Inc.,
its Managing Member
By:
-------------------------------
Title:
-------------------------------
<PAGE> 21
SCHEDULE 1.1B
STRATEGIES
Strategy General Description
- -------- -------------------
Hedged Equity The purchase and sale (short) of securities
in portfolios which tend to have a low
correlation to the U.S. stock market. In
general, managers of Funds in this category
will have a correlation with the S&P 500
stock index of less than .4, indicating that
historically, less than 16% of their
performance can be explained by the
fluctuations of the market.
Specialized Trading/ Investing in common stock and other
Common Stocks instruments, selling short and opportunistic
trading. In general, the portfolio tend to
be more highly correlated to the U.S. stock
market than hedged equity portfolios. Some
managers are growth oriented, or value
investors while others are opportunistic
traders and investors.
Short Selling Selling securities prior to their purchase
by borrowing the shares from a broker in
anticipation of being able to purchase the
securities at a later date at a lower price.
Risk Arbitrage The purchase of securities which are
expected to become the subject of tender
offers, exchange offers or mergers or other
types of corporate reorganizations and then
tendering these securities for cash or other
securities. This strategy also includes
special situations and other event-driven
transactions.
Distressed Securities Opportunistic trading in the securities of
distressed companies and countries. This
strategy includes, among others, financially
troubled companies, those in bankruptcy
proceedings, reorganizations or liquidation.
Commodities, Financial Investing, trading and speculating in
Instruments and commodity futures contracts on both domestic
Foreign Currencies and foreign exchanges, forward contracts on
foreign currencies and other commodities,
options on futures contracts and physical
commodities and cash commodities, or other
investments that have a risk-reward profile
of commodity trading.
Foreign Portfolio Investing in common stocks and debt
instruments of non-U.S. issuers.
1
<PAGE> 22
Sector Long/Short The purchase and sale (short) of equities
within specific industries frequently
equally weighted, e.g. banks, utilities.
Statistical Arbitrage Quantative forecasting models following
long/short strategies in individual country
stocks, stock and bond indices, currencies,
etc.
Fixed Income Arbitrage Relative value trading strategies in fixed
income securities. Offsetting positions are
taken to exploit a deviation from the
historical mathematical relation between two
securities.
Convertible Securities The purchase of convertible bonds,
Arbitrage and Other convertible preferred stock, etc. and the
sale (short) of the underlying equity
securities. This strategy also includes
pairs trading and other long/short
strategies.
2
<PAGE> 23
Schedule 1.1C
INDUSTRIES
Aerospace & Defense
Automobiles
Banking, Financing & Real Estate
Broadcasting and Media
Buildings & Materials
Cable
Chemicals
Computers & Electronics
Consumer Products
Energy
Environmental Services
Farming & Agriculture
Food, Beverage & Tabasco
Gaming, Lodging and Restaurants
Healthcare & Pharmaceuticals
Industrial/Manufacturing
Insurance
Leisure & Entertainment
Metals & Mining
Miscellaneous
1
<PAGE> 24
Paper & Forest Products
Retail
Sovereign
Supermarkets and Drug Stores
Telecommunications
Textiles & Furniture
Transportation
Utilities
2
<PAGE> 25
EXHIBIT A
FORM OF BORROWING BASE CERTIFICATE
To: Bank of America, N.A.,
as Agent
231 S. LaSalle St.
Chicago, Illinois 60697
Re: Oracle Reinsurance Company, Ltd.
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of January 27, 1998 (as
amended or otherwise modified from time to time, the "Credit Agreement") among
Oracle Reinsurance Company, Ltd. (the "Company"), various financial institutions
from time to time party thereto (the "Banks"), and Bank of America, N.A.
(formerly known as Bank of America National Trust and Savings Association), as
agent for the Banks (the "Agent"). This certificate (this "Certificate"),
together with supporting calculations attached hereto set forth in reasonable
detail, is delivered to you pursuant to the terms of the Credit Agreement.
Capitalized terms used but not otherwise defined herein and in the Schedule
hereto shall have the same meanings herein as in the Credit Agreement.
We hereby certify and warrant to the Agent and the Banks that at the
close of business on ___________ , _____________ (the "Borrowing Base
Calculation Date"), the Borrowing Base was $______________, computed as set
forth on the schedule attached hereto.
We hereby further certify and warrant to the Agent and the Banks that
the information and computations contained herein are true and correct in all
material respects as of the Borrowing Base Calculation Date.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed and delivered by a Responsible Officer this _____ day of __________,
_____.
ORACLE REINSURANCE COMPANY, LTD.
By:__________________________
Title:_______________________
<PAGE> 26
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
I. Borrowing Base Calculation
"BBF" = Borrowing Base Factor in effect on the date to which this
Certificate relates
"SPF" = Subsidiary Pledgor Factor in effect on the date to which this
Certificate relates
<TABLE>
<CAPTION>
Fair Market Value
Pledged and Included in Adjusted Asset
Type of Pledged Investment Adjusted Asset Value ($)(*) Multiplication Factor (x) Value ($)
- -------------------------- --------------------------- ------------------------- ---------
<S> <C> <C> <C>
Oracle Re/Parent BBF
(i) Cash and Cash Equivalents
(ii) Money Market Mutual Fund Shares .98 x BBF
(iii) Commercial Paper rated "A-1" by S&P
or "P-1" by Moody's .98 x BBF
(iv) Commercial Paper rated "A-2" by S&P
or "P-2" by Moody's .95 x BBF
(v) U.S. Government Mutual Fund Shares .95 x BBF
(vi) U.S. Government Securities .967 x BBF
(vii) Industry Bonds rated at least "AA-"
by S&P or "Aa3" by Moody's .933 x BBF
(viii) Industry Bonds rated at least "A-"
(but not higher than "A+") by S&P or
"A3" (but not higher than "A1") by Moody's .92 x BBF
</TABLE>
- -----------
* After giving effect to any applicable reduction therein pursuant to the
diversification calculations in Section II below
2
<PAGE> 27
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
<TABLE>
<CAPTION>
Fair Market Value
Pledged and Included in Adjusted Asset
Type of Pledged Investment Adjusted Asset Value ($)(*) Multiplication Factor (x) Value($)
- -------------------------- --------------------------- ------------------------- --------
<S> <C> <C> <C>
(ix) Industry Bonds rated at least .90 x BBF
"BBB-" (but not higher
than "BBB+") by S&P or "Baa3" (but not higher
than "Baa1") by Moody's
(x) Industry Bonds rated at least "BB-" 70 x BBF
(but not higher than "BB+") by S&P or "Ba3"
(but not higher than "Ba1") by Moody's
(xi) Industry Bonds rated at least "B-" .55 x BBF
(but not higher than "B+") by S&P
or "B3" (but not higher than "B1")
by Moody's
(xii) ABS rated "AAA" by S&P or "Aaa" by .95 x BBF
Moody's
(xiii) MBS (Agency Pass-Throughs and
Agency CMOs) rated at least "A" by
S&P or "A2" by Moody's .90 x BBF
(xiv) MBS (Non-Agency CMOs) rated "A" by S&P or .85 x BBF
"A2" by Moody's
(xv) Equity Mutual Fund Shares, Foreign Equity Mutual .80 x BBF
Fund Shares, Bond Mutual Fund Shares and High
Yield Mutual Fund Shares
(xvi) Fund Investments, Managed Accounts, Structured 1.0
Notes and Investment Subsidiaries the Stock of
which is pledged
----------------------- ---------
Total - Oracle Re/Parent
======================= ==========
Subsidiary Pledgor
(i) Cash and Cash Equivalents SPF x BBF
</TABLE>
3
<PAGE> 28
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
<TABLE>
<CAPTION>
Fair Market Value
Pledged and Included in Adjusted Asset
Type of Pledged Investment Adjusted Asset Value ($)(*) Multiplication Factor (x) Value($)
- -------------------------- --------------------------- ------------------------- --------
<S> <C> <C> <C>
(ii) Money Market Mutual Fund Shares SPF x. 98 x BBF
(iii) Commercial Paper rated "A-1" by S&P
or "P-1" by Moody's SPF x. 98 x BBF
(iv) Commercial Paper rated "A-2" by S&P
or "P-2" by Moody's SPF x .95 x BBF
(v) U.S. Government Mutual Fund Shares SPF x .95 x BBF
(vi) U.S. Government Securities SPF x .967 x BBF
(vii) Industry Bonds rated at least "AA-" SPF x .933 x BBF
by S&P or "Aa3" by Moody's
(viii) Industry Bonds rated at least "A-" SPF x .92 x BBF
(but not higher than "A+") by S&P or
"A3" (but not higher than "A1") by Moody's
(ix) Industry Bonds rated at least "BBB-" SPF x .90 x BBF
(but not higher than "BBB+") by S&P or
"Baa3" (but not higher than "Baa1") by Moody's
(x) Industry Bonds rated at least "BB-" SPF x .70 x BBF
(but not higher than "BB+") by S&P
or "Ba3" (but not higher than
"Ba1") by Moody's
(xi) Industry Bonds rated at least "B-" SPF x .55 x BBF
(but not higher than "B+") by S&P
or "B3" (but not higher than "Ba1")
by Moody's
</TABLE>
4
<PAGE> 29
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
<TABLE>
<CAPTION>
Fair Market Value
Pledged and Included in Adjusted Asset
Type of Pledged Investment Adjusted Asset Value ($)(*) Multiplication Factor (x) Value($)
- -------------------------- --------------------------- ------------------------- --------
<S> <C> <C> <C>
(xii) ABS rated "AAA" by S&P SPF x .95 x BBF
or "Aaa" by Moody's
(xiii) MBS (Agency Pass-Throughs and
Agency CMOs) rated at least "A" by
S&P or "A2" by Moody's SPF x. 90 x BBF
(xiv) MBS (Non-Agency CMOs) rated "A" by S&P or SPF x .85 x BBF
"A2" by Moody's
(xv) Equity Mutual Fund Shares, Foreign
Equity Mutual Fund Shares, Bond
Mutual Fund Shares and High Yield
Mutual Fund Shares SPF x .80 x BBF
(xvi) Fund Investments, Managed Accounts,
Structured Notes and Investment
Subsidiaries, the stock of which is
pledged
Total - Subsidiary Pledgor ------------- -------------
============= =============
Grand Total (Sum of Oracle Reinsurance
Company/Parent and Subsidiary Pledgor
Totals) -------------
BBF -------------
Borrowing Base (Grand Total (divided by) BBF) -------------
Outstanding L/C Obligations -------------
</TABLE>
5
<PAGE> 30
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
II. Diversification Calculations
<TABLE>
<CAPTION>
Amount Included
Total Fair Market Percentage of in Determining
Value of Pledged Total Fair Market Maximum Amount of Adjusted Asset
Type of Pledged Investment Investments ($) Value Pledged Percentage Excess ($) Value
- -------------------------- --------------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Industrial Bonds and High Yield
Mutual Fund Shares
Industry Bonds and High Yield 45.0%
Mutual Fund Shares in (viii), (ix),
(x), (xi) and (xv) of
Section I above
Industry Bonds of any single issue 7.5%
included in (vii), (viii) and (ix) of
Section I above and High Yield Mutual
Fund Shares and Bond Fund Shares of a
particular portfolio manager included in
(xv) of Section I above
Industry Bonds and High Yield Mutual 15%
Fund Shares included in (x), (xi) and
(xv) of Section I above
Industry Bonds of any single issue, 3%
issuer or Industry included in (x)
and (xi) of Section I above
Industry Bonds in any one Industry included 10%
in (vii) through (xi) of Section I above
Industry Bonds in any three Industries 15%
included in (vii) through (xi) of Section I
above
Industry Bonds in any eight Industries 75%
included in (vii) through (xi) of Section I
above
</TABLE>
6
<PAGE> 31
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
<TABLE>
<CAPTION>
Amount Included
Total Fair Market Percentage of In Determining
Value of Pledged Total Fair Market Maximum Amount of Adjusted Asset
Type of Pledged Investment Investments ($) Value Pledged Percentage Excess ($) Value
- -------------------------- --------------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
ABS/MBS Investments
ABS and MBS Investments described
in (xii), (xiii) and (xiv) of
Section I above 30%
MBS Investments included in (xiii)
and (xiv) which are secured by
Commercial Mortgages included in (vii)
through (xi) of Section I above 10%
MBS Investments included in (xiv) of
Section I above 15%
ABS and MBS Investments of any single
issue included in (xii) and (xiii) of
Section I above 7.5%
MBS Investments of any single issuer
included in (xiv) of Section I above 7.5%
MBS Investment of any single issue
included in (xiv) of Section I above 5%
Equity Mutual Fund Shares/Foreign
Equity
Mutual Fund Shares
Equity Mutual Fund Shares and Foreign
Equity
Mutual Fund Shares included in (xv)
of Section I above 25%
Foreign Equity Mutual Fund Shares
included in (xv) of Section I above 20%
Equity Mutual Fund Shares included in
(xv) of a particular portfolio manager
of Section I above 7.5%
</TABLE>
7
<PAGE> 32
Oracle Reinsurance Company
Schedule to Borrowing Base Certificate
<TABLE>
<CAPTION>
Amount Included
Total Fair Market Percentage of In Determining
Value of Pledged Total Fair Market Maximum Amount of Adjusted Asset
Type of Pledged Investment Investments ($) Value Pledged Percentage Excess ($) Value
- -------------------------- --------------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Investment Strategies of Funds
included in (xvi) of Section I above
Largest Strategy 25.0%
Second Largest Strategy 25.0%
Third Largest Strategy 25.0%
Fourth Largest Strategy 25.0%
Aggregate of Four Largest Strategies 80.0%
Sector Long/Short, Statistical Arbitrage, Fixed 40.0%
Income Arbitrage and Convertible Securities
Arbitrage and Other Strategies
</TABLE>
8
<PAGE> 33
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
To: Bank of America, N.A., as Agent, and the Banks which are party to the
Credit Agreement referred to below
Reference is made to the Credit Agreement dated as of January 27, 1998 (as
amended or otherwise modified from time to time, the "Credit Agreement") among
Oracle Reinsurance Company, Ltd. (the "Company"), various financial institutions
from time to time party thereto (the "Banks"), and Bank of America, N.A.
(formerly known as Bank of America National Trust and Savings Association), as a
Bank and as agent for the Banks (the "Agent"). Terms used but not otherwise
defined herein are used herein as defined in the Credit Agreement.
I. Reports. Enclosed herewith [is] [are] [(i)] a copy of the [annual
audited/quarterly] report of the Company as at ___________________,
__________ (the "Computation Date"), which report fairly presents in all
material respects the financial condition and results of operations
[(subject to normal year-end adjustments)] of the Company as of the
Computation Date and has been prepared in accordance with GAAP consistently
applied [and (ii) a copy of the Annual Statement of the Company as at the
Computation Date which Annual Statement is complete and correct and present
fairly in accordance with SAP the financial position of the Company for the
fiscal year then ended.].
II. Financial Tests. The Company hereby certifies and warrants to you that the
following is a true and correct computation as at the Computation Date of
the following ratios and/or financial restrictions contained in the Credit
Agreement:
[FOR EACH QUARTERLY REPORT AND ANNUAL REPORT]
A. Section 7.12 Statutory Surplus
(1) Company's Statutory Surplus $
-----------------
(2) Parent's Net Worth $
-----------------
(3) Item 1 plus Item 2 $
-----------------
(4) Required Total $40,000,000
-----------------
[If Item 3 is less than Item 4 but greater than or equal to $35,000,000, then
Item 3 must be greater than Item 4 within 45 days]
1
<PAGE> 34
B. Section 7.13 Investments Available for Withdrawal
<TABLE>
<S> <C>
(1) Aggregate Fair Market Value of Investments $
Pledged by Company, Parent and the Subsidiary ------------------
Pledgor plus aggregate Fair Market Value of
Investments owned by Pledged Investment
Subsidiaries
(2) Aggregate Fair Market Value of Investments $
included in Item 1 which are available for -----------------
withdrawal on a quarterly or more frequent
basis
(3) Minimum amount required to be available for $
quarterly or more frequent withdrawal -----------------
(65% of Item 1)
(4) Aggregate Fair Market Value of Investments $
included in Item 1 which are available for -----------------
immediate withdrawal
(5) Minimum amount required to be available for $
immediate withdrawal (4% of Item 1) -----------------
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31,2000 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE PERIOD TO MARCH 31,2000 (UNAUDITED)AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 91,524,719
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,515,900
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 128,978,767
<CASH> 16,928,764
<RECOVER-REINSURE> 13,420,343
<DEFERRED-ACQUISITION> 972,310
<TOTAL-ASSETS> 165,471,226
<POLICY-LOSSES> 110,815,718
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 34,234,983
0
1,000
<COMMON> 40,790
<OTHER-SE> 15,053,338
<TOTAL-LIABILITY-AND-EQUITY> 165,471,226
0
<INVESTMENT-INCOME> 6,669,666
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 7,168
<BENEFITS> 1,182,624
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 811,816
<INCOME-PRETAX> 3,318,096
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,318,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,318,096
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.76
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
